When Doves Cry?: 2024 Market Outlook with Jason Trennert







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After a frantic rally to finish 2023, what can we expect for 2024? Do we party like it’s 1999, or will doves cry? Uncover the insights that will shape the year ahead by tuning in.

Join FEG CIO Greg Dowling and Jason Trennert, Chairman and Chief Investment Strategist of Strategas, as they discuss the investment outlook of 2024. Listen as they explore economic trends, market leadership, potential rate cuts, inflation challenges, and the impact of the upcoming presidential election.

Listen to this explorative dialogue that spans the broad economic landscape, then dive into the specific nuances that shape the market outlook for the year ahead. Will inflation rear its ugly head once again? Will potential Fed rate cuts satisfy the expectations of investors? As the discussion unfolds, explore the global rise of populism and its possible implications, particularly in the context of upcoming elections and geopolitical challenges; and uncover the ongoing debate between active and passive investing, hedge funds, and private equity.

Key Takeaways

  • Historically, economic soft landings are rare, and inflation typically comes in waves.
  • The Federal Reserve aims to remain independent from politics, balancing addressing political pressures and maintaining credibility with the market.
  • The markets are probably overestimating the amount and frequency of Fed rate cuts.
  • Which party occupies the White House does not have a material impact on stock market performance. However, economic performance prior to election does heavily influence voters.
  • What we experienced with the “Magnificent Seven” in terms of market concentration and the contribution to index performance was highly unusual. It is also uncommon that the former market leaders of the past bull market lead the next.
  • Due to a changing regime, we may be at peak passive and the golden days of private equity may be in the past.


Episode Chapters
0:00 Introduction
0:30 Episode Introduction
1:23 Background on Jason Trennert and Strategas
5:22 The Mag 7 and Unusual Market Trends
9:37 Understanding Economic Cycles
13:20 The Waves of Inflation and Rate Cut Impacts
17:31 Playing Politics and the Fed’s Independence
20:20 Market Trends in Presential Election Cycles
22:03 The Dynamics of Global Defense Spending
27:12 Navigating International Markets and Active vs. Passive Investing
31:46 Is the Golden Age of Private Equity Over?
34:14 Predicted Market Surprises for 2024
36:45 Closing Remarks with Jason Trennert




Greg Dowling, CFA, CAIA

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Jason Trennert

Chairman and Chief Investment Strategist, Strategas

Jason Trennert is the Chairman and Chief Investment Strategist of Strategas, a leading macro-only research firm. As Chief Investment Strategist, he is widely recognized on Wall Street for his expertise in markets and economic policy. Co-founding Strategas in 2006, Trennert grew the firm from five employees to over fifty analysts and professionals across offices in New York and Washington D.C. Previously, he served as Chief Investment Strategist at International Strategy & Investment (ISI) Group. Trennert is an author of three investment-related books and a frequent guest on CNBC, Fox Business News, and Bloomberg TV. Notably, he coined the phrase "TINA." Active in philanthropy, Trennert supports various Italian, Italian-American, and Catholic causes. He holds an MBA from The Wharton School at the University of Pennsylvania and a BS in International Economics from Georgetown University.


Greg Dowling: (00:05)
Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investments, economic and philanthropic minds, to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. After a frantic rally to finish 2023, what can we expect for 2024? Do we party like it's 1999 or will doves cry? Does the fed cut rates or will inflation prove to be too sticky? Will the Magnificent Seven continue to lead markets? And what about that upcoming presidential election? How will that impact markets? With this many outstanding questions, there are only a few people we could possibly call on for answers. Luckily, we have Jason Trennert lined up. You have likely seen him on CNBC or read his op-Eds in the Wall Street Journal, but if not, he's the Chairman and Chief Investment Strategist for Strategas.

Greg Dowling: (01:09)
Strategas is one of the top independent research providers on the street. In fact, it was recently ranked number one by Institutional Investor and it is a go-to source for FEG. Today he's bringing his crystal ball and his magic eight ball. Jason, welcome to the FEG Insight Bridge.

Jason Trennert: (01:26)
Well, thanks for having me. I appreciate it.

Greg Dowling: (01:27)
So we're looking forward to having you help us kind of frame the markets in 2024. We're already off to a kind of a crazy start, but before we do that, I wanted to give you a chance to introduce yourself and Strategas.

Jason Trennert: (01:40)
Thanks a lot Greg. So I'm the Chairman and Chief Investment Strategist of a company called Strategas Research Partners. We're based in New York with offices in Washington D.C. We have about 55 people and our job really is to focus on big picture macro trends and things like investment strategy, macroeconomic policy, technical analysis, which is focusing a lot on charting, helping us to discern future movements of financial markets. And so what we do is we focus on those things and then we write reports and then travel around the world to visit institutional clients to discuss our findings.

