Speaker 1: Hello, and welcome to What Goes Up a weekly markets podcast.
Speaker 1: My name is Mike Reagan, and I'm a senior editor
Speaker 1: at Bloomberg and I'm Donna hick Across asid report at Bloomberg.
Speaker 1: This week on the show, well, whatever happened to that
Speaker 1: reopening trade that was supposed to lift all the stocks
Speaker 1: of the companies that would benefit when we all finally
Speaker 1: changed out of our sweatpants and got out of the house. Well,
Speaker 1: as the delta variant of the virus rages, many of
Speaker 1: us are back to wearing sweatpants, and many of those
Speaker 1: stocks have been going sideways at best for more than
Speaker 1: three months. Now. We're gonna talk to a fund manager
Speaker 1: who will explain why he's still sort of bullish on
Speaker 1: many of these type of companies and we should listen
Speaker 1: to him. He's got a very strongly performing fund. And
Speaker 1: by the way, stick around till the end, because for
Speaker 1: some reason, Vill Donna is very excited to reveal the
Speaker 1: question that Jeffrey Gundlock is asked the most. I don't
Speaker 1: know why that is, Vill Donna, but you are very
Speaker 1: excited to reveal that. Well, you'll you'll hear it when
Speaker 1: when you hear it. It's very it's very fun. It's
Speaker 1: very fun. Okay, we liked we like fun stuff. Yeah,
Speaker 1: it's very fun. All right. Well, well, Donna, before you
Speaker 1: bring the guests, and I've got a brief. I know
Speaker 1: you like stories about when I was a young young
Speaker 1: boy back in the eighteen hundreds, so I've got one
Speaker 1: free about my dad, Pops Reagan, who he had a
Speaker 1: famous catchphrase which was the black and whites never lie.
Speaker 1: And what he meant by the black and whites was
Speaker 1: the report cards we'd bring home. You know, my dad
Speaker 1: had six kids, all boys but one girl, and the
Speaker 1: black and whites were our report card. So if he
Speaker 1: was saw usloafing around the house or or goofing around
Speaker 1: and not studying, he'd be like, how school going, And
Speaker 1: we'd be like, Pops, it's going great. What are you
Speaker 1: worried about? And he'd say, well, the black and whites
Speaker 1: don't lie because obviously back then we only had black
Speaker 1: and white. They had invented color. Yet. Yeah I got that, Yeah,
Speaker 1: you got that. So I think of this every time
Speaker 1: we have a fund manager on because I love to
Speaker 1: look at their performance and I say, you know, the
Speaker 1: black and whites don't lie there either. So this week's guests,
Speaker 1: I think Pops Reagan would be proud of uh queer
Speaker 1: portfolio fund uh really killing the SMP five up almost
Speaker 1: for the year in the ninety four percentile of pure
Speaker 1: funds year to date, ninety one percentile over three years. So, uh,
Speaker 1: you know Pops would be proud, Bill Donna, And I'm
Speaker 1: also excited because I know he went to the University
Speaker 1: of Pennsylvania in Philadelphia, which means not only will he
Speaker 1: reveal his stock picks, but hopefully he'll reveal his cheesesteak
Speaker 1: picks as well. Yeah, so I do want to bring
Speaker 1: the guests in. It's Andrew Slimmon. He's the managing director
Speaker 1: and he's a senior portfolio manager at Morgan Stanley Investment Management,
Speaker 1: and I'm thrilled to have him on the show this week.
Speaker 1: And I know, Andrew, you've written quite a bit recently,
Speaker 1: and you and I have chatted in the past before,
Speaker 1: but I do want to start out asking you about
Speaker 1: some of your your strategies and the way you're thinking
Speaker 1: about the market. I know in a recent note you
Speaker 1: had said that bond yields traditionally bottom in August and
Speaker 1: then they rise in the fourth quarter, and that the
Speaker 1: markets tend to get some sort of unfounded growth scare
Speaker 1: in the summer months, then we'll see the economy re
Speaker 1: accelerating in the fourth quarter. So can you maybe walk
Speaker 1: us through your thinking and through your strategy. Sure, happy,
Speaker 1: thank you, happy to happy to do it. Thanks for
Speaker 1: having me on. But before I start, we just have
Speaker 1: to get one thing straight. It's Adners. It's definitely as
Speaker 1: was my favorite chees Takes. In fact, I brought my
Speaker 1: kids to see the school I've got a couple of
Speaker 1: years ago, and I think we spent more time at
Speaker 1: Adners than we did walk. I spent a lot of
Speaker 1: time at that place. Kavanaughs. I don't know if that
Speaker 1: was there's uh that was famous. Phil Dona had had
Speaker 1: a mug night where you could bring in any mug
Speaker 1: that you want, So there's a competition to see you
Speaker 1: could bring in the biggest mug and they would fill
Speaker 1: it up. Guys are bringing like Stanley cup sized size
Speaker 1: mugs to with with your beverage of choice. Our just
Speaker 1: would be called cheap draft beer. But you know you
Speaker 1: could fill it up with frutuice. I guess if you
Speaker 1: want so, let me just jump to interest rates. UM,
Speaker 1: I'm amazed at how markets there's a consistency to markets.
