Irrational Exuberance Is Dying (Again)

you filled in on the podcast without me admirably. I will admit I haven't yet listened to it. You probably shouldn't. We made a lot of fun of you. I figured that you were. You burned me a few times, and I will say, during vacation, I got a terrible sun burned. So I can only hand all so much burn at

one time. I'm very, very ashamed of myself for that burn remain Bostic filled in and I told him that if just if you just happened to be stuck in California for some reason, or you couldn't get a return ticket, I told him he was welcome to fill in for the rest of eternity for you. Oh okay, well good, so you've already lined up my replacement exactly. Okay, but no more parents. I promise to a minimum because we did miss you, and I will say I'm very ashamed

of getting sunburned. I've dealt with Molinomo myself. A remindered everyone this is a time of year where we all get burned. In my case, I I blame the delicious cocktails that they serve at the Hotel Grenado. Yeah so uh lemon vodka concoction that had me let my guard down. So yeah, um, I recommend everyone reapply I think you maybe after the second cocktail every two cockos. I don't know the ratio the reapply to cocktail ratio is is up to the individual. But a reminder to uh to

where that sun block. At this time of year, I cannot protect myself from vildanna and romains burns. Unfortunately, but hopefully you did not tell all this week's guests to burn me as much as you did. Really did, Actually I did. I told her. You know, it's a fun podcast. We can have as much fun as she wants. But speaking of the guests. I do want to bring in Efan Devit. She's the chief investment officer at Monetta. I

want to welcome you to our show. Maybe just to start out, you can tell us a little bit about Monetta, What's what the firm does, where you guys are based, and what you've been up to recently. Great, well, thank you. We are fee only financial advisors were in our i A. We are one of the top ten independent r i as in the US. Our headquarters are in St. Louis, and we have thirty two billion in assets under management. And although our headquarters are in St. Louis, we have

a national footprint. And I myself and based in the Chicago office. Okay, well, if he I was actually editing a column this morning that happened of your name in it,

so I I figured that's a good segue. Uh So, one topic I wanted to ask you about, which is the nature of of defensive stocks, and um, you know, I'll sort of recap the column for listeners who aren't privileged to read taking stock on the Bloomberg terminal, which you really should be doing, by the way, but if you're not, you know, I think it's a very sort of headache inducing time to think about how do you

play defense in this stock market? UM? You know, traditionally you would you would go to something like consumer stables, utilities, high dividend payers with stable earning streams. UM. The pandemic obviously turned that on its head. The way to play defense in that environment was to buy all the internet um,

e commerce, you know, streaming, social media. That all the stocks that reflected what people were doing while they were stuck inside, which is you know, craually have been kind of the opposite of defensive stocks, those high growth tech stocks now as crazy as it sounds, you know, you look at the leaders of the market this year, Energy up a million percent, beating basically everything. People playing defense against this inflationary oil shock environment by by buying energy stocks.

I'm wondering how you unpack it all? What what does defensive means to you right now in the stock market? Um? Given the risks are kind of across the spectrum. You know, some people are worried about a looming recession next year. Everyone else is worried about inflation and an erosion of purchasing power, higher interest rates. What does it mean to be defensive? Is there a way to to sort of still allocate the stocks and be defensive in this environment.

It's an excellent question. I mean, ultimately, the way to be defensive at a portfolio level is to have a well diversified portfolio, and by that I mean across all asset classes, so including bonds, including alternatives, including cash flow generators, including real assets, and that is our best way of assuring an old weather portfolio. When it comes to stock, defensive stocks are perhaps a bit of a misnomer because ultimately we are in equities, which are a higher risk

reward asset class. They will be marked to market, they will experience volatility. We can see equities with a high correlation to each other, especially when there's a sell off event.

But that said, there are still sectors that might be considered value stocks, which as opposed to growth stocks, have been quite out of favor as a whole for the last number of years, and there have been pockets of time was when investors have cycled into value in that great kind of growth value rotation that we might see,

but those rotation periods have actually been quite short. So I think we shouldn't be under the illusion that these defensive stocks are essentially somewhere to hide if there is a dramatic equity market correction, but they should be somewhere

where investors may go in a flight to safety. The additional complexity though right now, around these so called defensive stocks a new listed high dividend payers in that is that traditionally, when interest rates rise, these are seen as perhaps bond proxies, or had been seen as bond proxies, and then funds flow out of these defensive stocks when interest rates rise, because bonds become relatively more attractive, so they tend to see funds flowing out when it's just

