Lead-Lag Live

Dan Gallagher on Macro Hedge Fund Impacts, Deglobalization Effects, and Strategic Financial Coaching

• Michael A. Gayed, CFA

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Unlock the secrets of financial markets and discover how macro hedge fund liquidations can trigger market downturns and rallies. Hear from Dan Gallagher, a finance veteran with 50 years of experience, who shares his invaluable insights as a coach for financial advisors. Learn why expertise in taxes could be more vital than investment knowledge for high net worth clients, and understand the hurdles financial advisors face in growing their clientele.

Explore the seismic shift from globalization to deglobalization and its disruptive effects on financial markets. We traverse the history from the Bretton Woods Agreement to today's complex yen carry trade. Delve into Japan's unique economic circumstances and the potential cataclysms that rising interest rates might unleash. Speculate on the future of currencies and the provocative idea of bartering systems as the world adapts to deglobalization.

Prepare yourself for uncertain times with expert strategies from Danny, a specialist in trader strategies. Understand the intricate dynamics of global finance, from Japan’s influence on the S&P 500 to the strategic maneuvers of central banks like the Federal Reserve and the Bank of Japan. Gain actionable insights on asset allocation, the role of gold, and the importance of cautious investment. Plus, get to know Danny’s journey into social media and how you can connect with him for tailored coaching advice.

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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Speaker 1:

From my understanding, from what I've heard, is the macro hedge funds were hitting very, very hard that Friday and all the macros are all based upon the end carry tree. So that means they were forced to liquidate some stocks to fix some of the end carry tree. As we all know, stocks went down, they probably sold them lower than they could have and then of course, everything just rallied back up. So the macros kind of got double hit there. But the thing is, is we really don't know who's really long? And then what are they invested in? Because that's critical. Let's say you're saying it's government bonds. They saw today that one of the firms came out and said we believe that you should short the 10-year bond, which, by the way, is what I believe. I believe if we cut the interest rates on the 18th, I believe the 10-year is going to go up in yield. I have nothing to prove that, but I think that's what's going to happen.

Speaker 2:

Some of you tuning into this may recognize the guy to the right of the video because he went a little bit viral with a clip that got shared quite a bit on both TikTok and Twitter, slash X. I actually didn't really know what this was about that clip until people started tagging me because I think it was around halfway through the clip, Dan Gallagher mentions Japan and the reverse carry trade, which we'll talk about. If you're watching this live on X, LinkedIn, YouTube, please, folks, do me a favor, like comment. I can see your comments. I want to make this interactive. So, even though it's a live stream, if you want to ask questions, I can show it on screen and we can make it engaging from that perspective.

Speaker 2:

And with all that said, my name is Michael Guyatt, publisher of the Lead Lagrime Reporter. Joining me for the rough hour is Mr Daniel Gallagher. I don't know if a lot of people actually know your name, Dan. They just see the handle all things financial, but you and I were briefly chatting before going live here and actually you've been in the business for a while. So maybe for those who are not familiar with your background and I think probably a lot of people are not who are you, what have you done throughout your career and what do you do currently?

Speaker 1:

Okay, thank you. Well, welcome everybody. I'm in my 50th year. Over the 50 years I have worked in every aspect of it, as you said, from kids' strategy, it, enterprise information, obviously in the branch system with FAs For myself. Today I am a coach. I coach financial advisors. I don't think anyone will find it to be a surprise. The thrust of my teachings is that our job is to assist people in making an informed decision for themselves. We are not here to be investors. We're here to help people decide what's best for them. As you can see, when I speak, I try to give you the information that I have so that you can make your own decision, which I believe that you should.

Speaker 2:

The coaching financial advisors. I think is an interesting, maybe starting point. I used to present all across the country at CFA chapters. Yeah, I'd meet all kinds of financial advisors. I think is an interesting, maybe starting point. So I used to present all across the country at CFA chapters. Yeah, I'd meet all kinds of financial advisors and I think there's this impression out there that financial advisors are very sophisticated professionals and I think you and I both know that that's probably not the case for the majority of financial advisors. I've always likened the FA community to in some ways being like retail on steroids. Am I off on that? Talk to me about sort of the state of the advisory industry.

