Anthony Speciale Stock Market Analyst

Better Way to

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Let’s Talk Inflation

Speaker 1 (00:01):

Hi, I’m Carter clues. I am here with the investment guru, extraordinary Tim Melvin, on a better way to, well, Tim, where are you going to take us? And what are you going to make us today? Whoa,

Speaker 2 (00:13):

First off, Carter. Thanks a lot for being here. I appreciate it. Always great to talk with you. And let’s, let’s talk about inflation because that’s the red hot headline that’s

Speaker 3 (00:23):

Been in the news, right? Everybody

Speaker 2 (00:26):

Wants to talk about inflation. See even the gods, or if you hear the thunder, the back, they want to talk. They want to talk about inflation. One of the biggest headlines around wall street, and there’s a reason for that. Look, the consumer price index. When they reported that earlier this month, it grew at the fastest pace since 2008, the CPI of course, is the consumer price index. That’s what you and I pay for stuff in the stores. And you know, if you go into a store, you know, that prices have been rising rather aggressively. Since last March. Now the producer price index, the PPI was reported a few days after that, and that was the highest increase ever recorded. Now they’ve only been recording this stuff since the 1990s, but that’s pretty impressive. The highest increase in almost 30 years, the producer price index.

Speaker 2 (01:19):

That’s what the people that make the stuff that, that we ended up buying are paying for the raw goods and materials. That’s possibly Carter the seeds of future inflation. So we’ve, we’ve got a fed chairman who has said that inflation has been so low for so long. I’m going to read it, let it run a little high, okay. In order to keep economic growth going and it’s become quite the discussion on wall street. Okay. And the classic advice has been, we got to get into the commodity trade, right? We got to do the things that we know work well, when there’s inflation, we’ve got to buy gold and, and, and oil and all these commodities and stocks related to the commodities. And that’s what they seem to want everybody to do. I’m sure you’ve heard that and gotten the same emails. Oh

Speaker 1 (02:11):

Yeah. Yeah. By commodity. It’s just the perfect time to do it. Get dome. Yeah. Perfect.

Speaker 2 (02:16):

Except it’s w it’s the worst time to do it. It’s you, you have to be almost crazy to do it here unless you’re a professional trader trading on the floor and you can get in and out in milliseconds. And here. Here’s why I say that, you know, us steel is a popular inflation. Play us steel rose by four times the 52 week low. Okay. That’s crazy. You don’t buy us steel after it’s gone up by a factor of four. You buy us still. Absolutely. Nobody else wants to own it. And it’s trading down in the single digits. But then if you, if you look at you know, resolute forest products, which is just paper goods, the stocks up 1200% business, didn’t get that much better. It just got normal is what happened there. And the stock shot up off the lows. I don’t think we want to chase it here.

Speaker 2 (03:11):

And Carter, I’m sure you’ve heard the stories about copper and lumber and all the other commodities. And again, let’s look at that. Realistically lumber, it went up by five X, the starting price it’s dropped by 50% and it’s still up more than two and a half times. The lows, okay. Gas, as we all know, has doubled in price over the last year oil is more than tripled. Copper is at the highest prices world war two, after rising by almost four times soybean oil, which is in almost everything. That’s just about tripled. So yeah. Prices have risen. We can see it at the pump. We could see it in the grocery stores. We know it’s happening. Is it lasting inflation or as fed chair? Jerome Powell has said, is it temporary in nature? That was be the question. Yes. Is it true? Is it in fact transitory wall street and a lot of really smart guys by the way, running around and saying, no, it’s not.

Speaker 2 (04:12):

It’s permanent. It’s here to stay. You got to get this commodity trade on. Well, you know who doesn’t believe that we’re going to see permanent new levels of high inflation, the bond market, the treasury bond market and the us dollar. If we’re really getting ready to enter into a time of high three, four, and 5% sustained inflation, we should see bonds falling, bond yields rising. And we should definitely see the dollar starting to give up significant ground against other currencies around the world that is not happening yet. I’m not going to say that it’s not going to, because I will tell you something. The fed statement scares that scares the hell out of me. I remember the last time a federal reserve chairman told the president, Mr. President, we need to get a little more growth in here. We can handle some inflation, but we got to pump the economy up.

Speaker 2 (05:08):

That was 1972. It’s what Arthur Burns. The newly appointed fed chair told Richard Nixon, we need higher growth in order to get you elected Mr. President with a big margin. But you know, we can handle a little bit of inflation. Yeah, no, he couldn’t interest rates went to 18% before that national nightmare came to an end. So is there a chance we get 1970 style runaway inflation? Yeah, absolutely. There is. There’s a chance that it’s transitory. There’s a chance that we get runaway inflation. The consensus seems to be that we’re going to moderate bump up inflation, but it’s too soon to tell. Nobody knows. So if you, if you ignore the possibility Carter of inflation, if you’re gonna lose money, every place you comes, if you go all in on inflation and inflation, doesn’t come, yeah, we’re gonna lose money. So

Speaker 1 (06:01):

We’re not a smart player. What’s, what’s the, what’s the, what’s the Tim Melvin Wade wealth.

