Navigating Today’s Markets with Nick Nemeth

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Welcome everyone. Really excited today, our inaugural podcast. We’re here with Nick Nemeth from Nemonomics. Did I say it right, Nate? Yeah, you did. I did. It’s important for me to get people’s names right, but as our listeners start to hear us more, I think they’ll get that. But really excited to hear today our inaugural podcast for investment topics by Gasima.

Like I said, it’s an honor and a privilege to have a friend of the firm and for full disclosure, paid consultant to Gasima, Nick Nemeth. Not just a colleague, but a friend that I just adore talking about the markets with. And, you know, we were talking before this, you and I, Nick, that we can go on for hours.

You said that to me the other day, we can go on for hours, talk about markets. And it’s kind of how I started out in this business. I couldn’t believe that I could look at, read, analyze, talk about markets and get paid for it, you know? And, you know, so hopefully you feel the same and I, and well, I know you do.

And so anyway, it’s great to have you here today. Thanks for joining me. Thank you. Yeah, I’ve been following market since I was probably 10. It’s great to make it a profession. It’s sort of like, it’s, it’s. It’s, it’s, it’s, it’s sort of something that I would do if I didn’t get paid for it. Yeah, it’s funny you say that.

I used to be a big fantasy football player guy, like really in the weeds. Like any person that works in the securities business, numbers, trends, things that Excite us, you know, I stopped doing it after a while because I tell you following the markets is that adrenaline for me It is it is that passion, you know, I’m not that passionate about I mean, I have my favorite sports teams But I’m not that passionate about the individual players and beating a guy And then getting to the finish line, of course, and payoff is like 200 for the year.

All that hard work, you know? You never count the hourly for that. It’s not very good. Right, it’s not worth it. But anyway, that’s why it’s supposed to be fantasy. It’s supposed to be fun. You know, listen, getting, getting to the, the topic of the day, you know, Investment Topics by Gasima is this series, And, you know, something we actually do internally here at the firm every Monday is called Market Chatter.

You know, everybody goes home, doesn’t matter what industry you’re in, you, you, you do your weekend reading, you comb through what your interests are, you prepare for the week ahead. And you know, we do that internally here, and Nick is a vital part of that conversation, and kind of why I wanted you on the call today.

And again, I know you agree, Nick, there’s this, these are, I don’t want to say treacherous times in the markets, but the, you know, these are interesting times, always interesting, right? But they’re definitely not, you know, not always the best. Scoring times. They’re definitely not times to let your guard down in the market.

Wouldn’t, wouldn’t you kind of agree? Like just what’s been going on in the last, well, since Covid Yeah. Constantly changing narratives. It’s, it’s been shortened up. In terms of, you know, the, the 2010s were largely the same story until the end of it. And then since, since, 2020, we’ve dealt with changing interest rates.

We’ve dealt with work from home. We’ve dealt with the rise. It was digital transformation first, and now it’s AI. I mean, AI was the story in 2018, but now it’s starting to show in fundamentals of some businesses. And then looking at it for, for others. So, it’s definitely taking more. It’s, it’s, it’s, it’s taking quicker thinking, I would say.

Well, listen, don’t, let’s not steal thunder from something we’re going to talk about because AI is the elephant in the room for any market participant nowadays, right? But you said something I want to pick up on and I want to start with actually is talking about interest rates, talking about inflation. I mean, it is the topic or it was the topic and then kind of AI is intersected with that.

So I, so, so for me, you know, as a, as a, as a manager, as an advisor, it feels like there’s, there’s conflicts going on between good and bad, kind of almost, almost biblical, right? In the markets where, you know, staying invested was the right thing to do. The market is here at all time highs across all major indices, except maybe mall cap.

Yet inflation has been coming down dramatically. The Fed hasn’t done anything. So it’s almost like, what do you think? Isn’t a moves in the markets iced in fully for anything good that can happen and nothing bad? Yeah, well, I don’t think AI is a fad, but I think what happened was first time we had had interest rates of 5 percent for a long time, and that took the focus away from growth.

And Then all of a sudden people like forgot that AI was coming and now we’re way back in that corner. So, so, so it’s a, it’s a pendulum for sure. It can certainly go further into the growth category. I don’t think we’re in bubble territory yet, but there is certainly a lot priced it. If, if AI doesn’t affect business models.

