Small Caps Still Have Room To Run: George Young

how do you play it from here? Do you stick with some of those tech names that have been the drivers really since into the financial crisis, or are you in that rotation trade. George Young, partner and portfolio manager at Hillary and Company, he joins us. George, give us your thoughts there at the rotation trade into cyclicals into smaller caps that has been a great trade for a

lot of investors. Kind Of where do you stand on that portion of the market visa via some of the big growth stocks, but we think the small cap stocks here villery coming still have a good way to run. Um, there's been a huge rotation, as you pointed out in the beginning of the fourth quarter of last year, and it's extended here into the second quarter of this year. We see that people don't have that many options. You've got ten year government bonds at one point six percent,

that's not overly attractive in the face of inflation. You've got cash and yields about zero, and you've got real estate that's pretty expensive. You can see that in the news left and right. So we think the stock market, and especially small and MidCap stocks and the way to go. You know, anytime you mentioned bonds, my ears will perk up. You mentioned a one point six doesn't really look attractive,

especially in the face face of inflation. We've comments from Ray Dalio coming out as well, saying he'd rather own bitcoin than a bond. Do you agree, Well, that's get a little far afield. I think that coin owners are going to have their day at some point. Um. It's amazing because a lot of questions that we feel are from i'll call them novice investors, and this is very, very reminiscent of the Internet bubble back in two thousand, two thousand one. A lot of people have not been

in the market for some time. They say, I want to get invested. How about that dogie coin? How about that bitcoin and that's what everybody wants, and um, you know, you've got to be very careful when you start hearing newly minute investors getting into something they're not really sure. It's sort of like the old adage about poker games.

If you don't know who the pats he is at the table, Patsy maybe you George, I was in the market during that UF when the bubble burst, the tech bubble burst in two thousand and it was not fun and that it took a long time for nas nastactor retrace retrace that. But boy, you step back and you take a look at some of the meme stocks. You take a look at spacks and had what a run they had late last year into early this year. And you look at the valuations of the SMP at twenty

three times. I mean you could draw some, you know, some very close analogies between now and then. Are you concerned that this market is is frothy? Just to use a technical term, Yeah, that's a good technical term. I like that one. We've got about cash right now for our lines and our two mutual funds of Will Balance Fund and Bill Reequient. It is it is and we're long term investors, so again, measure our long term attitude and the fact that we have discretion to invest wherever

we want with the fact that we've got cash. That means that we're not finding that many things we want to buy, and we've got the liberty of not having to invest if we shouldn't invest. We've got loyal clients who's been with us for some time. We were found in nineteen eleven, so the clients we have trust us, and if we don't want to buy something, we don't buy it. So this is more cash and normal. So yes, froth he is entirely appropriate term to use at this moment.

I think what would it take for you to put that cash to work? Um, we need to see some cheaper valuations at the end of the day. All stocks should and usually do, but not always on objective metrics, which would be pe ratio. Pe ratios need to come down and often enough their aberrations in the stock market where individual stocks or individual sectors do become cheap, and that's when we're prepared to go ahead and buy. So

we have the cash, We've got to be ready. Um. Another I hate to dwell on old adages but when the ducks are quack and you've got to feed them, So buyers want to buy, go ahead and sell. What are some names right now that you guys do like, or you you are doing some work on sure sure, sure, Well, there's something that we own and we buy some more of if they become a little bit cheaper. One of those is e Health. E Health offers Medicare supplement insurance.

You may have heard their ten thousand plus Americans turning each day. Each of these will be entitled to Medicare, but they need to get Medicare suppits, which aren't that expensive, but they are fairly complicated. So e health is good at navigating the waters of explaining complicated terms and complicated needs and to make sure that the right package is put together for a resonative Texas versus Idaho, and to make sure that the doctors that you're comfortable with are

part of your package. So a little bit complicated, but we think it's a relative really cheap stock. And then as an added interesting point, there are a couple of activist investors who have gotten involved in the company recently, so let should make for an interesting a few months ahead. What about this payments processor. I see here Pie really looking at credit card to Dad and checks right, Pie is probably unknown. And again we buy small MidCap stocks,

we buy relatively unknown companies. UH their top twenty processor in the United States, the number six in e commerce. They've got a hundred thousand customers, two thousand different partners, and they process thirty three billion last year. Now, they just make a minimal amount of money on that amount that they process last year. But the fact that they're unknown, we like the fact that they're very well organized, well managed. We'd like we think they can goward something like per year.

