WEBVTT - Crypto Contagion 0:00:13.640 --> 0:00:17.000 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.280 --> 0:00:20.360 I'm Mike Reagan, a senior editor at Bloomberg and this 0:00:20.400 --> 0:00:24.160 week on the show. For several years, cryptocurrencies were considered 0:00:24.239 --> 0:00:27.920 fringe investments on Wall Street, but this week a massive 0:00:28.000 --> 0:00:31.560 intro day plunge in bitcoin had some serious ripple effects 0:00:31.560 --> 0:00:34.479 on the stock market. Is this type of contagion the 0:00:34.520 --> 0:00:37.400 new abnormal for markets? We'll get into it with a 0:00:37.479 --> 0:00:40.440 veteran market strategists, and we'll also get his take on 0:00:40.440 --> 0:00:43.360 what type of stocks look attractive these days in this 0:00:43.440 --> 0:00:46.600 strange new world of risk taking that we're in. But first, 0:00:46.880 --> 0:00:49.760 Charlie Pellett tell us who this week's mystery co host is. 0:00:50.400 --> 0:00:54.040 This week's mystery co host is Vill Donna Hi Rich. 0:00:54.480 --> 0:00:57.640 Vill Donna is a cross asset reporter for Bloomberg in 0:00:57.720 --> 0:01:02.279 New York, and she owns a rescue from Kuwait. Her 0:01:02.320 --> 0:01:07.080 hobbies include running marathons, watching videos about grammar on, looking 0:01:07.120 --> 0:01:11.760 for typos, hint stories that Mike Reagan has already edited. 0:01:13.319 --> 0:01:16.920 That's all true, Vildna, correct. You know to me? My 0:01:17.000 --> 0:01:20.280 favorite fun Vildona fact is the cat from Kuwait. I 0:01:20.319 --> 0:01:22.880 need to hear that story. How did you rescue a 0:01:22.959 --> 0:01:26.039 cat from Kuwait. Oh, it's a state secret. I can't 0:01:26.040 --> 0:01:30.960 tell you. She is a rescue from Kuwait. We actually 0:01:31.000 --> 0:01:36.800 worked with small organization and there's a woman who works 0:01:36.840 --> 0:01:39.120 for one of the bigger airlines and she does a 0:01:39.120 --> 0:01:43.120 lot of US to Mid East trips and she puts 0:01:43.120 --> 0:01:45.480 them on the plane basically and and brings them in. 0:01:45.520 --> 0:01:47.600 And that's how my sister got her cat. That's how 0:01:47.640 --> 0:01:51.800 I got my cat. So that's pretty good. Katie Greifeld 0:01:51.880 --> 0:01:55.960 had a cat delivered the plane in some mysterious circumstances. Cat. 0:01:56.000 --> 0:01:58.200 You cut. People are weird. I don't know. That's not 0:01:58.240 --> 0:02:00.200 how we get dogs. No one would. No one would 0:02:00.200 --> 0:02:02.240 allow my dog on a plane. I guess is part 0:02:02.240 --> 0:02:06.200 of the thing. But we love them so much, I guess, so, 0:02:06.320 --> 0:02:09.040 I guess. So that's it. But the Donna. I'm very 0:02:09.040 --> 0:02:11.880 excited for this week's guest. Um. As you know, I've 0:02:11.880 --> 0:02:14.120 been doing this job a few years. Our guest has 0:02:14.160 --> 0:02:16.480 been doing it for his job for a few years, 0:02:16.520 --> 0:02:18.720 and we've never actually met. So I thank you for 0:02:19.120 --> 0:02:22.519 putting us all together this week. I will warn you, though, 0:02:22.639 --> 0:02:26.880 the Donna, our guest is from Boston, and there's He's 0:02:26.880 --> 0:02:29.040 got a great reputation as a nice guy. But there's 0:02:29.040 --> 0:02:32.600 always a risk with people from Boston at this time 0:02:32.600 --> 0:02:34.679 of year, and that's all they really want to talk 0:02:34.720 --> 0:02:38.240 about is the Red Sox. So I think we'll allow that. 0:02:38.320 --> 0:02:39.880 I don't know if some of our New York based 0:02:39.919 --> 0:02:42.120 listeners will will care for that, but I'll allow a 0:02:42.160 --> 0:02:45.480 little Red Sox talk. I'm from Philly. I it doesn't 0:02:45.480 --> 0:02:47.880 bother me that much. But I need you if he 0:02:47.919 --> 0:02:50.200 starts talking about the Celtics, I need you to cut 0:02:50.240 --> 0:02:54.120 him off, no problem, alright, if you hear the names 0:02:54.200 --> 0:02:57.280 Kemba Walker or Jayson Tatum, just hit that mute button 0:02:57.320 --> 0:02:59.919 on him instantly, right, I'll