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Infrastructure And The Markets · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. I want to bring
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Speaker 1: in right now, she told Prasad, small and MidCap growth
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Speaker 1: portfolio manager and research analysts at Jennison Associates. She tall
0:28
Speaker 1: here at Bloomberg Radio. All day, we've been focusing on
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Speaker 1: what's going on down in Washington. Uh, you know, getting
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Speaker 1: some of these bills passed. Do the good folks at
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Speaker 1: Jennison do they care or you guys just focusing on
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Speaker 1: what are earning? Is going to be next quarter, next year,
0:43
Speaker 1: that kind of thing. Hey, guys, it's it's good to
0:47
Speaker 1: be with you again. And it's actually a really funny
0:49
Speaker 1: question because I think for the most part, we aren't
0:52
Speaker 1: really as concerned with it, and I don't know if
0:56
Speaker 1: even the markets are, um, you know, admittedly on our
0:59
Speaker 1: team and we you know, we're on a morning meeting
1:01
Speaker 1: every single day. We're just not talking about uh the
1:05
Speaker 1: infrastructure package, the social package that the DC is talking about. UM. Instead,
1:10
Speaker 1: we're really focused on more immediate issues like UH inflation,
1:15
Speaker 1: interest rates, the supply chain disruptions, UH, COVID, and you
1:19
Speaker 1: know things even like China and the power shortages there.
1:21
Speaker 1: So so to your point, UM, I think we're focused
1:25
Speaker 1: more on immediate term issues that are affecting our investments
1:29
Speaker 1: UM and looking forward to what what companies will say
1:33
Speaker 1: on on third quarter earnings. Yeah, so she tells us,
1:35
Speaker 1: you look at kind of all of these media intern
1:37
Speaker 1: issues that you just listed out, especially the supply change
1:40
Speaker 1: as we approach earning season, how is that affecting your
1:43
Speaker 1: investment thesis at this point? It's a real challenge, UM.
1:48
Speaker 1: You know for pretty much all of our companies across
1:51
Speaker 1: all of the sectors. So you know, we at Jennison
1:54
Speaker 1: we invest in companies that broadly UM, you know, whether
1:58
Speaker 1: it's tech, healthcare, UM, industrials or work there and there
2:03
Speaker 1: is very few parts of the economy that have been
2:06
Speaker 1: untouched by the supply chain issues. And I think what
2:09
Speaker 1: we're trying to do on our team is really figure
2:12
Speaker 1: out is it really transitory? As the FED has suggested
2:16
Speaker 1: it or is it going to be more persistent? UM?
2:19
Speaker 1: I think what is clear is that UM that the
2:23
Speaker 1: alleviation in some of the the supply chain issues, whether
2:27
Speaker 1: it might be labor or UM, you know, products coming
2:30
Speaker 1: from China is going to persist for longer UM. And
2:34
Speaker 1: so what we're looking at with where regard to our
2:35
Speaker 1: investments is UM, is the demand environment still strong and
2:40
Speaker 1: can our companies mitigate some of these supply chain challenges
2:44
Speaker 1: still put up decent earnings? And the hope is that UM,
2:48
Speaker 1: the economy just stays you know, stronger for longer. And
2:51
Speaker 1: she told you that's a big topic, that being the
2:54
Speaker 1: supply chain issues. That's a topic that Kaylee and I
2:57
Speaker 1: and Matt, you know, we spend a lot of time
2:58
Speaker 1: talking about, talked to is many in a diverse group
3:01
Speaker 1: of people's we kennel this issue. It just feels like
3:03
Speaker 1: a boy it's it's a global issue number one and
3:06
Speaker 1: number two, it doesn't seem to be abating at all.