Speaker 1:

Well, I believe it's being challenged. Okay. So my thrust of my overall teaching is what I call upskilling, or a problem that we're faced with in the financial industry, and I agree with Michael's assessment that FAAs don't have any innate knowledge of how to invest. I think we know more of the acronyms and so forth than you do, because it's in our business and it's hard to stay abreast of everything in our business. Now, fas at the big firms the average FA has. 80% of their relationships are under a million dollars. 50% are under $500,000. And the average FA at the big firms has one relationship over $10 million.

Speaker 1:

When we call ourselves wealth advisors and so forth, I'm a little suspect, to say the least. To me. I judge my FAAs. First question I ask them is how many relationships over $10 million do you have? Because that tells me your skill sets, your client skill sets, your sales skill sets and your knowledge base. Those three things equals someone who can speak to a wealthy person and actually be assisting to that. What people don't realize, by the way, is that high net worth clients have told us time and time again the only reason, the number one reason they choose an FAA is for their knowledge of taxes. That's number one knowledge of taxes, not of investments. So if you're an FAA, become an expert in taxes. That's my opinion.

Speaker 2:

Do you assess that financial advisors have intellectual curiosity when it comes to markets, or is it just about the unfortunate reality that they have to hustle and be asset gatherers as opposed to market thinkers? Great question.

Speaker 1:

First, the job of an FA is to gather net new assets. Our pay goes up if our assets go up. Average broker around 49, 48% of the book is managed book, ie getting a fee. The others are sitting there All right, and so when you look at what they do, the more if the market goes up. You look at, like Morgan Stanley's and Merrill Lynch's earnings the last quarter oh great, they were great because the market was up 35%, so they went up. I always ask them what if the market goes down 35%? Can you still do all the things you want to do?

Speaker 1:

Now, on the investing side, yes, I mean I have hired so many young FAs and the toughest hires which I really won't hire. Someone comes in and says I love stocks, it's all I do all day. I study stocks, I study stocks, I study. Well, the odds of you being successful in the business are fairly low. Okay, because our job is to gather net new assets. That's the job. So AI, coming along with direct indexing and so forth, I think that financial advisors are going to find it difficult to maintain the bottom half of their book. So I think we're at risk for 30% of our revenue. And then on the top side we have to upskill, and upskilling is your entire business process, and that, basically, what I teach are the seven touch points with high net worth clients how do we speak to them, how do we write to them, how do we get over their walls so that we can help them with their taxes?

Speaker 2:

I want to get into markets and how you really went quite viral with this clip, which I'm going to share momentarily. It's always funny to me how certain things suddenly kind of catch fire. It's not as much of a science as people like to pretend it is, but for those who are watching this live stream, the gentleman here, Mr Daniel Gallagher, is the one who has this video that went viral all over X and I think it was actually very well articulated in terms of the way you laid out a thesis and I will say, by the way, your delivery was phenomenal because you speak in a very measured way and it's like you want to hear more about what the idea is. First of all, I just want to understand what made you want to put TikTok clips. What made you want to put X clips out there to begin with? I mean, if your focus is more on the financial advisor community, arguably, while there are FAs on TikTok, it still skews a lot younger and probably much more retail, self-directed. So why get into the content side of things?

Speaker 1:

If you go back, if you scroll all the way down to the bottom my first videos you will see they were all coaching videos, like five or six of them. And then we had SVB and Republic banks go belly up. And I'm watching TV and I'm hearing what they're saying and I was like this is not true. So I jumped on and I talked about the three banks going belly up. That was it. I mean the most views I've ever had and that's when I said, oh, maybe people want to hear about this, and so I started moving over to that. Now I've actually divided up my over to process for growth, which is my consulting coaching arm, and now all things financial is strictly for all things financial, all right, anything that happens in the financial world. I follow virtually everything and to see how it fits together that's how I started was basically listening to what they were saying about SVB and that was it.

Speaker 2:

That started me off. The timing of it was almost perfect, right In terms of the way things started playing out.

