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Speaker 1: Hello, and welcome to What Goes Up a Weekly markets podcast.

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Speaker 1: My name is Mike Reagan, I'm a senior editor at Bloomberg,

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Speaker 1: and I'm Emily Graffeo, across asset reporter at Bloomberg, filling

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Speaker 1: in for Build on a Rich and this week on

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Speaker 1: the show. Well, if you wanted to pick a single

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Speaker 1: day of market action to serve as a microcosm for

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Speaker 1: the whole year, we got it. This week, stocks, bonds,

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Speaker 1: and currency markets all had a collective freak out over

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Speaker 1: this stubbornly high inflation. This after August consumer price index

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Speaker 1: came in a bit hotter than economists had expected, but

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Speaker 1: it really highlighted what a tricky year it's been for

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Speaker 1: balanced portfolios that invest in both stocks and bonds. So

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Speaker 1: how are managers of those funds dealing with this year's turbulence.

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Speaker 1: We'll get into with with a fund manager with a

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Speaker 1: balance fund who's beating his benchmark pretty nicely this year.

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Speaker 1: But first, Emily, I gotta say thank you for filling

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Speaker 1: in for Vildonna, who's off again this week. Even though

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Speaker 1: this is going to cause even more anxiety for Valdonna herself,

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Speaker 1: I appreciate it. Yeah, no problem, you'd think, you know,

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Speaker 1: she would go on that vacation and she would be

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Speaker 1: more relaxed. But I'm not sure if that is the case.

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Speaker 1: We'll work on it. But the only rule you have

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Speaker 1: to know, Emily, the only ground rule for a co

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Speaker 1: host is you have to laugh enthusiastically at my jokes,

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Speaker 1: which I will absolutely and because I will add you

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Speaker 1: to my professional network on LinkedIn. Yes, yes, finally, finally,

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Speaker 1: because I gotta say Vldonna is not very good at

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Speaker 1: that requiremental laughing at my jokes. I think it's a

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Speaker 1: you know, she eats nothing but califlower. I think it's

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Speaker 1: a it's a protein deficiency or some kind of vitamin deficiency.

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Speaker 1: That that's the story I'm going with. Yeah, yeah, too

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Speaker 1: many chickpeas, not enough meat. But one next, she's great

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Speaker 1: at and she has a great journalist, and she's great

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Speaker 1: at finding excellent guests for this podcast, including this week.

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Speaker 1: She brought this week's guests on and then abandon us.

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Speaker 1: But um, we're very excited to have them. Money tell

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Speaker 1: tell the listeners who this week's guest is. So today

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Speaker 1: on the show, we have George Cippolini, and he is

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Speaker 1: a portfolio manager of Pen mutual asset Management, and he

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Speaker 1: also co leads the management of the balanced income strategy

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Speaker 1: at the firm. So, George, welcome to the show. And

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Speaker 1: most exciting is you're a Philly guys. So the most

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Speaker 1: important first question is you gotta give us your cheese

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Speaker 1: steak place. What's your what's your favorite cheesesteake place? Okay,

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Speaker 1: so I'm going to give a little bit of a

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Speaker 1: nuanced answer if that's okay. It's definitely not Pats and Gino's,

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Speaker 1: which a lot about out of town or tend to like,

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Speaker 1: um loved love John's Rose Pork, which again in the

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Speaker 1: name it says rose pork and not cheese steaks. But

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Speaker 1: they make a great cheese steak. But the best sandwich

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Speaker 1: in Philly, if anyone wants to go, it's in the

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Speaker 1: writing Terminal market and you go to the Nicks and

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Speaker 1: you get a brisket of beef sandwich. It's outrageous, it's

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Speaker 1: even I mean, I think it's better than a Energies steak.

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Speaker 1: That's my crest. I'll accept that answer. Actually, I you know,

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Speaker 1: I've heard about that place for years and I don't

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Speaker 1: think I've ever actually had The next roast beef. But good,

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Speaker 1: that's some good, solid research, Philly research right there, Emily,

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Speaker 1: this guy knows what he's talking about. Yeah, that sounds

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Speaker 1: that sounds delicious. I think we'll have to have another

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Speaker 1: episode where we just talk about brisket and yes, yes, absolutely,

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Speaker 1: But George, why don't you start us off and talk

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Speaker 1: a little bit about your current role um and your

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Speaker 1: background and how you got to you know, where you

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Speaker 1: are today at Pen Mutual. Sure, absolutely so a little

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Speaker 1: bit of a different path than I think most portfolio

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Speaker 1: managers in terms of getting to where I am today

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Speaker 1: at Pen Mutual, which we're at a great place and

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Speaker 1: we're grateful to be here. But but I grew up

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Speaker 1: doing concrete work with my family in Philadelphia. UM, at

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Speaker 1: around nineteen years old. I didn't take my S A

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Speaker 1: T S. I didn't do any of that good stuff,

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Speaker 1: no plans to go to college. Then I met my wife,

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Speaker 1: who's from South Philadelphians, pretty strong willed, and and she said,

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Speaker 1: you're going to go to college, and so I did.

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Speaker 1: I listened and um, and you know, it was a

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Speaker 1: great path for me, who ended up going to uh

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Speaker 1: A junior college, transferred over to Drexel University, worked on

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Speaker 1: the floor of the Philly Stock Exchange back in the

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Speaker 1: late nineties. So um, really the the inception of my

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Speaker 1: career was very much impactful to me, as it is

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Speaker 1: to most young people in terms of I got to

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Speaker 1: see an incredible boom in terms of the tech bubble

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Speaker 1: and then a bust after and so that really was

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Speaker 1: the inception of my career, which kind of led me

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Speaker 1: to fortune. Fortunately to a small little investment shop called

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Speaker 1: the Killing Group in Berwin, p A. It was at

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Speaker 1: break even at the time. We got no bosses our

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Speaker 1: first few years in the business um, but but eventually

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Speaker 1: we grew this small little income fund called the Berwin

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Speaker 1: Income Fund from about forty fifty million in assets all

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Speaker 1: the way up to two and a half billion in

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Speaker 1: assets u at at peak. And what we did was

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Speaker 1: a little different. We were a little off the beaten

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Speaker 1: beaten path in terms of our strategy. We were a

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Speaker 1: small firm with twelve people, so we were very independent minded,

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Speaker 1: very long term focus, traditional value investors. And what we

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Speaker 1: did was our director of research, Leader Out, had this

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Speaker 1: great investment process and I just kind of took it

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Speaker 1: um from what he did on the equity side and

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Speaker 1: applied it to the world of income and the fixed

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Speaker 1: income and the high owned bonds and investment grade bonds

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Speaker 1: and preferred stocks and convertible bonds, and the process really worked.

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Speaker 1: It's a it's a strategy that's differentiated in terms of

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Speaker 1: we are very flexible. We can invest across market caps,

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Speaker 1: we can invest across the company's capital structure, and with

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Speaker 1: the sole goal really of just adding value within this universe.

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Speaker 1: We don't want we don't want necessarily the highest building securities.

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Speaker 1: We want the companies with and securities with the best

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Speaker 1: balance of risk and reward. Um in terms of that

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Speaker 1: uh um, you know that whole direction. So that's a

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Speaker 1: little quick and dirty. I ended up at Pen Mutual

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Speaker 1: just just a few years ago. Um, you know, we

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Speaker 1: sold our firm, the Killing Group, And and after taking

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Speaker 1: some time off, I wanted to stay in the business

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Speaker 1: and keep doing this because it really is a passion

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Speaker 1: and and and I just felt like I could. I

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Speaker 1: still had some uh some guests in the tank, and

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Speaker 1: and and wanted to contribute somewhere And was fortunate enough

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Speaker 1: to join Peen Mutual, with which has you know, a

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Speaker 1: great staff of over thirty people on the investment team.

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Speaker 1: They have a ton of resources manage over thirty billion

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Speaker 1: in assets, the bulk of that being the insurance assets,

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Speaker 1: and then the resources again from a marketing and support

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Speaker 1: standpoint to start a new fund like like like our products.

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Speaker 1: So I balanced income. So just really grateful to be

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Speaker 1: back in it. And uh, we have a two year

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Speaker 1: track record now and so far, so good. We're we're

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Speaker 1: you know, very very highly ranked at the moment in

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Speaker 1: terms of our morning Star category. And as you both mentioned,

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Speaker 1: came right back into some really incredible and at concredible

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Speaker 1: times and his dark times for sure. That that's a

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Speaker 1: great backstory, George. You know, I'm glad you listen to

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Speaker 1: your wife. You know, I's all when friends get married.

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Speaker 1: I say. The key too's a successful marriage is you

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Speaker 1: have to start off with the assumption the wife is

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Speaker 1: always right. You get you gotta listen to her. That

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Speaker 1: I haven't talked to many people who worked on the

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Speaker 1: Philly Stock Exchange. That's interesting too. What were you like

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Speaker 1: a specialist market maker? So I also worked at a

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Speaker 1: specialist post for for Susquehanna, which and Mike, let me

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Speaker 1: tell you something. You talk about experience, so you know,

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Speaker 1: and there is as a you know, young teenager, early twenties.

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Speaker 1: And and in the morning we had math class. We

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Speaker 1: went to work and they paid for a lunch which

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Speaker 1: was awesome, breakfast in lunch Susquehanna is a great shop.

