Co-host (3:17)

Do you think there's a third path that's not one extreme or the other? And it's more something like the productivity gains are fantastic, share prices go up, companies get more efficient. But then there's the. The idea of creative destruction where suddenly we get new industries and new sectors. Where do you fall on that?

Vincent Daniel (3:38)

I laugh at myself, right. I tend to what we're known for in this world is quote the big short, right. Sometimes I love that, sometimes I don't. But I was so proud to be a part of the movie and the book. But my brain tends to run more cynical than the average. I tend to run a little bit more bearish than the average. I don't think you can get the perfect scenario with this. We're spending too much money. There's no way they're not creating this machine, this new ecosystem without cutting 20 to 30% of the jobs. If successful, just accept it. But then more bullish people than me would suggest to me creative destruction. And look at and they are right. Almost every single technological advancement or capex surge has created a new economy that has created different jobs. My only counter to them, to anyone that says that is like it's true to me there's always a productivity and improvement in technology. But over the last 20 years, if you think about where the job creation came as a result of it. So think of the last ones of the Internet and the WTO where we offshored a lot of our jobs overseas. We plugged the hole in jobs, yes, some of it was new industries, there's no doubt about that. But the majority of the employment that plugged the hole was government jobs. It was health care. Right? And health care, even though it's private, it's really not private. It's Medicare and Medicaid and hence the reasons why we've had excessive fiscal deficits, hence the reason why. So where are we going to fill the gap with 20% of the workforce going if AI is successful? I don't know and I tend not to run bullish so I understand there might be somewhere but I'll take the under on that and I'll take what we'll probably get significantly more of is continued. We're going to need lower rates and they're going to print money. And that's, that's my base case. If AI is successful.

Host (5:49)

Well,

Co-host (5:51)

if you're bullish on the technology makes you bearish on let's say markets in the macro. Do you think that the, let's say the recent sell off in software like Microsoft is down like 30% from its all time highs? Is that overdone because Microsoft still makes a ton of money, it's still a massive company. How are you thinking about that?

Vincent Daniel (6:14)

We're value investors at heart, myself and my partner, we run our own money and our portfolio tends to be comprised of names that are in the value bucket, which happens to be a four letter word these days. But we're doing well, we seem to be making it work. Without a doubt, this drop in software names has intrigued us because we're finally getting to at least look at names that we would never have looked before in the past. Now herein lies the problem. They were so ridiculously overvalued according to my lens. Other vestors, other styles would see something differently. And I always try to justify, well, why is it priced that way? There could be market structure reasons, money flowing in particular buckets and styles they were benefiting from cap weighted flows coming in from W2s. But I always say fundamentally what is that price of that stock telling me? Right? And what it was telling me all these software names, let's use Microsoft as an example, it's a great company, is that the analysts and the market was assuming that Microsoft would probably grow revenues. I'm going to make it up, but directionally I think I'm correct. 10 to 12%. Microsoft's probably not the fairest one, but we'll use it 10 to 12% per year for the next 15 years. Right? And at the end of the 15 years you slap some terminal multiple on it. You guys have probably been hearing this term terminal multiple that is extremely high. This is things value investors don't do. Right? What AI has done is increase the probability that that very euphoric valuation that people are justifying to own Microsoft will come to fruition. And I think the probability weight of that coming to fruition, Microsoft's not fair, but let's use Adobe or Salesforce or maybe some of the smaller software firms was probably wrong and then once you have a portfolio manager that's questioning that terminal multiple, that revenue growth rate, not now 2030, 2035, because that's what they were ascribing to the valuation of that company. That far out. Once you come to my world where you're putting 8 or 10 times EBITDA on current earnings, 70% downside, 60% downside, it was possible. So what we're seeing makes rational sense to me. I know that's a sad thing to hear, but it makes a heck of a lot of rational sense if you're introducing a new technology that is going to question the growth rates of all these companies for the foreseeable future. Three to five to ten years out.

Host (9:00)

Real quick, we'll get right back to the interview. This episode is sponsored by Amber Data. In digital asset markets, the gap isn't between people who have data and people who don't. It's between teams that can connect the signals and those that are still working in fragments. Amber Data Intelligence is built as a one stop institutional hub for for digital asset market intelligence. It brings together derivatives, defi, stablecoins, spot markets and institutional metrics in a single interface, all on top of enterprise grade data infrastructure. With conversational AI and no code analytics, Amber Data Intelligence shortens time to insight and reduces the operational drag that slows decision making. As this market matures, understanding liquidity, positioning and structure is no longer optional. If you want to keep up with how digital asset markets actually work, Amber Data is worth knowing. You can learn more at AmberDataIO. That's Amber Data IO.

