In an uncertain market… focus here instead

The dollar is ripping. Emerging markets are teetering. The yield curve is inverted… Holy crap, what’s an investor to do? 

Well, you could waste your time chasing after the market’s tail…

Or you could focus your time and energy on finding the markets that aren’t pricing those factors in. Join me for a walk around today’s financial markets…

Plus, hear about a moment this weekend that changed my life.

Transcript

The Mike Alkin Show | 70

In an uncertain market… focus here instead

Announcer: Free and clear of the chatter from Wall Street, you’re listening to Talking Stocks Over Beer, hosted by hedge fund veteran and newsletter writer Mike Alkin, who helps ordinary investors level the playing field against the pros by bringing you market insights and interviews with corporate executives and institutional investors.

Mike sifts through all the noise of mainstream financial media and Wall Street to help you focus on what really matters in the markets. And now, here is your host, Mike Alkin.

Mike Alkin: Welcome to the podcast. It is August 19th, Monday, 2019. Hope you had a nice weekend in, really, what are the dog days of summer. We, my family and I, had a great weekend. We went out to visit some friends on the North Fork of Long Island. For those of you that don’t know the geography, Long Island is, it’s about 100 miles long. It’s to the east of New York City. And there are two counties, Nassau and Suffolk County. Now, technically, if you were to look it up, it would say it’s 120 miles long and it would say there’s, I think it’s seven million people there. But that includes Brooklyn, which is a borough of Manhattan. And it includes Queens, which is a borough of Manhattan.

But, actually, Long Island is two counties, Nassau and Suffolk County, and about 100 miles long. Seven, 10, 12 miles wide. I read, it says 23 miles at a point. I don’t know where that point is, and I’ve lived here many, many years. But as you get east, probably at about the 70 mile mark, it splits off into two directions. One goes north. One goes south. Well, they both go east. But one’s called the North Fork. The other is called the South Fork. And that goes for about, I don’t know, 25, 30 miles in each direction.

The South Fork, if you will, is what some of you may have heard. It’s called The Hamptons. If think of lifestyles of the rich and famous, you would have the towns of Westhampton, Southampton, Bridgehampton, East Hampton, Amagansett, and Montauk, which is the very tip. But that’s known as The Hamptons. Very toney, very chichi. People from all over the world have homes there, but a lot of New York City people go out there. And the homes are just outrageous. They’re spectacular. You have your five, 10, 20, 30, 50 million, $100 million homes.

And it’s along the ocean. That’s the ocean side. But very crowded. The place to be, and be seen, and all that stuff. I haven’t been there in, I can’t even tell you how long. 20 years, 25 years. It’s a scene that’s just, I’m not into the scene.

The other fork, the North Fork, that 30 mile stretch of land, and if it’s a little bit more or less, I’m probably close. That is farm country and wine country. You’ve got wineries and you have farms. And those farmers out there going back generations. They’ve turned what were originally potato farms into multi-million dollar enterprises. Big farming enterprises. Homes are being built out there. The farmers just sell off some land, and all of a sudden, they just monetize. You know, make it up, $10 million.

Farm stands, and country, and tractors. That’s more my, my wife’s style. We enjoy going out to the North Fork. It’s very mellow. Very chilled. It’s not a scene. It’s not the place to see and be seen.

We have a friend, a husband and wife, they have a home out there. And so, we took the kids and some other neighbors and friends and went out there, and just had a fabulous time. On the South Fork, you have the ocean. On the North Fork, you have the Long Island Sound. The Long Island Sound is a big body of water. On the Long Island side, it’s the North Fork. And then, it goes over, on the other side is Connecticut. And all points New England from there. It’s about a 45 minute boat ride, if you were to just get in a boat and travel at a reasonable speed to get across. And you could see Connecticut from that side.

But the North Fork, where the South Fork, and The Hamptons, and all the ocean beaches, you know, sand for miles and miles … the North Fork is very rocky, and hilly, and the beaches are pebbles. But beautiful. Very serene. Very calm. But that wasn’t the big highlight of it. That was not the highlight of my weekend. I mean, it was great to be around our family and friends. Nice backyard pool. Take long walks down to the rocky beaches. My rock skipping skills have deteriorated over the years, I’m sad to say. We did some spooky walks at night. 10:00 at night, into the dark. It’s pitch black there. We took the kids out. The kids range from 12 to 16. And we were walking and, of course, you know, a couple of dads. So, dad jumps ahead and then comes out and scares everyone. So, you know, a lot of fun.

