Inflation arises when there is more money than goods. We need to assess whether there are currently more goods or more money. Changes in transportation or other minor fluctuations are just trivial variations; the bigger picture of inflation has not changed. So please, stop talking about inflation becoming entrenched. There are also discussions about the debt issue, but this has been a topic since the era of dinosaurs. It has been talked about since it first emerged, but has it ever become a problem? No. In the first session, we talked about Howard Marks, and I was really looking forward to the second guest. I have been eagerly waiting for this person. We have Campi here! Campi is someone everyone loves, right? I personally have a fondness for Campi; he is very entertaining and funny, and he has a warm, grandfatherly vibe that I really like. However, there are concerns about the market until the early to mid-2024.

Isn't this going to be a downturn due to the presidential election in the second half of the year? There are concerns that it might become a downturn. However, Fisher has also said something positive, indicating that it won't be a downturn. I brought up why he mentioned this. I want to hear it quickly. 

First, let me briefly introduce Campis. This person is quite old and has an impressive investment career. The assets under management and personal wealth are enormous. Recently, his management company received investments from a consortium in Dubai, which significantly increased the value of his shares, leading to a massive increase in his wealth. His wealth has reached 17 trillion won. I mentioned that he is one of the gurus with the highest accuracy rate since 2022. So, at the end of 2022, he said that the decline was over and that the rise was about to begin.

I predicted that not only would there be an upward trend, but that growth stocks would lead the way, and that stocks with high multiples would perform well. I will explain more about this later. The topic of value stock rotation is also quite relevant, isn't it? Now, some of you may remember that when I was doing the first quarter seminar at the Lee Ho-soo Academy, I introduced various forecasts from gurus at the beginning of the year. At that time, Camp Fish mentioned that there would be a rotation towards value stocks in 2024. Is this prediction coming true? It seems to be happening. The PSR, which is one of the commonly used indicators for valuing growth stocks, measures how much the stock price is relative to sales. This indicator was created by someone who is also quite prominent these days.

The founder of the election cycle that illustrates the relationship between presidential elections and the stock market is Campi. Since there has been a lot of discussion about presidential elections for a long time, let's find out what Campi thinks about the presidential election. Today's discussion is based on Campi's reports and recent videos, which I have gathered. Many of you have seen them, and personally, I like Campi's work. The main points for today are as follows: The presidential election is quite dynamic, isn't it? I thought it would be a boring election, but there have been unexpected events, such as candidates withdrawing after being shot and new candidates suddenly gaining strength. A lot has happened. Some may remember that Campi has consistently argued that the stock market performs well during presidential elections. However, with so many events occurring, is the presidential election still positive for the stock market?

I answered the question about whether the presidential election effect is real. The person who has been consistently saying that if we have a campaign, there won't be a recession is now expressing concerns. With the economy slowing down and companies reporting poor earnings, they are questioning whether a recession is indeed coming in the second half of the year. They shared their views on this matter as well. 

Additionally, regarding the value stock rotation, they discussed whether it is happening now. They also advised to pay attention to certain points in the third quarter. I'm really curious; it seems like everyone is eager to ask questions quickly. Let's see what the content is. 

First, I'll talk about the presidential election. The reason they believe that stocks will perform well during the campaign is based on statistical data and historical figures. The graph below shows data from 1928 onwards.

This shows the returns of the S&P 500 in years when there were elections up until 2020. Except for one year, all the stocks went up. This graph represents the returns during the presidential term, specifically in the second and fourth years. As you can see, if stocks fell in the second year, they all rose in the fourth year. Since 1930, every candidate president has seen an increase without exception. Although this hasn't been explicitly stated in the campaign, if we infer from other columns and sources, the decline in stocks in the second year likely indicates that the market was not doing well, which would have a high probability of affecting popularity. In the fourth year, since re-election is necessary, there would be a need to stimulate the economy. Therefore, we can speculate that this could have a positive impact on stocks. The important thing is that historically, they have risen.

It's not about the price, but why the rise is important. That's right. Now we can discuss whether this presidential election will be good or bad for the stock market. The reason Fisher says elections are good for stocks is this: the thing that stocks dislike the most is uncertainty. However, elections are a process of resolving a huge uncertainty, which is why he claims they are good for stocks. The presidential election is at the end of the year, right? Since it's in November, stocks tend to rise as we approach the election, and this trend seems to improve as the year progresses. The longer we stay, the more uncertainty is resolved. Therefore, for this election to have a positive impact on stocks, uncertainty must be alleviated. Is the current election alleviating uncertainty? It seems that the campaign is resolving some uncertainty. For instance, regarding the Biden situation, I thought the stock market would crash after Biden's resignation, but the stocks are doing well. It's okay.

