Hello, and welcome to What Goes Up, a weekly markets podcast. I'm Mike Reagan, a senior editor at Bloomberg, and this week on the show, it was sort of a week of deja vu. Meme. Stocks are back in the headline, as shares of the movie theater chain a MC got pumped to the moon, and the markets oriented geopolitical tensions are making news again as the Biden administration looks to potentially expand the number of Chinese companies that are blacklisted for US investors. What should we make of all these flashbacks. We'll get into it with the chief investment officer for a hedge fund firm that manages nine billion dollars. But first, Charlie Pellett Tallusue. This week's mystery co host is. This week's mystery co host is Claire Ballantine. Claire as a reporter for Bloomberg in New York, but gused on e t f s. She hails from the same town in Tennessee as Dolly Parton. She's licensed to marry couples in New York, and she has a collection of alpaca paraphernalia. Claire, there's lots unpacked in that introduction that Charlie Pellet introduction of you. Mainly I wanted to get Charlie Pellett to say the words I'll pack up paraphernalia. I don't think I could say that five times best. But you gotta explain how does one collect Well, first of all, what the heck is alpaca paraphernalia? And how does one become a collector? And what's the market like? Is it? Is it a hot market right now? What are prices going for in the I'll pack a paraphernalia market? You know, I've been doing it for so long that I can't even remember the origin of it. Um. It just sort of became a thing. And then what happens is when you have a thing, people always get you stuff like that for your birthday or for Christmas. So even long past when this would have died down, eventually it just kept going because people kept giving me towels and mugs and rugs. And suddenly my apartment is overtaken by alpacas. That's hilarious. That's hilarious. Is that? Have you ever owned an actual alpaca? Or no? No, I want to. I want to get a standard poodle, the dog because I think it looks a bit like an alpaca, but you can walk it on the street without getting weird looks. All right. I don't know if you'd got a weird luck with an alpaca. I don't know. There's only one way to find out. We'll have to test that thesis sometimes we should. I did one time see a guy in the East village walking a pig. So anything in New York goes, that's true, that's true. All right, Well do you think goes? On this show? And we're very lucky this week to have a really interesting guest someone I've read a lot about over the years. Uh. He is the chief investment officer at UBS O'Connor, which is the hedge fund division at UBS Asset Management. His name is Kevin, So Kevin, welcome to the show. Thank you, great to be here. Kevin. Let's start with this whole revenge of the meme stocks that we're seeing in the market again, AMC, particularly just going doubling on one session during the week. I mean, for for a hedge fun guy like yourself with a lot of assets to sort of puts work this see, these type of things seem like kryptonite to me, especially obviously on the short side. I mean, we've we've heard a lot of widow maker trades on the short side. But I'm wondering for you, you know, are there opportunities here for the I mean, obviously, with the volatility and these eye popping moves we've seen, it's hard to ignore it for a guy like you. I'm just wondering if, if there are opportunities in the space, is there anyway we're for you to put money to work in this type of environment? Yeah? Uh yeah, So, I mean I tried, We tried to be about as far from these types of situations in the market as we possibly can. I I talked to one of our pms this morning and I said, I'd like to be roughly a million and miles away from this, and he's like, well, you realize we're probably like thousand miles away because there's correlations with these stocks and other stocks that were evolved in so so I kind of I kind of acknowledge that. But you know, to me, anytime you have a stock price moves that are divorced from economic reality or corporate finance changes, that's like a flashing warning side warning signed to us to really be cautious around it. And you know, I don't know if you followed some of the stats on AMC, I'm drawn to it not dissimilar to rubber necking an accident on the freeway. Um, but the numbers I saw, we're just amazing. You know, we had more AMC volume on Wednesday than we had in Tesla, in Nvidia, Apple and Amazon combined. On one day, we had more AMC op trading. Then we had this little index called the SP five hundred Index options trading. So you know, the volume is is alarming. And listen, I think there's this temptation to just completely dismiss this type of activity as irrational and illogical and a casino or mm stock, and I think that's true at all, you know, I uh, you know, to me, you really have to pay close attention to some of these phenomenons. And for for a long time, you know, we analyze companies, we analyze fundamental changes at companies, we analyze what's going on the economy. But we're we're we're honest, and we're saying, you know, sometimes price performance securious performances a function of investors psychology and position and positioning, and you know when you have a situation like this, you know, you really cannot take an aggressive stand one way or another. You can't dismiss uh, you know, the stock moves one way or another. You just have to be cautious and realize this has become a purely technical event. There's a whole bunch of investors here with different perspectives and psychologies. There's investors who are getting free popcorn at AMC theaters. By the way, Um, that's a motivation. So I wondered if that's subject to the dividend tax. I don't know. You gotta gotta give a p for some of your popcorn back to the government. Probably is probably a slight mark up at the at the counter. I agree with you. Well, and then while this is all happening, I mean, are there any opportunities that you see for you all? Or are there opportunities that maybe are getting overlooked because everyone is so focused on, you know, watching the meme stocks go up and down. Yeah, so that's one of the that's my nine thousand mile analogy, because you know, when stocks, whether it's an AMC or bed bass in beyond, go up. Um, we see things that go up in sympathy with that UM philosopher. For example, if people think that A m C and Bed Bath and Beyond are doing well, they get excited about mall owners or strip mall operators. And the reality is the dynamics of people going to malls and going to you know, strip centers is not changing. It's not changing based on overnight price action in bed Bathroom Beyond or a MC. So we do see some of the stocks that are related UM react and that's where we tend to look for opportunities to take advantage of the dislocation. So, you know, one of our core disciplines and and and this has been you know, for as long as I've been in the business. You have to be very mindful of how big the short base is in any stock. I always tell people stocks are a log normally distributed, which is, you invest a hundred dollars UH and you can lose a hundred dollars, but you can make ten x or twenty extra your money. And and subsequently, you have to be very mind full of the size and nature of your short positions. UM and and so we're we're always on top of that, but we're looking for things that are one or two steps removed from these stories take advantage of those dislocations. It always amazes me to you know, if some stocks short interest, who's the one going in and turn it in a fifty one or fifty that just seems like playing with fire. You know what I gotta tell you, I I totally agree with that. And listen, I think I I learned this literally about two weeks into my job when I started twenty years ago, which is, don't short too much of anything because it can be very technical. And so I think it's just a matter of um of of hubrists. In a lot of cases, people like well, listen, um, you know, the evaluation these companies doesn't make sense. So I can be comfortable at carrying a heat short and you know, when you have something that can be so technical, evaluation just doesn't matter. Um. And so we're always cautious with that. We we we watch short interest ratios call used old fashioned. We look at the short based relative to daily volume. We look at the short based relative to the free flowed, and if he gets above these you know, sort of certain metrics, we just try to avoid them. Kevin, to move on to something, I know you guys were involved with at least earlier in the year, you were very bullish on China. I think one of the funds had was something like exposure to China. I'm wondering, you know, do the sort of the sort of geopolitical sword rattling, the Biden blacklist um possibly being expanded to to not just military linked firms. Um, what do you make of all that? Is it kind of is it kind of just that? Is it a bit of saber rattling? Do do you see any real risk there of of sort of a worsening relationship with China and an outright band of more stocks for US investors in China. Yeah, so listen, I think big picture, Uh, there's a more constructive dialogue between the US and China happening, happening now than under the prior administration. And even though there's potentially a broader list of stocks that are going to be banned, there's potentially a tightening of existing bands and limiting bands to some of the specific subsidiaries. So, you know, big picture, I think relations between the two countries from a trade and cooperation perspective are going to be improving. Um. But you know, to the extent that that there are these bands. You know, I think this, I think they create opportunity more than risk. You know, I think if you're sitting here, you're sitting in the US, you're sitting in Western Europe. You unfortunately tend to think about this from a European or US perspective, like, you know, the US government is going to discipline you know, the Chinese. But the reality is, uh, there's always a corollary a Chinese perspective on these stories that creates, you know, an equally