You know, risk-off environment, the price of asset classes, which you
would normally want to hold for the next five years, which is to say,
precious metals is an example, gold and silver, get soft.
Well, we're in a risk-off market, and I'm a guy among other things who
like some risky assets.
If there's a situation where there's an asset class that I like,
Junior resource stocks, is an example or emerging and Frontier
markets, stocks, where the overwhelming sentiment is - what that
means.
Is that sectors that I know extremely well are going to go from cheap.
Extremely cheap, you won't feel that sincerely.
Very good about your existing inventory, but to the extent that you ad
inventory, you're going to feel fantastic about it.
But I said, paradoxically that, although I cut my teeth and had my
expertise in small-cap and micro cap stocks that, they were overvalued
relative to large cap and mid-cap stocks that's changing.
And it's changing very, very, very rapidly.
So, we're coming into a circumstance where the expertise that I built
up over 50 years.
Investing and speculating, is those lessons are going to be lessons
that I'm able to employ, which is extremely attractive to me.
Volatility, unnerves most people, because most people only pay
attention to the price of their Investments that price and that price
information isn't worth anything.
If you don't have a sense of value, in other words, if a stock is
selling for a dollar,
What does that mean?
If you think it's worth two dollars, then the fact that it's selling
for a dollar is cheap, if you think it's worth 50 cents than the fact
that selling per dollar makes it expensive.
Most people pay slavish attention to price information and have no
opinion, whatsoever is to Value.
So, of course, during periods of volatility, those people that don't
have the courage of their convictions because they don't have
convictions will make mistakes.
And those mistakes will inure to the benefit of people who are
Ecologically and financially prepared and I'm hoping I'm both I think
the Funny Money game can continue for a fairly substantial period of
time.
I don't think that the average investor and Saver in the United States
is as afraid as he or she is going to become.
I believe that most people still believe that the big thinkers have
their back.
I'm not sure that I believe they have my back but that doesn't matter.
I don't make a market.
I think in the very near term we're probably set up for technical
rebound.
I think equities are oversold.
I think bonds may be oversold because I although I think they offer a
horrific value proposition.
They are regarded by other people safe.
Evans irrespective of the arithmetic.
So I think in the very near term we may see a rally to me that feels
like a sucker rally higher interest rates due to Very Bad Things To
debt and Equity markets.
The first is that they raised the issuer's cost of capital.
You know, if you're somebody paying the prime rate in the prime rate
is three, your cost of funds is 3.
And if the prime rate goes to for your cost of funds went up by 33
percent, obviously, your margin is the difference between your costs,
including the cost of capital and what you sell your.
You sell your product for, but the other thing that increasing
interest rates do it is, they reduce the value of existing income
streams.
So if you own us 10-year treasury, which you bought a year ago with
125 basis point yield and today the US 10-year treasury selling for a
225 basis point yield over 10 years.
What that means is
That your your income stream is worth substantially less.
Similarly, if you if competing savings products begin to yield
appreciably more than the dividend yield of the S&P, 500 is an
example.
There's going to be disintermediation by income investors from
equities and from bond funds into other deposit products.
So,
Clearly, if you believe that interest rates are going to continue to
rise in the intermediate term you believe that long-term Bond markets
and conventional Equity markets are going to continue to suffer.
I hate to sound arrogant but I think focusing on one misses the point
simply because you'll never know when I think what you have to do is
you have to live your life with the sense that there is no necessary,
answer to the one question and you have to conduct your life in
prudent fashion.
Eight the fact that you lose money having cash, you have to have some
cash because cash would give you the tools in the courage to handle
volatility.
It sounds counterintuitive when you understand that caught that cash
is costing, you money, but there's an opportunity cost associated with
having cash in a risk-off environment, the price of asset classes,
which you would normally want to hold for the next five years, which
is to say, precious metals is an example, gold and silver, get soft.
And if you don't have the
The courage of your conviction, it's easy.
When the gold price Falls from 1900 to 1800 saying it's going down and
selling it really truly snatching defeat from the jaws of Victory.
Mystique, mistaking, volatility for arithmetic, which is a mistake.
similarly, if the S&P 500 is going lower, but if you have specific
knowledge around the company and why that company is attractively
priced, the fact that a company that is to say an investment that you
know, well and
Good about is becoming less and less less expensive is a benefit to
you not a cost to you.
And if you buy a stock that you think is worth, let's use a big cap
stock.
Let's say you think something is worth $50?
And the stock is selling at $40 and your product, you're planning on
holding the stock for some period of time longer than a long weekend.
Because you believe that the company's prospects are such that it will
do well over the next five or ten years.
The fact that fell from 50 to 40 is a benefit to you if you can't
think in those terms.
The best thing to do is to become extremely conservative, which is to
say hold cash or precious metals and have very very
Very low expectations or maybe simply pay off your debt and hunker
down.
That isn't what I'm proposing to do.
I'm proposing to take advantage of the situation as opposed to being
taken advantage of by the situation.
Jake my gut feeling is that the market goes lower but there are some
values that are so compelling that I can't help myself.
I remember about two years ago, maybe a little longer after the
covid-19
Thing, shut down travel and where the greatest thinker in the world
with regards to energy was a 16 year old.
Swedish teenager credit, Thornburg where Exxon got thrown out of the
Dow 30 and the price of Exxon absolutely collapsed.
And I remember excellent was selling it at twelve point six or twelve
point seven percent dividend yield that was very obvious to me that
people are going to drive their cars for the next 30 Years.
That Exxon wasn't
A business and that Sub-Zero price of oil wasn't going to last and I
made a critical mistake.
I thought excellent was going to go lower and I missed the opportunity
at least for 45 days of buying the best asset allocator in a business
that I knew well, because I thought it might get cheaper.
I'm not making that mistake now, where companies are selling at
substantial discounts to what I believe that.
Net present value of their free cash.
Flows are going to be over the next five to ten years or when they're
selling a big discounts to what.
I think the risk-adjusted probable value of their assets are.
I'm going ahead and buying stocks
I have been thus far unsuccessful, unfortunately, in negotiating
private placement financing 's in micro-cap equities, because the
management teams of those companies believe that the market is going
to magically get better in the near term and make other sources of
capital more competitive with me.
But Jake, I'm highly confident that in.
22, the people who are playing chicken with capital markets when they
need Capital are going to lose and I'm going to win.