A 'Cheat Code' for the Bond Market

this stubbornly high inflation. This after August consumer price index came in a bit hotter than economists had expected, but it really highlighted what a tricky year it's been for balanced portfolios that invest in both stocks and bonds. So how are managers of those funds dealing with this year's turbulence. We'll get into with with a fund manager with a balance fund who's beating his benchmark pretty nicely this year. But first, Emily, I gotta say thank you for filling

in for Vildonna, who's off again this week. Even though this is going to cause even more anxiety for Valdonna herself, I appreciate it. Yeah, no problem, you'd think, you know, she would go on that vacation and she would be more relaxed. But I'm not sure if that is the case. We'll work on it. But the only rule you have to know, Emily, the only ground rule for a co host is you have to laugh enthusiastically at my jokes, which I will absolutely and because I will add you

to my professional network on LinkedIn. Yes, yes, finally, finally, because I gotta say Vldonna is not very good at that requiremental laughing at my jokes. I think it's a you know, she eats nothing but califlower. I think it's a it's a protein deficiency or some kind of vitamin deficiency. That that's the story I'm going with. Yeah, yeah, too

many chickpeas, not enough meat. But one next, she's great at and she has a great journalist, and she's great at finding excellent guests for this podcast, including this week. She brought this week's guests on and then abandon us. But um, we're very excited to have them. Money tell

tell the listeners who this week's guest is. So today on the show, we have George Cippolini, and he is a portfolio manager of Pen mutual asset Management, and he also co leads the management of the balanced income strategy at the firm. So, George, welcome to the show. And most exciting is you're a Philly guys. So the most important first question is you gotta give us your cheese steak place. What's your what's your favorite cheesesteake place? Okay, so I'm going to give a little bit of a

nuanced answer if that's okay. It's definitely not Pats and Gino's, which a lot about out of town or tend to like, um loved love John's Rose Pork, which again in the name it says rose pork and not cheese steaks. But they make a great cheese steak. But the best sandwich in Philly, if anyone wants to go, it's in the writing Terminal market and you go to the Nicks and you get a brisket of beef sandwich. It's outrageous, it's even I mean, I think it's better than a Energies steak.

That's my crest. I'll accept that answer. Actually, I you know, I've heard about that place for years and I don't think I've ever actually had The next roast beef. But good, that's some good, solid research, Philly research right there, Emily, this guy knows what he's talking about. Yeah, that sounds

that sounds delicious. I think we'll have to have another episode where we just talk about brisket and yes, yes, absolutely, But George, why don't you start us off and talk a little bit about your current role um and your background and how you got to you know, where you are today at Pen Mutual. Sure, absolutely so a little bit of a different path than I think most portfolio managers in terms of getting to where I am today at Pen Mutual, which we're at a great place and

we're grateful to be here. But but I grew up doing concrete work with my family in Philadelphia. UM, at around nineteen years old. I didn't take my S A T S. I didn't do any of that good stuff, no plans to go to college. Then I met my wife, who's from South Philadelphians, pretty strong willed, and and she said, you're going to go to college, and so I did.

I listened and um, and you know, it was a great path for me, who ended up going to uh A junior college, transferred over to Drexel University, worked on the floor of the Philly Stock Exchange back in the late nineties. So um, really the the inception of my career was very much impactful to me, as it is to most young people in terms of I got to see an incredible boom in terms of the tech bubble and then a bust after and so that really was the inception of my career, which kind of led me

to fortune. Fortunately to a small little investment shop called the Killing Group in Berwin, p A. It was at break even at the time. We got no bosses our first few years in the business um, but but eventually we grew this small little income fund called the Berwin Income Fund from about forty fifty million in assets all the way up to two and a half billion in assets u at at peak. And what we did was a little different. We were a little off the beaten

beaten path in terms of our strategy. We were a small firm with twelve people, so we were very independent minded,

very long term focus, traditional value investors. And what we did was our director of research, Leader Out, had this great investment process and I just kind of took it um from what he did on the equity side and applied it to the world of income and the fixed income and the high owned bonds and investment grade bonds and preferred stocks and convertible bonds, and the process really worked. It's a it's a strategy that's differentiated in terms of

we are very flexible. We can invest across market caps, we can invest across the company's capital structure, and with the sole goal really of just adding value within this universe. We don't want we don't want necessarily the highest building securities. We want the companies with and securities with the best balance of risk and reward. Um in terms of that uh um, you know that whole direction. So that's a little quick and dirty. I ended up at Pen Mutual

just just a few years ago. Um, you know, we sold our firm, the Killing Group, And and after taking some time off, I wanted to stay in the business and keep doing this because it really is a passion and and and I just felt like I could. I still had some uh some guests in the tank, and and and wanted to contribute somewhere And was fortunate enough to join Peen Mutual, with which has you know, a great staff of over thirty people on the investment team.

