The Cheap Money Era Is Over | Protect the Pile Episode 27 w/ George Noble

All right, welcome back to another episode of Protect the Pile, the official podcast of Hedgei Asset Management, the only nononsense investment show that cuts through the market noise with a panel of practitioners who play this game every day. We'll dissect the landscape, debate the opportunities and risks and help you navigate the markets using the hedgei risk framework and lots of real world experience all with the goal of protecting and growing your pile. I am Patrick Kent or RPK of hedgei asset management. And with me are Sam Ramen and Brooks Cutright, portfolio managers and colleagues at the ham and we have a guest today, George Noble. His resume stretches back to the Peter Lynch era at Fidelity, I think, at the beginning of your career, where he ran Fidelity's first international fund and turned it into the number one mutual fund in the country in his debut year. He went on to run two different billion dollar plus hedge funds and now he runs a family firm, Noble Capital, when he's not posting on X or writing the Noble Update on Substack. I know him from many technical analysis dinners in Boston where we've debated lots of names like Tesla and many others. Uh, but George, thanks for joining. Hey, thanks for having me, Pat. It's a real pleasure. >> Um, it's September 23rd. We're doing this a little early because this is the scheduling. We're going to do this on a Wednesday. We usually record these on Fridays. Uh, it is episode 27. The S&P is at 7725 roughly last time I looked. Uh, not even 1% off the all-time high, which is kind of hard to believe given the turmoil underneath the covers in the markets these days. Uh, oil's around 100 at least. Brent 10ear rate is like 506, so that's coming unhinged. We'll see what's going on. Uh we'll get into that. Uh highest level since 2007. Um all right. Well, let's get let's kick into it here. Um all right. My first question, George, if you want to give us a little bit more of your uh background for the audience and also, you know, you started at Fidelity, I mean, as I said up top in the Peter Lynch era, and you're still doing this four years later. What's uh genuinely different about the markets now versus your overseas funds days and what hasn't changed at all? I'd love to. Let's do uh I'm sure Ben Brooks and Sam will probably have some questions too, but let's get into it. >> Let's go for it. So, so many threads to pull on. Um you know, at the end of the day, the game is the same. It's buy low, sell high. Although in recent years it's buy high, sell higher. I was a momentum investor. But, you know, um and and you know, let me answer your question a little story. So, I I I I've been on Substack this year. I started my Substack back in January and we've been writing research reports and um had to write a research report. I hadn't written one in decades. It's like what am I going to do? We wrote up Southwest Airlines um as a buy and um so I went I went and found I went downstairs to the boxes in the basement and I dug up some of my old research reports from the 80s and uh I found what was then called an investment committee report ICR and it was you know 68 page thing SWAT analysis strengths you know weaknesses opportunities risks cash flow balance sheet income statement drivers you know insider buying the technicals the whole deal Right. And just enough she covered all the bases, but not not too long. I said, "You know what? I'll I'll I'll do something like this." Instead of making six or eight pages, I really don't like to write. I made three or four pages with AI. I mean, it's really easy as we all know. So, I write this thing and I show it to my colleague and he looks at he's like, "George, nobody writes reports like that anymore." I go, "Yeah, it's exactly where I'm going to write it that way." It's like sort of sort of like Back to the Future. Isn't that a novel idea? >> Exactly. Exactly. Exactly. valuation earnings model like you know I think it's a market for old men right now it's starting to become a market for old men so you know it's amazing and it was funny because I I in conversation with a few of my clients I was trying to ask them I said well how can we make it better like what are you guys looking for I said well you know just give us one page that's all we want one page nobody reads anymore right so they want to know the narrative and they want >> even less once AI's involved I mean we're even going to be having agents read it. We're not even going to bother reading it ourselves. >> They're like, "Bro, they want the narrative and they want the charts all they want." And so that really kind of epitomizes what's going on. I mean, basically, you just had the hyper financialization of the economy. The size of the markets, Patrick, relative to when you and I would, you know, be at dinners in Boston, the size of the markets relative to the size of the underlying economy is just ginormous now. And um all this money slloshing around got computers everinccreasing velocity. I mean I'm old enough to remember when you know the average holding period of socket was whatever few months or a few years. Now it's what like two weeks or some crazy number like that. I mean everyone's renting pieces of paper and um >> yeah and hedging out their theoretically hedging out their risks and creating like every the just the composition of the players has changed. >> Yeah. And and P you know this I mean active management from Louisiana steadily to passive. Um far more money is managed passively than by discretionary you know long only guys. So the nature of the players is changing a lot as well. So it's kind of it's still a stock market but it's kind of like when you go on a haunted house and you got these mirrors and everything's exaggerated this way and that way. It's a little bit weird. All right. And um I'd sum it up this way. I remember a few years ago my former colleague Jeff Vinick, one of the all-time greats, you know, he for those who don't know Jeff, he ran the Fideli Mellin fund uh after Morris Morris Smith took over from Peter and I'm trying to remember the order of events. Yeah, Jeff took over from Morris and um Jeff who um gone to bigger and better things. I mean, he he bought the Tampa Bay Lightning on a distressed basis. He flipped out of it. He owns like all of downtown Tampa now. Anyway, he tried to come back. It was like 2017 or 2018 trying to raise money. It's truly one of the all-time greats. Couldn't raise any money. >> And I remember I remember he was on TV. He goes, "Well, people just don't believe in my way of investing anymore." In other words, they're fundamentals. So when you when when you make the cost of capital zero, you make money free. Pigs fly. Well, so I mean that's a great point because we are distorting like the