right rise. So they're not actually that defensive if we see a rising rate environment, So it's all relative. Are they more defensive than a high growth portfolio? Absolutely? Are they going to protect your capital in an equity market downturn? Not necessarily. Yeah. It's just such a unique environment because usually when you're seeing yields rising, it's because growth is picking up, you know, it's it's a different point in

the cycle. We just have kind of this unique sort of upside down cycle now where you know you have decelerating growth and rising yields. Um So how do you sort of play that you know, given especially the last couple of weeks, we have seen yields sort of come down a little bit um off their highs, oil come come off of its highs. I mean, is the worst

of that inflation shock over? Do you think can? And and you know, are those defensive place a little bit more defensive now in that case, Well, just as we could adjust to to anything, any new normal somehow quickly becomes the norm. We saw that with COVID restrictions, where how mask wearing became the norm, how restrictions became the norm. I think when it comes to inflation numbers, something that was perhaps eye popping at a forty year high starts

to become normal very quickly. I would be surprised if we were to see high single digit inflation persists, maybe for a few more months, maybe it through the middle of the year. But ultimately we have to remember the base effect and some of those numbers and some of the contribution of the shock rises and energy and some other components in there that perhaps were not likely to

be sustained. Food prices would be an example. So the quick heat question around all of these inflation numbers is stickiness. But I've just written a piece called head Winds and cross Currents, because, as you mentioned, there is an abundance of risk right now in markets, and they're all inter related, but equally they're all any one of the could potentially grow to exponentially to become a serious problem. Those are the problems you noted around inflation, around is yours right rising?

And you mentioned upside down. I think that's a great analogy because there are a lot of things that just don't make sense today. Typically we speak about stagflation, that maybe when we have a rising inflationary environment it's accompanied by high unemployment and that then is that kind of perfect storm that leads to the recession. We don't have

a high unemployment environment today. We have an actually very robust labor market, and in fact, we have low unemployment numbers which are back to pre pandemic levels, So that doesn't look like a recipe for recession. Equally, when we have a high inflation environment, we often have a weaker dollar, and we have the opposite. Now we've a dollar at two year highs. So what's that telling us, Perhaps that yes, the dollar should be under pressure because of the of

an inflationary environment. But our central bank is taking measures that other central banks are not, and perhaps it's it's it's only looking strong because every other and see worldwide is looking quite weak. So we have a lot of juxtapositions of interesting bactoids right now, and it is challenging for markets to make sense of it. I agree with that. So can you actually talk a little bit more about

some of those I think you call them currents. There's all these cross currents that are that are going on right now, these different factors that are weighing on investors. So what what's type of mind for you? Well, I got to start with the two eyes, inflation and interfest rates. So you mentioned inflation being at a forty year high, So it's true that most traders and markets today have

never seen inflation at these levels. Most people don't have careers that are are great in forty years, so this is uncharted territory for most market participants today. There is no playbook for this. The last one was I mentioned was in the eighties when we had a very different environment. We had certainly a hawk ish FED then, and when we look to the Fed's potential playbook, we do look to what they did the last time there was inflation in high single in high in high single digits into

load into load double digits. So as a result, that is certainly something we have to contended. The key question is is it sticky, is it likely to resist um? And are we likely to have a situation where um the consumer comes under pressure and where companies lose their pricing power and start to see that hit their margins. So really there is a lot of unknown that's unknown currently about how the inflation picture is likely to pan out.

But right now, because the consumer still has quite a bit of pent up demand, quite a bit of savings, and perhaps it's still feeling this need to spend on services, we're not seeing it really pinched yet. The other major I is, of course interest rates were in a tightening cycle. We don't know how aggressive is likely to be. I would argue that already quite a few fifty basis point rate rises are priced in for the rest of this year, perhaps three fifty basis point rises are more, or even five.

