David: The online question and answer will be difficult for us to maintain, so I have about 20 different questions that were submitted by all of you ahead of time. Thank you for that. We will cover those at the tail end.
I’ll enter the call today and then Doug will take and run with the baton and then we will both come back and finish with the Q&A. If you have a question that comes up I would encourage you to jot it down at any point in our remarks and feel free to send it in to [email protected]. Rather than use the online portal Ted can run that over to me and we will do our best to answer those, not in real time, but with a few minutes delay. So if you do have questions that you would like to submit, again, [email protected] will look for those messages and get them over to me.
I want to thank you for jumping on this afternoon’s call, and a special thank you to our valued account holders. We greatly value our client relationships and appreciate your questions, your partnership in this endeavor, and we hope to bring some clarity to the market dynamics that are afoot, and look forward to our time today.
Since we have a number of first-time listeners on today’s call I want to begin with some general information and that will help you. For those of you who are unfamiliar with the Tactical Short we are a noncorrelated offering, both of those with Doug Noland at the helm. More detailed information if you would like it is available at mwealthm.com/tactical short.
What is the objective? The objective of Tactical Short is to provide a professionally managed product that reduces overall risk in a client’s total investment portfolio. We want to do this while providing downside protection in a global MAC drop which is extraordinary, and we think that the amount of uncertainty and extreme risk in the marketplace today is absolutely fascinating, but also something that warrants a product like Tactical Short at this point in the market cycle.
The strategy is designed for separately managed accounts and we have designed this to be as investor friendly as possible, so you have full transparence in the account – flexibility. You have the ability to, if you need to get liquid and utilize those assets elsewhere. There are no lockups. Our fees we have put very reasonably. We have tried to design as much flexibility as possible for this to be something that is value-added for a client in any market cycle where you want to make sure that you have a little extra insurance, something to ride alongside, perhaps, an existing portfolio and provide an added layer of protection.
What will we do? We will short securities, we will short stocks, ETFs. We will also, on occasion, buy liquid lifted put options. These would all fit into our tool box. Shorting is an approach to the market which entails unique risks, and we are set apart from anyone else on Wall Street in this regard, by our analytical framework, and by our uncompromising focus on identifying and managing risk.
We tactically adjust our sort exposure and we expect to generally target an exposure between 50% and 100% short. Our current exposure is 50% of account equity, with the market close to record highs in the face of deteriorating fundamentals we see extreme market downside risk. For account holders this does represent opportunity, or again, warrant the reason why you are working with us to eliminate risk elsewhere in your portfolio. But we know better than to try to predict the market and fully expect in the timeframe ahead an ongoing extraordinary environment with elevated risk on the sort side. So we want to manage that risk with great diligence.
Our Tactical Short strategy began the quarter with a targeted short exposure of 65% with financial conditions loosening. Exposure was reduced to 61% by the end of October, and as risk markets gained momentum on the view that trade negotiations were bearing fruit short exposure was further cut to 54% in November. By year-end exposure was reduced to the bottom end of that typical 50-100% short exposure range.
As always, we don’t recommend placing aggressive bets against the stock market, but we believe the risk of a market accident is quite high. Doug will talk about that, covering the myriad risks that are in the market today, but the evidences that we have of speculative bubbles looking at the market structures, its weaknesses, as well as some of the vulnerabilities both from an economic and geopolitical standpoint. All of those things in total demand a disciplined approach to risk management.
We highlight this key point during every call, and so for those of you who are joining us for the first time, our view is that remaining 100% short all the time, and that is what most short products are structured to do, is categorically risk indifference, unacceptable in our view. Risk indifference may for now be rewarded on the long side, as markets melt up there is an awful lot of risk indifference in the marketplace. But on the short side risk indifference doesn’t work. So occasionally it can be disastrous. 2019 and especially the 4th quarter, was one of those occasions when risk indifference on the short side proved quite costly.
We will share some comparisons in terms of performance, how we did managing that risk with some of our competitors who don’t pay as much attention there, and it showed. So we structure Tactical Short to ensure the flexibility to navigate through even the most challenging market conditions. 2019 was all of that. So let me share with you performance, and then we will pass the baton to Doug.
Updating performance Tactical Short accounts after fees declined 5.01% during Q4. The S&P returned a positive 9.06% for the quarter. Tactical Short accounts, if you are comparing our losses to the S&P’s gains, it was basically 55.4% of the S&P’s returns. That’s what we lost, 55.3% of the S&P 500’s positive return.
As for the full-year 2019 performance, Tactical Short after fees returned a negative 16.39% versus 31.48% positive return for the S&P 500. So for the year, Tactical Short lost 52% of the S&P 500’s total return. We regularly track our performance versus three actively managed short fund competitors. First is Grizzly Short Fund which returned a -12% during the 4th quarter, and for the full year Grizzly returned a negative 29.42%. Ranger Equity Bear Fund return a -18% during Q4 and a -36.28% for 2019. Federated Prudent Bear in the 4th quarter posted a loss of 6.59% with a 2019 return of -19.96. It is worth noting that Ranger Equity Bear Fund lost more than 200% of the S&P 500’s return for the quarter. On average for the quarter those three funds lost 136% of the S&P 500 return versus Tactical Short’s 55%.
Tactical Short significantly outperformed each of the three bear funds, both for the quarter and the year. For Q4 Tactical Short, on average, outperformed by 736 basis points, and looking at the full year, Tactical Short, on average, outperformed by 1216 basis points, again for the full year. Going to inception, since its April 7, 2017 inception through the end of the year, Tactical Short has returned -17.55% versus the positive 44.61% return for the S&P 500. While on average, outperforming all three competitors by 1969 basis points.
Doug, I would like to pass the baton to you and have you bring us into market dynamics and the macro environment.
Doug: Thanks, David. Happy New Year, everyone. I’m sitting here watching this little message flashing across here and I have communication issues so I apologize in advance if this doesn’t go as smoothly as we would like. We very much appreciate having all of you with us today. This is such a fascinating environment and I always look forward to the opportunity to discuss Tactical Short, hopefully shedding some light on our investment process, our analytical framework, and wat sets us apart from the other bear products, as well as shine thoughts on this extraordinary macro environment.
So let’s begin with performance, and what can I say? That was one brutal quarter and year on the short side, a real gut punch, I’ll call it that. I have yet to see performance numbers for the short only hedge funds. That category may no longer exist. I read that well known bearish hedge fund, Horseman Global, dropped 35% in 2019.
