PYPL - Crypto M2 Money Supply And Earnings Surprises With James Foord (The Pragmatic Investor)
2023-05-12 08:30:00 ET
Summary
- The Pragmatic Investor, James Foord, is our guest this week.
- James joins us today to discuss the Macro data, M2 money supply, and Bitcoin/altcoins.
- He also shares with us a company that he was surprised by this earnings season.
We encourage you to listen to the podcast embedded above or on the go via Apple Podcasts or Spotify .
This episode was recorded on May 11, 2023.
The Pragmatic Investor, James Foord, joins us today to discuss the macro data, M2 money supply, Bitcoin / altcoins, and he shares a company that he was surprised by this earnings season.
Relevant Links:
Timecodes:
(00:49) M2 Money Supply and Inflation.
(03:31) Fed's pause and pivot.
(08:39) Real assets and gold.
(11:22) Is crypto a real asset?
(14:22) Bitcoin investments and congestion.
(18:30) Palantir's recent growth and potential.
Transcript
Daniel Snyder: Welcome back to Investing Experts Podcast. I'm Daniel Snyder. In this episode, we're joined by James Foord, founder of The Pragmatic Investor investing group. We discussed this week's macro data, the M2 money supply, what's happening in crypto with Bitcoin ( BTC-USD ) and Ethereum ( ETH-USD ), including an Altcoin that he prefers for investors, and there's so much more.
But first, did you know you can follow Investing Experts on Seeking Alpha? You'll get notified of every episode release, find relevant links to articles and the investing groups, transcripts of the episode, and so much more. So make sure you check it out. Now, let's get into the interview.
James, it's great having you on the podcast today. Let's dive in, CPI, PPI, we've gotten all the data. I talked to Eric Basmajian in the last episode. He told us what he thought. What is your takeaway from this macroeconomic data coming out?
James Foord: Well, Daniel, first of all, thanks for having me. And I think by now it's pretty clear the trend has been pretty clear for some time now, that basically that inflation level is coming down, the disinflation is happening. And we're seeing that, like you say in the headline numbers.
I think it's very clear also when you think about where we stand right now in the business cycle and just looking at other things like the way that M2 money supply has been going down. Shared a chart yesterday with my subscribers where basically it shows the M2 and the CPI, that kind of lagged by a few months and shows how basically the M2 leads that CPI down. And that's basically what we're going to -- what we're seeing now, and I expect this to continue trending down.
Daniel Snyder: So, let’s take a second to touch on the M2 money supply from the Fed, right. For the people that are listening may not understand what is going on here. Can you give them the brief synopsis and where the target levels might be as to when that reduction stops, et cetera?
James Foord: Well, the Fed just – they just had the -- supposedly that last Fed hike, quantitative tightening, of course, still going on. But overall, what is the M2, the broad money supply. We're seeing that trend down. And lot of that also has to do with some of the issues we've been seeing with the banks in general. And so that tightening is also going to probably translate into tighter money. And like I said, that's probably going to translate into much of the inflation.
Now the question is, of course, how much of that might translate into weaker data? And how you weigh those things down? Inflation is under control now, but that recession that has been, you know, announced for, like the last year is coming in, perhaps. I mean, we have data coming out that supports that, the economy is holding up a bit better than expected. So the question is how much time until that recession really takes hold and how much can we rally from here or how soon do we start going down?
Daniel Snyder: James, let me ask you. Are you expecting a Fed pivot this year?
James Foord: Yeah. Mainly, I think if you look basically at where the Fed funds, futures are, what the market is pricing in. They are already pricing in those cuts. I think that, obviously that is a bit aggressive. I'm not sure we're going to get those cuts so soon. But there's definitely a lot of reasons for the Fed to cut or at the very least I think have a pause.
And I think that is – yeah, if I had to take a bet on what most of the market is betting on, is that the Fed pauses at this point. So yeah, I do believe that pivot is coming. Especially with the latest inflation data, there's no real reason at the moment why they wouldn't.
Daniel Snyder: Well, so you're saying pause and pivot. Right? So walk us through that. Are we pausing? Okay. If we're pausing, for how long. And then what month of the year or what meeting should we be expecting?
James Foord: Yeah. Basically, I believe that there's going to be a pause -- I actually also shared a chart at one point, which highlighted the average amount of months that the Fed has paused, which is around 5 months historically. So, maybe that's something we could expect. We did get much longer pauses, for example, back in 2006, which I've been using as a bit of a point of reference lately because I saw a lot of similarities there with the way that obviously there's a lot of concern with the recession.