So that is looking like markets already have kind of absorbed that have have factored that in, and for that reason we can expect that we don't expect there to be really any interest rate shocks if that is in fact the interest rate trajectory, But again we don't know

how markets are likely to react to that. We see that even that in the last few weeks there's been quite a lot of more volatility as the Fed has sensuated it's stance and it's um it's the language that it's using around the imperative of of being assertive around inflation. We've lost the kind of the looser language of earlier on. So how do The reason I think there's uncertainty around this is how is this likely to play out in

terms of a portfolio? Is as likely to cause bonds to to lose And we've had a shocking first quarter for fixed income in terms of how it's it's absolutely return So is this likely to be a poor environment for bonds? We've mentioned equity market volatility? Is it likely to lead to more equity market volatility? So that the two eyes of inflation in interest rates are obviously top of mind, and we can't not mention the geopolitical surprise

the potential for ongoing surprise. There it seemed that markets were completely agnostic. It seemed as to the impact of geo political risk for the last eighteen months until the first quarter of this year, until Russian invaded Ukraine, and markets reacted quite suddenly and aggressively to this up ending of global order, so called potential end to globalization. I mean, there was a lot of hyperbole every being used in terms of what this geopolitical event actually meant for the

long term. I think for the first time, investors are really starting to now focus on geopolitical risk, and that is again another potential surprise and markets so all of that, and then add to that the backdrop of still ongoing COVID tensions and caution companies emerging from that, house prices that are up last year, rising mortgage rates that are themselves reaching um multi year highs, and there's just this kind of a concoction of risks that any any one

of them, as I mentioned food rise to the top be devastating. And so markets are already in a juggling act right now as to which to give emphasis to. You know, you brought up that notion of the consumer um and obviously consumer savings accounts, and that just the normal household balance sheets, just in the aggregate got very very strong during the pandemic you know, whether it be uh, people collecting some some government stimulus money or just not

being able to spend money elsewhere. Um, so I wonder you know, in large part the question is, well, how how long does that by the consumer in sort of an accelerating inflation environment. And some pretty interesting tidbits from some of the earnings reports we saw this week. Uh one the guy noticed the visa The spending on the visa network was like off the charts. People are are still spending like crazy. And it gets your notion of pricing power. You know, chip Chipotle raised prices during the

order and it didn't hurt them at all. Um, they had a very good quarter. So are there any sort of sectors you're looking at that are more vulnerable to a pricing power problem? You know? Um, you know, Chipola almost strikes me as the type of place where you would cut back if if you were worried about spending, um, you know, and and you'd be going to the supermarket more, going to McDonald's more, you know, a lower priced option.

Are there any pockets of the sort of the consumer economy that you think are less vulnerable to um rising prices and others that don't quite have as much pricing power,

and their margins might get squeezed. It's an interest in question because I think we can look at normal circumstances, but inflation would mean for different sectors, and then look at the current back drop, whereby the level of assets and money market funds reached a peak right after the pandemic due to stimulus payments and other cares act, etcetera. And the fact that consumers couldn't spend their money and the enhanced unemployment benefit and just the fact that there

was nothing to spend money on. Really it couldn't use services. They did consume guns in a very robust way. So because of all that, there is this kind of pent up purchasing power I should say, or released a dry powder. It's it's getting less by the day because obviously inflation erodes cash, so it will erode that actual purchasing power. So I think that's where the interesting dilemma is. Normally, I would say it would be things like discretionary expenditure,

expenditure on say hospitality or travel. That would be where I'd see normally and the consuming to be more vulnerable. And ironically Chipotle is probably in that kind of price point of restaurants that's sort of that fast food or enhanced fast food segment where actually that's where people tend to sort downgrade to as opposed to eating more fine dining establishments. So probably is still in that category that

is likely to be quite robust and supported. But as far as if we saw United Airlines come out recently to say that they actually expected demand to be buoyant um and we've seen fuel prices passed through into higher airline ticket prices. But notwithstanding, there is that pent up demand to take that that vacation, take that overseas trip, and I don't see that subsiding. So as I said, it may be that that's artificially prolonging the strength of

the consumer. These savings, plus the sense of the fear of missing out of having missed out on on perhaps that the normal spending pattern for two years. So for that reason, it's very hard to say at this point where we can see clearly things like Netflix, things like some of It, maybe Peloton, you know, areas that they would have spent money on during the pandemic which now are no longer um adequate substitutes for the real thing or or for going out and spending on cinemas or

or you know, taking that bike trip. So I see that there those are areas perhaps that were perhaps overbought during the pandemic um. So it's it's a it's an interesting dilemma really as to what how this purchasing power effect is likely to pan out. I'm really glad you brought that up, because I was just about to ask you about that. Which is this idea that maybe some of the earnings reports so far are giving us a hint that there is consumer pushback for rising prices. So

you mentioned Netflix, that's one good example. Then also we have Whirlpool mentioning it, uh and a bunch of the mattress companies. I think sleep number was one of them. Temper Seely had said that just demand is falling off in response to higher prices, but not just on the good side. I believe Jet Blue also had mentioned something about rising prices and consumer pushback. So are you paying attention to some of those things and seeing it crop

up a bit more. That's a really interesting point. We see the concept of demand destruction has been used for years in the commodity segments. So the idea that the oil price can't rise to the moon because at some point there will be less driving, less use of fuel, conversion to other forms of energy, and that there is a point out which they're simply isn't it is not going to go on forever unlimited demand at unlimited price.

