WEBVTT - Irrational Exuberance Is Dying (Again) 0:00:13.760 --> 0:00:16.119 Hello, and welcome to What Goes Up. My name is 0:00:16.160 --> 0:00:19.360 Mike Reagan. I'm a senior editor at Bloomberg, and I'm 0:00:19.360 --> 0:00:23.320 Bildonna Higher Across Acid reporter with Bloomberg. And this week 0:00:23.360 --> 0:00:27.400 on the show, well, stocks, bonds, even crypto, they're all 0:00:27.440 --> 0:00:30.400 tanking this year. Is it time to buy? Or is 0:00:30.440 --> 0:00:33.239 it time to stuff your money under the mattress. We'll 0:00:33.280 --> 0:00:35.680 get into it with the chief investment officer of a 0:00:35.760 --> 0:00:40.360 registered investment advisory, but Bildona first, I need to thank you. 0:00:40.440 --> 0:00:43.479 I know I was off on vacation last week and 0:00:43.760 --> 0:00:47.640 you filled in on the podcast without me admirably. I 0:00:47.840 --> 0:00:51.159 will admit I haven't yet listened to it. You probably shouldn't. 0:00:51.200 --> 0:00:53.519 We made a lot of fun of you. I figured 0:00:53.560 --> 0:00:55.520 that you were. You burned me a few times, and 0:00:56.040 --> 0:00:59.280 I will say, during vacation, I got a terrible sun burned. 0:00:59.280 --> 0:01:01.680 So I can only hand all so much burn at 0:01:01.720 --> 0:01:05.520 one time. I'm very, very ashamed of myself for that 0:01:05.600 --> 0:01:09.520 burn remain Bostic filled in and I told him that 0:01:09.600 --> 0:01:12.680 if just if you just happened to be stuck in 0:01:12.760 --> 0:01:15.400 California for some reason, or you couldn't get a return ticket, 0:01:15.440 --> 0:01:18.080 I told him he was welcome to fill in for 0:01:18.360 --> 0:01:21.360 the rest of eternity for you. Oh okay, well good, 0:01:21.440 --> 0:01:25.800 so you've already lined up my replacement exactly. Okay, but 0:01:25.800 --> 0:01:28.880 no more parents. I promise to a minimum because we 0:01:28.920 --> 0:01:31.640 did miss you, and I will say I'm very ashamed 0:01:31.680 --> 0:01:34.920 of getting sunburned. I've dealt with Molinomo myself. A remindered 0:01:34.920 --> 0:01:36.759 everyone this is a time of year where we all 0:01:36.800 --> 0:01:40.600 get burned. In my case, I I blame the delicious 0:01:40.640 --> 0:01:45.680 cocktails that they serve at the Hotel Grenado. Yeah so 0:01:46.120 --> 0:01:50.200 uh lemon vodka concoction that had me let my guard down. 0:01:50.240 --> 0:01:53.520 So yeah, um, I recommend everyone reapply I think you 0:01:53.880 --> 0:01:57.120 maybe after the second cocktail every two cockos. I don't 0:01:57.120 --> 0:02:00.680 know the ratio the reapply to cocktail ratio is is 0:02:00.760 --> 0:02:03.400 up to the individual. But a reminder to uh to 0:02:03.440 --> 0:02:05.640 where that sun block. At this time of year, I 0:02:05.680 --> 0:02:10.400 cannot protect myself from vildanna and romains burns. Unfortunately, but 0:02:10.760 --> 0:02:13.200 hopefully you did not tell all this week's guests to 0:02:13.320 --> 0:02:16.200 burn me as much as you did. Really did, Actually 0:02:16.280 --> 0:02:19.040 I did. I told her. You know, it's a fun podcast. 0:02:19.080 --> 0:02:20.760 We can have as much fun as she wants. But 0:02:21.080 --> 0:02:23.160 speaking of the guests. I do want to bring in 0:02:23.520 --> 0:02:27.320 Efan Devit. She's the chief investment officer at Monetta. I 0:02:27.360 --> 0:02:30.600 want to welcome you to our show. Maybe just to 0:02:30.639 --> 0:02:33.320 start out, you can tell us a little bit about Monetta, 0:02:33.880 --> 0:02:37.200 What's what the firm does, where you guys are based, 0:02:37.280 --> 0:02:40.760 and what you've been up to recently. Great, well, thank you. 0:02:40.840 --> 0:02:43.760 We are fee only financial advisors were in our i A. 0:02:44.440 --> 0:02:46.440 We are one of the top ten independent r i 0:02:46.560 --> 0:02:49.560 as in the US. Our headquarters are in St. Louis, 0:02:49.720 --> 0:02:52.239 and we have thirty two billion in assets under management. 