Speaker 1: We get a growth scare usually in the summer, that
Speaker 1: happens over and over. Rates come down in the middle
Speaker 1: of the summer, and then they start to lift going
Speaker 1: into the fourth quarter. And this is this is exactly
Speaker 1: what's happened this time. Rates bottomed on August third, the
Speaker 1: ten year bottom one August there and the ten years
Speaker 1: back up to one thirty three today, the yield curve
Speaker 1: at and all through the spring and now starting to
Speaker 1: re steep. And so I think what's interesting fast, what
Speaker 1: fascinates me is that, um, the financial markets predicted a
Speaker 1: slowdown starting in the spring, and then we got the
Speaker 1: economic data that validated it this summer, and now the
Speaker 1: financial markets are starting to predict an improvement in the
Speaker 1: fourth quarter, but we haven't had the economic data to
Speaker 1: validate it yet. I'm fascinated by that type of seasonality
Speaker 1: thing that you see every down that I've noticed it
Speaker 1: what the economic surprise indexes to. They always tend to
Speaker 1: bottom out in the in the summer meeting. You know,
Speaker 1: the the data is missing estimates by the most of
Speaker 1: the year. In the summer. What if there's some human
Speaker 1: nature thing that you know, causes economists to be very
Speaker 1: optimistic at the beginning of the year and then you know,
Speaker 1: come come to their senses. But you know, answer to
Speaker 1: to bring it back to the fund um. You know
Speaker 1: that notion about rates creeping up. I wonder is is
Speaker 1: that sort of uh playing a large role into the
Speaker 1: picks and the fund I noticed a pretty decent heavyweight
Speaker 1: to banks and diversified financials. Um. Is it that simple
Speaker 1: that that macro input or or these sort of idiosyncratic
Speaker 1: reasons why you're here in each of these you know,
Speaker 1: a couple of regional banks. I noticed first Republic uh
Speaker 1: SVB a very prize. Is that part of it? Or
Speaker 1: is there other stories as well? Yeah, well, well look
Speaker 1: I'm up. So I went to pen but i also
Speaker 1: went to the Universe Chicago, So I've got a little
Speaker 1: bit of a quant bend as well. And I know
Speaker 1: that what defines a stocks performance is not only their
Speaker 1: fundamental what's going on at the company level, but also
Speaker 1: their quantitative factor exposure and those stocks that you all
Speaker 1: listed our value stocks, and they benefit from rising rates.
Speaker 1: And one of the reasons why we're having a very
Speaker 1: good year in our fund. Is simply that going into
Speaker 1: the spring, we were concerned about a seasonal slowdown in
Speaker 1: the economy, and so we downshifted some of those value
Speaker 1: names a little bit and we increased our exposure to
Speaker 1: a little bit more of the risk off the the
Speaker 1: defensive type names, and that worked very well. But at
Speaker 1: at now at we're at a juncture where you were
Speaker 1: going the other way. So we've increased those positions a
Speaker 1: little bit because we're anticipating that we get to the
Speaker 1: fourth quarter and then the economic data will say, oh,
Speaker 1: it's not so bad. You know what, the economy is
Speaker 1: picking up and it's no different. You mentioned Michael early
Speaker 1: on the reopening stuff. They did great last year into
Speaker 1: the spring, and then we also reduced those in anticipation
Speaker 1: that maybe in the summer we could have a little
Speaker 1: bit more of a risk off son, So I would
Speaker 1: not be selling those stocks right now. But having said that,
Speaker 1: we've actually been more competent in the rising rate environment
Speaker 1: than the reopening trade. So I think financials and then
Speaker 1: second energy will be the two best performing in the
Speaker 1: fourth quarter. That would be my area. So then can
Speaker 1: I ask actually ask you to to expand a bit
Speaker 1: on what you're thinking is around value stocks, because I
Speaker 1: know in one of your recent reports you had written
Speaker 1: that when value outperforms growth, overall growth does tend to
Speaker 1: outperform for a little bit of that cycle, for just
Speaker 1: enough to sort of shake out the nonbelievers. I believe
Speaker 1: you said, so can you walk us through that? Sure? Yeah.
