"On The Tape" co-hosts Danny Moses and Dan Nathan were joined by Liz Young of SoFi, Vincent Daniel of Seawolf Capital, and Porter Collins of Seawolf Capital at the Future Proof Conference in Huntington Beach on Tuesday afternoon. They discussed the stock market volatility, CPI report, energy stocks and where they see opportunity.
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00:00 [MUSIC PLAYING]
00:03 Hello, everyone.
00:04 Thank you for coming out.
00:05 This is On the Tape.
00:06 [INAUDIBLE]
00:09 How you doing?
00:09 Welcome to On the Tape.
00:10 I'm Dan Nathan.
00:11 I'm here with my co-host, Danny Moses.
00:14 Our third co-host, Guy Adami, is usually with us,
00:17 but he is on his way to Sicily.
00:19 It's something about seeing a guy named Dom Tomasino.
00:21 I don't know.
00:22 We're going to talk about that later.
00:23 But in his stead, we have two really great contributors
00:27 on the tape since we started in early 2021.
00:30 It is Porter Collins and Vincent Daniel of Seawolf Capital.
00:35 They are Danny Moses' former partners at Frontpoint
00:38 back in the day.
00:39 You guys might recognize them.
00:40 Maybe not.
00:41 The actors who played them in the big short
00:43 were a little better looking, not nearly as smart.
00:46 But you guys, thank you guys for being with us on the tape
00:48 here in Huntington Beach.
00:50 Great to be here.
00:51 And obviously, EY from SoFi.
00:54 She does Market Call, a guy in me, on Thursdays.
00:57 She is Liz Young.
00:58 She is the head strategist at SoFi.
01:01 So thank you guys for being here.
01:02 Thanks for having us.
01:03 All right, let's get into it.
01:05 People, what a heck of a day.
01:07 I mean, we've had some momentous days with our friends from
01:09 Seawolf on with us and on the tape.
01:11 You guys were mentioning back in June,
01:13 it was just after that CPI print from May.
01:16 It was hot.
01:17 Then there was a trial balloon floated in the press
01:20 that the Fed was maybe going to do 75 hike at that mid-June
01:24 meeting.
01:24 And what happened?
01:25 Danny, the stock market went down 10%,
01:27 the S&P, in a straight line into that Fed meeting.
01:30 Talk to me about what we saw today,
01:32 because the S&P down 4.3%, the NASDAQ down 5.1%.
01:38 Worst day in the stock market since June of 2020.
01:42 And think back where we were in June of 2020.
01:45 It was like a big black hole.
01:47 Yeah, I think the focus on all these inflation prints,
01:49 whether it's 0.1 higher, 0.2 higher, is nuts.
01:52 That's how you're going to trade the market over the long term.
01:54 Fundamentals are going to matter the most.
01:56 And as that works its way into the market,
01:58 I think we're just playing around between 3,600 and 4,200
02:01 on the S&P for now to try to find the direction.
02:03 75 basis points for the Fed is now cemented, obviously,
02:06 I think, next week, week and a half.
02:08 Yeah, but your range that you just gave for the S&P 500,
02:10 that's like one day like today.
02:13 You're through the bottom end of it, right?
02:15 So you think the data right now, it's in the market's hands.
02:19 It's not really in that whole kind of data space.
02:21 I just think if that's what you're
02:22 using in these inflation trends as a way
02:23 to trade the market, you're going to have bigger problems.
02:25 And I think fundamentals, take that information.
02:27 What does it mean to each company that you might own?
02:29 What does it mean to the certain sectors that are out there?
02:31 And that's how I would kind of break it down that way.
02:34 All right, but here, Porter, Danny just
02:36 said what does it mean to different sectors,
02:38 different instruments, or whatever.
02:39 But we know what happens in market.
02:41 These correlations go to one.
02:42 How do you guys think about it?
02:43 You guys have been unusually bearish for economic reasons.
02:46 But the way you think about markets, the way
02:48 you guys think about investing at CWIL,
02:50 you've obviously been very bearish in sellers
02:53 of most rallies.
02:54 You have been long stuff.
02:55 But talk a little bit about that dynamic and the range
02:57 that Danny talked about in the data dependency.
02:59 Well, Danny doesn't like to be called a bear.
03:01 He just likes to be called realistic.
03:03 A realist.
03:03 A realist.
03:05 I consider myself a realist as well.
03:07 And if you look at what's happening,
03:11 earnings are coming down.
03:12 The last two quarters haven't been good
03:16 in terms of S&P earnings.
03:20 Corporate profit margins are an all-time high.
03:22 They're coming down.
03:23 And I think if you rewind the clock to the May CPI print
03:30 in June, things are a lot more bearish
03:31 because the Fed's going further than I would have ever
03:34 thought they would.
03:35 And so, I mean, Goodluck was talking about it earlier today.
03:38 And they're going to go right against a wall.
03:42 And all these things happen with lag effects.
03:45 The hiking of rates, the inflation data.
03:49 And it's all over the place.
03:50 And the problem is the Fed's in a real bind
03:52 because the inflation is very pervasive.
03:56 You saw the medical costs up highest ever, 25%.
04:01 Electricity costs, all that's going to hit with the lag.
04:04 And I just don't see a lot of bullish catalysts out there.
04:09 We're long energy stocks still.
04:12 People come at us a little bit of oil's going to fall,
04:18 whatever.
04:20 I just-- we're short a lot of stocks though here.
04:22 There's a lot of high-priced stocks, a lot of stocks
04:25 that are reverting to the mean in terms of--
04:27 you've got this COVID reverting to the mean.
04:29 You've got just a lot of stuff going on.
04:31 And we're pretty bearish on stuff.
04:33 So Vinny, you guys were on the energy trade for reasons
04:36 other than some of the geopolitical stuff.
04:39 When crude oil took off in February
04:42 before Russia invaded Ukraine, you guys
04:44 were already long all these things.
04:45 So you had a fundamental reason view on energy.
04:48 We got long when Exxon was taken out of the Dow.
04:51 That really started the process.
04:53 I mean, we tend to be contrarian in nature.
04:55 Talk to us about that psychology.
04:56 So you saw that, and then you were like--
04:57 Well, we're contrarian idiots.
05:00 So we see Exxon being taken out of the Dow,
05:04 and Salesforce.com was put in.
05:06 And we practically went long Exxon, short Salesforce.com,
05:11 generally speaking.
05:12 Salesforce a little later on.
05:14 And so it started as a trade, just as sort of,
05:16 let's do this.
05:16 Contrarian.
05:17 It's funny.
05:18 And then we started doing the research behind it.
05:21 And then we realized that, holy crap,
05:24 there's been a 10-year under-investing cycle
05:27 in fossil fuel energy.
05:29 Everyone thinks we're going to solar and wind in 10 years.
05:32 We'll be lucky if we get there in 30 or 40 years.
05:34 And I would question whether we should do so to begin with,
05:36 but that's a different issue.
05:37 And then we realized we were sitting on potential names
05:41 that were trading at one to two times cash flow.
05:44 And they were paying down debt, and they
05:45 were about to shove cash down your throat.
05:49 And we're like, this is like a value investment.
05:51 What was the example on the pod in June?
05:53 You guys gave an example of what company that you owned
05:55 was going to pay more in dividends.
05:57 What was that?
05:58 It was an--
05:59 It was probably Peabody.
06:00 It was probably Peabody.
06:01 Oh, yeah.
06:01 That was a shipping company.
06:03 Oh, that was--
06:03 Oh, yeah.
06:04 That was Zim.
06:05 That was Zim.
06:06 But we did sell that.
06:07 But nevertheless, it's still to this day
06:10 that these companies are going to produce those cash flows.
06:13 Now, we have to worry about the next three months
06:16 because we're clearly in some form of economic slowdown.
06:19 There will be a drop in aggregate demand.
06:21 And you do have Biden dumping oil.
06:24 However, Biden just said today that he's about to buy oil
06:28 at $80 a barrel.
06:29 So you have the Saudis wanting--
06:31 Pretty good consistent energy policy we've got here.
06:33 So you have Saudi wanting to defend $90,
06:35 Biden wanting to defend $80, or buying at $80.
06:39 And if we stay between $80 and $90,
06:41 as an equity investor in these energy games, give it to me.
06:44 It's perfect.
06:45 Well, I want to get to the potential for demand
06:47 destruction and what a global slowdown really
06:49 looks like for some of these commodities
06:50 and some of these sectors.
06:51 And I really want to also talk a little bit
06:53 about the relative strength.
06:54 We were talking last night that some of the energy stocks
06:57 that you guys are long are showing
06:59 relative to the commodity.
