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Speaker 1: We're joined by Barbara and Bonachie's chief investment officer at

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Speaker 1: Win crist Capital. And Barbara, when you look at these markets,

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Speaker 1: I know you consider this a stock pickers market. What

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Speaker 1: stocks are you picking or or equally importantly not picking

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Speaker 1: at the moment. So thanks for having me on, Paul.

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Speaker 1: It's a super interesting time. I think we're in a

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Speaker 1: bear market rally UM, our fund run two sounds, an

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Speaker 1: energy transition fund, and the hedge funds. The hedge funds

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Speaker 1: actually not short UM, just because that's where we see

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Speaker 1: the opportunity. And I think we're con trained by nature.

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Speaker 1: But this is a valuation call on a macro call UM.

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Speaker 1: You know, the you still see earnings estimate trending above

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Speaker 1: where the we're before the Great Financial crisis. So we

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Speaker 1: think while multiples have contracted, earnings expectations are yet to contract.

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Speaker 1: And that's what we're seeing in UM in this season

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Speaker 1: and in forthcoming. So we think it's a rolling bear market.

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Speaker 1: And uh, you know, if you look at companies such

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Speaker 1: as the advertisers or the shippers, UM, we think there's

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Speaker 1: still a ton of downside A because the minute a

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Speaker 1: companies these weakness, the first thing they cut is advertising,

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Speaker 1: and you saw that in the results with you know,

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Speaker 1: Google this week and Facebook. And the secondly with the shippers,

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Speaker 1: we see if we're going into a recession, which is

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Speaker 1: kind of the consensus. Now, volumes fall, freight rates fall,

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Speaker 1: and they're over levered, and it's you know, it's a

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Speaker 1: market where in certain segments there's very little pricing power.

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Speaker 1: For example, as you look at trucking in the US,

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Speaker 1: and company, which is very large and listed um you

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Speaker 1: know it's such such sorry such as um like name

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Speaker 1: three of them, but you know they have two percent

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Speaker 1: market share. So a ton of debt, not a lot

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Speaker 1: of pricing power, falling rates and and and following volume

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Speaker 1: is not great, and inflation does. Inflation does remain elevated, Barbara.

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Speaker 1: But with everything you're saying, I'm wondering if if that

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Speaker 1: kind of doom and gloom brings us closer to a

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Speaker 1: FED pivot and and maybe a reflation of equity valuation.

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Speaker 1: It's such a good point because that's whatever I'm saying is, oh,

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Speaker 1: you know, bad news is good news. I think we

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Speaker 1: just need to break that down and double click on

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Speaker 1: that for a minute. I don't think bad news is

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Speaker 1: ever good news. Because what they're talking about is is

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Speaker 1: the FED suddenly pivots an interest rates start going up

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Speaker 1: and stop going up. We will have multiple expansion, but

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Speaker 1: multiple expansion is not the same thing as EPs expansion.

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Speaker 1: And what I'm saying is we're about to have EPs deceleration.

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Speaker 1: So a healthy economy is based on EPs expansion, not

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Speaker 1: multiple expansion. So what would be healthier for the FED

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Speaker 1: in the event that things started a colaw? Do you

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Speaker 1: think it's better just hold the course, continue to try

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Speaker 1: to get inflation under control. They're in a really, really

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Speaker 1: tricky situation. It's unprecedented that we'd be raising rates into

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Speaker 1: an all time low consumer confidence and all time low

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Speaker 1: small business confidence, which is exactly where we are saying,

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Speaker 1: um and and it's you know, and to have these

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Speaker 1: rates of inflation, there are certain things but the cost

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Speaker 1: of money can't fix. I need the birth and supply chain.

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Speaker 1: So I think they have the perfect excuse to just say,

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Speaker 1: you know, what, is not the norm today and we're

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Speaker 1: just going to have to suffer a higher rate for

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Speaker 1: a while. But being dogmatic about the fact that we're

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Speaker 1: going to get to two is what makes them lose credibility,

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Speaker 1: and even at cash carry this weekend saying I think

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Speaker 1: the market's missing truth rotain what Powell said, and we

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Speaker 1: think are interpret with Palace as well. Pow saying that

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Speaker 1: two to two percent is a neutral rate. It's wrong

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Speaker 1: by any textbook, and particularly an inflation nine percent, right,

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Speaker 1: So the point is they've started being guidance because they're

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Speaker 1: tired of being wrong. Yep. I would agree with that.

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Speaker 1: I mean, and they're desperately trying to get inflation under

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Speaker 1: control with these aggressive front loaded rate hikes. But I'm

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Speaker 1: wondering whether or not to go back to your hedge

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Speaker 1: fund being net short. I mean, if you're right, what's

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Speaker 1: the downside from here? To quantify that for me? In

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Speaker 1: so we're stock pickers is as less is more of

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Speaker 1: a the stock specific view than a macro review. But

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Speaker 1: you have all the zombie companies that whose business models

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Speaker 1: were based on free money that are this is the

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Speaker 1: catalyst for for the unwind of that. And then you

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Speaker 1: have the companies that during the pandemics took kind a

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Speaker 1: ton of debt and just look at a Carnival cruise line, right,

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Speaker 1: they are no longer able to issue to the price

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Speaker 1: of debt has got so expensive for them. So then

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Speaker 1: they tried to issue equity a billion dollars worth this

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Speaker 1: week and they still have six times net debt EBATA.

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Speaker 1: And then if you look at like a Royal Caribbean

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Speaker 1: cruise who also report this week, there's no demand. That

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Speaker 1: is a problem. You know, we also do a lot

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Speaker 1: of private investments. There are no I p. O S

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Speaker 1: right now, and the capital markets are shut. So if

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Speaker 1: you're not a business who can grow based on your

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Speaker 1: own cash flows, you're in a problem right now. And

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Speaker 1: that's what the markets not pricing in very quickly. Bobara,

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Speaker 1: do you anticipate some bankruptcy in the next few months

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Speaker 1: twenty seconds? Absolutely? Absolutely, I mean I mean, let's just

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Speaker 1: a company like beyond neat as a negative gross margin.

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Speaker 1: How is that even possible? But these were the darlings

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Speaker 1: of a free money world. You're not sustainable business plans.

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Speaker 1: And then you look at you know, I think McDonald's

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Speaker 1: is a corotective as I was just ditched from this week.

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Speaker 1: I mean this is these are not sustainable and so

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Speaker 1: in many respects, I'm very excited as a fundamental investment. Okay, well,

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Speaker 1: I'm going to have to leave you in your state

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Speaker 1: of excitement. We're out of time. Barbara and Bernard of

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Speaker 1: Wincress Capital our guest here on daybreak Acasia