What's going on, Moon Gang? I Hope that you're having an absolutely fantastic day. The interview you're about to listen to is with Jay from Special Situations Research who happens to be an ex Trader from Golden He wasn't just any run-of-the-mill Trader though at one point he was managing a book over two billion dollars. That's billion with a B Throughout this podcast style interview. I'm trying a little bit of a different style, so let me know if you like this.

in a comment below: it's purely audio, no video Jay End up sharing a lot of knowledge on some pretty complicated topics, so feel free to give it a second or third listen. And if you still have any questions, all of Jay's contact information is in the description of this video I Truly hope that you enjoy Hello, hello, hello I Am here with Jay from Special Situations Research Newsletter. and for those of you who don't know, check it out on Twitter But Jay This is going to be an exciting conversation I'm reading it right here that you used to manage a two billion dollar book for Goldman and I don't think they do that accidentally I mean maybe I'm wrong on this one, but I think to be able to get to that level, you might know a thing or two about Wall Street So I'm excited to have this conversation with you and I'm excited to really get into some of the specifics that might help Empower retail Traders whatever level they're at to get to the next level. So thank you for your time.

Truly appreciate it! How are you doing today? Hey, how are you? You know, thanks for having me on here. It's a beautiful Saturday here in Palm Beach Um, you know I know that two billion billion might sound like a big number, but um, you know Goldman manages about one and a half trillion dollars today within Gsam, which is their Asset Management business. You know at that time you know it was a bigger, bigger number relative to Gsam. but uh, you know it's uh, the asset management business is a multi-trillion Dollar business and you know some of the bigger mutual funds that you see like the Fidelity Contra funder magnitudes of of this size, you know the hedge fund space is is a constant churn and burn.

Um, you know it's almost a three trillion dollar industry and um wow yeah the average life of a fund um is always only a few years. Um, so it's you know it's it's an exciting place to be. Um, it's a place where you can learn a lot in a very short amount of time. Um, they're various strategies and that in the hedge funds.

World Whether it's you know, long short Equity Um, some of the multi-managers that you read about in the news. whether it's credit, um, distressed credit macro, um, you go on and on stat. ARP There there are hundreds of strategies that that you could deploy, but you know the area that I like the most is you know value. Margin of Safety Investing in special sets which tends to focus on event driven invest investing.

Whether it's merger Arbitrage um or it's spin-off split-offs dual class share are looking at you know, deep value opportunities. um and a strategy that's been doing really well for us right now which is capital structure are you know, buying bonds and preps and then shorting stock against it? Um, so you can you can fund your stock short um with what you're earning on the on bonds. and you know even as a retail investor buying craft shorting stock against them on a carry neutral basis, you're not. It's cheaper than buying options because your your Dividends are essentially covered from what you're earning on the press and taking you know, taking views on companies that you know you think.

could you know either have to issue Equity or could underperform in a sideways trending Market or under or in a market that underperforms? Um, you know I started uh, you know as a first generation um well actually my parents moved here. um one of the first Indian families to move here. um uh in in the 60s and 70s and you know I grew up as one of the uh, the only Indian kids in my school I went to public school. um in Connecticut my family moved out of New York and uh and we were dirt poor.

my my uh. my mom and dad were educated. We're very educated in India but their degrees didn't mean much in the U.S my dad was a double uh, a chem major, a physics major, my mom uh major in political science. Um.

in the first few years my dad lived here, he lived in the basement of an Indian restaurant in the Hell's Kitchen oh wow and it was. you know roaches and mice and you know if you if you remember Bryant Park uh then compared to what it is now I mean it was craft dealers and it was, you know it was Unreal um before Giuliani came uh came in. um you know there were things I couldn't even talk about that. uh that happened in that basement and um you know it was.

my dad was an entrepreneur so he got himself out of there, started a scrap metal trading business and um you know we moved to uh you to to uh to Connecticut went to public school there you know and being a you know being the only kid in my school um you know of color it was. it was. It was an interesting time and it was until I started playing sports that I really got involved with community and um you know got my first job. Actually you know because Stanford is a big hub for financial services.

whether it's UBS Royal Bank of Scotland Citigroup like Mason um and all the hedge funds that are based in Greenwich um you know is that actually you know going to church? um Gurdwara which is a Sikh temple and you know one of the gentlemen there um said he was having layoffs at his firm so he you know got me a job you know I was installing uh you know Bloomberg terminals for people you know they used to have it wasn't like a Bloomberg keyboard like you get now you had a huge box like a white box. You know this keyboard with like red green yellow keys and they're these big shot portfolio managers uh in Stanford that were managing um you know mutual funds and I would go in there and then they would drop drop coffee on their keyboard now to replace it out and say hey, if you want to grab lunch or you want to grab a coffee I want to learn about what you do um because my family didn't know anything about investing or trading you know I almost didn't go to college because I almost missed the cutoff for replying um taking my SATs So it was a very interesting experience growing up here. I Loved it. It built a lot of really good relationships.

um and you know I worked my way up from I.T to to risk management um you know I went to school on a full ride um in Boston and um I was able to to to work at a you know International equities um Quant hedge Fund and Risk Management and quickly moved to to New York uh made my way to Goldman and um you know, rose up the ranks. You know their training program is really essential in helping me. You know, learn how to model, learn how to read credit documents. uh learn how to network which is really essential.

um and it was a really wild environment. um you know at that time but Goldman was always. you know more white shoe and you know more conservative than the other bulge bracket Banks So like in my in my 360 review they would comment you know I'd buy my shoes at TJ Maxx and they would tell me this guy is really smart. he's making us a lot of money but he has to wear nicer shoes to work.

oh that is that was actually in your report. they're like we needed my report that I need to wear nicer shoes. um you know as a kid you know my mom we would shop at uh you know Marshalls and Target and you know and I didn't really learn how to dress till I moved to the city um but it was an interesting time. you know I lived in a gym.

you know because I was paying my mom's mortgage. my parents um you know, split up um when I was in college so I was paying my mom's mortgage back in Connecticut and um I was living in in the basement of a gym, not the basement like the first floor. um and nobody knew about it. you know for a year I had free rent.

um this is why the monthly subscription? yeah it was. you know, literally sleeping in. um you know where they do the stretching because they had you actually had a door to close and I had a sleeping bag and I would shower because you have the free showers at the gym and I would go to work and no one knew about it for a year which is you know and even when they found out the gym owner was just like don't do it again or I'll cancel your your gym membership I was like all right, that's wild. So when this was happening, what is the parallel in your career? like what were you doing at that moment because like I'm almost imagining I was just an analyst so you know you you people.

