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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe.

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Speaker 4: Why isnt thal Joe?

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Speaker 2: Every once in a while, I think it's a good

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Speaker 2: idea to pause and consider everything that's happened in the

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Speaker 2: market and how it actually matched up to initial expectations,

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Speaker 2: because I think, you know, we're recording this on let's

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Speaker 2: see June eighteenth, s and P five hundred is at

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Speaker 2: another record. Meanwhile, ten year treasury yields are at what

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Speaker 2: like four point three percent now, and I think certainly

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Speaker 2: two years ago, maybe even a year ago, I don't

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Speaker 2: think anyone would have thought that stocks would rally this

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Speaker 2: much in a rising rate environm.

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Speaker 4: No, I mean, I think this has been you know,

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Speaker 4: the beginning the middle of twenty twenty. I'm starting to

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Speaker 4: lose track of the years. Parts of twenty twenty two,

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Speaker 4: obviously the stock market was total dead money, and going

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Speaker 4: into twenty twenty three, I think there was a lot

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Speaker 4: of pessimism recession, and that would have been like, well, yes,

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Speaker 4: this is what we expect when we get a rising

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Speaker 4: rate environment. Stocks go down, the economy slows maybe a

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Speaker 4: recession happens and then the market turned around, the economy

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Speaker 4: continued to boom. But it's not like they cut rates

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Speaker 4: or anything. And in fact, the main story has been

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Speaker 4: that rate cuts keep getting pushed further into the future

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Speaker 4: rate cut expectations.

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Speaker 3: Yeah.

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Speaker 2: Absolutely, But despite the record in the s and P

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Speaker 2: five hundred and all these you know, we keep talking

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Speaker 2: on the podcast about all the lines going up into

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Speaker 2: the right, and there are a lot of them at

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Speaker 2: the moment, there's some nervousness in the market right now.

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Speaker 2: I think that's fair to say. So you see a

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Speaker 2: lot of people, for instance, talking about the lack of

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Speaker 2: breadth in stocks.

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Speaker 3: Yeah.

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Speaker 4: Look, if you're in sa P five hundred index fund holder,

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Speaker 4: then there's a lot of conversations you just turn out

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Speaker 4: someone's like, oh, there's lack of breadth. It's like, yeah, whatever, man,

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Speaker 4: my ETF is up fifteen percent through the year.

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Speaker 3: I'm happy with that.

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Speaker 4: You know, like that's pretty great no matter what. But

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Speaker 4: if you're an active manager, you want to beat the index.

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Speaker 4: If you're worried about like durability, you might notice the

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Speaker 4: fact that, like you know, if you strip out a

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Speaker 4: few really big tech stocks like Nvidia and a few

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Speaker 4: others returns are much worse, and so that raises all

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Speaker 4: kinds of anxiety. Is this entire thing just sort of

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Speaker 4: hanging on analysts demand for chips to run AI models?

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Speaker 5: Absolutely?

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Speaker 2: So today I am pleased to say we do indeed

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Speaker 2: have the perfect guest. You know, I said in the

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Speaker 2: intro that almost no one would have expected stocks to

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Speaker 2: be where they are. This person did expect stocks to

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Speaker 2: be where they are currently. This person is one of

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Speaker 2: the few that I can think of that has basically

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Speaker 2: called a lot of the market right over the past

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Speaker 2: year or two.

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Speaker 3: Probably someone we should talk to.

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Speaker 2: Yes, absolutely so we are going to be speaking with

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Speaker 2: Tom Lee. He is, of course, the co founder and

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Speaker 2: head of research at Funstrat Global Advisors and FS Insight. Tom,

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Speaker 2: welcome to the show.

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Speaker 5: Thank you very much.

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Speaker 1: So.

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Speaker 2: I know you're sometimes described as an uber bowl. Is

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Speaker 2: that a fair a fair characterization of how you feel

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Speaker 2: about markets?

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Speaker 5: I think that label is not reflective of how I

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Speaker 5: feel about markets. I think that label is generally used

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Speaker 5: by perma bears who've been perma wrong, and it's a

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Speaker 5: cheap shot.

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Speaker 4: Taken, Okay, but I get that it sounds like a

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Speaker 4: cheap shot. But on the other hand, uber bowls or

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Speaker 4: permables historically have like one hundred years of lines going

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Speaker 4: open to the right on their side.

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Speaker 3: So my view when I hear someone being.

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Speaker 4: Described as a permeable is, oh, this is someone who,

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Speaker 4: except for like five minutes here and there in twenty twenty,

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Speaker 4: in two thousand and nine, is permacorrect.

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Speaker 3: Yeah, i'd say so.

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Speaker 5: I think people don't live in those longer time frames,

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Speaker 5: you know. In the day to day. People live as

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Speaker 5: if this is a street battle, and the label uber

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Speaker 5: BWL is like someone well, you know what, he might

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Speaker 5: lead us out, but I don't trust him because we're

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Speaker 5: in a street fight. And so it's generally I find

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Speaker 5: people saying it more as a cheap show.

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Speaker 4: No, the people who say it are all really obnoxious.

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Speaker 4: That I agree.

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Speaker 2: I didn't mean to be obnoxious. Wait did you just

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Speaker 2: call me obnoxious?

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Speaker 4: No, you described when you said it, you were characterizing

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Speaker 4: other people.

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Speaker 5: Yes, well, I feel like we should give people the offense.

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Speaker 2: Okay, excellent. I feel like we should give people the

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Speaker 2: opportunity to describe their own work. But why don't we

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Speaker 2: talk about something concrete, which is at the beginning of

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Speaker 2: this month, Tom, you at Funstrat put on an S

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Speaker 2: and P five hundred target of five thousand, five hundred,

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Speaker 2: we're at about five thousand, four hundred seventy five or

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Speaker 2: something like that right now. So just in that short

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Speaker 2: time frame, you know, called it correctly.

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Speaker 5: What did you did?

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Speaker 4: You see?

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Speaker 5: This is actually a textbook rally. At the start of

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Speaker 5: this month, we alerted our clients that since nineteen twenty seven,

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Speaker 5: when you look at the start of June, but markets

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Speaker 5: were up in the first quarter, but then had a

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Speaker 5: draw down in April, which is what we had. Yeah,

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Speaker 5: that happened eleven times. Eleven of eleven times, June was

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Speaker 5: a positive month. So May is essentially a recovery month,

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Speaker 5: and then June is the month where markets go back

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Speaker 5: to risk on. The median gain since nineteen twenty seven

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Speaker 5: is three point nine percent, which calculated a fifty five hundred.

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Speaker 4: There you go, simple math investing made easy, but zooming out.

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Speaker 4: You're a fun strat for years prior to that, you're

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Speaker 4: a JP Morgan I was a big fan of your

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Speaker 4: org then correctly calling for much higher stock prices through

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Speaker 4: much of the twenty tens, when you know there were

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Speaker 4: still a lot of people calling for double dips in

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Speaker 4: the sort of raw of a pretty large, bearish contingent.

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Speaker 3: How do you work? What do you do?

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Speaker 4: Because there are all different approaches that people have towards,

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Speaker 4: you know, making educated guests as to where the stock

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Speaker 4: market could go. How would you describe your approach?

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Speaker 5: Well, fundamental to our process is evidence based research, so

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Speaker 5: you know, at the core we really try to frame

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Speaker 5: where history could explain where we are today. Okay, we

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Speaker 5: rely on a lot of cross market signal, so to us,

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Speaker 5: the bond market is always smarter than the stock market.

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Speaker 5: That's why they say equities are the land to sea students.

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Speaker 5: And the third is, of course monetary policy is really

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Speaker 5: the driver, so you can't fight the FED. And then

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Speaker 5: I think the fourth is that thematic approaches surpass cyclical

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Speaker 5: What does that mean? Well, part of our work relies

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Speaker 5: on what we call like thematic drivers. One is millennials.

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Speaker 5: Ok so that since twenty eighteen we've talked about how millennials,

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Speaker 5: which is the largest generation, are reshaping the economy, which

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Speaker 5: they are mainly through fintech and changes in preference. But

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Speaker 5: of course now coming is a big generational wealth transfer

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Speaker 5: of you know, as much as eighty trillion dollars. The second,

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Speaker 5: of course, is that there is a huge global labor

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Speaker 5: shortage which has started in twenty fifteen and won't be

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Speaker 5: resolved till twenty thirty five. And the two previous instances

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Speaker 5: of global labor shortage resulted in a parabolic movement technology stocks,

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Speaker 5: which has been part of our themetic approach, and now

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Speaker 5: we see two other things like energy security and cybersecurity

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Speaker 5: are huge thematic drivers, especially because of AI, and so

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Speaker 5: this grounds our work. We not only use it to

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Speaker 5: judge markets, but we use it to build our Granny

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Speaker 5: Shots Core Stock portfolio, which is a thematic portfolio fixed

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Speaker 5: the strongest stocks within each theme, and that has outperformed

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Speaker 5: every year twenty nineteen.

