Adam Johnson dives deep into the future of AI, oil markets, and smart investment strategies. In this episode, James Connor welcomes Adam Johnson, portfolio manager of the Bullseye American Ingenuity Fund and former oil trader, to Wealthion. Adam gives his take on the transformative power of AI, the volatile nature of oil markets, and the critical investment opportunities that lie ahead. From his days at Bloomberg to his current insights on market trends, Adam shares actionable advice on navigating today’s economic landscape. Whether you’re an investor interested in tech or curious about the next big move in oil, this episode offers valuable guidance to protect and grow your wealth.
Adam Johnson 0:00 I can't wrap my head around yet around the the recent 10 for one split on Nvidia, so we'll talk the old price terms, right? I bought it at, well, I highlighted it for my subscribers at 175. Two years ago, went up to 1200 and change. But my first target was 475. I sold a little next target 675 So little next target 900. So little next target 1200 sold a little, my current target is 1575 Or I guess now that it has split 10 For one, that would be 157. We'll call it 160. And here's what's so amazing about Nvidia, yes, the stock has run up dramatically. But so the earnings four years ago, the company earn $2. This year they'll own there, they'll earn $30, right. I mean, that's like 350% growth annually for four years. That won't last forever. James Connor 0:58 Hi, and welcome to wealthion. I'm James Connor. And today my guest is Adam Johnson and Adam is a former oil trader or former host on Bloomberg Television. And now he's a portfolio manager of the bullseye American ingenuity fund. Adam, thank you very much for joining us today. How are things in New York? Oh, Adam Johnson 1:19 it's going well, Jimmy, I sort of feel like it's, uh, September morning, 60 degrees at you know, 7am you go get a workout. It's 80 by by two o'clock. And, you know, we got a bull market right now. So I feel good. James Connor 1:30 That is the perfect weather. So you have a very interesting background, and why don't you just give us a brief overview of your background and how you got to where you are now as a portfolio manager. Adam Johnson 1:40 Oh, you bet. Economics major out of Princeton. The irony is I actually thought I was going to be a doctor in my econ 101. Prof was Alan Blinder, former vice chairman of the Fed. And he said, you know, you're the only one that comes up to me every day after class and ask questions. So he said, I think you should be an economics major. And, and I took his advice. And I'm glad I did. Because it's been a great journey. And you know, you and I are both Wall Street guys. And it's just a never ending narrative. It's always changing, right? You're trying to solve crossword puzzles before the clues change. So I went to Merrill Lynch right out of college, worked in the two year analyst program from there and went to Louis Dreyfus learned how to trade oil traded jet fuel in the Gulf Wars, the first one in particular, and love that. But I felt like oil was too, too narrow of focus. So made the jump over to Equities and Options, and did that for a number of years at a wonderful firm called firm and sells, we sold ourselves. Eventually, I started going on TV, Bloomberg, Fox Business, CNBC, kind of Oh, 70809. And in oh nine, Bloomberg asked me to join full time. As a TV guy. I never meant to do it. But they had said, you know, we're just journalists, we need some guys who've actually been in the trenches doing it. And I learned a ton, but missed the street. So left Bloomberg and 2016 and launched my investment letter Bullseye brief, which has given birth to the money management business, I run the bullseye, American ingenuity fund, and here we are today. So you know, it's funny, because if you look at each one of those steps, they're very different. And you wouldn't necessarily say back in 88, when I graduated, oh, well, that means that in 2024, Adams is going to be there. And yet, when you hear about the story, it's actually a pretty logical sort of one thing led to another kind of journey. And I think that's true of life, right? You can't predict where you're going to be. But if you look back retrospectively, a lot of times, things actually make more sense than they do at the moment. James Connor 3:43 That's a fascinating background. And I do want to pick your brain about being an oil trader. But before we do that, why don't we just start off with the American ingenuity portfolio? And just tell us about this fund and what the mandate of the fund is? Adam Johnson 3:55 Sure. Well, I originally set out to celebrate, and I use that term carefully celebrate American ingenuity, the people, companies and technologies driving the world forward. As I started to explore that celebration became pretty apparent to me that if some, if something were actionable, it would mean more to my readers. In other words, okay, fine. So you like this technology? What's a stock that exemplifies this technology? Tell me about the management team of this company. So So I very quickly figured out I needed to make an actionable. And as a result, the portfolio is built around largely technological driven innovation, but it's not entirely a technology fund. So yes, I've got the obvious ones, The Magnificent Seven, of course, because I call that core ingenuity. But yes, and I'd have artificial intelligence because that's the most transformative movement of the moment just as cloud was a few years ago, as E commerce was For years before that, but also robotics, I think that's very exciting. And all the industrial companies incorporating robotics, into their production to cut costs be more productive, etc. So I like these big themes. You know, we talked about oil. The problem with oil, even though I love it, and I love talking about oil is oil companies are price takers, they have to take what the market will give them. And I prefer price makers, a company like to pick an obvious one Nvidia that's creating these new chips, and they set