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Shownotes Transcript
Pushkin.
Let's play a game. The game is called the 2025 Financial Times Stock Picking Contest. Here are the rules. You pick five stocks, long or short, by this Friday at midnight. No mutual funds, no ETFs, individual names only. No trading your portfolio until the end of the year. If you finish first, your reward is perpetual glory.
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong here at Unhedged World Headquarters in beautiful New York City. And today we're going to pick some stocks. I am joined by two brilliant colleagues, my trusty Lieutenant Aiden Reiter. Good morning.
And Alan Livesey, down the telephone from London. Good morning, Alan. How are you? We are well. Alan, we have a question here in New York. What is your job exactly? I'm a lone wolf. I'm wandering the floor looking for asset management and investment ideas. A lone wolf stalking Bracken House? Wait for the full moon and then I appear. Okay.
Okay, so I want to talk about what we think are the right stocks to own, but I have a few things to say and to ask first. The thing I have to say to our listeners, and I want you to listen very closely, this is not investing advice. My results in the last two years of the stock picking contest are proof that it is not investing advice.
The second thing I want to ask of Aiden and Alan is what kind of year are we expecting? When you were picking stocks, what kind of year were you thinking about? Alan, what's 2025 going to be like for financial markets? Donald Trump has already begun to throw wrenches into the greater machinery of the world's markets and economies. And I'm counting on him keeping that up. But
Where he's going to throw the most wrenches, I suspect, and he's already started, is at the Federal Reserve. Mm.
I think he is going to keep coming if Mr. Powell doesn't deliver lots of rate cuts. He put out a really nasty tweet, or what do we call the things one does on Truth Social? Truths? Truths, I think. Okay, Aidan, what was that? So we wrote a little bit about the truth. You wrote a little bit about the truth yesterday. When he was at Davos, he said to the various globalists there that Trump
He wants all interest rates in the world to drop. Yesterday, after the Fed did not drop the rate, he said he's going to do it himself, gosh darn it, whether that be through his various MAGA policies or something else. He will make the US economy stronger. So he's a Jerome Powell hater. What does that imply, Alan? I think he's going to attack the Federal Reserve on a regular basis and make...
markets, investors question the dollar and that will draw people to alternatives, but particularly gold.
Back when we worked together on Lex, Rob, we wrote horrible things about the gold market and the gold investor, but no longer. They're laughing at us recently. They made a lot of money. They're not laughing at me because on Lex, in my final years, I became more of a, not a Lex gold bug, but just, let's say, much more favorable. Okay, so he's one of your picks of gold stock. Now we're getting to picks. Two. Two of my picks. Tell me.
I wanted to do junior gold miners. It's kind of hard. What does that mean, junior gold miner? A junior miner tends to have no cash flow. They'll have an asset. They may well just have begun production, but it'll be very small, as the name implies. But there'll be higher beta kind of plays. They're more leveraged to the price of the metal. I would expect that. So I went down the smaller end of the scale, and I went through the recommendations I could find. And a couple...
stood out. And I suspect I'll get some hate mail on this. Maybe not, maybe yes. But I picked Dundee Precious Metals and another one called Oceana Gold. The Oceana Gold actually has an asset in the United States. I believe it's in Nevada. I think that's an interesting play because there is going to be more mining in the United States. Yeah. And you see that Trump is already causing some ructions in the gold market recently with extra stockpiling of gold at the Fed and
stuff and a Comex. So I'm bullish on gold. I think gold's going to have another good run. I mean, look,
It used to be people would say, oh, after gold gets above $2,100, there's a demand destruction. The Asian buyer stops buying at a certain ... Now we're at like 2,600. So this thing's running. It's like at a new level. So that's a momentum play you have right there. Part of it is also Chinese investors eventually are just going to keep coming. But the Asian investor doesn't ... An Indian investor particularly doesn't like paying up for gold. But I still see more gold.
But central banks are still buying. And if Trump sets the fox in the hen house or whatever the phrase is, you can predict central banks are going to want more of the stuff. So that's an interesting call. I think there's a non-crypto buyer, you know, the silent majority, I'm going to say. Silent majority. Aiden, do you have a pick for us, sir?
I do. And it's a controversial one. Okay. Let's remind listeners that this is not real money. And we're locking in right now for returns for the end of 2025. Yeah. So it's an 11-month contest, the 31st of January to the 31st of December, basically. So this is certainly not investment advice. Yeah, yeah. So you're going with the volatility approach. You're taking long shots. Throwing stuff out there, seeing what sticks. Yeah. I'm going to short Google.
