Transcript:
CAROLINE WOODS
The stock market is flashing warning signs. Stocks are falling. Oil is surging toward $100 a barrel actually above that. And volatility has been spiking. Here to make sense of it all is Joe Tigay, Portfolio Manager, Rational Equity Armor Fund. Joe, great to have you on.
JOE TIGAY
Yeah it’s good to be here. This is a very interesting time particularly as a long stocks long volatility manager. This is a really interesting time for me. Really you know not wishing this environment of course to be out there. But of course as a trader, it’s something that I look forward to. And having the opportunity to make some moves.
CAROLINE WOODS
Yeah. And we’ll talk about some of those moves that you’re making. But first just kind of set the stage for us. Is this, a short term geopolitical shock, do you think, or the start of something bigger for the market?
JOE TIGAY
Boy, you know, you have to be ready for bulls. Of course you have to be ready for it to be short term. You have to be ready for it to be something bigger. You know, falling asleep last night, you had oil at 120. That’s that’s the type of, price for oil where if it stays there for a month or, you know, maybe even just a few weeks, it could just cause, this economy to tip over, and it just kind of is, a rolling ball where it spirals out of control.
This higher prices just make everything more expensive, which just slows down the economy. And that could lead us to a recession. So it’s something we’re, acutely aware of. The longer prices stay here, the worse it’s going to be. You know, a month ago, we would have said $100 oil, is going to be something that’s going to tip this market over.
We’re right there right now. So it’s a question like, is it is it literally just for one second, or is it going to be something that, you know, potentially gets worse from here? Or can we turn this around and get oil back under $80 where the market can, you know, and the economy more specifically can grind on?
CAROLINE WOODS
Joe, you mentioned the 120 level, I think was 119 overnight. That was very short lived. But we do have oil at around 101 right now. Do you think that $100 oil is the thing that finally breaks this market? Talk to us about how disruptive it is for stocks and for the global economy.
JOE TIGAY
Yeah, absolutely. It has the potential. Like I mentioned though, if it’s just for a blip, it’s just for a week or two when we can get this trade opened and we get oil retreating, it probably will not break the economy. Won’t have any long term damage. But if this is something that sustains for months on end, it is something that can have, disastrous effect on the economy.
It is very inflationary. Of course it’s going to make everything a cost more. It’s essentially like a tax hike without the benefit of the government getting any money. It’s just makes everything more expensive for everybody. So it’s not something the economy will like for the long term. That said, you know, off of the 119 level overnight down to 100, there are signs that, things are improving potentially in the street.
And there’s also signs that the strategic reserves, the G7 stepped up, and said, we’re going to release all of our, strategic reserves collectively to have a, an impact. But that is something that’s temporary. Again, this is going to bring these prices down for the short term. Really need a long term solution. We know the market does not like uncertainty.
CAROLINE WOODS
Yeah. Certainly not. There’s also a lot of talk about stagflation. Now, as we’ve seen, some of the economic data point to signs of cooling or worse. And then obviously there’s concern about the inflationary impact, especially from, oil prices. How real of a risk is stagflation. What do you think pricing that in would look like?
JOE TIGAY
You know, ironically, I don’t think that declaration is really on my radar. I do think if oil does break the economy, it will be something eventually to become deflationary. Things slow down, things get a little bit cheaper. So that is kind of ironic. It’s inflationary right here. If it’s something that stays here for a long period of time, it’s something that will slow the economy down.
And then ultimately prices will come in on these slower economic growth. I don’t see like this oil shock as being stagflation area. I think the oil shock is something that short term raises all the prices short term. So the economy down, ultimately that slow economy brings prices down. So it’s not something that I will see. I look out together where we’re seeing, inflation plus a slowing economy.
It’s, you know, I think we will see either growth with higher inflation or, you know, or a recession where inflation is coming in.
CAROLINE WOODS
Okay. Volatility has also been front and center. Of course. I’ll be asking about how you’re capitalizing on that. But first you know with the VIX surging above 30 it’s historically a panic level. It’s back below that. Now just tell us what is the VIX actually telling us at these levels.
JOE TIGAY
Yeah it’s uncertainty. We don’t know what tomorrow’s move is going to be. It’s specifically saying we were expecting big moves in the indices 30 plus VIX is about a 2% move a day in the S&P 500. That’s a lot for the S&P 500. It’s not very it’s not something I would think of as a great investment to be in something.