Co-host (9:56)

Now let's get back to the episode. Based on what you're saying, it sounds like, let's say the Mag 7 selling off to start this year. Sounds like that was a, let's say, predictable move in your framework.

Vincent Daniel (10:10)

A possible move. A possible. Look, I, I can't say we were short. We tend to run more long than short, right? I was not short a lot of these names were only short one of the mags, but that's a different thing. We could talk about that later. But it doesn't mean I was long them, right? Because the valuations just didn't make sense to us. So when this hit, we were actually long. We were long one of them, which was Google. We bought it late last year because we thought that the news flow and narrative of Google on the outside looking in made no sense to us. And it was also trading relatively inexpensive, particularly relative to some of the other ones. But this drop off makes sense to me, doesn't mean we predicted it doesn't mean I would short it. It just makes sense. And we'll see how far artificial intelligence takes us. So many of the questions if you'll ask me, the first thing I say in my head is path dependent. Right. I don't know the future. Right. But as I do more work to try and predict the future, then I can make a better determination of what I should do. We will see how pervasive AI is in recreating a lot of the processes and services that are used. A lot created by software companies, but also in other industries as well, that, that you've seen a drop. It wasn't just software, right. You seen a drop off in my old neck of the woods, which was financial services. There was a ton of names that got hit really hard as a result of it because people were doing the math of the what if scenario, which wasn't as rosy as everyone was thinking.

Co-host (11:49)

Do you think the financial sell off was overdone or any of these other sectors? I mean, trucking, sold off, real estate, sold off. Like these were kind of random, like collateral damage?

Vincent Daniel (12:01)

Yes and no. I think it created opportunities. But I think it makes sense. If you're a big, big believer in AI, it makes all the sense in the world, right. These companies are spending trillions of dollars. They're not doing it just so I can create some cutesy meme on Twitter. Right? And if you ever speak to the executives, they will tell you their goal and they're investing in AI is so that they can find jobs that are going to be done by machines versus humans. It's never spoken to on podcasts because generally speaking, if a CEO were to say this and go on Fox or CNBC or Bloomberg, it would be frowned upon. Right. So getting back to let's just take AI and say now I don't believe this, but let's just say take AI to its fullest extent that it works. Are you going to be able to book a hotel or a trip without touching a human being? And if that is the case, what happens to all these companies like TripAdvisor or booking and all that? You have to take it to its logical extent. I don't think you could have all this investment and not think there's going to be disruption. That doesn't make any sense to me.

Co-host (13:18)

I mean, you have people like Mark Zuckerberg saying they're going to spend to the end of time.

Vincent Daniel (13:23)

Correct.

Co-host (13:24)

To make this happen.

Vincent Daniel (13:25)

And they're not just doing that just to make enrich my, my Instagram feed. There are other reasons. Totally.

Co-host (13:34)

So where do you see opportunities right now in the market? What do you like?

Vincent Daniel (13:39)

Well, for us, we. The one thing that we've loved for the last four or five years and it's worked, but we continue to own it. We haven't really sold it, is gold. The primary reason why we own gold is because the only way out of our excesses, like we as a country, not just as a country, we as a world spend more money than we bring in. Right. And we are increasing the leverage in the system. And every once in a while that leverage cracks. And how do you resolve the leverage? And doesn't seem like any government whatsoever wants to, and understandably so, wants to institute austerity to get us out of our mess. They don't want to increase taxes to get out of our mess. They don't want to reduce government jobs to get out of our mess. I'm not saying they should. I'm just telling you what the policy is, right? So as a result, the excesses continue to build and every once in a while the leverage gets too much and we have. Markets have hiccups. We're having one right now, but it's not bad yet. And so what is the typical policy when asset prices go down and wealth is being destroyed? What do they do? They print money in some form or fashion. They print money. What they really are doing at the end of the day is the value of the dollar in your wallet is going down over time. And so I'd rather own a currency which that's what gold is or store of value that is going to retain its purchasing power over time because it has for 5,000 years. The reason why we view gold that way is because it's a check on government policy. It's great in government policy. And when governments are basically getting an F, it's a good time to own gold. The other thing we do, we've done a lot of is we essentially want to own almost everything that the Fed can print with money, right? Almost everything. Almost everything. So we spoke about gold. I also want to own things that are beneficiaries of the AI Capex spend. And how are we going to power all these data centers? Right. Well, there's two sources of power that you do it with. You do it with natural gas and you do it with uranium. So we've had a lot of investments in those two. In addition, we've owned emerging markets mainly because in order to onshore manufacturing back into the United States. None of this works with A strong dollar, so it requires a weaker dollar. So those are where we play. Our portfolio looks nothing like anybody else's fund in general, although we, I think we're starting to see people come to our point of view.

