1 00:00:11,119 --> 00:00:14,880 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:14,920 --> 00:00:18,440 Speaker 1: I'm Joe wisen at All and I'm Tracy Alloway. Pretty 3 00:00:18,560 --> 00:00:23,439 Speaker 1: I liked one of your tweets this morning. Which one? No, 4 00:00:23,560 --> 00:00:25,320 Speaker 1: I mean, they're all good. I like all your tweets, 5 00:00:25,320 --> 00:00:29,720 Speaker 1: but I liked your chart comparing the share price of 6 00:00:30,120 --> 00:00:35,360 Speaker 1: Tesla with the price of the cryptocurrency Ethereum and how 7 00:00:35,400 --> 00:00:38,440 Speaker 1: closely they've tracked each other this year. Yeah. You know, 8 00:00:38,520 --> 00:00:43,080 Speaker 1: I have a history of finding spurious correlations between cryptocurrency 9 00:00:43,200 --> 00:00:46,960 Speaker 1: and other assets, the most famous one being bitcoin and avocados. 10 00:00:46,960 --> 00:00:50,560 Speaker 1: But I have to say, the Tesla versus Ethereum chart, 11 00:00:50,800 --> 00:00:54,800 Speaker 1: I'm not sure it's actually that spurious a correlation. I 12 00:00:54,800 --> 00:00:57,480 Speaker 1: think there's something there. Yeah, I mean I do too, 13 00:00:57,560 --> 00:01:00,240 Speaker 1: And I was exactly gonna say, I think the uh, 14 00:01:00,280 --> 00:01:03,520 Speaker 1: the infamous bitcoin price of bitcoin versus the price of 15 00:01:03,520 --> 00:01:07,400 Speaker 1: avocado's one, that one was probably spurious. But I actually 16 00:01:07,560 --> 00:01:11,760 Speaker 1: think that when you look at something like Tesla and ethereum, 17 00:01:11,800 --> 00:01:14,880 Speaker 1: it's not as spurious as as that one was, or 18 00:01:14,880 --> 00:01:17,000 Speaker 1: maybe people think. And in fact, there are like a 19 00:01:17,080 --> 00:01:20,160 Speaker 1: lot of charts that all kind of look like that 20 00:01:20,240 --> 00:01:23,080 Speaker 1: these days, even though they seem to be in very 21 00:01:23,240 --> 00:01:28,480 Speaker 1: different asset classes and with different fundamental theoretical drivers. Yeah. 22 00:01:28,560 --> 00:01:31,280 Speaker 1: I think you tweeted one recently as well, which was 23 00:01:31,280 --> 00:01:35,399 Speaker 1: wasn't it lumber versus uh, crypto of some sort versus 24 00:01:35,480 --> 00:01:37,440 Speaker 1: tesla as well, and it was all moving in the 25 00:01:37,440 --> 00:01:40,040 Speaker 1: same direction. Yeah, there's a good bunch. So it's a 26 00:01:40,160 --> 00:01:47,760 Speaker 1: gold and tesla and lumber and cryptocurrencies and just like 27 00:01:47,800 --> 00:01:51,600 Speaker 1: a bunch of other stuff. Basically, all these charts sort 28 00:01:51,600 --> 00:01:54,040 Speaker 1: of look the same these days. It's very strange, and 29 00:01:54,080 --> 00:01:56,480 Speaker 1: a lot of people have been saying this, but it 30 00:01:56,520 --> 00:02:00,639 Speaker 1: feels like everything is sort of all one trade right now. Yeah. 31 00:02:00,680 --> 00:02:03,560 Speaker 1: And I think this gets to some of the frustration 32 00:02:03,720 --> 00:02:06,559 Speaker 1: in the market currently, which is that the same things 33 00:02:07,160 --> 00:02:11,000 Speaker 1: keep increasing in value, notably the TEX stocks, and lots 34 00:02:11,000 --> 00:02:14,400 Speaker 1: of people think that that shouldn't be happening, that that's irrational, 35 00:02:14,480 --> 00:02:18,280 Speaker 1: that at some point the price movement should become self limiting, 36 00:02:18,760 --> 00:02:22,080 Speaker 1: i e. The stocks themselves should become too expensive, and 37 00:02:22,200 --> 00:02:24,919 Speaker 1: yet they just never seem to People just keep buying 38 00:02:24,919 --> 00:02:28,120 Speaker 1: and buying and buying and pushing up the valuation. Yeah. 39 00:02:28,160 --> 00:02:30,160 Speaker 1: And I think the other weird thing is is that 40 00:02:30,360 --> 00:02:33,560 Speaker 1: like you know, you look at say like tech stocks 41 00:02:33,560 --> 00:02:35,840 Speaker 1: flying to the moon, and it's like, this is what 42 00:02:35,840 --> 00:02:38,440 Speaker 1: people would call like risk on right, So people are like, 43 00:02:38,840 --> 00:02:42,800 Speaker 1: this usually is associated with you know, when you see 44 00:02:43,000 --> 00:02:45,399 Speaker 1: valuations go up and you see stocks go up, one 45 00:02:45,440 --> 00:02:48,959 Speaker 1: typically associates that with boom times. But the weird thing 46 00:02:49,080 --> 00:02:53,200 Speaker 1: is also the simultaneous rarely and assets that one doesn't 47 00:02:53,240 --> 00:02:56,720 Speaker 1: associate with boom times. So gold obviously has had an 48 00:02:56,720 --> 00:02:59,680 Speaker 1: incredible year, it's come off the boil a little bit lately. 49 00:03:00,320 --> 00:03:03,920 Speaker 1: Treasuries have had an incredible year, although they're sort of 50 00:03:03,960 --> 00:03:06,720 Speaker 1: like backed down because rates are at long end treasuries 51 00:03:06,800 --> 00:03:10,839 Speaker 1: or zero. So you have this simultaneous boom not just 52 00:03:11,040 --> 00:03:15,600 Speaker 1: in risky assets with different fundamental drivers, but also weird 53 00:03:15,680 --> 00:03:19,440 Speaker 1: like booming safe haven assets and risk assets at the 54 00:03:19,480 --> 00:03:21,200 Speaker 1: same time. And I think that's the part that really 55 00:03:21,240 --> 00:03:24,360 Speaker 1: sort of throws people a look like gold and Tesla 56 00:03:24,560 --> 00:03:28,760 Speaker 1: both looking the same. It's strange. Yeah, it's strange. Although 57 00:03:28,800 --> 00:03:30,480 Speaker 1: I have a feeling that a lot of people would 58 00:03:30,600 --> 00:03:33,280 Speaker 1: point out the role of central banks in this and 59 00:03:33,360 --> 00:03:36,400 Speaker 1: the flooding of liquidity and the idea that money has 60 00:03:36,440 --> 00:03:38,840 Speaker 1: to work its way into some sort of asset, whether 61 00:03:38,880 --> 00:03:42,240 Speaker 1: it's the traditional safe haven or something like a tech stalk, 62 00:03:42,280 --> 00:03:44,560 Speaker 1: And of course some people are calling tech stalks safe 63 00:03:44,600 --> 00:03:47,480 Speaker 1: havens now, which is kind of crazy, um compared to 64 00:03:47,520 --> 00:03:50,400 Speaker 1: ten years ago. But anyway, Um, Yes, it's a big 65 00:03:50,440 --> 00:03:54,040 Speaker 1: theme in the market and I'm looking forward to this discussion. Great, 66 00:03:54,160 --> 00:03:56,880 Speaker 1: So we are going to be talking about how everything 67 00:03:56,920 --> 00:04:00,880 Speaker 1: has just become one big trade. Our guest this week 68 00:04:01,080 --> 00:04:04,400 Speaker 1: is really brilliant guy. I've loved reading this stuff for 69 00:04:04,440 --> 00:04:06,720 Speaker 1: a long time, Jared Woodard. He is the head of 70 00:04:06,760 --> 00:04:10,400 Speaker 1: the Research Investment Committee at Bank of America, and he 71 00:04:10,480 --> 00:04:14,119 Speaker 1: recently wrote a note exactly on this the all one 72 00:04:14,240 --> 00:04:17,320 Speaker 1: trade and nous of the market. So, Jared, thanks so 73 00:04:17,400 --> 00:04:19,599 Speaker 1: much for joining us. Yeah, I'm really glad to be 74 00:04:19,640 --> 00:04:21,280 Speaker 1: with both of you. Thanks so much for having me. 75 00:04:21,480 --> 00:04:25,080 Speaker 1: So it's not just our illusion, right, I mean, it 76 00:04:25,160 --> 00:04:28,559 Speaker 1: really does seem like everything is kind of the same 77 00:04:28,720 --> 00:04:31,240 Speaker 1: right now? Is there a Is that true? Is there 78 00:04:31,279 --> 00:04:35,240 Speaker 1: an easy way to sort of demonstrated quantitatively that it 79 00:04:35,400 --> 00:04:37,400 Speaker 1: is all the same right now? It's not just sort 80 00:04:37,440 --> 00:04:42,080 Speaker 1: of us playing tricks with terminal charge. Look, I do 81 00:04:42,160 --> 00:04:44,599 Speaker 1: the same tricky charts and excel. So I think you 82 00:04:44,600 --> 00:04:47,520 Speaker 1: can choose your software and uh and and and make 83 00:04:48,080 --> 00:04:50,760 Speaker 1: some pretty bold claims, but I think there is some 84 00:04:50,839 --> 00:04:54,640 Speaker 1: underlying truth to it, and there is a simple explanation. UM, 85 00:04:54,680 --> 00:04:57,520 Speaker 1: this is a world in which to two big features 86 00:04:57,520 --> 00:05:00,160 Speaker 1: that have been with us for some time, name really 87 00:05:00,640 --> 00:05:05,920 Speaker 1: really scarce sources of growth, especially sources of profit growth UM. 88 00:05:06,000 --> 00:05:08,479 Speaker 1: Combine with the world of ample liquidity as you mentioned, 89 00:05:08,839 --> 00:05:11,960 Speaker 1: and when quinnings growth is scarce but there's lots of 90 00:05:12,000 --> 00:05:15,240 Speaker 1: liquidity slashing around. The investors will, you know, kind of 91 00:05:15,240 --> 00:05:17,159 Speaker 1: do two things we know from the last ten to 92 00:05:17,200 --> 00:05:19,279 Speaker 1: twenty years. You know. The first thing they'll do is 93 00:05:19,279 --> 00:05:22,000 Speaker 1: they'll build up the price of those assets that can 94 00:05:22,080 --> 00:05:25,360 Speaker 1: produce you know, some cash flows and profits in the 95 00:05:25,400 --> 00:05:28,159 Speaker 1: world with where those are incredibly scarce. UM, they'll build 96 00:05:28,120 --> 00:05:30,719 Speaker 1: those up to the very expensive levels as you mentioned 97 00:05:30,720 --> 00:05:32,800 Speaker 1: with tech, and there's lots of other examples. The other 98 00:05:32,839 --> 00:05:35,440 Speaker 1: thing that they'll do is they'll buy things that basically 99 00:05:35,640 --> 00:05:38,279 Speaker 1: function like call options in a way, even though they're 100 00:05:38,520 --> 00:05:41,520 Speaker 1: not derivatives that you know, the assets that maybe don't 101 00:05:41,520 --> 00:05:43,960 Speaker 1: do anything right now but might do something really big 102 00:05:44,160 --> 00:05:47,320 Speaker 1: in the future. UM. Cryptocurrencies might be a good example 103 00:05:47,360 --> 00:05:50,719 Speaker 1: of that, you know, esoteric commodities linked to new products, 104 00:05:50,760 --> 00:05:54,920 Speaker 1: new sources of energy UM, you know, futuristic technology, UM. 105 00:05:54,960 --> 00:05:57,560 Speaker 1: Any kind of asset that that might really explode in 106 00:05:57,640 --> 00:05:59,880 Speaker 1: value is some future scenario the world, even if it's 107 00:05:59,880 --> 00:06:02,520 Speaker 1: not giving you a cash flow today, you know, may 108 00:06:02,560 --> 00:06:05,520 Speaker 1: become worth quite a lot, and so we're worth buying 109 00:06:05,560 --> 00:06:09,200 Speaker 1: today point liquidity example. And you know there's really no 110 00:06:09,279 --> 00:06:14,440 Speaker 1: alternatives in in conventional UM investment, uh, you know assets. 