Fundamentals Still Matter Despite Reddit Noise: Federated's Orlando

and on Bloomberg dot com. Let's get to our next guest, now, Phil Orlando, with chief equity market strategist and ahead of client portfolio managing at Federated Hermes and always has really interesting things to say. Phil, Since the last time we spoke with you, I think maybe a couple of structural fragilities have been exposed in this market and also some froth in places, more places now than before. What's your big take on what's going on between the redditors and

the market and the brokerages and the hedge funds. Well, you know this whole uh reddit game, stop robin hood saying is is very interesting and certainly very entertaining. But but the reality is that that ultimately fundamentals still matter. You know. I don't know if you stayed up late to watch the Saturday Night Live skit with Kate McKinnon

and Pete Davidson. But you know, all kidding aside, that really shone a light on what ultimately matters longer term, and that if a company's fundamentals are strong, revenues and earnings will go up and that will drive share prices higher. If the business is weak, revenues and earnings are going the wrong way, ultimately the share price will decline. Now that there could be noise in the interim, and that's what we're seeing now with with you know, the hedge

funds and the redded people and whatever. But but you know, um, longer term, ultimately, these companies are going to succeed or fail on the basis of the underlying supply and demand and strength of their business. Still. I mean, you know, we've seen these stype the phenomena in the past and kind of you know, a term of old day trader, if you will. But I guess what's new here is there's so much liquidity on the sidelines, so much liquidity

in the marketplace. You've got the advent of social media and the ability for retailers to kind of really team up if you will, in a particular security. Um, you've got the pandemic, people are kind of locked in their homes. How much of this is kind of a one off, short term phenomena versus maybe a new wrinkle to the

market going forward. Everything you've said is absolutely true that we you know, the advent of social media, the fact that they're somewhere between four and five trillion dollars of cash sitting on the sidelines. Uh, we're sitting here. Uh. The last personal savings rate we saw was around thirteen or fourteen percent. So people are flush with cash, stock markets up, They've got nothing to do. We're locked in

our house. We've got a snowstorm here in the northeast, um, you know, And and people are bored, and they say, well, let's let's stick it to the man. Let's let's take out some of these wealthy hedge fund guys and team up and drive these stocks higher and force them to cover their shorts. All of that's true, But the reality is, where's the endgame? At what point do fundamentals matter and individuals need to sell to lock in their profits or

create some additional liquidity. Who are they going to sell to if the fundamentals are poor and everyone who uh, you know, potentially they would need to buy the stock is already in UM, so you run the risk of looking at the mirror image of this somewhere down the road now is that? Is that somewhere down the road tomorrow, next week, next month timing? I have no idea, So yeah,

and I suppose that was my original question, Phil. I mean, we have a combination of market makeup, positioning, hedge, fund positioning, retail positioning, so much leverage, technicals, economic risk thanks to COVID, there are so many difficulties out there. What would make you want to trade in this market or I mean, would you even want to sort of deleverage a little

bit here? Well, certainly we're not buying into this. We're we're not buying these stocks that we think or you know, have poor fundamentals that are getting driven up because of these market dynamics. Ultimately, we're looking across the proverbial valley and seeing, you know, what could happen on the other side when when you've got some margin calls or when you start to get a tsunami of selling in order

to create some liquidity. So we're studying the underlying fundamentals of the market, which frankly we think are pretty good. So so, you know, as if there is an air pocket here, if there is a dislocation over the course of the next month or two, and you know, the market gets flapped around and drops by, you know, a fairly significant amount. And we still think the fundamentals are good based upon the things the President Biden is doing, and the rollout of the vaccine, and the fact that

the set is keeping interest rate to zero. All of those things the things that truly matter. At that point the decision maybe, well, let's let's throw to the log on the fire here, expecting that stock prices will work higher longer term. All right, so let's go a little bit on the on the fundamentals here, get away from the redditors. Earnings were about the third or the way through. What are you seeing here. We're seeing a great earning season.

