This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot com, the Bloomberg Terminal and the Bloomberg Business App. Christopher Erwon joins us now had a technical and macro strategy. It's
strtigas it is a Baird company. Christopher own, thank you so much for joining us. Which chart matters right now?
I think there's nothing more important in the world right now in terms of what bon yields do over the next number of weeks here I mean ten years. Yields have been chopping basically since last October. This is going to resolve itself very soon. We're simply running out of real estate on the chart. And think you start pushing above three ninety three ninety five on tens, that's a big deal. I think it's a big deal multiples. I think it's a big deal for the growth value equation.
And Lisa, as you point out very quietly the last week or so, there's been some stalling in tech and I wonder if that's some reflection in where rates go from here. I also think the weakness and utilities might be a reflection of where rates may go from here. And the move in UK has been absolutely explosive. Here you have two year guilts and ten year guildts basically back to where they were when all these revelations about LDI and British pensions were revealed last fall.
Can you judge technically? And I we had a guest yesterday that talked about this.
What we really need to see is the high two year yields come out to a high five year yield. Do you see within the charts of spreads, the charts of an actual single yield where we're going to broaden.
Out these high yields into a higher yield regime.
You know what's interesting we always look at this relationship between twos and FED funds right and twos have largely traded south of FED fund on since call it February or March of this year. They're starting to creep back up there in terms of reclaiming the bar of FED funds here and if you look at who's raised rates recently, the OSS's, the CADS and UK. What's happened in all those markets they've softened, And what's happened with the banks
in those industries they've softened as well. Canadian banks, OSC banks, UK banks are all pretty soft here, as those central banks have hiked over the last several weeks.
There's a real tension heading into this nine thirty AM panel of how important the central bankers are and determining what happens next in markets. There was a brief second where people thought maybe we have moved beyond central banks and we're moving to fundamentals. God Willing, are you saying that that's not the case.
I don't think it's the case yet, or at a minimum, I think the message or the interpretation of the bond market to all of this is still paramount in our thinking about what the second half of the year looks like. But a Lisa, as you point out, the trend here is still the trend, and the trend is in the trend in stocks are still up. There are areas of weakness, and there are pockets that may get weak, but in
basically broad aggregate here the Trendon's dock is up. What I want to watch as we think about the second half of the year. We've seen some modest broadening over the last two or three weeks. Does that stall or does that continue? We're sitting here today with about sixty percent of the S and P above the two HUNDREDAY moving average. That's a reading that ordinarily wouldn't worry me that much. It's just unusual in a first year off
below that were not broader. Narrow markets are common, but they're common late, they're not common early.
In a new advance.
You mentioned that we have seen this stalling out in the tech trade. There have been a number of downgrades from banks saying perhaps it's gone a little bit too far. Are you saying it's more related to the yield story and the waking up to an old paradigm that we saw a whole six months ago that people had abandoned when we had the no landing, the soft landing, and the maculate disinflation of say February.
You know, it feels like a different world ago. We spent basically twenty one and twenty two thinking the world to change, and we were on the cusp of some big regime change for that view to be massively challenged over the last three or four months. My suspicion is, if we really get rates up here, and I'm talking to say, above four on tens, maybe above four to ten on thirty's new highs on twos, you're going to really begin to question some of the valuations that are
put on these tech names. And I wonder if that's why there's a hint of them starting to stall here. It's not everywhere. Apple made a new high yesterday, but quietly Google's come in here, AMD's come in here, Microsoft has softened a touch. They've all ridden their fifty day averages all year. I think those would be very big levels moving forward. And if you want to look at a test, this is a different sector, but use this as a test. The European luxury names, HERMEZ, LVMAH, etc.
They've all been very tech like this year. Those that actually started to stall the last two weeks, I think we're going to learn about other corners of the world from how those stocks respond going forward.
Bloomberg with a great story to dan is it Lewis Futon the stock yet as well.