Learned a game called world ping pong. Global ping pong, where everyone plays. However many people there are. You hit the ball, and you rotate, and you keeping rotating. And you just keep going back and forth, back and forth. And whoever gets it out, they sit out, and then, less players in the game. But a way to get everyone involved. So, it was a lot of fun. But, again, not the highlight of the weekend.

The highlight of the weekend for me, by far, was something that I think will change my life. It was a life-changing moment, and I don’t have many of those. It’s something that, it will stay with me for a long time. It almost brought me to tears. It was a hose. One of the biggest complaints I have about being a suburban husband, dad, homeowner, is the hose situation. I have tried, for years, to find a garden hose that does not make me want to take the hose and rip it out of the wall. I have tried to find a hose that doesn’t kink. I have tried to find a garden hose that doesn’t get caught around trees or bushes. When I’m right in the middle of doing something, it stops.

I’m trying to find a hose and one of those reels that it actually fits on like they show on the commercial, or they show on the internet ad. But never do they work. Every hose is a nightmare. My friend Rick says he’s got to water the plants and flowers while we’re there. And I see a little tiny hose in a little tiny bucket. And I said, “You’re joking, right?” He said, “What are you talking about?” He pulls it out of this little tiny bucket, this little tiny hose, and he puts it on the deck. And then he turns the water on, and it extends. It looks like a snake. And it keeps extending and extending. It’s unraveling itself slowly. And it reaches 100 feet.

It doesn’t get caught. It doesn’t kink. It doesn’t do anything of the sort. It comes with a sprinkler head with all the different settings. He’s walking it around. It’s bending, and curving, and doing everything. He’s done. He shuts the water off and it recoils. And he walks it right into the little bucket again.

It was life-changing. Other people who were there, they had the same experience that I did. I couldn’t even get my head around it. I pulled out my phone and I started ordering for whoever wanted one. Went to Amazon. $39. And I placed, I mean, my neighborhood’s going to have these hoses. So, if you are experiencing the same thing that I do, it will by far change your life, because it has changed, it will change mine. Because I’m a waterer. But every time I pull out the hose, you know, we have the automatic sprinklers and stuff, but there’s still plants and flowers that you’ve got to get to. And I’ve resorted to just using the bucket. And that’s a pain the ass, because you’ve got to fill it up and walk back and forth.

So, go on Amazon. It’s $39. I forget the name of it. But look for it. It’s a life-changer.

Anyway, besides that, the other thing that’s captivated me, you know, if you’ve listened to the podcast for a long time, you’ll know that I like watching TV series, crime drama, spies. Blacklist, The Americans, all that stuff. I also read a lot. I watched a couple of movies that caught my attention. The Jack Reacher movies. I decided, you know, I’ve never read the Jack Reacher books. I think there’s 19 of them. They started in the mid-’90s. And I went back to the first one, Killing Field. Written by Lee Child. Lee Child’s very interesting. He’s a Brit. Lives in The States. He was some sort of a TV producer in the UK. At 40 years old, he was let go. Working guy with a wife and daughter, and bills to pay. And he said, “You know, I really have no skills other than TV producing. I’m going to become an author.”

And he sat down, and I think within six months he banged out his first Jack Reacher book, and he’s gone on to sell over 100 million copies. And I had never read them until I saw the movies. I can’t put them down. He said, when he started writing these, he sat down, just like life, he didn’t know what he was going to write about. No plan. No concept. Just a series of vague ideas. He said he wanted to be as excited as the reader would be. And he really makes it, like most good books, it’s about the main character, this Jack Reacher. He’s this dislocated and alienated former military police officer. He’s like a mysterious stranger. He shows up in the nick of time, he solves a problem, then he moves on. He doesn’t own anything. Nothing owns him.

He travels. After 14 years in the military. He was a military brat, and then he went to West Point, and then he was in the military for 14 years. And then, he got out, and he finally had freedom. And he travels. He’s American, but he had never really grown up in America, so he wanted to recapture what it was like, as a kid, going around the country with your family. And so, the way he does that, and the way he is free of the shackles of military discipline and always having to be somewhere at a time, is he just, he moves from city to city. Every day, he’s somewhere else. He stays in $39 motels. He doesn’t carry a bag. He goes to a dime store and he buys a shirt, and pants, and underwear. And then, he throws them out every three days, and he buys more.

