WEBVTT - Tesla and AOL 0:00:03.720 --> 0:00:07.160 Strap on your parachute. It's time for What Goes Up 0:00:07.400 --> 0:00:14.840 with Sarah Ponziic and Mike Reagan. Hello and welcome to 0:00:14.920 --> 0:00:18.560 What goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah Pons, 0:00:18.880 --> 0:00:22.000 reporter on the Cross Asset Team, and I'm Mike Reagan, 0:00:22.160 --> 0:00:25.120 a senior editor at Bloomberg. This week on the show, 0:00:25.239 --> 0:00:27.600 earning season is now in full swing, as is the 0:00:27.640 --> 0:00:30.120 new year, but the pace of the news flow and 0:00:30.160 --> 0:00:33.440 market action hasn't seemed to have slowed one bit. At 0:00:33.479 --> 0:00:36.080 the same time, this past week, the cyclical and small 0:00:36.120 --> 0:00:38.560 cap trade started to peter out as mega cap stocks 0:00:38.600 --> 0:00:41.560 made a run yet again. Head fake or a reversion 0:00:41.680 --> 0:00:44.840 to what's been the norm for so long, And Sarah, 0:00:44.880 --> 0:00:47.919 we will revert to our norm and finish the episode 0:00:47.960 --> 0:00:50.760 with the craziest things we saw in markets this week, 0:00:50.800 --> 0:00:52.800 and by all means, if you're a listener and you 0:00:52.840 --> 0:00:55.760 saw something crazy, give us a call on the Bloomberg 0:00:55.840 --> 0:01:00.200 Podcast Hotline at six four six three to four three 0:01:00.240 --> 0:01:02.720 four nine, oh, and leave us a voicemail and maybe 0:01:02.760 --> 0:01:05.600 we'll play your crazy thing on the show. I got 0:01:05.640 --> 0:01:08.120 a pretty good one, Sara, and it's not even Bitcoin related. 0:01:08.360 --> 0:01:11.160 My first non bitcoin crazy thing in a while, and 0:01:11.280 --> 0:01:13.640 quite a while. I trust that surprises right then though, 0:01:14.280 --> 0:01:19.920 it is absolutely absolutely get ready, Get Ready. But before that, 0:01:19.959 --> 0:01:23.680 we'll talk about the serious things facing the market this week, 0:01:23.959 --> 0:01:26.000 and we're very happy to have on the show the 0:01:26.160 --> 0:01:30.560 head of equity strategy at Wells Fargo Securities. His name 0:01:30.600 --> 0:01:33.600 is Chris Harvey. Chris, welcome to the show. Thank you 0:01:33.680 --> 0:01:38.440 very much, Thanks Mike, Thanks Sara. Great to be back. Great, great, Chris. 0:01:38.520 --> 0:01:40.839 I want to start up by saying, I'm I'm pretty 0:01:40.840 --> 0:01:44.840 sympathetic to strategists who are required to come out with 0:01:44.880 --> 0:01:48.040 a year end target for the SMP five because I 0:01:48.040 --> 0:01:51.160 feel like you can make a hundred great calls all year, 0:01:51.280 --> 0:01:54.400 get all the sectors right, get your factors right, get 0:01:54.440 --> 0:01:57.240 everything right. But every you know, why is Alex like 0:01:57.280 --> 0:02:00.120 me or just gonna ask you about that target? And uh, 0:02:00.280 --> 0:02:04.440 you know, I can't help. But notice this week SMP 0:02:04.880 --> 0:02:08.400 reaching thirty eight fifty, which is actually your year end target. 0:02:08.440 --> 0:02:10.400 So I'm curious how you're thinking about it. Is it 0:02:10.400 --> 0:02:12.160 are you attempted to go back to the drawing board 0:02:12.200 --> 0:02:15.000 on that, or is it He's one of those examples 0:02:15.080 --> 0:02:17.040 where the market has just gotten ahead of itself and 0:02:17.120 --> 0:02:20.639 you're sticking with that that type of forecast. So, Mike, 0:02:20.840 --> 0:02:22.720 we like to get things done ahead of time. So 0:02:22.760 --> 0:02:26.600 we figured it, let's get done the first three months. Congratulation, 0:02:29.639 --> 0:02:31.960 everyone waits another twelve months. Let's get it done. Let's 0:02:31.960 --> 0:02:36.400 get out of the way, and let's go forward. But 0:02:36.639 --> 0:02:39.919 what we do is we knew this is a very 0:02:39.960 --> 0:02:43.480 conservative target, and we prefer to have we we we 0:02:43.600 --> 0:02:46.919 buyas ourselves on the conservative side. We make very conservative estimates. 