Value in a Frothy Market

actually get Twitter followers after the announcement night? After Wisenthal congratulated me for the new job As a joke, I I got about thirty new Twitter followers, So hopefully they'll stick around for the dad jokes and market commentary. Even though I don't have a lot to offer on the environment. I'm a fan of the environment. I'm just not the guy in charge of it, so we'll leave it at that. That's hysterical. That's hysterical. And for anyone who's not aware Wisenthal,

that's Joe Wisenthal. He's the host of the Odd Lots podcas as step Bloombergigat does plenty of other things as well here, but if you haven't checked out the Odd Lads podcast please do. You can find it pretty much anywhere you get your podcasts. But this week on the show, the US dollar continues its decline as the M S c I All Country, World and Next trades a record highs. In addition to that, emerging market equities are on pace for their best quarter versus U S docks since two

thousand and nine. Well, the momentum continue through next year and beyond. We get the state of play on international assets, and as always, will close out the episode with our tradition the craziest Thing I saw in markets this week, Sarah, I've got a contribution from none other than our Crazy Things correspondent Vildonna Hirich, who said to me, I'm not telling sorry about this one. I'm giving it right to you,

So I don't know how you feel about that. Well, she didn't even tell me that she was going to do a roundabout and come to you. I had no idea this was coming. But I will say we also have a trifecta of guests rite ins. We have a voicemail. I got a ib which for those who do not have a Bloomberg terminal, it's like instant message. It's your instant Bloomberg. And then I also got a direct message on Twitter. So we've got plenty of crazy things. Thank

thank goodness for that. Right, But let's first start with that market talk that we know you all came for. And uh happy to have a new guest this week on the show. He runs the International and Global Mutual Fund and EATF business at Davis Selected Advisors. His name is Danton, Go Eat Dance and welcome to the show. Thanks so much Mike for having me on on board.

Very excited. Oh great, you know and Ted. And before we start talking about markets, I gotta say we get notes about the guests from you know, the PR people that you guys work with, our our good friend Tyler Bradford. In this case, I gotta ask you first about something he pointed out, which I think I think is fascinating. Says, every summer, Danton travels to a new international destination to live with his family until school starts back up. That's

fascinating to me. For one thing, I'm glad my kids don't listen to the podcast because I don't want them to know that's an option for summer summer the kids. But I think that's a really cool tradition. Is that just for fun or is that as sort of uh an international equity specialist. Is it part of your research? You know? And and you don't have to tell me what you're expensing on your expense account or not. But I'm curious if it's if it ties into your work

or if it's just for fun. Yeah. No, happy to talk to them, like to your kids about this, but he's he's gonna block you. It is absolutely part of our research process to go visit companies, you know, in their home markets, in their offices and talk to the companies, talk to the competitors or suppliers or customers. And since we are a global fund, those companies are around the globe, you know where our team is based here in New York,

meaning that we travel a lot. But this is a way to really spend instead of you know, a week or two on the ground in the country, to spend two or three months. And so for the last dozen years we've been doing this with my wife, with the three kids, and we alternate between Asia one one year and Europe the other year. You know, I grew up in France and I was born in Germany, so you know, Europe and in some senses my home, but my family is in Adonesian Chinese, and I speak Mandarin, so I

feel comfortable in Asia as well. So both places have a lot of contacts, and then the last dozen years have been able to build that network. So it's been a really fantastic way to kind of build a network over time and visit these companies and a lot of the companies that we own in the portfolio. So yeah, I would highly recommend it. So really quickly before we get to the market's talk, I have to ask them, do you have a favorite country or a favorite place

that you you've ever lived? You know, I think right now one of the most exciting markets to be obviously, you know, it's sort of an asterisk is an unusual year, but has been China over the last few decades to watch, you know, the first time I went to China was nine and it was a totally different country and market than it is today. But be able to see the last three decades of evolution over there has been really fascinating. But of course I have a soft part in my