Wow. Have you considered just setting your money on fire instead? Thankfully, it's not real money. And that's why I'm doing it. Okay, give us the short case on Google. That is a controversial call right there. So we've gotten some interesting news on AI in the past three days. We've learned these models could be made more efficient. We've learned that some of the big players like Amazon,
meta, they actually might be able to get better deals on those models because they don't necessarily have to invest as much in creating them.
Google, according to some people I spoke with in the chip ecosystem, is one that isn't necessarily a big winner from this week of deep seek, right, of the big tech companies. They have invested a lot in their own chips, which might not be up to snuff and/or might not have the same rationale that Nvidia had when they were making their own chips. And then there's a question on whether or not they can properly integrate AI into their system, into their services. They also have a big antitrust issue this year.
So they were found liable of monopolistic behavior when it came to their payments to Apple and when it came to their ownership of Chrome and Android. Now, this is a big bet because we don't know what the judge will do in this case. And it's possible that Google has to shed one or part of its business, whether that's components of the ad ecosystem, whether that is Chrome itself, their online browser, or it even could be Android. So we don't know what's going to happen next.
I'm going to take the bet, the long shot bet, that whatever it is, it will not be good for Google. I find that so incredibly unconvincing. My first pick is long. Well, we'll see who wins. Yeah. That's interesting. So you'll have to change the name of this podcast to Hedged. Hedged. I think Google, you know, I just think it's an innovative company. I think it's the cheapest of the Mag 7s.
Their core business is actually safe from all these legal rearrangements. They'll thrive whatever happens. So I'll go long in that one. It's probably right, but you know, got to have fun. I want to talk about my, all my, and I think that's kind of a conservative pick. We'll see. That's a good debate though. But in general, my picks are quite conservative. My first idea, and I'm interested in your thoughts on this, Alan and Aidan, is that it's going to be a great year to own a huge money center bank.
And I'll tell you why. Volatile markets, which are going to be delivered by the president and everything else, are very good for the big banks trading desks. They like volatility. They make more money. It's slated to be a good year for IPOs. We've had a bit of a slow IPO market. A lot of private equity companies want to get some liquidity. We're going to have a good IPO market. The shape of the yield curve is good for the lending businesses.
Strong U.S. economy means the credit card businesses are not going to face big defaults. Most boring possible pick, but it's been on a great run. I think it'll stay on a great run. What's wrong with owning JPMorgan Chase? In a crazy year where things will probably – it'll probably be a strong U.S. economy and things probably will be fine. You get some upside because JPMorgan Chase is leveraged U.S. economy.
And if all goes badly, J.P. Morgan's the strongest bank in the world and probably won't do as badly as other banks. So that's boring, but I'm going with it. What do you think, Alan? Am I going to make money on that one? I mean, I like that, but I went I-Beta and I went with Evercore, the boutique investment bank, as we discussed. So it's like the same idea, except more concentrated. Mm-hmm.
in some way. I think it's got to be a good time for deals. And what you definitely need, you know, we both know this from talking to many CEOs and board members, they need to feel confident before going into a deal situation. They may have plenty of targets, but they need confidence. And I think that confidence is there. Yeah. Or at least we'll be there for the next few months. Yeah. Like Trump disassembles the economy. There's no question that there is a lot of
strong animal spirits in the economy and in markets that should be good for the M&A market. And maybe I'll steal your idea from my portfolio. Maybe I'm being too cautious. You've slightly convinced me. Cautious did not work last year. Yeah, I know. But I just feel like my general thinking about this market is this. The U.S. is going to work. So you want exposure to the U.S. You want companies that are leveraged to the U.S. economy.
Growth is going to keep working. So you want companies that have kind of above average earnings growth. If you're going for volatility, fine. I'm actually trying to build a good portfolio here. You know, if you think it's going to be a volatile year, you want companies with a certain amount of sturdiness to them. That's so I'm taking a different approach than Aiden who's going for the long shots.
Anybody have another idea? I do. I have some short ideas. I love a good short. The one is an investment house that has fallen upon hard, hard times. It's the Swiss investment house, GAM, G-A-M. It's listed. It has been just a disastrous run. So when you say investment house, what does that mean exactly? I'm ashamed to say I've never heard of this company.
Oh, he must have, because GAM was one of the early sort of investors in hedge funds. They are Swiss. It is a Swiss house, although there's a lot of people here in the London office. I was a hedge fund guy. They invested in my fund for a time. That was a long time ago, 20 years ago. So it had a very good reputation for being a sort of niche player and I think the father of the philosopher Alain de Botton. Yeah.
Started it. Anyway, it's fallen on hard times. French billionaires stepped in. Mr. Niel. Xavier Niel. Telecom's billionaire. And whatever he's done hasn't worked because the shares just keep going down to the point that the Y axis of price has moved to a log scale, I notice on my fact set. Yeah.
