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Jay Haffle joints us.
He's the CEO, founder and portfolio manager Infrastructure Capital Advisors. Jay, what did you make or what are you making? How are you thinking about your outlook? You've got a Republican in the White House, Republican Senate, and likely Republican House.
How does that inform your outlook for markets?
Thanks, Paul, it's great to be on.
Well.
We're much more focused on the corporate talx rate than almost anyone else they're politicians or investors, and the reason for that is that it's really the key driver of growth, not for just the companies, but also for the country as a whole. And you can do the math very simply by applying the a pro form a corporate tax rate to earnings and then giving some credit for higher growth because growth is driven by reinvested earnings, so if there's more earnings, you grow faster. So we are coming
up with our seventy five hundred target. It's twenty three times consensus earnings, so you can get on the terminal. That's where we get it, and then adjusted for the new tax rate. And so it sounds perhaps a bit nutty at seventy five hundred, but a lot of people thought our six thousand target for the SMP was netty this year, which doesn't look very nutty right now. Maybe too conservative, but not nutty. And so we actually have
superior target technology. And or you have been quite accurate, at least during the pandemic.
So Jay, you're talking that you're basically calling the market out here. You're saying their fear of rising inflation is somewhat irrational. And I just want to kind of for our audience put some numbers out there. One year one year inflation swaps. That's what you know, the market is projecting average inflation to be in one year's time. It's up twenty two basis points at two point seven percent. You've got you know, the US and one year inflation
swap alone at two point five percent five four percent. Last, I mean, talk to us a little bit about your expectations for inflation under a Trump regime.
Well, we think investors look at way too many data points to predict inflation. If you look at ten data points to predict inflation and only to matter, then you're going to be wrong eighty percent of the time. So we look at just two things. And if you use this since World War Two, you had been the perfect inflation forecaster. Money supply and oil prices, both of which are negative for the last year. And it's also important not to confuse so disinflationary. We're we're at risk of
a disinflation right now in our model. In fact, if you adjust the current CPI for shelter which is miscalculated, a brand auto insurance and repair which is pandemic distorted, we would have zero inflation. So we are much more bullish about inflation in the market. We think that'll be reflected slowly, not at this CPI. We're projecting an inline CPI at point three, but as we as it unfolds,
we think it'll undershoot. We also think that the bond markets, ahead of us itself, we're going to have rebalancing, So we're projecting and in fact and plicit, our target is more like a three fifty to four percent treasury. So if we're wrong about treasuries, then our target will be wrong.
Yeah, I think I think the real I mean, for me, the real risk to that is obviously if something blows up in the Middle East, right, because if you're if you're right, it's money supply and its energy prices, oil prices specifically, you know, I think, you know, that's the one kind of thing that might derail your seventy five hundred.
You know, target on the S and P. Absolutely, Damien. And that's a great point because I think everybody's obsessing about the you know, deporting criminals as being inflationary, which I've looked at my Warden textbooks and I've never found that criminals were anti deflationary, but or the import taxes. But I I'll give you a case that the Trump policy is inflationary, and that is it's not discussed so far.
But I don't know if you noticed that in Wall Street JOURNALI has said that Trump had been targeted for assassination by Iranians. Well, there's a reason for that. He's going to reimpose oil extra inflation restrictions, which is inflationary. So that's the inflationary case. I would look at that, But keep in mind that oil is extremely weak right now. It's partly seasonal, so it's not clear that that wouldn't
really be effective and dry prices up. But I would watch that, and that is a real concern.
A twenty three multiple, that's not what I learned in business school. I don't know where you went to business school, but my business twenty three times earnings.
Well, there's two factors. One I already mentioned, which if we're wrong about the bond market, we're wrong about the multiple. But the other thing that is not in those numbers. So I would say the risk, just like our six thousand target is to the upside, is there's a ton of dynamic effects that are not reflected there. So if the US goes to a fifteen percent stated corporate tax rate, we're going to be a tax haven. Think of all
the capital. It's going to be like Ireland as grows at six percent, Like we're gonna have you know, phony shell companies with employees here. So there's a lot of dynamic deregulations not in our number. There's a lot of positive when you have a pro business administration and Congress, there's a lot of dynamic factors that can't get captured, so we think that even twenty three, and also AI.
During AI booms, you typically have overshoot on valuation, so we don't think twenty three is crazy by any means.
Well, Paul, remember Ja may have gone the Wharton, but he was really educated at the school of Steve alan Cone at SAC Capital back in the day. And Steve likes to pay seven hundred billion dollars for baseball players who formerly played for the New York yankis er may still again be playing.
For the New York Gakigs.
