Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg, and I'm aldowna higher across acid reporter with Bloomberg. This week on the show. While the headlines coming from the banking sector have been nothing short of terrifying this month, yet the stock market just keeps chugging along, especially the tech sector. In fact, the NASDAC one hundred index is about to snap a streak of four straight quarterly declines. That's its longest losing streak in more than twenty years. So what's going on? Is it just a return to the days when growth stocks would reliably outperform after value had its brief time in the sun, or is it something else going on. We're gonna get into it with a quant who also has some very interesting thoughts on a topic we hardly ever talk about around here, microcaps, which val Donna leads me to put you on the spot and ask what's your favorite microcap stock? My favorite micro Well, I was going to say, you missed an opportunity to make a great pun. You could have said, like a small topic, you know, good, Oh my gosh, what's my favorite microcap? Oh my gosh, you really are giving me on a spot I don't even know any I gotta admit I didn't know any I looked, I looked them up, and now I know what's your favorite? What's your favorite one? Well, I'm gonna not reveal that, but I will say it's it's a fascinating field and there's a bunch year to day that are up like two hundred percent if you look at the Russell microcap in next. So I'm glad we've got the perfect guest to break it down for us. Oh my gosh, is it a lot of like biotech? A lot of biotech? Yeah, a lot of biotech. Oh my gosh. Okay, well, then let's bring our guests in. It's Patrick McDonough Managing director at Pegum Quantitative Solutions. Thank you so much for joining us, Thanks for having me, glad to be here to talk. Before we got started with today's interview, you and I were chatting and you said you would keep equations to a minimum during our during our podcast recording, So I wanted to ask you to just lay out your role for us. Sure. Sure, I'm a portfolio manager on the Quantitative Equity Team, Impegium Quantitative Solutions. I know everybody loves to talk to to quant portfolio managers, those mats, all the all the regressions and interactions across factors, So I'll make sure to lay that awfully thick today. Absolutely well, Patrick, let's get started just with a sort of overview of what we've seen in the market so far this year. I mean, you know, I mentioned in the intro that strong rally and tech. I think the NAZAC one hundreds up like fourteen fifteen percent this year. What do you think's going on? Is it a growth value thing or is it you know, texts the best place to hide out from the troubles in the banking sector. How are you sort of explaining this action we've seen in the market this year. I think it looks like a value versus growth On the surface, you're seeing tech go do really well. You're seeing well, actually it almost happens inter day in some cases, but by and large, for the year to day period, we've seen tech do really well. We've seen a reversal of the cyclicals that drove value last year. So at first clients it's said nice simple value versus growth story with growth coming back. But I think if you peel that back a couple of layers, what you're actually seeing is fear or at least on certainty, driving the equity market, and that's being played out with these larger tech names that have done well in the past. But I don't necessarily think you're going to do all that well going forward in the space. So I actually think it's a little bit more of a size effect that we're seeing at this point rather than actual growth. And you believe the names that are doing it. You know, it's Apple, it's Microsoft, Salesforce, and these are really big companies. These are also really really expensive companies and videos more than fifty times forward earnings at this point. So it's hard to see how these are really growth companies. They've already come, they've already grown, they've been growing for you know. They you could argue that haven't really grown for half a decade at this point. They're just so big. If anything, they're very profitable companies at this point, but it's kind of hard to see them as actual growth companies. And from a factor, I can't help it. I'm a quanta. I have to From a factor perspective. These aren't really growth companies. If anything, they show up a size of course larger cap names even within say the SMP or the NASDAC or they show up as quality names. These are companies that are very, very consistent and persistent when it comes during an earnings perspective. Really not growth at this point. I think this is a place to hide for equity investors at this point. Yeah, just what we've forever considered growth have grown into becoming I guess the blue chip defensive stocks almost that you know, if you have to belong something, these are the names you go with exactly. In a lot of ways, this reminds me of sort of the two thousand and eight beginning of twenty nineteen period. So it's not two thousand and eight at least, which is a good thing. It's not a banking crisis. Governments around the world have really stepped up and put a floor under financials. But it is a little bit I think of the market hoping that the FED rising rates isn't going to last, and we're going to see a reversal of that in the short term. If you remember, going back to twenty eighteen, the FED started to raise rates, The market kind of freaked out a little bit. You saw sort of the re emergence of the fangs fangs two point zero at this point coming back, and everything else in the market maybe discovered there or rolled over a little bit. COVID put an end to that particular trade at this point, but it was a last gasp of what had been almost a ten year bull rally at that point. People looking for those those companies that would be economically insensitive or at least agnostic to any downturn in the markets. You compare that to the fixed income market, and wow, it's it's two very very different messages that we're seeing right now. The fix income market right now kind of looks like the six space mount in Disney World. Right You kind of ride up the curve a little bit going up to the to the sixth month, and then it rolls on down until the ten year, twenty year, get a little bit of a bump going into the thirty year. But that's not posed for sort of a growth market. That's not i think signaling happy landings or at least anything other than volatility going forward. Where the equity market right now, it's like it's fine we're whistling past this particular graveyard and hoping that continues forever. I guess at this point hard to see that with rates, you know, in the short term rifle of five percent. But maybe we'll have, you know, forever, forever, perpetual growth, but that seems unlikely. Mike. I don't know about you, but I love roller coaster rides, especially in the market. My kids get this season passes to six Flags. I can't even watch them go on is really fun. Yeah, so that's a new Jersey staple. Patrick. I have a follow up question about the what you were just saying about the fixed income market, because a couple of weeks ago, what a lot of people were saying was that there was a short squeeze in the fixed income market and that's why we were seeing all those moves. So I'm wondering if, like, can we even trust the signals that the treasury market is sending us if we did see some of those moves happening because of the short squeeze. That's a that's a tough question, right, It's it's it kind of depends on what As an acid owner, your your time horizon is. It's been a really nice trading signal if you've been sort of a high frequency quant and you've been moving in and out sort of middlesecond trading and uh and and taking advantage of the volatilities we saw up until the last week or so. I think at the very least, what it does give investors though, as an opportunity that we haven't had in a long time. People aren't really necessarily pulling out of this large cap tech trades that we were talking about. There hasn't been a rebalance and to say staples or something like that, which is more negative, but people are sitting on cash and you can actually get a yield for the first time, you know, in a decade decade plus, and that's really I think going to have an opportunity. Well, you have a rising opportunity set now, so that's going to have a big impact I think on more markets go that marginal dollar, that next investment dollar. You don't have to chase the current trends. You can actually sit there in a money market fund at close to five percent and kind of not panic and kind of maybe just kind of cool your jets and rest for a little bit. And that's a nice option. I think for people to have. So whether it's a pure signal of an impending recession or not, I will see. It's kind of hard, in my view, my personal view, to see where this goes. Have this not end and at least some sort of pull back. The consumer keeps