WEBVTT - Over the Borderline 0:00:13.760 --> 0:00:17.239 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.560 --> 0:00:20.560 I'm Mike Creagan, a senior editor at Bloomberg, and this 0:00:20.600 --> 0:00:23.400 week on the show, the US equity market has almost 0:00:23.480 --> 0:00:26.400 doubled since it's lows during the COVID sell off of 0:00:27.880 --> 0:00:30.400 but the rally is stalled and the SP five hundred 0:00:30.440 --> 0:00:33.680 has basically gone sideways over the last three weeks despite 0:00:33.720 --> 0:00:37.240 what's clearly been a strong earning season. So where does 0:00:37.320 --> 0:00:39.680 that leave us going forward? Has the easy money all 0:00:39.720 --> 0:00:42.360 been made? We'll talk to a strategist who has some 0:00:42.400 --> 0:00:45.840 thoughts on what market stage we're actually in and why 0:00:45.880 --> 0:00:49.279 he's looking across the US border into Mexico and Canada 0:00:49.640 --> 0:00:51.840 for stocks that will benefit the most from the key 0:00:51.880 --> 0:00:57.080 themes of But first, Charlie Pellett tell us who this 0:00:57.120 --> 0:01:01.720 week's mystery co host is. The sweek's mystery co host 0:01:01.880 --> 0:01:06.200 is Diva Baljie. Diva is the team leader for Bloomberg's 0:01:06.200 --> 0:01:09.720 equity market coverage in the America's. She lives in Toronto 0:01:09.800 --> 0:01:12.240 and loves the Raptors, but she is not a fan 0:01:12.319 --> 0:01:15.800 of hockey due to all the fighting. Food and travel 0:01:15.840 --> 0:01:18.160 are her passions, and believe it or not, she says 0:01:18.520 --> 0:01:23.600 that's why she prefers New Jersey over New York. If 0:01:23.600 --> 0:01:26.959 you have, my heart grew three sizes when I heard 0:01:27.240 --> 0:01:29.560 that you preferred New Jersey over New York. Not that 0:01:29.600 --> 0:01:32.240 I have anything against New York, great city, grade state, 0:01:32.280 --> 0:01:35.800 but finally some respect for us here in the Garden State. 0:01:35.800 --> 0:01:38.440 But I got asked, what makes you bullishaw New Jersey? 0:01:38.600 --> 0:01:43.000 Especially the food? I'm curious, you know, I I'm pretty 0:01:43.000 --> 0:01:44.959 sure I'm going to get a lot of hate tweets 0:01:45.120 --> 0:01:47.920 from saying this, but it just kind of feels like 0:01:47.960 --> 0:01:51.480 New York's a bit overrated at this point, and having 0:01:51.520 --> 0:01:55.080 spent a lot of time in Jersey, We've got family there, 0:01:55.280 --> 0:01:58.000 and you know, we just the food is great. You know, 0:01:58.160 --> 0:02:01.960 people are friendly. Um, there's a lot of space. I 0:02:02.320 --> 0:02:05.040 just I really like it. I love to hear it. 0:02:05.080 --> 0:02:07.440 Direct your hate tweets at if you not at mean, actually, 0:02:07.440 --> 0:02:09.400 if you can direct him to me too. I'm curious 0:02:10.240 --> 0:02:13.760 curious what they say about that one. But hey, New 0:02:13.840 --> 0:02:17.240 Jersey just ranked the number one state for pizza by 0:02:17.320 --> 0:02:20.800 Food and Wine magazine. So the respect is finally coming. Finally, 0:02:20.880 --> 0:02:24.079 some some respect for the Garden State. But let's get 0:02:24.080 --> 0:02:27.680 to that Market's Chat. We're well, very happy to welcome 0:02:27.720 --> 0:02:29.960 back to the show. It's actually his third time on 0:02:30.000 --> 0:02:31.760 the show. I think he gets a tote bag or 0:02:31.800 --> 0:02:35.480 something for that. But he is the director of Global 0:02:35.520 --> 0:02:39.120 market Strategy at stone X Financialist. Name is Vincent de 0:02:39.200 --> 0:02:42.800 Luards and welcome back to the show. It to be here, Yeah, 0:02:43.120 --> 0:02:45.160 it's it. I've been reading some of your notes, and uh, 0:02:45.280 --> 0:02:48.080 you've got a pretty interesting, what I consider kind of 0:02:48.080 --> 0:02:51.560 a non consensus view of sort of where we are 0:02:51.560 --> 0:02:54.559 in the market cycle. And correct me if I'm misinterpreting 0:02:54.600 --> 0:02:57.640 you here at all, but you sort of