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Speaker 2: I'm trying to think how to phrase this question, but

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Speaker 2: what do the strong themes mean for the overall market?

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Speaker 2: Because I think everyone would agree that stuff like AI

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Speaker 2: is interesting and promising, maybe a little overhyped at this point,

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Speaker 2: but you could make the argument that there is potential there.

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Speaker 2: And yet you know, we've seen the S and P

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Speaker 2: five hundred as a whole go up, and there is

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Speaker 2: that argument over breadth, like how much of this is

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Speaker 2: purely AI? And the stuff that people are getting excited

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Speaker 2: about versus general optimism about the market.

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Speaker 5: Well, I mean, if I look at the stock market,

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Speaker 5: I think it is playing out with all the things

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Speaker 5: you just mentioned, because the groups that are affected by

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Speaker 5: high and tight monetary policy have really lagged, whether it's

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Speaker 5: the regional banks or industrial multiples are being suppressed. And

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Speaker 5: we know that the spend and actually now some of

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Speaker 5: the synergy coming from AI is driving not only the

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Speaker 5: producers of AI like and some of the software companies,

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Speaker 5: but in many of the companies that are levering leveraging

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Speaker 5: this for revenue growth. So I think it is playing out.

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Speaker 5: But overall, I think it's on balance a healthy economy

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Speaker 5: because companies are generating good earnings growth, and the labor

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Speaker 5: market has come back into balance, and consumers aren't highly levered,

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Speaker 5: which is really the big deal because to me, when

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Speaker 5: consumers can't borrow more money because they borrow too much,

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Speaker 5: that's really when the economy hits the tipping point.

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Speaker 4: When it comes to consumer balance sheets. Just on this,

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Speaker 4: what do you look at when you say, Okay, the

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Speaker 4: consumer is not high levered. I alouls say discussions like oh,

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Speaker 4: excess savings gone.

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Speaker 2: People look at total credit card debt.

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Speaker 3: Yeah, what do you look at?

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Speaker 5: Well, I think the gold standard is still the debt

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Speaker 5: service ratio, which the Federal Reserve puts a lot of

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Speaker 5: time into and employs a lot of economists to build

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Speaker 5: a fair view. And the debt service ratio today is

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Speaker 5: still under ten percent, which you know, for instance, before

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Speaker 5: this decade, you'd be in a sort of peak consumer

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Speaker 5: borrowing at a fourteen to sixteen percent level, so consumers

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Speaker 5: can if interest rates don't move, they can borrow forty

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Speaker 5: percent more money. I think the cash say excess savings

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Speaker 5: is a spurious argument because I don't remember it in

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Speaker 5: my thirty years people saying consumer cycles turn when their

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Speaker 5: excess savings is gone. I mean, that's not really been

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Speaker 5: how the business cycle works.

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Speaker 2: You mentioned thirty year career just then, and I realized

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Speaker 2: I'm kind of unfamiliar with you other than at funstrat.

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Speaker 2: Can you maybe give us a recap of what you've

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Speaker 2: been doing for three decades?

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Speaker 5: Yes, I've essentially had the same job for my entire

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Speaker 5: post college career. I started off at Kidder Peabody in

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Speaker 5: the early nineties as.

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Speaker 3: One of my old bosses.

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Speaker 4: Was it Kidder Peabody, David wire No, No, someone else said, okay, sorry,

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Speaker 4: keep going.

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Speaker 3: Yeah.

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Speaker 5: I got into stock research at that time, and I

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Speaker 5: was working at the sector I was assigned was wireless.

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Speaker 5: So the first fourteen years of my career ARC was

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Speaker 5: as a technology analyst covering the wireless industry, which again

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Speaker 5: for my clients, many of which I still have from

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Speaker 5: those days. No, I'm not an uber buwl because there

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Speaker 5: were many times I had cell ratings on stocks. But

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Speaker 5: it's not fun to be telling people the shortest stock

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Speaker 5: that they own. That's when they're very angry. And then

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Speaker 5: in the two thousands, wireless was consolidating and I wanted

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Speaker 5: to find some other things to do, so I started

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Speaker 5: to do some work on bankruptcy bankrupt stocks because many

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Speaker 5: wireless stocks from bankrupt I did a whole piece called

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Speaker 5: the Chapter after Chapter eleven where I looked at over

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Speaker 5: two thousand publicly listed bankruptcies. I used our Mumbai team

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Speaker 5: at the time, we called it Momba team at JP Morgan,

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Speaker 5: and we went through all these filings and we found

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Speaker 5: that stocks that emerged from bankruptcy do well. So we

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Speaker 5: had a whole strategy around buying bankruptcy stocks and then

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Speaker 5: JP Morgan asked me at the time if I wanted

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Speaker 5: to become the small cap strategist on top of wireless,

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Speaker 5: so I had two jobs. I ranked in both categories,

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Speaker 5: and then in seven they asked me if I wanted

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Speaker 5: to become the chief equity strategists, which I've been doing

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Speaker 5: ever since and started fundstret twenty fourteen. So this is

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Speaker 5: our tenth year.

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Speaker 3: O congraguate.

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Speaker 2: Congratulations. Okay, So, given your history with the wireless companies

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Speaker 2: and technology overall, I feel like I have to ask

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Speaker 2: you about AI and Nvidia and all of that. Is

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Speaker 2: there any common thread or any valid comparison between the

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Speaker 2: AI boom that's happening right now and say, the Internet

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Speaker 2: bubble of the late nineteen nineties and early two thousands.

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Speaker 5: There are a lot of parallels. When I started doing wireless,

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Speaker 5: there were thirty four million cell phones. Today there's seven billion.

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Speaker 5: So it's a hypergrowth industry that grew almost in parallel

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Speaker 5: with Internet because without mobile you wouldn't really have the

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Speaker 5: Internet that we have today in the early stages of

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Speaker 5: that growth. So when you look at penetration, Wall Street

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Speaker 5: always underestimates the importance of the technology, and part of

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Speaker 5: it has to do with it's a generational lens. Every

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Speaker 5: new technology is adopted by a young cohort, people in

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Speaker 5: their twenties, teens, or even thirties, but most people on

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Speaker 5: Wall Street are in their forties or fifties, so they're

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Speaker 5: one generation removed. I remembered when our PC Analystic Kidder said,

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Speaker 5: why would you have one computer per household or even

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Speaker 5: more than that, because they're twenty five hundred dollars. And

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Speaker 5: I know when cell phones first emerge, people thought it

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Speaker 5: was a yuppie toy and it was going to be

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Speaker 5: only for people make seventy five thousand a year. But

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Speaker 5: what I learned as a Wilds analyst was teenagers and

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Speaker 5: young kids, especially in Europe, were using cell phones. So

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Speaker 5: I used a vintage model saying that if one hundred

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Speaker 5: percent of like teenagers have a cell phone by the

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Speaker 5: time they're sixty, the penetration rate should be whatever it is,

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Speaker 5: that's AI. The adoption rate for AI is staggering, but

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Speaker 5: the use case is important because there's a labor shortage.

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Speaker 5: So to me, I think it's very likely we're underestimating

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Speaker 5: how much revenue all these companies will make. I can

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Speaker 5: give you some simple math. Yeah, please, the global labor

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Speaker 5: shortage by the end of this just by the end

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Speaker 5: of this decade is close to forty million worker equivalents,

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Speaker 5: and that's three trillion of wages. Okay, we're turning labor

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Speaker 5: cost into silicon a center or into tech automation, of

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Speaker 5: which we know today eighty percent is hardware silicon. So

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Speaker 5: does that mean whoever supplying the chips might have a

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Speaker 5: two trillion revenue probably, and right now the largest share

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Speaker 5: of that would go to a company like in Vidia.

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Speaker 5: So if in Video is one hundred billion in revenues,

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Speaker 5: now you know what does by the end of this decade,

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Speaker 5: is it it's eight hundred billion of trillion dollar revenue company?

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Speaker 5: And then what should we discount that rate at I'd

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Speaker 5: say there's probably a lot of upside.

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Speaker 4: So that's sort of the argument from the fundamentals perspective.

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Speaker 4: The other thing people like to do is they like

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Speaker 4: to draw these dual axis lines where they're like, here's

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Speaker 4: the chart of Nvidia starting at some arbitrary date, here's

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Speaker 4: the start of Cisco starting at some arbitrary date, and

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Speaker 4: then they line up the peak so that the peak

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Speaker 4: always happens to be right now. But regardless of the

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Speaker 4: fact that that's, you know, largely what naves and scammers do,

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Speaker 4: it is true that just from an overall index perspective,

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Speaker 4: there is an incredible lot riding on a handful of

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Speaker 4: companies right now, whether it's in Vidia specifically, the mag

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Speaker 4: seven more broadly, and that you know, in nineteen ninety

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Speaker 4: nine there was just an incredible weight on Cisco and

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Speaker 4: Sun Microsystems and Microsoft and a couple of others. Do

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Speaker 4: you see any parallels in the market environment.