the price they are price makers, and companies that are price makers are generally more interesting to me, because they're in control. And and so they have more pricing power, they have more distribution power. And it's just, ultimately, I think, a more interesting long term and profitable way to invest. James Connor 5:52 And Adam how would you describe your investment approach? Are you top down or bottoms up guy? Are you growth guy or momentum guy? Adam Johnson 5:52 I'm absolutely a growth guy. But there's always room for value. And I'm definitely a bottoms up guy. But there's always room for, you know, top down analysis. In other words, so I mentioned that I was at this one firm, firm and cells after I left Louis Dreyfus, where I traded oil, and I was there for gosh, 1314 years loved it. And my Boston mentor, wonderful man who used to interview everyone and ask the same question. And the question that got you the job was, how do you make the most amount of money on Wall Street? The answer he wanted to hear and the answer that got you the job was find a theme and leverage it. So that's why I say there's always room for top down. So you say, well, what's the most important theme of the moment? Artificial Intelligence. You know, I think that is it's almost self apparent, right? And they say, Okay, fine, artificial intelligence. I get it. So how do we how do we, how do we represent that? I hate to say play that because that sounds kind of cavalier, but how do we represent that in the portfolio? Well, Nvidia they make chips you say, Yeah, but they make chips. What about the programmers? Okay, well, that will be Microsoft chat. GBT. Okay, what about the companies that are incorporating it in production? The users, right? Well, I could name a whole bunch like synbiotic ticker, Sy m, that is roba, tising, automating all of Walmart's distribution facilities. So, you know, you start with that top down theme, artificial intelligence, and then you start poking around for stocks bottoms up, and what are the best ones? From a company level? And I think you meet somewhere in the middle? I think that's just a balanced approach. James Connor 7:44 And how many names do you have in the portfolio? And is there a minimum market cap that you look for? Adam Johnson 7:49 I don't have a minimum market cap, although as a result of interest rates going up larger is generally better, because smaller companies, you know, need access to cheap capital. And they've just been some wonderful, wonderful, but small companies that didn't yet have earnings that I just had to cut. So I've definitely moved up on the quality curve. So in the bullseye newsletter, I currently have 44 that I track, and of those 4435 have made it into the actively managed portfolio. And the reason they're different is that, you know, I publish the newsletter every single Sunday morning, and every newsletter has a pick, you know, 7am, you know, sign up, find out what, what I liked this week, and why and what I think it's worth, and, you know, I just take you through the whole analysis, the way of, you know, a hedge fund analyst would would take his portfolio or her portfolio manager through the analysis. That's what I tried to do for the subscribers, you know, take that kind of research and make it simple and straightforward. And so I always like to have a couple of pics waiting in the wings, so that if one of my names that's in the actively managed portfolio hits the target, and I sell half, as I always do, because that's risk management, one on one, and then I have capital, well, then I have a few names over here. I can say all right, of the eight that are sort of waiting in the wings, which do I like this week that, you know, I can start shifting into so that's why our has always have more on the bullseye side than I do on the actively managed side. James Connor 9:25 And at the 44 names you track, will they fall under this theme that you are trying to leverage or will they encompass other sectors such as financials or commodities? Adam Johnson 9:36 No, they will always fall under one of my specific investment themes, not a not a sector I do very little in commodities. In fact, the only oil position I have right now out of all 44 And it isn't even quite a position yet because it hasn't dropped under 15 One Five is energy transfer, which is the largest pipeline operator in the US 40% Have the nation's crude 30% of the nation's product supply. And actually 20% of the world's natural gas liquids are NGLS. 90% of their revenues are fee based, you know, their toll collector, right? They're not drilling for oil. They're just moving oil in pipelines and processing it and putting it in storage tanks and collecting fees for doing that. So it's very stable, readable income only 10% varies with the price of crude or natural gas or NGLS. And, yeah, I'll buy that under 15 bucks, it pays an 8% dividend, which certainly gets my attention. It's an LP, so not in not all institutional investors can buy a limited partnership, which is why it trades so cheap, you know, nine and a half 10 times earnings, again with that 8% yield. But because it's a cyclical name, it's not a growth name. I mean, they're growing, but they're growing by acquisition, it's not like they're going to be, you know, they're not going to grow their earnings by 50, 60, 70%, as in video will this year, you know, they'll grow, you know, five or 6%. So it trades at a whole different multiple, and you have to be very price sensitive. That's the only energy name I have in the portfolio right now. Everything else is slanted more towards tech or industrials, or just you know, cool companies doing cool things with technology in their businesses. James Connor 11:19 So one of your big themes is artificial intelligence. And I want to spend a little bit of time here and of course Nvidia is the go to name that everybody talks about, is this a name that you're currently invested in? And maybe you can also touch on some other names that would fall under this category? Adam Johnson 11:35 Sure. So we'll, we'll just because