0:02:47.520 --> 0:02:51.760 Last year, we also had a lower target than the marketplace, 0:02:52.320 --> 0:02:54.200 and one of the things that was different from us 0:02:54.240 --> 0:02:56.320 is we had a lot of confidence in it. We 0:02:56.480 --> 0:02:59.720 never cut our price target, and when things got really dicey, 0:03:00.160 --> 0:03:03.320 we found real value and felt comfortable in and around 0:03:03.520 --> 0:03:06.480 the market lows telling people to put money to work. Also, 0:03:06.480 --> 0:03:08.600 at this time last year, we ran into a similar 0:03:08.600 --> 0:03:10.959 situation where people are saying, hey, Chris, are you gonna 0:03:11.000 --> 0:03:12.679 raise your price target? What are you gonna do? No, 0:03:13.240 --> 0:03:15.239 we said no, and right now the answer is no. 0:03:15.440 --> 0:03:18.560 But we also know we have very conservative EPs estimates. 0:03:19.000 --> 0:03:21.040 Part of that was we don't know what the tax 0:03:21.080 --> 0:03:23.720 regime is going to look like. It's a long year, 0:03:24.360 --> 0:03:27.240 and we'll say and we have no problems raising our 0:03:27.280 --> 0:03:30.280 targets or changing when when the information changes. What we 0:03:30.320 --> 0:03:31.800 really don't want to do is we really don't want 0:03:31.800 --> 0:03:34.320 to cut our target because we want We don't want 0:03:34.320 --> 0:03:36.480 to tell people there's value there when there really isn't. 0:03:36.880 --> 0:03:39.280 And so we we tend to error on the more 0:03:39.320 --> 0:03:41.680 conservative side. Like I said, we like to get things 0:03:41.720 --> 0:03:44.840 done sooner rather than later. You get right to it. 0:03:44.880 --> 0:03:48.000 But Chris, something that wasn't so conservative on your end 0:03:48.160 --> 0:03:50.920 was you and your team were very early to this 0:03:51.120 --> 0:03:54.960 cyclical value small cap call, I mean, what way ahead 0:03:55.000 --> 0:03:57.920 of the pack, and we've clearly seen it play out 0:03:58.000 --> 0:04:01.480 over the past couple of months. Lately there has been 0:04:01.720 --> 0:04:04.320 a bit of a topping off where we have seen 0:04:04.440 --> 0:04:07.440 big cap tech come back, we've seen small caps start 0:04:07.480 --> 0:04:11.400 to underperform. From your perspective, are we going to see 0:04:11.400 --> 0:04:13.520 this continuer? Is the catch up trade that we saw 0:04:13.560 --> 0:04:16.240 at the end of the beginning of one as well? 0:04:16.440 --> 0:04:18.320 I mean, was that what you guys were looking for? 0:04:18.520 --> 0:04:22.200 Was that all said and done? Well, a couple of 0:04:22.200 --> 0:04:25.240 things there. We had a heroic fourth quarter the last 0:04:25.240 --> 0:04:27.120 couple of months in the year with regard to small 0:04:27.200 --> 0:04:32.400 caps and COVID beta and encyclicality. To start the year, 0:04:32.520 --> 0:04:35.440 small caps are now I would say somewhere around the 0:04:35.480 --> 0:04:38.360 high single digits if you will right, we're closing in 0:04:38.360 --> 0:04:42.480 on double digits. Pretty good return. We think it continues, 0:04:42.560 --> 0:04:46.359 but obviously you're over bought here. Um, we got a 0:04:46.480 --> 0:04:50.320 very big bounce from from the sweep in Georgia's people 0:04:50.320 --> 0:04:52.880 think that it's going to be more stimulus and more steepener, 0:04:53.480 --> 0:04:54.960 and what we need to see is we really need 0:04:55.000 --> 0:04:57.680 to see the fundamentals fill in and for that to occur, 0:04:58.160 --> 0:05:00.280 numbers just have to come out and st a bit 0:05:00.320 --> 0:05:02.239 of the consolidation, a bit of the back and forth. 0:05:02.680 --> 0:05:05.279 Sure that that's not unusual, that's something we expect. But 0:05:05.360 --> 0:05:08.159 we still think there's another good six months to this trade. 