WEBVTT - Surveillance: Too Early For High Yield Calls, Says Caron 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.400 Bloomberg dot Com, and of course on the Bloomberg. This 0:00:27.480 --> 0:00:29.760 is gonna be a themUS Morning. John jump in here. 0:00:29.840 --> 0:00:33.600 This is really really important. We have seen this, John, 0:00:34.040 --> 0:00:38.360 for over a decade of people modeling out a higher 0:00:38.479 --> 0:00:44.159 interest rate environment time after time after time. It hasn't happened. 0:00:44.200 --> 0:00:47.320 Dominic Constant and Credit Sweet years ago had the mother 0:00:47.360 --> 0:00:50.320 of all charts on this. It's been the great missed 0:00:50.560 --> 0:00:55.200 call of I'm gonna say fifteen years. I think when 0:00:55.200 --> 0:00:57.840 after the CEO of a bank stops making codes about 0:00:57.880 --> 0:01:00.240 markets and makes it very awkward for every one who 0:01:00.280 --> 0:01:02.240 works at the bank when that issue comes out a 0:01:02.280 --> 0:01:04.880 little bit later telling me JP more than have nothing 0:01:04.959 --> 0:01:10.399 to do with ten year troceries. Now Mr Mr Diamond 0:01:10.400 --> 0:01:13.600 listens and watches every morning. You guys, you know, let's 0:01:13.680 --> 0:01:17.080 let's be clear. Joyce Chang, John Norman, Young Lloyds and 0:01:17.120 --> 0:01:19.880 the rest of them. They don't agree with their CEOs 0:01:19.959 --> 0:01:22.920 call on debt, well, they didn't back in ten either, 0:01:22.920 --> 0:01:25.040 when Jamie Diamond said you'd better be prepared to deal 0:01:25.080 --> 0:01:27.920 with rates five percent or higher. That never came around 0:01:28.040 --> 0:01:29.959 Jamie Diamond on the equity side of things when it 0:01:30.000 --> 0:01:33.959 comes to his own stock has been remember in February 0:01:34.800 --> 0:01:37.280 when we had that huge growth shock around China and 0:01:37.280 --> 0:01:40.200 he stepped back in and basically ticked the bottom of 0:01:40.240 --> 0:01:42.800 the market when he started buying JP Morgan stock. But 0:01:42.800 --> 0:01:45.080 on the Bontom market, Tom, we've seen it time and 0:01:45.120 --> 0:01:48.560 time again, the people who are expecting yields to climb 0:01:48.560 --> 0:01:50.680 and yields keep going lower. I know you're called up 0:01:50.680 --> 0:01:53.920 with Steve Major of HSBC a little bit earlier this morning, 0:01:53.960 --> 0:01:56.680 and he's out there saying seventy five basis points into 0:01:56.800 --> 0:01:58.840 year end twenty one. Then we've got the perfect guests 0:01:58.880 --> 0:02:02.240 to carry this forward. Let's get to it. Jim carn 0:02:02.280 --> 0:02:05.000 and Morgan Stanley joining us right now, Jim way in. 0:02:05.200 --> 0:02:06.920 And now it gets so quid when the CEO of 0:02:06.920 --> 0:02:08.560 a bank starts to make a cod but it's not 0:02:08.639 --> 0:02:10.960 your CEO. And I haven't heard Goldman saying it's been 0:02:11.000 --> 0:02:13.200 about ten yea year. It's recently, So what are you 0:02:13.240 --> 0:02:16.600 looking to happen in twenty one, So so we are 0:02:16.680 --> 0:02:19.160 looking for yield to drift a little bit higher um. 0:02:19.200 --> 0:02:21.239 But you know, I think a lot of these calls 0:02:21.280 --> 0:02:25.280 for inflation and significantly higher yields are ver very premature. 0:02:25.360 --> 0:02:30.040 I don't see this really until maybe and then let 0:02:30.040 --> 0:02:32.360 me go through the reasoning and rationale for this. The 0:02:32.400 --> 0:02:35.280 point here is that we have a pretty significant output gap. 0:02:35.360 --> 0:02:37.640 So trend growth in the US is just under two percent. 