Surveillance: Stock Volatility with Calvasina

Laura saw your likes nowe and I think it's an important one to address. Can you establish a major bottom before we've seen the big EPs forecast cuts? The truth of the matter, John you is and I keep getting that.

I keep I keep getting that question from clients. And it's not only that you can get the market bottom while earnings estimates are coming down, but if you go back and you look at major periods of stress like the tech bubble, like like only sixteen industrial recession, that is often the case that the stock market puts on the bottom several months while before you actually flip back

into positive revision territory. So I'm not sitting here telling you that reducing earnings estimates further isn't going to be a headwind for the market. I think that it is, But in my mind it's something that causes us to merely retest the June lows, maybe check another swing low at them. But I think we probably did put the low for the cycle in place in June. Were sentiment

this morning. So someone asked me this question last week and I said, you know, percent of the people I talked to are still barish, about fifteen per cent or bullish. It did feel like, you know, maybe over the last couple of weeks that bullish cohort grew from about five to fifteen percent. But if you look at the CFTC data and just want to get the quantitative read, I think that sentiment and NAZDAC has become euphoric again. Futures positioning is getting close to the highs that we've seen

in recent years. But if you look at something like small cap, the DAL futures, or even SMP futures, we are still very much in the early days of recovering off of an extreme low in the case of small cap, in the Dow off of new lows that were below PAN or below a great financial crisis lows. So I

think it's a bit of a mix. I think there are some pockets of euphoria, but I do think overall positioning has still been pretty depressed, and sentiment reflects that Lorie was going to drive small caps higher at a time when you see consumer sentiment falling off a cliff and consumer spending, while still resilient, showing signs of weakening pretty much across the board. So I think the issue with small caps is that they have very clearly banked in a recession at this point in time, We've gone

through a bunch of the numbers. UM. What we have seen essentially is that if you look at small caps against jobless claims, they're already baking in a pretty big spike from here. Even with the recent move that we've seen up in small cap recently, small caps are also baking in a trough like move, a plunge really in I S N manufacturing that hasn't happened yet, it's probably coming.

It is baked into the small cap stocks UM. But I think the other issue that we see is that historically, long term investors know that recessions are usually good buying opportunities for small cap. They sniff out the pain early on, they sniff out the recovery early on, and at the end of the day, small cap is really, I think the one part of the market that has clearly baked

in an economic downturn. Glauria, over my break, I was thinking a lot about the talk about re shoring or on shoring a lot of manufacturing from China from Asia in response to some of the supply chain disruptions. Is this more talk than action? Are you actually seeing this

on the ground with small caps? So I don't think we're seeing it in a massive way yet, but I will tell you Lisa and my recent travels with investors, that issue is something that small cap portfolio managers are highly engaged on and highly focused on, particularly when it comes to the industrial sector. And there is a view out there from professional money manners who specialize in this space. But that will ultimately be a good thing for the

small cap industrial stocks. It may ultimately be challenging for margins for the bigger cap companies um, but there is a view that this is something that's going to be a tail one for the small cap space and hasn't really played out yet. Laurie, I've got you at forty two hundred year end on the SMP five hundred. I've got the market on Friday at the close at what

now what you tell clients? So look, I think that the argument that valuations are too high right now, I think that's kind of a thin argument for saying we got to peek out right now. I do think it's a concerning data point. It reigns in my enthusiasm through the end of the year. We're close to twenty times

my numbers for next year and this year. Um, But I do think that you know, these are year in targets, John, We're trying to guess where the market is going to be on December thirty one, not high it's gonna achieve this year. So I do think that we're setting up for further volatility in the very short term, especially if we get favorable messages at the end of the week from Powell. I could see this thing going just a little bit longer, just based on how low and extreme

the positioning has been. But I do think if we're being intellectually honest, we have to set up for some choppiness and volatility through the end of the year. Laurie awesome as always, Laurie Cavastin and that of obvious capital markets. Right now we get a voice on China. Ian Shepherdson joined us. We could talk fifteen things with the chief economists at Pantheon Macroeconomics, but the duration of his Chinese slowdown is jaw dropping. Ian Shepherdson models out twenty four months.