111 00:06:14,480 --> 00:06:16,640 Speaker 1: So so you know, fixed income for example, you have 112 00:06:16,680 --> 00:06:20,400 Speaker 1: treasury yields at record lows, UM, corporate bond yields incredibly low. 113 00:06:20,400 --> 00:06:24,080 Speaker 1: There's relatively scarce places to generate those kinds of returns. 114 00:06:24,120 --> 00:06:27,839 Speaker 1: And so what we find our investors forming portfolios that 115 00:06:27,839 --> 00:06:31,040 Speaker 1: are kind of a barbell of the tech and maybe 116 00:06:31,040 --> 00:06:33,839 Speaker 1: health care, maybe consumative discretionary stocks that can still grow 117 00:06:33,880 --> 00:06:37,280 Speaker 1: their earnings in a reliable way, UM scarce as they 118 00:06:37,320 --> 00:06:39,640 Speaker 1: are a little bit up those on the one side 119 00:06:39,680 --> 00:06:41,280 Speaker 1: of the portfolio. And then the other side is kind 120 00:06:41,279 --> 00:06:46,080 Speaker 1: of your your liquidity trade UH slightly more speculative part 121 00:06:46,160 --> 00:06:48,719 Speaker 1: where you you know, buy something that might generate some 122 00:06:48,800 --> 00:06:52,600 Speaker 1: outside return someday as long as it's not too expensive 123 00:06:53,279 --> 00:06:55,640 Speaker 1: to own today. And you know that at the underlying 124 00:06:55,720 --> 00:06:59,040 Speaker 1: dynamic here is one in which there's an actually reasonable 125 00:06:59,600 --> 00:07:02,960 Speaker 1: econom rationale I think, I mean, just as as as 126 00:07:02,960 --> 00:07:06,560 Speaker 1: corporate profit growth is scarce, we know economic growth is scarce, 127 00:07:06,960 --> 00:07:08,960 Speaker 1: and so you're starting to see I think the kind 128 00:07:09,040 --> 00:07:11,040 Speaker 1: of inequality on Wall Street that that we've seen on 129 00:07:11,120 --> 00:07:13,360 Speaker 1: Main Street for a very long time. Everyone knows about, 130 00:07:13,680 --> 00:07:16,600 Speaker 1: you know, all those eye popping you know, uh statistics 131 00:07:16,600 --> 00:07:21,960 Speaker 1: about the relative you know, size of income and wealth 132 00:07:22,040 --> 00:07:24,000 Speaker 1: controlled by you know, vast numbers of people on the 133 00:07:24,040 --> 00:07:28,080 Speaker 1: world relative to the handful of very wealthy folks who 134 00:07:28,240 --> 00:07:30,760 Speaker 1: control quite a lot more. And so um, if you 135 00:07:30,800 --> 00:07:33,320 Speaker 1: think about that, I mean, one of my favorite statistics 136 00:07:33,320 --> 00:07:35,960 Speaker 1: on this measure is or in casts cost of thriving 137 00:07:35,960 --> 00:07:37,400 Speaker 1: in deck. So he if you go back to I 138 00:07:37,400 --> 00:07:42,119 Speaker 1: think you know, the average worker making you know, median 139 00:07:42,200 --> 00:07:45,200 Speaker 1: salary um, it might take them. I think it was 140 00:07:45,280 --> 00:07:48,480 Speaker 1: something like twenty maybe twenty five weeks out of the 141 00:07:48,560 --> 00:07:51,400 Speaker 1: year um to to earn enough money to pay for 142 00:07:51,440 --> 00:07:53,640 Speaker 1: the big fixed costs that you have to have for 143 00:07:53,720 --> 00:07:56,240 Speaker 1: sort of a comfortable you know, middle class life, a house, 144 00:07:56,320 --> 00:08:00,920 Speaker 1: to car, education, healthcare, housing. So you fast forward to 145 00:08:00,920 --> 00:08:03,679 Speaker 1: today and I think it takes like fifty three weeks 146 00:08:03,680 --> 00:08:05,440 Speaker 1: out of a fifty two week year to pay for 147 00:08:05,480 --> 00:08:08,760 Speaker 1: those same fixed costs. So the bottom line is, even 148 00:08:08,760 --> 00:08:12,040 Speaker 1: if people can kind of get by, they certainly can't thrive. 149 00:08:12,080 --> 00:08:14,640 Speaker 1: They certainly can't spend on things they like to spend 150 00:08:14,640 --> 00:08:16,480 Speaker 1: because they there their income, so much of their income 151 00:08:16,560 --> 00:08:20,080 Speaker 1: is consumed by the necessities. And and whatever your your 152 00:08:20,080 --> 00:08:21,800 Speaker 1: politics are around that, I think the bottom line is 153 00:08:21,840 --> 00:08:23,480 Speaker 1: that for a country like the United States and which 154 00:08:23,800 --> 00:08:28,560 Speaker 1: consumption is GDP, we can't ever expect to have a 155 00:08:28,600 --> 00:08:32,439 Speaker 1: breakout economic growth in an economy in which most people 156 00:08:32,520 --> 00:08:36,640 Speaker 1: simply don't have enough income to spend on discretionary you know, 157 00:08:36,679 --> 00:08:39,360 Speaker 1: disposable kind of items. Well, that's that's a familiar story. 158 00:08:39,600 --> 00:08:43,199 Speaker 1: Which I think less familiar, perhaps is is the inequality 159 00:08:43,280 --> 00:08:46,520 Speaker 1: that you're seeing that manifest on Wall Street. Where you 160 00:08:46,559 --> 00:08:49,400 Speaker 1: can look at the broad measures of corporate profitability across 161 00:08:49,520 --> 00:08:52,400 Speaker 1: the United States, the National Income Product Account and Input 162 00:08:52,400 --> 00:08:54,800 Speaker 1: measure is a popular one where if you look at 163 00:08:54,840 --> 00:08:58,439 Speaker 1: that measure across all of corporate America, even including small 164 00:08:58,480 --> 00:09:02,560 Speaker 1: medium businesses, profits haven't actually really grown in dollar terms 165 00:09:03,400 --> 00:09:05,240 Speaker 1: since about two thousand and fourteen. I mean, if you 166 00:09:05,280 --> 00:09:07,240 Speaker 1: found you know, obviously excluding the pandemic and the and 167 00:09:07,280 --> 00:09:09,120 Speaker 1: the collapse and profits then, But if you go back 168 00:09:09,160 --> 00:09:12,640 Speaker 1: to the start of before profits really took a nose dive, 169 00:09:13,440 --> 00:09:16,920 Speaker 1: corporate profits at flatline for for many years. Contrast that 170 00:09:16,920 --> 00:09:20,200 Speaker 1: with the SMP five hundred large cap, the really big winners, 171 00:09:20,440 --> 00:09:23,360 Speaker 1: where profit growth has been continuing to explode, you know, 172 00:09:23,480 --> 00:09:28,200 Speaker 1: upside lead primarily by the six or seven big tech 173 00:09:28,280 --> 00:09:30,040 Speaker 1: and and sort of consumer stocks that we can all 174 00:09:30,080 --> 00:09:32,960 Speaker 1: think about. Well, that kind of inequality on on Wall Street, 175 00:09:32,960 --> 00:09:35,000 Speaker 1: where just a handful of firms were able to generate 176 00:09:35,400 --> 00:09:38,240 Speaker 1: the lion's share both of profits and of of market 177 00:09:38,280 --> 00:09:42,240 Speaker 1: returns um is I think exactly the kind of damic 178 00:09:42,280 --> 00:09:44,800 Speaker 1: you've seen across the real economy. That's what drives people 179 00:09:44,840 --> 00:09:47,280 Speaker 1: into these crowded trades. The intuition that we all have 180 00:09:47,440 --> 00:09:50,840 Speaker 1: is this is incredibly extreme. You know, this can't continue forever, 181 00:09:51,120 --> 00:09:54,000 Speaker 1: This won't end well, et cetera. The problem is that 182 00:09:54,120 --> 00:09:58,360 Speaker 1: if you bet against that trend, you've you've gotten burned, 183 00:09:58,400 --> 00:10:00,880 Speaker 1: I think, for for quite quite a long time. And 184 00:10:00,920 --> 00:10:03,240 Speaker 1: so the next question that we always get asked is 185 00:10:03,559 --> 00:10:07,280 Speaker 1: what would cause reversal, what would cause it change? Yeah, 186 00:10:07,320 --> 00:10:09,800 Speaker 1: I think that's the big question, and we're definitely going 187 00:10:09,840 --> 00:10:12,240 Speaker 1: to return to that topic, But just before we do, 188 00:10:12,920 --> 00:10:16,920 Speaker 1: one thing I was wondering is, given this backdrop of 189 00:10:17,080 --> 00:10:21,600 Speaker 1: slow economic growth and abundance of liquidity, how much does 190 00:10:22,440 --> 00:10:25,920 Speaker 1: price of financial assets actually play into all of this? 191 00:10:26,040 --> 00:10:27,800 Speaker 1: And I know it sounds weird, but one thing I 192 00:10:28,360 --> 00:10:32,800 Speaker 1: often think about is if you can't make money through 193 00:10:33,320 --> 00:10:37,000 Speaker 1: UM cash flow of companies because there's sluggish economic growth, 194 00:10:37,000 --> 00:10:39,600 Speaker 1: then one way to actually make money is through asset price. 