funhouse mirror is a great way to think about it because we are kind of distorting like the way we allocate capital and like the biggest I mean the big the biggest distortion of them all sitting in in you know plain sight of everybody right is what we've done with this sort of illquidity premium like this idea that we've funneled all this money into you know levering up mid and small cap companies and then just not just not having them trade anymore. more but somehow that has much better returns than uh than if they were public and liquid right I mean and that's now and now to your point about the holding periods >> private equities holding period I saw this the other day the median fund which used to have a 10year lifespan 7 to 10 year lifespan the median fund is now at 15 years and so they're now because they keep holding on to these things they're doing continuations they're just like trying to keep this like without having to mark any of it >> there's a very important point if you don't mind I'm going to hijack this conversation >> yeah please >> I want to go down a ra different rabbit hole cuz we all get bored to talk about the same Captain Obvious stuff. Um I want to go down a different rabbit hole. Fewer talk few are talking about and you just started to touch on it. The plethora of private uh money that's out there now, private investments, private credit, private equity, all that sort of stuff. I haven't seen anyone write about this. So world premiere of this concept. Um there's information content and prices in theory. In a capitalist system, prices are used to allocate resources. You know, the price of bananas is too high. Sam goes and increases his banana production and and Brooks doesn't buy any more bananas cuz it's too expensive. So, you know, supply increases, demand declines, it self-regulates. Conversely, the price of ban is too low. Sam cuts back on the production of bananas and you know Patrick, you go to the store and you clean out all the bananas you got there. So prices are crucial in allocating resources, not just a number on a page and it's like a pinball machine. Forget about that. All right. And what's the point of this? When you have private investments where once a quarter you're getting a number from the sponsor of the investment, not exactly a disinterested party. >> Yeah. >> Saying it's saying it's this mark to model, but there's a crucial point, extra point I want to make here. It's Mark to model. We all know those numbers are bogus. But here's the real problem that no, no one is talking about. No one is talking about. If the price is publicly traded, if you see it on a screen, so go back, you know, go back past cycles, you know, price of Enron's going down every day or the CDS are blowing out on a home builder or whatever, that's the market signaling whether all is good or bad. An economic actors can take guidance from that. However, when there's no price and they give you a price once a month, once a quarter, forget about that it's made up. Leave that aside for a second. I want to focus on a different point. That creates incredible inefficiency. And so throughout the entire quarter, the price of set ass the price the underlying value of set asset could be crashing. But you don't know that because there's no price on the screen. And so actually that's just a good point because okay so let me stay let me stay let me stay with it there the old Hemingway line about you know how do you go bankrupt slowly and then suddenly >> and this is not so this is not some abstract concept I'm making this is very relevant for right now look what's going on with all this AI garbage and I'm going to call it garbage all of a sudden you know scam altman yeah I didn't miss spin out I don't have a speech in pet but scam altman And okay, scam all man. What do you say? We're going to lose two We're going to burn 280 billion in cash. They try to sneak that out after the close last Friday like nobody was going to see it, right? We're going to blow 280 billion in cash between now and 2030. Oops. That just that number just went up by 50 or 100 billion, right? If it was publicly traded, you'd be seeing they're missing all their numbers and their cash burns intensifying. So the point I really want to make here, we know it's marked to make believe. We know that. But what that does in terms of misallocating assets, misallocating capital and increasing the volatility pattern, i.e. for days, weeks on end, there's no there's nothing and all of a sudden, you know, at the end of the quarter there's a number or whenever they feel like putting a number out. So I think this is hugely destructive for the efficient functioning of our economic system. I don't mean to get too wonky on you, but but I think you get my point. No, I think that's I think it's a really good point because also it it creates an environment where you could argue right inside of private equity there's now a tiered information system where some people are in the know as to what's working and what's not working and so they maybe make capital allocations decisions based on that. Um and then they're sort of trying to push the mistakes down to you know offload it to mom and pop or whoever is not in the know but that's not an efficient that's not an efficient information system. So again, it's not allocating capital well. Um I don't know jump in there. >> It's going to it's going to it's going to it's going to add to more misallocation of capital. So for instance, okay, much has been said right now, right here, right now. Anthropic. So everyone's saying, "Oh, they got to get the deal away before um before you get too deep into November." Why? because you can use the 2Q financials which still have the benefit of all the token maxing. I'm not a bean counter on this, but I read something I think once you get past November 13th or something like that, you then have to you can't use the two Q numbers anymore. You got to use like the three three Q numbers. The thing is it's 45 days after the quarter, something like that. Let's just assume that that's true. All right. Well, imagine the anthropic business is imploding, which it is right now. You read the same stuff I do. They're losing mumbo market share to OpenAI. And then on top of it, every week another Chinese model comes out that we can do it for 95% less. Blah blah blah blah blah. Okay, imagine the business is imploding, which it is, and they're running around trying to raise money. Like, don't you think the wouldbe buyers of their paper like they kind of might want to know a little bit like what's really going on? What? What are you hiding something? What's the matter? And so this is this is this is there's information arbitrage here. The okay the the guys on the inside you start starting to say they know a little bit more than the suckers who are going