He’s an interesting guy. He’s military trained. He was a major in the military police. He’s a sniper. And he’s offended by injustice. He’s offended by people who have done wrong. The David versus Goliath type situation. And he roams around, and trouble always finds him, and he always works to resolve the problem. Hard books to put down. So, if you’re looking for a good series to read, I would recommend the Jack Reacher novels by Lee Child.

Anyway. Also had a little time to do some weekend catch-up reading on market stuff. Sometimes you just, things really just pass you by. Or you’re seeing them, and you’d say, “Okay. I’m going to get to it.” You check it, or you bookmark it, if you see it on the web. I read the Journal in paper and I cut things out. I don’t talk a lot about what’s going on in the markets. I talk about specific things. Because what do I know? I’m not a macro guy. It’s hard. But I thought I’d catch up on some of the things.

And again, this podcast is not for the institutional investor. This is for ordinary investors who are trying to learn. So, if you’re an institutional investor, you’re going to kind of, you know, “I read this every day.” Well, that’s fine. Probably shouldn’t listen.

One of the things that’s caught my eye is you’ve seen this prolonged dollar rally. The dollar is really strong. You may read about that. You hear about it. Now, what does that mean? What are the ramifications of that? What’s happening because of the dollar rally? When dollar is rallying it pressures U.S. corporate earnings, and we’ll talk about that. It hits commodity prices. And it hurts the emerging markets. And what you’ve seen, this year, is the dollar is just grinding higher. It’s moving higher. Despite what’s an escalating trade battle with China. And you’ve got President Trump who’s complaining the dollar’s too strong, and he’s trying to slow it down.

Last month, despite the Fed cutting interest rates, for the first time in a decade, it grinded higher. Now, the dollar index, which is, it tracks the dollar against a basket of six major currency, is at its highest level in more than two years, and it’s up 11% from its 2018 lows. Now, what’s driving that, one of the things, is the relative, keyword, strength of the U.S. economy. Which, since 2015 until really recently, has seen the Fed raising rates far above the levels of borrowing cost in other developed countries.

Up until about last year, the bet investors were making was that growth would accelerate abroad, in foreign countries outside the U.S., which boosts foreign currencies as central banks outside the U.S. raised rates. But the problem is, that never happened. Investors now believe that the gap in the yields is probably going to stay there, as the central banks ease monetary policy, they reduce rates to offset this global slowdown. And if you think about the U.S., you’re talking about, is there a recession going on? Well, we’ll know in a while. Is it happening right now? That’s the big talk right now. Is it in recession? There’s nothing really impressive about U.S. growth, but compared to other parts of the world, it’s impressive.

So, what does the dollar strength do, right? Who does it hurt? Who does it help? Well, it’s not good for U.S. exporters because it makes their products less competitive abroad. For big, multinational companies, it makes it more expensive for them to convert those foreign revenues into U.S. currency. Why should that matter? Well, investors have been hoping for a big earnings rebound in the second half of the year, but if it becomes more challenging for the multinationals to convert revenue into U.S. currency, that hurts earnings.

S&P 500 companies who had more international exposure, their earnings fell about 12% in the second quarter versus last year. Those who had more domestic revenue saw their earnings grow about 4%. Now, with this strength, because the dollar’s been strong, investors get nervous about emerging markets. And over the last several months, you’ve seen a bunch of these markets get hit because investors are worried about the trade battle between China and the U.S. and global growth slowing. And when a dollar’s strong, it makes it more expensive for these emerging market countries to service their debt that is dollar denominated.

So, if they borrowed a lot in U.S. currencies, that hurts them. How big? It’s about 6 trillion, $6.5 trillion. It was about 2.5 trillion, 10 years ago. It’s gone up two and a half times, thereabouts.

On the commodity front, the dollar hurts them. The rising dollar. Oil. Copper. Other raw materials that are denominated in dollars become more expensive to foreign buyers when the U.S. dollar gets stronger. Now, it does help U.S. companies who import their goods, because it increases the buying power. And, theoretically, it should help you, me, and other consumers who are buying foreign goods. Also, if you’re traveling abroad, it’s a home run. I’ve got to go to the UK next month. The pound’s really weak. It’s good, right? I get more for my dollar.

