In this week’s edition of Wealthion’s Weekly Market Recap, Andrew Brill shares the most compelling insights from our expert guests. Lobo Tiggre explains why he believes commodities are signaling that a recession is already here and presents his bullish case for gold and uranium. Brent Johnson discusses the painful implications of de-dollarization for the global economy and the likelihood of a weaker dollar under a potential Trump presidency. Adam Johnson remains optimistic about the stock market, laying out three scenarios for the Federal Reserve to cut rates and highlighting key growth opportunities amid geopolitical tensions. Meanwhile, Brett Rentmeester delves into the future of real estate investing, focusing on the lucrative “build to rent” strategy.
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Andrew Brill 0:00
Welcome to wealthion’s weekly market recap. I’m your host, Andrew brill, a volatile week in the market has come to a close. Let’s see what our experts had to say this week. CEO of the independent speculator local T Ray joined wealthion this week and warned that the price of commodities is a strong recession indicator, and they’re showing we are already in recession. He believes there is a bullish case for gold and uranium, and that a hard landing is still possible.
Speaker 1 0:33
The global economy is in recession. The US has been in this rolling, sort of mask recession because of the labor market looking good, looking good, not necessarily being good, but looking good. And that when that final pillar of the US, labor or consumer, gave way, that’s when we’d likely see the fireworks going. And it seems to me that we’re at that threshold right now.
James Connor 0:58
And to your point, when you look at the price of oil, it’s been vacillating between this 70 to $80 a barrel. Copper was at five. Now it’s closer to $4 a pound. And quite often these commodities are considered barometers of the economy or the global economy. Do you think that’s what these two commodities are telling us, that the global economy is slowing down
Speaker 1 1:19
absolutely especially consider that we have, you know, a hot war in the Middle East. You just if you had said that was going to happen to somebody you know three years ago, I’m sure that if you polled, you know, whoever Bloomberg polls, I don’t know where they find these people. They pull for these numbers. They pull out of their hats or other parts that we won’t mention. But you know, if you had polled people three years ago that there would be a major blow up in the Middle East, Israel at war, everybody would have been talking triple digit oil prices. So you may say, oh, 70s, 80s, you know, that’s still pretty hot. Well, okay, yes, historically, it’s pretty high, adjusted for inflation, not so high. But with war, a hot war in the Middle East, that’s actually dirt cheap oil, in my view. So I see that as a very bearish indicator for global demand. And Dr coppers called that for a reason. There have been serious okay, we had new supply coming out of the DRC, but we also had a lot of hits to copper supply coming out of Panama, problems in Peru, kerfuffles in Chile. So there has been actual supply constraint, and so for prices to go down in the face of that is really, you know, a big deal. There was just a report, I forget who published it just this last week. I remember seeing a report how demand is just not keeping up even with the supply drops. So, yeah, I think these are very powerful indicators. You know, both of them, oil is the energy of the world, still, and copper, dr, copper is used in so many things. Both of them, I think, are telling something quite clear, if you’re willing to listen about the global economy,
James Connor 3:02
and you mentioned earlier that you you’re expecting a hard landing. What do you mean by that? Exactly.
Speaker 1 3:07
I’m glad you asked, because, you know, hard landing should mean, you know, soup lines, all that sort of thing. Maybe not the Great Depression or Doug Casey’s infamous greater depression, but a real recession. We should see a lot of people out of work and a painful adjustment, typically in a recession, the US recession lasts two or three years. Housing and autos really take it on the chin, other telltale sectors, and I’m not sure. No, no, let me rephrase that. I want mince words. I do not think that’s actually what we’re headed for. When I say hard landing. I think that’s where we’re headed, in that direction, but I do think that the powers that be will not let it happen, or they’ll do everything they can. In other words, the money helicopters will fly again. The money floodgates will open. Pick your metaphor, bazookas, whatever metaphor you want. I think that the Fed is already pivoting in that direction, the time has come. Powell said, to change policy, and don’t forget fiscal policy, even if inflation resurges, and Powell doesn’t want to go down as it burns. He wants to be a Volcker and he slams the brakes back on again. That doesn’t mean that Congress won’t send people stimmy checks they’ve already established no fault of their own as sufficient cost to send people, not just a, you know, a boo boo kiss, you know, a few 100 bucks or something, but 1000s and 1000s of dollars, you know, material money, not to the banking system, but direct to consumers, because it’s no fault of their own. And obviously, a recession is no fault of their own right. So the precedent is there. The the very recent message from the powers that be is, if anything goes wrong, we’ll send you free money as long as you vote for us. So I did, I’m didn’t say that we’ll send you free money because it’s the right thing to do. So that can put. May paper the problem over I mean, if it blows up, we’re looking at major changes. I suspect that they may be able to paper this over again. As incredible as that may sound, given all that we’ve been through, but if nothing else, I think that’s actually highly inflationary. We’ll see how the economy responds. If the news is scary enough that, and then the powers that be pivot, and they start sending people money. You know, that very thing could actually scare people, instead of making people go out and spend, because now they got more free money in the mailbox. It could have people saying, holy, beep. You know, something is really wrong here. And you could actually see people pay off credit cards again, save again, buy gold. Gee. What a concept. You know, you could see a fear reaction sparked by the very same thing that they hope will just, you know, open the party and get the spending going again. Consumer, rah, rah, rah. We’ll see. I have no crystal ball. I don’t know how that will play out. They know how bad that’s going to get, and I think they’ll let the money helicopters fly before it gets that bad, so that could prevent it. If people start getting checks in the mail, then they don’t need to go down to the unemployment office, even if they’ve lost their job. So I don’t want to predict the unemployment number, but I think it will be obvious the impact of this, and again, the more easily foreseeable trend is the impact on money printing and what that does to real things that can’t be printed.