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Speaker 1: And then um, and right afterward we would go play poker.

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Speaker 1: So I mean, if you if you just think about

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Speaker 1: you know, risk rewarding, game theory and math and just

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Speaker 1: the application of all that on a daily basis, that

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Speaker 1: really stimulated my interest because before that I didn't know

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Speaker 1: much about investing at all. And um, but that really

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Speaker 1: stimulated my interest in the markets. Uh, my interest especially

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Speaker 1: in risk and reward and the behavior of the markets,

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Speaker 1: which I think is something that's overlooked and maybe a

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Speaker 1: topic we can discuss later. But yeah, it really wasn't

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Speaker 1: a great start. And and to your point, always listened

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Speaker 1: to your wife, well talking about market behavior, George, what

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Speaker 1: a what a crazy week? Um, But what I think

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Speaker 1: is funny, you know. I one of the columns I

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Speaker 1: edit is, uh, this guy Cameron Christ he writes a

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Speaker 1: column called Macroman. He actually took off for a week

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Speaker 1: and he came back to work the day after the

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Speaker 1: CPI numbers. You know, throw everything upside down, and you know,

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Speaker 1: his column was about, like, what did I miss? You know,

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Speaker 1: the the equity markets actually exactly where it was before

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Speaker 1: I left. Yields are exactly where they were, you know,

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Speaker 1: because you had that, you had like this five percent

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Speaker 1: run up in the SMP five like in the four

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Speaker 1: days before to see p I report on Tuesday. So

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Speaker 1: I'm curious how big of a game changer you think

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Speaker 1: it was. Um, despite this this massive autility we saw afterwards,

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Speaker 1: has that much much changed And you're thinking about, you know,

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Speaker 1: the Fed's reaction function for the rest of this cycle.

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Speaker 1: So I I think it did my get. And here's

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Speaker 1: why I usually don't like short term data points. I

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Speaker 1: really like long term data points. But I will say,

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Speaker 1: within the context of this week, the market was very

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Speaker 1: much geared up. And I don't I don't mean just

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Speaker 1: the stock market, the stock market, as you mentioned, but

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Speaker 1: also the bond market, even in the preferred market with

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Speaker 1: longer duration securities. People were making significant bets that the

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Speaker 1: CPI number was going to come in late and and

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Speaker 1: the FED was going to back off. And if you

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Speaker 1: think about really, for most of this year, the market

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Speaker 1: has been waiting for the FED to pivot they've been

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Speaker 1: waiting for Poal to give in. And I'm just going

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Speaker 1: to say this one thing, and I think I sent

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Speaker 1: it to you earlier, and I keep pointing to it.

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Speaker 1: There was an exchange when when Pal gave testimony to

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Speaker 1: the Senate and Senator Shelby asked him directly, directly back, then,

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Speaker 1: is your leadership prepared to do what it takes to

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Speaker 1: get inflation under control and protect price stability? And Pal

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Speaker 1: gave a very respectful nod to Vulgar and then he said,

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Speaker 1: I hope history will record that the answer to your

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Speaker 1: question is yes, but the key thing is shall be

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Speaker 1: pressed on And he said, are you prepared to do

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Speaker 1: what it takes? And Pals gave a little more of

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Speaker 1: a sheepish yes, but he did say yes. And I

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Speaker 1: think really that's where the line of the line in

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Speaker 1: the sand was and and kind of the part where

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Speaker 1: the market is kind of missing in terms of the

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Speaker 1: expectation that was from March and it's already September. I mean,

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Speaker 1: this has been six months now, the market wanting a

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Speaker 1: pivot and they're not getting it. So I think to

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Speaker 1: your point, in the short term, that really was how

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Speaker 1: the market was positioned Over the last month, credit spreads

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Speaker 1: rallied a little bit tightened up, and the stock market rallied,

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Speaker 1: And I think that's why they really want any indication

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Speaker 1: that the FED can kind of shift course. George, I

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Speaker 1: feel like all of this talk of are we going

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Speaker 1: to have a FED pivot are we not? Has inflation peaked.

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Speaker 1: It's led to a lot of near term volatility. But

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Speaker 1: one of the big themes for this year is probably

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Speaker 1: going to be that bonds have done so poorly, So

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Speaker 1: where are you looking for that income? Is it still

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Speaker 1: in any part of bonds? Is it dividend stocks? Are

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Speaker 1: you looking at cash? Yeah? And and so this is

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Speaker 1: this is a great point. And and our perspective, I

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Speaker 1: think is a good one, not because we are brilliant

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Speaker 1: investors by any stretch, but because we have this flexible

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Speaker 1: approach and we are allowed to increase cash and we

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Speaker 1: are allowed to wait it out. Last year, as as

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Speaker 1: the markets rallied, our cash balance grew and grew up

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Speaker 1: to over and so at the end of two thousand

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Speaker 1: and one we had in cash over cash. And the

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Speaker 1: reason was there wasn't a lot of value there. Credit

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Speaker 1: spreads to Titan stock market had gripped um and and

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Speaker 1: there just wasn't a lot. So so fortunately we were

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Speaker 1: able to We we believe in liquidity. The liquidity is

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Speaker 1: like oxygen for us, and when we have it, you know,

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Speaker 1: we feel like feel great, I feel like we can breathe.

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Speaker 1: And we did well last year. I mean, we were

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Speaker 1: up the most ten percent, you know, not in the

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Speaker 1: nine percent range, and that was a great ranking in

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Speaker 1: our in our category to last year. So it's not

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Speaker 1: like we missed out on much. So when the volatility

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Speaker 1: kicked in for the most part this year, we had

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Speaker 1: liquidity available. And yes, to your point, around the June

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Speaker 1: time frame when things really blew out from a spread standpoint,

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Speaker 1: we did put some money to work and I'd like

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Speaker 1: to talk you know, and I'm sure we'll talk about

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Speaker 1: what we bought, uh specifically, not specific names, been in general,

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Speaker 1: but just to your point that this market is very,

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Speaker 1: very different. So the last eight times that the SMP

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Speaker 1: was down in a calendar year, bonds finished up and

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Speaker 1: so it cushioned the blow for everybody, and it was,

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Speaker 1: you know, diversifier, and we haven't had that to share,

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Speaker 1: as you well know. And now bonds are down a

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Speaker 1: lot and and this could be the worst year in

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Speaker 1: recent history for sure, maybe in many many decades that

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Speaker 1: that bonds have been down this much, and that's really different.

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Speaker 1: So that correlation rising between stocks and bonds and the

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Speaker 1: down market was something that we didn't know that that

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Speaker 1: would happen. And that's not why we went to cash.

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Speaker 1: But we were glad that we had the cash. And again,

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Speaker 1: bonds were so overpriced if you look back now and

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Speaker 1: if you look at the yields you can get today

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Speaker 1: versus just six months ago. So we're glad that we

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Speaker 1: had that flexible process. Yeah, that's a pretty high cash level.

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Speaker 1: Said now, George, I'm famous around here for asking like

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Speaker 1: twelve part questions. So so I got bad news for you.

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Speaker 1: I got one coming for you. Do you have like

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Speaker 1: an assistant who can take notes notes on this question?

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Speaker 1: I can do it on my own assistant. Let's go,

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Speaker 1: But I I'll make it easy for you. I'm just

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Speaker 1: gonna I'll just monologue a little bit like here, like

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Speaker 1: a villain in a movie, and then you you tell

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Speaker 1: me where I'm where I'm wrong, and and what your

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Speaker 1: reaction is to what I'm gonna say. Because I'm kind

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Speaker 1: of fascinated you know, as you say you you're fund

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Speaker 1: you can go your strategy, UH can go as much

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Speaker 1: as equities. Looking on your website, you're in a little

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Speaker 1: less than thirty percent as of the end of June.

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Speaker 1: So not quite bullish on equities, it would seem, um,

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Speaker 1: but while fifty one point seven percent in high yield

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Speaker 1: corporate credit um And to me, I think that's fascinating.

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Speaker 1: We don't have a lot of credit guyes on the

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Speaker 1: show as much as we should, so I want to

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Speaker 1: sort of unpack what the credit markets are signaling right

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Speaker 1: now because um, you know, for equity investors, they often

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Speaker 1: look at the high yield market especially it's sort of

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Speaker 1: that canary in the coal mine. You know, spreads started

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Speaker 1: blowing out before the market top in oh seven, They started,

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Speaker 1: you know, creeping higher before the dot com UH bust

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Speaker 1: in two thousand. I'm looking this year and at least

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Speaker 1: according our index UH, you know, the spread on high

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Speaker 1: yield UH corporates right now, according in the Bloomberg indexes,

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Speaker 1: I think it's like four hundred and fifty basis points.

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Speaker 1: And for listeners who don't know what that means, that's

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Speaker 1: basically just the the extra yield on high old bonds

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Speaker 1: compared to treasuries. So so, George, to me, that doesn't

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Speaker 1: seem like a canary in the coal mine screaming recession

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Speaker 1: just yet. You know, the spreads are why a lot

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Speaker 1: wider than where they started the year, but they were

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Speaker 1: very tight to start the year. So I'm curious, just

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Speaker 1: you know, a you know, what are the spreads telling

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Speaker 1: you as far as like a macro signal about a

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Speaker 1: recession that that investors in other asset classes, uh should

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Speaker 1: should be thinking about. But also, you know, the last

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Speaker 1: time spreads blew out, it was it was mostly that

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Speaker 1: energy sector, uh, that was the driver of that. So

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Speaker 1: is that is that signal from the credit markets you

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Speaker 1: think broken? Since energy companies um are a big component

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Speaker 1: of high yield what they're they're doing really well these days. Wow.

