Latest / Trumponomics / Episode 20: Stocks are Melting Down. Is The Economy Next?

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Episode 20: Stocks are Melting Down. Is The Economy Next? · Trumponomics

• 0:00
  Speaker 1: By the way, you picked literally the most complex topic
• 0:02
  Speaker 1: to talk about. I'm not sure if you're aware about that,
• 0:04
  Speaker 1: but I'm ready to call Reagon upstairs and I was like, hey, uh,
• 0:07
  Speaker 1: this is what I'm about to talk about. You is like,
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  Speaker 1: good luck. This episode is brought to you by nat X,
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  Speaker 1: your risk and trade stock in disese commodities for x
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  Speaker 1: The future of trading is here now at n A
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  Speaker 1: d e x dot com futures, options and spots. Trading
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  Speaker 1: involves risk and may not be appropriate for all investors. Hi,
• 0:45
  Speaker 1: and welcome back to Bloomberg Benchmark Up podcast about the
• 0:47
  Speaker 1: global economy. It is Thursday, January four. I'm Tori stillwell
• 0:52
  Speaker 1: and economics reporter with Bloomberg News in d C. And
• 0:55
  Speaker 1: I am joined by my co host, Akido, our editor
• 0:58
  Speaker 1: for Benchmark, who has completed her move to Tokyo and
• 1:02
  Speaker 1: is joining us as the Tokyo Bureau chief. Welcome Maki,
• 1:08
  Speaker 1: Hey Tori, how's it going. It's going great. How's Tokyo
• 1:12
  Speaker 1: it's it's great. It's snowed yesterday, which is kind of cool.
• 1:16
  Speaker 1: Oh wow. Does that happen often in Tokyo? Not not
• 1:19
  Speaker 1: that often. Maybe a couple of times a year, but
• 1:22
  Speaker 1: it's usually too warm for the snow to actually stick
• 1:25
  Speaker 1: on the ground, So no, no snowman, very exciting. Well, welcome,
• 1:31
  Speaker 1: You're You're like in tomorrow right now, which is pretty cool.
• 1:37
  Speaker 1: I'm from the future right. Well, you've been gone for
• 1:41
  Speaker 1: a couple of days, so I wanted to fill you
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  Speaker 1: in on probably the biggest topic that's happened since you've
• 1:49
  Speaker 1: been away. But it's also an issue that's pretty close
• 1:52
  Speaker 1: to you all um in Asia as well, and that
• 1:55
  Speaker 1: has been just the massive amount of turbulence that has
• 1:59
  Speaker 1: rocked stock markets around the world so far this year.
• 2:01
  Speaker 1: All started with China, which already has a notoriously volatile
• 2:05
  Speaker 1: stock market because there's so much participation from retail investors,
• 2:09
  Speaker 1: individual investors, not you know, the big groups that we
• 2:13
  Speaker 1: think of here in the US. So there was a
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  Speaker 1: sell off in China. It was apparently sparked by fears
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  Speaker 1: about the government's ability to manage the economy and as
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  Speaker 1: well as the drop in the yuan and that unease
• 2:26
  Speaker 1: spread around the world. Last week, in the US, the
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  Speaker 1: Standard and Poors five hundred indecks posted its worst ever
• 2:32
  Speaker 1: stopped start to the year, losing six percent of its value.
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  Speaker 1: And I guess we touched on a lot of these
• 2:38
  Speaker 1: problems that China is currently facing back in September when
• 2:43
  Speaker 1: we first started the show, and it seems like investors
• 2:46
  Speaker 1: are still worried about a lot of those issues that
• 2:49
  Speaker 1: we discussed with Ken at the time. But really, you
• 2:53
  Speaker 1: know how much has changed in China between the end
• 2:57
  Speaker 1: and the beginning of to warrant, you know, an additional
• 3:02
  Speaker 1: sell off like this Looking at economic conditions, it doesn't
• 3:06
  Speaker 1: seem like it's a whole lot. There hasn't been a
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  Speaker 1: sharp slowdown, and it's just kind of this trend towards
• 3:11
  Speaker 1: softer growth that's been there for a while exactly. And
• 3:14
  Speaker 1: all that got us thinking how much of a connection
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  Speaker 1: actually exists between a nation's stock market and its economy.
