Interview with Jon Lohr, CFA®
Unedited Interview with Jon Lohr (transcript):
SUMMARY KEYWORDS
people, inflation, money, interest rates, shares, stock, amc, happening, holding, robin hood, year, investing, price, market, point, economy, treasuries, john, dogecoin, companies
Michael Baker 00:29
Welcome back to the money huddle. Today is June eighth. And I'm sitting here with Ross Marynell. And today we got a special guest. We have Jon Lohr, who was one of our behind the scenes analysts Advisory Alpha, which is our registered investment advisory firm that we work with. So what's up, guys? What's up, Ross? What's up, john, talk to me. What's going on?
Ross Marynell 00:58
Yeah, dude, it's great to have john with us today. So special guest of the podcast. Jon, is our research analysts. He has gonna share some some thoughts with us. We're gonna we're going to click around a few topics today. So welcome, john, what's going on? And how much I'm happy to be here, guys. Thanks for having me on the show. Very cool. So john, we always start off with something a little goofy that happened in the market today, recently. And so I saw this story kick through Of course, we all remember the ransom that the colonial pipeline recently paid. It was reported Michael Johnson, The Wall Street Journal last night, that the government somehow recovered 64 of the 75 Bitcoin ransom that was paid. So apparently, colonial pipeline paid about $4.4 million dollars to the hackers using 75. bitcoins recovered the majority of it 64. But according to The Wall Street Journal, the cryptocurrency fluctuates dramatically in value, the dollar value recovered was only a little more than half of the value, ransom payments. So fellas, this colonial pipeline have diamond hands? Are they going to hold this back to again? Or is this just a lost? Cause?
Michael Baker 02:13
I think I personally think that they they probably want nothing to do with Bitcoin anymore. After that experience, it will be interesting to see what they do because Bitcoin did drop significantly in value. So they they could, they could do exactly what you're saying they could try to hold it and say, Well, maybe we can recover more of the upside, if we hang out for a little bit, dropping on the news. And maybe it's not as untraceable and anonymous, says, people previously thought, which I saw actually a blurb this morning that that said Bitcoin was down like 7% because of that seizure. And, you know, I'm of the opinion that that's a good thing. I know that some Bitcoin folks would go nuts because they they love the anonymity and they love the security of the blockchain. And like, you don't want to be the choice currency for criminals, like you, you know, you don't want to be that you want if there are bad actors using Bitcoin to transact that, that we have means to, to catch them. And I think it's the whole confiscation part that was freaking people out, but I'm like, Look, man, if the government can make it illegal to so let's was slower roll a little bit.
Ross Marynell 03:35
Yeah, cool. So we have john here today, john, there has been a lot happening in the world of just price prices of materials have become a topic of conversation. We've seen lumber, explode other housing materials, kind of share with us what you're seeing on the inflation front? What's it What's got you thinking, as far as you know, investment allocation, potential upsides or risks, just just get us started? Like, what are we seeing here? What are your thoughts real quick on that?
Jon Lohr 04:13
That's a great question, Ross. So I think, like from a little bit of trader talk perspective is peabo. We were essentially establishing two sides of the two tribes here is one one tribe is is this a transitory experience that's happening in the economy and the other tribe is, would be saying that this is more permanent, and here to stay. It is a period that we used some incredible public deficit spending. That wasn't backed by any revenues or tax receipts. It was just purely of printing, to finance public debt and to put money into the economy. And hopefully see that multiplied through The banking system, which I think it's been a pretty successful program, so far as I mean, on all the reads I see out there is, I get the indication and get the spirit that people are spending money. And it has pushed prices up and sent interest rates down all that are conducive to stimulating demand. So, it's, it's, it's working. It's and, you know, you see, let's see some of the prices, some of the price activities is, you know, in the, in housing and in other places as well.
Michael Baker 05:41
But it's, it's good, though, because, you know, what, what is, you know, john, what you're touching on is we I think it's, we have seen inflation, higher inflation numbers, and we've seen in a while most recent report came out inflation or, you know, the CPI was up over 4%. And there's, there is a debate right now, there's a debate like is this, you know, is this transitory where it'll it'll, you know, even itself out, or are we beginning going to continue to see, you know, inflation and there's, there's two different schools of thought, and both of them have, you know, some good points that they make. One of the, one of the tapes that I've had on that, and as I've shared with that is one of the things that we've been seeing a lot of in the firm in the practice, is a lot of people that are holding cash, or investing in very, very, very conservative bond funds, where they're, they're more afraid of market volatility than they are of losing their purchasing power. And I've been trying to tell people's like, the market volatility is always it's ever present if you're going to be an investor. But so is inflation, inflation is going to run hot, you know, a little bit hotter than normal, we're going to see an accelerated loss of purchasing power, and that's not good for anybody.
Jon Lohr 07:02
Yeah, I mean, I can understand there, I can understand both sides of that argument is you know, using using treasuries and using bonds to again go against or to protect against market volatility, because when you are using things like, you know, intentionally kind of gauging the monetary system with public deficits, and you put the inflationary risk in there, you know, it opens up a lot of uncertainty. And so, I can understand that argument, but also to your point to Miko that if the, if these monetary system is successful in producing enough inflation and sustainable inflation, then it holding cash and holding fixed coupon paying securities is a it will cause you to lose purchasing power Said another way to demonetizing.
