In their latest episode of the VALUE: After Hours Podcast, Tobias Carlisle, Jake Taylor, and Michael Gayed discuss:
- Tech Dominance Is Breaking the Market Cycle
- Are Markets Just a Casino Now?
- Big vs. Small: How Business Size Shapes Survival & Success
- Luck vs. Skill in Investing: Why There Are No Gurus, Only Cycles
- Tariffs, Inflation & Volatility: Are We in an Economic Simulation?
- Has Passive Investing Peaked?
- From Fartcoin to MicroStrategy: The Rise of Speculative Trading
- Speculation vs. Investing: Has the Market Completely Detached from Reality?
- Nominal vs. Real Wealth: The Economic Illusion Driving Elections
- Will Small Caps Outperform? The Case for Deregulation as a Market Catalyst
- Small Caps vs. Credit Spreads: Is the Market Sending Mixed Signals?
- Market Timing vs. Behavioral Time: Why Investors Struggle with Patience
- The Evolution of Value Investing: Why No One Uses Price-to-Book Anymore
You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:
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Transcript
Tobias: This meeting is being livestreamed. That means it’s Value: After Hours. I’m Tobias Carlisle. Joined as always by my cohost, Jake Taylor. Our special guest today is Michael Gayed. He’s the publisher of the Lead Lag Report, the promoter of the Lumber/Gold Ratio, which I think is a really interesting one. We’re going to talk about that a little bit. How are you, Michael? You’re muted.
Michael: Yeah. I’m such a good promoter, I mute myself–
[laughter]Michael: Yeah, promoter is a funny word.
Tobias: Promulgator?
Michael: Yeah, probably.
Tobias: Yeah. That’s the wrong word. Sorry about that.
Michael: No, no, no. You know what’s funny, is like people will say like if you’re self-promoting that you’re a grifter.
Tobias: Yeah. [crosstalk]
Michael: It’s like, you see that on social media and it’s like, “Really, guys?” It’s like, “If you’re trying to run a business, if you don’t promote yourself, who’s going to promote for you?
Tobias: 100%
Michael: If you don’t promote yourself, who’s going to promote for you? How do you grow business otherwise?” Anyway, more of a side, but I appreciate the invite.
Tobias: Yeah, my pleasure. I’ve known you for a little while through social media. We’ve chatted a few times in podcasts like this, but not outside of that. So, I was just interested to know your– The setup is S&P 500 and the Qs are the best performed asset class in the world, you can get them for nine basis points, why would you do anything else?
Michael: It’s hard to argue with that.
[laughter]Jake: Checkmate.
Michael: Yeah. No. Okay, so–
Tobias: Thanks for coming, everybody.
[laughter]===
Has Passive Investing Peaked?
Michael: Yeah. This has been a great podcast, actually. No. Okay. So, first of all, let’s be very clear about something. Every strategy has times when it works, times when it doesn’t. Every strategy has cycles where it works, cycles where it doesn’t. Every strategy is also a back test. Buying hold is a back test. To back test with one trade, sure. Still back test. I say that because people always criticize strategies that use some form of back testing, meanwhile they’ll believe in passive. It’s just a complete inconsistency, logically speaking.
Okay. So, you’re in this cycle here where really since QE3, September 10th or 11th of 2012. I know that date is seared in my mind, because that’s when I launched my mutual fund. When I launched my mutual fund, literally the day of QE3. Ever since then, it’s been a cycle where it’s been purely about passive large cap S&P 500 Qs, NASDAQ, and anything and everything else lags. You have plenty of cycles like that, not as long as this one. But there have been plenty of times where you see that type of paper.
This has been a prolonged period where it’s been a game of just passive S&P, just NASDAQ. But I still believe in cycles. I also believe that when something becomes the only game in town, it’s game over. Because at some point, it becomes a crowd of trade. At some point, there’s some kind of dislocation. It’s like, if everybody’s on the same side of the boat holding anvil, you want to get out of that boat. I think we’re at that stage, or actually pretty close to it, at least, when you look at household allocations to equities. When you look at those stats, it’s the S&P, it’s Vanguard market cap weighted.
When you look at sentiment surveys, you look at positioning, you look at short interest, everything basically says we’re in a passive bubble of sorts. So, to say that just because you can get a bubble cheap and the bubbles works means you should just ignore everything else. To me, that’s a mistake.
Tobias: I tend to agree with that date as the beginning of that cycle, because I published this little chart all the time, just taking Fama-French price ratios. You can take your pick. But price to cash flow I think is the one– I like to use price to cash flow, because everybody’s got a criticism of price to book for the obvious reasons, price to earnings, whatever. So, price to cash flow seems to be everybody agrees that that one’s acceptable.
And then, I use the market capitalization weighted. So, it’s not a small company phenomenon. I’m trying to find every reason that I can, why you’d argue against this chart. What it shows is is that the data starts in 1963 or something like that. It runs in that the decile 10, which is the cheapest, what they regard as the value decile versus decile 1, which is the most expensive, glamour, whatever you want to call it.
There’s this very marked out performance for the value strategies until 2010 to 2015, somewhere in there, depending on which strategy you choose. Then there’s this massive drawdown, like nothing we’ve seen in that data running back to 1963. And that drawdown has run basically until– It bottomed in 2020, and then it did seem like there was a bounce coming– down 72% on a relative basis to the most expensive one. It bounced a little bit, but now we’re back to where we were at the biggest part of the drawdown.
So, either that is fundamentally broken and can’t recover. I don’t believe that, but I have to acknowledge that that’s a possibility or there’s this great performance coming in front of us. I don’t know which one it is, but I’m interested to hear why– It’s not broken. Feel free to– [laughs]
===
Tech Dominance Is Breaking the Market Cycle
Michael: No, no, that’s good, actually. So, let’s play with this.
Jake: Confirm my priors, please.
[laughter]Michael: Right. Misery loves company, especially in podcasts. Okay, let’s play with that. Let’s talk through the fundamentally broken argument. Yeah. Broadly speaking, why is it that growth has outperformed value? Why is it that US has outperformed international? Why is it that large has outperformed small? The answer is the same across all three. It’s tech.
Tobias: Yeah.
Michael: It’s not a factor dynamic. It’s a sector dynamic, right?
Tobias: Yeah.
