the flip flop...

so what's going on with the big bangs

like Barclays and Morgan Stanley and not

the Mike Wilson bear we already know

he's a bear over at Morgan Stanley what

are the uh primary researchers at the

institution suggesting well here's the

latest from Barclays and then we'll get

into Morgan Stanley they have different

looks uh at the current economy but take

a look at this fomo folks fomo

fomo has seen frustrated bears turning

into reluctant Bulls you know this

reminds me of just a week or so ago we

covered a TS Lombard piece where T.S

Lombard said look we're bears but we're

buying because stocks are going up and I

thought that was rich I'm like wait what

you're positioning into stocks even

though you're bearish because stocks are

going up and you're afraid they're going

to go up even more like if I said that

on YouTube I'd get chastised like I

already get chastised if I just say what

I'm going to do and I'm fully

transparent about it but but to say I'm

a bear but I'm gonna go long blows my

mind if people will say that

but that's true that's what's been

happening and so uh Barclays is picking

up on this and so they're talking about

position normalizing uh and uh risk

basically is spreading out uh throughout

stocks within uh the U.S economy uh

especially uh to some extent in the U.S

uh or sorry mostly in the U.S whereas in

the EU and the UK you still have a lot

more defensive positioning so what does

that mean well let's look into this most

investor types have bought equities over

the last month mutual fund Equity

inflows were the highest level in June

since February as uh private money a

move to neutralize some of their

long-standing under weight so in in

other words

you've got this uh uh this remember the

Bank of America survey where we had

somewhere around uh you know a 32

underweight from fund managers for

equities where you're starting to get

that flip-flop that's finally starting

to happen and here you see low

volatility has allowed a certain

systemic strategies to continue

re-risking and hedge fund betas to

equities nudge up okay in English

basically hey look volatility is so low

you could still buy your bearish puts

but just go long equities as well and

that's somewhat what we're starting to

see happen on top of this AI frenzy

bringing in retail investors and listen

to this who had stayed on the sidelines

for most of the Year ah depressing it

always seems like that's how folks Miss

uh some of the best returns of the

market is by waiting for like a royal

invitation to get back in getting back

in is the hard part you know you either

get in too early or you get into it late

it's very difficult to be perfect on out

perfectly and imperfectly anyway amongst

all this we note short Equity future

Physicians have been trimmed adding to

the sense of degrossing Slash going back

up towards Benchmark Equity weight in

other words balancing out going back to

all right we gotta have stocks at a

normal position in our portfolio all

right what else we have about cash here

hold on one sec

sorry I still got this still got this

nagging cuff and cold but don't worry

it's not going to stop that beautiful

sexy lecture release this weekend or

that price going up tomorrow night for

all the programs I'm building your

wealth whether it's the zero to

millionaire real estate investing the

stocks and psychology money or the

income how to make more money and get

sh9t done faster of course featuring AI

really good lectures by the way a lot of

good compliments coming out of that one

so what do we have here

despite the latest buying spree and

Equity overall positioning is balanced

at best see a lot of folks and I see

this regularly anytime you have this uh

crash in a market and then you have a

little bit of a recovery the first thing

the Bears do is say oh it's just a bear

Market rally like this is just the

beginning before we leg down again the

problem is that's how they end up having

an excuse to stay on the sidelines well

the issue then is when we continue to

actually go up their excuse starts

weighing down and you start going all

right so like how are you gonna position

now well apparently most new money is

still going into cash and bonds listen

to this

X asset flows which basically means you

know where's the money going are mostly

new money or is mostly being directed to

the bond market and money market

so let that sink in for a moment

if somebody comes upon new money so you

know they sell a house let's say and

they've got 200 Grand uh you know from

Equity from selling their home where is

most of that money well more than 50 of

it is still going into Cash via bonds or

money markets this is a way of

suggesting that you're nowhere close to

the days of Tina where everybody's like

throw everything you have into the stock

market and you have the Euphoria of

November of 2021 you're nowhere close to

that because of positioning today which

is actually bullish that's fantastic

anywho positive EPS revisions have

provided fundamental support to equity

inflows but stand in contrast to mixed

economic or activity data therefore the

upcoming earnings season maybe Make It

or Break It for stocks we've talked

about this as well that

you would expect some pre-positioning

going into this Q2 earnings season and I

think that's why we've seen some

volatility over the last few days where

we've had quite a few red days and by

quite a few red days I mean like four

and because of not only some end of the

quarter rebalancing but also hedging

going into earnings all right fine what

else

Tech is driving Regional Equity flows

all right well we kind of knew that uh

