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On this episode of On The Tape Dan and Danny discuss the volatile week on Wall Street (2:09), relative strength in energy stocks (8:58), mortgage rates surging (10:48), Adobe’s $20B acquisition of Figma (12:35), the ethereum merge (17:15), stock pickers beating the market (19:40), and Danny’s NFL picks of the week (28:42). Later, listen to a live conversation from the Future Proof Conference in Huntington Beah with Dan, Danny, Vincent Daniel, Porter Collins, and Liz Young on this week’s CPI report slamming stocks (33:45), the employment picture (52:30), consumer debt (56:23), bank stocks (1:00:20), where to be bullish (1:03:48), and what sectors lead to the downside (1:14:54).

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Show Transcript:

Dan Nathan: [00:00:01] Welcome to On The Tape. I’m Dan Nathan I am here with D MO, you know him Danny Moses we are not going to be joined by Guy Adami this week. He is, what would you call it, Danny? He’s in his homeland or he’s half a homeland because people think because he’s got all those vowels in his last name that he’s Italian. But Guy will correct you and he’ll say, I’m half Italian, I’m half Sicilian. And he’s in Sicily right now. [00:00:22][21.2]

Danny Moses: [00:00:23] Yeah, you made it home. [00:00:23][0.4]

Dan Nathan: [00:00:24] Well, you and I had a big week. We were in California to start the week. We had this futureproof conference held by our friend Josh Brown downtown josh Brown from the Compound podcast, the awesome gnome from the IC. That would be the Investment Committee on Scott Wapner’s halftime report on CNBC. We did a live podcast on the tape from there we were joined by your former partners, Vincent Daniel Porter Collins of Seawolf Capital, and Liz Young joined us also. So we had a great podcast. You guys are going to be able to listen to all of that right after Danny and I are done talking. So stick around. That was a fun conversation. We covered a lot, but that was also Danny on the day it was on Tuesday. Right as the market was closed and the market was down. What, the S&P was down 4%. Nasdaq was down 5%. Here we are. We’re taping this Thursday into the close. Some pretty bad action here. Just thoughts on the week in general and the price action that we saw after that little bit of a rally last week where, I don’t know, people thought what the Fed was going to pivot because we didn’t get a cool inflation reading in the CPI. [00:01:26][62.8]

Danny Moses: [00:01:28] Yeah, listen, like I said, it’s a wide range and it’s volatile and it’s easy to say that we’re in a range from 3600 of 4200. That comes with a lot of pain at range that size. But it is because the market’s directionless in the sense of it’s trading off of every inflation data point. We said that stop obsessing about each one but that’s what this market it was counting on that pivot from several weeks ago that’s now in the past. We’re looking ahead to a Fed meeting. Obviously next week it’s not between 50 and 75, it’s between 75 and 100 now, as far as what the Fed’s going to go, it looks like it will be 75, I think an 80% chance of that. But just looking at today’s economic information, retail sales came out. They were fine, but they revised July, I think, from a plus point four back to zero. So to try to trade those data points, you’re going to have errors in them. The point is that taking a step back and looking at the bigger picture, which what I try to do Dan even though it was so nice in California, we literally did that podcast from the beach. If I was ever going to be bullish, it would have been at that moment. And of course that was commerce with 150 point down day in the S&P 500. But anyway, so I just think a bigger picture here, trend is not your friend and you can trade these things and there will be a pivot. It’s a real pivot at some point. Is it this meeting? I don’t know. I don’t think so. But it could be interpreted that way. [00:02:37][70.0]

Dan Nathan: [00:02:38] Well, let’s talk about that for a second, because this summer from the June lows. So investors got in their head at some point because I don’t know why maybe the Fed was going to be successful in doing what they were stated to do by taming inflation, by raising interest rates, that the Fed was going to have to actually pivot and get more dovish because they will have succeeded in weakening the economy to a point where they’re going to go back to the stance that we all know and love easy monetary policy and then all you stock monkeys out there can just btfd the you know, the drill there. Right. And so I guess that’s what that two month rally was predicated on. And in mid-August, it appeared that despite some of these major inflation inputs that we look at, maybe it’s gas at the pump or whatever it was, lumber or freight rates or this or whatever that, the stuff that really makes it sticky, the things that you’ve been talking about, it’s just not really happening in the way in which the Fed would like and therefore they’re going to have to remain hawkish or so. I do think it’s interesting though, Danny, that listening to Jeffrey Gundlach from DoubleLine, he was at that futureproof. There’s just a whole chorus of people, and it starts with your friend Cathie Wood, who’s been saying it all year long, that she doesn’t think the Fed should be raising. And Jeffrey Gundlach said that a week ago he would have said, I don’t think they should be raising. And he said maybe after that CPI print maybe 25 basis points. But there’s a lot of people out there who think that the Fed is going to overdo it and they’re hawkish. Just talk to me a little bit about that. [00:04:02][84.6]

Danny Moses: [00:04:03] Well, let’s just peace out Cathie Wood for a second in terms of her not wanting, it is different because she’s begging them not to because her stocks can’t survive if you increase rates and change the risk premium on her names because they don’t trade, obviously most of those trade earnings. So Gundlach is a good point because he’s seen a lot of cycles and I’m kind of on his page in terms of I think the Fed’s probably going to have gone enough once they go 75 basis points. I really do. You’re looking mortgage rates doing the work for them. I mean, they’re helping obviously get mortgage rates to where they are, but north of 6% now rate on a traditional mortgage. That’s a very high number. We haven’t seen that in decades, but that’s going to have an impact. So I will say it again the same way the Fed was slow to raise rates. They’re now slow to either stop raising rates or just go neutral or cut even. So I think we’re going to start to see the slowdown coming. I don’t know why they don’t think it’s going to come because it is here. Companies are telling you this every day that goes by, we see a traditional company come out and either lower forecasts or announce layoffs or so forth. And Dan to the point you just made. I mean, we just avoided a major strike by the railways, obviously, in the last minute. But the whole purpose of that strike was unions and pay going up. And those are sticky wages that go up. What’s going to happen, though, to the middle and higher end obviously, consumer bases, those layoffs are going to start happening on the white collar world and that’s going to have a massive impact on the wealth effect. So we’re seeing a lot of moving parts here. And just the article today about Treasury bills, you can actually get yield now. Yes. It’s not keeping up with inflation, but those are the type of things kind of a normalization of what’s happening, I think, in the markets and the economy. It’s just painful because we’ve had rates for low so long, people have to adjust to a new new. [00:05:31][88.3]

Dan Nathan: [00:05:32] So Danny, one of the things I thought on Tuesday was really interesting that really got the market going. And again, this is not a huge surprise, but the major names in the Nasdaq and the S&P 500, the big five, they just took a dump on Tuesday. The fact to see Microsoft and Apple each down nearly 5%, that’s four and a half trillion dollars in market cap combined. That’s truly astounding. And today, when I’m looking at my screens again Thursday into the close here, I see Apple down two and a half percent. I see Microsoft down 3%. I see Google down two and a half percent. These are some big moves by the biggest names in the market here. What is this price action this week telling you and the prospects of really piercing through those June lows? [00:06:13][40.8]

Danny Moses: [00:06:13] De-Grossing, deleveraging obviously going on the market and we’ve said all along you can hide in these names, but you got to know that they’re overvalued relative to their historic numbers. And so everybody owns them. And if you’re running a long, short book as a hedge fund and you’re using these as your longs and you’re short start working, that means by definition, these become bigger as a percentage of your portfolio. So if you’re taking your quote book down, we talked about this for the last couple of weeks about leverage coming down in the hedge fund community. That’s going to be the impact. It’s just math and I think that’s really what you’re seeing. But again, these are the names and we really do have the big one and it feels like it’s sooner rather than later that you’re going to want to own. And we always say, and I think we’ve talked about this before, here’s your price point. And then all of a sudden it hit your price point. You don’t do anything. You got to remain disciplined on the long side and the short side in this market and really just stick to fundamentals here because that’s what’s becoming very clear to me Dan. [00:07:04][50.3]

Dan Nathan: [00:07:04] That’s a skill set. I think we get this question a lot from listeners, from viewers and over the years and being on CNBC is like, how do you size positions, how do you risk manage? I think sizing is actually probably one of the most important risk management skills that you can learn. It’s like when you have an idea and you want to buy some stock or buy some security in general, think about Am I going to buy a quarter, a third? Am I going to buy it? If it comes in, if I buy a quarter position, it comes in 10%. Well, maybe that is breaking somebody else’s risk management rule down 10%. But if you’ve gone in and you’ve only done a portion of it, one of the things that I’ve tried to do this year a little bit is think about ideas on a longer term time horizon, but also think about what would a trading position look like with a longer term time horizon. And so dollar cost averaging is really important. So that comes down to sizing. And if you do that correctly, you can withstand some of these big volatile sort of situations that we’ve seen in some of these different sectors. And energy would be one. I mean, talk to me a little bit about this, Danny. I mean, crude oil really felt like it wanted to get above 90. We pointed out this week on Mkt Call, we had Carter, Braxton Worth just saying that relative strength that you’ve seen, let’s say, in the XLE and we know that’s large integrated primarily Exxon and Chevron has been pretty impressive relative to the weakness that we’ve seen in Crude. Talking to Vinny and Porter, you guys are going to get a bunch of that conversation after we’re done here. They’ve been long these energy names all year. You’ve been talking about it so you can be in a bear market and you can find something that’s really going to work and that’s worked so far. Do you still stick with the energy trade, you think? [00:08:37][92.7]

Danny Moses: [00:08:38] Yeah. I mean, if you’re a soft landing person at all, you’ve got to be long energy because you have to believe that that’s the case. We’re not going to go completely down the drain here. There’ll be some demand for energy. I think we’re seeing a little bit of demand destruction, obviously start to build its way in with what we’re seeing out of China. They’re starting to work its way in. And obviously what’s been happening in Europe. What’s interesting, though, is we drain the SPR right. No. We’re going to refill it. So Biden’s basically buying it. 80 is basically what he said. So now you have this 80 by 90 type number here for the rest of the world of kind of where this is going to trade. And if that’s your cushion and you believe you can only stay at 80 for a period of time, then, yes, these energy stocks are probably a buy. And every day that goes by, they’re earning more and more cash. And again, I don’t know what the numbers are because I’m not truly in the weeds on these stocks in particular. But plugging in, playing, it would have to be below $70 probably or something like that to really start to make these stocks look unattractive. And if that’s the case, if it’s under 70 is where we are going, make no doubt that that is a massive recession probably happening in the U.S. And you have a lot bigger problems in owning energy, which, by the way, is still under owned, is still people that have avoided it, that don’t want to be forced to own it. And the longer that oil stays kind of up here, even with the markets doing what they doing, it’s going to force people’s hands to allocate into the energy sector, in my opinion. [00:09:48][70.6]

Dan Nathan: [00:09:49] All right. You just mentioned the mortgage rate topping 6%, first time since 2008. And again, you also use the expression negative wealth effect. And so when you think about what’s going on in stocks, the fact that the stock market declined four or 5% in one day, which is obviously meant to be a very liquid asset. But then what people are seeing also as far as housing, right, and what the cost of variable mortgage or something like that, I mean, those costs are going up fairly dramatically here. But the backdrop of that, Danny, is that for years and years, the knock on the Fed is that they’ve been penalizing savers. Well, savers. Now, talk to me a little bit about where you can put short term money and whether you think that’s attractive relative to some of these other risk assets that are just kind of imploding right now. [00:10:32][43.3]