0:05:08.480 --> 0:05:09.960 What I would say is we thought there was a 0:05:10.000 --> 0:05:13.200 good twelve to eighteen months in this trade. But with 0:05:13.320 --> 0:05:16.320 stimulus and with the sweep in Georgia, what we think 0:05:16.440 --> 0:05:19.320 is everything is now accelerated, right and the window is 0:05:19.400 --> 0:05:23.080 much shorter. Everyone's going to be concentrated. UM evaluation is 0:05:23.080 --> 0:05:26.360 still attractive, easy comps, and I think we're going to 0:05:26.440 --> 0:05:28.440 have a very healthy m and a cycle. We should 0:05:28.480 --> 0:05:31.719 help the group because it's a great point where you 0:05:31.720 --> 0:05:33.600 you made where you said, we we still don't really 0:05:33.640 --> 0:05:36.160 know what the corporate tax situation is going to be 0:05:36.200 --> 0:05:39.640 this year. And I think it's it's clear that uh, 0:05:40.080 --> 0:05:43.960 the you know, Joe Biden was inaugurated on Wednesday, the 0:05:44.000 --> 0:05:46.640 honeymoon doesn't look like it's gonna last very long. Already, 0:05:46.640 --> 0:05:50.760 there are some some Republicans coming out, even the moderates 0:05:50.760 --> 0:05:53.760 like Lisa Murkowski and Mitt Romney coming out and pushing 0:05:53.839 --> 0:05:56.520 back at the the size of that one point nine 0:05:56.560 --> 0:06:00.920 trillion dollar stimules planned from the White House. Um. Obviously, 0:06:01.040 --> 0:06:03.480 I think it's safe to assume they will push back 0:06:03.520 --> 0:06:06.440 at the at the tax uh equiporate tax increase too. 0:06:07.279 --> 0:06:09.599 I mean, is it's two or early to sort of 0:06:09.920 --> 0:06:14.080 start reading the tea leaves in Washington about what we 0:06:14.120 --> 0:06:18.440 can expect from Biden when it comes to taxes and spending. Um, 0:06:18.560 --> 0:06:21.840 where are you, you know, as we sort of begin 0:06:21.920 --> 0:06:25.240 to see the administration take shape, are there any takeaways 0:06:25.560 --> 0:06:28.160 yet that that you have that kind of you know, 0:06:28.200 --> 0:06:31.000 can illuminate what you're thinking about as far as stimulus 0:06:31.080 --> 0:06:34.760 and taxes, um, And as far as stimulus and taxes, 0:06:35.279 --> 0:06:38.279 the the issue here is we're going to get Obviously 0:06:38.279 --> 0:06:40.920 we're going to get more stimulus. Right now, the question 0:06:41.000 --> 0:06:43.040 is is it a trillion dollars? Is it more than 0:06:43.120 --> 0:06:46.520 trillion dollars? How much more for us? We don't care 0:06:46.520 --> 0:06:50.359 that much. Trillion was pretty big number, right, and you 0:06:50.360 --> 0:06:52.719 get that money into people, and what we know is 0:06:52.760 --> 0:06:56.279 it works, it's successful, and we have We're no longer 0:06:56.360 --> 0:06:59.200 talking about when the vaccine is going to come out. 0:06:59.680 --> 0:07:01.919 It is out, and now the question is when people 0:07:02.000 --> 0:07:04.640 want it or are capable of getting it right, and 0:07:04.680 --> 0:07:07.599 I think about June or July, the situation is going 0:07:07.640 --> 0:07:10.760 to look much different. But to get to the tax situation. 0:07:11.120 --> 0:07:12.720 One of the reasons why we say the window of 0:07:12.760 --> 0:07:16.080 opportunities much shorter is it appears to be a rent 0:07:16.160 --> 0:07:19.400 not owned type situation. We're super cheap right in trugal 0:07:19.480 --> 0:07:21.440 is a day is long. We don't want to stick 0:07:21.440 --> 0:07:23.880 around for the bill. You're going to have to pay 0:07:23.920 --> 0:07:26.360 that bill. You're going to have to do that before 0:07:26.400 --> 0:07:29.120 the midterm elections. So that's saying somewhere in the second 0:07:29.160 --> 0:07:31.320 half of this year were the beginning of next year, 0:07:31.760 --> 0:07:35.000 and so you know, we can talk about taxes. We 0:07:35.040 --> 0:07:37.880 can It's hard to say grnually what's going to occur. 0:07:38.600 --> 0:07:40.440 But we know that we've spent a lot of money, 0:07:40.720 --> 0:07:42.520 and sooner or later we do have to pay the bill, 0:07:42.680 --> 0:07:45.320 and we think it's coming, and so, unlike a lot 0:07:45.360 --> 0:07:48.040 of my peers, I'm a little bit worried about that 0:07:48.120 --> 0:07:50.280 because that's not gonna be a whole lot of fun. 0:07:50.400 --> 0:07:52.840 Usually when you raise taxes, it's not great for the 0:07:52.880 --> 0:07:56.800 capital markets and and it's it's not great for risk products. 