• 3:22
  Speaker 1: How often do stock markets tank because the economy is suffering?
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  Speaker 1: And how often is a route mostly just nervous investors
• 3:29
  Speaker 1: following the herd and freaking out. And then we also
• 3:32
  Speaker 1: want to take a look at the reverse, when does
• 3:35
  Speaker 1: a crumbling stock market start hurting the real economy and
• 3:38
  Speaker 1: how exactly what that happen? Well, lucky for us to
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  Speaker 1: answer these questions and more, we're bringing on Oliver Rennick,
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  Speaker 1: our colleague on the stocks team in New York. Hey. However,
• 3:48
  Speaker 1: Hey guys, how's it going, Oliver? What's kind of your
• 3:51
  Speaker 1: typical day? Like? Yeah, so like cover US equities UM
• 3:57
  Speaker 1: in New York. Largely, a lot of what we do
• 3:59
  Speaker 1: is sort of analysis of what's happening during the day,
• 4:02
  Speaker 1: and a lot of analysis of what just happened, so
• 4:06
  Speaker 1: as opposed to some more traditional journalistic beats as people
• 4:09
  Speaker 1: think about it or they break news and move markets. Ideally,
• 4:12
  Speaker 1: at Bloomberg, a lot of what we do is trying
• 4:13
  Speaker 1: to figure out what's happening and what happened, and uh,
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  Speaker 1: the best we can do is try and find some
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  Speaker 1: kind of reason. As many readers happily right into us
• 4:22
  Speaker 1: that you know, you're assessment of what happened in the
• 4:25
  Speaker 1: stock market days is the exact same explanation you have
• 4:29
  Speaker 1: for when it was down as when it was etcetera
• 4:32
  Speaker 1: basically yearful baloney, right, some people would argue, But we
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  Speaker 1: try to do a good job characterizing what's happening? Um,
• 4:39
  Speaker 1: more so what is happening rather than why? But uh,
• 4:43
  Speaker 1: and then we'll also dive a little deeper looking into
• 4:45
  Speaker 1: story of the granulars of the market, whether it's derivatives, volatility, earnings,
• 4:51
  Speaker 1: stuff like that that is going to be h that
• 4:53
  Speaker 1: is going to pertain to somebody who is has money
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  Speaker 1: at stake. Well, let's start by zooming out and defining
• 4:59
  Speaker 1: what exactly the stock market is not, not just like, oh,
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  Speaker 1: it's this index and it's got all these different member
• 5:06
  Speaker 1: companies in it. Like years ago, I learned in my
• 5:08
  Speaker 1: introductory finance or economics classes that the stock market measures
• 5:13
  Speaker 1: investors perceptions of future earnings of companies. Is that roughly right?
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  Speaker 1: Any other way we should be thinking of it? Yeah,
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  Speaker 1: that's uh, that's pretty solid. Um. I think that's uh,
• 5:23
  Speaker 1: that's good assessment. I think another way to sort of
• 5:26
  Speaker 1: phrase that same idea, that's really about allocation of capital. Um.
• 5:31
  Speaker 1: So what you're talking about is journally sort of the
• 5:33
  Speaker 1: market moves, and this is touching on the same idea.
• 5:36
  Speaker 1: Anytime you have a stock that loses value or it
• 5:40
  Speaker 1: gains value, what that is doing is telling you that investors.
• 5:44
  Speaker 1: Then I think that their money is going to get
• 5:46
  Speaker 1: better use elsewhere. If Microsoft is down one day, it
• 5:49
  Speaker 1: may not mean that investors are very barish on Microsoft
• 5:54
  Speaker 1: and that they think that the company is, you know,
• 5:56
  Speaker 1: going to lose money over the next however many years
• 5:58
  Speaker 1: or quarters. What it might mean is that they just
• 6:00
  Speaker 1: think their money is better allocated with Apple or um
• 6:04
  Speaker 1: or something totally unrelated, like a biogen you know, biotech
• 6:07
  Speaker 1: stock or something like that. So olive Our you cover
• 6:10
  Speaker 1: the US markets, and this has been a really terrible
• 6:14
  Speaker 1: start to tell us what's going on here and why
• 6:18
  Speaker 1: the stock markets have dominated headlines in recent days. Yeah,
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  Speaker 1: it has you know, as good as a stock markets reporter,
• 6:25
  Speaker 1: because volatility means people want to ask questions. It's a
• 6:28
  Speaker 1: security Yeah. When when economics reporters, Yeah, when there's green
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  Speaker 1: on the tape every day, people just kind of let
• 6:36
  Speaker 1: it go and they don't ask a lot of questions.