to get stuffed in have their 401k stuffed into it by the wealth manager. This is not good. This is not good. >> George that out >> broadly you what you said about private equity and credit like what how do you see this playing out? you you you get price you eventually you will get some price discovery be it through force redemptions out of these private funds or whatever there will be a come to Jesus moment but how do you see it play out in terms of not not the playbyplay but how do you think it ultimately crashes and post crash how do you see the sort of the the markets stabilize and come out of that So deceptively simple question not so easy to answer and as I'm reminded Karen Co said it you know path path is often more important than prediction so we can talk about where it's going to end eventually but how would we get there you know if you're short enron and it goes from you know it goes from 100 to zero but at one point it goes from 30 to 50 before going back down again I promise you at 50 on the inter in the intermediate rally. I've been screaming like, "Oh, everything's good now. Look, it's up 65% off the lows." Up off the lows, as I say in the Cartoon Network um there's been a tremendous misallocation of capital, and this gets back perhaps to the biggest story I want to leave with you guys. I want to lead with it. I'm going to leave you with it. More important than private equity and private credit, more important than the straits of hormones, more important than AI is that globally we are witnessing an increase in cost of capital. Price of money is going up. And implicit in your question, Sam, implicit in the answer to your question is the idea that a lot of these investments were made when the cost of capital was abnormally low. you know, in in in hundreds and thousands of years of recorded history, never were interest rates so low. And so investments are made off of those cap rates. And when you start normalizing those cap rates, you got a problem. The aberration isn't that rates are going up. The aberration isn't that the 10 years at 5%. We're just normalizing. We got further to go, by the way. The aberration is where rates were. So you look at all the money that got stuffed into the private equity, the private credit, all this stuff based on and you know, of course I had to do it on a private basis. They can't get out. At least at least you know, Patrick, when you buy a stock in the morning, you realize you made a mistake, you blow it out in the afternoon. Okay. This stuff not not so easy, right? >> Yeah. The thing is the single stock continuation fund that's uh that you can't get out of anymore. Yeah. >> So So these guys are stuffed. And by the way, I got news for you. It's coming. Spoiler alert. We're going to be talking a lot more about insurance in the weeks and months to come. >> I'd like to Oh, yeah. Know that we've talked Yeah. We've touched on this on some past episodes. >> Okay. Okay. I I spent I'm coming out in the next week or two. I spent seven hours interviewing one of the leading experts in insurance. This is a multi- trillion dollar problem. This is much worse than made off. made up was only 12 billion and much most of the money got recovered much worse than Enron. And the really important point about this is that it affects so many people. Anyone has an insurance policy. >> Yeah. You'd be real comfortable with the carrier and the insurance industry has been central to the funding of a lot of this illquid stuff. and that tap is going to be turned off. So, going back to your question, Sam, um, a lot of this stuff's going to have to be marked to zero. >> And by the way, the other thing about the insurance I talk about, unlike the banking system, which is the purview of the Fed, the federal government has to safeguard the banking system. No, insurance doesn't fall under the feds. States, you got 50 states in District of Columbia. So, you got these regulators asleep at the wheel that don't know what's going on or they're under the control of the insurance industry or they've been bought and paid for or whatever. So, the Fed's not going to come. The Fed's not coming to your rescue. Oh, and by the way, by the way, Patrick, just for anyone watching this episode, get your call up and ask your insurance company. Take a look. They won't tell you this, but how much of their assets do they have in affiliated transactions and how many of their assets do they have in affiliated reinsurance companies? Run, don't walk. There are names, very big names that we all know. I don't want to spoil it all, okay? They're going to go bankrupt. >> And the other thing too, last thing I'll say on this particular point, another rabbit, see a lot of good stuff here today. You have to have me back. Um, but you knew what you're getting. We'll definitely get you back for followup on a bunch of this drop report on this. >> You don't need any insurance. I I become a my new new thing. I'm so bored with Jeban's paradox and tackling tackling and all that other stuff. I'm now an insurance nerd. This is my new thing. Um so >> someone has to be George. >> Someone who the hell wants to go to the dentist. Who wants the hell insurance? >> I covered insurance for about six months at one point when I was working on a cat and I was like please don't make me do this anymore. Sam, Sam, Sam, you you're not going to be happy with this one. So, do you know that if you have your money in one of these really sound insurance companies, when they hit the wall, when they go bust, you go to the back of the line. You your your your policy is not money good. You go to the back of the line. Creditors come first. So for all the millions of people that have been paying in religiously their premiums for years and decades, get your money out now before before they they close the door on you. >> So any event any event so so let's come back to the question. >> Yeah. So so so what's going to So what's going to happen? What's going to happen? >> I believe I mean they always say Patrick get people a price give them a date and never give them the two at the same time. To me, a lot of this stuff is is a zero. And I think money is dying and it's been some such malinvestment. They're going to be inevitably forced to print a lot more money where it's to bail out entities or the economy starts to roll over. You know, budget deficit's going to blow out. I mean, we're running two and a half trillion deficit when the economy is supposedly okay. Just imagine what it's going to be like when you go into a full-blown recession. So I got to plan print a lot more money and this is which is why one of my enduring beliefs more than anything else you cannot own enough gold and gold miners because again to paraphrase Alan Greenspan famously said in the late 90s a congressional hearing he was asked well Mr. Greenspan or