We're as you said, we're about forty of the way through. Uh, we are seeing The consensus expectation going into the quarter was that earnings would be down something in the order of about nine or ten percent on a year of a year basis. So far, earnings are up. Three of the companies that have already reported have beaten by an average of seventeen and a half percent. That is the third best beat rate in history, trailing only the second

quarter in the third quarter of last year. So the earnings are coming in strong again, the vaccines rolling out, the sets staying at zero, all of that suggests that the underlying fundamentals for the market, the stuff that truly matters, isn't pretty good shape. Hey Phil, thanks as always, always appreciate getting your bullish call on the market. You've been absolutely spot on. Uh So we'll see how the rest

of these earnings come through this quarter. Phil Orlando, chief equity market strategist and head of client portfolio Management of Federated Hermes. Uh they're based he is based in New York City and eighty billion dollars in equities under management, six fifteen billion firm wide, So Federated Hermes all over the market. And Phil certainly has a great handle on the market. And again, as I said, he's been consistently bullish, you know, over the last couple of years, and he's

been absolutely spot on. Well, the trading activity we've seen in a handful of stock starting last week with game Stock Game Stop and then expanding to others really highlighted a trading strategy of looking for stocks relatively small to MidCap stocks with big short interest and jumping in on

those and creating a good old fashioned short squeeze. One of the folks that's involved in in just kind of the whole process of the data around short interests is Bob Sloan, founder and managing partner of S three Partners S three Partners of finance company that provides data analytics. It's most used product is black app. It's the market standard for real time short interests and securities finance for about forty thousand security so clearly on top of that

short interest data. Bob, thanks so much for joining us here. What did what did you make of last week? Your company and you you've been involved in the this. We may have lost Paul in the blizzard. It's kind of to make us noment, but Bob, the general point is well taken. So what did you make of last week? Well, we were seeing the markets change right in front of our eyes. There's a new socially mobilized force and investing and it has taken to targeting short sellers as its

investment strategy and opportunity for the time being. How many times can this happen? So for example, this week it seems to be silver, but it's a whole different bowl game taking on something like silver then taking on a stock like game stock. I think what we're seeing isn't

just an attack on institutions generally. Um. That's one of the things I wrote in the piece UM that I put up on on on our website, is that you know, the the attack on the capitol, Um, you're seeing an attack on financial institutions, just just an attack on institutions generally. And this has become the nexus of Reddit. Combined with socially scaled activists, investing has become an attack on institutions. And this is why they love Elon must so much.

You know, he's like, how can they love a billionaire because he took on the short sellers in one It's that simple for now, at least. I mean, you know, these stories are never over until they're over. But they also embrace a lot of people that sort of say the right thing but aren't necessarily doing the right thing. I mean, um, you know, he took he may have taken all the short sellers, but in their own way, the short sellers can flush out things like fraud and

you know, wrong valuations and stuff on Wall Street. So why are short sellers in particular the bad guy? I don't think that they are, you know, I obviously have a very long history of understanding and defending the right to have negative views expressed in the marketplace. There's no marketplace unless there's two way price discovery, meaning, you know, it can't just be all up. It's like having a democra see where you can only vote yes. That's not a society, right. You have to be able to vote

no too. And so I think when you see these things like on Meet the Press yesterday where Chuck Todd is asking, you know, people from the White House, should short selling be banned? You know, that's just kind of stupid. That's just not how markets work. We need short selling and we need that function to be in the marketplace because otherwise when we want to get our money, when we want our money, it's not going to be there.