They have a ton of resources manage over thirty billion in assets, the bulk of that being the insurance assets, and then the resources again from a marketing and support standpoint to start a new fund like like like our products. So I balanced income. So just really grateful to be back in it. And uh, we have a two year track record now and so far, so good. We're we're you know, very very highly ranked at the moment in

terms of our morning Star category. And as you both mentioned, came right back into some really incredible and at concredible times and his dark times for sure. That that's a great backstory, George. You know, I'm glad you listen to your wife. You know, I's all when friends get married. I say. The key too's a successful marriage is you have to start off with the assumption the wife is always right. You get you gotta listen to her. That I haven't talked to many people who worked on the

Philly Stock Exchange. That's interesting too. What were you like a specialist market maker? So I also worked at a specialist post for for Susquehanna, which and Mike, let me tell you something. You talk about experience, so you know, and there is as a you know, young teenager, early twenties. And and in the morning we had math class. We went to work and they paid for a lunch which was awesome, breakfast in lunch Susquehanna is a great shop.

And then um, and right afterward we would go play poker. So I mean, if you if you just think about you know, risk rewarding, game theory and math and just the application of all that on a daily basis, that really stimulated my interest because before that I didn't know much about investing at all. And um, but that really stimulated my interest in the markets. Uh, my interest especially in risk and reward and the behavior of the markets, which I think is something that's overlooked and maybe a

topic we can discuss later. But yeah, it really wasn't a great start. And and to your point, always listened to your wife, well talking about market behavior, George, what a what a crazy week? Um, But what I think is funny, you know. I one of the columns I edit is, uh, this guy Cameron Christ he writes a column called Macroman. He actually took off for a week and he came back to work the day after the CPI numbers. You know, throw everything upside down, and you know,

his column was about, like, what did I miss? You know, the the equity markets actually exactly where it was before I left. Yields are exactly where they were, you know, because you had that, you had like this five percent run up in the SMP five like in the four days before to see p I report on Tuesday. So I'm curious how big of a game changer you think

it was. Um, despite this this massive autility we saw afterwards, has that much much changed And you're thinking about, you know, the Fed's reaction function for the rest of this cycle. So I I think it did my get. And here's why I usually don't like short term data points. I really like long term data points. But I will say, within the context of this week, the market was very

much geared up. And I don't I don't mean just the stock market, the stock market, as you mentioned, but also the bond market, even in the preferred market with longer duration securities. People were making significant bets that the CPI number was going to come in late and and the FED was going to back off. And if you think about really, for most of this year, the market has been waiting for the FED to pivot they've been

waiting for Poal to give in. And I'm just going to say this one thing, and I think I sent it to you earlier, and I keep pointing to it. There was an exchange when when Pal gave testimony to the Senate and Senator Shelby asked him directly, directly back, then, is your leadership prepared to do what it takes to

get inflation under control and protect price stability? And Pal gave a very respectful nod to Vulgar and then he said, I hope history will record that the answer to your question is yes, but the key thing is shall be pressed on And he said, are you prepared to do what it takes? And Pals gave a little more of a sheepish yes, but he did say yes. And I think really that's where the line of the line in the sand was and and kind of the part where the market is kind of missing in terms of the

expectation that was from March and it's already September. I mean, this has been six months now, the market wanting a pivot and they're not getting it. So I think to your point, in the short term, that really was how the market was positioned Over the last month, credit spreads rallied a little bit tightened up, and the stock market rallied, And I think that's why they really want any indication that the FED can kind of shift course. George, I feel like all of this talk of are we going

to have a FED pivot are we not? Has inflation peaked. It's led to a lot of near term volatility. But one of the big themes for this year is probably going to be that bonds have done so poorly, So where are you looking for that income? Is it still in any part of bonds? Is it dividend stocks? Are you looking at cash? Yeah? And and so this is