doctor, whatever his name was. One of the biggest putts in the history of the world. No one has done more to destroy this country than Alan Greenspan. >> The maestro. >> The maestro. Okay. And his disciples, Ben Bernani and Janet Yellen. They're all disasters. Okay. We should do a whole episode who was the worst. But anyway, they asked him, they said, "So, are we are we going to run out of money? You going to be able to pay the social security?" They all go, "Okay, the entitlements." and classic green span fashiony mumble like well you know sir I can assure you that we will not run out of money to fund these obligations but what I can't assure you of is what will the value of that money be in other words they'll just print more monopoly money right so that's where I think this is going because you know we h we have this intractable deficit situation and you know people say ah the deficit you know again again it doesn't matter till it matters it's kind it's kind of like it's kind of You know, a dam, right? Imagine you have the Hoover Dam and Patrick's like, "The water level's going down. The water level's going down. The water's going level going down." Sam's like, "Ah, stop it, Patrick. You always tell me the water level's going down." Right. Well, as long as enough water in the thing, it's okay. But eventually get to the point it's not okay. Okay? Or so with a deficit, right? As long as markets are willing to fund it, it's okay. But it's not okay anymore because you know the deficit itself is now as I said right two and a half trillion% of GDP and and we're not in a recession right now and and this key point we go back to the rising cost of capital globally demand for capital um because of the capex boom and it's not just AI it's around the world a lot of infrastructure projects you have capex as someone wrote the other day capex boom meets irresponsible uh budget deficits. So you have the collision of those things. So and this gets to interest rates now. Everyone goes, "Wow, George, you know, inflation is only 2% if you believe that. I got a bridge just and you know it's rolling over and I just looked at it's a true inflation number blah blah blah blah blah." And all these people breathlessly hang on to what's the monthly CPI number completely missing the point. First of all, inflation's like three and change and it's not that it's going to the moon. It's just not going it's not going to go down. They've missed their target for I don't know 66 consecutive months or whatever it is. It's it's it's sticky. And this is before the oil price has gone to the moon. But more important than the than the inflation rate, keep in mind the nominal interest rate is a function of um inflation and real rates. Real rates are going up as demand for capital goes up. And where I come from, that ain't good for highly speculative, long duration, high multiple Kathy Woods cash incinerating garbage and private equity and private credit. That stuff is toast. Completely toast. And the problem is all the folks that own that stuff, they want their 2021 back. They want Goldilocks. No Goldilocks for you. >> We are Sorry. Go ahead. I was going to say, can I can I pitch you on a a fuse for for what what I think is potentially something that sets this off? So, I in my in my layman opinion, I feel like one of the reasons why private credit and private equity has has succeeded the way that it has is that they've effectively bastardized modern portfolio theory. >> Yep. they walk in and you can make the claim that it's an uncorrelated asset which I mean as you know if you sit down and do this at all that's almost as valuable if not more valuable than than the the return scheme that you get >> which Leila talked about when we interviewed her or I don't if you were on for that one. Yeah Brooks I think I >> correct so so check this out. So if you look at the correlation between the local close of the Nikk 225 and the US close of a Japanese yen hedged ETF. This is a 13-hour difference, right? And it's officially the mark of of the local close and then of the US close, >> right? >> The correlation of the Nikk 225 to the S&P is 0.2. This is daily close since 2020. >> Mhm. Mhm. The daily close of the Nikk225 to SPY is 0.2. So you think that you're highly diversified by holding Japanese equities. What do you think it is for the US close of same but yen hedged? >> Uh but yen hedged it's uh it's extremely high. I don't know 7 or something. >> 71. Exactly. So >> there you go. >> So this is a 13-hour officially marked >> Sure. efficient market solution and you're picking up 50 correlation points. And when you're dealing with private markets, not only are you dealing with a you certainly not 13 hours, is it 13 days, is it a month? >> And you get to decide what the mark is. >> Like this whole gambit about about correlation and how diversified you think you are is is just wild to me. >> I I couldn't agree with you more. It's a complete canard. Um and you touch on a very important point. brings in another thread we can pull on. You mentioned u in Japan and Patrick you asked at the start of the conversation how markets changed the rise in the role of foreign central banks the accumulation of these massive deficits. So they they they rack up all these surpluses and what they do with that money. I mean historically they buy a lot of US treasuries with it. In recent years they buy NASDAQ but all money is fungeable. So you can talk about US monetary policy but that does not exist in a vacuum. You have to look at what PBOC is doing, Bank of Japan is doing, the UCB is doing and um one of the things that Patrick go back to the question um you know there used to be a thing for in Brooks you'll love this one when they gave me the Fidel overseas fund to manage um fund start in December of ' 84 um you know markets were far less correlated than they are right now because you didn't have these big pools of capital slashing all over the world. And if you could find uncorrelated assets and uncorrelated or less correlated economies, that was the argument for diversifying, putting your money abroad. But as I like to say now, you know, the international diversation is kind of a lie because the because these markets are all tied together ever more by these global liquidity flows. And I joke with folks. I was like, you know, what do I want to get up at? What why do I have to be up at night at 9:00 look at the naked? I mean, I can lose money just as easily between 9:30 and 4 400 p.m. Eastern time. I don't have to stay up at night to lose money. It's like, what the hell, right? So, this my joke about the 24hour trading with this talk about 24 I was like I'm like why? Because like a lack of liquidity in the liquid markets is the problem right now. Like we can't trade enough. Okay, so Patrick, may I'll be spitting enough glass