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00:00Very I just said what if they're not. You know the third week of August of 0 7 we're not all that smart but somewhere in the vicinity of September of 2007. I made it his idea to get out of the markets. The getting back in is so darn hard. And now we see it with the NASDAQ up 10 percent over that broad 13 year period. That's real money. There's a cost there. I've never been able to get back into the market. How does Barry Ritholtz do the getting back part. So I have the exact opposite view from you. Getting out of the market is the challenge because as we've seen time and again and again we craft these wonderful narratives about how things are frothy and toppy. And the market has peaked and valuations are terrible. And that was 1996 and you had another four years and a few hundred percent in gains. So it's much more challenging to pick a top to me. Bottoms are obvious. They're easy. It's when I agree. He's terrified. And when you see capitulation bottoms are easy to spot harder to act on. Tops are easy to see a false top and much easier to act on. Barry told me about catharsis or capitulation. The emotion at the top. Do you observe it now. We definitely see pockets of froth whether it's GameStop or Bitcoin or Tesla they're at or just generally stretched valuations. But all of those things come with a massive caveat. And whenever that caveat is whenever we see comparisons to past historical valuation frameworks it's never with zero percent interest rate. Never with a massive quantitative easing and never with a multi trillion dollar fiscal stimulus. And so risk assets have become very attractive and risk free assets are not showing a whole lot of potential for gains. And so that Tina trade that there is no alternative trade seems to be having some sort of an impact. I think that's a little too cute of a definition but massive fiscal and monetary stimulus tends to send markets further longer and higher than anybody expects. There's a theory out there that eventually the Federal Reserve will have to tighten policy potentially in response to inflation. I see your laughing and I this is the question. You know what happens. Markets right now are not pricing in any sort of tightening cycle even as they price in increased inflation going forward. Could there be an exit strategy or does the Fed have to keep zero interest rate policies or else at risk disrupting this entire market valuation model that we currently have. So so brake tightening into two phases. The first phase is just normalization. Hey what is historically a normal interest rate. Where should bond yields be. Why should the Fed funds rate B. You want to call that to two and a half 3 percent. Pick a number. It doesn't matter. That can be effectuated gradually over time especially if the Fed gives lots and lots of notice that hey lower for longer is now lower for shorter and not so low. The the more challenging part is going to be one day off in the future. Theoretically we'll see inflation start to rise. I think Wall Street economists are wildly mis timing that it isn't imminent. There's so much slack in the labor market even with a rush of pent up demand. You know there'll be some transitory inflation. The bigger question is what happens in 24 25 26 when you start to see more systemic inflation working its way in. Will the Fed have the carver courage of its convictions to go from zero to normal and then from normal to tightening where they're legitimately using rates to restrict inflation and that's still years off. Well it's years off. And yet people have longterm portfolios that they're trying to arrange and manage right now. I know you talk with them Barry. I mean what do you recommend. They stay away from 60 40 because of this conundrum that the Fed faces later on. Or do you say you know what. That model has worked. Stick with it. We don't know anything better. Well you know you don't have to be married to 60 40. And given where yields are you could look more at 70 30 on the ultra high end on the high net worth. You could look at things like structured notes if you're looking for yield and if you're in the right state municipal bonds and in a in a taxable account certainly can make up some of the yield issues. Keep in mind the key purpose of a 60 40. Yes yield and coupons are important but the volatility dampening the ballast to offset your tendency to panic. And as Tom said move to all cash you know the triple. Levered cash portfolio is not appropriate for people in their 30s or 40s. They just have too long of an investment horizon. But when the market's down 40 percent and your whole equity you're down 40 percent and a lot of people simply wait. We live with that. Are you endorsing Tom Keene triple levered cash portfolio. No. You know this is the right thing for him right now. So the optimal portfolio is not the one that generates the highest return. It's the one that you can live with not wake up in the middle of the night feeling like you need to throw up and then liquidating the next day and missing. Think about how many people never got back into the market after 0 8 or 9. We were getting e-mails. 2011 2012 2013. Hey I panicked out in 2008. And when you went back in in 09 I thought you were crazy. I need help. I'm in Tom Keene triple all cash ETF. It's much more challenging to write out an all equity portfolio than having a 70 30 or 80 20 or something. That means that when you see the S & P down 40 percent you're not down 40 percent.

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Ritholtz Sees 'Pockets of Froth' in Stock Market

Barry Ritholtz, a Bloomberg Opinion columnist, says risk assets have become very attractive. He speaks with Bloomberg's Tom Keene and Lisa Abramowicz on "Bloomberg Surveillance." Ritholtz's opinions are his own. (Source: Bloomberg)

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