Speaker 1: So look, coming out of a recession, right, value stocks
Speaker 1: are cyclical, so they all get beaten down in recessions,
Speaker 1: worse than gross socks and defensive stocks. And then you
Speaker 1: get to a juncture somewhere in the middle of recessions
Speaker 1: where people say, oh wait and not every cyclical stock
Speaker 1: is going to fail, and they have a significant bounce
Speaker 1: back rally back because they're so cheap. And we saw
Speaker 1: it in the recession ninety, we saw it in two thousands,
Speaker 1: we saw it in two thousand nine. These stocks came
Speaker 1: back strong, and um, the average value cycle lasts about
Speaker 1: thirty three months. We're you know, twelve months in However,
Speaker 1: of those thirty three months, about eleven of those months
Speaker 1: on average, growth actually outperforms value. So you have it's
Speaker 1: not a straight line back up. There is twists and turns,
Speaker 1: and so I think at the very least. And again,
Speaker 1: I'm a core manager. I'm not here to just sell
Speaker 1: value strategies. I'm a core manager. I'm just trying to
Speaker 1: figure out where the fat pitches. And what I see
Speaker 1: is that value has made its way back up, but
Speaker 1: it's still pretty cheap versus growth. Now, I happen to
Speaker 1: believe that not only will value read price back to
Speaker 1: where normally is, but I think that the change in
Speaker 1: the tone out of the FED could lead to a
Speaker 1: period of time or value outperforms growth fro an extended period.
Speaker 1: I'm the way it in the nineties. You know, I
Speaker 1: was gonna ask you about that because it's you know,
Speaker 1: it sounded like you were doing some some very tactical
Speaker 1: type of adjustments there in the middle of the year.
Speaker 1: Um uh you know, is is that sort of a
Speaker 1: byproduct of the boom and bust COVID air that you
Speaker 1: have to be more tactical than you than you maybe
Speaker 1: would otherwise. Or were you guys always that sort of uh,
Speaker 1: you know, a tune to trying to time out performance
Speaker 1: within within any given year. Yeah. So look, I'm a
Speaker 1: long equity manager, so I don't go to cash because
Speaker 1: what I've learned is you know, so eraised five percent
Speaker 1: cast market goes out a lot, you're gonna lose money, right,
Speaker 1: And so the way we adjust is a debate at
Speaker 1: the risk in the portfolio. And what I've learned in
Speaker 1: this business from being in a long time is you
Speaker 1: want to lower the risk in the summer. Summer just
Speaker 1: always seems we've got these grows scares week And yes,
Speaker 1: the SMP didn't really go down this summer, but a
Speaker 1: lot of stocks and the SMP went down a lot.
Speaker 1: And so I just know that to reduce the risk
Speaker 1: and the reopening trades and the value trades they tend
Speaker 1: to have more risk than the defenses and some of
Speaker 1: the very MEGACP tech stocks. So that's just a seasonal
Speaker 1: bet that this time was not different and turned out
Speaker 1: to be, you know, the right call. And I also
Speaker 1: know that the fourth quarter once you know, it's still
Speaker 1: mid September, once we get through this period, um, you know,
Speaker 1: the market tends to do well kind of you know,
Speaker 1: mid October until mid December, and I think earnings are
Speaker 1: going to be strong. So the setup is there once again. Um,
Speaker 1: that seasonality I think is gonna work this year like
Speaker 1: it has so far. Can I ask you to expand
Speaker 1: on that as well, because one of the things I
Speaker 1: wanted to get your thoughts on is what's actually keeping
Speaker 1: dip buyers alive. So a lot of people had predicted
Speaker 1: that the summer would be choppy August it wasn't as
Speaker 1: terrible as many had projected. But it's a purely technical
Speaker 1: that we haven't really had a five percent pullback in
Speaker 1: so long I think it's been more than two hundred days.
Speaker 1: Or are there actually some real fundamental underpinnings for that. Yeah,
Speaker 1: great questions. So first of all, again, the cap weighted
Speaker 1: SMP is at a high because uh, those big, very
Speaker 1: big stocks are a little bit lower beited the lower
Speaker 1: risk they can survive a low growth environment. So I
Speaker 1: think that really held up SMP. One hundred outperformed the
Speaker 1: rest of the four hundred this summer, so that's held
Speaker 1: up the the SMP. But I think there's two key
Speaker 1: reasons why we haven't had a pull back. Number one
Speaker 1: is is that we're all talking about how strong the
Speaker 1: market is price wise this year. But I think what
Speaker 1: we spent less time discuss see is that actually the
Speaker 1: fundamentals are is have changed as good as the market
Speaker 1: has gone up. In other words, if I dialed the
Speaker 1: clock back to the beginning of this year and I
Speaker 1: took the Wall Street consensus, how much is the SMP
Speaker 1: going to earn this year? It was a hundred and
Speaker 1: sixty five dollars this year. That's the Wall Street consensus
Speaker 1: of all the stocks in the SP five one. That
Speaker 1: number is now a two d. So Wall Street has
Speaker 1: been too bearish by the magnitude about and loan behold
Speaker 1: the stock markets up. So I think that's good earnings reports.