proving me wrong. There seems to be this interesting fight going on now between the Fed and the American consumer. But it's it's rare, I think, to have to go from basically zero to what's called five percent interest rates and not just break a few relatively small, obscure banks. I would expect to see people start pulling back, And anecdotally, you know, I'm starting to see it, just just amongst my friends, my family. Things are getting awfully expensive out there, and it's hard to see how that doesn't have some sort of consequences for the economy going forward. You know, Patrick, the one thing you hear so often is, well, yes, the Fed is raising rates. Jerome Powell pretty much signaled that he does not see any environment in which they'd actually cut rates this year, regardless of what the short term interest rate market is saying. But on the other hand, that Fed balance sheet that everyone keeps a close eye on has really ramped up aggressively, and obviously, to me, there's a big difference between quantitative easing, where they are, you know, expanding the balance sheet by buying assets from banks, buying treasuries and mortgage back securities, and this version of it where they're just extending loans through the discount window and through this new term loan facility for for banks that are struggling. But yet there's this almost this knee jerk reaction that hey, the Fed's outing liquid liquidity, the bounce sheet is expanding, This is unabashedly uh good for risk assets. How do you think about that? I mean that that to me seems like kind of a risky interpretation of what the Fed's doing. Um, and I'm just curious how you how you view it. I think that's I would agree with your with your view that that's that's that's a bit of a risky way to view what's going on with the FED. And maybe we can kind of flip that and see what people have what the impact has been across the quote un risk free quote unquote risk free asset class over the last even just year to date, right, I mean, suddenly duration is really mattered and suddenly if you just looked at the whip sawing of the two year much less, you know, any thing longer dated duration matters. Again, so even risk free holding maturity government securities aren't exactly risk free if it doesn't if it doesn't line up properly with the liabilities on your balance sheet. So trying to kind of time this from from a risk asset perspective is I think a bit of a fools game at this point. Probably better to take advantage of that yield bring you can get it played the defenses at least a little bit. And again, even if you look at the tech names that are doing well in the equity market, they're not really the risky end of the spectrum. This isn't the startup end, This isn't sort of the aggressive well perhaps maybe fifty times and age we mentioned is a bit on the extreme end, but very big, very stable, very safe companies. I don't really think we're going to see much of a risk on market in the foreseeable future. And we started see some of those wobbles across more risky ends of that's called CPAs or hedge funds, people getting kind of wiped out a little bit in that space and even across private equity. Now, maybe I'm a little bitter as a public's guy and having a daily marked to mark rather than being able to kind of hide on my multi year contracts there. So maybe we should all take this with a grant of salt. But it is interesting to see some of the news breaking on some really big PE players having to finally again finally you can tell my bias there. But that's that marked to mark across some of these other asset class So I'm not really sure the market is digested all this free capital that we've had it from that's called the thread round one. If this is round two, I don't know where that goes in a safe in a safe manner, I'm wondering patch of what you think the market should be pricing in, or the stock market should be pricing in at this point. I've read this interesting note from City this week that said something like stock neither stucks nor bonds have priced in a recession, and as Mike just mentioned, you know the market is expecting some cuts later this year. What should the market be pricing in? I think what the market should be focusing on is actually earnings at this point, and I think that would be kind of the way to it to adjust the pricing going forward. We kind of had a little bit of a reset of of the pe ratio the last year or so as markets came down last year, but earnings haven't moved much and there hasn't been that that resetting of future expectations of what companies can be doing and what companies can be doing. I think, really realistically, I'll keep picking on the big tech names because they've been the winner's space. If you've got billions of hundreds of billions of earnings coming in a year, how can you really be priced at twenty or thirty or whatever the multiple is going forward. You're so big that seems really unrealistic unless there's some sort of new product or new area for growth. That's hard to see right. We're seeing it now. I guess if we want to pick on sort of the AI approach, where you're more consumer focused, big tech companies have been going hasn't exactly. I mean, it's been fun. We've been hearing all sorts of crazy news stories about people falling in love with chatbots or chat box suddenly becoming aware and threatening to destroy the world. I think that was an eighties movie I grew up on, but the actual impact of that from a revenue perspective seems premature at this point, I would say, so, I think we need to as as a market collectively start reevaluating what more reasonable growth expectations are and I think that will help reset the p that's going to be the prices down that's going to I think reawaken what more realistic upside or quite honestly downside would be in the market. And that's not to say that markets are miss identifying quote unquote good companies. I think what they're missing though, is where companies go from here. So where's the upside? If you think back to Microsoft, right, you know, good company has been a good company for decades, really got hammered at the end of the tech bubble, but wasn't going out of business. There was no there's no fear of Microsoft going out of season to exist. It was still a good company. The price just didn't move for well over a decade, so it wasn't necessarily a good investment at that point, and I think that's where we maybe need to start thinking about redistributing capital for that actual upside. Potential rather than just kind of seeing the companies to stay paved. Patrick, let's get into that notion about microcaps, because I know you've done. I've been looking into them a bit lately. Talk to us about, you know what you've researched, what you found, how we should think about microcaps. Part of this started out with trying to identify companies for that actual upside potential, right if you think about it, from pure economic growth, almost an academic study of getting back in to say like, hey, where where are these companies with new ideas that have been overlooked or can come in and disrupt markets and actually disrupt So we're not going to pay for the the Ugers and again the Microsoft, So for the apples who have already come and disrupted and are now the established players. Where can you find some of those new places? And it started with tech, It started with tech and biotech. It was kind of looking into, you know, what are the structures of those names and is there an opportunity outside of the VC or private equity space and really realizing that the microcaps have been very overlooked. Now there's a lot of choppiness down there, there's a lot of noise down there. You have to be very very careful. You have to be very systematic or structured. I of course think wants to invest in every it wants or the answer to every question. But but you really do have to be diversified and clean and structured in the way that you do it in a microcraft space. But you also have the opportunity for other segments of the economy that aren't really necessarily in vogue, so things like banks, right, you could actually diversify in financials. You can look at industrials that are actually down sort of the real end of the economic spectrum, if you will, and get into that space in a more diversified way through microcap And it's also something that is not really played in from a traditional institutional investor space. It's something that people have historically avoided. Whether that's governance you need to give another manager who gets into space or look at it. Or you could get your growth from other or at least you assume do you get your growth from other segments of the market, which means it's not crowded. So it's an area where you can go in and get a lot of upside even above just the pure beta in the microcap space, so so very exciting, I think from an opportunity to set, at least in the long term. I feel like individuals stock selection would be tough in