heart for France. That's where I grew up, That's where all my high school friends are, so it is always nice to go back home. It's where my mother. My mother still lives there, so um it is nice to go home there as well. And of course the quality of life can't be beat over there and much more comfortable than China. It's a great tradition and your kids

must really benefit from the education value of it. To uh Sarah I, I once was able to get a week in Jamaica to report about the stock exchange there, but Denton's got me beat hands down. I think this this is kids because my kids go to Chinese summer camp with the locals in China or Taiwan or Hong Kong, depending on where we are, and then they go to summer camp a French summer camp in France with the locals as well. You know, they've been kind of thrown

in the deep end at an early age. That's that's great though. Well, one thing I wanted to ask you, let's let's dive into the markets now, and um, I was looking at the holdings of the Global Fund at Davis done very well, very very strong percentile performance, and correct me some of these numbers might be outdated. You know, we're we're working off of whatever the most recent filings was, but about of the global fund allocated to the US at least of the last reporting we have for it.

And here we are as the year sort of closes out here, and I think a big theme I keep hearing from investors is that everyone's looking outside of the US for one, thinking that it's kind of time for international, for emerging markets to shine. Is that up your rethinking a big allocation to the US at all, or or you just you know, sticking with what's worked so far and and not worrying about sort of the the consensus and the zeitgeist out there with with what everyone's talking

about rotating to international. Yeah, I mean, I think people for good reason are looking internationally. They have kind of said that, I think the last two or three years. But the US market is sort of is powered through anyways, but there is a good reason to look abroad. Right now. Evaluations are about lower international markets on average than the US market, So that's already a great starting point. And we know that the last decade the US market has

been very strong. But these things go in cycles, so it's very possible in the next decade, you know, international markets do as well. If not better than US markets, but you know, we run a very focused portfolio of uh thirty five forty sort of best of breed companies. So when we're looking at the US market, we're not

really investing in the overall market. We have a very concentrated and focused view of companies that we want to own, and we're finding, you know, very good opportunities there too. But we would say there's a lot of you know, froth also in the US market that you want to avoid, but underneath that there are some very good values for sure. You know, some companies that have done well recently are

still relatively attractive. I would say we call them sort of the growth stalwarts, the sort of the Googles, the Facebooks of the world. You know, they continue to be

attractive on evaluation basis, on long term basis. But then you've got a whole host of stocks that have been out of favor now for a decade plus, right the value stocks out there, and specifically we're thinking about the financials and the banks that have been really out of favor, you know, basically since the financial crisis and no. Eight oh nine, so that was a long time ago, that

are trading at really low valuation. In fact, when you look at the difference between the Russell one thousand growth versus the Russell one thousand value performance, it's amazing. It's a record gap and difference. So I think, you know, owning the market overall in the US probably not recommended, but within that space some great values. Let's come back

to something that you just walked us through. You mentioned the word froth that at the same time explained how there's growth stalwarts and just because you're a company that's performed very very well over the last year, over the last decade, it doesn't necessarily mean that your time is over. Can you give us a sense of where you do see the froth, the areas where you see risk or that you would avoid uh, and then maybe bring us

through some of the misconceptions that there are. Yeah, I mean, there are a lot of companies that have done great in the past few years, and specifically in that have you know, up three, four or five, six times maybe even this year. But where the valuations in our mind and we're you know, we're value investors, don't make much sense.