James Connor 6:32
So let’s talk about that now. And you touched on gold. Gold’s up 20% on the year, which is not too bad. And maybe you can give us your whole thesis on on gold and why you like it in this environment.
Speaker 1 6:43
I’m gonna first and foremost say, okay, you know, Gold Bug likes gold. Why are we even talking about this? What kind of, what kind of headline is that? But I’m not a well, I was gonna say, I’m not a perma bull, but I’m talking about gold and versus the dollar, these fluctuations and speculating accordingly. And that’s not a constant. As a person who believes that gold is money, as I just said, there’s no time that I wouldn’t buy bullion just add to my stack. That’s like saying, you know, Lobo, how much is too much money? Or how much is too much savings? You know, I’m never going to have too much savings. I’m always going to want to add to my stack. So yeah, am I a permeable on gold? Sure, fine, you know, but don’t dismiss me, because last year, gold was not my highest conviction trade on this more speculative side with the stocks and things. That was uranium that worked out quite well. Uranium doubled last year. I’m not saying therefore I’m bullish on gold. So gold’s going to double this year, but it’s up already, and in I have to say again, I’m not trying to portray false modesty here. I’m trying to be accurate. And the reasons why I said that gold was my highest conviction trade for this year, like uranium was last year, had to do with what we’re talking about now, the recession, the labor market breaking down, as we’re seeing now. Gold pulled a hockey stick before that happened. So I had a lot of people telling me earlier they say, Oh, you’re such a genius. You know, gold’s up already. Well, yeah, but not for the reasons that I said. And the reason why I’m bringing this up is because another pushback might be, you haven’t asked this, but a pushback might be, well, gee, Lobo gold’s up already. You know, has it priced in what you’re talking about? And so my answer is, no. The points are, recessions going into recession in particular tends to be bullish for gold. Rate cuts. You know, gold famously doesn’t pay interest. That’s a bullish factor for gold inflation. If you directly correlate inflation and gold C by CPI, it actually has a very low correlation, in my view, though, that this is because gold leads inflation. So gold spikes in 2020 the inflation doesn’t kick in until 2022 and it looks like there’s no correlation, but gold was telling you what’s coming if the money helicopters fly again, as I expect them to use here, I think the smart money knows this, and I think you’ll see a lot more deep pockets piling into gold, even if inflation CPI, at least, continues tracking towards the Fed’s arbitrary 2% target. And then the money printing, you know, filters through the economy. We start seeing real assets go up and inflation goes back up again. So you know that that’s the leading factor there. I’m sort of losing my thread of thought here for where we’re going with this question. But the argument or that, the key point with this is that all the reasons that I was bullish for gold, which are now we see playing out. I think the evidence is clear in front of us, that the reasons why I said 2024 was going to be a great year for gold, we’re seeing that play out now, as you and I speak, but we’re seeing it play out from an area. You know, from gold already at 2500 whereas when I made that call, we were still fooling around with 1900 2000 so I was thinking, hopefully, maybe gold will end up 2500 by the end of the year. We’re already there, and now the things that I think are bullish for gold are starting to happen. So, you know, I don’t want to make crazy numbers out there, but just, just think about it. You know, a modest, let’s say, 20% gain from where we are now. And, you know, in a major bull market, gold can easily go up 50% if we just go up 20% from where we are now, that puts us close to $3,000 gold. It’s not a target. I’m not promising it. I’m just saying, you know, that that would not be a huge or outsized increase from where we are now, given the bullish factors that I see ahead of us, and the best news I can say about this is really the extraordinary opportunity that we have is that the investors have been so bearish. Even gold bugs, you know, every time gold goes up, they say, oh, it’s going to get crashed. You know, the the smackdown team’s going to come knock it back, or the manipulators, or whatever it is, just, you know, it’s almost like, you know, a battered spouse. It just doesn’t want to admit that, you know, there’s any change there the gold bugs, if the gold bugs themselves are bearish, every time gold goes up or fearful every time gold goes up, what about the mainstream? They’re not gold bugs. They don’t believe it’s money. So that there’s been this really enduring negativity about gold stocks, even though we’ve had nominal all time high, after all, time high in the gold dollar exchange rate. That’s creating a terrific opportunity. So