So that's what presents a natural ceiling, and I suggest that that's what what what all these companies are also seeing as demand destruction at certain levels that if something is ultimately a discretion or expenditure, there will be there will be a desire to shift, to find substitutes and and to not not tolerate that price. So that probably actually could be a natural correction on inflation. It's not likely to rise forever, so let's see how that works out.

But I think it's an excellent point. You know, if it's funny a lot in the financial world. If you want to have a quick meeting with someone in the US and New York, it's it's usually a coffee meeting, but you and you're you're charming, irish ways you have

tea meetings. I've noticed C C I O. T. S Uh that you videotape and and put on the website as a podcast and really interesting one recently with Cathy Wood of Our Investments UM, and it's just been such an amazing story UM with her her et fs and and really the you know, those sectors of the stock market that she she favors, the real sort of high future growth, innovative, disruptive type of companies that the Tesla's

of the world and whatnot. I'm curious, you know what you took away from that conversation with her as far

as UM. Is that strategy sort of in peril for I don't know, the next couple of years or what do you think needs to be in place in sort of the macro environment maybe to to bring that type of uh OUR performance back that she saw that and that sort of risk taking in the market, you know, on an even broader scale, that that willingness to really UM invest in a company with a future that might not you know, reach truition for five or ten years, that that sort of thing is that is that sort

of risk taking just really gone for good now or is there something that will bring it back? But I think we're seeing is just to waive critical thinking. And that was really where I focused my discussion in the interview with Kathy wood was. I wanted to really challenge some of the growth assumptions that were built into some of the modeling they do on seconds, such as driverless cars or artificial intelligence, or perhaps the adoption of digital

wallets or the price of bitcoin. I asked her about her modeling and where the probabilities were in there and where the potential was inflection points were in order of

this modeling to to big sense or to not. I also asked her about in the past how their modeling had worked out and whether they have an instance where they had been wildly over optimistic, because that often would be the the the the assessment exactly around some of these models is that they are they're overly optimistic, and I don't think that our fascination and our obsession with

innovation is likely to go away anytime soon. What we have probably introduced is a dose of realism and the irrational exuberance that on Greenspan were referred to back in O eight. There was perhaps a shade of that around some of these protections. If you think about it, it's probably not five years ago we all thought that today two we'll be driving around and we would have driverless cars. That's not a reality today. Sometimes tech is inherently very

difficult to model. Um we are grappling with modeling adoption technology, or grappling with modeling the impact of climate change. So many of these models have so many different inputs that are all often interrelated that any one there's going to be a huge element of a funnel of possibilities and funnel of doubt with any of that modeling. So what we've seen is a dose of realism around some of

the projections. It probably is not a coincidence that that has come at the same time as we've seen just there's some of the sheen come off some of the tech stocks that perhaps are not great innovators, but someone even look at Netflix or look at Meta um. Perhaps they're not innovators, but they've seen the sheen come off them. So it probably is a sectoral just a general falling out of favor right now that we're seeing. But as

far as innovation, I am watching that very carefully. And if we were to look at the robust demand for say venture capital on which is just the private sect markets way of playing innovation, that has not subsided and if anything, we are seeing massive institutional capital shift into venture capital. We've seen the endowments do it for years now. The pension funds are following suit. Family offices are large participants in that. Venture capital is just innovation and public

markets by another name. So that doesn't seem to have slowed down. So there will be a fascination with the next new idea, and I suppose that the test will be um, at what stage is our markets prepared to fund that? And at what stage are they going to want to see the proof statement and the revenues follow h forget about driverless cars. I thought we would have

flying cars by now, you know the Jetsons. We do have the video chat though that they had in the jets and so I never thought we'd see that in our life time. I actually thought the flying cars were more likely before that. But there we are talking like they did on the jets and so who knows. I wouldn't want to drive a flying car. I mean, in New York City driving is a nightmare, and a flying car would be like even worse. I feel like a