Michael Baker 08:01
Well, so I we get these, we get these blurbs. I get, you know, a Monday morning outlook, one of the economists that's been pretty outspoken about things, is Brian Westbury. He's not a huge fan at all of the massive monetary stimulus. And he's one of the few that just doesn't, that doesn't seem to go right in with whatever you know, Washington wants to do. But it is Monday morning outlook that he published this week. A couple of things that he pointed out was he says that the US is still 7.6 million jobs short of where it was in February 2020. He goes yet retail sales, which fell 20% during the year ending in April 2020. Rose 51.2% since then, more than fully recovering. And he says in the past 24 months of total retail sales are up 10% per year on average versus a 3.6% growth rate from 2014 to 2015. He says the only way this is possible is having the government borrow print and distribute money for people to spend today. And he's and he made a comment in that piece about the government's essentially printing money to get people to spend to buy products that they didn't make, you know, and it's like we're we're getting out in front of ourselves way too much with some of this and we could continue to see inflation as a result.
Jon Lohr 09:33
Yeah, I don't I I don't disagree with him. I mean, it i think i think what he says has makes a lot of sense, is economically sound as far as the consumption is being made off of artists artificial. Well, artificial gains, I guess. Maybe that's not the best description, but it's definitely not being made off. more of us. More people coming together and producing things and consuming the things that they produce. I will back to the transitory, whatever I was trying to go out with the transitory or the more permanent change on inflation is a lot of these public deficit spendings is used to stimulate aggregate demand, obviously. But it essentially maybe what we might be seen in the short term here is we've just seen demand push forward, maybe by a year or more, and all the consumption is happening right now. So you see, like reports where there might be 7.6 million jobs short, we might feel short on jobs, about retail sales, are spiking. And these divergent trends are just the fact of pushing the demand forward. And as part of like the transitory camp would go, or argument might go is these things, you know, are a sudden spike, but we should begin to see these things taper off as kind of supplies adjust. And consumption patterns change to the way like interest rates will affect the cost of capital going forward. And, and many other factors,
Ross Marynell 11:16
we're kind of seeing that a little bit too, because I've been tracking lumber futures in it definitely the Well, it looks like it peaked back in early May, and it's starting to come down. So some of those potential prices may be receding a little bit from from the initial surge into the spring. And so maybe that's an argument that would support some of that transitory inflation, because we've pulled ahead so much demand, because there's been so much cash that's in people's pockets from some of the government stimulus that they're ready to spend a little bit in. So maybe that's an argument in favor of that, how, how do we see this affecting? I guess the, the big question is, how does this affect interest rates? And then assuming if if we see interest rates start to rise, how we kind of brace ourselves for maybe a rotation in some asset classes?
Jon Lohr 12:11
Well, inflation is, I think, I think over long term cycles, inflation is probably the largest contributor to interest rate levels. And when I say interest rates, I'm, I'm thinking about the base level interest rate in the economy, the absolute guaranteed interest rate, and that is the US government Treasury rate. And, you know, in traditional times, people don't have much of incentive to hold US Treasury bills for savings to essentially defer their consumption to a future period. If there's if the interest rate won't earn enough money for them to be able to increase expenditures in the future. And so inflation can take that out. So if my purchasing power is less than the future, my incentive is to consume now. And right, but, you know, the consumption now will I mean, inflation and interest rates are kind of like this balancing factor to kind of, you know, match time preferences, current consumption versus future consumption. But yes, it's inflation is it becomes more expensive to consume in the in the current day, if this cycle continues to kind of push like this, it should start to drive into the interest rate, and cause investors to require more, more, more of a return on their capital, per se, like a nominal return on their capital, so they can protect against, you know, these price increases moving forward into the future. So yes, I think over the long term cycle, just recap myself as inflation is absolutely a huge driver of interest rates. And we would expect to see interest rates go up. And as the base rate, the most guaranteed rate of interest in the economy increases, interest rates that carry risk along with them, or uncertainty about their future cash flows are also going to increase as far as a part of as a function of either interest rate or a function of, you know, a higher demand on the government to pay more. So well, you know, and that is going to drive. Okay, so you know, so if we take a corporate bond interest rate, for example, it increases that's going to drive the value of that corporate bond down. But, you know, companies, I think, like a rotation wise and that type of environment is it's hard to say, Well, I
Michael Baker 14:48
think you're one of the things that that, you know, you pointed out was, you know, what we should expect to see, you know, enter rates, interest rates do in response to inflation, and then you talks about people deferring their spending if they could get a better rate of return or an incentive to defer their spending today. But one of the things that we're seeing is, is interest rates haven't really moved too much. They're still they're still relatively low, I took a peek at the US 10 year, and it's like, 1.57% this morning. And, you know, as a, as, you know, kind of a rudimentary way of kind of checking the wind, if you will, I'll do a quick Google search of local credit unions just to see what they're offering with their CD rates. And it's abysmal, it's abysmal right now, yet people are still holding these things. They're there, they're feeling a little bit of pain, of course. But there's a huge cohort of folks that are just not doing what rational economics would say that they should do right now, which is take the money out of the low interest rate, you know, to get a better rate of return somewhere else, a lot of people are just biding down and then during the low rate of return on their cash, and so I'm wondering if that's not going to have some interesting effect to the longer this goes on? Because there's a huge percentage of people that just are very nervous about what the, you know, the continual printing in Washington and the continual spending on things. You know, because they just feel like it's it's completely unsustainable.