investable seamen. And I'll just give you an example. So you know, under the Trump administration, there was this real aggressive pressure on reducing higher end semiconductor equipment materials and and telecom equipment in stocks to to to the Chinese. UM So with the Chinese government did is react uber rationally and said, Okay, I get this. If there's some risk that I'm not going to be able to buy high quality intellectual property from the US, I'm going to build my own technology supply chain. And so while most people sat there in and said, wow, this is this uncertainty about US China trade and tech supply chain makes me nervous, some of the best performing stocks in the world were some of the domestically focused Chinese small and MidCap technology and semiconductor stocks. So we always tell our investors like, you know, don't use your don't look at everything from your U S lens, uh, you know, put on your you know, your China hat and interpret what this local corollarya is going to be because it's going to create an investable theme on the other side. And how do you go about gauging that or trying to make predictions on what international relations are going to be like I mean, you know, talking about how this administration seems like it will be UM have a more amenable relationship with China, how how do you go about sort of engauging that and then also the time horizon for that well, and so there's a bunch of UM consultants, there's UH political research firms, there's UH analysts, there's policy analysts. You know, we talked to government officials as well. We can get you know, I think a really good sense for for the direction of travel and and and in particular on on China where every our local presence. I mean, you know, this is why I would I would never think about investing, you know in Asia from sitting here in the US. We have a team that's local that's very plugged into what's going on in the regulatory landscape and economic policy landscape in China, and the teams in Hong Kong and Singapore. There's resources in Shanghai as well. UM and you you you can get a really good sense for what, um, what the policy agenda there is, and and and likely that the changes that are coming. So it's something you can you can get a pretty good handle one, you know, Kevin. For years now, I guess the one of the main bullish teams for China has been sort of this transition from a manufacturing dominated economy to potentially a more consumer dominated economy. UM. And some of the interesting interesting developments in China this year in late last year has been UM sort of an attempt to tame the credit markets in China, you know, corporate credits especially, and and prevent them from getting out of hand, getting a little too frothy. So I'm just going, you know, with those two things in mind and whatever else you're looking at in China, just what are sort of the main themes, the main kind of sectors and is it is it equities and credit or a little both. What kind of things are really drawing you into China. And so one of the things that we're the makes us the most excited about China, that that I'm you know, puzzled because it feels like not enough people are talking about is the aggressive market reform agenda passed by China late last year. That's, you know, the q FE and r q F reform. And you know, as you as you well know, historically when we want to access the onshore market in China, we have to trade via the connect system in Hong Kong. But what the QF and r q F reforms are going to allow us allow us to do is to is to trade directly in the onshore market with Chinese banks and broker dealers. Additionally, is going to be a borrow market that develops in the onshore market that's going to allow us to short stocks in the onshore market. So, you know, against all this anxiety about China about essentially planned economy, about trade friction, people are missing what we see as a watershed event of the market opening up and becoming more efficient and more accessible to international investors and all of the same principles that we use to invest on a long short basis fundamentally uh in the US or in Europe, well, they hold also in China, it's just a lot less competitive, you know, Chinese. In the Chinese market, less than about just about ten percent of the of the market cap is is owned by hedge funds. The onshore market approximately eighty percent of the volume, and the onshore market is retail investors. Uh. And so we just have a market it that's you know, we think going to become a lot more efficient, a lot more conducive to relative value investing in the market wheld. We don't think enough institutional investors are paying close enough attention. So for us, we we like to think of it as China transitioning from a beta story to an alpha story, where it's gonna matter the subsector as you pick, it's gonna matter the management teams, the products, the sectors that you pick. It's not just going to be China as a beta trade anymore. And that just you know, for us, is superrational and it's a really healthy growth in that market from you know, from a subsector perspective, you know, where we um you know, there's very clearly a tightening of the regulatory environment happening in China. There's some tightening of regulation on fin techs. There's a tightening of regulation on some of the internet and larger media companies. Now that's having a pretty meaningful impact. That's creating I think, big opportunities in the financial services sector. Uh. You know, we see big opportunities and more of the cyclical industrial and machinery and material spaces uh in China. So it's it's kind of a rotation, not dissimilar to the rotation we're seeing everywhere else in the world where you're going from, you know, from tech and growth to more value and cyclical sectors. But that's happening against a backdrop of a market getting more efficient. You know, for us, we see China as the biggest alpha opportunity in the world over the next really five to seven years, and it's mostly to do with the fact that the markets are becoming more efficient. Is there anything that's um that's surprised you in terms of your stance on China and um sort of these these positions that either um this year or even more recently that you maybe didn't expect. Yeah, well, I mean it just uh, you know, so the feedback that we that we get out talked to investors, UM a lot, We talked to UM you know, obviously our counterparties a lot. Yeah, I think people's eyes are just off the ball here. I mean again, I think they just have it in there head that you know, China is highly you know, highly regulated, closed economy. There's a very standoff dynamic between between the US and China from a political or trade perspective. But again, it's it's not what's happening in reality. The market is undergoing this massive opening up, and it's to meet people are just kind of ignoring it, and they're they're getting caught in these headlines and they're not they're not paying close enough attention to the reality of what's happening. And I'll, i'll, I'll give you a stat that I think it's pretty interesting. Right now, we estimate that you can short approximately fifty billion dollars in aggregate of Chinese equities right now through current inventory and the connect mechanism. If this onshore borrow market develops as we expect, that number is going to go up by a factor of you know, at least five x, maybe ten x. And what that means is, you know, China's already outstanding from a liquidity perspective. If you get if you get that borrow market developing and it gets more efficient, it is just going to be a terrific place for dynamic relative value investers to deploy capital. And and and we think we're there sooner than most, but I think we're gonna see a lot of people go in that direction. Yeah, it's interesting. You often read about these sort of valuation discrepancies caused by the ontore connect. You know, there's there's a lot of money flowing in South and north, and you know, it causes you know, stocks to be trading it wildly different valuations depending on you know, where they're listed. I imagine that's a pretty fleeting opportunity, but a big one when it happens for for like you said, the people that are there, they're in place ready to take advantage of it. Yeah, listen, it's a it's a huge opportunity. Uh. You know, and I think you have to again resist the temptation of a lot of professional investors, you know, dismiss retail flows at your own peril, you know. Um, we say, and it's not just similar to the to the MEM's talks. You know, the Chinese retail investors have a heavy momentum quality um and you will see things overreact both directions. You need to follow it, you need to respect it. But it also creates a lot of dislocation and relative value investment opportunities for for funds like US to to capitalize on. Yeah, I have a colleague you she at Bloomberg, who you know, follows the Chinese social media very carefully. He said. One of the jokes going around when all Game stop and now AMC, when all that was going on, is that, well, here, America, you've turned into the Chinese market now with this heavy dominance of retail participation. So it's gonna be interesting. I think when all of a sudden there is an opportunity to borrow a lot more of these names. Um well, I don't know, I don't know if Reddit is uh published in Mandarin yet or not, but an interesting dynamic. There's undoubtedly a you know exactly, there's undoubtedly that that sort of same chat room mentality. I guess, just just sort of relating to that, I mean, do you think that there are any any lessons from that that you know can be applicable to the US market just in terms of the of the retail presence, what you're seeing either in the two markets or um a need similarities or differences. You know. I mean, maybe you can call me a little bit old fashioned, but you know, we believe in being in being a little bit paranoid, paranoid about you know, making sure we know what we know, paranoid about what we don't know. UM. And anytime you see stock prices or moves that look irrational, um, you know, that's