WEBVTT - New Year… New Markets? 0:00:03.720 --> 0:00:07.080 Strap on your parachute. It's time for What Goes Up 0:00:07.360 --> 0:00:14.880 with Sarah Ponza and Mike Reagan. Hello and welcome to 0:00:14.920 --> 0:00:18.680 What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah Ponzac, 0:00:18.760 --> 0:00:21.880 a reporter on the Cross Asset Team, and I'm Mike Reagan, 0:00:22.040 --> 0:00:24.560 a senior editor at Bloomberg. This week on the show 0:00:24.880 --> 0:00:30.400 Goodbye Hello, we'll recap what drove markets in the crazier 0:00:30.480 --> 0:00:33.080 that was, discuss where we stand now, and look ahead 0:00:33.120 --> 0:00:36.320 to the new year. Spoiler alert, our guest shares the 0:00:36.440 --> 0:00:39.360 key thing the market is missing. He says the old 0:00:39.360 --> 0:00:44.159 adage don't fight the fed is on its last legs. Well, Sarah, 0:00:44.360 --> 0:00:47.839 thank goodness on his last legs. As you point out, 0:00:47.880 --> 0:00:50.200 goodbye twenty. I never thought we'd we'd lived to see 0:00:50.280 --> 0:00:52.920 the day when this year year ended. Uh, it's the 0:00:53.000 --> 0:00:58.440 year that felt like two decades. Absolutely absolutely um. And 0:00:58.480 --> 0:01:01.120 we'll of course close out the show today with our 0:01:01.160 --> 0:01:05.000 tradition The craziest thing I saw in markets this week, Sarah, 0:01:05.040 --> 0:01:07.560 I'm gonna give you a little a little teaser on mine. 0:01:07.760 --> 0:01:11.120 It's something for the crypto aficionados out there. I know 0:01:11.200 --> 0:01:13.440 we have a few of them in the listenership, and 0:01:13.480 --> 0:01:15.480 I feel like we don't give them the content they crave. 0:01:15.560 --> 0:01:18.280 So my crazy the thing this week is Crypto. Well, 0:01:18.120 --> 0:01:20.440 I will say, I don't think we've been able to 0:01:20.480 --> 0:01:24.560 go through the last five episodes or so without mentioning Crypto. 0:01:24.720 --> 0:01:28.680 So Crypto aficionados that do listen to the podcast, You're welcome, 0:01:31.040 --> 0:01:35.760 cannot be avoided. Made made itself unavoidable. But uh, this 0:01:35.800 --> 0:01:37.759 week on the show, a new guest for us. We're 0:01:37.880 --> 0:01:41.399 very happy to have him. Uh. He was the strategist 0:01:41.400 --> 0:01:44.520 for a long time at Kenner Fitzgerald. He this year 0:01:44.560 --> 0:01:48.440 started his own firm called Alpha Omega Advisors. He's the 0:01:48.480 --> 0:01:52.559 CEO and founder of that firm. His name is Peter Ceccini. Peter, 0:01:52.640 --> 0:01:54.880 welcome to the show. Thank you for having me, Mike 0:01:54.960 --> 0:01:57.440 and Sarah. So, Peter, let's let's start with that. You know, 0:01:57.480 --> 0:01:59.880 I think a lot of our listeners will remember you 0:02:00.160 --> 0:02:03.240 was the strategist at Canner. But what's tell us about 0:02:03.280 --> 0:02:07.720 Alpha Omega Advisors. What you started this year? This project? Yeah, 0:02:07.720 --> 0:02:10.640 it's it's been an awful lot of fun. Um. You know, 0:02:11.080 --> 0:02:15.120 it's an independent research and advisory firm. Um and uh, 0:02:15.240 --> 0:02:19.720 it's it's enabled me to uh focus on a number 0:02:19.760 --> 0:02:22.640 of my passions, UM, to do a bit of a 0:02:22.680 --> 0:02:27.680 bit more writing on topics uh that weren't necessarily of 0:02:27.760 --> 0:02:32.160 interest to institutional clients. UM, albeit many of those clients 0:02:32.160 --> 0:02:36.480 are obviously consumers of my research. I've also partnered with 0:02:36.680 --> 0:02:39.919 um Rosa and Rubini, which is no real Rubini's firm. 0:02:40.320 --> 0:02:42.399 I do quite a bit of writing for them as well. 0:02:43.000 --> 0:02:45.320 I am writing a book and I'm having a wonderful 0:02:45.360 --> 0:02:49.200 time doing doing that. So I've also I'm sitting on 0:02:49.200 --> 0:02:51.200 a number of boards right now which has been a 0:02:51.240 --> 0:02:55.760 lot of fun. UM. One in particular, called Encino is 0:02:55.800 --> 0:02:59.880 a clean energy firm which does environmental testing UM and 