Greg Dowling: (02:15)
Yeah, we're big fans here at FEG. So how did you become an investment strategist? I don't think you grow up saying, Hey, I want to be an investment strategist.

Jason Trennert: (02:24)
No, it's a good question. I'll try to give you the very short version because I'm assuming it's not all that interesting. I went to college thinking I wanted to get into either politics or geopolitics or be a spy or something in the late eighties and then I worked for a brokerage firm and I fell in love with the financial markets. Then I became an institutional salesman working for one of the great economists strategists on Wall Street by the name of Ed Hyman. And that's really where I caught the bug. I went back to business school for a couple of years to round out my education on the business side and then really came back to Ed and started working on the strategy product little by little. So that's how it all came about.

Greg Dowling: (03:05)
So, what was the best learning you took away from your time with Ed?

Jason Trennert: (03:10)
There's so many things. I mean there are many ways to look at the markets, which I focus a lot on money growth, focus, a lot on static liquidity, but there's also a lot from a professional point of view in terms of the way we run the business. And it's largely focused on more than anything else, hard work, more than being smarter than other people. It's focused a lot on hard work and making sure that we are paying a lot of attention to what our client's concerns are and trying our best to answer our client's questions.

Greg Dowling: (03:40)
Probably my favorite fun fact about you is that you coined the acronym "There is No Alternative" (TINA).

Jason Trennert: (03:47)
Well, I will say I am the first to use it in the financial market. I wrote an op-ed in Wall Street Journal in 2013 talking about the appeal of equities in a world of perpetually low interest rates and quantitative easing. I will say the person who coined the term TINA is actually Margaret Thatcher in the seventies. She was actually talking about the budget. She started privatizing a lot of industries like Malay is doing in Argentina and so on. And people went crazy and she would simply say there is no alternative. You know, we've we're running out of other people's money.

Greg Dowling: (04:19)
Yeah, the problem with socialism is eventually you run out of other people's money.

Jason Trennert: (04:23)
So she said there is no alternative so often that she got nicknamed Tina. And then I knew that. And then when I was looking at the way monetary policy was unfolding after the financial crisis, I said, gee, equities are becoming the Tina asset class for those fiduciaries, pension plans, endowment foundations, that have to meet a certain threshold of returns. There's really no alternative but riskier asset classes like equities, if you have any chance of getting to seven and a half or eight in some cases at the state level, 5% at a foundation level at a minimum. So anyway, but yeah, so that's I guess a minor claim to fame.

Greg Dowling: (04:59)
It's funny, you guys have a very successful business, it's often ranked as one of the best strategy shops on the street. But man, if you could have just copyrighted Tina.

Jason Trennert: (05:11)
Then legally I probably should have done that. I don't know if legally I could do that and next time around I have to maybe protect the intellectual property a little bit better.

Greg Dowling: (05:18)
You come up with something snappy here on the podcast, we'll let you trademark it. Hey, so 23 was an amazing year for markets but none did as well as the Mag Seven, Magnificent Seven, whatever you want to call them. So how unusual was that from a historical sense?

Jason Trennert: (05:35)
It's pretty unusual and if you look at just a small group of stocks, a lot of times you can just look at the top five largest stocks. But if you also look at the top seven stocks, you know, by the end of October those seven stocks accounted for more than a 100% of the return in the S&P 500, which is to say that S&P 493, the other 493 stocks were actually down on the year, but the market was up close to 15 or 16% at that point. So this is pretty unusual and these are great companies, you know, two ways about it in my opinion, people are paying up for them because they are such good companies and it would be hard to describe them as particularly cheap. Some might say that they're not particularly expensive, but I think there's very few people that would say that they're cheap. But this is kind of out there and it presents some real, I would say challenges for the individual investor. It seems to be when you have that lopsided difference in performance with a small group stocks.

Greg Dowling: (06:29)
It's not the story, it's the price of the story, right? These are great companies. I think growth did better than value in that differential was almost like 1999, right? So you could say like, hey party like it's 1999 but it's not because these are real companies that have amazing ip, but man they're expensive. So what does that mean for them and for the indexes going forward?