3:10
Speaker 1: I mean, it's not just microchips and uh, it's everything
3:14
Speaker 1: UM and it includes logistics, transportation. How do you guys
3:18
Speaker 1: think about that? Are you are you discounting that this
3:19
Speaker 1: could be a longer a bigger issue for longer. It's
3:24
Speaker 1: a really tough question and and certainly at the top
3:27
Speaker 1: of mind for everybody. I do think that the pandemic
3:30
Speaker 1: has created uh, some near term and medium term challenges
3:37
Speaker 1: in that things shut down and our economy shifted from
3:41
Speaker 1: a service economy to a more product oriented economy, and
3:45
Speaker 1: the ability for so many manufacturers across the entire global
3:48
Speaker 1: supply chain just couldn't ramp up fast enough. Uh. Couple
3:52
Speaker 1: that with COVID related shutdowns, government stimulus that are that
3:57
Speaker 1: are impacting labor, we just have a real height crunch. Now.
4:01
Speaker 1: I think one by one some of these issues will resolve, UM,
4:05
Speaker 1: but it's not resolving at the speed and um at
4:10
Speaker 1: the pace at which I think most people expected. UM.
4:13
Speaker 1: So I do think that we are expecting that this
4:16
Speaker 1: is going to happen in the longer term. I do
4:19
Speaker 1: think that things that will resolve, you know, investments in automation,
4:23
Speaker 1: investments in um in you know, reasshoring, getting supply chains
4:27
Speaker 1: close sort of manufacturers, all of that will be deflationary
4:31
Speaker 1: at some point. But we just it's going to be
4:33
Speaker 1: a lot longer than we thought. We're also looking for
4:35
Speaker 1: resolution as Paul said at the top on Capitol Hill,
4:38
Speaker 1: and I just I just want to kind of pick
4:40
Speaker 1: apart why you aren't interested in infrastructure spending because coming
4:43
Speaker 1: into as we looked at those runoff elections in the
4:47
Speaker 1: Senate in January, the narrative was, if we get a
4:49
Speaker 1: blue sweep, we're gonna get a ton of fiscal stimulus.
4:51
Speaker 1: That's great for domestic stocks like the small caps. So
4:55
Speaker 1: is the small cap thesis not predicated on getting some
4:58
Speaker 1: of that longer term to stick orient and spending. You know,
5:03
Speaker 1: I would say to you that it is really the
5:06
Speaker 1: fact that we're very close to getting anything done in
5:09
Speaker 1: Washington is a really positive signal. Um. Having said that, um,
5:14
Speaker 1: you know, as we just talked about with supply chains,
5:16
Speaker 1: if we do see an infrastructure bill. Uh. First of all,
5:20
Speaker 1: you know a lot of times what happens with many
5:22
Speaker 1: of these funding packages, it takes a while for some
5:25
Speaker 1: of those moneys to actually flow down to the local municipalities.
5:29
Speaker 1: So you know, we might not see the money or
5:32
Speaker 1: the economic boost of that at least for some period
5:35
Speaker 1: of time. Um. The other thing I've mentioned is that
5:38
Speaker 1: some of the things that are actually in the infrastructure
5:40
Speaker 1: package are things that we at Jennison are already investing
5:43
Speaker 1: in be that five G, you know, the broadband, um,
5:48
Speaker 1: you know, electric vehicle charging stations and just you know,
5:52
Speaker 1: many different things to again bring back UH manufacturing and
5:56
Speaker 1: supply chains to our you know, to the U S
5:59
Speaker 1: show worth. UM. So I think what we'll expect us,
6:03
Speaker 1: what we expect to see is the infrastructure would be
6:06
Speaker 1: a would help sustain the economics thoth that we're seeing
6:09
Speaker 1: today rather than boost it because the truth is we
6:12
Speaker 1: don't have the labor or the materials fair enough. All right, Chantil,
6:17
Speaker 1: thank you so much for joining us as always should
6:18
Speaker 1: Teel Prossad small emit cap Growth PM at Jennison Associates. Alright,
6:26
Speaker 1: we had a ton of ECO data out this morning
6:29
Speaker 1: and one of the bigger numbers was the m manufacturing
6:32
Speaker 1: came in better than expected. Let's break it down with
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Speaker 1: Tim Fury, chairman of of the Manufacturing Business Survey for
6:37
Speaker 1: the Institute for Supply Management based in Miami, Florida. So, Tim,
6:41
Speaker 1: good number, good gain from last month. What's your take
6:44
Speaker 1: on the ism manufacturing? Yeah, thanks, Paul. So another strong
6:49
Speaker 1: month of demand. Demand was really positive in all areas.
