there really seems to be right now. This disconnect
between what bond traders are doing and what equity traders
are doing. We see this global sell off in
bonds, but a global rally in equities, what
gives, well, I think what you're seeing with
the sell off in bonds is that investors are looking
to go elsewhere. Uh they certainly don't want to
be in an asset class, like a seesaw.
If the yield goes up, their price will be
going down. So they're gravitating towards that area that
most likely has better upside potential and that's equities right
now. And I think that investors were heartened by
what Fed Chair Powell said yesterday that they're really not
going to remain behind the curve. They're going to
be much more proactive. I mean in this case
, you know, you mentioned that equities, they
probably have the upside potential right now. But I
mean does that make more sense to go into equities
than it does something like gold or some other inflation
hedge? I'm not going to say Bitcoin but with
inflation so hot right now, our equity is the
place to be because we've heard a lot over the
past few months that inflation should be bad for stocks
. Well inflation typically is bad for stocks. If
you look back into the 19 seventies, we started
that decade with a year on year change of headline
CPI I at 5.4% we ended the decade at 12.4%
and not surprisingly we ended up with only a 1.6%
compound annual growth rate for the entire decade. So
uh yeah inflation is not very good but usually when
you have a Fed that is attempting to maneuver a
soft landing like we saw in 1994 then that actually
would be relatively good. We we do like energy
, it is an inflation hedge and also it would
benefit from the reopening of the global economy gold.
On the other hand, if you have the Fed
take a much more proactive approach in order to try
to tamp down inflation, then there's less of a
fear trade that would cause investors to go into gold
. Okay, Sam I want to get back to
this idea of where we were two years ago and
where we are now because the S and P 500
is up about 100% since March 23rd 2020 but we
are off about 6% from all time highs reached earlier
in january. Are we going to see the second
birthday of the bull market tomorrow? We won't see
the Bull Market Birthday. Well the birthday will be
tomorrow unless we hit a 20% decline sometime down the
road. It doesn't have to hit a new all
time high by tomorrow. It simply means that in
order for this bull market to be confirmed as such
that we eventually will need to Eclipse that January 3rd
high. Um so right now it is a like
Roger Maris's 61 home runs, there will be an
asterisk for the time being, and SAm I want
to zero in on today's action. And I know
it's so hard to really make sense of one day
in the market, but it is striking to see
Treasury yields up across the curve and to still see
such a strong rally in risk assets, specifically stocks
, specifically tech stocks. I mean, how do
you make sense of this? Because if, I
think over the past few months, typically yields higher
has meant tech stocks lower. Absolutely. Well,
there is a pretty steep negative correlation between the 10
year yield and the pes on the S and P
500 in general and growth stocks in particular. So
not surprising that tech, uh, communication services,
consumer discretionary where the leaders to the downside as investors
were worried about higher interest rates. But now,
I think at least we're going through a relief rally
. I think we have to sort of wait and
see how this plays out, chances are it does
look as if the bull trend has reasserted itself,
but I wouldn't be surprised if in the next week
or so we do end up digesting some of these
gains Before we continue to work our way higher,
meaning that we're in store for some sort of decline
like we saw last week. I mean, it's
pretty remarkable to see the bounce back on the S&P
500 in just five days. Sam yes, I
do think we'll see some digestion of gains. Uh
, I mean, let's face it, what really
has changed other than the fact that the 10 year
yield uh, went, you know, from 2.15
to now. What, 2.35 and higher. We
continue to have that unrest, the war in Ukraine
and concerns. And now that the Fed not only
will have to raise seven times this year, but
those times are likely to be 50 basis point increases
. So if anything, what could say that the
headwinds have gotten stiffer rather than easier? Well,
that's what I'm trying. That's what I'm trying to
say. And that's what my conversation with, you
know, with Katie has been about today and yesterday
is is in fact, we've actually seeing the Fed
become more aggressive yet we've seen Katie, the equity
market respond this way. It's really a head scratcher
. Sam with those headwinds. What do you do
? How do you make sense of it? How
can you have any conviction in the games that we're
seeing? Well, it's hard to have a lot
of conviction in the games that were games that we
are seeing. However, when you do look to
the fact that we had four consecutive 1% increases,
um, in the past week and that really is
a fairly rare occurrence. And typically looking 3,
6, 12 months down the road, That is
a signal of higher returns ahead. I think we
have to realize that we're in the midterm election year
. What I call the sophomore slump of the presidential
cycle, volatility is 40% higher than the average for
the other three years. So volatility is something we're
just gonna have to deal with this year. But
I do think we end higher on the year.