• 6:38
  Speaker 1: But you get read and you get some volatility and
• 6:39
  Speaker 1: suddenly a lot of demand for stock reporters. So basically,
• 6:43
  Speaker 1: I mean this year, you have a lot of things
• 6:45
  Speaker 1: that have sort of been a benefit to stocks that
• 6:48
  Speaker 1: are starting to fall away. Interest rate policy has now changed.
• 6:51
  Speaker 1: You don't have the easy policy, you can start to
• 6:54
  Speaker 1: see value in other assets apart from stocks, and then
• 6:57
  Speaker 1: you have the global growth issue, which sort of overhangs
• 6:59
  Speaker 1: on every thing. And then of course in tandem with
• 7:02
  Speaker 1: that comes this commodity issues. Bloomber commodity index got crushed
• 7:06
  Speaker 1: again today. That's starting to have effects outside of the
• 7:08
  Speaker 1: energy space industrial materials. People start to wonder how far
• 7:11
  Speaker 1: that could spread. So is it just people worry about
• 7:14
  Speaker 1: companies profits or they're just scared in general about what
• 7:17
  Speaker 1: global growth is going to be like? Because I know
• 7:19
  Speaker 1: the outlook for global growth hasn't been amazing for even
• 7:23
  Speaker 1: the last couple years. I would say, Um, why is
• 7:28
  Speaker 1: all this coming crashing down now? And why is fear
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  Speaker 1: about other markets, particularly China even affecting the US markets?
• 7:36
  Speaker 1: If consumers are still buying stuff here, if job growth
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  Speaker 1: looks great as it has the last few months right now,
• 7:42
  Speaker 1: that's a that's a great question, And I think that's
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  Speaker 1: part of the reason why people are gett embarrassed right
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  Speaker 1: now because they look to the future and there's not
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  Speaker 1: a whole lot of um encouragement when you look out
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  Speaker 1: to earnings over the course in the next two quarters,
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  Speaker 1: we've got negative expectations for earnings and quite negative. Next
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  Speaker 1: quarter is going to be the fourth quarter consive in
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  Speaker 1: which we've dropped third quarter year over year dropping, you're
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  Speaker 1: going to see earnings down roughly six to seven percent.
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  Speaker 1: So when you look at the other side of the grass,
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  Speaker 1: doesn't exactly look necessarily greener. Um. And then the other
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  Speaker 1: thing about global growth, Yes, this is the story that's
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  Speaker 1: been going, but now without sort of the backstop of
• 8:17
  Speaker 1: lower interest rates, without the backstop of cheap financing, that
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  Speaker 1: eventually will start to get little bit more expensive and
• 8:23
  Speaker 1: you'll have some of the buy backs, the dividends, uh is,
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  Speaker 1: those types of things fade away. You start to wonder
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  Speaker 1: what's going to prop up stocks. Hopefully it would be earnings,
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  Speaker 1: but if they're not there, then you really start to
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  Speaker 1: question things. Yeah, that's a great point. Well, the three
• 8:35
  Speaker 1: of us are immersed in financial and economic news on
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  Speaker 1: a daily basis, but most people aren't, and as a result,
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  Speaker 1: much of what they think about the state of economy
• 8:44
  Speaker 1: is probably based off of a combination of three things.
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  Speaker 1: Their paycheck, gas prices, or the stock market. I mean,
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  Speaker 1: my mom, who some of our listeners may remember from
• 8:55
  Speaker 1: a previous episode, she does not care about the stock market. It. Um,
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  Speaker 1: you know, she has a car, she has a paycheck,
• 9:02
  Speaker 1: but the stock market could is probably one of the
• 9:05
  Speaker 1: things furthest from her mind. But even she texted me
• 9:08
  Speaker 1: last week Ali being like, what's going on with the
• 9:10
  Speaker 1: stock market? Um? So I mean, does does this mean
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  Speaker 1: that the stock market is reflective of what's going on
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  Speaker 1: the economy and mom should be freaking out about her job?