6:52
Speaker 1: New orders were good, new export orders are up, Customer
6:55
Speaker 1: inventory is still way too low, backlog still near record has.
7:00
Speaker 1: Demand just just continues to beat expectations. The production side
7:05
Speaker 1: saw very slight growth about a half a point if
7:08
Speaker 1: you combine production as well as employment. Uh. The issue
7:12
Speaker 1: there remains labor head count at the handless companies as
7:16
Speaker 1: well as their suppliers. So the big story again for
7:18
Speaker 1: the month is this is a supply restricted growth environment.
7:22
Speaker 1: We actually reverse some softening on the supply delivery side. Uh,
7:26
Speaker 1: and we also saw prices kind of go up again too.
7:29
Speaker 1: So yeah, demand has never been the problem, and on
7:32
Speaker 1: some of those kind of supply side constraints. I see
7:34
Speaker 1: the average lead time for materials rose to nine two
7:37
Speaker 1: days in September. That's the highest going back. Is that
7:43
Speaker 1: going to improve anytime soon? What's your sense? Well, I
7:47
Speaker 1: mean that's driving a lot of other activity too, So
7:51
Speaker 1: you know some of the things that that is probably
7:52
Speaker 1: doing is probably having having an impact on the new
7:55
Speaker 1: order levels. Because the price is continuing to go up,
7:58
Speaker 1: you're going to try to capture the rice today, especially
8:01
Speaker 1: if you're not so confident what's gonna happen three months
8:03
Speaker 1: from now, A couple of months from now, there was
8:06
Speaker 1: a belief that Okay, prices are going to soften a
8:08
Speaker 1: little bit, so hold back on your orders until you
8:10
Speaker 1: see it happening. But I think it's a reversal here
8:13
Speaker 1: on on the prices side. People are jumping back in
8:16
Speaker 1: and placing orders extended lead times. You know, I'm here
8:19
Speaker 1: in stories of fifty two weeks on semi conductors, six
8:22
Speaker 1: months on steel, and you know, who really knows what's
8:25
Speaker 1: going to happen one year from now. So that's the
8:28
Speaker 1: risk to the manufacting environment, is that if things start
8:31
Speaker 1: to soften and you have all these extended orders out
8:33
Speaker 1: there at higher prices, you know what's going to happen.
8:36
Speaker 1: But none of that's going to happen in the short
8:38
Speaker 1: term here, I because everybody's really positive that things are
8:41
Speaker 1: going to continue. As we close the year, Q one
8:44
Speaker 1: is going to be a strong period Q two most
8:47
Speaker 1: likely to the questions that remains on Q on half two.
8:51
Speaker 1: But I don't think anybody sees a falling off the
8:53
Speaker 1: clip of that, So Tim. It's interesting though the labor issue.
8:57
Speaker 1: We we hear that in so many different industries, but
8:59
Speaker 1: it's one thing finding it difficult to find people to
9:02
Speaker 1: come in and wait tables and flip burgers. But I'm
9:04
Speaker 1: thinking these manufacturing jobs are are highly paid, you know,
9:08
Speaker 1: good benefits, um some unit unionization. I'm kind of surprised that,
9:13
Speaker 1: you know, manufacturing America is having a labor problem. Yeah,
9:18
Speaker 1: it's a mix. I mean, it's it's a mix. There's
9:20
Speaker 1: there's definitely a cadre of direct labor who have long
9:23
Speaker 1: tenure with the company, a lot of knowledge, highly skilled.
