WEBVTT - Forecast: A 'Tech-Stock Tsunami' 0:00:00.400 --> 0:00:03.840 Strap on your parachute. It's time for What Goes Up 0:00:04.120 --> 0:00:13.880 with Sarah Ponzick and Mike Reagan. Hello and welcome to 0:00:13.960 --> 0:00:17.919 What Goes Up, a Bloomberg weekly markets podcast. I'm Sarah Ponzek, 0:00:18.040 --> 0:00:21.040 a reporter on the Cross Asset team, and I'm Mike Reagan, 0:00:21.239 --> 0:00:24.400 a senior editor at Bloomberg. This week on the show, 0:00:24.760 --> 0:00:29.280 October has brought plenty of surprises. President Trump was diagnosed 0:00:29.320 --> 0:00:32.120 with COVID nineteen, along with many other in the top 0:00:32.200 --> 0:00:34.279 ranks of the White House. And on top of that, 0:00:34.440 --> 0:00:37.480 antitrust regulation is back in the spotlight from mega cap 0:00:37.520 --> 0:00:40.879 tech companies. Still, the stock market hasn't seemed too bothered, 0:00:41.159 --> 0:00:44.080 and instead financial markets look to be pricing in reflation 0:00:44.320 --> 0:00:48.320 once again. But Sarah, the big surprise of the week 0:00:48.840 --> 0:00:52.280 for our listeners out there is Sarah got yourself a puppy. 0:00:52.440 --> 0:00:56.280 I did impulsively, I did. I went to get a 0:00:56.320 --> 0:00:59.520 dog for my parents, and then I ended up buying 0:00:59.520 --> 0:01:03.480 one of this of links for myself. Um. So I'm 0:01:03.480 --> 0:01:05.440 really hoping she doesn't wake up in the middle of this, 0:01:05.480 --> 0:01:07.039 because she's laying on the floor right next to me. 0:01:07.080 --> 0:01:09.399 I just pooped her out. Um right before we all 0:01:09.480 --> 0:01:11.720 walked on. I was starting to run her around the 0:01:11.720 --> 0:01:14.920 apartment as much as possible, okay, but pooped her out. 0:01:14.920 --> 0:01:16.640 Could could have a couple of meetings. I didn't know 0:01:16.640 --> 0:01:19.640 which one you're you're using there, I got you. You know, 0:01:19.720 --> 0:01:22.919 I've made a lot of impulse purchases in my life, 0:01:22.959 --> 0:01:26.520 but never a golden Doodle. That's a big one. That 0:01:26.520 --> 0:01:29.200 that's a that's a big impulse purchase. I applaud you though, 0:01:29.240 --> 0:01:32.600 as a co owner of a golden Doodle. I'm very 0:01:32.600 --> 0:01:35.039 happy for you. In fact, I showed the picture to 0:01:35.080 --> 0:01:37.720 my kids and they were like the middle one was like, 0:01:37.760 --> 0:01:40.600 you should have the two dogs bark at each other 0:01:40.760 --> 0:01:43.360 on the podcast. And I thought that was a great idea. 0:01:43.400 --> 0:01:45.400 What do you think? It's a great idea. But I 0:01:45.400 --> 0:01:47.400 don't know if our guest will be too appreciative of that, 0:01:47.600 --> 0:01:50.240 or or our producer for a matter of fact, um, 0:01:50.280 --> 0:01:53.400 but maybe later, Mike. Probably more insightful than the first 0:01:53.400 --> 0:01:58.360 presidential debate, so I'd be open to it, honestly, very 0:01:58.400 --> 0:02:02.800 good point and more civil too. All right, sorry, fine, 0:02:02.840 --> 0:02:05.920 you be the party pooper. No dogs on this podcast 0:02:06.240 --> 0:02:10.600 sleeping right now? I can't wake her up, alright, alright, fine, 0:02:11.360 --> 0:02:14.040 that voice you heard, that's our guests first time on 0:02:14.080 --> 0:02:16.239 the show. We're very happy to have him. His name 0:02:16.280 --> 0:02:20.639 is Max Gochman. He is the head of asset Allocation 0:02:20.800 --> 0:02:26.239 at Pacific Life Fund Advisors over in Newport Beach, California. Max, 0:02:26.240 --> 0:02:28.519 welcome to the show. Thanks for having me. Excited to 0:02:28.560 --> 0:02:30.600 be here. We end up having a lot of people 0:02:30.639 --> 0:02:33.440 from Newport Beach, California on the show. Sir, I think 0:02:33.440 --> 0:02:35.959 we need to get out there and hold a podcast 0:02:36.080 --> 0:02:38.080 in person in Newport Beach something. It seems like it's 0:02:38.120 --> 0:02:44.760 either Newport Beach or New Jersey. Yeah. Almost really basically 0:02:44.800 --> 0:02:47.080 the same thing, the same thing. That's right. No board 0:02:47.080 --> 0:02:49.200 walks in Newport Beach as far as I know, though, 0:02:54.280 --> 0:02:56.400 that's a good thing. That's a good thing. You selling 0:02:56.480 --> 0:02:59.320 me on it. Well, Max, let's let's get started here. 0:02:59.480 --> 0:03:03.400 Um know. As the head of of ASCID Allocation, I 0:03:03.440 --> 0:03:07.000 feel like it's it's a tricky time, you know. Bond 0:03:07.080 --> 0:03:11.880 yields are so super low, equity valuations are super high, 0:03:12.000 --> 0:03:14.640 at least historically compared to themselves. I guess if you 0:03:15.040 --> 0:03:17.000 go back and look at those bond yields, they don't 0:03:17.000 --> 0:03:20.560 look as high as normal how how are you wrapping 0:03:20.800 --> 0:03:23.799 your head around the valuations in both markets this year? 0:03:23.840 --> 0:03:26.560 What what do you telling clients? Uh, you know, what's 0:03:26.560 --> 0:03:29.320 your your basic advice to someone trying to get some 0:03:29.440 --> 0:03:33.040 kind of real yield in this crazy world? Sure? Um, 0:03:33.200 --> 0:03:36.840 well it's it's been an interesting time obviously. Uh, just 0:03:37.000 --> 0:03:39.360 to just start up by saying the most obvious thing. Uh. 0:03:39.400 --> 0:03:41.800 The other thing is um For us, we've been a 0:03:41.800 --> 0:03:45.520 bit more dynamic this year, and we actually started the 0:03:45.600 --> 0:03:49.160 year fairly neutral. We saw that the market was, you know, 0:03:49.200 --> 0:03:52.960 price to perfection and didn't see a lot of upset opportunities. 0:03:53.000 --> 0:03:55.920 We actually, uh, in our year beginning outlooks that there's 0:03:55.920 --> 0:03:58.520 probably gonna be about a ten percent correction that will 0:03:58.560 --> 0:04:01.560 be a good tactical time to dip back into equities. 0:04:01.840 --> 0:04:04.920 We were very wrong on the magnitude of that correction, 0:04:05.040 --> 0:04:07.640 of course, but we did have the right idea. So 0:04:07.680 --> 0:04:12.160 we want up adding risk into the portfolio right around 0:04:12.160 --> 0:04:17.160 March twenty and that was really predicated on one of 0:04:17.200 --> 0:04:20.360 those situations that you really hope to experience as an investor, 0:04:20.800 --> 0:04:25.120 where everyone is going one way into such an extreme 0:04:25.640 --> 0:04:29.640 that the contrariuon call suddenly seems very very rational. So 0:04:29.680 --> 0:04:33.159 when folks are selling treasuries and gold um and just 0:04:33.200 --> 0:04:36.320 moving into money markets, you know, all else being equal, 0:04:36.360 --> 0:04:38.000 you would say that's probably a time to take the 0:04:38.000 --> 0:04:41.400 other side of that. But when you also have a 0:04:41.440 --> 0:04:46.880 fiscal package that dwarves tarp about to be put through, 0:04:47.720 --> 0:04:49.920 that you know, really adds a lot of tailor win. 0:04:50.000 --> 0:04:53.080 So that's how we got risk on uh late March, 0:04:53.839 --> 0:04:56.520 and then over the last quarter we really put all 0:04:56.560 --> 0:04:59.839 our bolts back in the pen um and Sarah, you 0:05:00.000 --> 0:05:02.400 you're not spoken about that a couple of times, but 0:05:02.960 --> 0:05:06.160 you know, the market was making new record highs, but 0:05:06.279 --> 0:05:11.159 the recovery actually started decelerating, and we think that permables 0:05:11.520 --> 0:05:14.560 may wind up running off the fiscal cliff before the 0:05:14.640 --> 0:05:17.040 year is out this year. So what do we do now? 0:05:17.600 --> 0:05:21.480 If you're looking for real yield, I would say dividends 0:05:21.520 --> 0:05:23.800 are not a bad way to go. I think more 0:05:23.880 --> 0:05:27.159 defensive place within that space, like utilities are actually going 0:05:27.240 --> 0:05:29.880 to give you a decent yield. We think that high 0:05:29.920 --> 0:05:33.400 yield credit is also remains attractive. Spreads can tightened a 0:05:33.440 --> 0:05:36.400 bit more. The FED has that massive backstop and high 0:05:36.440 --> 0:05:40.560 yield is the biggest beneficiary of that. So for investors 0:05:40.600 --> 0:05:45.200 looking to to find yield in a