And that's really vitally. Bob, you said a few minutes ago that this is a populist revolution in financial markets, and indeed, if you look at some of the language, you know that's obviously what what some of the characteristics of this sort of quote unquote revolution are but it was a real revolution. Wouldn't these people be be targeting

long positions just as much as short positions? Well, you know, you know, I think that, Um, the revolution is in the use of the technology, and it's made them an activist investor. So typically an activist would show up to a company and say, you know, I own six percent of the shares and you know, these are the things I like the company to go do, and the company would the other adopt a strategy not to do that, or they generally would say, okay, you know, let's let's

fire people. And this is something much more basic. It's hey, I like the popcorn at AMC. You know, I like my flip phone. I like talking to my person at game stuff. It's much more about a cultural thing, and it just so happens to be. These stocks are all more or less in one sector, consumer and retail, and so this is why it's happening. Um, this cross current between socially mobilized investing and short interest in this area. Hoop, are you surprised that some big hedge funds really really

got hurt here? UM? Name me a risk model from the Federal Reserve to any hedge fund in the world that saw this as a risk. A good point. What do you think is next year, Bobo, We're gonna see more of this going forward, this combination of social media

and trading activity. It's a really it's a really sticky question because the little person, as it were, and they're not little people, and that's not you know, I'm just saying the smaller investor is retail is now empowered with something massively potent, and so how do you regulate that? That is the sixty foll question. Yeah, this, of course, as we just get news that Robin Hood had to

recapitalize itself once again. According to Dow Jones, it's taken another more than two billion dollars to point four billion dollars from shareholders scaring requirements. Yeah, Vonnie, So that's a great point. You know, one of the things that should be examined here is what happened with that company in terms of how they were handling margin, What were the risk parameters that they had in place? Um as this flow is happening. So that's certainly an area of you know,

rightful scrutiny. You're gonna have to promise come on again very soon, because we want to keep our eye on this story, or it'll keep its eye on us, for sure. Bob Sloan as founder and managing partner at S three Partners, And it's interesting listening to Bob Sloan just about you know, short selling being a part of the market of Annie and I think that's uh, I think what most people tend to conclude, uh, you know, as they think about

short selling. We seem to have this discussion about short selling every five or six years or so and whether it should be allowed in the marketplace. And I think where we always come down as a marketplaces it is a normal part of a healthy market. Although sometimes ago I always thought the short sellers were the black sheep of the market. For the populace to jump on the short seller is is it's it's a little ironic. I mean, I think it has something to do with GM as well. Yeah,

we'll have more on that coming up. This is Bloomberg. Well, today is the first day of Black History Month. As a country continues to struggle with how to address racial inequality, our next guest can discuss how individuals can support racial diversity with their investments joining us now is Marvin Owens. It's the chief Engagement Officer at Impact Shares and a former Senior Director of Economic Development at the n double A CP. Marvin, thanks so much for joining us here.

I love to start out with just getting a description of what Impact Shares does. Hey, thanks for having me. It's good to be here. UH. Impact Shares It's is a first of its kind nonprofit fund manager that really focuses on how you connect capital with social causes. We are an engagement for where engagement platform where investors and corporations and advocacy organizations have come together um to use

capital to move the needle on social issues. So in the case of our current our current platform we have, of course are in a CP fund which is The advocacy organization is the a c P. We have the w O MN and fund which is focused on gender

equity is UH Ethics. The organization is the y w c A, and we're working with the u N on our fund sd g A, which focuses on sustainable development goals, all of which are our platforms that create an opportunity to kind of really move the needle on social issues and using capital to really make that happen, which is fantastic.

Let's start with n A c P, which is the in fact shares a CP Minority Empowerment e t F. Right now, you have a hundred and seventy four holdings in there, and the top one is Apple, followed by Microsoft. What can you do in order to pressure Apple, Microsoft and the other major companies like that that are you know, just one four of the e t F to make

some positive changes. Well, here's the thing. I think that in the current environment in which their number of companies that have come out and made some very explicit statements of standing against racial discrimination and wanting to really engage and change, UM, we now have this e t F which is another tool to really insent those kinds of changes. I mean, uh, this is really not just driven by the advocacy community, but it really is being driven by

the investor community as well. UM. Investors really do want to see companies UM truly engaged in the kind of social issues that reflective of of society within the society's best interests. So when it comes to racial equity, UM, now it's not just the advocacy community kind of voicing these concerns, but now it's also the investor communities pushing for these changes, which I think is going to help these corporations to move the needle. Marvin, the pandemic and