James Connor 11:45
I want to move on now and discuss nuclear energy and uranium. And you’re very bullish on the long term prospects of uranium, but it’s now 15% on the year. And this is quite surprising to me, especially given the recent news out of kazatoprom, which is the world’s largest uranium producer. And before you provide us with your thesis, why don’t you first tell us about the news out of kazatomprom and what it means. Sure,
Speaker 1 12:11
it’s kind of interesting that the market, at least this time, seems to have got it more right than last time. We’ve had two bits of news out of kazatomprom Recently, and it’s important to understand that they’re not just the world’s largest just the world’s largest producer, they’re also the world’s lowest cost producer. So if your biggest source of supply is the one really setting the prices or able to undercut all the competition, that it’s sort of like you know, as Nvidia is to AI, you can’t ignore Nvidia, and whatever they do has a huge impact on that space. It’s like that was kazatomprom and uranium. So it’s really significant. Now they have so large a part in the market that and prices were lower in recent years. It’s sort of like OPEC. They voluntarily cut back their production by about 20% below the permitted level, and that worked. It helped support prices. Other things happened. Sprott came along, hoovered up to cheap pounds, Japan started restarting reactors. The whole world seems to have gotten the memo that windmills and solar panels are not going to be enough. So there’s a nuclear renaissance happening at the same time, but kazatomproms voluntary restraint was a big part of bringing the market back into something, you know, resembling balance. So this was years ago, and they had announced several years ago that they were okay. Uranium prices have started coming back up again. We’re going to start ramping our production back up to our permitted level, subsoil use agreement level. And this year, 2024 they were supposed to bring it back up 10% and then next year 2025 of the other 10% to go back to 100% of the agreed upon levels. But they ran into trouble along the way. War happened. The other war in the world, with Ukraine and Russia had trouble getting enough sulfuric acid and transportation issues, construction delays and things. So they actually produce less, not more, uranium in 2023 than in 2022 which was a surprise. They yanked their guidance for 2024 and said, Well, you know, maybe we won’t produce 10% more now. Here’s to your question recently, a few weeks ago, they announced, well, we’re actually doing better than we thought, and we now think we’re going to increase our production by 5% in 2024 and uranium stocks tanked around the world. Everybody panic. Oh no, because that imposed producing more uranium, which to my setup here, right? If there’s the world’s largest and lowest cost producer, that 5% increase, boy, that looks like a, you know, a huge increase. Of course, it will affect prices, which are set at the margins, but they were going to increase 10% so that 5% increase is actually a 50% decrease from what they were going to do and but somehow, Mark. It’s got it wrong or panicked or whatever, and people sold off on that day they put out that news, there were double digit drops in numerous uranium stocks. Now, just a few days ago, as you and I recorded this, we had the new announcement, where they announced their results and their forward guidance for 2025 they’re now saying that they are going to continue increasing. They expect to be plus 12% in 2025 but remember, they were supposed that’s up from minus 20, right? So they’re still guiding for less of an increase than they had originally planned. Not only that, they put in the news that they are petitioning to the government to move the goalposts those subsoil use agreements, I talked about the permitted levels, they’re basically saying that they’re problems supplying enough sulfuric acid, which they use to mine the uranium out of the ground, and their construction delays and things are so protracted that they want to change the