0:02:38.280 --> 0:02:41.880 Sorry it's it's just about two percent UM, and we 0:02:41.919 --> 0:02:44.960 grew this year at about minus three so therefore we're 0:02:45.040 --> 0:02:47.760 below trend growth by five percent. Now, that missing trend 0:02:47.760 --> 0:02:50.080 growth is what we call an output gap. And the 0:02:50.160 --> 0:02:53.079 question that everybody asked themselves is when are you going 0:02:53.120 --> 0:02:55.920 to close that output gap? Because that's when aggregate demand 0:02:55.960 --> 0:02:58.560 comes back into the economy, and that's when you have 0:02:58.720 --> 0:03:02.359 more demand that pushes prices higher. So until the output 0:03:02.360 --> 0:03:06.880 gap closes, you don't really get higher inflation. Now, by 0:03:06.919 --> 0:03:09.440 my calculations, we would have to grow at five percent 0:03:11.040 --> 0:03:13.960 in GDP in the US and five percent again in 0:03:15.400 --> 0:03:18.520 and and that's beyond most forecasters. In other words, for 0:03:18.639 --> 0:03:22.240 next year, many forecasters have five or even six percent growth. 0:03:22.440 --> 0:03:26.480 But then the following year in most forecasters have somewhere 0:03:26.480 --> 0:03:29.000 between two and a half and three percent growth. So 0:03:29.000 --> 0:03:31.120 we're gonna fall short. So what do we need. We 0:03:31.120 --> 0:03:33.880 need a significant amount of whether it's fiscal stimulus, continued 0:03:33.919 --> 0:03:37.400 monetary support, in order to get these animal spirits moving higher, 0:03:37.440 --> 0:03:40.680 to get prices moving higher. But right now it looks 0:03:40.720 --> 0:03:42.720 like we're falling short of that. So it's not that 0:03:42.800 --> 0:03:46.000 yields can't start to rise. We're seeing that with break evens. 0:03:46.000 --> 0:03:49.000 Tenure break evens are around a hundred and ninety basis points. 0:03:49.440 --> 0:03:52.800 Real yields are falling. All of this is a reflection 0:03:52.800 --> 0:03:56.880 of expected stimulus, whether monetary or or fiscal, but we're 0:03:56.920 --> 0:04:00.520 not actually seeing the delivered inflation really coming into the 0:04:00.720 --> 0:04:03.800 into goods prices. And that's really the key. And unless 0:04:03.800 --> 0:04:05.800 we get that, it's going to be hard to have 0:04:05.840 --> 0:04:10.040 a sustainable rise conten your treasury yields beyond say one 0:04:10.040 --> 0:04:12.960 point to five percent or one point four percent next year, 0:04:13.120 --> 0:04:15.040 you know, for a moment, but that would just be 0:04:15.080 --> 0:04:20.360 a natural adjustment, not in inflation scare on a ten 0:04:20.440 --> 0:04:23.920 year The idea that inflation in this reflationary narrative doesn't evolve, 0:04:23.960 --> 0:04:27.080 doesn't materialize. That's your position, Jim, going against the consensus 0:04:27.160 --> 0:04:28.960 on that point. But when it comes to risk assets, 0:04:28.960 --> 0:04:33.839 you're perfectly aligned still with the crowd gym. Why yeah, Well, 0:04:33.920 --> 0:04:36.680 because you know, I think that there's a shortaship of securities. 0:04:36.720 --> 0:04:39.000 For one UM, there's a lot of liquidity in the 0:04:39.040 --> 0:04:42.680 marketplace and not enough securities. Corporate supply next year is 0:04:42.720 --> 0:04:45.279 going to probably be lower by in terms of net 0:04:45.279 --> 0:04:47.760 issue once it's going to be about negative five billions. 0:04:47.760 --> 0:04:50.120 So we have about one point a trillion in investment 0:04:50.160 --> 0:04:52.480 grade next year. Week we may expect around one point 0:04:52.480 --> 0:04:55.920 three trillion UM. So sorry sorry, one point eight trillion 0:04:56.000 --> 0:04:57.960 yes this year and one point three trillion prior for 0:04:58.040 --> 0:05:00.800 next year. UM. The FED is you and kwei, and 0:05:00.800 --> 0:05:03.760 the FED continues to buy you know, eighty billion per month. 0:05:03.800 --> 0:05:07.960 They may even extend their maturities UM next week. So 0:05:08.000 --> 0:05:10.559 the point here is that there's a lot of money 0:05:10.600 --> 0:05:12.799 which is by design, is out there to flood the markets, 0:05:12.960 --> 0:05:14.760 and it's just not enough security. So there is going 0:05:14.800 --> 0:05:17.840 to be demand for yield. So yes, it is a 0:05:17.880 --> 0:05:20.560 little bit counter consensus. But but the point here is 0:05:20.600 --> 0:05:25.640 that fiscal policy and monetary policy together will actually stabilize 0:05:25.680 --> 0:05:29.479 the markets quite a bit and keep interest rates relatively below. 