Michael: Large cap is dominated by tech companies, small caps are not. US is tech dominant, international is not. Growth is tech, value is not. Value is financials, industrial’s tech. So, the argument that’s fundamentally broken is that we’re in an era where tech is everything, that this is the world that we’re in that the exponential nature of technology makes it impossible for other companies to possibly catch up. It’s beyond winner take all within tech, it’s going to take all across the entire system. I think there is actually a legitimate argument for that,-
Tobias: Yeah.
Michael: -which scares the ever-living crap out of me.
Tobias: Yeah.
Jake: Yeah.
Michael: Because what’s the implication of that? Then, what are we doing?
Tobias: Marc Andreessen says, “Software eats the world.” Marc Andreessen seems to be right so far.
Michael: Yeah. Okay. Now, the other side of it is so far. If it’s not fundamentally broken, then it’s a cycle. Okay. So, if it’s a cycle, what becomes the catalyst for the cycle to break? Because you need something. Time doesn’t seem to be enough, because it’s already been a long time. We don’t know what that would be. But I would submit to you that the only way you get that big catch up is if you shake the money that’s playing the momentum in tech. And if you shake that momentum in tech on a sustained basis, then that money will eventually rotate international into value into small. [crosstalk]
Tobias: Traditionally, it’s been a crash that has created that transition. 2020 looked like a crash, but in retrospect, it’s probably more like a flash crash. It was more–
Michael: Yeah, I agree. Yeah.
Tobias: It didn’t really cause anybody to change anything. And if anything, what it showed was that you really needed more tech, because tech was the thing that bounced hardest out of the bottom then. What do you think about Michael Green’s thesis that it’s basically flows from passive that have just gone to winners, and so the winners just keep on winning. The biggest market capitalizations attract the bulk of the flows, and so therefore it doesn’t turn around.
Michael: Yeah, I’ve called that structural insanity, [Tobias laughs] because it’s structural. Because literally, that’s the default option is to go into equities, which are basically market cap, weighted vehicles and 401(k)s. So, you have this auto bid, which is basically the Michael Green argument around passive. It’s structural, because it’s the default option. People are not even realizing that they’re putting a portion of the income automatically into basically the largest companies in terms of the allocations. Again, it’s worked, but it also creates distortions.
So, take it to the logical conclusion. If we’re in a world where everything is broken, it’s purely passive. The true value of anything that’s active is what, that it’s fundamentally rewarding companies that are doing the right thing, in terms of profitability, in terms of earnings, in terms everything.
Market prices are a signal to a company that they’re doing something right or wrong also. And you need active management for that to play out, for that signal to mean something. If everything has gone passive, then there’s no signal for individual companies, which means that companies end up floating to the top, maybe not because they’re actually good companies, but just because of their relative weighted position in the index everybody’s buying automatically.
Take that to the further logical conclusion. We’ve seen this incredible concentration keep on building. I looked at the NASDAQ-100 in 2010, the top 10 holdings were, I think 49%, now they’re 60%. I think maybe even be more than that. All right, so then at what point does the passive auto bid, which is causing more and more of that concentration risk at the top? At what point then is it not a market anymore? At what point is it, are these tech companies now the too big to fail dynamic, which means that anytime you have a market crash, the Fed is not stepping in to save the economy. They’re stepping to save five companies or six companies or seven, whatever it is, because it’s such an outsized contributor total return.
I find that to be very disturbing. I really do. Listen, I spent my youth studying markets, reading old books on markets and really getting into the historical terms on technical analysis. This is not the way investing is supposed to be, but it’s the way that people think of this.
===
From Fartcoin to MicroStrategy: The Rise of Speculative Trading
Tobias: I think that’s Michael Green’s thesis is basically that the continued drip from passive ultimately turns into a crack up boom, which is followed by a crack up crap followed by a crash. The idea is that as active leaves the market and passive becomes the marginal bid. It’s only active selling, because passive has no reason to sell, active has some presumably valuation or some other reason for selling.
I still think that that creates an opportunity on the other side where there must be better companies that aren’t being valued just by virtue of the fact that they’re small. And so, there should be arbitrageable profits there that aren’t being arbitraged. So, surely, value and other fundamental strategies are able to pick those up and profit, but it doesn’t seem to be reflected in the returns so far anyway.
Michael: For it to be arbitrageable, you need to have players in the game who care to arbitrage. I think this is another interesting dynamic about the cycle that we’re in. Other than the GameStop saga, which you can argue was a community of people that were wildly into all the nuances about the company, and the short interest and all this stuff, for the most part, why should money think about undervalued opportunities when they can YOLO into a 2x single stock that is up 100% in three, four months?
Tobias: Well, that’s true. It’s not only GameStop. It’s AMC. Tesla is the original meme stock probably.
Michael: Yeah. You’ve never had a cycle where you’ve had so many different ways of playing a very aggressive position, with either leverage or option, whatever it is. The ease of access of all that, we never had that, ever, like structural.
Jake: You could lever up sitting on the toilet now. When it was quite a bit harder to do that before when you had to call your broker and go on [crosstalk] margin and– [laughs]
Michael: You can buy Fartcoin while you’re on the toilet, right?
Tobias: You can buy bitcoin directly. You can get MicroStrategy leverage on the bitcoin and then you can get two by MicroStrategy. I think that’s the limit so far. But two buy MicroStrategy– Or, you can play it with options as well. All of that just seems to be– It’s this virtuous circle and it only goes in one direction. I think that probably that breaks down at some point, but I thought it would have broken down a lot sooner than it already has.
Michael: I agree with you 100%. This is something I’m battling myself now. Look, I’ve been wrong about my assessment around a credit event when I was very loud about it in 2023. I was wrong about it with hindsight, because I never thought that on the one hand, the Fed would be hiking rates at the same time, Yellen’s injecting liquidity, which is why credit spreads kept on tightening. The insanity of it is that that’s why we still have inflation. The treasury never allowed the Fed to fully drain the liquidity out, because they kept on putting it instead.
So, I’m fighting with this argument that I’m some permabear. I keep stressing– I’ve been in the content game for 15 years. You can’t be a permabear, and be in the content game for 15 years, all right? What I tell people is that it’s not that I’m bearish on stocks. It’s that I’m bullish on a tail event. I believe that all of these things that we’re seeing are precursors, they’re conditions that result in an accident. I don’t know when.
I’ve been screaming about the reverse carrier trade since October of 2023 as being a risk, all right? Suddenly, it happens for two days in August of 2024. I didn’t think it was going to happen suddenly in August 2024. I didn’t think it would last just two days.
