Create Your Effective Bill Book Design PDF for Product Management

Bill book design pdf for Product Management

[Music] okay uh I'm going to just revert back to the old style for this week because there are just so many really good questions and the uh I was doing screenshot after screenshot and I thought okay stop let's just scroll through the comment section and just don't answer the ones you don't want to so uh let's begin and if I don't know the answer to something uh the beginning of knowledge is uh the words I don't know uh with a good reading for pce why TLT or bonds don't run so much so what we've had in the last couple of years is we've had a market that has been dominated by narrative right uh I'm sure youve sick and tired of hearing that word what's what's the dominant narrative why is this stock moving this is the narrative why is this doing this this is the narrative it's not we're not saying what what are the fundamentals anymore we're saying what are the narratives and when when you have narrative driven stocks or narrative driven markets it can override a lot of the fundamentals uh and then you end up going from data point to data point as opposed to looking at holistically every data point becomes the narrative right uh so if you had a good pce reading uh you that's the narrative and we had a great day uh if uh the next day you get uh you get somebody saying oh well there's no way we're going to get to 3% deficit we're going to be at six maybe even 7% uh fiscal deficit to GDP next year well then pce is gone that data point is gone that's the new data point that's the new narrative uh and so you lose sight of the fundamentals because you're so narratively driven and this Market has been so narratively driven some stocks are are almost completely narratively driven some asset classes are almost completely narratively driven and narrative is hard to beat uh is very hard to beat um how much negative news Bond markets have had so much negative news in the last two years when will this finish uh I don't know that is a good question uh I it never finishes put it that way because there's always a future now tomorrow is the future but when we get to tomorrow the next day is the future there's always a future and prices are uh discount the future and there's always a future every single day uh but what I expect for 2025 is increased volatility I don't know that you're going to get um a a a good direction on volatility until you know what the new treasury secretary's plans are as far as the deficit and over what period of time you're also going to not get a lot of clarity until we find out what uh Trump's plans are in terms of taxes which will probably take about a year in terms of spending which will probably get fairly soon and in terms of of tariffs uh which will then dictate something about growth so there's there's just so many uncertainties and the problem with Trump is he doesn't like to reduce that certainty he likes to increase the uncertainty keep them guessing keep them guessing markets don't like that so I I expect more volatility through 2025 I expect the narrative to continue and we will go from data point to data point to data point which means you have to look at the economic calendar to say what are my risk events this week because they're all risk events anything that has to do with duration is a risk event because it could reinforce the existing narrative or completely change it right then and there until the next data point very frustrating uh Bitcoin mining video that for your applied level uh I already replied to that one does it this is a good question I actually like this one does it uh make sense to carry about traditional valuation metrics such as discounted cash flow and PE multiple when analyzing companies such as Tesla and paler which clearly ignore valuation um well I don't know that they completely ignore valuation uh but they do stretch the valuation quite a bit uh for palun here I did a video understanding cyber security stocks uh PE is the wrong multiple uh and same with the discounted cash flows the wrong multiple to look at for cyber security companies because they invest a lot to get a contract which has a stream of revenue for a period of time well that revenue is recognized over years but this cost is recognized this year making the net income look rather terrible because a lot of the cost of getting this contract should be matched against these revenues over time uh and they're not uh they're incurred in the period so you'd use either rule of 40 or rule of X with rule of X I think being uh the better one uh to Value it even with that paler is uh uh against its peers very overvalued but it has a very visible CEO you know uh most of the other companies have sort of very rational middle of the road CEOs not this guy have you ever seen an interview with this guy this guy uh you know doesn't have any boundaries in what what he wants to say he says exactly what he's thinking he's not political at all so that because of his authenticity kind of attracts a bit of a cult of personality that is probably partly in the price and we don't have to talk about the cult of personality when it comes to Elon Musk what this is good for is let's take uh Tesla and you say well 140 times forward earnings clearly that is ridiculous if we call it a tech company all the tech companies are somewhere around 30 to 40 times forward earnings which is itself stretched so you can say rather than looking at discounted cash flow where you forecast revenues you subtract your cost of good sold you have your uh expenses you get all the way to net income divided by the share count and you get your EPs and then you figure out what your uh what your multiple is go the other way around uh so it's still useful but you just go the other way around you say well instead of 140 what would it take to be at 40 so you take the price You' divided by 40 you'll get your EPs and you have your share count so you can figure out what your net income is and then travel up towards revenue and all along the way figure out what assumptions you need to make that work what would have to happen uh for earnings to be such that the current price is 40 times those forward earnings so you'd have to make some estimate about margins you know are margins expanding or are they decreasing if margins are expanding then revenues can grow at a lower rate to get to get to your EPS if margins are decreasing you're forecasting higher and higher growth Revenue uh uh or Revenue growth sorry uh also it may be that you have to bring new products forward maybe a robo taxi isn't 2027 and maybe it's not a 50/50 chance maybe it's a 100% chance it's mid 26 uh and maybe you're forecasting that they' be that have to be half as successful as weo is right now within 6 months and growing at the speed of that to just so you you you know where I'm going with this you can see what assumptions you need to justify that that multiple that price at a multiple of 40 and say does that make sense so you're not working your way down the income statement you're going to start here saying well that's a multiple of 40 what needs to happen on the way up it's just a reverse discounted cash flow right so it is useful in that sense then you can sort of look at your assumption say well is it realistic that margins are going to increase 300 points revenues are going to grow by 40% the robo taxi will be mid 2026 it will it will within 6 months be half as successful as wh Mo and grow at the same speed you can then ask will that be successful because the market uh will give you the fundamentals every 3 months Tesla has to come and present its fundamentals