What people don't understand is like you cannot survive in New York um you know if you're paying a mortgage and you're living on an analyst salary I was paying my mom's mortgage at the time I did not have any residual income you know, for uh, for paying my own rent. So I was you know I was surviving on you know, whatever whatever food um I would make for myself, you know and peanut butter jelly sandwiches you know I'd go to, you know, Wendy's or later you know, you know for dinner. But um, at that time my metabolism was super high. you know? I had this gym membership and the goal was just to make it to work on time and be the last one to leave.

Um so I mean New York is a grind. It doesn't matter what industry you're in. I mean everyone has a story like this. Whether you're in marketing, you know the young women who go to school and you know have 120 000 in student loan debt and then get paid.

you know 40. Grand At a marketing firm, you know how are they surviving? they're surviving with you know, four or five roommates. Um so New York in itself, you know we could talk about for hours. I Think every everyone who's lived in New York probably has some sort of a similar experience or a story.

um especially. you know early on do you think that not only coming from like kind of a humble beginning with your family but then also kind of the the grit that is forced upon you by trying to like the iron Jungle of New York Do you think that that background had much to do with being like the successful Trader that you are? Or do you think you would have had that if you grew up in a better situation. you know when I was young, my dad would tell me stories. Um, because he was frustrated with his life.

You know he would tell me stories about Carl Icon. you know, tell me stories about Soros right? because he would read The Wall Street Journal and he was always a very like a nerdy guy. he was always reading it was a physics and chem guy but he he was always into entrepreneurship and he was in the scrap metal trade. So you'd read about the big traders of the world at that time and you'd read about Berkshire Hathaway and Warren Buffett.

So I was I was learning about this stuff when I was like six, seven, eight years old and I had no way to channel it. you know, um I just love stories. As a kid my grandfather would tell me stories. so my I had a passion for listening to my elders telling me stories and that's kind of what got me interested in this area and we had this kind of trading competition my high school you know and I excelled at that and then you know I got this that temp job through church and um you know was able to get a scholarship and everyone wanted to go to New York Um so I found myself in New York and uh you know just kind of I just happened to fall into um you know this part of the business.

you know Not knowing that um you know that it would become my favorite favorite Niche within investing? Uh, but you know I read I ended up you know, meeting a lot of smart people along the way. I met William Denoff who run who runs a contra fund of fidelity? Um, you know he was. he was a mentor. Um, probably without knowing it because we only spoke a couple times.

Um, but you know I'd intern at a number of firms at Boston So I actually had a few mentors at Fidelity and a few mentors at State Street Um and I found myself in in New York Being a you know, at that time, it wasn't as as diverse as as it is. Now you know having to learn a lot of things that I think a lot of the kids in my analyst class knew um whether it was how to dress you know, um, you know how to properly use Cutlery at a formal dinner like I had to learn all those things um, on the job. So for me it was kind of fun I was learning new stuff every day I was learning about different personalities. it was my first time, you know, going to the Hamptons even knowing what that was.

um, you know and um I I spent most of my time just working right and and learning and I would not have had that drive if it was not for the background my parents had and their focused on education. uh or the fact that you know I knew if I didn't make it and my brothers weren't going to school, my mom wouldn't have a house. So that's I think the Immigrant story. That's what I think it makes America great.

Um, and you know why I think the country's been so successful. it's about. Obviously you know it's a bit about the institutions about, you know IP protection. It's it's about um, the fact that you're bringing the smartest people around the world.

It's about you know the fact that we have the world's Reserve currency. but you know more than that, it's it. The core of America is is the Immigrant story and the fact that it attracts people that want to build something new that want to do better for themselves. and at that time you know before big Tech right the only place you could go um you know to make to you know in my opinion at that time to make a lot of money and to support a family um was to go to the city and do uh and do High Finance whether that was Investment Banking restructuring private Equity um hedge funds.

you know that was kind of the you know the the Holy Grail So that was kind of my focus through school to figure out how can I get there. um and then when I got there you know I just put my head down and grinded. um you know, didn't really go out much or having an adult life until you know I was kind of in my late 20s early 30s. You know, everything was kind of like a blur.

Now it was just working all the time. and I'm not saying that that's the best, the best way to look at your life. but I would say that if you want to be good at anything, um, you know it's you need to spend time. um, honing your skills and figuring out what you're good at, right? You read about.

You know some of the great investors. You know they don't necessarily start out being good at what they're doing. They have to find whether it's Howard Marks right, hurting himself. you know, in the in the nifty 50 and and not being respected.

Um, when it comes to equity research, finding convertible bonds, and you know, building one of the most successful firms. Um, out of that. Um, you know whether it's Warren Buffett he used to buy cigar Buds and then you know Munger had to teach him right how to buy. You know good growing companies, right? That was not how he started off.

Um, so I Think you know a lot of investors have to figure out You know what they like, what they're good at, what they feel comfortable with, comfortable with, and what allows them to sleep soundly at night and and frankly, what they're passionate about. If you're not passionate about something and you're not willing to put in the hours, you're never going to be good at it, right? Some things come naturally to people, but I would say that you know most of it is just how much hours you put in and how smartly you spend your time. I 100 agree with you I Always thought that was funny. Between like middle school, high school and college, you have so many people telling you about like the breadth of experience.

all these jet ends. Do this? Do that? We should all be well balanced and that's great. And I think that works for a large percentage of the population, but you need that Obsession to. Especially now with the not only like we're so interconnected, there's so much development to achieve the peak in anything it doesn't matter if it's Sports education, trading.

you name the field. If you show me the top person within that said field, they're absolutely obsessed. 24 7. That's what they do.

