So let's turn back to the major indexes joining me
now is Michael jones Chair and Ceo at Caravelle concepts
, which offers asset allocation financial planning software to investment
and wealth management firms. Thanks so much for joining
a rough day for stocks. Do you think it's
overblown? Actually, the reason is, is that
the Fed chairman, Powell cleared up any ambiguity today
about where the Feds head is at. The Fed
is single mindedly focused on tightening until they bring down
backward looking measures of inflation like C. P.
I. And the GDP deflator. They don't care
about growth, they don't care about unemployment. They
are going to keep tightening until they see what they
want in those backward looking measures of of inflation.
And I think in doing that, the Fed is
sending two very different signals to different types of investors
to bond investors. The Fed is saying, we've
got your back, go ahead and buy that 10
year Treasury at 3%. We're gonna make that a
money good investment by bringing inflation down the equity investors
. He's saying too bad, so sad. You're
gonna have to deal with a very likely in uh
recession and all that that's going to mean for corporate
earnings. So I think the market kind of read
this correctly today, bond yields not really much action
, their equity prices, pricing in potential earnings pain
. Okay, so let's stick with that equities for
a second here, Michael, the mid june lows
. We had rallied pretty nicely off of those july
saw a gain on the month of 9% for the
S and p up until today, we were basically
flat on the month of august but perhaps a different
story now with the dow shedding 1000 points as our
screen shows, do we retest those lows? What's
in store for stocks going forward? Well, the
challenge in trying to decide what we're going to test
those june lows is the rally off the june road
lows was very, very rationally motivated. We've seen
money supply collapse from a positive 25% to a 4%
shrinkage. We've seen commodity prices collapsed, we've seen
a rollover in housing inflation, we've seen a rollover
in the headline inflation rates. All this is signaling
that the Fed should not be so single mindedly focused
on backward looking inflation? It should be ready to
start transitioning to say, have we got enough tightening
in the pipeline? The message today was, we
don't feel that way. I think the equity markets
and equity investors bouncing off those lows correctly anticipated that
inflation is going to continue coming down the the uncertainty
that we're gonna have to deal with and I'm afraid
it's very difficult to predict the actions of the Fed
policymakers, but will they recognize what investors have recognized
that inflation are coming out The economy relatively fast and
that these forward looking measures of inflation are getting better
and better. Will the Fed continue to ignore that
and keep tightening until we're into a recession anyway.
I think that's that's anyone's guess my for the long
run, I do believe we're gonna be okay buying
at levels between here and those lows because ultimately 1218
months out inflation will be down. Things will be
looking back. So, Michael, my question for
you is what measures are signaling to you that July
was not a one off event. We did see
inflation take a little bit lower but still well above
the Fed's 2% target, but people unsure as to
whether or not. Again that was a one off
. What indicators data points are you seeing that indicate
that inflation will continue to come down here in the
month of August and ahead. So I'm an old
fashioned Friedman monetarist. And when money supply hit 25%
18 months ago, we started saying, we're gonna
have a very nasty bout of inflation we have now
seen because of the Fed tightening and the market reaction
to that tightening. We've seen money supply collapse and
it's now shrinking. That's the number one motivation for
us to be comfortable that inflation will keep coming down
. You're seeing that money supply impacting commodity lumber is
back to the lows of 2.5, 3 years ago
, oil is coming down, copper has collapsed.
These are all the forward looking measure of inflation and
then there's one other big deflationary impulse that no one
seems to be talking about and that is while we've
been freaking out about inflation, china property markets have
continued to collapse and it is spreading beyond simply their
property markets too. You saw the Ceo of Huawei
say yesterday that Huawei is in serious trouble and that
means as the large company in china, the entire
chinese economy is starting to see huge headwinds. The
chinese Communist Party isn't going to just sit back and
watch the economy collapse. They're going to start subsidizing
exports even more. They're going to be dumping product
on international markets and that's going to bring inflation pressures
down as well. Okay, so you said you're
buying at these levels, Michael, what would you
recommend buying in the stock market? I think the
two things that you buy, you buy the 10
year treasury, I think the Fed made crystal clear
today that that is going to be money good in
the next 12 to 18 months inflation is gonna come
down and that's gonna be, it's good. It
will also help hedge the next recommendation we have,
which is growth stocks. You know, you saw
actually the NASDAQ outperform the down today. And I
think that's a rational recognition that if we're going to
tighten until we get a slowing then and that means
future inflation is not gonna be as bad as we
feared. And so that's going to support growth stock
prices, but also you're gonna put a premium if
if the Fed puts us in a recession, there's
gonna be a premium on growth and you're gonna want
that growth in your portfolio in the next 12 to
18 months now. Are there certain stocks, are
you stock picking Michael or would you recommend buying growth
outright in the form of a NASDAQ E. T
. F. For instance, we were an asset
allocation firm so we're not focused so much on individual
names. I will say that an interesting way to
play our growth dream is to actually buy quality Instead
there are plenty of E. T. S.
That play a quality theme instead of a pure growth
. What you get in quality is you get the
same kind of growth characteristics, solid balance sheets.
The kind of companies that do well in a in
a slow going economic environment. But the quality trims
off the most frothy, excessive valuation companies that tend
to hold growth back as a matter of fact over
the last 30 years, quality has outperformed growth by
about 300 basis points per annum with very similar upside
characteristics. And what are some of those E.
T. S. That you think do provide quality
and growth at the same time? Well, we
are we are partnered with S and P. They
provide the intel inside to our to our our analytical
process. So I probably for compliance purposes shouldn't,
you know, I've got a little bit of a
bias there towards the S. And P indices since
they're our partner when it comes to the Feds path
forward? Of course we're gonna get more data,
Michael between now and that september meeting to show what's
happening with inflation to show what's happening with the jobs
market. The jobs data absolutely soared that we saw
in july more than double what economists had expected and
more than half a million jobs created which during any
economic time is about three times what you would normally
see on a monthly basis. And so how does
that factor into the inflation equation into the economic outlook
if job gains continue at very strong levels? Is
it possible that inflation can really come down well?
We believe that we're kind of living through a fairly
unique kind of job market and and actually this is
one of, I think the tragedies of the feds
backward looking focus towards inflation because I think this is
one of the rare times when they actually could achieve
a soft landing kind of goldilocks outcome. And the
reason is, is that for the last year and
a half to you, corporate America has struggled to
attract enough talented individuals to staff their operations and they
are right now very cognizant that employees aren't a cost
, they are an asset. So for the first
time in my lifetime, corporations are seeing slowing growth
and yet they are not laying people off, they
are fighting to maintain their staff. I don't think
that's a symptom of inflation. I don't think that
is a symptom of growth continuing to be too strong
under underneath the surface. I think it is a
mind shift change in corporate America that after the pandemic
, they are recognizing that their greatest assets is their
people and they're fighting to hang on to them.
All right, we're gonna leave it there. Michael
, jones Chair and Ceo at Caravelle concepts. Michael
thanks so much for coming on.