It remains a cheap stock, but it is, you know, one of the small cap stocks, so it's not for the fearless. There will be some volatility. Hey, George, thanks so much for joining us. We really appreciate getting your thoughts on the mark markets. End on some names here that might be of interest for folks in the small to mid capital world. George Young, partner and portfolio manager at A Villary and Company and UH interesting fifteen percent cash.

That's the highest percentage I've heard any you know, money manager come on here and talk about But I've increasingly heard that that there's been a lot of profit taking in the last few weeks, Paul, and you need a better entry point. And he mentioned it's hard with valuations with stocks and bonds one sixty two, how do you buy that after exactly so I'll have to see. But

fift cash, that's a big allocation. This is Bloomberg. Well, several weeks ago President Joe Biden pitched the first major set of tax increases since another signs that maybe some anxiety is forming within congressional Democrats, not just on the Republican side. Let's get the latest on that with Laura Davison. She's a congressional tax reporter. Laura, give us a sense here of how this is going. I mean, and it's kind of tied in with infrastructure, but boy, the discussion

is really focusing on the tax plan. Where are we right now? So what at the point where Biden has put out basically his plans and then has kicked them over to Congress for them to actually sort of put meat on the bones and and write them out in legislative language. And this is what's starting to cause the angst in Congress because they're looking at sort of the outline that the President put out and are then trying

to figure out how do we make this work. So they're going and they're talking with with different members of the committee, they're talking with stakeholders, they're holding public hearings, and they're asking, you know, what if we did this, what if we did that? And some of the ideas they're throwing out there would weaken a little bit what

Biden has proposed. So they're kind of looking at what is politically possible, what can get done, and specifically with an eye and members like Joe Manson and Kirsten Cinema knowing that those are going to be critical votes in the Senate. So even in the House where there's a broader majority, they still have to to know that that there's bigger political realities out there. Yeah, Laura, what do

you hear about the Republican side. I've heard a few different proposals six hundred billion and nine billion or at one point seven trillion, and where are we on the

counter proposals and the realism of that. So infrastructure talks really hit a speed bump late last week where Biden put out a ac counter proposal at one point seven five trillion, down from his original two point to five trillion, and Republicans felt like he that he didn't concede enough, that there wasn't enough of a back and forth negotiation

going on. Uh. You know, we're in a kind of the last week before Memorial Day, which is kind of considered the initial informal deadline to reach some sort of uh in you know, high level, top level bipartisan deal. It looks like that could slip and we could still be be kind of where we are in a couple of weeks from now. Biden wants to get a deal, but the two sides are really still far apart. So or is fiscal stimulus and the tax plan? Are they linked?

Can one go proceed without the other? Explain to us how that's developing. Well, there's many different permutations of what could happen here. But the thing to know is if there's a bipartisan infrastructure deal, it will not be funded by these tax increases that Biden has laid out. Republicans

have said, look, that's a red line for us. So they're looking at other funding mechanisms, whether it's user fees, whether it's looking at bonds, whether it's public private partnerships, you know, other ways to get money that aren't tax increases.

But Democrats are either cognizant that one of two things will happen if one these bipartisan talks fall apart, and then they can move forward with the Democrats only bill, which will include bipartisan tax increases, or two they do get some sort of smaller, you know, a couple of hundred billion dollar infrastructure deal with Republicans, and then they go back, uh, and they can do the rest of the Biden four trillion dollar agenda, which also would include

um tax increases. So really kind of no matter what happens, tax increases are still on the table. It just depends kind of how quickly they move, how much they they'll need, and what it will be paying for. Interesting, what is the pressure to get it done this year and not next year in a midterm election incredibly high. You know, basically everyone uh, you know is wanting to get a deal done this year. This is sort of informally seen as as a deadline, but you know, you could flip