The market is not being hit hard. This is because, as we know, there has been a lot of talk within the Democratic Party for some time now about the need for a candidate other than Biden to emerge, and that Biden should step down. Therefore, these risks have already been priced in. This is evidence that the market is digesting the uncertainties of the presidential election. As the election approaches, stocks are expected to remain strong. For stocks to perform well, the election results need to be close. If one side sweeps both the executive and legislative branches, it could lead to the passage of large-scale legislation that the other side does not want. Large-scale legislation implies significant changes, which also brings about substantial volatility. Since the stock market dislikes significant volatility, a close election result is necessary. Ultimately, for any legislation to pass, both parties must reach an agreement.

That's why the strength of the bill will weaken, and the stock market feels reassured, thinking that a major bill will not pass. However, looking at the predictions for the results of the House and Senate elections, it seems likely to be a close race. It doesn't appear that either the Republican or Democratic party will completely dominate. This year, there has been talk about it being the year with the most elections in human history. So, how are the countries that are holding other elections faring? Most of the forecasts are positive. For example, in France, it was expected that the conservative party would win, but the progressive coalition party ended up winning. However, the results were very close, which created a very positive situation for the stock market. In the case of the UK, the Labour Party won. Looking into it, the economic policies of the Labour Party are not that significantly different from those of the Conservative Party.

It doesn't change; there are many aspects of continuity. This means that the market does not view this negatively. So, when looking at this, isn't it ultimately good for stocks, especially with the presidential election? The election effect is still valid. Regarding the election, CamSys is focusing on the word uncertainty. As the uncertainty surrounding the election decreases, it feels like the election is unnecessary; if we just leave it alone, the capable ones will do well. That's the kind of sentiment you can understand. 

Now, regarding the economic recession I mentioned earlier, there was a concern about the recession. So, what about the labor market instability? There are worries, but the U.S. economy has actually shifted from a defensive to an offensive mode starting in the second half of the year. Recently, the GDP for the second quarter...

The presentation is not coming out, but if we look at this in detail, we can see that it reflects the past preferences for GDP by category. We examined whether each category has increased or decreased and how much they contributed to GDP growth. The items marked with a red box indicate changes in investment and inventory levels. As you can see, both investment and inventory have increased, which has played a significantly positive role in GDP. The increase in investment suggests that companies have started to take a more aggressive approach. In the past, companies were tightening their belts in anticipation of a recession, but now it seems that the economy is doing well, prompting them to invest actively. This shows that companies have entered an aggressive mode. Additionally, regarding inventory, it is generally understood that an accumulation of inventory signals a recession. However, if we look at the changes in inventory levels, we can see that they had been declining for a long time before this recent increase.

In other words, the fact that inventory has been depleted means that consumption has been quite strong. To keep up with this consumption, inventory has been replenished. This also indicates that the economy is doing very well, which is why GDP has been interpreted positively. We are in a phase of replenishing stocks. However, while consumption has been very good and the second quarter results were strong, there is some caution. The strong consumption figures are largely due to base effects, but the market seems to be interpreting this too optimistically. Regarding this, I will discuss where I think the current market cycle is later. Additionally, when it comes to prices, there are comments like, Stop talking about CPI; it's boring. Don't mention inflation not being controlled. They express frustration about the ongoing discussions, especially since housing costs have not decreased.

Isn't the cost of living not dropping right now? Regarding this, the red flag is that housing costs are completely illusory. Among the indicators used to measure housing costs, there is a certain indicator that asks landlords, If you were to rent out your house, how much do you think you could charge for rent? However, this doesn't reflect what they actually receive; it's more about what they wish they could receive. What does this even mean? If we look at more practical indicators like the job market, they have been declining for a while, so let's not talk about housing costs. 

Additionally, there's been talk lately about transportation and medical costs suddenly rising, leading to concerns that this might signal a resurgence of inflation or a more entrenched inflationary trend. But let's look at the bigger picture: inflation occurs when there is more money than goods. So, are there really more goods available right now?

We need to see if the money is right, but hasn't the money supply decreased significantly now? We are experiencing negative growth. The supply chain issues are almost being resolved, so products are being produced well. Therefore, the fluctuations in transportation and other areas are just minor changes; the big picture of inflation has not changed. So please stop talking about inflation becoming entrenched. They also talked about the debt issue, saying, This has been a topic since the days when tigers smoked. They literally said that. It has been a topic since the era of dinosaurs. I've been hearing about this since I was 70 years old. But has it ever been a problem? No. People are misinterpreting the current situation by only discussing the government debt ratio compared to GDP.

