Jeff deGraaf: The Market That Continues To Defy Gravity
Summary
Market Outlook: Jeff deGraaf discusses the current market environment, comparing it to previous eras and highlighting the resilience of the market despite various challenges.
Financial Sector Insights: The conversation covers the state of banks and credit markets, noting mixed messages and potential underperformance in financials, particularly insurers and private equity firms.
Gold and Dollar Analysis: Gold's recent price movements are examined, with deGraaf noting the lack of a solidified narrative and the potential for a bubble, while also discussing the dollar's role in global markets.
Technical Analysis: Emphasis is placed on using technical analysis to identify market trends and potential investment opportunities, with a focus on sectors like small-cap healthcare and biotech.
Investment Strategies: DeGraaf highlights the importance of understanding market cycles and the impact of Federal Reserve policies, suggesting that current conditions may be favorable for equities.
Sector Performance: Discussion of sector performance includes insights into energy, utilities, and discretionary sectors, with specific mentions of aerospace, defense, and technology.
Macro Research Approach: Renaissance Macro Research's approach combines macroeconomic analysis with technical research to provide investment insights, catering to institutional and high-net-worth clients.
Transcript
In this episode of On the Tape, I welcome Jeff Degraph to the pod. Jeff is the founder and chairman of Renaissance Macro Research, known on the street as Renmack. Jeff along with his partners bring decades of experience to produce thoughtful independent macro research to investors. While Jeff is the head of technical research, he is involved in all things RenMac and you will often find him on the Renac Nuclear podcast called Offscript with his partners. He also had a series of interviews called Renmack Legends and we get into some of those from the past as well. We discuss all that is happening in the markets and compare and contrast today's trading environment to previous eras. We get into the banks and what we are seeing emerge in the world of credit. We discuss the dollar and gold as well as the sectors Jeff is paying attention to within the markets. Of course, we hit the Fed rates and the government shutdown and much more. So enjoy this episode of On the Tape and hang around for my week eight NFL picks. Welcome to the On the Tape podcast. I'm your host Danny Moses and today I welcome my friend Jeff Degraph, the founder and chairman of Renaissance Macro Research, affectionately known on the street as Renmack, independent macro research boutique firm based in New York. Jeff, welcome to On the Tape. >> Danny, thanks for having me. It's great to see you again. >> Well, you're putting on a lot of great work and I know you guys are busy. I want to talk about your team first. Guys like Neil Da, you've built quite quite a team. So give us a little background on Renmac on the product itself and then I'm going to hone in on your experiences also right after that. >> Yeah, sure. Well, thank you for that opportunity. So Neil Duda joined us uh boy I think it's I mean I lose track probably 12 years ago now. Uh he came out of Meil Lynch where he was under at the time Ethan Harris who actually had worked with back at Lehman Brothers for a long time and then prior to that he was uh you know kind of the understudy to to David Rosenberg you know pretty uh infamously known uh now. So he had a you know really good uh solid credentials. He's been great for us. He's very strong on the economic data but not you know in the typical ivory tower fashion you know formulas and mathematics and everything else though he's certainly capable of all that stuff. He really is good at synthesizing what the data means and what the the impacts going to be for most likely markets and bonds and and everything else. So, you know, that's a really important component um in in our world because there's such high frequency data, you know, and we want to know, you know, are the markets aligning uh or seeing ahead of oftentimes they do seeing ahead of what the data sets are. Um so, it's really important for us to have that. And then on the other side, uh we've got Steve Pavick who handles our DC product, you know, and he's got his fingers in a lot of different things. So, you know, clearly in this environment, uh, whether it's tariffs, trade, healthc care, whatever the case may be, Fanny, Freddy, all that stuff, there's something going on. So, it's it's important to have somebody who's, you know, ears on the track, if you will, and um hopefully moves moves it out of the way before the train comes. But, uh, you know, he's he's been great and, you know, we continue to get leverage off of that and and his perspective. And then just as an aside, we have a bit of a focus in on the fundamental side. It's really the only one that we've we've really found that, you know, we think really meshes well with the macro side and that's Howard Mason who covers everything from payments, the plumbing of the financial system, so with the central banks, uh, and then his his, you know, probably his real expertise is the payments and then stable coin and what's happening to the crypto world because that is a fastchanging area and, you know, frankly, I'm not up to speed like I'd like to be. uh Howard certainly is and you know there's there's a lot of opportunity in that space and uh in fact I'm I'm encouraging one of my sons who's about to graduate from college to look at that space because I think there's just so much kind of raw talent that um you know that that's going to have an opportunity to excel there. So that's the that's the foundation of Renac. We've been doing it it'll be 15 years actually this March. So you know we've been at it for a while but the whole idea Danny is as you know I mean I came from ISI which was known as a macro shop at the time. Uh and then Ed built it out, you know, to be more of a, you know, holistic uh fullervice uh uh research shop and and I really like the focus on on macro. And so, you know, took the opportunity to spin out and uh uh and and start RENMAC and um you know, allows me to uh to to work as I see fit. Uh which is still an awful lot I have to say, but um you know, really enjoying ourselves. Well, nothing better than having an economist, a policy analyst, as you said, someone covering the banks and the plumbing, the system, and then you, you're being modest here, but as far as technical research and the and the stuff that you follow, kind of blending that all in, catch, you know, catching the trends and marrying all that stuff together, which is really how we met and what your background was at ISI. But I want to go back before that because I think your journey from Maril Lynch to Lehman Brothers before ISI and you were you knew what was going on at least your antennas were going off at Lehman in 2007. Talk about that experience because I think that everything kind of shapes us various points of our career but I think that had a lasting impact. >> Yeah, look I mean I I joined Lehman back in 1998. Uh I think a month into it we were long-term capital you know and so it was kind of the first foray of like oh god what happened? And I remember telling my my uh my boss at the time who was a mentor and still a fabulous we still stay in touch who's just a fabulous individual and was a a had a great feel for the markets. You know I remember telling him a month into I'm like hey I didn't burn any bridges if I need to go back there I can you know I can probably he's like no it's all fine. I'm like okay okay good. So yeah, I mean look that was uh that was the point where you know we got into obviously the bubble uh of the of the dotcom era when uh when the Fed cut rates to kind of help uh assuage the concerns around the banking system at the time and uh you know really went to show how how powerful uh the Fed can be even if they're not directly transmitting money into you know the system via you know say the internet uh they were doing it through the banking system but obviously you know we saw that that balloon with IPOs and everything else from there. Yeah. 0 05 and to07 was interesting because the the the team had turned over. Bonds were starting to kill it. You know they're making a lot of money and as you know tends to happen at these big institutions the uh the groups that make money tend to have the power and so they kind of come in and take over. It's almost, you know, like uh medieval um you know, these medieval war uh Romans coming in and taking over villages and uh and and so we had a transition and uh my do who's a very good friend of mine went into investment banking and uh it just you know just wasn't the same place for me and and you could see it was really happening from a fixed income side and so I I pulled the plug and and left. I would say the the most interesting thing and I wouldn't say my antenna were were really redot. they were just, you know, more culturally you could see the shift and it it wasn't it wasn't great. But, uh, I saw so many good friends there and we had so much fun and and I I remember the place very fondly. But, uh, I do recall like within maybe a two-month period of me leaving, I left in February of ' 07, very close to the high of the stock price. But, when I left, I remember in very short succession, maybe it was 3 months or so, uh, two people who really would want uh, the head fixed income job, right? I mean, that was a big big job at the time at that bank, you know, resigned to to spend more time with their families, quote unquote, and I'm like, that doesn't sound like something that these these types are are really interested in doing that much. So, uh, that was probably my first like, uh-oh, something's probably not right here. When you get to the top and you see what's going on and you don't want that position, that's, you know, that's kind of a dream job for, uh, for those types. And, uh, and and that was certainly a, uh, a warning sign for me. All right, let's get into the markets. But prior to doing that, I just want to get this out of the way. You have a competing podcast. I mean, you guys do a weekly offscript podcast with your three partners. Basically, the four of you get on there from time to time. I would call it a better version of All-In. >> Well, it was, you know, we So, in the old days, right, before COVID, you'd go out and you'd see clients and and you really spent a lot of time outside of of the of the structure of the firm, right? You were either on a plane or you were, you know, in in the city having lunches with people. whatever. I mean, you're spending a lot of time talking to people and that's what we do. I mean, that's it it's it's the relationship part of the business, you know, and and and it's important part of it. Um, so we just mandated on Fridays that, you know, we all came in because we didn't tend to travel on Fridays. And so we came in and said, "Let's just spend an hour and just, you know, just just talk, right? Let's just shoot the and see what's going on." Uh, and make sure that I'm not missing something. Neil, make sure that you're not missing something that I'm seeing. Steve, what's going on in Washington? Uh, and I think a sales guy came in at one point and just said, "We should just be like recording this and sending it to clients." Like, oh, like, you know, really, that sounds terrible. From a compliance standpoint, that sounds like a disaster. But, you know, we got through it and um, you've been doing it now for I think seven years. And um, yeah, it's it's look, it's it is really offscript and it is kind of coming in just saying, "Hey, this is what I'm seeing. How does that match up?" There's no agenda. It's not like Neil, you have to agree with me and I have to agree with Steve or anything like that. We all have our independent views and it really is just a vetting process to understand each other's silos. I mean, you know, we spend our expertise is in what we do and so, you know, knowing the nuance of what Neil's seeing, knowing the nuance of what I'm seeing, knowing the nuance of what's happening in Washington really ends up providing a pretty good perspective for, you know, for all of us and and obviously we try to have fun doing it as well, but um sometimes that goes off the rails, too. >> Yeah, it's great because each of you are getting feedback from various clients and you can kind of internalize that. So, all right, here we go. But I want to read this because this is on your Twitter handle or exhandle feed for RenMax. So, serving professional money managers, tweets are an exchange of ideas, not investment advice. Life is short. If you're a jerk, you'll be unceremoniously blocked. I love that, by the way. So, >> are you still Have you been blocked yet? I don't remember. >> Not yet. So, so with that as a background, let's get into it. I mean, we are right in the middle of earning season and we're probably 30% through here. But more importantly, the banks are always first. Um, they always tell us something. A lot of mixed messages right now, Jeff, in terms of is credit or is is this an event that's now occurring? Where are we? Let's start with the banks and kind of credit in general and then we we can go from there. >> Well, let's let's let's if we can let's broaden it out a little bit to financials because, you know, I think financials are still um they're they're certainly uptrends on a relative basis. They're a little softer. I'd put them as a B minus, you know, in in in a letter grade form. So, they're okay. Uh, if I look at something like the insurers, they look the weakest of them all, the Marshmacks and the Browns, etc. And maybe you don't want to name names, but that's like that's how we're seeing it. >> We're here to name names, so let it rip. >> Yeah. And then the other side of it, and these are like distributive tops, right? These are not like corrections and uptrends. These are like they've been lagging for a while. They've been going sideways, and now they're rolling over. And so, the trends look like they're transitioning. And you know that could just end up being a period of underperformance and not a huge draw down and you just kind of lose on the relative game or it might be something you know a little a little nastier than that. The curve doesn't tell us that that's going to be the case. So I I think this is just going to be a period of underperformance. But you know we'll see. We're not there. We don't >> just stop on that one second. When just people out there you're doing technical analysis on the sectors. When you say curve what are you referring to? You're referring to the >> I mean I mean the yield curve, right? The yield curve. So we what we're looking for is we and we do this for everything. We say look for for us the fundamental side is what we call conditional factors right and that sounds like a big term but it's they're basically conditions that support or refute a bull or bear phase right so we know that generally if the curve is steepening good things tend to happen to certain sectors certain industry groups right so that's a condition that we're like okay if you add them all up you say how are the conditions here well they're pretty good how are the charts they suck okay well we're not going to do anything about it yet right but when the conditions are good and the charts are good we're like hey let's lean into it Let's play big, right? This is where we want to, you know, we want to we want to take swings for the fence. And so that's, you know, we look at these conditions and say, look, the conditions are actually okay for how historically we view these things, but the charts stink. And so, you know, we're not going to do much with that. We'll just kind of put them on the back burner. The other one which is is a little bit more um troubling and I would say has uh the same kind of distributive formation and this is not break glass you know pull handle yet but this is like keep this you know keep this close and watch them daily would be the the private equity firms right we all know and and obviously um you and your background is uh well wellversed in financials and what's going on there we all know when credit growth takes place right I mean that's where standards go down and things can get uh you know a little a a little hairy and by by all means, in fact, you know, most of my neighbors probably have benefited from this this move into private credit, right, from um from the big banks. And so, you know, we look at what's happening to those and say, "That's not exactly how we'd like to see it if everything is placid right under the surface and and we're in a good spot." And then you start to see obviously you had first brands and you've had some, you know, some things at the margin. The question is, you know, how systemic is it? Are these are these nicks? Are these paper cuts? Are they a little deeper? do they require stitches or is this you know going to bleed out and I think right now it's somewhere between a nick and and you know maybe a stitch or two but we're certainly watching the the private equity guys and what we do and and you know this Danny the you know we'll incrementally look and say look we're bullish on banks we think banks got oversold actually uh if we look at 20-day lows in fact 65day lows spiked back uh at the beginning of of um this week it might have been late last week I can't remember precisely but those are usually good signals if the trends are positive that we'll take the other side and say hey these are oversold. We're going to play them at least for a bounce. And if they rally and then they fail, well, that that was a trade that we thought would have a longer duration to it. Now it's just tactical. We're going to pull the rip cord and go around that. We can be short some of these private equity names because they are the weaker ones within that group, right? So, it's a little way to pair that off and using the charts and and the technicals to uh to help triangulate that timing. It's interesting that the PE firms, the stocks were dropping well ahead of these quote credit events that were occurring and the same thing happened. Again, I'm not comparing this to 2006 and seven and then obviously eight, but the same thing was happening. And so, if the engine for all of this is slowing down, just slowing down, not breaking down. You have to start to question and you know, everyone's saying that these credit things are frauds. Okay, let's say that they're all frauds. Well, if you didn't uncover a fraud when you were underwriting it, that might mean you had loose underwriting standards and or covenant light loans that put you in this position. So again, no one's calling this as the end or the beginning of something that's going to be really bad. But to me, to the point you just made, these charts can sometimes tell the quote story and make you investigate further and actually do the fundamental work to look like, okay, something doesn't smell right here. So I know we're going to get the PE firm's earnings later this week. Obviously, we're going to start to see more of it. It'll probably be okay. But it's amazing how we go from zero to 100, you know, or 100 to zero on either a loan loss provision or one credit and you try to just, you know, kind of look at the charts and see what it's telling you. But I think you do a really good job of kind of trying to marry that together. So another area you say that I mean just because I think it's an important point you hit on it and you know a lot of people dismiss technicals and I get it. I look I came from the fundamental side of the business. I mean you know I I literally am the Darth Vader of of Wall Street where I was on the good side and now I'm on the dark side. Right? There's no doubt about it. And and the reason I made that transition, I look better in black than white for one, but the the the real reason is I I think it's just a it's it's a cliffnotee version of what's going on. And to your point, you know, guys like you that do such good work on the fundamental side. You know, where do you start, right? Like where are you supposed to start? And so from from my perspective, when when we look at the charts, I can pretty quickly just say, "Hey, here's a pile of charts that I don't know what's going on, but they've got a few things in common, and maybe this is where we should start looking for problems, right?" Um, it's, you know, it's it's not in the Morgan Stanley's of the world right now. It's not in the Goldman Sachs of the world right now. It seems to be in these areas. So, why am I going to waste my time? And and I remember, I mean, I was, look, I was on the investment policy committee at Lehman Brothers. And so, we'd vet we'd vet ideas and do all that stuff. And it was a lot of fun, frankly. But, you know, one of the things I always just kind of laughed at was when when you went to initiate, right? So, when somebody picked up coverage, say, "Okay, well, here's your universe. Go, you know, do all the work and then uh here's your coverage and come back and, you know, you're going to you're going to start and initiate with ratings." And invariably, you'd have several buys, you'd have a couple holds, you'd have some sells. that was only based on you had just taken the time to do a bunch of work and come up with ideas and these look like buy, sells or holds given that you know you just happened to start on the b you know in the business on August 1st of you know 2016 right like it had nothing to do with anything else other than you just did the work. So I'm like, that seems silly. Like, so why why don't we, you know, focus this on, hey, here's areas to to to really hone in on and understand more deeply what's going on. And, you know, frankly, don't worry about the other ones until those charts start to change and tell you something either bullish or bearish. I think it's a great point. All right, let's move into some other areas. Very violent move today in gold down. You've been talking about gold a lot. It's not unexpected. They can have some type of retracement. you know, it's kind of staircase up. There was some big stairs that jumped up. Don't don't get me wrong. This move from kind of the high 3000s to almost, you know, over 4,400. We're getting a pretty big check back today. And just in real time looking at it, is this a damaging move? Is this a some type of consolidation? And for the reasons to be bullish on gold from a fundamental perspective, do you think those still marry the technical aspects of it here? >> Yeah, it's a it's a it's a really good question. And I actually I think one of the bullish things on gold is that there really isn't yet a solidified story, right? There are a couple, you know, interesting ideas. There's uh I just saw Christine Lagarde was on, you know, the other night and uh, you know, kind of like victory lapping. I'm like, you don't know what you're talking about. Um but uh you know she's talking about about gold and the dollar and losing the reserve currency and and the like and and you know there there are definitely some stories out there and and and some concerns out there and I get all that and and I think all that's part of the stew but usually when you get to you know the the the end there's a singular well-defined kind of thought process right everybody believes one story and um that's not where we are with gold. So, I think that's interesting. Um, the gold inflows that we have, at least in the ETF, so that be more the retail crowd are not excessive yet. They're close, but they're not excessive yet. The two things that jumped out to us, and I'll explain how we do this. One is we look at we look at alpha that's generated over a period of time. And what we find is that, you know, if you look at alpha over a five, threeyear period, it tends to mean revert, right? It doesn't it doesn't trend forever because if it did, capital markets wouldn't be efficient, right? So the excess return per unit of of risk that you're taking will normalize through time. Um we are in gold where we were back in 1979 1980 right? So that that's my first indication that says hey look you know if trees grow to the sky like that's going to be the outlier like we're we're in a zone that we have to be really really careful. The other is a pretty simple definition that we found to be very effective through time and through history, which is just over the last two years, has the asset doubled? That's all you have to do, right? Like, has the asset doubled over a two-year period? And if that's the case, then as I was explaining to somebody earlier today, you know, we think about that like a tornado watch. Now, I'm from the Midwest, so I know what the difference between a watch and a warning is. A watch is the conditions are right for a tornado, right? So, we're on bubble watch because the conditions are right that we're probably in some type of bubble. a warning is that we've seen a tornado and get your ass to the basement, right? Like that's the way it goes. And and you know, we're not there yet on on gold, but I do think that we're in a zone. And what we say is look, when we when you get into this the watch, the reason you have to be careful of these bubbles is because if you use technical uh traditional technical techniques like, you know, a moving average crossover or a breakdown or something like that, you're going to you're going to give back way too much of those gains to have it be profitable. Now, and we just did a a series on Sir Isaac Newton. Um, and I'll just I'll entertain you for a second here. So, Sir Isaac Newton back in the South Sea bubble in 1720 um bought the South Sea Company. He was kind of an insider. He was, you know, uh obviously he was brilliant, but he was also working for the the the government. And he bought the South Sea Company in February and he sold it for a double in April thinking he was the smartest guy alive, right? Um, well, from that point, the point at which he sold it, um, the South Sea Company tripled, right? So, now he's got regret. He's at cocktail parties, uh, over a three-month period. This isn't, you know, months and years here. This is a three-month period. Uh, you know, people are kind of making fun of him like, "What are you doing? You can't." And he bought it at the end of June, very close to the peak, right? So, you can't make these big wholesale bets because one, it'll put you in a position of psychological weakness. And so you kind of have to play through the peak, but you just keep shaving it off. That's the best way that we found, you know, in in a situation or uh in in uncertainty, right? If you're going to try to to live through uncertainty, um you have to play that. And so we start to initiate what we call dollar cost selling when we start getting into those bubbled conditions. And so that's where we are. That's been happening now for uh jeez, I want to say it's been three weeks for gold now. But that, you know, that starts the clock ticking on us saying, "Hey, look, this isn't sustainable. So, let's play smart. We're not adding fresh money. We'll be peeling some off systematically. Um, and then as we get some other cracks that we look for, um, that's when we'll start pulling the rip cord in in in a more, you know, meaningful way. >> Gravity will get you every time. As we sizing Newton, >> you know, he he he discovered gravity and he uh he failed to abide by its laws. >> Exact. You know, I always tell people from a riskmanagement perspective, you know, dollar cost average when you're earning a position. But if you bought gold at 2500 for whatever reason, whether you had a target or it was a narrative that the dollar's debased, you know, when you're at 4,000 or 4,200 and your position is now well over, you know, say 50% higher than it was, is that the right risk, you know, riskadjusted position at that moment, it's probably not. And you always talk about narrative and people can will change the uh reason they own something. I heard someone on bank stocks the other day saying, "Forget book value. Let's use just use PE for banks. Well, you and I both know the way they're structured that's not the but people my point is that people find a reason and when you see that stuff start to occur if the charts are telling you it's a little bit frothy and you know that that's the current narrative that's when I think your research is very very very powerful. All right. So let's talk about everyone certainly they ask me a lot they ask you a lot how do you compare this to whatever time period is this like dot is this like whatever and every era is very different right so we are in some form of a bubble just from a chase of liquidity perspective are we where are we in the bubble and how do you compare it to other time periods that you've seen over your career or not your career but studying history I should say >> yeah I look I I think there's I think the the way that I I look at it I think the forest floor is full of Tinder. I think that that exists. You know, you need a couple things. You need kind of blue sky expectations that, you know, we could come up with crazy ideas and people couldn't really, you know, validly say, "No, that's crazy." Um, and AI does a lot of that, right? From, you know, robotics to, you know, we're just going to be sucking milkshakes out of a straw for the rest of our lives, not having to think. I mean, who knows, right? But it h it has that kind of, you know, blue sky expectations to it. So, I think that's that's good news. Um, what's interesting is, you know, if you if you use that double that double scenario that I talked about to identify at least a bubble watch for semiconductors, we did it. So that take you back to basically the 20th of October last uh sorry 20th of October 2023 and we're up about 175%. So we're well above where that that would otherwise be. The the challenge there and this is what's unusual about that is that we had a 35% correction in there, right? So, we had a 35% draw down while that happened, which doesn't usually happen in a bubble. You'll you'll just kind of go up and you don't really have many corrections. So, that that puts an asterk by that um that measure as as I see it. And if we took that out um and said, okay, well, that correction was part of the the the tariff tantrum. Now, you're really starting the clock from, you know, essentially July, right? So, that gives us a long way to go before we can blow it off. So, I actually think that if we're in a bubble, uh and I think it's fair to be watching some of these things, I think it's second inning. I don't think we're even close to it being a big problem. One, the new issuance hasn't um hasn't really come out. You know, you're not seeing kind of handoverfist uh whether it's spaxs or it's IPOs or anything of the like. We're not really seeing that. You're seeing uh news stories and people talking about it, but not in that frenzied fashion. And the reason, again, this is trying to play from a position of strength. The reason you don't want to be calling it too early is you don't want to be the sucker that gets sucked in at the end. And I mean, look, we've we've both been around long enough to know these things are amazingly seductive. They are amazingly seductive. And even when you know better, you know, you can still feel yourself reaching for that buy ticket, right? It's just it is an amazing amazing psychological stress that you put on yourself. So, um, you know, if even if we're in the eighth inning, I think that's too early to be, you know, really an aggressive seller of these things because you can, you know, you can go extra innings and it's amazing what can happen. So the one of the reasons why I think that we're still relatively early innings is twofold. One, our market cycle clock where we we juxtapose inflation with growth rates and looking kind of where that is uh backed up and we're in this kind of middling inflation zone with low growth. Um the good news is historically we know the path of that starts moving down towards a lower inflation low growth environment. And that might sound you know dangerous or scary uh because it'd be kind of a you could associate that with say a deflationary bust. But what happens if you look instead of what happens to the economy, look at what happens to the markets. The markets rip in that condition. And they do so because the markets anticipate that policy is going to come to the rescue. And I think when we, you know, we're now seeing the Fed who seems to have crested that hill and said, okay, like we think that we can take rates down because of employment, because of where we think the trajectory of inflation is, etc. You know, most people have at least three cuts baked into the system out of the next six months or so. Some have more. And I think, you know, if you look at bubbles, bubbles do not pop when you've got a Fed cutting rates. So even if we have this paper cut to to maybe potential stitch or two in private credit, that's going to keep the Fed more accommodative than not. And I don't think credit is systemic enough that it's a big problem. And so I actually think that we're we're, you know, we're we're we're sparking that um that tinder on the forest floor. So I'm actually, you know, pretty pretty excited about what could happen. Uh, obviously I'm concerned about the long-term ramifications on the other side, but I don't think, you know, you want to play for the end of the bubble with a Fed that's just starting an easing cycle. And they and by the way, they haven't even started talking about asset prices, right? Usually they'll kind of signal something to asset prices about six months before you know you you have a pop. So, I think there's actually danger that again we're going to find ourselves if we're not invested playing from a position of weakness. Yeah, it's always don't fight the Fed no matter what they're doing, whether if they're cutting, don't fight it, and if they're raising, don't don't fight it. So, kind of I guess that then we're going to be living with whether these numbers are real or not or when we get a CPI number, you know, I think at the end of this week, we're going to live with 2.8 2.9% inflation because that's fine. And we were kind of moving the goalpost a little bit, Jeff. And then also, you know, I ask everyone this and and it's going to matter at some point, but just the debt, you know, when you start to just it's hard to ignore it and it shows up in other assets like gold, right? It shows up in Bitcoin. It shows up. So, it's it's being traded, but talk about how you reconcile that and if that's just a fool's errand to worry about it right now because to your point, you you know, got to make hay while the sun is shining and and so forth. So, >> yeah, look, this it's been a it's been a concern my entire career, right? And so if if if you if you anchor yourself to that, I think it just does you a disservice. And I'm with you. I mean, philosophically, I don't like it. And I think it's a problem at some point. I don't know what that tipping point is. I think you've got other the good news is you've got other countries that are in a worse condition than we are. I mean, we still are the reserve currency, so that gives us a certain amount of flex and might that we can uh we can kind of uh you know, shove around. But uh I think the UK is in a much more vulnerable position when you look at it from that perspective. And I think demographically too and I think the the the Japanese are in a much more vulnerable position as well, right? So I think those are better litmus tests to say, hey, if that's going to be a problem, it's going to show up there and you know, how do we need to deal with it? I also think Danny, it's it's, you know, it's easy to kind of think, well, that's going to be bearish and certainly it would if you're going to take Treasury yields to 15% or something like that. I think that's, you know, that's that obviously uh starts to to to compete with with equity assets. But um you know to your point about do we have this new normal of you know call it 2 and a half to 28 on the on the on the inflation front uh and is that what gold's telling us and you know some of these other narratives around that it could prove to be extraordinarily bullish for stocks right because why not own intellectual property why not own things that actually can generate cash flows and so I think there's kind of this this um uh this presumption that somehow that's going to have to that's going to have to be bad for equities and I and I can in a scenario where that would be bad for equities, but I do think that there's a scenario that it can actually prove to be pretty good for equities. Um, and that gets overlooked. And so I think um, while it's probably not 50/50, I don't think it's any worse than say 6535 where you know the 35 could actually be extraordinar equities as you know that that that system gets in there. And maybe I'll just throw this out there, you know, maybe that's part of this agenda of, you know, owning 10% of Intel for by the US government, owning some of these other, you know, these other areas. And and let me and I that's not where we are right now, but I will throw this out there. The the South Sea Company was really a scheme that was swapping British debt for the riches and the treasures and the trade of South America. Right? So, it was this vast new frontier and basically you owned a treasury and I'd say, "Hey, Danny, you want, you know, you you want in on this action of this new continent and you'd say that sounds pretty good, better than 5%. Like, I yeah, I'll take it." Um, so, you know, is that in the mix somewhere that that's kind of this uh this new um this new path? I I don't know, but I'm just saying, you know, there there are some some similarities in history that I think we should be aware of that sound like they're very far-fetched, but which have actually happened in the past, and that's John Law. And there's a lot of things around that that coincide. But I I certainly think it's an interesting parallel that people should study up on. >> I know you talked about the yield curve kind of when you know when we started this in general. And you know to your point you just made about asset prices and the Fed's involvement, Treasury's involvement. Back to my inflation question again here on we're going to live with a higher number here. When the yield curve was inverted that's you know 99% certainty we're either in a recession or we're going in. It didn't happen. And when it's steepening, you could argue the same thing. It's not economic expansion. It's just either manipulation on the short end or something unnatural that's occurring. So, how do you feel just from a natural point of the curve given where inflation is? And just summarize all the stuff we kind of just talked about because it is such an important tell sign telltale sign in the markets. >> Well, yeah, no doubt about it. And I think I think it's very important to realize and we saw it with our stats, right? I mean, you don't see on the first day, you see it on the third year. But we saw in the stats where after the great financial crisis, the GFC um you know, we saw yield curve suppression, we obviously saw quantitative easing, we saw, you know, basically the bastard bastardization of markets controlling the price of money, right? The the Fed uh the Treasury pushed rates down to this this un uh unnatural rate, low rate. really since say 2022 that there's been more of a normalization process. Now I think what's interesting and Howard would talk about this in the banking system we're really at the lower end of what you would call an ample reser reserve regime right in the bank. So the RRP has been essentially drained. The reserves are now right around $3 trillion which is enormous but still is you know considered the lower end of of that range. So, I actually think we're in more of a normalized environment today than anything that we've seen in the last 15 almost 20 years. Um, and I think that's happening in Japan, too. And I think remarkably what has happened with that is the markets have responded because the pricing of money seems to be at least more naturally priced today than artificially priced. And that's happening in Europe, it's happening in Japan, etc. And you've seen that with the steeping of the curve. Now, I wouldn't have thought personally that had you done that and you saw the the curve steepen that that would be bullish for equities. It seems like that would you know raise rising tide sinks these boats in this case. Um that has not been the case. And so um look at the financials in Europe, right? They they've just absolutely ripped and try talking somebody into owning European financials two years ago and they would have laughed you out of the room, right? And same thing in Japan. So I think we've gotten into this more normalized environment where we don't have as much of that intervention and I think that's extraordinarily bullish is that ample liquidity. I think we're right at that edge at least in the banking system from from the reserves. Um, but I'd let the market tell me, you know, tell me that message. And again, if we can get through this, um, you know, this little bump that we had with First Brands and some of these auto loans. Um, and kind of this normalization. Look, I mean, a lot of these credits needed to be priced higher. You know, coming in sub 100 basis points was was, you know, certainly not a value by any means, but, you know, if we if we kind of bob along here, I think we're actually in a pretty good spot. So, I'm I'm not overly pessimistic on that end of it. And I think the banks will tell us that, right? I mean, I think we'll start to see it. If that's becomes a problem, we're going to see worse performance out of the banks. And at this point, we're just not seeing that yet. So, um, do I philosophically concern myself with those things? I'm always looking over my shoulder. No doubt about it. But, uh, I'm not seeing enough there to, uh, to get me to pick up my pace. >> Then there are things which you guys talk about, which is sofur, uh, which actually has gone up 19 basis points, you know, from the low, which is supposed to kind of follow Fed funds, which it hasn't, which indicates potential a little bit of stress in the banking system. It's no coincidence the QT is basically officially over. Um they're going to do oh bank reserves are ample now so we're going to be okay. But you're right they're going to do whatever they need to. And listen this is the time of year you and I both know where fund managers go into protection mode of the books. They have effectively 10 months in of returns. They're going to hold try to hold on to what they got. not a ton of risk takingaking may occur which is why normally although nothing's been normal or the cycle you know towards the end of the year kind of holiday season towards Thanksgiving nothing's quote supposed to happen it just it feels like something will happen I'm not saying good it just feels too easy that that's going to be the case because things have been very unpredictable and I think I think all the stuff you're describing you got stuff in the UK you got stuff in Japan you got stuff kind of in the plumbing system you got some credits okay you got Argentina stuff going on South America just feels like it's ripe for something. Do you expect a more volatile end of of year than you would normally think or it feels that way to me? >> Yeah, I mean VIX got overbought and has started to come in which is good news. Um but uh the question is is Jamie Diamond right? Is it one cockroach or is it several? And you know what else kind of comes to the surface? And I I think we I I'd put myself somewhere in between. I think the uh I think the Helian days of you know easy credit are going to at least be an awakening event for people as they as they come forward. I don't think it's a derailing event but I do think it's going to you know repric some of these risks and and usually when you're doing that that does raise the uh the temperature of volatility a bit. >> All right let's move around the market a little bit here to round it out. So small cap is an area I know you focus on the Russell a lot. you focus on quality uh leading a rally where it can and so so where are we in that kind of unnatural broadening out cycle of Russell kind of that's been participating here. >> Well look other than the kind of 15-year period after the GFC right um usually lower short rates are very good news for small caps and that's started to kick in. I think probably the most encouraging part of small caps and this is you know this is going to you know hopefully spark some some interest in contrarians out there is that we've really seen some really nice charts and breakouts in the healthcare side of small cap. So that's something that's been languishing for a long time on the large cap end though we did actually officially in our work have biotechs break out and give us a bullish trend signal on a relative and absolute basis for biotech large cap even. Um but I think the small cap healthcare looks pretty interesting here with these big bases and really just a extraordinary period of of neglect. Um the one area within small cap tech um if you look at beta the one-year return of beta um is I should say high beta versus low beta is in the 100th percentile. And when I say the 100th percentile that's the return you know how what the return spread has been. Uh and that is probably 200% above what the 100th percentile was before this happened. Right. So I mean they have just absolutely blown the doors off. >> Just just explain to people what that means when you're but high high beta low beta just >> so we're long high beta names short high beta names as I'm sorry low beta names as a basket right? So you're playing that spread. So there's really not a market call there. It's just saying I'm going to use this factor and is this factor you know working or not working? And what's interesting about beta beta doesn't usually work for an extended period of time. uh it it tends to mean revert. So you're not really better off owning beta or not owning beta. It's just kind of like you should play it tactically. Um but that so instead of saying, "Hey Danny, that that return was 25%." You'd say, "Well, that sounds good." Or I don't know if what that that means, right? We do it in the percentile because then you can say 100th percentile. You're like, "Holy that's a you know, that's a lot." Uh and that is a lot. Um and so when we're in the 100th percentile and we know that's a mean reverting series, we say, "Okay, like be careful because beta is killing it." and beta probably isn't going to kill it as much as it's killing it here. Um, and so that's one area, you know, of vulnerability and that fits in with some of the bubble-esque issues that that we think about. Now, I would say when we look at that though, the beta tends to peak about 3 months before the market actually peaks, right? So beta will start to come down and actually not perform as well. So for whatever reason, beta tends to lead some previous peak. So that's that's an area that I'd be, you know, careful with and and a lot of names have have clearly, you know, seen the seen the response of that. Um, look, staples still look look dead. There's not much going on there. REITs don't look that interesting. Probably the biggest outlier is utilities. Utilities are more defensive. Um, they actually tend to underperform as yields are coming in. That that throws a lot of people off because they think they should be bond proxies. And that's true. But what happens is because the rates are coming in the market is thinking two or three steps ahead and saying well why not go towards cyclicality because I'll get more bang for my buck with depressed earnings that will you know jump maybe you know a couple multiples uh within that right so uh utilities tend to underperform not because they're not bond proxies but because they don't keep up with those things that have you know Uber's cyclicality um industrials are very overbought but the aerospace and defense names look good. some of the airlines are starting to to turn. So that's pretty interesting. Tech with the exception of of semis really aren't that extended. So uh software tech hardware and equipment actually looks pretty good. Comm equipment's a little extended. So that'd be an area that you know we wouldn't be really leaning into but there are good trends. Uh and then probably the the big one which will be important between now and the end of the year and the first part of next year will be discretionary. So discretionary on an absolute basis has been you know a B minus C plus. On a relative basis, it's been more of a B, but maybe B minus. Not great. But you look at the autos today, you know, they look good. The home builders are kicking it in. The reason that it's important is we know that discretionary should do very well at this part of the market cycle clock. And we know that they're highly sensitive to a steepening of the curve and to lower rates coming down, right? And so if they don't react to that or respond to that, then I think we have a problem. Um, but so far they've been okay. And so, you know, what I worry about, and this is always the the, you know, the chess match that we're playing is the the data that Ne Neil sees in terms of a, you know, slower economy, a weaker job market, maybe a tapped out consumer. Um, is that our future? Are we staring at that? That's kind of today, that's now casting. And is if the market is seeing that, then they're going to look at that as being worse. In other words, the puck is going somewhere that's worse than where it is today. If the Fed has been vigilant enough and they've kind of managed it, then their cutting should get in the way of that that bearish outlook for the consumer, right? And right now, that's where we think we are. It's not a slam dunk. Uh but it looks like the Fed and the expectations of the Fed are more bullish than what the data says right now about where the consumer is going to be in three or six months. So, we'll see. That's that's the big debate internally. >> And I think oil prices being down where they are, a huge tailwind for the consumer. Certainly not a headwind. And what are your thoughts on oil on the charts? And how about energy sector in general also? I think >> yeah, not great. I mean, some of the net gas guys are okay. Um, the the refiners look good. That's that's where we're playing it. The the pipeline guys look good. That's where we're playing it. But, uh, the rest of it, it's just not not ready yet. So, you know, we're sitting on our hands in in energy. Look, the value is there. They're cheap. No doubt about it. But, uh, you know, cheap and going down is not good. cheap and and stabilizing and breaking out is where you want to be and that's not happening yet. >> All right, Jeeoff, lastly, where can they find you? I know it's renacmac.com. You have institutional investors I know you cater to, but you also take on high net worth individuals as well that can subscribe to your product, right? >> Yeah, thank you for that. We have a we have a site called RENMAC Access um which uh gives a um you know, not the institutional granularity. Frankly, it's probably too much for, you know, 99% of people out there. So, uh, you know, if you're interested in the thoughts and how Neil's thinking and I'm thinking and and Steve's thinking, obviously, you've got the podcast, which you can get on YouTube as well, and then renmac.com uh gives you the um the intraweek snippets that we do and uh some of the uh the research in that as well. All right. Jeff Degraphth, institutional investor, hall of fame. Michigan State Hall of Fame also, right? No. >> Yeah. Well, thank God it's hockey season. Thank god it's hockey season. >> Exactly. Exactly. Jeff, thanks so much for coming on. Look forward to having you back on again. Have an incredible holiday season. I hope to see you during this during this time period. So, >> Danny, thanks always. Good to see you again, my friend. >> Okay, week seven in the books in the NFL. My record is now 99 and one. that doesn't quite pay the bills. Although I did have a two in one week this past weekend. I said I would short Daniel Jones one more time and the Colts one more time and then I would cover. Well, they showed me up again, so I'm covering, but I'm not going long. I'm going to stay away from the Colts. The Chiefs and the Bears did come through for me. Um, so they gave me two wins there, but I'm gonna have two picks this week to get me over that 500 mark. All right, this is one of the tougher weeks I have seen as things look to be priced fairly when it comes to spreads. That being said, two games stood out to me. Steelers at home on Sunday night against the Packers. Aaron Rogers playing his old team, getting three points at home, coming off kind of a mini buy, even though it was a loss. They played last Thursday um when they lost to the Bengals. And let me give you the stat. The Steelers at home as underdogs since 2003 against the spread cover 75% of the time. And since Tomlin became coach, they cover about 68% of the time. So Rogers revenge game against the Packers. First time he's ever faced them. Give me the Steelers at home plus three. All right. Other game I'm looking at are the Bills coming off of a byee and before that a bad loss to the Falcons. And before that, a loss to the Patriots. They have not lost three in a row under Josh Allen since his rookie season. Um Carolina looks to be without their starting quarterback, Bryce Young. Bills are getting back some key players, especially on defense. They are 7-0 after a by-week with Josh Allen in his career and 8-0 under coach Sean McDermott. I think they'll win this game comfortably by more than seven. So lay the seven, take the Bills. So that's Steelers plus three at home, Bills minus 7 on the road. See you next week. Thanks for listening to the On the Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the on the tape channel on YouTube and give us a thumbs up there as
Jeff deGraaf: The Market That Continues To Defy Gravity
Summary
Transcript
In this episode of On the Tape, I welcome Jeff Degraph to the pod. Jeff is the founder and chairman of Renaissance Macro Research, known on the street as Renmack. Jeff along with his partners bring decades of experience to produce thoughtful independent macro research to investors. While Jeff is the head of technical research, he is involved in all things RenMac and you will often find him on the Renac Nuclear podcast called Offscript with his partners. He also had a series of interviews called Renmack Legends and we get into some of those from the past as well. We discuss all that is happening in the markets and compare and contrast today's trading environment to previous eras. We get into the banks and what we are seeing emerge in the world of credit. We discuss the dollar and gold as well as the sectors Jeff is paying attention to within the markets. Of course, we hit the Fed rates and the government shutdown and much more. So enjoy this episode of On the Tape and hang around for my week eight NFL picks. Welcome to the On the Tape podcast. I'm your host Danny Moses and today I welcome my friend Jeff Degraph, the founder and chairman of Renaissance Macro Research, affectionately known on the street as Renmack, independent macro research boutique firm based in New York. Jeff, welcome to On the Tape. >> Danny, thanks for having me. It's great to see you again. >> Well, you're putting on a lot of great work and I know you guys are busy. I want to talk about your team first. Guys like Neil Da, you've built quite quite a team. So give us a little background on Renmac on the product itself and then I'm going to hone in on your experiences also right after that. >> Yeah, sure. Well, thank you for that opportunity. So Neil Duda joined us uh boy I think it's I mean I lose track probably 12 years ago now. Uh he came out of Meil Lynch where he was under at the time Ethan Harris who actually had worked with back at Lehman Brothers for a long time and then prior to that he was uh you know kind of the understudy to to David Rosenberg you know pretty uh infamously known uh now. So he had a you know really good uh solid credentials. He's been great for us. He's very strong on the economic data but not you know in the typical ivory tower fashion you know formulas and mathematics and everything else though he's certainly capable of all that stuff. He really is good at synthesizing what the data means and what the the impacts going to be for most likely markets and bonds and and everything else. So, you know, that's a really important component um in in our world because there's such high frequency data, you know, and we want to know, you know, are the markets aligning uh or seeing ahead of oftentimes they do seeing ahead of what the data sets are. Um so, it's really important for us to have that. And then on the other side, uh we've got Steve Pavick who handles our DC product, you know, and he's got his fingers in a lot of different things. So, you know, clearly in this environment, uh, whether it's tariffs, trade, healthc care, whatever the case may be, Fanny, Freddy, all that stuff, there's something going on. So, it's it's important to have somebody who's, you know, ears on the track, if you will, and um hopefully moves moves it out of the way before the train comes. But, uh, you know, he's he's been great and, you know, we continue to get leverage off of that and and his perspective. And then just as an aside, we have a bit of a focus in on the fundamental side. It's really the only one that we've we've really found that, you know, we think really meshes well with the macro side and that's Howard Mason who covers everything from payments, the plumbing of the financial system, so with the central banks, uh, and then his his, you know, probably his real expertise is the payments and then stable coin and what's happening to the crypto world because that is a fastchanging area and, you know, frankly, I'm not up to speed like I'd like to be. uh Howard certainly is and you know there's there's a lot of opportunity in that space and uh in fact I'm I'm encouraging one of my sons who's about to graduate from college to look at that space because I think there's just so much kind of raw talent that um you know that that's going to have an opportunity to excel there. So that's the that's the foundation of Renac. We've been doing it it'll be 15 years actually this March. So you know we've been at it for a while but the whole idea Danny is as you know I mean I came from ISI which was known as a macro shop at the time. Uh and then Ed built it out, you know, to be more of a, you know, holistic uh fullervice uh uh research shop and and I really like the focus on on macro. And so, you know, took the opportunity to spin out and uh uh and and start RENMAC and um you know, allows me to uh to to work as I see fit. Uh which is still an awful lot I have to say, but um you know, really enjoying ourselves. Well, nothing better than having an economist, a policy analyst, as you said, someone covering the banks and the plumbing, the system, and then you, you're being modest here, but as far as technical research and the and the stuff that you follow, kind of blending that all in, catch, you know, catching the trends and marrying all that stuff together, which is really how we met and what your background was at ISI. But I want to go back before that because I think your journey from Maril Lynch to Lehman Brothers before ISI and you were you knew what was going on at least your antennas were going off at Lehman in 2007. Talk about that experience because I think that everything kind of shapes us various points of our career but I think that had a lasting impact. >> Yeah, look I mean I I joined Lehman back in 1998. Uh I think a month into it we were long-term capital you know and so it was kind of the first foray of like oh god what happened? And I remember telling my my uh my boss at the time who was a mentor and still a fabulous we still stay in touch who's just a fabulous individual and was a a had a great feel for the markets. You know I remember telling him a month into I'm like hey I didn't burn any bridges if I need to go back there I can you know I can probably he's like no it's all fine. I'm like okay okay good. So yeah, I mean look that was uh that was the point where you know we got into obviously the bubble uh of the of the dotcom era when uh when the Fed cut rates to kind of help uh assuage the concerns around the banking system at the time and uh you know really went to show how how powerful uh the Fed can be even if they're not directly transmitting money into you know the system via you know say the internet uh they were doing it through the banking system but obviously you know we saw that that balloon with IPOs and everything else from there. Yeah. 0 05 and to07 was interesting because the the the team had turned over. Bonds were starting to kill it. You know they're making a lot of money and as you know tends to happen at these big institutions the uh the groups that make money tend to have the power and so they kind of come in and take over. It's almost, you know, like uh medieval um you know, these medieval war uh Romans coming in and taking over villages and uh and and so we had a transition and uh my do who's a very good friend of mine went into investment banking and uh it just you know just wasn't the same place for me and and you could see it was really happening from a fixed income side and so I I pulled the plug and and left. I would say the the most interesting thing and I wouldn't say my antenna were were really redot. they were just, you know, more culturally you could see the shift and it it wasn't it wasn't great. But, uh, I saw so many good friends there and we had so much fun and and I I remember the place very fondly. But, uh, I do recall like within maybe a two-month period of me leaving, I left in February of ' 07, very close to the high of the stock price. But, when I left, I remember in very short succession, maybe it was 3 months or so, uh, two people who really would want uh, the head fixed income job, right? I mean, that was a big big job at the time at that bank, you know, resigned to to spend more time with their families, quote unquote, and I'm like, that doesn't sound like something that these these types are are really interested in doing that much. So, uh, that was probably my first like, uh-oh, something's probably not right here. When you get to the top and you see what's going on and you don't want that position, that's, you know, that's kind of a dream job for, uh, for those types. And, uh, and and that was certainly a, uh, a warning sign for me. All right, let's get into the markets. But prior to doing that, I just want to get this out of the way. You have a competing podcast. I mean, you guys do a weekly offscript podcast with your three partners. Basically, the four of you get on there from time to time. I would call it a better version of All-In. >> Well, it was, you know, we So, in the old days, right, before COVID, you'd go out and you'd see clients and and you really spent a lot of time outside of of the of the structure of the firm, right? You were either on a plane or you were, you know, in in the city having lunches with people. whatever. I mean, you're spending a lot of time talking to people and that's what we do. I mean, that's it it's it's the relationship part of the business, you know, and and and it's important part of it. Um, so we just mandated on Fridays that, you know, we all came in because we didn't tend to travel on Fridays. And so we came in and said, "Let's just spend an hour and just, you know, just just talk, right? Let's just shoot the and see what's going on." Uh, and make sure that I'm not missing something. Neil, make sure that you're not missing something that I'm seeing. Steve, what's going on in Washington? Uh, and I think a sales guy came in at one point and just said, "We should just be like recording this and sending it to clients." Like, oh, like, you know, really, that sounds terrible. From a compliance standpoint, that sounds like a disaster. But, you know, we got through it and um, you've been doing it now for I think seven years. And um, yeah, it's it's look, it's it is really offscript and it is kind of coming in just saying, "Hey, this is what I'm seeing. How does that match up?" There's no agenda. It's not like Neil, you have to agree with me and I have to agree with Steve or anything like that. We all have our independent views and it really is just a vetting process to understand each other's silos. I mean, you know, we spend our expertise is in what we do and so, you know, knowing the nuance of what Neil's seeing, knowing the nuance of what I'm seeing, knowing the nuance of what's happening in Washington really ends up providing a pretty good perspective for, you know, for all of us and and obviously we try to have fun doing it as well, but um sometimes that goes off the rails, too. >> Yeah, it's great because each of you are getting feedback from various clients and you can kind of internalize that. So, all right, here we go. But I want to read this because this is on your Twitter handle or exhandle feed for RenMax. So, serving professional money managers, tweets are an exchange of ideas, not investment advice. Life is short. If you're a jerk, you'll be unceremoniously blocked. I love that, by the way. So, >> are you still Have you been blocked yet? I don't remember. >> Not yet. So, so with that as a background, let's get into it. I mean, we are right in the middle of earning season and we're probably 30% through here. But more importantly, the banks are always first. Um, they always tell us something. A lot of mixed messages right now, Jeff, in terms of is credit or is is this an event that's now occurring? Where are we? Let's start with the banks and kind of credit in general and then we we can go from there. >> Well, let's let's let's if we can let's broaden it out a little bit to financials because, you know, I think financials are still um they're they're certainly uptrends on a relative basis. They're a little softer. I'd put them as a B minus, you know, in in in a letter grade form. So, they're okay. Uh, if I look at something like the insurers, they look the weakest of them all, the Marshmacks and the Browns, etc. And maybe you don't want to name names, but that's like that's how we're seeing it. >> We're here to name names, so let it rip. >> Yeah. And then the other side of it, and these are like distributive tops, right? These are not like corrections and uptrends. These are like they've been lagging for a while. They've been going sideways, and now they're rolling over. And so, the trends look like they're transitioning. And you know that could just end up being a period of underperformance and not a huge draw down and you just kind of lose on the relative game or it might be something you know a little a little nastier than that. The curve doesn't tell us that that's going to be the case. So I I think this is just going to be a period of underperformance. But you know we'll see. We're not there. We don't >> just stop on that one second. When just people out there you're doing technical analysis on the sectors. When you say curve what are you referring to? You're referring to the >> I mean I mean the yield curve, right? The yield curve. So we what we're looking for is we and we do this for everything. We say look for for us the fundamental side is what we call conditional factors right and that sounds like a big term but it's they're basically conditions that support or refute a bull or bear phase right so we know that generally if the curve is steepening good things tend to happen to certain sectors certain industry groups right so that's a condition that we're like okay if you add them all up you say how are the conditions here well they're pretty good how are the charts they suck okay well we're not going to do anything about it yet right but when the conditions are good and the charts are good we're like hey let's lean into it Let's play big, right? This is where we want to, you know, we want to we want to take swings for the fence. And so that's, you know, we look at these conditions and say, look, the conditions are actually okay for how historically we view these things, but the charts stink. And so, you know, we're not going to do much with that. We'll just kind of put them on the back burner. The other one which is is a little bit more um troubling and I would say has uh the same kind of distributive formation and this is not break glass you know pull handle yet but this is like keep this you know keep this close and watch them daily would be the the private equity firms right we all know and and obviously um you and your background is uh well wellversed in financials and what's going on there we all know when credit growth takes place right I mean that's where standards go down and things can get uh you know a little a a little hairy and by by all means, in fact, you know, most of my neighbors probably have benefited from this this move into private credit, right, from um from the big banks. And so, you know, we look at what's happening to those and say, "That's not exactly how we'd like to see it if everything is placid right under the surface and and we're in a good spot." And then you start to see obviously you had first brands and you've had some, you know, some things at the margin. The question is, you know, how systemic is it? Are these are these nicks? Are these paper cuts? Are they a little deeper? do they require stitches or is this you know going to bleed out and I think right now it's somewhere between a nick and and you know maybe a stitch or two but we're certainly watching the the private equity guys and what we do and and you know this Danny the you know we'll incrementally look and say look we're bullish on banks we think banks got oversold actually uh if we look at 20-day lows in fact 65day lows spiked back uh at the beginning of of um this week it might have been late last week I can't remember precisely but those are usually good signals if the trends are positive that we'll take the other side and say hey these are oversold. We're going to play them at least for a bounce. And if they rally and then they fail, well, that that was a trade that we thought would have a longer duration to it. Now it's just tactical. We're going to pull the rip cord and go around that. We can be short some of these private equity names because they are the weaker ones within that group, right? So, it's a little way to pair that off and using the charts and and the technicals to uh to help triangulate that timing. It's interesting that the PE firms, the stocks were dropping well ahead of these quote credit events that were occurring and the same thing happened. Again, I'm not comparing this to 2006 and seven and then obviously eight, but the same thing was happening. And so, if the engine for all of this is slowing down, just slowing down, not breaking down. You have to start to question and you know, everyone's saying that these credit things are frauds. Okay, let's say that they're all frauds. Well, if you didn't uncover a fraud when you were underwriting it, that might mean you had loose underwriting standards and or covenant light loans that put you in this position. So again, no one's calling this as the end or the beginning of something that's going to be really bad. But to me, to the point you just made, these charts can sometimes tell the quote story and make you investigate further and actually do the fundamental work to look like, okay, something doesn't smell right here. So I know we're going to get the PE firm's earnings later this week. Obviously, we're going to start to see more of it. It'll probably be okay. But it's amazing how we go from zero to 100, you know, or 100 to zero on either a loan loss provision or one credit and you try to just, you know, kind of look at the charts and see what it's telling you. But I think you do a really good job of kind of trying to marry that together. So another area you say that I mean just because I think it's an important point you hit on it and you know a lot of people dismiss technicals and I get it. I look I came from the fundamental side of the business. I mean you know I I literally am the Darth Vader of of Wall Street where I was on the good side and now I'm on the dark side. Right? There's no doubt about it. And and the reason I made that transition, I look better in black than white for one, but the the the real reason is I I think it's just a it's it's a cliffnotee version of what's going on. And to your point, you know, guys like you that do such good work on the fundamental side. You know, where do you start, right? Like where are you supposed to start? And so from from my perspective, when when we look at the charts, I can pretty quickly just say, "Hey, here's a pile of charts that I don't know what's going on, but they've got a few things in common, and maybe this is where we should start looking for problems, right?" Um, it's, you know, it's it's not in the Morgan Stanley's of the world right now. It's not in the Goldman Sachs of the world right now. It seems to be in these areas. So, why am I going to waste my time? And and I remember, I mean, I was, look, I was on the investment policy committee at Lehman Brothers. And so, we'd vet we'd vet ideas and do all that stuff. And it was a lot of fun, frankly. But, you know, one of the things I always just kind of laughed at was when when you went to initiate, right? So, when somebody picked up coverage, say, "Okay, well, here's your universe. Go, you know, do all the work and then uh here's your coverage and come back and, you know, you're going to you're going to start and initiate with ratings." And invariably, you'd have several buys, you'd have a couple holds, you'd have some sells. that was only based on you had just taken the time to do a bunch of work and come up with ideas and these look like buy, sells or holds given that you know you just happened to start on the b you know in the business on August 1st of you know 2016 right like it had nothing to do with anything else other than you just did the work. So I'm like, that seems silly. Like, so why why don't we, you know, focus this on, hey, here's areas to to to really hone in on and understand more deeply what's going on. And, you know, frankly, don't worry about the other ones until those charts start to change and tell you something either bullish or bearish. I think it's a great point. All right, let's move into some other areas. Very violent move today in gold down. You've been talking about gold a lot. It's not unexpected. They can have some type of retracement. you know, it's kind of staircase up. There was some big stairs that jumped up. Don't don't get me wrong. This move from kind of the high 3000s to almost, you know, over 4,400. We're getting a pretty big check back today. And just in real time looking at it, is this a damaging move? Is this a some type of consolidation? And for the reasons to be bullish on gold from a fundamental perspective, do you think those still marry the technical aspects of it here? >> Yeah, it's a it's a it's a really good question. And I actually I think one of the bullish things on gold is that there really isn't yet a solidified story, right? There are a couple, you know, interesting ideas. There's uh I just saw Christine Lagarde was on, you know, the other night and uh, you know, kind of like victory lapping. I'm like, you don't know what you're talking about. Um but uh you know she's talking about about gold and the dollar and losing the reserve currency and and the like and and you know there there are definitely some stories out there and and and some concerns out there and I get all that and and I think all that's part of the stew but usually when you get to you know the the the end there's a singular well-defined kind of thought process right everybody believes one story and um that's not where we are with gold. So, I think that's interesting. Um, the gold inflows that we have, at least in the ETF, so that be more the retail crowd are not excessive yet. They're close, but they're not excessive yet. The two things that jumped out to us, and I'll explain how we do this. One is we look at we look at alpha that's generated over a period of time. And what we find is that, you know, if you look at alpha over a five, threeyear period, it tends to mean revert, right? It doesn't it doesn't trend forever because if it did, capital markets wouldn't be efficient, right? So the excess return per unit of of risk that you're taking will normalize through time. Um we are in gold where we were back in 1979 1980 right? So that that's my first indication that says hey look you know if trees grow to the sky like that's going to be the outlier like we're we're in a zone that we have to be really really careful. The other is a pretty simple definition that we found to be very effective through time and through history, which is just over the last two years, has the asset doubled? That's all you have to do, right? Like, has the asset doubled over a two-year period? And if that's the case, then as I was explaining to somebody earlier today, you know, we think about that like a tornado watch. Now, I'm from the Midwest, so I know what the difference between a watch and a warning is. A watch is the conditions are right for a tornado, right? So, we're on bubble watch because the conditions are right that we're probably in some type of bubble. a warning is that we've seen a tornado and get your ass to the basement, right? Like that's the way it goes. And and you know, we're not there yet on on gold, but I do think that we're in a zone. And what we say is look, when we when you get into this the watch, the reason you have to be careful of these bubbles is because if you use technical uh traditional technical techniques like, you know, a moving average crossover or a breakdown or something like that, you're going to you're going to give back way too much of those gains to have it be profitable. Now, and we just did a a series on Sir Isaac Newton. Um, and I'll just I'll entertain you for a second here. So, Sir Isaac Newton back in the South Sea bubble in 1720 um bought the South Sea Company. He was kind of an insider. He was, you know, uh obviously he was brilliant, but he was also working for the the the government. And he bought the South Sea Company in February and he sold it for a double in April thinking he was the smartest guy alive, right? Um, well, from that point, the point at which he sold it, um, the South Sea Company tripled, right? So, now he's got regret. He's at cocktail parties, uh, over a three-month period. This isn't, you know, months and years here. This is a three-month period. Uh, you know, people are kind of making fun of him like, "What are you doing? You can't." And he bought it at the end of June, very close to the peak, right? So, you can't make these big wholesale bets because one, it'll put you in a position of psychological weakness. And so you kind of have to play through the peak, but you just keep shaving it off. That's the best way that we found, you know, in in a situation or uh in in uncertainty, right? If you're going to try to to live through uncertainty, um you have to play that. And so we start to initiate what we call dollar cost selling when we start getting into those bubbled conditions. And so that's where we are. That's been happening now for uh jeez, I want to say it's been three weeks for gold now. But that, you know, that starts the clock ticking on us saying, "Hey, look, this isn't sustainable. So, let's play smart. We're not adding fresh money. We'll be peeling some off systematically. Um, and then as we get some other cracks that we look for, um, that's when we'll start pulling the rip cord in in in a more, you know, meaningful way. >> Gravity will get you every time. As we sizing Newton, >> you know, he he he discovered gravity and he uh he failed to abide by its laws. >> Exact. You know, I always tell people from a riskmanagement perspective, you know, dollar cost average when you're earning a position. But if you bought gold at 2500 for whatever reason, whether you had a target or it was a narrative that the dollar's debased, you know, when you're at 4,000 or 4,200 and your position is now well over, you know, say 50% higher than it was, is that the right risk, you know, riskadjusted position at that moment, it's probably not. And you always talk about narrative and people can will change the uh reason they own something. I heard someone on bank stocks the other day saying, "Forget book value. Let's use just use PE for banks. Well, you and I both know the way they're structured that's not the but people my point is that people find a reason and when you see that stuff start to occur if the charts are telling you it's a little bit frothy and you know that that's the current narrative that's when I think your research is very very very powerful. All right. So let's talk about everyone certainly they ask me a lot they ask you a lot how do you compare this to whatever time period is this like dot is this like whatever and every era is very different right so we are in some form of a bubble just from a chase of liquidity perspective are we where are we in the bubble and how do you compare it to other time periods that you've seen over your career or not your career but studying history I should say >> yeah I look I I think there's I think the the way that I I look at it I think the forest floor is full of Tinder. I think that that exists. You know, you need a couple things. You need kind of blue sky expectations that, you know, we could come up with crazy ideas and people couldn't really, you know, validly say, "No, that's crazy." Um, and AI does a lot of that, right? From, you know, robotics to, you know, we're just going to be sucking milkshakes out of a straw for the rest of our lives, not having to think. I mean, who knows, right? But it h it has that kind of, you know, blue sky expectations to it. So, I think that's that's good news. Um, what's interesting is, you know, if you if you use that double that double scenario that I talked about to identify at least a bubble watch for semiconductors, we did it. So that take you back to basically the 20th of October last uh sorry 20th of October 2023 and we're up about 175%. So we're well above where that that would otherwise be. The the challenge there and this is what's unusual about that is that we had a 35% correction in there, right? So, we had a 35% draw down while that happened, which doesn't usually happen in a bubble. You'll you'll just kind of go up and you don't really have many corrections. So, that that puts an asterk by that um that measure as as I see it. And if we took that out um and said, okay, well, that correction was part of the the the tariff tantrum. Now, you're really starting the clock from, you know, essentially July, right? So, that gives us a long way to go before we can blow it off. So, I actually think that if we're in a bubble, uh and I think it's fair to be watching some of these things, I think it's second inning. I don't think we're even close to it being a big problem. One, the new issuance hasn't um hasn't really come out. You know, you're not seeing kind of handoverfist uh whether it's spaxs or it's IPOs or anything of the like. We're not really seeing that. You're seeing uh news stories and people talking about it, but not in that frenzied fashion. And the reason, again, this is trying to play from a position of strength. The reason you don't want to be calling it too early is you don't want to be the sucker that gets sucked in at the end. And I mean, look, we've we've both been around long enough to know these things are amazingly seductive. They are amazingly seductive. And even when you know better, you know, you can still feel yourself reaching for that buy ticket, right? It's just it is an amazing amazing psychological stress that you put on yourself. So, um, you know, if even if we're in the eighth inning, I think that's too early to be, you know, really an aggressive seller of these things because you can, you know, you can go extra innings and it's amazing what can happen. So the one of the reasons why I think that we're still relatively early innings is twofold. One, our market cycle clock where we we juxtapose inflation with growth rates and looking kind of where that is uh backed up and we're in this kind of middling inflation zone with low growth. Um the good news is historically we know the path of that starts moving down towards a lower inflation low growth environment. And that might sound you know dangerous or scary uh because it'd be kind of a you could associate that with say a deflationary bust. But what happens if you look instead of what happens to the economy, look at what happens to the markets. The markets rip in that condition. And they do so because the markets anticipate that policy is going to come to the rescue. And I think when we, you know, we're now seeing the Fed who seems to have crested that hill and said, okay, like we think that we can take rates down because of employment, because of where we think the trajectory of inflation is, etc. You know, most people have at least three cuts baked into the system out of the next six months or so. Some have more. And I think, you know, if you look at bubbles, bubbles do not pop when you've got a Fed cutting rates. So even if we have this paper cut to to maybe potential stitch or two in private credit, that's going to keep the Fed more accommodative than not. And I don't think credit is systemic enough that it's a big problem. And so I actually think that we're we're, you know, we're we're we're sparking that um that tinder on the forest floor. So I'm actually, you know, pretty pretty excited about what could happen. Uh, obviously I'm concerned about the long-term ramifications on the other side, but I don't think, you know, you want to play for the end of the bubble with a Fed that's just starting an easing cycle. And they and by the way, they haven't even started talking about asset prices, right? Usually they'll kind of signal something to asset prices about six months before you know you you have a pop. So, I think there's actually danger that again we're going to find ourselves if we're not invested playing from a position of weakness. Yeah, it's always don't fight the Fed no matter what they're doing, whether if they're cutting, don't fight it, and if they're raising, don't don't fight it. So, kind of I guess that then we're going to be living with whether these numbers are real or not or when we get a CPI number, you know, I think at the end of this week, we're going to live with 2.8 2.9% inflation because that's fine. And we were kind of moving the goalpost a little bit, Jeff. And then also, you know, I ask everyone this and and it's going to matter at some point, but just the debt, you know, when you start to just it's hard to ignore it and it shows up in other assets like gold, right? It shows up in Bitcoin. It shows up. So, it's it's being traded, but talk about how you reconcile that and if that's just a fool's errand to worry about it right now because to your point, you you know, got to make hay while the sun is shining and and so forth. So, >> yeah, look, this it's been a it's been a concern my entire career, right? And so if if if you if you anchor yourself to that, I think it just does you a disservice. And I'm with you. I mean, philosophically, I don't like it. And I think it's a problem at some point. I don't know what that tipping point is. I think you've got other the good news is you've got other countries that are in a worse condition than we are. I mean, we still are the reserve currency, so that gives us a certain amount of flex and might that we can uh we can kind of uh you know, shove around. But uh I think the UK is in a much more vulnerable position when you look at it from that perspective. And I think demographically too and I think the the the Japanese are in a much more vulnerable position as well, right? So I think those are better litmus tests to say, hey, if that's going to be a problem, it's going to show up there and you know, how do we need to deal with it? I also think Danny, it's it's, you know, it's easy to kind of think, well, that's going to be bearish and certainly it would if you're going to take Treasury yields to 15% or something like that. I think that's, you know, that's that obviously uh starts to to to compete with with equity assets. But um you know to your point about do we have this new normal of you know call it 2 and a half to 28 on the on the on the inflation front uh and is that what gold's telling us and you know some of these other narratives around that it could prove to be extraordinarily bullish for stocks right because why not own intellectual property why not own things that actually can generate cash flows and so I think there's kind of this this um uh this presumption that somehow that's going to have to that's going to have to be bad for equities and I and I can in a scenario where that would be bad for equities, but I do think that there's a scenario that it can actually prove to be pretty good for equities. Um, and that gets overlooked. And so I think um, while it's probably not 50/50, I don't think it's any worse than say 6535 where you know the 35 could actually be extraordinar equities as you know that that that system gets in there. And maybe I'll just throw this out there, you know, maybe that's part of this agenda of, you know, owning 10% of Intel for by the US government, owning some of these other, you know, these other areas. And and let me and I that's not where we are right now, but I will throw this out there. The the South Sea Company was really a scheme that was swapping British debt for the riches and the treasures and the trade of South America. Right? So, it was this vast new frontier and basically you owned a treasury and I'd say, "Hey, Danny, you want, you know, you you want in on this action of this new continent and you'd say that sounds pretty good, better than 5%. Like, I yeah, I'll take it." Um, so, you know, is that in the mix somewhere that that's kind of this uh this new um this new path? I I don't know, but I'm just saying, you know, there there are some some similarities in history that I think we should be aware of that sound like they're very far-fetched, but which have actually happened in the past, and that's John Law. And there's a lot of things around that that coincide. But I I certainly think it's an interesting parallel that people should study up on. >> I know you talked about the yield curve kind of when you know when we started this in general. And you know to your point you just made about asset prices and the Fed's involvement, Treasury's involvement. Back to my inflation question again here on we're going to live with a higher number here. When the yield curve was inverted that's you know 99% certainty we're either in a recession or we're going in. It didn't happen. And when it's steepening, you could argue the same thing. It's not economic expansion. It's just either manipulation on the short end or something unnatural that's occurring. So, how do you feel just from a natural point of the curve given where inflation is? And just summarize all the stuff we kind of just talked about because it is such an important tell sign telltale sign in the markets. >> Well, yeah, no doubt about it. And I think I think it's very important to realize and we saw it with our stats, right? I mean, you don't see on the first day, you see it on the third year. But we saw in the stats where after the great financial crisis, the GFC um you know, we saw yield curve suppression, we obviously saw quantitative easing, we saw, you know, basically the bastard bastardization of markets controlling the price of money, right? The the Fed uh the Treasury pushed rates down to this this un uh unnatural rate, low rate. really since say 2022 that there's been more of a normalization process. Now I think what's interesting and Howard would talk about this in the banking system we're really at the lower end of what you would call an ample reser reserve regime right in the bank. So the RRP has been essentially drained. The reserves are now right around $3 trillion which is enormous but still is you know considered the lower end of of that range. So, I actually think we're in more of a normalized environment today than anything that we've seen in the last 15 almost 20 years. Um, and I think that's happening in Japan, too. And I think remarkably what has happened with that is the markets have responded because the pricing of money seems to be at least more naturally priced today than artificially priced. And that's happening in Europe, it's happening in Japan, etc. And you've seen that with the steeping of the curve. Now, I wouldn't have thought personally that had you done that and you saw the the curve steepen that that would be bullish for equities. It seems like that would you know raise rising tide sinks these boats in this case. Um that has not been the case. And so um look at the financials in Europe, right? They they've just absolutely ripped and try talking somebody into owning European financials two years ago and they would have laughed you out of the room, right? And same thing in Japan. So I think we've gotten into this more