this is a great point. And and our perspective, I think is a good one, not because we are brilliant investors by any stretch, but because we have this flexible approach and we are allowed to increase cash and we are allowed to wait it out. Last year, as as the markets rallied, our cash balance grew and grew up to over and so at the end of two thousand and one we had in cash over cash. And the

reason was there wasn't a lot of value there. Credit spreads to Titan stock market had gripped um and and there just wasn't a lot. So so fortunately we were able to We we believe in liquidity. The liquidity is like oxygen for us, and when we have it, you know, we feel like feel great, I feel like we can breathe. And we did well last year. I mean, we were up the most ten percent, you know, not in the nine percent range, and that was a great ranking in our in our category to last year. So it's not

like we missed out on much. So when the volatility kicked in for the most part this year, we had liquidity available. And yes, to your point, around the June time frame when things really blew out from a spread standpoint, we did put some money to work and I'd like to talk you know, and I'm sure we'll talk about what we bought, uh specifically, not specific names, been in general, but just to your point that this market is very,

very different. So the last eight times that the SMP was down in a calendar year, bonds finished up and so it cushioned the blow for everybody, and it was, you know, diversifier, and we haven't had that to share, as you well know. And now bonds are down a lot and and this could be the worst year in recent history for sure, maybe in many many decades that that bonds have been down this much, and that's really different.

So that correlation rising between stocks and bonds and the down market was something that we didn't know that that would happen. And that's not why we went to cash. But we were glad that we had the cash. And again, bonds were so overpriced if you look back now and if you look at the yields you can get today versus just six months ago. So we're glad that we had that flexible process. Yeah, that's a pretty high cash level. Said now, George, I'm famous around here for asking like

twelve part questions. So so I got bad news for you. I got one coming for you. Do you have like an assistant who can take notes notes on this question? I can do it on my own assistant. Let's go, But I I'll make it easy for you. I'm just gonna I'll just monologue a little bit like here, like a villain in a movie, and then you you tell me where I'm where I'm wrong, and and what your

reaction is to what I'm gonna say. Because I'm kind of fascinated you know, as you say you you're fund you can go your strategy, UH can go as much as equities. Looking on your website, you're in a little less than thirty percent as of the end of June. So not quite bullish on equities, it would seem, um, but while fifty one point seven percent in high yield corporate credit um And to me, I think that's fascinating.

We don't have a lot of credit guyes on the show as much as we should, so I want to sort of unpack what the credit markets are signaling right now because um, you know, for equity investors, they often look at the high yield market especially it's sort of that canary in the coal mine. You know, spreads started blowing out before the market top in oh seven, They started, you know, creeping higher before the dot com UH bust

in two thousand. I'm looking this year and at least according our index UH, you know, the spread on high yield UH corporates right now, according in the Bloomberg indexes, I think it's like four hundred and fifty basis points. And for listeners who don't know what that means, that's basically just the the extra yield on high old bonds compared to treasuries. So so, George, to me, that doesn't seem like a canary in the coal mine screaming recession

just yet. You know, the spreads are why a lot wider than where they started the year, but they were very tight to start the year. So I'm curious, just you know, a you know, what are the spreads telling you as far as like a macro signal about a recession that that investors in other asset classes, uh should should be thinking about. But also, you know, the last time spreads blew out, it was it was mostly that

energy sector, uh, that was the driver of that. So is that is that signal from the credit markets you think broken? Since energy companies um are a big component of high yield what they're they're doing really well these days. Wow. Excellent question. Many points, and they're all court discussing for sure. So so number one, real quick, I think it is it's a little misleading when we look at our high

yield exposure in our strategy. And and the only reason why I'll say that is that we generally tend to focus on double being single B security, so we really don't delve too far down in the triple seas and that you know higher of high yield. The second thing is our duration is a lot shorter than many of

the benchmarks. And then the third there is a little bit of a cheat code in the in the bond market, and and and a great way to add value, especially in these types of markets, and so checodes where I have a fourteen year old son, so I might throw out some like chicoads words or made like they have all this yeah yeah, yeah exactly and so so so the cheat code in the bond market for me and for our strategy is, look, you can find companies, so so working you limit risk or working you lower risk

in a high yield security, Well, you can find certain smaller securities because we're we're a small fund at the moment, and we can buy these smaller securities, um smaller issues, and you can find companies that more cash than debt on the balance sheet. That is the ch code. So when I go to bed at night, I'm not worried about the great majority of the high yield quote unquote bonds and our portfolio going bankrupt. I'm not really taking a huge bet. I'm getting paid for that extra credit spread.

