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Podcasts from Confluence Investment Management LLC, featuring the periodic Confluence of Ideas series, two bi-weekly series: the Asset Allocation Bi-Weekly and the Bi-Weekly Geopolitical Report (new episodes posted on alternating Mondays), and a new monthly Q&A format called the Confluence Mailbag.
Hello, and welcome to the eleventh episode of the Confluence Mailbag Podcast. I'm Bill O'Grady, Advisory Director at Confluence Investment Management. And joining me today is Mark Keller, CEO and CIO of Confluence. We're recording this podcast on June 30. The idea behind this podcast is to replicate question and answer sessions that Mark and I have participated in for the past twenty five years.
Bill O'Grady:To submit questions, email us at mailbag@Confluenceim.com. Each month, we select four or five of the most common provocative and interesting questions we receive. Mark and I will address them. So without further ado, let's tackle the first one. So what are your thoughts on the current trend, a bit of a small sample size of asset managers deviating from from or totally changing their process to address market performance.
Bill O'Grady:I'll start here. My my take is that asset managers have to balance between being completely static and bending to the wind. The world does change, and investing styles come into and go out of favor. And if a manager ascribes to a style, it behooves them to at least understand the weaknesses of the style they chose. No style works with equal success all the time.
Bill O'Grady:Seth Klarman, a famous value guy, for example, says that, you know, you should stay with value, but also have a realization that there's a catalyst required. You know, you just can't buy something because it's cheap. Momentum people oftentimes get out over their skis because the momentum changes. Growth guys run into the same problem. But I think being overly static misses the potential for secular change.
Bill O'Grady:Occasionally, the world does change. Being overly flexible means you're just simply performance chasing.
Mark Keller:There's a number of investment styles that have kind of proven the test of time. And, you know, even in changing worlds continue to do well, although as you point out, they don't all do well at the same time. You can be out of favor for years at a time. I I I kind of go back to the the individuals involved. It's been my observation that investors do best.
Mark Keller:When I say investor, can be individual investors, but I'm particularly thinking about investment managers here. Investors do best when they stay within their core competencies. And those core competencies often derive from personality types. You know, a guy who's a math whiz, computer science guy, you know, he thinks in numbers. Those guys often make really good quant investors, for instance.
Mark Keller:I've long observed the personality trait differences between value investors and growth investors. They can both do very well over long periods of time in market cycles, but they have a different view of the world. Some people are relatively impatient, and they make good traders. They don't stick around. You know, they take their profits, so they cut their losses real quick.
Mark Keller:Other people are very well situated to long term investing, and they have the kind of patience in their personalities that you need. I think it's really important that investors figure out what kind of persons they are. This is all about self awareness, always an important trait. And then develop that skill that fits the core competencies. Frankly, it takes so much time to develop real competency as an investor that it's really hard to switch styles.
Mark Keller:It's a really rare bird who can switch back and forth between growth and value, for instance, or go between trading and long term. And those people are extremely rare. And it's been my observations. More people who think they can do it and cannot Yeah. Than can.
Mark Keller:I saw, frankly, more value managers. For instance, we're in a period where where value is underperforming and growth is is frankly over performing and very similar to the late nineties. And I saw more value managers succumb to temptation and start investing like a growth investor back then that I that I am seeing now. But maybe we're just not far enough along in this growth trend. Maybe it's going to happen.
Mark Keller:But almost all of them made the switch too close to the end of the growth move and what proved to be the top of the bubble and really damaged their franchises as value managers. I think it's a it's a temptation that most investment managers ought to resist. That self awareness point that you make,
Bill O'Grady:I think, is is really important. You know, if you're inclined to be a certain type of investor, just just live with that. There's nothing wrong with it. Just just be who you are. There are gonna be times where it doesn't work.
Bill O'Grady:And I think what happened in the late nineties was is that not only was growth doing extremely well, but it did seem like the world was completely new. I mean, we'd seen communism fall. We'd seen this bias toward capital really switch hard. The fall of the Berlin Wall seemed to confirm that this neoliberal type capitalism that was emerging was triumphant. And maybe being a value investor was better suited for a Cold War world.
Bill O'Grady:And so I think it pushed a lot of people to switch. Now a lot of other type managers made switches at that period too that, you know, have become legendary mistakes. My my favorite story about investing in bubbles, you know, is Isaac Newton was a early investor in the South Sea Bubble and made good money and then got out and then watched this chart go completely parabolic and finally drove in nuts, entered in just before the top and then lost everything. This guy developed calculus. He's he's not stupid.
