WEBVTT - We're in Price Discovery Mode, Wilson Says 0:00:00.080 --> 0:00:13.040 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.680 Bloomberg dot Com, and of course on the Bloomberg Here 0:00:33.720 --> 0:00:36.280 in the United States and worldwide. It's all been about 0:00:36.360 --> 0:00:41.080 elevated volatility. Is that elevated volatility technical or is it 0:00:41.120 --> 0:00:44.640 a change in perceptions of risk worldwide and financial markets. 0:00:44.640 --> 0:00:47.120 I'm pleased to say that we're joined by a fantastic 0:00:47.120 --> 0:00:49.760 guest on Bloomberg Radio. It's Mike Wilson, the Morgan Stanley 0:00:49.840 --> 0:00:52.839 chief US equity strategist and the c I oh for 0:00:53.000 --> 0:00:54.920 Morgan Stanley. Might always got a can shout with you. 0:00:54.960 --> 0:00:57.080 What a week so far? It's a little bit of 0:00:57.080 --> 0:01:00.280 action we haven't had any awhile. It's actually refreshing many 0:01:00.280 --> 0:01:03.360 ways because it's been so stagnant for so long. We're 0:01:03.360 --> 0:01:05.320 now kind of shaking the trees a little bit. And 0:01:05.360 --> 0:01:07.319 I think the big question folks are asking, is this 0:01:07.800 --> 0:01:10.400 just a correction and an overbought market or is there 0:01:10.440 --> 0:01:13.440 actually a regime shift happening beneath the surface, and we 0:01:13.440 --> 0:01:15.160 think it's a bit bit of both. So walk me 0:01:15.200 --> 0:01:18.120 through why you see indications of a of a regime 0:01:18.160 --> 0:01:19.959 shift at this point when a lot of people come 0:01:20.000 --> 0:01:21.440 on this show inside what was seen in the last 0:01:21.440 --> 0:01:24.319 few days. It's purely technical and not fundamental. The reason 0:01:24.319 --> 0:01:26.840 why is because of sequencing, right, So if you I 0:01:26.840 --> 0:01:29.920 mean the ball shock happened really Monday and Tues Monday 0:01:29.959 --> 0:01:33.520 overnight as a result of the correction we had last 0:01:33.600 --> 0:01:35.959 the week prior. And then if you if you're really 0:01:36.000 --> 0:01:38.080 objective about it, the reason we had a correction a 0:01:38.120 --> 0:01:40.200 week prior was because rates kind of broke through some 0:01:40.319 --> 0:01:45.080 levels where it started to affect valuations in the equity market, 0:01:45.120 --> 0:01:47.200 and that was the real kickoff move. So you have 0:01:47.240 --> 0:01:50.600 to ask yourself why did that evaluation gap down happen? 0:01:50.680 --> 0:01:53.320 It happened because we finally reached a point where rates 0:01:53.320 --> 0:01:57.800 are now potentially a gating factor on this nirvana equity 0:01:57.840 --> 0:02:00.760 bowl market we've been in. Do you see volatile? It's normalizing? 0:02:01.120 --> 0:02:04.920 What is normal right now? Certainly sub tent wasn't normal, 0:02:05.080 --> 0:02:06.560 So so what is normal and what are we going 0:02:06.560 --> 0:02:10.000 back to? Well? Normals fourteen uh and the US equity 0:02:10.040 --> 0:02:12.160 market and we've been you know, as you said subten, 0:02:12.840 --> 0:02:15.560 So we're making We're gonna make our way back to fourteen. 0:02:15.760 --> 0:02:18.040 I don't think there's any doubt that the real question 0:02:18.080 --> 0:02:20.720 is what's the path and do we need to overshoot 0:02:21.200 --> 0:02:23.400 fourteen for a while. You know, everybody talks about the 0:02:23.400 --> 0:02:25.280 FED now talking about they're going to overshoot their target 0:02:25.360 --> 0:02:27.920 and inflation. Well why can't we overshoot the target and 0:02:28.000 --> 0:02:30.320 volatility too? I mean, this is these are moving pieces, 0:02:30.760 --> 0:02:32.799 you know, it's it's interesting everybody, you know, I always 0:02:32.800 --> 0:02:34.079 likes to point to the FED, you know, as the 0:02:34.120 --> 0:02:36.080 Fed's fault, the set and the other. You know, markets 0:02:36.080 --> 0:02:39.000 are dynamic, and uh, you know I would say that 0:02:39.040 --> 0:02:42.160 market participants are is you know, guilty of you know 0:02:42.240 --> 0:02:45.000 markets overshooting is you know, they have to take the bait, right, 0:02:45.000 --> 0:02:46.320 they have to go there. So there was a big 0:02:46.360 --> 0:02:48.680 strategy last year. It was the short volved strategy. And 0:02:48.720 --> 0:02:51.120 I want to ask you whether you think that actually 0:02:51.120 --> 0:02:54.239 contributed towards love of flatility and now those products cease 0:02:54.320 --> 0:02:57.120 to exist, whether it also means that actually we can 0:02:57.160 --> 0:02:59.600 expect high folatility because we won't have these products they're 0:02:59.600 --> 0:03:02.480 suppress sink. It just walk me through those two points. Yeah, 0:03:02.520 --> 0:03:04.359 so look, first of all, you have to understand why 0:03:04.440 --> 0:03:06.800 is why has volatively been low. There was a you know, 0:03:06.800 --> 0:03:08.639 a call last year some people were making back in 0:03:08.680 --> 0:03:11.360 August that the markets were really complacent and volves too 0:03:11.560 --> 0:03:13.840 is too low, and we we just actually disagreed with 0:03:13.880 --> 0:03:16.000 at that time because valls low for the last several 0:03:16.080 --> 0:03:18.679 years for fundamental reasons. The fundamental reasons are, we have 0:03:18.680 --> 0:03:21.280 a synchronous global recovery. There's no part in the world 0:03:21.360 --> 0:03:24.360 that's seeing you know, deteriorating economic conditions. We have the 0:03:24.400 --> 0:03:27.920 lowest earnings estimate dispersion we've seen in forty years. So 0:03:27.960 --> 0:03:30.359 if there's no estimate dispersion, then why should there be 0:03:30.440 --> 0:03:33.680 volatility in the marketplace. So it was fundamentally driven. And 0:03:33.720 --> 0:03:36.080 then of course, you know, people get a little too 0:03:36.120 --> 0:03:38.120 carried away with it and they start trying to make 0:03:38.160 --> 0:03:41.080 money on that trend. It's a trend following. And so 0:03:41.200 --> 0:03:43.640 we then saw structured products and notes and things that 0:03:43.920 --> 0:03:46.560 tied into this low vollity targeting strategy not to mention 0:03:46.680 --> 0:03:49.119 risk parity and variable nuities which targeted then as well. 0:03:49.640 --> 0:03:51.640 And and then of course we had a catalyst with 0:03:51.760 --> 0:03:54.600 rates moving up and all of that came crashing down. 0:03:54.640 --> 0:03:58.400 And that's and that's always what happens. Good morning, Tom Kane, 0:03:58.480 --> 0:04:01.880 good morning. Just very happy that our cohenk has joined 0:04:01.960 --> 0:04:05.640 us in the studio. You know, take my entourage of course, 0:04:06.000 --> 0:04:09.120 from the TV to radio. The entourage is very difficult 0:04:09.120 --> 0:04:11.400 to get into the radio control which was there and 0:04:12.080 --> 0:04:16.680 the doors. They'm sure I get a Jamila which is 0:04:16.880 --> 0:04:20.359 somebody said, what's it Jamala? Jamila? Is this gorgeous hot 0:04:20.440 --> 0:04:24.200 tea with honey and also the name of one of 0:04:24.200 --> 0:04:26.599 your producers a thing as well. It's just Jamie, I mean, 0:04:26.720 --> 0:04:30.960 you know, and and it is absolutely phenomenal. Uh. It's 0:04:31.000 --> 0:04:33.960 gotten me, seriously, it's gotten me through the last look 0:04:34.000 --> 0:04:38.960 at sterling hand Yeah, big moves. I think I think 0:04:39.080 --> 0:04:41.240 send a communication from the Bank of England's pretty clear, 0:04:41.279 --> 0:04:43.080 isn't it. We need another rate hike. Get ready for one. 0:04:43.360 --> 0:04:46.840 Most people pricing that in for May of this year. Tom, 0:04:47.000 --> 0:04:48.840 If you told me to halve months ago we get 0:04:48.839 --> 0:04:50.920 two hikes in the space of a year, I might 0:04:50.960 --> 0:04:54.560 have laughed. But if we would get to one forty sterling, 0:04:54.640 --> 0:04:56.920 nobody believed that. No, we were in the low one 0:04:57.000 --> 0:05:00.440 twenties it's just twelve Jeffrey, you killed that? How Rhetecker? 0:05:00.480 --> 0:05:02.400 I believed that a great job at Morgan Stanley on 0:05:02.440 --> 0:05:04.719 that too. And and yet here we are Mike Wilson. 