C (2:11)

Good Afternoon.

A (2:12)

I think a lot of the arguments we have in finance are often semantics, you know, But I think it can be helpful to define these cycles because it can kind of help you understand, you know, how much longer these things can go, especially with a bull market. So I created a chart probably about a year ago. So, Dan, give me a chart on here. I tried to match the start of the bull market, and I say 2009 to the 1980, 1982 to 1999 bull market. And you can see it's actually pretty darn close. And I haven't updated this in, I don't know, probably six months or so, but it's closer than you think. You've got a neat chart on sort of the longer term secular moves in the markets. It also includes valuation. So I guess my question for you on this chart, and you're looking at the secular bull markets, do you look at these things through more of a lens of valuations rising or falling, or is it really just like the length of time and magnitude? How do you try to define these things?

C (3:03)

Yeah, it's a great question. And I look at basically all of the above. But before I start, I would differentiate between market cycles tied generally to the business cycle, to the monetary policy cycle, to the waxing and weighting of earnings, et cetera, et cetera. And by that measure, we've been in a bull market, a cyclical bull market, since October 2022. We did have a 21% decline in March and April of this year, the tariff tantrum. But it was so short that I don't consider that a bear market. So I think the bull market is now 38 months old. And before then we had one from COVID to late 2021, et cetera. And so those are the market cycles. And we have bear markets by that standard every four years or five years or so. We've had 27 cycles over the past 150 years. And so that's kind of the typical bull and bear market cycle. Beyond that, we have secular trends. So these are long waves of above or below average returns. And so you pulled up the 2009 to present, which is what I think also is the current secular bull market. Many technicians, including colleagues here at Fidelity, disagree with 09. As a start, I think it's 2013, when the S and P finally bested the levels produced in 07 and 2000. It's not an exact science. There's only a few secular bull markets in history, given how long they last. So we, we don't have A really statistically robust way of determining this. So we're left with a more subjective approach. But 1982 to 2000, I think most people would agree, was the secular bull market. It's the one you highlighted. 1949 to 1968 I think was also a powerful secular bull market. They Both lasted about 18 years. So if you were to overlay the current secular wave against those two, like as you already did.

C (5:11)

We'Re like within like 10% of what would have been predicted 16 years ago. So really it's tracking very, very close. So the way I kind of come up with this is obviously you look at the timeline that secular bears are about 14 years, secular bulls are about 18 years. But you look at valuation. So the Cape model, right, the cyclically adjusted pen over a 10 year period tends to have strong forward looking.

C (5:42)

Implications for the next 10 year annualized return or CAGR. And so you look at that, and that kind of helps determine.09 as the start of that secular bull. I look at trend deviation, right? If you take a regression trend line, an exponential regression Trend line from 1870 to today, you're getting a 10, 10, 11% trend line in nominal terms, 6.57 in real terms. And then if you look at the actual market relative to that trend line, you can identify very clearly secular peaks and troughs. So at secular peaks, like in 2000 or 1968 or even 1929, the market was about 100% above that trend line. And at secular lows it's about 50% below. And in 2009 we were 50% below. So it's a mosaic approach. But I look at.

C (6:42)

All of those factors and that's kind of how I come up with these time periods. But again, it's not an exact science. Someone can make an equally compelling case that it was some other time. But the absolute PE level also matters because I often get, if someone pushes back to me at the 09 start, they say, well by that measure the 82 bull market would have started in 74. Cause that was the low. And my rebuttal there is yeah, but the real index bottomed in 82. The PE bottomed in 82. So it's like you just look at a bunch of factors and by that measure, to me, 09 is a good starting point. And it also started this whole kind of zero interest rate, fed balance sheet expansion, financial engineering era. Because every one of those periods has, has a, has a narrative to it, right? 82 to 2000 was declining interest rates and then it ended with A tech boom. And so that's my approach.

A (7:42)

So you mentioned the business cycle and I think that makes it even harder to define these because if you look at all the that 74 to 82 period was there was three recessions, right? In early 1980s there's two back to back recessions. Essentially we had the COVID recession but it wasn't really a real recession because so much money was thrown at it and essentially it was man made. So we really haven't had one in like 16 years. And these recessions keep getting, the time in between them keeps going further and further out. And I think part of it is because we're just a more mature, diversified, dynamic economy. Does that make it harder to define these cycles? Because we don't have like the recessions that happen every five to seven years as much as the bear markets do.

