WEBVTT - After the Meme-Stock Gold Rush 0:00:01.320 --> 0:00:12.360 Scrap on your parachute. It's time for What Goes Up? Hello, 0:00:12.480 --> 0:00:15.480 and welcome to What Goes Up, a weekly Bloomberg Markets 0:00:15.520 --> 0:00:19.520 podcast of Mike Reagan, a senior editor at Bloomberg, and 0:00:19.600 --> 0:00:21.959 this week on the show, the armies of Gung Ho 0:00:22.239 --> 0:00:25.560 retail traders who were so influential on the stock market 0:00:25.600 --> 0:00:28.200 in the past. Here, well, they seem to have sobered 0:00:28.240 --> 0:00:30.880 up a bit and the market has stopped going straight up. 0:00:31.520 --> 0:00:34.920 Are these two topics related? And do sky hide valuations 0:00:34.960 --> 0:00:38.000 mean a bigger correction is inevitable. We'll get into it 0:00:38.040 --> 0:00:41.920 with a veteran Wall Street strategist, but first, Charlie Pellett 0:00:41.960 --> 0:00:45.120 tell us who is this week's mystery co host. This 0:00:45.159 --> 0:00:49.400 week's mystery co host is sid Verma. Sid as a 0:00:49.520 --> 0:00:54.120 senior editor with Bloomberg's Crosssset team in London. His hobbies 0:00:54.120 --> 0:00:58.240 include trolling Joe Wisenthal on Twitter, and while he and 0:00:58.280 --> 0:01:00.400 Mike Reagan share the title of scene, You're out of 0:01:00.480 --> 0:01:04.360 here said is much younger and nowhere near as washed 0:01:04.480 --> 0:01:07.959 up as Reagan said, claims his parents are proud of him, 0:01:08.000 --> 0:01:11.600 even though he never did become a doctor. Said, I'm 0:01:11.600 --> 0:01:14.040 gonna need to talk to Chu earlier about these intros. 0:01:14.200 --> 0:01:15.679 I'm not sure what I did to get on his 0:01:15.760 --> 0:01:18.680 bad side. Maybe I didn't stand clear of the closing 0:01:18.680 --> 0:01:22.120 doors the right way or something, But anyway, Dr said Vermont, 0:01:22.120 --> 0:01:24.760 welcome to the show. Thank you very much. I mean, 0:01:24.880 --> 0:01:27.319 if Charlie says that it's true, I feel like this 0:01:27.400 --> 0:01:31.080 is a Bloomberg writer. Passes said, before we get into 0:01:31.080 --> 0:01:33.240 the markets, I wanted to get a sense from you 0:01:33.360 --> 0:01:36.400 of what it's like in London these days, especially now 0:01:36.440 --> 0:01:39.200 that the pubs are back open. I can't really picture 0:01:39.280 --> 0:01:42.000 London with closed pubs. I mean, is it really London 0:01:42.040 --> 0:01:44.600 if the pubs aren't open? Yeah, I mean there are 0:01:44.600 --> 0:01:47.319 a lot of pernicious effects. Um. A lot of people 0:01:47.360 --> 0:01:51.960 were forced to talk to their family, express their emotions 0:01:52.200 --> 0:01:56.440 in a in a civilized way um, and basically fraternize 0:01:56.560 --> 0:02:02.160 with their neighbors UM, and do very American style subversive 0:02:02.200 --> 0:02:07.600 things like go do fitness um, and we'll go enter 0:02:07.720 --> 0:02:14.440 the positivity industrial complex and is Instagram and exercise with teams. Um. 0:02:14.600 --> 0:02:17.480 Now things are opening up, so hopefully we can get 0:02:17.520 --> 0:02:21.160 to the London of old um. And Yeah, I mean 0:02:21.200 --> 0:02:23.120 it's it's crazy. I don't know how much of you 0:02:23.120 --> 0:02:26.079 guys have been going out, but um, I went out, 0:02:26.160 --> 0:02:29.240 and it's kind of you're relearning social norms when you 0:02:29.280 --> 0:02:33.239 go to the pub, when you're queuing to actually get 0:02:33.240 --> 0:02:36.960 around in um, and it's kind of it's we're entering 0:02:36.960 --> 0:02:41.040 new territory. Anyway, let's get to that market chat with 0:02:41.080 --> 0:02:43.640 our guests. Our guests this week has a list of 0:02:43.680 --> 0:02:47.640 awards and accomplishments that's a mile long. But in my opinion, 0:02:47.720 --> 0:02:50.680 her biggest claim to fame is that, like me, she's 0:02:50.680 --> 0:02:53.960 a graduate of the number one university in the state 0:02:54.000 --> 0:02:57.520 of Delaware. She is the chief investment strategist at Charles 0:02:57.560 --> 0:03:00.400 Schwab and her name is Lizianne Sanders. Liz, and welcome 0:03:00.400 --> 