0:02:52.600 --> 0:02:54.720 And although our headquarters are in St. Louis, we have 0:02:54.760 --> 0:02:57.160 a national footprint. And I myself and based in the 0:02:57.240 --> 0:03:02.680 Chicago office. Okay, well, if he I was actually editing 0:03:02.680 --> 0:03:04.840 a column this morning that happened of your name in it, 0:03:04.919 --> 0:03:08.160 so I I figured that's a good segue. Uh So, 0:03:08.360 --> 0:03:10.240 one topic I wanted to ask you about, which is 0:03:10.840 --> 0:03:14.800 the nature of of defensive stocks, and um, you know, 0:03:14.960 --> 0:03:18.440 I'll sort of recap the column for listeners who aren't 0:03:18.480 --> 0:03:21.040 privileged to read taking stock on the Bloomberg terminal, which 0:03:21.040 --> 0:03:22.520 you really should be doing, by the way, but if 0:03:22.520 --> 0:03:25.480 you're not, you know, I think it's a very sort 0:03:25.480 --> 0:03:28.600 of headache inducing time to think about how do you 0:03:28.639 --> 0:03:32.320 play defense in this stock market? UM? You know, traditionally 0:03:32.400 --> 0:03:35.880 you would you would go to something like consumer stables, utilities, 0:03:36.080 --> 0:03:40.880 high dividend payers with stable earning streams. UM. The pandemic 0:03:40.880 --> 0:03:44.120 obviously turned that on its head. The way to play 0:03:44.200 --> 0:03:47.480 defense in that environment was to buy all the internet um, 0:03:48.320 --> 0:03:52.640 e commerce, you know, streaming, social media. That all the 0:03:52.720 --> 0:03:55.280 stocks that reflected what people were doing while they were 0:03:55.280 --> 0:03:57.800 stuck inside, which is you know, craually have been kind 0:03:57.800 --> 0:04:00.240 of the opposite of defensive stocks, those high growth tech 0:04:00.280 --> 0:04:03.880 stocks now as crazy as it sounds, you know, you 0:04:03.880 --> 0:04:07.480 look at the leaders of the market this year, Energy 0:04:07.600 --> 0:04:11.240 up a million percent, beating basically everything. People playing defense 0:04:11.280 --> 0:04:16.440 against this inflationary oil shock environment by by buying energy stocks. 0:04:16.720 --> 0:04:18.920 I'm wondering how you unpack it all? What what does 0:04:19.000 --> 0:04:22.680 defensive means to you right now in the stock market? Um? 0:04:23.200 --> 0:04:26.039 Given the risks are kind of across the spectrum. You know, 0:04:26.080 --> 0:04:29.320 some people are worried about a looming recession next year. 0:04:29.560 --> 0:04:32.599 Everyone else is worried about inflation and an erosion of 0:04:32.920 --> 0:04:35.840 purchasing power, higher interest rates. What does it mean to 0:04:35.880 --> 0:04:38.200 be defensive? Is there a way to to sort of 0:04:38.240 --> 0:04:40.960 still allocate the stocks and be defensive in this environment. 0:04:41.000 --> 0:04:43.200 It's an excellent question. I mean, ultimately, the way to 0:04:43.240 --> 0:04:45.599 be defensive at a portfolio level is to have a 0:04:45.640 --> 0:04:48.280 well diversified portfolio, and by that I mean across all 0:04:48.320 --> 0:04:53.039 asset classes, so including bonds, including alternatives, including cash flow generators, 0:04:53.040 --> 0:04:56.919 including real assets, and that is our best way of 0:04:56.960 --> 0:04:59.920 assuring an old weather portfolio. When it comes to stock, 0:05:00.160 --> 0:05:02.520 defensive stocks are perhaps a bit of a misnomer because 0:05:02.600 --> 0:05:05.719 ultimately we are in equities, which are a higher risk 0:05:05.760 --> 0:05:08.440 reward asset class. They will be marked to market, they 0:05:08.440 --> 0:05:11.760 will experience volatility. We can see equities with a high 0:05:11.760 --> 0:05:14.640 correlation to each other, especially when there's a sell off event. 