9:26
Speaker 1: They're most likely not going to jump for a five
9:29
Speaker 1: percent increase down the street. Um. And that's that's probably
9:32
Speaker 1: not the issue. But there is quite a bit of
9:34
Speaker 1: load of moderate level, skill level labor. We had of
9:39
Speaker 1: our comments were higher. Comments again for the month of
9:42
Speaker 1: September of those indicated that they were having difficulty, which
9:46
Speaker 1: is up twelve points from August, which was a bit
9:48
Speaker 1: of a surprise. Of those companies claimed. Of all the
9:52
Speaker 1: companies claimed high levels of turnover being a significant challenge.
9:57
Speaker 1: And and that's that's people jumping for a way it
10:00
Speaker 1: increases down the street, as well as what's becoming clear
10:03
Speaker 1: is a lot more retirements than we normally see. And
10:06
Speaker 1: and finally, just quickly, we know that there's an energy
10:08
Speaker 1: crisis on going in many parts of the world. China
10:11
Speaker 1: factories are getting hit by it in Europe as well.
10:13
Speaker 1: Is there any sign of that becoming problematic here in
10:16
Speaker 1: the US? Well, here we go right, controlling and products
10:19
Speaker 1: and natural gas feed into pretty much everything you can't
10:21
Speaker 1: make steal without energy. Probably the cost of steelers energy, cement,
10:26
Speaker 1: I mean, classics is all natural gas. We we we
10:30
Speaker 1: never we haven't seen crew this high in a long time.
10:32
Speaker 1: Eighty I think it's like eighty bucks for uh less
10:34
Speaker 1: less touchas intermediate. What concerns me more is natural gas
10:38
Speaker 1: is five fifty to six dollars. That's that stars limited
10:41
Speaker 1: our competitive advantage around the world. Part of that is
10:44
Speaker 1: being driven now by the fact that we don't have
10:46
Speaker 1: enough wells injecting, and we're also exploring quite a bit
10:49
Speaker 1: of energy to the Southeast Asia that the places three
10:52
Speaker 1: acts so not very good. I think longer too. We
10:55
Speaker 1: gotta fix that because that's what makes America really competitive.
10:58
Speaker 1: It is it's very competitive of dos. Hey, tim thanks
11:01
Speaker 1: so much for joining us. Always a love of conversation
11:03
Speaker 1: that includes cement and steel and all that good stuff.
11:07
Speaker 1: Good manufacturing talk for Friday. Timothy Fury, Chairman of the
11:11
Speaker 1: Manufacturing Business survey at the Institute for Supply Management. They're
11:15
Speaker 1: based in uh wash, Miami. And but we've had some
11:18
Speaker 1: good manufacturing data pretty much all throughout the pandemic. Uh,
11:21
Speaker 1: you know, kind of Middle America has been cranking it through,
11:24
Speaker 1: so some good data there. So kayleie, this is day
11:29
Speaker 1: one of the fourth quarter. A lot of folks are saying,
11:33
Speaker 1: I got a sprint to the dash here to put
11:34
Speaker 1: up some numbers. I'll hate DESPONDI joins us. He's founder
11:37
Speaker 1: and chief investment officer of Centerstone Investors on the phone
11:39
Speaker 1: from New York City. So I'll pay if I'm a PM.
11:42
Speaker 1: I'm sitting here October one. I got three months left
11:45
Speaker 1: to the year. Maybe I'm a little bit behind my
11:48
Speaker 1: my index. What do I do today? Uh, what's a
11:53
Speaker 1: good question. I mean, there's there's so many cross currents.
