An Historic Crash

in history. Also, later on, small cap companies have been pressured even more than the market as a whole through the coronavirus crash. Joh for Rizvi, a portfolio manager over at Harding Lovener, explains how to navigate the space, and as always, we will close out the episode with the craziest things we saw in markets this week. So if you saw something crazy, please give us a call on the hotline at six four six three two four three four nine. Oh, and maybe we'll play your voicemail on

the show. Of course, you can tweet at us with your crazy market observations. Just tweet to the handle at Podcasts and let us know what you're looking at. And uh, Sarah obviously, as you know, the craziest thing is uh, my favorite part of the show. We're kind of lucky this week though, in that we don't get to talk about the just the craziest things we saw in markets. This week, we literally get to talk about the craziest thing I think I've ever seen in my career. And

that was ten years ago this month. Um, I was the editor handling the daily markets wrap that I know you've you've written a million times. And as you know, some some days the market wrap is very easy to write. There's a clear explanation for why the the markets did what they did. Sometimes it's not so easy, and this

was one of those days. You know. It was, um, probably a year after the market a little bit more than a year after the market bottom from the financial crisis, so people were still very much on edge, right, and all of a sudden the European debt crisis had just sprung into life and really caused another bout of volatility that that was worrying too too many people, um and

causing some some swings in the market. Um. This swing was something else though, Uh, you know, I remember distinctly that the TV News channels, the cable news channels broadcasting these massive demonstrations in Greece, in Athens and other parts of Greece as people sort of rebelled against the austerity that was being imposed on Greece as as part of their bailout conditions from the European Union. Um. And so

the market was understandably weak because of that. But then all of a sudden, the bottom just dropped out, and I mean within minutes, uh, every X was crashing. I think at the low point that Dow in the SNP had both dropped more than nine percent during the day. It was insane and and all of that within a matter of minutes, some blue chip company stocks were trading for literally a penny apiece. Um. So so needles to say, we didn't quite have a great explanation that day in

the in the Market's wrap. It's ten years later though, and we're very lucky to have on the show someone who has uh an excellent book out on this topic and on the role of sort of one loner trader outside of London, the role he played on that day when the markets just went crazy. So very happy to have him on the show. His name is Liam Vaughan.

He's an investigative reporter with Bloomberg News in London and, as you said, author of that new book flash Crash, which I know I'm a little biased, he's one of us, but honestly, I think this is gonna be one of those finance books that is going to be a must read for every on. It's going to be on everyone's bookshelf soon because from what I've read of it so far, it's just so excellently well written and well reported. Uh So, Liam, I hope you're not blushing too much, but welcome to

the show. I can hardly thank you. Michael, no problem. So tell us briefly, I know, I mean I could talk about this for hours, but just briefly, sort of give us a portrait of uh this character nav Saro, who was uh this loner trader outside of London that the US prosecutor sort of zeroed in on for his role in this. But how did he get to that point where he's a guy that uh could at least

play some role in what happened on the markets that day? Yes, so, Novenda Sings Around is a fairly ordinary in some ways kid from a pretty working class area of West London called Hounslow. He lived with his parents. They live in a pretty modest semi detached house which is directly below

the Heathrow flight path. So if you go to his road you can literally look up at every five minutes you can see the planes fly by so close that you can count the windows and all conversations stops because you are you know, because you are that close to the flight path. So that gives you a sort of sense of of where he's coming from. Not a partial neighborhood, in other words, absolutely not. No. Um And he was

a gifted, you know, kind of mathematician at school. He had um, you know, some academic chops and he found that he could multiply figures in his head with great ease. But he wasn't a great scholar. He was a you know, a bit of a sort of cheeky lad if you like, who loved playing football with his mates. Um And he was also a keen computer gamer, so he used to play the game Fifa, which is a soccer game, and he ended up being in the top seven hundred out

of three million in the world. So he, you know, he was pretty de extrous, good reflexes, pretty obsessive um. And then after he'd finished university, he saw an advert in the Evening Standard newspaper which literally said wanted futures traders must work well under pressure, which is believable to how Goldman Sacks hires their Yeah, amazing. And the interesting thing about now is that he's kind of arrival into the market's coincided with this kind of evolution from the

