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On this episode of On The Tape Guy, Dan, and Danny are joined by Vincent Daniel and Porter Collins to discuss exercising patience in this market environment (1:00), grading Fed Chair Powell’s speech this week (4:00), the bull case for energy stocks (21:30), the difference between the Dow Jones Industrial Average and S&P 500 (25:20), crude oil volatility (27:30), an update on Dan’s short dollar (UUP) trade (45:40), and Danny’s NFL picks (47:00). Later, Danny, Vinny, and Porter ask “what are we doing?” and take listener questions (1:01:40), plus they separate fact from fiction in “The Big Short” movie (1:04:50).
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Show Transcript:
Guy Adami: [00:00:00] CME Ad [00:00:01][0.5]
Dan Nathan: [00:00:30] iConnections Ad [00:00:31][0.8]
Guy Adami: [00:01:21] We’ve reached the month of November here on the on the tape podcast. And what better way to ring in November than to have, of course Dan Nathan, the extraordinarily handsome but very pedestrian in his NFL picks Danny Moses, the Olympian, Porter Collins and my alter ego, the man who shares extract the very same traits that I do, although we root for different teams. The very handsome Vinny Daniel all here today on the on the tape podcast. It’s crazy. So I tried it on the car ride in and sometimes days before I try to think of a title for the podcast, by the way, you are listening to the on the tape podcast, as I mentioned, and I came up with something. Now, bear with me, gentlemen, because I’m sure you all have something to say about this. In 1981, Tom Petty released Hard Promises. That was his album on that album, the song, The Waiting and of course, people say is the hardest part. And I’m saying to myself, you know, in the environment that we find ourselves in, Vinny, the waiting is the hardest part. And what does that mean? Everybody wants to be that asshole that says this is the bottom. The bottom is in. Elaine Garzarelli, or they want to be Mark Cain’s 12 or so years ago to call that bottom. But as it turns out, false promises, hard promises. Talk to me about that, Vinny, because I think in this environment right now, given where we are, we’re at the part of the cycle where, in fact, the waiting is the hardest part. [00:02:59][98.2]
Vincent Daniel: [00:03:00] 100% agree. See that? [00:03:03][2.8]
Guy Adami: [00:03:03] See that? I knew it. I knew it. [00:03:04][1.1]
Vincent Daniel: [00:03:04] So I’m also going to take you eight years forward to 1989, please. And I’m going to hum a tune. [00:03:14][9.6]
Guy Adami: [00:03:14] Okay? [00:03:14][0.0]
Vincent Daniel: [00:03:15] Okay. You’ll know the band. Danny will know the band? Porter will know the band. He might not like it. I’m going to try. Not that good. [00:03:22][6.8]
Guy Adami: [00:03:22] Do your thing. That’s so awful on so many metrics. That’s so what I’m trying to process. That’s Guns and Roses. [00:03:36][14.2]
Vincent Daniel: [00:03:48] The people who do not short? People do not short. And it’s these three clowns. If you’re going to go long, exercise some patient out, it’s time. Like once again. We sound like broken records. I apologize. The Fed told you not now. And every single time the market wants to take a shot at it. How many times do you need to be told? Not now. So just wait. Exercise some patience. And by the way, I think by the time this is done, it might take a while. Six months, nine months. Sorry. You’re going to be able to get a laundry list of names that you’re going to love and you’re going to want to own for ten, 15 years. But not now. [00:04:26][37.4]
Dan Nathan: [00:04:26] I’ll just say this. So we got a kid who’s working with us, his first job out of college, and he just opened his first IRA account and he’s 25 years old and he literally is putting money in there that’s going to compound tax free that he will not be able to touch for 40 years. And so when you think about patience, I think it really does depend where you sit. What are your prerogatives? What is your time horizon? What is your risk tolerance? Because, listen, I’ve been as bearish as almost anybody for the last year and a half. In the last week, I bought some Amazon, some Meta. Today I bought some Google or as guy would call it, the alphabet here. And again, I’m buying a portion of a position. Do you know what I’m saying, so when we talk about patients, if you’re too patient, you’re going to miss the opportunity. And really, as far as I’m concerned, I mean, you have to kind of average into things. No one’s going to ring the bell at the bottom is the way I would kind of approach that. [00:05:13][46.9]
Danny Moses: [00:05:14] I would say that people that were waiting for the pivot guy, you like this? I think Powell was called for traveling. There was a lifting of the pivot foot. Right. And the funniest thing, not funny, but his obsession with the employment versus anything else now. Now he’s moved completely to the employment side of things but was interesting was that and we’ll get that number tomorrow. What’s interesting is that Mike McKee from Bloomberg I thought asked the best question. It was the only time that Powell flinched, he said. So for people out there that whatever you can trade three month bills now, or you can look at the futures where three month bills will be trading eighteen months from now. Powell himself has said if that’s inverted, it means the Fed is probably going to cut, which means the economy is weak. Well, it’s not quite inverted, but it’s two basis points. So Mike Micky asked him, How do you explain that? He’s like, Oh, well, yeah, you’re right. We do look at that. So it kind of unmasked, kind of made him a little bit of a hypocrite on that. So I thought that was really interesting. But again, some of the things in this market have been the most obvious setups to Vinnie’s point that he made. Like it was obvious that, I mean, the market rally into what were you going to get? You’re going to get a cut in rates. Were you going to get 50 basis points? Where are you going to get something else? I don’t know. But he kept his foot on the gas, obviously, so people were very, very disappointed. The thing that bothers me about him, obviously, he’s been wrong a lot. The thing that bothers me about Powell the most, he almost like and I think this hits people the wrong way. He almost glorifies his ability to say, and I just want to reiterate again, we’re not stopping. We’re not saying let me say again, why do you have to do that? I get it. He wants inflation expectations, but I think he just goes a bit over the top. That’s what I got to say. [00:06:41][86.9]
Guy Adami: [00:06:42] You know, Porter. I would. And listen, there’s no bigger critic. I know we share this in common. None of us particularly like the Federal Reserve central banks and I’ve said this, I’ll say it again for those new listeners, I think the 21st century will littered with villains. I think on the top of that list are going to be central bankers for the situation that they’ve collectively put not only us here in the United States, but the globe. And that’s just my view. I’m not suggesting I’m right, but it is my opinion. But I would say Porter then he said this to me before and I happen to agree this Jerome Powell, this iteration of Jerome Powell, I’m giving him an A in terms of his messaging and in terms of him being steadfast to defeat basically what they’ve been longing for for years, and that is inflation. [00:07:28][46.0]
Porter Collins: [00:07:29] Come on. I mean, I’m sticking with Dannys grade, F. [00:07:32][2.8]
Guy Adami: [00:07:32] That’s a chasm between and A and and F, give me the reasons why he’s getting an F here. [00:07:37][4.7]
Porter Collins: [00:07:38] He’s done everything possibly wrong. The fact that they’ve had to go for 75 bit increments just shows you how f ing bad he was. He’s turn now make up for all the mistakes of the easy money, which at the time Vincent and I and Danny I know were railing against. What the heck are you doing? You can’t do this. It’s going to turn into massive inflation. And sure enough, we got it. Now he’s trying to be too harsh. But the problem is, is that we have a massive debt problem the two years at 470, and there’s going to be more problems with the deficit than there are inflation. And so he gets an F in my book. I think everything it’s I’m as angry as I’ve been in years. [00:08:20][42.6]
Dan Nathan: [00:08:22] Can I push back a little bit here guys. [00:08:22][0.4]
Porter Collins: [00:08:23] And hold on 1/2 then you of all people, you had the illustrious Dan Benton. Thank you for this on this podcast. And he tells you, do not buy sell technology stocks. When estimates are being reduced and estimates are doing nothing but going down, then I don’t know how and why you would want to leg into [00:08:46][23.0]
Dan Nathan: [00:08:47] What I’m saying right now. Porter is I’m starting with quarter positions. And let’s be frank, I mean, these stocks are down 50% of them. And so when you think about an alphabet right here. Lilly, 45% since February. I think it’s discounting further reductions in estimates here. But here’s one thing I want to push back on the central bank stuff, because, again, I think that these guys have a pretty difficult job. Jerome Powell came in in 2018. And what did he do? He started raising interest rates. [00:09:13][26.5]
Guy Adami: [00:09:13] That was the good Jerome Powell. [00:09:14][1.0]
Dan Nathan: [00:09:15] Right. Okay. And then what happened is the stock market went down 20%. The globe was at this point and it was it was in this little bit of a global recession fear at the time, if you recall. I do gets browbeat, as you said. I said the former president. Yes, you have. And then we have this rip roaring market in 2019. They never really get back on that tightening policy. But then we have this black swan event and the only play that they have in their playbook when they have an event like that is to do what they did is to kind of flood the zone with liquidity. They lowered Fed funds, they started quantitative easing. Again, all of the above. Now, I think that let’s be clear, in 2021, do they need to continue to buy and be. Yes, at 40 billion a month? Okay. So they got that wrong. So the fact is, guys, here they are. You just said the two year treasuries at 4.7, we’ve got Fed funds, it’s around four ish. That’s maybe going to go up to five. It won’t get to five. You guys all know that. So at the end of the day, what’s so wrong here in the stock market S&Ps down 22% it was up 28% last year. What’s the problem? [00:10:18][63.1]