0:03:02.880 back to the show. Well, thank you, Mike, thanks for 0:03:02.919 --> 0:03:04.839 having me in high Stid. How are you very well? 0:03:04.880 --> 0:03:07.720 Thank you very much, and listen. Uh, it's very nice 0:03:07.760 --> 0:03:10.640 of you to not point out that I've made that 0:03:10.680 --> 0:03:13.040 same joke about the best school in the state of 0:03:13.080 --> 0:03:15.760 Delaware probably every time we've we've been in the same 0:03:15.840 --> 0:03:18.480 room together, So I appreciate that. That's okay. Hey, we 0:03:18.600 --> 0:03:21.399 have the President United States is also a blue hen 0:03:21.600 --> 0:03:25.919 so yeah, the alumni is moving up in the world. Listen, 0:03:26.040 --> 0:03:30.360 let's start with that idea of the individual retail investors. 0:03:30.600 --> 0:03:32.720 There's a sense, at least in the media that the 0:03:32.840 --> 0:03:35.600 reddit type of traders have sort of sobered up a 0:03:35.640 --> 0:03:38.360 bit and at least aren't chasing meme stocks the way 0:03:38.360 --> 0:03:41.240 they used to. From your perspective, I'm curious if you 0:03:41.280 --> 0:03:44.000 think that's true. And I wonder if in the past 0:03:44.040 --> 0:03:46.880 year or so, when you're trying to analyze the market, 0:03:47.080 --> 0:03:48.880 if you've been sort of looking in the mirror a 0:03:48.920 --> 0:03:51.480 little bit more than normal, in other words, looking at 0:03:51.520 --> 0:03:54.880 what the retail investors at Schwab and elsewhere have been doing, 0:03:55.440 --> 0:03:58.520 if they're moving as a flock, uh, and what sort 0:03:58.520 --> 0:04:03.280 of the sentiment is there are among that cohort right now? Yeah, So, 0:04:03.400 --> 0:04:08.680 there there are some indications that the robust volume driven 0:04:08.760 --> 0:04:11.800 by that that crowd, the newly minted day traders, the 0:04:11.880 --> 0:04:14.120 Reddit crowd, whatever you wanna call, and it's broader than 0:04:14.200 --> 0:04:17.560 just the Reddit flash mobs that became um so in 0:04:17.600 --> 0:04:20.280 the news in the January February time frame. But if 0:04:20.320 --> 0:04:23.000 you look more broadly, there's some indication that there's a 0:04:23.040 --> 0:04:26.120 little bit of a waning in terms of that participation. 0:04:26.240 --> 0:04:31.279 But it also sometimes gets masked because the the outset 0:04:31.320 --> 0:04:36.200 of interest by that fairly new cohort dates back to 0:04:36.520 --> 0:04:40.800 the June July period of last year, and it didn't 0:04:40.839 --> 0:04:43.840 that that cohort didn't get as much attention even though 0:04:44.160 --> 0:04:46.600 the likes of Citadel came out last summer and said 0:04:46.640 --> 0:04:52.400 that retail traders represented of daily volume, but where their 0:04:52.520 --> 0:04:56.919 interest was most dominant within the market, at least outside 0:04:56.920 --> 0:04:59.960 of the options market. We're in the fang type style 0:05:00.200 --> 0:05:03.520 in the big five names that were otherwise the leadership names, 0:05:03.520 --> 0:05:07.920 so their activity blended into what was otherwise working in 0:05:07.960 --> 0:05:10.280 the market. It really wasn't until the beginning of this 0:05:10.360 --> 0:05:15.440 year that that cohort got more interested in the meme stocks, 0:05:15.440 --> 0:05:19.040 heavily shorted stocks, weak balance sheet companies, penny sheet stocks, 0:05:19.080 --> 0:05:22.160 some of the spacks obviously cryptos. So it was just 0:05:22.240 --> 0:05:26.440 more noticeable when it was in those lower quality, uh 0:05:26.680 --> 0:05:30.359 not sort of typical leadership areas of the market. What 0:05:30.480 --> 0:05:32.520 we don't know is whether that money is sort of 0:05:32.560 --> 0:05:36.360 morphed back into where leadership has been more recently, really 0:05:36.400 --> 0:05:40.080 since mid February, we've seen us shift, believe it or not, 0:05:40.160 --> 0:05:45.120 back toward some semblance of fundamentals driving stocks, a bit 0:05:45.160 --> 0:05:48.680 more of a quality bias, profitability bias, a little bit 0:05:48.680 --> 0:05:52.440 of evaluation bias. Notice I say