Danny Moses: [00:10:33] Preservation of capital right now is kind of paramount. So maybe not for individuals per se, but for money managers. So having an alternative obviously to place money in, that’s risk free. Maybe the allocations start to go up from two to 5 to 7% cash at least for a period of time. Right. I know that hedge fund managers are paid very differently than mutual fund managers and so forth. But for people in general, I think it’s a safety. Now, if you’re earning 4%, you’re still underperforming what the current rate of inflation is by many, many percentage points, but the same time, at least you feel like you’re earning something. So again, it’s not a perfect recipe and you’re not getting away with anything. And the banks are going to start to have to raise their deposit rates now, too. They’ve been really lagging on that. I think it’s going to start to kick in for them. So the spread that they’ve been earning here I think is going to start to diminish over time. It has to they’re going to have to start giving in and paying a little bit more, I think, to the consumer that’s in the bank or they’re going to start now pulling it or putting it into other assets for sure. So there’s no way to play it. I think it’s more of an indication of what’s happening again. The Reset. If Treasury bills yield 4%, where do you think corporate credit is traded? It doesn’t take a genius to figure out that spread and what’s going to happen here. [00:11:36][63.3]

Dan Nathan: [00:11:36] Well, it’s interesting that the whole narrative about there is no alternative. Well, there are alternatives right now. Cash is actually a reasonable alternative at the moment. When you think about it. Here’s one, you know how Guy Adami does those things where he says, bear with me here for a second and he starts to tell some story and then it all comes together at the end. And then he goes into the kind of market lesson, Well, I’m not going to do that to you right here, Danny. Okay, but what I am going to do is use another expression that uses every once in a while is like footnote this or this is going to be like a bookmark or something like that. Okay, what happened today there’s a piece of M&A out there, Adobe. So this is a company that the stock was already down 30% on the year or something like that, down a bit more from its all time highs, announced this morning a $20 billion acquisition of a company called Figma. This is a competitor of theirs in the collaborative creative cloud space. 10 billion in stock, 10 billion in cash. Adobe has a pretty good balance sheet, I think 6 billion in cash, foreign debt, 150 billion market cap. They generate a lot of cash. But here’s the knock, Danny. This is a company Figma that is going to do $400 million in recurring revenue this year. Adobe is going to do 17 and a half billion. When you think of that on a percentage basis, it’s low single digits. They just paid 50 times sales for a company. I don’t give a shit growing 100% a year. 50 times sales. [00:13:00][84.1]

Danny Moses: [00:13:01] It’s actually worse than that. Yeah. [00:13:02][1.2]

Dan Nathan: [00:13:03] I want to hear what’s worse. I mean, to me, this is shocking. Now, just, you know, as we’re talking, the stock is down 17%. It is shedding the market cap of the amount that they were going to pay for this company. [00:13:13][10.6]

Danny Moses: [00:13:14] I think it’s 200 million in revenues and the run rate should be 400 million by year end. Yes, it’s 90% margin. But even if you use what the earnings are going to be off of it, you’re talking massive multiples and you do that when you report earnings to kind of cushion the blow, so to speak, and give investors this is what Salesforce did for a long time. I’m not saying that’s not a good business. We’re not saying that. But they’re certainly overpaying. It’s $1,000,000,000 breakup. The and just around that out there and a name from the past, Frank Quattrone. I mean, here we go. Right. We’re going back to the bubble just to bring things full circle in our comparisons. His firm catalyst with a Q was he advisor to Figma? So I guess we’re back to the Quadrantids or at the very end. So maybe this is the bookend, maybe this is actually the end. We keep comparing everything to 2000. [00:13:54][39.8]

Dan Nathan: [00:13:54] No way this deal happens at this price. I mean, to your point, it just the market has spoken. Shareholders have obviously spoken. I would mention this, though, Danny, that Adobe is a company that also buys back a lot of stock. And you think about this, they were probably funding a lot of the buybacks, obviously with cash, but also they could raise debt and they could buy well, the cost of capital is much higher now. So thinking about this, it just seems like they had a lot of bad choices to do something to change the narrative for whatever is going on with this company. And it seems like this one was probably the worst possible choice. [00:14:24][29.7]

Danny Moses: [00:14:25] Yeah, I think you just pulled a smoke grenade. Just wanted to muddy the waters. And hey, don’t look here. You can’t sift through the smoke. You’ll figure it out later. They wanted to do something that they thought would show growth at any price. And I think you’re right. Where the deal happens or not, it will get restocked. Who knows? But again, it was seen through. Obviously, Dan, with the stock down that much to your point, wiping out the market cap equivalent, almost. [00:14:43][18.3]

Dan Nathan: [00:14:43] A friend of ours, Gavin Baker from Atrios Management, he tweeted this earlier and I thought was really interesting. It’s like if you’re not a FAANG company, you can do whatever you want. As it relates to tech M&A, which is kind of an interesting thing. And I guess the point is Karen Finerman made this point to me earlier. Essentially if they’re buying this company with 10 billion of stock, they’re essentially selling their stock here rather than buying it back after the stock has declined so precipitously over the last, let’s call it, year plus or so, which is also telling about what you think about their organic growth. And the only thing I’ll mention is that you just said Salesforce. Salesforce is obviously a roll up. They spent $27 Billion to buy Slack, I think a year and a half ago. This is the largest private deal if it were to close, I think, next to when Facebook bought WhatsApp back in 2014. So interestingly, that, again, this is in the private markets. It’s not a company that’s publicly listed. There has been some software deals. We started the year off with Microsoft’s $70 billion acquisition of Activision. There’s been talk about Bravo and a plan. There’s been a bunch of stuff in the software space. But this one man, this one feels a little different. [00:15:52][68.6]

Danny Moses: [00:15:53] There will be another one out there which involves a large person with a large company, which is Elon Musk Twitter acquisition. So we’ll stay tuned for that one. That is another large one out there dan. [00:16:00][8.0]

Dan Nathan: [00:16:01] Yeah, well, that one is interesting that that spread has been tightening up. The stock’s at 42. It’s up a little bit, but it almost feels like investors, ARBs, whoever are involved in this name, think that this company is going to have to close or Elon’s going to have to close on this deal, but who knows here? Okay. Also sign of the times, Danny. Today, September 15th, this is the day that the Etherium merge happened. This has been a catalyst, I think, for Etherium for a couple of years now. It kind of came off with a thumb. My friend Brian Kelly was saying, and he is of BKCM, he’s been on the pod before. He runs a digital assets investment firm. He’s been saying on CNBC’s Fast Money for weeks, if not months, he thought this was going to be a bit of a anticlimactic sort of sell on the news. Again, I think a lot of these cryptos, there’s not great history with what these merges or actually I guess they’re more of a splinter, if you will. Thoughts there? I kind of had detailed in the spring how I had started buying Ethereum around 2000. It went all the way down to 900. When it got back to 2000 last month, I sold most of it, man. I just really felt like this was going to be a buy the rumor, sell the news sort of situation. It seems like in the middle of the range between 2000 and 1000 where we are right now at 1500 seems like it’s kind of as Carter Brax words say a pair of twos thoughts. [00:17:15][74.4]

Danny Moses: [00:17:16] They had a live look and miners replaced by validators staked ether now coming I mean so I looked at the staked ether. I’m like, what do you mean? You get a perfect ether? Like you put it away and you let other people use it and then you get it back. Then what is this stake ether that you get a 5.2% basically return for? [00:17:31][14.9]

Dan Nathan: [00:17:32] This all makes a lot of sense. I mean, they’re going from a proof of work where you have all of these complex math problems being completed with a lot of energy to a proof of stake, where you get people who own the underlying the eth and then you stake it and they get a yield. And that is going to be replacing all the energy consumption to figure out the complex math problems, to validate the transactions on the blockchain. I mean, so it all makes sense. But to you, you’re just basically saying it all sounds like a bunch of mumbo jumbo, whether it’s proof of work or proof of stake. [00:18:02][30.3]

Danny Moses: [00:18:02] Well, I think that it’s definitely has separated itself, even though it’s completely trading in lockstep with Bitcoin. It’s back to trading in lockstep was kind of broken up for a while there. But listen, I think there are applications. It’s self-fulfilling. And I’ve always said you treat Etherium as a company itself that has a market cap, that has applications. Probably the only way you can get your at least someone like me get my head around my arms around giving some type of value to the company. And listen, the more that there are applications that are built on it, the more that people are using it for transactions or whatever they’re building on these things. You can then figure out potentially what the value is, certainly more than Bitcoin in my opinion. So we can move on. But I did see that and I just thought miners replaced by validators and I guess that’s great for energy consumption will go down as a result of not having miners on the ethereum. [00:18:43][41.0]

Dan Nathan: [00:18:43] Well, it does take out one of the pillars of the bear case, I think, if you will. But let’s see how smoothly this goes. All right. Here’s one. You say this on the pod all the time, especially in volatile markets, or especially when you think we’re about to go into a volatile period, you say, know what you own. I’ve heard Danny Moses say that many times on on the tape. All right. There was an article in the Journal on Thursday. It was titled Almost half of stock pickers beat the market in early 2020 to sell off. Nearly half of all large US cap stock picking funds beat the S&P 500 during the brutal sell off the first half of the year, putting active managers on pace for their best year since 2009. Danny talked to you because 2009 was a year where we had just had this massive disconnect. We had a bunch of risk assets go a whole bunch of different ways. It was obviously a very confusing time. One of the things that I remember about 09 is that a lot of people never believed the rally on the way back because again, 2008 was the only down year we had in the financial crisis and a lot of people have been scarred from that period. We’re still shorting those rallies, buddy. So I’m just curious, what’s your thought on this? Because it really ties into, I think, a big mantra of yours as you think about markets. [00:19:54][70.2]

Danny Moses: [00:19:54] Yeah. So Dan on the stock pickers, the article in the Wall Street Journal I think is very telling stock pickers or having their best year since 2009. Well, what happened in 2009 was when QE basically was implemented, it was announced in 2008, the market was in shambles, hit the lows of March of 2009. Active stock pickers knew how to manage through that. Well, now let’s flip that to the present day, where 49% of large cap domestic equity funds are now outperforming or did outperform in the first half of 2022. Is it a coincidence that Q2 was beginning? We already had the end of Q1 and Q2 was going to be getting? No, because that’s what stock pickers do. Their best work is when flows are moving one way or another. And I think that’s what we’re seeing here. And I think this is going to continue to be a stock pickers market. I think it’s going to be continue to be a bond pickers market. And I think passive flows will have peaked. I really believe that on a relative basis to active for a long period of time here. And it’s the active managers time to shine in the sun. And so I think we’re going to continue to see that. So again, people, you just own an ETF thinking you’re diversified. Take a better look. Look at some of these active fund managers who have been around for decades. I mean, your four and five star performance. Yes, I know you may think that’s not worth anything, but that is a relative game that these people play and they’re experienced and they’ve seen a lot of cycles. And so I’m not advocating for any one person in particular here, but it is time to kind of wake up and it’s becoming an active market here for sure. [00:21:09][74.4]

