The Compound and Friends - Live from Houston

Episode Date: December 9, 2022

On episode 73 of The Compound and Friends, Bryn Talkington joins Michael Batnick and Downtown Josh Brown in front of a live audience at the Dynasty Investors Forum to discuss consumer strength, energy stocks, inflation coming down, BREIT, and much more! Get your ticket to The Compound x On The Tape present: Fan Appreciation Night at the Nasdaq MarketSite! All money raised goes directly to No Kid Hungry, a nonprofit on a mission to end childhood hunger. Today's podcast is sponsored by YCharts. Check out Josh Brown’s End of the Year Chartapalooza at: https://go.ycharts.com/downtown. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey guys, today's show was taped in front of a live audience at the Dynasty Investment Forum in Houston, Texas. We had our friend Bryn Talkington from Requisite Capital. You may know her from her appearances on CNBC. And Bryn is smart as a whip, hugely accomplished, spent most of her career on the asset management side, and is now part of a fast-growing, very prominent RIA in the Houston area. So we were so happy to have Bryn come on the show. We talked about energy stocks. We talked about the consumer, interest rates, inflation, all of the top issues of the day. I think you'll really enjoy listening to that conversation.

I also wanted to mention next Friday, we're doing a live taping in Times Square. We'll be at the NASDAQ market site. Special thanks to the NASDAQ for hosting us. And we're bringing a bunch of our friends from another podcast you might be familiar with called On The Tape. from another podcast you might be familiar with called On The Tape. And On The Tape are my friends, Dan Nathan, Guy Adami, Danny Moses. They do a really great job on their show each week.

And we're all going to get together. And we're going to look back at the year 2022, all of the biggest stories, all of the stuff that made us laugh, made us cry. And we'll talk about the outlook for 2023. And that will be followed by drinks, of course. So that is Friday, December 16th. There are a few tickets left. They are $100 per ticket. And all of the proceeds, 100% are going to No Kid Hungry, which is a really great charity. And this time of year, they need all the help they can get to go on their mission, which is to feed hungry children all over America.

So if you want to be there, you want to come out for that, look for the links in the description of the show. Look for the links anywhere, frankly. We've been posting them and we'll see you there. Okay, let's get to it. God, Zoom looks so bad. Duncan, are you nervous? Look at Roku.

Okay, good. Awful. Test. No. It looks exactly like Shopify. No, Shopify looks good. Spotify and Roku both look terrible. And Zoom.

It's going to work, don't worry. It's a hot mic. Okay. No cursing. Well, I'm not going to make any promises. Actually, Patrick dropped the first curse yesterday. What did he say? Shit.

That's not a curse. No, I know. I didn't. Usually when that happens, I'm on stage with somebody and they break the seal. Then I really go, but I didn't go. Now we're down to 35 minutes. Let's f***ing go. He's got to tell them to turn us on. We're just going to start the show.

Let's go. With the mics off. These mics are hot. Wait, Duncan said these are hot, so this is part of our cold open. So, Bryn, we do a cold open every show where we just banter like this, and then we officially start it. So this is in line with our weekly ritual. Different environment.

What did you like the best? Same great show. What did you like the best at the buffet? The steak was really good. I couldn't eat. I had queso and brisket for lunch. That's a Texas breakfast. It was so good.

Yeah, it's great. Wait, what do you mean? Yesterday? I told you, we went to this place, Herbe, I think it's called. Okay. Just like a, like a chain, I guess. And we had. It's still full from yesterday?

Oh, you mean just now? It's queso and steak. Oh, I thought you meant food last night. No, the buffet. Oh, oh, oh. The gnocchi, which I'm not a big gnocchi guy, but it was like just cream sauce and cheese and Parmesan crust. I don't even know what that was.

Great. No. There's no amount that would matter. Cheryl, thank you for having us. Yeah, thank you. Did you guys meet? No, we haven't met yet. Cheryl, come meet Brent.

Can I get up? Am I locked in? You're not locked in. I feel like this is the appropriate time for the Francesa drop. Turn my mic on. Yeah, we don't have it. Turn my mic on! We don't have it.

Where's Duncan? Oh, there he is. He's so good at this, it's ridiculous. Is he with you guys? He's with us. Okay. Best in the biz. Look at that guy.

Totally unflappable. He even looks the part. Right? Yeah. And, Brent, he's going to CGI this. So on YouTube, it's going to be our office in the background. No, it's not. He's going to put us in the land of Avatar.

But he could. Right? Could you CGI the glam squad for my hair? Because it's like super humid today. You're good. You're good. Normal day. I'm looking very shiny right now, so I could use a dab of makeup.

So these guys recorded Animal Spirits this morning. Oh, okay. This is Michael's second podcast of the day. Love it. Yeah, I'm fresh. Love it. You are fresh. I'm going to regurgitate some takes.

Recycle them. Oh. Oh. Love it. Yeah, I'm fresh. Love it. You are fresh. I'm going to regurgitate some takes. Recycle them. Oh. Oh. I like that. Yeah, yeah. Please keep noise to your ear and your earpiece. Your earpiece.

