YouSaid · the spoken record

David Stein

lines on the record: 67
first: 2023-08-06
most recent: 2023-08-06
sittings or episodes: 1
sources: podcast

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“Of that 12% return was because investors bid up stocks and are willing to pay more for stocks. So combined, and if we back out that 4%, I mean, the U.S. stock market would be closer to 8%. Now, if we contrast that with the world, so development market outside of the US, the dividend yield contributed 3.1%. And so dividend yields outside the US are twice as high as the U.S. The earnings growth slower. So it grew up 5.2% versus 6.9% for U.S. market, but wasn't a tailwind for non-US stocks was valuations. Valuations actually got a little cheaper. It went from 15.8 PE a decade ago to 15.4 today. And so that cost 30 basis points of return. And then we've had a decade where the US dollar has strengthened about 20% versus a basket, basically.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“So we are very much in favor of understanding what's driving markets. And so part of that is the equity market. And so if we take the U.S. stock market, for example, it's returned 12.2% annualized over the past decade. But we can deconstruct that, break it down into the drivers. So the dividend yield, the cash flow, the percentage of profits or the profits that companies are paying to shareholders, that contributed 1.9 percentage points to that 12% return. The earnings growth grew at 6.9. So corporate earnings grew at 6.9. So these things are additive. So we can add the dividend yield plus the earnings growth. And then we care about what are investors paying for that cash flow in earnings. And if we look at the PE of the U.S. market over the past decade, so 10 years ago, the price to earnings ratio was 16.6. Now it's 23.6. So close to four percentage points.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Is coming down. And aside from the shelter component, there are many areas that haven't even seen increases. And so on the economic front, much of it is good news, so not fearful news. And so we consider that a good thing.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“So we look at in terms of earnings growth, we're looking at what are expectations for corporate earnings. And if we look at that, corporate earnings expectations actually have an increasing for the last six months. And this is globally. So analysts are saying basically raising what they think earnings will be over the next year. This is sort of a bottom-up analysis, and then we combine it into look at it on an index level. So that's one thing. I've mentioned the PMI data that hasn't fallen off a cliff. Other things that we look at is just, as I mentioned, that level of fear and greed with markets. And so when we combine all the things that we look at, yeah, we would say that we're sort of low neutral. Like this is not a horrible environment. Now we're monitoring to see if the recession comes, but we don't think it'll be very deep. At the same time, we've been monitoring inflation. And inflation and core inflation, as I mentioned, the shelter component.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Potentially is even longer now because people don't need to refinance. Look at the home market. One reason home prices haven't cratered is due to a lack of supply because people have locked in, you know, in our case we have a 3% mortgage interest rate on our mortgage in Tucson and we're not going to move because we don't want to give up our 3% mortgage. And that's played out across the economy. And so there definitely is a lag, but that doesn't mean we have to have a recession. And even if we do have a recession because there isn't really the excesses that we saw with the great financial crisis in terms of debt bubbles, households are in better shape. Corporations are in better shape. It could be a very, very mild recession. And in markets are forward-looking and may in fact already be looking through the recession given all their excitement with AI.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“So it just works in the fact that people or corporations that want to borrow money to fund projects, if interest rates are higher, the hurdle rate that they need, the potential return of a particular capital project is higher. And so there could be less investment in the economy, which can slow the economy. At the same time, consumers are potentially less willing to go out and buy a car because with the higher interest rates. the payment's so much higher. And so just, you know, as rates flow through, people are less willing to borrow. And much of the economy is based on borrowing because people accelerate the future purchasing power into the president. They go out and buy stuff or they invest in things. But there is a lag as people, and as I mentioned, they've had savings in place and many have been able to lock in lower rates. So the lag.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“So above what expectations were for short term interest rates and above what inflation expectations were, there was another one to 2% just because of uncertainty whether the Fed could pull it off. Well, the term premium has been zero for a number of years now, which indicates high confidence in the Federal Reserve despite the embarrassment of the 9% inflation. So we'll see they do their best, but their reputations are on the line. But like any investor, they don't really know what's going to happen, despite having hundreds of PhDs on their staff, inflation still got away from them.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Pause. And then once they pause, because interest rates, longer-term interest rates are a function of expectations for shorter-term rates. And so if investors believe bond market participants at a shorter term rates will be higher, then that pushes up longer-term rates. Once the Fed pauses or other central banks indicate they're going to pause, that can bring down the real rate of interest that's baked into, for example, the yield on the 10-year government bonds. Now there's other factors there, inflation expectations are building those interest rates. And then surprisingly, and this is what I find incredibly fascinating, there's something within interest rates called the term premium. So it's additional compensation that bond investors demand for uncertainty regarding inflation and uncertainty regarding central bank actions. And that term premium at times has been to two.