Danny Moses: [00:10:19] The problem, Dan, is that to Porter’s point, he was unable to identify transitory from now. Yes. So now he’s looking at employment, seeing how strong it is, how many layoffs, how many companies have to keep announcing layoffs that are coming, whether it’s Amazon, whether it’s Lyft, whether it’s Stripe, whatever it might be. And he himself has said he’s seen a slowdown. Wells Fargo announces laying off tons of people their mortgage unit. So what is he waiting for to flow through into the numbers? And my point is that he needs to be more out of the box. He was too in the box in measuring inflation when he let it run and it wasn’t transitory. Now he’s being too in the box the other way. My feeling is this. And listen, I can be as bearish as the one I’m separating the stock market from what he should be doing. You can go 50, you can say we may take our foot off the gas, give himself the opportunity. These markets kind of have the soft landing. And I believe he’s taking the soft landing completely off the table. And that’s my point Dan. [00:11:06][47.9]
Porter Collins: [00:11:07] My frustration is just not only with the Federal Reserve, which, by the way, gives an F for everything they’ve done. And it’s a whole of government policy. So we’re trying to fix Labor. The biggest inflation inputs going up are Labor. Rents and interest rates were too low for too long. But labor and commodities. So labor, we don’t have immigration policy right. I said this many times before, real immigration has been the lowest in 20 years and then our energy policy is completely backwards. First we tell them, no more fossil fuels, no more fossil fuels. So of course, what happens? Oil goes crazy. And they said, Oh, how about we windfall tax you? But all that’s going to do is lower production too. So it’s like I’m living in a twilight zone. We’re trying to hurt ourselves. I’m so crazed at this point because we’re doing all the wrong things. [00:11:59][52.5]
Vincent Daniel: [00:12:00] F In so many ways, no problem Porter. I hear it all day. So it’s this is great in so many ways. I feel like Jon Snow from Game of Thrones. [00:12:09][8.8]
Guy Adami: [00:12:09] Was that the linebacker for the Rams. [00:12:10][1.5]
Vincent Daniel: [00:12:12] No, Game of Thrones. [00:12:12][0.1]
Dan Nathan: [00:12:12] Spoiler alert he gets killed, comes back, gets killed. [00:12:14][2.3]
Guy Adami: [00:12:15] The linebacker does. [00:12:15][0.7]
Vincent Daniel: [00:12:16] He’s the dude that sits up on the wall worried about the night king. No one knows the night King exists. No one believes the night King exists. Well, let me give you the night King and Porter was sort of getting to it. I’ll give you numbers. We have $31 trillion of debt. And right now, short term rates are no less than 3.7 or 4%. Now, that doesn’t equate to what we’re going to be spending in interest expense next year. But if you wait out a few years, you’re talking about $1.3 trillion of money that has to go to service just the debt, which is higher than our defense budget. No one wants to talk about this. That’s the night King that’s out there. And he’s coming. And again, whenever Porter or I mention this, we get the same thing. And they say to us, Yeah, yeah, I don’t want to talk about that. It doesn’t it’s not real. It’s fake. That to me, Danny, that’s the biggest issue of not just the Fed getting an F. Forget about what Powell did yesterday, but our government getting an F for the last 40 F’ing years. That’s our problem. [00:13:26][69.6]
Danny Moses: [00:13:27] So, you know, I love the world debt clock dot org. So we’re at 31.2 trillion in debt right in this country. So the debt ceiling. [00:13:35][7.8]
Porter Collins: [00:13:36] That’s nuts that you just I just pulled up the world debt clock website at the same time you did [00:13:40][4.3]
Danny Moses: [00:13:41] What are we doing? We’re pulling out of there. Well, yeah, it’s right next to bet Costa Rica dot com. But anyway, so the current card debt is 31.2 trillion and rising and if you look at it, you just want to run and hide. But the debt ceiling is 31.4 trillion. So when I bring this up every six months in the pockets, yeah, whatever will just get through. We’ll get through the debt ceiling. Let me explain what we just saw happen in the U.K. all of a sudden, fiscal responsibility to Vinny’s point comes back in play to the point you just made about servicing that debt that’s out there. We’re running trillions of dollars in deficits a year. It doesn’t matter. We do have like 600 billion in a cash stockpile that Democrats can use in extraordinary measures and all this stuff. But this is going to come right back to the forefront here, right post the election. And to Vinnie’s point, when you look at that in a vacuum, that narrative has completely changed with rates being up four, five, 6% and our ability to service our debt. So I believe that’s going to be a major theme and an issue going into 2023 for sure that can’t be ignored. [00:14:35][54.4]
Vincent Daniel: [00:14:36] And Danny, sadly, let’s bring it back to markets because we’ve been walking out on that and I know a lot of people don’t like that. What does that mean in many respects? And I hate it. It makes me vomit. We’re getting QE again next year. That is almost I would put a high probability that that is going to happen. [00:14:52][16.1]
Guy Adami: [00:14:52] Well, then something really bad is gonna heppen there. [00:14:53][1.2]
Danny Moses: [00:14:53] Vinny what happens at that point, though? Runaway inflation. I mean, I hear you, but that will just exacerbate inflation. [00:14:59][5.4]
Guy Adami: [00:14:59] Let me say a couple of things here. So I think, listen, call it 32 trillion ish. The off balance sheet stuff, I mean, real debt in this country is probably a multiple of them. Forget about that for a second. But no developed economy, at least none that I can find in I’ve actually done the work, has been able to recover from a debt to GDP ratio north of 120 or so percent, and we’re approaching, I think, 150%. Number one, just store that away for a second. And the reasons why I sort of teed Porter up with this thing giving him an A is because to Dans point freshman year, I thought Jerome Powell was a stud. I’m like, this is the first person in the seat that’s got it since Paul Volcker. Then he got browbeat by the Trump administration. He got spooked by the market, then he got an F and he continued to get an F. And the reasons why I think they’re villains is, you know, maybe villains too strong a word. But the fact the huberous around thinking that they could control something that they had no control over whatsoever. We want inflation. We want inflation thinking somehow when they got it, they’d be able to tamp it down is madness and they’re trying to solve the problem that they effing created in the first place. And why are they villains? Because the people that got screwed on the way in with easy money for years are not the wealthy. Those are the ones that sort of they reveled in it. It’s the middle and lower class and the people that get screwed on the way out when inflation is a problem, guess who is a middle and lower class. And the fact that they can ask questions on these news shows are we in a recession is so effing insulting to people that are not only in a recession but in a 1920s 1930s environment must make people scream at their TV sets because it’s, in a word, madness. [00:16:44][104.6]
Danny Moses: [00:16:45] Hey, Guy. [00:16:45][0.2]
Guy Adami: [00:16:45] Yes, Danny. [00:16:46][0.4]
Danny Moses: [00:16:46] So to add to that savings at an all time low credit card debt and an all time high, to your point, the people that should be able to benefit are people can benefit from these higher rates. They don’t have money to put in the bank. You know, their money is sitting in revolving credit card debt. And so it’s a double whammy to your point on the other side. So I’ll add. [00:17:03][16.5]
Dan Nathan: [00:17:03] All right. But they’re also not listening to this podcast. They’re also maybe they should it in the stock market. I’m just saying, like, I feel a little bit like somebody’s got to push back here because a podcast I mean, you and I are on CNBC every night. We have all these podcasts, we do the market call. These guys are investing and see, well, no one spends this much time talking about the Honorable Jerome Powell. I’m just saying, like a lot of wonks on Twitter do, but I kind of unfollowed him and muted. What I’m saying is, is like not particularly useful because we all get it. We could find some geniuses that could push back and say, well, what do you. What to do. We can’t prove counterfactuals, but in the last 25 years, every time we’ve had some massive issues financial crises, the post dot com implosion, when we had a huge terrorist attack, people were screaming about inflation for 20 years and it finally happened. And let me just tell you this. What if transitory meant two years, it didn’t mean six months that who cares? I guess my point is, is like, I love all of you guys. I think I’m maybe serving as an avatar for a large part of our listener who wants to come here and they want to figure out how to deploy capital in the markets and how to make money and how to think about frameworks and stuff that is outside of the Fed. [00:18:11][67.9]
Guy Adami: [00:18:12] And I will tell you, I think we’ve done a really good job with that. We’ve given the 30,000 foot view and we’ve given some very granular things to talk about for people to think about. But we bring this up Vinny, because I think it’s important for people to understand some of the problems that we’re facing collectively have been brought forth by people supposed to be looking out for us. [00:18:32][20.2]