Bill O'Grady:You know? It's just it's just, you know, it's just hard to overcome that
Mark Keller:kind of stuff. Nothing to do with intelligence. It's it's, you know, and and, you know, fear of missing out is one of the most dangerous emotions, and I term it an emotion, not anything else, you know, that that that you can have. I learned early in my career, and I'm thankful for it, that that for for the lesson, that you just have to let other people make money in a stock that you would never touch. It just has none of the characteristics that your discipline and your way of thinking and your personality type has.
Mark Keller:You know, I mean, and and and it's okay. You do what you do. And if you're if you're doing something in in what I regard as one of the kind of legitimate forms. I mean, you're not you're not buying stocks according to the star movements or things like that. You know?
Mark Keller:You you you have something that's I've actually seen that. Yeah. Yeah. Oh, I just pulled that out of the air, but you've seen that. No.
Mark Keller:I mean but there's a lot of crazy things. But if what you do fits your personality type, do it and don't jump out of your lane if you are uncomfortable there. You will get your head handed to you. And and, you know, you gotta let other people make money doing what they do, and you make money doing what you do. And that's it's so important in my in my view.
Mark Keller:But when you get these kind of parabolic moves, we've say, seen in the memory stocks in the last three months, you know, people just can't resist it. And do they understand it? Not too well. But they don't they don't want to be left at the gate. You got to be okay with missing a stock that you wouldn't buy under normal circumstances.
Bill O'Grady:Two things I'll add before we move on here that I had a former boss who started giving me this newsletter he had gotten that this guy was making commodity picks based on astrology. And, I finally went in, and I was like, you're not really taking this seriously, are you? And he says, but he's right some of the time. And it's like, well, so is a flipped coin. You know?
Bill O'Grady:Just because somebody's right doesn't mean they're getting there with what you can duplicate, what you can repeat. The industry is littered with people who made fantastic market calls once
Mark Keller:Mhmm.
Bill O'Grady:And never repeated them again. Mhmm. The the the other thing I I would mention too, and it really does come down to this issue of envy. It's one of the seven deadly sins for a reason. In fact, most of the seven deadly sins are worth taking a look at because they they do tell us a lot about investing in emotion.
Bill O'Grady:You know, envy will drive you to do stupid things, so will gluttony. You know, you start thinking that markets can never go down. And, they can move, you know, Keynes' old line about markets can stay irrational longer and you can stay solvent still holds here. But it's important, I think, for investment managers, also wealth managers to understand their client. You know, putting a conservative client into a growth portfolio may make them happy for a while, but it probably is gonna make them uncomfortable over time.
Bill O'Grady:And in some respects, that may be the hardest job of wealth management is really understanding what the who the client is.
Mark Keller:Okay. I've got it. I've I've got to say one more thing then. Could you just remind me of one of, I think, is most important things that a wealth manager can do is to be a faithful mirror of the client's risk tolerance. Most people cannot evaluate their own risk tolerance very well.
Mark Keller:It's that self awareness thing. It's really hard. It's hard for me. It's hard for everybody. And we get tempted to change our risk parameters.
Mark Keller:And one of the most important things an advisor does is evaluate his or her client's risk tolerance and remind them of it. And when they wanna get out over their skis, and it's in markets like this where they wanna do that, they wanna change their risk tolerance. People forget that the S and P five hundred's risk factor goes up and down over time. You know, when 40% of the S and P is in 20 stocks, guess what? It's a riskier index than it was, you know, twenty years earlier.
Mark Keller:The the manager or the adviser needs to remind his client that this is too risky for him. This is a strategy. It's too risky for them. And and it's so that self awareness, you know, goes from the individual client through the adviser to the money manager. We all have to be self aware and do what we do best.
Bill O'Grady:Yep. Question number two. There were some dire forecasts for oil prices in the wake of Iran's taking control of the Strait Of Hormuz. The those didn't happen, or at least not yet, have occurred. Any thoughts?
Bill O'Grady:Well, this is kind of in my wheelhouse, so I'll I'll take a run at this. First off, it's a pleasant surprise that we avoided the nightmare of $200 oil prices that would have almost certainly caused a recession and and hurt the economy a a lot. I think there are really three major reasons why we avoided this scenario. And the first one was on I I will tell you. Anybody that comes out here and says, well, I saw this coming.