it's easier, I can't wrap my head round yet around the the recent 10 for one split on Nvidia, so we'll talk the old price terms, right. I bought it at a highlight in it for my subscribers at 175. Two years ago, went up to 1200 and change. But my first target was 475. I sold a little next target 675. So little next target 900. So low. Next target 1200 sold a little, my current target is 1575. Or I guess now that it has split 10 For one, that would be 157. We'll call it 160. And here's what's so amazing about Nvidia, yes, the stock has run up dramatically. But so the earnings four years ago, the company earn $2. This year they'll own there, they'll earn $30, right. I mean, that's, it's like 350% growth annually for four years, that won't last forever. I think it'll slow. And so I'm saying for next year, there will earn 45 bucks. Again, this is just to make the math easy before the 10 for one split. So if you put a 35 Multiple PE ratio, which is where Microsoft trades on $45 of earnings for next year, that gets you to 1575 call it 1600 or again 10 For one split. What is that 16 bucks. I mean, it's just it's hard to, to think in terms of 10 for one split when I've been thinking the other way. So that's how I get to my current target of 160. And also some more when it gets there. The reason being that if I start off with a 3% position, and it doubles now it's a 6% position, you know, all else being equal doubles again, now to 12%. Position doubles getting out to 24, right, and it becomes just too big in the portfolio. So you have to sell as a responsible Portfolio Manager, you have to sell a name that grows that quickly. Any name, whether it's growing quickly, or just one that grows slowly but does get bigger out of proportion. Because you never want to have too much of your clients money in one name. So yes, I continue to love and Vidya even though I have been selling it, and then you asked me Yeah, but what if somebody new comes in and is buying it up here? Fine. I buy 3% position. So that's that's how I deal with Nvidia. And growth. And yeah, gosh, there are a ton of other AI names you could talk about if you want to. James Connor 14:06 Couple of things I want to ask you about first of all, what what weighting, what's your maximum weighting in the portfolio for one name. Adam Johnson 14:13 So everything goes into the portfolio at somewhere between two and 4% of capital at cost. At cost. That's important. So the day that I buy it, it's a maximum 4% and the of you know, the portfolio so you know, if if you know I have $100 to put in no more than $4 will go into one stock again, we'll make the math easy. I don't think anyone invest just $100 but make the math easy. I guess you could say 100,000 and 4000, but. And the smaller ones would be at 2% and I that is a lesson learned along the way. In other words, you can't wait my for soft, the same as you would a little biotechnology stock that no one's ever heard of right? I mean, the biotechs risky, it may or may not ever work. I mean, arguably, maybe you should only have a 1% position. But I feel like if if you're not willing to put 2% of your capital into a name, then you know, come on, what's the point? So two to 4%. Everything's weighted two to 4%. James Connor 15:21 And, Adam, you were talking about Nvidia and the valuations and how you think it's still pretty good value, but it's up over 150% on the year, and we're only six months into the year, market caps around 3 trillion now give or take and 2 trillion of that has come in the last six months. You don't think this is rather excessive? Adam Johnson 15:39 Look at the earnings growth. Right. I mean, you know, they'll probably do 30 bucks this year. And, you know, last year, what was it, it was less than half that it was, I don't know, 10, 11 $12. The year before that it was what? You know, $4, the year before that it was $2. I mean, think of that in four years to go from $2 to $30. Of course the stock is up. In fact, arguably the stock has not gone up as fast as the earnings. So the multiple has actually compressed. It's gotten cheaper over time. That's what's so amazing. I'm not going to tell you it's cheap now, because it's not. But I do think it's reasonably priced. Again, if they earn $45 Next year, again, 30. This year, I think they'll earn 45 Next year, that's only only 55 Oh 50% growth. This past year, they've grown 225%. Alright, so I'm allowing for slowing growth. So if they earn 45 bucks next year, and I apply a 35 P E, which is the same as Microsoft, that gets us to almost $1,600. The stock is $1,200 or I should say 120 and 160, post split. James Connor 16:54 NVIDIA they make chips. Okay, are they designed chips and they have somebody else make them but you know, the whole chip industry is just another commodity, right? So it's just a matter of time before other entrants can compete at the same level as NVIDIA does. Is this not a concern? Adam Johnson 17:10 Yes and no, the architecture of the NVIDIA chip is completely different, which is why everybody wants them. So the speed of a chip is measured at this point in terms of what's called a Petaflop, you say, the heck is a petaflop? A petaflop is 1 trillion calculations per second. invidious chips, perform 60 petaflops. So, excuse me 60 trillion calculations per second, that is like 61 million one millions, that we can't even fathom numbers that are that big. To put that in perspective, that is 10 times faster than last years NVIDIA chip. And it's about 20 to 30 times faster than AMD is chip. Even more importantly, the the new Nvidia chip, which is called Blackwell, is 25 times more efficient, it uses only 4% of the electricity of the previous chip from last year. Okay, so not only is it 10 times faster, it's 25 times more efficient. No other chip company can do that. And that is why invidious chips are not commoditized they are unique. You know, it's like saying well isn't, you know, all orthopedic surgery just commoditized No, because some orthopedic surgeons are better than others, which is why there's a long list for them, and they