0:05:29.600 --> 0:05:31.960 I mean, I think rates rise a little bit, but 0:05:31.960 --> 0:05:33.880 I don't think they rise as much as what you know. 0:05:34.000 --> 0:05:36.840 Some may be thinking that they might, just because there's 0:05:36.880 --> 0:05:39.640 just so much cash on the sidelines that is looking 0:05:39.680 --> 0:05:42.760 for places, looking for yield, and it will come into 0:05:42.800 --> 0:05:45.320 the it will come into these markets. Jim, we've gotten 0:05:45.320 --> 0:05:48.560 a little bit philosophical in the mornings on Bloomberg Surveillance, 0:05:48.880 --> 0:05:51.800 and your note had a very philosophical undertone, and the 0:05:51.839 --> 0:05:55.120 idea that there is this incredible divergence and tension between 0:05:55.120 --> 0:05:57.479 asset prices that continue to rise due to some of 0:05:57.520 --> 0:06:01.040 these interventions from policymakers, and that namentals really are not 0:06:01.160 --> 0:06:05.640 catching up. What's the breaking point for that? Yeah, well, eventually, 0:06:05.680 --> 0:06:08.720 eventually it does break down. So so look, I mean, 0:06:09.360 --> 0:06:12.839 essentially what we need to have is aggregate demand come 0:06:12.920 --> 0:06:16.400 back into the marketplace. Right. If that doesn't happen, then 0:06:16.440 --> 0:06:19.479 all we're gonna do is stretch valuations more and more. Here, 0:06:19.560 --> 0:06:22.559 let's let's take this as an example. Investment grade credit 0:06:22.600 --> 0:06:24.960 spreads in the US is trading at about a hundred 0:06:25.000 --> 0:06:28.400 basis points high yield o A spreads is under four 0:06:28.480 --> 0:06:32.360 hundred basis points right now. So we've brought forward a 0:06:32.360 --> 0:06:35.320 lot of the performance in the market at this point. 0:06:35.360 --> 0:06:38.719 For one, so, in other words, was about a promise 0:06:39.240 --> 0:06:41.800 fiscal stimulus, monetary stimulus, and we hope that things are 0:06:41.839 --> 0:06:44.880 going to get better in so all that performance has 0:06:44.880 --> 0:06:48.679 been brought forward. If we don't deliver on this growth 0:06:48.880 --> 0:06:52.680 in one so is about the delivery of the promise 0:06:53.000 --> 0:06:55.880 versus the actual promise that was made in If we 0:06:55.920 --> 0:06:58.520 don't deliver on this promise in terms of growth, then 0:06:58.520 --> 0:07:00.880 these asset prices are are going to look a little 0:07:00.920 --> 0:07:03.320 bit expensive and there could be an adjustment downward in 0:07:03.320 --> 0:07:06.880 price to reflect the fact that we're not growing fast enough. 0:07:06.920 --> 0:07:08.279 And so I think we're not going to grow in 0:07:09.880 --> 0:07:12.560 is will it be enough? And if its prices will 0:07:12.560 --> 0:07:16.480 address down I'll tell you a great story about just 0:07:16.640 --> 0:07:26.400 you white Jim carrotyping Stanley Global fixed Income right now 0:07:26.600 --> 0:07:31.760 an adult conversation on the moment in initial public offerings. 0:07:31.840 --> 0:07:36.920 Kathleen Smith has provided terrific leadership at Renaissance Capital on 0:07:37.120 --> 0:07:40.680 clarity of thought, on the frenzy of the moment and 0:07:40.840 --> 0:07:42.720 I p O S. We cleared the air with her 0:07:43.160 --> 0:07:45.480 uh this morning, Kathleen, thrilled to have you with us. 0:07:45.520 --> 0:07:48.320 You know where I am on this. I'm hugely skeptical. 0:07:49.040 --> 0:07:54.920 Is this a manufactured boom? Is technology companies keep private 0:07:54.960 --> 0:07:59.880 ownership and and release an ever so slight public amount, 0:08:00.400 --> 0:08:04.200 thus creating a bidding lore for that ever slight public 0:08:04.280 --> 0:08:08.000 amount of shares? Sure well, you can look at it. 0:08:08.280 --> 0:08:11.360 Let me just back up by saying that is not 0:08:11.480 --> 0:08:14.040 only going to be in the record books regarding COVID, 0:08:14.080 --> 0:08:16.400 but it's going to be in the record books regarding 0:08:17.720 --> 0:08:21.480 and this year seemed really dollars I p o s 0:08:21.560 --> 0:08:24.840 than any year on record. When you talk about the 0:08:24.880 --> 0:08:27.240 squeeze of a small amount of float to the larger 0:08:27.320 --> 0:08:31.640 value of the company, we're seeing very large deals. These 0:08:31.640 --> 0:08:36.199 aren't little deals like we all in n so they're there. 