0:07:57.280 --> 0:08:00.640 So what's the allocation scenario for then? I mean, the 0:08:00.720 --> 0:08:03.160 understanding right now, at least as I've understood it, is 0:08:03.160 --> 0:08:05.440 that there are many who are still unsure if we're 0:08:05.440 --> 0:08:07.960 actually going to see a big change in the tax code, 0:08:07.960 --> 0:08:10.560 just considering that we did see a blue sweep by 0:08:10.560 --> 0:08:14.120 a very narrow margin. Then at the same time, it's 0:08:14.160 --> 0:08:16.600 just it's difficult to know what policy is really going 0:08:16.640 --> 0:08:18.920 to be in focus when it might hit. So when 0:08:18.960 --> 0:08:22.120 you guys think about policy proposals that are going to 0:08:22.160 --> 0:08:24.680 be coming down the pipeline over the next two years, 0:08:24.680 --> 0:08:28.400 over the next four years, when clients are possibly asking 0:08:28.440 --> 0:08:31.760 you about these changes, how soon do you have to 0:08:31.840 --> 0:08:38.240 actually start implementing allocation strategy to mirror what might happen 0:08:38.360 --> 0:08:40.719 when you're unsure at the time, and what would those 0:08:40.800 --> 0:08:44.520 changes actually look like. So, Sarah, it's a great question, 0:08:45.000 --> 0:08:47.679 right what we're looking at and what we typically use 0:08:47.840 --> 0:08:51.160 to to lead us into an allocation change or regime changes. 0:08:51.480 --> 0:08:54.440 The market is telling us we look for repricing. We've 0:08:54.480 --> 0:08:58.720 seen that repricing in bond proxies, in low volatility strategies, 0:08:58.920 --> 0:09:01.200 whether it's utilities or reads or or what have you. 0:09:02.000 --> 0:09:03.400 Then what we need to do is we need to 0:09:03.400 --> 0:09:06.400 find a catalyst, right and at this point in time, 0:09:06.440 --> 0:09:09.199 we don't have that catalyst. What we think is by 0:09:09.200 --> 0:09:12.240 the summertime we'll start to hear the talk of tax 0:09:12.280 --> 0:09:15.320 bubble up. That's the beginning of it. By that point 0:09:15.320 --> 0:09:17.640 in time, we also expect to see small caps having 0:09:17.640 --> 0:09:20.480 outperformed even more. We expect a lot of the good 0:09:20.480 --> 0:09:24.080 news that in and around earnings and fundamentals to be 0:09:24.160 --> 0:09:27.800 reflected in price, and we expect to see another leg 0:09:27.920 --> 0:09:31.600 up in the euphoria within the marketplace, and that will 0:09:31.640 --> 0:09:35.000 give us the opportunity to make that shift, that repricing, 0:09:35.320 --> 0:09:48.880 that catalyst in that timing juncture. Because I'm curious, if 0:09:49.200 --> 0:09:52.000 you're bullish on small caps, what sort of the best 0:09:52.040 --> 0:09:55.040 approach to executing on that is it would it be 0:09:55.120 --> 0:09:57.840 just a sort of a passive vehicle on eat TF 0:09:57.920 --> 0:10:01.000 for would you know, if you're an averag investor who 0:10:01.240 --> 0:10:03.400 sort of doesn't want to get into the nuts and 0:10:03.440 --> 0:10:05.680 bolts of all two thousand stocks and the russell, would 0:10:05.679 --> 0:10:08.120 you find an active fund or you know, how how 0:10:08.120 --> 0:10:11.680 would you sort of go about expressing a bullishness on 0:10:11.720 --> 0:10:15.600 small caps? So em bullishness on small caps. If you're 0:10:15.600 --> 0:10:18.320 a retail investor, there's there's probably one of two two 0:10:18.320 --> 0:10:19.800 ways to do it. You can do it in some 0:10:19.880 --> 0:10:22.040 open ended mutual funds, and I would look for funds 0:10:22.080 --> 0:10:25.920 that that will provide you this exposure but with low fees. 0:10:26.400 --> 0:10:28.520 Or you can do it on an exchange excuse me, 0:10:28.720 --> 0:10:32.440 exchange traded mutual fund or e t F right, and 0:10:32.520 --> 0:10:35.480 those are pretty tax efficient. The fees on those are 0:10:35.559 --> 0:10:38.520 quite low and you can get in and out rather quickly. 