Erik: I'd like to go back and just review the evolution of your views in the equity markets because you of course were very skeptical of the rally initially after the great financial crisis and then you turn bullish a few years ago, and you've been absolutely right. And now I think recently I don't wanna put words in your mouth, what you say you've turned bearish or you've just turned skeptical and waiting to see what happen? Is it outright time to raise cash and get out of this market or is it time to stay in the market cautiously? How do you see the market going ahead from here?
Dave: Well, look to call for a bear market you've got to call for a recession. I think recession on for this year are pretty low, you know we can talk numerically but I don't think that this is gonna add any credence. It's recession of this year look 2018 is a different kettle of fish altogether and what it'll comes down to not what Donald Trump does but the Feds reaction function to what Donald Trump does. So, I'm not calling for a bear market this year, I'm not calling for recession but 2018 certainly has big question marks in front of it. But in terms of pullbacks I mean look what happened last year at microcosm, last year we had 4 pullbacks in the S&P500 of roughly 5% or more. And these days when we are down 5% off the market, it feels like it's down 20%. And we had 4 of those last year. And then we finished the year up you know call it roughly 10 percent. A lot of those gains of course coming after November 8th. And that was the year last year where you had all these concerns about China's devaluation, emerging markets. We had the first quarter stagnation in the US then we had Brexit, then we had the US election, we had the Italian constitutional vote. And this year we have an untested president, we have 3 elections in Europe, we have the Chinese punnery at the end of year. There's no shortage of things to be concerned about and last year was a roller coaster ride in the market. And if you take a look up until November the 8th when we had this seemingly inflection point of the US election, the S&P was barely up 4 percent. It was really almost to do nothing year. And so, I would say that this year is gonna be a similar roller coaster ride. I think that anybody who doesn't see that there's a prospect of a pullback from these levels right now, when you consider the VIX at 10.7, my reading from this morning evaluations of 15 year highs, practically every survey is showing this 3 or 4 market bulls for every bear out there, this is a market that's more than just fully priced. We have to respect the fact that on an interim basis we are gonna see pullback from extended levels. I'm not gonna say this happens tomorrow or even next month but I would say that if we had 4 pullbacks last year, I think we'll have as many of those this year if not more and it makes sense that it will finish the year probably roughly flat. That would be my call but that's peppered with a lot of volatility.
Erik: So, in that case obviously, the pullbacks that we had last year if you had a perfect crystal ball, you'd know that each one of those was a by the dip opportunity. Would you see a 5% pullback as a by the dip opportunity or is it time to get cautious that maybe the tide has changed here?
Dave: Well, I mean you can't look at the tape and say the tide has turned. And of course, there's the other side of the argument and you always have to tip your hat and respect the other side of the argument that there's a wall of money that's just waiting to come in, that we're gonna get another melt up because on a fund full basis in respect of the more valuations are and so on and so forth. The answer to your questions is yes, I am skeptical. I would say that if we do pull back 5% and there's no recession to every sign post, well naturally that's gonna be a by the dip opportunity. The time to really make your fundamental asset make shift ultra-defensive is when you're convinced that the recession is right around the corner. I don't think the business cycle is dead. It might be a little dormant but it's certainly not dead. And the Fed is gonna have a big say in this. And this is what I think the risk for more for 2018 than 2017 and the case of be careful what you wish for because if you're already thinking that Trump's gonna get all the good stuff through and really none of the bad stuff, the bad stuff on immigration and the stuff on trade is all just posturing and negotiating, well let's say that we reached a situation where the Fed starts to lift its growth forecast. Its rate forecasts are not gonna stay idle. They've already told us at the minimum, they are going to raise rate 3 times this year. There are quite a few FOMC members that are at 4 rate hikes before Trumps gets anything through Congress. And so far, as we get all this good stuff that raises GDP growth with a sub 5 percent in an employment rate with the Feds spending more time examining now. It seems so from Janet Yellen that we're close to the full employment that she was even suggesting 3 or 4 months ago, there's been a slight change in her cadence. But as Ronald Reagan found out, as you aptly described at the beginning keep your eye on the Fed, that's the elephant in the room and every recession in the post-World War II period did not have fiscal policy thumb prints all over it, it was always about the Fed. And monetary policy will Trump fiscal policy for the business cycle every day of the week. So that to me is gonna be the primary risk is how much of the good stuff comes through, how does the Fed respond. The lags are such that this makes 2018 problematic for the business cycle of the poster this year.