And if that isn't evidence of a seriously falling damn price, nothing is. I think you need to start an algorithmic hedge fund that just tracks that. Any time you have a falling stock and the chart goes to log scale, you immediately initiate a short.
This is- And you could have a long short. You could have the other one. If the thing's going up so much, the chart has to go to log scale, then you go long. So it's a momentum fund with an automatic trigger. You're going to be a rich man, Alan. That's what you're going to be. Or not, because there's a bit of death or glory here, like Katie was saying about one of her stuff. If Nail decides to just say, buy it out- Yes. I'm doomed here, right? Oh, right. But-
It's at nine, whatever, centimes or whatever. I can't remember if it's, I think it's in Swiss francs. Right. Whatever the cent is and it could go to zero. If it goes to zero, I make a hundred percent. So that's one of my shorts.
Okay. What's next, Aidan? What do you got for us? I am not sure exactly which company I will short, but there's a universe of companies that I think are worthy of a short. Right now, Donald Trump has talked a lot about tariffs. Last time he did tariffs in 2018 when they were a little more haphazard, it was metal companies that took a big beating. Interesting. Metal companies? Yeah. Rare earth metals from China are a big deal. So anybody who is trading in commodities from China to the US or to the developed world
And now this is going to be global. So some of the big players, whether that be Glencore or Rio Tinto, might face some pressure. Glencore is interesting. They're like more of a trading house. They're more of a trading house, and they are purely just trading. And if there's tariff barriers erected everywhere- That's very interesting. So it would seem to make sense that they would be short. Yeah. All right. That being said, some of them have US exposure. So if you have mines in the US, that might offset some of this. Yes.
I do have a short idea, but it's a bit of a hedge. My portfolio is going to be mostly cyclical US-driven companies. And so I want a cyclical stock that is like a structurally weak business. So if cyclically the economy does go in the trash, I'll have one hedge out there, despite the name of this podcast. And I'm wondering, paper companies have gone up wildly. And the paper industry is the worst industry in the world.
Low barriers to entry, low returns on capital, capitally intensive, very, very sensitive to economic change. And I wonder if maybe the way to hedge my portfolio is to go short one of the big U.S. paper companies, either International Paper, Packaging Corporation of America, Smurfit. So that would be my idea is like I have all these cyclical companies, right?
And then I have a cyclical short on the other side. So that's the one I'm thinking about there. But here's a kind of company that I love that many of our readers, listeners, I should say, won't know about is the aggregates business. Rock guys. Rock guys. So what you do in the aggregates business is make big rocks into little rocks. You have a quarry. You get some rocks. You mash them up.
And then the rocks go in to make asphalt or concrete or other building materials, gravel. You think, who would want to be invested in the gravel business? But let me tell you this. Over its history, Vulcan Materials, which is kind of the leading U.S. aggregates company, is one of the best performing stocks there is over the long term because these businesses are all local monopolies. You can't carry rocks around very far.
And why that is interesting is like once you have the quarry in a given neighborhood, given like a 50 mile radius, you're it. So you have great pricing power.
And so Vulcan, which is a national company, is basically an interlocked series of local monopolies. It has great returns. If you think Donald Trump is going to supercharge the American economy, there will be construction. There will be road building, et cetera, et cetera. This is a levered play on that. I just think it's a really safe company. And you know what? You can't import rocks. Tariffs, this is like the least tariff-affected company.
company you can possibly imagine. But doesn't that rely on rates coming down and mortgages coming down? Okay. It's true. The weakest part of their business is going to be residential construction, but they have their biggest business is like roads. You know what I mean? And so that part of demand is built in. The local budgets look good. So if rates come down, you get some upside.
It's already absorbed pretty high rates. If rates come up, it's not going to be a great pick. Yeah. I don't know. A defunded Department of Transportation doesn't seem to- Yes. But again, I've asked all these questions of people who follow the company. They are not that exposed to the federal government. Oh, interesting. It is more to state and local governments that they are exposed.
the highway departments and so forth. And for this year, all the federal spending is already approved on its way, et cetera, et cetera. So I like Vulcan Materials. That's one of those stocks you can buy and then go to sleep for 20 years and wake up and be happy. So I like those kind of stocks. I think my last one is, the quote unquote no brainer if you're trying to do moonshots this year is crypto, right?
Right? Yes. Trump has promised to unleash crypto regulation and give them all they want and all the securities regulation they want, which would theoretically usher them into the mainstream. If you believe that will happen, and if you believe that'll happen this year, crypto stocks, to the extent this is not already priced in, should see a big upside. Yes. Of course, crypto is a different asset. You can't do it in this game, but you can buy Coinbase or other companies that are tied to crypto.
