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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, and I'm a senior editor

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Speaker 1: at Bloomberg and I'm Donna hick Across asid report at Bloomberg.

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Speaker 1: This week on the show, well, whatever happened to that

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Speaker 1: reopening trade that was supposed to lift all the stocks

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Speaker 1: of the companies that would benefit when we all finally

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Speaker 1: changed out of our sweatpants and got out of the house. Well,

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Speaker 1: as the delta variant of the virus rages, many of

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Speaker 1: us are back to wearing sweatpants, and many of those

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Speaker 1: stocks have been going sideways at best for more than

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Speaker 1: three months. Now. We're gonna talk to a fund manager

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Speaker 1: who will explain why he's still sort of bullish on

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Speaker 1: many of these type of companies and we should listen

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Speaker 1: to him. He's got a very strongly performing fund. And

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Speaker 1: by the way, stick around till the end, because for

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Speaker 1: some reason, Vill Donna is very excited to reveal the

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Speaker 1: question that Jeffrey Gundlock is asked the most. I don't

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Speaker 1: know why that is, Vill Donna, but you are very

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Speaker 1: excited to reveal that. Well, you'll you'll hear it when

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Speaker 1: when you hear it. It's very it's very fun. It's

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Speaker 1: very fun. Okay, we liked we like fun stuff. Yeah,

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Speaker 1: it's very fun. All right. Well, well, Donna, before you

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Speaker 1: bring the guests, and I've got a brief. I know

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Speaker 1: you like stories about when I was a young young

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Speaker 1: boy back in the eighteen hundreds, so I've got one

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Speaker 1: free about my dad, Pops Reagan, who he had a

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Speaker 1: famous catchphrase which was the black and whites never lie.

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Speaker 1: And what he meant by the black and whites was

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Speaker 1: the report cards we'd bring home. You know, my dad

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Speaker 1: had six kids, all boys but one girl, and the

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Speaker 1: black and whites were our report card. So if he

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Speaker 1: was saw usloafing around the house or or goofing around

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Speaker 1: and not studying, he'd be like, how school going, And

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Speaker 1: we'd be like, Pops, it's going great. What are you

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Speaker 1: worried about? And he'd say, well, the black and whites

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Speaker 1: don't lie because obviously back then we only had black

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Speaker 1: and white. They had invented color. Yet. Yeah I got that, Yeah,

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Speaker 1: you got that. So I think of this every time

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Speaker 1: we have a fund manager on because I love to

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Speaker 1: look at their performance and I say, you know, the

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Speaker 1: black and whites don't lie there either. So this week's guests,

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Speaker 1: I think Pops Reagan would be proud of uh queer

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Speaker 1: portfolio fund uh really killing the SMP five up almost

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Speaker 1: for the year in the ninety four percentile of pure

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Speaker 1: funds year to date, ninety one percentile over three years. So, uh,

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Speaker 1: you know Pops would be proud, Bill Donna, And I'm

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Speaker 1: also excited because I know he went to the University

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Speaker 1: of Pennsylvania in Philadelphia, which means not only will he

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Speaker 1: reveal his stock picks, but hopefully he'll reveal his cheesesteak

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Speaker 1: picks as well. Yeah, so I do want to bring

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Speaker 1: the guests in. It's Andrew Slimmon. He's the managing director

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Speaker 1: and he's a senior portfolio manager at Morgan Stanley Investment Management,

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Speaker 1: and I'm thrilled to have him on the show this week.

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Speaker 1: And I know, Andrew, you've written quite a bit recently,

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Speaker 1: and you and I have chatted in the past before,

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Speaker 1: but I do want to start out asking you about

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Speaker 1: some of your your strategies and the way you're thinking

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Speaker 1: about the market. I know in a recent note you

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Speaker 1: had said that bond yields traditionally bottom in August and

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Speaker 1: then they rise in the fourth quarter, and that the

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Speaker 1: markets tend to get some sort of unfounded growth scare

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Speaker 1: in the summer months, then we'll see the economy re

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Speaker 1: accelerating in the fourth quarter. So can you maybe walk

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Speaker 1: us through your thinking and through your strategy. Sure, happy,

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Speaker 1: thank you, happy to happy to do it. Thanks for

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Speaker 1: having me on. But before I start, we just have

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Speaker 1: to get one thing straight. It's Adners. It's definitely as

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Speaker 1: was my favorite chees Takes. In fact, I brought my

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Speaker 1: kids to see the school I've got a couple of

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Speaker 1: years ago, and I think we spent more time at

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Speaker 1: Adners than we did walk. I spent a lot of

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Speaker 1: time at that place. Kavanaughs. I don't know if that

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Speaker 1: was there's uh that was famous. Phil Dona had had

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Speaker 1: a mug night where you could bring in any mug

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Speaker 1: that you want, So there's a competition to see you

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Speaker 1: could bring in the biggest mug and they would fill

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Speaker 1: it up. Guys are bringing like Stanley cup sized size

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Speaker 1: mugs to with with your beverage of choice. Our just

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Speaker 1: would be called cheap draft beer. But you know you

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Speaker 1: could fill it up with frutuice. I guess if you

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Speaker 1: want so, let me just jump to interest rates. UM,

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Speaker 1: I'm amazed at how markets there's a consistency to markets.

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Speaker 1: We get a growth scare usually in the summer, that

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Speaker 1: happens over and over. Rates come down in the middle

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Speaker 1: of the summer, and then they start to lift going

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Speaker 1: into the fourth quarter. And this is this is exactly

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Speaker 1: what's happened this time. Rates bottomed on August third, the

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Speaker 1: ten year bottom one August there and the ten years

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Speaker 1: back up to one thirty three today, the yield curve

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Speaker 1: at and all through the spring and now starting to

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Speaker 1: re steep. And so I think what's interesting fast, what

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Speaker 1: fascinates me is that, um, the financial markets predicted a

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Speaker 1: slowdown starting in the spring, and then we got the

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Speaker 1: economic data that validated it this summer, and now the

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Speaker 1: financial markets are starting to predict an improvement in the

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Speaker 1: fourth quarter, but we haven't had the economic data to

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Speaker 1: validate it yet. I'm fascinated by that type of seasonality

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Speaker 1: thing that you see every down that I've noticed it