Vincent Daniel: [00:18:32] So let me think about what I did just yesterday and what we do in the Seawolf portfolio. And there are two separate things in many respects. So what I did yesterday was I took some cash, called up my bank and told them to move it from savings and to ladder it into a one year treasury and a two year Treasury. One year Treasury, you could get 4.6%. And the two year treasury, I think I got 4.5%. That’s what I would do. I think the best risk adjusted return right now, you mentioned something that you do not believe the fed funds going north of five. I kind of agree with you. So why wouldn’t you get four and a half for 4.6% right now? And that gives you the ability to wait earning yield. This is the first time someone can get yield on savings. Let’s call it risk adjusted. You could be the best and you will be, but at least you get risk free rate of return. That’s a pretty high return rate. [00:19:28][55.7]
Guy Adami: [00:19:28] Well, here’s the pushback that people will say, well, wait a second, Vinny, you’re not even keeping up with inflation. That’s the one thing. And then people will say, well, over time, you mentioned risk adjusted. If you’re in the market over time, you’re going to be rewarded for it. So that’s the counter of that argument, by the way, I happen to agree with you, but that’s what people say. [00:19:45][17.4]
Dan Nathan: [00:19:46] So Porter 22 years from now, okay, when we think about what happened in the first 22 years of this century, people are thinking about markets and cycles and Fed policy and everything like that. They’re going to talk about really four instances where interest rates went lower at the hands of central banks. Then they went higher and then they went lower. And then, I mean, all the massive nations in the middle of this is all going to be, you know what I’m saying? In a way, I’m just curious how you think about that, because when Guy says, we’ve done a pretty good job, Guy, you were screaming from the rooftops last November saying that the Fed, Danny, was doing the same thing. And I’m sure you guys were doing that over at Seawolf Global Headquarters, that what’s about to happen is going to be really bad for risk assets, right when the Fed starts to raise interest rates. So we did that and they’re still raising and they’re still kind of emphatic about what they need to do. So you guys are going to have an opportunity to scream from the rooftops again and get the next massive move. Correct. All the other stuff in between, meeting to meeting, it’s a bunch of B.S.. [00:20:51][64.3]
Porter Collins: [00:20:51] I go back to what am I talked about on the podcast this spring and I said I was bullish and Danny threw up his hands and stuff like that. I said, No, I’m bullish on energy stocks. And look at what Exxon and Chevron did this quarter, record profits. And the XLE is flirting with 52 week high. It’s outperformed the S&P by 70% since COVID. And all this while Biden has been dumping the Strategic Petroleum Reserve and oil is basically bottomed and come back up here. And so I go back to and I was looking through my father’s portfolio the other day and I couldn’t help but look through it. There was not one energy stock and he’s about as plain vanilla portfolio, but that’s all over the place. They don’t have one energy stock and a lot of these stocks are 10% dividend yielding stocks. Look at we own Chesapeake, 11% dividend, and we haven’t solved the problem of energy and we haven’t solved that. We’re not pumping enough energy if we want to grow this economy and if we want to grow our way out of all this debt, we need fossil fuels to get there along with everything else. But again, we’re not solving the root problems. We want to lower the costs for all Americans, lower the cost of oil by producing more. But we’re not doing that. And so I’m taking advantage of that. And I sit there, buy cheap stocks all day long. I love them. [00:22:19][87.3]
Guy Adami: [00:22:19] Let me make this actionable because again, going back to the why of people listen in large part. So we have a midterm election coming up on Tuesday. That’s right around the corner from when you listen in this podcast. I would submit again, just my opinion. And I think the next leg in the energy move higher is post-election. Why do I say that? Because a lot of these guys and gals are running on inflation’s out of control and we’ve got all those different things after Tuesday. It doesn’t matter because it’s another two years before an election. Nobody’s running on high energy prices, and at some point, these geniuses are going to have to stock back up the SPR and they’ll do it at some price. It ain’t going to be here, by the way. So I think energy is waiting for this election to be over. And to your point, Porter and Vinny, I’m interested in what you have to say. Exxon, Chevron, Conoco, collectively now have a market cap north of $1 trillion, all trading within a whisper, if not an all time high, all still extraordinarily cheap on valuation, all still extraordinarily profitable with crude oil trading anywhere between 75 and 90. So if crude goes sideways to slightly higher over the next six months, in an environment where people are going to be looking for value, they will find it, in my opinion, an energy stocks that have rallied but have a long way to go. [00:23:40][81.4]
Vincent Daniel: [00:23:41] I completely agree with you. So I answered what I was doing in my personal portfolio and Porter answered what we were doing in Seawolf portfolio. Let me dig a little deeper in the Seawolf portfolio, because you mentioned the fact that and Porter mentioned the fact that we need more energy, we need more oil, and our portfolio has somewhat evolved and has expanded to the oilfield services names now, names that people would know that that would be CNBC names and the like would be Schlumberger, Halliburton. Right. We’ve gone a little bit deeper and a little bit more. It’s mid-cap and mid-cap because that’s where the real value is. I mean, we’re finding things there that are two times EBITDA and they went bankrupt three years ago. So the balance sheets are clean and even some of the names where the balance sheets are not clean, they have so much tork that if we’re right on the fundamentals, these things can be doubles and triples because that’s what we do in Seawolf, which is really find aggressive things and deploy capital that way. So when you talk about what we’ve been long, to me that’s where we have been deploying capital on the long side. [00:24:41][60.1]
Danny Moses: [00:24:42] Yeah. So what I would add to that and Dan, I think you’re right, try to help people make money the way we can, but the problem is the obsession that everyone has on the Fed. And I think let me just end with this before we go. My next point is that when you own something like Maersk, one of the largest container firms in the world, that tells you that things are drastically slowing. You own maybe you own stock in it, maybe you’re trying to figure out why is there such a disconnect between the slowdown that certain industries are seeing and what the Fed is recognizing or hub group? I’ll just say that I think it’s important to note just the logic that doesn’t tend to pervade across that. Let me just say that. But Dan I got a question for you, because this the whole Vinny Porter trade into ExxonMobil occurred when ExxonMobil was kicked out of the Dow Jones for Salesforce. You get these technical opportunities that are once in a lifetime that happened to coincide with a great fundamental entry point. So Dan, on your FactSet machine, what is the Dow for the year? The Dow Jones Industrial Average for the year, I think it’s down around like 11 or 12%. Something like that [00:25:33][51.0]
Dan Nathan: [00:25:33] I don’t even have I literally don’t even have the Dow [00:25:35][2.0]
Vincent Daniel: [00:25:38] Actually, that actually said a lot right there. [00:25:40][2.0]
Danny Moses: [00:25:40] No, you’re about to get to my point. Dan while you’re looking at it, it’s around 11 and a half percent and the S&P is down around 21% year to date. I mean, that’s a massive. So we always used to make fun of certain people that would. Where’s the Dow? Where’s the Dow? I hear it all the time from people I friends that hey, Danny, what do you think the market I’m like why it’s down but to go no it’s down 500. I’m like, you’re looking at the wrong indices. What’s interesting, I just want explain the difference. The Dow Jones industrials, 30 components and it’s price weighted. What does that mean? It’s price weighted, not market cap weighted. So guess what? 11% of the Dow is united care because the price of the stock, not the market. And it’s been a huge up 9% year to date. It’s been a massive winner, right? Goldman Sachs is 7% of the Dow. Home Depot and McDonald’s are 6% of the Dow. So you get these weird opportunities that kind of send mixed messages. I’ve always used the S&P 500 investors have used the S&P 500, which is weighted by market value, not price. So I just I’m using this as a reason to go tell people, stop watching the Dow. That’s your headline number. I get it. That’s the thing. When you’re walking through airports that people are going to see, it’s more dramatic because it’s 32,000, not 3700. So you get these dramatic moves. But again, I just wanted to highlight that when these guys are talking about because I know that Exxon got kicked out, Pfizer got kicked out. Right. So you had these opportunities. So people should pay attention to those. [00:26:54][74.3]
Dan Nathan: [00:26:55] So Vinny you mentioned small mid-cap. That’s kind of your sweet spot. That’s where you guys uncork some value there. When I think of these large integrated or these large drillers, I say to myself, it’s going to be a really hard time to make money in Exxon and Chevron, XLE, from here on out. Let’s just say this. Let’s just say that you guys are correct that the Fed’s gotten everything wrong and they push our economy into a recession. That is not a soft landing. What do you think oil is going to do and what do you think? Porter That all of these politicians and everybody who are against drilling and for whatever reason, we go the other way. So we have a weak global economy where demand’s low and then we have a weak political environment for that sort of sea change. Where do you think the large integrators are going? [00:27:35][39.6]
