WEBVTT - The Right Way to Be Wrong 0:00:13.320 --> 0:00:16.320 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.360 --> 0:00:20.000 Markets podcast. I'm Sarah Pontzek, a reporter on the Cross 0:00:20.000 --> 0:00:22.759 Asset team, and I'm Mike Reagan, a senior editor on 0:00:22.800 --> 0:00:25.000 the Markets team. This week on the show, we'll talk 0:00:25.040 --> 0:00:27.920 to one bull who is sticking to his guns. Doubts 0:00:27.960 --> 0:00:30.520 are once again swirling about the prospects for a US 0:00:30.600 --> 0:00:34.879 China trade deal ahead of the upcoming December fifteen tariff deadline, 0:00:35.159 --> 0:00:38.800 but according to a veteran stock market strategist, the signals 0:00:38.880 --> 0:00:41.840 hint that the longest ever bowl market can keep on running. 0:00:42.360 --> 0:00:44.639 And of course we'll close out the episode with our 0:00:44.680 --> 0:00:48.400 tradition the Craziest Thing I saw in Markets this week, 0:00:48.560 --> 0:00:50.600 and Sarah, I'm excited we got another call to the 0:00:50.680 --> 0:00:53.080 What Goes Up hotline with a crazy thing a listener 0:00:53.120 --> 0:00:56.080 Solid Market. We did, and he's actually a second time caller, 0:00:56.160 --> 0:00:58.640 So we'll definitely play that message later on in the show. 0:00:58.880 --> 0:01:01.080 And remember, if you have any crazy things that you've 0:01:01.120 --> 0:01:03.440 seen in markets, you have questions that we want to 0:01:03.480 --> 0:01:06.080 acknowledge on the show, please feel free to give us 0:01:06.080 --> 0:01:08.800 a call. That number is six four six three two 0:01:08.959 --> 0:01:12.119 four three four nine zero and we may even play 0:01:12.160 --> 0:01:14.880 your message on the show. Sorry, I wanted to give 0:01:14.920 --> 0:01:17.840 the listeners a little taste of how people like you 0:01:17.880 --> 0:01:20.240 and I do our our normal day job as UH 0:01:20.520 --> 0:01:24.640 stocks reporters markets reporters. Probably no big secret, but one 0:01:24.640 --> 0:01:26.319 of the first things I do every morning when I 0:01:26.319 --> 0:01:28.559 get in is I look through my emails. They're usually 0:01:28.600 --> 0:01:31.240 about eight hundred that came in overnight, but I always 0:01:31.280 --> 0:01:33.399 search for the words strategy to see what all the 0:01:33.400 --> 0:01:36.360 strategists on Wall Street are writing about. And you know 0:01:36.400 --> 0:01:38.160 the big banks, you might be lucky to get a 0:01:38.200 --> 0:01:40.720 note or two a week. But there's one guy who 0:01:40.760 --> 0:01:44.480 I could count on every morning there and his name 0:01:44.560 --> 0:01:47.360 is Jeff salt Um, and I like reading his notes, 0:01:47.400 --> 0:01:51.600 not only because it's good market analysis and kind of 0:01:51.600 --> 0:01:54.960 a mix of fundamentals and technicals, but also very well 0:01:55.040 --> 0:01:58.720 written stuff, so entertaining to read. So very happy to 0:01:58.800 --> 0:02:01.200 welcome him here to the show. Jeff, welcome to the show. 0:02:01.320 --> 0:02:06.080 You need to raise your standards. We'll see what what 0:02:06.160 --> 0:02:08.640 email he's reading tomorrow morning. All well, maybe we'll raise 0:02:08.720 --> 0:02:10.160 him a little bit with our other guests. One of 0:02:10.200 --> 0:02:13.960 the nicest guys in the building, I think, real mentor 0:02:14.040 --> 0:02:22.120 to me brilliant broadcaster. And that voice you may recognize, 0:02:22.160 --> 0:02:25.360 that's Pim Fox, who's one of our commentators on the 0:02:25.360 --> 0:02:28.079 Markets Live blog here at PIM and a guy who 0:02:28.080 --> 0:02:29.960 sits right behind me. So we we got a lot 0:02:30.000 --> 0:02:31.640 to talk about, Pam. How you know I ask you 0:02:31.680 --> 0:02:34.240 a lot of questions that I can't answer all day long. Well, 0:02:34.240 --> 0:02:35.840 now we'll get to ask you a lot of questions. 