Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg Weekly
Speaker 1: Markets podcast. I'm Sarah Plants, a reporter on the Cross
Speaker 1: Asset team, and I'm Mike Reagan, a senior editor on
Speaker 1: the Markets team. Sort of the John Oates to Sarah's
Speaker 1: Darryl Hall. And this is going to be a you're
Speaker 1: going to keep coming up with. All right, let's keep
Speaker 1: you going. Let's see how many weeks you can go
Speaker 1: to this one, Like I'll grow a mustache and get
Speaker 1: a perm um. I don't know if people get perms anymore.
Speaker 1: Back in my day. You know, my classmates in high
Speaker 1: school spent more on perms than they do on their
Speaker 1: cars these day. I think. I don't think too many
Speaker 1: people perms nowadays, Mike, at least not like the eighties.
Speaker 1: At least not like the eighties. Coming anyway, are essential
Speaker 1: for podcast posts. I don't think you can really be
Speaker 1: a pie cats howse people trust? I think you're right, Ben,
Speaker 1: I think right, And we might as well introduce that
Speaker 1: voice there. That is our guest for the week. Very
Speaker 1: happy to have him on the show. He does not
Speaker 1: have a perm as far as I can tell from
Speaker 1: the sum video, but his name is Ben Inker. He
Speaker 1: is the head of asset allocation for GMO, the money
Speaker 1: management firm in Boston. Ben, welcome to the show. Thanks
Speaker 1: very much for having me. I think that means once
Speaker 1: the lawns are open in each of our areas, each
Speaker 1: of us will be going out and getting perms and
Speaker 1: will confirm the next time we're all in the same
Speaker 1: place together. But Ben, we're so excited to have you
Speaker 1: on the show. And lately, this past week stocks have
Speaker 1: been breaking out. The rally has been broadening out. All
Speaker 1: of a sudden. We've seen smaller companies, value stocks, firms
Speaker 1: really that have been hit hardest by the coronavirus. Well,
Speaker 1: they're all of a sudden leading this charge higher. But
Speaker 1: you over at GMO, you guys aren't buying it. So
Speaker 1: we're excited to discuss with you why that is and
Speaker 1: how you guys are going about changing your aff that
Speaker 1: allocation strategies. Yeah. So, I mean there's part of what
Speaker 1: you said that I think makes some sense. Uh, small
Speaker 1: cap stocks and value stocks were really left behind. Uh
Speaker 1: in the year up until now, they were underperforming on
Speaker 1: the way down, they were underperforming on the way up.
Speaker 1: They deserve to outperform. The thing we find a little
Speaker 1: bit mystifying is the general upward move for the market. UM,
Speaker 1: as near as we can see, the uncertainty about the
Speaker 1: economy really hasn't gone away, and almost all of that
Speaker 1: uncertainty is downside uncertainty. Uh. And yet you know, we're
Speaker 1: we're sitting here with the S and P five hundred
Speaker 1: downs something like five percent for the year in the
Speaker 1: worst economic crisis since the Great Depression. That just doesn't
Speaker 1: seem right, you know. But and I've read that you've
Speaker 1: Sarah said you've de risked the portfolios at your firm.
Speaker 1: I think I read the equity allocation of something like
Speaker 1: right now. So what is the rest in right now?
Speaker 1: I mean, obviously, Uh, you know, yields are so low
Speaker 1: money market yields are barely there. Where do you hide
Speaker 1: out in this environment? Yeah, that's a great question. And uh,
Speaker 1: maybe that's an explanation for why the market is going up.
Speaker 1: Maybe people are saying there is no alternative to owning equities. Uh,
Speaker 1: we think there is a better alternative to owning the market. UM,
Speaker 1: which comes back to the smaller cap stocks and the
Speaker 1: value stocks that we were talking about earlier. UM. Value
Speaker 1: stocks have had an absolutely horrendous twelve years relative to
Speaker 1: the market. They came into this year trading at some
Speaker 1: of the biggest valuation spreads we've ever seen, and then
Speaker 1: they proceeded to underperform by double digits. UM. So what
Speaker 1: we think makes more sense than just owning equities is
Speaker 1: going along a portfolio of value stocks and short the market.