Guy Adami: [00:27:35] Under those circumstances. You’re right, they’re probably pushing up against it. But there’s a wildcard here that we should talk about, and that’s the potential for China to reopen. And I think if that were to happen and it’s going to coincide, I think, with a lot of things that are happening right now, that to me, again, my opinion is the next leg. So post-election China reopen, commodities start to get a little haywire here and I think that’s going to unlock a lot of value. And if you want an actionable trade and we’ve talked about this, it was two years ago around Halloween when Alibaba was a 320 ish dollar stock. Since that time, the stock just made a six and a half, seven year low, traded with a 58 handle last week. I’ll say again, $58 stock, traded over 100 million shares. And what I said then and what I’ll say here is that stock at least eight, maybe ten times over the last two years has given you 35 to 50% moves to the upside. And I happen to think we’re on the cusp of something like that again. So there are opportunities out there. But to answer your question, Dan, if China would reopen in any meaningful way, forget about crude oil is going significantly higher. And I think all these big cap integrated names [00:28:49][74.5]
Dan Nathan: [00:28:50] You know they are going to reopen, right? They’re not going to stay closed forever. [00:28:52][2.0]
Guy Adami: [00:28:53] No. I understand [00:28:54][0.2]
Dan Nathan: [00:28:55] No, I’m busting balls [00:28:55][0.3]
Guy Adami: [00:28:56] It’s going to be sooner. [00:28:56][0.1]
Dan Nathan: [00:28:57] I know. But we not say that for a year and a half. And maybe this is like an impaired economy going forward in some way, shape or form. And I look at the XLE and I say to myself, I’ll go back to 2014 highs. I think you have a ten up, maybe 25, 30 down upside downside risk reward right here. My point was Guy and I don’t mean to be glib about it, everybody knows China will reopen at some point. Where’s the global interest at? [00:29:20][23.1]
Guy Adami: [00:29:20] I think everybody knows that and that’s fine. Is it priced into the market? And I would say absolutely not. [00:29:26][5.7]
Porter Collins: [00:29:27] People forget that Biden’s SPR dumping is adding a million barrels a day that otherwise wouldn’t be there. If you look at U.S. production, it’s already rolling over. We’re coming off the peak of production. You talk about what OPEC’s doing. They’re cutting back production. And I don’t know if they’re cutting back production because they want high price or just maybe, just maybe Saudi Arabia can’t keep up 10 million barrels a day production, which they’ve undercut their production targets for a long time now. And the rest of OPEC has, too. So I would argue, given the amount of CapEx put into the ground, that we can’t keep up the same production levels. You know, an average just pointing out the other day, if you look at some of these Schlumberger and Baker Hughes and just look at the size of the balance sheets, go back ten years and you look at the asset levels on these balance sheets and they’re down by 30%. And so if you cut the assets of the people drilling for actual oil all over the world, Schlumberger is a global company, not just the US. And you just say that the assets they have are down by 30% and this is all across the oilfield services space. You just can’t produce the same amount of oil. And we all know the shale drillers have a very high decline percentage. Again, it makes me not bullish on the economy. I just think higher oil prices are going to be here for a lot longer than people think they are. Right. There’s no silver bullet bringing them back down because we haven’t invested the money. It’s like doing your work. You put in the work, you get the result right here. We haven’t put in the work and we’re not going to get the result. We want it. [00:31:02][95.7]
Vincent Daniel: [00:31:03] Dan, I’m going to answer your question, but the question to you and I think sometimes there’s so much the disparity between opinions, what’s your timeframe on the up 10 down 35. [00:31:11][8.4]
Dan Nathan: [00:31:12] Probably in the next like 3 to 6 months. [00:31:14][1.7]
Vincent Daniel: [00:31:14] That’s what I thought. Okay. So our perspective and first off, we haven’t bought Exxon or Chevron or any of them because the mid-caps and small caps have vastly underperformed the big guys. Because I think what a lot of people are doing right now, big, big money. I mean, those moves in Amazon have been seismic and that money’s going somewhere. And you could see it’s going to JNJ, JPMorgan, Exxon, Chevron and the like. This mid-caps. I won’t say they have been left for dead, but they have not moved accordingly. I agree with you. I’ve been worried about the economy for six months. And so therefore, part of that is is is in there. It’s like prego, right? Like prego, spaghetti sauce. Part of it’s in there. I think it gets a little bit worse over the next six months. So I am I am a. [00:31:56][41.8]
Guy Adami: [00:31:56] Say prego tomato sauce? [00:31:57][1.4]
Vincent Daniel: [00:31:58] Yeah, it’s in there. [00:31:58][0.4]
Guy Adami: [00:31:59] Prego tomatoes. [00:32:00][0.5]
Vincent Daniel: [00:32:00] Yeah, I know our mothers and grandmothers would never allow prego to. [00:32:04][4.0]
Guy Adami: [00:32:04] Can’t believe sitting in the same room as you. And you said. I mean that. [00:32:08][3.8]
Vincent Daniel: [00:32:09] It’s a commercial that came up in my head. [00:32:10][1.4]
Guy Adami: [00:32:10] Well, that’s unfortunate, but please continue. [00:32:12][1.5]
Vincent Daniel: [00:32:12] Anyway. So my view is, yeah, we do worry about that. But when we look at the next 5 to 10 year cycle in energy, and I think that’s what Porter is talking about, the massive under-investment in this includes uranium as well and and also includes the residual need of coal and where these things have been left. That’s where we see the opportunities over the long term. Can these stocks be down ten, 20% and that we’ve seen that. Yeah, they can. But we would be buyers of that because everyone looks at the demand. It’s the supply that really moves the needle long term. And there hasn’t been any supply, at least not yet. [00:32:47][34.5]
Guy Adami: [00:32:48] Yeah and you know, we’re looking right now in terms of demand and everybody’s waiting for demand to fall off a cliff. And that’s the reason why I think crude oil went from 130 down to 75, wherever it is now, it doesn’t really matter. People were front running demand destruction. The problem is we haven’t seen it yet. And with each passing day that we don’t see it. To me, you just get more incrementally bullish on the underlying commodity. That’s just my take number to all the companies that we’re talking about. In some ways, the best thing that ever happened to these energy companies was ESG, and it was painful going through it without question. But it forced these companies to be better at what they do, to be more efficient in what they do to run a tighter ship. And quite frankly, they’re getting rewarded for it on the back end. So again, if the commodity price doesn’t move, these are just better companies than they were five or so years ago. And Tim Seymour says this and I’ve said it as well, ESG aside, the best thing that happened a lot of these companies is, in fact, the Biden administration. That’s not political. That just happens to be fact. [00:33:52][64.1]
Vincent Daniel: [00:33:52] I completely agree. In our view, part of the reasons why we got so bullish was the Biden administration and ESG and the initiatives of Larry Fink and everyone in there that has you were penalized if you invest that capital in fossil fuels. Still, to this day, you are it’s getting a little bit better/ [00:34:08][16.1]
Danny Moses: [00:34:08] If oil goes lower because of demand destruction. I think the stock market’s much more risk on other sectors. And I would also say that if you didn’t know what a company did for a living, just put that aside. You looked at these balance sheets, you looked at these earnings, you looked at IBD. I looked at all these things. These companies are quietly turning into environmentally friendly companies are making acquisitions into the sector. They’re trying to validate at least the use of capital. And so certainly it’s hard to be short them, whether you don’t want to do it philosophically or whether you think oil is going to come down. [00:34:37][28.9]
Dan Nathan: [00:34:37] That’s the only thing I would just say is near-term. XLE OIH you think about how volatile they’ve been this year, if you guys are correct about the global economy, these things are great shorts right here for a 3 to 6 month time horizon. In my opinion, I couldn’t actually think of a better short where so much money. To your point, Vinny has rotated out of the prior leaders that made up a disproportionate percentage of the S&P. We had five or six stocks that made up 25% of the S&P 500. And we’re talking about a sector that makes up at best mid-single digits, percent of the S&P 500, which has been a disproportionate contributor to S&P earnings. And that’s expected to decelerate massively in 2023. So if we have a recession, a global recession next year, these stocks are the best shorts of the market. [00:35:25][47.8]
Vincent Daniel: [00:35:26] Dan could I? I’m not disagreeing with what the market. I had this conversation with a friend. How much do you think aggregate demand goes down in a recession? [00:35:33][7.3]
Dan Nathan: [00:35:34] I have no idea. [00:35:34][0.6]
Vincent Daniel: [00:35:35] Okay. I had a feeling. It’s nothing. So basically, oil demand runs at about 0.55% of nominal GDP. So if nominal GDP is, say, 5% and it goes down to 2%. So you go from a two and a half percent increase in demand for energy to say a one ish increase in demand. The street treats it like aggregate demand is going to go down 30%. That’s not what happens. The only time it went down that significantly was during COVID, and that made sense because we shut the entire world down. So, look, I’m not saying that the stocks can’t do what you’re saying it can do. We’ve been talking about recession for 6 to 9 months. I actually think we’re probably in a real recession, not a nominal recession. But nevertheless, my perspective is I would be buying into that. The other thing I would say on these names, and just for people who trade these names or invest in these names, I’m a big believer in looking at RSI. I mentioned oilfield service names. We own them. We’re not selling them. But when the RSI saw north of 70, Porter and I look at each other and say, okay, what are we going to do? And the one thing we do not do is buy. [00:36:43][68.5]