have disregarded 0:02:57.720 --> 0:03:01.320 the very fast bear market of last year as something 0:03:01.360 --> 0:03:04.280 that did not in fact reset the market cycle and 0:03:04.400 --> 0:03:07.640 does not make this a new, younger bull market that's 0:03:07.639 --> 0:03:10.800 only say, a little over a year old. Rather you 0:03:10.840 --> 0:03:13.920 see it as sort of just a continuation of the long, 0:03:14.040 --> 0:03:18.440 decade long post financial crisis bull market. So walk us 0:03:18.480 --> 0:03:20.799 through your thinking on that and sort of what that 0:03:20.840 --> 0:03:24.880 means for returns going forward or volat totally going forward 0:03:24.880 --> 0:03:27.079 if we are kind of late in the cycle of 0:03:27.200 --> 0:03:31.519 a ball market. So the first discrepancy, and I think 0:03:31.720 --> 0:03:34.840 is just the speed of the gains we're looking at 0:03:35.120 --> 0:03:38.040 you know, basically doubling on the SMP five hundred index 0:03:38.080 --> 0:03:41.040 in evening about a year um, which again does not 0:03:41.120 --> 0:03:45.400 happen typically. I mean typically the classical saying is stocks 0:03:45.400 --> 0:03:49.200 stay the edited down and the stairway up right TPP. 0:03:49.280 --> 0:03:52.200 It's when you rally, it takes longer to get there. Here, 0:03:52.240 --> 0:03:55.240 we had such a nice, clean v that is more 0:03:55.280 --> 0:03:57.520 consistent with what we saw you in the Great Depression, 0:03:57.560 --> 0:04:00.600 when we had a lot of these very brutal bear 0:04:00.680 --> 0:04:03.600 market but also bullmarkets. I mean, some of the fastest 0:04:03.960 --> 0:04:06.800 rallies in history happened in the nineteen thirties, but of 0:04:06.800 --> 0:04:10.240 course they were not sustained. UM. Second indication that we 0:04:10.280 --> 0:04:14.680 are still in a in the same cycle as before 0:04:15.440 --> 0:04:19.760 is um the weakness of buybacks. So in in a 0:04:19.880 --> 0:04:24.880 bona fide um bull market, what you see is as 0:04:25.000 --> 0:04:28.200 as as stock valuations are depressed and earnings are coming back, 0:04:28.240 --> 0:04:30.440 cash flow was improving, you see companies buy back more 0:04:30.480 --> 0:04:33.880 of their stocks. This is happening to some extent, but 0:04:34.160 --> 0:04:37.200 we're still about fifty percent off the levels that we 0:04:37.200 --> 0:04:40.840 wear uh pre covid um, and a lot of the 0:04:40.880 --> 0:04:42.880 buy backs that we are seeing are really just coming 0:04:42.920 --> 0:04:45.200 from the tech sector where this is not really a 0:04:45.200 --> 0:04:47.960 buy back, it's a way to offset the delusion from 0:04:47.960 --> 0:04:50.400 stock based compensation. So you see buy backs, but you 0:04:50.440 --> 0:04:53.920 don't see the float drink um. Speaking of float, another 0:04:54.120 --> 0:05:00.000 inconsistency that we've seen is this this massive increase inequity issuance. UM. 0:05:00.000 --> 0:05:04.000 We had the biggest month quarter on record, much much 0:05:04.080 --> 0:05:06.719 higher than what we had during the Internet bubble, as 0:05:06.760 --> 0:05:11.240 companies have been really just taking advantage of these extraorminity 0:05:11.240 --> 0:05:13.920 evaluations to raise equity. Again, not something that you would 0:05:13.920 --> 0:05:16.520 see at the bottom. UM. The same thing with inside 0:05:16.520 --> 0:05:20.159 the selling. I mean typically at a major market bottom 0:05:20.200 --> 0:05:23.680 you see you know, insiders sell less and buy more. 0:05:23.720 --> 0:05:26.240 When we see the opposite we see especially among big 0:05:26.240 --> 0:05:31.480 tech company mas lack insiders as just cashing it out. UM. 0:05:31.480 --> 0:05:35.160 And then the last part that's um not consistent with 0:05:35.320 --> 0:05:38.280 a new ball market is the behavior of retail. So 0:05:38.360 --> 0:05:40.440 typically at the DNT of a new bull market, you 0:05:40.480 --> 0:05:43.040 know there's a lot of distrust, there's a lot of fear, 0:05:43.720 --> 0:05:46.640 so the money is