Speaker 1:

August 3rd and 5th that was the same thing, michael, because remember that day we had that employment number come out and everyone was like, oh, this is why the market's going down. And I was like, no, it's not, it's because of the young carry trade. That's when I went on and said it was the same thing. Young carry trade. That's when I went on and said, but it was the same thing. So, as I'm listening to the news and I'll say, you know how I pick my subject is literally what I'm interested in, and then, if I feel that I can explain it, a lot of the things you know, as anyone followed the S&P carry trade, the Swiss National Bank, you know that was not my finest moment, so I had to redo it.

Speaker 2:

It's hard for me to decide what everyone wants to actually hear about, because carrier trade, reverse carrier trade prior to August and everyone suddenly became an expert and everyone got super, super bearish, as that was happening, which I think is why you went viral. Some of my stuff went viral as well. Do you get a sense that people really understand how monumental what's happening with Japan's monetary policy is relative to every other part of the globe?

Speaker 1:

No, I don't think we have a clue. I don't even think the professionals have a clue, and I did a follow up on that with the VIX. Right, if you look at the VIX, that's not you and I, that is the professionals, and they were terrified. Do you want me to talk about this, michael, for a second? On this yen carry trade.

Speaker 2:

I want you to riff on it because I feel like I've been alone on an island since August of last year, when I first brought it up. I keep putting out these memes of the Japan flag, with the phoenix, which is the flight to safety it's what I'm wearing, part of my shtick and with the doctor's train showing the one outcome, which is my reference to the idea that there's only one way this resolves. But yeah, let's riff on that please, from your perspective.

Speaker 1:

Okay, well, there's two ways we can approach this. I can talk strictly to the end carry trader. I can back up and try to do a little bigger picture on why I was-.

Speaker 2:

Well, let's do a bigger picture, because I think it's important for you to understand how we got to this point.

Speaker 1:

Okay. So the way I came at it was I believe that we're in deglobalization Now. This is, I think, the biggest thing that's happening in our financial lifetime, because we want to be in the markets. Okay, I totally love that.

Speaker 1:

All right, my opinion is that our prior economic situation started back in July 1946 with the Bretton Woods Agreement making dollar the dominant reserve currency. We ruled the waves with over a thousand ships. We were 55% of the world's economy. So take that. I think that economic system lasted all the way until 2019, when we started talking about supply chains being redone and so forth.

Speaker 1:

Basically, if you look around the world, I would say most of the populations are basically sick and tired of our globalization. So as we start rearranging the chairs, okay, I believe the transition is going to be very challenging. When you look at our financial world, we're hooked to the real world. So when the real world changes, we also change Our job of interpreting how we're going to change. What's going to be good, what's going to be bad. That is really where the challenge is for all of us. How do we do that?

Speaker 1:

So I look at the financial pyramid. I'll say on the bottom are commodities, right, fixed assets, real estate and so forth. The next step up are our currencies. And on top of our currencies we have bonds and equities, derivatives and everything else all right. So when our underlying economic fundamentals change, the first thing that changes are our currencies. So I've known for years I mean the street has known for years that the yen carry trade is the biggest trade in the world, if not in world's history. No one knows. People argue whether it's 4 trillion or 20 trillion. Whatever it is, it's huge. And yes, I saw JP Morgan's report they put out the following week saying that 75 percent of the carry trade has been unwound. Color me skeptical.

Speaker 2:

I don't know. I always laugh at that because it's like you want to trust JP Morgan, Like really.

Speaker 1:

Really so. So what we're faced with is as the currencies change. Now we have to analyze each country. So think about it, this deglobalization. It's no surprise to me that people are now talking about alternative currencies. Are we going to do crypto, gold? Are we going to do BRICS? Is China going to arise? All these discussions and if you go back in my videos, you'll see that my number one choice that's going to happen is we're going to be in a more of a bartering system as this all unwind, and we can just talk about that later if you want, but I think that's the number one place where we're seeing already, in fact, is today on the Financial Times about Russia and India and how they're exchanging X amount of certain goods at certain prices. This is bartering. It's not currency exchange.

Speaker 1:

Then we look at the number one trade in the world, which is the yen carry trade. Let's take it back. Let's take out Japan out of this situation for a second. Say, listen, let's have this country. This country has old demographics. Their interest rates have been negative for 17 and a half years. The carry trade has been going on for 22 and a half years.