Duncan. Backwards hat. Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

Today's episode of The Compound and Friends is brought to you by our friends at YCharts. Listen, I talk about YCharts a lot. You hear them on Animal Spirits all the time. You hear them on What Are Your Thoughts? Why? I use this product, I don't know, 74 times a day. It's all the time. It's constant. I'm doing model portfolio stuff, stock analysis, economic data, all of it, all of it. And I want to alert you to a webinar that Josh is doing with them. It's Friday, 11 o'clock Eastern time. But if you miss it, if you miss it, there will be a replay available. You can check it out. There's a YouTube link.

You can go straight to the source. Again, all of this is in the show notes. If you want to hear Josh talk about some of the craziest things that have happened in 2022, and it's been a year, it has been a year, hit the link in the show notes and check out YCharts if you have not seen them already. All right. Hello? These mics are on. I think we're starting. Hey, everybody.

Thank you for attending a live recording of the Compound and Friends podcast slash YouTube show. By a show of hands, do we have any current viewers or fans in the crowd today? Oh, wow. We got a fist pumper. Got a fist pumper. Love you, man. Thank you. So we've been doing this show for about a year and a half, let's say.

We converted the conference room in our headquarters because we figured nobody would ever have an in-person meeting ever again, at least not in Manhattan. And we've had some amazing guests on. And today I'm so excited. We have a local and an absolute rock star with us. Ladies and gentlemen, Bryn Talkington is on the compound in France today. Can I read your bio? Yeah, sure. Okay. Bryn is the chief compliance officer at FTX. Yeah, sure. Go for it. Okay. Bryn is the chief compliance officer at FTX. She is a managing partner of Requisite Capital Management with a focus on capital markets, alternatives, and investor behavior. Prior to Requisite, Bryn spent 15 years at UBS Asset Management and worked at Bear Stearns. Bryn, welcome to the show. Thank you so much for coming.

So happy to be here, Michael and Josh. This is great. I'll try to deliver. Keep it up to y'all's high expectations. We know you will deliver. You had a long commute here. Five minutes? I did, about five and a half. Okay, cool. And you're a lifelong Houstonian. Did I pronounce that correctly? Yes, you did. Lifelong Houstonian, multi-generational families here. Best city in the United States. Okay. You founded Requisite in 2017, so five years. Yeah. What was the biggest surprise about leaving UBS, starting your own RIA? What was your biggest surprise that you didn't expect, good or bad?

So my partner Doug and I, we left June 16th of 2017. I didn't know how hard it was going to be. And I remember The Matrix is like one of my favorite movies. And it's like when you take the red pill, you're subjecting yourself to potentially life-changing events. You keep that blue pill and just go on your merry way and be content. And so I always knew we were taking the red pill, but it was really hard at first.

But I think all things in life that are really worth it are hard. And so I think there was just being at a wire house for, and then Bear Stearns my whole career, you just don't realize what you don't know about the independent space. What's the wealth management landscape like here in Houston? How do you think it's, it maybe differs from elsewhere in America? I don't think it differs that much. I mean, Houston is the fourth largest city. There's six and a half million people here. And so you have a vibrant wealth management community. I think that prior to 10 years ago, maybe eight years ago, it was dominated by the wirehouses, which are still here in force. But you've seen this just renaissance of independent advisors leaving the big firms and going to put up their own shingles and start their firms here. So that's really where I've seen the shift is how many advisors in Houston and Dallas have left the wire houses to go independent. How does Houston differ from the rest of Texas in terms of wealth management? Are there specific things to the market here that maybe aren't the same elsewhere? No, I mean, I think everyone knows Houston's dominate in oil and gas,

which creates a lot of grit, right? Because it's a feast or famine. It's been that way forever. And so I think that understanding that nature and what's nice to see finally, is that you're starting to see some companies get bought out. You're seeing some reemergence within oil and gas. It's not a bad phrase anymore.

And so it's nice to see that industry being able to stand itself up again. And I think that's going to drive some more economic growth. We have like industrial, we have aerospace, NASA's here. And so it's just a big city. So when I look around, since I've been here for a day, so I'm already an expert. When I look around though, I don't see any signs of the thing that we're constantly hearing on television, on the radio, in the newspapers about recession. And it's already, Jamie Dimon, I think, was on TV saying it's basically already a recession, at least not here. And that might be specific to the fact that so much of the wealth is oil and gas. But we're really seeing strength from consumers just in a

way that we've never really seen coinciding with a bear market in stocks and a bear market in housing. I think that's like the most remarkable thing about this moment. You have this quote in here from United Airlines. I made a chart a couple of weeks back looking at the unemployment rate with the drawdown in the S&P 500. And at the time, it was off the charts because the stock market was down 25%. Unemployment was 3.6%. We had never seen anything like this. And so it's a weird market. It's a weird economy.