Guy Adami: [00:36:44] I’m going to comment on that because it’s really interesting. Relative strength index for you. Playing our home game is RSI. Now you know this and I know you know this. I’m not stating anything that nobody here but RSIs can get worked off. So if these stocks were to go sideways for the next, let’s say, month, month and a half, that RSI that is overdone to the upside all of a sudden gets worked off and it gets to levels where they become interesting again. So there’s that potential as well. Where the peak RSI is do get worked off for the stock did sort of trade sideways for a period of time. [00:37:16][31.7]
Porter Collins: [00:37:17] And just like that venerable guest you had on Dan Benton with regard to tech stocks, you know, you buy them when estimates are going up. I do the same thing in all sectors. When estimates are going higher. That’s where we fundamentally heatsink our long portfolios consists predominantly of stocks where earnings are going up and we’re short on the flip side, stocks where earnings are going down. And so I think sometimes you get all caught up in what’s the Fed doing with oil prices are doing, what’s the economy doing, what’s it like if you keep it simple, you know, estimates up, therefore buy estimates down, therefore sell and so. [00:37:54][37.5]
Dan Nathan: [00:37:55] Right. But you’re not shorting Amazon Alphabet or Meta here, correct? [00:37:59][4.4]
Porter Collins: [00:38:00] Not those. But we’re short a lot of tech stocks. [00:38:02][2.0]
Dan Nathan: [00:38:02] And again, there’s one where the relative strength was off the charts relative to some of these other mega-cap names where it just seemed to be a lot of people were hiding out there. [00:38:11][8.1]
Porter Collins: [00:38:11] One large cap stocks we’ve started to short is Home Depot if you look at housing starts where they’re headed we’re headed to a 2008 to 2011 type housing starts number. And if you start to roll that through what the numbers look like, it’s not good. Right. And so that’s where I think that Powell is making a mistake. And he’s yes, he’s shutting off inflation, but he’s going to really crush the economy a lot harder than people think it is. And he made a comment in the press conference that he think that there is not as much of a lag between what the Fed does and what happens in the real market as much as it used to be. Again, F I disagree with them like it’s going to hit. It’s going to hit with a lag. [00:38:55][44.5]
Guy Adami: [00:38:56] Yeah, I did that to tee you up for sure. So for you again, playing our home game, it was this time last year literally that Home Depot was making a new all time high, somewhere around 420 or so dollars. As we’re sitting here today, it’s a $280 stock. Again, not that it matters what it was, just for context, number one, and you think about it, people will say Home Depot is reasonable now on valuation, except that if there is a miss, that valuation which is cheap, becomes very expensive very quickly. And just to sort of put a button on this energy conversation, although crude oil has gotten whacked, the products haven’t. And when I’m talking about products, I’m talking about heating oil. Gasoline did come down, but very quietly, gasoline is back on its horse as well, which does not speak to demand destruction. It speaks to quite the opposite. So crude oil is the headline without question. Products are what drives this entire thing, and products are doing actually very well in this environment. [00:39:52][56.5]
Porter Collins: [00:39:53] You make an excellent point there. Just when you’re driving around on the roads, diesel used to be a lot closer to gasoline. But if you look at the diesel prices, they’re a lot higher than gasoline at this point. And it speaks to the refining capacity. United States just is not good. You don’t get as much diesel out of the light sweet crude that you do out of the heavy crude. And so just that the whole supply chains are just a lot different than they used to be. [00:40:16][22.7]
Dan Nathan: [00:40:17] So a little inside baseball, you know how we say things that well, that doesn’t act well. Crude does not act well. Crude’s down 30% from its highs in June. And it’s basically up, I don’t know, 15 or so percent. And when you think about the move in oil services OIH up 50% in a month. XLE okay, large integrators up 30% in a month on a relative basis. I think that something is kind of out of whack here and crude actually feels like the next move lower. I know Guy, we were looking at the chart yesterday. It looked like it wanted to party a little bit not partying today. [00:40:47][30.5]
Guy Adami: [00:40:47] No. [00:40:47][0.0]
Vincent Daniel: [00:40:49] But to me, first off, I, I say this to put her a lot probably once a week if I could just get crude to stay between. 85 and 94 bucks a barrel. I’d be as happy as can be. And so what that is saying to me, these companies are producing massive cash flows at those levels. And so as a result. So, yes, crude moves up and down. These stocks move up and down when they report people like, wow. And they just keep increasing dividends, they keep increasing share buybacks. So on the other hand, this SPR release and China are two major catalysts. So on the one hand, yesterday we were laughing at ourselves and saying if Powell does pivot or soften or whatever, our longs are going to go ballistic. Because not only we own those, we also sadly own gold and silver, which is sort of almost a hedge against our shorts in some way. And those would have went ballistic as well. But it didn’t happen. And oil continues, these names continue to go up because to me it feels like right now you’re just having fun rotation. But yes, I agree with you. The fundamentals, if we get an SPR release and if we get China, that can more than make up for the drop in aggregate demand that would happen for a recession. [00:42:02][73.8]
Danny Moses: [00:42:03] Let me say something for people out there that I worked with Porter and Vinnie and Steve, three of the smartest people I’ve ever worked with collectively, honestly. So these are guys have now taken their brains out of the financial services sector. Not all of it, but they still focus, they still focus on it and have applied it to energy. So for people out there, this is not macro trading necessarily. It’s bottom up with a little macro thrown in. So I just feel like I need to tell people this is not like it’s not a well thought out and whatever happens happens to their performance. Yes. When he mentioned they know when the RSIs are too high, you can feel it when you get the call. The person that never bought energy says, I finally bought Exxon. I’m in. You should. Then you turn around and sell everything. There’s a behavioral finance, but it just for people that are listing out there from a balance sheet perspective, from an income state perspective, this is not like a dart throwing contest. This is counting cards. So I just wanted to add that. But guys, let me ask you a question. Have you seen any weird option activity in the in the energy space at all, like anything? Not nothing out of the ordinary, right? [00:42:54][51.3]
Porter Collins: [00:42:55] Not like Tesla no. [00:42:55][0.5]
Danny Moses: [00:42:56] No, not like Tesla. But I was looking in the health care. Let’s shift to the health care sector for a second. So Johnson and Johnson bought Abiomed because it’s not pronounced a biomed because I got corrected and that’s Abiomed. Do you know that unusual whales gets all this stuff that on October 21st, Dan, you’re going to love this. Someone bought 750 3 ten calls. The stock was to 60 for a dollar 50. They spent $100,000 for those people in the home game out there. This thing gets announced. This deal ten days later, guy makes $5 million. First of all, where’s Barry Diller on Activision and von Furstenberg and all those people? Because I’m still obsessed with that whole thing. How hard is it? I don’t want to get Vinnie going here. That’s pretty easy to find who the person is that did that. The open interest was seven on that option line. Okay, so make $5 million. Where in the hell are the regulators in the police in this market? Because that is one of the most obscene things. Sorry I had to get off my chest. Total non secular doesn’t mean anything. I just wanted to shift to health care. Vinny. [00:43:52][56.1]
Porter Collins: [00:43:52] That was fabulous, by the way Danny. [00:43:54][1.6]
Vincent Daniel: [00:43:54] Danny, you know that if we were working at the SEC, if we saw that, the first thing we would do is call up who’s the broker that traded it? I’m going to pick on them. It might not be them. Say it’s Goldman Sachs and we would say get DJ DuSol on the line right now. Right. And then we would say, you give me that trade ticket, and if you don’t, I’m going to make your life a living hell in a week. And, you know, I can. And so I would want to know who did it. They know the broker dealers know who did it. So the problem we have with our SEC is they don’t do that. [00:44:24][30.2]
Guy Adami: [00:44:24] Yeah, well, there are a lot of problems with the SEC. Before we go to break and we will come back with these three guys. Dan has had a trade and I happen to agree with this trade. The dollar and interest rates are such a huge component of what we talk about day to day basis. You know, the dollar has been lower left to upper right. Let’s give it a little back, but it’s back on its course. Interest rates are still I would submit the bond market is still broken. When you see a 17 basis point move in two year yields in the course of about 15 or so minutes, that’s broken to me. But Dan, maybe update on the trade because I happen to agree with your premise. I think again, we are in a secular bull market for the dollar with trading opportunities to the downside. [00:45:06][42.1]
