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00:15Good morning, everyone. Welcome to the Myers Report Fast 15, the Friday Fast 15. It is October
00:242nd. Don Day would be reporting in, but he's not available because he is now at the Balloon Fest
00:32in Albuquerque, New Mexico, where he is on the ground. He's handling ground control,
00:39and he's responsible for basically protecting the safety of about 600 balloons going up.
00:48He's protecting them from deranged weather. His general report remotely was that it's going to
00:54be a quiet week in weather this week. We have with us our chief economist, Bob Genetsky,
01:01who has the latest news on the markets and the economy, and also handling cleanup this week
01:07with his view on the markets going forward is Carlos Legaspi. Carlos owns the Highland Park-based
01:19Precise Investments, which is a broker-dealer with offices in the U.S., Mexico, and nine South
01:25American countries. In terms of the Western Hemisphere, nobody knows it better, you know,
01:31than Carlos. Bob Genetsky, the oil prices slid, well, they slid down into the $90 range.
01:39How is this going to, how is this impacting, how are the markets reacting to it, and why?
01:44Well, today, yeah, today they are reacting very positively. The market is up. The market is at a
01:54very iffy technical position. That is, it's right in the vicinity of this 50-day moving average,
02:01if we look at the S&P 500. If we look at the NASDAQ, the NASDAQ has a little more
02:08strength
02:09going to it. It's got a little room between itself and its support areas. So from a technical
02:14standpoint right now, we are in a just very precarious position. I'm hoping it goes up from
02:22here. That would usually indicate a little more bullish pressure. But if it starts to go down from
02:29this area, it's very sensitive. It's going to go through the 50-day moving average. And if it does
02:35that to any significant extent, it tends to be followed by further weakness. So we don't have a real
02:42clear picture in the market, which incidentally is reflective of the economy. We don't have a real
02:49clear picture in the economy. There are lots of things that are going on that seem to be extremely
02:54positive. And yet we get just as many indications that things are not going as well.
03:03Well, specifically, what indicators came out? Apparently, there was some good news as well as
03:08some bad news. What was the good news? Exactly. There was both. We got some employment numbers that
03:15on the surface look pretty good for some areas, but look pretty weak for other areas. One of the weak
03:21areas that has me concerned are the data coming out on earnings and wages. It looks like if you take
03:30earnings ever since March when the war broke out, they're negative, that the wages have not been
03:37keeping up with the inflation rate. And the inflation rate has wiped out any real increase in wages.
03:43That, to me, is a real negative, especially with the elections coming up.
03:49Okay. Carlos, between now and the end of the year, where do you see the markets going if the
03:57Republicans keep the House and the Senate and if they do not? Okay. Right now, what's the
04:07dominant view is that we're going to end up with a split Congress with House going Democrat and the
04:15Republicans retaining the Senate. And I think that's pretty much baked in. The impact on short-term
04:22rates is not really relevant. It's still primarily based on the Fed and current inflation trends. It's
04:31more fiscal policy going forward. So under that scenario, the anticipation is that there may be some,
04:42you know, gridlock, probably fighting over the debt limit, which is going to increase volatility,
04:50which is probably going to go for higher interest rates in the long end of the curve. The 10 and
04:5630
04:56year will probably weaken higher rates just because of an uncertainty premium. You know, the fiscal situation
05:03is what it is. And therefore, you have the two tail scenarios. You have the Republicans retain it or the
05:12Democrats sweep. Those are the less likely scenarios. If the Democrats flip both houses, we don't think it's
05:24going to change it's going to change too much because, again, by losing one chamber, there's no more
05:30reconciliation and the filibuster stops anything from there on the Senate. So it's kind of neutral
05:38on that side. If the Republicans happen to retain both chambers, again, there's continuity alignment with
05:47the administration for the next two years, which may minimize uncertainty. I don't think it's going to
05:54reverse. I think we're still in an uptrend on the long term interest rates. Today's numbers gave some
06:01relief. So some pullback on those rates, but I think they're still going to go up because there's a lot
06:08of
06:08demand for refinancing, you know, both on data centers, sovereign. It's something globally, you know,
06:19rates are going up everywhere. So it's not one specific case. So it's not going to be that
06:24sensitive to politics here. It's just a global trend. So we may see stability within an uptrend in interest