Dan Nathan: [00:21:10] Let’s talk about this as far as the markets are concerned. So we already talked about the Fed meeting next week and it’s pretty well anticipated. We’re at least having a 75 basis point hike. And if they were to surprise, it would be a full 1%. And I can’t remember the last time they’ve done that. Okay. But here we are, Danny, that we have a stock market with the S&P is down about 18% of the year. The NASDAQ is down about 26% on the year. Interestingly, the S&P quarter to date is up about 3% and the Nasdaq’s up just below 5%. So we’re getting into quarter end here. What do you think the flows are going to look like in the quarter? And if we get the 75 basis points that is expected here, obviously we’re in a bit of a little sell off right here. The S&P still about seven and a half percent above its June lows here. Now, I guess one of the things that you mentioned this earlier is that we’re going to see some ugly guidance, so maybe some preannouncements. And I think this is really important. When you have companies that pre-announce, they usually just preannounced the current quarter. And we saw this with Nvidia last quarter, remember when they preannounced and people like, oh, well, the bad news is out of the way and then the stock filled in the gap. Do you remember that? And then kept on going. And then when the company reported, they kind of came in line with the preannouncement, but then they guided down again in the stock, had another leg down. So I guess what I would say is don’t get lulled into the fact that if companies are piecing out the bad news, that one piece of bad news can’t be followed by another piece of bad news. And so, again, if we don’t have preannouncements before the quarter ends, we’re very likely to have them right after the quarter ends in early October. And then if you do have them, I just wouldn’t expect a big bounce because the visibility right now is as bad as you can imagine. I would just say one last thing, Danny, before I get your take on this, is that if you were a CEO and McDonald’s CEO had some comments yesterday and if you saw it, he said you forecasting a mild recession in 2023. He’s not likely to be wrong on that, only worse maybe than what he kind of suggested and just thought it was going to be a difficult period to execute, given all the supply chain issues, inflationary pressures, all that sort of stuff. So if you’re a CEO right now and you see that CPI and you see some of these other CEOs of major multinationals saying this, you’re not going to save your CFO and some of these other guys pull forward some stuff from Q4 so we can make Q3 and then we’ll just deal with Q4 When we’re in Q4, you’re going to miss Q3 and you’re going to guide down for Q4 and you’re going to have downbeat commentary because you’re not going to get paid in the future for being overly optimistic. Am I right? [00:23:40][150.4]

Danny Moses: [00:23:41] Yeah. Listen, this cycle has been long without negative earnings revisions, and we’re getting those now. They’re just beginning again. That’s secular. That’s not like a cyclical move. Like, to your point, this is not a one quarter phenomenon, I think. Let me back up. What’s happening right now in this market is we all know, again, it is what it is, but we’re trading every economic data point and we’re certainly trading the Fed and we’re going to trade everything Powell says at his press conference next week. So what are people holding on for? When I say holding on feels like the market wants to go off of a cliff. They’re holding on for the belief that the cheer yields are already indicating where the Fed’s going to go. Right. It’s already doing its job for it’s approaching 4% here. So the Fed’s going to obviously raise 75 basis points. But the language, I think behind that, if he’s hawkish, again, to try to maintain his small amount of credibility, that’s kind of out there. I think that’s going to be a huge sell off in the market. Somebody will probably peace something out where they say we’re data dependent, we see things along, and maybe that’s the reason that people aren’t selling. I think if we can get one last rally in the market, but at the end of the day, darn past all that again, smoke and mirrors is what you just talked about. It’s the earnings. And when people start to look at what 2023 earnings might look like for the S&P and whether that’s trough period or not remains to be seen. But even a 14 or 15 multiple on what that number might look like, which I think will be down from 2022, more than likely. What do you do? You’re going to make your way towards the lows again, probably pierce through the lows and maybe find a level can in the low three thousands. Right. Which is where I think we’re probably going to be headed here before we take another deep breath and see what’s going to happen. This is a dicey time of year. It always is. September, October, to your point about what flows are going to look like. That’s why it’s always so dicey, because you start to give out. Q4 and next year, projections. And when you have to pull those four down, it might not look pretty. [00:25:20][99.2]

Dan Nathan: [00:25:20] The other thing I just mentioned about Tuesday’s price action and now today down four or 5% days, those are not usually one off things. They usually kind of signify that you’re starting a new sort of volatility regime. I do think it’s interesting. A lot of people have been pointing to the VIX. Why hasn’t the VIX had a meaningful move? Why don’t we see it above 30? It’s still in the mid like right now the S&P is down nearly 1.3% and the VIX is up less than 1% here. And maybe it’s that a lot of hedge funds are already hedged up here, if you will. They’re not reaching for a put premium right now. So who knows on that regard here? All right. Listen, let’s do one thing before we get out of here, and we definitely got to get your NFL picks for the week. David Faber of CNBC, he was just sat down with Bob Chapek. He’s the CEO of Disney. Faber was recent guest on on the tape so check that out peoples a few weeks ago David’s a good friend here but great interview with Chapek. You guys have been talking a lot about, you know, Chris Bevilacqua from Simple Bet on a couple of weeks ago and they have a partnership with DraftKings for in-game betting. And you guys went through a lot of that, which I thought was really interesting. Chapek said to Faber today that they’re not going to be a sports book. They know how important sports betting is for ESPN, but they’re not going to be a sportsbook. They’re going to look to partner with somebody. Some thoughts on how this works for some of these media networks. So spent billions and billions of dollars acquiring these sports rights, but they’re also seeing subscribers leave in droves and they’re consuming this content in other ways. So betting is long thought to be some way to keep them in front of a TV and watch the full game. [00:26:51][90.4]

Danny Moses: [00:26:51] Well, as long as they’re part of Disney and we know about Disney’s culture, their cruise ships don’t have casinos, which is why I’ve never taken one. So if they start doing that, it really breaks a longstanding tradition at Disney. So to the point is, I don’t think it will happen as long as ESPN is part of the Disney complex. Now, a lot of the programing, Dan, I mean, especially on ESPN2, and so forth, is gambling shows literally you flip it on its every show and while games are going on, you can see what the live line is. So they’re very immersed. Make no mistake, to your point, you just made they’re paying for that programing. They know that eyeballs stay on games because people have action on a meeting was 130 in the morning college football game when Hawaii is playing Oregon State and people are watching for one reason only where they hit the over in the first half. So ESPN knows this and they’re playing into it. So they’re in gambling without actually taking the bets. So it is what it is. Think of them as the HFT. They don’t take risk, but they still get to participate in all the trading that’s kind of going on then I would say with that. So. [00:27:43][52.2]

Dan Nathan: [00:27:44] All right. Speaking of bets, let’s review quickly what happened to you last week. In the first week, you had a tremendous year. Last year, 27 and three against the line in the NFL last week. You got off to a rocky start here, Danny. [00:27:58][13.8]

Danny Moses: [00:27:59] Thats a rocky start yeah. 1-2. Yeah, hit the Thursday night game and then losing to you as always, Rocky right. [00:28:02][3.2]

Dan Nathan: [00:28:02] I know. So I won one, so I’m 1-0 versus you. Let’s get your picks for this week and then let’s see what you and I can do together here. [00:28:08][6.1]

Danny Moses: [00:28:09] All right. I’m going back to the well on Dallas at home. Getting seven against Cincinnati. Yes. People think Cincinnati will bounce back at the loss to Pittsburgh. There’s no Dak Prescott Cooper rushes quarterback. I will say he won his only started his career at Minnesota last year right when he started. He’s not a bad quarterback. He’s been around the system. And to be honest, Dallas scored three points basically with Dak Prescott. So it’s not like they were doing anything with him. So why not a change? Dallas as a home dog getting seven, I will take them all day and two weeks in a row. Being a home dog, it’s hard to believe they’re not going to cover one of them. So I take the Cowboys. The second game I like staying in the division is Washington commanders getting two in Detroit Carson Wentz got off to a slow start came on strong the be Jacksonville last week I think Detroit over last week against the Eagles and yes they almost won I can’t see him doing that again with Goff at quarterback for Detroit I think Washington’s fired up give me Washington and the points in Detroit. So Dan, you got one on your radar out there. [00:29:01][53.0]

Dan Nathan: [00:29:02] Yeah, but you know, I don’t like taking the other side of either one of those. But one game that I thought looked kind of interesting is Tampa Bay Bucs going into New Orleans there. And they are giving they are the favorite. They are minus two and a half. I want to take the Bucs. Any interest on that one, Danny boy? [00:29:17][14.6]

Danny Moses: [00:29:18] Yeah I’ll take the Saints. I’ll go against Brady again. [00:29:19][1.5]

Dan Nathan: [00:29:20] All right. For 500. [00:29:20][0.5]

Danny Moses: [00:29:21] For 500 is not one of my official picks. But if I can get my money back from you, it’s worth it. [00:29:24][3.2]

Dan Nathan: [00:29:25] All right. This is not going against your record. It’s just going against my debt to you here. All right, well, that’s about it, man. Listen, it was great hanging out with you and Alison. Your wife was out in Huntington Beach at FUTUREPROOF. I love man I love hanging out with Vinnie and Porter and you, the three of you guys, you just got to do like a pod. Just what do you want to call it? What do you want to do? Like the three of you guys? [00:29:44][19.9]

Danny Moses: [00:29:45] That’s what we do. Stay on the trading desk each other every morning. What are we doing? Like arew we covering this or we shorting this or buying this? Are we selling this? What are we doing? [00:29:51][6.0]

Dan Nathan: [00:29:51] That’s the podcast. The three of you. Hey, guys, reach out to us. Tell us if you guys want to hear Danny, Vinny and Porter. I want to hear it. And obviously thanks to Liz Young for joining us. We had a great conversation. So stick around. When we come back, you will have that full conversation. [00:30:06][14.6]

Dan Nathan: [00:30:11] How are you doing? Welcome to On the tape. I’m Dan Nathan. I’m here with my co-host, Danny Moses. Our third co-host, Guy Adami is usually with us, but he’s on his way to Sicily. It’s something about seeing a guy named Dom Thomas, you know, I don’t know. We’re going to talk about that later. But in his stead, we have two really great contributors on the tape since we started in early 2021. It is Porter Collins and Vincent Daniel of Sea Wolffe Capital. They are Danny Moses, former partners at Front Point. Back in the day. You guys might recognize them. Maybe not. The actors who played them in the big short. We’re a little better looking. Not nearly as smart, but you guys, thank you guys for being with us on the tape here in Huntington Beach. [00:30:52][40.3]

Dan Nathan: [00:30:55] And obviously EY from SoFi she does MKT call with Fuy to me on Thursday. She is Liz Young. She is the head strategist at SoFi. So thank you guys for being here. Thanks for having us. All right. Let’s get into it. I mean, we’ve had some momentous days with our friends from Seawolf on with us on on the tape you guys were mentioning back in June. It was just after that CPI print from May. It was hot. Then there was a trial balloon floated in the press that the Fed was maybe going to do 75 hike at that mid-June meeting. And what happened? Danny the stock market went down 10%. The S&P in a straight line into that Fed meeting. Talk to me about what we saw today, because the S&P down 4.3%, the NASDAQ down 5.1%. Worst day in the stock market since June of 2020. And think back where we were in June of 2020, it was like a big black hole. [00:31:45][50.9]