I mean, Jay talked to us a little bit about you know, some of some of the things you're seeing here. The dollar is rallying, I mean, copper prices are down, iron ore is down. You know. Any read through from that.
Well, there continues to be concerned about China growth, you know, their key consumer of commodities. We're actually more bullish than most about China. They do save forty five percent of their GDP, which the IMF estimates every ten percent is one point five percent of growth. They don't get that because they've wasted on communist projects. But over time they will have pretty strong growth. So we're actually bullish on commodities.
We do think oil prices will come off these lows, but I think that a lot of the weakness you're seeing there is, as you've indicated, the dollar, but also some concerns about China.
Small caps can we play those years.
We like small caps. We have a small camp funds cap. What a lot of people miss about that is you're really mostly they are cheap, but you're getting a consolidation play. But also you're getting non tech exposure. So small caps are only ten percent tech, so you're getting a lot of financials. We love financials, particularly investment banks. We in fact we're carrying earnings estimates thirty percent above consensus for
Goldman Sachs. But there's a lot of small investment banks in the small cap index, so it's a way to bet on kind of the non tech sectors in the market.
All right, very good, great stuff. As always. Jay Hafeld, he's to see you.
He's the founder Portfolio Management Infrastructure Capital Advisors.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am. Easter Listen on Apple car Play and androut Auto with a Bloomberg Business app or watch US Live on YouTube.
Heidi Preboat Rudger joins US.
She's the adjunct Senior Fellow on the Council for Foreign Relations.
She joins us HEID.
When you woke up Wednesday morning, I've been asking this question for a lot of market investors, how did maybe the election change their investment outlook? Maybe I'll ask it to you in this context, how did it change perhaps the way you feel the US will conduct foreign policy over the next four years.
So I think we're in for some some pretty significant changes in many areas of the of the world. We have a very complicated backdrop of conflicts both in the Middle East, in obviously in Europe with Russia Ukraine, and then this ongoing competition with China and potential for real, real disruption in the South China Sea, and the question of Taiwan comes up, obviously, So I think you know, there are you know, we just heard that Marco Rubio
is the likely nominee for Secretary of State. He is not an isolationist, and he is one of the leading China Hawks. So I think for directionally that is that's going to be very important. He's he certainly knows the State Department, and he has very strong wrong views, very pro Israel, so that I think we're starting to see what that direction of a Trump administration foreign policy is going to look like.
Well, Heid, you took the words right out of my mouth there. I mean, that's exactly what I want to ask you. We know everybody's at China Hawk here. But my question is what does Mark Rubia, Mike Waltz and at least DEFINEX stand on other other places like Israel for example, and Ukraine.
So I think you have very strong supporters of Israel.
I think you know that is that's without question with both with the least Stephonic, with with Marco Rubio and with with Waltz. But you also have you have concerns, very very significant concerns about where the direction of the Ukraine Russia conflict is going and how how this administration, incoming Trump administration is going to is going.
To deal with with you.
Know, first and foremost, you know, incoming president and Trump has said he was going to end the conflict before he actually gets into office. I'm not sure how that happens. It's it's a very complicated world out there. You now have China, Iran, Russia, and North Korea all working together in various ways to to to keep and to triumph in a number of those conflict areas that we just talked about. So it's far more complicated than it was when Trump was in office.
Before Heidi, you mentioned the Hermit State, and so we need to go there. I mean, North Korea has fallen under the radar amidst what's going on, you know, more broadly speaking, in the Middle East, in Eastern Europe, and you know now we have North Korean troops on the ground in Ukraine. I mean, talk to us a little bit about what that means. Has that is that a form of escalation? Does the US?
Does? You know?
President left Trump needs to respond to that.
So it is very concerning.
I don't think that it's flown under the radar at all with the national security community, and there there's very you there's limited visibility into what deals were done between Russia and North Korea to actually get them to send
their their troops to UH into into this conflict. And as as you know, there's you know, there are tens of thousands of both Russian and with the addition of North Korean troops actually on the on the front with with combat ready, and Ukraine is one one area where I think you probably will see a significant change with Trump and his new national security team because they will focus mostly on on Asia and on China and uh.
You know, we've all heard about the calls that the very that that Trump himself and uh and his close team has had with President Putin, So I think you know there there there are a lot of big Russian marks out there, but the world is far more complicated.
North Korea is a really is a big.
Risk that that I think, particularly particularly given its proximity to to to other two Asian allies, that we really need to start watching very closely.
Heidi.
The Middle East another very difficult and fluid situation there. You mentioned that President Trump and UH Marco Rubio pro Israel. How do you envision that playing out US policy there, because it doesn't seem like Israel has been listening to the US over the past two.
