Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted through X Spaces by Michael A. Gayed, CFA, Publisher of The Lead-Lag Report (@leadlagreport), each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
In this exciting series, you'll have the rare opportunity to join Michael A. Gayed as he connects with prominent thought leaders for captivating discussions in real-time. The Lead-Lag Live podcast aims to provide valuable insights, analysis, and actionable advice for investors and financial professionals alike.
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Lead-Lag Live
Danny Moses on Gold's Role in Economic Stability, Geopolitical Tensions, and Future Investment Risks
What if the real safeguard against economic turmoil isn't in stocks or bonds, but in gold? Join us as we sit down with Danny Moses, the insightful investor known for his pivotal role during the Big Short era. Discover how geopolitical tensions and an overreliance on central banks are shaping the modern financial landscape. Danny shares his seasoned perspective on the significance of gold compared to other asset classes like cryptocurrencies, stressing its importance during market corrections and its potential for long-term value.
As global economies grapple with rising oil prices driven by tensions in the Middle East, Danny highlights the cascading impacts on oil-importing nations such as Japan and India. We explore how these dynamics can directly tax consumers, spur inflation, and influence U.S. markets and fiscal policy. Dive into Danny's analysis of the challenges of managing recession risks amidst high debt levels, and why tax cuts might be a pipe dream in the current economic environment.
Lastly, we venture into the U.S. debt ceiling crisis, the future of cryptocurrencies, and lucrative sectors like online gambling and cannabis. Danny offers insights into investment opportunities and risks in REITs, utilities, and private credit, and analyzes consumer credit trends and defensive sectors. From the skepticism surrounding buy now, pay later schemes to the impact of AI-driven lending platforms, this episode is packed with critical insights to help you navigate the complexities of today's market. Join us for an engaging discussion that promises to sharpen your investment strategies and enhance your understanding of economic dynamics.
The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.
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Foodies unite…with HowUdish!
It’s social media with a secret sauce: FOOD! The world’s first network for food enthusiasts. HowUdish connects foodies across the world!
Share kitchen tips and recipe hacks. Discover hidden gem food joints and street food. Find foodies like you, connect, chat and organize meet-ups!
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my name is michael guy at publisher of the lead lag report. Joining me for the rough hour is mr danny moses, when a lot of people have seen uh doing the media rounds, uh knows a little bit about uh the big short era uh, and I think he has some really interesting perspective. So, danny, introduce yourself the audience. Who are you? What's your background? What have you done throughout your career? What are you doing currently?
Speaker 2:Michael, thanks for having me on, and you are a lean, mean fighting machine, so congrats on that. So thanks for having me. I spent 25 years in the investment world, started out as a muni bond analyst at NBIA, actually prior to it becoming really in the middle of the financial crisis situation. I then was institutional equity sales at Oppenheimer where I worked with people like Henry Blodgett, but also worked with people like Steve Eisman and Vincent Daniel, kind of learned the ropes of the financial stocks and that led me to get to the buy side eventually to join Steve Eisman, porter Collins and Vincent Daniel at Front Point, where we put on the big short trade that people know about in 2006.
Speaker 2:From there, in 2011, vinnie Porter and myself went to start Seawolf Capital, a long short fund focused on financial services. We did that for roughly five to six years, returned the capital. We were all a little burnt out, I guess, after that run that we've had and since then I've been doing private investing and advising various sectors gambling sector, cannabis sector, various areas finding pockets of opportunity and I've been working with Dan Nathan and Guy Adami on the On the Tape podcast now for the better part of four years. That's a weekly podcast that we do so I'm able to express my views there and, michael, I know I've been on with you before, but thanks for having me on here again.
Speaker 1:So there are these cycles where risk is underpriced and cycles where risk is overpriced right In 2007, 2008,. The underpricing of risk was obviously around housing and floating what's the most underpriced risk currently?
Speaker 2:I think it's a combination of things and let me just say that everything was in motion in 2005 and 2006, prior to 2007 and 2008. So these things always take a long time to kind of play out. So geopolitics in general, I believe, are underappreciated by the markets. We're seeing that reflected, I think, in the gold trade per se. I think that the amount of passive funds that are out there, the amount of kind of one-way capital lack of kind of stock underwriting, bond underwriting, has created, I think, a false sense of security.
Speaker 2:I think a lot of people on the same side of a trade we can go into the stock picking aspect of that and, I think, just in general, the faith in the central banks which we've seen in the last few years kind of get tested, starting with the Bank of England in the fall of 2022, when Liz Truss, as prime minister tried to enact energy price caps, tax cuts et cetera, the Sterling went haywire. They got rid of her and the BOE had to come in and start doing things. We just saw something similar happen in Japan. So to me, what's underappreciated is you now have a generation of people that have been reliant on central banks to kind of cure all the ills and you're seeing, basically, pockets pop up now and I think that this whack-a-mole is going to get too hard to hit all these things, and we can talk about those things. So, in general, I just think that you can't depend upon central banks to keep rescuing you when you have debt levels globally that exist like this.
Speaker 1:Yeah, I've called that the last great bubble the faith in central banks to solve all problems. I'm curious to hear your thoughts on gold, because you mentioned that there's much more geopolitical risk than is being priced by equities. But maybe that's what gold is being priced off of, that geopolitical risk. I've kept on saying it's gold that's pushed higher. Gold is sending a warning. It's dramatic. It gets all kinds of engagement on X, but is there some truth to that? Is gold sort of sensing something that maybe other investors in other asset classes are not?