C (8:20)

Yes it has.

C (8:24)

The expansion cycles have gotten elongated and the recessions have become fewer and fewer. So back, let's say before the 1900s, that's going way back when the economy was really mostly agricultural. There was basically a boom bust cycle every two years. There was a recession every two years and it was highly deflationary.

A (8:47)

And they were nasty back then, right?

C (8:49)

They were incredible. Yeah. And then we had obviously the Great Depression and we had the start of the Fed and Keynesianism and policy trying to mitigate the business cycle and then we got into the four year cycle. So a recession every four year. And when I started out as a technician, the four year cycle was a huge thing like in terms of charting and you can line them all up four years apart were the lows. That's kind of gone now because the economy's become more of a service economy and now it's much more of an IP type of economy. And so these cycles kind of, you know, start to start to whittle away a little bit and once in a while you get a big one. Obviously the financial crisis was one, but from there, you know, we had before that we had.com was technically a recession but not a very big one. But the market fell 53%, you know, from 2002. And then we had Covid, which certainly was like a recession or it was even like a depression. But like you said, it was very short, it was kind of man made. And then there was so much money, helicopter drops coming in after that that the market fell 35%. I mean that is a bear market by anyone's count. But again it was very short. That 35% happened over six weeks and a few Months later, we were back at new highs. So even that one, you could argue a traditional bear market is measured both in price and time. And that one, even that one kind of came up short, but 35%, I'm going to call it a bear market.

A (10:30)

Yeah, that was like a 1987 situation. So the big question, of course, is like, how much longer could this possibly run? So let's do another question. I think that kind of gets into it.

B (10:37)

Okay. And I just asked, I just asked the live viewers, did the bull market reset in 2022? 74 are saying yes. So that's what they, that's what they seem to think.

A (10:48)

People have spoken.

B (10:50)

Okay, up next, we got, let's say this is a bubble or it morphs into one. Do you think we're closer to 1996 in terms of AI hype or 1999?

A (11:01)

So we got one recently like this. And pull up a chart here. Daniel, real quick. I put the 90s bull market, and I showed when Greenspan made that irrational, exuberant speech, but he wasn't really pounding the table. You've got some more charts like this. So let's show one of yours. You kind of have the bubble watch and you show the 98 to 2002, and you got a lot of good stuff on here because you show the 1994 kind of matches up with 2022. There's kind of a gap. But you're saying, listen, 1999 kind of really, or 1998, really, that LTCM Russia default that really matches up with the tariff tantrum of 2025. You also have some Cisco and Nvidia stuff. So we have a lot going on here. You can do the chart off here. Daniel. So it's easy, I think it's easy to make that AI.com bubble comparison. Like, do you think it's. It's really that simple, or do you think that, that there's, like, more going on here?

C (11:46)

So there, there are a bunch of dimensions here, but analogs are great. They're great until they don't work, of course, but they are instructive in telling us what we could or could not learn from history. And so 1994 was the Stealth bear market, as we tend to call it, where GreenSpan raised rates 300 basis points, the bond market cratered long. Bonds went to 8.6%, and the stock market just kind of did nothing for a year. It fell 10%, which is nothing. But two thirds of the stocks that year were down at least 20%. So it was not an Outright bear market, but a stealth bear market. And I mention that because then Greenspan achieved the soft landing. He gave back some of the rate hikes. That's what happened in 2022. Powell achieved the soft landing and he kind of stepped, took his foot off the brakes and we had this very big robust rally. In 95, S&P went up 38%. And in 95 Netscape went public. So that was sort of the birth of the Internet boom, or at least it's kind of a way to tell time.