195 00:10:40,040 --> 00:10:44,720 Speaker 1: Asset prices going up, So it's kind of flows following flows, right, 196 00:10:44,720 --> 00:10:48,079 Speaker 1: You're trying to target the thing where a lot of 197 00:10:48,120 --> 00:10:50,439 Speaker 1: money is flowing into on the hopes that that's going 198 00:10:50,520 --> 00:10:53,960 Speaker 1: to force the price up. And that's basically another way 199 00:10:53,960 --> 00:10:57,800 Speaker 1: of monetizing. Is that something that you observe as well 200 00:10:58,280 --> 00:11:02,600 Speaker 1: in the current UM and vironament, Well, we definitely see, 201 00:11:03,200 --> 00:11:08,160 Speaker 1: you know, periods of speculative flows kind of and price 202 00:11:08,240 --> 00:11:12,160 Speaker 1: bubbles UM, which is maybe the natural outcome of this 203 00:11:12,240 --> 00:11:15,480 Speaker 1: kind of environment. UM. A lot of work done this year, 204 00:11:15,480 --> 00:11:19,679 Speaker 1: I think, for example, on flows among individual investors, especially 205 00:11:19,920 --> 00:11:23,920 Speaker 1: you know, younger and more tech savvy UM investors trading 206 00:11:23,960 --> 00:11:26,840 Speaker 1: in different ways, trading different kinds of assets. I'm not 207 00:11:26,880 --> 00:11:29,280 Speaker 1: sure how much those moves the needle and in overall 208 00:11:29,320 --> 00:11:32,560 Speaker 1: dollar terms relative to the size of the market. But um, 209 00:11:32,600 --> 00:11:34,800 Speaker 1: whether it's in the options market or in or in uh, 210 00:11:34,880 --> 00:11:37,520 Speaker 1: you know, just cash equities. UM. You've certainly seen some 211 00:11:37,559 --> 00:11:41,079 Speaker 1: of those big speculative flows. And I know that if 212 00:11:41,080 --> 00:11:44,240 Speaker 1: you look at a very simple measure, something like the 213 00:11:44,240 --> 00:11:47,679 Speaker 1: the price of the SMP five relative to its it's 214 00:11:47,679 --> 00:11:51,480 Speaker 1: two moving average. In recent weeks, that just that simple 215 00:11:52,080 --> 00:11:54,480 Speaker 1: ratio I think reached the highest level since since two 216 00:11:54,520 --> 00:11:57,280 Speaker 1: thousand and nine. UM, as we had this incredible rally 217 00:11:57,320 --> 00:12:00,240 Speaker 1: fueled by the sense from at least some investor there's 218 00:12:00,320 --> 00:12:02,040 Speaker 1: that you know, markets are only gonna go up for 219 00:12:02,120 --> 00:12:05,200 Speaker 1: quite a while and UM, and when that gets reinforced 220 00:12:05,240 --> 00:12:08,880 Speaker 1: by that ample liquidity by um obviously incredible fiscal support 221 00:12:08,920 --> 00:12:13,360 Speaker 1: this year, it's a great recipe for speculative upside bubbles 222 00:12:13,400 --> 00:12:17,240 Speaker 1: that the then get popped and UM, you know, assets 223 00:12:17,280 --> 00:12:19,720 Speaker 1: be distributed, perhaps in the steady your hands kind of 224 00:12:20,240 --> 00:12:23,720 Speaker 1: the classic old story. What doesn't change are the economic 225 00:12:23,720 --> 00:12:41,800 Speaker 1: fundamentals and the scarcity of that underlying growth. I'm gonna 226 00:12:41,880 --> 00:12:44,720 Speaker 1: I really like the way you sort of characterized earlier 227 00:12:44,880 --> 00:12:47,840 Speaker 1: the sort of some of these speculative assets, like a 228 00:12:47,840 --> 00:12:50,120 Speaker 1: lot of popular tech stocks is sort of being like 229 00:12:50,160 --> 00:12:54,240 Speaker 1: a call option on some future outcome. And so you 230 00:12:54,320 --> 00:12:59,480 Speaker 1: see incredible valuations per se cloud computing stocks how much 231 00:12:59,800 --> 00:13:01,920 Speaker 1: or say Tesla, which maybe one day we'll have an 232 00:13:01,960 --> 00:13:06,160 Speaker 1: autonomous electric vehicle on Mars or something like that, and 233 00:13:06,440 --> 00:13:09,120 Speaker 1: somehow they'll make a ton of money on that. I'm curious, Like, 234 00:13:09,280 --> 00:13:11,319 Speaker 1: one of the things is this art of idea of 235 00:13:11,360 --> 00:13:14,679 Speaker 1: the blooding of liquidity, the collapse and real interest rates. 236 00:13:14,760 --> 00:13:18,560 Speaker 1: Real interest rates are extreally negative? How much? That's really 237 00:13:18,600 --> 00:13:19,920 Speaker 1: the part of the story, because if you talk to 238 00:13:19,920 --> 00:13:22,160 Speaker 1: cloud investors are like, oh, yeah, all these businesses are 239 00:13:22,160 --> 00:13:24,720 Speaker 1: going to the cloud. Uh. If you talk to auto 240 00:13:24,760 --> 00:13:27,480 Speaker 1: investors like all these business all these cars or whatever. Like. 241 00:13:27,520 --> 00:13:30,280 Speaker 1: People have their individual stories, but how much is it 242 00:13:30,360 --> 00:13:34,120 Speaker 1: is simply that when real interest rates are negative, people 243 00:13:34,200 --> 00:13:36,880 Speaker 1: can afford to wait because they're not really losing any 244 00:13:36,880 --> 00:13:39,880 Speaker 1: money in the short term by waiting for those profits 245 00:13:39,880 --> 00:13:42,520 Speaker 1: that they expect to come rolling into the Ye. Look, 246 00:13:42,559 --> 00:13:45,079 Speaker 1: I think I think it's it's It's certainly true that 247 00:13:45,160 --> 00:13:48,880 Speaker 1: each individual industry has its own idios and credit drivers. 248 00:13:49,360 --> 00:13:53,200 Speaker 1: But what gets people to invest and what motivates those flows, 249 00:13:53,200 --> 00:13:56,520 Speaker 1: I think absolutely is is the broader macro story. Yeah, 250 00:13:57,040 --> 00:13:59,200 Speaker 1: just to the overall value versus growth debate, I think 251 00:13:59,240 --> 00:14:02,880 Speaker 1: captures is really well. UM. You know, we we published recently, 252 00:14:03,000 --> 00:14:06,400 Speaker 1: you know on the fact that value versus growth over 253 00:14:06,480 --> 00:14:09,600 Speaker 1: the past ten years is just you know, UM endured 254 00:14:09,600 --> 00:14:11,760 Speaker 1: its worst period of returns in history, worse than the 255 00:14:11,800 --> 00:14:14,280 Speaker 1: dot com bubble. Yeah, that was a great chart, you guys, public. 256 00:14:15,000 --> 00:14:17,400 Speaker 1: Thank you. The bottom line is that is that when 257 00:14:17,720 --> 00:14:21,760 Speaker 1: when growth is scarce, uh, you know, growth stocks outperform. 258 00:14:21,840 --> 00:14:23,560 Speaker 1: It's it's really simple, but you know, we tried to 259 00:14:23,560 --> 00:14:24,880 Speaker 1: get a little bit deeper. If you look at the 260 00:14:25,200 --> 00:14:28,400 Speaker 1: just to to sort of explain the that ratio value 261 00:14:28,480 --> 00:14:31,120 Speaker 1: versus growth. We found that you could you could explain 262 00:14:31,120 --> 00:14:34,359 Speaker 1: about eight percent of the variance with with just three variables. 263 00:14:34,360 --> 00:14:39,800 Speaker 1: It was interest rates, inflation, you know, expectations inflation, compensation 264 00:14:40,160 --> 00:14:43,800 Speaker 1: and in the business cycle proxy by purchasing manager indexes. 265 00:14:44,000 --> 00:14:46,280 Speaker 1: So those are three really common varables everybody looks at 266 00:14:46,320 --> 00:14:48,800 Speaker 1: and they can help for a value percent of the variants. 267 00:14:48,840 --> 00:14:52,160 Speaker 1: What that tells us is that for value to UM 268 00:14:52,320 --> 00:14:55,920 Speaker 1: recover the losses this year relative to growth stocks, you'd 269 00:14:55,960 --> 00:14:58,840 Speaker 1: have to see the ten year treasury yield rise from 270 00:14:58,880 --> 00:15:01,640 Speaker 1: I think like six six percent today to one point 271 00:15:01,720 --> 00:15:04,680 Speaker 1: eight percent. You have to see five year forward inflation, 272 00:15:05,040 --> 00:15:08,720 Speaker 1: you know, expectations rise to two and a half percent 273 00:15:09,360 --> 00:15:12,320 Speaker 1: and keep p M I is very stable and expansion territory. 