Economic conditions are in a "goldilocks" period, says Jeremy Schwartz
You just heard Barry Stern looks comments. Do you agree with what he has to say? Well, you know, Barry’s definitely at the heart of the storm in real estate and you say who’s facing the brunt of the higher rates If you’re doing a lot of real estate development, you’re borrowing costs going up. You know they bought, they bought a lot of buildings with cap rates that are much less attractive today. So you can understand his pain. I’d say you know it, you know, you saw some signs in in that McDonald’s and Starbucks we talked about, but you know, it could be just tasted they raised their prices too much. In general, the economy’s held in there quite well. You haven’t really seen unemployment tick up. You know, we’ve been describing as Goldilocks. We’re not too hot, not too soft. Earnings are doing well. And so, you know, I don’t think there’s weakness today. All right. So there’s not weakness. We’re seeing earnings come in better than expected. So then why are you so bullish on Japan as opposed to the US equities? You kind of give us a pick today, the DJXETF, you’re actually talking some of your own book. You believe there’s a lot more upside when it comes to Japan. Well, it it does come to valuations. And I’d say you know we we, I think one of the, the master value investors you you heard, I was listening to Becky’s interview of Warren over this weekend at the Berkshire Hathaway meeting, the S and PS at 21 times earnings, that’s a 5% earnings yield. Sort of real return expectation, maybe get 78% nominal. If you add inflation, you’re starting in DXJ with a 5% carry because of where the Fed is versus Bank of Japan. So you start off getting paid 5%. Then you have the stocks with the 3% average given yield of 14 PE. So like a 7% earnings yield. I think there’s a good possibility and and I would bet on it that Japan DXJ could outperform the SNP for the next five to seven years because you’re getting the care, you’re getting cheaper stocks, positive corporate governance, how many should have? We’re seeing it right now up year to date over 23%, so outperforming the S&P so far this year. One of the thing that’s a concern for Japanese equities and really all global companies, the rise in the dollar this year, looking at the dollar chart up 4% this year, that’s something you’re watching as well. How does it inform your investment decisions? Well, I think it’s one of those things people don’t have enough exposure to in their portfolios. When you talk about against Starbucks, McDonald’s, the global companies, they have exposure to a weak dollar. You know, when the dollar is rising, it hurts their earnings and. It’s a lot of people when they go overseas, they take the euro, they take the yen, they go what’s called unhedged and add in this extra currency. I think they need more strong dollar exposure in their portfolio to hedge earnings risk. It’s been an exact opposite of bonds. Whereas bonds aren’t diversifying stocks, the dollar is. Give us a quick example, a strong dollar investment, what would that be? Well going along the dollar you could go instead of going short the dollar, there’s funds that go along the dollar. We we you know we DXJ is an example of long the dollar if you don’t if you do it versus unhedged. So it’s just not taking this sort of dollar bets.