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I I think we made a low on October 12th I I thought that back in late October uh the bond market peaked on October 24th the dollar peaked around that same time uh I think um we have to look beyond the United States for starters and see that there's more and more evidence that the global economic Outlook is a lot better than people had feared uh last fall uh Europe looks like they're not going to have a recession China looks like it's coming out of its uh coveted Funk uh or at least there's lockdown situation and meanwhile when we come back to the United States uh there's still a big debate about soft versus hard landing and I think the economy is going to grow it's going to grow slowly but I don't think we're going to have a recession and I think the uh we've already been in a recession for the past years has been our rolling recession hitting in different Industries different sectors at different times Eric I mean not an unreasonable point of view at least on the surface and you really haven't wavered much lately uh you know that stocks are on borrowed time and it's all going to fall apart at some point but what about Ed's argument here so uh thanks for having me so I think the important thing is to really to go to the numbers and you know right now the market is trading at 18.4 times 2023 uh estimates those estimates I think are far too high but if we put that aside 18.4 times is a 50-year high X the two bubbles post covid and the internet bubble so you have to believe that we're going to go into a third bubble in order to get valuation such that you actually have upside for this market right now the earnings yield of the S P 500 is about 5.4 percent money market yields are four and a half percent it's about an 80 or 90 bip spread that's the tightest spread since July of 2001 one of those bubbles that I was referring to so the the argument for a soft Landing I think is it's possible it's unlikely based on what the yield curves are doing the leading economic indicators are doing the lag to the 500 bips of fed hikes we just had but let's it's possible but my question would be in that soft Landing scenario what are the earnings in 2023 and what's the multiple that's going to be put on those earnings Ed how would you answer that Eric is absolutely right about 2023 uh I I think that earnings are going to be basically up from last year but it's very controversial or people are talking about 200 per share or less for the S P 500 I'm at 225 the market is about 229 right now not the market but the industry analysts I think the market looks ahead and I think it's already looking ahead into 2024 and 2024 I think will be a good year nobody's really talking about it at this point but I think it'll be a good year and I think earnings are going to be 250 a share every single day of this year as we approach the coming year we're going to give more and more weight to 2024 and that's looking pretty good the 250 000 a share I think is a reasonable estimate for for next year and in terms of the valuation multiples I think right now earnings have been weakening somewhat I think we're going to have flat earnings not hard Landing declining earnings and um I I I agree I mean I'd be a lot happier if the multiples were eight to ten and we were starting there uh but it is what it is it's it's a soft Landing I think what the yield curve is saying is that inflation's coming down he'll cover in the past the dissipated Financial crises credit crunches and then recessions this time around I don't see a credit crunch I don't see a credit crunch causing a recession and I think the market is uh basically looking at inflation continuing to come down Eric I mean I've got you know yes the yield curve uh is inverted we know what that traditionally means yes the leading economic indicators uh are telling a difficult and perhaps stormy story but on the other side of that I do have a consumer that I'm sure has surprised you in its resiliency at least to this point that maybe this recession if it even is one doesn't look like ones of of years and and decades passed and that's what keeps us chugging along to the degree that Ed thinks we can and the stock stock market doesn't fall apart as a result well I think the the recession doesn't need to be a deep recession for stocks to go down a lot that happened if you look at the recession back in the internet bubble of of 2000 to 2003 that wasn't a that wasn't a deep recession yet stocks went down 50 percent and the issue that we have right now is that that because of the multiple of stocks just to go to the average if you go to a 15 15 and a half multiple on the S P you're talking about down about 20 percent from here and that's not even counting the fact that if you look at earnings estimates right now it's not like earnings estimates are trough estimates we are well above Trend if you draw a trend line over the last 20 years of earnings we are well above Trend operating margins well above Trend and so those estimates have significant risk to the downside and by the way we've been talking about this for six or nine months and over the last six or nine months they've been coming down and we think that they have a lot more to go and the other point I would make around the FED is that yes they are almost done okay but the issue is you know saying they're done you know if they were to raise rates tomorrow to 10 but say we're done well that's not good news and so the point is is that yes they're going to be done they're going to finish a 475 five five and a quarter but that kind of fed funds rate of five percent for many months and quarters to come that's very problematic for multiples and that's going to be a big headwind for the economy
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