11:55
Speaker 1: I mean, at center Stone Investors, we're running the marathon,
11:59
Speaker 1: not the sprint, so you know, we're kind of um
12:03
Speaker 1: taking a longer view of things. But you know, for
12:06
Speaker 1: those people who are focused on more of the short term,
12:09
Speaker 1: short term, there's plenty of cross ones. I mean, the
12:12
Speaker 1: main thing I think that people are struggling with is
12:15
Speaker 1: um you know, are we are you? Are we about
12:16
Speaker 1: to do this again? The economy's running hot, so there
12:20
Speaker 1: was some inflation. So the sitting forward looking numbers are
12:23
Speaker 1: that the economy is going to slow down. You can't
12:25
Speaker 1: absorb the inflation, so it's slowing down. But the Federal
12:28
Speaker 1: Reserve are they looking in the rear view or not
12:31
Speaker 1: in the past. This is basically every single cycle, right,
12:33
Speaker 1: you have the inflation numbers go up, and then the
12:35
Speaker 1: Fed kind of panics a little bit racist race, but
12:37
Speaker 1: by then the economy is already flowing down. They turn
12:39
Speaker 1: something that should be routine into something more, you know,
12:42
Speaker 1: they create the Frankenstein that ruins the village. So it's
12:45
Speaker 1: a lot to process. If you're focused on the short term,
12:47
Speaker 1: that's for sure, okay, But as you say, but you're
12:49
Speaker 1: focused on the long term. So if you're running a marathon,
12:52
Speaker 1: what are your biggest hurdles? Is it, you know, the
12:55
Speaker 1: pulling back of fiscal and monetary support, is it these
12:58
Speaker 1: kind of supply side issue? Is is it just valuations?
13:02
Speaker 1: More broadly, what makes you nervous? You know, it's it's
13:05
Speaker 1: continues to be the unpredictable sort of unknowns, right, And
13:10
Speaker 1: part of I mean the main, uh sort driver of
13:13
Speaker 1: these unknowns is that policy makers feel the need to
13:16
Speaker 1: be you know, constantly involved. You they just do not
13:21
Speaker 1: economies that cover Yeah, I mean in some ways, the
13:25
Speaker 1: unpredictable part of it is what are they gonna do next, right,
13:28
Speaker 1: another couple of trillion or shut down the entire world economy?
13:31
Speaker 1: And things are recovering. So if you, if you, if you,
13:33
Speaker 1: if we, you know, we look at things from the
13:36
Speaker 1: longer term perspective I mentioned at center Stone, and from
13:39
Speaker 1: a longer term perspective, I mean from a value investors
13:42
Speaker 1: you know, perch uh, there's plenty of value and uh,
13:47
Speaker 1: you know, plenty of reasons to be optimistic. Um, you know,
13:50
Speaker 1: provided that you can sort of assume that there's going
13:54
Speaker 1: to be interference in the in the market economies for
13:56
Speaker 1: some time. But the economies seem to be strong enough
13:59
Speaker 1: to the standard, all right. So with a longer term
14:03
Speaker 1: perspective of a are you guys at center uh center Stone,
14:07
Speaker 1: are you more thinking I'm sticking with the long term
14:10
Speaker 1: top line growth stories tech, healthcare things like that, or
14:14
Speaker 1: are you playing maybe maybe a little bit longer reopening
14:17
Speaker 1: trade on from a global perspective, Yeah, I'd say it.
14:20
Speaker 1: I mean if you had a bucket iss, it's definitely
14:22
Speaker 1: not in technology. UM, I think that area of the
14:24
Speaker 1: market is very expensive, maybe justifiably. So it's not really
14:29
Speaker 1: what we do. It's not our expert piece, but um
14:31
Speaker 1: for for for us, you know, the last eighteen months
14:34
Speaker 1: allowed many many businesses around the world that we're in
14:38
Speaker 1: more industrial and cyclical areas to address some glaring cost inefficiencies,
14:44
Speaker 1: something that would have taken years. I took a few
14:47
Speaker 1: months that were able to just cut massive amounts of costs.
14:50
Speaker 1: Frankford Airport, for instance, reduced their expense structure by three
14:53
Speaker 1: hundred million euros, something they would never have been able
14:56
Speaker 1: to do without the kind of the cover of uh
15:00
Speaker 1: you know, quote unquote cover of this past eighty months.