Bill O'Grady:Either I wanna buy them a beer or call them a liar. But China dramatically cut its oil imports. I mean, it it was completely unexpected, and, we still don't know what happened there. We don't know if they were using strategic reserves, if they had product inventories. We do know they they prevented product exports immediately after the conflict started, but, that was totally unexpected.
Bill O'Grady:Second thing, I'll give president Trump kudos on this. He successfully jawboned the market, and he caused enough volatility that if you were a trader wanting to get long and then, you know, he comes out and says, well, pieces is just around the corner, you get wiped out two or three times. After a while, you just stop playing. I mean, it it it becomes a factor that you can't really participate in. And and what this does is that it's the traders that drive up the price in anticipation of the change in the fundamentals.
Bill O'Grady:And and if if you are basically prevented from making that signal, then the price increase just simply doesn't happen. And and the third thing that I think was underappreciated going into the war is that we were actually sitting on oversupply. There was an awful lot of crude oil available to the world, and that gave us some degree of protection. The last thing I would touch on here is don't under estimate the impact of luck. Sometimes you just get lucky.
Bill O'Grady:Everything just kind of breaks just right, and you avoid something that you know, could be catastrophic. And just because you did doesn't mean it was, you know, foretold or in the cards or unavoidable. It just could have worked out great. I mean, you you read any history of World War one, it's pretty apparent every participant thought the other side was going to blink. And so they just kept engaging in behaviors that became increasingly escalatory, fully anticipating that they wouldn't happen.
Bill O'Grady:And thus, I think to a great extent, we just got lucky. And and the third point that I think don't underappreciate, you're seeing oil prices down to levels similar to where we were at the onset of the war. I don't think it's gonna last. You know, what we're seeing right now is this gush of oil is leaving the Strait Of Hormuz. But don't forget that Strait Of Hormuz was in and out traffic.
Bill O'Grady:Tankers went in. They got filled up. Tankers went out. New tankers went in. We're seeing tankers go out.
Bill O'Grady:We're not seeing tankers go in. And so somewhere in the next three or four months, we're gonna end up with this lull where the tankers that didn't go back are not going to where they'd be going, and these shortages are gonna return. So I I think we're looking at at a a repeat of this later this this year. Plus, the other big element of this is that Iran appears to be maintaining its its influence over the straight, and doesn't look like they're willing to give that up. Mhmm.
Bill O'Grady:And that's going to be a factor that's going to put a bit of risk premium in the price going forward. So we probably don't stay below sixties. We probably don't go above a 100.
Mark Keller:I would agree. I just well, I'll just add memories are long and they have they have everyone's memory is has now been affected by these events over the last three or four months. Users of oil will remember it. They will probably carry more reserves in storage than they used to or figure out how to. You and I've been talking about de globalization for a long time and just in time inventories will become just in case inventories.
Mark Keller:Insurers will not forget, especially since, as you just noted at the end of your discussion, Iran has not been emasculated here. They still have control over the straits. The straits have somewhat opened because they've agreed to it. And so if I'm an insurer and I'm insuring a tanker going through the straits, I don't forget that. That's gonna be a premium.
Mark Keller:So that's extra cost. The shippers themselves are are are, you know, tankers themselves are are gonna remember this. Everyone's gonna remember it. And there's gonna be a premium for quite some time as all of these market participants figure out, you know, change their behaviors. And that includes the producers themselves who are gonna start building more pipelines
Bill O'Grady:Mhmm.
Mark Keller:In order to not be so reliant upon tanker traffic as a way to get to oil. There's just gonna be a lot of behavior changes as a result of this, and and that may and probably should provide investment opportunities.
Bill O'Grady:Yeah. I think so. The the you know, you're hearing a lot of talk about the Middle East countries, you know, running new pipelines to the Red Sea and maybe even to the Mediterranean. I'll remind you that there's choke points at either end of the Red Sea, and there's a major choke point at the Mediterranean referred to as the Strait Of Gibraltar. Yeah.
Bill O'Grady:It's been dormant for a long, long time. But if it becomes important, it may not stay that way. You know, this is a choke point world, and this is one of the global public goods The United States provided since the end of the World War to the world by keeping those sea lanes open. And if they become challenged, the the world has to adjust, and the adjustments aren't free. Question number three.
Bill O'Grady:What'd you think of chair Wash's first FOMC meeting? Well, my takeaway from this is that we're moving to a less transparent FOMC. We live in a world that I would refer to as a cult of transparency. I remember when Facebook first came out, and I I've never had a personal Facebook account. But it struck me that if the government came out with a piece of software and said, now look.