0:05:05.120 --> 0:05:09.159 This talks about what we heard from Mervin King, Rick Michigan, 0:05:09.720 --> 0:05:13.279 Robert Kaplan and Axel Weber. Is there seemed to be 0:05:13.520 --> 0:05:18.280 limited degrees of freedom when you get this kind of volatility? 0:05:18.720 --> 0:05:22.800 Is that true that the choices that bankers and institutions 0:05:22.800 --> 0:05:26.440 could make get gummed up when you have volatility or 0:05:26.440 --> 0:05:31.960 its volatility ultimately actually a good thing for Chairman Powell. Well, 0:05:32.080 --> 0:05:35.200 I look, it definitely brings clarity, like we're we're in 0:05:35.240 --> 0:05:38.200 price discovery mode now right, we know you know and 0:05:38.360 --> 0:05:41.039 and and that, and so that's why there's no leadership, 0:05:41.080 --> 0:05:43.080 you know. With The most interesting development, the last I 0:05:43.080 --> 0:05:45.520 think forty eight hours is not getting enough press, is 0:05:45.960 --> 0:05:49.360 that we we have not seen any shift in leadership 0:05:49.520 --> 0:05:52.000 either way in the client has been across the board. 0:05:52.000 --> 0:05:53.600 And that's very unusual because typically when you have a 0:05:54.160 --> 0:05:56.640 risk off event like this, usually what happens as the 0:05:56.680 --> 0:05:59.480 market goes after where the portfolios are exposed, So you 0:05:59.480 --> 0:06:02.000 would think them momentum would have been hurt. It didn't 0:06:02.000 --> 0:06:04.640 momentum is actually held in Okay, agreed, and so we 0:06:04.680 --> 0:06:07.440 haven't had the portfolio disruption yet. I think that's to come. 0:06:07.480 --> 0:06:10.640 I think we're gonna have portfolio disruption now the next 0:06:10.680 --> 0:06:12.960 couple of weeks, which is going to actually force people's hands. 0:06:13.320 --> 0:06:16.159 One thing that we've seen in our data is even 0:06:16.160 --> 0:06:18.799 though we had this ball shock and some people monetize 0:06:18.839 --> 0:06:21.360 the few puts that were out there, put put buying 0:06:21.440 --> 0:06:24.040 is not picked up, meaning people are still not hedged. 0:06:24.080 --> 0:06:26.880 They're still buying the story of buying it, but they're 0:06:26.920 --> 0:06:29.000 not selling it either. So that we have not seen 0:06:29.040 --> 0:06:31.280 people heads. We have not seen people produced their portfolio 0:06:31.279 --> 0:06:33.920 exposures because they haven't been punished for yet. So what's 0:06:33.920 --> 0:06:35.680 gonna happen the next two weeks is the market's going 0:06:35.720 --> 0:06:37.800 to figure out is this a regime shift that I 0:06:37.839 --> 0:06:39.760 need to worry about from a structural standpoint, or is 0:06:39.760 --> 0:06:41.800 it's just a temporary pause. We think it's more of 0:06:41.800 --> 0:06:44.800 the ladder. Then we need we need new leadership to emerge. 0:06:45.080 --> 0:06:47.159 And that's what's that's what's we're really watching in the 0:06:47.200 --> 0:06:50.000 next two weeks. Futures up a negative five rather futures 0:06:50.040 --> 0:06:53.320 negative five the VIX point six seven. I was just 0:06:53.360 --> 0:06:57.360 gonna say, John Ferrell, price discovery is Mr Wilson uses it. 0:06:57.720 --> 0:07:00.200 Price discovery is what happens when you get a be 0:07:01.520 --> 0:07:04.680 you get price discovery. To the vet bil Vet Bill, 0:07:05.839 --> 0:07:09.160 let's start with cleaning the carpets. When let's start let's 0:07:09.200 --> 0:07:12.360 start with that. Let's start with clearing market a little bit, 0:07:12.480 --> 0:07:17.120 Mike Willson. Typically the volatility curve, the VIX curve stepens 0:07:17.160 --> 0:07:19.920 the further you go out, and that's quite intuitive. The 0:07:19.920 --> 0:07:22.520 further you go out, the more uncertain things are, therefore 0:07:22.640 --> 0:07:26.400 implying volatility should be higher in the future. What we 0:07:26.480 --> 0:07:30.440 have right now is complete opposite. So at the front 0:07:30.520 --> 0:07:32.880 end you have an inverted curve pretty much. So the 0:07:32.960 --> 0:07:36.160 term structure looks very very weird on the VIX right now, 0:07:36.360 --> 0:07:38.280 and I'm trying to understand when that's going to shake out. 0:07:38.280 --> 0:07:40.440 How long it takes to shake out, So we talked 0:07:40.480 --> 0:07:42.640 about this earlier. It takes a couple of weeks typically, 0:07:42.720 --> 0:07:45.720 So when once you see the inversion of the VIX curve, 0:07:46.080 --> 0:07:49.240 that's a good sign. That means that risk is getting repriced. 