Leo Kelly Ceo Vernon, Merrill Kelly Wealth Management, College Of New Jersey discussed on Bloomberg Markets

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We appreciate it. All right, we got in our studio here. Leo Kelly CEO Vernon's capital advisers, I have no interest in any of that. I just found out, first of all, he's a graduate of the college of New Jersey in Ewing, New Jersey, which I grew up in that area. So I'm very familiar with that. That school's gotten so good so quickly. But then you worked a couple summers at Bloomberg and Princeton. I did. Oh, he found his new best friend. Yeah, exactly. I mean, I can't believe he still doesn't have his badge or his badge doesn't work. Who says it doesn't? There you go. You got to get a he's in his vault. He comes up with a late night snack. You got to get a free lunch sometimes. Exactly. All right, Leo, you've been doing this wealth management stuff for a long time at Merrill Kelly wealth management and I got your own firm here, what do you what do you say to your clients these days when they see their performance in 2022? Yes, 2020, 2021, great years. This year, just brutal equities and fixed income. Where do you go? So what are you telling your clients? Well, the first thing we tell them is that they have to remain calm. As always and but in the bigger picture, we've been talking about this inflation and rising interest rates now for a couple of years. It's never made sense to me. That we could put this much money, grow M two, a 25% a year and not have inflation. We didn't buy into the transitory. We didn't buy into rights would remain low. So they've been prepared. I don't think you can be prepared for this though. I don't think you'd be prepared for 8 or 9. We're running up to 4% on the ten year. And the result of this, in my opinion, all of the money being flooded into the system is we're moving into a secular change in interest rates. And that's going to change a lot of things in the market. So what people have relied on to be constants in the market in the past. It's all going to change. And that's what we're talking to our clients about. Well, one of the things that we've been talking about throughout this show has been the C word capitulation, not clients. And I'm curious if you're in the camp that says, to see a sustainable rebound in the stock market, you have to see capitulation. And if your answer is yes, tell me how we discover. How you detect it. If your answer is no, tell me why not. Well, this is starting to feel like we're getting there. I don't think we're there yet. And I think if you think seasonally, we did get to a bear market 20% bear markets do not typically go down, touch a bottom and then run off to the races. It takes a few of these tests and often a new low before we see the bottom of a market. So we have been talking to our clients about get ready, September seasonally bad. November December seasonally better, right? We recover from that. And normally there's actually one more attempt at the bottom before you run off to the races. But sorry, really quickly. They're seasonally bad because it's a reaction from what I've seen historically too, usually a summer rally, like a, or a Santa rally, followed then by some sort of correction when you have higher volume. No? Well, we did have a rally. We had a rally off the down 20% from the summer. And again, I think more than seasonality. You know, I don't want to, I don't want to make this a technical conversation, right? More than a seasonal rally, we have to take a step back. We have higher energy prices still, even though they've come down. We've got really large inflation. We've got rapidly rising interest rates. We have an extraordinarily aggressive fed and replicate that everywhere in the world. That is not exactly what I would call stimulus. So to us, that says, be prepared for volatility, what we're telling clients is be prepared for volatility. We have to be active in the markets, going to sleep on a 60 40 passive portfolio. Those days are done. They're behind us. That's exactly right. I mean, you think about it this year, I guess, you know, the S&P off more than 20%, most of the bond indices that we look at here on the Bloomberg terminal off, you know, ten, 11, 12, 13%. There's really been nowhere to hide here. To the extent you've got some clients who want to maybe take a little bit more risk, maybe put some cash into the market, where are you suggesting they look? Well, and I will be specific, but the first place is not what has been successful prior. Okay. As we go and we have higher interest rates and more volatility, right? That's going to impact PE. So the higher PE steady growth companies I don't think perform as well. Now, it's not to say that they're going to go down necessarily, but I just don't think they perform as well. We like earnings power, strong dollar means small cap looks interesting to us, right? Small cap growth and small cap value growth because it's down so much value because there's value there. We like the international markets, but there's going to be tremendous volatility. International developed international is two to three standard deviations lower in valuation relative valuation than what we see in the norm. Then the media. So to me, that says, let's put some money there. And yes, we're going to have to go through the gyrations of the market. But as we tell our clients, when you invest in equity, you sign a contract. And that contract says, I know there's going to be volatility. I accept that for a higher rate of return, and I'm willing to put up with it. Well, now it's time to now's the time to earn your money. To make good on that. All right, Leo Kelly. Thank you so much for joining us Leo Kelly's the CEO of verdicts capital advisers joining us live in our Bloomberg interactive broker studio here today looking at the markets continue to kind of plowing some of these lows here of the day S&P off 1.8% pretty much in line with kind of what we're seeing in NASDAQ. And again, I'm calling out WTI crude oil below $79 a barrel. That's off about 5.4% here today. We're going to more coming up. First, let's get on to Washington, D.C.

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