However, that is not a correct indicator for diagnosis. The reason why debt is difficult to manage is primarily due to the interest payments, right? But if I have more money than the interest or if I earn significantly more than the interest, then it shouldn't matter, right? So, we need to look at the interest in relation to revenue or the debt interest in relation to GDP. This shows the debt interest in relation to GDP for the U.S. government. If you look at it, it is indeed rising quite rapidly, but in the 1990s, it was at a low level. The highest level of debt interest in relation to GDP historically was in the 1990s. What happened then? Nothing significant; it was fine, right? It was okay. So, considering this...

Don't make a fuss about it, I said. But then, it's curious, right? What if the real debt problem erupts? That's right, if the debt problem arises, it could turn out like this. Just remember, we are far from that now. Back in the 2010s, during the Eurozone crisis, countries like Portugal and other European nations faced significant issues. It felt like those countries were in a dire situation, known as the PIGS—Portugal, Italy, Greece, and Spain—all of which suffered greatly due to their debt problems. Among the PIGS countries, Portugal's 10-year government bond yield skyrocketed to nearly 17%. Now, look at the current U.S. Treasury yield; it's around 4%. It needs to rise to 8, 9, 10, 12, or even 16% for it to become a real problem. But right now...

To be a problem, it is still too far away. It is not a problem yet because we haven't reached that point. So please don't talk about such things. This means that you should understand how significant it is to say that the debt issue is becoming a problem. If the debt issue does become a problem, then if interest rates in the U.S. rise to 18%, what will happen? Think about it and then speak. This is the meaning behind it. However, saying there is no problem is not true. As I mentioned during the Howard Marks discussion, saying there is no problem is not accurate. However, if this does burst, it would be a really big deal. Additionally, there are concerns that the job market is weakening. People are worried that the job market is finally showing signs of recession. They say to look at the stock market because the unemployment rate is a lagging indicator.

What is faster than employment? GDP. What is faster than GDP? It's the stock market. If the stock market is doing well, then GDP will improve, and a good GDP means a good economy. So, it's not that the unemployment rate is rising because the economy is bad; rather, the economy is bad, which leads to job losses and an increase in the unemployment rate. What did we say earlier? GDP is good, right? So, there are no issues in the job market. Additionally, there are issues related to the presidential election. If Trump is elected, he will significantly increase government spending, which will lead to inflation. However, some say that government spending has no relation to inflation. Why? Because inflation occurs when there is more money than goods. The amount of money is controlled by monetary policy. Just because the government prints debt does not mean that the amount of money increases. Expanding government spending...

If it happens, it will affect either the detergent or the government bond interest rates, but it won't have a significant impact on prices, so don't worry too much. Even if Trump becomes president, there won't be a sudden surge in inflation. This has provided some reassurance. So, when we look at all of this comprehensively, where does the market stand now? One of the famous investment gurus, John Templeton, once said that a bull market is born out of pessimism, grows in skepticism, matures in optimism, and dies in euphoria. So, considering the cycle, where is the market now? According to Camp, it seems to be at the late stage of skepticism and the early stage of optimism. The reason for mentioning the early stage of optimism is that, as I mentioned earlier regarding GDP, consumer spending has shown a strong trend. The market perceives that consumer spending is robust.

There is a tendency to interpret the economy as being overly strong. If we look at it that way, it means that optimism has begun to take hold in the market, indicating a more positive view of the economy. However, there are still concerns about the labor market and infrastructure, which means that a tendency toward skepticism remains. It seems we are transitioning from a phase of skepticism to an early phase of optimism. This suggests that not everyone in the market is overly enthusiastic; rather, people are proceeding with caution and tension. From this perspective, I think it would be ideal for the market to stabilize around this point. Additionally, regarding the rotation into value stocks, Camp Fisher had predicted this. Before discussing whether this is happening now, it's important to understand why Camp Fisher mentioned that a rotation into value stocks is occurring. He explains that this typically happens in the early stages of a bull market.

The reason growth stocks are favorable is that people have a lot of doubts. They wonder, Is the economy really good? The economy is unstable, the market is unstable, but still, won't big tech companies rise even in a bad market? Won't they continue to grow? Because of this reassurance, people flock to growth stocks. They believe that these companies will still grow. That's why, in the early stages of a bull market, growth stocks perform well. However, as the bull market progresses into the mid-stage, people start to realize that the economy is better than expected and that a recession isn't coming. They think, Well, everyone is buying stocks. Oh, I didn't realize how much I was missing out on cheap stocks. This leads them to search for value stocks, resulting in a rotation towards value stocks. This graph shows Citibank's Economic Surprise Index. When economic indicators are announced, if they come in above the consensus expectation, it's considered good, and if they come in below, it's considered bad.

