George Noble: Fed's Hands Tied, Bond Vigilantes Waking Up, Buy the Dip Dead, Margin of Safety Thin
Summary
George Noble, CIO of Noble Capital Advisors, returns to review his February predictions on bonds, energy, and the AI trade, …
Transcript
George Noble, CIO of Noble Capital Advisors. Welcome back to the show. Great to see you as always, George. Thanks so much for taking the time. Thanks for having me, Julia. Always a pleasure to be on. Always a pleasure. And George, our last conversation was at the beginning of February, and it feels like a lot's already happened since that time. So, if you don't mind, let's step back and do the big picture macro view update for you. Um what's changed? What's been reinforced? What's been on your radar of late when it comes to the economy and the markets? And as you know, George, you can take all the time you need to set the table. Thanks, Julia. Um I took a few minutes to review what we spoke about last time. As folks like to say, I'm seldom right, never in doubt. But we had a reasonable number of decent predictions in in early February. Um as I look back at the show notes, at the transcript, we talked a lot about the downbeat outlook for the bond market. I was negative on bonds. I was positive on energy, and this is before the extra-curricular activities in the Middle East took place. There were good reasons to be positive on bonds uh on energy and negative on bonds already at that time. I threw shade at the AI trade. Um we spoke about commodities, gold miners, foreign stocks, etc., etc. in equal weight over um over over market weight. So, you know, the market, Julia, as you know, often has an inability to focus on more than one thing at a time. Uh whatever is grabbing the headline at that particular moment. Um there was a tre- This was a terrific man strategist named Don Cox. Don um was at Harris Associates um or Thyme. I think he's retired now. I haven't talked to him spoken to him in years. And Don had this great um line. You want to always invest in stories that were on page 16 of the the I said, "What's that?" That's metaphor for focusing on Focus on things that are not top of mind for the folks on the front page. Cuz if it's If it's on the front page already, there's a better chance it's already discounted in prices. Instead, you want to find the story in the background, page 16, he used as metaphor. And the story on page 16 gradually makes its way to the front page. That's how you make your money. Sounds rather clever, but we can't be so precious to know what's going to happen, but um you know, sometimes the the front page story keeps going till it doesn't till it doesn't work anymore. So, coming back on bonds, let's start with the bond market, all right? I think it may not be the sexiest thing to talk about, but to me that's really the rising cost of capital globally is the real story here. I mean, we've had this distraction with um the the Straits of Hormuz and what's going on in Iran and the oil price. My crystal ball, Julia, is no better than anybody else's. Um if I had to guess, if I had to speculate, what we do for a living, we speculate. Um if we speak about the over under, uh to use a sports term, is this thing going to be settled sooner rather than later or later rather than sooner, I'll take the later rather than sooner. Both sides have dug in, they have positions uh each has positions the other one's not going to agree to. Um you know, probably somewhere along the way there'll be some mealy-mouthed compromise. Uh when that's going to happen, I don't know. The Iranians have never had more leverage than they have right now. Like for every incentive, just keep doing what they're doing. Um and we'll see. Uh but I don't think there's an easy way out here. And And And And a key point I want to emphasize, I think the margin of safety the margin of safety is particularly small right now. Um as you're aware, we've been running down inventories of many commodities, particularly uh uh oil. And so, the full economic effect uh the full impact on economic activity of um the of of of the shutdown of the straits is really not been felt yet. And we're now coming up to the point where it's going to start to be felt. All you've seen is the spot price go up a bit. But again, there's a big disconnect between spot and um and between uh the physical and financial price of oil. And most notably, and I'm ranting all over the place here, if you look at the deferred contracts, you look at energy say out in December, not spot, but towards say go up go out 6 months, um those prices are now starting to move up. So, the market has for whatever reasons, it's not for me to argue with the market, just to observe what is the market saying and do I do and and and and and has an impact on my thinking. We've not seen uh the forward curve move up that much until recently. And that's very important. Uh cuz if you've been it's rather complacent with the don't worry, this too shall pass. Well, maybe this won't pass as quickly as people think. Uh where price could go in the short run, I have no idea. 120, 150, 200. I I've seen I've I heard um I spent a lot of time on this and both my chart perspective, I was talking to John Roque the other day, the strategist the my favorite technician from 22V, he's predicting he says oil could go to 250, not predicting it, but could. And then Michael Khouw, I think you had on your show, um we're running through some calculations about how high does the price have to go to destroy enough demand to accommodate uh the supply that's available. Uh and um uh again, it came up with a price similar to 250. So, you've got rising oil prices and on the back end uh suggesting the market's start starting to believe perhaps that this oil uh situation will not go away very quickly. And and and even more more confidently, um Dorothy, we're not in Kansas anymore. You're not going back to the pre-February 28th environment. So, you put together rising uh oil prices and who knows how high they're going to go and how but more importantly how how long they're going to stay elevated with rising cost of capital, rising bond yields. I think in our last conversation we spoke about potential Liz Truss moment for global bond markets. You have bond yields around the world, Japan 30-year highs, Europe 20-year highs. US yields have been relatively well-behaved. The 10 years are around 450 today, I think as we speak or 460 or wherever it is. Um we spoke last time about the possibility of yields going to 5% or higher. You asked me do I have more conviction in that view now? Yes, I certainly do. Uh and at a certain point that's going to matter. Um some would say well, it's not the level of rates, but the rate of change in rates that matters. Maybe the market just got the memo finally on Friday of last week, who knows. But um rising oil price, rising bond yield all things being equal, that's not positive for risk assets. And then you look within the market and Julie, you know, we always talk about say it's it's it's a market of stocks. Trying to call the index itself is a fool's errand and I I don't try to do that. But you know, the leadership as you know, many of your guests have spoken about has become very narrow. Um it's been all tech all the time since the end of March. I think that's to me that's unsustainable. It looks like it's tremendous blow-off. Well, I know people are saying it's different this time looking at things like Micron and Sandisk and but where I come from, you know, buying semis on eight times book history proves it's usually not a very good idea. So and then you look at the equal-weighted S&P, not so much spy itself. You know, the that call I'm I've been on for a good while when I was on your show last time. Equal-weighted did well until it didn't. And the last five, six weeks since the rally uh off the March lows, um it's it's been doing very poorly actually. It's been underperforming S&P. And so the broader market is actually not doing particularly well. Consumer stocks making multi-year relative lows. Home Depot, Lowe's, McDonald's, Lululemon, just go down the list. So, there's a lot to do on both the long side and the short side. I would just say to you, to land this plane, I think there's a lot I have a lot more conviction and have a lot more to do on the short side than I do the long side. Long side, still like energy, still like the gold miners, still like resources broadly speaking. So, I like the real trade and and and we put this out on our Substack, long a bunch of resource stocks, short a bunch of consumer and tech names. That spread, even with the market rallying, has has has produced a 10% return in the last 6 weeks. So, it's a market of stocks and I think that's what I'm trying again, trying to make the big market call, don't really know. So, there. I've had it. Hey everyone, I hope you are enjoying this interview. If you can, take a quick moment and hit that subscribe button. We are on a [music] mission to hit our next goal of a 100,000 subscribers and your support could really help us get there. Thank you so much and enjoy the rest of the interview. Let me ask you this because you're right, you we you did make this call on bonds with yields going much higher when we last spoke and my question for you, George, is does this move, especially this move we've seen in the long bond, is this starting to confirm your thesis around the death of financialization, the fiscal bill coming due, the rotation out of paper assets into real physical ones? Um, yeah, let's talk about what this means, the what we're seeing transpire in the bond markets. What is that telling you and what is that reinforcing in terms of like your own investment thesis? Well, that that the course of action is unsustainable. Um, I would add, as been noted of late with Kevin Warsh being sworn in recently, being appointed the new Fed chair. Uh, history shows that new Fed chairmen also have a way of being tested pretty early on in their term, as if there wasn't enough to worry about. The idea that cutting interest rates against a backdrop of surging inflation and exploding deficits, I don't think the bond market's going to take that very well. I think the bond market vigilantes are in the process of being awakened. And uh, that's likely to backfire on on on him, on them if they do that. Do you do recall? Wasn't that long You're old enough to remember when as the saying goes on X. Go back to the fourth quarter of last year, it was like, you know, a bidding war. Uh, you know, I got more rate cuts penciled in than you do for 2026, okay? It was like, no, they're going to cut three times, five times, okay? What happened to that? Now the water cooler talk is, well, maybe they're going to raise rates. So, if they decide to go ahead and cut rates, I think the markets I think the bond market's going to revolt and I think at some point, the equity market's going to take note of this. So, um, the bond the bond call is uh, more conviction on them before cuz it's it's one thing if you have an idea and price doesn't confirm you. Okay, George, you're such a wise guy, you're so smart, you think this is going to happen, but clearly everybody else thinks the opposite. Well, now we have price in gear with narrative and fundamentals and I think it's going to fall to the role of the bond markets to discipline the politicians. I think we spoke with MMT last time and about how it's almost enough to make you think that MMT is a thing, like they've been spending