Jon Lohr 16:30
Yeah, as far as the low rate I I'm actually encouraged to see that rich interest rates have. I mean, they kind of quickly accelerated they're off the bottom of COVID, which is probably, I mean, in hindsight, should be expected to be seen. When you're going into C COVID, was an extremely deflationary moment. And what what I mean by that is, I mean, it was intentionally deflationary, it shocked the pants off me I'm, I'm happy kind of that the you know, that economies that look like that, you know, we're going to be able to push through this moment, and we kind of we did something that was very intentional, like recessionary and intentional to better the lives of people. But we have so far been able to gravitate our ways back out of this, which has been an incredible experiment to be seeing done. It's by it was an extremely deflationary moment, because it's you shut down the economy and you have no transaction, you limit the capacity of transactions taking place and people doing things is what is going to happen, the prices are going to fall. Well, well, just Likewise, the interest rates fell. And then those low interest rates are expected to get things going back, get things turning around again, and prices that come back up. But so we saw an acceleration of the interest rate get up to I don't know, I would say that it seems like it's had a resistance point of about 1.6% right now. So when it breaks through that resistance, it's kind of like, oh, boy, here we go. Are we off to the races? Or, but then when it comes back down through that resistance, we're like, okay, we can kind of take a sigh of relief and breathe here for a moment. The I think it's interesting to see that it's the interest rate, like on the 10 year treasuries, what we're talking about here. It is, I mean, all this, the timeframe that we've had is just been too short to really make any meaningful description about it or understand about, but it is interesting to see the Treasury kind of fight around that 1.6%. And it's actually has weakened sense and is getting weaker. Now, to me, that spells that this is a kind of a price action that we've seen as of the last 1215 months is a could this possibly be a transitory experience, where we've just pushed demand ahead, we spiked prices, things are going to come back down and moderate that 51% increase in retail sales. You know, it's kind of, you know, we might have to see an ugly number four to like, go go back to average, but these things are mean reverting, right. Um, and, and that interest rate, that low interest rate is saying, hey, people, inflation's actually probably this is like, you know, trillions of dollars voting on this, and it's saying that the price levels like we may not be cut, we not we, I mean, we may not be headed back to a 19, you know, 70s period on the inflation prints. And you know, there are just tech now and you know, and this is another topic maybe for later but, you know, technology is, has done so much in the way that it's changed how we consume in the present day versus how we consumed in the past. That you know, that is a powerful force. That the Federal Reserve Bank has to, you know, battle against when they're trying to keep a healthy level of inflation in the environment, because there are reasons why that is healthy. But it's also what we are consuming to. In the in all in the older days. What was consumed in the economy was more of a physical good. It was, you know, like it was microwaves and cars and refrigerators and, and what, you know, whatever the list goes on today, I like to your point, Ross, when we sit on the internet and consume, we are consuming into tangible goods that are created by companies whose assets are like 90%, intangible assets. It's true.
Ross Marynell 20:46
I'll give you the best example. My kids play games on their technology. We're not buying board games, we're not buying, you know, tic tac toe games. And all this stuff is done through through their technology, right, like the biggest game for kids. I have two two girls that are pretty young. And so their biggest game is Roblox, I talked about it all the time, that has replaced me buying 15 board games, because now they get entertainment from that, whether that's right or wrong. But there's ways that we're consuming things that you're right, we're not spinning the same, on the same things that we were even 10 years ago. And it's hard to track how that consumption is going to change. But I would just put the caveat that we haven't seen interest rate rise substantially yet. But that's what's being I think that's out there. And it's the big question, because if it starts to climb quickly, again, that does challenge some, some sectors of our market more than others. And we've seen this sort of sector rotation happening over the last six months, from sort of growth to value. And we can see that continue if rates rise, who knows? I mean, we don't know what's going to happen here.
Michael Baker 22:06
I mean, we've seen the the rotation from, you know, into value stocks, like, you know, GameStop and an AMC, right, aren't they in the aren't they in the small cap value? And I, hey, real quick.
Ross Marynell 22:24
I had to just yesterday, I had to tune into CNBC just to see what they were talking about. And on the ticker scroll at the bottom, you know how they have all the stock ticker scrolling. They must have had AMC stock ticker show up every 10 seconds. But I mean, I had never seen it was like, you get 10 stock tickers in AMC again. 10 stockers at AMC again, like, okay, we get it, it
Michael Baker 22:49
just shows you that the media will have their skirt. If you're popular enough, it doesn't matter. Like if you have any substance they give the people what they want, give them what they want to see. They actually,
Jon Lohr 23:01
I want to get to all those topics, as those are very interesting things. But I want to just get back on the 10 year interest rate here for one second, because I want to throw the inflation hawks out there those that expect inflation to rise as some kudos here, because it talking about market pricing. You know, there's if you can kind of start to break apart the 10 year interest rate into different components and assign, like, how much of it is attributed to inflation, how much to supply and demand factors, and, you know, etc. But the I'm looking at what they call the 10 year breakeven inflation rate right now. And this is supposed to be the yield that lives in the 10 year nominal rate that is representative of inflation. And this yield has been on the rise since the COVID. Bottom and it really it's kind of paused out now at the time, it kind of like that where it sits today. But it is it's on it's had a strong upward slope. And it hasn't, you know, it's not coming down to say at this point. But this yield right now the the rate that's being assigned to inflation per year over the next two years, say is 2.4%. And you're going to look at that and you're going to say hello but that's higher than that the actual you know, quoted tenure treasure rate of today it's 1.56. But let's call it 1.6 that so the difference between those two yields is negative. So Michael, I think that's back to your point is that treasuries today are being looked at is almost like like the true store of value. I know like a lot of the crypto guys like to get into the store or guys and girls gals like to get into the store of value. conversation, but the treasuries are the real store of value. They are all basically paying you a negative real interest rate to hold them. Which, you know, why would you do that to me? You pay someone to take the risk away from you. That's called insurance. And so you hold treasuries to protect against unwanted volatility in the future. Back to your point, Michael, I think you have an accurate observation there.
