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On this episode of On The Tape Dan Nathan, Guy Adami and Liz Young of SoFi kick-off the first “Monday On The Tape” of 2023. We start the episode off with a look back at Friday’s job data and what that means for the S&P in 2023 (1:00). Banks report earnings on Friday the 13th, should we be scared (16:00 )? “Biden Capital Management” wound up making a decent oil trade last year, what’s the next move (24:00)? After the break, Danny Moses is joined by Porter Collins and Vinny Daniel for the first edition of “What Are We Doing” of 2023. The guys start with a deep dive into the energy sector (33:00). How do investors adapt to the reality of the liquidity pull (43:00). The TSLA tumble continues (49:00). The luxury real estate market could be in for a shakeup in 2023, what does that tell us about the U.S. consumer (56:00)? The guys give their outlook on gold heading into the new year (59:00).
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Show Transcript:
Dan Nathan: [00:01:21] All right. Welcome to a Monday edition of On the Tape, Guy Adami, welcome how are you bud [00:01:27][5.4]
Guy Adami: [00:01:27] Great weekend excited for this EY from SoFi joining us every Monday. This is going to be where the kids say banging or something like that. [00:01:34][7.7]
Dan Nathan: [00:01:35] I think is that what you say, Liz, it’s going to be banging? [00:01:37][2.2]
Liz Young: [00:01:37] That’s not the word I would use. I’ll say it’ll be electric every Monday. [00:01:41][3.9]
Dan Nathan: [00:01:42] Okay. So that electric voice is Liz Young from SoFi, Guy likes to call her EY from SoFi. She’s the head strategist over at SoFi. What do we say about SoFi Guy, how do you get your money right. [00:01:51][9.6]
Guy Adami: [00:01:52] When I go to SoFi, the reason I do that is I like to get my money right all in one application. Or I guess the as they say, all in one app. [00:02:00][8.4]
Dan Nathan: [00:02:01] Right. So so Liz joins us on MRKT Call on Thursdays and we go over her weekly market outlook that you can find and SoFi.com/blog and also she had a drop Guy in the podcast what’s your favorite podcast store. [00:02:14][13.6]
Guy Adami: [00:02:15] Well it’s funny you say that you know I sort of vacillate between stores it really depends upon how crowded they are, you know, the parking lot, those types of things. [00:02:23][8.3]
Dan Nathan: [00:02:23] Right, right, right, right. Got it. So she has a podcast called The Important Part, I think that dropped today. She took some Q and A on her 2023 outlook. So check that out in your favorite podcast store. Okay, guys, let’s get into it. What we want to do on Mondays here a little bit is we are going to have a conversation about what we are most focused on for the market week and we might take a quick look back on some things that happened. And then also in the B block, the second block, this one is going to be, as Guy just said, banging. We have Danny Moses. He is our Friday co-host of On the Tape. And he’s got Vinny Daniel and he’s got Porter Collins from Sea Wolfe Capital. You guys have heard them on the podcast on many occasions. The three of them have a great conversation. They’re talking about Guy Is it finally gold’s time? They do have a few thoughts on Tesla at these levels. You’re going to want to hear what they have to say. They’ve been bearish and right for a very long time. The fiscal health of the US consumer and a whole heck of a lot of other things. So stick around for that. So Danny Porter and Vinny. All right, before we get into what we are most focused on for this week, let’s go back to Friday’s reaction to the December jobs data. Again, right out of the gate, we saw the futures rally off of a number that was a little hotter. I don’t know if you saw this, though. Liz was on like a I don’t know, 12 box or 16 box on the Squawk and friends, they’re ready to give instant analysis. Did you see her? [00:03:46][82.9]
Guy Adami: [00:03:47] I absolutely did. And she can verify this. Actually texted her because I was curious They had one gentleman I believe his name was Tyler. He was either broadcasting from the Hotel California, some monastery in Taos, New Mexico, by the way, I always like saying Taos, New Mexico. They should put a rose in Taos. Back to you Dan. [00:04:07][20.6]
Dan Nathan: [00:04:08] All right. So. So Liz I remember you had the last comment right before the number came out. You thought it would be a little hot, but you didn’t think it was going to be a big outlier one way or another? Yeah, but the stock market rallied almost immediately and close near the highs of the day and bond yields. The ten year got hit pretty hard. So what was your take on the result? Because again, we’re going to talk about the potential for soft landings and pivots and all that sort of stuff because that narrative permeated the fintwit over the weekend. [00:04:32][24.5]
Liz Young: [00:04:34] Yeah, going into that report, if nothing else had happened before, I thought that the December data was the first time that we might see a crack in the labor market and when the number came out. The other thing is some of the stuff that led up to it. You know, we had initial claims, continuing claims, continuing claims had actually come down. And when you looked at the JOLTS data, that came in pretty strong as well. So it started to make me realize that, you know what, maybe this isn’t the first time we’re going to see a terrible number. And that’s why the comment that I had right before it came out was, you know what, I don’t think it’s going to be all that surprising in either direction. And what it did was it kept the hopes for a soft landing alive. And that doesn’t mean it guaranteed it. But it was a pretty perfect report for that month in the sense that we’re still adding jobs. Everything seemed reasonably strong and wage growth came down a bit, which is what the market wanted to see. I think that was, if nothing else, I think that was maybe the biggest thing that drove the huge rally. Okay, maybe wage growth isn’t the problem that we thought it would be. The Fed won’t have to be as hawkish and that’s why you saw the reaction both in stocks and bonds. [00:05:38][64.6]
Guy Adami: [00:05:39] I agree with everything EY said. It was probably in terms of the report could not have been much better. But I’ll say this. You then subsequently have had a number of different Fed officials come out and I’m what I’m think is trying to happen is they’re interpreting this data, but they’re saying, you know what, we’re still staying on our current path. I mean, the hawkish rhetoric around the Federal Reserve is still out there despite this. And I’ll say yes, in a one off number, it was very good. And you’re not seeing the wage growth that everybody feared. Obviously, services, economy, two thirds of this economy, that’s really the important thing. But one report does not a trend make. So I think it’s a great way to start, but I would think even EY would submit we’re nowhere near out of the woods yet. [00:06:25][46.2]
Liz Young: [00:06:25] And we’d have to have those types of reports over and over and over again in order to actually orchestrate a soft landing, which I don’t think is going to happen. This is a point I made on the show. I can do it a little bit longer here, but so the Conference Board has their usual confidence survey. As part of that, they ask questions to consumers. Do you think jobs are plentiful? Do you think jobs are hard to get? If you look at history, the time when that jobs are plentiful, data peaks usually leads a peak in the labor market by about 8 to 12 months. That peaked in March of 2022, which would mean if you do the math, we are probably at a peak in the labor market sometime between the December and March data of this year. So we could that could be the peak. We could have just heard about the peak and then we start moving down for the rest of, you know, let’s say the next 3 to 4 months. [00:07:13][47.2]
Dan Nathan: [00:07:13] Yeah. So if we’re thinking about those through the lens of the markets, both the stock and the bond market, I mean, again, we saw peak inflation data over the course of the summer and markets got a lot worse. Right? We crescendoed lower into October. We rallied. And I think what’s really important, I mean, when I think about the new year, we had a volatile first week of the year and I think, you know, hotly anticipated that data at the end of the week. And, you know, sentiment was really bad going into the year end, right. So it wasn’t going to take a whole heck of a lot to get the markets to bounce a little bit. I guess more importantly, I’d focus on that move in yields because, Guy, we saw that ten year got down to what, three, four or five or something in early November from a four and a quarter peak, you know, just a few weeks earlier before that. And here we are now, we’re headed back towards that. And you know, our good friend Carter Braxton Worth, is calling for a much lower ten year yield, at least as he’s thinking about the technicals. And I just want to kind of go to Rosie, what David Rosenberg of Rosenberg Research had to say this morning in his find piece here. He said weakening pricing power and software demand are a bad combination for corporate earnings and reinforce our belief that the current estimates are still way too high. And so, again, we could be seeing some peak data as far as good jobs number that are going to get worse. This is the thing that the Fed has been waiting for, and I guess the soft landing is predicated on the fact that maybe they just don’t get horrible, they don’t get like is bad. You know, we don’t kind of go into some sort of negative territory. So I guess my question to you guys now is like we’re going to be very quickly focused on corporate earnings, right? Q4 earnings are kind of in the bag. It doesn’t really matter. It’s like Q1 guidance and for current year 2023 are going to be really important. So how are you thinking about expectations in earnings? And I’m going to go back to these three huge rallies that we saw off a respective lows in 2022. We had that kind of March April rally. We had that June into August, and then we had that October and early December. All of them came around earnings season, if you will, after the Fed had just done something. And part of it was sentiment was really bad. And I think a lot of investors in the stock market were expecting really bad guidance. They didn’t get it. And stocks rallied. Here we are now where we’re kind of in the midpoint of that range. I think the high in December, early December, and the S&P was kind of like 4100. The low was just, what, 3500 or something like that in October. And here we are, 3900 ish. It’s like expectations aren’t that low right now. [00:09:38][144.9]
