Remy: Today's capital markets segment is brought to you by Alpaca. A fresh round of producer prices and retail sales numbers just hit the tape, adding pressure following yesterday's hotter than expected core CPI print. And with energy costs surging and core services inflation re-accelerating, the Federal Reserve is caught in a policy bind while benchmark bond yields remain overall elevated, spurring a sharp near term sell-off across semis and high growth equities. And our next guest says today's volatility is no sprint in AI capex super cycle outweighing Iran. As well as labor softness while smart money turns to durable income and tax mitigation. Well joining us from Kansas this morning is Clayton Allison, director of investment strategy and portfolio manager at Prime Capital Financial. Good morning, Clayton. Thank you so much for joining us while we are just digesting the latest inflation figures following yesterday's CPI print. And it goes without saying that energy is squeezing the consumer and services inflation does remain sticky. So is the Fed trapped into keeping policy restrictive despite what we're seeing in the labor market as well as the rest of the economy here?
Clayton Allison: Yes, Remy, thanks for having me, and I think that's a great question. At the end of the day, the Fed typically operates under a dual mandate. They want to have full employment while also keeping prices stable. And right now I would probably venture to say they are kind of in a sticky situation, especially as inflationary pressures continue to press upward in no small part from energy prices coming from the war in Iran. But at the same time you have a weakening labor market as we saw with non. Payrolls last month. So at the same time, you can't just necessarily start hiking rates at the wazoo, so to speak, and then you risk crushing the labor market at the same time. So it does seem like they are in a bit of a pickle here. I, I heard you speaking earlier. It doesn't look like they're factoring in a hike at the upcoming meeting in 2 weeks, but it does look like there's one on the horizon potentially according to the market in either November or December before we get to the end of the year.
Remy: Yes, and in New York morning trade we are looking at a divergence on Wall Street across asset classes. So we're looking at Dow futures higher, but we are looking at a sharp pullback for NASDAQ futures and of course we're focused on artificial intelligence, but when we look at the bond market in New York morning trade, we are looking at Treasury yields coming off recent highs, but Are we looking at a healthy pullback for overbought tech, or do you think higher discount rates are poised to crack some of these expensive multiples?
Clayton Allison: Yes, great question once again. And typically I feel like we've seen this type of market environment in the past. You get some market volatility, especially on the macro front, whether it's from inflationary prices, geopolitical tensions, and then a lot of those high flying growth tech type names, especially the ones that have been driven by momentum for a long swath of period, have started to pull back, compressed a little bit. But typically what we like to tell our clients and our advisors, we've got 200+ advisors nationwide and something around 20,000 clients at this point. is that we like following earnings when it comes to the equity markets. You want to find those durable compounders over time and hold them for the long haul. So while you could see some of these higher flyers getting compressed right now as borrowing rates go up, not in small part, I think we saw Rocket Lab yesterday. That started falling as a result of not necessarily rates, but just any key negative headline you see, it's like the market is punishing it immediately. So once again, we try to keep that mindset for the long haul rather than the short-term compression that you kind of mentioned.
Remy: Yes, and as you mentioned, I do want to expand on what you just said because there are plenty of headwinds between geopolitics and what is happening on the heels of that with inflation and of course how that affects earnings and American corporations. But why should long term investors look past the geopolitics as well as some of the macro noise and be focusing on what's actually happening below the surface?
Clayton Allison: Yeah, great question. And once again, what we try to reiterate all the time is that it is a marathon, not a sprint. You alluded to that earlier. And the fact remains, you can get really sucked up in the headlines of what's going on in the world, especially as we're in a 24 hour news cycle. You see geopolitical tensions, a war, rising inflationary costs, and yes, that can lead to downturns in the markets, but like we've seen in 2020, coming out of COVID as well as 2022, when we saw a Higher rate environment back then. Many of these bear markets have been rather shorter-lived at the onset. Now, if you go back farther in time, obviously, those are more prolonged. But at the same time, one little factoid that we always kind of tout out there is the fact that you should never be trying to time the market. It's better to have time in the market, and I think that's a bit of a cliche, but at the same time, if you're trying to time it and you miss, you're gonna miss out on typically the best market performing days. Because those typically follow the worst days. So, if you are not focused in on your long-term objective and having a portfolio structured for that, you're typically gonna be in a better, in a worse situation than you were previously.
Remy: And of course income has become a primary conversation for clients in today's higher for longer rate regime. So how are you structuring portfolios to capture yields and without taking on hitting credit risk or locking capital into low liquidity?
Clayton Allison: Yeah, I think you mentioned it a little bit earlier, Remy. In fact, we're seeing a lot better yields coming from the Treasury market as well as investment grade bonds with the hyperscales now trying to tap those debt markets. We're seeing rising yields as a result. You can start getting better discounts on those bonds for essentially triple A rated credit qualities across the board, more or less. So now we are no longer in an environment where you have to essentially go hunting for yield or to your point, locking it up for longer periods of time without having access to that liquidity. So it has become a much more favorable rate environment for those investors that are looking to take income, maybe retirees. So we like to own this rate environment depending on the client's needs at this point in time.
Remy: And less than 60 seconds here, but I do want to ask you about taxes. So clients are asking how to protect gains from a heavy tax bite. So what would you say to them in terms of strategies?
Clayton Allison: Yeah, that has been the golden question now that we've been here for a couple of years, especially after the, the 4th year in a row of double-digit returns in the market. And you've got people that want to start tapping that liquidity. Now, our firm, we have an in-house tax team, for instance. We typically advise you go, you know, talk to a tax professional. But on top of that, if you're looking for more strategic, you know, implementations, there's all sorts of things that you can be looking into. Options, overlays, covered calls on your stocks or your Equities that you've held for a long time, long shorts, being tax efficient systematically while you glide path your way into a more diversified portfolio, direct indexing. There is no shortage of options out there nowadays in the market, which is great, and it all caters to what you need individually because it's not just a broad blanket that applies to everybody.
Remy: Well, Clayton, we will have to leave it there for today, but thank you so much for joining us and thank you so much for your perspective as well as all of your insights.
Clayton Allison: Thank you.