pits to the screens. So late nineties you had all these pits closing, and you have the beginning of kind of mascale or electronic trading, but you don't really have high frequency trading at that point, so you have all these kind of trading arcades that spring up there are a little bit rough and ready, And basically the system is that they will back you with money, um, and if you don't do well, they'll kind of coach you, give you some sort of tuition on how to use

the software, how to read the markets, a bit of you know, economics, that kind of thing, um, and then they'll kind of let you loose, and if you have some potential, they'll keep giving you more money, and if you don't, then they'll let you go. Um. And basically the way that the business model works for those arcades is that you know, all you need is a handful of naves that are very good and they take a percentage on everything they make. They charge um, you know,

per a round trip. And you know it was it was a good business model for a while. But most of those that walk through this the door of this firm few text, which is above a supermarket, you know, about forty five minutes outside and miles away from the kind of city of London. Um. And so nav you know, arrives there like all the other sort of rookies. Um. And he's taught a style of tray aiding called scalping, which has got nothing to do with kind of macroeconomics

or looking at interest rates. In the long term. It's all about looking at orders coming into and leaving the marketplace, um, and looking for clues as to whether the markets about to fall or about to rise, and then taking very short term positions in and out and in a lot of ways it is a weirdly like a kind of computer game, you know, where you're reacting very quickly to

information and data that comes your way. UM. So now have you know inevitably turns out to be incredibly gifted at this style of trading, and he goes from literally having no money at all to having two million pounds by the time he leaves few texts five years later, which might sound like small fryer, but this is a guy who's still living at home with his parents, um, and compared to most of the other traders on the floor, he was a complete start. So two thousand and eight

he decides to leave. He's sick of sort of giving away his profits to the managers a few texts, so he goes home to his parents place, um, and he starts trading from there um. But something happens along the way which kind of changes I guess his destiny in life. He starts to become increasingly fed up with the arrival of high frequency trading firms because essentially, you know, what h f T or a certain type of HFT does

is very similar to what navs doing. It's kind of looking at orders entering and leaving the market, looking at the queue for different price levels, and tries to jump ahead of you know, short term price moves. So people like navs suddenly found themselves really struggling to compete, and rather than quit the market, which is what a lot

of his friends did. Nev decided that he would get in touch with a computer programmer and he would build essentially a kind of sophisticated spoofing mach shame, which he could not. Yeah, let me just set up because because I think that's that's sort of the plot twist where it gets really interesting. Because scalping is one thing, and correct me if I'm wrong, but scalping is a type

of trading that's basically legal spoofing. Spoofing is when you you intentionally put try to flood the market with orders, either by orders to sort of send that futures price up or flood the market with sell orders to bring it down. Uh, And you don't really intend those orders to be executed. You put them in as as sort of a way to trick the other traders, whether they be humans or computer algorithms, into thinking that there is

a supply demand imbalance going on. So I'm curious when was it when exactly did not make the leap from scalping to to actually spoofing. Did he do that as sort of a hand trader or was it not until he developed this, uh, this computer program that you're talking about.

So that is a very good question at and I guess one that I'm saying I don't know entirely because the first time that he um sort of is on record as kind of getting involved with spoofing is in two thousand and nine, which is when he writes to this UM like developer and has a kind of blueprint for this algorithm program that he wants to build, and it's at that point in time where he's quite specific about wanting to exactly, as you say, have a machine

that will be able to flood the market with said orders specifically and then make sure that they never get hit so the orders will be canceled. But by then other market participants, particularly algorithms that are making very short term decisions, will have reacted to it, and the market will have moved a couple of ticks, and that will

be simultaneously trading and trying to sort of benefit from that. UM. I mean as to whether it was illegal, the actual spoofing rules themselves didn't come in until later until two thousand and eleven UM, but arguably what he was doing would have been caught up in other kind of statutes like fraud security. Yeah, exactly, so, so, Liam, can you help explain to us the mechanics of what actually happens

during a flash crash. I mean, we constantly hear this, and I'm sure the mechanics are different in each one that has happened over history, But in the likes of the one that happened in two thousen, what were the actual mechanics underlying? And then how did nav actually get pulled into all of this? What was his role in it? Sure? So, May six, two thousand and ten, UM, as you was saying, Michael, was a very volatile day anyway. It was the kind

