WAWD Reunion: Porter Collins and Vincent Daniel Are Back for On The Tape

What are we doing?

What are we doing? So, for those who don't know, we've kind of shifted the 'What Are We Doing' rhetoric to Substack with 'What Are We Doing: Contrarians at the Gate.' And we've amassed, I mean, over, I think, 6,500, I want to say, subs total, and over a thousand are actively paying and enjoying the back and forth on Discord, etc. And it's been a lot of fun. So if you have not gone over there, that's kind of where a lot of our stuff has been going. We felt it was time for a kind of broader update to the broader universe, and again, you can always find us there.

Danny, I think one of the reasons we went over there is that Twitter was amazing, you know, to begin with, and I think over the last 10 years, it's been a really great source of information. But lately, it's just turned into a mess, and there's, you know, obviously a lot of bots and a lot of, you know, you say anything, a lot of hate mail back. And so I think what we've curated here is a little bit of a nicer, a friendlier, nicer, gentler community where we're able to push back on ideas and not, you know, lambaste someone for saying something stupid or, you know, because everything's constructive and or, you know, or negative, which is fine too. So it's been the... Vinnie is the Pulitzer, probably the next Pulitzer Prize if there's one on Substack for writing. I mean, Vinnie, it's got to be you. It's fun to watch. I never knew, I mean, you always wrote our quarterly letters, but how much you enjoy it and get into it and really able to express themes, and there's been some clever stuff that has occurred here. So, well, transformation since Steve used to make fun of Vinnie for his writing.

In a prior life, remember, I was a sell-side analyst, Annie, when we worked at Oppenheimer, and there was a lot of negatives associated with being a sell-side analyst. Crap you had to do. But the cool thing that I used to like to do was write. Right. Particularly when you had something witty to say. And it was almost a challenge to get people who typically don't read a lot to say, 'No, no, no, I'm going to make you read this because this is going to be interesting.' So, it's a lot of fun.

Yes. One was a Capital One title. It's when I knew that I was, I thought I was on to something, and it was an ode to Robert Palmer, right? And the IR person wrote a dissertation back using the lyrics of Robert Palmer. But that's not the better story. The better story was...

You had the Robert Palmer girls on.

Yes, I got an email from a groupie, right, saying that she used to tour with Robert Palmer, go to every single one of his things. I think at that point in time he had passed away, and was telling me, 'If you want to meet up or hang out, if you're as big a fan of Robert Palmer as I am.' And I go, I go, 'This is pretty cool, right?'

No. For Capital One, it was, uh, 'Might as Well Face It, You're Addicted to Growth.'

So, yeah.

Denny's beautiful mind at work.

I actually think I turned it into Padilla's Corner because I wanted to use a picture of Vicente Padilla.

Well, Danny, you forget it is Taco Tuesday.

Wow. It's hard to know where even to start today because we got Trump with the hard taco, and then Iran a couple minutes ago came out and said, you know, we're open to, you know, ending the war sooner rather than later. So, a lot of stuff going on. Like everything in this market, it's hard to know what's real. As we like to say, the conspiracy theorists are doing a lot of winning right now. And just a shout out to the guys in the energy space, guys and girls in the energy space. They nailed this the best in terms of when the war started, they said, 'Hey, this is a much bigger deal than you think it is. We know more than you do, and this is going to be a real problem.' And they were 100% right because everything in this war is about energy and energy infrastructure. You forget no one can even try to understand why we started it, but that's a different issue, but to understand how we end it is all about energy. And I think that, you know, obviously the whole world needs it, but walking away from wars is not easy. I pointed out today that during Vietnam, it was four years between the initial troop drawdown and the end of the Vietnam War. And so, I mean, we don't have another month of this because the energy problems are so acute. So I don't know, that's at least, that's a context of where we are. I don't know how, I don't know where we go from here. How about you, Vin?

We all three of us gravitate to conspiracy theories and bearish tendencies and misfits, right? In general, right? So, if we rewind the clock, when we had, quote, the nut flush and we were PhDs in what the hell was going on in the world, we were parading around in 2006 and 2007 telling people how bad the world was. Remember that?