Speaker 1: I've you know, I'm not you know, I've been this
Speaker 1: business long enough to know that when companies exceed estimates,
Speaker 1: stocks don't go down for long, and when companies miss estimates,
Speaker 1: stocks don't go up for long. Right, It's a very
Speaker 1: simple rule, But you know that that's the first thing.
Speaker 1: Number two is I think the other thing that's going on,
Speaker 1: and you know, again we talked to advisors, we talked
Speaker 1: to investors, is in our funds. And if I dial
Speaker 1: the clock back the last year about this time, the
Speaker 1: call that we were getting from investors and from advisors
Speaker 1: were I have clients that think they want to get
Speaker 1: out of the market, because again, again this is last
Speaker 1: year at this time because the markets had a big
Speaker 1: rally off the low. It's gonna be a covid re
Speaker 1: outbreak in the fall, and they think we're gonna have
Speaker 1: a double dip, so they want to get out, right.
Speaker 1: That was the call that we're getting over and over
Speaker 1: last year. We're not getting that call right now. The
Speaker 1: call we're getting is when is a pullback coming? I
Speaker 1: have so much cash, you know, and on my books,
Speaker 1: and so what I see happening is that when the
Speaker 1: market pulls back, we're getting money into our funds. Right,
Speaker 1: We're getting money that's coming in because people are trying
Speaker 1: to buy the debts. So um that I think is
Speaker 1: another thing that's supporting the market. And I guess if
Speaker 1: I had to so a third is, you know, the
Speaker 1: FED hasn't changed policy. Don't fight the Fed. Boy, oh boy,
Speaker 1: has that worked? So I think those are the the
Speaker 1: key fundamentals are better, there's a lot of liquidity, and
Speaker 1: the FED still your friend. You know, I wanted to
Speaker 1: ask you about that. It's it's a great point you make,
Speaker 1: because you know, we can all analyze to death the
Speaker 1: fundamentals of the economy and all the companies, but there
Speaker 1: is that other side of the equation. And that's the
Speaker 1: fundamentals of the investing class, you know, whether whether it
Speaker 1: be individual investors or you know, institutional money or even
Speaker 1: companies themselves that have sort of beefed up their balance sheets, uh,
Speaker 1: you know, sort of preparing for anything, uh last year
Speaker 1: and now maybe have some more cash two buy back shares.
Speaker 1: Does that go into your thinking much? You know, as
Speaker 1: far as you know, look at the personal savings rate
Speaker 1: in the US last year just went absolutely through the roof.
Speaker 1: So you know when you look at you know, the
Speaker 1: deposits at commercial banks or the money is sitting in
Speaker 1: in uh money market funds that's just doing nothing. And
Speaker 1: you know, does that influence sort of your your opinion
Speaker 1: on where the market's going? Is the fundamentals of the
Speaker 1: investor class and perhaps explain why maybe when you reflect
Speaker 1: back that on the fundamentals of the market itself, that
Speaker 1: they could you know, those ratios that we all sort
Speaker 1: of have our eyes glued on could get stretched beyond
Speaker 1: what might otherwise be considered reasonable because there is all
Speaker 1: this cash sitting around. Well, yeah, there's a lot of question.
Speaker 1: That's my specialty. Andre I. I I pack it in there. Yeah,
Speaker 1: you say, you pack it. You start with corporate and
Speaker 1: I want to just touch that. I do think that
Speaker 1: if if fundamounts of corporations at the earnings levels, great,
Speaker 1: because they're just buying back a lot of stock. I
Speaker 1: don't think that the market will reward that as much
Speaker 1: as revenue growth. So, first of all, when I see
Speaker 1: a strong revenuance, but as it pertains to the individual,
Speaker 1: I wouldn't necessarily bank on just because there's a lot
Speaker 1: of cal ash. It means you can't have a market
Speaker 1: go down. But I think that that plays into why
Speaker 1: we're not getting this you know, ten percent plus correction
Speaker 1: because there's too much cash out there. So I think,
Speaker 1: you know, to me, the most important thing is really
Speaker 1: followed fundamentals of companies, and I just think that we're
Speaker 1: gonna have. You know, we've had a great second quarter
Speaker 1: and I've learned. I look at that there there's no
Speaker 1: question costs of going up. But what I hear when
Speaker 1: we talk to companies and we listen to companies, I'm
Speaker 1: almost shocked at how cavalier they are. We're going to
Speaker 1: pass on those costs increases. So there's this this very
Speaker 1: high level confidence that as consumers, we're all gonna pay
Speaker 1: higher prices um and so I don't think that third
Speaker 1: quarter is going to be disappointing because I think companies
Speaker 1: will pass on the cost. And secondly, maybe this is
Speaker 1: just a little bit cynical. I've learned in this business.