Co-host (16:38)

Well, energy has been a top performer this year, right?

Vincent Daniel (16:40)

This year? This year, yes.

Co-host (16:43)

When you talk about natural gas and uranium, is that commodity exposure or are these like companies that are, let's say, I don't know, mining or like how, how are you buying it?

Vincent Daniel (16:57)

We buy it through, we do. The majority of the stuff that we do is through publicly traded companies. So you are right. When you think of uranium and natural gas or energy, it's usually through the miners. But then there's also the picks and shovels associated with the business as well. One of the companies we've owned in the energy space and a lot of it is just not just top down macro views, but bottom up, a lot of bottom up views as well. So for example, we like to go. A big thing we like to do is determine where a certain sector supply demand is in favor of pricing power. So as you can imagine, as we have tried to reduce the reliance on dirty fossil fuels being natural gas, oil and coal, not a lot of investment has gone in that ecosystem. One of the things that has not gone into the ecosystem is the creation of floaters and rigs to extract this stuff out of the ground or out of water. So we own the company called Transocean because they're not making it anymore. And they happened to do an acquisition which we thought was extremely intelligent. So for us it's going name by name, stock by stock, supported by probably a top down theme that we believe in. And that's generally how our process works.

Co-host (18:19)

Okay. In emerging markets. Do you have an example that you can share? Like which EM are you looking at?

Vincent Daniel (18:26)

Our favorite EM is Brazil, I believe it. I used to call it the Switzerland of the brics. They can clothe themselves, fuel themselves. They happen to be very good looking people, men and women, and they're commodity rich. And they also have extremely high real interest rates, which means their nominal interest rate, the amount that like if you think about it, the US 10 year, the rate is about 4, 4.5%. In Brazil it's high double digits, right? Or in the teens, low teens. And the rate of inflation is significantly less. So your real interest rate, the difference between that is a very positive spread. And the valuations there for a value guy like ourselves is extremely more compelling than paying 20 times for the S and P. So starts with Brazil Then from there we say, okay, our core expertise. When I was younger we were a sector fund covering the financial services industry. So are there any financial services entities that we like? So we've owned for a while. They reported today was nubank, which the stock's not doing well today. But we own nubank. We own the Brazilian exchange. We also own the largest energy provider, oil producer in Brazil. Brazil Petrogras. Right. So what we do is have a top down theme and then we usually go bottom up to find how we can best support that with the most compelling ideas.

Host (19:57)

Real quick, we'll get right back to the interview. Just wanted to pop in and say if you like this content, I read a newsletter every single morning called Opening Bell Daily. I cover macro, the stock market, asset prices, why things are going up, why they're going down. And if you want to get that for for free, you can sign up at the link in the description. Let's get back to the interview.

Co-host (20:18)

One of the ETFs I've been writing about a lot the last couple months is ilf, which is a Latin America etf. And one of their heaviest weightings is Brazil.

Vincent Daniel (20:27)

Yes.

Co-host (20:27)

And it's done very well to start the year. So let me ask you about private credit. I think you've been doing a lot of work in this space. We've seen Blue Owl sell off. That's kind of the poster child right now of risk in the industry. My guess is you've had concerns in private credit that date back before the Blue Owl stuff.

Vincent Daniel (20:50)

Can I take you on a journey?

Co-host (20:51)

Please.

Vincent Daniel (20:52)

Okay. To see how in the world we got here.

Co-host (20:54)

Okay, okay.