It's three and five percent, make it four percent China g d P. What does that do I into the labor mandate that Beijing needs and hairs. Yeah, it's a problem. We just cut our China forecast. We just don't see any bottom yet to the real estate disaster. Prices falling, volumes falling, no sign of affix coming through. And it's a huge trunk of the economy. It's been a big engine of growth for the last couple of decades and

it has not found a flaw yet. So it's gonna put real pressure on the labor market, real pressure on the authorities, and I think the bottom line is that they will have to be some substantial policy action from the center from beating because the local authorities who effectively right now are being tasked with dealing with this mess

just don't have the resources. So this entral government, which is resisting eventually it's going to have to fold, is going to have to step in with a lot of public money and try and try and put a floor under the under the problem, because if they don't, they're going to find an economy that is way, way weaker than they want for a very extended period. And that's

a threat. That's a real threat to them, and a threat to the global economy as well, because obviously China is such a big part of global growth, especially through the manufacturing sector. In the ambiguities of inflation Ian Shepherdson, do they export disinflation and deflation, thus making some of the inflation fear cause of the West maybe overrut Yeah, the margin I mean, you know, Chinese inflation PPI inflation, which passes through into Europe and into the US, you know,

is really rolling over, no question about that. But I think it's important to appreciate that the bulk of the inflation shock in the US especially, but but also in Europe, apart from energy in the core, has been through margin expansion in the retail services, say too so that's not really China contingent. That's really been more a story of

booming consumer spending against constraint supply. But you know, right now, central banks everywhere we'll take anything they can get, and if you know, the slow down inflation in China gives them a little bit of room from over that, that's great, but it's not going to be the heart of the of the disinflation story in the US over the next year. And of course Europe is still struggling with the energy inflation shock, which is much bigger and it's likely to

have been much more persistent. So we've still got some really big problems. Let's talk about u K s Whaler and I don't own the rights to that one. And how bad are things going to get in the UK and across Europe for that matter too. Well, Europe's in recession now already. I mean that that's that's pretty obvious. Now we see that lasting for a while, there's easy be still gonna hike because you know, the German influence

on the anti inflation story is very intense. So we're going to get at fifty bids at the next meeting. UK is different. I mean, I think there's a reasonable chance of inflation. Sorry, recession can be averted, but only if the new Prime minis to who presumably will be Liz trust in two weeks time, takes some more drastic action to bail out households from the energy price shock. So now that isn't a promise right now, it's a forecast,

and you know it could be wrong. They might not do it, which would be crazy given the pressure the households are under, and that probably would mean the UK

would end up been recession lated this year. But right now I kind of think the politics pointing towards doing something more aggressive, effectively handing households more money and with a bit of look that will allow the consumer sector to just take over through the second half of the preventory session, but it's going to be a close run thing. And of course the bankming I still gonna be raising right, so there's a real squeeze going on there which is

unlikely to abate anytime soon. So just avoiding recession, that's not the same as the forecast of everything being okay. It isn't and it isn't going to be okay for the foreseeable future in the UK because you know, even if the energy price thing goes away, you've still got the lingering catastrophe that is Brexit, dragging the whole economy down essentially for the foreseeable future. And it's a looking across Europe. Just how love is the bar in Europe?

Can they afford recession? Well, they've got one now. It's it's probably not going to be very deep or very long, though that does depend to some extent on what happens to energy prices. But but they're in in recession already, h and you know, a turnaround probably will come at some point next year, but we've got to get through the worst of it first. So things are a real mess.

There's no growth momentum anywhere in Europe. The only place where I can see any growth momentum coming through before the end of the year is probably in the US, and even there it's going to be patchy because the housing markets are catastrophe. Manufacturing is under pressure from the business is being nervous about energy prices. But it's nowhere

near as bad as it is in Europe. And I think that the US is going to avoid recession quite comfortably, which of course is why markets are getting nervous because and I'm thinking, well, you know, the US isn't going to move into recession and the FED is not yet talking Davis Lee, so we've seen this upper pressure on heels again. You're making me sound rosy. I'm thinking about this.

