Zervos: Labor market weakness is becoming a serious concern

Frank Holland (Anchor) 00:00.070

alright let's get to your word today it's an interesting one ramp what are you talking about

David Zervos (Chief Market Strategist) 00:04.750

well i you know i wrote that i wrote a piece earlier last early last week talking about the the QE that's coming into the system the reserve management purpose purchases which i've called reserve asset management purchases because they they are ramping the market i think the

David Zervos (Chief Market Strategist) 00:23.190

people that people haven't fully digested how dovish the last federal reserve open market meeting was not only did we get the cut as everybody expected we got a forty billion dollar QE and we got a fed that largely came out and said that the labor market issues are beginning to

David Zervos (Chief Market Strategist) 00:44.710

really concern them and that inflation is less of an issue at least for most of the committee i know there's a few on there beth hammocks out with a piece and you know and we've had that austin goolsbee making a few waves but i think the bulk of the committee is coming around to

David Zervos (Chief Market Strategist) 01:02.110

the view that that i've held for a long time and i think the market is coalescing around which is that there are some serious issues with the labor market we have seen a market slowdown we've got a lot of revisions we have a picture in the labor market that is highly productive

David Zervos (Chief Market Strategist) 01:16.870

but somewhat creatively destructive and that is a dangerous cocktail if the fed keeps policy restrictive and i think they are quite restrictive

Frank Holland (Anchor) 01:25.190

OK with that in mind you're looking at the weakness in the labor market your pick for us today is risk parity so how do you play out risk parity with this idea of a weaker labor market going into the new year

David Zervos (Chief Market Strategist) 01:34.230

well frank you know people who know me over the last sixteen years of jeffries and even before that when i was not writing and and talking all the time on TV know that i'm a big fan of the the sort of bridgewater a QR style risk parody trades which are long equities you know

David Zervos (Chief Market Strategist) 01:52.190

fully long equities with a levered long hedge and fixed income so it's a leverage position it's what you know ray dalio and cliff asnes and a number of others have made billions doing for clients it's more of an institutional trade i i speak to mostly institutional clients that

David Zervos (Chief Market Strategist) 02:06.110

is but it is a a portfolio that that we have recommended over many years almost every year i've been at jefferies with the exception of a few it's up about twenty five to twenty six percent this year and i expect similar numbers for next year you have your portfolio fully into

David Zervos (Chief Market Strategist) 02:23.150

equities and then you have a hedge in the fixed income market that is the same volatility as that equity portfolio so you're very levered in fixed income and you're long both and i think you could have lower rates i think you'd have higher equities i think both are going to work

David Zervos (Chief Market Strategist) 02:36.430

like they did this year and possibly even better so i'm sticking with the same trade that i've had basically a career doing

Frank Holland (Anchor) 02:44.750

all right by the way risk period was also your pick for last year or you know going into last year too so pretty pretty consistent twenty five percent off frank you're you're staying consistent i like that about you one thing i want to talk to you about is venezuela not

Frank Holland (Anchor) 02:56.350

necessarily that geopolitical tension but just the move in the oil markets the gold markets what do you think that means for the equity market and also the inflation picture we're worried about labor right now but if oil prices do move significantly higher does that juice

Frank Holland (Anchor) 03:08.790

inflation