Markets, Diamonds, And Autonomous Driving

it's been unique certainly. And uh it's come through commodity, from commodities, through rates into stocks and Um, right now we're gonna talk to somebody who has to put his money where his mouth is. Phil Palumbo is the CEO of Palumbo Wealth Management. Um, how do you deal with this kind of situation? Phil? How do your clients deal with this kind of volatility? Well? First, I think you

know you have to. You have to put it on the table that we could bank on the recession at the end of twenty two, if not the beginning of the way I look at it, the binary decision for the FET it's either he's going to let inflation run or he's gonna have to step in and raise interest rates aggressively, and he doesn't want to do both, which tells me that it's going to be a hard landing versus a soft landing, which is going to create increased

volatility and eventually put us into a recession. And so how do you invest around that given that there are so many uncertainties. I mean, it feels like a fifty basis point hike next week has been all but ruled out, but where the FED goes from there is still a question.

Like Matt was saying earlier, I think there's still six hikes are so priced into the next year, but again seven, So look at WORP, W I RP, going do I spend a lot of time on that page just staring at the numbers, not quite sure what to make of it. But each number represents a basis basis hike, basis point hike. Okay, okay, So point being there that you know there's still seven hikes priced in, but you have started to see some

chatter that those bets could be paired back. How do you position your portfolio around that those bets will will be paired back? The fact is not gonna be able to raise rates seven times will be in a recessment

before that happens. So in the meantime, I've been very vocal about to see when I was on your show, two evaluations were aggressively high, whether it's the high flying technology, the technology sector, or even just d SMP five DRED, So those were opportunities to reduce risk and rebound portfolios. So if you're a fully invested investor, and you've been over the past three plus years, you actually performed well

Project two. If you didn't take risk off the table any type of big run ups in the markets like we saw yesterday, which will happen during these situations, you should reduce risk from your portfolio. That's number one. Number two you should be looking at heads equity strategies within your equity portfolio to protect you on the downside. Three is you should have gold and you should have commodities,

which have been always very vocal with that. Within a balanced portfolio, gold and commodities when inflation accelerates does really well, and history going back to an eight proves that, and gold is a hedge against stocks going down. So if you're truly balance properly, which most people are not, this is the thing that you can be doing to help counter balance risk when we do enter in a recession at some point at the end of twenty two in

the beginning of twenty three. So what you're saying, we're now an environment where you want to sell the rallies rather than buy the dip. Absolutely, you sell the rip

and you don't buy the dip in this environment. However, the only thing I will say though, is that for new money, which have a lot of clients that sold businesses and have new capital, this is the best time to come into new money, right because you're getting the opportunity to be able to build out a portfolio when you've got valuations that are declining here, right, So this is gonna be a great opportunity to buy stocks of great businesses at a cheaper level. So for new money,

it's excellent. You know. For fully invested investors, you know you're gonna be in for some pain again. Hopefully you did some rebalancing and you and you have a properly balanced portfolio to help you muscle through this. Can we talk about the yield curve a little bit, because I'm looking at the twos tens spread. It got below twenty basis points earlier this week, you know, a few banks or at least one bank has suggested it could invert

it in the next week or so. How much of the signal are you taking from that tremendous amount of signals? So Green Spin always said, tell me where the tenure is, and I'll tell you where the where the where the where the economy is going. I say, tell me where the yield curve is. I'll tell you where the economy is going. The yield curve is flat, continue continues to flatten out around twenty three basis points. The two is

intend that is going to invert. Somebody on TV just the other day just said if it inverts this time, it's different. We're not going to go with the recess. And I think that's ridiculous. The track records accurate. And then if you take that and you put on top of that forty year high inflation data a fetter reserve, that's gonna have to raise interest rates. We're coming off

extreme valuations before. When you put it all together and connect the dots, I just don't see how you know, we don't like I keep on saying, you know, enter into recession. So yield curve. To answer your question, is one of the most important aspects of of of the of the data points in terms of where we're going with the economy. I just want to quickly get an example of a hedge equity strategy. We're not getting too deep in the weeds, the options weeds. What do you uh,

what would you advise? So what we did as a firm is we spoke this, uh this this company called a Little Harbor. They have an e t F called MSTB Mary Sam Thomas Boy. Essentially, what they do they long d SMP five hundred and they use options vixed through VIX futures to to hedge out the equity side of it. So about of our equity portfolios in this particular exchange traded fund. We did this transaction September October

one and we're still along at right now. So the thought is, if we do hit a recession, we go into a bear market, we hope that they'll do what they're supposed to do. Right, Um, that's number one. Typically we before that we had spy on that of our clients portfolios. So now we just moved that to the ms TWB to hedge out the the SNP five hundred,