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Speaker 1: what the economic surprise indexes to. They always tend to

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Speaker 1: bottom out in the in the summer meeting. You know,

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Speaker 1: the the data is missing estimates by the most of

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Speaker 1: the year. In the summer. What if there's some human

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Speaker 1: nature thing that you know, causes economists to be very

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Speaker 1: optimistic at the beginning of the year and then you know,

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Speaker 1: come come to their senses. But you know, answer to

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Speaker 1: to bring it back to the fund um. You know

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Speaker 1: that notion about rates creeping up. I wonder is is

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Speaker 1: that sort of uh playing a large role into the

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Speaker 1: picks and the fund I noticed a pretty decent heavyweight

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Speaker 1: to banks and diversified financials. Um. Is it that simple

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Speaker 1: that that macro input or or these sort of idiosyncratic

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Speaker 1: reasons why you're here in each of these you know,

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Speaker 1: a couple of regional banks. I noticed first Republic uh

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Speaker 1: SVB a very prize. Is that part of it? Or

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Speaker 1: is there other stories as well? Yeah, well, well look

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Speaker 1: I'm up. So I went to pen but i also

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Speaker 1: went to the Universe Chicago, So I've got a little

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Speaker 1: bit of a quant bend as well. And I know

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Speaker 1: that what defines a stocks performance is not only their

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Speaker 1: fundamental what's going on at the company level, but also

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Speaker 1: their quantitative factor exposure and those stocks that you all

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Speaker 1: listed our value stocks, and they benefit from rising rates.

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Speaker 1: And one of the reasons why we're having a very

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Speaker 1: good year in our fund. Is simply that going into

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Speaker 1: the spring, we were concerned about a seasonal slowdown in

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Speaker 1: the economy, and so we downshifted some of those value

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Speaker 1: names a little bit and we increased our exposure to

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Speaker 1: a little bit more of the risk off the the

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Speaker 1: defensive type names, and that worked very well. But at

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Speaker 1: at now at we're at a juncture where you were

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Speaker 1: going the other way. So we've increased those positions a

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Speaker 1: little bit because we're anticipating that we get to the

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Speaker 1: fourth quarter and then the economic data will say, oh,

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Speaker 1: it's not so bad. You know what, the economy is

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Speaker 1: picking up and it's no different. You mentioned Michael early

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Speaker 1: on the reopening stuff. They did great last year into

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Speaker 1: the spring, and then we also reduced those in anticipation

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Speaker 1: that maybe in the summer we could have a little

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Speaker 1: bit more of a risk off son, So I would

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Speaker 1: not be selling those stocks right now. But having said that,

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Speaker 1: we've actually been more competent in the rising rate environment

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Speaker 1: than the reopening trade. So I think financials and then

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Speaker 1: second energy will be the two best performing in the

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Speaker 1: fourth quarter. That would be my area. So then can

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Speaker 1: I ask actually ask you to to expand a bit

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Speaker 1: on what you're thinking is around value stocks, because I

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Speaker 1: know in one of your recent reports you had written

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Speaker 1: that when value outperforms growth, overall growth does tend to

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Speaker 1: outperform for a little bit of that cycle, for just

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Speaker 1: enough to sort of shake out the nonbelievers. I believe

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Speaker 1: you said, so can you walk us through that? Sure? Yeah.

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Speaker 1: So look, coming out of a recession, right, value stocks

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Speaker 1: are cyclical, so they all get beaten down in recessions,

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Speaker 1: worse than gross socks and defensive stocks. And then you

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Speaker 1: get to a juncture somewhere in the middle of recessions

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Speaker 1: where people say, oh wait and not every cyclical stock

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Speaker 1: is going to fail, and they have a significant bounce

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Speaker 1: back rally back because they're so cheap. And we saw

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Speaker 1: it in the recession ninety, we saw it in two thousands,

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Speaker 1: we saw it in two thousand nine. These stocks came

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Speaker 1: back strong, and um, the average value cycle lasts about

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Speaker 1: thirty three months. We're you know, twelve months in However,

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Speaker 1: of those thirty three months, about eleven of those months

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Speaker 1: on average, growth actually outperforms value. So you have it's

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Speaker 1: not a straight line back up. There is twists and turns,

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Speaker 1: and so I think at the very least. And again,

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Speaker 1: I'm a core manager. I'm not here to just sell

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Speaker 1: value strategies. I'm a core manager. I'm just trying to

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Speaker 1: figure out where the fat pitches. And what I see

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Speaker 1: is that value has made its way back up, but

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Speaker 1: it's still pretty cheap versus growth. Now, I happen to

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Speaker 1: believe that not only will value read price back to

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Speaker 1: where normally is, but I think that the change in

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Speaker 1: the tone out of the FED could lead to a

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Speaker 1: period of time or value outperforms growth fro an extended period.

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Speaker 1: I'm the way it in the nineties. You know, I

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Speaker 1: was gonna ask you about that because it's you know,

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Speaker 1: it sounded like you were doing some some very tactical

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Speaker 1: type of adjustments there in the middle of the year.

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Speaker 1: Um uh you know, is is that sort of a

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Speaker 1: byproduct of the boom and bust COVID air that you

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Speaker 1: have to be more tactical than you than you maybe

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Speaker 1: would otherwise. Or were you guys always that sort of uh,

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Speaker 1: you know, a tune to trying to time out performance

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Speaker 1: within within any given year. Yeah. So look, I'm a

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Speaker 1: long equity manager, so I don't go to cash because

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Speaker 1: what I've learned is you know, so eraised five percent

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Speaker 1: cast market goes out a lot, you're gonna lose money, right,

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Speaker 1: And so the way we adjust is a debate at

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Speaker 1: the risk in the portfolio. And what I've learned in

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Speaker 1: this business from being in a long time is you

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Speaker 1: want to lower the risk in the summer. Summer just

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Speaker 1: always seems we've got these grows scares week And yes,

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Speaker 1: the SMP didn't really go down this summer, but a

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Speaker 1: lot of stocks and the SMP went down a lot.