Years, So you know, it's it's Minettnya who is is is obviously complicated and and has and has a huge momentum behind him in actually bringing bringing about a complete colgering of of around proxies in the region, including Hamas, Hizbola and and and I think you know, and the hutis in Yemen, and so this is this becomes you know, you have strong alignment with the incoming team to the Trump administration vis a vis Iran and limiting, curtailing and
completely you know, cutting the legs out of Iran's ability to actually to be an active, strong, active.
Catalyst and a negative catalyst in the region.
Heidi, thirty seconds or last, really quick, what's your thoughts on what's going on in Germany here at the end of all up Schultz, Friedrich Mertz, I mean, what role do you think the US and President Trump is going to play in that election?
So, I mean, obviously what's happening in Germany is it's it's simultaneous with a massive change in power in the US.
And I do think that how.
Europe views its ability to ramp up its defense and security when you have Trump coming in and really a not a fan of Europe, be not a fan of Germany and not necessarily willing to contribue to continue to fund the operations in Ukraine. So Europe needs money, Germany needs money. The person their business model is broken, amongst
other things. But I do think this early election, the fact that you were likely to see Mertz and some kind of a coalition with the Greens come about, is very much worth paying attention to.
Heidi.
Thank you so much for your time. We always appreciate getting some of your thoughts.
Heidi creaeboat Rehticker.
She's an adjunct Senior Fellow at the Council on Foreign Relationship.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecar Play Android Auto with a Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.
Shri Kumar Joints. He's president of Shrie Kumar Global Strategy and Damian. You'll appreciate this, Santa. He's been all over the place. But how about this Drexel Burnham Lumpy.
Yeah, that is just good.
All this.
We're talking serious Wall Street creator Peabody. The kids don't know those names are, but we do. Shre, thanks so much for joining us here. The world's changed in the last seven days. Here, Sri, give us your thirty thousand foot view on the fact that we're going to have a new Republican president, We're gonna have a Republican Senate and potentially even Republican House of Representative as well. How's that changed your view of these markets.
Paul, good to be with you and Damian. I think the change happened. We didn't know who was going to win last Tuesday, but now we have the victory, a complete sweep by the Republicans, and it looks like the House also will go their way. It is both good and bad. The good part about it is it gives you a clearer indication as to which economic policies the president elect it would like to follow in his administration.
The uncertainty is how the markets will react. While the equities have gone up sharply, there is more of a doubt on the bond side, and you can see the yields going up, and the mortgage rate is likely to increase as well because of the expectation that the fiscal deficit is not going to be controlled with the measures that Donald Trump promised before the elections. That I think is the big risk that I think is the big change, Paul, in terms of what has happened, and look at the dollar.
The dollar has strengthened so much, and that is just the opposite of what Trump wanted. He has always said in his first administration he likes a cheap dollar, he wants low interest rates. And both of them I think are at risk now with a stronger dollar and potentially higher interest rates in the United States.
So should we lift game this out here Beijing? Beijing, are they going to depreciate the yuan relative to the dollar if these tariffs go through. I mean that would be the playbook.
Right, that would be the playbook. But they can try and do that Demien in terms of what that would achieve for them in terms of the trade side. But if indeed the Trump is going to go ahead with a sixty percent import tariff on Chinese products, any extent of depreciation of the renmin byuan is not going to offset it. The big problem is that the tariffs are going to be more important than the exchange rate as
far as China is concerned. From a Trump point of view, he has to look and see what the tariff increase would do to the United States. I am a believer that tariffs are bad. They will push up inflation rate. And as a student of history, I looked at the smooth Hawley tariff of June nineteen thirty. It was done by President Herbert hoo worked with a very good intention. We wanted to protect American farmers, we wanted to protect
American trade. Instead, it gave rise to retaliation by trade partners, and that, in turn mays made the depression deeper and more widespread than before. So that's the risk I think Trump runs, and he needs to be very careful with the tariff moves.
Well, sir, you mentioned nineteen thirty, and I'll pull out my regime model and you know, quote ed your Denny here and talk about the Roaring twenties. A lot of people are making comparisons to this environment and that which existed in the precursor to the Great Depression. Talk to us a little bit about that. Do you see any similarities there.
That is a similarity in the sense that before the nineteen twenty nine thrash came, we had the big run up during the nineteen twenties, and that was because of policies which were expansionary. The Federal Reserve had been set up in nineteen thirteen there was also an expectation that things were going very well and you had a free capitalist run taking place in the nineteen twenties. But just as you say that it's the darkest before dawn, it's
also the brightest before night. And that's what you have to be concerned about. That, as you had the Roaring twenties, the nineteen thirties were nothing compared with a decade earlier, and you want to prevent a repeat of that. And that's why it behooves us to study the nineteen twenties history and to prevent that from being repeated in the twenty twenties.