that space though, I mean, is there a systematic way to do it? Is you know, would you buy an ETF just buy everything? You know, I'm thinking of PGM with what a trillion and a half dollars to work with, you know, and quants in general tend to have billions and billion dollars to put to work. Like, how do you how do you approach microcaps systematically? I think you hit one of the nails on the head right there with knowing your limitations. This isn't a space where you're going to have billions and billions of dollars to be able to play in. If you do so, you're just going to completely overwhelm the space. So to be very very tailored in what you're doing. So in the US microcap space, you know, we probably want to put in a billion or show at a maximum level at this point, So you're limiting the upside that you can from an AUM growth. But you're doing that so you can preserve the actual ability to do stock selection. The ability to actually add value in the space you have to come out of to a certain extent from a philosophical perspective of hey, we still want to harvest the same underlying economic principles that we do as quants in the larger cap space. But you can't just take the same old model and slap it down there and call it a solution. You have to look and see what actual works. So you have to understand that there's going to be more sentiment driven trades that go on there, a little bit more volatility, or in some cases a lot more volatility. You have to be really clean, you have to be very efficient, and you have to be really really experienced to trade in that space, particularly if you're doing it across multiple names. But the benefits of that or diversification a lot of upside potential, as I said, both in the space so you think the data, but also in the name selection that you're doing. But you have to be really really disciplined from a risk perspective as well. So this is where you have to have multiple, multiple holdings, so you're just not putting all of your eggs in one basket. So you go so far as to go to the OTC pink sheet type of markets, or they too risky to get involved with. It's a little risky. I think in that point, if you're going to start doing OTC, you would need some sort of information advantage to really want to play in that space. I don't think you need to. That's the fun part, though. You don't actually have to get in that space to add value. You can do it with the liquid names, and that's really where I think being systematic mic bias notwithstanding, but being systematic in the way that you're trading, right, So you have to be able to go out and make sure as you're picking the names you can actually harvest. We use the ADP measures for example, right we're looking at the average daily volume of certain names and making sure we don't get anywhere near max adv across any of these names, so that you actually have the space to come in and harvest the upside of that name without driving that name up on your own. If you come in, you drive the price up as you're buying it, there's no room for it to grow, so it's just bad business to do that. The other is you have to make sure you really have good relationships with your counterparts. It's not as liquid, although the adv and liquidity as a rule has been going up significantly microcaps, So this isn't twenty years ago, ten years ago. Even this is very very liquid markets. But you have to make sure you have good relationships with your counterparts. You might want to cancel trade halfway through if someone else is jumping up on that name. Be a little bit more comfortable having a little bit more cash, not canceling your not fulling out filling a full order for example, if it starts to move away from you, and then rebalance it across other names in the portfolio. So there's a lot of science that goes into it, but you still have to have that art as an experience PM to make sure that you can leverage the information flow that you're getting. Okay, Patrick, I have a two part question, which is typically something that Mike would give guests, like a multipart question. So I'm stealing from him. Two parts Is amateur our amateur? Yeah, but I'm trying not to scare the guests away anyway. You So, Mike and I might not have our favorite microcaps, but maybe you can lay out some names that you guys are looking at and then The second part is you said you have to be very experienced to be trading these names, So I'm wondering who your advice is for, Like, is it for the professional or is it something that you know a retail investor and at home investor should also be looking at. I'll take the second part of that first. I think it's probably not a space where you want to be doing a lot of day trading per se, simply because you names can move against you really really quickly. There's a lot of information flow that's going on there. And also I think you want to be diversified, so I don't think you want to be necessarily researching five, ten, even fifteen names in the space and putting all your capital across those names. You really want to be diversifying away from any single name. There's a lot more what I would call sentiment or the underlying upside potential for individual names, less of the more traditionalist valuation and quality signals where those do exist in the space, and you want to make sure that you can harvest that systematically because you're going to diversify those single name risks away by having say one hundred and fifty two hundred names in your portfolio. That's harder to do as a retail investor individual investor, you can still do it, but it's a lot harder to do. The other is t costs. It's a lot more expensive to trade if you don't already have those big existing pre exist trading relationships where you can keep those costs down. So it's a lot harder for I think your average person to do it in this space. I don't know if I have this done for it as an individual investors will be quite honest with you, but it's a lot easier to do to leverage it across a partner, like as a pigeon quand so I think it makes a little bit more sense to leverage some sort of institutional help as you're doing that. So a little bit more limited as far as individual names. One area that I'm interested in, and it'll be interesting to see what happens given some of these regional banks that we're providing liquidity in the space is biotech. Biotech. As you know, a lot of these companies are just not profitable. They're just generating costs as they're out chasing usually one or two ideas, usually one idea as they're doing and it's really really exciting because it ends up being a lot of individual R and D types of companies that could come up with the next greatest breakthrough on an individual drug or of something along those lines. And I think it's really really cool and really exciting and just from a personal perspective, kind of a nice thing to employ some capital too. But with interest rates going up, which is a big part of it, and some of these you know, you can think of Silicon Volley Bank for a good example, or some of the more VC like banks that we're providing the capital for these companies, it's been a lot harder for them to make payroll, to make costs to do this. Going forward, I think there's a big opportunity for some of the biggest names in the in the pharma space to go in there and kind of bottom fish and pick up some really nice external R and D as it were in the space. So I think there's some opportunity for some takeouts there across biotech in particular in the space. Potentially in a little bit less likely but but maybe more interesting, is with Signature Bank being bought out and some of the potential for M and A across financials a little bit more of a risky bet, but it could be interesting some of these smaller regional banks get swept up by some of the bigger bets. Now, since we've seemed to have forgotten too big to fail and ander mar now almost more encouraging it, it'll be interesting to see if there's any M and A. They're not necessarily sure i'd put on my eye in a particular basket, but there's some opportunity in that space. Now. If there's a little bit more of a recession environment, we could see microcap slow down, So it's a little bit more of a longer bet, or at least a risk on bet in the space. But we've already seen valuations come down from the end of last year until including up three year to date. The valuations across sort of the public smaller startup come down. So I think if it's the potential for an entry point, or if we're not there yet, we're getting there soon in much the same way we're seeing across you know, even the privates in the p space. You know, I wonder you know you mentioned the higher interest rates, and I wonder you know, from sort of a macro level, what effects a microcap trade. You know, my guess is there's a lot of data involved. You know, if the smps going up x percent, the microcap index will go up at a percentage greater than x. If it goes down, why percent, it's