charge more and those particular ones oftentimes don't take insurance. So not all chips are created equal. invidious chips are certainly not equal to any others. Everyone's trying to be Nvidia including AMD which by the way trades at a higher multiple than AMD Why would you pay more for a company that produces inferior chips? So no Nvidia is the one to own always go best in breed. James Connor 19:11 And if there was one risk to your whole growth assumption on Nvidia, what would it be? Adam Johnson 19:17 Well, that demand suddenly slows down that people realize maybe AI is going to take longer than we thought and so we can't justify spending as much so we're going to pare back are purchases of AI related equipment from Nvidia chips to systems created by Super micro to database chips created by Marvell, etc. If the capex capital expenditure growth curve slows, then that would that would have a negative impact on chip sales and therefore invidious growth rate and therefore Nvidia's stock price. James Connor 19:56 And what about the fact that the chips are manufactured? like Taiwan Semiconductor in Taiwan, what about geopolitical risk? Adam Johnson 20:04 Yeah, the worst case scenario is the Chinese say we're taking over. I guess that's certainly possible. You know, the here's another worst case for you. Vladimir Putin drops a dirty bomb or a nuclear bomb on Kyiv. Yeah, I guess that's possible. Or Iran does the same thing. Yep, I guess that's possible, or pro pitless Palestinian terrorists detonate a bomb in the basement of the Capitol. Yep, absolutely possible. The world is full of geopolitical risks that we can't possibly quantify. And if we thought about all of them, we'd never put a dime to work. In fact, we probably wouldn't even buy US Treasuries, because we'd say, well, what if Donald Trump is elected president, and then he's put in jail? Yep. I guess that's possible, too. There are a million reasons not to invest. James Connor 21:01 Yeah, but those events that you just mentioned, would have no impact on Nvidia directly. Adam Johnson 21:06 No, they'd certainly have an impact on the market. And if the market went down, our beloved Nvidia would go down to. James Connor 21:13 One of the things that I found interesting, Adam, I read in one of your newsletters that in q1 40% of all s&p companies mentioned AI in their q1 press releases. And I guess when I hear this, I'm wondering, like, everybody's trying to capitalize on this whole AI theme, right? Do you not think it's becoming more of a fad now? Much in the same way that NF T's or the metaverse was two years ago? Adam Johnson 21:37 Well, the difference is that NFT's don't make money for you. Whereas I think artificial intelligence does, right, you think about the applications where you can increase productivity. Sorry to say this, but you know, fire half your contracts department, you know, high paid lawyers, because you can have artificial intelligence go through and, and proof contracts much more efficiently than lawyers can, there have been a number of studies to that effect. That's just one example. Think about the cloud. Think how the cloud has transformed the way information is processed. Absolutely amazing. Just think of actually how its transformed Microsoft, you know, Microsoft, was basically the guts of the PC. And then along came the cloud and Satya Nadella, the then new CEO, now, well ensconced CEO, Microsoft said, Hang on, we need to reinvent ourselves. And the way we're going to do that is we're just in the same way that we were the guts of the PC, were going to be the guts of the cloud. And so they took the same principles behind managing the software of a unique PC that was a standalone entity, and applied that to the cloud, and just distributed it more efficiently and more effectively. And they increased the size of their business many fold. It's one reason why Microsoft now trades at a 35 Multiple, whereas it used to trade at like a 15, multiple, you know, look at Cisco stepped down 15 times or Oracle 12 times, right? Maybe I probably ought to look at Oracle. Now that I think about it, maybe that's a new Bullseye pick. Cisco, probably not Oracle because of software, maybe. So, you know, you have to think about transformational technologies. Look at E commerce, every company had to figure out how to become an E commerce company back in, you know, 05, 06, 07, 08. And then thank goodness, they did because by the time COVID came around, that's what kept the world afloat. So ecommerce was a thing, it's still a thing, it's still growing 16% of all retail sales, all retail sales are now online. And that number grows by about 1% a year, one percentage point I should say. So 16 becomes 17 becomes 18 becomes 19, etc. So, in the same way that every company had to become an E commerce company, every company had to become a cloud company, then every company had to become a data analytics company and to drive sales. And now that data analytics you take that to the next logical step is becoming a predictive analytics, which is made possible by artificial intelligence. You know, a Boeing airplane is flying through the air and the GE engine sensors sent something that isn't working as it should be at sends a message to the maintenance group at the destination so that when the plane lands, the maintenance crew is already ready to go out to the aircraft as the baggage is being unloaded and go to that sensor and figure out what happened and they have the parts on site so that if they need to swap something in, they can do so and that airplane is not late for the next flight. I mean, stuff like that. Right. That's really powerful. James Connor 24:49 And Adam what other sectors do you like besides AI? Adam Johnson 24:52 Well, I don't think of AI as a sector because that's a theme across sectors. But, you know, we've already talked about robotics. And you know, think of all the companies, you know, plain old Honeywell, you know what Honeywell is doing with robotics is absolutely amazing automating its factories, Tesla, you probably ought to think of Tesla