Jason Trennert: (06:51)
Well listen, I think there is a tendency, and this is Wall Street's fault, I mean, and I'm part of Wall Street. It's partly branding, it's partly just the way stories are written in the newspaper. People tend to look at things monolithically, especially when they get an acronym. So we mentioned TINA before, or you have Mag Seven, they get a brand of some sort. Many years ago, there was something called the BRICS that was Brazil, Russia, India, China and South Africa. And people looked at emerging markets as the BRICS and what you found is that the BR went one way and the ICS went the other way and found out they weren't as monolithic as you thought. And in my own opinion, it's very likely that the Magnificent Seven will have divergent path from pure. Because, you know, some of them are pure plays, let's say on artificial intelligence, Google, Microsoft, Nvidia, others you know, have their own issues and their own opportunities like Tesla is completely off the grid. Apple completely off the grid. And in terms of artificial intelligence, which is a big part of the story in my opinion of 2023, part of the reason why those stocks did so well is that anything with that kind of TINA did exceptionally well and it is exciting, certainly exciting technology, but I also think that in the fullness of time people will recognize that their futures will be different in the way they use that technology and how successful they'll be.

Greg Dowling: (08:10)
It's interesting too, who knows where we are in cycles and we can, we can talk about that later, but if this is a new cycle, it's gonna be the same leaders of the old cycle. And that's unusual too, right? There's usually new leadership.

Jason Trennert: (08:21)
Greg, that's almost what defines a new bull market is new leadership. It's very rare to have the leadership of the last bull market be the leadership of the next one. As you said, I'm somewhat skeptical that this is a new economic cycle and that's because there's been so little pain associated with whatever we've seen over the last couple of years, which they normally, generally speaking, new bull markets don't start when you're at full employment. The unemployment rate for the United States right now is 3.7%. Typically on average the unemployment rate is 5.9% at the start of a bull market. Normally the way the kind of cycle works is that inflation picks up, interest rates rise, the economy flows, earnings go down, people get laid off and then you pick up pieces from a fiscal and monetary perspective and then the economy grows and earnings grow and the market takes off again. That's kind of usually the way it works. This time around the administration, the Fed, are kind of doing everything they can to, I would say in many ways subvert kind of free markets and keep the economy at very high level. I understand the rationale for that. Certainly no one wants a recession, but that also comes with cost. It's that costless to do that. It can create and will create in my opinion, other opinions later on.

Greg Dowling: (09:36)
You mentioned the Fed and maybe we'll bring in the Treasury here too, but even though last year was an amazing year, it wasn't just straight up right? We, we started off with a really strong January. We then had a mini banking crisis with SVB and you saw the Fed do a few things and then we kind of went off to the races a little bit again and then we had this correction. I think people forget, it was like a really brief moment in time. Here at FEG we're getting ready to write our, you know, we have a correction memo to our clients and then the next day the market went straight up and that last melt up was really based on the market believing there's going to be a lot of rate cuts in this year 24. Also, you saw the Treasury kind of manipulate their issuance too at the same time working in concert together. Did the market get ahead of itself in that view? Because you also have to bring in inflation and other things here, right? I'd love to hear your thoughts on that.

Jason Trennert: (10:30)
Well right now I do think the market's getting a bit ahead of itself to the extent to which, if you look at the future's markets, the market is expecting six rate cuts to 25 basis points a piece. So 150 basis points of cuts. I think that's going to be a very difficult thing to achieve in an economy that's stable. Maybe you get two or three cuts in an economy that's relatively stable and doesn't go into recession. But if we get six cuts it means something is seriously wrong and that would hurt earnings and and hurt economic growth. This is an election year though and I think Greg, as you're pointing out the Fed and the administration seem hellbent on avoiding a recession at all costs. The only issue with that of course is that we're running massive budget deficits. We're running a budget deficit right now. That's 7% of GDP. We've only done that three times since 1945 and every time we've done that, the unemployment rate was already above seven. This is extremely unusual run budget deficits of this size when there is no outward sides of economic stress. As you may know, the deficits automatically go up if people start losing their job because unemployment, insurance, welfare, food stamps, all the other, what we call automatic stabilizers kick in just by law, it's not discretionary that just happened. And so this, this is pretty unusual to be this, I would say fiscally reckless at a time when it doesn't seem to be necessary. It's only necessary perhaps for political reasons. Now it's not going to change in an election year. I don't, you know, no one learned much from last year but there are potential pitfalls in that that could be the value of the currency, value of the US dollar could be end of the yield curve. Long-term interest rates, I mean there is a limit to how much you can fool around with the issuance before it becomes an issue. Again, I don't see the approach as costless in the long term.

Greg Dowling: (12:16)
I mentioned party like it's 1999, maybe another prince law would be when doves cry. Is that the situation we're gonna have here?

Jason Trennert: (12:22)
That's a good one. I think there is a chance that there, you know, doves will be crying a little bit this year and and of course we would love to see what they call the soft landing. The soft landing is the idea that the Fed can tighten just enough to slow the economy down just enough so that you don't go into recession. The only problem with that is that there are so few examples of that in history. Monetary policy generally doesn't work that way because the lags involved with monetary policy are as they say, long and variable.

Greg Dowling: (12:50)
Long and variable.