Speaker 1: And the reason why we like that is, well, if
Speaker 1: the optimists are right in the economy can make a
Speaker 1: V shaped recovery, Well, those stocks that have just underperformed
Speaker 1: the market by double digits deserved to outperform the market
Speaker 1: quite strongly, So you should still make money. UM. And
Speaker 1: if the world gets disappointed, uh, and we don't make
Speaker 1: that that miraculous V shaped recovery, UM. Value has a
Speaker 1: lot of margin of safety here relative to the market.
Speaker 1: We can get some very bad news and they still
Speaker 1: don't deserve to underperform. And so as investors we love
Speaker 1: having a margin of safety UM. And there's very few
Speaker 1: assets today which offer a margin of safety. We do
Speaker 1: think along short portfolio, long the cheap guys, and short
Speaker 1: the broad market does actually have a margin of safety
Speaker 1: and deserves to make money in the good times and
Speaker 1: deserves to probably make money even if things do very badly,
Speaker 1: if they're really really horrible. Uh, you know, we enter
Speaker 1: the second Great Depression. Um, maybe they're not going to
Speaker 1: outperform in that environment, but they're going to do an
Speaker 1: awful lot better than a long equity position. So you
Speaker 1: just gave us a sense of how you guys are positioning.
Speaker 1: Now you short the broad market, go along the cheap guys.
Speaker 1: Can you give us a little bit more detail on
Speaker 1: how you guys are actually going about cutting that equity
Speaker 1: exposure though? I mean I get the sense that if
Speaker 1: you guys are shorting the broad market, then then you
Speaker 1: have to be pulling out out of a lot of
Speaker 1: large cap names, maybe those megacap tech names. I mean,
Speaker 1: how are you going about restructuring these portfolios to get there? Yeah,
Speaker 1: so you know the megacap tech. UM. I do find
Speaker 1: a little bit mystifying. You know, the Googles and facebooks
Speaker 1: of this world will certainly get through this. UM. But
Speaker 1: if you were an advertising firm and the world is
Speaker 1: entering a large recession, I don't think that's very good
Speaker 1: for your ad rates. UM. So I don't really know
Speaker 1: why these stocks should be going up, But UM, I
Speaker 1: recognize the fact UM that they are much less bothered
Speaker 1: by a really bad economic circumstance than most companies UH
Speaker 1: Not only do they have very strong competitive positions they
Speaker 1: are kind of largely monopolis, but they also have very
Speaker 1: strong balance sheets, so we don't have to worry about
Speaker 1: them from that. From that front, the market as a
Speaker 1: whole uh has neither of those benefits. UM. But because
Speaker 1: we didn't come into this owning a lot of US
Speaker 1: stocks to begin with, UM, we didn't want to take
Speaker 1: the so called basis risk of owning a bunch of
Speaker 1: European and Japanese cheap stocks and then shorting the SMP
Speaker 1: five hundreds. So what we actually did to take about
Speaker 1: thirty points of net equity exposure off of our portfolios,
Speaker 1: we shorted UM a lot of uh IFA stocks, so
Speaker 1: non US developed market stocks, which haven't had quite as
Speaker 1: strong a rally as the US but are still up
Speaker 1: probably somewhere in the mid twenties from the lows UM
Speaker 1: and are no longer really priced to deliver something particularly
Speaker 1: close to an equity like return, So we have kind
Speaker 1: of that value spread trade on in the developed world
Speaker 1: outside of the US. UM. We do have a few
Speaker 1: US stocks UM cyclicals that we bought in April, a
Speaker 1: few kind of stocks in our special Opportunities portfolio, and
Speaker 1: we chose to hedge those with S and P s UM.
Speaker 1: But mostly it's a non US equity portfolio, so our
Speaker 1: shorts are mostly non US equities as well. So Ben
Speaker 1: I I certainly share your cause in about this market
Speaker 1: right now, UH, As Sarah will tell you, I'm a
Speaker 1: big fan of confirmation bias. So I'm happy to uh
Speaker 1: to hear you speak a lot of the thoughts I've
Speaker 1: been saying to UM. But I would say, you know,
Speaker 1: if I'm gonna play Devil's advocate here and and lay
Speaker 1: out the bullish case, it is pretty compelling simply the
Speaker 1: the amount of money being thrown at the problem by
Speaker 1: the government and the Federal Reserve. I mean, the FED
Speaker 1: has basically inoculated the credit markets from the type of
Speaker 1: real trauma that could really make this a lot worse
Speaker 1: economically and and market wise. UM. People on unemployment now
Speaker 1: are getting in many cases being paid more than they
Speaker 1: were making before they lost their job, at least until
Speaker 1: that that federal UH extra help expires in July UM.