But I'm not making a huge bet like the economy has to do well. I literally can go to sleep at night and I know, for example, that the great majority of our bonds are going to get paid off because because the cash is already on the balance sheet, they're managed by companies that are free cash flow positive and manage my management teams that have a great track record of capital allocation. And so that's the ultimate margin

of safety for us. And the good thing there is that you know, as Ben Graham said, the purpose of the margin of safety is to render the forecast unnecessary, and so I don't have to project inflation rates or where the where interest rates are going, or what the economy is going to do. If you focus on that company being able to pay off that piece of debt again,

you have you eliminate a lot of other concerns. So that's one of the cheat codes that we use and one of the ways that we've had value over the past twenty years of managing this type of strategy. To your point, yes, credit credit spreads are absolutely a signal. It's something we should all watch out for. I'll give you two schools of thought here. Number one, credit spreads

or wider they should be. Uh. The economic situation, broadly speaking from an earning standpoint is a lot more uncertain today than it's been in a long time, and so credit spreads should be wider now. The flip side of that argument is that interest rates were so low for so long that many or most companies were able to refi it really really low rates, and they extended their debt. That balances out. That's good in the near term, so I wouldn't expect to see default rates kick up a

lot in the immediate near term. That said, there are a lot of zombie companies, companies that cannot cover their interest expense through operating earnings or EVA don that's that to me again means that you really need to be a good like I would never buy high yield broadly. I wouldn't look I'm biased, right, I'm an active manager. I wouldn't buy a high yield e t F for the sole purpose of I don't trust all the companies that are in the e t F. I trust this

company instead of that company. So that's my view, and I feel like we can ferret out and find value in that context. Um, but that's just two schools of thought, yes, I still think credit spreads are very important indicator. Energy is a big part in near point going back to fourteen fifteen sixteen, they blew up a lot of the energy credits and went bankrupt and and and that's honestly been one of the reasons why why that sector has kind of stayed so cheap, given how well they've performed

um this year. So those were just my thoughts on those topics. So it's give maybe to dig in further. Let me know I I did. I also want to ask you, you know when and I know you said, you know it's you're not gonna go out on a limb and try to predict inflation or pick the path of interest rates. But fingers crossed. I think we all have to kind of hope that maybe the peaks in for inflation at least and if if you're looking out over five ten years, you know, uh again fingers crossed.

But boy, you gotta assume inflation, inflation is gonna come down, interest rates are gonna come down with it. So does this type of moment in time make you, um, sort of bullish on on longer maturities, you know, especially with new issues. If if you can lock in a really attractive rate for you know, twelve fifteen years. You know, does it change your thinking on maturities at all when when yields are this high, it's it certainly should so.

So the way we view it is, obviously we're getting paid a lot more now than we were just and full of months ago for just about every flavor of of income, which is which is great. I think Intel's dividend just hit five percent today. For example, Um, if you look at short rates, money market rates are going to pay about four percent soon. And you know, so if you you look at the two year you name it across the board. So so to your point, like, yes,

longer duration. Now, the thing with longer duration bonds is that the YO curve is flattening, so those rates are not up as much as shorter term rates. Um. So that's something that we factor into as well. So the way I look at it is what can I get for how much risk do I have to assume for a certain level of income? And now if I can get four or five or six percent from a two year convertible bond that's busted, that has a great balance sheet, you know, that really might be my my bar. So

so my low end bar or my my my. The basis for our fund is really okay, what can I get for free? And for free? It's not everyone's definition of free. This is a typical Philly guy. By the way, Emily, this is how Philly guys think. Who's got the free who's got the free fries with the cheese steak or the free drink. I I know exactly where he's coming from.