Whether it’s on the cost side or growth side as quickly as, as people expect over the next year, then the market can fall out of favor and that will give good investing opportunities for the long run. But just, just managing the waves that come is important. Well, you keep on reeling back to AI.

So. Like they say in some of these other major financial podcasts I listen to is we’re going to tear up the script, right? So let’s just go there. Let’s just go there. I mean, secular trends are great. They can work in markets, good or bad, right or wrong. Interest rates, 5%, interest rates, zero. There’s secular themes that are always bubbling below every surface of every market.

I mean, obviously, again, just going back to put on my fiduciary hat, right? Like, you know, as a manager, as an advisor, I wouldn’t say you go all in on every fiend to shore as, as an investor, you need to create your own individual risk assessment and how you want to deploy your capital. I agree, AI is, it’s almost like, maybe could give you a thoughts on this, it’s almost like AI is eating the world, like that major statement we saw about a decade ago from Andreessen Horowitz, that software is eating the world, right?

Like, is, is, is AI eating software or eating the world? Yeah, it’s, it’s crazy to think about. I mean, we’ve had a couple computer based revolutions. There’s been industrial revolutions that we can look back on, but a lot of these software companies, we’ve been. We’ve been talking about this offline, but they’re really legacy companies like IBM or, or, or Cisco.

Salesforce could become a legacy company, right? Yeah, which is crazy because they’ve said they’ve been investing in AI the whole time. But the problem is that you have a core revenue stream, a lot like Google with search. Where AI may eat into that or decrease the value of that. And then you have new competition.

So these moats for software, I mean, SAS companies over the past 10 years have gotten great multiples because people thought it’s sticky revenue, high margins, and the moats are actually pretty good, but now you have AI that can code pretty well, can you, you don’t, you don’t in Salesforce’s case, you don’t need a lot of, a lot of the, Account managers, you can have AI generate analytics, and also just tell you what’s going on with your, with your, with your customers.

So, if there’s new competition in that category, there’s a lot of investment in AI. So, you could, you could see a company like Salesforce being threatened, just like Google’s search is, is threatened. And Google had an incredible head start. They had all the talent in the world. They had all the money and they were investing in AI from the get go, but they lost the lead to chat GPT.

And now there’s a whole bunch of generative AI companies that are almost at the same level. Meta was behind and now they’re probably on par with Google. There’s also anthropic perplexity and, and we can go on. We’ll see who the winners are. I imagine that it’s a mostly winner take all scenario, but I don’t expect that it’s going to be 90 percent market share to the winner, like search.

Right. Good point. Good point. And it’s funny, like you getting super name specific and mentioning some of the private investment companies and for full disclosure, Gasima has private and public investments and AI companies. Just let’s get that out of the way. Picking up on something I think super important to mention is crowding effect, you know, the, the, the brand names that always kind of work, you know, you’re, you’re talking about a minute ago, Salesforce and the compounding effect of your stock returns by just, I know the name.

It’s sticky revenue. It’s recurring revenue. Oh, sure, the stock’s volatile, but, you know, it’s the name brand. And then, what I like to talk about, and I’m going to talk about in other segments, actually, in this series, is life cycle investing. You know, people get a stock in their portfolio or, or maybe they have the fortune of working for a startup company that goes public and, and starts to really put up returns and becomes a part of a major index and, Their name is up in lights, and it’s in Barons, and everybody’s talking about that stock.

Well, you know, it seems like nowadays, and you said this a few minutes ago, AI names Get right to the forefront right away, the, the information dissemination on what are the investable companies within this theme is so quick that it’s almost like you have to be in the garage with the inventor that day to get in early, otherwise immediately they’re minted unicorns privately and heaven forbid when any of these companies come public, they’re going to be mega cut, you know?

So what’s your opinion on, you know, what it. What does that do to these legacy companies and their ability to compete in this new AI frontier? Yeah, I think, I think a lot of, a lot of companies are going to be benefiting from AI that aren’t quite apparent. It’s, it’s hard to see the full, full, full range of, of how this is going to affect businesses.