the economic fallout UM is really shown. I say, brighter light, if you will, on the economic disparity in this country. Um, how are you kind of viewing that, how much of this potential damage to some of these minority communities might be a little bit more permanent than temporaries relates to the pandemic. Yeah, we're really concerned about that. You know, in the middle of this pandemic, black workers have really been impacted disproportionately, just like black workers have been impacted

by UM the infections of the disease itself. I think it's important to note that black workers have lost a disproportionate amount of jobs as well, and so we are concerned about that because you add this COVID reality to an already widening wealth gap and and and wage gap that exists in this country, and you have been making

something that is more devastating and hopefully not permanent. But I think there's some things we can do to change that, which means we really need to look at legislation that really understands what these issues all about and really moves the needle on making sure that we close some of these gaps. I think there's a lot we can do to gather them, and I'm encouraged by the current administration which is making all the all the right moves and

saying the right things. We just need to make sure that we are able to push to make sure the changes are really implemented policy wise, right exactly? How you know, what do you like about the Widen racial Equity Plan, Let's say, Marvin, I mean, what are the parts that

we really need to make sure come to fruition. Well, I think, um, first of all, you have to just kind of just kinda give them some some some recognition for being able to even use the words like white supremacy, which I don't think any other American president has really used in an in an inauguration speech, which says a lot. But I also think we've got to move the needle on making sure that these uh, these policies are really focused on how do we really tap into the needs

of black business owners. UM. I like what they're what they're saying in terms of everything wanting to UM target uh communities of color and making sure that we're talking about racial equity in terms of policy. But we've also got to make sure that UM that we're utilizing black fund managers, that we're utilizing black asset managers. We're looking at how to make sure that we are using minority depository institutions when we roll out these new COVID packages

and the COVID relief bills that are coming out. There's a lot we can do to make sure that we are really impacting the communities that need to help UM. And I'm encouraged by what the the Biden administration is saying. I just need to we just needed to make sure they're really following through on their promises. Marvin, If you know our listeners want to maybe incorporate equality issues into their investing, what's the best way to do it. Is it to kind of look at the E s G

scores and things like that. Yeah, it's been really important for us to be able to talk about companies that are that are really in our index. And I think that as you look at companies not just in terms of their returns, but also in terms of what they are, how they're engaging in the broaderest society. It's important to make sure that the investor community is looking at all of this. And I think that you can go to our website impact ets dot org and you can look

at our holdings. But I think an important thing to do is to make sure that are these companies are not just not just performing well, but they're also doing what they what they should do around me. So so issues. The truth in the matter is diversity helps with business. I think more diverse companies tend to be better, better operators, tend to be more profitable, tend to be folks who do the right thing in larger ways. So um look at our go to our website and you can check

it out. Marvin, thank you for joining us today. Marvin Owen's junior is Chief Engagement Officer Impact Shares, former senior director of Economic Development. At the end, double a CP green on the screen today and it looks like the Reddit traders they've have expanded the scope of their buying, moving on from individual equities to commodities such as silver that SOB stuff about eight percent today trading just below thirty dollars and ounce. Let's get a sense of what's

going on across markets. We talked to Katie Dreifeld, cross asset reporter for Bloomberg News. Joining us on the phone from New York Mike McLoone commodity strategist for Bloomberg Intelligence. He follows the silver market closely. Katie, give us a sense of kind of what you're seeing in the market here. I'm looking at some of those Reddit stocks last week, some divergent performance there. Yeah, today is an interesting dynamic where you have the broad indexes at least up so

far about an hour into treating. But you're also seeing some of those Reddit UH favorites, like you say, they're higher to you a MC higher for example, even as Game Stop takes a bit of a pause. But if you look at what is moving the broader indexes, I mean it helps that you have Tesla, Amazon, Apple all

higher today. That's dragging those benchmarks up and it might be helping that if you look at the new short interest that's out of UH partners such as S three Partners and I h S Market, you you can see that short interest on game Stop has actually dropped a bit. It's still relatively high. It's about thirty nine percent going by I h SS numbers, but that was theorized to have created a sort of the gross thing hedge funds having to take down risks and bleeding into the broader markets.