07:00 But Liz, you tend to really focus on value a great deal.
07:04 And you've liked energy for a good part of this year.
07:07 How do you think about it?
07:08 And I definitely want to get into that Paris trade long exon
07:11 short sales force, because there's a lot of stuff there.
07:13 We were talking about Nvidia.
07:14 There's a lot of high valuation stocks.
07:16 Dani, you say this on the pod all the time.
07:18 You like those shorts sometimes when they're down 50% better
07:21 than you like them very near their highs.
07:23 But talk to us a little bit about how you're thinking
07:25 about it from a value bend and where
07:27 you think there's opportunities right now in the stock market.
07:30 I want to talk about something else first.
07:32 OK, nice.
07:33 Well done.
07:34 Well done.
07:34 Whatever you want to do, Liz.
07:36 I'm outnumbered on this panel.
07:38 They've been nice so far.
07:39 You're like hiding your bearishness.
07:41 No, no, no.
07:41 We just wait.
07:42 It's cute.
07:42 It's cute.
07:44 We're going to roll into it real slow.
07:48 So a couple of things.
07:49 It's right now in the market, especially today,
07:52 you look at the numbers today, it is so easy to be bearish.
07:55 It's almost lazy to be bearish in a day like today.
08:00 We'll get to that in a second.
08:01 In a day like today.
08:02 OK.
08:03 It's harder--
08:04 She just called you a wimp today.
08:06 It's much harder to be bullish.
08:08 So you talked about--
08:10 I think it was you, Porter, that said it's hard to find
08:12 those upside catalysts.
08:13 At this point, I don't even think
08:14 there needs to be a catalyst.
08:15 Everything is pointing to it could get worse from here.
08:20 The catalyst is that we remove something that's really bad.
08:23 We all hoped for that today.
08:24 We hoped that we'd get an inflation number that wasn't
08:26 as bad as it ended up being.
08:28 That would have been a removal of a worry.
08:30 And that would have served as a catalyst.
08:33 So we're in this weird range in valuations
08:36 where I think we're probably stuck in it for a while.
08:40 And the bearish case would look at it and say,
08:42 OK, with CPI at these levels, with this level of, I guess,
08:46 consternation in valuations, PEs deserve to be 20% below where
08:51 they are.
08:52 They don't necessarily have to get there.
08:54 All right.
08:55 So I'm the first bear coming out of the can.
08:57 [LAUGHTER]
08:57 I did that on purpose.
08:58 I was like, what's wrong with you?
09:00 You got us going.
09:00 They're lying.
09:01 So it's so hard--
09:03 it's so easy to buy stocks and forget about them
09:05 if you're going to buy good stocks over time.
09:07 This passive ETF market has just lent itself to just set it
09:12 and forget it.
09:13 This is the first time in 13 years
09:14 that you actually are underwriting both stocks
09:16 and bonds, in my opinion.
09:17 First time you've been forced to look at what
09:19 you own from the bottom up.
09:20 Shorting is the hardest, most painful.
09:24 It's a skill set, but it takes a lot of patience.
09:27 And the timing has to be right.
09:28 And most people that are good short sellers
09:30 will always be early.
09:32 And that's a painful process.
09:33 You get a position that doubles on you
09:35 while you're waiting for it to work,
09:37 and you get called out of a name.
09:38 You can get taken out of a name.
09:39 So I think the history--
09:40 I think what's really important here--
09:41 and you've talked about this, Liz--
09:43 is from an age group perspective,
09:44 if you've traded this market through three or four
09:47 iterations of cycles, back to even 1987, 1999, 2006, '07,
09:52 '08, and you see what can happen from a behavioral finance
09:55 perspective, you want--
09:56 shorting is very difficult because it's a timing issue.
09:59 And my whole thing with today's print
10:00 is that I don't care if it was down 0.2% of the market,
10:03 was up 100 points on the S&P.
10:05 It wouldn't have changed my mindset
10:07 for what I think is going to happen.
10:08 And the one thing I'll say before I let the other bears
10:10 come out of hibernation here, we are
10:11 under-appreciating how bad things are in Europe.
10:15 Forget about geopolitical risks in China and all that.
10:18 Europe, as a buying country, buying our products,
10:20 they're screwed.
10:21 I mean, they're 10 times worse than we
10:22 are from a stagflation slowdown.
10:24 And they are raising rates into an economy that
10:26 is clearly declining.
10:28 They have bigger issues than we do.
10:29 So I just think we've got to pull our head out of the sand
10:32 at the macro here also.
10:33 And I think I really try to stay level-headed and stuff.
10:38 But I mean, I was bearish before today.
10:40 Today's action was--
10:41 I just made it worse.
10:42 Yeah, you made it worse.
10:42 Well, real quick anecdote on the younger investor thing.
10:46 I got a text from my analyst.
10:47 He's in his late 20s.
10:50 Resume?
10:50 Right before this.
10:51 Yeah.
10:52 Yeah.
10:52 And--
10:53 LinkedIn?
10:53 LinkedIn.
10:54 He's watching this happen all day.
10:56 And all the text said was, this sell-off is crazy.
10:59 And I wrote back, did you buy anything?
11:01 It's your mindset, right?
11:02 So he's scared.
11:03 He's there because he hasn't seen this.
11:05 And he's invested in the market now.
11:06 And he hasn't felt it.
11:07 And seeing numbers like that, it's like, oh my god,
11:08 what's happening?
11:09 But he said no, he hadn't bought anything.
11:10 Well, today we're all at the beach.
11:12 And we're seeing all these great speakers
11:13 and this great stuff.
11:14 And today, I feel like if we were
11:16 sitting in front of our fact set machines or whatever,
11:18 we would have felt-- like us in particular, who really came
11:21 into the business in the late '90s.
11:22 You guys obviously very well documented
11:24 what you guys did during the financial crisis.
11:27 Today felt like a very different day
11:28 than almost every major down day in the markets to me.
11:31 And that's us checking our phones like this or whatever.
11:34 I was on CNBC on "Closing Bell" just an hour ago.
11:37 And Sarah Eisen used the expression liquidation,
11:41 like today's price action.
11:43 And to me, I said to her, liquidation
11:46 implies that you're almost near capitulation, right?
11:48 To me, this feels like it's just getting started.
11:51 So talk to me a little bit, Vinny.
11:54 What's different this time than in mid-June when we went down?
11:58 It was like four consecutive really big down days.
12:01 And then we bottomed.
12:02 And then we ripped nearly 20% of the S&P over two months.
12:05 Well, I think a lot of that is oversold conditions.
12:08 So when we get there, and we're going to get there again,
12:10 and there will be a bear market rally.
12:12 Liz, I'm laughing.
12:13 You call a bear lazy.
12:15 You're actually strongly suggesting
12:17 that you've never been bearish in your life.
12:19 You're actually short at a stop.
12:20 We're actually short at a stop.
12:21 No, I have not.
12:22 OK.
12:23 And if I look at the audience out here and do a show of hands,
12:27 how many people have ever shorted a stock
12:29 or have not invested in a stock--
12:30 not invested in a stock, I bet the amount of hands,
12:33 aside from these two guys over here, would be minimal.
12:36 It's not that many.
12:37 Wait, Peter Brookfire's got his hand up?
12:38 Yeah.
12:39 Peter Brookfire has both hands up.
12:40 I'm trying to exclude Peter and Jared over there.
12:42 If you put your feet up, that means you've also bought puts.
12:46 So the point is that it's very difficult,
12:49 and it's very emotional.
12:50 We not only have to be right fundamentally, which we feel,
12:53 then we have to time it correctly.
12:55 And then we have to pray to God that no idiot is
12:59 going to buy a stock just because it sounds good,
13:02 whereas no one here is shorting stocks.
13:05 So it's very, very difficult. I take opposition of the fact
13:10 that you call bear lazy.
13:11 It is the hardest thing on planet Earth,
13:13 and I don't suggest anyone do it.
13:15 She said lazy to be bearish, like right now,
13:18 not shorting stocks.
13:19 And that's my point.
13:20 It's so hard to be bearish and applying a bearish--
13:25 But bearish can be sitting on your hands
13:26 and not deploying capital if you have it.
13:29 Is that bearish?
13:29 That's not bearish.
13:30 That's rational.
13:31 OK.
13:32 Right.
13:34 Sometimes you just don't want to play.
13:35 Right.
13:36 Right?
13:36 See, I don't view that as bearish.
13:38 See, but I find that bearish.
13:39 So the most bearish I'll ever get
13:41 is to increase my cash position and not do anything.
13:44 That's bearish to me.