every 3 months however you know there's still there's still the value of the relationship with Trump that's probably got $1 $150 onto the price of Tesla what is how do you value that right uh but this is a good exercise start start from the bottom work your way up for your last Outlook of 2025 please do an all-in style superlative video some ideas best biggest investment surprise biggest winner loser oh um yeah I guess I could throw in like uh you know the top five list of some of those kind of things sure any rebalancing by fund managers after the start of 2025 will bring long-term capital Market yields down push the price of TLT up uh well the yeah I mean TLT has had a bad year while uh equities have had a good year if you're rebalancing back to a strategic allocation you would expect some selling of equity some buying of uh of TLT but I think for tax purposes a lot of that is done in the fourth quarter right you want to get that in before the end of the year so chances are being that you know we're past we're past the Christmas break now or in the Christmas break that repositioning probably has mostly been done I don't know that they would wait to the end of the quarter to get it done I think they'd take advantage of saying well we got to reduce our equities let's sell some of our losers you know and then go into duration but that does not necessarily mean they're going into the 20 year and 30-year bonds they may say you know the middle of the curve is better for us right now the three the five the seven the 10 maybe they're going in there instead so you know it's I wouldn't say that they're waiting until January they're going to sell equities and buy a 30-year Bond uh I don't think they would they'd be there so no I wouldn't expect I wouldn't expect that to be you know I'm sure there's some of that going on but I wouldn't expect it to be to be uh uh a Tailwind following Lenard this year curious about the recent CBO report suggests privatization of Fanny May could affect the Dynamics of supply and demand in the US housing market uh they're at the end of the channel so probably not the supply could be greater than before with foreign investors bring Capital to support the drop of interest rates reinforced mortgage applications well so the federal funds rate has dropped money market rates have dropped but mortgage rates have gone up mortgage that's what's important mortgage rates not interest rates mortgage rates um and it's the supply and demand at the level of the buyer um the level of housing sales and the leg level of mortgage applications are not currently being held back because fanny has a shortage of money right if that were the case then new money coming in could unlock a lot of potential but that's not the case they're not being held back by that so I don't see I don't see that it would change anything in terms of the housing market uh fed cut the target rate by 25 basis points but cut the reverse repo by 30 now in line with the lower bound of the FED funds rate thoughts on why the FED made the extra five basis point adjustment well when you have the reverse repo at 2 trillion uh what you don't want that doing is rushing into the market all at one time but we are now less than 100 billion so what does it matter uh the market could absorb that 100 billion easily without the without um changing any rates in the market beyond the target rat that the FED has set it wants rates to be between 4.25 and 4.5 right uh and if if you had 2 trillion and that had to find a home in the market if you uh paid it uh like if you're paying it 4.3 it probably uh has uh you know a nice return sitting in the reverse repo but if you say well we're going to match the lower bound well why wouldn't I go into the market at 426 427 428 you might even if you try to push two trillion in the market you might even uh push the lower bound down and the FED would have to do more work but 100 billion that's not going to move anything so why not say a little bit of money right I don't see it as a big deal uh reverse repo probably will be Zero by mid January end of January and then uh all we'll be looking at our reserves how do you consider how much premium should be enough for you to enter or sell an option uh premiums on TLT how would you measure if risk I'm taking is worth the premium or if it's objective uh well TLT um the way I would do it is there's a certain amount of margin that you have to keep whenever you sell a put and you could take the premium divided by the margin you could see uh uh what that is and then you just can multiply it by uh the number of days to expiration over 365 to annualize it and you can see what it is uh what it is that you're getting uh when you get an annualized number let's say it's 6.3 uh percent if you want to compare all of these things if you're trying to do some kind of analysis to see where you're getting the best uh the best return you will find that if you just keep taking higher and higher volatility stocks you will get higher and higher premiums but it also comes with higher and higher risk uh so whatever you have whatever annualized premium uh that you get 6.3 is rather low though to be honest with you uh uh you can sometimes get it like 30% annualized is not uncommon divided by the implied volatility divide them all by their implied volatility and you can then rank them and if you take TLT and you can do this at the money uh or you can say well I'm going to use 20 Delta uh 20 Deltas on every you know I'm going to look at six or seven different things take the 20 Delta it'll have a certain strike figure out what margin you need and what the premium is per contract how many days to expiration divided by 365 to get an annualized number divided by the implied volatility and if you rank a whole bunch at 20 Delta uh you'll get some idea they're not all the same some offer significantly higher uh uh higher return per unit of volatility right so what you would get over here is the annualized return per single unit of implied volatility and since you've controlled for implied volatility you would take the one that has the highest uh um premium uh uh or annualized return per unit of volatility that's not TLT right now uh if oil prices stay low should oil refinery companies benefit from it uh well yeah I mean as far as an input cost that would be to their benefit sure all oil refinery stocks are down and around good valuation in my point of view small cap stock in that sector down over 60 to 70 2016 oil prices going down oil refin stocks did really good did really well let's uh get our our grammar correct they did really well during that during that time uh why this time it keep going down well so you have a refinery right a Refinery has inputs and it has outputs uh input is crude or a type of crude oil every Refinery takes a specific type of crude oil and it it has outputs the big the big output is gasoline of course but it has a whole bunch of other outputs uh as well so if you have uh gasoline at $3 and oil at 90 and oil drops to 60 and gas drops to $2 you got a 33% reduction in your inputs but you also got a 33% reduction in what you're selling you're now only selling it for two bucks gasoline prices have been coming down at the same time as oil prices have been coming down uh so uh I'm not an energy expert for refineries but I believe the critical metric to look at for refineries is something called the crack spread you might want to Google the crack spread c a c k the crack spread uh and if the uh uh depending on if that is changing uh it could either be changing uh positively for the refiners or negatively independent of the price move of oil because that's an input uh if