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Speaker 1: Excellent question. Many points, and they're all court discussing for sure.

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Speaker 1: So so number one, real quick, I think it is

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Speaker 1: it's a little misleading when we look at our high

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Speaker 1: yield exposure in our strategy. And and the only reason

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Speaker 1: why I'll say that is that we generally tend to

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Speaker 1: focus on double being single B security, so we really

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Speaker 1: don't delve too far down in the triple seas and

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Speaker 1: that you know higher of high yield. The second thing

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Speaker 1: is our duration is a lot shorter than many of

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Speaker 1: the benchmarks. And then the third there is a little

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Speaker 1: bit of a cheat code in the in the bond market,

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Speaker 1: and and and a great way to add value, especially

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Speaker 1: in these types of markets, and so checodes where I

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Speaker 1: have a fourteen year old son, so I might throw

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Speaker 1: out some like chicoads words or made like they have

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Speaker 1: all this yeah yeah, yeah exactly and so so so

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Speaker 1: the cheat code in the bond market for me and

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Speaker 1: for our strategy is, look, you can find companies, so

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Speaker 1: so working you limit risk or working you lower risk

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Speaker 1: in a high yield security, Well, you can find certain

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Speaker 1: smaller securities because we're we're a small fund at the moment,

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Speaker 1: and we can buy these smaller securities, um smaller issues,

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Speaker 1: and you can find companies that more cash than debt

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Speaker 1: on the balance sheet. That is the ch code. So

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Speaker 1: when I go to bed at night, I'm not worried

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Speaker 1: about the great majority of the high yield quote unquote

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Speaker 1: bonds and our portfolio going bankrupt. I'm not really taking

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Speaker 1: a huge bet. I'm getting paid for that extra credit spread.

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Speaker 1: But I'm not making a huge bet like the economy

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Speaker 1: has to do well. I literally can go to sleep

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Speaker 1: at night and I know, for example, that the great

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Speaker 1: majority of our bonds are going to get paid off

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Speaker 1: because because the cash is already on the balance sheet,

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Speaker 1: they're managed by companies that are free cash flow positive

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Speaker 1: and manage my management teams that have a great track

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Speaker 1: record of capital allocation. And so that's the ultimate margin

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Speaker 1: of safety for us. And the good thing there is

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Speaker 1: that you know, as Ben Graham said, the purpose of

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Speaker 1: the margin of safety is to render the forecast unnecessary,

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Speaker 1: and so I don't have to project inflation rates or

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Speaker 1: where the where interest rates are going, or what the

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Speaker 1: economy is going to do. If you focus on that

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Speaker 1: company being able to pay off that piece of debt again,

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Speaker 1: you have you eliminate a lot of other concerns. So

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Speaker 1: that's one of the cheat codes that we use and

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Speaker 1: one of the ways that we've had value over the

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Speaker 1: past twenty years of managing this type of strategy. To

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Speaker 1: your point, yes, credit credit spreads are absolutely a signal.

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Speaker 1: It's something we should all watch out for. I'll give

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Speaker 1: you two schools of thought here. Number one, credit spreads

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Speaker 1: or wider they should be. Uh. The economic situation, broadly

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Speaker 1: speaking from an earning standpoint is a lot more uncertain

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Speaker 1: today than it's been in a long time, and so

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Speaker 1: credit spreads should be wider now. The flip side of

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Speaker 1: that argument is that interest rates were so low for

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Speaker 1: so long that many or most companies were able to

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Speaker 1: refi it really really low rates, and they extended their debt.

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Speaker 1: That balances out. That's good in the near term, so

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Speaker 1: I wouldn't expect to see default rates kick up a

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Speaker 1: lot in the immediate near term. That said, there are

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Speaker 1: a lot of zombie companies, companies that cannot cover their

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Speaker 1: interest expense through operating earnings or EVA don that's that

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Speaker 1: to me again means that you really need to be

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Speaker 1: a good like I would never buy high yield broadly.

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Speaker 1: I wouldn't look I'm biased, right, I'm an active manager.

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Speaker 1: I wouldn't buy a high yield e t F for

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Speaker 1: the sole purpose of I don't trust all the companies

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Speaker 1: that are in the e t F. I trust this

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Speaker 1: company instead of that company. So that's my view, and

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Speaker 1: I feel like we can ferret out and find value

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Speaker 1: in that context. Um, but that's just two schools of thought, yes,

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Speaker 1: I still think credit spreads are very important indicator. Energy

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Speaker 1: is a big part in near point going back to

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Speaker 1: fourteen fifteen sixteen, they blew up a lot of the

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Speaker 1: energy credits and went bankrupt and and and that's honestly

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Speaker 1: been one of the reasons why why that sector has

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Speaker 1: kind of stayed so cheap, given how well they've performed

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Speaker 1: um this year. So those were just my thoughts on

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Speaker 1: those topics. So it's give maybe to dig in further.

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Speaker 1: Let me know I I did. I also want to

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Speaker 1: ask you, you know when and I know you said,

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Speaker 1: you know it's you're not gonna go out on a

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Speaker 1: limb and try to predict inflation or pick the path

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Speaker 1: of interest rates. But fingers crossed. I think we all

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Speaker 1: have to kind of hope that maybe the peaks in

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Speaker 1: for inflation at least and if if you're looking out

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Speaker 1: over five ten years, you know, uh again fingers crossed.

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Speaker 1: But boy, you gotta assume inflation, inflation is gonna come down,

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Speaker 1: interest rates are gonna come down with it. So does

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Speaker 1: this type of moment in time make you, um, sort

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Speaker 1: of bullish on on longer maturities, you know, especially with

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Speaker 1: new issues. If if you can lock in a really

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Speaker 1: attractive rate for you know, twelve fifteen years. You know,

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Speaker 1: does it change your thinking on maturities at all when

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Speaker 1: when yields are this high, it's it certainly should so.

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Speaker 1: So the way we view it is, obviously we're getting

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Speaker 1: paid a lot more now than we were just and

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Speaker 1: full of months ago for just about every flavor of

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Speaker 1: of income, which is which is great. I think Intel's

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Speaker 1: dividend just hit five percent today. For example, Um, if

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Speaker 1: you look at short rates, money market rates are going

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Speaker 1: to pay about four percent soon. And you know, so

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Speaker 1: if you you look at the two year you name

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Speaker 1: it across the board. So so to your point, like, yes,

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Speaker 1: longer duration. Now, the thing with longer duration bonds is

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Speaker 1: that the YO curve is flattening, so those rates are

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Speaker 1: not up as much as shorter term rates. Um. So

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Speaker 1: that's something that we factor into as well. So the

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Speaker 1: way I look at it is what can I get

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Speaker 1: for how much risk do I have to assume for

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Speaker 1: a certain level of income? And now if I can

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Speaker 1: get four or five or six percent from a two

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Speaker 1: year convertible bond that's busted, that has a great balance sheet,

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Speaker 1: you know, that really might be my my bar. So

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Speaker 1: so my low end bar or my my my. The

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Speaker 1: basis for our fund is really okay, what can I

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Speaker 1: get for free? And for free? It's not everyone's definition

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Speaker 1: of free. This is a typical Philly guy. By the way, Emily,

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Speaker 1: this is how Philly guys think. Who's got the free

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Speaker 1: who's got the free fries with the cheese steak or

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Speaker 1: the free drink. I I know exactly where he's coming from.

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Speaker 1: Their budget friendly. I like that. Yeah, yeah, absolutely, And

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Speaker 1: so if you met my father, you would certainly understand

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Speaker 1: he still has his lunch money from grade school, you know.

430
00:22:23,520 --> 00:22:27,520
Speaker 1: But that's that's the context. Seriously, though, it's funny because

431
00:22:27,560 --> 00:22:29,160
Speaker 1: I think about this a lot, like this is actually

432
00:22:29,200 --> 00:22:31,639
Speaker 1: a pretty good point. So I grew up really close

433
00:22:31,640 --> 00:22:33,800
Speaker 1: with my grandparents. I would go to do concrete work

434
00:22:33,800 --> 00:22:35,960
Speaker 1: with my grandfather. I'd go home, I have dinner with

435
00:22:36,000 --> 00:22:39,680
Speaker 1: my parents and my grandparents. And my grandmom was so

436
00:22:39,760 --> 00:22:43,080
Speaker 1: stigmatized and her whole family was by the Great Depression,

437
00:22:43,440 --> 00:22:45,800
Speaker 1: and that that really left the mark, Like you did

438
00:22:45,840 --> 00:22:48,399
Speaker 1: not waste a piece of food in the half like

439
00:22:48,480 --> 00:22:51,560
Speaker 1: that was like, you know, that was immortal sin. And

440
00:22:51,600 --> 00:22:53,359
Speaker 1: I would have to go to confession if I didn't

441
00:22:53,359 --> 00:22:56,199
Speaker 1: need all my dinner. You know, my dad had a big,

442
00:22:56,320 --> 00:22:59,520
Speaker 1: big beer belly, and he used to he passed away,

443
00:22:59,600 --> 00:23:01,560
Speaker 1: but he used to called out his savings account. You know,

444
00:23:02,040 --> 00:23:04,280
Speaker 1: that's what he's going to live live off off if

445
00:23:04,280 --> 00:23:06,920
Speaker 1: things got lean. But you're right, he never never left

446
00:23:06,920 --> 00:23:10,840
Speaker 1: a single crumb on a on a plate ever. No, absolutely,

447
00:23:10,880 --> 00:23:12,600
Speaker 1: And so so you wonder like why you think a

448
00:23:12,600 --> 00:23:14,440
Speaker 1: certain way or you know why your behavior or why

449
00:23:14,480 --> 00:23:17,640
Speaker 1: your decision making processes a certain way. And that, honestly

450
00:23:17,680 --> 00:23:19,600
Speaker 1: what was was a big part of it. That's why

451
00:23:19,600 --> 00:23:22,399
Speaker 1: my bias is what it is. So so I'm constantly

452
00:23:22,480 --> 00:23:26,040
Speaker 1: looking for for what can I get without taking any risk?