Liz Young: [00:09:38] There’s a few things I would say. So if you go back and think about those quarters and what we heard from companies in earnings season, we had lowered the bar quite a bit. They were leaping over a ridiculously low bar, but still somehow managing to eke out positive earnings growth in aggregate each quarter. Fourth quarter earnings is expected to be negative by about, let’s say, 2.8, 2.9%, depending on who you’re looking at. That’s the first quarter of negative earnings growth that we will have since 2020, if that’s how it comes in. The other thing I would say is and I said this in my 2023 outlook, we can’t have it both ways. You want inflation to come down. If you want inflation to come down, demand has to come down. If demand comes down, pricing power comes down. If pricing power comes down, revenue comes down. If revenue comes down and costs stay equal or don’t go down as much, earnings come down. That’s just mathematically, there is no other way that it works. So we have to probably hear about some type of earnings contraction. Does it have to be hugely dramatic? No, I don’t think it has to be a 20% contraction in earnings year over year. I think it could be somewhere 5 to 10% in a contraction in earnings. And the reason that we can manage to keep it that benign of a contraction is because we’re coming into this with record high profit margins. Right. So there’s a bigger buffer. But like I said, you can’t have it both ways. You can’t expect inflation to come down and not have some collateral damage to other things and earnings is one of those. [00:10:57][79.4]
Guy Adami: [00:10:58] Could not agree more. And I think what the market appears to be taking its cues from is the fact that this data suggest that maybe the Fed’s job is done and all systems are go clear skies ahead. But I don’t think the market is taking into consideration is the fact that your point earnings need to come down. And we had a great conversation with Mike Wilson on our podcast on the tape that dropped on Friday, and he talked about pretty much exactly that. And as you parse through some of the analysts, some of the numbers that people have out there for S&P earnings, they continue to get ratcheted down. And I think you would submit and Mike would submit also, you don’t necessarily see a trough earnings along with the trough multiple, but both those things seem to be coming down. What’s the right multiple in this environment and what’s the right number? I think consensus right now appears to be around 210 to $215 worth of earnings. I think Mike’s bear case has it about 180 or so. I think you’re going to see more and more people come to that conclusion that earnings estimates are still too high in this environment, regardless of what the Federal Reserve does Dan, and the multiple that you pay for those earnings, almost by definition, this environment needs to come down as well. [00:12:13][75.2]
Dan Nathan: [00:12:13] Yeah. So I think Mike’s base case is about a $195. I think his bear case was 180. I think consensus is still like 220 guys. This goes back to our friend John Butters over there at FactSet. He had a report out as Earnings Insight blog a few weeks ago. Just kind of going back and looking at the last 25 years on average, I think strategist 12 months out have pretty inflated estimates for S&P earnings. I think about six and a half percent on average. And, you know, if you just look at Mike’s base case scenario, we probably have to come down 10%. And that’s something that could happen all at once as we kind of get some guidance. You know, I think it was interesting, we talked a little bit about this last week, guy, Microsoft, you know, Satya Nadella, who I think is easily probably one of the best CEOs on the planet right now. Okay. And when you think about what he has done since he took over for Steve Ballmer at that company, and, you know, it was a $2 trillion market cap company, you know, at some point last year in some of the commentary that he had an interview, I think it was on CNBC, India early last week really got I think a lot of investors spooked, a little bit of some of the commentary that he had about just kind of the U.S. demand environment, what was likely to happen in 2023. Remember, we had those two consecutive days where the stock was down nearly 8%. Again, this was nearly a $2 trillion market cap company. You know, when you think about that, I mean, we could have if we had an Apple, a Microsoft, an Nvidia, like a handful of these major companies downgrade their outlook for 2023. I mean, that could be the thing that causes all the major S&P, you know, strategists to kind of lower those estimates. And then at that point, you might start discounting, right, what’s to come, which is what you just said, Liz, that we had on a quarter to quarter basis last year. I mean, the estimates were coming down over the course of the quarter just by a little bit, a few percent here and there. And when the companies came out and they guided, they were able to kind of come in line and that was enough for the stock market. But the strategist didn’t lower their their full year enough or the 2023. [00:14:07][113.5]
Liz Young: [00:14:08] And if you just do the numbers, so a 5% contraction, which is really no big deal, a 5% year over year contraction would bring us down to like 212 per share, a 10% contraction, which I’d argue still isn’t that big of a deal. You’re down to 200 201 per share in earnings for 2023. I think we should be okay with that. I think we should be happy with that and always remember the sequence of events. The market broke in 2022. Right. And it probably still has a little more downside, but it broke in the sense that we got to bear territory. Things fell apart. We had this valuation compression, then earnings break, then the economy breaks. So the idea just to really bring us back to the beginning of the conversation, to the idea that we had one good jobs report at this point in the cycle is really not that exciting, right? That the jobs report probably doesn’t get bad until a quarter from now. [00:14:58][50.3]
Guy Adami: [00:14:58] Yeah, By the way, Dan, I mean, unemployment rate is still three and a half percent so. [00:15:02][4.0]
Dan Nathan: [00:15:03] That was the pre-pandemic low, which was a 40 year low. But Guy, I just want to make one quick point. So let’s just say Liz is correct and doesn’t think that down 10% in S&P earnings is a big deal. So let’s just say $200 an S&P earnings is a consensus. And Guy, wouldn’t you say it would make sense to throw a 16 multiple on that, which would be below the five year, ten year average? But like, that’s how you kind of get to a trough because 16 times 200, you can do that math is 3200. And the pre-pandemic high was 3400, 3390 or something like that. And again, that would constitute an overshoot of that high and that would make some sense from a sentiment standpoint. [00:15:44][41.4]
Guy Adami: [00:15:44] That would make a lot of sense. And that’s what we’ve been I think we’ve been saying pretty vehemently for many months now. You know, I think EY is echoed that as well. A lot of people seemingly coming away to that way of thinking. For me to say it, that’s one thing. I would discount it if I were listening as well. But when somebody like David Tepper says pretty much exactly the same thing a couple of weeks ago, then I think you have to take notice. And by no means am I suggesting that he was listening to us. I was listening to him for a few years ago and just interpreting what he would think in this environment. And it proved to be correct. So again, we’re not bearish for the sake of being bearish. We’re just trying to look at the math here and to try to come to some conclusions. I will say just anecdotally, on a day like today, you see Lululemon, who had a ridiculous inventory build their last quarter. We spoke about it. I think it was an 84% year over year inventory build. We said that day there is no way whatsoever that their margins are going to hold up. Lo and behold, look what happened to Lululemon today. I know that’s a one off again, anecdotal, but it’s somewhat indicative of what’s going on throughout corporate America Dan. [00:16:53][68.9]
Liz Young: [00:16:53] One of the things I don’t like about this week is that we’re going to kick off earnings season with the banks. And I’m I’m bullish on financials this year. I like financials. So spoiler alert on that. But we’re doing it’s all going to happen on Friday the 13th. I don’t love that. I don’t love that we have to do it on a superstitious day [00:17:09][15.4]
Guy Adami: [00:17:13] I’ve been trying to be serious this entire time. But you’re telling me I will say this, Dan, everybody loves Stevie Wonder’s version of Superstition, which was fantastic. What I will tell you is go and listen to Stevie Ray Vaughan version of Superstition. It’s tremendous. And me not being superstitious, I think Friday the 13th is to use the word I used 18 minutes ago banging. [00:17:37][23.6]
Dan Nathan: [00:17:37] All right. So let’s let’s talk about the banks, because on Friday morning, this is pre opening Jp morgan, Bank of America, Wells Fargo, Citibank, all report there’s throw BlackRock in there just to have a little fun here. And when you think about outperformance of the bank stocks since October lows nearly double the performance the S&P 500 I think the S&P was up, you know, 18% or so. And many of those stocks were up 30 plus percent. And, you know, even JP Morgan, I mean, this is one where it’s ability to consolidate the way it has in and around here for the last couple of months. It’s really outperformed the S&P just as it came in in December is pretty remarkable. But Guy on Fast Money the other day, we had Mike Mayo, who is a very well followed and a guy that we like a lot, bank analyst from Wells Fargo. He was pounding the table on Bank of America. Do you remember that? He said that this is a company that should do far better than many of its peers in a high rate environment. But it was really interesting when rates came in, the ten year came in from four and a quarter, as we just said, two, three, four, five. I think from those early November highs to the mid-December lows, Bank of America got absolutely creamed. It acted so much worse than many of its peers. So are all of these money center banks, are they built the same way? Because that was kind of really interesting to me. And then the outperformance of the Goldman and the Morgan Stanley’s, the investment banks relative to the money centers for 2022 was pretty stark. So I’d love to get your granular take on some of the banks guys as we head into Friday. And then I’d love Liz to hear why this is one of the groups that you’re most focused on for 2023 where you think you could see continued outperformance. [00:19:14][97.0]
