China’s stimulus and the Fed’s rate cut aim to boost their economies—will it be enough? Jeremy Schwartz, WisdomTree’s Global Chief Investment Officer, joins James Connor to discuss their impact on markets, the global economy, and where the risks and opportunities lie. They explore whether these moves can prevent a recession, stock market valuations, US elections, and how investors should position themselves. Jeremy also weighs in on geopolitical risks, including conflict escalation in the Middle East and tensions involving Taiwan, and explains why he likes commodities like oil to hedge them.
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Jeremy Schwartz 0:00
Is this the, you know, Mario Draghi moment, that they’re going to do whatever it takes to to really get the economy going? Finally, the Fed is taking our advice. You’ve never seen the money supply decline. Going back to the Great Depression, is there going to be another theater in Asia with Taiwan? Is a very big open question.
James Connor 0:20
Hi and welcome to wealthion. I’m James Connor. Well, here we are in October, and it’s the last quarter of the year. I can’t believe the year is almost over. I don’t know where it went, but the last quarter of the year will be an interesting one to say the least. With lots of economic data coming out, we got q3 numbers coming out here in the coming weeks. We have two more fed meetings going into the year end, and of course, we have the election. So how do we position ourselves going into year end? To help answer this question, my guest today is Jeremy Schwartz, global chief investment officer of Wisdom Tree Asset Management and Wisdom Tree has over $100 billion in assets all across different asset classes, including equities, fixed income and commodities. You Jeremy, thank you very much for joining us today. How are things in Philadelphia?
Jeremy Schwartz 1:08
Thanks for having me, James. It’s a pleasure to be here with you. Things are besides for a poor weekend in the sports leagues, things are good here. I
James Connor 1:17
know what you’re talking about exactly. I’m a Buffalo Bills fans, so we can really anyhow, I want to start with the big picture and get your thoughts on what’s happening in the US and China. And I want to start with China, given it’s the second largest economy in the world, representing 20% of global GDP. Recently, the People’s Bank of China cut interest rates and also implemented a massive stimulus package, the CSI 300 index, the Shanghai index, are both up 20% since this news came out. What’s your take on these policy changes, and what does it mean for North American investors?
Jeremy Schwartz 1:52
This is definitely a bit of a welcome relief. It’s been one of the tougher places to be an investor for the last three to four years. You know, we’ve been seeing it in our business. We do a lot, and even the whole ETF industry has seen flows to emerging markets, ex China. The number one leading emerging market inflow has been a broad ETF that goes ex China. You’ve seen countries. India has been a big beneficiary. Japan’s been a big beneficiary, as people have gone away from China. And, you know, a lot of it was self inflicted, like they did their own clampdown on the big tech companies. They were talking about more regulations and and it looked like there was aggressive policy stances to really beat down a lot of these big tech companies. So some of it was self inflicted. But then they had sort of subdued economic growth. They’ve been exporting deflation around the world because they’ve been in a really, you can say, disappointing economy, and it seems like they got towards sort of the maximum amount of pain they were willing to accept. And they’re now trying to stimulate. And so they’re doing all sorts of measures. And people are saying like, is this the, you know, Mario Draghi moment, that they’re going to do whatever it takes to to really get the economy going, and I think that will remain to be seen how much of an impact on the economy they’re doing, you know, they have one of the big overhangs is the housing market, and that’s been, you know, they have a lot more of their wealth in housing that’s been in A very painful slowdown, and people sort of overexposed there, so now they’re trying to get people into equities. That’s not a big part of what they do. But the sentiment has turned around pretty dramatically. And you think about what’s happening around the world with all the geopolitical tension, China’s front and center for a lot of these conversations, and so, yes, there’s been a huge short term pop there’s definitely the trading community is going after it. The question is, will it lead to meaningful rebound in flows? You know, there’s been about in the US, ETF business, 200,000,000,002 15 billion of flows to broad equities this year. China’s it outflows, one of the few places that are in outflows. And, you know, so is this going to get people to turn, you know, their opinion is going to be a big one. You saw a little bit last week. And how long lasting is it? Could just be this short term tactical burst, or will it lead to a sustainable growth? Our team is probably a little skeptical on the economic side, with whether it really will lead to a major economic growth turnaround, but it’s certainly leading to short term sentiment rebound at the moment,
James Connor 4:31
why is your team skeptical?