of midst of the Eurozone crisis. Um. The kind of fear index was was rising very quickly throughout that weekend, increasingly on that day, and you just had prices that were we're kind of increasingly fall links throughout the course of the US morning, and up until about one thirty

the market was down about three or four percent already. UM. And then you know, panned the camera to Kansas City and there is a kind of large pension fund called woodele and Reid that had been long stocks and had been benefited from a kind of big ramp up in prices. But on that day, the fund manager got skittish and decided that he wanted to hedge his position, so he so he he sold seventy five thousand e minis, which is worth about four billion dollars at the time. So

this very large fund places this very large order. But the issue, one of the issues arose in the way that they executed the order because they used an algorithm, but they didn't include any kind of um like fail safe so for example, so the so the algorithm they used was to sell at nine percent of the market

volume until the order was executed. And the issue arose in the because the markets were so volatile at that point in time, volumes actually spiked and this selling algorithm went into overdrive and was just selling and selling and selling and selling. There was no kind of price level, no stop loss there. So that arrives when you have this already highly volatile marketplace, and then there's a bunch

of other things, weird things that happen as well. So, um, you know, this is happening in the the futures markets, but meanwhile in the stock markets there is there's like technical issues that day that just so happened to be happening on the New York Stock Exchange, which means that there's delays in prices that are arriving to people, and all of this creates a situation where market participants are just leaving in their droves um and then suddenly, at

one forty one PM, the bottom falls out of the market and within the space of four minutes it's fallen another five per cent um, and you know, there's a complete and utter drought of liquidity at that point as everyone is kind of pulling the plug, and then the crmes stop mechanism kicks in because the pride, the volty, the velocity of the movie is so great that it pauses the market for five seconds and at that point, you know, it's the longest five seconds in the world

while everyone's kind of waiting to see what happens. And then miraculously and again kind of confusingly because nobody knew really why at the time, but the market as soon as as soon as the market reopens, prices starts to rally again um and within half an hour they're back

at the level they were before the drop. But meanwhile, in the US stock market, there are, as Michael mentioned, you know, some stocks that are trading at like no all point zero zero one cent others that are suddenly trading at hundred thousand dollars um because there's no liquidity in the market, so they've gone to these things called stop stub quotes, and and so in the aftermath of

all this, there's a big period of introspection. There's an investigation by the CFTC and the SECUM and they come to the conclusion that a combination of the kind of changing marketplace and the increasing preponderance of electronic trading and high frequency trading, the extreme macro economic conditions, and this pension fund had all combined to create the conditions for this exceptional market event. Naver Sara is nowhere to be

seen at this point. It's only two years later when another day trader happens to be kind of back testing his trading system on May six, two and ten, just randomly picks that day, and he notices that throughout that day in the order book there are hundreds of millions of dollars of sell orders that are just sitting there, never get hit. As soon as the price moves, they

get canceled and reposted um. And to him it's just like a complete shock and an eye opener like, what the hell Like, you know, surely this had had a contributing factor as well. So he blew the whistle essentially to the CFTC. They've got a program now where if you lead to a successful conviction, you know, you get paid for it. So this guy who I interview in the book and I call him Mr X, blows the whistle. And that is the first time that Nav appears on

the radar of the authorities. He probably wouldn't have done if he wasn't for this guy. And then fast forward to two thousand and fifteen and and Nav, you know, is asleep in his parents house, in his bedroom in hound Slow, and he gets a knock on the door and it's you know, a dozen FBI agents and police officers and they arrest him for manipulation in the market and for spoofing and over a period of a long period of time, but specifically as well um on the

day of the flash crash um. So you know, one of the questions I attempt to grapple with is the extent to which Surround really had a significant impact on what happened that day, whether he was just a contributory factor, whether he had no impact at all, And there's people with views across that whole spectrum eving to this day. I know, and I think you and I had gotten a little bit of a Twitter conversation about that with some others. Um. And so it clearly, as you point out,

there were structural issues with the market. There was you know what Ellen read a fund manager putting in a very aggressive, you know, ill advised sal ord or into the market. UM. I do think people sort of rallied behind the character of Nav because he's very much a sympathetic character, as you say, a blue collar kid. I believe he has Asperger's right. Um. Uh, you know Matt