here. Maybe you'll make me an honorary hedgei employee. All these clowns going on about the 24-hour trading and everything. Like just what the world needs right? >> Yeah. >> I mean, talk about >> we lacked enough price transparency and discovery market. >> Exact. Exactly. Like are you kidding me? But this is what the chattering head talking heads of chattering idiots. This is what they go on about. This is this is this is mindless. >> It's for the exchanges, not for the for the indust, right? They just want to they just want to keep >> Yeah. set up more arbitrage inefficiencies, yada yada yada. >> And they want to keep the the the poly markets and and and others off of the uh the gravy train. >> There's I mean there's also that to me that's the other reason why we now have 120 pending Major League Baseball ETFs. >> Are you serious? >> Yes. Hey guys, I got a little bit of a problem. Maybe you could help me with this. Okay, >> something you want to put in. >> I have disco I have discovered online sports gambling now. >> Yes. >> It makes investing fundamental investing kind of like who needs this? I could blow myself up at 30 seconds. Just push the wrong button over here, right? And by the way, it's funny when uh we we're not gonna I don't want to waste time talking about Bitcoin, but it's so Bitcoin. So yesterday, but um I remember a few months ago when I was trashing Bitcoin and um one one of my points was the the decline in volatility. It's like people a lot of the folks that play Bitcoin, they they want the juice. They want the action and the V and actually so the institation institutionalization Bitcoin is actually a huge negative because it it diminishes the volatility and so I really I deliberately chose these words I said people off I go you know but Bitcoin is for old people like the Facebook of crypto >> that's exactly what I said it's No I forgot I said it's the Facebook of speculative assets >> what do you need Bitcoin for go do go do prediction markets. Go do sports. You don't need this stuff. Zero DTE. >> That's right. That's right. It's like gold is your grandfather's thing. Your uh your dad's thing is Bitcoin. >> And I tell you a funny story. I have to I have to repeat the story. I have to repeat this story. >> Yeah. >> So, I've been bullish on gold and silver a couple years now. And it was all going fine until like fourth quarter last year when Momentum Bro and and and Crypto Bro, they discovered uh Gold and Silver and their new meme stocks are GLD and SLV and um you know made Bitcoin look what just boring. So I was doing this space one day and this this younger investor comes on. He's like, "Oh, yeah, George. Yeah, I I agree with you. I really like gold and silver and but I I I think you're you're you're wrong about Bitcoin." I said, "Okay, well, I'm wrong about a lot of things. This won't be the last time we're wrong." I go, "It gives me all these reasons why Bitcoin is still." I said, "Tell me something. Why did you" And I I gave I coined the phrase, "It's the Facebook of speculative assets." I think on that call, and I said to the guy, I said, "Tell me something. Why did you sell your gold and silver? Let me ask you, well, they weren't performing so well. They weren't going up as No. So, sorry. Why did you sell your Bitcoin? Well, it wasn't acting so well. The gold and silver going up more rapidly. I was like, you just proved my point. >> Bitcoin is is the Facebook a speculative asset. So, when people ask about Bitcoin, and I I love this. I love this. Now, the haters come out of the nine months later. Oh, George, look, you were wrong on Bitcoin. Oh. Oh, excuse me. Bitcoin has now rallied back up to where it was a year ago. Okay. Well, well played, Mu. Well played. All right. So, in any event, um, so what what's the overarch? I mean, I don't know where you want to go with this, but >> I got two ways I want to go with this. I'm going to ask you. I was trying to decide which one to do because I was um what I was thinking back to is when we've been at these technical dinners in the past, I always loved like I I knew exactly how to just be like it was like Georgia like pull, you know, and I get to throw something up and he would just be like hammer this story. All right, I got two ways I could go with this, but let's I'm going to pick one and then we'll get to the second one. Um, Bessant, you've been sort of short Besson's policy stance and his seeming hubris uh with a lot of his public statements. I guess I'm curious like what I mean I have my own answer to this, but I want to hear your answer. What specifically about his approach do you think the market eventually is going to punish the most? >> Isn't what's the name of this podcast? Protect the pile. >> Yes. It's kind of like protect the house. Um Patrick, you and I have been around long enough. When you get too big for your britches, you get over your skis, markets have a way of uh coming for you. >> Oh, absolutely. >> And full disclosure, I'm happy to talk about 2022. I had an ETF. It was a It was a complete abortion. >> Yeah. >> I got out over my skis on the shorts. You learn a lot more when you screw things up than when it's going well. But Besson, let's leave my opinion out of it for a second. Let's talk about the facts. Besson is a very mediocre was a very mediocre money manager. He's compounded at 2% a year for 15 years. Bessent had almost nothing to do with the Ducker Miller Soros bringing down the Bank of England in '92. He's a 28-y old kid. He's a junior in Logan off of Soros. So just he's not particularly qualified. Look at his record. You wouldn't give money to manage. I wouldn't give him money to manage. And then on top of it, the sheer arrogance and hubris and nastiness of the man. I know a guy who uh know I've been in meetings the best and I've been in idea dish. I know a guy who uh used to broke to Bessum, sales guy and um I was discussing Bessant with him a couple months ago and we were going on about how, you know, does Bessant really believe the stuff that he's saying? And this fellow was really, really angry and pissed off at Besson because he goes, you know, maybe at the outset Besson didn't believe what he was saying. He's just carrying Trump's water. And by the way, I don't want to make I'm not making this a political discussion. I'm not I'm not I don't want to get into like Trump, hate Trump. That's not what this is about. You know, initially maybe he got involved. He's carrying Trump's water. That's what he has to do. But it's sort of like on Broadway when you're an actor, actress in a in a play, you play the part long enough, you become the character. >> Yeah. Right. >> And so so this person's opinion was Besson actually believes all the he's handing out right now. >> And for people who say, "Oh, he's in a tough position. What would you do?" You know my oneliner on that