15:03
Speaker 1: So what we're looking at is a whole host of
15:06
Speaker 1: companies that have reduced their cost structures and that have
15:08
Speaker 1: massive amounts of operating coverage. So as there is a recovery,
15:12
Speaker 1: whether it's six months from now or a year from now,
15:14
Speaker 1: the operating leverage means that the earnings growth potentials is
15:17
Speaker 1: just tremendous and the stock prices do not reflect that.
15:20
Speaker 1: So that's kind of where you know, we find a
15:23
Speaker 1: lot of opportunity, but it does require patients. As I said,
15:26
Speaker 1: there's so much interference by you know, by sort of
15:28
Speaker 1: the authorities that it's you know, pushes the timeframe a
15:32
Speaker 1: little bit further beyond beyond work. Yeah, so let's let's
15:36
Speaker 1: talk about some of those authorities, the fiscal authorities. I
15:39
Speaker 1: who knows what's going to happen with the infrastructure and
15:42
Speaker 1: social spending package down on Capitol Hill, what ultimately look like,
15:45
Speaker 1: what the pay force will involve in terms of higher taxes.
15:50
Speaker 1: How are you operating with that uncertainty of what corporate
15:54
Speaker 1: tax rates are going to look like going forward into
15:56
Speaker 1: the future, and how that affects some of the companies
15:58
Speaker 1: you want to invest in. Well, we're US investors only partly, um,
16:03
Speaker 1: we are global investors. The majority of our exposures a
16:06
Speaker 1: global and we don't have these tax issues like this
16:09
Speaker 1: kind of nonsense going around from most of the countries
16:11
Speaker 1: were investing. Um, So it only really affects our US names,
16:16
Speaker 1: and in particular those US names that are only US focused.
16:19
Speaker 1: So the tax cuts that they had put in place
16:21
Speaker 1: many years years ago really benefited local US companies. So ironically,
16:27
Speaker 1: you know this will affect domestic you know, companies have
16:32
Speaker 1: predominantly or domestically oriented the United States. But that the
16:36
Speaker 1: you know, it's not going from it's going from twenty
16:40
Speaker 1: maybe twenty five or six, and you know, we'll see
16:43
Speaker 1: it exactly as you mentioned, Kay, there's we don't know yet,
16:46
Speaker 1: but um, that's kind of the scale of it. I
16:48
Speaker 1: don't think that's enough to really destroy uh, you know,
16:52
Speaker 1: a business. On the margin. It will impact what they
16:56
Speaker 1: do with their uh you know, excess sort of free
17:00
Speaker 1: cash flows, right, but you know, I don't see a
17:04
Speaker 1: major effect because of that. All Right, I'll bet thank
17:08
Speaker 1: you so much for joining us. All A Desponde, founder
17:10
Speaker 1: and chief investment officer of center Stone Investors. Staying long
17:15
Speaker 1: this market here, and it's gonna be interesting to see, Kaylee,
17:18
Speaker 1: when we have earnings coming out a what the numbers are,
17:20
Speaker 1: of course, but be what the guidance is and what
17:23
Speaker 1: kind of confidence some of these C suites folks have
17:26
Speaker 1: an issuing guidance for their business. Yeah, especially considering these
17:29
Speaker 1: supply chain issues. I think there was an expectation for
17:31
Speaker 1: most of this year that they were going to ease
17:33
Speaker 1: up in the fall, you know, in the months ahead
17:35
Speaker 1: now that is a much larger question mark, And how
17:37
Speaker 1: do you give any kind of firm guidance when there's
17:39
Speaker 1: still so many constraints out there on the supply side. Yeah, absolutely,
17:43
Speaker 1: But on the flip side, I think analysts and investors
17:45
Speaker 1: are going to be really demanding of some guidance. Here,
17:47
Speaker 1: eighteen months into this pandemic. This is Bloomberg Today's October one.