true true nightmare. Um. But even so, you mentioned some of those big tech names, and I feel like the notes that I've been reading from the banks and just research reports in general, they're sort of mixed on them. Where As you said, the shine has come off off of some of them. We we saw a bunch of them report earnings this week. So how should we be thinking about them? Because I remember writing stories during the pandemic saying exactly what we had just been talking about,

where the big tech names were considered defensive place. So how should we be thinking about them today? Well, definitely not as defensive place. I think that that probably was a very much a window of time, and tech has always been. It's not we will have see a growth and CASHLA is well into the future. It has always been in the growth segment, and we've seen some staggering performance out of those names, perhaps twenty twenty one, and now we were seeing that there's the dose of realism

as I mentioned before. So we would shouldn't necessarily see them as as defensive names, but they will, I believe, be important parts of the portfolio. But we are seeing changing of the guard. We're seeing a shifting, We're seeing the encroachment of regulation. Even in the past week, the spat around Twitter and the impact that the deal that the LA must bid for Twitter had on the price of Tesla. We can see that there is a lot of drama always in storytelling around many of these tech names.

There they are become so large that the regulators cannot ignore them, and there will be pressure from around privacy concerns, use of data, and are anti competitive concerns as well. So we need to watch these players. They are essential parts of our ecosystem and they will continue to flex their muscle, their cash rich. We will see some of the innovation coming from within them, but regulators are not turning a blind eye, and that may in fact but

pressure on the business model. And what we're actually seeing is maybe investor expectations around growth, say have subscribers or revenues were based on the ROY anchor and I anchor that was set during the pandemic um that was an unusual due to an exogenous event, and perhaps we need to just reset some of those expectations. But they will be he and they will dominate the index going forward,

but they will not be defensive. If you had mentioned UH, private offices dipping their toe a little bit more into venture capital um and I know Monetta has some family

office UH clients. I find that space kind of interesting because there were a few years there were so many hedge funds, whether it be regulatory reasons or whatever else, we're converting family offices and we never quite hear very much about what they're up to until something like Archagos hits, you know, uh in the news again this week for

just the spectacular blow up of that family office. Um, I'm curious how much contact you have with the family office clients and is there any sort of you know, temperature check that you could give us from sort of the risk taking and the strategies of that group. I mean, I'm sure there's a lot of a lot of different

disparity among what they're doing. But um, you know, when the only sort of insight you get into this space is a situation like Archegos, it really makes you wonder what sort of the mood is with that cohort of an investors. Are they in general a little bit more risk taking than than perhaps, uh, you know, your retail clients or your typical hedge fund is. Does that structure of a family office sort of encourage a little bit more of an embracing risk. It's a really good question.

I say, each individual family office is as individual as the family members in it. So it's very difficult to set to say a trend or kind of any norm across family office investors. I would say in general versus say institutions, there does tend to be perhaps more risk appetite because of the whether it be an entrepreneur that's behind the family office that has had an uptid and it's successful at taking risk some business. We do see

more esoteric investment strategies come out of family offices. It could be that they're more localized in terms of their investment, tend to invest locally. Um, they may be a desire to invest more in real estate because that's an area that has a lot of familiarity. We might see interest in some more off the run type of investments such as digital assets, because again there is the discretion that they have to not be forced to be index focused.

Different family offices according to the generational situation, may or may not need income. And if they don't need income, then they can very much be focused on the long

term and the absolute return of the portfolio. If there is a need to take income, and then we look at areas such a private credit that are throwing off an income and real estate is great for that as well, because there's an inflation linkage built into real estate and it throws off for reliable income, and it tends to be less less marked to market or less um get correlated with public markets. So it's all of those factories

factor in. Certainly we get some of our most interesting inquiries on the family office side as there is that just a really broad based, extremely stimulating group um of clients that that are are really open to ideas. Yeah, that makes a lot of sense. But I wonder do you think that trend could you know, sort of pick

up ag end of hedge funds converting. And I'm thinking mainly because of all the you know, there's been so much scrutiny from the sort of reddit uh traders of the world towards hedge funds and and there's been um, you know, new disclosure rules coming up on on shure positions. Could that drive a further move into family offices? Do you think? Yeah, potentially, I mean there's certainly been a

nice run. I wouldn't say we've seen the kind of the legendary runs that we saw in back in in the early two thousands in terms of hedge funds fortunes being made. Because equity markets themselves have been so strong, hedge funds have actually been laggards, and they've struggle to find their place in portfolios. They've struggled to to eke