Jake: It was over before it began.
Michael: That day was crazy. I had 15 million organic impressions on X. Organic, 15 million impressions that single day. Everyone’s high fiving me, and I myself said, I bet you what they’re going to rally it now, because everyone now suddenly is a bearish expert on the yen carry trade. I still think that’s a risk. But it’s like, you can be bullish on a tail event, but in this environment where you have a lot of players who have– you can argue, maybe unjustified by skill, justified by luck, success by yoloing in these levered products that causes them to think they are smarter than the person that is trying to do something more thoughtful in a cycle that doesn’t favor thoughtfulness. It’s maddening.
Tobias: Yeah, it’s been a long cycle like that. I thought 2020, it was the break, but then it rallied after that, so then maybe 2022. I thought that there was pretty good evidence for some sort of recession around 2022, 2023. The NBER didn’t declare it, so it didn’t happen officially. But if you can look at across any number of metrics, there’s this pretty clear dip that year that did turn around and ultimately, which is what all recessions ultimately do.
I think the stock market followed it. It just said it wasn’t ever declared by the NBER, but I think it happened, honestly.
Jake: The trillion-dollar deficit can kick the can down the road, can it, right?
Tobias: Yeah.
===
Are Markets Just a Casino Now?
Michael: Well, which goes back to why I find the environment disturbing. It’s distorting market signals. It’s distorting– It actually distorts efficiency. It’s like where is capital best treated attributes to the companies where fundamentally they’re strong and solid. I’ve used that line many times before. I’ve been wrong, because the market– the S&P, not the market, has kept on doing what it’s doing. I keep saying, when a rising tide does not lift old boats, everybody drowns.
So, in the same way, we have two Americas. In the same way, we have the very rich and everybody else. The stock market has become the parallel of everything else around us, where you have basically the Pareto principle on steroids. It’s just– [crosstalk]
Tobias: Pareto squared.
Michael: Yeah. And then, it’s like, all right, well, what’s the implication of that? The implication of that is a very uneven environment. It’s beyond just haves and have nots. It is at the core through which people interact with each other. It creates this gambling mindset, which is why you ask anybody on the street, “Hey, do you have DraftKings on your phone?” I can almost guarantee you almost everybody has DraftKings on their phone. They’re doing parlays. They do this–
Everything post-COVID has resulted in something really fascinating culturally in that it’s become this environment where people just say, “You know what? The hell with everything. I’m going to just gamble.” Gambling is now available in any which way you want. Whether it’s at the actual physical casino or sitting on the toilet on your phone buying Fartcoin. [laughs]
Jake: Yeah, there is does feel a bit of a financial nihilism that probably set in and created some interesting societal impacts. [crosstalk] I’m actually quite disturbed by it, to be honest. I think it’s not a good thing for your civilization to be too anchored to gambling.
Michael: No. Well, it’s rather a circus, because it’s like everybody’s just getting the dopamine hit from gambling. You really think you can have democracy working with people are just not thinking, they just want the dopamine. And then, by the way, that’s the other thing. As you get these dopamine hits, at some point, your body acclimates to it, which means you need even bigger hits. And it creates people taking on more drugs, taking on more alcohol, taking on bigger bets. And it’s like, “Guys, you really want to encourage this?”
Tobias: I think that the nihilism is not– it’s understandable in the sense it’s so hard to get on real estate relative to incomes is as stretched as it’s ever been. Mortgage payments relative to incomes is as stretched as it’s ever been. So, people buy–
Jake: Still buying that?
Tobias: Yeah. So, people buy expensive cars and gamble as a way of feeling better, because the expensive cars within reach, whereas the house is not. You can gamble and maybe you hit it big enough that you can then go and afford the mansion.
Michael: Yeah. Look, [chuckles] it’s even culminated in our president having a meme coin, which I don’t know if he claims, he has or hasn’t, but the whole thing is just very weird to me. It does feel like a simulation.
Tobias: Truly bizarre.
Michael: Right.
Tobias: I don’t know, is he associated with it? It just seems insane to have done that before he went in.
===
Speculation vs. Investing: Has the Market Completely Detached from Reality?
Michael: Well, and there’s [unintelligible 00:19:47] When I was ranting on it non-stop on X, some of these posters got like one and a half million views. I said, it’s an effing disgrace, because this is a disgrace. Even if he’s not involved, he should say I’m not involved. He should say it that day.
Tobias: Does he hold? Has he been issued shares in it or whatever it is, units in it?
Michael: I don’t even know. I saw something that like, if he’s not supposed to pro algorithmically sell it until three years later. I don’t even know. But it’s just like, “What the hell [Tobias laughs] is going on here, guys?” Whatever happened to just like, I don’t know, looking at earnings reports and looking at margin, it’s like this is what’s happened. It’s disappointing, because if you build a career on a system that no longer is, what are you supposed to do after that?
Tobias: Well, I would think that the argument would be that the fundamentals– This has always been the case. If you go back and you read Graham from the 1940s, he’s saying that there’s rampant speculation, we’re completely detached from asset values and there’s a consequence to that where you ultimately get a crash. And so, you have to find some way of proceeding that’s not purely theoretical. He says, one way you can do that.
Valuation, ultimately, you do have rights as a shareholder to the assets and to the dividends out of the company. And so, that tethers you to some fundamental that’s real. And if you can get those things, then you aren’t proceeding on the basis of just something that’s completely made up. You may not get the multiple expansion, but you’ll at least get the flows of the underlying business, which ultimately, that’s what I’m trying to do here. That’s what I’m in this business for.
So, I don’t feel like it’s changed that much. Maybe it’s on steroids. We’ve never had social media, where someone could show off how much money they’ve made speculating on something so easily, and the Lambos and whatever that they’ve bought with it, and then have someone able to then download immediately an app that allows them to go on trade immediately to replicate the same thing.
I remember the poker boom from the early 2000s, when ultimately that did collapse. I don’t know, either it collapsed under its own weight or when it was made illegal, but I remember a guy who walked the length or the breadth of America pushing a wheelbarrow, because he had lost so much money in poker and it was his way of doing penitence for losing all of that money. We don’t see those or yet, we haven’t seen those gestures by anybody who’s lost a lot of money. We’ve only seen the other side. We’re only seeing all the victories.
Jake: The meme of throwing intelligent investor into the garbage though, doesn’t get me laugh.
