The Dividend Cafe - Market Outlook w/ David L. Bahnsen - Conference Call Replay - August 2, 2021

Episode Date: August 2, 2021

David L. Bahnsen and Scott Gamm discuss the latest market happenings DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Thank you, Erica, and thank you, Scott, for joining us once again. Here we are now, well into the summer and really wanting to keep these calls going. I think that there may be certain periods of time in which the calls feel a little bit more timely or necessary just around market activity. And then there may be other times where people feel that they're a little less needed. But I think that the problem with trying to do these calls only around those moments of emotional urgency is it reinforces a fallacy that these particular headline-oriented moments of time are, in fact, more significant than others to the extent that we think there's always things happening in the economy, in the

marketplace, in the news cycle that warrant discussion. And in fact, sometimes the quieter times might be more significant to real important and long-term happenstance in the marketplace. We don't want to focus on the sensational over what to some people seems like the mundane. Markets never really feel all that mundane to me. And I don't think they feel that mundane to my family that is cursed with living with me either. But Scott, we have had a kind of interesting summer. I talked a little bit in Dividend Cafe on Friday that for all the people who think it's a rough and troubling and exciting kind of market, the fact of the matter is that volatility

is below average. Returns are above average. And so maybe it's not quite as exciting as it seems, but I think people's tolerance for excitement or feeling about excitement is somewhat adjusted over time. And it gets recalibrated when things seem to be going so well that then what would normally be a lower volatility event feels like a higher impact event because people have maybe gotten a little bit, I guess I don't want to say spoiled, but that is kind of what I want to say. So anyways, Scott, I know you have a lot of questions that are on the table today. Erica will be sending more questions to you as people write in to questions at thewansongroup.com

real time throughout our time. And I'm going to turn it over to you to fire away at me anything you want. Well, David, thank you. It's always great to be with you. And I agree. I would say that today's call is probably more on the quiet side, just in terms of action. And we've got the S&P 500 up by less than one point today. So maybe not much going on in the broader indices, but obviously a lot to talk about,

especially when it comes to earnings, which I think would be a good place to start, just coming off of last week when we saw all the big tech earnings. And I'm just curious, your reaction to earnings so far and kind of what you think the market is pricing in about the trajectory of earnings growth, say over the next six to 12 months, which could be a little bit tougher than the earnings bar we saw over the past six to 12 months. Yeah, I think that if we had some companies, a fair amount of them, that would come out and report really great numbers, backward looking like, oh, the quarter we're reporting on

was outstanding. And yet, by the way, we really are worried about slowing earnings next quarter or full year. If that were happening, I'd be very curious what the market response would be. Generally speaking, we know markets are forward-looking and discounting mechanisms. So I would think that the muted expectations about future profit growth would outshadow the backward-looking outperformance. But the reality is most companies are coming in and saying, hey, not only have we kind of done real well with profit growth for this quarter, but we're going to elevate our guidance forward a little bit. And so the end result is that we started off the year with an aggregated earnings expectation

of the S&P 500 of about $170 a share. And we're sitting here now after two quarters, and that full year expectation is up to $200. And so that comes from higher than expected earnings in Q1 and higher expected earnings in Q2, and then slightly higher than originally forecasted earnings for Q3 and Q4. So again, you could end up having some adjustments, either even higher than that, or perhaps a little underperforming. I doubt that. But either way, you're looking at roughly about a 17% increase since the beginning of the year in 2021 profit expectations in public equity, corporate America. That's massive, massive. And so that's far more important than the fact that

earnings this Q2 are right now 90% higher than they were in Q2 of last year. You talk about base effect. Q2 of last year was one of the lowest points of economic activity and profit expectations and overall societal morale in my lifetime. And because of being in the midst of the lockdown and all the uncertainties of where we were with COVID a year ago. And when I say a year ago, I don't mean August a year ago. I mean, in July and August of last year, we were reporting on what happened in April, May, and June. Well, we know where things were in April, for example, in quarter two of last year. So yes, profit growth year over year