Speaker 2:You know, gold had this period of time during this run in inflation where it quote wasn't working like it should. So people said gold is useless in that regard. I don't see that at all. As a matter of fact, if you chart gold over the S&P 500 on a total return basis, it's outperformed it over a long period of time and, as my partner on On the Tape podcast, guy Adami, likes to say, gold is a hedge by the central bankers against their inadequacies, which I believe is happening. So now you're in a situation where geopolitics obviously are positive, for gold is, in terms of things heating up around the globe which I don't think it's going to be abating anytime soon, and the printing which you can see, that still needs to go on, and the inability to wean off of quantitative easing or wean off of central banks. It just creates these currencies to become quote fiat currency, so it lends itself to a hard currency like gold.
Speaker 2:There's no question that crypto over the last several years stole some of the thunder that gold had had, and if gold had been, I think it was a $10 trillion market back then. It's north of $16 or $17 trillion now. In aggregate. Crypto kind of invaded on that. Let's call it $2 to $3 trillion worth, and people kind of see similarities between crypto and gold in the sense that it is a hedge against the inadequacies of federal governments across the globe. So I just think it's a staple you kind of own. I know it doesn't yield anything, but when rates start to pull in like this, I think it becomes more attractive on a relative basis for sure. So I'm a buyer on every single dip that's out there and I've owned this thing for several years.
Speaker 1:Anecdotally, do you see any real excitement around gold? I mean, it doesn't seem like, even though it looks like it wants to break out now and some people are talking about it. You don't have that fervor that you'd see in the crypto side.
Speaker 2:Well, that's what you want. If you're long gold, you want to be selling into that fervor. So just think about the allocation that's occurred from the ETFs in crypto, that have occurred with Bitcoin and now Ethereum. It gives portfolio managers the opportunity to just allocate even half a percent of their capital. I think gold is under-owned by large institutions and it won't take much, I think, to get gold moving higher. When you look at the global demand for gold by central banks, let's think about what would happen on the institutional money side of gold. So I don't think anybody really owns it, michael, to be clear, and I think a lot of the way that people own it is synthetically like GLD, which you don't really own the gold itself. So I think that when I start hearing it, when I hear from a as we used to say shoeshine or taxi cab driver starts asking questions, then it's probably time to lighten up. But we're nowhere near that right now. So the fervor does not exist and I think it will.
Speaker 1:It's interesting you say about GLD, because a lot of people would get access through that. And yeah, there's always this debate over holding the physical versus holding funds that supposedly hold the physical they should, but who the hell actually knows, unless you're actually calling for that gold. Is it fair to say that for you yourself? You prefer actually holding physical gold?
Speaker 2:Well, there's a closed-in fund which Sprott owns, called PHYS is the symbol that actually owns the physical gold. It actually has the underlying. So I'd rather play it that way. Listen, the truth is this, michael if you have to go get this gold for some reason, we have a lot bigger problem. So GLD is fine to express the theme of gold, but at the end of the day it doesn't act like what have you owning gold? So do I own some gold, physical gold bars? Sure, not a lot. I express it really through the markets, through these various closed-end funds, but there are ways to do it which are smarter than others. But I think if you just get exposure to the trade at all, I think it'll serve its purpose.
Speaker 1:So gold has done well in dollar terms. It's done phenomenally well in yen terms. Well, in dollar terms, it's done phenomenally well in yen terms. True, and I know you and I have been also on this reverse carry trade. I've been very loud about it, you've talked about it on CNBC also several months ago and now everyone suddenly is an expert on what's gone on in Japan and it's funny to me how seemingly now everyone is just dismissing it after one week just because the S&P has come back off that low from Monday. I want to get your take on if that risk is still out there, if it's being under appreciated because it seems like very quickly we went from the end of the world to the end of the world is a bull case, which is what I said that Monday and if we can see another flare up relatively soon.
Speaker 2:So I think, on the margin, if you think about these large multi-strat funds which use leverage, one of the ways all funds get leveraged to your point and you've talked about this a lot has been carry trade, borrowing yen and go buy other things. Dollar denominated assets is one example and it didn't take much. So let's go back to the yen trade for a second. So the yen was weakening to such a point that the Bank of Japan had to come in and do something. Why they import their energy. You think about oil prices can stay flat. The yen keeps weakening. It's very expensive for Japan. They finally have wage growth in Japan. They finally got what they wanted. Now the world reacted and screamed raising rates to 0.25%. I mean, let's think about that on an absolute basis, which is crazy. Now, by the way, I just saw this morning that he's being called on August 23rd to speak to parliament. How dare he raise rates to not understand what would happen in the markets themselves? Guess what also happens on August 23rd Powell's speaking Jackson Hole. Is that a coincidence? Absolutely not. So here we have again, I guess, with the kind of ongoing central bank coordination to kind of calm the markets.
Speaker 2:But to answer your question, I think it's an indication of what is more to come and people's lack of understanding of how the system works. Does it impact US earnings? S&p 500? Not necessarily. But all you have to do is take down that leverage that I just mentioned from six to five to four, and your long books come down. Your short books have to come down and we've seen this. So you've seen fits and starts. There's no way that this is over. And the irony today is, with a low inflation print and the dollar weakens, people are now using the yen all of a sudden as their factor input, as opposed to the 10-year yields which now, in that regard of using that as a way to put risk on or risk off, we're kind of on the other side of Goldilocks here, because as US rates come down and the yen goes up, that will bring this yen carry trade unwind back to the forefront. So the answer is it's not unwound by any means, but I think that the people that were short the yen got a little bit offsides temporarily.