Tobias: Yeah. How often we see that?
Jake: That one is pretty funny. [laughs]
Tobias: I see that every day.
Jake: Daily.
Michael: Is it a meme or is it just fact?
Jake: Yeah, that one might actually be– People are doing that now. [laughs]
===
Nominal vs. Real Wealth: The Economic Illusion Driving Elections
Michael: I do think this is true, that we got to a point where it’s just a game of liquidity. The policymakers have now full on admitted that they’re basically bribing to get votes by offering more and giving liquidity and giving checks when you don’t need it. Really what every policymaker is playing off of is money illusion. So, elect me, you’re going to basically have more in your pocket. Everybody thinks in terms of nominal. And then, here comes real. People don’t vote based on– [crosstalk] They voted based on nominal, right?
Tobias: Yeah.
Jake: Are you saying you can’t print goods and services for everybody?
Michael: Well, with 3D printing, apparently, you can. I don’t know.
Tobias: But are they really– There are a lot of articles– Almost it was a coordinated effort to say, why don’t you believe what the economists are telling you about? Like, there’s a Greg Ip article today in the Wall Street Journal that says, “You’re wrong about the economy. Why won’t you believe what the economists are telling you?” And then, the comments underneath are pretty great. It was Rudy Havenstein tweeted it out. And the comments underneath are like, “Why does this feel like a coordinated effort to tell us that we’re all wrong?” I think probably the last election was largely or partially inflation.
Michael: [unintelligible 00:24:11] Yeah.
Jake: Of course. Did they show pictures of eggs as a reply? [laughs]
Tobias: Someone made a whole post using eggs, like egghead. “Economists don’t understand that the price has gone from $2 to $4 and then $4 to 13 cents. It’s still $2 to $4.13. We don’t care about the fact that the last 13 cents means that inflation is falling, because it’s a rate of change rather than a level.”
Jake: Right. You never get back the cumulative purchasing power lost, right?
Michael: Yeah. And also, the problem with all these economic data points is they’re aggregate numbers.
Tobias: Right.
Michael: It’s like, you can’t really aggregate things when the disparity between the 1% and everybody else is only getting wider, when the disparity between large caps and small caps is only getting wider, when the disparity between US and international, old things we talked about. So, you can drown in a pool that’s on average 6ft deep.
Tobias: Right.
Michael: So, what that an average number is good? It doesn’t mean that people are doing better.
===
Tobias: Let me give a quick shoutout to the folks playing at home. Santo Domingo, Dominican Republic. What’s up? Gothenburg, Sweden. Boise, Idaho. Guatemala. York, UK. Roseville, California. Bangalore, India. Mendocino. Dead Cat Gully, New South Wales. Me too. Tomball, Texas. [Jake laughs] Bucharest. Is that Romania? Tampa, Florida.
William, the Wizard of Waterloo, is in the house in London. Another London. Toronto. Tallahassee. Seattle. Jupiter, Florida. You’ve already won, Sam. Moncton, Canada. Dubai. Helsinki. Finlandia. London. Lausanne, Switzerland. Valparaiso. What’s up, Mac? Skövde, Sweden. Petah Tikva, Israel. Haifa, Israel.
Michael: Speaking about Dubai, by the way, have you ever had Dubai chocolate?
Tobias: I haven’t. Is it good? Zurich. Barrow-in-Furness. That’s it.
Michael: Dubai chocolate is the– [crosstalk]
Tobias: Oh, is that the– I saw an ad for some– Yeah.
Michael: When I break my fast, if I’m going to go for a sugar rush, man.
Tobias: What’s in it?
Michael: I don’t even know.
Jake: [crosstalk] Toby.
Michael: Yeah, basically. [Jake laughs] I don’t know, it’s a really good chocolate. It’s got like Kanafa, pistachio cream.
Tobias: Tobias: Yeah.
Michael: The texture thing is cool.
Tobias: There’s a name for it that plays in the Kanafa. Ah, it’s like I can’t get enough.
Michael: I’m Egyptian. I don’t even know. I’m like–
Tobias: I saw a New York Times article about it, and then I clicked on the link for the bakery and the bakery’s website was just blown up by–
Michael: No. Yeah, yeah, exactly.
Tobias: Too many hits on it. [crosstalk]
Michael: Yeah. This is why now the Hershey drawdown makes sense. Hershey’s stock has done so terribly, and everyone’s going to Dubai chocolate. Whoever’s in Dubai, send it to us, please, if you’re watching.
Tobias: Yeah. We’ll give you a shoutout on the show where we’re not proud.
Tobias: Is that Edwin Dorsey who–
Jake: No. Any tariff thoughts been in the news?
Michael: Yeah. [laughs] Since you mentioned, I’m a fan of Edwin Dorsey. I’ve had him on a space before.
Tobias: Well, he said Mr. Beast was going to take down Hershey.
Michael: Oh, yeah.
Tobias: Which seemed invisible at the time. But pretty shit now, it’s down so much. Good call.
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Tariffs, Inflation & Volatility: Are We in an Economic Simulation?
Michael: Well, you know what’s interesting about this, is that and then I’ll get into the tariffs. Generally, what’s the biggest expense for most companies? Marketing.
Tobias: Yeah.
Michael: So, if you’re the influencer, you don’t need to spend on marketing. Your margins are instantly higher. [laughs] You immediately can crush your competition, if you have an influencer driven type of company.
Tobias: Yeah. Buffett has written about the emotional connection that people have to chocolate, and the reason why it doesn’t travel. Hershey’s is big in some places. Cadbury’s big in other places. I don’t like the taste of Hershey’s, because I grew up eating Cadbury. But I love the taste of Cadbury. There is some emotional connection there. So, I thought that maybe that would be playing against. But evidently, the kids don’t care. They want Mr. Beast’s, whatever.
Michael: Yeah. The kids are all getting overweight and obese.
Tobias: No emotional connection to the chocolate, I guess.
Michael: Yeah, exactly. All right, so, let’s talk about tariff situation. So, I’ve had fun on the tariff thing with Trump. I was on CNBC Asia the night before. And I said, “People forget that the one that wins in a fight isn’t the strongest, is the craziest.” [Jake laughs] Trump happens to be both, which is why I think it’s true that– He’s like, “All right.” In his mind, he clearly has the mandate. In his mind, he probably just doesn’t give a damn anymore, because lame duck president and candidly– I don’t know if people really– I certainly can’t, but it’s hard to envision what’s going through his mind.