This means that there was more output, but now it has dropped below zero. In other words, it can be interpreted that people are viewing the economy more positively than expected. This means that people now think the economy is good. Therefore, it suggests that it is time for a sector rotation to occur, which is the logic of the camp. The sector rotation is currently in progress, and participation is necessary. 

Recently, the Nasdaq has not been doing well, while the Russell has been quite decent. As for now, it is not the right time. To be precise, the shift to leading stocks does not happen suddenly. It’s not like flipping a light switch on and off. It’s more like a fan switch that has settings from a gentle breeze to a strong wind, gradually increasing in intensity. So, as we approach the end of the year...

As we gradually shift towards value stocks, interpreting sudden movements as a rotation into value stocks is an overinterpretation. Typically, leading stocks tend to experience significant declines during corrections. So, when the leading stocks pause, we should not overinterpret it as a rotation. A typical example of overinterpretation is the utilities sector. Recently, utilities have risen quite a bit this year. There was a narrative that utilities would benefit from AI, as the demand for electricity increases due to AI. This led to a surge in utility stocks. The white line represents the returns of the utilities sector within the S&P 500, while the green line represents the overall S&P 500 market. Now, utilities in the S&P...

Recently, utilities outperformed, but they have become similar again. People were cursing, thinking that this was because utilities had now become AI stocks. However, that was not the case. When there is a sudden surge in prices, it is likely not reflecting future expectations. So, don't be deceived. The rise in utilities at that time was not due to AI but was influenced by interest rates and expectations. Utilities are sensitive to interest rates. Additionally, during that period, there was ongoing conflict in the Middle East, particularly the Israel-Hamas war, which increased demand for safe assets, leading to the rise in utilities. Changes in leading stocks or the nature of a sector take a long time, so just because there was a short-term change, it doesn't mean that utilities have now become AI stocks.

He advised not to interpret the task. He mentioned that the nature of leadership does not change like a switch. So, anyway, I believe that the camp will rotate into value stocks. Then, which sector will be the leader? I picked energy. Recently, energy has been underperforming as oil prices have been stuck in a range and showing a somewhat negative trend. However, the sentiment in the camp is expected to change. The reason is that when energy is not doing well, energy companies are ultimately influenced by oil prices. The reason oil prices have been poor is that there is a belief that an economic recession is coming, meaning that demand is expected to decrease. However, the U.S. has been continuously increasing production despite this. With demand decreasing and supply increasing, oil prices have not been favorable.

The situation has changed a bit. As we saw earlier, the economy is now entering an aggressive mode in the second half of the year in the United States. The economy is better than expected, so people think that a recession will not occur, which means that oil demand is likely to increase. Now, what about the supply? Among the initial data, there is new well data. This means that oil is being extracted from the wells. The orange line in this graph represents newly completed wells, meaning that drilling has finished and they are now in a state to extract oil. The blue line indicates the number of wells currently being drilled to extract oil, and this number is decreasing, isn't it? However, the activation of new wells tends to lead oil production by about six months. Looking at this graph, it predicts that supply will decrease in the future. So, if that is the case...

Supply is decreasing while demand is increasing. Therefore, oil prices are likely to reverse, which means that energy is expected to perform quite well. I mentioned that we should pay attention to this in the third quarter. How do I think the third quarter will unfold? I believe that the risks that have been discussed for some time will gradually become more apparent. A representative example is the presidential election. Discussions about the election have been ongoing since the beginning of the year, and now it is significantly affecting the market. As these risk factors become more visible, there is a high possibility that the market will undergo some adjustments in the third quarter. However, as I mentioned earlier, the overall trend will not change. The upward direction we have seen this year will remain intact, so do not be deceived by the adjustments; instead, be patient and endure. We, too, are dismissing various market concerns, saying enough with the talk about inflation and enough with the talk about debt.

The economy is actually getting better, and hearing such comments makes me feel a bit more at ease. Nevertheless, there are some risks in the third quarter, so I take it as advice to stay steady and invest diligently during this process. I really enjoyed the story about Campi; it was very entertaining. Now, how much does Campi have? As you all know, he is almost at the very top, closely associated with Ron Baron. It's quite difficult to surpass him; after all, he has a long-term perspective, looking at things over a thousand years, so it's tough to compete. Now, I wonder how Campi is investing. If we take a peek at the portfolio based on the first quarter, it seems that he bought the most in energy sectors, particularly ExxonMobil.

If we look at it by sector, we are gradually increasing the proportion of the energy sector. And if we look at the stocks held by Campis, we still have a lot in tech, but as I mentioned earlier, we can see that the proportion of value stocks is continuously increasing. It's been a while since we met Campi, and I can't help but feel that these are truly heartwarming stories. I believe that those who have invested have gained hope. Now, let's move on to the next topic.

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