YouSaid · the spoken record

Steven Bregman

lines on the record: 132
first: 2021-12-28
most recent: 2021-12-28
sittings or episodes: 1
sources: podcast

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“Have the assets. So, can you speak to an example of, the ultimate example of that, which is a company called the Texas Pacific Land Corporation, which has been a mainstay of your firm, your firm very much is into that stock and it has paid off if we put up the chart of it compared to ExxonMobil versus the S&P 500. Yeah, can you elaborate on the principle of... Limiting the cost and sort of having fixed assets”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“And that's what I'm saying about ETFs. It's the same idea. But you know, you've got a point, which is it's much easier to see with bonds because with stocks, there are so many variables you can argue about the management and the growth and how long the growth will last. You can debate it endlessly. But with bonds, there aren't that many variables. You've got a certain coupon, you've got a certain maturity date. You can say, okay, this is not going to default. I've got pretty good view on that, pretty good assurance. And so you know what you're going to get or what you're not going to get. Right now, you can get one and a half percent up front. They're telling you that your cost of living is going up by 3% and maybe rising. The question is how long will that go on? And will it get worse or will it be transient? Think it's structural”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Ordinarily, it's a thousand one, ten thousand and one different contenders in the marketplace with limited pocketbooks. Some people think bond prices should be going up, some go down, some are taking a look at different credit quality. They're contesting with each other. They're bargaining with each other and they're determining the clearing price. When the government steps in to buy, That's now an artificial market. That's what's so confusing to people, I think.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“On an afterinflation basis, on a real basis, as soon as you buy it every single day you own it. That's where we are now. Just what you said. So whatever the rate might be, you might say it's 1.5% yield. Okay, well, the stated inflation rate, the CPI, is already climbing above 2, 3, 4%, might go higher, which means every day you hold that, you're actually losing purchasing power. What's going to happen so? When you say, but bond prices, how can bond prices stay low? Yes, because it's not a real market anymore. It's an artificial market. When the government with an unlimited pocketbook steps into the bond marketplace and starts buying securities, A false clearing price.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“The market is easy because that started with Paul Vonker, right? 1981 or so, 82. So when treasuries were 16%, had 16% yields. More or less. The World Central Banks have been gradually becoming more and more coordinated until this current era now. They're in lockstep. But they've been bringing interest rates down. 40 years Ergo, a 40-year bull market and bonds. Now where we are now is On their face, this also is very, very rare, but I don't think it's ever happened before that it's been this extended, is on its face when you buy a bond fund Vanguard Treasury Bond Fund or an investment grade corporate bond fund on its face. You are losing money.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Again, what debasement means and how it works is a little bit more involved discussion, but it means that if you've got, we think it'd be a lot worse in the 70s. We think what's coming up is a lot worse than that, and that it won't just be 10 years, that there are structural elements in place for that. So 10, 20 years goes by, and it can be really devastating, but what happens is the total amount of debt. Gets cheaper and cheaper and cheaper because there's more and more money with which to repay it, cheaper money. That's a way out. And I think that's really the path they're on. Now, they can't say that. Imagine if you're the head of the Federal Reserve and you said that, there'd be panic.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“And so, someone who had accumulated a certain amount of money to retire and put it all in bonds. And they're getting four or five, six percent, whatever it was Expected to be able to live on it, and they should have been. Whatever they could afford, let's say it was just the right amount of money for them. But by the end of 10 years, 10 year period in the 70s, they had half as much purchasing power. Same amount of bonds. Let's say it was $100,000. They started with $100,000. They finished with $100,000, but it was only worth $50 in terms of what they could buy food, rent, utilities. It's devastating, but that's one way out, which is you”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“It's really a very scary cycle, and there might be a tipping point. I think they passed a tipping point where they can't get out of it. So what they'll do is it's a standard procedure. It's been done across history across nations for thousands of years is they'll play for time. And the way they'll pay for it is by debasing. That's a slightly different discussion, a little more in depth. But the point is in the 1970s, there was a 10-year period. From the 72 more or less to about 1982, when inflation averaged 7% a year. I think that was it. Doesn't seem terribly much, but it meant that the cost of living doubled. Which meant that until that time there had never been that kind of inflation. In a long, long, long time, it wasn't in people's memories.