And they're great companies, they make great products, and I'm thinking, you know, specifically of a company like Tesla, which has done great, right, I mean, i'll test of shareholders have

been very happy. But when we look at it and you know, and see that they manufacture something cars and have a over six billion market cap, and then you look at General Motors that manufactures seven point seven million vehicles and has a sixty billion you know, so one of the market cap, you know, one of those two things is probably wrong there in terms of how the

numbers will play out over time. You know, we don't own some of these stalks, and they've done great, so kudos to whoever owns them, but we would say, just on evaluation basis, there's quite a bit of froth in some of these. You know, there's just momentum in some

parts of the market. You know, it's in looking at some of the top holdings across a few of the funds of Davis, A lot of the big sort of market dominating firms in their industries are are pretty heavily weighted out Ali Baba and China, Amazon, Alphabet, Facebook here in the US, and at the same time, there's this big buzz about the anti trust issue, not only in the US but in China. You know, ten cent in Ali Baba recently getting fined because of some of their

mergers in the past. I'm curious how you're thinking about that issue anti trust. Is it necessarily a scary thing to be threatened with an anti trust probe? Yeah, it's certainly, um something that's in the news, that's been you know, growing as an issue over the last four or five years. You know, one that some of these companies like Google

has been dealing with actually for a while now. I in fact, they have been under investigation and dealing with sort of fines and remedies in the European Union for five years now already, and they've been operating under that.

And actually, I mean that's a good case where despite all of that and a very strict and aggressive antitrust policy, they have actually done five and in Europe the market share is actually even stronger than in the US, and it's well over search market share, and their results have been very strong. So they've been able to adapt and

operate well despite you know, despite that. I mean, in some ways, of course, it's a little bit of a badge of honor in the sense that you've become so big, so successful people will have become very worried about you. And it does make sense as a society that we are concerned about these you know, these these huge companies and they should be regulated. And so the regulators are definitely playing a little bit of catch up here. But in terms of an investor, you have to really think about, Okay,

what you know, what has happened in the past. You know, it's been relatively benign. What are the possible risks And like you said, Mike, I mean that would be a draconian measure. We haven't really seen that happen before. Very often is sort of the breakup in sort of a you know, the d merger of companies that have been merged for several years. But even if that does happen, it doesn't mean like this business is being nationalized and confiscated. Right.

And then China it's interesting. I mean, they've actually had a much laxer antitrust policy than even the US, so in some ways they've been sort of more capitalistic than even than the US, but now they're realizing that they need to Also, you know that some part some behaviors are gotten too extreme. You know, online retailers are forcing

brands to choose one of the platforms. You know, that's probably not great for consumers, right that raises prices and reduce the selection they are intervening, And it does make sense. Antitrust concerns is a quasi badge of honor. That's a different way to look at it. I wanted to ask you, danton Um, say you are a a U S investor, and odds are you maybe have a home bias and you have a very very large allocation to the US.

We talked about how maybe it's a good time to start allocating internationally, but can you walk us through certain areas, certain countries, certain regions that that you think are right for growth right now and maybe it would make a good investment at this point in time. Yeah, So I think when you go internationally you have to be extremely selective. You know, in our funds we really limit the number of countries that were invested in. You know, there's uh,

for example, twenty six emerging markets. We're really only in s or three or four of them. And that's because you know, the concerns around economic growth, political stability, sort of market access, things like that are important things that you maybe worry a little less in the US. You have to pay a lot more attention to when you're looking at international markets. So when we when we look through that and see which markets we think look really interesting,

you know, China continue to look interesting. It's had, i guess overall a pretty good year, but it's still under somewhat cloud. You know, you definitely still heal here. Sorry, rumblings of the US China geobolitical strain out their intention and that's not going away even if there's a change in administration happening right now. So that's definitely true. But the conditions over there for economic growth are still quite strong.

I mean, in fact, this year, China is going to be there probably the only large economy that's going to grow.

They're looking at sort of a two percent we know, which is still not heroic, but you know, with with what happened with COVID in the pandemic, that's still pretty strong two percent growth, whereas most countries, including the US, we're probably gonna you know where we're in the middle of a recession and the next year expectations are sort of seven eight percent growth, so obviously pretty strong rebound

off of a slow year. You know, Increasingly the companies there because of course, you're not investing in the country or the market. You're investing individual companies. The management teams, you know, keep on getting better and better, really high

quality entrepreneurial managed teams. And then the quality of the companies do you have some leading to all of these there If you think about you know who the top six cloud computing companies out there, of course you think of you know, Amazon and Microsoft and Google, but the fourth largest is now a Chinese company to Ali Baba. Outside of China, I think Southeast Asia also looks pretty attractive.