is huge, but the market's up huge. That's not a surprise. But when you look at this year, I think you heard me make this comment to a reporter from the Wall Street Journal this morning. Profits are up from what they were expected to be. Profit expectations are now up 17% of the year, and the market's up 17% of the year. It's a remarkably tight correlation. I don't think that's coincidental. The negative to this, if you want to look for something negative, is that inevitably and mathematically, the profit growth for 2022 now is lower than it had been

because a lot of that profit growth that we had been anticipating is happening in 2021. So that's leading to some outsized returns in 2021, coincident with the outsized profit growth. But the percentage growth of profit expectations for next year has come down to 10%. Well, 10% is a great number. Growing profits 10% year over year, if that were to happen, is outstanding. But it's lower than had been expected. And a PE ratio is largely a mathematical encapsulation of what people believe profit growth will be into the future. So I think this is a vulnerability in high PE stocks that at some point lower profit growth year over year because of a good thing, because of profit growth happening sooner than expected, it does lead to the need to probably reprice and re-rate some of those multiples. And that's a bigger vulnerability in high PE stocks. Well, and David, sort of the other topic that comes up when we talk about high PE stocks is, of course, the rate on the 10-year treasury yield, interest rates,

inflation. And that actually brings us to a question we received from somebody writing in wanting to know, with the 10-year yield so much lower than the annual rate of inflation or the annual growth of the CPI, how do you justify that? How do you square those two dichotomies, if you will? Because the 10-year is telling you the truth, that the high rate of inflation is transitory, that the high rate of inflation is a reference to prices moving higher from very deflated asset levels, and then a significant amount of supply disruption that has pushed prices higher. When you look at a CPI number, it's almost entirely in the disruptions in the automotive industry.

Semiconductors not able to get in, disrupting the ability for new inventory of automobiles, which has totally distorted prices in both the new and used vehicle categories. in both the new and used vehicle categories. The PCE, which the Fed looks to more than consumer price index, was up 3.5% core PCE on Friday. I mean, that's higher than normal, but that's not what we would consider this robust inflationary figure reflecting this hyper-overheated economy. And so it's very much my belief that those various inflation readings are going to be coming down. And the reason being is that what pushed

them higher was not an overheated economy. It was a reversal out of the total deadness of the economy a year ago, combined with really inexcusable, really frustrating, and really concerning, but non-inflationary, meaning monetary inflationary conditions in supply chain manufacturing. Now, in terms of what the bond yield is saying, when I refer to the bond yield clearly indicating it doesn't believe the inflation story, this is not a good thing because the 10-year bond yield is not there to merely price in inflation expectations. Tip spreads do that plenty well. The bond yield is also to price in growth expectations. also the price in growth expectations. And so this really refers to my disinflationary themes about the excessive government spending, high deficits, high misallocation of capital in the

society that I think puts downward pressure on growth expectations. So if the question is, what is the bond market telling us? It's not just telling us. It's screaming it in our faces that they are anticipating lower than trend line growth for the foreseeable future. So with that, where do you see, like, what's your outlook on the yield curve? I mean, presumably the yield curve would steepen based on what you've just been saying. And then if so, what are the investment implications around that? No, I think that the yield curve generally with lower growth expectations in the future flattens, but that's assuming that the Fed stays at the zero bound on the short end.

So let's kind of back up a bit and give listeners a little definition about some of these things. The yield curve refers to the shape of how yields are both from very short term, which the Fed has a lot of control over, to the long term, which the Fed has very little control over. And let's just say you had a very, very healthy economy, and the Fed might have a Fed funds rate at 2% or 3% on the short end, and we are pricing in maybe 5% longer term, that 2% short end and 5% 10-year would be reflecting kind of trendline growth, pretty normal, healthy conditions. And you'd have the delta between the two would refer to the steepness of the curve, the word you just used. Let's say you'd have this 300 basis points in between the

2% and 5% to make up those numbers. Well, then let's say you bring the short end of the curve all the way down to zero, which the Fed has done, and the 10-year is sitting here going somewhere between 1% and 2%, which it's been doing for quite some time. Up near 2%, you have 180 basis point spread. It's a little bit steeper. Not super healthy, but a little bit more steep. And that's what we had earlier in the year. And a lot of the bank stocks ran. And you had a lot of value stocks run.