normalized environment where we don't have as much of that intervention and I think that's extraordinarily bullish is that ample liquidity. I think we're right at that edge at least in the banking system from from the reserves. Um, but I'd let the market tell me, you know, tell me that message. And again, if we can get through this, um, you know, this little bump that we had with First Brands and some of these auto loans. Um, and kind of this normalization. Look, I mean, a lot of these credits needed to be priced higher. You know, coming in sub 100 basis points was was, you know, certainly not a value by any means, but, you know, if we if we kind of bob along here, I think we're actually in a pretty good spot. So, I'm I'm not overly pessimistic on that end of it. And I think the banks will tell us that, right? I mean, I think we'll start to see it. If that's becomes a problem, we're going to see worse performance out of the banks. And at this point, we're just not seeing that yet. So, um, do I philosophically concern myself with those things? I'm always looking over my shoulder. No doubt about it. But, uh, I'm not seeing enough there to, uh, to get me to pick up my pace. >> Then there are things which you guys talk about, which is sofur, uh, which actually has gone up 19 basis points, you know, from the low, which is supposed to kind of follow Fed funds, which it hasn't, which indicates potential a little bit of stress in the banking system. It's no coincidence the QT is basically officially over. Um they're going to do oh bank reserves are ample now so we're going to be okay. But you're right they're going to do whatever they need to. And listen this is the time of year you and I both know where fund managers go into protection mode of the books. They have effectively 10 months in of returns. They're going to hold try to hold on to what they got. not a ton of risk takingaking may occur which is why normally although nothing's been normal or the cycle you know towards the end of the year kind of holiday season towards Thanksgiving nothing's quote supposed to happen it just it feels like something will happen I'm not saying good it just feels too easy that that's going to be the case because things have been very unpredictable and I think I think all the stuff you're describing you got stuff in the UK you got stuff in Japan you got stuff kind of in the plumbing system you got some credits okay you got Argentina stuff going on South America just feels like it's ripe for something. Do you expect a more volatile end of of year than you would normally think or it feels that way to me? >> Yeah, I mean VIX got overbought and has started to come in which is good news. Um but uh the question is is Jamie Diamond right? Is it one cockroach or is it several? And you know what else kind of comes to the surface? And I I think we I I'd put myself somewhere in between. I think the uh I think the Helian days of you know easy credit are going to at least be an awakening event for people as they as they come forward. I don't think it's a derailing event but I do think it's going to you know repric some of these risks and and usually when you're doing that that does raise the uh the temperature of volatility a bit. >> All right let's move around the market a little bit here to round it out. So small cap is an area I know you focus on the Russell a lot. you focus on quality uh leading a rally where it can and so so where are we in that kind of unnatural broadening out cycle of Russell kind of that's been participating here. >> Well look other than the kind of 15-year period after the GFC right um usually lower short rates are very good news for small caps and that's started to kick in. I think probably the most encouraging part of small caps and this is you know this is going to you know hopefully spark some some interest in contrarians out there is that we've really seen some really nice charts and breakouts in the healthcare side of small cap. So that's something that's been languishing for a long time on the large cap end though we did actually officially in our work have biotechs break out and give us a bullish trend signal on a relative and absolute basis for biotech large cap even. Um but I think the small cap healthcare looks pretty interesting here with these big bases and really just a extraordinary period of of neglect. Um the one area within small cap tech um if you look at beta the one-year return of beta um is I should say high beta versus low beta is in the 100th percentile. And when I say the 100th percentile that's the return you know how what the return spread has been. Uh and that is probably 200% above what the 100th percentile was before this happened. Right. So I mean they have just absolutely blown the doors off. >> Just just explain to people what that means when you're but high high beta low beta just >> so we're long high beta names short high beta names as I'm sorry low beta names as a basket right? So you're playing that spread. So there's really not a market call there. It's just saying I'm going to use this factor and is this factor you know working or not working? And what's interesting about beta beta doesn't usually work for an extended period of time. uh it it tends to mean revert. So you're not really better off owning beta or not owning beta. It's just kind of like you should play it tactically. Um but that so instead of saying, "Hey Danny, that that return was 25%." You'd say, "Well, that sounds good." Or I don't know if what that that means, right? We do it in the percentile because then you can say 100th percentile. You're like, "Holy that's a you know, that's a lot." Uh and that is a lot. Um and so when we're in the 100th percentile and we know that's a mean reverting series, we say, "Okay, like be careful because beta is killing it." and beta probably isn't going to kill it as much as it's killing it here. Um, and so that's one area, you know, of vulnerability and that fits in with some of the bubble-esque issues that that we think about. Now, I would say when we look at that though, the beta tends to peak about 3 months before the market actually peaks, right? So beta will start to come down and actually not perform as well. So for whatever reason, beta tends to lead some previous peak. So that's that's an area that I'd be, you know, careful with and and a lot of names have have clearly, you know, seen the seen the response of that. Um, look, staples still look look dead. There's not much going on there. REITs don't look that interesting. Probably the biggest outlier is utilities. Utilities are more defensive. Um, they actually tend to underperform as yields are coming in. That that throws a lot of people off because they think they should be bond proxies. And that's true. But what happens is because the rates are coming in the market is thinking two or three steps ahead and saying well why not go towards cyclicality because I'll get more bang for my buck with depressed earnings that will you know jump maybe you know a couple multiples uh within that right so uh utilities tend to underperform not because they're not bond proxies but because they don't keep up with those things that have you know Uber's cyclicality um industrials are very overbought but the aerospace and defense names look good. some of the airlines are starting to to turn. So that's pretty interesting. Tech with the exception of of semis really aren't that extended. So uh software tech hardware and equipment actually looks pretty good. Comm equipment's a little extended. So that'd be an area that you know we wouldn't be really leaning into but there are good trends. Uh and then probably the the big one which will be important between now and the end of the year and the first part of next year will be discretionary. So discretionary on an absolute basis has been you know a B minus C plus. On a relative basis, it's been more of a B, but maybe B minus. Not great. But you look at the autos today, you know, they look good. The home builders are kicking it in. The reason that it's important is we know that discretionary should do very well at this part of the market cycle clock. And we know that they're highly sensitive to a steepening of the curve and to lower rates coming down, right? And so if they don't react to that or respond to that, then I think we have a problem. Um, but so far they've been okay. And so, you know, what I worry about, and this is always the the, you know, the chess match that we're playing is the the data that Ne Neil sees in terms of a, you know, slower economy, a weaker job market, maybe a tapped out consumer. Um, is that our future? Are we staring at that? That's kind of today, that's now casting. And is if the market is seeing that, then they're going to look at that as being worse. In other words, the puck is going somewhere that's worse than where it is today. If the Fed has been vigilant enough and they've kind of managed it, then their cutting should get in the way of that that bearish outlook for the consumer, right? And right now, that's where we think we are. It's not a slam dunk. Uh but it looks like the Fed and the expectations of the Fed are more bullish than what the data says right now about where the consumer is going to be in three or six months. So, we'll see. That's that's the big debate internally. >> And I think oil prices being down where they are, a huge tailwind for the consumer. Certainly not a headwind. And what are your thoughts on oil on the charts? And how about energy sector in general also? I think >> yeah, not great. I mean, some of the net gas guys are okay. Um, the the refiners look good. That's that's where we're playing it. The the pipeline guys look good. That's where we're playing it. But, uh, the rest of it, it's just not not ready yet. So, you know, we're sitting on our hands in in energy. Look, the value is there. They're cheap. No doubt about it. But, uh, you know, cheap and going down is not good. cheap and and stabilizing and breaking out is where you want to be and that's not happening yet. >> All right, Jeeoff, lastly, where can they find you? I know it's renacmac.com. You have institutional investors I know you cater to, but you also take on high net worth individuals as well that can subscribe to your product, right? >> Yeah, thank you for that. We have a we have a site called RENMAC Access um which uh gives a um you know, not the institutional granularity. Frankly, it's probably too much for, you know, 99% of people out there. So, uh, you know, if you're interested in the thoughts and how Neil's thinking and I'm thinking and and Steve's thinking, obviously, you've got the podcast, which you can get on YouTube as well, and then renmac.com uh gives you the um the intraweek snippets that we do and uh some of the uh the research in that as well. All right. Jeff Degraphth, institutional investor, hall of fame. Michigan State Hall of Fame also, right? No. >> Yeah. Well, thank God it's hockey season. Thank god it's hockey season. >> Exactly. Exactly. Jeff, thanks so much for coming on. Look forward to having you back on again. Have an incredible holiday season. I hope to see you during this during this time period. So, >> Danny, thanks always. Good to see you again, my friend. >> Okay, week seven in the books in the NFL. My record is now 99 and one. that doesn't quite pay the bills. Although I did have a two in one week this past weekend. I said I would short Daniel Jones one more time and the Colts one more time and then I would cover. Well, they showed me up again, so I'm covering, but I'm not going long. I'm going to stay away from the Colts. The Chiefs and the Bears did come through for me. Um, so they gave me two wins there, but I'm gonna have two picks this week to get me over that 500 mark. All right, this is one of the tougher weeks I have seen as things look to be priced fairly when it comes to spreads. That being said, two games stood out to me. Steelers at home on Sunday night against the Packers. Aaron Rogers playing his old team, getting three points at home, coming off kind of a mini buy, even though it was a loss. They played last Thursday um when they lost to the Bengals. And let me give you the stat. The Steelers at home as underdogs since 2003 against the spread cover 75% of the time. And since Tomlin became coach, they cover about 68% of the time. So Rogers revenge game against the Packers. First time he's ever faced them. Give me the Steelers at home plus three. All right. Other game I'm looking at are the Bills coming off of a byee and before that a bad loss to the Falcons. And before that, a loss to the Patriots. They have not lost three in a row under Josh Allen since his rookie season. Um Carolina looks to be without their starting quarterback, Bryce Young. Bills are getting back some key players, especially on defense. They are 7-0 after a by-week with Josh Allen in his career and 8-0 under coach Sean McDermott. I think they'll win this game comfortably by more than seven. So lay the seven, take the Bills. So that's Steelers plus three at home, Bills minus 7 on the road. See you next week. Thanks for listening to the On the Tape podcast with Danny Moses. If you like what you heard, please subscribe on either Apple or Spotify to the weekly podcast and please leave a rating and review, positive only. You can also watch on the on the tape channel on YouTube and give us a thumbs up there as