Danny Moses: [00:31:46] Yeah, I think the focus on all these inflation prints, whether it’s point one higher, point two higher, is nuts if that that’s how you’re going to trade the marker of the long term fundamentals are going to matter the most as that works its way into the market. I think we’re just playing around between 3600 and 4200 on the S&P for now to find the direction 75 basis points of the Fed is now cemented. Obviously I think the next week, week and a half, whatever. [00:32:07][20.8]

Dan Nathan: [00:32:07] Yeah, but your range that you just gave for the S&P 500, that’s like one day like today, right? You’re through the bottom end of it, right? So like, you think the data right now, it’s in the market’s hands. It’s not really in that whole kind of deep. [00:32:19][11.6]

Danny Moses: [00:32:19] I just think If that’s what you’re using, it is inflation trends as a way to trade the market. You can have bigger problems and I think fundamentals take that information. What does it mean to each company that you might own? What does it mean to the certain sectors that are out there? And that’s how I would kind of break it down that way. So. [00:32:31][12.1]

Dan Nathan: [00:32:31] All right. But Porter, Danny just said, what is it mean to different sectors, different instruments or whatever? But we know what happens in a market like these correlations. Go to one. How do you guys think about it? You guys have been unusually bearish for economic reasons, but the way you think about markets, the way you guys think about investing at Sea Wolfe, you’re obviously been very bearish and sellers of most rallies, you have been long stuff. But talk a little bit about that dynamic, the range that Danny talked about, the data dependency. [00:32:53][22.0]

Porter Collins: [00:32:54] Well, you know, Danny doesn’t like to be called a bear. He just likes to be called realist, realist and a realist. I consider myself a realist as well. And if you look at what’s happening, earnings are coming down. The last few quarters haven’t been good in terms of S&P earnings call for profit margins are an all time high. They’re coming down. And I think if you will ride the clock to the May CPI print in June, things are a lot more bearish because the Fed’s going further than I would have ever thought they would. And so, I mean, Good Luck was talking about it earlier today and they’re going to go right against the wall. And all these things happen with lag effects, the hiking of rates, the inflation data, and it’s all over the place. And the problem is, is the Fed’s in a real bind because the inflation is very pervasive. You know, you saw the medical costs highest ever, 25% electricity cost, the all that’s going to hit with the lag. And I just don’t see a lot of bullish catalysts out there. We’re long energy stocks still. People come out as a little bit of oil is going to fall. We’re short a lot of stocks, though, here, there’s a lot of high priced stocks, a lot of stocks that are reverting to the mean in terms of get this, COVID reverting to the mean. You’ve got to just a lot of stuff going on and we’re pretty bearish on stuff. [00:34:05][70.6]

Dan Nathan: [00:34:05] So Vinny you guys were on the energy trade for reasons other than some of the geopolitical stuff. When crude oil took off in February before Russia invaded Ukraine, you guys were already long, all these things. So you had a fundamental reason view on energy. [00:34:18][13.0]

Vincent Daniel: [00:34:19] We got long when Exxon was taken out of the Dow. That really started the process. I mean, we tend to be contrarian in nature. [00:34:24][5.6]

Dan Nathan: [00:34:24] Talk to us about that psychology. So like you saw that and then you realize. [00:34:27][2.7]

Vincent Daniel: [00:34:27] We’re contrarian idiots. So we see Exxon being taken out of the Dow and Salesforce.com put it and we practically went long Exxon, short Salesforce.com, generally speaking, Salesforce a little later on. And so it started as a trade just is sort of let’s do this contrarian. It’s funny. And then we started doing the research behind it and then we realized that, holy crap, there’s been a ten year under-investing cycle in fossil fuel energy. Everyone thinks we’re going to solar and wind in ten years. We’ll be lucky if we get there in 30 or 40 years, and I would question whether we should do so to begin with, but that’s a different issue. And then we realized we were sitting on potential names that were trading at 1 to 2 times cash flow. And they were paying down debt and they were about to shove cash down your throat. They were like, this is like a value investing [00:35:16][48.4]

Dan Nathan: [00:35:17] What was an example on the pod in June, you guys gave an example of a company that you own was going to pay more in dividends [00:35:21][4.2]

Vincent Daniel: [00:35:23] Probably Peabody, It was probably Peabody. [00:35:24][0.5]

Danny Moses: [00:35:24] That was the shipping company. [00:35:25][0.6]

Vincent Daniel: [00:35:25] That was that was them. But we did sell that. Nevertheless it’s still to this day that these companies are going to produce those cash flows. Now, we have to worry about the next three months because we’re clearly in some form of economic slowdown. There will be a drop in aggregate demand. [00:35:40][14.6]

Porter Collins: [00:35:40] And you do have Biden dumping oil. [00:35:42][1.5]

Vincent Daniel: [00:35:42] However, Biden just said today that he’s about to buy oil at 80 bucks a barrel. So you have the Saudis want a good,. [00:35:49][7.1]

Porter Collins: [00:35:50] Consistent energy policy. We’ve got it here. [00:35:51][1.4]

Vincent Daniel: [00:35:51] So you have Saudi wanting to defend 90 by Biden wanting to defend 80. Right. Or buying it 80. Yeah. And if we stay between 80 and $90 as an equity investor in these energy, give it to me. It’s perfect. [00:36:02][11.3]

Dan Nathan: [00:36:03] Well, I want to get to like the potential for demand destruction and what like a global slowdown really looks like for some of these commodities and some of these sectors. And I really want to also talk a little bit about the relative strength. We were talking last night that some of the energy stocks that you guys are long are showing relative to the commodity. But Liz, you tend to really focus on value a great deal and you’ve liked energy for a good part of this year. How do you think about it? Because and I definitely want to get into that pairs trade long short salesforce because there’s a lot of stuff there we were talking about in Nvidia. There’s a lot of high valuation stocks. Did you say this on the pod all the time? You like those shorts? Sometimes when they’re down 50% better than you like them, very near their highs. But talk to us a little bit about how you’re thinking about it from a value bent and where you think there’s opportunities right now in the stock market. [00:36:45][42.4]

Liz Young: [00:36:46] I want to talk about something else first. [00:36:47][1.1]

Dan Nathan: [00:36:47] Okay. [00:36:47][0.0]

Vincent Daniel: [00:36:48] Nice. Well done. [00:36:49][0.6]

Dan Nathan: [00:36:49] Whatever you want to do Liz. [00:36:51][1.3]

Liz Young: [00:36:51] I’m outnumbered on this panel. Yeah, they’ve been nice so far. You’re, like, hiding your bearish. [00:36:56][4.5]

Vincent Daniel: [00:36:56] Oh, no, no, wait. [00:36:57][0.4]

Liz Young: [00:36:58] It’s cute. It’s like, yeah, we’re going to roll into it real slow. So a couple of things. Right now in the market, especially today, you look at the numbers today, it is so easy to be bearish. It’s almost lazy to be bearish in a day like today [00:37:11][13.6]

Vincent Daniel: [00:37:13] Wait what [00:37:13][0.2]

Liz Young: [00:37:14] A day like today. Okay, it’s much harder to be bullish. So you talked about I think it was you Porter that said it’s hard to find those upside catalysts at this point. I don’t even think there needs to be a catalyst. Everything is pointing to it could get worse from here. The catalyst is that we’ve removed something that’s really bad. We all hoped for that today. We hope that we’d get an inflation number that wasn’t as bad as it ended up being. That would have been a removal of a worry and that would have served as a catalyst. So we’re in this weird range in valuations where I think we’re probably stuck in it for a while. And the bearish case would look at it and say, okay, with CPI at these levels, with this level of consternation in valuations P/Es deserve to be 20% below where they are. They don’t necessarily have to get there. [00:38:00][45.6]

Danny Moses: [00:38:00] All right. So I’m the first bear coming out of the gate. [00:38:03][2.3]

Liz Young: [00:38:03] All right. I did that on purpose. I was like, what’s wrong with these guys? They’re lying. [00:38:06][3.0]

Danny Moses: [00:38:07] So it’s so easy to buy stocks and forget about them if you can buy good stocks over time, this passive ETF market has just lent itself to just set it and forget it. This is the first time in 13 years you actually are underwriting both stocks and bonds, in my opinion. First time you’ve been forced to look at what you own from the bottom up. Shorting is that the hardest, most painful? It’s a skill set, but it takes a lot of patience. Timing has to be right, and most people that are good short sellers will always be early. And that’s a painful process. You get a position that doubles on you while you’re waiting for it to work and you get called out of a name. You can get taken out of a name. So I think the history I think what’s really important here and you’ve talked about this, Liz, is from an age group perspective, if you’ve traded this market through three or four iterations of cycles back to even 1987, 1999, 2006, seven, eight, and you see what can happen from behavioral finance perspective. Shorting is very difficult because it’s a timing issue. And my whole thing with today’s print is that I don’t care if it was down point 2% of the market was up a hundred points on the S&P. It wouldn’t have changed my mindset for what I think is going to happen. And the one thing I’ll say before I let the other bears come out of hibernation, here we are under appreciating how bad things are in Europe. Forget about geopolitical risks in China. All that Europe as a buying country, buying our products, they’re screwed. I mean, they’re ten times worse than we are from a stagflation slowdown. And they are raising rates into an economy that is clearly declining. They have bigger issues than we do. So I just think we got to pull our head out of the sand and look at the macro here. I really try to stay levelheaded and I mean, I was bearish before today Today’s action [00:39:34][87.2]

Liz Young: [00:39:35] I just made it worse. [00:39:35][0.4]

Danny Moses: [00:39:35] Yeah, you made you made it. [00:39:36][0.7]

Liz Young: [00:39:36] Real quick anecdote on the younger investor thing. I got a text from my analyst who’s here. He’s in his late twenties right before this. [00:39:43][7.0]

Vincent Daniel: [00:39:44] LinkedIn? [00:39:44][0.0]

Liz Young: [00:39:46] Ane he’s watching this happen all day and he’s all the text said was this sell off is crazy. And I wrote back, did you buy anything? It’s your mindset. So he’s scared. He’s there because he hasn’t seen this and he’s invested in the market now and he hasn’t felt it. And seeing numbers like that, it’s like, Oh my God, what’s happening? But he said, no, he hadn’t bought anything. [00:40:01][15.1]

Dan Nathan: [00:40:01] Well, today we’re all at the beach and we’re seeing all these great speakers and this great stuff. And today I feel like if we were sitting in front of our FactSet Machines or whatever, we would have felt like us in particular who really came into the business in the late nineties. You guys obviously very well documented. What you guys did during the financial crisis today felt like a very different day than almost every major down day in the markets to me. And that’s us, like checking our phones like this or whatever. I was on CNBC on closing bell just an hour ago and Sarah Eisen use the expression liquidation today’s price action. And to me I said to her liquidation implies that you’re almost there capitulation to me this feels like it’s just getting started. So talk to me a little bit Vinny. What’s different this time? Then in mid-June, when we went down, we it was like four consecutive really big down days and then we bottomed and then we ripped nearly 20% the S&P over two months. [00:40:51][49.7]

Vincent Daniel: [00:40:51] Well, I think a lot of that is oversold conditions. We get there and we’re going to get there again and there will be a bear market rally. Liz I’m laughing. When you call a bear lazy, you’re actually strongly suggesting that you’ve never been bearish in your life or actually sure, or actually short of a stock? [00:41:06][14.9]

Liz Young: [00:41:07] That’s fair, no I have not. [00:41:07][0.2]