And people started talking about the reflation trade. Then now the yield curve has tightened or flattened a bit in more recent months. And let's say the 10-year right now is 120 basis points. And again, the short end is still zero. So the issue becomes like, what if we believe a recession is coming? What if the bond market believes a recession is coming? And the Fed goes in and raises short-term rates, even as the long market believes the recession is coming and the Fed goes in and raises short-term rates even as the long end of the curve is worried about economic contraction? Then you get what's

called inverted yield curve and generally those are foreshadowing of recession. That's where people refer to the Fed making a policy mistake to raise rates going into longer-term growth concerns. Well, I don't worry about that. I don't believe the Fed's going to be raising the short end of the yield curve anytime soon. And I think that the Fed is much more than they could ever admit or should ever admit, looking to the long end of the curve to kind of dictate those things. The yield curve can invert without the Fed doing much. But the Fed making it invert is historically quite rare. It's happened, and yet generally they look back on it as a policy mistake.

In this case, I think that all we have is one variable to look to, which is what the longer end of the curve is doing. Do I think the 10-year is going a lot lower than 120 basis points. I really don't. I think that it could. But I think that anything from 120 to 250, from a 1.2% tenure to 2.5% is still perfectly consistent with a lower than trend line growth expectation for the foreseeable future. Remember, since World War II, the American economy has grown real GDP growth, net of inflation, 3.1% a year. We haven't had a year of 3.1% GDP growth since the financial crisis. to 2.5%. And can you even imagine the inflation chorus we'd be hearing if the 10-year got to the whopping level of 2% based on what we saw back in March when it hit 1.8% for a couple of days. But the reality is I think anything between current level and 2.5% is very consistent with a sort of stagnant growth thesis, what I would call the disinflation environment that I believe we're in. And so you could get a steepening yield curve, Scott, just by the 10-year getting back closer above one and a

half, because I think the Fed's keeping the short end at zero. And yet I don't think it's going to be pricing anything exciting. It's certainly nothing inflationary and not even anything really exciting about growth. But really, I think it's kind of bottomed in how steep it's going, excuse me, how flat it's going to be right now. And so from here, any steepening of the curve still probably yield hitting 1.8% earlier this year, we saw a knee-jerk reaction in tech stocks, a decline in tech stocks in some of these high PE stocks, which I think goes to your broader point about how it doesn't really take much to tip some of these names over, whether it's a sudden surge in the 10-year yield or some other catalyst, when you've got high PE stocks, they are more vulnerable. Yeah, that's right. And I think that even apart from what the 10-year does, because I'm not completely convinced that the 10-year hitting 1.8% earlier in the year had much to do with the tech stock disruptions in the first half of the year, but it's sort of non-falsifiable.

I can't prove that it didn't cause it and no one else can prove it did. So it's fine. I certainly understand that it became a media narrative and so the media is going to media. But the point you're bringing up is the more important one, which is whether it's bond yields that affect pricing of equities or even just earnings results and expectations, at the point of max valuation, you lose a margin for error in a stock price. And so what I would say is a far bigger anecdote to note than the 10-year bond yield action earlier in the year was the earnings results of last year from some of these mega, mega cap FANG names, a couple of which are over $2 trillion companies. It's surreal to even say that, that we have in our country two companies that have a market capitalization of over $2 trillion. You have two other FANG names that are not quite at 2 trillion,

but are very close, over 1.5 trillion. And so when you look at some of the major five or six mega cap technology names, one of them, and I'm not going to go into specific names here because there's a reason why it helps us from a compliance standpoint. If we don't go into individual names, we get a little bit broader allowance for how we can distribute this with the regulatory environment. But let me just say this. One name had really, really good results and its stock price went higher. A couple other names had incredibly massive results. And the stock prices went down.