0:10:38.960 --> 0:10:42.480 So I prefer because of liquidity in e t F, 0:10:42.840 --> 0:10:44.440 but some people if you're going to buy and hold 0:10:44.440 --> 0:10:47.720 it for some period of time, mutual fund also also 0:10:47.760 --> 0:10:50.319 makes sense for a lot of retail investors. But you're right, 0:10:50.600 --> 0:10:53.440 buying two thousand stocks of the Russell is probably not 0:10:53.480 --> 0:10:57.040 your best use of your time. I feel like whenever 0:10:57.080 --> 0:11:00.360 we talk about small caps, oftentimes, especially the skeptics, bring 0:11:00.440 --> 0:11:03.440 up the term zombie companies, and especially coming off the 0:11:03.440 --> 0:11:09.520 back of COVID nineteen and worries about insolvency or debt 0:11:09.520 --> 0:11:13.520 repayment and companies not being able to bring up the 0:11:13.559 --> 0:11:17.400 cash that they need to actually move forwards from this 0:11:17.400 --> 0:11:19.360 point in time, even if we are going to see 0:11:19.400 --> 0:11:23.079 a rebound and earnings, UM, there's a concern there. So 0:11:23.960 --> 0:11:26.600 from your perspective, when you say that the concern about 0:11:26.840 --> 0:11:31.719 zombie companies at this stage is overblown, I mean particularly 0:11:31.720 --> 0:11:34.120 in the small cap space, or is it just a 0:11:34.200 --> 0:11:38.040 situation where if you're going to get into investing in 0:11:38.120 --> 0:11:40.720 small caps you just need to be aware of the 0:11:40.840 --> 0:11:45.160 risks that that are at stake. Uh. Sorry, I think 0:11:45.160 --> 0:11:47.920 the risk is overblown, And I think I had a 0:11:47.920 --> 0:11:52.240 conversation recently about bankruptcyes and the whole creative destructive process, 0:11:52.840 --> 0:11:55.640 and there were many companies that did go belly up 0:11:55.679 --> 0:11:59.280 or go bankrupt and when you needed that to clear 0:11:59.320 --> 0:12:02.120 out certain things, and we needed that creative destructive process 0:12:02.160 --> 0:12:04.520 too to reach a final end. I think there's more 0:12:04.559 --> 0:12:07.360 to go. But as far as investing in small caps, 0:12:07.920 --> 0:12:10.360 I don't see if you you look at the exposure, 0:12:10.360 --> 0:12:12.240 to look at the names in there, I don't think 0:12:12.240 --> 0:12:16.000 you haven't an obscene amount or even a significant amount 0:12:16.000 --> 0:12:19.280 of zombie companies or zombie risk there. The other thing 0:12:19.320 --> 0:12:21.959 to think about to know is that if you're a 0:12:21.960 --> 0:12:26.760 public company, access to the capital markets, credit is widely available. 0:12:27.120 --> 0:12:29.680 And if you want to issue stock, excuse me, well, 0:12:29.720 --> 0:12:31.679 you can issue stock, but if you want to issue 0:12:31.720 --> 0:12:34.480 dead you can do it at very low rates, and 0:12:34.559 --> 0:12:37.520 you can do it in significant size. So liquidit is 0:12:37.559 --> 0:12:39.120 really not an issue at this point in time. And 0:12:39.200 --> 0:12:42.120 I don't think the whole zombie risk is a big 0:12:42.160 --> 0:12:44.640 issue for smaller caps. Chris, I wanted to get back 0:12:44.640 --> 0:12:49.360 to your your head uh note and a few predictions 0:12:49.360 --> 0:12:52.400 you made. One is very productive provocative, So of course 0:12:52.440 --> 0:12:54.640 I'm gonna I'm gonna key in on that. But you 0:12:54.720 --> 0:12:59.040 wrote that Tesla in December of echoes A O. L 0:12:59.240 --> 0:13:04.079 in December of boy, that's that's gonna put some shivers 0:13:04.160 --> 0:13:06.520 up some spines, I think. But walk uster sort of 0:13:06.559 --> 0:13:10.400 unpacked that first. Why why you're making that comparison, right? 