let him talk about talk 0:03:00.000 --> 0:03:02.079 O Fall. I like that guy. That's my favorite. That's 0:03:02.120 --> 0:03:04.400 my favorite Celtic Taco. Fall is the only person I've 0:03:04.400 --> 0:03:07.640 ever seen dunk cat basketball without leaving his feet. So 0:03:08.040 --> 0:03:10.680 that's made him one of my favorite players of all time. Well, 0:03:10.720 --> 0:03:13.360 let's bring him into the show here. He is the 0:03:13.480 --> 0:03:18.440 chief market strategist at National Securities. His name is Art Hogan. Art. 0:03:18.480 --> 0:03:20.760 Welcome to the show. Thanks so much for having me. 0:03:20.800 --> 0:03:23.840 It's a really a pleasure, Art, And you know what 0:03:24.000 --> 0:03:25.720 I do want to get into that idea of the 0:03:25.800 --> 0:03:29.360 cryptocurrency contagion. But I was reading near bio Vildnosan over 0:03:29.360 --> 0:03:31.400 your bio, and one thing jumped out at me that 0:03:31.480 --> 0:03:34.680 I find really interesting, and that's you started off your 0:03:34.720 --> 0:03:39.320 career on the floor of the Boston Stock Market, um, 0:03:39.760 --> 0:03:42.520 Boston Stock Exchange rather. And I find that interesting because 0:03:43.080 --> 0:03:47.160 when I started up Bloomberg UM just years ago. Uh, 0:03:47.200 --> 0:03:51.040 it was right when the computerization of markets was was 0:03:51.080 --> 0:03:53.880 in full swing and all these regional exchanges were kind 0:03:53.880 --> 0:03:56.560 of getting swallowed up by by the bigger players. I 0:03:56.560 --> 0:03:59.520 think it was Nastac that that bought Boston. But I 0:04:00.040 --> 0:04:02.200 has been curious. I never quite wrapped my head around 0:04:02.200 --> 0:04:05.480 sort of what the distinction was between these regional exchanges. 0:04:05.560 --> 0:04:08.320 I mean, obviously different type of clam chowder served in 0:04:08.360 --> 0:04:11.840 Boston then uh New York Exchange. But I'm curious, like, 0:04:11.880 --> 0:04:14.800 what was the scene like at the Boston Stock Exchange 0:04:14.840 --> 0:04:17.680 on picturing Maybe is it the type of thing where 0:04:17.720 --> 0:04:20.120 New England companies would would perhaps have a little bit 0:04:20.160 --> 0:04:23.000 more liquidity on an exchange like that? What was what 0:04:23.120 --> 0:04:25.960 was the purpose of of these regional exchanges like Boston 0:04:26.040 --> 0:04:28.400 and kind of what was it like working there. Yeah, 0:04:28.400 --> 0:04:31.520 that's such a great question, and you're your concept of 0:04:31.560 --> 0:04:34.800 hto regional exchanges is a very popular misconception, right. So 0:04:35.120 --> 0:04:37.920 the regional exchanges were trading just about everything that was 0:04:37.960 --> 0:04:39.600 traded on the New York Stocker Change and at the 0:04:39.680 --> 0:04:42.599 time the American Stock Exchange, and what they really were 0:04:42.680 --> 0:04:45.800 was a national market system. So there was seven regional 0:04:45.800 --> 0:04:48.400 exchanges too on the West coast, one in Los Angeles, 0:04:48.480 --> 0:04:51.080 one in San Francisco, There's one in Chicago, the Midwest 0:04:51.120 --> 0:04:54.560 Stock Exchange, which was the largest, Philadelphia had its own exchange, 0:04:54.560 --> 0:04:57.080 and Boston had one of exchanges. So they were well 0:04:57.120 --> 0:04:59.200 over a hundred years old by the time I got there, 0:04:59.320 --> 0:05:01.600 and they were really competition for the New York Stock Exchange. 