Guy Adami: [00:19:15] If you were to look at it from 30,000 feet, you would say, yeah, Citibank, Wells Fargo, Bank of America, to some extent, JPMorgan. You throw in a U.S. Bancorp, they’re all built the same way. In reality, nothing could be further from the truth. They’re in fact, look the same. But they all have different things that they’re good at and they all have different things that they’re not so good at. And look at Citibank, for example, which is completely lagged, its peers. And one of the reasons I believe it has done so, aside from the fact that Citi has been a bit of a disaster in and of itself, their European exposure does not help. Other banks are far more reliant on the US consumer. So you look at them and say they’re all pretty much the same in terms of valuations. The market rewards some of them and penalizes others. When you’re talking about a Citi that trades at 65% ish of tangible book. And then on the flip side, you see a JPMorgan, which is more than double that. You say clearly they’re not built the same way. And I’ll say this, I think the environment is okay for banks. I understand what Mike Mayo is saying, but in order for Bank of America to get to his price target, which is probably given the math either side of $55 or so, Dan, you’re talking about a stock that given the metrics out there and understanding that tangible book and book value would go up incrementally, would be trading at levels that effectively JPMorgan is trading at at its peak, which I just don’t think is all that feasible or reasonable in this environment. [00:20:45][90.1]
Liz Young: [00:20:45] I don’t talk about individual names, but I’m going to do it for a second here. The the Bank of America thing, you have to look at what each company is most sensitive to. And just generally speaking, Bank of America is dependent on, let’s call it, consumer lending, consumer deposits, maybe a little bit more than some of the other companies, let’s say Goldman right. Goldman out today confirming they’re cutting 3200 jobs. It used to be 4000. So maybe 3200 is better than 4000. But the stress is bleeding into other sectors and financials is now feeling some of that pain. We haven’t heard a ton from maybe the consumer centric banks as much. But as time goes on, you might hear cost cutting coming from them, too. What happened in the fourth quarter, if the ten years coming down, the inversion got deeper? Right. And if you’re a bank that’s dependent on consumer lending, you’re dependent on that piece of it in order to make money. A deeper inversion is not good for your business. It’s just it’s pretty clear from that perspective. However, financials as a whole for the year and it’s so hard to make a call for an entire year. I mean, I want to change my mind, you know, in March. But for the whole year, first of all, I think 2023, if we had to really simplify it, is a valuation story above all else. And financials are the second cheapest sector in the index trading at 12.5 times and you’ve got an index up 17 times and you still have growth sectors that are much more expensive than that. So not just looking at valuations as the expectation for further returns in the future, but there’s just less downside, right? They can’t get hurt much more than they already did and you can protect yourself on that piece of it. I also think that banks are slightly overprepared for stress, or maybe they’re prepared for stress like the global financial crisis, and that’s just not what I would see this turning into. [00:22:26][100.4]
Dan Nathan: [00:22:26] So the banks bottomed in October when the 2/10 spread inversion was at its widest. Okay. So I think that’s kind of interesting that so it’s kind of anticipating that. But when you talk about some of those that are dependent on consumer, I mean, the consumer is getting worse. The consumer is probably at its worst spot since 2020 right now. And Guy, you made that point on many occasions here. When you just look at the data about consumer credit, where it’s going and and again, on Friday we’re going to have University of Michigan consumer Guy often says that the S&P is just an overlay of consumer confidence here. So we’re going to start getting some better data on that. I guess I’m most interested in what Jamie Dimon has to say. I think he’s been unusually bearish for a year on the kind of the health of the US economy, but also the global economy. He’s been very careful. And I guess on the flip side of that, at some point, if we were to retest the October lows and let’s say financial stocks in general were to participate to the downside, I guess I’d really want to get in there and Goldman and Morgan, when you think about some of the capital market activities that are away from sort of the consumer, at some point in 2023, the market or investors are going to start anticipating a much more active capital markets environment. And that’s where you get guy. Talk to me a little bit about Goldman and Morgan. [00:23:35][68.8]
Guy Adami: [00:23:37] That’s right. For the first time in a while, the last couple of quarters, Goldman Sachs specifically has been rewarded for their fixed income, currency and commodities trading group. And you see it in the way the stock traded post earnings. And quite frankly, environment hasn’t changed all that much. If anything, it’s gotten better for them and I think they’ll continue to do well. The question is, will the market continue to reward them? And I understand what Liz is saying. She’s 100% right. I mean, these bank balance sheets have been fortified like they’ve never been in the history probably of U.S. banks, which is a good thing. The problem is I don’t think like 08 09 where banks were the epicenter. I think the epicenter would be somewhere else. And quickly, Dan, that 2/10 spread which you talked about, which got out to 83 basis points negative troughed, probably either side of 50 basis points recently. I happen to think it’s probably headed down to -1% in the form of maybe three and a half percent in the ten year, four and a half percent in the two year. And we’ll see how banks react to it. If, in fact I’m right, I don’t think personally that they’re going to like it that much. But I also don’t think they’re going to crater necessarily on the back of that Dan. [00:24:51][74.8]
Dan Nathan: [00:24:52] All right. Let’s talk about oil really quickly here. Our friend Peter Boockvar over at Bleakley Advisors. He had a comment guy that speaks to a comment that you’ve made on many occasions of late. He’s talking about this morning Boock Report. Biden Capital Management has a pretty good trade on. They started shorting oil at around 105 110 in March of 2022 and even pressed it all the way down to current levels. Now stop on the short side. So what he’s talking about is selling of the Strategic Petroleum Reserve. At the time you did not like the reasons for why they were doing that. But you’ve given them some kudos of late because again, it ended up being a good trade. Thoughts on what they do now, oil doesn’t act particularly well, despite the fact that China is supposedly reopening. Right and we’re going to see all this demand again. You know, this is one of the major inflationary inputs that I think had a lot of investors worried in early 2022. It just hasn’t really materialized. You’ve often said that some of these inputs from an inflationary standpoint are going to be pesky and persistent. This is one that hasn’t really been that persistent. [00:25:54][62.5]
Guy Adami: [00:25:55] When the Biden administration released from the SPR, I criticized it and I would still criticize it in terms of the reasons why I don’t think the SPR was put in place to be politically expedient and to show the populace that, hey, I understand your gas prices are a little bit higher. We’re going to do what we can on our side. It was put in for much different reasons. Number one. With that said, if they were just looking at it’s through the lens of a commodities trade. I mean, they crushed it. I mean, they shorted effectively at the top. Markets come in considerably. And if they can buy it back here, that’s one of the great commodity trades of all time. I can speak to that because I did it for a very long time. The hard part in commodities trading is not putting on a position, Dan, as you know, it’s taking it off. And as I sit here, you’re right, the underlying commodity is clearly not performed. But I’m looking at the OIH for example, trading within earshot of effectively a 52 week high, which is pretty remarkable given the precipitous drop we’ve seen in the underlying commodity OIH here 315 or thereabouts. So there are a lot of strange things happening. I’m with Peter 100%. I hope the administration has been actively either buying back or attempting to buy back that SPR reserve. But if in fact they’re waiting, I’m not quite sure what they’re waiting for. [00:27:13][78.4]
Liz Young: [00:27:14] I think there’s a commitment to buy 3 million barrels in January. So they’ll they’ll either start or they’ve started buying already. And if you just look at the stock of crude oil that the U.S. has a 275 million barrel still below the ten year average, they have a lot to rebuild and that keeps prices elevated in the underlying commodity. I think investors are learning a lesson here. If they hadn’t ever learned it before in their investing life that the underlying commodity and the stocks move in different directions sometimes. The thing about the stocks, about oil stocks is that if 2022 the performance of dividend paying stocks was so much better than anything else, rightfully so. Right. In a rising rate environment and people wanted some cash, they had the bird in the hand argument. The dividend yield on energy in the S&P 3.8% versus just under 2% for the overall index makes it more attractive. They’ve been decently shareholder friendly. There have been a lot of buybacks. I wouldn’t expect them to stop that anytime soon. So I still think energy stocks can do okay in the beginning of this year. But we talked about this in 2022. The thing that almost always precedes a recession is a spike in oil prices. We already had the spike. I don’t think we’re going to have another spike that’s done, that’s gone. And behind us, earnings are still strong for the energy sector, but at some point that peters out as well. And, you know, maybe the middle to second half of this year won’t be quite as much of an energy in the spotlight situation. [00:28:34][79.6]