But if you look at, you know, maybe 2006, what happened till 2008? We had that pretty long pause, and the market actually performed quite well before, obviously, we had that huge 2008 financial crash. So to that extent, yeah, I believe there's a there's a pause which should last, like I said, about 6 months, 7 months, 8 months. I'm more bullish about the pause than the pivots because normally when the Fed starts cutting, that's when – that's when shit hits the fan, and that's when equities, you know, give us that final dump.
So, I'm bullish on the pause, which hopefully could take us to the end of the year. I would - that would be my guess, my best guess.
Daniel Snyder: So, just to clarify, because you said the average pause was 5 months. Is that when they did the last rate hike or for the meeting - immediately after their last rate hike?
James Foord: So that would be from -- yeah, from the last rate hike until they do the next -- until they cut. Basically, the time that the Fed spends at that level pause, yeah.
Daniel Snyder: Got you. Just wanted to clarify. Thank you for that. So we're expecting a pause. We're expecting a pivot is what you're telling me, which then would be a puke for equities in your opinion or a rally for equities?
James Foord: Like I said, historically I would -- I mean, obviously, you know, history can only show us that much, but the pause definitely, I think, is bullish. Right? So, it's supposedly and this is kind of what I'm looking at what you might call the, some people call the Goldilocks, where economic data, yes, it's -- maybe getting a little bit worse, but I mean, if you look at unemployment and a lot of other measures of economic strength, the US economy is, I think, surprising a lot of people in its resiliency.
So you get that pause, you get that time weather the market can take a breath and say, okay, well, no more rate hikes. We can relax a little bit. We can rally a little bit. And the data is not that bad. Actually -- generally speaking, when the Fed cuts, that's when you're already seeing the market turn down a little bit. So I'm hoping that we get that more of a pause, basically, even though the market is already pricing at some cuts, I don't see that happening quite yet. So that's my main thesis.
Daniel Snyder: So, to get a little bit of insights as to what you're telling your audience over in your investing group, for the next 5 months, 6 months before the pivot happens, how are you recommending that people get positioned?
James Foord: You know, I would say, I'm cautiously bullish at this point. I think there's a lot of -- well, lot of the things I already said about the economy holding up better. We have also, especially in certain assets, maybe the effect of not just the liquidity. Obviously, liquidity is something that I look at a lot when it comes to macro. And one of the main drivers, if you look at risk assets, crypto especially. And we also have a lot of liquidity in terms of global liquidity turning up.
I mean, that already started turning up in the beginning of the year. You see a big, big move, well, Bank of Japan, obviously, just changed their governor. There was some idea that they might scrap the yield curve control that's going to keep going on. It seems China -- not quite clear, but they have a lot of room to ease as well. So in general, I see global liquidity is coming out. I mean, there are certain assets that are going to perform a bit better obviously, but mostly I expect us to rally a bit here which I think you might call contrarian.
But again another chart that I recently shared with subscribers is the amount of kind of short positioning in the market. And you often see that, you know, when those -- when you get those institutions or certain market participants shorting so much, that's actually a pretty good indicator that where we're heading is up. So, cautiously bullish would be my take at this point.
Daniel Snyder: But what sectors or what specific companies come to mind when you're talking about this bullish scenario? Because, obviously people look at regional banks. Right? And that that's a sector that's getting hit hard right now, so people don't want to just generally throw money across the board, anything coming to mind?
James Foord: Right. Well, I think in terms of positioning, not just for this rally, but maybe more for the long-term, I think, real assets are obviously something that you could consider. Obviously, gold has performed very well. And that goes with a bit more with -- more of a long term view, but definitely gold. Something like energy. I'm buying this dip a little bit as well. But then more immediately, I'm also quite bullish on the -- yeah, some of the risk assets. So, I would long the Nasdaq ( NDAQ ).
Crypto, especially what I was mentioning before is that it kind of gives you that insulation of, even if there is like a recession in the U. S. some of these assets, especially Bitcoin, might perform a bit better, because in terms of global liquidity, you know, Bitcoin can rally on the back of that. Bitcoin isn't really affected by, you know, it doesn't have earnings and it’s just going to go up with the liquidity really. So, that's another one.
Yeah in general, those kinds of assets. Yeah. Energy. I've been looking at a lot of different energy stocks, commodities. I think, yeah, it could do well. Gold -- maybe copper as well. Those kinds of areas.
Daniel Snyder: It's interesting you bring up energy because that's one that I've been thinking about in regards to -- if there's a recession. And consumer slowdown of travel and things, and everything hits the fan. Doesn't energy get hit? What's the play behind the energy sector here?