453
00:23:26,440 --> 00:23:28,600
Speaker 1: And so I start with really good balance sheets and

454
00:23:28,760 --> 00:23:31,400
Speaker 1: and and we really focus in on that for this

455
00:23:31,440 --> 00:23:35,119
Speaker 1: product of course, and um, and again we're what can

456
00:23:35,119 --> 00:23:36,760
Speaker 1: I where can I get the most amount of risk?

457
00:23:36,960 --> 00:23:39,320
Speaker 1: If a two year bond from a convertible, you know

458
00:23:39,400 --> 00:23:41,720
Speaker 1: that's a convertible security is going to give me four

459
00:23:41,800 --> 00:23:45,560
Speaker 1: or five and I have up the upside that convertible,

460
00:23:45,560 --> 00:23:48,639
Speaker 1: that optionality that a convertible bond gives us. Wow, I

461
00:23:48,840 --> 00:23:52,919
Speaker 1: would much rather have that risk reward A semest asymmetrically

462
00:23:52,960 --> 00:23:57,320
Speaker 1: positive risk reward profile versus you know, maybe a dollar

463
00:23:57,400 --> 00:24:02,000
Speaker 1: preferred that shielding five and equivalent yield. But to your point, yes,

464
00:24:02,040 --> 00:24:03,840
Speaker 1: at some point it will make sense to go a

465
00:24:03,920 --> 00:24:07,560
Speaker 1: little longer. And we found certain securities. Okay, one more

466
00:24:07,640 --> 00:24:09,560
Speaker 1: cheat coats. I got one more cheat coats. Words. So

467
00:24:11,040 --> 00:24:13,399
Speaker 1: when you look at so we we tend to only

468
00:24:13,440 --> 00:24:16,359
Speaker 1: buy bonds that are trading at a discount, which is weird,

469
00:24:16,680 --> 00:24:18,680
Speaker 1: but if you think about it makes a lot of sense.

470
00:24:18,680 --> 00:24:20,920
Speaker 1: So when bonds were overvalued, we weren't paying one ten.

471
00:24:21,920 --> 00:24:24,800
Speaker 1: We just wouldn't do it. So what we do is

472
00:24:24,800 --> 00:24:27,600
Speaker 1: wait until they become discounted. Now to your point, Michael,

473
00:24:27,720 --> 00:24:31,120
Speaker 1: some of the long bonds are trading at sixty seventy

474
00:24:31,320 --> 00:24:35,280
Speaker 1: cents on the dollar. For companies there are with outrageous

475
00:24:35,320 --> 00:24:38,879
Speaker 1: balance sheets, outrageous balance sheets, good balance sheets that you

476
00:24:38,880 --> 00:24:40,520
Speaker 1: know the one I can't tell you the name, but

477
00:24:40,760 --> 00:24:43,240
Speaker 1: the company is fourteen billion in cash with less than

478
00:24:43,280 --> 00:24:46,280
Speaker 1: two billion in death. And sure I'll go along in

479
00:24:46,320 --> 00:24:48,399
Speaker 1: that name because I know that that balance sheet is

480
00:24:48,480 --> 00:24:51,240
Speaker 1: rock solid and and and the yields great. And then

481
00:24:51,280 --> 00:24:54,440
Speaker 1: the cheat code is if you can find um bonds

482
00:24:54,560 --> 00:24:56,760
Speaker 1: or we only buy bonds. We tried only buy bonds

483
00:24:56,760 --> 00:24:59,879
Speaker 1: that have change of control provisions in the indenture and

484
00:25:00,040 --> 00:25:03,480
Speaker 1: in the in the perspectives and the covenants. And if

485
00:25:03,520 --> 00:25:05,840
Speaker 1: you do that, and let's just say that company gets

486
00:25:05,840 --> 00:25:08,240
Speaker 1: bought out, you're getting one oh one on that bond.

487
00:25:08,520 --> 00:25:10,560
Speaker 1: And so there's another way where you can add a

488
00:25:10,560 --> 00:25:12,679
Speaker 1: lot of value. And you may only have one of

489
00:25:12,680 --> 00:25:15,479
Speaker 1: those every couple of years or five years maybe. But

490
00:25:15,480 --> 00:25:17,520
Speaker 1: but again, the same thing with the convertible thing. If

491
00:25:17,800 --> 00:25:20,040
Speaker 1: if you have a convert where the stock takes off

492
00:25:20,119 --> 00:25:22,840
Speaker 1: and they do really well, I mean we've purchased some

493
00:25:22,880 --> 00:25:25,320
Speaker 1: bounds twenty five dollars and sold in the two fifty.

494
00:25:25,520 --> 00:25:27,960
Speaker 1: I mean that, so again we're looking at but we

495
00:25:28,000 --> 00:25:30,360
Speaker 1: are to go back to the point of being cheap.

496
00:25:30,440 --> 00:25:32,200
Speaker 1: We don't want to pay for that obviously. We want

497
00:25:32,200 --> 00:25:34,200
Speaker 1: to wait till the market gets busted. And it's pretty

498
00:25:34,200 --> 00:25:37,639
Speaker 1: busted at the moment. So that's how hopefully that helps

499
00:25:37,680 --> 00:25:39,960
Speaker 1: you in terms of how we frame those types of

500
00:25:40,000 --> 00:25:44,520
Speaker 1: decisions on the equity side. How are you thinking about

501
00:25:44,880 --> 00:25:49,600
Speaker 1: margin pressure as inflation remains hot. I feel like there's

502
00:25:49,640 --> 00:25:51,919
Speaker 1: a lot of stories that I write about people talking

503
00:25:51,920 --> 00:25:56,440
Speaker 1: about how the Fed's reaction to hot inflation is going

504
00:25:56,480 --> 00:25:59,720
Speaker 1: to hurt stock prices. But what about earnings? Is that

505
00:25:59,800 --> 00:26:04,240
Speaker 1: the next shoot at fall for Yeah, and a great, great,

506
00:26:04,359 --> 00:26:07,679
Speaker 1: great question. And I'll tell you why, because you know,

507
00:26:07,720 --> 00:26:10,240
Speaker 1: if you think of what we just went through, and

508
00:26:10,520 --> 00:26:13,280
Speaker 1: so so if we just ask ourselves, why is this

509
00:26:13,440 --> 00:26:16,600
Speaker 1: environment so difficult? Why is it so different? Well, we

510
00:26:16,640 --> 00:26:19,440
Speaker 1: go through COVID, and you know, if you think about

511
00:26:19,520 --> 00:26:22,560
Speaker 1: how much money the government pumped into the pumped into

512
00:26:22,680 --> 00:26:26,040
Speaker 1: the economy, and how much liquidity and how easy the

513
00:26:26,119 --> 00:26:29,719
Speaker 1: FED was over that period, it obscured a lot of

514
00:26:29,760 --> 00:26:32,520
Speaker 1: the traditional data. And I think that's that's part of

515
00:26:32,520 --> 00:26:35,960
Speaker 1: the problem now, is that you really cannot separate the

516
00:26:36,000 --> 00:26:38,200
Speaker 1: FEDS bailing out of the market over the last twenty

517
00:26:38,280 --> 00:26:42,480
Speaker 1: years versus you know, the surge and the money supply

518
00:26:42,680 --> 00:26:46,360
Speaker 1: over the last since COVID and the result. So let's

519
00:26:46,400 --> 00:26:49,879
Speaker 1: talk about the result first. The result was earnings went crazy.

520
00:26:50,240 --> 00:26:53,800
Speaker 1: Sales sales went nuts for for most companies. And if

521
00:26:53,840 --> 00:26:55,600
Speaker 1: you look at some of the you know, if you

522
00:26:55,640 --> 00:26:58,480
Speaker 1: look at your d S four screen on Bloomberg, just

523
00:26:58,520 --> 00:27:00,480
Speaker 1: to get Bloomberg a little plug you and see the

524
00:27:00,560 --> 00:27:04,240
Speaker 1: quarter over, Yeah, you can give that. You can see

525
00:27:04,240 --> 00:27:06,680
Speaker 1: the quarter of well, we'll allow that, George will allow

526
00:27:06,720 --> 00:27:10,400
Speaker 1: the Bloomberg plug. Okay, cool, cool, awesome. Um. So, so

527
00:27:10,480 --> 00:27:11,879
Speaker 1: you can see the year over a year, quarter of

528
00:27:11,920 --> 00:27:15,040
Speaker 1: a quarter results and you see these spectacular numbers in

529
00:27:15,040 --> 00:27:18,240
Speaker 1: two thousand twenty one. The problem now is that is

530
00:27:18,280 --> 00:27:21,399
Speaker 1: that sustainable? And my question, my argument, and to answer

531
00:27:21,480 --> 00:27:23,360
Speaker 1: your question, is that a lot of it is not

532
00:27:23,600 --> 00:27:26,240
Speaker 1: so so on so what we've seen so far in

533
00:27:26,320 --> 00:27:29,600
Speaker 1: terms of decline was almost all pe declined so far.

