Let The Bull Loose | Citrini on Trump Trade, China, and Powell Put On Bonds
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D, C, B, is ready to do whatever IT takes to preserve the euro. And really, me, you will be now. Thank you. You pose door.

I'm very pleased to welcome to monetary matters, a very special investor and analyst. He goes by the name of trinity. He has seen around corners a uh a lot and uh had some very good results in the markets, being very early on artificial intelligence, being very early on.

Authentic, I know, is G O P ones. And he has been on my previous program for your guidance many times and had some very, very good call. So we'll see if the calls he makes on this show age as well as the one he has uh, made previously.

It's gonna hard, but we'll see what we can do. No pressure, right? Yeah James, the most recent call you you made on on four guys, I also was in june you came on and said you'd constructed a trump basket and I had all the stocks that you thought would do well if trump would win.

Tell us about obviously trump as s one and there's a republican sweep. What was in that basket? What and and and why? Why did you think those would do well? And are you still bullish .

on on that basket? And ice, no pressure, right? H series, a good card doesn't mean that these ones are gonna good. But I you know the we created a basketball march of twenty twenty four that was a long, short basket. We we presented two ways.

The first way was um net long to uh, which we recommended because we felt that the view that trump would be perceived as positive for markets, uh necessities that you have in that long implementation, uh in in a long short kind of trumpler. But the other one that we presented was market neutral, which we felt would more accurately uh track odds, right? So we spoke that little bit last time.

I think we we touched a couple of our kind of trump sub themes, which uh I think the one we spent the most time on with E U defense um the on the concept that prompt had comments about, uh you have to you know two percent of U G D P if you want to be in nato, rose, russia can do whatever they want you and you know we had a couple other ones and and honestly and pretty much all of them have uh, kind of a played out. I mean the the the best case scenario for this basket was a red sweep, which is uh, look like what we got and you know now the question becomes um do politicians sometimes say they're gonna do things and then end up not doing them which uh I think uh is not the answer yes. And then I guess a caller to that question would be is true, predictable.

So the answer to that is obviously no. So you know I think that there have been a couple very significant over reactions and markets, uh, probably more so on the microsite. Uh, although you know some ages have also a gone little bit speculative something that we spoke about last time I was the Fanny may friday mac privatization and uh that was the first thing we had britain about in relation trump, right? Because back in december of last year, uh his his odds of even being the the candidate were in one hundred percent.

And IT was something that we thought would trade as a kind of swap on troops. And IT seemed very to metric. And we we still have no view on whether that actually happens. But IT was something where the market incrementally pricing more of a chance of IT actually happening, became an insanely the asem tric bed, especially on the the preferred. So you know there's a lot of other stuff like that too where for example, you know G O group private presence, G O group, I haven't looked, but i'm i'm pretty sure it's a probably fifty or sixty percent this week um and you know was .

last night yeah you know .

group is a good business, right and and that's that's great and IT probably was under value just regardless of who one um six yeah and so and at the same time you know uh is that Price in now you know and and I think that um going through this basket, there are some areas that seem safe to keep on uh through the inauguration and through uh at least the next two years of boring you know any any crazy upsets um and then there are some areas where it's a little bit rocky and you probably want to reevaluate this part of the trade is probably over. And let's know if we want to continue playing uh, the impact of trump on you know portfolio, we should look at things that are more certainty rather than speculation.

right? And James, based on uh, your own reporting guy, I am verified this. But uh uh you know the the trump netlog basket from its inception in march fourth IT was up seventy six percent since we did our interview uh and june th that's when and air the trump net long baskets up forty nine percent since inception march forth, the market neutral is up thirty one percent and since nineteen IT is up twenty five and a half percent.

I also want to say that you you you did a clearly, you know, unsurprisingly, a very good job constructing a trump basket that would do well if trump won, uh, so you did a good job of can check in that basket but you just so happen that trump trump one and that this does you create this index not necessarily as a way to make money, but to hedge against, I believe, your fiscal beneficiaries basically the inflation reduction act passed by the democrats and biting, uh, you you want to get a head of that as well as a way to track props. Odds of easy going to win the election. I think there are a lot of flowers being shown, rightly so, to Polly, market and county, all these betting websites that showed people were betting the trump was going to win and you the market is correct.

A A version of the efficient market hypothesis. Uh, we can put on screen this chart right here showing just your chart in blue a of how well that has done uh and basically how that LED the betting up. So you're a long short basket of of the trump basket LED. Uh all the all the betting markets, which is a very interesting to me and i'm you know unhappy. I know games.

but if I was really you know this is this is something that goes beyond the election where uh, I think that on average, the quality of kind of thematic baskets out there from the cell know especially outside basic, they're coloured by, you know what's in the banks coverage and and um when you look at the the the value of me to construction these baskets, even if they're not actively allocated to, is the signal value right?

Uh, you know you could uhh, you could say, oh, well, you know you could just look at, uh, how D J T is trading to to get a read on trouble. You could look at a, you know how videos trading to get to read on, please. But you know when you have a big enough theme, they they they brought now right and and they start affecting murad. Different things in the market. And this specific instance was really valuable when you look at the debate that was happening, the surrounding Polly market and you had um what we now know to be a french traitor that uh created uh pretty significant uh bet on trump that because of the relative illiquidity of the polymer skilled, the odds and you had a huge debate about uh, our bedding markets broken is this market manipulation and uh I guess now we see you know uh first of IT wasn't right. Um if if if expressing of view in size is mark in emulation, then I think a lot of us are in a lot of trip.