The strength of the dollar, it’s good for countries who are trying to boost growth, because it makes their own currencies cheaper. But it’s very tricky. If you’re not focusing and paying attention to what’s going on in the dollar, you just have a basket of stocks, you own them … I don’t know, you own a bunch of multinationals. It might be something that you need to think about. Again, I don’t tell you what to do. I point you in the right direction. And that direction is, take a look at what you own. Think about the impact of the dollar on what you own. Do a little research on it. If you’re loaded with multinationals, big, big blue-chip multinational companies that have a lot of their earnings outside the U.S., well, their earnings stream is going to be challenged, going forward. And what does that mean, against consensus? That’s something you need to think about. Maybe you want to rotate a little bit more into more domestic-oriented industries.

I was reading something by David Rosenberg from Gluskin Sheff. Market strategist, economist. He talked about living in dangerous times. Gold prices are surging. Bond yields are plunging. Central banks are confused, he says. He calls it the breakdown of the world order. He points out we have a trading currency war going on between the world’s two dominant powers, China and U.S., and there’s no endgame in sight. And he says, think about what he’s describing. Gold going up. It’s soaring. Bonds rallying sharply. An equity market rolling off the highs. Deepening racism, he points out. And a tariff and a currency war.

He says, you know what that sounds like a lot to him? The 1930s. Back then, he points out, it became a real war that cost millions of lives. He goes on to say this war won’t cost lives, but it’s going to cost livelihoods. Think about that. And he goes on to make some really very interesting points. He says most everyone he speaks with lives in the here and now. I can’t agree with that more. I so agree with that. He says they seem more interested in telling people how crazy cheap the stock market is and how crazy expensive the treasury market is, right? Rates are down. Interest rates go down, the value of bonds go up. The price of bonds go up. Shouldn’t say value. The price go up.

So, that’s the here and now. And he points out, rather than trying to look at the current environment in historical perspective, he says that living through a period of history that will be written about in the textbook in the years and decades to come, and the undertones aren’t good. He makes a great point. He said, “Instead of telling people there’s no recession, the bulls should be discussing why the markets are busy pricing one in.” What do these pundits know that the markets don’t know? And hold that thought, because we’re going to talk about that in a few mins. It’s such a great point, and I’m going to equate it to something else.

He says we have a bond market in which a quarter of the universe trades at a negative yield. The long bond has gone negative in Germany. More than half the world’s bond market is trading below the federal fund’s rate. Investment grade yields, companies with good credits, on average, are below zero in the Euro area. And he points out that’s completely abnormal, because it reflects an abnormal economic, financial, and political backdrop.

He says those who point at the stock market’s performance with a big cheer because of its V-shaped recovery, they ignore the fact, or don’t talk about it, that in the past 12 months, the total return is marginal in real terms. And the best performing sectors are the ones you can only rely on, typically, in a deflationary recession. Real estate, utilities, and consumer staples.

He brings up the point that one of the problems coming out of the most recent recession … remember that one? Remember, way back when? It seems like a long time ago, but it really wasn’t. One of the problems coming out of the most recent recession is that the global debt load is infinitely larger now than it was at the peak of the prior credit bubble. The world is awash in debt. And he talks about the years of monetary intervention among the world’s central banks that created artificial asset price inflation and also exacerbated wealth inequalities at the same time.

One of the things David points out is this fiscal policy failed to address the increasingly wide income disparity, which is a global dilemma. He says that has become very acute in the U.S. Marry that with the accelerated pace of technological change, it’s led to even greater obsolescence in the labor force. And he highlights the point that there’s so much uncertainty that, even at a five-decade low, sub-4% headline unemployment, the U.S. working class is too nervous to ask for a pay hike. Think about that. The workforce has the employer by the balls, yet they’re afraid to get a pay hike.

And then you have the whole populous movement all the while, right? The immigrants and the foreign competitors blamed for all the woes. It’s been an easy for populists. Not blaming the populists. It’s been an easy time for populists to emerge as national leaders. And they tap into that fear. And that’s going on globally.

Meanwhile, you’ve got a lot going on in the world. You’ve got Brexit. That’s a big deal. We’ve got these huge division in the European Union. Italy might be next to leave. We still have instability in North Korea. Trade war between Japan and South Korea. What’s going on in Iran. And he points out that, recently, the tensions between India and Pakistan, as Prime Minister Modi, he’s gone very nationalistic since his election victory. Look at Hong Kong. What is it, eight, nine weeks now? Mass protests in the streets. They had to close the airport. That’s especially interesting, if the peg with the U.S. dollar ever comes into question.