You know, a technical analysis is about looking at the past and learning lessons. We came off the mat seventy three, seventy four, we had a nice leg up, and then in December of nineteen seventy five we discovered a second leg up in the market. Can people like Chris Vorone discover a second leg before it happens?
You know, when I think about markets, I don't really operate in the world of levels. I operate in the world of what is the characteristics of a certain advance? And I think, on balance, when you look at this current advance, the leadership is still pretty risk seeking. We see it with industrials, We see it with discretionary better than staple. So I would use those characteristics and say,
nothing really meaningful has changed yet. I think a shift there would cause alarm, but I'm not seeing that here yet. And Tom, you bring up this nineteen seventies period. It's often referred to as this ten year range. I kind of reject that. It was periods of bull.
A bear markets. Yeah, it was two years.
Up, two years down, two years It wasn't two weeks up two weeks down. So this idea of the seventies being a range I actually don't think is very accurate if you want to look for a range. I think there's some parallels to this market kind of post World War two forty five to fifty, I think is very interesting. Also a period where all the economists kept thinking recession was coming, recession was coming, and it never came. Interesting there.
Given that fact check, do you reject this idea that the past indicators are no longer working, that the models are broken, and the technical analysis doesn't hold the same kind of cloud.
You know, it's funny. I suppose it's your definition of what technicals is.
We wake up.
Every morning and we ask ourselves the simple question, does the market agree with the consensus? That's my definition of what technical analysis is. Anytime in my career where I've begun to question whether the indicators are valid anymore, in new regimes, they're about to become very valid. So I would just keep that in mind here, you know, put that in contact of some of the tech names. Four weeks ago we got what I would only characterize is blow off like volume in a lot of these semis.
And what do we know historically about blow off like volume? It very rarely marks the top, but it can begin the sequence of putting in the top and you were doing about a month ago, you were doing four or five average weekly four or five times average weekly volume in Nvidia amd Avago. So some of those makings, they are a very blowoff e type volume.
With all your study of charts and the in and out and being bullish, being embarrassed, does market timing work?
Okay? If I mean cash?
Can I figure out when to get in efficiently, productively effectively?
I might replace the phrase market timing with trend following. I think trend following works. I think we can do a pretty good job. I think all of us can do a pretty good job of getting that middle seventy or seventy five percent of a move. I haven't yet any I haven't met anyone yet who's particularly good at the turns that that middle chunk. We can know all the money in this business is made in the trend and not at the pulse, right, we can, I think, play trends, and that's what we've tri to do.
I set them up with that question. I knew what the answer would.
Be, and I think.
I think everyone knew that.
This is the gospel, the gospel of her own.
I mean, there's no other way to put it, Christopher, and thank you so much for I came out of that.
You're a bull.
I think it's too early to back away from the trend with your guard on for some things to change. But watch rates here, Rachel decide the second half of the year.
Chris, thank you so much, greatly appreciate.
We are heading toward the midyear level. We are two days away from that reset. And joining us now to help us reset is someone who is resetting in a material way. Joseph Amato, President and Chief investment Officer for Equities and Newberberger Berman and joining us here on set. How are you, Joe changing your view head into the second half of this year.
Well, we've had an intense debate, like there's going on in the market, and you know, our debate within our asset Allocation committee probably reflects a lot of the dispersion that exists out there in the marketplace. We've got folks that are quite bullish and we've got folks that are
quite verish. But we went into the year expecting the economy to slow down at a more significant pace and earnings to be more on the disappointing side, and that really hasn't played out necessarily, so we went in underweight equities and risk assets. We moved up in quality, and that's been, you know, so far the wrong call, because markets have been pretty good first half of the year, as.
You guys have talked about.
But as we debated the issues, and as it looks like any slow down is probably extended and pushed out further, the earnings decline pushed out further, we felt neutralize our bet, sort of lived to fight another day and see, we always have a chance to make that a change if we see earnings disappoint But right now, you know, we took that underweight off and still have a bias toward.