Speaker 1: But then unemployment claims being extended. There's a lot of
Speaker 1: money being thrown at this problem. Um, is it possible
Speaker 1: that you know it's it's problem solved given all the
Speaker 1: support being thrown at this it's definitely problem helped. Uh.
Speaker 1: Is it possible it's problem solved? I mean, you know,
Speaker 1: nothing is impossible, so maybe it's it's problem solved. You know.
Speaker 1: The reality with the credit markets is tighter credit spreads
Speaker 1: are helpful, but at the end of the day, what
Speaker 1: the credit markets need is corporate cash flow. Uh. And
Speaker 1: corporate cash flow is tough when revenue is down a
Speaker 1: ton um. And even as the economy opens up. I
Speaker 1: don't know whether the economists were the ones who coined this,
Speaker 1: but they talked about economy right, we can't get quite
Speaker 1: all the way back. It will feel better than April did, um,
Speaker 1: But until we can really get the pandemic behind us,
Speaker 1: we can't go all the way back. And the problem
Speaker 1: with being a economy is the economy was not built
Speaker 1: to run at the operational gearing right relative to GDP
Speaker 1: of corporate profits is large UM. So if the economy
Speaker 1: is running at even the drop off in earnings should
Speaker 1: be a multiple of that UM. But if you look
Speaker 1: at the earnings forecast. Q four earnings forecast is down
Speaker 1: six relative to Q four two nineteen, which was really
Speaker 1: one of the best quarters in history. UM. And that
Speaker 1: strikes us as wildly implausible. UM. The other issue where
Speaker 1: I think it's hard to fix the entirety of the problem, UM,
Speaker 1: is you can throw a lot of money around, but
Speaker 1: it isn't so easy getting it to the right places. Uh.
Speaker 1: And we've seen that with the p p P program,
Speaker 1: where you know the money was going to the wrong businesses.
Speaker 1: Bisness is that really were deserving of it. Couldn't get
Speaker 1: banks to answer the phone, They couldn't get the website
Speaker 1: to work. The money was not flowing and is still
Speaker 1: not flowing to the small businesses where it really needs
Speaker 1: to be. And frankly, on the unemployment side, the sad
Speaker 1: truth about this country is the state unemployment benefits have
Speaker 1: been made in many cases intentionally difficult to get right.
Speaker 1: You have to jump through a lot of hoops, you
Speaker 1: have to fill out a lot of forms. People don't
Speaker 1: understand how, and not everybody who is eligible, not everybody
Speaker 1: who should be getting the money is getting the money. Uh.
Speaker 1: And then the last piece that I think is worrying
Speaker 1: and Frankly, I worry about this more in the US
Speaker 1: than I do in the rest of the world. UM.
Speaker 1: I've been hearing a lot of people talk about the
Speaker 1: idea of UM resilience and supply chains, and people have
Speaker 1: learned from this that having a far flung supply chain
Speaker 1: is an unacceptable risk and they're going to have to
Speaker 1: do something about it. Honestly, I don't get that. Uh.
Speaker 1: You know, just in time inventory works of the time,
Speaker 1: So there's five percent of the time where it doesn't work,
Speaker 1: and so you can't produce the stuff you want. But man,
Speaker 1: the profitability on that five had better be awesome to
Speaker 1: make up for the higher cost of good soul in
Speaker 1: order to have that broadly resilient UH supply chain. On
Speaker 1: the other hand, the one thing that the US has
Speaker 1: done over the past twenty years is we've moved to
Speaker 1: this just in time corporate cash flow management, where most
Speaker 1: of the corporate system has levered themselves up in a
Speaker 1: way that works if everything is happening smoothly, and suddenly
Speaker 1: everything is not happening smoothly, and the wheels will not
Speaker 1: come off in the first month or two, but over
Speaker 1: the core of the next nine months, the next eighteen months.
Speaker 1: We have an awful lot of capital structures that were
Speaker 1: not designed to handle even a normal recession, let alone
Speaker 1: a very severe one. So it sounds like you're not
Speaker 1: a believer in this whole idea of uh sort of
Speaker 1: reflation as companies on shore overseas manufacturing again, I mean
Speaker 1: in a way that's that would be you know, assuming
Speaker 1: that pandemics or something and we're gonna have to deal
Speaker 1: with on a semi regular basis, you know, kind of
Speaker 1: fighting the last war rather than preparing for the future.