You don't know.

You don't know.

Rewind the clock to COVID era, and Porter, we were listening to podcasts of people who were in the healthcare industry who were saying the same thing we were saying. We had no idea what they were talking about, but were saying, 'Hey guys, in a month or two months, this whole world's about to shut down. Just get ready.' And they were dead right. So, the more modern version, Danny, now is what Porter was saying is that I was going out for drinks with a guy, Paulo Macro, right? We had a few too many, and he gave me the story of the plumbing of the Strait of Hormuz. And this was about four weeks ago,

Right at the beginning of this.

Right at the beginning. And he was telling me, 'You don't know what the [__] is about to happen if this war lasts for three, four weeks.' Well, we're in the third week right now, right? Something like that.

And I think this can't last that much longer because I think you're going to see a COVID-like contagion. And there's been a contagion or a slow contagion in our markets. And it just seems like, we'll see because this is super fluid, seems like Trump's had enough. We'll see.

This might be Liberation Day number two, Danny.

Look, I'm on record of saying I don't think the market can handle higher rates for longer. And so as a result, if I solve for what is needed for the world to work, we're eventually going to have to get lower rates, which goes against the underlying fundamentals and supply demands of our fiscal deficit. Right? So it's a difficult one. So what do I expect, Danny? If, and again, it remains all fluid whether this war is going to last or not, right? If it is true Taco Tuesday, not fake Taco Tuesday, and we do get a de-escalation of the war, we'll get a reprieve. The world, like COVID, will be kind of screwed up for the next few quarters, but I actually think that the Federal Reserve, perhaps not Powell, perhaps the person who replaces Powell, is going to use that as a catalyst to lower rates 50, 75, 100 basis points. And I expect that to be a late 2Q, probably more like 3Q type event.

Well, I'll get to that in one second, but let's go back to our roots in terms of financials and interest rates. And one of the first things we do in the morning is look up and see where interest rates are. That's just our financials background. And someone asked me in our, to plug our Discord, someone asked me in the Discord, you know, how do you guys think about PEs? Because he was taking a class about economics or whatever. And I said, and I posted a chart, two charts. One was the correlation between higher rates and PEs, which is as rates go up, PEs come down. And as rate volatility goes up, PEs come down, right? And so I think that people constantly underestimate what a financialized economy this is, right? There's nothing that's unlevered except for gold miners. But, you know, we have $38 trillion, $39 trillion in debt. You know, most corporates are, I would call, they like to say, optimally levered, right? When they're not, they're not levered to allow things to go poorly. And I think that you look at the Mag 7, which has driven this market for the better part of a decade. They were always net cash, and now a couple of them, you know, like I think that you look at the delta, go to, you know, Meta's balance sheet, the delta in the last four quarters has been from net cash to net debt. And so everything is levered. And so when the bond market moves that way, it moves. As for gold, I've been joking around that the best chart in the market, bar none, is the chart of the government debt, the total government debt, and it's a straight line up. It never pulls back, never checks back. Sharpe ratio of infinity. And so, so if you think about that, that's my, that's the only thing that in a, you know, in this market where we have no idea what's going on day to day. Oil prices, tacos, no tacos, you know, bombs, no bombs. I don't know. But I look at that chart and I say, well, this chart's never, ever going down, sadly, but it's never going down. And so that's where my bullishness comes in. And I, okay, how do I play that? And we've played that through gold. And so I look at the gold miners, which are, you know, all producing EBITDA margins higher than the Mag 7. All of them are in, you know, I think that the top 20 names are average 10% of their, of cash balances as a percentage of their market cap, and they're all between three and seven PEs or EV/EBITDA. And so, you know, that's where I'm hiding.

And there's been M&A in the space, too.

I never, that was a COVID show, right? What was...

They had come out with a second season. It was actually pretty good. Anyway, came out in the last few months.

Which is now starting to turn back up again.

You know, would call that a bearish-to-bullish reversal, by the way.