One that comes to mind is cybersecurity because there’s, it’s so easy to fish with, with AI generated emails. And software is, is, is, is, is, is, is more valuable as a whole, but a lot of that has to do with AI. So, so there’s new competition there, as we mentioned, but there are adjacent businesses that will do well, even just as we had, like, we, we took legacy companies and made them, technologically enabled over the past 20 years.

There’s going to be an AI enabled aspect to that, but there’s certainly, there’s certainly a lot of. A lot of, a lot of hype around, you know, if you have AI in your name, you’re doing well in the private and public markets. So it takes, it takes a lot of sorting through. I think generally if you just throw money, you know, the throw, throw a lot of darts on the board and, and spread it out, you’re going to do okay.

Maybe not in the next year or two years. But I do think that picking your spots is important as well. I mean, you have to tell me that’s, that is. That is valid. I mean, this is almost segwaying into, I think we beat up the AI topic a little bit for today, but it’s almost segwaying into diversification.

Another thing I talk about a lot and I hope to talk about in this series a lot is watching your risk. You and I were talking before the call actually on the user options to monitor and watch and, and, and mute your risk, but stay in these themes, you know. Diversify across the theme. Whatever it is, it could be widgets, not AI, is always appropriate.

I, I, I, I, speaking of something that you’re, you’re schooled up on and have some strong opinions on, it, it, is, is Bitcoin a technology? Is crypto a technology? Because that, that’s where it started. You know, they talk about investable themes and, you know, spraying across all the different assets available.

You just do well just by being in the space and that has kind of been the case in crypto the last year. Can you give me a, like I said, I know you have some strong opinions, I’ll let you share them with the audience. Yeah. The underlying blockchain technology is obviously, I mean, I think most people understand that it’s, it’s here to stay.

The question is what crypto is going to win, how big is it going to be? And just on that end, Bitcoin’s not new. Even when it wasn’t, even, even when it was new, it wasn’t really new technology. A lot of the cryptograph graphic, like modules of code was created in the nineties, some of it was created just before Bitcoin was, was released, but Satoshi didn’t have much priority there.

What he did was he packaged it all together. I encourage everyone to read the Bitcoin white paper, because even at this point, I would say that half of the people, at least that invest in crypto, don’t read the white papers. It’s really short. It gets down to what the underlying technology is, but Bitcoin in many sense is a finished product.

There’s always the ability to change it. Yes, yes. You know, the miners all vote a certain way, like there was in 2014, I believe, when it forked. But, but the reason why I like Bitcoin is because it’s established. It doesn’t need to innovate. What it solves right now, and what the medium term price target probably is is being digital gold.

I think it’s much better if you want to move countries, if you want to move gold, if you want to store gold, it’s really expensive and it’s hard. Try, try bringing a hundred thousand dollars of gold with you on the plane. It’s not going to go very well, but it wins on a, on a flash drive. And if you, if you have a really good memory, you can actually memorize your code.

So yeah, I mean, I love Bitcoin. There’s obviously the alt coins that people get excited about. And in crypto, the talk for a while has been like, who’s going to flip Bitcoin? Is it going to be a theory? Yeah. And now is it going to be Solana? I think that’s possible. I’m not a Bitcoin maximalist, but I will say that right here, Bitcoin is risk reward.

One of the best investments in crypto. And when you look at what, what people call the sharp ratio or the Sortino ratio, which is. Measuring for volatility versus performance. Bitcoin is exceptional in the, in the fiber, right? No, no, there is there or is volatile asset as it is. And sometimes sketchy history or, you know, what happened to crypto when China cracked down a few years ago.

Bottom line is the returns have been there, you know, even given the volatility, the returns have been there. And, and to your point, just staying on Bitcoin is, it is institutional product at this point. The streets bought it, you know, and they’re doing that with Ethereum right now too. your point on gold, you know, like GLD has been around for years and As a fear asset or inflation hedge, you don’t have to go out.

Maybe there are some people during the great financial crisis. I can remember, you know, I can remember on my trading desk, Midtown Manhattan, working at an investment bank and guys finding their gold dealer to get their real gold. They were just so scared of the system. And then here are the paradoxes.