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“The standard answer, it's old wisdom, it's wisdom that's more than 2,000 years old, is they're going to try to debase their way out of it. Keep this up. See, they reached, they passed the tipping point because in order to keep rates low, how are they doing it now? You hear about bond buying and so forth is they buy bonds in the marketplace, meaning they push the price up, which pushes the yield down. It keeps the yield down. But in order to buy the bonds, they have to print money to do it. Kind of locked into a cycle now where they have to print money to buy bonds to keep the interest rates low Produces more money And the amount of debt keeps climbing each time they do it. So there's more interest expense.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“At the end of such and such a quarter, as soon as a certain measure gets to be hits this mark, whether it's unemployment or the money supply or whatever they say, it's always around the corner. They'll always consider it. They're thinking of doing it. And all the commentators and prognosticators, they all talk about it. And so, well, they're pushing it off a little bit. We'll look for the next meeting. And our point of view was, and it sounded very simplistic, and it is simplistic. is that the Fed will not raise interest rates. Because they can't afford to. They can't afford to, so they won't do it. Whatever they say. And they're not doing anything, trying to do anything bad. But in essence, they'll string it along, string it along, string it along because...”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Oil goes up to suddenly $150 a barrel. That loan causes a recession. What would 300 dollars a barrel do? People's heating oil, their gas, the cost of anything plastic, the cost of delivering food from California to shelves in the northeast supermarkets. It's basically the economy couldn't handle it because we're so indebted and the indebtedness has been hidden by artificial low interest rates, which is why we think whatever the Federal Reserve says, They have a different agenda, and I can't blame them. Whatever they say about when they'll ease the tapering or raise interest rates.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“That's where it goes. So the U.S. consumes about 20 million barrels of oil a day, and you multiply that by 365 days a year. That's 7.3 billion barrels a year. And if we have to pay an additional $1.7 trillion, That 7.3 billion barrels of oil a year would works out. You divide one figure by the other. An extra 232 per barrel of oil. Means because oil is about 70 now, we'd be paying $300 a barrel for oil. And we know what happens to the economy.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“GGP is $23 trillion. A significant recession is 3% of GDP, is a 3% drop in GDP. What we call the Great Recession of 2008 and 2009 after the subprime mortgage crisis, GDP went down 5%. So a 2% increase, two percentage point increase across the board in the nation's debt, that's a 7.5% decline in GDP. If you look at it that way. But here is a way to look at it that's even less abstract, that people can relate to. Price of oil, and it shows you also how debt by itself can be inflationary because there's a cost to it. So let's just say, and this is a completely fanciful example. I admit that in advance. But let's just say that that additional interest expense figure of $1.7 trillion because of a 2% increase in interest expense across the board were allocated somehow only to oil”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Devastating that would be to the economy now, just how leveraged we are as a measure. Let's just say for simplifying purposes, doesn't happen this way, but that the yields for all the different forms of debt went up by two percentage points across the board. Now, you can't do it right away because you have third-year mortgages, those aren't going up right away, but you have some auto loans, those roll over pretty fast and so forth and so on. But let's just say went up 2%. Well, we have $85 trillion of total debt. So if interest costs go up 2%, you multiply the one by the other, that's an extra 1.7 trillion dollars of interest expense for the nation as a whole. Now what does that actually mean? Well, one way to relate it to things is that's almost seven and a half percent of GDP.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“The total debt in this country is $85 trillion. Federal debt's $29 trillion. So when I say total debt, that's everything. It's the federal debt, municipal, state, and local. It's mortgage debt, credit card debt, auto loans. $85 trillion. And the average interest cost blended is 4.1%. So, what would happen? If the Federal Reserve would have let interest rates rise by just 2% doesn't seem like a lot on his face. Right now, the 10-year Treasury note is about 1.4% yield, and not that long ago was 6%. It's a normal rate. So historically. So that means we're just bringing the 10 year yield, for instance, to 3.3% instead of 1.3%. Okay. Here's how. That can be inflationary. First, I just want to give people a sense of”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“And just benefited from the lower interest expense. Maybe they took on more debt and kept their interest expense the same. So they didn't become delevered, as we say, or have less leverage. They kept it there. They might even have gone higher. And that's what's happened to our economy. And that, by the way, in a strange way, having more debt is also inflationary. Just like too much money is inflationary.