Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Business Week with Carol Messer and Tim Steneveek on Bloomberg Radio.
When you your face will from that will bring everybody down.
So don't worry big.
Don't worry.
Well.
In Video's rise to three trillion dollars in market cap has been swift. It's added two trillion dollars to its market value just since November. For some context, Carol, that two trillion dollars that it's added is more than the market cap of all but seven companies in the S and P five hundred.
That's context and perspective.
That's just the market cap that it's added in the last few months. Great anyone, Some people think it is.
Although some would say there are fundamentals there too.
Well.
Analysts are still really bullish on it. It's got sixty five buys seven holds in zero cells according to data compile by Bloomberg, So a lot of bulls out there. Our next guest not one of them. In fact, he likens Nvidia in twenty twenty four to Cisco in the year two thousand, just to remind her a little history lesson Cisco stock, Dove close to ninety percent in the dot com bubble.
I think Kathy Wood has also written about that in terms of Cisco.
Cisco. Yeah, but right, she got out of in Video and she's missed this rough.
Up she did, all right. So back with us is Jared Dillion. He's the editor and publisher of the market newsletter The Daily Dirt. N App a former Bloomberg opinion columnist, also the author of several books, including his newest No Worries, How to Live a Stress Free Financial Life, which we have had fun at going through and talking about. He joins us in our Bloomberg Interactive Broker Studio. Great to have you back. How are you.
It's great to be back, Thank you.
So let's start with Nvidia. Why do you think it's a bubble?
Uh g waits, look at the chart, but just because the chart goes up, it's gone parabolic. So it's here's let me give you something for context. So you said Cisco went down nine percent in two thousand, If in Video goes down seventy five percent, which I think it had close to a drawdown like that before in twenty twenty two, if it had a seventy five percent draw down, it would still be a seven hundred and fifty billion dollar company, which is incredible. So the way I look
at this is you've had narrowing market leadership. Okay, So when I had started my career in nineteen ninety nine, I was actually on the options exchange in San Francisco, and you had a number of stocks that were leading, and it became narrower and narrower, and you had one stock left. It was Cisco. They missed on earnings. I think it was like March eleventh of two thousand and then it was down from there. Six months ago people were talking about the Magnificent seven, and then it became
the Magnificent four. And now there's one stock left. And that's that is the definition of narrowing breath.
You know.
The interesting thing about this is that the median pe of non tech company is non expensive. If you look at the non tech part of the SMP, right, it's actually not super expensive. It's the tech part that makes it overvalue.
So, okay, so what would you say to the folks who come out and say, well, in Nvidia's got a real mode, there's real demand for its chips and what it provides. Look no further than the backlog and the companies that are lining up to buy it. So there is a story there that it's fundamentally worth this much.
I mean, revenues expected to grow about one hundred percent year over year. Yeah, I'm in twenty twenty five, now, mind you, in twenty twenty four it was a lot more just acts. This is quarter to quarter. But anyway, I'm just saying it's still it's a doubling of revenue.
Yeah, I mean the same was also true of Cisco in two thousand and when it got to the peak. You had to say how many routers do they have to sell in order to make this valuation worthwhile? And it was just an astronomical number. So you know what the pushback I get an in video. And by the way, I'm not short in video. I'm not suicidal, right Like, I don't you own it in video? No, I don't own it either in an index fund. I guess technically I do, Okay. So but the pushback I get all
the time is revenue growth. Revenue growth, But if you look at the second derivative of that, when that turns, that's when it's vulnerable. Look when I talk to young people, what former students of mine, former intern stuff like that, And I ask them what stocks they own. They all own in Vidia. It is it is a consensus stock. Everybody owns it. You know, I've seen this before.
Let's worries someme to you. Yeah, Hey, speaking of bubbles, You've written a lot on Twitter and in your newsletter recently about private equity. You think it's in a bubble. You recently wrote that you don't think private equity will be the cause of the next crisis, but it will greatly exacerbate it and prolong the pain over a period of years. What are you seeing in private equity that you don't think others see.
You know, private equity made sense in the twenty tens when you could buy companies at four or five times and interest rates were zero. I mean, it made sense to buy cheap companies and lever up. But now they're buying companies at ten to twelve times and interest rates are five and a half percent. It makes a lot less sense. There are seventeen thousand, three hundred private equity firms in the United States, and they're all competing for deals.
