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Kudla on the Fed and BOJ (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Pim Box and Kathleen
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  Speaker 1: Hayes on Blueberg Radio. We are broadcasting live from e
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  Speaker 1: t F Exchange b n Y Melon's et F Symposium
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  Speaker 1: in Dana Point, California. I'm Pim Fox, my co host
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  Speaker 1: Kathleen Hayes, and our next guest, well David Cudler. He
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  Speaker 1: is chief executive and the chief investment strategist for Mainstay
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  Speaker 1: Capital Management. He can be followed on Twitter at David
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  Speaker 1: Underscore Cudla KU d l A. David, Thanks very much
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  Speaker 1: for being with us. All right now, I've been trying
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  Speaker 1: to figure I've been trying to think of an analogy
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  Speaker 1: that you know that that would work here having to
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  Speaker 1: do with with stocks. And I was a kid. He
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  Speaker 1: used to fill a balloon with air. Right, you blow
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  Speaker 1: it up and you rub it on your head and
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  Speaker 1: you stick it on the wall and it stays. But
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  Speaker 1: for a while you have to keep doing that, or
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  Speaker 1: if you pump air into a balloon, eventually leaks out.
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  Speaker 1: Is that's what's happened with Central Bank, Paula See and
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  Speaker 1: equity prices, that all that money it's really just flashed
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  Speaker 1: into stocks. Yeah, we think that's largely what has happened.
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  Speaker 1: And you know, not just our Federal Reserve, but central
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  Speaker 1: banks around the world, maybe even more so other central
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  Speaker 1: banks around the world, the E, t V and B
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  Speaker 1: O J. We've had UH. Stimulus measure after stimulus measure.
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  Speaker 1: We've had UH since the Great Recession. There have been
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  Speaker 1: six fifty rate cuts by central banks around the world,
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  Speaker 1: more than six fifty rate cuts UH. And now we
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  Speaker 1: have negative rates in places. We have asset purchase programs
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  Speaker 1: the highest in history. And you know, we look at
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  Speaker 1: what are many people consider some weakening fundamentals for let's
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  Speaker 1: say the U S stock market, other markets, but the
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  Speaker 1: markets continue to do well because of Tina. There is
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  Speaker 1: no alternative. H. We have cash as dead money, bonds
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  Speaker 1: have zero to negative yields and are very low yields,
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  Speaker 1: and so stocks. The money continues to flow into stocks,
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  Speaker 1: and we believe, for instance, a bull market here continues
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  Speaker 1: to be fueled by central bank stimulus. Well, UH, I
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  Speaker 1: guest on the show at the top of the show,
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  Speaker 1: actually Frank Losala, who's with B and Y Melanin here
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  Speaker 1: at the et F conference in Dana Point UH said
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  Speaker 1: that in his view, even if the FED raisers rates
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  Speaker 1: once this year, you're still going to have so much accommodation.
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  Speaker 1: And we're really talking more about bonds and why he
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  Speaker 1: doesn't see bond yields rising much. If anything, maybe they
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  Speaker 1: could go a little bit lower and stay in this
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  Speaker 1: this low tight range is the same true for stocks.
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  Speaker 1: I think it may be true for stocks, But let's
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  Speaker 1: let's look at bonds first. And I might disagree with
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  Speaker 1: the earlier guest about bond yields. You know, we think
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  Speaker 1: they're Our bond yields on the intermediate, longer term into
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  Speaker 1: the curve are more a function of what's happening around
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  Speaker 1: the world than they are here. You know, our Federal
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  Speaker 1: Reserve of controls they pen the short end, they control
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  Speaker 1: the Fed funds rate. But when we look at tenure
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  Speaker 1: and thirty year bonds, we saw yields rise recently because
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  Speaker 1: of um, you know what was happening with the ECB.
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  Speaker 1: The now rumors about the operation reverse twist potentially from
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  Speaker 1: the BOG where they let the long end come up
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  Speaker 1: a little bit to step in the yield curve. You know, David,
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  Speaker 1: how does a chief investment strategists navigate this this current landscape?
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  Speaker 1: What do the fundamentals tell you, and is there a
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  Speaker 1: divergence between what the fundamentals are saying and what policymakers
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  Speaker 1: are actually doing. Yeah, PIM, that's a great question, and
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  Speaker 1: I think that's what individual investors and professional money managers
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  Speaker 1: alike are frustrated with because we live in this environment where,
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  Speaker 1: you know, if we look at fundamentals, we have a
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  Speaker 1: PEO multiple that is expanded by thirty over the past
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  Speaker 1: year and a half, while the S and P five
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  Speaker 1: is essentially where it was a year and a half ago,
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  Speaker 1: with altility along the way. Um, you know, we look
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  Speaker 1: at other measures like price to IBATA, which is earnings
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  Speaker 1: before interest, taxes, depreciation, amortization before the accountants get ahold
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  Speaker 1: of it and start to manipulate earnings, which really is
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  Speaker 1: looking at raw earnings or free cash flow that's at
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  Speaker 1: the highest ever. But there's a lot of measures we
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  Speaker 1: can look at in an economy that is growing at
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  Speaker 1: one that we've seen the I s M I s
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  Speaker 1: M numbers come down recently. Uh, job growth is slowing,
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  Speaker 1: and you know, we so it's a matter of you know,
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  Speaker 1: it almost becomes more a matter of how we handicap
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  Speaker 1: FED policy. If we look at just a week and
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  Speaker 1: a half ago, on a Friday, one Fed president spoken
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  Speaker 1: hawkishly in the market went down to an alf percent.
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  Speaker 1: On Monday, a Fed governor spoken duviishly in the market
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  Speaker 1: went up one a half percent, Which shows is how
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  Speaker 1: fragile this bull market is at this point and how
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  Speaker 1: much it is a function more of central bank and
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  Speaker 1: central bank stimulus than fundamentals. Okay, give us one or
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  Speaker 1: two strategies. Are gonna bow thirty seconds left here, Dave,
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  Speaker 1: to make money or not lose it at a time
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  Speaker 1: like this, sure, so to make money. You know, domestically,
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  Speaker 1: what do we do in the in the waning years
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  Speaker 1: of a bowl market. Well, we want companies that have
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  Speaker 1: a good business model, good quality companies and can defend
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  Speaker 1: their market share and profit margins. That brings us to
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  Speaker 1: an e t f uh like Mote m o a
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  Speaker 1: t vanneck Vector's morning Star Wide Mote et f uh.
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  Speaker 1: Companies like Harley Davison are in there an iconic American
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  Speaker 1: motorcycle brand. There there will never be a motorcycle brand
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  Speaker 1: like Harley Davison, Microsoft, Amazon. You know, these are defensible
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  Speaker 1: business models. And around the world we like emerging markets
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  Speaker 1: because of all the liquidity globally and then of course
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  Speaker 1: non correlated assets to give us that hedge on those
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  Speaker 1: days weeks once when the market takes a dive dive Coudla, CEO,
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  Speaker 1: chief investment strategist, Mainstay Capital Management. I'm Kathleen Hayes. Along
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  Speaker 1: with pim Fox, this is Bloomberg