valuation, not value, because 0:05:52.440 --> 0:05:56.600 I think those sometimes are are separate. So it's gonna 0:05:56.600 --> 0:05:59.200 be interesting to see when we really open back up 0:05:59.240 --> 0:06:03.440 and doing people or some percentage of people go back 0:06:03.480 --> 0:06:07.200 to work and we've got sports betting again, whether some 0:06:07.279 --> 0:06:10.719 of the forces that that drove that cohort to a 0:06:10.800 --> 0:06:13.719 level of interest that we've not seen before, whether that 0:06:14.320 --> 0:06:17.000 fades a bit, or whether we truly have brought them 0:06:17.000 --> 0:06:20.240 into the world of investing for a more extended period 0:06:20.240 --> 0:06:25.040 of time. We've seen this whole euphoria in markets UM 0:06:25.520 --> 0:06:27.800 and yeah, as you've explained, a lot of it has 0:06:27.839 --> 0:06:31.560 been retail driven. One thing that is incredibly different from 0:06:31.560 --> 0:06:36.719 this UM business cycle compared to other crisis eras has 0:06:36.760 --> 0:06:40.280 been the fact that savings right it's amongst the middle class, 0:06:40.600 --> 0:06:43.719 has standard out stood out very respectfully. And you know 0:06:43.800 --> 0:06:47.119 this is down to fiscal policy redress and other such 0:06:47.160 --> 0:06:51.680 factors that what could challenge this business cycle. I guess 0:06:51.680 --> 0:06:54.840 it's it's just like a business cycle like no other. 0:06:55.360 --> 0:06:58.200 You know, if we forget about exultinist shocks, which no 0:06:58.240 --> 0:07:02.640 one can predict and just thing cur broader forces. I mean, 0:07:02.760 --> 0:07:07.640 I'm used to thinking of business cycles as young, you know, middle, 0:07:07.720 --> 0:07:11.560 middle aged, and old. That kind of framework seems kind 0:07:11.560 --> 0:07:14.000 of out of place because we seem to be going 0:07:14.080 --> 0:07:17.520 back to the pre COVID business cycle. It seems that 0:07:17.640 --> 0:07:20.880 people are talking about wage inflation and that could reduce 0:07:21.000 --> 0:07:24.240 corporate margins and lead to a bit of overheating. I 0:07:24.560 --> 0:07:27.560 find that's a really interesting question. What are your thoughts 0:07:27.560 --> 0:07:30.600 on that. I think that this cycle you're right is 0:07:30.600 --> 0:07:33.600 is more unique than any we have seen in the past, 0:07:33.840 --> 0:07:36.760 and I'm not even sure there's a consensus assumption of 0:07:36.800 --> 0:07:40.280 what the path of recovery looks like from here. It's 0:07:40.280 --> 0:07:43.480 sort of all over the map. From the more bearish 0:07:43.600 --> 0:07:45.560 end of the spectrum that believes this is just a 0:07:45.560 --> 0:07:48.760 fiscal stimulus sugar high, we'll get the inevitable pop in 0:07:48.760 --> 0:07:52.440 the data by virtue of base effects, but that after 0:07:52.480 --> 0:07:56.560 that we're gonna quickly move back down to a pretty 0:07:56.600 --> 0:08:00.480 subdued pace of growth, much like we had pre pandemic. 0:08:00.560 --> 0:08:02.440 So for all the we have to remember, for all 0:08:02.440 --> 0:08:06.840 the cheering about the cycle that preceded this, and it's 0:08:06.960 --> 0:08:10.560 it's factual that it was the longest economic expansion in 0:08:10.720 --> 0:08:15.000 history and had lovely stats associated with it, like a 0:08:15.200 --> 0:08:18.480 three half percent unemployment rate, But the reality is that 0:08:18.520 --> 0:08:22.200 the strength of the expansion was the weakest in history 0:08:22.280 --> 0:08:26.320 by far. So long, yes, weak, yes, And so I'd 0:08:26.320 --> 0:08:29.080 say the negative cases that we're going to revert back 0:08:29.160 --> 0:08:32.640 down to that muddle through that kind of pace, and 0:08:32.640 --> 0:08:34.240 then of course at the under the other end of 0:08:34.280 --> 0:08:38.480 the spectrum is the roaring twenties kind of scenario. I 0:08:38.520 --> 0:08:41.040 think that the the honest answer that I can provide 0:08:41.080 --> 0:08:43.080 is I have no idea. I think you you mentioned 0:08:43.080 --> 0:08:45.320 at the outside of the question the savings rate, and 0:08:45.360 --> 0:08:49.000 