0:13:11.320 --> 0:13:16.520 So we're getting lots of things, getting the spidy senses 0:13:16.559 --> 0:13:21.680 starting to tingle. Right, I remember remember nine nine, and 0:13:21.720 --> 0:13:24.120 I remember what was happening. You had a lot of speculation, 0:13:24.720 --> 0:13:27.520 had a lot of retail investors getting involved. If you 0:13:27.679 --> 0:13:29.600 recall the phrase, I think it was each rade clicking 0:13:29.679 --> 0:13:31.719 in their steward, right, And we have a lot of 0:13:31.720 --> 0:13:34.200 a lot of funny things going on now. But what 0:13:34.240 --> 0:13:37.199 was what was amazing to me is a o L 0:13:37.240 --> 0:13:39.920 at the time, was was a game changer. Right, It's 0:13:39.960 --> 0:13:44.520 an amazing technology. The stock had an incredible run run 0:13:44.679 --> 0:13:47.760 I really hadn't seen before, and it was going into 0:13:47.760 --> 0:13:51.600 the SNP late in the year at a very large 0:13:51.800 --> 0:13:55.280 market cap or a very large waiting Okay, that that 0:13:55.400 --> 0:13:57.959 to me was the beginning of the end. Right. Ninety 0:13:58.040 --> 0:14:01.760 nine was a fantastic year for stocks. But but after 0:14:01.880 --> 0:14:03.679 ninety nine, many of your tech companies and many of 0:14:03.720 --> 0:14:08.840 your growth companies lost their value. Now you have another 0:14:08.920 --> 0:14:13.400 game changing technology right in Tesla, and you have a 0:14:13.480 --> 0:14:18.000 stock that has performed amazingly well, and it's going into 0:14:18.000 --> 0:14:22.680 the SMP December late in the year um at a 0:14:22.800 --> 0:14:26.680 very large waiting our market cap. Right, what this signals 0:14:26.720 --> 0:14:30.360 to me is this growth at any price. This this 0:14:30.440 --> 0:14:33.000 is signaling and that we're close to the end of 0:14:33.040 --> 0:14:36.840 the growth at any price type investment strategy. Right, it's 0:14:36.880 --> 0:14:39.200 not a call on a particular stock, but what it 0:14:39.240 --> 0:14:42.120 shows you is that we've reached a level. And so 0:14:42.800 --> 0:14:45.000 back in the late nineties, it took twelve months for 0:14:45.200 --> 0:14:48.160 that for the regime change to cur And what I'm 0:14:48.160 --> 0:14:52.520 telling clients now is everything is accelerating, right. Everything that 0:14:52.560 --> 0:14:54.800 I thought was going to happen more or less occurred, 0:14:54.840 --> 0:14:57.400 but just in a very compressed time period. So if 0:14:57.400 --> 0:15:01.120 it took twelve months um back in late nineties, we 0:15:01.120 --> 0:15:03.600 think it probably takes six months now for that regime 0:15:03.680 --> 0:15:06.400 change really to occur. And it was more. This is 0:15:06.400 --> 0:15:09.120 a signal, and what we're seeing, you know, funny enough, 0:15:09.280 --> 0:15:12.000 is I think the big pain trade for a lot 0:15:12.000 --> 0:15:14.600 of people on the buying side either a recovery or 0:15:14.640 --> 0:15:18.760 a strong recovery, because many people haven't traded in a 0:15:18.800 --> 0:15:22.200 post recessionary environment. Many people have been trading in a 0:15:22.280 --> 0:15:27.560 low growth recessionary environment, and when growth is abundant, different 0:15:27.600 --> 0:15:31.479 things happen. The market rewards value in small camps and cyclicals, 0:15:32.120 --> 0:15:34.720 and that could cause a lot of pain for much 0:15:34.760 --> 0:15:37.480 of the BI side, because they're so steeped in that 0:15:37.560 --> 0:15:42.040 growth trade. All I can hear is that a O 0:15:42.160 --> 0:15:46.600 L noise from back in the day, you know, the 0:15:48.800 --> 0:15:53.560 I still have an up and running a O L emailed, 0:15:53.960 --> 0:15:56.560 but it exists that I'm not going to tell you 0:15:56.600 --> 0:16:01.120 what it is. It's embarrassing, but you still have the 0:16:01.160 --> 0:16:06.600 floppy drives anymore. You get like five in the mail 0:16:06.640 --> 0:16:10.360 a day. And Uh, Chris, I want to ask you, though, so, 0:16:10.960 --> 0:16:13.800 if you believe that Tesla and its addition to the 0:16:13.880 --> 0:16:16.400 SMP five hundred marks a shift from this growth at 0:16:16.400 --> 0:16:20.000 any price