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Speaker 5: Yes, there's a lot of parallels, but there are some differences.

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Speaker 5: You know, keep mind Cisco sold a one hundred dollars

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Speaker 5: box in video selling at fifty thousand dollars chips, so

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Speaker 5: the moat around that is much much greater. I also

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Speaker 5: think to contextualize this, we need to look at the

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Speaker 5: global economy. If we're turning labor cost into silicon, then

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Speaker 5: which countries are really the primary suppliers of technology? The US,

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Speaker 5: by a country mile is the only supplier. So the

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Speaker 5: US is essentially exporting technology now. And that's different because

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Speaker 5: Internet was more democratized, people just put up towers and

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Speaker 5: laid fiber. You can't, you know, create your own version

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Speaker 5: of an Invidia chip you have to buy from video.

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Speaker 3: So I think that.

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Speaker 5: Tech will probably be, you know, forty fifty percent of

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Speaker 5: the global stock market weight where we know that's probably twenty.

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Speaker 5: Oh wow, it's probably like eighteen. I mean, you know

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Speaker 5: in the US it's only forty.

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Speaker 4: And what in the US it's forty. Globally it's eighteen.

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Speaker 4: And you say it's going to go to forty to

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Speaker 4: fifty percent globally.

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Speaker 5: Yes, because you're replacing recurring labor costs with the capital investment.

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Speaker 2: Interesting, so you mentioned the net present value of tech

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Speaker 2: stocks just then, and I'm curious talk to us about rates,

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Speaker 2: the higher interest rate environment and what it means for

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Speaker 2: stock valuation, because I think this is where people are

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Speaker 2: either a little bit surprised or perhaps a little bit

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Speaker 2: nervous the idea that even in the higher rate environment,

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Speaker 2: stocks can move upwards.

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Speaker 3: Yeah.

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Speaker 5: Well, again, I can cite some history and then maybe

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Speaker 5: provide some context. Please, Since nineteen thirty five, when you

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Speaker 5: look at the relationationship between the tenure yield and ford PE,

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Speaker 5: it is not linear. It is a dynamic relationship, and

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Speaker 5: between four and seven percent it is positively correlated. So

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Speaker 5: when interest rates go up, pe rises. Logically, it sort

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Speaker 5: of makes sense because you're seeing it now. When you

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Speaker 5: have higher rates, it's barriers to entry. So the existing

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Speaker 5: companies make more money, and companies earn money on their cash,

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Speaker 5: so the unlevered companies are actually you know, for Apple,

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Speaker 5: it's like six seven eight dollars in earnings, right, it's

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Speaker 5: some big number. Actually with splits its lower and between

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Speaker 5: four and five percent. The median Ford PE has been

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Speaker 5: eighteen and a half and forty eight percent of the time.

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Speaker 5: It's actually above twenty.

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Speaker 4: Anyway, what is it what says inp trading at now?

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Speaker 5: Well, then the pe, the Ford PE is probably around eighteen, okay,

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Speaker 5: but the median Ford pece sixteen.

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Speaker 4: What should we make of the fact that a lot

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Speaker 4: of the market is not doing well? So again, you know,

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Speaker 4: for those of us who are just like the boring

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Speaker 4: put it in an index fund investors, amazing year, But

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Speaker 4: there are big chunks of the market that doubts only

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Speaker 4: up two percent, I know, or something like that. What

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Speaker 4: should we read? Does it say anything that so much

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Speaker 4: of the market is doing pretty I guess mediocre this year.

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Speaker 5: I think it speaks to a lot of things. One

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Speaker 5: is the market is starved for cash, and there's six

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Speaker 5: trenty of cash on the sidelines. Finram margindet is like

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Speaker 5: twenty percent below where it was in October twenty twenty one,

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Speaker 5: So there isn't a lot of money slashing in the

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Speaker 5: stock market. I know, it's weird because we're at record highs,

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Speaker 5: so that if there is money actively trading, it's just

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Speaker 5: buying the high volume sectors, which is tech. From a

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Speaker 5: rates perspective, that and I kind of mentioned before, like

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Speaker 5: the groups that are hurt by type policy have really

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Speaker 5: been sucking wind. So I think if monetary policy eases

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Speaker 5: or people aren't more convinced of it than expansion is

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Speaker 5: going to be pretty fierce later this year.

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Speaker 2: What is your outlook for rates at this point? Because

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Speaker 2: you mentioned the strong consumer earlier, but on the other hand,

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Speaker 2: we have seen a little bit of weakening in the

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Speaker 2: labor market. We have seen CPI start to soften, although

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Speaker 2: there's a lot of debate over whether or not that's

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Speaker 2: going to be a durable trend.

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Speaker 5: But what are you see well, I think inflation, if

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Speaker 5: we looked at historically how people looked at inflation, whether

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Speaker 5: it's the surveys or ISM's inflation's under control because like

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Speaker 5: for instance, the ISM services manufacturing, the price is paid

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Speaker 5: component is below the long term average right now. So

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Speaker 5: at fifty seven, people think fifty sev means price going up.

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Speaker 5: That's not true. It's averaged like fifty eight since inception.

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Speaker 5: So actually price trends are below where they have been.

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Speaker 5: I think people aren't using history to understand where we

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Speaker 5: are now. And if you look at UMISH surveys, both

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Speaker 5: one year and five year inflation expectations are below the

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Speaker 5: long term average. So consumers and businesses in their perception

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Speaker 5: don't think there's inflation. CPI is elevated, but as you

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Speaker 5: guys know and talked about, and many economis point out,

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Speaker 5: it's really due to two components that are kind of

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Speaker 5: lagging right one's shelter and one is auto insurance. And

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Speaker 5: you know, the median CPI inflation rate right now is

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Speaker 5: one point four percent your year. It's long term average

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Speaker 5: is one six Everything except for housing and auto insurance

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Speaker 5: is below trend.

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Speaker 4: Median is when you just look at what each component

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Speaker 4: is doing, and some are higher and some are lower,

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Speaker 4: but the median category.

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Speaker 5: Yeah, there's one hundred thirty seven components. Another way to

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Speaker 5: look at it is what percentage of the basket of

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Speaker 5: CPI equal weight is below their long term year year

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Speaker 5: growth rate. So take each component and just say where

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Speaker 5: is it sit. It's now at fifty five percent fit

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Speaker 5: in the long term marriage is fifty. So more than

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Speaker 5: five fifty five percent of SLEEPEA components are below their

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Speaker 5: long term average, it's considered controlled. When it's fifty percent.

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Speaker 4: We're at fifty four to seventy three. Tracy mentioned your

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Speaker 4: June target. Do you have a year end target for

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Speaker 4: the market or a one year target or anything like

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Speaker 4: that one that like, where can we go?

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Speaker 5: Well, our current at the on the first week of

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Speaker 5: December twenty twenty three, we had said our target for

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Speaker 5: twenty twenty four was fifty two hundred, which at the

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Speaker 5: time was almost twenty percent upside. Now our fifty two

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Speaker 5: hundred is low because we're above that level. Yeah, we

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Speaker 5: haven't changed our target because our practice is typically to

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Speaker 5: do it at the mid year.

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Speaker 4: Okay, so we're two weeks away give it. Can you

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Speaker 4: give us a little hint?

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Speaker 5: Yeah, I'd say at the originally we said earnings could

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Speaker 5: be two seventy okay, and we'd put like an eighteen

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Speaker 5: multiple on that, and that's got to fifty two hundred

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Speaker 5: twenty twenty five earnings no longer look like two seventy,

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Speaker 5: looks more like two eighty five. And as I was citing,

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Speaker 5: is interest rates moved up, the PE should be higher.

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Speaker 5: So let's say twenty is a more appropriate PE multiple,

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Speaker 5: or even twenty one. Then you get into the fifty

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Speaker 5: eight one hundred ish level. But I think the open

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Speaker 5: question is, really, if you're in mid June and December

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Speaker 5: thirty one, is it a line up or is there

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Speaker 5: a pullback and then a lineup? And I'm I would

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Speaker 5: probably this is not evidence based, just an opinion. I

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Speaker 5: don't see why it would be.

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Speaker 2: Straight up, Here's something I always wanted to ask an

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Speaker 2: equity strategist. But when you're coming up with the price targets,

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Speaker 2: do the specific numbers actually matter for your clients or

436
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Speaker 2: are they mostly interested in the direction the overall direction,

437
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Speaker 2: like line go up, line down?