Housing is a catastrophe. Nothing is positive in Europe. At what point has this been priced in already and at what point is this something that requires a much broader and more drastic repricing of risk acids across the board. Well, that's a good question. I think a lot of this is is priceding. I mean, if you if you're not expecting a recession in Europe now, you probably haven't been paying attention. So I think that that story is pretty well understood. Now. The question is what do we get

out of it? I mean, the problem, the fundamental problem for Europe is that the rising energy prices has made everyone in Europe poorer. There's no way to avoid that. You know, cutting interest rates or pushing money into people's pockets to fiscal policy is just delaying the inevitable and hiding the truth, which is that an energy price shock in an energy consuming region makes everyone poorer and makes the economy weaker and hits corporate earnings, and there's just

no way to avoid this. You can work through it, you can ameliorate some of the worst impacts of that, but you can't get away from the fundamental fact that if you're an energy user and energy prices go up,

your poor. And this is much worse, incontinently than it is in the UK, and it's it's it's much less bad in the US, and it gas prices are are falling very sharply, but Europe at the front and center of this because of Ukraine and because of their energy policy over the last twenty years, and they're going to be paying for it for a long time, and so risk assets in this environment, you know, it's it's very it's very difficult, and it's probably not going to be

a very quick turnaround. And we talk about the United States and how it's in a better situation. A lot of the notes that I've been reading, I've been talking about the inventory glot that a lot of analysts are expecting a company is including big retailers that have ordered too much stuff and that this will be disinflationary heading into your end. How much will this be a disinflationary force. How much will this take some of the pressure off

the FED? Yeah, this is the thing I'm watching more closely than pretty much anything else, because when we had the inventory shortages last year, what we saw was a giant, gantic widening of retailers margins because effectively, people were bidding for whatever imagery they could find, especially in the vehicle market, where retail dealers margins tripled. I mean that that's an official number of retailed auto dealers margins tripled across last year.

Now that leads them at a ridiculously overextended level. So now the auto production is rising because the chips are available again, and now that we've had all this retail imagery arriving on boats over the last six months or so, we are in a position now where that that that enormous margin expansion should reverse and it could easily take two or three, even four percentage points off of core

inflation over the course of the next twelve months. Now, it kind of surprises me that the FED isn't talking about this. I'm sure they know it's going to happen, but but this margin expansion and contraction story, to me, has been the big driver of inflation on the upside and will be the big driver inflation on the down side. Of course, the problem is, you know, for for an investor in in in the consumer sphere, you're looking at retailers Target, Walmart, we've heard all about them facing a

margin squeeze. Are really quite substantial proportions over the course of the next year. But you know, again this from the FATS perspective, this is this is good news because this is what we need to renormalize inflation to get margins back to something that's recognizably normal. It's a long way off, but the return of inventory and the excessive inventory is what's going to bring about that margin compression

and drive inflation down a long way. Can we talk about some almost good news if any football games ended in the fifty four minute Karen trip here putting you up against Manchester City and what a beautiful thing that almost was. Yeah, that's all we get. That's a beautiful thing for when he scored, it was right in front of me, even the stadium. Yesterday's the best date since James is for a long time. You happier? Yeah, yes, yeah, he is. I mean this is a very mott to you. Too,

because I'm going to be in the surveillance now. But advisors signed this game today Liverpool and the other Manchester. Is this like a huge deal or Tom? They lost the first two games of the season Manchester United, and they're going against one of the best teams in a premiership against Liverpool a little bit later. I imagine they're

gonna get crushed based on recent performance. Does the coach go in, Oh, it's a little bit too early for that song, not necessarily bit early, but yeah, bit early. But if it carries on then yeah, it's a mess and awesome to catch up in Cheperdson, Newcastle supporter joining us now. It has been far, far too long. Peter Truber's professor of International Relations and LS and of course with Chatham House and of course an affinity to the University of Texas as well. Professor, thank you, thank you

