00:00You've seen a lot of cycles. You've seen a lot of parabolic moves higher, a lot of parabolic moves
00:04lower. What do you make of the sell-off that we saw today? Is this just sort of, I guess,
00:09you know, I want to use the word correction, but just maybe a bit of a rethink of some of
00:14those sky-high valuations, or is there something more deeper going on?
00:17You know, Romain, one of the oldest sayings in Wall Street is up the staircase, down the elevator.
00:25And today was an elevator down. And what you have is an awful lot of trend followers,
00:33a lot of momentum players. They just pick the group that is rising. They don't care about
00:39valuation. And they place their sell signal very close on that trend line. And as soon as it,
00:45you know, breaks that, they are out. And that's why you get this trending market and then sudden
00:51move in the other direction. Sometimes you get it in bear markets on the other way around. You get
00:57the declines day after day, and then suddenly a sharp up move. So this is one of the oldest type
01:03of reactions that we see to these strong moves in markets that we've had over the last many decades.
01:12Well, this was one of the big criticisms about this rally, was the tight concentration
01:16in a few names and the idea that if, and obviously the huge sort of increase in multiples and the
01:22idea that if anything went wrong, you were going to get this rush to the door. Do you think that
01:27potentially, or at least maybe give me some idea historically, how that course corrects, if at all?
01:33Well, usually when you get this sort of trend, you get a sharp movement down. And then there's
01:38usually a recovery. And that's where you really look. Is it going to break the old highs or not?
01:44If it doesn't and trend down, that could be the sign of a more significant downward movement. So
01:52you know, my feeling is, yeah, we may go a little bit further on Monday or even Tuesday, but I
01:57expect
01:58a recovery from this. But it doesn't necessarily mean that the coast is clear. History tells us
02:06it would have to break those other highs to really move significantly higher. So that's really the point
02:13to watch. I think a little more movement downward, some recovery, and then keep your eyes on. But
02:19there's no question, I mean, you were absolutely right about the fact that we had stocks that were
02:26going up far in excess of earnings, maybe not one year earnings, but multi-year earnings. They were
02:32pricing these increase in chip earnings that they would extend into the infinite future. That's the
02:39only way you can justify a doubling and a tripling of a stock when the earnings double or triple. A
02:44lot
02:44of people came to me and said, oh, Dr. Segal, their PE is not really rising. And I said, do
02:50you think
02:51that those earnings can stay at this escalated level for the next 10, 15, 20 years? As we know,
02:57semiconductors, chips, they have a cyclical background. Even four years of strong earnings,
03:06if it goes back to trend, only justifies a 20% increase in price, not some of the 100%
03:13increases
03:13that we've been seeing. Well, Professor, you know, you bring up earnings and certainly think about why
03:18we had a nine-week weekly rally when it comes to the S&P 500. A big part of that
03:24time was dedicated
03:25to earnings. We were in the thick of it and the numbers were coming in great. And I just wonder,
03:31you know, what catalysts look like from here? Because you mentioned we could see, you know,
03:35this current sell-off continue for the next few days, but it feels like for the next couple of
03:39weeks, we're going to be really focused on the macro. We got that job sprint at 830 this morning,
03:44rocketing yields higher. We have a bunch of inflation prints to dig into next week. And then we have
03:50a big Fed meeting the week after that. And I wonder, you know, what the macro backdrop sort of
03:56pretends for the motion of markets from here, when you think about all the different concerns about
04:01how the Fed is going to thread the needle between very strong job growth and a pretty inflationary
04:06environment. Okay, you're right. I mean, the macro today was a big jump in, I mean, that was a blowout
04:13employment report. I don't know anyone on Wall Street. You guys collect the data on, I know,
04:19you know, 20 or so individuals. I don't think anyone was that high. And not only that high,
04:26but the revisions were so high. And the revisions, a lot of, I mean, we saw a big increase in
04:33the
04:33leisure. Of course, healthcare has been strong for a while. That's one reason you saw that rotation
04:38away from tech. People are saying, hey, you know what? The non-tech economy is not dying.
04:44It seems to be hiring. And I think that's one reason why we actually, you really got a big
04:50rotation today, rather than just a general sell-off, as you might think when you have those yields
04:56coming up. We should not ignore, as you people know, what's going to go on. I guess it's Thursday
05:02of next week with the SpaceX IPO. I mean, that's what everyone's talking about. Are people selling
05:10some of their tech stocks to raise cash to buy that? I mean, so many people I know have been
05:16informed by the brokerage firm, hey, how many do you want to buy? They don't know what they're going
05:20to be allocated. And some of the people say, I've got to sell to get cash if I'm allocating what
05:25I want
05:26to buy. So, I mean, that's what's going on next week. You're right on the CPI and the PPI, important.
05:34And, of course, if you're talking about macro, two weeks, Kevin Warsh's very first statement, wow,
05:42we have a calendar that is just unreal in the month of June. Yeah, no, it is incredible. And you
05:50think
05:50about sort of the environment that the new Fed chair is inheriting, and it's certainly a tough one. But I
05:56want to talk a little bit more about that SpaceX IPO, because you think about the valuations that
06:01we're talking about, you think about the retail allocation and the fact that it's going to be
06:05fast-tracked, this IPO, into many indexes, not the S&P 500, but some of the FTSE Russell indexes and
06:12the NASDAQ 100. The cynical take is that maybe this is what finally bursts the bubble. Maybe this
06:18is what finally, you know, hearkens the end of the bull market that we're currently living in right
06:24now, Professor. I wonder, you know, what you'll be keeping an eye out for and whether, you know,
06:28you think some of those worries actually are founded. Well, I think there are worries. I mean,
06:35it's like so many people I talk to say, you know, I want a piece of SpaceX and I don't
06:41care about the
06:41price. When you stop caring about the price, you're going to be disappointed. You know, something else
06:49that, you know, we just heard that some of the brokerage firms have been saying, you've got to
06:54hold this stock for a week or two weeks. And something was, oh, good, it stopped speculation.
06:59But actually, I think it's going to worsen the situation because that will reduce the supply
07:04once the stock starts trading. And that may mean that SpaceX is actually going to start out at a much,
07:14much higher price. And I have to say, I think that that's going to mean disappointment. Now,
07:20Nasdaq is going to buy it. It's maybe a couple of weeks and it may be even come down 50
07:25percent
07:26in that period of time if they don't allow enough supply to meet the, you know, the unheard of
07:32type of demands that we've been listening to on next Thursday.
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