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  Speaker 1: Is it reflective of it or is it affecting it?
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  Speaker 1: Let's hit that first piece first. The short answer is
• 9:30
  Speaker 1: your mom probably shouldn't get too upset. Um. Overall, the
• 9:34
  Speaker 1: US economy is strong, and when you look at people
• 9:36
  Speaker 1: strategists across the marketing ask them what their most bullish
• 9:40
  Speaker 1: cases based on, it's the based on the fact that
• 9:42
  Speaker 1: US economy is still the best house on the block. Um.
• 9:45
  Speaker 1: But that being said, the stock market and the economy
• 9:47
  Speaker 1: are obviously linked. To try and draw conclusions about what
• 9:51
  Speaker 1: the economy UH can say about the stock market and
• 9:55
  Speaker 1: vice versa gets very complicated. But here's what we can
• 9:58
  Speaker 1: say to touch on the first part is it is
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  Speaker 1: orically speaking, stock market weakness does sometimes UH presage a
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  Speaker 1: recession in the economy. What it needs to be is
• 10:09
  Speaker 1: not at seven ten route in stock it's not a
• 10:11
  Speaker 1: seven percent routes since the beginning of your five percent
• 10:14
  Speaker 1: whatever at after day that you really start getting getting
• 10:17
  Speaker 1: you thinking about where the economy is going. Is or
• 10:19
  Speaker 1: more declines the bearer markets and stocks that have occurred
• 10:22
  Speaker 1: um thirteen times since the Great Depression, and now ten
• 10:26
  Speaker 1: of them preceded US recessions. That's a pretty good rate
• 10:29
  Speaker 1: when you look at those type of declines UM. But
• 10:32
  Speaker 1: just because you know you have volatility increasing, just because
• 10:34
  Speaker 1: you have a different stock market trading environment where you
• 10:37
  Speaker 1: get bigger ups and bigger downs, it's no reason to
• 10:39
  Speaker 1: you know, panic and start looking for other jobs, etcetera.
• 10:42
  Speaker 1: The stock market is included in the Conference Boards Index
• 10:46
  Speaker 1: of Leading Economic Indicators for just that reason. It does
• 10:50
  Speaker 1: have some sort of predictive value and roughly over the
• 10:54
  Speaker 1: course of many, many, many business cycles, they are correlated, UM,
• 10:59
  Speaker 1: so we know that there is a link there. And
• 11:00
  Speaker 1: also going back to what we talked about with future earnings,
• 11:04
  Speaker 1: if the stock market is going down, people probably think
• 11:06
  Speaker 1: that future earnings aren't looking very good, which may mean
• 11:10
  Speaker 1: that consumers and businesses aren't buying as much stuff. And
• 11:13
  Speaker 1: given that consumption is the economy. That's not really a
• 11:17
  Speaker 1: great picture, right, of course. Not. The other thing that
• 11:21
  Speaker 1: I think a lot of people are waiting for is
• 11:24
  Speaker 1: the boon as you mentioned, Okay, you as as an
• 11:26
  Speaker 1: average American, you look at your paycheck, you look at
• 11:29
  Speaker 1: gas prices, you look at where your money is coming
• 11:31
  Speaker 1: in and where it's going out. And one of the
• 11:33
  Speaker 1: things a lot of people have been waiting for to
• 11:35
  Speaker 1: have a boost to the economy is the lower oil prices.
• 11:38
  Speaker 1: But in fact, this is just sort of a a
• 11:41
  Speaker 1: good example of how things are so inter related. You
• 11:43
  Speaker 1: would think the lower oil prices would have a big
• 11:45
  Speaker 1: boon on the consumer spending, that they would go out
• 11:46
  Speaker 1: and spend, But we haven't really quite seen that impact
• 11:49
  Speaker 1: that we have from the practical tax breaker that comes
• 11:51
  Speaker 1: with lower oil because in fact, we're still kind of
• 11:54
  Speaker 1: coming out of a period from two thousand seven two
• 11:56
  Speaker 1: tho eight, a recession in which people still are paying
• 11:59
  Speaker 1: down debts and which they still more interested in saving.