But the other thing was you could look at this basket which was ring uh coincidently with with those wages and you get a signal there where maybe you're undecided on whether or not you know this this this crypt to market is is being kind of manipulated or if it's broken or if the little liquidity making something seem more significant that and really is uh and you know that that was entirely possible, right? IT IT, it's cypher. Markets are no stranger to manipulation.

But IT would be something entirely different if those bets were were somehow influencing, you know, the the entire stock market, right? That there are hundred and five security in this basket. So we looked at at that and then we cross referenced with this and they track very closely and that that made IT A A pretty simple thing to say, well, you know, it's probably just someone really believes the trump is going to win. And the fact is a lot of other people in the market believe the trump is going to win. And you know when he comes to election, it's it's it's mainly just, you know people expressing their uh, you know it's it's a shame that I don't that I wasn't doing this in twenty sixteen because I would have been nice to look at um the performance of whatever you know trm forces clean basket would have been uh and you can really go back and do that without significant amount of bias at this point and it's .

extremely hard to know that is what uh, certain administrations are going to do, how that will impact the fundamentals, but how these security Prices will trade. For example, everyone think trumps so friendly to oil by and super unfriendly oil, but oil stocks did extremely well during by the administration and earn earning one up uh as as well and also a for example by obion is great for clean energy.

You point out how uh that there are a lot of clean energy stocks that actually kind of bubbles flash frogs and they peak when by got got inaugural IT just so happened that you know a lot of Green tex, therefore as a basket has performed quite, quite poorly under the so called Green president. So it's it's hard to predict. Jane, let's get into a few, a few subtheme s of your trump basket.

There's long europe. P, N, defend stocks and short. U. S, defend stocks.

There is long, uh, beneficiaries of tarifa short people who are hurt by by Terry. Fs, uh, there is some idea incorrect. C stuff.

There's the private free stuff. I I really want to talk about capital market. So jefferies co. H hypercar ers ever core. So all banks, not just the capital markets, but all banks are going on fire. Do you think that's kind of justified and also you know you know stranger to investing in banks.

Uh, and do you think that is this sending a signal that the economy is actually going to be found? Because if there was no election that is causing this huge ali an bank stocks, I would be interpreted as the market is screaming, are you kidding me? There's no chance that is going to be a recession and actually. We're trading as if we're emerging from a slowdown and things we got got about to reacclimatise. Yeah well what do you make of bank shares and how they been impacted by uh, comms presidents?

Well, you know in the fact that it's a red sweep um actually more kind of new ones is the fact that when you have uh first time president, right uh uh even if it's a sweep for their party, there is a period of they get into office and they have to eliminate and you know uh the see what parts their plan uh me resistance in the party and and see what they can easily pass and they can after. It's just like starting any other job.

You have to learn how things work and then you know when when you're president, you get reelected. You know you've been there for four years and uh maybe you know you have a lot of initiatives that are already in the works and and there are things that you want to focus on that, that are kind of um obligations rather than than kind of goals. And so it's a pretty interesting dynamic where you know trump has already been president and at the same time he's not being reelected uh for uh, consecutive second term.

So it's really uh, situation where he can hit the ground running. And for something like that, I think you do want to possessing yourself in the more obvious impacts of that, right? So for for me, one of those for sure is uh increased emini activity. And and uh I think that the the moves that we've had in british ema names like never call nine percent or jefferies, those are are one hundred percent accurate, right? The the the the that doesn't strike me as as a over reaction or raught.

Those are things where sometimes something is in the face and is obvious and you say you have that's what's that part what to happen, you know and and that I want to be position and at the same time, you know uh you have a White index. I mean, we just uh, what we've been working on recently is creating A A we're now looking at baskets that we would feel more comfortable um keeping on from this point rather than you know having put on back in march and the two areas that we're looking at, our uh tax policy and then the regulatory. So when trump gets in, everything is kind of aware of this, but it's been an interesting process to go through.

And and the the first thing we did was we said, what is every single company that lindon has ever spoken negatively about? And we probably want to be long all of those. And then let's go sector.

You know what? What about the E, P, A, and what about the F, C C? And you know what about the who is the department of just currently investigating and going kind of case by case and in a uh more qualities than quantity manner to to say which of these companies are are pretty obviously going to to benefit, uh, for example, like coin base right um you know trumpets in get gary again or gets up well corn basis probably going to do pretty and the the the other ones that you might look at our companies that have um you know active M A or even have spoken about doing M A but have held off because of the regulatory environment and the concerns that you know the canon would come in and say, no, you're not doing that.

So we've created that basket. And there are a lot of companies that if you can basically buy these companies that have a history of being very good capital allocators and a history of of kind of making these creative acquisitions that have seen uh, sustained kind of uh reduction in m and a activity, it's IT. Seems to me relatively clear that uh besides obviously rates, uh part of the reason for that is a concern with the government's reaction and that seems like somewhat of a certainty from here and the other kind of certainty, uh, now that is a uh read sweep, uh you know the the the tax bill eminent tes from the house.

So the idea of like uh like tax cuts and and the T C J A in a red sweep, uh the T C J A extension is that's the tax cuts and jobs act IT was, uh you know trump uh pass and twenty seventeen. And uh, what we did was kind of uh looked at the companies that had a significant benefit in their after tax earnings because of the T C J S. Tax cuts because I think that a pretty well accurately represents uh, trust priorities.