amount they’re permitted to produce so they don’t miss it by so much. Every year they’re moving the goalposts. So this time the market seemed to get the moment, a lot of uranium stocks jumped. You know, you know, high single digits, some of them double digits, on that news. So the answer to the question is yes, because Adam prom is increasing its production, but that increase is less than they had originally intended, and it’s so much less that they’re actually changing their goals. Because longer term, they’re still they’re saying that they’re struggling to reach what they otherwise could have done, and that, I think, is forcing all the industry insiders to go back and rejigger their models. They were pounds in their models coming to the market that they now know are not coming. And so I see this as extremely bullish. The day of that news, we got a pop as you and I are speaking, it’s given it back a little bit. You know, markets are jittery and so on. And at the end of the day, uranium stocks are still stock. So if you have the stock market’s wobbling, that can affect uranium stocks as well. Bottom line is, I see a tremendous opportunity here as well. Now I’ve just said that about gold stocks, so don’t get me wrong, not everything is great. I’m not one of these people that everything is always fantastic. It’s really pretty much gold and silver and uranium, and that’s it. Almost everything else, copper, oil, other things because of my recessionary outlook, I’m not interested in buying any of those until I’m sure the recession has done its worst. But uranium is different. At least I know that uranium is different. Maybe the people selling uranium stocks today don’t know it, but you know, oil prices are more volatile because the family can tighten their belts, you know, decide to go see grandma less often, use less gas and so on. But uranium, nuclear power, that’s what you use to keep hospitals running and airports and, you know, important things like that. It’s 24/7 365, base load energy, the stuff you always want on so it is much more recession resistant. And I’ve looked at this in the last four recessions, uranium prices were mildly sideways to up, and in the one that it was down, which was the great financial crisis, uranium had actually done a huge spike in 2007 and was, I think, making a rational correction before 2008 hit. So it was not the 2008 recession that made uranium pull back, and in fact, it was recovering quite quickly until Fukushima hit. So I think, I think that one case of the the one out of four in which uranium went down in a recession, it wasn’t because of the recession. So that makes me willing to buy into Uranium stocks now, which are still on sale. That’s the terrific opportunity I’m talking about. Stocks are on sale. Uranium is still at a price where, okay, it’s down 15% whatever. It’s at a price level where the better companies make tons of money. This is this. Don’t be clear about this. Don’t get this wrong. The current corrected uranium price is not bad for the miners, unless you have, you know, a lowest decile project, the current price levels are great for the actual business of making money uranium mining. So the stocks are down. The price is good. The supply and demand scenario couldn’t be better. And and it’s only skewing towards the upside that the Chinese just announced 21 new reactors this last week, and they’re already building scores of them. So the to me, the writing on the wall here is great. And for anybody that missed uranium doubling last year, you’re wondering, well, gee, is it too late? You know, I think this correction that we’re in now is a terrific buying opportunity.
Andrew Brill 19:43
Brent Johnson, the CEO of Santiago capital, joined speak up with Anthony Scaramucci. Brent spoke about a weaker dollar and the consequences of that happening. He also commented on the potential for a Trump administration to devalue the dollar. He also had advice for young individuals going into five. Finance today,
Anthony Scaramucci 20:04
and that is already not
Unknown Speaker 20:06
affected. It’s a Gort, that’s the dollar,
Anthony Scaramucci 20:09
but you can’t get away from the dollar because you’ve already relied on the dollar, and you’ve got your own debt that you got to pay back in dollar denominated assets, and you can’t make dollars, so you’re stuck with the dollar so, so when Vladimir Putin gets out there with xi and others, and they want to de dollarize the earth, and they want to come up with a sort of brick currency, or a brick transfer of value, if you will, can they do that?