Some names went down quite a bit. No names went down on bad news. All the names that went down went down on really, really, really good news. And as you also heard me comment to the Wall Street Journal this morning, this is classic late cycle stuff. I think it's very concerning to people who might be overweight in some of those mega cap names. Now, God knows this stuff can't be timed. And yet, when you have things selling off of very good news, purely because it's just already priced, stocks can get priced for greater than perfection. Perfection itself never really

happens and something greater than perfection can't happen by definition. So to me, when I see stocks having great results and come down, that is, to me, a sign of exhaustion in the marketplace around the valuation level that's been assigned. And I also believe then if you get any kind of re-momentum in those names, it means it's really probably a classic greater fool theory playing out of just some maybe not super sophisticated investors piling in late stage and maybe setting it up for deeper trouble. Now, I wouldn't expect the same response from all of these four, five, six kind of different names.

I wouldn't time any of it for any of them. It's not this sort of permanent bearishness about these names. It's just simply the empirical observation that whatever good one wants to say about them, the growth, the profits, the revenue, the execution, pretty much true for a lot of them, a little less true for some than others, but that's fine. My point is that that's why the valuations are so high, because of those things. why the valuations are so high because of those things. So therefore, it gets to a very tricky risk-reward trade-off in some of those things. And that would be my observation on the sector. If anybody wants to point out, I felt that way for a long time, they would be right.

But I don't believe that when you're assessing risk for a living, that risks that could go wrong, not coming into fruition right away, says anything about the existence of that risk. All I'm doing is commenting on what risks are becoming more and more paramount in that investment thesis. And David, the other thing, you kind of just been saying this, and you've been saying this on other calls we've done, when we talk about the top five tech names in the S&P 500, you know, those have their own stories, right? We shouldn't necessarily group them all together. those names are becoming a bigger and bigger piece of the broader index. So that begs another sort of question and risk around diversification that many investors think they have, but they don't. Yes. Now, in fairness, I will be surprised if the weighting of those five or six names ever goes back to the level it was a year ago, where you had not only those names at very elevated prices as they are now, but you had the entire index, like 400 and something names in the index really still down quite a bit. In some cases, I think the average stock was still down 20%

from its all-time high, and yet those names making new highs. So the weighting that those five or six tech stocks represented a year ago was even higher than now, but it's still just at preposterously high levels now. And so index investors are, by definition, because of the math, construction, methodology of the index, higher weighted into a few of those particular names. And so that either ends up adding to performance or subtracting from performance based on how those couple of names do. Your point at the beginning of that question is something that should be reiterated. It's entirely possible that someone decides that they like part of the FANG story from here and dislike

another part of it. We saw it last week, this dispersion of results of bifurcation amongst the names. I've been talking about this for a while. It's been true really ever since I started talking about it all year. The largest streaming company struggling more. The largest search engine company doing quite well. The largest social media company getting hit pretty hard last week. The largest phone maker company having great results, but coming down a little bit, still at a very high price level. The largest software operating system company having incredibly good results and then coming down a bit. having incredibly good results and then coming down a bit. So again, different aspects of the technology suite, all with different results and different stock price outcomes. And my recommendation would be to not center an entire investment thesis around these handful of names.