C (13:04)

In 2022, in October the market bottomed and in November of that year ChatGPT was launched. So that's another sort of bell ringing event. And so Fast forward in 98 we had long term capital 22%, very brief decline, very robust recovery. And then Greenspan sprinkled three more rate cuts on top of that. And then we got into silly season, right? We had 1999, market was up more than 20%, but only 1/5 of the stocks in the S and P outperformed. So that was extremely concentrated, very narrow. It was the, what we used to call the Janus 20 stocks, like the growthiest, like down AOL, Cisco, those kinds of companies. And fast forward to this year, we had the tariff tantrum, a 21% decline, very fast recovery. Powell is about to deliver the third rate cut this year, so very analogous. And now we're starting to see some of the cats and dogs of the AI story run a bit wild. The Goldman Sachs nonprofitable tech basket or meme stocks or nuclear stocks, even the bitcoin miners have become kind of hyperscale in place. And some of the PS on those groups are like 200, right? But you look at the bottom panel of the chart that you showed, the real bellwether is obviously the Max 7 and especially Nvidia. It trades at a P of like 35 or something. Back then during the Internet days, Cisco was the bellwether or one of them. And in 1998 it traded at I think a 45 pe. By 2000 it was at a 215 p. Right. So those are the kind of like real eye opening valuation numbers and we just don't have those yet. We have them in some of the speculative corners, but not for like the big bellwethers. And so for me it's not a bubble. That doesn't mean it's not going to become a bubble, but it's not a bubble now. And my guess is that we are kind of on that 1999 timeline. But a lot of the extremes that we had back then are just not yet in place now.

A (15:24)

Daniel, put up the earnings and valuation chart of Uriens here. I think this one's interesting because you look on the bottom here at the growth in EPS but also the change in pe. I think that's the interesting thing is that the EPS growth is similar over the past five years but the change in valuations is not like the change in valuations went to the sky essentially in 1999. That hasn't quite happened yet. So you're right, the valuations seem to still be somewhat in check. I think that has to be sort of a good thing you can do chart off, Daniel. It is interesting though that. So I think we had five years in a row from 95 to 99 of 20% plus gains and we're working on year three right now. Right. It's pretty darn close and I think it would be four out of five years or something because 2022 is obviously the outlier. I think the biggest thing I keep coming back to is the fact that just these big companies are so much higher quality now than they were back then. Right. They're cash flow producing machines, they have higher margins. All the other stocks there are some speculative stuff going on but the companies that are really leading the charge, they have the earnings, they have the sale. So that's the biggest difference is the quality is much higher. That doesn't mean we can't get silly and we won't. But I think that's the thing you hang your hat on for not having that blow up like that.

C (16:37)

Absolutely. And I would just point out bubbles are always about valuation.

C (16:43)

A stock that goes up 100 times because it has 100 times increase in earnings is not a bubble. It's a very strong bull market, but not a bubble. And so what you showed in the chart back in 2000, earnings growth had propelled most of that run and, and then that side decelerated and then the valuation side took over. And we've had a similar run in earnings now, but we don't have the valuation side taking over, it's still on the earnings side. So if it is a bubble, I think we're a couple of years away from an extreme. And then in the meantime, Duncan, you were saying that you were worried a few weeks ago. I mean some of those cats and dogs started to really unravel and I think that's good. Right, because I did too. If you don't see that and this just, just keeps running, then you're going to have A real bubble and you know, there is no easy recovery from a bubble. Like then you have a real problem, you know, a real mess. So I would rather have the tree being shaken occasionally of the kind of the weekended longs and that only sustains the long term uptrend.

B (17:49)

Even, even with all that. Michael and Ben were talking on Animal Spirits yesterday. The VIX this year has peaked at what, what did you say? Around 50 or something? Ben?

A (17:59)

I think it might have got there during the Liberation Day stuff.

B (18:02)

So yeah, we have surprising that the VIX has been pretty low.

A (18:06)

But I agree that having some of the speculative stuff, people get slapped on the wrist, I think that's a healthy development as opposed to that stuff just keep going up and up every single day. So. All right, let's do another question.

B (18:17)

Okay, up next we got the historical inflation rate over the past 75 years or so is 3%. The Fed's target is 2% inflation. What do you think the right goal is and which level do you think is more likely going forward?

