Speaker 1: Hello, and welcomes to What Goes Up a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at Bloomberg,
Speaker 1: and I'm well donna higher across Asset report at Bloomberg.
Speaker 1: This week on the show, Well, it was actually pretty
Speaker 1: easy to make money in the stock market last year,
Speaker 1: what with the SMP five hundred up about in the year. However,
Speaker 1: it wasn't necessarily easy to beat it by seven percentage points.
Speaker 1: But our guests this week did exactly that with a
Speaker 1: core mutual fund he co manages, ranking it in the
Speaker 1: top two or three percent of pure funds. It is
Speaker 1: a different story, and the market is off to an
Speaker 1: ugly start to the year, So we're gonna find out
Speaker 1: what a winning fund manager does at a time of
Speaker 1: turbulence like this. But philled out Before we get to that,
Speaker 1: I gotta say, um, my teenage daughters have a new
Speaker 1: favorite word in that That word is suss. Are you
Speaker 1: Are you familiar with that word suss like suss out? No,
Speaker 1: it's suss. I think it's like suspicious. No, I'm not,
Speaker 1: I'm not familiar with it. What is it? Well, I
Speaker 1: gotta say, uh, your a little suss to me, and
Speaker 1: I'll tell you why. You want to know why? Yeah,
Speaker 1: I do. You're from Trenton, right near the border of Pennsylvania,
Speaker 1: less than an hour from Philadelphia. You should be an
Speaker 1: Eagles fan and should be somehow you're a Buffalo Bills fan.
Speaker 1: That's that's sussed to me. I see, okay, now makes sense.
Speaker 1: I am. I've been to Eagles games, so forgive me
Speaker 1: because I know you like the Eagles. Admit you admit
Speaker 1: to be in suss Yeah, I admit to it. But
Speaker 1: it's so easy to like the Bills because they've been
Speaker 1: so great this year, and they have another game coming
Speaker 1: up this weekend, and if any of them are listening,
Speaker 1: I really need them to be at their very best.
Speaker 1: So all the Buffalo Bills out there, don't eat pizza
Speaker 1: the night before, go to sleep early. I have a
Speaker 1: little Josh Allen statue that we like. No pizza for them, No, no, no, no,
Speaker 1: I need them to be tip top shape. How about
Speaker 1: buffalo wings? Can they eat buffalo wings as long as
Speaker 1: it doesn't give them heartburn? All right? Well, I gotta
Speaker 1: say this, This market this year has given a lot
Speaker 1: of heartburn left and right, and uh, hopefully our guest
Speaker 1: has had his tumbs. Let's let's see what he has
Speaker 1: to say about this ugly starts of the year. Yeah.
Speaker 1: I want to welcome back Andrew Slimmon. He is a
Speaker 1: senior portfolio manager at Morgan Stanley Investment Management. And Andrew,
Speaker 1: I want to thank you for coming back on the
Speaker 1: show again. Thanks for having me. And I did go
Speaker 1: to University of Pennsylvania, so I spent a few daimes
Speaker 1: going to see the Eagles play. That's good. That's that's
Speaker 1: why we like him here. I know we already got
Speaker 1: you're making Mike's hearts, already got his cheese steak recommendation too.
Speaker 1: I think last time and it was it was Abner's right,
Speaker 1: is alright? You have a good memory, I'd say, well
Speaker 1: for for certain things like cheese steaks. You know you
Speaker 1: gotta see the important things. Well, Andrew, I know you
Speaker 1: you had said recently that two is going to be
Speaker 1: a tug of war between two things. One is the
Speaker 1: removal of fed accommodation, which is parished, and then continued
Speaker 1: strength of the economy as earnings continued to surprise to
Speaker 1: the upside. It's been a few months since the last
Speaker 1: time you were on the show. So I was hoping
Speaker 1: you could walk us through what you're anticipating for this
Speaker 1: year and tell us whether or not the first few
Speaker 1: weeks of the year are going to be a bit
Speaker 1: emblematic of what's to come, because that's something I hear
Speaker 1: a lot from people, and that you know, we've seen
Speaker 1: this choppiness and it's something we can continue to see
Speaker 1: throughout the year. Yeah, So I always cringe when I
Speaker 1: hear someone say, hey, I think the market is going
Speaker 1: to be a you know, kind of five to ten
Speaker 1: because on the surface, that's like it's reasonable, but it's optimistic,
Speaker 1: so it's like it checks all the nice little pretty boxes, right.
Speaker 1: So five. The reality is, if you go back to
Speaker 1: nineteen since nine, there's only been all eleven times the
Speaker 1: market has been up zero to ten percent, So it's rare,
Speaker 1: very rare, even though more times enough people kind of
Speaker 1: predict single digit, high single digit returns. So I'm all, like,
Speaker 1: I'm squeamish even saying that. But having said that, now
Speaker 1: I'm going to counterdict. I felt there seems to be
Speaker 1: precedent for this type of return in this year, and
Speaker 1: you know, if you go back to last year two
Speaker 1: thousand and twenty one last year, the return was very
Speaker 1: consistent with what I would call the second year coming
Speaker 1: out of a bear market low. So if twenty was
Speaker 1: the first year and we had a very strong year
Speaker 1: off below, if you look at that second year, whether
Speaker 1: it was last year or two thousand ten or two
Speaker 1: thousand three or those years are always very very strong.