going down at a rate greater than why. I mean, do you need a boat market to really fully embrace microcaps or is there a potential for some non someone correlated returns. You know, large caps are weak, but you can still get some some good returns and microcaps the beta of the acid class is very, very similar, so one hundred percent right. You know, when there's sort of that risk on environment for equities, you tend to get a little bit more juice in microcap and then when it's a risk off, you get a little bit less than what you're seeing the market. But the alpha or the upside potential, the security selection opportunities that is much higher in the in the microcap space, and you get a little bit more of that alpha buffer, which gives you that opportunity to do. So what actually it might be more interesting is sort of a a typical portable alpha. To use a marketing term from from a long time ago. I don't know where I dreads that one up, but you can kind of hedge out the beta or short the market in the space and just use the upside potential. Stock selection is a pure offer, and that's an interesting overlay perspective even in a downward market, even for a reasonable de sizable institution that doesn't onmally plan the space. You get a little bit of that flexibility, and that shows the creativity that you can do in the space doesn't have to just be that that pure long only. Well, that's something that you can conceivably lever in the space with the right risk of And what's the time horizon you guys are dealing with, because Mike mentioned there's a couple that are up like two or three hundred percent so far this year. Is that something you're looking at and expecting actually we can expect even more from some of these names. Or what does the time horizon typically look like? A lot or it's a lot shorter in microcap than it is even in small cap and it's signifulantly less so thanks you get up the cap space in a larger cap, so you have to be willing to take profits a lot sooner in the space, So you have to be much more of an active trader in the space for exactly as you said, if you're up two or three hundred percent today, you know it could be on a news flow. Let's say it's one of those biotechniques you're mentioning, they're up for a stage two trial, for example, on a particular drug. That's a nice profit and you should be willing to take it at that point and then you can reevaluate it and decide if you want to replay capital. But you have to be a lot more active in the space than you would be in here, particularly in your a larger cap Well. Patrick McDonald, Managing Director a p GEM Quantitative Solutions, thank you so much for joining us, and I'd like to segue us into our favorite part of the show, which is the craziest thing we all saw in markets this week, and I'd like to kick us off. So, okay, I know last week I had a weirdest thing that had absolutely nothing to do with markets, So this time around, I'm sticking something tangentially related to markets. There's a Champagne fifty index, the live x Champagne fifty index, and I saw this as part of a Bloomberk story about how champagne prices for certain champagnees are. They've just skyrocketed, and this index is doing or has beaten the foot Sea goal the SMP five hundred over the last couple of years. That's a pretty good one, Patrick, How about you? You see anything crazy this week that's hard to top. I guess what I'm confused about. Where I think is crazy is is why is bitcoin aging like a fine line? I'm not really sure why. I'm sorry, that's good. I don't understand why bigcoin bitcoin ons from what was the twenty thousand to twenty seven thousand. I'm not I'm a quant. I love tech. I think anything that has to do with computers is inherently cool. But I just don't understand why we're kind of refighting a battle that I thought we'd already won at this point with bitcoin, so seeing sort of and Bitcoin alone, it wasn't the other cryptos. It was particularly Bitcoin, which I know, I guess is the biggest and the most established, But I thought we already proven that it wasn't inflation. I'm just not really sure what the base case. So I'll have to drink some of that champagne and it will come. It's a moving target. The base case, you know, the irrational for buying bitcoin is I think, read the headlines, put your finger in the air and see which way the winds blowing, and pick a narrative and go with it. But but it is a really interesting topic because it Bitcoin is having a fantastic quarter, it's up something like sixty five seventy percent. But at the same time, we're not seeing the typical stuff, the typical like animal spirits that come with huge price surges for cryptocurrencies. Like you don't have people coming out and giving like huge price predictions as you might have seen in like twenty twenty or twenty twenty one, or you know, people going crazy on Twitter with yeah, you know, shilling some weird crypto coin you've never heard of, and you know, and to be fair, if you go back to the origin story of bitcoin after the financial crisis two thousand and eight, two thousand and nine, the whole thinking was you can't trust your money in a bank, you can trust it on the blockchain. So I don't know if that's really it. Other people have said all the liquidity being added to the market by the Fed you know a little from Columba, A little from Columba, all the above, But it's fascinating to watch. I agree. I agree, you would felt like it was left for dead there. But always those laser eye traders always give us something to talk about. I like it anyway, I'll give you mine mine. Some a Bloomberg story sounds like the beginning of a joke, But an investment advisor, a financial planner, and NBA agent and a former stockbroker all walk into SEC complaint basically, so stories about how there was these schemes to um cheat a handful of NBA players out of something like thirteen million, and that in the face of it is not that crazy. Unfortunately, the you know, these guys are kind of sitting ducks for scam artists out there, NBA players in fact. That that's that's what gets me to what I thought was the most interesting thing in this story. And I'll just read out this one paragraph to you. The case comes amid a rising trend of frauds on the pros, marked by their fame, financial inexperience, and high net worth. According to a twenty twenty one report by Ernst and Young, professional athletes have reported, and I'm not going to give you the number. And here's where we play the prices precise. Between two thousand and four and two thousand and nineteen, Ernst and Young went and tallied up all of the money that was scammed off of pro athletes based on publicly available criminal, civil and bankruptcy pleading. So two thousand and four, twenty nineteen, Da Ernston Young accountants did the math how much money were pro athletes scammed out of? I'm gonna go with five point four billion. Five point four billion, Yeah, all right, Patrick, prices right, roles are in effect. Remember, so you can go a dollar over a dollar under. You have a good poker face right now, How did I do with five point four billion? I was gonna go one point two? Oh no, I've got that just popped in my head. On much or why so's it's enough of an under? So I'm hoping that I played the odds there one point to well, you're under it was six hundred million. I thought that was a lot. That's way too low, bigger than most microcap stocks. It's not worth the effort. If I'm going to scam a bunch of basketball stars, I want like a couple of billion dollars. You know, all right, all right, you've got big ambitions, I guess, but six hundred million, Yeah, it's not enough. I thought that was a lot. You don't think that's a lot. Five point four billion, Well, Josh Allen has a five hundred million dollar contract, you know. Well, but you know, the other thing is, I bet there's a lot that they don't even realize they got scammed out of. You know, we're put into lousy investments or otherwise. You know. But wow, I thought six hundred millions a lot. You guys are tough, tough audience. Five point four billion. We're cynical New Jersey and I think that anyway. Patrick McDonough of p JIM so great to catch up with you in hear your thoughts. You got me thinking about microcaps more than I ever have now, a very overlooked but fascinating asset class. So gave us plenty to think about here. Hopefully we can get you back again in the future. Oh, Bill, Donna, Mike, thank you. This was so much fun. I really appreciate you guys taking the time to chat with me. I'm gonna go back to the server room with the other quants now, Thank you Patrick, What Goes Up. We'll be back next week and so then you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts. We 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 reag Anonymous. Bildna Hirich is at Bildonna Hirich. You can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Stacy Wong. Thanks for listening, See you next time. That men

Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Reagan. I'm a senior editor at Bloomberg, and I'm aldowna higher across acid reporter with Bloomberg. This week on the show. While the headlines coming from the banking sector have been nothing short of terrifying this month, yet the stock market just keeps chugging along, especially the tech sector. In fact, the NASDAC one hundred index is about to snap a streak of four straight quarterly declines. That's its longest losing streak in more than twenty years. So what's going on? Is it just a return to the days when growth stocks would reliably outperform after value had its brief time in the sun, or is it something else going on. We're gonna get into it with a quant who also has some very interesting thoughts on a topic we hardly ever talk about around here, microcaps, which val Donna leads me to put you on the spot and ask what's your favorite microcap stock? My favorite micro Well, I was going to say, you missed an opportunity to make a great pun. You could have said, like a small topic, you know, good, Oh my gosh, what's my favorite microcap? Oh my gosh, you really are giving me on a spot I don't even know any I gotta admit I didn't know any I looked, I looked them up, and now I know what's your favorite? What's your favorite one? Well, I'm gonna not reveal that, but I will say it's it's a fascinating field and there's a bunch year to day that are up like two hundred percent if you look at the Russell microcap in next. So I'm glad we've got the perfect guest to break it down for us. Oh my gosh, is it a lot of like biotech? A lot of biotech? Yeah, a lot of biotech. Oh my gosh. Okay, well, then let's bring our guests in. It's Patrick McDonough Managing director at Pegum Quantitative Solutions. Thank you so much for joining us, Thanks for having me, glad to be here to talk. Before we got started with today's interview, you and I were chatting and you said you would keep equations to a minimum during our during our podcast recording, So I wanted to ask you to just lay out your role for us. Sure. Sure, I'm a portfolio manager on the Quantitative Equity Team, Impegium Quantitative Solutions. I know everybody loves to talk to to quant portfolio managers, those mats, all the all the regressions and interactions across factors, So I'll make sure to lay that awfully thick today. Absolutely well, Patrick, let's get started just with a sort of overview of what we've seen in the market so far this year. I mean, you know, I mentioned in the intro that strong rally and tech. I think the NAZAC one hundreds up like fourteen fifteen percent this year. What do you think's going on? Is it a growth value thing or is it you know, texts the best place to hide out from the troubles in the banking sector. How are you sort of explaining this action we've seen in the market this year. I think it looks like a value versus growth On the surface, you're seeing tech go do really well. You're seeing well, actually it almost happens inter day in some cases, but by and large, for the year to day period, we've seen tech do really well. We've seen a reversal of the cyclicals that drove value last year. So at first clients it's said nice simple value versus growth story with growth coming back. But I think if you peel that back a couple of layers, what you're actually seeing is fear or at least on certainty, driving the equity market, and that's being played out with these larger tech names that have done well in the past. But I don't necessarily think you're going to do all that well going forward in the space. So I actually think it's a little bit more of a size effect that we're seeing at this point rather than actual growth. And you believe the names that are doing it. You know, it's Apple, it's Microsoft, Salesforce, and these are really big companies. These are also really really expensive companies and videos more than fifty times forward earnings at this point. So it's hard to see how these are really growth companies. They've already come, they've already grown, they've been growing for you know. They you could argue that haven't really grown for half a decade at this point. They're just so big. If anything, they're very profitable companies at this point, but it's kind of hard to see them as actual growth companies. And from a factor, I can't help it. I'm a quanta. I have to From a factor perspective. These aren't really growth companies. If anything, they show up a size of course larger cap names even within say the SMP or the NASDAC or they show up as quality names. These are companies that are very, very consistent and persistent when it comes during an earnings perspective. Really not growth at this point. I think this is a place to hide for equity investors at this point. Yeah, just what we've forever considered growth have grown into becoming I guess the blue chip defensive stocks almost that you know, if you have to belong something, these are the names you go with exactly. In a lot of ways, this reminds me of sort of the two thousand and eight beginning of twenty nineteen period. So it's not two thousand and eight at least, which is a good thing. It's not a banking crisis. Governments around the world have really stepped up and put a floor under financials. But it is a little bit I think of the market hoping that the FED rising rates isn't going to last, and we're going to see a reversal of that in the short term. If you remember, going back to twenty eighteen, the FED started to raise rates, The market kind of freaked out a little bit. You saw sort of the re emergence of the fangs fangs two point zero at this point coming back, and everything else in the market maybe discovered there or rolled over a little bit. COVID put an end to that particular trade at this point, but it was a last gasp of what had been almost a ten year bull rally at that point. People looking for those those companies that would be economically insensitive or at least agnostic to any downturn in the markets. You compare that to the fixed income market, and wow, it's it's two very very different messages that we're seeing right now. The fix income market right now kind of looks like the six space mount in Disney World. Right You kind of ride up the curve a little bit going up to the to the sixth month, and then it rolls on down until the ten year, twenty year, get a little bit of a bump going into the thirty year. But that's not posed for sort of a growth market. That's not i think signaling happy landings or at least anything other than volatility going forward. Where the equity market right now, it's like it's fine we're whistling past this particular graveyard and hoping that continues forever. I guess at this point hard to see that with rates, you know, in the short term rifle of five percent. But maybe we'll have, you know, forever, forever, perpetual growth, but that seems unlikely. Mike. I don't know about you, but I love roller coaster rides, especially in the market. My kids get this season passes to six Flags. I can't even watch them go on is really fun. Yeah, so that's a new Jersey staple. Patrick. I have a follow up question about the what you were just saying about the fixed income market, because a couple of weeks ago, what a lot of people were saying was that there was a short squeeze in the fixed income market and that's why we were seeing all those moves. So I'm wondering if, like, can we even trust the signals that the treasury market is sending us if we did see some of those moves happening because of the short squeeze. That's a that's a tough question, right, It's it's it kind of depends on what As an acid owner, your your time horizon is. It's been a really nice trading signal if you've been sort of a high frequency quant and you've been moving in and out sort of middlesecond trading and uh and and taking advantage of the volatilities we saw up until the last week or so. I think at the very least, what it does give investors though, as an opportunity that we haven't had in a long time. People aren't really necessarily pulling out of this large cap tech trades that we were talking about. There hasn't been a rebalance and to say staples or something like that, which is more negative, but people are sitting on cash and you can actually get a yield for the first time, you know, in a decade decade plus, and that's really I think going to have an opportunity. Well, you have a rising opportunity set now, so that's going to have a big impact I think on more markets go that marginal dollar, that next investment dollar. You don't have to chase the current trends. You can actually sit there in a money market fund at close to five percent and kind of not panic and kind of maybe just kind of cool your jets and rest for a little bit. And that's a nice option. I think for people to have. So whether it's a pure signal of an impending recession or not, I will see. It's kind of hard, in my view, my personal view, to see where this goes. Have this not end and at least some sort of pull back. The consumer