That's why they're the expert. That's why they're the best. 100 100 Agree. So you know that kind of led me to an area of investing where you know a lot of people may not have experience, especially on the individual investing side.

And there's this whole Um area of investing specialist situations where um, you know the name is used kind of loosely now, but traditionally it was looking at merger Arbitrage Opportunities spin-off split off dual Class share our reconversions MLP Conversions Um, trying to find companies where you know you have some um, you know view on how litigation is going to play out and you know you're buying a company at a fraction of what you know the the total proceeds plus market cap. Um, and then that debt is. So there are a lot of different ways to look at investing. Um, you know Clarman, for example, um of Vapos, right? he? He makes people think that he's this great value investor, but you know one of his strategies is buying.

You know, Biotech stocks below cash and you know figuring out you know what the Run rate is and you know you're You're essentially by my entire career has been buying optionality okay with a margin of safety. So if you can buy something right below fair value, it doesn't matter how you describe their value. whether it's a multiples approach, where whether you're using a forward earnings metric, whether you're looking at you know historical multiples and you're in its Chief versus the range or you're looking at the company versus peers or freak on a free cash flow yield. whether it's free cash flow to the firm, Free cash.

Simple free cash flow, Free cash flow to equity If you're buying something cheap to its intrinsic value, right relative to rates, relative to peers, relative to history relative to your view on it. Replacement costs are intrinsic value like you are going to do relatively well over time with lower risk. and you know you can even you know, accelerate that that you're You're putting that on steroids by being flexible across the capital structure. So being able to buy loans and bonds, or even as a retail investor, being able to buy hybrids or preferreds which is a 1.3 trillion dollar industry and collect you know, seven to twelve percent coupons, right? You know, while being above the equity right in a capital structure, because in a capital structure, for those who are not familiar with it, right in bankruptcy in U.S Chapter 11 Chapter 7 you know the first lien loans the revolver which is a credit card for a company right that recovers first right? Susan abl or a revolver.

Then you have a first lien loan right which is usually backed by property, the IP of a company. if it's a tech company, then below that you have a second lien okay, which by definition Second lien on the assets or the IP below that you have unsecured bonds. Below that you know you have subdat, mezzanine or preferred and then you have Equity The stuff that we trade in the stock market is a very small representation of the global Capital markets, right? The debt markets are bigger than the equity markets. so when we're trading stocks, right, we're trading the residual value.

You know, after you pay the government, after you pay Capex? after you pay taxes after you pay your debt holders, you have the residual value of the claim on the company, right? the ownership. And you know, in times like these where you have a sideways trending Market or you have a market where we could go into recession. Um, it makes more sense to be in the higher parts of the capital structure, even as a retail investor. Um, you can do that relatively easily with some of the things that we we talk about on our website closed Down Fund Arbitrage right close-end funds that own these pools of loans and bonds where you can buy them at discounts.

Um, hybrids? Looking at preferreds, looking at bonds that you could even trade on interactive brokers. Being in T Bills today, you can make five percent being in money markets and people don't necessarily know the difference between the two and know that for example, with T Bills, you're not getting taxed um, by your state or your city. Like There are all these nuances about investing that people don't understand. You know, when they're focused just on, you know, YOLO options or zero DTE Or the latest meme stop Or the latest tech craze over the latest unprofitable stock that you know has a Cool brand around it.

Or the latest AI company, right? There's always going to be something hot. The way you are going to generate sustainable, repeatable returns over time and avoid behavioral biases is going to be looking at things that are not sexy at the time. Um so and that's something that you know I think the more and more you can, you can understand that you know the more and more you'll do well. So for example, in 08 when Real Estate was not sexy, you know, real estate didn't bottom.

By the way, in 08, didn't bottom in 09, didn't bought them in 2010, didn't bought them in 2011. it actually take real estate because only two percent of transactions actually turn over every year. Whether it's commercial residential, especially when rates are rising. you know, real estate bottoms years after.

um, the equity markets bought them. So in 2008 when Real Estate Markets started about in 2012-13 in the Midwest I started buying up with my first bonus. My first huge bonus is you know our apartment buildings in the Midwest at like 12 13 14 cap rates. at that time you could buy like a single unit in Cincinnati right? for like 30 40 Grand and you're making a decent rent on that and you know what? what I was doing was not sexy at the time, right? People had been burned by real estate and they wanted they wanted nothing to do with it.

Um, so I always I Like to call it like being in the Church of um of what's working now Um, you never want to be in the Church of What's working now when everyone's buying AMC you want you just you don't necessarily even have to short it. You just don't want to be involved. Or you want to. You want to make money? Um, setting up a business right? picks and shovels? Uh, to take advantage of a trend You don't want to be involved in the risk taking? Um, when you know everyone you know was buying unprofitable tech companies.

When you know when Palantir had a you know, 5x valuation, you know versus where it is Now when people were buying Fubo because they thought that this was going to revolutionize the way we watch television, not understanding that this business was burning billions of dollars and had it. you know, in my opinion, in a net present value of zero. Um, during 2001 or when people are buying specs, we shorted 81 staffs on Specialists research just by simply open opening financial statements and realizing that the Spat sponsor were not aligned with investors. and there are all these pipes these hedge funds were buying pipes they're a pipe for for those who don't know is a private investment in public Equity at preferred terms.