• 12:01
  Speaker 1: They're a little bit scarred from that period, uh, and
• 12:04
  Speaker 1: so they're not quite putting that money to work as
• 12:06
  Speaker 1: you might think. So that sort of relationship between the
• 12:09
  Speaker 1: economy and stocks, it's not always clear. When stocks predict recessions,
• 12:13
  Speaker 1: that's a pretty solid indicator historically. But the reverse the
• 12:17
  Speaker 1: economy indicating what happens with stocks is it gets pretty
• 12:20
  Speaker 1: hairy and it's not really a great predictor. And I
• 12:22
  Speaker 1: think it's just important to know that stock investors they're
• 12:25
  Speaker 1: investing based on their bets on the future, and bets
• 12:29
  Speaker 1: can often be wrong. Um as we all know as
• 12:32
  Speaker 1: economics journalists asking for economists forecasts all the time, but
• 12:37
  Speaker 1: sometimes they're right. Well, we are going to take a
• 12:39
  Speaker 1: quick break here and when we come back, we're going
• 12:42
  Speaker 1: to discuss at what point a stock market route may
• 12:46
  Speaker 1: begin to affect the real economy despite everything that we
• 12:49
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  Speaker 1: may not be appropriate for all investors. So I think
• 13:42
  Speaker 1: one important development to note in all this discussion about
• 13:47
  Speaker 1: volatility and the stock market in the economy is is
• 13:50
  Speaker 1: what economists are thinking, and especially Federal Reserve economists and
• 13:55
  Speaker 1: leaders at the Central Bank, how they are approaching this
• 13:58
  Speaker 1: because they have some very big decisions on their hands
• 14:01
  Speaker 1: this year. They just started there tightening psychlarly, are increasing
• 14:06
  Speaker 1: interest rates and UM in August, back when we had
• 14:10
  Speaker 1: our past episode about China, they were actually prompted to
• 14:13
  Speaker 1: hold off and delay an interest rate increase in September
• 14:16
  Speaker 1: due to some of the volatility that we were seeing UM.
• 14:20
  Speaker 1: The Federal Reserve Bank of Atlanta's president, Dennis Lockhart said
• 14:25
  Speaker 1: that he is not super concerned that equity terminal will
• 14:31
  Speaker 1: hurt the U S economy. He said, if the volatility
• 14:34
  Speaker 1: continues for several weeks, he may have to revise that view,
• 14:37
  Speaker 1: but right now he doesn't see a connection between financial
• 14:40
  Speaker 1: markets abroad and the real economy here. It's just a
• 14:43
  Speaker 1: matter of how long it lasts. UM. So I thought
• 14:47
  Speaker 1: that was really interesting. And an economist that I spoke
• 14:50
  Speaker 1: with on this topic earlier in the week said, there's
• 14:52
  Speaker 1: a lot of emotion and ankst in the stock market,
• 14:54
  Speaker 1: and sometimes sell offs can become a sort of self
• 14:57
  Speaker 1: fulfilling prophecy, and it may create he is, less than
• 15:00
  Speaker 1: ideal economic conditions. So let's talk about how that might happen, or,
• 15:05
  Speaker 1: in Lockhart's words, how we might see this financial market
• 15:11
  Speaker 1: volatility translate into the real economy. Again, this is you
• 15:15
  Speaker 1: kind of get into this sort of circular type of
• 15:18
  Speaker 1: relationship within between all these different things. And I think
• 15:21
  Speaker 1: part of what he's saying is very is very true
• 15:24
  Speaker 1: that uh, at some point down the road, Yes, if
• 15:27
  Speaker 1: you have stock market weakness, if you have volatility, it's
• 15:31
  Speaker 1: going to UH, It's it's going to cause people to
• 15:34
  Speaker 1: either say, Okay, I want to put more money in
• 15:36
  Speaker 1: uh in the bank, I want to put more cash
• 15:39
  Speaker 1: under my mattress. However you want to think about it.