Vincent Daniel: [00:41:08] And if I look at the audience out here and do a show of hands, how many people have ever shorted a stock or have not invested in the stock? I bet the amount of hands aside from these two guys over a year would be minimal. It’s not that. [00:41:19][11.4]

Dan Nathan: [00:41:20] Peter Boockvar has got his hand up. [00:41:21][1.3]

Dan Nathan: [00:41:22] Peter has both hands up . [00:41:22][0.3]

Vincent Daniel: [00:41:22] Trying to explain Peter and Jared over there. Right? Like so [00:41:25][3.0]

Dan Nathan: [00:41:26] If you put your feet up, that means you’ve also bought puts. [00:41:27][1.3]

Vincent Daniel: [00:41:28] The point is, is that it’s very difficult and it’s very emotional. We not only have to be right fundamentally, which we feel, then we have to time it correctly. And then we have to pray to God that no idiot is going to buy a stock just because it sounds good, whereas no one here is shorting stocks. So it’s very, very difficult. I take a position of the fact that you call bear lazy. That is the hardest thing on planet earth. And I don’t suggest to anyone. [00:41:52][23.5]

Dan Nathan: [00:41:52] That lazy to be bearish right now, not shorting stocks. [00:41:55][2.4]

Vincent Daniel: [00:41:55] And that’s my point. Yeah, it’s so hard to be bearish and applying a bearish. [00:41:58][3.5]

Dan Nathan: [00:41:59] Bearish could be sitting on your hands and not deploying capital if you have it. That’s not. [00:42:03][3.7]

Porter Collins: [00:42:03] That’s not bearish that’s rational. [00:42:04][1.1]

Liz Young: [00:42:05] Okay. [00:42:05][0.0]

Porter Collins: [00:42:06] Sometimes you just don’t want to play. Right? [00:42:08][2.6]

Vincent Daniel: [00:42:09] Right. And I don’t view that as bearish. [00:42:10][1.4]

Liz Young: [00:42:11] See I find that bearish this are the most bearish I’ll ever get is to increase my cash position and not do anything that’s bearish to me because I as an investor and as somebody who you have to tell people where to deploy capital, right? The answer is rarely don’t have it in equities if you’re trying to build wealth over the long term and that long term can be even five years. You look at a long term chart of the S&P 500, I think there’s maybe one or two 10 year periods where it’s flat, but there’s never a 12 year period where it’s not up. So the idea of not having it deployed is bearish to me. [00:42:47][35.6]

Porter Collins: [00:42:47] I look back to near peak valuations historically, price to sales, price to book, whatever you want to look at it. Corporate profit margins are very high, and it’s fairly obvious that Powell is taking us into a recession if we’re not already in a recession. So my view is that there’s not a lot of margin of safety in many of these stocks. I mean, these guys we’re talking about Costco earlier today. It’s a very expensive stock. I just don’t see how are you going to make money? [00:43:14][26.3]

Dan Nathan: [00:43:14] Well so o it always has been. It’s always treated it like 27 time. [00:43:17][2.5]

Porter Collins: [00:43:17] Like always is a long time. I mean, like. [00:43:19][2.0]

Dan Nathan: [00:43:19] As long as I’ve been in the markets the last 20 years, it’s always traded at a massive premium to almost every. [00:43:23][4.1]

Vincent Daniel: [00:43:24] But Dan the way we think about it. Right. Is if you’re buying something at 27 or 28 times. Yeah. Your investment thesis is you think that either a passive investment money is coming in the door. It’s not like the Costco story is not out there. And no. So you’re hoping that another schmuck pays 30 times what you’re hoping for? It’s a case for multiple expansion. Okay. That works for the last 12, 13 years. That worked when the Fed had your back and was shoving liquidity down everyone’s throat. When liquidity is going the other way, you better be right. [00:43:54][29.9]

Dan Nathan: [00:43:54] Here’s a $1 trillion example of investors making the bet that the Fed was going to change course over the last two months. And you know what it was? It was Apple. So it had this rerating. Everyone’s staring at Apple. They’re saying it’s trading at 27 times in the spring, expected to grow earnings and sales, mid-single digits at best. And then all of a sudden, the stock, which had, what, a 30% peak to trough decline, rallies 35%. It nearly makes a new all time high until a couple of weeks ago. And that’s the point. The big names, all of them, they literally Microsoft had, what, two turns like it came in or something like that. Two or three. You don’t even meet on that high 20 multiple. So I mean, Danny talked to me a little bit about this because I think it’s really important. You just mentioned twice, Porter peak margins. That’s a big part of the valuation of the S&P. And some of these consumer companies have been able to pass on some of these higher costs. To me, this is a huge key to the whole market valuation. [00:44:44][50.0]

Danny Moses: [00:44:44] I want to make two comments. What Liz just talked about as a mutual fund manager, you can’t be in cash. You have to be invested. So you have to pick a sector that you think you can outperform by overweighting or underweighted energy technology. That’s their job. They get paid on their performance relative, not on absolute basis. Hedge funds are obviously very, very different. But the one thing the one killer, both in the markets and in corporations to me is going to be leverage. And Vinnie, we were talking about this earlier. So if you think about. Large hedge fund or even some of the systematic, large hedge funds that are 5 to 6 times leverage. When you go from paying 1% on what you’re doing, leverage to three or four. Just think about that multiplier effect. You are forced literally to unwind your risk premium changes. We’ve seen degrossing in this market is what I’ve seen. Take it one step further into the corporate markets. Just because credit spreads are widening doesn’t mean that companies are going to default and not pay. It means their cost to borrow. We’ve been in this 13 year blissful period as a consumer and as an investor where we never even thought about how 0% car financing. Literally 1% mortgage. You didn’t think about it as a consumer, and I think we didn’t think about it as an investor. And I’m just as guilty in long or short sighted, not realize shorting stocks when rates are zero is not a great recipe. That’s not lazy. It’s stupid shorting stocks at that point. Now I’m fired up. Now, my whole point is this. Dan brought up a point before if you’ve a broken business model on a stock that gets exposed and it’s literally every day is a new underwriting opportunity and it’s down 50% will take a carvana discount pick out a name when you see a broken business model as a short and you know that the gig is up, that’s when you push, right? Because you know, they need debt, they need financing because, you know, they’ll they’ll never make money again. [00:46:18][93.7]

Dan Nathan: [00:46:19] 08, though. When the banks were careening lower, there were like 30, 50% rallies in some of these things, bottles works. [00:46:25][6.0]

Danny Moses: [00:46:25] But then let me just say that there’s publicly traded debt on some of these stocks that are trading at $0.30. $0.40, though, if you can buy bonds, why would you ever own the equity of a company at any price where you can get a triple on the debt? Because obviously, if the equity is worth a penny, that debt is going to change for GameStop. Oh, is that a publicly traded security bed? Bath Beyond? Take one of these things. But my point is that in trying to trade these either meme stocks or things in and out, you will lose money without any doubt if you’re not buying a good business model. So let’s turn it back. [00:46:51][25.9]

Liz Young: [00:46:51] What do you guys think the financials of today are? So what I mean by that is what took the market down the center of the crisis in 2008 2009. Where is that? [00:47:00][9.1]

Porter Collins: [00:47:01] Okay, I’ll ask you, where have all the flows this year gone towards? [00:47:04][3.6]

Liz Young: [00:47:05] We mean asset class or sector. [00:47:07][1.1]

Porter Collins: [00:47:07] Sector. Where were the flow of flows been to? [00:47:09][1.9]

Liz Young: [00:47:09] Energy, Staples? [00:47:10][0.8]

Porter Collins: [00:47:11] Tech. The flows happen to tech flows have been to tech. Everyone has been buying the dip in tech outflows and energy value, value, all this stuff, materials, outflows, all the flows been to tech, all these unprofitable companies losing billions of dollars a quarter where the debt’s trading subpar and these people are still buying these stocks, which is unimaginable. I don’t think people realize that the bankruptcy cycle is going to be real. There’s no bankruptcies right now. There will always be in every cycle, bell ringing bankruptcies, Enron, WorldCom, all this stuff. And then once the bankruptcies come out, the fraud comes out, you’ll see this. It is just a natural cycle. We’re big believers in cycles. [00:47:51][39.7]

Vincent Daniel: [00:47:52] I just had a vision. I don’t know why it came to my head. I’m scared of Guy Adami in Sicily. Maybe wearing a nice gold chain, like hanging out with a little pizza limoncello. And the reason why I brought it up was you ask the question, like, where’s the bubble now? What’s the issue now? I think the issue is sovereign debt. That’s the problem. That’s my big problem all the time. It’s the constant that we have is that we run fiscal deficits as far as the eye can see, someone needs to buy that somebody. So for the past 13 years, it’s either been the Federal Reserve or the Chinese Central Bank. Now both of them are not buying it. Someone’s got to buy it and therefore it we also have inflation. Now, I don’t think we’re going to stay at 8.3%, but let’s say we go down to 3%, three and a half percent. Are you really going to go out and buy a ten year treasury below that when inflation 3%? I don’t think so. Why would you? I would ask anyone. [00:48:47][54.8]

Liz Young: [00:48:47] I wouldn’t. I think it’s if it stays in the situation where we’re still the best economy on a bad planet, admittedly, but the best economy, then foreign money comes in, institutional money stays in. [00:48:58][10.9]

Porter Collins: [00:48:58] Well, first of all, the Japanese are they got to defend their currency, right. They’re selling U.S. treasuries at the moment. And you think about the global context, the stuff, things are still pretty decent in the United States. Imagine if you’re in Japan and the yen has gone from 100 to 145 and you got to buy oil in dollars. I mean, it’s a disaster. Same thing in Europe. [00:49:18][19.7]

Vincent Daniel: [00:49:18] And and they still have to issue debt. There’s more coming. It’s not like they’re running physical and everybody’s running massive deficits and no one really talks about it. And we’re going to have to issue in this country $1,000,000,000,000 more every year in perpetuity to service. Who’s going to buy this stuff? [00:49:38][19.3]

Dan Nathan: [00:49:38] Let’s just say none of us have the answer to that because we were all yelling about the same stuff. On the Fed’s balance. [00:49:42][3.6]

Vincent Daniel: [00:49:42] We know the answer. What’s the answer they’re going to print? Yeah, they’re going to have to print. [00:49:46][4.0]

Dan Nathan: [00:49:46] So the whole mindset about why equities rallied this summer was a pivot, basically a move towards printing. Danny, you and I have been talking about it on the pod for months and months now, but let’s try to decode what today’s data and what investors did in the stock market and the bond market to the US dollar. Some commodities because today was like I think a really important day. So let’s just think about this, the one piece of this. Kind of macro puzzle here in the U.S. that has not really changed. And this is one of the reasons why no one answered the question about the pass through of higher costs, let’s say to consumers, because we have a consumer that really feels like they’re on the brink. You have this negative wealth effect from the stock market. Have housing data that’s continuing to come down. We know that the Fed was specifically focused also on the housing market. We have unemployment that in August just ticked up a teeny bit for the first time off of that pre-pandemic high here. So, Danny, talk to me a little bit about employment. Gundlach said it today. I mean, I missed some of it, but I heard him say, Well, if unemployment goes to 4%, given what we know about the savings rate, given what we know about consumer credit, we’re kind of in a shaky spot here. [00:50:51][64.5]