During Q3’s call, when discussing Tactical Short’s underperformance versus our three competitor funds, I explained that our risk disciplines dictated that we remain cautiously positioned in our default short in the S&P 500 index, specifically avoiding shorts in individual company stocks and sectors in the broader market. We believed that the market faced major downside risk and there were clear potential catalysts and that includes a trade war with China and the repo market instability that erupted in September. But at the same time our indicators were flashing a warning that we were not going to disregard. It was an extraordinarily high-risk market backdrop on the sort side.
Our default position in such a high-risk backdrop is to hunker down, short the S&P 500. Adherent to our mandate of providing a market hedge but only within well-defined risk parameters. Our objective was not to see how much we could make for investors, how aggressively we could position or how quickly we might recover previous losses. Instead, we were compelled to err on the side of caution, focused on limiting potential losses, as our process dictates. Even in high-risk environments there will be periods when the S&P 500 outperforms the broader market, as was the case during Q3, and my focus has been on gauging the likelihood of a particularly problematic scenario of a market rally, short squeeze, derivatives related buying, and resulting upside dislocation. Such outcomes inflict agonizing losses on the short side. And that is exactly what unfolded during the 4th quarter, unfortunately.
I want to stay on this point. One of our competitors lost more than twice as much as the S&P 500’s return during the quarter, and a second lost 134%. I would argue that when it comes to these types of painful short squeezes, it is not an issue of if they are going to happen, but when. It is a paramount risk that is ignored at investors’ peril. Over the years I have often fielded these kinds of questions. “Doug, this stock or sector has gone up so much. Why isn’t now a great time to short?” Or, “The market is over-valued, PE ratio is extended. Why aren’t you aggressively short?” And there is the question I have fielded previously during these quarterly calls. “Doug, why are you reducing short exposure when the market is moving higher? Isn’t a rally an opportunity to boost exposure and profit from market excess?”
Well, these reasonable questions pose a challenge to answer, as intuitively it makes sense to short rallies, and reduce short positions during pullbacks – sell high and buy low. But the dilemma is that these short squeezes and speculative blow off episodes tend to occur after the market has experienced a period of momentum. Even more challenging, they also regularly unfold even as underlying fundamentals are deteriorating. I have witnessed this dynamic throughout my career. I have scars to prove it. And it repeated itself during the 4th quarter.
While we employ investment analysis and adhere to disciplined investment processes, when it comes to managing short exposure we view the endeavor as more akin to professional speculation, and as I have done in the past, I will share a gambling analogy. Imagine if you were sitting around a poker table and a couple of fortunate players have accumulated big piles of chips. You had better anticipate that they will now assert their financial advantage to dictate the size of the bets and the character of the game. You had best be prepared for more bluffing and horseplay.
If you choose to just sit there at the table, stare at your cards, and play as if it is a routine and fair competition, this disregard for game dynamics places you at a huge disadvantage. Our risk discipline is to get more defensive when the market is going against us. We don’t want to see a market turn increasingly speculative, because speculative bubbles tend to take on lives of their own, while creating a live uncertainty. I’ve lived through it. Rallies and short squeezes can evolve into manic episodes of market dislocation. That is Q4 in a nutshell.
Tesla is one of the most actively heavily shorted stocks in the marketplace, and it surged 73.7% for the quarter. Advanced Micro jumped 58, Tiffany 44, Invidia 35 and Apple 31 – those are just examples, and those were all highly liquid big caps. Prices for 40 members of the small cap Russell 2000 index at least doubled during the quarter, many with notable short positions. NYSE ARCA biotechnology Index surged 20.3% during Q4, the Philadelphia semiconductor index 19.2, and the Philadelphia oil services index 20.3.
Most of these outperforming stocks in sectors that I mentioned had significant short interests, to highlight Tesla. Tesla stock began the quarter at 241.00 with short interest at 36 million shares. By the end of the quarter the stock was up 177 points and the sort position was down to 26.3 million shares, with sort interest averaging about 31 million shares during the quarter the last in this short position surpassed 5.5 billion. It gets worse. The stock then began 2020 by surging another 170 points, pushing the last on the short to 10 billion. That is the bloodiest short squeeze I can recall.
Many of the best short analysts in the business have been short Tesla. And in a more normal market environment the company could have very well been a bankruptcy candidate. But this is an abnormal period of extremely loose financial conditions and Tesla achieved a market capitalization of 106 billion dollars. It’s 5.3% coupon bonds return in 2025 that were trading at 80 cents on the dollar in May are back above par. I don’t like the risk versus reward calculus of shorting individual company stocks when financial conditions are this loose.
Moreover, the risk of shorting financially weak companies with negative cash flows and unsound balance sheets in an unstable macro backdrop can be extreme. Why? Because only in such a backdrop would you see aggressive monetary stimulus in the face of a highly speculative market environment, with resulting intense short squeezes. And once the short community is impaired with heavy losses in a squeeze, contagion takes hold and the entire short stock universe turns problematic.
Over my career I have likened this circumstance to walking through a mine field. You just don’t know when you are going to get hit. Tesla is the poster child of a company that has feasted on ultra-easy finance, in the process trading invulnerability to any tightening of financial conditions. Understandably, this fragility attracted a huge short position with the Fed’s 2019 rate U-turn and the aggressive 4th quarter QE program incited a dramatic loosening of financial conditions. Resulting panic-buying short squeezes erupted in shares of Tesla and others. And to be sure, there is no faster way to make money in the markets than squeezing susceptible shorts, and a highly speculative marketplace eagerly pounced.
Monetary stimulus insured dramatic outperformance by the fundamentally suspect stocks in sectors playing an integral role in stocking a crazily speculative market environment. All risk focused approach, the risk of Tesla-like short positions is much too high. Throughout most of my career, though, I really didn’t have much of a choice. We had to maintain a portfolio of individual company shorts. For Tactical Short I was determined to have the flexibility to avoid shorting stocks in unfavorable environments. After all, the primary defense on the short side for surviving an equities melt-up is to avoid getting caught in squeezes.
Over the years I have had many conversations where I explained my philosophy of adjusting the level and composition of short exposure based on the risk-reward calculus in the marketplace. Increasing short exposure beta when the environment was more favorable for shorting and reducing exposure when less favorable. I would contrast my approach to other short products that were either always 100% short or exclusively short individual company stocks. Often I would get the same response. “What you are saying seems rather obvious, Doug. Why don’t others manage this way?”