Speaker 1: And I think there's two and I'm getting to your question.
Speaker 1: There's two reasons for that. Number One is, obviously you
Speaker 1: have very accommodative FED policy because they're still in the
Speaker 1: mode of trying to fix the problem that caused the recession,
Speaker 1: so you have very commonive FED policy. But then you
Speaker 1: also have a combination of a situation where corporate earnings
Speaker 1: are very strong because corporations tighten their belt cut expenses
Speaker 1: into recession. So you have this big explosion in margins
Speaker 1: to the upside and earnings growth, and Wall Street unfortunately
Speaker 1: gets too pessimistic during recession, so they're kind of behind
Speaker 1: the curve and so they have to revise up. And
Speaker 1: so that's the whole story of last year, is that
Speaker 1: the stock market was up as much as earnings revisions,
Speaker 1: so to the extent that we had a very good
Speaker 1: year we followed earnings revisions. Now when you move into
Speaker 1: getting to this this year, then if last year was
Speaker 1: so consistent, then what what kind of happens in the
Speaker 1: third year after a you know, kind of that low
Speaker 1: and in the third year, whether it was ninety two,
Speaker 1: two thousand four, two thousand eleven, you see these kind
Speaker 1: of this single digit type returns. They're not negative, but
Speaker 1: they're not better than that, because, as you said with Donna,
Speaker 1: you have a battle. The battle is is that you
Speaker 1: continue to have strong earnings and revisions. And I think
Speaker 1: corporate bounciets are very strong. Consumer bounciets are very strong.
Speaker 1: So I'm very confident in this this continued strong corporate fundamentals.
Speaker 1: But the Fed's not as much as your friend. And
Speaker 1: so i'd like to say the FEDS pivoting from they're
Speaker 1: not your enemy, but they're not their friend. You're they're
Speaker 1: not your friend anymore, they're more your acquaintance. And so
Speaker 1: that's kind of the battle, and that's why you get
Speaker 1: kind of single digit returns. The other thing that is
Speaker 1: consistent is that we're going into a mid term election year,
Speaker 1: and if you look at the four year election cycle,
Speaker 1: the mid term year is a single digit year. So
Speaker 1: this leads me to believe that it's a you know,
Speaker 1: it's gonna be okay year. But the problem is the
Speaker 1: problem is, I mean, how many days in the market's open,
Speaker 1: you know what, two fifty plus days a year. In
Speaker 1: any one day, it could swing one or two. But
Speaker 1: you know, that's a lot of volatility around a single
Speaker 1: digit year. And so we're not gonna We're gonna be
Speaker 1: too far above it and too far behind behind that.
Speaker 1: I just think when we get to December thirty one,
Speaker 1: if we're talking on December thirty one, it's gonna be like, Wow,
Speaker 1: it wasn't as bad as it felt at times. I
Speaker 1: just and that, And so so that leads me to say,
Speaker 1: don't get too optimistic when things are really good, and
Speaker 1: don't get too pessimistic when things are kind of bad.
Speaker 1: Right now, I'm not sure it's real bad yet, but
Speaker 1: we're you know, we're down a little bit. Yeah, you know,
Speaker 1: Andre uh, you know, Danna mentioned the sort of the
Speaker 1: talking points you said to us, and I want to
Speaker 1: seize on one a little bit too, because I think
Speaker 1: it really gets to the heart of what's on a
Speaker 1: lot of people's minds, right now, and I'm just gonna
Speaker 1: quote what you wrote to us. He said, avoid the
Speaker 1: temptation to step in and buy into the sell off
Speaker 1: in high growth stocks. And you say, my experience is
Speaker 1: once the fever breaks, it's done for quite a while.
Speaker 1: And you know, boy, the fever shure has broken, uh,
Speaker 1: you know, in that space. But I want to I
Speaker 1: want to dissect that that statement in a few different ways,
Speaker 1: if if Phildonna will indulge me some follow ups, I
Speaker 1: won't hit you with eight questions at once, but the
Speaker 1: first one being, you know, historically, are there any sort
Speaker 1: of precedence you could point to? Who I mean, is
Speaker 1: it too simple to point at the dot Com deflation
Speaker 1: of that bubble as as something to expect in the
Speaker 1: high growth area this year? Or is that sort of
Speaker 1: you know, a fair comparison, if not quite the peak
Speaker 1: to trough type of of dip that we saw, uh
Speaker 1: something perhaps that long and that sort of dramatic uh
Speaker 1: where with you know, you know, the high growth stocks
Speaker 1: really just get taken as the woodshed for longer than
Speaker 1: anyone really saw coming. Yeah. So first of all, I
Speaker 1: just want to make sure it's understood I'm not a
Speaker 1: value manager or a growth manager. So I got No,
Speaker 1: I'm not trying to you know, spin you know, kind
Speaker 1: of what works or where my my investment philosophy at
Speaker 1: all times. I'm just I'm just looking at what the
Speaker 1: fat pitches and as it pertains this group. The reason
Speaker 1: why I believe once the fever breaks, it lasts a
Speaker 1: long time is if you wind the clock back, you know,
Speaker 1: if you look at some of these uber growth funds,
Speaker 1: they're back to where they were in early fall of
Speaker 1: two thousand twenty, and that means a lot of people
Speaker 1: haven't made money, right because they chased into them after
Speaker 1: they peaked. And the reason why the dot com anal
Speaker 1: g is correct is that that means that every time
Speaker 1: they start to go up, there's someone that can get
Speaker 1: out even and so there's tremendous selling resistance at higher
Speaker 1: levels because so many people have lost money. And that
Speaker 1: to me is very similar to you know, the dot
Speaker 1: com bubble, but other bubbles, is that once a very
Speaker 1: speculative bubble breaks, it doesn't it's not a v bottom
Speaker 1: because there's too many people looking to get out and
Speaker 1: want to get out. So I think that that's you know,
Speaker 1: that's that's the point. There is that I and you said, well,
Speaker 1: maybe not analogous because it hasn't gone down as much.