you have lower cost of inputs it will put because of competition uh more pressure on your outputs and you'll have lower prices for your outputs it's the spread between them that matters not so much the value or the the levels of each so you might want to Google crack spread and see where that takes you oh it's a long one here silly question would it be ridiculous to also consider that if undocumented immigrants are indeed deported while their labor is lost perhaps some existing housing does free up while shared homes with documented immigrants is a likely scenario for many undocumented immigrants I agree with that uh it's still is this still an effect that could slightly counteract things in terms of putting home builders and under slightly more pressure as they face the potentially slightly higher cost from contractors while also seeing more existing Supply fill in gaps potentially higher costs on more Supply so what you're saying is you get rid of some immigrants you're going to free up some housing units even if they're Apartments you're still going to free free up some housing units I'd say mostly apartments on that and while it will be more expensive to build some units it will be rebalanced by the fact that some Supply will come on I would seem to think that uh a mass deportation would be more of a threat to apartment reats in the US than to home builders I don't think they're coming into the country undocumented and then buying homes I don't think that's what's going on I don't think they're the they're the marginal buyer so I don't think that it's going to help it is going to hurt in the sense that that uh immigrants make up a large part of the construction industry labor force and uh of that labor force a a not insignificant amount are undocumented uh whether that means they're illegal whether they're in the country illegally is a different question you can be undocumented but still be in the country legally so I don't know that those numbers are very helpful uh I think Trump is going to carry through on his promise to deport but it's going to be I think hierarchical uh it'll be the worst of the worst gone first oh look at that that rhymes the worst of the worst gone first that's the beginning of a poem isn't it uh it'll be it'll be that because that's big visibility and that's a big story and that's something that he can point out say look what we're getting done we're making America safer every day and it'll be the worst of the worst so that they can that the news reports will say this person committed this crime and this crime and they're gone this person did this and this and this and they're gone and that will that may be enough to detract attention from not you know dragging uh uh Luis out who is a good worker uh and the company companies need a whole bunch of him otherwise things are going to get you know uncomfortable for them I I I I think that's how it's going to work I I I mean that's what I would seem to think is a rational move to make I guess uh this Supply freeing up would be more likely renters yep I wonder if there's something here that results in the urgency of home buyers to stay low lower than expected don't think so even just more rentable Supply brings rents down could push potential firsttime buyers to delay this is that that's something that that would not happen very quickly uh I don't know that I would make that my thesis I think it's shaping up that this undocumented deportation will be a nothing Burger yeah yeah I'm pretty sure it'll be like that by the way if you're looking for um really good nothing Burgers A&W probs what Lenard thinks too I'm guessing hawkish talk but implementations will be on flows into country and violent criminal undocumented IM rather than on too much nonv yeah yeah y that's pretty much yeah we're on the same page there recent interview uh question from a quantel trading role one of the global Asset Management firms you are guarding 100 murderers in the field oh it's one of these single Bullet in Your Gun murderers have non-zero probability of surviving he she will attempt to escape murder a certain death he she won't try how do you stop them from escaping okay so uh let's put this in perspective Quant electronic trading so your answer has to be along those lines you need a quantitative answer uh and they provided you with data nonzero probability of surviving um they will attempt certain of death they won't so what is your task uh your task is to get all those probabilities uh um to zero your probability of surviving is zero you got to get them all to zero what do we know about them they're murderers what does everybody in that field know that everyone else is a murderer so they know you know there's no issue with will this person kill me they will kill me so we can use that you could Point your gun at one of them and say if any single person attempts to escape I shoot you and maybe that person then turns to the next person and says if anyone tries to escape I'm just going to kill you before this person kills me and then you could hope for a Cascade [Music] effect no no that I don't think that'll do it because now you're bringing in a psychological aspect to something that's purely Quant oh I got one uh what if you put them all in a circle I mean I'm not told the parameters here so I'm not told I can tell them anything but I would have them stand in a circle all facing the person in front of them so put them all in a circle all 100 in a circle and say if anyone anyone in this circle attempts to escape I'm going to shoot the person behind um this person now now I don't have to worry about a Cascade effect because this person here will make sure that this person doesn't move and this person doesn't want to get shot will make sure this person doesn't move and this person doesn't want to get shot we make this sure this person doesn't move if they're like this and I say I'm going to shoot you this person then has to say this they have to create their own network uh throughout here to make sure nobody moves I've already created the network and I've given everybody a zero probability chance of surviving based on the action of the person in front of them uh that if that person moves they will be killed so they're motivated to make sure that person doesn't move and it'll Cascade on its own I don't know how does that sound as a solution are you concerned about USD strength that just seems to keep going at some point it it's going to be a problem uh the US dollar has been stronger uh but yeah at some point it will be a problem uh if we think about some countries need you dollar so um they have to keep buying those US Dollars it becomes more and more expensive for them to buy those US dollars they have to buy those US dollars because uh they may be importing Commodities mostly energy that are denominated and paid for in US dollars so that becomes hugely expensive for some countries to get done um I know Costa Rica has uh us external debt uh so they need US dollars but the Central Bank controls the currency uh exchange rate and has uh pushed the currency exchange rate up uh really really higher you could say really low that you're at about 497 colonies uh to the US dollar right now couple of years ago it was 700 497 so from a Canadian perspective because the Canadian has dropped against the US and the colony has increased against the US Canada to Costa Rica super bloody expensive right now uh is really expensive uh almost anything you can buy in Canada you're going to pay in any Supermarket you're going to pay double to Triple for in in a third world country in Costa Rica it's super expensive um Costa Rica relies on a lot of Tourism for