all this money and up until recently, it really hasn't upset the US bond market and um, everything's fine. What are you worried about, okay? Well, you know, look, let's take Japan as a canary in the coal mine, you know, where Japan, wherever the world's going, Japan's going to get there first on on the debt side cuz that's just a debt problem. The yen has continued to weaken. Yeah, it's bounced a little bit less a couple weeks, but in the bigger scheme of things, the yen has been much weaker than virtually anyone anticipated. There's some reason for that. Interest rates aren't high enough. Yields aren't high enough. If they would let rates go up to where they should go in order to stabilize the bond market, um then the yen would appreciate, but they don't. Real rates are too low in Japan, and I think you're going to start to see that in the US as well. People are going to start to get the joke, "Hey, you know what? Inflation's in the in the in the threes and rising. Oil This is for the oil price surge. There's no doubt you've seen what's happened to food prices as well. Um and so you combine rising inflation with a policy response of all these guys to spend more money, and you know, and and and engage in QE. I mean, they're they're doing stealth easing already. At a certain point, markets will say no mas. And by the way, when that happens, I know right now gold gold's gold and gold miners aren't flavor of the day, but we've been on this kick for, I don't know, a year and a half or whatever. This is just a positive refresher is my conviction in that trade. I think the gold miners are outstanding right now. They're out of favor, so the talking heads aren't talking about them, but I think this is a great time to be in the gold miners. So gold miners, energy, regardless what the energy price does, we're going to have to drill for a lot more oil. Drill, baby, drill. And you know, perm growth in the Permian has plateaued. Um North America has accounted for 80%, I believe, of all the incremental growth in global energy supplies the last decade or more. That's over now. We're going to have to drill more. And uh so I think the service companies look terrific. Uh we've been in the OIH. Um I think land drillers in particular particular look look very good right now. So, um so my So, go back to your question. My Am I Am I my conviction diminished or increased? It's a very good question, Joey, because it's a question I always ask people. You have an opinion, but how convicted are you? Cuz you know, the opportunity sets are rarely linear. Sometimes since you're a basketball fan, sometimes it's going in nothing but net. Give me the ball. I want it. Give it to me in the post. I know what to do with this, right? Other times you can't even hit the backboard. Airball, airball, okay? I'm telling you, right of late it's been nothing but net. In the big picture, okay, gold miners not so great lately. But um as Peter Lynch would always say, it's not what you first ascertain when you look at a company, look at a stock. It's what you learn the second time, third time, fourth time. You get to know the company better. You get to appreciate the fine points. You can you upgrade the story or downgrade the story. And I would say to you on the macro side of things, definitely upgrading the story. We've had the Hormuz thing, which is solidifying my views that energy is going up and keep in mind we were positive on energy at the start of the year anyway. And on the fiscal side with the debt, to me that just means um the the debasement trade is going to accelerate again cuz they're going to have to print. And bonds aren't going to like it and I think I think gold and gold miners go higher. Mhm. You know, as you point out um you mentioned Peter Lynch and um I think a lot of folks who are watching know that you were the former assistant of Peter Lynch. You've been in the markets for 45 years and you're just kind of saying like we're getting back to a market of stocks. Back to that Peter Lynch stock picking environment. Um would you say that we are in a regime shift that's happening right now as it relates to investing cuz I imagine a lot of folks who are used to what it has been, but it sounds like we're going through a change right now. The 60/40 model doesn't work anymore. It's dead. 100% Julia, what how's the saying go with past performance never so guarantee of future results or something like that. Okay. You know, there's a recent bias. Uh I remember when I first started as a summer intern at Fidelity in 1980 and we were coming off a decade. This is hard to believe, but Fidelity actually lost money in the '70s. They had layoffs. Um you know, what saved Fidelity's bacon was this incredible innovation called the money market fund. Okay? They had 8 billion under management. I think it was 3 billion in fixed stock income and 5 billion in equities or the other way around. 8 billion. That's 18 trillion, okay? And so, my whole career from '81 to say '21, about 40 years, was the period of the great uh moderation, disinflation. Um you know, rates inflation came down, rates came down. We can give go through all the reasons, globalization, productivity boom, all this stuff. It wasn't the Fed. It was not the Fed. That's one thing which you know, George Soros likes to talk about. The way to really make money in markets is figure out what's not true. What is the market belief that's not true? And then more importantly, try to ascertain when is the market going to realize it's been had. And this idea that the Fed is in control, no, they're not in control. They are not in control. You know, humans, we all like to we all like to feel like we're in control. It's comforting. When you feel you're not in control, it's like, oh my god. And so, yeah, the Fed follows the market. All right? You know, they don't lead. Yeah, okay, once yeah, they do stuff once in a while, but I think we might be much better off if the Fed never existed. Um you know, the whole reason we have inflation and and it's basement traders because of the Fed. Uh people say, well, what's happening with um the oil price going to be inflation or you're not? It doesn't have to be. If the Fed does not print money, if they don't ease, price of oil rises, if it it depresses everything else, you might get a recession. You're not going to get You're not going to get inflation. On the other hand, if they print, which is what they always do, there'll be more money going around. You print more money, what do you think's going to happen to the price of everything? I mean, Julia, I know you know these numbers, but what is it something like 40 or 50% of all the money that we have has been created in the last 5 years? I mean, you you increase the money supply by 50%. What do you think is going to happen to prices? Like, for those of us who have been too bearish, like, what did you think was going to happen to financial asset prices? All right. So, this is all the Fed's doing. So, so this this whole idea of of of control of of macro, you know, much of the time macro doesn't matter. But, there are times when it does matter because policy makers can do certain things to sort of tilt the table a bit. And this is one of those times. And as I think we may have spoken about last time and I know you had Jay Plasky on after we last spoke. It's okay. You're a Duke. He's you you're you you're a Tarheel. He's Duke. But, as Jay likes to say, I don't know if he said it on your show, you know, his superpower is to ignore Donald Trump. Not because he likes Trump or hates Trump, but it's just Trump is a volatility generator and you know, what he says one day isn't necessarily the same he's going to say the next day. So, stay focused on the big picture, know what you own, stay focused on the fundamentals. You know, a lot of these resource plays, the minors, the the I mean, take SSRM. Okay, it's a stock I'm public on. I've recommended it on Substack. Julia, it's a gold miner. All right. The thing is on seven times earnings. Seven times earnings. Like, 75% margins. Um They're buying back stock. They sold their they they they sold their biggest asset this or the big Turkish asset a few months ago for a billion and a half dollars. The stock buyback I I don't have the numbers to hand, but the stock buyback is it's like it's a 10 20% of the float. It's insane. I can show you miner after miner which is incredibly cheap and that that's just based on current mine gold prices. God forbid the price of gold goes up, which I probably expect it will, these stocks could double, triple that any problem at all. But the market's not believing it. The market's not believing these are not and also the broader market of stocks these stocks they're not in the index. They're go back to energy. Energy is what actually 3 and 1/2 4% of the index. Nvidia's like 8% of the index. So, if you're running real money, you know, if you're Will Danoff who runs a contra fund, my good friend at Fidelity, and Will hasn't told me anything, you know, running big money, it's more important for you to get the Apple versus Nvidia call correct than it is how much you have in energy. So, I think so going back to this go come back to your question about stock picking as well. I think this is this is the golden age of stock picking, whereas the prior few years the mag seven killed it and rightfully so, their revenues and profits went through the roof, way growing much more rapidly than the broader market and it's still happening, but now gets another one of the calls, you know, last I said I'm I'm suspicious of the AI trade that looked great for a few more weeks until it wasn't, but I think it will one of those points where the rubber band's been stretched. Um now this rolls into and I know you've you've had um Chris Whalen on talk a lot about private equity, private credit. This is where um this is very relevant to the AI trade. A lot of stuff's being financed the marginal financing agent for a lot of these things has been private credit. And whereas credit spreads broadly speaking in the economy are okay, which is a reason why right now we're not looking at a at a recession, but again there are good reasons to there's evidence for either case. Most recently real incomes starting to come down, etc. etc. but on the bull side of the ledger for the economy is that credit spreads are well behaved. However, you look at private credit, you look at Oracle, you look at CDS are disaster. And everyone's saying, "Oh my god, look at the quarter, look at the revenues, you know, that Nvidia prints." Nvidia's going to have numbers this Wednesday. For all I know they'll probably be good, but that's not what's so interesting. What's interesting what the stock going do? People look at Micron, they look at the hyperscalers. But, and I know you've you've spoken about this, the balance sheets, the the the free cash flow of these companies is being thrown out the window because of the hundreds of billions, soon to be trillions of dollars being spent on AI. And I don't see any mon- credible monetization path in the store. And so, I think perhaps as we spoke last time, I think this continues to be perhaps the biggest misallocation of uh capital in history of the world. Right now, the market doesn't care about it. Broadly speaking, they certainly care about it if you're a if you're an Oracle investor. And you know, the Mag 7's done well the last few weeks, but prior to that it did poorly for 5-6 months. It made up that underperformance