Speaker 1: If a company blows out a quarter, they obviously something
Speaker 1: in the tank. They all have got, you know, they've
Speaker 1: got a little extra. So they're not going to go
Speaker 1: from great earnings in the second quarter to completely missed
Speaker 1: the course. So I think the revisions are going up.
Speaker 1: And to the extent that your question is, you have
Speaker 1: consumer buying power that kind of supports a market price. Now,
Speaker 1: let's face it, with a tenure at one three, the
Speaker 1: multiple in the market could be much higher than it is.
Speaker 1: But I think what the market is saying is, well,
Speaker 1: we know that's a little bit artificial. We know that
Speaker 1: the FED has been buying. Rates are probably should be
Speaker 1: high if it wasn't for the FED. So I think
Speaker 1: that you know that that that's that's you know that
Speaker 1: that certainly supports the market where it is. But i'm
Speaker 1: i'm i'm. I think people focus a lot on stock prices,
Speaker 1: right because you know, look, Michael, if you go you
Speaker 1: know you go to that, you go to an auto dealership,
Speaker 1: you get in the car, you can try the car out.
Speaker 1: If you go to the super arc, you can smell
Speaker 1: the food and look at it. But we you know,
Speaker 1: stock prices are aligned on them in a statement, so
Speaker 1: we spend a lot more time on price discovery and
Speaker 1: less on fundamental discovery. And that's the point, is that
Speaker 1: coming out of recessions, companies tend to do better than
Speaker 1: what Wall Street happen thanks and if stock prices the
Speaker 1: present vout future expectations, I just think stock companies are
Speaker 1: doing better than what's expected until proven otherwise. That's going
Speaker 1: to drive the market higher. And if you've got this
Speaker 1: liquidity behind it, that's going to push continue push stocks higher.
Speaker 1: I know you mentioned earnings revisions have been trending higher.
Speaker 1: There's a couple of examples of companies that have revised
Speaker 1: guidance lower. And then at the same time, I keep
Speaker 1: seeing all of these surveys from portfolio managers who are
Speaker 1: downgrading their views on growth. So I'm wondering what you
Speaker 1: might say to somebody who is looking through the rest
Speaker 1: of the year and is thinking that growth could be
Speaker 1: slowing or be as robust is maybe they had thought
Speaker 1: earlier this year my responses they might be right, but
Speaker 1: they have been right so far. I mean, you know,
Speaker 1: like I'm not. You know, it's like the report card,
Speaker 1: the black and white report card, you know, like this is.
Speaker 1: You know, all I'm doing is looking at the revisions
Speaker 1: that come out every week, and the revisions keep bubbling up.
Speaker 1: So people that have predicted that revisions are going are
Speaker 1: peaking and they're gonna head down. They have been right
Speaker 1: so far. They haven't been right, and so you know,
Speaker 1: am I smart enough to know what when that will happen?
Speaker 1: I don't think so. But I also know that they
Speaker 1: have been very smart and predicting that so until proven otherwise,
Speaker 1: and listening to companies and what the confidence that they
Speaker 1: are exuding. I'm I'm going to bet that we're not
Speaker 1: done with this, and don't forget. When you get to
Speaker 1: the end of this year, the market won't worry about
Speaker 1: two one estimate. They will speak in the price off
Speaker 1: two thousand twenty two, and I think that will further
Speaker 1: justify It doesn't mean you can't have corrections. I mean,
Speaker 1: we could have a correction here, but I think with
Speaker 1: positive revisions and strong fundamentals and liquidity behind it. It
Speaker 1: sets up for a very good fourth quarter. All right, Andrew, Uh,
Speaker 1: you know in the press, we we I think we're
Speaker 1: the biggest culprit of of building the wall of wherey
Speaker 1: in the market, so to speak. So uh, let me
Speaker 1: lay out every brick or some of the main bricks
Speaker 1: of the wall of where he let me know if
Speaker 1: if any of them are spoken to you or sort
Speaker 1: of how you would uh think about what the main
Speaker 1: risks are. Obviously you mentioned tapering and the FED that's coming.