The number of times his life has been on the edge, it’s like that changes somebody’s psyche and psychology permanently when you face near death experiences. And now, you’re the most powerful person in the world, it’s like he’s not going to care what anybody says or thinks. He’s not. He almost died many times.
Tobias: I don’t think he cared beforehand. [laughs]
Michael: Didn’t care before. He said, why do I care now?
Jake: Financial death, close often and then–
Tobias: Yeah. [crosstalk]
Michael: That makes him very dangerous, which is why I’m saying the one who wins the fight is the craziest. So, first of all, talking about economists. Economists would, I think largely correctly argue that tariffs are inflationary. Okay, cool. But if tariffs are high enough, it could cause a collapse in demand, in which case maybe, oddly enough, tariffs are deflationary. We’re in an upside-down world, man. We went through the fastest rate hike cycle in history, and credit spreads have got to all-time lows. So, don’t tell me that you can’t have a situation where tariffs are deflationary.
Tobias: And then, they started cutting and rates went up. And we truly are through the looking glass.
Michael: Yeah. Again, we live in a stipulation. But it’s like, don’t tell me something’s impossible anymore. Nothing should surprise anybody.
Jake: Yeah. A lot of historical correlations that you would have banked on in a lot of ways have proven a little illusory in the last 5 to 10 years, maybe 15 years.
Tobias and Michael: Yeah.
Michael: That’s exactly right. I do think that most people don’t understand, there’s an argue to be made that, because maybe this is purposeful by Trump, that he wants investors to feel the volatility of his words. Because the more volatility there is in terms of potential policy, the more at some point the market will get used to it.
Tobias: Yeah.
Jake: Mm.
Michael: It’ll just dull the reaction at some point, so he can actually do what he really wants to do.
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Big vs. Small: How Business Size Shapes Survival & Success
Tobias: Michael, we’re at the top of the hour. We usually do this– Jake has some veggies that he’s got a little learnings make benefit great, glorious nation of Value: After Hours. So, he’s going to share some of those with us and then we’ll come back on tariffs, credit spreads and a few other things.
Jake: Yeah. We’ve done a really good job of preparing for this too with the conversation, even though it was absolutely zero planning involved. [laughs] But this segment is called the physics of scale. Size isn’t just physics alone. It shapes also survival in biology, industry, business. Whether you’re a mouse or a multinational corporation or a startup, your chances of thriving depend on how well you manage these physics of scale.
And so, Isaac Newton, who, of course, was the mind behind unraveling gravity calculus, he also observed a simple but powerful truth. Small objects lose heat faster than large ones of the same shape. So, heat escapes through the surface area, but the energy stored depends on volume. So, the smaller something is, the higher its surface area to volume ratio is, so it cools more quickly. So, think about a cup of coffee, which can cool relatively fast versus a giant pot of soup, which stays warmer for much longer. It has to do with the surface area.
So, this applies both also to biology and evolution. So, take a mouse versus an elephant. Mice lose heat quickly and they need constant food, while elephants, because of their bulk, retain heat and they need to eat much less often. Arctic animals follow something called Bergman’s rule, which is these– They tend to be bigger bodies to conserve heat, which is why polar bears are larger than the relatives in warmer climates.
And then, there’s this thing called the island rule, which is, on islands, small animals will often evolve to become larger due to reduced predation, while larger animals will become smaller to adapt to limited resources. So, this is why we find fossilized dwarf elephants and why island rats tend to be much bigger than their mainland relatives. When you think about this changing environment, like when an asteroid hit and probably wiped out the dinosaurs, small mammals thrived. They had lower energy needs, faster reproduction cycles, burrowing behavior. Even though dinosaurs were dominant for 150 million years, they couldn’t adapt fast enough to these rapid climate changes.
So, these same physics, also of scale, apply in the industrial revolution. Thomas Newcomen built the first large, efficient steam engine. It actually wasn’t very efficient. But James Watt then came along and he added a separate condenser. And that dramatically improved the efficiency. What that allowed it to do was to make a much larger engine. Therefore, the loss of energy in it, the efficiency, there’s less loss because it was bigger because at greater volume to surface area, just like we were saying.
And then, as a fun side note. Watt wasn’t just an inventor, he’s also a businessman. And instead of selling the engines, he and his partner, Matthew Boulton, they license them, and taking a cut of the savings on coal. So, this was like an early subscription model with recurring revenue. Unless you think that SaaS businesses discovered some new holy grail.
Tobias: Coal as a service.
Jake: Coal? Yeah, coal savings– [crosstalk].
Tobias: Energy as a service. Power as a service.
Jake: Yeah. And so, these same physics also apply to business as well. Large corporations often dominate in stable periods, but can struggle with rapid changes. Of course, canonical examples of Kodak with digital photography. Blockbuster with streaming and Netflix. And small firms, just like small animals or a small cup of coffee, they burn resources more quickly because maybe they lack the purchasing power, supply chain efficiencies. And large firms are able to spread costs more efficiently, lowering their per unit expense.
So, think of a neighborhood bakery buys flour at retail, while a multinational buys in huge bulk quantities and then significantly cutting their cost per loaf. It’s a cliche at this point, but startups innovate quickly but often fail, while large corporations survive downturns but struggle to pivot and can miss technological turns.
So, I think it’s a little bit of a rule I would say that in stable environments, big corporations dominate. But in shifting environments, the small disruptors can thrive in niches. So, all of which has me wondering, as we’ve been talking about, why large caps have dominated over small caps over the last 15 years. Well, I would posit that perhaps, it was a bit like the dinosaurs benefiting from a period of relative calm.
Economic growth over that time was relatively steady, if not unspectacular. We were sub 3 GDP but pretty consistent. Wouldn’t that probably favor established players? Minimal global conflicts meant fewer disruptions. Of course, big tech does exhibit those network effects that we’ve talked about and seems to create natural monopolies. But I would also say then that regulatory wise, government has gotten much bigger, large firms with a lot of resources are able to navigate these complex compliance requirements and a small firm can’t afford to have a huge regulatory and lobbying team. And so, you’re going to naturally favor the incumbents then the bigger the government.