Dan Nathan: [00:45:07] Along the way. Yeah, no, I mean, listen, and I think you guys would have all kind of agreed with this. I mean, if we were just to have a little bit of a pause in the ultra hawkish rhetoric, you would have seen the dollar and you would have seen yields come in a little bit. And so I’ve just kind of been positioning that, but actually use the options in the ETF that tracks the US dollar index. That’s UUP. I’m defining my risk. You know, on the flip side of that, calls in the GOVT bullish GOVT, the Treasury ETF, that means you’re bearish on yields. But again, these are not huge trades. I am no macro mind. I like to think in terms of reversion. And when you have steep uptrends, which is what we have in the U.S. dollar index and what we have in Treasury yields, I like to play for a test of those trends. And if there’s one fundamental reason for them to break, they will overshoot to the downside and to use leverage and to find your risk to do it. That’s kind of. How I spray those bats, but what I’m looking to average into something like I just talked about some of these mega-cap techs. I start buying a quarter a position, add a little more. So there’s just two different strategies. I’m wrong on the options. One, and those go poof sooner or later. The ones on the equity markets. You got to stick around with or you got to use defined stops. [00:46:14][67.5]
Guy Adami: [00:46:15] Over the last ten, 15 or so years, the Boston Red Sox have had years where they win the World Series. They’re the best team in Major League Baseball. And then the subsequent year, they’re one of the shittiest teams in Major League Baseball. Now, I’m sure a lot of you folks are saying, why is Guy Adami, an ardent Yankee fan, bringing up the Boston Red Sox? And that’s a good question. The reason why is because last year, Danny Moses was the World Series winning Boston Red Sox. You could not lose in his picks in the league where they play for pay. This year, that same Danny Moses, he hasn’t changed is an extraordinarily pedestrian and I would submit embarrassing 12 and 11. So before we go to break, Danny, you are now in week, I believe is it nine in the NFL? I mean, it’s crazy how quickly it goes by. Please give us your picks in this league where the men that play get paid to do it. [00:47:11][56.5]
Danny Moses: [00:47:12] All right, so first thing I’m going to lose. So Dan came into this overall season between the gold beat last year and everything else in football, down 15,000. I’m going to lose 5000. I don’t think the Fed’s cutting in the meeting in 40 days. So I’m down there. We are now back to ten. Okay. However, Dan just had a guest on this guy, this stud, Jake Wood from Team Rubicon. Incredible, incredible organization. Right. Jake played offensive line at Wisconsin. He was a marine sniper badass. And I want to support this, Dan, so I would ask you. Let’s close it out. Yeah. Take my ten grand and donate it to Team Rubicon if you would do that. [00:47:47][34.5]
Dan Nathan: [00:47:47] Done, done and done. So real quickly on Team Rubicon, this is an organization Jake was a marine sniper left in oh nine after a couple of tours overseas, started Team Rubicon, basically recruiting vets, deploying them to disaster areas, training them. It’s a great organization. He was the CEO of that company he was on. Okay. Computer, you’re going to be able to listen to that next week. So check it out. And RiskReversal for immediate will be making a $10,000 donation. And I want to be top in that thing up here so thanks Danny. The slates are clean there? [00:48:16][29.1]
Danny Moses: [00:48:16] Slates are clean. All right. So three picks this week. I will keep shorting Tampa Bay til I’m blue in the face long Gisele short Brady by the way I take the Rams plus two and a half in Tampa does give me the Rams I don’t care I don’t think Tampa can beat anybody at this point. Tennessee getting 12 and a half at Kansas City. I think they play him tight with or without Tannehill. I know they got some injuries on Tennessee. I take Tennessee plus 12 and a half in Baltimore. Roquan Smith, the University of Georgia bad ass now traded from the bears. I think New Orleans has been borrowed time here, outperforming Outkick in their coverage, so to speak. I like Baltimore minus three there. But guys, it is Breeders Cup weekend. It is the Breeders Cup Classic. There’s a lot of races over the course of Friday and Saturday. It’s being run at Keeneland. It’s a mile and a quarter. The difference, remember Breeders Cup and all the things you hear about in the Derby and Preakness and Belmont is you have to be three years old to run in those three. This one, you can be as old as you want to be. This is a couple of four year olds in this race that obviously are the heavy favorites. I won’t take up too much time on this. I do not like betting horses that are what we call 3 to 5. I’m not betting $50 on a horse to win 30. However, you can’t ignore this flight line. And the last time this trainer, Sadler, had a horse like this, it was like four or five years ago in the Breeders Cup. He lost. It’s kind of this horse has won its last five races by cumulatively 63 lengths. This is unheard of. Right. So he’s coming in hot 3 to 5. So he’s the four horse. Now, hear me out. There’s another horse called Life Is Good, run by a Rod Ortiz. It won last year’s Breeders Cup Dirt Mile. It’s had a great season. I think they’re going to be in the money. That’s the two horse and the six horse, which I think has a shot to win, which is 5 to 1, is epicenter, came in second in the Derby, second in the Preakness, I believe won the Travers. Right. Has come in and won the Travers. So I would do the two for six in a trifecta box and hope that the two or six comes on top of the four. I’d put it in exacta box also. That’s all the gambling stuff I have for you guys. [00:50:09][112.8]
Dan Nathan: [00:50:10] All right. Old as you want to be. That will be the tagline of Guide Tommy’s memoir. Thank you, daddy. All right. When we come back, stick around. You guys ask for it. You’re going to get it. What are we doing with Danny Moses, Vinny and Porter? [00:50:21][11.8]
Guy Adami: [00:50:22] CME Ad. [00:50:33][11.1]
Dan Nathan: [00:51:03] iConnections Ad. [00:51:04][0.8]
Guy Adami: [00:51:52] FactSet Ad. [00:51:53][1.1]
Danny Moses: [00:52:32] Welcome back to On the tape with my boys Porter and Vinny. What are we doing? Segment time. Obviously, we’ve covered a lot of stuff in part one. We also have some questions that we got off of Twitter that Amanda Diaz has compiled. We can go through those as well. But guys, I know we covered a lot of the energy stuff. We covered the Fed here. What are we doing? I would like to start obviously with what happened this this week when I thought it was back to the old times where I begged you guys to look at something right in your wheelhouse called Credit Acceptance Corp. But you guys have obviously been short from time to time who basically hired a chief technology officer kind of out of nowhere. They don’t really add a lot of people. The day before that, they reported their earnings. This is a a subprime auto lender, obviously, that’s out there. And it reminded me of just a couple weeks back on Ally Financial where they fired the CFO. The CFO resigned the day before, felt something bad was coming. But it was really funny to walk through with you guys because it was like we were back on the desk and I was riding the train in and I’m like, Hey guys, did you see this CTO get hired? Why would a technology guy be coming? And maybe they’re having problems with collections, maybe they want to streamline. So Porter’s like, Yeah, I love it. And then Vinny’s like, Yeah, but, you know, we always. We get our face ripped off every time we short it. Let’s walk through that, because you did short a little bit of it. By the way, I’m not taking credit for the trade. I’m just saying that it should exactly a microcosm of everything that’s happened. But yeah. [00:53:51][79.4]
Porter Collins: [00:53:51] You could take credit for it, but I had to laugh when the thesis for shorting it was that they hired a new CTO. [00:53:56][5.1]
Danny Moses: [00:53:58] Right? No, I know you got to be so out of left field with you. I just look for things like red flags. So we had the we used to have the red flag in our office, right where we would throw red against the wall, just like they do in the NFL when you and I would. That was a red flag moment. It could have been wrong. Maybe has nothing to do with it. But I think what eventually as they’ll start, they were using technology now because they grew like crazy in the quarter and they had a massive uptick in delinquencies. Massive, right. On a scale of winning 80 to $90 million more reserve than people thought that they were going to take. So anyway, just to extrapolate that a little bit into the economy, the people that are getting hammered are going to keep getting hammered. They don’t have the ability to offset all this inflation. So I know that’s kind of part of the theme, but just extract that for a second and apply that not in the energy sector per se, but just in general, the kind of what we’re seeing out there. [00:54:43][44.9]
Vincent Daniel: [00:54:44] One of the things we were talking about the last two days, you hear the term dollar wrecking ball, dollar wrecking ball. And I don’t want to get into that for us specifically in what we’re talking about auto finance, the two year Treasury is the wrecking ball of all things lending in specialty finance. And the reason being is most of those loans are funded in some form of another in the securitization market off the two year Treasury. So you’ve just had a 400 bip increase in your cost of funding. And so therefore you have to increase the coupon or the loan rate that you’re charging to the borrower. That causes massive distortions, not just in the credit profile of what you just recently originated and probably more acutely in your incremental origination volume. So what that leads for us to believe is that auto origination volume going forward over the next 6 to 9 months is going to suck. So when you see a CAC, see growing like that, you get a little nervous, you get very nervous. [00:55:39][55.6]