James Foord: I think there can be some, obviously, short-term headwinds in energy. But if you're looking at more over the next 5 years, 10 years, and you think about the big picture, right, the global picture, you've got basically all these nations industrializing, right, in India, China, well, China obviously already quite industrialized, but maybe more from the more developing nations. And that energy demand is going to come.
And the truth of the matter is that I think there's basically kind of a -- we've had a long period where we're pretty much underinvested in those commodities really in the exploration of energy. So there is going to be some sort of a squeeze. You're going to see those prices go up. And the only way that we can actually be able to, you know, to guarantee that -- all that demand coming in these new countries, obviously, well, first of all, one of the points a lot of people make is that renewables aren't going to cut it.
So you're going to have to rely on the more traditional ones. And the only way we're going to do that is, again investing in exploration. And to an extent, kind of a speculative bubble that draws in that capital. So we should see those perform well, I think.
Daniel Snyder: Thanks for clarifying on that. Let's take a step back a second. You were talking about crypto as well. Crypto, you mentioned real assets. Is crypto a real asset? I just want to clarify.
James Foord: Well, I guess, this really depends on your own definition. I, you know, I particularly am of the opinion, that Bitcoin, I do subscribe to basically the idea that Bitcoin is digital gold. I see it as a -- it's been designed almost perfectly to mimic gold in the sense of how the supply is limited, how it's even mined. And even though it doesn’t have any fundamental value, people say, well, what has value? Right?
Value has always been subjective. I mean, gold is just a yellow piece of rock and Bitcoin to me -- I set aside Bitcoin from the other assets. I would Altcoins -- even though I do invest in other cryptocurrencies, you know, that's basically almost speculative. Bitcoin, I do see as basically a long-term store value to me. To me, it's a real asset.
Daniel Snyder: Alright. So, you mentioned crypto, you mentioned Altcoins. You mentioned the liquidity and how this is supposed to make the prices of those go up. Let's dive into the crypto space. So you have this podcast, The Pragmatic Investor. You've had Ryan Wilday on, who's a Crypto Waves guy that we've talked to before.
I know he follows the crypto space there. You've had Mike Fay, who's also been on this podcast, talking about Altcoins, and what he sees in the space. Give us the rundown. If you're going to pick an Altcoin to add to your portfolio, what are you looking at right now? Which one strikes you as the one with the best potential and the nicest returns from here on out?
James Foord: Yeah. It's a good question. And it's interesting you mentioned those two guests that I had because, you know, their approach would be quite different. Ryan Wilday, of course, is very much focused on the charts, and he would say, well, look at the chart that looks best, you know, while Mike Fay does a lot more work on a kind of the fundamentals behind a coin though, you know, sometimes fundamentals don't necessarily translate to price.
Personally, I've talked before about this. I think some of the -- to the extent that Ethereum is growing and is going to become kind of a - perhaps the place for the next kind of version of the Internet, if you will. The Ethereum scaling solutions come to mind. I pretty like -- I like Polygon a lot, so that's (MATIC-USD). I think that that's a good coin to have. Well, that's one, for example, that comes to mind.
Daniel Snyder: Is it better for people to invest in Altcoins over just investing in Bitcoin or Ethereum?
James Foord: You know, that's a good question and I guess the answer comes down to what kind of investor you are. I mean, Altcoins, they're just -- they're just crazy. Right? You just saw what happened with the meme coins, and I think I was actually- there's something that Ryan Wilday said. He said, you know, if you're just an investor who wants an exposure to crypto, just don't bother, you know, because the Altcoins, unless you're going be staring at charts all day and you know kind of being very active investor, maybe there's no need to bother with those.
I think, you know, especially at certain points, if you also look at how the crypto space works and you have that what they call the out season, there is room to benefit from that and but I do see a lot of my Altcoin investments specifically I see as not so much fundamental, just basically trying to catch that trend and those moves. So again, I think Bitcoin and Ethereum, starting off is plenty.
Daniel Snyder: So you put on a message in regards to the Bitcoin congestion that happened this previous weekend, and we're seeing some interesting price movement this week as well within that space. Can you provide any insight into that and why that's happening?
James Foord: Yes. So your first question, you're asking about the Bitcoin fees. Right? Like the fees are going up a lot…
Daniel Snyder: The congestion of the network.