Speaker 1: I guess yeah, I mean, pandemics are something we will
Speaker 1: have to deal with periodically, a truly global pandemic. It
Speaker 1: doesn't matter a ton where your supply chain is, unless
Speaker 1: we're talking about you know, medical necessities where uh, you know,
Speaker 1: nationalism may become an issue and you really want to
Speaker 1: be producing your masks and and your swabs in the country.
Speaker 1: If everybody is having a mom it doesn't matter whether
Speaker 1: you're getting your stuff from Michigan or while the world
Speaker 1: is a smaller place than it used to be. Um,
Speaker 1: it's not obvious to me that, oh, pandemics are now
Speaker 1: something we should expect to happen once a decade, and
Speaker 1: I think that we can all hope that next time
Speaker 1: we will all be more prepared, considering now that pretty
Speaker 1: much every country around the globe has been through this.
Speaker 1: But Mike laid out the bowl case for us, and
Speaker 1: I'm just curious what you think, Ben, I mean, when
Speaker 1: does that reality actually strike then, of the realization of
Speaker 1: the depth of the recession that we are actually facing.
Speaker 1: I mean, I've seen this chart floating around this past
Speaker 1: week of the price liquidity ratio. So you have the
Speaker 1: market cap of the SMP plotted against them two money
Speaker 1: supply and people saying, look, it's below average. There's so
Speaker 1: much cash flooding the system. There actually is a lot
Speaker 1: of room potentially for upside in the market. I with
Speaker 1: that case, with that argument out there, when when is
Speaker 1: the reality of the depth of the recession actually take
Speaker 1: over and hit? Honestly, I don't entirely know. You know,
Speaker 1: the interesting thing about where we are right that this
Speaker 1: is we are beyond the depths of this recession. Right.
Speaker 1: We may get a w we may get an l
Speaker 1: who knows um, but probably the worst fall was March
Speaker 1: and April UM So it's a weird recession from that standpoint.
Speaker 1: The funny thing is, if you think about past recessions,
Speaker 1: most of the time, when you are two months into
Speaker 1: a recession, nobody has any idea the recession has occurred. Right.
Speaker 1: It is only well after the fact that we say, oh,
Speaker 1: guess what, this recession started in you know, December two
Speaker 1: thousand seven, and you didn't know it until September two eight.
Speaker 1: But the recession was really there. Um. So I think
Speaker 1: at some level, um, we haven't come to grips with
Speaker 1: the kind of the depth of the lasting problem here.
Speaker 1: There's been so much of a fixation on the acute
Speaker 1: problem um, and much less on the issue that you know,
Speaker 1: for all the money that is being thrown around, GDP
Speaker 1: is down a bunch, right, There is simply a lot
Speaker 1: less output happening. Um. And again, corporations thrive on output.
Speaker 1: The other thing that corporations rather desperately need is enough
Speaker 1: certainty to cause people to want to make investments. Um.
Speaker 1: And you know, maybe I am the person here who
Speaker 1: uh is just is kind of has has failed to
Speaker 1: drink the kool aid that everybody else has. But if
Speaker 1: I was running a kind of traditional business right now,
Speaker 1: I would not want to be doing a lot of investing.
Speaker 1: You know, I might have to invest in some ppe
Speaker 1: so people can come back to work or something. But
Speaker 1: I'm not going to build a new factory, you know,
Speaker 1: I'm not. I'm certainly not going to sign a long
Speaker 1: term lease for new office space because suddenly I've realized, well, actually,
Speaker 1: maybe people can work from home. Maybe that actually is
Speaker 1: a thing that can happen. UM. So you know, you know,
Speaker 1: the two biggest pieces of uh G d P are
Speaker 1: consumption and corporate investment. UH. And I don't see how
Speaker 1: corporate investment gets to normal until corporations are truly seeing Okay,
Speaker 1: I know what the future looks like, and it's good. Um.
Speaker 1: And frankly, even if currently unemployment benefits are pretty good, uh,
Speaker 1: I would think precautionary savings should be going up right now.