Speaker 1:

Remember something about central banks we only have one or two things to do. Either we control the currency or we control the interest rates. There's nothing else to do. So why is Japan and the yen trade so big? Today, america has about 125% debt on GDP, japan 263%. So their deficit, their annual deficit, if they raise. So think about it. We got one to do. You're going to raise your interest rates to stop inflation, and this country has a 2.4% inflation. They're 10 years at 90 basis points and their short rates are at a quarter. And remember something? They just raised them a quarter. They were zero. They were actually negative for 17 and a half years. So you saw the yen went down or up. You know it's down, all right.

Speaker 1:

So think about what the end carry trade is. You have your money in America. You're an investment bank, you're an asset manager, you're a family office, it doesn't matter, they all do it. In fact, some of the biggest yen carry trade are the Japanese themselves, individuals. You go over and you buy the yen. You borrow against it 99.9%. Then you go back to America and you buy a higher yielding security so that you're making the carry. That's what we're talking about the carry interest between the two Now on the yen side, because the yen was zero to negative interest rates for 17 years. They were borrowing virtually for free. Now it goes to a quarter percent and you go hey, what's the big deal? It's only up a quarter percent and their inflation rates 2.4. That's not the problem. The problem is this the end carry trade is a borrow, even at a quarter, I was told 15 years ago by the CFO. He's got his Danny the NCari.

Speaker 1:

Trade is nothing more than us picking up pennies and nickels in front of a steamroller. It's free money until we get steamrolled. When I say pennies and nickels, what I'm saying is the margins are super thin. So even a quarter percent up could make the trade negative. It could Doesn't mean it does for some people. Everyone's in at different levels and all we don't know. That's our problem. We literally don't know.

Speaker 1:

The BOJ has come out and said we are willing to raise interest rates. Are they going to raise the interest rates, control the interest rates, or are they going to control the currency? My opinion they're going to have to let the currency float up. I think it's going to go up, because I don't think they have a choice. Here's the deal If they raise their interest rates by 1%, they double their annual government deficit 1% and you could argue that they need at least 2%, and they're going to like triple their annual deficit. Now let's think about that for a second. If you triple your annual deficit or even double your annual deficit, then do people come in and sell your currency hard?

Speaker 1:

Look what happened in England with Liz Truss. She gets to be PM. She announces I'm going to do an $80 billion tax cut. What happened? Down went their currency, down went their bonds and they were forced to turn everything over. In the end, there's more money in the world than we have to support it For any central bank. No central bank can fight the war. I think I don't know how they're going to do this. I think they're going to raise their interest rates a little bit and they're going to allow the yen to go down. But if the yen keeps going down, people are going to say I'm losing money on the yen carry trade. They're going to sell and they're going to get out.

Speaker 2:

You said something earlier which I want to hit on. You said Japan traders themselves are actually a big part of the carry trade, right. They're borrowing locally and then they themselves are investing internationally. On a Sunday before August 5th, I was doing a very late interview with a guy named Weston Nakamura, who's in Japan, and he made it a point that one of the hottest stocks that these investors and traders position into is NVIDIA, which of course led to an interesting discussion about how much of the NVIDIA momentum like the posts on X, how much of that could literally just be driven by the carry trade itself, right, and then not so much AI, it's just the leveraging effect of that. I'm curious if you have any thoughts on sort of, you know, if we're in an environment where Japan's investors and traders have maybe distorted and created some of this concentration that's gone on in the S&P 500.

Speaker 1:

I don't know if you can put it to the Japanese, and that's gone on in the S&P 500. I don't know if you can put it to the Japanese, from my understanding, from what I've heard, is the macro hedge funds were hit very, very hard that Friday and all the macros are all based upon the yen carry trade. So that means they were forced to liquidate some stocks to fix some of the yen carry trade. As we all know, stocks went down. They probably sold them lower than they could have and then, of course, everything just rallied back up. So the macros kind of got double hit there. But the thing is is we really don't know who's really long. And then, what are they invested in? Because that's critical. You pick out NVIDIA. Let's say you're saying it's government bonds. Do we believe the government bonds? I saw today that a lot of the firms came out and said we believe that you should short the 10-year bond, which, by the way, is what I believe. I believe if we cut the interest rates on the 18th, I believe the 10-year is going to go up in yields. Just my opinion, but I have nothing to prove that. But I think that's what's going to happen and I think that we're taking chances here with the cut. You can see, bostick is always. We need more information. We need more information Now.