Guy Adami: [00:28:34] I love that saying, by the way, a bird in hand is worth two in the bush. I mean thats so like 1875 people say that now. They have no idea what they’re talking about. Of course, I’m sure there was a point where people would quail hunter, those types of things. So if they in fact, they were able to shoot a quail and have it effectively in his or her hand, that’s better than to quail being out in the bush that they have yet to shoot. Dan Nathan That is the I think, the genesis of that. [00:29:00][25.7]
Dan Nathan: [00:29:00] All right. Before we get out of here, we got to talk about Liz’s Packers, but we also have to talk about somebody who’s near and dear to your heart in your 59 years of life. This guy just turned 79 years old today, Jimmy Page, the guitarist of Led Zeppelin. And I got to tell you, this Guy, you know, day was it was a few years ago. I can’t remember maybe five or even ten at this point. It was NBC’s 25th anniversary. Remember, they had some big gala event in Lincoln Center somewhere. And I remember leaving that event early because a friend of mine had this amazing invite to go meet Jimmy Page. He was doing like a really small book signing at the old CBGB’s, which was now John Varvatos, which is kind of embarrassing, but was going to. But I got a call that I hauled ass out of there and I got to meet him and I shook his hand. It was kind of like shaking the hand of God. Is that fair Guy? [00:29:46][45.8]
Guy Adami: [00:29:46] Well, I don’t want to go that far because, you know, John Lennon played that card many years ago. It didn’t work out too well for the Beatles when he said that they had a walk back that whole were more popular than Jesus thing. But I will say in terms of rock guitarists, Jimmy Page is clearly in the top five. And earlier today on Twitter, I sort of ranked the members of Led Zeppelin in terms of their musical ability, and I think EY might be interested into my list. I have John Bonham is the greatest rock drummer of all time, number one. But John Paul Jones, the underestimated, undervalued member of Led Zeppelin. Number two, Jimmy Page three in Robert Plant four. The genius of Led Zeppelin is, in fact, that their front person is last on that list. I had, as I said Dan earlier on a recent show, I am in the top one half of 1% of Led Zeppelin fans according to Spotify. They send you something at the end of the year that wrapped or something like that. Very proud of that. [00:30:50][63.9]
Dan Nathan: [00:30:51] All right. So really quickly, so we told you where you can find all of Liz’s stuff, the SoFi blog, the podcast or this now whatever, you know little known fact guy. So she is at Liz Young’s Strat on the Twitter but she used to be Liz Young 12 and I think that was like a shout out not Aaron Rodgers who who wouldn’t give out. He wouldn’t trade his jersey at the end of the last night’s game, Detroit Lions, because it was the last time, Liz, that he walked out of the frozen tundra. [00:31:14][23.8]
Liz Young: [00:31:14] We keep saying that I just hope we don’t go that. The same thing that we did with Farve. It was the Jets and the Vikings and all that. Oh, my God. Just hang it up, you know? But, yeah, you know, look, I didn’t have high hopes About halfway through the season, I thought, all right, that this is it. Like we’re done. We’re not going to the playoffs. And then when we actually might have made it in as an eight and eight team and then up until the third quarter last night, I was like, Oh, my God, we may pull this off. And then it all fell apart with an interception as usual. [00:31:43][28.7]
Guy Adami: [00:31:44] A terrible interception, a ball that he should not have thrown. He didn’t see clearly that safety coming over. And I will tell you that peak Aaron Rodgers would not have thrown that ball. And when he walked off the field, I said to myself, this looks like a man who’s played his last game in the green and yellow of the Green Bay Packers. And I am certain there are Jet fans out there that say, hey, we tried this with Brett Favre back in the day and it didn’t work out all that well. But maybe we’ll take a spin with Aaron Rodgers and see, because a lot of Jet fans think that their team is ready to win now, the only thing, Dan, that held them back in this year was the play at the quarterback position, of which, by the way, they trotted out four different people, varying degrees of success. None all that good. [00:32:36][51.2]
Dan Nathan: [00:32:36] All right, guys. Liz Young, thank you for being here with us on Monday’s Towards your contribution for 2023. So check us out. I think next week is a holiday, but we will call that the week after and stick around guys. Listen, if you like, What are we doing with Danny, Vinny and Porter tweeted them, Tell him we want to see this or hear this every week. Okay. We just got to kind of force him to do it right now. I think they’re committed to doing it every other week. They had a great conversation. So stick around for Danny, Vinny and Porter. [00:33:03][27.8]
Danny Moses: [00:35:14] Welcome back to On The Tape. What are We doing? First episode 2023. Here with Vincent Daniel and Porter Collin’s, my former SeaWolfe Capital Partners, who I’ve said many times discharged me and now have gone on to incredible returns. Read into that what you will. But I read into it that they took their brains outside of just doing financials, applied all their knowledge to all other sectors and are now running free through the markets, doing as they please, not having to worry about outside investors, not have to worry about duration of capital and sticking with themes and changing on a dime if they want makes life easier for sure Guys, welcome back to What are We doing and on the tape. [00:35:53][38.6]
Vincent Daniel: [00:35:53] Good to be here. [00:35:53][0.4]
Porter Collins: [00:35:54] Thanks for having us Danny. [00:35:55][0.7]
Danny Moses: [00:35:55] We turn the calendar here. What did you change in your positioning, if anything? As we ended 2022 and came into 2023? That’s up for either of you. [00:36:03][8.8]
Porter Collins: [00:36:04] I think that we did a couple of things last year pretty well in that in 2021, shipping was our big winner, right? We made tons of money in shipping and thankfully we successfully sold those in the first quarter of last year. So that was good. And you know, we’ve been long energy for a long time. And you know, to most people, energy that that’s just oil, right? Oil and gas. And we’ve rotated the energy book pretty well in that, you know, we first started off buying oil, then gas, and then, you know, for the most part were out of ENP stocks at this point. And we’ve we’ve been out for the better part of three or four months now. And, you know, the majority of our performance last year was was coal stocks. And, you know, no one cares about coal stocks, about seven of them. And I talk about every time I’m on the tape and no one cares still. And, you know, they were they were huge winners for us last year. We haven’t really sold anything to the today. So, you know, the only thing incrementally in energy we’ve been buying is we’ve been buying over the past three or four months we’ve been buying some of the services names which, you know, they really lagged everything else. The CapEx has really been underinvested for a long time here. Almost every company in the services sector went except for Schlumberger and the big guys went into bankruptcy. And so, you know, we bought a lot of stocks out of bankruptcy and we’re still in them. [00:37:28][84.0]
Danny Moses: [00:37:28] So, Porter, I’ll ask you this question. I want to hear from Vinnie. But so one of the biggest things out there on energy in general is to your point, they watch the price of oil or maybe they watch gas and they make a assumption or I’m going to sell all the energy stocks or vice versa. I’m going to buy the energy stocks when these things are up. How do you guys play that? Because I think that’s the one thing that’s going to remain volatile throughout 2023. When you guys think about the names you want to own in energy, how do you kind of take that out of the equation, so to speak? [00:37:51][23.4]
Porter Collins: [00:37:52] I don’t think that we actually thought that energy prices would come down like this. You know, we’ve been nervous about natural gas, just given the fact that some of the LNG uptake is not until, you know, 24 and Europe should fill their storage. We saw in Chesapeake, which has been a great winner for us out of bankruptcy and for the most part, natural gas that was one we were nervous about. And I don’t know that oil goes a lot lower than here. I like a lot of the oil names, but yet we haven’t yet bought back into them in a big way. We still own a couple, but not in a big way. And I think that there there will be a chance to buy a lot of them. So that’s where I’m kind of looking at. [00:38:27][35.7]
Danny Moses: [00:38:28] Vinny, you’re the best modeler I’ve ever met, right? You get into whether it’s on a bank or whatever might be. So when you’re modeling these energy companies and you have to put an input in, right? I mean, obviously their cost of capital and things like that. So when you’re doing that on the bottom up work, what is it spitting out to you right now? How do you kind of gauge that? [00:38:43][15.8]