You might even be able to argue far enough that there was regulatory capture and allowed a lot of big companies to influence policies, further entrenching their dominance. As a result, small caps, like small mammals in the age of dinosaurs, struggled. So, now, we get to get a little bit more prognosticating. But what would we have to believe would happen to change this, and why would small caps potentially outperform over the set of track? I think it’d be interesting to see– Maybe today we’re at a bit of a turning point.
AI disruption might level the playing field. This DeepSeek thing that came out maybe is a little bit of a glimpse of that. Maybe you don’t actually have to be a huge company to make some novel breakthroughs. Geopolitical instability, Ukraine, Middle east. Of course, maybe that’s shifts a little bit more to the benefit of agile players and not the big guys. Government deregulation might allow smaller firms to find their footing. We’ll see how much change actually sticks from Elon’s Doge after all the dust from the legal battles clears. I feel like that’s potentially pushing in the opposite direction of what we’ve seen the 15 years before.
And then, economic cycles probably favor small caps in expansionary periods as they tend to see their revenue grow faster. Maybe we are entering into some type of a golden age. I don’t know, some people are arguing that. And then, of course, you just have the valuation gap, like small caps currently trading at a significant discount compared to their large caps, which all else equal, you would want to bet on something that was cheaper than more expensive.
But anyway, the final takeaway. I think there’s no universal advantage to being big or small. It really depends on what’s being called for by the environment.
Tobias: Good one, JT. I don’t know if it’s Hussman or somebody else has talked about. There’s an accounting identity, where the spending of government shows up as the profit of-
Jake: [unintelligible 00:38:37]
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Will Small Caps Outperform? The Case for Deregulation as a Market Catalyst
Tobias: -the private sector. If you don’t have that government, which is the government running deficits and running massive deficits turns up as profits and massive profits for the private sector, then if you go into– The Trump administration seems to be trying to reduce the size of government. The treasury under Yellen moved all of the debt down to the very short-term, so we’ve got $36 trillion of debt and we’ve got $9 trillion falling due in 2025, which we have to roll in 2025, which would be a big ask whether you can do that at the short end or whether you do that at the longer end. I don’t know how they do that. That’s well above my pay grade. But that seems to me to be some nearer term volatility, and reversing course that could have pretty serious impact on the market.
Michael: First of all, very nicely communicated by Jake. First of all, small caps tend to outperform large caps in bear markets, which is the irony. They tend to be down less.
Tobias: Small caps tend to be down less than large caps in–
Michael: In bear markets. Yeah, historically, if you look at major bear market cycles more than– [crosstalk]
Tobias: [crosstalk]
Michael: But that makes sense, because typically in bull markets, what happens is that when faced with uncertainty and volatility, as you know, there’s the disposition effect. So, first thing that people will do when they’re unclear about what happens next, which is what happens in a bear market, they sell their winners. Well, there haven’t been that many small cap winners. There’ll be a select number of large cap winners which would– Those will get smoked, just from a behavioral perspective. What was the other question? [laughs] So, sorry, guys. I apologize.
Tobias: There was two parts. There was the–
Jake: Maybe [crosstalk] angle of less regulation potential.
Michael: Oh, yeah, yeah. That’s right. Yeah. Okay. So, I think that could be a catalyst, I agree. So, to the extent that I just saw what Trump signed an executive order that said, “For every new rule, you’ve got to get rid of 10 on the regulation front.” I’m actually a big believer that deregulation could be a catalyst for small caps to outperform on the upside. Because in theory, if you remove some of that regulatory expense, margins should go up and some of these zombie companies may not no longer be zombie companies, conceivably. We’ll see. So, I do think that could be an interesting dynamic. If he’s going to do what he’s got to do in the next two years, because likely the midterms just flip. So, he’s got to push the mandate now.
At the same time, who knows, [laughs] because you could have deregulation and then AI doesn’t matter, because this exponential nature of AI and deregulation might be positive at the margin, but it’s nowhere near as positive as the compounding of how much Nvidia’s gone up.
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Small Caps vs. Credit Spreads: Is the Market Sending Mixed Signals?
Tobias: The other thing is the tariffs. I don’t know how serious he’s about the tariffs. He seems to be using them as a negotiating tool rather than as a revenue raising tool, but he’s certainly saying that they’re a revenue raising tool, and maybe that’s true against China. That might be okay, because they’re largely an exporter to the US, and we’re an importer from China. And so, getting some back might just– I don’t know, I have no idea what the impact is there.
But it certainly seemed to me, that if you look at the earnings trajectory since 2020, large caps have done really, really well. That line is almost exponential. Mid caps have gone sideways and small caps have gone down. And certainly, yesterday, when tariffs were live before Mexico and Canada capitulated–
Jake: For like two hours.
Tobias: It did seem to impact the– The small and micros got smoked yesterday, and didn’t really recover through to the end of the day. I just wonder if why wouldn’t they be the ones that were most impacted? Maybe the market’s right about that they will be the most impacted by tariffs, if at all.
Michael: Well, it was an interesting reaction, because why are small caps lagging so badly because of concerns run higher for longer and rolling over their own debt. Okay. So, if tariffs are inflationary, then higher for longer remains in place and a lot of these companies are not going to survive. Problem is treasury yields fell.
Tobias: Yeah.
Michael: So, you had small cap saying they’re worried about higher for longer rates, but rates fell on the same catalyst.
Jake: The bond market and the equity market have really been not in coordination at all,-
Michael: No. Which by the way.
Jake: -which is quite interesting.
Michael: No. Which by the way has been my whole frustration and part of this overarching thesis when I keep saying small caps hold the key. Talk about two things which are giving different messages. Small caps are saying default risk is real. Credit spreads are saying there’s no default risk.
Tobias: Yeah.
Michael: Full stop. This has been my argument since a year and a half ago, that one of them is wrong. You can’t have two different parts of the marketplace on the same factor giving two different messages, at least not for a long time.
Tobias: Yeah.
Michael: One of them has to be wrong. Okay. So, if small caps are wrong, they should run, because it means you’re now– It’s not quite to this convexity potential of distressed assets, obviously. But small caps should run, because you’re pricing out default risk which maybe was never there to begin with and the market was wrong in causing small caps to lag as long as they’ve lagged. Okay. So, that’s one scenario.
The other scenario is credit spreads are wrong, in which case you finally get the long awaited credit events, which has caused people to think I’m some permabear. No, it’s the divergence that bothers me. Nobody can really properly explain it. I hear these arguments about, “Well, junk debt is higher quality now, because all the crap has gone into private credit.” I don’t buy that.