in a relatively short period of time. And I think we're soon going back to that. So, again, it's a market of stocks. Stay away from bonds, stay away from tech. S- But, I know semis are doing great, but I think the the the bubble's not in the valuations, the bubble is in the margins of those companies. It's a cyclical industry. Software, a real minefield. Uh you really got to differentiate between the haves and the have-nots. And the flip side of it, you know, uh energy, gold, commodities, foreign stocks equal weight over um over uh market cap weight. And just on the short side, there's a lot to do, a lot to do. Particularly in the consumer area. Do you think we're in a stock market bubble? Um It's funny. Words have meaning. Um Let me answer the question this way. I think there are many, many stocks that are in a bubble. There are also many stocks that have been sleeping. And rightfully so. So, for instance, if you take the consumer you take the the retail ETF and don't use XRT cuz that's a crazy ETF, but you look at the equal weight retail. The thing is going nowhere. You look at the housing stocks, they're going nowhere. You look at anything related to the consumer, the 70% economy, they're going nowhere. Now, the stock market's not the economy, the economy's not the stock market. The the market's being propelled by a very small group of stocks. I believe the earnings of Nvidia are in a bubble. People say, "Well, the PE is not Yeah, I know the PE is not high." But, look at where the margins are relative to the past. PEs are really can be misleading. If you think about it, it's really shorthand for discounted cash flow. And so, the problem with Nvidia is not what are they making last quarter, this quarter. It's where the It's how sustainable are these earnings and these margins. What are they going to be making 3 or 4 years from now? And, you know, it's easy and the the tech world do do not want to acknowledge this, but let me give you an example. I I may have spoken about this with you earlier on another occasion. Look at the shipping stocks, okay? The shipping stocks, it's pretty simple business model. You have a vessel. You borrowed some money to buy the vessel. You got interest expense. You got depreciation. You got to pay your crew. You got fuel. The costs are kind of fixed. They don't really move around very much. They go up a little with inflation, but not so much. So, let's say it's costing you 15, 20,000 dollars a day to run a ship. And let's say you're taking in 25, 30,000. So, you're making $10,000 profit. I'll keep it simple. $15,000 cost, $25,000 profit. You're making 10,000. And then, there's a shortage. Let's say the Straits of Hormuz get closed. And all of a sudden, the the vessels have to be rerouted. So, ton miles go way up. So, there's not enough vessels to go around. So, the rate goes from 25,000 to 75,000. Your cost is still 15. So, what happens? Your profit went from 10 to 60. Huge operating leverage, all right? So, the bubble in that case, people say, "Well, you know, it's only on four times earnings." You'd be like, "Yeah, but that's earnings like right now. These are not That's not normal. Just wait till the market normalizes and the earnings are going to go back to $25,000 a day, not $75,000 a day." So, if you said to me, "Julie, are are those shipping stocks in that scenario in a bubble?" Yeah, the prices are very high, but the real problem there is not the PE. It's the earnings. And I would humbly submit for your consideration, that's what we're dealing with the tech stocks right now. Mhm. Okay, and also just to point out as well, like we talk about we talk about the markets, we also talk about the economy. I heard you say earlier like you don't see a recession ahead, right? But we have also seen the headlines around the consumer sentiment hitting all-time lows. Stock markets continuing to touch new highs. Yeah, let me contextualize my comment here. My call to be the things I like, things I don't like, you don't have to believe in a recession to have the positions I have. All right? I think the consumer stocks are going to underperform and I think they're going to underperform. Whether we technically get a definition to get a defined um recession or not, all right? There's a good reason to be bearish on tech, bearish on bonds, positive energy, positive on resources with or without a recession. Now, if we get a real big recession, then you got to call into question what's going to happen to commodity prices. That's another story. But if you say to me, "Are we in a recession?" We might possibly be in one. I mean, I think the consumer The consumer is in a recession. You're even starting to see uh reports of the high-end consumer cracking. Um I do know that uh you know, there's still a lot of excesses at the high end. Depends where you go. Some things are priced as holding really well, but some not so much. So, you have um um you're starting to see the signs of the consumer really weakening. And this may be the month just because of the full impact of the higher oil prices. I'm sure if you went to fill up your car lately, Julia, you noticed the cost a little bit more to fill up your tank than it was previously. Food prices are accelerating again. So, real incomes are coming under pressure. So, are we in a recession right now? Possibly. But that's not really the That's not the way I roll. I'm trying to figure out how to make money. I'd rather I'd rather make money and be wrong on the economic call than be ill prepared. So, um I would say the consumer is in The consumer or large swaths of the consumer are in recession right now. Mhm. Um we are talking about energy prices rising. Do you see more inflation ahead or is that not energy-driven inflation? Can you just make the distinction? Yeah, well, you're seeing you know, as some have pointed out, um the whole commodity thing has started out with gold. That's moved to energy. Food, depending what you're looking at, starting to really pick up. Like meat prices, um you know, all Go buy some seafood, see what that costs you. >> Oh, yeah. I mean, it's like, "Oh." So, it's it it's starting to permeate. And then you look in the sector in the in the service sector, inflation is kind of sticky. So, the idea, you know, service sector inflation is low threes, and short rates are wherever they are, 4% from the 10 years and 450, 460, doesn't sound particularly restrictive to me. To the contrary, I think money's still money monetary policy is still very easy. So, which by the way Which by the way, also, I was just thinking about this before coming on the show, the fact that rates have gone up, but seemingly there's no recession right now, just rates means rates could continue to go up before the Fed's called to action. Do I Why would Surely think about it for a second. Stock markets other markets plunging on Friday, okay? Plunging all over the place. These hyperbolic headlines. Other than the one day plunge, markets are basically all time highs. Commodity prices are surging. Unemployment rate's kind of okay. Credit spreads are very tight. Like, why would you ease? Mhm. Now, if you worship at the altar of stock market and you're Donald J. Trump and you can't allow the market or stock market and you can't allow the market By the way, not a political statement. If we're outlawing bear markets and outlawing recessions, okay, I get why you're going to ease. But, they try that at a certain point. I think we're here already. The market's going to say no mas. And the question you didn't ask but I'll anticipate is Okay, rates have been going up, but why does it now matter? And again, it may have to do with the with the with the speed of rate increases, not just not just the fact they're going up. But, do you think about it for a second? You know, imagine um I don't know. Let's say the temperature is 50° and it goes up by 10° to 60, and then another 10° to 70, another 10° to 80. It's not bothering you. Then we go to 90. Getting a little bit warm. Now at 100, it's like, "Ooh, wait a second. Wait a second, okay?" And that's kind of like the anal or use the water in the bathtub analogy. Same idea, all right? The rates won't matter until they matter. And I think another one of the ways it really does matter and another big car I mentioned to the lot of you on the short side, it's not just consumer stocks. These rising interest rates with the meme stocks, I think we talked about Ocado last time. There are so many high flyers. It's pure momentum, pure speculation, pure short squeeze. You know, Coreweave, you know, is is is is a $30 is is a bankruptcy in my opinion masquerading as a $105 stock. First Republic, which I think we talked about previously, which Tom Chanos nailed at our last conference, stock went from 80 to 49. I think it's going to It's going to 10. I mean, I can show you stock after stock after stock, which is a disaster. It has nothing to do with the index it's doing. Meanwhile, I think Occidental Petroleum will do just fine, thank you very much. So, what it means for the index, and whether I'm going to call us in a bear market, and whether we're in a recession, or whether we're in a bubble, to me, that's not as helpful as trying to figure out, okay, explicitly, how do we make money? Would we go long? Would we go short? Mhm. Yeah, um well, we have Kevin Warsh coming in at the Fed. Any expectations from him? Like, um does that I mean, yeah, what are your expectations from him? Julia, would you want to be him? I wouldn't want to be him. >> [laughter] >> No, but Julia, can you please explain to our viewers, what does it mean when you're stuck between a rock and a hard place? Hope that answered your question. Yeah. Um I mean, listen, listen, listen, he's a good guy. Um I know of him, I don't know him. But, it's a thankless position that he's in right now. I mean, under a lot of pressure, I'm sure, from the man in the White House, but on the other side, he's got to deal with the markets, and um as I said earlier, not a lot of margin for safety, a lot of not a lot of room to maneuver, so When you say not a lot of margin to safety, I know the book, Seth Klarman, and what do you mean like what do you mean when you say that? Okay, so Seth, who I know pretty well from my Boston days, uh he is the smartest guy in the room, one of the brightest investors I've ever met. Think of it this way, Julia. Let's say you and I are walking across a mountain ridge. There's only 10 ft of path on either side of us. And it's a nice sunshiny day, and it's beautiful, no problem. We can just kind of like go across the ridge, no problem. But, let's say the weather turns for the worse and the wind picks up. And [clears throat] I don't know the top of Mount Washington or some place in New Hampshire where it's known to be pretty bad weather and you're in this narrow little trail. You weigh less than I do. I'm willing to ask you that guess. But the chance that you get could get into trouble pretty high. Mount Washington's been known I think to have the highest recorded winds anywhere in the history of the world over 200 miles an hour or something like that, right? So if valuations are low and the economy's on solid footing and profit margins have a way to go up okay, things stuff can happen but you kind of you're you're downside's underwritten by the fact that stocks weren't expensive to begin with. Maybe there's the outlook once this too shall pass once the recession gets out of the way, all good. On the other hand when