The reality is that it is a whole lot easier to just keep your short exposure rather constant. It is easier from a marketing standpoint to stick with the shorting stock story employing so-called forensic accounting to successfully identify short candidates. Even in an up-market every year there are plenty of stocks that go down. It’s just a matter of shorting the right stocks, isn’t it? Well, those that focus on shorting stocks are understandably hesitant to admit that there are times, and sometimes protracted periods, and we have been witnessing it, when shorting company stocks just doesn’t work.
There is also the issue of adjusting short exposure. You decided to adjust your exposure based on market risk versus reward. What is your analytical framework and investment process for establishing and then recalibrating the level of short exposure? And what is the framework and process for adjusting the composition of short exposure? These questions get to the heart of a great challenge I have been pursuing now for three decades.
Trust me, I have lots of hard lessons learned the hard way in incredible market environments and all providing invaluable experience. I have come to believe compassionately, with a lot of compassion, that top-down analysis of financial conditions and market dynamics is critical on the sort side. Discipline, patience and determination are fundamental. Keep a tight rein on risk.
So let’s delve a little into financial condition analysis. In this regard, 2019 was historic. Recall that the year began with expectations for Federal Reserve rate and balance sheet normalization. But the Powell Fed did an abrupt U-turn on policy that saw three rates cuts during the year. It is worth noting something unique. These cuts came with stock prices at record highs and the unemployment rate near 50-year lows. Normalization of the Fed’s balance sheet face a similarly dramatic U-turn in September following eruption of repo market instability.
Federal Reserve credit expanded 400 billion dollars in less than four months as the Fed’s balance sheet inflated back about 4.1 trillion. Aggressive monetary stimulus was administered in the midst of rapid money and credit growth. M2 money supply surged 1.024 trillion or 7.1% in 2019, easily surpassing 2016’s record 880 billion expansion. Moreover, M2 growth accelerated to an 8.6% pace during Q4. Institution money fund assets, and these are not included in M2, jumped 407 billion, or about 22% last year, in what was the strongest money market fund expansion since 2007.
In a year of strong overall credit expansion, total third quarter U.S. credit growth surpassed 1 trillion dollars, and that is for the quarter, the strongest quarterly gain since Q4 2007. But officials and other central bankers refer to insurance, rate cuts and monetary stimulus. I believe this will go down as one of the most dangerously misguided policy moves in history. Instead of removing the punchbowl, or even leaning against the wind, central banks have aggressively administered stimulus during what I refer to as the terminal phase of late cycle bubble excess.
As we say, things get crazy at the end of cycles. This has turned insanely crazy. The upshot has been acute monetary disorder manifesting across asset markets, and that’s at home and abroad. FOMO – fear of missing out – the “everything” rally. Don’t ask why, pay no heed to risk and just buy. I am convinced we are late in the culmination phase of an historic multi-decade global financial bubble. I look at 2019 developments and see nothing but corroboration of the bubble thesis.
And importantly, at this critical juncture, there is a thin line between a faltering bubble and a policy-induced rip-roaring speculative blow-off. 2019 experienced a historic melt-up in global sovereign debt markets and over the summer saw an unbelievable 17 trillion of negative yielding bonds. Ten-year treasury yields traded as low as 1.46% as the yield curve inverted, German bund yields collapsed all the way to negative, 0.71%, with Swiss bonds down to a -1.12%. The world had never experienced anything like it ever.
The year then ended with a risk market speculative melt-up. equities, as well as corporate credit and derivatives. As we have already discussed, equities surged to all-time highs and a major short squeeze unleashed intense speculative excess. In corporate credit, credit spreads nearer to multi-year lows, major default swap indices saw prices sink to lows going back to 2007 and that is both for investment grade and high-yield. After trading as high as 131 basis points on January 3, 2019, Goldman-Sachs CDS closed last week at 46 basis points, the lowest since September of 2007, and after recurring spikes throughout the year and the VIX equities volatility index dropped down below 12.
My mosaic of financial conditions indicators has been signaling risk-on liquidity abundance, and that has been guiding our cautious approach with short exposure. Financial conditions this loose are conducive to speculative melt-ups. In such an extraordinary environment it is imperative to avoid stocks with significant short positions, higher beta sectors, and momentum in general. We took short exposure down to the bottom of our typical 50-100% range of short exposure. Because of the extreme degree of downside market risk I hesitated taking exposure much lower.
During October’s call I spoke of what I believed was an unfolding excellent put option buying opportunity. Fortunately, we went through yet another quarter without option purchases. We were nothing, if not disciplined and patient, waiting for a more favorable environment. Melt-ups are a dangerous market dynamic, first for those on the short side, and later, for the overall market.
By their nature, speculative blow-offs create acute vulnerability. A final euphoric outburst ensures excessive underlying speculative leverage. Trend-following money floods into the ETF complex, derivative markets malfunction spurring self-reinforcing buying to the upside. Price momentum becomes unsustainable in this process, setting the stage for an inevitable reversal triggering de-risking, de-leveraging dynamics. Derivatives then risk malfunctioning to the downside.
Some degree of market illiquidity is unavoidable, but from a policy standpoint, progressively powerful policy responses are required to suppress panic in prices and that is where we begin 2020. They’ve really gone and done it this time. I can confidently state that global central banks are inescapably trapped by bubble markets. Myriad indicators from stock prices, corporate credit spreads, CDS, and equities option prices all seemingly signal an extraordinarily low risk environment, but we would argue that monetary disorder has grossly distorted the markets.
Over the past year, in particular, extreme price distortions have come to pervade global securities and derivative markets. In a replay of 2007 the risk markets disregard the possibility of a bursting bubble. Instead, focused more so than ever on the inevitability of central bank actions to afford escalating systemic risks. The probability for a financial accident in 2020 is unusually high. Today’s degree of distortion and excess is difficult to sustain. It was no coincidence U.S. repo market instability unfolded following the reversal of market yields after the summer speculative blow-off.
It is also worth noting the problems that afflicted WeWork, some of the other unicorns and the IPO marketplace more generally. There are scores of negative cash flow and loss making business that owe their existence to ultra-loose financial conditions. I would argue these companies and related industries have come to comprise a meaningful share of U.S. economic growth. You can call it tech bubble 2.0, or an even greater technology arms race, but the current boom greatly dwarfs late 1990s excesses.
In the not-too-distant past we have experienced two bursting bubble episodes that saw abrupt destabilization in the market liquidity backdrop with major ramifications for company, industry, and economic prospects. Scores of companies went bust when finance tightened between 2000 and 2002. When mortgage credit growth collapsed in 2009 the broader economy fell into a tailspin. With financial conditions currently ina_00:34:23_ perceived wealth having inflated so dramatically, I expect maladjusted U.S. and global economies to keep chugging along – for now.