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Market Timing vs. Behavioral Time: Why Investors Struggle with Patience
Tobias: It may be true that there’s a lot of junk in private credit, but I also think that if you look at historically, credit spreads are not a forward indicator. They tend to be really, really [crosstalk]
Michael: Right. [crosstalk] yeah.
Tobias: Yeah, exactly right. They’re contemporaneous. They’re not lagging either. They tend to be right on the– And so, you look at OIS credit spreads or something like that, they blow out as the market’s going down, so they’re useless as a prediction. When the market’s expensive, credit spreads are tight, so it’s like– I see that all the time too. I just, why wouldn’t you be short the junk and long something higher quality. Clearly, it can go against you for a long time and nothing that I say here is investment advice, of course. But when you get the event, you get a rally out of the– The 10-year will probably rally, because that’s where people go for safety.
Michael: Which is the [crosstalk] to try to find the Phoenix, which I keep– [crosstalk] in which case, small caps are right.
Tobias: Yeah. I like that. I like that thesis of course, because I’m a small cap guy.
Michael: Yeah, I get it. And also, I will say that it’s like that thesis is beneficial for– There’s a bias here. It’s beneficial for guys like us, because you can’t really stand out against the S&P when it’s the only game in town. So, you need some volatility to shake money out to consider guys like us as far as the strategies that we have in different ways. So, there is a bias not to bearish. There’s a bias to stop to want to see an end to the passive large cap only momentum which needs some kind of shock and event. It needs some catalyst. It’s not like it’s going to happen quietly.
Tobias: It’s conceivably does just fall under its own weight. We haven’t heard it for a little while, but that Hussman was a proponent of the Didier Sornette wave, you know where the wave gets the– it gets increasingly quickly bought until you get to this point where there’s a singularity and then you get a collapse after that when it breaks down.
I don’t know if we’re seeing that now. I don’t know if we’ve seen increasing– it being bought increasingly. It’s just that when I run my own strategies like I have a mid and a large cap and I can run that against my small and micro. The only difference is that one is the largest 25% of stocks and the other is the smallest 75% of stocks. Otherwise, they’re identical strategies. You can see that the mid and large has run exponentially away increasingly. Or, the other way around, the smaller micro is falling increasingly rapidly. It just seems to me that it shouldn’t be doing that.
Jake: It’s a wild divergence to see.
Tobias: Yeah.
Michael: It’ll end at some point. Can you weed it out? I always go back to– People show these charts, and they show all these bars and they draw these tread lines and squiggles and all this stuff. It’s like, “Guys, you realize that every one of these bars is 24 hours, if it’s a daily chart.” You realize all these weekly charts, these are 52 weeks for this portion of the chart. Like, we get so used to drawing all these charts as ways of prognosticating. We’re not realizing that we’re living in this small bar.
Jake: Yeah. There’s a huge, huge difference between behavioral time and chart time.
Michael: Yeah, of course. It’s not even close. Yeah. I always used to say on the road, I was presenting at CFA chapters, “We live in the small sample.”
Tobias: Yeah. We live in the short-term. The long-term is what you get, but you live in the short-term.
Michael: Right.
Tobias: What’s the way forward, Michael? What’s the sensible thing to do?
Jake: Where is salvation?
Tobias: Yeah. [laughs] How do we make it to the other side?
Michael: Fasting. [laughs] I don’t know. It’s a good question. I don’t know.
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Luck vs. Skill in Investing: Why There Are No Gurus, Only Cycles
Tobias: Self abnegnation. I don’t mind that as a strategy.
Michael: Well, I’ll tell you something. Actually, I’m half joking about it, but also half serious. Look, you mentioned all these anonymous accounts showing screenshots of all these hundreds of thousands or millions of dollars they’re making on a single trade. It’s like, okay, first of all, I don’t believe any of this stuff, but okay, let’s assume it’s real. That’s luck. I don’t give a damn what anybody says, there’s a degree of luck in this industry. And probably a much larger degree than people realize.
You cannot, in our business, when it comes to investing, control the outcome. We actually have very, very little control. Very, very little control. Every trader has very, very little control, because so much of this stuff is noise. You want proof of that? Look at any chart that shows here’s what happens when you remove the 10 best days and 10 worst days.
Jake: My favorite example is to try to pick what you think is going to do the worst in a year from now. It’s incredibly difficult to do.
Michael: Yeah. God knows how–
[laughter]Michael: So, I was very dead wrong on that. Although I said never to short, because shorting doesn’t work. That’s a whole different thing. But the point is that, so if you can’t control– It’s in our DNA that we need to have a sense of control. So, you can’t control the cycle you’re in, you can’t control the cards you’re dealt you choose to play the game. What can you control? Your damn health. [laughs] So, sometimes the only way to salvation is to suffer and control what you control in that suffering. Candidly, I have zero problem saying this. I’m very public about this.
I launched my mutual fund day of QE3. Risk on, risk off. At the start of the purest risk on cycle since the mid-1990s. Okay. A couple good years here and there. Nothing really spectacular. I’m on the road. I’m killing myself to try to build a name. I know the research, I know the studies, I also know that QE3 has distorted things, but I think it’s going to end soon. I think it’s going to end soon. I think it’s going to end soon. It doesn’t. It doesn’t. It doesn’t. 2020 comes along, my mutual fund’s up 72%. I suddenly raised $350 million single handed. I’m like, “After all these years of grinding, I made it. I hit the escape velocity. I’m not going down again. This is my moment.”
Jake: Overnight success story.
Michael: Overnight success after [Tobias laughs] 10 years, right?
Jake: Yeah.
Michael: Again, it’s not based on my opinion. It’s rules based. It’s like, I just built the strategy and the strategy took care of itself. And then, it all gets ripped away from me. Fastest rate high cycle in history. No credit spread blowout, no flight to safety trade. Whipsaw, whipsaw, whipsaw, whipsaw. You try to go small caps, it doesn’t work. You try to go emerging markets, it doesn’t work. Of course, whatever I ended up eating a lot, they call comfort food for a reason.
I think with hindsight I was probably myself going through some form of high functioning depression. How could I not? I thought I made it. It’s like, the whole 15 minutes of fame thing. I’m not Cathie Wood. I didn’t hold it, right.
Tobias: Yeah.
Michael: Yeah. Anybody that’s been in this business will have a story like that at some point. Maybe mine was more extreme than others. So, it got to a point where it’s like I can’t control it. I can’t control the cycle in it. As the reason why I keep saying this, there’s no gurus. Only cycles.
