This post was originally published on this site.
00:00 Speaker A
Maybe to start Alex, just big picture, make sense of the last 24 hours. The whiplash here was just talking about. We’re down big yesterday. Today, we rip higher cuz Trump says on social media, you know what, I got a framework for a Greenland deal with NATO. I’m calling off those new tariffs. What do you tell clients?
00:23 Alex
Well, I think you look at and say, first of all, on Sunday, we had sort of global diplomacy by tweet and screenshot, which wasn’t on my bingo card for this year. I don’t think it was on anybody’s. So you knew that was noise. And the president above all has been very willing to walk back from his strongest positions immediately when it no longer suits him. And it was clear the market spoke. This isn’t
00:46 Speaker A
So you think he saw the mark reaction and he blinked.
00:48 Alex
I think he blinked. I don’t think he ever intended much of what he he stated, but he wanted a reaction. And and the president has used NATO as a foil several times in this administration and in season 1, where he did demand a lot and he got a lot. It’s it’s clear that NATO is a force to be reckoned with for Donald Trump and some he has some beef that he just can’t quite articulate, but every time he comes up against NATO, there’s a reasonable solution because it turns out it’s just a good thing.
01:21 Speaker A
So for investors Alex, you say, okay, we had, you know, sell America yesterday, red all over the place, but now it’s back to, you know, our regularly scheduled programming. Let’s get back to economy, earnings, fed.
01:38 Alex
Sort of. I think what you saw was that it wasn’t so much the NATO issue, it was the tariff issue. Like, markets hate tariffs. We saw that liberation day last year. markets really, really hate tariffs. And what we saw was a a relatively small sell-off, couple of points. It wasn’t the 10 points we saw on liberation day. But the market saw that and also took it in stride realizing this too probably shall pass. It’ll be more interesting when we get the Supreme Court ruling on whether or not those tariffs could stick anyway.
02:11 Speaker A
You want to place a bet on that? What do you think the high court rules there?
02:13 Alex
I think it comes down 7-2, tariffs go away, but if we get course that’s writing the opinion, we’re going to see a route for interesting tariff sort of season 2.0 coming back.
02:25 Speaker A
Do do you do you mean by that that Trump, if that goes the way, he just finds other levers to pull?
02:30 Alex
I think he’ll there will be some other levers and I think the Supreme Court will go out of its way to articulate some that are and some that are not in bounds of what could happen. Cuz in all fairness, we learned the president can start an embargo. Why not a tax just to end an embargo?
02:46 Speaker A
Let me ask you, i- i- if the court ruled the way you think they they would, how would you expect markets to react?
02:53 Alex
I think markets will will probably be pretty happy because right now, most of that cost has been absorbed by the consumer and consumers would like to have more free cash flow, but it will be a very interesting in how it comes back because the bond market might be a little rattled from having to return $200 billion to uh producers who were waiting on it. So, we’ll see how that comes down and exactly what the timeline is.
03:21 Speaker A
You say something interesting here too Alex I want to touch on. You say it’s liquidity, not fundamentals holding the markets up. Explain that to me.
03:31 Alex
So I think we we’ve seen that there’s a lot of cash in motion and still has been a lot of cash in motion. It’s $28 trillion sitting in bank accounts and money market funds that is still slowly trickling back in. We see when you have good fundamentals, you get an okay bump. You don’t get the 10, 15% we were used to seeing 5, 6 years ago. You do poorly, you get smacked around a little bit, but it’s 10%, not the 20% it was. So that raw just amount of cash in motion is driving the stock market up and up and up almost despite the news. Like we we talk about invading a sovereign ally, we lose 2%. If I had told you that 10 years ago, you would have left the market entirely and bought, you know, squirrel pelts and lead and moved to Montana.
04:21 Speaker A
Right. Well let me ask if it’s liquidity though, Alex, um, what are the are there risks I need to think about? Like what happens if flows reverse then?
04:32 Alex
Well, that’s when you you’ll see more market movements up or down. Right now, Vix is a good indicator. It’s still really low. It’s really low by recent standards. It’s really low by historical standards. So when you start to see the Vix pick up, that’s when you start to wonder is that liquidity going to become an issue. But even with small caps rallying, we’re seeing that even the lower capitalization stocks where illiquidity is a bigger risk are have no problem finding buyers and sellers on a regular basis. So there really isn’t much to worry about now. I would be worried about some of my private investments. We see when those come to the market, there is a very very noticeable 20% liquidity premium you take off the bat. Blue Owl investors very vocal about that. They backed off that plan. So I think we we’re seeing that there’s just a lot of cash in motion. It’s constantly in motion, and there’s more of it coming to market every day. The bigger risk is what happens if that $28 trillion in cash decided to find its way to the equity markets in a very short period of time. That sort of meltup could be more problematic than the meltdown.
05:45 Speaker A
Let me ask you, Alex, you say here in terms of how you want to be positioned right now. You say diversified and boringly positioned. Walk me through that. Ho- How do I how do I screen for boring?
06:00 Alex
Boring, it’s that sort of 60/40-ish looking portfolio. You know, take some shots on stocks that you really like, but at the end of the day, if you want to avoid the whipsaw, just be in that sort of middle steady Eddie sort of portfolio. It’s not the get-rich quick scheme, it’s get rich slowly over time and anything that has too much attraction, you see too many big plus days. Those are a good opportunity to say maybe that’s a little too volatile, right? Stay away from the crypto space, stay away from things that are trying to ride the next trend and just stick to the middle. It turns out the S&P 500 does pretty well in the long run.
06:44 Speaker A
For fixed income investors, any any parting words of advice?
06:48 Alex
You know, we we still like the short end of the curve. There’s still a lot of yield to be had there, but the belly of the curve is really the place to be. If rates do come down, new Fed chair looks like they are going to bring rates down more than the market’s expecting. That five-year, 10-year duration space in in the US Treasury market feels like it’s going to give you a nice return. In 25, you got 4% buying the 90 day. You got 8% buying the 10-year. You’re probably going to see that again.
07:18 Speaker A
Alex, great to see you today, especially on set. Thank you.
07:21 Alex
Thank you.