0:07:49.760 --> 0:07:51.400 And we've seen that. Let me give give you, and 0:07:51.440 --> 0:07:53.400 also I'll put in equity terms, which is very simple 0:07:53.400 --> 0:07:57.640 to understand. We picked at ps UH in December, right 0:07:57.640 --> 0:08:00.640 when the tax bill passed at eighteen point five times 0:08:00.640 --> 0:08:04.200 forward twelve UH. In the overnight session Monday night, we 0:08:04.240 --> 0:08:06.480 got down at sixteen times. All right, that's a pretty 0:08:06.480 --> 0:08:10.280 healthy reset on price price discovery. Okay, I think sixteen 0:08:10.280 --> 0:08:12.600 times it's probably too cheap. That doesn't mean we're not 0:08:12.600 --> 0:08:14.440 going to go back down there, and we test that level. 0:08:14.800 --> 0:08:18.400 The VIX curve inversion is part of that price discovery 0:08:18.400 --> 0:08:20.200 process to people are saying, I don't know where we're 0:08:20.200 --> 0:08:22.160 gonna sell out. Let me protect myself. I'm gonna pay 0:08:22.240 --> 0:08:24.440 up for ball in the short term if I want 0:08:24.440 --> 0:08:27.200 to buy puts, and the market is very confused, so 0:08:27.320 --> 0:08:29.640 we suspect that curve will flatten out over the next 0:08:29.640 --> 0:08:32.000 two weeks. It typically does unless there's something systemic going on, 0:08:32.120 --> 0:08:34.600 which we do not think it's a new higher elevated 0:08:35.600 --> 0:08:38.120 so you're gonna get it will flatten, but it'll stay 0:08:38.160 --> 0:08:41.080 at a higher realized level than what we've been when 0:08:41.120 --> 0:08:43.760 we've been at Mike Wilson, generous of your time this morning. 0:08:43.800 --> 0:09:00.720 He is with Mr Gorman's Morgan Stanley, what a joy 0:09:00.720 --> 0:09:03.760 to speak with Douglas Cass. Sbior's partners. Uh, Doug, one 0:09:03.760 --> 0:09:06.520 of the great things we've been doing here in surveillance. 0:09:06.559 --> 0:09:10.160 Mervin King yesterday, Rick Michigan of Colombia, and then today 0:09:10.520 --> 0:09:15.080 President Capital of Dallas, and then axel Weber of UBS. 0:09:15.160 --> 0:09:17.760 And within all that, there's certain moments, Doug. As you know, 0:09:17.880 --> 0:09:20.240 it's it's not like the whole conversation. You get this 0:09:20.280 --> 0:09:25.479 one little phrase. An axel Weber talked about his worry 0:09:25.520 --> 0:09:30.920 of market based finance. It's not it's not two thousand seven, 0:09:31.360 --> 0:09:34.880 two thousand eight. There were other issues then, leverage, example, 0:09:35.720 --> 0:09:39.800 lack of huge exposure by banks. But axel Weber now 0:09:39.840 --> 0:09:43.400 talking about market based finance, and that brings us over 0:09:43.440 --> 0:09:48.679 to this risk parity idea. Doug Cass, what is risk parity? 0:09:49.440 --> 0:09:54.079 Risk parity is an attempt to maximize return and minimize 0:09:54.200 --> 0:10:00.000 risk by UM placing bets on different asset classes, typically 0:10:00.920 --> 0:10:04.560 placing a bit on the relationship between bonds and stocks 0:10:05.679 --> 0:10:15.480 UM and when that relationship MUF where it's been historically UM, 0:10:15.520 --> 0:10:19.640 there is a tendency, a need to de leverage and 0:10:19.720 --> 0:10:24.200 to cover short volatility positions and to be clear, away 0:10:24.280 --> 0:10:29.360 from the vixed trade, the general fixed income risk parity 0:10:29.440 --> 0:10:33.440 trade has been working like a charm for many many quarters, 0:10:33.480 --> 0:10:36.200 hasn't it right? And all of a sudden it's it's 0:10:36.240 --> 0:10:38.640 reversed and we saw our stocks go down at the 0:10:38.679 --> 0:10:42.200 same time bond prices went down and yields went up. 0:10:43.000 --> 0:10:46.720 You know, it seems to me that that that January 0:10:46.760 --> 0:10:50.520 and early February will be looked at as a semilinel 0:10:50.600 --> 0:10:54.400 point in time with regard to these instruments. I think 0:10:54.440 --> 0:10:57.960 in January we experienced peak Hubris, and we had this 0:10:58.000 --> 0:11:04.440 ministreme moment in mix and the market was basically underpricing risk. 0:11:05.320 --> 0:11:08.360 It was building up excesses in a low vall setting, 0:11:08.520 --> 0:11:11.160 and we knocked on the door of euphoria last month. 