so much for joining us. What happens after six months in a war? What happens now to the two forces of this war in Ukraine? Tom, I first want to just go on record saying I'm an old time Mets fan, so she exactly what you had to say there, Um, you know, I mean, it's pretty damn clear that this war is going to continue going on. It's a it's

a long slog. I think the thing that caught my attention over the weekend, actually I guess it was announced on Friday, was that Biden was going to send another seven hundred and seventy five million in military aid to two Kiev. And I think the timing of this is is no accident. It's it's it's both symbolic and and

it serves a practical strategic purpose. Um Symbolically, Wednesday is Ukrainian Independence Day, and also, you know, as you're suggesting, is coincidentally the six month mark in a war that I think most analysts I thought it was going to be a romp for Moscow, and so I think in a way this is, you know, the administration is trying to underscore its commitment to Ukraine's security and acknowledge really

Kiev's tenacity in the face of long odds. But I want to pick up something that John began with at the start of this segment, which is recession, because I think the administration's announcement also comes at a time when European financial and political support for the Ukrainian case. I would say it's flagging. I mean, European military commitments have not increased since um April. Arguably they are on a downward trend, and European support for the war is not

as stout as it was in the spring. And partly this is because of concerns about inflation, the price of food, the price of gas that you were talking about in the last segment, but also fears of recession, which are you know, fairly widespread in Europe at this point, Peter how To, is the bombing of in Moscow that killed

Daria Dugina changed the conversation? There was a lot of speculation over the weekend that this could harden the nationalist sentiment and harden it against both Ukraine and the United States. What's your view on how it sort of changes the narrative, you know, I mean speculation about the the attackers and and how Putin is going to respond is rife right

now on Twitter. I'm sure you're following it. I Mean, one thing I think that's pretty clear already from the the attack is that Putin's regime looks a little weaker today than it did before the attack. I mean, whether it was the result of a Ukrainian strike. I doubt it, but that's out there of course, or rivalry within the Kremlin, or domestic resistance to Putin's nationalism. The fact is the

attackers succeeded um and uh. And this is gonna fuel doubts about Putin's ability to guarantee security for those aligned with him. He'll look for some way to strike out, you know, perhaps against Kiev. He has plenty of reasons for doing that this week though, as a interrupt independence day there, but I think this perhaps adds some fuel

to that fire. On the flip side, Peter, there is this discussion, and we heard about President Biden having discussions with a number of the Western allies about reinstating the Iranian nuclear deal, and that's gaining steam and giving some support and the reason why perhaps the oil prices are dipping just to touch at least that's what the narrative. It will tell you how much can that actually replace Russia? Does that further isolate Russia as a pipeline for Europe

going forward? I mean, first of all, I don't think there's going to be an agreement anytime soon. Maybe I end up eating those words, but he's got a lot of people to play Kate inside inside the region, and it's just hard for me to see from a political standpoint, domestic political standpoint, Biden pushing for this before the mid term elections. After the mid term elections, Yeah, you know, then I can see them moving on it. That's not to say there's a lot of interest and push inside

the administration to make this happen. Partly for the reasons that you suggest alternative sources of energy, but I think also because they think it was a mistake fundamentally to undo the agreement that was struck during the Obama years to pay it. Just awesome to catch out with you said this morning, thank you pity tributes that on the latest in Europe you cry in Russia and beyond. He had a big final song the Champions League twenty nine

s Yeah, I was remember that case. You know, as we get prepared for today, we have to remember there was a point where Menu defeated Tottenham. Was one of the worst to I called him Sunday April, I think of eighteen or nineteen. I don't remember any Sanchez was just just killed. Us don't remember any of this. We're gonna beat Chelsea, but we couldn't beat Chelsea. Okay, we're talking about sting, but ultimately we're actually looking forward to a bigger game time at three pm astant time, did