Quality for sure, So there's going to be more of an aggressive shift, albeit on the margins, heading into the second half. We've been debating all morning what's more important what happens with the individual corporations or what happening and what happens today at nine thirty am Eastern in Centro with central bankers taking a hawkish tone, how much are they still in the driver's seat of what happens next?
Central bankers are certainly still very much in the center of debate around around what's going to happen in the economy given the challenges that they have in inflation, and you look at across the range of central banks, you have a pretty wide dispersion there as well. You have the US, which was more aggressive earlier on inflation, has come down at a more rapid pace, although still we think will be a challenge to get down to the
FEDCE target. On the other extreme, you've got Japan which maintains a quite permissive, if you will, monetary policy, and then the UK has got a real inflation problem, so they've got to be more hawkish and there used to be somewhere in the middle. So that's going to be an important issue that we continue to watch over the course of the second off.
Of the year. What matters right now?
I mean Newburger Berman is priding itself on active management, and I want to go into the history of what you'd accomplished with Lehman Brothers in a bit, but the basic idea here away from passive active is factor analysis.
Right now. What factors matter into the end.
Of the year, Well, I think I think quality matters for sure, and profitability because if we're in our broad allocations, think more up in quality. Whether you're on the credit side or the equity side. I think you want you want to certainly be overweight that factor and beta. You probably, in our view, you want to be underweight beta in that sense, you know, again with a bit of a
more defensive posture. Even though we've neutralized our equity bet again, we still lean toward lower beta, higher quality.
I look at where we are and a bullmarket unloved. Can you calibrate and see you on a second leg of a bullmarket clicks in? I mean, there was seventy six seventy seven, which no one expected after the moon shut off of seventy four. Can you find a second leg of a bull market or do you just have to go back to core fundamental analysis.
I think the level of dispersion that exists within the economy I think to suggest we still need to do a lot of bottom up analysis as it relates to a bull market. Where we are, it's been you know, the equity markets have been quite perplexing over the first half of the year because you've had a group of seven extraordinary stocks that are up fifty sixty percent that dominate the US large cap index. As again, you guys talk a lot about and then you've got everything else
and that everything else has been flatished up modestly. So that's been you know, that's been a challenge if you're trying to invest and you see the index perform so well, yet some of these you know, very few active managers are going to put forty percent of their portfolio in seven stocks right to be overweight the megacap. So it's been you feel, as an active manager, you've been just chasing your tail over.
The first half of the year.
We're speaking with Joe Motto of Neuberger Berman CIO for Equities over there at a time we are resetting into the new year and into the new half of the year, it feels like a new year. We've been talking a lot about some of the trends, and you said that there are a number of stocks that have dominated with forty fifty sixty percent gains. I think chip makers, and then I think geopolitical risk and what we see this morning with a proposed plan by the Biden administration. Are
you going all in on AI. Are you seeing this as a lasting trend that can withstand any geopolitical tensions, or are you kind of being more tepid about it.
I think AA is.
Going to be an incredible long term trend for sure. I mean that's going to be as profound as some of the things we've seen over the last twenty twenty five years. Similar to the Internet broadly broadly defined, but as we have seen with different technological innovations, you have sort of a boom bust period, things consolidate, and then you have long term growth. So I think AI is probably going to go through that, but it's going to be quite profound. I know, from our firm standpoint, we're
all in. We're diving in deeply in terms of how it can enhance our productivity and our investment insights. So it's quite quite important. At the same time, you raise the geopolitical issues, which, having just been in China, you know, it's an issue that we're very focused on. It's an issue that Chinese are very focused on, and I think as it relates to AI, that's probably one of the most sensitive issues in the transfer of technology between the
US and China. I think it's going to continue to be an issue you guys talked about this morning in terms of potential restrictions on selling chips.
And now, folks, the most important conversation with the global Wall Street to the place is of the Lehman Brothers. I'm going to cut to the chase.