They probably those same speculators or, or. Fear mongers are invested in something that they can’t even touch or see, but it’s just so efficient. Go out and buy some, some crypto, you know? So yeah, no, it’s a validated asset. I just thought it would be fun to kind of hear your thoughts on and why it’s here to stay.

Yeah. For, for, for the, for the 2010s there was a lot of pejorative conversations around gold, you know, calling people that are hoarding gold, you know, pet rock collectors. I think as an asset class, it’s interesting over the long run, it can certainly be volatile. It’s not so volatile on a month to month basis, but if you look out years.

And, on gold, it can, it can spike and fall 50 or more percent. Yeah. Yeah. And I guess that’s my point is, you know, there’s a room for it and advisors for decades now have said, Oh, there’s, you should always have a little bit of precious metals in a diversified book. Now, whether that’s in physical form or ETFs that, That may be a personal choice, but that’s my point on Bitcoin and crypto and wanting to bring it up is, you know, or, you know, for Gossima clients, for example, there is a place.

For a validated asset in a certain percentage based on what your goals are, based on what your risk parameters are. That, that’s really the punchline as to why I, I like to mention crypto nowadays. Not because I have a strong view. I know you have strong views and I respect them. And, and again, for full disclosure, Goceva clients own crypto ETS.

But at the end of the day, how does it fit into the context portfolio? I think the asset is invalidated. It’s, it’s kind of what I feel. It’s gotten that original, Bitcoin’s gotten that original stamp of approval, but BlackRock says adoption is low and it’s mostly retail inflows that are coming in TTFs. So over time, the big firms are going to get comfortable with it, especially as, you know, Millennial Gen Z starts having more of the wealth and also becoming advisors.

So it’s, it’s, it’s a question of, and, and the talk on, on, on Twitter and the rest of the media is adoption is going to be slow by institution. Sure, sure. We got that initial push, but it’s going to be slow. I think there’s some catalysts to change that and segues into what’s going to happen around the election.

Oh, that’s a good segue. Let’s do that. Let’s do it. Let’s do that. You went there. So let’s, let’s, let’s bring it all the way back home. Like tell me about what do you, what do you do in an election year with your portfolio? What’s the investment climate look like historically? Yeah. I mean, I think a lot of people know that investing years are good for the stock market.

It’s actually the year before an election. That’s also pretty good. The average return during an election year is. It’s about average actually, but during a reelection year, it’s 12. 4%. So we’ve already had a 15 percent move and that’s kind of like, boy, let’s put some math around that. Right? Like we’ve already overshot historical meaning for stock market returns in an election year.

Yeah. We’re in the best three months. Of an election year going back to 1928 got June, July, August are up 75 percent of the time and an average of a 7. 3%. So we’re not probably done with election year bullishness, but where we end the year, if I, if I had to guess, would it be higher or lower? I would still say higher from here.

But like you said, a lot’s been priced in. It’s a very weird election. So as much as we had a reelection year that’s been down, it could be different this time. I mean, I don’t think we’re gonna end the year down. That would be a pretty bearish, pretty bearish call. But you have to sort of take the whole, the whole, the, the, like a whole survey of of, of what you’re dealing with, where we are.

If you’re investing today. And Nick, now you messed the whole thing up. You said those famous last words on investing, it could be different now. I’m just, I’m just kidding with you. I’m just kidding. Yeah. Yeah. People always say that this time is different. Oh man. That’s the new paradigm that’s going to burn people.

But I think that, I think the investing is always different. It always has, it always has the same underlying forces at play. It’s really supply and demand. And a proxy on the economy and expectations, but there’s always something new. If you think it’s completely different, you’re going to be wrong.

You can look back to, to many historical analogs with, with, with AI, there’s been industrial changes that we can look at. The macro environment I think is most similar to the 1950s and after World War II. Which is when the deficit blew up and eventually worked down. But, yeah, I mean. We’re in that blow up period for sure.

I mean, sorry to cut you off. I think that’s a good spot that we should start talking about some of these forces that have got us to this moment. Historical context of deficit blowing up. Interest rates just came off the lower bound and they seem like they’re sticky where they are for the foreseeable future.