• 15:41
  Speaker 1: But I would just say that this kind of comes
• 15:42
  Speaker 1: back to the concept of allocation of capital, which is
• 15:46
  Speaker 1: that if the underlying economy is strong, if you have
• 15:49
  Speaker 1: because you've got basically two different separate things. You've got
• 15:52
  Speaker 1: volatility in stocks and the underlying economy. So volatility and
• 15:55
  Speaker 1: stocks they can be very volatile in a very good
• 15:57
  Speaker 1: economic environment. They work for a very long time. And
• 16:00
  Speaker 1: because of that, that doesn't necessarily mean that money coming
• 16:02
  Speaker 1: out of it is going too is lost money. What
• 16:05
  Speaker 1: it means it's going to be put elsewhere. And if
• 16:07
  Speaker 1: the economy is strong, we have the unemployment rate continuing
• 16:10
  Speaker 1: to improve, you have housing continuing to improve, largely pre
• 16:14
  Speaker 1: solid economy. Then if people are you know, are saying, listen,
• 16:17
  Speaker 1: I don't want to get involved in the stock market
• 16:19
  Speaker 1: as it's starting to get vaulatile, bounced around, They're just
• 16:22
  Speaker 1: gonna put that money elsewhere. Hopefully they'll put it into
• 16:25
  Speaker 1: purchasing items and do purchasing homes rather than stuffing on
• 16:28
  Speaker 1: their bed. But then you come back to the sentiment issue,
• 16:30
  Speaker 1: which is a lot of people now are kind of
• 16:32
  Speaker 1: worried that oh semin o way. I mean you guys,
• 16:35
  Speaker 1: I think graduate around the same time I did from
• 16:37
  Speaker 1: high school, went to college in no. Seven away. My
• 16:38
  Speaker 1: parents were all about, you know, study engineer and get
• 16:40
  Speaker 1: a career that's going to you know, survive whatever happens
• 16:44
  Speaker 1: for the next recession. I mean, people definitely have that
• 16:45
  Speaker 1: in their mindset. Still. Yeah, well, let's think about it
• 16:48
  Speaker 1: this way. You know, I have a small broker's account
• 16:51
  Speaker 1: from the very little money that I managed to save
• 16:54
  Speaker 1: in San Francisco, and uh, you know, I take a
• 16:58
  Speaker 1: look at my brokers like maybe once every two weeks
• 17:02
  Speaker 1: or so, and it's been doing pretty poorly because they're
• 17:05
  Speaker 1: mostly in you know, SMPI, et fs and things like that.
• 17:09
  Speaker 1: So it very closely tracks the health of the overall
• 17:13
  Speaker 1: US stock market. And when I see numbers like that,
• 17:16
  Speaker 1: I the next time I think about making a big purchase,
• 17:19
  Speaker 1: like I've been wanting to get my fourth bike, which
• 17:23
  Speaker 1: many people tell me is excessive, but I want a
• 17:25
  Speaker 1: new one, and I think about my broker's account and
• 17:29
  Speaker 1: how it really has been going down. Uh, it makes
• 17:32
  Speaker 1: me think twice about those big purchases, that's right, and
• 17:35
  Speaker 1: about I think I want to list out some of
• 17:37
  Speaker 1: these stats that I have from the Survey of consumer
• 17:40
  Speaker 1: Finances from the Federal Reserve. About forty nine percent, so
• 17:44
  Speaker 1: roughly half of households held stock either directly or indirectly,
• 17:48
  Speaker 1: in which Tori by the way is an amazing number
• 17:52
  Speaker 1: because in Japan, I think it's only like ten or fifteen. Really, yeah,
• 17:57
  Speaker 1: in the U S it's such a high ratio. Right, well,
• 18:00
  Speaker 1: most of families that do hold stock to it through
• 18:02
  Speaker 1: a retirement account. So the thinking is, if people see
• 18:05
  Speaker 1: their retirement accounts getting hit or like uauki you see
• 18:08
  Speaker 1: or other accounts getting hit, they might pull back and
• 18:11
  Speaker 1: they're spending. I mean even my for a one my
• 18:14
  Speaker 1: measly little for a one K account that I have
• 18:17
  Speaker 1: as a twenty five year old is with very little
• 18:21
  Speaker 1: money in it right now. But it sent me like
• 18:23
  Speaker 1: this flashing message at the very top, like a banner message.