Bill O'Grady:I I want you to get on there multiple times during the day. Just tell everybody what you're doing. You know? What you're banking for supper, what your kids are doing, what your credit card numbers are. You know?
Bill O'Grady:Just just tell us everything you got going. I mean, people would have rioted. They've gone up and but but a private company comes out and says, this, all like, oh, yeah. This is cool. Oh, god.
Bill O'Grady:I love this. Everybody can know what I'm doing. They know when I'm going on vacation. Lovely. We we have a cult of transparency that drifted into public policy too.
Bill O'Grady:And so Mark and I are both old enough to remember when FOMC meetings were closed. We didn't know what they did. Occasionally, you'd see a discount rate change, which was unmistakable. But most of the time, we had to guess. I mean, fed watching was was akin to criminology.
Bill O'Grady:And, you know, not to go all Dana Carvey on everybody, but, but we liked it. You know, it it, provided jobs for a lot of people. And there were disadvantages to this opaqueness. Markets misinterpreted changes in reserve management for changes in policy, and it led to sometimes greater volatility, but it it it had the other effect of, you know, keeping your horns rained in. You know?
Bill O'Grady:You didn't take a lot of leverage because you weren't sure what central bank was gonna do. And, you know, through the nineties, we steadily evolved to actual targets, and then we started having statements when a change was made, and then we had a statement every time, and then we started having press conferences. And, you know, this transparency took away that part of it where we just didn't know what was happening, and markets became certain. They had a reaction function that they could bet on, and they could thus take on more leverage because they knew what policy was doing. And I I think what Warsh is trying to bring back is that sense of uncertainty that will, you know, encourage people to take on less leverage.
Bill O'Grady:So what do we think? What do I think is gonna happen? Well, first off, I think take a and frame the dot plots because they're they're gonna go away most likely. And I think he's gonna try to maybe either reduce the ability of FOMC members to make public speeches and statements or maybe even reduce the number of members. There's been talk of reducing the number of regional fed banks from 12 to maybe five.
Bill O'Grady:And so this is all getting control and becoming more opaque. What's unknown? There's an old saying that there's no atheists in foxholes. There's also no hard money people in a financial crisis. When we have something crack, it'll the acid test for how willing Warsh is to stick with this is does he let the markets flounder a bit and maybe not come rescue, or maybe only come to the rescue if things become dire, and that would be a huge change in policy.
Mark Keller:I am tempted to go on a long diatribe of the dangers of forward guidance either from the Fed or by companies. Mean, it's been a sea change in our careers, especially over the last thirty years since since the mid nineties, really.
Bill O'Grady:I I feel like you've been wound up a little
Mark Keller:bit. Yeah. You know, I too much coffee this morning. But but I'm I'm going to resist the urge because you you've dealt with it adequately, and and we have more questions to come here. I'm just gonna add one more thing.
Mark Keller:You did talk about how, you know, there's no hard money people in a financial crisis. And some Fed watchers and analysts that I respect are currently and presently concerned about liquidity in the markets. And Warsh is a part of the reason for that. He is well known. I mean, guy is not a mystery to Wall Street.
Mark Keller:This guy has been around a long time. He's been on the Fed. He was a Fed governor. Was he not for while? He was.
Mark Keller:Yeah. I mean, so this guy well, and he has been highly critical of the Fed for the last decade and a half of expanding its balance sheet dramatically, and has made no bones that he'd like to reduce the size of that balance sheet. Well, guess what that balance sheet expansion was, was done to provide liquidity to the world. They bought in all these bonds and mortgages and pumped cash into the system. And there's really no way to reduce balance sheet other than sucking liquidity out of the system.
Mark Keller:And so I would just caution everyone, don't just watch what the FOMC does with the Fed funds rate. Watch go what's going on with the balance sheet as well and other measures of liquidity. Liquidity we've been swimming in liquidity for a number of years, and it's one of the reasons why you can have these kind of amazing bubbles or near bubbles, such as we've been observing in AI over the last couple of years. It's what keeps these bull markets going and withdrawal of liquidity, even when it's done for laudable reasons, can create a crisis. So that's one of the things I'm watching with the new Fed chair.
Bill O'Grady:Yeah. For those following at home, one thing you can watch is the secured overnight financing rate, the sulfur rate relative to Fed funds. If if that widens out with the sulfur rate going above the Fed funds target, you know that there's a liquidity drain. Twenty nineteen, we hit liquidity drain in the repo market, and we led to a seizure of the repo market. That was one of the early indications.