Then you’ve got the trade, and the currency, and economic war between the U.S. and China. No side is willing to back down. And as he points out, all the while, with all this going on, central banks are being pushed into an easing action. For the first time since the ’30s, a Federal Reserve tightening cycle got stopped out at 2.5% on the Fed fund’s rate. Think about that. Those of you who are old enough to remember, where were interest rates in the early ’80s? Think about, the high teens. You have long duration yields. Long maturity. Yields going negative. The debt dynamics are not stable. And, likely, why the rates have to go down.

But when rates go negative, how do assets with cashflow streams get valued? It’s a wild distortion. David points out that all that while, gold prices are breaking out in all currency terms, and central banks are adding bullion to their reserves. The Fed, I mean, they’re all over the place. Just recently, Powell did a pivot with his messaging. He sounded very dovish at his semi-annual congressional testimony, and then he walked the sentiment back the following meeting, saying this wasn’t going to be an easing cycle. Why is he doing that?

David makes a point, he says what we took for granted in the post-Marshall Plan, Bretton Woods experience was the unusually high degree of world coordination and integration. It wasn’t perfect, but it engineered an unprecedented period of global stability. And unless somehow the political leadership vacuum is filled, and filled fast, we’re on a slippery slow. The gains of the past 70 years, in which the world became smaller and worked together to make it a better place are at risk. It was an era of relative stability that we all know, having lived it. But keep in mind, it was also a grand experiment. Now, the ugliness of hate, blame, mistruths, nationalism, and populism have staged a revival.

Mr. Trump, Mr. Modi, and Britain’s Boris Johnson are symbols of this, not the cause. Where it happens, who knows where it goes, right? But think about this. This is the market that everyone in the investing world, in the institutional investing world, and hopefully in the retail world, people are paying attention to. It’s what everyone is following. It’s the events around the world are being priced in minute by minute. If we go up to what he asked early on. Ask yourself what’s being priced in. Instead of telling people there is no recession, the bulls should be discussing why the markets are busy pricing one in. “What do these pundits know that the markets don’t know?” David writes.

That’s how it works in most markets, especially the global market. They’re fairly efficient. Not totally. But they’re priced in. Everyone. You have trillions, and trillions, and trillions of market sizes, equities and fixed income. Brilliant people, every day, trying to predict the future, getting priced in. That’s a hard game. And who knows?

And let’s think about this. Let’s talk about an investing risk reward. So, in this case, in the global market, if the bears are right, where does the market go? Does it go down, I don’t know, 20, 30, 40%? Another global financial crisis? I don’t know. If the bears are wrong and the bulls are right, and stocks are cheap, does it go up another 20, 30, 40%? I don’t know. But I do look at, if I have 20, 30, 40% down, and I have 20, 30, 40% up, depending on my viewpoint, that’s a pretty balanced risk reward. What is it, one to one? 20 down, 20 up. 30 down, 30 up.

All of these people around the world, every day, every headline, CNBC, Bloomberg. You read it, it’s there. Wall Street Journal, Financial Times. China Morning Post. You name it. Everyone’s trying to predict the same thing with a lot of information. I’m out. No interest. I’d rather look at stuff where, if I’m wrong and it goes down 10, 20, 30%, 40, who knows? But if I’m right, it goes up 200%, 300%, 400%, pick a number. Something meaningfully higher. I’d much rather spend my time doing that.

And there are pockets where, just as there’s as many eyeballs looking at everything that’s going on in the world, there are pockets where people are paying no attention. Where things have been literally left for dead. Offshore oil. The shipping industry. One near and dear to my heart, the uranium business. Where they’ve undergone such dramatic and traumatic change. In the offshore oil, it’s been destroyed because of the shale plays in the U.S. And shipping is a volatile, crazy industry. It got so bad where supply came offline. Ship builders closed. No new orders were coming, or are coming. We’re talking at multi-decade lows, in both valuation and supply.

And if you’re an offshore oil services company or driller, you’ve been destroyed because of the attention of capital that’s been flowing into the shale plays, only to find out that shale plays are getting destroyed right now. Why? Because three quarters of them don’t make money. They owe hundreds of billions of dollars. They’re going to have to reify that stuff, and investor appetite is waning. And all these offshore projects got put on the shelf. And, oh, by the way, it’s still a place where a quarter of the world’s oil comes from, and you need it.