This morning, the United Airlines CEO said, if I didn't watch CNBC in the morning, which I do, the word recession wouldn't be in my vocabulary. You just can't see it in our data. And as we were going to JFK yesterday, I said to Josh, this is what recession? What recession? I mean, maybe if you're in Silicon Valley, there's a recession. If you're in tech, maybe there's a recession because they're laying off there. But tech is only 2% of the US workforceS. workforce. And so I think being around Houston, being around Austin, Dallas, you see cranes everywhere, not the bird. You see cranes, buildings are being built because the real economy is still very strong.

And that just, it is what it is. And obviously there's a lag effect to the Fed and we have had an oil shock. We have had Fed tightening and we have an inverted yield curve. So each of those three have actually preceded every single recession ever, much less we had all three in 2022. So it's like I would be remiss to just ignore that, to think we will just whistle past the graveyard. But as it stands today, the economy, the U.S., the flyover states are very strong.

I think there's some element also in that most of the commentary about recession coming from the mainstream media. The mainstream media is predominantly large tech companies or large media companies that are dealing with a very real ad slowdown. And I think some of that psychology becomes pervasive amongst the on-air people. So they're constantly hearing about, you know,

advertising campaigns being canceled or less money coming in. So that like feeds their confirmation bias. And so as a result, forget about a 2023 recession, it can already feel recessionary inside of that bubble. It does. So tech is the most covered industry in the financial media for obvious reasons.

On earnings calls this quarter, one out of every three mentioned of layoffs came from a tech company. There you go. And I think also looking at the consumer, I sent you guys this stat. The New York Fed just tracks credit. And if you look at total balance by delinquency, because you see a chart that people send around about credit cards at all-time high, I mean credit card, you know, credit cards at all time high, I mean, credit card applications, but actually look at delinquency stats. We are still at delinquency at like 3%. You have to go back pre-2003. In 2007, you were at like 6% or 7%. So the consumer actually is doing very well. That's what you should be watching is delinquencies

because that'll give you, I think, the canary in the coal mine. And right now, it is just holding pat around 3%. So we're going to get to that chart because we have to take this in order. But one of the things that's interesting about this moment in time that I don't think is being discussed enough is what caused the inflation was a confluence of factors, obviously. But one of the biggest drivers was all of the fiscal stimulus that we did. And so it was the excess savings, which is causing the inflation. However, it is also paradoxically prolonging the recession or pushing it back because people are still working through those excess savings. So Bank of America said, if we use the average saving rate in 2019 to calculate excess savings,

we arrive at an estimate of around $1.2 trillion, which could support spending for nearly a year. If we use a 2015 to 2018 average savings rate, it could support spending for up to two years. And I'm clicking the button and trying to put a chart on. It's there. Oh, it is there. I'm sorry. Okay, perfect. So here we go.

Can the audience see this? Yes, we can. So we're looking at, for the audience who's listening, we're looking at the monthly excess saving. And of course, 2020 through 2021 went vertical. And now we are on the other side of that where we're spending it down, but it's still there. Let's go to this personal saving rate as well. Do we have that? I'm pressing, pressing. Yeah, there we go. Perfect. Right. So spot the aberration if you're able to, right? Why won't these people just spend all their money already so we can get on with the recession? What's going on? Because they're not.

And it's like, we also have three and a half million workers that are not here that were there pre-COVID. You have wage growth, even though it's below inflation, wage growth is still the highest it's been since the 70s. So you actually have the employee still has all the leverage. And so I think you can, you know, job turnovers, you can get a new job, you have wage growth. And so I think that's going to continue. And so I don't think we're going to see wage growth

starting to decline because you still have three and a half million people short. So I think this is a good statistic, but I think it's just like one in a broader mosaic of this consumer has a lot of leverage and a lot of leverage to pull before they're actually going to weaken, I think, markedly weaken. Well, some consumers. So we can break this down further and look at the excess savings. This is from Deutsche Bank, which are skewed toward the top income quartile, which is not surprising at all. Wells Fargo CEO says lower income consumers have seen more financial stress. They also said consumer account balances and spending levels are coming down. So what we're looking at are the excess savings by bottom, second, third, and top quartile. And if you look at the bottom, the bottom quartile is on thin ice.

So that's how it always is. The people who could least afford to bear the pain or getting it first, they'll probably get it the hardest. But when you read the New York newspapers covering Wall Street, there's a big dose of that. It's obviously on a different scale. A big dose of what? A big dose of people making less money in bonus and probably making less money in 2023 than they were making in 2021.

I think the average bonus is down 30%, projected to be down 30% amongst the Wall Street investment banks. And then you look at what markets did. You look at the capital markets freezing, bond markets down, stock markets down, transactions just coming to a halt. You say 30% actually might be a best case scenario, right? Right. I mean, I think also it's interesting if you look at the jobs report where full-time jobs are actually the ones that are weakening. And maybe that's a Silicon Valley. But you're seeing full-time jobs weakening. Part-time jobs, though, are picking up.