0:03:00.120 --> 0:03:03.120 providing a bunch of advisory work on a spoke basis 0:03:03.120 --> 0:03:05.680 to both hedge funds as well as two companies. Okay, 0:03:07.040 --> 0:03:10.600 the book, I assume that's a romance novel. Yes it is. 0:03:10.960 --> 0:03:14.480 It's all about my romance with the Federal Reserve. So 0:03:14.520 --> 0:03:18.840 what we all need, it's what we all need right now. Well, well, Peter, 0:03:18.960 --> 0:03:23.000 congratulations on it all. Absolutely, I would. I imagine it's 0:03:23.000 --> 0:03:25.560 been quite the year to go off on your own 0:03:26.040 --> 0:03:28.720 in many ways, and I was actually hoping that we 0:03:28.760 --> 0:03:35.320 could start by reflecting and looking back at I keep saying, 0:03:35.360 --> 0:03:38.240 but I feel as though if you had told someone 0:03:38.720 --> 0:03:41.520 what was going to happen at the start of the year, 0:03:41.760 --> 0:03:45.360 that we were going to see the unemployment rate shoot higher, 0:03:45.520 --> 0:03:47.520 that people are going to be stuck at home, what 0:03:47.680 --> 0:03:50.440 businesses we're going to have to deal with, and maybe 0:03:50.560 --> 0:03:53.360 left out what happened with the federal Reserve, what happened 0:03:53.400 --> 0:03:55.720 with fiscal policy, it would have been really hard to 0:03:55.760 --> 0:03:59.920 imagine the performance that we saw across financial markets. So 0:04:00.080 --> 0:04:02.320 hoping you could just run us through why it is 0:04:02.360 --> 0:04:06.760 that we've been able to see this unbelievable performance, really 0:04:06.760 --> 0:04:10.560 eye popping performance across the board, and and just get 0:04:10.600 --> 0:04:14.440 us caught up to where we stand now. Yeah, well, well, well, 0:04:14.480 --> 0:04:16.919 like every like everybody else, I have my two cents 0:04:16.960 --> 0:04:21.400 certainly to share. I'm not sure how how much insight 0:04:21.480 --> 0:04:25.680 frankly that that that that it provides, but you know, 0:04:25.760 --> 0:04:28.320 I think, you know, coming coming into the year, I 0:04:28.320 --> 0:04:31.040 think that's a good place to start, because one of 0:04:31.080 --> 0:04:35.039 the reasons I've been so surprised by the ferocity of 0:04:35.080 --> 0:04:39.039 the rally um was because what I perceived as being 0:04:39.080 --> 0:04:42.159 a rather weak backdrop coming into the year and so 0:04:42.240 --> 0:04:46.279 I actually came into the year UM pretty cautious, and 0:04:47.120 --> 0:04:50.359 you know, few remember, but you know, not to go 0:04:50.440 --> 0:04:53.840 back too far beyond investors memories. But but you know, 0:04:54.120 --> 0:04:55.760 at the end of two thousand and eighteen, it was 0:04:55.839 --> 0:04:58.479 quite a bit of of equity market volatility, which was 0:04:58.560 --> 0:05:04.000 prompted by ten year yields rising above three uh ten 0:05:04.080 --> 0:05:06.800 year yield went to three and a quarter. Equity markets 0:05:06.839 --> 0:05:11.560 just just could not tolerate yields at that level. UM. 0:05:11.600 --> 0:05:14.799 The FED was then forced in a way to act 0:05:14.960 --> 0:05:18.360 by the treasury market with a yield curve in version 0:05:18.400 --> 0:05:21.080 both from three months to ten year and then eventually 0:05:21.120 --> 0:05:22.839 a little later in the year from two years to 0:05:22.920 --> 0:05:26.200 ten years UM manifesting. And you know, the FED hates 0:05:26.240 --> 0:05:30.480 it when the tenure yield is below FED funds, right, 0:05:30.520 --> 0:05:32.960 so they're almost forced to cut when that happened because 0:05:33.000 --> 0:05:35.640 it's so bad for banks UM. And we saw a 0:05:35.640 --> 0:05:40.160 loan volume UM beginning to to contract into the end 0:05:40.200 --> 0:05:43.920 of two thousand nineteen, and we saw you know, flat 0:05:43.920 --> 0:05:48.160 earnings for the SMP five, deeply negative earnings for small caps, 0:05:48.240 --> 0:05:51.640 and corporate earnings overall for both private and public companies 0:05:51.680 --> 0:05:55.560 down you know, well over five. So my view