Jason Trennert: (12:50)
And so by the time you realize that you've done too much, usually the damage is done. Maybe this will be the one time when you really get one, it would be great. I have to say I'm still a little skeptical because this is a social science. Economics is a social science. It's not a hard science like physics or chemistry or something where you can just move the dial one way or the other and get the preferred outcome. Oftentimes there are unintended consequences of policy moves that you make.

Greg Dowling: (13:19)
The other issue that they have to deal with is inflation. They've done a marvelous job in moderating inflation. That's come way, way down. But I mean from a historical perspective, and correct me if I'm wrong, but it's usually comes in waves, right? The forties, the seventies, what's your views on inflation and where inflation goes and will it allow them to make all those cuts in 24?

Jason Trennert: (13:40)
Over the last 120 years we looked at 30 countries and what we found is that every time a country experiences one wave of inflation, where inflation goes over six, about nine out of ten times you get another wave of inflation where you go over six again. And that's partly behavioral. It's partly the way contracts are negotiated the way wages and and workers negotiate their salaries. It's hard to do that. So we may not see a big pickup in inflation in 2024, but I think the chances of another wave of inflation at the end of 2024 into 2025 are pretty high. And that's again, because in some ways the Fed is fighting the federal government. The feds has tried to increase rates, has increased rates pretty meaningfully, but the administration is continuing to spend money like it's going out of style. Fiscal, monetary policy in that regard are not really coordinated as well, I think as they should be.

Greg Dowling: (14:30)
How do markets react after rate cuts, to say they make some rate cuts?

Jason Trennert: (14:34)
We're in a period now I would argue between the last hike and the first cut in rate. So we're priced the A cut in rate, I would say sometime in the second quarter during that period of time the market does okay on average does pretty well, maybe up 5% over 120 days, something like that. Believe it or not, the market has historically been most at risk when the Fed first starts easing and it's usually because the fed's that easing because they've stuck the landing, it's usually easing because they've kept things tight too much and something breaks. This could be the peripheral, you know, soft landing. But if you don't think that actually I think the prospects of the Fed easing, if you're looking at an historical perspective, actually should worry equity investors a bit. And that's because the Fed normally eases it's because again, something's broken or or something economy is weakening pretty meaningfully.

Greg Dowling: (15:22)
I guess there's not a lot of data to your point because that hasn't happened very often. These rate cuts when you stick the landing this, the soft landing.

Jason Trennert: (15:30)
1994 was a period in which the Fed raised rates and tightened modestly couple hundred basis points. I mean it's not that modest but it's certainly more modest than the 550 basis points. 5.5% that we've seen in this cycle. But again, you didn't have a recession and it was pretty small and so I'm not sure that really count. The hard part is you've never really seen this before. You know, I almost consider myself as much of a fan of economic history and an economic market historian as I do a strategist. Many times the names change but the actions are very much the same on policy makers and investors. But you know, Covid and the response to Covid is unprecedented where you increase the size of the fed's balance sheet from $4 trillion to $9 trillion where you drop $5 trillion in fiscal stimulus into an economy in 13 months. There's really no model for that. You know, that's never happened before. So, and in many ways we're still dealing with the aftermath of the way we handled shutting down the entire economy. The lags can be long and variable and I feel like we're still figuring out what the impact of all of that stimulus will be.

Greg Dowling: (16:35)
Yeah, it feels like we've had to take a lot of our traditional economic indicators and take them with a grain of salt because some of them haven't worked or the timing of them hasn't worked because this is truly unprecedented.

Jason Trennert: (16:47)
Yeah, a year ago we thought there was a 50% chance of recession, we were quite cautious. Most people thought there would be a recession. So we were included in that. But when I look back at it and I say why did we think that, to your point, the things we were basing that on, that wasn't a guess. We used traditional metrics like the yield curve. We used money growth, money was actually declining, where profits were actually down. So it was a good bet. But in economics there's no such thing as the short thing. The odds were in our favor but it didn't happen the best we can do. Because you know, of course predicting a future is almost impossible. Our job I think is to try to tell people what the odds are, what the likely odds are, and then we kind of have to react to the chips falling where they may.

Greg Dowling: (17:31)
Let's segue to politics. We'll try to do this without offending anybody on it, which is really hard these days. But we talk about rate cuts. One of the things that I do wonder about is that if Jerome Powell and the Fed makes all of these rate cuts and the market goes gangbusters, I think he'll be criticized from the right for trying to reelect Biden. But he could be criticized from the left if he doesn't make these. My guess is even though he wants to be fairly independent, I think he'd probably prefer a Biden administration or a Trump-less Republican administration because I believe Trump wanted to, has made comments about like outlawing the Fed or bringing things in. So like does, does politics play? I mean they're supposed to be independent, but I don't think anything is a hundred percent independent anymore. Does that influence decisions?