I think that kind of hits to a little bit of this slide is you have, I think, over the last like 10 or 15 years, you have the highest amount of people with two jobs. Yes. Two jobs. Yes. Two jobs. Like, that's not a great sign. But nonetheless, when you look around, the consumer in aggregate, which it's a heterogeneous group, but just in aggregate, that consumer is still spending. Yeah.

What are we doing with the inflation thing? Torsten Slack, who, I don't know if he's at Apollo, but apparently he is, said inflation is coming down without a major increase in the unemployment rate. That is the definition of a soft landing. So he's got a few charts showing that the unemployment rate normally rises around three percentage points during recession. It is still early. Um, but right now unemployment is, you know, it's not budging. It's. It's up 0.2% from the lowest,

but it's still historically low. And then we've got goods inflation coming down, which was an early driver of inflation. So that is rolling over very hard. You've got headline CPI coming down. And then finally, we've got service sector inflation coming down. So outside of wages, which is a huge component, inflation seems to be rolling over. Lumber round-tripped. Rents are coming down. Obviously, home prices, gas round-tripped.

It's just not happening fast enough. It's a combination of that, but also the Fed is looking at data that's lagging significantly behind what the rest of us know. Like, you can go to apartments.com and get better data on rents, new contracts, leases being rolled over. You can get higher frequency data there than the data series that the Fed allegedly is paying most attention to. I think that inflation will definitely roll over. If you look at M2, M2 has collapsed. And if you look at M2 and you chart it over CPI-

Just for Michael, what is M2? It's a money supply growth, okay? And so there's less and less. And so we are now in this phase where we have a collapsing M2. And if you overlay CPI going back decades, it has a 0.8 correlation. And so all these stats tell you CPI is coming down. Inflation is going to come down. But I think what will be complicated is China reopening. That's inflationary. You can't print oil. You can't print three and a half million people into the workforce. So I think

there will be areas of weakness. But overall, you're still going to have, I think, wage type inflation. And energy and oil are going to continue to be a wild card in terms of the inflationary pressure it has on CPI. So if inflation comes down, how much demand has been destructed by higher rates and higher prices? Maybe not that much. I don't think destructed is a real word. Do you want to say destroyed?

Nope. OK, destructed. I like it. I think if you need a mortgage, if you're a REIT, a lot of areas are slowing down because we have mortgage rates or the cost of borrowing for real estate has a six handle, maybe a seven handle. As of a month ago, it's come down a little bit. But if you have a 6.5% mortgage, but you had a 2.5% mortgage last year, that's absolutely going to change your behavior. So you're going to see a slowdown in housing. And not to keep bringing it back to tech, but I think it is interesting to note that the stock

market in tech caused the tech recession. I think sort of like it did in the dot-com bubble, because all of these CEOs are responding to the stock price and what investors are favoring, which is cash flows. It's not growth at all costs anymore. And the slowdown and the crash in all of these stocks absolutely had a massive impact on how they're treating their employees. I think it's tough for the rest of the country to look at that and get upset. I think the rest of the country looks at that and says, good, welcome back to the real world. We've been waiting for you. You can't just unlimited stock options for everyone and have a company with 80 employees where 70 are millionaires overnight. Like that's not the actual world that most people inhabit. So I don't think that there's a lot of concern, let's say.

I don't think there's going to be a farm aid for Silicon Valley. No, there's no tiers. There's no tiers. But in terms of investors, it's so pervasive in the markets. I mean, it's still, if you count, you know, it's 30, it's still 30 plus 33% of the S&P. If you take the other sectors that they took, you know, Facebook and Google out of tech, you still have a third of that in the S&P. So it hurts investors' returns. The more closely correlated you are to Silicon Valley, the worse your returns are this

year, period, you know, period and stop. Bryn, here's this chart that you're talking about, delinquency status, and we're just not seeing anything yet. So what would you, you'd expect to see this start to tick up at least the orange and red to tell you that there's like a canary in the coal mine? But would this be concurrent with the recession? I'd actually look at the green. The green is 30 days, right?

This is people that are 30 days delinquency status. There's really not much of a difference this year from last year. No, it's, and it's falling actually. It's falling actually from 20 to 21. It's flatlined. And if you go back to look at 2007, 2008, it really clicked up really quickly, really quickly. And so I think this is what you want to watch at those 30 days, because 30 days become 60 days. Yeah. But again, that again, that's back to that excess $1.2 trillion sitting in people's bank accounts. This is going to take a while to react to the environment,

even if we do get into a recessionary environment. Well, so this chart that, oh, whoops, this is not in here. Bryn has a chart in here. I think this is from you, the labor chart file. So forget this Ryan Dietrich tweet for a minute here. But Bryn, what are we looking at that the audience can say? Right. Well, I think I said it earlier, but we're still three and a half million workers short. And so I just think that's really an important dynamic. We're not that big of a country. And so when you need people at Starbucks,

when you need truck drivers, when you need just like the building blocks of our economy. Financial advisors. I think we got a lot of those. Are we good on that? Right, I think we're good on that. But when you need the real people working in the economy, we're just short. And a lot of those people have retired, right? So as the baby boomers have continued to retire,

a lot of them did retire during COVID. They're not coming back. And so that is structurally inflationary. We also had three years of like net negative immigration, I think, going into the pandemic. And obviously during the pandemic, no immigration to speak of. And a lot of industries like hospitality

require there to be some legal, at least, immigration. And there just isn't. Not that that's the silver bullet that could fix everything. It definitely wouldn't hurt. So I think I would sum it up like, why is that three and a half million important? Is that everyone's, we think inflation will roll over, right? But I do think investors need to think hard that if you think we're going back to the last 10 years, and that's going to be the return, and we're going to have this V-shaped rally in tech, and it's going to go all back to QE.