17:56
Speaker 1: We have three quarters of one in the books. As
17:59
Speaker 1: we start to fourth order, let's check in on Phil Orlando,
18:02
Speaker 1: chief equity market strategist and head of client portfolio Management
18:06
Speaker 1: and Federated Hermes. So thanks much for joining us here.
18:09
Speaker 1: You've had a consistent constructive view of this equity market.
18:13
Speaker 1: Where are you now as we start Q four? Well, Paul,
18:18
Speaker 1: as we talked about, I guess going back into the
18:20
Speaker 1: August period, we uh the stock market was at record highs.
18:25
Speaker 1: We were up beginning of the year, up a hundred
18:28
Speaker 1: and seven percent since the pandemic trough in March. But
18:33
Speaker 1: we felt that there were a significant number of Washington
18:36
Speaker 1: related headwinds on the horizon during August, September, October, and
18:41
Speaker 1: we felt that the market was poised for five to
18:44
Speaker 1: ten percent pullback during that period, so we reduced our
18:48
Speaker 1: equity allocation a little bit, raise some cash when a
18:51
Speaker 1: little more defensive. With the benefit of hindsight, the market
18:56
Speaker 1: is down about five and a half percent or so
18:58
Speaker 1: over the last month. We think there could be another
19:02
Speaker 1: shoe to drop here, given the h the state of
19:06
Speaker 1: play in Washington right now. So I think we're just
19:10
Speaker 1: sort of sitting tight and watching how events evolve in
19:15
Speaker 1: Congress and at the Federal Reserve over the course of
19:18
Speaker 1: the next couple of days and a couple of weeks.
19:20
Speaker 1: So what would your re entry point be where you
19:22
Speaker 1: start to deploy a little bit of that cash and
19:24
Speaker 1: put it back to work in the equity market. Sure,
19:26
Speaker 1: A great question, Kaylee. I think there are two. From
19:30
Speaker 1: a price standpoint, what we're looking for technically speaking, was
19:34
Speaker 1: a pull back to the two day moving average. So
19:37
Speaker 1: in round numbers, uh, the two day moving averages is
19:41
Speaker 1: a little above the level. From a fundamental standpoint, we
19:46
Speaker 1: want to get a sense that that issues have been
19:48
Speaker 1: resolved or we're making progress towards that resolution. Now I
19:52
Speaker 1: think we've got our hands on the Federal reserve. Inflation
19:56
Speaker 1: is sustainable, and I think the Fed is now coming
19:59
Speaker 1: to that realization they're going to announce the tapering we
20:02
Speaker 1: think on November three. Uh, complete the tapering by the
20:06
Speaker 1: middle of the next year, and then rate increases start
20:09
Speaker 1: at the end of next year. We don't have any
20:11
Speaker 1: problem what the Feds doing. But when we look at
20:14
Speaker 1: fiscal policy. UM, we've got this continuing resolution that passed
20:19
Speaker 1: yesterday to keep the government running. But this death seiling
20:22
Speaker 1: issue is still uh, you know, very much an open question.
20:26
Speaker 1: We're very comfortable with the one point two trillion bipartisan
20:30
Speaker 1: Infrastructure bill, even though Speaker Pelosi has moved the vote
20:34
Speaker 1: dates out a couple of times. The big anchilada right
20:37
Speaker 1: now is how do we resolve this this five and
20:41
Speaker 1: a half trillion dollar human infrastructure bill. Um, We've got
20:44
Speaker 1: to see that number smaller, tighter, better targeted, less debt,
20:51
Speaker 1: less tax increases, and and and that right now is
20:54
Speaker 1: a very open question. And frankly, that's what's going on,
20:57
Speaker 1: you know, with Speaker Pelosi and her her members right now.
21:01
Speaker 1: How concerned are you about this inflation that we're seeing
21:04
Speaker 1: throughout the economy again feels less and less transitory, maybe
21:09
Speaker 1: a little bit more longer term. How do you guys
21:12
Speaker 1: think about that well, this is you know, you're you're
21:16
Speaker 1: preaching of the choir here. This this has been our
21:19
Speaker 1: talking point for the last six months. We thought the
21:22
Speaker 1: Federal Reserve had completely misread the sustainability of the inflation issues.