0:05:01.640 --> 0:05:03.800 So think about it like this, The New York Stock 0:05:03.920 --> 0:05:07.120 Exchange would do about eighty percent of the listed volume 0:05:08.120 --> 0:05:11.560 and the regionals would do That's interesting, And would it 0:05:11.600 --> 0:05:13.720 be the type of thing where you know, say a 0:05:13.760 --> 0:05:16.440 firm like Fidelity would would do more trading on Boston 0:05:16.520 --> 0:05:20.040 than would New York, you know, a Boston area firm. 0:05:20.200 --> 0:05:23.000 That was certainly the case, at least for me. I 0:05:23.080 --> 0:05:25.440 worked for Fidelity, so I was actually a Fidelity employee 0:05:25.480 --> 0:05:28.120 and a floor broker on the exchange. And just to 0:05:28.160 --> 0:05:30.080 give you a sense of the time that I was there, 0:05:30.600 --> 0:05:33.680 I was there for the October crash seven, where the 0:05:33.680 --> 0:05:35.960 market went down twenty two point six percent in a day. 0:05:36.000 --> 0:05:38.119 To put some context around that, that would be about 0:05:38.120 --> 0:05:41.359 seventy points for the DAW to go down on a 0:05:41.400 --> 0:05:44.200 given day like today. So it was a you know, 0:05:44.200 --> 0:05:47.120 so pretty crazy times, and electronic trading really was at 0:05:47.160 --> 0:05:50.280 its infancy, so we were actually writing tickets and ripping 0:05:50.279 --> 0:05:52.680 things up and then there was a mess on the 0:05:52.720 --> 0:05:57.719 floor and that October uh Monday of seven, we were 0:05:57.800 --> 0:05:59.800 up to our knees in paper because it was just 0:05:59.839 --> 0:06:03.599 the craziest day anybody had ever seen. Or let's let's 0:06:03.600 --> 0:06:07.920 get into that idea of crypto speaking of crazy things. Um, 0:06:07.960 --> 0:06:11.480 you know, first of all, my nuts to think that 0:06:11.480 --> 0:06:14.640 that plunging bitcoin did have some contagion in the stock market. 0:06:14.680 --> 0:06:17.279 I'm and I'm talking beyond sort of the the names 0:06:17.279 --> 0:06:20.840 that are exposed to to crypto, like Tesla and UH 0:06:21.000 --> 0:06:23.480 micro Strategy and those type of stocks. It felt to 0:06:23.520 --> 0:06:26.039 me like it dragged the whole market down. Is is 0:06:26.040 --> 0:06:28.600 that your sense to well, it's interesting that's there's a 0:06:28.640 --> 0:06:32.160 lot of people that are really coming across that concept 0:06:32.200 --> 0:06:35.640 and saying, hey, you know, we've we're seeing cryptocurrencies down 0:06:35.680 --> 0:06:38.360 some thirty in a single day in the markets down 0:06:38.400 --> 0:06:41.480 to there must be some correlation. So the obvious correlations 0:06:41.480 --> 0:06:43.040 are the things you just mentioned that things that are 0:06:43.040 --> 0:06:46.120 directly tied and correlated to cryptocurrencies. But I think in 0:06:46.120 --> 0:06:48.279 a real sense, I step back and say what's happened 0:06:48.680 --> 0:06:50.640 in the second quarter, and I would say that we've 0:06:50.680 --> 0:06:54.640 removed a lot of speculative excesses in different esset classes. 0:06:54.680 --> 0:06:56.960 So for example, spacts, which were all the rage in 0:06:56.960 --> 0:07:00.040 the first quarter, have really fallen upon hard times in 0:07:00.080 --> 0:07:02.360 the second quarter. Right, we had a record number of 0:07:02.440 --> 0:07:05.400 SPACs last year, and in the first quarter we beat 0:07:05.440 --> 0:07:08.200 that record, and all of a sudden, supply had really 0:07:08.200 --> 0:07:10.880 swamped demand. So a lot of those spacts that came 0:07:11.080 --> 0:07:13.400 out and came public have pulled back significantly. We saw 0:07:13.400 --> 0:07:16.520 the same thing in electronic vehicle related stocks. We've certainly 0:07:16.560 --> 0:07:19.480 seen that over the last three days in crypto So 0:07:19.520 --> 0:07:22.000 I think it's much more they risk off and remove 0:07:22.080 --> 0:07:25.640 some speculative excesses and less of a correlation where people 0:07:25.680 --> 0:07:28.120 are looking at this and saying if people are selling bitcoin, 0:07:28.160 --> 0:07:31.080 they must be selling the SMP five funder. Well, Art, 0:07:31.120 --> 0:07:34.280 can I actually ask you to sort of help define 0:07:34.400 --> 0:07:37.240 what is going on with with markets right now? Because 0:07:37.720 --> 0:07:39.920 when we think back to last year, it was really 0:07:40.000 --> 0:07:43.560 easy to see who was leading markets. It was tech 0:07:43.720 --> 0:07:46.760 up until November right when you had some of the 0:07:46.920 --> 0:07:50.120 vaccine announcements, and then even after that you sort of 0:07:50.160 --> 0:07:54.520 had some clear and delineated market leadership. And