Tobias: Yeah.
Michael: There’s no gurus. Only cycles. So, what can I control? I control my health. I still am optimistic on my strategies. It’s like, after all this, I’m still here. I know I have the audience to turn it up when it’s there.
Tobias: Yeah.
Michael: I know the tail events out there. I hope it’s this year. Not because I want to see people lose money, because I never said the tail event would mean stocks would stay down, but it’s the reset you need to write the hell of 2022, which I’m still dealing with the ghosts of where stocks and treasuries did terrible, where avoiding a drawdown in stocks by being in treasuries was worse than being in the drawdown for stocks.
Tobias: Yeah.
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The Evolution of Value Investing: Why No One Uses Price-to-Book Anymore
Jake: Something I’ve been thinking about lately, is assume that you’re allocating to managers or even picking your own strategies, but when– We could agree, there’s the strength of the swimmer, like, how good is the manager at executing their process, doing what they say they’re going to do, sticking to their knitting and you being comfortable with how they execute that. Some are better and/or worse as swimmers. And then, there’s which ocean did you get into to swim? The tides are out of your control, they are maybe going for you or against you and they can be– I think we all–
One of the takeaways is that the tides have been really strong the last 10 years. Maybe stronger than normal and all going in one direction. So, who takes the responsibility for the decision of which ocean to get into? Is that at the allocator? Is that who said, “Okay, I thought you were a good swimmer, but it turns out that wasn’t a great place to be swimming?” Or, “Is it on the manager?” It’s like, the thinking of the allocator is a little bit more or less nuanced and it’s just like, “Well, you’re not making me money, so I need to fire you.” I think it’s a little bit under discussed in the industry about.
Michael: No, I agree with you. No, there’s no question it’s the allocator. But the allocator is dealing with the same problem that the swimmer is dealing with, which is how long is that tide going to push against you. We’re all dealing with the same problem. Nobody can tell what tomorrow breaks. Full stop. Whether you’re the allocator or the PM of the strategy. So, now, having said that, the macro will always overwhelm the micro.
I always go back to macro helps you thrive, micro helps you survive. In terms of the individual effort is what helps you get through a nasty macro, but the macro is still going to dictate 90s– But it’s just like the old asset allocation studies. It’s always around– 100% of variability is based on asset allocation, not the individual positions or whatever the stat was.
So, yeah, I think you’re right. It’s not talking about the industry, but the industry also is designed in such a way that everybody is trying to do CYA. So, “I chose you and I chose you at the top of your fund. You suck, fund manager.” And the fund manager will come back and say, “Well, I didn’t tell you to buy at the top of the fund.”
Tobias: [crosstalk]
Michael: Yeah, nasty business, man. Then, people don’t appreciate unless you’re in the industry. It’s a nasty business when you think through it.
Tobias: It gives me a little bit of sympathy for guys like Ray Dalio or some of the other guys who say what you really want is 15 uncorrelated strategies-
Michael: Yeah, exactly.
Tobias: -and don’t worry about it.
Michael: Yeah. But to get to that point, you have to have substance, you have to have significant resources. So, if you’re going to be an entrepreneur, that goes back to large versus small. Large guys can do it. Small guys, good luck.
Tobias: Yeah. I think Meb does something like that where he’s trying to aggregate up various different-
Jake: Yeah, his Trinity fund–
Tobias: Yeah. I don’t know how that’s going. I haven’t looked at it.
Jake: Jason Buck as well runs a portion of that.
Michael: I can ask Meb, but he’s a client.
Tobias: Yeah. He’s just down the road here from me. Yeah, I’ve struggled with it a little bit too. I think that since 2012, there’s been a clear cycle to growth and to large, which historically hasn’t been the way that you want to invest, because in the day that we have depending on where you look. But it’s pretty clear that small and value has outperformed. But it’s to the point now where– I think Cliff Asness has said that small might be broken to the extent that it ever worked. It might be broken as a factor.
Michael: It sounds like the same is different.
Jake: [laughs]
Tobias: And then, the value guys would say that there’s two value camps. There’s the value camp, that’s a little bit more compoundary, growthy and they’ve done very well. And the deep value end, which is where I swim hasn’t done that well. So, it’s not clear that they would say– the compounder guys would say, “Well, that was obvious. It’s too easy to screen for that end of the market. So, maybe that is secular. It’s not cyclical.”
Jake: Yeah. No one uses price to book anymore.
Michael: Yeah.
Tobias: But as Cliff pointed out, the reason that worked better was because value did so badly, because it was a less good value factor.
Jake: Exactly.
Tobias: It did better than all the others.
Jake: [laughs]
Michael: No one uses price to book, but everybody uses my calendar link, unfortunately. I’ve got another meeting coming up in a few minutes.
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Tobias: Yeah, we’re coming up on time. You want to let people know how they can get in contact with you or get in touch?
Michael: Yeah. Usually, it’s just screaming out loud. You’re probably going to hear me, because I’m on X, , , @leadlagreport, Instagram, YouTube with my own podcast, Lead-Lag which I’ve had you on also.
Tobias: Yeah, it was great. I enjoyed it.
Michael: And yes, the Substack, leadlagreport.substack.com. I am hopeful that these news announcements I’m going to have to come out with the next couple months will get well received that I finally time funds at the right point in the cycle. We’ll see. Because clearly– [crosstalk]
Jake: It just takes one. Just got to get one.
Michael: Ah, yeah. Isn’t that sad? It’s just like no amount of effort matters. It’s just about the luck of the launch.
Jake: [laughs]
Tobias: Going to give Cathie Wood credit for holding on to the assets-
Michael: Oh, 100%
Tobias: -after they smoked.
Michael: 100%. Masterful. People don’t understand how hard that is.
Tobias: Good message. I don’t know what it was like. Good messaging.
Michael: I think that’s fair. No, but @leadlagreport is typically where the handles are on most platforms. Not Telegram, apparently. There’s a lot of people. I’ve been told that like you’ve made it when you have scam artists that are imitating you. So, apparently, several people on Telegram that are pretending to be, it’s not me. But anyway, yes, I appreciate the invite.
Tobias: Well, good stuff. Thanks, Michael. It’s been a pleasure having you. Folks, we’ll back next week, same bat time, same bat channel. We’ll see everybody then.
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