And you know when trump got in the first time for the first two years, uh he he had A A republican senate house and that is so I think we can kind over index to that period and say, you know, this is probably going to look like what IT looked like from twenty sixteen to twenty eighteen. And in any comparison on you kind of want to drop cover and a sample you know uh coit was a you don't want to look at at what we did with the uh cares actor and and or even physical spending in relation to copy. And I think that that is colleran a lot of people's uh, perception of what the deficit will look like.

And you know don't get me wrong, uh, either was going to increase the deficit, but some of the uh projections seem to maybe think that trump will be a little bit more deal gist than he really is going to be. I don't think that he's gonna be increasing the deficit by fifty trillion dollars, you know uh he IT seems that this time he probably has um a more considered and calm a plan for who the cabinet is going to you know just looking at at the a likely treasury secretary pic you know um scot asn't very just super smart guy yeah yeah and a just that alone kind of gives me a bit more confidence about I don't think we're going into the move on. The long bond was clearly a bit of enough reaction.

So the the the last time the we spoke about this in june, uh, I was pretty element that I didn't want to make uh a slow kind of macro recommendations and uh, whether that was a good idea or not, the the the interesting thing is that if you look at the move in most macro instruments in response to trust twenty sixteen election, um i'm not a big fan of analogues, but that analogues very impressive. They basically track one to one. Um but the only thing that I was really confident on was the uh the steamer right the that that would be the the kind of easiest way to win in macro off of a trumpet tory uh IT turned out that you know you party could make a lot more money just being short more bonds uh but what we've seen with the evening you can attribute to triumph, you can attribute to to the economy or or whatever you want to attribute to.

But at this point is looking at IT. I mean the the move in the longing seems a little bit overdone to me uh, because it's reflecting A A fiscal outlook that I think might be rescued or or too colored by uh the government's response to cove IT uh and also probably takes two rosy of an outlook on which of trumps promises he will actually keep. Um because I could .

say that is the ten year going up, thirty year going up is pricing in higher inflation because appears .

yeah and you know let's talk about that because I feel strongly that um and I said, you know I I publish something on this the night of the election that um the obvious to the media reaction to chinese accurate was selling because trump you know um if you look at the trade war that we had the last time the trump was president, IT was actually in a positive for chinese security IT seems um or at least they they didn't care that much long as you know they they there was no big uh sustained cell off from you know twenty sixteen to to twenty eighteen in in chinese actually because of trumps chin's stands.

And it's not like we're going from a really adam in china dove who is is just totally globalist and and and and and supportive globalization and and yeah china let's let's do all the trade of china and biden is also a kind of protectionist and and when he comes to china, um it's not like we we have terrorists s on on you know plenty of of companies um back in jakin's, for example. And so I think that the pricing of the inflationary impacts of terrors, I think it's overdone. I think that, that your best bet on election night, which is what we did was, was to buy the dip in chinese equity is not only because I I don't think that we're actually going to get a blanket sixty percent therapy know everything has been so black and White in the cover of the election, right? Or either either it's either this this a this one gets selected and and we don't worry about terms at all or this one gets selected.

And you know it's uh it's it's sixty year a hundred percent tariff on everything and you know that's not how things work. Um I highly doubt we're going to see a blank at sixty percent tariff. And even if that the threat that's on the table, that's exactly what IT is a threat because uh if you think about trumps kind of a motivation, he is a is platonic ideal, so to speak, is the deal maker and yeah so yeah exactly the art of the deal.

So do we think that he's going to come in and and me they say, yeah sixty percent of go you know yeah but uh, no, obviously there are people around them that are saying, hey, you know, this might not be great but he has that kind of perception on the global stage where, uh, you know, just crazy enough to do IT. Uh, so that puts me in negotiating position for a trade deal with china that I I don't think we'll ever actually need to see, uh, a sixty percent tariff uh, especially you know I am IT looks like elon musk is going to be part of the cabinet。 Uh, do you think that like he is is gonna really yeah you should you should put sixty percent taps on on every chinese renewable this that get thing probably not.

Um so I think that that's a little bit overdone. I do think and you know going so kind of closing the circle on the idea of being long chinese equities um the response at the government level to the threat of U. S.

Trade policy that can exacerbate their dire economic straits is almost certainly going to be to increase the size of their planned fish response. And that's exactly what the market is looking for. So you know we had chinese actually trading off you know two or three percent on trump getting like that.

That's that's a bike because it's a it's a situation where not only is the terrorist probably overPriced, but. The market is going to get what it's been waiting for, for a long time. You know I wouldn't be surprised if even you know this weekend we get announcement of uh, fiscal package that uh you know maybe like free trAiling remond, uh, just they're going to increase the size of IT because they feel they need to get out in front of IT.

And and I think that it's uh, something where we've been waiting for china to have the motivation to actually do this, this kind of stuff. And you're seeing more and more signals that that it's it's time. And uh you know I think that um by the M V R, A few people are going to go David temple apology for you know accusing him of just trying to pump his own positions.

So you thought that a travel election would cause a Steve, and you curve basically long term interest rates to go up more than short and interest rates that is, uh, what has happened. But you actually think that long term rates, you ten year, thirty year bond yields on the treasury might be a little bit too high because they're pricing in a little but too much inflation for from terrace, a little too much, uh, fiscal recklessness.

And you think IT actually will be slightly more measured? That's interesting. Uh, let's talk about china. You have had a barbel position in china. Uh, you know I for the exposure, I also happen to be trafficking quite heavily in chinese security.