I feel 0:07:54.520 --> 0:07:56.720 like over the last couple of weeks the narrative has 0:07:56.760 --> 0:08:00.600 been really difficult to define, to say the least, besides 0:08:00.640 --> 0:08:02.960 everything else that's sort of going on on a day 0:08:02.960 --> 0:08:06.000 to day basis. But so, can you help us make 0:08:06.040 --> 0:08:09.600 sense of of how we even describe what is going 0:08:09.640 --> 0:08:12.360 on with markets? I think if we back that lends 0:08:12.400 --> 0:08:15.000 up a little bit and say what happened in that's 0:08:15.040 --> 0:08:17.560 not happening in twenty one is a pretty good way 0:08:17.560 --> 0:08:19.480 to give a snapshot of what we've seen this year 0:08:19.520 --> 0:08:22.560 so far. So was all about what it was that 0:08:22.640 --> 0:08:24.960 was helping us get through a pandemic, everything that helped 0:08:25.040 --> 0:08:27.840 us work from home, like the Zoom app that we're 0:08:27.880 --> 0:08:31.480 on right now, like the all the the information technology 0:08:31.520 --> 0:08:34.200 that made our lives easier and possible. The work from 0:08:34.280 --> 0:08:38.400 home crowd that that the pandemic darlings were the rage, 0:08:38.679 --> 0:08:41.640 and they were until about Labor Day, and around Labor 0:08:41.720 --> 0:08:45.800 Day and and and things really getting stretched. The relative 0:08:45.840 --> 0:08:49.560 strength index for the maastic and positive nastic one had 0:08:49.559 --> 0:08:53.240 gotten to significantly overbought, and we saw a significant rotation. 0:08:53.280 --> 0:08:55.160 We saw a pretty good draw down in the nastac 0:08:55.240 --> 0:08:58.480 the better part of nine after Labor Day, and a 0:08:58.720 --> 0:09:02.880 rotation into aconomically sensitive cycnicals which had largely been ignored. 0:09:03.160 --> 0:09:06.080 And that was really the beginning of that reopening trade. 0:09:06.400 --> 0:09:09.480 So people decided that we need to start selling those 0:09:09.520 --> 0:09:11.920 things that have been working and got into you know, 0:09:12.440 --> 0:09:15.480 excessive valuations towards the end of the year, and and 0:09:15.600 --> 0:09:18.360 that proceeded to continue that rotation all the way into 0:09:18.400 --> 0:09:20.800 the first quarter of this year. So we came into 0:09:20.840 --> 0:09:22.599 the first quarter of this year and that rotation was 0:09:22.640 --> 0:09:25.840 pretty strong. You saw pretty good ramp up and economically 0:09:25.840 --> 0:09:29.880 sensitive cycnicals, everything from industrials to financials and energy, which 0:09:29.920 --> 0:09:32.280 is the best performing sector in the SP five hundred 0:09:32.360 --> 0:09:35.840 right now. And and the money was coming from the 0:09:35.920 --> 0:09:38.680 selling of technology, for example, but a lot of the 0:09:38.760 --> 0:09:42.160 other pandemic darlings. So I think that that sort of 0:09:42.200 --> 0:09:44.840 set the table for both of those trades to get 0:09:44.880 --> 0:09:47.480 stretched in the first quarter. And what we've seen since 0:09:47.480 --> 0:09:50.400 the second quarter began is that back and forth rotation 0:09:50.520 --> 0:09:54.400 based on how far we oversold technology and how far 0:09:54.480 --> 0:09:56.920 we've over bought some of the cyclicals. I think the 0:09:56.920 --> 0:10:00.120 the the pandemic darlings got oversold and I think that 0:10:00.240 --> 0:10:02.440 some of the cycnicles have been over bought. So we 0:10:02.520 --> 0:10:04.320 keep going back and forth on a week by week 0:10:04.320 --> 0:10:07.520 basis where that rotation reverses itself, and I think that's 0:10:07.520 --> 0:10:09.040 where we're going to be for most of the summer, 0:10:18.040 --> 0:10:20.079 you know, just to get back a little bit to 0:10:20.280 --> 0:10:24.920 that relationship between crypto and the equity markets. To me, 0:10:25.000 --> 0:10:27.800 I've always thought of it as crypto as kind of 0:10:27.920 --> 0:10:32.480 um almost like a safety valve for this sort of 0:10:32.600 --> 0:10:37.520 over excessive risk taking and sort of exuberant sentiment out there, 0:10:37.920 --> 0:10:40.680 especially with all the liquidity we have UH in the 0:10:40.720 --> 0:10:44.400 markets right now, and and how that you know, it's 0:10:44.400 --> 0:10:46.840 a nice little safety valve for for the stock market. 