so that's what we're using. We don't use any types of collars on our equity strategies or we don't buy puts, you know, so we don't do any of the individual options. We depend on other managers to do that for us. And just quickly, I mean, how is that strategy been playing out? If I look at the VIX right now, it's spent most of March above thirty with this particular strategy of the sup full is greater than ten toll percent, then the VIX the the options or uh, the risk

on it down so we will actually kick in. So it's pretty much been fun with the SPV SPF just been doing from pete to trough so far. So it really hasn't kicked in yet. It's only if you get a major waterfall decline where really will click, will click and protected that piece of the portfolio. Alright, Phil, great to get some time with you, very interesting stuff. Thanks

so much for joining us. Phil Palumbo there who runs his own fun Palumbo Wealth Management and UM it used to be at UBS, spent years a decade at UBS, and before that was at Morgan Stanley. So it's the guy who knows what he's talking about. Very interesting m

edging strategy. Let's talk about cars. I'm ready, Really we're going to talk about light oar Angus Pacola joins us, co founder and CEO of Auster And if you didn't know, Austa is one of the hottest light our companies out there right now, went public vias back in one and Angus, it's great to have you on the program. Um. I'm still trying to get my head around sort of light our versus Tesla um test because Tesla says they don't want to use lighter but they have had partnerships and

light our companies. Why why is light are important? Right now? Sure? And before I answer that, I just want to give a brief kind of perspective on Auster and what we're doing in light are that stands apart and really Outster is the digital light our company building digital chips that transform a legacy analog technology into the digital future. And and on the performance of benefits and affordability of digital technology. We diversus right, diversified across markets. So what what Tesla

is lacking? And I think that what what Lighter brings to the table is an absolute trust in data quality

UM that that is not there with cameras. So what you see from Tesla is they've gotten in some hot water because occasionally, and it is occasionally, the cars get confused with camera technology because cameras, because cars are basically because Tesla UM has neural networks to try and decipher what they see in video, right like humans, but they're not as good exactly right, Yeah, So a camera needs a neural network in order to interpret its environment UM,

and that sometimes gets confused, and so it sometimes crashes. And that's really that's a really challenging UM situation to be in if you want to go to full autonomy, where people aren't paying attention and they get to fall

suits in their cars. Lighter, on the hand, other hand, directly measures the information that you care about with no additional post processing, and it does it so reliably that Lighter is already used in safety critical environments across the world like industrial settings UM and and it's trusted to save people's lives day in and day out and has for about thirty years in the industrial setting. So Lighter doesn't get confused and you can truly trust the data

with your life, and so Tesla aside. I mean, what does adoption of light ar look like? Yeah, and that's that's really um So lidar is the third and kind of last critical sensing technology after cameras and ratear. Sensors and light are because you can trust your life on it, and because it's so effective at understanding the true and rich three D environment around anything any machine, whether it's rolling, flying, driving, or monitoring those moving objects. It's the perfect sensor for

bringing our entire world into the autonomy age. And I think of it as it's like finally realizing the future that the Jetsons the Jetsons TV show laid out. So flying cars drive and robots that delivery packages, um, safer cross crosswalks with lower congestion at intersections, and yes, self driving cars are all made possible because of lighter technology in combination with the autonomy technology stack that rides above it.

And so it's a really fantastic, safer, cleaner, less congested, more efficient, higher quality of life future that we're building through a combination of lighter sensors and and affordable autonomy technology. It does make sense. I mean from what you're saying, it makes sense to me to combine it with video and you don't need I guess, radar UM and and the neural network. But what Tesla says is that you have to pre map the environment with a light ar and then create a high dep map and then insert

the lanes. And if you have to do that, it seems like a lot of computing power. Yeah, I think that's just kind of that that's that's the legacy way of thinking about it. But most companies using LIDER today don't pre map, and they do similar things. It's a similar software stack and algorithmic stack to camera technology, but they don't have to rely as heavily on machine learning UM,

which is great. Machine learning is great at distinguishing between a hot dog and your cat in an image nine percent of the time, but it's not great at doing a hundred percent of the time and an auto and then you know, when when human life is involved, you want to be able to do it a d percent

of the time. Solider allows you to remove some of the fancy machine learning, trust the data with your life, just kind of the raw data coming out of the sensor, but also apply some of the learnings that we've gotten from the camera world. So you know, we don't have to pre map anymore. That's not what companies are doing today.