13:46 Because as an investor and as somebody who--
13:49 you have to tell people where to deploy capital, right?
13:51 The answer is rarely don't have it in equities.
13:55 If you're trying to build wealth over the long term--
13:58 and that long term can be even five years.
14:00 You look at a long term chart of the S&P 500,
14:02 I think there's maybe one or two 10 year periods
14:05 where it's flat.
14:06 But there's never a 12 year period where it's not up.
14:09 Right?
14:10 So the idea of not having it deployed is bearish to me.
14:19 Again, I look back to near peak valuations historically.
14:24 Right?
14:25 Price to sales, price to book, whatever
14:26 you want to look at it.
14:27 Corporate profit margins are very high.
14:30 And it's fairly obvious that Powell's taking us
14:33 into a recession if we're not already in a recession.
14:35 So my view is that there's not a lot of margin of safety
14:40 in many of these stocks.
14:42 I mean, look at like--
14:44 these guys were talking about Costco earlier today.
14:47 It's a very expensive stock.
14:49 I just don't see how you're going to make money in it.
14:52 Well, so it always has been.
14:54 Right?
14:54 It's always traded at like 27 times-- like literally.
14:57 And then when it comes in--
14:58 Always is a long word.
14:59 A long time.
14:59 I mean, like--
15:00 As long as I've been in the market for the last 20 years,
15:02 it's always traded at a massive premium
15:04 to almost every other retailer.
15:05 But Dan, the way we think about it
15:06 is if you're buying something at 27 or 28 times,
15:10 your investment thesis is you think that either A,
15:13 passive investment money is coming in the door.
15:15 Right?
15:15 It's not like the Costco story is not out there and known.
15:18 So you're hoping that another schmuck pays 30 times.
15:22 Right?
15:23 That's what you're hoping for as a case for multiple expansion.
15:26 OK, that works for the last 12, 13 years.
15:29 That worked when the Fed had your back
15:31 and was shoving liquidity down everyone's throat.
15:33 When liquidity is going the other way,
15:36 you better be right at 27 times.
15:38 So here's a $1 trillion example of investors
15:42 making the bet that the Fed was going
15:44 to change course over the last two months.
15:46 OK?
15:47 And you know what it was?
15:47 It was Apple.
15:48 So it had this re-rating.
15:49 Everyone's staring at Apple.
15:50 They're saying it's trading at 27 times in the spring,
15:53 expected to grow earnings and sales mid-single digits
15:56 at best.
15:56 OK?
15:57 And then all of a sudden, the stock, which had, what,
16:00 a 30% peak to drop decline, rallies 35%
16:03 and nearly makes a new all-time high, right,
16:06 until a couple weeks ago.
16:08 And that's the point.
16:08 The big names, all of them, are going to--
16:11 literally, Microsoft had, what, two turns?
16:13 Like it came in or something like that, two or three?
16:15 You know what I mean?
16:16 On that high 20s multiple.
16:17 So Danny, talk to me a little bit about this,
16:19 because I think this is really important.
16:20 You just mentioned twice Porter peak margins.
16:23 OK?
16:24 That's a big part of the valuation of the S&P.
16:27 And some of these consumer companies
16:28 have been able to pass on some of these higher costs.
16:33 To me, this is a huge key to the whole market valuation area.
16:36 I want to make two comments.
16:38 What Liz just talked about.
16:39 As a mutual fund manager, you can't be in cat.
16:41 You have to be invested.
16:42 You have to pick a sector that you
16:44 think you can outperform by overweighting or underweighting
16:47 energy or technology.
16:48 That's their job.
16:49 They get paid on their performance relative,
16:51 not on an absolute basis.
16:52 Hedge funds are obviously very, very different.
16:54 But the one thing, the one killer,
16:56 both in the markets and in corporations, to me,
16:59 is going to be leverage.
17:00 And Vinny, we were talking about this earlier.
17:02 So if you think about large hedge funds that are--
17:05 or even some of the systematic large hedge funds that
17:07 are five to six times leverage, when you're paying--
17:09 when you go from paying 1% on what you're doing leverage
17:13 to three or four, just think about that multiplier effect.
17:16 You are forced literally to unwind your risk premium
17:19 changes.
17:19 We've seen degrossing in this market is what I've seen.
17:22 Take it one step further into the corporate markets.
17:25 It doesn't-- just because credit spreads are widening
17:28 doesn't mean that companies are going to default and not pay.
17:30 It means their cost to borrow.
17:32 We've been in this 13-year blissful period as a consumer
17:35 and as an investor where we never even thought about how
17:38 0% car financing, literally 1% mortgage,
17:41 you didn't think about it as a consumer.
17:43 And I think we didn't think about it as an investor.
17:45 And I'm just as guilty, long or short sighted,
17:47 to not realize shorting stocks when rates are zero
17:50 is not a great recipe.
17:51 That's not lazy.
17:52 It's stupid.
17:53 It's shorting stocks at that point.
17:54 Now my whole point-- now I'm fired up.
17:56 Now my whole point is this.
17:58 Dan brought up a point before.
17:59 If you have a broken business model on a stock that
18:01 gets exposed, and it's literally every day
18:03 is a new underwriting opportunity,
18:04 and it's down 50%-- we'll take a carvanha that's down--
18:07 pick out a name.
18:08 When you see a broken business model as a short,
18:11 and you know that the gig is up, that's when you push.
18:15 Because you know they need debt.
18:17 They need financing.
18:17 They need-- no, because you know they'll never make money again.
18:20 Yeah, but during '08, though, when
18:22 the banks were careening lower, there were like 30%,
18:25 50% rallies in some of these things.
18:27 The business models were exposed.
18:29 But Dan, let me just say it.
18:31 So there's publicly traded debt on some of these stocks
18:33 that are trading at $0.30, $0.40.
18:36 Why would you ever, if you can buy bonds,
18:38 why would you ever own the equity of a company at any price
18:41 where you can get a triple on the debt?
18:43 Because obviously, if the equity is worth a penny,
18:45 that debt's going to trade in par.
18:47 GameStop.
18:48 Oh, is that a publicly traded security?
18:49 Anyway, so the point is that, Bed, Bath, and Beyond.
18:52 Pick one of these things.
18:53 But my point is that that's where people have to kind of--
18:55 in trying to trade these either meme stocks or things in
18:58 and out, you will lose money, without any doubt,
19:00 if you're not buying a good business model.
19:02 So I'll turn it back to you.
19:03 What do you guys think the financials of today are?
19:06 So what I mean by that is, what took the market down,
19:09 the center of the crisis in 2008, 2009, where is that?
19:13 OK, I'll ask you, where have all the flows this year gone
19:17 towards?
19:18 You mean asset class or sector or what?
19:20 Sector.
19:20 Where have all the flows been to?
19:22 Energy, staples.
19:23 Tech.
19:24 Tech.
19:24 The flows have been to tech.
19:26 Flows have been to tech.
19:27 Everyone has been buying the dip in tech, right?
19:30 Outflows in energy, value, all this stuff.
19:34 Materials, outflows.
19:36 All the flows have been to tech.
19:38 All these unprofitable companies losing billions of dollars
19:42 a quarter, where the debt's trading at subpar,
19:47 and these people are still buying these stocks,
19:50 which is unimaginable.
19:51 I mean, it's just the stupidest thing.
19:55 I don't think people realize that the bankruptcy
19:58 cycle is going to be real.
19:59 Like, you're going to have bankruptcies.
20:01 There's no bankruptcies right now.
20:03 There will always be, in every cycle,
20:05 bell-ringing bankruptcies, Enron, WorldCom, all this stuff.
20:10 And then once the bankruptcies come out, the fraud comes out.
20:13 You'll see this.
20:14 It's just a natural cycle.
20:15 We're big believers in cycles.
20:16 I just had a vision, and I don't know why it came to my head--
20:20 Scared.
20:21 --of Guy Adami in Sicily.
20:24 Maybe wearing a nice gold chain, like hanging out
20:27 with a little pizza, a limoncello.
20:29 And the reason why I brought it up
20:32 was you asked the question, like, where's the bubble now,
20:35 or what's the issue now?
20:36 I think the issue is sovereign debt.
20:40 That's the problem, right?
20:41 And that's my big problem all the time,
20:43 is the constant that we have is that we run fiscal deficits,
20:47 as far as the eye can see.
20:48 Someone needs to buy that.
20:50 Somebody.
20:52 So for the past 13 years, it's either
20:54 been the Federal Reserve or the Chinese Central Bank.
20:57 Now both of them are not buying it.
20:59 Someone's got to buy it.
21:00 And therefore, we also have inflation.