was 0:05:55.560 --> 0:05:57.320 was going to be a rocky year to begin with. 0:05:57.960 --> 0:06:00.120 And I think, you know, one of the most one 0:06:00.160 --> 0:06:02.000 of the most surprising things for this year. I know 0:06:02.040 --> 0:06:04.800 we're gonna get to this topic a little later, was 0:06:04.839 --> 0:06:08.480 the fact that in some ways the pandemic UM actually 0:06:08.560 --> 0:06:11.279 forestalled I think a number of the defaults that would 0:06:11.279 --> 0:06:14.360 have happened in its absence because of the ferocity of 0:06:14.360 --> 0:06:17.240 the policy response on the both the monetary policy side, 0:06:17.800 --> 0:06:21.080 UM and especially on the fiscal policy side, and the 0:06:21.200 --> 0:06:24.320 use of Section thirteen three under the Federal Reserve Act 0:06:24.680 --> 0:06:28.080 to UM as I've written to wed the FED to 0:06:28.120 --> 0:06:31.520 the Treasury UM. So so I'll stop there. But but 0:06:31.560 --> 0:06:33.480 I think that was the backdrop we came into the 0:06:33.560 --> 0:06:36.039 year with and and and lastly, I guess you look 0:06:36.040 --> 0:06:39.320 at about on the SMP five D. I did feel 0:06:39.360 --> 0:06:43.279 the market was oversold and became somewhat constructive because because 0:06:43.279 --> 0:06:47.120 of the policy response that that I expected. But you know, 0:06:47.480 --> 0:06:51.000 in late June early July, I really became quite cautious 0:06:51.000 --> 0:06:53.680 because I just felt there was too much uncertainty to 0:06:53.680 --> 0:06:57.119 propel the rally much further than that. That obviously was 0:06:57.240 --> 0:07:00.479 not correct. So Peter, let's uh, get you up to 0:07:00.560 --> 0:07:02.840 date now with with how you're seeing the market now. 0:07:03.120 --> 0:07:05.960 I was reading some notes you sent over to Sarah, 0:07:05.960 --> 0:07:09.080 and I um, one line you say is, uh, I 0:07:09.120 --> 0:07:13.520 remain tactically bullish based on sentiment and flows near term, 0:07:13.600 --> 0:07:16.360 but the bull narrative is about as hollow as I've 0:07:16.360 --> 0:07:19.240 ever heard it. I think that makes sort of a 0:07:19.280 --> 0:07:21.720 lot of logical sense that you know, you can't really 0:07:21.760 --> 0:07:23.960 fight this tape. It's it's a it's a market that 0:07:24.040 --> 0:07:27.760 just wants to keep powering higher, whether it be sort 0:07:27.800 --> 0:07:32.520 of irrational youth work, retail flow, or whatever is causing it. 0:07:33.160 --> 0:07:37.000 But how do you position for for this type of environment? 0:07:37.120 --> 0:07:41.040 I mean, I agree with you that it seems like, um, 0:07:41.080 --> 0:07:44.960 you know, at some point the bull narrative is only 0:07:44.960 --> 0:07:46.760 going to take us so far, and that there will 0:07:46.800 --> 0:07:51.240 be kind of a comeback to earth moment um. The 0:07:51.400 --> 0:07:53.520 tricky part to me and correct me if if you 0:07:53.520 --> 0:07:55.720 think I'm wrong, But I feel like those corrections can 0:07:55.760 --> 0:07:57.960 be so fast. You know, you you wake up one 0:07:58.000 --> 0:08:01.080 morning and the futures are already down two or three percent, 0:08:01.600 --> 0:08:04.400 and you've kind of missed that opportunity to take profits 0:08:04.760 --> 0:08:06.760 if that's what you wanted. To do so, is it 0:08:06.760 --> 0:08:09.280 a matter of sort of hedging it out with options 0:08:09.400 --> 0:08:12.160 or some some volatility futures or something and and and 0:08:12.240 --> 0:08:15.720 otherwise remaining fully invested. How exactly would you sort of 0:08:15.760 --> 0:08:19.560 position yourself in this type of environment? Yeah, I think 0:08:19.600 --> 0:08:22.520 it's Um, it's it's incredibly difficult, and it has been 0:08:22.560 --> 0:08:24.520 for a number of months, given the uncertainties, right, and 0:08:24.560 --> 0:08:25.960 I'm sure we're gonna talk a little bit about the 0:08:25.960 --> 0:08:29.960 political environment that that makes it even uh more tricky, 0:08:30.080 --> 0:08:33.840 if you will, and balancing those