Speaker 1:

I believe the Fed came out on that Wednesday and said listen, we think we're in the environment where we can start cutting. That was two days after the BOJ said they're not going to cut. I think that was an agreement between the two central banks to support each other. They didn't want to say we're going to raise any more rates just yet on the Japanese yen. But this week now has come out twice and said we're going to do this if we have to. So what's have to? If the yen continues, if it goes up to 170, 175, 180, right, you're going to see them raise their interest rates to protect their yen. But then they have the problem on the deficit. So again, it's a rock and a hard spot for Japan. Now our problem is, you know, for Japan I don't think anyone really cares, right. But the only reason we care is everybody's in the Yan care retreat. That's why we care.

Speaker 2:

You were hitting on China and the Yuan and I've seen that people reference China on the currency side. How does China track that Okay.

Speaker 1:

So the first thing about the Yuan is, we have to remember something China's Yuan is around four and a half percent of trade, yet it's around 50% of their own trade. But they don't really trade the way you and I think. Okay, they cut deals with Mongolia. They say you send us this iron ore, we'll send you this product and we'll do it at this exchange rate. That's what they're doing. They're not losing control of the renminbi, which is critical to that. So then you have Hong Kong, of the renminbi, which is critical to that. So then you have Hong Kong. Hong Kong has the Hong Kong dollar which, by the way, is issued by HSBC and the Hong Kong Banking Authority. But it's actually issued by HSBC. Here's the deal that's hooked to the dollar 7.8. That's where it's hooked 7.80 to the dollar.

Speaker 1:

So now you have all your exporters in China. They export to the world and everyone trades in dollars. So they take all the dollars back and now the estimates are that they have around 2 trillion in US dollars. That is called the one carry trade. All right, because they're taking and they're owning higher yielding US securities on their stuff. But here's the deal now the Hong Kong dollar and the Chinese yuan have now had a little gap of around 3 percent because the Hong Kong dollar is moving up.

Speaker 1:

What everyone's afraid of is they think that the exporters in China could take if we cut our interest rates and the dollar starts going rates and we can get the appreciation on the difference between the Hong Kong yuan and the Chinese renminbi. This is also something where it could drive down the dollar. So the point of my videos has been I'm not quite sure what's worse that we cut the rates by a quarter or we raise them by a quarter, and frankly I don't know which one will have the biggest impact. But everybody in the world is sitting here with bated breath on all these carry trades, on what are they going to do? Who's going to do what first? Your guess is as good as mine. All I'm saying is we got a little taste. First, your guess is as good as mine. All I'm saying is we got a little taste and as someone said the other day, it was a shot across the bow. And I believe that it was a shot across the bow. That's what I believe.

Speaker 2:

It's a good comment from X, from Toby, I'll show on the screen. Isn't there substantial carry still to be had? The gap between Japanese rates and typical bond equity yields is still large. No, I see other people make this argument too, because it's true, right, there's still yield there and it's not like there's. You know, the currency hasn't moved enough to just totally erase that.

Speaker 1:

You're true, okay, but again you have to go break up the trade. So the first trade is we buy the yen, okay, and we borrow against it. Now the yen was negative yield, it was negative, you know, quarter to a half percent for like 17 years, right, so it's free money. So you buy the yen, you're getting 1.1%. You borrow against it, you have a negative carry. Their interest rates are negative. Now it's a quarter and now the 10 years 90 basis point. So we're closing the gap.

Speaker 1:

So you have to remember something the actual basis of the trade of buying the yen, buying the government bond and then borrowing the money, that difference, that carry, right there, is under attack. And if that goes, and then add in on top of that, if the yen goes up, which is down, ok for these people, then the trade becomes totally unprofitable and out they go. And when they sell, the first thing they sell are their dollar denominated assets to bring the money home to buy back the yen. And that selling of the US assets we saw on that Friday, that's what actually happened.