0:02:35.919 --> 0:02:41.720 Clearly that's gonna happen. Contradictions abound, all right, Jeff, you 0:02:41.760 --> 0:02:44.160 were with Raymond James for a long time, but you're 0:02:44.200 --> 0:02:46.120 off to a new adventure now. When you tell us 0:02:46.120 --> 0:02:48.320 a little bit about what you've got going on now, Well, 0:02:48.320 --> 0:02:51.120 I tried to retire eight months ago and it basically 0:02:51.240 --> 0:02:56.000 lasted three weeks. I've been writing Sought Strategy report for 0:02:56.000 --> 0:02:59.160 forty eight years, almost forty nine years, and there was 0:02:59.200 --> 0:03:01.440 such a demand for work that we created an LLC 0:03:01.600 --> 0:03:04.919 and had a website built and a soft strategy www. 0:03:05.080 --> 0:03:09.760 Saut strategy dot com is a subscription service um And 0:03:09.960 --> 0:03:12.880 for some reason or another, these people at Capital Wealth 0:03:12.919 --> 0:03:17.080 Planning wanted me to know I'm really a consultant to them, 0:03:17.240 --> 0:03:19.000 because if I was an employee, they would have to 0:03:19.000 --> 0:03:22.040 approve everything I write for Sought Strategy, which you know 0:03:22.080 --> 0:03:25.640 two to three day turnaround is a lifetime in this business. 0:03:25.680 --> 0:03:27.799 So I'm a consultant to them, and I'm helping to 0:03:27.840 --> 0:03:31.120 manage one point seven billion dollars. I'm not not too shabby. 0:03:31.200 --> 0:03:33.320 Three weeks is a pretty short retirement. You got that 0:03:33.400 --> 0:03:37.400 right back very quickly, so, Jeff is Sarah had pointed out, Um, 0:03:37.560 --> 0:03:41.360 your last note, Uh, you're remaining pretty bullish about this 0:03:41.400 --> 0:03:42.920 market now. I know you like to look at it 0:03:42.960 --> 0:03:45.840 sort of a mix of technicals and fundamentals. Walk us 0:03:45.880 --> 0:03:48.800 three your thinking on. You know, we've had this tremendous 0:03:48.920 --> 0:03:52.240 rally uh in the stock market. At same time the 0:03:52.320 --> 0:03:55.520 economic data got a little soft there. Maybe it's bottoming, 0:03:55.560 --> 0:03:58.480 maybe maybe not, it has bottomed, Yeah, you think so? So? 0:03:58.480 --> 0:04:00.760 So is that is that the reason to bolish basically? 0:04:00.760 --> 0:04:02.240 I mean, obviously it would would be a good reason 0:04:02.240 --> 0:04:04.480 to be bullish. Well, Ron Barron. A few years ago, 0:04:04.920 --> 0:04:07.000 I was coming back from being on a panel at 0:04:07.000 --> 0:04:09.600 Tiberon down at the RITZ Carlton downtown and he gave 0:04:09.600 --> 0:04:12.360 me a ride up to the the FDR because I was 0:04:12.400 --> 0:04:14.960 going to the GM building, which is where Barren Capital 0:04:15.040 --> 0:04:17.800 is and he put his hand on my shoulder halfway 0:04:17.800 --> 0:04:19.120 through it, and he said, you know, there's not many 0:04:19.160 --> 0:04:21.840 of us left, and I went, excuse me. He said, 0:04:21.880 --> 0:04:24.000 there's not many of his left that have seen a 0:04:24.080 --> 0:04:27.400 secular bull market. So the people that say this is 0:04:27.440 --> 0:04:30.320 the longest bull market in history don't know market history, 0:04:30.480 --> 0:04:34.320 because the nineteen forty nine to nineteen sixty six secular 0:04:34.360 --> 0:04:38.279 bull market had a number of twenty and decline doesn't 0:04:38.360 --> 0:04:41.719 end the secular bull market. You had the Jack Kennedy 0:04:41.880 --> 0:04:45.320 uh Steel crisis in nineteen sixty two, where the steel 0:04:45.320 --> 0:04:47.640 companies raised prices and the president said, no, you gotta 0:04:47.640 --> 0:04:49.520 put him back down, and the markets didn't like that 0:04:49.560 --> 0:04:52.200 and they got hit for thirty percent, but the secular 0:04:52.240 --> 0:04:54.760 bull market went on for another four years. In the 0:04:54.800 --> 0:04:57.520 eighty two to two thousand secular bull market, you had 0:04:57.560 --> 0:05:00.000 the eighty seven crash, which I was actually in Barren 0:05:00.720 --> 0:05:05.119 on September eighty seven saying the utilities peaked in the spring, 0:05:05.200 --> 0:05:07.240 the trentees peaked in the summer, and we're gonna get 0:05:07.240 --> 0:05:09.120 a waterfall decline. I didn't know to call it a 0:05:09.160 --> 