I just don't think that's the case. I think we're in this like new environment and the next five to 10 years will look very different. But I don't think investors have realized that yet in aggregate. I think that what drives the national mood around how they feel about personal security and personal finance and money is employment. And their portfolios may be down, but as long as they have a job and the people around them have jobs and there's not anxiety creeping in from their friends and their colleagues getting laid off, people are going to be okay. So in your potential scenario, this is what, 4% but stable inflation and a Fed that stays tighter than it stayed for years on end? Is that kind of the push and pull? Well, I think that you go into, let's say we stabilize around, nothing's been stable,

first of all. Right. So that's probably not going to happen. But let's just say you stabilize around that 4%. Maybe you go to 5%, come down to 4%. You still have QT happening, which I don't know how that's filtered its way through the treasury market, but I think it potentially will. And so I think that in that environment, different types of sectors and different types of companies do better

than long duration assets. And so I think that technology is the trade after the trade, right? People are trying, I think, too quickly to call a bottom in tech. And I think it's just going to take time because if we do go into a recession, tech doesn't do well. It's just like not the time to buy it before a recession. You want to wait till that happens. So I think tech will continue to be challenged. And that's going to frustrate investors because everyone likes to own tech. All right, let's talk about the stock market.

So this tweet that's been on the stage for a minute is from Ryan Dietrich. Now, all of these statistics you obviously have to take with a grain of crude oil, but what we're looking at here is Ryan has a table showing when the S&P 500 was below the 200-day moving average for more than six months. So a decently long- Which is what we've just lived through. Yeah, which is a decently long-ish bear market. Once you break above the 200-day, It was a decently long-ish bear market. Once you break above the 200-day, historically, you've done very well on a go-forward basis. So the only time where that happened and you did not have good returns on a go-forward basis was 2002. The average was—

I blame Linkin Park for that, though. We have to consider a lot of variables here. So 92% of the time after this scenario, again, below the 200 day for six months, you close above. 92% of the time, you're higher 12 months later, which is higher than the roughly 75% of the time for all other time periods. I thought to me, I saw this chart. I liked the 92% of the time. That's a pretty good hit rate. Your median was 17.9. But the reason why I thought it was somewhat valid is it actually included the 70s, 60s, and 50s, right? If it started in 1980, I would have thrown it out and said it's garbage. Because you had no inflation.

You had no inflation. So I think it's a data point to take into account that everyone's really bearish. We may not have a recession anytime soon. There's been a lot priced in. And we could end up a year from now being all right. To your point about tech being the trade after the trade, which by what I agree with, I can't envision a V-shaped recovery for FANG stocks.

It would make no sense. Of course, it's going to happen now. It would make no sense at all to me, given what those firms thrived on. It's already done. Because the V is down and then straight back up. It's too late for that. Too late for that.

Let's do this. Growth sectors remain below their 200-day. That's from Ned Davis Research. Not this one. Oh, that was out of order. That's the chart we were looking at before. Here we go. So what are growth sectors?

Consumer discretionary, technology, or what else is in here? All right. So the chart that we're looking at is the S&P 500, as well as the number of sectors trading above their 200-day moving average. So everything but tech, I think, is. Or mostly everything. We've got energy, materials, industrials, consumer staples, healthcare, financial utilities.

So what's missing? Consumer discretionary. Which is Amazon. Which is Amazon and Tesla. Right. And tech. So there's been a lot of bear market rallies this year. I was looking at the chart earlier.

There was like, I don't know, five or six. It's been a bunch. The difference between this latest bounce and all of the others are the percentage of stocks above the 200-day. Now, it's tough to feel good about the market when you've got Amazon. Can't find the bottom. Apple, the most influential. If anyone owns a stock, you own Apple.

So it's hard to get excited about names like UnitedHealthcare, right? And Johnson & Johnson and Eli Lilly leading the market. And, of course, energy names as well. I don't think it's hard to get excited. If you own them, you could be excited. Right. I mean, that's what I'm saying. You have to trade for the market you have, not for the market you want. And that's the whole point where people, I think, are going to continue to be frustrated because everyone owns so much tech and they refuse to have an alternative

narrative that, hey, maybe tech just takes a back seat for a while and these other companies. Because right now, we are playing out. I think we're late cycle. I thought we were late cycle. I do still believe in the economic cycle, even though the Fed tries to manipulate it. And late cycle, it's like consumer staples, utilities, energy does well. What's done well this year? And what doesn't do well late cycle? Consumer discretionary and tech. And so to me, it's like the playbook's actually playing out as it's supposed to. All the weird things going on considered, if you look at sector performance, it actually makes sense as a late cycle scenario.