21:02 Now I don't think we're going to stay at 8.3%,
21:05 but let's say we go down to 3%, 3 and 1/2%.
21:08 Are you really going to go out and buy a 10-year treasury
21:11 below that, when inflation's running hotter?
21:12 Below 3 and 1/2%?
21:14 I don't think so.
21:14 Right.
21:15 Why would you?
21:15 I would ask anyone--
21:16 That wouldn't.
21:17 I don't know that--
21:18 I think if it stays in the situation
21:20 where we're still the best economy, on a bad planet,
21:24 admittedly, but the best economy,
21:26 then foreign money comes in.
21:28 Institutional money stays in.
21:30 Well, first of all, the Japanese are selling--
21:32 they've got to defend their currency.
21:34 They're selling US treasuries at the moment.
21:38 And you think about the global context of this stuff,
21:41 and things are still pretty decent in the United States.
21:45 But imagine if you're in Japan, and the yen's gone from 100
21:50 to 145, and you've got to buy oil in dollars.
21:56 I mean, it's a disaster.
21:57 Same thing in Europe.
21:59 And they still have to issue debt.
22:01 Like, that's just war coming.
22:03 It's not like they're running fiscal surplus.
22:05 Everybody's running massive deficits.
22:08 And no one really talks about it.
22:11 And we're going to have to issue, in this country,
22:15 a trillion dollars more every year in perpetuity.
22:20 To service.
22:21 Who's going to buy this stuff?
22:22 All right.
22:23 So let's just say, none of us have the answer to that,
22:25 because we were all yelling about the same stuff
22:26 on the Fed's balance sheet.
22:27 We have the answer.
22:27 $4 trillion.
22:28 We know the answer.
22:28 What's the answer?
22:29 They're going to print.
22:30 Yeah.
22:30 They're going to have to be animated.
22:32 They're going to have to print.
22:33 So the whole mindset about why equities rallied this summer
22:36 was a pivot, basically a move towards printing.
22:39 Danny, you and I have been talking about it
22:41 on the pod for months and months now.
22:43 But let's talk about--
22:44 let's try to decode what today's data,
22:47 and what investors did in the stock market, in the bond
22:51 market, to the US dollar, to some commodities.
22:54 Because today was, I think, a really important day.
22:57 So let's just think about this.
22:59 The one piece of this kind of macro puzzle
23:02 here in the US that has not really changed--
23:04 and this is one of the reasons why I don't want to answer
23:07 the question about the pass-through of higher costs,
23:10 let's say, to consumers.
23:11 Because we have a consumer that really feels
23:13 like they're on the brink.
23:14 So you have this negative wealth effect from the stock market.
23:17 You have housing data that's continuing to come down.
23:20 We know that the Fed was specifically focused also
23:22 on the housing market.
23:23 We have unemployment that in August
23:26 just ticked up a teeny bit for the first time
23:29 off of that pre-pandemic high here.
23:31 So Danny, talk to me a little bit about employment.
23:34 Gunlach said it today.
23:35 I mean, I missed some of it.
23:37 But I heard him say, well, if unemployment goes to 4%,
23:40 given what we know about the savings rate,
23:41 given what we know about consumer credit,
23:43 given-- we're kind of in a shaky spot here.
23:45 I think it's, how do you define a recession?
23:47 Like the old way, 2/4 negative GDP.
23:49 Forget that, because you still have decent employment.
23:52 So you have to figure something out.
23:53 My whole thing, how I measure, is purchasing power
23:55 of the consumer, which is still going down.
23:57 I mean, you saw the average hourly earnings.
23:59 They're not keeping up with anything.
24:00 So to me, that's the margin barometer that I look at to see.
24:04 The job losses that we're going to see being lost now
24:06 are going to be in the white collar area.
24:07 It's going to be the higher end--
24:09 So you saw the banks today?
24:10 Yeah, the banks.
24:11 Goldman's going to lay people off.
24:12 We were joking two weeks ago on the podcast
24:14 when Goldman said people back to work.
24:16 You made a comment, I guess they can't play Wordle anymore.
24:18 And I said, yeah, because the five letter word is fired.
24:21 We said that two weeks ago.
24:22 And here they are going to be potentially--
24:23 Da-dun-dun.
24:23 Da-dun-dun.
24:24 No, but I'm serious.
24:24 It's not funny.
24:25 It's not a good thing.
24:27 Blue collar workers finally having their day in the sun.
24:29 That's bad for Wall Street.
24:30 Too bad.
24:31 This is the reversion to the mean that's going to happen here.
24:34 So that means, to your point, a hit to margin.
24:36 So you've got to accept that hit to margin.
24:38 And those companies have two choices.
24:40 Pass it on to the consumer or start firing people.
24:42 Because you don't lower people's salaries.
24:44 You fire them.
24:45 That's what happens.
24:45 And so you're asking me where we're going to get.
24:47 So to answer your first question, what did today--
24:51 what was my takeaway?
24:52 Or people are like, we're back to where we were five days ago
24:54 on the S&P.
24:55 It's not like-- but it feels worse when it's like this.
24:58 And the thing to me, Vinny, I love it,
24:59 it just feels logical when you see stuff like this reset.
25:02 Rational.
25:02 What is the S&P earnings going to be in 2023?
25:05 Probably somewhere between $200 and $215.
25:08 Let's just say that that's the range.
25:10 Is that the trough?
25:11 If that was the trough, you could potentially say north
25:13 of a 15 multiple on that, because that's the worst.
25:16 The problem is, like I said, it's 13 years of unwind.
25:19 All right, so two weeks ago, Snap
25:21 announced 20% job reductions.
25:24 Then they basically cut guidance,
25:26 and they cut a bunch of--
25:27 I'm just using that as an example.
25:29 So Porter, does that--
25:31 and the stock rallied 15% the next day.
25:33 A little bit different of a market than we're in right now.
25:36 But shorting's easy.
25:37 Hi, Liz.
25:37 Hi.
25:38 I never said shorting was easy.
25:39 No, no, I'm sorry.
25:40 I said--
25:40 Lazy.
25:41 Yeah, I know.
25:41 We're lazy.
25:42 Sorry.
25:42 Purple words in my mouth.
25:43 I just wanted to wait till you had something in your mouth.
25:45 I didn't say shorting was lazy either.
25:45 I said it's easy to make the bear case.
25:47 Sorry, go ahead, Dana.
25:48 Bear easy.
25:48 So that's coming to a theater near you
25:50 across corporate America, right?
25:52 And then we're going to see something where you cut jobs,
25:55 and then you also cut spend.
25:57 You start paying for licenses on software, right,
26:01 of people you don't have.
26:02 This is where we're going to see the enterprise spending
26:05 like kind of slow down a little bit.
26:06 But thread the needle a little bit, Porter,
26:08 on this kind of unemployment thing.
26:10 Are we likely to see a lot more very proactive restructurings,
26:14 if you will, like we saw on Snap?
26:16 I don't know if on this podcast we mentioned it,
26:18 but we've been talking about how in the 2000 cycle,
26:22 eventually these tech companies said, wow,
26:25 we've got to make it to zero, right?
26:28 We can't keep losing money in perpetuity.
26:31 And you're seeing that with Snap.
26:32 It's like, OK, we've got to start cutting costs.
26:35 Coinbase, they've got to cut a lot more costs, right?
26:38 And there's hundreds of companies out here
26:42 burning cash in a big, big way.
26:45 And then you also have the stock-based comp.
26:48 And these stocks are all way down.
26:50 They're issuing more stock.
26:51 They're diluting the heck out of you.
26:53 And so it's a real problem.
26:57 And the credit market-- we've been on Twitter,
27:00 or whatever we talked about, we've been short Wayfair stock,
27:03 right?
27:05 They're issuing more convertible debt at higher prices now.
27:08 And they have to get out of this spiral of losing money.
27:12 I just don't know how they do it.
27:15 Because business ain't turning around right now.
27:17 And they're losing a lot of money.
27:20 And if you're going to make a bull case,
27:24 they've at least got to make some money at some point,
27:26 right?
27:27 And so this is our issue.
27:29 To shift it to the consumer, because we
27:31 were talking about that, one of the things we used to do
27:33 as financial guys, and I track a lot,
27:35 is consumer credit card debt.
27:36 And I like to look at it on a year-over-year basis, nominal,
27:41 not seasonally adjusted, not real.
27:44 And right now, US credit card growth is around 14% to 16%.
27:50 There is about a one-month lag.
27:51 So think about that.
27:52 This is the highest cost credit to the consumer.
27:55 That's their quote, unquote, "warehouse line."
27:57 It is growing faster than nominal GDP right now.
28:00 Where's the growth coming from?