Speaker 1:It's an extension of that discussion off of LinkedIn from Kershaw. Do you think the carry trade ended, had its worst? It goes back to sort of okay, there's another flare up. If there's another flare up, are we going to see something that was as extreme, where the Nikkei was suddenly down 10% overnight and the VIX suddenly maybe erroneously printed that 65 level? Or is it going to be taken as one of those things where, okay, it's there, there's going to be a volatility, but it's not going to be as scary as it seemed in that three-day trading window?
Speaker 2:I mean, let's be clear that the Bank of Japan owns over 50% of all their outstanding debt, right? So there's 8 trillion. They own over four. They also have something like nearly half a trillion dollars in ETFs, so it's really one in the same over there, when you kind of think about it. So the answer to your question again is it over? No, can it be controlled for a longer period of time? Sure, so those are two different questions, I guess.
Speaker 2:So if you were to see the yen strengthen God forbid to 140, 135 type levels again, you would still have more shockwaves come through. Is that going to happen? I don't know, because Japan's kind of boxed in now. Like I said, the weakening yen now we forget will have an economic impact on people in Japan because their inability to produce energy, they have to import it. So pick your poison, I guess, michael. So can it stay contained for a longer period of time? Yes, this is a generational trade that's gone on. Japan was the first central bank to kind of experiment with QE, so they're now going to be the test case for the kind of the try to unwind it. On unwinding it, what happens? You raise from negative 10 basis points to 0.25 and you're called before the Japanese parliament. So I think that we're going to be dealing with this for much longer than people think and you just got to know.
Speaker 2:And when something like this happens and all of a sudden the stocks that you own start to get hit, I've often said, with these very expensive stocks, these tech stocks that are out there they're all great companies, some of them are all great companies what's the level that you buy them If they're trading at 30 times revenue or 50 times earnings and they drop to 40 times earnings and it's 20 times revenue or 40 times earnings, the entry point. That's the problem that everyone's on this one side allocation. To me, this volatility is a great way to kind of shape up your portfolio buy things that get oversold, potentially, and know what you own that is going to be vulnerable. So again, I think that the biggest problem is trying to say, well, I don't care about the yen because it doesn't impact the company that I own. I don't care about the yen because my earnings, the company I own, doesn't sell to Japan.
Speaker 2:That's not what this is about. This is just liquidity in the system getting drained out for a period of time. And that's the part, michael, that plumbing part of it that I think you really understand and try to tell your viewers. And we try to do it on the tape as well, and just to prepare so this stuff doesn't come out of left field. All of a sudden everyone's an expert on Investopedia, on the yen, so anyway, sorry to ramble.
Speaker 1:No, no, no, I agree with you and I think it's important. I mean, you said it correctly it's like it may not impact company earnings, but it sure as hell can impact the stock. Correct, right, exactly right. Yep, I want to tie that into the geopolitical risk, because I got a comment from somebody saying you know, if oil were to spike here because of Iran, israel and something else, god would be blowing up, right, but the reality is that's the only way to frame it. Does that sort of shorten the timeframe under which you're going to get a real dislocation? When it comes to the character, my response is obviously yes, but let's talk about sort of the intersection of geopolitics to what's going on in Japan, because it does go back to the energy point.
Speaker 2:Yeah, if oil were to go sustainably higher, it impacts us as well here in the US because you would get inflation prints on a lag basis that would come up again and rear its head. That would be a real problem. It's also a direct tax on the US consumer, but global consumers also. So oil it's one of those things in countries like India, japan, which have to import because they don't produce anything, are kind of hamstrung and so it exacerbates all these issues. So oil moving higher as a result of geopolitics and I think what's been happening for the last kind of year is China's been slowing.
Speaker 2:I think people are predicting the US is going to be slowing, so trying to balance out the demand for oil Right, and so the fact that oil is kind of held here 75 back to the 80 level on the West Texas and I think Brett's at 82, 83. It feels like the next move is going to be higher and that's a real problem for people globally from an inflation perspective, but certainly for the countries like India, japan, that are dependent on importing. And again, if oil were to go up, japan would have no incentive to weaken its currency because it's a direct hit to everyone in that country.
Speaker 1:So, again, there's so many factors that go into this and set aside the fact that if oil does move higher because of geopolitics, there's bigger issues that we need to be concerned with in the markets, for sure, there's another underappreciated aspect of this, I think, which is that, to the extent that Japan does continue to spark volatility and causes markets to go down, you can argue it would have an impact on US finances purely because of taxation capital gains, obviously less gains to tax, perhaps from an investment perspective. Let's talk about where we are from a government revenue tax side of things. Government revenue tax side of things. You sent me a note saying we're kind of in this weird dilemma where you can't really have a recession because tax receipts will collapse. At the same time. We need to probably have a recession to cleanse excesses, but again, with so much debt, I don't know how you can possibly do that. Are we finally in a catch-22 when it comes to deficits and debt?
Speaker 2:At some point it's going to matter. The question is, when does it matter? And, like you said, bank of England was the precursor for what might come. But my point is that when people are trading the markets on the US election outcome, thinking there's going to be tax cuts, I just think they're dreaming. Let's go back to the debt ceiling issue, which coincided, by the way, with Silicon Valley bank implosion and the other bank implosions in the spring of 23. They uncapped the debt ceiling until after the election in January 2025. We're sitting here now north of $35 trillion deficits running $2 to $3 trillion.
Speaker 2:My point is that if you actually do have a recession, you don't even need a recession, because definition of recession can be whatever, but just to slow down you're not going to get any tax cuts, because once that happens, it'll become so much more evident. And when it's right in front of you, people say this math just doesn't work, and everyone knows the math doesn't work. No one wants to look at it. Again, this goes back to the ability of the Fed. At some point, just everything they're doing becomes ineffective because it's masking what a bigger issue is out there, and we're roughly approaching 130% debt to GDP, japan's 250% debt to GDP, right. So we've masked a lot of these issues, like I mentioned before, from 2008,. We're still paying for those and the fact that we've been unable to unwind the balance sheet at the speed which we probably should. We're still sitting, I think, north of $7 trillion on Federal Reserve balance sheet between CNBS, rmbs and treasuries. That should scare people. And again, it's not the boy who cried wolf. It will matter at some point, michael. It just really hasn't mattered yet. But when it does and you start to think about where the US has to cut spending in various areas you can't cut in defense, right? You don't want to go after entitlements. No politician's going to say that and so forth but at some point it's going to rear its head.
Speaker 2:And again it goes back to gold trade, which I think, and even people I think that own crypto believe that is one of the themes as well. So the answer is to me, it matters. And again there's corporate debt out there. These corporate balance sheets are much safer than US balance sheet. So when you see spreads widen, again, when I talk about stock picking opportunities, there's bond picking opportunities when you get a credit widening event and you get the ability to buy even single A or double A corporates at 6%, 6.5%, 7%, relative to owning treasuries at 4%. I mean, michael, the day that US treasuries and the term premium start to move higher as a result of the kind of economic imbalance, that's the day that the market gets hammered, I mean. So again, I'm not predicting that's going to happen anytime soon, but that should scare everybody.
Speaker 1:So I'm glad you mentioned the debt to GDP point, because this is sort of the problem I have with anybody that's using long form analysis on markets at this point 130% debt to GDP anything that you look at in the past, I'd argue almost doesn't matter, because you never had anywhere near that number for the US economy. So how can anybody possibly look to other parallels in history and say we're going to follow something similar when the starting point of leverage is so much higher than any other time in history? I don't quite understand that.
Speaker 2:I couldn't agree more. And again, depending on the time period, even if you again, this is not sustainable. So I don't want to cut entitlements, no one wants to cut entitlements social security, Medicare but at some point the math doesn't work. Now and again, we caused this. Well, the global central banks did to mask the issues that have happened over the last kind of 15 to 17 years, and there's a whole generation of investors God bless them who don't have the scar tissue in their brain, so they don't either understand it, because they can't compare it to a previous time. But it's going to rear its head and again, at some point, it's going to give.
Speaker 2:But is the dollar going to lose its status in the world? I'm not making that call at all. It's probably still the sexiest market in the world. I think it's why a lot of assets have come to the US. It's why the market trades at such a premium, in my opinion, and it deserves it to a degree on a relative basis. But at some point, Michael, it's going to matter, and that's a scary concept in my opinion. But yeah, there's no way you can't show me, over a period of time, without making massive cuts, how we get this thing back in line.
Speaker 1:You mentioned crypto. I'll bring up a YouTube question here from ER Berg Will the liquidity drain effect hit crypto harder or might it be spared? There is this narrative, which I think is valid, that as liquidity goes, so too does the crypto space, because it's at the fringe of speculation. I happen to think Bitcoin might diverge only because, if you do have spreads widening, that would suggest counterparty risk. I personally agree that Bitcoin is a counterparty hedge, like gold and to some extent like treasuries, but if we're going to sort of play the magnitude game which asset class is more vulnerable equities or crypto, probably, in terms of we've seen we saw last week what can happen to crypto.
Speaker 2:You're right. I think that this tail that's come in crypto the ability for retail to own it through these ETFs, mechanisms which buy and sell crypto through these ETFs can be choppy at times. There certainly is a core group of hodlers, I guess they call themselves, that are never quote selling your Bitcoins. It's probably a level where it's stable, but on the margin, we saw the move down. Can it drop to 40,000?
Speaker 2:Again, I'm not the guy to talk about crypto. Yes, but I would love to see applications on the blockchain start really occurring to validate this as a transaction means and a store of value. The irony for me, michael, is that crypto prides itself on being non-regulated it's anti-government yet for the last two years, all it's done is crave regulation to validate it. So there's a hypocrisy there that exists, and I think we've seen when the market sells off like that, of course, because retail owns a lot of crypto on the margin, not the core people. So again, I'd like to see more applications occurring. Again, I'm the wrong guy to talk about it. I was never bullish on it. I've kind of tried to stay away from being quote bearish on it.
Speaker 1:But about it. I was never bullish on it. I've kind of tried to stay away from being quote bearish on it, but it's certainly not in my wheelhouse for sure. A lot of people have started to make the argument that we might be in an era of stock picking working again, as opposed to just seven stocks working, and it's interesting because I keep going back to this point I've stressed myself Most stocks factually are not really in bull markets. I mean, last time I ran the number a couple of months ago, 70% of the Rossa 3000 index literally 70% was trading below their respective 2021 highs. So you have this huge K-like divergence between the top performing stocks and then everything else. From a market cap weighted perspective, I feel like we should define what stock picking actually means and talk through sort of cycles under which indexation works better than stock picking.
Speaker 2:Well, when there's liquidity coming into a market, you can own an ETF and not worry about anything and just get a piece of it. However, I like to go within the ETFs. Call it Russell various sectors that may be underweighted in the Russell, that you may think should be overweighted. Go find the best companies in those areas. Porter Collins and Vincent Daniel and myself were on Fast Money a couple of weeks ago and Porter said make volatility great again, and the reason that he wants to see that is because it gives you the opportunity to buy stocks that otherwise get hammered because of flows out of these passives. So again, it's really when you look at these ETFs and you peel apart the XHB or XLF or whatever it might be, you realize that these things are not constructed correctly. But it becomes self-fulfilling that passive will outperform active, because the benchmarks being used by active managers are these passive ETFs, whether it's a SPY or whatever it might be. So you get these periods of time where active will start to out, or value, I should say, will outperform. Growth normally coincides with being a stock picker's environment and you want to own companies. Look at companies that are covered by two analysts or three, not 72 analysts on Wall Street. So to me, finding those names dividend yields, cash returns, good management they're actually not that difficult to find. You can find them because they're underappreciated, under-owned by the market and they're just not looked at the same way. And so when everybody's on one side of the trade, michael money's coming on a passive, of course it's easy to change.
Speaker 2:And let me just say one other thing that I've talked about before. This all began years ago when retail brokers changed the way that they were paid, so the fees that they would receive historically from mutual funds and the golf outings and they buy the mutual funds or whatever. When those fees went away effectively, a lot of the high net worth brokers moved to just charging a management fee for 0.75% or 1% of assets. And what do they do? They just allocate into various themes. How do they do it? Through the ETF market, because it's quote more diverse and it's less risky than owning single stocks. Well, that all works and looks great when liquidity is going one direction. But we've seen, certainly in the last week and fits and starts the last few years, what can happen when it's one way At some point.
Speaker 2:There won't be a recovery and a buy on the dip. You better know what you own and so I like to take advantage of you. Know, if you own a certain name, you've owned it for a long time, you like it, you understand it. It gets hit in a market like that. That's when you step in and buy it, because you should have a long-term view on these things. So there's no right answer, michael, to kind of look at it's just to really appreciate and understand. And I think, as I tweeted last week, don't confuse brains with the bull market, because anybody could buy a stock. So it's just kind of do your own work and don't get caught up in kind of the emotional aspect of it.
Speaker 1:Is it more powerful, impactful to think about stock picking in distressed areas of the marketplace or areas that have massively underperformed? I mean, there's kind of a tee up to the cannabis space, which we'll talk on, but I would think that the power of fundamental analysis of stock picking is when you almost have somewhat of a distressed valuation, broadly in an entire group.
Speaker 2:Yeah, certainly the whole sector is being left behind. Let's talk, let's, you know. Look at energy. In the last few years, I think the weighting, the S&P, dropped below 5% at one point. So what would you do if you like energy? You would look within the energy sector and try to find the cheapest or best company you think has the best growth prospects, right, so energy was left for dead. That's certainly an area you know.
Speaker 2:We touch on cannabis. The problem with that is it's really technical in nature. The US cannabis stocks don't trade on the exchanges, they're on the pink sheets or they trade up in Canada. So the institutions really can't own these stocks. So that's a technical reason that the stocks are being held back.
Speaker 2:That being said, if and when those laws finally do change, that's a sector that certainly is growing. It's producing a lot of tax revenue. The genie's out of the bottle, it's not coming back. I see sports gambling kind of the same way as a sector that became legal a few years ago in the US. And now you're seeing the DraftKings, the Flutter who's reporting earnings tonight of the world and some of these other smaller companies Genius Sports for Radar kind of come on the scene and those are kind of new and again under-owned because there hasn't been a quote cycle of these companies being public in a secular growth. So I like to look for secular growth plays potentially that are under-owned, underappreciated, that will not be impacted, so to speak, by a slowdown in the US economy to a degree because they're growing secularly so quickly. So those are the type things that I would look for in the market for sure.
Speaker 1:Cesar, I was just looking at a chart of draft things as you were chatting, and it looks like it's been rolling over since March and I would think that that's closest to a sense of where consumer spending and optimism, or lack thereof, would most be present, right? I mean, if you're going to have any kind of recession, especially a consumer-led one, I would think the first thing that gets cut is anything that's gambling. Is there anything to the idea of maybe looking towards online gambling as not just an investment option but also kind of a signal itself about the state of the economy?
Speaker 2:You know it's growing so it's being approved in more and more states. The reason these stocks have gotten hit recently was the tax rate went up in Illinois to basically 40% from 15% and so companies to direct hit to their bottom line. What can they do to kind of get around that they can create better bets that are higher margin for them, et cetera. So you are still in a secular growth. Could the economy worsening? Certainly at the margin hurt? You know consumers ability to gamble, yes, but the growth rate is so much higher still.
Speaker 2:And keep in mind, michael, I won't go into too much detail here but the kinds of bets that people are making in game parlay, you know parlays in game wagering, those type things are just money printers for DraftKings and Flutter and Caesars and MGM, because these aren't your traditional bet the Saints minus three at the start of a game. So the margins on those, the spreads, are much wider. So we won't go into that. But there is some truth to what you're saying. But it's still in such a huge growth mode You're not going to see it really impact on the margin.
Speaker 1:So you mentioned, yeah, mentioned. You play with the cannabis space. You play with the online gambling space. I consider these more kind of maybe fringe on the periphery growing, but have their own sort of unique dynamics. You have to really understand them. Any other parts of the investable landscape that are similar to those two areas that are really interesting to you, that maybe it's something you'd want to kind of spend more time on.