There's blood in the street. Credit SUEEE is throwing thousands out. Every other firm is throwing those fancy ib bankers out the door that you can't stand. You and Jack Riffkin build Lehman Brothers from nineteen ninety seven to two thousand and three. I remember looking at the cell side analyst, is the sheets rather, Lisa, this is when we had printed research reports. They got better every year until Lehman dominated the business in Newburger Burman involved with that and
all that is that a history of the past. Are we at a point now where we're taking the intellectual capital out of the business with all these layoffs, all this uproar that's going on in the street right now.
I don't think so, Tom. I think the fundamental bottom up analytical work that helped propel us back in the day in terms of our own research rankings or the work that we do today at Newburger Burman is still hugely important. You have different tools that you use, right the bar is higher, for sure. I think the cell side has underinvested in research over the course of the past decade or so.
What do you what do you want to see from the big banks. If we were having a conversation right now with Brian moynhan in the future of Bank of America securities research, what would be your counsel to mister moynhand Oh.
I think the breadth of global research that these firms are committed to is important to us. We're a global investment manager, so there are a lot of parts of the globe, whether it's the small cap space or large cap for that matter, that have less coverage. Now in some respects that's advantageous to active managers because we've invested a huge amount research. So the more inefficient the cell side is, if you will, the more advantage we have
as a byside firm if we're committed to research. But that said, we value quality research and if it's provided by whether it's Brian Mornhance firm or other large firms, that's super valuable to us.
I don't want the dust break with the credit sweets resumes coming in. Joseph Amato is at Newburger.
Burman right now.
Joining us is Way lead Global chief investment strategist at black Rock, and there's always fourteen things to talk about. I really want to lead with Secretary Yellen into China and what China means within an investment strategy, but I got to rip up the script here. There's a guy named Fink who's talking about something black Rock has led on. You've been directly involved.
With this, which is the value, the efficacy, the usefulness of ESG.
Larry's come out as a real proponent of talking about it inside.
It's been a challenging time out of the pandemic a color force. How you are reinterpreting ESG right now within your investment strategy.
Well, sustainable investing is investing right. We're incorporating considerations around the impact of climate in our capitol market assumption. We're also thinking about how the transition could look like and really thinking about how that then is reflected in portfolio construction.
Toward extent, it is really in the price. So as we think about transition as one example of mega forces, what we're doing actually in this media outlook that we're releasing today is that we're prominently highlighting a few mega forces, including sustainability and transition to net zero, but also including gropolitical fragmentation, including aging demographics, including AI to really incorporate those mega forces in portfolio construction.
As you put the review out two days left in the first half of the year, what changes for you in terms of your positioning after six months of being really cautious.
Well, I think the biggest change is as we think about kind of the environment where yields have reason is that we're actually within fixed income excited about opportunities across
the spectrum. So we have been talking a lot about front end of the curve, which we still like, but we're actually also putting cash to work across the broader exposures in a fix income, including MBS mortgage backed securities, including inflation linked bonds, especially in the US, and also including high grade credit and local currency, emergent market debt, and more broadly, as we think about what has changed, we're rolling out the new investment playbook, where the first
layer is around macro based as a location, but macro can only take us this far in this environment of supply constraint, so we're also thinking about having the second layer of very granular, uncorrelated individual investment opportunities to overlay on top of the first layer, and then the third layer is the megaphosis diet.
It is talked about where is the idiosyncrasy of artificial intelligence in the overlay that you talk about?
Well, so far, if you look at markets this year, it's been a very narrow thematic markets, right, So that has taught us that just base as a location a macro assessment along is not enough anymore. So far, we have talked about bias towards quality, a tute towards quality
in our US equity allocation. But what we're doing differently at this media outlook is to break that out and explicitly call out a conviction in develop market AI which we have had indirect exposure towards, but now we want to call them out explicitly because the interplay between the cyclical framing and the structural mega forces is so complicated and nuanced that we cannot afford to model them and mix them up together.