things, um, you know, 0:08:35.320 --> 0:08:39.880 the tactical bullishness that I sort of adopted, um just 0:08:39.960 --> 0:08:42.760 before Thanksgiving was a sort of you know, hands in 0:08:42.800 --> 0:08:45.040 the air kind of moment, because you know, there are 0:08:45.080 --> 0:08:48.679 times when, uh, you know, when you're playing when you're 0:08:48.720 --> 0:08:51.959 playing chess and everyone else is playing checkers, you're actually 0:08:52.080 --> 0:08:55.280 you're the fool, right, So you you have to recognize, 0:08:56.000 --> 0:09:00.160 um when where when you know what I say, and 0:09:00.200 --> 0:09:04.880 about things like earnings growth, um, when when that is 0:09:04.920 --> 0:09:11.120 just less important than the narratives that are driving the markets. 0:09:11.280 --> 0:09:14.360 And for me, I didn't feel like there was anything 0:09:14.400 --> 0:09:18.199 to derail the narrative that the vaccines were here, um, 0:09:18.240 --> 0:09:21.640 that that growth was going to pick back up, which 0:09:21.679 --> 0:09:25.840 which it has, although strangely enough, market has continued to 0:09:25.920 --> 0:09:28.240 rally even with some of the data coming out, you know, 0:09:28.760 --> 0:09:32.480 rather weakly in my in my view, um, notwithstanding the 0:09:32.520 --> 0:09:35.520 p M I that came out, but you know, to 0:09:35.960 --> 0:09:38.000 fight that, it felt. I've lived through these, I've lived 0:09:38.040 --> 0:09:42.080 through several cycles, and you know this, this one feels 0:09:42.080 --> 0:09:47.320 a lot like I remember asking myself, how uh you 0:09:47.360 --> 0:09:51.920 know companies that had you know, no almost no earnings 0:09:52.320 --> 0:09:55.520 or negative cash flow apart me and almost no revenues. 0:09:56.160 --> 0:09:58.040 You know, it could be worth hundreds of millions of 0:09:58.040 --> 0:10:00.600 dollars And okay, it's not a perfect and allergy, but 0:10:00.720 --> 0:10:03.280 from a sentiment standpoint, it does feel quite the same. 0:10:03.320 --> 0:10:04.960 And I think you had a lot of new entrants 0:10:04.960 --> 0:10:08.640 into the market then Visa V back in the days, Mike, 0:10:08.720 --> 0:10:12.000 you and I might remember. Um, not to exclude you, Sarah, 0:10:12.040 --> 0:10:16.360 but I think we're older than now. Um, Peter, you're 0:10:16.360 --> 0:10:20.120 blowing my lip. You're you're blowing my lid here all 0:10:20.120 --> 0:10:23.920 these off as a millennial, I had all the listeners 0:10:23.920 --> 0:10:27.760 convinced I was twenty five. It's not a good thing. 0:10:29.000 --> 0:10:33.040 It's not. But you know, living through that period you know, 0:10:33.160 --> 0:10:35.360 it feels very similar to it where there was a 0:10:35.360 --> 0:10:38.679 new new set of investors entering the market, you know, 0:10:39.200 --> 0:10:42.320 and if you know that, you would trade stocks on 0:10:42.440 --> 0:10:44.679 your E trade account, which was the you know, the 0:10:44.720 --> 0:10:48.640 the early mover, then on your PC and your big 0:10:48.720 --> 0:10:51.720 CRT screen, and you know, and that made a difference. 0:10:51.720 --> 0:10:53.600 And I think that added to the froth then. And 0:10:53.640 --> 0:10:56.719 I think you've got a similar dynamic going on now. Um. 0:10:56.760 --> 0:10:58.920 I was look, I was keen to it, um as 0:10:58.920 --> 0:11:01.640 early as September nineteen. I wrote a piece called the 0:11:01.679 --> 0:11:04.800 Robin Hood Rally, and in that piece I talked about 0:11:04.840 --> 0:11:08.000 these new entrants, and I also talked about how rates 0:11:08.000 --> 0:11:12.520 are actually not necessarily a great justification for high higher 0:11:12.559 --> 0:11:15.640 PE multiples, which sets up this answer a little bit 0:11:15.640 --> 0:11:17.240 as well. And we can talk about that later if 0:11:17.280 --> 0:11:20.600 it makes sense. But to get to your question, how 0:11:20.640 --> 0:11:24.280 do you position yourself? It's very difficult to hedge the 0:11:24.280 --> 0:11:26.640 book right now, Um, when you look at the options 0:11:26.679 --> 0:11:30.000 volatility surfaces on almost any index, and and the cyclical 0:11:30.080 --> 0:11:33.160 rally in particular, and the Russell rally in particular seems 0:11:34.120 --> 0:11:38.840 way overdone. Um, it's very hard to buy put options. 