And so you know you have a pleasant with the massive move in late september, uh early october, uh h when there is a the chinese stimulus and a David issue that a saying on on C N B C since then kind of stall out a little bit。 What are you, what are you making of IT? And how are you comparing maybe this types of security that you own verses, the C, S, I or the shanghai, the chinese next induces .

our approach to china has been um what we've been calling IT is don't fight the fed with chinese characteristics um because china's a very top down and you know uh economy that driven by the the the winds of a single guy and so even been waiting for the signal that uh the the instructions from the top are to improve the economy uh without condition and and one of the bigger signals that we were waiting for, uh was you have this dynamic where all these local government officials that I kind of lined their own pockets through uh the the previous stimulus that kind of got them here in the first place where you know you might be a local government official that uh retired and and you're in meaco and gambling away your your your savings and then .

dream life yeah absolutely and .

then all of the sun, you know, the chinese police show up and they say, come with us. You know, to prison because, uh, you you you were irresponsible with the people's money uh and that kind of thing was happening and IT would happen two days after they said, hey, you know, we're going to we're going to take local government know we're really going to help the local governments improve the economies.

Okay, well, you can, you can, you can have your take you needed to, right? You can either, uh, encourage the stimulus of the local governments or you can be throwing the guys in jail because you're not going to uh h look, you look, you can you can borrow money and and you know here's this, here's this plan and nobody he's going to actually go out and arrow money if they think that there's a risk that if they do IT and properly, they are going in person. So what we saw um party congress was uh the announcement of, uh it's called the three exams.

So they're basically sign, you know if you if if we think that you are actually eagerly and honestly trying to stimulate your economy, uh, we're not we're not going to in prison if there some. So that was a big signal. And basically, in terms of equity selection in china, we've really taken attack that you don't want to just own china broadly because the risk of drought down just on overreactions, especially uh, in A D R and H R, is is just too, too large.

You want to position yourself to be aligned with the areas that the C, C, P wants to, to encourage growth in so that you know, uh, semi conductors, right? The china also wants to do A I um that's uh it's like diary. Uh for example, the the the they've been trying to get people to drink milk for a very long time and and and that had some disastrous consequences.

But other kind of both during that industry, there are a collection of stocks that we own uh, that are probably secured more towards uh demand size stimulus rather than than supply side, uh, but we have exposure to both. And you can see here on the start, but we call the chinese equity bar about which originally was a you know the one side of the bar well is is demand side that simulate benfica aris basically, you know, trying to uh, stimulate demand. And then the other one would supplies I simula, which is what we've seen historically, at least in china.

And then we the the kind of the the actual bar the barbell, we we funded these positions with a uh three times the national uh short. We based F X had three times over. Uh but you can see here the the drawdown since that kind of uh blow off top IT IT, it's we've had a lot of question that's been from primarily like the A A I semi conductor, uh, the the idea regardless. So what happens with simulating, uh, if china wants to do A I, uh, they're not gonna be able to do IT effectively, at least with video ships theyll be able to get some, but not the kind that you need to do, what china wants to do A I uh, so that's kind of been our approach book. You know the as far as the elections concerned, even broadly in china, I do think that there is upside from this and and that um selling IT on the result of the elections probably going to be a mistake and something that people that have done in both read .

to your ball in china.

what else change oh you know um as far as the kind of sub teams that we had in our overall allocation for trump, um bug I said tax policy, the the T C J extension that is an area that we're focused on. The regulatory overhang being lifted uh from the regulation is another uh and then we have some more specific out teams, some of which I think probably are already Priced like a like everything's everything they are already and then some that aren't. You know like we said before, the the nato and and defense names and in europe around um fails saffron uh and then you know the the tar winners losers.

I don't think that that really continues very significantly, but what I do think continues um I think that the law enforce the positive explosion law enforcement, something like x on group and um course civic geo group uh even arrow mark uh these kinds of names probably will continue to benefit. Uh maybe they've gone a little bit too frothy, but I I would probably be buy on any poll backs. And then um one of the other substance that we focused on was um on sharing versus near shoring, which is uh the concept that the bite administration has focused on a again coming back to the fact that neither of these presidents are uh china ducks right but the by administrations tack for uh kind of securing the supply chain uh was very much more focused on a friend showing or near showing or basically moving uh production to alt countries like mexico.

Um we don't see that continuing as our bus list IT has under a trump president is red sweep scenario because trumps is not a fan of authority and I think that but on showing is a tRicky thing to position yourself for because, uh, did you would say, well, yeah, we're going to move manufacturing to the U. S. Uh, but there are areas that well, pretty much seize to function in in, in.

You know it's not like the any illegal immigrants are going to immediately be be gone the day he's not great. Uh if you think about just like the cost of labor and the wait that certain free function, especially in agriculture, you know um who the the migrant labor is a huge, huge part of agriculture. California, you know if you're if you don't want to be paying you know ten dollars of blueberry, uh, but you want to onshore and also get rid of illegal immigration, uh, there is some stuff that you're gonna to do.

And IT starts with significant investments into agricultural automation, right? So for ensuring you would want to look at companies like tremble or linsey or rockwell automation because you're not going to have a dynamic where the american jobs that you create are the same jobs that are being taken right now by, uh, immigrants, whether legal or illegal uh, migrant labors in in california agriculture. Uh, that's not something that is a solid plan.

So the investment into agricultural automation is probably going to be significant if you want to, effectively onshore in the us. And there are some mother areas that you could look at on the long side that start to get a little bit complicated like a deer or um C N A and real because the thing is, uh, one of the terrors that I do think will almost certainly happens, the steel hair. So when you accompanies, were there were there very significant implants that are related to the uh, Prices steal and if they're forced to be up by domestically or or paid tariff, uh, that could get a little tRicky. So I think, uh, you could be concentrate on the longside with ongoing ing and on the short side, focus on just mexican equities broadly, uh, because near sharing has been a huge boom for their economy and any shift away from IT would probably be in negative for them.