Bill O'Grady:So we do watch that spread every week and not doing anything now that is is a serious concern, but that's one of the areas where you'd you'd see it show up. Can you recall a situation similar to the current one where parts of the economy are struggling mightily and other parts prospering. What are the ramifications of this? Well, there's always been differences in relative relations between parts of the economy. It's it's pretty unusual to have the economy firing on all cylinders, but but we are seeing some pretty stark differences as now.
Bill O'Grady:Rural America is struggling in ways we haven't seen since the nineteen eighties. You know, we're we're starting to see farm aid come back as as important. Lower income brackets have been suffering for for a while, and these issues can lead to social and political problems. But, you know, if you look at the current level of investment, it's hard to see an overall recession in the economy occurring anytime soon.
Mark Keller:Willie Nelson's still around.
Bill O'Grady:He is. Yeah. Yeah. Well, it's it's, you know, years of of pod inhaling apparently have extended his life. I mean
Mark Keller:It it's pretty remarkable. I saw him in person last summer. He's Still doing it. Doing it. Doing pretty well.
Mark Keller:So, yeah, farm aid is so, know, I'm I'm gonna put my old foggy ball cap on. And It's kinda become a theme. It it is. It's becoming a monthly theme here. But, you know, when I get into business in the late seventies, early eighties, I mean, everything was in recession, it seemed like.
Mark Keller:You know, we we we were in the second oil embargo. You know, it just, you know, everything was down the tubes. My seniors and most market participants kind of looked at recessions as being kind of normal thing. Every three or four years, you know, whoosh down the slide, we went up the other side. And then to my surprise, we got in, you know, we came out of that '81 recession, '81, '82, and the bear market in '82 that turned into a bull market that went on and on.
Mark Keller:But as we went through the eighties, you know, oil patch got into big trouble. As you noted, agriculture and farm, you know, farmers got into trouble. Steel companies got into trouble, you know, so rust, that's when we started calling it, you know, Rust Belt America. And and it became very obvious that rolling recessions, as we call them then, and I still like the idea, it kinda rolled around the economy. It's kinda become the norm now.
Mark Keller:Yeah. Especially since the Fed and seems like everyone in Washington does whatever they can to outlaw recessions, at least general recessions, to whatever they have to do. All hands on deck to keep that from happening, but they have been unable to prevent what I'll call sectional recessions, sections of the economy. They may be regions, they may be industries, they may be certain demographics. We're talking about the K shaped economy right now, for instance.
Mark Keller:You know, that general recession, where all of the economy is in recession has become rather rare. So from an investment point of view, we're always watching what's what's what's hurting and what's doing well, because it's an easy way to step into a pothole if you aren't paying attention to part those parts of the economy that are that are struggling.
Bill O'Grady:I I think the other important note of that whole notion of there's always some part of the economy that's in recession. It's a political observation. There are some parts of the economy that will be simply left to suffer, and there are other parts that will get rescued. And clearly, the financial system is a part that will get rescued. Now not every element of it will.
Bill O'Grady:If you're a small bank and run into trouble, you you just might get wiped out. If you're a large bank, that's probably not gonna happen. And is it fair? No. But the practical reality is is that as you so astutely said, there there is was a belief out there that recessions were like natural, and that was very common prior to the 1930s.
Bill O'Grady:After the 1930s, the the economics profession, one of its underlying goals was to tame the business cycle. And it's been, you know, a seventy five year quest to do that. And by golly, we've gotten pretty successful at it. Had it not been for COVID, we our last recession ended in June 2009. That's, you know, that's a long time.
Bill O'Grady:And wild thing about economics is is that they're really it's really hard to find something that's an unalloyed good. Sometimes you can make the argument productivity is, but it's only really how that productivity gets shared. I don't think there really is any. I think somebody suffers at least on a relative basis. And so we're starting to see, well, what happens when you never have recession?
Bill O'Grady:You know? It's like Christianity without hell. I mean, it people take on a lot of leverage. They just assume everything's gonna be fine, and and risk taking becomes excessive.
Mark Keller:Yeah. There's the old line, which is so true. There are no solutions, only trade offs. Yeah. And, you know, some of the trade offs are that people who don't have much influence suffer and others don't.
Mark Keller:And that's, you know, that's where you get the kind of political upheavals. And then as you pointed out, you know, when there's no recessions and no fear of recessions, people take all kinds of risks. Recessions, this is not appreciated by most people, but one of the things recessions do is that they flush out malinvestment. When everyone's bullish, every every investment looks like a winner. Yep.