Michael Baker 25:31
It's, it's, it's going to be I think, and I'll sum this up with this comment. But I think that the next several months is going to be a massive kind of experiment in human behavior, versus economic forces versus fiscal monetary policy, because there's going to be so many different things moving. I mean, they've got tax policy that they want to pass. They've got, you know, an infrastructure bill that they they can actually pass an infrastructure bill, there's, I think, Republican support for about a trillion dollars in spending. if they'll cut out some of the Democratic, you know, more liberal, wishlist items, I think they could get another trillion dollars of spent. And, you know, the economy reopening and then watching how people Now navigate, like you said, john, like post COVID were such a massive shock to people's systems and watching everybody kind of get their life back on track is going to be an interesting thing to experience in real time.
Ross Marynell 26:38
So let's pivot a little bit. So I saw an interview yesterday, or watched it yesterday for from the general
Michael Baker 26:45
fame. Warren Buffett. Right. And that has subreddit. Yeah, right? This is Jimmy Buffett, not the singer. So Warren's Warren's like third Matthew from his second cousin or something like that.
Ross Marynell 27:03
I'm not taking that shot, but you go right ahead. So listen, he he steered sort of, you know, the history of starting that back in 2012, sort of coming out of the, the wake of the great financial crisis, and, and just wanting to learn more, explore more, try, you know, try to make some headway, some headway with stock investing. And so he starts this forum, and it has become a little bit of a monster in the markets having to deal with it, and they're having an effect on stock prices, for sure. And also, I think, the reaction that they're getting from bigger money managers. And so, you know, in the short, I guess, what their their sort of disruptive model, you kind of have to get, give them kudos that it's working, that they are causing some disruption, they are able to see prices move in stocks that have been highly followed, and, and used. And I guess, you know, the long term ramifications of this, we shall see. But we're seeing, you know, another GameStop, like, reaction in this AMC position. So of course, AMC is the movie theater. And, you know, it was another one with some high short interest that they've been able to expose and squeeze a little bit. And so there's some fascinating things happening again, in this in this realm, but they, they really created almost what I saw the community, because some of it, it's entertaining. They post some pretty hilarious stuff. Some of it's a little out there, if you're not comfortable with it, but they speak their own language. They have, you know, they try and pass along what they call due diligence, and in this sort of Knowledge Center, where they're educating and teaching each other. I mean, is this Southern is this just going to continue because when I was growing up, we didn't have a stock form like this, there was no communication between groups of people across the world that could share ideas on stock investing. I do think there's a level of sort of a revolution happening and just the sheer ability for them to share information so quickly about the same, you know, the same topic. Is this here to stay? Well, Ross Ross,
Jon Lohr 29:21
I mean, there's so much you got to kick in here, john. And I, at the end of the show, Don't remind me I got to get back to the asset rotation around value and growth because of inflation because we kind of gloss over that. But let's let's move on. Yeah, okay. I it's interesting. I I'm, I I love this is an interesting case study. This is something interesting in financial markets that are happening right now that I, I'm, I'm exploring and, and I think, I mean, I'm gonna sound like a bear probably on a lot of these topics in so many ways, but it I'll provide justification for that later, but the Just one thing, Ross, that you said. You said this is a community educating, teaching. That is fascinating. I personally know people that are involved in this stuff with buying and selling a list of kryptos a list of mean stocks, and now they're moving into option premiums. And they're learning about what a call options are, and put options are and how you put spreads together, etc. A lot of this stuff, a single person does not need to know Lee, you know, this stuff is designed to be ran in industry, like when it gets into the options. But but it's so it's not that don't don't, nobody needs to feel inclined to be running out here to catch this stuff. But, you know, this is this when I was when I'm listening to people that I know, explain this stuff to me, I thought has crossed my mind. And it's like, it's like, I mean, it's, it's very cool. Although I think a lot of the views that that the people participate in in these markets have are misguided and misunderstood. They're not really sure. Like, they don't, they don't have clear knowledge about like exactly what they're doing. But what it is helping them do is get a financial education while they're doing it, they're starting to look at stocks, they're starting to look at income statements and balance sheets and, and trying to piece together the puzzle and create kind of mosaics, I think it's a little bit it's way too much of a gambling culture, but they're starting to learn about like, what options are in the economy. And I think that's really what we should do for these young for young people is we need to have better financial education in the school system and teach them about finances in, in a in a in an education and educational setting. But since we probably haven't done that, they they have taken it on initiative themselves to create a community and say, we are going to come out and master this for ourselves, which I do give Him praise for that, you know,
Michael Baker 32:07
I don't know that we will continue to see the same level of you know, fervor that we've witnessed, because, you know, eventually, like people are going to be getting back to work, that people that are going to, you know, a lot of you remember, let's go back into C into like the beginning of all this, we had like this incubation chamber that took place, you know, the economy like shut down, everybody was forced into their homes into isolation onto the internet, a lot of people were given money to put in their pocket, enhanced unemployment benefits, you had a lot of people that were making more money for a while unemployed than they were, you know, so they had money to, you know, pay extra bills, they got stimulus checks, teenagers themselves got stimulus checks. So, you what do you do when you get money in your pocket, but you can't go anywhere and spend it and then all of a sudden, like, Oh, we have, you know, we have Robin Hood, we have e trade we have you know, Coinbase and then every other crypto. So that's what's happened like these folks got this. And then of course, we know the second part or the second act. The market recap wrote just roared back last year, where literally, if you were just putting money into something, you should have seen returns. And so it kind of fueled this idea, like you know that stocks only go up. And all you got to do is just buy stocks. And so this this community starts to form around, you know, these different things. You know, and now to get in there, it's, it is interesting to to, you know, scroll through some of the discussions because you do have some people in there that are, you could tell they're clearly intelligent, and they've done some homework, but a lot of people in there are like, I live it, I'm going I'm going into the moon and you could tell like john said, it is a lot of gambling culture in there. So it's it's entertainment, it's like going is your right, so how do we justify going spending $500 in a Casino in Las Vegas? Well,