0:10:46.880 --> 0:10:50.640 You know it perhaps you know, can can siphon off 0:10:50.920 --> 0:10:54.240 some of that froth that otherwise would have you know, 0:10:54.400 --> 0:10:57.319 been pumped directly into the stock market, you know, as 0:10:57.360 --> 0:10:59.960 the case was perhaps in the dot com era, where 0:11:00.040 --> 0:11:03.679 all the all the speculation, uh, and all that euphoria 0:11:03.800 --> 0:11:07.320 was focused you right on on the equities and and 0:11:07.360 --> 0:11:09.360 all the I p O s coming out. But I 0:11:09.360 --> 0:11:11.760 do wonder, you know, when we look at and not 0:11:11.880 --> 0:11:14.559 just bitcoin. I mean, obviously ethereum is is the hot 0:11:14.640 --> 0:11:18.880 topic these days. Uh, and bitcoin and ethereum also being 0:11:19.120 --> 0:11:21.320 you know, sort of the blue chips of the crypto 0:11:21.440 --> 0:11:23.640 world right now. But when you go get further down 0:11:23.800 --> 0:11:26.680 the ladder to say doge coin or or some of 0:11:26.720 --> 0:11:30.080 these ridiculous meme coins the names of which I can't 0:11:30.080 --> 0:11:32.640 even say on a on a family podcast like this, 0:11:33.320 --> 0:11:37.079 and you watch this this paper wealth be vaporized. Uh, 0:11:37.120 --> 0:11:39.640 it's the tune of hundreds of billions of dollars in 0:11:39.640 --> 0:11:44.120 a matter of hours. Ultimately, I I find that to 0:11:44.200 --> 0:11:46.520 be a risky, dangerous thing. But I'm curious how you 0:11:46.600 --> 0:11:49.240 sort of think of that interplay between you know, the 0:11:49.280 --> 0:11:53.200 animal spirits uh and the euphoria chasing to get rich 0:11:53.800 --> 0:11:58.040 quick type of trades and crypto. Um, it's not ultimately 0:11:58.200 --> 0:12:00.559 a healthy thing for the stock market. Or put that 0:12:00.679 --> 0:12:04.040 sort of ricocheted back and and and be a bad thing. Well, 0:12:04.080 --> 0:12:05.840 I think that's an interesting way to set that up, Mike, 0:12:05.920 --> 0:12:07.720 and I think that when you sort of harken back 0:12:07.760 --> 0:12:12.280 to we had hundreds of companies that put dot com 0:12:12.280 --> 0:12:14.280 at the end of their title went public, and you know, 0:12:14.640 --> 0:12:16.520 often times we're up a hundred percent on the first 0:12:16.559 --> 0:12:20.280 day of trading and low and beholds. As two thousand 0:12:20.320 --> 0:12:23.600 turned to two thousand and one, a lot of those 0:12:23.640 --> 0:12:26.680 companies disappeared. Now we have hundreds of cryptocurrencies that have 0:12:26.880 --> 0:12:29.679 exploded in value, And to your point, is that a 0:12:29.720 --> 0:12:33.319 safety valve of of speculative money finding a place other 0:12:33.360 --> 0:12:35.400 than the stock market? For sure? I think that's that's 0:12:35.400 --> 0:12:37.960 certainly the case. I think the way to think about 0:12:38.000 --> 0:12:41.120 crypto in general is the backbone of crypto obviously is blockchain, 0:12:41.160 --> 0:12:44.320 and blockchain is likely to be a more important um 0:12:44.520 --> 0:12:46.840 paradigm for us in the future, very much like the 0:12:46.840 --> 0:12:49.679 Internet is much more important to us than it was 0:12:49.720 --> 0:12:52.480 in We just don't know who the winners and losers 0:12:52.520 --> 0:12:53.680 are going to be, and I think it's going to 0:12:53.720 --> 0:12:55.920 play out in a similar fashion. So we're not gonna 0:12:55.920 --> 0:12:58.720 have hundreds of cryptocurrencies will likely have some winners. I 0:12:58.720 --> 0:13:01.439 think the basic foundation to that is the technology behind 0:13:01.480 --> 0:13:03.920 it that will help us transact business in a more 0:13:03.960 --> 0:13:07.400 efficient and a more efficient way. But in terms of investors, 0:13:07.440 --> 0:13:10.400 that just your garden variety investor. You