0:05:11.440 crash because I ain't never seen a crash. I have 0:05:11.600 --> 0:05:15.240 now and Um, you know, you had the crash twenty 0:05:15.240 --> 0:05:17.479 two point six per cent in a day, but the 0:05:17.520 --> 0:05:21.480 secular bull market went on for another thirteen years. So 0:05:21.600 --> 0:05:23.960 I think we're in secular bull market the last fifteen 0:05:24.000 --> 0:05:26.000 to twenty years, and there's not many of us left 0:05:26.000 --> 0:05:28.640 around that have seen one. So for those people who 0:05:28.680 --> 0:05:30.559 are out there saying that we're late cycle and maybe 0:05:30.560 --> 0:05:32.880 have been saying that we're late cycle for years, what 0:05:33.040 --> 0:05:35.719 would be your rebuttal back to them? My rebuttal back 0:05:35.760 --> 0:05:39.680 to that is the downturn was so severe and the 0:05:39.800 --> 0:05:43.960 recovery so muted that what you've done is elongate mid cycle. 0:05:44.720 --> 0:05:46.560 We're still in mid cycle in my opinion. We're not 0:05:46.640 --> 0:05:48.760 late cycle, and if you look at the stocks that 0:05:48.800 --> 0:05:51.000 are performing, it will tell you we're not late cycle. 0:05:52.080 --> 0:05:54.720 So what would uh, what sort of signals would make 0:05:54.760 --> 0:05:57.960 you start thinking the cycle is getting late? Well, my dad, 0:05:58.279 --> 0:06:00.720 my dad was in the business, and he to tell me, son, 0:06:00.760 --> 0:06:02.400 if you think it's going up, be bullish. If you 0:06:02.400 --> 0:06:04.640 think it's going down, be barished. But for gosh sakes, 0:06:04.640 --> 0:06:07.160 make a call. Because there's so many people in this 0:06:07.240 --> 0:06:09.400 business that talk out of both sides of their mouths, 0:06:09.400 --> 0:06:11.479 so that no matter what the markets do. They can say, see, 0:06:11.480 --> 0:06:13.920 I told you so, And if you make calls, you're 0:06:13.920 --> 0:06:16.280 gonna be wrong, and you're gonna be wrong more often 0:06:16.320 --> 0:06:18.719 than you think. And the trick in this business is 0:06:18.760 --> 0:06:21.480 to be wrong quickly for the minimus loss of capital. 0:06:21.520 --> 0:06:23.920 I got no problem at seventy years of age saying, hey, 0:06:23.960 --> 0:06:28.200 that was a bad call. I'm reversing, reversing my so. 0:06:28.360 --> 0:06:30.400 I'm not a broken clock bull. There was a there's 0:06:30.480 --> 0:06:32.800 very few people. My friend Dick Russell passed away a 0:06:32.880 --> 0:06:34.960 number of years ago. He was the last great keeper 0:06:35.000 --> 0:06:38.960 of dow theory, and I down theory is not always right. 0:06:39.120 --> 0:06:42.200 It's subject to interpretation. But there was a down theory 0:06:42.240 --> 0:06:47.360 cell signal in September. I wrote about it ras cash. 0:06:48.000 --> 0:06:50.000 There was a down theory by signal in June of 0:06:50.040 --> 0:06:53.000 oh three. There was a down theory cell signal in 0:06:53.080 --> 0:06:56.760 November of oh seven, and then the majority of stocks 0:06:56.839 --> 0:07:01.680 bottomed on October t of oh eight. Two point six 0:07:01.720 --> 0:07:04.719 percent of stocks trade and made new annual os on October. 0:07:04.720 --> 0:07:06.719 I've never seen that. That's a seven or eight standard 0:07:06.760 --> 0:07:09.720 deviation event. It is not supposed to happen in your lifetime. 0:07:09.960 --> 0:07:12.640 And I'm in print after being barished from November of 0:07:12.680 --> 0:07:16.080 oh seven. I'm saying the bottoming process is started. And 0:07:16.160 --> 0:07:19.160 on March two, I'm on Bloomberg with Barton Biggs March 0:07:19.240 --> 0:07:22.280 second of oh nine, saying the bottoming process that started 0:07:22.280 --> 0:07:24.880 in October of last year is complete this week and 0:07:24.920 --> 0:07:27.920 we're all in. So I know Dow theory involves the 0:07:27.920 --> 0:07:31.240 transportation average. Uh sort of have to conf you know, 0:07:31.280 --> 0:07:36.360 confirm the down confirming the dow. So, um, how are 0:07:36.360 --> 0:07:39.640 you looking at that now? I mean, uh, is Cheney's 0:07:39.680 --> 0:07:42.880 aren't out a record right now? The the No, they're not, 0:07:43.600 --> 0:07:46.440 but they did make a new reaction high. And according 0:07:46.480 --> 0:07:48.920 to down theory, the primary trend of the market is up. 0:07:48.960 --> 0:07:51.800 And the most important thing in analyzing markets is what 0:07:52.000 --> 0:07:54.640 is the primary trend? Is it up or down? Well, 0:07:54.680 --> 0:07:58.360 the primary trend is up. So alongside transports, some other 0:07:58.400 --> 0:08:01.480 areas of the market that I've heard other strategists investors 0:08:01.480 --> 0:08:04.040 talk about is needing to confirm the market size have 0:08:04.160 --> 0:08:05.920 been the likes of small caps. And I know a 0:08:05.960 --> 0:08:08.240 couple of weeks ago, back in November, you did write 0:08:08.280 --> 0:08:11.520 about a so called golden cross in the Russell two thousands. 0:08:11.560 --> 0:08:13.560 So I was hoping that you could explain to our 0:08:13.600 --> 0:08:16.720 listeners what exactly it is and what actually that means. 0:08:16.800 --> 0:08:19.440 Does that mean we could see more future gains or 0:08:19.480 --> 0:08:22.880 even uh small caps leading going forward? On November five, 0:08:23.080 --> 0:08:25.920 you had and the golden cross is not as predictive 0:08:26.000 --> 0:08:27.760 for the S and P as it is for the Russell. 0:08:27.840 --> 0:08:31.040 It's much more predictive for the Russell two thousand, and 0:08:31.680 --> 0:08:35.280 it occurred on November five, and it's when the fifty 0:08:35.360 --> 0:08:39.000 day moving average crosses above the two hundred day moving average, 0:08:39.480 --> 0:08:41.960 and the and the small caps have performed pretty well 0:08:42.080 --> 0:08:45.640 since then. And it's not just the US. The European 0:08:45.720 --> 0:08:51.120 small cap induseries had a golden cross on October. So 0:08:51.160 --> 0:08:55.120 it's kind of this concerted move by the small caps, 0:08:55.120 --> 0:08:57.280 which have lagged by the way they've lagged for all 0:08:57.280 --> 0:09:00.760 this year, and now they're coming to the four uh PEP. 0:09:00.800 --> 0:09:02.120 I want to bring you in on this a little 0:09:02.120 --> 0:09:04.599 bit too. Um. Obviously it was going to be contrary 0:09:04.600 --> 0:09:07.440 and all this I was gonna say, asked Jeff of 0:09:07.520 --> 0:09:10.320 those small caps in the Russell two thousand, how many 0:09:10.320 --> 0:09:13.640 of them are actually profitable? I don't know the answer, 0:09:15.000 --> 0:09:18.360 not many, not many. And the reason I asked it 0:09:18.400 --> 0:09:21.120 in that format is because I was under the impression 0:09:21.160 --> 0:09:25.720 that earnings and economic performance would eventually drive stock prices. 0:09:26.080 --> 0:09:28.800 I agree with that, So why do we have such 0:09:28.840 --> 0:09:34.280 a tepid economy. We got great numbers for employment, We 0:09:34.400 --> 0:09:37.360 got great numbers if you want to borrow money, but 0:09:37.600 --> 0:09:41.440 the economy is not growing. And in fact, you know, 0:09:41.480 --> 0:09:43.720 if you take a look at real inflation what people 0:09:43.760 --> 0:09:47.080 really have to pay for things, you know, we are 0:09:47.320 --> 0:09:51.080 at a negative real rate of return for let's say treasuries. 0:09:51.400 --> 0:09:54.679 So is that what drives people putting money into equities? 0:09:54.840 --> 0:09:58.680 What undepends the market strength? I would argue that the 0:09:58.720 --> 0:10:01.640 individual investors, for the most part, are not putting money 0:10:01.640 --> 0:10:05.560 in equities. They're not just cautious, they're scared to differ. Yeah, 0:10:05.840 --> 0:10:08.440 which I think is a bad trade. By the way, 0:10:09.120 --> 0:10:11.080 I think there's a ton of money on the sidelines. 