Jason Trennert: (18:19)
So we have an office in Washington and I go down there every once in a while. Some political players had have to keep on top of that. My experience with the Fed, generally speaking, is they try to do the right thing more than I would say, and this is true more than Treasury departments under both Republicans and Democrats, right? So if you're in the Treasury Department or the Secretary of Treasury, believe it or not, you really have one client. And that's the president of the United States, right? So that's highly political, whereas the Fed is trying to stay out of politics. Having said that, they can't ignore it completely because as you're pointing out, if they ignore it completely, they risk losing their independence, right? So they, they have to do just enough to kind of keep people off their back, but not so much that they lose credibility with the marketplace. So it's a very fine line and very delicate balance that the Fed has to play. I kind of take the Fed at its word in terms of this pivot, which I think took a lot of people by surprise. It kind of took me by surprise because the Fed was really saying we're hellbent on 2% and then in the middle of December said, well you know, we're looking at three rate cuts and all the rest of it. There's three prevailing theories on why they made the pivot. The first is that they know something, the rest of us don't know, some weakness in the economy. I think that's highly unlikely with all due respect to the Fed, it's rare that they know something the rest of us don't really know. The second thought is that they're just playing politics as you're pointing out, don't want Donald Trump to be reelected, won a go the economy election year to help President Biden. And then the third point I would say is they're confident in their ability to manufacture a soft landing. Firstly, I think almost by its very nature that would be overconfident, but I think that's the most likely scenario as it stands right now. And I think you have to be very edger pointing out that has to be very careful in playing politics because the people that make the rules surrounding their independence are the people who get most affected by their policy. You know, a couple wrong moves and they could wind up being just as they were during World War II, really just the department of the Treasury Department just taking orders from politicians and no one should want that.

Greg Dowling: (20:19)
So following up on that, maybe two questions here for you. How do stock markets do during an election year and does it matter for the markets, whether it's a Democrat or Republican in the White House?

Jason Trennert: (20:32)
Generally speaking, markets do very well during election years and there's a thing called the presidential election cycle, you know, where you take a look at the market's performance during the first, second, third, and fourth years. And what you find generally speaking is that markets do much better in the third and fourth years of a president's candidacy than they do in the first two. Generally speaking, presidents do hard things in the first two years, then they grease the ski to get reelected in the last two years. So I would say right off the bat we say, you know, it's hard to bet against the market. Certainly hard to think you're gonna get a big downturn in the market this year because again, they're gonna pull out every stop to try to keep the economy afloat. In terms of the overall market, if you look at the data as a whole, actually markets do a little bit better under Democrats than it do under Republicans, but that also includes like the Hoover years. If you go back to like 1926 or something, I would say there's not a huge difference between the two. It does tend to have a bigger impact on the sectors. I would say the biggest difference, generally speaking, especially these days, is with regard to regulation. Particularly I would say financials and energy would be the sectors that would probably have the biggest net potential impact from a change in administration, which is that they, Republicans generally are very much for deregulation, almost always, particularly at financials and energy. Whereas the Biden administration and other democratic administration very much want to regulate those industries. So it would be more of a sector change, in my opinion that an overall market change. So you might have to shift gears a bit. That's the way I'm looking at it.

Greg Dowling: (22:02)
It's interesting and there are some policies that we've traditionally associated with Republicans that seem to resonate more with Democrats these days, and one would be defense. Typically Republicans are are more supportive of defense budgets, but the new Republican wings tends to be a little bit more isolationist it seems like. Would defense do better under a second term of Biden?

Jason Trennert: (22:25)
I'm not convinced on that, Greg, to be honest with you. And I don't disagree with your premise, it's absolutely correct. But I do think that there are forces in place right now where global defense spending is going to go up. Whether it goes up in the U.S. or goes up in Japan, Sweden, a whole host of other countries that didn't used to spend a lot of money on defense, but now are going to. I think it's largely a function of unfortunately deglobalization. When the Berlin Wall came down in 89 and then when China joined the WTO in 2001, there was a lot of optimism, appropriate optimism about globalization and being able to source labor and raw materials from anywhere in the world, have very complex supply chains. There's very few things Republicans and Democrats can really agree on right now in Washington, but one of them is that China is seen it as a threat at best and an enemy at worst. That means that we're going to have to do more manufacturing closer to home, if not at home. Certainly that could increase cost and inflation, but also probably means that we're all going to have to spend more money on defense because global supply lanes are not going to be always at everywhere able to be defended by the U.S. Navy, which is largely secured shipping lanes for the better part of 70 years. They'll still do that, but there's going to be more challenges to that power it seems to me moving forward. So I hate to be a downer about that, but I would say global defense spending almost regardless is going to go up. There may be more defense spending under a second Biden administration that might be under Trump, but these trends I think are pretty, pretty strong unfortunately.

Greg Dowling: (23:56)
It's a great point and yeah, you're absolutely right. If we spend less here, it's probably going to be picked up somewhere else, whether it's Germany or Taiwan. And that kind of brings me to geopolitics. We talked about our election. Are there other events that we should be looking at in 24 to be concerned about or just kind of plan around?

Jason Trennert: (24:14)
The way we've looked at it, there are about 40 countries that have national elections this year. That's about 42% of the world's population. We haven't been able to verify this, but we think it's about 80% of the world's market capitalization is going to face national elections this year. One of the things that seems to be clear to me, Greg, is that there's been a big movement towards populism from both the left and the right, but probably a little bit more from the right. And I think that is due frankly to the fact that the average person is really questioning the expertise, quote on quote, of political elite that keep telling them certain things will be good for them, you know, that don't wind up being so good for them. So whether that's climate change, policies, or whether it's the Affordable Care Act or invading Iraq or 0% interest rates for 12 years, you know, there's a lot of things from both left and the right that their PhDs have tried to convince average people are good for them and in the end they tend to be very good for rich people and not particularly good for the average guy. And I think that's why that you've seen a lot of political volatility globally and I have a feeling you're going to see more of it in this year. That's something that will pose some challenges I think for the markets. You know, certainly give people like you and me a lot to talk about and a lot of opportunities to work with clients to try to put some of these events in the proper context.

Greg Dowling: (25:37)
Yeah, we have some big elections, we have Taiwan coming up here shortly, and boy, even some of the European ones seem to be going right, whether it was, you know, Boris Johnson or President Trump, they seem to have tapped into that anger and you've seen it, whether it's in Brazil and other places that yes, maybe you can buy an Apple phone a lot cheaper, but that manufacturing base, you know, lower income to middle income jobs aren't around anymore. And I think you're seeing that globally, people are kind of pissed off then you have inflation on top of that, right. So it's like, it's like it makes it tough.

Jason Trennert: (26:08)
Of course, as an economist, right? Or as somebody who runs an economic shop, I'm very much for free trade. I'm very much for a free market. Having said that, I would say it's impossible to have truly free trade with a country like China that fixes its currency for the first 15 years of the relationship with the United States. And so in my opinion, we did lose a lot of manufacturing jobs a lot more quickly than we would have normally. And we didn't allow, again, the people in those jobs to probably get the proper training or transition as a truly free market would allow them to do. And so there, there's a certain sense in which a lot of people feel the rug has been pulled out for them. And I don't think that's inaccurate. I think that there's an element of truth in that and that's very much explained why Donald Trump was elected. It explains why Britain decided to leave the EU. There are many examples of, you know, it's very, very meaningful changes in politics, things that people never thought were possible became possible in the last several years. And I have a feeling we're going to see more of that volatility as time goes on.

Greg Dowling: (27:11)
You mention, and you're absolutely right, that seemingly the only thing that politicians can agree on here in the states is their hate for China. And maybe that's more of an election call, but how should we think about international markets and particularly China? I mean from a valuation perspective it looks pretty attractive, right? And everybody hates it, but at the same time you're seeing a move slightly away from market communism. I don't think it was completely market capitalism, but more kind of a market based economy to more of a control based economy that shift. So how do we think about China in particular as an investor?

Jason Trennert: (27:48)
I might have an extreme view and my focus tends to be on the United States, so I'll just preface my comments with that as a disclaimer. People that know it better than I do personally, I always think of, you should ask people like myself what they're doing with their own money. And I have no investments in China. It's largely because I just think there are better opportunities in places like the United States where there are robust private property laws and there's a rule of law that people get questioned. Whether that's, you know, that's still as robust as it was, but it's a lot better than it's in China where they can change the rules all of a sudden. And it does seem to me that President Xi is moving more towards a Maoist route than trying to consolidate political power there. I would say this, it's speculatable the China markets probably opportunities to speculate and make money because the volatility will be very high. As somebody who's a long-term investor, I'm quite skeptical. I don't personally, I don't have any money there because of that. At least that's the way I'm looking at it today.

Greg Dowling: (28:43)
I'm hearing you say it's more of a trade than something you could feel comfortable in terms of a long-term investment, which is probably the right approach, at least for now.