So they're buying the same Equity you're buying as a spat common investor. you know, at a 10 15 discount. Sometimes that discount was made in the form of giving you extra warrants. There are various ways to do it, but these hedge funds were putting all these money in pipes thinking that in a zero interest rate environment that they were making 10 15 and what they were doing is they're because they're throwing all this money at these fact sponsors these VCS essentially a jamaat that all these valuations went to insane levels.

you know, 50 to 100 times revenue. and then you had these retail investors who didn't know what was going on that were committing to putting these money in spats that were supposed to be safe because they spats can only invest in, you know, six-month treasuries or money markets. That part was okay. They didn't understand that after you had the SPAC vote and you went into what they call a Dspac that you didn't have that trust value anymore, that the cash was spent and ninety percent of these stocks effectively went down basically to zero down.

eighty percent, Ninety percent, One hundred percent. And you know that type of. You know Mania is driven by behavioral biases and it's one of the reasons why the stock market is not efficient. and that's why I Think special situations make sense because people get distracted by these big themes, they lose set of value and you can find all these like mid cap.

You know, Niche opportunities that the Market's not focused on because they're not sexy and the fact that you know half the markets move to either algorithmic trading right? even BlackRock they do. Most of what they do is algorithmic trading um, or you know, going to ETFs and passive trading. so it's become, in my opinion, has actually become easier to become a specialist because there are less people doing what I used to do. Um.

And you know, for those who don't know what behavioral biases are that that cause these unnatural deviations from what valuations should be? You know they're usually like cognitive cognitive errors. Um. Or you know, emotional biases, right? And you know if you were, if you were to take like a CFA level one or buy a Schweizer book, you could. you could read through them.

if you're curious, but you know they're You know whether it's handset bias, um, or you know, simply just you know. looking at what other people are doing and then trying to model your investing profile based on a tweet or based on someone who you have a perception you know is doing is doing well right? You know what it could be belief, perseverance, error? You know it could be information processing biases. It could be emotional biases like loss aversion, overconfidence, self-control status quo, endowment, regret, aversion. They're all these things we have inside us right? Understanding the human psychology That that Focus that cause us to focus on things that are not going to make us money right.

Whether it's Sir Isaac Newton right, Who who lost his money um or Einstein right? Who lost all his Nobel prize money, right? They're the smartest people in the world. Can succumb Um, you know, to the market and you know part of what I do is I fight against myself to avoid those things, to avoid the Church of What's working now and what in what's really hot and to focus on like good, reasonable return opportunities. You know whether it's something as simple as like Activision Microsoft where Microsoft the one of the biggest companies in the world and they're offering 95 in cash for Activision and you know what the break price is and you know it's like a 25 spread. Um, and you can figure out Okay, you know what the timeline is for antitrust.

You can park cash there. you know, even Warren Buffett You know went into that trade after we initiated it. Um, or whether it's a preferred finding something that's trading at 16 17 on a 25 par prep that any retail investor can buy. You know in October of this past year you know that's rallied.

You know 20 30 percent while paying you a seven eight percent dividend or it's buying a reconversion like Colony Capital that you know was able to default on its operating company debt because it's holding company. The operating company debt was non-recourse to the parent, so you could convert from a hotel rate and just default on your hotels, preserve your holding company and convert into a digital rate. There's so many parts, there's so many parts of the market. and we're so blessed to have such a robust Capital markets in the U.S With so many mid you know, mid cap and small cap stocks that are not covered by Wall Street Um, and we can do a whole thing on Wall Street and how the sell side isn't compensated to help you and what their incentives are.

Um, there are a lot of ways to make money that people think are just born and they don't talk about and you know that's that's the focus of our team. You know we have nine analysts um I was semi-retired had actually sold the business to VC firm and you know had had been kind of retired in making in you know, just living off multi-family properties and investing my own personal account. But when I saw in October of 2019 that we went to zero fee trading at Robinhood and then all the big Brokers retail Brokers followed them. Even before Kovid you were seeing retail volumes start to increase from like 15 to 20 percent of total.

uh, total Market volume and by the time covet hit it was Unreal Like nobody knew what they were doing. They were all chasing like microcapture microcap stocks, chasing companies with high short interest, trying to squeeze investors. You know, looking at you know these old brands of declining businesses and um, you know, memifying them. You know these crazy crazy option strategies and leave strategies like I Had a friend who made six million dollars like buying leaps on tech stocks and then blew it all.

like imagine imagine like thinking you're like God's gift to Earth and like being on cloud Nine and thinking like your grandchildren. so you know colleges are all going to be paid for and then just losing it all in a year like that's that's kind of the overconfidence we saw. Wow, um did you want to like Shake him were you telling them to sell at one point I was trying to be nice to him and say like hey, just cast out half of it like I know you're smarter than me man, just cash out half of it. you're gonna be happy and I will tell you that very few of the people that I spoke to in 2020 2021 Listen, and by the time 22 2022 came around, it was too late.

Um, but they're they're You know they're making their way back. That's exactly like that. Dogecoin Investor that guy I think he took 180k out on credit or something along those lines up over three mil and then wrote it all the way back down. That's so brutal.

I did read that story. he's actually he was a he was a big account I believe on Twitter and Tick Tock maybe yeah um I saw that story and I was like listen I felt bad for him and I just think that we should teach basic financial literacy in high school right? but without it more people go to college. just basic What is the stock? What is a bond? You know what is risk management It You know you need to have six you know build up to having six months months of your savings. You can always lose your job.

Like like the basics that your parents would teach you that they don't have time to teach you. or maybe they don't know yourselves because the the first thing I learned in investing and sometimes I need to hold myself back because I think that people may not have the same experience. but the first thing I learned was not to use leverage. Leverage kills right.

If you're borrowing money you know from a broker to make trades. Unless you know you're going to be 100 right? there's there's a chance you're gonna, you're gonna. you're gonna get margin calls and you're gonna lose money at the worst time because that when you get margin called as light is when you want to buy. Morse is usually when you want to buy more stock right? So if you own a stock, let's say it's a great company.

you know AutoZone is one of the best stocks I've owned and I don't own it anymore because of the valuation. But one of my Theses you know when you think about value investing is understanding the story and why the company um was going to outperforms AutoZone and O'reilly are in the um, you know they're in the aftermarkets. um Auto Parts business and they own retailer. They have retail storefronts for people to go in and buy parts for their own cars and recessions.