And in a historical context, actually 5 percent fed funds rate actually isn’t really a big interest rate at the end of the day. And it, at least the popular press says could be biting the wallet of potential homebuyers. But inflation is kind of getting under control and with the switch over in the presidency, see whoever wins.

They’re going to have to deal with these issues and, and, you know, does their overall interest expense get cut because the Fed starts to cut rates? But then what does that do to inflation? What is both of these presidents are going to be one term presidents. So do they want to hit the pedal to the metal on fiscal to go out with a bang and create their legacy?

Again, it just took for me. And I’d love to hear your opinion on this, of course, why I’m mentioning it is there’s just a lot of question marks when you’re fully priced, when you’re 20 something plus times forward earnings because of a secular trend like AI and the soft landing kind of happened. We’re still chug along one and a half, 2 percent GDP.

300 plus bits of CPI, I’m not saying inflation’s dead, but, and I’m not making any macro calls, but I’m just observing that it has been a one way ticket in markets, and, and we haven’t had any major corrections, besides maybe the last couple of days in like NVIDIA, for example, cold stock. It just seems like we’re, we could be heading dangerous times regardless of the history of election year in a bit.

Yeah, the market tends to climb the wall of worry, if you will. Monetary policy operates on a lag, 12 to 18 months, but since we’ve sort of figured out that, or the market’s figured out that we’re going to be in a higher interest period, we’re good. It’s, it’s been two years since the first Fed hike and signaling that we’re in a new interest rate era.

So you would have expected by now to see an economic slowdown and we’re still running pretty hot. I mean, growth is good. Inflation is, is there it’s, it’s, it’s, it’s, it’s, it’s not so much supply driven like COVID originally was. And demand, demand is obviously strong, so I don’t think we’re going into a deflationary or super disinflationary less than 2 percent 2 percent era.

But you also have to understand that there’s a huge, like, interest rates don’t simply affect inflation. Because there’s, there’s a lot of forces at play, like the supply side to dynamics, for example, the Fed can only really affect the demand side equation. So it’s not as simple as, as, as it might seem in a textbook, for example, how, how it plays out, I don’t think anyone knows, but it is the time to be thorough in your macro economic riser.

Well, I’m glad you brought it home that way because I don’t think we just throw up our arms as fiduciaries and say, we don’t know either. But point being is those old lessons of investing or, or just going to work here that, that I feel pretty sure about diversifying your assets, knowing your risk.

Something I hope to enlarge upon in future segments of this series, you know, watch your risk, watch your risk. It’s okay to have an overweight. bullish stance on risky assets. But what’s your risk? What’s your profile? What are you hoping to achieve with that particular investment portfolio of yours? And that’s really truly why I mentioned this.

To your point, I’m not trying to make any kind of market top fall, but it’s kind of like we talk about in our internal market chatter. It’s, these are the things that make you go, Hmm, right? Where as an investment professional, as you’re As a person who just has any kind of money in any kind of risk assets, meaning outside of CDs and T bills, you got to watch your risk.

You got to understand what forces may be at play and what your goals are and constantly be adjusting in mind. Just like my example of the fantasy football, or. Really puny returns and maybe some bragging rights rewards, but at the end of the day, not a lot of economic rewards. If you have some kind of plan, some kind of goal with your investment portfolio, you can’t just set it and forget it.

And I think that’s maybe true point of what we’ve been talking about today is buy and hold is still valid in parts of your portfolio, but set it Forget it. Type of investment, I, I truly believe is dead and you have to be an active investor nowadays. Yeah. You, you don’t want to be making decisions based on the whims of the market, you know, constantly watching tickers and, and changing your core theses, but you constantly have to re-underwrite them in this environment.

Great final point. And so look, we at Gasima stand ready to help you out with that monitoring, with that adjusting, get your plan together. And I hope to be doing a lot of that with a lot of you out there guiding you in the future. So, Nick, won’t be the last time you and I do this together, but couldn’t think of a better person to be a part of the inaugural podcast, so thanks for doing it.

Thanks, Tony. Thanks, everybody, and make sure to check back to GasimaGlobal. com to sign up for future podcasts. Also, make sure to look out for us on LinkedIn, Facebook, TikTok, and YouTube, and follow our channels there for more proprietary Gasima content. Thanks a lot.

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