I mean, it's a conglomeration of sort of six or seven countries, but together you have about a population around six hundred million people, so that's almost half the size of China, for example, so a very large market together. That is, the democraptics are favorable where the economic growth is strong. So I think that's a pretty interesting area to to look at. You know, then, uh, Latin America I think long term also would be interesting. It's pretty fascinating.

Uh debts and to talk to a guy like you who has um sort of discretion to to invest anywhere in the world basically, uh, for for at least a few of these funds, and I'm just you know, it's such a huge universe of stocks out there around the world. I'm curious how your process works, you know, how do you start narrowing down that massive universe of stocks around the world. Is it sort of country by country like you were just saying, do you try to go by GDP growth? Is it a you know, run a screen

of evaluations. What's what's the process like to hunt for that next by You're absolutely right, Like, you know, there's about three thousand companies in the Global Index. That's a huge amount of companies to follow and stay on top of and be familiar with. And of course in that there's lots of companies that you would never want to invest in, you know, state own enterprises, these old industrials and telecoms and utility companies or stay owned banks in general.

We're gonna avoid already that big part of the market because they're not really run for shareholders, they have other interest at heart. But we really kind of focus on at the industry level, right, and so we're trying to understand whether it's consumer or industrials or sort of technology. Where are the great companies, where are you know, innovation. Where are the great brands anywhere in the world, and then so the world we'll follow that lead. With that said, Mike,

I'm pretty sure it's that time. It is that time. Stand clear of the craziest things we saw in markets this week. Sir, why don't you get it started. You have a bunch of contributions from the voice. Oh, we have a voicemail. Let's play that. Hi, this is Tim. President Obama's high school basketball jersey got auctioned off for a hundred and ninety two thousand dollars. This is more than what Michael Jordan's was, Fred seventy three thousand. End of broad James was we're like a eighty five or

something thousands. So President Obama's of high school jersey for thousand was the most expensive high school basketball jersey that has ever been auctioned. Always great to get a voicemail, every one. Remember if you want to give us a call, that number is six four six three two four three four nine zero. And just as you heard, we may even play your message on the show. But not only did we get a voicemail, as I said earlier, we also got other writings too. So first I'll read this one.

This came through on the Bloomberg terminal from Stephen Kaminski of Jump Systems. Uh So, this is what he said. He said, we all already know one of the craziest moments in this crazy year was oil going negative in April. Perhaps even crazier, though, is nine traders at Vega Capital, whereas a group the biggest sellers of w t I futures and spreads. On that day they made six hundred sixty million dollars. Even the son of one of the Vega traders, who's in his early twenties with limited experience,

made eight million all caps. Wild story, and I do encourage this is a great story. One of the reporters on this was Liam Vaughan. We had him as a guest on one of our prior podcasts. He's a great, great storyteller. Um So, I encourage you to go read it, and then uh I'll read the other one as well. This one came through on Twitter from at Term Management. He said, the craziest thing in markets this week full disclosure.

He wrote this at the end of last week two, but didn't quite make it in because we had already recorded the podcast. He said, airb nb I p O getting plenty of attention for performance in early trading. Meanwhile, pebble Brook Hotel Trust, this is peb The ticker is priced four fifty million dollars of six year paper at one point seven five. And then you went on to explain you may be familiar, but the hotel reads carry basically all the operational leverage, and the operators don't actually

have much downside exposure. Current hotel occupancy is in the upper thirties. Uh And then he went on, he goes and yet creditors underwriting a yield of less than two percent, limitless investor appetite for anything related to the quote unquote reopening trade. And it really is remarkable, Mike, it really is. That's I believe that's froth with a capital F right there for that mistake. But I'm curious what you think. You know, we've seen some really popping uh I p