A (18:30)

All right, so I pulled up a chart on this. Daniel, put it up here. So the average inflation rate going back to 1950. I'll do the other one. My white charts one, nevermind pull this off. Maybe I didn't. It's like 3.5% but in the 2010s it was sub 2%. I think it was 1.8% was the average in 2010. So obviously that had a lot to do with the hangover from the great financial crisis. I think this decade so far we're looking at like 4% inflation. But the difference between it doesn't sound like much when you say well, 2% versus 3% but cumulative over a decade that's like. I think it's like 35% versus 20 something percent. So it's like a, it's over a 10% difference cumulatively. And that in terms of sentiment is enough to get people up in arms, which is what we've seen. Obviously you have a chart that plots out a handful of different inflation gauges and targets and Daniel, I can throw it up here. I'm just curious, what do you think is realistic going forward? Do you think that we're in this new world of 3% inflation because governments around the globe can't seem to slow their spending? Is that the new normal now? For the time being, yeah.

C (19:31)

So just to backtrack for a second. So over 150 years the inflation rate is 3%. So that's kind of the baseline obviously during the financial crisis era. And until very recently a few years ago, inflation was chron below 2, which monetary policy.

C (19:52)

Officials thought was threatening because it's relatively easy or not easy, but it's relatively straightforward to battle inflation. You just do a volcker and you raise the cost of capital until it kills the inflation beast. Deflation is a much more treacherous area to dwell in because as we know from the financial crisis and beyond, once you get to zero, you kind of run out of ammo and then you have to do kind of tricky stuff like play with the balance sheet and you never know what the risks are and the moral hazard is.

A (20:26)

And that stuff still didn't lead to inflation. Right. They tried everything they could and it still didn't help.

C (20:30)

Yeah. So how I delineated is the difference between fiscal and monetary policy. So During World War II, we had very loose monetary, very loose fiscal. Obviously we had the debt for the war. In the late 60s we had loose fiscal, loose monetary that created inflation.

C (20:49)

In recent years, until 2021, we had relatively not loose policy, but they were kind of imbalanced, let's put it that way. Now we have loose fiscal. We had restrictive monetary until now. We're now getting into neutral. And the thought is that if we get into a fiscal dominant era where deficits are going to grow and be very persistent and rates are going to get brought below what would be otherwise justified, so the Fed kind of loses some of its independence, you would expect inflation to come back. But so far the truflation index, which is a nifty real time inflation index, is running at two and a half and it's been fairly stable. But as you point out, look at the consumer confidence data. People are really concerned about the cost of living. And a Fed official might explain it away, or an economist as well. Two and a half is pretty close to target. But yeah, that comes after 3, after 4, after 5, after 9. And cumulatively the five year inflation rate is 4.3% now. And that is not something that mean reverts. It mean reverts around 2 maybe, but not around 0. So what does it all mean if 3 is the new 2, which I think it is because we have de globalization, we have state capitalism, we have potentially in the future a combination of loose fiscal and monetary. Stock market's not really going to care. If you look at returns or valuations versus the inflation rate, 1 to 4 is the sweet spot. So whether inflation is 3 or 2, stock market's not going to care. But the bond market should care, the term premium should care and The Fed should care, right? If a neutral rate is inflation plus let's say 100 basis points, so that would be R star, then neutral right now is 4. If inflation's 3, it's 3 and a half. If inflation's 2 and a half, which is what I'm going with, and the Fed is about to go to 3 and 5, 8. So the Fed is going to be very much at neutral. But at a time when fiscal deficits keep running, the economy actually is growing beyond potential and the inflation rate is still above the target. So it does to me create a risk of a bear steepening in the yield curve and maybe increasing inflation expectations going forward. But I think that's going to be mostly a bond market story unless the 10 year yield goes to 5 and then that's a problem.

A (23:32)

Okay, and we have, we have a good question. I think it's a follow up of like, what does this mean for your portfolio? Because like you meant the stock market doesn't care. Maybe the bond market will do the next.

B (23:41)

I was going to just follow up a lot of people, I see the sentiment in the chat right now. You know, people say, well, I've seen food Items go up 20, 30% over the last year to how is inflation really that low? You know, a lot of people don't believe the numbers. What do you say about how do you combat that kind of mentality?

C (23:59)

Again, it's level versus rate of change. Right. So the big inflation reset was in 2022.

B (24:06)

Right.