In particular, U.S. housing has attained significant momentum. However, bubble economies grow progressively vulnerable to market and liquidity shocks. Fragile U.S. and global systems are today acutely susceptible to any tightening of financial conditions and that is precisely why markets are today priced in anticipation of unrelenting central bank support. The year is young, yet the risk backdrop has already shown itself. The U.S. assassination of (inaudible) _00:35:11_ Soleimani, and Iran’s response, has the clear potential to escalate into a major geopolitical crisis. Markets did recover quickly, but the S&P 500 futures were down about 2% in overnight trading on initial fears of escalation.
It might be a very different market environment today had Iran’s retaliation against U.S. forces ended in American casualties. Geopolitical risks have escalated further since our last quarterly call, and while the U.S. and China cobbled together a Phase I trade deal many analysts see this as little more than a temporary truce in an unfolding battle for global superpower dominance. I believe the odds of further confrontation with China are high and that is trade, Huawei, Hong Kong, Taiwan, the South China Sea, and so on. Beijing responded aggressively to bubble fragilities in 2019.
After finally moving in 2018 to reign in excess, Chinese policy-makers last year orchestrated their own U-turn, compelled once again to hit the accelerator as their economy faltered and banking system wavered, right in the face of a deepening U.S. trade war. China’s broad measure of credit expanded a record 3.7 trillion in 2019, another year of compounding double-digit credit grown, even as their economy down-shifted. Systemic risk continues to rise exponentially with accelerated expansion of increasingly unsound credit. Both China’s massive banking system and maladjusted economy became only more vulnerable over the past year.
In particular, I would add that last year’s stimulus measures ensure only more problematic Chinese mortgage and housing bubbles, along with perilous resource misallocation and deep structural maladjustment. I have my doubts China will make it through 2020 without a bout of financial instability. The country’s small banking sector suffered liquidity issues in 2019 and I would expect similar fragility to begin spreading from the periphery to the core of Chinese finance. Let’s hope this Corona virus proves to be no big deal, but it is an example of how any development that puts China’s fragile system at risk will quickly become a global market concern.
China is one of the more obvious examples of the current era’s interplay between bubble fragility and geopolitics. I have long feared that Beijing would respond to a bursting bubble in a geopolitical context, seeking scapegoats, villains, distractions, and nationalism. The odds of a crisis involving Taiwan are rising. In the meantime, Beijing faces quite a balancing act. There is never a convenient time to deflate a bubble. And now would certainly be an inopportune timing for China. Yet officials recognize the escalating risks associated with protracted credit excess and an inflating housing bubble. The credit and liquidity flood gates that were flung open in 2019 will need to be addressed, and that is in China and around the globe.
I believe the Fed’s repo market operations have been especially dangerous. A decade of extraordinarily loose global monetary policy ensures unprecedented speculative leverage has accumulated around the globe. I just don’t believe it is a coincidence that repo market instability in the U.S. soon followed money market liquidity issues in China. Over this protracted cycle global markets have become intricately interconnected, with securities, finance, speculative leverage, and derivative markets evolving into one unified and highly leveraged speculative bubble.
Global repo markets, carry trade, (inaudible) _00:39:58_s/l FX swaps and speculative leveraging, more generally, evolved into a major source of liquidity creation for the markets and the global economy overall. How much essentially free finance originated in Japan, Switzerland, or the Eurozone, to speculate in higher-yielding securities in China, the U.S., and the emerging markets? How large of a role have the so-called offshore financial centers played in the liquidity onslaught stoking security market bubbles around the globe? Over the past year there have been hints of the scope of latent fragilities reminiscent of 2007, as well as 1929.
It poses grave systemic risk when speculative leverage becomes a major source of liquidity driving asset markets and real economies. During the up-cycle, it progressively fuels dangerous self-reinforcing financial excess and unsustainable investment in spending dynamics. Over time, market and economic structures hinge on liquidity abundance and inflated asset prices, but at some point, speculative flows reverse, finance tightens, risk aversion sets in, and bubbles falter. Importantly, de-risking, de-leveraging dynamics lead to a cycle of waning liquidity, fragility, fear, market dislocation, and crisis.
The consensus view holds that with 2020 being an election year, financial, economic, and geopolitical crises will surely be held at bay. Well, I wouldn’t bet on it. I view Federal Reserve operations as only inflaming financial leveraging and speculative excess more generally. I believed highly levered global bond and fixed income derivative markets are vulnerable to a surprising jump in yields. The scope of flows into fixed the fixed income ETF universe at this late stage cycle is deeply alarming, only further boosting the risk of an abrupt reversal of flows and liquidity crisis.
I ponder the scope of leverage that has accumulated in higher-yielding Chinese credit and EM debt. In no way do I believe today’s ultra-loose global financial conditions are sustainable. There are today myriad potential catalysts, and since it is such a big election year, I will end with a final related thought. The president is vulnerable, a vulnerability that would increase in the event of market, economic, or climate shock. Booming markets currently envisage a second Trump term, but things turn dicey if a geopolitical development, market disruption, or some political drama throw the election into disarray. Abruptly, the pro-market Trump candidacy would be weakened, boosting the odds for the Democrat, potentially, an anti-market nominee.
Markets are today highly confident in a pro-market outcome in November, but there is this scenario where the diametrically opposed unfolds. Similarly, markets are widely anticipating a year of risk-on liquidity abundance. Of course, central bankers have everything well under control. As well, there is a distinct possibility for the opposite end of the spectrum – risk-off, de-risking, de-leveraging, and resulting illiquidity that I view is unavoidable at this point. 2020 is poised to be a fascinating, fascinating year of challenges and opportunities. We are determined to work very hard in monitoring the markets, analyzing developments and implementing our investment process. As always, we will be disciplined, patient, and determined.
David, back to you.
David: Thank you, Doug. When you mentioned 2007 and 2029 and (inaudible) _00:44:45_ being comparable to what we see developing today, I think it is worth remembering some of the valuation metrics which give us a measure connecting these points in time. Currently, price-to-sales, if you’re looking at the market on that metric, the stock market has never been higher. If you look at the Shiller PE, the Cyclically Adjusted Price Earnings ratio, a ten-year average, which takes up some of the games that (inaudible) _00:45:15_ we can play, moving earnings up and down so they can trigger remuneration packages, if you look at the Cyclically Adjusted PE, 34.5 a year, the second most expensive market in all of history, with the year 2000 on that metric being one step above. And so it is an interesting market environment to be managing risk, and to be sort of counting the days.