Vincent Daniel: [00:38:44] Well, that’s one of the reasons why we have pretty much changed our tune a little bit within the energy space, right? Because if we rewind the clock for about two years ago, the EMP names were trading cheap and the inputs that you were put in, whether it was $60 oil, $70 oil, $80 oil, the stocks worked. They were just grotesquely cheap. And probably just as important as the price of oil was, the management teams were handcuffed by the fact that no shareholder wanted them to invest any of their incremental cash flows in the form of new wells. So all the cash flows went to debt repayment and then eventually share repurchase and or dividends. So the return profile of these names were fantastic. Now let’s bring up to date current to date, they haven’t invested in any new wells, yet the price of oil is down and just as important, the prices they have to pay for the wells or for the rigs that they’re using have gone up considerably. That’s where their inflation lies. So we actually started to take a look and say, well, wait a second, if the inflation that they’re experiencing is coming from the underlying things that dig this stuff out of the ground, which are the rigs, let’s take a look at the oilfield services names, because they’re the ones that are actually experiencing the positive side of inflation. Not only that, we also have to keep in mind that in general, demand for all things energy, just consumption goes up roughly around nominal GDP or a little bit less than nominal GDP. Yet the depletion factor of the supply of oil is probably minus seven 8%. Simple math. Demand staying steady. Depletion is declining. They need more rigs to drill more oil. Buy the oilfield services. That was our call and that’s why we shifted the portfolio. [00:40:31][107.4]
Danny Moses: [00:40:32] You bring up a great point because nine times out of ten, if you go into either an economic downturn or stagnation of some kind, historically the energy companies had bad balance sheets or they were levered to the hilt. So it’s very different this time. And to me that’s the main difference in this. People expect energy to act a certain way if the economy’s acting a certain way. But to your point Vin, they haven’t been spending the money on CapEx, therefore their balance sheets are in the best shape. I’m going to say this without knowing it. Best they’ve ever been on a relative basis. Right. To an economic downturn. So is that accurate? [00:41:02][30.4]
Vincent Daniel: [00:41:03] Yes. But I would also keep in mind, let’s think about Q4 earnings in that I don’t think the earnings trajectory for the EMP companies are going to be that favorable. Right. Simply because oil is down and I think people are going to be lowering their numbers. So as a result, for me, I’d rather avoid them, at least initially. But I think at some point this year, as Porter suggested, we’re probably going to come back to these names in size, particularly as the slowdown in the economy hits. If these stocks continue to go down, which they might well be stand ready, they’re ready to buy them. [00:41:35][32.3]
Porter Collins: [00:41:36] One of the things we have actually been adding to is a couple of the South American names like Petrobras and Ecopetrol. Those names have been killed because of political uncertainty. Look at margin of safety. The price you’re paying is just a lot cheaper. Right? You’re paying under two times EBITDA. Yes, there’s some political risk, but there’s also a lot of political risk in the United States at this point. So I just think that if you’re patient and you see how things move, you’re able to change pretty quickly and and buy opportunities as a as a as they come to you. [00:42:06][30.5]
Danny Moses: [00:42:06] So the way it works out there, obviously, is if you’re a portfolio manager at Wellington or Fidelity and you have to be a benchmark, that’s how you get compensated. You have to make a decision. The S&P weighting in energy is five or six. I’m going to go eight or nine. I’m gonna go out on a limb and do that. Do you think the people, given what we’re going to get into, talk about the rest of the sectors that are out there, is it strong enough to validate an overweight over the course of the year in general and energy, or do you think it’ll work its way back to kind of a neutral number? To be frank, I don’t even know where we are right now on a weighted basis on the S&P, because I think it’s a big factor in terms of money flows for energy. [00:42:39][33.0]
Porter Collins: [00:42:40] I think Vin and I are both on the same page on this one. Nobody owns these stocks. I mean, they might own Exxon and Chevron and a couple others. But in general, there’s there’s no one looking at these things. There’s about seven people looking at the coal stocks. There’s no one looking at the services names that we’re in. [00:42:55][15.0]
Danny Moses: [00:42:55] If you’re the portfolio manager and you need energy exposure, they’re just going to Exxon and Chevron and calling that their energy exposure and overweighting it that way, just given the most liquid and big ones [00:43:04][8.7]
Porter Collins: [00:43:05] There’s about seven other names. [00:43:06][0.6]
Danny Moses: [00:43:06] But yeah, you know what I’m saying? They’re just going to the top. So there’s still a lot of there’s not a lot of eyes on some of the names that you’re kind of talking about and referring to where there’s potentially a lot of alpha. [00:43:14][8.4]
Porter Collins: [00:43:15] We have 50% free cash flow yields. By definition, people aren’t looking at them. [00:43:18][3.2]
Danny Moses: [00:43:19] And something must be wrong. [00:43:20][0.8]
Vincent Daniel: [00:43:21] Yeah, and not only that, take a step back. At least the way we’re thinking about this. I actually do think there’s going to be an opportunity to buy these things potentially cheaper, particularly the names that people know in the EMP names in the like. Let’s take a step back and think about the next five, ten years. We have just woefully underinvested in the energy space, partially because of QE, partially because of the shale revolution, partially because the ESG, all of the above. And we need a major CapEx cycle in all things energy. And so we remain wildly bullish on the entire vertical. Now it’s just a function of can we invest correctly and time some of these things that we could avoid, which is the obvious 20, 30, 40% drawdowns that you typically get in these names because people are quite skittish when they’re investing in a cyclical. [00:44:08][47.7]
Porter Collins: [00:44:09] We’re about to put out our annual letter and Vinny pointed out in the letter that we’re in very early innings of this of this energy cycle. [00:44:17][8.0]
Danny Moses: [00:44:17] Vinny is there a rocky for reference in your letter, because we did that a couple of times at SeaWolfe back in our SeaWolfe days. [00:44:22][4.5]
Vincent Daniel: [00:44:24] It starts off at Rocky four. Exactly. So so you got a picture of Balboa and then we go into a long winded discussion about we could talk about it later on, if you want, about our fiscal woes right now, the U.S. fiscal loss. [00:44:37][13.8]
Danny Moses: [00:44:38] We’re going to talk about that. So let’s let’s put other. [00:44:40][2.1]
Porter Collins: [00:44:40] Italian-American movies in there, of course. [00:44:41][1.4]
Danny Moses: [00:44:43] Of course [00:44:43][0.0]
Vincent Daniel: [00:44:44] Guy Adami would love reading this thing. [00:44:46][1.9]
Porter Collins: [00:44:46] Casino Goodfellas, you know, it has it all. [00:44:49][2.6]
Danny Moses: [00:44:50] Just for people that are dropping in for the first time listening to this. So just as way of background, I mean, I worked with Steve Eisman, Vincent Daniels, Meredith Whitney at Oppenheimer in the mid nineties. Got to meet Porter in early 2000s when he was working with Steve Eisman at Chilton. And then when they went to Front Point, I joined them in early 2006 in time to sort out the mortgage companies and by credit default swaps and all that stuff that. Went on. So the reason I say this as a background is we have seen a lot. Three of us, we’ve seen many, many cycles. And the one thing that messed with us the most, I think was really adjusting to kind of the free money QE period. You know, we saw the end of the world happen, the three of us, among other people with with Steve and others. And when you see something like that, it’s hard to ever get it out of your mind. Right? And so then we fought the QE tape, so to speak. I think in, you know, 2010, 11, 12, 13 and here we are, we’re on the other side of it. So we know what it’s like to be on the other side. And I don’t believe that the majority of investors out there remember or want to remember or realize what can happen or what will happen when one money is not free. They only know QE for the most part, and you always get bailed out this kind of moral hazard thing. So with that in mind, guys and Vinny, I’m going to start with you on this. How do we readjust to this new new and what inning are we in of this kind of readjustment period? Because we are just at the beginning of the liquidity pull, in my opinion, for the most part. [00:46:12][82.1]
Vincent Daniel: [00:46:12] It’ll be interesting to see where we are in the liquidity pull, because I actually think the next phase of this for me is the earnings pull, right? Meaning we’re probably at the beginning or in the middle of a decent economic slowdown. I don’t know how long it lasts, but I actually think you’re going to start to see this manifest itself over the next two quarters in the form of earnings. I’ve always felt that it is really difficult to go out and buy stocks when the trajectory of the trajectory of the E the earnings are going down. And so to me, as we start walking into the slowdown in the recession, the biggest question we have for ourselves and we sort of attack it two different ways is what is the Fed going to do if and when that happens? So far, they’ve been able to just stand pat, mainly because employment is great and quite frankly, they are. They seem to be scared to death. The financial conditions loosening. I think they know what they’re up against in terms of making sure the inflation beast doesn’t come back, but is so long as they stand pat, this is going to be a very difficult market to just go out and quote unquote, buy the dip like that like people did over the past 14 years. [00:47:21][69.1]
Danny Moses: [00:47:22] You just said something that, you know, the Fed minutes came out this week. Right. And you read into them whatever. They’re backward looking to a degree, but they specifically pointed out basically market conditions, Right. Whether it be credit or stock market. I wanted to read into that that they’re using that as a barometer and they don’t want to see the market rally and they don’t want to see credit spreads loosen. Right. They want to see things continue to tighten to, quote, send the message. And it helps explain why Powell is the heavily you know, I’m hawkish, I’m hawkish, I’m hawkish when in the background you go back to Jackson Hole 2021, inflation was still transitory. I mean, that was August 2021. So we know they’re probably over tightening here. But you’re right, you bring up a great point. Every time we get one of these rallies like we have today, obviously in the markets, because you had the job number, that, by the way, was fine, but wage pressures dropped a little bit. So, you know, you can get a sense for how boiled up that what. [00:48:09][47.5]