Their budget friendly. I like that. Yeah, yeah, absolutely, And so if you met my father, you would certainly understand he still has his lunch money from grade school, you know. But that's that's the context. Seriously, though, it's funny because I think about this a lot, like this is actually a pretty good point. So I grew up really close with my grandparents. I would go to do concrete work with my grandfather. I'd go home, I have dinner with

my parents and my grandparents. And my grandmom was so stigmatized and her whole family was by the Great Depression, and that that really left the mark, Like you did not waste a piece of food in the half like that was like, you know, that was immortal sin. And I would have to go to confession if I didn't need all my dinner. You know, my dad had a big, big beer belly, and he used to he passed away,

but he used to called out his savings account. You know, that's what he's going to live live off off if things got lean. But you're right, he never never left a single crumb on a on a plate ever. No, absolutely, And so so you wonder like why you think a certain way or you know why your behavior or why your decision making processes a certain way. And that, honestly what was was a big part of it. That's why

my bias is what it is. So so I'm constantly looking for for what can I get without taking any risk? And so I start with really good balance sheets and and and we really focus in on that for this product of course, and um, and again we're what can I where can I get the most amount of risk? If a two year bond from a convertible, you know that's a convertible security is going to give me four or five and I have up the upside that convertible,

that optionality that a convertible bond gives us. Wow, I would much rather have that risk reward A semest asymmetrically positive risk reward profile versus you know, maybe a dollar preferred that shielding five and equivalent yield. But to your point, yes, at some point it will make sense to go a little longer. And we found certain securities. Okay, one more

cheat coats. I got one more cheat coats. Words. So when you look at so we we tend to only buy bonds that are trading at a discount, which is weird, but if you think about it makes a lot of sense. So when bonds were overvalued, we weren't paying one ten. We just wouldn't do it. So what we do is wait until they become discounted. Now to your point, Michael, some of the long bonds are trading at sixty seventy

cents on the dollar. For companies there are with outrageous balance sheets, outrageous balance sheets, good balance sheets that you know the one I can't tell you the name, but the company is fourteen billion in cash with less than two billion in death. And sure I'll go along in that name because I know that that balance sheet is rock solid and and and the yields great. And then the cheat code is if you can find um bonds

or we only buy bonds. We tried only buy bonds that have change of control provisions in the indenture and in the in the perspectives and the covenants. And if you do that, and let's just say that company gets bought out, you're getting one oh one on that bond. And so there's another way where you can add a lot of value. And you may only have one of those every couple of years or five years maybe. But

but again, the same thing with the convertible thing. If if you have a convert where the stock takes off and they do really well, I mean we've purchased some bounds twenty five dollars and sold in the two fifty. I mean that, so again we're looking at but we are to go back to the point of being cheap. We don't want to pay for that obviously. We want to wait till the market gets busted. And it's pretty

busted at the moment. So that's how hopefully that helps you in terms of how we frame those types of decisions on the equity side. How are you thinking about margin pressure as inflation remains hot. I feel like there's a lot of stories that I write about people talking about how the Fed's reaction to hot inflation is going to hurt stock prices. But what about earnings? Is that the next shoot at fall for Yeah, and a great, great,

great question. And I'll tell you why, because you know, if you think of what we just went through, and so so if we just ask ourselves, why is this environment so difficult? Why is it so different? Well, we go through COVID, and you know, if you think about how much money the government pumped into the pumped into the economy, and how much liquidity and how easy the FED was over that period, it obscured a lot of

the traditional data. And I think that's that's part of the problem now, is that you really cannot separate the FEDS bailing out of the market over the last twenty years versus you know, the surge and the money supply over the last since COVID and the result. So let's talk about the result first. The result was earnings went crazy.

Sales sales went nuts for for most companies. And if you look at some of the you know, if you look at your d S four screen on Bloomberg, just to get Bloomberg a little plug you and see the quarter over, Yeah, you can give that. You can see the quarter of well, we'll allow that, George will allow the Bloomberg plug. Okay, cool, cool, awesome. Um. So, so you can see the year over a year, quarter of a quarter results and you see these spectacular numbers in

two thousand twenty one. The problem now is that is that sustainable? And my question, my argument, and to answer your question, is that a lot of it is not so so on so what we've seen so far in terms of decline was almost all pe declined so far. The problem, the problematic thing about the market is if that he declines from here, which I think there's a good chance for a lot of companies that will, and so that could lead to a longer period of either

going sideways for going down. And I keep saying this line over and over. I can see the ceiling clearly. We can see peak earnings clearly, because it's there in two thousand twenty one. What we can't see at the moment is the floor. And that's partially the scary part because to your point, margins are under pressure. If you look at sales, sales had peaked and and now we're

coming off peak. So what does that mean? And so you have you know, a group of factors that lead me to be concerned about the E at this point. And that's where I think we are. And then just to take that one step further, everybody talks in aggregate about the E about the SMPS earnings, and we really don't because we look at and you know, we look at company by company, and so we want companies that