0:05:14.920 --> 0:05:16.839 But that said, there are still sectors that might be 0:05:16.839 --> 0:05:20.240 considered value stocks, which as opposed to growth stocks, have 0:05:20.360 --> 0:05:22.520 been quite out of favor as a whole for the 0:05:22.600 --> 0:05:25.159 last number of years, and there have been pockets of 0:05:25.200 --> 0:05:28.960 time was when investors have cycled into value in that 0:05:29.080 --> 0:05:31.559 great kind of growth value rotation that we might see, 0:05:31.800 --> 0:05:34.479 but those rotation periods have actually been quite short. So 0:05:34.520 --> 0:05:37.000 I think we shouldn't be under the illusion that these 0:05:37.040 --> 0:05:40.160 defensive stocks are essentially somewhere to hide if there is 0:05:40.240 --> 0:05:43.840 a dramatic equity market correction, but they should be somewhere 0:05:43.839 --> 0:05:47.000 where investors may go in a flight to safety. The 0:05:47.040 --> 0:05:50.400 additional complexity though right now, around these so called defensive 0:05:50.440 --> 0:05:53.359 stocks a new listed high dividend payers in that is 0:05:53.360 --> 0:05:56.800 that traditionally, when interest rates rise, these are seen as 0:05:57.600 --> 0:06:00.480 perhaps bond proxies, or had been seen as bond proxies, 0:06:00.800 --> 0:06:03.880 and then funds flow out of these defensive stocks when 0:06:04.160 --> 0:06:07.640 interest rates rise, because bonds become relatively more attractive, so 0:06:07.680 --> 0:06:10.440 they tend to see funds flowing out when it's just 0:06:10.520 --> 0:06:13.120 right rise. So they're not actually that defensive if we 0:06:13.200 --> 0:06:16.480 see a rising rate environment, So it's all relative. Are 0:06:16.520 --> 0:06:20.560 they more defensive than a high growth portfolio? Absolutely? Are 0:06:20.600 --> 0:06:23.799 they going to protect your capital in an equity market downturn? 0:06:24.080 --> 0:06:28.440 Not necessarily. Yeah. It's just such a unique environment because 0:06:28.520 --> 0:06:31.280 usually when you're seeing yields rising, it's because growth is 0:06:31.320 --> 0:06:34.680 picking up, you know, it's it's a different point in 0:06:34.720 --> 0:06:37.720 the cycle. We just have kind of this unique sort 0:06:37.720 --> 0:06:40.960 of upside down cycle now where you know you have 0:06:41.200 --> 0:06:46.359 decelerating growth and rising yields. Um So how do you 0:06:46.400 --> 0:06:49.640 sort of play that you know, given especially the last 0:06:49.720 --> 0:06:52.080 couple of weeks, we have seen yields sort of come 0:06:52.120 --> 0:06:55.720 down a little bit um off their highs, oil come 0:06:55.839 --> 0:06:58.239 come off of its highs. I mean, is the worst 0:06:58.240 --> 0:07:00.840 of that inflation shock over? Do you think can? And 0:07:00.839 --> 0:07:04.640 and you know, are those defensive place a little bit 0:07:04.880 --> 0:07:07.480 more defensive now in that case, Well, just as we 0:07:07.560 --> 0:07:10.920 could adjust to to anything, any new normal somehow quickly 0:07:10.960 --> 0:07:14.640 becomes the norm. We saw that with COVID restrictions, where 0:07:14.640 --> 0:07:17.960 how mask wearing became the norm, how restrictions became the norm. 0:07:18.280 --> 0:07:21.200 I think when it comes to inflation numbers, something that 0:07:21.280 --> 0:07:24.160 was perhaps eye popping at a forty year high starts 0:07:24.200 --> 0:07:27.200 to become normal very quickly. I would be surprised if 0:07:27.200 --> 0:07:30.480 we were to see high single digit inflation persists, maybe 0:07:30.560 --> 0:07:32.080 for a few more months, maybe it through the middle 0:07:32.080 --> 0:07:34.320 of the year. But ultimately we have to remember the 0:07:34.360 --> 0:07:36.680 base effect and some of those numbers and some of 0:07:36.680 --> 0:07:40.080 the contribution of the shock rises and energy and some 0:07:40.160 --> 0:07:43.040 other components in there that perhaps were not likely to 0:07:43.080 --> 0:07:45.760 be sustained. Food prices would be an example. So the 0:07:45.840 --> 0:07:48.840 quick heat question around all of these inflation numbers is stickiness. 0:07:49.240 --> 0:07:51.240 But I've just written a piece called head Winds and 0:07:51.280 --> 0:07:53.920 cross Currents, because, as you mentioned, there is an abundance 0:07:54.320 --> 0:07:57.440 of risk right now in markets, and they're all inter related, 0:07:57.800 --> 0:08:01.280 but equally they're all any one of the could potentially 0:08:01.720 --> 0:08:05.080 grow to exponentially to become a serious problem. Those are 0:08:05.120 --> 0:08:08.800 the problems you noted around inflation, around is yours right rising? 