Danny Moses: [00:55:40] Yeah. Then I’ve always said when you outgrow GDP or something like that, within that sector, you’re always obviously going to have issues. So I don’t know Porter if you have any thoughts on that to move past it. But you know, in general, I think when Powell said yesterday how he doesn’t believe that short term rates, I don’t know what he was talking about, whether it was Fed funds or whatever, have an impact on the consumer prime rate. And so for whatever you want to use is directly impacted by what he does. And then as a direct impact on people that are carrying balances of any kind. Right, whatever that might be. [00:56:08][27.7]
Porter Collins: [00:56:09] No, I totally agree. I mean, this is it all acts with a lag. And this is why we’re so bearish on housing. You know, we’re not short any homebuilders per se, but it just I think it’s going to last a lot longer than people think it is. People forget that homebuilding didn’t collapse and ripped right back. It took three plus years for existing home sales to pick back up. And so the problem is some of this stuff is going to last a lot longer. And remember, in 08 to 2012, that’s with the rate cuts. And so we have the reverse right now. We have all these rate hikes. And so whether it’s mortgages, whether it’s auto loans, whether as credit cards, the delinquencies are going to show up at time and the activity is going to be so much slower than people think it is. It just so bad. I have a hard time getting bullish on the economy and on stocks because housing hasn’t even come close to bottoming yet. And Vinny and I were laughing about read all these newsletter writers and told a non sequitur here, by the way I was talking about earlier. How is getting so mad at stuff? And one newsletter wrote there’s a bubble in bearishness sentiment and it drove me crazy because my point is that everyone’s bullish. The whole market’s rigged to go up. And yes, are few hedge funds more negative than they were before? But like, I don’t know. It just people forget what despair looks like. It was like, Oh, my house. What do I do with it? Just sell it. I can’t take it anymore. And so I think we’re going to get to that point. It just, again, takes time. [00:57:40][91.3]
Danny Moses: [00:57:41] And I think the one thing that is different, every cycle is different. But when you have quantitative tightening going on and you have an 8 to $9 trillion balance sheet, and Powell again reinforces how he’s going to keep running it off and how proud he was to keep running it off. I mean, that is such a headwind in and outside of inflation, even inflation moderating, because you’re not going to get relief in the mortgage backed security market. You’re not going to get relief in Treasury. As a matter of fact, any type of demand for Treasury, you would think that the Fed would take the opportunity just to sell into it. So for people that understand, when we started the fund coming out of the financial crisis and then kind of regrouping in 2012, we were still fighting the remnants of QE one, QE two, QE three. That was happening and it really distorted the markets. The inability to be a fundamental bottom up analyst, right or portfolio manager became so hard. And we were focused on one sector, unfortunately, and it was the most manipulated sector in the world. So, you know, I’ll say it again, if you take all those tools in that practice and apply it, you can apply that to any sector. So while it’s painful right now for a lot of people, to me it’s refreshing in a way where actually fundamentals are mattering. And Porter, to the point you made in part one, I know Vinny feels this way. Buying stocks with increasing earnings and selling or shorting stocks with decreasing earnings tends to be kind of a no brainer. And the buy the f ing dip mentality is basically gone. And the selling of the f ing rally in crappy names is here. So again, kind of sentiment wise, you feel like you’re finally getting a shot and you guys performance obviously echoes that. But yeah. [00:59:06][85.3]
Porter Collins: [00:59:06] Can I do a breaking news here? [00:59:08][1.5]
Vincent Daniel: [00:59:08] I’m asking for you because I had a feeling we might get lock limit news right now. [00:59:11][3.6]
Porter Collins: [00:59:12] A couple Of our shorts just happened to come across the tape here. [00:59:15][2.5]
Danny Moses: [00:59:15] Thursday night dirties. [00:59:16][0.5]
Porter Collins: [00:59:16] Thursday night, dirty carvana down from 14 to 13. Obviously the stock is not a big position for us, so we were short of 300. Yep. Coinbase just looks like it threw up all over itself. [00:59:29][12.7]
Danny Moses: [00:59:30] You know what’s crazy about it? So yesterday or the day before, the J.P. Morgan analyst great call had an underweight. I think on Carvana. I always see what a stock does and I look for the news. Carvana was up like, you know, 14 to 16 or 13 to 15, it was up over 10%. Like, why is it up? J.P. Morgan Analyst Upgrades to neutral. I have no problem with that victory lap, but that was like those opportunities in stocks that are in those continuous unwind Robinhood great good quarter guys I mean come on down 85% for you. You have to get out of that crap because fundamentally those companies right guys, I mean, they have anywhere really to go. So I have been unable to look at the news at the moment. But I will say and then. [01:00:05][35.0]
Porter Collins: [01:00:05] The third company that we’ve been short for a while is Opendoor Technologies, which I own Twitter. It was like a ten or 11 bucks and I said, Well, I’ll buy it at three bucks, which were tangible book. Yes. Or under that. Well the stock just reported it’s $2. [01:00:18][13.5]
Danny Moses: [01:00:19] Opened the door open the book. Right. [01:00:20][1.1]
Vincent Daniel: [01:00:21] So yeah it’s funny that’s why yesterday was so important to a portion of our portfolio on the short side, which was when Powell closed the door on any form of near-term deviousness or the way I think about it, a break in the short term funding the two year Treasury and the like, it sealed the deal for all these quote unquote shit coats that probably over the next 6 to 9 months because of what he did, most of these things are going to go bk. A lot of them are. And so as a result, not that we have a big position in them anymore, Danny, but it’s enough where we like to pay attention and there’s a bit of schadenfreude there as well in that we felt very comfortable staying short these names because we know that the fundamentals, because so much of them are predicated on the two year Treasury and access to funding. And funding is really tight that we’re going to see them pretty much ride to zero. A lot of them. [01:01:10][49.2]
Porter Collins: [01:01:10] I mean another one of our shorts reported this morning and Wayfair we’ve been short from much higher but they burned $500 million this quarter and $1,000,000,000 in the first three quarters of the year. I just don’t know how much longer you can survive. And then you go back to how Vinny and I and Danny Invest is that we came from financial services guys. The only thing that matters is essentially the balance sheet revenues are totally irrelevant item. And so naturally the first thing we do, we look at a company, we look at the balance sheet and a lot of these companies, the balance sheets are horrendous. Neither one peloton reported today. I mean, these I just don’t know how they can survive. Wayfair which reported this morning their cost of debt is still like under 1% because they have all these converts out. So they’re losing all this money at essentially 0%. [01:01:59][48.9]
Danny Moses: [01:02:00] And they have to take that out at some point and refinance it at some point. Right. We talk about that. Right. These business models, if your business model didn’t work in the greatest time period ever, it’s never going to work. And so, again, people out there that try to try to find a bottom, don’t try to find a bottom. And companies that were unable to basically make money during the greatest time period ever or are going to face some balance sheet issues going forward because it’s really not going to work. So. All right, guys, let’s move forward. So I think Amanda had some questions for us from the Twitter studio audience. All right. So here’s some. Question guys from Harriet Drunk Bowler 857 thoughts on Reits. I’ve been adding small to my position on ABR during the dips. Multi home rentals is their moneymaker plus a nice dividend. What do you think? Any comments there? Any thoughts? [01:02:43][42.8]
Vincent Daniel: [01:02:44] I think it’s a bit early. I think it’s a bit early. [01:02:46][1.8]
Danny Moses: [01:02:46] Next question from bass. Man At Bass. Man 206 Break down. Go ahead and give it to me. The thesis for BTU six and talk to Seawolf Book, which we basically did in part one. I need to know. I need to know. So BTU had their quarter report it was very good stock was up I know big this morning sold off a little bit into the bell. Thoughts there boys. [01:03:06][19.7]
Vincent Daniel: [01:03:07] So BTU is our largest position. It’s coal company and in general it’s a very simple thesis on why we own it. It’s extremely cheap. Coal is needed and it trades between 1 to 2 times EBIT depending on the numbers in your estimates. Today they reported great numbers. It should have been our aircraft carrier day then. Unfortunately, the reason why it traded down was during the call. They’re rumored to be buying an Australian coal company Coronado and when asked directly they did not directly say that they weren’t going to buy it. So the stock traded down. We did nothing with the stock. We still like it. It is about to release billions of cash to shareholders in some form of another dividend share buyback. We’re just waiting on them to pay down debt and to redo their surety agreement. So we’re big fans. [01:03:53][46.2]
Porter Collins: [01:03:54] We own a lot of coal, we own CONSOL, we own AMR, we own two or three Australian coal producers, which honestly are in fantastic situation. All of these companies are over 50% free cash flow yields and there’s about 17 people on planet Earth that own them. [01:04:09][14.9]