0:11:11.280 --> 0:11:13.679 Here is the key question, then, Douglas cass And you 0:11:13.679 --> 0:11:17.760 know this because you've been there. You have a structure, 0:11:17.800 --> 0:11:23.160 Things change and you have to re hedge within moving 0:11:23.559 --> 0:11:27.920 markets that really hasn't been tested yet, has it. No, 0:11:28.200 --> 0:11:31.840 it was tested Friday, which will likely go down to 0:11:32.080 --> 0:11:36.200 paraphrase Don McLean in his song American Pie the day 0:11:36.240 --> 0:11:40.840 the short volatility trade died. Okay, But there's other asset 0:11:40.840 --> 0:11:44.559 classes where we really haven't tested it yet, right, that's correct, 0:11:44.559 --> 0:11:48.480 attends you know, we're in as Freedman Tom Friedman says, 0:11:48.559 --> 0:11:52.480 we're in this flat and interconnected world. So all asset 0:11:52.600 --> 0:11:56.920 classes have have a correlation of one these days, so 0:11:57.000 --> 0:11:59.760 it seeps into different asset classes, and the system is 0:11:59.800 --> 0:12:03.920 so leveraged that de risking occurs, and what they were 0:12:03.960 --> 0:12:10.400 buying they sell in this shocking environment like with portfolio insurance, 0:12:10.880 --> 0:12:14.160 where bias by high and sellers through. But if you 0:12:14.200 --> 0:12:16.480 go to the basic idea, and I'm quoting here from 0:12:16.480 --> 0:12:19.800 the American philosopher John Tucker, if you have faith in 0:12:19.880 --> 0:12:23.520 God above, if the Bible tells you so, I'm kidding, folks, 0:12:23.559 --> 0:12:29.520 that's from American pie. But the faith in interest rate. Yeah, 0:12:29.880 --> 0:12:32.760 except these guys aren't driving Chevy's. They've been driving Bentley's 0:12:32.760 --> 0:12:35.040 because they've been making a lot of money. Doug casts 0:12:35.520 --> 0:12:39.000 in the Bible here the you know whoever I'm talking to, folks, 0:12:39.000 --> 0:12:42.160 whether it's not seeing teleb or Douglas cast, there's a 0:12:42.240 --> 0:12:46.040 Bible of belief. What's gonna go wrong with that Bible 0:12:46.200 --> 0:12:49.120 of belief? When we see a thirty year bond at 0:12:49.120 --> 0:12:52.080 a three thirty or a ten ure yield pops three 0:12:52.120 --> 0:12:55.800 point four three point zero four. Who knows. But but 0:12:56.000 --> 0:12:58.720 what's gonna happen to that bible that will be in 0:12:58.760 --> 0:13:04.400 trouble at that point? Costs um very quietly. Corporate America 0:13:04.520 --> 0:13:07.320 has leveraged up, and we know the problem of the 0:13:07.360 --> 0:13:11.080 public sector because you know, to paraphrase Howard Marks, we've 0:13:11.080 --> 0:13:16.199 lost physical discipline with the tax bill. Um. The interesting 0:13:16.240 --> 0:13:20.599 thing to me is that um um, we may be 0:13:20.960 --> 0:13:25.720 entering what I describe as portfolio insurance part do last 0:13:25.760 --> 0:13:31.000 scene in October, and perhaps that should be our trading 0:13:31.080 --> 0:13:34.600 template over the term. In other words, if history rhymes, 0:13:35.040 --> 0:13:38.560 we look at what happened to equity back in October 0:13:39.040 --> 0:13:43.679 and November and December. I do know when SMP futures 0:13:43.720 --> 0:13:46.960 dropped by fifty five handles on no News, as it 0:13:47.000 --> 0:13:49.760 did in the last twenty five minutes of trading yesterday, 0:13:50.040 --> 0:13:53.200 you know we have a problem. And I would say 0:13:53.240 --> 0:13:54.719 that there are a lot of people you know. The 0:13:54.840 --> 0:13:58.920 question is is was Monday and Tuesday as it relates 0:13:59.080 --> 0:14:03.680 to uh an unwinding of the short VIX trade? Was 0:14:03.720 --> 0:14:07.360 that address rehearsal? And I would just say that last November, 