• 18:28
  Speaker 1: In light of the recent market volatility, remember that your
• 18:30
  Speaker 1: retirement plan is intended for long term investment. Attempts to
• 18:35
  Speaker 1: time the market are rarely successful. Is that code for
• 18:38
  Speaker 1: you will never retire? I can't really do, guys, as
• 18:42
  Speaker 1: I strictly trade high volatility drivatives instruments. So the transmission
• 18:49
  Speaker 1: here is obviously household wealth. People see that their retirement
• 18:53
  Speaker 1: accounts down by however much money, They see their direct
• 18:57
  Speaker 1: holding stock of stocks down by however much money, and
• 19:00
  Speaker 1: they freak, um, they think that's money that they don't
• 19:02
  Speaker 1: have to spend anymore um and and they're not going
• 19:05
  Speaker 1: to They're going to pull back purchases. I also want
• 19:08
  Speaker 1: to talk about tighter financial conditions here because I think
• 19:10
  Speaker 1: this is a really important piece of how a stock
• 19:13
  Speaker 1: market route or stock market volatility in general could affect
• 19:17
  Speaker 1: the real economy. Interesting. Now, tighter financial conditions is is
• 19:22
  Speaker 1: a good topic because what we've actually seen is sort
• 19:25
  Speaker 1: of a natural tightening of conditions. So basically, we've been
• 19:29
  Speaker 1: waiting for this first rate hike and it finally happened,
• 19:31
  Speaker 1: and it was all celebrated the quarter point that we
• 19:34
  Speaker 1: finally got. But there was a period there, obviously where
• 19:36
  Speaker 1: tapering was tightening as well, and you saw this sort
• 19:39
  Speaker 1: of happen in credit spreads, and you saw this happened
• 19:41
  Speaker 1: in in bond markets. That there was a natural sort
• 19:44
  Speaker 1: of tightening of markets in general. Um, what I think
• 19:48
  Speaker 1: it means for the stock market at large, and I
• 19:51
  Speaker 1: think one of the most interesting stories will hopefully be
• 19:55
  Speaker 1: the rise in diversification of returns and diversion with the
• 20:00
  Speaker 1: stock market. Uh sorry, dispersion. So dispersion over the course
• 20:04
  Speaker 1: of the past four years has been very limited. That's
• 20:06
  Speaker 1: just the difference in terms of how each stock returns.
• 20:09
  Speaker 1: Everything's been moving together. So when we talk about you
• 20:12
  Speaker 1: and I, maybe we have a four O one K
• 20:13
  Speaker 1: and it kind of stinks when you look at it
• 20:14
  Speaker 1: and it's down. But there's a lot of investors out there.
• 20:16
  Speaker 1: They are waiting for volatilting. They want to be able
• 20:19
  Speaker 1: to see opportunities for which one stock is distinguished from another.
• 20:23
  Speaker 1: And as you have time to financial conditions, those companies
• 20:26
  Speaker 1: are going to start to move independently of another, So
• 20:28
  Speaker 1: the theory goes. People have been saying that largely for
• 20:30
  Speaker 1: the better course of eighteen months, and it hasn't quite happened.
• 20:34
  Speaker 1: But now that we have these different conditions, you don't
• 20:36
  Speaker 1: have that same upward float of all the boats. Uh.
• 20:40
  Speaker 1: It could make things possibly more interesting and advantageous for investors.
• 20:45
  Speaker 1: And let's also remember that at the end of the day,
• 20:47
  Speaker 1: people who have money in the stock market are people
• 20:50
  Speaker 1: who have done relatively well. You know, people who have
• 20:53
  Speaker 1: four O one case, they have like relatively good jobs.
• 20:55
  Speaker 1: And there are a lot of you know, low income
• 20:57
  Speaker 1: workers out there who have zero money in the stock market.
• 21:00
  Speaker 1: So for them it probably doesn't matter that much until
• 21:04
  Speaker 1: it feeds into the real real economy, like their job
• 21:07
  Speaker 1: prospects deteriorate. Um. But for our really rich people, for example,
• 21:13
  Speaker 1: most of their wealth is in equities. So I have
• 21:17
  Speaker 1: a stat for you about of of top ten percent
• 21:23
  Speaker 1: earners and when we're when we're looking at the income
• 21:26
  Speaker 1: distribution of them held stocks in and for earners in
• 21:31
  Speaker 1: the lower half, that figure is closer to another. Another
• 21:36
  Speaker 1: point we want to address here is uncertainty. Obviously, um,
• 21:41
  Speaker 1: any time the stock market is bouncing around like this,
• 21:45
  Speaker 1: it causes people to kind of take a step back.