0:08:36.720 --> 0:08:39.240 And the case of door Dash, which is going to 0:08:39.280 --> 0:08:42.480 open for trading today, that was the largest ideo so 0:08:42.600 --> 0:08:45.840 for this year. They do have very big market caps 0:08:45.880 --> 0:08:49.440 and they're going to have to they'll expand their tradeable 0:08:49.480 --> 0:08:53.840 float eventually. But your point on is it a squeeze, 0:08:53.920 --> 0:08:56.880 I think there's always a challenge of pricing right in 0:08:56.920 --> 0:08:59.480 the supply and demand, but eventually they settle in, and 0:08:59.480 --> 0:09:01.680 they have to be connected with the overall market, which 0:09:01.760 --> 0:09:06.120 itself is pretty frothy these days. Yeah. Well, Kathleen, I 0:09:06.200 --> 0:09:08.000 want to talk about the frost, and I want to 0:09:08.000 --> 0:09:10.640 just sort of zoom out, if you will, at the 0:09:10.880 --> 0:09:14.480 hundred and sixty billion dollars raised in US I p 0:09:14.640 --> 0:09:16.679 O is so far this year, breaking records at a 0:09:16.720 --> 0:09:19.880 time of incredible economic distress, with companies that were left 0:09:19.880 --> 0:09:22.320 for dead earlier in the year cuttn't coming out as 0:09:22.559 --> 0:09:26.120 darlings with much higher valuations than expected. Do you see 0:09:26.200 --> 0:09:30.280 signs of froth in the latest valuations of Airbnb, which 0:09:30.320 --> 0:09:33.920 is expected, in door Dash, which is going to trade today. Sure, 0:09:34.160 --> 0:09:37.520 we have specific opinions about each of those companies. We 0:09:37.559 --> 0:09:41.240 think door Dash looks price with us. We think Airbnb 0:09:41.400 --> 0:09:43.679 maybe not so much. So I think you have to 0:09:43.679 --> 0:09:46.080 look at the company and it's trajectory. But if we 0:09:46.120 --> 0:09:48.280 step back a little bit and look at overall, what 0:09:48.480 --> 0:09:52.920 is making the market so uh open right now for issuance? 0:09:53.240 --> 0:09:57.200 One does that investors have earned positive alpha returns on 0:09:57.240 --> 0:09:59.720 the existing set of IPOs that have come to market. 0:10:00.160 --> 0:10:03.080 And we have an index, the Renaissance IPO Index, that 0:10:03.480 --> 0:10:06.880 has shown very strong returns. Now, the reason that the 0:10:06.960 --> 0:10:10.720 returns have been strong, which will actually begets more issuance. 0:10:11.120 --> 0:10:13.880 But the returns have been strong because interest rates are low, 0:10:13.920 --> 0:10:17.760 as we all all know. And then post COVID, the 0:10:17.960 --> 0:10:24.480 digital economy has really accelerated in its um integration and 0:10:24.600 --> 0:10:28.839 our and our lives and also the biotech and vaccines. 0:10:29.320 --> 0:10:33.240 So the digital stocks, the biotechs are a very common 0:10:33.280 --> 0:10:36.720 constituent of the U S I p O market. That 0:10:36.920 --> 0:10:40.280 is why these companies have done so well. Their growth 0:10:40.320 --> 0:10:45.240 has accelerated based upon current current economic conditions. Yeah, although 0:10:45.280 --> 0:10:47.800 you're looking at the renaissance I p O E t F, 0:10:47.840 --> 0:10:51.240 which you said has performed very well understatement, it's returned 0:10:51.440 --> 0:10:53.719 about a hundred and twenty year to date. And you 0:10:53.760 --> 0:10:56.760 said that that basically people chasing returns. You've got Jamie 0:10:56.800 --> 0:10:59.960 Diamond looking for one eight hundred call me to get 0:11:00.040 --> 0:11:02.920 any deal done of any sword. At what point they 0:11:02.960 --> 0:11:05.560 have to prove that they're worth this at a time 0:11:05.679 --> 0:11:09.400 of really economic uncertainty despite all the liquidity pumped into 0:11:09.400 --> 0:11:12.800 the market. Well, that's the challenge for door Dash. For example, 0:11:12.840 --> 0:11:15.240 with door Dash, you have a company that's growth has 0:11:15.360 --> 0:11:19.400 sword due to the pandemic everyone