Contrarian plays and real asset opportunities from next gen investors

0:09I am Rob Isbitts. This is the Seeking Alpha Investing Experts podcast, and we are recording this at about 1030 in the morning U.S. Eastern time on Friday, November 21st, where there's a lot of talk of AI markets. It's crypto, politics, a lot of cross-currents. And so we're going to get into that. So again, I'm Rob Isbitts. I run SunGuard Investors Club and write for Seeking Alpha. I also run a sub-stack called ETF Yourself. Don't take that personally. Jack Bowman is also a very accomplished Seeking Alpha writer. Love your stuff, Jack. And he also runs a sub-stack called The Macro Obsession. He also happens to have the biggest collection of dog photos on his articles I have ever seen in my life.

1:07And maybe he'll share some. Julia Ostian, she has a YouTube channel called The Market Monkeys. But you know her very well, I think, from reading her great stuff on equities and macro on Seeking Alpha. And Kenio Fontes, who I think maybe is the smartest of us because he only does one thing. And he does it really, really well. And that is right about equities, really from a Warren Buffett contrarian valuation standpoint. So it is great to have these three here. As I said last time, because we've done this a couple of times, it's so much fun to do, in part because you can add up any two ages, I think, of the three people here.

1:47And I'm still old. And I love the idea of talking to people that remind me of how much I didn't know when I was their age because they know so much more. So let's talk about this. When we were prepping for this, I said, you know, maybe I should make like a little contest or something. You put something in the till, and if you use the phrase AI bubble, you have to get a demerit. Because that's a big question everybody's asking. I see it in my own comments on my articles on CP Alpha. Everybody wants to say, are we in a bubble or not? And my whole point has been, who cares? Who cares what you call it?

2:29At the end of the day, is my portfolio value going up, or is it going down controllably? If it's going down a lot, like I like to say, ABL, avoid big loss. That's my number one rule. If it's going down a lot, then there's a problem unless you're very, very patient. And I think part of the problem is that we have what I would refer to as correlation nation. The U.S. stock market is so highly correlated. And I'm starting to wonder how many stocks and ETFs actually matter. And so to the extent that you three want to chime in on that. Also, and I'm going to be on with Rena sometime during December, so I'll save some of my thunder for that.

3:10But I think there's something going on where, and I guess, you know, Kenny, you're totally familiar with this. Warren Buffett has an expression, when the tide goes out, you can see who is swimming naked. To me, it just seems like so much has gone on for so long and so many risks have developed. And now the natural inclination is, oh, okay, well, the stocks and crypto went down by the dip. Is that the only strategy there is? Because it works until it doesn't. So, you know, to me, I am all about defensive investing because sometimes it could become offense and about helping people understand the difference between how the markets used to work and how they are working now, which is very different in the era of algorithmic trading and index fund investing in what they call the passive flow.

4:07Now, I want to go to Julia.

4:10Julia Ostian:Hey, guys. Preparing for this podcast, I actually went through several websites, not only Seeking Alpha, but some of the pretty respectful big editorials about the market, about the stocks. And I saw that many of them right now are kind of in a panic of tech going down, right? AI crashing. Maybe we are in oversupply right now. and maybe the demand will not stand up to be as high. So basically, I went over and decided to check what happens in reality with other stocks, not only tech stocks, but actually some of the stocks that I rated as a buy on Seeking Alpha and I actually bought myself. Some of the stocks, Nike, I added just for fun, just to see what happens with this, because US investors really love this stock.

5:01Julia Ostian:So it's down like 9%. But when we actually move to Uber stock, for example, one of my strongest peaks this year, which in my opinion was undervalued even at$90 or about almost$100 per share. Now it's like under 90. It's down 11%. And since October 20, it's down by more than 11%. United Health Group that's been through a major sell-off is down 14%. The same as Novo Nordisk. Novo Nordisk has been down more than 40 % until October 20. And it's down another almost 15 % in the last months, which is, well, a lot. And Lululemon the same. And the funniest thing is, if we actually go to some of the EI stocks that people discuss and people are really, really worried about, we can see that NVIDIA and Mitron, for example, almost did not drop in the last months.

5:56Julia Ostian:At the same time, some of the most overheated stock volunteer is down only 14%, which is basically the same what United House and Nova Nordisk did in the same period of time. And of course, we should not forget that some of these companies like Nova Nordisk and United House had their own problem and their own difficulties. But still, my point, what I'm trying to stress is that I really do not see a reason to attract tech into this conversation at the moment and i wouldn't say that ai is our problem market was overheated and we've been through government shutdown which let's say it's not the most certain time for investors on the market we've seen labor data we've seen unemployment data basically all of those metrics they did not support the fact that the market should be at its highest stake.

6:57Julia Ostian:So what we're seeing right now, in my opinion, at least it's a regular market correction that was supposed to happen. And for me, it would be weird if it wasn't happening. It would be weirder if it did not happen. So right now at the moment, I'm not panicking. I'm not doing anything major with my portfolio. I actually picked up a couple of options just for fun, just to see how it will go with some of the risky things. But majorly, I'm just transferring more money into my account and waiting for this uncertainty to pass and to add to some of my best major positions. And I can say for maybe many people in my generation, oh, it's great to be young.

7:41Maybe I've seen too much during the 87 crash all the way through. But I think that what you are describing is, and we're going to see, it's going to be actual, I think very exciting to see. Is this going to be about fundamentals or is it going to be about indexation liquidity? And I want to keep going on because I want to get the other folks in here. When I look at what you just said there, I see NVIDIA held up well, Micron held up well. That's indexation at work because so much money has been shoved into a small number of huge tech companies that if people keep putting 401k and other money into those, This is what they call a passive bid.

8:23And so it's disconnecting the market from anything that may actually be happening fundamentally or otherwise. It doesn't mean it happens forever, but it's an increasing force. Now, I want to go to Jack because you are the macro obsession guy. Tell me, what's kind of your headline thoughts for now? I'm going to go to Kenny.

8:42Jack Bowman:So I think the point about it not being just a tech sell-off is like very duly noted here. That it's everything. Anything and everything risk. has been selling off. And I think that stands to our larger macro point about uncertainty, about where the labor market's headed, right? We just got this delayed jobs report that says unemployment's still rising. We don't know because of the shutdown what the October unemployment rate's gonna be. We're just not gonna get that stat now. So there's a lot of uncertainty around the macro picture, which changes the uncertainty of the Fed trajectory, which because there's a billion people running around reading the tea leaves for the Fed.

9:22Jack Bowman:The market has been so hyped up on this narrative of we will get rate cuts, we will go back to an era of cheap debt, which we need in order to borrow the trillion dollars to build out data centers everywhere. The big headline for me has been in the past couple of weeks, there are no dark GPUs, which is the idea that fundamentally NVIDIA's constraint is its supply chain. It just can't make enough GPUs fast enough to fill the demand. This is why I'm not worried about these circular deals that we keep hearing about. I don't see it necessarily as NVIDIA hunting for demand and locking down like you must buy GPUs.

9:59Jack Bowman:I think they're picking the winners. They realize they're going to sell out no matter what they do. So we might as well give them to people we think are going to be the most productive with them and the most valuable. Otherwise, you end up selling a lot of GPUs and you're going to do this anyway. But you end up selling a lot of GPUs to people who are going to use them very inefficiently. Now, that all relies on a power bottleneck that we haven't figured out because Exxon does not move at the same pace as NVIDIA or CoreWeave or Nebius. And that's, I think, what the next headline is going to be is not dark GPUs, but dark compute.

10:31Jack Bowman:How much of this build out, how much of the infrastructure spending that is fueling our market valuations is going to end up just never being turned on because we don't have the power grid and infrastructure to run it. And as the technician bottom line strategist in the room, I will say, and when will the stock market start to get edgy about that? And maybe it already has, but I think we'll know about that time. Kenny O, this is either a great environment or a horrible environment to be looking for stocks for long-term value because you don't know when some of them will stop dropping. And you don't know how many years of losses you might take on the way to getting what you want.

11:18So how are you handling this?