534
00:27:30,359 --> 00:27:33,520
Speaker 1: The problem, the problematic thing about the market is if

535
00:27:33,520 --> 00:27:36,200
Speaker 1: that he declines from here, which I think there's a

536
00:27:36,240 --> 00:27:39,000
Speaker 1: good chance for a lot of companies that will, and

537
00:27:39,080 --> 00:27:42,600
Speaker 1: so that could lead to a longer period of either

538
00:27:42,680 --> 00:27:45,840
Speaker 1: going sideways for going down. And I keep saying this

539
00:27:45,960 --> 00:27:48,880
Speaker 1: line over and over. I can see the ceiling clearly.

540
00:27:49,119 --> 00:27:52,320
Speaker 1: We can see peak earnings clearly, because it's there in

541
00:27:52,320 --> 00:27:54,800
Speaker 1: two thousand twenty one. What we can't see at the

542
00:27:54,800 --> 00:27:57,880
Speaker 1: moment is the floor. And that's partially the scary part

543
00:27:58,000 --> 00:28:01,399
Speaker 1: because to your point, margins are under pressure. If you

544
00:28:01,400 --> 00:28:04,400
Speaker 1: look at sales, sales had peaked and and now we're

545
00:28:04,440 --> 00:28:06,840
Speaker 1: coming off peak. So what does that mean? And so

546
00:28:06,960 --> 00:28:11,480
Speaker 1: you have you know, a group of factors that lead

547
00:28:11,560 --> 00:28:13,720
Speaker 1: me to be concerned about the E at this point.

548
00:28:13,720 --> 00:28:15,479
Speaker 1: And that's where I think we are. And then just

549
00:28:15,520 --> 00:28:18,640
Speaker 1: to take that one step further, everybody talks in aggregate

550
00:28:18,680 --> 00:28:22,400
Speaker 1: about the E about the SMPS earnings, and we really

551
00:28:22,400 --> 00:28:24,160
Speaker 1: don't because we look at and you know, we look

552
00:28:24,200 --> 00:28:26,480
Speaker 1: at company by company, and so we want companies that

553
00:28:26,520 --> 00:28:30,159
Speaker 1: have sustainable earnings. But if you strip out the energy

554
00:28:30,240 --> 00:28:33,800
Speaker 1: sector from you know, last quarters earnings, last quarters earnings

555
00:28:33,800 --> 00:28:37,160
Speaker 1: were negative, d earnings growth was negative, sorry, darrings growth

556
00:28:37,280 --> 00:28:39,880
Speaker 1: was negative, and and so you know, I think that's

557
00:28:39,920 --> 00:28:42,200
Speaker 1: really important you strip that out, if you tend if

558
00:28:42,240 --> 00:28:44,360
Speaker 1: you want to strip out the Apples and Microsofts of

559
00:28:44,400 --> 00:28:47,360
Speaker 1: the world, and you leave you know the other you know,

560
00:28:47,400 --> 00:28:51,080
Speaker 1: four hundred plus companies. This earning season really was not

561
00:28:51,240 --> 00:28:54,400
Speaker 1: that good. And I think that's that's you know, the

562
00:28:54,440 --> 00:28:56,680
Speaker 1: other part that the market is kind of kind of

563
00:28:56,720 --> 00:29:13,720
Speaker 1: resisting at the moment, you know, Church when I look

564
00:29:13,760 --> 00:29:17,840
Speaker 1: at sort of the market reaction. Uh. Ever, since you know,

565
00:29:17,920 --> 00:29:21,640
Speaker 1: the worst days of COVID even um, you know, and

566
00:29:21,640 --> 00:29:24,680
Speaker 1: and coming into this year, we had this a few

567
00:29:24,680 --> 00:29:29,280
Speaker 1: months there where the value factor was just totally outperforming growth. UM.

568
00:29:29,440 --> 00:29:32,160
Speaker 1: Then it kind of reversed back, uh and and growth

569
00:29:32,160 --> 00:29:35,959
Speaker 1: started out performing value again. Now it's you know, I'm

570
00:29:35,960 --> 00:29:37,960
Speaker 1: guessing it's gonna swing back the other way now that

571
00:29:38,200 --> 00:29:41,960
Speaker 1: inflation is less and longer than everyone expected. But to me,

572
00:29:42,240 --> 00:29:43,960
Speaker 1: you know, if you look at it from sort of

573
00:29:44,000 --> 00:29:48,640
Speaker 1: thirty thousand feet, I feel like investors are just craving

574
00:29:48,720 --> 00:29:52,400
Speaker 1: to get back to that world they're familiar with, that

575
00:29:52,400 --> 00:29:56,160
Speaker 1: that nice, juicy bull market between the financial crisis and

576
00:29:56,360 --> 00:30:00,320
Speaker 1: COVID where you know, sure GDP growth wasn't rate, but

577
00:30:00,400 --> 00:30:04,360
Speaker 1: interest rates were low, uh and growth stocks were just

578
00:30:04,440 --> 00:30:07,920
Speaker 1: the only game in town. I wonder if we're all

579
00:30:07,960 --> 00:30:11,480
Speaker 1: in for reckoning that those days are aren't coming back,

580
00:30:11,560 --> 00:30:14,360
Speaker 1: That we're in a whole new paradigm now. And it's

581
00:30:14,400 --> 00:30:17,560
Speaker 1: a very uncomfortable situation to try to wrap your head around.

582
00:30:17,600 --> 00:30:20,120
Speaker 1: How how are you thinking about that sort of reversion

583
00:30:20,160 --> 00:30:25,120
Speaker 1: to normalcy? Um? You know, is it? Do you think

584
00:30:25,120 --> 00:30:28,400
Speaker 1: we'll ever get back to that scenario where, you know,

585
00:30:28,520 --> 00:30:32,320
Speaker 1: the that decade of of just a roaring bullmarket and

586
00:30:32,680 --> 00:30:35,040
Speaker 1: low yields? Or are we are we stuck in a

587
00:30:35,040 --> 00:30:39,080
Speaker 1: new sort of secular environment here? Yeah, and and and

588
00:30:39,960 --> 00:30:43,480
Speaker 1: this this is an important topic mainly because of again

589
00:30:43,560 --> 00:30:45,280
Speaker 1: what's going on in the last few years, So what

590
00:30:45,400 --> 00:30:48,120
Speaker 1: really drove it? You know, I tend to believe that

591
00:30:48,200 --> 00:30:50,280
Speaker 1: the FED obviously say so if you think about Druck

592
00:30:50,280 --> 00:30:53,440
Speaker 1: and Miller's combat regarding liquidity, that liquidity means everything. And

593
00:30:54,040 --> 00:30:57,600
Speaker 1: he doesn't even believe necessarily that it's as important as earnings,

594
00:30:57,600 --> 00:30:59,160
Speaker 1: to which I would kind of debate with him a

595
00:30:59,160 --> 00:31:01,840
Speaker 1: little bit. But anyway, he's a much better investor than

596
00:31:01,880 --> 00:31:05,000
Speaker 1: I am. But liquidity is if you can get him

597
00:31:05,000 --> 00:31:08,720
Speaker 1: on the show, you can debate him, you can you. Yeah,

598
00:31:08,920 --> 00:31:13,040
Speaker 1: he seems like maybe if we all from a cheese

599
00:31:13,040 --> 00:31:15,360
Speaker 1: steak or the Nix brisket of beef sand which we

600
00:31:15,400 --> 00:31:19,240
Speaker 1: can uh, we can get them down here. Um. But anyway,

601
00:31:19,280 --> 00:31:21,040
Speaker 1: so so so if you think about if you think

602
00:31:21,040 --> 00:31:23,480
Speaker 1: about those periods, there's boom and bust and again, you know,

603
00:31:23,560 --> 00:31:25,720
Speaker 1: start off my career in one. You know, we saw

604
00:31:25,840 --> 00:31:27,720
Speaker 1: one in the housing bubble, and then we saw one

605
00:31:27,760 --> 00:31:30,920
Speaker 1: now and you know, the FED really played a pretty

606
00:31:30,960 --> 00:31:32,960
Speaker 1: big role and where they played the role as again

607
00:31:33,000 --> 00:31:36,400
Speaker 1: on the pea side, on the valuation side, excess liquidity

608
00:31:36,480 --> 00:31:40,640
Speaker 1: finds its way into the craziest of assets and we

609
00:31:40,680 --> 00:31:43,080
Speaker 1: and we saw that. So we saw the cryptos rally

610
00:31:43,080 --> 00:31:46,080
Speaker 1: and the spacks rally and the meme stocks rally. All

611
00:31:46,160 --> 00:31:50,920
Speaker 1: of that, my opinion, was malinvestment that was caused by

612
00:31:51,160 --> 00:31:54,120
Speaker 1: excess liquidity. There was just too much money floating around,

613
00:31:54,480 --> 00:31:56,760
Speaker 1: not enough good places to put it. And most of

614
00:31:56,800 --> 00:31:59,000
Speaker 1: the people who are investing that those funds were the

615
00:31:59,120 --> 00:32:02,920
Speaker 1: first time invests or novice investors, and and it just

616
00:32:03,240 --> 00:32:06,440
Speaker 1: again that that's not healthy. So from my standpoint of

617
00:32:06,440 --> 00:32:10,280
Speaker 1: being this value investor with traditional philosophies, that was not

618
00:32:10,400 --> 00:32:13,120
Speaker 1: that to me, that's the anomaly. That's that's the period.