more like players like one buffet 0:05:46.640 --> 0:05:49.120 long term investors that are you know, brave enough to 0:05:49.520 --> 0:05:53.800 dip their toes UM. Here it's exact opposite, right, you see. Um. 0:05:53.920 --> 0:05:56.320 You know, obviously cash level at at Berkshire is a 0:05:56.400 --> 0:05:58.680 closer record high. And on the other hand, we had 0:05:58.720 --> 0:06:02.760 the largest inflow UH for the in eats ever for 0:06:02.800 --> 0:06:06.599 the past uh eight weeks. So we are seeing basically 0:06:06.640 --> 0:06:10.080 corporations and inside of s catching out retail buy me in, 0:06:10.440 --> 0:06:13.560 which is typically what you see at major market tops 0:06:13.800 --> 0:06:15.880 or at least at the end of the ball market, 0:06:16.000 --> 0:06:18.920 not at the beginning. So Vincent, I guess, you know, 0:06:19.600 --> 0:06:22.120 I might be a bit more skeptical about this. I mean, 0:06:22.279 --> 0:06:24.400 there's a lot of things that play here, right, I mean, 0:06:25.200 --> 0:06:28.839 this market is so different from anything we've ever seen 0:06:29.120 --> 0:06:33.599 in the past. Um. You know, obviously there are companies 0:06:33.640 --> 0:06:37.200 that could possibly be cautious about doing buy backs right now. 0:06:37.240 --> 0:06:39.800 They might be waiting for just a little bit more 0:06:39.880 --> 0:06:44.880 normal fee um, you know, and from that buybacks perspective 0:06:44.920 --> 0:06:48.320 as well, US banks also just recently got the okay 0:06:48.440 --> 0:06:51.360 to buy shares or the purchase shares that should help 0:06:51.360 --> 0:06:55.000 with the comeback as well. UM. And also the retail 0:06:55.120 --> 0:06:59.400 buying that we've seen is also pretty unprecedented given the 0:06:59.480 --> 0:07:02.680 environment that we've been in. Um, how do you sort of, 0:07:03.520 --> 0:07:06.159 you know, say, okay, I'm looking at this and you know, 0:07:06.480 --> 0:07:09.440 not really this is why this we're coming to the 0:07:09.560 --> 0:07:11.280 end of the bull parking. I mean there's also the 0:07:11.600 --> 0:07:14.880 option of, like Tina, where what are your other opportunities 0:07:14.880 --> 0:07:18.800 out there to actually put your money in? Yeah? These 0:07:18.800 --> 0:07:24.920 are good old, very fair points. UM. I agree with 0:07:24.960 --> 0:07:28.840 you that this is unprecedented. Obviously it is. And in 0:07:28.880 --> 0:07:31.000 a way it makes me feel like we should even 0:07:31.040 --> 0:07:36.160 discard everything that happened, uh, you know between Mars and today. 0:07:36.240 --> 0:07:38.320 And this is what makes me think that we are 0:07:38.400 --> 0:07:41.640 still in that same cycle. I mean you mentioned the world, Tina. 0:07:41.760 --> 0:07:46.880 I mean this was the mentra of the past ten years. UM. 0:07:47.040 --> 0:07:51.800 So yes, the same thing with their investors. UM, Sarah 0:07:51.840 --> 0:07:55.880 whom I you know, after I'm sure we all regret 0:07:56.000 --> 0:07:57.880 that she's no longer here. You know, she she had 0:07:58.120 --> 0:08:00.120 she used to run these stories very early on the 0:08:00.240 --> 0:08:03.640 on the retail manua. UM. And I remember in this 0:08:03.720 --> 0:08:05.840 conversation with her like saying, well, oh no, these guys 0:08:05.840 --> 0:08:08.920 are gonna go away. You know it's retail investors the weekends. 0:08:09.720 --> 0:08:12.480 I mean, this has been a big surprise. How sustainable? 