Danny Moses: [00:50:51] I think it’s how do you define a recession the old way, two quarters negative GDP. Forget that, because you still have decent employment, you have to figure something out. My whole thing, how to measure is purchasing power of the consumer, which is still going down. You saw the average hourly earnings are not keeping up with anything. So to me, that’s the margin barometer that I look at to see. The job losses that we’re going to see being lost now are going to be the white collar area. It’s going to be the higher and [00:51:13][21.8]

Dan Nathan: [00:51:13] you saw the banks today. [00:51:14][0.8]

Danny Moses: [00:51:14] Yeah, the banks. Goldman’s going to lay people off. We were joking two weeks ago on the podcast when Goldman said, people back to work, you made a comment. I guess they can’t play, we’re told, anymore. And I said, Yeah, because the five letter word is fired. We said that two weeks ago and here they are going to be on the downturn. No, but I’m sure it’s not funny. [00:51:29][14.7]

Dan Nathan: [00:51:29] It’s not funny [00:51:30][0.4]

Danny Moses: [00:51:31] Its not a good thing. But blue collar workers are finally having their day in the sun. That’s bad for Wall Street. Too bad. This is the reversion to the mean that’s going to happen here. So that means, to your point, a hit to margin. So you’ve got to accept that hits margin. And those companies have two choices. Pass it on to the consumer or start firing people because you don’t lower people’s salaries, you fire them. That’s what happens. And so you’re asking me where we’re going to get. So to answer your first question, what was my takeaway? We’re back to where we were five days ago on the S&P, but it feels worse when it’s like this and the thing to me, Vinny you’ll love it. It just feels logical when you see stuff like this. Reset, rational. What is the S&P earnings going to be in 2023? Probably somewhere between 200 and $215. Let’s just say that that’s the range is at the trough. If that was the trough, you could potentially say north of a 15 multiple on that because that’s the worst. The problem is, like I said, it’s 13 years of unwind. [00:52:17][46.7]

Dan Nathan: [00:52:18] All right. So two weeks ago, SNAP announced 20% job reductions. Then they basically cut guidance. I’m just using that as an example. And the stock rallied 15% the next day. All right. A little bit different of a market than we’re in right now. [00:52:29][10.7]

Danny Moses: [00:52:29] But shorting is easy. [00:52:30][1.5]

Liz Young: [00:52:31] I never said shorting was easy. [00:52:33][1.7]

Vincent Daniel: [00:52:34] I know we’re lazy. [00:52:35][1.1]

Liz Young: [00:52:36] Don’t put words in my mouth. I didn’t say shorting was lazy either. I said it’s easy to make the bear case. [00:52:41][5.2]

Dan Nathan: [00:52:42] So that’s coming to a theater near you, across corporate America. And then we’re going to see something where you cut jobs and then you also start paying for licenses on software. This is where we’re going to see the enterprise spending slow down a little bit, but thread the needle a little bit Porter On this unemployment thing, are we likely to see a lot more very proactive restructuring, if you will, like we saw in Snap? [00:53:03][20.7]

Porter Collins: [00:53:03] I love on this podcast, we mentioned it, but we’ve been talking about how in the 2000 cycle, eventually these tech companies make it to zero. Right. We can’t keep losing money in perpetuity. And you’ve seen that with SNAP. It’s like, okay, we got to start cutting costs. Coinbase, they got to cut a lot more costs. And there’s hundreds of companies out here burning cash in a big, big way. And then you also have the stock based comp and these stocks are all way down. They’re issuing more stock, they’re diluting the heck out of you. And so it’s a real problem. And we’ve been short Wayfair stock. They’re issuing more convertible debt at higher prices now and they have to get out of this spiral of losing money. I just don’t know how they do it because the business ain’t turn around right now and they’re losing a lot of money. And if you’re going to make a bull case big, at least got to make some money at some point. [00:53:51][47.8]

Vincent Daniel: [00:53:51] To shift it to the consumer. Because we were talking about that. One of the things we used to do is financial guys. And that track a lot is consumer credit card debt. And I like to look at it on a year over year basis, nominal, not seasonally adjusted, not real. And right now, U.S. credit card growth is around 14 to 16%. There is about a one month lag. So think about that. This is the highest cost credit to the consumer. That’s their quote unquote warehouse line. It is growing faster than nominal GDP right now. Where is the growth coming from? Ain’t coming from the consumer. I’ll tell you that much, because we typically do not go from 14% year over year growth to 25%. What typically happens is we have a slowdown. And so it gets back to our point is, I think we have to have a natural cycle. We’re fighting it like mad. We’ve been fighting it like mad. Every single time we get to this place, the Fed comes and saves it. I just think we have to go through something and that’s tough. It can’t save us. It’s going to be more difficult. [00:54:46][54.5]

Liz Young: [00:54:46] Well, they will if it gets really bad. But just so the consumer credit card thing, I think it’s important to dove a little bit deeper into. So, yes, it’s grown a lot. When you think about just the cycle, though, if we’re going to argue about a cycle, right. Defaults right now on all consumer debt. So put auto loans in there and credit cards and auto loans are probably the lowest quality they default the most. It’s the thing that people won’t pay. You’re going to pay for your house before you’re going to pay off your credit card. Right. So. Auto loans and consumer loans put student loans in their mortgages. The default rate right now is like 3%. Look at just credit cards. The total balance that moves into 30 days delinquent right now is about 5%. It’s a 5% on any given moment is moving into 30 days delinquent still pretty darn low. And now the 30 day delinquent did just start to tick up in all those categories. My point is and this is rational. [00:55:32][46.0]

Porter Collins: [00:55:33] Logical. [00:55:33][0.0]

Liz Young: [00:55:34] Logical, rational, not bearish yet that leads by at least a year usually. So if you look at what happened in the last crisis, those defaults started to tick up, I think in 2004, 2005. The recession didn’t hit for two or three years after that. So even if there’s an increase in those defaults, because that’s really the risk. Credit card debt is ballooning, but the risk is that people default on it. [00:55:55][21.1]

Porter Collins: [00:55:55] Correct. There’s an 80% correlation between job losses and defaults. And so Canada, last we showed their first ever this cycle, job losses. I would have to imagine our job losses are coming. Maybe it’s this year, maybe it’s beginning next year, but it’s coming. [00:56:09][14.0]

Vincent Daniel: [00:56:09] The other thing I would keep in mind with consumer credit is there’s a very calendar seasonal aspect to it. So between February and May, you have the best consumer credit you’re going to see because of tax rebates and the like. So I like to look at it on a year over year basis. And so when you look at it on a year over year basis, we’re increasing. I agree with you. Not crazy yet. But when I look at the growth, which to me is a leading indicator relative to nominal GDP. I’m not calling for a calamity of any kind, but it’s going to get tougher. And my bigger point is, is that it’s more difficult to see the growth that people think that we can, quote, unquote, soft land ourselves out of. I don’t see it without some form of fiscal response. [00:56:45][35.7]

Danny Moses: [00:56:46] So that’s a fraction, right? So numerator of the denominator. Denominator has been growing exponentially now because people are using credit more so that are probably on the cusp. I want to say the one thing that happened in 2004 and five that actually created what happened in the big short, the biggest misnomer banks were coming up with new products and mortgages 228s 327s, IOs, ninja loans, all this stuff that actually, to your point, normal subprime mortgages default within 12 to 18 months. That’s when you start to see them. It didn’t happen. This time was different. It’s never different. So I think you got to go back and look at that. The other thing is that what private or public company a year and a half ago was forecasting LIBOR or credit spreads or access in their models for 2023, 24 and 25 at four, five, 6%. It didn’t happen. And that has a massive impact, I think. And the other thing is that if you’re Jp morgan, you’re providing financing to Wayfair or somebody who has inventory. It just became 3% more expensive to hold that. So you have to raise prices into a slowing economy. I think all that stuff, again, is a lost art in terms of how to look at every company is different, bottom up and how their impact. And I think now it’s stock picking time. [00:57:49][63.5]

Liz Young: [00:57:50] I find it very interesting if you look at the way homebuilders have traded all year in the way large financial stocks like banks and stuff, money centers in particular, JPMorgan being like the worst of the whole group. They’ve underperformed the S&P dramatically. These two groups literally have believed every hawkish word out of Jay Powell, his mouth. And it was other parts. It was the inflows into tech that didn’t believe it. Talk to me a little bit about from your guy’s experience at Sea Wolfe and obviously at Front Point, when you see these sectors underperforming the way that they have this year and they didn’t really bounce that hard over the summer relative the S&P, I think they underperformed. What did that tell you? [00:58:22][32.5]

Porter Collins: [00:58:23] Wasn’t financials. They haven’t had inflows in a long time. And you can see it. And the problem is, is that their earnings right now are just fine, like the Jp morgan’s fine, the capital markets business is slow to operate. You look at a core middle market bank like PNC or KeyCorp, the earnings are fine. But the problem is, is that the Fed turned off their buybacks and the capital return and they made it much tough for them to return the capital. And so the financial sector is this kind of weird place. That’s one of the reasons that we sort of shifted from doing just financials to everything but financials. It’s just they’re wards of the state. And if the Fed doesn’t like what they see, they say, okay, Jp morgan, you can’t buy back stock anymore. And so it’s a tough sector. [00:59:02][39.4]

Vincent Daniel: [00:59:03] Liz You’re right, the issue is not in the banking sector. They have enough capital. They’re healthy, deregulated banking sector. The fringe names, the nouveau names have been a bit of a concern. But to us, when I look at it, I view it as boring. If we’re going to go through a slowdown, I don’t want to own them. But in general, we’re not for them either because there’s nothing to really fight at. I don’t think they’re going to have a material earnings issue. [00:59:25][21.9]

Porter Collins: [00:59:25] They’ve done a good job. They’ve underwritten well. [00:59:26][1.4]

Vincent Daniel: [00:59:27] They have unless there’s a deep recession. The larger banks, I think, have a bit of an issue on a velocity transaction perspective is that that has slowed down. [00:59:34][7.1]

Porter Collins: [00:59:34] It’s the non-banks that they kept on talking about affirm and upstart for a long time. That underwritings been atrocious. [00:59:38][4.2]

Dan Nathan: [00:59:39] So let me ask you this, because in the years after with Dodd-Frank and all this stuff, I mean, everybody on Wall Street was just yelling about the regulation. Well, look what happened in early 2020. These banks were not going to go under and they’re acting pretty well. Can we all agree that the under regulation in the 2000 or the nineties under the 2000s or maybe the overshoot or what appeared to be an overshoot actually worked. Danny, when you think about it, like we had the biggest black swan the world has ever seen in the pandemic. Granted, the Fed flooded the zone and fiscal and all that sort of stuff. So we kept up the game here, but they stood up pretty well. [01:00:13][34.1]

Danny Moses: [01:00:14] Yeah, the banks, to their point, there’s no major issues. You’ll have blow ups here. They were exposed to some type of commodity. We already saw it happen in nickel. They’re going to be exposed to certain hedge funds that they’re going to have to write off. They’re going to be exposed here and there. Bill Wang I mean, you see these small things, but there’s no massive systemic risk within the banks, in my opinion. It’s more of a valuation thing that’s going on here. No one wants to be dragged in front of Congress again, regardless, and they’ve done a decent job. I think they’ve been forced to do a decent job. You saw just recently all the international risk weightings that have to be done which prevented these companies from buying back their stock, which is a good thing because you want them to have capital on the sidelines. So I don’t think there’s an issue now, some of the European banks potentially in terms of banks that aren’t as closely regulated, have one off issues a different story. But the U.S. banks and last thing I’ll say is I said this many times, every bank is very different. Goldman Sachs is a whole different animal than a Wells Fargo bank. America is a different animal. Then and again, this is not about buying the XLF, but it’s about looking at the XLF, at the ten names that are in there and deciding, you know what, I only like those two out of the top ten because they benefit from higher rates. They don’t have the credit risk. And that’s what I mean by in terms of like stock picking where we have an opportunity. And that’s me being bullish, trying to pick up the mess.anyway so there’s always buying up less. [01:01:24][70.3]