Speaker 2 (06:05):

What do we do that you asked? I’m serious. How many out there there is an inflation flooding out there. And I, I, I’ve known about this play for years and we were starting to kind of tip into it. Then I noticed in the first quarter, one of the largest smartest investors on the planet, he started making just an all-in bet on these securities that will protect you from inflation. Now they’re called senior rate closed end funds. Now closed end fund them. We’re not going to get two times go on this. It’s a fun. They sell fixed number, shares it trades on the stock exchange. So it’s subject to supply and demand and being popular or not. If it’s popular, closed end funds can actually sell for a little bit more than the value of the shares or bonds that they own. If they’re unpopular or just ignored, they’re going to sell for less.

Speaker 2 (07:01):

And that’s called trading at a discount than the value of the stuff that they own in the fund. So it’s this kind of a psychological effect in, in investing in these. So there’s a fund out there that I’ve really find attractive than invest entirely in these floating rate loans. These are loans to corporations, smaller corporations, mid-size corporations, and they’re going to use it to expand their business, to buy new assets or to finance a takeover of a smaller competitor. This is a really lucrative form of lending. Okay. but the banks really got out of it after the great financial crisis and some specialized lenders rushed into the void. The best category of lender that got in here was private equity funds, private equity fronts collectively have borrowed billions of dollars to expand businesses and to do takeovers. They know more about leveraging credit that anybody else on the planet. So now you’ve got these floating rate funds. What that means is every quarter, based on what interest rates have done, the interest rate, the borrowers paying goes up or down. So if we get inflation with higher interest rates, the interest payment on us is going to go up. The fund’s going to get more popular. So there’s a good chance that that discount turns into a premium. So we have solid capital appreciation potential on top of it. So now this particular fund quarter, yeah. All right.

Speaker 1 (08:24):

Get your pencils out. Get your pencils out. I got mine. There we go.

Speaker 2 (08:29):

Managed by Apollo. A they’ve been around for over 30 years of private equity leader, tremendous returns, borrowed lent tons of money of that time of very deep bench when it comes to credit. So here’s this phone fund they’re investing in senior floating rate knows that means they’re senior in the capital structure. If something gets wrong, goes wrong, they get paid back everybody, but the IRS. Okay. So you’ve lowered your risk profile there and they’re floating rates. So they’re going to protect you against inflation. Now this fund is sitting there. It’s trading at 93% of net asset value. So we’re buying this for less than the loans that the fund odes are actually worth. And we’re going to get a 6% yield. That’s the best of all. If you care about income, that yield is paid monthly. So you can either have that pay to your bank account, or if you don’t need the cash folks reinvested into more shares, so you can keep growing the pile. So here we go, we get inflation. What’s going to happen to this fund. We’re going to see the discount narrow giving us a return, probably go to a premium. And our 6% could go to seven, eight, 9%, depending on how high interest rates go. Now let’s say we don’t get inflation. Inflation is transitory. It turns out to have all been about the supply chain. And we go back to a 2% or less inflation world. Like so many people think is going to happen. What happens to this? Do we lose any money? Yeah,

Speaker 1 (09:58):

Yeah. Do I lose? I don’t want to lose.

Speaker 2 (10:01):

You do not lose your worst case scenario here is that you have this fund managed by one of the best investment managers and credit managers on the planet in Apollo, it’s paying you 6% monthly dividend, and it’s just going to sit there and plug along and continue doing that. So your worst case is you want a nice investment paying 6%. So either

Speaker 1 (10:24):

Way, I’m going to get 6%. Is that right? Am I interpreting that right?

Speaker 2 (10:29):

Because most of these loans have a floor on it. If I think if we went back to, you know, hyper deflation, that rate could drop, but it’s still going to stay higher than most bank alternatives. So it’s, it’s as close to win-win as I think, as we could create when it comes to making inflation bet, the time to make an inflation bet is when there’s no inflation, when there’s already inflation, it’s too late, you’ve missed the boat. Now you’re looking for some way to get yourself into a win-win no matter what happens in, in the financial market.

Speaker 1 (11:01):

So you have just, the better way to wealthier is the Apollo is that it’s the

Speaker 2 (11:07):

Apollo senior floating rate fund. It trades on the New York stock exchange the series AIF, as I said, you’re getting 66% dividend yield paid monthly, and there’s appreciation of potential from the discount closing. And so you’re protected against inflation because your payout will go up. So that’s the way to play inflation right now. That’s the better way to wealth,

Speaker 1 (11:30):

Tim. Excellent. Thank you. Thanks for letting us join you for this. This was exactly what we needed. I mean, the, the news and she would say on the inflation is pretty alarming to most people. So you’ve told us how to protect yourself and make money at it. Thank you. Thank you very much for Tim. Melvin’s better way to wealth. All right. All right. Thanks for joining me today, Carter. Yeah, we’ll talk to you tomorrow. Thank you.