We have some questions here and I want to get right to those in respect for everyone’s time, but Doug, we hadn’t really talked about valuations in our comments yet, and depending on the metric that you wanted to look at, we are either at or near the most expensive financial markets in all of U.S. financial history. It is very interesting to watch capital flows and investor dollars go in on sort of a lemming’s parade basis – what worked in 2019 is bound to work in 2020. That seems to be the drumbeat and the rhythm that the lemmings are following.
The first question, Doug, to you, is this:
What to do with a mountain of cash which is presently sitting in money markets – T-bills and two-year floating rate notes?
Doug: Ray Dalio’s “cash is trash” comment notwithstanding, I personally believe the case for holding cash today is the strongest in my 30 years of following the markets, especially the traditional balanced equities and bond portfolio. It is especially unappealing to me today. Risk if much too high considering reward opportunities. I would make one exception, and that would be in the area of investing in hard assets. I believe because of the market and policy setup there is a strong case for an allocation to stocks of companies that should benefit over the long-term for long going central bank stimulus. So I remain a big fan of the precious metals. I have said before that I expect the Fed’s balance sheet to inflate to 10 trillion during the next crisis and such a scenario should support hard assets.
David: Next question. I’ll let you stay on this roll:
What is happening with QE and Fed injections into the market?
Doug: There is a lot of it. As I discussed earlier, I think they are throwing fuel on history’s greatest financial bubble, and that’s not a good place to be. The expansion of Federal Reserve credit creates new liquidity in the marketplace and in the repo market support operations they have been injecting liquidity directly into the lending markets where it is then used to finance security holdings and the Fed has also been buying treasury bills where they use newly created money for these purchases. And this liquidity is just sloshing around the system, directly and indirectly inflating asset markets. These booming securities markets then reverberate through the real economy.
But there is another kind of crucial consequence of these operations that may be subtle, but probably more consequential. The market views these operations as confirmation that the Fed will not tolerate any threat to the markets, and that the Fed employed these aggressive monetary stimuli in the face of record stock prices and economic resilience. That was taken by the markets as a signal that the central bank support for the markets has gone to a whole new level. Stimulus will now be applied to ensure risk aversion as little opportunity to gain any momentum at all. This is really dangerous. Why not take on more risk and leverage if the Fed’s support operations are posed to come early and aggressively to ward off any fledgling instability?
So these operations have had a major impact on the pricing of all types of derivative instruments and that includes various kinds of market hedges and insurance, and the resulting cheap insurance only further incentivizes the marketplace to load up on additional risk. So very, very dangerous operations here.
David: I’m just going to play devil’s advocate with you a little bit, Doug. Neil Kashkari, who is with the Fed, said in the last week to ten days that he just doesn’t see the connection between sub liquidity and an impact in asset prices. Is that possible that the Fed really does not connect those dots?
Doug: I don’t believe so. They had the fear of God again at the end of 2018, very early 2019 of this de-risking, de-leveraging, this unwind of leverage and almost immediate market illiquidity. And they acted aggressively to ensure that that scenario didn’t unfold. So I have a hard time believing that they don’t have a pretty good idea of the amount of leverage and their impact on leverage speculation at this point.
David: I just thought maybe somebody coming from Goldman and then going to work for the Fed may have more divine insight into market dynamics (laughs). Anyway, the next question:
Can you explain how modern monetary theory plays out in the current market and how that acronym, MMT, will be affected when or if recession hits?
Doug: MMT essentially sees money as the domain of the state. I’m simplifying here but so long as consumer price inflation is relatively well-contained, Modern Monetary Theory adherence, they believe the state can spend as much money as it wants. Why not provide free health care and education to its citizens. Since the state has power to print new money, I guess the state will never default. And especially in today’s environment where central banks are willing and able to print trillions, it really does seem as if the state has firm control and command over the monetary system. I am no fan at all.
I see MMT as little more than a sophisticated theory of inflationism. It is part of this bubble. In the old days they called it monetary quackery. It’s just the way to spout an inflationism that has poisoned humanity for centuries. One of the fundamental flaws I see in this theory is that contemporary money is actually not the domain of the state. Temporary money and moneyness are more within the purview of the financial markets. It is a product of market perceptions. Finance has become so much market-based, and that is the repo market, the money markets, government debt markets, corporate credit, derivatives and equities.
The monetary system depends on market confidence much more than fiscal spending and deficits. And sure, these big fiscal deficits, aggressive monetary stimulus, they have to at this point sustain confidence in the financial structure. However, I see this confidence as increasingly fragile and reckless fiscal monetary stimulus will prove self-defeating. This stimulus is fomenting enormous issuance of financial instruments and dangerous speculative excess. You see it everywhere, and I believe all this excess makes a crisis of confidence unavoidable, and that is a crisis of confidence in the markets, market structure, but more generally and importantly, policy-making.
So I expect this notion of central bank money-printing and market manipulation, MMT. I think it is all going to be discredited, which will change a lot of things in the markets and economy that a flaw in MMT boils down, in my view, to the attributes of money as a medium of exchange and store of value. These deficits and financial excess invariably weaken money’s capacity to act as that critical store of value. Sound money and credit come with enormous costs. Sorry to get going there on MMT.
David: But it is the evolution of our concept of money, where we had a very clear concept in the 1920s and 1930s. It began to change and shift into a quasi-gold standard under Bretton Woods. And at some point we began to lose the idea of money as specie and credits began to substitute as money in the market. So a part of the weakness in Modern Monetary Theory and the idea that you can continue to spend as much as you want or create as much credit as you want is there is something in that mix that is not controllable.
And you hit the nail on the head. You have market perception. So as long as it remains valid and acceptable, that’s fine. But when there is any degree of repudiation, then you see corrective action taken by market participants. That is where interest rates rise, the value of assets decline. And then all of a sudden the real cost of Modern Monetary Theory is laid bare. It is not a one-way street. It is not just spend as much as you want. So yes, the theory of inflationism.
This is the next question for you:
What happens if central bankers continue to inject money into the market? Will the end of the current cycle be a global recession? If so, how bad will it be?
Doug: I’ve been closely following developments now for 30 years, and from my analytical perspective, David, this has followed the worst case scenario – recurring bigger bubbles followed by ever-more egregious rounds of monetary inflation. I wish we could somehow get away with such protracted excess with merely a global recession. I just fear it will be worse – much worse. I see a reasonable probability for a globalized seizing up of market liquidity.