0:10:11.160 --> 0:10:12.880 I think before it's over, this is not the way 0:10:12.920 --> 0:10:15.440 bullmarkets end you've been around. But I'm not talking about 0:10:15.559 --> 0:10:17.720 but necessarily a bullmarket. I'm trying to look at the 0:10:17.720 --> 0:10:21.120 connection between the performance of the economy and the global 0:10:21.160 --> 0:10:23.680 economy if you want to add to it, and the 0:10:23.800 --> 0:10:26.240 performance of equities, because this seems to be the most 0:10:26.360 --> 0:10:30.840 unloved bull market I can remember, we have stocks. Total 0:10:30.920 --> 0:10:33.880 return for the SMP five hundred year to date is 0:10:34.000 --> 0:10:36.920 twenty six and a half percent as total return, so 0:10:36.960 --> 0:10:41.800 it's got dividends and so on. Why don't people why 0:10:41.800 --> 0:10:45.199 why aren't you seeing anybody happy? It's it's just it's 0:10:45.240 --> 0:10:48.840 sort of bullies the actual performance of their portfolios. And 0:10:48.880 --> 0:10:51.240 that's why you should continue to be bullish. If you 0:10:51.320 --> 0:10:55.000 remember ninety nine and the spring of two thousand, everybody 0:10:55.120 --> 0:10:58.880 was happy. So the wall of warrior still exists absolutely, 0:10:58.920 --> 0:11:01.880 And I would say that the anticipation of future earnings. 0:11:02.679 --> 0:11:05.800 I'm along a company called zyme Works z y m 0:11:05.800 --> 0:11:08.760 E at twenty and twenty four and they may have 0:11:08.800 --> 0:11:11.880 the magic bullet for cancer, and the stock has gone 0:11:11.880 --> 0:11:14.720 from twenty bucks to forty four bucks in six months 0:11:15.080 --> 0:11:18.080 and they're not making any money. Yeah, but that you 0:11:18.120 --> 0:11:20.560 can make the argument, right, I mean, if you Sarah 0:11:20.559 --> 0:11:23.120 and Mike, you've written about this kind of stuff before, 0:11:23.200 --> 0:11:28.240 where you have binary events, specifically with the pharmaceutical industry, right, 0:11:28.280 --> 0:11:31.120 I mean a drug gets approved or you know, it 0:11:31.160 --> 0:11:34.679 doesn't perform, and then yeah, I think there's a million 0:11:34.679 --> 0:11:37.000 of them in the small cap well, there's a huge 0:11:37.080 --> 0:11:41.240 number of y We have a FED meeting come next week. 0:11:41.360 --> 0:11:44.800 Most people don't really expect the Federal Reserve to do 0:11:44.880 --> 0:11:47.800 all of that much change anything. But Jeff, when you 0:11:47.880 --> 0:11:50.680 look at asset prices across the board and you try 0:11:50.679 --> 0:11:53.080 to conduct your analysis, how much do you take into 0:11:53.120 --> 0:11:56.120 account what the FED is actually doing well? I think 0:11:56.240 --> 0:11:58.559 I think the FED has been one of the drivers 0:11:58.640 --> 0:12:01.480 of of stocks. And I don't think interest rates are 0:12:01.480 --> 0:12:03.160 going up in the near term. I think they're gonna 0:12:03.200 --> 0:12:06.680 stay lower for longer than people think. And uh, my 0:12:06.840 --> 0:12:10.920 work suggests that a fair market multiple in this interest 0:12:11.000 --> 0:12:14.000 rate environment on the SMP is somewhere between nineteen and 0:12:14.040 --> 0:12:17.000 twenty times earnings. And if you want to use at 0:12:17.080 --> 0:12:19.720 your denties hundred and seventy seven dollars from next year 0:12:19.720 --> 0:12:23.720 and put her twenty multiple on that, talking thirty on 0:12:23.760 --> 0:12:26.360 the SMP. You know, when you talk about the FED 0:12:26.400 --> 0:12:28.600 and the balance sheets, I mean, obviously, what are they buying? 0:12:29.480 --> 0:12:32.560 The FED downs The Fed's buying almost you know, any name, 0:12:32.600 --> 0:12:35.360 a name, a debt instrument that that a central bank 0:12:35.400 --> 0:12:37.640 around the world is not buying. And you look at 0:12:37.640 --> 0:12:39.760 the bank in Japan, they're buying ets well, well, I 0:12:39.800 --> 0:12:42.560 mean all they're all, that's that's all on their balance sheet. 