Speaker 1: And I would say yet, but now at what cohort
Speaker 1: would you look at? You? I mean, could you see
Speaker 1: the NASTAC one hundred going going down as much as it?
Speaker 1: Then we're more like catty Wood type of fund, uh something.
Speaker 1: I think there's a yeah, that's the big difference to
Speaker 1: two thousand. In two thousand, the NASDACK was trading at
Speaker 1: you know, you had you had obscene prices, but you
Speaker 1: also had some of these very big cap tech stocks.
Speaker 1: They're trading at triple digit multiples. And when I look
Speaker 1: at these uber bro stocks, they're as expensive as they
Speaker 1: were in two thousands. But the megacap tech stocks, the
Speaker 1: Nasdaq one hundred, the big stocks, they're not as expensive.
Speaker 1: So I I don't think the you know, the NAZAC
Speaker 1: break up two thousand is quite accurate because I don't
Speaker 1: think the really big tech stocks are as vulnerable. They're
Speaker 1: multiples are not you know, not as expensive. So I
Speaker 1: don't think you'll see you know, those stocks, you know,
Speaker 1: they're not as vulnerable. Once the guy we stink along
Speaker 1: these lines though, is that there's something in human nature.
Speaker 1: I think that is always going to make that instinct
Speaker 1: to chase the high flyers come back at some point. Uh,
Speaker 1: you agree, right, as simple as that, But is there?
Speaker 1: I mean, what would the conditions you would look for
Speaker 1: to be in place to sort of bring that trade back,
Speaker 1: you know, whether it be the sort of high flyers
Speaker 1: of the past couple of years or whatever. We're on
Speaker 1: two by the time that that sentiment comes back, is
Speaker 1: it is as simple as sort of a economic growth
Speaker 1: normalization and or and or the FED being done tightening. Uh,
Speaker 1: we'll take more than that, you think, Well, I think
Speaker 1: it's first selling exhaustion, where stocks stop going down on
Speaker 1: bad news because there's no one left about them, right,
Speaker 1: there's no one left to sell them. And I'm just
Speaker 1: not sure we're there yet. I don't. I haven't seen
Speaker 1: big capitulation. I mean, the stocks are down a lot,
Speaker 1: but but there hasn't been big capitulation these socks. And
Speaker 1: I get too many people like. The other way I
Speaker 1: think about it, Mike, is when no one believes that
Speaker 1: they can buy the dip anymore. That's when the bottom happens.
Speaker 1: Right when people say I don't want to touch them.
Speaker 1: You know, these are these are these are you know, uninvestable.
Speaker 1: That's what I get interested. But when people are just saying, hey,
Speaker 1: what do you think? You know, because the memory of
Speaker 1: making a lot of money is too recent, and that
Speaker 1: leads people to try to bottom fish. And so I've
Speaker 1: been in this business a long time. Human behavior doesn't change.
Speaker 1: And so always when you when this type of bubble breaks,
Speaker 1: you get counter trend rallies and they go up a
Speaker 1: little bit and then they go down low, and then
Speaker 1: they go up and then they go down and tell
Speaker 1: people say, don't ask me any more thing more about it.
Speaker 1: I don't want to talk about it. I'm moving on.
Speaker 1: And then I got, oh, that's kind of interesting. That
Speaker 1: means maybe they're they're getting to a bottom. So I
Speaker 1: think that's the first thing. And yeah, when the FED
Speaker 1: pivots the way we're there, pivoting grows stocks don't do
Speaker 1: as well. The FED is moving off ultra accomminative and
Speaker 1: grows stocks in general, you know, struggle, And so I
Speaker 1: think that also is an issue. Um, could could the
Speaker 1: FED take a breather? I think we've gone from no
Speaker 1: one believing rates to go up in inflation to now
Speaker 1: inflation and higher rates seems to be consensus, which leads
Speaker 1: me to believe, well, maybe later this year the FED
Speaker 1: will pause and maybe gross stocks will come back. I'm
Speaker 1: just not sure these these high, very high octane gross
Speaker 1: socks will will come back, but I wouldn't be surprised
Speaker 1: as some of the you know, these NAZAC hundred stocks,
Speaker 1: they could come back to life if in fact the
Speaker 1: FED pauses. I wasn't sure if I can jump in
Speaker 1: with a question of Mike had ten more. But Mike
Speaker 1: did mention at the top of the show that one
Speaker 1: of your funds was up year, and I think everybody
Speaker 1: at home is just wondering what exactly you might be
Speaker 1: favoring this year, what you might recommend to them, and
Speaker 1: where they should be and how they should be positioning
Speaker 1: as the year unfolds. So the reason why we had
Speaker 1: a good year last year is simply that we played
Speaker 1: the playbook. The playbook is is that when you're coming
Speaker 1: out of recessions, cyclical stocks do well, right because in recessions,
Speaker 1: people you know, sell anything that's economically sensitive and they
Speaker 1: hold on the things that they perceive is not economically sensors.