have to know 0:13:10.480 --> 0:13:13.040 this is speculus, and I think that the volatility is 0:13:13.040 --> 0:13:15.480 a feature. It's not it's it's not a bug, it's 0:13:15.480 --> 0:13:18.960 a feature. And we've seen since they started Bitcoin it's 0:13:19.000 --> 0:13:23.559 had at least half a dozen draw downs um and 0:13:23.600 --> 0:13:25.839 we just went through another one. So to to think 0:13:25.880 --> 0:13:28.920 about this as a stabile asset classes is the wrong 0:13:28.960 --> 0:13:30.800 way to think about it. And if you're going to 0:13:30.880 --> 0:13:32.920 invest in this, you want to think about something small 0:13:33.360 --> 0:13:35.720 and money that you would only put in a specultive bucket, 0:13:35.840 --> 0:13:38.880 something like a zero to five. And so a lot 0:13:38.960 --> 0:13:41.800 of times when people are talking about cryptocurrencies and and 0:13:41.840 --> 0:13:44.600 some of the volatility that we see there, they'll tie 0:13:44.600 --> 0:13:48.440 it back to retail investors either rushing in or getting burned, 0:13:48.559 --> 0:13:51.520 depending on what's going on. But so, how would you 0:13:52.040 --> 0:13:55.720 how are you and your team thinking about the involvement 0:13:55.760 --> 0:13:58.400 of the retail investor. Obviously it's been a really big 0:13:58.440 --> 0:14:02.480 topic for the path year, but then you sort of 0:14:02.480 --> 0:14:07.800 see conflicting data points where you might see inflows, for instance, 0:14:07.840 --> 0:14:10.480 into some retail favorite e t f s, but at 0:14:10.520 --> 0:14:14.280 the same time you're seeing waning call option volumes. So 0:14:14.280 --> 0:14:16.760 how are you guys thinking about the involvement of the 0:14:16.800 --> 0:14:20.800 retail investor. Yeah, so the involvement of retail investor in 0:14:20.840 --> 0:14:22.560 crypto is something we sort of have to keep it 0:14:22.560 --> 0:14:25.440 at arm's length. We will partner with somebody that runs 0:14:25.440 --> 0:14:27.520 a fund, but then that fund is going to charge fees, 0:14:27.560 --> 0:14:29.520 so it's probably not the most efficient way to do this, 0:14:30.040 --> 0:14:32.280 you know, in terms of overall advice, we know, make 0:14:32.280 --> 0:14:34.760 sure people know that it's not for the faint of 0:14:34.800 --> 0:14:37.040 heart or what is an orphans and it should be 0:14:37.080 --> 0:14:39.520 treated as a speculative asset class. So I think in 0:14:39.560 --> 0:14:42.160 the future, you know, when an e t F is approved, 0:14:42.160 --> 0:14:44.520 there'll probably be a lot more retail involvement, but again 0:14:44.560 --> 0:14:47.120 it should be sized to what you would size any 0:14:47.120 --> 0:14:49.840 speculative investment towards. And I think that when we think 0:14:49.880 --> 0:14:52.040 about that, we get questions about it all the time, 0:14:52.720 --> 0:14:55.520 But I think that what is healthy into Mike's point 0:14:56.160 --> 0:14:58.360 is the kind of volatility that we've seen this week 0:14:58.440 --> 0:15:01.000 is a reminder to everybody that it's not gonna always 0:15:01.120 --> 0:15:04.200 just go up, and nothing's guaranteed here, and it's likely 0:15:04.240 --> 0:15:06.000 something you want to be pretty conscious about as you 0:15:06.040 --> 0:15:09.440 tiptoe into it as an investment. I tend to think 0:15:09.480 --> 0:15:12.880 of it as a lottery ticket money, you know, stuff, 0:15:12.880 --> 0:15:16.280 You're an amount You're not, uh gonna feel a lot 0:15:16.320 --> 0:15:18.520 of pain if if, if you lose on some some 0:15:18.600 --> 0:15:21.240 losing tickets. But I wanted to talk a little bit 0:15:21.320 --> 0:15:25.800 about this perennial debate between growth and value, UH and 0:15:26.120 --> 0:15:28.480 in this case the real cyclical parts of the market 0:15:28.520 --> 0:15:32.400 as the reopening of the economies gets stronger and stronger. 