It is what companies thought about doing five years ago, but the industry has moved on from that, and I think TUSSA was just kind of right in not premapping, And so I solicited questions from our Blueberg news Print team about what to ask you. And Andrew Grant said that the most important question for lighter companies right now is whether A d S or a v S are the most important market. A d S a d a S being advanced driver assistant systems, a VS being autonomous vehicles.

Which of those markets do you see is more important for your company? Yeah, well, well this is one of the places that OUST stands apart. So we've built this more affordable, more performance digital lighter technology, putting lighter onto literally one silicon chip, and that's allowed us to diversify across many different applications and automotive, industrial, smarter prastruction, robotics, and so we actually aren't trying to bet on whether a v S or eight ASS is the more important

market because we're playing in both. Our products are literally good enough to play in both, just like digital cameras are able to play in the eight ASS market and the AD market. Digital cameras go on telephone poles and they also go on the drones that are flying on bars. Um. So digital technology is so flexible you can address all

these markets. And I actually am a big believer in both ADAS and a v s now eight AS I think is the sure bet with huge volumes, and it's it's more clear on how eight AS is moving from L two plus hands on driver aware systems to L three driver you know, hands free, eyes free systems, and they're lighter plays a huge part and allowing a person in the car to take notes on the way to work and be hands free, eyes free. Um. But lighter is also the critical sensing technology on autonomous vehicles and

in many cases it's the only sensor on an autonomous vehicle. UM. And so that's going to happen. But I think it's a little less because apes are such a high bar in terms of technology and reliability. Are Our veteran war reporter Greg Jarrett Angus points out that light ar is extremely helpful in military applications. Do you, um, do you see a big market there as well? Yeah, that's absolutely right. So um, lighter can be incredibly useful in situations like convoying.

You know, there's a huge amount the number of support vehicles in the military is far greater than the number of active kind of UH fighting vehicles. And that's where most casualties happen in wars, and the supply chain, and so there's immense opportunities to automate a supply chain. Um,

these vehicles should be automated. It's fuel trucks, it's it's food trucks with all kinds of supply vehicles that historically have been hit by their their I D s and things like that, and you really would like those vehicles just be autonomous. It's so fascinating. I wish we had more time, Angus. Hopefully we can get you back. Thanks so much for joining us and Angus. Pacola there the CEO of ALSTA. Let's get over now to Dave Harden.

He is the founder and president of Summit Global Investors. Dave, what do you take from the kind of alatility that we've seen, you know, wash through commodities because of this war um in two rates and and kind of you know, on this side of the Atlantic, it hasn't rocked the equity markets as much as it has on the other side, but we still were, uh, you know, down three percent on Monday, up three percent yesterday, now we're down again today.

How do you deal with this? Well, you know, this volatility has made everybody understand that risk is important, right, So people people need to understand that risk management is essential to having better portfolios. And the better they understand what's in their portfolio, the better of the portfolio performers they hope. So having some exposure right now the commodities or word overweight energy, I think those things are very prudent in the portfolio. And maybe some people might even

say energies. The more defense you heard, the you know, the expert come on and say, hey, I think it's gonna be here and settle into this range. And there's a lot of truth to that. So it's really hard to go to somebody like Venezuela. It's really hard to go to somebody out there that you know, we haven't really been friends with with Iran and switch hands from

one dictator to another dictator. So from our standpoint, I think you have to have some commodity exposure, energy exposure in your portfolio, and our models, from a quantitative perspective, from a risk perspective, all tell us and a fundamental outlook that having some of that exposure is important, but it's gonna be volatile. So I think in a volatile market you have to look for things to protect the

down and still get some of the upside. You know, mathematically people forget that if you only went down half of what the market went down every day, you would only need to go up six in the up market to outperform. So it's a lot better to try to protect in volatility than it is trying to get that upside. You know, when the market's up to I want to be up two point two. That's a lot harder to do and you get crushed on the down. So my advice and volatility is start to look at risk and

start to manage risk. And you can find that in some defensives right now. You can find that in health care right now. So that's some of the things that we're doing for our clients. And if we are six short days away from the FED meeting, and the narrative for a few months now has been you know, the FED put is dead. You're not going to see the central bank come in and prop up asset prices. But I mean the SMP five hundred flirting with correction territory.

At what point do you think that makes FED policymakers blink? Well, um, they blinked when we when Russia invaded Ukraine. Remember that Thursday. They came out and there was so much FED speak. They were almost scared. And I'm putting in my language here. I don't want to put words in their mouth, but they were almost scared to see a negative three and a half percent down day. They had to come out and talk about that they might not raise interest rates

as much and they might not do this. And we saw that swing negative three and a half percent to positive three and a half percent. Why only because the FED right, So we've already seen them blink. They're they're absolutely worried about this market. And I'm not saying they shouldn't be, but the BED making a mistake, a policy mistake, has definitely increased because of what's going on in the world today. Their their vision is not as clear. It's cloudy.