Correct. Like it's not that far off from what you would normally see happen. Correct. And I think we just get caught up in the minutia of these daily gyrations. I mean, I think the cues, I think there's a possibility that you have to look at February of 2020, because that's where consumer discretionary is there. There's so many other financials already hit, retraced all of their- You mean the levels they need to get back to? I mean, financials have already done it and bounced off of it. Consumer discretionary is there and pierced right through it. And so

ultimately, if Apple were to break down, that's not crazy to think that the NASDAQ would have to go there to ultimately find a bottom. It's not like my base case. When you look at all the other sectors have had that happen, except really energy and health care, maybe staples, the cyclical sectors have definitely there's a symmetry to that the fed goes back to as tight as it was let's say end of 2018 right and all of the stimulus money gets spent down or pulled back out of the economy uh via quantitative tightening and then you round trip the whole thing and it's almost like it never happened it obviously did happen but there's there's a symmetry to that if that were the case um i think apple round tripping back to february 2020 would be frightening no no it's not gonna happen right no it doesn't i mean but like you

know tesla i think tesla was at 50 dollars yeah then you know so that that round trip would be equally frightening but for different reasons yeah definitely, definitely. So where was the, I can't even find the low, in March. The low in March of 2020 for Apple was $53. Where is it today? It's at $1.40. Yeah, I doubt that happens. I mean, if that doesn't happen, it's what, 7%, 10% of the NASDAQ? But still, you have to be open to the idea because so many other sectors that has happened.

Still, you have to be open to the idea because so many other sectors that has happened. And tech is like, to me, the epicenter of where the pain is happening and where the multiple compression is going to continue to happen. I'm making this up, but I feel like Apple would be at like six times earnings if it got down that low. Let's do energy stocks. We're in Houston. We would be remiss not to talk about the topic. And you've been talking about energy stocks all year, even way before it was cool. What is this chart from Lizanne?

Before we get to this chart from Lizanne, last week with Jeff DeGraff, who was incredible, I recommend it if you didn't get a chance to listen to that. We were talking about the performance of crude oil over a 12-month period with energy stocks over a 12-month period. And it wasn't as unusual as I thought to see energy flat year over year and energy stocks up a lot. That was not as unusual as I thought. Bespoke had a stat in the journal this morning that looks at it in a little bit different light, and this is rare. So here's the stat. Last month marked the first time since 2006 that the S&P 500 energy sector has traded within 3% of a 12-month high,

while the price of oil fell more than 25% from its respective one-year peak. So that part is unusual to see oil in that deep of a drawdown with energy stocks doing well. So all right, here's a chart from Lizanne Saunders. She said, more than impressive climb for S&P 500 energy sector free cash flow yield over the past year. So these have become extremely profitable companies despite the higher prices for energy. They're not going out there and drilling recklessly and spending a lot of money.

They're just like very content to let these free cash flow yields grow. There are dividends, there are buybacks. It was the only sector up on the year for the first 10 months of the year. What do we need to know about the state of energy stocks now? Because crude oil has round tripped back to where it was prior to the Russian invasion of Ukraine. But these stocks have stayed up for the most part.

So I think there's two different investors. You have the oil speculators, the oil hedgers, the oil traders that are buying and selling the front part of the curve in oil. And oil doesn't pay a dividend. Oil doesn't have a free cash flow. So I think that if oil is in the 60s to 80s, you continue to have or higher. The energy companies continue just to print cash, just print cash. And we can't have the SPR run out. We have to refill that, right? And Biden said that he'll fill it at 75. Well, okay. What if it doesn't go to 75? And so it's like we have also China coming back online. So I do think, and then you have the Russia. So you have a lot of geopolitical issues,

which could flap oil around either way. In fairness, Biden doesn't know what day of the week it is. That's okay, right. Stop pandering. We don't know that he'll really do that. Exactly, exactly. And so I think that these companies will continue to pay down their debt, generate more free cash flow.

And from a multiple perspective, I want to say the energy sector right now has a forward PE of around nine with a free cash flow yield. What is it, around 10? And that's just the index. And so I think you continue to see value investors as a space coming back to this. Hedge funds have increased their allocation.

And I don't think energy, I think this whole greenwashing, this whole ESG, a lot of the nonsense around ESG has started to manifest itself and say, hey, you know what? Windmills and solar are great, but those are what's called intermittent energy. And do you know how much oil it takes to build a windmill and a solar panel? A ton. I keep telling Josh this. A ton. And so I think that that narrative has started to die down because everyone's all well and good until all of a sudden they don't have natural gas and they don't have oil. I think the ESG people have had to choose between which is more important to them, the social or the environmental. Because if you believe in freedom,

then you obviously believe in Europe being able to withstand the lack of oil supplies coming from Russia. And the way that's happening is all of the natural gas drilling and shipping and liquefaction. Like none of that is the typical ESG liquefaction. You definitely just made up a word. My word is better than yours. All right, we've got five and a half minutes. So where do we want to go next?

