During the latest episode of the VALUE: After Hours Podcast, Taylor, Carlisle, and special guest Zach Abraham discussed the promotions that became Pokemon cards. Here’s an excerpt from the episode:
Zack: I don’t want to be hyperbolic at all, but I think I personally started managing the portfolio in 2007. I’ve never seen a market that seems more disconnected from the fundamentals than the current one. When I say that, I don’t mean that everything is insanely expensive. I just don’t see the rhyme or reason to how things are rated. It just seems like things just flow. It’s like we keep joking around in the office. It’s like stocks have become Pokémon cards where someone thinks it’s worth so much today, the discount rates don’t matter anymore.
You and I were talking about the air. If you were to tell me that the Fed Funds rate was going to go up to five and a half and the returns were going to go down, the returns were going to go down pretty much across the S&P, I think, adjusted for inflation, the returns are going down year over year. And against that backdrop, you’re looking at a market that’s up more than 10%. Yeah, (laughs) falling profits and higher rates don’t usually make me want to jump in there and buy.
So, I think one of the things that I looked back at the letter that we wrote to our clients in 2021, at the end of 2021, and we said, “Look, I think we’re at the peak of this cycle, but it’s going to be a knife fight, just because it’s been the longest, biggest bull market of all time, and you’ve had 0% bids almost the whole time.” And we said, “Look, we think it’s going to take a lot longer to get to ‘normal.’ We expect to see massive bear market rallies.” So, that’s it for now. And in that light, I guess this year shouldn’t surprise me. Everything was bigger, longer and crazier, and it seems to be too, but I don’t think that will change the final resting place. I think we are going lower. I don’t think we’re at the edge of the swamp. I don’t think we’re looking at some big black hole of 2008, 2009.
You know what’s funny guys? And I’d love to hear your thoughts. I feel like I’ve already made the point, but I feel like you’re actually setting yourself up for a mini-1970s period where you just have to wrack your brain for a long time while you digest the current valuations, which seem very stretched. I think peak stocks are probably in the rearview mirror. I am not an eternal bear. I don’t think we’re ready to disappear off the face of the Earth. I also don’t think this is the environment for a new bull market breakout. I think both the bulls and the bears are going to get spanked, and I think they’re going to get slashed on the side for a while. This seems like the most logical position at the moment, but we’ll see.
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