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“But a third of inflation, the CPI measure is housing related. So it's rents on apartments, but it's also what homeowners think they could rent their house for. And they survey. They survey every six months and they ask a bunch of homeowners, what do you think you could rent your house for? And then they compare that to the prior survey. Well, home prices in the 20 city Schiller index are is down or de flat over the past year. Home prices are not appreciating as much as they were. And so now eventually with a really big lag, homeowners suddenly realize, well, maybe I can't rent my home for 20% more than I thought I could two years ago. And so that's starting to flow through the inflation numbers. So there is a lag. Inflation's coming down. Hopefully that will allow central banks to”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“The Fed was embarrassed, right? They are acting trying to save the reputation, you know, a reputation of low interest rates, low inflation, they won't say it, but the fact that inflation got up to 9%, that's embarrassing. Now, there's reasons for it, et cetera. They have raised rates very, very aggressively. When you think about it, I mean, it's within 15 months. We've gone from zero to where it looks like they'll raise the policy rate, the Fed funds rate another 25 basis points in their next meeting. And now we're close to five and a half percent if they do that. That's in a year. And so when we talk about the impact on the economy, that takes time to work through. But the good news is that, for example, core inflation, the annual rate of core inflation in the June report was a 20-month low at 4.8%. And more importantly, inflation is made up of hundreds of different products, basically this basket.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Mainly because the yield curve went inverted with longer term rates lower than the shorter-term rates. And that often can lead to a recession, not every time. But we're waiting around. In the meantime, it's been a great time to stay invested in risk assets because we've been rewarded for doing so. This was not a time to run for the hills and not have exposure to risk assets such as stocks, non-investment grade bonds, and others.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Especially after the most recent report, core inflation is coming down. Maybe the Fed will get incredibly lucky and pull off this sort of Goldilocks economy where inflation comes down and we never enter into recession. We don't know. Typically there's an 18-month lag before interest rates really start to bite the economy. We're starting to see the economy slow. And one of the things that we look at, the measures is what are known as purchasing manager indices or PMIs. And this is data that basically business surveys around the world that the statisticians ask businesses, well, how's business? What about your new orders? What's your inventory like? What are your employment plans? What kind of price increases are you seeing? And it's normalized to where 50 is, and it's done at every different country, they do manufacturing, they do services. So when it's above”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Into real estate and going into crypto, going into watches. And we're just working our way through that. And the Federal Reserve essentially was caught off guard, just the sheer amount of inflation that we've seen. And not that I'm saying, well, I know better than the Fed. The reality is we don't know exactly how long this inflation period will last. And so when we talk about people sitting around waiting for a recession because the Federal Reserve's raising interest rates, the most aggressive it's raised them in several decades. But this is sort of a blunt tool. And because of all the cash that was in the system, the savings that people had, the fact that we had a decade of very low interest rates, and so businesses and individuals, homeowners had locked in very low mortgages, it's taking a very long time for higher interest rates to impact the economy. And it's not certain that we'll even get a recession. We're already seeing inflation and”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“So, you know, overall, when we look at across the board, we're sort of low neutral. So in our models, we're slightly underweight stocks, but it's been incredibly fascinating three years. You mentioned the pandemic. And just, and I know we'll talk a little bit about the Fed later, but just the sheer amount of cash that was created, liquidity through a combination of massive federal budget deficits in the U.S. quantitative easing. At the same time, we shut down the economy. We had the money supply M2, which is essentially checking accounts, cash, retail money, market mutual funds, went from $15 trillion to over $23 trillion in about a year. That's money and purchasing power going out into the economy. And in that environment, why do we have inflation? Because the economy had shut down. Supply chains had got interrupted, yet now there's massive cash going into meme stocks, going”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Weighing different elements and ultimately most of the time decide, hey, we want to stay invested. This is not a time to move significantly in or out of the market, stay close to our long-term targets.”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Flipped around as something new comes along. So just we look at, I formerly look at market conditions once a month. I've done it as an institutional investor since early 2000s, just really understanding where we are. And in fact, you discussed Howard Marx's book, Mastering the Market Cycle. And he uses some of the same language. He recently had an editorial in the Financial Times. And one of his points is the market is generally somewhere in the middle. It's rare that it's at an extreme. And we've seen that in our work. We've done a monthly investment conditions and strategy report for over a decade. And only 10% of the time it's really been overall conditions, asset class valuations, economic trends, market internals. About 10% of the time you get more of an extreme where it's in our parlance is red, so more bearish or green, more bullish, because most of the time we're sort of in the middle. And so we're sort of...”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT
“Right. Well, first, when we think about market conditions, there's many ways to measure that. But fundamentally, as investors, we're managing performos and we have a number of different asset classes and we want to understand what's going on in the markets that could impact those asset classes. And foremost, asset class valuations, the price-to-earnings ratios of stocks, for example, is a type of market condition that we need to be aware of. And so other market conditions would include economic trends, which can impact corporate earnings. And then there's what are we called the market's temperature, which we call internally market internal. So the level of fear and greed in the market, and what's that average investor doing? And so when we look at where we are with market conditions and why they're important is essentially is to keep us grounded. Knowing where things are helps us stay invested and it keeps us from sort of being”
2023-08-06 · We Study Billionaires · TIP568: Current Market Conditions, Alternative Assets, & AI w/ David Stein · IDENTIFIED FROM THE TRANSCRIPT