certainly embedded in the more optimistic case for the economy 0:08:49.280 --> 0:08:52.520 is that if we that savings rate goes from the 0:08:52.520 --> 0:08:56.360 current down to this a five to seven percent that's 0:08:56.400 --> 0:08:59.800 been typical in the last cycle, or to do the 0:09:00.000 --> 0:09:02.719 app of how many trillions of dollars that means in 0:09:02.760 --> 0:09:06.839 the consumption pipeline and even going ahead forward where we're 0:09:06.840 --> 0:09:09.600 not going to have the benefit of fiscal stimulus, that's 0:09:09.720 --> 0:09:13.280 enough to power the economy for years to come. I 0:09:13.280 --> 0:09:16.320 don't know that that's a safe assumption. What we don't 0:09:16.360 --> 0:09:20.880 know is whether, like the Great Depression, whether this also 0:09:21.400 --> 0:09:24.920 ushered out a paradox of thrift to an era where 0:09:24.920 --> 0:09:29.760 there's a mindset toward lower debt levels, higher cushion. We 0:09:29.800 --> 0:09:34.720 already knew that household deleveraging came out of the financial crisis, 0:09:34.880 --> 0:09:37.560 and we never levered up the consumer side of the 0:09:37.559 --> 0:09:40.560 economy in the last expansion like we had in the 0:09:40.600 --> 0:09:45.440 prior expansion. Debt paid down was was paramount, and thinking 0:09:45.480 --> 0:09:47.960 we still had strong consumption data, but it wasn't on 0:09:48.000 --> 0:09:50.560 the back of debt. And what we don't know is 0:09:50.600 --> 0:09:53.360 whether that savings cushion is going to stay higher. The 0:09:53.480 --> 0:09:58.360 other potential faulty assumption I think in the really robust 0:09:58.440 --> 0:10:03.440 case is that pent up demand is both really robust 0:10:03.640 --> 0:10:08.079 on the good side and the service society of the economy, uh, 0:10:08.120 --> 0:10:10.800 and that it's likely to be persistent. And I just 0:10:11.040 --> 0:10:14.880 question that piece of the really optimistic story because the 0:10:14.920 --> 0:10:18.160 good side of the economy we are well above pre 0:10:18.280 --> 0:10:22.440 pandemic level, so arguably the demand has been extraordinarily strong, 0:10:22.679 --> 0:10:25.760 consistently for the past year, and that demand has been met. 0:10:26.360 --> 0:10:29.480 So if anything, I think the pent up demand will 0:10:29.679 --> 0:10:32.200 be much more on the services side, and just the 0:10:32.320 --> 0:10:35.679 nature of pent up demand on services is a bit different. 0:10:35.760 --> 0:10:38.800 It's a little more one time in nature. So I 0:10:38.840 --> 0:10:41.520 do worry that as we start to get these really 0:10:41.559 --> 0:10:45.520 strong numbers that there might be too much extrapolating too 0:10:45.559 --> 0:10:47.920 far into the future. I think there are still a 0:10:47.960 --> 0:10:51.240 lot of questions to which we don't have answers. As 0:10:51.240 --> 0:11:06.920 a tournus, I've never extrapolated from one time data. Well, 0:11:06.960 --> 0:11:10.160 one thing I find fascinating about the savings rates. It's 0:11:10.200 --> 0:11:15.920 such a simplistic calculation, you know, it's basically income minus consumption. 0:11:16.080 --> 0:11:17.840 And I don't think we get a lot of sort 0:11:17.880 --> 0:11:21.360 of granularity about where that savings is. You know, I 0:11:22.080 --> 0:11:24.480 wonder how much of that savings is actually housed in 0:11:24.520 --> 0:11:27.599 brokerage accounts. And if we do start talking about a 0:11:27.679 --> 0:11:30.440 drawdown in savings, does that mean, you know, emptying out 0:11:30.480 --> 0:11:33.480 your your Schwab account. God forbid, Liz, you know, God forbid? 