till you know, January, said the wary. But once you start getting to the summer, everyone's in campaign mo and passioning attacks increase would be seen that a political big, big mistake, Laura. I think about President Biden forty years in the Senate branded they were many many years ago, and I think Kamala Harris just coming out of the Senate, are they gonna have any ability to kind of work their magic and trying to get some something through here

or is it just too much opposition? Um? You know, they really hope that they can. This is one of the reasons that you know, the Biden you know quote campaigned on one of the reasons he picked you know, Harris as his VP. But you know, there are really you know, just a handful of senators. So it's really not looking at you know, how do we get some

you know, a broad coalition together. It's you know, how do we get two or three or four senators who are inclined, who have tough reelections ahead of them, who have states that you know favored Trump or lean red. You know, how do we get them personally on board? So that's looking at for you know, mansion, how do we get coal miners trained into new jobs? How for cinema? You know, how do we sort of moderate some of

these these tax increases. It's really specific versus a broad uh cell on these, Laura, what do you season next steps? What can we look forward to? You mention, we're coming up on Memorial Day, when could we start to see a re uh invigoration perhaps of some of these discussions. I expect we'll see some back and forth between Republicans and Democrats this week, uh, you know, on if there's a still momentum behind a deal or if these talks just fall apart. That is also a possibility this year.

We're also waiting to see um from the Senate parliamentarian who will basically rule about you know, how Democrats could proceed with it with a partisan bill on their end. Those will be kind of a key point to watch for, if not this week, next week, and then that will really set the course for what the summer rentfall looks like.

What else is Congress working on? Me? It's kind of all we hear about is the infrastructure and taxes, not that they're not huge issues, but your Congressional report, are there other little things going on that we should be paying attention to. There are other little things going there, and there's a lot of talk right now, and this is really playing the part of intentions in Congress. Is this um doing a commission to investigate the January six

attack on the Capitol. That's narrowly passed the House last week. The Senate is set to pick this up, but Republicans, even who initially said they were on board for supporting US, have have since backed away. Um. This is really setting up a lot of ill will between the two parties and does bode well for doing something on a bipartisan basis when it comes to economic policy. All right, Lauren, thank you so much. We appreciate that getting the update

on all things happening in Washington. And we can do that because we have a reporter who focuses on congressional tax issues. I mean, nobody else has that. I can imagine Laura Davison, congressional tax reporter for Bloomberg News. And again it seems like, UM, it's going to be very difficult for President um Biden from what we're hearing from the reporting, UH, to get what he wants here. I'm

just gonna have to be a significant compromise. And you think about it, you know, it's the first major set of tax increases since three That tells you something about how difficult, UH, it is to raise taxes for administration. I want to bring in Shannan the Basket. She's a Wall Street reporter for Bloomberg News. She joins US Live, I Live and the Bloomberg Interactive Brokers Studio. Great to have everybody back together again, Sonalie, let's talk spacks here again.

You know, I mentioned earlier that Dave Wilson would come in every day for stock reports and have to talk about three or four spacks coming public and things like that. It's kind of petered out a little bit. But they're still out there, aren't they. And they're still doing deals. They're certainly still out there, and there is still a hope that once the rules get clarified, that they'll come back yet again and they'll be a great way for

people to go public. But right now there are a lot of questions around how investors are paid in SPACs, uh, the performance of them, and then also all of the disclosures that come around spacks. For new people to really start investing in these companies that are really that are really young, right that they're really not mature companies that are surefire things to succeed in public markets. Is there

a sense that the performance will turn around? Was the shakeout of some of the big high flyers that seemed to break down was that, as Paul had said earlier, healthy correction or indicative of something more sinister that we haven't been understanding the way these works. What I can give you, Taylor, is the view from investment bankers. Right. So from investmentkers point of view, it is good that the market has cooled down. Why because it was probably overheated.