Your san outlook, here is a view from sixty thousand feet. It is very macro, It is very big picture, and in the middle of it is a massive micro reality. You say that the pandemic supply constraints that have affected the world will have a persistency that they will be permanent in some way. That's a stunning statement. Why can't we get back to supply demand normality?
While some of that supply constraint is pandemic induced, but a lot of that is getting washed out in terms of the cyclical pandemic induced supply consc. But what we are putting out, which we have been off the view for a while, is that we're moving away from the last thirty forty years of Great Moderation characterized by demound shocks to the current environment characterized by supply constraint coming from structural forces like the Nazeral transition, like geopolitical fragmentation,
and also aging demographics. And what that means in the context of this week being the CenTra a week, is that when it comes to central bank policy, you know, during the Great Moderation, because of the structural this inflation are they were inclined to keep policy easy and the rest large.
For fifteen years that was.
Easy, and then now they're in an environment where they are actually they need to keep policy tight in order to lean against this inflationary pressure.
Mathematically, what we've got here was we finally got a return to a risk free rate. We've got a legitimate sharp ratio with our question some of the traditional dynamics when I studied in book, What does that mean for the center panel today?
What are you going to listen for from these.
People about their new reality which is a reality from seventeen years ago.
Their new reality is the reality from maybe even thirty forty years ago, right, because the Great Moderation is over, including the period after Great after the global financial crisis. So what I will be paying attention to is to understand if they acknowledge the tradeoffs facing them, which is that the cost of fighting inflation in a supply constrained
environment is a lot higher. So if they acknowledge that, and also number two, what are they going to choose when faced with this stark trade off growth or inflation.
There's a real tension when you were speaking, and is there a possibility for markets for US equities to rally even if we do get a recession and even if the FED does become very hakish and we get that. Is that what you're saying that you could still see the market respond in an untraditional way to a central and can you slow down.
Well, US equity market. Currently, the broad market is still pricing in earnings to accelerate in the second half of the year, which in the context of growth slow down is too optimistic, which is why as we think about US allocation for the broader market, when it comes to US equities, we have a minus one out of a scale of minus three to plus three. And translating that into portfolios global portfolio US equity is the benchmark is around thirty three percent. This minus one modest underweight to
translate to about thirty one percent. So we're invested, but we're modestly underweight. Now, having said that, there are themes that we would like to embrace, such as artificial intelligence, so we kind of add that on top of the broad market underweight modest to underweight to get to a closer to neutral but not quite there, which is still modest.
Jown Willie, thank you so much. With black rock. What is it about the airlines?
Helene Becker joins the SOW Senior Research analyst Most Hated person in the World at TD.
Cowen This morning, Helene, I'm just going to cut to the chase. Who do we blame for this early summer mess?
So it's weather and then there's the airlines who are prepared, but there's the government who's not prepared. So the airlines are doing less with more that they have more employees now than they did in twenty eighteen, but the government has fewer air traffic controllers now than they did four years ago. And this mess is going to continue for the next at least five or seven years because the FAA doesn't seem to have a plan to resolve the
shortage of air traffic controllers. We're supposed to have fourteen thousand, we only have eleven. I think something like twenty five hundred retired in the last couple of years, and the government was supposed to hire fifteen hundred this year. We find something like nine hundred and sixty or seventy. We expect about half that many to retire and half that many to wash out, so they're only going to net about five hundred and when you're short, three thousand, five
hundred into three thousand and six. So yeah, this problem's going to last for a while.
Some of us have a certain vintage, can remember saying in any great train station, South Station, Boston, Union Station, in Washington, I spent a whole night once in the Omaha train station, and the trains used to be like people all lined up going in eight different directions. Are we asking too much of the airlines to be like our train stations of another time and place? Is it too much to ask for Newark to be the old Penn Central.