So David, with that, where is cheap in the market? What areas would you characterize as cheap? valuation, cheap areas do not necessarily indicate any kind of timing benefit as well. I do think it indicates long-term value. It indicates long-term expected rates of return. Whether you're talking about lower expected rates of return because of buying at high valuation or higher expected rates of return because of buying at lower valuation. But in the short-term and timing mechanisms of it all, I think it's reasonably irrelevant. But with that said, as far as historical valuation levels and where things presently are priced in the marketplace, the consumer staples sector continues to be the area where we see most pockets of value. The utility sector might be a little bit behind that.

utility sector might be a little bit behind that. There's not a ton of names that are necessarily grabbing me, but overall, I think the utility sector is probably reasonably affordable as well. But consumer staples is where I think there's a lot of great execution, great pricing power, great management. There's just a lot of bottom-up names that we happen to like and, of course, own a few of these stellar standouts in our dividend growth portfolio. The energy names are still not expensive, but they're less ridiculously cheap than they were earlier in the year, as you've seen from some of the major oil producers, integrated companies, and midstream pipeline companies that have all gone up significantly on the year and been great performers, but they're not back to full price, full valuation. So there's little I would avoid in the energy that we liked before, we still like now. Consumer staples would look a bit cheaper,

again, specific to each individual name and its own story. And of course, then there's a few things that we think look overpriced. David, the final couple of topics I want to talk about, you've been doing some research on the bond market in Asia. Tell us about that and what you've been finding. Yeah, it's something I'm going to dedicate my Dividend Cafe on Friday to entirely, a sort of single subject Dividend Cafe commentary on a lot of the aspects of the Asian bond story. There's particular focus there on China because of the size of its bond market and the size of its currency and global transactions that take place in its currency, the amount of reserves that exist in the Chinese economy.

And I believe that we do have two very totally different stories playing out. very totally different stories playing out. One regarding the Chinese equity market, which continues to show itself to be more vulnerable, more risky, more geopolitically sensitive, more, shall we say, constrained in governance than we even thought. Nothing that has kind of hit the Chinese equity market has had much to do with geopolitics, meaning like a flare up with Hong Kong or a sudden tension in a trade war with the US or things like that. And nothing has really been much currency driven either. On the margin, there's some of those things out there, but most of it has really been quite idiosyncratic to the unique challenges that exist in getting fair pricing out of Chinese equities and what governance challenges exist both with the CCP and then even here at home with the NYSE or the SEC or what have you. When it comes to the fixed income world, the underlying start,

the kind of formulative hypothesis that then has to be tested and challenged and knob twisted and turned is that you have a 10-year bond yield in the United States, which is the first largest economy in the world at 1.2%. And you have a 10-year bond yield in China, which is the first largest economy in the world at 1.2%. And you have a 10-year bond yield in China, which is the second largest economy in the world at 2.9%. That's a massive delta. More than double the bond yield, 170 basis points of pickup. So why? What gives? Is the reason that you're taking on that much more incremental risk, default risk, credit risk, currency risk, geopolitical risk? If so, what is it? Now, if there's no additional risk, then there's just a free arbitrage. If there's no additional risk,

someone gets to go make more than double the money to own one type of debt versus the other. But if there are different risks, the question is, are those risks fairly priced? Are they something that are compensated for the investor in the form of the yield? And what are the pros and cons of that look like? Adding to the discussion of China is just the very concept of being in business with the Chinese government, something that a lot of people might have a problem with, including myself, and what the currency implications may mean. So there have been historically unprecedented opportunities for investors to look outside their own borders for various opportunities when greater market sophistication, greater market evolution, and greater access

to foreign capital enters a particular domicile, there can be extraordinary amounts of generational money to be made. I have no intention of ignoring that opportunity on behalf of my clients, but I have no intention of jumping into it without fully looking at the various risks and rewards that go there with. So I've been in a multi-month process of evaluating this. The research is, shall we say, getting quite intense. And I look forward to sharing more of the macroeconomic story in Dividend Cafe this week and we certainly believe we're going to have kind of an investment decision to make later on this