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Speaker 5: Well, it's a do you know this is a lifelong

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Speaker 5: debate because for thirty years I covered wireless stocks and

440
00:24:07,640 --> 00:24:12,040
Speaker 5: I had price targets, and our sales people would always say,

441
00:24:12,040 --> 00:24:13,800
Speaker 5: no one cares about your price target. But then the

442
00:24:13,840 --> 00:24:16,080
Speaker 5: first thing in the question meeting people, what do you

443
00:24:16,080 --> 00:24:17,879
Speaker 5: think where do you think this thing goes? So they

444
00:24:17,920 --> 00:24:22,399
Speaker 5: always care about the price target. I don't really value

445
00:24:22,440 --> 00:24:25,200
Speaker 5: people's price targets which is ten percent above where you

446
00:24:25,240 --> 00:24:28,679
Speaker 5: are now, because to me, that's just like that's like

447
00:24:28,720 --> 00:24:31,080
Speaker 5: staying in the middle of the lane, and you can't

448
00:24:31,119 --> 00:24:36,480
Speaker 5: make clients money. So whenever we did stock research, we

449
00:24:36,640 --> 00:24:38,840
Speaker 5: always had to build a base case on what we

450
00:24:38,880 --> 00:24:40,800
Speaker 5: think could happen and then discount it at what we

451
00:24:40,840 --> 00:24:43,800
Speaker 5: think is a reasonable rate. A lot of our price

452
00:24:43,800 --> 00:24:46,680
Speaker 5: targets seemed really crazy. When we did wireless, I remember

453
00:24:46,840 --> 00:24:50,960
Speaker 5: I upgraded you can timestamp but actually show you Almos

454
00:24:51,040 --> 00:24:53,080
Speaker 5: holdings at twenty one cents and it went to twenty

455
00:24:53,119 --> 00:24:56,600
Speaker 5: two dollars. My price target was not thirty cents. It

456
00:24:56,640 --> 00:24:59,399
Speaker 5: was twelve dollars at the time. And we upgraded Western

457
00:24:59,440 --> 00:25:03,200
Speaker 5: Wireless at a dollar seventy four. Our price target was

458
00:25:03,240 --> 00:25:05,480
Speaker 5: twenty five dollars and it ended up going to forty.

459
00:25:06,200 --> 00:25:09,840
Speaker 5: So I think we tried to look at a normalized

460
00:25:09,840 --> 00:25:14,080
Speaker 5: situation and in a normalized world, if this is a

461
00:25:14,119 --> 00:25:18,879
Speaker 5: normal SMP cycle, Okay, following demographics, I could provide a

462
00:25:18,960 --> 00:25:23,520
Speaker 5: chart later SMP should be potentially fifteen thousand by the

463
00:25:23,600 --> 00:25:27,560
Speaker 5: end of the decade. So yeah, so to me, that's

464
00:25:27,680 --> 00:25:30,560
Speaker 5: the more as you move into longer time frames. That's

465
00:25:30,600 --> 00:25:32,240
Speaker 5: probably where I think we're moving towards.

466
00:25:32,320 --> 00:25:35,400
Speaker 4: Can we title this episode, tom Lee, why SMP could

467
00:25:35,440 --> 00:25:37,080
Speaker 4: go to fifteen by twenty thirty?

468
00:25:37,320 --> 00:25:37,920
Speaker 3: Is that for sure?

469
00:25:38,040 --> 00:25:41,520
Speaker 5: Okay, we have we have many charts to explain that number.

470
00:25:41,760 --> 00:25:42,920
Speaker 2: Oh you should send them to us.

471
00:25:43,040 --> 00:25:45,400
Speaker 3: Yeah, well we'll post them. Yeah, yeah, that'd be great.

472
00:26:01,800 --> 00:26:04,439
Speaker 4: I would love to just make this whole episode about

473
00:26:04,480 --> 00:26:07,040
Speaker 4: the wireless in the late nineties, because I have some

474
00:26:07,320 --> 00:26:10,640
Speaker 4: memory of that period. What are the early warning signs?

475
00:26:10,920 --> 00:26:11,119
Speaker 2: You know?

476
00:26:11,200 --> 00:26:12,960
Speaker 4: I think you go back and you start to see

477
00:26:12,960 --> 00:26:15,520
Speaker 4: things in the accounting that's like some of the sales

478
00:26:15,600 --> 00:26:19,240
Speaker 4: quality is deteriorating or whatever. And I guess when people

479
00:26:19,280 --> 00:26:23,200
Speaker 4: look at whether it's the mag seven or Nvidia specifically,

480
00:26:23,280 --> 00:26:25,760
Speaker 4: or some of these other companies that are clearly just

481
00:26:25,800 --> 00:26:29,040
Speaker 4: benefiting from this tremendous KPEX cycle, they're like, well, they

482
00:26:29,080 --> 00:26:31,280
Speaker 4: want to like look at the signs. And granted, I

483
00:26:31,320 --> 00:26:33,879
Speaker 4: know you see a long runway because we're part of

484
00:26:33,880 --> 00:26:37,800
Speaker 4: the silicon or labor to silicon transition, but just going

485
00:26:37,840 --> 00:26:41,360
Speaker 4: to even think about late nineties, What were the sort

486
00:26:41,400 --> 00:26:44,960
Speaker 4: of signs that a company might suddenly not be able

487
00:26:44,960 --> 00:26:46,439
Speaker 4: to live up to the hype, and what are the

488
00:26:46,480 --> 00:26:48,040
Speaker 4: types of things people should look for.

489
00:26:48,520 --> 00:26:50,879
Speaker 5: Yes, I can cite many, I'm not citing them in

490
00:26:50,880 --> 00:26:51,760
Speaker 5: the order of importance.

491
00:26:51,840 --> 00:26:52,119
Speaker 3: Sure.

492
00:26:52,960 --> 00:26:59,160
Speaker 5: The first is I remembered when investors suddenly said our

493
00:26:59,160 --> 00:27:02,080
Speaker 5: price targets weren't adequate. So I remember putting a buy

494
00:27:02,359 --> 00:27:04,160
Speaker 5: rating on a stock and it had twenty five percent

495
00:27:04,240 --> 00:27:05,800
Speaker 5: upside and they're like, Tom, I can make that in

496
00:27:05,840 --> 00:27:09,160
Speaker 5: a week. And it was at a time when many

497
00:27:09,480 --> 00:27:13,440
Speaker 5: people in the markets were famously making thirty thousand dollars

498
00:27:13,480 --> 00:27:15,440
Speaker 5: stocks when they made ten million dollars in a month.

499
00:27:15,680 --> 00:27:17,679
Speaker 5: I mean there were many people I was working with

500
00:27:17,840 --> 00:27:24,040
Speaker 5: that were realizing trades like that. The second is when

501
00:27:24,680 --> 00:27:30,560
Speaker 5: analysts have to suddenly shift discount rates to a level

502
00:27:30,840 --> 00:27:34,800
Speaker 5: that removes all risk. So the ce Lex, for instance,

503
00:27:34,880 --> 00:27:38,359
Speaker 5: you had to apply a five percent cost of money,

504
00:27:38,920 --> 00:27:41,960
Speaker 5: and you assumed everybody was paying market rate for fiber.

505
00:27:42,119 --> 00:27:45,800
Speaker 5: I mean, it was that was not possible, but that's

506
00:27:45,840 --> 00:27:49,160
Speaker 5: you had to fudge it. The third is capital markets.

507
00:27:49,240 --> 00:27:53,800
Speaker 5: There was so much investment banking activity. There's no investment

508
00:27:53,840 --> 00:27:56,520
Speaker 5: banking and IPOs right now. I mean, it's a paucity

509
00:27:56,520 --> 00:27:58,400
Speaker 5: of it. So I don't think you could say there's

510
00:27:58,400 --> 00:28:00,920
Speaker 5: a bubble even in the next two years because there

511
00:28:00,960 --> 00:28:05,480
Speaker 5: aren't tons of AI IPOs. There was so much IPO

512
00:28:05,800 --> 00:28:08,680
Speaker 5: I think it was I don't know if the numbers

513
00:28:08,680 --> 00:28:10,800
Speaker 5: were staggering, like it was forty or fifty percent of

514
00:28:10,800 --> 00:28:13,080
Speaker 5: all ips were tech IPOs. Back then, it was some

515
00:28:13,280 --> 00:28:16,000
Speaker 5: crazy numbers and there were like dozens in a day. Yeah,

516
00:28:16,040 --> 00:28:18,760
Speaker 5: that's right, and they all were doubling or tripling.