Hey this could lose to 2% every day or this could be a 2% mover every day. I want to invest in something a little bit more stable. Usually when things are scary, when, things are uncertain. Do you see this higher VIX? Now paradoxically though, the higher the VIX is the better the investment of the market is.
So if you look back in time when the VIX is about 30 it’s actually a good time to buy the market. You know when things are when you see blood on the streets, when you see people panicking and people running for the extra, it’s it’s actually a good time to be buying the market. So that’s, the contrarian view of volatility.
That said, right now we’re just in a period of unknown. There’s a lot of potential possibilities. The possibility of this war, lasting a long time or ending quickly, I think, are the two big, is the biggest unknown.
CAROLINE WOODS
Okay. So VIX is at around 27, a little above that right now. Should investors be buying this dip that we’re seeing today.
JOE TIGAY
You know it’s very very interesting Mark. And of course if this dip today we also have bonds down today. So it’s really like where do I turn to hedge. You maybe gold or the dollar might be a spot to, to look at money. But for me as a long volatility investor, volatility is something that, needs to be actively managed, very actively traded.
You need to be looking at these, spikes up in volatility as opportunities to trim your volatility position. Looking for the dips, of course, too, as an opportunity to buy it back. Last night when I was talking about watching the market, it was an opportunity for me to say, hey, the next is 32. I had it on, I’ve had it on, of course, for this whole experience.
But, I’ve had it on from the low teens or the mid teens, of course. And now I can take some off. You’re up at 32. Is fantastic to do. So as it’s pulling back today to the opportunity for me to say, hey, is my position change much from last night? People were panic buying the VIX at 32.
I was able to sell some to them now, but it’s a little bit lower. It’s something. Yes I’m looking to buy it back. Having said that initiating a new position here at 27. That’s hard for me to recommend given the fact that this is very elevated levels for VIX.
CAROLINE WOODS
Okay, I was taking a look. Two of your top stock picks are Alphabet and Palantir. Tell us why those two. And are you looking at those as short term trades or something that you’d hold on more longer term.
JOE TIGAY
Yeah I would say these are longer term trades are core positions in the portfolio, of course. Two, two stocks that. Yes. It’s if the economy does slow down, if the war drags on longer than I’d like to see it drag on, they’re going to, fall under pressure like, a lot the rest of the market, maybe even more so.
But there’s two stocks. Of course, if we do get a quick resolution, they could bounce back the two stocks that are well off of their relative highs. Palantir a little over 200. Google three 3340 down 10% from that’s recent high. So they’re there are they are on a discount for me. So they are good stocks to be adding to here.
And I just think for Palantir. So looking at this new world of you know we’re know about the AI trade. We know about, the Palantir’s IP. But this new world of warfare, which we’re entering into, I think, Palantir oh, for better or for worse, is at the frontline of that and is proving to be effective and be proving to be something that the government is not going to be living without anytime soon, and in fact, increasing their budget for them.
I’d love to see Pelletier expanding out into the corporate, into the private sector. But their government, business is only going to grow.
CAROLINE WOODS
Okay. So both notably tech stocks, does that mean you think that the rotation out of tech that we’ve been seeing really all year so far will be short lived and we’ll see money start rotating back into tech?
JOE TIGAY
I’m just a firm believer specifically in those two names. I do think we are still, we’re not at the end of the AI boom cycle. We are still in the in a, expansionary period now where this is a period where there is lots of risks. There are companies taking big shots, right now in the AI cycle.
They’re not necessarily necessarily going to pay off in the end of the day. But these are two companies which I feel like they have a very solid moat. I do not think that they’re going into massive debt, to take these shots. So I do think that they’re going to be around one way or another. I’m in them for, I’m with these two names for the long haul.
CAROLINE WOODS
Okay. Can you give us an example of a name that you think is taking a big shot that might not pay off?
JOE TIGAY
Oh, well, in the private space, there is, of course, open AI. They are spending a lot of money. They’re not exactly, making as much money as, as some of their peers. But they’re spending a lot of money. They have a lot of deals. They’re expanding, expecting to be, one of the biggest companies in the world one day.
And and if they’re right, they’re doing exactly the right thing. And I, you know, I wouldn’t suggest them to do anything else. But having said that, there they are. They are biting off a lot. Just remains to be seen. Will they be able to continue to chew that much?