just something to draw your interest in. You know, you've got to do a lot more work again on the on the technicals, on the positioning, on the expectation before you can become you be prepared to come in and fade some of these moves and listen. If I had one recommendation, you know for people, it's to not dismiss these flows, uh, to understand what that's telling you about MARKETR participants. What's that telling you about psychology? And then just be humble about it and say like, Okay, when I'm on the other side of these trades, where I want to take the other side of these trades because I don't think you know, a m C h is worth its current market cap, Well, I guess what, the people buying AMC have no opinion on its market cap. So my assessment of coming in and looking at the value of AMC on a market cap relative to earnings power, which maybe is how we think it should be valued, it's just not relevant. So you just have to have this inherent paranoia or skepticism that there could be something else driving stock rights performance, and then you should be cautious about it. Kevin I was reading about I guess it was the first half of last year. You guys had a really strong run than during the pandemic. And one of the things I thought was really interesting was it sounds like he did some pear trades where you would short the stocks of some of the companies getting really hit hard by the pandemic, but then go along the credit of the same companies UM. And it to me, I mean, it makes total So I don't think I granted, I don't think I ever would have thought of that at the time, but it makes total sense given the dynamics at play at the time, with the FED basically saying it was going to backstop the credit markets. UM. Another big story this week obviously, is is the FED saying it's gonna sort of unwind? Uh, it's credit holdings. Um. And it was really I think more of a psych logical effect on the credit markets that a sort of dollar for dollar impact from from what the FED did. So I'm just curious, you know how you're thinking is was that was that sort of a a a fleeting once in a lifetime opportunity to do that type of thing amid the pandemic we're you know, are credit markets such that you would you would still think of doing that type of trade? Uh in this environment a year later? Yeah, So the opportunity in March and April of in the U s CR credit markets was historic. Uh you know really the only good analogy I think is the global financial crisis. UM. And in particular, when the FED came out and went the extra mile to say they were going to support the high yield market, we were staring at each other like, can you believe they just said that? They really just say that the other world it does exactly and and there was a time where the market didn't react right away, and we were staring at each other like this is a really unbelievable historic and special opportunity, and the and the most unique thing about it is that you know, normally you see that sort of news and then the market squeezes squeezes up and you have a hard time buying anything, and you're like, okay, well I just missed it. But what happened for really the entirety of the summer because of this economic conditions associated with COVID were so severe. We actually had a bunch of companies who had to come out an issue high yield investment grade or convertible debts. So not only did you have this dynamic where the FED was supporting the credit markets, and listen, I was always hell people like if you had a a wish list of things you wanted for the holidays and you asked for their FED they gave you all those things, and it's like, oh, by the way, we got a new car for you out in the driveways. So so you had everything you could possibly have wanted. But then there was a ton of issuance, so we could go out and buy a lot of high yield investment grade in convertible bonds. So not only were we able to benefit from the from the FED, policy action, but we were able to benefit from corporates issuing in what retrospect was incredibly cheap paper to shore up their liquidity to operate over the COVID crisis. So I mean, I'm trying to imagine how that particular fact pattern repeats, and I really can't, let's hope. Yeah, And I feel a little I feel a little bad because it was it was, without a doubt, probably the most compelling investing environment that I've seen in uh you know, really it's it really only compares to the global financial crisis in terms of the opportunity. So it's it's hard to imagine, you know, it's it's ever like that again. But but listen, there are and this is part of the reason why investors like ourselves, who we invest in equity market and credit credit markets globally all day, every day. Uh not everybody does that, and so you can have situations where people are looking laser focused on the equity market or the credit market and they're missing the dynamic um and you know, probably one of the you know, we had some some credit positions that that really benefited from from some of this retail participation because as these company stocks rallied. They were able to issue equity there to shore up their balance sheets improve their credit. So it's just a really a perfect dynamic to be long credit and short equity. Yeah, and I wonder you gotta sort of be in the right position to take advantage of it. You know, if you're if you're getting margin calls and you're getting outflows and all that, it's some opportunities for a lot of people. Just had to have to skip on my imagine. Yeah, you just I mean, our philosophy is we just, uh, we're never that confident. So we're just ever going to go into a situation over levered um. We're always going to keep dry powder um, and we're always gonna we always manage our our betas very tightly. Again, we're a relative value funds, so you know, when there's a market draw down, we're going to be massively outperforming you know, beta indices, and generally our investors are going to focus on their their beta investments, so they're they're confident that we're going to be able to ride through those sort of events and capitalize on some of those dislocations. So you know, when you have a long term, stable capital base and you're prudent from maintaining some excess margin, you can come in and take advantage of these opportunities. So we were fortunate to do that well. And then just seeing what happened last year, I mean, you know, like we said, knock on wood, we're not going to have a repeat of that. But were there any sort of lessons from that trade or from kind of being able to identify that early that you're going to take into the future or even the next time there is any market memorial or anything like that. Yeah, So I think that one of the enduring lessons for for us is that, um, you know, let's get our capital to the spots that are the most attractive. You know, I think there's one of the you know, i'll call it a mistake, but may maybe that's an overstatement. You know, people say, hey, I need to have some invested in this area of the market, in that area of the market, and and the reality is they were like, you know, yeah, the the credit markets in the US were an enormous opportunity, but that was just you know, frankly, one of three enormous opportunities in um, you know, most people don't really don't remember or or forgetting the fact that well, China was approximately three to four months ahead of every other economy in the world in terms of getting the covid um you know, virus, but emerging from it. And so in our view, one of the biggest opera tunities that we were able to capitalize on was moving into equities in China. In the summer of we were in remember the summer here, we were in the throes of anxiety in Western Europe and the US, but we were seeing very clear indications based on travel and commerce that the Chinese economy is starting to accelerate out of that. So we were able to rotate and really gross up our exposures in China and take care of that. And then and then finally, you know, we had that election back in November. Uh, and you know, maybe it seems obvious now, but you know, the democratic agenda by administration democratic Congress was going to lead to two things, uh, stimulus and um environmentally oriented policy, right, and so that accelerated, in our opinion, a massive opportunity to rotate and move our capital into some of the cyclical sectors that had been ignored a really you know a long time. I mean, we we'd spent almost twenty years when we thought about, Hey, interest rates are low, growth is low, We're supposed to go buy you know, high quality growth stocks and quality stocks. And now it's the opposite in a lot of ways. We're starting a new economic cycle. We're supposed to own cyclical stocks, you're supposed to own value stocks. And it was a very clear and obvious rotation that people should have been doing pretty much right into and after the election, but people people lagged in that rotation. Frankly, Uh continues to go on even even in the markets. Um, you know here today on Thursday, Uh, Kevin. Before we get into the crazy things, I think someone passed a law somewhere where every interview like this has to include a question about inflation. It's it's mandatory. I think I get I get locked up if I don't, if I don't touch about it. But one thing I noticed, Um, you know, everyone and not everyone, but a lot of people keep an eye on that city Economic Surprise Index or there's there's other you know, firms that have ECO surprise index. C He also has an inflation surprise index that unfortunately it only prices once a month at the end of the month, and I looked at it on the first stay of June and noticed May. I mean, we all knew inflation was hot in May, and we all knew it was hotter than everyone expected, but that inflation Surprise Index jumped it like doubled in May and it hit the highest level ever, which to me I find interesting because the ripple effects of all the CPI and pc whatever reports we saw in May. Yeah, the market didn't freak out too much about it, um, which to me leads me to believe that kind of the consensus out there is to agree with the fit that this is