28:02 Ain't coming from the consumer, I'll tell you that much.
28:05 Because we typically do not go from 14% year-over-year growth
28:09 to 25%.
28:11 What typically happens is we have a slowdown.
28:13 And so it gets back to our point.
28:15 I think we have to have a natural cycle.
28:17 We're fighting it like mad.
28:20 We've been fighting it like mad every single time
28:22 we get to this place.
28:23 The Fed comes and saves it.
28:25 I just think we have to go through something.
28:26 And that's tough.
28:27 The Fed can't save us.
28:29 Or it's going to be more difficult.
28:30 Well, they will if it gets really bad.
28:33 So the consumer credit card thing,
28:35 I think it's important to dive a little bit deeper into.
28:38 So yes, it's grown a lot.
28:40 When you think about just the cycle, though,
28:42 if we're going to argue about a cycle,
28:44 defaults right now on all consumer debt,
28:46 they put auto loans in there.
28:48 And credit cards and auto loans are probably the lowest quality.
28:50 They default the most.
28:51 It's the thing that people won't pay.
28:53 You're going to pay for your house
28:54 before you're going to pay off your credit card.
28:56 So auto loans and consumer loans,
28:58 put student loans in their mortgages.
29:00 The default rate right now is like 3%.
29:03 Correct.
29:05 Look at just credit cards.
29:07 The amount of the total balance that
29:09 moves into 30 days delinquent right now is about 5%.
29:13 So 5% on any given moment is moving
29:15 into 30 days delinquent.
29:16 Still pretty darn low.
29:18 And now it did just start to tick up.
29:20 The 30-day delinquent did just start to tick up
29:22 in all those categories.
29:24 My point is-- and this is rational, not bearish.
29:26 Logical, logical.
29:27 Logical, rational, not bearish yet.
29:30 That leads by at least a year, usually.
29:35 So if you look at what happened in the last crisis,
29:37 those defaults started to tick up, I think, in 2004, 2005.
29:41 And the recession didn't hit for two or three years after that.
29:43 So even if there's an increase in those defaults--
29:46 because that's really the risk.
29:47 Credit card debt is ballooning, but the risk
29:49 is that people default on it.
29:50 Correct.
29:51 There's an 80% correlation between job losses and defaults.
29:56 And so we're not--
29:58 I think Canada last week showed their first ever job--
30:03 or in this cycle, job losses.
30:06 I would have to imagine our job losses aren't--
30:08 they're coming.
30:09 Maybe it's this year.
30:10 Maybe it's beginning of next year.
30:11 It's coming.
30:12 The other thing I would keep in mind with consumer credit
30:14 is there's a very calendar seasonal aspect to it.
30:17 So between February and May, you have the best consumer credit
30:21 you're going to see because of tax rebates and the like.
30:24 So I like to look at it on a year-over-year basis.
30:26 And so when you look at it on a year-over-year basis,
30:28 we're increasing.
30:29 I agree with you.
30:30 Not crazy yet.
30:31 But when I look at the growth, which to me is a leading
30:33 indicator relative to nominal GDP,
30:35 I know that--
30:36 I'm not calling for a calamity of any kind.
30:38 But it's going to get tougher.
30:39 And my bigger point is that it's more difficult to see
30:42 the growth that people think that we can, quote unquote,
30:45 "soft land" ourselves out of.
30:46 I don't see it without some form of fiscal response.
30:49 So that's a fraction, right?
30:51 So numerator over denominator.
30:53 Denominator has been growing exponentially right now
30:55 because people are using credit more.
30:57 So that'll probably be on the come.
30:58 I want to say the one thing that happened in 2004 and '05 that
31:01 actually created what happened in the big short,
31:03 the biggest misnomer.
31:05 Banks were coming up with new products and mortgages--
31:08 228s, 327s, IOs, Ninja loans, all this stuff.
31:12 That actually, to your point, normal subprime mortgages
31:14 default within 12 to 18 months.
31:16 That's when you start to see them.
31:17 It didn't happen.
31:18 This time was different.
31:19 It's never different.
31:20 So I think you've got to go back and look at that.
31:22 The other thing is that what private or public company
31:25 a year and a half ago was forecasting
31:27 LIBOR or credit spreads or access in their models
31:31 for 2023, '24, and '25 at 4%, 5%, 6%.
31:35 It didn't happen.
31:36 And that has a massive impact, I think.
31:37 And the other thing is that if you're JP Morgan
31:40 and you're providing financing to Wayfair or someone
31:42 who has inventory, it just became 3% more expensive
31:45 to hold that.
31:46 So you have to raise prices into a slowing economy.
31:48 I think all that stuff, again, is a lost art in terms
31:51 of how to look at-- every company is different,
31:53 bottom up, and how they're impacted.
31:54 And I think now it's stock picking time.
31:56 So Porter, do you think-- I find it very interesting.
31:59 If you look at the way home builders have traded all year
32:01 and the way large financial stocks, like banks and stuff,
32:03 money centers in particular, JP Morgan
32:05 being the worst of the whole group,
32:07 they've underperformed the S&P dramatically.
32:10 These two groups literally have believed every hawkish word
32:14 out of Jay Powell's mouth.
32:16 And it was other parts.
32:17 It was the inflows into tech that didn't believe it.
32:19 Talk to me a little bit about, from your guys' experience
32:22 at CWOLF and obviously at Frontpoint,
32:25 when you see these sectors underperforming the way
32:27 that they have this year.
32:29 And they didn't really bounce that hard over the summer,
32:32 relative to the S&P. I think they underperformed.
32:34 What did that tell you?
32:36 Listen, financials, they haven't had inflows in a long time.
32:41 And you can see it.
32:43 And the problem is that the earnings right now
32:49 are just fine.
32:50 JP Morgan's fine.
32:51 The capital markets business is slowing a lot.
32:53 But you look at a core middle market bank,
32:56 like PNC or Key Corp, the earnings are fine.
33:00 But the problem is that the Fed turned off their buybacks
33:08 and the capital return.
33:09 And they made it much tougher for them
33:10 to return the capital.
33:11 And so the financial sector is this kind of weird place.
33:14 That's one of the reasons that we sort of shifted
33:16 from doing just financials to everything but financials.
33:20 It's just-- they're wards of the state.
33:23 And if the Fed doesn't like what they see, they say, OK,
33:28 JP Morgan, you can't buy back stock anymore.
33:30 And so they're just tough.
33:32 It's a tough sector.
33:33 Liz, you're right.
33:34 The issue is not in the banking sector.
33:36 They have enough capital.
33:38 They're healthy.
33:40 The regulated banking sector, the fringe names,
33:43 the nouveau names have been a bit of a concern.
33:46 But to us, when I look at it, I view it as boring.
33:49 I don't know-- if we're going to go through a slowdown,
33:51 we don't want to own them.
33:54 But in general, we're not short them either.
33:56 Because there's nothing to really fight at.
34:00 I don't think they're going to have a material earnings issue.
34:02 They've done a good job.
34:03 They've underwritten well.
34:04 They have, unless there's a deep recession.
34:07 The larger banks, I think, have a bit
34:09 of an issue on a velocity transaction perspective,
34:11 is that that has slowed down.
34:12 It's the non-banks that Danny kept
34:14 on talking about, Affirm and Upstart, for a long time.
34:16 Their underwriting's been atrocious.
34:18 So let me ask you this.
34:19 In the years after, with Dodd-Frank and all this stuff,
34:22 everybody on Wall Street was just
34:24 yelling about the regulation.
34:25 Well, look what happened in early 2020.
34:28 These banks were not going to go under.
34:30 You know what I mean?
34:31 And they're acting pretty well.
34:35 Can we all agree that the under-regulation in the 2000s,
34:39 or the '90s into the 2000s, and maybe the overshoot,
34:42 or what appeared to be an overshoot, actually worked?
34:45 Danny, when you think about it, we
34:46 had the biggest black swan the world has ever
34:49 seen in the pandemic.
34:51 And our banks were pre-eminent.
34:53 Granted, the Fed flooded the zone, and fiscal,
34:56 and all that sort of stuff.
34:57 So we kept us in the game here, but they stood up pretty well.
35:01 Yeah, the banks, to their point, there's no major issues.
35:04 You'll have blowups here.
35:05 They were exposed to some type of commodity.
35:07 We already saw it happen in nickel.
35:09 They're going to be exposed to certain hedge funds
35:10 that they're going to have to write off.
35:11 They're going to be exposed here and there.
35:13 Bill Wang, I mean, you see these small things.
35:15 But there's no massive systemic risk
35:18 within the banks, in my opinion.