0:08:09.160 --> 0:08:11.640 And you mentioned upside down. I think that's a great 0:08:11.680 --> 0:08:13.840 analogy because there are a lot of things that just 0:08:13.880 --> 0:08:17.400 don't make sense today. Typically we speak about stagflation, that 0:08:17.480 --> 0:08:20.400 maybe when we have a rising inflationary environment it's accompanied 0:08:20.400 --> 0:08:23.160 by high unemployment and that then is that kind of 0:08:23.520 --> 0:08:26.280 perfect storm that leads to the recession. We don't have 0:08:26.400 --> 0:08:29.120 a high unemployment environment today. We have an actually very 0:08:29.240 --> 0:08:32.720 robust labor market, and in fact, we have low unemployment 0:08:32.800 --> 0:08:35.520 numbers which are back to pre pandemic levels, So that 0:08:35.600 --> 0:08:38.760 doesn't look like a recipe for recession. Equally, when we 0:08:38.800 --> 0:08:42.040 have a high inflation environment, we often have a weaker dollar, 0:08:42.480 --> 0:08:44.160 and we have the opposite. Now we've a dollar at 0:08:44.160 --> 0:08:47.880 two year highs. So what's that telling us, Perhaps that yes, 0:08:47.920 --> 0:08:50.760 the dollar should be under pressure because of the of 0:08:50.800 --> 0:08:54.400 an inflationary environment. But our central bank is taking measures 0:08:54.400 --> 0:08:57.880 that other central banks are not, and perhaps it's it's 0:08:57.920 --> 0:09:00.920 it's only looking strong because every other and see worldwide 0:09:00.960 --> 0:09:03.080 is looking quite weak. So we have a lot of 0:09:03.480 --> 0:09:08.200 juxtapositions of interesting bactoids right now, and it is challenging 0:09:08.200 --> 0:09:09.839 for markets to make sense of it. I agree with that. 0:09:12.000 --> 0:09:13.959 So can you actually talk a little bit more about 0:09:13.960 --> 0:09:16.080 some of those I think you call them currents. There's 0:09:16.120 --> 0:09:18.360 all these cross currents that are that are going on 0:09:18.440 --> 0:09:21.120 right now, these different factors that are weighing on investors. 0:09:21.160 --> 0:09:23.319 So what what's type of mind for you? Well, I 0:09:23.400 --> 0:09:26.000 got to start with the two eyes, inflation and interfest rates. 0:09:26.040 --> 0:09:28.880 So you mentioned inflation being at a forty year high, 0:09:29.040 --> 0:09:31.720 So it's true that most traders and markets today have 0:09:31.760 --> 0:09:33.960 never seen inflation at these levels. Most people don't have 0:09:34.040 --> 0:09:36.880 careers that are are great in forty years, so this 0:09:37.000 --> 0:09:40.400 is uncharted territory for most market participants today. There is 0:09:40.400 --> 0:09:42.800 no playbook for this. The last one was I mentioned 0:09:42.840 --> 0:09:45.200 was in the eighties when we had a very different environment. 0:09:45.520 --> 0:09:48.280 We had certainly a hawk ish FED then, and when 0:09:48.320 --> 0:09:50.920 we look to the Fed's potential playbook, we do look 0:09:50.960 --> 0:09:53.040 to what they did the last time there was inflation 0:09:53.120 --> 0:09:55.760 in high single in high in high single digits into 0:09:55.800 --> 0:09:58.800 load into load double digits. So as a result, that 0:09:58.960 --> 0:10:01.319 is certainly something we have to contended. The key question 0:10:01.400 --> 0:10:04.319 is is it sticky, is it likely to resist um? 0:10:04.640 --> 0:10:08.400 And are we likely to have a situation where um 0:10:09.080 --> 0:10:13.120 the consumer comes under pressure and where companies lose their 0:10:13.160 --> 0:10:17.280 pricing power and start to see that hit their margins. 0:10:17.320 --> 0:10:20.360 So really there is a lot of unknown that's unknown 0:10:20.400 --> 0:10:23.080 currently about how the inflation picture is likely to pan out. 0:10:23.559 --> 0:10:26.160 But right now, because the consumer still has quite a 0:10:26.200 --> 0:10:29.160 bit of pent up demand, quite a bit of savings, 0:10:29.280 --> 0:10:33.400 and perhaps it's still feeling this need to spend on services, 0:10:33.600 --> 0:10:36.640 we're not seeing it really pinched yet. The other major 0:10:36.679 --> 0:10:39.360 I is, of course interest rates were in a tightening cycle. 