Transcription
Yeah, and I can see the conditions because uh inflation I think the the risks are diminishing with today's jobs report but also oil lower. So that means the bond market which has been hawkish and leaning hawkish could actually lean dovish. That's a tailwind into year end.
>> You agree?
>> Yeah, I I think that's right. So I think Fed fund expectations are too high. They're coming down. That's broadening things out. If you look at the banks, they got through the stress test quite well. They're starting to pay out dividends, buybacks, so on and so forth.
>> Yeah. Immediately, right? the news came out and they were like, "Okay, here's this for you and that for you and that for you >> and let's go." Right? And so what we're also talking about is M&A M&A activity is going to start picking up. That's going to help out the broadly. So I think it's all fair. You know, what we're looking at is housing housing stocks which have been bleaguered for a long time and we're also looking at at at gold and the material space which will do well as that hawkishness comes off the table. you know, you never want to be uh trying to catch a falling knife, but to me, I'm I'm gonna probably guess that those pullbacks are viable. I think that momentum still has a long-term history of working very well and it's really central to a lot of quantitative systems. So, I think it comes back. And then on the DRAM trade, I know people are trying to call the end of the cycle, but you know the what we still haven't decided is is there a new cycle because you know robots robots and machines are going to be semiconductor and RAM intensive much more than people. So it might be a long cycle.
>> Well, I I don't know that people like the professor for example are trying to call the end of the cycle as much as they're trying to call the end of the craziness, right? I mean stocks going parabolic that that can only go on so long. There is that thing they it's the pause that refreshes, right? They say that for a reason.
>> It's true. But what they have to keep in mind is that multiples of stocks like Micron are still, you know, eight times or probably today probably like 10 times now. Well, maybe with the pullback it's
>> Yeah, I think it's probably close to seven, but it sort of got from like 8 to 10. Yeah.
>> Which is historically maybe rich for stocks like that that are generally deemed to be more cyclical in nature. We're making the call. Many are that no, this is different. This is different this time. Now, now this is a secular news cycle as you said.
>> Yeah. I mean, so Nvidia's at 16 times. It reminds me of how Apple was viewed as a hardware phone stock for hardware maker for a long time. People thought it should trade at 10 times earnings until it rerated towards 30. So to me, I think there's still that rerating that's going to come with stocks like Nvidia.
>> Speaking of earnings, you're going to get them soon, right? The banks are going to start. It's hard to believe they're already right here around the corner. U good things are expected. Actually, that's a misstatement. Great things are expected.
>> Yep. So, that that's the one thing we're worried about rolling into. So, 2Q fantastic quarter, right? We roll into July and everyone's telling me seasonality, seasonality. This is a great month. Great month. And when I hear that,
>> it is cuz you haven't had a down July in a long time.
>> In a long time. But when I hear that, I get a little bit nervous. And I go back to 2007. And in 2007, in June, we had a down month. We had credit spreads less than 100 basis points. We had real rates rising. We had mo we had quant doing quite well and let's just say the summer 2007 not so great.
>> I mean there was a little something going on there that you know had something to do with that.
>> Yeah. You had a lot more you had a lot more leverage. You had credit spreads widening for very low levels.
>> Yeah. Something called the housing market was like starting
>> market might have had an issue there.
>> Yeah. Speaking of understatements,
>> a little bit, a little bit, but uh the point being is just don't get comfortable here because you're right, fundamentals are quite good. Expectations are even higher in some cases. We think the market does go higher, but some choppiness, some pullbacks, some repricing risk. It all makes sense. But see, I I keep I ask you this every time, Tom. you're with me because people they hear you and they assume that you're always bullish and directionally you and you are with the caveat this time of you still are expecting a meaningful pullback in stocks at some point before another significant ramp up into the end of the year and you haven't changed that have you and I ask you every time
>> yeah and again uh you know I think we're still in this up phase so I think near-term I think we can be 77 7800 first,
>> okay,
>> and then a 10 to 15% pullback, but for understandable reasons because, you know, the Fed is something the market's trying to understand and we've got an unlock of a major IPO coming and there's cumulative shortages now in petroleum products that becomes a pricing risk later this year. But I do think the earnings momentum is is very strong and investors are still off sides. In fact, fund managers are having one of the worst years uh actually in almost five years. Uh, this is one of the worst years for growth managers and so I think they're going to buy that dip.
>> Are we vulnerable to something like that? I I think the pullback I think Tom's right, but I think the pullback comes from a higher level. Right. We're still looking at the fundamentals. We're still looking at credit. We're still looking at sentiment and it's just not that far stretch in certain areas. Yes. And we're seeing that in semis, right? The semi-pullback is pretty aggressive right now. Yeah. But the market still doing quite well.
>> Is the Fed at risk?
>> I don't think so. I think people are overestimating the Fed. I don't think Kevin Wars does anything. And if you listen to what he said yesterday, hey, prices are high, but inflation directionally is coming down in the direction we want it to. And if you look at where oil's going, break evens. It's not telling you to be hawkish. Yeah. I mean, we don't really think the Fed's going to hike. Uh, I don't, but I think there's like going to be a communications tantrum, you know, because the Fed is trying to move away from forward guidance and maybe not even having press conferences after FOMC meetings and so the market's operating in a vacuum. They're going to try to sort of find implied pricing or predictions and that's moving away from the Fed. So, I think it creates volatility.
>> But, but didn't Wars the the the chair respectfully, did didn't he already sort of put his hand on the put unveil his hand? I mean, he we know that the communication is already changing. What's going to surprise us now if they get rid of forward guidance? We expect it. He alluded to it again this week in in Portugal. So, you get less Fed speak.
>> I think there's a chance that even Fed governors are asked to communicate less because each of those communications can be viewed as forward guidance.
>> I don't disagree with you at all, but but don't we know that? I I think until we get into a situation where we have no no real comms and then there's inflation uncertainty or a macro risk that emerges and then we see that there's no Fed calms. That that becomes kind of a potential crisis moment for markets.
>> No, we need to, you know, we need to get rid of the blankie every now and then, right?
>> I I agree. I I think we need to stop talking about the Fed put. You need to let the markets trade and this will be a good thing for active management and for the markets
>> and stop talking about it as long as you know it's always there. Gentlemen, good to see you.