keeps proving me wrong. There seems to be this interesting fight going on now between the Fed and the American consumer. But it's it's rare, I think, to have to go from basically zero to what's called five percent interest rates and not just break a few relatively small, obscure banks. I would expect to see people start pulling back, And anecdotally, you know, I'm starting to see it, just just amongst my friends, my family. Things are getting awfully expensive out there, and it's hard to see how that doesn't have some sort of consequences for the economy going forward. You know, Patrick, the one thing you hear so often is, well, yes, the Fed is raising rates. Jerome Powell pretty much signaled that he does not see any environment in which they'd actually cut rates this year, regardless of what the short term interest rate market is saying. But on the other hand, that Fed balance sheet that everyone keeps a close eye on has really ramped up aggressively, and obviously, to me, there's a big difference between quantitative easing, where they are, you know, expanding the balance sheet by buying assets from banks, buying treasuries and mortgage back securities, and this version of it where they're just extending loans through the discount window and through this new term loan facility for for banks that are struggling. But yet there's this almost this knee jerk reaction that hey, the Fed's outing liquid liquidity, the bounce sheet is expanding, This is unabashedly uh good for risk assets. How do you think about that? I mean that that to me seems like kind of a risky interpretation of what the Fed's doing. Um, and I'm just curious how you how you view it. I think that's I would agree with your with your view that that's that's that's a bit of a risky way to view what's going on with the FED. And maybe we can kind of flip that and see what people have what the impact has been across the quote un risk free quote unquote risk free asset class over the last even just year to date, right, I mean, suddenly duration is really mattered and suddenly if you just looked at the whip sawing of the two year much less, you know, any thing longer dated duration matters. Again, so even risk free holding maturity government securities aren't exactly risk free if it doesn't if it doesn't line up properly with the liabilities on your balance sheet. So trying to kind of time this from from a risk asset perspective is I think a bit of a fools game at this point. Probably better to take advantage of that yield bring you can get it played the defenses at least a little bit. And again, even if you look at the tech names that are doing well in the equity market, they're not really the risky end of the spectrum. This isn't the startup end, This isn't sort of the aggressive well perhaps maybe fifty times and age we mentioned is a bit on the extreme end, but very big, very stable, very safe companies. I don't really think we're going to see much of a risk on market in the foreseeable future. And we started see some of those wobbles across more risky ends of that's called CPAs or hedge funds, people getting kind of wiped out a little bit in that space and even across private equity. Now, maybe I'm a little bitter as a public's guy and having a daily marked to mark rather than being able to kind of hide on my multi year contracts there. So maybe we should all take this with a grant of salt. But it is interesting to see some of the news breaking on some really big PE players having to finally again finally you can tell my bias there. But that's that marked to mark across some of these other asset class So I'm not really sure the market is digested all this free capital that we've had it from that's called the thread round one. If this is round two, I don't know where that goes in a safe in a safe manner, I'm wondering patch of what you think the market should be pricing in, or the stock market should be pricing in at this point. I've read this interesting note from City this week that said something like stock neither stucks nor bonds have priced in a recession, and as Mike just mentioned, you know the market is expecting some cuts later this year. What should the market be pricing in? I think what the market should be focusing on is actually earnings at this point, and I think that would be kind of the way to it to adjust the pricing going forward. We kind of had a little bit of a reset of of the pe ratio the last year or so as markets came down last year, but earnings haven't moved much and there hasn't been that that resetting of future expectations of what companies can be doing and what companies can be doing. I think, really realistically, I'll keep picking on the big tech names because they've been the winner's space. If you've got billions of hundreds of billions of earnings coming in a year, how can you really be priced at twenty or thirty or whatever the multiple is going forward. You're so big that seems really unrealistic unless there's some sort of new product or new area for growth. That's hard to see right. We're seeing it now. I guess if we want to pick on sort of the AI approach, where you're more consumer focused, big tech companies have been going hasn't exactly. I mean, it's been fun. We've been hearing all sorts of crazy news stories about people falling in love with chatbots or chat box suddenly becoming aware and threatening to destroy the world. I think that was an eighties movie I grew up on, but the actual impact of that from a revenue perspective seems premature at this point, I would say, so, I think we need to as as a market collectively start reevaluating what more reasonable growth expectations are and I think that will help reset the p that's going to be the prices down that's going to I think reawaken what more realistic upside or quite honestly downside would be in the market. And that's not to say that markets are miss identifying quote unquote good companies. I think what they're missing though, is where companies go from here. So where's the upside? If you think back to Microsoft, right, you know, good company has been a good company for decades, really got hammered at the end of the tech bubble, but wasn't going out of business. There was no there's no fear of Microsoft going out of season to exist. It was still a good company. The price just didn't move for well over a decade, so it wasn't necessarily a good investment at that point, and I think that's where we maybe need to start thinking about redistributing capital for that actual upside. Potential rather than just kind of seeing the companies to stay paved. Patrick, let's get into that notion about microcaps, because I know you've done. I've been looking into them a bit lately. Talk to us about, you know what you've researched, what you found, how we should think about microcaps. Part of this started out with trying to identify companies for that actual upside potential, right if you think about it, from pure economic growth, almost an academic study of getting back in to say like, hey, where where are these companies with new ideas that have been overlooked or can come in and disrupt markets and actually disrupt So we're not going to pay for the the Ugers and again the Microsoft, So for the apples who have already come and disrupted and are now the established players. Where can you find some of those new places? And it started with tech, It started with tech and biotech. It was kind of looking into, you know, what are the structures of those names and is there an opportunity outside of the VC or private equity space and really realizing that the microcaps have been very overlooked. Now there's a lot of choppiness down there, there's a lot of noise down there. You have to be very very careful. You have to be very systematic or structured. I of course think wants to invest in every it wants or the answer to every question. But but you really do have to be diversified and clean and structured in the way that you do it in a microcraft space. But you also have the opportunity for other segments of the economy that aren't really necessarily in vogue, so things like banks, right, you could actually diversify in financials. You can look at industrials that are actually down sort of the real end of the economic spectrum, if you will, and get into that space in a more diversified way through microcap And it's also something that is not really played in from a traditional institutional investor space. It's something that people have historically avoided. Whether that's governance you need to give another manager who gets into space or look at it. Or you could get your growth from other or at least you assume do you get your growth from other segments of the market, which means it's not crowded. So it's an area where you can go in and get a lot of upside even above just the pure beta in the microcap space, so so very exciting, I think from an opportunity to set, at least in the long term. I feel like individuals stock selection would be