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Speaker 1: And so I just know that to reduce the risk

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Speaker 1: and the reopening trades and the value trades they tend

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Speaker 1: to have more risk than the defenses and some of

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Speaker 1: the very MEGACP tech stocks. So that's just a seasonal

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Speaker 1: bet that this time was not different and turned out

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Speaker 1: to be, you know, the right call. And I also

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Speaker 1: know that the fourth quarter once you know, it's still

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Speaker 1: mid September, once we get through this period, um, you know,

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Speaker 1: the market tends to do well kind of you know,

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Speaker 1: mid October until mid December, and I think earnings are

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Speaker 1: going to be strong. So the setup is there once again. Um,

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Speaker 1: that seasonality I think is gonna work this year like

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Speaker 1: it has so far. Can I ask you to expand

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Speaker 1: on that as well, because one of the things I

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Speaker 1: wanted to get your thoughts on is what's actually keeping

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Speaker 1: dip buyers alive. So a lot of people had predicted

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Speaker 1: that the summer would be choppy August it wasn't as

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Speaker 1: terrible as many had projected. But it's a purely technical

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Speaker 1: that we haven't really had a five percent pullback in

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Speaker 1: so long I think it's been more than two hundred days.

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Speaker 1: Or are there actually some real fundamental underpinnings for that. Yeah,

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Speaker 1: great questions. So first of all, again, the cap weighted

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Speaker 1: SMP is at a high because uh, those big, very

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Speaker 1: big stocks are a little bit lower beited the lower

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Speaker 1: risk they can survive a low growth environment. So I

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Speaker 1: think that really held up SMP. One hundred outperformed the

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Speaker 1: rest of the four hundred this summer, so that's held

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Speaker 1: up the the SMP. But I think there's two key

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Speaker 1: reasons why we haven't had a pull back. Number one

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Speaker 1: is is that we're all talking about how strong the

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Speaker 1: market is price wise this year. But I think what

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Speaker 1: we spent less time discuss see is that actually the

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Speaker 1: fundamentals are is have changed as good as the market

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Speaker 1: has gone up. In other words, if I dialed the

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Speaker 1: clock back to the beginning of this year and I

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Speaker 1: took the Wall Street consensus, how much is the SMP

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Speaker 1: going to earn this year? It was a hundred and

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Speaker 1: sixty five dollars this year. That's the Wall Street consensus

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Speaker 1: of all the stocks in the SP five one. That

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Speaker 1: number is now a two d. So Wall Street has

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Speaker 1: been too bearish by the magnitude about and loan behold

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Speaker 1: the stock markets up. So I think that's good earnings reports.

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Speaker 1: I've you know, I'm not you know, I've been this

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Speaker 1: business long enough to know that when companies exceed estimates,

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Speaker 1: stocks don't go down for long, and when companies miss estimates,

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Speaker 1: stocks don't go up for long. Right, It's a very

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Speaker 1: simple rule, But you know that that's the first thing.

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Speaker 1: Number two is I think the other thing that's going on,

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Speaker 1: and you know, again we talked to advisors, we talked

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Speaker 1: to investors, is in our funds. And if I dial

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Speaker 1: the clock back the last year about this time, the

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Speaker 1: call that we were getting from investors and from advisors

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Speaker 1: were I have clients that think they want to get

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Speaker 1: out of the market, because again, again this is last

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Speaker 1: year at this time because the markets had a big

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Speaker 1: rally off the low. It's gonna be a covid re

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Speaker 1: outbreak in the fall, and they think we're gonna have

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Speaker 1: a double dip, so they want to get out, right.

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Speaker 1: That was the call that we're getting over and over

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Speaker 1: last year. We're not getting that call right now. The

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Speaker 1: call we're getting is when is a pullback coming? I

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Speaker 1: have so much cash, you know, and on my books,

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Speaker 1: and so what I see happening is that when the

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Speaker 1: market pulls back, we're getting money into our funds. Right,

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Speaker 1: We're getting money that's coming in because people are trying

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Speaker 1: to buy the debts. So um that I think is

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Speaker 1: another thing that's supporting the market. And I guess if

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Speaker 1: I had to so a third is, you know, the

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Speaker 1: FED hasn't changed policy. Don't fight the Fed. Boy, oh boy,

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Speaker 1: has that worked? So I think those are the the

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Speaker 1: key fundamentals are better, there's a lot of liquidity, and

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Speaker 1: the FED still your friend. You know, I wanted to

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Speaker 1: ask you about that. It's it's a great point you make,

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Speaker 1: because you know, we can all analyze to death the

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Speaker 1: fundamentals of the economy and all the companies, but there

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Speaker 1: is that other side of the equation. And that's the

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Speaker 1: fundamentals of the investing class, you know, whether whether it

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Speaker 1: be individual investors or you know, institutional money or even

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Speaker 1: companies themselves that have sort of beefed up their balance sheets, uh,

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Speaker 1: you know, sort of preparing for anything, uh last year

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Speaker 1: and now maybe have some more cash two buy back shares.

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Speaker 1: Does that go into your thinking much? You know, as

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Speaker 1: far as you know, look at the personal savings rate

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Speaker 1: in the US last year just went absolutely through the roof.

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Speaker 1: So you know when you look at you know, the

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Speaker 1: deposits at commercial banks or the money is sitting in

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Speaker 1: in uh money market funds that's just doing nothing. And

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Speaker 1: you know, does that influence sort of your your opinion

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Speaker 1: on where the market's going? Is the fundamentals of the

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Speaker 1: investor class and perhaps explain why maybe when you reflect

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Speaker 1: back that on the fundamentals of the market itself, that

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Speaker 1: they could you know, those ratios that we all sort

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Speaker 1: of have our eyes glued on could get stretched beyond

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Speaker 1: what might otherwise be considered reasonable because there is all

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Speaker 1: this cash sitting around. Well, yeah, there's a lot of question.