Speaker 1: Your certainty about what those benefits are going to be
Speaker 1: is pretty low. Um. Your certainty about your job situation
Speaker 1: is pretty low. I don't know whether. I mean. One
Speaker 1: of the things, um that could be going on, UM
Speaker 1: is that this recession, even more than normal recessions, has
Speaker 1: cost jobs from the lower paid segment of the workforce. UM.
Speaker 1: And you know, the rich people can work from home,
Speaker 1: and that's working okay for them as long as they
Speaker 1: have some child care somehow. Um. And and so maybe
Speaker 1: this just doesn't seem so bad if you are if
Speaker 1: you're working from home and uh, you know you've got
Speaker 1: some time back on your commute. Um, if you are
Speaker 1: not sure whether the businesses that you work for are
Speaker 1: ever going to come back and where your job is
Speaker 1: going to be Um if they don't. UM, I'd say,
Speaker 1: even if you're getting a surprisingly good unemployment check, which
Speaker 1: not everybody is, uh, i'd want to be saving some
Speaker 1: of that. You know. It's you make a great point
Speaker 1: about not having to date this recession or no one's
Speaker 1: waiting for the NBER to come out and officially officially
Speaker 1: give us the start date of this one. Um. But
Speaker 1: you know what I think of the reasons why recessions
Speaker 1: and bear markets always go hand in hand. Obviously, you
Speaker 1: know that their earnings damage uh causes valuations to be
Speaker 1: less a tractive to investors in the equity market. But
Speaker 1: I also think part of it might be, you know,
Speaker 1: stocks for a lot of individuals become sort of a
Speaker 1: piggy bank where you have to cash out if you
Speaker 1: had lost your job, you know, maybe cash out some
Speaker 1: of that retirement money to pay your mortgage, to to
Speaker 1: pay those tuition bills whatever it is, you know when
Speaker 1: and on the institutional side, um, maybe you have head
Speaker 1: hedge funds that you know have to de risk for
Speaker 1: a variety of reasons, margin calls and that sort of thing.
Speaker 1: So I what's weird about this one, and Sarah's written
Speaker 1: a lot about this, is we keep hearing sort of
Speaker 1: the opposite that all of a sudden, this retail trader,
Speaker 1: retail investor is super engaged in this market, uh Matt Levine.
Speaker 1: Sarah had a funny reference to your one of your
Speaker 1: stories saying, there's no other entertainment left, you know, everyone's
Speaker 1: done Netflix. So people are so bored they're they're firing
Speaker 1: up there their e trades and their schwab accounts. Um.
Speaker 1: I think he calls it b MH boredom, market boredom,
Speaker 1: the market hypothesis. So you know, but I wonder if
Speaker 1: you've given any thoughts to that, is that sort of
Speaker 1: you know, the people that are getting a little extra
Speaker 1: unemployment insurance uh cash, then they would have made otherwise
Speaker 1: everyone who got their stimulus check from the government. Is
Speaker 1: that part of this sort of little sugar high we've
Speaker 1: seen in this rebound. And if so, I mean to
Speaker 1: me that seems like it has an expiration date on
Speaker 1: it that is fast approaching. You know, the federal unemployment
Speaker 1: supplement I think expires in July. So, um, you know
Speaker 1: that seems like a little bit of euphoria that could
Speaker 1: get sapped out of the market pretty quickly. Yeah, I did.
Speaker 1: I did. Uh read that peace and quite enjoyed it. UM.
Speaker 1: In general, day traders don't have a lot of money
Speaker 1: and are not putting a lot of money to work,
Speaker 1: So I haven't seen the the hard data on it, UM,
Speaker 1: but I wouldn't be surprised if they were driving the
Speaker 1: performance of some of the particularly volatile stocks UM. But
Speaker 1: for them to be driving the overall market would be
Speaker 1: an impressive feat. Um. It takes a lot of money
Speaker 1: to do that. Uh. And And frankly, one of the
Speaker 1: things I'm impressed by. In recent years, the only buyer
Speaker 1: of note of US equities have been US corporations buying
Speaker 1: back their own stock um, and there has got to
Speaker 1: be an awful lot less of that going on right now. UM.
Speaker 1: So I will say I am impressed by the market's
Speaker 1: ability to go up without its big driver of demand there. UM.