517
00:28:19,000 --> 00:28:20,919
Speaker 2: Wait, but is there an argument to be made that

518
00:28:21,359 --> 00:28:24,600
Speaker 2: in the current environment there's less incentive for companies to

519
00:28:24,640 --> 00:28:27,040
Speaker 2: go public? I mean we talk about, yeah, the amount

520
00:28:27,119 --> 00:28:29,560
Speaker 2: of VC money, the amount of money floating around in

521
00:28:29,600 --> 00:28:32,080
Speaker 2: private credit. Is it possible that you know the money

522
00:28:32,119 --> 00:28:34,080
Speaker 2: is just private versus.

523
00:28:33,760 --> 00:28:37,199
Speaker 5: Public that that has been a change. Now if you

524
00:28:37,200 --> 00:28:40,240
Speaker 5: look at the prequel database, there's more privately held companies

525
00:28:40,280 --> 00:28:45,320
Speaker 5: than publicly listed. But every company needs an exit, so

526
00:28:45,400 --> 00:28:47,400
Speaker 5: there was going to be an IPO cycle, or there

527
00:28:47,440 --> 00:28:52,040
Speaker 5: should be a merger cycle, or there should be huge

528
00:28:52,080 --> 00:28:56,760
Speaker 5: amounts of venture money pouring into this where allocators are

529
00:28:57,600 --> 00:29:00,960
Speaker 5: fighting over themselves to allocate I don't see any of

530
00:29:00,960 --> 00:29:03,160
Speaker 5: that today. I think there's a lot of skepticism that

531
00:29:03,200 --> 00:29:04,760
Speaker 5: AI has a lot of hype.

532
00:29:05,680 --> 00:29:08,680
Speaker 4: Wait, but I did see this is a headline again.

533
00:29:08,680 --> 00:29:11,600
Speaker 4: We're recording this June eighteenth. This is the headline that

534
00:29:11,720 --> 00:29:14,120
Speaker 4: ran on the Bloomberg terminal about an hour and a

535
00:29:14,160 --> 00:29:18,320
Speaker 4: half ago. Steve Cohen's point seventy two ready's new hedge

536
00:29:18,360 --> 00:29:23,000
Speaker 4: fund targeting AI stock. Steve Cohens is seeking point seventy two,

537
00:29:23,000 --> 00:29:24,959
Speaker 4: seeking to raise about one billion dollars for a new

538
00:29:24,960 --> 00:29:29,160
Speaker 4: stock picking hedge fund focused on artificial intelligence. According to

539
00:29:29,200 --> 00:29:31,320
Speaker 4: people familiar with the matter, the fund will bet on

540
00:29:31,520 --> 00:29:32,480
Speaker 4: or against AI hardware.

541
00:29:32,520 --> 00:29:34,800
Speaker 3: Blah blah blah. It looks like the.

542
00:29:34,760 --> 00:29:38,000
Speaker 4: Emergence of some vehicles perhaps where people just want to

543
00:29:38,000 --> 00:29:39,360
Speaker 4: play this theme in some way or another.

544
00:29:39,960 --> 00:29:42,680
Speaker 5: Yes, so maybe it's starting. I wouldn't consider that a

545
00:29:42,760 --> 00:29:46,640
Speaker 5: late I would never consider firms like co two or

546
00:29:46,680 --> 00:29:49,640
Speaker 5: point seventy two as late cycle signal.

547
00:29:49,840 --> 00:29:50,440
Speaker 3: Yeah, fair to me.

548
00:29:50,560 --> 00:29:53,480
Speaker 5: There probably the front edge of that.

549
00:29:54,960 --> 00:29:59,880
Speaker 2: Outside of technology stocks more broadly, or the economy more generally.

550
00:30:00,000 --> 00:30:02,800
Speaker 2: And what would make you nervous, what would you watch

551
00:30:02,840 --> 00:30:05,360
Speaker 2: out for as your bear signal?

552
00:30:07,000 --> 00:30:10,960
Speaker 5: Well, in wireless, I did call many tops and stocks

553
00:30:11,680 --> 00:30:15,760
Speaker 5: and had many fundamental shorts, so there is of course,

554
00:30:15,840 --> 00:30:19,920
Speaker 5: the key anchoring is are the price levels disconnected from

555
00:30:20,560 --> 00:30:25,000
Speaker 5: a justifiable fundamental reality? I mean I don't think so.

556
00:30:25,520 --> 00:30:28,280
Speaker 5: I think if we have pees of one hundred for

557
00:30:28,360 --> 00:30:32,760
Speaker 5: Omega capstock, maybe that's something to question. The second, of course,

558
00:30:32,800 --> 00:30:37,640
Speaker 5: is sentiment, because when everybody is bullish, then one cannot

559
00:30:38,320 --> 00:30:40,960
Speaker 5: be convinced there's upside because a lot of the best

560
00:30:40,960 --> 00:30:44,760
Speaker 5: case would be priced it. We at Funstrat don't find

561
00:30:45,040 --> 00:30:47,160
Speaker 5: most of our clients are bullish. Most of them are

562
00:30:47,920 --> 00:30:52,640
Speaker 5: skeptics because many still don't feel October twenty twenty two

563
00:30:52,720 --> 00:30:56,320
Speaker 5: was a complete bottom because markets have since risen while

564
00:30:56,320 --> 00:30:59,920
Speaker 5: the fetes stayed tight. Most people cannot sleep at night

565
00:31:00,240 --> 00:31:02,520
Speaker 5: with that notion. And they want to see how stocks

566
00:31:02,560 --> 00:31:05,360
Speaker 5: react to the first FED cut. And as you know,

567
00:31:05,760 --> 00:31:07,360
Speaker 5: how many people tell you, oh, stocks are going to

568
00:31:07,400 --> 00:31:10,120
Speaker 5: fall as soon as I FED starts cutting. Because many

569
00:31:10,120 --> 00:31:13,120
Speaker 5: people say that I'm probably in the camp the markets

570
00:31:13,200 --> 00:31:14,640
Speaker 5: rally on the first cut.

571
00:31:14,600 --> 00:31:15,160
Speaker 3: I'm curious.

572
00:31:15,160 --> 00:31:17,880
Speaker 4: Sentiment is always one of those things that strikes me

573
00:31:18,000 --> 00:31:21,760
Speaker 4: is easier to talk about measuring than actually measuring, And

574
00:31:21,800 --> 00:31:24,480
Speaker 4: you say it some of the conversations you have with clients.

575
00:31:24,760 --> 00:31:28,480
Speaker 4: Are other sort of surveys or market indicators that you

576
00:31:28,520 --> 00:31:32,360
Speaker 4: have found to be good reliable measures of sentiment over time.

577
00:31:32,800 --> 00:31:35,360
Speaker 5: You know, most sentiment indicators are not reliable because most

578
00:31:35,360 --> 00:31:37,680
Speaker 5: people don't take the time to film out. Okay, but

579
00:31:37,720 --> 00:31:40,840
Speaker 5: at the extremes they're quite useful, like the AAII I

580
00:31:40,840 --> 00:31:44,760
Speaker 5: think is really useful. But if you look at surveys,

581
00:31:45,040 --> 00:31:48,120
Speaker 5: they're not that reliable because the response rates terrible. I mean,

582
00:31:48,120 --> 00:31:51,200
Speaker 5: look at the labor surveys, right, isn't the BLS. Isn't

583
00:31:51,240 --> 00:31:54,080
Speaker 5: the response rate like in the forties Now it's.

584
00:31:53,960 --> 00:31:54,600
Speaker 2: Gone down a lot.

585
00:31:54,680 --> 00:31:54,840
Speaker 1: Yeh.

586
00:31:54,960 --> 00:31:55,280
Speaker 3: Yeah.

587
00:31:55,360 --> 00:31:58,200
Speaker 5: That's why I think as a company we pride ourselves

588
00:31:58,240 --> 00:32:00,640
Speaker 5: we are in conversations with our clients, not you know,

589
00:32:00,720 --> 00:32:03,560
Speaker 5: a blue chip bank. We have many clients that we're

590
00:32:03,560 --> 00:32:06,640
Speaker 5: in constant contact with. But it does represent a meaningful

591
00:32:06,640 --> 00:32:10,400
Speaker 5: percentage of professionally managed money, so we have a very

592
00:32:10,440 --> 00:32:12,160
Speaker 5: real time way to measure sentiment.

593
00:32:13,200 --> 00:32:16,960
Speaker 2: Can I ask about bitcoin, because in addition to getting

594
00:32:16,960 --> 00:32:20,400
Speaker 2: the bull market of recent months and years correct, the

595
00:32:20,760 --> 00:32:24,200
Speaker 2: other prediction that you are known for is bullish calls

596
00:32:24,280 --> 00:32:28,240
Speaker 2: on bitcoin. And can you talk to us maybe about

597
00:32:28,520 --> 00:32:31,160
Speaker 2: how you come up with a price target for bitcoin,

598
00:32:31,280 --> 00:32:35,680
Speaker 2: because to me, it seems difficult to put it mildly like,

599
00:32:36,000 --> 00:32:39,840
Speaker 2: to me, bitcoin is almost a pure expression of momentum

600
00:32:40,160 --> 00:32:42,880
Speaker 2: or flows, and that kind of feeds on itself, and

601
00:32:42,920 --> 00:32:46,520
Speaker 2: it just feels difficult to me to predict. And yet

602
00:32:46,880 --> 00:32:49,200
Speaker 2: you have been very specific in the numbers that you

603
00:32:49,280 --> 00:32:51,160
Speaker 2: will put on this thing.