I worry a lot about the type of crisis that awaits China. I worry about geopolitical ramifications. I worry about the emerging markets and recall the social catastrophe that unfolded with the collapse of the Asian Tiger bubbles back in 1987. Booms in China and the emerging markets were the locomotive off-setting U.S. downturn after the previous crisis, and now we’re in this globalized bubble backdrop which risks an unusually synchronized global downturn. I’m not going to use the word recession for it, it’s going to be much worse.
I also warn that this bubble has gone to the heart of global finance. It’s central bank credit, sovereign debt. This also points to a much greater degree of risks out there. Central banks at this point have limited capacity to counteract a crisis other than to employ enormous QE programs that I believe come with great unappreciated risks. If the marketplace loses confidence in the capacity of central banks to backstop the markets we will find ourselves in really dangerous, uncharted waters. I think a lot of misguided, reckless activities will come home to roost. As I often comment, I sure hope things are not as dire as I suspect they are.
David: Doug, in one of your recent Credit Bubble Bulletins you made mention of a book written many years ago, When Money Dies. One of the things the author points to is the social implications. You were describing the Asian Tigers and there being social catastrophe which came in the wake of market seizure. I think this may be where the central planning community of central bankers and economists perhaps in general, understand the world fairly clearly through mathematical equations, formulas and theories.
They forget that there are social implications, not all of them positive, to getting the math wrong, or the equations not working out according to the assumptions that they were based on, or the formulas and theories, like Modern Monetary Theory, again just lacking an insight like you would find in the narrative that you find in a book like When Money Dies.
I think it is worth reflecting on change, not just in how it looks on a bank statement or a quarterly report of holdings – what is your current value – but what changes socially, what changes politically. Because as I listen to you, your primary concerns relate to people – not only the financial implications, but how it impacts our lives in society. I think that is important to keep a focus on.
The next question is a practical question. We may banter on this one back and forth:
What advice do you have for a married 35-year-old father of two young children who makes $65,000 to $90,000 a year?
I’m assuming this is financial advice (laughs). We’ll limit it to that.
Doug: Do we have to? (laughs) Because when I think about this question, the first thing I think about is, pay down as much debt as possible, and save as much as you can. But for me, again, the focus is on people and we’re going to have to focus on the quality of lives for ourselves and our families in a difficult environment. So my advice would be, enjoy every minute with your young children because they sure grow quickly. Take them biking, hiking, camping, and nurture their embrace of the joys of nature and the simple things of life. To me, that is what I think about when I read the question, David, but you can go ahead.
David: You’re right. What matters to you most and what matters to me most, that is a true commentary. In practical terms, on the financial side, I completely agree. Paying down as much debt as possible, saving as much as possible. John Templeton was asked that question by a young man in his 30s. “Here you are, Mr. Templeton, a very wealthy man. What is your advice for a young man?” His advice was to save at least 51%, and his comment was, “If the Chinese save 50, you should be saving at least 51%.” (laughs)
Maybe that’s a big number, or too big, but it gets to what you said – save a lot, pay down debt, and don’t ever let money become an obsession. Let it be a game, play it well, but let things that matter most in life – obsess about those. Time spent with your wife, time spent with your kids. Yes, I think that’s about right.
The next question:
Traditional market disciplines – a break in the U.S. dollar and/or rise in long rates don’t seem to work yet, and thus, we’re dealing with a developing exponential curve or melt-up. What other signals would you be watching for?
Doug: This is a great question. From my vantage point, and we have been discussing this, we are witnessing a unique market backdrop. The first aggressive monetary stimulus with markets at record highs. We shouldn’t expect things to be normal here. Back in 2007 we had some rate cuts in your eyes, but that was with interest rates of 5% and there was no QE in 2007. So we don’t have a reliable playbook to guide us here. For me, I will continue to monitor for initial signs of risk aversion, indications of de-risking, de-leveraging dynamics trying to take hold. There are myriad credit spreads, CDS prices. Currency market instability is something we will have to watch closely. We haven’t seen that. There might be some pent-up instability there, and that is especially in currencies where I suspect there are large carry trades, a lot of leverage.
All eyes on China, of course, and that is the Chinese currency, credit spreads, money-market liquidity indicators, corporate defaults. I will be monitoring Chinese and Asian financial indicators closely. Their financial institutions are vulnerable. EM yields, credit spreads, CDS – the offshore financial centers need to be monitored closely. This is another dynamic unique to this environment, I think. Here in the U.S. I would expect the periphery of high-yield finance, leveraged lending – that should provide early signs of risk aversion. We saw, certainly, hints of that last year.
We will closely monitor ETF loans , and that is fixed income and equities. There are certain leverage strategies in the hedge fund communities. I always kind of watch this to see if they are underperforming, which might give us a clue to some risk aversion, including the short ball strategies and the so-called all-weather strategies with leverage. As always, it is a mosaic of indicators. It is a mosaic, and then we kind of narrow our focus once it appears that things might be beginning to unfold. Certainly a surprising jump in market yields would be problematic, especially if it were accompanied by widening credit spreads, so, I will leave it at that.
David: A couple of things come to mind from this last year. Maybe one of the clearer signals, if you wanted to just say this is a very basic barometer, but gold is at new all-time highs in 6-10 currencies around the world, so although we are not seeing currency market instability vis-à-vis individual currencies, next to gold we are seeing some sort of a signal that there is discontent with remaining where they are in a migration to something more stable.
o back to the first question, where Doug, you were talking about hard assets. Ore other strategies, the M, the A, the PBS – that is the nature of what we are focusing on between real estate, global natural resources, precious metals, infrastructure. Keeping in mind two things – monetary policy extravagance, which we have had for a decade, and fiscal policy largesse, which we have yet to see how that is going to work in Europe.
We have a preview of things to come here in the U.S. – a trillion dollars is what the CBO says that we are on tap for each year in new deficits for the next decade. And if we find ourselves in a recession it could be twice or three times that number. Not that gold is a signal for all things, but it is a signal for some things, and the fact that we had a good year last year when stocks also had a good year, I don’t think it was performing as a risk asset. I think it was an indication that somebody gets it, and somebody is getting out of the way.
The next question is on exponential curves (laughs). Maybe this is the same person.
The exponential curves always go farther and last much longer than is ever rational. But when they break, the converse is true – far lower and for longer than anyone predicts.
Would you like to comment?
Doug: Yes. That is exactly the way it works. Over the years I have had this quote: “Bubbles go to unmentionable extremes, and double.” And at the same time I have referred to this as the granddaddy of all, global bubblesville, so why not go to unimaginable extremes and quadruple it, I guess? Things can take so long to materialize, but I also warn that after seemingly going to slow motion, suddenly the unwind can unfold with lightning speed. I am reminded of a quote I read years ago about the 1929 crash and the Great Depression. The quote was: “Everyone was prepared to hold their ground, but the ground gave way.”
And when I used to read accounts of the 1929 crash it always amazed me that almost no one saw it coming. I always said, “How could they have missed it?” Well, I understand the dynamic much better now. After a while, fear and attention to risk disappear. To prosper in these booming markets one has to disregard what are essentially major mounting risks, and that is the nature of the parabolic move that we are seeing.
David: Next question:
What do you think of the strategy of waiting until you have a major break in the market and initiate shorts on the first rebound, then placing stops at new highs. Missing the top by a fair amount doesn’t bother me.
Doug: Yes, sure. That’s a reasonable strategy. At the same time, it would have been a real challenge to execute in 2018. I expect when the market does reverse and lower, it will be abrupt and significant. My own experience has been that the market has a way of making it difficult to get positioned, where you just can’t sit back there and wait and say, “Okay, now is the perfect time, I’ll put my shorts on.” It’s generally a lot more difficult than that, and that’s a situation where lots of traders will be looking at the same levels and the market will tend to slice through those levels quickly.
So I would expect just a lot of volatility which makes hard stops a challenge. But I like the questioner’s thought process of being willing to miss the top and positioning short on the rebound with a stop. From a trading standpoint I share a similar approach, but if the market drops a quick 20%, which I think is possible, it makes placing that stop a more difficult proposition. You don’t want to place a stop 20% above your trade. But yes, that’s reasonable.
David: A couple of practical questions. I’ll go quickly through these.
How do you charge for your Tactical Short product? Is it C-based, or commission based? If you charge a percentage, what is it?
This goes back to the original comments I made about wanting this product to be accessible where we want transparency, we want our clients to have liquidity. We want it to be very investor friendly including reasonable fees. So although Doug’s talent is that in excess of a hedge fund manager, we’re not charging those fees. 1% per year is our fee and there is no performance bonus, it is just a simple 1% fee, and that’s on the assets under management charged, so a portion of that is charge quarterly in advance. So that is our fee structure.
The other question is also kind of practical-related.
How does your Tactical Short product compare to having funds in Fidelity or Vanguard?
Our custodian is Interactive Brokers. We have, and do work with, two custodians, Charles Schwab and Interactive brokers. Our trade platform with IB is fairly robust and we have liked that for Tactical Short. And the differences in terms of counter-party risk, I think, are better with an IB. There is a number of business ventures and means of profitability that Interactive Brokers have said no to, which at least Fidelity has said yes to, for instance, selling their order flow, and things of that nature. To be honest, I don’t know Vanguard’s position on selling order flow. TD Ameritrade made close to 400 million dollars last year selling their order flow.
So if you are ever wondering how does somebody make money if they don’t charge for transactions? Oh, there are lots of ways (laughs), lots of ways. So we do like who we custody with and Interactive Brokers has been a good partner in that regard. Having funds with them, you still have access to treasury, money markets and many of the things that you would want in terms of a support structure. Their IT is robust, their Help Desk is not, so our encouragement to clients is always to call us first, and we will be your advocates and get the work done for you. So where they have benefits, there are a few drawbacks and we try to fill those gaps with our own expenditure of time and energy.
The following two questions:
In question one on your online registration form, what is your definition of a portfolio of equities and other risk market positions. Would that include ETFs and mutual funds?
While it may include ETFs, the only mutual funds we would ever include would be like money-market mutual funds. Generally, we’re not interested in mutual funds, whether it is the Tactical Short program, or our MAPS strategies because you’re paying us to manage money and not delegate that to a mutual fund manager. Again, a cash alternative, like a money market, is a little bit different in its function and in the value-add. So other risk market positions – do you want to add to that, Doug?
Doug: No, I don’t have anything to add, David.
David: Question four of our online registration form:
What is your definition of a high net worth investor, and what do you mean by an accredited investor?
These are your standard definitions in terms of net worth in excess of a million dollars or income over $200,000. These are questions that we are curious about. They don’t represent a gate or barrier to entry in terms of Tactical Short. What we are interested in is where, either on the basis of speculation someone is interested in benefitting in market downside, or really, the primary category of investor who comes to us as someone who wants a market edge, and a reliable edge at that, where risk is managed. So just to clarify, and make sure that the question does not convey that we only work with high net worth investors, we want the right partnership with the right people. That is of paramount importance to us.
Doug: Next question:
If the equity market is so risky that you need to short it to protect yourself, why invest in it at all? Also, would the short strategy still apply if I only want to invest in conservative mutual funds with proven track records?
Doug, let me take the first part and maybe you can comment on the second, in terms of what constitutes a conservative mutual fund, and what is implied by a proven record from that fund’s performance.
There is a valid point here. If the equity markets are dangerous, can’t you move to cash? Absolutely. That is an option, and as Doug mentioned earlier, cash is not, in our opinion, trash. Cash in its many forms, whether it is reliable foreign currency exposures, or even gold as a substitute for cash, basically being out of the market and staying liquid to protect yourself is a valid approach. Investing in the Tactical Short, many plants have market exposures which they are not willing to get rid of, whether that is cost basis issues, or limitations because of the way a trust has been drafted, or in the case of institutions where there is a required or mandated percentage to equities, where they will have under all circumstances a percentage allocations to equities. But they are not necessarily interested in carrying all of the market risks.
That is where Tactical Short is a brilliant addition to the mix where you can maintain a growth portfolio, but mute the downside in terms of volatility, and provide for yourself an increase in liquidity in the context of a market downturn, which of course gives you greater firepower when it comes to allocating and adding to those equity positions. So it really just depends on if you want a simple approach – liquidity, cash or cash alternatives? I don’t object.
Doug, I guess I read into the second part of the question a little bit of extrapolation. If the conservative mutual fund has done well in the past, won’t it do well in the future? And on that basis, why not invest in those conservative mutual funds?
David: Right, David. A couple of thoughts come to mind here, and one is, I think some of the greatest excesses during this cycle have been in perceived lower risk securities, certainly in equities, corporate credit, etc. So I don’t think conservative is a safe have here at all. And the first thing I would do with any mutual fund that you believe is a conservative mutual fund with a proven record, go back and see how they did in 2008. How did they weather that storm? That might re-awaken people to the risk of some of these funds that you think are low risk.
Doug: Next question:
It seems like this bubble is not the traditional fear-of-missing-out bubble of the past where emotion-driven small investors are buying stocks, bonds, real estate, etc. It seems to be driven almost exclusively by corporate stock repurchases, for several reasons, and the Fed and central bank fueled policy initiatives. The average investor is not involved, to a large extent, directly, as he has been in past bubbles. With that assertion in mind, were and how does this end? Official policy is likely to continue fostering the environment, as far as the eye can see. What is the theory for a catalyst to the downside? Japan has kept it going for decades. Now it seems to be official central bank government policy worldwide. Thanks.
Doug: This is a great question. An interesting question. Every quarter I do an analysis of the Fed’s Z1 flow funds credit data for the Credit Bubble Bulletin, and I keep close tabs on the Fed’s household sector data and the data tells a little different story. The household sector currently owns about 30 trillion of equities, an all-time record high, and even as a percentage of GDP this exposure is approaching 140% of GDP which compares to about 100% in 2007, and 117% of the peak in Q1 2000. The household holdings of total financial assets – these can be all kinds of different fixed income funds, etc. – those assets are approaching 100 trillion dollars, or about 450% of GDP and this compares to 375 back in 2007, and 355 in early 2000.
So my analysis informs me that the American household sector has unprecedented exposure to the current financial bubble. I think it is kind of a myth that they are sitting back not participating. As the questioner suggested, some of today’s exposure could be less direct than in the past. There are huge balances of accumulated IRAs, retirement vehicles. Millions have these automatic payroll deductions to funnel savings right directly into the market.
So I think what makes this cycle especially dangerous is that is it across virtually all asset classes, and that is stocks, safe haven bonds, corporate credit derivatives – we’ve gone through the list, real estate, private businesses. This bubble permeates the entire system. Investors and policy-makers take comfort from not seeing crazy Internet stock bubbles or sub prime mortgage excess. Perhaps the small investor is not as active as previously. But I personally get a little tired of all these retail online brokerage and option trading commercials in the media.
Where does this end? What is the theory? I would strongly argue that bubbles eventually burst. Excesses grow until they become unsustainable. I dove into this analysis earlier. In my view, central bankers threw fuel on a highly speculative market, and these are unsustainable market dynamics that they have created, and the manic phase just can’t go on forever. There is too much optimism, leverage, these self-reinforcing flows. That’s why I argue that blow-offs are self-destructive. So what we are seeing now with marks going straight up – there are consequences to this, and none of them are good.
The question mentioned Japan. Well, things went crazy in Japan in 1988 and 1989, and Japan is still paying the price three decades later. Tremendous damage is done in these late terminal phases, and this is being done today on a global basis. I could see any number of obvious catalysts. Likely, it could be something that pops up unknown. But I could say with confidence that global markets at this point function poorly any time they decline. We’ve seen this. We saw it again in 2018. They don’t work well in reverse. We saw acute liquidity issues unfold in 2019 in global money markets, very key, China and U.S. in particular. So there is clearly tremendous fragility out there and that is precisely why central banks moved early and aggressively to support the markets. I just believe this only made the situation worse. Fragilities only grow more acute.
David: Kicking the can. Last question:
How do you feel about event risk as a result of indictment of former U.S. government officials.
And do you see a fundamental change in Federal Reserve banking system in a second Trump term?
Let me start with that second question first. The Federal Reserve banking system is something that he was critical of prior to being elected because it appeared that liquidity flowing into the system was helping Obama. And so, any critical commentary on the Federal Reserve banking system did have an overtly political tone to it. Since Trump has been in office his only points of criticism of the Federal Reserve banking system is that they are not creating more liquidity. So the tune has changed. Instead of being overtly politically critical, it now is, “Why don’t you do more for me now?” It would appear to me to be political self-interested.
So, a fundamental change in as second Trump term? No, I think, maybe more of the same in terms of pressure on Powell to make sure that his record remains strong, the economy remains strong, if you are viewing the economy as strong, according to a certain number of metrics. Trump’s favorite metric is the stock market. So, as Doug mentioned at the end of his comments, this is a real risk for him. If there is a roll-over in 2020 within the equities markets you may have a replay of Bill Clinton saying, if you recall, in his election stump speeches, “It’s the economy, stupid.” So you may have an extra layer of vulnerability if the market were to fold between here and November. I think that is worth keeping in mind.
To the first part of the question, even risk as a result of indictment of former U.S. government officials – I think the market’s vulnerability is to, primarily, uncertainty. What part of the future can we not see? And to what degree are we unsettled by that? If there was a former U.S. government official indicted, does that change the direction of the market?
I’m beginning to wonder if the market isn’t a lot more resilient to all things – take for instance our little fisticuffs with Iran here recently. You would think that would have longer term damage to the financial markets, and maybe even more of a push for the oil markets. It basically ignored it, because I think the larger factor is, as we have talked about today, Fed injections into the market, and liquidity dynamics within the market creating financial excesses.
I’m not sure people really care about anything but monetary policy, or fiscal policy, or how much liquidity is flowing. Everything else is kind of secondary as long as those conditions remain. If those conditions go away, if liquidity has tightened, if there is not as much money flowing from the Fed, then all bets are off. It doesn’t matter, really, what the catalyst is. It could be anything, and that’s even tougher to predict.
We will wrap up there. We are here in the first quarter of 2020 and if you are interested in talking with us more directly about our services on the wealth management side, we would love to visit with you. This is going to be an absolutely fascinating year for us, both in terms of managing through an analytical framework and making real-time decisions, which we would love to partner with you on. But I think also a year to look back on, one for the history books. This is, in many respects, one of those periods of time that we get to talk to our kids and grandkids about having been there, having done that.
We would love to support you in any efforts we can, to both preserve wealth, to grow your wealth, and to provide a reasonable approach to long-term asset management. And so, give us a call, set up an appointment with myself, with Doug, and we will look forward to entertaining any additional questions you have. If we have missed a question, if you sent a question in and we did not see it, feel free to just send it again and I will be in touch personally in the next few weeks to visit with you and answer that question as best I can.
Doug, any further thoughts and comments before we sign off?
Doug: No, it’s always a pleasure to do the calls. Hopefully, we have provided some insight, and thanks everyone. Good luck out there.