0:10:39.480 --> 0:10:42.280 We don't know how aggressive is likely to be. I 0:10:42.280 --> 0:10:45.560 would argue that already quite a few fifty basis point 0:10:45.640 --> 0:10:48.240 rate rises are priced in for the rest of this year, 0:10:48.320 --> 0:10:51.319 perhaps three fifty basis point rises are more, or even five. 0:10:51.960 --> 0:10:54.920 So that is looking like markets already have kind of 0:10:54.960 --> 0:10:57.840 absorbed that have have factored that in, and for that 0:10:57.920 --> 0:11:00.679 reason we can expect that we don't expect there to 0:11:00.679 --> 0:11:03.040 be really any interest rate shocks if that is in 0:11:03.120 --> 0:11:05.800 fact the interest rate trajectory, But again we don't know 0:11:05.880 --> 0:11:08.640 how markets are likely to react to that. We see 0:11:08.679 --> 0:11:11.000 that even that in the last few weeks there's been 0:11:11.040 --> 0:11:14.080 quite a lot of more volatility as the Fed has 0:11:14.360 --> 0:11:18.840 sensuated it's stance and it's um it's the language that 0:11:18.880 --> 0:11:23.880 it's using around the imperative of of being assertive around inflation. 0:11:24.240 --> 0:11:26.679 We've lost the kind of the looser language of earlier on. 0:11:27.040 --> 0:11:29.760 So how do The reason I think there's uncertainty around 0:11:29.800 --> 0:11:32.200 this is how is this likely to play out in 0:11:32.320 --> 0:11:35.319 terms of a portfolio? Is as likely to cause bonds 0:11:35.360 --> 0:11:38.640 to to lose And we've had a shocking first quarter 0:11:38.679 --> 0:11:41.880 for fixed income in terms of how it's it's absolutely 0:11:41.960 --> 0:11:44.880 return So is this likely to be a poor environment 0:11:44.880 --> 0:11:48.280 for bonds? We've mentioned equity market volatility? Is it likely 0:11:48.360 --> 0:11:51.080 to lead to more equity market volatility? So that the 0:11:51.120 --> 0:11:53.560 two eyes of inflation in interest rates are obviously top 0:11:53.600 --> 0:11:57.680 of mind, and we can't not mention the geopolitical surprise 0:11:58.000 --> 0:12:01.240 the potential for ongoing surprise. There it seemed that markets 0:12:01.240 --> 0:12:04.199 were completely agnostic. It seemed as to the impact of 0:12:04.240 --> 0:12:06.920 geo political risk for the last eighteen months until the 0:12:06.960 --> 0:12:09.960 first quarter of this year, until Russian invaded Ukraine, and 0:12:10.040 --> 0:12:14.679 markets reacted quite suddenly and aggressively to this up ending 0:12:14.880 --> 0:12:19.000 of global order, so called potential end to globalization. I mean, 0:12:19.040 --> 0:12:22.320 there was a lot of hyperbole every being used in 0:12:22.400 --> 0:12:25.760 terms of what this geopolitical event actually meant for the 0:12:25.800 --> 0:12:28.679 long term. I think for the first time, investors are 0:12:28.679 --> 0:12:32.800 really starting to now focus on geopolitical risk, and that 0:12:32.920 --> 0:12:36.280 is again another potential surprise and markets so all of that, 0:12:36.760 --> 0:12:39.800 and then add to that the backdrop of still ongoing 0:12:40.200 --> 0:12:45.480 COVID tensions and caution companies emerging from that, house prices 0:12:45.480 --> 0:12:48.600 that are up last year, rising mortgage rates that are 0:12:48.640 --> 0:12:53.920 themselves reaching um multi year highs, and there's just this 0:12:54.040 --> 0:12:57.959 kind of a concoction of risks that any any one 0:12:58.000 --> 0:12:59.920 of them, as I mentioned food rise to the top 0:13:00.120 --> 0:13:02.800 be devastating. And so markets are already in a juggling 0:13:02.840 --> 0:13:05.560 act right now as to which to give emphasis to. 0:13:08.559 --> 0:13:10.679 You know, you brought up that notion of the consumer 0:13:11.000 --> 0:13:16.280 um and obviously consumer savings accounts, and that just the 0:13:16.520 --> 0:13:21.000 normal household balance sheets, just in the aggregate got very 0:13:21.120 --> 0:13:24.760 very strong during the pandemic you know, whether it be uh, 0:13:25.280 --> 0:13:28.240 people collecting some some government stimulus money or just not 0:13:28.280 --> 0:13:33.160 being able to spend money elsewhere. Um, so I wonder 0:13:33.320 --> 0:13:35.520 you know, in large part the question is, well, how 