Wiz who sort of makes this small fortune on his own. Um. And he's kind of, you know, treating the market like a video game, playing at the way he best sees fit. And I don't wonder though, Liam, Now, if if there were some giant hedge funds, some multibillion dollar hedge fund or some uh you know, emerging high frequency trading firm that was doing what he was doing. I mean, he was he was responsible for what was it like thirty or forty of the seal orders on the spres that

day something like. One statistic is staggering is that he was amongst the top five largest traders on the E Mini, which is one of the biggest futures markets in the world, for a period of five years. So crazy to consider one person day trading at home. Yes, I just wonder, what do you think, you know, Uh, would the sympathy be there for what he was doing if if did say it's been a ten billion dollar hedge fund, I won't name any names, or you know, a prominent firm.

I think you're absolutely right. The thing about nav is that he was an outsider. He was like David taking on Golias. You had Michael Lewis's book that had just come out about high frequency traders and now throughout his whole career, and he put you know, there's all these emails that came out afterwards. He used to call the HRT firms nerds and geeks, and he used to complain about them. So he became like almost like a folk hero.

So particularly so a lot of day traders. I do think that you are right, you know, And and there have been a bunch of both banks and hedge funds and large h of T shops that have now been done for spoofing, and that certainly doesn't seem to be the same level of of sympathy around it. Um. My view on the flash crash itself is it's, you know, it's it's almost impossible to reverse engineer what happened in such a complex and busy market. It's just sort of

suffice to say that he was a major player. He was a major kind of seller, um, and other market participants were reacted to his orders. So I don't think you can really say that he had nothing to do with it. Um. But again, would it have happened if he wasn't there? Maybe maybe it would. So yeah, it's hard to prove the you know, the hypothetical what would

have happened if he wasn't around? Hey, Liam, Like I said, I wish we could talk about this for hours, um, but I think that's all the time we have for today. I encourage everyone check out this book. I and I believe it's going to be made into a movie. Or is that correct? It is? Yeah, the Dev Patel, the you know, amazing Hollywood actor, has signed onto play nav if you could believe that, So congratulations and yeah, everyone everyone has to either download the book or purchase the

book somehow, because it's the perfect quarantine rate. And if you need someone to play a frazzled stocks market editor trying to keep up with all of it, you know, I'm I'm I'm Availbule. I'm just saying, and the frazzle journalist, Liam, thanks so much for coming on the show. We appreciate it for having me, guys, it was a pleasure. All right.

Now we're going to switch gears a little bit from the flash crash of two thousand and ten to an area of the market that itself has been pretty volatile amidst the coronavirus crash, right, Mike, Yeah, absolutely, Sarah, And I'm fascinated to talk to our next guest because, as we all know, the U S stock market is basically become dominated by the big five stocks. You know, Microsoft, Alphabet, Amazon, Apple,

and Facebook makeup of the stock market right now. Um, But there's this whole other world of companies out there around the world, global small cap companies. And I think a lot of investors maybe get scared at the notion of global small caps just because it's unfamiliar. So our guest is gonna walk us through how he goes about UH screening through the universe of global small caps to find value and to find growth potential in You know, again, what I think is an area that most American investors

aren't very comfortable with. So so hopefully we'll make them a little bit more comfortable, UH with some insights from Joffer riz Vey. He's a portfolio manager of the Harding Lovener Global Small Companies and International Small Companies Funds UH. Joffer, welcome to the show. Let's let's start with that basic idea. I mean, I think of the universe of small cap stocks around the world, and I don't know what it must be number in the thousands, if not tens of

thousands of potential stocks. So how do you sort of um sift through that opportunity set? What is what's sort of your process for screening the whole world of small caps and and finding stuff that you like. Sure, so the global universe is well or ten thousand companies. In fact, some of the indusseries that we are benchmarked against, like the m c I All Country World Index, has about six thousand companies in it. So it's a very large universe.