Bryn? Bryn, where do we want to go? I just want to say this one thing on energy. Please. Where is the cleanest energy produced probably in the world? New Jersey. The Permian. It's like, we have such great technologies that are happening here in Texas with, with energy production. And that, that really important point is just glossed over by politicians and the people that just anchor on oil is bad. It's clean. It's like great technologies and like the governance of these energy companies has changed. Energy stocks are a much bigger part of the S&P now than they were two years ago. You think that'll continue? It could not have been smaller.

It could go to 10. I mean, right? It's tough to get smaller than one. Right. But I mean, you could see those move higher. So you like that group. You continue to like the energy trade. Yeah, it's going to be volatile.

We sell calls against those because it's volatile and there's big premiums. So I think that's a good way to play it so you can capture that income and take advantage of the volatility versus just owning them outright naked. I think we want to skip ahead a little bit and just talk about what I think is one of the bigger stories this week in wealth management, which is the B-REIT. And I guess maybe sum up the story for us really quickly. Yeah. So when this news came out, the market killed the stock. It's already in the downturn, but I think it was down like 10% on the day. So the story is this. B-REIT is, as many in the audience know, one, if not the largest, private real estate investment fund in the world.

I thought it was 70 billion, but I'm seeing 125. I'm not sure exactly what the accurate numbers are. But here's the story. These are illiquid investments for the obvious reason that it's physical real estate. They can't just sell on a dime if they wanted to. And so what they do is they gate the redemptions. I believe it's 2%

monthly up to 5% quarterly. And for reasons that are not exactly clear, they're blaming Asia, which is a pretty nebulous thing to blame. They can't honor all of the requests for redemptions. I think they hit 43% was the number. And so this is a big story because it is just an asset gathering machine. It's responsible for 10% of their fee revenue. So this is a definitely probably a bigger story in our world than it is in the world world. But Bryn, what's your thoughts on what's happening here? I think that if everyone was clear, the investors were clear overseas or in the US about the liquidity profile. I mean, you're buying buildings, you're buying wind resort, whatever they're owning.

They're owning hard, real assets. You can't just flip a multifamily apartment. Yeah, they don't trade over exchange. It's a little bit murky to me. I get this is an interesting story because it's such a big firm. Blackstone's huge. But it's like you're buying illiquid assets. And I will say, if you didn't know the wrapper

gave you false sense of liquidity, I think that's kind of on you. So under normal circumstances, they allow for 2% of the fund per month to come out and 5% a quarter? But up to 5%. Up to 5% a quarter. Okay. So if everyone wants their money back and it's a real estate fund, obviously you can't get it. I think a lot of this stuff comes down. Look, the press loves this because it's scary.

Uh-oh, liquidity. Anytime you say liquidity or illiquidity, people click the headline. If you then say gated, oh, my God, we have to get on TV. I've been blackstone. But I think they're doing the right thing because what is the alternative? Start liquidating commercial real estate just because people want money out that's not actually available. I don't even think they're gating. They're just following the rules that they set out. A gate to me is like when a hedge fund all of a sudden has some obscure thing and too many

people come out and then they put up the gates and you weren't expecting it because of a liquidity crisis. I just think they had too many people want their money back at the same time and then they put up the gates and you weren't expecting it because of a liquidity crisis. I just think they had too many people want their money back at the same time. And then following their rules, they can't all get it back at once. I think potentially the bigger story is why and how is B-Rate up 9% year-to-date or whatever their latest marks are when literally every single publicly traded real estate play is down mostly double digits. Now, the stock market might be wrong, right? It's very much possible that these things shouldn't be traded 12 hours. I don't think it's a disagreement. B-REIT being marked up 9% this year with the average publicly

traded REIT down 20. I don't think they're disagreeing with each other. I think it's a question of the pace. B-REIT will eventually get there, but they're disagreeing with each other. I think it's a question of the pace. Like, B-Weet will eventually get there, but they're marking every 90 days. If your house, like your house. It's not daily. Think of your house. If your house was publicly traded, it would be down or up,

but really what is the value of your house, right? So I agree with you that. But now, all right, but so now you, all right, so now you're a family officer, you're an institution, and you want money out of your portfolio. Okay? You got your large cap stocks down 15%, give or take, right? You have your venture investments.

You can't touch it. Like, you have all these buckets that you can't. And now you have this thing that allegedly offers liquidity, and it's up 9% on the year. You have plenty of tax losses. You don't need any more of those. Yeah, I'll take from that bucket. I'll take from that bucket, which is the most natural% on the year. You have plenty of tax losses. You don't need any more of those. Yeah, I'll take from that bucket. I'll take from that bucket, which is the most natural thing in the world.

Now, so when you look at it from that standpoint, yeah, of course they have to gate it because that's where everyone that wants liquidity is going to go first. And that doesn't do the people sitting in the fund any favors. But again, I do think this nuance is important. It's not technically gated because this was ahead of time.