They actually do well because you know people want to service their own car and they want cars to last longer. Um, and the idea was, you know like seven eight years ago that these companies were going to go away because of Amazon and you know as a value investor. I Went in and these companies were trading at above 10 free cash yields and interest rates were zero at that time. So that was an unreal type of uh, free cash flow to equity.

So I went in and I realized I laid out all the main skus on the company's websites I visited 11 of the stores, then went on Amazon I looked up each SKU and I was like it's actually more expensive on Amazon and why is that? I Spoke to a store manager at AutoZone he was like, well, this is a thing. You know we can afford to sell things cheaper because we have, you know, distribution centers all across the US So does O'reilly And on top of that, you know when you have a car battery when you return it, you get a credit right? We can recycle and you can't mail this stuff to Amazon. It's illegal to mail some of this stuff so you don't get the credit for these cores. and um, you know we have a pretty well oiled supply chain and I was like, well, that can't just be it.

And what? I Learned about the industry is that a lot of the mechanics in the US are undocumented, right? They can't have credit cards to use on Amazon Yeah, so because they don't have social security numbers and they can't get credit cards, what AutoZone and O'reilly do is they're huge working capital providers to undocumented uh, mechanics all across the United States It's a huge business right? Because you can't get a loan without a social security card either. So what do you do You go to AutoZone you go to O'reilly and you say I You know I'm going to buy all my parts from you and in return you know you extend me credit. So these businesses you know had entrenched. Um, you know across you know they have retail, the retail front and then they have, um, you know of a part of the business that focuses on mechanics and professionals and that's what I think Wall Street didn't understand and you know the average 25 year old sell-side analyst didn't understand and you can look at the charts.

um since then and you know in the multiple expansion it's been unbelievable, right? AutoZone spot like 85 percent of its shares back because of all the cash it generates. Um, so you have that you know the EPS accretion that's driven the share price to where it is today. Anything like that type of analysis like people just don't care about, right? It's too much work. Like you were telling me about your I was so interested in learning about.

you know your path. Matt You're telling me about how you're you had a passion about algorithmic trading, and you were telling me about how you know nobody wanted to watch those videos because no one wanted to learn how to code. And you know, even before Covid, there are like four million open programming jobs in the US. Um, and it's just bizarre.

You know, you look at some of the big tech companies today. You know a lot of their employees are employees on H-1B visas, right? They can't even leave the company. They're stuck at the company until they get their green card. Um, those are the people that are that are taking some of the programming jobs.

Um, today and I Just think it's it's wild. You know. Unless you do the work. unless you make mistakes.

unless you lose money. Unless you, you learn a style that works for you that's sustainable and repeatable. You know investing is not for you and you should just be buying Vanguard and index funds. you know and have some cash on the side.

Um, you know to buy when when things go lower. I mean that should be the strategy for most people if they don't want to spend time on it. Um, and it. doesn't matter to me whether that shrinks you know that shrinks the number of people that watch this video I'd rather have people that actually do it the right way than people that just putts around um and lose money for no reason.

That's a very fair point like that was something that never made sense in my mind. It seemed like some point from uh I guess the The Rona period. Until now. All of a sudden there is a very vocal minority that believes uh doing work and research is just like screaming on Twitter and Reddit and liking and retweeting I'm not seeing anyone diving into.

yeah, that's not research I Mean we manage. We manage a Twitter account that posts like a lot of macro stuff and some Specialists oriented stuff. Most of the stuff though is on our website and on our Discord But you know the stuff that we do on Twitter Like people think that that's all we. You know that's that's the majority.

that's the minority of what we do. I Mean we do that to keep people engaged. But you know, digging into financial statements building Financial models reaching out to investor relations even as a retail investor and having a one-on-one call with someone who's you know, one person removed from the CFO of a company, reading earnings transcripts, looking at competitors and reading their public phones and figuring out where the company is in the competitive landscape, understanding a supply chain right? Understanding the risks. Like what makes this company great is the IP Is it the brand? Is it customer relationships? Is it low cost of financing? Is it their cash conversion ratio? right? That is the type of work you need to be doing right.

Not just looking at reviews online. Oh my. God I Just read a review about Peloton and people love Peloton in such a high MPS score. That's the type of research people doing it were doing in 2020.

Oh I Read this article on Seeking Alpha I looked at Peloton's MPS score. It must be the next Apple and then go like, subsequently lose 90 of your net worth, right? You know? buying one stock like that's the type of work people are doing. Just like reading S1s copy pasting I mean that's not how you make money? Yeah, So with that to the audience: I think there's going to be some people listening to that who are already very Advanced investors traders who are doing that. But I think a large amount of the audience is like hey, I got sucked into the market because I was stuck inside during the pandemic I got some stimulus checks but now they might have the bug and they might want to elevate themselves to that next level.

So obviously, and just for everyone listening to this, um, the link to Jay's website will be in the description of this video. If Like the newsletter that we keep referring to is research that we keep referring to. It will be not just a newsletter like I'll share chapters. you know from books that I read 30 years ago about.

You know we think topics that people should know about that don't know about right? Like what is a money market? How to open an account? What is a treasury? You know what is the difference between ebitdon free cash flow? like there. There is a lot of educational material on there. It's not just specials, it's focused. Um, and it's you know I Think that you know whether you're a basic investor or you're an advanced investors.

Some of the best feedback I've got gotten is from people who are retired in my industry who followed me because they know me and they have 250 million dollar personal accounts. um as well as people who are just starting out right. Who who want to know you know what the difference is between. you know a triple a CO fund and a municipal bond fund because you know their their parents lost money and they just want them just want to direct them to read some right? Um, the focus is is 100 on education I Love that.

Absolutely love that. And like that's actually why I even care about this at all is just I See such a a staggering amount of just incorrect information getting out there and then people for whatever reason and well, the reason is literally because it already supports their bias that they just run with it. They everyone will have diocese because they make money off. I Mean think about some of the audiences that people have, right I think I'm like one of the only people online that says negative things about what I own? Um, because I frankly don't care.