James Foord: Yeah. Well, that has a lot to do with ordinals, which is basically a kind of a protocol that allows basically to have NFTs and digital -- those digital assets on Bitcoin, and those are basically clawing up the network a lot. That's pretty much what it comes down to. So that's interesting. I put that out and my take on that is well, you know, if the network fees are going up then that that could be good for the miners. That was my take. And sorry, was there another question there?
Daniel Snyder: About the price action that we've seen recently in the Bitcoin spot.
James Foord: It’s hard to say – I've read reports of the U.S. – yeah, people have been saying that the US is sold, but I'm not 100% sure if that's correct. I haven't verified it. Ultimately, it's something that I'm not that - I guess it's not something, you know, that really affects my own analysis and not something that I looked to - something that I haven't really looked into that. I know there's been claims but there was also claims last time when we had that, I think it was 2, 3 weeks ago, we had that big sell off.
Bitcoin, one of the things that I have talked about is the fact that if you look at the liquidity of Bitcoin, especially when you had all those obviously SVB Bank and was it another one, they were basically all kind of linked to crypto. So, you know, kind of some people are talking about an attack on crypto. But basically, a lot of the ramps onto crypto have been limited. And actually, if you look at the volume on Bitcoin, it has gone down a lot. So that's one of the reasons why you see a lot of volatility, as the market isn't quite as deep as it once was.
Daniel Snyder: I appreciate that. Now let's switch gears real quick, and let's talk about this individual stock that kind of came across through one of your notes, highlighted to me. I thought it was interesting, and that's PayPal and the fintech space. There's a lot of different news going on right now. You said that you were previously an owner of PayPal ( PYPL ). What do you kind of think of the scenario of where the share price is now?
James Foord: PayPal is one of those stocks that I think, you know, they just generally, I think, if you look at the valuation, it offers good value. And it's within a space that is, you know, quite still quite interesting, right, the kind of a, you know, I'm always interested in the potential obviously being someone who's into crypto and kind of financing those things. PayPal, obviously, is a stock that I think could do a lot more interesting things.
And in that regard, I don't think it's always priced in because the valuation, you know, when you compare it to maybe some of the other bigger, you know, bigger financial stocks maybe like a Square or something, you look at PayPal and you know, it's a company that does produce good cash flows, you know, it earns money and I think that sometimes that is overlooked. But it earns money and it has the potential to earn a lot more because of the space that it's in. I guess, that would be kind of my two cents on that.
Daniel Snyder: James, I got one more question for you before we let you go here. This has been so great. Appreciate all the time today. We just came out of earnings season. Just wanted to ask you, was there any company that really stood out in regards to their earnings this last quarter?
James Foord: Yeah. Well, you know, it's funny you mentioned that because a lot of the -- a couple of the guests that I've had on my podcast have made some good calls on stocks that, you know, have actually popped quite well on earnings. You know, one of them was UBER , which did alright. Palantir ( PLTR ) more recently, which was recommended by Victor Dergunov, very, very bullish on Palantir, and that popped 20%.
And there's an argument to be made there. I recently wrote a piece on Palantir. There's an argument to be made there where if you look at how the company is finely managed to achieve profitability, some of the growth in the US is reaccelerating. And if you think about that AI narrative, you wonder, why isn't Palantir rallying more? I mean, that's kind of one of the best AI companies you have. So, yeah pretty impressed with Palantir and looking at to see what the company does moving forward.
Daniel Snyder: It's interesting you bring up that company. I mean, that share price of Palantir really hasn't moved much recently. Do you have any worries about that company?
James Foord: I mean, Palantir, yeah, it's gone the way of a lot of other companies right, in the last few months it’s just -- it's come down a lot. I think it was obviously - it was caught up in the hype. And there were some rightful concerns people had about the stock based compensation and basically the profitability challenges. But if you look at starting after the earnings, I think the stock went up 20%.
And you know, there might have been some degree of a short squeeze there, but basically, I do think that there is a, you know, a lot of investors turned around and said, well, actually, you know, this company is a software company that actually can make good money and it's in a sector, segment which, you know, continue to deliver 20% CAGR for the next decade. And maybe it's an actual interesting play. And also, it's stock based compensation is trending down as well. So, yeah, there's a lot to like there I think.
Daniel Snyder: Just a reminder, anything you hear on this podcast should not be considered investment advice. At times myself or the guests might own positions in the securities mentioned, but this is for entertainment purposes only and you should seek advice from a licensed professional before investing. And just a reminder, you can find a link to the investing group service in the description, or show notes page on Seeking Alpha. And we'll see you next episode.
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Crypto, M2 Money Supply, And Earnings Surprises With James Foord (The Pragmatic Investor)