Speaker 2 20:38
So yes and no, I’m going to put a qualifier on this. Anything is possible. So can they do this? Yes, they can do it. Can they do it without pain? No, they cannot do it without pain. And this is the point that I’ve tried to make to people, is it? Listen, it’s not that the dollar can’t go down. The dollar can absolutely go down, but you cannot have, based on the design of the system, you cannot have full scale de dollarization without an enormous amount of pain. And so if the rest of the world were to decide that they are going to take on all of that pain of de dollarization, because remember, money, this is where it starts to get a little complicated. I know I’m jumping around a little bit, but it’s important to understand this the way money understand this the way money is created. The way money is created, it is loaned into existence. That is why the Euro dollar debts have gotten so big, and why the US dollar debts have gotten so big is because as the monetary system expands and as the as economies expand, they have to take on more debt to do it, because that’s the way the system is designed to increase the supply of money. And so if you’re going to go away from that, if you’re going to decrease the amount of dollars in the system, then you are going to have to deleverage. By definition, you are going to have to deleverage. And deleveraging is a very painful deflationary environment. I don’t know any global leaders who run on a platform of, we are going to have a horrible deleveraging. We’re going to have a depression, but trust me, in 15 years, we’re going to be better for it. And that is why it’s very difficult to do. And the other thing I would say is the countries that can de dollarize to a greater extent, and I would argue that no one can fully de dollarize, but the ones that can de dollarize to a greater extent than others, again, is is like someone like Russia, because Russia has a lot of commodities and a lot of energy. The rest of the world doesn’t have the same advantages that Russia has, right? And so the idea that the whole world can just de dollarize, just because of five politicians get up on stage and hold hands and say, we’re going to create a new BRICS currency? Yeah, they could do it, but it’s going to, it’s going to crush their economies in the process. And so my point has been de dollarization. The path to de dollarization is the dollar going higher. If the dollar goes lower, that just perpetuates the current system, because the dollar going lower provides liquidity. If the dollar is going lower, there’s no need to have to pay off all the debt. You’ll actually take on more debt. We could
Anthony Scaramucci 23:23
end up with wild amounts of growth and innovation that surprises everybody, and a result of which we have a even more elongated situation where our economic growth is higher than expected, and therefore our percentage of debt to GDP is actually being diminished by the growth. So a lot of different things can happen. Can a Trump administration who is calling for a weak dollar? Can they weaken the dollar so
Speaker 2 23:52
they can, but I but I think it’s important to understand at what cost and what they would have to do, to do it. And so what I mean by that is, if Trump comes out and just, if he even just says, I want the dollar lower, the dollar is going to sell off on the news initially, right? The market will react to that, but then that would have to be followed up with some kind of concrete measures that last more than a day or two now. So what can they do so he can pressure the Federal Reserve to lower rates, which perhaps the Federal Reserve will comply with and do that. The problem, though, is that both Trump and Vance have both kind of adamantly said, we’re going to put tariffs on goods coming into the United States from abroad. And if you think about what that actually means, it’s not all that different than a rate hike for the rest of the world. Remember, the rest of the world gets dollars in one of two ways. They either trade with the United States, they send us goods, we send them dollars, or they borrow them. Those are the two sources, right? But if, if, if we’ve put if, if there. Selling goods to us, but now they don’t get as much in return, because there’s a 50% tariff or 30% tariff or an 80% tariff, then the amount of dollars flowing back to those other countries decreases, and if the if the liquidity flowing back to those other countries decreases, but remember, they still have all that US dollar debt that they have to service that puts pressure on those economies, and it puts pressure on the Euro dollar market. It pushes up the price of the Euro dollar, which is linked at par to the US dollar. So it’s not that it can’t happen, it’s just that some of Trump’s policies offset each other, right? And so the one thing that the US has going for it, or they have many things going for it, but one of the biggest things that they are the market that the whole world wants to sell into. Right the rest of the world. If they could no longer sell their product into the United States, they would have to sell it somewhere else. Now, they could sell it somewhere else, but not for the same level of price that they sell it to the United States, but they would still have all that US dollar debt that they have to negotiate and they have to service, and they ultimately have to pay off, so one way or another, they have to get dollars. And so, you know this idea that Trump can just lower the dollar and there and put on tariffs, and there won’t be any problems external to the United States, I think is wrong. But the other thing I would say is, if he is able to lower the dollar and kind of consistently keep it lower, and the global economy grows as a result, then that is not de dollarization. That’s fine, and that could happen, but that’s not de dollarization again. De dollarization means taking on less US dollar debt, and it means trading in less US dollars, but you still have before you can move on to another system. You have to satisfy the debt.
Anthony Scaramucci 27:00
You have any advice for young professionals entering finance? And so I’m going to start Brent, I would just say you have to read everything. Make sure you’re on top of the Wall Street Journal, even old school things like Barron’s, focus on at least one or two financial books a month. Start with the psychology of money. Morgan Hassel has been on this show. He’s an amazing guy, and work your way through some financial books, but read and ask questions and do what you’re doing right now, which is joining us here on the wealthion network. What can you add to that? Brent?
