00:00We've been writing about this and we've talked about it before, Tom, you and I, about a change
00:04in eras here. You know, we exited definitively the great moderation era that went from the mid
00:10to late 1990s up until the 2022 inflation spike. And that was an environment where you had mostly
00:17disinflation, fairly benign inflation risk, relatively limited inflation volatility, as well
00:22as limited economic volatility. That ship has sailed. And I think what we're in now is something
00:27that looks a little bit more like what we've been calling the temperamental era, which is the period
00:31from the mid 60s to the mid 90s. The big difference between them is the relationship between bond yields
00:37and stock prices. So in the temperamental era, you had a very, very consistent relationship where when
00:43bond yields went up, stock prices went down. And that's because what was driving yields was more
00:49on the inflation side of the spectrum, not the growth side of the spectrum. Great moderation
00:53growth was driving yields. So higher yields, higher stock prices. I think we're reverting back to
00:58something that looks a little bit more like the temperamental era. So I guess that calls into
01:04question maybe even more so we need to have a strong view on where rates are going. How do you
01:08guys feel
01:09about that at Schwab? So it's not just the level of rates that I think matters as a feeder into
01:16the
01:16equity market, but the speed of the move. Also, the shape of the yield curve. So right now, I think
01:22the direction, and maybe more recently, the speed, accrues to the disadvantage of the equity market.
01:29But the shape of the yield curve right now is still relatively positive. I think the net of all of
01:35this
01:35is that we have to be a little bit more creative when it comes to diversification. Because when you have
01:42bond yields and stock prices moving in the opposite direction, that means bond prices and stock prices
01:49are moving in the same direction. And that's why you're seeing interest in diversification
01:53in other areas, whether it's within the fixed income sphere and the move into corporate debt,
01:58or even into things like investing in the hold build out of kind of the sports ecosystem. So I think
02:07it requires a thinking about diversification that is a little bit more complex than it has been
02:13in an environment where 60-40 tends to work in a more simple way.
02:18Earnings. Corporate America has certainly been doing its part, Lizanne, with some better than good
02:23in the second quarter, better than even in the first quarter, which were pretty stellar themselves.
02:28How sustainable is this level of earnings growth, do you think?
02:32Probably not long-term sustainable. And that's maybe the reason why you're not seeing
02:36analysts extrapolate the 30% plus surprise factor for the second quarter into quarters consistently
02:45out. We've got that differential between where earnings are now and depreciation catching up as
02:51it relates to the AI spend. I think that has to be taken into consideration. This is the first time
02:56ever we've seen a parabolic ascent like this in earnings. July 1st, the consensus was for 24% growth
03:04through the second quarter. We're now over 50%. That move up from a growth rate change perspective
03:09is unmatched other than coming out of the two most recent recessions where the base effects
03:15accrue to the benefit of that surge in earnings. That's clearly not the case this time.
03:20Lizanne Saunders, we're going to continue with her. She's, of course, with Charles Schwab here.
03:24Futures deteriorate, negative 36. I'm not to a 16 VIX yet. As Lizanne suggests,
03:29there's a contained feeling to this, even with a backup in yields. 4.19 in the two-year,
03:36rounded up 4.74% on the 10-year. The 30-year, we had a 5.33. Right now, it
03:43comes into a 5.32.
03:45Robin Brooks, who's been wonderful on this, publishes like eight charts on Twitter of all
03:49the different governments. He leads with U.S. and France is the most fragile. That's his opinion.
03:55I'm not giving my opinion here, but there it is. Some economic data out. Import prices come in
04:02below survey. They're up bigly, but not like what was expected. Housing starts a little soggy to say
04:10at least. There's some energy on the screen here as we look at that with yields coming in a little
04:16bit. We continue with Lizanne Saunders of Charles Schwab. Lizanne, how far out is your view when
04:23you started out? I remember this. She was 15. She's on Lou Rukeyser. She's just killed it for
04:28Mr. Schwab and all that. You could look out three years. How far out are you and Kevin modeling right
04:35now? I think you still need to look out over a multi-year period of time. The problem is that
04:42that's not what investors are doing right now. Time horizons have gotten so much shorter. We're
04:47finding that there's even some longer-term, more disciplined, strategic asset allocation-oriented
04:51investors that are starting to shorten time horizons and move more toward that trading approach.
04:59It's also part of the reason why we've been emphasizing the blurring of the lines between
05:03investing and gambling. I think that heightened focus on gambling has also served to shorten time
05:10horizons. I think this is an environment where you want to reinforce longer-term time horizons because
05:15that's when you reconnect prices to fundamentals. In the short term, it could be narrative changes that
05:21have a lifespan of nanoseconds. Lizanne's killed that, folks, on Bloomberg Money here a number of
05:27weeks ago. We'll recapitulate. 3, 2, 1. We'll recapitulate that in the fourth quarter, if I can
05:35speak clearly, wandering into December. I looked, Lizanne, where we are, and the fundamental thing
05:42Paul and I are hearing in the studio is people like you and Kevin are talking to people that have
05:49extraordinary levels of cash and they don't know what to do with it. What do you say to someone at
05:56a
05:56barbecue on a Saturday who says, I'm up to my eyeballs in cash? You know what, Shaman, anybody
06:02that answers that with a cookie cutter response, who's the investor? I would stand at the grill
06:08until it was cold asking follow-up questions to then provide any kind of advice as to what
06:14allocations should look like, how much cash. I mean, if you're a retired investor and you need
06:18to keep all of the principle and live on the income generated from that, a message about what to do
06:23with cash is very different than, you know, a 22-year-old that inherited $10 million from
06:28grandparents and goes skydiving on the weekend and is gainfully employed and does need the income. So
06:33that's the real difference is understanding. But also, let me mention one other thing as it relates
06:38to cash, sort of the general cash on the sidelines. I get questions about this all the time. Isn't this
06:43eventually massive fuel for the market given seven plus trillion dollars in money market mutual funds?
06:48The rub there is that it represents somewhere between 10 and 12 percent of total stock market
06:54cap. Compare that to the bottom in 2009 when it was more than 60 percent of market cap. So we
07:00can talk
07:00about the level of cash on the sideline, which I don't really like that terminology. But as it relates
07:07to how much firepower that represents,
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