0:08:13.080 --> 0:08:18.200 Um did this has been? Um? I still think again 0:08:18.240 --> 0:08:21.120 I have been wrong on this before. And I may 0:08:21.160 --> 0:08:24.480 still be wrong, but I think eventually this this is 0:08:24.520 --> 0:08:27.920 not the ingredients for sustainable ballmarket. I mean, you don't 0:08:28.000 --> 0:08:32.280 build economic prosperity on on doogh coin and game stop 0:08:32.360 --> 0:08:35.079 and and mimes tongs. I mean, it's so fun, everybody 0:08:35.120 --> 0:08:38.840 is having a good time now, but um you know, 0:08:39.000 --> 0:08:42.080 you really don't have the ingredients for for sustainable economic 0:08:42.120 --> 0:08:46.000 growth on this. On the banks, I thought you raised 0:08:46.120 --> 0:08:53.480 a very interesting question, um um so, and it's key 0:08:53.600 --> 0:08:57.200 to me for the debate on on the inflation and 0:08:57.240 --> 0:08:59.680 the nature of the recovery. One thing that is stunning 0:09:00.280 --> 0:09:02.760 is that we've seen a collapse in the loan to 0:09:02.800 --> 0:09:06.000 deposit ratio. So typically, you know, we're learning school loan 0:09:06.679 --> 0:09:10.559 deposits make loan loans make deposit um the not. Usually 0:09:10.559 --> 0:09:13.120 there is about a one to one loan to deposit ratio. 0:09:13.720 --> 0:09:17.360 And with COVID, what we've seen is that that loan 0:09:17.400 --> 0:09:19.680 to deposit ratio has collapse to less than zero point 0:09:19.720 --> 0:09:21.920 five for the big four banks in some cases well 0:09:21.960 --> 0:09:23.720 as far Ago for example, it's because they are not 0:09:23.720 --> 0:09:27.800 allowed to but even the other the other big three, um, 0:09:27.840 --> 0:09:31.199 just there has been this lagging in loan insurance and 0:09:32.280 --> 0:09:35.600 there's the question is what happens next. And we can 0:09:35.640 --> 0:09:39.600 go with with your your your theory that you know 0:09:40.040 --> 0:09:42.000 now that banks are making money again, they're going to 0:09:42.080 --> 0:09:45.040 do buy backs again and that's that's where this extra 0:09:45.160 --> 0:09:48.480 capital is going to be returned, or um, we can 0:09:48.520 --> 0:09:50.520 go with what I think is more likely, which is 0:09:50.559 --> 0:09:53.200 inflacial review, which is we have all these kind of 0:09:53.240 --> 0:09:56.960 trapped kinetic energy in the banking sector. I calculately, if 0:09:56.960 --> 0:09:58.719 you just look at the Big four and if we 0:09:58.800 --> 0:10:01.600 wanted to go back to normal loan to deposit ratio, 0:10:01.840 --> 0:10:05.360 not not even pretty thousand eight, let's go post GFC, 0:10:05.640 --> 0:10:08.120 meaning with with all the new potential regulations. So if 0:10:08.120 --> 0:10:09.480 we were if we were to go from zero point 0:10:09.480 --> 0:10:12.120 five to zero point eight on the loan to deposit ratio, 0:10:12.520 --> 0:10:14.360 the big four bags will have to issue more than 0:10:14.400 --> 0:10:17.760 two point five chillion in new loans. So I think 0:10:17.760 --> 0:10:21.439 that's something that again the market is not really discounting. 0:10:21.520 --> 0:10:23.599 I mean, well, we have our eyes on all the 0:10:23.880 --> 0:10:26.960 infrastructure spending plan, the family Plan, the COVID PLANEL, all 0:10:27.040 --> 0:10:29.000 these there seems to be a new one every week, 0:10:29.040 --> 0:10:31.440 a new two trillion dollar panel. I would add, there's 0:10:31.440 --> 0:10:34.440 a hidden banking steamers, and I could see it happen 0:10:34.480 --> 0:10:37.360 in te one with a perfect storm for banks, right, 0:10:37.400 --> 0:10:39.440 because you have steeper yeld curve, so now it's profitable 0:10:39.480 --> 0:10:42.840 against the issue loans. They have generally over provisioned the losses. 0:10:43.480 --> 0:10:45.520 You saw that in the earnings of JP Morgan, right, 0:10:45.559 --> 0:10:47.600 I mean they were able to release some of these 0:10:47.800 --> 0:10:50.280 extra provisions. Some of that they can. They have too 0:10:50.360 --> 0:10:54.280 much capital, so you know, why keep that capital earning 0:10:54.400 --> 0:10:56.840 zero as excess visits and the FED when you have 0:10:57.000 --> 0:10:59.760 you know, an economy that's booming, a consumer that's very 0:10:59.880 --> 0:11:03.040 good out really really state sector that's on fire, steep 0:11:03.080 --> 0:11:07.480 heel curves, um, so that could add to these inflationary pressure. 0:11:07.520 --> 0:11:12.000 And again inflationary pressure should not be an early stage. 