They're rolling up every asset imaginable, whether it's pizza parlors or bowling alleys or minor league baseball teams. It's really reached the point of saturation and there's so much competition for deals that they're getting more and more overvalued. Plus there's no exits. People have written about that before. There's
no IPOs, there's no acquisitions, there's no exits. There was an article written the other day about I can't remember the context, but basically someone in private equity said they predicted the next decade is going to be pretty rough.
Scott Climban Apollo GA Managements. Scott climent said the private equity industry must face up to the reality of lower evaluations. Everything is not going to be okay. And that was our Bloomberg story that he put out there. He did a session at Super Return International in Berlin, so like they've been weighing in on this. I mean, it is kind of interesting, right, what works in a zero rate environment. It's like when the tide goes out, right, Yeah, you
get to see everything. And I mean we have been spoiled for what two decades or so of really cheap no cost in terms of leveraging up right, money has been so cheap it's very different in an environment that even if historically it's low percentage wise, it's still a different investing environment.
It's a completely different investing environment. And you know, I don't know the path of interest rates in the future, but private equity is very vulnerable to rising interest rates. Let's say we had in you know, after the election, we have a resurgence of inflation, Inflation goes back to six percent, ten year yields go from four and a half to five and a half or six. You're going to see the big private equity firms they'll be down thirty percent on that because.
Of taking markdowns in their investments, or just because of companies that just can't survive in a higher rate environment. So when they go to refinance or whatever, they're like, I can't do this.
Okay, play this out for us though, And maybe someone listening or watching right now would say, you know what if a private equity firm, or if private equity goes bust, that doesn't really affect me because I don't own any private equity. I don't have a portion of my portfolio in private equity. What are the implications of you think a bubble in private equity?
Well, one of the things you started off with. You read from my newsletter and you said, I said that private equity wouldn't be the cause of the downturn, but it would exacerbate it. Private valuations should mirror public valuations. So if we have say a twenty percent draw down in the SMP, then correspondingly there should be a twenty percent draw down in private valuations. So the question is is that whether with ten year lockups private equity can earn that now over time, right or or there is
a liquidity event. And the one thing about markets is that liquidity always finds a way.
Well, it's also if you're working like we did the story about you know, the plumber who sold out this kind of the star plumber in UK, you sold out to a private equity fund, made a lot of money, but kind of sorry that he did it. And ultimately we talk about you know, private equity kind of going
into all these markets. But if a company in a zero rate environment or cheap you know, cost of money environment versus where we are today higher for longer or high for longer, you know, if that business can't survive, well, then you think about the business closing down, people losing jobs, like, that's what I think about, like, right, the shutting down of businesses that starts to have a serious economic impact.
By the way, the first, the first time I really heard about this was my brother has a very interesting job. He is a broker for dental practices. So he helps dentists transition when they're retiring and a young dentist will buy the practice. As of about five years ago, he was selling all of it practices to private equity and
they were paying like twelve times for dental practices. And since interest rates went up, valuations have come down a little bit, but there's still like ten times for dental practices.
So, well you think about it.
I hope those private equity guys notfl cavities, That's all I'm saying.
No, but you do think, right, they look at the balance, you right, the money coming in the insurance, and like I get kind of why they find it interesting.
Right, Yeah, absolutely, Yeah.
Hey, we got thirty seconds and then we're going to come back with you give us thirty seconds on why you think payrolls are going to be a bad are going to come in under dem.
We've had kind of a run of bad data, especially the labor market. Data. I mean the Jolts was kind of a mess, and I mean Chicago pm I was a complete what's that.
We're going to debate?
Keep out, Okay, I mean Chicago pm I was completely I would say over the last two weeks the data has become significantly.
Softer, softer, but not more.
The Chicago PMI was pretty much a mess. Thirty five point four is like deep recession territory. So I'm a bear.
Sorry, Okay, okay, I mean we have had an inverted yilkart for a long time.
Yes, for two years.
So look at some point, I'm gonna I'm in between you guys. I'm gonna let this continue. After we do some news. We're talking to Jered Dillion of The Daily Dirt down Balls and the author of No Worries, How to Live a Stress Free Financial Life.
I want to get back to our guests. Jared Dillion is still with us. He's the editor and publisher of the market newsletter. It is called The Daily Dirt app. He's a former Bloomberg opinion columnist, also the author of several books, including his newest No Worries, How to Live a Stress Free Financial Life, which we have talked about in the past, and we highly recommend you check out our podcast feed for that conversation. Jared, we were talking about before we took a break to do some news
about the job market and your expectations. We talked earlier with our Rich Miller, who pointed out that the US job market may be a lot less vibrant than the FED believes to seem to think it is, and he talked about the quarterly senses of employment and wages, these new figures that have come out that says maybe payrolls have grown about sixty thousand less per month on average last year than the roughly two hundred and fifty thousand
run rates. So there's some debate about whether or not these statistics are actually showing the labor market that maybe it's not really as strong as it is. Talk a little bit more about your concerns or specifically why you think the labor market is maybe starting to come undone.