Unknown Speaker 4:34
Well,
Jeremy Schwartz 4:34
it’s a matter of how much capacity do they have to stimulate, you know? So they’re taking measure after measure. They’re lowering some of the interest rates. They’re trying to lower the mortgages. The question is the capacity to do a major, aggressive program, that’s, you know, so our real economist team has, has not thought it would be overly meaningful on the pure growth side, but that, you know, it’s going to take time to to tease that out. Out short term, the markets move way in anticipation what happens in the economy. You know, the the economy is like the slow moving ship that doesn’t turn on a dime. It’s not a speedboat, you know, it’s a tanker that takes a lot, you know, longer, to move. But the markets will will front run all that, and they’re just getting excited that the tone has changed, and that may be enough for some of the market movements to keep going.
James Connor 5:24
So one of the reasons why the markets ripped also was because the People’s Bank of China also pledged $113 billion in equity market support. They also said that they’re considering a stock market stability fund. And this is very reminiscent to what we saw in the US during the great financial crisis of oh 809, what are your thoughts on these programs, and maybe to your point that you mentioned earlier, do you think this is just short term in nature and it’s not going to have any lasting effects?
Jeremy Schwartz 5:53
Yeah, they’re definitely trying to get their own local investors to buy. I mean, they had been one of the big sources of demand was the global investing community. And so the question is that, to me, that’s also the big question, but certainly they’re trying to get the local investors more involved. They’ve got their own pensions that they can put to work. What they call the national team is coming in to play. And so the 100 billions sounds like a lot, but for the size of the markets, it’s not that much. And so it really will come down to the full global investing communities. What will give them the confidence, you know? And so this geopolitical overhang people talk about, you know, we see with Russia, Ukraine, you see what’s going on the Middle East? Is there going to be another theater in Asia with Taiwan? Is a very big open question, and that that not necessarily a this year event, but people talk about 2627 gearing up for that. So there’s all. There’s when I talk about the geopolitical overhang. This is one of the big topics that scares a lot of people about, how do you invest in Asia with what they have said about they’re going to take Taiwan at some point, and, you know, so and what we saw, what happened with Russia, where, you know, you were a US investor, and you held Russian assets, and we basically made those assets were zero, you know, wasn’t really helping the US. In that case, we were hurting us investors. It basically helped Russia. But so you sort of, what about the US politicians, reaction to these different events? And you know, that’s my worry about some of the the long term, you know, nature in China.
James Connor 7:32
And so you threw out the years 2026 27 in terms of China invading Taiwan. Well,
Jeremy Schwartz 7:39
that’s what they talk about, you know, I don’t, it’s all speculation. But, you know, they say they talk about being prepared to do something by then, and nobody knows what it actually would look like. Do they actually do physical invasions? Is it more of these blockades? Is it in substance, for you know, what are they actually going to do? But, you know, you we, we were, there was not a lot of these major conflicts for such a long time, we’ve now had these major regional conflicts with what’s going on in Europe and the Middle East and China’s it certainly talks about Taiwan is a big part of the One China policy. And the question is, what, where, where is it going to go? These are very open questions that you don’t have answers to, but it’s definitely a source definitely a source of long term risk, and you got to be remindful of what happened just with Russia recently, and what you were doing as an investor into Russian securities. So
James Connor 8:33
let’s look at the US economy now. It’s growing somewhere between two to 3% unemployment is ticking higher. It’s at 4.2% during the last reading. What’s your take on the US economy? Do you have any concerns? Well, we’re
Jeremy Schwartz 8:46
very happy. Finally. Finally, the Fed is taking our advice. I mean, we’ve been calling out the Fed that they’re so slow and deliberate in getting towards what we call they need to get to a neutral policy stance. And you know, it seems like on track for being that place by next July. You know, now we if our senior comes running the Fed, he would do it basically instantly. You know, he thinks they just move so slow and deliberate that, you know, they’re basically at their employment mandate when they say their long term view of unemployment should be 4.2 4.3% that’s basically exactly where it is. Inflation has come down 80 to 90% of their goal. And if you use some real time data on housing, you’d say inflation is actually well below their target. We have when we put in, instead of the official BLS number for shelter, we plug in, you know, an average of what’s happening in Zillow an apartment list. Instead of a 5% shelter inflation, you get something low ones that would bring headline inflation to 1.2 core inflation to 1.6 so all of us, inflation is being driven by the shelter number at least the year over year changes, obviously the cumulative price increases that people are not happy about. But those prices aren’t. Way back down. You know, you got to think about the year over year change. And so, you know, our view is the Fed should be at neutral, neutral. You know, their official dot plots have neutrals below three. We think that’s going to keep coming up, and it’ll be closer to three and a half. And that’s basically one cut at each of the next few meetings until they get towards, you know, the dreaming. So you have six more meetings to get there, and that’s, that’s largely, again, we think they should get there quicker, but they’re on path to do it, they might be able to avoid a recession. You know, you’re not zero probability recession, but they’re, they’re cutting rates, and we were happy. They cut 50 at the first cut. And
James Connor 10:39
I guess one of the reasons why they’re moving so slow and deliberate is because they don’t want to make another policy, or like they did back in 2122 and they said inflation was transitory. And then by March of 22 they realized, Oh, my God, we got a serious problem here. Well,
Jeremy Schwartz 10:54
they should, they should have. We were calling them out at that time too, saying they should have been hiking much faster that, you know that one of the big mistakes is they moved away from looking at the money supply. We’ve been talking about, why did the Fed, you know, all of history, the money supply was viewed as the key driver of inflation. They started looking at the minutia and like monthly changes, and say, Hey, we’ve seen no relationship. But when you have an explosion of money 40% higher, how would that not lead to inflation? So we, we think they were very overly loose. And you know, that started declining. You never seen the money supply decline going back to the Great Depression. That’s a sign that they were too restrictive. And again, to why we want them to move quickly, that’s starting to grow. Actually the we got more money supply data last week, and it’s starting to grow at a 5% annualized rate. The 5% annualized rate is exactly what we want now it’s just, you know that it’s not 5% of the full year, just annualizing the latest monthly change, but you’d like it to be growing at that help more healthy level and but and bringing down rates is one of the things that will will stimulate that.
James Connor 12:04
When you said the money supply exploded by 40% was that over one year or a few years, you
Jeremy Schwartz 12:10
know, it was. It was basically two years from the from the beginning of the pandemic to a few years later. And so it did have this huge pop, and then it continued to grow. But it was two to three year move that got to that 40% the largest single year change. It was a 26% annual change in the m2 money supply, largest in history, right? So that was, that is what really, you know, led to that big inflationary impulse. All people talk about the financial crisis when the Fed was buying all these bonds, and you say, well, is that QE similar? Well, that money didn’t get out into the real economy stated bank balance sheets. This time, it actually did get to the real economy. You had all these government efforts to give checks cash to people’s check accounts, and then the Fed financed it all. So like, you know that people say, Hey, we should give power Nobel Prize for landing the plane. Like, well, he created the problem. You know what? You shouldn’t give Him praise for fixing the problem he created. And so you didn’t have to have as much inflation as we had, if they would have been raising rates sooner. Interest rates have been higher. Wouldn’t borrowed as much, but you know, they’re now, we’re happy they’re starting to cut rates, because we do, we do see that appropriate at the moment
James Connor 13:32
inflation was transitory. There was no need to well,
Jeremy Schwartz 13:37
they definitely helped foster what we had
James Connor 13:40
now. You also made mention of the fact that the money supply contracted for the first time since the Great Depression.
Jeremy Schwartz 13:47
Yeah, I mean, you really want, usually should grow that. There’s a simple formula that I learned in in school. It was, real growth in the economy is equal Well, real growth plus inflation is approximately equal to the money supply. There’s this velocity of money term, but let’s just say the velocity of money is constant there. So it real growth plus inflation gives you money supply. And so if you want five if you want two to 3% real growth to 3% inflation, that gets you 5% money supply growth when when it’s contracting, that’s a negative sign. And
James Connor 14:22
so what does all this mean in terms of the economy? And we have this ongoing debate whether or not the US is in recession or going into recession. When you look at the money supply flows, what’s this telling us?
Jeremy Schwartz 14:34
Well, it’s picked off off the lows. It’s coming back to that 5% annualized rate. So the recent trend is positive. It’s still not fully growing at 5% but it’s coming off the lows, so that’s definitely a more positive recent trend. And we think lowering of the interest rate from the Fed will help bolster that a little bit more. I think one of the long term questions for the economy is productivity growth and the. There’s all this promise of technology and AI like you’re in, we think any one of all that benefits starting to diffuse beyond to the big mag seven, Nvidia, and those stocks are the have been some of the prime really. Nvidia only has been the prime beneficiary of the spend, and now so all these other big companies are spending, and the question is, what’s gonna be their return on their spend? And you know, so I think eventually that will diffuse into the economy, and you’ll, you’ll, you’ll actually see productivity and profits do well from that, but you’re so early in that phase, but that’s one of the long term boosts for economic growth. Is what’s going on in technology.
James Connor 15:39
So when you look at China and the US together, both of which represent 45% of the global economy. So what’s happening in these two countries impacts everyone else and in the US. We have massive fiscal spending, spending still going on. We have this expansionary mon monetary policy now, both of which are bullish for the economy and also the markets. Now we got these positive changes coming out of China. What does it mean for the rest of the world or the global economy? Well, China
Jeremy Schwartz 16:06
definitely is one of those big consumers for everywhere. So you know, Europe has been mired in very slow growth, partly and even sort of the big car company stories that you hear some of their leading exporters are these big car companies here, even in the headline just this morning, it was Volkswagen missing and lowering guidance. And you know, part of that, my first thought was, oh, that’s China. And you know, it’s that their car companies are now competing. They had become one of the biggest dominant players in China, and now their own companies are competing for some of these, these big exporters. So, but a stimulus from China that actually does rev up consumption will be helpful for the whole global economy and the big exporters to China. So I think you saw as that stimulus was coming out, last week was a pretty good week for European markets. We do think it’ll benefit Asia, Japan and some of these other markets. And you know, if the US avoids the recession, because the Fed is actually responding, that’s all positive signs. So it’s a it’s a healthy environment, is what? Is what you would say.
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James Connor 18:32
so let’s discuss the financial markets now. Are the equity markets and the s, p is trading at or near all time highs. It’s like making a new high every other day, in spite of what’s happening in the Middle East or over in Asia. And it’s, I think it’s around 5700 give or take. But what’s your take on the s, p, going into year end? Do you think the market’s going to keep increasing, and do you have any concerns? And what are you suggesting to your clients how they should be positioned going to year end. Well, we’d
Jeremy Schwartz 19:03
say the S P is around fair value. And what does that mean? So people say, hey, the multiple is high. The markets are high. It’s right around 21 times forward earnings, maybe a little bit higher, and we think fair value is 20 times earnings. Now, what does 20 times earnings represent? If you take the inverse of 20 times earnings, it’s a 5% earnings yield. 5% as an earnings yield is a estimate of the longer term real return potential. 5% real is below what they did over a long period of time that you got they got closer to 7% over all the long term data. But you know, if you add two to 3% inflation on 5% real, you’re getting seven, seven and a half percent of nominal that doubles your money every 10 years. You compare that to a bond, the 10 year bond today is under 4% you know the tips bond is one. Point 6% the last time I was checking, it’ll take you 45 years to double your Percy power in a 1.6% yielding tip. It’s a rule of 72 another thing we taught we learned in in Professor Siegel’s class. So 45 years versus Hey, at 5% you’re going to double your money or double your purchase, your after inflation, pretty power in 14 years, 14 years versus 45 years, still a very strong case for stocks versus bonds in the real after inflation sense. Yes, it’s not as good as stocks used to do, but it’s still way better than the alternatives. Now you could get outside the US, but you look around the world, you you could getting 1012, 13 P ratios for many of these markets, which is much higher potential. Forward looking returns. You don’t need a strong earnings growth when you’re selling it at 10 times or 12 times multiple. And so, you know, people have only focused on the US, part of the piece of those tech giants, and partly because their earnings growth has been so much better than everything else. So it’s been warranted. But we definitely believe in that global diversification. We do believe in the broadening rally small caps could benefit from the lowering of rates. They’re the only ones paying the higher rates from the Fed. So you don’t have to be just concentrated in the SB 500 S p5 100. There are some good opportunities around the world. But still, even if you were just concentrating the S P, it’s still a compelling case versus bonds. And
James Connor 21:29
what about when you look at the S P or the NASDAQ, and we always hear people discuss the concentration. It’s a few select names that are really moving, one of which is Nvidia. It’s currently trading at 40 times revenues. Are you concerned about these valuations and some of these names, like Nvidia? Well,
Jeremy Schwartz 21:45
the tech sector as a whole, we have a daily dashboard@wisdomfree.com we there’s a page called strategies on the markets, and you can find all sorts of great dashboards. And you know, one of them is the we call it the daily dashboard, and it has 30 pages of charts. One of them is the tech and X tech sector. And we put a broader definition of tech it. You know, the the official tech sector is essentially Apple, Microsoft, Nvidia, but it doesn’t have like an Amazon and a Google meta. And so the old way SMPS would define tech would include some of those. If you put them all together, the real tech giant, what? That’s around 40% of the market. Today, those stocks are trading closer to 30 times earnings, maybe a little bit less. The non tech is around 19 times. So you know, there is definitely that pressure higher from that one basket, but they’ve been delivering earnings growth. So you can’t say they haven’t, you know, they and the non tech have not been delivering earnings growth. So they definitely had been warranting of that higher multiple. And it comes down to, you know, 30 times when people say, Well, is this like 99 in 2000 back then, the same type of valuation metric that mark those tech stocks were well over 60 times earnings, so more than twice as expensive as today. And then you had a lot of these crazy Internet stocks at no earnings and just not, you know, some very even little revenue. Today. It’s different. You know, these are real companies driving earnings growth with the higher multiples now the if they have a crack in their earnings, there’s no question. Everybody sees the margins that NVIDIA is getting, and they’re all going to try to create their chips that compete. So they’re not going to be the only player forever. And so as the question is, how long is there above way above market earnings growth last the spending is not slowing down. Everything you hear, there is a race for more and more spend, and so there, Nvidia is definitely the prime beneficiary. But I do think they’ll all have their own ships. They’re all going to compete. And you know, it’s just a matter of time for that particular stock to have more competition. But the overall tech sector, we think, is warranted of the higher multiple, it’s just a matter of when their earnings are slowing down. There’s more risk of being a higher multiple.
James Connor 24:10
Yeah, you made mention of the tech bubble of 99 2000 the I just read an article about that recently. It’s something else that’s totally different between then and now is the fact that number of IPOs that occurred back then between 1995 and 2000 there was over 1500 IPOs, most of which were focused on tax or any, anything and everything to do with the Internet. And now we really don’t have those IPOs happening. We see a lot more buybacks.
Jeremy Schwartz 24:38
Well, the buy and buybacks have been a way of returning cash versus dividends. You’re starting to see, I mean, interestingly, some of the big tech companies started paying their first difference. So now Google meta, those are big announcements that coming from both of them that they had been non pairs for a while, they are now starting to return cash shareholders in the form of dividends, which is that. Very nice pot of tree, not big yields, but, you know, 50 basis point type yields to start, and they often this goes to one of the drawbacks of most dividend growth investors is they say you have to have 10 years in a row. I mean, the biggest Dividend Growth Fund used to be called dividend achievers, they have to grow their dividends every year for 10 years in a row. Well, it’s going to be 2035 before Google and meta will have 10 years of consecutive increases. So that’s a challenge of just looking backwards. The aristocrats from S and P has a 20 year look back. So now we’re talking 2045 before these companies will have a 20 year look back, and there’s some of the most important, biggest companies in the world. So you know, we don’t think that’s the right way to do dividend growth. You gotta look forward. We use what we call, sort of the Warren Buffett, Charlie Munger, quality screens, high profitability, high return on equity, good earnings growth, as seeing who has the most potential to grow dividends, not some historical record of doing one year five year tenure. It’s really more their profitability analysis that says whether or not they’ll keep paying.
James Connor 26:03
So you see good value in the s, p trading at 21 times earnings. What about the Russell? I think it’s around 12 times earnings. Do you see good value there? And are we going to see a catch up in the small caps versus the big caps? Well,
Jeremy Schwartz 26:17
I definitely wouldn’t call this be like undervalued. I’d say, we say it’s sort of fair value. You know, it’s fair value, it’s at, it’s at a reasonable multiple. But the small caps are, are definitely attractive. Usually those were at a premium to the large caps. Now they’re at a discount. And so the question is, the how much? But it was, you know, if you look at the just the last quarter, you had double digit earnings growth for large caps and double digit earnings contraction. So the reason why they’re 12 times because their earnings were contracting. So, you know, it’s the question is, will they start to turn around? And we do think that the lowering of rates is helpful, because some of them, you know, they do pay the variable rates. You know, large caps extended maturities. Like all the US home buyers, they extend their maturities. Nobody’s paying, not nobody, but very few people are paying the set we’re paying, the 70% high mortgage rates. But the small cap companies did have to borrow at the Fed’s variable rate. And you know, so as those rates come down, their their profits will improve, and hopefully that supports earnings growth for small caps. The trend is definitely changing. Where you have decelerators, growth from the large tech and accelerators, growth from these smaller companies that should be supportive from a very low, low base of earning, like a low multiple.
James Connor 27:41
So we have q3 numbers coming out here in the next couple of weeks. The first one to report is JP Morgan on October the 11th. Do you see any concern with q3 numbers, especially after q2 many companies, Amazon, Airbnb, McDonald, Starbucks, many others, all came out and lowered their guidance and they cited the weakening consumer, any concerns going into when we see these q3 numbers, it was
Jeremy Schwartz 28:07
definitely, you’d say, a bifurcated, very company, idiosyncratic, specific story versus something to say, one narrative across the entire economy. There was winners and losers, and so I, you know, you definitely saw the challenges. You saw replacing CEOs at Nike and Starbucks. Those were, you know, two of the big consumer companies, and, and, and reflected specific issues for them. So I don’t know that we’re as we talked about the start. You know, the economy has been holding in fine. So the overall impression is good. And you know, we do think the small caps will start to perform better. Let’s see if this earnings quarter, you start to see some of that Yeah.
James Connor 28:52
And you raise a good point, because we see this real dichotomy going on. You look at the economic numbers, you think, yeah, the economy is doing well, inflation is coming down. Unemployment is ticking higher, but it’s still below the long term moving average. And then you hear the commentary out of so many of these companies. And another one that comes to mind was, I think Delta, they took $100 million hit just on their Paris flights, because nobody was flying to Paris because of the Olympics, right? So they had all this excess capacity. And then you saw the same sort of thing out of the Airbnb, and they said people just aren’t traveling because they don’t have the money. There’s
Jeremy Schwartz 29:26
a lot of these very well, that’s a more economy wide thing if they say they don’t have the money to travel. But there was definitely a lot of very specific consumer stories that come in. I mean, I what I hear is that the flights are and I do a decent amount of travel for work. You know, you hear that the flight prices have come down, but the hotel costs have gone up. That hotel demand is very robust that, you know, it’s tough to get a hotel room, and that they’re charging a lot more for it, but that flight, the capacity was, was decently supplied. Right? And so you’re seeing a little bit of price, you know, getting better prices on flights. But you know that that comes back to the each of those particular routes, or whatever you know, in terms of Where’s, where’s the capacity, where there’s not.
James Connor 30:15
So let’s talk about interest rates. And as you mentioned, we saw a 50 basis point cut here last month. We still have two meetings to go, one in November, one in December. What do you think is going
Jeremy Schwartz 30:27
to happen? Well, they’re definitely, in our view. They talked about how, talked about recalibrating rates lower. They’re going to keep cutting. And it looks like right now, the 25 basically consistently through June. If there’s a real weakness, they’ll cut faster. Again, we would like them to cut faster, even without the weakness, just to prevent it. But it seems like a 25 base point cut coming. Now the long bond, interestingly, right after they cut, started trading higher. You got the tenure, got down to the 350s and then it got started up pressured to 375 not quite back above 380 but it started trading better. You said, Well, what’s going on there? Well, if there’s less chance of a recession, that should go higher. We actually do think it should trade higher. We think it should be in the four to 5% range. And so, you know, you should get a more positive, uninverted Yield Curve. What we’ve had for the last few years, people been surprised. We’ve had an inverted yield curve with no recession. Usually, the yield curve predicts a recession, and there’s some particular dynamics of usually, the Fed has to crash the economy to lower inflation expectations. People didn’t seem to have as in, as bad as inflation was, the longer term outlook was that all this stuff is going to be kind of a transitory come back down. And so they did. They didn’t necessarily have to crash the economy to get that down. And so it’s interesting that that we’ve been able to do that without the with the inverted yield curve, but it should eventually come back to a positive slope. So if the Fed gets down to three and a half, the tenure should be above four. And you know, I think that’s so we’re not chasing bonds. We’re not suggesting people rush to the long bond. You know, you’re still getting paid to be shorter. And so I think that’s one of those things that think about how you diversify portfolios. What are the risks today? Well, one of the risks is, is inflation. So commodities have some value from a long term portfolio hedging perspective, and sort of short duration bonds have some value from if the Fed has to stay too high because inflation comes back, that could be other pressure on the other risk market. So it’s interesting, you know, what you can do to hedge some of those risks as being short bond, you know, short duration bonds and commodities.
James Connor 32:50
So let’s talk about commodities, because I want to bring up oil. Specifically. It’s been quite volatile this year. He was stuck in this 70 to $80 range. Now it looks like the new range is 60 to 70. What are your views on oil? Well,
Jeremy Schwartz 33:03
when you come back to the this part of the trend for lowering inflation has been oil, and all these combined prices have come down. I like oil from a again, the portfolio diversification standpoint, like not many things, can really hedge you from some of those key risks, and whether it’s the geopolitical risk. Now, you say, you know, with all that’s going on the Middle East, saying oil still hasn’t responded to that, which is quite interesting. But the, you know, now, I’ve got China stimulating, if there is to be a much bigger move that would would be a beneficiary, and that’s, you know, say, one of the risks to the global market. So from a portfolio level hedge, I like oil. And you know, now the short term supply, demand balances, there’s all sorts of questions, is, there is? But I do think that that portfolio place is useful to have it, yes.
James Connor 33:58
And to your point, it is interesting that oil is doing what it’s doing given what’s going on in the Middle East and all the the geopolitical risks happening throughout the world, but you gotta wonder, if that wasn’t, if we didn’t have this war going on in the Middle East, where would the price of oil be? Would it be dead 50 bucks a barrel?
Jeremy Schwartz 34:17
These what if scenarios are very hard to say, and you do have that war, and it doesn’t seem like it’s going any better in short term. So, so
James Connor 34:26
I guess my question is, you know, people often say, when you look at oil, when you look at Copper, these are barometers for the global economy. Okay, so if oil is coming off the way it’s coming off, maybe that’s signifying that the global economy is slowing down a lot faster than people think it is. There’s
Jeremy Schwartz 34:43
so many specific things in these that it’s hard to paint one particular view that is certainly one interpretation. The supply dynamics are. There’s demand in supply, if they have more supply that offsets some of those issues. Uh, that that is a mitigating force on on that interpretation. Um, but, yeah, that’s one of those points that got us to wanting the Fed to cut. Is, hey, don’t have don’t stay too high for too long. There’s all these other signposts saying you don’t have the inflationary pressures. And that is one of those things that says you have a little bit of coolness. So yeah, I agree with that general take.
James Connor 35:25
And when we look at a few months going into 2025 I can’t believe it’s only a few months away. But what are your thoughts? How do you think things are looking when we look in q1 or q2 of 25 well, we’ll
Jeremy Schwartz 35:37
have the election in the US, and that, you know, question will be, what are the economic policies we’re getting? Nobody’s focused on the debt and deficits. You know, it seems to be both parties are, are not really focused on the deficit. So again, you really want to chase the long bond at 375 here. I think that’s one of the things. Again, say we think that should be over 4% you know, if, you got a democratic sweep, taxes are going up, that’s a challenge like so divided. If you get the Senate to stay Republican, which it looks like it very well, could, then you have less to worry about from a tax perspective. But if taxes are going up in a meaningful way, because you get a democratic sweep. That’s probably the most negative event for the markets. But that’s what one of the things we’ll be watch as we go into the end of
James Connor 36:30
the year. Sorry, why do you say it’s going to be negative for the markets? Well, tax rates going
Jeremy Schwartz 36:34
up. You’re going to have corporate taxes going up, individual taxes going up. But markets don’t love higher taxes.
James Connor 36:40
No. Nobody likes higher taxes. You should come to Canada if you want to see higher taxes. So one thing we do very well, yeah, Jeremy, as we wrap up, if someone would like to learn more about you and get your thoughts on the markets, where can they go? So,
Jeremy Schwartz 36:55
wisdomtree.com, we’ve got, I mentioned the dashboards, find our on the market strategies pages. A lot of great material. Professor Siegel does a weekly commentary for us there. I do a podcast with him behind the markets that if you want to listen to, you know, his short take with sort of interesting guests every week. That’s another place I’m on X Twitter. Jeremy D Schwartz, you can follow me there LinkedIn to reach out for any conversations. And you know, we thank you for so much for having here.
James Connor 37:24
Well, that was a great discussion. I want to thank you very much for spending time with us today. Thank
Jeremy Schwartz 37:28
you. Well,
James Connor 37:29
I hope you enjoyed that discussion with Jeremy, and it provided you some insights on what to expect in the coming months. It’s going to be an interesting few months as we go into year end, if you’re trying to figure out how to prepare for your financial future. During these uncertain Financial Times, consider having a discussion with a wealthion endorsed financial advisor at wealthion.com/free after providing some basic information, wealthion will put you in touch with a vetted advisor. There’s no obligation to work with any of these advisors. It’s a free service that wealthion offers to all of its viewers. Once again. You can find out more information@wealthion.com slash free. I want to thank you for spending time with us today, and I look forward to seeing you again in the future. You.