If you will inflation, I mean seven point nine. Really, what does it matter if it's seven point nine or eight or set the point is seven inflation, that's the point. So they are backed into a corner um and this creates a lot of problems and it increases the larger downside risks. Again another reason why for our clients as a whole, you need to look at managing risks. We we do see the market is priced in a lot of of of hikes and I guess we'll talk with

you about that a little bit later, David. Great having you on the program, Dave Harden talking to us about what we're seeing. Now, now let's get over to Amos Shaw, the president of A. L. T R. Creed Diamonds, and you know, we've seen such incredible swings in commodity prices, Amish, I wonder if the diamond industry has been hit the same way as um the moves we've seen in oil or in gold, et cetera. Even though, of course the kind of diamonds that that you're creating are different than

the kind that are mined. So the overall diamond industry in the inflationary situation in the last six months has already seen almost like a price increase. However, with the current situation of conflict with the Russia being almost of the diamonds in circulation in about twy of new production that comes in the system is everywhere from those areas. Um there is no direct sanctions on diamonds, the sanctioned

around the bank as well as the CEO. However, it's the consumers sentiment that's going to make the most difference. So with the consumers starting to talk about it, I think we're expecting a price search in a tightening of supply. Wow, I mean we all. I feel like it's been well broadcast. How big of a supplier of you know, energy of natural gas Russia is haven't heard as much about diamonds. And it's interesting that this is happening at the same time as you know, we're heading into a so called

wedding boom. I don't know. If I look at my mailbox, I've gotten so many safe the dates for the coming year, how because they were put off for two years exactly exactly. So, I mean the fact that you do have you know already you're seeing these price increases given the demand obviously is growing as well. I mean, how how much higher do you think the prices could naturally go? Here? I think the consumer sentiment could rise this anything between ten. However,

UM geopolitically shift. Consumer today is starting to look at the options because today they have a choice. They have a choice of created diamonds, labgown diamonds that are grown above the earth, that are not grown in these contract territories, cutting polished in other countries, and jewelry is made either in US or in Asia. So they have a choice with US going you know, we're expecting two point five million million millennials to get married this to get engaged

this year, So there is a choice. Um, the price is going to be subjected to how long this conflict last? Where are your Where do you do all of your work? Where do you create your diamonds and cut and polish them? Is is Russia? Part of the supply chain? No are growing is actually in India. Cutting and polishing is in India. The design of jewelry is done in United States. And we finished jewelry between China and United States. How much how much of competitor are you too? You know earth

mind diamonds. I mean when people are looking, um, do they get to see both choices? Is price um roughly in line? Is the quality indistinguishable? So u A Alto created diamond is chemically, optically and physically same as an earth mind diamond. The only difference that's grown about the Earth from a price value being that we are not a part of a monolith pricing strategy. It's demand and supply.

So today, uh, it's almost a fifty better value. So you almost get a fifty percent larger diamond for the same price. And the best part is over seventy of consumers today that shop for engagement drinks are aware of lab grown diamonds, and so, I mean, I could definitely see how this would be a tail when for lab grown diamonds. But what about some of the diamond alternatives.

I hope I say this word right. Mossonites, that's something you hear about more and more as sort of a substitute for exactly Yeah, I can't even pretend to pronounce that. But how how do you see that competitive landscape unfolding? Actually, this is very good you brought it up because in two thousand eighteen UM the US Federal Commission made sure that these can no longer be even identified to look like or market it as diamond alternatives. Cubic, zirconia and

moisonite are actually formed from chemicals. One is their conium dioxide and another is another chemical that is given the form in a structure to look like a diamond. They're actually not diamonds. Only earth mine diamonds and lab grown diamonds and ultra created diamonds are carbon. They are diamonds. It's interesting I'm seeing such a broad price range um when I look up just google Altar created diamonds and click on the shopping tab. Some of them are two

rand three grand for two carrots. Some of them are fifteen grand for two carrots. So it depends on the quality. Just like earth Mind diamonds, the difference of prize is relative to the characteristics the shape, the size, the color and clarity. They are graded just like earth Mind diamonds because they're both diamonds, and hence the pricing is uh to the Four Seas and ultimately the demand and supply for them, and thee very important thing that has changes.

Technology evolved, the value has got better for the consumer and excessibility has gone easier. All right, Amy, thanks so much for joining us, Amy Shaw, their president of alter Created Diamonds. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three, pet On Ball Sweeney,

I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwid at Bloomberg Radio m