How fast this economy will recover. We debate that today with our Investment Committee its good to have everybody with us josh, is that what this is is this a reality check of sorts on where we truly are and how long this recovery will take hold then we have this massive count r trend rally where it was just the opposite i think that was important for the market to have that catch up in a lot of the names that have been so substantially trashed, maybe big moves to the upside. See some excitement about companies that arent based in coopertino and thats fine again, the prevailing trend, the real trend is taking hold again today. Even the stay at home stocks are rallying again it almost feels like its blue team, red team lets say blue team is where people have really made the most money and then red team makes money occasion mally when they do those counter trend trades. I do think we had a two month bubble in day trading activity i dont know if its over yet. Fie it feels like its bursting a bit. Today looks like its Something Special and different. It might not be. It was easy when stocksbated. Now the work gets more difficult. You look at thoese epicenter stocks these tremendous gains over the last month in names like boeing, up more than 40 and many of the airlines which have had just astronomica ga astronomical gains, the cruise ship, the banks. Other areas that would benefit from a fast opening economy and maybe today is reality check that says, jay powell threw water on that yesterday. You almost had like larry kudlow versus jay powell market there was this thought it was going to be a v recovery in the economy. Jay powell yesterday, all but said no way. Im not sure it was necessarily a trade for the second half of the year and the v shape recovery i think it was really the reopening trade that was working so well. We went from being in lockdown to starting to venture out into the real world i think thats what some of those social distancing under performing stocks like hotels and restaurants and airlines were responding to that is whats been playing out and why they have been rallying. We had a basket of social distancing under performers that was up 60 or so today i would agree they have done a lot of the rally to kind of coincide with the reality of the reopening. This is why i think they are absolutely due here for a bit of a pause. This is not going to be a Straight Line recovery by any means. I think theres trade to be had for consumers venturing out into the economy. We see this in restaurant data we see this in mobility data we see this in gasoline stations we see this, for example, in transactions where its present to suggest that consumers are venturing out. After this little bit of a pull back, i think if we can be discerning about the type of pent up demand stocks that we dont want to own, i think thats really the trade for the remainder of the summer. You dont think that trade already happened thats a reason the stocks came back to the manner in which they did. Whats left . They have come down the under performers are still lagging by 40, 50 in certain cases. A lot of the names are still down significantly the reason for the sharpness of the rally is because were starting from such a low, low point. The reason why i think the trade, the reopening trade has to focus on the consumers is because take a look at the personal savings rate, its now at 10 look at last fridays, jobs report where we seen some positive momentum in jobs data by the way, some of the alternative data suggest we could see something similar for the next several months. I think the able, the means to spend all of this could Power Consumer services. Those are good points hes play off of that. Is it time to get out of the way of these stocks that have had these tremendous moves or is it time to use the sell off in some of these names to get back in at a discount boeing this week is down 10 american is down 20 the banks are down double digits what are we to do . She said as we get back in, we need to be more discerning. I think discernment is the way to get back in what we seen on huge down days like today, theres nothing disce discerning everything is down when youre looking at banks say here i have a list of banks. They are not all created equal they are all created equal in terms of the stock moves they had on the way i and on the way down exactly its time to not trade the whole sector and maybe its time to start discerning and pick out the one that should win. Maybe as emotions cool, ive looked at this market for the last couple of months but the last two week, its hugely emotional. Theres been the emotions have overridden Everything Else maybe as emotions cool and valuations start to matter and we start to see q2 earnings, maybe we can be discerning but choose individual ones jim, you had those high growth, megacap tech stocks and we were saying this is too top heavy. Way too top heavy then you had these other cyclical stocks join the market we said this is overwhelmingly bullish sign that now the breadth of the market has widened out. Now i wonder if you can build a case that was false . It was banking on a v recovery that may not take hold you just did a very good job with the question. Is this a v shaped recovery or not. Thats what was happening until the middle of this week and it was pretty powerful. It was pretty strong the question is has the v shaped recovery been drawn into question im not so sure. I think its still there for now. Yes, i heard with what jay powell said and i see the up tick in virus cases like arizona and texas. Overall, the case load has pretty much flattened around here at two million and important economies like new york, youre seeing a reopening. On nick, theres going to be this reopening that will in gender more of the v shape recovery thats not a permanent condition. We have to worry about what happens in the fall. For right now, what youre seeing with the cyclical trade is seeing a pause. It got way ahead of itself whether you look at the airlines or even more speculative, truly speculative names, bng ruankrup companies more than doubled on monday thats absurd. That was speculative that needs to come out. Well get into that in a second its a good point you make another dose of reality was thrown by wynn its not getting a lot of talk when i saw that, i was like, okay, thats a bit of a reality check on where we are. Wynn talks about weakness in mccow that will continue through the Second Quarter theres no reason to believer that will snap back so fast. Yet, those stocks had pretty good moves again on the belief youre going to have this v shape recovery. This economic recovery is going to be slower now, yes, i know people are getting out and about and want to spend money but the fact of the matter is theres places theyre still not going to go and there is risk as these cases continue to increase not because of more testing but simply because of spread in places like texas and arizona that you have to watch elsewhere steve, what do you have for us right in the conversation the Federal Reserve reporting Household Net Worth declined by a record 6. 