to earn their place and really earn their key. We've seen hedge funds they only earned their keep when they're compared to fixed income returns recently, which would be quite a muted rate of return. They certainly haven't held their own relative equity markets. That said, in a month like we're seeing right now. The word on the street is that many hedge funds were short going into some of this correction, so they're actually maintaining their their their their

absolute return near today quite nicely. That they're not actually falling along with equity markets. So but that said, as far as structurally do we see them closed. There have been some black eyes and hedge fund land recently, there have equally been some extraordinary gains, and certainly those their household names are ASSERTI of the well known names and hedge fund land. If they are are well known, it's because they've been in the business for decades and they

have probably survived some pretty tumultuous markets. So that is staying power that perhaps a survivorship bias. But those hedge funds are here for the long haul. They tend to have a sticky kind base. They have perhaps a liquidity structure that allows them to invest more long term. They're not used as the a t M. They've been a lot of lessons learned through the liquidity crisis of OH eight in terms of how to set terms of exit and the type of capital they want to attract. There's

been a real focus on diversifying capital basis. So that means that they don't see the kind of outflows that they might have seen during maybe one consultant when Sarah on a hedge fund for example. So a will continue to happen, there will be fortunes made that will they now will want to consolidate and and not run with

the strict scrutiny. But if anything, I see more regulatory risk on the private market side, because that's perhaps the side that has not had the same level of scrutiny, whereas hedge funds have have run with that level of scrutiny now for for many years. You mentioned digital assets, and that's actually something I hear quite frequently in reporting on cryptocurrencies that family offices really sort of are interested,

if not doubling in the space. So I'm wondering what you make of the cryptocurrency space because you know, just looking at it's that that bitcoins daily moves, for instance, on some days, it's actually less volatile than what we see in tech for instance. So what do you make of what's been going on there? It's really interesting. Our position of man Etta on digital assets is that we

provide education. We don't provide recommendations from a compliance standpoint, but we need to educate ourselves and our clients have come to us with questions and it is a fast moving, dynamic area, so we are embracing that wholeheartedly in terms of our mission to get all that learning curve. So as far as how do you characterize with any new asset, we like to see how do we characterize this? Where

do we plot it on the risk return spectrum? So how can we think about it in terms of how it is likely to behave in any market environment and ultimately with digital assets and has been a process of discovery because is it a substitute for gold? Is it

a risk a safety asset? Is it a substitute for for cash or is it ultimately the highest risk reward asset you can put in a portfolio that should be right out there with emerging market equities and vegure capital, And certainly up to now, given the volatility you've seen and the way that some of that's a bitcoin has moved, and I put this maybe even prior to the current all out of the tech stocks, because there's been a couple of, as I said, dramas that have led to

some isolated tex stop falls. But as far as the way bitcoin was looking to us in term and digital assets in general, in terms of our process of discovery, was that it was seen as being quite highly correlated to risk assets, not to be something you would use in a portfolio as insurance or a hedge. It would be very much something that would be there, almost like the kind of the play money, the kind of the the gambling segments that you would you would look use

and do not know how it's likely to behave. It certainly wasn't an inflation hedge. It certainly wasn't likely to be a hedge in a case of a flight to safety. That said, I think there has been perhaps an oversimplification of digital assets and looking at say bitcoin as a

proxy for all of them. But if we break apart n f t s and look at has say ultimately some n f t s could behave in a portfolio, They could have their own stream of cash, a royalty stream that would attach to them, and that would look then like simply any other asset that has a contractual cash flow. So we've seen pharmaceutical royalties, film royalties, music royalties all sit alongside private credit as being nice sources of cash that are not necessarily related to my equity

market movements. We've seen in the past collectibles like art be thrown into portfolio and expected to be kind of an alternative alternative or alternative square. They used to be called back I think in the early two thousands because it was a diversifier, but wasn't really known how that would behave. So digital assets are probably in that category, but we are definitely as I said that the name

of the game is discovery right now. Yeah, I think that's an important distinction to make about n f t s that not a lot of the sort of outsiders of the space don't really appreciate that sort of income producing yield generating UM potential. You know, they're not all just pictures of cartoon apes, smoking cigarettes and stuff like that. If you one more thing before we get to our crazy things, I wanted to UM. I know you've given some thought to the notion of the end of globalization.