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Because we are over-indebted to a degree that's never happened before in our history. It's scary high debt, debt to GDP. And it's masked because interest rates are so artificially low, the interest expense on that debt doesn't seem that the total interest expense doesn't seem as high as it would otherwise. So some of those junk bond companies, let us just say, They should have done is say, wow, saved by the bell, and now I'll just pay down my debt because I've got lower interest rates, I can refinance lower, I can save some money, I'll use that money to pay down more debt. But too many of them, maybe most of them, didn't. They just maintain their debt load.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Stayed alive. You could examine the any of the high yield indexes, their ETFs for that. One has an appropriate symbol JNK. But what happened is as interest rates kept coming down, so one of these companies had 8% debt. Well, they could sell some 6% debt now and pay off the 8% debt, and now they saved that much interest expense. And then they could do it again the next year, and they could issue 5% debt, pay off the 6% debt. And so they were able to stay afloat and keep going through no fault of their own because the Federal Reserve gave them that opportunity. And so that ended up becoming reality. So a lot of those companies are still around. And maybe they've thrived or maybe they're just still hanging on. But that actually gets into... Debt problem we have in this country.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“But they didn't. And so they kept interest rates low and lowered them some more and lowered them some more and lowered them some more. And in the same way that AMC might have been at least temporarily rescued by a bunch of people, let's just say accidentally pushing the stock up. And AMC could turn that higher stock price into cash. Well, there are companies that every credit analyst would have told you should have failed, deserve to fail because they were debt-laden and they shouldn't have been, and they made bad choices. But”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“The 2009 period because they really should have and did provide liquidity to the marketplace so that the economy wouldn't collapse. Companies needed liquidity. The borrowing market for the bond issuance market just froze. Companies couldn't roll over debt, even perfectly. Credit worthy companies rely on the markets working so that when some debt comes due, they roll it over because a banker should because it's a creditworthy company and they can pay their interest expense. So they did. So they flooded in various creative ways. They flooded the market with the marketplace, the financial markets with liquidity, cash. And then after that, they were supposed to stop”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“So art becomes reality. Suddenly, because people believe, for whatever reason, they traded your stock up. Even if it's completely lacking in any kind of fundamental basis, it becomes fundamental. Because now you can sell a bunch of stock, you turn it into cash, and that you get to keep in a much broader, more structurally important sense. Part of the reason we're having, we haven't discussed this yet, but it's part of the Inflation risk that's facing all of us maybe for the next 10 or 20 years, the Federal Reserves easy money policy, some would say profligate, some would say dangerously loose money printing policy. Let's just say it started for real in the wake of the financial crisis.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Kind of like art imitating reality and vice versa, you can have these effects in the stock market. So I didn't follow this particular case very closely, but Yes, you can be saved from a, let us say, a deserved failure because you didn't manage your balance sheet well, or maybe just circumstances overtook you. In the securities markets, If your currency, which could be your common stock or your cost of debt, if that's the problem, suddenly are priced in your favor. So I don't know what happened with AMC, but I would imagine if I were the treasurer of AMC and the CEO hadn't thought of it, I would certainly tell her, hey, I don't know if you looked at it, but in the last 48 hours our stock's gone up a lot. We need to sell a bunch more right now.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“To make the example easier, think again of the gold mining industry, which is just 11 hundredths of a percent. SME F100, or what we just did add up all of the Real inflation beneficiaries, SME 500, you get to like 3%, 3.5%, maybe, maybe, maybe. If you want to buy that stuff, you'd blow them up. I mean, up meaning there'd be a discontinuity upwards. There's not enough liquidity. So the index has gotten to a very interesting, unbalanced kind of state.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“You're allowed. No, no, but because you're doing an excellent job. So the second question is, well, why should they, right? Exactly what you're saying. So yes. So the terms of trade will change, meaning that At some inconvenient moment Why would an active manager want to pay 35 times earnings or whatever the PE is for Amazon? Maybe they want to pay 15, which is what they remember Walmart went to once upon a time when it finished its growth phase. So you could have a discontinuity there. The point is you couldn't even find a buyer, I mean a buyer for your stock. And third, which is a more subtle problem, Is that The other side of it, you want to add to energy stocks There might not be sufficient market value or shares available. You to buy.