And it's not, and it should be. It should not have these problems. The airlines, I mean, the airports I'll start there, are just bursting at the seams because demand is just so strong. United is forecasting that between June thirtieth and September fifth or fourth, whenever Labor Day is, they're going to carry five million passengers, and if you kind of extrapolate that out to American in Delta, it's
probably similar. So that's fifteen million right there, and then you add in all the other airlines you'd probably have another nine or ten million. So we're looking at twenty four to twenty five million people that are going to travel over the next three months, the rest of June, what's that two months July and August, and the industry should be able to handle if they have relatively new aircraft.
You look at American, Delta, United, they've all been refleeting most of the other airlines, the Jet Blue, Spirit, Frontier Southwest. They also have Young fully Fish and fleets, and so it's not an aircraft maintenance problem. It's just that weather rolls in and the FAA goes on a ground stop and instead of lifting it in an hour or half an hour, they it lasts for three or five and then crews start to time out. I mean, we still
have the safest airline system in the world. So you add all that, and you add all these people into the next and you wind up with these awful delays and cancelations and unhappy travelers.
Alane, yesterday we did hear from Delta CEO at their annual meeting, and he acknowledged that business travel is still twenty five percent below where it was pre pandemic, given all the roadblocks, given the expense.
Do you expect it.
To get back to the same levels that it used to be, so.
Lisa, yes and no, the typical analyst answer. So when you think about business travel and GDP, it should get back to it should be the same percentage of GDP as it was in the past. And I think what you don't see is that people are just traveling differently and from a corporate like large corporate tech for example. Tech people from the tech industry haven't really come back. Financial services hasn't really come back, So from that perspective,
we're not expecting it to come back. But we are expecting the same number of people to travel for work as we've seen in the past on a relative to GDP basis. But think about it, Lisa, we're seeing two and a half to two point seven million people a day travel. That's what we saw in twenty eighteen, with twenty five percent more business travelers and fifteen percent more international travelers.
And Helene to that point, and just quickly here, there has been a shift under the cover of businesses using economy instead of business class because of how much the prices there have risen and companies trying to restrain costs. How much is that part of why costs, why the revenues for some of these airlines isn't picking up from business in the same kind of way.
Yeah, exactly, so so so customers. Businesses are trading down from business class to premium premium economies, and then people are using mileage their own miles to upgrade into into the front cabin. So we definitely are seeing that. And yes, Lisa, that's a part of it too.
What's your single best buy?
So our top three picks are United, Delta, and Copa Airlines in that order.
Interesting, what's the United Delta distinction?
So United's bigger in international markets right now than Delta is United as about fifty percent international, fifty percent domestic and Delta sixty forty domestic international. And the travel is really international this summer. So that's that's the difference.
Helene Backer, brilliant. Thank you so much.
Paul. You know it's widely understood. I mean whether you go to Rosy's or Flora. I mean, the fact is every day is brunch day in the Hampshire tearing himself away from brunch a three hour brunch joining us now Douglas cass use theest case.
It is a pleasure speak to the Bob Weir and John Mayer business commentators.
Well, we've had a lot of fun with it your coverage. Frankly, folks, I'm not a deadhead. I mean I'm really I'm a child compared to Jerome Pal But I gotta admit Doug Your's spirit of covering the dead and company traveling around in honor of fifty years of music has been great? Were you in Ithaca.
When I was?
When we were buying white bootleg albums?
By the way, the greatest universally agreed that the greatest grave of the concert era was in Barton Hall at Cornell University May's nineteen seventy seven.
It was great about that was you go over to the Rangovian Embassy, you know, across the way, and load up at the Rangovian Embassy before you went to the concert.
Doug Kanning A sigh, Paul you. Frederick Nietzsche, thereat German philosopher, once said without music, life would be a mistake. And I think it's true.
I'm down that sure, Douglas.