C (24:06)

The CPI was up 9% in the middle of 22 over 21. And the inflation rate has moderated since then. But again it's cumulative. Right. So if the price of eggs, of a dozen eggs, whatever, I'm just making this up, goes from 5 to 10 and then it goes to 11 and then to 12 and then to 13. The consumer is looking at this not like, well, it only went from 12 to 13 last year. That's a good rate of change. It's going to look at. It went from five to freaking 13 in three years. And that hurts. Right. So I think that's the disconnect between how academics think about inflation and how real people think about it.

A (24:47)

And no one's personal inflation rate matches that. It's an average. Of course there's a wide range and you look at the stuff and pay attention to stuff that's up in price a lot. And you don't really think about this stuff that has stabilized or gone down or whatever. So that's the average kind of gets you and Depending if you're paying for stuff that has gone up, then your personal inflation rate is different than the average. But it's an average.

B (25:07)

My walnuts have almost doubled in the last year. It's crazy.

C (25:10)

And I would make one more observation that when inflation goes above target of 2, in order to go back to 2, it needs to go back below 2 in order for the average to be at 2%. It hasn't done that. Right. It went from 1.5 to 9 to 2.5. And it's never crossed over 2. And not to alarm anyone, but the same thing happened in the late 60s, like 67, 68. Inflation went from 1 1/2 to whatever 5 or 6 during the Vietnam War, the guns and butter era. And then it went back to two and a half, and then it went to like seven or eight or whatever it was. And I'm not predicting anything like that. But it never compensated for that first push. And then so then it started making a series of higher lows. And that's when inflation gets really entrenched. And that, of course, is something the Fed and everyone else should really worry about, because once the expectations are entrenched, it's very hard to get the genie back in the bottle.

A (26:17)

The good news is the way to bring inflation down is a recession. So it's pretty easy. Let's just have a recession and that'll fix it.

B (26:23)

Everyone will be thrilled with that.

A (26:25)

All right, let's do another one.

B (26:26)

Okay, up next we got Ben, you recently wrote the 6040 portfolio was not dead, just dormant for a year or two. Do you think there's a case to be made that correlations for stocks and bonds will be higher with increased government spending and thus higher inflation going forward? And if that's the case, should we be rethinking this traditional asset allocation mix?

A (26:46)

All right, so Yuri and I wrote about this because I think the financial media has been trying to throw dirt on the grave of 6040 portfolio for a while. Dan, you can throw my thing up here.

B (26:53)

I think it's because it's boring. I just have to say it's boring.

A (26:56)

To write about it. It is boring. Yeah. And my main point that, like, if you think 6040 is dead, that means diversification. Said you can take that off. I think this year alone, a global diversified portfolio, 60:40 is up like 16%. So it's having a good year, obviously, after a really bad year in 2022.

A (27:12)

I do think a lot of advisors and investors began to question their long held beliefs on a traditional balance portfolio in 2022, since you had stocks and bonds both go into a bear market. So you have this chart that shows correlations and drawdowns of a 6040 portfolio. Daniel's put that one up here. And you show how they became more correlated in this past cycle. So I'm curious if you think that this theory of rising correlations staying with us for a while, it's legitimate. If we have 3% inflation instead of 2%, we have a lot of government spending. And then taking that a step further, does that mean we need, do people need some other diversifiers for a traditional portfolio mix?

C (27:50)