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Speaker 1: That's my specialty. Andre I. I I pack it in there. Yeah,

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Speaker 1: you say, you pack it. You start with corporate and

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Speaker 1: I want to just touch that. I do think that

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Speaker 1: if if fundamounts of corporations at the earnings levels, great,

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Speaker 1: because they're just buying back a lot of stock. I

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Speaker 1: don't think that the market will reward that as much

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Speaker 1: as revenue growth. So, first of all, when I see

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Speaker 1: a strong revenuance, but as it pertains to the individual,

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Speaker 1: I wouldn't necessarily bank on just because there's a lot

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Speaker 1: of cal ash. It means you can't have a market

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Speaker 1: go down. But I think that that plays into why

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Speaker 1: we're not getting this you know, ten percent plus correction

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Speaker 1: because there's too much cash out there. So I think,

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Speaker 1: you know, to me, the most important thing is really

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Speaker 1: followed fundamentals of companies, and I just think that we're

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Speaker 1: gonna have. You know, we've had a great second quarter

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Speaker 1: and I've learned. I look at that there there's no

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Speaker 1: question costs of going up. But what I hear when

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Speaker 1: we talk to companies and we listen to companies, I'm

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Speaker 1: almost shocked at how cavalier they are. We're going to

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Speaker 1: pass on those costs increases. So there's this this very

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Speaker 1: high level confidence that as consumers, we're all gonna pay

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Speaker 1: higher prices um and so I don't think that third

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Speaker 1: quarter is going to be disappointing because I think companies

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Speaker 1: will pass on the cost. And secondly, maybe this is

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Speaker 1: just a little bit cynical. I've learned in this business.

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Speaker 1: If a company blows out a quarter, they obviously something

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Speaker 1: in the tank. They all have got, you know, they've

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Speaker 1: got a little extra. So they're not going to go

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Speaker 1: from great earnings in the second quarter to completely missed

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Speaker 1: the course. So I think the revisions are going up.

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Speaker 1: And to the extent that your question is, you have

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Speaker 1: consumer buying power that kind of supports a market price. Now,

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Speaker 1: let's face it, with a tenure at one three, the

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Speaker 1: multiple in the market could be much higher than it is.

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Speaker 1: But I think what the market is saying is, well,

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Speaker 1: we know that's a little bit artificial. We know that

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Speaker 1: the FED has been buying. Rates are probably should be

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Speaker 1: high if it wasn't for the FED. So I think

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Speaker 1: that you know that that that's that's you know that

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Speaker 1: that certainly supports the market where it is. But i'm

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Speaker 1: i'm i'm. I think people focus a lot on stock prices,

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Speaker 1: right because you know, look, Michael, if you go you

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Speaker 1: know you go to that, you go to an auto dealership,

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Speaker 1: you get in the car, you can try the car out.

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Speaker 1: If you go to the super arc, you can smell

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Speaker 1: the food and look at it. But we you know,

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Speaker 1: stock prices are aligned on them in a statement, so

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Speaker 1: we spend a lot more time on price discovery and

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Speaker 1: less on fundamental discovery. And that's the point, is that

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Speaker 1: coming out of recessions, companies tend to do better than

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Speaker 1: what Wall Street happen thanks and if stock prices the

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Speaker 1: present vout future expectations, I just think stock companies are

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Speaker 1: doing better than what's expected until proven otherwise. That's going

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Speaker 1: to drive the market higher. And if you've got this

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Speaker 1: liquidity behind it, that's going to push continue push stocks higher.

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Speaker 1: I know you mentioned earnings revisions have been trending higher.

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Speaker 1: There's a couple of examples of companies that have revised

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Speaker 1: guidance lower. And then at the same time, I keep

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Speaker 1: seeing all of these surveys from portfolio managers who are

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Speaker 1: downgrading their views on growth. So I'm wondering what you

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Speaker 1: might say to somebody who is looking through the rest

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Speaker 1: of the year and is thinking that growth could be

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Speaker 1: slowing or be as robust is maybe they had thought

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Speaker 1: earlier this year my responses they might be right, but

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Speaker 1: they have been right so far. I mean, you know,

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Speaker 1: like I'm not. You know, it's like the report card,

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Speaker 1: the black and white report card, you know, like this is.

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Speaker 1: You know, all I'm doing is looking at the revisions

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Speaker 1: that come out every week, and the revisions keep bubbling up.

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Speaker 1: So people that have predicted that revisions are going are

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Speaker 1: peaking and they're gonna head down. They have been right

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Speaker 1: so far. They haven't been right, and so you know,

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Speaker 1: am I smart enough to know what when that will happen?

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Speaker 1: I don't think so. But I also know that they

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Speaker 1: have been very smart and predicting that so until proven otherwise,

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Speaker 1: and listening to companies and what the confidence that they

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Speaker 1: are exuding. I'm I'm going to bet that we're not

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Speaker 1: done with this, and don't forget. When you get to

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Speaker 1: the end of this year, the market won't worry about

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Speaker 1: two one estimate. They will speak in the price off

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Speaker 1: two thousand twenty two, and I think that will further

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Speaker 1: justify It doesn't mean you can't have corrections. I mean,

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Speaker 1: we could have a correction here, but I think with

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Speaker 1: positive revisions and strong fundamentals and liquidity behind it. It

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Speaker 1: sets up for a very good fourth quarter. All right, Andrew, Uh,

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Speaker 1: you know in the press, we we I think we're

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Speaker 1: the biggest culprit of of building the wall of wherey

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Speaker 1: in the market, so to speak. So uh, let me

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Speaker 1: lay out every brick or some of the main bricks

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Speaker 1: of the wall of where he let me know if

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Speaker 1: if any of them are spoken to you or sort

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Speaker 1: of how you would uh think about what the main

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Speaker 1: risks are. Obviously you mentioned tapering and the FED that's coming.

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Speaker 1: That's that's one of them. Um. The tell went from

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Speaker 1: fiscal policy is also sort of wearing off. You know,

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Speaker 1: the enhanced unemployment benefits are are going away, the foreclosure

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Speaker 1: moratorium is all that type of thing. Um. Obviously we

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Speaker 1: got the debt ceiling issue coming again. Uh, we've got

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Speaker 1: COVID flaring up again. Um. Any of these keeping you

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Speaker 1: you awaken night or even ones I didn't mention I

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Speaker 1: always First of all, kind of geopolitics are really hard

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Speaker 1: to predict. And could that come out of you know,

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Speaker 1: the blue and that that could be an issue? Yes, Um,

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Speaker 1: I think oil actually at seventy two seventy two is

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Speaker 1: no big deal. But you start to get another ten

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Speaker 1: bucks higher, and you know, higher OREL prices can slow

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Speaker 1: economy very quickly, so that that to me would be

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Speaker 1: um a bigger risk. I happen to think that tapering

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Speaker 1: is going to be so slow and oh minding, so

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Speaker 1: they're gonna buy a little less bonds than they were

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Speaker 1: before that this is this is we're gonna have by

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Speaker 1: the time it actually happens, we're gonna have tapering exhaustion. Um.