O debuts in the last week or so. You guys seem focused mainly on the more mature companies. How you know big of an IPO? How how attractive does an IPO have to be to sort of catch your attention or do you like to wait and see that the company's lasted a few years before you get involved. Yeah, I mean it depends. Um. You know, some of these I p O companies actually have been uh, you know,

large companies operating at scale for many years. That might not have been the case years ago, because when you're that large, you know you've already come public. But now with the strength of the private markets, uh, these companies have not had too uh. And then you know there's other reasons. You know, the star bans Aukleys and things that like that have just sort of dissuaded people from from from coming public. And then the focus on quarterly earnings is sort of a turn off as well, So

there's been good reasons why they stayed private. You see some of these companies coming out and they're actually relatively sure. We're very valuation sensitive and so we'll look at some of these and if it makes sense, participate, But in general, we're really mostly focused on the publicly traded companies out there. Interesting. Interesting, alright, n before we put you on the spot for your crazy thing, I'll give you mine via vill Donna, high

rich and very high expectation. It's a good one because it will allow us to play little prices right here on on what this is. Obviously it's an alternative asset. As you know, is um u inclined to delve into auction. In in UH London by Christie's, the first commercially printed Christmas card is up for sale. It's a merry Victorian era scene that scandalized some who denounced it as humbug when it first appeared in eighteen forty three, and that

that great lead is courtesy of the Associated Press. Uh. So it was controversial because it's a picture of a family having a big, happy Christmas meal, but they're all drinking wine and there's even someone offering some wine to a young toddler at the table. So I think the the temperance movement in UH in England in the in the late eighteen hundreds was not very happy about this.

So so it was very controversial. They say only a thousand were printed first commercial Christmas card a thousand printed, Only about thirty left started knowing what you know about the alternative assets space? Uh, what's your what's your price on this? Because you know I'm a professional now an alternative asset, that's right. I think the common thread with these prices rights has really been that. Typically they cost

much less than we're inclined to guess. So I'm gonna I'm gonna low ball it, uh, and I'm going to go I'm gonna go six d dollars, six hundred dollars. Okay, what a scrooge? Cheez, six hundred dollars, Denton, how much are you willing to bid for the first commercially available Christmas card from forty I believe it is. I know, I think I just saw that, like um, Gretzky's rookie card went for a million dollars. That was actually that

was going to be my personal if we needed it. Uh, you know, maybe not Gretzky levels, but certainly more than six. Come on, Sarah, every look, every time we play prices, right, I guess something ridiculous like two hundred thousand dollars five million dollars, and everything is typically way below what I guess. So the wise move here, Denton is for you to bid six or one. That's what I would That's what I would do. I know I've watched I'll put you

down for six. So I watched a lot of prices right in my childhood, and I would I would go six so one exactly alright, So it hasn't sold yet, it's up for sale. I' leave this uh this weekend. Uh, there's thinking between five hundred and eight hundred pounds, so between about sixty seven hundred and eleven thousand dollars um. Always seems a little low to me for the first Christmas card. I don't know. Okay, So I was I was right in the right range you were, Yeah, the

low ball bid was that was smart. I was expecting a six figure bid from you, Sarah. So it's good. Good to see you've got a little price discipline and you. Uh, I've learned to tamp down my expectation, right, even though Sarah did just buy a Peloton so I, uh, she's she's feeling the froth. I think she's feeling. I'm going to say it out right from my perspective, maybe one of my best practices of twenty twenty. Yeah, yeah, I mean yeah, I got it on Monday and I've already

used it a couple of times. So have you gotten have you gotten any shoutouts from the instructors? I I feel like you're not really a pelts On rider and sold they one of those people in the like Cris shout you out in the middle of her. I haven't done any of the live rides yet, but I'm planning to on Sunday, so I'll let you know. I'll let