as a robotics company. In fact, my guess is that I don't own Tesla, I never have, I think of it as a cult stock. And at the moment, 95% of revenues are from cars. And I don't think EVs are actually that compelling. So I don't own it, but that other 5% of revenues, making robots that they sell to other people, and storage entities, big, big batteries. They have all kinds of fancy, fancy names for it, but basically just really big batteries that mount on walls, or that are assembled in arrays and used by utility companies. That's the stuff I think that makes Tesla interesting. It's not cars. And so they're just all sorts of industrial companies that are using robotics in new it well, in robotics and AI are kind of related. Because a lot of times the AI enables the robots. I mean, John Deere, now has this ingenious device devices, the wrong word devices too small, this ingenious attachment that is pulled by one of the big agri tractors that is 20 feet across. And it has a ton of little sensors back and forth. And it can identify weeds, as the tractor is passing it up to three miles an hour. And then a laser as soon as the the 3d cameras see a weed down there mixed in amongst the corn, a laser goes and zaps the weed. And so as you're watching this thing out in the field, you see all these little blue lights as it's driving through the field. Right, it's zapping weeds at three miles an hour. I mean, that's really cool stuff. So you know, there's a great example of of AI and to a certain extent robotics working together at a good old industrial company, John Deere, talking about American ingenuity. So I love finding ideas like that John Deere is not a current Bullseye pick. But it could become one. James Connor 27:21 And I'm curious about what you said about EVs. Especially given that you're you're trying to jump on these themes. And we've had massive growth in 2020, there was 3 million EVs sold globally, this year, they're projecting I believe it's 16 million give or take. That's not the type of growth you want. Adam Johnson 27:41 It's been a disaster. Everything I've done in clean energy has been a total disaster. I mean, I've lost money on virtually everything. The only quasi clean energy name I have currently is actieve. AP TV, which is a spin out of the old Delphi technologies, which is, you know, classic Detroit, auto parts company. What distinguishes actieve is that it specializes on the electronic chassis that sits atop an actual metal chassis for cars and trucks. And not only are they number one for EVs, but they're number one for good old internal combustion engine vehicles as well, because they're now up to believing 3600 semiconductors, and sensors on every car made not EVs just good old fashioned gasoline powered 3600. So the electronic chassis or overlay that you need to coordinate all those systems is staggering. That's what actief does. And growing dramatically, they supply every car producer in the world, they're really the go to, and that whole business has really taken off. That's the only and it's not really clean energy. It's just electronics, it's American ingenuity, right? I mean, it's electronics business, which you could argue is a play on EVs. But the problem with clean energy is that it depends upon subsidies. And it used to depend upon low rates. In other words, very few of these companies actually make money, or very few of them are profitable to an extent that you, you know, can be proud of the company. They're young companies. And so they needed they need cheap money, low interest rates, and they need government subsidies to be competitive. Well, that business model doesn't really work, right rates started to go up, and also they lost their access to cheap capital. And government subsidies. Well, that's just the government handing out money that if we don't have any way, that's just incurring more debt, and that's not a very prudent business model. So you sort of as an analyst, like me, you say yourself Well, that's not sustainable. That doesn't work. So everything I've done in clean energy has been a total disaster from solar, to evey stocks to autonomous sort of, I never really bought into autonomy. Autonomy works in a controlled setting, like a warehouse, where you're talking about forklifts, it doesn't work on a road where you're talking about people who've been drinking, or suddenly, uh, you know, someone gets dizzy and crosses a line or, you know, whatever. They're just too many variables out on a road warehouse, fine, but not on the road. So autonomy is a market, but it's limited market. Clean Energy. Oh, my gosh, what a disaster, every single clean energy stock I owned, just, and I held on to them way too long. I lost 50 60%. And I kept saying, Yeah, but I mean, this thing could, you know, it could really be great. No, it's a Heartbreak Hotel, just sell it lesson learned, you know, not everything. I've outperformed the market significantly. And I would have outperformed even more significantly, had it not been for clean energy. But we learned these lessons. Sometimes we need to relearn them. James Connor 31:13 And have you done any work on nuclear energy? Adam Johnson 31:16 No, I haven't. That's a niche market. And it's it's really hard to put into a portfolio. You know, I mean, I guess you could buy next Terra or Duke, or Southern Company, but those utilities, you know, they grow at what, three? 