00:00Well, recently, it's definitely been about turning to the technology section, but there's always a place for the rest of
00:07the market, and there's always a place for companies that have a valuation that isn't quite as robust as we
00:13see in some of the tech stocks, and for companies that are growing their cash flow doing the right things.
00:21The problem right now is that all of the enthusiasm and all of the attention is on that top of
00:26the market stack.
00:27What do you make of all these IPOs coming down? We're going to get SpaceX hitting the market any day
00:31now with the roadshow, and what does that mean for the market?
00:34Is that a good thing for the market, or does it suggest that the market's toppy for getting some of
00:38these big deals and big valuations?
00:40So I would say if I had a concern, it would be that all of these things coming to market,
00:44the enthusiasm is so exciting beforehand, and then the actual getting to market is not as enthusiastic.
00:49If this all goes well, I think it gives the market a whole other reason to be excited, but I
00:54do think that there is some question about,
00:56what happens when you have that much money being absorbed by much later stage IPOs than we've ever seen historically?
01:04And at valuations that are mind-boggling, quite honestly.
01:07What is it? I mean, we talk about valuations, but boy, the earnings came through.
01:12I mean, corporate America did their job this past quarter, and it was pretty solid guidance given all the craziness
01:17out there.
01:18And I think that that is one of the biggest things that is holding everything together is the fact that
01:21money is truly being made.
01:23This isn't the promise of money being made. Money is being made.
01:25You can argue about whether or not some of the areas where pricing has been exploding because of shortages is
01:31sustainable, but it doesn't matter.
01:33In the near term, there's a trajectory, and that earnings growth is high, and that is what is helping a
01:39lot,
01:39because you actually haven't seen multiple expansion into this.
01:42You've seen earnings expansion where the multiple's actually gotten a little bit smaller than it was a couple months ago.
01:47My theme for the June 1 morning, we're busting out all over.
01:50Do you have any visibility to the earnings season starting roughly January 16th, 17th, July 16th or 17th?
01:59Fiscal year ending June 30, wait a couple weeks, JP Morgan gets us started.
02:05Do you have any sense of what we're going to see?
02:08I think you're going to see a lot more of the same in certain trajectories.
02:11Like, I don't see what changes the technology picture.
02:14I think you may see the fact that you have inflation creeping in be a problem for margins in some
02:18places and in some industries.
02:20But in a lot of places, I don't see a lot of change in what's going on.
02:24I think the energy picture continues to be a big question.
02:27And the fact that oil prices could come down to this level, even though we still don't have a deal,
02:32I think you're seeing more slippage through the street.
02:34And I think that there's an adjustment there, too.
02:35Isn't it the big thing late last week as oil came in?
02:38I mean, given the news flow, you're like, really?
02:41Exactly.
02:42I mean, I don't know.
02:43It seems like the markets are discounting this all pretty calmly here.
02:47Do you want to look for value in this market?
02:50Because it seems like, boy, all the performance is coming from those tech names once again.
02:54And do you want to try to look to other parts of the market for value here?
02:58Or do you just want to chase that performance?
03:01Well, I think I mean, from our perspective, I think what you're looking for is a combination of I want
03:06a good balance sheet.
03:07I want good cash flow.
03:08But I also want some growth.
03:09So, I mean, you know, GARP is not even something we talk about anymore because there are no reasonable prices.
03:14But there is still growth to be had in places where people are overlooking it.
03:18And I think that there's a lot of areas that have been left behind.
03:21And I think you should start to see some of that catch up.
03:23I mean, health care space is one of them.
03:24There's a lot of areas where there's some really good rebounding growth we think is going to be interesting for
03:29the next year or so.
03:30But on the valuations, the denominators picking up because earnings, cash flow, whatever the denominator is, is so much better
03:38than anybody expected.
03:40Or even if you do what Arnott and Harvey say in Financial Atlanta's journal, which is forget about the ratios.
03:47Just look at the absolute profit being made.
03:51The bottom line is it continues.
03:53It continues.
03:54And all of the concerns that people had over, including us, over higher rates, over higher oil prices and margins
04:00and how can margins continue to expand, they seem to be continuing to expand.
04:04Now, part of that on the tech side is some of the layoffs that we've seen.
04:08Whether or not that continues, it's hard to say.
04:11It hasn't been disastrous, but it's definitely been a tradeoff between people and capital.
04:15And I think in some cases that would be the worry going forward.
04:18It seems like these equity markets, I mean, again, we're hitting new highs every day.
04:23Does that surprise you or is it just simply a function of the markets are doing what they're supposed to
04:28be doing, which is discounting higher earnings, I guess?
04:30They're discounting higher earnings, but there's also a momentum factor that's going on.
04:34And there's also a question of where else, you know, like, so what are the explosions in emerging markets?
04:38They're all in the tech side, too.
04:40So there is a question of this is the biggest growth that you can see on a global scale.
04:46People are running into it, but there also is a lack of places and other places to put money, right?
04:51So there's a combination of things that are going on here.
04:53And right now that seems to be also get you get the FOMO of people running in because they weren't
04:58there before.
04:59End of March.
04:59Remember, end of March, there's still snow on the ground.
05:02Coldest spring ever.
05:04End of March, Dow 45,000.
05:07We're now up record, Dow 51,000.
05:10I still can't get used to that, Paul.
05:11Right now, a 10% correction, we would crater back to Dow 46,000.
05:17Yep.
05:18I just don't know what to make about what I learned in textbooks right now.
05:25No, I don't.
05:25I don't know how it fits.
05:26No, but I mean, a lot of the bulls will come in here and say, tech is leading us higher,
05:31but the tech earnings are leading the tech stocks higher.
05:34So it's not really a valuation concern at this point.
05:38I don't know.
05:38It's also, I think, post the financial crisis, a different correlation than we've seen historically.
05:44So you go back to some of the older correlations and you realize that with so much money in the
05:48system, it's a different world right now.
05:50This is important.
05:52Paul said the smartest thing I've heard all morning.
05:54Excuse me, Alexis.
05:55I get it.
05:56Paul said the smartest thing I heard all morning.
05:58He said the bulls.
06:01Are we bulls or are we unknowing and just along for the ride?
06:08That's a great question.
06:09I think that there is definitely a lot of bullishness out there.
06:12I think there's a lot of skepticism, but the skepticism gets rolled over every single time.
06:17The dips get bought and it becomes difficult to try to figure out a framework in which that doesn't happen
06:22because that recency bias is so high.
06:24Okay.
06:24Thanks.
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