274 00:15:12,400 --> 00:15:15,120 Speaker 1: So that's a really big recipe. Uh, you know, a 275 00:15:15,120 --> 00:15:17,680 Speaker 1: really big bill to to fill and uh and one 276 00:15:17,720 --> 00:15:20,720 Speaker 1: reason why we think growth stocks can continue. Um. So 277 00:15:20,880 --> 00:15:23,920 Speaker 1: it's absolutely I think a function of you know, very 278 00:15:24,000 --> 00:15:26,880 Speaker 1: low expectations out into the future for growth and for 279 00:15:26,960 --> 00:15:29,600 Speaker 1: inflation and driving a lot of those flows. You saw 280 00:15:29,640 --> 00:15:31,880 Speaker 1: some great evidence of this, by the way, very recently 281 00:15:31,880 --> 00:15:36,000 Speaker 1: when the FED shifted it's it's inflation framework and in 282 00:15:36,040 --> 00:15:38,800 Speaker 1: the chair, it basically made it very clear that we're 283 00:15:38,800 --> 00:15:41,960 Speaker 1: gonna allow inflation to overshoot for some amount of time. 284 00:15:42,360 --> 00:15:45,480 Speaker 1: On those days and and the sessions and market thereafter, 285 00:15:45,800 --> 00:15:47,960 Speaker 1: there was I think that you know, pretty clear rotation 286 00:15:48,000 --> 00:15:50,280 Speaker 1: out of some of those tech and other kind of 287 00:15:50,320 --> 00:15:53,480 Speaker 1: growth names into things like financials and energy, precisely because 288 00:15:53,960 --> 00:15:56,880 Speaker 1: I think investors realized that in terms of these longer 289 00:15:57,000 --> 00:15:59,560 Speaker 1: dated you know, discounting cash flows back to the present 290 00:16:00,000 --> 00:16:01,600 Speaker 1: at some point in the business cycle, if we do 291 00:16:01,720 --> 00:16:05,240 Speaker 1: get to meaningful wage growth in particular, again, you know, 292 00:16:05,240 --> 00:16:07,640 Speaker 1: the FED might really will be more tolerant. It's really 293 00:16:07,640 --> 00:16:09,600 Speaker 1: remarkable if you look at a chart, for example, of 294 00:16:10,240 --> 00:16:13,960 Speaker 1: wages and and just the FED funds rate. However, the 295 00:16:14,000 --> 00:16:17,000 Speaker 1: past three or four cycles, that has always hiked interest 296 00:16:17,080 --> 00:16:20,880 Speaker 1: rates just when you know, the lowest income parts of 297 00:16:20,920 --> 00:16:23,400 Speaker 1: the labor market really start to enjoy, you know, some 298 00:16:23,480 --> 00:16:25,600 Speaker 1: of that juicy upside, and then they cut it off 299 00:16:25,640 --> 00:16:28,000 Speaker 1: and you get a recession. You know shortly thereafter. It's 300 00:16:28,000 --> 00:16:31,760 Speaker 1: always happened in the past. What a coincidence? Yeah, right, 301 00:16:32,000 --> 00:16:34,360 Speaker 1: And so you know that's always happened in the past. 302 00:16:34,400 --> 00:16:37,120 Speaker 1: It's always it's always bad news for growth. You know. 303 00:16:37,280 --> 00:16:39,920 Speaker 1: Although I'm I'm I'm not quite the sort of perennial 304 00:16:39,920 --> 00:16:42,360 Speaker 1: optimists like some folks are about the FED. You know, 305 00:16:42,360 --> 00:16:44,080 Speaker 1: it does seem that if the FED is able to 306 00:16:44,520 --> 00:16:46,920 Speaker 1: make and meet this commitment, that if we do get 307 00:16:47,200 --> 00:16:49,520 Speaker 1: in the next business cycle, you know, we start to 308 00:16:49,560 --> 00:16:51,960 Speaker 1: see wages rise really meaningfully. If the FED does sit 309 00:16:52,000 --> 00:16:54,680 Speaker 1: on its hands and say, look, when I let this continue, um, 310 00:16:54,680 --> 00:16:57,880 Speaker 1: it actually could mean at that future date, who knows 311 00:16:57,920 --> 00:16:59,760 Speaker 1: how long it takes to get there, and it could 312 00:16:59,880 --> 00:17:03,080 Speaker 1: mean some more meaningful upside. I think for the economy 313 00:17:03,120 --> 00:17:05,919 Speaker 1: and for inflation, investors are going to price that in. 314 00:17:06,040 --> 00:17:10,119 Speaker 1: It doesn't mean a radical, permanent shift now, but it 315 00:17:10,160 --> 00:17:12,680 Speaker 1: does mean that I think that the distribution of returns 316 00:17:13,040 --> 00:17:15,040 Speaker 1: can tilt a little bit more in favor of value, 317 00:17:15,520 --> 00:17:18,200 Speaker 1: you know, in that sort of right hand tail future 318 00:17:18,200 --> 00:17:22,359 Speaker 1: state of the world. Yeah, it could actually be different 319 00:17:22,480 --> 00:17:24,760 Speaker 1: this time, or at least the FED spramework is different. 320 00:17:25,160 --> 00:17:28,359 Speaker 1: So you already touched on this a little bit. But 321 00:17:28,720 --> 00:17:31,720 Speaker 1: when it comes to something like the text stocks or 322 00:17:31,760 --> 00:17:34,400 Speaker 1: you know, the typical things that people like to say 323 00:17:34,480 --> 00:17:38,679 Speaker 1: are in bubble territory, what will be the thing that 324 00:17:38,800 --> 00:17:42,919 Speaker 1: sparks the big reversal You just mentioned inflation and the 325 00:17:42,960 --> 00:17:46,800 Speaker 1: return of some wage growth potentially and maybe the FED 326 00:17:46,840 --> 00:17:49,560 Speaker 1: being more patient than it used to be. Um when 327 00:17:49,560 --> 00:17:52,600 Speaker 1: it comes to that, But is there anything else that 328 00:17:52,960 --> 00:17:58,399 Speaker 1: you see that could sort of spark that big repositioning. Well, 329 00:17:58,400 --> 00:18:01,200 Speaker 1: there's there's one sort of markets related catalyst that could 330 00:18:01,200 --> 00:18:04,520 Speaker 1: happen anytime, and then there's a policy related catalysts that 331 00:18:04,520 --> 00:18:06,919 Speaker 1: that I think we could look for as well. The 332 00:18:06,960 --> 00:18:09,280 Speaker 1: markets one is I mean, you know, I wonder whether 333 00:18:09,400 --> 00:18:12,199 Speaker 1: this sort of value under performance, for example, or or 334 00:18:12,240 --> 00:18:14,840 Speaker 1: just the kind of returns we've seen lately cause investors 335 00:18:14,880 --> 00:18:17,919 Speaker 1: to to look at their accounting again and think twice 336 00:18:17,960 --> 00:18:22,400 Speaker 1: about the way that they are interpreting understanding corporate actions 337 00:18:22,400 --> 00:18:26,480 Speaker 1: and businesses. If you think about a conventional value in 338 00:18:26,520 --> 00:18:29,200 Speaker 1: the actual price to book sort of a ratio, But 339 00:18:29,320 --> 00:18:31,560 Speaker 1: what goes into that book value, it's it's it's assets, 340 00:18:31,640 --> 00:18:35,720 Speaker 1: my salabilities. But the assets that typically are included are 341 00:18:35,760 --> 00:18:39,000 Speaker 1: are mostly just tangible assets. Um. We saw one estimate 342 00:18:39,000 --> 00:18:42,960 Speaker 1: from a third party uh claiming that in SMP five companies, 343 00:18:43,400 --> 00:18:47,040 Speaker 1: intangible assets actually account for eighty four percent of their 344 00:18:47,320 --> 00:18:49,840 Speaker 1: other total assets. Now, I think that knows a little 345 00:18:49,880 --> 00:18:51,520 Speaker 1: bit high. It just sounds high to me. But but 346 00:18:51,560 --> 00:18:54,399 Speaker 1: even if you think it's only you know, fifty or sixty, 347 00:18:54,600 --> 00:18:57,280 Speaker 1: I mean it's a it's a huge amount of work 348 00:18:57,440 --> 00:18:59,960 Speaker 1: that's not being accounted for in a lot of convention 349 00:19:00,000 --> 00:19:02,679 Speaker 1: in all models, things like patterns, the output of R 350 00:19:02,680 --> 00:19:06,440 Speaker 1: and D, the training that goes into a workforce, customer loyalty, 351 00:19:06,520 --> 00:19:08,840 Speaker 1: brand value, whatever that's worth. I mean, these things aren't 352 00:19:08,880 --> 00:19:11,720 Speaker 1: worth zero dollars. It should be included. And if you 353 00:19:11,840 --> 00:19:14,359 Speaker 1: if you do include them. There's some academic research and 354 00:19:14,440 --> 00:19:17,879 Speaker 1: some independent work that our team has done suggesting that 355 00:19:18,000 --> 00:19:21,040 Speaker 1: if you include intangible assets and the formula for companies 356 00:19:21,280 --> 00:19:24,320 Speaker 1: book value, you can improve the returns to a value 357 00:19:24,359 --> 00:19:27,399 Speaker 1: strategy by you know, more than three percentage points a 358 00:19:27,480 --> 00:19:30,320 Speaker 1: year versus a conventional benchmark. And that's a pretty meaningful, 359 00:19:30,840 --> 00:19:33,080 Speaker 1: uh you know, meaningful result. If you throw in a 360 00:19:33,119 --> 00:19:37,080 Speaker 1: couple other tricks, things like a quality filter, a small 361 00:19:37,119 --> 00:19:40,240 Speaker 1: cap value byas rather than large cap, you can boost 362 00:19:40,359 --> 00:19:43,280 Speaker 1: returns by another two to three percentage points. Altogether some 363 00:19:43,320 --> 00:19:46,880 Speaker 1: pretty meaningful performance. And I wouldn't be surprised to see 364 00:19:46,920 --> 00:19:50,560 Speaker 1: investors start to rethink their models of how companies are 365 00:19:50,560 --> 00:19:52,639 Speaker 1: built and what they what they look like in the 366 00:19:52,680 --> 00:19:54,679 Speaker 1: future in a way that could shift some flows in 367 00:19:54,720 --> 00:19:58,120 Speaker 1: the meaningful direction towards companies that we don't typically think 368 00:19:58,160 --> 00:20:00,880 Speaker 1: of as you know, as you stocked. We think about 369 00:20:00,960 --> 00:20:03,160 Speaker 1: the winners and losers in this market. We've mentioned tach 370 00:20:03,240 --> 00:20:05,679 Speaker 1: a lot, and and maybe it would include healthcare and 371 00:20:05,720 --> 00:20:09,000 Speaker 1: some consumer discretionary as the big growth sectors. I think 372 00:20:09,000 --> 00:20:12,160 Speaker 1: that's been true historically and the same by the same token, 373 00:20:12,200 --> 00:20:15,080 Speaker 1: our work shows that value index is traditionally have been 374 00:20:15,080 --> 00:20:19,320 Speaker 1: really overweighted into in financials, um and energy. But if 375 00:20:19,359 --> 00:20:22,520 Speaker 1: you start to include intangible assets is actually credible, you know, 376 00:20:22,560 --> 00:20:26,960 Speaker 1: meaningful parts of what makes a company worthwhile. Then financials 377 00:20:27,040 --> 00:20:29,720 Speaker 1: energy don't get quite the big overweights that they that 378 00:20:29,760 --> 00:20:32,200 Speaker 1: they would today, and you can actually as a value 379 00:20:32,200 --> 00:20:36,000 Speaker 1: investor go into some sectors that people don't typically think of, 380 00:20:36,080 --> 00:20:38,520 Speaker 1: things like you know, healthcare, even a little bit of tech, 381 00:20:38,600 --> 00:20:41,760 Speaker 1: even some others. So um, I think that could happen. 