you have highly valued stocks that are over earning and you have very little scope. That's a it's a very good question. You see you always have a way of asking these annoyingly good questions. You just triggered me. That's your job. Um kudos [clears throat] to you. The capacity to engage in further fiscal easing. In other words, more spend more money. And they're talking about trying to get defense spending up to a trillion and a half this year or whatever. But ease further. Ease, you know, spend more. Louis Gave said recently um that the policy tools available in a disinflationary environment are much different in than in an inflationary environment. That's one of the reasons why buying the dip has become so ingrained amongst investors. When you're worried about recession, when you're worried about deflation, as was the case prior to COVID for many years post GFC, because our fiscal situation was relatively better and because inflation was low and falling, there was tremendous scope to uh increase spending and cutting interest rates, they were just following what was happening to inflation. Now it's the opposite. We're at one of those points where the bond market is starting to cry uncle. You can't really spend more and cutting interest rates in environment of rising inflation. So I think what there's a category error being made by uh investors now. Then in other words, we're in a totally different setup and so this whole buy the dip mentality is is is a byproduct of the fact the authorities always came to the rescue. And I think their ability to come to the rescue right now is being severely curtailed on the macro side. So going back to your question about margin of safety, there's not a lot of room for for monetary and fiscal maneuver right now. So also, you and I've talked about the death of speculation. But also, what I'm also hearing from you is you're still very much invested in the markets, but it's getting back to that stock picker's market, a market of stocks, picking your spots where you want to be or how you want to be allocated. 100% and by the way, very good very good point. I'd like to drill down just a little bit further. ETFs also are not the answer. Mhm. Because you have an it's dirty ETF or it's like, you know, the commercials, like, you know, do you know what's in your ETF? Like, you know, what's the one with the capital? Do you know what's in your wallet? Do you know what's in your ETF? Okay? So, when someone goes and buys >> in all the other ones, yeah. >> [laughter] >> Yeah, okay. So, when someone says, "Oh, the consumer ETF." Okay, you want to buy the retail XRT, it's kind of a screwed up ETF, but I digress. You got to look at X What was it? XL uh Y. That's the consumer one, I believe, okay? That thing is like 20% I haven't looked at it in a few months. That thing is like 20% Amazon, 20% Tesla. So, the consumer ETF is 40% Mag 7. So, it was like, "Ooh, I'm buying consumer stocks." Well, okay, you had the right idea, but did you realize you bought you bought the wrong instrument? So, everyone wants to like, "Oh, it's no problem. I got my ETFs. I'm good. I don't have to pick stocks." You know, why would you possibly give money to an active manager? They always underperform. Their fees are higher than passive. Blah, blah, blah, blah, blah. This is classic. Mhm. This is classic. You know, Julie, I know you know this, but they've done studies in the past on um what happens to managers that get fired by like the pension funds, all right? And usually the pension funds, they allocate the money, they fire the manager exactly the wrong time. So, like Julie gets fired by CalPERS >> [music] >> and you know, or and George gets fired by Texas teachers, and they did a study of all this, and over like the next 12 24 months, the fired managers absolutely kill it, okay? Cuz the investors give up at exactly the wrong time, all right? I'm telling you the public is doing that now with active managers. They're getting killed by ETFs. Yeah, I mean I mean for good reason. Active managers sucked. The tax consequences are adverse. You know, so you have the index funds, Vanguard please call your office. You got the ETFs. This is absolutely perfect for active managers. As a matter of fact, active managers based on the last data I saw are killing it now. You know, I think the easiest way to outperform the market I mean the the it was so hard to outperform the market for a number of years cuz if you didn't know Mag 7, you were dead. I think the opposite's now going to apply. And so, I think we are in the golden age of of stock picking, yes. Mhm. And how about having the stomach to short? >> [laughter] >> I mean, cuz I know it's been a a rough going for short sellers in recent years. I imagine Sounds like that's starting to change, but um yeah, what about the stomach to short? You know, some of my smarter friends, Seth Klarman as a matter of fact, when I have have said it's it's not a good idea. Seth Klarman has said shorting is a bad business, and it is a bad business, all right? And the reason it's a bad business is not just that stocks go up over time, there's another problem people don't fully recognize. It's when you find a great company, or Rose Technology, and you buy it, it's got good prospects, the valuation looks reasonable, and you own it, and then it goes up, and they have good earnings, they announce new products, and maybe it is I don't want to say it's a one-decision stock, but you know, that can compound for years. They can compound for years. So, you just keep updating your models and listen to the quarterly calls and talk to management, and you're good. Problem with a short, so say you want to go short Noble Technology, cuz they have aggressive management, scammy accounting, where management's going to blow the quarter. The problem with shorting Noble Technology, unless it's a fraud, I've been called worse, by the way, unless it's a fraud, um you'll make money on the bad quarter, you'll make your 20, 30% or whatever, but they have the incentive to try to fix it, and so there's no compounding effect for being short. Now, every once in a while, you get an absolute zero, like Enron. Okay, like, by the way, I think some of the Mag 7 stocks are going to be, or the Mag 7, some of the AI-related stuff. I think some of these neo clouds, someone described Coreweave as WeWork for GPUs, you know? They have long They own these They have these long-term commitments They they they own these chips, but but they can't the price that they're going to be able to rent them out is going to is going to collapse, same thing that happened to WeWork. So, shorting is a bad business. Um I don't recommend it for most people. I've probably lost as much money as I've made. Yeah, it sounds cool, you turn heads cuz most people don't do it, but there is information content in what the shorts do, what I would say is you should just avoid those stocks. So, if you think Freshpet is a pile of of uh doodoo or you think Oklo is garbage, or Corvus is garbage, or Tesla is garbage just avoid them. Don't short them, just avoid them. And and in fact, there are a couple of products out there. These actually have been very good investments. A couple of the uh boutique firms on the street they have what is known as their failure models or their or their um their their their underperforming list. And if you just And Jim Chanos has done this actually. If you go along the market and short the garbage there's like alpha 10 12% a year. If you can pick out the losers and so you try to capture that. But, just going short outright bad business. Mhm. All right, George, before I let you go here, you have a conference this week on the 20th, the Best Income Ideas Conference. Um as we wrap, let folks know more about what you guys what you're doing with this event why they might want to attend. It's on Wednesday, uh May 20th, so the floor is all yours. Thanks, Julia. I'll be brief. Um So, we had a conference uh March 11th Stock Stock Pickers Summit. We had uh 800 people attending that conference. It was a huge success. This one's going to be a little bit different. We're going to have another stock picking one in a couple of months, but this one's going to be for income investors. As we were talking earlier uh 64 pole or 60/40 portfolio is dead long with the 60/40 portfolio. So, if you're cautious on bonds, as I am, what are you supposed to do with that 40% of your portfolio that's intended to generate income, especially if you're an older age, you know? If you're 25, 35, you got all the time in the world to make it up, forget about bonds. But, as the saying goes, Julia, I don't recall who made up this saying, but you know, bonds representing certificates of confiscation. Um you know, it's it's sort of when you you when you stop and think about if you make 4 and 1/2% on a 10-year after taxes, after inflation, you're guaranteed to lose money in real terms. So, what are you supposed to do with that? That's what this conference is designed to do. We have a roster of uh 13 speakers, some of the best names in the business that you would know, Luke Gromen, Michael Howell, David Hay, Jay Pelosky, Jim Rouke, in combination with in collaboration with Seeking Alpha, Steve Cress is uh their lead um analyst. He has a fantastic product, Alpha Picks, which is up 400% in the last uh 5 years, 4 or 5 years. It's transparent, repeatable, scalable. It's killed 99% of of of of managers. Trust the indices. The S&P's up I think 93% in that period of time. He's up 400%. So, he's he's going to talk about some income-oriented ideas. And by the way, these can be stocks for the high yield. It could be a bond. It could be a strategy. It could be a fund. But it's just how do you generate income? So, as example, you might want to own an MLP, a pipeline. Or you might want to own a Brazilian bond. You know, Jay Pelosky, I'm sure he'll talk about Brazil. And he I think he spoke about it on your show recently. You know, would you rather own bonds in the US where you had a very dour fiscal situation and the and the currency's depreciating? Or you look at Brazil where yields are 14%. Real rates are 10% and the currency's going up. And the and the and and and the and the currency's very undervalued. So, there you have a high yield with scope for rates to go down and a depreciating currency. So, it could be stock. It could be a bond. Uh David Hay, who has a fantastic He's Evergreen Capital. Fantastic investor, particularly in fixed income. He's going to be speaking. And then we have I think seven or eight folks from Seeking Alpha. Each of them have their own publications. Um we had one fellow on um Lionel Ellison yesterday on my on my Twitter space. And it was absolutely phenomenal. So, I'll stop, but if you think the next decade, next few years let's say, are going to not going to look like the last few years, where you can't own bonds, what are you supposed to do? This conference is designed to help come up with ways to generate income without being beholden to the US Treasury market. That sounds like a wonderful event. We will link it in the show notes for anyone who would like to attend. George Noble, CIO of Noble Capital Advisors, thank you so much for being so generous with your time, all of your knowledge, your wisdom, for being a friend of the show. We love having you on and wish you a very successful conference and look forward to our next conversation. Thanks again, George. >> Thank you, Drew. Always a pleasure. Thank you.