0:11:38.880 --> 0:11:41.400 And so what you have to do is engage in 0:11:41.440 --> 0:11:45.880 more sophisticated strategies that really do require a delta view 0:11:46.000 --> 0:11:48.440 or a view on direction in the underlying which precisely 0:11:48.440 --> 0:11:50.800 what can generally try to avoid when you're buying volatility, 0:11:50.880 --> 0:11:52.960 right And what I mean by that is the only 0:11:53.000 --> 0:11:56.480 way to really for you know, to pursu to fund 0:11:56.720 --> 0:11:59.600 a Russell strategy is to sell a call to buy 0:11:59.600 --> 0:12:02.760 a put replix spread, so that you're selling a little 0:12:02.760 --> 0:12:05.480 bit of alatility to to to fund your downside protection. 0:12:06.120 --> 0:12:09.280 And you know you're making a directional bet that that 0:12:09.280 --> 0:12:10.960 that it's a lot more directional than if you're just 0:12:11.000 --> 0:12:12.880 buying a Russell put for example, And the same is 0:12:12.920 --> 0:12:17.040 true for the SMP. So hedging is extremely difficult right now. 0:12:17.600 --> 0:12:20.440 If you're very long, obviously you can sell calls to 0:12:20.440 --> 0:12:23.640 to sort of overwrite your portfolio. And so I think 0:12:23.760 --> 0:12:26.520 that is a good strategy for those who are long. 0:12:26.679 --> 0:12:31.120 For those who are underinvested already, the premium burn from 0:12:31.160 --> 0:12:34.040 just buying expensive put options is is probably too much 0:12:34.040 --> 0:12:37.880 to tolerate. So that's that's difficult. Um. You know, I 0:12:38.240 --> 0:12:42.080 think being a little bit heavier in cash makes sense here. UM. 0:12:42.120 --> 0:12:46.320 I do still like gold, um and you know, I'm 0:12:47.320 --> 0:12:49.880 I you know, I g is a good place to hide, 0:12:49.920 --> 0:12:51.360 but you're just not getting a heck up a lot 0:12:51.360 --> 0:12:53.200 of yields. So I mean that's sort of how I'm positioned, 0:12:53.280 --> 0:12:55.400 right I you know, uh, you know, own some investment, 0:12:55.480 --> 0:12:58.480 great credit things going to continue to get support from 0:12:58.480 --> 0:13:01.400 the Treasury and the fed um. But I wouldn't be 0:13:01.480 --> 0:13:03.520 dipping my tone into high yield. I think that's a 0:13:03.640 --> 0:13:06.839 that's a chase that's going to end poorly at the SMP. 0:13:07.559 --> 0:13:13.880 SMP ratings is predicting a nine perspective default rate and 0:13:13.960 --> 0:13:16.280 yet uh, you know, we have some of the lowest 0:13:16.280 --> 0:13:27.280 absolute yields in high yield um that we've ever seen. Yeah, 0:13:27.360 --> 0:13:29.319 this brings me to another line that you wrote that 0:13:29.320 --> 0:13:30.800 that I really loved, and I'm going to read it 0:13:30.880 --> 0:13:33.559 verbatim because I'm sure if I curse on the podcast, 0:13:33.640 --> 0:13:36.280 I'll get in a lot of trouble from my bosses. 0:13:36.440 --> 0:13:41.240 But by the bull star and signed dash t for 0:13:41.280 --> 0:13:43.280 a trade into Christmas on fun flows, but don't buy 0:13:43.280 --> 0:13:46.960 into the nonsense nonsense narratives permanently. And this leads me 0:13:47.000 --> 0:13:51.559 to ask you, would you say that at least some 0:13:51.640 --> 0:13:53.440 pockets of the market are in a bubble. I mean, 0:13:53.440 --> 0:13:56.720 we've seen the NASZAC one hundred more than double now 0:13:57.240 --> 0:14:01.000 in a year's time span. We've seen a SPA boom. 0:14:01.040 --> 0:14:03.600 We see the I p O market just on fire. 0:14:04.320 --> 0:14:07.760 As you mentioned, we've seen a retail trading phenomenon even 0:14:08.240 --> 0:14:12.720 taking advantage of the option market. One, are we in 0:14:12.760 --> 0:14:14.640 a bubble? And too? Even if we are, what can 0:14:14.679 --> 0:14:16.840 you do about that? Because bubbles, as we all know, 