the juring Rochester will be watching in England? He joins us now with a sharp research note from numerous internationals. This is required listening for Global Wall Street. Jordan's I want to know the why right now? The partial differential is the euro weaker or is this just dollar flight? Is witnessed by strong Swiss Frank as well. But I think what Jane Folly was saying before that we came on, it has been been resurprising. How Yeah, Euros three party,

but it has been mostly a dollar story. Euro hasn't underperformed as much as I think it should. I think the FX market is totally mispricing the situation Europe. I mean, credit markets are doing a better job at pricing and the riskless seeing credit spreads widen, but in European equities they essent. You say it's going to be a mild slow down towards average growth in Europe, where every single day we're seeing violet hills. In term of the energy

price spike, it's getting worse. The situation for European energy markets. If you look at the past twenty two days of August today, check the date. I want to say that eighty percent higher energy prices this month alone. And we've been talking about this for months. They were awful before

we got to August. Now eighty percent higher. So if the governments do nothing, the UK household, if they have no subsidies, and we know they will have, but imagine the world where they don't, they'd be spending twenty of their disposal income on energy bills for just turning the lights on heating in their homes. So the situation is a complete rethink of the economic model in the Eurozone, and I'm just it is struggle. It's strange for all of us to see the euro setting off so slowly.

I think it should be much faster. We'll be testing fifty down towards cents in the next few months, so you think maybe get down to ninety five. I guess I would us off the back of that. Jordan, does interest rate policy even matter in this world to this currency, given we're expecting fifty basis points again on September eight, Yeah, there is one central amount that matters, which is the Fed.

If you look at FX, what's been quite strangers. Idiosyncratic stories in Europe and all the detail we can go into have been largely irrelevant. For the past few weeks at least. All you needed to know was what's going to happen in US rates, and you knew where you're a dollar, where cable was going to go. I think in the windsor will be so obvious to everyone there is an extreme recession taking place in Europe that those idiosyncratic factors, this energy story, what's going on for the

European consumer will matter. The other factor taken into account is that it's not just about what the ECB does and what the FED does. You have to take into account of the markets inflation premium. So a lot of questions this morning from clients and investors why is the euro lower when spreads would actually say nominal yield spreads would say, you're a dollar should be higher. Well, it's because there's now a large inflation component in yields of e g B s and UK guilts. You have to

treat it a bit more like an emerging market. Their rates markets are selling off and the currencies are heading lower. That is very different to what we've been used to for the past twenty years. Joinin the fact that you think that the euro is wildly mispriced to the marketers, underplayed. Some of the weakness is in starka divide with what we heard from Ian Shepherdson earlier on the show. He said, if you're not expecting recession in Europe, you haven't been

paying attention. What is the distinguishing feature of why you think there has not been the recognition that you're talking about in the currency markets to date. Well, I think the market has just been looking at the FED and we had that CPI number and the market pricing a Fed Dovish pivot, which kind of has come out the price a little bit. We've seen the rate cuts for last for next year, at one stage of seventy five basis points priced in, that's now eased off quite a

bit more. It's below fifty basis points. I think this morning, essentially the markets are feeling pretty yellow about the Eurozone, but it's only credit that seems to be reflecting it and eventually or feed through the other markets. It happens all the time. Markets are not perfect, they're not always rational, and they just sometimes need to be given the alarm bells such as the ECB. For example, do we really think they're going to keep raising rates next year if

there's blackouts in Germany? So that could leave that could be one of those trigger moments when the lights are literally turned off for German industry or parts of it, where it just becomes unfeasible for euro to keep the levels. It's currently asked if Jordan this race is an important question and I'm not comparing the two situations. I just

look for a candalyst. Back in the pandemic, we all saw this risk brewing and the market was unshaken, unmoved, And I think it was that weekend when Italy shut down that people work up on Monday morning and thought, Wow, this is real. It's coming, and it's probably gonna come to the United States as well. Jording with that in mind, are you thinking of that kind of catalyst, because, like you say, all of this is so obvious, we're setting

it play out. You can see it on the screen, you see it in the numbers, in the price of gas, and yet very calmly, very slowly just sort of breaking down. Again, what's the catalysts you think that's going to lead to the wake up cool. I think you're right there, John, I think the human mind is a part of the reason why it's difficult for marketing prices in We are linear animals. We think in linear terms. Where these energy prices are rising exponentially, it's just really difficult for us