If you even think about the US the Russell two thousand, as the name suggests, is four times more than the SMP five hun group, So this is a much much larger universe than than large caps and on an absolute basis, in terms of how we screen through it, we use essentially four criteria and we are looking at companies about what to invest in. Topmost is the competitive position of the company. We look for a competitive advantage that's there

today and that's sustainable in the long term. We then look at the quality of the management team, which is particularly important in small caps. Incremental decisions by management have a much bigger ripple effect in small caps versus large caps. Then we look at sustainable growth, how big is the market the company's addressing, can it take market share? And then last we look at financial strength, which is the quality of the underlying financials, the accounting, the balance sheet,

things like leverage. So those are the four things we look at, and we could sometimes use a screen based on those criteria, which would be a quantitative screen, and sometimes it would be visiting these companies and figuring it out by ruling of our sleeves and traveling to their headquarters and things like that. Drop or are there any qualities that you've maybe been looking for even more so are placing more emphasis on in the past couple of

months as we face everything going on. I mean, seems like measures of leverage and profitability have really come under the microscope. And that's part of the reason that when you do look at broad benchmarks of small cap funds, they've underperformed. So I'm curious if there's anything in this environment that you find to be even more important to

be aware of. Absolutely, so we you know, first principle as we stick to our hinting, so we'll still look at these four criteria that I that I outlined, but as you mentioned, uh, financial leverage is very important. It's coming under the microscope. In fact, we looked looked at in quarter one which endined mark thirty one this year, we looked at different quintiles of performance. When the quintiles were based on interest coverage, which is a measure of

the average UM. So when we looked at inface coverage, we looked at UM what did the most labored companies perform versus the least labored companies by quintile, and so we put them in five buckets and what we saw us there was about a thousand basis point difference between the least level companies, meaning that they underperformed much less.

Now everything was down, by the way, but they were down much less than the most labored companies, and there was a little over a thousand basis for in difference between that. So that immediately makes us aware that this has been an important factor sort of speak. But we've always looked at it. As I mentioned that financial strength

is one of the criteria we look at. UH In this environment, small caps particularly are going to be under the microscope in terms of financial leverage because it's you know, they don't have the flexibility of large caps. It's very easy for them to lose business in such a way that their free cash fows diminished significantly so that they

can pay back their interest. So in this environment, if you flip it around and if a company does have strong financial strength, then it's actually going to give it competitive advantage as well. In other words, they can continue to invest while others are scrambling for cash or maybe even winding up. They can continue to invest in R and D and new plans. So we think it it's not just important in and of itself, but It's also important because it gives the company competitive advantage. So that's

the single biggest thing. But again I would say that competitive advantage of the company, this continues to be one of the single biggest things we look at. You know what, I hear small caps, and and even when I hear international equities, I sort of I sort of think risk. You know, I I feel like there's a touch hole potentially more gains there. You know, small caps over the long run famously do better than big caps, but they're often is that trade off with sort of higher blatility?

Am I wrong in thinking that? Jeffers is the sort of risk adjusted returns of small caps around the world? Um, you know, how does that compare to the US? So if we look at international small cap risk as measured by standard deviation of returns, globally, it is higher. We looked at the last twenty years and what we found is if you take the excess returns in the numerator, which is the access returns of small caps and believe versus large caps, and then you divide that by the

access risk. In other words, this is the sharp ratio how much access returns am I getting versus how much excess risk am I taking taking and the net of that ratio is still positive and and statistically significant, meaning in simple English, and just hit for risk. I still have better returns in small cap historically looking into the last twenty years, which is a good basis of thinking about our small caps because this is multiple cycles, multiple

market cycles. Well before we get to the craziest things. I know Mike especially is really looking forward to it. This week. I want to know, have there been any companies within your portfolio in the last couple of months where what's happened due to the coronavirus and people having to stay at home where the risk profile has just completely changed and you guys have had to go back and just completely maybe reevaluate your outlook on that company

and the whole ding going forward. So so I give a few different examples here, uh, companies where the risk profile has changed unfavorably and in some cases, you know, surprisingly the company has been a beneficiary of mean innars of surprising but on the margin, you know, a little bit different than what we were expecting originally. So an example of a company that got directly impacted both because of coronavirus as well as the oil shop is core

laps there and oil services company. They provide reservoir management services to large, large oil majors. And this company suffering is suffering from a lack of demand. And there's also some labor editions as well. So in cases like these, what we're constantly doing, and it's more acute in a crisis like this, is we're re evaluating the fundamental thesis that we had and against this again, against those four benchmarks of work is a good company? What is a

quality growth company? If the company doesn't meet our criteria anymore, ideally, the analysts and the PM is raising their hand saying, look, we got the thesis wrong. One of the things we do continuously and again is brought into sharp focus in circumstances like these, is we have something called mileposts where we are measuring a company's growth against a pre commitment.