And James, what about energy? I remember your early in your trump basket were some coal names, some oil names, names that would benefit from a lot of activity. Do you think the Price of oil will go down because trump is so good for drilling? And also you know if there's a ton of drilling and where Price is out, IT might not be good for exam mobile, but IT might be good for the strong brazil and the uh uh um novel.

The offshore drillers, uh the oil services type companies, the taxi specific land trust, which make money when people drill there, are there so basically a real state that own tons of land and taxis. Um do you think that trump is going to be successful in getting drilling to go even higher? Mean drilling, the U S. Already produced so much well.

Well you know I think that um this is one of those areas that you want to be more selective. um. I don't think that there is going to be this huge. You know it's it's a very complicated dynamic.

And what i'm looking for is, uh, first or second derivation play that benefits from the corner drill, baby drill and has a little bit less oil beta or or could could do well even if oil continues to go sideways, which I think is the motivation, at least for the sauces. They do seem to be very comfortable with oil in in this kind of sixty five to eighty five dog range that seems like their sweets box. It's interesting that you mention take a specific and because while they are a royal company like you described, the other second other business and the one that's growing the fastest is deals with produced water.

And if you you know I was speaking to Michael Spiker from H. M. Energy, who is great research, and he was describing to me the dynamics of every barrel, that of oil that you put a pull out of the ground, uh, is going to create, you know, anywhere from three to twill barrels of water.

And you cannot just stick IT back into the ground. So that's becoming a problem. And it's a problem that is, is, is a bottom right. And I I, I the best place that probably anyone has had over the past now year and a half two years have been buying the companies that are solving the ballot.

Whether that's in video with the with G P S or interconnection and A I um or you know some of the C D M O S in for I the I really like buying a boometh solver and the deliver basin, for example, uh is the the basically overflow ming with the with the water that that being pretty. So the transportation uh movement of this water and then the the treatment of the is very big as water. You can you can use IT again for fracking or you can treat IT and and uh just had get rid of all the kind of seen and everything.

Uh, so i'm looking at some of these pretty water names because that seems like a pretty easy way to play at least the current dynamic. And then any added kind of drill, baby drill, is only outside for that. And you know I I know you mentioned slumber j and you know that could work.

But uh, I like this little Better because IT seems like a more pure derivation where more drilling means more water, means more money for these guys. So T P L, aris water solutions, um yes, away connect, A R Q, these are all companies that that deal with this problem and that that is going to create more money if we get that trump kind of drill baby drill dynamic. And if we don't, if we continue uh, doing what we're doing, the the companies .

will probably do fine as well. yes. H so T P L they make money from royalties, uh land and easily.

I think it's called slam and then water, but it's not like putting water into people's taps. IT is IT is all oil. IT is um all pretty much all from the the oil company is is the faster in company.

I believe this is the first company that warm buffet ever bought. Been around is that each test and I think uh j goal was involved in making in the public or some so the history of amErica is in that stock. Um one name that I do not .

it's also A C CoOperation. Most of these royalty companies are are you know M L P S, which are you know I don't know how how people feel about k ones and others to buy the opinion, but I I don't like getting more paperwork. So I I love the fact as a secret.

I hate paperwork. They converted to c corp. I know some uh T P L, you long true fans were remaind about that conversion. But I think that they had been doing um you know I just will give a shadow to a morico of horizon connections s who has been a long time holder and and bull of that stock uh they also are getting into another company called land bridge, which I feel you recently you know about .

that yeah we spoke about lander dge when they I P O A A little bit. It's it's very interesting company as well yeah and .

one of those times I P O are probably eighteen. And then I went to thirty and I you know, I am worry right about and I said I was interesting then I went thirty five. I said, no, it's a great start but that I missed IT and now said sixty so yes.

that you know that that's that's kind of the way that there's this iconic moment where ronal brag and uh goes the stock market and complains that let apple lose and and I always wonder if I was investing and if I would have uh had kind of the clarity of thought and the the simplicity of framework to just say, well, it's signed by socks and yeah yeah and I and and there's not saying this is the same kind of thing, but I do you think that terms cabinet will probably be over proportionally represented by wall street people? And you know uh, this is kind of funny.

But as far, problems concern the stock market, the douches. right. And we just added in videos of the that chance. So maybe we get a little trump put on the AI trade.

a trump trump put on the a trade. wow. So jane, I am I was about to ask you, what do you think trump is? Impact is gonna on the broad inc. S M. P. Five hundred, the dow Jones.

It's great that you have these niche companies, you construct these little baskets, you know with little chemistry set and you like, but what's what's going to be in the impact on the S P. Five hundred? You are the answer that you think trump le let the bull loose and IT will be a bulle market.

C, S, M, P is so close to six thousand, I mean is IT is hard to be super bullish on uh, stock market when the Price earnings ratio are you know, whatever ninety six percent IT is a little chAllenging, right? You you get a little concerned that IT might be a little expensive than we need. We need a healthy pull back or you the stock worker needs to go down ten percent and earning go up ten percent.

If if the markets twenty percent over value to return to fair value, do you get a little concern or no? You know, just let the ball loose. Get me on the ball. I want to ride, giving me the way how I want to ride.