Speaker 1: But UM, you know, there's the old saying that in
Speaker 1: the short term the market is a voting machine and
Speaker 1: the long term it is a weighing machine. UM. And
Speaker 1: the biggest reason why markets have a strong tendency to
Speaker 1: get cheap in really bad economic times, UM is because
Speaker 1: of the coincidence. And it's not a coincidence, it's it's
Speaker 1: completely causal. But UM, corporate cash flow drives up at
Speaker 1: the same time that people's other sources of income drives up.
Speaker 1: And the reason why there needs to be an equity
Speaker 1: risk premium is not just because equities are volatile. It's
Speaker 1: the circumstances in which equities are going to give you
Speaker 1: really bad returns UM. And I don't see that there's
Speaker 1: any way to unhook that in the longer term. UM.
Speaker 1: If stock prices, you know, stay up and and push higher, well,
Speaker 1: corporate cash flow is clearly worse. UM. Then I guess
Speaker 1: it could be that people are prepared to own equities
Speaker 1: much lower returns than they used to be UM. And
Speaker 1: and maybe that can work, and maybe that can be sustainable.
Speaker 1: We heard that story in two thousand UM part of
Speaker 1: the pitch for why the stock market made its sense
Speaker 1: was that there shouldn't be an equity risk premium. Um. Uh.
Speaker 1: It always struck me as a very strange thing because
Speaker 1: at the time, if you asked the people who were
Speaker 1: buying stocks, what returns were you expecting from stocks, they
Speaker 1: were expecting extraordinarily high returns. They weren't saying, Hey, I
Speaker 1: think I'm going to get you know, two percent plus inflation,
Speaker 1: but I'm good with that. Uh. And I haven't heard
Speaker 1: anybody saying, you know what, I'm buying Google today because
Speaker 1: I think it's going to give me two percent real um.
Speaker 1: And in this world, I'm fine with two percent real.
Speaker 1: If we were getting that, UM, I would be a
Speaker 1: little bit less scared for the market. Uh. Then if
Speaker 1: people are saying, well, look, with the Fed here, the
Speaker 1: market can't help but go up. And so all I
Speaker 1: care about is is the short term, I think scared
Speaker 1: for the market, we can we can leave it at that.
Speaker 1: That's your segway. We're living in unique times, crazy times.
Speaker 1: In the short term. This podcast is your place for
Speaker 1: thoughtful analysis. It's here in the long term, it's really
Speaker 1: a place just for crazy market stories that that we've
Speaker 1: all witnessed. It's so that's what people come for. They
Speaker 1: want their return on crazy things. So, um, I think
Speaker 1: we got a call into what goes Up hotline from
Speaker 1: a listener down in your state of sunny Florida. Let's
Speaker 1: give that a listen my neck of the woods. Well,
Speaker 1: my name is Morgan Hill, calling from Bookerts from Florida.
Speaker 1: My mestwor is for what goes Up? Uh blue Berg podcast?
Speaker 1: What's crazy about this market? What I've noticed just here
Speaker 1: on Tuesday is uh, the change in which driving market returns. Um,
Speaker 1: you know through yesterday, Uh, you know youre to day,
Speaker 1: we witnessed technology really providing the buffer for you know,
Speaker 1: overalltly returns, and you know through Tuesday, real estate and
Speaker 1: industrials are kind of leading the way, you know, followed
Speaker 1: by financials and you know, communication services. So it's it's
Speaker 1: quite interesting to see the change of of you know,
Speaker 1: the wave. But I think that's that's pretty crazy. Everybody
Speaker 1: has a great week. Yeah, but that sounds a little
Speaker 1: bit like the value rotation you were talking about, right, Uh,
Speaker 1: financials industrials at least, Um, I guess you'd throw energy
Speaker 1: into into that group as well. Yeah, I would. Uh,
Speaker 1: And and again that's the economic reflation trade. And I
Speaker 1: don't know whether it's right from a timing perspective, but
Speaker 1: I mean, there is something weird about a market where
Speaker 1: tech was leading on the way up, tech leads the
Speaker 1: way down, and then tech leads on the way up again.
Speaker 1: There's at some point that has to end. And the
Speaker 1: groups he was talking about, our groups that have been
Speaker 1: pre beaten down and we'll recover at some point. Um
Speaker 1: whether we have enough data to say, oh, few the
Speaker 1: worst is behind us. Uh, let's go off to the
Speaker 1: races now with the more economically sensitive ones. You have
Speaker 1: to be you have to have a better crystal ball
Speaker 1: than I to be confident that that's the right thing
Speaker 1: to do. But a change of leadership in the market,
Speaker 1: my god, is at least well overdue. Is what we
Speaker 1: saw this past week. Do you think it's uh what
Speaker 1: it might look like for the market on the way up?