It appears that that may be easing now, Mike, what can happen in the silver market. I mean, it's it's a bit more complicated, and there are various ways of trading it, and also there's various ways of market making in it that aren't the same as an individual stock. What are these redators getting into and how are they playing this particular trade? But hello, Vanni, I'm hearing they're buying a lot of calls, most notably out of money calls.

But if the narrative plays out as Paul and I know and from b I a lot of us are ex traders. As an ex trader, I will tell them what will probably happen is their cause will expire close to near worthless, and then the market will go up. Because this is a fundamentally bullish market that's very deep. So there's a there's a Bloomberg terminal Um index that I like. It's a total holdings of silver ets that's a twenty four billion dollars And then you look at

open interests in futures that's just silver futures. That's twenty six billion dollars. So that's just fifty billion dollars right there. That doesn't even include the physical or a lot of what other trading, so it's a massive market. The differences this case is they just added a little bit, a bit of a narrative to an already fundamentally bullish market.

And you know it's helping it for now. But good luck with you by calls, because a lot of times that's just a good way to mess up a good trade. So what is the fundamental call on silver? Mic aside from this short term reddit interest, I look at it, it's a most likely most likely metal to match or to get to near it to make new highs maybe this year, just doing what gold did. So that all time high for silver's around fifth. Yes, it's kind of far right now, but gold did that last year it

got up to over two thousand dollars. And there's this gold silver ratio. It's silvered a little bit low versus a twenty year average right now. But to me, it's just a matter of time it gets there. It's just a question how it does it. It might not happen this year, but fundamentally just very strong. Let's look at

the supply has been declining, most notably of South American. Now, of course COVID helped reduce supply, but the big pictures prices have been in a bear market for so long, so there hasn't been a lot of sentim to bring on the new supply. And then we have this massive trend in electrification, in decarbonization. All that means a lot of it is demand for metals, demand for silver and not you know, and it's creating less less demand for energy and fossil fuels. Yeah, Katie, have you been on

the redded boards today? Are traders there? Those kinds of traders saying that, you know, they're done with game Stop? Does game stop even come up this week? That's going to be interesting. I mean, there's also the nuance that if you look at robin Hood for example, there's still trading restrictions on eight stocks and GameStop for example, you can only buy one shared a time right now, So that has kind of cooled the uh, the mania around

game stop. I mean, if you spend time on Wall Street sets, it's interesting you are seeing sort of fissures emerge among the crowds as they latch onto this silver trade. Some are pointing out that if you look at the s l v EPF where which is it seems that retail traders have been getting their exposure to silver through ets like that. CNEL is the sixth largest holder there, so that seems to be occupying the board rate. Now, just this the date over. What are we doing when

it comes to the silver trade, Katie. What's the latest on the robin Hood and the other platforms getting pushed back from kind of how they handle things last week? Well, it's it's difficult. I mean, a lot of the heat has come down on robin Hood, but you know, when this started on Thursday, it was it was a wide range of these retail platforms. Of course, the likes of

Interactive Broker has resolved those issues. Robin Hood continues to be a question mark, as we know by now they they raised about one point five billion in additional capital. It's gonna be interesting to see whether, you know, as the likes of a MC continue to rally, game Stop is fooling a bit, whether they run into the same sorts of issues that they ran into last week. With

the clearinghouses, all right, you too. Thank you so much for giving us up to date with what's happening this morning, this Monday morning, that is Katie Greifeldt and Mike mcgloane, Mike with Bloomberg Intelligence and Katie with Bloomberg Editorial, and will continue to follow what happens throughout the day with the memes, docks and silver in particular. Thanks for listening

to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio