The Compound and Friends - The Energy Bull Market Just Started

Episode Date: June 10, 2022

On episode 50 of The Compound and Friends, Simon Lack joins Michael Batnick and Downtown Josh Brown to discuss the energy recovery, Tiger Global, hedging inflation, the vanishing IPO market, the ESG reckoning, and much more! This episode is sponsored by Direxion. Visit https://www.direxion.com/product/breakfast-commodities-strategy-etf to learn more about Direxion's new Breakfast Commodities Strategy ETF. 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/disclosures/ Inclusion of advertisements by podcast sponsors 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: https://abnormalreturns.us5.list-manage.com/track/click?u=f8843b0fc6f0ed7d35e67dcf5&id=33b07916d1&e=4e0f612ef0. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

You know when we get we do the group pressure I'll change my pants. I did bring a pair of jeans You can leave the pants. I think- Waist up. I think for social media the pants are gonna play What kind of pants are you wearing? Uh, Michael is working from home at work From the office Yeah, things don't change as much as you think Michael is the real hybrid

Robin bought me these pants. These are- they're nice pants Yeah, I like them They're more than $19 Really flattering They're more than $19 Michael is the real hybrid. Robin bought me these pants. These are nice pants. Yeah, I like them. They're more than $19. Really flattering. They're more than $19. They really show off your pants. No, they bring out my calves. What was that?

You said you're bringing business casual to a different level. Love it. Let's see what we got going on here. So it's been two straight weeks of good Thursdays in terms of markets. It would have been like five weeks in a row of terrible Thursday afternoons. Oh, we haven't. I hadn't even thought of that. Last week was good.

I think the week before that was good. Now we're rolling. We're back to rolling. Back to Thursday afternoons. Thursday is bullish now. No, no, no, no, no, no, no. No, Thursday afternoons. We're rolling over.

We're rolling over. We've got CPI tomorrow. On top? Yeah. Probably not good. Well, no, it's not going to be good. At this point, is it just like all energy? I mean, that's what we focus on most of the time.

The fundamentals are so good there. That's what he wants. He was saying he's the only person that when he goes to the gas station, he's rooting for higher prices. You're an anti-patriot. What do we call those people? Traders? You're a trader.

Richer than a year ago. Fair enough. Listen, that was a lean year, 2021. The price of oil went negative. 2020. Yeah. It sucked. Yeah.

No kidding. It sucked big time. Yeah. Because you guys are doing what? Well, we're pipeline. So we're midstream. Yeah. So we don't drill for oil.

Right. But pipeline stocks got crushed as well. You know, because those are the customers. Oh, pipeline. So we're midstream. So we don't drill for oil. But pipeline stocks got crushed as well, because those are the customers. And there was demand destruction. There was less oil and gas being consumed in the United States as well. So down was a long way. But energy has a long cycle. So I was telling some guys earlier on, we have a mutual fund. We started 2014, the peak in the energy sector naturally when else would you start one right but we'd had a six-year cycle up to that point and we had probably a six-year down cycle from 14 to 20 these cycles are long right yeah your back test going into 2014 though must look great

oh yeah absolutely yeah simon not to brag in 2020 shortly after oil went negative i bought exxon at 35 and i sold it for like 45 something like that oh brilliant no you only missed 65 now it's at 105 that's very on brand for you though i feel like right that's okay i was like michael's very on brand he buys the trade of the lifetime but he's in it for the first you know we had a trader we used to cover years ago and i was a broker. We called him the bus driver, right? Because he'd buy something and he'd hold it for $3 and then he'd let go. He'd jump on the bus, two stops, jump off. I'm afraid to make money

in stocks. That's what it is. In fact, I've been burned too many times. Keep the faith, man. Anyway, this is my director of research. You got a CFA? You must have a CFA. Of course. I'd throw him right out of this building if he didn't. I check it every time he shows up.

Listen. In sweatpants. Knowing and trading are two separate things, right? That is so true. Because I used to trade. I'm an investor now, but I still trade. I trade Eurodollar futures, actually, because that's what I used to trade. Why do you do it?

For fun or because you think you're going to make money? No, I make money at it. Oh, you do it to make money. That's interesting. Yes, yes. Well, but you need a lot of humility. You're trying to make money.. Oh, you do it to make money. That's interesting. Yes, yes. Well, but you need a lot of humility. You're trying to make money. You need a lot of humility.

There was nothing to do in interest rates for 15 years, right? They were close to zero for a long time. Now, there's a lot of interest stuff in the yield curve. So that's what I did. Years ago, I used to run interest rate registrating at J.P. Morgan, and that's what I used to do. So that's a little bit of that going on on the side. But my business is energy. That's what we've been doing. Were you working at J.P. Morgan, and that's what I used to do. So that's a little bit of that going on on the side. But my business is energy.

That's what we focus on. Were you working at J.P. Morgan in New York? Yes. Okay. I'm here 40 years. Is that right? Last month. When are you going to lose the accent?

You know, some people think I've lost it. It sounds real. In England, they think I've lost the accent. It sounds real. Why do you sound like a yank, Simon? You know, really? Really? They think I just got off the boat over there.

I think after, like, 12 years old, whatever your accent is, your accent. I think it's weird. I think so. I mean, look, you know what? There's certain things, and I'm not going to say, you know, pass the ketchup, because you'll look at me like, say that again, Simon. So we do pass the ketchup, and there's certain words, elevator, vacation, sidewalk, right?

It's not hard, right? You want people to listen to you, not sort of just be sort of puzzled by you. Right. But no, I mean, it would take an effort. I couldn't talk like you if I wanted to. How could I ever do that? You don't want to. So I have one of the most easily identifiable Long Island accents, like within one second. Yeah. I know you're there without even putting the video on. Yeah. So I don't talk like you. How'd that happen? I don't know. I'm older than you, I think. I don't talk like you. How'd that happen? I don't know. It's a good question. I'm older than you, I think.

I don't know. I don't know if that means anything. So I got pulled over. I was on my jet ski in the bay. Like we live on a town that's on the water. So like I walked to my marina. Nice. So I'm on my jet ski with my son.

It's like Memorial Day weekend. It's opening weekend. So every idiot is on their watercraft. They're on their boats. They're on their.... So what happens is the bay constable comes out in force that weekend just to let everybody see them. It's like the police boats. Pulls you over, checks your papers. They just want you to know, hey, we're here this summer too.

So they lay down the law. So I get pulled over, of course. I'm doing eight miles an hour in a five mile an hour zone like literally that's what they're up to right because it was it was early enough in the day there weren't a lot of people though he's six yeah but he's 60 over the legal limit yeah no listen they were not kidding around so it's a boat it's two guys on a boat dressed in full uniform there's there's lights flashing it's the real shit oh jeez so the guy pulls me over and he's like gesturing to me. You have to pull over to his boat and grab onto the side of his boat so he can talk to you.

Okay. But the guy like – it occurred to me halfway through him talking, he had a southern accent. I live in New York. This guy's like, come on, son. Come on. Pull on alongside my boat. Let's talk. And I'm like wait

if you become a cop do you automatically just get a southern accent like where the hell is this coming from you know fighter pilots do right yeah so right so they all sound like chuck yeager pilots yeah yeah so all right folks we're uh yeah all right so that's a good point so so this guy this guy for 10 minutes berated me in front of my son about doing eight miles an hour in a five mile. And the entire time, not breaking out of this like southern state trooper accent, it was the oddest thing. Did he say meow? No, no, no. I wanted him to.

He must have said yo. No, but he was like, come on. Come on. Let's talk about it. Here's what I need you to do. Take out your registration. That's a pretty good accent. Yeah, yeah.

Did he get a ticket? That is good. Thank you. Did he get a ticket? No, I didn't get a ticket because if he gave me a ticket, I probably would have escalated the situation and made him look ridiculous. I understood why he did it. I didn't like the way the other guy on the back of the boat was staring at my kid. My kid is a child.

But anyway, it was a very weird encounter. But I just said, like, maybe as soon as you get your badge, you automatically just start talking with a Southern accent. Maybe that's it. I can't figure it out other than I'm on the south shore of Long Island. I have a 30-second jet ski story. Last week I went out and my jet ski is at my brother's house and I went to see if the papers were in the machine because to Josh's point, the big constable are everywhere and they're going to pull you over and give you tickets if you don't have papers. So the papers are on the machine. I called him like, where are the papers? Where are the papers? I found the papers.

They're in the house. So I have the papers. I've got like sunscreen. I've got like my hands are full and I'm bringing my phone, my wallet, my keys, whatever to the dock. And I did see the big constable. I'm behind him. I'm like waving, like pull me over. I dare you. I've got my papers. I'm good. I'm good. And I came back when I came back and I pulled my jet ski and I realized that I left the

papers on the back. Oh, you would have. You would have. It was the only thing that I did not put in. So you need boating safety security certificate, which is like a little card when you pass the test. Yeah. Okay.

You need registration for the thing. So they know you didn't steal it. And then they want a New York state driver's license, which I didn't know. Oh, wow. Jersey doesn't need the driver's license. I mean, I have my boating license. And you have to take the safety class to get the license. So I just need the permit.

And we just bought a boat. And I've never owned a boat. Not to brag. Yeah, right. So that'll be interesting, right? And we still don't have it, right? Because like everything else, it's on back order, right? So we're supposed to get an 840.

If you like high gas prices, go fill the boat up. You'll be, you'll give it a standing ovation. I have a picture down in Naples on the dock there. Some guy had filled up his boat and it showed the wretches at $2,400. Oh my gosh. And this was in January. So it'll probably be $3,600 now.

I actually think today or tomorrow we're going to pass $5 national average for the first time. It's close, right? Yeah. I just paid $5.60 yesterday. We just spoke about this. Bank of America did this thing where people who make under $50,000 tend to spend 10% of their card spending on gas.

If you're over $125,000, I think it's like 5% or 6%. That was back in April, and prices are up 20% since then. It's getting really bad. In the 70s, I think we reached 6% of disposable income on energy, and it's around 3.5% to 4% now. So people say, where's demand destruction? You know, we're getting there. Don't say it.

It doesn't have to be 120. I think it's closer to 180 than 120 based on that history. People are complaining. 180 a barrel is what at the pump? 7? 650? I feel like it's exponential. You don't think people have already

changed their habits? It's not a binary issue. Some people will, but in terms of when you'll really see it in consumption, people pulling back. At least that's what it took, 6% in the 70s. 180, they're going to impeach Joe Biden. Yeah, that would not be good. I mean, politically.

I mean, they were already in huge trouble in the midterms. All right, John, let's start on the show. There's nothing he can do. Michael heard Biden. He's had enough chitchat. He's had enough. Yeah, right. Yeah.

All right, John, this is episode 50. Oh, my God. Episode 50. 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 show is brought to you by Direction. We're highlighting the Direction Breakfast Commodity Strategy. ETF BRKY is the symbol. Josh, on today's show with Mr. Simon Lack, we spoke a lot about inflation core and otherwise, which by the way, by the time the show is released, we will have the numbers. What are your thoughts? Well, I think what's interesting is we end up showing a chart about how gold has done a terrible job hedging inflation, not just versus inflation,

but versus all other commodities. And this is a commodities related ETF, right? Yes. This is the first year in, I don't know, it's been a while since commodities have shined and 2022 is the year of the commodity. So what exactly is in BRKY? It's corn, it's wheat, it's sugar, it's hogs. It's basically whatever you put on your breakfast table. So the ticker is BRKY if you are interested in learning more. Ladies and gentlemen, the Compound and Friends. Boy, do we have a treat for you guys today. Welcome to the show.

This is the Compound and Friends. My name is Josh Brown, here with Michael Batnick as always. Duncan's here. How are you feeling, Duncan? Feeling good. Got your hat on backwards. Is that like an intimidation thing? What's going on?

Yeah, that's exactly right. All right. Nicole's in the house. John's here. What's up, Duncan? Feeling good. Got your hat on backwards. Is that like an intimidation thing? What's going on? Yeah, that's exactly right. Yeah? Alright. Nicole's in the house. John's here. What's up, guys? Alright. Can I get a little more enthusiasm? Yeah, low energy. Jeez. Episode 50! There we go. Yeah! Alright. Good job, Nicole. Alright. And you're wearing a Rangers shirt?

What's the series at now? Game 5 tonight. I'm going. Game 5? Alright. Awesome. I'm going. Game five? Awesome. Enjoy. The big account is hurting. All right. But it'll be worth it.

It's about experiences. That's right. We have a special treat for you guys today. Simon Lack is here. Simon, say hi to everybody. Hi, everybody. Great to be here. All right. You guys can't see this unless you're watching us on YouTube, but I'm getting heavy Bowie

vibes. Oh, my God. Do you get that from anybody? Bowie vibes. In the most complimentary way possible. I'm getting very- I'll take it. I'm getting heavy Bowie vibes.

I've been called worse. I'll take it. The eyes, the hair, you're in good shape. Very, very heavy Bowie vibes. I'm going to brand that. All right. We'll add that to our blog. All right.

So Simon brought his guitar. He's going to do some stuff off of Aladdin Sane maybe shortly after my intro. But you – so you've got a pretty interesting career because you've done a number of things. You've been around for a long time. We're going to talk about SL Advisors, which you founded in 2009. Yeah. But let's go back a little bit prior to that. You spent 23 years at J.P. Morgan, sat on the investment committee, you founded the JP Morgan

incubator funds, and you ran the North American fixed income derivatives and FX trading business. That's like a lot of different things, or not necessarily. Well, the interest rate trade, yeah, that was my day job. That was most of my time doing. But what we found was in FX in the early 90s, we had a lot of hedge funds as clients, right? And people weren't really investing in hedge funds apart from high net worth investors. And so my boss thought, wow, why don't we see the hedge funds that make money in FX with us, like the guys who we lay off the trades immediately, and maybe we should invest some money with them. And so out of that became this investment portfolio, not with client money,

just with prop capital in hedge funds. So in the early 90s, I got to meet some very, very talented hedge fund managers. And it was so cool because there's no boring meetings with a hedge fund manager. Yes. But in those days, everything seemed obscure. You talk to some guy doing convertible bond arbitrage and it's Cayman and leverage And it sounds complicated and risky. And it was. But it was a very small industry. And there were lots of inefficiencies. And so they generated really good returns. You must have run into guys like Tudor and- Yeah, Paul Joe. Izzy Englander.

Izzy, he was a- That's Millennium. Millennium. You could sell tickets to meet with Izzy. I mean, he had the most wonderful expressions. Tell me, you'll have to block this out. No, we're not going to block anything out. So Izzy's talking about a trader, and he's saying, this trader's trading bigger and bigger positions, making money. And then the god of size visited him, and he got his tits twisted. And you're going, oh.

And Izzy cuts out traders like you cut out positions. Like, you know, it's fine. You make a money. You lose money, out. Ken Griffin's that way. Steve Cohen's that way. I'm picking up a through line. Yeah, yeah.

I guess in that line of work, there's no time. You know the answer is if you're going to panic, panic immediately. Yeah. Slow panicking is bad. But anyway, that was a fascinating time. And so out of that, meeting hedge fund managers the thing is when i met a hedge fund manager the first thing i'm thinking he's talking about strategy and what he does and i'm thinking how much money are you making that's the first thing what's that and you

can work it out right they'll show you you give me a little table assets every year 2 and 20 you can do the math in your head right and so that got me sort of really interested in that. So that's why I started the incubator funds, which is really to be like a VC investor in hedge funds, find new hedge funds. So you become a GP, not an LP. We'd own a piece of the GP. That's where the money is. Wait, this is inside the bank?

Yes, but that was with client capital. Then we went and raised money. I went with the private bank all over the world, raising money for that. So then we'd own a piece of the GP. So then we want a hedge fund managers that can grow. So it's not, obviously the return's got to be good, but you want a scalable strategy as well. And so that was great. I mean, we did, you know, we looked at 3,500 proposals over several years. Oh my God.

We did 13. But in venture capital, you got to look at everything. Otherwise you don't know where the market is, right? But in venture capital, you've got to look at everything. Otherwise, you don't know where the market is, right? Okay, so you've also written several books. And I think we have at least one of them up on the shelf. Michael, do we have the Hedge Fund Mirage here? Probably.

We've read all your stuff. The Hedge Fund Mirage, I think, is the one that you're most well-known for? Yes, that was the first one I did. Because the thing that struck me is that if you looked at all of the money ever invested in hedge funds, the average dollar in hedge funds, this was by about 2013, 14, it was zero. The average investor. Now, hedge fund proponents will show you returns, annual returns over time. And in the early years, they were really good. But there weren't that many clients. So in other words, the investors made a lot of money. They just weren't that numerous. And then like everything else, money follows performance.

They got too big. And in 2008, the industry lost more than the money they'd all made in history. That's incredible. They wiped everything out. Because they had taken in the most amount of money. Because they'd gotten up from $2 trillion. From 2002 to 2007. They had $2 trillion.

They were down 25%. They lost half a trillion dollars. They never made half a trillion dollars before that, right? Do you think a fair rebuttal would be, because the data is what it is, but maybe people that invest in hedge funds, it allows them to take more risk with the rest of their portfolio, even if the returns are not what they had hoped. Well, I don't know if it does. If the average dollar's lost money, then it's just a negative returning asset. The issue there is that people understood that small hedge funds do better than big ones. And they understand that early stage investing makes

more sense. Any hedge fund you look at had good returns when it was small. But they forget- That's how it got big. That's how it got big, right? It was good when it was small returns when it was small. But they forget. That's how it got big. That's how it got big, right? It was good when it was small. That's how it got big. But they don't apply the same thing to the industry. And hedge funds used to be exploiting inefficiencies like convertible art, right? There's only so many dollars to take out of that market, right? It's not infinite, right? And as they got big, they started to make macro bets, and just directional trades on equities. And so they lost that sort of exploiting inefficiencies piece.

And hedge fund managers get that. You'd be amazed how many hedge fund people. When I wrote that book, so I was in the hedge fund business. I'm a critic of hedge funds. People say, you must have lost all your friends there. I had so many hedge fund managers call me up and say, I read your book. And you're brilliant. You're absolutely right. Hedge funds suck.

Well, except mine, obviously. But all the others, there's too much mediocrity. Your book came out right around the same time as The Bet with Warren Buffett. Was that 2010? When was that? When did they do that? Didn't they do that before? Was that, it was before the downturn?

Right before the downturn? Wasn't it like? And he was a fund of hedge funds. Yes. Great guy. Now he's a podcast superstar. Right. But he made that bet.

And I think when your book came out, you probably got more heat from fund-to-funds people and consultants than from individual managers because the individual managers don't want there to be 5,000 hedge funds. The individual managers agreed. It was the consultants. That's right. And they're the real villains, right? I mean, I don't blame any hedge fund manager for saying I'm the best hedge fund. Everybody thinks they've got the best business, right? So why shouldn't the hedge fund manager? But the consultants who said, oh, you know, hedge funds are the answer. We'll help you pick those hedge funds. They're selling the asset class. And you

need a diverse set of hedge funds. You know. The thing is, if you pick hedge funds and the average return is going to be bad, you need to be really good at picking hedge funds. And if that's true, don't pick too many hedge funds. Diversification in that scenario actually works against you. If you have skill at manager selection, the more you pick, the more you dilute that. Pick three. So that means you don't put 10% of hedge funds. You put 2% of hedge funds. My earlier point was that for the average person or the average institution that's investing in hedge funds,

is that 10%, 20% of their portfolio? Allowing them to ostensibly take more risk with the rest of it because in theory, they would be protected from- If they really are uncorrelated, yes. The point, they have to be uncorrelated, particularly in tail events. They have to actually yes. They have to be uncorrelated, particularly in tail events. They have to actually hedge. They have to hedge, right?

And so you still see when things go down, hedge funds go down too. But it's changed. Hedge funds are run more conservatively. It's a lot more institutional. It's better transparency. I'm many years out of that. I mean, I follow the industry by reading what we all read, but I'm not running a hedge fund. I don't deal with do hedge funds. One of the things that always occurred to me was

that a successful hedge fund that's been around for a while. One of two things will probably happen. They're really good. The first thing is they'll buy a football team and fire all the clients and convert to a family office. Or the second thing is, because they've gotten so big and they've taken on so much staff, they'll get really conservative and stop swinging for the fences the way they did when they were a younger firm. Because now it's about,

hey, we're already rich. Why the hell are we trying to hit home runs all the time? Let's just exist. The management fee becomes bigger than the potential 20% performance fee. Of course. And that's just human nature. That's not because they're bad guys. They're smart. They're looking out for themselves.

So you know a funny thing I've had. So I've sat in hundreds and hundreds of meetings with hedge fund managers. So you sit there with your colleagues, you go through a whole presentation, portfolio construction, security selection, risk management, yada, yada, the guy leaves. And you say, what do you think? And you go through this and that. And then you say, yeah, but you know what? He was down last year. Yeah, I didn't really think it was that good. Or conversely, he had a great year last year. Yeah, I really think it was good. So basically, there's all the data there and everything, but you really don't fully understand what the guy does. So investors invest on performance.

Now, the thing about that is that hedge funds generally have what's called negative serial correlation. In other words, a good year is more likely than not followed by a bad year. Why? Just mean reversion. I couldn't tell you why. But across the whole industry, that's one of the things I found with the data. So think about this now. The investors are momentum driven, right? They want to be the best, quote-unquote the best. They're looking at a sector that is fundamentally mean reverting. Momentum investors betting on mean reverting, this is never going to end well, right? That's a bad combination, right? If you're a momentum investor, you want momentum stocks. These are not momentum stocks. So I looked at a lot of data when I was writing the book, and I thought that was kind of funny. So the book was a big hit. Then

you wrote Bonds Are Not Forever, which I also read, The Crisis Facing Fixed Income Investors. Which is very timely now. And Wall Street Potholes. When was that? Bonds Are Not Forever? I remember that. 17. 14 or something.

Oh, 14. 14 or something. Wall Street Potholes was probably 17. Okay. And insights from top managers on avoiding dangerous products is that's Wall Street potholes. Yes. Okay. Wall Street potholes, I kind of did a chapter on Wall Street potholes. I call them murder holes. Because I was the guy selling this stuff. I was a retail broker. Right. And so part of my reformation was just being like, here's all the stuff you should never buy no matter who calls you with it.

Yes. A reformed broker, right? So, yeah. So you expanded that into like an actual book though. You did a much more in-depth version that I just did a rant. Well, it just struck me because, you know, by then I was running my own business and I, you know, this friend of mine came in to be a client and she was in these non-traded REITs that somebody else had put her in.

Murder hole, right, Josh? Murder. Murder hole number one, actually. So American Capital Properties or something. So something. It went bankrupt. Disgraced. I'm reading the prospectus on this thing, and it's unbelievable. It basically means that if you tell the investor how many ways you're going to screw them, but you disclose it in the prospectus, it's okay. We will do related party transactions. We will charge you fees to buy property, manage property, and sell property, even though that's what the business is supposed to do. There's conflicts

of interest riddled through the whole bit. But you disclose it all. Jason Zweig writes about that. I was a co-branch manager at the last broker-dealer I was at. And we had a compliance officer who used to say, so the thing called activity letter. So you get a client to sign an activity letter if they want to trade really frequently because otherwise it would look like churning. And there were clients who wanted to trade every day because the stock market was not a vehicle for retirement for them. It was their recreation. They enjoyed being in trades. So they would find a broker who would be more than happy to do that with them.

So it was supposed to be for very, very rare situation. But once word got out, there's a such thing as an activity letter that was like a green light, you know, my client. And this is like 08, 09, when everyone's trading triple leveraged up and down banks, small caps. So you could not do FAZ, FAS with clients

without having an activity letter on file. But that's where all the action was. So all of a sudden, as the co-br-Z, F-A-S with clients without having an activity letter on file. But that's where all the action was. So all of a sudden, as the co-branch manager, I had a stack of activity letters on my desk. I said, let me get this straight. Everybody has clients who are in exceptional situation where they're going to. So the compliance officer said that getting a client to sign an activity letter was like driving through a parade, but honking your horn. Right. So there's a lot of like, oh, just disclose it. It's cool.

Yeah. Especially in the traditional brokerage side. That's true, right? It should be a good trading market for people who are good at trading because there's all these measures of volatility and they're all high. But one that I thought was really intuitive is the odds of the market moving more than 1% in the day, right? So I look back over the last 100 days, more than half the time, the S&Ps up or down more than 1%, right?

That exists 8% of the time. If you look at these rolling 100-day periods, so we have it every day. It seems like every day it's moved more than 1%. That's less than a tenth of the time. So that's sort of an intuitive way to think about how volatile. But for trading, if you have skill at trading, and the average person does it, but obviously some do, knock yourself out, right? Okay, so let's talk about SL Advisors, and then we'll get into the topics of the week.

Founded in 2009, you manage investments in energy infrastructure, and you actually publish your own index it's called the american energy independence index that's right which is tracked by the pacer american energy independence etf that's right usai i don't know that so tell us tell us about um investing in energy infrastructure what you guys do as a firm and then tell us about the index wait hold on before you do that simon how, Simon, how did this happen? How did you go from where you were to starting an energy company? So it's not as big a jump as it sounds like because one of the hedge funds we seeded when I was doing hedge fund VC, one of them was Elarian Capital Management. Elarian is the

benchmark. Which is the MLP benchmark. Yeah. So I got to know Gabe Hammond and Kenny Feng and everything. And I thought, wow, there's such a cool sector, right? The yields are high. There's a tax break on it. You know, they're reliable. Should be uncorrelated. Should be uncorrelated, right. Like high yield bonds, but, you know, less volatile. So I started investing in the sector. And that sector back in 2005 was at J.P. Morgan. I put my own money in. I was in all of the hedge funds we did, but I invested alongside as well. So I

really liked the sector. So then I left J.P. Morgan in 2009 instead of S&P. It was in its infancy. Kinder Morgan was a big stock, but it wasn't as well known as it eventually became that you could buy pipelines, have a regular dividend payment, and the only price you really had to pay was filling out a K-1. Yeah, I mean, of course, people hate the K-1s. And there's not many left. There's a handful.

But that was always a thing. Not many of them have converted to corporations. They converted because there's not many buyers. The people who buy MLPs with the K-1 are basically old, wealthy Americans, right? Because they've got an accountant who does it. So I was already interested in that sector. So when I set up my business, I started writing a newsletter. I put in investment returns. I'm running interested in that sector. So when I set up my business, you know, I started writing a newsletter. I put in investment returns. I'm running this MLP strategy.

And people started to be drawn to that. So friends of mine would say, yeah, I love the newsletter, saw the returns, you know, put me in. So I started out my business with friends of Simon, self-directed, high net worth investors. And even today, we don't say we're your whole solution. You know, somebody could have $50 million and they say, I want to give you three. We'll give you three for this. Okay, fine. You do whatever you want.

Do you work with firms like ours? Do any RIAs allocate to you guys as like an SMA strategy? We have some. We have some, yeah. So we will do that. That seems like a smart thing for you to pursue maybe. Yeah. I mean, we just try to be narrow and deep, right?

Just try and be good at one or two things. So we focused on that SMA strategy. Then we started a mutual fund, the Catalyst Energy Infrastructure Fund started in 2014. And then we did USAI in 2018. And so the mutual fund is with Catalyst. We wanted to have an ETF. And so the way to do that was passive. We actively managed a mutual fund. The ETF is passive. So design the index. And then we found Pacer, who are a terrific firm. So Pacer does the distribution for the ETF and we produce the index. And then we found Pacer, who are a terrific firm. So Pacer does the distribution for the ETF, and we produce the index. Huge firm.

Not that many people know the firm, but their products are fairly well-known. Yeah, Joe Thompson, Sean O'Hara, they're good guys. Yeah, they've grown tremendously. Yes, very good, very good. Yeah, they've got cows, which is a cash flow. It's probably the hottest ETF of the year. They're not the sponsor of this show, though,

so we're going to stop talking about it. All right, you're the perfect ETF of the year. They're not the sponsor of this show though, so we're going to stop talking about it. All right. You're the perfect guest for this week. There was just this incredible extensively reported piece at the Journal about Tiger Global. And I think it plays really well into your area of expertise just because it's like – I think it's become the epitome of a certain type of hedge fund that have become very popular in the last couple of years. A lot of people tried to imitate

what they were doing. The crossover. Yeah, just the idea that like, all right, a lot of these companies see their biggest gains before they hit the public market. Sure. So if we're serious about capturing

the returns in this asset class, we can't just wait post IPO. We have to get to these things early. And that's a good idea. It makes intuitive sense to anybody that's paying attention. But like most things taken to an extreme, it could become a bad idea. They shouldn't have the privates in the hedge fund vehicle

because somebody's getting disadvantaged. Because when you value a private company, you don't have a precise point like you do with a stock, right? You really think it's in this range. So then you say it's conservatively valued, right? For who? If you value it low, it's conservatively valued if you're trying to get out of the hedge fund. But if you value it here, it's conservative to people coming in. So somebody is getting screwed there. Oh, so you don't think it's a good idea. You think it's an inherent conflict for a public market investor, hedge fund, mutual fund, to also be in the private market? Yeah, I don't think, if it's like one or 2%, I guess it doesn't matter. But the valuation is always going to disadvantage somebody. So are

you saying it should be two different funds? Yeah, a private equity fund should hold private equity. And if you're going to be daily liquidity, like a-act fund or if you're going to be a hedge fund with 30-day liquidity or 90-day, you should be in public equities. So what do you say when you see – forget hedge funds – when you see Fidelity, T. Rowe Price start to incorporate more private securities for the reasons that I stated? Like they're trying to capture the opportunity for their shareholders. They're doing it much smaller. I mean, if it's a small percentage, it really doesn't matter. But then why bother if it's small? But somebody's getting disadvantaged there.

So you can't have conservative valuation of private equity in a public vehicle, right? Because it can't be conservative in both ways. If you value it low- But hypothetically, you invest in a private company at a $10 billion valuation. It's 2020. The thing comes public at a $30 billion valuation. Who is disadvantaged? Doesn't everybody win? The exit, obviously, that's fine. But along the way, you value it at 10. And you say, no, we're conservative, value it at 10. But meantime, the actual value is probably moving up. New money comes in. That new money comes in, dilutes.

You keep buying the same investment, yeah. Well, you can't, though, can you? You probably can't. So then the early investors in that fund are diluted at 10 billion, when maybe the price should be edging up. But they're doing quarterly revaluation, right? I never thought about it that way. So they're conservative from the point of view, if you're getting out of the mutual fund, yes, that's hurting you, but new money coming in dilutes you. So what do they do? So they value it at 20. Well, now that's going to disadvantage the other people the other way around, right? And that disadvantages the people coming in as opposed to

the ones that are there. Does it disadvantage them only on paper though, in terms of the IRR or in actual dollar terms, it disadvantages them? No, in dollar terms. The point is, with a private equity investment, you don't have a point valuation. Yes, as an accounting matter, you do. But you don't really know the value precisely, except when they're just on a funding round, right? So you value it somewhere within some range. And it's imprecise. And the imprecision is going to hurt either people coming in the fund or people exiting,

depending on where it's biased. There was another article in Bloomberg talking about D1 Capital Partners, who this, I think it was this guy, Sondheim, who I think came from Viking or Fortress, I can't remember, was talking about that they were taking loans. And JP Morgan was the loan originator,

but I think it was a consortium of banks that came in. Right, they would have sold it. So they had leverage to buy even more private companies. And what they originally did was they let investors come into the fund and tell them, we want 10% of our investment to be in private markets. And it got to the point where they were even letting people just go either 50-50 or all the way up to 100% privates. Yeah. I mean, generally these are institutions, right? So they're big

enough to know to get a good advice. And so I wouldn't do it because I think there's not enough transparency. But there's obviously, if you want to do that and you trust the manager, you can do that. But I think it's somebody gets hurt, right? When things go down, it doesn't work out. And they say, why did we do that? How did we let that happen? So back to Tiger. Basically, they've compounded at a very high rate for 20 years. Right. Chase Coleman has just been this like – Hugely talented. Yeah. Like Tom Brady almost. Yes. Almost looks like –

They're one of the pioneers getting American investments into China. And so we're early on all of those Chinese tech and absolutely crushed them. So if you're an allocator, they check every box. They have a long history, the pedigree, the tiger cubs. And they made so much money. They made a ton of money. And they have actually made cash. Even though they've had great returns when they were small,

I read somewhere they've given out, I don't know, many, many billions of dollars that they've actually returned to people. So fine. Right. So they've done an incredible job. Nobody could say otherwise. But they get up to $23 billion by the end of 2021, and then they cut the fund in half in the first six months of this year.

Well, I think you could easily argue that they're a victim of their own success because everybody was copying them, right? Right. And everybody was trying to do deals faster with less stringent terms because Tiger was outsourcing a lot of the investment research to be- But wait a minute. These are smart people. But wait, hold on. And Tiger was basically, not no strings attached, but they didn't want board seats. They didn't want to tell you how to run your business. They were outsourcing the due

diligence and they were moving faster than everybody else. And obviously they were very bright and talented people. And then everybody tried to copy and the valuation just kept going up and up and up and up. I mean, almost anything on Wall Street that works gets too much money in it, right? Because people are always going to be following in a copy. And that's a big problem for any hedge fund manager is $23 billion is different than managing two, right? And how do you do it? How do you manage differently? It's hard. It's really hard. And as talented as he is, that's a tough thing to do. What were you going to say? Well, no, I was going to say you can't have that much brainpower and not know that historically higher rates were going to be a challenge for stocks trading at 100 times sales.

You can't really not know that. Right. So they obviously know that. So how could people this brilliant go right off a cliff harder than anybody else? Could they just not believe it would be possible that rates would go up? Wait, how – if these allocators knew a year and a half ago that the 10-year would go from 1.3 to 3, I think all of them would say, yeah, I don't want to invest in Pager. Not a year and a half ago though. Whatever.

The Fed comes out and says- I mean, October. That's when it really started to look like- Okay, so as recently as the fall, the Fed was talking about three rate hikes for this year. Right. And then obviously things started to change rapidly- It happened pretty quickly.

In January, February. Yes, from the fall. But still, cut the fund in half, like not have hedges or anything that could offset that? I mean, we launched an inflation fund in the summer of last year just because of all the stimulus. I mean, we didn't need that $1.9 trillion. So I'm just going to say. It's not too late.

We didn't need that $1.9 trillion, right? On top of that, we already had it. In March 2021? I mean, this is the thing. In the old days, the Fed would have seen we had a vaccine, right in the fall of 2020. And then they did another stimulus plan, you know, previous Fed heads, you know, Greenspan would have said, Okay, let's lean against that. Let's sort of, you know, anticipate. And today's Fed is reactionary, right? They wait until they see things change. Like even the other day, Lael Brannard said,

well, you know, unless we see inflation coming down, we're going to keep raising rates. I mean, it takes a year to 18 months for rate hikes to have an impact. How can they say we've got to wait for it to come down? They're supposed to anticipate

where it's going to be. But they are very reactionary. They love that term data dependent. I have yet to see that be successful for them. They were tightening into a trade war in 2018, crashed the stock market twice that year, and then completely about-faced.

Then they were cutting rates. They've been very bad. Data dependence is not helping. What they have done really successfully, though, is get everybody a job. And two years ago in Jackson Hole, they had their symposium and they reinterpreted their mandate in a subtle but really important way where they favor employment. And you'll even see if you read through, I read everything they put

out, the minutes and things, they'll talk about minority unemployment, which is around 6% now. It's always high. And keeping minority unemployment low is a good thing. Everybody's in favor of that. It's just not clear that's the Fed's job, right? How is monetary policy supposed to affect one group versus another? I have to tell you, I don't think everybody's in favor of that. I think there are people who would never say this out loud, but they would prefer to have a recession

and to have higher minority employment to this. And by this, I mean the costs of running their business being really high. People are pissed off right now. Yes. So our colleague Ben Carlson did a post on timing the economy versus timing the stock market, obviously both of which are pretty impossible to do. But one of the charts in there was that 7 out of 10 Republicans think we're in a recession now. 43% of Democrats and about a half of independents.

So you could understand why seven out of 10 Republicans. I mean, we're obviously not, the data shows it up. But I do think we have a greater tolerance for inflation because no Fed chair has ever talked about minority unemployment. And we have 105% debt to GDP. And the way you deal with that is you have negative real rates, and you allow inflation to gradually erode the value of what you owe. And that was what I wrote about in Bonds Not

Forever before COVID, because the debt was on this bad path for almost our entire careers, with a brief period with Clinton when it wasn't, right? And so we have too much debt. And for centuries, governments have dealt with that by inflation sort of eroding that. And I think we'll have tolerance for that, because I don't think we'll have tolerance for, you know, it's fair enough inflation is at 8. That's too high.

Inflating away the debt, which is a fixed number. It's happened post-World War II. It's a good, exactly. Totally right, right? We had a cap on interest rates because we had all this debt after World War II came back down. Because 8% is too high inflation, right?

But I'm telling you, once it gets down to four, and then it's like, okay, the Fed's still raising rates to get it down to two. Do we really need to do that? The economy's already slowing down a lot. You know, minority unemployment is up at 8% now. You're going to see them pause. And we will sort of get used to 3% to 4%. Because the thing, Bill Dudley is saying- But they're saying that minority unemployment is more cyclical or more sensitive to-

It's permanently higher than the average. And it probably goes up a little more. Minorities, I think, suffer more in a recession. And so they'll look at that. It's not what they lead with, obviously, right? But they look at that. And so the thing about inflation, and Bill Dudley is a very smart guy, friend of mine, belongs to my golf club. And we chat about this a lot. He writes, he's always criticizing the Fed. And the real issue is you want stable inflation. If we all know it's going to be three and a half, we can plan for that. The problem is if you don't know. So I wanted to ask you about exactly that. Krugman wrote in the Times this weekend that it's really just a curiosity of history that we all agree that 2% is the right number.

Where did the Fed get 2% and why is it so important that we get back there? And the only thing that he can come up with is it's about the Fed's credibility. They say that 2% is the number, therefore we all accept it. And why do we structurally need it to be 2%? Of course, there's no mathematical identity there. The lower inflation, the easier it is to keep it stable. But I don't think there's some sort of sudden point where you say, oh, if it's at 4, you've got no control at all. And people like Kroger making that point, obviously, he's on the liberal side of the debate. But that will start to

gain more importance as the unemployment rate drifts back up and the economy slows. You know, the Fed can only act with support, right? And today Biden's saying, yeah, inflation's a problem. The Fed's going to raise rates. But there won't- Can the Fed say, guys, by the way, three is the number? Stable, but three, not two? They could. They could.

I mean, they're not going to do that now, but they could do. It'll take some years to play out. But I think we will all collectively get comfortable that getting it down to two is sort of too much of a heavy lift. Let's be happy with this three to four. So what do you think they should do? Do you think they're not going quickly enough with 50? Well, it depends what should they do. If their goal was to keep inflation down,

obviously, they were 18 months too late. They should be selling mortgages, right? They should be auctioning off mortgages. They should never have been in the mortgage market. You see, enough mortgages. They should never have been in the mortgage market. You see, Bananki showed his QE brilliantly in the financial crisis because everybody said this will be inflation. He'd be a smart guy. And the plumbing was frozen. And he understood to use it. But then QE just became, OK, that's just one of our tools. Now, every recession, we're going to use QE. They were rolling out new QE like seasons of Yeezys. It was only appropriate for the great financial crisis. We didn't need it with COVID. So buying mortgages is partly why there's a housing bubble, because the government has been

underwriting about a third of all the mortgages in the country. Now they should be, you know, this QT, quantitative tightening, they're not really aggressive, right? They're letting things roll off. Letting stuff roll off doesn't really make a lot of sense. Well, what would happen if they started selling? I think they give people fair warning and say, we're going to start selling mortgages in six months, and we're going to auction $20 billion a month. The market would absorb that, and mortgage yields would move up somewhat. But that's a hot part of the market.

Which, by the way, they don't even measure housing inflation, because they've got this quirky thing, owner's equivalent rent, which is how they measure housing inflation. So we all know housing's up 20% over the last year. They think it's up about four. They're not in the same world that we're in. And there's complicated reasons why they believe that. So they should be selling mortgages. They should be thinking about selling treasuries, although that's a little complicated because they've got to coordinate with the treasury itself. They should have been earlier. That part of it is tricky, though, measuring housing prices, because two-thirds of the country already owns a home, right? So even

though prices could be up 20% nationally, it's not like everybody's buying a new house. No, but the cost of living in a, the cost of shelter is generally the cost of owning a home for most households, right? So owner's equivalent rent, which is how the Fed measures it, or the Bureau of Labor Statistics, they survey people, what could you rent your home for? Because the idea is that a house is an asset and shelter's the service and they want to separate the two out, right?

So they want to know what, but we don't know, right? I mean, none of us know what we could, you know what you could rent your house for? I mean, I haven't looked at one. You would have to put it up for rent on the internet. But if somebody calls you and says, hey, Josh, what can you rent your house for? I don't know, six grand. I didn't realize how unstatistical that statistic was. It's like beach bookie.

Economists love it, right? Because they're measuring what they precisely want. It's just that that isn't how America works, right? I mean, if it was in Germany, where most people rent, there's not a lot of owner-occupied housing, that's fine. But Anglo-Saxon countries, people own them. So it's a dumb idea. So what it means is that, so that number moves very slowly, because people's perception of what they could rent their house for moves quite slowly. So they look at this OER, and they say, oh, housing inflation is not really moving that much, even though we all know something totally different.

So they missed that as well. And they caused that by buying mortgages as well as treasury bonds. It's the part that Michael and I have said on the show before. It's the part that I least understand the need to do that. So I understood originally when the first pandemic relief was coming down the pike. It seemed like an obvious thing to do. Well, we didn't know, right? The first few months.

We didn't know we were going to have a housing boom as a result of COVID. Okay, so we did. And then it became apparent by the fall of 2020. And they were going through the summer, right? Holy shit. This is the greatest housing market ever. At that point, like-

Job is done. Our job is done. Nobody would think to say, we'll keep supporting the treasury market for liquidity. Hey, it worked, but we're going to stop with the housing stuff. But now, of course, that's an inflation perspective, right? But they've got a dual mandate. So you ask me, do I think they've done a bad job?

What should they do? They have achieved that employment objective. I mean, I actually think that today's economy- They've overachieved it. They've overachieved it, yes. I think today's economy in a year's time, we'll look back and say, geez, those are good old days, right?

Wait a minute. June of 2022, man, everybody had a job. Duncan cut his mic. Yeah, seriously. You don't think so? You don't say, but I've said this before.

Maybe because I'm an energy guy. No, no, no, no, no. I'll tell you what. It's because I'm an energy guy. There's nothing scarier than a pessimist with a British accent. Yeah, it's true.

It's very true. It's dastardly to say things like that. Don't assume I know anything. Wait, hold on. So obviously, listen, nobody knows what the future holds, but why do you say that we're going to look back on a year from now that these are the goals?

Did you just talk about employment? Because of employment, yeah. Because if you got 5% unemployment, you know, the press and Krogman, oh man, we screwed up. It was better when it was at 3.6 and everybody was employed and now we're already on employment seven or eight.

So this is not so bad. So help us square the circle because we spent a lot of time- He's saying these are going to be the good old days a year from now. Yeah, the NASDAQ's down 2.5%. Great. So help us square the circle.

We've been talking for a few weeks about how it seems like so obvious that a recession is coming. Clearly the data says we're not in a recession today. Help us understand where we are and what's going to happen between now and then. And give us the date that the recession will start. I mean, the Fed talks very hawkish, but they're fundamentally not. So if they walk the way they're talking, they will take rates up.

They think neutral is between two and three, right, when Powell's asked the question. They take rates up to four because they still believe they're going to do something. I think that's going to – Overnight rates at four? Yeah, I think that's going to cause – You'd have the most inverted yield curve of all time. Ten-year yields won't be above four, but they'd probably be three and a half. That's the sort of thing that could cause a recession. So the question is, are they going to continue just to react to today's data, which is what they want to do, or are they going to be a little bit more forward-looking?

And so it really turns on that. My feeling is that if you look at everything they say generally, if you look at their reinterpreted mandate, which favors employment, they will actually blink. They'll be very cautious. They'll pause. Yes. They'll pause. They'll find it. They'll be, there's always a reason. What will be the thing that makes them blink? Mass layoffs? The stock market? They'll be in that two to three range. When they're at two, two and a half, unemployment goes up to 4%. They'll feel like, you know, let's just wait and see. Inflation is coming down. It is going to. Everybody's, the Fed is forecasting inflation next year

at like 2.5%, their PCE deflator, right? Which is about half percent less than CPI. So every forecaster has falling inflation next year. So it won't be hard for them to say, you know, we're at sort of neutral. Inflation is coming down. We don't want to damage. And so just pause a little bit. Is it possible coming down. We don't want to damage on it.

And so just pause a little bit. Is it possible that the Fed will be less sensitive to stock market gyrations? Because hopefully this will be a rich man's recession where it's just asset prices and not mainstream that gets crushed? Yeah, I don't think they worry too much about stocks because the wealth effect translated into income is quite, it's a very low percentage. I mean, you know, 10% on the S&P is like, you know, half of 1% or something on personal consumption. So you'd need to see stocks down a third or 40% or something for them to really run fast if it just went down gradually.

Like this bear market, you know, we're down 12% for the year. The market peaked in November. I mean, it sucks if you're like trading and you're long every day, but we haven't had like a big crash or anything like that. So Josh and I were just talking earlier that this must be frustrating for the bears that are like so, so, so pessimistic. We had this nice balance

and I was saying to Josh four hours ago, you know, you got to, I mean, the market's pretty resilient. You got to give it to the bulls and they must be feeling pretty good here. And here we are. I was saying who's more frustrated right now. It's got to be the bears. Because there's not one fundamental reason why we're not in a 20% bear market right now.

Well, and you know, the market always looks vulnerable at a macro level, right? What gets you invested is looking at individual companies and saying, this company's prospects. Earnings estimates are not coming down. No, we're still looking at 8%, 9% earnings growth next year. That's the last numbers I saw from Faxa, right? at individual companies and saying, this company's prospects are good. Earnings estimates are not coming down. No. We're still looking at 8%, 9% earnings growth next year. That's the last numbers I saw from Faxon, right?

So we're still looking at earnings growth. So, you know, I mean, if interest rates go up, of course, that makes stocks look less attractive, right? So they can be vulnerable for that. Oh, that's interesting. Looking at the macro is easier to get bearish. Looking at, but then listening to a conference call, a CEO of a big American company, probably doesn't drive you to as much bearishness. No, the conference calls are the worst

because every CEO is a marketer, right? They're always just telling, but if you actually look at the, go through the financials, right? You know, read what they've actually put out there and everything. Individual companies, you know, the ones that we follow in our sector, for example,

then you can get really constructive. But at a high level, there's always stuff to worry about. I mean, we all know the list today, right? In terms of inflation and the Fed with interest rates. There'll always be a list. Food prices. There will always be a list, too. Yeah, right?

There's always going to be a list of stuff to worry about. But sometimes the list is longer than other times. Yes. It's particularly long right now. Right. But it's rare to be sitting there. I mean, David Tepper will do it, right? Because he's a top-down guy. And you see him sometimes on TV and say, it's going up. It's going up. Everything's

going up. I remember him making a call like that years ago on CNBC, right? But put him aside, generally, people worry because they're looking at all these headlines and high level stuff. So I want to talk about energy. And I think we just saw today, somebody gave me this information. We just saw the energy sector within the S&P cross back above 5% weighting. It was 1.9% at its low. Oh, bespoke to that. That was bespoke? Okay. By the way, speaking of, we spoke about Exxon for a second earlier. Our friend, Ray Capital, tweeted, ExxonMobil went from a 20 year low to an all-time high in over two years. Look at this chart. Have you ever seen anything like that? Unbelievable. Yeah. Look at that. 20 year low to an all-time high in less than a year. I mean, that is the oil

percentage of the S&P personified. Yeah, no doubt. So it's more than doubled in terms of its weighting versus the overall market. And probably by the time this year is over, it's going to be much bigger than 5%. I mean, 18 months ago, they were borrowing to pay their dividend, right? Yeah. So there was real worry about that. And this is years in the making, right? This isn't just a rebound from COVID. This is years of energy transition. I mean, imagine if we all sat on the board of an energy company, should we invest in new oil production? I mean, imagine if we all sat on the board of an energy company. Should we invest in new oil production? I mean, it's 10 years or more to get your money back.

We don't know what oil demand is going to be, right? So these companies for years have been investing less money. And when you make a decision to invest in new production, you make the decision. You put the money out there. It takes you three, four, five years to start to get it, right? So 2027 oil production is being decided today. And for years, companies have been really – really since the shale revolution in the U.S. And we had low prices.

We had a shale and then we had a shale bust. And then we had a shale bust. And then you had COVID. So capex on new output is down a lot. Same with pipeline companies as well. So there's very little excess supply. I mean, there's maybe 1.5% excess supply out there. So as long as demand remains strong, it's going to drive prices up.

I remember hearing an energy bear prior to this year say something to the effect of, yes, it's true that drilling is down and investment is down, but the new ways of drilling are quicker to bring online than the old ways. So they'll never let the price appreciably rise before they rush back to, in other words, like to assemble rigs and really start to drill, maybe used to take like eight years and now it's four years or something. Even four years, that's a long time, right? Right. It doesn't help us in the short term.

And it's not just finding the place to make a decision. You've got to hire the people. You've got to get all of the equipment. I mean, everybody's got a job that wants a job. And then climate protesters have been hugely positive for this industry. And people don't really think about this. Oh, those guys are trying to put you out of business. Every climate protester makes it more likely these companies are not going to invest money.

So their capex is down, right? So prices go up. There's more money for them to pay dividends. So, you know, I always feel if I meet a climate protester, I always, if you meet a climate protester. There might be one in this room. So you know what? I'm going to give you a hug and I'm going to drive you to your next protest. And he's going to spit in your Poland spine.

You're doing a great job. Well, you ever run into Jeremy Grantham? I mean, I read his stuff. So there's a climate protester. And he's gotten arrested for it. Yeah. I mean, here's the thing. I sympathize with that.

You should visit him in jail. I have grandchildren. I want them to grow up and live in a secure planet. But their views are so extreme. We're not running the world on solar panels and windmills. The biggest thing we can do is phase out coal and use natural gas. That's why I'm invested in natural gas. That's the big win. You get half the emissions with natural gas. It's the transition fuel. The purists will say, no, no, because we don't want to use that. It's better than what we're doing now.

We should use more nuclear. That's the safest form of electricity generation per gigawatt hour that's produced, right? But the Sierra Club and all the extremists, no, no, it's all going to be solar panels and windmills. It's never going to happen. Anybody that uses it. Look at Germany. The most expensive electricity in the world is in Germany, 20% wind.

Within the United States, other than Hawaii, California, the most expensive and the least reliable. So they're two for that, right? So you can have renewables a little bit, but you get 20% to 25% efficiency. I mean, obviously, solar panels only work during the day when it's sunny. Wind, you never know. Offshore wind, you get 30%, 35%. And the more you have intermittent power, the less stable the grid is. The more you've got to have other things to back it up.

We do have commercial-scale renewable energy projects being carried out by some of the biggest utilities. Berkshire Hathaway has spent huge money on solar and wind. And we're going to use more of it. So I'm not telling you it's not going to happen. The world, so it's a global energy market, right? And what you have is two conflicting forces. The rich world wants lower emissions.

America's emissions are down over the last decade. And you know why? Because we've been switching from coal to natural gas. Natural gas is the biggest source of emission reductions in America by far, even though renewables get all the headlines. Rich world countries want lower CO2 emissions. What do emerging economies want? They want higher living standards, right?

And so those two objectives are fundamentally in conflict. You know, China is 28% of emissions, 50% of global coal consumption. They want to raise living standards. But are living standards raised when you can't see five feet in front of you because you live down the street from coal-fueled power? No, and actually the biggest initiative for China to reduce coal consumption is local pollution, not the CO2. It's the local pollution. And so China is doing a lot in solar as well. But you know what? China is using more of everything because it's the local pollution. And so China's doing a lot in solar as well. But you know what?

China's using more of everything because it's as fundamental as this. I looked at this some while ago. Take Indonesia. In the 1960s, average life expectancy was 55 years old. Now it's 70 years old, right? And they're using a lot more energy. So they go hand in hand.

It takes energy to get clean water, to get better agricultural output, to have hospitals that are reliable, right? So it's, you know, there's nothing more- To have a middle class that has automobiles. Right. So there's nothing more fundamental than getting people to live longer in your country.

I'm reading, sorry, go on. No, you finish your thought. I'm reading a great book by Vaclav Smil. I just started reading about how the world really works. He's a fantastic writer. You have to sort of sit there with a calculator when you're reading, right? So here's a great stat. 200 years ago in America, we had 98% of the working age population in farming, okay? Because that's what it took to feed everybody, right? With horses and everything. Something like a third of the agricultural land was used to grow food for horses.

So today, that's down by 99%. We've got 1% of the American workforce is in agriculture, feeding 330 million people instead of 105. And a lot of that's possible because of energy. Because, of course, we have big combine harvesters and all the equipment. And because of fertilizer. Ammonia, right? I mean, nitrogen-based fertilizers have dramatically increased output. And that's how we feed 8 billion people on the planet. So now commodity prices are increasing all over the place,

especially agricultural commodities. Aggravated by Russia. So where do you think crude would be absent Russia's invasion? And what would that be doing to inflation? Like, would we be at $100 a barrel and 6%? And throw weed prices in there too. That seemed to be like the fuel on the fire. Yeah. We didn't need that. We didn't need that. But it would be above $100. If you take Brandeis 120, it would be $100 to $105 in my opinion. And so, I mean, core inflation is under 6, right? So the headline inflation is eight. You know, you'd probably be running at six or six and a half, in my case.

It'd still be high. But you can draw a direct line between the end of February when Russia invaded and the real spikes that got the stock market's attention in inflation. Yeah, yeah. So it sped up something that was already in progress, you're saying? Yes, absolutely. The trend was there. But like I said, we didn't need that. That's exacerbated. And I'm sure, you know,? Yes, absolutely. The trend was there. But like I said, we didn't need

that. That's exacerbated. And I'm sure Putin thought through that. This is not a good time for the world to stop. So as somebody who invests in pipelines and really understands transmission, what's the real situation on the ground in terms of like, will Europe be able to get through the summer with the supplies that are coming or not coming via pipelines? Well, the real issue for Europe will be the winter, right? Because, you know, Europe doesn't – air conditioning is a much bigger thing here. I mean, southern European maybe, but it's the winter. So part of that depends on the weather, right, and how cold it gets.

Part of it is how quickly can they reroute. Obviously, they're working really hard. I mean, Germany has leased three of these floating regasification storage units for liquefied natural gas, right, for LNG. And there's probably a dozen in the world because people don't just build these things and leave them laying around, right? So they've got those three. But it's weather dependent. And I think a likely outcome there is that Germany has made very clear that Russia, when we can, we're not using your natural gas anymore. And pretty obviously, the timing of that will be decided by Russia, not Germany, right? I mean, it's not really plausible that Russia will say,

OK, you want the last one? OK, fine, that's good for us. No, they'll cut off at some time that's less convenient for Germany. So yeah, Europe's in a tough spot. I mean, they've had, if you look at their energy mix and their reliance on imports, they've had absolutely dysfunctional. I mean, they didn't even think about energy security. It was all about climate change and transitioning to renewables, right? Which is why there was so much...

Nuclear's not big there either. No, France... I think they have the same hesitance to it that we do. France is big. France is big. Germany is phasing it all out. Okay. And once you decide you're going to shut down a nuclear reactor,

you get to a certain stage and it may still run for another five years, but it's hard to sort of reel that back. So these are poor decisions. If we really care about climate, we have to use a lot more nuclear. We have to stop using coal and use natural gas. We've got to invest in carbon capture.

You can take CO2 out from a power plant and bury it. And most of these issues are money. See, you know how you know people don't really care about the climate a lot? Everybody cares about the climate. But gas prices have gone up. We're all worried about that. What should be happening is we should be saying, boy, gas prices up. We should all buy electric vehicles.

But no, everybody just wants lower gas prices. So the fear or the worry about climate is broad but shallow. People won't spend money. That's why there's no carbon tax. There should be a carbon tax to send signals so companies can make investments knowing what they'll get out of it. Is it realistic for Europe ever to run itself with LNG coming from elsewhere or not really? Well, they can replace what they get, right? I mean, Germany was getting –

Where is it coming from then? Well, it'll come from us. It'll come from Qatar. It'll come from Qatar. How much LNG can we ship off the coast of Louisiana, like I said? Well, we do 12 billion cubic feet a day. We produce 95. And it's going to be slow to grow because it takes a long time to build new capacity to export.

Is that a home run investment? I think so. So the transmission companies that have the ability to own the LNG terminals, is that Chenier? Chenier's the biggest. Chenier's the biggest. Energy, Chenier's the biggest. Energy Transfer's building one as well. There's one or two small companies. We own a little company called Next Decade,

which isn't even producing it yet, but they're signing up contracts with people. But Chenier's the leader. Okay, so these are the types of investments based on that outlook that you just say to yourself, I feel pretty good that for the next decade, the demand is going to be there. Yeah, because natural gas always has the chance to displace coal. So if the world gets

serious on climate change, you've got that. But in addition, no matter what happens in Russia now, if Putin was to drop dead tomorrow and Russia pulled out of Ukraine, Germany's still not going back to Russia because you don't know who'll be there in the future. So Germany, you know, not going back to Russia, because you don't know who'll be there in the future. So Germany, you know, a pipeline means you care about where it's coming from, right? So Germany, for its natural gas, is going to be buying LNG. That is done. There's no possible scenario where that changes. Wasn't there a bunch of consolidation in the MLP space a couple years ago? There was some, not as much as some people expected. There were some combinations with Anadarko, for example, and

Western Gas and so on. The biggest company is actually Enbridge, who are Canadian, but the three big Canadians all have extensive US assets. You'd buy this chart. What is that? LNG, one-year chart.

It looks like it's about to break out again. And they only just started paying a dividend. Because the great thing about Chenier, so every company's got to spend money maintaining its assets. Chenier, as a percentage of EBITDA, is spending less than any other company in infrastructure because they've spent $25 billion building these plants. And now they have it.

And it's done. So they're coming down that side. And they've got 20-year contracts with Tokyo Electric and Seoul, South Korea, with really investment-grade, good credit rating. I forget who did this chart, but showing the 12-month rolling spread between the best and worst performing sectors.

And I think, I don't know if we're at an all-time high, but we're right about there. And I think it might be between, I know it's energy on the top side. It might be tech on the downside, which is kind of hilarious. Yeah. Well, we were the other side of that two years ago. For a long time. Believe me, I've sat on the other side of that too. Hey, John, let's go into Simon's charts. So the first one is rescuing the world's,

the old world's energy security, which we were talking about. What is this showing us? Well, this shows you, so this is our ability to export liquefied natural gas, right? So you can see we're at 12 now. We're good at this now. And you can see what the capacity will be because it's three, four, five years to build. And there's another chart that I didn't give you guys that goes that far. So we're not suddenly solving Europe's problem this year. We can't just go from 12 to 18 BCF a day. The natural gas has to be condensed to 1 600th of its normal volume in order to ship it yeah so that's a very special what do they do it's condensation they get the gas to they turn it into a liquid form yeah under extremely high pressure specialized

tanker with big spherical tanks and it actually lets a little bit of it leak out as you're moving what's up crash not a good close. Josh, we were talking about, so the market broke a little bit today. Uh-oh. Oh, man. I actually bought a stock for it like an idiot. You know the scene in Alien Resurrection where he lasers the little piece of cube

and it turns into the scotch? No. It's like that in reverse. Okay. Not a nice ending. Okay. So that's what that tells you. So we're going to grow LNG export capacity.

It's going to take time. You know, by 2030, we could be from 12, we could be at 20 BCF a day. Depending on some projects, we may be at 40. But 2030, this is not. Why do you favor the pipelines over like the EMP names? The pipelines are much more stable. The pipeline business model is I charge you a fee. It's like owning a bridge, right?

You go over the bridge, you pay me a fee. So it doesn't matter. I always say, you know, if you own a bridge, you don't care if it's German cars or American cars. You just care how many cars. But would you agree the stocks are not more stable? Like the stocks are stocks. You know, they do treat them like oil stocks.

This sector, because of, you know, Shell Revolution, the Bars, energy, this sector was too volatile. Closed-end MLP funds were a disaster two years ago. They're done. Yeah, they've all blown up. They don't exist in any meaningful way. The cash flows are more stable for these stocks.

They used to be much more stable and upstream than E&P. I think we're going back to that. And that'll bring down the yields more. The yields are still 5%. The yields are still too high. I think people are looking at it. But they used to be much higher. Meaning the prices are too low yields more. The yields are still 5%. The yields are still too high. I think, you know, people are looking at- But they used to be much higher. Meaning the prices are too low.

Yeah. I think you'll see- I think the yields should drift down to 4.5% or 4%. You know, it could- But were the yields unsustainably high? Like, I wonder if you said a lot of these are older, wealthier Americans that had been buying these in 12, 13, 14, 15, because yields on treasuries were effectively zero. Right. Well, the model used to be that they'd pay out 90% of their cash flow. So that 5% yield used to mean- Like a REIT.

Right. Now they have 10% free cash flow yields. They've got tremendous coverage. They're paying out half of the cash flow they're generating. So they're doing buybacks. Pipeline companies didn't do buybacks. They're raising dividends. They could have a 25% free cash flow hit.

They still have one and a half times coverage of their dividends. So they're much more conservative. You know, that was a traumatic experience for everybody involved, for the investors and for the management companies. And so they've changed. They've learned. They've learned. Their capex is down two thirds from what it was at the peak. Let's go into the bull case for US LNG, John. So this is natural gas remains much cheaper in the US compared to Europe. That is a huge spread for a commodity. It's enormous.

So in the United States, what are these numbers for the people listening? So this is dollars per million BTUs. A million BTUs is about 1,000 cubic feet of natural gas, right? And the U.S. price is hard to tell on that chart. It's currently around $8. It's been as low as $2, but it's single digits, right? And that's the Dutch TTF benchmark. What is that, 30?

Yeah, I mean, it was at 70. Wait, Simon, what is the US Henry Hub? I've never heard that term. So that's the benchmark for natural gas. Okay. So there's a futures contract, and it settles against natural gas delivered at the Henry Hub. Can you think of another commodity

that's got that disparate of a price from Europe to America? Or is this the biggest gap there is, right? It's really hard to move natural gas. You can't put it in a truck. Gold is identical. Yes. Somebody in Amsterdam will buy gold at roughly the same price as somebody in New York. It's really hard to. So if you have a propane gas bottle with your barbecue, right, that has propane. If you put natural gas, which is methane in there, it'll blow up, right? The steel has to be that much thicker. So you're not recommending that anyone do that?

I wouldn't do that. Okay. I just want to be clear. Don't put 50 on a truck and plan on driving somewhere to take that. So it has to go through a pipeline or on a specialized tanker. And that infrastructure takes a long time to build.

That's why they do long-term contrast. That's the beauty of natural gas infrastructure is you can't do anything else with an LNG export facility except export LNG. So you're going to do 20-year contracts before you build it. And that's what Chenier's done. And that's what other companies do in energy transfer, for example. They won't have trouble getting new 20-year contracts. The contracts will be signed as soon as you present, hey, we're doing this. Well, you know, we're running about Europe, 75% of LNG trade is in Asia. China's the biggest importer of LNG. And then Japan.

Is China importing American LNG or are they getting it from Africa or something? You know, they were. It might be now. I'm not sure, to be honest with you. I mean, there are traders who will buy it and then they can ship it to wherever the price is highest. OK, let's go to giving investors what they want. Midstream sector forecast to increase investor returns by a third over five years. What are we looking at here?

So this is basically- Just sign the paperwork. What are these pipelines doing with their available capital, right? And the blue there, $32 billion, that's CapEx. That's what they're spending on new stuff. That's going down over the next five years. That's incredible. They're buying back a little bit of their debt. They're raising their payouts, right? They're spending $39 billion. This is about a $500 billion sector.

They're spending $39 billion in dividends. That's going to go up to $44. That's a 2.5% compound annual growth rate. But they're also doing buybacks. Buybacks are going to go up 4x over the next five years. They spent $3 billion on buybacks this year. We think they'll spend $12 in five years' time. So that's two ways of giving money back to investors.

And this is well covered by free cash flow. So the year 2027 estimate is that midstream companies, pipeline companies, will spend $30 billion on CapEx, will pay down $7.5 billion in debt, will do $44 and change billion in dividends, and then buy back $12 billion and change in their stock. So that almost sounds like a guaranteed return if you're a shareholder, unless you pay too high a price today. Yeah. I mean, obviously life's uncertain. Five years is a long time, but $66 billion in capital return to investors in five years. I guess what I'm asking is what could upend that higher than expected CapEx because new environmental regulations or like what's the risk to this five-year forecast? Yeah, the risk to that is a

steep recession, a steep prolonged recession. Which would do what? Hit demand? Hit the price of oil? Yes, if we drive less. So in a recession, if we drive less, if industries use less energy, if we're using less natural gas. So that's the same risk for every other type of stock? Yes, yes. In theory, this should be fairly insulated from the price of oil, but in real life, it's not. Oil drives sentiment, right? Right. I mean, it's a great example. Williams Companies is in XLE. XLE moves with oil. Williams is a natural gas company. They do not sit there worrying about the price of oil. But the stock moves with oil because it moves with XLE.

So it drives sentiment. But it's really about volumes and demand that go through. And if it drives sentiment in the wrong direction, then if anything, it's an opportunity for an investor who knows the difference between Williams and Chevron. Yes, I think that's right. And I can tell you, a lot of investors look at energy today, and the pipeline said, let's say, boy, it looked great. But man, look at two years ago. Have I missed it?

What if it happens again? And they're looking at- And I get that. So you don't have money rushing in. I mean, we're raising money every day, but it's not like it's gushing in. This is early days, in my opinion. These are long cycles.

The last one went from 2008 to 2014, six years. Do you draw a distinction between the K1 pass-through entities versus the corporations? You know, it's mostly corporations now, Josh, because the K1s have such a narrow investor base. And these companies said, look, we need to appeal to everybody. So let's convert to be regular corporations. That's what Enterprise Products did. Well, EPD, Enterprise Products, is the biggest MLP. So some kept the structure.

They're still an MLP. Some kept the structure. They have a 6.6% yield. So they are higher than the sector. There's a price discount. To be an MLP, you trade at a lower price. But there's tax efficiencies, too. Higher yield, bigger pain in the ass to file the taxes.

Yes. Got it. But we own them, too. They're a good company, very well run. OK. But Kinder converted, and that was the taxes. Yes. Got it. But we own them too. They're a good company, very well run. Okay. But Kinder Converted. Kinder Morgan, 1099. And that was the biggest.

Kinder Morgan, Williams, Enbridge, TC Energy, One Oak, Target Resources. These are all C-Corps. Did Enron give these companies a bad name 20 years ago? It's too long ago now for people to really care. Yeah, I think. But is that part of why this part of the market isn't more well-known? It may be.

You know, Rich Kinder was from Enron originally. Part of Kinder's network was something that Enron had. So yeah, maybe. I mean, nobody talks about it now, but maybe some years ago. Okay, let's go to Europe's energy catastrophe. Yeah, so look at this. This is from JP Morgan.

This is a great, great chart. so look at this. This is from JP Morgan. This is a great chart. So look at their production, right, which basically peaked 20 years ago. That's the brown line, right? That's European oil and gas production. It fell by half over two decades, right? Yeah. And then you can see their oil and gas imports from Russia. This is trouble.

This is trouble. Just trending higher. This is trouble. And so there's no energy security in this. They're not thinking energy security. So isn't this a wake-up call? Is this a watershed moment for Europe? Big time. I mean, think how quickly Germany decided to rearm

and pivot on energy imports. So funny. I said the same thing about this. Decades of strategy just like that. Defense spending and energy spending are two things that are guaranteed to go up in Europe and maybe worldwide for the next 10 years. Could be, right? Certainly for Europe.

Look at how belligerent their neighbor is. Exactly, right? It would be the most irresponsible thing. And the closer you get to Russia, look at the polls. They're even more worried, right? So this was a strategic disaster. Merkel is certainly one of the people to blame for that because she was there so long. And she's very defensive on that whole

issue. But she you know, she, she made her choices. She drove policy in the wrong direction. I think the Europeans really bought into their own bullshit with the single currency. But let's not unite the banking system. Like Everybody will just play nicely together. Yes, yes. And then this kind of falls into that same category of like, did you really expect that human nature would revert to some- You know what I like? You know, Maslow's Pyramid, right? This hierarchy of needs, right? Yeah.

I don't know if you've ever seen that. I put this on my blog. The most basic thing is you need shelter, security, and then food. And then at the very top is self-awareness netflix right so the people who care most about climate change are the ones at the top they've achieved everything john kerry yeah what does john kerry have to worry about he's got nothing to worry about right he married the ketchup queen yeah it's good forever right if you're in india you're worrying about actually do you have enough propane to cook tonight right and stuff like that right so this is it this is it right so esg let me let me ask you politically let me ask you that's that's the hierarchy of needs yes yeah self-actualization is not high on the list for like 95% of the people on earth.

And the ESG people are sitting up there, right? John, can you throw up this ESG chart from Financial Times? ESG has been a rapidly increasing topic in earnings calls. Basically, it was at 0% for like 20 years and now it's at 20%. Oswald de Motoren went on an epic rant on Patrick O'Shaughnessy's podcast a couple weeks back, just basically like there's no there there, and it's all a profit grant from BlackRock. So how about this? How about this? The Dow Jones Sustainability Index has Lockheed Martin and Northrop Grumman.

Sustainable missiles. They're green missiles, right? Yes. I mean, give me an F in break. Well, that's what people want to be hit by. They want to be hit by sustainably farmed. I mean, they're really just having us on, aren't they? Year after year, Lockheed Martin's in there.

Put up the global rise of ESG funds. It's not even ESG because they could say, well, on the governance side, they could. No, sustainability. What does a sustainable bomb look like? Lockheed can bomb you into the Stone Age, but there are a lot of women on the board. So, all right. The global rise of ESG funds. This looks like $2.7 trillion globally, most of which is Europe.

I think a lot of this was investor demand and then Wall Street said, sure. So, the most important thing about what you care about with ESG, the only thing you care about is fund flows. That's why it's important. If a lot of people care about ESG, that's why every company in the S&P has a set of ESG slides. You said, we just posted a video on ESG today. ESG is a scam. We've already had some great feedback.

So what's the feedback that you get? People that secretly know it's bullshit, but have to pretend that they care because they sit with institutions. Well, I had one, actually one person who's not invested with us yet, who called up and said, I've been looking for an anti-ESG manager, and you're the first one I've found. So I'm in. So that was terrific. But you're not anti-like, you think all these ideas have no merit. No, I'm not anti. They're components of ESG. I care about the climate, right?

So it's a little bit more subtle. I think ESG, we do not invest on ESG. It's irrelevant. Even though pipeline stocks are in BlackRock's ESGU ETF, because natural gas is a great substitute for coal. So the scam part is not the idea. It's the marketing. It's the products. The scam part is that

ESG companies don't perform any better than non-ESG companies. There's no reason to expect better metrics, return on invested capital or profit margins or anything else like that. The stocks did well for a long time while capital was going in. Now ESG stock, ESGU is actually lagging in the S&P. The biggest ESG fund stock, ESGU is actually lagging in the S&P. The biggest ESG fund is lagging. But if every company in the S&P says that they're ESG, then nobody is. Well, but there's nothing, right?

Then there's nothing there. Of course. Let's put this doing good isn't doing better. Well, I guess ESG is not a universal, nobody agrees, not everybody will agree. So if you can personalize it, like we're able to with some of the direct indexing that we do, where somebody can say, hey, you know what? I've had enough of Wells Fargo.

Hey, you know what? I don't want to invest in Facebook. That's very different than buying an index fund that looks exactly the same as the S&P and charging another $0.50. This looks identical to me. Now there's a lag because there's not enough energy. They have some energy, but they don't have Exxon. And so BlackRock is obviously run by very smart people. They don't want to lag the S&P by too much, right? They want to convince people they've got some special source and never be

closed. It's the same thing. Yeah. So they're lagging now, right? So buy an S&P fund. What's the point? Bloomberg did a big piece on them last year that, I think it was Bloomberg, that a lot of the rise of the ESG funds was BlackRock putting the ESG products in their model portfolios. Yes, yes. That'll do it. I bet that's right. The Financial Planning Association's 2022 Trends in Investing Survey was released last week, and it showed that 15% of advisors are looking to diminish their use or recommendations of client ESG investments over the next 12 months. That doesn't sound like what the media is saying.

That's not a lot, is it? I'm surprised it's not more than that. So that's more than three times as many who said the same thing last year as recent events. I wonder what those could be. Led some investors and their advisors to pull back. A bull market in fossil fuels may have contributed to cooling demand for ESG. A bull market in fossil fuels may have contributed to cooling demand for ESG. Yeah, right. ESG ETF flows came in at less than half of those seen at the beginning of 2021.

That inflow, blah, blah, blah, blah. So in other words, like oil, what are oil stocks up this year? 45% or something? Oil's 60. We're sectors up 30 to 35. 60 with the S&P down 15. That's a massive. That'll put the stake weight in ESG's heart.

Wells Fargo has said this. Now investors just can't afford to be underweight energy. So when it was 2%, they're like, I'm not going to bother. When it's 5%, you kind of have to have a point of view, right? I'll just say one thing. I'm ESG curious. On the pyramid of scams, I think people might get frustrated because it's like a moral superiority type thing. We're going to be – I understand the pushback.

But in terms of like Wall Street scams, to me, this is like way down the bottom of the list. Oh, yeah. Oh, yeah. Way down – in terms of being offensive because, listen, you're getting an index fund, right? You're not getting killed. There's a lot worse. Non-traded REITs, there's a lot worse. The SEC is bringing suits now, though.

They're going to asset managers and they're saying, we saw your marketing. Oh, absolutely. Show us what you're actually doing and how it lines up. The whistleblower. DWS, the big German asset manager. He had to quit, the CEO. So here's a quote from the person that blew the whistle on them.

She said, I still believe in sustainable investing, but the bureaucrats and marketers took over ESG and now it's been diluted to a state of meaningless. Yeah. I sympathize with that because the thing is the objectives of the investors are good objectives, right? No, I understand why you'd want to invest. I always think the best thing is just invest to make the most money, take some of your profits and put it into some cause that you believe in. And don't confuse making a profit with doing good. So I know people who that line of reasoning and I've said things to that effect.

And I don't – by the way, I don't have a strong opinion whether or not people should try to do ESG things with their portfolio. But when you say that to somebody who's not only an ESG investor, but an impact investor, and they very much feel passionately and strongly that if we don't all collectively use our dollars and direct them toward the things that we think matter, nothing will ever change because only money talks. And normally they're not talking just about climate. They're talking about the hiring practices of companies, the social aspect of this. But wait, but impact investing is very different than ESG funds. Understood, but it's a spectrum. That's the furthest end of the spectrum.

But impact investing is actually paying dollars. I mean, hiring practices. I'm sympathetic to that. until we collectively just say this is unacceptable for society, we will starve these people of dollars until they go out of business or change their ways. I'm sympathetic to that. And I've used this example before. I think that that kind of attitude was instrumental in putting an end to apartheid in South Africa. I think we starved them globally.

We said, people are not playing Sun City anymore. We are not going to have advertisements running there. We're not going to serve those cities, Johannesburg, et cetera. I mean, it could be. I mean, nice to think that. Of course, you can never prove it either way, right? I mean, it is a black country, right? So eventually that was probably going to have to change, right?

But ESG index funds in it. That's not where change is coming from. Fine. Stipulated. But I'm saying the idea behind it does come from something legitimate, which is that really in the end money talks. Well, because the goals are good goals, right? Yeah. It's hard to criticize what they're trying to achieve.

And then Wall Street met demand with supply. Right. And the supply was – But I agree with you. It's sort of a low order sin. It's like, okay, they're a bit naive thinking that that's what they're getting, but whatever. It's right. It's low on the list of-

They haven't done that. ESGU hasn't been a disaster. No, not at all. It's kind of done a little bit worse in the market. Yet. Right. I want to talk about gold and just get your take on this. We learned this year it's not really a great inflation hedge after all.

Oil is better. This is my friend JC Peretz, All-Star Charts. Gold is at the same price it was two years ago. Gold is still at the same price it was 11 years ago. Silver is down 40% from that same point. Inflation hedge? Nothing could

be further from the truth. Can I just say one thing? I'm not usually a gold defender, but I would just say that the US dollar, the strength of the US dollar during this inflationary period is kind of odd. Dollars at a 20-year high. I mean you could put any currency up there. So you can't – so gold can't possibly do well when it's priced in dollars. our lifetimes or adult lifetimes, gold acting the way it is completely invalidates its actual practical use as something that hedges it over. What can you say is always a for-profit inflation hedge?

There are different types of inflation. You have to own companies that have pricing power. Coca-Cola, McDonald's, right? Because Disney, right? Because if their costs go up five percent they'll raise price five percent and they have a strong brand but people put that chart back up it is a remarkable chart because gold and silver have gone destroyed relative to other commodities throw silver throw silver out just just the the concept this is this not gold versus the stock market it's

gold versus commodities gold versus every other commodity which all contend with a high dollar that's why this is so compelling yeah Yeah, that's really, yeah. Right. So you can't just say, oh, it's the dollar because look what it's up against the basket of every other commodity. Yeah, it's terrible. It's real. It's truly terrible. It's terrible. Yeah. Waste of time. I've never owned gold. Right. I've never been a gold person. I've been sympathetic to the idea that an ounce of gold will always buy

a fine gentleman's suit or whatever. That actually turns out to be true from what I've seen. I mean, what about Bitcoin? Bitcoin should be an inflation hedge, right? That hasn't worked either. And it's also not. I don't think anything is an inflation hedge forever. I mean, if you think about it, the point of investing in stocks is to protect against inflation, right? That is why you own stocks. So when inflation's going up, people are sort of forgetting that. Isn't that why you have 60-40 portfolio? The bonds are not the inflation hedge, right? That's every saver's biggest risk

is inflation. So stocks that can raise prices. Yeah, I mean, energy has been great because all prices are up, right? But big companies with a brand where they can raise prices, pricing power, has to be P&G. Companies like that, right? Stock splits. We got a 20 for 1 this week for Amazon. Right. Took effect on Monday. The stock proceeded to then sell off immediately afterward.

Alphabet is the next one. This was the first split for amazon in 23 years it's hard to believe uh it's been that long since did google announce they're doing one two uh alphabet yeah yeah so so i guess it seems like either one of these companies post split could end up in the dow i bet you they both go in at the same time which it's happened intel and microsoft both got in the same year. Which of these two do you think is more deserving? Meaning like

representative of the economy. Amazon. Amazon. Google's advertising. Amazon is America. You know, the cool thing about Google,

I mean, I know one or two people who work there. They have the smartest people at Google. I mean, just think of Google Maps. How'd they make money

out of that, right? Couldn't you say if you were making the case for Google belonging in the DA Dow that, yeah, it's advertising, but it's advertising for every single segment of the economy, services included? Yeah, they're covering everything, right? All right, so a stipulation like Google and Amazon come in. What do you kick out? Yeah, I'm looking right now. What comes out?

Kick out of the oil companies. ESG, Dow. You know what? IBM. IBM's over. Oh, yeah. That should have happened. You know what? IBM. IBM's over. Oh, yeah. That should have happened a long time ago.

How are they still there? How are they still there? That's way over. Okay, so Google for IBM. What is Amazon going for? Is Sears still in there? Why is Amgen in the Dow? You need a biotech.

It's the biggest one. You need one. I don't know. We got Johnson & Johnson. They got Merck. Are there any media companies that look susceptible? Not media. Retail?

You got to leave Verizon in there. Maybe Dow. I don't know. Dow Chemical? Dow Chemical. Because you're not taking out JPMorgan, McDonald's, or Coke. You have to kick out a retailer, but is it only Walmart? You know what?

Intel and IBM. Final answer. Oh, Intel's still in there? Intel and IBM. Good night. Good night. Okay. I think we all agree on those. Intel's still in there, right. Good night. Good night. Okay. I think we all agree on those.

I just want to show up this chart real quick. This blew my face. Market share of select package carriers by volume. We've got the USPS. We've got UPS and FedEx. Amazon Logistics. Oh, shit. Wow, look at that.

