Excited. All right. Hi, everybody and good evening thanks for joining us on a busy thursday all that ahead but we have to start with the top story because 2020 is looking like 2019 mor new records. The s p dow and nasdaq all posting alltime highs but there are a couple of big events that could change things up in the coming days beginning with the big jobs number tomorrow the expected signing of the phase 1 trade deal next week now iran has calmed but not gone and everyone seems to be, guy, wondering about the fed. How should investors be getting ready for this the macrosetup with the market that just cant be held down. Ive said it for a while, i definitely made this more complicated than it has to be. Its interesting, the knock against bitcoin its created the out of thin air. Thats exactly with the Federal Reserve has been doing since september. Creating liquidity out of thin air and thats justing the market north of 400 billion over the last three and a half months by april the Balance Sheet at record levels. Thats it. Jobs are important, yes. China deal, all those things, this overrides everything. So as long as the fed keeps playing the game i think the market keeps vaporizing higher thats exactly what it is. This is indiscriminate buying. There are at least 20 indicators metrics name it what you want at levels irrelevancic in terms of being overbought or upside risk if the market doesnt seem to care. And things we look at talking about the aaii bull bear spreads and basically at a spread of effectively where we were at the ys pulled in a bit earlier in the week the cnn has a agreed and fear index. Extreme greed is 95 within and we are at minus 1 back in christmas of 2018 when everybody was about to jump out a window if you think about the fed and this is really where i think were universality accepting of the fact that the fed is the reason behind most of this i know we got a trade deal, this and that but the fed is the fed claret vice chairman gifting you an indication easy as she goes until midyear. When you talk about the repo crisis, the fed is buying 60 billion in bills in the next few months meaning they will grease the liquidity scale. Meaning on some level, some level, valuations dont the matter i know the dean is talking about that but at some point valuations do matter and i think they are starting to. I agree with that i mean thats fundamentally what we use is fundamentals to value stocks and i hate when they sort of levitate on nothing, because the bar gets higher and the earnings expectation gets higher. Its easier to miss. And that wouldnt be surprising to see that. I look at the volatility index today down 7 . I mean under 13. So i own s p puts. I need to protect the longside i mean its just volatility. Volatility falling, karen at a time when missiles were flying from iran at to u. S. Air bases in iraq. 72 hours ago things looked very different the vix you got to own if you want to stay long stocks because its too cheap. I think the Balance Sheet to guys point, Balance Sheet is what caught most people off guard. Adding liquidity caught people off guard. I think youll get an opportunity to sell the market on china, january 15th. Now. Yeah you could sell it in phase one because there is a gap between face 1 and 2 and earnings i think earnings could surprise to the downside there is the opportunity. The gap, steve could be years. How long did it take us to get to phase one the point is for me i think its bullish to have a certain amount of time between the two phases because it keeps shorties on their heels well the absurdity is that we created a problem and we slowly dont solve it and get more bullish thats what happened here i realize there is a fundamental problem and in fact were not a political show but we know on both sides of the aisle there is unanimity what we need to to do in terms of china policy but when you get back to it by the way asia is issial rallying asian markets have been outperforming. If you think about where we are for stocks, megacap tech of which a lot is asia exposed has been whats been outperforming i know we are talking about microsoft. We seem to talk about apple every day. But the triple qs are outperforming the s p which is up 12. 5 meaning triple qs are up 16. 5 since october 3rd low. What the market was expecting after phase one at least what i expected was maybe a couple months later but we heard President Trump say he could wait until after the election that to me allows you a window of opportunity to maybe sell the print or sell the news so to speak. Do you believe that by the way. On how long he waits. Do you think he could wait until after the election. I think he is Holding Holding it out there because i dont think he thinks he can get a deal done before the election. He makes it as if its his choice. A lot of that is posture. Totally. I will be here after the election, you know, guy i wish we had the chart i should have done it. My fault if you charted the s p 500 versus the fed Balance Sheet expansion since october. Theyre perfectly correlated. 100 . Two to one. Its not like we havent talked about it. Youve talked about it a number of times we talked about it in the show thats clearly whats driving this ship. Again it doesnt matter if you own a stock that goes from 5 to 10. The reasons why dont matter you have twice as much money as you did a week ago thats great but dont confuse it with fundamentals of the companies. Because frankly fundamentals for most markets have been thrown out the window with that said there are sectors the fundamentals are working look at health care, for example. A name like ealey lily alltime highs marc around alltime highs. Big cap pharma which fundamentals are behind could work. Could you say the fundamentals are just that, liquidity issues in the market because when the fed was shrinking the Balance Sheet and tightening people were exiting the same correlation you saw in the s p was the same correlation we see now back then now it the reverse thousand