Speaker 2 27:35
I think I’d add a couple things. The first thing I’d say is, I know when you’re young, you always kind of want to prove yourself, make a name for yourself, and that’s how you kind of get ahead. But I would focus on keeping an open mind, rather than always trying to be right, especially when you’re young. Like To your point, read as much as you can, listen as much as you can, go into every single meeting and just sit there and listen that you possibly can. It might take 15 or 20 years before you realize the benefit of doing that, but if you do that, it will be a benefit. And then the second thing I would say is even though you listen to everybody else, even though you read everybody else, you have to have your own opinion. You have to think for yourself, and you have to be able to back those up. So if you do those, if you keep an open mind, but think for yourself, I think you’re going to be ahead of
Andrew Brill 28:22
most people. Adam Johnson of the American ingenuity Fund said this week he remains 100% invested in stocks, and touched on three scenarios for the Fed to cut rates this month, Adam is very optimistic in the market and argues there is room for growth. He also gives hints at where to put your money to work and how geopolitics may affect the market. As we, like said, embark on September. We are expecting a rate cut in a couple weeks. Do you think this is a cycle? They raised rates 11 times over a year and a half? Do you think we’re now in a cycle? Or do you think this is they’ve been so deliberate about let’s see the numbers. Let’s take a look. Let’s wait. We need more we need more data. Do you think this is a one off and they’re going to wait and see and take it really slow? Or do you think that this is actually a cycle where we could see multiple cuts going forward? First
Adam Johnson 29:17
of all, I do not think that a September rate cut is a one off. I do think it’s the first of multiple cuts, but I would add that I don’t think the Fed will cut as aggressively as a lot of traders believe, and right now, the fed fund futures are predicting with 100% certainty. You and I have been at this game long enough to know that nothing’s ever 100% but that’s one taxes, that’s it. Yeah, right, yeah, exactly. Death and taxes and rate cuts don’t make that cut, but yeah, 100% certainty of four cuts by December, I think that’s aggressive. We’ll probably get two or three. I’m okay with two or three. I think. The Fed waited probably a little too long, but it’s it’s not dire. As I say, the economy is still growing. The only negative that we’ve seen is an uptick in employment, and I should say unemployment, you know, up to 4.3% and given that, that’s still a very low, low number. I mean, when I was at Princeton, my econ 101, Prof was Alan Blinder, former vice chairman of the Fed, and he used to teach us that 5% was considered full employment. So if we’re at four three, we’re actually below full employment, at least by his measure. I know that was a couple decades ago, but even so, 4.3 is still extremely low, and I would argue that that uptick from call it three, nine to four, three has actually had more of a benefit than than a negative, simply because it’s taken some of the incremental pressures off rising wages. And that’s been, you know, one of the reasons that inflation kept going up. So, yeah, a lot more to like than to dislike. I do think the Fed is going to cut rates, but I think it won’t be quite as aggressive as the market thinks. Fine. I’m okay with that. Steady as she goes.
Andrew Brill 31:12
You think there’s, let me ask you, how big of a rate cut do you think is coming this month?
Adam Johnson 31:17
Probably 25 basis points. You know, Powell is a gradualist. He has always been a gradualist. And the nice thing about that is consistency. You sort of know what you’re getting. You know, as you know. And I imagine many of our viewers know markets like certainty, or at least markets like not to be surprised. And I think 50 basis points would be a surprise. I think the probably the first. Let’s say he actually did cut rates by 50 basis points. People would say, Hooray. 50 basis point cut. That’s great. What? Wait? What does he see that we don’t why did he have to go 50 basis points? Is it really bad? Right? So he doesn’t want to do that. He doesn’t want to scare people. He’s just gonna say 25 basis points. You know, we waited until September. Could have cut in August. No rush. 25 basis points now. We’ll meet again in another six weeks. We’ll take a look, then maybe another right? I mean, that’s just his pattern. It’s always been his pattern to be gradual. You know, he, he probably, waited too long to to raise rates because he was trying to be a graduate. I mean, remember when he said a few years ago? Yeah, inflation’s running a little below where we’d like it, so we’re okay letting the economy run a little hot, and we may let it go a little hot, right, right? So, you know now you could say, well, then they probably waited too long and they’re doing damage. No, I think he learned the lesson of letting it run too hot. So I’m okay with the current trajectory of rates. I think the market is too I you know, I think the far more disconcerting thing right now overhanging the market is politics, because we don’t know what we’re going to get. And it’s two very different visions of America, and there are some pros and cons to each, whether it’s higher regulation in a green energy mandate from Harris or potentially a lot of new China tariffs, maybe even European tariffs from Trump, the market would not like either one of those, so we don’t know what we’re gonna get. I’m much more, much more on edge about politics than about the Federal Reserve right now. Adam, I
Andrew Brill 33:29
know that we’re looking at unemployment a lot. I look with PCE, CPI, all that stuff, but the Fed’s kind of keeping a very close eye on unemployment, and I need you to help me out with something last week, it came in at initial jobless games. Claims came in about 231,000 the week before was a little bit higher, but the average right in the 230,000 mark, that means, in four weeks, a million people lost jobs. Am I missing something? There is that reason for concern?
