← The Rundown
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- [00:00]
A
Welcome back to the Rundown interview edition. Today we are talking to John Petrides, a portfolio manager and financial advisor at Tocqueville Asset Management. John has a lot of great takes on the markets. So in today's conversation we talked about why the market is rotating out of tech and into other sectors. If passive index fund investing can still be a winning strategy moving forward, if President Trump might change his pick for the Fed chair. And an instant reaction on the Supreme Court striking down tariffs. This was a really fun and free flowing conversation. I think you guys will really enjoy it. So let's get into it. John Petridis, welcome to the Rundown.
- [00:38]
B
Thanks for having me on.
- [00:40]
A
Of course, man. You're joining us at a very, very interesting time. We're recording this on Friday morning and 15 minutes ago we just got news that the Supreme Court is striking down President Trump's tariffs under the Emergency Powers act that he had enacted over the last few months. So I just wanted to kind of turn it over to you. What was your reaction? Did you expect this? And how do you see the markets kind of taking this news?
- [01:05]
B
You know, Zayd, we're only seven weeks into the new year, but 2026 has been a long year and, you know, the news flow keeps coming and not totally unexpected. There was a chance that this would happen, that they would be struck down. But and of course, you know, the president and his team have a backup plan which most likely would be to administer the Balance of Payments act, which would basically give them, my understanding is it gives the administration 150 days or so to implement an across the board 15% tariff and that gives them more time to negotiate, you know, other ways around to induce some sort of tariffs. But clearly we're a long way from the April 2nd Liberation Day numbers that were thrown out.
- [01:56]
A
Yeah. And I wonder how it's going to impact just Trump's negotiation moving forward as well. One of his ways that he would negotiate is threaten the high tariffs and that and he was able to kind of strike deals that way. With that off the table, I kind of wonder how, how like, you know, how it's going to go. Maybe it leads to less volatility in the markets because, you know, going back to October where there was a scare with the, the reacceleration of conflicts with China when it comes to trade tensions. And so earlier this year there was the Greenland stuff. So I wonder kind of how the markets are going to take this if it's going to be a less volatility moving forward given that Tariff is off the table.
- [02:32]
B
Yeah, it's a great question. And I encourage you and investors and listeners to look at actually how the bond market reacts. Not necessarily the stock market, of course. The bond market doesn't get nearly as much headlines as the stock market does. Cause we're all involved in the daily movement. But it's the bond market that's the signal. And I'll tell you why or give you my thoughts behind it. You know, part of the narrative between the tariffs that Trump was imposing was, well, this will, the money from the tariffs will be used to support tax cut, to support this expense, to support all of these other things. If you don't have them to the dollar amounts that you were budgeting for, what does that mean? Right. And we all know, you know, the US is at $38 trillion in debt and rising. So you know, what does that mean to the long end of the yield curve for bonds and why is that important? Well, we have all this debt that we took on during COVID that was at very low interest rates. This is the US Government, of course, that now has to be refinanced. So if interest rates are higher, which they are, particularly on the long end, the 10 year US treasury is double the interest rate of where it was during COVID You have to refinance at higher rates if that keeps going up higher because people are fearful of the amount of debt that US has taken on. You know, now you're refinancing all that stuff at higher interest expense, which impacts the US Budget. So I'm more interested to see how the bond market takes all this in stride, more so than the equity markets.
- [04:05]
A
Yeah, that's a really good point. And you're right, the bond market doesn't get that much love. Especially, you know, everyone's more and more focused on the stock market. But we'll be watching that for sure over the next few hours and weeks. This news just broke like 15 minutes ago. I do want to talk about interest rates though. You did. I was, I was looking through your LinkedIn. You had a really interesting post. I don't know if it was this past week or the week before where you said that President Trump might have buyer's remorse when it comes to nominating Kevin Warsh as the Fed chair. You know, Kevin Warsh historically has been more hawkish and since his nomination was three weeks ago, the markets have been a little rattled. Do you see that actually playing out now? It's a good change. The nominee.