0:11:33.559 --> 0:11:36.719 But well, it depends on, honestly, what what's going to 0:11:36.800 --> 0:11:39.680 be The interesting test is at whatever point we get 0:11:39.800 --> 0:11:44.760 something more than the six seven eight percent pullback, which 0:11:44.840 --> 0:11:48.160 is what we've been limited to in the past year. 0:11:48.240 --> 0:11:50.920 You had one in June, you had a period in 0:11:50.960 --> 0:11:54.120 September October where you got a couple We didn't really 0:11:54.160 --> 0:11:55.959 have it for the SMP to get a temper cent 0:11:56.000 --> 0:11:58.840 correction in the NASDAC earlier this year. But at the 0:11:58.880 --> 0:12:03.480 inevitable point, something is a bit more severe than that. Uh, 0:12:03.520 --> 0:12:07.720 an actual correction, a severe correction, even God forbid a 0:12:07.720 --> 0:12:12.719 bear market does that? Does that? Uh? Sort of what 0:12:12.760 --> 0:12:16.960 we saw last year was it? It almost stimulated that 0:12:17.080 --> 0:12:20.360 cohort a bit more. It didn't, It didn't scare them off, 0:12:20.640 --> 0:12:23.640 and they looked at it the way we all know 0:12:23.679 --> 0:12:26.439 we're supposed to, which is, boy, now we can buy cheaper. 0:12:27.040 --> 0:12:30.440 But what we don't know is whether the inevitable something 0:12:30.440 --> 0:12:33.079 more severe. And I don't have any crystal ball in 0:12:33.120 --> 0:12:36.760 the timing of that. UM, what what we see with that, 0:12:37.120 --> 0:12:40.520 with that cohort? You know, is our bonds too boring 0:12:40.679 --> 0:12:45.640 for retail investors these days? Um? Looking at rates of returns? 0:12:45.840 --> 0:12:49.199 And do you think treasuries and bond products need to 0:12:49.240 --> 0:12:52.520 be marketed to be fun to get the online meme 0:12:52.600 --> 0:12:56.800 crowd interested in the asset class. Well, I would argue 0:12:56.840 --> 0:12:59.800 that a lot of the online meme crowd, and I 0:13:00.000 --> 0:13:04.719 don't want to generalize here, are are largely pure momentum 0:13:05.200 --> 0:13:08.840 uh players. I don't think they're doing a tremendous amount 0:13:08.840 --> 0:13:12.360 of kind of deep fundamental analysis like many of us 0:13:12.440 --> 0:13:14.840 do that have been long in the business, and I 0:13:14.880 --> 0:13:18.240 think on the fixed income side, I think that that's 0:13:18.640 --> 0:13:21.800 the same thing. I don't think there's a lot of 0:13:21.880 --> 0:13:25.760 understanding on how the bond market works, the nature of 0:13:26.240 --> 0:13:29.040 truly what is a bond bear market relative to an 0:13:29.120 --> 0:13:33.520 equity bear market, where what the correlations are depending on 0:13:34.000 --> 0:13:37.680 what is maybe causing the rise in yields, the growth component, 0:13:37.760 --> 0:13:40.800 the inflation component when it starts to hit the equity market, 0:13:40.840 --> 0:13:43.920 the impact it has on valuations, but how it's still 0:13:43.920 --> 0:13:46.400 can serve as a diversifier what you do when rates 0:13:46.400 --> 0:13:49.120 are rising in terms of how a position you're fixed 0:13:49.160 --> 0:13:53.120 income portfolio, whether it's barbells or ladders, or longer duration 0:13:53.200 --> 0:13:57.920 or short duration. I've had conversations like this with some younger, 0:13:57.960 --> 0:14:01.800 newer investors and the eyes sort of glaze over. Maybe 0:14:01.800 --> 0:14:05.920 it does mean you need more confetti and excitement. But 0:14:06.040 --> 0:14:09.200 if if the bond market it becomes an area where 0:14:09.200 --> 0:14:12.720 there's momentum in one direction another, could that crowd follow 0:14:12.760 --> 0:14:15.480 it and try to play that trend short you know 0:14:15.520 --> 0:14:18.600 listen yet an interesting note recently. The title is the 0:14:18.600 --> 0:14:22.840 stock market Disconnected from the economy um and what struck 0:14:22.960 --> 0:14:26.320 me uh in that is a really cool graphic you 0:14:26.440 --> 0:14:28.760 had where you go through I don't know, it's about 0:14:28.760 --> 0:14:32.080 ten or a dozen of some of the most commonly 0:14:32.120 --> 0:14:35.360 looked at valuation metrics, a few obscure ones, you know, 0:14:35.400 --> 0:14:38.640 like the buffet indicator, the ratio of market cap, the GDP, 0:14:39.360 --> 0:14:43.960 Tobin's Q, the ratio of market caps, replacement value of assets. 