4%? That's not that compelling. Okay, yeah, I guess I could go buy uranium. But again, that gets back to oil, uranium miners would be price takers, not price makers. And I know that there have been some people who've highlighted uranium makers or miners, and they've done very well, God bless him. That's great. That's just not what I do. James Connor 31:53 So let's talk about cryptocurrencies. Now. Because once again, this has been a very significant theme we've seen here in the last few years. What are your thoughts on cryptocurrencies and maybe more specifically, Bitcoin? Adam Johnson 32:06 Yeah, well, I'm a believer, but I'm not an owner, which probably means I'm not that big a believer, except I own Coinbase and have for a long time, and I'm thrilled with Coinbase. I also own a square or block, if you prefer, for some related reasons. There when you talk cryptocurrencies, I think you have to talk about two different sides of that coin, you have to talk about the processing coin, a side of the coin, which is blockchain, right, the protocols that enable cryptocurrencies to transact. And then you can talk about the cryptocurrency itself, like Bitcoin, or ether, or ripple, or whatever. I think we spent far too much time talking about the price. People talking about Bitcoin. And what they're really saying is, should I buy it here at 71,000? Or is it a short? That to me is like, read, designing your house and saying, you know, we're going to redo all the bathrooms? And do we want the shiny nickel hardware? Or do we want the oil rubbed bronze? Oh, my gosh, nickel, bronze, nickel bronze. That's what you see, what you really should be talking about is the plumbing behind the tile, and the plumbing is the Bitcoin or is the blockchain. And that's far more interesting to me than the shiny glitzy stuff that's on the outside that we can sort of see. But the real value is, is the plumbing and I'll give you an example of why XRP ripple was originally intended as an institutional way of moving money much more efficiently. So let's say the Bank of Mitsubishi in Tokyo wants to transfer $100 million worth of yen, from its Tokyo branch to the New York branch. Again, on behalf of a client, well, it needs $100 million worth of yen in Japan and it needs $100 million worth of dollars in New York. So it's tying up $200 million of capital. If in fact you were able to just attach the transfer to to a token, it happens instantaneously, and you free up $100 million worth of the capital, you don't need to tie up the capital. And again, it happens instantly be so there's no worry about interest, do overnight, etc. It's much more efficient. That is I think why Jamie Dimon of JP Morgan, even though he hates Bitcoin, is still willing to embrace the concept of cryptocurrency. It's about transferring money more efficiently. And yes, I do own coin base. And yes, coin base even though it's kind of hard to build revenue and therefore earnings model around it. Because, you know, are they taking commissions? And if so, is that dependent on the price of cryptocurrencies? The answer is yes. And yes. Are they starting to build out a business model where they serve as a prime broker? The answer to that is yes. And that's more reliable. If you are a Blackrock client anywhere in the world, and you want to trade crypto, you're on the, the Coinbase infrastructure system. So it has become ingrained and institutionalized whether people realize that or not, again, the Coinbase platform has become ingrained. You know, for for BlackRock, very conservative and largest manager in the world to adopt the Coinbase system. That's, that's a pretty powerful endorsement. So yes, the answer is given you a very long answer, but yes, the answer to your cryptocurrency question, I like it, and I'm invested in it, even if narrowly. James Connor 36:01 So let's talk about the economy. Now, this move that we've seen in the s&p and the NASDAQ. This year, it's all predicated on a cotton rates. And we recently got a revision in q1 GDP came in at 1.3%. That's down from 1.6%. This time last year, I believe we were tracking around 3%. So we're seeing the, you know, the economy slowing down? Somewhat? What's your take on this? And maybe you can also give us your view on where interest rates are going? Adam Johnson 36:30 Yeah, sure. So I'll start with GDP, the long term average, you know, like a 50. year average, is 2.7%. growth per year. So we appear to have slipped somewhat below that. It's kind of hard to know, because a lot of these measures are retroactive. And they move around, right, the Atlanta now GDP forecast to be downgraded from 4.2 to 1.8. Over three weeks, you say, that's crazy? Yeah, it's no one really knows if the Atlanta Fed, is that volatile? Over three weeks, in their estimates, no one really knows. So it's the best. It's the best guess sorry, its best guess. But the economy is growing. Look at employment, number one, which is still very strong, even if there's some signs that it has given a little bit of ground seated a little round, right that the top line rate went to 4%, up from below with 3.4 Call a year ago. But we're still creating over 200,000 jobs per month. And those two surveys to calculate, you know, the headline number and then the jobs created number, they're different. So again, there's a little bit of slippage. But I think the takeaway is, employment is still very strong, you know, 4% is still very strong number, and we're creating jobs every month, fine. If we're creating jobs every month, that means that people have money, and they are spending it. And since two thirds of our economy or GDP is consumer driven, that bodes well for earnings, which is why earnings are growing 789 percent. If you have earnings that are growing, you can justify owning stocks. Now just a quick beat on that for a moment. So if we earn if the s&p 500 companies collectively earn $250 in earnings this year, and that's a tad above the estimate, I think he estimates to 45. But I'll make it to 50. And you say given where the s&p is trading, that's a P E ratio of about 21 times. And even if the optimist the bull will admit that 21 times is sort of the upper bound, you know, typically you see sort of 17 times to 20 times, so you start getting up to 21 times and you say, oh, that's the upper bound of where you kind of expect the market to trade. Now, if earnings keep going up fine. So if earnings actually go to 260, well, that 21 comes down to you know, 20.7, or whatever. But it's just something it's in the back of my mind. It's why I don't blindly buy the market. I buy stocks within the market. And yet you always still have to have kind of a sense of where are the guardrails? 