they might not be lose loosening thp. They might not be cutting but they are expanding the Balance Sheet again. I think we have to be careful, because tim when you look at who our audience, the audience watching listening to fast money fast money. Lets assume all the people driving home tonight are individual investors they are not buying or selling or stopping the 401 k on the Federal Reserve on a day to day basis. There is two markets out there, the investor who puts cash in month after year year after year saving for retirement and the High Frequency traders who maybe they just trade only on the fed Balance Sheet. I dont know. Well. Who is in charge . I think we have found that passive investing certainly seems to be winning the day. And whether you are graham dodd or someone that is following fundamentals over time and basically we said before money is made over time its lost very quickly, which means if you stay the course thats typically been the rightthing to do i continue to believe that both the memory of 20082009 and some of the volatile moments of politics are the things keeping people up at night i dont think anybody is worried about a 10 drawdown snp and injury the folks you refer to are comfortable with money in the market as long as they trust the market and we have had bouts where people have not been sure. Whether flash crashes. Trusting that the fed is the wind behind the sales. Its hard to. It is. Because any change in fed as posture will have a dramatic impact. And steve makes a fantastic point. Back a year or so ago when they were draining liquidity was that the same thing i would pushback i would say thats when the market looked at fundamentals and saying maybe the stocks dont deserve the valuations but thats what makes markets and thats a different conversation. Yes it is im sure we will continue it but something to be mindful of is earnings if you worried about pricing going up too far too fast you have to watch the e in pe ratio thats earnings of course. We are a week away from earnings season excreting a full year lets go to bob at the Stock Exchange and maybe more conversation on valuation, bob and whether anybody there really questions how much more gas is in this market tank . That is the topic of conversation right now, bryan. God to see you again the good news is that stocks are rallying because the market is assuming the magic combination of job growth a strong consumer. Friendly fed and maybe a bottom on Global Growth magically produces expansion of earnings in the 2020 after a flt 2019 bad news stock prices going up but. Earnings estimates going up. They are slightly information coming down. Now while estimates are up for q1 and q2. Theyve been coming down we know its typical for analysts overestimate earnings estimates 3, 4 percentage estimates and see them lower closer to the quarter being examined but whats not typical is with it happening at market at historic highs the s P Los Angeles rallied 12 peppers in the 4 quarry on expecting of earnings up prices up earnings down mean the ultimate the markets trade at is climbing fast. January 1st, 2019 remember stocks cheap 13. 9 forward earnings for the s p 500. Expectations were low. We were well below the historic norm of about 16 january 1, we were at 18 today we keep going up at 18. 4. That by the way is the higher end of the range in the last 20 years. So the obvious conclusion is that future stock gains are going to require the multiple to go even higher and the issue everybody talking about down here, brian, is how much more are you willing to pay for the market at this price at these prices any negative factor that reemerging is dropping the market fast what would that be well the fed retreating from the neutral position signs the skurm gets exhausted, a return to tariff wars. They are debating whether or not a really good report on jobs tomorrow, 200,000 maybe, the market expects 160 would that be enough or is that priced into the market right now its getting very tough to move the market forward without really really better numbers than weve got already back to you. We have this election thing from what i understand people with very different ideas about the economy and tax rates and what else. But thats for another day bob, thank you very much. Lets dive more into the concept of valuations and bring in the man they call the dean of valuation, aswath damodaran. Youve been listening to the conversation blunt. Is the market as a wheel overvalued right now i dont think so. I think its frothy. I think that there is a point to be made that the fed added to the froth in the last few months about if you look at whats sustaining the market, its built on four legs the first is the cash flows from stocks are incredibly high im talking about dividends and buybacks still around 5 of the level of index notwithstanding where the index is today the second is i dont think this market is pricing in high growth in earnings but its pricing in the expectation that earnings will not collapse. And the third is low Interest Rates. And there is a fourth factor which is mood. This is a market that seems to think see, i call it a half full glass market where it looks at the optimistic side of pretty much everything. And that can change overnight. I mean we saw that happen in the last quarter of 2018 and it could happen again. I think in the First Quarter of 2020 but the landmarker question to ask is should you be trying to extract yourself from stocks because you think they are overvalued and my answer is no. So at what point do we get overvalued were at whatever 19 times earnings on a forward basis. Is it 20 21 where is that point where with he say, okay we have to find Something Else to invest in bus stocks are too rich . The problem is with low Interest Rates where are you going . I mean im not sure you can go anyplace and find bargains in a world of low Interest Rates. I mean, real assets, financial assets, everything is being affected by low Interest Rates what do you think about the market today is very much a function of why i think rates are low. And i asked people to do a experiment lets assume tomorrow Central Banks all step back from acting. Where do you think rates will go if your answer is tbond rates go to four or feist you should be terrified if you think they are going to 2. 