0:13:35.679 --> 0:13:38.880 how long does that by the consumer in sort of 0:13:39.200 --> 0:13:43.520 an accelerating inflation environment. And some pretty interesting tidbits from 0:13:43.559 --> 0:13:47.320 some of the earnings reports we saw this week. Uh 0:13:47.440 --> 0:13:49.839 one the guy noticed the visa The spending on the 0:13:49.920 --> 0:13:52.320 visa network was like off the charts. People are are 0:13:52.360 --> 0:13:55.599 still spending like crazy. And it gets your notion of 0:13:55.679 --> 0:13:59.840 pricing power. You know, chip Chipotle raised prices during the 0:14:00.080 --> 0:14:03.160 order and it didn't hurt them at all. Um, they 0:14:03.160 --> 0:14:07.720 had a very good quarter. So are there any sort 0:14:07.720 --> 0:14:11.400 of sectors you're looking at that are more vulnerable to 0:14:11.480 --> 0:14:15.360 a pricing power problem? You know? Um, you know, Chipola 0:14:15.960 --> 0:14:17.880 almost strikes me as the type of place where you 0:14:17.880 --> 0:14:20.840 would cut back if if you were worried about spending, um, 0:14:21.000 --> 0:14:24.160 you know, and and you'd be going to the supermarket more, 0:14:24.200 --> 0:14:27.120 going to McDonald's more, you know, a lower priced option. 0:14:27.720 --> 0:14:29.960 Are there any pockets of the sort of the consumer 0:14:30.000 --> 0:14:35.400 economy that you think are less vulnerable to um rising 0:14:35.440 --> 0:14:39.680 prices and others that don't quite have as much pricing power, 0:14:39.720 --> 0:14:41.720 and their margins might get squeezed. It's an interest in 0:14:41.800 --> 0:14:44.840 question because I think we can look at normal circumstances, 0:14:44.920 --> 0:14:48.240 but inflation would mean for different sectors, and then look 0:14:48.280 --> 0:14:51.440 at the current back drop, whereby the level of assets 0:14:51.440 --> 0:14:54.640 and money market funds reached a peak right after the 0:14:54.640 --> 0:14:57.880 pandemic due to stimulus payments and other cares act, etcetera. 0:14:58.240 --> 0:15:00.840 And the fact that consumers couldn't spend their money and 0:15:00.880 --> 0:15:04.040 the enhanced unemployment benefit and just the fact that there 0:15:04.040 --> 0:15:06.960 was nothing to spend money on. Really it couldn't use services. 0:15:06.960 --> 0:15:09.880 They did consume guns in a very robust way. So 0:15:09.960 --> 0:15:12.000 because of all that, there is this kind of pent 0:15:12.080 --> 0:15:15.440 up purchasing power I should say, or released a dry powder. 0:15:15.720 --> 0:15:18.280 It's it's getting less by the day because obviously inflation 0:15:18.360 --> 0:15:21.480 erodes cash, so it will erode that actual purchasing power. 0:15:21.800 --> 0:15:24.200 So I think that's where the interesting dilemma is. Normally, 0:15:24.240 --> 0:15:26.880 I would say it would be things like discretionary expenditure, 0:15:26.880 --> 0:15:30.200 expenditure on say hospitality or travel. That would be where 0:15:30.240 --> 0:15:33.360 I'd see normally and the consuming to be more vulnerable. 0:15:33.520 --> 0:15:36.000 And ironically Chipotle is probably in that kind of price 0:15:36.120 --> 0:15:38.960 point of restaurants that's sort of that fast food or 0:15:39.080 --> 0:15:42.920 enhanced fast food segment where actually that's where people tend 0:15:42.960 --> 0:15:46.600 to sort downgrade to as opposed to eating more fine 0:15:46.600 --> 0:15:49.880 dining establishments. So probably is still in that category that 0:15:50.000 --> 0:15:52.920 is likely to be quite robust and supported. But as 0:15:52.920 --> 0:15:56.000 far as if we saw United Airlines come out recently 0:15:56.040 --> 0:15:58.440 to say that they actually expected demand to be buoyant 0:15:58.880 --> 0:16:02.440 um and we've seen fuel prices passed through into higher 0:16:02.480 --> 0:16:05.720 airline ticket prices. But notwithstanding, there is that pent up 0:16:05.720 --> 0:16:08.760 demand to take that that vacation, take that overseas trip, 0:16:09.200 --> 0:16:11.520 and I don't see that subsiding. So as I said, 0:16:11.680 --> 0:16:14.920 it may be that that's artificially prolonging the strength of 0:16:14.920 --> 