desert observe, that 0:05:45.240 --> 0:05:48.400 would be what we'd say. So if we are seeing 0:05:48.960 --> 0:05:51.880 deceleration in the economy, at least from that very strong 0:05:51.920 --> 0:05:55.160 recovery that we had seen coming off the bottoms since March, 0:05:55.680 --> 0:06:00.560 and at the same time, there is concern over will 0:06:00.720 --> 0:06:03.520 or will we not get another fiscal package, as you mentioned, 0:06:03.560 --> 0:06:06.160 we might fall off that fiscal cliff. Why is it 0:06:06.200 --> 0:06:08.880 that we are seeing this reflation trade resume. I mean, 0:06:08.920 --> 0:06:11.360 we look at ten year thirty year treasury yields now 0:06:11.360 --> 0:06:14.359 at the highest since early June. We're seeing small caps, 0:06:14.480 --> 0:06:18.760 value cyclical start to outperform. How is it possible that 0:06:18.839 --> 0:06:21.560 this is happening when so many of those concerns still exist. 0:06:22.240 --> 0:06:24.440 So that's a really good question. And I think there's 0:06:24.480 --> 0:06:26.760 two possibilities, right because I never want to say, well, 0:06:26.839 --> 0:06:29.160 this is what investors are thinking. Some I'm only one investor, 0:06:29.279 --> 0:06:32.919 but one is, uh, there's and this is what I 0:06:32.960 --> 0:06:37.240 would say is most likely, is that there's an understanding 0:06:37.320 --> 0:06:39.560 that we're going to see much more physical stimulus, that 0:06:39.600 --> 0:06:42.440 fiscal stimulus is going to have to have, you know, 0:06:42.520 --> 0:06:45.560 by Newton's storage law. Firm dynamics and equal and opposite reaction. 0:06:46.200 --> 0:06:49.680 That's going to be massive treasury issues. So if we're 0:06:49.680 --> 0:06:52.560 issuing a lot more treasuries, to curve is going to 0:06:52.640 --> 0:06:55.560 steep on that longer end, and I think that's why 0:06:55.680 --> 0:06:59.640 yield are going up. The other and related reason is 0:06:59.720 --> 0:07:02.760 if the FED does go into yield curve control mode, 0:07:03.360 --> 0:07:06.360 then that I don't know itself, will will be inflation 0:07:06.400 --> 0:07:09.600 area as well. So how would you envision the yield 0:07:09.600 --> 0:07:12.840 curve control? Would it be to allow sort of a 0:07:12.840 --> 0:07:16.240 gradual steepening but not a really sort of sharp move 0:07:16.400 --> 0:07:18.560 one way or the others? That is that kind of 0:07:18.600 --> 0:07:21.000 the safest bet do you think. I think it would 0:07:21.000 --> 0:07:23.120 be gradual, and certainly the FED would intend for it 0:07:23.120 --> 0:07:26.800 to be gradual. But one problem with y c C 0:07:27.840 --> 0:07:31.600 is that it's very open ended and market dependent. So um, 0:07:31.680 --> 0:07:34.480 you know, let's look at Japan for example, in they 0:07:34.480 --> 0:07:38.120 announced yield curve control and they actually had to buy 0:07:38.160 --> 0:07:41.320 a lot less g gbs. Since then, we may get 0:07:41.320 --> 0:07:45.600 a very different experiment result in the US, and that's 0:07:45.600 --> 0:07:48.560 where the curve could move quicker. I think the FED 0:07:48.600 --> 0:07:52.000 would try to slowly phase it in and be very 0:07:52.160 --> 0:07:55.600 very clear about that. Powells I think learned the importance 0:07:55.760 --> 0:07:59.640 of being very predictable as FED chair. So most likely 0:07:59.720 --> 0:08:03.880 we good allow for a gradual steepening, but still steepening 0:08:03.920 --> 0:08:07.880 to a level where it's advantageous for for a treasury. 0:08:07.920 --> 0:08:11.800 So if we have inflation go up at the same 0:08:11.840 --> 0:08:15.280 time as yields are kept at a low rate, then 0:08:15.400 --> 0:08:19.280 you're actually are issuing negative real rate debt. And if 0:08:19.320 --> 0:08:21.320 you look at CBO forecast and do a little bit 0:08:21.320 --> 0:08:23.720 of arithmetic, you can actually see that that's what they 0:08:23.720 --> 0:08:28.119 expect through seven. They're actually expecting that the average real 0:08:28.720 --> 0:08:31.040 yield of new treasury debt is going to be negative. 