one. Resign. But don't have any pity for the man because he doesn't have to be in that situation. He went running into the fire. He wanted that job. And just as the market attacked the Bank of England and Norman Lamont, who was chancellor of the ex-checker and John Major was prime minister. The market has attacked is attack and will continue to attack Scott Besson and his misguided policies. I called it out. I called it out the day he opened his yap. I think it was August 19th or somewhere thereabouts. The bonds went from like I don't know 475 to 465. They yields came down five or 10 pips. And I know you seen you you you you cited my my tweet before. I got really angry. I was like this is basically me being being a jerk about it. This is basically Scott Besson telling you to short more bonds. I mean Patrick, you know this intervention only works if the policies are right. >> Yeah. Yeah. I mean, the example I used, and I don't know, I'm frozen on screen, I think, for a second, but we'll see if I Can you hear me? All right. >> Yep. >> Yeah. Okay. All right. I mean, I think the phrase I used with Sam or someone else was, you know, the the Raptors will test the fence. If you if you say there's a fence, you're putting up a fence, they will test the fence and they are going to come and be like, "All right, you said this is this line in the sand. Like, you better put up a shut up on this line in the sand." And as far as I could tell, >> he hasn't really done anything yet. I mean, now look, the the Treasury is sitting on uh trillion dollars of liquidity. Um I don't know what the plan is to maybe they're going to try to do something with that as we get closer to the midterms. I I don't know what what the what why we're amassing this large pile of cash, but they are at like a trillion dollars in the in the TG. >> Yeah. But and and listen, in the short run, dayto-day, week to week, they can paint the tape. >> Yeah. >> But it's not clearly has been. >> It's not a sustainable policy. Just like with energy, with oil, we can talk about that, too. They can paint the tape, but this too shall pass. And and you know this Patrick the more out of whack an administered price is, the longer it goes on, the more the market attacks it. And you've seen the data recently, I think Chinese holdings of treasuries as a percentage of reserves down to like 20 year lows or some crazy number like that. Japan selling too. I mean it's just you know it's actually best you know and by it's hilarious he says oh we're going to buy four billion instead of two billion or eight billion instead of four billion whatever the numbers are bringing water to a fight right but god forbid if they actually go in there to try to uh prop up the market with any serious money which they may have to that's just exit liquidity for anyone wants to sell it's all >> well and to this point it's like if unless the Fed is on board to help him like there's no they have a limited ability to actually do that much from Treasury, right? So, it's like if Worsh is raising rates >> at the same time that he's he's trying to say he can, you know, effectively manipulate the bond market, like that's just not going to work. Like, you need to have the Fed on sides with you to be able to do that. >> Um, and just one word on that. I don't spend a lot of time on the Fed. I think it's a waste of time. I really do. >> The number of uh folks on X and elsewhere, the Fed, the Fed. Uh the here like words I hate run don't walk from anyone who talks about the yield curve volatility volatility the passive bid >> Kevin's paradox I mean I can go on >> yeah yeah yeah they're all fire garbage you know why show me no one's made any it's complete waste of time but the talking heads that don't know any better the Fed the Fed the Fed you know As as Zalinsky said, as as Trump said to Zalinsky a couple years ago in the White House, you don't hold all the cards. We hold the cards. I say to Scott Besson, you don't hold the cards. Mr. Market does. And don't listen to me. Ever heard of this guy called Stan Ducken Miller? >> Yeah. Here's old boss. >> Okay. Okay. Okay. And Besson has a stupidity and tearity to try to rip Stan a new one. Stan has forgotten more than about about this stuff than Scott Bessel will ever know. Are you kidding me? In the idiotic mainstream media. Yeah, I'm getting hot now. >> Def Scott Bessant. >> Oh, the most consequential. You're right. He is going to be the most consequential Treasury Secretary we ever had in a way that you don't want him to be. >> Yeah. No. Well, that's that that absolutely. So, all right. So Sam, um, I'm going to give you maybe one more chance to ask a question. I got one last one for George. We'll hit those two and then we'll uh we'll close it out. And >> hey, wait, no, no, no. No, no, no, no, no, no. You can't leave. We're just getting started. >> You're gonna come back. actually go back a little bit, George, and just, >> you know, get a lesson or or or a moment in your pastimes of fidelity where we didn't cross over at that time, but what was like some of the what was a great story or most valuable lesson you learned from all the guys you were working with back then that you still use today and that's valuable to you today? >> All right. I I'll give you one of I'll give you one of the stories early in my career. I use it all the time because it captures the essence of what's wrong with markets right now. So I started out um they gave me the consumer stocks. I had retail consumer durables autos. By the way, I was the auto analyst. This is for another episode. I was the auto analyst when Peter went to Detroit, visited Chrysler, Ford, General Motors. I was in the room with Leaka, but I knew enough to shut up and listen. I was in the presence of great. I had no idea what I was getting into. >> That's a whole another story. That's not the story I want to tell. So the first stock I recommended this retail stock can't remember the ticker symbol. I can tell you what happened. So the next thing So Peter goes he goes he buys 10,000 shares. Little did I know he bought 10,000 shares of the first stock any rookie analyst recommended. And by the way, one of the things that makes Peter so great because it was like working for him. He's probably the best analyst I've ever met in my life. He would take things and could break them down into constituent parts. He wouldn't go on about the Fed and volatility and the yield curve and Jeff's paradox and you could put them you could have a you could have insurance company come in put him in the conference room. Peter will have done no preparation. Just hand him the annual report and within 10 minutes he'll be he'll he'll be on a crucial point. He just knew he knew how to analyze companies. Anyway, let me tell you the great story. So, I recommend this retailer and they come out with B with