0:11:12.600 --> 0:11:14.839 Typically at the early stage of a rally. Yeah, you 0:11:14.960 --> 0:11:18.440 see some some pick up in commodity prices, right because 0:11:18.440 --> 0:11:21.440 they you know, they're the most cyclical, But the stickier 0:11:21.480 --> 0:11:24.640 parts of inflasion, whether it's wages or rents or bank lending, 0:11:24.679 --> 0:11:26.480 do not pick up quite yet. And I think this 0:11:26.559 --> 0:11:28.199 is what we're going to see, which is again more 0:11:28.240 --> 0:11:38.200 consistent with the late cycle dynamic than an early cycle one. 0:11:40.200 --> 0:11:43.040 I think that point about share supply is interesting. I 0:11:43.040 --> 0:11:45.720 mean that is often the I p O mania of 0:11:46.040 --> 0:11:50.040 sated is often pointed to is kind of the pin 0:11:50.120 --> 0:11:52.679 that that topped the bubble, that just over supply of 0:11:52.880 --> 0:11:56.120 chairs into the market. And um, you know, on the 0:11:56.160 --> 0:12:00.160 flip side, though you've you've written pretty eloquently about you 0:12:00.200 --> 0:12:03.240 call this big blob of money that's kind of chasing 0:12:03.280 --> 0:12:05.480 bubbles from place to place. I just want to read 0:12:05.800 --> 0:12:07.960 read a quote from the report because I think it's 0:12:08.040 --> 0:12:11.240 it's true and it's interesting. Uh you write, quote, the 0:12:11.240 --> 0:12:14.240 blob has created a rotating bubble from long bonds to 0:12:14.320 --> 0:12:19.680 big tech work from home stocks, three opening sectors, electrical vehicles, 0:12:19.760 --> 0:12:24.360 two spacts and obviously we could add doage coin and 0:12:24.360 --> 0:12:27.360 and whatever else n f T s to to that list, 0:12:27.400 --> 0:12:30.560 I imagine. So to me, I guess the play is, 0:12:31.000 --> 0:12:34.800 you know, it's almost impossible to to identify the top 0:12:34.840 --> 0:12:36.800 of a bubble and and to say short of bubble 0:12:36.880 --> 0:12:39.200 right before it pops. But it seems to me like 0:12:39.280 --> 0:12:41.280 the play for you is more kind of you know, 0:12:41.360 --> 0:12:44.199 getting ahead of where that blob is going to go next, right. 0:12:44.240 --> 0:12:48.200 I mean, there's swollen savings accounts in the US because 0:12:48.200 --> 0:12:54.199 of the government stimulus, the unemployment benefit enhancements, uh, you know, 0:12:54.480 --> 0:12:56.960 and just the lack of places to spend your money 0:12:57.080 --> 0:13:00.720 last year, your disposed lincome. So is that is at it? Vincent? 0:13:00.800 --> 0:13:03.679 Is it is the best move now not trying to 0:13:03.960 --> 0:13:07.560 time the pop of the bubbly parts of the market, 0:13:07.559 --> 0:13:09.480 but try to get in early on the on the next, 0:13:10.040 --> 0:13:13.520 the next bubbles in the making. Absolutely, yeah for your 0:13:13.559 --> 0:13:17.120 point on on the difficulty of of timing. Timing bubbles 0:13:17.200 --> 0:13:19.920 is impossible at the best of time. And now we 0:13:19.960 --> 0:13:22.400 have the situation on the bubbles don't don't burst like 0:13:22.440 --> 0:13:26.320 the blob just moves, but it leaves whether it was 0:13:26.640 --> 0:13:29.080 in a similar state of evaluation like you look at 0:13:29.080 --> 0:13:32.680 the r k TF. So clearly you know, this story 0:13:32.720 --> 0:13:35.200 to me is kind of over. But we haven't had 0:13:35.240 --> 0:13:37.920 the big you know, eighty to nine draw down that 0:13:38.000 --> 0:13:40.079 would have expected, you know, the way it paid out 0:13:40.080 --> 0:13:42.360 in with the Nazlak stops and in the two thousand, right, 0:13:42.440 --> 0:13:45.920 just kind of stays there. Um So, I would not 0:13:46.040 --> 0:13:49.000 try to shot it, but I would try to guess 0:13:49.000 --> 0:13:53.439 whether blob is going to move next. Um So, I 0:13:53.480 --> 0:13:58.160 would think there are three areas that have not been 0:13:58.200 --> 0:14:02.960 touched by the blob and are quickly um um talk 0:14:03.000 --> 0:14:04.840 about each one of them. So let me start with 0:14:04.840 --> 0:14:07.880 the one that I don't believe in, which is garb 0:14:08.000 --> 0:14:11.520 stock growth at a reasonable price, the quality names. I've 0:14:11.520 --> 0:14:13.960 seen a lot of strategies and you know, get into 0:14:13.960 --> 0:14:18.240 this stuff or you know, consumer staples, some healthcare stocks 0:14:18.240 --> 0:14:19.920 for example. These are these are the last parts of 0:14:19.960 --> 0:14:22.680 the market that the tech obviously was over value to 0:14:22.680 --> 0:14:25.040 start with. Then we had the reopened small care that 0:14:25.360 --> 0:14:28.160 so real? What leads it leads you with, like, you know, 0:14:28.200 --> 0:14:30.880 a handful of stock and consumer staples and and healthcare. 0:14:31.520 --> 0:14:33.800 I'm not excited about that, mostly because of my belief 0:14:33.840 --> 0:14:36.200 that inflation is gonna come here, and that's he's gonna 0:14:36.240 --> 0:14:39.480 come stronger and longer than people think. And you really 0:14:39.480 --> 0:14:42.320 don't want to be in these kind of stocks. Um. 0:14:42.360 --> 0:14:45.840 So the post that I'm more excited about our um 0:14:45.880 --> 0:14:52.040 in order playing some reopening trade in Europe, Mexico, which 0:14:52.120 --> 0:14:54.760 is by far my favorite short term call. And then 0:14:54.800 --> 0:14:57.680 precious metal. Um, do you want me to start with 0:14:58.720 --> 0:15:02.000 any any in new particular order? Yeah, you know, I was. 0:15:02.120 --> 0:15:04.040 I was gonna ask you about Mexico. I think that's 0:15:04.040 --> 0:15:07.080 an interesting one. I mean obviously a very sort of 0:15:07.080 --> 0:15:11.720 cyclical oriented benchmark, uh stock index, I mean a lot 0:15:11.760 --> 0:15:16.000 of commodity producers, energy producers. That's not all. But though 0:15:16.040 --> 0:15:18.480 I know you, you're one of the few strategists I've 0:15:18.520 --> 0:15:22.000 seen actually use the big MAC index and and uh 0:15:22.160 --> 0:15:24.520 the determined that the pace SO is undervalued. So I 0:15:24.560 --> 0:15:26.560 know that's part of it. But get into Mexico a 0:15:26.600 --> 0:15:28.960 little bit for us about what what are all the 0:15:29.040 --> 0:15:31.440 sort of book cases for for Mexican stocks? For you, 0:15:32.240 --> 0:15:34.920 what I think about Mexico, it's really an intersection of 0:15:34.920 --> 0:15:39.160 what I think are the four big stories. Uh. One 0:15:39.400 --> 0:15:44.040 is um this studying commodity rally, which you know, for Mexico, 0:15:44.080 --> 0:15:46.880 the biggest Achilles heal has always been Panics, which you 0:15:46.920 --> 0:15:52.200 know is horridly run, structural decline and difficult ordination the government. 0:15:52.280 --> 0:15:54.080 And you know this is this was an accident in 0:15:54.120 --> 0:15:55.880 the making, right, I mean, people thought, Okay, this is 0:15:55.920 --> 0:15:58.520 gonna hit in one and like it's like a lifeline, 0:15:58.520 --> 0:16:01.840 It's like a gift from heaven. With all prices above sixty, 0:16:01.880 --> 0:16:03.640 these guys are gonna they're not gonna be great, They 0:16:03.640 --> 0:16:06.120 will never be great. But at least that's the probably 0:16:06.120 --> 0:16:08.800 we don't have to worry about UH. And in general, 0:16:08.840 --> 0:16:12.440 you know, Mexico, the you know, energy and all is 0:16:12.440 --> 0:16:14.720 a huge part of Mexican GDP, so that they benefit 0:16:14.760 --> 0:16:17.920 from that. Second theme is the U S consumer, which 0:16:18.840 --> 0:16:21.040 you keep surprising to the upside. I mean, we saw 0:16:21.080 --> 0:16:24.200 it again with the lader's job numbers. Consumers, I mean 0:16:24.640 --> 0:16:28.760 just just keeps getting better and better. Um, and that 0:16:28.840 --> 0:16:32.200 benefits Mexico. I mean fifty percent of Mexican GDP is 0:16:32.320 --> 0:16:34.600 exposed to the US, so it's probably the kind of 0:16:34.680 --> 0:16:37.000 the single the economy has a single most leverage on 0:16:37.040 --> 0:16:40.600 the US consumer. It also plays out via remittancies. So 0:16:40.640 --> 0:16:43.760 we have all these