that's U.S investors however are

starting to sell their European equities

for the first time this year now this I

found interesting

I've been saying probably for just quite

frankly a few years now get me out of

Emerging Markets I don't want Emerging

Markets I don't want the S P 500 I want

Tech chips and Innovation I don't care

about the rest of the world going

through this crisis I think the us is

going to weather at the best and you're

finally actually getting

rotation uh from us investors dumping

their foreign crap and getting more

properly positioned in U.S stocks

good

uh and that's probably because Europe is

feared to actually go into the recession

or a recession whereas the U.S May Dodge

it outflows from UK stocks continue

unabated amid A Renewed stagflation

worries yeah especially with that spike

in inflation over there

uh Japan continues to see strong inflows

I'm not sure why but anyway

Tech inflow's masked uneven sector Trend

positioning on banks cut sharply Global

flows have been going predominantly into

Tech but active manager performance in

Europe have taken a hit

as value slash cyclicals have fared

better in Europe so in other words for

Europe value stocks America Tech baby

Tech exposure has quickly moved to above

average for hedge funds that's true but

not yet for your typical investment

advisors keep in mind that's different

from a hedge fund a hedge fund pretty

much anybody can make a hedge fund you

don't have to be licensed to create an

hedge fund hedge fund is just sort of

like yo I got fun

accredited investors give me your money

and I'll I'll trade with it that's

basically a hedge fund that's different

from like an ETF where you position into

specific stocks with a specific

predetermined strategy that's

transparent uh and it's different from a

financial advisor actually sitting down

with somebody personally and giving them

Financial advice I've never done that uh

you know even though I'm a licensed

financial advisor I got my license for

my ETF but um but anyway so what else do

we have here

lower Equity volatility May persist

through the summer fine all right boring

uh some of this is somewhat insightful

though okay

frustrated Bears have become reluctant

Bulls over the last month mutual funds

resumed buying equities for the first

time since February now that's a big

deal mutual funds buying that's great a

lot of the uh the folks with money

um

they still put money in the mutual funds

I don't know why I don't know why you

put your money into a mutual fund

instead of instead of an ETF I literally

cannot find a single reason why you

would do that what people still do and

the fees are a lot higher

anyway the tax benefits aren't as great

talk to a CPA anyway

the bigger year-to-date picture is

unchanged with most it flows going to

Safe assets and the flows to equities

may prove fleeting

and they always say that anyway last

week Equity flows turned negative again

on hawkish uh Central Bank talk and weak

data but it's noteworthy that equities

were being bought despite the negative

economic data yep that is a

style of going risk on

all right great what else so uh here's

the bull bear indicate index mostly

positive now since the start of 2020 uh

two or the most positive since the start

of 22. you can see here at the end of

2021 you really got this big decline

and that really started moving up again

at the beginning of 2023. fantastic okay

so we got Morgan Stanley to look at in

just a moment as well but I like looking

at this here high frequency data like

retail call option buying has moved up

sharply to the highest level in more

than a year uh I I generally prefer

buying shares just because remember with

timing the market

uh when you're doing options you're

really timing it two times if not three

times because you're timing the buy and

then you're determining how long to hold

and then you're determining close and

then do you roll the option or do you go

to shares there's there's a lot that

could go wrong

whereas if you just buy shares and the

stock goes up boy it's a lot less

stressful and and you know selling calls

in a Nike Swoosh environment is risky

uh although some people look and go hey

you know made good money this year so

far why not fair fine

but then again you know the crazy thing

is the year has almost perfectly aligned

with when we started seeing the Nike

Swoosh I don't know that anybody really

expected that I know we expected the tax

loss harvesting in December and then

rebuying Jan but the fact that we pretty

much Nike swooshed starting jn1

pretty wild so of course you're going to

have outsized gains year to date for

2020 uh uh three but most people didn't

buy all their junk you know in the first

trading day of January

anywho so what do we have here uh option

volumes high demand pick it up again

great Rising optimism on stocks amongst

retail okay uh cash bonds remain King

yep talked about that already all right

so we're going to go over to Morgan

Stanley uh we'd like to take a look at

Morgan Stanley so Morgan Stanley oh

Morgan what have you to say so Morgan

Stanley this was a little wild you ready

for this

new work on the labor market now

supports a soft Landing

you know I'm trying to find bearish

pieces but even the Bears are starting

to sound bullish

kind of interesting

so what do you got over here you got we

see wage growth slowing into 2024 but

identify five key factors that should

keep the unemployment rate low

underpinning or call for a soft Landing

all right let's get into the five

factors in detail so hard Landings are

recession our call for a soft Landing is

underpinned

by a market a labor market that slows