0:08:47.400 --> 0:08:51.040 So you have a real yield of treasuries that's going 0:08:51.080 --> 0:08:56.360 to be negative. Is this almost the perfect coalescence of 0:08:56.520 --> 0:08:59.080 a Bolish environment? I mean, okay, you have COVID nineteen 0:08:59.080 --> 0:09:02.079 in the picture, still very much with us. But if 0:09:02.120 --> 0:09:05.559 we get more fiscal stimulus, yield start rising at forces 0:09:05.920 --> 0:09:08.960 the FED to start doing more asset purchases on the 0:09:09.040 --> 0:09:11.960 long end to keep them suppressed. All of a sudden, 0:09:12.120 --> 0:09:14.400 you have plenty of liquidity in the system and you 0:09:14.440 --> 0:09:18.520 have extremely extremely low yields. Even an environment where we're 0:09:18.520 --> 0:09:22.040 still coming back from a recession. Yeah, I I would 0:09:22.040 --> 0:09:27.800 say as we look into we are seeing the potential 0:09:27.920 --> 0:09:31.520 for for growth to really come back. In fact, one 0:09:31.520 --> 0:09:35.360 of the reasons we've more recently tilted into value stocks 0:09:35.400 --> 0:09:38.880 and away from growth stocks, even as we've again you know, 0:09:39.559 --> 0:09:42.280 more near term scaled down our our risk to be 0:09:42.360 --> 0:09:45.800 fully neutral is because we do anticipate that growth full 0:09:45.840 --> 0:09:49.559 pick up and above trend growth is exactly what value 0:09:49.720 --> 0:09:52.959 needs and hasn't had in the last fourteen years to accelerate. 0:09:53.000 --> 0:09:56.200 So so yeah, it's uh, it's could be that perfect 0:09:56.200 --> 0:09:58.640 storm in that regard Sarah that much. Do you think 0:09:58.679 --> 0:10:01.160 a steepening of the curve? You know, like I said 0:10:01.200 --> 0:10:04.000 at the beginning, a sort of the case for equities 0:10:04.160 --> 0:10:07.960 is that, yes, valuations are are high, but you know, 0:10:08.080 --> 0:10:11.320 with bond yields near historically low, especially you know, ten 0:10:11.320 --> 0:10:14.040 of ten of thirty years space, you know, from that 0:10:14.160 --> 0:10:19.880 valuation metrics, equities still don't look too frothy. Um, what 0:10:19.960 --> 0:10:24.199 would that gradual steepening of the yield curve do for valuations? 0:10:24.240 --> 0:10:28.720 Is there enough earnings potential next year to keep this 0:10:28.840 --> 0:10:32.400 rally going or will we see some sort of compression 0:10:32.440 --> 0:10:36.040 evaluations if that curve steepens and and maybe a rocky 0:10:36.120 --> 0:10:40.120 road for equities. So I think it depends on where 0:10:40.120 --> 0:10:43.960 you look within the equity market. When we look at tech, 0:10:44.640 --> 0:10:48.360 which has obviously been both interestingly momentum and a defensive 0:10:48.400 --> 0:10:51.800 play this year, we have seen earnings run up so 0:10:51.920 --> 0:10:57.959 much that those valuations are going to be tricky to justify. 0:10:58.040 --> 0:11:03.000 So I think that's where you're gonna have some some issues. 0:11:03.240 --> 0:11:05.120 I think there's a saturation even if we think of 0:11:05.160 --> 0:11:07.480 like the work from a home theme. Right, we've all 0:11:07.520 --> 0:11:11.680 bought fancy microphones and cameras, and we've all added Disney 0:11:11.679 --> 0:11:15.400 Plus and Hulu and Netflix, but our zoom premium packages. 0:11:15.600 --> 0:11:18.640 So there is that saturation that that's there. I don't 0:11:18.720 --> 0:11:22.400 see that expectation in the earnings revisions, which have only 0:11:22.440 --> 0:11:25.320 gotten higher and higher, so eventually you know, you're you're 0:11:25.360 --> 0:11:27.720 going into the shed and taken out a pole vault 0:11:27.840 --> 0:11:32.400 to get over that bar just to you know, meet expectations. 0:11:32.559 --> 0:11:35.160 I think that's where it's gonna be a little trickier. Conversely, 0:11:35.200 --> 0:11:38.840 there's gonna be more downtrodden sectors h and again I'll 0:11:39.000 --> 0:11:42.760 point to value, where investors have been, you know, largely 0:11:42.800 --> 0:11:49.000 ignoring it. And it still remains well well behind growth. 