all transitory, whether it be base effects or or the supply bottlenecks we're seeing, and that we don't really have to worry about inflation. Um. I'm just curious what your take on it is. I mean, is there I don't know what a single digit chance that they're wrong that we are looking at sort of a structurally high higher inflation rate going forward because of all the all the stimulus. How are you thinking about it? Yeah? So, so I think when one of the things that a lot of people, uh, you know, forget is you know, we're getting this rush of economic activity after several years of really lower capex and investment on expectations that you know, growth was going to be low forever. And so you know, whether it's it's UM, it's industrial metals, or oil and gas, there has been a massive you know, under investment in capex really the past several years. And so now is the global economy starting to restore, starting to restart. The commodity markets are just really tight, and you know, the the amount of of of price inflation happening just on the raw material side is massive. UM and now there's a ton of there's no shortage of resources in the world. Uh, there's just a shortage of resources I can get put into production right away. And so you know, we're definitely in the camp that we're going to see a supply reaction. You're gonna get a reaction out of out of OPEC, you're gonna get a reaction on some of the metal and mining companies, and you're going to offset some of those short term price squeezes. But it's unclear to me whether that's happening in the in the end second quarter, third quarter, or fourth quarter. And so I think there's a pretty significant probability that there's an inflation surprise, and that it's difficult for the market on a on a short term basis that's over the sort of the three month horizon. But I think longer term, I think there's generally consensus that that there's going to be a supply response and offset some of these transitory pressures. So you know, what we're seeing though, is uh And I agree with you, there's you know, you have to talk about inflation every every discussion, otherwise it's a problem. You know, there's a there's a really I think a rational transition, transition happening in the market right now as investors are starting to distinguish between who is more tightly managing their cost a good sold their inventory requirements, and so we're seeing who has pricing power, We're seeing, you know, who's managing their cost infrastructure better, and the market is actually distinguishing companies and subsectors based on how they're managing the cost side of their equations. So I actually, to us, it looks like we've transitioned from you know, if you were ten out of ten frenetic anxiety about inflation in March, you're probably down to like a seven out of ten now because people you know, I could once once people are talking about it for a good rule of them. If you've been hearing people talk about it for two weeks, it's discounted um. And so for all of the handwringing that's happened. If you guys are watching the tenure right ten years, been at one sixty for I don't know, three weeks now four weeks. So I think increasingly the markets are are are discounting these short term inflationary pressures in and are more relaxed about it. There's still going to be some rotations and volatility, but you know, clearly it's it's the it's the negative event in the market. It's it's the black spawn event. There's a there's an inflation surprise, it's the FED is behind the curve, the e c B is behind the curve, and you know it ends up being counterproductive to economic activity in the back half of the year. That's that's a probability. We think it's pretty low, but that's clearly the thing to worry about, you know. And I keep thinking, as you mentioned that supply side response, I just can't help but wonder if that's going to overreact and we're talking about transitory deflation next year, and who's prepared for that? You know, you know what I mean, hope hopefully I'll be able to come back and uh and uh and uh and talk about that. I mean, listen, I think that there's again, there's no shortager resources out there. It's just a function of you know, really structurally lower capex for the past couple of years. Their corporate boardrooms around the world, they're seeing this, they're seeing the opportunity. They're looking for new supply projects, they're bringing supply online, and it's going to offset. It's just a question of whether it gets here soon enough for for some people in the market. Stand clear of the craziest things we saw in markets this week. You know, Claire, as Kevin said, there's no shortage of supply of resources in the world. You know, there's also not a shortage of crazy things. I believe. I totally agree, well supplied in that arena. So I want you to kick us off with the craziest thing you saw this week. So the craziest thing that I saw. We actually had a story out this morning. It was my colleague Katie Greifeld wrote it um and she's fantastic, But it of course is about AMC and UM. We saw that UM with AMC UM. It recently had a regulatory filing UM that landed this morning, and it talked about its intention to UM sell more than eleven million shares UM. But it had this acknowledgement in the language UM and it said that the stock is at the mercy of the retail mania UM with fundamentals playing little role in determining its valuation. UM. So just the fact that that made its way into an official regulatory filing I thought was was pretty crazy. Proceeds from the sale will be deposited with Libroll Reddenbacker to pay for all that presentably it is. I I don't think we've had any of us have seen. I mean, I don't know. The bar for crazy things keeps getting raised higher and higher. This this one though, was it's pretty good. I don't know. I don't want to knock on wood people listening with headphones at home. That might get a pop in here, but knock on wood. We don't get any crazier than that. But Kevin, how about you? You see anything crazy this week? Well? I mean, am I going to get in trouble if I kind of copy Claire on this one, not at all, not at all, So so I, um, I saw something and it was a MC, but it was an AMC nuance that I think is interesting here. I I came in after the long weekend stupor that we all were in on Tuesday morning and saw that AMC had issued stock to a single investor. Um. And call me old fashioned, I'm used to company's issuing stock at a discount until last sale, and I saw that they issued stock at a premium to last sale to a single investor about h I think it was about a four or five percent premium um, which and then I saw the stock promptly rally um massively past that. And then that same investor came out in the afternoon and said he thought the stock was wildly overvalued. So we had this weird dynamic where a company issue stock at a premium to a single investor, that investor obviously sells it in the market that day, presumably, and then and then tells people who thinks it's overvalued before it promptly doubles again the next day. And you know, I think I've seen company's issue stock at a premium. Uh, maybe once in my in my career, and it's just again one of those things where you know something's different is happening. If someone can find the page and Graham and Dodd where this this is all explained, I'd love to see it. But well, and also I believe that investor was a distress debt investor, so in a way of brilliant trade, kind of the opposite of of your trade last year. You know, it's go along the stock so that they can you know, bolster the credit. I we I don't know, but I's such a risky thing because you really didn't know. I mean, who knows how the market would react to a secondary like that, I guess. But they all worked out in their favor. Yeah, well I think, I mean, he obviously figured out. We worked out well for it. We worked out well for him. Uh, pretty good, pretty good. The tip of the hat to to that. Um, I'm copying to him. I and I guess we're all in the A m C. We're all in the theater together on this. I gotta say I did. I did go back to an AMC theater last weekend, Uh, and saw a movie. We've got it. They have the big cushy leather recliners and they bring you the food. It's it's I don't know. Maybe there's there's a good bookcase to be made. But to me, the the promotions that Claire, you and I worked on this story a little bit together, the promotions going on of AMC are our borderlining on the absurd. You know, you're seeing people on the street corner holding poster boards saying, you know by AMC stock. You're you're seeing someone tweeted a video of some pool party looked at some hotel that these these models and bikinis danced around waiving signs that say a MC to the moon. I can't wrap my head around this, Kevin, I don't know. I I uh, it's all fun while last I guess it seems like, uh, sort of a game of musical chairs to some degree, to see who's gonna be left holding that back. You know, by the end of this, they'll they'll be, they'll be it'll end very badly for people on the long and short side of there, like, so the people are going to have issues with it, for sure. I presumably those models got paid for their day's work, though, so they're they're happy it's so some some stimulats in to the economy from all this anyway, But Claire Balantine, Kevin Russell really great to catch up with both of you. I hope we can have you back, both of you back on this show someday. But I think that's all the time we have. Thanks for having me, guys, I really enjoyed it. Thank you What Goes Up. We'll be back next week. That's something. You can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter, follow me at Reaganonymous. Claire Valentine is at CFP Underscore eighteen. You can also follow Bloomberg Podcasts at Podcasts and Thank you to Charlie Pelletto, Bloomberg Radio and the voice of the New York City Subway System. What Goes Up is produced by tofur Forez. The head of Bloomberg Podcast is Francesco Leviy. Thanks for listening. See you next time.