But what happens, with the shipping companies, with the offshore companies, the valuations are at multi, multi-decade lows. Just at a period where there’s an inflection point. But guess what? There’s not a lot of people paying attention to it. Why? Because there’s no banking fees. Very little. The analysts don’t get compensated for doing that. The investors don’t like to catch falling knives. And things drift lower. And underneath the surface, things start to change. And they start to change, and they start to change, but nobody’s paying attention. Now the rest of the world’s focused on all that other stuff.

And all these recency biases kick in. Well, shit, man. Try talking about uranium at a cocktail party. Nobody wants to talk about that. Nobody wants to talk about offshore oil or shipping. They want to talk about marijuana stocks. They want to talk about WeWork. That calamitous shit show. Uber and Lyft. These companies piss money down the drain. In a sector like uranium, consensus … I see people say, “Well, the market’s always right. It’s telling you what it is when it’s pricing it in on a daily basis.” Bullshit. Absolute and utter bullshit. There are segments of the market that are inefficient. Where the price action is not indicative of the fundamentals. And that’s just the way it is, because so few people are paying attention. Institutions.

We’re not [inaudible 00:36:04] when there’s retail in there. Unfortunately, retail is driven by price action. So are some institutions. It’s cyclically different though. Retail is driven by emotion, typically, and price action. Might like a thesis, might like a theory, might like potential. It sounds good. The risk reward sounds good. But the fundamentals take a little, sometimes a while to change. And the price action of the equities, where people might say, going back to David Rosenberg’s question, what does the market know that you don’t? And that’s typically the case, in an efficient market, in efficient sectors, where a lot of people are looking.

But where a lot of people aren’t looking, that’s where there are inefficiencies. So, the price action could be going one way while the fundamentals are going another, which is the case in uranium. Where the equities can be doing one thing … I’ll take the case of post-Section 32, and I’m not going to get into it. If you haven’t been following it, go back and read some of the stuff or listen to a podcast.

Literally, fundamentally, nothing has changed, except every day the fundamentals get better. But retail investors were hoping that the day that President Trump ruled on Section 232, in the middle of July of 2014, they’d see the price of uranium go through the roof. Nothing could be further from the reality of how the actual market works. Nothing. These are long-life contracts. Even the near-term contracts, they take a while to sort out. They take a while to figure out. You’ve got July and August. You’ve got utility buyers that aren’t going to turn around the next day and say, “Let’s go do it.” That’s not how it works. And if you spoke to people in the fuel cycle, you’d understand that. But if you’re driven by price action, you wouldn’t know that, because it takes one that sells and another in tiny, blown-up industries where there’s not a lot of shareholders, and a little bit of movement, $100,000 a day can move a stock, that’s where that happens. And things take on a life of their own.

In inefficient markets, where nobody’s paying attention, where you get your edge is going into that market, and talking to those people, and understanding the psyche, and understanding the incentives, and the motivations, and how it works, and the time horizons, and the length at which things get done, and how contracts are negotiated, and what their understanding of supply and demand is, and what the real numbers of supply and demand are, and how do educate them to [inaudible 00:38:43] different? And how does price discovery occur?

And you take every bear case. Every part of a bear case. Whether it’s shipping, or offshore, or uranium. There’s too much supply. There is not enough demand. There’s too much inventories. And you go through each one. And then you understand how consensus is formed, and who makes up consensus, and what are the motivations of consensus? Is it driven by one or two organizations? Is it driven by a handful? And how stale is consensus? And talk to them, and ask them how they make the sausage. And understand the assumptions that go into it, and what kind of recency bias there is.

That’s how you develop conviction. That’s how you develop conviction in a non-consensus idea. In a contrarian idea.

I do presentations, sometimes, on uranium. I get interviewed and I talk in generalities, because we do our own work. It’s proprietary. People pay us to do that. We have investors who pay us to manage money for them. So, we don’t share too much. But that’s going to start to change here over the next coming months. We’re going to start to break down, not here on the podcast, we’ll talk about where and when, our views. Footnoted, sourced, ticked. Because when you see a risk reward that is asymmetrical, there is far more upside than there is downside, in one’s view, in our view. All the other stuff that goes on is noise.