0:15:32.800 --> 0:15:35.360 I think you've got a pretty interesting approach. You're almost 0:15:35.360 --> 0:15:39.280 sort of, you know, the neutral Switzerland in this debate, UH, 0:15:39.320 --> 0:15:42.240 recommending a kind of a barbell approached where you have 0:15:42.440 --> 0:15:46.400 growth on one side of the barbell and more cyclical 0:15:46.920 --> 0:15:50.680 stock exposure on on the other side. Unpack that for 0:15:50.760 --> 0:15:53.560 us a little bit. Uh So, what kind of sectors, 0:15:53.600 --> 0:15:55.920 what kind of names are you looking at on both 0:15:56.000 --> 0:15:59.560 ends of that barbell. Yeah, so our approach really is 0:16:00.040 --> 0:16:03.360 barbell approach that has growth on one side and cyclicality 0:16:03.480 --> 0:16:05.280 on the other, and we want you to have that 0:16:05.320 --> 0:16:06.800 approach because we don't think it's going to be a 0:16:06.840 --> 0:16:09.880 binary investment climate ever, right, So we don't think it's 0:16:09.920 --> 0:16:12.640 only going to be growth and not value and and 0:16:12.640 --> 0:16:15.160 and when we think about value, we think about cyclicality, 0:16:15.280 --> 0:16:18.280 especially in a reopening economy. So if you have balance 0:16:18.320 --> 0:16:20.080 where you say, okay, what are the three themes I 0:16:20.080 --> 0:16:22.120 can really get my head wrapped around in growth and 0:16:22.120 --> 0:16:25.160 then we've thrown out cloud computing, cloud security, and five 0:16:25.200 --> 0:16:28.160 G is thematics that we like and and and express 0:16:28.240 --> 0:16:33.960 those opinions UM that manifest exposure to those themes. And 0:16:34.000 --> 0:16:35.600 then on the other side of that, look at what's 0:16:35.640 --> 0:16:39.480 gonna work in cyclicality. So we've we've selected materials, industrials 0:16:39.480 --> 0:16:43.360 and financials. A lot of our investors have swapped out 0:16:43.600 --> 0:16:47.360 materials for energy and and happily UM. But what you 0:16:47.400 --> 0:16:49.600 have to do, though, is really important, is every two 0:16:49.600 --> 0:16:52.240 months to keep that barbell balanced, you have to sell 0:16:52.280 --> 0:16:54.240 the winners and buy some of your losers. So in 0:16:54.280 --> 0:16:57.120 February was one of the first times in three rotations 0:16:57.120 --> 0:16:59.280 where we actually had to sell some over cyclicality and 0:16:59.280 --> 0:17:02.720 put more money into the growth and and and that 0:17:03.280 --> 0:17:06.680 level the bar backout so you have equal exposure of exposure. 0:17:07.040 --> 0:17:09.600 And if you had done that for all of you 0:17:09.600 --> 0:17:12.200 would have outperformed the SP five foundered by almost five 0:17:12.200 --> 0:17:15.040 funder basis points, but four three basis points. And we 0:17:15.080 --> 0:17:16.560 think the same thing is gonna be true this year. 0:17:16.840 --> 0:17:20.399 And I think that helps you navigate these rotational markets 0:17:20.400 --> 0:17:22.840 where we have where growth is back, people are buying 0:17:22.840 --> 0:17:25.000 the growth names again, or wait a minute, they're back 0:17:25.040 --> 0:17:28.560 to cyclicality where you know, jumping into the financials. The 0:17:28.560 --> 0:17:31.240 industrials are doing great, and that gives you some balance. 0:17:31.320 --> 0:17:33.320 And if you set that timer so you know that 0:17:33.359 --> 0:17:35.480 you have to rebalance on a two month basis, you 0:17:35.520 --> 0:17:37.600 don't have to make that emotional decision to say I 0:17:37.640 --> 0:17:39.399 really don't want to sell my winners and buy some 0:17:39.480 --> 0:17:42.040 of my losers, and forces your hand and keeps you 0:17:42.080 --> 0:17:45.719 in a diversified portfolio. And of course, the other perennial, 0:17:46.240 --> 0:17:49.760 the new perennial debate is inflation, of course, and I 0:17:49.800 --> 0:17:53.119 know in your recent notes you've written about some of 0:17:53.160 --> 0:17:57.400 your thoughts they're saying inflationary pressures will be more temporary. 