Speaker 1: Just a bit too soon? I mean, considering how you
Speaker 1: describe how you guys were positioning earlier on in the show,
Speaker 1: even though you are reducing your net equity exposure, I mean,
Speaker 1: is this what we should expect? Though, once we do
Speaker 1: get to that point when we're out of the woods,
Speaker 1: it certainly could be a lot of it depends on
Speaker 1: what the world looks like when we finally can see
Speaker 1: our way through. UM. But ordinarily, in you know, the
Speaker 1: recovery from a bear market in recessionary low, it would
Speaker 1: be the smaller cap stocks, uh, and the more economically
Speaker 1: sensitive companies that would lead the way. So that that
Speaker 1: does make some sense. UM. It does not necessarily mean
Speaker 1: the markets, right, but it would make sense. Alright, Sarah,
Speaker 1: let's see you make sense with some your craziest thing, alright. So, UH,
Speaker 1: I have a statistic. We talked about the speed a
Speaker 1: lot of the recovery that we've seen and really just
Speaker 1: how unbelievable it has been. And this statistic comes from
Speaker 1: Sundale Capital Research, and this past week we saw the
Speaker 1: SMP move not only above three dolls in, but also
Speaker 1: above it's two hundred day moving average. And what they
Speaker 1: found was that typically, on average, if you fall in
Speaker 1: from a high, the time it takes to get back
Speaker 1: above that two hundred day moving average is typically over
Speaker 1: two hundred days. Well, this time we've done it in
Speaker 1: fifty six days, fifty six trading sessions. UM. So that
Speaker 1: kind of just shows you how quick the snap back
Speaker 1: really really has been. And then I also have one
Speaker 1: that's a bit more fun. Uh. The SpaceX launch moved
Speaker 1: to Saturday. But I think we're all sitting back waiting
Speaker 1: with bated breath on the launch. And I mean pretty
Speaker 1: crazy that we're going to have the first launch with
Speaker 1: an American company off of US soil UM to the
Speaker 1: International Space Station. Since even that is pretty cool. That's
Speaker 1: pretty cool, I gotta admit. And I don't know if
Speaker 1: they warned you about our gimmick, but have you seen
Speaker 1: any crazy stories in the market this week? Nothing? Nothing
Speaker 1: that specific this week. I mean the craziest action I
Speaker 1: think I have seen, uh this year other than oil
Speaker 1: going negative, uh, is what happened to Wayfair, which is
Speaker 1: a company that there is that one of the pms
Speaker 1: of my firm has quite liked UM and from the
Speaker 1: middle of January to the middle of March it went
Speaker 1: down something like eight uh. And he was scratching his hat.
Speaker 1: He's like, I don't understand why they're why it's doing this,
Speaker 1: because these guys should be beneficiaries of stay at home, right.
Speaker 1: If you can't go to furniture stores, you have to
Speaker 1: shop for your furniture online. Uh. And well, they're all
Speaker 1: they're all sourced out of China, though right mainly not
Speaker 1: everything is sourced out of China, And it would have
Speaker 1: been weird if that had driven them to bankruptcy. M
Speaker 1: But speaking of the speed of recovery, um, from that
Speaker 1: low in the middle of March of twenty three and
Speaker 1: a half, it then went up to a hundred and
Speaker 1: ninety in less than two months. Um. And I mean,
Speaker 1: if that is not a market with some kind of
Speaker 1: a d h D problem, I don't know what is,
Speaker 1: you know. I think it was wayfair. Uh that was
Speaker 1: advertising to me on Instagram this past week with pictures
Speaker 1: of saunas and big saunas to have in your homes.
Speaker 1: And I always think of furniture, and I'm like, what
Speaker 1: is is sauna now being classified as stay at home furniture?
Speaker 1: You can't get out to your sauna. I really was
Speaker 1: intrigued by it. Well, I'm witing for our air conditioner
Speaker 1: to be services, so it's kind of like a sauna
Speaker 1: here in my house. Hopefully they'll they'll get out here soon. Um. Well,
Speaker 1: that's a good one, Ben, I like that wayfair stock
Speaker 1: a d h D. That's a pretty good one. Sarah
Speaker 1: I'll give you mine, But first, Sarah, I gotta say.
