00:00Okay, stocks heading for a fourth straight week of losses. Jonathan Golub of Seaport writing,
00:04the market has not had the defensive rotation that would be consistent with the current
00:09environment. Jonathan joins us now for more. Jonathan, good to see you.
00:12Good to see you.
00:12What did you mean by that line?
00:14Well, I mean, we're seeing the market offer. So the market's not off by a ton. It's off by about
00:184%. And it could be a heck of a lot worse. But the defensive sectors like healthcare and
00:26consumer staples are down by the same amount that industrials and materials are down.
00:31So if the market was really panicking, you're talking about these governments taking these
00:35emergency actions and all. But in reality, if the market was really as concerned as we're painting
00:42here, then what you would see is that industrials and materials and cyclical sectors would be getting
00:48hammered and people would be rotating into healthcare and utilities or REITs. And that
00:53is not happening. The market's taking the stride.
00:55You keep saying the market. I want to talk about the market. When I look at the bond market,
01:00I see a market that's pricing in a massive change. When I look at the commodity market,
01:04I see another market pricing in a massive change. Gas prices in Europe have doubled in three weeks.
01:09Brent's up 50%. We've had massive moves in energy, big moves in bonds. It's the equity market
01:15that's not bothered at all by this. Why is that?
01:18I think there's other things in the market that you can kind of look at, which is gold.
01:23Gold is down substantially. If there was a real sense of overwhelming concern,
01:31gold would be going up. If you look at high yield spreads...
01:34Just to push back on gold, gold's getting slammed because we're repricing rates. There's
01:37some speculation also that some gold holders aren't getting the oil revenue they were getting and they
01:42need to monetize the holdings. There's reasons for gold to be down. And they're not good reasons.
01:46Let's look at other things. Let's look at the VIX. The VIX was almost 20 before the war. It's in
01:52the
01:52mid-20s now. It's up. But if this was really a panic, if this was disorderly in the market,
01:59and it is not, you would see some higher high yield spreads, which are a prediction of,
02:03is this going to hit the economy in a way that people can't make their loan payments?
02:08And the high yield spread market saying is a little, but nothing to... Now, maybe that means
02:16that there's just too much complacency, but it's not just equities. We're seeing it in a number of
02:20other places. That's what I'm trying to figure out, John. We can spend some time on this.
02:23Equities have been well behaved. Spreads are still pretty tight. That's the pool of risk assets in
02:27both credit, high yield, and in equities. That's what's interesting to me. Not necessarily
02:33concerning, but interesting, that you've had such a great repricing in energy. Now you've had it in
02:38rates, but you haven't really had it in the assets that are most sensitive to a repricing of growth.
02:43I'm trying to work out why. Well, so if you look at what has changed, and I'm looking at the
02:51US
02:51market, the expectation of two Fed cuts has been taken off of the table. We can debate whether that's
02:58properly calibrated, but that's changed. If you consider that move on the short end of the curve,
03:04the long end of the curve has been reasonably orderly against that. It's moved about half of
03:10that amount on the 10-year bond yield. So I don't think the yield curve is doing anything that crazy.
03:15Oil, of course, oil prices are going to be disrupted. However, if you look at the oil curve,
03:21where does the market think oil is going to be at the end of the year? Three months, six months,
03:2512 months, 24 months, it's heavily backwardized, meaning the market's pricing this as a near-term
03:32shock, which is going to relatively quickly, but not immediately, resolve itself. And what equities
03:39are going to ask, what the equity market should be asking is, if I'm looking back at this event,
03:44at the end of the year, is this a headache then? Or is this a footnote and this will have
03:54proven to
03:54be a buying opportunity? The market right now is not panicking on this thing.
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