Adam Johnson 33:59
Well, it’s it’s not that people lost jobs. It’s just that the job creation wasn’t as high as we thought. I mean, that’s very different, you know, because, you know, you’ve got to offset those jobless claims with the fact that every month, we are creating jobs, and those come from two different data sources. You’ve got a survey which says, Are you looking for work? And if you say you are, then that goes, you know, on one column of the ledger. Meanwhile, if you filed claims, that goes on another, there’s some offset there. The numbers are really sloppy. I mean, remember, we just had a revision of 800,000 jobs that we thought we got that we didn’t get. Because, as it turns out, the Bureau of Labor Statistics was maybe using wrong baseline and or it may be that because of the survey aspect of the data, some of the people called were illegal. The migrants who, you know, shouldn’t have been counted in the first place, and it skewed the numbers. You know, we’ve had several million people enter this country, and some of them are working, and I think that that’s creating a ripple effect that I don’t think anyone really knows quite how to model. So the jobs data right now is kind of sloppy, and I think you have to sort of look at a number of different sources, whether it’s survey data, whether it’s hard data, whether it’s ADP, the guys who, you know, create your paycheck, ADP processing, you know, look at their data, etc. I think you have to look at data from a lot of different sources and try to piece it together, kind of like the news these days, you know, you got Fox over here, MSNBC, over here, CNN, somewhere in the middle. I mean, you kind of have to triangulate if you want to figure out what’s really going on.
Andrew Brill 35:48
Let’s talk about the market a little bit. Obviously, you think there’s, there’s room for growth. We had Mark Faber on last week. He thinks that, you know, there’s gloom and Dr Doom thinks there’s gloom and doom. He thinks that the markets do for a big haircut. How come you think it? I mean, obviously you think indicators show that it’s going to, going to still continue to go up. Why would someone think, you know, hey, look, there’s, there’s reason for serious concern here. So
Adam Johnson 36:18
over the past 10 years, the market has tended to trade the S p5 100 somewhere between 16 times earnings on the low side and 23 times earnings on the high side. PE price earnings ratio, right? So I just ran my numbers on what I think the S P can earn over the next call it four quarters. I think it’s $275 trailing. Is about 245 so all I’m saying is that we’re going to have 10 to 11% earnings growth over the next four quarters. That gets us to 275 so what multiple do I put on that? Well, if the range has been 16 to 23 and we have growth, we have still reasonably good employment, and we have rate cuts. I think a 22 multiple is a reasonable multiple. I’m not a 23 the high, but, yeah, towards a higher end. So 22 times earnings of $275 gets us to about 6200 on the S, p5, 100. That’s about 10% above where we are now. So for the market as a whole, I see 10% now. I’m trying to pick stocks that go up more than 10% fine. I’m a growth guy. But if the market as a whole, if that baseline is for 10% growth, I’m okay with that. So that’s where I get my fundamentally bullish orientation. I’m not just, I’m not just saying I’m bullish because I’m bullish and right, you know, things look great now. I’m actually trying to run some numbers and, you know, put a little bit of acuity behind it. There are people out, you know, some will will say, I’m perpetually bullish. But I would also say, well, over the long haul, stocks tend to rise two days out of three. And if you chart the S, p5, 100 over the past five years, 10 years, 20 years, 30, whatever, it generally goes up. So, yes, there are dips along the way. And sometimes, you know, you may raise a little cash, you know, I may sell 10% of my holdings across the board, so that I’m only 90% invested and I’ve got a 10% cushion so that if things go down, I can buy them. And occasionally I do that, but I’ll be honest with you, Andrew, I’m not a great timer at the market because it’s really hard to do right. You’ve gotta be right twice. You gotta be right on the sale, and you gotta be right on the buy, back in again, and then you gotta repeat that maybe six months down the road, or nine months, or maybe eight weeks or, I mean, that’s really hard to do, so I tend to stay fully invested and to have a view. I might change things at the margin, but that’s, that’s just generally the way I approach it, timing the market, not timing the markets.