Speaker 2:Well, some of these in that sector specifically, are actually SPACs, and anyone that knows me knows that I wasn't a fan of SPACs. For a period of time I believed it was negative selection. If you were using a SPAC to go make an acquisition, why didn't that company that made the acquisition go public? Or was it bought before? But therein lies the opportunity, and again to talk about Porter and Vincent again, who are now running Seawolf. They own like four or five different SPACs. There's one on energy, there's one on materials, there's gambling. Draftkings was a SPAC, Genius Sports was a SPAC. So again, I think it's very idiosyncratic kind of where you're going to look, and I wouldn't say that there's another quote sector that people are underappreciating right now. I think that there are stocks within each sector that people are underappreciating and I think there's some stocks within each sector people are overappreciating.
Speaker 2:We talk about AI and again, I'm not the guy that's going to stand up and short NVIDIA or any of these things because the secular trade is so strong. But people need to understand that on hardware technology you are not going to be keeping mid 70% margins that foreseeable, You're just not. And so companies that look quote cheap on current earnings and certainly have the revenue growth to support it. It will not be. It just it can't happen. So again, Michael, I think it's finding secular growth stories that are not, are yet to be cyclical, I guess is kind of what I'm saying. And so, again, you can look within each sector and find these opportunities.
Speaker 1:Let's talk about bonds for a few minutes here. I see increasingly people saying you know, maybe now is the time finally for duration, long duration treasuries, to work again, that yields might suddenly drop pretty precipitously. Again, a little bit hard to see how that would happen in a big way, given how much spending there is and everything we talked about before. But I know you like gold. I mean typically those that like gold might also pair that with treasuries as somewhat of a co-movement trade. Is there opportunity in treasuries or is the preferred way to play that still gold in your mind?
Speaker 2:I think that the short end of the yield curve so what we've seen kind of occur here is a bull steepener where bonds have rallied, yields have come down and the yield curve is finally flattening. I think the 210 is still inverted by 10 basis points. I think, as we see it today, it actually got to flat at one point last week. So you know, it's really interesting because you get the flight to safety kind of on the longer end of the yield curve. You get kind of the tracking of what the Federal Reserve is going to do on the shorter end of the yield curve. And I know you're going to have Peter Bukwar on who's awesome later probably talking about this. So I use them as kind of signals for the risk on and risk off. And to your point, if the 10-year yields start to move higher because the term premium belief that we have to fund ourselves, that's the moment that a steepening yield curve doesn't work in the sense of kind of the risk associated with that move. So answer your question I'm a buyer of the shorter end of the yield curve here, kind of the longer end I'm kind of staying away from again for the reasons that I just mentioned and you had a period of time where the stock market was completely correlated to 10-year yields. Moving lower, the stock market would move higher.
Speaker 2:You've now seen several instances where yields have plunged as applied to safety, where the equity markets have sold off. So the so-called factor of what you're looking at doesn't necessarily work. So really it should be the most liquid market in the world US treasuries and it trades like a penny biotech stock, to be honest, and that should scare people. Just in general. Volatility in currencies, volatility in yields that you see that as people use these inputs right, you want to know where yields are going to be. Do I go buy REITs and utilities? Because the 10-year yields are going to come in on a relative basis. So a lot of knee-jerk reactions over time. But again, everyone's an expert now on yield curve and the yen and so forth.
Speaker 1:Everyone's an expert. When it's too late, I mean, that's always what happens with us. Um, let's touch on reeds for a tiny bit. I don't know how close you track it, but I think it's. Um, I mean, I myself have written about. Reeds is sort of a an interesting play, maybe a longer term, not only because we're in an interest rate cutting cycle or seemingly about to enter one, uh, but they've been kind of poor performers for a number of years. Reits tend to act somewhat risk on, somewhat risk off behaviorally. Do you think there's some good opportunities just for those income investors when it comes to REITs? I mean, could we maybe be at a cycle shift there, or is the commercial real estate side of things still a problem? Is our property value still overinflated? How do you think through that?
Speaker 2:Well, there's different right. So you say REITs but you have mortgage REITs, hotel REITs, property REITs, and so really it's company specific. Some have worse balance sheets than others, some are levered. So you really got to know what you own. Again, why owning the REIT index? Why would you want to own that when you can own some names there?
Speaker 2:I prefer utilities over REITs, I think, from a yield perspective here, just because I think that the NAV on some of these REITs again not calling any of them out might be a little bit overstated and might look cheaper than others. And you know, one of the issues I have separate from the REITs is kind of what you know, these private equity funds that trade publicly, that are clamoring for a Fed rate cut, to kind of quote, help them and bail them out that have suspended redemptions in some of these funds. That stuff really bothers me because it's gobble up all the capital when you can on the way in and then gate it on the way out because market conditions don't warrant. But that didn't stop them from going to buy everything. And so again, there's a lot of REIT looking stocks that are out there right, and private credit as well, where you can get yield potentially.
Speaker 2:Again, when you're gathering that type of liquidity, these managers are paid to allocate that liquidity. I'm not saying that they're not underwriting like they show. What I'm saying is they get a management fee off of that deployment. So I look on where that money is going. And again, the REITs in general. You really need to separate that into basically eight to 10 subsectors in my opinion, but I prefer utilities if you're looking for a dividend-like yield relative to the market.