Yep. So, yes. So the 60 40, our generation of investors, you guys look a little younger than me, but from the late 90s until Covid, basically all you needed was S&P5 and Barclays, Bloomberg AG, and that was it. You got a 9% CAGR with a 9% volume while inflation was two and a half. I mean, like, what's not to like about that, right? Bonds were not only providing income, so it was a hedge that paid you to own it and it was negatively correlated to stocks. So when you had a drawdown, bonds were like a port in the storm, if you will. That's not how history has always been. So when yields are higher and inflation is higher and yields on safe assets like Treasuries are competitive with equities as they are now. Right. So the 10 year treasury yield is what, 415? You invert the PE on the S and P, you get somewhere in the low fours. And so when the risk free rate goes up and is competitive with risky assets, the risky assets need to adjust their valuation to compete. And of course, Alan Greenspan was a big fan of this approach. It was called the Fed model back in the 80s and the 87 crash was a very good example of that. Because yields were rising, the stock market ignored it and eventually you had the crash. So my sense is that in a fiscal dominance era, if yields are going to go maybe to 5% or even higher, the stock market's going to have to reprice itself. And it doesn't have to be a bear market. It just means the PE can only go up so much if the risk free rate is competitive. And so when I look at 60, 40 today, and we look at what happened in 2022 when bonds were not deported in the storm, bonds are now positively correlated to stocks, not as much as they were a year ago because that period from five years ago rolls off, but they are modestly positively correlated to stocks. They are providing an attractive Yield right at 415. And if inflation is 2.5 to 3, you are getting a real positive spread on that. But if they don't protect you against a drawdown in stocks, then what else can we own that are not bonds? And there are things we can own. They're not negatively correlated, but they're not positively correlated, they're uncorrelated. So gold is one various liquid alts like managed futures, long short equity, maybe tips, maybe commodities, absolute return, cash like strategies, they all start to play a role as substitutes for bonds even though they're not negatively quoted. There really isn't anything that's negatively quoted correlated. And I'll just add one more thing to that, that historically or over the past few decades we held bonds because when stocks go down, bonds go up. Before that time, during the Fed model era, it was often the bond market that actually caused the drawdowns in the stock market because yields would rise and then the stock market would start to wobble like we've seen in the last few years. And so that tells me that I want to have a hedge not against the 60 alone but against both the 60 and the 40. So for me the new 6040 is like a 60, 30, 10, a 60, 20, 20. I still want the 60 in equities and you can mitigate the kind of the concentration risk in the market with the Mag 7 by owning international equities which are very competitive finally for change. So the 60 I think we can work with and then the 40 is just you want stuff that doesn't behave like other stuff so that when something goes down, whether it's either the 60 or the 40 or the 20, that you have stuff that behaves differently. And gold has been the poster child of that. Gold has been the anti bond now. Well it's always been the anti bond but especially in the last few years.

B (32:10)

Silver is having quite a weak too, right?

C (32:11)

Yes, 60, amazing.

B (32:13)

Yeah.

A (32:14)

I also think if you want to keep that 40% relatively simple, it's not like a one decision anymore. Like you said, you own the AG. I think now it's hey, we own short term tips because we want that inflation piece and we don't want to act like bonds. Right. Because a lot of people own tips in 2022 but realized they were long duration and they got, they acted like a bond, not a inflation protection. I think owning something like T bills or cash is great in a rising rate environment because those yields pick up quicker and you don't have interest rate risk. So I think you also, if you want to just keep it towards fixed income, you might just have to be a little more thoughtful about the types of assets and strategies used within fixed income. So. Yeah, it's just not quite as easy as it was there for 20, 30 years. I think that's the point.

C (32:51)

Yeah. Yeah. The declining interest rate era, if that ended in 2021, means you don't have that secular tailwind anymore.

A (33:01)

Yeah. And I will say with bond yields at 4% to 5% at least there's more of a margin of safety now though. Absolutely right. They're not going to get crushed as bad as they did. All right, we have one more question.

B (33:09)

It's the same theme, is why we're seeing so much talk about private assets. Assets and private equity and things. Right?

A (33:13)

Yeah. That's what a lot of people want for their 10 or 20%. That's, that's a, that's a, an offset. Yep, for sure.

B (33:20)

Okay. Last but not least, we got a lot of people are worried about the swollen labor market. However, the financial markets don't seem all that worried. High yield spreads remain low and junk bonds are up about 5% this year. Why isn't there more concern in high yield yet?

A (33:36)

All right, so there are a lot of macro people freaking out about the labor market and I mean, for good reason. The data is slowing quite a bit. The stock market doesn't care. The S and P is less than 1% from an all time high. I think the Russell 2000 hit an all time high again this week. I looked at the returns. This must have been sent a couple weeks ago. If you throw my chart on here, Daniel, I think high yield bonds are up. I'll take that one off the high yield bond. High yield bonds are up 8% or something this year. Okay, so junk bonds are up 8%, spreads remain low. Urine, you have a chart on this. Let's throw up the equities and high yield credit chart. The spreads on high yield remain quite low. So my question for you is, why is this the case? Why is there such a big freak out with the labor market and people worried about the economy slowing down and it's not being reflected in the bond market yet? Is the bond market smarter than all the macro tourists or do you think the bond market is just going to be late on this?