382 00:20:41,800 --> 00:20:43,920 Speaker 1: That could me causing the equal shift within the market. 383 00:20:43,960 --> 00:20:46,840 Speaker 1: It obviously doesn't affect the broader economy, you know, in 384 00:20:47,200 --> 00:20:49,640 Speaker 1: the first order way. But I think the more important 385 00:20:49,680 --> 00:20:51,760 Speaker 1: shift to look out for something we've worked on a 386 00:20:51,800 --> 00:20:54,640 Speaker 1: lot this year. It is what happens in public policy 387 00:20:54,760 --> 00:20:57,840 Speaker 1: over the next several quarters, next several years. Because we 388 00:20:57,920 --> 00:21:00,920 Speaker 1: know that if fiscal if monetary policy does what it does. 389 00:21:00,960 --> 00:21:02,600 Speaker 1: We talked about that already, that's not going to move 390 00:21:02,600 --> 00:21:05,359 Speaker 1: the needle independently. It just kind of affects what happens 391 00:21:05,400 --> 00:21:08,560 Speaker 1: really in some far off distant land of of a 392 00:21:08,600 --> 00:21:12,359 Speaker 1: really hot economy. UM, and a fiscal policy, I we've argued, 393 00:21:12,760 --> 00:21:16,280 Speaker 1: only remains limited to providing you know, sort of life support, 394 00:21:16,320 --> 00:21:19,000 Speaker 1: and it's absolutely necessary. The kind of work that we've 395 00:21:19,000 --> 00:21:22,920 Speaker 1: seen this year. Look, this is the biggest and fastest 396 00:21:22,920 --> 00:21:26,040 Speaker 1: fiscal expension in US history outside of World War Two. 397 00:21:26,240 --> 00:21:29,440 Speaker 1: It's been incredibly powerful, incredibly important. But all it does 398 00:21:29,480 --> 00:21:31,520 Speaker 1: is get us back to where we sort of started 399 00:21:31,520 --> 00:21:33,919 Speaker 1: the year. If that's the most we can achieve, we're 400 00:21:33,920 --> 00:21:36,120 Speaker 1: not going to break out of this world of sort 401 00:21:36,160 --> 00:21:40,560 Speaker 1: of secular stagnation and scarce, scarce growth. To see a 402 00:21:40,640 --> 00:21:44,000 Speaker 1: level shift, kind of elevation to a new tier of 403 00:21:44,000 --> 00:21:47,800 Speaker 1: of growth and productivity requires new investment, especially I think 404 00:21:47,840 --> 00:21:50,560 Speaker 1: industrial policy. Um this has worked really well in the 405 00:21:50,600 --> 00:21:54,159 Speaker 1: past in the United States, in South Korea, in Japan 406 00:21:54,200 --> 00:21:56,919 Speaker 1: and German. I mean basically, any modern economy that you 407 00:21:56,920 --> 00:22:00,320 Speaker 1: look at the past hundred years hasn't gotten to where 408 00:22:00,359 --> 00:22:04,040 Speaker 1: it is today, any modern industrialized economy without some cooperation 409 00:22:04,080 --> 00:22:06,119 Speaker 1: between the public and private sector when it comes to 410 00:22:06,720 --> 00:22:12,160 Speaker 1: incentivizing research, boosting productivity, and key industries, protecting nascent industries 411 00:22:12,400 --> 00:22:14,600 Speaker 1: for a little while from competition until they can stand 412 00:22:14,600 --> 00:22:16,920 Speaker 1: on their own two feet, and and and sometimes even 413 00:22:16,960 --> 00:22:19,720 Speaker 1: government as a ready buyer. All that to say, things 414 00:22:19,720 --> 00:22:22,040 Speaker 1: are changing, I think not just in Washington, d C. 415 00:22:22,200 --> 00:22:26,840 Speaker 1: But around uh out around the world as countries realize 416 00:22:26,880 --> 00:22:29,879 Speaker 1: that you know, competition globally is going to require a 417 00:22:29,880 --> 00:22:32,440 Speaker 1: little bit more than a kind of a las fair 418 00:22:32,480 --> 00:22:36,639 Speaker 1: hands off attitude. And so if if governments continue the 419 00:22:36,640 --> 00:22:38,199 Speaker 1: path that I think they've started this year, I mean, 420 00:22:38,200 --> 00:22:42,040 Speaker 1: we tracked fifteen to twenty different bills in Congress just 421 00:22:42,119 --> 00:22:45,480 Speaker 1: this year, many with broad by partisan support designed to 422 00:22:45,800 --> 00:22:51,119 Speaker 1: incentivize research and development and capex um in in the 423 00:22:51,280 --> 00:22:54,359 Speaker 1: direction of new technologies. And if companies, uh, you know, 424 00:22:54,400 --> 00:22:57,160 Speaker 1: get those benefits, get those incentives, and governments really push 425 00:22:57,280 --> 00:22:58,879 Speaker 1: in that area, I think you can actually see a 426 00:22:58,880 --> 00:23:02,400 Speaker 1: big boost productivity. That's exactly what happened in the US 427 00:23:02,480 --> 00:23:04,760 Speaker 1: during the Cold War. So that's the scenario. I think, 428 00:23:05,760 --> 00:23:10,240 Speaker 1: a combination of of supporting consumption but also incentivizing you know, 429 00:23:10,280 --> 00:23:12,960 Speaker 1: productivity that could get us to a new growth scenario 430 00:23:13,040 --> 00:23:15,879 Speaker 1: and actually cause a really profound shift in the kinds 431 00:23:15,880 --> 00:23:18,680 Speaker 1: of portfolios that will work well. So, if I'm hearing 432 00:23:18,720 --> 00:23:23,400 Speaker 1: you correctly, then the best thing for the financial industry 433 00:23:23,480 --> 00:23:27,439 Speaker 1: or finance stocks and the oil industry would be a 434 00:23:27,520 --> 00:23:32,240 Speaker 1: huge Biden and Democratic sweep and a massive fiscal stimulus. 435 00:23:32,320 --> 00:23:35,680 Speaker 1: And so probably the two industries that we most associate 436 00:23:35,760 --> 00:23:40,320 Speaker 1: with antagonism, perhaps towards uh, tax and spend, and Democrats 437 00:23:40,359 --> 00:23:43,960 Speaker 1: and liberals would actually theoretically benefit the most from the 438 00:23:44,240 --> 00:23:47,359 Speaker 1: UH such an out. I can't, I can't, I can't 439 00:23:47,359 --> 00:23:49,080 Speaker 1: go all the way with you. I know, I know 440 00:23:49,160 --> 00:23:51,800 Speaker 1: you can't say that. I know, I know, but you cannot. 441 00:23:52,040 --> 00:23:54,840 Speaker 1: I know. No one can see your face because we're 442 00:23:54,840 --> 00:23:56,640 Speaker 1: just doing it on audio. But you could just sort 443 00:23:56,680 --> 00:23:59,720 Speaker 1: of nod that that's kind of a potential implication. Well, whoever, 444 00:23:59,800 --> 00:24:03,080 Speaker 1: I mean, who whoever, whatever political coalition gets it done. 445 00:24:03,080 --> 00:24:05,240 Speaker 1: I don't think matters all that much, and we could 446 00:24:05,320 --> 00:24:08,200 Speaker 1: handicap which you know, who's more likely under which scenarios, 447 00:24:08,240 --> 00:24:10,359 Speaker 1: But I I can't agree with. The bottom language is 448 00:24:10,440 --> 00:24:15,200 Speaker 1: that if you do see a big surge into new 449 00:24:15,240 --> 00:24:19,520 Speaker 1: forms of investment UM that that can boost productivity, then yeah, 450 00:24:19,520 --> 00:24:22,399 Speaker 1: that's the most bullish scenario for the most highly cyclical 451 00:24:22,840 --> 00:24:25,560 Speaker 1: you know, inflation and sensitive parts of the market, which 452 00:24:25,600 --> 00:24:29,280 Speaker 1: are financials and materials and industrials and energy. UM. I 453 00:24:29,320 --> 00:24:31,960 Speaker 1: would just note that historically you've seen this kind of 454 00:24:32,000 --> 00:24:36,440 Speaker 1: investment and and and sort of productivity booms happen under 455 00:24:36,880 --> 00:24:40,000 Speaker 1: administrations of both parties. I don't think anyone has a uh, 456 00:24:40,119 --> 00:24:42,080 Speaker 1: you know, a lock on this. But um, but that 457 00:24:42,200 --> 00:24:44,560 Speaker 1: is that that is definitely the most plausible scenario that 458 00:24:44,600 --> 00:24:47,960 Speaker 1: we can see for a shift to a higher level 459 00:24:48,000 --> 00:25:05,280 Speaker 1: of growth from where we are today. Um. So, I 460 00:25:05,320 --> 00:25:08,040 Speaker 1: know we're talking about big changes in the environment that 461 00:25:08,160 --> 00:25:12,800 Speaker 1: could spark that long awaited rotation from growth to value. 462 00:25:12,920 --> 00:25:16,200 Speaker 1: But is there anything in the meantime that you think 463 00:25:16,320 --> 00:25:20,800 Speaker 1: investors could do to sort of tweak their models or too, 464 00:25:21,119 --> 00:25:23,959 Speaker 1: I don't know, re appraise the way they're actually looking 465 00:25:24,400 --> 00:25:27,200 Speaker 1: at value stocks. So, for instance, you talked a lot 466 00:25:27,200 --> 00:25:30,919 Speaker 1: about intangibles. Is that something investors should be adding to 467 00:25:31,280 --> 00:25:34,119 Speaker 1: price to book value in order to compensate for the 468 00:25:34,160 --> 00:25:37,399 Speaker 1: modern economy or is there anything else that people can 469 00:25:37,440 --> 00:25:41,560 Speaker 1: do now rather than just waiting for the economic environment 470 00:25:41,600 --> 00:25:46,560 Speaker 1: to change significantly? Yeah? Absolutely, Um. Within an equity the 471 00:25:46,600 --> 00:25:49,920 Speaker 1: equity part of a portfolio, there absolutely are some tweaks 472 00:25:49,960 --> 00:25:52,320 Speaker 1: that that investors can make, you know, bargain hunters or 473 00:25:52,480 --> 00:25:55,120 Speaker 1: folks with the value you know, bios sort of psychologically 474 00:25:55,400 --> 00:25:58,800 Speaker 1: can I think it can and should add intangible assets 475 00:25:58,840 --> 00:26:01,040 Speaker 1: to their calculation. And if you don't think that every 476 00:26:01,040 --> 00:26:03,560 Speaker 1: dollar of goodwill on a company's balance sheet is a 477 00:26:03,640 --> 00:26:07,879 Speaker 1: rock solid asset, the way that you know a manufacturing 478 00:26:07,920 --> 00:26:11,200 Speaker 1: plant might be, it's also not worth nothing. And right now, 479 00:26:11,440 --> 00:26:13,960 Speaker 1: you know, again, a lot of conventional measures treat those 480 00:26:13,960 --> 00:26:16,879 Speaker 1: intangibles as worth literally nothing or or as or as 481 00:26:17,000 --> 00:26:19,720 Speaker 1: simply as expenses. Like R and D for example, doesn't 482 00:26:19,800 --> 00:26:22,840 Speaker 1: only shows up as an expense unless a company gets acquired, 483 00:26:22,880 --> 00:26:24,639 Speaker 1: and then the R and D can be you know, 484 00:26:24,720 --> 00:26:27,240 Speaker 1: capitalized as good will. But the bottom line is there's 485 00:26:27,280 --> 00:26:29,760 Speaker 1: a lot of value strategies today and value indexes and 486 00:26:29,840 --> 00:26:32,520 Speaker 1: so on that that simply haven't you know, they were 487 00:26:32,560 --> 00:26:36,879 Speaker 1: based on the economies of decades ago and before that 488 00:26:36,960 --> 00:26:40,200 Speaker 1: on beloved Graham and Dott sort of you know, snippets 489 00:26:40,240 --> 00:26:42,720 Speaker 1: from their books, and you know, that's all great. The 490 00:26:42,760 --> 00:26:45,199 Speaker 1: economy has changed, and I think our investment you know, 491 00:26:45,240 --> 00:26:48,880 Speaker 1: approaches can change with it. So we investors absolutely should 492 00:26:48,880 --> 00:26:51,159 Speaker 1: include intangibles, and I think, you know, as I mentioned, 493 00:26:51,520 --> 00:26:54,920 Speaker 1: history suggests that can really improve returns. The other two 494 00:26:54,960 --> 00:26:56,680 Speaker 1: things that I hinted at before but I think are 495 00:26:56,720 --> 00:27:01,040 Speaker 1: worth really worth implementing, is to add a quality filter. 496 00:27:01,240 --> 00:27:03,520 Speaker 1: My colleagues in research have have done some great work 497 00:27:03,520 --> 00:27:06,959 Speaker 1: on this too, suggesting that in point of fact, as 498 00:27:06,960 --> 00:27:10,080 Speaker 1: economy has changed, sometimes there are dead industries or dead 499 00:27:10,160 --> 00:27:13,680 Speaker 1: businesses that that have to be completely rethought or since 500 00:27:13,680 --> 00:27:15,800 Speaker 1: they are an investable. You know, a horse and buggy 501 00:27:15,800 --> 00:27:18,840 Speaker 1: manufacturer a certain point had a great price to book ratio, 502 00:27:19,040 --> 00:27:21,280 Speaker 1: but you know, never quite came back. And I think 503 00:27:21,320 --> 00:27:24,560 Speaker 1: there may be some lines of business in companies today 504 00:27:24,640 --> 00:27:27,120 Speaker 1: that that might you know, be facing a similar fate. 505 00:27:27,400 --> 00:27:30,800 Speaker 1: Adding you know, filters for the quality of a company's 506 00:27:30,840 --> 00:27:33,440 Speaker 1: earnings and and and the quality of their business historically 507 00:27:33,440 --> 00:27:35,440 Speaker 1: has added about a percentage point a year. I think 508 00:27:35,480 --> 00:27:38,480 Speaker 1: two returns and and the and the small versus large 509 00:27:38,480 --> 00:27:40,840 Speaker 1: debate is really interesting too. Small cap value stocks have 510 00:27:40,960 --> 00:27:44,120 Speaker 1: always performed better than large cap valu stocks. There's data 511 00:27:44,240 --> 00:27:47,199 Speaker 1: going back to the nineteen twenties for US equities and 512 00:27:47,240 --> 00:27:49,600 Speaker 1: that's always been true. And even in this period where 513 00:27:49,640 --> 00:27:54,320 Speaker 1: value overall has performed so terribly versus growth and really 514 00:27:54,320 --> 00:27:57,720 Speaker 1: a historical unusual way over the past decade, even over 515 00:27:57,720 --> 00:28:01,440 Speaker 1: this period that that bias in favor of small cap 516 00:28:01,560 --> 00:28:04,560 Speaker 1: value has actually continued to work well. So I think 517 00:28:04,560 --> 00:28:07,080 Speaker 1: that's still worth preserving that. That's another sort of two 518 00:28:07,080 --> 00:28:10,480 Speaker 1: percentage points a year or so about performance, and those 519 00:28:10,480 --> 00:28:12,720 Speaker 1: are things that investors can do today. That's within the 520 00:28:12,720 --> 00:28:15,320 Speaker 1: equities leave for fixed income people, I think the world 521 00:28:15,400 --> 00:28:17,560 Speaker 1: is even more difficult. You know, there's a lot of 522 00:28:17,560 --> 00:28:20,119 Speaker 1: discussions since we sort of floated our end of sixty 523 00:28:20,200 --> 00:28:22,280 Speaker 1: four D thesis last year, it's been a kind of 524 00:28:22,320 --> 00:28:25,520 Speaker 1: a perennial topic, and the bottom line is there's no 525 00:28:25,600 --> 00:28:28,960 Speaker 1: great answer in the world of very low yields for 526 00:28:29,040 --> 00:28:31,439 Speaker 1: for you know, fixed income folks. But I think the 527 00:28:31,480 --> 00:28:34,119 Speaker 1: only solution that makes any sense at all is to 528 00:28:34,160 --> 00:28:36,880 Speaker 1: allocate a little bit away from from treasuries that pay 529 00:28:36,920 --> 00:28:39,720 Speaker 1: you nothing in fact, obviously float fit your face with 530 00:28:39,800 --> 00:28:43,400 Speaker 1: negative real interest rates on those assets, and to shift 531 00:28:43,760 --> 00:28:46,640 Speaker 1: into different kinds of risk. I mean, whether it's credit 532 00:28:46,720 --> 00:28:50,240 Speaker 1: risk or something more equity like in terms of prefers 533 00:28:50,360 --> 00:28:53,280 Speaker 1: or convertibles or you know reads. There's there's there are 534 00:28:53,280 --> 00:28:55,800 Speaker 1: places still to get some incredible yield today. And if 535 00:28:55,800 --> 00:28:58,840 Speaker 1: you agree with with our outlook that you know, we're 536 00:28:58,840 --> 00:29:00,680 Speaker 1: not on the cusp of a set and dip you 537 00:29:00,920 --> 00:29:04,040 Speaker 1: into a d procession or something even worse than. This 538 00:29:04,120 --> 00:29:06,040 Speaker 1: point of the business cycle looks like a moment in 539 00:29:06,080 --> 00:29:08,600 Speaker 1: which a little bit of extra credit risk or or 540 00:29:08,600 --> 00:29:12,040 Speaker 1: even some equity like risk certainly seems preferable. For an 541 00:29:12,040 --> 00:29:14,960 Speaker 1: investor with an income target to hit, then you know, 542 00:29:15,000 --> 00:29:18,120 Speaker 1: to simply cross your fingers in government bonds and hope 543 00:29:18,160 --> 00:29:20,720 Speaker 1: that it all works out. Those are things that investors 544 00:29:20,760 --> 00:29:22,760 Speaker 1: can and should do today, and I think that the 545 00:29:22,760 --> 00:29:26,760 Speaker 1: economic government um is pressuring people more than ever to 546 00:29:26,800 --> 00:29:29,800 Speaker 1: start to rethink how they construct orse portfolios. So the 547 00:29:29,840 --> 00:29:33,320 Speaker 1: bottom line is, although we could get the shift, a 548 00:29:33,400 --> 00:29:37,160 Speaker 1: major policy shift, there are things that investors can do. 549 00:29:37,360 --> 00:29:41,520 Speaker 1: There is an alternative between the sort of like hardcore 550 00:29:42,360 --> 00:29:46,960 Speaker 1: Gram and dudd book value side on one side, and 551 00:29:47,120 --> 00:29:49,880 Speaker 1: he put it all on Tesla and ethereum on the 552 00:29:49,920 --> 00:29:52,760 Speaker 1: on the other hand, Like we don't have to choose, 553 00:29:52,800 --> 00:29:55,440 Speaker 1: like maybe like okay, a policy shift would be preferable, 554 00:29:55,960 --> 00:29:58,920 Speaker 1: and that's great, but in the meantime, uh, there are 555 00:29:59,040 --> 00:30:03,200 Speaker 1: sort of option is in the middle, absolutely right, that's right. 556 00:30:03,880 --> 00:30:06,600 Speaker 1: I want to go back to something you said about 557 00:30:06,720 --> 00:30:11,960 Speaker 1: the FED and it's inclination too. Somehow, it always seems 558 00:30:12,000 --> 00:30:15,480 Speaker 1: to raise rates just as the lower end of the 559 00:30:15,520 --> 00:30:19,160 Speaker 1: income spectrum is starting to see wage growth. And maybe 560 00:30:19,200 --> 00:30:22,680 Speaker 1: that's just some accident, maybe it's a conspiracy or whatever, 561 00:30:22,800 --> 00:30:27,600 Speaker 1: maybe something in between. But I'm curious whether we basically 562 00:30:27,640 --> 00:30:31,840 Speaker 1: live in a society where the elite or the very 563 00:30:31,880 --> 00:30:35,600 Speaker 1: wealthy people don't really prefer growth, where this sort of 564 00:30:35,640 --> 00:30:39,080 Speaker 1: like the growth famine. The growth scarcity that we have 565 00:30:39,280 --> 00:30:43,400 Speaker 1: right now is better for people who are very rich 566 00:30:43,520 --> 00:30:46,800 Speaker 1: because their wealth and their standard of living is more 567 00:30:46,840 --> 00:30:51,080 Speaker 1: tied to asset valuations than it is from say GDP 568 00:30:51,280 --> 00:30:53,920 Speaker 1: going from three percent in a year to four percent 569 00:30:54,000 --> 00:30:56,040 Speaker 1: in a year. It's a this is a tough question, 570 00:30:56,080 --> 00:30:58,440 Speaker 1: and it's a really sensitive question. And I'll give you 571 00:30:58,600 --> 00:31:00,719 Speaker 1: I'll give you two answers. And I'm not sure, honestly, 572 00:31:00,680 --> 00:31:02,400 Speaker 1: I'll give you two answers. I'm not sure which one 573 00:31:03,040 --> 00:31:06,959 Speaker 1: I believe in totally. The first answer is the more 574 00:31:07,280 --> 00:31:10,760 Speaker 1: politically radical one, which is that is to say that 575 00:31:10,760 --> 00:31:14,640 Speaker 1: that that yes, actually, you know, holders of capital would 576 00:31:14,680 --> 00:31:18,920 Speaker 1: just rather see you know, profits um and and we'll 577 00:31:18,920 --> 00:31:20,880 Speaker 1: go down the ship with with the ship, you know, 578 00:31:21,600 --> 00:31:24,160 Speaker 1: until there's last drop of profit has been squeezed, no 579 00:31:24,200 --> 00:31:25,960 Speaker 1: matter what the cost or what the harm is to 580 00:31:26,000 --> 00:31:28,040 Speaker 1: the raw society. I don't know that I believe that. 581 00:31:28,120 --> 00:31:31,040 Speaker 1: But there's a great old essay called The Political Aspects 582 00:31:31,040 --> 00:31:36,400 Speaker 1: of Full Employment by fairly famous economist michaelle Klatsky, who's 583 00:31:36,440 --> 00:31:38,440 Speaker 1: kind of a rival to to Keynes, and a lot 584 00:31:38,440 --> 00:31:39,960 Speaker 1: of people think sort of came up with some of 585 00:31:39,960 --> 00:31:42,120 Speaker 1: the same ideas around the same time, and doesn't get 586 00:31:42,400 --> 00:31:44,720 Speaker 1: nearly so much credit. And he argues in that essay 587 00:31:44,840 --> 00:31:47,800 Speaker 1: that in fact, you know, the reason that there's often 588 00:31:48,000 --> 00:31:50,520 Speaker 1: you know, what we call standing army reserve of of 589 00:31:50,520 --> 00:31:53,080 Speaker 1: of unemployed folks has much more to do with the 590 00:31:53,120 --> 00:31:56,080 Speaker 1: desire for owners of capital and owers in businesses to 591 00:31:56,160 --> 00:31:58,680 Speaker 1: keep labor you know, sort of well disciplined so that 592 00:31:58,720 --> 00:32:01,800 Speaker 1: they can generate good returns and and and so on. 593 00:32:02,120 --> 00:32:04,320 Speaker 1: And it is politically radical. I'm not I'm not necessarily 594 00:32:04,400 --> 00:32:07,200 Speaker 1: endorsing the sort of the view, but I think you 595 00:32:07,200 --> 00:32:10,280 Speaker 1: can certainly see a trend, at least in the United 596 00:32:10,320 --> 00:32:15,320 Speaker 1: States in recent decades between decreasing you know, power of 597 00:32:15,400 --> 00:32:20,320 Speaker 1: labor negotiations, increasing power of owners of capital um and decline, 598 00:32:20,320 --> 00:32:24,560 Speaker 1: and things like capacity realization rates of manufacturing decline and 599 00:32:24,560 --> 00:32:27,920 Speaker 1: demand decline and inflation. As you know, more and more 600 00:32:27,960 --> 00:32:31,760 Speaker 1: capital gets concentrated and relatively fewer and fewer hands. The 601 00:32:31,760 --> 00:32:34,800 Speaker 1: bottom line is that folks who have a lot of 602 00:32:34,800 --> 00:32:37,160 Speaker 1: of cash don't tend to spend it quite as much. 603 00:32:37,160 --> 00:32:39,200 Speaker 1: They tend to save it. People who don't have that 604 00:32:39,280 --> 00:32:42,160 Speaker 1: much capital. When they get a little bit extra, they'll 605 00:32:42,200 --> 00:32:44,040 Speaker 1: they'll they will spend it. And and so you don't 606 00:32:44,040 --> 00:32:46,560 Speaker 1: have to be a political radical to think that getting 607 00:32:46,600 --> 00:32:48,560 Speaker 1: a little bit more capital into the hands of people 608 00:32:48,600 --> 00:32:52,320 Speaker 1: who you know, circulated in the economy is is a 609 00:32:52,360 --> 00:32:54,640 Speaker 1: pretty great way to boost demand in a time when 610 00:32:54,680 --> 00:32:58,160 Speaker 1: demand is scarce. The other the other answer to this, 611 00:32:58,280 --> 00:33:00,240 Speaker 1: and this is a little bit more sunny side, you know, 612 00:33:00,320 --> 00:33:02,200 Speaker 1: kind of things will work out in the end of view, 613 00:33:02,280 --> 00:33:05,080 Speaker 1: at least by via the market. Is is something I 614 00:33:05,160 --> 00:33:09,160 Speaker 1: mentioned before the fact that we're seeing increasingly more inequality 615 00:33:09,280 --> 00:33:12,720 Speaker 1: in Wall Street to mirror that kind of inequality on 616 00:33:12,720 --> 00:33:15,680 Speaker 1: Main Street, meaning that as returns get more scarce and 617 00:33:15,720 --> 00:33:19,160 Speaker 1: profits get more scarce. Even if Joe, you're right that 618 00:33:19,480 --> 00:33:22,720 Speaker 1: maybe owners of capital or content to just squeeze things 619 00:33:22,920 --> 00:33:26,280 Speaker 1: forever as as much as possible, no matter what I 620 00:33:26,320 --> 00:33:28,840 Speaker 1: think you're seeing these days, and you see it in 621 00:33:29,200 --> 00:33:31,800 Speaker 1: kind of valuations and tech and growth and so on, 622 00:33:32,520 --> 00:33:36,840 Speaker 1: is um increasing pain for owners of capital, whether it's uh, 623 00:33:37,240 --> 00:33:39,800 Speaker 1: someone buying a treasury note, you know, holding their nose 624 00:33:39,840 --> 00:33:43,120 Speaker 1: and getting six sixty basis points of yield, or someone 625 00:33:43,680 --> 00:33:46,080 Speaker 1: buying an expensive tech stock, holding their own and hoping, 626 00:33:46,240 --> 00:33:49,479 Speaker 1: holding the nose and just taking whatever future cash flows 627 00:33:49,720 --> 00:33:52,880 Speaker 1: might eventually come their way. Increasingly owners of capital of 628 00:33:52,880 --> 00:33:55,040 Speaker 1: feeling the pressure and the pain and are starting to think. 629 00:33:55,040 --> 00:33:57,960 Speaker 1: That's why. I think politically, as I mentioned before, you're 630 00:33:57,960 --> 00:34:00,920 Speaker 1: seeing some really broad by partisan support this year. In 631 00:34:01,000 --> 00:34:04,360 Speaker 1: this it's it's an election year, it's incredibly hostile political environment, 632 00:34:04,440 --> 00:34:07,040 Speaker 1: and yet somehow, for example, the Senate was able to 633 00:34:07,080 --> 00:34:10,960 Speaker 1: pass a bill a few months ago authorizing billion dollars 634 00:34:11,000 --> 00:34:14,520 Speaker 1: for billion dollars for semiconduction manufacturing in the United States 635 00:34:14,600 --> 00:34:17,600 Speaker 1: by partisan co sponsors, passed easily, and they're they're working 636 00:34:17,600 --> 00:34:20,120 Speaker 1: on more things in that direction. That doesn't fit the 637 00:34:20,200 --> 00:34:24,920 Speaker 1: narrative of sorrowners of capital, you know, fighting new policy 638 00:34:24,920 --> 00:34:27,600 Speaker 1: measures no matter what it takes. And I think, without 639 00:34:27,600 --> 00:34:30,320 Speaker 1: getting into it too much, the some of the movements 640 00:34:30,320 --> 00:34:32,520 Speaker 1: you've seen in political coalitions the United States on the 641 00:34:32,600 --> 00:34:36,120 Speaker 1: left and the right have started to incorporate more discussion 642 00:34:36,160 --> 00:34:40,120 Speaker 1: about whether it's universal basic income, job guarantees, modern monetary 643 00:34:40,200 --> 00:34:44,440 Speaker 1: theory on the left on on on the right, you know, um, 644 00:34:44,600 --> 00:34:47,520 Speaker 1: nonprofits talking about whether maybe we do need a better 645 00:34:47,600 --> 00:34:51,000 Speaker 1: deal for working families and maybe labor unions are part 646 00:34:51,000 --> 00:34:53,319 Speaker 1: of that. I mean, things that were unthinkable I think 647 00:34:53,360 --> 00:34:56,680 Speaker 1: politically in both parties ten years ago are suddenly very 648 00:34:56,719 --> 00:34:59,840 Speaker 1: thinkable today because increasingly, the bottom line, I think is 649 00:34:59,840 --> 00:35:04,360 Speaker 1: that many owners of capital, including regular investors, are starting 650 00:35:04,360 --> 00:35:07,640 Speaker 1: to realize they're actually in the same boat with many workers. 