have sustainable earnings. But if you strip out the energy sector from you know, last quarters earnings, last quarters earnings were negative, d earnings growth was negative, sorry, darrings growth was negative, and and so you know, I think that's really important you strip that out, if you tend if you want to strip out the Apples and Microsofts of the world, and you leave you know the other you know, four hundred plus companies. This earning season really was not

that good. And I think that's that's you know, the other part that the market is kind of kind of resisting at the moment, you know, Church when I look at sort of the market reaction. Uh. Ever, since you know, the worst days of COVID even um, you know, and and coming into this year, we had this a few months there where the value factor was just totally outperforming growth. UM. Then it kind of reversed back, uh and and growth

started out performing value again. Now it's you know, I'm guessing it's gonna swing back the other way now that

inflation is less and longer than everyone expected. But to me, you know, if you look at it from sort of thirty thousand feet, I feel like investors are just craving to get back to that world they're familiar with, that that nice, juicy bull market between the financial crisis and COVID where you know, sure GDP growth wasn't rate, but interest rates were low, uh and growth stocks were just the only game in town. I wonder if we're all in for reckoning that those days are aren't coming back,

That we're in a whole new paradigm now. And it's a very uncomfortable situation to try to wrap your head around. How how are you thinking about that sort of reversion to normalcy? Um? You know, is it? Do you think we'll ever get back to that scenario where, you know, the that decade of of just a roaring bullmarket and low yields? Or are we are we stuck in a

new sort of secular environment here? Yeah, and and and this this is an important topic mainly because of again what's going on in the last few years, So what really drove it? You know, I tend to believe that the FED obviously say so if you think about Druck and Miller's combat regarding liquidity, that liquidity means everything. And he doesn't even believe necessarily that it's as important as earnings, to which I would kind of debate with him a

little bit. But anyway, he's a much better investor than I am. But liquidity is if you can get him on the show, you can debate him, you can you. Yeah, he seems like maybe if we all from a cheese steak or the Nix brisket of beef sand which we can uh, we can get them down here. Um. But anyway, so so so if you think about if you think about those periods, there's boom and bust and again, you know,

start off my career in one. You know, we saw one in the housing bubble, and then we saw one now and you know, the FED really played a pretty big role and where they played the role as again on the pea side, on the valuation side, excess liquidity finds its way into the craziest of assets and we and we saw that. So we saw the cryptos rally and the spacks rally and the meme stocks rally. All of that, my opinion, was malinvestment that was caused by

excess liquidity. There was just too much money floating around, not enough good places to put it. And most of the people who are investing that those funds were the first time invests or novice investors, and and it just again that that's not healthy. So from my standpoint of being this value investor with traditional philosophies, that was not that to me, that's the anomaly. That's that's the period.

That's the tech bubble, you know, and that's the tech bubble that came back, and it will come back again. To your point, it might take another twenty years. But yeah, I don't think in terms of what growth investors are looking for, they anchored. So so the behavioral aspect, our definition of that is anchoring and their anchor to a point um or to a spot in the market that just is no longer there. And I think I say

this all the time. We can't anchor, you know, take into account new information and and you know, let's change our decision, you know, change change your mind change or decision, and I think that's important for the market to understand. Today you can't anchor to that point because that's gone.

I don't think again everybody wants a FED pivot, But I don't think that type of excess liquidity is going to enter the market anytime soon, not until we see some more demand destruction, you know, maybe declines in earnings, you know, maybe some future declines in in in those stocks. And and you see investors obviously like Cathy Woods and you know, talk down, you know, they really want the FED to kind of back off her and Elon Musk,

and it's you know, they both have growth backgrounds. They want to fed the pivot um to kind of give that fuel back into the growth stocks. But ultimately, I think what this has done today is it's prioritized, it's moved, its shifted the priority from liquidity down to earnings. And there's always that tuggle war there in my opinion, And so right now you're earnings better be good, and if not, there's no safety net. Now there's no safety net of

liquidity that's gonna levitate your stock. At a certain level, your stock will go down. And we're seeing it today with a lot of commodity companies that are starting to pre announce um, you know, and I can mention because we don't know it, but like New Corporate announced today and Eastern and Chemical yesterday dal Chemical, Like you're seeing some of these companies starting to report and starting starting to show this degradation and a and and so I