Mexican workers that are working the 0:16:43.920 --> 0:16:47.040 US and they'll all be collecting the stimulus checks um 0:16:47.160 --> 0:16:49.680 and and you know, back home, you know, things are 0:16:49.680 --> 0:16:51.920 still pretty bad. I mean, Mexican economy suffered a lot 0:16:52.000 --> 0:16:53.720 last year, so you'll see a lot of money come 0:16:53.760 --> 0:16:56.640 back from the U S to Mexico, creating flaw setting 0:16:56.640 --> 0:17:00.360 the lola buying the paesel. I think it's already twenty 0:17:00.360 --> 0:17:03.280 five percent you over year, and as we get more stimulus, 0:17:03.320 --> 0:17:06.080 I expect that to continue, especially as a construction sector. 0:17:06.080 --> 0:17:09.119 Construction sector improves in the US, you could see this 0:17:09.240 --> 0:17:13.840 money flow back in UH. Third big big narrative for 0:17:14.720 --> 0:17:18.080 one is steeper yield curves which benefit financial Again, you 0:17:18.080 --> 0:17:21.399 look at the Mexican Index, huge weight of banks and 0:17:21.440 --> 0:17:24.240 financial which is typical of emerging markets which tend to 0:17:24.280 --> 0:17:30.080 benefit from steeper yield curve and rising yields um. And 0:17:30.119 --> 0:17:32.880 then the last theme is more kind of a secular theme, 0:17:32.920 --> 0:17:39.440 but it's this um ongoing competition or outright cold war 0:17:39.480 --> 0:17:42.000 between the U S and China, which means that you'll 0:17:42.040 --> 0:17:47.399 see a preference for shorter supply chain, more regionalization of trade. 0:17:47.400 --> 0:17:49.960 And of course Mexico, which has suffered so much from 0:17:50.000 --> 0:17:54.000 the rise of Asia, the makilga sector certainly is very 0:17:54.000 --> 0:17:56.800 competitive again in large part because people don't want to 0:17:56.800 --> 0:17:59.040 have these long supply chains, and also because the Paso, 0:17:59.080 --> 0:18:00.840 as you mentioned, is the area and the value. If 0:18:00.880 --> 0:18:02.240 you look at the Big MAC Index, it's in the 0:18:02.280 --> 0:18:04.600 value by about six And if you look at the 0:18:04.600 --> 0:18:06.879 current account deficit of Mexico, I mean Mexico has been 0:18:06.880 --> 0:18:10.159 a deficit country for ever since I was born. For 0:18:10.200 --> 0:18:12.800 the first time in I think thirty five years now, 0:18:13.040 --> 0:18:15.119 Mexico as a current account surplus. So here you go 0:18:15.480 --> 0:18:20.440 very in the valued currency uh, perfectly aligned with with 0:18:20.640 --> 0:18:25.679 energy with the US consumer with steeper yield curves uh. 0:18:25.720 --> 0:18:27.840 And then also a lot of pessimism or in Mexico, 0:18:27.960 --> 0:18:32.240 like people are very negative about amno. And you know, 0:18:32.240 --> 0:18:33.840 I don't think you could get any worse than that. 0:18:35.480 --> 0:18:38.160 So you know, as usual, you want to buy the stories. 0:18:38.359 --> 0:18:40.600 You know, you want to buy things going from You 0:18:40.640 --> 0:18:42.240 make most of your money when things are going from 0:18:42.720 --> 0:18:45.399 very bad to a little bit better. Not you know 0:18:45.480 --> 0:18:47.439 this this is the best time to invest in in 0:18:47.480 --> 0:18:50.280 an emerging market. Well, can we talk a little bit 0:18:50.320 --> 0:18:53.240 about North of the border as well? Not an emerging market, 0:18:53.359 --> 0:18:57.960 but you know, has a lot of similarities to Mexico 0:18:58.040 --> 0:19:01.679 from a cyclical perspective. Um. And given the fact that 0:19:01.720 --> 0:19:04.159 I set up in Canada. You know why why do 0:19:04.200 --> 0:19:06.600 you like Canada so much? Is it the stock market? 