0:12:42.600 --> 0:12:44.320 The Fed. What it's really buying now is the short 0:12:44.440 --> 0:12:47.680 end of the treasury curve. Because we have this trillion 0:12:47.679 --> 0:12:52.040 dollar deficit, We've got massive issuance of of treasuries, same 0:12:52.080 --> 0:12:54.839 story next year for the foreseeable future. Is that ever 0:12:54.920 --> 0:12:57.840 gonna turn around and bite us, Jeff, I don't think so. 0:12:58.120 --> 0:12:59.920 I say said I think interest rates are gonna stay 0:13:00.000 --> 0:13:03.000 over for longer than people think. And I think that 0:13:03.240 --> 0:13:06.200 with the so the the millennials are doing in their 0:13:06.240 --> 0:13:09.080 thirties what the boomers did in their twenties, and they're 0:13:09.120 --> 0:13:12.560 buying homes and they're eventually gonna shove money at equities, 0:13:12.880 --> 0:13:15.920 which they haven't really done yet, but it's coming. It's coming, 0:13:16.000 --> 0:13:17.560 and that's gonna be a huge tale win for the 0:13:17.559 --> 0:13:20.360 equity markets as well. We've gotten through this conversation the 0:13:20.360 --> 0:13:24.160 bulk of it without mentioning US and China trade negotiations, 0:13:24.400 --> 0:13:27.760 which I must say I really respect, but him, I know, 0:13:27.840 --> 0:13:31.400 even paying a lot of attention this week, you can't 0:13:31.440 --> 0:13:35.440 you can't write it. So why don't you It's a 0:13:35.440 --> 0:13:38.120 whiplash market, right because you know you you sit looking 0:13:38.160 --> 0:13:40.920 at the screen, and you can basically tell when a 0:13:40.960 --> 0:13:44.800 tweet has been put out there by the president or 0:13:44.800 --> 0:13:48.520 by member of his administration talking about trade one way 0:13:48.679 --> 0:13:52.640 or another, and so goes the market supposedly. But what 0:13:52.760 --> 0:13:54.400 I did was I took a look at the SMP. 0:13:55.240 --> 0:13:57.040 I looked at all the companies in there, and I 0:13:57.120 --> 0:14:00.800 put together a model portfolio of twelve companies. They're all 0:14:00.800 --> 0:14:04.600 in the tech sector. And these twelve companies have between 0:14:04.679 --> 0:14:08.280 thirty and sixty five percent of their revenue in China. Right, 0:14:08.320 --> 0:14:11.200 we've heard all about, as you said, trade wars. So 0:14:11.240 --> 0:14:12.760 what I did was I tried to see, Okay, so 0:14:12.800 --> 0:14:15.960 I how did these stocks actually perform? Well, if you 0:14:15.960 --> 0:14:18.880 had bought them at the beginning of the year, you 0:14:18.920 --> 0:14:22.440 would have made on your money. So compare that to 0:14:22.480 --> 0:14:25.480 the SMP six and a half percent you would have 0:14:25.520 --> 0:14:29.680 made investing in these twelve companies. So then I went 0:14:29.680 --> 0:14:31.560 back and I said, okay, so maybe this is just 0:14:31.600 --> 0:14:34.680 an anomaly because it's just one year. I went back 0:14:34.720 --> 0:14:37.760 to the end of sixteen after the election. Because the 0:14:37.840 --> 0:14:42.120 rhetoric from candidate Trump is pretty much the same as 0:14:42.480 --> 0:14:46.720 the rhetoric and the action of President Trump. You would 0:14:46.760 --> 0:14:49.160 have made even more. You would have made about eighty 0:14:49.200 --> 0:14:54.040 five percent on your money. And the reason that I 0:14:54.160 --> 0:14:56.360 came up with is because it's not about trade. This 0:14:56.440 --> 0:14:59.840 trade wide believe is going to be a footnote. It's 0:14:59.840 --> 0:15:03.440 a about the big pattern changes in trade having to 0:15:03.480 --> 0:15:07.320 do with Asia. You're looking at four point eight billion 0:15:07.480 --> 0:15:13.119 people in Asia, so you've got four point the US economy. 0:15:13.400 --> 0:15:15.480 It's still gonna be big, still going to be important, 0:15:15.880 --> 0:15:21.720 but it is a decreasing importance in global capital. So 0:15:21.800 --> 0:15:24.720 that was my take on trade. Ask you to name 0:15:24.720 --> 0:15:26.680 a few of the companies that are in that portfolio. 0:15:26.760 --> 0:15:30.400 Oh yeah, um, A M D for example, Uh, probably 0:15:30.520 --> 0:15:35.440 the chip makers. Um. Also small companies. I looked, for 0:15:35.480 --> 0:15:38.200 example at Skywork Solutions, not one of the twelve I 0:15:38.240 --> 0:15:40.520 looked at, but I mean they've got over twenty of 0:15:40.560 --> 0:15:43.280 their revenue coming from China. I think it just got 0:15:43.320 --> 0:15:48.120 an upgrade on Thursday and the stock has really outperformed. 