So we say that we think this company is going to grow about the industry, that industry is going se we think this company will grow above the If it doesn't, if it reports quarterly or six monthly growth that's not in line with the milepost, and we will say, okay, the smile post is it's broken or it's failed or it's behind, and depending on that we revalue it. So

in some cases. Another case would be Senior, which is a part supplier to the aerospace coming out of the UK out of the air to the aerospace industry out of the UK is again impacted because of lack of demand and lack of travel in aerospace. So the the's like these are examples where we'll either generically speaking, we'll either say, look our thesis is broken, we shouldn't want it anymore, or look everything is intact. It's just a shock. The long term still looks good, in which case it's

become more attractive. Let's buy more of it, so the outcomes would be salad or added to it as you might imagine. The flip side is the flip side of this is companies where we've been surprised, where one example is one of the world's largest shipbrokers, again a company out of the UK called Clark Since where because of the demand for storage of oil. Because oil became cheap, demand for storage went up. This company supplies big oil tankers or pod carriers, and um it benefited from them.

We did not expect that when we initially started the thesis is on this company, that was a boon for this I mean you didn't expect jagative oil prices to help the oil upstart. So I imagine that you know that was that was a little bit unexpected. A more

expected outcome would be heavy. Like can Access which is a Canadian supply chain management software company, demand for supply chain management software went up because the companies are trying to figure a new supply chains and this company provides real time supply chain management software. You know where doing inventorieschool, which warehouses should they go to and where should I ship out from? And demand for these company's software went up.

So so surprises on on on on both sides. Companies that we're negatively it to some companies that were positively it as well. And in those cases where there where where there's a where there's a positive outcome. What what we're doing is we're saying, what is the valuation of this company? Is the growth a little more attractive, can we hold it for a little longer, should be trimmed

or should be selling evaluation? So again the food side of the cell trim decision in these cases, well, Sarah, uh, that's a great segue to the craziest things we saw, because um, the negative oil price shock is just the crazy thing that keeps on giving. And I'll start with mine, which once again has to do with just the amazing glut of oil around the world right now. So Wall Street Journal story talking about the creative ways people are

lengths they're going to the store oil. Remember when this happened, a lot of my friends were joking like, oh, you can put it in my garage or fill my swimming pool. Well guess what people are really doing that this this journal story, it's nuts. There's there's uh, all these crazy schemes people have to buy oil. Guys buy an oil for like a dollar eighteen of barrel, uh, and they're trying to stick it in caves, abandoned rock mines and

even giants swimming pools. There's and there's something called a fuel bladder that's some guys selling that is basically just a big giant rubber containment thing for for story storing oil. So, um, good luck to all these people filling their swimming pools with oil. I gotta say I hope that or else. That's a lot of effort for a whole lot of nothing and a good contribution from Twitter from a guy at Financial Gambler. His craziest thing in markets is similar.

It's some how Goldman Sacks has been looking at the use of Zoom and that the user base of Zoom and other sort of video conferencing techniques to kind of suss out what the future demand for oil is, with the thinking obviously that if you're if you're doing more virtual meetings, you know you're gonna be taking less car trips and and business trips and air air trips and that sort of thing. So, um, it is the crazy

thing that keeps on giving, for sure. It truly is it truly is you mentioned uh using zoom as a measure of looking at measures of oil in a way, but a lot of people have been looking at alternative data through what we're going through and my crazy thing, um, it's it's a little bit sobering, I will I'll preface