Speaker 1: So the spread between the cyclical stocks and the non
Speaker 1: cyclical stocks gets extreme and boil boy, did it really
Speaker 1: get extreme? Allah all our conversations so far by the
Speaker 1: second half of two thousand twenty. So it was kind
Speaker 1: of a fat pitch to own, you know, kind of
Speaker 1: financials in energy stocks. This you know in two thousand,
Speaker 1: in in twenty one, and so that, you know work.
Speaker 1: The other thing that really worked is just listening to
Speaker 1: company and follow earnings. Now, just to be clear, earnings
Speaker 1: growth doesn't drive stock prices, it's surprises, right. A stock
Speaker 1: price embeds all future expectations. So if companies are doing
Speaker 1: better than what is expected, they go up, and if
Speaker 1: they if they don't, then they're not doing as well,
Speaker 1: they go down, you know. And that's a very simple rule.
Speaker 1: But so I believe in okay, company reports, what is
Speaker 1: what was there the outlook? Did they exceeded or beat it?
Speaker 1: And I don't mean just quarter lits quarter because that's
Speaker 1: too short term, but over time. And so I think
Speaker 1: that that really work last year, and I think it'll
Speaker 1: work this year as well, And so I think we're
Speaker 1: into an environment So going into this year, I think
Speaker 1: we're an environment where central bank policy is willing to
Speaker 1: accept higher levels of inflation for faster growth that will
Speaker 1: lead to more age growth. Now, right now, the FED
Speaker 1: is starting to pivot a little bit because real wages
Speaker 1: aren't going up. Real wages so after you know, that's
Speaker 1: after inflation, So I think they're gonna make a move
Speaker 1: to kind of bring down inflation. But I think we're
Speaker 1: moving into an environment we're gonna have higher growth at
Speaker 1: the expense of higher inflation, and that's an environment where
Speaker 1: you want to own some value stacks. Again, I'm not
Speaker 1: saying throw away all your growth socks and buy all value,
Speaker 1: because I believe in technology long term, but I do
Speaker 1: think that we're we've come out of a decade of
Speaker 1: slow growth and we're moving into a faster growth environment,
Speaker 1: and I think you want to own a few more
Speaker 1: value socks. And I don't think this year will be
Speaker 1: any different than last year. Andrew, you sent us a
Speaker 1: list of a couple of stocks that you really like,
Speaker 1: and I think it was Google, Microsoft, and Danahert. I
Speaker 1: was wondering if you could maybe walk us through why
Speaker 1: you like these picks in particular. Yeah, our biggest overweights
Speaker 1: are financials, reads, and energy stocks. The however of that
Speaker 1: is those stocks are red hot right now. They're really hot.
Speaker 1: Their financials and energy have done really well this year.
Speaker 1: So I think we're into an environment where you have
Speaker 1: to be careful going into earning season, given how strong
Speaker 1: they've been. And so I'm just a little bit wary
Speaker 1: of owning those stocks, you know, or or or buying
Speaker 1: those stocks right here. And again, those growth stocks haven't
Speaker 1: done as well. Microsoft, Google Data they have done as
Speaker 1: well because they're not the hot stocks right now, and
Speaker 1: those companies are reporting very good earnings. Yeah, and I
Speaker 1: wanted to ask you also about sort of the other
Speaker 1: debate that always comes up this time of years, you know,
Speaker 1: US versus the rest of the world. Correct me if
Speaker 1: I'm being too simplistic about this, but you know, you say,
Speaker 1: you're not a value where a growth guy. I tend
Speaker 1: to think of the US market is relatively a growth index,
Speaker 1: as a is more of a growth index. The rest
Speaker 1: of the world as more of a value index, which
Speaker 1: you know, and perhaps more of a cyclical index too,
Speaker 1: you know. Is that too simplistic to think about it,
Speaker 1: or is you know, and especially to make the leap
Speaker 1: to think that rest of the world might outperform the
Speaker 1: US this year. No, I think well, as it pertains
Speaker 1: to Europe and Japan, You're dead on right, Mike. They
Speaker 1: are more cyclical in nature. So to make a big
Speaker 1: allocation to those markets, you have to believe that they
Speaker 1: are cyclically economically going to see real acceleration, or at
Speaker 1: my juncture, I think about in terms of our cyclical
Speaker 1: stocks in Europe going to be a better investment than
Speaker 1: you know, cyclical value stocks in the US. And I've
Speaker 1: always come back to the fact that I'd rather own
Speaker 1: banks in the US than in Europe. I'd rather own
Speaker 1: industrial socks in the U in US than in Europe.
Speaker 1: So that's always led me to have a little bit
Speaker 1: more of a US bias globally. Now having said that,
Speaker 1: that's not the case in Asia. Okay, Asia, ex Japan.
Speaker 1: You've got a lot of growth stocks e m did
Speaker 1: not do well last year, right, and it's because of China,
Speaker 1: It's because of the dollar, and I think some of
Speaker 1: that might actually reverse this year. So I think growth
Speaker 1: stocks in Asia might be the big winners this year.