its US dollars if it's not getting it it has to do this it has to get more and more US dollars from the ones that do show up there so it it it at some point that can't keep going so a strong US dollar will hurt the weakest people uh in the chain cost of production involved in Bitcoin production will slow dynamically as mining rigs are taken offline due to cost of production and yield um we can't look at Bitcoin the same way we look at gold uh gold has a a cost curve so uh this is what the cost curve looks like this is called the all-in sustaining cost and every gold miner lands somewhere on this cost curve and then you have a price of gold uh these will produce these will not produce and if the price of gold drops what happens to supply the supply drops uh if the price Rises what happens the supply of gold increases however uh no matter how high the price goes for this minor over here it will not affect their marginal cost of production their Marg marginal cost of production remains unchanged even if you get a whole bunch of miners that suddenly come online this mining company's cost of production will not change so their share price uh will be a function of the gold price uh because as the price of gold goes up because their cost will not change their margin goes up as the price of gold comes down their margin comes down that's that's basic gold mining if the price of gold dropped to $1,000 you'd have the price of gold down here all the mines have a cost higher than the cost of production Supply would drop to zero uh which would force the price back up again it's easy to visualize Bitcoin doesn't work that way so we can't talk about the cost of production as a stable Point uh it is a Nash equilibrium and the perverse thing about Bitcoin because it has it has negatives everything has positives everything has negatives if if you point out something saying look at all the positives i' say yeah but what are the trade-offs everything has a tradeoff the tradeoff for uh Bitcoin is that the marginal cost of production ends up being a Nash equilibrium and a Nash equilibrium is a suboptimal equilibrium uh from which There Is No Escape because no one is motivated to do anything differently unless everyone else does everything differently and you end up in this suboptimal equilibrium and for for Bitcoin the higher the price of Bitcoin goes the more suboptimal the equilibrium gets that is different from gold mining alog together so if Bitcoin were at a million you'd have an extremely inefficient suboptimal equilibrium if Bitcoin were at 100 uh you'd have a far more efficient equilibrium and here's the thing it would not change the supply of Bitcoin one bit no matter where the price is it would not change the supply of Bitcoin one bit it would not change the operation of the system one bit there is no reason Bitcoin needs to be at a million it would operate the exact same way at $100 of Bitcoin the exact same way however as the price goes up you end up in this Nash equilibrium that is suboptimal from which no one person cares to escape no one no one single minor says okay I'm going to I'm going to make the decision to do this instead because unless everyone made that decision it would for that one minor be suboptimal so you end up in these in these suboptimal equilibriums that end up with a momentum of their own uh and they usually get worse until they destroy everything around them which they will Bitcoin is uh a nuclear Financial weapon that is as the price goes up you could say its yield is getting bigger and bigger right right now it's got the power to take out a small City in terms of if it blew up now let this keep going it has the potential to take out the world the great financial crisis would look like a joke compared to the destruction that this would cause when it does not if it's not a question of if um as as the price goes up the equilibrium becomes more and more suboptimal uh on up to a point where it's that suboptimality that will destroy everything around it that's the tradeoff there are always negatives uh so uh production will slow down dramatically as mining rigs are taken offline uh all that does is it just changes the suboptimal equilibrium it doesn't really do much so not quite or here's our next one here loss reduction elimination video applied series you mentioned options uh can always outperform if you roll options true recently newon oxy BC you didn't use options for the exit can you explain your thought process well for BCE that one is that one is easy um you can always always gain premium by Rolling options up to a point um Delta is the big thing that you got to be concerned about and the options in Bell don't have a lot of time value uh it's mostly just intrinsic value so there's not much of a pickup uh for tying up that Capital it's just me waiting around um you got to cut that dividend anybody can see that you got to cut that dividend uh they should have they should have cut the dividend this year they would have been rewarded for it um but they raised the dividend and when I first introduced Bell as something interesting uh I made that point uh with a question mark saying I don't know why they would do this but they did uh the debt reduction was the big thing they sold Maple Leaf Sports 4.5 billion the market rewarded them for that because the belief was that will go right to debt reduction and it didn't they went and bought a company that provided no cash flow until 2028 they more than likely overpaid uh for the company and all it did was make the debt to EA better without making the debt any better simply because mapa Sports was not Consolidated but zipley will be Consolidated and when you consolidate it you find out that your Deb to EA ratio improves a little bit but you haven't paid down any debt at all nor have you generated any just a it was just a financial trick it wasn't it wasn't anything strategic or operational um so that was a boneheaded decision not to cut the dividend is another boneheaded decision every analyst I think is on the same page on this one is like you're going to have to cut the dividend yeah look for Bell to be in the mid-20s low 20s by the time they decide that yeah we better cut the dividend look for activist ve in investors to start eyeballing this thing look for a change in management I think management is the problem here at this point uh so the Delta on the dropping price moves faster than any time value that's in the option so in Bell's case it wasn't worth it uh for numont and oxy um I could I could keep going on them but I was already pretty much in in gain position anyways with the options that i' had been playing over over the year both numont and oxy have provided gains to my portfolio it wasn't as if I was in a negative position they have provided gain so I thought okay you know what I I don't see this recovering for a while especially oxy unless Buffett takes it out which he said before he has no interest in owning the whole thing but he just keeps buying so I don't know where he's going with that he can I think buy up to 50% he's at 28% um uh I just find that going into 2025 in this last quarter and what I see happening in 2025 these aren't going to fit very well uh with with the pivot in the strategy uh that I'm using for 2025 these just aren't going to work very well it's it's every every so often you have to change what you're doing from 2010 to 2020 REITs and I killed in REITs REITs if you look at REITs they outperformed the S&P over that 10 over that 10year period REITs outperformed uh it was just like shooting fish in a barrel with REITs it was just easy to make money with REITs during that period then it got hard and