5 or 43 is okay. I think the 2. 5 to 3 is morically than the 4 to 5 even he though the Central Banks have had effect i dont think its as large as people think. Given the fact that inflation stays low. Real growth globally is not that robust the u. S. Doing better but the world hasnt caught up in terms of real growth. Its karen. Let me ask you something if we were to get to 2. 5 or 3 i think that would have a dramatic effect on stocks in the shortterm at least with the fear of all right maybe inplacing is around, maybe it goes higher than that. What kind of pullback would you see in the stock market if we went to the 2. 5 or 3 range . I think sits very much a function of how rates get to 2 the. 5 or 3 . If it happens quickly with no fundamental reason other than higher inflation thats bad news. If it happens because the economy is doing stronger than expected its mixed news i think it really depends on quickly it happens and what fundamentals accompany the change dean, when you looked at one of the shocks being a recession, how do you think about that where just like a handful of months ago where were we when we thought we were sliding off a cliff as far as growth what type of percentages because things can change pretty quickly. So your shocks were political, recession. And they were a boost in Interest Rates so we heard about the Interest Rates. But what percentages or maybe you dont do that but what type of percentage are you putting on a recession possible in the next year and a half or so i think one of the things ive noticed across the world is how companies and markets have kind of disconnected from domestic economies i mean if you go back to 2013, 2014, while the u. S. Economy was growing slowly, u. S. Companies were still posting high growth in earnings. So i think that when you see a recession, unless its a floebl recession youre not going to see the earnings consequences you might have seen 20 or 30 years ago. I think the link between how well the economy is doing and how well Companies Earnings are doing is weaker than its been historically because of that reason professor, we gave you the name dean of valuation so its not entirely fair. But i feel like we need to throw, crumple up the sil bus and the classes you were teaching ten years ago makes no sense any more i wish i could have attended that class i probably couldnt have been admitted to the university but i think valuations at some point are the ultimate arbiter where the market goes. When things get too cheap they are too cheap, doesnt mean that day. But i dont your saying they matter any more. Thats surprising. No thats not what im saying im saying given where rates are today, i dont see stocks as being overvalued thats why i said when you think about the market, it boils down to what you think about rates Interest Rates if you feel Interest Rates are artificially kept low by Central Banks which most people think they are, the question is how much lower are they than the natural rate you would say if they werent doing what they are doing preponderate answer to that question is really what drives how much you allocate to equities and what you do about the market today. Aswath a good discussion as well with the valuations im sure we might be taking your class again soon thank you very much. By the way have a great time in san diego, found pd by the germans in 1909 we have the chart the chart best in the business the fed versus the rally the orange i dont know what the orange is. One of those is the orange is the fed Balance Sheet. Yes. And the blue is the s p 500 it doesnt matter which it is. Because even if you are on the radio theyre basically the same line and, again, a point i know that steve is making, tim, karen, weve been talking about this since the fall. I understand the dean of valuation, respect his opinion but its hard to argue with what you showed there and what people on the radio listening to. Theyre correlated basically one to one. Well i guess, yeah and bring up the chart again here is the point, steve im not saying you shouldnt have market gains on that type of thing. The question i think is very simple what happens when that orange line starts to turn down. Well there is no question we know its going to happen i do think october 3rd was the low the market traded intraday it has moved 14 since it it was effectively around the time that the fed came in and talked about the midcycle adjustment but also talked about the repo market stress and talked about what they were going to do to counteract that, and say that it was not necessarily a adjustment but fantastic them doing what they needed bottom line here is this is ephemeral. And we had the moments and if you think about the january 26 blow off high of 2018 what fueled that . Extra sugar on an economy and market doing well which was the tax cut. Be careful. Good advice tim as, as always we have the song pour shoeing an. Lepered the gaunt. Deaf leprd is the band here we go. You could say there is hysteria what the mason point parton place and the Union Station have in common with one stock just out with earnings. Plus a fistful of fast calls five different calls for the day as always. Live from the nasdaq mkesiart te in times square. Were back right after this. I can. The two words whispered at the start of every race. Every new job. And attempt to parallel park. electrical current buzzing each new draft of every novel. typing clicks the finishing touch on every masterpiece. newborn cries it is humanitys official twoword war cry. Words that move us all forward. The same two words that Capital Group believes have the power to improve lives. And that, for over 85 years, have inspire