Ross Marynell 34:16
I'm entertained. This is this is fun, I could be doing something else. But this is fine. And
Jon Lohr 34:21
to me, it's almost like a positive feedback loop for the type of the spirit of people that live in those internet rooms. I feel like I don't know this for sure. But I suspect like I mean, a lot of these people are smarter on like web platforms and things going on in the internet way smarter than I am. And but, you know, they have been conditioned to grow up in a culture of like social media posts and getting feedback to what they are putting out there to their community. And I feel like what better way to have a positive feedback loop than you are somebody that puts your own due diligence out there on AMC, and Then you, you, you're sitting long and see and you see that puppy spike, you know, 30% and one day for you. I mean, does that not just send the dopamine flowing? Like, absolutely
Michael Baker 35:11
what john 1,000%? Absolutely, yes. I know, I totally agree with that statement. And then for those that crash and burn, they have their built in support system. man made a mistake here, look at this. And there's you look to the comments off, okay, you'll get it back, he'll do this, you know, it's you'll bounce back and watch. And Mike Well, they're playing chicken with oil. And in some cases, you know, everyone's risking different levels of money, right, and they're risking different levels of their net worth. But we've seen the posts where people are saying, I have my entire net worth in this stock, and I'm going to hold on for dear life in my clan are screaming each other like, Please, dear God, don't do that. Just be sensible. And what what fascinates me about this, this collection of, of investors is they have this incredible willingness to take the wheel resizeable style, stock risks and concentrated positions. So sizable components of their net worth, in some cases, at least they're stating in a concentrated stock that's highly volatile and risky. And there have a willingness to get in. But there's they struggle so much on getting out. It's like selling is the failure. And like that is the wrong approach that we're teaching. Because you'll see Hold on, hold on, don't sell, don't sell. It's like, but if you invest in something, you have an enormous return. What's the endgame? And I think if this endgame beings were trying to break the system, or hurt the hedge funds or break the one, yeah, that's a tough thing to execute. Well, that's so that's to me is that's part of the the psychological element of it, because what what unites people better than having like a common, a common theme or common goal or common enemy, you know, and if you say, hey, these hedge funds, you know, they're they're the, you know, these are the people that ever, like, rigged the game in Wall Street. And, and quite frankly, there were some anecdotal stuff that happened. That was hard to look away from, I mean, you know, when they were doing the squeeze on with GameStop, and suddenly Robin Hood goes down and won't let anyone put any orders in, you know, and, you know, that was supposedly, quote unquote, a glitch. And Robin Hood's order flows. But you, you it, like john said, it just reinforces what they all tell each other in the huddle. They're like, hey, Oh, see, see, they knew they knew we were coming for him. And Ross, to your point, this is this, I think this kind of sums up the kind of behavior that I see as being extremely problematic. There was a there was a, an article written, and this isn't about one of the main stock, but it was about Dogecoin. And there was an article written about a guy the first like millionaire Dogecoin. And this, this is a guy who, like literally maxed out all of his credit cards, he borrowed money from friends and family. I think he may have even taken out like a home equity line of credit, I mean, basically, anything that he could to maximize and have access to leverage and debt. He used that to buy Dogecoin Dogecoin was, you know, they were trying to push Dogecoin up? And well, I mean, if you follow it, that, that that price has dropped significantly, but he still owes all that money. You know, it's not like he, he even he didn't even use his own money. He went and like maxed out credit cards, which, you know, credit card interest rates are, you know, like mafia rates. So, you know, I don't know, like, I think that unfortunately, right. We we may not get the flip side of the coin and hear all the horror stories until something has, you know, the market has had another, you know, steep correction or a draw down, where a lot of these folks that are just left out there, they get massacred. And then we hear all the horror stories about oh, this, I did this, and I did that, and I lost everything. And at that point, it'll be too late,
Jon Lohr 39:25
you know, on Robin Hood, kind of creating frictions to trade GameStop I have to I'm not sure I'd have to go back and look, but I remember back then there was there was talks because, you know, like, when when people buy and sell securities, through through the custodian platform, the custodians are there's a period of time where they're kind of lending them to security is the T plus two settlement time takes place. And Robin Hood is turning, you know, taking an asset or giving, you know, an asset to their investors when they're buying but But the maesters funds aren't settled yet. So there's a period of time there where there's kind of like a margin, or money held on debt, and kind of good faith. And I thought, I thought during that time, when Jimmy was just going nuts, Robin Hood was at a point of almost like it was not going to be able to have the liquidity or something to cover all this, you know, this McCann, this financial mechanism, stuff going on in the background, and it was going to maybe cause them to implode on themselves. But you know, there, Robin Hood has some very wealthy private backers behind it. And I believe that those wealthy people injected capital into Robin Hood to keep it keep it alive. But yes, on the on the, on the dangers of what is going on in the market is. So I'm kind of a little bit I have a little bit of an opposite thought on this. As far as like this type of stuff being here to stay? I don't I mean, taking really, really, I don't know, it what this is doing is it's creating it. So the purpose, I mean, one of the primary purposes of smooth function capital market is price transparency. And, and I would say what's happening in this small cap market are and then the Select mean, stocks is nothing, it's not price transparency, have you know, of any tangible net worth behind these assets? And, you know, because I think we agree, it's kind of turned into a gambling game. So I kind of feel like it is not here to stay, it is here to stay until the money runs out. And I'm still trying to kind of figure out, like, how does the money run out? Because when I look at this, I see a community or organization, just cycling profits and losses to one another. You know, they may, they may, Russian they may be selling like right now we've observed the cryptocurrency markets are in decline, but the main stock markets are on the rise. So that's like, profits coming out of one spot to land and another spawn. And, you know, I don't know, I feel like in you know, as this plays out, like, the impact that this money flows in and out has diminishes over time, and the money runs out. And to both of your points is some people are going to be holding the wrong side of the trade when this happens. And they are going to get her and feel it deeply. And that once people start feeling like they just really got stung, and they this they can't trust the doing this stuff. And this is for, you know, other people is the confidence runs out. And when the confidence goes, the market goes.