now it's you got to you got to be tactical but I can still do it with apartment reats but I'm out of every other kind of reat mostly but apartment reats I have no us read exposure only Canadian read exposure um but it's time to to shift you know I thought well I'll shift out of re into the more industrial part of the economy uh because infrastructure rebuilding India building out it it just seemed to make a lot of sense to be there but I'm I'm seeing that it's it's probably not going to be the biggest payer over the next two years uh I'll give you a peak ahead into what I think 2025 the major thing of 2025 is going to be for the last couple of years it's been returned you know almost no volatility it's being returned I think that goes away I think the the king in 2020 5 is going to be volatility that is going to be the theme what direction are we going I don't really know but I do know we're going to have increased volatility well I don't know I suspect quite highly that that will be the theme of 2025 as volatility um is it because you're trying to free up Margin for ibit mstr trade no I got I got plenty plenty of margin for that do you think 2% real yield is restricted or why you think 2% real yield is restrictive um the if we look at where real yields have been in the last 15 years or so 2% is rather elevated uh for the real yield uh and the FED does say they are in restrictive territory uh at this point in time uh inflation Target I believe set at the FED of 2% PC comes in and annualize 2% around that wouldn't that mean that the FED would not lower rates anything else being equal so your argument here is that if their target is 2% and it's at 2% why do anything uh because they they do admit they are restrictive at these levels that they are above the neutral rate that they are restrictive so if they are at Target on their inflation level uh having an interest rate this High It is believed would be holding back growth if we look at the tailor rule the uh rate this is a nominal effective federal funds rate is equal to uh some real neutral rate uh plus uh your expected inflation which we'll call 2% as the target uh so you have some neutral rate and the question is well what is it now some people uh when they talk about the neutral rate they combine the two of these together and they come up with a uh RN star a nominal neutral rate uh and then you have your uh economy your economic tradeoff right you have growth uh and you have inflation and in the uh literature inflation is always Pi in expected inflation is pi to the power e so growth is uh half the story inflation is the other half of the story and you look at the growth that you currently have minus the potential growth to figure out are we below Trend or above Trend and we look at the inflation that we currently have uh versus the inflation Target that we've set to figure out if inflation is below or above if you're at Target over here uh and you're above Trend over here um then this is saying that you should be lowering or sorry raising this interest rate if you're above Trend if you're at Trend and you're at Target you should do nothing um some thinking is of the lines of well no it maybe not interpret it that way that if you're at Trend over here uh then don't worry about what's going on over here if you're if if it's not inflationary here you can lower rates to increase what is going on with GDP now maybe higher rates are holding back the economy that you could run over the uh economy's capacity without following the Taylor rule of having to raise rates because of that you could say as long as this is well behaved and anchored over here um we can go ahead and continue to lower rates because maybe we're wrong on potential because potential is theoretical much like the neutral rate is theoretical so if you have an economy running at 3% real growth and you think your potential is 2% real growth but it's not causing any inflation chances are you're probably wrong on your economy's potential growth not so not so much saying well we better raise rates to slow the economy down not if it's inflationary so if you are at Target why lower the rate thinking is you you'd be we're we're we're probably not seeing the real growth rate we could have if we had lower rates as long as inflation is not the enemy um as we step into 2025 like to suggest something for your consideration reintroduce the corporate o S Credit spreads for investment grade versus high yield we had that in there for a while and God like watching paint Dr nothing to see week after week super tight spreads and nothing to see no matter what happened that week the spreads just kept saying Yeah we don't care reflecting on the start of 2024 Market anticipated that spreads would widen due to corporate loan rollovers and highly restricted monetary policy however this expectation did not materialize or hasn't yet um with the yield curve now steepening and the 10e exceeding 4.5 it could be insightful to revisit corporate spreads I can I I can throw the corporate spreads back on there but I don't see how corpor how the 10year rising uh would cause uh um corporate spreads to widen because I mean corporate yields would increase with the yield in the 10year but the spread may stay the same so you could have uh a a corporate yield that is made up of a risk-free component and your credit spread and the this is this whole thing is the yield and the risk-free rate could increase thereby increasing the yield but there's nothing saying the credit spread would have the increase just that the risk-free rate would make up a bigger proportion of of the yield in fact you could even have corporate spreads decreasing if you have a good solid economy uh with the risk-free uh component increasing you could still have spread contraction uh so I'm not sure just because the risk free uh portion of the yield is increasing does not imply that the credit spread would increase the credit spread is going to be related uh to the risk of not getting paid back which will be a function of uh economic growth more than anything else TT is there a price point that I could get down to where you go all in uh no I think I have my allocation to uh to fix income at this point in time I think I'm good with that like taking a final stand uh no not really I uh I I'm I'm good uh I've recently uh transformed a part of my cash flow stream into a PRI a short-term private credit note which which gives me more exposure to debt than I currently have right now uh so I'm good I I think I'm I'm all in on where I want to be now that doesn't mean that I won't use the options on TLT selling a put here or there selling some calls I will continue to do that that's all part of risk management and uh income enhancement so I'll continue to do that but I'm I'm I'm good where I am right now uh as far as any bets on fixed income I think zq is is the biggest bets that I would be making I'd be betting directly on the FED funds rate uh more so now any thoughts on the neutral rate debate do you think it's possible to have 4% in the long run as the new regime as many talked on Bloomberg if that is the case does that mean the 10e will stay at fours or even fives so the neutral rate uh I don't think is a fixed point I think I think it depends on how you're getting that growth so if you say well we have 2% um long-term uh real GDP growth uh and we have uh 2% uh inflation uh if you're achieving this uh with fiscal deficits uh you might have uh a different type of neutral rate than if you were achieving that with domestic Demand on its own with a balanced budget right so it have to put a conditional in there saying well how are you achieving the growth with a Balan budget or with f with the a fiscal deficit because that may change the nature of the neutral rate depending on on on how that money is being transferred to the private sector um you it also depends on the level of technology to say uh you know that the neutral rate is X or Y if you have uh you know if then it's hard to measure the labor force is easy to measure right so our potential GDP growth is uh a quantity or a function of the labor force and of the productivity of that labor force so if you have two people and you have a third potential laborer you have a potential 50% growth in the labor force which means if you have three people working instead of two you should be able to produce 50% more output but if each person can produce 10% more output you'd produce even more than 50% so it's a function of these two well headcount is a fairly straightforward thing to do what is more difficult to do is the quality of the labor right uh is the labor force improving in its quality or decreasing in its quality because if I have a uh highquality labor and a lowquality labor with the same technology the high quality labor will have higher productivity even though they have the same productive technology the same productive Capital that's harder to measure same with labor productivity because labor productivity uh is more of a a result than than than a summation of things um you can look at the type of capital uh that we're getting or that is is is being added uh and these and it all just relies on assumptions and estimates when you get to labor productivity because it's hard to actually measure so you could be wrong on your uh forecast of what potential is and I think that is the problem right now if you look at the summary of economic projections you get to 1.8% long-term real GDP growth um with technology uh where it is I think the potential GDP is significantly higher but I also believe that it's very unlikely that you're going to reach the potential but I believe potential GDP is way higher than 1.8% real that the US economy has the potential to produce a hell of a lot more than that um if it employed all its labor and all its capital it has the potential to be higher than that but very unlikely it's ever going to get to that point and if it's very unlikely that you're ever going to get to the point of potential GDP why are we worried about inflation that's why I say we have a backdrop of deflation uh so if this were the case we we think about uh instead of 1.8 imagine it were a 5% real that you have the potential for 5% and you're running at 3% and you think oh we can get to 3.5 that's still not inflationary uh at all so I think uh the if you're looking for a neutral rate it is significantly higher than where it is now significantly higher however you'll never get to that point because the real economy can never get to that point before the deflation shows up which means even though the real rate if we're thinking where the neutral rate would be in relation to the potential GDP since the economy will probably never hit its potential inflation will be the bigger dictator the inflation rate will be the bigger dictator of where the neutral rate will be and if you do have potential at five and actual at three you have behind there a deflationary environment which means the neutral rate is probably zero maybe even negative if you think about it that way now you're thinking well how can an economy have more potential than you can actually produce let me put it to you like this here is iTunes right and here is a song that you want what is the limit what is the supply of that song what is the supply there is no Supply a million what if what if what if there were 2 million downloads would you run out of the song what if there were 10 million downloads would you run out of the song what if there were 100 million downloads would you run out of the song no there is no capacity limit on digital activity so what is the capacity of the economy when you consider that the digital world is becoming a bigger and bigger part of everyone's life what is the capacity uh significantly higher than 1.8% real but in a way that you'd never actually hit that capacity anymore so if actual output can never get near potential output where's the inflation the only way you get inflation is to cut off Supply somehow is to say sorry for this song uh there can only be 100,000 downloads uh and there'll be a Marketplace for this song where there's a bid and and ask and of these 100,000 that's all there will ever be and this song is tracked on a blockchain uh so that ownership is to one person so you can't just make ultimate you know copies forever and ever and ever there can only be 100,000 well then the price would go straight up there's your inflation only if you limit Supply will you get inflation uh but in a an economy that attempts to not limit Supply uh in the digital world for the most part for products or Services um yeah the neutral rate zero because the neutral rate is not going to matter about where potential GDP is anymore it's only going to matter where the level of inflation is if you if you follow that that logic uh 2025 theme video wondering if you're going to dabble in a new poetry for us this year H yeah New Year's day we'll put a new poem up I'm uh debating between I got about three or four that I'm looking at now think some of them are just too too simple they don't have enough deep thought in them but I don't want to keep going back to Robert Frost even though I think he he has the best ones I want to try to explore a little bit but you know something that that captures The Human Condition not just you know there was a woman from Nantucket who happened to say you know I got want something stupid like that um whether you can do an as applied series video for top down on fiscal policy deficit and how it affects markets in general uh yeah you haven't done that right we haven't done the fiscal which is the other side of keynesianism you have monetary and you have the fiscal I haven't really done the fiscal uh I guess I could do it without getting into a discussion a philosophy discussion about what I believe a government should be doing just if it is doing this this is the effect it it it it has the US is different though because it has a reserve currency right the US is different uh than other countries I guess I could do something there I don't know when but I guess I could forward pees have persistently uh being above its long-term equilibrium around 16 do you see there's been a regime shift where we will continue to see higher forward [Music] pees you could always make the case that there has uh I think a more interesting argument uh would be what would what would cause it to return to 16 right and you think of of you know events that would that would cause this to happen and How likely are those events or how plausible are those events um is there is there something you you can say yes just the changing mix of the nature of the companies in the index because the index does rebalance that if you're going to put more um technology uh and growth stocks uh in the S&P especially companies that have big Network effects uh yeah you could you could you're you're basically changing the composition of the index significantly over time uh you can make that argument you can also make the argument that well what is new today will be mainstream tomorrow what is growth today will be valued tomorrow that the index over time will have an attractor Point uh because as company's age their growth slows down as we progress through technology what was a growth technology today will be a value technology tomorrow right and