George Noble: Fed's Hands Tied, Bond Vigilantes Waking Up, Buy the Dip Dead, Margin of Safety Thin
Summary
George Noble, CIO of Noble Capital Advisors, returns to review his February predictions on bonds, energy, and the AI trade, …Transcript
George Noble, CIO of Noble Capital Advisors. Welcome back to the show. Great to see you as always, George. Thanks so much for taking the time. Thanks for having me, Julia. Always a pleasure to be on. Always a pleasure. And George, our last conversation was at the beginning of February, and it feels like a lot's already happened since that time. So, if you don't mind, let's step back and do the big picture macro view update for you. Um what's changed? What's been reinforced? What's been on your radar of late when it comes to the economy and the markets? And as you know, George, you can take all the time you need to set the table. Thanks, Julia. Um I took a few minutes to review what we spoke about last time. As folks like to say, I'm seldom right, never in doubt. But we had a reasonable number of decent predictions in in early February. Um as I look back at the show notes, at the transcript, we talked a lot about the downbeat outlook for the bond market. I was negative on bonds. I was positive on energy, and this is before the extra-curricular activities in the Middle East took place. There were good reasons to be positive on bonds uh on energy and negative on bonds already at that time. I threw shade at the AI trade. Um we spoke about commodities, gold miners, foreign stocks, etc., etc. in equal weight over um over over market weight. So, you know, the market, Julia, as you know, often has an inability to focus on more than one thing at a time. Uh whatever is grabbing the headline at that particular moment. Um there was a tre- This was a terrific man strategist named Don Cox. Don um was at Harris Associates um or Thyme. I think he's retired now. I haven't talked to him spoken to him in years. And Don had this great um line. You want to always invest in stories that were on page 16 of the the I said, "What's that?" That's metaphor for focusing on Focus on things that are not top of mind for the folks on the front page. Cuz if it's If it's on the front page already, there's a better chance it's already discounted in prices. Instead, you want to find the story in the background, page 16, he used as metaphor. And the story on page 16 gradually makes its way to the front page. That's how you make your money. Sounds rather clever, but we can't be so precious to know what's going to happen, but um you know, sometimes the the front page story keeps going till it doesn't till it doesn't work anymore. So, coming back on bonds, let's start with the bond market, all right? I think it may not be the sexiest thing to talk about, but to me that's really the rising cost of capital globally is the real story here. I mean, we've had this distraction with um the the Straits of Hormuz and what's going on in Iran and the oil price. My crystal ball, Julia, is no better than anybody else's. Um if I had to guess, if I had to speculate, what we do for a living, we speculate. Um if we speak about the over under, uh to use a sports term, is this thing going to be settled sooner rather than later or later rather than sooner, I'll take the later rather than sooner. Both sides have dug in, they have positions uh each has positions the other one's not going to agree to. Um you know, probably somewhere along the way there'll be some mealy-mouthed compromise. Uh when that's going to happen, I don't know. The Iranians have never had more leverage than they have right now. Like for every incentive, just keep doing what they're doing. Um and we'll see. Uh but I don't think there's an easy way out here. And And And And a key point I want to emphasize, I think the margin of safety the margin of safety is particularly small right now. Um as you're aware, we've been running down inventories of many commodities, particularly uh uh oil. And so, the full economic effect uh the full impact on economic activity of um the of of of the shutdown of the straits is really not been felt yet. And we're now coming up to the point where it's going to start to be felt. All you've seen is the spot price go up a bit. But again, there's a big disconnect between spot and um and between uh the physical and financial price of oil. And most notably, and I'm ranting all over the place here, if you look at the deferred contracts, you look at energy say out in December, not spot, but towards say go up go out 6 months, um those prices are now starting to move up. So, the market has for whatever reasons, it's not for me to argue with the market, just to observe what is the market saying and do I do and and and and and has an impact on my thinking. We've not seen uh the forward curve move up that much until recently. And that's very important. Uh cuz if you've been it's rather complacent with the don't worry, this too shall pass. Well, maybe this won't pass as quickly as people think. Uh where price could go in the short run, I have no idea. 120, 150, 200. I I've seen I've I heard um I spent a lot of time on this and both my chart perspective, I was talking to John Roque the other day, the strategist the my favorite technician from 22V, he's predicting he says oil could go to 250, not predicting it, but could. And then Michael Khouw, I think you had on your show, um we're running through some calculations about how high does the price have to go to destroy enough demand to accommodate uh the supply that's available. Uh and um uh again, it came up with a price similar to 250. So, you've got rising oil prices and on the back end uh suggesting the market's start starting to believe perhaps that this oil uh situation will not go away very quickly. And and and even more more confidently, um Dorothy, we're not in Kansas anymore. You're not going back to the pre-February 28th environment. So, you put together rising uh oil prices and who knows how high they're going to go and how but more importantly how how long they're going to stay elevated with rising cost of capital, rising bond yields. I think in our last conversation we spoke about potential Liz Truss moment for global bond markets. You have bond yields around the world, Japan 30-year highs, Europe 20-year highs. US yields have been relatively well-behaved. The 10 years are around 450 today, I think as we speak or 460 or wherever it is. Um we spoke last time about the possibility of yields going to 5% or higher. You asked me do I have more conviction in that view now? Yes, I certainly do. Uh and at a certain point that's going to matter. Um some would say well, it's not the level of rates, but the rate of change in rates that matters. Maybe the market just got the memo finally on Friday of last week, who knows. But um rising oil price, rising bond yield all things being equal, that's not positive for risk assets. And then you look within the market and Julie, you know, we always talk about say it's it's it's a market of stocks. Trying to call the index itself is a fool's errand and I I don't try to do that. But you know, the leadership as you know, many of your guests have spoken about has become very narrow. Um it's been all tech all the time since the end of March. I think that's to me that's unsustainable. It looks like it's tremendous blow-off. Well, I know people are saying it's different this time looking at things like Micron and Sandisk and but where I come from, you know, buying semis on eight times book history proves it's usually not a very good idea. So and then you look at the equal-weighted S&P, not so much spy itself. You know, the that call I'm I've been on for a good while when I was on your show last time. Equal-weighted did well until it didn't. And the last five, six weeks since the rally uh off the March lows, um it's it's been doing very poorly actually. It's been underperforming S&P. And so the broader market is actually not doing particularly well. Consumer stocks making multi-year relative lows. Home Depot, Lowe's, McDonald's, Lululemon, just go down the list. So, there's a lot to do on both the long side and the short side. I would just say to you, to land this plane, I think there's a lot I have a lot more conviction and have a lot more to do on the short side than I do the long side. Long side, still like energy, still like the gold miners, still like resources broadly speaking. So, I like the real trade and and and we put this out on our Substack, long a bunch of resource stocks, short a bunch of consumer and tech names. That spread, even with the market rallying, has has has produced a 10% return in the last 6 weeks. So, it's a market of stocks and I think that's what I'm trying again, trying to make the big market call, don't really know. So, there. I've had it. Hey everyone, I hope you are enjoying this interview. If you can, take a quick moment and hit that subscribe button. We are on a [music] mission to hit our next goal of a 100,000 subscribers and your support could really help us get there. Thank you so much and enjoy the rest of the interview. Let me ask you this because you're right, you we you did make this call on bonds with yields going much higher when we last spoke and my question for you, George, is does this move, especially this move we've seen in the long bond, is this starting to confirm your thesis around the death of financialization, the fiscal bill coming due, the rotation out of paper assets into real physical ones? Um, yeah, let's talk about what this means, the what we're seeing transpire in the bond markets. What is that telling you and what is that reinforcing in terms of like your own investment thesis? Well, that that the course of action is unsustainable. Um, I would add, as been noted of late with Kevin Warsh being sworn in recently, being appointed the new Fed chair. Uh, history shows that new Fed chairmen also have a way of being tested pretty early on in their term, as if there wasn't enough to worry about. The idea that cutting interest rates against a backdrop of surging inflation and exploding deficits, I don't think the bond market's going to take that very well. I think the bond market vigilantes are in the process of being awakened. And uh, that's likely to backfire on on on him, on them if they do that. Do you do recall? Wasn't that long You're old enough to remember when as the saying goes on X. Go back to the fourth quarter of last year, it was like, you know, a bidding war. Uh, you know, I got more rate cuts penciled in than you do for 2026, okay? It was like, no, they're going to cut three times, five times, okay? What happened to that? Now the water cooler talk is, well, maybe they're going to raise rates. So, if they decide to go ahead and cut rates, I think the markets I think the bond market's going to revolt and I think at some point, the equity market's going to take note of this. So, um, the bond the bond call is uh, more conviction on them before cuz it's it's one thing if you have an idea and price doesn't confirm you. Okay, George, you're such a wise guy, you're so smart, you think this is going to happen, but clearly everybody else thinks the opposite. Well, now we have price in gear with narrative and fundamentals and I think it's going to fall to the role of the bond markets to discipline the politicians. I think we spoke with MMT last time and about how it's almost enough to make you think that MMT is a thing, like they've been spending