Companies that shouldn't have gone public have been going public. That brings down the average overall when it comes to performance, and so it cooling down is not a bad thing. So what's happening in Congress today there's actually something kind of tangible here. They're really looking to rewrite the rules regarding to the Securities Act of Exchange Act to add SPACs when it comes to forwardlooking statements in terms of

their financial performance. So what they're really trying to do is rewrite the rules here to make it easier for the investor to know how well that company will do when it goes public. All right, But the spects that are still out there, they're out there and they're still

able to do deals. Right, Yes, But the sec which is another kind of aspect of this today's Congress, we're looking at the security is an exchange commission is looking at all those backs and saying, okay, wait a minute, maybe we really need to treat you differently in terms of how you've already been doing your accounting. So that is also spooking some people, Right, what does that mean for the supply side? As I think Paul was alluding to,

of you create this regulatory overhang. Now, not anyone can come as off the wild West anymore. So if you have skeletons in your closet, you're not going to want to do us back that. If that is the that is the bottom line. If you have financial performance that's iffy, or if you think you're making statements that are probably a little too rosy, Uh, everybody's got an eye on you, from lawmakers to the SEC. So you're probably gonna want

to not go public that way. Yeah. But but we still have a whole bunch of these SPACs out there, and they're all sitting there with dry powder, and uh, you know, I guess it was when I guess we saw some of these celebrities and athletes started and it seemed like they were just lending their name to these SPACs maybe create some interest. Maybe on the first day of trading get a pop, and I suspect that might have been one of the things I got regulators attention. Well, yes,

and and that's certainly true. But let me give you the flip side of this too, And this is why I think there will be a tone down, but not a complete clampdown. All these famous people are investing in pre i p O stocks anyways, These folks are all already investing in high flying unicorns or starting their own. Think Jessica Albert. Today we wrote a story about Leonardo

DiCaprio and Orlando Bloom. What's going on there? Oh, they're they're backing this financial technology company and Neil Bank called Aspiration that is looking to go public either through an I p O R is that's a long story. Short is they're already in the venture market. SPACs are another form of venture capital. Yeah, what is the new cool way? Now? Do we go back to direct listings, we go back

to traditional IPO s? Did totally last week? Do an I p O That was one that we've been following exactly, And so to your point, I p O s are still the hottest game in town. There's still tons of I p o s even though we were talking about SPACs. Uh, there were you know, more than twice the average of the last ten years going public and last year all alone.

So this is good. Why is this good? Because before we saw so many companies like Uber for example, wait forever to go public, and then by the time a retail investor gets involved, it's very late in the game. So shouldn't they have the opportunity to invest in more young companies? The question is how young? And the question is what kind of information doesn't investor need to have to make an informed decision about that company? Yeah, you can.

You compare the disclosure from a SPACK to the disclosure for an I p O. And when I was writing up I peer perspectives is they were about you know, half an inch thick, you know, because I just said to the printers all night and make sure you know everything was perfect. Now they're you know, three or four inches.

You get all the disclosures for a company to go public VI an I p O. It makes SPACs and direct listings maybe at from at least from that perspective, a little bit more attractive let's just do a one on one here. You everyone should be picking up. If you're going to invest, if you're a retail investor, you want to invest in I p O. They're hot right now, go to the risk back, go to the risk factors, and go to the financial analysis and see if that

company is actually doing any well. I think that one of the earliest piece of advices I got from a really good investor back in the day was when you get a prospectus, the first place you go to is related transactions. That's a good one. Risk factors have gotten so boiler plate the related transactions and and now they're fifty pages long. You know, we may have a pandemic,

you know that kind of stuff. But you go to the related transactions, and that where you get to see some if there's anything funky in terms of, oh, we're paying this person, this company, this company that, and there's these off the balance sheet uh or kind of transactions. That's where they pop up. So anyway, that's just a little uh lesson learned. I guess Shanali Bastk thank you so much. We appreciated getting all things Wall Street. We're

talking about SPACs today. Congress is holding a hearing on spacks. Things might be changing in that market. Looking on my g LC go that's the Global Commodities page. It brings up everything you need to know about commodities pricing. I look at the metals here, I see double digit gains and most of the metals, with one notable exception spot gold, kind of flat on the year. Let's break it all down as we talk precious metals. We do that with

Everett Millman. He's precious metal specialist at Gainesville Coins. Every Thanks so much for joining us here. Love to get your thoughts again. We see a lot of positive momentum in the metal space here. Again the exception is gold. Give us your thoughts on that precious metal. So it does appear that gold has been in this consolidation pattern for a while, but I think it is poised to break out of that and resume a more gradual grind.

