00:00If rates go up, that's going to hurt longer duration tech stocks, but I do think that there's
00:06been somewhat of a reordering of the technology stack, and I'll give you kind of some interesting
00:11statistics here. If you look at what occurred in the Russell 1000 value index, Amazon is now
00:17six and a half percent, Microsoft is now four percent, Apple is four percent, so Meta is there
00:26at once. So I think that the muscle memory of value managers of what is value and what
00:31is growth is really changing. I think labels can be misleading. Value today looks very
00:36different because a lot of these large technology companies actually trade at relatively low
00:40multiples. I think they're more insulated. You're saying Microsoft is a value stock.
00:44It's 50 percent value as classified by Russell, and Amazon actually went from hardly any to
00:5192 percent value. So it is a fascinating dynamic that's occurring. So I think that rates are
00:58probably going to affect those less than people realize. But one thing I'd say about rates,
01:03which I think is interesting, we are seeing rates rise today, and I hear a lot of chatter
01:09around, well, this is about the debt, this is about the deficit, or it's about inflation.
01:12And I'll just make one observation. Debt to GDP back in 2007 was 62 percent, and yields are back
01:21to where they were then, even though the debt to GDP is doubled. So it's too simplistic to just say
01:27this is just about debts and deficit, because rates are back to where they were, what, 18 years ago?
01:34Rising rates here, we've been talking about it for the last several weeks, and even more so
01:37the last several days. How do you think about the value play relative to where rates are today?
01:44So I think that when I look at the market, it's actually getting cheaper, Paul, which is a really
01:50bizarre thing. Now, we talk about the Cape. The Cape's higher. That's 42. So that's one E. That's a
01:5610-year E. But the forward multiple on the market today is closer to 20. So there's some really
02:02attractive companies. We're seeing a lot of growth coming out of the stock market today. I think that's a
02:06really interesting dynamic. If the growth continues because of the multiple compression in earnings,
02:13I think that the market is set up particularly well as we head into the back half of the year.
02:17Now, the big question is, can the earnings continue? Right. But I'll share one interesting
02:21stat, because I was curious about this. Do you guys have a guess? What percentage of the S&P 500
02:26issues guidance? Issues guidance. Issues guidance. Any guesses? Annual guidance. 60 percent. Close.
02:33A little over 50. So a little over 50. So all these analysts are clustering around what the
02:40guidance is. And management's doing their best based on suppliers, customers, to showcase that.
02:45So forward earnings are not just analysts sitting in a room just saying, hey, I think they're going
02:49to earn this. That's the best prediction based on the market dynamics, customers, supply. Now,
02:55of course, exogenous shocks can come. But I think the earnings growth, the reason the market's been
02:59so resilient in the face of higher rates is, I think, the earnings power has been higher than
03:04the cost of capital. And that has created a really interesting dynamic for equity investors,
03:09because usually it would be a tougher period if you see bonds selling off.
03:13Small caps. How do we think about small cap stocks these days?
03:18Well, the small cap trade has broadened. We've been bullish on small caps for some time.
03:24You know, small caps went through an earnings recession. We didn't have a
03:27economic recession, but they went through an earnings recession. They had two years
03:31of basically negative earnings. They were really negatively impacted by rates.
03:35OK, they were really negatively impacted by inflation and the reordering of the supply chain
03:40hurt them more than the big tech stocks. So as we've seen that normalize, we've seen a lot of
03:45recovery in these. I think we have a long way to go. They're trading at just 15 times earnings on
03:49average. And you're still seeing a lot of really positive revisions out. You've small caps
03:54growing at over 20 now. So I really like the space.
03:58One last question. What's the constraint on growth in Texas? What's the constraint on growth in Dallas?
04:05The constraint on growth in Dallas? You know, that's a great question, Tom.
04:12Water?
04:13Dallas. I think, you know, it's a really interesting question. Electricity?
04:16I think electricity is an interesting answer. But one thing I would say that's unique to Dallas
04:24relative to Houston and Austin. Austin has a lot of topography.
04:28Democrats.
04:29Well, yeah, it does have Democrats. But the topography is set up and the structural infrastructure is set up
04:35where it's difficult for it to expand. Houston doesn't have the same zoning.
04:39Okay. Dallas is set up for growth. I don't think they built it this way initially,
04:43but it's set up for growth. So I don't think the constraints for Dallas exist to the rest of the
04:49state the way it does. So I think Dallas is set up for a lot of growth. You need to
04:52come down.
04:52Yeah.
04:53Come down to Texas.
04:54I could just see a remote from Dallas.
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