604
00:32:53,640 --> 00:32:59,200
Speaker 5: Yes, bitcoin is unlike other asset classes because there is

605
00:33:00,080 --> 00:33:04,200
Speaker 5: a cooperative value. You know, the people who contribute to

606
00:33:04,200 --> 00:33:08,600
Speaker 5: the network benefit from it, and that's different than any

607
00:33:08,600 --> 00:33:12,320
Speaker 5: other asset class. When we first wrote about bitcoins in

608
00:33:12,400 --> 00:33:16,480
Speaker 5: twenty seventeen, and bitcoin was around one thousand at the time,

609
00:33:17,200 --> 00:33:20,640
Speaker 5: we published a white paper that said, even if you

610
00:33:20,720 --> 00:33:26,080
Speaker 5: don't really believe in blockchain and the security of the network,

611
00:33:26,200 --> 00:33:28,800
Speaker 5: we had pointed out at the time that just two

612
00:33:28,920 --> 00:33:32,280
Speaker 5: variables explained over eighty percent of the price move a bitcoin,

613
00:33:32,680 --> 00:33:35,880
Speaker 5: which is the number of active wallets and the activity

614
00:33:35,880 --> 00:33:39,000
Speaker 5: per wallet. And at the time we made a simple

615
00:33:39,000 --> 00:33:40,960
Speaker 5: projection we said that in five years, so by twenty

616
00:33:41,000 --> 00:33:43,280
Speaker 5: twenty two, if the number of wallets went up by

617
00:33:44,800 --> 00:33:48,480
Speaker 5: seventy percent and activity per wallet went up by forty

618
00:33:48,640 --> 00:33:51,320
Speaker 5: bitcoin would be twenty five thousand by twenty twenty two.

619
00:33:52,280 --> 00:33:55,600
Speaker 5: So it was really kind of maths that bitcoin, even

620
00:33:55,600 --> 00:33:57,760
Speaker 5: if you don't understand it, and I think it's it's

621
00:33:57,760 --> 00:34:02,280
Speaker 5: an incredible technology, right. Decentralized database is so secure it

622
00:34:02,280 --> 00:34:06,800
Speaker 5: hasn't been hacked. In the fourteen years of existence. Not

623
00:34:06,920 --> 00:34:10,880
Speaker 5: a single entry on the bitcoin ledger is fraudulent. In

624
00:34:10,920 --> 00:34:13,480
Speaker 5: that same period of time, six percent of all bank

625
00:34:13,680 --> 00:34:18,800
Speaker 5: ledger activity is considered suspicious by the FDIC. But today,

626
00:34:19,440 --> 00:34:21,480
Speaker 5: if you look at any time interval and say how

627
00:34:21,560 --> 00:34:23,600
Speaker 5: much of the price move is explained by wallet change

628
00:34:23,600 --> 00:34:25,840
Speaker 5: and activity per wallet, it's still over eighty percent. So

629
00:34:25,920 --> 00:34:28,400
Speaker 5: to me, Bitcoin's price in the future it will be

630
00:34:29,040 --> 00:34:33,320
Speaker 5: depend on how many people further adopted and whether activity

631
00:34:33,360 --> 00:34:36,640
Speaker 5: on the network will grow. We're confident both will take place,

632
00:34:36,640 --> 00:34:40,319
Speaker 5: and that's why you can get some really high exponential

633
00:34:40,360 --> 00:34:44,520
Speaker 5: price levels from here. I know folks like Kathy would

634
00:34:44,560 --> 00:34:46,560
Speaker 5: say it's in the two million, believe it or not.

635
00:34:46,560 --> 00:34:49,200
Speaker 5: If you go out into far enough time frame, let's

636
00:34:49,200 --> 00:34:53,239
Speaker 5: say five years, and you grow the number willlet's at

637
00:34:53,239 --> 00:34:56,360
Speaker 5: a linear rate, you can get in the millions for bitcoin.

638
00:34:57,280 --> 00:35:01,040
Speaker 2: But what drives the opening of wallets or adoption other

639
00:35:01,080 --> 00:35:05,719
Speaker 2: than price like that? Because It seems almost circuitous in

640
00:35:05,760 --> 00:35:08,759
Speaker 2: many ways that people see again the line going up

641
00:35:08,880 --> 00:35:10,719
Speaker 2: into the right, and then they want to get in

642
00:35:10,760 --> 00:35:12,399
Speaker 2: on it, and so they open a wallet. But when

643
00:35:12,440 --> 00:35:15,399
Speaker 2: stuff starts to fall and go in reverse, you can

644
00:35:15,640 --> 00:35:17,760
Speaker 2: have these very dramatic price cuts.

645
00:35:17,880 --> 00:35:20,520
Speaker 5: Yeah, so I think it sounds like we're describing currency

646
00:35:21,040 --> 00:35:25,520
Speaker 5: because like dollar adoption probably look that way, right, I mean,

647
00:35:25,840 --> 00:35:29,280
Speaker 5: not everybody accepted dollars in the beginning, but more people

648
00:35:29,400 --> 00:35:32,120
Speaker 5: accepted dollars, and then as more people accepted they start

649
00:35:32,160 --> 00:35:34,760
Speaker 5: to use it. I think in that way, the history

650
00:35:34,760 --> 00:35:38,600
Speaker 5: of currencies could explain how bitcoin can grow, because over time,

651
00:35:38,640 --> 00:35:41,160
Speaker 5: as bitcoin is more widely held, you can start to

652
00:35:41,239 --> 00:35:46,280
Speaker 5: innovate around it, whether it's pricing off bitcoin, letting people

653
00:35:46,640 --> 00:35:50,640
Speaker 5: lend off bitcoin, or micropayments around bitcoin, or settle things

654
00:35:50,680 --> 00:35:55,719
Speaker 5: on the blockchain. That's what's happening. So I can't give

655
00:35:55,719 --> 00:35:59,000
Speaker 5: you a single use case that will explain the growth

656
00:35:59,000 --> 00:36:02,759
Speaker 5: and wallets, but we know that institutional adoptions growing. I mean,

657
00:36:02,840 --> 00:36:04,719
Speaker 5: I think it was a huge deal that black Rock

658
00:36:04,760 --> 00:36:08,000
Speaker 5: has gotten into bitcoin because it pretty much invalidates the

659
00:36:08,040 --> 00:36:10,759
Speaker 5: idea that this is just a bunch of people in

660
00:36:10,800 --> 00:36:13,719
Speaker 5: their basements playing with you know digital money.

661
00:36:14,120 --> 00:36:16,880
Speaker 4: Going back to real money for a second, or you

662
00:36:16,920 --> 00:36:20,520
Speaker 4: know things that maybe ground traditional additional assets. I want

663
00:36:20,560 --> 00:36:23,040
Speaker 4: to talk more about your twenty thirty calls. So what

664
00:36:23,040 --> 00:36:25,720
Speaker 4: do we say fifteen thousand is a possibility in twenty

665
00:36:25,920 --> 00:36:29,799
Speaker 4: thirty we're at fifty four eighty fifty four eighty three

666
00:36:29,880 --> 00:36:32,520
Speaker 4: oh six as of the time I said those words,

667
00:36:33,040 --> 00:36:35,840
Speaker 4: what have it? So that's you know, six years tripling

668
00:36:35,920 --> 00:36:38,680
Speaker 4: almost What has to take place or what takes place

669
00:36:38,680 --> 00:36:42,600
Speaker 4: from a valuation perspective, et cetera, an earnings growth perspective

670
00:36:42,640 --> 00:36:44,719
Speaker 4: in the next six years that can get us to

671
00:36:44,760 --> 00:36:45,240
Speaker 4: that number.

672
00:36:45,360 --> 00:36:48,080
Speaker 5: Yeah, I haven't updated the numbers recently, so I can

673
00:36:48,120 --> 00:36:50,200
Speaker 5: speak to it from I think three or four years

674
00:36:50,200 --> 00:36:53,279
Speaker 5: ago when we first published that number. It's roughly a

675
00:36:53,360 --> 00:36:59,080
Speaker 5: twenty percent annual price appreciation. Wow, Now earnings growth would

676
00:36:59,080 --> 00:37:02,920
Speaker 5: be twelve to fifteen percent of that total. Okay, so

677
00:37:03,040 --> 00:37:07,720
Speaker 5: then you have five percent a year PE expansion. Now

678
00:37:07,880 --> 00:37:11,520
Speaker 5: can PE expand it five percent a year? I think

679
00:37:11,600 --> 00:37:14,920
Speaker 5: one thing to keep in mind is COVID proved to

680
00:37:15,000 --> 00:37:17,400
Speaker 5: us that businesses are a lot more resilient than we realized,

681
00:37:17,960 --> 00:37:21,399
Speaker 5: So why should we assign the same PE to them?