Well, of course we care. And, but...

Sorry, just for context, Steve used to make fun of us because we would talk about the deficit and he would go, 'Oh, the deficit is not, you guys worry too much.'

Can I correct your statement, Porter?

Okay. Yeah.

Not used to make fun of us. Still makes fun of us over it.

So, which is fine. It's great banter, but...

So put yourself in the shoes of Scott Bessent, Danny. The last thing you can tell the world is we have a debt problem, we have to figure out how in the world we're going to issue debt and get some idiot to pay for it at below-market rates. He's never going to say that. So, what are they going to do? Well, he pulled The Shining, right, where he said that I'm never going to do what Janet Yellen did. And lo and behold, he's not only doing it, but he's probably doing it in greater quantities than she did. And what that is is issue T-bills at the short end of the curve and not issue long-duration bonds. Expect that to continue. In fact, one of our friends came up with an interesting theory that they're probably going to issue more T-bills than they need and take some of the proceeds and buy back some of the off-the-run long-duration debt to create more of a lower, to have the ten-year go lower, so that the Treasury does the twist versus the Fed and forces the Fed's hand as well. So on this one, which would be...

I could be getting the movie wrong, but didn't when he come in and become caretaker of the hotel, he knew about the haunted...

And the freaky twins are riding around in Big Wheels. Yeah.

But he never said, he said he was never going to turn into that person, and then all of a sudden he...

He became a freak, right? By the way...

That's a great reference.

Thank you, bro.

We'll use that for another Substack note. See, this is what you're missing. Shelley Duvall, who also played Olive Oyl in Popeye in that movie as well.

But I think he's also going to get a helping hand from the Fed. Perhaps not a Powell Fed, but whoever replaces him, whether it's Warsh or somebody else. And what I think they're going to do is extend the duration of the reserve management system right now, which is they're issuing $40 billion worth of T-bills, or sorry, not issuing, apologize, buying $40 billion worth of T-bills. I think they extend that and perhaps increase that, calling it another temporary measure to offset the recent issues associated with the excursion.

No, they're not going to call it QE. They'll call it anything else because Lord knows you can't. Just look at the Fed's balance sheet there. You'll see it. But yes, go ahead.

Correct. So long-winded way, Danny. They're going to do whatever it takes to keep these rates down, to suppress rates, to try and get this economy going. But again, all of that is predicated on ending this war. If we don't end the war, none of it matters.

That's above my pay grade. But an interesting thing in our Discord yesterday, I asked the question, is anybody looking to buy Mag 7 names? And probably a super nice value, rational value person says, 'You idiot. Have you looked at the cash flows? They stink.' You know, the real cash flow numbers is, you know, way lower than the PE. And, you know, you could just see this market yesterday and the last two Fridays, yesterday, people were shorting the heck out of them. You look at the prime brokerage stats, you know, they're the most short in like eight years, and you get one glimpse of good news and, you know, Tesla's up 4%, Nvidia up 5%, Apple up 3%, Amazon up 4%. And it's just, you know, it's very tough to trade this market. But I think that, you know, again, use a contrarian lens. We actually, you know, after seeing that news and seeing the hate, we actually bought a little Google yesterday just for a trade, probably sell it soon. But, you know, it's just this market's very tough right now. And so, but I think our core themes that we believe in, whether it's gold or energy infrastructure, you know, things like that, we've been slowly adding on these pullbacks. And, you know, this is, again, not an easy market to trade, but I think it's going to be a good, in my opinion, a good run here for stock pickers because you can see the indices have gotten, you know, too big, too much passive, and they're very inefficient. That's just my view.

At about 9:58 last night, while Porter was watching the Mets on route to a 4-2 win, he sent out a chart in Discord showing the global long-short ratio. And what that is is basically the net positioning of the hedge funds, whoever is aggregating that. And right now it is probably the lowest long-short ratio, meaning the most bearish, over the last 15 years. Right? It's hard to believe.

Hat tip to our friend Pat Burke on that one, by the way.