Is This A Crash or Megabear?

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In their recent episode of the VALUE: After Hours Podcast, Cassel, Taylor, and Carlisle discussed Is This A Crash or Megabear? Here’s an excerpt from the episode:

Tobias: My guess is that we’re going to get a little bit of everything. We’re going to get a stock market– This is a guess. We are going to get a stock market crash here. Probably, going to get [crosstalk] crash.

Bill: We’ve had it. The generalists just haven’t been shot. Everything else has been destroyed other than commodities.

Tobias: I wouldn’t say 20%– [crosstalk]

Bill: You are not. This is fake news.

Jake: [laughs]

Bill: You can’t go with the fucking index top line number, man. You got to look at the internals. The internals have been destroyed. I’ve been counting on that for six months.

Tobias: But you can’t have a stock market until the index crash. It’s not a stock market crash till the index crashes. And that’s always the way that in retrospect, it’s always well and truly flagged ahead of time by the– [crosstalk] other stuff.

Bill: It’s already happened.

Tobias: That’s true. Something happened in the early 2000s. That was big tech sell off full of– [crosstalk] index.

Jake: Half end implies that it’s over, I think is what Toby says.

Tobias: I don’t think it’s over.

Bill: Well, it can go a lot lower. But there’s some stuff, then again, you still have fricking billion dollar frauds out there. So, there’s a lot of excess around. Yeah, I don’t know. [crosstalk]

Jake: Just because something’s down 90%, it doesn’t necessarily mean it’s cheap either. I think that’s something that is probably a good thing to keep stapled to your computer at the moment.

Bill: Yeah. When I sold Qurate at 6 and everybody was like, “It’s cheap.” I was like, “Okay.” We’ll see.

Jake: Well, bragging on him.

Bill: No, it’s not what it is. I just think that sometimes your model doesn’t actually– [crosstalk]

Jake: Catches on fire. [laughs]

Bill: Yeah, it doesn’t fully capture. Yeah, I do think I knew that situation better than most people. So, when I was selling and they were buying I told people, “I don’t really think this is the time to buy.”

Tobias: Just someone asked, “What do I regard as a real stock market crash?” Yeah, I think 2000, 2002 and 2007, 2009, that’s a mega bet. That’s a real stock market crash. Everything else in between is just correction. Even 20% to correction. Having said that, I thought 2016, 2018, 2020, I thought they were all the real thing. So, don’t ask me. I’m going to tell you that it’s the real– [crosstalk]

Bill: This is the real thing.

Jake: One of these times, Toby.

Bill: No, this the real thing.

Tobias: I’m going to call four of them and get one right. [crosstalk]

Jake: Yes.

Tobias: I’m just going to keep on calling it.

Jake: Just make sure you milk that one hard when it does come in.

Tobias: Yeah [crosstalk].

Bill: I don’t know. I am holding cash in case Mike Green is correct. Because if people wake up and they start selling the index, I am very excited to see what happens. Maybe that’s wrong, maybe re-rip and my returns are not as strong as they could have been, but I’m pretty excited.

Tobias: It’s impossible to know– [crosstalk]

Jake: Wouldn’t be better express that as some tail risk product?

Bill: Yes, this is what I’ve been thinking about frigging asset allocation and CTAs for six months, and didn’t do anything, and got my face ripped off. Instead, it was real fun.

Jake: [laughs] The old sucking the thumb maneuver.

Bill: Yeah. So stupid. But asset allocation matters so much more than people talk about, especially people that are obsessed with equities all the time.

Tobias: That’s true. There’s really no good way to time the market. Asset allocation has a better response and that’s determined on your age, how much money you get in the market versus how much money you need for other things and so on. It’s not really a question of trying to timing the markets. It’s just a fool’s errand.

Bill: Well, unlike true portfolio construction, I think a lot of people are finding out that they had eight bets that were really one bet.

Jake: Yeah. Super correlated more than they thought.

Tobias: Well, that’s one of the problems.

Jake: Well, it might be that everyone just had one big rate bet on.

Tobias: That’s what I was going to– Yeah. When you pin rates really, really low.

Jake: [crosstalk] one bet for–

Tobias: 60:40.

Jake: One bet to rule them all. [chuckles]

Tobias: It turns out that just getting long the 30-year in 1982 was the right answer. That’s giving you the best risk adjusted returns all the way in.

Bill: Yeah.

Jake: And then if you levered in.

Bill: Yeah. [crosstalk] smart.

Tobias: Yeah. Now, you are talking my language.

Jake: Now, you’re cooking.

Bill: Yeah.

Tobias: But at some point, Lacy Hunt’s trade runs out. I don’t know where Lacy– We’re riding the 30-year all the way. We’re riding that wave to the beach. That’s over. It’s time pedal back up and find something else.

Jake: and Bill: I don’t know.

Bill: I can understand buying it here.

Tobias: The 30, where is it?

Jake: Deflation?

Bill: Yeah. I think there’s a real possibility for a deflationary bust. We’ve over extrapolated every trend since COVID started. The idea that inflation might not be over extrapolated is not that hard to figure in my head.

Jake: I would say we’ve over extrapolated every trend since we climbed out of the trees.

Tobias: [laughs]

Bill: Yeah. That’s fair.

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