I mean, I am a strong believer in the fact that you don't do something and told there's a reason to do IT. And in terms of selling equities, I look at the the kind of micro bare case, which I suppose the one thing that might give me a little bit of pause here is I think that the N F P. Print that we just had got a little overshadowed by, you know, the election in the F M. C. And that was a pretty bad print, man.

And and but also .

at the same time, very noisy. Uh, there was A A big input from the hurry ane and the boeing strikes. And so I guess if you're asking what what would give me reason to to be a little cautious, uh, the next N F P point, i'll be paying very close attention to as I think the market will. And if we start to get a trend where IT looks like that print was not just noise, that might be a little big concerning otherwise. I I said i'm not i'm I been been long since IT in terms of comes right.

I look at the worries that were present uh year and a half ago or two years ago, and it's not worse now, right? And and when you the markets ds to go up over time and and the spread sweep is is likely very good for stocks even in the the the macro bare case where the deficit employs. And you know we have uh four five percent inflation but Normal growth you know eight or nine percent the the even in that case it's grave or stocks.

So I think that there aren't a lot of reasons that I would have currently to to start selling things. I do think that there will probably be some dynamics in the end the year that will play up. But over the longer time, IT doesn't seem like we're setting up for, uh, continued bull market. The only thing that is on a top mind in terms of reasons that I would sell is if that if if the employment situation continues to deterring, despite the feds easing a policy, that would be pretty concerning.

Yeah, I mean, the last non from parole jobs, they added twelve thousand jobs. octo. Ver, yes, nothing, basically zero.

And when I get I told off on IT. So that tells you something about whether the market seeks that's legit, not but IT is something where, uh, IT would be IT would be pretty bad if we if we got a confirmation that, that the the impact of kind of the noisy year aspects of that print where were not uh are are continuing basically yeah I mean.

if the labor market keeps PS on adding twelve thousand jobs a month, that is that is basically recessions. Um I mean, this is recessions and I don't think that uh, the economy and the stock mark could could handle that. So the jobs need to to go back up.

The unemployed ring need to keep on going back down. The labor market is getting is getting weak and the softening of the labor market for a time was bullish. Ed, because you IT was diffley ary but yeah if if C P I is is inflation below two percent and the unemployment rate is sky roget's, obviously an environment where stocks will not perform well and will we under perform bonds and cash well?

You know I noticed something about um I I think that juran power gave a pretty impressive performance of the F M C where you know, when he was asked, what would you would you leave if if trm basic live and his answer, which is no no very very um shut the acting door vives that one which is .

the inside my show the way .

so IT was IT really yeah.

a great pig.

You should add, you should add them .

now in talks.

So I would say the fact that he spoke a when he was answering questions, I think he was either twice or three times that he mentioned the attitude of investors when, uh, the year, year almost exactly year ago.

yes.

yeah. And so I mean, without all right saying that he was basically saying that in his opinion, bones about and I do think that there when you start talking about the deficit and uh, treasure supply and all of that, I think that regardless of that, if we have a recession, people will buy bonds. So I think that when you have you know the third is when you have bonds and and duration.

It's a relatively simple thing to have against. Listen, the shorter whether or not we bonds have A A higher kind of uh, neutral rate because of I mean, unless you're really concerned about speculation, which i'm not in, have not been, uh, you can easily head against kind of the weakening of economy because right or so I uh you can make up for, you know everyone loves a positive expected value edge. And I think if you look at, uh, buying tens of four point four percent, well, you know it's easy to dry your tears about under performance when you're getting paid Carry.

Yeah it's now it's positive. You get you get put to borrow money. Well, I at four point six is that positioning yet? Um but I just .

yeah yeah I mean um yeah but but in terms of like just owning bonds in general, you know not not boring but you know that that is that is because .

of Carry on on lover basis. Um if you get two pieces out are very interesting. Uh, one is about the airlines. The others about the payments industry talks about about the airlines. I've you skim ed over the airline industry is very, very tough business. Um in fact, you start your piece on the airlines with the school basically of if if there was a capitalist around when the right brothers discovered airlines, they would have done the airplay. They would have done well by, you know, getting rid of them. Basically, airlines have this lost industries so much money, both million the equipment, but also on the the bond side, actually book behind me by the airline specialist to I ve been viewed uh, about delt airlines is the only delt airlines, the only airlines I think in american history at least to never never go bankrupt so almost all american, almost all airlink .

bankrupt yeah it's um it's I don't want to uh come on the shell and say I feel like a lot of people proceed. This is um you know okay this guy call uh call and G L P wes and now he thinks he can call airline es. So this is this is the end of that.

And you know maybe that's the case, right? But it's just looking objectively, uh yes, airlines have tended to be a bad business and and that point if you that was warm buffer poll, by the way, you know if if an investor was was present kid, he would have done successors a huge favor by shooting article down uh and that's been true and and every time that there seems to be uh changed the industry dynamics that is brother positive for airlines, uh, someone goes and screw zit up and more often than not that that someone is one of the airlines. H it's kind and like we were just talk metro baby drill, it's kind of it's the same thing that that that happens in manisty where, they can make more money so they start really going for IT。 And then sooner than later, there's a kind of oversupply that, that kills everyone in the industry.

So what i'm looking at though is, uh kind of comparison if you look at the last time, the airline returns were actually good and there aren't that many periods that you can look at. But the last time was um you know this the end of twenty twelve to beginning of twenty fifteen, right? And during that time, uh, you had southwest that was basically leading the charge and uh return you know uh three hundred and ten percent.