But everyone could sit there and talk about the topic of the day. Talk about where the market’s heading. And, oh, by the way, I’ll remind you of something. All this stuff that David Rosenberg says, I agree with. We’re in uncharted waters. And who knows where it’s going to end? And in these sectors, where they’ve been hammered, and destroyed, and left for dead, people say, “Oh, God. In a global sell-off, everything’s going to get hammered.” One thing that I do know is that when things are working in the market, capital gets attracted to it. And when nobody’s paying attention, and everyone is following price action and ignoring the fundamental changes that are occurring underneath the surface, because there are so few eyeballs paying attention, and those reporting on it are using a recency bias, and bullshit assumptions based on that recency bias, all of a sudden, when that turns and the fundamentals are apparent … and yes, you know what? There are institutional investors who will look at price action on the way up. Because they could look at the valuations and say, “Holy crap. These are so low, once it starts turning, I’ve got plenty of time.” But then, capital finds it. The old saying, “There’s a bull market happening somewhere. Go find it.”

Anyway. That’s all I’ve got. My Mets are on a roll. Three and three road trip, but it’s a team that came from 11 games out of 500. They’re now four games over 500 since the all-star break. Best record in baseball since the all-star break. Lowest ERA since the all-star break. And I mentioned this on the last podcast, or two podcasts ago. If you listen to WFAN radio in New York, like I do, sports talk radio, 24/7, “Fire Mickey Callaway, the manager. Get rid of Brodie Van Wagenen, the GM. Owner should sell the team.” Well, I agree with that, actually. “Trade this guy, trade that guy, trade the other guy. This guy’s a bum. That guy’s a bum. This guy’s a bum.” It’s 162-game season at the 80-game mark, 85-game mark. Everyone was a bum. “Get rid of them, they all suck.”

That’s following the news flow. They’re price action listeners, price action commentators. It’s a long season. Now, all of a sudden, what a turnaround. The people calling in, it’s laughable. The hosts on the shows. “You know, I really like what they’re doing here. I think we’ve got a playoffs … if we could just tune this, this, and this, and this.” Think about that. The same guys they wanted traded. “Well, he’s really turning, he’s focusing better now, and now, I think, instead of hitting 260, he comes in at 290, and he’s on pace to have this many home runs and this many RBIs. He’s on pace for a great season.” And now they project forward better numbers.

Three months ago, they wanted a guy traded. There was a number of guys like that. A month ago. What I’m saying, three months ago? It’s no different than in investing. It’s that one catalyst, it’s that one thing that turns it. But the reality is, that guy, whoever whomever wanted to get rid of, has a body of work. They have bodies of work, over years, and years, and years. Maybe a 280 hitter hitting 220. Maybe a 300 hitter hitting 230. He didn’t become a 230 hitter overnight. He’s struggling. He’s going to turn it around. Might have an off season. It happens. Is he going to hit 110? No. What’s the downside? He’s hitting 230. Not going to 110. But if he turns it around, is he a 300 hitter? Yeah.

It’s no different in out of favor investments. What’s the valuation today? How much more downside can it have? Where has it gone historically? What are the fundamentals today, for the company and the industry, versus the last time it was at its historical lows? Are they markedly better today? Yes. Is the valuation the same as it was the last time it was optically this bad? Yes. Huh. That’s interesting.

So, I have all this potential upside and I have limited downside. I have this asymmetry. Don’t be driven by price action, where everyone who’s paying attention to price action probably has it figured out. Where there’s very few eyeballs, it doesn’t. There are pockets of that out there. I could point them out to you. Offshore drilling. Offshore oil services. Shipping companies. Uranium. Mortgage servicing companies that handle bad debt on loans that have gone bad. Who’s going to do that? How does that happen? Interest rates are at all-time lows. What if they’re wrong? What if there is a big global recession coming? And what if livelihoods are at risk, as David Rosenberg said? What if there are companies out there that are going to turn, who benefit from that, and who are trading at stupid low valuations? Or you can go chase your tail and try and figure out what everyone else is doing. No thanks. I pass.

Anyway. That’s all for me. Let’s go Mets. 45 days, I think, to puck drop, first game of the NHL season. Doesn’t get better than that. Hope you have a great week. Talk to you next week. Thanks.

Speaker 1: The information presented on Talking Stocks Over a Beer is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.


Editor’s note: When it comes to hedging against falling markets… no one knows better than Mike Alkin. And through his premium investment advisory Moneyflow Trader, Mike brings his readers contrary plays designed to reap big rewards

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