Small-Caps Ready To Rip

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During their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discussed Small-Caps Ready To Rip. Here’s an excerpt from the episode:

Tobias: Yeah. It’s very, very hard to know. I don’t know, I think it looks pretty nasty, but there are plenty of people out there who feel the other way. I saw somebody say, today, I almost retweeted it, but I didn’t. But it was that, “The line of reasoning was small caps are primed to do very well in the second half of the year as people realize that the economy is not as bad as they thought it was, and it starts going well.” I was like, “Well, I agree with half of this, but not the other half.”

Jake: [laughs] Except for all.

Bill: Yeah. Except for the economy doing well part?

Jake: Yeah, right.

Tobias: I agree with the small caps are going to do well. But I don’t know. I think it’s just a valuation thing. I just think they’re so squashed. They really don’t have to do much to do pretty well here.

Jake: Are we back into that where bad news is good news again though? Where it’s like, well, the Fed is going to have to lower rates, so stocks are going to rip. So, let’s just– [crosstalk]

Bill: They’re not lowering rates.

Tobias: Yeah, it sounded like Powell’s pretty–

Jake: If things go bad enough.

Bill: They’re not lowering rates. They’re going high.

Tobias: Powell got asked a very direct question, and he basically said inflation is still too high. We’re brazing through the rest of the year, two more times.

Jake: Twice. Yeah, I think anybody that thinks that they’re going to lower rates is not listening.

Tobias: Do you think it was– [crosstalk]

Jake: We’ll see when.

Tobias: That’s true. I agree. You’re right, JT. It’s funny though, like, why skip then– If you’re so resolute, why skip or pause or whatever they did?

Jake: Yeah.

Tobias: Particularly, when you saw NVIDIA has gone absolute bananas.

Jake: Just raise [crosstalk] like that. Raise it today, if you’re that resolute about it and you really want to get it under control.

Bill: I don’t know. I actually like what he said. He said, “We’ve come a long way, very fast. We’re going to let it marinate for a little while, but we still think we have higher to go.” I don’t mind not crashing through a wall just for the sake of crashing through a wall. Anyway, real quick. I found my unit deliveries. Shoutout to Daloopa. Yes, 6,376 units were delivered versus 12,031. So, that’s a big drop. So, anyway, I tend to agree with you. I think it’s hard to parse through some of this stuff. I don’t know how to model the other side of a 50% unit decline. Anyone that does, please help.

Jake: [laughs] In the teeth of a recession.

Bill: Yeah, I think.

Jake: All kinds of inequality. [laughs]

Tobias: Yeah. Is Powell Volcker?

Bill: I have no idea on these matters. Inflation reduction spending hasn’t even kicked in yet really.

Tobias: Inflation is down. It’s working.

Jake: [laughs]

Bill: We’ll see.

Jake: How’s a giant deficit in lower inflation?

Bill: I don’t think it does.

Tobias: This is why the economics is hard.

Jake: Okay. This is why I almost flunked out of macro, I think.

Bill: According to GMO, it does help corporate profit margins.

Jake: Yeah, that’s true. The dog did eat their homework on that one, right? That’s what money said.

Bill: So, profit margins may go higher.

Jake: Oh, my God.

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