Higher prices really just climbed too far, too fast in the early part of the pandemic, and so I think we're seeing that kind of shake out and normalize. This is the first time that gold is traded above it's two in day moving average since early January, and the fact that the US dollar is a bit softer today, also helps, but I think much will depend on what

we're hearing out of the FED. The rhetoric has certainly turned toward a tapering of asset purchases and the potential that will see interest interest rates rise sooner than anticipated. But I still think it's a reasonable assumption that, given the unprecedented nature of the post pandemic recovery, the FED and other central banks are going to remain accommodative, and so long as rates stay suppressed and inflation continues to rise,

ultimately that will be good for gold. Is gold still a negatively correlated asset to bitcoin when it comes to price and flows, It certainly seems that way. Over the past month or so, the two markets have gone opposite directions, and anecdot anecdotally, I have heard quite a bit of um confirmation of that those those flow trends from crypto traders that um, when there is a sell off in the crypto market, that money flows into gold and vice versa.

And I think the reasoning behind it is pretty straightforward that these are seen as alternative markets to equities and uh other more traditional assets. So I think that that trend will probably continue until we see greater maturation in the crypto market where there is less of this panic selling. All right, So in terms of the crypto market, and you know, as it relates to the gold here, we've seen to some extraordinary volatility in bitcoin. I mean, you know,

an eight decline yesterday, a rebound today. We've seen these double digit moves, you know, almost on a daily basis from this currency. What are your thoughts on bitcoin here? Is is the volatility preventing it from becoming perceived as

a real store value? Absolutely? I do think that's the case. Um. Not only of the volatility discouraging to more mainstream investors, but these big price wings create network congestion, they create higher transaction fees when trading crypto, and the fact that so many of these coins, their prices are highly correlated to one another, all of that makes it less attractive to regular investors. There's just a different risk assessment that

goes on there. And one of the thing I think that's reveals is that despite all the talk we hear in the crypto space about diamond hands and hoddling um, the behavior of crypto traders does speak to some inexperience that they haven't seen these big up and downs and markets, and the panic selling does remain a feature. I do think that that is one of the major obstacles to

more mainstream adoption. Go on over with us to some of the other medals that we've been watching, iron, ore, steel, copper, China coming out with some big comments overnight, seeing that it's trying to target speculators and hoarders. Do you get this sense that within the commodity space, a lot of this has been based on fundamentals and future growth or some of these crackdowns that we see overseas. I think

the crackdowns are mainly to blame in this case. UM. We have seen some lack of infrastructure growth and some uneven manufacturing numbers that could speak to the fundamentals starting to shift more to the negative for commodities. But I think it is very telling that Beijing has stepped in UM. Commodity inflation is a big negative for a lot of

the consumers. A lot of the countries are importing these things, So I think that the from the policy standpoint, UM that is one of the major factors that's driving this, because as we've seen, inflation has been mostly occurring across the board, but especially in the commodity space. Hey, every let's just talk quickly about gold here. I know there's a scarcity of physical silver buoy on it golds up slightly the year today. What are your thoughts on I'm sorry,

on silver all right? Yes, um, what's interesting is that I think silver it's the greatest upside among all the medals because not only does it combine some robust demand from various industries, but it is rising as an alternative to gold in terms of physical bullyon um. The Royal Mint in the UK saw a five increase year on year in its silver bar sales. And it doesn't help that the Loeon Bullion Market Association overstated it's silver inventory

recently by over a hundred million ounces. So the idea, the idea isn't that silver itself. The royal resource is scarce. But yes, the refined finished product of silver bullion is rather scarce and it's just difficult to find on the market right now, so that is driving prices higher. Ever, thanks so much for joining us. We lays appreciate getting your thoughts on these precious medals every moment. Precious Medals Specialist for Gainsville Points. Thanks for listening to the Bloomberg

Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three. I'm Fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio