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00:00I think we've been talking a lot about tech lately. I mean, it's just the conversation you
00:04can't get away from. And by that, I mean, you know, sort of the, you know, the hyperscalers
00:08are mostly in a different sector, to be honest, but the, you know, sort of semis and the momentum
00:13trade, I think, is what we've been largely talking about. And what our work is showing on the semis
00:18is that you've hit the average valuation levels. If you look at sort of a five or 35 year average,
00:22we had been hearing a lot of clients saying they thought the momentum wine was late innings,
00:27close to done. It's gone on a little bit longer, frankly, than I would have thought.
00:30But I would say that's really the genesis of a lot of the conversations of late.
00:35Amy, when you, for your clients, are they, it's a big week for earnings, a big tech week for earnings.
00:41How are your clients in the futures and options? Are they leaning into these earnings? Are they
00:44saying, like, as Lori said, maybe the momentum thing is kind of coming to an end?
00:50It's so interesting because ahead of this week, you know, big four reporting, huge concentration.
00:56Tom's favorite word, skew, you know, it's pretty flat, meaning people are not really deciding to
01:01hedge in front of any of these stocks. It's actually fairly sanguine. Look, part of that is
01:06we already had a big move in sympathy with Alphabet last week. So some of that's taken it off the
01:11table.
01:12But to give you an example, Meta, you know, it's implied move on earnings day is about 7%. This
01:18thing moves plus or minus 10% the last four quarters. So the fact that it's an inexpensive move is
01:23pretty shocking. The magic of you two is your worker bees. I mean, you're out there hugely seeing
01:27clients. Do clients have a bet, Lori, on the market right now? Are they placing a bet out into
01:332027? You know, what's really interesting, Tom, and this has gone back a couple of months now is,
01:38you know, I go into the meeting and I have my price target and the methodology and the five models
01:43and yada, yada, yada. And people do want to talk about the valuation and earnings model because
01:47that's fairly unique in our process. But by and large, Tom, people don't want to talk about
01:51market direction. They want to talk about, let's look at all the sectors. Where's their
01:55opportunity? There's been this view, I would say, the last couple months. I've had plenty of AI. I've
02:00had plenty of tech. I've had plenty of semis. What else should I be looking at? And frankly,
02:04a lot of the choices haven't been that interesting to people. So you get kind of stuck in those
02:08conversations. So Annie, over in your world, and let's say it's more alternative, more hedge funds,
02:12more leverage bets using mathematics, do they have the same feeling of let's go?
02:19Yes and no. There's a little bit of nervousness. For instance, you know, last week, what we talked
02:23about is this whole levered ETF sphere. There's a lot of, you know, what tail will wag the dog
02:29because we've had, you know, my favorite term, the paddling duck on the surface. But you've had
02:34these huge multi-standard deviation drawdowns and momentum factor. You have a lot of leverage piled
02:40onto these ETFs that are accumulating. And then if you get a burst of correlation,
02:44what does that mean to the markets? A little bit of nervousness. But when you look at the
02:48hyperscaler specifically, option sentiment's pretty sanguine.
02:52Lori, these earnings we've been having over the last several quarters, including this quarter,
02:55have been just extraordinary. I mean, it's almost August here. I think I need to start thinking
03:01about 2027. Are comps going to be like really brutally tough?
03:05Well, I think in terms of, you know, kind of 2Q versus 2Q, there's going to be some walkiness.
03:11But I think the reality is that companies, you know, have done a beautiful job of managing
03:15through all the challenges we've, you know, as a society have thrown at them so far.
03:20That doesn't always last. And so one thing we've been highlighting to people is that sort of a risk
03:25we see in the coming months is at some point, you may need to pull down 2027 earnings forecasts.
03:30And that's not so much about the comps, but it is the idea that if you look at the Iran
03:34war,
03:35for example, the buffers, the inventories, the hedges, those things that are kind of getting you
03:39through the next couple quarters, well, you're going to have to reset those, you're going to
03:42have to replenish those. We even heard last week, one rail talking about how plastics inventories
03:48were starting to be rebuilt, those are going to be done at higher prices. So I think that,
03:53you know, kind of the idea of what you were able to manage through this year, if you have lingering
03:56impact next year, might just not be so easy.
03:59Across America this morning, and in Canada as well, Amy Wu Silverman, Laurie Calvacina together
04:04from RBC Capital Markets, Paul Sweeney with the ladies who they lunch, the dinner, they're
04:14in airplane terminals a lot.
04:17Yep, yep, exactly right. I remember those days. Amy, are you surprised that we're not
04:24seeing more hedging in your world? I would think on margin, we hear about the Wall of Warrior.
04:29I would think we have had a pretty good year here. Earnings can't get any better than this,
04:35can they really? Are you surprised maybe you're not seeing more hedging at all in your world?
04:38You know, I try to talk my book and the talk about how hedging is still relatively inexpensive.
04:43I think there's this element here of people still remember back to April 2nd. They still remember
04:48back to Liberation Day. They know there's this kind of cohort of retail who likes to step in.
04:54They like to buy the dip. It's changed a lot of the relationships in our market. This idea
04:58of spot goes up and volatility goes up. You know, that's a little mind-blowing for someone like me
05:02who's been in the market when that's not true. But there is that hesitancy. I do think as we kind
05:07of cross out of earnings, maybe into midterms, you start getting more overall correlation and pick
05:12up risk, maybe some more geopolitics that does start to change. So I don't know. I mean,
05:19I'm thinking about this, Laurie. Are there sectors here? I got to get away from the AI trade at some
05:24point. Where do I go? I mean, do I buy financials, health care?
05:28Well, look, increasingly, right, AI is penetrating everything.
05:32You know, back at our energy conference in June, I went to one day of it and heard a lot
05:37about how the energy companies are powering data centers. I mean, but look, I do think that if you
05:42look outside of tech, we've been overweight financials for quite some time. We've been sticking
05:46with that, reiterating that. The valuations still look reasonable. I wouldn't say they're cheap.
05:51Earnings revisions are very strong. And look, last week, you know, I was sort of responsible
05:56on the team for reading the financials companies. And I was just really struck by all the innovation
06:01that's coming out of certain companies, not necessarily just the big banks, you know,
06:05but seeing companies talk about things like prediction markets and how that appeals to their
06:09client bases, seeing the retail brokerages talk about this new retail investor and how we've really
06:15changed who's participating in the market. There's a lot of really interesting stuff going on in
06:20financials besides AI right now.
06:22Amy, the people that you talk to, like they're all, the difference here is they all drive
06:26Maseratis, you know, and fancy cars like that. Lori's talking to people, they got, you know,
06:32they got the Range Rover. There's a difference here in terms of cars. The fancy people you talk
06:38to like Coop, you know, who's on your friends and neighbors on TV, are they in the market now?
06:44Are they cruising through the summer? What's the intensity right now?
06:48I would say, you know, prior to maybe two weeks ago, there was kind of a positioning clean out.
06:54And a lot of people felt like that shakeout was good coming into earnings because it gave
06:58people a clean slate. Now, I would say when you look at the flows, people are fairly involved.
07:03And I guess one warning signal for me is that both credit, both fixed income, both rates,
07:09you know, they haven't been flagging the same awesomeness that you've seen in equity.
07:13You really see that in CDS spreads against equity. Exactly.
07:17You know, and that always makes me nervous as an ex-fixed income person. I don't know,
07:21Tom, you decide who's smarter, but the signals in the market, they're currently not telling you
07:26the same things, but people are fairly all in on it. No, I totally take that. So this leverage
07:31pulled back because they're starting to see whispers in the fixed income market? Yeah. I mean,
07:36I would say they're not even whispers. They've been fairly loud for quite a long time. You know,
07:40people in fixed income are not happy about the debt issuance. You see that in the widening CDS
07:45spreads. You see that in the change in rates volatility. And obviously Wednesday, we got a
07:49big one in terms of what Warsh will say, even if nothing occurs. So I think that might reprice a
07:54few
07:54things. Tom, your SpaceX has got a 110 bid pre-market, Tom. So I know you're not happy about that.
08:01Lori saved me. She called me up. She said,
08:04don't take the 8,000 shares.
08:07Lori, what's the market? Just generally speaking, you see a big monster deal like SpaceX come out,
08:13trade up initially. But boy, it's been really heavy since then. I mean, we got Anthropic,
08:19presumably going to come public in the fall. As a strategist, what's that tell you about
08:22just the new issue market and what that tells you about this?
08:24So look, I would say for me, you know, I sort of relate this question to market froth. And when
08:29I
08:29think about, you know, and unfortunately, I just can't really get into the IPO dynamics. But if
08:34you go and look at like a lot of different gauges, we see some evidence that the retail investor has
08:40looked a little bit frothy. If you look at the conference board data point on stock market
08:43optimism. But if you look at things like AAII, if you look at things like CFTC, futures positioning,
08:49we're not seeing those same signals. So I understand the concerns people have, but I'm not seeing
08:54reason to panic across a wide variety of indicators.
08:58Lord Calvacina and Amy Wu Silberman with us, a special treat in the studio together. I mean,
09:03you know, they have to, you know, I think, I think, uh, President, Mr. Carney of Ottawa's involved
09:10as well. They can't be in the same room together.
09:12This is a treat right here.
09:13So this is like, you know, a pretty cool treat.
09:14Amy, we've got a lot of people that have been telling me for a long time that election year's dicey.
09:20You've got to be careful here. Are you seeing people maybe, do you think you're going to see
09:25on your desk people trying to buy some hedging going into these elections? Is that typically
09:29what you see or not so much?
09:31I would say yes this year. I'll tell you, we have, Lori and I have been doing quite a few
09:36marketing sessions together. And one thing that has been coming up in terms of sentiment change
09:40is essentially this worry that midterms isn't going to be about gas prices. It's not necessarily
09:46going to be about inflation. It's going to be about anti-AI. I remember in one meeting,
09:51we step in and the first thing the client asks is, you know, what do you think of this data
09:55center
09:55moratorium? What does that mean? And so the point I'm trying to make is look, what if anti-AI
10:00sentiment becomes more than just an election story? It becomes a market story. That's something to me
10:06that can really reflate correlation in the market because it touches all aspects of the markets,
10:10the surge protector plugged into itself, right? Like we know a lot of these, these things have tentacles.
10:15And that's something that we're watching quite closely.
10:18So talk to Lori now and our audience worldwide, Amy Silverman. What do the left and right
10:24tails tell you right now that redound over to Lori's world of long-term investment?
10:30So one of my favorite Lori charts in the whole world is her four tears of fear.
10:35And I can tell you that the left tail...
10:38That's just to have the children to go to bed.
10:39Yeah. Yeah. Yeah. Well, that too. But, but you know, we're, we're not pricing in tears of fear on
10:46that left tail and we're still pricing in kind of exuberance on the right tail in particular,
10:51when you look at some of not semi specifically, but when you look at the hyperscalers that haven't
10:56changed that much. And to me, it's interesting when you see that start to flag, then I think
11:01that sentiment changes.
11:01So Lori, the, as Barry Eichengreen would call it, the, the financialization of the system,
11:08the Amy Will Silverman slice and dice tranches and all that. The foundation is still America's
11:14nominal GDP over to inflation. And that when you talk to the derivative crews, what do you tell
11:20them about the foundation of our economy?
11:23So we, we do kind of go to this tears of fear page and it's basically tier one is five
11:27to 10%
11:28garden variety pullback, tier two growth scare, tier three recession, interest rate shock, tier four,
11:33we don't talk about those. We all know what those are. And you know, we, we saw this back in
11:37March,
11:38we did a round of marketing together and we kept putting that table in front of people. And I said,
11:42look, if you don't think recession is on the table, you're sticking to tier one. If you think
11:46it's a recession near miss, this was when, you know, when the Iran war was, was still escalating
11:50and markets were still falling. I was like, look, if you think it's a growth scare and we're going
11:54to fear recession, but not actually have one, you go to tier two. If you think it's actually
11:57a recession, you go to tier three. And the hedge funds kept pointing to tier two and saying, I think
12:01at worst, it's going to get to this, but we're probably in tier one. And that was probably the
12:06most valuable thing we learned in March was that people were nervous. They were watching the market
12:10fall, but the fast money was not looking to bake in recession. And that helped us, you know,
12:15sort of really understand when the pivot happened, that it was really the pivot.
12:20I don't know if either of you two are both, are hedge funds net long today or are they
12:24net short, do you think?
12:27So I would say there was this clean out prior, maybe like a week and a half, two weeks ago.
12:33And then I think in terms of flows, most folks have gotten back in and there's a little bit
12:37of tentativeness right now because we have a big concentration week, but there was sort
12:41of a clean out, I would say a week and a half ago where people had taken a lot of
12:45risk
12:45off the books.
12:46Really?
12:46I think in my world, right, you know, the long only space, you're always invested,
12:51right? It's a question of whether you're up quality or down quality. I think it's very
12:55funny because I do think, you know, as I've been out on the road talking to the long onlys,
12:59everybody's kind of talking their books. So the people who need rotation to work are in
13:02the pro rotation argument. And the growth funds who are really more all in on the AI
13:07trade, you know, are more sort of talking about that's going to bottom out pretty soon,
13:11sound a little bit more like the hedge funds. But I do think, you know, kind of going
13:15back to the mid.
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