0:14:44.400 --> 0:14:46.440 And to describe the graphic, on the left side, it 0:14:46.520 --> 0:14:50.960 was green meaning sort of valuations were attractive. The right 0:14:51.000 --> 0:14:56.400 side was read meaning unattractive valuations. Pretty much everything was 0:14:56.520 --> 0:14:58.880 pinned to the right to the red except for the 0:14:59.480 --> 0:15:02.480 metrics that are influenced by the interest rates, like the 0:15:02.520 --> 0:15:04.680 FED model. And that's sort of thing which kind of 0:15:04.720 --> 0:15:08.320 explains why the market tends to have a freak out 0:15:08.360 --> 0:15:12.680 when rates suddenly have lurched higher a few times over 0:15:12.720 --> 0:15:16.000 this year. As you point out, though, the stock market 0:15:16.080 --> 0:15:18.520 is forward looking, so you know, there is a case 0:15:18.560 --> 0:15:22.160 to be made to maybe not take all these metrics 0:15:22.240 --> 0:15:25.200 as seriously as perhaps you would have in a in 0:15:25.240 --> 0:15:28.160 a more normal environment when the base effects so weren't 0:15:28.160 --> 0:15:31.080 so ridiculous compared to last year. Um And we actually 0:15:31.080 --> 0:15:34.840 did a story not too long ago about people we're 0:15:34.920 --> 0:15:37.560 less trying to shoot down each and every one of 0:15:37.600 --> 0:15:41.400 these types of metrics, And I get it in one way, 0:15:41.440 --> 0:15:43.240 I totally get it. And as you point out in 0:15:43.280 --> 0:15:46.600 your note, valuations are a lousy market timing tools. I mean, 0:15:46.640 --> 0:15:51.040 really probably everything is allousy market timing tool when you 0:15:51.080 --> 0:15:53.560 get to it. But still, like, I can't help but 0:15:53.640 --> 0:15:56.080 wonder you know, whenever you hear the paradigm is shifted 0:15:56.080 --> 0:15:58.040 and this time is different, it just it just makes 0:15:58.040 --> 0:16:00.680 me nervous. It makes me think of to some of 0:16:00.720 --> 0:16:04.520 the turn of the century geist of looking at new 0:16:04.560 --> 0:16:07.600 metrics and not worrying about the traditional metrics. How are 0:16:07.640 --> 0:16:10.560 you thinking about all that? I mean? Is it? Is 0:16:10.560 --> 0:16:14.320 it more of a expect weaker returns over say, the 0:16:14.760 --> 0:16:17.840 not so distant future, than it is trying to worry 0:16:17.880 --> 0:16:20.920 about an imminent correction? You know, how do you sort 0:16:20.920 --> 0:16:25.960 of incorporate these valuation extremes into what you're thinking about 0:16:26.000 --> 0:16:29.880 the future. Sure, so, when when I wrote that report 0:16:29.960 --> 0:16:34.200 recently and in conjunction with that heat map, I highlighted 0:16:34.240 --> 0:16:38.520 as one example, what you mentioned, which is valuation, at 0:16:38.600 --> 0:16:43.840 least in the shortish term, is a terrible timing indicator. 0:16:43.880 --> 0:16:45.800 And I agree with you if there's no such thing 0:16:45.880 --> 0:16:48.840 as a perfect timing tool. If there were, boy this 0:16:48.880 --> 0:16:51.960 would be easy, and it's not. But it looked at 0:16:52.000 --> 0:16:56.400 the forward PE historically and then subsequent one year performance. 0:16:56.520 --> 0:17:00.440 In this case it was for the SMP, and yes 0:17:00.800 --> 0:17:04.639 there is a negative correlation, meaning higher PE ratios have 0:17:04.720 --> 0:17:08.600 been followed by lower one year performance and vice versa. 0:17:08.920 --> 0:17:12.639 But it was a very small negative correlation, only point 0:17:12.720 --> 0:17:15.520 one eight. And if you look at a scattergram which 0:17:15.560 --> 0:17:20.040 I put in the report, the the observations, the individual 0:17:20.119 --> 0:17:23.600 observations are far and wide. They're literally all over the map. 0:17:23.600 --> 0:17:26.120 There's plenty of instances, and you can certainly go back 0:17:26.119 --> 0:17:28.840 to the late ninety nineties to see some of them 0:17:28.880 --> 0:17:33.399 where you were in stratospheric valuation territory, but you still 0:17:33.520 --> 0:17:37.720 had a pretty robust runway before ultimately the market peaked out. 0:17:38.000 --> 0:17:41.919 I think the key difference in the current environment versus 0:17:41.920 --> 0:17:46.480 say the rise into two thousand and this doesn't suggest 0:17:46.520 --> 0:17:49.240 that I think it's all clear ahead and that there's 0:17:49.280 --> 0:17:52.879 no valid comps to the