Well, I think do you remember back during the pandemic when we had the labor shortages right, Well, you would go into a restaurant and they would only be serving like four tables because people weren't showing up to work, like there was just so many jobs available versus the number of job seekers, and that was a distortion that was caused as a result of the massive amount of stimulus that we pumped into the economy. And I think what's happening is that has taken four years to unwind,
and I think it's finally unwinding after four years. So if you look at the chart of job openings, so.
The shortages are finally unwinding.
Yes, yes, So if you look at a chart of job openings, you're seeing its coming back down to pre pandemic levels. So I think, really the equilibrium rate for the unemployment rate is four and a half to five percent, and I think we'll get there over the next six to twelve months.
You want to talk private credit.
I do want to talk private credit.
I'm gonna give you a chance to do this.
I get to my So we talked a lot about private equity and your career.
Ask question private.
Credit, Tim, And I know, like we've you know, been at Milkin and it's like everybody's in private credit. It's all good. The risk is spread around. What do you think why.
I am thinking about here's the thing. We haven't really had a credit cycle. The down half of a credit cycle since two thousand and eight. We had a credit bear market in two thousand and two, we had a credit bear market in two thousand and eight. We almost had one during the pandemic, but the FED started buying corporate bond ETFs and they basically jawbone the credit markets higher. So we really haven't had a down turning credit in sixteen years. And bear markets and credit are awesome. They're
great if you are an income investor. You can get investment grade bonds at eight to ten percent yields, you can get high yield at fourteen percent yields. It is like I've been waiting for an environment like that for a long time. And I think that if private credit comes on glued, you know, like I said before about private equity, correspondingly it should match with the public markets. I think we might get that opportunity.
So what is that unwinding or what does that scenario look like? Does it look like a GFC? What does it look like?
I don't know what it looks like. No, I don't think it looks like a financial crisis. But you know, like we if we are overdue for a bear market and credit, like you we have built up a lot of excesses over.
Time, so there's a lot of money. There's still a lot of liquidity out there.
One point eight trillion in private credit. It's a lot.
Okay, talk stop, sith Gil, It's gonna do a YouTube tomorrow. He is, yes, Yes, this is breaking in the last couple hours.
Okay.
So you argue that what's happening when it comes to GameStop is market manipulation. You acknowledge you're not a lawyer, but you think that Roaring Kitty what he's doing should be looked at by regulators.
So the pushback I get from people on this is, well, he's not really doing anything different than Bill Ackman or Muddy Waters or Hindenberg. He builds up a position, he announces the position, and then it moves in his favor. Right. But the way I look at this is that it really comes down to intent. You know, when Bill Ackman does it, there is an investment thesis behind it. There's like a core investment thesis that's based on fundamentals and facts.
His intent is specifically to manipulate the stock higher. So, like I said, I'm not a lawyer, I don't really understand securities law. But if if the SEC allowed this to happen, just you know, just like from a just from a philosophical standpoint, imagine that there were one hundred people doing this or a thousand people doing this and the market was manipulated in many different ways. Like, that's not really a result that you would want to have.
So could he not just be buying it because he likes it?
I mean, that would if if that would be his defense for sure. I mean, and that's that's what he said in front of Congress when he was when he was zooming in to that congressional hearing, he said, I like the stock, and that was that was basically his defense, you know.
But I mean, where's everybody else who's following you know, are they doing their institutional research or fundamental research? Because some would say the institutional guys got involved because they were like wanted a piece of the action. Now were they doing their fundamental research when they were potentially chasing it?
Absolutely not.
So it's like, where do you go with this?
Yeah, I mean good for game stop obviously, but ninety percent of the people who follow him will end up losing money.
So I want to spend a couple of minutes on the book. Oh yeah, you have a couple of minutes left.
Yep.
If you joined this last time or heard last time, you know that Jared and his wife have separate bank accounts. They keep everything separated. It's the key too happy marriage. Never lend money to family members. These are just a couple of the lessons in the book which both Carol and I loved. I don't think we talked about the awesome portfolio last and you were on, yeah, talk about what this is. It's this portfolio construction that you say is kind of bulletproof.