619
00:32:13,640 --> 00:32:15,920
Speaker 1: That's the tech bubble, you know, and that's the tech

620
00:32:15,920 --> 00:32:18,640
Speaker 1: bubble that came back, and it will come back again.

621
00:32:18,640 --> 00:32:21,520
Speaker 1: To your point, it might take another twenty years. But yeah,

622
00:32:21,560 --> 00:32:24,040
Speaker 1: I don't think in terms of what growth investors are

623
00:32:24,080 --> 00:32:29,120
Speaker 1: looking for, they anchored. So so the behavioral aspect, our

624
00:32:29,560 --> 00:32:32,000
Speaker 1: definition of that is anchoring and their anchor to a

625
00:32:32,160 --> 00:32:35,280
Speaker 1: point um or to a spot in the market that

626
00:32:35,360 --> 00:32:37,920
Speaker 1: just is no longer there. And I think I say

627
00:32:37,960 --> 00:32:40,720
Speaker 1: this all the time. We can't anchor, you know, take

628
00:32:40,760 --> 00:32:43,640
Speaker 1: into account new information and and you know, let's change

629
00:32:43,640 --> 00:32:46,280
Speaker 1: our decision, you know, change change your mind change or decision,

630
00:32:46,680 --> 00:32:49,280
Speaker 1: and I think that's important for the market to understand.

631
00:32:49,280 --> 00:32:51,800
Speaker 1: Today you can't anchor to that point because that's gone.

632
00:32:52,200 --> 00:32:54,840
Speaker 1: I don't think again everybody wants a FED pivot, But

633
00:32:54,880 --> 00:32:57,760
Speaker 1: I don't think that type of excess liquidity is going

634
00:32:57,800 --> 00:33:01,040
Speaker 1: to enter the market anytime soon, not until we see

635
00:33:01,080 --> 00:33:05,880
Speaker 1: some more demand destruction, you know, maybe declines in earnings,

636
00:33:06,200 --> 00:33:09,160
Speaker 1: you know, maybe some future declines in in in those stocks.

637
00:33:09,200 --> 00:33:11,920
Speaker 1: And and you see investors obviously like Cathy Woods and

638
00:33:12,240 --> 00:33:14,080
Speaker 1: you know, talk down, you know, they really want the

639
00:33:14,120 --> 00:33:16,040
Speaker 1: FED to kind of back off her and Elon Musk,

640
00:33:16,080 --> 00:33:18,120
Speaker 1: and it's you know, they both have growth backgrounds. They

641
00:33:18,160 --> 00:33:21,000
Speaker 1: want to fed the pivot um to kind of give

642
00:33:21,000 --> 00:33:24,200
Speaker 1: that fuel back into the growth stocks. But ultimately, I

643
00:33:24,240 --> 00:33:29,240
Speaker 1: think what this has done today is it's prioritized, it's moved,

644
00:33:29,480 --> 00:33:33,920
Speaker 1: its shifted the priority from liquidity down to earnings. And

645
00:33:33,920 --> 00:33:36,400
Speaker 1: there's always that tuggle war there in my opinion, And

646
00:33:36,440 --> 00:33:40,080
Speaker 1: so right now you're earnings better be good, and if not,

647
00:33:40,680 --> 00:33:43,040
Speaker 1: there's no safety net. Now there's no safety net of

648
00:33:43,080 --> 00:33:45,800
Speaker 1: liquidity that's gonna levitate your stock. At a certain level,

649
00:33:45,840 --> 00:33:48,360
Speaker 1: your stock will go down. And we're seeing it today

650
00:33:48,360 --> 00:33:50,400
Speaker 1: with a lot of commodity companies that are starting to

651
00:33:50,520 --> 00:33:52,960
Speaker 1: pre announce um, you know, and I can mention because

652
00:33:53,000 --> 00:33:54,960
Speaker 1: we don't know it, but like New Corporate announced today

653
00:33:55,240 --> 00:33:58,120
Speaker 1: and Eastern and Chemical yesterday dal Chemical, Like you're seeing

654
00:33:58,200 --> 00:34:01,920
Speaker 1: some of these companies starting to report and starting starting

655
00:34:01,960 --> 00:34:06,040
Speaker 1: to show this degradation and a and and so I

656
00:34:06,040 --> 00:34:07,720
Speaker 1: think that's where we are. So to your point, Mike, no,

657
00:34:07,880 --> 00:34:10,000
Speaker 1: I don't think we go right back. I think again,

658
00:34:10,040 --> 00:34:13,640
Speaker 1: that's just people anchoring to a point that we're passed

659
00:34:13,920 --> 00:34:16,440
Speaker 1: right now. And so what you want to own a

660
00:34:16,520 --> 00:34:19,680
Speaker 1: really good companies, really good balance, she's really good management teams,

661
00:34:19,680 --> 00:34:22,440
Speaker 1: and a lot of those companies only existed because of

662
00:34:22,480 --> 00:34:26,640
Speaker 1: access liquidity, and that's part of the problem. Well, George,

663
00:34:26,840 --> 00:34:29,120
Speaker 1: regular listeners of this show will know that the one

664
00:34:29,160 --> 00:34:32,600
Speaker 1: thing we anchor to around here is the crazy things

665
00:34:32,640 --> 00:34:35,280
Speaker 1: we saw in markets. So I don't want to segue

666
00:34:35,280 --> 00:34:37,279
Speaker 1: to that a little bit early because I gotta sneak

667
00:34:37,320 --> 00:34:40,680
Speaker 1: peek at your crazy things, and they really they really

668
00:34:40,680 --> 00:34:44,120
Speaker 1: speak to the uh, you know, the actually the important

669
00:34:44,160 --> 00:34:46,880
Speaker 1: things of the market, which uh these days are the

670
00:34:46,920 --> 00:34:50,600
Speaker 1: crazy things. Funnily enough, so talk to us about the

671
00:34:50,600 --> 00:34:54,480
Speaker 1: craziest things you've seen in markets recently. Yeah, and I

672
00:34:54,520 --> 00:34:56,759
Speaker 1: think it really is just going back to to what

673
00:34:56,840 --> 00:34:59,560
Speaker 1: I just mentioned, you know, was I mean, I'm not

674
00:34:59,600 --> 00:35:01,520
Speaker 1: sure if you why if you're on Twitter at all,

675
00:35:01,560 --> 00:35:04,560
Speaker 1: but some of the absolutely crazy videos that we saw

676
00:35:04,680 --> 00:35:08,080
Speaker 1: from the crypto community, from you know, the meme stock community,

677
00:35:08,160 --> 00:35:10,120
Speaker 1: and just really you know, it's just just things that

678
00:35:10,120 --> 00:35:12,680
Speaker 1: were completely detached from reality. And I'm sure you've covered

679
00:35:12,680 --> 00:35:14,440
Speaker 1: this over the past year, so this is definitely not

680
00:35:14,520 --> 00:35:18,000
Speaker 1: a new topic. But yeah, I just think, you know, ultimately,

681
00:35:18,080 --> 00:35:20,440
Speaker 1: the craziest thing is is that, you know, the market

682
00:35:20,480 --> 00:35:23,080
Speaker 1: tends to not want to be realistic and and and

683
00:35:23,120 --> 00:35:26,200
Speaker 1: again they do want to anchor, and so stripping out

684
00:35:26,960 --> 00:35:29,160
Speaker 1: energy right now, you strip out make it make a

685
00:35:29,239 --> 00:35:32,280
Speaker 1: cap tech under the surface. You know, the earnings picture

686
00:35:32,320 --> 00:35:34,719
Speaker 1: is going to be very important over the next few quarters.

687
00:35:35,080 --> 00:35:37,000
Speaker 1: And that's again where I think the market can be

688
00:35:37,080 --> 00:35:40,000
Speaker 1: a little um, a little bit disappointed when they see

689
00:35:40,320 --> 00:35:42,520
Speaker 1: the impacts of inflation, when they see the impacts of

690
00:35:42,560 --> 00:35:46,160
Speaker 1: a strong dollar. You know, financial reality needs to step

691
00:35:46,200 --> 00:35:49,439
Speaker 1: in and kind of tame the craziness in the market. Now,

692
00:35:49,719 --> 00:35:52,400
Speaker 1: taming the craziness in the market probably means a decline

693
00:35:52,440 --> 00:35:55,720
Speaker 1: which is not fun, but but we love it. I mean, honestly,

694
00:35:55,760 --> 00:35:58,279
Speaker 1: for for our strategy, we love volatility. We love when

695
00:35:58,280 --> 00:36:00,200
Speaker 1: things go down because that's when we can going to

696
00:36:00,200 --> 00:36:03,279
Speaker 1: take advantage of the free money that might be out there.

