Bloomberg Audio Studios, podcasts, radio news.
After four days of losses on the S and P five hundred, Richard Bernstein if Bernstein advises, writing the FED is caught between a rock and a hard place. GENIP forecasts are being revised downward, but inflation expectations seeing poised to accelerate. Richard joined us now for more, Richard, welcome to the program. You put it in your note. Everyone's got a plan, and so they get punched in the face. That famous strategist on Wall Street, Mike Tyson, how strong is that punch this morning?
I think the punch is a real It's not a jab, it's a real roundhouse punch. And I think John, look, you've been talking a lot about all the different uncertainties and all the different things that are going on. That's fine, but I think one also has to realize that we entered the year with investors historically confident, so this has a magnified effect on investors' confidence that they're being shaken. So that was my point about that everybody has a
plan until they get punched in the mouth. Because everybody had a plan, they thought it was easy. They thought this was like, oh, you know, it's just buy an index funder, let's buy the MAG seven. And all of a sudden they're realizing that was the unusual period, and now we're going back to something that's much more uncertain, and they're getting punched in the mouth.
Richard Scott Best in Treasure Secretary speaking with Henry our Own here and saying that this then is not necessarily a MAGA problem, it's a MAG seven problem.
Do agree?
Is that basically what you're seeing right now is the unwind of an overvaluation of a crowded trade at the end of the last year beginning of this one.
Well, well, Lisa, I understand where he's going with that question. But my response would be, why is the Russell two thousand and performing so dramatically here if it were just a MAG seven point? Why are the domestic the most domestically focused companies in America smaller companies are underperforming? Right? So? How is this just a large cap MAGA effect. It's
clearly not seven effects. Sorry, it's clearly not the You know, I think this is a comment the markets are are making a comment on the broad economy in the United States, And you know, I think also the notion that this is an orderly process. That's fine, I would agree with that, but the process is not a positive one the markets. You're not giving a positive verdict on that, And that's kind of what I think people are still sort.
Of missing here, Richard. How do you navigate a situation like this where the rules of the world may be be called into question over a longer period of time and acid allocation potentially could look very different if the trends that we're seeing in markets today would hold. So how are you thinking about not just short term investing but the one year, two year, five years ahead?
Right?
So, so, Lisa, I think in the short term, you know, you're using the word uncertainty. Everybody's using the word uncertainly. I shouldn't personalize it like that. Everybody's using the word uncertainty. That means is the scarcity in the marketplace is certainty. That's what will command a premium through time is certainty.
What does that mean? That means quality, That means more certain cash flows, it means dividends, it means near you know, really kind of focusing on near term fundamentals as opposed to long term growth stories. The second thing is, you know, what do you do for three years, five years, ten years, two years, whatever. And I think, look, the goal of what's going on, of returning industrial processing back to the United States and manufacturing back to the United States, I
think that's a that's a great goal. In fact, we've been talking about it in my firm at Richard Bernsty Advisors for ten years. I wrote an op ed in twenty eleven in the Financial Times about this topic and how important it was. This is. The goal is real. However, the method that they're choosing to try and get to that goal, what personal opinion here for a second, is incredibly ham handed. There are many better ways to do with that. Do not place attacks on the US consumer.
Richard. We heard from one ECP official earlier on this morning that said there's no reason for a rate cut right now. I think you refer to fifty basis point kunts as ridiculous. Mary Daily, the San Francisco FED president, putting out a post on LinkedIn saying we have the time and space to deliberate our next moves. Lisa, that's
what's different about this moment. These officials are these central banks aren't Russian to race in, Russian to step in and provide support like maybe they would have done a number of years ago, and.
For the correct reasons, which is this is a very different type of crisis that is not of the credit markets making. This is about policy uncertainty and the potential stagflationary shock that comes along with inflation. If you take a look at two year break even rates, they've actually hit the highest level going back to two thousand and two earlier this morning. It's shifting around incredibly volatile markets, but the signal is not so clear in terms of how they should act, let alone.
If Richard, are you thinking about where pockets are leverage might be. This has been a really unusual cycle here in the United States and worldwide because of the support that was offered through the pandemic and through the recovery as well. When you think about where pockets of leverage might be this time around, how do you ask that question?
So, John, it's related to what you and Lisa were just talking about. The FED was spoiled for many, many years, decades two to two three decades by globalization. Globalization was a massive disinflationary force on the US economy. Why because we were just increasing competition and we all know when you increase competition, you put downward persure on prices, so the FED could play the hero and ride in on the white horse and save the day. Now what we're
seeing is deglobalization. That whole disinflationary process is now being reversed. So it's now an inflationary process that ties the Fed's hands, and the FED can't play the hero anymore. And I think that's one of the things that's happening. So where is the pocket of leverage. I don't really know. You know, one could argue that it's in the private market somewhere, because I think that a lot of their returns have been boosted by by leverage and the ability to borrow
cheaply to make acquisitions. Maybe that's where it is, you know it certainly you know not going to be I would argue it's unlikely to be in the big banks. The big banks, for all the all the their whining about over regulation, big bank balance sheets are pretty strong. It looks like the regulation has worked. But where is that leverage. It's in things like private debt and and all of that. So the risk hasn't gone away, it's just moved I think from the public markets. To the
private markets. It's an interesting monetary and fiscal question, is that if there is some kind of problem in the private markets, they're supposed to be private, will they come to the rescue. I would think they'd be very hesitany to do that.
The Treasury Secretary this morning is saying really nothing to see here. I feel like I'm going to sound like Lisa, but how do you think this bond auction is going to go today? For the ten year?
Well, a little outside my area of expertise, I just don't think. I think what we are seeing is a complete repricing of US assets with a higher risk premium. Right if you think about it, we've taken about five, maybe six multiple points off the S and P despite good earnings. We're seeing in a very short period of time the ten years self off. But certainly bond volatility has gone up. Whether whether you agree with my statement about the risk creamer now, certainly bond volatility has gone up.
And I think what's happening is US assets are being repriced. You know, you mentioned before about you know, or are we a safe haven anymore?
Maybe not?
And that's kind of what we're seeing.
I spy the Tottenham emblem right behind you as well, Richard, super depressing stuff for you. I appreciate the time as Alway Rough rough season. Thank you, Sir. Richard Ferns stated Richard Ferns stand advisist. Thank you very much