wants food delivery. But 0:11:19.520 --> 0:11:22.360 what's going to happen once we got stop gets back 0:11:22.400 --> 0:11:25.240 to normal life. That growth trajectory has to drop, and 0:11:25.640 --> 0:11:30.040 that's the key challenge and an analyzing door dash. In 0:11:30.080 --> 0:11:34.440 the case of Airbnb, that company's business has totally fallen 0:11:34.480 --> 0:11:39.080 apart with COVID and they're now digging themselves out. I 0:11:39.080 --> 0:11:41.840 think in an interesting way, they've had a restructuring that's 0:11:41.840 --> 0:11:44.920 gone on with the company. So we're looking at Airbnb 0:11:45.080 --> 0:11:47.959 as a company that's going to be forward looking on 0:11:48.080 --> 0:11:52.240 a positive note, svtuation's gonna matter, Kathleen. When I read 0:11:52.280 --> 0:11:54.560 and this is ancient history, folks, there was a thing 0:11:54.600 --> 0:11:57.280 called a red herring and you read them and the 0:11:57.360 --> 0:12:00.319 first thing you did is go to the capitalization. I'm 0:12:00.360 --> 0:12:03.360 seeing on the Bloomberg a preferred equity tranche of door 0:12:03.440 --> 0:12:07.120 dash that would choke a horse. I mean again, I 0:12:07.160 --> 0:12:12.560 look at these as manufactured transactions to create scarcity. What 0:12:12.720 --> 0:12:16.720 about the so called preferred equity in door dash? Is 0:12:16.760 --> 0:12:23.880 that a tangible private investment controlled by private shareholders. I 0:12:23.920 --> 0:12:25.679 think you have to look at some of these are 0:12:25.800 --> 0:12:29.440 convertible preferred so they become equity at the time of 0:12:29.480 --> 0:12:32.120 the I p oh. But I would point to you 0:12:32.200 --> 0:12:35.439 when we think these companies are and they may be expensive, 0:12:35.440 --> 0:12:38.200 it will prove itself out in the market. But when 0:12:38.240 --> 0:12:41.720 when you look at companies like Zoom, that company has 0:12:41.760 --> 0:12:44.880 been public for less than two years, do you question 0:12:45.120 --> 0:12:49.679 the value of Zoom or Moderna that created a vaccine. 0:12:50.000 --> 0:12:52.480 It's hard. These companies are new. They take time to 0:12:52.600 --> 0:12:55.200 be analyzed and figured out in the context of the 0:12:55.240 --> 0:12:57.760 overall market. Kathleen, wonderful to catch out with you. Thanks 0:12:57.760 --> 0:13:00.839 for your time this morning, Kathy Smith a nice Lon's Capital. 0:13:00.920 --> 0:13:06.480 Thank you very much. This is the interview of the 0:13:06.559 --> 0:13:09.480 day on the equity markets. Douglas Cast with his Seabreees 0:13:09.559 --> 0:13:11.840 partners and what cast us folks. As he gets up, 0:13:12.440 --> 0:13:14.800 you know, he rolls out about nine am and he 0:13:14.840 --> 0:13:18.000 writes a quick memo, and you know, usually it's perfunctory, 0:13:18.080 --> 0:13:20.439 go along, go short in that, and then every once 0:13:20.440 --> 0:13:22.280 in a while there's a shut up. This is the 0:13:22.320 --> 0:13:25.640 real world memo. Cast wrote one of those this morning, 0:13:25.640 --> 0:13:29.040 and he joins us on shorting stocks. How bad have 0:13:29.160 --> 0:13:32.960 the shorts been hammered? Doug in this great bull market. 0:13:33.000 --> 0:13:35.000 First of all, I want to wish you a happy birthday. 0:13:35.040 --> 0:13:38.880 Thank you. Uh Emerson said, we don't grow old. When 0:13:38.880 --> 0:13:43.120 we ceased to grow, we become old. Oh, listen to you, Doug. 0:13:43.440 --> 0:13:47.040 Doug is more appropriate. I don't want to achieve immortality 0:13:47.080 --> 0:13:50.280 through my work. I want to achieve it. We're not dying, Doug. 0:13:50.320 --> 0:13:53.120 I've come full circle. Okay. The Red Sox sucked when 0:13:53.120 --> 0:13:55.320 I was a kid, and now they suck now. So 0:13:55.559 --> 0:13:58.240 you know it's it's been. You know, it's full circle. 