Ross Marynell 43:03
I agree actually, I think there may be the behavior changes in the way that they're approaching the the investments. But this community's not going to go away that that I would would would would bank on. But the thing is to go just going back to just just us risk management and then be a good risk assessor. You know, you have the willingness to make a, you know, a highly risky, concentrated bet, but maybe not the foresight to get out. But there are people that do and I think sometimes they're enriching people that they don't really may not be aware of because I was looking at this article through Business Insider. So six AMC entertainment executives to call more than $8 million last week after selling shares, the company made a massive rally for the company stock. So check this out. Carlos Chavarria, the Chief Human Resources officer took on the highest profit with 2.5 3,001,346 shares at $62.67. apiece. Thank you, Carla. from Wall Street bets because we have 40,000 shares in January, it was probably worth between 80,000 and 125 $130,000. And the popularity of that stock pushing it up. She had the foresight to say Well $62 is a pretty good share price for me to sell my 40,000 shares. And so she did and so I just think about these these people holding forever This is like hold the Rhine and I'm like I think like to John's point, people are going to lose money.
Michael Baker 44:42
I don't know but as as someone who just can't stand short selling altogether, it wouldn't hurt my feelings if we got rid of it, period.
Jon Lohr 44:51
I mean, my point is if that is if that is indeed happening, and I i've been being told it was but I've never actually gone out there and confirmed that myself That's my point. But if that's actually happening, that's creating a friction in the market where you cannot get to price transparency is, is GameStop. Is is our sorry, we're talking about AMC is is high, is I'm trying to look up the anyway stomach, it's a it's a $26 billion company, right now being valued at $26 billion. Anyways, it's the the stock price is high, in short sellers can get access to the inventory to sell it. It's it's creating what it's creating, I feel like it's creating kind of an artificial support on a tide market valuation right now. And that's, that's a friction in the market. I mean, it's like, if we can insist that friction is removed, if it is there, you know, you pull it, it's like, you know, you pull the carpet out from underneath the you know, and or the tide goes out, and we see who's swimming naked, right?
Ross Marynell 46:00
What is happening in effect, and this is the effect and we I was looking at the I shares Russell 2000 value, ETF ticker IW M. And right now, I'm showing the top three holdings, one is Caesars Entertainment to his AMC in three is GameStop. Now, we'll see how that shifts over time. But yes, they're getting now these stocks are getting tracked in, you know, higher exposure in in ETFs, because of their market cap. And so this has a trickle down effect. And in some ways, well, it's helped this index also performed well,
Jon Lohr 46:35
the the play, the longer the patient investor, it does kind of penalize them these price discrepancies or this these frictions in the market. These, you know, it impacts, it impacts what capital markets are intended to do or designed to do. And, you know, to, you know, you've got, the meme starts sitting in the top 10 of, you know, market cap weighted financial vehicles that investors use to gain exposure to certain asset classes. Which is, I think it maybe opens the door to very high volatility in the future. I mean, if we're talking about these stocks, kind of being in bubble mode, which we it sounds like we kind of are, you know, just being inflated off just pure speculation and greed, through Wall Street bats, you know, these and they get pushed up to the top of the holdings that people are holding as an investment funds. If then float, if the air is led out of these things, people holding the small cap index or whatever are, should be expected to see the small cap index come down in its market capitalization or its total equity value. You know, now, I'll say if you've been holding small cats for a while, and you wrote it up with this experience, you know, it you probably don't have much to worry about, even if you come down, I kind of just look at is like, even if it went up and down, it was kind of like gains that were there that probably weren't supposed to be there in the first place. You know?