Speaker 1: That's that's one of them. Um. The tell went from
Speaker 1: fiscal policy is also sort of wearing off. You know,
Speaker 1: the enhanced unemployment benefits are are going away, the foreclosure
Speaker 1: moratorium is all that type of thing. Um. Obviously we
Speaker 1: got the debt ceiling issue coming again. Uh, we've got
Speaker 1: COVID flaring up again. Um. Any of these keeping you
Speaker 1: you awaken night or even ones I didn't mention I
Speaker 1: always First of all, kind of geopolitics are really hard
Speaker 1: to predict. And could that come out of you know,
Speaker 1: the blue and that that could be an issue? Yes, Um,
Speaker 1: I think oil actually at seventy two seventy two is
Speaker 1: no big deal. But you start to get another ten
Speaker 1: bucks higher, and you know, higher OREL prices can slow
Speaker 1: economy very quickly, so that that to me would be
Speaker 1: um a bigger risk. I happen to think that tapering
Speaker 1: is going to be so slow and oh minding, so
Speaker 1: they're gonna buy a little less bonds than they were
Speaker 1: before that this is this is we're gonna have by
Speaker 1: the time it actually happens, we're gonna have tapering exhaustion. Um.
Speaker 1: And so I don't I don't think that would be
Speaker 1: an issue. If the economy came on too strong and
Speaker 1: rates went up too quickly, that could cause a jolt.
Speaker 1: So I think there are worries. I've learned that kind
Speaker 1: of political issues that come out of blue they tend
Speaker 1: to happen in the summer. Another reason why it's risked off. UM.
Speaker 1: So you know again, i'm i'm I think we're not
Speaker 1: through this period of that's typically not a great seasonality
Speaker 1: for the market, so we could have a pullback. I
Speaker 1: just I struggled to see a reason for it. But
Speaker 1: then you know, that's what happens. It's the unknown, and
Speaker 1: that's but I don't know fiscal policy, look, corporate taxes
Speaker 1: are you know, could be going up next year, but
Speaker 1: then I look at the rate of increase for next year,
Speaker 1: it hasn't as stronger this year, So is that embedded?
Speaker 1: And you know, as I said before, UM, a lot
Speaker 1: of the infraest industrials, they haven't seen an increase from
Speaker 1: potentially in infrastructure bill, so that that could help. So
Speaker 1: there are all sets there too, you know, hire corporate text.
Speaker 1: Let me in one pack. One thing you mentioned there,
Speaker 1: and that's that the geo politics. UM. Something that's sort
Speaker 1: of amazed me is watching what's happened in China this year. UM.
Speaker 1: And obviously their US listed equity is just getting clovered.
Speaker 1: Uh that NAZDAC Golden Dragon indecks down something like on
Speaker 1: the year, just absolutely fried. UM. And I know you
Speaker 1: in the fund, in the Queer Portfolio Fund, you've got
Speaker 1: a little bit of MGM in there. They had some
Speaker 1: news this week with the crackdown on Macau. UM. To me,
Speaker 1: so far, that seems to be the only thing that's
Speaker 1: really caught some US names up in this China drama
Speaker 1: given everything else we've talked abou and I guess that
Speaker 1: shouldn't be too surprising. But a couple years ago, if
Speaker 1: we had talked about this kind of hard landing happening
Speaker 1: in China, I think all of our our eyes would
Speaker 1: have fallen out of our heads. I mean, is is
Speaker 1: this a risk that's maybe not being appreciated with ever
Speaker 1: grand and and and and all the regulatory crackdowns going
Speaker 1: on in China. Is is that a risk to the US?
Speaker 1: And in your opinion, I think it's a risk to investors.
Speaker 1: I'm not sure it's a risk to the US. But
Speaker 1: to the extent that you have US companies or European
Speaker 1: and a lot of European luxury goods companies that have
Speaker 1: high exposure to China, uh mgm you listed is not
Speaker 1: one of them, then they are very vulnerable. If you have,
Speaker 1: you know, this rolling regulatory crackdown some you know, my
Speaker 1: first piece of advices, make sure you know what your
Speaker 1: own and make sure they don't have too much China exposure.
Speaker 1: Now having said that, um, look, this is not the
Speaker 1: first time that you've had a regulatory crackdown in China,
Speaker 1: and it happened. It happened in Maybe this is maybe
Speaker 1: this is more difficult. But I'll tell you when I
Speaker 1: hear people say China is uninvestible. It usually comes when
Speaker 1: the stocks are down, and that has created a very
Speaker 1: good opportunity invest assuming you have the right time frame,
Speaker 1: assuming you have a strong stomach and steely nerves, and
Speaker 1: you're not gonna be righting out of the headlines. But
Speaker 1: I would be very careful because you've got to make
Speaker 1: sure you don't have too many because you know, to say,
Speaker 1: put a stake in the ground, say today's bottom. I
Speaker 1: think it's tough. So we laid out all of these
Speaker 1: different worries, whether it be rising oil prices or China
Speaker 1: or whatever else. Is there one thing that can throw
Speaker 1: the rally? Of course, I think if you got rates
Speaker 1: that went up too quickly, that would be the biggest
Speaker 1: that would unnerve markets, and I think it would unnerve
Speaker 1: the heavily weighted growth. You know, the stops are growth
Speaker 1: in right, and so if you have rates to go quickly,
Speaker 1: it would unnerve the STP as it's weighted now in
Speaker 1: growth stocks. I'm not sure it would kill financials or
Speaker 1: energy materials, but I think it would hurt the STP.