651 00:35:07,680 --> 00:35:10,239 Speaker 1: And if they don't find a new sort of negotiated 652 00:35:10,239 --> 00:35:13,000 Speaker 1: settlement of the sport that we had across the Western 653 00:35:13,080 --> 00:35:16,319 Speaker 1: world after World War two, um in many countries. UM, 654 00:35:16,400 --> 00:35:18,799 Speaker 1: if we don't find a new settlement, then things are 655 00:35:18,800 --> 00:35:21,440 Speaker 1: gonna go badly, not just for working people, but increasingly 656 00:35:21,520 --> 00:35:26,440 Speaker 1: for you know, people trying to invest as well. Jared, Uh, 657 00:35:26,760 --> 00:35:29,680 Speaker 1: thank you so much for joining us. This is sort 658 00:35:29,680 --> 00:35:33,200 Speaker 1: of you know, we had a conversation recently with Paul 659 00:35:33,239 --> 00:35:35,080 Speaker 1: McCauley and touched on some of these things, but this 660 00:35:35,200 --> 00:35:37,440 Speaker 1: felt like a really nice sort of part two to 661 00:35:37,560 --> 00:35:40,040 Speaker 1: that in terms of really diving into some of the 662 00:35:40,160 --> 00:35:44,759 Speaker 1: portfolio implications of policy and you know, the sort of 663 00:35:44,800 --> 00:35:47,000 Speaker 1: long running inequality. Thank you so much for joining it. 664 00:35:47,200 --> 00:35:49,640 Speaker 1: My pleasure. Good to connect with both of you. Thanks Jared, 665 00:35:49,719 --> 00:36:13,400 Speaker 1: that was really good. So I guess the lesson Tracy 666 00:36:13,719 --> 00:36:19,160 Speaker 1: is that inequality is why Tesla and ethereum trade exactly 667 00:36:19,200 --> 00:36:24,200 Speaker 1: the same. It's kind of funny how every investment discussion 668 00:36:24,880 --> 00:36:28,759 Speaker 1: nowadays ends up touching on on marks, right, Like, I 669 00:36:28,800 --> 00:36:32,880 Speaker 1: don't know, it just seems inevitable nowadays, but and you know, 670 00:36:32,920 --> 00:36:36,120 Speaker 1: I'm joking slightly, but I will say I agree with 671 00:36:36,200 --> 00:36:39,319 Speaker 1: Jared that there does seem to be a growing recognition 672 00:36:39,440 --> 00:36:41,800 Speaker 1: of the need for some sort of policy shift, even 673 00:36:41,880 --> 00:36:44,960 Speaker 1: at places like the Federal Reserve. We did see the 674 00:36:45,040 --> 00:36:46,920 Speaker 1: Fed put out a working paper I think it was 675 00:36:47,040 --> 00:36:49,880 Speaker 1: last month or something talking about how the growth of 676 00:36:49,960 --> 00:36:54,720 Speaker 1: big corporations had increased inequality and basically caused sluggish growth 677 00:36:54,719 --> 00:36:57,040 Speaker 1: and all of that. And there is this ongoing conversation 678 00:36:57,080 --> 00:37:02,040 Speaker 1: about monopsyy, this idea of monopoly power in the labor market. 679 00:37:02,080 --> 00:37:06,880 Speaker 1: So it feels like there is this recognition, but change 680 00:37:06,880 --> 00:37:10,640 Speaker 1: is slow. Change is super slow. But you know, I think, look, 681 00:37:10,760 --> 00:37:13,480 Speaker 1: it's like the you look at the market and you 682 00:37:13,560 --> 00:37:17,160 Speaker 1: have this everything is the same nos above these different 683 00:37:17,200 --> 00:37:19,880 Speaker 1: asset classes, so it's like, okay, we have to look bigger. 684 00:37:19,960 --> 00:37:24,000 Speaker 1: It almost forces zooming out. Like if energy and financials 685 00:37:24,040 --> 00:37:26,680 Speaker 1: are the same trade, if Tesla and the Theorum are 686 00:37:26,760 --> 00:37:29,919 Speaker 1: the same trade. If gold is the same trade as 687 00:37:30,560 --> 00:37:34,000 Speaker 1: UH Snowflake, the popular cloud computing ip o that just 688 00:37:34,040 --> 00:37:36,719 Speaker 1: came out, If all of it is the same essentially 689 00:37:36,880 --> 00:37:41,320 Speaker 1: as market observers, commentators have no choice that to zoom 690 00:37:41,320 --> 00:37:44,239 Speaker 1: out and talk about this sort of like broader political 691 00:37:44,400 --> 00:37:49,560 Speaker 1: and economic conditions that created the same Yeah. I think 692 00:37:49,600 --> 00:37:52,480 Speaker 1: that's right. You can't really focus on micro you're forced 693 00:37:52,520 --> 00:37:56,680 Speaker 1: to talk about the macro. Yeah, you know. The other 694 00:37:56,760 --> 00:37:59,800 Speaker 1: thing I was thinking was we should do a deeper 695 00:38:00,000 --> 00:38:03,719 Speaker 1: I've on intangibles at some point. Yes, I think we 696 00:38:03,760 --> 00:38:07,120 Speaker 1: actually have one scheduled because I think in a future 697 00:38:07,120 --> 00:38:10,160 Speaker 1: episode we're gonna be talking to Michael Mobrison, who we've 698 00:38:10,200 --> 00:38:12,359 Speaker 1: had on before. But he just came out with a 699 00:38:12,480 --> 00:38:16,759 Speaker 1: pretty great sort of white paper on valuing intangible So 700 00:38:17,040 --> 00:38:19,400 Speaker 1: I think people who are interesting interested in that. I 701 00:38:19,400 --> 00:38:21,719 Speaker 1: should stay tuned. But can I just say something about that? 702 00:38:21,760 --> 00:38:23,799 Speaker 1: And I meant to joke about it with Jared, But 703 00:38:24,400 --> 00:38:26,920 Speaker 1: do you think it's kind of cheating? It's like value 704 00:38:26,960 --> 00:38:30,000 Speaker 1: investing doesn't work, so let's find a way to explain 705 00:38:30,080 --> 00:38:35,320 Speaker 1: how Peloton and Tesla are actually Like it's kind of cheating. Yeah, 706 00:38:35,480 --> 00:38:39,120 Speaker 1: I mean I think there's a lot of fudging that 707 00:38:39,160 --> 00:38:42,720 Speaker 1: you can do around intangibles, and I think Jared touched 708 00:38:42,760 --> 00:38:46,880 Speaker 1: on this, but it's I mean, the accounting for intangibles 709 00:38:46,960 --> 00:38:49,480 Speaker 1: is kind of insane, so it's really easy to to 710 00:38:49,560 --> 00:38:51,600 Speaker 1: make the numbers look a lot bigger than they are. 711 00:38:51,680 --> 00:38:54,840 Speaker 1: So just saying that everyone should factor in intangibles along 712 00:38:54,880 --> 00:38:58,719 Speaker 1: with traditional price to book ratios, it's kind of much 713 00:38:58,800 --> 00:39:01,960 Speaker 1: easier said than And if you're looking at intangibles, you 714 00:39:01,960 --> 00:39:04,680 Speaker 1: actually have to do a deep dive into how those 715 00:39:04,960 --> 00:39:08,520 Speaker 1: intangibles are being portrayed on a company's balance sheet. And 716 00:39:08,560 --> 00:39:11,000 Speaker 1: again this sort of sorry, now I'm going to go 717 00:39:11,040 --> 00:39:14,080 Speaker 1: on a rant, but this gets to one of the 718 00:39:14,200 --> 00:39:17,680 Speaker 1: things that I've been saying about the sluggish growth environment, 719 00:39:17,719 --> 00:39:19,640 Speaker 1: which is that if you if you're a company and 720 00:39:19,719 --> 00:39:22,799 Speaker 1: you can't grow through traditional ways like just growing your 721 00:39:22,880 --> 00:39:25,280 Speaker 1: cash flow and your business, then one of the easy 722 00:39:25,400 --> 00:39:27,719 Speaker 1: ways to grow is to buy a bunch of other 723 00:39:27,760 --> 00:39:31,480 Speaker 1: companies and do add backs and you know, add intangible 724 00:39:31,600 --> 00:39:34,920 Speaker 1: assets from your acquisitions, which makes you appear to be 725 00:39:35,000 --> 00:39:37,600 Speaker 1: growing faster than you actually are. And I think we've 726 00:39:37,600 --> 00:39:40,120 Speaker 1: seen some examples of that in the current economic cycle 727 00:39:40,160 --> 00:39:43,600 Speaker 1: as well. Yeah, absolutely, And you know, I think that's 728 00:39:43,600 --> 00:39:46,000 Speaker 1: sort of like, um, you know, like these pe roll 729 00:39:46,120 --> 00:39:48,759 Speaker 1: ups and other sort of It's like you can sort 730 00:39:48,760 --> 00:39:51,560 Speaker 1: of grow two ways. You can grow by creating a 731 00:39:51,600 --> 00:39:55,800 Speaker 1: really red hot software company that everyone every other company 732 00:39:55,840 --> 00:39:58,640 Speaker 1: has to use, or you can essentially do it by 733 00:39:58,719 --> 00:40:04,440 Speaker 1: financial engineer and credit which turned which turned my meager 734 00:40:04,520 --> 00:40:08,839 Speaker 1: cash flows into big cash flows. Yeah exactly, And so 735 00:40:09,040 --> 00:40:12,080 Speaker 1: just saying oh, look at the intangibles, sure, that makes 736 00:40:12,120 --> 00:40:14,320 Speaker 1: a lot of sense. But on the other hand, it's 737 00:40:14,400 --> 00:40:18,239 Speaker 1: not a sort of bulletproof way of investing on m 738 00:40:18,960 --> 00:40:22,000 Speaker 1: I swear I read an interview with some value manager 739 00:40:22,200 --> 00:40:23,640 Speaker 1: a couple of years ago. I think it was like 740 00:40:23,640 --> 00:40:25,920 Speaker 1: a barren and they're like, this value manager made a 741 00:40:25,920 --> 00:40:27,440 Speaker 1: bunch of money. How did he do it at time 742 00:40:27,440 --> 00:40:31,520 Speaker 1: when value wasn't good? And it's basic answer really was like, oh, 743 00:40:31,600 --> 00:40:34,239 Speaker 1: I basically came up with a framework where Netflix is 744 00:40:34,239 --> 00:40:37,120 Speaker 1: a value stock. Yeah, so I invested in Amazon and 745 00:40:37,160 --> 00:40:42,120 Speaker 1: Apple as a value play. Yeah alright, Well Laura Buffett 746 00:40:42,560 --> 00:40:48,120 Speaker 1: bought Apple, so if he did it all right, clearly 747 00:40:48,160 --> 00:40:49,839 Speaker 1: we could talk about this for a while, but we 748 00:40:49,880 --> 00:40:52,120 Speaker 1: are going to come back to it in a future episode, 749 00:40:52,120 --> 00:40:54,399 Speaker 1: which will be good looking forward to. Shall we leave 750 00:40:54,400 --> 00:40:58,080 Speaker 1: it there. Yeah, alright, this has been another episode of 751 00:40:58,120 --> 00:41:00,560 Speaker 1: the All Thoughts Podcast. I'm Tracy the Way. You can 752 00:41:00,600 --> 00:41:02,960 Speaker 1: follow me on Twitter at Jucy All the Way, and 753 00:41:03,000 --> 00:41:05,279 Speaker 1: I'm Joe Wisn't Thal You could have follow me on 754 00:41:05,320 --> 00:41:09,280 Speaker 1: Twitter at Stalwart and you should follow our producer on Twitter, 755 00:41:09,360 --> 00:41:13,640 Speaker 1: Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg 756 00:41:13,680 --> 00:41:17,640 Speaker 1: head of podcast, Francesca Levi at Francesco Today, and check 757 00:41:17,640 --> 00:41:21,000 Speaker 1: out all of our podcasts under the handle AD Podcast. 758 00:41:21,280 --> 00:41:22,000 Speaker 1: Thanks for listening.