it with that. Um. But there was data out of open table this past week showing that their forecast, they're calling for one in every four restaurants to go out of business by the time this all ends, which is really crazy to think about and it hard to wrap your mind around, because I feel like there's so many people thinking that once economy is reopen, we're just gonna snap back to normal. But that just really highlights how much everything might change. Right, So, Jeoffrey, I hope you

don't have any restaurant chains in your funds. Have you seen any crazy things in the market this week? I think for us, the the the most. The craziest thing I would say is that despite value underperforming for so long, including you know, this year, even this past week, the discrepancy between the performance of small cap value versus small

cap growth and it's just huge. I'm looking at US small caps for example, in the US value small caps are down ten percent in the last week or so, growth small caps are down five, so about that's a huge difference. And and this is after if you look globally small caps, small cap growth is down fourteen percent and small cap values down thirty percent, so you know, over twice as much. So despite the year to day,

it just continues. And there are so many people calling for a turnaround in this situation with abridging change, where value starts are performing, and week after week, including this last week, it just it's the same story. Yeah, another even before the virus, everyone was predicting that was right around the corner. It's uh, someday, someday we'll get that rotation, even even within the large cap arena. I mean, an

unbelievable statistic from this week. At one point on Thursday, if you look at an equal weighted version of the SMP, it was down eight and a half percent, whereas the SMP was only down about five percent on the week, And that was the largest weekly discrepancy in at least thirty years. So it just shows you that we continue to see, as you said at the beginning, mega caps just ruling really in the stock market and anything, um

that's a bit smaller just it hasn't. Yeah, yeah, it's really hard hard to see any of that reversing until this sort of virus goes away or at least gets under control and the cyclical value stock start performing again. But um, oh sorry, you know, we did get a call from the what Goes Up hotline with a pretty good crazy thing. Let's let's take a listen, and my name is John, And to me, what the craziest thing is is that nobody seems to focus on the fact

that the FED and the Treasury have eliminated capitalism. So these the bastillion of capitalism, the Federal Reserve has effectively stopped capitalism from working. And your buy back the hypothication of now obviously moving towards possibility that the FED is going to buy equities is a perfect example of that. The key component of capitalism is efficiency mechanism, which allows

businesses to fail and that capital then gets reallocated. So not really sure why the society UM hasn't focused on that, except if it's just obstruction of that information. UM. Last crisis, Bloomberg had to sue the FED in order to get the information. Now it seems I don't know what's crazier, the fact that they're doing it or that no one seems to care. But that's a little negative. But that's my view of the insanity. Sorry, I thought a lot

about that voicemail. It's it's a pretty uh intriguing voicemail, And at first I was thinking, well, that's a little bit of hyperbole on this guy's part. The FED killed capitalism, But yeah, when you think about it, I mean, the cure for this virus really was to shut down capitalism, or at least big chunks of it, huge spots of industry in this country. So I'm not sure if the FEDS the one who did it, or the actual government, local government, state governments, and the FED just kind of

reacted to this new regime we're in. But I'm not I'm not sure he's he's too far off with that. And we did hear from Powell this past week who even said, as it stands, there's really not much more potentially that they can do, although they will do whatever they need to do, but they're now calling on d C and for more physical policy because at this point in time, unless they go negative, which they said they don't want to do at least for now. I mean, what more is there there for the FED to do?

Crazy times? Indeed, uh Joffre, I don't know, what do you think? Did the FED kill capitalism? I hope it's not that easy to kill capitalism, that's right, very tough to beast to kill. Indeed, I agree, interestingly, that's so that voicemails a few days ago. I did see R I P. Capitalism trending on Twitter yesterday, so I don't know, I don't know, are catching on? Yeah? Yeah, but who who would have ever believed we'd be discussing whether or

not capitalism was murdered in our time. Certainly not I, not I. But with that said, Joffer Risby, so glad that you were able to join us on the show this week. Thank you, Sarah, Thank you Mike. What Goes Up. We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and app, or wherever

you get your podcasts. We'd love it if you took the time to rate interview the show on Apple Podcasts so more listeners can find us, and you can find us on Twitter, follow me at at Sara pont Zack, Mike is that Reaganonymous, and you can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Toper Foreheads. The head of Bloomberg podcast is Francesca Levie. Thanks for listening, See you next time. Before