11:20Kenio Fontes:Yeah, yeah. That's a strange environment, to say the least. I would say both. It's either great and bad. But the main thing here, I think tech is not the problem. Like Julia said, I think consensus is the problem. Like I stock that everybody agrees that can never go wrong. Like Palantir is a tech stock, but also like Costco or even Ferrari, like TraceLap. It's very, very structured valuation. and this assumes like it was like, it is like a bond proxy, you know? Like people buy Costco relying that they pay, they will be paid 5 % a year, 6 % a year. For me, that's really not enough. But at the same time, we have stocks like Brookfield, Vigiproperties, that is real estate, real assets, and it trades like a very low valuation, but it's a solid company.

12:22Kenio Fontes:So I think the time for now is to be contrarian. I don't know if you agree, you talked about indexation. I don't know if you see this exactly like me, but I think the medicine would be something like act contrarian. That is a great point. And we can agree or disagree, but I think that it's a fabulous point because I just don't think that this generation of self-directed investors. And I would include a lot of analysts who have not really been through anything but what we've seen the last 15 years. I wrote an article recently on bond ladders, and I went into some high level of detail on how I built the bond ladder for myself and why I think it's one of the most unsung investment choices that somebody can make, even if you're not especially, you know, as old as I am or older, because there's some level of defining your worst case scenario.

13:23And I just don't know if a lot of people have been taught to do that. They haven't been taught risk management. I want to go back to Julia, because you also do a lot of macro work and really for anybody, but let me start with you. Jack said something about how rates will get cheap money and get cheap rates. And the thing I keep thinking to myself is, you know, the president of the United States has been browbeating the Fed chair for a long, long time now trying to get rates down. I'm thinking, you know, the irony is that I think there's an excellent chance that he's going to get the low rates he wants, but maybe not for the right reason, because a recession could be caused by normal recession things.

14:11But in this day and age of indexation, I keep talking about, when the stock market goes down by more than maybe 10%, that alone could get you much closer to a recession. At least that's been my view. And this is something we've never had in market history where so many people were in the stock market through the work that you do on YouTube and seeking out for Julia. How do you think that this plays out? Interest rates and how that may affect, let's call it, investor behavior?

14:44Julia Ostian:I can't say that I had a thought of a recession actually happening from the market drop because many people are inside the market. As far as I'm where as far as my knowledge goes, recession happens when very certain things happen at the same time, right? The GDP should be shrinking, the labor market should be shrinking, the unemployment should be growing, and some of the other things that should be happening at the same time. So we could actually call this period in history of the United States a recession. and in general as for the rates i think the us is in a very weird position because the rate cuts are justified i cannot say they are not justified at the moment with the labor data with the slowing economy we see that um business owners are worried like we see the uncertainty people are not hiring other people people are trying not to produce as much as they could have produced although the demand is pretty much there consumers consumed i just wrote an article with walmart earnings overview and everything seems to be fine so this is definitely a weird period of time i don't suppose that this is a major red flag at least for now at least at the moment we will need to see how other things play out at the moment right we're just came out of the government shutdown let's see what will be happening in the next couple of months maybe even the next couple of quarters and i think it will be smarter to come back to this discussion maybe after the new years after we really see and have some meaningful data that we can really rely on because right now at the moment after the shutdown i don't see how we could actually take what we have we have drops We have strengths of what we were supposed to have.

16:45Julia Ostian:We could definitely make assumptions, but in my opinion, it will just be too much. And I see Jack wants to add something because Jack is actually much stronger than me in this matter. So if I am saying something stupid, Jack, please help me out here.

16:59Jack Bowman:No, no, no. Thank you. No, I don't see recession in the card necessarily either. But it is to note that we're seeing this bifurcation of the lower earners in the economy are doing much worse than the top earners. And the top earners drive most of the consumption, right? The top 10 percent of earners do about 50 percent of our consumption. Is that why statistically we're not in a recession? But if you ask maybe 50, 60, 70 percent of Americans, we are. Yeah. There's a big cognitive trap that, and of course, if you try to explain to anybody who's mad about their grocery prices and say the words cognitive trap, they're going to be angry at you.

17:37Jack Bowman:But the idea is that when we go to the grocery store or when we look at pricing, we kind of index from five to seven years ago of like what average prices were when we think about what the price should be. uh and so a lot of people are still feeling the inflation that came from 2022 and it was global it wasn't just the u.s right it was everywhere uh except for china they had deflation but outside of the west you know i mean it was like everybody and those prices are not coming down they're stuck up that high right inflation is typically sticky especially in things like food uh and and fuel and in a lot of ways the grocery prices don't tend to come down so people are still angry about it because they're still indexing from prices years and years ago.

18:18Jack Bowman:And they're probably going to be angry about it for a while. Even if the inflation data doesn't say it's so bad, it'll feel that bad. And it will continue to do so. That's why sentiment is so low. For sure. One of the things we had during the shutdown was some sentiment indicators because they come from other places than the government. Kenny, if you're looking around for something, well, let me put it to you this way. One is going to put some money in two or three stocks for the next 10 years, but they want to make sure that it doesn't go south by 30 or 40 % on the way. What are you researching?

18:53I don't need picks per se, but just the ones you think that are moving in the right direction there.

18:59Kenio Fontes:I think the shot right now, at least for me, it's to be looking to real economy, to real assets, like I said. like Brookfield, amazing company, definitely will be a compounder. I'm aiming for like 15 % CAGR in the next 10 years, maybe 15. Vichy Properties, too. It's a great company, great real estate geographically located, and great opportunities like college sports. And still trades like 10 times FFO. So I think it's an opportunity. These two were my latest buys. But also, I think it's worth to be positioned on broke tech stocks. Like NVIDIA, as Jack said, I'm bullish on NVIDIA. But I think the risk management here matters a lot.

19:56Kenio Fontes:I mean, really a lot. Like I wouldn't have 8 % on NVIDIA as the S &P has right now, but I would have two, you know. I think I have two or 3 % on my portfolio. So I can sleep well with that. But 10%, no, definitely not. Because it can have such a drawdown, like I said, like 30%. Let's just think what happens if Amazon goes to the market next quarter and says, Hey, I think my CapEx will be only 7 billion, 70 billion, because I have enough GPUs right now. So I think NVIDIA will fall a lot.

20:34Jack Bowman:I think with the criteria of you've got 10 years and you can't take a dip that hard, NVIDIA has to be out for that reason. That one announcement from some other company could absolutely tank. This is what I'm talking about. It's like the emergence of dark compute. NVIDIA won't tell us when the data centers aren't being powered on. They'll keep selling the GPUs anyway. It's going to be the other companies, Nebius and CoreWeave, the hyperscalers, Oracle. They're going to tell us, and that's going to hurt NVIDIA. So if you're just watching the one, I think to Kenny's point here, real assets, my big picks here are Exxon, X-O-M, and then BHP, BHP Group.

21:09Jack Bowman:They own a lot of, and they've been in some recent controversy, but they own a lot of these real assets and natural resources too, that I think are going to be the actual oomph that gets us to the next wave of innovation. We've built enough GPUs. We've designed the AI systems. but now we need to power them. And it's such a big bottleneck. I mean, energy as a category is half of NVIDIA's exposure in the S &P.

21:33Julia Ostian:Regarding what Kenny just said about he wouldn't be buying 10 % or 8 % of NVIDIA in his portfolio, I just went and actually checked mine or actually one of my portfolios. And over there, I just found that NVIDIA is 10 % of this portfolio. And a very important note here is that But it's like, first of all, I have several portfolios. So NVIDIA is only in one of them directly, indirectly in another one as well. But the majority of my money I still put on the site, which is managed not actually even by me, but by some other people, by the state of Israel. I have exposure on new Israeli shackle as I live in Israel.