So the conventional wisdom for retail investors is that you put all your money in the S and P five hundred and you ride out the volatility and at the end you have a big pile of money. Right. The problem is when you invest in an index, you get the returns of the index, which are very very good, but you also get the volatility of the index. Yea SMP five hundred is very volatile, Like in an average year,
it'll move fifteen to twenty percent up and down. So what that causes you over a forty year investing career is a lot of ups and down. Sometimes a lot of heartache. And you you know, sometime in that forty year investing career you will have a bear market that exceeds fifty percent or more. Right, you will see your
life savings cut in half. Now, what the Awesome Portfolio does is it takes five asset classes stocks, bonds, gold, cash, and real estate and it splits them into twenty percent portions. This portfolio returns about a percent less than the S and P five hundred with almost half the volatility.
Well that's a big change, and the draw.
Downs are much lower. So the worst draw down in the history of the Awesome Portfolio has been twelve percent. Okay, in two thousand and eight, the S and P five hundred was down thirty eight percent. The Awesome Portfolio is down nine percent. So if you say the worst year I can possibly have in my investing career is down twelve percent, that is the kind of volatility you can ride out.
So is that actuality or just back testing you just got about?
No, that's historical. That's that's historical.
There's a whole chapter in the book about the Austin Portfolio.
This is why we wanted to bring him back. It's just such fun to get his perspective. Jared, thank you so much.
Thank you very much.
Jared Dillion, editor and publisher of the Market newsletter at The Daily Dirt napp his book No Worries, How to Live a stress Free Financial life, Separate bank Accounts to husband and.
Wife, the key to a happy marriage. According to Jared, this is Bloomberg.
This is Bloomberg Business Week inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news as it happens. Bloomberg Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio.
It is Bloomberg Business Week. Carol, I don't know if you saw this. Maybe you had time to read it on your two hour trip from JFK home yesterday.
I could have knitted everybody a sweater in that time.
New York Magazine's curbed was out with the piece. Last week had a right headline, the private helicopter to the private jet is the new flying private. So it talks about the increasing number of folks who are taking a car to the West thirtieth Street helipad here in Manhattan. That chopper is warmed up. It's waiting for them. They make a five to seven minute helicopter ride to Titoborow to catch their private jet. They're cruising over the gridlock
below them. I think you were in that gridlock last night. It definitely was saving twenty minutes to an hour depending on traffic.
I don't know. It sounds pretty magical, Tim.
Yeah, it sounds a lot better than the two hours you spent getting from JFK.
Home last night.
Yeah, a lot better.
For check on private aviation though, which we should note is off its pandemic peaks. We welcome back Jeanine Janirelli, founder and president of par Avion. It's a private aircraft broker that specializes in pre owned business jets. Jeanine joins us from the Saratoga Racecourse in Saratoga Springs, New York, where racing is already under away ahead of Saturdays at Belmont Steaks. Jeanine, how are you great?
How are you all doing today?
Yeah, we're doing well. Welcome back to the program. We'll get to Belmont in a minute. But give us a big picture of how your business is going, given that we are off of pandemic highs. When it comes to private aviation.
Well, it's a little bit of the up and down.
I hate to use that sort of analogy, but we are in an election year. An election year takes its toll on aircraft sales. The closer we get to that election, the more the market starts to slow down. There's a lot of concern as to what the rules are going to be with the new party that comes in.
So I didn't necessarily mean a party. Yeah, sorry, political party.
Talk a little bit about that. Does this happen every four years? Does it happen when there's a surprise? What's the track record here?
It does?
The business jet market does not like surprises, It does not like instability, It doesn't like anything to upset the apple cart. And it does happen every four years regardless. And you know, I wish I could tell you why.
It's just that I can tell you that the people in the trade plan for it.
So how is it manifesting in your business right now?
Oh, it's much slower than it was two years ago. And even in comparison to last year, I can see that the buyers are being much more cautious before they actually open their pursus. They're spending a great deal of time reviewing the asset, and sometimes they get really close and then they back themselves up and we just have to wait them out.
I don't understand because we know fairly regularly talk about the wealthier getting wealthy, and I'm not just talking about billionaires, but I'm just talking about in general, and so I'm trying to understand. Remind us who Janine in general is your typical buyer.
Now, for me, the classic buyer is an entrepreneur, self made. They built their business, they sold their business. They're independently wealthy.
That's the thing. Both of my personal business a portion of them that is also corporate.
Corporate's perhaps a bit more consistent because they look to turn their aircraft over every five to seven years because they want to have warranty coverage for the aircraft. They don't want any surprises either, But that comes more from the operational side.