0:11:49.000 --> 0:11:51.760 In fact, it's still down a year to date, where 0:11:51.800 --> 0:11:54.240 I think valuations are a lot more reasonable, and at 0:11:54.280 --> 0:11:57.720 the same time, as is typically the case when the 0:11:57.760 --> 0:12:01.280 economy is roaring, investors stopped being a higher premium. So 0:12:01.520 --> 0:12:03.600 I think all that is going to call us into 0:12:04.480 --> 0:12:08.160 a really good situation for against certain value sectors. Will 0:12:08.240 --> 0:12:11.080 probably be a lot more tricky for tech. And we 0:12:11.120 --> 0:12:16.480 haven't even touched on the prospects of you know, tech regulation. Max. 0:12:16.520 --> 0:12:18.120 I think you just dropped a hint for us to 0:12:18.160 --> 0:12:20.560 point out how great your audio is. Because Max was 0:12:20.600 --> 0:12:22.200 one of those who went out and bought himself a 0:12:22.200 --> 0:12:24.920 fancy microphone. He has I think a fancier one than 0:12:24.960 --> 0:12:28.560 both Mike and I, so he was prepared for this. 0:12:32.240 --> 0:12:34.960 But Max, you you bring up tech regulation, and I 0:12:35.000 --> 0:12:37.040 do want to ask you about this because this past 0:12:37.080 --> 0:12:40.839 week we did here once again from members of Congress 0:12:41.040 --> 0:12:44.800 and those on Capitol Hill talking about anti trust regulation 0:12:44.920 --> 0:12:48.280 for these very very large, mega cap tech companies that 0:12:48.320 --> 0:12:52.440 have just been leaders for so long and have just 0:12:52.720 --> 0:12:56.880 grown into almost monopolies. And this has been discussed for 0:12:56.920 --> 0:12:59.000 a while, but it did seem like this report that 0:12:59.040 --> 0:13:03.520 was released had a little bit more meat on its bones. However, 0:13:03.559 --> 0:13:05.880 at the same time, it didn't seem like any of 0:13:05.920 --> 0:13:09.240 these companies in the stock market seem to care. Sure, 0:13:09.320 --> 0:13:10.960 we might be seeing a rotation out of tech a 0:13:11.000 --> 0:13:13.320 bit um over the past five days, Tech is one 0:13:13.360 --> 0:13:16.640 of the worst performing sectors. Is anything different this time? 0:13:16.720 --> 0:13:19.840 Is there any reason to really believe that we are 0:13:19.880 --> 0:13:23.880 going to see politicians policymakers go ahead and actually implement 0:13:23.920 --> 0:13:27.720 this policy and make some changes. I believe there is, 0:13:27.880 --> 0:13:29.960 And I also believe the fact that the market doesn't 0:13:30.000 --> 0:13:32.800 seem to care is exactly what makes being underweight tech 0:13:32.880 --> 0:13:35.680 on attractive trade because you kind of want to be 0:13:35.720 --> 0:13:40.559 a contrarian on on regulatory arbitrage. So the reason why 0:13:40.920 --> 0:13:44.520 I think it's different this time is because tech regulation 0:13:44.600 --> 0:13:48.640 is by partisan the reason for regulating tech are different. So, 0:13:48.920 --> 0:13:52.280 you know, if we fast forward past November December, whenever 0:13:52.320 --> 0:13:54.640 we you know, find out the result of the election, 0:13:55.120 --> 0:13:59.400 and we have a new president in Congress, then if 0:13:59.440 --> 0:14:03.920 it's a Republican controlled Congress and White House, then they'll 0:14:03.920 --> 0:14:07.079 focus on perceived anti conservative bias as a reason to 0:14:08.000 --> 0:14:12.640 really suppress social media companies and alphabet If it is 0:14:13.120 --> 0:14:16.760 a more Democrat controlled Congress. Well, I think, you know, 0:14:16.840 --> 0:14:20.160 really we've been talking about a blue wave a lot, 0:14:20.200 --> 0:14:21.560 and I think a blue wave is really gonna be 0:14:21.560 --> 0:14:25.960 at tsunami that drowns detect giants because the antitrust find 0:14:25.960 --> 0:14:27.800 things that have been found by that panel, which is 0:14:27.880 --> 0:14:31.280 largely uh, you know, democrat controlled, because it's in the House. 0:14:32.080 --> 0:14:34.800 I think they're pretty substantial and there, and and it's 0:14:34.840 --> 0:14:38.680 gonna be hard to for Amazon, for Apple, for Google 0:14:38.760 --> 0:14:43.920 to say that their marketplaces really are not infringing on companies. 0:14:43.960 --> 0:14:45.920 I mean, there's been so much more momentum, and there's 0:14:45.920 --> 0:14:50.400 also been a much more momentum within the public, within 0:14:50.440 --> 0:14:54.240 the electorate to say, yeah, we have concerns about privacy. Yeah, 0:14:54.280 --> 0:14:57.160 we are hearing from small businesses who are getting pressured 0:14:57.240 --> 0:15:00.880 by Amazon. There's a lot of developer is who complain 0:15:00.920 --> 0:15:04.160 about Apple's uh, you know, control of the app store. 0:15:04.200 --> 0:15:07.560 So all those things created a very different environment than 0:15:07.600 --> 0:15:10.960 what we saw in uh in years prior, and so 0:15:11.160 --> 0:15:15.240 regardless of November's outcome, it just doesn't look good for tech. 0:15:15.600 --> 0:15:17.120 I don't think it's going to be an overnight thing. 0:15:17.120 --> 0:15:20.760 I don't think this is something where, you know, end 0:15:20.800 --> 0:15:24.000 of Q one, we have massive antitrust regulation going through 0:15:24.040 --> 0:15:25.920 for for tech, but it's going to be a structural 0:15:26.000 --> 0:15:28.520 theme and eventually investors are going to have to care 0:15:28.760 --> 0:15:49.280 when those proceedings are really gaining steam. All right, Max, 0:15:49.320 --> 0:15:52.600 I've been looking thinking about the anti trust issue from 0:15:52.640 --> 0:15:54.720 a different angle, and I'm not sure if it makes 0:15:54.760 --> 0:15:58.320 me a contrarian or just a deluded idiot. So so 0:15:58.400 --> 0:16:01.280 let me let me know what you think. But you know, 0:16:01.320 --> 0:16:05.920 if I'm an investor, say in Facebook or Amazon, and 0:16:06.520 --> 0:16:09.480 Cagar says comes in and says you have to break 0:16:09.560 --> 0:16:13.880 up these companies, well, how it's done I think is important. 0:16:13.920 --> 0:16:16.080 You know, if if Facebook were to say spinle and 0:16:16.080 --> 0:16:18.320 I'm just making up these possible ways they could be 0:16:18.320 --> 0:16:19.920 broken off, who knows how it could really beat one. 0:16:19.960 --> 0:16:25.480 But say Facebook spins Instagram off two shareholders, or Amazon 0:16:25.840 --> 0:16:30.560 spins off Amazon Web services, their cloud business off the shareholders, 0:16:31.200 --> 0:16:35.720 or Apple spins off the app store two shareholders. Is 0:16:35.720 --> 0:16:38.680 that necessarily a barish thing for these stocks in the 0:16:38.760 --> 0:16:42.120 long run? Um, You know, to those business synergies kind 0:16:42.120 --> 0:16:46.440 of outweigh the potential benefits share shareholders could get in 0:16:46.480 --> 0:16:49.120 a breakup. If shareholders end up getting cash or or 0:16:49.160 --> 0:16:52.280 stock in one of the units that spun off. Yeah, 0:16:52.360 --> 0:16:55.880 that's that's a really fair question, actually, and I think 0:16:55.880 --> 0:16:59.000 the answer lies in the margins that you see tech 0:16:59.040 --> 0:17:02.000 companies have enjoyed, which are really actually one of the 0:17:02.000 --> 0:17:05.520 reasons we can justify their valuations to a certain extent, 0:17:05.960 --> 0:17:09.480 and why we were fine owning them as an overweight 0:17:09.840 --> 0:17:12.879 earlier in the year before the most recent run ups. 0:17:14.080 --> 0:17:18.320 Once you spin off a division, you reduce your margin 0:17:18.400 --> 0:17:23.160 because you're just gonna have more of the same departments duplicated, right, 0:17:23.200 --> 0:17:26.000 so there's gonna be a lot of additional hiring that 0:17:26.040 --> 0:17:28.159 will need to happen. There won't be as much scale 0:17:28.200 --> 0:17:31.800 and cross selling by definition, right, so Instagram can't cross 0:17:31.800 --> 0:17:34.320 sell to Facebook, etcetera. First of all, the it's still 0:17:34.359 --> 0:17:36.320 be large businesses, right. Instagram on its own is a 0:17:36.400 --> 0:17:41.200 very large company, um, But without Facebook as its parent, 0:17:41.880 --> 0:17:47.320 it's going to definitely find a tougher time on expanding 0:17:47.320 --> 0:17:50.560 and growing and doing so at at a low cost. 0:17:50.840 --> 0:17:53.480 And similarly, Facebook will lose one of its biggest growth 0:17:53.480 --> 0:17:56.960 engines because obviously, as although Facebook exects one like talking 0:17:56.960 --> 0:17:59.879 about this too much, Instagram has really been the reason 0:18:00.200 --> 0:18:03.240 why Facebook has done so well. So, so I think 0:18:03.320 --> 0:18:06.840 long term it'll be interesting to see how these companies, 0:18:06.880 --> 0:18:10.560 once they're independent, in whatever scenario that ultimately comes through, 0:18:11.240 --> 0:18:13.600 can really make a go of it themselves. But they 0:18:13.600 --> 0:18:14.960 are going to be competing with each other, and I 0:18:15.000 --> 0:18:19.240 don't think that's gonna be a medium term certainly not 0:18:19.280 --> 0:18:21.800 a near term bullish catalyst. Longer term, we'll we'll have 0:18:21.840 --> 0:18:25.480 to revaluate pricing power goes down a lot, I guess, 0:18:25.480 --> 0:18:28.520 and that's the point of anti rust, increased competition. Um. 0:18:28.560 --> 0:18:31.680 But speaking of competition, Mike, I I believe that it's 0:18:31.760 --> 0:18:35.480 that time. Oh boy, it's that time to someone warned 0:18:35.480 --> 0:18:39.640 Max about our gimmick. Oh he's prepared, aren't you. Oh yeah, 0:18:40.000 --> 0:18:43.640 I'm ready stand clear of the craziest things we saw 0:18:43.640 --> 0:18:47.239 in markets this week? All right, Sara, let's start with you. 0:18:47.320 --> 0:18:49.720 What's the craziest thing you saw in markets this week? 0:18:49.960 --> 0:18:53.280 All right? So I will I'm gonna come clean completely 0:18:53.320 --> 0:18:56.840 admit I had help from our crazy things correspondent this week. 0:18:57.200 --> 0:18:59.719 But it is a really, really good one. So this 0:18:59.800 --> 0:19:02.959 is a story in the Financial Times. Just from the 0:19:02.960 --> 0:19:06.640 headline the start of it, it reads, Vatican used charity 0:19:06.680 --> 0:19:12.640 funds to bet on Hurts credit derivatives. I love that story. Unbelievable. 0:19:12.800 --> 0:19:15.200 So essentially I'll just read you, read you a bit 0:19:15.240 --> 0:19:18.480 from the story from the FT. The Vatican invested some 0:19:18.560 --> 0:19:21.480 donations for the poor and needy and derivatives that bet 0:19:21.480 --> 0:19:24.560 on the credit worthiness of Hurts, the US car rental 0:19:24.600 --> 0:19:27.840 company that defaulted on its debts earlier this year, according 0:19:27.880 --> 0:19:30.199 to documents seen by the Ft and it goes on 0:19:30.280 --> 0:19:33.639 and it says put Frances said credit default swaps quote 0:19:33.720 --> 0:19:36.439 encouraged the growth of a finance of chance and of 0:19:36.520 --> 0:19:39.600 gambling on the failure of others, which is unacceptable from 0:19:39.640 --> 0:19:42.280 the ethical point of view. But the instruments, he said, 0:19:42.280 --> 0:19:44.800 we're a ticking time bomb. Meanwhile, you have this going 0:19:44.840 --> 0:19:47.840 on and Hurt supposedly, um so who are we dealing 0:19:47.880 --> 0:19:51.960 with the Vatican? Robin Hood not really sure. What's really 0:19:51.960 --> 0:19:54.760 interesting about that, Sarah, is it gives credence to what 0:19:55.040 --> 0:19:58.680 Lloyd Blankfin, the former chairman of Golden Sex said when 0:19:59.080 --> 0:20:01.440 you mentioned they were doing work. So I guess they 0:20:01.480 --> 0:20:09.480 actually are. That's a good one, truly. I'd love to 0:20:09.520 --> 0:20:12.000 see the Vaticans pan l though it's you know, they 0:20:12.040 --> 0:20:15.760 have a pretty they have an Investment Arm of the Vatican. 0:20:15.800 --> 0:20:18.159 I'd love to see, uh, see what their pan l is. 0:20:18.200 --> 0:20:21.800 That's pretty good move going along hurt CDs. I think 0:20:21.800 --> 0:20:24.160 a lot of a lot of fun managers probably wish 0:20:24.160 --> 0:20:28.240 they they had found religion on that issue there in hindsight, yeah, 0:20:28.280 --> 0:20:31.760 in hindsight. Um, we also had one. We had someone 0:20:31.800 --> 0:20:34.600 tweet that I wanted to make sure I mentioned as well, Mike, 0:20:35.000 --> 0:20:37.159 also because they've gave me a little props, which of 0:20:37.240 --> 0:20:39.080 course I have to play up if I have the chance. 