0:17:57.480 --> 0:17:59.960 So I'm hoping you can sort of bring that into 0:18:00.000 --> 0:18:04.560 a conversation and how you're you're thinking about inflationary pressures 0:18:04.840 --> 0:18:07.560 and is it your view that even if we do 0:18:07.960 --> 0:18:11.760 see some inflation, stocks can still continue to do well. 0:18:12.240 --> 0:18:14.560 So one of the concerns that you have is is 0:18:14.560 --> 0:18:17.640 is about inflation? Is margin pressure? Right? Do you get 0:18:17.640 --> 0:18:20.480 margin pressure if your input costs start rising but you're 0:18:20.520 --> 0:18:23.840 not able to pass that increased costs of of good 0:18:23.920 --> 0:18:28.280 sold onto the consumer. And through the first quarter earning season, 0:18:28.320 --> 0:18:30.280 we've already heard from some of those companies that have 0:18:30.320 --> 0:18:33.359 said clearly stated we need to raise prices. Some of 0:18:33.400 --> 0:18:36.320 the inflationary pressures we think are going to be temporary, 0:18:36.320 --> 0:18:39.600 because there's an old saying that nothing fixes high prices 0:18:39.600 --> 0:18:42.240 like high prices and you get a supply response. So 0:18:42.280 --> 0:18:45.480 we're starting to see that a bit as capacity utilization 0:18:45.520 --> 0:18:48.080 has gone up and sawmills, so number prices have come 0:18:48.119 --> 0:18:51.720 down about over the course of a week. I think 0:18:51.760 --> 0:18:54.040 that's healthy. I think the same thing will be true 0:18:54.080 --> 0:18:57.200 and energy prices as more production comes online, whether that 0:18:57.280 --> 0:19:02.200 comes from Iran sanctions coming off or OPEC plus increasing 0:19:02.200 --> 0:19:05.359 output quotas, which they're doing in North America going from 0:19:05.400 --> 0:19:08.280 eleven million barrels a day to thirteen million barrels a day. 0:19:08.280 --> 0:19:10.720 I think that'll that supply response helps push down on 0:19:10.760 --> 0:19:13.480 some of those inflationary pressures. So that's why we think 0:19:13.480 --> 0:19:15.440 that some of it's going to be temporary. I think 0:19:15.520 --> 0:19:18.399 the FED feels that way as well, and they're willing 0:19:18.440 --> 0:19:21.520 to be asymmetric on their inflation target. Their target has 0:19:21.520 --> 0:19:24.840 been that their target of two pc hasn't been met 0:19:24.880 --> 0:19:27.240 in ten years. They're willing to let inflation run a 0:19:27.280 --> 0:19:32.040 bit hotter unless an until we get to substantial economic 0:19:32.080 --> 0:19:35.280 progress towards full employment. So I think that a combination 0:19:35.320 --> 0:19:36.919 of a FED that's going to be patient with a 0:19:36.920 --> 0:19:39.560 little hotter inflation, which we've seen some reports of, and 0:19:39.680 --> 0:19:42.679 just the economics of supply and demand seeing a supply 0:19:42.760 --> 0:19:45.600 response come back into the marketplace. So right now we're 0:19:45.640 --> 0:19:49.199 in a world where aggregate demand is outstripping aggregate supply. 0:19:49.560 --> 0:19:51.639 I think the supply response gets us to a place 0:19:51.680 --> 0:19:53.720 where a lot of that gets neutralized. And it's not 0:19:53.720 --> 0:19:57.159 gonna happen right away. We'll probably have inflation running hot 0:19:57.359 --> 0:19:59.440 throughout the balance of this year, but I don't think 0:19:59.440 --> 0:20:01.879 it gets hot or I think at plateaus, and I 0:20:01.920 --> 0:20:04.440 think as we entered the first quarter next year, prices 0:20:04.440 --> 0:20:07.520 started to come in, you know, or I know you 0:20:07.680 --> 0:20:11.600 have a year end target for the SMP of about 0:20:12.280 --> 0:20:15.639 if I'm not mistaken, Um, that's not too far from 0:20:15.680 --> 0:20:17.760 where we are now. You know, I'm looking at my screen. 0:20:17.800 --> 0:20:22.160 It's probably about three and change away. UM, So I'm 0:20:22.160 --> 0:20:24.399 curious how you're thinking about that. You know, is that 0:20:24.600 --> 0:20:27.240 the potential that that maybe you'll even raise that or 0:20:27.320 --> 0:20:29.199 is it a matter of you know a lot of 0:20:29.240 --> 0:20:34.199 people are sort of racing for the FED too, starts 0:20:34.200 --> 0:20:37.280 thinking about talking about talking about thinking about maybe even 0:20:37.359 --> 0:20:41.560