Hello, and welcome to What Goes Up, a weekly markets podcast. I'm Mike Reagan, a senior editor at Bloomberg, and this week on the show, it was sort of a week of deja vu. Meme. Stocks are back in the headline, as shares of the movie theater chain a MC got pumped to the moon, and the markets oriented geopolitical tensions are making news again as the Biden administration looks to potentially expand the number of Chinese companies that are blacklisted for US investors. What should we make of all these flashbacks. We'll get into it with the chief investment officer for a hedge fund firm that manages nine billion dollars. But first, Charlie Pellett Tallusue. This week's mystery co host is. This week's mystery co host is Claire Ballantine. Claire as a reporter for Bloomberg in New York, but gused on e t f s. She hails from the same town in Tennessee as Dolly Parton. She's licensed to marry couples in New York, and she has a collection of alpaca paraphernalia. Claire, there's lots unpacked in that introduction that Charlie Pellet introduction of you. Mainly I wanted to get Charlie Pellett to say the words I'll pack up paraphernalia. I don't think I could say that five times best. But you gotta explain how does one collect Well, first of all, what the heck is alpaca paraphernalia? And how does one become a collector? And what's the market like? Is it? Is it a hot market right now? What are prices going for in the I'll pack a paraphernalia market? You know, I've been doing it for so long that I can't even remember the origin of it. Um. It just sort of became a thing. And then what happens is when you have a thing, people always get you stuff like that for your birthday or for Christmas. So even long past when this would have died down, eventually it just kept going because people kept giving me towels and mugs and rugs. And suddenly my apartment is overtaken by alpacas. That's hilarious. That's hilarious. Is that? Have you ever owned an actual alpaca? Or no? No, I want to. I want to get a standard poodle, the dog because I think it looks a bit like an alpaca, but you can walk it on the street without getting weird looks. All right. I don't know if you'd got a weird luck with an alpaca. I don't know. There's only one way to find out. We'll have to test that thesis sometimes we should. I did one time see a guy in the East village walking a pig. So anything in New York goes, that's true, that's true. All right, Well do you think goes? On this show? And we're very lucky this week to have a really interesting guest someone I've read a lot about over the years. Uh. He is the chief investment officer at UBS O'Connor, which is the hedge fund division at UBS Asset Management. His name is Kevin, So Kevin, welcome to the show. Thank you, great to be here. Kevin. Let's start with this whole revenge of the meme stocks that we're seeing in the market again, AMC, particularly just going doubling on one session during the week. I mean, for for a hedge fun guy like yourself with a lot of assets to sort of puts work this see, these type of things seem like kryptonite to me, especially obviously on the short side. I mean, we've we've heard a lot of widow maker trades on the short side. But I'm wondering for you, you know, are there opportunities here for the I mean, obviously, with the volatility and these eye popping moves we've seen, it's hard to ignore it for a guy like you. I'm just wondering if, if there are opportunities in the space, is there anyway we're for you to put money to work in this type of environment? Yeah? Uh yeah, So, I mean I tried, We tried to be about as far from these types of situations in the market as we possibly can. I I talked to one of our pms this morning and I said, I'd like to be roughly a million and miles away from this, and he's like, well, you realize we're probably like thousand miles away because there's correlations with these stocks and other stocks that were evolved in so so I kind of I kind of acknowledge that. But you know, to me, anytime you have a stock price moves that are divorced from economic reality or corporate finance changes, that's like a flashing warning side warning signed to us to really be cautious around it. And you know, I don't know if you followed some of the stats on AMC, I'm drawn to it not dissimilar to rubber necking an accident on the freeway. Um, but the numbers I saw, we're just amazing. You know, we had more AMC volume on Wednesday than we had in Tesla, in Nvidia, Apple and Amazon combined. On one day, we had more AMC op trading. Then we had this little index called the SP five hundred Index options trading. So you know, the volume is is alarming. And listen, I think there's this temptation to just completely dismiss this type of activity as irrational and illogical and a casino or mm stock, and I think that's true at all, you know, I uh, you know, to me, you really have to pay close attention to some of these phenomenons. And for for a long time, you know, we analyze companies, we analyze fundamental changes at companies, we analyze what's going on the economy. But we're we're we're honest, and we're saying, you know, sometimes price performance securious performances a function of investors psychology and position and positioning, and you know when you have a situation like this, you know, you really cannot take an aggressive stand one way or another. You can't dismiss uh, you know, the stock moves one way or another. You just have to be cautious and realize this has become a purely technical event. There's a whole bunch of investors here with different perspectives and psychologies. There's investors who are getting free popcorn at AMC theaters. By the way, Um, that's a motivation. So I wondered if that's subject to the dividend tax. I don't know. You gotta gotta give a p for some of your popcorn back to the government. Probably is probably a slight mark up at the at the counter. I agree with you. Well, and then while this is all happening, I mean, are there any opportunities that you see for you all? Or are there opportunities that maybe are getting overlooked because everyone is so focused on, you know, watching the meme stocks go up and down. Yeah, so that's one of the that's my nine thousand mile analogy, because you know, when stocks, whether it's an AMC or bed bass in beyond, go up. Um, we see things that go up in sympathy with that UM philosopher. For example, if people think that A m C and Bed Bath and Beyond are doing well, they get excited about mall owners or strip mall operators. And the reality is the dynamics of people going to malls and going to you know, strip centers is not changing. It's not changing based on overnight price action in bed Bathroom Beyond or a MC. So we do see some of the stocks that are related UM react and that's where we tend to look for opportunities to take advantage of the dislocation. So, you know, one of our core disciplines and and and this has been you know, for as long as I've been in the business. You have to be very mindful of how big the short base is in any stock. I always tell people stocks are a log normally distributed, which is, you invest a hundred dollars UH and you can lose a hundred dollars, but you can make ten x or twenty extra your money. And and subsequently, you have to be very mind full of the size and nature of your short positions. UM and and so we're we're always on top of that, but we're looking for things that are one or two steps removed from these stories take advantage of those dislocations. It always amazes me to you know, if some stocks short interest, who's the one going in and turn it in a fifty one or fifty that just seems like playing with fire. You know what I gotta tell you, I I totally agree with that. And listen, I think I I learned this literally about two weeks into my job when I started twenty years ago, which is, don't short too much of anything because it can be very technical. And so I think it's just a matter of um of of hubrists. In a lot of cases, people like well, listen, um, you know, the evaluation these companies doesn't make sense. So I can be comfortable at carrying a heat short and you know, when you have something that can be so technical, evaluation just doesn't matter. Um. And so we're always cautious with that. We we we watch short interest ratios call used old fashioned. We look at the short based relative to daily volume. We look at the short based relative to the free flowed, and if he gets above these you know, sort of certain metrics, we just try to avoid them. Kevin, to move on to something, I know you guys were involved with at least earlier in the year, you were very bullish on China. I think one of the funds had was something like exposure to China. I'm wondering, you know, do the sort of the sort of geopolitical sword rattling, the Biden blacklist um possibly being expanded to to not just military linked firms. Um, what do you make of all that? Is it kind of is it kind of just that? Is it a bit of saber rattling? Do do you see any real risk there of of sort of a worsening relationship with China and an outright band of more stocks for US investors in China. Yeah, so listen, I think big picture, Uh, there's a more constructive dialogue between the US and China happening, happening now than under the prior administration. And even though there's potentially a broader list of stocks that are going to be banned, there's potentially a tightening of existing bands and limiting bands to some of the specific subsidiaries. So, you know, big picture, I think relations between the two countries from a trade and cooperation perspective are going to be improving. Um. But you know, to the extent that that there are these bands. You know, I think this, I think they create opportunity more than risk. You know, I think if you're sitting here, you're sitting in the US, you're sitting in Western Europe. You unfortunately tend to think about this from a European or US perspective, like, you know, the US government is going to discipline you know, the Chinese. But the reality is, uh, there's always a corollary a Chinese perspective on these stories that creates, you know, an equally investable seamen. And I'll just give you an example. So you know, under the Trump