0:14:07.400 --> 0:14:10.840 Bank of America estimated that there was over over one 0:14:10.880 --> 0:14:15.800 point five trillion linked to volatility links strategies UM. You 0:14:15.840 --> 0:14:18.959 know risk parity. You mentioned all trending, vault targeting c 0:14:19.160 --> 0:14:22.360 t A s. So if it took nearly a decade 0:14:22.400 --> 0:14:24.080 for the number of e t s and e t 0:14:24.280 --> 0:14:27.200 n s to outnumber the amount of publicly traded companies 0:14:27.240 --> 0:14:30.160 on the exchanges, and it took nearly a decade for 0:14:30.240 --> 0:14:36.200 the quand strategies UM to surpass active investing, something makes 0:14:36.240 --> 0:14:39.280 me think that this size makes shift in the market 0:14:39.320 --> 0:14:42.800 and a one point five trillion dollars invested in volatility 0:14:42.920 --> 0:14:46.120 link strategies that took ten years in the making to 0:14:46.240 --> 0:14:49.760 develop is not going to end in three trading sessions? Doug? 0:14:49.800 --> 0:14:52.160 What's so important here? And this alludes again to dr 0:14:52.600 --> 0:14:55.760 Vember of ubs is important comments today on market based 0:14:55.840 --> 0:14:58.920 finance and what I'm calling the shadow vics economy, and 0:14:58.960 --> 0:15:02.560 by economy I means the trading economy. Doug Cass, do 0:15:02.600 --> 0:15:05.720 you have a real worry about over the counter structures 0:15:05.760 --> 0:15:08.479 away from visible e t f s and other prospective 0:15:08.600 --> 0:15:12.040 items that when we go we don't know that they're 0:15:12.120 --> 0:15:16.320 right now we're going to discover this real quickly. Yeah, 0:15:16.640 --> 0:15:21.040 I remember when you know, I have been outspoken about 0:15:21.080 --> 0:15:24.840 the market's vulnerability to these volatility link strategies for about 0:15:24.840 --> 0:15:27.720 a year. I remember doing the same thing about c 0:15:27.840 --> 0:15:30.800 D O S and nine in two thousand seven, and 0:15:30.840 --> 0:15:36.960 no one was concerned, and the general consensus view that 0:15:37.120 --> 0:15:40.040 was that there would be no contagion. And look what happened. 0:15:41.400 --> 0:15:46.800 These instruments virtually crippled and bankrupted the world's financial system. 0:15:46.840 --> 0:15:50.360 So we don't know what's out there. Well we know 0:15:50.520 --> 0:15:52.160 what what are you gonna do now? You say you're 0:15:53.040 --> 0:15:55.240 in cash, you just sort of what I'm gonna do 0:15:55.360 --> 0:15:59.000 is the coo Larry David. I'm trying to elevate small 0:15:59.040 --> 0:16:03.120 talk to medium too. You should be concerned about these instruments. 0:16:03.240 --> 0:16:07.680 You should use volatility opportunistically if you want them. If 0:16:07.680 --> 0:16:10.120 you're short and you buy, you know, and stocks are 0:16:10.240 --> 0:16:13.000 violently lower, you should be covering. And if you're a 0:16:13.080 --> 0:16:15.680 value investor, you should buy be buying what you like 0:16:16.160 --> 0:16:20.040 during these periods of the equilibrium, but the price probably 0:16:20.400 --> 0:16:22.520 going to continue for a long time. You look at 0:16:22.560 --> 0:16:27.240 what happened in after the portfolio insurance crash. There was 0:16:27.280 --> 0:16:30.200 a test you know, you had turned around Tuesday, after 0:16:30.320 --> 0:16:34.760 Monday's big schmicing, you had a day rally, and then 0:16:34.800 --> 0:16:37.680 you had a test the following week, and then back 0:16:37.680 --> 0:16:40.280 in it rallied, and then you had another test, the 0:16:40.320 --> 0:16:43.560 final successful test in early December. So I think you're 0:16:43.560 --> 0:16:46.920 gonna you're gonna basically follow the same pattern. Cass, thank 0:16:46.960 --> 0:16:49.720 you so much, greatly appreciate with severies partners, some perspectives 0:16:49.720 --> 0:17:04.840 they're using with the tinge of history. I'd love to 0:17:04.880 --> 0:17:08.080 hear from all of our listeners. David emails in. He 0:17:08.200 --> 0:17:14.400 says Tom not enough tar Heels Duke basketball discussion him. 0:17:14.520 --> 0:17:18.440 We've been remiss. We're not talking tar Heels and Duke. 0:17:19.760 --> 0:17:22.760 We gotta find the nearest approximation to that, which would 0:17:22.760 --> 0:17:27.080 be I mean, it's tonight, eight pm tonight, right in 0:17:27.160 --> 0:17:29.080 Chapel Hill, so it should be another great game. But 0:17:29.480 --> 0:17:31.640 the Dukes are doing better this year. You're doing better. 