Dan Nathan: [01:01:24] Liz where do you want to be bullish here? So these guys. [01:01:26][1.5]

Liz Young: [01:01:26] Financials. [01:01:26][0.0]

Dan Nathan: [01:01:26] They just said, all right, so let’s talk about value because you guys just said something that again. [01:01:31][4.3]

Porter Collins: [01:01:31] Truly is like Goldilocks and the three bears. [01:01:32][1.6]

Dan Nathan: [01:01:33] But that’s exactly what we like going here. But people may not be aware because we have a Nasdaq that’s down 25 and a half percent on the year was down obviously more than 30% at its lows in June. And you would say, well, that’s not intuitive, that there’s flows that keep coming in. Well, they do for a lot of the passive reasons. We know that the Nasdaq 100, five or six stocks make up nearly 45% of the weight or something. So where do you want to be? You know, we have two weeks left in this quarter. I don’t know about you guys, but if I’m a CEO, I’m instructing my CFO and my finance team of a publicly traded company. Don’t pull a thing forward to make this quarter. And actually, let’s just kitchen sink Q4 here. So my question is, I think we’re going to see some preannouncements, some big ones in the next couple of weeks. And then we’re going to see a lot of really bad Q4 guys. [01:02:16][43.4]

Porter Collins: [01:02:16] We already have seen a lot. I mean, look at NVidia preannounced three times in three weeks like it’s a disaster. [01:02:21][4.5]

Dan Nathan: [01:02:21] You know, in the cycle before that, we saw Target preannounced too tight. So I think we’re going to see that. So understanding that there are tape bombs out there, a treacherous sort of environment right now, where do you because again, you want to keep money in the market. Where do you want to go? [01:02:35][14.4]

Dan Nathan: [01:02:35] If I had to make a bear case too what I would say about the preannouncements, thing is we’ve so far been able to trick everybody on that. Preannouncements come out and everybody has amnesia a week later and it’s like, Oh my gosh, we beat earnings. Well, yeah, because they guided down three times first, so we beat at a much lower level and that’s probably going to run out. So we’ll stop tricking people. So the preannouncements will bring stocks down and keep them down. But where do you want to be bullish? So short term and when I say short term, I mean 3 to 6 months, bullish, two year treasuries. I think at some point there’s going to be news. [01:03:05][30.0]

Dan Nathan: [01:03:08] So Qs and 2s. [01:03:08][0.4]

Liz Young: [01:03:08] Only the 2s. Only the 2s. [01:03:09][0.6]

Danny Moses: [01:03:09] Only the 2s. [01:03:09][0.1]

Liz Young: [01:03:09] Nnot the Qs [01:03:10][0.3]

Porter Collins: [01:03:11] You love the Qs. [01:03:11][0.5]

Liz Young: [01:03:12] You do. I know it rhymes. [01:03:13][0.6]

Dan Nathan: [01:03:13] I just, just real quick that I know people listen to the PA, they know this is I mean to me, again, it comes back to those five names that have these fortress balance sheets, amazing managers. They have monopolies ultimately. And I think this is a very much what’s different this time. I think in five years they’re going to be well, I think we talked about this last night. They will still be the five largest market cap companies in the world. I’m just telling you that Tesla. [01:03:32][18.7]

Porter Collins: [01:03:34] I disagree. History just tells you that. [01:03:34][0.5]

Vincent Daniel: [01:03:34] In 20 years, history will tell you that won’t be the case. [01:03:36][1.9]

Dan Nathan: [01:03:36] I said five, though. You tell me what’s what’s. [01:03:38][1.8]

Danny Moses: [01:03:39] It’s Hard to see. What’s going to be will not be the large five as it might be. [01:03:42][3.5]

Porter Collins: [01:03:43] But [01:03:43][0.0]

Danny Moses: [01:03:43] Porters going to think it’s an energy company. [01:03:44][0.7]

Porter Collins: [01:03:44] The DOJ can easily go after these companies. You just said that they are monopolies. [01:03:47][3.1]

Dan Nathan: [01:03:48] That we’ve been saying for ten years. I’m just saying so they are monopolies. [01:03:51][2.7]

Porter Collins: [01:03:51] First of all, our regulators don’t have a lot of teeth doing stuff these days, so. [01:03:55][3.3]

Dan Nathan: [01:03:55] No administration will have teeth to do it. you know what? Of those top six names that has the highest potential to be the next $2 trillion market cap company. [01:04:02][7.2]

Vincent Daniel: [01:04:03] Do it. [01:04:03][0.2]

Dan Nathan: [01:04:03] Tesla. [01:04:03][0.0]

Danny Moses: [01:04:04] Get out of here. [01:04:05][0.4]

Dan Nathan: [01:04:06] Tesla. I’m just telling you, I mean, like it was 1.2 trillion. [01:04:09][2.2]

Danny Moses: [01:04:09] Yeah. [01:04:09][0.0]

Dan Nathan: [01:04:10] Just a few months ago. It doesn’t budge here. Yep, yep. Where would you look again? [01:04:14][4.5]

Danny Moses: [01:04:14] Under for something. What you buy you have. Yeah. [01:04:16][1.7]

Dan Nathan: [01:04:16] I mean, this is a $900 billion market cap company in the throes. [01:04:20][3.2]

Danny Moses: [01:04:20] It is the Enron of this cycle. While Enron got hit late in the cycle, I have no idea why people are hiding in this name, why they take comfort and everybody owns it. It’s fine. It’s the guy’s a genius. The macros great. Look easy. Tax credits all bullshit. It’s 95% overvalued. On any metric you can look at, there is nothing you can do. I’m a fundamental guy, so I’m going to wait. [01:04:40][20.6]

Vincent Daniel: [01:04:41] It’s an auto company. [01:04:42][0.5]

Danny Moses: [01:04:42] Yeah, it’s nuts to me. [01:04:43][0.9]

Vincent Daniel: [01:04:43] The thing that baffles me about Tesla, what I can’t understand, it provides a product that for $15,000 that does not work for self-driving and kills people on the road. And yet our regulators do nothing about it. I don’t get it. Who in the world would pay $15,000 for something that does not work? [01:05:01][17.8]

Danny Moses: [01:05:01] How they’re operating margins where they are, they’re running factories in Berlin and Austin, supposedly. How are their margins like this? [01:05:06][5.0]

Dan Nathan: [01:05:06] What can I ask you guys a question? So this time last year. NVIDIA had an $800 billion market cap and now it’s 330 billion. Do you think that a year from now, when we are here at Future Proof, we will be talking about Tesla as a $300 billion market cap company? [01:05:23][16.4]

Vincent Daniel: [01:05:23] I do. Yeah, I think it’s a high possibility. [01:05:26][2.3]

Danny Moses: [01:05:26] I don’t I think it’ll be 100. [01:05:27][0.7]

Vincent Daniel: [01:05:28] People forget these are cyclical stocks, right? [01:05:30][2.0]

Danny Moses: [01:05:31] I don’t Understand that. Is everything negative in it that you can have? [01:05:32][1.8]

Vincent Daniel: [01:05:33] They sell $120,000 cars. I mean, what are we talking about here? It’s like, you know, it’s a joke. [01:05:37][4.7]

Danny Moses: [01:05:38] Yeah, it is. [01:05:39][0.5]

Liz Young: [01:05:39] I didn’t get to do my other bullish calls. [01:05:40][1.3]

Dan Nathan: [01:05:41] What was your. Oh, wait. Shocker, Liz the strategist from SoFi has a few more bullish calls, and then we’ll get to the bearish hedge fund guy. [01:05:49][8.5]

Liz Young: [01:05:50] I did. Short term two’s. Long term I do think financials look at the valuations. I know everybody screams about the valuations of energy. Financials is the second cheapest in the index. They can’t really fall that much further. And as we’ve just pointed out, they’re actually in pretty good shape. So over the long term and I’ll even call long term, 2 to 5 years because most investors can’t wait around for ten years to be right. So we’ll call it 2 to 5 years. This is a great entry point for financials. It might get better. The entry point might get better. I also think health care will get better. And I know you’re going to argue with me about this because I think last night you said health care is like the worst sector ever. And I didn’t say that I was bullish health care. [01:06:25][35.1]

Vincent Daniel: [01:06:25] No, no, I didn’t say anything. Health care. I don’t know anything about health. [01:06:28][2.7]

Danny Moses: [01:06:28] He was upset Upset raising prices so much though [01:06:29][1.1]

Liz Young: [01:06:30] Anyway, I think health care is another one. I think the pandemic changed health care forever and the marriage between health care and technology continues to speed it up and make it an attractive entry point. [01:06:38][8.5]

Dan Nathan: [01:06:38] Moderna can’t get out of its own way right now. I just saw the chairman speak last week at a conference and he sounded pretty impressive about all the things that they want to use MRNA technology to fix. Again, if. [01:06:48][9.7]

Vincent Daniel: [01:06:48] hide [01:06:49][0.7]

Dan Nathan: [01:06:50] I wrote other. All right. So you got health care. What else you got? [01:06:53][3.6]

Liz Young: [01:06:53] Communications. [01:06:53][0.0]

Dan Nathan: [01:06:54] And communications is like cable stock, right? [01:06:56][1.8]

Vincent Daniel: [01:06:57] T-Mobile. [01:06:57][0.0]

Liz Young: [01:07:01] Put it this way, when you’re looking for growth, if we’re not on the Qs train, which it sounds like the rest of the table isn’t, you got to find growth somewhere. If you don’t want to find it in tech, you find it in maybe consumer discretionary, but that’s pretty overvalued right now. And if the consumer isn’t the bull case, don’t buy consumer discretionary when it’s overvalued. [01:07:17][16.3]

Dan Nathan: [01:07:17] The XLY 40% of it is basically Amazon and Tesla. All right. Just real quickly, on my QQQ So my point is that those top five names make up 45% of the weight. I think three of the five, five years from now will be bigger market caps than they are right now. And then I think all that other shit, all the dozens of stocks that are down 70 to 80%, dozens of them will rally 200% over the next few years, whether you guys like it or not. All right. Let’s do really quickly, because we only have a few more minutes here left. I want to talk about you guys, obviously, from a macro perspective, are very bearish for a whole host of reasons. Okay. How do you change your mind about flipping being that long and bullish on the global economy deflating and going through another period of ten years where the Fed’s got your back now the Fed has to turn. Other than that, what makes you guys more constructive? [01:08:00][42.6]