35:19 It's more of a valuation thing that's going on here.
35:22 No one wants to be dragged in front of Congress again,
35:24 regardless.
35:25 And they've done a decent job, I think.
35:26 They've been forced to do a decent job.
35:28 You saw just recently all the international risk weightings
35:31 that have to be done, what prevented these companies
35:33 from buying back their stock, which is a good thing, right?
35:36 Because you want them to have capital on the sidelines.
35:37 So I don't think there's an issue now.
35:38 Some of the European banks, potentially,
35:40 and then these off banks that aren't as closely regulated
35:42 have one-off issues.
35:43 Different story.
35:44 But the US banks-- and the last thing I'll say is,
35:45 I said this many times, every bank is very different.
35:48 Goldman Sachs is a whole different animal
35:50 than a Wells Fargo.
35:51 Bank of America is a different animal than a State Street.
35:54 And again, this is not about buying the XLF.
35:56 Thanks, State Street, for the water earlier.
35:58 I think you should go out and--
36:00 but it's about looking at the XLF,
36:01 at the 10 names that are in there, and deciding,
36:03 you know what?
36:03 I only like those two out of the top 10,
36:05 because they benefit from higher rates.
36:07 They don't have the credit risk.
36:09 And that's what I mean by, in terms of stock picking,
36:11 where we have an opportunity.
36:12 And that's me being bullish, trying to pick up
36:15 the mess of what's going on.
36:17 Anyway, so there's always buy.
36:18 Liz, where do you want to be bullish here?
36:20 So these guys--
36:21 Financials.
36:21 They just said-- all right, so let's talk about value.
36:24 Because you guys just said something that, again--
36:25 Truly, it's like Goldilocks in the three-bit.
36:27 It is.
36:27 That's exactly what we've got going here.
36:29 But people might not be aware, because we have a NASDAQ that's
36:32 down 25 and 1/2% of the year.
36:34 It was down, obviously, more than 30% at its lows in June.
36:38 And you would say, well, that's not intuitive.
36:39 There's flows that keep coming in.
36:41 Well, they do, for a lot of the passive reasons.
36:44 We know, at the NASDAQ 100, five or six stocks
36:46 make up nearly 45% of the weight, or something like that.
36:49 So where do you want to be?
36:50 Let's say we have two weeks left in this quarter.
36:54 I mean, listen, I don't know about you guys.
36:55 But if I'm a CEO, I'm instructing
36:57 my CFO and my finance team.
36:59 If I'm a publicly traded company, all right,
37:02 don't pull a thing forward--
37:04 you know what I mean-- to make this quarter.
37:07 And actually, let's just kitchen sink Q4 here.
37:11 Because now, it's just like--
37:12 so my question is, I think we're going
37:14 to see some preannouncements, some big ones,
37:16 in the next couple of weeks.
37:17 And then we're going to see a lot of really bad Q4 guidance.
37:19 Oh, we already have seen a lot of pre--
37:21 I mean, look at NVIDIA.
37:22 We're preannounced three times in three weeks.
37:24 Well, that's--
37:24 Like, that's a disaster.
37:25 And the cycle before that, we saw Target preannounced.
37:28 Yes.
37:28 Two times-- so I think we're going to see that.
37:30 So understanding that there are tape bombs out there,
37:33 and it's kind of a treacherous sort of environment right now.
37:37 Where do you-- because, again, you
37:38 want to keep money in the market.
37:40 Where do you want to go?
37:41 Yeah.
37:42 So the way that--
37:43 if I had to make a bear case, too,
37:45 what I would say about the preannouncements thing
37:47 is, we've so far been able to trick everybody on that, right?
37:50 Like, the preannouncements come out,
37:52 and everybody has amnesia a week later.
37:53 And it's like, oh my gosh, we beat--
37:55 we beat earnings, right?
37:56 Well, yeah, because they guided down three times first.
37:59 So we beat at a much lower level.
38:01 And that's probably going to run out.
38:03 So we'll stop tricking people.
38:04 So the preannouncements will bring stocks down
38:06 and keep them down.
38:08 But where do you want to be bullish?
38:09 So short term-- and when I say short term,
38:11 I mean three to six months--
38:13 bullish to your treasuries.
38:15 I think at some point, there's going to be news.
38:17 There's going to be a--
38:18 So like, Qs and 2s?
38:19 Only the 2s.
38:20 Only the 2s.
38:21 Only the 2s.
38:21 Not the Qs.
38:22 Not the Qs.
38:22 You love the Qs.
38:23 You do.
38:24 I know it rhymes.
38:24 Well, I just-- listen, just real quickly,
38:26 and I know people listen to the pod, they know this.
38:28 To me, again, it comes back to those five names that
38:32 have these fortress balance sheets, amazing managers.
38:34 They have monopolies, ultimately.
38:35 And I think this is very much what's different this time.
38:39 And I think that they will obviously--
38:41 I think in five years, they're going to be--
38:43 I think we talked about this last night.
38:44 They will still be the five largest market cap
38:46 companies in the world.
38:47 I'm just telling you-- not Tesla.
38:48 I disagree.
38:49 OK.
38:49 I disagree, too.
38:51 History just tells you that--
38:53 In 20 years, history will tell you that won't be the case.
38:55 I said five, though.
38:56 I'm just telling you, in five years, I think that--
38:59 you tell me, what's going to be--
39:00 It's hard to see Apple and Google not being
39:02 two of the largest five.
39:03 It's hard to see that.
39:04 It might be.
39:04 Porter's going to think it's an energy company.
39:06 No.
39:07 Listen, could they-- the DOJ, can they easily
39:10 go after these companies?
39:11 They are-- you just said it.
39:12 They are monopolies.
39:13 That we've been saying for 10 years.
39:15 I'm just saying.
39:16 So they are monopolies.
39:17 First of all, our regulators don't have a lot of teeth
39:20 doing stuff these days.
39:21 So I mean--
39:21 No administration will have teeth to do it.
39:23 No.
39:23 I'm just saying, all right.
39:25 We can put that-- and here's the one that I know that--
39:27 you know what, of those top six names,
39:30 that has the highest potential to be the next $2 trillion
39:32 market cap company?
39:33 Do it.
39:34 Tesla.
39:35 Get out of here.
39:35 Tesla.
39:36 [LAUGHTER]
39:37 I'm just telling you.
39:38 I mean, it was $1.2 trillion just a few months ago.
39:42 I mean, it doesn't budge here.
39:45 Yep.
39:45 Yep.
39:45 Where would you look at?
39:46 I'm just looking under for something.
39:47 Yeah, yeah, yeah.
39:48 I mean, this is a $900 billion market cap company
39:52 in the throes of--
39:53 It is the Enron.
39:54 It is the Enron of the cycle.
39:55 Wow.
39:55 Enron got hit late in the cycle.
39:58 I have no idea why people are hiding in this name,
40:00 why they take comfort in that everybody owns it.
40:02 It's fine.
40:03 It's the guys are genius.
40:04 The macro is great.
40:05 Look, EV tax credits, all bullshit.
40:08 It's 95% overvalued on any metric you can look at.
40:11 There is nothing you can--
40:12 I'm a fundamental guy.
40:13 So I'm going to wait.
40:14 I'm going to take--
40:15 It's an auto company.
40:16 Yeah.
40:17 It's nuts to me.
40:18 The thing that baffles me about Tesla, what I can't understand--
40:21 I don't know why we talk about it so much.
40:23 It drives me crazy.
40:24 It provides a product that for $15,000 that does not work--
40:29 Full self-driving.
40:30 --and kills people on the road.
40:32 And yet, our regulators do nothing about it.
40:35 I don't get it.
40:36 Who in the world would pay $15,000
40:38 for something that does not work?
40:40 How are their operating margins where they are?
40:42 They're running factories in Berlin and Austin, supposedly.
40:44 How are their margins like this?
40:45 So can I ask you guys a question?
40:47 So this time last year, NVIDIA had an $800 billion market cap.
40:54 And now it's $330 billion.
40:56 Do you think that a year from now,
40:58 when we are here at Future Proof,
41:00 we will be talking about Tesla as a $300 billion market cap
41:04 company?
41:04 I do.
41:05 Do you?
41:05 Yeah.
41:06 I think it's a high possibility.
41:07 I don't.
41:08 I think it'll be $100 billion.
41:09 Yeah.
41:09 Yeah.
41:10 It's $100 billion.
41:11 People forget these are cyclical stocks.
41:13 Right.
41:14 I don't understand.
41:14 There's everything negative in it that you can have into--
41:17 They sell $120,000 cars.
41:19 I mean, what are we talking about here?
41:20 Right.