Speaker 1:On private credit, I put out a post in between calls that was along the lines of private credit is this cycle subprime? Yeah, am I crazy in thinking that? I mean you lived through that period so no one would know it better than you. But it seems to me like there's a lot of hidden risks there.
Speaker 2:It won't be as widespread of an issue because it's not in the banks. That's the irony. The Fed tracks bank loan growth, which has been anemic because all the growth is occurring outside of the banks, into private credit, and it's not counted, even though we know it's approaching $2 trillion that's been raised in private credit. So the answer is that you know, with subprime had its tentacles in everything insurance companies, pension funds, and yes, some of these pension companies and insurance funds will own private credit. But again, I think it's an elephant through a mouse hole in terms of the unwind You're just lending now to some of these companies. There'll be extensions to it, even if they're underwriting poorly at the moment.
Speaker 2:It won't rear its head but it won't hit the banking system and I think that's the difference in kind of the subprime world and it's not going to hit kind of the subprime consumer that took out a loan for $200,000 on a house they thought was worth $300,000 that ended up being worth $80,000. So you're just not going to have that type of impact. And again, I think, the same way that stimulus was tough to and all the fiscal, monetary, but fiscal stimulus was tough to kind of gauge within people's savings that seem to be now finally normalizing Private credit has done the same thing. I think, on the corporate side of things, it's extending this cycle of credit because the amount of capital out there chasing assets and so again, I think it's certainly something to pay attention to and I think it's extending this normal cycle, michael, of what's happening in the credit world.
Speaker 1:So, as an investor, you always want to look for the asymmetric trade right, the fat pitch, which was what the big short was really about back then. Not a recommendation, obviously, but is there anything that you're seeing currently, either on the long or the short side and again, I'm very anti-shorting for a lot of reasons which we don't have to get into but where do you think is the fat pitch? Where is that asymmetric trade, that big long or big short right now?
Speaker 2:I think you are seeing pockets of consumer credit deteriorate and there are certain companies that aren't reserved. There are certain companies that are, and so I think when you're looking at subprime auto, for instance, which is kind of one of the first things you'll look at, that'll start deteriorating. You saw recent news out of Credit Acceptance Corp. Cacc stock took a pretty big hit, and when these trends start to move the other way in something that's been a secular kind of macro trade since COVID and all the stimulus kind of came in, you got to start to ask yourself the question why are you seeing comparisons to early 2020? I know you've spotted, you've pointed that out on a few other sectors, but there's a reason for that. Things are normalizing again, so people are so fearful of a recession or the calling it or whatever it might be. Again, you're still going to have a slowdown and on the margin, comparatively, things are appearing much worse. So what else do I like to look at?
Speaker 2:The whole buy now, pay later space, this whole reinventing of lending. It's bullshit. Using AI to lend I mean, if you really go out there and lend, it's the lender of last resort of buy now, pay later. So have I been short of firm. Yes, am I shorted here at these prices? No, because I don't think that match left from PayPal can really make this transition over to a tech company.
Speaker 2:Another heavily shorter name is Upstart that I'm watching. It's an AI lending platform, yet their entire 10Q the risk section is all bank stuff and financials. It's a bank and they sell their loans, so I like to look for a kind of wolf in sheep's clothing, so to speak, of things like that, which aren't sustainable, and so, again, being involved in these heavily shorted names is one of the factor risks out there. To your point, not trying to mess around and being short, you feel like a detective and sometimes you feel like you've found the weapon, but no one's paying attention to the crime scene of what's really occurring, and so, again, nothing criminal happening in these companies. But my point is that that's the stuff I'm looking at, so I'm paying close attention to consumer credit right now and the impacts that that's going to have across the spectrum.
Speaker 1:Yeah, and if you look at a lot of the high yield bond ETFs, the top three sectors tend to be industrials, energy and then consumer discretionary, and I would think that the discretionary side is where there's going to be the Kindle gets lit up in terms of-.
Speaker 2:We're already seeing that. Every earnings report that you've read or listened to I'm sure most people don't listen to what they're telling you. Don't look at government statistics. What are these companies telling you? Most recently today with Home Depot Not that it shocked a lot of people. The stock's probably going to be a buy here at some point. But again that's happening and that doesn't just turn back around quickly.
Speaker 2:This was a secular move that happened since COVID People improving their homes, moving out of the cities. This thing's unwinding slowly. So again there's a price Walmart, which I've loved. I mean I've been on that stock now for five years. How much higher can it really go here? How much more market share can they capture on the downstream from people in middle income moving down to Walmart because the price of food was so high? These levels where it's trading, could it stay up here, these levels? I hope it does. I mean I still own it, but I'm saying it feels very crowded. You've seen a rollover in Costco, just technically speaking, looking at that chart. So I think we've, michael, we've reached the area on some of these consumer companies where they just you can't really validate much move higher in terms of valuation. So the question should be. Where do you reallocate that money to? And what would make those stocks start to sell off would be the consumer slowing, and I think we are in the process of seeing the consumer slow down, and we're getting evidence of that literally every day.
Speaker 1:Talked about utilities as a preferred defensive play relative to REITs. What about healthcare? I know there's been a lot of very concentrated momentum in the Eli Lilly's of the world anything that's got GLP-1 type medications but there's been a lot of companies also that have not really participated anywhere near as much on the upside Anything interesting on the healthcare front, because that's supposed to be among the defensive proxies.