Michael Baker 48:23
Well, john, to your point in kind of the talk, you know, just to touch on what Ross was saying is, yes, your your investors that are, you know, using funds or index to an index fund, for example, to gain exposure, it's also a time for them to be disciplined and realize what's going on, and, you know, rebalance the weighting of that in their portfolio and versus just letting it, you know, go way outside the tolerance band that they would have for that specific allocation, and listen was just all in on small cap value, which I'm sure that someone out there in the world, that's their their thing, but for the most part, most people aren't doing that, but it's like, hey, whoa, this position has really grown, that's an opportunity for them to practice that discipline that we're talking about, and rebalance that into, you know, some of the other you know, positions otherwise, if you're like, well, this, you know, I can't sell it now, because it's up 60% Well, that you're doing the same behavior that these people with the stocks themselves are doing just just you have a little bit better diversification to help your downside, but it's the same behavior.
Jon Lohr 49:35
Yeah, it's a great I mean, it would be a great time to kind of look at you know, what that small cap weight is in your portfolio and where it should be. You know, for you know, for your strategic goals are your long term investing goals. And if you are out of balance there, I mean, what a great What a great time to take, you know, you know, set take some profits. Hi and get back to target. Can I say one more thing about this, this what's going on to is I am, there's another component of this I'm becoming increasingly more interested about, from like a theory of like, capital allocation. And, you know, I, I'm completely open to this wall street bats in this Reddit group saving these companies and and proving me wrong, and I'm gonna I mean, I will be the first to shout them praise if they can, if AMC can reinvent itself into the next mainstream company that's going to be in American lives for the next 20 years, you know, but this is a really interesting thing, because we've seen these companies now they've had, you know, their their share policies I have, they've had shares in Treasury anyways, I don't need getting details, but they their share policies have make it as possible for them to put more shares out into the marketplace, basically get a bank to put more shares to go out and issue shares, and raise capital and bring it into the balance sheets of these companies. And, you know, we've seen GameStop is is doing its share it, you know, it's issuing has issued shares, and AMC is now the the latest news on another company issuing shares taking advantage of the high stock price, issuing shares. It is funny, though, you said that was the CFO of AFC that was or AMC that was selling stocks that chief Chief Human Resources officer and things you got to ask why they're doing them. But but that insider might be saying there's no way like this is a free lunch, you know, like, but and But anyways, back to the back to the capital allocation is we are giving companies that are secular or secular Lee, their business models are on a decline, like the movie theaters aren't what they used to be back in the day or retail. Conducting video game transactions to a retail shop, a physical brick and mortar shop is not, it's not really what's happening anymore, or, you know, immediate, things have changed. So it'll be interesting. I mean, if these companies are able to take their stock proceeds, and reinvent themselves into, you know, companies that actually are serving the current economy, that's going to be an incredible accomplishment, it's going to take some serious brainpower by corporate managers to figure that out. But what I really hate to see is a capital allocation or a car or economy or our our society experience a moment in time, where we're rewarding a dying asset, we're giving more extending more life to things that through the natural like vote through the natural voting machine and money that are meant to go out to be replaced with other things that are going to end and I would just hate to see like, people are gonna be holding AMC shit that AMC is going to get a whole bunch of capital and all that capital is going to be to do is spend more money on expenses than take more money in on revenues. It's just going to be a five years of just depletion that money went nowhere. It was a deadweight loss. I'm off my soapbox so
Michael Baker 53:32
they bail bailed out the bondholders and all the all the executives get their get to exercise their stock option.
Ross Marynell 53:39
Okay, okay, I this is this is where I diverged from my appreciation of the Wall Street, Brad's crowd is you have a tactical trading position. Listen, if you if you can legally make money trading a stock, go for it, don't try and tell me the justification as to why it's worth that price. Because I'm not hearing it. And I look at these dying industries, I'm looking at revenues declining dramatically, and I see the capital infusion and to me every dollar that gets in there is a wasted opportunity for that money to be in a better business in the hands of a better allocator in the hands of a better executive to manage that money and produce something more for our economy. So I'm I just I'm fine if you if trade to make money, you're having fun you're learning Go for it. Don't try and tell me the justification as to why some of these things are worth it cuz I don't see it. The pivot they would have to make to be worth that amount of of market cap is unbelievable. In my opinion. That's just me. And that's so have fun trading make money. Don't try and tell me amcs should be valued at this.
Jon Lohr 54:48
Yeah. Do you want to go I mean, dude, you know, I mean, do we want to be stuck in a dinosaur age of going to the the go into the movie theater is a fun experience. Don't get me wrong, the popcorn the smell. I love it, it's not going to go away. It's just probably its footprint is too large. When media can get direct to the consumer now, it's almost like it doesn't the distribution channels don't need to be as large as they once were in the past is, yeah. But
Michael Baker 55:17
we'll let you know the Roswell, you what you're talking about is what we tell people all the time is we buy emotionally and then we try to justify with logic. And it's, that's all that is, is like, so why did you buy it? And people start trying to tell you like 10 different reasons like, you know, this analysis that they've done. And like, that's not why you bought it.
Ross Marynell 55:37
No, it was a funny meme. You laughed. You have. It's it's funny. It's like they were there during that interview with the Wall Street bets. creator. Yeah, he was talking about leverage. And I'm like these kids, they have cell phone, let's call it cell phone leverage.