5 trillion thats in single quarter gives you a measure of how much pressure households were under the only offset was a 400 billion increase in the estimated value of their Real Estate Debt rose by 14. 3 the biggest since 2011 and business debt rose by 1 thats t 19 . Thats the biggest jump since 1983 the Fourth Quarter was the prior record before this one and you had 2008 in 2018, it came back in single quarter. You lost all that net worth and had the v shape. 2008, it took about five years to get back to net worth you lost i guess thats what the debate was about and powell was saying its very uncertain sflp thats the word to use. Steve, thank you all right lets continue to kick this around i need to noam i better off buying the kramer covid index. Remember those stocks. The stocks that would benefit by the fact were all staying at home look at zoom today look at netflix. Are those the stocks that need to rotate back into or stay with this theme that were reopening regardless wooerp not going to shutdown, regardless and its just going to go and people will get out and continue to buy the reopen trade. Josh were talking about a v shape recovery as though the economy was awesome before this happened i think we had full economy but we grew at 2. 3 in 2019 and the stock market went up 30 the idea we need a v shape recovery in order to justify what the stock market has done or will do into 2021 is untrue it was not for this period and the stock market fell 5 whether or not we get a v shape is not the issue theres a ton of liquidity in the market invets investors are bidding up stocks. The fed is telling you from the roof top they are not going to stop doing what is obviously qe to anyone that is paying attention. Theyre telling you theyre not going to stop. Saying like we need a certain rebound in growth in order for the stock market to keep performing is untrue especially when you understand the composition that we all quote each day they are not premised on cyclical growth. Its not how were both. It does matter for which sector of the market you perform with go ahead, jim i wish it was this is the point i was making earlier dont talk over each other. Jim make your point josh you can counter it. The v versus u or square root or anything of that nature talks to whether you can be in cyclicals or not if you think youre having a v shape recovery, then you should be in the cyclicals and small cap. Thats true if you think this is a u on a swoosh or anything like that, you should be in large cap names. True. Doesnt it matter whether restaurant sales rebound 10 or 15 . No but jim makes a good point. It goes to the premise of what i was asking you when we came back from liesman doing his name. If you think its a v, you want to stay with this cyclical names that have run up unbelievably well the names i read off to you. But why they didnt perform when the economy was good they will give you good returns. Jenny jenny. I think one could be in the middle you dont need to be all out v, hotel, restaurant, airlines. You dont need to be purely in the large cap bio tech and pharma what if you think about getting out safely and think about driving is up a ton. Maybe i can start to enter chevron. What if you think retail will pick up but i want to do that safely and who will benefit first. Maybe you look at ross stores and tj max you could look at car max has people start to drive. You could say people are staying home a lot but getting out of it more these guys are in the middle of josh and jims arguments and places where you can start to get back in safely without needing to bet on a v. Without needing to bet on a swoosh i dont knee to know how strong it will be i dont know how long the whole economic sickle will lacycle wi not brave enough to play the straight v recovery. I just want to participate i agree with that im with jenny, in the middle i dont think you need to be one way or the other i wanted to fight a bit is the time frame for this v shape recovery we are going to have a v shape recovery in q3 as we recover from q2. I think after that things can get challenging. This is reason why you look at the fact of the Unemployment Rate from the fed. They are not calling for us to get back to where we were any time soon. Well still be looking at close to 10 by the end of the year. The reason for that is were not going to go back to normal were going to go back to some new normal and theres some structural trends that were supposed to happen that i would say are being pulled forward and happening this year. Its automation, its ai versus some of the labor in place that is a very real thing. Its going to lead to jobs temporarily laid off will become for permanent job losses how do you scaquare that thats what we have to think about a new normal basket which has three different pieces the first one is what are the trends that will being accelerated. Yes its cloud, its 5g. Its ai. Its bio tech. Its all of those things we have to continue to own the tech and bio tech names. Then theres some new trends that will being created by this. As we all work from home, by the way, some of us will probably be working from home for six month, maybe a year and maybe permanently. You have to think about investing in the work from home and housing infrastructure if we have the v shape in q3, thats why you buy some of those beaten down airlines and hotels. Were