0:17:31.680 --> 0:17:33.520 They're doing very well. But they're very young, lots and 0:17:33.560 --> 0:17:35.640 lots of freshman, lots of one and done. So coach 0:17:36.040 --> 0:17:38.280 has to, you know, make them into a team by March. 0:17:38.320 --> 0:17:40.160 And that's his that's what he said. But we're getting 0:17:40.240 --> 0:17:43.320 right towards March. Baptis it's February, and like like, Duke's 0:17:43.359 --> 0:17:46.880 doing better, Virginia's killing Virginia's great, Virginia beat Duke. Duke 0:17:46.920 --> 0:17:48.960 loss to St. John's last weekend, and then St. John's 0:17:48.960 --> 0:17:52.920 beat number one in Villanova. So it's been Dave, David, 0:17:52.960 --> 0:17:55.840 if you're listening, that's it. We're doing. No more basketball talking. 0:17:55.920 --> 0:17:58.960 We don't care about the tar Heels, don't care about David. 0:17:59.000 --> 0:18:02.000 You are so news. But you read this on Twitter 0:18:02.520 --> 0:18:04.399 and I looked at their press release. It was almost 0:18:04.400 --> 0:18:06.919 an adult press release, wasn't it. Yeah, and they actually 0:18:06.960 --> 0:18:09.920 made gap earnings for the for the first time, so 0:18:10.119 --> 0:18:12.359 uh yeah, So I think, you know, we got a 0:18:12.160 --> 0:18:15.000 relief rally here. The stock has been beaten down. Now 0:18:15.119 --> 0:18:17.359 we see some green shoots that maybe, uh, some of 0:18:17.359 --> 0:18:19.800 the changes they've made to the companies, to the offering, 0:18:20.119 --> 0:18:21.760 you know, might be you know, resonating with with their 0:18:21.840 --> 0:18:23.960 users and with advertisers. Well, Sweeney, you're on all of 0:18:23.960 --> 0:18:27.639 Bloomberg Intelligence, you and your entire team and me. We 0:18:27.760 --> 0:18:30.959 know they don't have mass, they don't have scale, they 0:18:31.040 --> 0:18:34.359 got lousy revenue growth. Did I read a press release 0:18:34.440 --> 0:18:37.320 today which is basically ship shaping them to be a 0:18:37.400 --> 0:18:40.560 taken out possible, but it's gonna be much more expensive 0:18:40.560 --> 0:18:42.920 than it was, you know, three to six, six months ago. 0:18:43.000 --> 0:18:44.720 But I think you know what they've got going for 0:18:44.800 --> 0:18:47.399 them now? Tit the extent that somebody wants three fifty 0:18:47.400 --> 0:18:51.000 million uh subscribers a social network of three or fifty 0:18:51.160 --> 0:18:54.800 uh increasingly engaged users. Um is now there's some green 0:18:54.800 --> 0:18:57.240 shoots to say, Okay, maybe this business has righted itself. 0:18:57.280 --> 0:18:59.480 Maybe it's found kind of a little bit way forward 0:18:59.520 --> 0:19:01.600 from a pro perspective. So if if you're a Google 0:19:01.640 --> 0:19:04.760 and you're looking for a social network to cobble onto 0:19:04.840 --> 0:19:07.520 your massive platform, maybe now you have a little bit 0:19:07.520 --> 0:19:09.560 more confidence in the business. You're just gonna have to 0:19:09.560 --> 0:19:11.360 pay more than you would have three or six months ago. 0:19:11.480 --> 0:19:14.840 Paul Sweeney, How is it that for all previous quarters 0:19:14.880 --> 0:19:17.680 I was always informed that the most important and only 0:19:17.760 --> 0:19:22.159 relevant number was how many monthly active users there are 0:19:22.400 --> 0:19:26.440 of Twitter? That actually declined, at least in the United States. 0:19:26.920 --> 0:19:30.920 Why do investors now seem to throw out that, turn 0:19:31.040 --> 0:19:34.320 that into a footnote, and turn a ninety one million 0:19:34.359 --> 0:19:37.719 dollar profit after being a being a public company for 0:19:37.760 --> 0:19:40.920 four years and a real company for twelve. How Why 0:19:41.000 --> 0:19:43.119 is it that that becomes the headline. I think the 0:19:43.160 --> 0:19:45.560 investors that are left in this stock have said, Okay, 0:19:45.640 --> 0:19:48.879 we're three or fifty million users, the monthly active users 0:19:48.960 --> 0:19:50.920 that ain't gonna good grow anymore. We're not going to 0:19:50.960 --> 0:19:54.120 be a billion dollar user base like Facebook or Instagram. 