regime, do you also believe that it signals 0:16:20.440 --> 0:16:24.720 a possibility that what we're experiencing now ends in a 0:16:25.080 --> 0:16:28.360 dot com crash fashion. I is something I find so 0:16:28.440 --> 0:16:33.880 amazing is that we have heard since June that many times, 0:16:33.920 --> 0:16:36.280 many people saying the markets in a bubble, there's plenty 0:16:36.320 --> 0:16:39.520 of euphoria. Then we go on to the summer, Then 0:16:39.560 --> 0:16:42.440 we see retail traders buying options. We hear it again 0:16:42.520 --> 0:16:45.440 that the markets very euphoric. We hear it again in December, 0:16:45.480 --> 0:16:47.400 and all of a sudden we're in the new year 0:16:47.440 --> 0:16:51.160 and months have gone by, markets have gone up. How 0:16:51.200 --> 0:16:55.560 many percentage points since the original euphoria calls and we're 0:16:55.600 --> 0:16:58.200 still sitting here. So even if that were the case, 0:16:58.240 --> 0:17:01.560 I mean, what can you even possibly do out right? 0:17:01.680 --> 0:17:04.439 So again, there there's a lot in that question that 0:17:04.600 --> 0:17:07.800 there's a lot to unpack. Um. And I'm gonna, like 0:17:07.840 --> 0:17:09.879 all good equity strategies, I'm gonna talk my book a 0:17:09.880 --> 0:17:11.880 little bit, and I'm gonna say I told you so, right, 0:17:12.359 --> 0:17:18.000 I had to, Um, but I gave you the disclaimer. Right. 0:17:19.840 --> 0:17:21.600 So at the beginning of the summer, what we told 0:17:21.600 --> 0:17:24.800 clients is we're expecting a market melt up. We're expecting 0:17:25.560 --> 0:17:28.760 tem per cent tem percent plus run. And what we 0:17:28.840 --> 0:17:31.440 said is we don't expect to sell off until we 0:17:31.440 --> 0:17:35.280 reach higher levels, um, because as we go higher, that 0:17:35.359 --> 0:17:38.879 makes the foundation a little less stable. We hear a 0:17:38.920 --> 0:17:41.639 lot of the talk about speculation and bubbles and so 0:17:41.720 --> 0:17:45.120 and so forth. I've been through several bubbles. Yeah, it's 0:17:45.160 --> 0:17:47.159 true that there's a lot of retail investors and I 0:17:47.200 --> 0:17:50.560 have friends that that now in theory trade better than 0:17:50.560 --> 0:17:54.560 George Soros and it's a day and all this other stuff, right, Um, 0:17:54.680 --> 0:17:57.359 But what we where we are? Right, if you go 0:17:57.440 --> 0:18:00.240 back to late nineties we were heading into a set ship. 0:18:00.960 --> 0:18:03.640 We've already had that recession, and if you go back 0:18:03.680 --> 0:18:08.119 to late nineties UM, there are many companies that really 0:18:08.160 --> 0:18:10.600 didn't have a business model. It was things like clicks 0:18:10.640 --> 0:18:13.119 and eyeballs and so and so forth. A lot of 0:18:13.200 --> 0:18:15.840 big tack, a lot of big growth. The underlying fundamentals 0:18:15.840 --> 0:18:18.240 are good, and what we're arguing about, what we're talking 0:18:18.240 --> 0:18:21.800 about is relative value relative performance. We think it's just 0:18:21.840 --> 0:18:25.960 stretched too far at this juncture. Typically when growth works, 0:18:26.480 --> 0:18:30.000 it is in a lower growth, lower rate environments, and 0:18:30.000 --> 0:18:33.960 it's because there's a scarcity value and there's no alternative. Well, 0:18:34.000 --> 0:18:36.639 now you have an alternative. The growth from any of 0:18:36.640 --> 0:18:39.040 these small cap and make cap stocks going to be, 0:18:39.280 --> 0:18:42.399 we we think, quite impressive. We think the reaction function 0:18:42.480 --> 0:18:44.720 is going to be quite strong. And what we think 0:18:44.800 --> 0:18:47.040 is there's probably a two tier market, which is what 0:18:47.080 --> 0:18:49.800 you're beginning to see. And one of the reasons why 0:18:49.920 --> 0:18:53.960 we haven't been so euphoric on our price target is 0:18:54.000 --> 0:18:56.600 we can see a big rotation up the capitalization with 0:18:56.680 --> 0:19:00.840 the ubercaps where people do rotate UM. A lot