year but we are going about it the way that we ought to go about it which is slowly prudently and diligently. So I won't probe any further, David, because we are getting another question about this, just the recent pullback in stocks in China because of the regulatory concerns. Somebody wants to know if that's an opportunity for investors to increase their positions in that region. Any thoughts there? And I also have a question just on what all this means for the broader US markets, which really haven't reacted much to this. Yeah, I think that there are certain Chinese companies that are state-owned enterprises or partial state-owned enterprises that have to be looked

at differently than non-state-owned enterprises. And then there are non-state-owned enterprises out of China that do not trade in the United States as a real company, an actual ADR on the New York Stock Exchange of a direct ownership in a Chinese company, but instead reflect kind of a phantom stock that looks to a sort of shadowing of the performance of a stock, but without shareholder rights and without the direct ownership and whatnot. So the governance stuff all matters. Now, what people will respond, and I don't think it's an unfair response, is that reflected in the pricing of these equities are the various challenges or shortcomings that may or may not exist in governance structure. I think that's fine, except for I don't know what it really means at the end

of the day. If a company is going to be totally eliminated from the Chinese marketplace by the CCP, how do you price that in, the risk of extinction? Now, we haven't really seen those play out, that in, the risk of extinction. Now, we haven't really seen those play out, but I think there are some very large mega cap companies that, candidly, the mutually assured destruction doctrine, the self-interest doctrine would suggest that the CCP needs US investors and US consumers more than US investors need those Chinese companies. So I understand speculators and opportunistic investors looking at the price drawdowns and saying, we want to come in. And I also understand real long-term investors that are just looking at some of these mammoth companies in China

and thinking, look, we're sorry. We see real great long-term opportunity here. We want to go in. But for me, the idea of picking them up is sort of the verbiage we're hearing, playing these names because of the big dips. I wouldn't do that on a US company, let alone a Chinese company. I don't view equity investing as parallel to gambling. And so to the extent that we have to root our answers to questions like that in a long-term investment thesis, the long-term investment thesis has to get into where the

price levels are, the expectation of future cash flows, and then how you want to handicap your own model around those geopolitical risks. And then when you get done doing all that, and you have an expected rate of return that you either find attractive or don't find attractive, then you have to answer, is it worth it? Because there is a substitution cost, right? And say, look, the Chinese company ABC, I now have done all my homework and I'm ready to go buy. I think I can make 15% of the name. But then you go, but you know what? I kind of think I can make the same return at American company XYZ. And so you have to sort of look into the various opportunities. By the way, the analogy I just used is the one most people use. And I'm not super fond of even

my own analogy because a lot of times when I'm looking at opportunity set in some of these foreign markets, it isn't so much versus US counterparts. It's versus other emerging markets counterparts. Once you've accepted you have a different growth profile and a different risk-reward profile outside of the US, then the real comparisons you want to make for opportunity cost and whatnot would be trying to compare to other emerging markets or other foreign regions and companies that may exist, let's say, in other parts of Southeast Asia or Thailand or Eastern Europe or South America. So I would say that to the extent that most of these emerging market investments are outside

of the growth category and risk category of US investing. The problem right now is not Chinese equities versus US, it's Chinese versus other emerging. And there's just a lot to be said within that category. We're going to keep looking at it. But again, back to the original question, that is a very separate conversation from the bond market and the liquidity profile and fixed income profile of sovereign debt. Yeah, no, very good point. And interesting, at least so far, to see the broader U.S. market not react too heavily to some of the headline risks we've been seeing. You could argue, Scott, it's helped because I just don't believe that all that money came

out of Chinese internet companies and Feng got a nice little rebound this summer and that those aren't the same dollars. I very much believe some people came out of Chinese tech stocks and went back into US tech stocks. Again, you can never substantiate all this, but the flows would indicate a pretty reasonable conclusion about that correlation. So you could almost argue that the Chinese thing was not a risk off, as you pointed out, it didn't impact US equity markets, it was idiosyncratic. And David, with that, we move to the end of our conversation. S&P now up five points from

the one point that was up when we started our conversation. But we always like to joke about the market action during our calls. But David, anything else you want to add? Anything that's coming up in DC today, later today? It is, I think, the longest DC Today I've ever done. And that's sort of what happens when I just get a little extra time over a weekend to read and write and study. It's also what happens when I get mad and I got mad this weekend. And I'll let readers guess what I got mad about. But let's just say there's a lot of COVID stuff today. Listen, Scott, we did this call two weeks ago. I was sitting in the New York office studio.