all this money and up until recently, it really hasn't upset the US bond market and um, everything's fine. What are you worried about, okay? Well, you know, look, let's take Japan as a canary in the coal mine, you know, where Japan, wherever the world's going, Japan's going to get there first on on the debt side cuz that's just a debt problem. The yen has continued to weaken. Yeah, it's bounced a little bit less a couple weeks, but in the bigger scheme of things, the yen has been much weaker than virtually anyone anticipated. There's some reason for that. Interest rates aren't high enough. Yields aren't high enough. If they would let rates go up to where they should go in order to stabilize the bond market, um then the yen would appreciate, but they don't. Real rates are too low in Japan, and I think you're going to start to see that in the US as well. People are going to start to get the joke, "Hey, you know what? Inflation's in the in the in the threes and rising. Oil This is for the oil price surge. There's no doubt you've seen what's happened to food prices as well. Um and so you combine rising inflation with a policy response of all these guys to spend more money, and you know, and and and engage in QE. I mean, they're they're doing stealth easing already. At a certain point, markets will say no mas. And by the way, when that happens, I know right now gold gold's gold and gold miners aren't flavor of the day, but we've been on this kick for, I don't know, a year and a half or whatever. This is just a positive refresher is my conviction in that trade. I think the gold miners are outstanding right now. They're out of favor, so the talking heads aren't talking about them, but I think this is a great time to be in the gold miners. So gold miners, energy, regardless what the energy price does, we're going to have to drill for a lot more oil. Drill, baby, drill. And you know, perm growth in the Permian has plateaued. Um North America has accounted for 80%, I believe, of all the incremental growth in global energy supplies the last decade or more. That's over now. We're going to have to drill more. And uh so I think the service companies look terrific. Uh we've been in the OIH. Um I think land drillers in particular particular look look very good right now. So, um so my So, go back to your question. My Am I Am I my conviction diminished or increased? It's a very good question, Joey, because it's a question I always ask people. You have an opinion, but how convicted are you? Cuz you know, the opportunity sets are rarely linear. Sometimes since you're a basketball fan, sometimes it's going in nothing but net. Give me the ball. I want it. Give it to me in the post. I know what to do with this, right? Other times you can't even hit the backboard. Airball, airball, okay? I'm telling you, right of late it's been nothing but net. In the big picture, okay, gold miners not so great lately. But um as Peter Lynch would always say, it's not what you first ascertain when you look at a company, look at a stock. It's what you learn the second time, third time, fourth time. You get to know the company better. You get to appreciate the fine points. You can you upgrade the story or downgrade the story. And I would say to you on the macro side of things, definitely upgrading the story. We've had the Hormuz thing, which is solidifying my views that energy is going up and keep in mind we were positive on energy at the start of the year anyway. And on the fiscal side with the debt, to me that just means um the the debasement trade is going to accelerate again cuz they're going to have to print. And bonds aren't going to like it and I think I think gold and gold miners go higher. Mhm. You know, as you point out um you mentioned Peter Lynch and um I think a lot of folks who are watching know that you were the former assistant of Peter Lynch. You've been in the markets for 45 years and you're just kind of saying like we're getting back to a market of stocks. Back to that Peter Lynch stock picking environment. Um would you say that we are in a regime shift that's happening right now as it relates to investing cuz I imagine a lot of folks who are used to what it has been, but it sounds like we're going through a change right now. The 60/40 model doesn't work anymore. It's dead. 100% Julia, what how's the saying go with past performance never so guarantee of future results or something like that. Okay. You know, there's a recent bias. Uh I remember when I first started as a summer intern at Fidelity in 1980 and we were coming off a decade. This is hard to believe, but Fidelity actually lost money in the '70s. They had layoffs. Um you know, what saved Fidelity's bacon was this incredible innovation called the money market fund. Okay? They had 8 billion under management. I think it was 3 billion in fixed stock income and 5 billion in equities or the other way around. 8 billion. That's 18 trillion, okay? And so, my whole career from '81 to say '21, about 40 years, was the period of the great uh moderation, disinflation. Um you know, rates inflation came down, rates came down. We can give go through all the reasons, globalization, productivity boom, all this stuff. It wasn't the Fed. It was not the Fed. That's one thing which you know, George Soros likes to talk about. The way to really make money in markets is figure out what's not true. What is the market belief that's not true? And then more importantly, try to ascertain when is the market going to realize it's been had. And this idea that the Fed is in control, no, they're not in control. They are not in control. You know, humans, we all like to we all like to feel like we're in control. It's comforting. When you feel you're not in control, it's like, oh my god. And so, yeah, the Fed follows the market. All right? You know, they don't lead. Yeah, okay, once yeah, they do stuff once in a while, but I think we might be much better off if the Fed never existed. Um you know, the whole reason we have inflation and and it's basement traders because of the Fed. Uh people say, well, what's happening with um the oil price going to be inflation or you're not? It doesn't have to be. If the Fed does not print money, if they don't ease, price of oil rises, if it it depresses everything else, you might get a recession. You're not going to get You're not going to get inflation. On the other hand, if they print, which is what they always do, there'll be more money going around. You print more money, what do you think's going to happen to the price of everything? I mean, Julia, I know you know these numbers, but what is it something like 40 or 50% of all the money that we have has been created in the last 5 years? I mean, you you increase the money supply by 50%. What do you think is going to happen to prices? Like, for those of us who have been too bearish, like, what did you think was going to happen to financial asset prices? All right. So, this is all the Fed's doing. So, so this this whole idea of of of control of of macro, you know, much of the time macro doesn't matter. But, there are times when it does matter because policy makers can do certain things to sort of tilt the table a bit. And this is one of those times. And as I think we may have spoken about last time and I know you had Jay Plasky on after we last spoke. It's okay. You're a Duke. He's you you're you you're a Tarheel. He's Duke. But, as Jay likes to say, I don't know if he said it on your show, you know, his superpower is to ignore Donald Trump. Not because he likes Trump or hates Trump, but it's just Trump is a volatility generator and you know, what he says one day isn't necessarily the same he's going to say the next day. So, stay focused on the big picture, know what you own, stay focused on the fundamentals. You know, a lot of these resource plays, the minors, the the I mean, take SSRM. Okay, it's a stock I'm public on. I've recommended it on Substack. Julia, it's a gold miner. All right. The thing is on seven times earnings. Seven times earnings. Like, 75% margins. Um They're buying back stock. They sold their they they they sold their biggest asset this or the big Turkish asset a few months ago for a billion and a half dollars. The stock buyback I I don't have the numbers to hand, but the stock buyback is it's like it's a 10 20% of the float. It's insane. I can show you miner after miner which is incredibly cheap and that that's just based on current mine gold prices. God forbid the price of gold goes up, which I probably expect it will, these stocks could double, triple that any problem at all. But the market's not believing it. The market's not believing these are not and also the broader market of stocks these stocks they're not in the index. They're go back to energy. Energy is what actually 3 and 1/2 4% of the index. Nvidia's like 8% of the index. So, if you're running real money, you know, if you're Will Danoff who runs a contra fund, my good friend at Fidelity, and Will hasn't told me anything, you know, running big money, it's more important for you to get the Apple versus Nvidia call correct than it is how much you have in energy. So, I think so going back to this go come back to your question about stock picking as well. I think this is this is the golden age of stock picking, whereas the prior few years the mag seven killed it and rightfully so, their revenues and profits went through the roof, way growing much more rapidly than the broader market and it's still happening, but now gets another one of the calls, you know, last I said I'm I'm suspicious of the AI trade that looked great for a few more weeks until it wasn't, but I think it will one of those points where the rubber band's been stretched. Um now this rolls into and I know you've you've had um Chris Whalen on talk a lot about private equity, private credit. This is where um this is very relevant to the AI trade. A lot of stuff's being financed the marginal financing agent for a lot of these things has been private credit. And whereas credit spreads broadly speaking in the economy are okay, which is a reason why right now we're not looking at a at a recession, but again there are good reasons to there's evidence for either case. Most recently real incomes starting to come down, etc. etc. but on the bull side of the ledger for the economy is that credit spreads are well behaved. However, you look at private credit, you look at Oracle, you look at CDS are disaster. And everyone's saying, "Oh my god, look at the quarter, look at the revenues, you know, that Nvidia prints." Nvidia's going to have numbers this Wednesday. For all I know they'll probably be good, but that's not what's so interesting. What's interesting what the stock going do? People look at Micron, they look at the hyperscalers. But, and I know you've you've spoken about this, the balance sheets, the the the free cash flow of these companies is being thrown out the window because of the hundreds of billions, soon to be trillions of dollars being spent on AI. And I don't see any mon- credible monetization path in the store. And so, I think perhaps as we spoke last time, I think this continues to be perhaps the biggest misallocation of uh capital in history of the world. Right now, the market doesn't care about it. Broadly speaking, they certainly care about it if you're a if you're an Oracle investor. And you know, the Mag 7's done well the last few weeks, but prior to that it did poorly for 5-6 months. It made up that underperformance