poor same store sales. The stock falls like 10%. I'm like, "Oh, Now what?" I begged Peter, "My career's over. Hasn't even started. It's over." So, my friend, my friend Danny Frank um joining one of the he was we were compadres. He's like, "George, you better go into Peter's office and tell him what's going on." Better you you should be on the offensive. You go in there better than he comes and asks you. Said, "All right." So, I hyperventilate, take a deep breath, I go to Peter's office. I was like, "Hey, we we bought this thing, blah blah blah. It's down 10%." He goes, "You talk to the company." So, always know what you own. Did you talk to the company? Did you do the work? He go, "Yeah." He goes, "So, okay. What happened?" He goes, "Well," they go, "Everything's fine. The reason sales are down is it was raining. It was bad weather. Shopping was impacted. Really? Yeah. He goes, "Everything else is fine." Go, "Yep." He goes, "That's fantastic. Fantastic. What are you talking about? We just lost 10%." He goes, "No, no, no. We get to buy more at a lower price because stupidity of Mr. Market." Now, that is the opposite of the guys with the crayons on X in their RSIs and MACD's and no fundamental analysis would be, "Oops, we just broke through the 20-day or the 50-day. You got to sell." You know, they know the price of everything and the value of nothing. No fundamental work. In this particular case, Peter was like, "Back up the truck." people, the vast majority of people now operating in markets have no freaking idea what they're doing. It's gambling. It really is. Yeah. Postcoid, it really did become that. I mean, it was already happening and it really went into overdrive. I feel like after COVID when people were went home, you know, the era of Davy Day Trader, like everyone started and then we've moved into the era of sports gambling and now these pro like these, you know, prediction markets. We've just kind of we've just turned it into And and and and you know where this is going. I always like to talk about there's three types of information. There's descriptive which talks about describes what has happened. There's predictive. Okay, you think interest rates are going up. And then there's prescriptive. What should we do about that? You think rates are going up? Should bonds or short long interest? Short short housing stock by a dollar. Buy gold. What? Everyone talks about Captain Obvious historical stuff because they don't know how to make predictions or forecasts or they don't know what stocks to buy. All right, it's know what you own. The amount of analysis that I see out there and I you know I'm reminded you can you can praise specifically but um you know criticize generally although in Scott Pson's case we're going to criticize specifically. Um >> so guys comes with the role. You got to you got to be willing to put up with that when you take a roll. >> All right. And and and and people they just don't know what they're doing. And the thing is for the longest while they're spiking the punch bowl and free money for everybody. What are you wasting your time writing these reports? You write a report. I got to read it now. Like what is this? >> In a world where cost of capital is zero, actually the biggest garbage goes up the most. >> Yeah. No, that's that's sad. >> And so now I believe we're inexurably going back to the future. Real cost of capital's going up. In nominal terms, you know, I don't know what the market may be flat, maybe up, maybe down. I don't really know. I mean, it should go down, but forget about what should. I I'm respecting price. I It's more interesting as you look in real terms. You look at the stock. I mean, the S&P is dominating American pesos. Funny money. But you look at the S&P in oil or gold, it's in a huge bare market. So go back to the Greenspan line about, you know, I can assure you we'll be able to honor our obligations. What I can't assure you is the value of the money. Uh so I don't think it's ever been more difficult, quite frankly, than it is now. Um this frenetic trading, this gambling, it's going to end extremely badly. extremely badly. >> Well, you I think your your your point I mean this is where valuation comes in is when people have to think about the cost of capital again, right? And that is like this is what's happen. I mean I I would point to say right now, right, OpenAI is now going to have to since they're pushing the IPO, they're going to have to continue to fund this. What's happening right now is that, you know, we've got Soft Bank raising uh 11 billion at a cost of close to 10% to put that money right into Open AI. So to to my my view of that is that open AI is effectively raising capital at a 10% cost of capital >> and yet we're valuing it at an infinite cost of capital. Like it's that type of setup is almost always a rough one. Um >> I want to pile on if I may. Um there was a great piece give credit where it's due. Brian something or other. It's in my ex feed. Canadian guy about a month ago. Brilliant piece. Brilliant. And he was likening the AI bust to the housing bust. And you go back, you look at housing, the key year was not 2008. That's when the proverbial hit the fan. The key year was already 2006 because that's when the rate of price appreciation slowed. So the deal was, you know, Sam goes to buy a house that he can't afford and, you know, he gets he gets teaser financing the first couple years and Sam's like, "Yeah, but when I got to start paying the real cost of capital here, it's not going to work." They go, "Don't worry, Sam. The price will have gone up by then. You'll be out of it. You're going to flip out of it." Okay, >> that's right. >> So, as long as that kept going happening, it was fine. >> Where did it go wrong? 2006, the rate of price appreciation slowed. That in and of itself was spelled the end because the flywheel started to slow down. And you look now at uh pilon when we we spoke before anthropic pushing the date back a little bit. Open AAI not coming public this year. I don't know if they're ever going to come public. Whatever. You mentioned Soft Bank having to desperately raise money at 10%. If if you look at OpenAI and Enthropic, each successive round of finance, each fundraising they've done is like 50 60 70% higher than the prior one. So Sam keeps putting the money in because even though it doesn't make any sense, Sam keeps investing the money because the next round is going to be higher. And so on paper, he keeps making more money. Just like with the house, don't worry Sam, you can't afford the house. He's going to flip it, right? What happens if if I if if if Open AI or Enthropic can't you know can't next round of financing isn't 50 60 70% up what if it's like 10% up or 20% up or flat >> or flat or even down I mean in the secondary market those shares are trading at a 