Speaker 1: So it's not just but your right to accept the
Speaker 1: Europe and Japan are cyclical in nature. Well, I think
Speaker 1: what he's saying is European banks are susus. I'll have
Speaker 1: to incorporate that one into my Dy've long been sus
Speaker 1: that their sus since I've proven otherwise, I think probably Mike,
Speaker 1: you and I aren't cool enough to make that word.
Speaker 1: I know I'm trying. I'm trying hard, but yeah, I
Speaker 1: can tell well I and I'll say this without listing names,
Speaker 1: but whenever it as well. I like Europe more than US.
Speaker 1: I said it, would you sell your US bank and buy,
Speaker 1: you know, a French bank or are you gonna sell
Speaker 1: your U s acid management firm? And bias with I'm
Speaker 1: just not you know when it let's send me the
Speaker 1: personal trade confirmation when I've done that in your personal account,
Speaker 1: And I think because I just think it sounds really
Speaker 1: great at the high level, but I'm not a strategis
Speaker 1: I have a portfolio manager. I'd have to actually pull
Speaker 1: the trigger and do that, and I just think that's
Speaker 1: tough to do. Yeah. Yeah, when you can't find the
Speaker 1: actual names execute a theme on, I guess is the
Speaker 1: you know it's the problem. And angel what about the
Speaker 1: small cap space because another bank earlier this week actually
Speaker 1: gave up their call on small caps all performing. I
Speaker 1: was looking at the Russell two thousand, it's down something
Speaker 1: like seven. A bunch of the names in the Russell
Speaker 1: two thousand are down like thirty forty or more. So
Speaker 1: I'm wondering what you make of the small cap space,
Speaker 1: you know looks. First of all, I'm not you know,
Speaker 1: my benchmarks are SMP and mc I world, So I'm
Speaker 1: not a small cap manager. I'm not the right person
Speaker 1: to ask about that, and I don't. We don't delve
Speaker 1: into that, not only because it's the off benchmark, but also,
Speaker 1: and this gets more you know, philosophical. I don't have
Speaker 1: a problem with passive investing. I really don't, because my
Speaker 1: response is, hey, if you want to get market exposure,
Speaker 1: go for it. But what I have a real problem
Speaker 1: with is active management that owns lots of stocks. So
Speaker 1: I am a believer in a limited number of stocks
Speaker 1: if you're going to hire active managers. So I that's
Speaker 1: the other reason I don't own small caps is just
Speaker 1: it's risky to own, you know, twenty thirty stocks and
Speaker 1: have small caps in your portfolio. So that's that's the
Speaker 1: reason why I avoid it. But that kind of carnage
Speaker 1: leads me to believe that that's attractive. But you know,
Speaker 1: I still think US value is going to outperform that
Speaker 1: because I think these companies are doing very very well,
Speaker 1: and so that would be my top pick, and then
Speaker 1: my second pick would be emerging markets. You know, I try.
Speaker 1: I know you're bullish on Microsoft. I think you have
Speaker 1: it in both the international and the and the US
Speaker 1: core fund um. Curious what you think of this activision
Speaker 1: takeover this week and does it does that signal to
Speaker 1: you sort of more to come? This kind of you know,
Speaker 1: magic word the metaverse people keep throwing around. Is that
Speaker 1: going to be kind of a Bolton acquisition source for
Speaker 1: some of these bigger tech firms? Do you think? Or
Speaker 1: is this a kind of a one and done for Microsoft.
Speaker 1: I think it's a sign that companies are flush with cash,
Speaker 1: and I think it's a sign that they got a
Speaker 1: lot of cash. Which, oh, by the way, what's the
Speaker 1: rre we on cash right now? Zero? You're lucky, right,
Speaker 1: So I think it's going to be a I'm no
Speaker 1: investment banker, but I think it's going to be a
Speaker 1: big year for M and A because companies have very
Speaker 1: strong balance sheets and they got a lot of cash
Speaker 1: on hand, and they're gonna be you know, looking for
Speaker 1: you know, Bolton acquisitions. So to the extent that you
Speaker 1: know things are immediately a creative, I think you're gonna
Speaker 1: see companies, companies jump on it. So and I know
Speaker 1: that's a you know, not a lot of people talk
Speaker 1: about that, but you know, I really think that the
Speaker 1: story is that corporate fundamentals are not getting the press
Speaker 1: they desire. If I really do. We talk about the
Speaker 1: fattle ode and kind of you know, kind of geopolitical risk,
Speaker 1: but to a certain extent, I just don't think, you know,
Speaker 1: what's happening in corporate America gets enough you know, positive press,
Speaker 1: because I think it's it's definitely out there. Well, speaking
Speaker 1: of what's happening in corporate America, we did have the
Speaker 1: banks kicking off the the earning season this week, and well,
Speaker 1: on big theme was that a lot of the more
Speaker 1: reporting wage pressures, and I wanted to ask you if
Speaker 1: you're watching that as well. We had Gina Martin Adams
Speaker 1: on last week and she spoke about the risk to
Speaker 1: margins and so I'm just wondering how big of a
Speaker 1: risk you think that is too Margins. Yeah, Well, first
Speaker 1: of all, you know, keep in mind those stocks did
Speaker 1: great they were red hot. As I said, they were
Speaker 1: red hot going into earnings. So I'm always I'm always
Speaker 1: really worried about companies when they're too hot, because a
Speaker 1: little piece of you know, people will pick up on
Speaker 1: disappointed news if they're too strong. And so that's I
Speaker 1: think the story of some of the banks. And yeah,
Speaker 1: there are some wage pressures, but not all banks. I
Speaker 1: would be a little bit careful there. And the the
Speaker 1: other thing I think is really important to consider is
Speaker 1: that rising costs can be offset. Maybe maybe banks aren't
Speaker 1: a good example, but rising costs can be offset by
Speaker 1: rising prices as long as demands drawing. Rising costs can
Speaker 1: be offset by better pricing as large as demand store
Speaker 1: and so far, I think, you know, the people are
Speaker 1: willing to pay more, and so I think that that
Speaker 1: is going to be the story. That's something definitely to watch.