21:27
Speaker 1: Their argument was that once the procedural base effects you know,
21:32
Speaker 1: rolled off and made that inflation would sort of tame down.
21:36
Speaker 1: And and in our view there was there was no
21:38
Speaker 1: comprehension of what the impact was on on shelter food, inflation,
21:44
Speaker 1: UH wages, UH energy. Those prices were sustainable, they were sticky,
21:52
Speaker 1: and they were going to continue to force the core
21:54
Speaker 1: CPI much higher than the FED target. We just got
21:57
Speaker 1: an update this morning. August level for the last three
22:00
Speaker 1: months now has been three point six core pc the
22:04
Speaker 1: FEDS targets two and and it's now August, not May.
22:09
Speaker 1: So at this point I think the feed is thrown
22:11
Speaker 1: in the towel. And that's why the last two set
22:13
Speaker 1: of dot plots in June and September show slower economic growth,
22:19
Speaker 1: higher inflation. The fact that the set is acknowledging that
22:22
Speaker 1: and they're going to start to taper next month and
22:25
Speaker 1: start to tighten policy in terms of liftoff from zerup
22:28
Speaker 1: by the end of next year. I think that's exactly
22:31
Speaker 1: what they need to do. And so frankly, we're comfortable
22:34
Speaker 1: if the feed is going to make the right set
22:35
Speaker 1: of decisions. But there's one caveat in there. There's a
22:40
Speaker 1: potential leadership transition issue that is looming. President Biden needs
22:45
Speaker 1: to indicate over the course of the next couple of weeks,
22:47
Speaker 1: the next month or so, what he plans to do
22:50
Speaker 1: with um A chair, Powell's renomination and and and three
22:55
Speaker 1: other potentially open seats on the board. UM that is
22:59
Speaker 1: an too that the market we don't have answers to,
23:02
Speaker 1: and I think we need to have some sense of
23:05
Speaker 1: were President Biden wants to go with that. Yeah, it's
23:07
Speaker 1: gonna be a tough decision for the president, considering progressives
23:10
Speaker 1: like Elizabeth Warren have made their feelings quite clear this week.
23:13
Speaker 1: We'ren't saying two pals face. She does not want him
23:16
Speaker 1: reappointed for a second term. But then you have the
23:18
Speaker 1: moderates that Biden is going to need for any kind
23:20
Speaker 1: of confirmation Paul who would like Pal to stay. Yeah, absolutely,
23:23
Speaker 1: um in the markets don't like uncertainty. Hey, Phil, thanks
23:26
Speaker 1: so much for joining us once again. We always appreciate
23:28
Speaker 1: your time. Phil Orlando, chief equity market strategists ahead of
23:31
Speaker 1: the client portfolio management team at Federated Hermes. Uh. They
23:36
Speaker 1: got some money under management, about a hundred billion in equities,
23:38
Speaker 1: sixty five billion in total. So um, they know what
23:42
Speaker 1: they're talking about. And Phil mentioned he's historically been pretty bullish.
23:45
Speaker 1: They pulled back recently a little bit, got a little
23:48
Speaker 1: bit more conservative on these equity markets when they were
23:50
Speaker 1: pushing all time highs. Uh. They've pulled back a little bit,
23:53
Speaker 1: but Phil thinks it could maybe even pull back a
23:55
Speaker 1: little bit more to give them about the opportunity to
23:57
Speaker 1: put some of that capital to work. So they are
24:00
Speaker 1: a little bit cautious here and otherwise a constructive outlook.
24:04
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
24:07
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
24:11
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
24:15
Speaker 1: at Matt Miller three. Put on Fall Sweeney. I'm on
24:18
Speaker 1: Twitter at pt Sweeney. Before the podcast. You can always
24:21
Speaker 1: catch us worldwide at Bloomberg Radio.