682
00:37:21,480 --> 00:37:24,120
Speaker 5: That we assigned to them prior to this, knowing that

683
00:37:24,120 --> 00:37:27,600
Speaker 5: if you shut down the global economy, jack up unemployment

684
00:37:28,560 --> 00:37:32,920
Speaker 5: to twenty percent, have huge supply chain disruptions, and yet

685
00:37:32,920 --> 00:37:36,160
Speaker 5: companies could manage earnings. I think they deserve a lot

686
00:37:36,200 --> 00:37:39,720
Speaker 5: more credit. So I think the multiple can compound at

687
00:37:39,760 --> 00:37:41,400
Speaker 5: higher rate than five percent.

688
00:37:42,320 --> 00:37:44,960
Speaker 4: Yeah, Tracy, Actually, I have to say this is something

689
00:37:45,000 --> 00:37:48,480
Speaker 4: that i've like, my thinking is sort of sharpened on

690
00:37:48,680 --> 00:37:52,640
Speaker 4: over the last few years. Essentially, this like US businesses,

691
00:37:52,680 --> 00:37:53,960
Speaker 4: at least the big ones are.

692
00:37:53,840 --> 00:37:55,320
Speaker 3: Really like well run.

693
00:37:55,800 --> 00:37:58,920
Speaker 4: You know, the fact that, as Tom described, so many

694
00:37:58,960 --> 00:38:01,480
Speaker 4: of them were like quickly able to adapt to the

695
00:38:01,480 --> 00:38:05,760
Speaker 4: COVID environment. The fact that when interest rates started going

696
00:38:05,840 --> 00:38:08,960
Speaker 4: up in early twenty twenty two, so much of the

697
00:38:09,160 --> 00:38:12,560
Speaker 4: so many of the overstaffed tech companies were quickly able

698
00:38:12,640 --> 00:38:16,560
Speaker 4: to pivot, and when I say pivot, cut workers and

699
00:38:16,960 --> 00:38:20,759
Speaker 4: maximize for free cash flow, which investors were clamoring to see. Like,

700
00:38:21,000 --> 00:38:24,480
Speaker 4: just from a sort of objective investor based standpoint, my

701
00:38:24,760 --> 00:38:28,120
Speaker 4: estimation of the sort of agility and skill of big

702
00:38:28,239 --> 00:38:31,400
Speaker 4: US corporations I have been impressed over the last several years.

703
00:38:31,600 --> 00:38:36,640
Speaker 2: Never underestimate American companies a reality to make money for real. Okay, well,

704
00:38:37,040 --> 00:38:40,080
Speaker 2: I have to ask one question, which is Tom, You've

705
00:38:40,120 --> 00:38:44,120
Speaker 2: explained very well how you use history and data in

706
00:38:44,160 --> 00:38:46,960
Speaker 2: your thinking. But I guess one thing I would love

707
00:38:47,000 --> 00:38:49,680
Speaker 2: to know is is there anything from the experience, the

708
00:38:49,760 --> 00:38:53,239
Speaker 2: post pandemic experience that has surprised you.

709
00:38:54,800 --> 00:38:58,240
Speaker 5: There's things that have reinforced some things I always wondered about.

710
00:38:59,080 --> 00:39:02,879
Speaker 5: One is I think as much as people say they're

711
00:39:02,920 --> 00:39:07,120
Speaker 5: objective and they only look at things objectively, they always

712
00:39:07,160 --> 00:39:10,400
Speaker 5: have a bias. And I think the bias since COVID

713
00:39:10,480 --> 00:39:12,839
Speaker 5: has been that we are in a state of emergency.

714
00:39:13,680 --> 00:39:16,759
Speaker 5: There's too much debt, there's still a virus out there. Now,

715
00:39:16,800 --> 00:39:19,760
Speaker 5: AI is going to get us, and that is played

716
00:39:19,800 --> 00:39:24,200
Speaker 5: into how people view stocks and not as objective instruments

717
00:39:24,280 --> 00:39:28,560
Speaker 5: of shareholder value. The second thing that is true is

718
00:39:28,600 --> 00:39:31,560
Speaker 5: that there's what I always observed as the youngification of

719
00:39:31,680 --> 00:39:35,680
Speaker 5: money management, which is, let's take you know, the top

720
00:39:35,760 --> 00:39:38,800
Speaker 5: twenty largest hedge funds and the top twenty largest I

721
00:39:38,800 --> 00:39:41,560
Speaker 5: don't know active managers. Well, when we look at the

722
00:39:41,560 --> 00:39:43,879
Speaker 5: average age of a fund manager, I don't know, they're

723
00:39:43,880 --> 00:39:47,160
Speaker 5: probably in their late thirties. If you go back ten years.

724
00:39:47,360 --> 00:39:51,360
Speaker 5: They're also the same age in their late thirties, you know,

725
00:39:51,400 --> 00:39:53,839
Speaker 5: because you know, in hedge fund most people retire because

726
00:39:53,840 --> 00:39:56,080
Speaker 5: they made a lot of money or they don't survive,

727
00:39:57,040 --> 00:40:00,000
Speaker 5: which means that the look back of institutional knowledge isn't

728
00:40:00,120 --> 00:40:02,000
Speaker 5: growing over time. It's the same. You know, they have

729
00:40:02,120 --> 00:40:07,560
Speaker 5: ten years of experience. So today most people don't have

730
00:40:07,719 --> 00:40:13,760
Speaker 5: necessary real time knowledge of GFC that are actually managing money. Yeah,

731
00:40:13,880 --> 00:40:18,320
Speaker 5: so that means the pandemic is influencing how people view

732
00:40:19,040 --> 00:40:24,360
Speaker 5: markets disproportionately without appreciating the historical backdrop, which is what

733
00:40:24,480 --> 00:40:26,560
Speaker 5: you know, which is something I'm continuing to observe.

734
00:40:27,000 --> 00:40:30,120
Speaker 2: Yeah. Yeah, that kind of recency bias is definitely a

735
00:40:30,160 --> 00:40:32,920
Speaker 2: thing because I think for both Joe and myself, the

736
00:40:32,960 --> 00:40:36,239
Speaker 2: two thousand and eight financial crisis looms very large in

737
00:40:36,280 --> 00:40:39,200
Speaker 2: our heads, whereas for a lot of other people, now,

738
00:40:39,239 --> 00:40:39,560
Speaker 2: a lot.

739
00:40:39,440 --> 00:40:41,040
Speaker 5: Of younger people, which is history.

740
00:40:41,080 --> 00:40:43,440
Speaker 2: It's yeah, it's history, and it's like the pandemic that

741
00:40:43,480 --> 00:40:47,080
Speaker 2: they think about. Anyway, Tom, that was so fascinating and

742
00:40:47,080 --> 00:40:48,880
Speaker 2: we're so glad we've been meaning to have you on

743
00:40:48,920 --> 00:40:50,480
Speaker 2: the show for a long time. I don't know why

744
00:40:50,520 --> 00:40:52,720
Speaker 2: it hasn't happened before, but I'm glad we could finally

745
00:40:52,760 --> 00:40:54,200
Speaker 2: do it, So thank you so much.

746
00:40:54,040 --> 00:40:55,680
Speaker 5: And hopefully it's not another thirty years.

747
00:40:56,480 --> 00:40:59,040
Speaker 3: No, we won't wait another thirty years.

748
00:40:59,080 --> 00:41:02,319
Speaker 4: We'll have you back in a twenty thirty when the

749
00:41:02,400 --> 00:41:04,560
Speaker 4: S and P is at fifteen thousand to get.

750
00:41:04,440 --> 00:41:07,440
Speaker 3: Your twenty forty call. Yes, that's right, all right. Looking

751
00:41:07,440 --> 00:41:07,799
Speaker 3: forward to.