22:15Julia Ostian:I have exposure to the Tel Aviv stock exchange. and what I do myself with my, let's say, risky portfolios, this is a pretty small part of what's going on with my investing. But overall, I would say that I am definitely bullish on NVIDIA. I couldn't say that I expect NVIDIA to pull back 40%. I would be surprised if NVIDIA pulled back 40%. It would really surprise me. can it pull back to like 140 dollars per share it's pretty much uh what i bought it for maybe no i bought it for 120 okay can it pull to like 130 yeah it could but like 40 or 50 from today's level i would be surprised because also don't forget that black falls soon will be out and nvidia will roll out new chip and after nvidia will do this everyone will try and acquire this new chip because if hyperscalers won't do this other hyperscalers would simply be ahead of the ones that didn't so this is one thing about nvidia another thing is that uh some of the stocks amazon i always mention amazon and this is probably my strongest pig just because i basically like this company for everything they do like ai related cloud related i am um i just know how israeli startups, Israeli companies spend tons of money for everything Amazon related, AWS and all of the services Amazon have.

23:50Julia Ostian:And basically, high tech here will not be developing without Amazon. Besides all of the robotics that they have, Project Kuiper with the space. So Amazon, for me, it's basically if you have a question of what to invest in AI, Amazon could be one of it. What to invest in space, Amazon could be one of it. What to invest in robotics? Amazon can be one of it. So Amazon definitely one of those picks that I would probably include Amazon in my top three at the moment. And also the funny thing that I always say about Amazon that the only thing I don't like about this company is the communication with investors.

24:33Julia Ostian:because if Tesla right now would be having so many developments and so many wins as Amazon has, this company probably already take over the world. But Amazon, unfortunately, doesn't promote itself as well as some of the companies, for example, Tesla and Palantir. These are top companies on the market that communicate really well and sell their stock really, really well. Another peak I would say at the moment is Micron. I really like micro stock. Could it drop? It could, definitely, because it's, after all, a cyclical stock and it's a cyclical business. But anyway, I would give it like a long runway in my portfolio.

25:15Julia Ostian:That's basically it for me. A little injection of risk management here. We were talking about NVIDIA. So this is an era where, again, indexation, algorithmic trading, liquidity, margin debt, margin calls, etc. All of these things make it so that you say, OK, I don't know what NVIDIA is going to do. I know it's a great company. I know Bitcoin has forever fans. Amazon might be my favorite business in the world. I look at those and I say, wait a minute, you can own a smaller position size. That's one way to manage risk. You can use put options underneath if volatility is not too high, or you can collar them, buy a put, sell a call on top of it and manage it that way.

26:01And I think that I'd love to see more education and more publicity given to simple, straightforward defensive strategies that allow you to take some risk out of taking risks so you don't have to hold your finger to the air and say, is this stock going to go down 50 % or 60 % on the way to tripling in 10 years? Because that's what happens a lot in the stock market. The last thing I'll say is, I mean, on NVIDIA, again, not because of anything due to the greatness or the innovation of the business, but as a pure chartist, and, you know, I just manage risk. I don't try to predict the future. But if you said to me, does NVIDIA have a shot to go south of 100 before this is all over?

26:51I would say absolutely. There's a strong chance. It also doesn't mean that, you know, it can't go to 300 first. but it's not a good looking chart. I don't have any clean words to say, so I'll just say it's not a good looking chart. And a lot of them look that way, which is why, again, I love it that you three all have great ideas. And all I want to add to the conversation here is, but you don't have to go it alone. You can add a little defensive structure to it so that your whole portfolio doesn't go bust because of, let's say, being too aggressive and hoping it'll always get better. Kenio.

27:30Kenio Fontes:Yeah, if I may add one more pick and related to defense, would be cash, definitely. Like every month, if I have like a thousand bucks to invest, I would say I'm putting like 500 on bill or even more. Hey, bond ladder, the bond ladder, it was something that sets somebody up for any number of years that they want with money coming due. And to me, one reason to do things like that or a whole lot of cash is because it allows you to be that much more aggressive with everything else you do. I mean, you can combine T-bills and triple-levered ETFs. I mean, you know, because you've already taken major risk off the table.

28:15You've ABL'd, you've avoided big loss. Just about anything now can be shorted or inversed with an ETF, with or without leverage, including a lot of single stocks. I have thought about maybe running a long, short MAG 7 plus portfolio because you don't have to do any shorting and you don't have to use options. You can just buy the inverse ETF. So you can be long this one and long an inverse ETF of this other one. Jack, this has got to be an area. I mean, you and I are like the ETF bros.