Porter Collins: [00:48:10] You think they did [00:48:10][0.4]
Danny Moses: [00:48:10] Should be. Yeah, you they did. But my but my point is that and Porter I want your thoughts here is that I feel like we go through this exercise over and over again. And to Vinnie’s point, we just had Mike Wilson on the tape on our last episode and he made the same point that Vinny just made the we’re going to transition the hand off from the Fed being just kind of noise and background to what earnings look like. So Porter, with that, you know, and you having looked at many sectors over the years, follow up on Vinnie’s thoughts and give me your thoughts on that. [00:48:34][24.0]
Porter Collins: [00:48:35] I actually just want to zoom out here a little bit. You know, my my brother Dwight had us on a conference call three months ago with with some of his employees and investors. The context of the conversation with the anatomy of a bear market because we’ve lived through it together, how do we think about trading a bear market and how do we think about investing in a cycle? And I think people have to realize that this is a cycle. And, you know, I was going through some of, you know, Bob Farrell’s top ten quotes recently. And number two, there is excess in one direction will lead to an opposite excess in the other direction. Number four is exponentially rising or falling markets usually go further than you think, but do not correct by going sideways. And so if you think about that and you think about how we think about markets, the easy the easy part for us last year was shorting stocks. And, you know, we did did very, very well shorting stocks because we knew that the Fed was out of its league and they had woefully missed inflation. Right. You know, missing inflation were 9%, 8%. I think it went to you know, they got it woefully wrong and they’re still cleaning up this mess. And so I think that all the excesses, whether it’s Tesla, whether it’s Snowflake, whether it’s Apple, all this stuff went way further than we ever thought it would. And now it’s just correcting back the other way. You know, I think, you know, I’m proud of the last podcast we did, we went full Monty Crazy bearish on Tesla and I listened to it a couple of days later. I was like, Wow, you’re aggressive there. But everything that worked for Elon on the way up, it was beautiful, is working equally on the way down, right? He’s selling stock. Investors are dumping margin calls. It’s cascading. You know, prices are falling in China. You know, demand’s weakening everything. It’s happening in the exact way that it worked on the way up. You look at this now and people are saying, well, maybe it is a car company, maybe it is a cyclical and what do we pay for this thing? And and so I think things are just coming back to reality. And this is the reality of an economic cycle and people just got way too carried away with the bullishness on one side. And again, I think it’s just going to go further than you think. One of the reasons Danny was so good in a bear market is he just kept pressing. You know, I remember in, you know, oh six or seven or eight, you just you were very good at just pressing every rally and expecting it to go further than you think. And so I think this year will be a another tough one for the bulls. [00:51:07][152.9]
Danny Moses: [00:51:08] Took 17 minutes to mention Tesla you just want to throw that in there in the middle of like, you know, think let’s pull back for a second. [00:51:13][5.4]
Porter Collins: [00:51:14] I want to talk about I don’t know. [00:51:15][1.4]
Danny Moses: [00:51:15] You know, I know you can’t just go down that road, right? You can’t just go down the No, no pun intended on that without digging in further. So that we kind of alluded to this. I’ve been I’ve been saying it’s turning from a, you know, secular story to a cyclical story. You can ignore the corporate governance, you can hear all the other stuff. But at the end of the day, it’s a cyclical company and then people realize it’s not this robotaxi tech thing or whatever. It’s an industrial company, auto company. And so to me, that’s what’s happening on that. And by the way, many other names. And the other thing I want to say in general and I said this on the podcast yesterday, I don’t care how much the stock is down from its highs because it never should have been at that spot. I’m not even talking about Tesla specifically, but that’s the perfect example is why people use, oh, it’s down 70%. I’m going to buy it. Really? Because that was my thought on Carvana was shorting it at 300. It went to 80. It was a better short at 80 when the story became they have the greatest, you know, mousetrap in used car history. This is the coolest model. You know what cards speak at the end of the day, balance sheets speak. And so we’re still a ways away on Tesla from that full unwind. But it may be coming. But in general, I think, Vinnie, that theme and looking at companies from the bottom up, not from where they came, but where they may be going, and I want to focus on the consumer because this economy has been will is and will always be driven by the U.S. consumer. Debt’s never been higher, savings have never been lower. How are we going to get through this? We look at auto finance, we look at mortgage finance, look at all this stuff. How do you drive on this Vinny? It’s hard to be bullish. Is that as a backdrop? [00:52:42][87.0]
Vincent Daniel: [00:52:43] Yes, it is. It’s funny. I was going to do an old SeaWolfe thing I felt like getting yelled at for about a good 5 minutes. But maybe maybe I’ll save it for a later time. Let’s talk about the consumer. That’s one of the reasons why I think the E is going to be a challenge for the entire year. So one of the things we always used to look at and I mentioned that before on the prior podcast was nominal credit card growth. I think it’s a big indicator of of two things. One, future growth in the US economy, because if card growth is well below nominal GDP, that’s a very bullish indicator to me, it’s a bullish indicator from a credit perspective, it’s a bullish indicator from a growth perspective. Unfortunately, we’re on the opposite side of that, where credit card growth is growing way, way faster than nominal GDP. So what does that mean to me? It means to me that we’re going to have probably a slower economy because I don’t know where people are going to see the economic growth if the consumer is, quote unquote, or at least a portion of the consumer, a good portion of the consumer is tapped out. So that combined with higher rates, particularly at the at the short end of the stick, which is the two year treasury and its impact on auto and as well as the impact on housing, you’re kind of wiping out some of the bigger leading indicators of economic growth. And so as a result of that, I think you’re going to have a tough challenge with the earnings side of the equation just going forward. [00:54:08][85.3]
Danny Moses: [00:54:09] Let me guess, you were going to talk about seasonally this is a great time for credit. You don’t want to be shorting credit country. What were you going to pull from this SeaWolfe thing? [00:54:15][6.4]
Vincent Daniel: [00:54:15] No I was going to piss you off even more. [00:54:17][1.5]
Danny Moses: [00:54:18] Give it to me. [00:54:18][0.3]
Vincent Daniel: [00:54:19] Over the last, say, two or three weeks. We’ve actually covered some Tesla. [00:54:22][3.5]
Danny Moses: [00:54:23] No, that’s smart. I mean. [00:54:24][1.1]
Vincent Daniel: [00:54:24] No well you know [00:54:24][0.1]
Danny Moses: [00:54:27] So have I for my full disclosure [00:54:27][0.6]
Porter Collins: [00:54:28] It makes it makes it weird because we do own Tesla Q So it is actually getting bigger as Zach went down. [00:54:34][6.1]
Vincent Daniel: [00:54:35] So there was one day we covered a chunk and the size of our position was bigger, right? You know, very weird. [00:54:43][7.9]
Porter Collins: [00:54:44] And by, by the way, Tesla was we ignored all risk limits on Tesla. It was like [00:54:48][4.7]
Danny Moses: [00:54:49] Well, it’s good you don’t have anyone to report to about yourselves. By the way. You know, when I watch behavioral finance and I, you know, I remember back in the fall when S&P, I think, upgraded Tesla’s debt meeting list, but they did it. There was two other pieces of good news. I think I either tweeted it out that day or mentioned it on the podcast. That to me was when I really got really bearish, when stocks like Tesla and other things stopped going up. On what used to make a stock move five, ten, 15%. You know, that it saturated, you know that the last buyer is in. So to me the question is when is the last seller, you know, kind of out and guys I can’t get past kind of where the thing is still, you know, 16 1700 on a split adjusted basis. Right. So just multiply wherever it is times 15. And then in my mind, just go back to four years ago when the funding secured bullshit and all the stuff that’s gone on. Yes sure they’ve made more cars since then. But you know what? They’re going to be less profitable going forward because inflation’s getting them. The cycle is going to get them. I just can’t see [00:55:45][56.1]
Porter Collins: [00:55:45] Their counting is actually going to catch up to them. [00:55:47][1.7]
Danny Moses: [00:55:47] So the I will cover the stock when I think there’s a fundamental reason, of course, you have to cover when stock goes from 200 to 110, you know, you have to you have to cover your stock. Granted, your position got smaller as the stock went down, for the most part, unless you’re using TSLQ But that’s the right risk management tool, right? [00:56:03][15.7]
Porter Collins: [00:56:03] But the funny thing is, is you can see it in action. Nobody is short the stock. I mean, absolutely nobody is short the stock. [00:56:10][7.1]
Vincent Daniel: [00:56:11] I actually think I take it the other way Porter. No one seems to want to own the stock, right? So, so even on days like today, it’s Friday right now and the markets are ripping. Right. I was going to mention that to Tesla. With Tesla, it’s up from its lows, but it’s not really significantly outperforming. And Danny, as you mentioned, you’re looking at the price on the place pre split adjusted basis where it’s been. I’m really looking at it right now on a market cap basis. So so I’m sort of defining in my head [00:56:41][30.0]