think that's where we are. So to your point, Mike, no, I don't think we go right back. I think again, that's just people anchoring to a point that we're passed right now. And so what you want to own a really good companies, really good balance, she's really good management teams, and a lot of those companies only existed because of

access liquidity, and that's part of the problem. Well, George, regular listeners of this show will know that the one thing we anchor to around here is the crazy things we saw in markets. So I don't want to segue to that a little bit early because I gotta sneak peek at your crazy things, and they really they really speak to the uh, you know, the actually the important things of the market, which uh these days are the crazy things. Funnily enough, so talk to us about the

craziest things you've seen in markets recently. Yeah, and I think it really is just going back to to what I just mentioned, you know, was I mean, I'm not sure if you why if you're on Twitter at all, but some of the absolutely crazy videos that we saw from the crypto community, from you know, the meme stock community, and just really you know, it's just just things that were completely detached from reality. And I'm sure you've covered this over the past year, so this is definitely not

a new topic. But yeah, I just think, you know, ultimately, the craziest thing is is that, you know, the market tends to not want to be realistic and and and again they do want to anchor, and so stripping out energy right now, you strip out make it make a cap tech under the surface. You know, the earnings picture is going to be very important over the next few quarters.

And that's again where I think the market can be a little um, a little bit disappointed when they see the impacts of inflation, when they see the impacts of a strong dollar. You know, financial reality needs to step in and kind of tame the craziness in the market. Now, taming the craziness in the market probably means a decline which is not fun, but but we love it. I mean, honestly,

for for our strategy, we love volatility. We love when things go down because that's when we can going to take advantage of the free money that might be out there. But you know, all that sort of gets me back to the point about that that signal that comes from the credit markets sometimes you know where you'll see uh spreads wide and aggressively long before the stock market peaks. And I wonder if there's something to be said that, you know, in in credit markets, you're only dealing with

professional investors. You don't have a bunch of kids on Reddit, teenagers, you know, uh, pumping up beame stocks and you know, at in general, just the the you know, retail investing population in general, which is you know, less sophisticated, but it's gotten so much more influential over the years. Is that is that crazy talk to you to think that you know, there maybe the credit markets are a little less crazy and and that's why that signal works. There's

a little bit more sobriety. They're a little bit more sort of professional analysis. Uh that's driving things than say that the stock market, especially these days when the you know, the Reddit crowds are are running the show. I think

that's a fair point. If if you met you know, my CopM scott ellis Greg Zapp and v met mark Up installed over a pen mutual you know, and and Jim Fonts and and and our team you know, these are these are traditional you know, bond guys and then really good credit guys and and and they do a really good job. They're very rational, very sensible, and and so just using them as an example, I would say absolutely, there's not a lot of um, you know, running around

like you know, screaming trading, nothing like that. It's it's a pretty common environment and um and yeah, I think I would agree with that. There there there is though, so you know, just going back to it, you know, there there will always be these peaks in troughs in terms of an interest in a given area. And I think one of the things specific with high yield to your point, is that there was so much demand for yield because there was none for a long period of time.

So we've kind of broken that now now that we see you know, get money market rates at four percent or seeing a cur yield curve that's looking at you know, three point seven five plus you know, throughout most of the curve, and and so again I think that mentality should break a little bit in terms of UM. Again, there's available yield, so hopefully people won't have to be

as desperate. Because what happens is if you think about the psychology where you're like, well, I if you target a yield and say, look, I want to get five or six percent, and if you said that over the last few years, the only way to get it was to extenderation or go down in credit quality, those were the only two ways you were taking. You were taking more risk period. So you know so so but you know, just going back to your point, yeah, credit spreads are

very important. I do think you know, the credit markets uh tend to be a little more same, but they can get crazy too. I just think at this point, UM, it's it's definitely it's certainly not um you know the same as the growth markets from west here. The relative value of the craziness is uh. Alright, Emily. Then else to your real test as a professional financial journalist, Uh, you got to bring a good crazy thing to this podcast to really gain some respect. So so what do

you got for us? All Right? So this was something that I saw on Bloomberg News. It involves Elon Musk So his ex girlfriend. Um. I read this article a couple of days ago. Ex girlfriend is selling off um photos and memorabilia. This is his college ex girlfriend on an online auction site. Mike, do we have time to play a little bit of The price is correct? The price it's precise, I believe. I think the price is precise. Well that Alex prices correct anything, but price is right

because that that's gonna get us. Uh, that's gonna get me punched by Bob Barker. This is you. Not only did you pass the test, I think you get a percent because this is my crazy thing too. Oh my gosh. Oh well though, I think I can beat you on the prices precise, but we gotta get George to Uh. I don't know which item you're going to with. Is it the birthday card? It is? It's the birthday card. It's signed love Ellen um and this I guess it was the ex girlfriend in college. It was her birthday.