Speaker 1: As long as demand stay strong, I think companies are
Speaker 1: gonna offset higher wages, higher costs with rising prices. Andrew,
Speaker 1: one thing I wanted to ask uh, and I think
Speaker 1: I might have asked this of you less time you
Speaker 1: were on, but I'd be great to get an update
Speaker 1: on your thinking, is uh, you know, as a core
Speaker 1: fund manager, like you said, a fund that's not holding
Speaker 1: hundreds of stocks maybe hold twenty or a few or
Speaker 1: something like that. In this environment, are you, you know,
Speaker 1: rolling over position changing positions more than you would otherwise?
Speaker 1: Are you dumping and buying new positions? Because I think
Speaker 1: of a core manager is kind of a buy and
Speaker 1: hold type of manager. You know, you're looking for something
Speaker 1: that's gonna perform for several years rather than several months.
Speaker 1: But you know, with COVID rush in the economy and
Speaker 1: then coming roaring back, I feel like technically you must
Speaker 1: be more nimble these days and perhaps past years. Um
Speaker 1: is that true? And does that normalize that at some point?
Speaker 1: I don't think last year you had to be very tactical. Yeah,
Speaker 1: if the market's up, does it really pay actical, you know,
Speaker 1: And so we let our positions run last year. And
Speaker 1: the other thing is taking a little more I mean,
Speaker 1: I know this is perverse, but taking a little more
Speaker 1: risk early in bowl markets pays. And that's perverse because
Speaker 1: usually people want to you know, they're so worried about
Speaker 1: what's already happened. They want less risk, right, But it
Speaker 1: pays to actually take a little bit more risk early
Speaker 1: on this year I think you're I think you're right.
Speaker 1: I think it's gonna require a little bit more tactical moves.
Speaker 1: If I need to generate alpha, right, I need to
Speaker 1: generate excess return because that's why you pay for active
Speaker 1: management because in it, again going back to what I said,
Speaker 1: in an environment of lower returns, I think there's gonna
Speaker 1: be more volatility around that lower return thesis, and I
Speaker 1: want to be a little bit more tactical. So it
Speaker 1: means right now, I think the financials and the energy stocks,
Speaker 1: as I said, are a little hot going into earnings.
Speaker 1: Maybe financials have started cool and so maybe we trend
Speaker 1: back a little bit on some of the energies. I mean,
Speaker 1: they're up a lot, right even though maybe you know
Speaker 1: for the year, we're still bullish on that area. They've
Speaker 1: run too far ahead of the market year today. So
Speaker 1: I again, I think it's I think this year is
Speaker 1: gonna require a little bit more tactical and recognizing, boy,
Speaker 1: these stocks have done very well better than you know,
Speaker 1: better than than they probably will for the you so
Speaker 1: mean reversion is another it's a fancy a saying tactical,
Speaker 1: and I think it's it's going to require a little
Speaker 1: bit more, and so from an investors standpoint, it means
Speaker 1: trimming back winners and you know, being willing to buy
Speaker 1: a little bit more into some of your you know, losers.
Speaker 1: And so going back to the list of stocks are listed,
Speaker 1: those are all good companies. They're reporting good earnings and
Speaker 1: they haven't done very well this year, so that those
Speaker 1: are the socks you want to buy whenever the fundamentals
Speaker 1: and the stock prices diverged. I'm interested in that, you know,
Speaker 1: and trying to know you're you're also a little bullsh
Speaker 1: on China. You're saying your notes, so you think surprise,
Speaker 1: China will surprise. Not a good year. I mean I
Speaker 1: was looking at and I forgive me for not remembering
Speaker 1: what bank put this note out, but it's by China
Speaker 1: is either out on the top of the list of
Speaker 1: returns for the year globally or the bottom. It seems
Speaker 1: like almost every years. Is that part of it just
Speaker 1: such a lousy year last year? Or is it the
Speaker 1: the idea of stimulus coming? What's what's making you, uh,
Speaker 1: sort of take a look at China. Yes, So, I
Speaker 1: mean if I showed you one of those you know,
Speaker 1: kind of heat maps of what did well and what
Speaker 1: you know, the best to worth performing assets every year
Speaker 1: and you saw child and go, oh my god. Every
Speaker 1: time it's bad, I want to invest right. And so
Speaker 1: it just had a really bad year, and it had
Speaker 1: a really bad year in two fifteen, really bad year
Speaker 1: in two thousand, so and then it does well. So
Speaker 1: you know, I've learned this business that when people say
Speaker 1: something is uninvestable, that gets me interesting. And I hear
Speaker 1: a lot of it's uninvestable right now. Um, that's number one.
Speaker 1: Number two is you you're right, you have There is
Speaker 1: one large central bank in the world that is not
Speaker 1: moving more restrictive, it's moving more dubbish, and that's China.
Speaker 1: So you have that number two. The third reason is
Speaker 1: the dollar. Okay, the dollar went up a lot last
Speaker 1: year and that really weighed on emerging markets, including China.
Speaker 1: Now on the surfaces, you'd say, well, the Feds, you know,
Speaker 1: you know, my hike rates. How can the dollar not
Speaker 1: go up again? Well, actually, the dollar tends to rally
Speaker 1: in front of Fed pivotic and so it's kind of
Speaker 1: starting to run out of steam here and that could
Speaker 1: take some relief off emerging markets. And then the last
Speaker 1: reason is and this gets two more stock selection is
Speaker 1: you know, as I said, look, I'm in different between
Speaker 1: value growth and where in the world, but I'm always
Speaker 1: interested in what are great companies that have compounded at
Speaker 1: very high rates over time, and then which ones haven't
Speaker 1: done well recently? And then let's really bore in and
Speaker 1: figure out is something changed at the company and they
Speaker 1: can't resume their you know, what they've done the past,
Speaker 1: or is it temporary. And when we run screens on
Speaker 1: companies that compounded very high rates that have not done
Speaker 1: well recently, it leads us back to Asia extrapan of
Speaker 1: which China is one of them. So that's that's, that's
Speaker 1: those are the reasons. Tiden up your straight jackets. It's
Speaker 1: time for the craziest things we saw in markets this week?
Speaker 1: All right, Phil Dona, I think it is that time,
Speaker 1: the ever so important time of the craziest things we saw.
Speaker 1: What's the craziest thing you saw this week? I actually
Speaker 1: didn't see very many, many many. As usual, especially in
Speaker 1: the crypto space, you tend to see a lot of
Speaker 1: really crazy stuff. But one of the weirdest things I
Speaker 1: saw was that Airbnb CEO. I don't know if you
Speaker 1: saw this story but he announced that he's going to
Speaker 1: be living in Airbnb rentals going forward. He's going to
Speaker 1: be staying in a different town or city every couple
Speaker 1: of weeks, and it just, you know, it just brought
Speaker 1: up questions like, how how do you govern as a CEO?
Speaker 1: He's jumping around from place to place and it reminds
Speaker 1: me of the time when Jack Dorsey had said he
Speaker 1: was going to move to Africa and that created I
Speaker 1: think it was a couple of years ago that created
Speaker 1: a backlash. And so that was one of the stranger
Speaker 1: things I saw that was pretty good. I did not
Speaker 1: see that one. That's uh wait, I don't know. I
Speaker 1: talked about living the life of a of a nomad. Right, yeah,
Speaker 1: how about you, Andrew, you see anything crazy this week?
Speaker 1: Well it may not be this week, but it's certainly,
Speaker 1: you know, year to date. And I don't have any
Speaker 1: answer for this. Maybe you do, but I don't. And
Speaker 1: that is this. When I look at the present Bulls
Speaker 1: to Bears, it's barely positive and time, in fact, it's
Speaker 1: sometimes negative. When I look at the VIX, the vaultility Inex,
Speaker 1: it's still very elevated, right when consumer confidence is kind
Speaker 1: of low, right, when I talked to financial advisors, they
Speaker 1: say to me, are clients are fearful of being invested?
Speaker 1: They have foe b fear of being in right? They
Speaker 1: want out right. And the reason why I find that
Speaker 1: bizarre is because, well, I should say it's logical because
Speaker 1: the markets up three years in a row. So on,
Speaker 1: on the surface, you'd say, well, that's entire logical, No
Speaker 1: wonder people are nervous because the market's up so much.
Speaker 1: But the weird thing is that's not how humans act.
Speaker 1: Humans don't get less. It's the fear degreed cycle. And
Speaker 1: so how is it that we're up three years in
Speaker 1: a row of over tw and people are suddenly acting
Speaker 1: very logical? That's very that's weird. It shouldn't happen that way,
Speaker 1: And it makes me wonder maybe fomo. We're gonna go
Speaker 1: from foe by fear of being into fomo, which is
Speaker 1: fear of missing out. That's how bowl markets d with fomo, right, right.
Speaker 1: I just I to think it's weird that the market
Speaker 1: has been so strong and yet the anxiety level is
Speaker 1: so high, very unusual. Right. The rational behavior is the
Speaker 1: craziest thing. I take that. Yeah, that's a great way
Speaker 1: I agree, that's pretty good. Two good ones here, two
Speaker 1: good ones here. I'll give you my now the Donna.
Speaker 1: I've had an issue because whenever I try to play
Speaker 1: prices right with my craziest things, you've already read every
Speaker 1: story that's been printed for the week, regardless of publications,
Speaker 1: so it complicates things. So I've got three crazy things
Speaker 1: in the alternative space, and we're gonna play prices right.
Speaker 1: See which one you guys think is the highest priced.
Speaker 1: And as you might guess, there are auctions in the
Speaker 1: collectibles and other assorted weird market space. So I'm gonna
Speaker 1: give you three things. One of what already went up
Speaker 1: for auction, two of what you're going for auctionus you too,
Speaker 1: tell me what you think has the highest they're already
Speaker 1: sold auction price, were expected at auction price. First one
Speaker 1: a five hundred and fifty five point five five carrot
Speaker 1: black diamond. I didn't even know there was black diamonds.