Vincent Daniel (20:55)

Way, way back when. So we probably will bring up the big short at some point. But right after the big Short. Right. A tremendous amount of regulation was passed to ensure that that quote never happened again. Might be some law that you might have heard of called Dodd Frank that created the new regulatory structure of the regulated financial system. Astutely, a new industry spawned from that. Not a new industry, but a growth of an industry spawned from that called private equity. What the smartest of the smart people did was they left the regulated banking system and started doing things very similar to what banks did, but in an unregulated fashion. And most of them were private equity. So this buildup of private equity, this issue is not just a recent phenomenon. It's been happening for 10, 15 years now. Initially it was brilliant what they did, but of course the assets grew too much, to the point there was too much money coming in for the amount of Investments that made sense. So what this is is a byproduct of a good thing gone, too good. And eventually we just have. So in private equity, what we're seeing is loans that would have been made by the banking system is being made in a private equity format. And there's nothing wrong with that. In fact, I can make arguments that it's better in that format than it is in the regulatory banking system. But as too much money came in the door, mistakes were probably made. And we're starting to see the mistakes right now in the form of loans that perhaps might default, that might go to a non performing status. And because of the way the business works, if distributions are no longer coming to the LP investors back, then all of a sudden the machine stops. And I think we're starting to see the beginning of the machine stopping because entities like Blue Owl are starting to potentially have credit problems associated with their portfolios.

Co-host (23:00)

Is this a systemic thing or will this just stay contained in private equity?

Vincent Daniel (23:06)

Let's say tough to tell. I think it's less systemic than the gfc, mainly because the guts of the regulated banking system are fine. That doesn't mean you go out and buy the financial stocks. I'm just saying that if and when we are going to have hurdles in private equity, the banking system should in and of itself stand right. I will also say, and this is the cynic in me, that if we do, the issue with private equity in terms of it being systemic is over the last 10, 15 years, huge pools of investor capital, think pensions, think endowments, have invested in private equity funds. So it's no longer a small asset class for very important investment funds. If all of a sudden the return profile of various pensions and endowments are no longer doing well, what typically happens, sadly, is we're not allowed to have price discovery. So they're gonna go out and they're gonna call their respective congresspeople who are gonna call the Fed to quote, print money to make this go away. Right? We're not there yet. There'll be a lot of huge resistance to stop that. But that's how all of these problems that we have resolve itself is by printing money, by debasing the currency. Hence the reason why we like gold.

Co-host (24:38)

Gold. All paths lead to gold.

Vincent Daniel (24:41)

All paths lead to gold. Okay, sadly, I wish it wasn't the case, but that's the way our policies are run.

Co-host (24:49)

Is there anything that we can do to shake out of that framework or is that a permanent thing?

Vincent Daniel (24:57)

Can I ask you a question? I think the question what you're really asking me? Is there any way we can do this without the S and p going down 50%? That's what you're asking me?

Co-host (25:08)

It's also a good question.

Vincent Daniel (25:10)

The answer is no. Okay, So I don't have no one. If we had a way or a means to do that, we would have done it already. So the only way to alleviate the issues is by printing money. If the minute you allow price discovery of any kind, the S and P is going down a lot.

Co-host (25:34)

What do you mean, if you allow price discovery?

Vincent Daniel (25:36)

I'll give an example. Let's say price discovery is the reality that something is allowed to go down, which is supposed to happen in a capitalist system. Let's just say software is going to be a material problem because of AI. And let's just say all these. I'm actually probably rewriting Citrini's note. Let's just say all these software companies go down another 60, 70%. And let's say all these private software companies, right, which are funded by private equity, can't pay their bills and all of a sudden the default rates go up. Right? And the S and P drops, Nvidia drops. There's no capital coming in the door. What are you going to do? What is everyone going to do? And again, as I want to tell your audience, I'm not predicting this. You asked the question, I'm answering it. Right. If the markets were to go down 40, 60%, and this is where I think Citrini might be off, is what is the government response? And if price discovery is. The government says caveat empty. Buyer beware. Sorry. Right. Let's find where the right place is, where unlevered buyers go out and buy this stuff. But that's not acceptable anymore. That's price discovery.

Co-host (27:03)

Fair enough. I want to ask you about the big short I have to shoot. You were essentially right on a doomsday trade is how I kind of see it. Right. You were betting on housing markets collapse, which was tied up to the wealth of everybody. What does that do to your worldview as an investor? If you bet correctly on catastrophe, it

Vincent Daniel (27:33)

can screw you up. I'll explain that. It's very, very hard to be bearish and. Right. And I'm not. I think we were fortunate in terms of the timing of what we did and take a step back. How we got to this trade, how we got to what we thought was a function of the fact that we as a group, our group at frontpoint with Steve Eiseman and Danny Moses and Porter Collins, And Brad Burning and all them covered financial services industry, our entire lives. So we saw the buildup of home prices that did not make sense and that were not sustainable. And then we saw loan products that were brought up, brought forth that had a very high chance of defaulting as a result of trying to keep the machine going. And we were also lived in a world where the Fed. There's one of my favorite lines of the movie is not one of my lines. It's a Michael Burry line, right. Or Christian Bale line where they go, you think you know more than the Federal Reserve. And he almost like says it underneath his breast. Yeah, I do. And the truth of the matter is he did at that time. He did. The Fed didn't know what we knew and they didn't understand how intertwined this trade was throughout the entire financial services system. So when you see that, to answer your question, when you see that, it screws up your mind for a little bit, for quite some time. What happened afterwards was we come to realize that, and this was in the movie as well, towards the end, Mark Baum, Steve Carell, Steve Eisman said they knew it all along. The government was going to bail it out. And that's what happened. So, yes, it messes with your mind.

Co-host (29:29)

How do you regain faith in a financial system after going through that?

Vincent Daniel (29:34)

I don't. I don't. I view it as a game. I get faith in value because I could look at companies and stocks that I think are trading either cheaply below their intrinsic value and I have margin of safety that I believe in. Right. I do not believe in buying stocks that are trading at 50 times earnings. I won't short them because I know it's a game and the government has to keep them high. You keep all roads lead to gold. That's why I prefer gold, because I know in order to keep the game going, they're going to have to debase the value of the dollar that's sitting in your wallet, which is going to mean you're going to pay more for almost every good that you see 10 years from now because of what they do. So I'd rather own something. So that's how I said this at a conference the other day. And I was hoping it didn't mean the top in gold. And I said, gold has been my therapist over the last. Because if you run cynical like we do, forget where value. And I spend more time being long than being short. But I view the world very differently than most investors. And my natural reaction to a lot of Things that perhaps other investors see is that that is not good. I would want to short it. But rather than go out and short stocks, I went out and bought gold because I knew the end result would be, is that government would create policies to make everything feel and look good on the surface. But I know underneath the surfaces, it was, it was, it was a method to debase the currency somehow, some way to save out some. To save someone that was in a lot of trouble. And that's not price discovery.

Co-host (31:18)

If you could go back and talk to yourself, talk to your team, 2007, 2008, what would you recommend or what type of advice would you be giving to yourself?

Vincent Daniel (31:34)

I don't think I would recommend anything during that timeframe. Okay. Zero. The question I would like to ask is what would I recommend right after that timeframe? What I would love to recommend myself after that time from is, hey, idiots, go long. Go really long. Because they're not going to allow the system to fail. The system will look materially different. So that's the thing I would try to say is if I could go back in time, maybe not 2007, 2008, more 2009, 2010, and say ride the wave, because they're not going to let it go down.

Co-host (32:13)

Do you think we're in that scenario today? Not yet.

Vincent Daniel (32:20)

Not yet. But do I think there are other things that concern me aside from that? I'm more concerned with how much more can our governments spend in excess of the money that they bring in the door. Right. That's what I'm concerned about. And at what point do we. Does the system stop trusting fiat currency? That's the bigger concern. It's a bigger concern, to be honest, than what we were dealing with. But I also know that they're not going to let it go down, or at least not without a fight.

Co-host (33:05)

Vinnie, where can people find your work online?

Vincent Daniel (33:08)

So you could find me first off, on Twitter, vd718. That's just come hang. I'm on there. I use it as an information source. But myself and my two other partners, Porter Collins and Danny Moses, we started a substack, right. Which we call what are we doing on the trading desk. You can find it via substack. We also. We're the worst marketers known to mankind. But if you go on our. If you go on Twitter, you'll find us. And in addition to writing and doing a weekly podcast, we also have a fascinating live discord Chat, right if for paid subscribers. And there's very engaging discussions of single stocks it reminds me of the old days being on Twitter before the political cesspool on both sides. Right. It's just purely. It's a curated group of lists of people that are like minded, that enjoy our crazy and our banter, but it's also a two way street and it's a lot of fun.

Co-host (34:13)

Well, everyone should definitely go check it out. And Vinny, we'll have to do this again soon. I really love it.

Vincent Daniel (34:19)

Thank you. Thank you for having me.