06:31rates. Bob, it seems to me, you and I had discussed this, if there is any sort of a settlement
06:39in with Iran, which could happen, obviously, after the midterms,
06:45eventually there's going to be. Do you agree with Carlos, or do you think that rates, I think the rates
06:52are going to come down. I think everything's going to come down. Yeah, I think that there's
06:56also a good chance. Except the markets still go higher. I think there's a good chance that rates
07:01are topping out here. We've started to see the oil prices slip a little bit. When I look at what's
07:11happening in Iran, I just think that the pressure is building to an enormous extent on them from many
07:18different angles. And I think they're going to be forced to make a decision, you know, relatively soon,
07:24maybe after the election, maybe before the election. And if they make any sort of decision,
07:29I think it's going to help to bring the interest rates down. I have a fundamental analysis of both
07:35the short and the long term interest rates. My analysis in short term rates is based on the
07:41one year inflation rate. And according to that, the short term rates are about where they should be
07:47right now. And my forecast is always treacherous to forecast what the Fed is going to do. I believe
07:55that the rates are not going to go higher. They're not going to kick the rates up from here. If
08:01you look
08:02at independent measures of inflation, such as the inflation factored into the long term interest rates,
08:12And we have an inflation adjusted rate that gives you what the markets are saying. Markets are saying
08:20the long term inflation rate in the US is about 2.4%. So we are close to where we should
08:28be. The
08:28four year, five year average on long term rates is what I use for the fundamental in looking at that.
08:34And
08:34that is right in the vicinity of 5% right now. The rates have been unusually low relative to the
08:41fundamental. Now they're up very close to the fundamental. But I think any sort of good news
08:46is going to bring them down from here. So I'm a little more optimistic than Carlos would be.
08:51But I do have a question for Carlos, more on Brazil. Do you have an opinion on how that election
08:59is likely
09:00to go? Is it on Monday that the election? Yes. So the election is on Monday. So right now,
09:08the consensus is that Bolsonaro's son, you know, will win on the second round. Right now,
09:21there's a statistical tie between Lula and Bolsonaro so that neither of them will get over 50%.
09:30Which is the one that we want to win.
09:34Well, it depends. Who are we rooting for, Carlos?
09:37It depends because in Brazil, presidency is relatively weak. So it's going to be primarily
09:45what will be the composition of Congress. That's what really will impact the markets.
09:50And so, in essence, I think it's swung really towards a parliamentary system in Brazil.
10:02And so I don't think that's going to change, which is somewhat of an unfortunate fiscal trajectory
10:13for Brazil. However, I think because the number three and number four candidates are more aligned
10:21with Bolsonaro. And that's why the consensus is that he will win in the second round just by
10:28the voters of the third and fourth place will go over on the second round to the Bolsonaro side.
10:37I think if that happens, I think the market in Brazil will probably rally a little bit, not a lot,
10:45because it's already kind of baked in. The tail risk there is that if Lula wins on the first round,
10:54that's how he has to win. In the second round, he'll lose. If he wins on the first round, I
10:58think
10:58we could see a sell-off in Brazilian assets because it's not discounted right now.
11:05Gary, if we can get back to the election in the US here, I've been very concerned because of the
11:13decline in living standard and my own belief that in mid-year elections, especially if living
11:19standards are not increasing, that you might have more of a bias to vote the incumbents out.
11:28Throw the bums out, right? Yeah.
11:29That would be something that I'd be concerned about. I do have a son who is very, very politically
11:37oriented and has done an awful lot of work on the polls. And it's interesting to him as to how
11:45the polls are running and how they are changing and what people are looking at. And his conclusion,
11:52bottom line, is that we don't have anything to worry about. The House and Senate are going to stay in
11:58the
11:58hands of the Republicans. It's not what I would suggest. But when he looks at the polls and sees
12:04what they're coming out with, first of all, the polls are very undecided at this point in a lot of
12:12ways. That's assuming that you believe the polls. Well, the way in which they're constructing the polls,
12:19he said, it looks like the Democrats are going to extremes to show some sort of positive moves,
12:26things that they shouldn't be doing with polling. But they're doing it just to show that
12:32something is working their way. When in fact, when he digs through the numbers,
12:38he says it doesn't show that at all. By the way, Bob is minimizing his son.