excess of the late nineties, 0:17:52.960 --> 0:17:55.399 and there are a lot of valid comps, But the 0:17:55.640 --> 0:17:59.840 one potential offset to some of those concerns is that 0:18:00.240 --> 0:18:03.600 into the peak in two thousand, when the SMPS PE 0:18:03.760 --> 0:18:05.959 for a couple of years had been hovering around the 0:18:05.960 --> 0:18:10.840 twenty seven level, underlying that the earnings, the denominator on 0:18:10.880 --> 0:18:13.719 a forward basis was also rising. It's just prices were 0:18:13.840 --> 0:18:16.439 rising more robustly than than earnings. What we now know 0:18:16.480 --> 0:18:18.879 what the benefit of Pine site, is that earnings were 0:18:19.000 --> 0:18:21.119 rising at the time, but they were rising into a peak. 0:18:21.560 --> 0:18:24.719 What caused the parabox spike in the pe in the 0:18:24.760 --> 0:18:28.200 current environment was, of course last year's epic plunge in earnings, 0:18:28.720 --> 0:18:31.240 and needless to say, the plunge in earnings last year 0:18:31.359 --> 0:18:33.480 was not your typical dipp in earnings. It was an 0:18:33.480 --> 0:18:36.960 epic depression era reaction to what was going on in 0:18:36.960 --> 0:18:40.679 the economy, and unlike CIRCUITOO thousand were now on the 0:18:40.760 --> 0:18:44.920 upswing and earnings which had the effect of quickly seeing 0:18:44.960 --> 0:18:49.439 once we rolled into improving forward four quarters, most of 0:18:49.480 --> 0:18:52.680 which was now in one, you saw the forward pe 0:18:52.760 --> 0:18:55.440 drop quickly from twenty seven down to twenty two. It's 0:18:55.440 --> 0:18:57.560 popped up a little bit since then, and I'm certainly 0:18:57.560 --> 0:19:00.560 not suggesting that a twenty two or three p is cheap, 0:19:01.200 --> 0:19:04.160 but there is the potential that if like last year, 0:19:04.720 --> 0:19:08.040 this year's earnings bar is still set on the low side, 0:19:08.520 --> 0:19:13.560 that ultimately where earnings moved to could put continue to 0:19:13.600 --> 0:19:16.920 bring down valuation levels. Now it's in conjunction. Was still 0:19:17.080 --> 0:19:22.120 really frothy sentiment which has been positively offset by strong breadth, 0:19:22.359 --> 0:19:25.600 but breath is starting to look a little shakier, and 0:19:25.640 --> 0:19:28.880 it's quite weak for Nasdac and Russell two thousand. It's 0:19:28.880 --> 0:19:31.320 been kind of hanging in there for the SMP. So 0:19:31.400 --> 0:19:34.000 I think that's really key to watch because when you 0:19:34.600 --> 0:19:39.520 when you have like in two thousand, wildly optimistic sentiment 0:19:40.119 --> 0:19:46.240 but deteriorating breadth and an earnings trajectory that is peaking, 0:19:46.760 --> 0:19:50.639 that's that's sort of a triple whammy on the negative side. 0:19:50.800 --> 0:19:54.639 And we we we only have sort of formally the 0:19:54.880 --> 0:19:59.120 sentiment concern, but the other two are absolutely worth watching 0:19:59.160 --> 0:20:02.400 because the market by no means cheat, I mean implicit 0:20:02.520 --> 0:20:06.080 in that scenario is the idea that perhaps value in 0:20:06.200 --> 0:20:09.399 cyclical stocks might not be able to pick up the 0:20:09.440 --> 0:20:13.879 slack if some of the big mega caps disappointment. You know, 0:20:13.960 --> 0:20:17.159 we saw some of the story UM take a shine 0:20:17.240 --> 0:20:20.480 with Netflix earnings, UM and so forth, and breadth has 0:20:20.520 --> 0:20:23.760 already improved as well. We've seen a large number of 0:20:23.800 --> 0:20:27.600 members actually trade above their two two hundred day or 0:20:27.640 --> 0:20:31.920 fifty day moving average recently. And so it's a it's 0:20:31.920 --> 0:20:34.920 a huge conundrum when it comes to just how much 0:20:34.960 --> 0:20:38.560 good prices are good needs is already priced into value 0:20:38.560 --> 0:20:42.440 in cyclical stocks, UM, what's your view on that part 0:20:42.480 --> 0:20:46.160 of the market. So I think what's been going on 0:20:47.119 --> 0:20:51.320 from a value perspective has more to do with the 0:20:51.720 --> 0:20:55.160 with the sectors that we're doing