Mark Keller:Every new project can't miss. And frankly, a lot of those are terrible ideas, but they get funded anyway. And eventually, that has to be flushed out and that capital's got to be, you know, capital's lost, but what's left has got be recycled to something productive. And recessions do a pretty good job of that. It's painful, but it but it it works.
Mark Keller:And right now, you know, risk tolerance is is very high. People tolerate all kinds of risks, and I think that's one of the the the worrisome things about this no recessions mandate.
Bill O'Grady:Well, let's get to our last question today. Gold has been taking a beating lately, surprisingly falling during the conflict with Iran. I thought gold was supposed to be a geopolitical hedge. Why is it lower, and what's the outlook? Well, since the Biden administration froze Russian liquid foreign reserves in in their invasion of of Ukraine, gold prices rose to record levels.
Bill O'Grady:A big part of this was central bank buying or reserve management buying, better way of putting it. One of the features of the of of any bull market are price insensitive buyers. People that will buy at any price. Central banks and central authorities that manage foreign reserves for countries tend to fit in that category. Now it's also important to remember that foreign reserve managers are are going to hold more gold.
Bill O'Grady:They will at times liquidate gold for cash needs. Now since World War two, central banks, which in many nations also manage foreign reserves, has tended to buy or sell gold for allocation reasons. In other words, they use dollars and treasuries for day to day foreign exchange needs and held gold for the long term. When they sold gold, it was usually to reallocate a larger share to treasuries or some other financial reserve asset. Now we may be entering a new era.
Bill O'Grady:We we know that, for example, Russia and Turkey sold gold to support their currencies or acquire funds. Poland announced it was considering selling gold holdings, which we might add had appreciated significantly for defense spending. So selling in this manner is new. Same time, China's foreign reserve manager is still buying gold into this weakness. So their positioning doesn't appear to have changed.
Bill O'Grady:But what's new is that whatever gold the reserve managers buy going forward, we shouldn't treat it as locked up forever. Overall, I'm still bullish. I I expect new highs at at some point. But usually, a market takes a thrashing like this, you see a long consolidation period, which is what I'm expecting now. So it's a good time for position accumulation, but buying today, you may not see significantly higher prices for a while.
Mark Keller:Yeah. I'm I'm in agreement. You and I talk about gold a lot, so I'm not surprised we're in agreement. But the the the fact the is after a big run up like this, even in a bullish situation, you're going to have a period of consolidation, which after the sell off and you find support, that can go sideways for a very long time, just speaking about how commodity markets often act. You know, as we're meeting here, it's around 4,000, it's been hanging in there.
Mark Keller:It wouldn't shock me at all to see it dip down into the 3,000. I doubt it goes below 3,500 in my view, but it probably cycles around like a sine wave around 4,000 for an indeterminate timeframe could be six months could be, you know, three or four years. I will just point out that while most people think of gold stocks as just proxies for gold, the fact is these are companies and virtually every gold company that's producing right now developed mines with a price of not more than $2,500 in mine. Most mines have all in costs while the lowest cost ones may be around $1,200 an ounce, Even the high cost ones around 1,800. It's a little maybe 2,000 at most.
Mark Keller:In other words, a $4,000, they're making lots of money. And unless they hedged it all away, and there's never, frankly, not too many of those anymore. Wall Street criticized that practice so effectively that very few companies do that except some small ones who maybe have borrowings they have to hedge. But they're actually piling up cash. Some of them pay pretty nice dividends.
Mark Keller:Some of them buying back stock. Others are just hanging on to the cash. They're in a they're in kind of a risky business after all. And the multiples of free cash flow, multiples of earnings are actually fairly low. So I I I'm rather attracted to the gold mining companies and the royalty and streaming companies as businesses.
Mark Keller:Doesn't mean they're gonna go up right away or that, you know, they probably won't have a big run until gold has a big run again. But they are building value. They're building shareholder value even if it doesn't show up in the stock price, which means when things do move, they're they they they can move very nicely. So I'm really rather rather positive on that sector. But a a gold investor and a gold stock investor needs to be patient here.
Mark Keller:But I think over the the next several years, their patience will be rewarded.
Bill O'Grady:Well, Mark, I think it's a pretty good place to stop for today. As a reminder, if you want to submit a question, send one to mailbagconfluenceIM dot com. Today's discussion is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Bill O'Grady:Our audio engineer is Dane Stole.