17 to 2017 20? Alright, we're 21. It's getting up there. So that's my view on the economy and sort of valuation. The other component, part of your question was interest rates and interest rates. I do think we'll fall over time, for a couple of reasons. Number one, inflation appears to be abating. It's a little higher than we thought. But if you look at the average of the four primary indicators, CPI, consumer prices, PPI producer prices, PCE personal consumption expenditures in the GDP Price Index, you average all four together. It's 2.8% 2.8. The Feds target is two and as a reminder, CPI got as high as nine 1.1 and PPI got up to 11.8, almost 12. So again, the average is down to 2.8. The feds targets too. So the last mile is proving difficult. That's because of housing and wages. But we're getting there. And I would make the argument that in case the Fed needs to somewhere down the road actually raise rates again, because inflation really accelerates, they'd be well served by just taking back a couple of the more recent hikes, you know, so cut one or two or maybe three times, and then they bring rates down a little bit to maybe five, so that if down the road, they need to raise them again, they can do so. But they're just going back to where they were, I think it gives them wiggle room. And they can take back a couple of those hikes because inflation has come down again, from 90 12% to, you know, that 2.8 average I've talked about. So I think we spend way too much time worrying about the Fed talking about the fed the great rate debate, if you're buying stocks only because you think that rates are coming down, you're probably not paying attention to the stocks and the earnings and the fundamentals of that company. I appreciate the macro, the big picture stuff. But as a stock picker, I think we need to focus more on stocks than the macro, have an opinion about the macro understand the macro and how it impacts your stocks. But you know, don't buy stocks just because the Fed is going to cut or short stocks, because if it's not going to cut, that's what Chicago traders do, who are trying to make $1 over the course of 90 minutes. And it certainly not with thoughtful long term investors like me, like us do to build wealth over time. James Connor 41:46 So just to summarize your comments on the economy yield sounds like you don't see any threat of recession. Adam Johnson 41:53 No. And I've been saying that for a long time. In fact, a year ago, people thought that I was as crazy optimists. They said, Oh, Adam, you never see recession. You're so positive. Yeah, I am because the fundamentals or the economy are strong. So a year ago, I said no recession. If you remember when everybody did 55% of economists said it was a foregone conclusion. Same thing happened in 2018. If you remember, everyone was so certain there was going to be a recession. And then the stock market bottomed on December 24. Again, 2018. We came in on the morning of 26th. It took off, Powell said he was thinking about cutting rates. And by March, the s&p was up 35%. And everyone said, Oh my gosh, there was no recession. How do we miss it? People get so negative, the pendulum always swings too far. It swung too far in 2018, it has swung too far over the past year, my only concern is people don't get too positive now, because when everyone's positive, that's when you get a problem. But fortunately, there's still 6.1 trillion of cash on the sidelines, which is the highest ever. And when expressed as a percentage of investable assets at 23%. That's the highest in 10 years. So by each of those two measures, actual cash or as a percentage of investable assets, there's still a lot of skepticism, which is good, because skepticism means there are people who are not yet drunk with enthusiasm. In other words, what we saw in the tech.com bubble of 2000, is nowhere near what we're seeing now. And nor with Nvidia, as well, as we've just proven given the earnings and multiple. James Connor 43:30 So I mentioned at the onset that you were a former oil trader, and I'm curious to hear your thoughts on oil, just given how important it is to the overall economy. It's been trading in this range of 70 to $80 a barrel. What's your take? Does it go higher or lower from here? Adam Johnson 43:45 Well, absent war, I think oil would be trading in the 60s, I think there is a 10 or $15 War premium that's been built in. And what's sort of interesting to me is that OPEC is talking about rate cuts or rate cuts, we got that on the brain. They're talking about giving back the production cuts, in other words, increasing production, I can't figure out why they're doing that, unless they have run the numbers and they see some sort of, you know, price elasticity of demand. And they say, which is opposite of what they've always said, Oh, if we increase production, the price will fall, but we'll sell more oil. They have never ever, ever subscribed to that notion. So it's kind of weird to me that they want to increase production right now, which is why oil has backed off, you know, a few weeks ago oils in the 80s. And now it's in the 70s back to God as low as 70 bucks last week. So I haven't quite figured out the answer to OPEC, but then again, you know, that's a whole different mentality, right? That that that they espouse, I'm a free markets guy, they're the polar opposite of that. The US is producing more oil than it ever As which is ironic because the Biden administration has restricted drilling on federal land we'd be producing even more, if not for that, and the price would be lower, by the way, just a function of greater supply. But when you have the US producing the most ever the Saudis producing the most ever embargoed Russian oil finding its way onto the market through the back door, because everyone realized, oh, Europe actually really needs the oil. So even though we don't want to support Vladimir Putin, we need his oil fine. So they have figured out backdoor ways to get Russian oil embargoed Russian oil to Europe. She don't tell anyone. Ditto Iran. Well, they're really not such bad people. And since since, you know, we don't want