Were the deterioration of of globalization? We've talked a lot about it on the podcast. How do you see that playing out, UM, and what effects on the market do you think it will have. Some of the shocking news this week, obviously, was Russia turning off the gas supplies to Poland and Bulgaria. I believe the EU pushing back UH and saying no, we we do not want anyone paying for Russian energy and rubles. UM. It seems every day we're you know, the sort of old new world

order of globalization is breaking apart before our eyes. I mean, is that too pessimistic do you think? Or is that the right way to read it at this point? You know, and against reading what how does that all play out the markets? It's a really interesting question. I think we are guilty of some oversimplification when we suggest that the Russia evading Ukraine, which is the latest of its certainly it's land grab elsewhere. Is the end of globalization. Certainly

it underscores the dangers of interdependencies. But what we saw, and I think it was somewhat almost irresponsible to suggest that this is the end of globalization because that same week, but in fact happened was that President Biden had gone to Europe and committed to providing natural gas liquid natural gas to Europe from the US. I don't see how that signals the end of globalization. That to me is just a reorganization of relationships, and ultimately it just resetting

of some of this some of these these arrangements. So yes, we certainly have seen a wave of protectionism that has been a global phenomenon for some time. With the supply chain constraints that we saw during COVID, we saw the benefit of supplying locally and having a less complex supply chain. But that's said, many of these bottlenecks have been eat now and ultimately, especially if there is pricing pressure and and we're seeing that companies are seeing margin margins shrinkage,

they are going to continue to try to outsource. They will not be on shoring facilities if they can still ensure that their margin is protected. But through offshoring, you do make a very different, interesting and important point, though, which is around the the moral implications of some of the globalization that we've seen, the very swift multilateral adoption of sanctions against Russia. Thought that there was certainly a concept of what when does something become uninvestible? When does

a risk become intolerable? When are we prepared to divest entirely from a country stocks because we kind of tolerate what's going on in the geopolitical stage. If we take that kind of a lens, the e s G lens too, And I think if things say employee rights or corporate governance, a rule of law, or treatment of minorities, if we ethic minorities, if we do take that lens to all of our emerging market investments, we might find that many

of our emerging market become uninvestable as a result. So not only does this have implications for how a company sets up a supply chain, it will have implications for how an investor decides to invest. I think that lens

will ultimately mean rising standards everywhere. Just as the movement towards the energy transition, it is quickly realized that there's no point in pursuing this simply among the first world countries, that this is only meaningful and we can only get to the climate change goals that we are seeking if we apply this across the world in a in a way that is that it is equitable that we we we need to assist emerging markets to get on this climate transition path as well. So I think out that

we've seen this, we are looking globally everything. It only matters if we look globally, and so I don't think we're the end of globalization. Perhaps is a different form of globalization though. That's pretty good. Good answer, more hopeful, hopeful. Yeah, I always like it when people pull me out of my pessimistic doom and gloom mood and and have me more hopeful than I started. So thank you for that. But with that said, I think it's time for our

Crazy Things of the Week. Vil Donna. I heard you say before the podcast, you don't do not have a washing machine in your apartment there in New York, so wish it's like my greatest wish. So I've got a washing machine themed crazy thing of the Week. But first let's hear yours I can't wait to hear yourself really like, it's my greatest wish to have a washing machine. I think all New York City. Uh, anybody who lives in New York City can can commiserate with me. But I'm

I'm going back to the cryptocurrency space. Uh. There's a lot of crazy stuff this week, but um, something that caught myra was the Fidelity said they're going to soon allow up for one key participants therefore one key participants to put a portion of their savings into bitcoin, and employers that decide to offer the option, they'll be able to choose what percentage and employee's account can be directed into crypto. But there's a cap of so this was

huge in crypto. It was all over Twitter. I I agree. I think that is it is pretty um pretty amazing. I mean Fidelity has kind of been, uh getting more and more crypto friendly over over the years, but sort of a real contrast of Vanguard, where they're they're still like to forget it, We're not down anywhere near it. But uh so it's interesting. A lit'll be interesting to see if that it may actually help them gather assets

that you know, it won't all be in crypto. But well, you know, people who want that exposure is interesting thing to watch. How about you if you see anything crazy this week, well I'd say more this this past few weeks what I've been You know, we've certainly now stopped speaking about this inverted deal curve as a harbinder recession. I was kind of quite tired of that, um you've been said, almost like a voodoo that this that this has happened. It happened intra day and all of a