of 0:19:00.880 --> 0:19:03.440 the uber caps just trade water or perhaps even sell 0:19:03.480 --> 0:19:05.760 off as as people use them as a source of funds, 0:19:06.160 --> 0:19:09.399 but it's not this massive capitulation because the underlying pladimentals 0:19:09.680 --> 0:19:13.040 are actually okay. You will see certain strategies, whether it's 0:19:13.040 --> 0:19:16.640 momentum or other things, have some difficult time, and we'll 0:19:16.680 --> 0:19:19.720 see some you know, double digital corrections at some point 0:19:19.720 --> 0:19:22.600 in time. But I'm not in the camp that we're 0:19:22.640 --> 0:19:25.119 in a bubble and and this is this is terrible 0:19:25.119 --> 0:19:26.760 and it's all gonna end in a in a very 0:19:26.760 --> 0:19:29.880 sad story. Um, there's a lot of good values out there, 0:19:30.160 --> 0:19:32.760 but it really is more similar to the late nineties 0:19:32.960 --> 0:19:36.359 down the capitalization in those mad caps, in the places 0:19:36.400 --> 0:19:40.960 where COVID has really had had a significant effect. And 0:19:41.040 --> 0:19:44.280 as we go forward, what you pay for something is 0:19:44.320 --> 0:19:47.240 going to mean a lot more. And if you're trading 0:19:47.240 --> 0:19:50.080 at a hundred and fifty times earnings, yeah, suddenly the 0:19:50.119 --> 0:19:53.040 stocks will work, but most of them probably don't. And 0:19:53.080 --> 0:19:55.719 you can see a really healthy correction in some of 0:19:55.760 --> 0:20:17.240 these high flyers if you will. So, Chris, A lot 0:20:17.280 --> 0:20:20.600 of people listen to this podcast solely for my brilliant 0:20:20.600 --> 0:20:25.600 cryptocurrency analysis. It's true, right, that's it's I Actually, they 0:20:26.680 --> 0:20:30.560 they think whenever I whenever I mentioned it, people I 0:20:30.560 --> 0:20:33.240 think the listeners roll their eyes and shake their fists 0:20:33.640 --> 0:20:37.560 at their phone. Um, but uh, you did make an 0:20:37.560 --> 0:20:41.800 insitioning call on crypto and your look ahead peace. Let 0:20:41.880 --> 0:20:44.399 me read it here. We sturgence of interest in crypto 0:20:44.480 --> 0:20:48.199 as a preferred speculative instrument further presses the topic of 0:20:48.359 --> 0:20:53.639 institutionalization of digital assets. I'm curious if you can unpack 0:20:53.720 --> 0:20:55.719 that for us a little bit. Um. You know, I 0:20:55.760 --> 0:21:00.720 hear further install institutionalizing crypto and I worry, well, does 0:21:00.760 --> 0:21:04.840 that bring with it sort of systemic risk along for 0:21:04.880 --> 0:21:08.200 the ride? Um? So I'm wondering how you see that 0:21:08.760 --> 0:21:12.840 shaping up in one as far as the institutions embracing crypto. 0:21:13.359 --> 0:21:15.440 And you know, if I can add throw one more 0:21:15.480 --> 0:21:18.520 in there, if you know Gary Gensler as the uh, 0:21:18.560 --> 0:21:21.560 if he gets confirmed for the SEC, if that plays 0:21:21.560 --> 0:21:23.560 any role in how that all shapes out? You know, 0:21:23.640 --> 0:21:26.439 the best I can tell is he probably knows more 0:21:26.480 --> 0:21:31.040 about crypto than probably most government regulators. I'm not sure 0:21:31.080 --> 0:21:33.200 if that ends up being good or bad. I it's 0:21:33.280 --> 0:21:35.200 kind of a two handed economist with it as far 0:21:35.240 --> 0:21:36.680 as I can tell. But how do you see it 0:21:36.720 --> 0:21:41.240 all shaping out? Yep? Um? How do I see it 0:21:41.240 --> 0:21:45.160 all shaping on. It's um. It's still very murky, right. 0:21:45.200 --> 0:21:47.879 But the point that we were trying to make it 0:21:47.840 --> 0:21:50.520 at the end of the year is cryptos are are 0:21:50.600 --> 0:21:55.199 here and people are beginning to accept them more and more. Um. 0:21:55.200 --> 0:21:57.399 Whether you look in the NFL and an NFL player 0:21:57.400 --> 0:22:00.240 wants to be paid in crypto, right, Um that you 0:22:00.280 --> 0:22:02.400 look at and when I go out and I talk 0:22:02.480 --> 0:22:07.040