0:14:17.160 --> 0:14:22.000 can can last for a long time until they don't. Yeah, 0:14:22.320 --> 0:14:25.920 they they most certainly can. So you know, bubbles are 0:14:25.960 --> 0:14:29.200 about context. Right. It was interesting, um, you know for 0:14:29.240 --> 0:14:30.880 those of us nerds, and I know you guys are 0:14:31.200 --> 0:14:33.120 just like me and your nerds about this stuff too, 0:14:33.160 --> 0:14:35.800 so we you know, we listened to Chairman Powell and 0:14:35.840 --> 0:14:38.280 his press conference and he pointed to the FED model, right, 0:14:38.280 --> 0:14:40.760 he said, you know, equities actually don't look all that 0:14:40.880 --> 0:14:43.840 rich when taking too into account the fact that um 0:14:44.000 --> 0:14:47.000 greats are as low as they are. And um, you know, 0:14:47.200 --> 0:14:49.760 in in in the notes that I sent to you, 0:14:49.800 --> 0:14:51.520 and in a piece I put out, you know, I 0:14:51.600 --> 0:14:53.960 quoted Bill Dudley and you know he said, you know, 0:14:54.360 --> 0:14:57.560 I'll quote them stimulus provided by lower interest rates inevitably 0:14:57.560 --> 0:15:00.080 wears off. Cutting interest rates boost the economy of of 0:15:00.120 --> 0:15:03.640 bringing future activity into the present. Easy money encourages people 0:15:03.680 --> 0:15:06.480 to buy houses and appliances now rather than later. But 0:15:06.520 --> 0:15:10.000 when the future arrives, that activity is missing. The only 0:15:10.000 --> 0:15:12.680 way to keep things going is to lower interest rates 0:15:12.720 --> 0:15:16.120 further until that is they hit their lower bound, which 0:15:16.120 --> 0:15:18.720 in the US is zero. And that's Bill Dudley, not me. 0:15:18.760 --> 0:15:22.160 And that's a very incomplete description of how monetary policy works, 0:15:22.200 --> 0:15:24.960 but it's it's good enough for for for our conversation. 0:15:25.960 --> 0:15:29.960 So especially in that context, right in the context of 0:15:29.960 --> 0:15:32.080 the fact that the FED can't lower rates anymore and 0:15:32.080 --> 0:15:35.920 that we're really reliant I think on fiscal policy, UM, 0:15:35.960 --> 0:15:41.600 I think equities look rich as a general matter. UM. 0:15:41.680 --> 0:15:45.760 And you know, moreover, um, when when we're talking about 0:15:45.800 --> 0:15:48.840 why rates are low, rates were already quite low coming 0:15:48.880 --> 0:15:54.120 into the pandemic, because activity was already slowing because there 0:15:54.200 --> 0:15:56.280 was so little inflation. I think the FED has has 0:15:56.320 --> 0:16:00.400 proven its inability to stimulate inflation. In fact, um, one 0:16:00.400 --> 0:16:01.840 of the things I'm writing about in my book, and 0:16:01.840 --> 0:16:04.400 I've written about in pieces over time, is the fact 0:16:04.440 --> 0:16:08.920 that the FED has actually created the disinflationary environment to 0:16:09.000 --> 0:16:13.640 some extent by creating over investment UM, which leads to 0:16:13.720 --> 0:16:17.000 difficulty for firms and getting price. And when you can't 0:16:17.000 --> 0:16:21.720 get price, uh, profitability suffers. And when profitability suffers, you 0:16:21.720 --> 0:16:24.640 can't rage raise workers wages, which is at the end 0:16:24.680 --> 0:16:26.360 of the day, what the FED really cares most about. 0:16:26.760 --> 0:16:29.360 So back to the bubble question, are there areas of 0:16:29.400 --> 0:16:33.440 the market that are in a bubble? Yeah, clearly, um. 0:16:33.480 --> 0:16:36.040 And I think small caps right now have went from 0:16:36.200 --> 0:16:41.440 somewhat over sold too wildly overbought because I do not 0:16:41.560 --> 0:16:44.080 see how earnings are to come back for cyclical companies. 