• 21:48
  Speaker 1: And also looking at a broader context, people are continuously
• 21:53
  Speaker 1: wondering what the Federal Reserve is going to do, what
• 21:56
  Speaker 1: its next move is. And if they're kind of wondering,
• 21:59
  Speaker 1: all right, how is the Fed going to think about
• 22:01
  Speaker 1: the stock market, they're gonna kind of hold back on
• 22:04
  Speaker 1: any big plans that they may be doing. And if
• 22:07
  Speaker 1: if you're a business, and if you're a big business,
• 22:10
  Speaker 1: this is this sort of becomes a problem in terms
• 22:12
  Speaker 1: of your investment plans, and that's where it could start
• 22:15
  Speaker 1: to hit. Everyday people like Ak was saying, Um, you know,
• 22:19
  Speaker 1: maybe they're gonna wait to hire until some of this
• 22:22
  Speaker 1: volatility shakes out back in the slate summer, I guess
• 22:26
  Speaker 1: we'll call August and September. We did see UH, payrolls
• 22:31
  Speaker 1: kind of drop off a little bit. In September they
• 22:34
  Speaker 1: rose by just a hundred forty five thousand. That compares
• 22:37
  Speaker 1: with two in December, So people really did take a
• 22:40
  Speaker 1: step back and kind of gauge where things were going
• 22:43
  Speaker 1: before ramping up hiring again. So guys, let's get to
• 22:47
  Speaker 1: the bottom line here. Should we be worried about what's
• 22:51
  Speaker 1: going in the stock market right now depends on your
• 22:55
  Speaker 1: risk profile, but probably any time in each time you
• 23:00
  Speaker 1: have I think anytime you have quarter over quarter over
• 23:04
  Speaker 1: quarter of year over year decreases and earnings which we're
• 23:07
  Speaker 1: expected to get the third one UM disc coming a
• 23:10
  Speaker 1: couple of weeks, really you have to start to look
• 23:12
  Speaker 1: at what's going on. UM. There are a lot of
• 23:14
  Speaker 1: people out there that are pretty bearish UM for reasons
• 23:18
  Speaker 1: that many investors would disagree with. But I think the
• 23:20
  Speaker 1: most sound, simple argument you can make for why you
• 23:23
  Speaker 1: need to start thinking about what's happening in stocks right
• 23:25
  Speaker 1: now is because of the underlying picture for companies is
• 23:30
  Speaker 1: not terribly great. It's projected to recover a lot of
• 23:33
  Speaker 1: it is related to what's happening in the commodity space,
• 23:35
  Speaker 1: what's happening with oil, and what's happening as a result
• 23:38
  Speaker 1: of diverging economic policies around the world and its effect
• 23:42
  Speaker 1: on the dollar. How much of that is temporary. It's
• 23:44
  Speaker 1: gonna be very important because we're now starting to see
• 23:47
  Speaker 1: it not just happening energy but in other stocks as well. Um,
• 23:50
  Speaker 1: and that's going to be very meaningful, whether or not
• 23:52
  Speaker 1: it's going to mean a bear market, whether or not
• 23:55
  Speaker 1: it's going to mean ten you know down this year,
• 23:58
  Speaker 1: or if it's just going to mean more of a
• 23:59
  Speaker 1: stock pickers environment as the stock market that's driven by
• 24:02
  Speaker 1: companies that it really has been the past year, like Netflix, Amazon, Uh,
• 24:06
  Speaker 1: innovative companies that separate themselves from the rest of the pack. That's,
• 24:10
  Speaker 1: you know, is another result here. So but it doesn't
• 24:12
  Speaker 1: necessarily mean that our economy is going down the toilet exactly. Well, Oliver,
• 24:18
  Speaker 1: thank you so much for joining us. Thanks guys, I
• 24:20
  Speaker 1: appreciate it, Thanks for tuning into Bloomberg Benchmark. Will be
• 24:25
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• 24:27
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• 24:30
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• 24:37
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• 24:42
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• 24:45
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• 24:48
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• 24:52
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