tough in that space though, I mean, is there a systematic way to do it? Is you know, would you buy an ETF just buy everything? You know, I'm thinking of PGM with what a trillion and a half dollars to work with, you know, and quants in general tend to have billions and billion dollars to put to work. Like, how do you how do you approach microcaps systematically? I think you hit one of the nails on the head right there with knowing your limitations. This isn't a space where you're going to have billions and billions of dollars to be able to play in. If you do so, you're just going to completely overwhelm the space. So to be very very tailored in what you're doing. So in the US microcap space, you know, we probably want to put in a billion or show at a maximum level at this point, So you're limiting the upside that you can from an AUM growth. But you're doing that so you can preserve the actual ability to do stock selection. The ability to actually add value in the space you have to come out of to a certain extent from a philosophical perspective of hey, we still want to harvest the same underlying economic principles that we do as quants in the larger cap space. But you can't just take the same old model and slap it down there and call it a solution. You have to look and see what actual works. So you have to understand that there's going to be more sentiment driven trades that go on there, a little bit more volatility, or in some cases a lot more volatility. You have to be really clean, you have to be very efficient, and you have to be really really experienced to trade in that space, particularly if you're doing it across multiple names. But the benefits of that or diversification a lot of upside potential, as I said, both in the space so you think the data, but also in the name selection that you're doing. But you have to be really really disciplined from a risk perspective as well. So this is where you have to have multiple, multiple holdings, so you're just not putting all of your eggs in one basket. So you go so far as to go to the OTC pink sheet type of markets, or they too risky to get involved with. It's a little risky. I think in that point, if you're going to start doing OTC, you would need some sort of information advantage to really want to play in that space. I don't think you need to. That's the fun part, though. You don't actually have to get in that space to add value. You can do it with the liquid names, and that's really where I think being systematic mic bias notwithstanding, but being systematic in the way that you're trading, right, So you have to be able to go out and make sure as you're picking the names you can actually harvest. We use the ADP measures for example, right we're looking at the average daily volume of certain names and making sure we don't get anywhere near max adv across any of these names, so that you actually have the space to come in and harvest the upside of that name without driving that name up on your own. If you come in, you drive the price up as you're buying it, there's no room for it to grow, so it's just bad business to do that. The other is you have to make sure you really have good relationships with your counterparts. It's not as liquid, although the adv and liquidity as a rule has been going up significantly microcaps, So this isn't twenty years ago, ten years ago. Even this is very very liquid markets. But you have to make sure you have good relationships with your counterparts. You might want to cancel trade halfway through if someone else is jumping up on that name. Be a little bit more comfortable having a little bit more cash, not canceling your not fulling out filling a full order for example, if it starts to move away from you, and then rebalance it across other names in the portfolio. So there's a lot of science that goes into it, but you still have to have that art as an experience PM to make sure that you can leverage the information flow that you're getting. Okay, Patrick, I have a two part question, which is typically something that Mike would give guests, like a multipart question. So I'm stealing from him. Two parts Is amateur our amateur? Yeah, but I'm trying not to scare the guests away anyway. You So, Mike and I might not have our favorite microcaps, but maybe you can lay out some names that you guys are looking at and then The second part is you said you have to be very experienced to be trading these names, So I'm wondering who your advice is for, Like, is it for the professional or is it something that you know a retail investor and at home investor should also be looking at. I'll take the second part of that first. I think it's probably not a space where you want to be doing a lot of day trading per se, simply because you names can move against you really really quickly. There's a lot of information flow that's going on there. And also I think you want to be diversified, so I don't think you want to be necessarily researching five, ten, even fifteen names in the space and putting all your capital across those names. You really want to be diversifying away from any single name. There's a lot more what I would call sentiment or the underlying upside potential for individual names, less of the more traditionalist valuation and quality signals where those do exist in the space, and you want to make sure that you can harvest that systematically because you're going to diversify those single name risks away by having say one hundred and fifty two hundred names in your portfolio. That's harder to do as a retail investor individual investor, you can still do it, but it's a lot harder to do. The other is t costs. It's a lot more expensive to trade if you don't already have those big existing pre exist trading relationships where you can keep those costs down. So it's a lot harder for I think your average person to do it in this space. I don't know if I have this done for it as an individual investors will be quite honest with you, but it's a lot easier to do to leverage it across a partner, like as a pigeon quand so I think it makes a little bit more sense to leverage some sort of institutional help as you're doing that. So a little bit more limited as far as individual names. One area that I'm interested in, and it'll be interesting to see what happens given some of these regional banks that we're providing liquidity in the space is biotech. Biotech. As you know, a lot of these companies are just not profitable. They're just generating costs as they're out chasing usually one or two ideas, usually one idea as they're doing and it's really really exciting because it ends up being a lot of individual R and D types of companies that could come up with the next greatest breakthrough on an individual drug or of something along those lines. And I think it's really really cool and really exciting and just from a personal perspective, kind of a nice thing to employ some capital too. But with interest rates going up, which is a big part of it, and some of these you know, you can think of Silicon Volley Bank for a good example, or some of the more VC like banks that we're providing the capital for these companies, it's been a lot harder for them to make payroll, to make costs to do this. Going forward, I think there's a big opportunity for some of the biggest names in the in the pharma space to go in there and kind of bottom fish and pick up some really nice external R and D as it were in the space. So I think there's some opportunity for some takeouts there across biotech in particular in the space. Potentially in a little bit less likely but but maybe more interesting, is with Signature Bank being bought out and some of the potential for M and A across financials a little bit more of a risky bet, but it could be interesting some of these smaller regional banks get swept up by some of the bigger bets. Now, since we've seemed to have forgotten too big to fail and ander mar now almost more encouraging it, it'll be interesting to see if there's any M and A. They're not necessarily sure i'd put on my eye in a particular basket, but there's some opportunity in that space. Now. If there's a little bit more of a recession environment, we could see microcap slow down, So it's a little bit more of a longer bet, or at least a risk on bet in the space. But we've already seen valuations come down from the end of last year until including up three year to date. The valuations across sort of the public smaller startup come down. So I think if it's the potential for an entry point, or if we're not there yet, we're getting there soon in much the same way we're seeing across you know, even the privates in the p space. You know, I wonder you know you mentioned the higher interest rates, and I wonder you know, from sort of a macro level, what effects a microcap trade. You know, my guess is there's a lot of data involved. You know, if the smps going up x percent, the microcap index will go up at a percentage greater than x. If it goes down, why