sudden markets were jumping on the recession bandwagon. Clearly there were so many other reasons for that meal curve to behave, as it did question whether we're even looking at the correcteal curve. They were looking at the two year tenure when in fact maybe a three year tenure or even a different um set of a set of comparisons would have been more appropriate. And the idea that this can be a hard harbinger of recession anywhere from six thirty six months, as I just think as an indicator, this

is essentially meaningless. So a lot of newsprint was wasted on that particular topic, which I just find is really missing again and oversimplification and missing a lot of nuance, and it was steepening again before the inquisit even tried on on any of those takes. Yeah, I get what you're saying to me. Bigger harbinger of recession was a hundred and thirty dollar oil You know, I don't. I don't see how the the global economy could have withstood that.

So to see that come off the boil too, I think is UH is good um for for the economic outlook. Um all right, well do I'll get get to the washing machines. I will say, I find it's humorous that you hipster's in the city, all crable. What you know, all you people who make fun of us suburban dwelling, boring family people. I've got a washing machine. Build on it. You probably. I've got a dryer. I've got a dishwasher. Come to the suburbs. We've got it all. We've got

it all. So this came from UH. I believe it is the earnings call for the Dutch company a s m L. They're big company that makes UH manufacturing equipment for the semiconductor industry, and the CEO related an anecdote on the call. He said, UH he was talking to the another CEO of only the way he described it

was a big industrial conglomerate. He wouldn't say who the person was or what company, but he said this person told him that the company has resorted to buying washing machines and tearing out the semiconductors inside of them to use in the manufacturing of their own devices. Again, we don't know what devices they're manufacturing. There's a lot of skepticism on Twitter about about whether or not this guy

is sort of spending a yarn here with this story. Um, but it goes to show like how how bad that semiconductor trunch is. Um, if people are even floating the anecdote of someone going and buying up washing machines to rip out the semiconductors for all thing, who knew washing machines even had computer chip chips in them. I guess every every appliance these days does probably probably my air fryer and toaster ub and have have chips in them.

They all sing those the song at the end when when when it's finished talking about like my my dish, my dishwashers. Yeah right right. It trives you not if you leave leave the door on it open, that sort of thing. Yeah, exactly. But I know you're wondering, how could I turn this crazy thing into a Price's right competition? And I found the way. I found the way. Great little factoid in that story, uh, is that Susquehanna Financial Group. You know you're very familiar with them, Big Options House,

but you know obviously other business lines as well. They actually maintain a data series that tracks the weight time for semiconductor deliveries, so the time it takes between when you order a semiconductor and when you actually receive it. So the Prices Right competition this week is what do you think the current weight time for semiconductors is? I will say it's at a record high obviously, and it keeps getting higher and higher. But what do you think

it is? The according to Susquehana and their methodology for doing this. You know again, I'm sure it depends on what you're buying and how big of a buyer you are, but the way they index this, what do you think the average weight time is for a computer chip? Can I go with twenty six weeks? How you read the story? Didn't you know? I didn't know? I didn't, I promise, Shoot, I just gave it away, gave it away. I did not read the Story'll tell you this, it's not exactly

twenty six weeks. So if you can go over or under on twenty six weeks, I was gonna go with nine months. I guess like a human gestation period, forty weekst station and now it's it's it takes as long to get a computer chip as it does have a twenty six point six weeks. I can't believe you've nailed that, Valdana, and I can't believe I gave I gave up my poker face by I can't believe you gave up so easily. I listened to a lot of podcasts about the supply chain,

so it was a good guess. But that's pretty good. I can't believe how easily you gave up twenty six and a half weeks exactly half year, two fiscal quarters. I don't know if that's coincidence or not, but pretty pretty interesting anyway. Wow, I've impressed Feldada for once. You for once, You've impressed me. Yes, I think this is the first time I've ever actually guessed correctly. I will not be even though you want to replace me with Romayne. I will not be planning a replacement for you. I

appreciate it. Well, that said, I think that is all our time for the week. If he's so great to get your insights. UH, really appreciate your time, and I hope we can get you back again sometimes than I really enjoyed it too. Thanks for joining us 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 and review the show on Apple

Podcasts so more listeners can find us. I think you can find us on Twitter, follow me at Reaganonymous Wildona Hierrich is at Bildonna Hirich. You can also follow Bloomberg Podcasts at Podcasts. What Goes Up is produced by Stacy Wong. The head of Bloomberg podcast is Francesco Levie. Thanks for listening. To see you next time. Thank