WEBVTT

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- So the indices dropped the most

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that they have in a couple years on

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Monday. What's going on?

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- Well, I think it's
really Andy all about the

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investors walking back.

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This confidence that they
had in the soft landing being

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consensus, and this is
something we've been

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saying for a while now.

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It always looks like the soft
landing is coming when the fed

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tightening cycle comes to an
end and it rarely plays out.

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So we've seen some violent
moves over the last couple days,

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Monday especially.

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But we really view this as pretty healthy

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and puts us at a more realistic point for

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where we're at in this cycle right now.

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And really the, the pullback
thus far has been entirely

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driven by valuations contracting.

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Okay. And, and that's, that's just, again,

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that confidence being walked back.

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What we think is really
important to be paying attention

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to right now is more the earnings
side of the, the equation

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and, and earnings expectations
still remain very, very high.

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If I look over the next year, 10% growth,

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13% growth the year

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after, that's very inconsistent with

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what we've seen historically near

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the end of tightening cycles.

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There's always a period
where earnings take a hit.

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The hard landings tend to be more extreme.

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The soft landings tend to be more a blip,

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but we still see that hit and,

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and we tend to see the
bottom about two years

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after that final hike.

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So that's really what
we think investors need

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to be paying attention to right now.

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- Gotcha. So should investors be

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concerned about a recession?

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- I think it's definitely a possibility.

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It's, it's, it's probably
a high possibility.

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I, I do think if we look
at some of the action

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that we've seen in the bond
market over the last couple

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days, we look at what's,
what's expected from the Fed.

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It, it's definitely a
bit of an overreaction.

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The economy's slowing, it's
not falling off a cliff.

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And when I look out there

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and I see the,

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the expectations from the market
being a 50 basis point cut

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priced in September, another
50 basis point cut in November

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and a 25 basis point cut in December,

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that's more extreme
than the situation we're

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seeing play out on the surface.

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To contextualize that, Andy,

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that is actually more extreme
than what we saw for the,

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the cut cycle kicking off
the global financial crisis.

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So this is not a 2008.

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Yes, the economy's slowing,
but, but it's not blowing up.

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- Gotcha. Yeah. I've never
seen a faster pivot from Wall

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Street to like, oh, cut now actually Dan

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and cut way more than you thought. Oh,

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- I, I'm seeing commentators now.

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They're saying, Hey, we're
gonna see an emergency 50 basis

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point cut today or tomorrow
like that, that we're not there.

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Again, it's slowing. It's not,
it's not falling off a cliff.

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- Yeah. And the financial
crisis there, there was quite a,

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a bit of pullback before
the Fed stepped in

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and were doing emergency
cuts and things like that.

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I don't know if, if they
would do it differently this

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time. Do you think they would?

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- Well, I, I think if
we got to that point,

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but if we look out there and, and,

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and we, we, we see a
very different picture.

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There's not the excessive leverage that,

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that you see in the system.

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The, the consumer is, is weakening,

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but they're still in, in, in decent,

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in decent shape lending standards.

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They, they're tight,
but they're not extreme.

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So that, that's, that's all a good thing.

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And again, if we do see a
recession, which is, is,

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is likely, it's probably
going to be pretty shallow

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and investors should
really start thinking about

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what is the portfolio we wanna
hold heading into the next

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poll market because this is gonna be

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an opportunity for that.

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- So a likely shallow recession.

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What should investors do then?

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- Well, I think it's, it's
start, it's starting to allocate

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to, to pockets of the market
where valuations are starting

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to become more attractive.

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And if, if we look out
there right now over the,

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in the short run, we see
opportunities in areas where,

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where demand isn't gonna be hit heavily.

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So think high quality stocks.

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One, we look at a lot of
the AI infrastructure plays.

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This is not an area

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where companies are gonna
start slowing spending down,

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even if the economy sells off
aerospace and defense stocks.

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Same story here. This is not an area

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that's gonna be impacted

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by an impending recession
and economic slowdown.

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So in the short run, we
think those are areas

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where investors should, should
start, start considering.

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But also longer term, it's about a lot

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of those higher quality
names that are starting

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to trade down at discounted levels.

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We look at a, a stock
like Amazon, the sell off

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that we've seen there recently,

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we're at much more attractive valuations.

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The retail side of the
business is getting hit,

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but we have to remember that cloud side

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where margins are very
hefty, they're continuing

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to see robust growth there.

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So that's a name that we think makes

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a lot of sense right now.

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It's not stocks like that that
you wanna start allocating to

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and picking up for the next bull market.

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- So Amazon, ai,
infrastructure and aerospace.

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And then what about the
MAG seven in general?

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Those have been very reliable
over the last couple years.

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Should investors back up the
Brinks truck on this downturn?

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- Well, I think there's, there's,
there's a bifurcation in,

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in the Mag seven overall.

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We look at names like Tesla, those,

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those are probably names
we wanna stay away from.

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I think there's a lot of
headwinds there, a lot

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of election related risk as, as it relates

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to a stock like Tesla.

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But when we look at the
top end, the Microsofts,

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the NVIDIAs, the Amazons as
valuations are, are de-rating.

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We, we see that really as
a buying op opportunity.

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And interestingly, Annie,
what we have seen, you know,

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with within our space

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and we specialize in, in buffered ETFs,

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we've seen a massive influx

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of money coming into the space in the last

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week, in the last month.

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Yes. A lot of this has
been investors going out

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there, they're buying the dip.

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They're, they're, they're,
they're hedging risk,

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but there's also a lot of dip buying

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that's, that's taking place.

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People are stepping in

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and saying, Hey, valuations
are getting more attractive.

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How do I get more equity
exposure in my portfolio,

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but still making sure that
I'm protecting the downside.

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Really a way to play some offense

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and defense at, at the same time.

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- Thanks a lot Tim.
- Yeah, it's great to be with you

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- Andy.

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And thanks for watching.
Check out more@qz.com.