41:21 It's a joke.
41:22 Yeah, it is.
41:23 I didn't get to do my other bullish calls.
41:25 What was your-- oh.
41:26 Wait, shocker.
41:27 Liz has got--
41:29 SoFi has a few more bullish calls.
41:31 OK?
41:32 What do you got?
41:32 And then we'll get to the bearish hedge fund guys.
41:34 All I gave was the short-term one.
41:35 We're bullish, too.
41:36 No, she didn't do the long-term.
41:38 I did short-term twos.
41:39 Long-term.
41:40 Oh, yeah.
41:40 Sorry.
41:41 Long-term, I do think financials.
41:43 Look at the valuations.
41:44 I know everybody screams about the valuations of energy.
41:47 Financials is the second cheapest in the index.
41:49 They can't really fall that much further.
41:51 And as we've just pointed out, they're
41:53 actually in pretty good shape.
41:54 So over the long-term-- and I'll even
41:56 call long-term two years, two to five years,
41:58 because most investors can't wait around for 10 years
42:01 to be right.
42:01 So we'll call it two to five years.
42:03 This is a great entry point for financials.
42:05 It might get better.
42:06 The entry point might get better.
42:08 Right?
42:09 I also think health care.
42:10 It will get better.
42:10 And I know you're going to argue with me about this,
42:12 because I think last night you said health care is
42:13 like the worst sector ever.
42:15 And I didn't say that--
42:15 Oh, no.
42:16 --it's the worst health care.
42:16 No, no.
42:17 I didn't say anything about health care.
42:18 I don't know anything about health care.
42:19 He was upset they were raising prices so much, though.
42:21 Anyway, I think health care is another one.
42:23 I think the pandemic changed health care forever.
42:26 And the marriage between health care and technology
42:28 continues to speed it up and make it an attractive--
42:30 So Moderna can't get out of its own way right now.
42:32 I mean, you know what I mean?
42:34 Yeah.
42:34 It's just kind of interesting.
42:35 COVID's over.
42:35 I know.
42:36 I mean, but I just saw their chairman
42:37 speak last week at a conference.
42:39 And he sounded pretty impressive about all the things
42:41 that they want to use mRNA technology to fix.
42:43 You know what I mean?
42:44 And again, if--
42:45 Run and hide.
42:46 What's that?
42:47 Yeah, yeah, yeah.
42:48 Other than that.
42:49 All right, so wait.
42:49 So you got health care.
42:50 What else you got?
42:50 Communications.
42:51 And communications is what?
42:53 Like cable stocks?
42:54 Verizon?
42:54 T-Mobile?
42:55 [LAUGHTER]
42:56 Right.
42:57 All right, think of it this way.
42:58 Warner Brothers, maybe.
42:59 When you're looking for growth--
43:00 House of the Dragon.
43:02 If we're not on the Q's train, which
43:04 it sounds like the rest of the table isn't,
43:06 you've got to find growth somewhere.
43:07 If you don't want to find it in tech,
43:09 you find it in maybe consumer discretionary.
43:11 But that's pretty overvalued right now.
43:13 And given if the consumer isn't the bull case,
43:15 don't buy consumer discretionary when it's overvalued.
43:18 Well, the XLY, 40% of it is basically Amazon and Tesla.
43:21 All right, just real quickly on my QQQ.
43:23 So my point is that those top five names make up 45% of the way.
43:26 I think three of the five, five years from now,
43:29 will be bigger market caps than they are right now.
43:31 OK, I'm just saying.
43:32 And then I think all that other shit, all the dozens of stocks
43:35 that are down 70%, 80%, dozens of them
43:38 will rally 200% over the next few years,
43:40 whether you guys like it or not.
43:42 All right, let's really quickly, because we only have
43:44 a few more minutes here left.
43:45 I want to talk about you guys, obviously,
43:47 from a macro perspective, are very
43:49 bearish for a whole host of reasons.
43:51 How do you change your mind about getting,
43:55 just like flipping to your being net long and bullish
43:58 on the global economy reflating?
44:01 Do you know what I'm saying?
44:02 And going through another period of 10 years
44:05 where the Fed's got your back.
44:06 Now, the Fed has to turn, but other than that, what
44:09 makes you guys more constructive?
44:11 Well, I think we talked about this on one of the podcasts,
44:13 but we have a framework that we're
44:16 in a global sovereign bubble, debt bubble.
44:20 And for me to get very bullish, I
44:22 have to get over those hurdles that we're not in that bubble.
44:26 And if the US magically finds a way
44:29 to balance a budget and finance themselves,
44:33 same thing with Europe, same thing with the UK,
44:35 same thing with Japan, same thing with China,
44:40 I'll get a little bit more bullish.
44:42 But until that happens, everyone's like,
44:44 oh, you've got to buy the 10-year, you've got to buy
44:46 bonds, you've got to buy bonds.
44:47 Well, magically, rates are now higher.
44:50 They're approaching 3.5%, something
44:53 that was unthinkable just a couple of months ago.
44:56 And until you tell me that this is the level where bonds
45:01 stabilize, I can't really think about going heavily
45:06 in on the long side.
45:08 And that's what scares me the most.
45:09 We talked about being scared or being bearish.
45:13 The sovereign debt bubble scares me.
45:15 Wait, but you're scared from an economic--
45:17 you think that there's an economic disaster looming?
45:20 Is that part of it?
45:22 We'll figure our way out.
45:23 But that's the only way.
45:25 Right, but isn't that good for things like equities?
45:27 Isn't it good for--
45:28 I mean, think about it.
45:29 Every time we print our way out--
45:31 It's good for equities, but it doesn't mean it happens
45:33 at S&P 4000.
45:34 No.
45:34 Right?
45:35 So you can't have it both ways.
45:37 Wait, did you just have an exasperated--
45:39 like a really exasperated--
45:41 Go ahead.
45:42 No.
45:42 You can't have it both--
45:44 you've got to have the plunge before you get the print.
45:47 And so to me, you're just going to have
45:50 to go through the cycle.
45:51 Now, what it would take for me to get really bullish
45:54 would be a massive philosophical adjustment and change of how
45:58 we're investing capital in the world.
46:01 So for the past 10 years, we've dumped money
46:03 in stupid things like crypto, Bitcoin.
46:06 We're about to do it in the metaverse, right?
46:08 And all that stuff.
46:08 We need real, tangible stuff.
46:10 We don't need stuff that we don't need.
46:12 Productive debt.
46:13 Like, productive debt that can produce a higher
46:15 ROI on what we're doing.
46:18 What the UK said, I think, a week ago,
46:20 the new prime minister, was we're
46:22 going to start investing in energy in their country.
46:25 Nuclear, fossil fuels, and the like.
46:27 They did a price cap, but they kind of have to.
46:29 So when you start seeing stuff like that,
46:31 I start getting a little bullish.
46:33 And we need to do that widespread.
46:35 All right, D-Bo, on a couple of occasions--
46:37 and literally, these were very well-timed on the podcast,
46:40 where I think one was May, and one was maybe late July.
46:45 It was a little early.
46:46 May was a little early.
46:47 And like you said, you're always going
46:48 to be early on kind of bearish calls.
46:51 You said, I went from being--
46:52 twice.
46:53 It was a spring.
46:54 I was scared.
46:55 I went from being bearish--
46:57 Right, to scared.
46:58 --to scared.
46:58 Yeah.
46:59 OK.
46:59 So talk about that in the context of--
47:02 and I know you agree with them from the sovereign debt bubble
47:04 and everything like that.
47:05 From how you see the economy, and then how that translates
47:08 into, let's say, equities.
47:10 We already see bonds yields blowing out.
47:13 We see the dollar at 20-year highs.
47:15 I mean, we're seeing crazy--
47:16 An energy crisis that we still have not fixed.
47:18 Correct.
47:19 So with no visibility on that.
47:21 So how does this play out for stocks right here?
47:24 We're still 7%, 8% above the lows in June.
47:28 What's the multiple that the S&P should trough out?
47:31 And where do you think we go?
47:32 The pre-pandemic high was 3,400 in the S&P.
47:35 So let me just say what Vinny said.
47:37 We have to go through a cycle, a cleansing cycle,
47:39 so to speak, of what it's like to be in a normal environment
47:42 where the Fed's not always printing.
47:43 We're nowhere near that yet.
47:45 What is the level that the S&P gets to
47:47 that the Fed realizes that, holy crap, there's a wealth effect
47:50 that's going to have an impact on consumer spending
47:53 on top of everything?
47:54 It's through the lows.
47:55 So it's probably 33, 3400 before you even
47:57 start to have those conversations.