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“So there's always a price, right? So if there are way fewer active managers who are willing to buy it, the prices will just have to go down. And then there'll be opportunistic fund managers say, yeah, Apple at 90 bucks, I'm in, right?”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“And we were talking about trillions of dollars, and you want to sell your leading positions. You going to sell to, even if they want to buy them Once upon a time, when indexation was 10% of the market or 20%, 30%, say, okay, there's a big enough pool of capital to buy it. But now you're the largest pool. Okay. And second,”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“What if you control the SP 500 all by yourself and you had this discussion, you're listening to the discussion between you and me and you said, you know what? I'm not worried or anything, but I would like to rebalance the S&P 500 a little bit and take a little bit out of... Information technology and put a little bit more into energy. Maybe energy should go back to 12 or 15 percent and reduce the information technology by about that much. And it'll be better again. All I want to do is rebalance. Simplistically, it's easy to do. You just write the computer code, you adjust the rule set for the ETF, and it does it. But in terms of actually implementing it, You might not even be able to do it. Because first, there's no longer enough money being actively managed. Accommodate that so if you have more than 50% of all the money”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“But at the very least, you should know that that's a characteristic of what the S&P 500 looks like now. I could talk about other risks, but it certainly undiversified its top heavy and has certain risks. But as well, the point I really wanted to make is it's been stripped. Of its resilience because it's the crowding out effect. That's one of the implications of, and the last implication of what's happened to indexation has to do with having passed a 50% mark in terms of publicly traded equities in the United States of America a couple of years ago. They passed a 50% mark. And so this has some interesting implications. There are a few of them. So one is...”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“And what if the next few years later it's only 25% growth and the P constructs at 25? And then it's 18. 18 is wonderful. Most companies would love that maybe a CEO only let his hangnail be removed for 18%. But the point is, I said it could be like going up a down escalator because the company will be coming mature through no fault of their own. Actually, as a complement to their great management, but they're going to saturate their market little by little. And in fact, that's exactly what happened. You take a look at a chart for Walmart. It was flat for like Maybe not 20 years, but at least 10 years as it slowly, slowly, slowly slowed, and eventually ended up at the kind of PE ratio that is generally paid for a publicly traded, decently managed retailer at 15 times earnings. And that's not a disaster.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“But I told him. I said, Look, it was a question. I said, but it's wonderful. But look how big they are now, right? They're in every state. They've got so many stores and so forth. But what if their growth slows to like 28% a year from 30% a year? Said, most CEOs would actually let their left pinky be surgically removed if they could have 28% of your growth. But to this company, it would be a slight disappointment, no warning bells, but just people pay a little less for it. The PE might contract to twenty-eight times earnings.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“A way of rephrasing that just slightly is saying you're paying 30 years worth of earnings for every year worth of earnings, you're paying 30 years, 30 times each year's earnings. Anybody who's ever been in private business, you bought an auto dealership, you bought somebody's retail store, you bought their construction business. Any private business you ever been in, you'd be lucky if you ever see a business, a non-public, non-publicly traded, not using OPM, other people's money, a business owner hardly ever pays as much as 10 years worth of earnings for another company. They're thinking, okay, if I pay six years worth of earnings and I'm earning some of my return back and there's some risk here, but Don't pay that much money in public marketplace. We do, so we'll accept that differentiation.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Start to get mature. So, what if you own this for a few years, 25% of your money run into these immediately as soon as you went to the index? And in two or three years, people see those businesses are beginning to slow. So that whole portion of the index begins to suffer some valuation PE multiple contraction. It doesn't even have to be a lot, a little at a time. I remember Walmart back in 1900. When I worked at a bank, a private bank, and I was on a committee that selected stocks to be on the list that all the other portfolio managers would buy. And one of our analysts was promoting the idea of walmart we should buy walmart And he said, look, they're growing 30% a year. They have a PE of 30. That was supposed to be a meaningful identity. And they keep expanding.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Not a knock against it. It's actually as a function of its own successful management and its technology and its creativity. The growth will have to slow. It happens Microsoft's market share. At some point, its growth will have to slow. And therefore they are closer to the end of their growth phase than they were a few years ago. As a product as well of their success, they also have very, very high earnings multiples. Way, way, way higher than businesses tend to deserve when they get”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“And you may not realize that. And you might know it, but you might think they're great companies because you hear they're great companies. No knock against them, but As a product of their own success, they have very, very large, here are risks. I'm not saying they're not going to do well, but here are risks one should be aware of as an investor has to do with business models, how things work. So if you've got Like Facebook, for instance. Facebook has a very, very large market share of whatever its market is. Not that there can't be other growth opportunities, but it is necessarily a lot closer to saturating its market, to being mature, than it was 10 years ago Five years ago and three years ago, two years ago at some point,”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Marriage is a strange because we're anthropomorphizing the stock market. And the question is, as an index to serve people who aren't professional analysts and investors, so you come in new. You come in new to the index. This is one of the classic problems with indexes. And it's nobody's fault. You have to make choices when you construct an index. You come into the index today, and all you know is supposed to be diversified index. The S&P 500. And if you don't so called look under the hood, you might not realize that what you're really investing in, that 25% of you're more than that, actually, because we're just talking about the top seven companies, right? But 25% of what you're investing in right now are... Mega CAP information social media companies, right?”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Because they're not producing enough, but there's more demand for what they've got. But you're not going to benefit from it. How can you benefit from it even if they quintupled? If they quintupled, they'd go from... 11 hundredths of a percent or 14 hundredths of a percent to okay three quarters of a percent in the SMB 500 it's a rounding error you wouldn't notice it you get no benefit from it so in essence in a nutshell the indices have lost a lot of their natural resilience Various kinds of insults or stresses because of this crowding out effect by what we'll call the mega cap. Companies that dominate the top of the index.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Try to expand our production because they spent the last half dozen years at least reducing their capital expenditures because copper prices were so low. And for the last half dozen years, gold prices and silver prices were low, last 10 years or more. So energy prices for the last six or seven years are too low and the energy companies have been cutting their capital expenditures every year. They're now spending 50% less than they were 10 years ago, six years ago, seven years ago. So he said it would take us like at least five or six years. From us. If we try to start today, Really produce a lot more copper. And meanwhile, demand is increasing. So you can see how The price of copper and the profits of a company like Freeport McMaran or Newton Mining might go up a lot.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Those are the only two miners whatsoever. The gold mining company in Newmont and Freeport Macmara and the copper miner. And by the way, We haven't gotten into this yet, but there is a structural long-term shortage of capacity in mining, whether it's precious metals or industrial metals. So there was an interview six months ago with the CEO of Freeport Macmaran, and he was asked about it. We need a lot more copper because... You need it for solar panels, you need it for you need all the more silver paste that is used in solar panels, and for the wind turbines. And he said, look, if we started today,”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“The only one. And that, so when I think XME materials, I sort of assume, see, even I'm surprised. See, I'm familiar with thesis. So I'm sort of protected from some of the shock, but even I'm surprised. That, yeah, when I think XME, I'm thinking stuff being taken out of the ground. But you're saying that the only copper miner, the only copper thing there is Freeport MacMoran.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“The only other mining company, let's say non-gold or silver, non-precious metals in the S&P 500, is Freeport Macmaran, which is the second largest copper miner in the world. It's got a $55 billion stock market value. As big as that is, it's gigantic. It's 1,400ths of 1% weight. That is it as far as precious metals are mining, the S&P 500. Now, there's a material sector. People might think that's an inflation hedge, but it really isn't. Maybe even a short term basis because those are mostly chemical and paper and packaging companies and their costs, including energy, their energy costs. They do a lot of heating, go up substantially during an inflationary period. They're not inflation hedges.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“But it turns out that the sum total of all of the gold mining companies in the S&P five hundred is one company. It's Newmont. It used to be called Newmont Mining now. It's called New Mont Corp. It's a big company. It's got a $45 billion market cap. And I know I asked you this to guess last time we spoke because I wanted to be cute. What is the weighting of In the SP 500. And the answer is 11 basis points. That's Wall Street speak. In human speak, it's 11 one-hundredths of 1%.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“But let's take that and go a step further. What other inflation beneficiaries are there in the SP 500? Because there are other vectors of inflation. For instance, critical metals. So right now there's an awful lot of activity building renewable energy sources like solar panels and wind turbine farms. And they use a lot of copper. a lot of silver, a lot of nickel, and so forth and so on. So let's just see what is the waiting in the SP 500 of gold. Traditional inflation hedge. Really, it's better as a dollar hedge.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Because a business with a lot of a fleet of trucks will have to pay more for transportation. They'll have to pay more for plastics. If plastic is an input in what they do, if they're a chemical company, if they're a manufacturer. So they might suffer in terms of margins and valuations. And the idea is that if you have a traditional 6 or 10 or 12 or 16% waiting in energy in SP 500, and that doubles, well, that can offset a lot of the losses you might have in other sectors. But not much more than two and a half percent. Energy can no longer really help you in the portfolio diversification sense”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Now, what are the implications of that? One of the important implications, because again, remember, indexation is about partly about risk control. You want to be diversified across a wide variety of industries and companies. So as any single one won't really harm you, but otherwise you're participating in the long-term growth of corporate profits in America. That was the idea. So it's clear that one important potential vector of inflation. Energy prices. Why? Because it's the most critical commodity. It's in everything. It's in everything from heating oil to gasoline to, you can't make... Plastics without it. It's in everything. So if the price of oil goes up a lot, it's going to have an inflationary impact. When it has an inflationary impact, there are lots of different companies or sectors within the SP 500 that will suffer.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“If they're a smaller and smaller part of the index, if they do well, they might not help you very much. And they represent different opportunities. So energy is the most obvious one. So the energy sector, and there's a historical chart on this, the energy sector in the S&P 500 traditionally would vacillate somewhere between 6% and 15% of the market value of the S&P 500. And that probably Represents in some rough way the contribution of energy to the total economy. It had his bubble periods too. By 1980, energy had gotten to be near 30% of the S&P 500. But even more than several years ago, it was about 6%. It is now less than 2.7% of the S&P 500. It's never been this low. ExxonMobil all by itself was once a much larger than that as a percentage of the SP 500.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“It's very success from a Wall Street standpoint, meaning gathering lots and lots and lots of assets to buy the same product. It's having, I believe it's having an effect. Now, where you wanted to get to is one of the other effects, which you were naming before, I took you on the side journey, is this crowding out effect. So if the top If the top like seven largest names in the SP 500, which I think are all information technology companies, if they alone account for 25% of the value of the S&P 500, there's a certain crowding out effect that's happening. So other industries become pushed down and maybe... Maybe some of those industries and companies. Maybe they might do well.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Good 5.7 iShares MSCI India 7% iShares MSCI Brazil 5.1 iShares MSCI emerging marketers is actually 10% There could be reasons for that other than what we think And if we went into the reasons for all of these, I might, they're interesting subtleties, but the idea is that these are remarkably the same. Remarkably the same. And where's the diversification? Where's the growth? Reasons, but we don't need to get into that. I'll just make some general fuzzy comments that too much of a good thing. The weight of money, supply demand is the magic formula in prices in any kind of human market, whether you go to the suk. Or you're buying cars. Or you're buying stocks. And to not realize that is to really miss part of the important bigger picture It pays to understand that what you're indexing, that indexing has changed.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“6.7. iShares biotechnology 8.1%. Okay, so let's go to international. iShares MSCIFA, Europe, Asia, Far East, the major international. That started August 2001, but it's 20.1 years.”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“7.3% They're more or less the same, basically 7.2, 7.2, 7.3. Now, iShares utilities ETF utility stocks Aren't growth stocks. I'm going to just give you the answers. Maybe someone 7.28% iShares US technology ETF. There we go iShares US technology ETF how'd that do? Started May 20”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT
“Commend you, I commend you for doing this honestly. And frankly, that's not a bad guess, which is why this game is so fun, at least for me. So the answer is 7.2% a year. Not so hot. And I'll bet nobody who, unless they've studied the numbers, would really know. So now let's go for some variation. The Russell one thousand growth, the iShares Russell 1,000 growth. ETF, that's a big one, IWF. It started the same week, May 22nd, 2000, 21.4 years. That's more or less the growth component of the stock market, of the large cap companies. So if 7.2% is it for the S&P 500, what's it for the growth stocks?”
2021-12-28 · Forward Guidance · The Hidden Risks of Passive Investing | Steven Bregman · IDENTIFIED FROM THE TRANSCRIPT