0:13:58.320 --> 0:14:01.560 What a shorting stocks? You're wrote a beautiful essay? What 0:14:01.760 --> 0:14:05.160 how bad has it been for the short crew? It's 0:14:05.200 --> 0:14:09.760 been horrible? And Um I wrote n s A this 0:14:09.880 --> 0:14:15.120 morning mentioned um that shorting speculative stocks it's not fun, 0:14:15.200 --> 0:14:19.160 it's not easy, and most shouldn't bother. But if you 0:14:19.440 --> 0:14:22.320 ursh yourself in the more dangerous waters of short selling, 0:14:22.720 --> 0:14:26.880 there are some techniques or basics to employ. So much 0:14:26.880 --> 0:14:30.200 of shorting, Douglas Cass is not what to do, but 0:14:30.240 --> 0:14:34.600 what not to do? What's the biggest mistake? Paul? In time? 0:14:34.640 --> 0:14:38.880 If you think about it, um, and I've written and 0:14:38.920 --> 0:14:42.360 I in fact, I remember a three hour lecture on 0:14:42.440 --> 0:14:45.680 short selling in Bob Schiller's course at Yale School Management 0:14:45.680 --> 0:14:48.320 back in two thousand and thirteen that I gave so, 0:14:48.360 --> 0:14:51.800 but i'll I will give you the cliff notes. White 0:14:51.800 --> 0:14:54.800 people shouldn't show its stocks, but most people shouldn't. Stood 0:14:55.680 --> 0:14:59.200 is that stocks typically move over, move higher over time 0:15:00.040 --> 0:15:03.560 and um depending upon your time frame that you're analyzing, 0:15:03.600 --> 0:15:07.760 and major indices usually increased by seven or eight percent 0:15:07.840 --> 0:15:10.960 the year. So there's this gravitational pull of stocks higher, 0:15:11.240 --> 0:15:14.320 and that's a formidable head winter short sailing. Secondly, when 0:15:14.360 --> 0:15:18.120 long is going against an investor, their portfolio waitings are reduced, 0:15:18.280 --> 0:15:22.240 but if shorts go against you, waiting increases. Three. Many 0:15:22.280 --> 0:15:25.720 shorts are crowded in short interest terms. You and I 0:15:25.800 --> 0:15:30.000 lived through a Bob Wilson's squeeze on Resorts International manys 0:15:30.800 --> 0:15:34.120 uh so short squeeze is a commonplace, and especially in 0:15:34.240 --> 0:15:38.680 some of the popular short names like Tesla. Finally, finally, 0:15:38.760 --> 0:15:42.040 above all, the reward versus risk is asymmetric between long 0:15:42.080 --> 0:15:45.920 and short Greek and theoretically rise an infinite percentage and 0:15:45.960 --> 0:15:48.120 lose an infinite percentage on the short side. But you 0:15:48.160 --> 0:15:52.240 can only make up scent if the company that's called 0:15:52.280 --> 0:15:56.240 buying Amazona two, which is a cast in exactly right. 0:15:56.960 --> 0:16:00.880 So Doug, I know you started your career bad as 0:16:00.880 --> 0:16:03.080 a housing analytic kid Er Peabody, one of the all 0:16:03.120 --> 0:16:06.320 time great firms on Wall Street. Down on, however, Square, 0:16:07.000 --> 0:16:08.960 I know you've got some thoughts about the housing sector 0:16:09.240 --> 0:16:11.840 right now. I mean it's been one of the strong 0:16:12.480 --> 0:16:15.640 parts of this you know, pandemic wrecked economy. What do 0:16:15.680 --> 0:16:19.760 you think about the sector right here? Well, I began 0:16:19.840 --> 0:16:24.680 to take a large short um position and wrote a 0:16:24.680 --> 0:16:28.520 bunch of negative commentary about a month ago. UM. And 0:16:28.560 --> 0:16:31.320 it's it's a real non consensus view because if you 0:16:31.360 --> 0:16:34.560 look at the numbers, UM, all you do is see 0:16:34.640 --> 0:16:41.160 record record releases in terms of backlogs, home price realizations 0:16:41.200 --> 0:16:44.200 and units. Soul Told Brothers was a very good example 0:16:44.280 --> 0:16:48.440 the night before last. But my notion, and after following 0:16:48.440 --> 0:16:51.000 this industry for so long, is it precisely the time 0:16:51.720 --> 0:16:54.680 you want to be show at the stocks. UM. Basically, 0:16:54.760 --> 0:16:59.040 the large gain in home prices is a portability and 0:16:59.080 --> 0:17:02.160 it's sowing to see for an industry down turn. And 0:17:02.200 --> 0:17:04.199 this has been accompanied by a sharp move in the 0:17:04.200 --> 0:17:07.960 stocks to new highs until recently UM. And I think 0:17:07.960 --> 0:17:11.200 it's important to note that today's stretch affordability has as 0:17:11.240 --> 0:17:15.200 its source something that's really different, palled