Speaker 1: Apparently they exist, five d and fifty carrots, called the Enigma.
Speaker 1: It's going up for auction next month at Southby's in London.
Speaker 1: You forgot to mention. I think that the claim is
Speaker 1: that that diamond is from outer space. I was getting
Speaker 1: to that you, I was getting to it. Yes, you've
Speaker 1: taken all the all the feather away from me. Yes,
Speaker 1: you might ask yourself, where does the black diamond come from?
Speaker 1: Well they say it either emerged from a diamond bearing
Speaker 1: asteroid that collided with Earth, were created by a meteor's
Speaker 1: impact with your anyway, pretty bizarre. Five fifty point five
Speaker 1: five carrot black diamond. Second item. Now, we're used to
Speaker 1: seeing Spider Man in a red suit, but apparently every
Speaker 1: now and then he puts in ah, it wears a
Speaker 1: black suit. So the first ever book. And I'm not
Speaker 1: a comic book guy, I I might get some of
Speaker 1: this wrong, but first time you ever where black suit
Speaker 1: was in a night comic book. The original artwork is
Speaker 1: up for auction of the Black Spider Man Suit. That's
Speaker 1: number two third, one of the earliest contemporary broadside editions
Speaker 1: of the Declaration of Independence, is going to go on
Speaker 1: sale later this year, likely the first edition printed in
Speaker 1: New England. Only six copies are known to exist for
Speaker 1: belonging university collections or museums collections. Christie's putting this up
Speaker 1: for auction next month. So Andrew and Voldonna, you've got
Speaker 1: a five and fifty five point five five carrot black diamond,
Speaker 1: your first drawing of Spider Man in a black suit.
Speaker 1: We're one of the first earliest known editions of the
Speaker 1: Declaration of Independence. I would also say that matches the
Speaker 1: exact type setting used in the addition printed in the
Speaker 1: sixteen seventeen seventy six issue of the American Gazette. If
Speaker 1: that helps you at all, well, do you go first?
Speaker 1: Which one you thanks going for the most? The rational
Speaker 1: answer would be C I think, but I'm not going
Speaker 1: to go with that because of what we were just
Speaker 1: talking about how everybody is still a little bit irrational.
Speaker 1: So I'm going to go with the diamond because of
Speaker 1: the fun factor. It's god knows from where, from Mars
Speaker 1: or Jupiter or something. We can create a really fun
Speaker 1: story around it. I'm going with the diamonds. All right,
Speaker 1: that's that's well reasoned. Well, give me your your expected
Speaker 1: price for the diamond as a tiebreaker. Actually, wait, let's
Speaker 1: see what Andrew says, and then we'll then we'll ask
Speaker 1: for the price as a tiebreaker if he if he
Speaker 1: agrees with it, well, I mean, I think vell data,
Speaker 1: that's a logical, rational answer, you know, the Spider Man
Speaker 1: in the black Suits scene so irrational that it makes
Speaker 1: me believe probably you know that, which also a well
Speaker 1: reasoned answer, very well reasoned. I would have gone with
Speaker 1: the diamond personally, I would think of fifty five carrots,
Speaker 1: some someone's gonna want to put that on a necklace.
Speaker 1: I liked the rationale for both of these. But again,
Speaker 1: this is the craziest things where rationality goes up the window.
Speaker 1: It was actually the Declaration of Independence expected to go
Speaker 1: for twelve eighteen million. The diamonds only expected to go
Speaker 1: for six eight million. I I don't get that surprises me. Yeah,
Speaker 1: for five fifty carrots, I mean from out of space.
Speaker 1: I will not I will not tell you what I
Speaker 1: spent on my wife's engagement ring. But let's just say
Speaker 1: that not in that league. And as Spider Man, that's
Speaker 1: a wild card there. You're right, Andrew, because you know,
Speaker 1: you get some comic book nerd. You know who's who's
Speaker 1: made a fortune on crypto and uh. But here's the
Speaker 1: craziest thing out of all of it. The new Spider
Speaker 1: Man movie. What's it called? I forget what it's called. Already,
Speaker 1: Spider Man, you can't go home or something like up anyway.
Speaker 1: You know what, that's grossed already in the box office
Speaker 1: one and a half billion dollars. It's only enough for
Speaker 1: a few weeks. It's already brought in one and a
Speaker 1: half billion dollars. I find that I have teenage daughters also, Mike,
Speaker 1: and they all all right, they've all seen it. Yeah.
Speaker 1: My my youngest is a big comic book fans too.
Speaker 1: It's funny the young girls are into the Marvel and
Speaker 1: the d c uh. Who would have who would have
Speaker 1: figured one and a half billion dollars for a Spiderman
Speaker 1: movie already? And that's before it even really hits the
Speaker 1: Maybe it's already hit video. I don't know. They released
Speaker 1: these things together at the same time, but what the
Speaker 1: check backs. I think that Diamond's gonna go for more
Speaker 1: than they expect. With that said, Edrew, always a great
Speaker 1: time to catch ups. You really appreciate your insights. I
Speaker 1: think we're all adjusting our chin straps for wild years.
Speaker 1: We'll have to bring you back sometime to see how
Speaker 1: it's going. I look forward to it. Thank you for
Speaker 1: coming back, all right, take care what goes up? Will
Speaker 1: be back next week. Until then you can find us
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Speaker 1: What Goes Up is produced by Laura Carlson. The head
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