well for that span 0:20:55.240 --> 0:20:58.600 of time, in particular from late October until about mid 0:20:58.640 --> 0:21:02.719 February this year, and there were fundamental drivers to that. 0:21:02.840 --> 0:21:05.520 In the case of financials, it was rates going up, 0:21:05.560 --> 0:21:08.080 a steepening of the yield curve. In the case of energy, 0:21:08.119 --> 0:21:12.680 obviously it was an improvement in global economic growth sort 0:21:12.720 --> 0:21:16.880 of China coming back from a demand perspective, and then 0:21:16.960 --> 0:21:21.240 industrials was also driven by China sort of coming out 0:21:21.280 --> 0:21:25.920 of the COVID environment and seeing a ramp in economic activity. Well, 0:21:26.000 --> 0:21:30.119 those sectors happened to be dominant in the value indexes 0:21:30.240 --> 0:21:33.280 so I think it was more of a sector driver 0:21:34.040 --> 0:21:37.360 than it was a shift into value. Now, I think 0:21:37.400 --> 0:21:42.719 we're in an environment where valuation, where a focus on 0:21:42.760 --> 0:21:46.760 the factor of value is essential. I think for particularly 0:21:46.760 --> 0:21:49.720 for individual stock pickers that want to try to be 0:21:49.840 --> 0:21:52.359 in the types of stocks and parts of the market 0:21:52.440 --> 0:21:56.000 that will do well, it's almost a hybrid or Garpi 0:21:56.119 --> 0:21:58.840 kind approach which has really started to work in the 0:21:58.920 --> 0:22:01.520 last month, and it's part of the reason why active 0:22:01.560 --> 0:22:05.840 managers have been doing better relative to passive managers, why 0:22:06.040 --> 0:22:10.040 equal weighted has been performing better relative to cap weighted. 0:22:10.400 --> 0:22:13.600 So I think there is a shift towards sort of 0:22:13.600 --> 0:22:18.480 a value mindset, which can be very distinct from value 0:22:18.560 --> 0:22:22.920 indexes doing well. Um that one of the reasons why 0:22:22.960 --> 0:22:27.160 we don't put tactical recommendations on growth versus value, even 0:22:27.200 --> 0:22:30.080 though we will on large versus small is I think 0:22:30.119 --> 0:22:32.600 there are times where there can be a huge difference 0:22:32.640 --> 0:22:35.720 between growth and value in terms of the types of 0:22:35.760 --> 0:22:40.560 stocks housed in the indexes versus the versus the fundamentals 0:22:40.640 --> 0:22:43.560 of say value. You know, in october O VO two, 0:22:43.600 --> 0:22:49.280 after the tech bust, NASDAC one trough overall, nasdack down 0:22:49.359 --> 0:22:54.359 s SMP down fifty. If you wanted to buy deep 0:22:54.480 --> 0:22:56.920 value and you did, and you did well in doing so. 0:22:57.080 --> 0:22:58.919 A lot of that deep value was found in the 0:22:58.920 --> 0:23:02.240 tech stocks there still housed in the Russell growth indexes. 0:23:02.880 --> 0:23:07.119 More recently, utilities became really expensive. That doesn't mean Russell 0:23:07.119 --> 0:23:09.600 moves them into the growth indexes. They're not growth stocks. 0:23:09.880 --> 0:23:12.119 They're just really expensive stocks that are housed in the 0:23:12.200 --> 0:23:15.880 value indexes. UM sometimes called the value trap. So when 0:23:15.920 --> 0:23:18.159 I when I say that I think investors should have 0:23:18.200 --> 0:23:21.879 a value mindset. That shouldn't be seen as the same 0:23:21.920 --> 0:23:25.480 comment as just take a passive am broach approach and 0:23:25.560 --> 0:23:30.199 just blindly by you know, the value indexes, either Russell 0:23:30.640 --> 0:23:33.880 or SMP or other symmetric I think now we need 0:23:33.920 --> 0:23:38.320 to be factor oriented. I think cyclical leverage to an 0:23:38.400 --> 0:23:41.080 upturn in the economy. But that doesn't mean just think 0:23:41.480 --> 0:23:44.760 of what typical cyclicals are. Hey, listen to what you know. 0:23:44.800 --> 0:23:47.040 The first six months of this bull market last year, 0:23:47.920 --> 0:23:51.520 it was the defensive names that did well. But this 0:23:51.680 --> 0:23:58.359 era's defensive names were the Big five. They were Apple, Microsoft, Google, Netflix, Amazon. 0:23:59.000 --> 0:24:03.240