in a relatively short period of time. And I think we're soon going back to that. So, again, it's a market of stocks. Stay away from bonds, stay away from tech. S- But, I know semis are doing great, but I think the the the bubble's not in the valuations, the bubble is in the margins of those companies. It's a cyclical industry. Software, a real minefield. Uh you really got to differentiate between the haves and the have-nots. And the flip side of it, you know, uh energy, gold, commodities, foreign stocks equal weight over um over uh market cap weight. And just on the short side, there's a lot to do, a lot to do. Particularly in the consumer area. Do you think we're in a stock market bubble? Um It's funny. Words have meaning. Um Let me answer the question this way. I think there are many, many stocks that are in a bubble. There are also many stocks that have been sleeping. And rightfully so. So, for instance, if you take the consumer you take the the retail ETF and don't use XRT cuz that's a crazy ETF, but you look at the equal weight retail. The thing is going nowhere. You look at the housing stocks, they're going nowhere. You look at anything related to the consumer, the 70% economy, they're going nowhere. Now, the stock market's not the economy, the economy's not the stock market. The the market's being propelled by a very small group of stocks. I believe the earnings of Nvidia are in a bubble. People say, "Well, the PE is not Yeah, I know the PE is not high." But, look at where the margins are relative to the past. PEs are really can be misleading. If you think about it, it's really shorthand for discounted cash flow. And so, the problem with Nvidia is not what are they making last quarter, this quarter. It's where the It's how sustainable are these earnings and these margins. What are they going to be making 3 or 4 years from now? And, you know, it's easy and the the tech world do do not want to acknowledge this, but let me give you an example. I I may have spoken about this with you earlier on another occasion. Look at the shipping stocks, okay? The shipping stocks, it's pretty simple business model. You have a vessel. You borrowed some money to buy the vessel. You got interest expense. You got depreciation. You got to pay your crew. You got fuel. The costs are kind of fixed. They don't really move around very much. They go up a little with inflation, but not so much. So, let's say it's costing you 15, 20,000 dollars a day to run a ship. And let's say you're taking in 25, 30,000. So, you're making $10,000 profit. I'll keep it simple. $15,000 cost, $25,000 profit. You're making 10,000. And then, there's a shortage. Let's say the Straits of Hormuz get closed. And all of a sudden, the the vessels have to be rerouted. So, ton miles go way up. So, there's not enough vessels to go around. So, the rate goes from 25,000 to 75,000. Your cost is still 15. So, what happens? Your profit went from 10 to 60. Huge operating leverage, all right? So, the bubble in that case, people say, "Well, you know, it's only on four times earnings." You'd be like, "Yeah, but that's earnings like right now. These are not That's not normal. Just wait till the market normalizes and the earnings are going to go back to $25,000 a day, not $75,000 a day." So, if you said to me, "Julie, are are those shipping stocks in that scenario in a bubble?" Yeah, the prices are very high, but the real problem there is not the PE. It's the earnings. And I would humbly submit for your consideration, that's what we're dealing with the tech stocks right now. Mhm. Okay, and also just to point out as well, like we talk about we talk about the markets, we also talk about the economy. I heard you say earlier like you don't see a recession ahead, right? But we have also seen the headlines around the consumer sentiment hitting all-time lows. Stock markets continuing to touch new highs. Yeah, let me contextualize my comment here. My call to be the things I like, things I don't like, you don't have to believe in a recession to have the positions I have. All right? I think the consumer stocks are going to underperform and I think they're going to underperform. Whether we technically get a definition to get a defined um recession or not, all right? There's a good reason to be bearish on tech, bearish on bonds, positive energy, positive on resources with or without a recession. Now, if we get a real big recession, then you got to call into question what's going to happen to commodity prices. That's another story. But if you say to me, "Are we in a recession?" We might possibly be in one. I mean, I think the consumer The consumer is in a recession. You're even starting to see uh reports of the high-end consumer cracking. Um I do know that uh you know, there's still a lot of excesses at the high end. Depends where you go. Some things are priced as holding really well, but some not so much. So, you have um um you're starting to see the signs of the consumer really weakening. And this may be the month just because of the full impact of the higher oil prices. I'm sure if you went to fill up your car lately, Julia, you noticed the cost a little bit more to fill up your tank than it was previously. Food prices are accelerating again. So, real incomes are coming under pressure. So, are we in a recession right now? Possibly. But that's not really the That's not the way I roll. I'm trying to figure out how to make money. I'd rather I'd rather make money and be wrong on the economic call than be ill prepared. So, um I would say the consumer is in The consumer or large swaths of the consumer are in recession right now. Mhm. Um we are talking about energy prices rising. Do you see more inflation ahead or is that not energy-driven inflation? Can you just make the distinction? Yeah, well, you're seeing you know, as some have pointed out, um the whole commodity thing has started out with gold. That's moved to energy. Food, depending what you're looking at, starting to really pick up. Like meat prices, um you know, all Go buy some seafood, see what that costs you. >> Oh, yeah. I mean, it's like, "Oh." So, it's it it's starting to permeate. And then you look in the sector in the in the service sector, inflation is kind of sticky. So, the idea, you know, service sector inflation is low threes, and short rates are wherever they are, 4% from the 10 years and 450, 460, doesn't sound particularly restrictive to me. To the contrary, I think money's still money monetary policy is still very easy. So, which by the way Which by the way, also, I was just thinking about this before coming on the show, the fact that rates have gone up, but seemingly there's no recession right now, just rates means rates could continue to go up before the Fed's called to action. Do I Why would Surely think about it for a second. Stock markets other markets plunging on Friday, okay? Plunging all over the place. These hyperbolic headlines. Other than the one day plunge, markets are basically all time highs. Commodity prices are surging. Unemployment rate's kind of okay. Credit spreads are very tight. Like, why would you ease? Mhm. Now, if you worship at the altar of stock market and you're Donald J. Trump and you can't allow the market or stock market and you can't allow the market By the way, not a political statement. If we're outlawing bear markets and outlawing recessions, okay, I get why you're going to ease. But, they try that at a certain point. I think we're here already. The market's going to say no mas. And the question you didn't ask but I'll anticipate is Okay, rates have been going up, but why does it now matter? And again, it may have to do with the with the with the speed of rate increases, not just not just the fact they're going up. But, do you think about it for a second? You know, imagine um I don't know. Let's say the temperature is 50° and it goes up by 10° to 60, and then another 10° to 70, another 10° to 80. It's not bothering you. Then we go to 90. Getting a little bit warm. Now at 100, it's like, "Ooh, wait a second. Wait a second, okay?" And that's kind of like the anal or use the water in the bathtub analogy. Same idea, all right? The rates won't matter until they matter. And I think another one of the ways it really does matter and another big car I mentioned to the lot of you on the short side, it's not just consumer stocks. These rising interest rates with the meme stocks, I think we talked about Ocado last time. There are so many high flyers. It's pure momentum, pure speculation, pure short squeeze. You know, Coreweave, you know, is is is is a $30 is is a bankruptcy in my opinion masquerading as a $105 stock. First Republic, which I think we talked about previously, which Tom Chanos nailed at our last conference, stock went from 80 to 49. I think it's going to It's going to 10. I mean, I can show you stock after stock after stock, which is a disaster. It has nothing to do with the index it's doing. Meanwhile, I think Occidental Petroleum will do just fine, thank you very much. So, what it means for the index, and whether I'm going to call us in a bear market, and whether we're in a recession, or whether we're in a bubble, to me, that's not as helpful as trying to figure out, okay, explicitly, how do we make money? Would we go long? Would we go short? Mhm. Yeah, um well, we have Kevin Warsh coming in at the Fed. Any expectations from him? Like, um does that I mean, yeah, what are your expectations from him? Julia, would you want to be him? I wouldn't want to be him. >> [laughter] >> No, but Julia, can you please explain to our viewers, what does it mean when you're stuck between a rock and a hard place? Hope that answered your question. Yeah. Um I mean, listen, listen, listen, he's a good guy. Um I know of him, I don't know him. But, it's a thankless position that he's in right now. I mean, under a lot of pressure, I'm sure, from the man in the White House, but on the other side, he's got to deal with the markets, and um as I said earlier, not a lot of margin for safety, a lot of not a lot of room to maneuver, so When you say not a lot of margin to safety, I know the book, Seth Klarman, and what do you mean like what do you mean when you say that? Okay, so Seth, who I know pretty well from my Boston days, uh he is the smartest guy in the room, one of the brightest investors I've ever met. Think of it this way, Julia. Let's say you and I are walking across a mountain ridge. There's only 10 ft of path on either side of us. And it's a nice sunshiny day, and it's beautiful, no problem. We can just kind of like go across the ridge, no problem. But, let's say the weather turns for the worse and the wind picks up. And [clears throat] I don't know the top of Mount Washington or some place in New Hampshire where it's known to be pretty bad weather and you're in this narrow little trail. You weigh less than I do. I'm willing to ask you that guess. But the chance that you get could get into trouble pretty high. Mount Washington's been known I think to have the highest recorded winds anywhere in the history of the world over 200 miles an hour or something like that, right? So if valuations are low and the economy's on solid footing and profit margins have a way to go up okay, things stuff can happen but you kind of you're you're downside's underwritten by the fact that stocks weren't expensive to begin with. Maybe there's the outlook once this too shall pass once the recession gets out of the way, all good. On the other hand when