to comprehend the impact of it. There's another aspect to it as well. We do expect that governments will step in. If they don't, they'll be risking civil strife essentially, So there is an aspect of the market which says, don't worry, it is pretty bad in energy, but they're going to

do something about it. On the government side, the point I'm making is when energy prices keep rising in the past twenty two days, it's really difficult for governments to keep up with those sort of moves and supplies the problem and price of the problem. So there's two aspects of that. The trigger could be, John, essentially, when Germany triggers phase free of its gash ration plan. At the moment, it's slowly going to give up the costs to consumer.

We've had some mixed moves from Germany, so we've got an energy levy coming in in October, but they're also cutting v A T, so it's kind offsetting it to some extent. When Phase free comes in, the government actually just needs to do demand destruction and policies literally saying you there, you can't turn on your industrial plant, you

need to turn down your gas usage. When that happens, it becomes much clearer to everyone that the Eurozone will use a lot more imports to help their supply chains continue. Factories will still want to keep producing, keep their jobs, but for certain like products like steel, aluminium, glass, ceramics, plastics, chemicals, and I think that's at the lower end of the supply chain, but very highly energy intensive, or just get imported from America from China where energy is much cheaper,

and that's gonna way on the euro even more. Jordan's got ten seconds price target Manchester United, What are you thinking We're going to be corregation and still Rochester right now? With that question our conversation of the Week on China. Leland Miller is co founder and chief executive officer of China A Book International. More than anyone I know, is wired into the minutia of China. Leland, do you believe

the GDP numbers. Do you believe the new regime under five under four percent three ish g d P. I don't even think we're gonna hit three percent. But it is notable that the data have gotten, the official data have gotten more honest, which is why people are coming around with the idea that, wow, this really is a

very weak economy. Uh, they're they're they're lying on a lot lot less about about the numbers, and so people can actually see how weak consumption is, how weak the property sector is now, how weak every aspect of the entire economy outside exports has been, and even exports now are fading. So, uh, you know, the data, the data aren't great, but what they are signaling is that not only you nowhere near the five percent g d P, I mean, you're you're probably significantly less than half that

at this point, Leland. Are we also seeing how little power the PBOC has to really stimulate an economy that already has got and some stimulus and hasn't really responded absolutely. And you know, the story actually goes back about you know, six to twelve months on this because when we were at the end of beginning two, we actually saw loan demand increase from firms across the country. We saw four

straight months where loan demand was increasing. I think firms were starting to get back into it, maybe because it was a Party Congress year, maybe because they saw something uncertainty going away. But then the COVID lockdowns hit and they they they were strangled through that for several months. And then even when the lockdowns have eased, you've seen, you know, a refusal to get back in it would

borrow and invest and higher. So now that they're dropping rates, you know, had this been done nine months ago, I think you would have had some sort of kick from it. But right now, all they're trying to do is staunch the bleeding. With all of the investors who speak with all of the private sector, how much is there a recognition of the reality that you're telling them, how much is there a recognition of what the ramifications of China's slowed down in a much more in fashion will have

We we have been screaming into the window this. I think people are starting to get this now because the government itself is admitting that the economy is an extraordinarily weak position. But you know, two months ago, four months ago, six months ago, we sit on panels, and people on our left would say there's a big stimulus coming. People

on our right the big recoveries coming. Party Congress year, all the old, all the old platitudes about how the economy would get better simply because of the politics the country dictated it. That's not the world we live in right now. It's not the Chinese economy that we're tracking. So, you know, I think only when the government started to admit that, Look, July got worse than June. Lockdowns are easy, but the economy is getting worse all of a sudden.