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Speaker 1: And so I don't I don't think that would be

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Speaker 1: an issue. If the economy came on too strong and

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Speaker 1: rates went up too quickly, that could cause a jolt.

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Speaker 1: So I think there are worries. I've learned that kind

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Speaker 1: of political issues that come out of blue they tend

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Speaker 1: to happen in the summer. Another reason why it's risked off. UM.

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Speaker 1: So you know again, i'm i'm I think we're not

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Speaker 1: through this period of that's typically not a great seasonality

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Speaker 1: for the market, so we could have a pullback. I

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Speaker 1: just I struggled to see a reason for it. But

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Speaker 1: then you know, that's what happens. It's the unknown, and

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Speaker 1: that's but I don't know fiscal policy, look, corporate taxes

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Speaker 1: are you know, could be going up next year, but

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Speaker 1: then I look at the rate of increase for next year,

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Speaker 1: it hasn't as stronger this year, So is that embedded?

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Speaker 1: And you know, as I said before, UM, a lot

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Speaker 1: of the infraest industrials, they haven't seen an increase from

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Speaker 1: potentially in infrastructure bill, so that that could help. So

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Speaker 1: there are all sets there too, you know, hire corporate text.

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Speaker 1: Let me in one pack. One thing you mentioned there,

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Speaker 1: and that's that the geo politics. UM. Something that's sort

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Speaker 1: of amazed me is watching what's happened in China this year. UM.

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Speaker 1: And obviously their US listed equity is just getting clovered.

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Speaker 1: Uh that NAZDAC Golden Dragon indecks down something like on

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Speaker 1: the year, just absolutely fried. UM. And I know you

429
00:24:40,840 --> 00:24:43,199
Speaker 1: in the fund, in the Queer Portfolio Fund, you've got

430
00:24:43,200 --> 00:24:45,719
Speaker 1: a little bit of MGM in there. They had some

431
00:24:45,800 --> 00:24:50,480
Speaker 1: news this week with the crackdown on Macau. UM. To me,

432
00:24:50,680 --> 00:24:52,880
Speaker 1: so far, that seems to be the only thing that's

433
00:24:52,880 --> 00:24:58,040
Speaker 1: really caught some US names up in this China drama

434
00:24:58,720 --> 00:25:00,760
Speaker 1: given everything else we've talked abou and I guess that

435
00:25:00,800 --> 00:25:03,159
Speaker 1: shouldn't be too surprising. But a couple years ago, if

436
00:25:03,160 --> 00:25:05,399
Speaker 1: we had talked about this kind of hard landing happening

437
00:25:05,400 --> 00:25:08,880
Speaker 1: in China, I think all of our our eyes would

438
00:25:08,880 --> 00:25:10,639
Speaker 1: have fallen out of our heads. I mean, is is

439
00:25:10,880 --> 00:25:13,800
Speaker 1: this a risk that's maybe not being appreciated with ever

440
00:25:13,880 --> 00:25:17,560
Speaker 1: grand and and and and all the regulatory crackdowns going

441
00:25:17,560 --> 00:25:19,440
Speaker 1: on in China. Is is that a risk to the US?

442
00:25:19,480 --> 00:25:23,680
Speaker 1: And in your opinion, I think it's a risk to investors.

443
00:25:23,800 --> 00:25:27,159
Speaker 1: I'm not sure it's a risk to the US. But

444
00:25:27,600 --> 00:25:32,320
Speaker 1: to the extent that you have US companies or European

445
00:25:32,359 --> 00:25:34,879
Speaker 1: and a lot of European luxury goods companies that have

446
00:25:35,840 --> 00:25:41,719
Speaker 1: high exposure to China, uh mgm you listed is not

447
00:25:41,920 --> 00:25:45,560
Speaker 1: one of them, then they are very vulnerable. If you have,

448
00:25:45,920 --> 00:25:49,560
Speaker 1: you know, this rolling regulatory crackdown some you know, my

449
00:25:50,160 --> 00:25:52,520
Speaker 1: first piece of advices, make sure you know what your

450
00:25:52,520 --> 00:25:55,600
Speaker 1: own and make sure they don't have too much China exposure.

451
00:25:55,600 --> 00:26:00,119
Speaker 1: Now having said that, um, look, this is not the

452
00:26:00,200 --> 00:26:05,639
Speaker 1: first time that you've had a regulatory crackdown in China,

453
00:26:06,520 --> 00:26:12,080
Speaker 1: and it happened. It happened in Maybe this is maybe

454
00:26:12,119 --> 00:26:16,199
Speaker 1: this is more difficult. But I'll tell you when I

455
00:26:16,320 --> 00:26:22,240
Speaker 1: hear people say China is uninvestible. It usually comes when

456
00:26:22,520 --> 00:26:27,880
Speaker 1: the stocks are down, and that has created a very

457
00:26:27,920 --> 00:26:33,399
Speaker 1: good opportunity invest assuming you have the right time frame,

458
00:26:33,840 --> 00:26:37,399
Speaker 1: assuming you have a strong stomach and steely nerves, and

459
00:26:37,440 --> 00:26:40,040
Speaker 1: you're not gonna be righting out of the headlines. But

460
00:26:40,280 --> 00:26:43,159
Speaker 1: I would be very careful because you've got to make

461
00:26:43,160 --> 00:26:45,600
Speaker 1: sure you don't have too many because you know, to say,

462
00:26:46,080 --> 00:26:48,560
Speaker 1: put a stake in the ground, say today's bottom. I

463
00:26:48,560 --> 00:26:51,440
Speaker 1: think it's tough. So we laid out all of these

464
00:26:51,480 --> 00:26:55,879
Speaker 1: different worries, whether it be rising oil prices or China

465
00:26:56,040 --> 00:26:59,920
Speaker 1: or whatever else. Is there one thing that can throw

466
00:27:00,200 --> 00:27:03,520
Speaker 1: the rally? Of course, I think if you got rates

467
00:27:03,560 --> 00:27:06,760
Speaker 1: that went up too quickly, that would be the biggest

468
00:27:07,160 --> 00:27:12,320
Speaker 1: that would unnerve markets, and I think it would unnerve

469
00:27:13,040 --> 00:27:17,320
Speaker 1: the heavily weighted growth. You know, the stops are growth

470
00:27:17,320 --> 00:27:21,800
Speaker 1: in right, and so if you have rates to go quickly,

471
00:27:22,040 --> 00:27:25,720
Speaker 1: it would unnerve the STP as it's weighted now in

472
00:27:26,080 --> 00:27:29,919
Speaker 1: growth stocks. I'm not sure it would kill financials or

473
00:27:30,040 --> 00:27:32,440
Speaker 1: energy materials, but I think it would hurt the STP.