0:16:18.080 the consumer. These savings, plus the sense of the fear 0:16:18.120 --> 0:16:21.440 of missing out of having missed out on on perhaps 0:16:21.480 --> 0:16:24.600 that the normal spending pattern for two years. So for 0:16:24.640 --> 0:16:26.640 that reason, it's very hard to say at this point 0:16:26.640 --> 0:16:29.240 where we can see clearly things like Netflix, things like 0:16:29.280 --> 0:16:31.680 some of It, maybe Peloton, you know, areas that they 0:16:31.680 --> 0:16:34.640 would have spent money on during the pandemic which now 0:16:34.640 --> 0:16:38.520 are no longer um adequate substitutes for the real thing 0:16:38.640 --> 0:16:41.520 or or for going out and spending on cinemas or 0:16:41.640 --> 0:16:44.360 or you know, taking that bike trip. So I see 0:16:44.400 --> 0:16:47.680 that there those are areas perhaps that were perhaps overbought 0:16:48.040 --> 0:16:50.800 during the pandemic um. So it's it's a it's an 0:16:50.800 --> 0:16:53.960 interesting dilemma really as to what how this purchasing power 0:16:54.560 --> 0:16:58.720 effect is likely to pan out. I'm really glad you 0:16:58.720 --> 0:17:00.800 brought that up, because I was just about to ask 0:17:00.840 --> 0:17:03.080 you about that. Which is this idea that maybe some 0:17:03.160 --> 0:17:06.199 of the earnings reports so far are giving us a 0:17:06.240 --> 0:17:10.840 hint that there is consumer pushback for rising prices. So 0:17:11.000 --> 0:17:14.199 you mentioned Netflix, that's one good example. Then also we 0:17:14.240 --> 0:17:17.520 have Whirlpool mentioning it, uh and a bunch of the 0:17:17.560 --> 0:17:20.680 mattress companies. I think sleep number was one of them. 0:17:20.680 --> 0:17:24.040 Temper Seely had said that just demand is falling off 0:17:24.040 --> 0:17:26.520 in response to higher prices, but not just on the 0:17:26.560 --> 0:17:29.720 good side. I believe Jet Blue also had mentioned something 0:17:29.720 --> 0:17:32.240 about rising prices and consumer pushback. So are you paying 0:17:32.280 --> 0:17:34.560 attention to some of those things and seeing it crop 0:17:34.640 --> 0:17:36.879 up a bit more. That's a really interesting point. We 0:17:37.000 --> 0:17:40.080 see the concept of demand destruction has been used for 0:17:40.240 --> 0:17:43.240 years in the commodity segments. So the idea that the 0:17:43.280 --> 0:17:45.560 oil price can't rise to the moon because at some 0:17:45.640 --> 0:17:48.760 point there will be less driving, less use of fuel, 0:17:49.240 --> 0:17:52.000 conversion to other forms of energy, and that there is 0:17:52.080 --> 0:17:54.199 a point out which they're simply isn't it is not 0:17:54.240 --> 0:17:57.560 going to go on forever unlimited demand at unlimited price. 0:17:57.560 --> 0:18:00.840 So that's what presents a natural ceiling, and I suggest 0:18:00.880 --> 0:18:02.880 that that's what what what all these companies are also 0:18:02.920 --> 0:18:05.840 seeing as demand destruction at certain levels that if something 0:18:06.000 --> 0:18:09.560 is ultimately a discretion or expenditure, there will be there 0:18:09.560 --> 0:18:12.560 will be a desire to shift, to find substitutes and 0:18:12.560 --> 0:18:15.080 and to not not tolerate that price. So that probably 0:18:15.119 --> 0:18:18.199 actually could be a natural correction on inflation. It's not 0:18:18.240 --> 0:18:20.920 likely to rise forever, so let's see how that works out. 0:18:20.920 --> 0:18:29.160 But I think it's an excellent point. You know, if 0:18:29.280 --> 0:18:32.119 it's funny a lot in the financial world. If you 0:18:32.119 --> 0:18:34.399 want to have a quick meeting with someone in the 0:18:34.480 --> 0:18:36.840 US and New York, it's it's usually a coffee meeting, 0:18:36.880 --> 0:18:39.639 but you and you're you're charming, irish ways you have 0:18:39.720 --> 0:18:42.800 tea meetings. I've noticed C C I O. T. S 0:18:43.119 --> 0:18:46.600 Uh that you videotape and and put on the website 0:18:46.640 --> 0:18:50.960 as a podcast and really interesting one recently with Cathy 0:18:51.000 --> 0:18:55.080 Wood of Our Investments UM, and it's just been such 0:18:55.560 --> 0:19:00.320 an amazing story UM with her her et fs and 0:19:00.320 --> 0:19:02.760 and really the you know, those sectors of the stock 0:19:02.800 --> 0:19:05.600 market that she she favors, the real sort of high 0:19:05.640 --> 0:19:10.040 future growth, innovative, disruptive type of companies that the Tesla's 0:19:10.080 --> 0:19:13.720 of the world and whatnot. I'm curious, you know what 0:19:13.800 --> 0:19:16.480 you took away from that conversation with her as far 0:19:16.520 --> 0:19:22.440 as UM. Is that strategy sort of in peril for 0:19:22.600 --> 0:19:25.240 I don't know, the next couple of years or what 0:19:25.400 --> 0:19:29.080 do you think needs to be in place in sort 0:19:29.080 --> 0:19:32.399 of the macro environment maybe to to bring that type 0:19:32.400 --> 0:19:36.240 of uh OUR performance back that she saw that and 0:19:36.280 --> 0:19:38.600 that sort of risk taking in the market, you know, 0:19:39.080 --> 0:19:42.440 on an even broader scale, that that willingness to really 0:19:43.000 --> 0:19:46.440 UM invest in a company with a future that might 0:19:46.480 --> 0:19:50.639 not you know, reach truition for five or ten years, 0:19:50.680 --> 0:19:53.760 that that sort of thing is that is that sort 0:19:53.760 --> 0:19:56.399 of risk taking just really gone for good now or 0:19:56.720 --> 0:19:58.159 is there something that will bring it back? But I 0:19:58.200 --> 0:20:00.840 think we're seeing is just to waive critical thinking. And 0:20:00.880 --> 0:20:03.800 that was really where I focused my discussion in the 0:20:03.840 --> 0:20:06.720 interview with Kathy wood was. I wanted to really challenge 0:20:06.760 --> 0:20:09.800 some of the growth assumptions that were built into some 0:20:09.840 --> 0:20:13.280 of the modeling they do on seconds, such as driverless 0:20:13.320 --> 0:20:17.840 cars or artificial intelligence, or perhaps the adoption of digital 0:20:17.880 --> 0:20:22.120 wallets or the price of bitcoin. I asked her about 0:20:22.119 --> 0:20:25.119 her modeling and where the probabilities were in there and 0:20:25.160 --> 0:20:28.480 where the potential was inflection points were in order of 0:20:28.560 --> 0:20:31.520 this modeling to to big sense or to not. I 0:20:31.560 --> 0:20:34.000 also asked her about in the past how their modeling 0:20:34.000 --> 0:20:36.400 had worked out and whether they have an instance where 0:20:36.400 --> 0:20:39.520 they had been wildly over optimistic, because that often would 0:20:39.560 --> 0:20:43.760 be the the the the assessment exactly around some of 0:20:43.800 --> 0:20:46.800 these models is that they are they're overly optimistic, and 0:20:46.880 --> 0:20:50.199 I don't think that our fascination and our obsession with 0:20:50.240 --> 0:20:53.199 innovation is likely to go away anytime soon. What we 0:20:53.320 --> 0:20:56.399 have probably introduced is a dose of realism and the 0:20:56.440 --> 0:20:59.280 irrational exuberance that on Greenspan were referred to back in 0:20:59.320 --> 0:21:02.320 O eight. There was perhaps a shade of that around 0:21:02.359 --> 0:21:04.680 some of these protections. If you think about it, it's 0:21:04.680 --> 0:21:07.080 probably not five years ago we all thought that today 0:21:07.880 --> 0:21:10.760 two we'll be driving around and we would have driverless cars. 0:21:10.800 --> 0:21:14.240 That's not a reality today. Sometimes tech is inherently very 0:21:14.240 --> 0:21:19.439 difficult to model. Um we are grappling with modeling adoption technology, 0:21:19.560 --> 0:21:22.479 or grappling with modeling the impact of climate change. So 0:21:22.480 --> 0:21:25.600 many of these models have so many different inputs that 0:21:25.640 --> 0:21:29.280 are all often interrelated that any one there's going to 0:21:29.320 --> 0:21:32.720 be a huge element of a funnel of possibilities and 0:21:32.720 --> 0:21:35.440 funnel of doubt with any of that modeling. So what 0:21:35.480 --> 0:21:37.280 we've seen is a dose of realism around some of 0:21:37.280 --> 0:21:39.679 the projections. It probably is not a coincidence that that 0:21:39.720 --> 0:21:43.000 has come at the same time as we've seen just 0:21:43.080 --> 0:21:44.600