A lot of light bulbs going off around the world right now, Leland, I want to talk about an idea that I learned from the engineer, from Leon Jean Claude Triche. He would talk about how you diffuse policy and economics through a system. You diffuse productivity, you diffuse a fiscal impulse. How this Beijing, given their artificial structure, diffuse a large

fiscal plan. How do they actually do that? Well, I think they're gonna have a very hard time doing any type of stimulus, fiscal or otherwise until they until COVID's gone, until COVID zero is gone, and there doesn't seem to be any sign of that happening. You know right now, you know lockdowns are easy, so markets thought, oh, well,

we're going to see a big bounce back. But what firms are telling us on the ground is they don't want to borrow, they don't want invest that now, they don't want to hire, which is something new, because they don't see this COVID zero nightmare ending anytime soon. Unless you convince businesses that things are going to get better,

you convinced consumers that they should be spending. Unless you can convince China people in China rid large that there's that there's an improvement coming and not more lockdowns, you're gonna have a very hard time stimulating the economy, no matter what your vehicle for that is. Meanwhile, I've been focusing on Morning Leland on the drought and the heat wave that's been taking place across the world, and it's having very real ramifications not just on food supply but

in China and industrial output. You're seeing this in Sichuan in particular, with them halting production in certain areas because they want to try to save energy at a time when a lot of people are requiring air conditioning. How much is this smoke screen to cover just a lack of demand and a tack of workers. How much this

something that's very real that will further disrupt manufacturing. Now, I think it's very real, you know, and it's and it should be concerning people a great deal because what has held up the Chinese economy for the last two to three years. It's been big time production. It's been manufacturing, it's been exports, while while everything else has been weak properly, retail at services have just been just been a mess. So what has held the Chinese economy up, It's it's

been this production. Now you're getting hit production on one side from the heat waves that are that are shutting down hydropower production and and and uh causing all kinds of problems from that. And on the other hand you've got a global slow down, so the demand is faltering around the globe. This is very concerning. China has got a lot of problems to worry about right now, not just the normal one two or three of the China bash Book International leading awesome, gotta catch up set as

owis what we're gonna do. Because of the urgency and battle over bulls and bears is keep the baseball talk to a minimum of Douglas cast. We can do this because big series, Mets playing six forty two ball, Yankees playing six or seven ball. Are the Yankees done? Doug? Uh? The market might be done though. Okay, let's switch right

now a little. There's little joy in Mudville. You will probably not be surprised that I'm thinking more about the Massapequa Little League team and Williams Sport than the Bronx. There we go, There we go, and that was good to see Baltimore, Boston. Uh, and honor of all of that, Duck cast, Let's cut to it right now. Why are the Bulls wrong? Well? I'm thinking also, um, as it relates to the market about that great song from the

from the Broadway show Anything Goes Cold? Porter is You're the top Q Tom Keane and his melodious voice, or maybe we should wait for ethel mermon um. But seriously, I think there's a non trivial chance that the SMP early last year made a top for the balance of the year. Um to me after the recent what I described as a position based rally, Brammo talked about that

this morning, which was expected and discussed uh. In my lance interview, risk has returned to risk assets as the fundamental backdrop is eroding at a time in which stocks have rallied traumatically and now we have, as you noted on Friday, a vis at twenty and that position based rally and squeeze is likely over and stocks have to justify for the games based on funds and macro. In my view, the available opportunity set up six weeks ago is likely coming gone, and we have going to see

a hyper team about utility. So um, I think an important one thing that you guys don't mention that much is Tina, and I think Tina is dead. There is now an alternative. In terms of history, the differential between the yield and stocks and the yield of bonds that exists today is uncomfortably wide. The SMP dividend yield has recently fallen from one at a time in which the two year US note we've gone from there at three. Just because of the time, I want Paul to get

in your dug very quickly. Here ben leylor reaffirms his love for the large, big decks, and you know how narrow this bullmarket advance was wrapped around four or five stocks. What does that narrowness signal to you? And that's a real negative, and I think you have to avoid big text.