CAROLINE WOODS
If OpenAI was public right now, would you invest in it here?
JOE TIGAY
It depends on the valuation, of course. I’d have to see if it’s, if it’s over a trillion, be very hard for me to, to do to, to say that I’ve just I probably would not I’d want to see a couple quarters of what their financials look like, how their growth is going. So I would probably sit out the IPO and kind of just watch it from the sideline.
CAROLINE WOODS
Okay. And just to kind of wrap things up, I know a lot of it probably hinges on what oil is going to do. But overall geopolitical shocks tend to rattle the markets in the short term. But we see them often fade pretty quickly. Do you think this one will follow that pattern, or could this be different?
JOE TIGAY
Oh, I’d love to see it fade pretty quickly. I’d love to see a V-shaped recovery in these stocks. I’m not banking on it completely, though. This absolutely could be different. This could be something which lasts for a while. You know, this oil shocks. Yes. A lot of times they are very quickly recovers.
But oil shocks that linger are potential, reasons for recession. So, something that I’m watching very closely, acutely aware that bulls are possible. I am, you know, cognizant of of previous oil shocks which have led to recessions, of course, you know, 1991, in the 70s or it’s it’s absolutely a possibility, where this could lead to something that, drives us, drives economic growth slower in a quick and a quick way.
CAROLINE WOODS
Okay. So stagflation is not on your radar, but a recession is.
JOE TIGAY
Yes. Recession. Absolutely. It could be something, that could, could happen. And it’s coming from higher oil prices, higher oil prices, slower, slows the economy down, a slower economy. That, of course, ultimately drives prices down.
CAROLINE WOODS
Okay. All right. I think this is a great segue into our rapid fire this or that round. Are you ready to play?
JOE TIGAY
All right, let’s do it.
CAROLINE WOODS
All right. Here we go. Us-iran war. Short term shock or long term problem?
JOE TIGAY
What is a short term shock.
CAROLINE WOODS
Market right now? Panic or opportunity?
JOE TIGAY
Wow. It’s it’s interesting. Usually I think of panic as an opportunity. So I’m going to just say it’s an opportunity.
CAROLINE WOODS
All right. Both. Oil at 100. Temporary spike or new normal.
JOE TIGAY
Temporary spike.
CAROLINE WOODS
Because volatility. Peak fear or just getting started.
JOE TIGAY
We certainly can see higher VIX. So maybe this is just getting started.
CAROLINE WOODS
So volatility threat or opportunity.
JOE TIGAY
Well I always view it as opportunities very tradable back and forth of course. So I’m going to say opportunity.
CAROLINE WOODS
That was a soft spot. Safer haven gold or oil. Gold energy stocks or tech stocks.
JOE TIGAY
Tech stocks I think energy had a great brief run. But it’s very it’s very tied to the price of oil.
CAROLINE WOODS
Big tech or the rest of the market.
JOE TIGAY
I’m gonna go with big tech. They’re, behind lately, but they have plenty of room to catch up.
CAROLINE WOODS
AI companies or defense contractors.
JOE TIGAY
Oh, this is a tough one. A month ago, I said defense contractors. But where we are today, I’m going to go AI companies.
CAROLINE WOODS
Large caps or small caps? Large caps by the pullback or wait for better prices.
JOE TIGAY
If I have to, I would say buy it by the pullback.
CAROLINE WOODS
Fed cuts ahead or holding.
JOE TIGAY
Back cuts ahead.
CAROLINE WOODS
So soft landing still possible or off the table.
JOE TIGAY
Absolutely. Still possible. The risks are greater today than they were two weeks ago.
CAROLINE WOODS
Six months from now. Higher market or lower market?
JOE TIGAY
Six months. And, of course, is tied to the duration of the war. If the war is still going on, it will absolutely be lower. But if it is not higher, I’m fingers crossed that the war will be over.
CAROLINE WOODS
Okay. And coming from a trader is your best investment strategy for right now.
JOE TIGAY
Yeah. Best investment strategy in a world where stocks today are lower bonds, they are lower long stocks, long volatility, actively managed. That is my go to strategy hasn’t changed. When vol is low and it’s not going to change of course. And volatile and is working very well.
CAROLINE WOODS
All right. Well I’ll leave it there Joe Tigay, Portfolio Manager, Rational Equity Armor Fund always a pleasure. Thanks so much.
JOE TIGAY
Thank you for having me.