Uh, I think delta was up a similar amount during that time. And basically in twenty twelve, south west have the strategic pivot to prioritize profitability overgrowth and a that was their their kind of discipline resulted in capacity growth that was intentionally and artificially held below demand and that enabled the first kind of sustained pricing power in the airlines industry history. Uh, legacy Carriers and regional players, they they followed southwest, uh, kind of capacity discipline and that LED to historic Operating margins and meaningful shrewder returns for the first time ever where the I think that was if that wasn't the first time, that was the first time in a long time that um R O I C uh exceeded cost capital for the airlines broadly as an industry.

So comparing that cycle to today, um that was kind of a voluntary capital discipline where uh, you had these kind of copycats, uh that we're seeing how southwest was doing in this world will do the same thing in terms of, uh, keeping passing love right now as long as air, bus and boeing don't get there, uh, you know, shit together yeah as long as airport and bowing keep this trend of the inability to produce more airplanes um that is a structural and exogamous capacity discipline where no single player can say, yeah, you know let's go more plains. That's not a decision that they can make because it's it's it's not like they are making the decision in the first place for there to be to be capacity as one. So the other kind of parallel to to twenty twelve, twenty thirteen cycle, the the competition from the low cost Carriers was really, really significant, right? And and this new model of kind of jet blue and southwest and and making your money on on uh all the kind of extras, but with very low cost to the ticket. And now we're seeing, uh, dynamic where the companies that can take advantage of first place because there's been this this the I mean rich people in amErica are doing go right right they are killing IT uh and and IT seems like they're only gonna kill IT more because, uh trump and a red sweep is on the margin of a bit Better uh a lot Better for wealthy people and and for know the say the top ten percent of owners then this is for for the the body and ninety person and they .

is what you saying yeah .

and and and remember .

when people say no one would buy .

business class yeah super well well actually is it's right in you know where it's right actually is the midwest like this like like where like first isn't really exit this kind of like regional uh you know um I guess like a pole jumper you know when you find from like mini apples to like demon yeah so so I think uh the way that i'm kind of playing this is like it's a structural instead of a cyc change.

Uh, you have um kind of converging labor costs. The way that i'm playing this kind of structural over the change, it's a kind of capture the the the the capacity discipline, uh, less low cost competition, the underscored aircraft and also uh the kind of converging labor costs, right? The the the the used to be a big differential between legacy and budget Carriers that kind of because of wage inflation, because of union zone that has kind of converge.

So budget Carriers being forced to slash capacity, some of them like like spit airlines facing like existent al threats. Uh probably be bank rup before the end the year, although there might be some thing to be said about ema there. Uh if if if that environment gets little Better uh and you know outsource maintenance used to be this big key advantage uh and now IT costs multiples of in house advantage, that's why and and the after market aircraft uh industry has has exploded.

You look at um like F T F T A I uh I go trands time. So those companies have had massive gains um but there's the external re limit. So I think that the cost of those companies uh is is limiting this capacity. So as long as those companies continue to do well, uh, united, especially because they have this kind of evaded fleet optionality where the cheapest plane the united can buy or in its own fleet and and they they've communicated that to the market where, uh, that's why the buy back the announced was such a significant part of of of the market at and uh with delta that they really have um diverse by revenue well and focus on on all position segments like premium revenue and and uh their tech ops are very good not to like throw A I into everything, but um delta tech ops uh was responsible for seventy five percent year over your reduction in maintenance related cancellations for the first nine months of this year. Uh so and that's apart that's like predict vanilla tics and uh machine learning to to basically make this fixed cost based increasingly efficient.

So the way that I see IT, the way that i'm playing at at least is the main rist to this is uh, let's say f market craft parts become really cheap or airbus and boling able to produce more plants. But in the meantime is, uh, that doesn't happen. Uh, I think the united delta, you can stay long there and you can kind of hedge that a little bit by having uh limited risk, you know whether it's um you know uh put options or uh smaller kind of a short position with uh with a call. You can uh have like a like negative delta on F T I and I go and trans time and then a bit of a positive will down like airbus and boeing and the companies that may have super .

high margins and your long the companies that have super low margins when .

you say like that needs a bad idea.

Ah yeah jay I mean, look I you listen to A A smart person make this case in twenty nineteen now smart as you but yeah I hasn't worked out delta probably flat and a lot of them down. So I think IT worked against them you know because because .

that's the thing is is so you know the smartest guy in the world probably saw A I coming in, I know made earlier and then in in video and and had to three seventy five percent. There's a difference between a being smart and having the the kind of not a lot of people, twenty five percent right? That math is really not in your favor so I said.

sort I met good and talk about ai. Uh what's going on so long? why? Yeah I mean, I I like I think you .

know the last time that I was on, we we went pretty in depth about how was thinking about IT and I don't think much has changed. Um i'm continually kind of narrowing down my exposure and and trying to find the most s metro places to be.

Um so the last time that I was on we spoke about the decision to uh sell S M C I which worked out well uh and this is to sell a couple other names and and wrote hate into a more narrow implementation and what I do think is that um you know a lot of discussion has been made about the the next phase of A I and where the the use cases and and uh kind of the the often are angle and everything like that. Um I think that the trade probably on the the just like pure data center beneficiaries like verve and in video uh and a that is not over yet. Uh I think that you probably have A A little more to go on that.

Um but it's becoming increasingly important to really be positioned in the places that are asm american. And the most recent kind of update that we did to this what uh had to do with connectivity and in I think IT was um think we published in july or maybe the beginning of August, we publish the prime maron connectivity and there were all these names that had some upside data or dead upside data center but at the same time they were kind of blown out because of this uh cynically dynamic in uh alka and that struck me as a way Better place to be than all these names that a had really very narrow margins of safety. Um so lomana sana coherent, these are companies that we're trading um and then one that uh I traded like a moron which was marvel you know I I held onto IT for probably eight months as one of my bigger positions and then I sold IT at the exact laws but other than that, the the you know coherent has done great and has done great uh and it's really it's you don't want overcomplicated there.

