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Brothers in Arms: A Sit Down With Snoop Tony Dwyer

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Toddo and Snoop discuss the market, recession, expansion, the dollar and the Fed.

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My good friend Snoop Tony Dwyer just popped into MVHQ to share a quick hug on this fateful anniversary. Tony, Bill Meehan and I used to "run around" a bit back in the day and we share the same sorta "mindfulness" with regard to remembrance. I sat Snoop down for a quick tet-a-tet and we wanted to share it in the interest of Minyanship.

Toddo: Whatdup Snoop?

Snoop: Everything! (as he looks over my shoulder at the eight screens)

Toddo: You said at MIM2 in Ojai that "the sun is gonna blow up one day but that doesn't mean it's a good trade." You see any sun spots out there?

Snoop: For the first time in four years, I do. Until now, all intermediate term lows arrived with the fear that something bad could happen. Right now, something bad is happening that is likely to lead to slower global growth. Frankly, as long as we avoid recession (which my firm expects), the slower growth reinforces our bullish S&P target of 1800 over the next year.

Toddo: Uh, ok. Two questions. One, you just said that the issues were "real" so why are you dancing with Daisy? Two, and this actually might be an extension of the first question, why does it feel that most sell-side firms base their views on best case expectations?

Snoop: Contrary to conventional wisdom, at this point in the cycle, you have to have slower growth because it'll relieve inflationary forces, allow for lower interest rates, positive growth (albeit at a slower rate) and valuation expansion. It is expanding multiples that bring the greatest gains in equity prices and that happens with lower rates.

Toddo: We've had this discussion before, I know, and my question is the same: aren't there alotta assumptions there? I mean, who's to say that multiples don't continue to contract? If excess breeds excess, shouldn't investors allow for that?

Snoop: While there may be a lot of assumptions, we now know that global growth is slowing and that valuations have historically expanded with lower rates.

Toddo: What will it take for you to shift into the recession camp?

Snoop: Negative business spending. Period.

Toddo: But tell me, Mon Frere, what's to say that by the time you see that, the market, as a forward looking discounting mechanism, doesn't already price it in?

Snoop: There is a near perfect correlation between business spending and commercial and industrial lending (C&I). The shortest lending cycle since the 1940's (when I was just a lad) was 7.5 years. We're currently in the third year which suggests that to go negative now would be historically unique.

Toddo: Boo would humbly offer that, on the back of the biggest bubble implosion in the history of financial machination, we are indeed in unique times. One final question, if we get to your target of S&P 1800 with the dollar (hypothetically speaking) gets cut in half, would you still consider that a "bull market?"

Snoop: Nope. But I'll bet you a dollar (our standard bet) that the dollar is higher a year from now.

Toddo: Wow, I continue to be of the opinion that the only way the dollar trades higher is if asset classes are lower. I suppose that's what makes the horse race but it matters not right now. I've got one of my best bro's in the office and at the end of the day, we're on the same squad.

Snoop: Love you, bro. And don't forget, in the last mid-cycle slowdown (1995), when the dollar was within 1% of a historic low, the Fed cut rates on weak employment numbers which began a multi-year run higher for the greenback. The black and white bet right here is whether or not you expect recession.

Toddo: Thanks Snoop---you da man.

R.P.
B.M.

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