You know I'm long-term focused and you know I'll own something and I'll say you know this might not be the best time to own it. And but I think 90 of people, especially people who are focused on illiquid Securities like in the cryptos space or in this fact space, right? They seem to think that the only way that their Securities are going to do well is if they say something good about them in an audience regardless of whether they even believe it or not. And that's what gets me riled up. That's why I couldn't agree.

You know, because you know I've lived through the debt ceiling downgrade of 2011 I lived through 2008 and when people are going to say that, you know all of a sudden you know treasury yields are going to ten percent. We're going to enter a war and you know JP Morgan's gonna do a bankrupt in a month. A lot of these. Talking Heads We're saying in March and living through like bigger Financial crises and seeing the flight to safety into treasuries which is basically exactly what you ended up seeing in March You know there's a flight to safety to U.S Bonds because we're the best of the worst when it comes to our fiscal situation and our situation like that type of basic knowledge I think is just not there at all on Fintway and you, like you said, you have a lot of misinformation.

Um, and some of it is because of biases, but I think some of it is because people are trying to steer individuals in the wrong direction. Yeah, that's fair. Somehow it's benefiting them. Yeah, in one way or another.

No. I think that's a very fair point. Um, maybe to kind of get closer to the wrap up of this more of a rapid fire type of a deal. Uh, we've been talking a lot more of psychology, good research, good education, and really proper way to think about the market.

Um, but for where we are and just for posterity's sake, we are filming this in mid or mid April of 2023 and right now we're We know inflation's coming down, the magnitude of inflation's still high, but we are trending in the right way. So I try to just want to get your thoughts on the overall State Let's say maybe for the remainder of the year of the market of the Bond market. And let's say also like crypto, are you overly bullish? Overly bearish? Are you waiting for other information to come in? or are you just looking for once again asymmetric opportunity in like little niche fields? Sure. I mean and when you say Niche you know, essentially the hybrid Market being a 1.3 trillion dollar market, that's a pretty big Niche and compared to equities at 30 trillion um, in the Clo market right as well being over a trillion dollar market.

Um, it is a niche compared to equities, but they're still pretty big when it comes to allocation. Now there are three categories that I think you refer to equities, credit or bonds. Um, and when you're talking about bonds yet, and I need to talk about credit and risk-free right? Which is the treasury Benchmark And then you talk about crypto. So I will be very honest.

I'm not very educated in crypto and it's not an area that I focus on. Okay, Um, so for that, I'll just say you know historically the people that I've seen who've done well in it, you know, usually look at, you know M2 and they usually look at you know, Fed policy and you know what I've noticed is that M2 has actually been coming down. Um, just something. something something to think about.

And if banks are lending less Um, because their cost of capital is higher because now they're losing deposits and instead of paying zero on deposits, they're borrowing from the Fhlb at 5.1 percent and they're borrowing at 4.7 from the discount window and the Super discount window. You know you're likely going to see a lack of growth in lending, which is going to slow down the economy. Um I Think that's going to when you're talking about equities and bonds with respect to equities I think that equities are rich. Um, they're too expensive relative to earnings estimates that I think need to be revised lower.

Um, if you do any research on this, you'll You'll kind of see what I'm saying in a second because if you look at Wall Street estimates and while we've been right and Equity earnings estimates for the S P 500 have been making their way from, you know, as high as 235 for this year or down to 200. um, one thing that we are still worried about is that the multiple if you think about you know the S P at 4100, right? and you say that okay, um, you know the earnings on the S P this year could be 200. that's a 20 and a half times earnings multiple and in a back you might say okay, that's moderately expensive. but then you realize that rates are five percent.

You you know that's an extremely expensive Equity multiple for where the risk-free rate rate is right. If you're thinking about investing and you think that okay, you can buy, you know United Health and J J and build the defensive dividend portfolio right. Your dividend yield and your earnings yield for a lot of these for a lot of the stocks in the market today is below what you can earn um in an investment grade Bond and for many stocks, it's below what you can earn in in the risk-free rate in treasuries and t-bills So I think that people just don't understand Um, you know how valuation works and you know if if we do another two hikes which I think we we may do based on Federal Reserve commentary and based on the fact that wage inflation has been sticky, you know I think we might do one or two more hikes followed by a pause. And the pause might be short-term bullish for equities, but I think what will weigh on the market is that the consumer is getting weaker.

If you read the earnings calls from Costco Walmart Home Depot and Lowe's they're having trouble raising prices and that means their margins are going to be compressed because wages are still going up, Your cost of capital right for debt is going up and at the at the Top Line your revenues are slowing down because you can't raise prices and you know the consumer is indebted. You have 985 billion of credit card lending. It's the highest it's been for years, right? credit card borrowing so it's a trillion dollars there. You also have SNAP benefits expiring.

On top of that, you have 10 to 17 million people losing their their Medicaid from the Covid Benefits era. And in June you have student loans, right? That people haven't had to pay their student loans for three years. You know the average student loan payment in the United States for a citizen is 400 a month. So when you put all those three things together, you realize that consumer spending is one, it's already fallen, two, it's probably going to fall more in the second half of the year.

and it's going to imply impact the U.S economy. At the same time, you have a 21 trillion dollar commercial real estate market and a lot of commercial real estate loans are floating rate loans with short terms. Now what does that mean? So if you were looking at the news over the last two months, you noticed that you know BlackRock Brookfield and Pimco defaulted on several loans. You know Arbor just even defaulted on a multi-family project in Texas 3200.

Apartments What's it? What's happening? Well, if you have a floating rate loan, it's usually benched on benchmarked on a library or so for interest rate. So when library and software were zero with the FED funds rate and you were borrowing at L plus 190 like Brookfield was in downtown L.A You were paying 2 percent right to borrow to and you're paying your mortgage based on that. Now that Libor is over five percent and so far is over five percent, that's seven percent. So now you have you have these buildings in downtown L.A that are only 70 occupied.

So you're 30 vacancy so you're suffering there. Then you're paying your maintenance, your cap bets, your taxes, and your interest rate just went up 3x And I'm not even going to get into what where the Mez rates are um and where the preferreds are. So you're you're going to see lenders just walk away from buildings. Now one thing to note: small Banks Which is you know where the trouble has been are the biggest lenders.

um to retail properties and office properties which are the two major areas of Um of of where I Think of where landlords are going to have to walk away from property. So commercial real estate is going to be a drag. We think the consumer is going to be a drag. We think the earnings are going to come down now.

It doesn't mean it's the end of the world, right? The banking system is still relatively strong. You saw JPMorgan report you sell Wells Fargo report you saw City report their earnings will get weaker throughout the year because of loan loss reserves. But overall, like we've corporations have a lot of cash in the US you look at cash as a percentage of total um, high yield debt. For high-yield companies that I follow It's relatively High versus prior recessions.

Um, you know the wealthy in the U.S You know they've done very well in terms of asset appreciation. They've They've made seven and a half trillion dollars just in real estate appreciation. and you have over five and a quarter trillion in in money in Money markets. and CDs right now.

So it's not. It's nothing like 2008, and it's nothing like 2002. But I Do think we're going into an economic slowdown and I think that equities are expensive relative to that. And I think that bonds after this rally we saw through the banking crisis are also not as cheap as they were.

You know, the short end of the bond curve is relatively cheap. So T-bill is, you know, one-year bonds money market? CDs Um, we think that there will be an opportunity to get involved in longer duration again. Um, and we think that IG Bonds and preps are super interesting. And the short duration side.

um, and even some of the prefs that are. Perpetual If you can buy a pref, you know if you just do the math I Mean there are a number of them we were just buying in. March If you're buying a preferred stock at 18 on 25, right? That means you're buying it at 72 cents. And if that pref pays a 7 dividend, right? If you take a seven percent dividend, you divide that by 72 cents.

You know you're essentially making an almost 10 percent current yields 9.7 percent. So if you're clipping 9.7 and you own something at 72, that when rates when interest rates fall which we think will happen in 2024, you know you could potentially see that Rally from 18 to 25, That means you're making 9.7 percent plus 25 divided by 18, right? Um, and that is a hefty return For a lot of these names. that's a 38 returning to form of capital gains. For some of the IG names plus 9.7 it's almost a high 40 return and no one cares, right? because everyone's just looking at stocks and memes and crypto.

Um, so I Think that this interest rate environment has created opportunities that you haven't seen in 15 years and because everyone's so distracted focus on the stuff they're looking at over the last three years, they have no idea where to put their Capital Um so just to summarize, you know, Crypto I would be a little bit careful because the decline in money supply going into the debt ceiling. Obviously with geopolitical risk, if you see you know the possibility of some sort of a stimulus. obviously those those things can be sensitive. You know I prefer to be in kind of gold and precious metals in some of the miners.

Um, when it comes to yield, we like IG prefs and IG bonds. They're available for all retail investors to do research on. We also like good companies that pay high decent dividends. We're in the name MBI It was an insurance company that was trading at 50 percent discount to nap.

You can pull it up Since we talked about it on March 27th, it's just gone up in a straight line because people didn't understand that it wasn't a bank and you can't cancel policies like you can. We like, you can pull out deposits. Um, you know their CVS was an interesting turnaround. You know that was trading at over 10 free cash flow yield everyone knows CPS but the company had sold off over 35 percent.

Now there are some reasons for that because of its PBM because of you know, bonus uh, compensation tied to its Medicare Advantage plan because CBS owns Aetna But when you actually did the math and figured out okay, like where are you buying CVS relative to historical comps and even penalizing them for cash flow loss, they could see it. Aetna And potentially you know at the PBM you were you were making it at an attractive level. Um, you know. So there were.

there are some really interesting opportunities in this market and within equities. There's an another um, mid midcap name called Beaufort Capital. You probably never have heard of it, but it's a litigation, uh, company and they, um, one of my friends was at Eaton Park Capital which is a Goldman affiliate hedge fund Eric Mindich wasn't was on the same team I was on at Goldman. Um, so they had a big stake in the biggest Energy company in Argentina called Yps.

Okay, and they they sold. They essentially that company was nationalized and the they held out so they didn't get paid for their shares by the government. Now you fast forward you know there's an 11 billion dollar claim across various hedge funds that owned Ipf the Ypf stock and you know the courts just ruled that Argentina now owes that money and Buford bought the claims so you have a you know, three billion dollar market cap that's just going to get an 11 billion dollar windfall. It's going to take years for them to collect on it, but the stock was trading, you know, at seven bucks and now it's at 12..

Like there's there are things that people just have no idea. Um, you know that they should even be looking at. Um. So my overall view is negative for equities.

Um I Like IG bonds. I think high yield will widen out because default rates are going to go up and we'll have another opportunity to buy. You know, high yield bonds at 10 11, 12. Um, later in the year and when it comes to crypto, I'll leave it up to the guys that are smarter than me to figure that out.

But I Do think that precious metal is like if you look at what happened during 2011 in the debt ceiling, there tends to be a lot of of, uh, fear-mongering and especially with the geopolitical risk that we have now and the fact that Central central banks all over the world are trying to diversify, right? Some are trying to diversify even from the dollar and they're buying gold. It's not a it's not a bad uh Diversified diversification tool to have a small uh percentage of experience, but based on the run-up we wouldn't be buying it now. We'd wait for a pullback. Um I I don't like momentum I'm like I'm like anti-momento when things are going up I get scared and when they come down when everyone's scared I try to get involved.

Classic mean reversion. There's uh, two things you said that I would love to dive into. So you're talking about Commodities and you said gold And you're also talking about, uh, solid companies that pay good dividends. So uh, do you have any thoughts on Black Gold AKA Oil? are you looking at Exxon Chevron I know OPEC Yeah So we look at energy in a really weird way.

Okay, um, so you know One thing is I'm a long-term uranium Bowl um I like uranium as a source of energy because I think nuclear. they're gonna be. You know China's building dozens of nuclear plants India's building new planets they're building them in Eastern Europe It was actually involved most of the time I'm short spots, but it's actually involved in coming called SMR Uh, very early on. It's like the only Us company that has been Uh has had been approved Um to manufacture Uh produce.

um, essentially small modular nuclear reactors that are a lot more efficient than large reactors and can be shut down a lot faster. I'd like to see that more of that technology in the US and Europe So I think that you know some of the nuclear companies are very small and speculative. so I try to avoid them even in the URL ETF a number of those companies you know don't generate cash flow and they'll need to raise Equity So I try to avoid the you know recession type environment I Try to buy the spot commodity because I think eventually it will have to Rally to marginal cost. you know, Sprots essentially buying up all these uh, all the all the nuclear.

uh you know all the uranium that's being produced. so I like uranium I like I like gold um I like the the higher quality miners that I own I like royalty companies Um, when it's when it comes to oil I like Midstream you know I've been able I was actually involved in a potential activist situation Kane Anderson Fund the Kmf um at a very large discount to net asset value in Saba Capital is an activist investor so I noticed that he owned like over 10 of the fund and um, we bought it. It was paying like a 10 almost a 10 dividend and it owns some of the best, um, mid-stream companies. So Midstream companies for those who don't know, or companies that own the pipeline and the storage assets in the energy space.

So even and it's in a recessionary environment, right? their cash flows are a little bit more protected. And what's happened is that they've paid an awful lot of debt over the last 10 years, so they're less levered than they were in the past. and they've lower valuations I like Midstream I do own some Upstream Um I own companies that have been good Capital allocators that are returning you know Capital shareholders Um I own several but but one that I'm involved in with with Berkshire Hathaway Um, you know, um is Occidental Petroleum me too I Love Oxy. It's a great.

It's a great one. I Will say that it's not the cheapest one. um, but it's a large cap name that I Think everyone can probably do the research on. you know, open up.

Uh, their financial statements. Go on. Um, you know. Go on.

read through their presentations, their transcripts. Um, obviously you know, Um, they're well managed and you know none of this, by the way, is financial advice. but it's just you know some ideas of the types of things that we're looking at. So right now now you know we we had a very big energy allocation by bid.

We're well Diversified and we do have a lot of cash and we do have a lot of yield instruments. We had a we were about five percent weighted in energy um going into March and then when OPEC cut production you know and you have to take that cut with a grain of salt because they're already under producing. So I think the real production cut was probably around 600 000 barrels per day versus the over a million barrels a day you saw in the news. Um, but that cut, you know resulted in an oil rallying very meaningfully, right? WTI going at one point above 80.

and that that resulted us selling Um at a decent profit because we were buying in the 60s. Uh, both the Brent ETF Bno and Uso which is the WTI ETF and we sold Um, you know we're in the process of selling our energy exposure down from five percent to three percent, but we'll still have a core exposure. And the reason why is we think that even in a slowing economy uh Europe could have another energy crisis because they don't have enough LNG storage and we think that there's a there's a you know I follow suit uh Sufi who's actually the founder of Um Cheniere? um one of the biggest LNG Luke fashion um and Export facilities in America on the Gulf Coast um he started tell which hasn't been as successful because of cost Capital issues. but um, you know I think he would agree with me in that there's a very high chance that um that Europe has another energy crisis if we have a cold winter and Mother Nature was very kind to the world this year with the Ukraine Russia conflict, we had one of the warmest Winters in history.

Um, so you know they're able to not have that issue, but you know we will always have some exposure to energy. Um, with with this geopolitical risk, I would be much bigger in energy if we weren't if I didn't think we were going into a recession. but I've been more conservative on the Upstream front. Oh love it I love that insight to wrap this up and it was Another thing that you touched in is uh, it's your thesis along with your team that will probably see some rate Cuts in 2024.

Now obviously a lot of things can happen between now and then, but um, that seems to be a common I guess mindset that is held. And one thing that I don't get because I'm 28 I haven't really walked the walk, but I do have the ability to Google and find out how monetary policy is played out in the past. And one thing I don't get is day over day. Whether it's Fin Twit or media, it seems like everyone is almost giddy.

They're excited, they think it's going to be the next. Bull Run as soon as we start cutting rates but I just did a little bit of a walk down history Lane and I looked at 69, 73, 81, uh 2000, 2007 2019 from the rate cut like the actual cut, every single one of those we went down. the smallest drop was 27 and the largest one was 58 because they're scared of an economic contraction. I Mean there's a reason, right? So things often go down at, you know, after the first cut and it's not until you get to, you know, several cuts that the market starts to price into recovery.

We're at the beginning of the economic slowdown. Um, you know I would say we're probably in the third or fourth inning. Um, we're definitely not the first inning. We're definitely not at the end of it.

Um, so my view is that Goods Inflation is going to go negative. Okay, I'm saying that here. I Know it's controversial I think by next year because in various categories, right? And people aren't focusing on the stuff. But it's funny.

Like when egg prices are up 20, you see it on CNBC right? But prices are down 10 in a month and you don't actually see that, right? And that's not even something that people should focus on because it is. You know it's because of the flu and avian flu and it wasn't even really tied to any of the supply chain issues or any anything but. I Just use that as an example of the media right? following. The media is not the best way to invest.

Um, they talk about prices when they Skyrocket But is are people talking about Lumber hitting multi-year lows? No, they're not talking about it. Um, so it's just something You know that that, um, that I've been focused on. You know the fact that you know a lot of goods, whether you'll get apparel, whether you look at new car prices, um, a number of agricultural commodities. Some of them have bounced recently, but most of them have been on like a longer term trajectory.

lower. And then when you look at real estate, Oer is about 32 of CPI and 16 of Pce. You know Oer is this owner's equivalent rent. It's a flawed metric, but it Lads right? Because when you think about you know rent, you know when you're pulling people.

Uh, whether it's you know, actual renters or people that are giving you estimates on where they could r