Past FedEx. That's amazing. Amazon Logistics is 22% market share. It's unbelievable. FedEx. Amazon Logistics is 22% market share. FedEx is 19. Hey, I was at my kid's preschool graduation the other day and they all wore like a sign,

like I had a dream that I'm going to become whatever when I grow up. Somebody wrote Amazon man. And I asked the mother, I was like, what is like, like Jeff Bezos, like the delivery.

And they said, yeah, like the delivery guy. Oh my God. Who doesn't love to get Jeff Bezos, like the, like the delivery. And they said, yeah, like the delivery guy. Oh my God. Who doesn't love to get an Amazon package every day, all the time. And I forget what I've ordered. So it's like a surprise. It's a present. Oh yeah.

That's what, you know what? It's a present and it's what I wanted. How cool is that? Right. Santa Claus brings the doorbell every day. And you're on Santa Claus. It's fantastic. The kid must be really excited when the Amazon man shows up.

Oh, that's cute. That's so sweet. Uh, the IPO market pretty much disappeared this year, Simon. Yes. Obviously, the levels of IPO volume were probably unhealthy, meaning way too much supply, new companies, new stocks. What's your take on- That was offensive. Wall Street offensiveness, the SPAC boom was offensive. Yes. Yes. Thank God. Thank God that's gone. All right. Listen to this.

157 companies raised $18 billion in the first five months of 2022. That's compared to $628 that raised $192 billion in the first five months of 2021. Yeah. I mean, the SPACs were sort of the evidence of the froth, right? I mean, you've always- Those were all IPOs that I just gave you. You always need that optimism and excitement. Attack out. Yeah, I mean, the SPACs were sort of the evidence of the froth, right? I mean, you've always... Those were all IPOs that I just gave you. You always need that

optimism and excitement. We're tacked out. Yeah. Yeah, we are, right? There's no more money at the pump. Right. Globally,

people are filling up their costs. Globally, the value of IPOs dropped 71% in the first five months of this year from $283 billion to $81 billion.

And the number of listings fell from $1,237 to $81 billion, and the number of listings fell from 1,237 to 596. In line with ARK. The first three quarters of 2021 were the busiest period ever for listings. So speaking of mean reversion, of course. Tough comparison. Of course that was going to happen. May IPOs, the ones that did come public last month,

which not a great idea. Anything – I don't remember anything coming. Negative 28 percent from the offer as opposed to positive 73 percent in May of last year. Oh, wow. Just absolutely demolished. Let's see. There were – here, Bright Green came public. It's a U.S. cannabis producer. Bausch & Lomb were here, Bright Green came public. It's a US cannabis producer.

Bausch & Lomb came public, the eye care company. So there has not been a lot. When does this come back? Does this need interest rates to stop going up before people even want to hear about this? There's no miscapitite. I think probably

we need to feel the Fed is at least on pause to have a chance. Yeah. As long as they're planning 50 basis points every time they meet and more. So neutral rates, two and a half to three rates. They're pausing. Let's bring some stuff back to market. Next year.

At much lower valuations, though, than they would have come out. This is next year. I don't think you see anything this year. OK. Well, they had a bumper crop last year so they don't have to live off of that for a little while that's it uh this is the part of the show where we do favorites and you already gave us a great book recommendation what was it called again oh uh the headphone mirage no no how the world really works how the world really works my backlaps mill okay uh what other

what other books or or TV shows or movies, like what are your favorite things right now? Well, I read Fossil Future by Alex Epstein just before that. Okay. TV shows, we're watching Lincoln Lawyer. Oh, I'm watching Lincoln Lawyer. That's great. It's pretty good, right?

Outlander, that's a great, you know, wives love that. Yeah. Right? That's the one where she. It's pretty good, right? Outlander. That's a great, you know, wives love that. Yeah. Right? That's the one where she wakes up 200 years ago. It's a very clever story. Yes. It's sort of a time traveler, which makes it sound sort of futuristic, but she travels backward. And it's a fantastically involved plot.

She kills all the fossil fuels? Well, yeah, there's no fossil fuels when she goes back. They're dealing with, you know, which is the most pollution, right, when you burn wood. But that's great. You know, my wife and I really enjoyed that. Okay. And what's this HSBC presentation? Tell us about that.

Oh, Stuart Kirk. That was so cool. So the FT had this sustainability conference. Stuart Kirk is HSBC's head of sustainability. And he gets up there and says, I'm just sick of it. I'm sick of one more nutcase telling me the world's going to end. You just heard somebody tell you at the last presenter, I didn't see all of you running out of the room.

They're all going to die. In fact, you're all on your cell phones. And so he's been suspended. I was going to say, are you fired? He's been suspended. Go Stuart. Go to Stuart. And I have a lot of respect for him.

He's had enough. He's saying, look, we're threatened by cybercrime. Hold on, Beth, tell us the story. Who is Stuart Kirk and why did he get fired? Suspended. HSBC. So he's HSBC's head of sustainability. So he's supposed to go out there and tell investors what HSBC is doing on climate change, on sustainability,

on helping make the planet better place, ESG. And he's basically had enough of it. He had a Jerry Maguire moment. Yeah. What did he say specifically? You know, he said, the not case, the way the world's going to end. He pulls up charts. He didn't just get up there unprepared. He had the slides approved internally. They obviously didn't look at them, right? He has one slide where he says, you know, he's got one slide that compares climate catastrophe. How many times people use climate catastrophe and the level of the stock market?

He says, you look at stocks. People are not worried that the world's going to end because of climate change, right? The market's not reacting to that. So, you know, I don't really see what the worry is. We're worried about cybercrime. We're worried about the housing market. And climate change is going to happen over decades. You know, it's so far off. Why are all these regulators asking me that stuff? So yeah, he's so promptly suspended. This was about two weeks ago. I still haven't seen whether they've

reinstated him or fired him. But I'm guessing he's not going back to the same job. But it's funny that that's his job to begin with. I know brilliant it's brilliant it's he's great you should watch it as i put a link onto it on my video it's like a five minute uh piece but he's just saying it like it is did they carry him off the stage or they let him finish no they let him finish oh they let him finish brilliant it was really good yeah he's. He's my hero. Stuart Kirk. We're absolutely going to watch that. I got to find that. Yeah. Michael, what's your favorite for this week?

So, yesterday morning at six o'clock, I watched a movie. Now, my wife is an early riser. She gets up at 530 to go to work. Okay. So, I get up early and I watch a movie. That's what I do. Wow. And yesterday, I watched Hustle, the new Adam Sandler movie on Netflix. Now, obviously I'm a huge fan of the Sandman, but his Netflix quality has been pretty poor. So I was very pleasantly surprised.

This is a good one. Very pleasantly surprised. He plays a scout for the Philadelphia 76ers. And the movie gets a premium because there's a lot of NBA players involved. And it was, I really enjoyed it. It was a good sports movie. Wancho Hernan Gomez, who I didn't even know was in the NBA, brother of ex-Nick Willie Hernan Gomez, is the main character. And it's great. Really good. Cool. So I just want to point out, you started off watching 30 minute shows in bed. Now you're

watching entire movies. What time are you starting work roughly? 10.30? Hang on. I started at six. I started at six. With popcorn or not? I started at six in the morning. I press pause at like 7.30 to get my kids up and out of bed. And then I finished it that night. There's no popcorn in bed or anything like that? No popcorn in bed. I'm going to say business travel is my favorite. I rediscovered that I actually really like it. And I went to Austin, Texas this week for my first travel to conference, I think. I was only there for like a few hours because that's just how I do it. Cool. But I like – I flew to Austin.

I put together a group of people that either live there or were going to be there, even for unrelated things. Had an amazing dinner at Red Ash. If anybody's looking for a restaurant. You know, I'm in Austin next week. I don't even know if you can get in. I'm there too next week. What are you doing there? We're sort of combination seeing clients and sightseeing.

Never been to Austin. Oh, Michael's going to watch movies in his bed. What are you doing there? I'm going for eight hours to a wedding i'm so mad a wedding eight hour wedding wow no i'm going there like uh for i'll be there for less than 24 hours wow well listen if you can get a table you might have to eat it at a weird time can i drop your name without giving me a good table my name yeah uh ask for patrick uh red ash is one of the best dinners I've had anywhere in America. Oh, cool. I'm telling you.

They're next week. I'm going to. All the listeners in Austin are now going to be dropping your name. Yeah. Yeah. I need to get an open table first, right? Don't do that. I'm not that influential.

Who the hell is Josh Brown? Why do people keep telling me that? I'm not that influential. But I got to tell you, it's an Italian steakhouse where they're grilling over wood. They're grilling meat. The cows are Italian? But pastas, steaks. Oh, wow, look at that.

Wood-fired Italian. Dude, I'm telling you. It's a really, really tough reservation to get. And somebody I know got it for me. I wouldn't be able to get it. We're going to have to have LNG. They'll let you right in. I have absolutely no pull.

Yeah, I got a lot of friends there, let me paul yeah i got a lot of friends there let me tell you i got a lot of friends in texas so so the pre-game the pre-game for that was at a place called uh something down low dumont's down low which is in the warehouse district in austin um the warehouse district has all these like exactly what you think old warehouses that they've converted oh either retail stores, restaurants, or bars. This one is downstairs in the basement and they say it was a haunted warehouse. Unbelievable bar, great cocktails. I asked the bartender one question about a drink.

He gave me 20 minutes on green chartreuse and forget about it. Anyway, I just love the experience of dropping into a city. I've been to Austin a million times, but so what? And then the next day I got on stage with Rick Edelman talking crypto. I saw people I haven't seen in two years from around the industry. And it's just nice that that's made a comeback. Yeah, absolutely's good. That's my favorite for this week. Brilliant.

All right. We're going to remind people. We're going to remind people to check out, if you're into financial blogger apparel, check out ironshot.com for the latest from the compound. Did a lot of people go buy stuff last weekend when we ran the sale? Yeah. Pretty good? Yeah.

Yeah, a lot of people took advantage of that. We didn't sell out of anything, though. Not that I'm aware of. That's the beauty of dropshipping. Right. Okay. Exactly. All right.

Love it. Check out outonshop.com for the latest from The Compound. Don't forget, New Animal Spirits Monday, New Animal Spirits Wednesday, and we're back with an all-new What Are Your Thoughts on Tuesday. And lastly, tell everybody where they can follow you, Simon. What are the best places where your stuff can be? I think we have a whole bunch of links, right? Well, yeah, at Simon Lack on Twitter.

Our website is sl-advisors.com. Or you could just Google me. There's not many Simon Lacks on the world. You just Google me. And you have your own YouTube channel. We do. Okay. We do.

Do you have a Duncan? Do you have a John? Not yet. Okay. All right. Good luck. These guys are hard to find. Not yet. Okay. All right. Good luck. These guys are hard to find. They look like they're well-paid, Josh.

I don't think I could afford those. They're great at what they do. And your blog, sladvisors.com backslash blog? Just go to sl-advisors.com and the blog is there. You'll see it. Okay. And you're writing about not just pipelines and not just energy. Interest rates as well, right?

Because I traded interest rates for many years. Yeah. So I write about the yield curve, Eurodollar futures, Fed policy. I read all your stuff. I think you do a great job.

Your books are great. You were amazing on the show today. Did you have fun? Well, I had a lot of fun. Okay. You're going to come back and visit us? If you'll have me back, I'd love to.

We will absolutely have you back. Simon Lack, everybody. Simon Lack, ladies and gentlemen. All right. Thank you guys so much for listening. Make sure to like and subscribe. We will see you next week. Take us out.

Good job. All right. Good warm-up. Are you ready to do this for real? What do you think? It doesn't even feel like warm. Really? You guys have fun all the time.