I'm now in a California office studio. So that's one thing that's changed is I'm back in the West Coast here for a few weeks. But two weeks ago today, when you and I were sitting here talking, the market was down 950 points that day in the middle of our call. And the market closed that week up on the week. and the market closed that week up on the week. I think it earned back a couple hundred points that very day, and then another 500 or 600 the next day, and then a couple hundred each day the rest of the week. And that's about as much volatility as we've seen, and all of that was in a kind of quick drop and then quick recovery. And I hypothesized at the time, and I'm wrong about so many things, but this was one I think I was right about, that it was part of a very short-term unwinding of some particular trades, probably levered trades that needed to get unwound, particularly around that reflation theme.

on the market right now is the same as my view on the market always in the short-term agnosticism and long-term bullish. And then the midterm stuff is always a bit different. I do believe that you're going to see very different headlines in the news cycle, the end of August, and we're seeing right now at the beginning of August. I do talk about some of that in DC Today today, particularly on all this COVID stuff. I think that the bigger issues as we go through the end of the year is that the markets really are going to be finally able to stop looking at the GDP recovery of post-COVID and start looking at the post-COVID world. Where is manufacturing? Where is business investment? And what is the overall business optimism? You think about how many calls and emails and things we were taking and how much discussion was taking place a few months ago of people worried that the business income tax,

the corporate tax rate, all the capital gain tax is about to fly up. There's still some concern that some of those taxes are going to be going higher. But here we are on the brink of passing an infrastructure bill that doesn't touch any of those taxes. So you start getting a little more sensibility in the markets around what is realistic and what is nonsense. And whatever it was that disrupted markets a few weeks ago, there will be something else that disrupts markets in a few weeks.

So we don't speculate that we're about to go through a period of no disruption in our markets. I'm a little unnerved by how long it's been. I would like to see markets kind of take some medicine, but it's very hard for markets to take medicine. You had plenty of 2% to 5% drops throughout all the QE periods, but you didn't have very many 10% drops. You had some, but it was pretty low in the post-financial crisis years. And a lot of that is that TINA idea. There just isn't a lot of places people would naturally go put money into if they wanted to sell off US equities, as long as the interest rate stays in a zero bound and the Fed is such a busy liquidity provider through quantitative easing. I really just hope

people are not worrying about this. I hope their primary emotional and mental focus in their portfolio is around their longer-term goals and what the purpose of the investments is there to satisfy for either that long-term growth accumulation or the current income preservation and growth of income, all the things that we focus on. But just in terms of long-term expected rates of return, this story was the same at the beginning of the year as it is now. People coming in, they win the lottery tomorrow and they've never invested in their life. And all of a sudden they have brand new cash. You do have a very low bond yield to buy and you do have a pretty high PE ratio in the market to buy. So discernment still strikes me as the need of the hour. And I promise you, we are going nowhere in terms of our heavy conviction and commitment to the alternative asset class, including on the illiquidity side, private equity,

private credit, real estate, and so forth. So that's our story and we're sticking to it. And any other questions that come in, we'll be happy to field. But Scott, I don't want to cut you off. You got anything else for us? No, thank you for that. Great insights as always, David. And we look forward to the next call. All right. Look forward to it as well. And with that, I believe I'm going to turn it back over to Erica, who will bid us adieu. bid us adieu. advisory services are offered through Hightower Advisors LLC. This is not an offer to buy or sell securities. No investment process is free of risk. There is no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are

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