but remains resilient as companies in

certain sectors continue to backfill

position positions as well as retain

existing workers now this is interesting

so consider this idea of of a back

filling and what Morgan Stanley is going

to do is they're going to evaluate as

well as what other institutions have

been doing is they're evaluating this

idea that a lot of people have at their

jobs potentially been overworked

since the pandemic just because it's

been so hard to get your hands on uh

this this actual

um proper amount of Labor and so what

they've done companies done in general

is if they just overwork their existing

uh workers and backfilling is a way of

saying okay let's take some of that

stress off and start pulling back a

little bit to where we're saying all

right let's let's distribute this evenly

and that really that type of back

feeling supports continued hiring so

that way you're not putting as much

stress on your existing workers anymore

there's actually another piece by

unicredit

uh uni credit right here is a piece we

broke this down this was just from a

couple days ago here but take a look at

this segment right here there are many

factors that could explain the slow

response of the labor market to the

fed's tightening cycle well we know

we've gone up 500 basis points so why is

the labor market doing so well

First the full effect of a monetary

policy change on output is usually

transmitted with a lag we know that

unemployment tends to be lagging

so in other words

that we're still gaining significantly

into what we've gone to a pretty tighter

restrictive macro environment led by the

FED second unusually high savings stock

built up during the pandemic has allowed

household to keep spending now we've

heard this before people have more money

with the exception of those in the lower

maybe 40 percent of incomes they've

already spent their money but those

higher levels are continuing to spend

and that's supporting earnings growth at

companies or even if it's not earnings

growth at least it's supporting earnings

flatness but that earnings flatness is

allowing companies to retain their

talent

third still high profitability of firms

right well that combines with spending

right you need revenue and the

profitability is is margin you're not

having to squeeze margin so low yet that

you're saying look just to survive we

need to start laying people off you

haven't gotten to that point yet I

really think some of the layoffs that

we've seen at Big Tech have been what I

call opportunistic layoffs opportunistic

layoffs are kind of where you're like

dude we've gotten bloated we've hired

too many people half of these people

don't even show up for work they they

they're not productive they don't care

they're just collecting a paycheck if we

fire them we're going to get sued

but if we lay them off because of an

economic recession

then they won't sue us

I I honestly think a lot of that goes on

anyway

uh and then uh finally the service

sector

which is driving the phase of the

recovery uh is is a a sector that favors

a shift from spending Goods you know

obviously to Services whatever whatever

uh is is uh is still expanding and so

you've got these these five elements

that are why you're seeing this labor

hoarding and I thought this piece was

perfect to combine with the Morgan

Stanley piece right here uh wait for

that right here to load there we go

because that's what they're talking

about this labor hoarding and now Morgan

Stanley

phrases this slightly differently they

suggest that the economy is still

understaffed uh and this is what that

backfilling means where you're saying

look we're still overworking people and

we get another person in now we can get

into a little bit more of Labor balance

at our companies uh and really a lot of

companies don't want to lay off the good

workers just for the sake of a little

bit of a margin boost because when the

economy starts booming again it's gonna

be hard to find those people again so

it'd be better to get through the tough

time with less revenue or maybe flat uh

net income or whatever

but at least get through with great

people who are going to do fantastic

work going into the next cycle

so uh that was fascinating from Morgan

Stanley as well as uni credit uh so

that's a little bit on hiring but uh

what else do we have here

when it comes to productivity Morgan

Stanley made this interesting argument

about a GDP looking at GDP data per

worker and that's how they were

identifying that people are still being

overworked and that maybe by hiring more

you're actually just bringing this into

a balance and that's why you're

potentially continuing to see this

hiring what else

we also note this here past Cycles

indicate that state and local jobs tend

to recover more slowly than private

sector employment mainly due to revenue

shortfalls causing budget pressures and

the inability to keep up with private

wages so really uh it's a way of saying

that

when the economy starts booming the

private sector gets all the jobs because

the government doesn't have as much

money to pay competitive prices

uh and in a few recessions local

government workers actually end up

losing uh jobs because even local

governments get squeezed but that's more

like your 1981 and 2008 recessions knock

on wood you don't see that today that

would be bad when you start seeing that

that public sector laying off people uh

however as the private sector slows down

and they finish their back filling now

the government can actually step in and

start hiring people because there's less

competition for people so this is kind

of wild I hadn't heard this argument

before but take a moment here and think

about that for a moment one second

I'm so sorry this this cough is just

absolutely killing me uh but every time

I take like a brief little pause just

think that when I'm coughing I'm going

coupon code expires tomorrow

all right so I hadn't thought about this

before but I think it's it's such an

interesting perspective that okay so

private sector hiring goes down

and then you kind of go low and then

it's almost like you hit like a clown

Bell thing oh now governments can hire

government hiring goes up and so the

overall level of hiring actually stays

elevated that's actually kind of

incredible

was fascinating

all right let's keep going here uh so

let's see okay that's the labor hoarding

segment what else do we have here uh

Morgan Stanley suggests that they do not

see unemployment getting close to six

percent

they don't see it uh they think that

unemployment may increase slightly but

nothing close to the levels of six

percent a prediction of six percent

assumes the post-covered relationship

between post uh postings and

unemployment scene from 2020 to April

2022 remains valid

we argue that the shape or position of

the curve curves that they refer to may

change over time and point to the fact

that recent data prints seem to be

moving along a different path now they

use these these fancy uh charts here

like the um Beaver Ridge curve which on

one side plots the vacancy rate on on

the other side plots the unemployment

rate and the idea is that usually the

lower the vacancy rate the higher the

unemployment percentage

but as is usually a problem with uh

history is that

every cycle has elements that are

different and so now they're charting a

soft Landing they're like wait a minute

we have a higher vacancy and a lower

unemployment rate this is interesting so

you know things slightly different than

you would have otherwise expected

uh in addition to that they expect

higher labor force participation will

come out and I will continue to see

labor force participation actually grow

over the next few months now there were

some uh banks that uh I don't have a

full piece on from them but there were

some banks talking about how they expect

Unemployment uh claims and the jobs

creation level to finally actually start

showing negative negative reads uh

starting in about September October

which is actually coming up we're

already basically in July which is crazy

that means we're already done with half

of the year uh that's that's pretty

remarkable

but uh anywho so uh here is also an

exercise where they come to this

conclusion say in a more recent example

a positive 100 basis point shock to

wages

only raises inflation by 10 basis points

now this was another shocker to me

because history tells us that a wage

price spiral occurs when wages rise

price is rise but this cycle I don't

like to use the phrase this time is

different but this cycle has so far been

different in that this isn't so far

really been a wage driven inflation it

was a money Printing and supply chain

driven inflation disaster

and so now you've got Morgan Stanley

estimating that even if we see wages

Rise by one percent we actually expect

inflation to only go up one tenth of

that that's insane 10 basis points so in

other words to get a full percent of

inflation you would have to see wages go

up

10 percent

that's insane

they call this the fall in the

inflationary pass-through representing a

substantial reduction in the dynamic

effect of wages which is something that

history would be like no

but the recent data is showing exactly

that

look at this

wages explain only minimal fraction of

price movement in in recent years you

can see that here in the uh the orange

this is how much wages are really

contributing to inflation relative to

the blue which is how much wages used to

contribute to inflation between the 70s

and 1999 that's remarkable so

how do we piece this together well you

have Barclays talking about bears

becoming Bulls because they're following

yet positioning still mostly cash and

bonds are you kidding

and then Morgan Stanley's like

yo this employment situation ain't that

bad and uni credit both of them are like

dude even if private sector hiring goes

down the government step in it'll be

their turn so you got buffers

unemployment rate probably won't go as

much up as much as people fear and uh

wages aren't actually driving inflation

this is remarkable like I I really

I want bad news

uh because I I want to challenge my

opinions you know I met with um who

remembers where I did the interview with

Gordon Johnson

this sucks man

anyway I did the interview with uh

Gordon Johnson

and uh you know he's a Tesla bear

and one of the reasons I wanted to do

that and you should look it up just type

into YouTube meet Kevin Gordon Johnson

it's really good

but one of the reasons I like

putting myself in front of the Bears is

because I I truly want to hear their

argument and I'm like give me the best

you got

you know like make a good presentation

convince me to sell is what I say

and I just haven't been convinced yeah

so so that's not saying I'm gonna be

right but um

you know I mean obviously inflation

could somehow magically Skyrocket again

I guess in America it should happen in

England which you know in the United

Kingdom is but uh

they're not short of that

it just doesn't seem that horrible now I

want you to know this when it comes to

AI

time is what's going to make you money

and if you can prove that value to an

employer you'll always be able to be

employed so this is another way of

making sure that you don't get replaced

but