Danny Moses: [00:56:41] Yeah, 350 billion makes no sense. [00:56:43][1.8]
Vincent Daniel: [00:56:44] What market cap makes sense for a company like this giving some credit for maybe their technological prowess? Don’t yell at me, but we’re not there yet. Right. So we’re not low enough yet where I could say, All right, at these levels, I could see why someone would want to own it. If FSD, if battery pack, if all these things that I hear about come to fruition. The problem was at the levels where the stock was really where it is right now, you’re still sort of taking into account a high degree of probability that all of those things in 2040 are going to work. [00:57:22][37.9]
Danny Moses: [00:57:22] Just so everyone out there, so Vinnie used to do this thing. He knew it bother me, but he couldn’t help himself. So we’d be in the office. It’d be like, I don’t know, 830 in the morning. 845 I was obviously most of the time bearish on everything and there’d be some data point or maybe even an earnings that came out, whatever, and the market was going to rally or a particular stock was going to rally big. And I’d hear Vinnie because he sat four feet from me go rrrr look up on my mother. F I’m like, Could this guy is going to go Rip And it used to drive me. I had to leave the office when he would do the rips. It used to drive me insane. So we’re like, if this print on the economy numbers bad, the market’s going to get killed because this back when bad was bad and good was good. Not all this stuff goes on with the Fed anyway. So that’s a kind of an inside joke [00:58:06][44.6]
Vincent Daniel: [00:58:07] By the way, Danny, What you might not know about that is inside our office, the other guys who work with us used to use the email. Me. Text me. Please do it. Please do it. [00:58:17][9.8]
Danny Moses: [00:58:17] Oh seriously [00:58:17][0.2]
Vincent Daniel: [00:58:18] And and and then after I did it, What really I knew I would get you. You were. You were. And then. [00:58:23][5.4]
Danny Moses: [00:58:24] Easy mark [00:58:24][0.4]
Vincent Daniel: [00:58:24] Porter would eventually say, Vinnie, shut the fuck up. Just shut the fuck up. [00:58:29][4.4]
Danny Moses: [00:58:30] We need them. We didn’t focus on the trades. All right, So enough on Tesla. Enough on that. Let’s. Let’s focus on one thing. Yeah, go ahead Porter. [00:58:37][7.1]
Porter Collins: [00:58:37] One thing we were talking about with the other guy this week, as you know, house prices. And it’s a little bit different than the subprime days of of 2008. But you know coastal US and certainly mountain west US house high end house prices I think are going to fall 20 to 30%. It’s hard to be bullish when you have that view. It’s hard to be bullish on the consumer. You know, I think a lot of these houses were bought on margin on stocks. They took out margin loans on their stocks [00:59:06][29.0]
Danny Moses: [00:59:07] Or crypto [00:59:08][0.3]
Porter Collins: [00:59:08] And you know but but like all the houses in the Mountain West, all these you know everyone bought a house in Utah and I think a lot of these houses were bought on margin loans, you know, of guys in the West Coast and huge stock gains. And so go back to Bob Farrell’s rules. You know, excess in one direction leads to a you know, a corresponding pullback and the other I just think that that you see a big deflation in a lot of these assets. It’s still to come and so it just it takes time and the same thing a credit cycle like a credit cycle here is is is natural. It’s going to come and you know, as Vinnie and I we’re looking at the other day one of the questions from from Twitter was, you know, what do you guys think of the of the, you know, the corporate debt market? And that market is so much larger than it was in 2008 and in I don’t have to, you know, talk to you about how big the fixed income ETFs are. And they are they don’t make any sense whatsoever. And so I think that yields you’re going to see a lot of fallout from fixed income ETFs, from downgrading of securities from the fallen angels and stuff like that. So I think there’s just the cycle is going to take a lot longer than people think and it’s going to be going to be nastier than people think. [01:00:18][70.1]
Danny Moses: [01:00:18] Yeah, so you bring up a couple of points. One is we went this whole time and we don’t have to spend time on crypto. It’s in such the background now. Everything’s kind of blown up. I don’t know what’s going to happen. I’m not going to try to predict the price of Bitcoin and Ethereum. I’m surprised they’ve held in like they have, but we’ll just leave that kind of aside for a second. But I just mentioned crypto in kind of passing, and we’re not going to spend much time on it because it kind of feels like that fat is kind of come and go. It’ll be around. I’m surprised that things have held up, but crypto did steal Gold’s thunder, I believe, over the last several years, and I think gold is finally in a position that it should benefit almost under any any scenario that you can really paint here going forward, whether it’s geopolitical or the Fed pivot or, you know, shortage of the physical or whatever. Give me your guys thoughts on that. Because if I were to pick one thing right now that I’m the most bullish on, other than Tesla puts, of course it would be gold. And so I want to get your guys thoughts on gold because we didn’t talk about this prior to getting on today. Give me your updated thoughts here. [01:01:14][55.3]
Porter Collins: [01:01:14] Let’s just do a quick aside in crypto. You know, I got a lot of pushback on the Silvergate short that we were pushing for a while. You know, it was just so obvious to us that the whole ecosystem was going to get killed. And I think Vinnie talked about it previously that the perfect Ponzi called it. And he said, I think he also said the only thing it was good for was laundering money and speculation. And so and you think about it in that context and you think [01:01:41][26.8]
Danny Moses: [01:01:42] It was a pretty good call Vin [01:01:42][0.4]
Porter Collins: [01:01:43] And and you think about in the context of, you know, it looks a lot like wirecard, right? In terms of processing illegal transactions, which happened to be the case. And so I think it ends and eventually ends in zero for us. It wasn’t that hard of a call [01:01:57][13.9]
Danny Moses: [01:01:58] Thoughts on gold. [01:01:58][0.4]
Vincent Daniel: [01:01:59] We’ve always viewed it as sort of the report card of central banks. And we were joking around where Guy was giving them high marks. But Porter, in typical Danny Moses fashion, couldn’t possibly give them a high mark because he didn’t know. F. And I’ll also say that during your guy’s review of on the Tape Review, you guys were sort of talking defensive and apologetic that gold didn’t work last year. And, you know, I wanted to pull a really like he would on the sports reporters whenever there were errors that was an error like gold actually did really well last year relative to almost every other asset class and now I actually think it’s it’s time to shine simply because I can’t see the Fed continuing its tightening policies over the course of 2023. I, I can’t tell you when I don’t know when the Fed’s going to pivot or how much they’re going to cut if they’re going to cut. But the days of them tightening 75 basis points or even 50 basis points, we’re probably in the latter innings. I mean, and as a result, I think you’re seeing it already that gold is sniffing it out. Not only that, if you believe, like I do, that our country as well as other countries are going to run chronic fiscal deficits as far as the eye can see. And they’re going to need to debase you to basically make that happen. Gold is the best asset you want to own, if that’s your belief system. [01:03:27][87.6]
Danny Moses: [01:03:27] Porter correct me if I’m wrong. I know you’ve done work on this. You know, there’s the paper gold market and the physical gold market. People believe they’re exposed to gold in the gold shirt to a degree. You do get some exposure there directionally, but at the end of the day, like I think we’re moving towards a physical, physical, physical. What do I own? What is this? And I feel to be like it’s going to be some type of mania. Porter Give me your thoughts on that because I know you’ve done work on kind of physical market versus paper. [01:03:50][22.6]
Porter Collins: [01:03:50] As you know, we’ve been sort of bullish on and owned gold in some form or fashion since 2016 ish. And so I don’t know if it makes me a gold bug or not, but, you know, we believe in tangible backing of of gold. And so, you know, over the past, I would say 4 to 5 months, we’ve really been buying a lot of gold. And now it’s probably the biggest sector in our portfolio. As you know, the top positions, I know it’s, you know, one, two and three. You know, we own gold, physical, gold, physical, silver and and some miners. [01:04:19][28.7]
Danny Moses: [01:04:20] Do you still have the AMARK, by the way? Because I’m still in that AMARK. [01:04:22][2.3]
Porter Collins: [01:04:23] Never sold a share. You know, we sort of have been tracking this thing for a long time and figuring out when it’s going to work, how it’s going to work. But, you know, we’d just much rather be in gold than than Treasuries and laughing and rather [01:04:38][15.1]
Danny Moses: [01:04:40] Prep school, whatever you’re going to go [01:04:42][2.2]
Porter Collins: [01:04:44] But, you know, everyone wants to own treasuries, right? Okay, great. But if I look at the U.S. Treasury, it’s disgusting. The budget deficit is out of control. You know, the biggest buyers of treasuries are gone. You know, China, India, Russia, they’re sellers of treasuries, not buyers, and they’re buyers of gold. And so, you know, I want to buy the asset that looks the best and fundamentally looks the best not not the asset that fundamental looks the worst, which is treasuries. And so it may work, but I’ve sort of left it alone. I’d rather stay in T-bills in the front ahead of the curve and earn my four and change percent. I think that gold has a lot of upside here, and especially as you know, the Fed’s got to pivot. They’re going to pause or call it what you will and the stock market’s going to rally. But we think the gold market’s going to rally a lot and we think the energy stocks are going to rally a lot when that happens, too. So that that’s how we’re playing it. We’d we’d rather not, you know, dive deep in beaten down tech. Is not what we’re going to do. I don’t know. We’ll see what we do with our shorts and tech but. [01:05:40][55.9]