0:16:44.400 --> 0:16:47.080 There are clearly bubbles in tech. I actually have a 0:16:47.160 --> 0:16:50.240 sort of proprietary basket of of ten companies that I've 0:16:50.240 --> 0:16:54.800 been watching for for a while, and um, they are 0:16:54.920 --> 0:16:58.480 way into bubble uh territory. And the way that I'm 0:16:58.480 --> 0:17:00.320 not going to name names for those kind police for 0:17:00.360 --> 0:17:03.000 obvious reasons, but the way I typically look at that 0:17:03.200 --> 0:17:06.520 is I look at companies with negative cash flow, and 0:17:06.520 --> 0:17:08.119 I look at the multiple of revenue. So it's a 0:17:08.119 --> 0:17:12.080 basket of negative cash flow companies that's trading at multiples 0:17:12.119 --> 0:17:15.879 of revenue above ten times. And um. Not only the 0:17:15.960 --> 0:17:19.359 number of companies like that at at some of the 0:17:19.400 --> 0:17:22.199 highest levels I've ever seen. But the multiple multiples of 0:17:22.240 --> 0:17:24.959 revenues have expanded well above ten times in many cases. 0:17:25.000 --> 0:17:31.360 So yes, and many of those are obviously speculative technology companies. Peter, 0:17:31.440 --> 0:17:35.800 I love that analogy used. Uh just now you said, Um, 0:17:35.840 --> 0:17:38.600 you know sometimes when you're playing chess and the rest 0:17:38.600 --> 0:17:41.440 of the market is playing checkers, you're you're the one 0:17:41.480 --> 0:17:44.200 that can end up looking bad. And you know, I 0:17:44.359 --> 0:17:47.640 obviously this was a big year for for checkers players 0:17:47.640 --> 0:17:50.600 in the in the market, uh, even scrabble players as 0:17:50.760 --> 0:17:54.439 uh Dave Portnoy uh was famously picking letters out of 0:17:54.440 --> 0:17:58.680 the scrab scrabble bag to to pick stock tickers. I. 0:17:59.560 --> 0:18:04.000 You know, now we have this another jolt of fiscal 0:18:04.080 --> 0:18:07.000 spending coming. You know, as we record this, you know, 0:18:07.080 --> 0:18:08.520 we still don't know if it will be six hundred 0:18:08.520 --> 0:18:14.600 dollars or two thousand dollar checks sent out to most Americans. UM. 0:18:14.640 --> 0:18:16.960 I know you've paid a lot of attention to sort 0:18:17.000 --> 0:18:19.680 of the Dave portnoise of the world this year and 0:18:19.680 --> 0:18:23.160 and done a lot of thinking about it. Does this 0:18:23.600 --> 0:18:26.680 fiscal uh spending that's coming now, this this sort of 0:18:26.800 --> 0:18:29.680 you know checks in the mail? Um, is it gonna 0:18:29.720 --> 0:18:31.560 be off to the races again in the market? I mean, 0:18:31.640 --> 0:18:36.280 is that enough to sort of get us rallying again? Uh? 0:18:36.320 --> 0:18:40.600 You know, fundamentals be damned, just you know, grab those 0:18:40.640 --> 0:18:43.440 scrabble letters out of the bag and start picking stocks again. 0:18:43.720 --> 0:18:46.880 Is do you think that's a risk? Man? I wish 0:18:46.920 --> 0:18:52.240 I could answer that. I'll tell you, I'll tell, I will, 0:18:52.280 --> 0:18:55.040 I will. I'll give it a shot, like, um, yeah, 0:18:55.240 --> 0:18:59.040 that's all. That's that's the best we can ask. Yeah. 0:18:59.280 --> 0:19:03.600 So so if we remember, you know, uh, for a 0:19:03.680 --> 0:19:07.760 look for a while, the the stimulus package that just 0:19:07.800 --> 0:19:10.720 passed was expected, you know, quite a bit earlier that 0:19:10.920 --> 0:19:14.119 the conversation was is it coming before the election? Is 0:19:14.200 --> 0:19:17.640 not coming for it? Right? And you know, my view 0:19:17.800 --> 0:19:20.040 was likely wasn't going to come for the election, and 0:19:20.040 --> 0:19:22.280 that that probably wasn't gonna be all that good for equities. 0:19:22.960 --> 0:19:25.239 That turned out not to be the case. Right at 0:19:25.280 --> 0:19:27.600 the end of the day, no one really cared. Um. 0:19:27.640 --> 0:19:31.359 I think the mistake I made there was that there 0:19:31.440 --> 0:19:35.960 continued to be uh knock on effects from the previous 0:19:36.359 --> 0:19:38.879 uh stimulus package. And when you look at money supply 0:19:39.040 --> 0:19:43.200 money supply, there's a couple of things. Money supply actually 0:19:43.240 --> 0:19:47.000 does not expand UM in the way many people think 0:19:47.040 --> 0:19:50.159 it does in response to monetary policy. It just it 0:19:50.240 --> 0:19:53.359 simply doesn't, because monetary policy is actually not a money 0:19:53.359 --> 0:19:55.800 phenomenon the way many think it's an interest rate phenomenon. 