0:19:54.280 --> 0:19:56.360 What we are going to be is a much more 0:19:56.520 --> 0:19:58.920 engaged user base. And that's what we're going to pitch 0:19:58.920 --> 0:20:01.320 to advertisers, the fact that users are more engaged. So 0:20:01.359 --> 0:20:03.800 we're not looking at monthly active users, but the bulls 0:20:03.800 --> 0:20:07.040 are looking at daily active users, which were up twelve 0:20:07.119 --> 0:20:09.399 percent year of a year. That was the metric that 0:20:09.480 --> 0:20:12.720 has become the metric that has kind of replaced monthly 0:20:12.720 --> 0:20:15.520 active users because a monthly active user story isn't very good. 0:20:15.680 --> 0:20:18.280 So that's the don't raise the bridge, lower the river 0:20:18.400 --> 0:20:22.320 exactly exactly and and uh, we'll see, but for this quarter, 0:20:22.400 --> 0:20:25.919 that's that was enough. So who would buy it? You know, 0:20:25.960 --> 0:20:28.080 I don't know anybody again, anybody who's looking for a 0:20:28.160 --> 0:20:31.560 big social who you know doesn't have a big social play. 0:20:31.600 --> 0:20:36.879 Is that Google? Is that Apple? Um Disney? Uh? Possibly possibly, 0:20:36.920 --> 0:20:38.439 but you know they've got enough on their plate now 0:20:38.480 --> 0:20:40.919 with trying to close sixty billion dollars or the assets 0:20:40.960 --> 0:20:43.280 from from news Corps. But you know, but it's now 0:20:43.280 --> 0:20:46.760 getting I think probably too expensive for any traditional media company. 0:20:46.760 --> 0:20:48.359 I think now you're looking tech and you're just looking 0:20:48.400 --> 0:20:51.280 at tech. Who somebody who doesn't have a big social 0:20:51.359 --> 0:20:53.080 platform per se and that you know again, then the 0:20:53.240 --> 0:20:56.440 number one name that I hear most of investors is Google. Um, 0:20:56.480 --> 0:20:59.720 it's still you know, a relatively small acquisition for Google. 0:20:59.880 --> 0:21:04.200 Is Twitter a growth story? Uh? No? Um? Right now? 0:21:04.240 --> 0:21:06.280 We had two percent growth in revenue and that was 0:21:06.320 --> 0:21:08.119 the first growth we've had in four years. So no, 0:21:08.240 --> 0:21:11.680 it's not because internet advertising is growing fifteen to twenty 0:21:11.760 --> 0:21:13.680 percent a year and they only grew two percent. So 0:21:14.080 --> 0:21:16.760 it's an engagement story, and it's you know, we'll see 0:21:16.800 --> 0:21:19.879 some question, where's the advertising revenue? I'm on Twitter all 0:21:19.920 --> 0:21:22.920 the time and I never see it. We're we're Facebook, 0:21:22.960 --> 0:21:25.439 I see it. Yeah, where is it? It's it's in 0:21:25.480 --> 0:21:28.480 the feed. Maybe you're just not targeted by their advertisers. 0:21:28.480 --> 0:21:32.200 I don't know, maybe the market Well, why target anybody 0:21:32.240 --> 0:21:34.800 that has lots of users? Yeah, and lots of followers, 0:21:34.840 --> 0:21:39.359 I beg your pardon, lots of supposable income. Yeah, So No, 0:21:39.480 --> 0:21:43.080 they're I mean, they're the advertisers are there. But the 0:21:43.160 --> 0:21:45.399 advertisers that you really want to see, the big brand 0:21:45.440 --> 0:21:48.040 advertisers of Coca Cola is at General Motors and and 0:21:48.080 --> 0:21:50.840 they're not They're they're on Facebook, they're on Instagram because 0:21:50.840 --> 0:21:53.840 each of those platforms books. Yeah, not even Snap a 0:21:53.840 --> 0:21:55.240 little bit. But you know, you gotta be somewhere where 0:21:55.240 --> 0:21:57.080 you can get a billion, a billion five users, and 0:21:57.359 --> 0:22:01.440 those opportunities are limited, and they're pretty much you know, YouTube, Facebook, 0:22:01.440 --> 0:22:04.000 Instagram kind of thing. Juda Martin Adams killed it yesterday. 0:22:04.000 --> 0:22:06.960