474
00:27:32,600 --> 00:27:38,120
Speaker 1: And to me, that is the risk is investors because

475
00:27:38,200 --> 00:27:40,800
Speaker 1: of the last you know, since the Great Financial crisis,

476
00:27:40,960 --> 00:27:45,560
Speaker 1: investors are way overweight and growth stocks and understandable. They've

477
00:27:45,560 --> 00:27:47,600
Speaker 1: been the winners and no one wants to sell them

478
00:27:47,600 --> 00:27:50,800
Speaker 1: because they've been the winners. And so the biggest risk

479
00:27:50,840 --> 00:27:57,840
Speaker 1: to investors is rising rates. Rising inflation would stunt the

480
00:27:58,280 --> 00:28:01,800
Speaker 1: you know, the returns in the growth areas, and that's

481
00:28:01,800 --> 00:28:05,399
Speaker 1: where everyone is, you know, very very overweight. But I

482
00:28:05,640 --> 00:28:07,240
Speaker 1: I just got to tell you a great story before

483
00:28:07,240 --> 00:28:10,040
Speaker 1: I finished. So if you dial the clock back to

484
00:28:10,200 --> 00:28:12,679
Speaker 1: about last year at this time, right, it was right

485
00:28:12,720 --> 00:28:15,640
Speaker 1: about now that we the kind of the vaccine news

486
00:28:15,720 --> 00:28:19,719
Speaker 1: started to come out, and that's when value stocks started

487
00:28:19,720 --> 00:28:22,359
Speaker 1: out for growth stocks, and you had a big rally

488
00:28:22,359 --> 00:28:26,399
Speaker 1: in those stocks until March end of March. But in

489
00:28:26,480 --> 00:28:29,800
Speaker 1: the month of March more money came out of growth

490
00:28:29,880 --> 00:28:33,880
Speaker 1: strategies and they went into value strategy. So just as

491
00:28:34,040 --> 00:28:37,200
Speaker 1: value rolls over relative to growth, that's when the money

492
00:28:37,240 --> 00:28:41,080
Speaker 1: pours into value. And now you fast forward today and

493
00:28:41,120 --> 00:28:43,240
Speaker 1: I'm saying, hey, great rate to start to go up.

494
00:28:43,560 --> 00:28:46,760
Speaker 1: The yelkur started seeping, but you know what, money is

495
00:28:46,800 --> 00:28:49,920
Speaker 1: now poured back into growth strategy. So I think it

496
00:28:50,080 --> 00:28:55,760
Speaker 1: is a great example of watch the messages of the market.

497
00:28:56,280 --> 00:28:59,840
Speaker 1: They will lead the economic data, and they will lead

498
00:29:00,080 --> 00:29:03,680
Speaker 1: emotional quotion of investors. It all comes back to how

499
00:29:03,800 --> 00:29:06,440
Speaker 1: long is transitory? I feel like is that the question

500
00:29:06,480 --> 00:29:08,600
Speaker 1: on everyone's mind. No one seems to know, but it

501
00:29:08,640 --> 00:29:10,520
Speaker 1: seems it seems like maybe a little longer than we

502
00:29:10,560 --> 00:29:15,040
Speaker 1: had first first thought. I guess exactly stand clear of

503
00:29:15,080 --> 00:29:19,440
Speaker 1: the craziest things we saw in markets this week? All right,

504
00:29:19,480 --> 00:29:22,200
Speaker 1: full data. It's the time you've been waiting for. I

505
00:29:23,240 --> 00:29:26,880
Speaker 1: what is the best John question Jeff Gunlock gets all

506
00:29:26,880 --> 00:29:28,920
Speaker 1: the time? I gotta know, Well, this is actually my

507
00:29:28,960 --> 00:29:32,280
Speaker 1: weirdest thing. Okay, okay, so we will go right into

508
00:29:32,280 --> 00:29:36,200
Speaker 1: our craziest things of the week. Then. Yeah. So I

509
00:29:36,240 --> 00:29:40,960
Speaker 1: was covering the Gunlock webcast earlier this week and he

510
00:29:41,040 --> 00:29:44,160
Speaker 1: went through a ton of different things related to the market,

511
00:29:44,240 --> 00:29:47,840
Speaker 1: and then he said, okay, here's our last question. This

512
00:29:47,920 --> 00:29:51,640
Speaker 1: is my most frequently asked question. Do you want to

513
00:29:51,680 --> 00:29:56,040
Speaker 1: guess what it's about? Uh? I could guess, but I

514
00:29:56,040 --> 00:29:57,400
Speaker 1: don't know. I don't want to get in trouble with

515
00:29:57,480 --> 00:29:59,920
Speaker 1: Jeff Gunlock. How the Buffalo bills are going to do?

516
00:30:00,360 --> 00:30:05,080
Speaker 1: That's right, Yes, How the Buffalo bills are going to do? Yes?

517
00:30:05,600 --> 00:30:08,719
Speaker 1: Which I love because We're huge Buffalo Bills fans in

518
00:30:09,000 --> 00:30:12,040
Speaker 1: my household, and so I got really excited about that.