you know if I happen to get a shout out. Alright, alright, interesting now, dads, And I'm not sure if they warned you about this gimmick, But have you have you seen anything crazy in markets this week? You can tell us about. Yeah, you know, I think there are plenty things, you know, one of the most amazing things that I've that I've seen, um, you know, and of course Bitcoin has been a lot in the news, and of course it's hitting records right triple this year or more than that, it's twenty three

thousand UM. So recently somebody launched a crypto index fund. You know. This is the bit Wise ten crypto index fund. It's the so the top ten cryptocurrencies out there, uh, you know, an index fun of that UM and so the NYV of that per share is eighteen dollars and fifty cents. Guess what the price per share? And these are just you know, basically bitcoins and some other ether and some other currencies in there, just what the price of that uh per share is nine? I'm gonna upstand

because I because I read this. I had to, you know, I had to. So in preparation for this, I looked at the data and I had to call my financials analysts last night and say, can you turn your Bloomberg

on and look at this? So if I'm not misreading this, so you know, the n A V is eighteen fifty, the price is nine dollars, right, so the so the premium is about four four, meaning it's training at five x. Right, So if you you know, if if if bitcoin and this is mainly bitcoin, right, Bitcoin and of those ten currencies, you know, you know, we we can we can debate whether bitcoin is a bargain or not at but paying over a hundred thousand for a bitcoin when it's trading

at twenty three thousand, that just seems crazy. It makes you wonder that people investing in this index, I mean, can they possibly know what they are doing, like what what they are exactly buying if they're buying it at such a premium, you know, right? I mean, doesn't you know you can just go out there and buy the bitcoin instead, right at at twenty three thousands, buying it

for over a hund thousand. So I think I think part of and forgive me if I embarrassed myself here by talking about crypto, because we all know I'm not exactly the world's leading crypto authority, but I think the issue is you buy some bitcoin, it's not necessarily uh safe and secure on some exchange. We read about all these exchange getting hacked and whatnot, and bitcoin while it's

getting looted. So I wonder part of that premium because the Gray Scale Trust, which is an older mutual fund that buys bitcoin, has always had a big nav premium like that, not quite like that. I think it's you know, like maybe sometimes, but I wonder if people are willing to pay up for the security and knowing that someone else is going to store this, keep it safe and and you're not gonna wake up and and see a zero balance someday if if the exchange you're dealing with

it had gotten hacked. My best guest, yeah, I know that could be good. That that could be that could be right, you know, Or if you stored the information on your hard drive and and your girlfriend threw it away and you've got to go into the garbage looking for the hard drive. But I think part of it, maybe it's just that there's people out there are comfortably investing in equities. This is an equity, yeah right, and so it's just easier. You can go onto your brokerage

account and buy it easily. You don't have to buy you know, you don't have to set up a separate of crypto account. Uh. That might be part of it, but you know, but paying five x just seems absolutely extreme, right and also also in a crypto and I guess I PO news coin Base has now filed confidentially to go public. So we're just going to ride the crypto train. Oh that that I p O is gonna I won't make any predictions, but boy, that'll be an interesting IPO.

We'll see. Well anyway, maybe Sarah, maybe if there are some crypto expert I know we have a lot of crypto experts who listened to us, even though we don't give them a lot of a lot of content. But if anyone has any other ideas on why that fund is trading at such a premium, by all means, give our hotline a call and let us know. Please do please, do uh and unfortunately we are going to have to leave it there, but Danton goee. Thank you so much for joining the show this week. Mike, Sarah, it was

a pleasure. Thank you so much for having me 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. And you can find us on Twitter, follow me at Sarah pont Seck, Mike is that reaganonymous, and you can also

follow Bloomberg Podcasts at podcasts. Also, thank you to Charlie Pellett of Bloomberg Radio and the voice of the New York City Subway System. What Goes Up is produced by Jordan Gospore. The head of Bloomberg Podcast is Francesco Levie. Thanks for listening. See you next time.