0:20:39.240 --> 0:20:44.080 So so this comes from I apologize if I'm pronouncing 0:20:44.080 --> 0:20:48.919 your name wrong, but Karen Verdi at k vora and 0:20:49.119 --> 0:20:52.320 uh he said. As it relates to Justin Bieber posting 0:20:52.359 --> 0:20:55.200 that picture of crocsend in croc share storing, he said, 0:20:55.560 --> 0:20:58.720 definitely to be mentioned in podcast for Crazy Things this week, 0:20:59.280 --> 0:21:01.720 and then he said, Mike in habit for next time, 0:21:01.840 --> 0:21:04.080 he's been lagging behind so far. So you hear that 0:21:04.119 --> 0:21:07.080 you've been lagging behind so far, Mike. I don't know 0:21:07.160 --> 0:21:11.000 what podcast this guy has been listening to. I don't 0:21:11.000 --> 0:21:12.800 know about that one. That is a good thing that 0:21:12.920 --> 0:21:15.440 we thank him for. That contribution to Justin Bieber. Also 0:21:15.480 --> 0:21:17.879 one from Ben Emmons, who's been on the show, the 0:21:17.960 --> 0:21:22.199 strategist at Medley Global Advisors, pointing out the guy, the 0:21:22.200 --> 0:21:26.720 programmer at City Group who was moonlighting as the head 0:21:26.760 --> 0:21:31.359 of a q and on conspiracy theory website. And they 0:21:31.400 --> 0:21:33.760 managed to fire that guy. I was wondering, Sarah, you 0:21:33.800 --> 0:21:37.440 know in his employment agreement, what exactly they could fire 0:21:37.480 --> 0:21:38.959 this guy for. I mean, I guess there's a lot 0:21:38.960 --> 0:21:40.960 of material there they can work with, so they ended 0:21:41.000 --> 0:21:44.240 up getting rid of them. It is a little bit surprising. Uh. 0:21:44.480 --> 0:21:46.919 It makes me think about who who were surrounded up 0:21:46.960 --> 0:21:53.040 with at work, if anyone's acy theorist. It's kind of 0:21:53.119 --> 0:21:55.240 dangerous though, you know who there could be a City 0:21:55.320 --> 0:21:58.680 Group conspiracy theory website up now next you know, they 0:21:59.000 --> 0:22:01.000 might be playing with fire a bit now Mike is 0:22:01.000 --> 0:22:05.199 starting his own conspiracy theories. All right, Max, what do 0:22:05.200 --> 0:22:07.840 you got for us? Well, I've got a three course 0:22:07.920 --> 0:22:10.840 meal of madness for you guys. Um, we love that 0:22:11.119 --> 0:22:15.720 so so first first courses, fish and chips, and uh, 0:22:15.760 --> 0:22:19.840 I was just I'm kind of amazed with Brexit hinging on. 0:22:20.240 --> 0:22:25.280 Basically Johnson and McCrone agreeing on letting Frenchmen keep fishing 0:22:25.280 --> 0:22:30.040 in British waters, So fishing rights are point one percent 0:22:30.200 --> 0:22:34.520 of the British economy. Yet that is actually what's holding 0:22:34.520 --> 0:22:36.719 a brexit right now. And Johnson went so far as 0:22:36.720 --> 0:22:39.720 to say, if we don't get a deal by middle 0:22:39.760 --> 0:22:45.240 of next next week or you know, October fifteen, then uh, 0:22:45.280 --> 0:22:49.600 we're we're walking. So pretty incredible are the fist fresher 0:22:49.760 --> 0:22:54.040 and certain bodies of water than others. So apparently fish 0:22:54.359 --> 0:22:58.160 in the British waters are very dominant, and it's actually 0:22:58.200 --> 0:23:01.600 really important to uh to the French as well as 0:23:01.720 --> 0:23:05.160 other EU members to keep fishing there without restriction. But 0:23:05.920 --> 0:23:08.560 aside from those fishermen, I don't think it's really a 0:23:08.600 --> 0:23:12.600 reason to plunge both economies into a deeper recession. But 0:23:13.680 --> 0:23:16.840 you know, the eu is is never never stopped short 0:23:16.880 --> 0:23:21.800 of arguing over miniscule points. Um So, so next course, 0:23:21.960 --> 0:23:24.399 after our fish course, we're going to go to steak. 0:23:24.880 --> 0:23:27.520 And this was just a really great story that that 0:23:27.560 --> 0:23:29.520 I that I saw. Actually as I was I was like, 0:23:29.600 --> 0:23:32.080 I wonder what I'm gonna say for you know, craziest 0:23:32.080 --> 0:23:33.320