519
00:30:12,200 --> 00:30:15,040
Speaker 1: But then I was thinking about how many people are

520
00:30:15,080 --> 00:30:17,920
Speaker 1: following WHI Chef Gunlock is saying, and how many of

521
00:30:17,960 --> 00:30:21,000
Speaker 1: them are Buffalo Bills fans for that to be the

522
00:30:21,040 --> 00:30:25,080
Speaker 1: most frequently asked question. He gets, that's pretty good. And

523
00:30:25,240 --> 00:30:27,760
Speaker 1: did anyone ask does he dive off of the top

524
00:30:27,800 --> 00:30:29,880
Speaker 1: of a mini van onto one of those tables like

525
00:30:29,920 --> 00:30:32,760
Speaker 1: those guys? Oh my gosh, I always love to see

526
00:30:32,800 --> 00:30:36,880
Speaker 1: those um But anyway, he said, I think he closed

527
00:30:36,880 --> 00:30:40,160
Speaker 1: off the webcast saying he is bullish on the Buffalo Bills,

528
00:30:40,240 --> 00:30:47,320
Speaker 1: which the will perma bill as it were. We'll have

529
00:30:47,360 --> 00:30:49,360
Speaker 1: to check to see if there's a correlation between their

530
00:30:49,400 --> 00:30:53,160
Speaker 1: record and his his performance. Oh that's pretty good. All right,

531
00:30:53,280 --> 00:30:55,200
Speaker 1: I'll give it to you all down. That's a pretty

532
00:30:55,200 --> 00:30:57,600
Speaker 1: good one. How about you, Andrew, You see anything crazy

533
00:30:57,760 --> 00:31:00,480
Speaker 1: markets these days? Well, I just you know the crazy

534
00:31:00,480 --> 00:31:03,760
Speaker 1: thing we've already addressed is I see sentiment is you

535
00:31:03,800 --> 00:31:08,240
Speaker 1: know the bullbear sentiment is now negative. Uh. There's a

536
00:31:08,280 --> 00:31:12,560
Speaker 1: lot of discussion on correction and worries about the economy.

537
00:31:12,600 --> 00:31:15,600
Speaker 1: But the weirdest thing is then Why are rates going up?

538
00:31:15,920 --> 00:31:18,840
Speaker 1: Why is the iel curve steepening, Why is energy prices

539
00:31:18,840 --> 00:31:22,040
Speaker 1: going up? Why our materials doing well? So the weirdest

540
00:31:22,040 --> 00:31:24,560
Speaker 1: thing is this just this this, you know, because this

541
00:31:24,560 --> 00:31:28,120
Speaker 1: this disjointed between emotionally what people are saying and what

542
00:31:28,240 --> 00:31:31,840
Speaker 1: the markets are right. Right, may man a geek and

543
00:31:31,960 --> 00:31:35,240
Speaker 1: that's not weird enough, But no, no, I like it.

544
00:31:35,240 --> 00:31:37,280
Speaker 1: I think it's pretty I mean I always it always

545
00:31:37,280 --> 00:31:39,680
Speaker 1: comes back to that is its supply or demand issue

546
00:31:39,720 --> 00:31:41,480
Speaker 1: in the oil market. You know, we are coming through

547
00:31:41,480 --> 00:31:45,600
Speaker 1: this hurricane season and and and the supply was knockoff course,

548
00:31:45,640 --> 00:31:49,719
Speaker 1: so it did I wonder if everyone seems to realize that.

549
00:31:49,760 --> 00:31:51,880
Speaker 1: But yet is is oil is still capable of sending

550
00:31:51,920 --> 00:31:54,800
Speaker 1: a false signal? U? I think it is. I think

551
00:31:54,840 --> 00:31:57,320
Speaker 1: your answer is absolutely right. And and that's why I

552
00:31:57,360 --> 00:32:00,360
Speaker 1: am more we have a bigger weight in financials than energy,

553
00:32:00,440 --> 00:32:04,680
Speaker 1: because I've learned that the energy market can send off

554
00:32:04,720 --> 00:32:07,200
Speaker 1: all signals. But when I look at that, and then

555
00:32:07,240 --> 00:32:08,880
Speaker 1: I look at other things like well, you know, like

556
00:32:08,920 --> 00:32:12,360
Speaker 1: the semiconductor that's a great cyclical that's hitting a new

557
00:32:12,400 --> 00:32:15,160
Speaker 1: time right, So it's you know, when I line it up,

558
00:32:15,200 --> 00:32:17,840
Speaker 1: it falls into place. But I wouldn't hang my hat

559
00:32:18,000 --> 00:32:20,760
Speaker 1: just on that. For just the reason that you say is,

560
00:32:21,080 --> 00:32:23,960
Speaker 1: you know, we can have a recovery. I can be

561
00:32:24,080 --> 00:32:26,240
Speaker 1: right and the economy can be better on the fourth quarter,

562
00:32:26,280 --> 00:32:28,560
Speaker 1: But if OPEC decides open the floodgates, then I'll be

563
00:32:28,560 --> 00:32:31,440
Speaker 1: wrong on energy even if the economy recovers. So always

564
00:32:31,440 --> 00:32:36,880
Speaker 1: be a little wary of of just looking at energy prices. Yeah,

565
00:32:37,000 --> 00:32:39,000
Speaker 1: or even the U S fractors turning on the spickeotts

566
00:32:39,040 --> 00:32:42,080
Speaker 1: more once you know it's uh, it seems like there's

567
00:32:42,640 --> 00:32:46,280
Speaker 1: a built in uh ceiling on oil prices. That famous

568
00:32:46,360 --> 00:32:48,200
Speaker 1: last words, I know, I probably shouldn't say that that's

569
00:32:48,240 --> 00:32:52,720
Speaker 1: will price. Two the great saying which I love, which

570
00:32:52,760 --> 00:32:56,640
Speaker 1: no one knows nothing about energy prices, which is, you know,

571
00:32:56,920 --> 00:33:00,800
Speaker 1: there's nothing nothing solved high energy prices like high energy prices,

572
00:33:00,960 --> 00:33:03,240
Speaker 1: you know, so they got to a certain level, they

573
00:33:03,280 --> 00:33:06,000
Speaker 1: head down and then they you know, so you know,

574
00:33:06,080 --> 00:33:10,000
Speaker 1: but but within a context of a group of indicators,

575
00:33:10,040 --> 00:33:12,360
Speaker 1: I think it's I think it's interesting right now. Yeah,

576
00:33:12,880 --> 00:33:15,640
Speaker 1: that's pretty good. All right, I'll give you my crazy

577
00:33:15,680 --> 00:33:18,520
Speaker 1: thing before we get out of here. Um, this is

578
00:33:18,520 --> 00:33:20,680
Speaker 1: a Bloomberg story that came out on Thursday. You know,

579
00:33:20,720 --> 00:33:25,360
Speaker 1: we talked about this carnage in the China tech stocks especially,

580
00:33:25,400 --> 00:33:29,040
Speaker 1: so um. You know, we on the terminal, we keep

581
00:33:29,080 --> 00:33:32,160
Speaker 1: a compilation of the billionaires of the world and an

582
00:33:32,280 --> 00:33:34,760
Speaker 1: estimate of what their net worth is UH for any

583
00:33:34,840 --> 00:33:39,560
Speaker 1: any given year. So the billionaire who lost the most

584
00:33:39,600 --> 00:33:45,360
Speaker 1: money this year uh not surprisingly in China, uh Colin Huang,

585
00:33:45,760 --> 00:33:51,840
Speaker 1: founder of Pin Duo Duo uh, Chinese e commerce platform.