Jon Lohr 55:53
Well, that's one thing I noticed with talking to the individuals I know is, I mean, I could not believe I've seen I've been standing in front of them, I could not believe how quick they could pop their cell phone up and in trade real life money. I it shocked me, I was like, I, I didn't even know that was a possibility. It shouldn't be. Like, I just feel like it. But I could be wrong in that. But I had another another example is, I was talking to an individual who bought call options on a particular stock. And in this person has zero experience with call any options. They don't even I said okay, I my question to them was, you know how to close that call option out when the time comes? Right? Oh, yeah, they've got it all set up. For me, all I have to do is push this button that says close option or is on mom's like, Okay, well, that the brokerage entity or whatever is doing the mechanics for you behind the scene, and that makes it better for the consumer. So that's awesome. But it's like, holy cow. It's just I think it's important for a person to know what they're doing. If they're going to do these things. If you don't know what you're doing, you probably shouldn't be doing
Michael Baker 57:11
Hey, no, we will, john, we will not only will we hand you the hand grenade, we will pull the pin for you. Yes.
Ross Marynell 57:19
Now, we were kind of joking about it, that this is reality that this being lived in. Yes, there will be a handful, you know, there will be some people make significant profit. And, you know, all kudos to them. And I and I'm just fearful of those that are going to leave,
Jon Lohr 57:36
I think I think a lot of people are gonna, you know, I think there's a trap out there to get caught into and it's just, you know, I'm personally trying to make a choices. I mean, I, I don't leave and what's happening, so I'm not going to participate in it. But I also like on principles to is because of like, the human emotion that can come out of this is someone can begin to say I'm only going to put a look what I can lose on this stock. And, and most of our responses are like, have have fun, I hope you make lots of money. But what I think we're the problem could compound if you are on a lucky if you are lucky on the lucky side of the trade, and you hit 50% return. And maybe you do that three or four times. And it feels good. Your overconfidence really starts to overtake you. And also the the goodness of that feeling of like getting the positive Filo but but being on the right side of the trade is what you were willing to lose might accumulate into? Well, now I can I'm doing good at this, I'm pretty well I must have a talent for this. I must, I must know what I'm doing. And it accumulates to a bigger pool of capital and a larger pool of capital and an even larger pool of capital pretty soon. I'm not saying this is going to be for everyone. But there might be some out there that they do get find themselves over stretched and they demon and intend to start that way.
Ross Marynell 59:09
I can't agree more. I think it's we're living it. We're seeing it in real time.
Jon Lohr 59:15
Amen to those people that are making gains on I don't know, Dogecoin and then going off and paying off mortgages. I mean, there's been fake money that make real money, decisions. I love it. But Oh, well. Okay. No,
Michael Baker 59:29
I mean, there's there's always I mean, in that I think that though those people that do that, to me like this should be commended, because yes, I mean, do we do we fully understand? No, do we do we think it's like, you know, fake unicorn money? Yes. But they read the economic benefits of it and they're taking that and they're doing something that could be like life changing for themselves, but like paying off mortgage or, you know, paying off student loan debt or something like that, and people that have that type of, you know, fortitude just to say, you know what, hey, this is my exit point, I'm out. This is life changing for me those people should be absolutely commended for that. But you know what, I think one thing, you know, we're on the hour. So I'll kind of, you know, begin to wrap this up. But one of the things just I've, I've kind of thought about while we were we were sharing was, there's always something, right, when it comes to investing, there's always going to be something that's going on, that is a temptation to pull people off of their plan. When it comes to investing, you know, oh, there's going to be inflation. So you gotta hurry up and, and do this, or Oh, there's people making boatloads of money over here. Do you know trading mean stocks, you need to like get rid of your boring portfolio and get over here and, and get this growth? There's always going to be some story in the background, driving a media narrative driving headlines, that is there. Really just as a distraction to keep people from staying focused on what their long term plan is? What do you guys think about that?
Jon Lohr 1:01:18
I think you sound like a wise financial planner, Michael. That's what I think. So yes, you're right. And I think that I, I agree with everything you said,
Ross Marynell 1:01:28
because like you said, there's forces bonus left to right all the time. And sometimes the best thing to do is just stay the course,
Jon Lohr 1:01:33
investing favors the patient, that is so true. Because when you're investing you're looking for, I will assume you're investing in businesses. And when you're investing in businesses, your thing is to look for strong businesses. And strong businesses don't print money overnight, it takes time for their, for their, you know, for their growth to happen. And and I'm you know, I when, you know, when I look at businesses and what what size, you know, what they're being valued at, and, etc, and like in in look at kind of like what they're trying to accomplish, you know, you know, I try to think about, you know, seven to 10 year period, if this you know, product is grows or product or service grows and against accept market acceptance. And there's actually a addressable market out there that's not being served at this company will eventually, you know, serve more as it is, is the product gains acceptance, is the company's value could move higher and translate into compounded returns. But that is a process that takes time to happen. And and so I think that was a you know, they don't investing favors the patient. That's a great,
Michael Baker 1:02:53
that's a great analogy. I mean, we'd say all the time, you know, we can't microwave our way to wealth, it takes time to do that. So well, thank you all for just joining us with this chat. I would say fireside chat, because it had that kind of feel. But we're all in our little home studios right now. So. But john, thank you for joining us, and we'll definitely have to get you on here again, to chop it up a little bit more. JOHN writes, market commentary for you know, our advisory firms and we'll make sure we share some of that with you guys, as he puts that out for us to provide for you. And thank you guys for listening. If you got anything you want us to talk about in future shows. I know there's a lot of stuff out there where people have questions, feel free to shoot us an email at themoneyhuddle@vcplanning.com. And as always, we'll talk to you next time.
Sources mentioned in the show:
US Retrieves Bitcoin ransom paid to hackers
First Dogecoin Millionaire Goes All-in
Brian Wesbury's Monday Morning Outlook-- Unsustainable
Bitcoin price slips because of Musk tweet