Danny Moses: [01:05:40] Well, the nice thing about this AMARK is it has a 2.3% dividend yield because they lend out right. Against their holdings. Right. They lend out to consumers, if a not mistaken on the gold. I mean, that’s pretty good collateral. And so as ready to move higher, they can, you know, obviously move their rates higher as well. Am I wrong on that? Because it’s a really interesting company. [01:05:56][15.6]
Vincent Daniel: [01:05:56] The way I look AMARK is that it’s one of the few places where you could play precious metals. That’s not a depleting asset. It’s actually a broker. And people are going they’re trading gold and it’s it’s a semi capital business. They do vertically own their own mints. And so they have very high returns on invested capital. They are judicious with their capital. And usually at the end of the year we get some form of a special dividend. And if stock goes to low, we get some form of share repurchase. And I believe the company I forget the exact number Porter maybe it could help me out is 30 to 40% owned by the insiders, which which is which is usually a check that we love to see boxed off that they’re in there with you. [01:06:37][41.2]
Porter Collins: [01:06:38] But then you go back to the question about the paper gold market versus the physical gold market. I think it’s a 125% in gold. Think it’s like 400, 400 to 1 in terms of silver. So, you know, there’s just not that much physical bullion and physical silver backing a lot of these paper assets. And so as the price climbs, you’re going to see people chase and chase the hard the hard metal. [01:07:01][23.1]
Danny Moses: [01:07:01] Well, that’s my point. We can close the book on this one. But, you know, people used to buy crypto or thought that you could buy crypto kind of as a hedge for central bank, you know, inferiority. And now I feel like that trade, first of all, people don’t even have a way to pretty much buy crypto anymore, right? Maybe Coinbase still exists, but, but I think you get my point. I think gold may be the solve for whatever’s left to people that want to express that never had in the past had a reason to question the global central banks. Right? Or fiat money in general feels like gold finally has its day in the sun so. [01:07:30][29.2]
Porter Collins: [01:07:32] Danny, one of the interesting things about crypto and it tied to one of your passions cannabis, is that is the on and off ramp to the banking markets. And so as the crypto market exploded, they had this huge onramp from the banking markets. And so you were able to take your fiat dollars and place them into crypto really easily and it allowed many criminal activities to happen as well. But you know, as that money is sucked out back into the banking system and those on and off ramps are closed down, which they should be to crypto, you know, that, that that crushes that asset. And so just like, you know what, eventually they open up the banking system to the cannabis industry and that’s going to be a huge boon for them too. And so, you know, we always look at these links to in and out of the banking system and, you know, you think back to oil and gas, you know, they haven’t had any access to any access, very little access to the funding markets. And so they’ve had to totally transform their balance sheets into very low levels of debt, high levels of cash, and self-fund a lot of these the things they’re doing. And so that’s the whole context of how we think about the banking system and interplay with with a lot of these different assets. [01:08:43][71.5]
Danny Moses: [01:08:44] All right, last thing before we get out of here, we got to talk about the banks in general, you know, the Wall Street banks versus the consumer banks. We’re going to hit earnings. That’s always the first one that comes around, Right? We’re going to get a pretty good read. It’s not going to be pretty, obviously. Q4 What are your guys thoughts on the banks as we enter 2023? [01:08:57][13.2]
Porter Collins: [01:08:58] First of all, I would a public service message, people that have historically have had a large percent of their money in the checking account should not have that in their checking account. So, you know, the money market funds, you can get four and change percent, whereas your checking account, you still get one basis point at Bank of America, right? So people should be pulling their funds from checking accounts and parking all excess cash in all their money funds are high yield or sort of, you know, high savings account funds. And so that’s what I would do. [01:09:29][30.9]
Vincent Daniel: [01:09:29] And that leads to what we think about the banking system right now. Right. Which is if you think about a bank, what its moat is more than anything else is the fact that they have the lowest and cheapest cost of debt capital that tends to be very sticky right in the form of deposits. However, this cycle there’s actually competition for that and very stiff competition in the form of, as Porter just said, two year treasury T-bills, where you’re actually getting a higher rate of return than you are on your deposits in your checking account or even a CD for that matter. In addition, for corporations, there’s this new little tool that the Fed came out called the reverse repo facility, where you have the ability to park your money there, get daily liquidity. You have as much safety in the reverse repo facility as you do as a bank, and you’re getting about 200 bps extra there. So this is a long winded way of saying we expect a tremendous amount of deposit outflows from the banking system. And you actually saw that while it was different at Silvergate, but if that continues to happen. It’s a lot of stress on the balance sheets of financial services, and we’re not talking about them going under. What we’re really talking about is that you probably have seen Peak NIM and then probably 2 to 3 quarters afterwards, you start to have a credit issue. So again, another long way of saying is we’ve been negative on regulated financial services. [01:10:56][87.1]
Danny Moses: [01:10:57] Yeah, because I talked about on the podcast with Mike Wilson about the SLR, which is the banks are forced to carry X amount of capital against Treasuries. I actually believe that will be one of the things that the Federal Reserve comes in and uses for the bank. So I think we’ll see that happen. But it’s a lot of pain between here and there Vinnie to your point of pain. [01:11:12][15.1]
Porter Collins: [01:11:12] But by the way, if they do that, Danny, they better be right. Because if they’re wrong, we’re having a massive banking crisis [01:11:18][5.4]
Danny Moses: [01:11:18] Right that’s exactly. So I believe. [01:11:19][1.5]
Vincent Daniel: [01:11:20] We’re going to take it a step further, Danny. If they do that, then our banks are going to migrate towards the way of Japanese banks and European banks and those generally trade at a permanent discount to tangible book value. So there’s going to be a long way down, but I still think it’s a high probability that they relax the SLR. [01:11:37][17.5]
Porter Collins: [01:11:38] And if they do that, the banks will probably initially rally on that and you know, we’ll be shorting the crap out of them at that point [01:11:44][5.8]
Danny Moses: [01:11:44] So will treasuries, I would think, would rally at that point. So let’s close that. So is there any banks you guys actually like? Is it JP morgan that you want to buy if it gets weak? What’s the kind of the top one or two banks that you want to own in the midst of this cycle we’re going into. [01:11:56][12.0]
Vincent Daniel: [01:11:58] I’d rather see the teeth, the eyes and teeth of a recession and a knowledge of credit defaults. JP Morgan’s an obvious one. I mean, we I think we all sit here a card carrying lovers of Jamie Dimon, whatever he does. I always go back towards the consumer finance names. Capital One, not right now, but maybe an American Express and would like to see it go lower, mainly because I love the credit card business within the banking system and in general they tend to be the most cyclical, so they get hit the hardest. So the stocks go down the most, but it’s arguably one of the more resilient and highest ROA businesses the banks have. So those are the things that I’ll be looking at, assuming they get hit. [01:12:39][41.6]
Porter Collins: [01:12:39] And they don’t have this sort of same acute funding shift that the big banks do. [01:12:44][5.0]
Danny Moses: [01:12:45] Alright guys. Listen, I know we’re going to try to do this more often. I think we’ve done this, I don’t know, five, six, seven times. I’d like to do it twice a month if we can. And I think timing is good to come back in a couple of weeks. And when the banks do report, we should have a lot of insight, I think, into how they’re starting to position themselves. I do think and I think you guys agree, that the whole financialization of the entire market right, is really based upon the amount of leverage, the amount of debt in the system and how you’re structured. And a lot of clues are going to come, I think, from the bank on what they’re seeing happen in real time in their corporate and consumer credit portfolio. So thank you guys for coming on this again and look forward to having you and hopefully see you in person in a couple of weeks, boys. And very happy early birthday, buddy. [01:13:24][39.5]
Vincent Daniel: [01:13:25] Thank you, sir. [01:13:25][0.4]
Porter Collins: [01:13:26] Do we get Guy and Dan back? I’m sure they you know, Dan wants to yell at us about. [01:13:29][3.1]
Danny Moses: [01:13:29] Yeah, no, definitely. Definitely. Yeah, exactly. But we will get him on and you’re going to get another bottle of Komos on this. I’ll make sure that although all of us. [01:13:37][8.0]
Vincent Daniel: [01:13:37] Yeah, Although I will say if the Giants make a long run and I think they might, in my opinion, he might be unbearable Guy. [01:13:45][7.2]
Danny Moses: [01:13:45] Guy. But anyway. Yeah. All right, boys, congratulations. [01:13:48][2.5]
Porter Collins: [01:13:48] And then another great Jets season to to. [01:13:51][2.4]
Vincent Daniel: [01:13:52] They suck [01:13:52][0.3]
Danny Moses: [01:13:52] On that note. [01:13:53][0.4]
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