586
00:33:51,880 --> 00:33:53,880
Speaker 1: He's down big this year. And this is where we

587
00:33:53,920 --> 00:33:55,720
Speaker 1: get to play a little bit of prices, right, Phil

588
00:33:55,800 --> 00:33:59,680
Speaker 1: dot At, how much do you think the biggest loss

589
00:33:59,800 --> 00:34:02,880
Speaker 1: of long billionaires this guy, Colin Hwaian is is this year?

590
00:34:02,880 --> 00:34:05,560
Speaker 1: How much do you think he lost? I saw you

591
00:34:05,600 --> 00:34:07,560
Speaker 1: tweet about this, but I have to admit I wasn't

592
00:34:07,560 --> 00:34:12,359
Speaker 1: paying close attention. That's yeah, that's kind of our relationship. Yeah,

593
00:34:12,400 --> 00:34:15,439
Speaker 1: I was. I should have paid attention. UM. Okay, I'm

594
00:34:15,440 --> 00:34:20,120
Speaker 1: just I'm going to throw out three billion, three billion,

595
00:34:20,120 --> 00:34:22,319
Speaker 1: all right, I'm gonna keep a poker face. Andrew, what

596
00:34:22,320 --> 00:34:26,480
Speaker 1: do you think uh market cap? I think that's probably

597
00:34:26,480 --> 00:34:32,720
Speaker 1: close made five billion, eight billion dollars. The guy's stake

598
00:34:32,800 --> 00:34:35,680
Speaker 1: in that company is huge. I think it's like or

599
00:34:35,719 --> 00:34:38,080
Speaker 1: something like that. How'd you like to go home and

600
00:34:38,120 --> 00:34:42,760
Speaker 1: explain your wife you lost twenty eight billion and can canceled.

601
00:34:42,760 --> 00:34:46,200
Speaker 1: There's renovation plans. He's still worth a good thirty five billions,

602
00:34:46,239 --> 00:34:48,960
Speaker 1: so I'm not that worried about him. But wow, and

603
00:34:49,000 --> 00:34:52,920
Speaker 1: there's a bunch of others. There's ten billion plus losses

604
00:34:53,160 --> 00:34:56,560
Speaker 1: all over the place there and it uh wow, what

605
00:34:56,560 --> 00:34:59,920
Speaker 1: what a dramatic story that's been in China. It's really

606
00:35:00,000 --> 00:35:03,840
Speaker 1: and fascinating. I will throw out one thing is, uh,

607
00:35:04,280 --> 00:35:06,200
Speaker 1: some of these companies are starting to buy back their

608
00:35:06,239 --> 00:35:11,840
Speaker 1: stock and if you look back to their timing was

609
00:35:11,960 --> 00:35:16,080
Speaker 1: pretty good buying back the stock. And if they thought

610
00:35:16,160 --> 00:35:20,000
Speaker 1: they were about to get find a big another amount,

611
00:35:20,480 --> 00:35:23,000
Speaker 1: I question whether they'd be buying back their stock. So

612
00:35:23,160 --> 00:35:26,880
Speaker 1: it does not necessarily mean the bombs in place be careful,

613
00:35:27,480 --> 00:35:30,759
Speaker 1: but usually they do have a history of kind of

614
00:35:30,840 --> 00:35:33,320
Speaker 1: starting to step in at a good time and the

615
00:35:33,360 --> 00:35:38,239
Speaker 1: stocks are down a lot. That's what a great tidbit. Yeah,

616
00:35:38,440 --> 00:35:40,520
Speaker 1: might be a story for you there to see you

617
00:35:40,520 --> 00:35:45,480
Speaker 1: pay attention to him, but not just yeah, Andrews. So

618
00:35:45,560 --> 00:35:47,200
Speaker 1: nice to have you. Hopefully we can do it again.

619
00:35:47,719 --> 00:35:50,600
Speaker 1: Absolutely good, Thank you for having me. Thank you Andrew

620
00:36:00,760 --> 00:36:02,799
Speaker 1: What Goes Up. We'll be back next week and soil.

621
00:36:02,840 --> 00:36:05,319
Speaker 1: Then you can find us on the Bloomberg Terminal, website

622
00:36:05,360 --> 00:36:08,440
Speaker 1: and app, or wherever you get your podcasts. We'd love

623
00:36:08,480 --> 00:36:10,320
Speaker 1: it if you took the time to rate and review

624
00:36:10,360 --> 00:36:13,239
Speaker 1: the show on Apple Podcasts so more listeners can find us.

625
00:36:13,880 --> 00:36:16,120
Speaker 1: And you can find us on Twitter, follow me at

626
00:36:16,239 --> 00:36:20,640
Speaker 1: ring Anonymous, Wildonna hirach is at Fildonna Hirich. You can

627
00:36:20,640 --> 00:36:24,320
Speaker 1: also follow Bloomberg Podcasts at podcasts and thank you to

628
00:36:24,400 --> 00:36:26,400
Speaker 1: Charlie Pelldo, Bloomberg Radio and the voice of the New

629
00:36:26,440 --> 00:36:29,319
Speaker 1: York City Subway System. What Goes Up is produced by

630
00:36:29,360 --> 00:36:33,120
Speaker 1: Tofur Foreheads. The head of Bloomberg podcast is Francesco Levie.

631
00:36:33,760 --> 00:36:35,319
Speaker 1: Thanks for listening, See you next time.