Speaker 1: And to me, that is the risk is investors because
Speaker 1: of the last you know, since the Great Financial crisis,
Speaker 1: investors are way overweight and growth stocks and understandable. They've
Speaker 1: been the winners and no one wants to sell them
Speaker 1: because they've been the winners. And so the biggest risk
Speaker 1: to investors is rising rates. Rising inflation would stunt the
Speaker 1: you know, the returns in the growth areas, and that's
Speaker 1: where everyone is, you know, very very overweight. But I
Speaker 1: I just got to tell you a great story before
Speaker 1: I finished. So if you dial the clock back to
Speaker 1: about last year at this time, right, it was right
Speaker 1: about now that we the kind of the vaccine news
Speaker 1: started to come out, and that's when value stocks started
Speaker 1: out for growth stocks, and you had a big rally
Speaker 1: in those stocks until March end of March. But in
Speaker 1: the month of March more money came out of growth
Speaker 1: strategies and they went into value strategy. So just as
Speaker 1: value rolls over relative to growth, that's when the money
Speaker 1: pours into value. And now you fast forward today and
Speaker 1: I'm saying, hey, great rate to start to go up.
Speaker 1: The yelkur started seeping, but you know what, money is
Speaker 1: now poured back into growth strategy. So I think it
Speaker 1: is a great example of watch the messages of the market.
Speaker 1: They will lead the economic data, and they will lead
Speaker 1: emotional quotion of investors. It all comes back to how
Speaker 1: long is transitory? I feel like is that the question
Speaker 1: on everyone's mind. No one seems to know, but it
Speaker 1: seems it seems like maybe a little longer than we
Speaker 1: had first first thought. I guess exactly stand clear of
Speaker 1: the craziest things we saw in markets this week? All right,
Speaker 1: full data. It's the time you've been waiting for. I
Speaker 1: what is the best John question Jeff Gunlock gets all
Speaker 1: the time? I gotta know, Well, this is actually my
Speaker 1: weirdest thing. Okay, okay, so we will go right into
Speaker 1: our craziest things of the week. Then. Yeah. So I
Speaker 1: was covering the Gunlock webcast earlier this week and he
Speaker 1: went through a ton of different things related to the market,
Speaker 1: and then he said, okay, here's our last question. This
Speaker 1: is my most frequently asked question. Do you want to
Speaker 1: guess what it's about? Uh? I could guess, but I
Speaker 1: don't know. I don't want to get in trouble with
Speaker 1: Jeff Gunlock. How the Buffalo bills are going to do?
Speaker 1: That's right, Yes, How the Buffalo bills are going to do? Yes?
Speaker 1: Which I love because We're huge Buffalo Bills fans in
Speaker 1: my household, and so I got really excited about that.
Speaker 1: But then I was thinking about how many people are
Speaker 1: following WHI Chef Gunlock is saying, and how many of
Speaker 1: them are Buffalo Bills fans for that to be the
Speaker 1: most frequently asked question. He gets, that's pretty good. And
Speaker 1: did anyone ask does he dive off of the top
Speaker 1: of a mini van onto one of those tables like
Speaker 1: those guys? Oh my gosh, I always love to see
Speaker 1: those um But anyway, he said, I think he closed
Speaker 1: off the webcast saying he is bullish on the Buffalo Bills,
Speaker 1: which the will perma bill as it were. We'll have
Speaker 1: to check to see if there's a correlation between their
Speaker 1: record and his his performance. Oh that's pretty good. All right,
Speaker 1: I'll give it to you all down. That's a pretty
Speaker 1: good one. How about you, Andrew, You see anything crazy
Speaker 1: markets these days? Well, I just you know the crazy
Speaker 1: thing we've already addressed is I see sentiment is you
Speaker 1: know the bullbear sentiment is now negative. Uh. There's a
Speaker 1: lot of discussion on correction and worries about the economy.
Speaker 1: But the weirdest thing is then Why are rates going up?
Speaker 1: Why is the iel curve steepening, Why is energy prices
Speaker 1: going up? Why our materials doing well? So the weirdest
Speaker 1: thing is this just this this, you know, because this
Speaker 1: this disjointed between emotionally what people are saying and what
Speaker 1: the markets are right. Right, may man a geek and
Speaker 1: that's not weird enough, But no, no, I like it.