Speaker 1: I reached out to our chief crazy things correspondent, vil
Speaker 1: Donna Hirich and and because she'd really been slacking on
Speaker 1: the job, I hadn't heard a single crazy thing from
Speaker 1: her since the pandemic hit. And her response was, Oh,
Speaker 1: that's unfair. I've been feeding Sarah crazy things this whole time,
Speaker 1: like three yesterday, And I'm like, what what, Mike, You
Speaker 1: know what it is. She just she trusts me with
Speaker 1: the content more more than she does with you. But yeah,
Speaker 1: we've we've been we've been wrong and uttered that I'm
Speaker 1: I also have outswerced my crazy thing this week, um
Speaker 1: to a listener in Buenos Aireas, Argentina. And yes, this
Speaker 1: is partially just a flex on our part that we
Speaker 1: have listeners in Argentina, which I think is really cool.
Speaker 1: So a little bit of a flex. As the kids say, hope,
Speaker 1: hopefully I'm using that that right. Um, you're using it right, Mike.
Speaker 1: You know, I like to illusion that I'm a young hipster.
Speaker 1: His name is Manuel Goody Luque. He's a lawyer at
Speaker 1: Baker Mackenzie and Buenos Aireas, and he points out in Argentina,
Speaker 1: rather than worry about the effects of UH low oil
Speaker 1: prices on the economy, they just pegged the price of
Speaker 1: oil at at forty five dollars of barrel. They called
Speaker 1: the barrel creola CREOLEO. I'm not I'm not pronouncing it right,
Speaker 1: but the barrel creoleo. UH. And the government's basically pegged
Speaker 1: oil at forty five So if you're a refiner in
Speaker 1: UH refinery in Argentina, you have to pay forty five
Speaker 1: bucks of barrel. And the idea is to sort of
Speaker 1: support UH. You know they're big their domestic industry. YPF
Speaker 1: is the big producer. Um ben I don't know about
Speaker 1: this though. UM, you support your your upstream oil production.
Speaker 1: But you look at the Argentine pays so what it's
Speaker 1: been doing lately, and you're gonna make it basically unaffordable
Speaker 1: to fill your tank. I think in Argentina, what what
Speaker 1: do you make to that move? Unfortunately, that doesn't sound
Speaker 1: that far out of the norm for Argentina. UM, I
Speaker 1: have a good point. Argentina has done a lot of
Speaker 1: things like that over the years. Right. They used to
Speaker 1: have people coming in before the economists were calculating UH.
Speaker 1: The inflation rate to reprice goods in stores UM, which
Speaker 1: would then be repriced exactly afterwards. UM. So Argentina unfortunately
Speaker 1: doesn't necessarily want to live in the world as it is,
Speaker 1: but the world that they would like it to be. UM,
Speaker 1: and that may have something to do with why they
Speaker 1: seem to have now just defaulted for the third time
Speaker 1: in the last twenty years. Well, it's uh, it's certainly interesting.
Speaker 1: But I am highly certain that we won't have forty
Speaker 1: five pegged oil here in the US at any time
Speaker 1: in our lifetimes. Likely I'll agree with you on that,
Speaker 1: although whoever thought we'd see negative oil prices, so who knows?
Speaker 1: That's also true. That's also true. But with that said,
Speaker 1: Ben Ankara, thank you so much for coming on the
Speaker 1: show today. We really appreciate it. Thanks very much for
Speaker 1: having me. What goes up? We'll be back next week.
Speaker 1: Until then, you can find us on the Bloomberg Terminal
Speaker 1: website and app or wherever you get your podcasts. We
Speaker 1: love it if you took the time to rate and
Speaker 1: review the show on Apple Podcasts so more listeners can
Speaker 1: find us. And you can find us on Twitter, follow
Speaker 1: me at at Sara pont Sech Mike is at Reaganonymous
Speaker 1: and you can also follow Bloomberg Podcast at podcasts and
Speaker 1: don't Forget. You can also give us a call at
Speaker 1: our very own Bloomberg Podcast hotline at six four six
Speaker 1: three two four three four nine zero, and we may
Speaker 1: even play your voicemail on the show, What Goes Up
Speaker 1: is produced by Jordan Gospore. The head of Bloomberg Podcast
Speaker 1: is Francesca Levie. Thanks for listening, See you next time.