- [04:45]
B
Yeah. The timeframe is basically the end of May is when Jay Powell's chairmanship of the Fed is over. Right. So from now until then, we still need to get Trump's nominee, Warsh, to be confirmed by the Senate, which hasn't happened yet. You know, everything coming out of if I was, you know, interviewing for the chairman of the Federal Reserve, and I want to placate my, the Trump as my who's going to nominate me, I'm going to give an agenda of everything that he's looking for and that is low interest rates stimulate the economy, particularly in a midterm election year. And do whatever you can to lower interest rates, particularly on the long end of the curve, because we have to refinance that debt and because we want to stimulate the housing market. Right. So that to me means to do that, you have to do more quantitative easing, you have to print more money. That's what that comes to, Right? You're not afraid of inflation, you're ready to print more money. And when Wash came on, who has been a hawk, who thinks that the Federal Reserve has used their balance sheet, has printed too much money, who thinks the issue behind inflation is that there's too much money in the system, he's looking to rein that in. That doesn't help bring down yield, bring down interest rates. Right. In fact, that keeps it higher. It means you're looking to cut it. So and if Wash comes in and cuts interest rates, that only impacts the front end of the yield curve. So where does that, if the Fed cuts interest rates, where does that impact you? Well, if you have CDs at a bank, right. That will lower the CD rate on a bank. If you have money sitting in a money market fund or a high yield savings account, you know, lower interest rates hurts, that impacts that part of the market. It stimulates car loans and it stimulates short term financing. It helps banks out a lot in terms of, you know, issuing some more credit, but it doesn't help the housing market, it doesn't help the long end of the curve, but which helps refinance that debt. So those comments are not congruent with what Trump and Scott Best and Secretary of treasury were talking about. So you saw leading up to Wash, his appointment, rick Reeder from BlackRock actually was leading and Rick Reeder was very, has been leaning very pro bring down the long end of the curve. And that's why you saw the market have a massive sell off when Warsh was announced, because, wow, this is completely opposite of what everyone's been talking about. So does he have buyer remorse? There's still time, right? I mean, that he hasn't washed, hasn't been confirmed yet. It doesn't seem that way. Trump seems to be, you know, but, but at the end of the day, if the stock market and the bond market don't like those comments, and we're heading into a midterm election year of which the Republicans have just this very slim majority in the House and the Senate, you know, he could do what the market likes to try to stimulate things in the short term.
- [07:37]
A
Yeah, I don't think a lot of people are talking about this. I think people are just assuming that he's gonna move forward with Kevin Warsh. But if the markets keep falling like this, if there's an opening for Trump to change to Rick Reeder, I mean, I think that could definitely happen. I think not many people are giving it a chance, but I wouldn't give it a 0% chance at this point.
- [07:54]
B
Yeah, those are definitely my thoughts. Not the firm, not Tocqueville's thoughts in general. But if one thing we've learned from Trump is that just because he says one thing one day doesn't mean he's gonna do that the next day. And that's the lesson learned over, you know, these two administrations that we've had under, under President Trump.
- [08:14]
A
Well, let's talk about the stock market now. That's what most of our listeners follow very closely. You know, I feel like the best way I could describe the stock market right now is that like we're okay, you know, the S and P is near all time highs, but yet it feels like we're in a bear market or like if it feels like we're going through a crash. And I think it's because of the sell off in software stocks and tech stocks, which a lot of people are over indexed on. So what do you actually make of the current environment in the markets? And do you, do you feel like we're in a bear market yourself?
- [08:46]
B
So I do not feel like we're in a bear market, but I think, I think with the zoom out and I think what you have seen is what we've seen over the past three weeks or so in the sell off, particularly in tech. Software, as you allude to, has been the second wave of the second rotation, the second dial being turned of investors broadening out their portfolios. So let's, I want to just zoom out from AI eliminating all jobs and, and you know, eliminating all software or go back a year ago when we had the deep SEQ sell off, particularly amongst technology. Right Deep Seek was announced out of China and basically it threw the whole American domination of the AI story and American exceptionalism narrative on its head, right?
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A
Because I think Nvidia dropped like 18% in a day that day.