12:45His son is a county clerk in Allegan County. That's not the son who's working through the
12:52That's the different son. It's a different son.
12:55This is Dennis or Tom? Dennis is the one. And he is very, very tied to the polls and interpreting
13:01why they're coming out the way they are. And he says, when people have to strain to
13:08come up with a credible poll that shows them ahead, he says the straining to do that is just
13:14indication of a weakness. So it's kind of working, Carlos, through the numbers indirectly,
13:20as opposed to relaying... Yeah, for us, I think the most relevant is what you said, Bob, in terms of
13:26of the losing and purchasing power. That, you know, when inflation is higher than your wage growth,
13:35then that turns the electorate against the incumbent. That's, you know...
13:42No, and that's as an economist looking at it that way without looking at the polls.
13:46I just wanted to give people some hope on the other side, that there do appear to be some things...
13:51I agree. Bob, I agree with Dennis. I think the Republicans are going to keep both houses.
13:58For one thing, you've got, in the state of Michigan, you've got this character, El Saeed,
14:04who is now coming out against football as being an unethical sport. In Michigan? Really? But the point
14:13is, these guys keep on going, and they're going off the deep end. And I think they are helping the
14:19Republican cause. The AOCs, the Al Saeeds, and a few of the other crazy people, I think are good for
14:29the country, because they're waking people up. The key, I believe, is going to be turnout. If there's
14:35a good turnout, I think the Republicans keep it. If there's not, the Democrats have got a really good
14:42chance. However, I think the extreme left is motivating everybody to get off their butts and
14:49go out and vote. The question is going to be, how much of it is stolen? Carlos?
14:57So, I just wanted to add, because we haven't talked about equities. In spite of, you know, we still
15:05believe that we're going to, we're still in an uptrend on the long-term interest rates. And it's
15:11not a lot. Big time, I think, probably we see like a five and a half at the kind of
15:16the top part of the
15:18range for the 10-year. We still think it could go a little bit higher after pullback. It's not enough
15:24to
15:24derail the uptrend and the major indices. Seasonally, we're in a stronger phase. You know, we've had a,
15:35we've had a, you know, a year of gains between year to date. And normally what happens is we see
15:43active managers get a little bit of FOMO and start buying just for the window dressing at the end of
15:50the
15:50year. So, that also we see as supportive to the market. So, so we're not, we're not too concerned
15:59about higher interest rates as in regards to the equity portion of the portfolio. Okay, so to change
16:06the final question of the day, since we already discussed it, Carlos, you think the Democrats are
16:12going to get at least one house. Bob, you're not sure. And I'm voting that the Republicans are going to
16:19keep both houses. So, the final question of the day. No, no, Gary, if I get a vote, I'm going
16:25to vote
16:25for the Republicans getting both houses. Okay. So, the final. Is that what you want or is it what you
16:30think? We'll go down together if we're wrong. Is it what you want or what you think? Because I just
16:35want to clarify. I think it's both. For me, I think it's both because I think that there's a greater
16:41awareness of the problems with the election rules and that people are concerned. I think the idea
16:50that we run the cleanest elections in the world is an absurdity. We don't. Anyway, the final question
16:57of the day. We had earlier forecast that the S&P 500 was going to hit 8,000 this year.
17:05Carlos,
17:06are we going to get there? I know we were close. Yeah. I think so. I think it's going to
17:13run.
17:14It's going to make a run towards that number between now and the end of the year. We came
17:19within what? I think 20, 30 points. Bob, are we going to make it? I believe we will. I believe
17:24toward the end of the year, the profits are going to come in very strong and that's going to tilt
17:30us in
17:30the direction of the number 8,000. Okay. Remember, we have our November 6th
17:38economic forecasting or economic reporting forum, which will be three days after the election.
17:44And then we'll know how much of this is right. That being said, thanks guys. Be well, stay safe,
17:50have a good weekend and God bless America.