Speaker 1: I think it's pretty I mean I always it always
Speaker 1: comes back to that is its supply or demand issue
Speaker 1: in the oil market. You know, we are coming through
Speaker 1: this hurricane season and and and the supply was knockoff course,
Speaker 1: so it did I wonder if everyone seems to realize that.
Speaker 1: But yet is is oil is still capable of sending
Speaker 1: a false signal? U? I think it is. I think
Speaker 1: your answer is absolutely right. And and that's why I
Speaker 1: am more we have a bigger weight in financials than energy,
Speaker 1: because I've learned that the energy market can send off
Speaker 1: all signals. But when I look at that, and then
Speaker 1: I look at other things like well, you know, like
Speaker 1: the semiconductor that's a great cyclical that's hitting a new
Speaker 1: time right, So it's you know, when I line it up,
Speaker 1: it falls into place. But I wouldn't hang my hat
Speaker 1: just on that. For just the reason that you say is,
Speaker 1: you know, we can have a recovery. I can be
Speaker 1: right and the economy can be better on the fourth quarter,
Speaker 1: But if OPEC decides open the floodgates, then I'll be
Speaker 1: wrong on energy even if the economy recovers. So always
Speaker 1: be a little wary of of just looking at energy prices. Yeah,
Speaker 1: or even the U S fractors turning on the spickeotts
Speaker 1: more once you know it's uh, it seems like there's
Speaker 1: a built in uh ceiling on oil prices. That famous
Speaker 1: last words, I know, I probably shouldn't say that that's
Speaker 1: will price. Two the great saying which I love, which
Speaker 1: no one knows nothing about energy prices, which is, you know,
Speaker 1: there's nothing nothing solved high energy prices like high energy prices,
Speaker 1: you know, so they got to a certain level, they
Speaker 1: head down and then they you know, so you know,
Speaker 1: but but within a context of a group of indicators,
Speaker 1: I think it's I think it's interesting right now. Yeah,
Speaker 1: that's pretty good. All right, I'll give you my crazy
Speaker 1: thing before we get out of here. Um, this is
Speaker 1: a Bloomberg story that came out on Thursday. You know,
Speaker 1: we talked about this carnage in the China tech stocks especially,
Speaker 1: so um. You know, we on the terminal, we keep
Speaker 1: a compilation of the billionaires of the world and an
Speaker 1: estimate of what their net worth is UH for any
Speaker 1: any given year. So the billionaire who lost the most
Speaker 1: money this year uh not surprisingly in China, uh Colin Huang,
Speaker 1: founder of Pin Duo Duo uh, Chinese e commerce platform.
Speaker 1: He's down big this year. And this is where we
Speaker 1: get to play a little bit of prices, right, Phil
Speaker 1: dot At, how much do you think the biggest loss
Speaker 1: of long billionaires this guy, Colin Hwaian is is this year?
Speaker 1: How much do you think he lost? I saw you
Speaker 1: tweet about this, but I have to admit I wasn't
Speaker 1: paying close attention. That's yeah, that's kind of our relationship. Yeah,
Speaker 1: I was. I should have paid attention. UM. Okay, I'm
Speaker 1: just I'm going to throw out three billion, three billion,
Speaker 1: all right, I'm gonna keep a poker face. Andrew, what
Speaker 1: do you think uh market cap? I think that's probably
Speaker 1: close made five billion, eight billion dollars. The guy's stake
Speaker 1: in that company is huge. I think it's like or
Speaker 1: something like that. How'd you like to go home and
Speaker 1: explain your wife you lost twenty eight billion and can canceled.
Speaker 1: There's renovation plans. He's still worth a good thirty five billions,
Speaker 1: so I'm not that worried about him. But wow, and
Speaker 1: there's a bunch of others. There's ten billion plus losses
Speaker 1: all over the place there and it uh wow, what
Speaker 1: what a dramatic story that's been in China. It's really
Speaker 1: and fascinating. I will throw out one thing is, uh,
Speaker 1: some of these companies are starting to buy back their
Speaker 1: stock and if you look back to their timing was
Speaker 1: pretty good buying back the stock. And if they thought
Speaker 1: they were about to get find a big another amount,
Speaker 1: I question whether they'd be buying back their stock. So
Speaker 1: it does not necessarily mean the bombs in place be careful,
Speaker 1: but usually they do have a history of kind of
Speaker 1: starting to step in at a good time and the
Speaker 1: stocks are down a lot. That's what a great tidbit. Yeah,
Speaker 1: might be a story for you there to see you
Speaker 1: pay attention to him, but not just yeah, Andrews. So
Speaker 1: nice to have you. Hopefully we can do it again.
Speaker 1: Absolutely good, Thank you for having me. Thank you Andrew
Speaker 1: What Goes Up. We'll be back next week and soil.
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