all companies go through these cycles that if the S&P is a broad reflection of the economy it should be a broad reflection of value and growth and those growthy companies will turn to Value the question is will they be replaced by growth companies or uh will that growth tend to subside going forward will growth get more competitive going forward uh that might return it back to its historical its historical rate if it is if the S&P 500 is a reflection of the economy uh then unless you think the economy has changed uh why would the S&P 500 change unless you think you know that this is just some kind of post-pandemic uh adjustment that needs to be done until we figure out what the hell it is uh yeah you can make the case either way what are your thoughts on the the recent strengthening of the US dollar I've already answered one of those how can this impact Global liquidity going into 202 foreign US dollar denom de at all-time highs that is a problem yeah that is a problem um oops wrong side here what uh why is a 20-year treasury bond higher than that on a 30-year uh clientele effect 30y year has a clientele effect there are certain um buyers of the 30-y year uh and there are buyers of the 10 year but the 20 years you know the 20 years not the 10 too much duration but it's not the 30 not enough duration the 20 is kind of sitting in the middle of it saying what about me you know and uh if I'm looking for duration I may as well buy the 30e if I'm looking for risk management I may as well buy the most liquid which is the 10 year the 20 year is it just doesn't have a clientele effect so it does have uh an extra yield to it which is interesting why it continues to exist is is also an interesting thing but there it is difference between long-term neutral rate and short-term neutral rate that we need to be aware of well the again the neutral rate is uh only a topic of cons if you had inflation at 2% and it never changed and every month we got the reading in and for the Last 5 Years 2% 2% 2% nothing to see here folks 2% 2% what would be the neutral rate it would be be anything you want it to be at that point could it be higher could it be lower who the hell knows right so at that point you wouldn't even be talking about the neutral rate you only talk about the neutral rate when there's inflation but as I've already said I do think that uh what is is off is our guess of potential GDP and I think we operate well below our potential which which would be an deflationary backdrop but do I think that there's a shortterm and a long term yeah because there are fluctuations um so I think the interest rate at sometimes that that the economy would be more sensitive to an interest rate at times versus other times but it it is an unobservable point and it is a theoretical point and I don't think it's a point you know I think it's a a level in relation to something else so that means that it it's not a fixed a fixed Point uh if we think long-term GDP growth will be 2% long-term Target inflation is 2% wouldn't that make long-term neutral rate 4% well you start the sentence with the largest word in the English language if if so those are your assumptions if if if we think long-term growth is 2% and if long-term Target inflation is 2% um and the neutral rate is proportional to those two but not necessarily the sum of those two but proportional to those two meaning that if we thought um interest rates or that potential the long-term growth rate were higher uh with uh 2% that would imply that you could have a higher neutral rate a neutral rate doesn't necessarily mean that's where you want your interest rate to be a neutral rate simply means that is the interest rate which would neither decelerate or accelerate either the economy or inflation it is neutral it would neither do anything but what if you want to accelerate the economy because inflation is too low what if you want to decelerate the economy because you're fearing in inflation may get too high right so the neutral rate is sort of like a fulcrum where you can balance two things growth and uh inflation and neither one of them they're both in equal opposition neither one of them are going to move you have something neutral but that doesn't mean you want something neutral right I think the focus is too much on where's the neutral rate let's get to the neutral rate don't we want economic growth so if we don't have an inflation problem um why stay neutral why not lean into it you know think about it as a fund manager what is your neutral position to to be an index fund but what if you what if you want to beat the index do we have to stay neutral it's easy to find the neutral point but I don't want to be neutral I want to be active so the interest rate can have an active position versus the neutral rate and who cares what the neutral rate is I think all we really have to care about is where's inflation if inflation is below Target that's all that really matters is well why wouldn't we be active on the interest rate to pursue higher growth and outperform if if the constraint which is inflation is not constraining us U I'm curious why you know longer show break evens it just it just got boring it just there was nothing there to see week after week after week it was like the break evens would move a little this way move a little that way move a little this way move a little that way like like the OAS is like there was just nothing to see there was there was really nothing to see anymore uh suppose I subscribed before January 15 sector studies will I've access to further updates for sector studies yeah if if if if it's just the sector studies module yeah oops I'm still on the wrong side here there we go one of the position videos last week you mentioned that you exited FCX would you be able to tell us more about this movement on your position video of the week coming up yeah I can explain why I I exited those curious to see if you still see copper as a good thesis yes I do um but I I have said this before shortterm we have no Supply longterm uh sorry shortterm we have no Supply issue longterm we do longterm we do uh so it is going to be deal uh a big deal later on uh longterm we do but for the next couple of quarters I just don't see 15 or 20% upside or 30% upside to these but I do see other things that have that have upside any comments on lenar spinning off its land Holdings should increase Roe and gross margins um Roe is yeah yeah well um I imagine they wouldn't be doing it if it wouldn't it wouldn't have some benefit so what's going on is let's take their uh balance sheet assets liabilities they have some land here and they have cash what they're going to do is take about five or 6 billion uh of this stuff and 1 billion in cash and wrap it up in a new reate that will be involved in uh land acquisition and development and then selling it back once they're done selling it back to lar not only that but selling it off to other home builders as well um and they're going to uh issue shares to the current shareholders uh for this they're just spinning it out so it doesn't actually raise any cash so if you I'm going to make some numbers up here so don't say oh that's not the price those aren't the numbers I'm just making it up to to show you an example out of thin air let's say lenar is 140 uh and they spin this out and it will be a $20 stock let's say um in terms and and that proportional to its market cap lonar would then drop to 120 and you'd be holding shares wor 20 equaling 140 so you'd still have lenar but now you'd have this reap and you'd have to ask yourself do you want to continue to hold on to the reap uh uh or sell it off and take the cash for it because you will will end up with uh with shares uh with shares of that and uh 80% of the shares will be distributed and uh 20% uh will be kept and that would probably be classified as investment in associate because it's a 20% level that would give them ownership but not influence so that would be an investment in Associates uh depending on the valuation that goes out at it it it might not uh result in any change in the asset value on the balance sheet it doesn't result in any change uh on the balance sheet its return on assets would be the same um hard to tell hard to tell because it's it they're not selling it and getting cash right they're spinning it out but retaining 20% of the ownership some assets are going to leave the balance sheet uh and then they just create uh they're not selling these shares they're just giving these shares to shareholders uh it will lower the equity in lar and if we think that well this is what's been holding it back uh then we should have a higher Roe but is moving from an asset heavy to a light an asset light balance sheet uh I guess with with interest rates where they are right now if you expect interest rates to be high why would you want an asset heavy balance sheet so that would it would have some effect yeah yeah I I I I don't know if it operationally uh would be better I don't know if it operationally is going to increase gross margins but it certainly will reduce interest expenses uh if we think that they're going to pay down the debt somehow but keep in mind this involves no cash right this they're not selling anything it involves no cash so even though they get rid of that it may reduce the need for financing in the future but it may not it probably wouldn't have any effect on the debt today uh advocating for copper I already talked about that thoughts on office reats I wouldn't touch office reats it's just not something that I'd be interested in at this point um I I don't think work from home is really a thing um but this is my thinking is that we we you had you've always had work from home even before the pandemic uh and you had a move to the digital world that was happening at a certain pace and then the pandemic hit um and I think what the pandemic did uh for this move to a more digital world is it increased it changed the slope of this trajectory and increased the pace of it and increasing the pace of it uh has uh you know given us more uh uh things that can be done from a distance or more things that could be done remotely and measured so I I I think this even if you had a return to office I don't think you'd have the same number of people going back uh I just wouldn't touch office space right now hearing from C executive of private real estate firms in Canada that they're getting bullish shun off oh look at that they are biased it's their well okay there there you go lower rates could decrease the cap rate my opinion is that when if the recession hits it will be the Catalyst to have firms push office mandates more aggressively recessions would hit net rental growth and could lower demand yeah there's your trade-off right feels like a contrarian play in the next few months I would guess my question is what is your view on them and how would you approach the thinking on this I wouldn't they're just easier fights to win uh I just I just wouldn't be interested in office rats at this point and if I were it would be the best of the best that would be Boston properties uh trophy buildings that that pretty much will always be full uh but beyond that I don't I wouldn't speculate on office on office reats at all not one bit um I think I think the work from home is a bigger cohort and will always be a cohort I think there is a spot for work from home especially for work that can be measured output that can be measured customer service is something you can have done from at home because you can measure the throughput of the emails that are solved that day or the case numbers that are solved that day you know what was your case number count so you get an email into customer service and it creates a case number and so you have all these case numbers build up and you can have people all over the world taking care of this and you can measure how many cases uh were taken care of of and once the case is resolved you send an email to the client saying rate this right so you combine the rating that you have with the number of case uh uh cases that you uh that you solve that day and if you are solving over a certain minimum threshold and maintaining a certain minimum rating that's what I would expect if you were in the office anyway so what do I care if you're in the office I can measure your output but if you're on the marketing team I'm sorry you got you got to be on site because a lot of a lot of the creativity uh is serendipitous it is it is me building off you building off the other person it is conversations in the hallway it is it is me popping into your office saying what do you think about this it is US drawing things out on the Whiteboard you need you need the environment because the environment uh has has a certain amount of synergy in it so one person working at home and one one person working at home will give you two people working for you but combine them together and the the proximity creates something that you can't create from a distance so 1 + 1 equals something more than two when you're in the office and I think from uh a financial point of view for uh companies I think there is something to be said from embracing work from home for jobs that can be measured is saying I have an office and and you have a home you can choose to stay at home but there is a premium to being in the office I'm willing to pay a premium if you're going to be in the office if you're not well then you are going to make less than the person coming in because I'm willing to pay a premium another way of saying that is if you're working from home I'm paying you a discount so it would be cheaper if you're working from home and I can measure output done right that's nice and simple also you are non promotable when you work from home I don't have to tell you that but you're non- promotable if you're going to be promotable you're going to be in the office I'll pay you a premium and you're promotable those are the benefits of being in the office what are the downside well you got to travel to the office every Advantage has a disadvantage that's that's the tradeoff of Life there there's never anything that has pure advantages so I think there there'll be a growing ability to get this done especially as you can start to measure better the type of out puts that are produced so customer service is an easy one to figure out how to measure that one right and as you can begin to measure uh the output of other jobs it does enable work from home a little bit more I'm not entirely against uh work from home for certain jobs that can be measured um but work from home generally has been lower productivity this has been corroborated by quite a few academic stud studies already that work from home is lower productivity which means higher cost for businesses with work from home but I still wouldn't make an off a bet on office reats on return to work uh or return to office mandates I wouldn't do that um understand the change to applied level does this mean by buying the applied level for 440 before January 15 has to regular positions yep uh yes you do you get everything uh and uh no recurring fee uh as of the 15th I do have to change it I do have to change it that was part of the the strategy in setting up right you need to create a network effect which means you need a critical mass of users uh such th