0:16:03.560 --> 0:16:06.400 In one of your notes, you did say we expect 0:16:06.480 --> 0:16:09.920 earnings to rebound just like the economy. How much of 0:16:09.920 --> 0:16:13.000 a rebound is actually possible though, I think you're gonna 0:16:13.200 --> 0:16:18.080 accelerate by the end of GDP growth, and I think 0:16:18.080 --> 0:16:22.680 earnings are gonna follow along with that. And again, earnings 0:16:22.680 --> 0:16:26.680 are the mother's milk of secular bull markets. And you know, 0:16:27.160 --> 0:16:29.200 it was Warren Buffett that said, in the short run, 0:16:29.480 --> 0:16:32.880 the stock market is a beauty contest, but in the 0:16:32.920 --> 0:16:36.160 long run, it's all about earnings, and that's absolutely correct. 0:16:36.600 --> 0:16:39.840 I just want to ask you having to do with that, uh, 0:16:39.880 --> 0:16:42.400 with that point, do you think that this is also 0:16:42.400 --> 0:16:44.840 going to raise commodity prices? Because if you have GDP 0:16:44.960 --> 0:16:47.880 growth that is around three percent, will that pull commodities 0:16:47.960 --> 0:16:50.880 higher as well? Yeah? I think I think commodities are 0:16:50.960 --> 0:16:54.720 going to trade higher. I think they've suppressed the price 0:16:54.760 --> 0:16:58.080 accrued oil too long. I did see where Saudi Arabia 0:16:58.120 --> 0:17:01.920 is talking about four dred thousand barrel hut um. But 0:17:02.000 --> 0:17:04.159 I mean if you if you go to China, like 0:17:04.160 --> 0:17:06.320 twenty years ago, you went to China, all you saw 0:17:06.400 --> 0:17:09.040 was bicycles. Now you see his cars and a lot 0:17:09.080 --> 0:17:12.920 of re buicks, which I don't understand, but it's it's 0:17:12.960 --> 0:17:16.520 the demand that's going up in India and China for 0:17:16.640 --> 0:17:22.320 gasoline and energy is immense. Well, that's a nice segue 0:17:22.359 --> 0:17:26.399 into another topic you uh touched on recently, and that's MLPs. 0:17:26.480 --> 0:17:30.560 The Semester Limited Partnerships. Mainly it's it's usually wheel pipelines 0:17:30.640 --> 0:17:33.840 that convert to an MLP to get that that preferential 0:17:34.000 --> 0:17:38.240 tax treatment. These stocks amaze me because every now and 0:17:38.240 --> 0:17:41.040 then you'll see one with a with a dividend yield 0:17:41.119 --> 0:17:45.800 or distribution yield of like not twenty but double digits 0:17:45.800 --> 0:17:50.120 for Hillari and de Hilarian Index yields between eight and nine. 0:17:50.600 --> 0:17:53.760 But yet, you know, when you buy a dividend stock, 0:17:53.800 --> 0:17:56.879 you tend to like that safety. You expect that dividend 0:17:56.920 --> 0:17:59.359 to be stable if not grow MLPs it's a it's 0:17:59.400 --> 0:18:02.520 a whole another situations. So walk us through how you 0:18:02.560 --> 0:18:07.520 think about MLPs uh specific there's a big distinction between 0:18:07.840 --> 0:18:13.960 upstream MLPs and midstream MLPs. The best MLP portfolio manager 0:18:14.000 --> 0:18:17.520 I know is Eric Kaufman at V Capital, and he 0:18:17.560 --> 0:18:19.400 told me eight years ago, you don't want to own 0:18:19.440 --> 0:18:22.440 the upstreams they have too much price sensitivity to crude oil, 0:18:23.200 --> 0:18:26.800 but the mid streams. Because everybody, all the upstreams went 0:18:26.840 --> 0:18:30.520 bankrupt and because of that they sold the mid streams down. 0:18:30.600 --> 0:18:34.640 Now you can think of midstream MLPs Master Limited Partnerships 0:18:35.119 --> 0:18:38.760 as a transportation company without wheels. Because you're exactly right, Mike. 0:18:38.800 --> 0:18:41.679 They own they own the pipes, and they own the 0:18:41.720 --> 0:18:44.680 storage facilities, and they have long term contracts with people 0:18:44.720 --> 0:18:49.960 like Chevron Exxon, and they have distributions that the good 0:18:49.960 --> 0:18:52.840 ones have distributions anywhere from six percent to eight percent, 0:18:53.560 --> 0:18:55.679 and the two