Porter Collins: [01:08:03] I think we talked about this on one of the podcast, but we have a framework that we’re in a global sovereign debt bubble. And for me to get very bullish, I have to get over those hurdles that we’re not in that bubble. And if the U.S. magically finds a way to balance the budget and finance themselves, same thing with Europe, same thing with the U.K., same thing with Japan, same thing with China. I’ll get a little bit more bullish. But until that happens, everyone’s like, Oh, you got to buy the ten year, you got to buy bonds, you’ve got to buy bonds. Well, magically, rates are now higher, approaching three and a half percent, something that was unthinkable just a couple of months ago. And until you tell me that this is the level where bonds stabilize, I can’t really think about going heavily in on the long side. That’s what scares me the most. I talked about being scared of being bearish, like the sovereign debt bubble scares me. [01:08:53][50.0]

Dan Nathan: [01:08:54] You think that there’s an economic disaster kind of looming? Is that part of it [01:08:57][3.8]

Porter Collins: [01:08:58] We’ll turn our way out that’s the only way. [01:09:00][1.3]

Dan Nathan: [01:09:01] Right. But isn’t that good for things like equities? [01:09:02][1.3]

Vincent Daniel: [01:09:02] Is it good for equities? But it doesn’t mean it happens at S&P for that. Right. You can’t have it both ways. You got to have the plunge before you get the print. And so to me, you’re just going to have to go through the cycle. Now, what it would take for me to get really bullish would be a massive philosophical adjustment and change of how we’re investing capital in the world. So for the past ten years, we don’t money in stupid things like crypto bitcoin. We’re about to do it in the metaverse and all that stuff. We need real tangible stuff, productive debt, productive debt that can produce a higher rely on what we’re doing. What the UK said I think a week ago, the new Prime Minister was we’re going to start investing in energy in their country, nuclear, fossil fuels and the like. They did a price cap, but they kind of have to. When you start seeing stuff like that, I start getting a little bullish. Yeah, and we need to do that widespread. [01:09:51][49.1]

Dan Nathan: [01:09:53] Alright D-MO a couple of occasions and literally these were very well timed on the podcast where I think one was May and one was maybe late July was a little early, May was a little early. And like you said, you’re always going to be early on kind of bearish calls. You said I went from being twice. [01:10:09][16.2]

Danny Moses: [01:10:10] I went ring [01:10:10][0.3]

Dan Nathan: [01:10:11] It was I went from being bearish. [01:10:13][2.0]

Danny Moses: [01:10:13] Right to scared. [01:10:14][0.5]

Dan Nathan: [01:10:15] Yeah okay so talk about that in the context of and I know you agree with them from the sovereign debt bubble and everything like that, from how you see the economy and then how that translates into, let’s say, equities. We already see bond yields blowing out. We see the dollar at 20 year highs. I mean, we’re seeing like crazy. [01:10:31][16.2]

Vincent Daniel: [01:10:31] An energy crisis. We still have not fixed [01:10:33][1.8]

Dan Nathan: [01:10:34] Right With no visibility on that. So how does this play out for stocks right here? We’re still seven, 8% above the lows in June. What’s the multiple that the S&P should drop out and where do you think we got? The pre-pandemic high was 3400, the S&P. [01:10:46][12.3]

Danny Moses: [01:10:48] So let me just say what Vinnie said. We have to go through a cycle, a cleansing cycle, so to speak, of what it’s like to be in a normal environment where the Fed is not always friendly. We’re nowhere near that yet. What is the level that the S&P gets to that the Fed realizes that, holy crap, there’s a wealth effect that’s going to have an impact on consumer spending on top of everything, it’s through the lows, so it’s probably 33 3400 before you even start to have those. [01:11:09][21.4]

Dan Nathan: [01:11:09] Gundlach He’s got a 3000 target and then Minor or Madrid or whatever from Guggenheim he says down 20% by mid October. [01:11:17][7.9]

Danny Moses: [01:11:18] Let me just say this. In March 2009, we had a strategist in our office that name names Miller Tabak. What’s the who’s that PIMCO now it looks like. No, it wasn’t Boockvar. It was. Yes. Chris, thank you, Tony Krasinski. Thank you, dear. [01:11:32][13.9]

Vincent Daniel: [01:11:32] Oh, my good Tony. [01:11:32][0.5]

Danny Moses: [01:11:33] he was sitting in our office and we were as bearish. I mean, I’m as guilty as anyone. [01:11:36][3.5]

Vincent Daniel: [01:11:37] In that room. I tried to buy stocks, which I think I’m going to. [01:11:40][3.3]

Danny Moses: [01:11:40] Scramble to give you signs for when it’s time to buy. He says, quote, Housing starts are zero. He goes, it can’t get worse. This is the inventory of homes that are on the market. This is just population demand over time. The math and we were all in there and kind of Steve says you’re wrong. It’s just data that’s being present. You’re wrong from a sentiment perspective. So you realize when you get too bearish or to bullish, you need to be shaken by certain things. And it’s moments like that where you should have clarity, be open minded when you see things like that, because this. [01:12:05][25.2]

Porter Collins: [01:12:06] this is not that level though [01:12:06][0.0]

Danny Moses: [01:12:07] Not the level. But I talked about builders for a long time. The builders will be one of the best longs they will be at some point. Again, don’t buy sorry State Street, don’t buy the xlb necessarily, but pick the names that don’t have a lot of debt that don’t aren’t dependent. Those are going to be great values. 0.6 points. I don’t know [01:12:23][16.5]

Dan Nathan: [01:12:23] All right. So we all have like 32 other than 3200 targets to the downside. What do you think leads us there to the downside? What sectors? [01:12:30][6.9]

Danny Moses: [01:12:31] Probably tech. I mean, it’s got to be these things that don’t trade on fundamentals. [01:12:34][3.3]

Liz Young: [01:12:35] It has to be. [01:12:35][0.4]

Danny Moses: [01:12:35] Tied to trade on multiple of revenues that that’s not exist in this market. [01:12:38][2.8]

Vincent Daniel: [01:12:38] To be Apple. I mean, the biggest. [01:12:39][1.0]

Liz Young: [01:12:40] Just by the math of it, the size of Texas has to be Tesla. [01:12:43][3.3]

Danny Moses: [01:12:44] I mean, if Tesla just goes down 70%, no, I’m saying they’re 7% of the S&P. So that’s 5% of the S&P. Right. They’re right there. [01:12:50][6.5]

Dan Nathan: [01:12:50] they’re not, Apple, 7%. [01:12:51][0.9]

Danny Moses: [01:12:52] Whatever. [01:12:52][0.0]

Dan Nathan: [01:12:53] . So you guys all think it’s megacap tech that leads to the downsides. The only group that really can because of the size, [01:12:58][5.4]

Vincent Daniel: [01:12:59] That’s Where everyone’s in. Yeah. Everyone on planet earth owns Apple. There’s not a soul here that doesn’t own Apple directly or indirectly. Yeah. [01:13:06][7.0]

Danny Moses: [01:13:06] I want to say one other thing. What might happen that you’re not thinking about? What’s the kind of and you’re going to have more archegos not necessarily a family office that was representing more money than they had. You’re going to have these if the market starts to move like that. And the we’re right on the ocean. When the tide goes out and you’re looking what’s sitting on the floor, it’s going to be ugly. You will have moments where you’re like, why is the market down so much? People are going to get carried out. That’s what they say. [01:13:27][20.8]

Vincent Daniel: [01:13:27] How about the Fed basically said they’re going to go until something breaks. I’m shocked. Nothing’s broken yet. [01:13:32][4.7]

Danny Moses: [01:13:32] I think might maybe we just haven’t seen that it’s broken. I mean. [01:13:34][1.9]

Dan Nathan: [01:13:34] Look, we got 2 minutes. Vinny ss there a point that the S&P down on the year in 2022 where the Fed at least has to jawbone? [01:13:41][6.1]

Vincent Daniel: [01:13:42] Of course. [01:13:42][0.1]

Dan Nathan: [01:13:42] And how much down is that? [01:13:43][0.8]

Vincent Daniel: [01:13:43] I think it’s like 3400. There’s nothing scientific about that. I mean, I’ll give you another bullish data point that might be out there that happened over the last week and a half. And this is I have no hedge a Putin coup. [01:13:55][11.5]

Dan Nathan: [01:13:55] Yeah, a Putin coup. You heard it here first. Is that 500 points in the S&P in two days like that, a. [01:14:00][5.0]

Vincent Daniel: [01:14:00] Bang, but a cease fire. You got to have the gas flowing again. You got to get rid of the energy crisis and put that to bed, which that’s on cue. [01:14:08][7.3]

Danny Moses: [01:14:08] Is your bullish thesis. [01:14:08][0.5]

Dan Nathan: [01:14:09] Or a ceasefire? Europe doesn’t have nearly as bad of a winter as it relates to the dependance on gas. [01:14:14][4.5]

Vincent Daniel: [01:14:15] it’s natural gas prices in Europe have to come down 70% just to actually have Germany produce steel again. I mean, this is crazy. [01:14:22][7.4]

Danny Moses: [01:14:23] Berlin. No operate, no problem. [01:14:24][1.3]

Dan Nathan: [01:14:24] We had Goldilocks, the three bears, and I’m just sweating all over the place here. All right, Liz, take us out here. Give the people something to be a little bit hopeful. Too bad day. We all agree. [01:14:32][8.2]

Liz Young: [01:14:33] Terrible day. [01:14:33][0.4]

Vincent Daniel: [01:14:34] Pretty good day. [01:14:34][0.4]

Liz Young: [01:14:34] Terrible day. [01:14:35][0.3]

Dan Nathan: [01:14:35] Well, you know, we all think new lows at some point probably won’t go. [01:14:40][5.0]

Danny Moses: [01:14:40] We got to do long gold. Long gold. [01:14:42][1.8]

Liz Young: [01:14:43] Even if I were going to get as bearish as I possibly could, I think if we retest lows or we blow through them, it happens in a jiffy. So we had a big day today. I will admit today was the first day I thought about circuit breakers. I mentioned it to you before. This is [01:14:56][12.8]

Dan Nathan: [01:14:56] Pretty calm about it. [01:14:56][0.4]

Liz Young: [01:14:56] I thought about it and I just thought, okay, if we start hitting circuit breakers on the downside, which, by the way, is 7% in the S&P, we start hitting those. It doesn’t happen just once. It happens a couple of times, but then it just flushes. So it goes fast. And that’s. The thing that you don’t want to end up too bearish in that moment because then you’re stuck in your bearish thesis and you miss the bounce back up, right? [01:15:16][19.7]

Vincent Daniel: [01:15:16] So the flush is the bull thesis, long slow water torture as it goes. [01:15:21][4.7]

Dan Nathan: [01:15:21] And that is the story of March of 2000 to the lows in October of oh two and the story of November 27 to the lows in March, April of oh nine. And I think that’s a big thing that a lot of investors in this market have forgotten. We lived through those and they were excruciating. And let me tell you something, 2002 felt a lot worse in oh one and oh nine that late 08 09 period. Felt really bad, too. So all right. Listen, I hope we leave you guys all just massively uplifted about your portfolios. We hope that you will check out on the tape pod, smash that subscribe button. People leave us review. Thank you, Liz Young. Thank you, Vinnie. Thank you, Porter and obviously D-MO. [01:15:59][37.8]

Vincent Daniel: [01:16:00] It’s great to do these in person. It’s like, thank God Cove. It’s over. [01:16:03][3.4]

Dan Nathan: [01:16:04] Almost everything like that next time. All right. Well, thank you guys for all being here. We appreciate it. Thank you. [01:16:04][0.0]




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