Speaker 2:

I'm curious to hear your thoughts on gold as it relates to all of this. I myself have argued gold is sending a warning. Sometimes gold moves in advance of something that could happen between Israel and Iran. Right, I mean there might be some more dynamics of gold. I do think that some of this gold momentum is being driven by a feeling by financial advisors and asset allocators that they want less correlation to beta. Gold is largely not correlated and that gold is also maybe moving off of concerns around the reverse carrier trade not being finished yet. Am I far off on that?

Speaker 1:

idea I'm going to say when I came into the business, we sold gold, silver and oil trusts. No one would buy a thing and listen for all you people who have been doing this now for 10, 15 years. Right, and you have to think about something. In 1947, 48, when we went into recession after World War II, the Dow Jones was 862. In 1982, 1908, 25 years later, it was 882, up 20 points. Buying the debt has not always been the answer. That's all I'll point out Now on gold, over the years I have noticed that gold is about currencies, not about inflation.

Speaker 1:

Currencies do go a little crazy when there's inflation in the countries. So people look and say it's inflation that's driving gold. But I think it's the facing our currencies and where gold cannot be a currency trading vehicle for the world, it can be a holding spot when you're not sure what's going to go on with the currencies. I'm not going to say I'm a gold bug, but at this time, given what's going on with the currencies, I believe that gold is more than appropriate in my personal opinion.

Speaker 1:

Now there's another old Wall Street adage. I don't know if it's true or not, don't kill me on this, but it's happened twice in my lifetime. If gold sets a new high from their previous high, which they just did about 10, two weeks ago, 10 days ago, the old adage was is that it would go 10 times its prior high. So the high was 2,500, right, 10 times that, if you believe it. So, given what's going on with the currencies, I think it's appropriate that you can have gold now as a holding spot, not being in a currency, right? I know everyone thinks it's inflation, but I'm not a buyer. But people argue about this all the time. This is just my opinion, that's all.

Speaker 2:

Eddie, not financial advice, but I think it's good to kind of tease this out. This is from X. What does a retail investor do? So I always make this point that path matters more than prediction. I always reference it's not about prediction so much as it's about conditions. Listen, I've been on the reverse carry trade. Like you, I didn't think it would suddenly happen like that in August. The path ended up being really wild because it happened very suddenly, out of nowhere. Seemingly the Nikkei acted like one of the shit coins from the cryptocurrency side, which is a diversified index from the world's third largest economy, just moving around insanely and then everything kind of got quiet. Retail investors when they hear this kind of information from you, from me, from other people that are thinking out of the big picture, what do they do? Again, not financial advice, but how would you get somebody to think differently about their asset allocation? You know?

Speaker 1:

there's so many different kinds of investors. Right, I have a day trader who works with me. Right, she thinks totally different than I do, which is fine. I'm more of the long term. So, look, every study has shown that it's better to be in the market than not to be in the market. To try to call a market, right, you underperform, all right, but at the same instance, there are times in life where the great financial crisis I mean it was appropriate for people to move to the sideline during that period of time. So the thing is, can you anticipate it? It's like NVIDIA. I thought NVIDIA was overvalued at like $285. I have very strong feelings about this and what they're doing, and yet, at the same time, it went to like, whatever it was $1,300, $1,400. So, should you be in NVIDIA? Is it overvalued? I think it absolutely is. Is our stock market overvalued? Yes, I think that's inarguable. But at the same instance, do you sit out to move up your momentum trades and so forth? And that's really where we are because of the liquidity in the market. Right, we just have massive accounts of liquidity. That's why, when you look at what I said about the anatomy of a market crash, the first thing that has to happen is we have to have a negative liquidity event which pulls the liquidity out of the market, and then we start seeing where we have problems. And so the question I ask in that is the end trade, the negative liquidity event that could happen, is it big enough that it would affect the world stock market? I think the answer to all of them is yes. The question is is the yen carry trade going to be unwound soon or now or whenever? That's really where we're at. So, as a person, when you're investing, the number one thing I would look for today is that you need positive cash flow stocks. That's number one, because if you can't service your debt, you're going to be in major trouble because debt is going to be leveraged debt. All that stuff is going to be out. I can't explain to you how. Think about this right. Our era that we're leading was all about leverage, everybody's leverage, everybody's leverage, everybody's leverage. The governments, the corporations, the hedge funds, the private equity, everybody we individuals are all leveraged. The new world, we're going to be way less leveraged. So you need cash flow stocks and I would say I wouldn't concentrate so much on the NVIDIAs and the Tescos and everything. They're more fanboy. You know stuff like that. But you can look at the industrials Like there's one out there. I'm not going to use any names, I'm not going to give any advice. You know it's a major industrial company. They have 322% debt to equity ratio. They can't make their cashflow to pay the debt and this is a huge corporation. So what happens? Right? So I think you can look beyond the let's invest in the market to more about what kind of investments do I want and the way you want are people who have good cash flow At the end of 2023,.