So all right, I did. I did do you one better though, because I actually looked up the auction site and I found the actual live bidding on this uh on this particular item and it says happy birthday Jennifer a k A Boo boo love Elon. And I gotta say, if we were ever to have like a Crazy Thing Hall of Fame or a Crazy Thing museum, Elon Musk would get like his own wing of that of that absolutely for this. So I think we just gotta stick George with the prices correct here, George, what do you

think that? What do you think the current bid is for? And Elon Musk signed birthday card to Boo Boo from college. And by the way, Elen, what's a you? Penn? So he's a Philly guy too. And Emily, you know what a little bit you can play too, Emily, because I don't think you have a live bidding prices in front of it. I don't. I did not look it up, so props to you, Mike. I can't cheat a week it. We're not allowed to sheet Okay, this guy always with the cheap code is another way you can tell he's

from Philly? All right? Ten thousand dollars? Holy cow? Emily, what's your bid? What's what do you think? Alive? Fit is? I gave I gave away my poker face there. Uh so in the story the current bidding was at ten thousand, So George, George is pretty ready And I did not cheat. I promise you I did not cheat. I actually real quick, though, Michael, I do have one. I didn't get like a really crazy way. I didn't get the point even though I listened to the show. But I got one for you

real quick, A right honor the Queen. The crown estate is estimated to be worth over thirty four point three billion in assets now belongs to King Charles. He will not have to pay a diamond inheritance stacks. That's pretty cool. Usually, isn't that crazy? Wow? That is nuts? Yeah, I mean I guess it's all that real estate I've read somewhere there, like the um the biggest landowner in Scotland for one thing, and all those castles even put a value on you know,

the value of pose castles. So though I don't know, I don't know who's gonna who's gonna buy? You got a limited uh market for those Maybe on Musk would buy one. But anyway, current bid and there's three hours, fifty nine minutes left on this auction, Emily, in case you want to make a bid twelve thou and three dollars for the Elon Musk love letter. Emily. I don't know much about your romantic life, but if, if, if you had any significant others from college, did you save

their their birthday cards? And yeah, I have some mementos. Well, we're still together, so I'll keep all the pictures of us. You better say that one day if he's the next Elon Musk, that'd be nice. Better. You gotta push him, Emily, you gotta push him, he'll be the next. That's fantastic. Well, I think that is all our time for the show. George. Great to catch up the Emily. It makes me homesick to hear George with that Philly accent. Is before you leave, though, George,

I gotta hear you say. When you go to the fawcehead and you turn it on and you put a glass under it, what's coming out? Water? Water? Of course, it's water. I know. You go, you go get water out of the creek. And then George, if you wanna say, get a six pack of beer and you want to keep it cold, and you've got an appliance in your kitchen, what do you what's that appliance called bridge refrigerator A supposed to say definitely refrigerator refrigerator. Yeah, no, you're saying

it right, you're saying it right. Okay, Okay. Finally a guy. Finally, a guy on this show without an accent. Emily, where you got a supermarket? What's what's your favorite supermarket? Uh? Boy, where are you going with this? Yeah? It's so funny because when I first moved up to New York from Philly and uh years ago, um, my co workers are like, are you from the South talking about accent? Right? Right?

It's got to be from far away. Uh. Finally a guest with the proper pronunciation of all the amquitant words. George seppalone, is so great to catch up with you. Thanks for sharing your time with us and your insights. Really appreciate it. Thank you both appreciate it. Thanks George Acromy achromy what goes up? We'll be back next week and so then you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts.

We love it if you took the time to rate and review the show on Apple Podcasts, so more listeners can find us and you can find us on Twitter, follow me at Rea Anonymous, Well Donna hierarch Is at Bildonna Hirach. You can also follow Bloomberg Podcasts at Podcasts. What Goes Up is produced by Stacy Wang. Thanks for listening, See you next time. B