administration, there was this real aggressive pressure on reducing higher end semiconductor equipment materials and and telecom equipment in stocks to to to the Chinese. UM So with the Chinese government did is react uber rationally and said, Okay, I get this. If there's some risk that I'm not going to be able to buy high quality intellectual property from the US, I'm going to build my own technology supply chain. And so while most people sat there in and said, wow, this is this uncertainty about US China trade and tech supply chain makes me nervous, some of the best performing stocks in the world were some of the domestically focused Chinese small and MidCap technology and semiconductor stocks. So we always tell our investors like, you know, don't use your don't look at everything from your U S lens, uh, you know, put on your you know, your China hat and interpret what this local corollarya is going to be because it's going to create an investable theme on the other side. And how do you go about gauging that or trying to make predictions on what international relations are going to be like I mean, you know, talking about how this administration seems like it will be UM have a more amenable relationship with China, how how do you go about sort of engauging that and then also the time horizon for that well, and so there's a bunch of UM consultants, there's UH political research firms, there's UH analysts, there's policy analysts. You know, we talked to government officials as well. We can get you know, I think a really good sense for for the direction of travel and and and in particular on on China where every our local presence. I mean, you know, this is why I would I would never think about investing, you know in Asia from sitting here in the US. We have a team that's local that's very plugged into what's going on in the regulatory landscape and economic policy landscape in China, and the teams in Hong Kong and Singapore. There's resources in Shanghai as well. UM and you you you can get a really good sense for what, um, what the policy agenda there is, and and and likely that the changes that are coming. So it's something you can you can get a pretty good handle one, you know, Kevin. For years now, I guess the one of the main bullish teams for China has been sort of this transition from a manufacturing dominated economy to potentially a more consumer dominated economy. UM. And some of the interesting interesting developments in China this year in late last year has been UM sort of an attempt to tame the credit markets in China, you know, corporate credits especially, and and prevent them from getting out of hand, getting a little too frothy. So I'm just going, you know, with those two things in mind and whatever else you're looking at in China, just what are sort of the main themes, the main kind of sectors and is it is it equities and credit or a little both. What kind of things are really drawing you into China. And so one of the things that we're the makes us the most excited about China, that that I'm you know, puzzled because it feels like not enough people are talking about is the aggressive market reform agenda passed by China late last year. That's, you know, the q FE and r q F reform. And you know, as you as you well know, historically when we want to access the onshore market in China, we have to trade via the connect system in Hong Kong. But what the QF and r q F reforms are going to allow us allow us to do is to is to trade directly in the onshore market with Chinese banks and broker dealers. Additionally, is going to be a borrow market that develops in the onshore market that's going to allow us to short stocks in the onshore market. So, you know, against all this anxiety about China about essentially planned economy, about trade friction, people are missing what we see as a watershed event of the market opening up and becoming more efficient and more accessible to international investors and all of the same principles that we use to invest on a long short basis fundamentally uh in the US or in Europe, well, they hold also in China, it's just a lot less competitive, you know, Chinese. In the Chinese market, less than about just about ten percent of the of the market cap is is owned by hedge funds. The onshore market approximately eighty percent of the volume, and the onshore market is retail investors. Uh. And so we just have a market it that's you know, we think going to become a lot more efficient, a lot more conducive to relative value investing in the market wheld. We don't think enough institutional investors are paying close enough attention. So for us, we we like to think of it as China transitioning from a beta story to an alpha story, where it's gonna matter the subsector as you pick, it's gonna matter the management teams, the products, the sectors that you pick. It's not just going to be China as a beta trade anymore. And that just you know, for us, is superrational and it's a really healthy growth in that market from you know, from a subsector perspective, you know, where we um you know, there's very clearly a tightening of the regulatory environment happening in China. There's some tightening of regulation on fin techs. There's a tightening of regulation on some of the internet and larger media companies. Now that's having a pretty meaningful impact. That's creating I think, big opportunities in the financial services sector. Uh. You know, we see big opportunities and more of the cyclical industrial and machinery and material spaces uh in China. So it's it's kind of a rotation, not dissimilar to the rotation we're seeing everywhere else in the world where you're going from, you know, from tech and growth to more value and cyclical sectors. But that's happening against a backdrop of a market getting more efficient. You know, for us, we see China as the biggest alpha opportunity in the world over the next really five to seven years, and it's mostly to do with the fact that the markets are becoming more efficient. Is there anything that's um that's surprised you in terms of your stance on China and um sort of these these positions that either um this year or even more recently that you maybe didn't expect. Yeah, well, I mean it just uh, you know, so the feedback that we that we get out talked to investors, UM a lot, We talked to UM you know, obviously our counterparties a lot. Yeah, I think people's eyes are just off the ball here. I mean again, I think they just have it in there head that you know, China is highly you know, highly regulated, closed economy. There's a very standoff dynamic between between the US and China from a political or trade perspective. But again, it's it's not what's happening in reality. The market is undergoing this massive opening up, and it's to meet people are just kind of ignoring it, and they're they're getting caught in these headlines and they're not they're not paying close enough attention to the reality of what's happening. And I'll, i'll, I'll give you a stat that I think it's pretty interesting. Right now, we estimate that you can short approximately fifty billion dollars in aggregate of Chinese equities right now through current inventory and the connect mechanism. If this onshore borrow market develops as we expect, that number is going to go up by a factor of you know, at least five x, maybe ten x. And what that means is, you know, China's already outstanding from a liquidity perspective. If you get if you get that borrow market developing and it gets more efficient, it is just going to be a terrific place for dynamic relative value investers to deploy capital. And and and we think we're there sooner than most, but I think we're gonna see a lot of people go in that direction. Yeah, it's interesting. You often read about these sort of valuation discrepancies caused by the ontore connect. You know, there's there's a lot of money flowing in South and north, and you know, it causes you know, stocks to be trading it wildly different valuations depending on you know, where they're listed. I imagine that's a pretty fleeting opportunity, but a big one when it happens for for like you said, the people that are there, they're in place ready to take advantage of it. Yeah, listen, it's a it's a huge opportunity. Uh. You know, and I think you have to again resist the temptation of a lot of professional investors, you know, dismiss retail flows at your own peril, you know. Um, we say, and it's not just similar to the to the MEM's talks. You know, the Chinese retail investors have a heavy momentum quality um and you will see things overreact both directions. You need to follow it, you need to respect it. But it also creates a lot of dislocation and relative value investment opportunities for for funds like US to to capitalize on. Yeah, I have a colleague you she at Bloomberg, who you know, follows the Chinese social media very carefully. He said. One of the jokes going around when all Game stop and now AMC, when all that was going on, is that, well, here, America, you've turned into the Chinese market now with this heavy dominance of retail participation. So it's gonna be interesting. I think when all of a sudden there is an opportunity to borrow a lot more of these names. Um well, I don't know, I don't know if Reddit is uh published in Mandarin yet or not, but an interesting dynamic. There's undoubtedly a you know exactly, there's undoubtedly that that sort of same chat room mentality. I guess, just just sort of relating to that, I mean, do you think that there are any any lessons from that that you know can be applicable to the US market just in terms of the of the retail presence, what you're seeing either in the two markets or um a need similarities or differences. You know. I mean, maybe you can call me a little bit old fashioned, but you know, we believe in being in being a little bit paranoid, paranoid about you know, making sure we know what we know, paranoid about what we don't know. UM. And anytime you see stock prices or moves that look irrational, um, you know, that's just something to draw your interest in. You know, you've got to do a lot more work again on the on the technicals, on the positioning, on the expectation before you can become you be prepared to come in and fade some of these moves and listen. If I had one recommendation, you know for people, it's to not dismiss these flows, uh, to understand what that's telling you about MARKETR participants. What's that telling you about psychology? And then just be humble about it and say like, Okay, when I'm on the other side of these trades, where I want to take the other side of these trades because I don't think you know, a m C h is worth its current market cap, Well, I guess what, the people buying AMC have no opinion on its market cap. So my assessment of coming in and looking at the value of AMC on a market cap relative to earnings power, which maybe is how we think it should be valued, it's just not relevant. So you just have to have this inherent paranoia or skepticism that there could be something else driving stock rights performance, and then you should be cautious about it. Kevin I was reading about I guess it was the first half of last year. You guys had a really strong run than during the pandemic. And one of the things I thought was really interesting was it sounds like he did some pear trades where you would short the stocks of some of the companies getting really hit hard by the pandemic, but then go along the credit of the same companies UM. And it to me, I mean, it makes total So I don't think I granted, I don't think I ever would have thought of that at the time, but it makes total sense given the dynamics at play at the time, with the FED basically saying it was going to backstop the credit markets. UM. Another big story this week obviously, is is the FED saying it's gonna sort of unwind? Uh, it's credit holdings. Um. And it was really I think more of a psych logical effect on the credit markets that a sort of dollar for dollar impact from from what the FED did. So I'm just curious, you know how you're thinking is was that was that sort of a a a fleeting once in a lifetime opportunity to do that type of thing amid the pandemic we're you know, are credit markets such that you would you would still think of doing that type of trade? Uh in this environment a year later? Yeah, So the opportunity in March and April of in the U s CR credit markets was historic. Uh you know really the only good analogy I think is the global financial crisis. UM. And in particular, when the FED came out and went the extra mile to say they were going to support the high yield market, we were staring at each other like, can you believe they just said that? They really just say that the other world it does exactly and and there was a time where the market didn't react right away, and we were staring at each other like this is a really unbelievable historic and special opportunity, and the and the most unique thing about it is that you know, normally you see that sort of news and then the market squeezes squeezes up and you have a hard time buying anything, and you're like, okay, well I just missed it. But what happened for really the entirety of the summer because of this economic conditions associated with COVID were so severe. We actually had a bunch of companies who had to come out an issue high yield investment grade or convertible debts. So not only did you have this dynamic where the FED was supporting the credit markets, and listen, I was always hell people like if you had a a wish list of things you wanted for the holidays and you asked for their FED they gave you all those things, and it's like, oh, by the way, we got a new car for you out in the driveways. So so you had everything you could possibly have wanted. But then there was a ton of issuance, so we could go out and buy a lot of high yield investment grade in convertible bonds. So not only were we able to benefit from the from the FED, policy action, but we were able to benefit from corporates issuing in what retrospect was incredibly cheap paper to shore up their liquidity to operate over the COVID crisis. So I mean, I'm trying to imagine how that particular fact pattern repeats, and I really can't, let's hope. Yeah, And I feel a little I feel a little bad because it was it was, without a doubt, probably the most compelling investing environment that I've seen in uh you know, really it's it really only compares to the global financial crisis in terms of the opportunity. So it's it's hard to imagine, you know, it's it's ever like that again. But but listen, there are and this is part of the reason why investors like ourselves, who we invest in equity market and credit credit markets globally all day, every day. Uh not everybody does that, and so you can have situations where people are looking laser focused on the equity market or the credit market and they're missing the dynamic um and you know, probably one of the you know, we had some some credit positions that that really benefited from from some of this retail participation because as these company stocks rallied. They were able to issue equity there to shore up their balance sheets improve their credit. So it's just a really a perfect dynamic to be long credit and short equity. Yeah, and I wonder you gotta sort of be in the right position to take advantage of it. You know, if you're if you're getting margin calls and you're getting outflows and all that, it's some opportunities for a lot of people. Just had to have to skip on my imagine. Yeah, you just I mean, our philosophy is we just, uh, we're never that confident. So we're just ever going to go into a situation over levered um. We're always going to keep dry powder um, and we're always gonna we always manage our our betas very tightly. Again, we're a relative value funds, so you know, when there's a market draw down, we're going to be massively outperforming you know, beta indices, and generally our investors are going to focus on their their beta investments, so they're they're confident that we're going to be able to ride through those sort of events and capitalize on some of those dislocations. So you know, when you have a long term, stable capital base and you're prudent from maintaining some excess margin, you can come in and take advantage of these opportunities. So we were fortunate to do that well. And then just seeing what happened last year, I mean, you know, like we said, knock on wood, we're not going to have a repeat of that. But were there any sort of lessons from that trade or from kind of being able to identify that early that you're going to take into the future or even the next time there is any market memorial or anything like that. Yeah, So I think that one of the enduring lessons for for us is that, um, you know, let's get our capital to the spots that are the most attractive. You know, I think there's one of the you know, i'll call it a mistake, but may maybe that's an overstatement. You know, people say, hey, I need to have some invested in this area of the market, in that area of the market, and and the reality is they were like, you know, yeah, the the credit markets in the US were an enormous opportunity, but that was just you know, frankly, one of three enormous opportunities in um, you know, most people don't really don't remember or or forgetting the fact that well, China was approximately three to four months ahead of every other economy in the world in terms of getting the covid um you know, virus, but emerging from it. And so in our view, one of the biggest opera tunities that we were able to capitalize on was moving into equities in China. In the summer of we were in remember the summer here, we were in the throes of anxiety in Western Europe and the US, but we were seeing very clear indications based on travel and commerce that the Chinese economy is starting to accelerate out of that. So we were able to rotate and really gross up our exposures in China and take care of that. And then and then finally, you know, we had that election back in November. Uh, and you know, maybe it seems obvious now, but you know, the democratic agenda by administration democratic Congress was going to lead to two things, uh, stimulus and um environmentally oriented policy, right, and so that accelerated, in our opinion, a massive opportunity to rotate and move our capital into some of the cyclical sectors that had been ignored a really you know a long time. I mean, we we'd spent almost twenty years when we thought about, Hey, interest rates are low, growth is low, We're supposed to go buy you know, high quality growth stocks and quality stocks. And now it's the opposite in a lot of ways. We're starting a new economic cycle. We're supposed to own cyclical stocks, you're supposed to own value stocks. And it was a very clear and obvious rotation that people should have been doing pretty much right into and after the election, but people people lagged in that rotation. Frankly, Uh continues to go on even even in the markets. Um, you know here today on Thursday, Uh, Kevin. Before we get into the crazy things, I think someone passed a law somewhere where every interview like this has to include a question about inflation. It's it's mandatory. I think I get I get locked up if I don't, if I don't touch about it. But one thing I noticed, Um, you know, everyone and not everyone, but a lot of people keep an eye on that city Economic Surprise Index or there's there's other you know, firms that have ECO surprise index. C He also has an inflation surprise index that unfortunately it only prices once a month at the end of the month, and I looked at it on the first stay of June and noticed May. I mean, we all knew inflation was hot in May, and we all knew it was hotter than everyone expected, but that inflation Surprise Index jumped it like doubled in May and it hit the highest level ever, which to me I find interesting because the ripple effects of all the CPI and pc whatever reports we saw in May. Yeah, the market didn't freak out too much about it, um, which to me leads me to believe that kind of the consensus out there is to agree with the fit that this is all transitory, whether it be base effects or or the supply bottlenecks we're seeing, and