0:19:06.720 --> 0:19:08.560 Is it also the looney which I believe is one 0:19:08.560 --> 0:19:11.720 of the best performing currencies this year. Yeah, I think 0:19:11.920 --> 0:19:14.920 everything I said about Mexico applies to Canada. I would 0:19:14.920 --> 0:19:18.760 say to a lesser extent. I mean, I'm personally I 0:19:18.800 --> 0:19:20.440 prefer in Mexico, which is I think you have more 0:19:20.520 --> 0:19:24.119 more leverage, uh than you do in Canada. You also 0:19:24.160 --> 0:19:29.600 have less of a risk cover. You know, Canada. The 0:19:29.600 --> 0:19:32.680 big problems, of course a realistate bubble, which seemed again 0:19:32.960 --> 0:19:35.000 it's postponed year after year. I mean people have been 0:19:35.000 --> 0:19:37.320 calling for these two burst for ten years now and 0:19:37.359 --> 0:19:39.760 they've been wrong every year. So maybe it doesn't burst. 0:19:39.800 --> 0:19:42.919 But still, I mean in Canada you have this lingering question. 0:19:43.560 --> 0:19:47.640 Um but again, and I think you can play either way. Um. 0:19:49.200 --> 0:19:51.760 For you know, more conservative investors. Clearly Canada is a 0:19:51.800 --> 0:19:55.000 little bit less risky than Mexico, but I think in 0:19:55.080 --> 0:19:59.080 terms of risk reward, I prefer in Mexico. Yeah. So 0:19:59.240 --> 0:20:03.040 that's if if I'm a listener sort of a a 0:20:03.080 --> 0:20:05.480 retail trader at home trying to figure out, well, how 0:20:05.480 --> 0:20:07.520 do I play Mexico? How do I play Canada? I 0:20:07.720 --> 0:20:11.119 feel like a lot of us, say non institutional investors, 0:20:11.160 --> 0:20:15.159 get get a little nervous looking overseas at companies. Is it, 0:20:15.760 --> 0:20:17.200 you know, is this something you would play with E 0:20:17.320 --> 0:20:21.240 T F S or some somehow a sector based strategy? 0:20:21.280 --> 0:20:23.960 How would how would I is like Joe Schmo listening 0:20:24.000 --> 0:20:28.960 at home play Mexico under Canada. Yeah, so one of 0:20:29.000 --> 0:20:31.960 the issue with the Mexican e t F. The main 0:20:32.040 --> 0:20:36.080 one is the you know, the index is very UM 0:20:36.359 --> 0:20:42.440 skewed towards UH Didcom company and and Walmart, which may 0:20:42.440 --> 0:20:46.919 not be the best bet for for what I'm describing UM. 0:20:46.960 --> 0:20:49.720 I think it's mostly honestly, it's the currency play, even 0:20:49.720 --> 0:20:52.879 a fixed income play as well. UM. You know, one 0:20:52.920 --> 0:20:58.159 of the issues that UM investors are facing in one 0:20:58.200 --> 0:21:00.560 and even before is you know, the sixty four portfolio 0:21:00.640 --> 0:21:03.439 is dead, right, I mean, especially that that fully segment 0:21:03.600 --> 0:21:05.000 is dead, Like what are you gonna do with your 0:21:05.000 --> 0:21:07.920 fixed income on location? And you have very few places 0:21:07.920 --> 0:21:10.760 in the world where you can replace you know, US versialis. 0:21:10.800 --> 0:21:12.199 I would say Mexico is one of them. I mean 0:21:12.240 --> 0:21:15.320 I like Asian fixed income and I like Mexico especially 0:21:15.320 --> 0:21:17.199 on the short term. I mean, you have everything that 0:21:17.200 --> 0:21:19.560 I can play out. You can see the spreads compress, 0:21:20.160 --> 0:21:22.080 you can see the currency strengthened, and then you have 0:21:22.119 --> 0:21:24.800 a very nice coupon in Mexico. You know, yel curves 0:21:24.840 --> 0:21:28.840 are very even in the short term, they're they're quite high. UM. 0:21:28.920 --> 0:21:31.960 So maybe you played fixed income and then if you 0:21:31.960 --> 0:21:35.040 wanted to, I have a way around it, which I 0:21:35.080 --> 0:21:37.760 like is to play with Spanish banks. UM. If you 0:21:37.800 --> 0:21:40.080 look at the major Spanish banks, they make more money 0:21:41.240 --> 0:21:45.720 from Mexico than they do Spain UM. And that's the 0:21:45.760 --> 0:21:51.720 way to maybe get UM less of country specific risk 0:21:51.960 --> 0:21:54.600 and also with the Spanish banks. And that brings me 0:21:54.640 --> 0:21:58.040 to my um an next idea, which is you get 0:21:58.040 --> 0:22:00.760 a play on the reopening of Europe, the reopening of 0:22:00.760 --> 0:22:05.159 the tourism sector UM, which is going to happen this summer, 0:22:05.200 --> 0:22:08.320 and you can get them. I mean we're talking. You know, 0:22:08.359 --> 0:22:10.480