us drillers drilling. Oh, these the people at the White House saying, not in my backyard. Let's let the Iranians quietly bring some more oil on the market. You know, they're not such bad people. I mean, they haven't actually made a nuclear bomb yet. Right. I'm being a little sarcastic. But there's some weird things happening in the oil industry right now. Where? Russia, Iran, and even Oh, Venezuela Maduro? Oh, if you have elections, we'll let you pump again. She don't tell anybody. Those elections aren't really free. They've since jailed two of the opposition candidates. She but no, they're having elections, not my backyard. We'd rather have Venezuela pump and good old American producers. Again, I'm being sarcastic. But I have some views on oil. I think the Biden administration is being incredibly disingenuous in its policies, drill, baby drill, let us producers do what they do best, which is to innovate and find oil in impossible places. Get to it with fracking, link it by horizontal drilling underground, and bring it up to pads where you then have pipelines that can take it away and get it to market. This is what we need to do oil be cheaper if we do. James Connor 46:55 Yeah, so I will say, I think oil of all the commodities is probably the most interesting just because of the geopolitical elements. But what about a slowing economy? Do you think the economy could be slowing at a much faster rate, and therefore that's why the oil prices lower. And maybe not just in the US, but in China and the rest of the world? Adam Johnson 47:16 You know, there was a lot of talk when about a week, week and a half ago, the isn manufacturing data came in weaker than expected. And and then a couple days later, the isn services came in much stronger than expected. And there was concern that, oh, wait a minute, maybe the jobs in the economy are pivoting away from manufacturing. You know, that's one month data. And we seem to be lurching at the moment from one piece of data to the next piece of data. And the futures especially you see in the bond market, just slide from, you know, one extreme to another based upon one piece of data that tries to identify what was happening with one component of the economy. Unfortunately, the downside of transparency, and instantaneous information brought to us by Twitter, and, you know, the internet, etc, is that suddenly now everyone is an ex write member during COVID, everyone was suddenly an expert on infectious disease, or during bird flu, everyone is suddenly an alien scientist, and everyone has an opinion and wants to share it. And so we see one piece of data and then say, Oh, see, there it is, I told you so I would say you know, step back, it's like my old boss used to say, Hang on, sit back, smoke, the pipe, stroke the dog, let's talk about this, what's going on here, right. And I think if you look at the data in its totality, you can find any story you like slowing growing, but the bottom line is we are still growing. And if we're still growing. And you have, again, economic growth, called the three E's, the economy, earnings, and employment. We have all three, we have all three of the three E's right now. And by the way, they're in growth mode. So it's hard to get to negative when you have the three E's growing simultaneously. We could argue about whether it's slowing or accelerating, but they are growing simultaneously. We also have a situation where inflation has come way down. It's not where we want it. The world is not perfect. But we probably also as a result of that slowing inflation have a fed that will at some point cut rates. So again, the 3ds earnings, employment the economy, slowing inflation, and at some point, lower rates. I think that is an attractive backdrop for stock pickers. You don't buy it The whole market, you find outstanding companies, right? The people, companies and technologies driving the world forward. That's American ingenuity. And you find the best names the best companies across multiple sectors that are supported by powerful themes like artificial intelligence, and you deploy capital. That's what I do for my subscribers. It's what I do for my money management clients. James Connor 50:27 Well, Adam, that was a great discussion. I want to thank you very much for spending time with us today. If someone would like to learn more about you or hear your thoughts about the markets and the economy, where can they go? Adam Johnson 50:37 Oh gosh, well, first of all, thank you, Jimmy. It's a pleasure to be able to have a conversation like this in long form and not be rushed. So thank you for making time. Bullseye brief.com. That's where you can find me. I publish every Sunday morning at 7am A new stock pic every week plus news and catalysts on our stocks as well as relevant trades. I absolutely love what I do. It's a pleasure for me to be able to do this and to share the knowledge with with everyone. And by the way, I have a 45 day trial for 45 bucks. So I try to make it easy for people to come on board, get to know me get to know my process, get to know American ingenuity, and then ultimately come long term subscribers where we grow together and build wealth for our families. James Connor 51:23 Well, Adam once again, thank you. Adam Johnson 51:25 Oh, thanks, Jimmy. James Connor 51:26 Well, I hope you enjoyed that discussion with Adam Johnson and give you some insights on what to expect from both the economy and the markets in the coming months. During times of economic uncertainty and high inflation like we're experiencing right now physical gold is one way to protect your portfolio against the constant erosion of inflation. If you would like to learn more about gold and how it can benefit your portfolio, visit our sister company hard assets alliance.com. Hard Assets Alliance is a trusted platform that is used by over 100,000 institutional and retail investors to buy and sell gold bullion and gold coins. Once again, that's Hard Assets Alliance.com I want to thank you very much for spending time with us today and I look forward to seeing you again soon.