And is it American buyers or global buyers? Like I'd love any kind of geographic color you can give us.
Well, this is I would say, more specific to the United States. I mean, we are the largest marketplace in the world for business aircraft, and the drivers for why people acquire aircraft here are a little bit different than the rest of the world. We also are one of the most friendly environment for operating aircraft privately, are the US's Yes, absolutely, And one of the big reasons for that is the airspace, the available airspace, the ability to fly direct from point to point.
The airspace is so tightly congested.
Let's just take Europe for example, or regulated that you have to get a slot for arrivals and departures, and most of the airport, particularly at very busy times of the year, it's a deterrent to operating your aircraft freely, and we are the essence of freedom here in the United States.
Who's been selling aircraft, who's been looking to offload?
Well, I wouldn't use the word offload, because I don't see people dumping their aircraft. What you're seeing as a transition. People who tested the market in the pandemic, who bought small jets, are actually looking to upgrade. So I have a number of inquirries based on the airplanes that I have that are going from small jets to medium to large cabin.
Well, in terms of you talked about the typical client, you have the entrepreneur person who sells their business is self made, is independently wealthy. What do they then go do with that aircraft? The question that I have is are they one hundred percent flying on it themselves or are they leasing it out or chartering it to other folks when they're not using it?
So I think the perspective that most of the buyers today take is what's the easiest way to place the aircraft into service and continue that service, And generally that would be a management company as opposed to an independent flight department. And when you're with the management company, there's usually the added benefit of saying, would you like to charter the airplane? And I would say that the vast majority of people who have aircraft under managed will certainly agree to also chartering.
Are they are they chartering when the management company is managing it? Do they handle everything including pilots or do you have the same pilots.
All the time?
No?
Everything, Well, that's an arrangement you have to make with the management company. But generally, yes, you can specify that you would like flight crew stick with your airplane.
Asking for a friend, asking a friend that's good and served, how much of what you're doing? Though it sounds like you said individual like entrepreneurs and son and so forth. How much work do you do with actually corporations and companies?
You know, my personal business, it's probably about twenty five percent with corporate and I represent a couple of corporations at this particular time who will remain nameless in the acquisition of aircraft.
They are actually modifying their fleet.
They buy new aircraft, but they supplement that uplift with the pre owned airplane.
What's the most popular size aircraft right now yourself?
Right now, you know, I don't have it, But the most popular is the small jet the market. It has an appetite for the small airplane six to a passengers. I have super midsize and large cabin airplanes, and the buyers right at the moment are far and few between.
Well, okay, give us the price range for a small to mid size versus the super heavies.
So the small you're probably looking at three to eight million, maybe a little bit more than new the aircraft, the super mid size depending on the age of the airplane, anywhere from seven to fifteen, sixteen seventeen million, and then the large category. Again, age is a big influencer in terms of the price point.
But let's talk.
About newer aircraft, newer being fifteen years or newer, and we're probably twenty million and up.
Yeah, But as I say, it's not the initial purchase is the epkey. God, I'm just gonna say, I'm just gonna it up. Just kip it out there. I'm just saying, or some I hear the bell Mot Stakes tell us a little bit about the weekend and the amount of activity that you're seeing of people, you know, chartering a private jet to go up and see the race.
Well, so I hear, and just like any major sporting event, you should see an uptick in the traffic into the greater area Albany Saratoga. I went by the Saratoga Airport earlier today and they looked busy in the sense of
people arriving, dropping their passengers and moving on. There weren't a whole lot of airport is parked there, but the ramp space is pretty limited, and especially because they have some construction going on, but the area airports are prepared for an influx that you know you'll see one hundred percent increase in travel. And the Belmont Stakes Festival kicks off today. As you can see from the background and the activity.
You seen any races yet?
Oh? Yes?
You want any money yet?
On ahead for the moment?
Okay, enough to buy a maybe small?
Yeah?
Oh, I can't even buy a cocktail here with what I want all right?
Seize the gray, resilience. Do you have a favorite?
Uh?
You know, I have to go with seize the gray first of all, on partial grays, that's the color of most of the horses that I've owned personally.
Who doesn't loved Wayne Lucas, I.
Mean love a legend in the business, and you know, a rookie basically jockey, gotta go and seize the gray.
I'm looking at odds eight to one. We will see what happens. Janine Jennarelli joining US founder and president at Paravian on site to add the Saratoga Racecourse in Saratoga Springs, New York races this weekend. This is Bloomberg