47:58 You heard of Gunlock?
47:59 He's got a 3,000 target.
48:00 And then Minard or Minrid or whatever from Guggenheim,
48:04 he's down 20% by mid-October.
48:07 Let me just say this.
48:08 In March 2009, we had a strategist in our office
48:12 at Frontpoint.
48:12 Name names.
48:13 Miller Tabak.
48:14 Who's at PIMCO now?
48:15 Was it Bookflower?
48:17 No, it wasn't Bookflower.
48:18 It was--
48:18 [INAUDIBLE]
48:19 Yes, Crescenzi.
48:20 Thank you.
48:20 Tony Crescenzi.
48:21 Thank you, Peter.
48:22 Oh, my goodness.
48:22 Tony Crescenzi was sitting in our office.
48:24 And we were as bearish--
48:25 I mean, I'm as guilty as anyone sitting in that room.
48:27 No, no.
48:27 Vinny and I tried to buy stocks in March of--
48:29 Wait.
48:29 I'm going to give you signs for when it's time to buy.
48:32 He says, quote, "Housing starts are at zero."
48:34 He goes, "It can't get worse.
48:36 This is the inventory of homes that are on the market.
48:38 This is just population demand over time, the math."
48:41 And we were all in there.
48:42 And Steve says, "You're wrong."
48:44 I mean, it's just data that's being presented.
48:46 You're wrong from a sentiment perspective.
48:48 So you realize if you get too bearish or too bullish,
48:51 you need to be shaken by certain things.
48:53 And it's moments like that where you
48:54 should have clarity and be open-minded when
48:56 you see things like that.
48:57 Because that's just math.
48:57 This is not the level, though.
48:58 This is not the level.
49:00 But I talked about builders for a long time.
49:02 The builders will be one of the best longs.
49:04 They will be at some point.
49:06 Again, don't buy-- sorry, State Street--
49:08 don't buy the XLB necessarily.
49:10 But pick the names that don't have a lot of debt,
49:12 that aren't dependent.
49:14 Those are going to be great values, 0.6 points.
49:16 I don't know.
49:17 All right, so we all have like 32--
49:18 other than Liz-- 3,200 targets to the downside.
49:21 What do you think leads us there to the downside?
49:24 What sectors?
49:25 What sectors lead us to the downside?
49:27 I mean, probably tech.
49:29 I mean, it's got to be these things that
49:30 don't trade on fundamentals.
49:32 It's got to trade on multiple revenues.
49:34 That's not going to exist in this market.
49:35 It's got to be Apple.
49:36 Apple, I mean, the biggest--
49:37 All right, so let's change cues.
49:39 Those stocks are ever-continuing than Apple.
49:40 The size of tech has to be--
49:42 It has to be tech.
49:43 I mean, if Tesla just goes down 70%--
49:45 no, I'm saying there's 7% of the S&P, right?
49:48 So that's 5% of the S&P right there, right?
49:50 So not-- Apple's 7%--
49:51 Whatever, whatever.
49:52 Whatever, whatever.
49:53 What do you-- so you guys all think
49:55 it's mega cap tech that leads to the downside?
49:57 It's the only group that really can because of the size?
50:00 That's where everyone's in.
50:02 Everyone on planet Earth owns Apple.
50:04 There's not a soul here that doesn't own Apple.
50:07 Oh, I want to say one other thing.
50:08 Directly or indirectly?
50:09 Yeah.
50:10 What might happen that you're not thinking about?
50:12 What's the kind of-- and you're going to have more archegosis.
50:15 Not necessarily a FAMI office that was representing
50:18 more money than they had.
50:19 You're going to have these-- if the market starts
50:20 to move like that and we're right on the ocean,
50:23 and when the tide goes out and you're
50:24 looking what's sitting on the floor, it's going to be ugly.
50:26 You will have moments where you're like,
50:28 why is the market down so much?
50:29 People are going to get, quote, carried out.
50:30 That's what they say.
50:31 Let's talk about this, too.
50:32 How about the Feds basically said
50:36 they're going to go until something breaks.
50:38 I'm shocked nothing's broken yet, right?
50:40 I think it might be we just haven't seen that it's broken.
50:42 I mean, it looks nice.
50:43 We got two minutes left.
50:44 Vinny, is there a point at the S&P down on the year in 2022
50:48 where the Fed at least has to jawbone?
50:50 You know what I mean?
50:52 And how much down is that?
50:53 I think it's like 3,400.
50:55 But there's nothing scientific about that.
50:57 I mean, I'll give you another bullish data
50:59 point that might be out there that happened
51:00 over the last week and a half.
51:02 And this is-- I have no edge.
51:05 A Putin coup.
51:06 Yeah.
51:07 Putin coup.
51:07 You heard it here first.
51:08 And that's-- I don't know.
51:10 Is that 500 points in the S&P in two days like that?
51:12 Easily.
51:13 Bang.
51:13 But a ceasefire, you've got to have the gas flowing again.
51:17 You've got to get rid of the energy crisis
51:19 and put that to bed, which that's not even--
51:22 The Putin coup is your bullish thesis.
51:24 Well, I mean--
51:25 Yeah.
51:25 Well, I mean, let's--
51:26 Just throw it in.
51:27 Or a ceasefire.
51:29 Europe doesn't have nearly as bad of a winter
51:31 as it relates to their dependence on gas.
51:34 China chills out.
51:35 TTF, natural gas prices in Europe
51:36 have to come down 70% just to actually have
51:39 Germany produce steel again.
51:41 I mean, this is crazy.
51:42 All right.
51:43 I think Berlin will operate, no problem.
51:44 So we had Goldilocks, the three bears,
51:46 and I'm just sweating all over the place here.
51:48 Liz, take us out here.
51:49 Give us something.
51:50 Give the people something to be a little bit hopeful to.
51:54 Like, bad day.
51:55 We all agree.
51:55 I think four of us--
51:56 I thought it was a pretty good day.
51:58 Well, for your P&L, we all think new lows at some point
52:03 probably--
52:03 Long gold.
52:04 We forgot to do long gold.
52:05 OK.
52:06 Long gold.
52:06 Sorry.
52:07 Question is, is it double bottom in gold?
52:08 Even if I were going to get as bearish as I possibly could,
52:11 I think if we retest lows or we blow through them,
52:15 it happens in a jiffy.
52:16 So we had a big day today.
52:17 I will admit, today was the first day
52:19 I thought about circuit breakers.
52:21 I mentioned it to you before this.
52:22 You're getting pretty calm about it.
52:23 I thought about it.
52:24 And I just thought, OK, if we start
52:25 hitting circuit breakers on the downside, which, by the way,
52:28 is 7% in the S&P, we start hitting those.
52:31 It doesn't happen just once.
52:32 It happens a couple of times.
52:33 But then it just flushes, right?
52:34 So it goes fast.
52:35 And that's the thing that you don't
52:37 want to end up too bearish in that moment,
52:40 because then you're stuck in your bearish thesis
52:42 and you miss the bounce back up, right?
52:43 The flush is the bull.
52:44 It could--
52:45 Is the bull thesis.
52:46 Long, slow water torture ain't good.
52:49 And that is the story of March of 2000
52:52 to the lows in October of '02, and the story of November 2007
52:55 to the lows in March, April of '09.
52:58 And I think that's a big thing that a lot of investors
53:00 in this market have forgotten.
53:01 We lived through those.
53:03 And they were excruciating.
53:04 And let me tell you something.
53:05 2002 felt a lot worse than '00 and '01.
53:09 And '09, that late '08, '09 period, felt really bad too.
53:13 So all right, listen.
53:14 I hope we leave you guys all just massively uplifted
53:17 about your portfolios.
53:19 We hope that you will just check out on the tape pod.
53:23 Smash that Subscribe button, people.
53:25 Leave us a review.
53:26 Thank you, Liz Young.
53:28 Thank you, Vinny.
53:29 Thank you, Porter.
53:30 And obviously, Demo.
53:32 It's great to do these in person, right?
53:34 It's like, thank god COVID's over.
53:35 It's great.
53:35 [INAUDIBLE]
53:36 And everything like that next time.
53:37 All right.
53:37 That's the best to do.
53:38 Well, thank you guys for all being here.
53:39 We appreciate it.
53:40 Thank you.
53:40 [APPLAUSE]
53:43 [MUSIC - "RUNNING WITH YOU"]
53:45 (SINGING) We're too scared.
53:46 So we run and we run and we run.
53:48 Further away from love, we'll do what we've become.
53:53 Yeah, we run and we run and we run.
53:56 Losing the air in our lungs, what do we do about us?
54:01 We don't want to fall out of love again.