C (34:22)

It's a great question. I mean, the labor market clearly is soft. I wouldn't say it's quite contracting. I mean, we've seen some layoffs, but I think generally speaking, kind of companies are not Hiring, but they're not really firing either. Obviously immigration has slowed, there's been just a slowdown in the whole jobs market. But, but in the past when that would happen, the credit markets would immediately start connecting the dots, say oh my God, companies are laying off people, they're going to make less money this and that and we're not seeing that. So the 10 year yield is very low at 415 almost to the point where the bond market seems to be worried that the government bond market. But you look at investment grade spreads, high yield spreads, there were 342 and 112, there's nothing to see here. And the credit analysts tend to know these things before the stock market people do. But earnings are growing at 11 12% are even accelerating. Margins are sky high and rising. And we have an AI boom. We have the 1 BBB.

C (35:33)

Build, the capex depreciation. The tariff tantrum ended up not being nearly as bad as what it could have. And so I think the markets are focusing on corporate balance sheets, free cash flow, margins, earnings growth. And if the layoffs are pertaining to maybe some pockets in the markets that are maybe being disrupted to by AI.

C (35:59)

People are going to care. But the stock market is not necessarily going to care about that because the fundamentals of the economy, of the corporate economy remain intact. So that could easily change of course. But at this point it's not bad enough I think to get anybody spooked. The Fed clearly is taking out some insurance cuts just in case. So the Fed certainly seems to be on the case here and maybe the 10 year yield is a little bit as well, but it's really not being reflected anywhere else. And we actually have some proprietary data on this because we do the benefits for so many companies that we have an eye on what happens to payrolls or like what we see in the ADP reports. And again we're not seeing a meaningful contraction or anything like that even if we don't have the payroll data to support that. So I think we're just in a slow and steady point right now.

A (36:57)

So you're saying you're still seeing people saving their 401s, still spending money, still getting. Yeah, so I think that's the point is the labor market is slowing, but it's kind of on the edges and it's not really impacting consumer spending as a hold yet, Correct? Yeah, that makes sense. So the market is right to not freak out quite yet.

C (37:14)

Yeah. I've been on 75 planes this year, I've traveled 103,000 miles and I don't think I've seen an empty seat on any of the planes. So the economy is still moving, no pun intended.

A (37:27)

It is quite crazy that people thought business travel was dead forever during the pandemic. Right. And it's come back. And same with me. I went to the airport last week and there was no spots in the parking garage. Right.

B (37:37)

It's also big trips too. I've met more people this year that are going to Japan than ever, which is kind of a big trip. You know, like John, our producer is there right now and yeah, I've known a lot of people go, you gotta.

A (37:51)

Do it before the dollar falls further. Get that cheap yen. All right, Yurian, tell everyone where they can find your weekly newsletter.

C (37:56)

Weekly Asset Allocation Review.

C (37:59)

So I publish this internally every Sunday. On Monday it gets sort of approved by our compliance folks. And then usually by Tuesday morning it lands on LinkedIn in its entirety like there it is. And I usually post a picture of my travels. So that was London like five days ago.

C (38:19)

And then there's a link to that report on X. And in addition to that, there's generally a YouTube video of a podcast that I do every Monday floating around on YouTube. So there's plenty of places to to find me and I'll next the handle is is at timmerfidel.

A (38:36)

Perfect. All right, well, thank you for joining us. This was great. You have some of the best charts in the game. As always, everyone subscribe to that newsletter. We appreciate it. Thanks everyone in the live chat for checking in this week. If you have a question for us, remember ask the compound showmail.com we'll be back here next week. Thanks everyone.

B (38:50)

See everyone. Thanks Jiren.

C (38:51)

Thank you.

C (38:55)

Thanks for listening to Ask the Compound. All opinions expressed by Ben Carlson, Duncan Hill and any of their guests are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

A (39:20)

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