than the problems 0:17:15.200 --> 0:17:18.480 that developed back in two thousand seven, which Tom and 0:17:18.560 --> 0:17:21.320 I used to discussed back then when I was giving 0:17:21.320 --> 0:17:25.400 out some warnings, and we're manifested over the next two 0:17:25.480 --> 0:17:27.800 years when for the first time in history, home prices 0:17:27.840 --> 0:17:31.320 fell back then, yet speculation running a monkey yet day 0:17:31.320 --> 0:17:35.040 trading in homes. Um you had no document mortgage loan, 0:17:35.080 --> 0:17:38.720 you had high loan to value lending prices policies Today, 0:17:38.760 --> 0:17:43.119 other factors are contributing to large price increases. UM COVID 0:17:43.240 --> 0:17:47.520 nineteen obviously is serving as an accelerant of this uptrend. Yeah, 0:17:47.520 --> 0:17:48.920 it's kind of where I want to go, Doug. I mean, 0:17:49.280 --> 0:17:50.760 you know again, it just kind of amazed me as 0:17:50.760 --> 0:17:52.760 we look at all the economic data, whether it's the consumer, 0:17:52.760 --> 0:17:56.400 whether it's manufacturing. Obviously just been really rocked hard by 0:17:56.440 --> 0:18:00.400 the pandemic induced uh, you know, disruption to the economy, 0:18:00.440 --> 0:18:03.440 but the housing market has remained extraordinary resilient, and I 0:18:03.440 --> 0:18:04.879 think people are just trying to get a sense of 0:18:05.119 --> 0:18:07.880 how much of that is record low mortgage rates versus 0:18:07.960 --> 0:18:12.679 this COVID phenomena of perhaps getting out of urban centers, 0:18:12.680 --> 0:18:16.320 getting more space, buying homes out in suburbia. Yeah, that's 0:18:16.440 --> 0:18:20.680 that's occurring. But again, it's really important when you invest 0:18:21.400 --> 0:18:29.359 long or short sell um stocks to recognize that investment 0:18:29.400 --> 0:18:34.639 knowledge is, to quote Warren Buffett, is always one viewed 0:18:34.640 --> 0:18:37.000 in the rear view view mirror of the idea is 0:18:37.040 --> 0:18:41.680 to analyze what's going to happen. And as I said this, 0:18:41.680 --> 0:18:44.760 this really quantum increase in home prices over the last 0:18:44.840 --> 0:18:48.879 two years, especially accelerating in the last six months. I 0:18:48.880 --> 0:18:51.800 see where I am in Palm Beach, Florida. UH is 0:18:51.800 --> 0:18:54.960 sowing the seeds for a downturn. And you saw look 0:18:54.960 --> 0:18:58.119 at the reaction. You had two Toll brothers. Everything was 0:18:58.160 --> 0:19:03.040 record can census beat heck out of consented expectations. Stock 0:19:03.119 --> 0:19:06.200 was down nine percent or over four dollars yesterday, doug 0:19:06.320 --> 0:19:09.520 On alongside, you've been long Amazon right now. The two 0:19:10.240 --> 0:19:12.560 outlook is either I'm still in tech or I'm not 0:19:12.640 --> 0:19:15.159 in tech. Are you still in tech? And critically, are 0:19:15.200 --> 0:19:21.080 you still in Amazon? Um? I'm I recently reduced from 0:19:21.119 --> 0:19:23.560 a very very large position that have had for a 0:19:23.600 --> 0:19:27.679 long period of time to a small sized position. UM. 0:19:27.720 --> 0:19:31.160 About this time of every year, Amazon routinely puts out 0:19:32.200 --> 0:19:36.040 a non numerical piece of fluff about their holiday business activity. 0:19:36.119 --> 0:19:39.360 They have not done it this year, Tom, And perhaps 0:19:39.359 --> 0:19:41.919 it's that the company is simply scared of anti trust 0:19:41.960 --> 0:19:44.800 issues and simply deferring the announcement until next year. However, 0:19:45.200 --> 0:19:48.880 our work, our channel work indicates that Amazon shipping backlogs 0:19:48.920 --> 0:19:52.399 maybe shrinking and that some deliveries of speeding up. I 0:19:52.480 --> 0:19:55.720 used to follow the paper industry closely, and if you 0:19:55.760 --> 0:19:58.440 look at backlogs, especially if containing board, that's all you 0:19:58.520 --> 0:20:01.720 needed to make money. And my paper industry trade sources 0:20:01.760 --> 0:20:06.240 suggests some backlog shrink and shrinkage relative expectations in packaging 0:20:06.560 --> 0:20:10.560 and contain aboard products. And we have spoken to five 0:20:10.640 --> 0:20:13.480 or seven of our local UPS stores in South Florida 0:20:13.720 --> 0:20:19.160 and they're confirming our suspicion and research conclusions. So this 0:20:19.240 --> 0:20:21.800 is really a non consensus view on Amazon. I have 0:20:21.920 --> 0:20:25.320 a non consensus view when I bought the stock um 0:20:25.480 --> 0:20:28.440 and we'll see what happens. This is a big call, potentially, Doug. 0:20:28.480 --> 0:20:32.600 One final question, and it's simple, everybody's moving to Florida. 