Shre what's kind of your leading I guess investment thought these days when you talk to your clients, because a lot has changed in the last week, what's kind of a theme you're going with with your clients these days?
I say two things. One, equities are very highly valued. I don't pick securities, Paul, but I say to investors' clients, be very careful what you pick, because you want to be sure that the security characteristics are good enough for you to be very highly invested in equities. That's one second. On the fixed income side, I say to them that you have a situation when bond yields could increase and
you could have a loss. And that's the case. You want to reduce the duration of your fixed income presence. Whether you are in US treasuries, high grade corporate bonds, or you are in municipal bonds, you want to reduce it. So that's the second one. And if you want to add a third, I would say the sixty to forty traditional portfolio no longer holds, and you want to have more alternatives, global, real estate, other areas to reduce the amount of risk in your total portfolio.
So three US treasure curves have flattened off the back of the move inflation and growth expectations as built intoenomenal US treasure yields have risen. Talk to us a little bit about your expectations regarding US monetary policy and the Fed. I mean, what are your thoughts on December and as we look ahead into next year.
I am to make my bias very clear. I said the September eighteenth, the Fed should not have cut interests at all, let alone a fifty basis cop point cut. I did not want to reduce it, and I've written about it and once that happened. I'm not at all surprised that long dated yields have risen as a result of that, and then the FED cut interest rates again
last week. The expectation is that December there will be a cut unless later this week we find out the consumer price in is way out of control anything manageable. I think Powell and his colleagues are going to cut rates again in December, and that in turn would be welcomed by the President elect as something positive. The negative is going to come for FED policy, I believe in twenty twenty five. And I again I am assuming that Powell will continue to remain in office until May twenty
twenty six. That will not be a danger to his position. He's going to lead the FED, and if that's the case, twenty twenty six, he has to deal with the fact that with inflationary expectations up because he has put so much of cash into consumer pockets, that he has to deal with higher long term yields, and how he is going to monitory policy cuts and rates may come to an end or even necessitate an increase in interest rates during twenty twenty five.
Sure, just finally we've seen a big move hire in the US dollar.
How much farther do you think that has to go?
The US dollar could go up a lot further depending on Trump policies. Let me give you an example. If he does go through with the campaign promise of a ten percent cariff on all countries and a sixty percent cariff on the sixty percent cadiff on China, expect the dollar to strengthen massively. For example, we are below a dollar seven cents this week, the lowest since June. I can see the dollar going below parity, meaning less than
one dollar to buy one euro. If you are going to be imposing a cariiff on all the countries, that's how serious it is. And if Prump wants a week dollar as well as tariffs, he cannot have both of them. He has to choose.
Very good Shre Thank you so much for joining us there. Always appreciate getting a few minutes of your time.
Street Kumar.
He is a president Upstreet Kumar Global Strategies out there in Los Angeles.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
You're daily look at the front pages around the rurld, Lisa Matteo newspapers.
What do you got for us?
All right, So you've talked about it, Paul, how people can easily cancel their subscriptions to streaming services. You go online, you do a little click, and it's and it's done. So now the Wall Street Journal is calling this like the new streaming habit. It's the subscription pause. So people are canceling and then coming back and maybe if you know, because they had a show that ended, so then they cancel it and then they wait for the next season
to start and they come back and do it. So it's really showing how streaming services really need to deliver these hit shows, films, live events. It's showing this is why the pressure is on for them to do this so they can keep getting those customers to come back so quick. Numbers from Antenna It says the monthly medium percentage of premium streaming videoscribers who rejoined the same service they canceled within the private prior year thirty four point
two percent. In the first nine months of twenty twenty four, and that was up from twenty nine point eight percent and twenty twenty two. So I don't know if you've done the whole pause okay situation I've been looking for.
I'm a huge fan of Yellowstone, Okay, so I thought I could just go on paramounts Paramount create is the does the yelsam? I go to Paramount. It's not there, so I subscribe to it. Then I unsubscribe to it five minutes later, and then I understand I google it. Apparently it's on Peacock, So we're going to Peacock subscribe.
They're not there yet. They come later. I don't know how that'll work.
So you get hit every time you subscribe, and then unsubscribe to you get hit with like a month.
I don't know.
I don't know if that definitelyribe so that it is a terrible business model compare to what I brought into this world thirty years ago, when we were banking all these media companies and you just paid one hundred bucks a month and you got everything you needed.