0:19:56.400 --> 0:19:59.440 Fiscal policy, on the other hand, when you deposit money 0:19:59.480 --> 0:20:03.960 into people's checking accounts, that by definition right increases the 0:20:04.000 --> 0:20:08.800 money supply, and a lot of that additional liquidity in 0:20:08.840 --> 0:20:12.719 a real way went into the stock market UM. And 0:20:12.760 --> 0:20:15.840 that persisted for quite a bit longer, I think than 0:20:15.840 --> 0:20:18.760 many people thought. And I think what it suggested was 0:20:19.440 --> 0:20:21.080 that the amount of stimulus that came out of the 0:20:21.119 --> 0:20:25.080 first package was actually more effective than many of us 0:20:25.119 --> 0:20:27.800 believed it would be UM. And so that, you know, 0:20:27.840 --> 0:20:30.200 that leads me to my assessment of the second stimulus package, 0:20:30.200 --> 0:20:33.040 which is a two thousand dollars is a ludicrously large 0:20:33.560 --> 0:20:36.480 amount UM and it you know, we can get into 0:20:36.480 --> 0:20:39.160 the political motivations behind it, but it's just it's uh. 0:20:39.400 --> 0:20:41.520 I don't necessarily think that's a great thing, and I 0:20:41.520 --> 0:20:44.480 hate to agree with Laurence Summers, but but I will 0:20:44.520 --> 0:20:47.680 in this case and and say, you know, it's it's 0:20:47.720 --> 0:20:52.120 just not it's not warranted. Um, So will that drive 0:20:52.160 --> 0:20:54.200 equities higher? If you get a two thousand dollar check? 0:20:54.280 --> 0:20:57.840 You know, Mike, it might Uh, indeed, indeed it could, 0:20:58.119 --> 0:21:00.520 um in which to me would increase the risk of 0:21:00.560 --> 0:21:03.480 the market all the more because when the liquidity finally 0:21:03.560 --> 0:21:05.400 does run out, after we come back to a sense 0:21:05.400 --> 0:21:10.200 of normalcy sometime late next year, Um, you know that 0:21:10.200 --> 0:21:12.919 that the rug will be pulled out from under the market. 0:21:13.600 --> 0:21:16.399 The question is just kind of when that happens, and uh, 0:21:16.520 --> 0:21:18.040 you know, what are the risks of this new strain 0:21:18.160 --> 0:21:21.240 and lots of other things, but but yeah, I mean 0:21:21.440 --> 0:21:23.520 that that's clearly one of the things that could drive 0:21:23.600 --> 0:21:44.399 these drive these Marketshire. I just pulled up some data 0:21:44.560 --> 0:21:47.720 from this company investment Yodley, which is a data aggregator 0:21:47.760 --> 0:21:50.240 on how the stimulus checks were put to use in 0:21:50.280 --> 0:21:52.640 the markets the first time. Just for some background, listen 0:21:52.680 --> 0:21:55.240 to these numbers. So, people are named between thirty five 0:21:55.600 --> 0:21:58.600 dollars and seventy five dollars a year increased stock trading 0:21:58.880 --> 0:22:03.560 by more than the prior week after receiving their stimulus check. 0:22:03.640 --> 0:22:06.119 And then those making between a hundred and a hundred 0:22:06.119 --> 0:22:09.919 fifty k increased trading by eight two percent. And those 0:22:10.640 --> 0:22:12.720 that earn more than a hundred fifth K traded about 0:22:12.760 --> 0:22:15.879 fifty more often. So if you look at these numbers, 0:22:16.040 --> 0:22:18.440 it is pretty unbelievable, and there is data that shows 0:22:18.480 --> 0:22:21.240 that it did have an effect on people trading more 0:22:21.280 --> 0:22:24.720 often and getting into the market. But I also want 0:22:24.720 --> 0:22:26.560 to circle back, Peter to to a point that you 0:22:26.600 --> 0:22:30.040 made early on in the conversation, that being that before 0:22:30.800 --> 0:22:34.000 COVID nineteen hit, before any of us knew that we 0:22:34.000 --> 0:22:36.840 were going to be dealing with the pandemic this year, 0:22:37.280 --> 0:22:39.760 that we didn't necessarily have a very strong set up 0:22:39.840 --> 0:22:42.280 coming into And like you said, it feels like a 0:22:42.280 --> 0:22:45.080