They're coming out of this kind of cyclical depression and things are getting incrementally Better with uh, their customers in in in toko. And at the same time, you get this massive embedded optionality on the A I data center and especially what what you know we have to with all the data is going to be produced. We have to connect the you have nodes and spans, right? And the spans have to get Better. Uh the the we need to be able to to communicate the data as as as quickly effectives as possible. Yeah I think um come activity has been uh really soa place do and i'm gna keep looking for areas where A I kind of opens the door and and presents an a metric opportunity, uh, that has significant margin safety because I think there will be A A few .

more what about the semiconductor? And obviously seductor only a fraction of your A I exposure. You you look at the big names and some people are saying it's getting a little overheated. Do you agree? I mean.

um again, it's like a dispersion thing in some areas. Yeah uh and you know it's it's funny, right? Because this is uh this is the third of the fourth time we've done a pocket together.

Fourth, fourth, right? And I think that question is probably even asked on every single part ket. Yeah so I I and my answer is kind of the same where yeah there are some areas that and you know it's changed from probably the first time you have that question. The the answer was yeah, in these like really ridiculous companies that should not be up at all because they're going bankrupt or they're like materially harmed by A I and you know now it's it's kind of there are certainly some that that are future uh way overheated and and and have to have some sort of main reversion. But just the the trend can continue as long as the data center build that does in every single hyper scale got on the earnings call and and said we're spending more in capex.

Yeah and and and going back to what we SAT earlier about there is when you find something the and IT works really well, the best way to screw IT up is is to just constantly um you know uh kind of week with IT and change you know I the the framework in my minor, least for A I is, uh make your money in the stuff that is obvious right now. Uh, be relatively agressive about taking profits, but only when to do so. You have something else to put IT in to right is to to to find A I mean the because as would like we just spoke about with delta, right, that that's that's a very small part of of the profit driver for delta, but it's an example of prediction. Aldi s and and A I and machine learning, really improving Operational efficiency. And I think that before it's not gonna be like the it's not going to be a dynamic where you you're really there because of the fact that so few companies nowadays are, uh, I paling early and and and are just opting to do this ban adventure capital raises.

You mean I pealing late?

Well, so many companies are I peeling when they're at like like later stages of their business like and just like that. So where and some of the companies that do decide to, especially the A S space, are kind of yeah not great. Um yeah.

So I think that you the way to play IT going forward is basically to be to find these kind of mature companies, uh that really have uh added A I ticker that the marketers and pricing and um and you know some of them have uh gun that Price to some extent. But there will be more because this technology is here to stay and we every single day will find new and uh unit table use cases for IT and that is what's going to color the investment landscape for a little while. I do think that like I said last time that, that increasingly IT will it'll be less of function.

I mean, when we were coming out of the bare market, IT was uh in video just driving the the entire conversation. And you know as the ball market kind of talk hold, you got more dispersion and people talking about people were comfortable enough to own something that wasn't in video. And that will continue to to occur, although, uh, I do think that we do have a little bit longer on the data center.

You have the aggressive about being honest where you should take profits like the super microsys is a perfect example. You what I bought IT IT was super sketchy. Uh but because I was super sketch, I was trading at two times earnings. And you know you you don't get the opportunity to buy things at two times next year's earnings unless there's something that the market is worried about. And you know so I think that the best turns that you're going to make going forward are going to be this kind of turn around stories or companies that that are in a specially, uh, depressed area that have a kicker from artificial baLance.

Thanks so much for coming on. People could find you on twitter as a training seven or great poster and people can find uh uh your research, uh, training, research tell people why you start to train research and .

and or would you offer yes so we we started because um actually the reason why at the first thing I ve posted was um in may of twenty twenty three about A I because I was looking for an A I basket and I found one from a uh bank that will am not onna speak harshly of but if I .

got to put a lot of banks like six months after you put something out or six month after I interview you. So probably nine months after you put that out, they do so nine months behind you. And this is so low quality. And it's just like, why why really yeah and it's I love something, particularly the economic stuff and the stuff on credit and and bonds is really, really good. But I think some of stuff in equities just come on.

Well, it's covered by you know the relationships they have with the companies. But I I looked for and h because I, I, I had the idea that I wanted to I I didn't want to just own one hundred percent video, right? I wanted to to to because I recognize that the the trend was here and the theme was strong, but that the technology would change so quickly that come unpredictable.

And I didn't think highly enough of my own intelligence to think that I was going to predict every single turn that occurred there. So I wanted to be more diversified with the theme. And you know, I couldn't find anything that met that, that kind of requirement. So I made in myself and and that was kind of, uh, the first thing to be ever published on A I and now you know we've we've got and we we take approach that um is top down and utilizes all the information that's that's available us to cover these market teams as well as we possible can and the kind of the research that investors deserve and research that you'll never read and and get to the end be like, okay, so you know what's the trade here, right? The the the the the the primary focus of everything that we write is, uh, being actually never write anything where you're left wondering if this is something that you should be best in or not.

I I really love your work and a people should check IT out. Thank you again, James, and thank you, everyone, for watching and remind that people can find monetary matters, not just on apple podcast pod five favorite cast apps on youtube, uh, and check out my friend and business partners podcast other people's money.

Thank you.