Jason Trennert: (28:50)

Greg Dowling: (28:50)
So I wanted to talk a little bit, you've been doing this for a long time and I'd love to hear your views on how you expect some of these macro trends if they'll continue into the future or change. And one of them I was going to ask you about is peak passive? Are we at peak passive? I would lose my consulting card if I didn't say that markets tend to be pretty efficient and it's often hard to beat markets, but wow, it's gone pretty far right now it's, it's well over 50% of the market and active management has gone way down. We talked about concentration of the indexes, at least in the us What are your thoughts about passive versus active?

Jason Trennert: (29:29)
Listen, I'm going to be accused. I'm even accused within my own shop and all of our clients are active managers of being kind of a shill for active managers. But I do think as it stands now that the whole idea of passive investing was largely to give the average investor access to a diversified portfolio of the best companies in the United States, right? For the S&P 500, right now you have seven companies that are worth about 30% of the index, believe it or not. An active manager, somebody let's say, was running a mutual fund legally would not be able to do that and still call themselves a diversified portfolio manager. The raison detre, the whole idea of what a passive index was really designed to do is to minimize risk, to diversify risk. In many ways it's concentrating risk for the individual person right now. Now again, these are great companies but sometimes great companies can be bad stock. You know, that happens, especially at a certain point when everyone knows they're great companies, they become bad stock because it's fully in the price. And so I personally think, especially to the extent to which the experiment with quantitative easing or financial pressure or keeping interest rates artificially low for 12 years, I don't think that's going to be repeated because there were a lot of unintended consequences to that policy. I'm not saying you won't see quantitative easing again, but I think interest rates are going to be more variable now and likely higher in the future. And that means that the dispersion in returns between very good companies and companies that aren't so good should be greater and that should give the active manager a greater ability to add value. It means that the returns you get from the index may be lower. I mean last year was great year, obviously we're up, what, 24% on just price terms. That happens. That happens more frequently than you think, but it's not a divine right. You know that you get that kind of return every year and it's hard to really bet on multiple expansions for the market now when the market's already trading at 20x earning, I think in this environment, active should start to do better, but it's been a long road hasn't happened for a long time.

Jason Trennert: (31:37)
You'll be the first to admit that. The burden of proof about me in saying that as opposed to on the passive side.

Greg Dowling: (31:43)
QE has definitely been tough for active management. No doubt. So we talked about peak passive, the other sort of big trend has been a move towards private everything, private equity. Does that continue?

Jason Trennert: (31:54)
Personally, I think the golden age of private equity is probably over. That doesn't mean that people will not use private investments as part of their portfolio, part of a diversified portfolio. I think it goes hand in hand with the idea that interest rates will be higher and more variable because I can't think of an industry that benefited more from quantitative easing and financial repression than private equity. One of their main input costs is the cost of debt, cost of leverage. So to the extent to which you were suppressing interest rates, those vehicles did extraordinarily well because they were able to use cheap leverage to increase the value of their companies. Now it's going to be harder to do that because tenure treasury yields are no longer two, they're four and high yield spreads are higher and all the rest of it. So there's still a role for it. I do think that there's gonna be a reevaluation of how much the concentration people should have, particularly foundations and endowments because you are giving up liquidity when you're doing that. People thought that was a good trade when those vehicles were providing very robust returns. They may start to question that as they should. If returns aren't quite as good, what is the value of the liquidity you're giving up?

Greg Dowling: (33:06)
If your view is that rates are higher, they don't have to be high, but just higher and more variable, you would think hedge funds would do better than private equity.

Jason Trennert: (33:16)
That's exactly right. I would say on the other side of the spectrum in terms of if you just look at the performance of hedge funds during QE, the hedge fund return index underperform the S&P 500 every year for 12 years in a row. And you say, well why is that? Well the Fed in essence created an everyone get the trophy cost of capital. And so if you had any shorts at all, you were going to be behind. It was the buy everything market. It was really just a function of how much your stocks would go up. Very few companies went out of business or a few bankruptcies. And you can say that's good, you know, in some ways, but I don't think it's particularly good if you're a capitalist because the creative destruction is the way we make progress in a capitalistic economic system. You need renewal again, creative destruction where weaker companies go out of business and stronger companies get more access to capital. Something where you're kind of you level of playing field so much that no one really can make much progress is not good for anyone in my opinion in the long term.

Greg Dowling: (34:14)
I wanted to ask you a question besides yourself, one of my favorite strategists of all time was Byron Wayne. I recently love reading Byron's stuff, had a chance to meet him a bunch of different times and he was great. As you know, and maybe some of the listeners know he was famous for his top 10 surprises list. So maybe in honor of Byron, you want to throw in a few kind of potential surprises. His surprises were things that the market wasn't thinking about and he thought had a better chance of happening than the market did. They were like, pound the table, this is going to happen. But I also thought they were interesting to think about.

Jason Trennert: (34:49)
I know Byron quite well and I think the idea of that was largely that big gains tend to be made with non-consensus views. It's hard to make big gains when everyone thinks the same way. It's worth as a thought experiments thinking about things that people don't think can happen, that might happen. One of the things I would argue is that there is a chance that inflation continues to come down, but that long-term interest rates go up or stay high simply because of the amount of issuance and the size of budget deficits that we're running and the fact that interest expenses exploding higher. That's one thing I would put out there where, you know, I think as you pointed out, you know, in October 10 year treasury yields went up to five and really knocked the market down quite a bit. And then there was some changes. Now it seems like it's over, but it wouldn't surprise me if you saw the bond market vigilantes show up again with regard to the election. I still have a hard time and maybe this isn't that non-consensus, I still have a hard time at believing it's going to be President Biden versus President Trump in November. If I were going bet on one of the two dropping out, it would be probably President Biden just because of how he's doing in the polls and, and perhaps also because of his age that could also have a big market impact just due to the uncertainty and a brokered convention that you might have. Chicago so on could be one of those things I would think about maybe the last one would be gold can't control everything as the government. So if you're trying to control interest rates and you're trying to control the economy, the market that's the hardest to control tends to be the currency market because it's the biggest. In my opinion, the dollar is at risk because the way we're dealing with our fiscal issues here. And it wouldn't surprise me if the dollar weakened that gold did a bit better. So that would be another one. You know, let's say gold hits 2,500, that might be the one you want to put a finer point on it. Something like that.

Greg Dowling: (36:37)
All right, love it. You're top three surprises for 24 and in honor of of Byron. Alright, we'll close this up and we'll do a couple just quick questions for you. It's been a pleasure doing this with you. You're so knowledgeable on markets. You said that I think is absolutely right, you have this great historical sense of markets. Is it just through reading the Wall Street Journal and FT and Economists? What do strategists like yourself read? Is there anything that we should be reading as listeners?

Jason Trennert: (37:02)
I read a lot. I do read the, obviously the news every day. I'm in front of the screen every day, but I do read a lot of economic and financial market history I always had. But that really came into focus during the financial crisis in 2008, 2009. Because you're saying like, listen, there's no model for this. This is a broken play. We can't stand in the pocket here. We got to scramble, we got to figure out what people did in the path. There are many, many great books on economic and financial history that are actually a lot of times more readable than you might think. You know, it might sound boring, but some of them are quite, if you're into this stuff. Quite interesting.

Greg Dowling: (37:36)
How about your favorite book?

Jason Trennert: (37:37)
I'll give you my two favorite authors. One is Michael Lewis. The other one though, the person who preceded Michael Lewis, it might be the fellow by the name of John Brooks. John Brooks wrote long form essays and books really about the markets in the fifties, sixties, and seventies. Writes beautifully. It's funny and it gives you very, very good insights. There's one book, it's a compendium of his anthology of his best essays called Business Adventures that I would highly recommend to anyone. It's highly readable and fun to read, but you learn a lot too.

Greg Dowling: (38:08)
That's great. Besides reading a lot of financial history and keeping up on the news, what else do you do? Do you have any fun hobbies outside of work?

Jason Trennert: (38:16)
I do. My mom was born in Italy, so I kind of very into my heritage and I speak the language and I spent a lot of time there, a couple of times a year. So that's a big part of kind of what I do for fun. And then I play some golf. I don't play particularly well, I have to say, but I enjoy it. I'm an enthusiastic golfer and I enjoy it. So then there's of course just the, the local watering holes around here, me and my buddies on Wall Street where we spent a lot of time flopping conspiracy theories and war stories. It's Italy, golf and drinking would be the top three, I would say those are some great hobbies to have. You gave us some great book recommendations. If someone is going to Italy and and want to do something, a little non-consensus, then not just go to Rome or Venice, where should they go? There's so many places, but one of my favorite towns in Italy that's kind of a little bit off the path is Luca. Which is in Tuscany. It's a beautiful walled city. The other thing I would say is one of the most, I would say underappreciated cities in Italy is Naples, which is where my mom is from. You know, that's tough. It's like a big city type thing. It's not like Disneyland there. I would say between Pompeii the and the archeological artifacts there and all the rest of it, it is really a fascinating cool town. But you know, it's not for the faint of heart again, you know. I don't know if you take the kids there necessarily, but you know, you and your wife. It's a cool adventure, cool place to be.

Greg Dowling: (39:45)
Yeah, would definitely, Pompei is awesome. Great pizza, great food, great people. That is fantastic. Well, gosh, Jason, thanks so much. We really appreciate your thoughts and guidance on this.

Jason Trennert: (39:55)
Well, you're very kind for having me on and being interested. I'm very happy to come back and thank you so much for having me on.

Greg Dowling: (40:03)
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