percent, it's going down at a rate greater than why. I mean, do you need a boat market to really fully embrace microcaps or is there a potential for some non someone correlated returns. You know, large caps are weak, but you can still get some some good returns and microcaps the beta of the acid class is very, very similar, so one hundred percent right. You know, when there's sort of that risk on environment for equities, you tend to get a little bit more juice in microcap and then when it's a risk off, you get a little bit less than what you're seeing the market. But the alpha or the upside potential, the security selection opportunities that is much higher in the in the microcap space, and you get a little bit more of that alpha buffer, which gives you that opportunity to do. So what actually it might be more interesting is sort of a a typical portable alpha. To use a marketing term from from a long time ago. I don't know where I dreads that one up, but you can kind of hedge out the beta or short the market in the space and just use the upside potential. Stock selection is a pure offer, and that's an interesting overlay perspective even in a downward market, even for a reasonable de sizable institution that doesn't onmally plan the space. You get a little bit of that flexibility, and that shows the creativity that you can do in the space doesn't have to just be that that pure long only. Well, that's something that you can conceivably lever in the space with the right risk of And what's the time horizon you guys are dealing with, because Mike mentioned there's a couple that are up like two or three hundred percent so far this year. Is that something you're looking at and expecting actually we can expect even more from some of these names. Or what does the time horizon typically look like? A lot or it's a lot shorter in microcap than it is even in small cap and it's signifulantly less so thanks you get up the cap space in a larger cap, so you have to be willing to take profits a lot sooner in the space, So you have to be much more of an active trader in the space for exactly as you said, if you're up two or three hundred percent today, you know it could be on a news flow. Let's say it's one of those biotechniques you're mentioning, they're up for a stage two trial, for example, on a particular drug. That's a nice profit and you should be willing to take it at that point and then you can reevaluate it and decide if you want to replay capital. But you have to be a lot more active in the space than you would be in here, particularly in your a larger cap Well. Patrick McDonald, Managing Director a p GEM Quantitative Solutions, thank you so much for joining us, and I'd like to segue us into our favorite part of the show, which is the craziest thing we all saw in markets this week, and I'd like to kick us off. So, okay, I know last week I had a weirdest thing that had absolutely nothing to do with markets, So this time around, I'm sticking something tangentially related to markets. There's a Champagne fifty index, the live x Champagne fifty index, and I saw this as part of a Bloomberk story about how champagne prices for certain champagnees are. They've just skyrocketed, and this index is doing or has beaten the foot Sea goal the SMP five hundred over the last couple of years. That's a pretty good one, Patrick, How about you? You see anything crazy this week that's hard to top. I guess what I'm confused about. Where I think is crazy is is why is bitcoin aging like a fine line? I'm not really sure why. I'm sorry, that's good. I don't understand why bigcoin bitcoin ons from what was the twenty thousand to twenty seven thousand. I'm not I'm a quant. I love tech. I think anything that has to do with computers is inherently cool. But I just don't understand why we're kind of refighting a battle that I thought we'd already won at this point with bitcoin, so seeing sort of and Bitcoin alone, it wasn't the other cryptos. It was particularly Bitcoin, which I know, I guess is the biggest and the most established, But I thought we already proven that it wasn't inflation. I'm just not really sure what the base case. So I'll have to drink some of that champagne and it will come. It's a moving target. The base case, you know, the irrational for buying bitcoin is I think, read the headlines, put your finger in the air and see which way the winds blowing, and pick a narrative and go with it. But but it is a really interesting topic because it Bitcoin is having a fantastic quarter, it's up something like sixty five seventy percent. But at the same time, we're not seeing the typical stuff, the typical like animal spirits that come with huge price surges for cryptocurrencies. Like you don't have people coming out and giving like huge price predictions as you might have seen in like twenty twenty or twenty twenty one, or you know, people going crazy on Twitter with yeah, you know, shilling some weird crypto coin you've never heard of, and you know, and to be fair, if you go back to the origin story of bitcoin after the financial crisis two thousand and eight, two thousand and nine, the whole thinking was you can't trust your money in a bank, you can trust it on the blockchain. So I don't know if that's really it. Other people have said all the liquidity being added to the market by the Fed you know a little from Columba, A little from Columba, all the above, But it's fascinating to watch. I agree. I agree, you would felt like it was left for dead there. But always those laser eye traders always give us something to talk about. I like it anyway, I'll give you mine mine. Some a Bloomberg story sounds like the beginning of a joke, But an investment advisor, a financial planner, and NBA agent and a former stockbroker all walk into SEC complaint basically, so stories about how there was these schemes to um cheat a handful of NBA players out of something like thirteen million, and that in the face of it is not that crazy. Unfortunately, the you know, these guys are kind of sitting ducks for scam artists out there, NBA players in fact. That that's that's what gets me to what I thought was the most interesting thing in this story. And I'll just read out this one paragraph to you. The case comes amid a rising trend of frauds on the pros, marked by their fame, financial inexperience, and high net worth. According to a twenty twenty one report by Ernst and Young, professional athletes have reported, and I'm not going to give you the number. And here's where we play the prices precise. Between two thousand and four and two thousand and nineteen, Ernst and Young went and tallied up all of the money that was scammed off of pro athletes based on publicly available criminal, civil and bankruptcy pleading. So two thousand and four, twenty nineteen, Da Ernston Young accountants did the math how much money were pro athletes scammed out of? I'm gonna go with five point four billion. Five point four billion, Yeah, all right, Patrick, prices right, roles are in effect. Remember, so you can go a dollar over a dollar under. You have a good poker face right now, How did I do with five point four billion? I was gonna go one point two? Oh no, I've got that just popped in my head. On much or why so's it's enough of an under? So I'm hoping that I played the odds there one point to well, you're under it was six hundred million. I thought that was a lot. That's way too low, bigger than most microcap stocks. It's not worth the effort. If I'm going to scam a bunch of basketball stars, I want like a couple of billion dollars. You know, all right, all right, you've got big ambitions, I guess, but six hundred million, Yeah, it's not enough. I thought that was a lot. You don't think that's a lot. Five point four billion, Well, Josh Allen has a five hundred million dollar contract, you know. Well, but you know, the other thing is, I bet there's a lot that they don't even realize they got scammed out of. You know, we're put into lousy investments or otherwise. You know. But wow, I thought six hundred millions a lot. You guys are tough, tough audience. Five point four billion. We're cynical New Jersey and I think that anyway. Patrick McDonough of p JIM so great to catch up with you in hear your thoughts. You got me thinking about microcaps more than I ever have now, a very overlooked but fascinating asset class. So gave us plenty to think about here. Hopefully we can get you back again in the future. Oh, Bill, Donna, Mike, thank you. This was so much fun. I really appreciate you guys taking the time to chat with me. I'm gonna go back to the server room with the other quants now, Thank you Patrick, What Goes Up. We'll be back next week and so then you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts. We 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 reag Anonymous. Bildna Hirich is at Bildonna Hirich. You can also follow Bloomberg Podcasts at podcasts. What Goes Up is produced by Stacy Wong. Thanks for listening, See you next time. That men