40% discount to those Sam Sam and all his cousins are going to be like wait a second I don't want to put any more money into AI >> that is what's happening right Now that the flywheel, this is 2006, 2007, maybe it's 2008 or who the hell knows. Okay. But what's happening right now, the inability of these companies to fund themselves or the increased lengths to which they have to go to fund themselves, whether it's Soft Bank paying 10% or you know, hey, what was the thing a few weeks ago? I think it was OpenAI. Nvidia was going to give them 250 billion or something like that. Wait a second. Wait a second. Wait a second. This is such a good deal. Where are the banks? Why aren't people willing to invest money in these guys at arms length basis? And I am Patrick, you're old enough to remember the line when things are not obvious. >> They're not obvious for a reason. What's you hiding something? What's the matter, Patrick? >> So, can I wait? I have to I have to clarify something that I think I remember is true. I was in your office once many years ago. >> Oh, no. Oh no. >> And I think there was an Enron. Did you buy an You bought like an Enron memorabilia, right? Did I have this right? >> You're talking about the E, the big E. >> Yeah. Yeah. Yeah. Yeah. You had that like in your office, right? >> So I used to collect swag. I don't. So I'm on >> that like a scalp. >> I'm I'm on eBay one night, right? And I see this E. The E, the crooked E. this beautiful Italian blown glass in the stainless steel. So I contacted guy, where'd you get this? He got it some auction in Dallas, someplace in Texas, whatever. So I paid like 11 grand for it. He shipped it up to me. So we had the E. We had it mounted in its crooked E thing, you know, in all its glory. So we had it in the conference, but we couldn't put in the conference room because we put in the conference room. Management's come in to look at this E. We can't do that. So we put it way in the back and it was kind of like a tourist attraction. Every time a company manager would come in, we'd show them the E. I remember the Japanese would come in, they just all they all want the picture taken the E. >> Too much. >> So when when I moved when I moved was this is the worst trade of my life. When I closed down my firm and I moved out, what do E? E weighed like 500 pounds, right? So I wound up I uh put it out. Uh it was for competitive bid. It was like a silent auction. I approached like Seth Clarman, Chainos, John Jacobson, like four or five of the hedge fun titans and Jacobson wound up buying it from me. I think he paid like 35k for it. What I should have done, I'm an idiot. I should have donated it. I should have donated it to Robin Hood Foundation. >> Oh yeah, >> they should had it because like you know what else is Bill Aman gonna buy or Ken Griffin gonna buy for the man who has everything, right? Give him an E. It's like pirates treasure, right? So, yes, you are correct. I had the E. It's it's it tripled. Got By the way, there were there were five I think there were five E in existence. And what I should have done what I should have done was bought all five and destroyed four of them. That would have forced the price. >> Oh, it would have been. Yeah, I know. >> But, but but but but good catch. Yes, I had the E. I got to find the photo of that. >> That's awesome. All right, I'm going to wrap this up because we try to keep it to about an hour. Uh, which means we're going to have to have you back, George. It's been awesome. Uh, great having you on. As fun as always talking to you. I know we we've got um bunch of topics I we didn't even get to that I want to re revisit. So, maybe we'll come if you're willing to, you'll come back in uh in a few months or something and come back on the show. Um, we didn't even mention Elon Musk. I don't know how we got away with that, but uh it's all right. Maybe you and I have done that enough over dinners that uh we can save it for another time. All right. Tune in next week uh for another episode. In the meantime, you can follow me on X at Hedgehed_hells. Sam is hedgi_hgrow. Brooks, who had to do a jump for a lunch meeting, is hedgi ads. And you can also find all our bios and that information on the ham website, hedgiam.com. George is on X under the handle at Goboble79. Is that right? I think I got it right. and uh as well as on Substack with the Noble update. >> And I have to plug just you'll let me do this five seconds. >> We've had a series of online virtual conferences. We've done five or six of these democratizing finance. I know you guys do a great job with with your conferences. Um we bring some of the best thought leaders. Uh stock pickers. This is actually Patrick. We're going to go back to our roots. It's a virtual stock picking thing is what it is. It was inspired by was inspired by those. Okay. So, we're having one. You guys get to come free. I'll send you a freebie. October 27,28 10 20 of the leading technicians, John Rogue, Frank Terara, Dave Nikoski. I mean, just go down. It's a who's who. Okay. Um $99 for the uh for the um uh early bird at your desk. You don't have to travel anywhere. No plane tickets, no hotels. The replay is available in 24 hours. 20 I mean, this is unbelievable. 20 of the top technicians for $99. So, >> I love it. I love it. It's basically a lot of the guys you catch that come to those dinners. So, >> by by the way by the way, Dibble, for those who don't Mark Dibble, who recently retired as one of the senior technicians at Fidelity, I invited Dibble, but since he stopped looking at screens in May, he's like he's George. No, not now. So I he's saving the flowers and enjoying his time not looking at chart. >> I invited Dibble let the record show I invited Dibble but he said no >> that chart room he must have been in that chart room at Fidelity at some point. >> But Frank Tasher who never misses a m opportunity to open his mouth. He talks even more than I do. >> He will be coming and I think we got him as a keynote speaker. Oh >> that's awesome. But that'll be that'll be hilarious because Texier I used to I used to work with him at Wellington and uh he was he is a highly entertaining guy, very salty. Um but also used to drop some of the best uh bombs in the morning meeting. One of my favorite of all time was just like, "Well, I don't understand. If you guys are trying to find stocks that will outperform relatively, why don't you start by looking at stocks that are outperforming relatively?" And by and by the way, by the way, David Lundren, another one of your former colleagues at Wellington, is also going to be speaking. >> Oh, awesome. And and a good friend. Uh so, all right. Excellent. George, thank you so much, everyone. Have a great weekend. Uh and have have a great rest of the week. Um and we'll pick this up again next week. Best of luck out there. Thanks a lot.