you have highly valued stocks that are over earning and you have very little scope. That's a it's a very good question. You see you always have a way of asking these annoyingly good questions. You just triggered me. That's your job. Um kudos [clears throat] to you. The capacity to engage in further fiscal easing. In other words, more spend more money. And they're talking about trying to get defense spending up to a trillion and a half this year or whatever. But ease further. Ease, you know, spend more. Louis Gave said recently um that the policy tools available in a disinflationary environment are much different in than in an inflationary environment. That's one of the reasons why buying the dip has become so ingrained amongst investors. When you're worried about recession, when you're worried about deflation, as was the case prior to COVID for many years post GFC, because our fiscal situation was relatively better and because inflation was low and falling, there was tremendous scope to uh increase spending and cutting interest rates, they were just following what was happening to inflation. Now it's the opposite. We're at one of those points where the bond market is starting to cry uncle. You can't really spend more and cutting interest rates in environment of rising inflation. So I think what there's a category error being made by uh investors now. Then in other words, we're in a totally different setup and so this whole buy the dip mentality is is is a byproduct of the fact the authorities always came to the rescue. And I think their ability to come to the rescue right now is being severely curtailed on the macro side. So going back to your question about margin of safety, there's not a lot of room for for monetary and fiscal maneuver right now. So also, you and I've talked about the death of speculation. But also, what I'm also hearing from you is you're still very much invested in the markets, but it's getting back to that stock picker's market, a market of stocks, picking your spots where you want to be or how you want to be allocated. 100% and by the way, very good very good point. I'd like to drill down just a little bit further. ETFs also are not the answer. Mhm. Because you have an it's dirty ETF or it's like, you know, the commercials, like, you know, do you know what's in your ETF? Like, you know, what's the one with the capital? Do you know what's in your wallet? Do you know what's in your ETF? Okay? So, when someone goes and buys >> in all the other ones, yeah. >> [laughter] >> Yeah, okay. So, when someone says, "Oh, the consumer ETF." Okay, you want to buy the retail XRT, it's kind of a screwed up ETF, but I digress. You got to look at X What was it? XL uh Y. That's the consumer one, I believe, okay? That thing is like 20% I haven't looked at it in a few months. That thing is like 20% Amazon, 20% Tesla. So, the consumer ETF is 40% Mag 7. So, it was like, "Ooh, I'm buying consumer stocks." Well, okay, you had the right idea, but did you realize you bought you bought the wrong instrument? So, everyone wants to like, "Oh, it's no problem. I got my ETFs. I'm good. I don't have to pick stocks." You know, why would you possibly give money to an active manager? They always underperform. Their fees are higher than passive. Blah, blah, blah, blah, blah. This is classic. Mhm. This is classic. You know, Julie, I know you know this, but they've done studies in the past on um what happens to managers that get fired by like the pension funds, all right? And usually the pension funds, they allocate the money, they fire the manager exactly the wrong time. So, like Julie gets fired by CalPERS >> [music] >> and you know, or and George gets fired by Texas teachers, and they did a study of all this, and over like the next 12 24 months, the fired managers absolutely kill it, okay? Cuz the investors give up at exactly the wrong time, all right? I'm telling you the public is doing that now with active managers. They're getting killed by ETFs. Yeah, I mean I mean for good reason. Active managers sucked. The tax consequences are adverse. You know, so you have the index funds, Vanguard please call your office. You got the ETFs. This is absolutely perfect for active managers. As a matter of fact, active managers based on the last data I saw are killing it now. You know, I think the easiest way to outperform the market I mean the the it was so hard to outperform the market for a number of years cuz if you didn't know Mag 7, you were dead. I think the opposite's now going to apply. And so, I think we are in the golden age of of stock picking, yes. Mhm. And how about having the stomach to short? >> [laughter] >> I mean, cuz I know it's been a a rough going for short sellers in recent years. I imagine Sounds like that's starting to change, but um yeah, what about the stomach to short? You know, some of my smarter friends, Seth Klarman as a matter of fact, when I have have said it's it's not a good idea. Seth Klarman has said shorting is a bad business, and it is a bad business, all right? And the reason it's a bad business is not just that stocks go up over time, there's another problem people don't fully recognize. It's when you find a great company, or Rose Technology, and you buy it, it's got good prospects, the valuation looks reasonable, and you own it, and then it goes up, and they have good earnings, they announce new products, and maybe it is I don't want to say it's a one-decision stock, but you know, that can compound for years. They can compound for years. So, you just keep updating your models and listen to the quarterly calls and talk to management, and you're good. Problem with a short, so say you want to go short Noble Technology, cuz they have aggressive management, scammy accounting, where management's going to blow the quarter. The problem with shorting Noble Technology, unless it's a fraud, I've been called worse, by the way, unless it's a fraud, um you'll make money on the bad quarter, you'll make your 20, 30% or whatever, but they have the incentive to try to fix it, and so there's no compounding effect for being short. Now, every once in a while, you get an absolute zero, like Enron. Okay, like, by the way, I think some of the Mag 7 stocks are going to be, or the Mag 7, some of the AI-related stuff. I think some of these neo clouds, someone described Coreweave as WeWork for GPUs, you know? They have long They own these They have these long-term commitments They they they own these chips, but but they can't the price that they're going to be able to rent them out is going to is going to collapse, same thing that happened to WeWork. So, shorting is a bad business. Um I don't recommend it for most people. I've probably lost as much money as I've made. Yeah, it sounds cool, you turn heads cuz most people don't do it, but there is information content in what the shorts do, what I would say is you should just avoid those stocks. So, if you think Freshpet is a pile of of uh doodoo or you think Oklo is garbage, or Corvus is garbage, or Tesla is garbage just avoid them. Don't short them, just avoid them. And and in fact, there are a couple of products out there. These actually have been very good investments. A couple of the uh boutique firms on the street they have what is known as their failure models or their or their um their their their underperforming list. And if you just And Jim Chanos has done this actually. If you go along the market and short the garbage there's like alpha 10 12% a year. If you can pick out the losers and so you try to capture that. But, just going short outright bad business. Mhm. All right, George, before I let you go here, you have a conference this week on the 20th, the Best Income Ideas Conference. Um as we wrap, let folks know more about what you guys what you're doing with this event why they might want to attend. It's on Wednesday, uh May 20th, so the floor is all yours. Thanks, Julia. I'll be brief. Um So, we had a conference uh March 11th Stock Stock Pickers Summit. We had uh 800 people attending that conference. It was a huge success. This one's going to be a little bit different. We're going to have another stock picking one in a couple of months, but this one's going to be for income investors. As we were talking earlier uh 64 pole or 60/40 portfolio is dead long with the 60/40 portfolio. So, if you're cautious on bonds, as I am, what are you supposed to do with that 40% of your portfolio that's intended to generate income, especially if you're an older age, you know? If you're 25, 35, you got all the time in the world to make it up, forget about bonds. But, as the saying goes, Julia, I don't recall who made up this saying, but you know, bonds representing certificates of confiscation. Um you know, it's it's sort of when you you when you stop and think about if you make 4 and 1/2% on a 10-year after taxes, after inflation, you're guaranteed to lose money in real terms. So, what are you supposed to do with that? That's what this conference is designed to do. We have a roster of uh 13 speakers, some of the best names in the business that you would know, Luke Gromen, Michael Howell, David Hay, Jay Pelosky, Jim Rouke, in combination with in collaboration with Seeking Alpha, Steve Cress is uh their lead um analyst. He has a fantastic product, Alpha Picks, which is up 400% in the last uh 5 years, 4 or 5 years. It's transparent, repeatable, scalable. It's killed 99% of of of of managers. Trust the indices. The S&P's up I think 93% in that period of time. He's up 400%. So, he's he's going to talk about some income-oriented ideas. And by the way, these can be stocks for the high yield. It could be a bond. It could be a strategy. It could be a fund. But it's just how do you generate income? So, as example, you might want to own an MLP, a pipeline. Or you might want to own a Brazilian bond. You know, Jay Pelosky, I'm sure he'll talk about Brazil. And he I think he spoke about it on your show recently. You know, would you rather own bonds in the US where you had a very dour fiscal situation and the and the currency's depreciating? Or you look at Brazil where yields are 14%. Real rates are 10% and the currency's going up. And the and the and and and the and the currency's very undervalued. So, there you have a high yield with scope for rates to go down and a depreciating currency. So, it could be stock. It could be a bond. Uh David Hay, who has a fantastic He's Evergreen Capital. Fantastic investor, particularly in fixed income. He's going to be speaking. And then we have I think seven or eight folks from Seeking Alpha. Each of them have their own publications. Um we had one fellow on um Lionel Ellison yesterday on my on my Twitter space. And it was absolutely phenomenal. So, I'll stop, but if you think the next decade, next few years let's say, are going to not going to look like the last few years, where you can't own bonds, what are you supposed to do? This conference is designed to help come up with ways to generate income without being beholden to the US Treasury market. That sounds like a wonderful event. We will link it in the show notes for anyone who would like to attend. George Noble, CIO of Noble Capital Advisors, thank you so much for being so generous with your time, all of your knowledge, your wisdom, for being a friend of the show. We love having you on and wish you a very successful conference and look forward to our next conversation. Thanks again, George. >> Thank you, Drew. Always a pleasure. Thank you.