Last thing on the Dead I was at the Palaestra in November nineteen seventy of your fair City. It was one of the fifteen marvelous Grateful Dead concerts.
Doug, I think there's a lot to talk about here, but I really think we've got to talk about market positioning right now. Unfortunately, the three of us have a fun memory of a leg up in seventy four and the absolute shock of the second leg up, I believe in December of seventy six or seventy seven, What does the second leg of a bull market look like, and particularly if you're not in.
Play, well, I think it's a great question, an unexpected question. I think it's very humbling trying to trade against a primary or bull market trend, which some of us have been trying to do over the last two months. You know, it requires discipline. I've always said that most retail investors should in shortstocks because for a number of reasons, but it does require a huge amount of price discipline and a money management control that most people don't have. Let
this too shall pass, everybody does. Remind me of the liquidity infused in the market post bear Stearns being acquired by JP Morgan and Lehman in two thousand and eight, and you remember we had a similar rally of maybe twelve or thirteen percent, which led to a twenty two percent decline. And I'm fearful of the market's both an absolute term and when compared to the credit markets. I think I think we have to think in terms of the boiling frog syndrome.
So, Doug, I mean you take a look at the SMP.
I mean the boiling frog system is also when in hell does Judge come back exactly?
We could use that in a big way.
You told me you weren't going to talk about the yen.
So Doug, what do you do when when you when you look at an S and P up, you know, up twenty two percent off that October low.
That's a bull market.
But I think if you ask you.
Know the person on the street, they're not feeling it necessarily, So what do you.
Do from here?
Well, question I asked myself is not whether I should be that short, which I am, but rather how short I should be, again recognizing at the same time how humbling training against the trend can be and how discipline you have to be to avoid losses. But at the core of my concern is a level and path of interest rates. And if we solely look at interest rates versus stock prices and valuations, sure equities really are more overvalued against rates today than they were at the end
of twenty twenty one, which is saying something. And the divergences between valuations and real rates is as wide as I've seen in more than a decade. If you think about evaluations have risen on the S and P from about fifteen times to close to twenty times since the October lows. While inflation adjusted interest rates have stayed elevated, as you just mentioned in the last segment, against ten
year it's about one point five percent. So higher rates typically reduce the present value future cash flows and valuations, so relationships to me out of whack and I'm watching for a mean reversion. In addition, the equity risk premium is unattractive and also suggests that credit is cheaper than equities. And finally, the SMP dividend yield is all the way down to one point five five percent. Compare that to the one year yield of five point four percent. Again of multi decade wide casts.
For your supporters and for those that go after you each and every day, particularly out on the Elon must scape, I'm fascinated by a simple question, how do you know when to cover a short? What's the setup methodology you use to say?
Enough? I'm out?
Well, you know I I lecture at Bob Schuler's course at Yale Business School, second year Advanced Economics course, and I have a three and a half hour lecture on short selling, of which about half of it is structure of short selling and I'm a short I'm not a short seller. I'm a legitimate long short hedge fund manager who has basically a bias towards the short side, whereas most long short guys have like ninety nine percent of
bias towards alongside. And what I do is I start positions very small and kind of funnel in on strength. So I actually want in the beginning the short to go against myself.
And then okay, you get up to your net short position that you feel.
Well.
The other thing, Paul, is that my in terms of sizing short position absolutely and visa v sizing long positions, my maximum size on a short is about one and a half percent versus say a maximum four or five percent on a long position. So that sort of explains to you the I create. Remember there are three problems with short selling. Number one, the gravitational pull of of stocks is higher over time. Number two, Obviously, a short
sale provides an asymmetric risk reward. You can only make one hundred percent if you find a bankruptcy, but you can lose an infinite amount as Na Video or Resorts for Bob Wilson found out Resorts International. And the final thing which people don't really discuss is that when a show it goes against you, it's waiting increases. But when along goes against you, another m goes down, it's sort of systemic risk control because the waiting is reduced.
Oh, we got to.
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