best in the business or ep D 0:18:55.960 --> 0:19:01.480 and et extraterrestrial. You like that. You like the midstream 0:19:01.520 --> 0:19:03.560 because they're sort of less sensitive to the price of 0:19:03.720 --> 0:19:07.720 They basically have no price sensitive They're they're sensitive to volumes, 0:19:07.720 --> 0:19:10.159 how much volume is coming through the pipes. And what 0:19:10.320 --> 0:19:14.040 your listeners should know is that somewhere between seventy and 0:19:14.119 --> 0:19:19.360 eight of that distribution is tax deferred. So if you're 0:19:19.400 --> 0:19:22.760 my age and you're looking for income, it makes a 0:19:22.800 --> 0:19:25.000 lot more sense to buy the mid streams. And they're cheap, 0:19:25.000 --> 0:19:27.000 the cheapest they've been in twenty years. And my daddy 0:19:27.080 --> 0:19:29.000 used to tell me some good things tend to happen 0:19:29.000 --> 0:19:31.600 to cheap stocks. Right, So it doesn't matter what the 0:19:31.600 --> 0:19:33.520 price of oil is, because if you need to transport it, 0:19:33.800 --> 0:19:35.879 you have to transport it somehow. You can't lie it 0:19:35.960 --> 0:19:39.480 sitting around. It's correct. But speaking of the price of oil, PIM, 0:19:39.520 --> 0:19:41.080 I know you've you've done some work. I don't want 0:19:41.080 --> 0:19:43.640 to give any spoilers out, but you've got an outlone. 0:19:43.840 --> 0:19:48.000 It's fine. It has to well, basically, it just has 0:19:48.040 --> 0:19:49.760 to do with we've got a lot of crude oil 0:19:50.359 --> 0:19:54.080 and you know Jeff mentioning the pipeline system for example, 0:19:54.200 --> 0:19:56.919 it has basically been reversed. Right. There used to be 0:19:57.040 --> 0:19:59.600 that we would import oil, we would process it down 0:19:59.600 --> 0:20:01.639 in the gall Coast, and then it would be shipped 0:20:01.680 --> 0:20:05.280 northeast west wherever two consumers in the United States. Well, 0:20:05.320 --> 0:20:07.440 there's so much oil in the United States, those pipelines 0:20:07.480 --> 0:20:09.040 have had to be reversed, and now the oil is 0:20:09.080 --> 0:20:13.520 going down to the Gulf Coast and it's being exported 0:20:13.560 --> 0:20:15.199 now it's not and being exported in the form of 0:20:15.240 --> 0:20:17.080 crew but also in the form of l n G 0:20:17.680 --> 0:20:20.879 liquefied natural gas, and that is proven to be a 0:20:20.920 --> 0:20:25.080 big market. But like any big capital intensive industry, you 0:20:25.160 --> 0:20:29.040 gotta be aware because what happens is there's demand. People 0:20:29.160 --> 0:20:31.719 see it. So what do they do. They build huge 0:20:32.400 --> 0:20:36.880 supply opportunities, right, whether that is at a liquefaction plant 0:20:37.080 --> 0:20:40.479 or building more pipelines or building too many ships. And 0:20:40.560 --> 0:20:42.600 it's just what happens in the mining industry. That's why 0:20:42.600 --> 0:20:45.280 I was interested in what happens to the commodity complex, 0:20:45.320 --> 0:20:48.879 because unless you get commodity prices to move higher, a 0:20:48.960 --> 0:20:52.560 lot of these projects, they are very expensive. First of all, 0:20:52.720 --> 0:20:55.439 they are not going to be profitable, and you're seeing 0:20:55.520 --> 0:20:58.879 that with some attempts to shut in production in the 0:20:58.920 --> 0:21:01.760 Permian and in various shale places in the United States 0:21:02.080 --> 0:21:05.520 because they can't get it to a market that can 0:21:05.560 --> 0:21:07.560 pay for it. In fact, I think there was a 0:21:07.600 --> 0:21:13.560 story that natural gas was actually the producers were actually 0:21:13.600 --> 0:21:17.520 paying people to take the natural gas away because they 0:21:17.520 --> 0:21:20.399 couldn't flare it and they couldn't sell it. So the 0:21:20.440 --> 0:21:23.280 Henry hubb the Henry Hubbs full correct, exactly, it's full. 0:21:23.320 --> 0:21:25.520 And so you know, when you look at oil, as 0:21:25.600 --> 0:21:30.160 Jeff alluded to, you have the OPEC oil cartel, which 0:21:30.200 --> 0:21:35.080