Speaker 1:

Champy wrote his letter to his investors. He talks about this in detail. He was like all this stuff that we had where we just went to private equity and it gave us more money, more money, more money, right, and we just did idea stocks and stuff like that. He says it was all. I think he said it was all a mirage, all right, or a delusion, one or the other. He says the only thing that counts is free cash flow inside your company. I would concentrate on free cash flow in my stocks. If you have negative cash flow, I would say that has a better chance of going down versus going up for sure, which?

Speaker 2:

explains why a lot of small companies are struggling and why they haven't done all the well, because they got razor thin margins against high interest expense and not that much free cash flow to deal with it.

Speaker 1:

Hey, listen, look at private equity. Private equity bought all those companies from 2015 to 2019. They're all idea stocks and they are down. I would say anywhere from 40 to 90%. And you know this because how many IPOs have we had? I ran a desk for 11 years. We would bring out four or five IPOs a day. We haven't had five IPOs this year.

Speaker 1:

That's because private equity bought all those firms. Their valuations are down. They're holding those valuations on their books at 100 cents on the dollar when they're not 100 cents on the dollar. And if they try to bring them public at 30 cents on the dollar, then they're going to have to write down their private equity investment and they don't want to do that. So we're in, pretend and extend with the private equity people, but those companies, I don't think they're coming back. I just don't see it coming back. So the day that private equity starts to actually mark to market and, by the way, private equity, so SEC Gensler said that private equity has to have a third party come in on a quarterly basis and value their assets. So private equity went down to New Orleans and sued and said that the SEC has no right to tell us to evaluate our stuff and the guy agreed unbelievably, and so the private equity doesn't have to tell us what the valuation of their stuff is. Estimates are they get about $3 trillion of those companies in their portfolios.

Speaker 2:

Well, I have to save that for another live stream. I got people saying we have more regular, we're all connected. This is what people have. It's all connected and I go back to it's all largely one tree. Everything's moving off. It's just variations from a co-movement perspective. Danny, for those who want to track more your thoughts, more your work, and maybe for those financial advisors that are kind of curious about the coaching, where would you point them to?

Speaker 1:

Well, I'm at processforgrowthgmailcom. You can email me if you want. You can follow me on TikTok. I am now on Twitter, all because of you. Basically I was not on Twitter until then and also I'm on YouTube, but I have to say there's only like 11 people who follow me on YouTube. But I just started there two weeks ago, Twitter three weeks ago. So I've been trying to figure this out on TikTok and now I'm expanding out. This is my first podcast, so here I am again. If you want to reach out and to talk, I'll be more than and, by the way, I work with traders on strategy, not on investment. So if you want to come to me and I will tell you strategies for you to work out with your financial advisor among yourselves to figure out how you want to invest, I give advice. That's what I give.

Speaker 2:

Given that it was Dan's first podcast and given that he crushed it, please, everybody, make sure you follow him on the various platforms. I very much enjoyed this conversation. Hopefully, we'll be able to do another one of these again when the world is falling apart. So we'll be able to do another one of these again when the world is falling apart, so be sure to look for that. I have another live stream coming up literally in 10 minutes, so please, folks, stay tuned for that. I appreciate those that watch these shows regularly and thanks everybody for attending. Thank you.

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Michael A. Gayed, CFA

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