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B
The story was leading up TO that was AI was solely a U.S. story. It was solely a U.S. narrative and the rest of the world was far behind. And then Deep Sea drops this announcement, whether it's true or not, that they could basically put together, you know, their own large language model using, you know, Scotch tape and bubble gum, right? And we do it for nothing. And then, oh my God, it threw the whole thing around. And here we are a year later and that, you know, we're still spending a ton of money on AI and the AI infrastructure build out. The demand for any Nvidia chips still remains strong, innovation still remains there. So. But what happened during that time? Because basically for the last decade investors have been on one side of the boat. It has been a, if you look at all the asset classes going into 2025, it has been a US large cap growth, which is basically tech story. Every single asset class other than that paled in comparison in terms of relative returns. And the absolute returns of that sector has been massive. We know The S&P 500 is a market cap weighted index, meaning the larger the company, the larger the weight in the index. All of a sudden you wake up, a third of the index is in tech. The top 10 holdings in the S&P 500 are make up about 40% of the stock market. We're the most concentrated that we have been to one story and that's been tech AI. So what happened last year, the this deep seek happens, the world says, oh, maybe we're not, maybe it's not US exceptionalism. The dollar sells off. And what outperformed last year? International. International, Right, International, right. You just basically had a shift and the narrative was oh, the AI's needed to story. The reality is investors have been underweight International for a very, very long time. Domestic has outperformed International on like a 14 year period leading up to that, it was the longest stretch ever, right? So you just, all you had was a rotation of people just broadening thing out. But the narrative took care of itself. Okay, but nobody really gives, nobody really gets too crazy because The S&P 500 did a 17% return last year. So but if you look at International, International was up like 30, 30%. Right. And emerging markets may have been up higher. Now let's fast forward to three weeks ago. Okay, where has the world been in software. Software's been great. Software, you know, you could, you, you have this recurring revenue and all of a sudden Claude, you know, puts out a few widgets and you have a little bit of OpenAI, a little bit of anthropic and all of a sudden, oh my gosh, you know, the, the, the, the tech story is over. The A story's over. Right. You know, software, you know, you have this sort of sas. Magedon is the nice term.
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A
Yeah, SAS apocalypse. Sasmaged.
- [12:23]
B
So what's worked though? What's worked though? Energy stocks, basic material stocks, consumer staples stocks, utility stocks, financials. What are those five sectors characterized as? They're all value, right? So if, if we were in a US large cap domestic growth environment that dominated for four years last year, investors just added more international to the portfolio. Now you're having the second rotation and it's just a value, right? It's not all the way to one side of the boat. It's just you're seeing a broadening out. And you know what that all spells? Healthy. It's very, very healthy. Because the line is always, you know, there's no free lunch in investing outside of diversity or diversification is the only free lunch that you get in investing. And you know what? For the past 10 years you were not compensated for being diversified. In fact, you underperformed. Your opportunity cost was that you weren't concentrated in technology. So what you're seeing now is just more broad based, more diversification. Catch a bid into styles such as value or as, or regions such as international and there could be more of that to come. So you could be in a situation where the US stock market, the US economy is fine. We don't see any recession in sight in the US economy. Could you have a year where the S&P 500 as a passive index finishes negative? It wouldn't surprise me. Why? Because it's so concentrated to one sector and if you have a rotation out elsewhere into others, that could just pull it down.
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A
That's a very good point. And actually that's something that I've been thinking about a lot is that you know, for the last decade plus, pretty much like my time as an investor, like the last 15 years, the best move was just to be a passive investor in these index funds, you know, spy the qs. And that was the winning strategy. Now we might be entering a period and I wonder how long it lasts where you have the S and P just trade sideways. Whereas some sectors are going to significantly outperform others. It Essentially has become a stock pickers market, which hasn't really been the case.
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B
That's right.
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A
Do you think that might last? Do you think it's like a short term thing or do you think that like just being an index invest, index fund investor just might not be the right strategy for the next decade now?
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B
So it's a good question. I think there are portions of, there are investors out there that will benefit because of the lack of size of a portfolio. You need an efficient type of return. Maybe in a 401k where you're not looking to be active, maybe you're in your 20s and you're just looking to build wealth and you're in your 401 and you'll play the long game. Well then, you know, an index fund, a passive index fund makes sense because all you're looking is to build wealth. You know, we have a hundred. This is a really interesting statistic. Around 1926 is when people started taking data seriously and tracking it seriously. Okay? So we now basically have 100 years, just about a data of the s and P500 returns. You know, almost 75 of the 74 of the hundred years the market has had a positive rate of return. Right? And half of those have been more than 20%. And half of those have been more than 20%. Okay. The other 25 years have been negative, right? And you basically have had I think six or eight years of where you had a negative, where you've had a neg, where you've had more than a 20% sell off in the market. So basically one out of every four years you get a clunker, right? So that is to be expected. You are the perfect Z, you're the perfect, you're the perfect person, the perfect investor to have this discussion because by and large you haven't seen any sell offs. In fact you, during your years of investing, during your years, during your prime years of investing your life, this time you've had two years of a market sell off, 2018, right. Which the fourth quarter sold off 20% and you had negative rate return and Covid. I'm sorry, and, and 22, 2022, that's it.
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A
That was like 10 minutes. That was like 10 minutes.
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B
So, you know, so, so there's. When there's volatility and there's sharp sell off. Right? And I'm not, you know, that, you know, your generation of investors just haven't experienced something else. And look, if you're, if you were in a consumer staples stock, you know, for 10 years and you know, massively underperformed the s and P500. You get impatient, right? What am I doing here? And at the end of the day it always comes back to valuation. And in certain cases, going back to the software story, I don't think software is dead. There will be winners and losers for sure. There are certain parts of the software stack that I think will be survivors. There are others that won't be. But at the end of the day, you know what happened? Valuations got too far ahead of themselves. Why? Because those business models up until recently were very attractive. Subscription based recurring revenue cash flow generative like capex generates a lot of free cash flow.
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A
Right.
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B
Software tech stocks became the new consumer staples. Right. You know, a software tech stock became the new Procter and Gamble or became the new right of what was 30 years ago where you, you know, when you got a high valuation multiple because you had confidence in the recurring cash flow, was easy to model out. You could look out 10 years and say, all right, this company's going to do X, Y and Z. Now there's threat to that ecosystem and all you're seeing is the valuation multiple come back in. You know, a stock trading at 15 times sales or 12 times sales in my world, in my experience is wild. But that's where things were, you know, and maybe that's where stuff was getting taken out on the private side. Right. So it's so, you know, it gets normalized, you know, now valuations seem to be significantly more rational.
- [18:18]
A
Well but now we're in an environment where you have companies like Walmart and Costco trading at, you know, what 35x40x Ford PE. And so then, so then we've kind of like flipped where like you have these traditional like brick and mortar retailers being like the, the hot stocks now because investors want that like certainty of like Walmart's not going anywhere. Whereas like you don't know what's going to happen to Salesforce in five years.
- [18:41]
B
One of my colleagues put it, put it spectacularly the other day. He said, you know, coming into the year, you know, if you, what's called a bid is if you could drop it on your foot, it hurts. That's what caught a bid, right? Tangible stuff. If you could drop on your foot, that's what people want right now. If you can't drop it on your foot in its air, people don't want anymore. But you know, two months ago it was completely opposite.
- [19:03]
A
I'm kind of curious to get your take on the Max 7. You said something in your LinkedIn post recently that, that the Max 7 and they need to pull a rabbit out of their hat, right? They've been able to do that for the last decade. It was cloud first, then they had the AI. What's the next thing going to be? What's the next rabbit? What's the next, next rabbit going to be? I wonder if there's a situation or a scenario where Some of these Max 7 companies, these hyperscalers, scale back on capex spending. Everyone that I've asked, like there's no chance. It's never going to happen. There's no way Microsoft or anyone's going to ever announce a scale back of capex. But if their stock keeps getting crushed like the way it is, is there, is there a situation in Q3, Q4 where Satya Nadella gets an earnings call and saying, you know what, we're just going to keep our CapEx flat or maybe drop it by 10%?
- [19:48]
B
Yeah, I mean, I think that's a very, very important question because it's about, it's not about the dollar amount, it's about the rate of change on the money spent on the AI buildout. Right. If we're right now, it's something like in 2027, I don't know, $800 billion is going to be spent by these big companies on AI. Well, if they only spend 750, 750 billion, right. Still a ton of money, but it's not what investors had expected. It's 50 billion. And the problem is these companies have become like a whale and there are so many other businesses feeding off of that cash flow. Right. If you're off of that CapEx spending on that AO that if you take it away, it has a ripple effect, right? It impacts because all of a sudden investors are expecting that demand to be there and it's not. Right. I had a thought on the capex spend that's being announced and the dollar amount going up. Is it because there is more demand to build out AI and data centers or is it just because it's just more expensive to build out AI? And here's the example. Let's say I'm renovating my house, right? And the contractor says, hey John, it's going to cost 100 grand to redo your house to do all these add ons. Great. And three months later he comes back and says, well, you know John, copper prices are up a lot, lumber's up a lot, labor's up a lot. So instead of 100 grand, it's actually going to be 120,000. Well, he just what am I going to do? Right? This is the plan. So he's coming up with, he's increasing the cost to me, passing it on to me for $120,000, $20,000 more. But I didn't gain more square footage in my house. So when you know, you see the prices of what's going on in the memory companies, you see the price of concrete going up because you got to pour. Labor costs are not going down because labor scarce to do all this stuff. The value of land is going up. So you need land to put the data centers on. Storage is going up. Right. So chip prices are higher. You know, Nvidia keeps rolling out new chips purposely because they don't want them, they don't want their gross margins to go down. So is it because there's more demand and the need for it or is it is the dollar amount going up simply because the cost to build it out is significantly higher?
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A
That's a good point. I never thought about it that way. It's not just you need to build more square feet. They might not be getting as much square feet for the amount that they're spending. You got higher expenses and I don't
- [22:08]
B
know the answer to that. I don't know the answer to that. And I think to your question of, you know, is Satya Nailah going to come out and say wait a minute, we got to pull the reins in ultimately you got to have return on your investment and you know, you got to presume, you know, all these costs or whatever your, whatever the initial calculation was for that ROI is going to be impacted.
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A
What do you think about Apple just kind of sitting this one out though? Right? I feel like Apple is in such an interesting position where they're just like, you know, we're not going to spend $100 billion in CapEx. We're, we're just going to sit it out. We're going to just license our model. We're going to license a model from Google for $1 billion. And, and they're just focused on like the hardware. Right. I think there's a recent report in Bloomberg's and they're working on AI glasses and other, other kind of AI hardware. Do you think they might end up just becoming like looking like the smartest out of all these big tech companies in a year or two?
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B
Yeah, it's a good question. So full disclosure, we own Apple for buying it for our clients. It's in our models. So I don't want to give A buy sell recommendation. But that narrative could very well be, you know, it will all depend. I think they're savvy in the fact that they took a step back. They weren't a hyperscaler to begin with. Right. Apple, at its core, has a network effect of historically making great devices where you're kind of locked into the ecosystem and you just keep rolling out the new devices, but sitting back and letting others build out the ecosystem and presumably allowing your network to come in and just take advantage of it and sit on top of it. Seems like it makes a lot of sense.
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A
Yeah. I think that's going to be the interesting thing to watch. They were getting a lot of, like, the sentiment wasn't so great around Apple, but now people are, I think, starting to come around a little bit saying, well, maybe Tim Cook was onto something here when it comes to sitting this one out. So we'll see how that plays out. I want to end with here. I want to talk about gold before. Before we let you go. Because, I mean, gold has become. It's become like the most popular subject when it comes to investors. Gold and silver. But I want to talk about gold specifically. It's up, what, 15 so far this year? Up 70 over the last 12 months. $5,000 an ounce. It's outperforming everything. The S P, Bitcoin, everything. John, I'll be honest with you. I've been a gold hater for a long time. I've been kind of like a Warren Buffett kind of guy. I'm like, gold doesn't do anything. It's just a dumb, shiny rock. Like, why should I invest in this? Obviously, I. I regret my. My approach over the last couple years. So what are your thoughts on gold? Do you still think there's room to run? Or have we kind of like, are we at the tail end of this cycle?
- [24:42]
B
Yeah. So historically, for my team and our clients, we typically have a position of gold within client portfolios under the idea that we're smart people, but we're smart that we don't know what the future holds. And gold is one of those great investments that when bad things happen, you get caught with your pants up. So that's kind of how our thought is about with having gold. But In January of 2023, our team ramped up our position in gold, and that's worked clearly in our favor. We're still buying gold, but at a much smaller weight than what we once were. The difference today, and I was in your camp for a while and then became a Believer over time. The difference I think today is that the Chinese do look like they're trying to make an attempt to get away from the dollar. And the Chinese are a central bank that has been the largest buyer. It looks to be the largest buyer of gold. And post, the. One of the unintended consequences post the Russian war with Ukraine and the US Shutting the Russians off from the global monetary system is that it allowed for more experimentation to trade globally in non US Dollars. So the Chinese are like, look, the Russians like, I have all this oil, what am I gonna do with it? Chinese like, I'll buy it from you, but you got to take my currency because I can't trade you in dollars. And the Indians said, well, I'll buy your oil in rupees, right? You just take the rupees and then the Russians will take on the, the currency risk. And the Chinese basically said themselves, well, if the US can shut off the Russians from the global economy, what maybe they could do that to us. And you could see like the sort of contingency plan, you know, so that's sort of one thing. I think another demand side of the equation here is the build out of stablecoins. You know, it looks like tether and some of these issuers of stablecoins are buying gold just in case or as potentially another backstop to a digital currency than just the US dollar. You know, you're seeing some data. It looks like tether specifically seems to be out there buying gold as well. So you actually have demand supporting some of this gold. Now, there are other reasons why gold has gone higher. One is if you're fearful of the US debt situation and you think the US is going to have to print so much money to get ourselves out of the debt situation, well, then you want to own a hard asset retail, much like yourself. If you feel like you missed the gold trade, you're going to buy, right? I want to be a part of it. There's been a gap, you know, between bitcoin and gold. You know, for the longest time, the bitcoin story was, well, it's the digital gold. Well, look at, look at the divergence in performance, particularly over the past six months where bitcoin has, has really sold off hard and gold has rallied. So that's kind of dispelled a bit of that myth in the short term. So there's a lot going on there. And to your point, trying to value gold is really hard. It doesn't kick off any cash flow, doesn't throw any dividends. So you have these narratives that go around, and it's more of a, you're more scared than I am, so you'll pay more for my gold than I. Than I will. Right. That's a lot of what's going on.
- [28:03]
A
Yeah, it's definitely gotten my attention as someone who's ignored it historically. And I think a lot of retail investors as well, a lot of our audience as well, they ask about gold all the time. It's really gotten our attention, and I started to take it seriously now. And you mentioned bitcoin. I mean, bitcoin was supposed to be digital gold. Gold ended up being gold. You know what I'm saying? So, like, the bitcoin story is a totally different thing. Maybe we'll have to ask you about a bitcoin bitcoin topic next time you come on. I know we're running out of time here, so, John, I really appreciate it. Thank you so much. This was a great conversation and hopefully we'll have you back on soon.
- [28:34]
B
Absolutely. Thanks for having me on. I appreciate it.
- [28:36]
A
Appreciate it. Thank you so much. Well, all right, guys, hope you enjoyed that conversation with John Petrides. You know, I'm really curious to see if the rotation into value stocks continues and. And if so, for how long? Like, will this just be for a few months or will this be the theme for the next two to three years? Let me know what you guys think. Leave a comment on Spotify or YouTube and while you're at it, hit us with a five star rating on wherever you listen to this podcast. And all that engagement really does help us out and it helps other people find the show. Thank you guys so much for listening, watching, and commenting. Shout out to Mike and Connor for all the work behind the scenes and we'll see you guys back here tomorrow.