Speaker 2:Yeah, I mean, look at Pfizer, it's been just awful in terms of new ridership. So I haven't done a lot of work, to be clear, but it is a defensive sector that will do well if the economy does slow, for sure. And so, again, owning the companies with good balance sheets that aren't that expensive, certainly you can own. It's a little scary to not know enough on the regulatory front, and certainly post-election, on hospitals and healthcare rates and so forth. But again, these stocks have been very, very volatile, unitedhealthcare being, I guess, the poster child for volatility within the sector. And again, there's biotech, there's pharma, there's insurance companies, there's hospitals, there's all different ways to kind of play the healthcare trade of where the money's going to go.
Speaker 2:And so I haven't done enough work, michael bottom up. But by nature that sector is defensive. I will tell you, though, that Novo, when they reported last week and the stock got hit, certainly there's a level of non-insurance reimbursement within what will go and all those shots that is starting to hit the consumer on the margin. So there is the consumer discretionary aspect that has worked its way into an otherwise defensive sector, if that makes sense. So something to pay attention to.
Speaker 1:Yeah, I think that's interesting right that the GOP ones have almost a discretionary element to it right from that standpoint, which kind of throws off the defensive behavior they should just do sit-ups and push-ups like you.
Speaker 2:It's all about the fasting.
Speaker 1:I'm telling you, it's oh man one meal a day.
Speaker 2:I've only eaten send me that diet when you get a chance.
Speaker 1:Yeah, the diet is don't eat. That's. That's the diet. I've only eaten twice in 10 days. Just to give you a set twice, two on two days, all right, uh, I'm gonna be going up to camp kotak. I don't know how I'm gonna be doing fasting. Then I'll probably just do one meal day myself, um, but of course that's not profitable, uh, that's just why nobody ever talks about fasting, apparently, but schmucks like me. Um, in terms of risk management here, what do you do? Meaning, you've got a bunch of ideas, you've got some defensive sectors. Nobody ever really talks about weightings and when to overweight or underweight and playing that timing. And yeah, there's a trading element to that too. But for your own portfolio, are you doing things at the margin, based on things that are evolving, or do you pretty much have it a, set it and forget it type of positioning?
Speaker 2:Yeah, I think that on some of the small cap names that you might own, I think it's really important to understand that if you own a stock that's called at six bucks a share and it moves to nine on good earnings and it gets caught up in kind of what I talked about as money coming into the market, into the rustle, be honest with yourself. Is it the same risk reward at nine? Don't be married to a stock. So I think to your point, discipline and knowing there's no way that if you re-underwrite that stock at nine up 50% that it's as attractive as when you found it at six. Now maybe it's growing at that rate and everything else is equal.
Speaker 2:And the same thing can be said kind of on shorts. The difference in longs and shorts is that longs get bigger as they move higher and obviously shorts get smaller as they go lower. So you actually have a weird situation where your conviction might even be greater on the short side of something as the stock is dropping because the story which you think was going to happen is imminent. You actually want to add to the short as opposed to the story on the long side kind of evolving. It's not that you're going to add to it because it just got bigger, naturally 50%. And so I think the names that you own, understanding the personalities of how these stocks kind of trade, the seasonality I think it's important on some of these stocks, on how they trade, again, understanding that the market's reaction, the first reaction, is not always the right one in terms of the technical aspects or the words that are being picked up on the headlines on adjusted EBITDA growth, and that's a whole nother area, michael, not for this hour that we've gone into in terms of accounting and paying attention to gap versus non-gap and things like that and compensation and stuff being taken out of which is crazy to me. You know we adjusted EBITDA. You take, you take out stock-based comp. It's nuts.
Speaker 2:So, again, I think you can own a portfolio, call it a portfolio, six or seven names on the long side, which you truly like, but understanding that you need to mitigate and don't fall in love with these things. They're just stocks. They don't know when you bought them, when you sold them, and I know you've had technicians come on from time to time. I think you have one coming on again today. Technicals exist because of investor behavior and the predictive nature of I'll sell it if it gets back to even but maybe that's not there and those type things. And so, to answer your question, behavioral finance is so important to me, and understanding and thinking away from the masses at times and that's what I've done my entire career is kind of that aspect of the business.
Speaker 1:So, danny, talk about on the tape and where people can track more of your thoughts.
Speaker 2:Yeah, so weekly, like I said, with Dan Nathan and Guy Adami, who are on Fast Money basically nightly, we started a podcast right in COVID, kind of January 2021. We've been on this thing every week. There's two episodes each week of On the Tape. Dan owns a media company called Risk Reversal and there's a wide variety. So if you go to Risk Reversal you can find all the different shows Market Call Daily, which I sometimes sit in, and so it's kind of a channel. So we have Carter Worth on technical analysis. There's an OK Computer episode focuses on technology. So again, I'm not on that one a lot. Obviously it's not a lot about tech, but it's a great content platform. So certainly you can go sign up on the tape on Apple or Spotify whatever, download it each week when it comes out each Friday morning, and so we try to give insights what people are not thinking about and, yes, sometimes it might be early, but trends that you want to be following and looked at that might matter over time. So Everybody.
Speaker 1:please make sure you check out On the Tape and also follow Danny Moses on X at DMoses34. Appreciate those that watch this live stream. I've got another three that I'm doing today, so this is more evidence that you can fast and still have energy. Uh, given what I've got coming up here, You're giving me inspiration, Michael. I appreciate that. Danny. I always enjoy talking to you. I appreciate those that watch this live and please stay tuned for further episodes of lead lag live. Thank you, Danny, Appreciate you.
Speaker 2:Thank you, michael Cheers, everybody, thank you.