This is very much in the prospectus. Every advisor absolutely knows this, that they're allocating to it. Their clients should absolutely know that. And so I think we'll get more. There will be more to the story in terms of where the money is coming from. Right. If somebody sold you, if somebody sold you BeReit and was like, it's non-traded real estate, liquid is water.

Your quarrel is not with BlackRock. Your quarrel is with your financial. But this was a big wealth management product. But what did you say the minimum was? It's not a lot. It's like four digits? I think so. I don't want to say that.

It's low. Okay. It was an asset gathering machine. All right, Josh. Morgan Freeman. In conclusion, bullish B-Reed. What's this Morgan Freeman nonsense oh no

we're doing favorites now so did you have fun on the show today loved it yeah loved it I told you not to be nervous no I'm just kidding

I definitely wasn't nervous thank you so much for coming we loved having you it was my pleasure loving it out of you guys as you know because I know you're a fan this is the part of the show

where we give the audience a favorite a book a movie maybe a type of chewing gum I don don't know. Whatever you brought to the table. I'm going to do a TV show because having two teenagers, I'm basically illiterate at this point. I don't think I've picked up a book since June. But my show is Our Universe on Netflix, narrated by Morgan Freeman. Did you see this yet? No. Did you see this yet?

You like nature stuff, right? A little bit? I love nature. You do? Okay. All right. This is a very good show. I highly recommend it to everyone. It's probably the best quality nature. I don't really watch a lot of these. How would you know? Because the ones I've seen, this one just blows it away. Is it there? It's amazing. Also want to shout out Nick Bejulie's best financial writing of 2022. This is a post out of Dollars and Data, Nick's blog. We're a little bit biased. Nick works with us,

but he collected the best financial articles, blog posts of the year. You probably missed a lot of them. I missed a lot of them, and I read this stuff all day. It's a really great place to get caught up on all the great things that were written this year. And that's what I got for favorites. What do you got? Okay. The magic of math, right? So this is a book, buy the book. You can't get on Audible by this guy, Arthur Benjamin. It's teaching you, it's great for your kids. It's great for adults, teaching you how to do more complicated math in your head, okay? So I have a quick thing. So do this in your head. So pick a number between 20 and 100, but don't say it out loud, okay? So I'll do mine. I'll say 35, okay? Add those two digits together, okay? Three and five. You pick your own number. I'm doing mine. Should we follow

along? Should the audience follow along? Sure, I'm just saying. So pick your number. Mine's 35 to help you guys out. Pick your number. Got it. Add those two digits together. Mine's eight, okay? Now you do. Subtract that number from the original number.

So mine's 35 minus eight, okay? I'm with you. So my number, so I'm guessing, now add those two numbers back together. Which ones? The last number. My number's 27, okay? I'm going to add them together. Your numbers are also, drum roll, nine. How'd you know? Because it's the magic of math. Oh, man. Because like math's a magic, nine is a magic number.

If you did one more step, you're about to lose me. I know, but still, you can think about it. But the magic of math teaches you cool tricks like that. Did you get it? It's a great book. Were you nine? No. Wait, I think I just got dumber. Is that possible? Yeah. Or I just realized that I nine? Wait, I think I just got dumber. Is that possible? Yeah. Or I just realized that I'm dumber than I thought I was. It's okay. Just 20 to 100,

pick a number, add them together, subtract that from the first number, and then add that new number together, and it's always nine. Really? Yeah. Okay.

You can think about it. And this is a whole book full of things like that? The whole book. It's incredible. The magic of math. Arthur Benjamin. Ari's cracking up.

You didn't follow along, Ari. Come on. I was doing ABCs. Okay. Good. All right. Fair enough. Michael, what's your favorite for today?

Jonah Hill did a movie with his therapist called Stutz, and I enjoyed watching it. I'm not sure why. It was not that moving per se, but I just, I'm a big Jonah Hill fan and I thought it was, Where could we find that? It was sweet. It was sweet to watch. Netflix.

Netflix. All right. Hey guys, we want to say thank you so much for joining us. Special thanks to Bryn. Where can people follow more of your insights?

We know you're on CNBC. You're on the Halftime Report with me a lot. Where else? Do you publish? You tweet? What do you do? I occasionally like something

on Twitter. I'm not super active on Twitter. You write stuff? Go to our website. I publish our pieces there. Thank you, Dynasty, for hosting us. Oh, thank you. And thank you so much for Dynasty for hosting us.

We appreciate it. Thanks to Cheryl. And the whole Dynasty team is really, I thought, incredible. Just the way this event has been put together, all the attention to detail. And thanks to you guys for hanging with us. Give yourselves a round of applause. All right, you could listen to this episode in case you missed something,

including Bryn's math puzzles. We'll be up live on our podcast feed on Friday morning. And you can rewatch The Magic on YouTube later that afternoon. And thanks to Duncan for helping us, uh, with the live shoot. All right. Thanks guys.