In fact, we have new two new big texts shortly early last week in Microsoft and Apple UM And we're comptant about the strength that yeah, and we're concerned about this continuing strength of US dollar, which you've noted incessantly this morning, the stickiness inflation and um UM. And one interesting note is that the monthly rate of increase in the p p I has exceeded that of the CPI

for nineteen consecutive months. And this means that corporate profitability, especially high growth tech and profit margins are living on barrow time and are not likely to meet the optimistic consensus expectations. That's something that Ian Shepherdson also discussed this morning. So we see a vulnerability in SMP profits. I would note that only fifty seven percent of the companies that reported in the second quarter have beaten and sells estimates

their sales and profit estimates. Who was over sevent in the previous quarter. And I think one out of every five companies lowered guidance. And if you take out the robust energy profit contribution to second quarter SMP profits overall energy was down three percent. So do we retrace? Do we retest those June lows in SMP? You think? I know, I think that as I said that there's a non trivial chance that we've seen a high for the year. I personally don't think we're going to retest um, but

I am concerned about the the magnitude of the overboard. Paul. Last week, Um, I remember talking to you in June. I was buying when two of the SMP index components traded above their daily fifty day moving average, and last Tuesday that moved to eighty six. And last week was only the thirteenth time in two decades that of industry groups closed above their ten week average. That too, is an extreme overboard. And in the last ten years of data,

no bear market is bottom at not even closed. So I think there's a lot of vulnerability to the downside. There's certainly an unfavorable reward versus risk. So do we just trade this market until we get a better sense of where the feed is going? And it kind of feels like you're talking about, you know, kind of a reasonable trading range, but one that can be traded. I guess I think we're at the high end of the trading range, Paul. That will move towards the lower end,

and I think we'll probably destined to be. Oh, let's say s m P three fifty the balance of the year. Well, let's go to that right now. Sp X four one six off. Mr cass is fifty down negative four points thirty three two nine VIX twenty three point three six. Here's me twenty Yes, I got that right. Yeah, my eyes are glazing over because I'm still worried about Bucky f twenty three point three six. Paul, Doug, what do you think about energy here? I mean, I'm looking at

w t I crude oil below ninety. It kind of feels like we've seen the high in crude, but the stocks have. They certainly had the strong move off the bottom. The people actually talk about the energy space, and we haven't done that in a long time. I actually have just started by O I H, which is the energy E t F, for the first time, um, I think in a decade, and I seek down another three percent. I'll be buying some more this morning. When we get

off the phone. There are a bunch of areas that I like on the long side, although I have a substantial amount of shorts, energy is one of them. The dog will pause here go do go? You trade? Yeah? Come back, I'm kidding, Doug. What can you talk to us in the time we've got left about something? So many of our listeners worldwide and certainly in the East Coast, are just curious about which is the new boom in Florida? What is the character this time of the boom in Florida.

I mean, you were there with Bogard and McCall a few years ago, but what's the character of the boom this time? I would say that the real estate boom boll and Tom is extraordinary. I purchased my house on the on the island of Palm Beach. It is up seventeen X. So what do you do? And who is and who are these people? I mean are do you get the sense? I mean they say that they don't have they're moving from up here, but that'sn't always happened.

But do you think that it's sticky? I mean, aren' they aren't they gonna wake up and say, you know they are the hedge fund guys like me. But the thirty years younger. What's a mistake to hedge fun guys like you thirty years younger making right now? Lisian Saunders had a great chart out today of the mood of alternative investments. What's a different practice now versus when you

were in your ute? UM, Well, I think i've i've I've labored on the transformation of market structure, movement from active money management investing to passive investing, with parity the

popularity and explosion of exchange traded funds. So I think the one mistake, and this is one of the reasons that Sea Breeze why I always average into my loans and shorts, is that market structure changed tend to exaggerate short term moves and no short term moves, by the way, can be weeks or a month, as we saw in um in the polar opposite action in June and July

in the indices. So I think it's important. The mistake to answer your question is to not take a full position at the get go to average in because the market because the market market structure is so different than when I was a kid, a kid Peabody as a housing ANALYSIM was a few years ago duck Cast. Thank you so much, Series partners, and was in there. He is a bit tepid short run the market. This is

the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene, and this is Bloomberg