Danny Moses: [01:04:10] All right. So this next question. I’ll take a shot at also. You guys can chime in. Isaac Newton, great name, by the way. What does the market look like if we have ten year rates bouncing around 4% for the next several years? So I’ll take a shot at that. So we basically have been bouncing around for the last several months, right between three seven and four, three, whatever, bouncing. If you told me we would hover around 4%, I would say somehow we managed to pull out a soft landing because I believe rates are going to head much lower over time. Probably the best case scenario, if you told me we were able to actually hold 4% and not move extremely higher because people worried about our ability to pay our debts as a country or that things went so far off of a cliff that there was just a massive flight to quality. And we were just started printing money to Vinnie’s point in QE fashion and buying back these bonds. That’s my take on it, guys. What your guys take, if we’re hanging around the 4% level. [01:04:57][47.3]
Porter Collins: [01:04:57] I would be incrementally more bullish if you saw a giant flight to safety and yields go down, so I’d be more bullish on the world. The problem with that is that a giant flight to safety probably means out of the equity market, into the bond market. And so stocks, I don’t know that it would are going to do so well in that environment. That’s just that’s my $0.02 of it. [01:05:23][25.5]
Vincent Daniel: [01:05:23] My $0.02 is if we stay north of 4% across the entire yield curve, I just think we’re going to have a slower economy. So eventually the Fed’s going to have to do something. [01:05:32][8.7]
Danny Moses: [01:05:33] That’s fair. All right. Last thing, boys, because this was addressed on someone asked us this on Twitter a while ago and I said we would address it. So a few things that fact from fiction or embellishment in the movie couple of things in Porter I found there is on YouTube now there’s scenes that were deleted from the big short that never made it. Rome was the scene where you rescue me from a panic attack. Another was when I do a walk on part. [01:05:58][24.1]
Porter Collins: [01:05:58] When you impressed by acting skill? [01:05:59][1.1]
Danny Moses: [01:05:59] Yeah. And then the rest of it was Bale, because he’s the best actor in the world. But yeah, so we had some stuff, and so some stuff was real. Some stuff was cut. All right, so let’s say we were not chased by an alligator in a pool, correct Porter? [01:06:12][12.2]
Porter Collins: [01:06:12] That’s correct. [01:06:13][1.2]
Danny Moses: [01:06:13] However, there alligators were definitely lurking around. We were saying, okay, second, Vinnie, you and I were the ones that went down to Moody’s. Obviously, in that conference in Orlando, the first one, the kind of the fixed income before the big ABC conference in Vegas, where Moody’s told us that they don’t have a model which shows down home prices. And you and I got up and walked away. Is that is that accurate? [01:06:35][21.5]
Vincent Daniel: [01:06:36] That is accurate. [01:06:36][0.4]
Danny Moses: [01:06:37] Vinny, in the book, it portrays me as, how are you going to f me? And then your actor was better than my actor in the movie. Jeremy Strong But yeah, I like sorry, Rafe, I know you’re not listening, so that’s fine. But how are you going to f me was me. But he was a better actor. He took that role. So you got very angry in the movie. And then why am I the one looking for Nobu or restaurants? Is that true? Was that really happening all the time? Because I don’t remember. Is that would you say that was acting? [01:07:03][26.2]
Vincent Daniel: [01:07:03] Because I think and I love him as a director, but I think Adam McKay rightfully portrayed you as sort of the social chair of us and then for some reason concluded that you were the optimist. And so therefore, I don’t know, you were the one trying to get out. So you became the food critic or. I think that was a mischaracterization. That was that was horrible, to be quite honest. [01:07:26][22.6]
Porter Collins: [01:07:27] I think the funniest part was when we went. To see if you left the first screening of it. We went to like HBO. I know. I don’t know who is whose studio it was. We had this private screening of the movie and we’re going through it and all of a sudden pops up Danny’s part, which they show that he has an enlarged testicle. Yeah. Which, of course, he doesn’t. But Danny goes, Oh, my God. No, you can’t do that. [01:07:53][26.6]
Vincent Daniel: [01:07:54] It tilted him the entire movie tilted it completely. [01:07:57][3.0]
Porter Collins: [01:07:58] And so we finish it. And Danny can even think about how the movie went. He just goes. He’s like, I opened the abyss. [01:08:05][7.2]
Danny Moses: [01:08:06] They took a video and they showed an epididymis. And I’ll tell you why it happened in my time, what I did to you, because when I found out that it got I didn’t know was going to end up the movie and what I did to you, Porter I think I told you so. When Adam McKay came in the office one day. I had gotten a vasectomy years ago and I felt something and I went to check it out and it was nothing. But while I was out, he decided to extrapolate that into, I have a third testicle, whatever. But what I did to you when I found out that that’s information you relayed, whether or not that I knew they would end up in the movie, it doesn’t matter. So Vinny knows supporters obsessed with he hates when people wear loafers with no socks. He hates it. It’s like a prep school. No, no, whatever it might be. So we made clear to tell his character and I made clear to tell Adam McKay, go. Whatever you do when Porter’s guy is playing him, what’s his name again? Porter. Your boy. Who’s that? [01:08:52][46.2]
Porter Collins: [01:08:53] Whose name is. [01:08:53][0.4]
Danny Moses: [01:08:53] Linklater? Hamish Linklater. I go, he can’t ever wear socks and he’s got to pull his pants up a little bit. So they flood. He likes to wear like high pants. So if you guys see in the movie, whenever you’ll see porters, you see him at his ankles and you see his pants pulled up because I got you back when I thought there was a chance that my testicle would make it onto the screen. [01:09:09][16.2]
Porter Collins: [01:09:10] So he was for like those like, like the millennials wear that tight pants and that four inch floods like I was wearing those all exactly. [01:09:17][7.4]
Danny Moses: [01:09:18] That was. [01:09:18][0.1]
Porter Collins: [01:09:19] Fine. [01:09:19][0.0]
Vincent Daniel: [01:09:19] For them. They tried to make me and you guys did a great job of making sure that the BlackBerry was locked to hitch to my. [01:09:25][5.8]
Dan Nathan: [01:09:25] Belt, the. [01:09:25][0.3]
Danny Moses: [01:09:25] BlackBerry. [01:09:25][0.0]
Vincent Daniel: [01:09:26] The pen and that they wanted to queens me up and put like gold chains on me. I’m like, dude, I don’t dress like that. [01:09:31][4.9]
Danny Moses: [01:09:31] But I got to tell you you and I will say you do chew gum Vinny a complete not to the way that Jeremy strong chewed that gum I mean it was undo. [01:09:38][6.9]
Vincent Daniel: [01:09:38] You remember that day when they came in and so yeah you guys were hanging out. [01:09:43][4.3]
Danny Moses: [01:09:43] My guy never came in, so. Yeah, but I met him on set. [01:09:46][2.6]
Vincent Daniel: [01:09:46] But anyway, so they were in our office and were working. They could do your normal work day. So I was working. Somebody report it and I’m like, really got one of those angry face days on and I’m chewing gum, I’m getting angry. I feel Jeremy’s eyes like going through me. And at one point I said, Jeremy, stop staring at me. Stop right. And he goes, Vinny, I have to. He goes, I have to. I have to know every single move this way. He’s such a great actor. He goes, I need to know every single move, everything you do so that I could get you down pat for the role. So that’s why he. So I guess that day I was chewing gum like a madman. [01:10:19][33.1]
Danny Moses: [01:10:20] Well, my guy, Rafe Spall, we were down in New Orleans. We go out to dinner after we’re on set all day. Porter wasn’t at this dinner. I think it was Vinny and I, my wife Allison of a people. And Rafe Falls wife is at least a trois. Beautiful. She was in a couple of Bond movies, model, whatever. And we’re all sitting there. And for the first time ever, Rafe acknowledges my presence, meaning. So I just came off of another movie. Tell me what it’s like to be you. And I said, Well, I go, Maybe we should swap for a little while and you’ll get to know me. I’ll get to know you. My wife will tell you things about me and they’ll be fair. And my wife was laugh. Then he was sitting there, my wife was laughing her ass off. But then Ralph’s wife says, I don’t think you’d like it so much. I’m very pregnant. I go, You’re very pregnant. I mean, you couldn’t even tell that she was pregnant. But anyway, there was some great fun on the set and it was a great fun just to do it with you guys. But there’s plenty more stories where that came from, but we can save it for the next what are we doing and all that. But guys, I can’t thank you enough for all the time you guys spend coming on here. It’s more fun than ever that this is an excuse for us to reconvene and talk again. So keep crushing it. And I know we’ll have you guys on back soon because we are going to make a what are we doing a much more regular thing, as you guys know. [01:11:25][64.9]
Porter Collins: [01:11:26] The only thing I wish was that Danny got to see the scrolling of the and worn as we reported. [01:11:30][4.0]
Vincent Daniel: [01:11:31] Nothing better than Danny in the office on and I want nothing. [01:11:34][3.1]
Guy Adami: [01:11:35] Thanks once again the CME Group and I connections for sponsoring this episode of On the tape. If you like what you heard, make sure you hit, follow and leave us a review. It helps people find our show and we love hearing from you can also email us at on the tape at risk reversal. [01:11:51][15.9]
Danny Moses: [01:11:52] Dot. [01:11:52][0.0]
Guy Adami: [01:11:52] Com any time follow and connect with us on Twitter at on the tape pod and we’ll see you next time. [01:11:59][6.5]
Dan Nathan: [01:12:00] On the tape is a risk reversal media production. This podcast is for informational purposes only. All opinions expressed by me and Nathan Guy, Danny, Danny Moses and any other participants are solely our opinions and should not be relied upon for specific investment decisions. [01:12:00][0.0]
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