752
00:41:20,560 --> 00:41:24,680
Speaker 2: Joe, that was really interesting, particularly hearing about Tom's experience

753
00:41:24,800 --> 00:41:27,920
Speaker 2: as a wireless analyst in the early two thousands. And

754
00:41:28,000 --> 00:41:31,000
Speaker 2: I got to go look up that bankruptcy research project

755
00:41:31,040 --> 00:41:33,480
Speaker 2: that he mentioned because that sounds interesting as well. But

756
00:41:33,560 --> 00:41:37,120
Speaker 2: a couple things stuck out to me. So One, when

757
00:41:37,160 --> 00:41:40,200
Speaker 2: I think of Tom Lee and his work, I do

758
00:41:40,280 --> 00:41:45,160
Speaker 2: often think about those very lofty, specific price targets, and

759
00:41:45,239 --> 00:41:49,040
Speaker 2: so it was interesting to hear him talk about why

760
00:41:49,080 --> 00:41:52,239
Speaker 2: he goes down that route rather than just say, you know,

761
00:41:52,640 --> 00:41:55,879
Speaker 2: ten percent upside or something like that, and it kind

762
00:41:55,920 --> 00:41:58,560
Speaker 2: of makes sense. I guess that's a point of differentiation

763
00:41:58,680 --> 00:42:02,040
Speaker 2: for him versus another equity strategist.

764
00:42:02,680 --> 00:42:03,360
Speaker 3: No, totally.

765
00:42:03,400 --> 00:42:06,319
Speaker 4: It's interesting that there is this perceptions like people just

766
00:42:06,360 --> 00:42:08,840
Speaker 4: want to know whether things are going up or down,

767
00:42:09,080 --> 00:42:11,840
Speaker 4: which sort of my standpoint. But then then in the

768
00:42:11,880 --> 00:42:14,799
Speaker 4: conversation everyone's like, yeah, so what's the price target? Even

769
00:42:14,800 --> 00:42:16,600
Speaker 4: though that's notoriously hard to well.

770
00:42:16,680 --> 00:42:18,480
Speaker 2: I guess we can see it in this conversation as well,

771
00:42:18,480 --> 00:42:22,399
Speaker 2: because we will probably title this episode. You know, Tom

772
00:42:22,480 --> 00:42:24,279
Speaker 2: Lely sees what was it? The S and P five

773
00:42:24,360 --> 00:42:25,240
Speaker 2: hundred at.

774
00:42:25,280 --> 00:42:29,560
Speaker 3: Thirty thousand, No. Fifteen and twenty thirty. You know, there's

775
00:42:29,560 --> 00:42:30,160
Speaker 3: a lot in there.

776
00:42:30,239 --> 00:42:32,919
Speaker 4: Like I said, I could talk about you know, late

777
00:42:33,080 --> 00:42:35,600
Speaker 4: nineties wireless bubble stuff.

778
00:42:35,880 --> 00:42:38,040
Speaker 2: Go on, Joe, I know you want to No, it.

779
00:42:38,000 --> 00:42:38,720
Speaker 3: Never gets boring.

780
00:42:39,040 --> 00:42:42,160
Speaker 4: On the flip side, I have been thinking about this

781
00:42:42,280 --> 00:42:45,720
Speaker 4: a lot, which is just that the financial crisis really

782
00:42:45,800 --> 00:42:48,279
Speaker 4: is fading into what I would call like capital h

783
00:42:48,760 --> 00:42:52,200
Speaker 4: history as just something that is for you and I.

784
00:42:52,480 --> 00:42:55,239
Speaker 4: It feels like on you know, in many respects, we're

785
00:42:55,280 --> 00:42:58,480
Speaker 4: still living in the aftermath of that event and decisions

786
00:42:58,480 --> 00:43:00,960
Speaker 4: that were made and policies that were in place in

787
00:43:00,960 --> 00:43:03,160
Speaker 4: that aftermath, and you and I could talk forever about

788
00:43:03,160 --> 00:43:06,600
Speaker 4: how they still inform the markets today, I think in

789
00:43:06,760 --> 00:43:09,920
Speaker 4: profound ways. But I don't think that's the case for

790
00:43:09,960 --> 00:43:12,600
Speaker 4: a lot of people think about markets. It's literally something

791
00:43:12,640 --> 00:43:14,680
Speaker 4: that you know, might as well be the Great Depression

792
00:43:14,760 --> 00:43:17,040
Speaker 4: or the nineteen fifties or the Vietnam War or any

793
00:43:17,080 --> 00:43:20,200
Speaker 4: other period that just feels like something you learn in

794
00:43:20,280 --> 00:43:22,719
Speaker 4: history books, but you know, you don't think about as

795
00:43:22,760 --> 00:43:24,040
Speaker 4: applying to your day to day.

796
00:43:24,520 --> 00:43:27,400
Speaker 2: Absolutely. The other thing that stood out for me was,

797
00:43:27,520 --> 00:43:31,719
Speaker 2: I guess the connection between valuations and brates and it

798
00:43:31,760 --> 00:43:35,880
Speaker 2: does feel like maybe there is a growing recognition that

799
00:43:35,920 --> 00:43:40,000
Speaker 2: you can have an environment where companies continue, to your

800
00:43:40,040 --> 00:43:44,239
Speaker 2: point earlier to make money even when treasury yields have

801
00:43:44,440 --> 00:43:48,960
Speaker 2: like doubled, that you know empirically that seems to be happening.

802
00:43:49,320 --> 00:43:52,239
Speaker 4: It's also interesting I hadn't heard. So there is the

803
00:43:52,280 --> 00:43:54,760
Speaker 4: fact that if you're one of these cash rich mega

804
00:43:54,880 --> 00:43:57,640
Speaker 4: caps and higher rates also just directly add to your

805
00:43:57,680 --> 00:43:59,560
Speaker 4: earnings because you don't have dead But then the other

806
00:43:59,640 --> 00:44:03,280
Speaker 4: element of higher rates as a moat that then makes

807
00:44:03,400 --> 00:44:07,960
Speaker 4: new entrance more competitive is a really sort of interesting idea.

808
00:44:08,040 --> 00:44:11,440
Speaker 4: The sort of higher rates as this centralizing force for

809
00:44:11,520 --> 00:44:14,440
Speaker 4: those who already have capital and this penalizing force for

810
00:44:14,520 --> 00:44:18,080
Speaker 4: those who don't as interesting. And then also, as Tom

811
00:44:18,120 --> 00:44:21,000
Speaker 4: pointed out, capital markets activity, and one thing that we

812
00:44:21,080 --> 00:44:25,000
Speaker 4: haven't seen with AI is just this sort of endless

813
00:44:25,120 --> 00:44:29,680
Speaker 4: train of AI related companies coming to the market to

814
00:44:29,800 --> 00:44:33,799
Speaker 4: grab people's wallets and maybe because there's not that many

815
00:44:33,800 --> 00:44:37,480
Speaker 4: good ones out there. But for whatever reason, that aspect

816
00:44:37,520 --> 00:44:39,319
Speaker 4: of the boom has not materialized.

817
00:44:39,560 --> 00:44:41,960
Speaker 2: Yeah, although I suppose, you know, maybe it's only a

818
00:44:42,000 --> 00:44:44,839
Speaker 2: matter of time, or maybe, as we were discussing, more

819
00:44:44,920 --> 00:44:47,799
Speaker 2: of that activity is just taking place in private markets. Now,

820
00:44:48,120 --> 00:44:49,719
Speaker 2: I guess we'll see, we'll see here or two.

821
00:44:50,080 --> 00:44:51,080
Speaker 5: All right, shall we leave it there?

822
00:44:51,160 --> 00:44:51,839
Speaker 3: Let's leave it there.

823
00:44:51,920 --> 00:44:54,640
Speaker 2: This has been another episode of the All Thoughts Podcast.

824
00:44:54,760 --> 00:44:57,640
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

825
00:44:57,760 --> 00:45:00,560
Speaker 4: And I'm Joe Wisenthal. You can follow me at the Stalwart.

826
00:45:00,760 --> 00:45:04,120
Speaker 4: Follow our guest Tom Lee, He's at funstrat. Follow our

827
00:45:04,160 --> 00:45:07,960
Speaker 4: producers Kerman Rodriguez at Kerman armand Dashel Bennett at Dashbot

828
00:45:08,080 --> 00:45:11,840
Speaker 4: and Kelbrooks at Kelbrooks. Thank you to our producer Moses onm.

829
00:45:12,160 --> 00:45:14,840
Speaker 4: For more Oddlogs content, go to Bloomberg dot com slash

830
00:45:14,920 --> 00:45:17,239
Speaker 4: odd Lots, where we have transcripts, a blog, and a

831
00:45:17,400 --> 00:45:20,360
Speaker 4: newsletter and you can chat about all of these topics

832
00:45:20,440 --> 00:45:23,279
Speaker 4: twenty four to seven in the discord Discord dot gg

833
00:45:23,480 --> 00:45:24,719
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834
00:45:24,960 --> 00:45:27,160
Speaker 2: If you enjoy odd Lots, if you like it, when

835
00:45:27,200 --> 00:45:29,920
Speaker 2: we talk price targets with Tom Lee. Then please leave

836
00:45:30,000 --> 00:45:33,760
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837
00:45:33,880 --> 00:45:36,480
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838
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842
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Speaker 1: In in