0:20:32.880 --> 0:20:35.359 You are a path breaker on that, and you know, 0:20:35.440 --> 0:20:38.479 don you went, do the people in Florida stay in 0:20:38.560 --> 0:20:43.040 Florida or it when the Pandemics over do they come 0:20:43.080 --> 0:20:46.920 back to the Northern Climb? I think that people it's 0:20:46.920 --> 0:20:49.480 a great question. The people that I have spoken to, 0:20:49.520 --> 0:20:52.840 my friends that have moved here either renting or in 0:20:52.880 --> 0:20:59.800 many cases buying um properties uh and converting their residents 0:20:59.800 --> 0:21:03.440 for New York State, New Jersey, Connecticut just to Florida, 0:21:04.200 --> 0:21:10.160 um are, I would say, then, intend to stay in Florida. 0:21:10.400 --> 0:21:14.480 It's just a great quality of life. Um. It's a 0:21:14.480 --> 0:21:18.840 lot less expensive and a lot more manageable. What do 0:21:18.880 --> 0:21:22.639 you think, Paul, that's a pretty good sound, Pharaoh. Can 0:21:22.680 --> 0:21:26.720 you imagine John Faro in Florida? That's a friend? Southeas 0:21:28.880 --> 0:21:31.080 I know. I can go watch the Socks lose to 0:21:31.119 --> 0:21:33.920 the Yankees. I went, I visited the Yankees place near 0:21:33.920 --> 0:21:36.960 in Tampa. I say, Soriano pitch? He was? He blew 0:21:37.000 --> 0:21:42.239 me away? He was, yeah, absolutely not Soriano. Yeah, Marianna, No, 0:21:42.359 --> 0:21:48.000 not Mariano. He's hurt right now. I can't remember. Brain Freeze. 0:21:48.480 --> 0:21:50.960 Doug Cass, thank you so much for joining us with 0:21:51.040 --> 0:21:53.600 Sea Breeze here. This is an important discussion him any 0:21:53.640 --> 0:21:56.600 of you. You know, it's an important essay from Mr Cass, 0:21:56.600 --> 0:21:59.159 and you have to get that through sea breeze only. 0:21:59.200 --> 0:22:01.600 But I can't say enough about his essay this morning 0:22:02.119 --> 0:22:09.880 on shorting Douglas cass Sebres Partners. Right now, David Rubenstein 0:22:10.000 --> 0:22:12.920 joins us pure to pure conversations. And this conversation is 0:22:12.960 --> 0:22:16.840 important because Mr ruben Spine signed speaks to the gentleman 0:22:17.200 --> 0:22:20.800 who invented conversation and the modern zeiteguys. He has Klaus 0:22:20.840 --> 0:22:24.399 Schwab of Davos, and of course he has added so 0:22:24.520 --> 0:22:27.080 much to what I have done. With his initiative to 0:22:27.119 --> 0:22:30.600 get people together to converse. They will shift from Davos 0:22:30.600 --> 0:22:34.960 to Singapore. Of course, Mr Rubinstein speaking to Dr Schwab 0:22:35.040 --> 0:22:39.679 before the announcement of Singapore. David Rubinstein, many people know 0:22:39.800 --> 0:22:43.840 who Klaus Schwab is. What is the distinction for those 0:22:43.920 --> 0:22:48.159 that do not know him? About Dr Schwab, he was 0:22:48.240 --> 0:22:51.840 a He's a German citizen by birth, was a professor 0:22:51.920 --> 0:22:54.760 at the University of Geneva, and fifty years ago came 0:22:54.840 --> 0:22:57.440 up with the idea of bringing people together talk about 0:22:57.600 --> 0:23:01.480 global issues. It was about the UEO in one it's 0:23:01.520 --> 0:23:04.320 now thousands of people who go. It is seen as 0:23:04.320 --> 0:23:07.760 an overly elite gathering, but he has many young people, 0:23:07.960 --> 0:23:10.480 people are not yet quote elite, and it really does 0:23:10.520 --> 0:23:12.399 a good social purpose. I should disclosed. I'm on the 0:23:12.400 --> 0:23:14.440 board of the World Economic Forum, and I do think 0:23:14.440 --> 0:23:17.800