697
00:36:03,640 --> 00:36:06,399
Speaker 1: But you know, all that sort of gets me back

698
00:36:06,440 --> 00:36:08,839
Speaker 1: to the point about that that signal that comes from

699
00:36:08,880 --> 00:36:11,600
Speaker 1: the credit markets sometimes you know where you'll see uh

700
00:36:11,800 --> 00:36:15,280
Speaker 1: spreads wide and aggressively long before the stock market peaks.

701
00:36:15,280 --> 00:36:18,120
Speaker 1: And I wonder if there's something to be said that,

702
00:36:18,440 --> 00:36:21,160
Speaker 1: you know, in in credit markets, you're only dealing with

703
00:36:21,200 --> 00:36:24,839
Speaker 1: professional investors. You don't have a bunch of kids on Reddit, teenagers,

704
00:36:24,920 --> 00:36:27,480
Speaker 1: you know, uh, pumping up beame stocks and you know,

705
00:36:27,880 --> 00:36:31,920
Speaker 1: at in general, just the the you know, retail investing

706
00:36:32,320 --> 00:36:35,200
Speaker 1: population in general, which is you know, less sophisticated, but

707
00:36:35,239 --> 00:36:38,480
Speaker 1: it's gotten so much more influential over the years. Is

708
00:36:38,480 --> 00:36:41,120
Speaker 1: that is that crazy talk to you to think that

709
00:36:41,200 --> 00:36:43,359
Speaker 1: you know, there maybe the credit markets are a little

710
00:36:43,400 --> 00:36:45,960
Speaker 1: less crazy and and that's why that signal works. There's

711
00:36:45,960 --> 00:36:48,399
Speaker 1: a little bit more sobriety. They're a little bit more

712
00:36:48,480 --> 00:36:52,759
Speaker 1: sort of professional analysis. Uh that's driving things than say

713
00:36:52,840 --> 00:36:55,200
Speaker 1: that the stock market, especially these days when the you know,

714
00:36:55,239 --> 00:36:59,040
Speaker 1: the Reddit crowds are are running the show. I think

715
00:36:59,040 --> 00:37:01,200
Speaker 1: that's a fair point. If if you met you know,

716
00:37:01,280 --> 00:37:04,319
Speaker 1: my CopM scott ellis Greg Zapp and v met mark

717
00:37:04,400 --> 00:37:06,680
Speaker 1: Up installed over a pen mutual you know, and and

718
00:37:06,760 --> 00:37:09,960
Speaker 1: Jim Fonts and and and our team you know, these

719
00:37:09,960 --> 00:37:12,440
Speaker 1: are these are traditional you know, bond guys and then

720
00:37:12,480 --> 00:37:14,759
Speaker 1: really good credit guys and and and they do a

721
00:37:14,800 --> 00:37:19,160
Speaker 1: really good job. They're very rational, very sensible, and and

722
00:37:19,320 --> 00:37:22,400
Speaker 1: so just using them as an example, I would say absolutely,

723
00:37:22,480 --> 00:37:25,720
Speaker 1: there's not a lot of um, you know, running around

724
00:37:25,800 --> 00:37:28,640
Speaker 1: like you know, screaming trading, nothing like that. It's it's

725
00:37:28,640 --> 00:37:31,880
Speaker 1: a pretty common environment and um and yeah, I think

726
00:37:31,920 --> 00:37:34,759
Speaker 1: I would agree with that. There there there is though,

727
00:37:35,280 --> 00:37:37,440
Speaker 1: so you know, just going back to it, you know,

728
00:37:37,520 --> 00:37:40,719
Speaker 1: there there will always be these peaks in troughs in

729
00:37:40,840 --> 00:37:43,440
Speaker 1: terms of an interest in a given area. And I

730
00:37:43,480 --> 00:37:46,120
Speaker 1: think one of the things specific with high yield to

731
00:37:46,200 --> 00:37:49,600
Speaker 1: your point, is that there was so much demand for

732
00:37:49,760 --> 00:37:52,560
Speaker 1: yield because there was none for a long period of time.

733
00:37:53,000 --> 00:37:55,239
Speaker 1: So we've kind of broken that now now that we

734
00:37:55,320 --> 00:37:57,720
Speaker 1: see you know, get money market rates at four percent

735
00:37:57,920 --> 00:38:00,400
Speaker 1: or seeing a cur yield curve that's looking at you know,

736
00:38:00,520 --> 00:38:03,440
Speaker 1: three point seven five plus you know, throughout most of

737
00:38:03,480 --> 00:38:07,799
Speaker 1: the curve, and and so again I think that mentality

738
00:38:07,840 --> 00:38:11,680
Speaker 1: should break a little bit in terms of UM. Again,

739
00:38:11,719 --> 00:38:14,400
Speaker 1: there's available yield, so hopefully people won't have to be

740
00:38:14,440 --> 00:38:17,879
Speaker 1: as desperate. Because what happens is if you think about

741
00:38:17,920 --> 00:38:20,520
Speaker 1: the psychology where you're like, well, I if you target

742
00:38:20,520 --> 00:38:22,200
Speaker 1: a yield and say, look, I want to get five

743
00:38:22,280 --> 00:38:24,200
Speaker 1: or six percent, and if you said that over the

744
00:38:24,239 --> 00:38:27,080
Speaker 1: last few years, the only way to get it was

745
00:38:27,120 --> 00:38:30,359
Speaker 1: to extenderation or go down in credit quality, those were

746
00:38:30,360 --> 00:38:32,320
Speaker 1: the only two ways you were taking. You were taking

747
00:38:32,320 --> 00:38:37,160
Speaker 1: more risk period. So you know so so but you know,

748
00:38:37,239 --> 00:38:39,040
Speaker 1: just going back to your point, yeah, credit spreads are

749
00:38:39,120 --> 00:38:41,520
Speaker 1: very important. I do think you know, the credit markets

750
00:38:42,000 --> 00:38:43,719
Speaker 1: uh tend to be a little more same, but they

751
00:38:43,719 --> 00:38:46,600
Speaker 1: can get crazy too. I just think at this point, UM,

752
00:38:46,640 --> 00:38:51,000
Speaker 1: it's it's definitely it's certainly not um you know the

753
00:38:51,000 --> 00:38:54,400
Speaker 1: same as the growth markets from west here. The relative

754
00:38:54,480 --> 00:39:00,239
Speaker 1: value of the craziness is uh. Alright, Emily. Then else

755
00:39:00,239 --> 00:39:04,520
Speaker 1: to your real test as a professional financial journalist, Uh,

756
00:39:04,760 --> 00:39:06,920
Speaker 1: you got to bring a good crazy thing to this

757
00:39:06,920 --> 00:39:09,279
Speaker 1: podcast to really gain some respect. So so what do

758
00:39:09,280 --> 00:39:11,760
Speaker 1: you got for us? All Right? So this was something

759
00:39:11,760 --> 00:39:16,960
Speaker 1: that I saw on Bloomberg News. It involves Elon Musk

760
00:39:17,440 --> 00:39:21,120
Speaker 1: So his ex girlfriend. Um. I read this article a

761
00:39:21,200 --> 00:39:25,080
Speaker 1: couple of days ago. Ex girlfriend is selling off um

762
00:39:25,360 --> 00:39:30,080
Speaker 1: photos and memorabilia. This is his college ex girlfriend on

763
00:39:30,120 --> 00:39:33,920
Speaker 1: an online auction site. Mike, do we have time to

764
00:39:33,920 --> 00:39:37,759
Speaker 1: play a little bit of The price is correct? The

765
00:39:37,880 --> 00:39:41,560
Speaker 1: price it's precise, I believe. I think the price is precise.

766
00:39:43,880 --> 00:39:47,000
Speaker 1: Well that Alex prices correct anything, but price is right

767
00:39:47,080 --> 00:39:49,520
Speaker 1: because that that's gonna get us. Uh, that's gonna get

768
00:39:49,560 --> 00:39:52,919
Speaker 1: me punched by Bob Barker. This is you. Not only

769
00:39:52,960 --> 00:39:54,520
Speaker 1: did you pass the test, I think you get a

770
00:39:54,920 --> 00:39:59,200
Speaker 1: percent because this is my crazy thing too. Oh my gosh.

771
00:39:58,800 --> 00:40:02,000
Speaker 1: Oh well though, I think I can beat you on

772
00:40:02,040 --> 00:40:05,520
Speaker 1: the prices precise, but we gotta get George to Uh.

773
00:40:05,640 --> 00:40:08,279
Speaker 1: I don't know which item you're going to with. Is

774
00:40:08,280 --> 00:40:12,280
Speaker 1: it the birthday card? It is? It's the birthday card.

775
00:40:12,400 --> 00:40:16,320
Speaker 1: It's signed love Ellen um and this I guess it

776
00:40:16,440 --> 00:40:19,040
Speaker 1: was the ex girlfriend in college. It was her birthday.