that we don't really have to worry about inflation. Um. I'm just curious what your take on it is. I mean, is there I don't know what a single digit chance that they're wrong that we are looking at sort of a structurally high higher inflation rate going forward because of all the all the stimulus. How are you thinking about it? Yeah? So, so I think when one of the things that a lot of people, uh, you know, forget is you know, we're getting this rush of economic activity after several years of really lower capex and investment on expectations that you know, growth was going to be low forever. And so you know, whether it's it's UM, it's industrial metals, or oil and gas, there has been a massive you know, under investment in capex really the past several years. And so now is the global economy starting to restore, starting to restart. The commodity markets are just really tight, and you know, the the amount of of of price inflation happening just on the raw material side is massive. UM and now there's a ton of there's no shortage of resources in the world. Uh, there's just a shortage of resources I can get put into production right away. And so you know, we're definitely in the camp that we're going to see a supply reaction. You're gonna get a reaction out of out of OPEC, you're gonna get a reaction on some of the metal and mining companies, and you're going to offset some of those short term price squeezes. But it's unclear to me whether that's happening in the in the end second quarter, third quarter, or fourth quarter. And so I think there's a pretty significant probability that there's an inflation surprise, and that it's difficult for the market on a on a short term basis that's over the sort of the three month horizon. But I think longer term, I think there's generally consensus that that there's going to be a supply response and offset some of these transitory pressures. So you know, what we're seeing though, is uh And I agree with you, there's you know, you have to talk about inflation every every discussion, otherwise it's a problem. You know, there's a there's a really I think a rational transition, transition happening in the market right now as investors are starting to distinguish between who is more tightly managing their cost a good sold their inventory requirements, and so we're seeing who has pricing power, We're seeing, you know, who's managing their cost infrastructure better, and the market is actually distinguishing companies and subsectors based on how they're managing the cost side of their equations. So I actually, to us, it looks like we've transitioned from you know, if you were ten out of ten frenetic anxiety about inflation in March, you're probably down to like a seven out of ten now because people you know, I could once once people are talking about it for a good rule of them. If you've been hearing people talk about it for two weeks, it's discounted um. And so for all of the handwringing that's happened. If you guys are watching the tenure right ten years, been at one sixty for I don't know, three weeks now four weeks. So I think increasingly the markets are are are discounting these short term inflationary pressures in and are more relaxed about it. There's still going to be some rotations and volatility, but you know, clearly it's it's the it's the negative event in the market. It's it's the black spawn event. There's a there's an inflation surprise, it's the FED is behind the curve, the e c B is behind the curve, and you know it ends up being counterproductive to economic activity in the back half of the year. That's that's a probability. We think it's pretty low, but that's clearly the thing to worry about, you know. And I keep thinking, as you mentioned that supply side response, I just can't help but wonder if that's going to overreact and we're talking about transitory deflation next year, and who's prepared for that? You know, you know what I mean, hope hopefully I'll be able to come back and uh and uh and uh and talk about that. I mean, listen, I think that there's again, there's no shortager resources out there. It's just a function of you know, really structurally lower capex for the past couple of years. Their corporate boardrooms around the world, they're seeing this, they're seeing the opportunity. They're looking for new supply projects, they're bringing supply online, and it's going to offset. It's just a question of whether it gets here soon enough for for some people in the market. Stand clear of the craziest things we saw in markets this week. You know, Claire, as Kevin said, there's no shortage of supply of resources in the world. You know, there's also not a shortage of crazy things. I believe. I totally agree, well supplied in that arena. So I want you to kick us off with the craziest thing you saw this week. So the craziest thing that I saw. We actually had a story out this morning. It was my colleague Katie Greifeld wrote it um and she's fantastic, But it of course is about AMC and UM. We saw that UM with AMC UM. It recently had a regulatory filing UM that landed this morning, and it talked about its intention to UM sell more than eleven million shares UM. But it had this acknowledgement in the language UM and it said that the stock is at the mercy of the retail mania UM with fundamentals playing little role in determining its valuation. UM. So just the fact that that made its way into an official regulatory filing I thought was was pretty crazy. Proceeds from the sale will be deposited with Libroll Reddenbacker to pay for all that presentably it is. I I don't think we've had any of us have seen. I mean, I don't know. The bar for crazy things keeps getting raised higher and higher. This this one though, was it's pretty good. I don't know. I don't want to knock on wood people listening with headphones at home. That might get a pop in here, but knock on wood. We don't get any crazier than that. But Kevin, how about you? You see anything crazy this week? Well? I mean, am I going to get in trouble if I kind of copy Claire on this one, not at all, not at all, So so I, um, I saw something and it was a MC, but it was an AMC nuance that I think is interesting here. I I came in after the long weekend stupor that we all were in on Tuesday morning and saw that AMC had issued stock to a single investor. Um. And call me old fashioned, I'm used to company's issuing stock at a discount until last sale, and I saw that they issued stock at a premium to last sale to a single investor about h I think it was about a four or five percent premium um, which and then I saw the stock promptly rally um massively past that. And then that same investor came out in the afternoon and said he thought the stock was wildly overvalued. So we had this weird dynamic where a company issue stock at a premium to a single investor, that investor obviously sells it in the market that day, presumably, and then and then tells people who thinks it's overvalued before it promptly doubles again the next day. And you know, I think I've seen company's issue stock at a premium. Uh, maybe once in my in my career, and it's just again one of those things where you know something's different is happening. If someone can find the page and Graham and Dodd where this this is all explained, I'd love to see it. But well, and also I believe that investor was a distress debt investor, so in a way of brilliant trade, kind of the opposite of of your trade last year. You know, it's go along the stock so that they can you know, bolster the credit. I we I don't know, but I's such a risky thing because you really didn't know. I mean, who knows how the market would react to a secondary like that, I guess. But they all worked out in their favor. Yeah, well I think, I mean, he obviously figured out. We worked out well for it. We worked out well for him. Uh, pretty good, pretty good. The tip of the hat to to that. Um, I'm copying to him. I and I guess we're all in the A m C. We're all in the theater together on this. I gotta say I did. I did go back to an AMC theater last weekend, Uh, and saw a movie. We've got it. They have the big cushy leather recliners and they bring you the food. It's it's I don't know. Maybe there's there's a good bookcase to be made. But to me, the the promotions that Claire, you and I worked on this story a little bit together, the promotions going on of AMC are our borderlining on the absurd. You know, you're seeing people on the street corner holding poster boards saying, you know by AMC stock. You're you're seeing someone tweeted a video of some pool party looked at some hotel that these these models and bikinis danced around waiving signs that say a MC to the moon. I can't wrap my head around this, Kevin, I don't know. I I uh, it's all fun while last I guess it seems like, uh, sort of a game of musical chairs to some degree, to see who's gonna be left holding that back. You know, by the end of this, they'll they'll be, they'll be it'll end very badly for people on the long and short side of there, like, so the people are going to have issues with it, for sure. I presumably those models got paid for their day's work, though, so they're they're happy it's so some some stimulats in to the economy from all this anyway, But Claire Balantine, Kevin Russell really great to catch up with both of you. I hope we can have you back, both of you back on this show someday. But I think that's all the time we have. Thanks for having me, guys, I really enjoyed it. Thank you What Goes Up. We'll be back next week. That's something. You can find us on the Bloomberg Terminal website and app, or wherever you get your podcasts. We'd love it if you took the time to rate and review the show on Apple Podcasts so more listeners can find us. And you can find us on Twitter, follow me at Reaganonymous. Claire Valentine is at CFP Underscore eighteen. You can also follow Bloomberg Podcasts at Podcasts and Thank you to Charlie Pelletto, Bloomberg Radio and the voice of the New York City Subway System. What Goes Up is produced by tofur Forez. The head of Bloomberg Podcast is Francesco Leviy. Thanks for listening. See you next time.