00:00But Stuart, we want to start with you. Fed Governor Myron is advocating for 150 basis
00:05points of cuts in 2026. Do we need that? Would that make a difference in the labor market? And
00:10is that what needs to be targeted when it comes to the Fed? I think 150 basis points is way too
00:15much. I think that it really assumes that policy is super restrictive right now. But when you look
00:20at, let's say, credit spreads, when you look at asset valuations, when you look at household
00:25bankruptcies, when you look at credit card delinquencies and auto loan delinquencies,
00:30it's pretty clearly the case that monetary policy is not so restrictive that 150 basis points of cuts
00:35is warranted. I think that when we then look at the labor market, it looks to me like a lot of what
00:41we're seeing, the slower absorption of labor by firms, it looks like that's mostly due to a
00:46structural rebalancing rather than cyclical weakness. And when that's the case, again,
00:51why rush to make cuts? Why rush for 150 basis points of cuts this year?
00:55Sally, you're nodding. I see. Come on in.
00:57Well, look, I mean, I think there are two things.
00:59You don't have to agree with Stu just because he's next to you.
01:02Fair. First of all, the relationship between monetary policy and the labor market is tenuous
01:11at best. Second, inflation, as they said, is exactly where they think it should be. And that seems to
01:18be proven out. And the cyclicality has been significant. Part of why we are where we are right now,
01:25in terms of market highs, in terms of things like where precious metals are, is because growth has
01:32surprised to the upside again and again. And you're seeing that, to tie this all together,
01:37you're seeing that in productivity. When you look at the 18 companies that have off-cycle reporting
01:44and have already reported full year and third quarter, they are beating by, as did in the third
01:53quarter, about two times what the street had expected. So they're beating at about 14%.
02:00So things are pretty good.
02:01And not on revenues. Not on revenues.
02:03Okay.
02:04On productivity gains. On margin. And so things are pretty good. There's a lot of noise. A lot
02:10of it's coming out of D.C., like moment by moment. But things are good.
02:14Well, that noise from D.C., Stu, and we talk with you and we talk with Allie about this. I mean,
02:19we think about yesterday, all of the social media from President Trump, whether it was on the housing
02:23market, whether it was on defense companies. There is a lot, everything that happened in Venezuela,
02:27which makes you think, okay, what geopolitically next might happen? How do you continue to pull
02:32that in? And, Allie, we're going to ask the same of you. How do you continue to pull that in
02:35and factor it into maybe economic projections? Or do you not?
02:39Well, we do. We do think that there's going to be a considerable amount of fiscal tailwinds
02:44that support growth throughout 2026. We do get a lot of noise when it comes to things like housing
02:49policy. And then when we factor in something like a banning of institutional investors from buying
02:54homes, we then have to think about the knock-on consequences for home valuations, for household
02:59wealth. It starts to get very tricky. So we're sort of moving at the pace of policy as opposed to at the
03:06pace of rhetoric. And right now where we see the policy stance is that deregulation, fiscal tailwinds
03:12are going to support growth throughout the year. And again, when that's the case, no need to rush for
03:16cuts. Allie, what about when it comes to more spending from the U.S. government? What if the
03:20president gets his wish and sees an additional $500 billion in the defense budget from up from
03:25a trillion dollars? Well, then we have a couple issues because that's there's both sides of that
03:30trade, right? So then we have increased fiscal tailwinds, which are already, you know, through
03:36the big beautiful bill, which are already sort of myriad. And we've seen them already in a sense.
03:41You're talking about the deficit. And then you have the deficit, right? So all of these things play
03:46together. And I think to your point, you there right now, you have to invest on Fed directionality,
03:52not magnitude earnings, which is going to be significant this year, probably 10 to 12 percent
03:59and much more broad. Well, when we say much more, there are about 10 companies that made up 50 percent
04:05of the earnings in 2025. And quite honestly, the year before and the year before. Now they're going to
04:10grow at about 22 percent, while the rest is going to grow about four or five percent. But believe it or
04:15not, there is some more breadth to that. But those are the fundamentals you have to invest in. And
04:20then you have to understand that this concept that has been coming out of Washington the last couple
04:24of days, which is affordability, is a big deal because midterm elections are this year. And so
04:30there is going to be a lot of policy put forward, a lot of rhetoric. And it's almost going to be like
04:37a live action show for the next number of months, you know, seeing what happens between Trump and
04:44Congress, what happens in the Fed and sort of figuring out what if these are, you know,
04:51could happen 100 percent, what could happen 0 percent and what's happening in the middle.
04:56Stu, you've been looking at the midterms, right, and doing some kind of in-house calculations a little
05:00bit about whether or not we might see a GOP pushback or maybe it won't be as strong as everybody's
05:05expecting. Yeah. Ali brings up an interesting point about just how much affordability has been
05:09at the forefront of people's minds, including for voters. When we then take a macroeconomic
05:14perspective and we think about what really matters for voters as much as they're focusing on
05:18affordability because it mattered for the Mamdani election in New York, what seems to matter most are
05:23things like inflation playing into affordability and improving living standards. And when we then model
05:29out what the change in the structure of the House of Representatives is going to look like after the
05:34midterms, it actually doesn't look like voters are exactly rushing to flip the House. Right now,
05:41the betting markets are assigning about a 70 percent probability that the House flips to Democratic
05:46control after the midterm elections. But when I model out control of the House based on those major
05:52economic variables, inflation and standard of living, it looks like just about four Republican seats
05:58will flip. Again, this is very top down. And when you look at politics, you really need to go
06:03bottoms up from the congressional district and really understand how people are living district
06:09by district. But it doesn't exactly look like it's a mortal lock that the House is going to flip.
06:14It actually looks like it's going to be much closer in the president's favor in the midterms
06:19than betting markets are supposing right now.
06:21So Ali, bring it bring it home to the markets for us and to where you're advising people to put their
06:26money. Yeah. So this year, I called my last note lather, rinse, repeat. Over the last two years,
06:34you've seen the same thing. You've seen decreasing interest rates, helping bonds and equities.
06:38You've seen equities doing extremely well. Actually, last year, they were U.S. equities were dwarfed,
06:44in a sense, by non-U.S. equities. And you've seen commodities for a whole host of reasons,
06:50including the dollar, including geopolitical risk increase. I expect more of that to happen this
06:56year, because I think what we have is the same levels of support and growth, Fed directionality,
07:02fiscal tailwinds, AI. But we also have another that GDP keeps on surprising to the upside. And so
07:10really, there are a lot of tailwinds. And I also call it like fear of heights right now. It's hard to
07:16want to invest in these things. But there's reason to be bullish. We've got about 30 seconds
07:21left for each of you. Ali, I just want to ask you, were you making investment decisions based on what
07:26President Trump had to say about institutional investors not buying housing or about defense?
07:31Absolutely not. We make investment decisions based on the fundamentals of stocks, companies,
07:37companies, and the macroeconomy. When and if that changes, and these things could markedly change
07:44that, then we would make maybe tactical changes where we would overweight defense
07:51in something like that. But not on a tweet.
07:53But in terms of, well, absolutely. You'd get brain damage from doing that.
07:5725 seconds left for you, Stuart. Are we going to get brain damage coming off of the jobs report
08:01tomorrow? No, just real quickly, what do we need to know?
08:03No brain damage. I'm expecting 80 to 100,000 jobs added in the month of December.
08:08It feels low. It feels low if we consider the post-COVID hiring boom. But in the context
08:16of the break-even pace of hiring, that's double the pace needed to maintain a steady unemployment
08:21rate. 80 to 100,000 jobs would be a very good jobs report.
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