777
00:40:19,239 --> 00:40:21,440
Speaker 1: So all right, I did. I did do you one

778
00:40:21,480 --> 00:40:23,880
Speaker 1: better though, because I actually looked up the auction site

779
00:40:24,520 --> 00:40:28,440
Speaker 1: and I found the actual live bidding on this uh

780
00:40:28,520 --> 00:40:32,960
Speaker 1: on this particular item and it says happy birthday Jennifer

781
00:40:33,440 --> 00:40:36,839
Speaker 1: a k A Boo boo love Elon. And I gotta say,

782
00:40:36,960 --> 00:40:38,920
Speaker 1: if we were ever to have like a Crazy Thing

783
00:40:38,960 --> 00:40:41,879
Speaker 1: Hall of Fame or a Crazy Thing museum, Elon Musk

784
00:40:41,920 --> 00:40:43,920
Speaker 1: would get like his own wing of that of that

785
00:40:44,000 --> 00:40:47,640
Speaker 1: absolutely for this. So I think we just gotta stick

786
00:40:47,680 --> 00:40:52,080
Speaker 1: George with the prices correct here, George, what do you

787
00:40:52,080 --> 00:40:55,600
Speaker 1: think that? What do you think the current bid is for?

788
00:40:56,520 --> 00:41:01,360
Speaker 1: And Elon Musk signed birthday card to Boo Boo from college.

789
00:41:01,360 --> 00:41:03,279
Speaker 1: And by the way, Elen, what's a you? Penn? So

790
00:41:03,320 --> 00:41:05,680
Speaker 1: he's a Philly guy too. And Emily, you know what

791
00:41:06,040 --> 00:41:08,239
Speaker 1: a little bit you can play too, Emily, because I

792
00:41:08,239 --> 00:41:10,600
Speaker 1: don't think you have a live bidding prices in front

793
00:41:10,600 --> 00:41:12,399
Speaker 1: of it. I don't. I did not look it up,

794
00:41:12,480 --> 00:41:14,920
Speaker 1: so props to you, Mike. I can't cheat a week it.

795
00:41:15,000 --> 00:41:18,239
Speaker 1: We're not allowed to sheet Okay, this guy always with

796
00:41:18,280 --> 00:41:22,080
Speaker 1: the cheap code is another way you can tell he's

797
00:41:22,120 --> 00:41:27,600
Speaker 1: from Philly? All right? Ten thousand dollars? Holy cow? Emily,

798
00:41:27,680 --> 00:41:30,359
Speaker 1: what's your bid? What's what do you think? Alive? Fit is?

799
00:41:30,640 --> 00:41:34,520
Speaker 1: I gave I gave away my poker face there. Uh

800
00:41:36,360 --> 00:41:40,160
Speaker 1: so in the story the current bidding was at ten thousand,

801
00:41:40,160 --> 00:41:44,280
Speaker 1: So George, George is pretty ready And I did not cheat.

802
00:41:44,480 --> 00:41:47,360
Speaker 1: I promise you I did not cheat. I actually real quick, though, Michael,

803
00:41:47,400 --> 00:41:49,000
Speaker 1: I do have one. I didn't get like a really

804
00:41:49,000 --> 00:41:50,759
Speaker 1: crazy way. I didn't get the point even though I

805
00:41:50,760 --> 00:41:52,680
Speaker 1: listened to the show. But I got one for you

806
00:41:52,760 --> 00:41:55,960
Speaker 1: real quick, A right honor the Queen. The crown estate

807
00:41:56,239 --> 00:41:59,080
Speaker 1: is estimated to be worth over thirty four point three

808
00:41:59,120 --> 00:42:02,680
Speaker 1: billion in assets now belongs to King Charles. He will

809
00:42:02,719 --> 00:42:05,959
Speaker 1: not have to pay a diamond inheritance stacks. That's pretty cool. Usually,

810
00:42:07,160 --> 00:42:11,279
Speaker 1: isn't that crazy? Wow? That is nuts? Yeah, I mean

811
00:42:11,280 --> 00:42:14,040
Speaker 1: I guess it's all that real estate I've read somewhere there,

812
00:42:14,200 --> 00:42:19,000
Speaker 1: like the um the biggest landowner in Scotland for one thing,

813
00:42:19,040 --> 00:42:21,960
Speaker 1: and all those castles even put a value on you know,

814
00:42:22,560 --> 00:42:26,360
Speaker 1: the value of pose castles. So though I don't know,

815
00:42:26,840 --> 00:42:30,000
Speaker 1: I don't know who's gonna who's gonna buy? You got

816
00:42:30,000 --> 00:42:32,919
Speaker 1: a limited uh market for those Maybe on Musk would

817
00:42:32,920 --> 00:42:37,960
Speaker 1: buy one. But anyway, current bid and there's three hours,

818
00:42:38,520 --> 00:42:41,480
Speaker 1: fifty nine minutes left on this auction, Emily, in case

819
00:42:41,520 --> 00:42:47,439
Speaker 1: you want to make a bid twelve thou and three

820
00:42:47,480 --> 00:42:50,799
Speaker 1: dollars for the Elon Musk love letter. Emily. I don't

821
00:42:50,800 --> 00:42:54,719
Speaker 1: know much about your romantic life, but if, if, if

822
00:42:54,719 --> 00:42:57,399
Speaker 1: you had any significant others from college, did you save

823
00:42:57,480 --> 00:43:03,800
Speaker 1: their their birthday cards? And yeah, I have some mementos. Well,

824
00:43:04,200 --> 00:43:07,400
Speaker 1: we're still together, so I'll keep all the pictures of us.

825
00:43:08,160 --> 00:43:10,960
Speaker 1: You better say that one day if he's the next

826
00:43:11,000 --> 00:43:18,560
Speaker 1: Elon Musk, that'd be nice. Better. You gotta push him, Emily,

827
00:43:18,600 --> 00:43:25,279
Speaker 1: you gotta push him, he'll be the next. That's fantastic. Well,

828
00:43:25,280 --> 00:43:27,960
Speaker 1: I think that is all our time for the show. George.

829
00:43:28,000 --> 00:43:30,520
Speaker 1: Great to catch up the Emily. It makes me homesick

830
00:43:30,560 --> 00:43:38,760
Speaker 1: to hear George with that Philly accent. Is before you leave, though, George,

831
00:43:38,800 --> 00:43:40,840
Speaker 1: I gotta hear you say. When you go to the

832
00:43:40,960 --> 00:43:43,480
Speaker 1: fawcehead and you turn it on and you put a

833
00:43:43,480 --> 00:43:48,760
Speaker 1: glass under it, what's coming out? Water? Water? Of course,

834
00:43:49,320 --> 00:43:53,319
Speaker 1: it's water. I know. You go, you go get water

835
00:43:53,400 --> 00:43:59,919
Speaker 1: out of the creek. And then George, if you wanna say,

836
00:44:00,000 --> 00:44:01,640
Speaker 1: get a six pack of beer and you want to

837
00:44:01,719 --> 00:44:04,640
Speaker 1: keep it cold, and you've got an appliance in your kitchen,

838
00:44:04,640 --> 00:44:10,600
Speaker 1: what do you what's that appliance called bridge refrigerator A

839
00:44:10,760 --> 00:44:14,080
Speaker 1: supposed to say definitely refrigerator refrigerator. Yeah, no, you're saying

840
00:44:14,080 --> 00:44:17,720
Speaker 1: it right, you're saying it right. Okay, Okay. Finally a guy. Finally,

841
00:44:17,719 --> 00:44:20,959
Speaker 1: a guy on this show without an accent. Emily, where

842
00:44:20,960 --> 00:44:25,320
Speaker 1: you got a supermarket? What's what's your favorite supermarket? Uh? Boy,

843
00:44:25,520 --> 00:44:32,680
Speaker 1: where are you going with this? Yeah? It's so funny

844
00:44:32,719 --> 00:44:34,719
Speaker 1: because when I first moved up to New York from

845
00:44:34,760 --> 00:44:40,120
Speaker 1: Philly and uh years ago, um, my co workers are like,

846
00:44:40,360 --> 00:44:46,719
Speaker 1: are you from the South talking about accent? Right? Right?

847
00:44:47,560 --> 00:44:51,799
Speaker 1: It's got to be from far away. Uh. Finally a

848
00:44:51,960 --> 00:44:55,400
Speaker 1: guest with the proper pronunciation of all the amquitant words.

849
00:44:56,040 --> 00:44:58,040
Speaker 1: George seppalone, is so great to catch up with you.

850
00:44:58,880 --> 00:45:00,840
Speaker 1: Thanks for sharing your time with us and your insights.

851
00:45:00,880 --> 00:45:03,920
Speaker 1: Really appreciate it. Thank you both appreciate it. Thanks George

852
00:45:04,080 --> 00:45:15,680
Speaker 1: Acromy achromy what goes up? We'll be back next week

853
00:45:16,000 --> 00:45:17,480
Speaker 1: and so then you can find us on the Bloomberg

854
00:45:17,600 --> 00:45:21,040
Speaker 1: Terminal website and app or wherever you get your podcasts.

855
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Speaker 1: We love it if you took the time to rate

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Speaker 1: and review the show on Apple Podcasts, so more listeners

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Speaker 1: can find us and you can find us on Twitter,

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Speaker 1: follow me at Rea Anonymous, Well Donna hierarch Is at

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Speaker 1: Bildonna Hirach. You can also follow Bloomberg Podcasts at Podcasts.

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Speaker 1: What Goes Up is produced by Stacy Wang. Thanks for listening,

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Speaker 1: See you next time. B