not talking about a second wave. Were not out of the first waver. That was dr. Gotleys point last night when talking about the big up tick in cases youre seeing in arizona and texas and hospitalizations are going up. I keep hearing from everybody, most, that were going to have a v recovery were going to have a big snap back were not talking about a second wave in the fall we cant even get out of the first wave thats what were talking about here ive been saying this every week that my biggest fear is that we reopen and theres a resurgence i dont think it will be as out of control as what i consider the first wave. To me, thats always been the biggest risk all along i dont place odds on that were rooting against that there is this under current of concern but it seems to be in the places that have already been hit the hardest and the places where they are first seeing this up tick, they dont seem to be as afraid i think theres regional differences in attitude. Im concerned because where we live, i think we saw it at its worst. I dont want to see that happen to people in other place who is are unsuspecting that it could i also think the white house, not talking about the issue anymore and just deciding that its a thing of the past is playing into that. This is my number one risk more so than anything else. The other thing to consider too in terms of reasons why the market went up, you guys alluded to it. This hot money that come in the market around some of these Companies Like chesapeake and hertz and jcpenney le leslie has been following the story. It really is a phenomenon for a number of reasons. It is, scott. You know, when you think about the laws of finance, they would dictate that equity holders dont recover anything in a bankruptcy it made no sense when you saw bankrupt companies, stock prices go higher over the last week and then come crashing down in recent days. If your hedge fund, theres a certain type of strategy that plays the opposite side of this trade that was caught by surprise the way it works is simplistic is you will go long on the bonds as the restructuring process goes on with the mind set it will be mispricings up and down the structure. If you see a sudden spike in some of these bankrupt companies and youre sure, youre going to be forced to cover really quickly which is partly what we saw in the spikes of those prices there was significant short covering, a short kweez that took place which exacerbated some of these moves. Josh, what do you make of in the market i think its a three ring circus i dont think its had a huge impact on the overall levels of the market itself. The Silver Lining is the only way anyone learns how to invest is to lose money at first. I dont think its a negative that all these new brokerage accounts are being opened. Youre not beginning to listen to anyone else if youre a first time investors in your 20s, the stay at home situation and no sports has gotten you to recognize theres this whole thing called investing and your first entree is day trading, its not the worth thing. Its not the end of the world. I think some of these people will go onto become serious investors and learn the markets and some wont i like it on balance its fun to watch. Its fun and its learning i dont think are losing massive amounts. Im not a scold. Let it happen and its okay. Part of it is the evolution of the brokerage and how you have democratized the way things operate. Theres robinhood which is the fractional buying of shares which opens up your market and zero commissions. If youre a day trader and look at these bank rupts comparupt ca are trading under a dollar you cant go to vegas, well now you can. Its almost like gambling. Investor psychology behind that. Okay if i invest a dlnds and it goes up and i can make a couple mf, great. If it doesnt, oh, well, i lost a dollar its interesting because Citadel Security put out a note to their institutional clients look at some of the lowest priced stocked in the russell 2000. These are 29 stocks trading below a dollar they found those stocks gained on average almost 80 compared to those that on a absolute price basis, the 29 highest priced stocks gained only 5 thank you for your report jenny, do you have a thought on th this i do. I wish i could tell you what it is im trying to buy a stock now. Hes seeing what leslie said the money flows from the small individual investors are flooding in. I was laughing as she was talking because my 11yearold son had a little utma account. He will literally come to me and say, mom, can i buy this its purely based oen the fact its trading at 1 or 2 a share and he found it. That low dollar price ticket is an interesting psychological hurdle that is attainable and fun and interesting in a way we havent seen in the last 10 or 20 years people enter the market and start to get involved. I think it could add a layer of momentum to what were seeing. I think it could start to buoy up some of the unloved stocks and give them a new base of Share Holders to latch onto and build a foundation i gist want to call your attention to the major aver rags at this moment the dow is down by more than 5 . 25,6 25,635 thats a loss of 1355 points you know, we dont need to make, you know, a mountain out of one days decline in the stock market after the run up that weve had. On that note, jeremy seagull says the trend is still up weve had such a huge move he talks about the trend being up because of the liquidity thats still in the system regardless of the gyrations of the market week to week and daytoday part of the reason why the cyclicals here and the under performers have been bid up so much is youre doing some performance chasing when it came to may and people were very short cyclicals. They were very under weight value. This was the first place to step in by the way, i do think the retail trade is one discussion but theres also looking at the cta community, the Commodity Trading advisers or look at the long sheort equity funds they have been doing performance trading. If i look at the positioning of other investors, other Asset Managers and mutual funds and other Institutional Investors they have yet to step into the market you have cash that is paying you nothing. You look around the world and you think