That's right, that's right. Every ala carte, the ala carte approach to some streaming media is is definitely taking a bit of a hit here. But it's I think it's Netflix and everything else truthfully, I mean, let's be clear. I mean, if you were subscribed to Netflix, you're not canceling that anytime soon. But everything else, I mean Disney. I haven't seen anything new come out on Disney. Who I mean, well, who is different? I mean Peacock, You're right, Max, you know it's it's it's hit or miss.
It's hit or miss. So I don't know. I mean, I know you control your household with I I do.
I've canceled out a lot of I'm not the I'm not the return.
I just cancel.
I don't come back exactly.
So then like mom, what happened?
I we we're soldiers out there and you're canceling on him.
You can't get up.
That's not yep.
Sorry, Hey he has the YouTube subscription and he doesn't give me his past. Okay, so I'm playing fair game.
All right, very good?
All right?
Moving on losing your luggage. You know, it's a big pain in the neck. I don't know if it's ever happened to you, But USA Today says this new Apple feature, we'll let you tell the airline exactly where it is. So it's in the latest iOS update. They're expanding the functions of the find my feature. I don't know if you use I use it to track my kids.
I checked my kids on it.
But they're saying that it's expanding it so now you can share locations with other people, but also third party vendors. So for example, if you're traveling and you lose your luggage, you can share that location if you have an air tag on it with the airword.
Get an air an air tag. Yes, I have my share. Put air tags in every piece of luggage every time we travel. I actually look when I'm in the plane to make sure that the bags which are still the.
Terminal on the plane.
I mean you have to, how do you not. I mean this has happened to me many times, by the way, where I've lost my luggage, So I mean I'm scarred for it.
I checked the bag of luggage in thirty years.
Yeah, I mean, I'll throw it on.
I'll throw it.
My daughter's shoe is just on the way to school, to see where she's going. I mean I do what I use those air top it.
In your wife's bag.
Okay, you said that.
And it does.
It could be helpful, It could be helpful. Okay. So Chipotle shareholders, this is because of the skipping on the portion sizes. Remember that whole fiasco that happened. Okay, So shareholders now suing the company because they're saying the stock was affected because they weren't so open about how many places this was affecting. So they're saying it forced them
to spend more on ingredients, hurt the stock price. So they're saying they realize the claims because people began complaining on social media, posting about the skimping on the the the portion sizes. So according to the complaint, I mean, this is what's happening.
So all right, here's what.
I'm a Chipotle. Yeah, what's today? What's today? Tomorrow's in my Chipotle day? I usually get three beef hard tacos with chicken. Okay, and then they got crazy and started overfilling them because of the social media backlash. I think they got the word came down. We're getting a lot of grief for underfilling our tagos and whatever.
Overfill them now. So now I only get two verses three.
Where maybe you remember that where I mean we there again. I mean, this is when these where's the beef moment all over again?
I'd tell you it's good stuff.
I always thought that they overfilled it because you get the bowl and it's like weighs like ten pounds. But okay, but yeah, so now there there's a lawsuit in the work, so they got a lot going on. Lastly, if I don't know if you ever tried the twenty three and meters like those DNA testing things, So if you ever have, you know, the company's been struggling right So now it's saying it's laying off forty percent off its workforce, more
than two hundred people. Restructuring they said would save the company thirty five million dollars annually, and it's coming from its drug development arm. That's what they're going to be closing down. But the CEO has been looking to take the company private and it's been, you know, it's been unprofitable. People people take the DNA test once and that's all they kind of really need to do.
Have you tried it, Damien, I'm not trying it, you know. I mean, this isn't where it tells you what your linear ancestry.
It is.
Okay, my wife did it. I don't want to give you the results. I was a little bit shocked. I thought I was marrying somebody completely different than it was. But look, I trust twenty three in me, and their results are probably you know, I mean, I'm sure, I'm sure you got some stship.
Oh, I don't know why.
I'm a trusting kind of guy, you know. Look, let's go back to the fact. I'm just getting a note in here from some of our listeners. There's a few other you know things out there that are perfect, right. I mean, you can talk about, you know, college sports, you can talk about Oregon, Indiana BYU Army. They're all perfect. But the interesting story here fordham Water Polo now twenty eight and oh wow, fordham Water Polo man is perfection. Yes, I'm sorry, I just had to deviate there. It's really
really important. One of my listeners is really is a big fordham Water polo van.
Did sure gets to be California, right, is in California like the King of like Water Polo, But forda not anymore.
Welcome to New York City.
Sorry.
That is our newspaper segment for today with Lisa Manteo.
This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot Com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal