As a manager, how are you thinking about the worst decision?
Carl
Dan Niles
I think it's great for stock markets because a big portion of multiples is driven by easy money.
Dan Niles
As we saw in 2021, the S&P was up 27% even though inflation surged because the Fed let the economy run hot.
So you think it's good for the stock market because policy is going to be on a path toward being easier.
Carl
Dan Niles
Well I mean it's good near-term. If you're asking me, is there going to be a disaster on the other side of it? Yes.
Dan Niles
In December the Fed started QE Lite. We knew we were going to get a very dovish Fed pick by President Trump because he wants rates lower.
Dan Niles
In the near term yes I think it's good for the stock market at least this year.
Tactically in the short term, do you turn the dial up on leverage or do you take more risk?
Carl
Dan Niles
Everybody knew we were going to get a dovish pick. So this is not really a surprise. So it doesn't really change my viewpoint on things.
Dan Niles
My preview for this year coming in was you're going to get a strong beginning of the year.
Dan Niles
You may start to get a little bit more concerns about inflation because remember in 2021, the stock market was up 27%.
Dan Niles
It wouldn't surprise me to see a repeat of that as a year from now really.
So the idea that you think back to the discussions about transitory inflation and then as you point out, a U-turn, you think a repeat of that sort of theme is possible going into the back half of this year?
Carl
Dan Niles
Absolutely.
Dan Niles
My view is inflation's really simple, right? It's supply and demand. If you let the economy run hot.
Dan Niles
You saw what easy money policies did back then. I don't know why I would think it's different this time.
Dan Niles
You do need to be aware of very recent history and what ended up occurring and know that we're going to get probably another 100 basis points of rate cuts, whether this economy needs it or not.
On the AI, disinflation or deflation side, it kind of leads us to a brief discussion, Dan, about what software has done, these drawdowns in these names, these new 52 week lows, the worst day for Microsoft since COVID. Is that overdone?
Carl
Dan Niles
Well, in the short term, I think it is, because I look at it this way.