Yeah, I love it. I think, you know, if you want a death or glory pick, you just go one direction or the other all in on crypto for sure. Alan, you've given us your long two gold companies and a bank and you're short a Swiss investment company. Round out your portfolio with a fifth pick for us.
So it's a short on the luxury company Caring, which is a bit of a joke because Caring doesn't seem to care about its shareholders and hasn't for some time. The business of the billionaire, is it François-Henri Pelletier?
Pino, I hope I didn't mispronounce his name. He has run this for a while. It's been a sort of family thing. I just don't think he's focused enough on this business. And I think finally the shareholders began to notice a couple of years ago. I wrote about it on Lex. It continues to go down because Gucci is the big problem. And I know Richemont had some good results recently and that was fine. And it shot up. LVMH had bad results.
Figures the other day are not so good and I think company in the space is doing poorly The worst company in the space or the weaker company in the space is gonna have a real problem I think it just keeps going Okay, you know why this is a brilliant pick Alan is because you have just by being short-caring you have just hedged career risk because as we all know the FT is very dependent on luxury advertising
So if the luxury business has a terrible 2025, we all might get fired. But I'll be right. You will be right. And your short position on caring will carry you through. I love that pick. Aidan, round out your portfolio for us. You're short Google. You are long something Bitcoin-y, not Bitcoin itself.
Short Glencore or another- Short Glencore or another big commodities house. Yeah, I like it. I am long... I haven't decided again which specific equity, but some private credit player, right? OWL or someone else. Everybody has been saying forever that private credit is super dangerous. It's going to implode the entire financial system. I don't think that's happening in 2025. Instead, I actually think they're going to have an easier time and a better economy to work with.
So, yeah, long private credit. And you're getting in front of good momentum there. I mean, this asset class is so beloved right now. These guys are just holding out their hands and people are throwing money at them. Yeah. It's barely a moonshot. But I could short them on the chance that I think that private credit is going to implode. But I think I'm going to be chill on that one. All right. I think we're almost there. My final pick, again, on the theme of boredom.
The first company I ever covered as an analyst many decades ago was a drug distributor called McKesson, very well-run company. They basically roll the trucks that bring the pills to the drugstores. They supply hospitals and all that. Very well-run business company.
In general, healthcare was unpopular with investors last year. I think it's going to be more popular this year. I think this is defensive. They're not exposed to all the worries that are covering other bits of healthcare. I just think this company is a good way to get exposure to healthcare, which I think is a sector that's going to do well this year. So I'm buying it. So what do we have? We have two interesting portfolios from Aiden and Alan and one agonizingly boring one from Rob Armstrong. But perhaps this year...
We'll be right back with Long and Shorty.
In the short term, there's going to be a lot of volatility. But in the end, I think what we've seen is that the underlying aspects of productivity may end up being the more profound driver than the fears of government impact from the fiscal or the monetary side, for that matter. To learn more about macroeconomic disruption, subscribe to PGM's The Outthinking Investor in your favorite podcast app.
Listeners, welcome back. This is Long and Short, the portion of the show where we go long things we like and short things we don't like, but we're not doing stocks today because we just went long and short a bunch of stocks. Aiden, do you like something or dislike something today? Yeah, I'm long little spritz bottles, you know, like little water spritzing bottles. You know, I have plants now that I have to spritz every morning, and I just actually find a lot of pleasure just spritzing them every morning. Yeah, it's the simple things. I love taking care of plants too. I am long...
Long johns. Been a cold winter in New York, and I think people underrate what a huge difference to your warmth a pair of long johns make. People layer on all these coats. If your legs are warm, your whole body is warm. That is my, that's going on my gravestone. That's my motto. Too much material. No, I'm telling you.
This is... You gotta try it. You gotta go for it. Okay. Alan Libzy, special guest star. What are you long or short? I'm very long of a internet radio site known as Radio Paradise. Because I'm always looking for new sources of music. Very into my music. And...
This was tipped off to me by a friend in, believe it or not, I have an album club. And one of my friends in it got this tip. I think they broadcast out of Eureka, California. It is so good. Radio Paradise, it's called. Yeah, Radio Paradise. And he just mixes it all up and he's going to bring in more types of music. I think he's going to start a jazz one soon. It's great. Listeners,
We will be back in your feed next Tuesday with more Finance Paradise. In the meantime, please do join the FT Stock Picking Contest, which you can do at ft.com slash stockpick2025. Stay sharp out there. Unhedged is produced by Jake Harper and edited by Bryant Erstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhez. Cheryl Brumley is the FT's Global Head of Audio.
Special thanks to Laura Clark, Alistair Mackey, Greta Cohn, and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Rob Armstrong. Thanks for listening.