Andrew Brill 38:57
So I had a, we had an interesting question from a viewer. He says he has a lot of cash, but wants to know what to do with it. Obviously, with rates coming down, he’s not going to go put it in a CD or a high yield savings account at this point, what are you doing with about $300,000 worth of cash at this point that you don’t need to spend, you know, imminently,
Adam Johnson 39:21
put it to work. And you don’t have to put every single dollar in the market, you know, you don’t have to to to put all that money into, you know, just semiconductor stocks or Nvidia or no, you know, diversify. So I would certainly want to put money to work in in growth sectors, like the ones that you know, that I buy, I run the American ingenuity fund. I’m a growth investor. There’s a lot of tech. There’s a lot of automation and robotics, digitization of businesses, you know, payments, processing, you know, stuff that that isn’t necessarily pure Tech. That has a tech component to it. I mean, every company is effectively becoming a tech company with an AI, sort of, you know, bent, you have to, right? So I would absolutely want to put some of that money to work in in in my kind of growthy names, especially with rates coming down. I would probably want to put some of the money to work in good old dividend paying stocks that you know, you see in the Dow Industrials, fine. I probably want to own some government bonds, and then I probably just sit on some cash, just because, you know, there’s nothing wrong with a little extra cash going into the election. If we get some sort of downdraft, you can put it to work. Then, meanwhile, the rest of what is invested will work for you?
Andrew Brill 40:42
How do you see the geopolitical situation playing out with respect to the market and all that? Nobody knows how it’s going to play out. I can tell you that not even the people, not even the two sides that are or the more than two sides that are fighting. But how do you see the geopolitical situation affecting the economy and the markets and stuff like that.
Adam Johnson 41:01
Well, a couple of comments. First, I will tell you that I went back and looked at all call it 20 or 21 sort of bellicose or, well, war related events of the past 25 years, from 911 to the bombing of the USS Cole when it was in Saudi Arabia at the docks to the initiation of the Gulf Wars, to, you know, righteous all these events when missiles were flying. And what’s fascinating, Andrew, is that you almost always get an immediate five to 8% drop in the market. And by immediate, I mean within the first 36 hours, and everybody says, oh my god, the world’s going to end. Well, incredibly, two weeks later, stocks are right back to where they were. Wow. So there is an emotional response to geopolitical events, but it tends to be short lived, and that is why I tend to over the long haul, discount geopolitical unrest, the market just figures it out. I mean, World War two horrible, right? More people died during World War Two than any other conflict in the history of the world. And what did stocks do, they tended to rise, right? So, you know, it’s, it’s like when people come to me and say, you know, I mean, I remember back in in in 2016 Trump won, and some of my clients called me and said, I hate Trump and and I don’t trust the country anymore, so I’m going 100% to cash, and I’m canceling my Bullseye subscription. You’re really smart, but I just hate the world right now. I said, Why? Because you hate Trump. Yes. Okay, fine. And then look at what the market did. So mixing politics and investing is, is, is, I think, a generally mistake. We have to have outcomes. You know? We have to be prepared for outcomes. I mean, if Hillary Clinton had won in 2016 we would have shorted banks, but Trump won, so we bought banks. Right? You have to be flexible. And the market figures out what those solutions are, not necessarily on day one, but eventually figures out the workarounds and and deals with it. And so we all have to do that. And so, you know, in thinking about your question, How did geopolitics play into my thinking? Not a lot, but I’m aware that they can create some dislocations, especially in the short term. So just just be aware of it. Be aware that, you know, wars like what’s happening in Russia and Ukraine or in the Middle East, and it’s really across the Middle East, given you know all the strikes that are happening from country to country. Just be aware that they’re disconcerting, but if they haven’t impacted stocks yet, I think that’s a that’s a signal to us to just be aware. But you know, keep forging ahead. Brett
Andrew Brill 44:09
rentmeester of our partner, Ria Winrock, joined us this week and spoke about the future of real estate investing. Brett explained how to invest and build to rent properties how lucrative they can be. So we are here wealthion, and we worry about investing and and Winrock worries about investing and making money and all that stuff. And you want to talk about a new opportunity that seems to be coming along, and that’s build to rent, and that’s a relatively newer thing, but these are places where you’re, you’re seeing some opportunity to make a good amount of money. Yeah, what
Brett Rentmeester 44:50
I’d say is, we’re, we’re investors personally with clients in this concept built to rent. That’s a terminology that nobody really knew until a couple. Years ago. It’s been a relatively new term, but we’ve been invested in this concept for over 10 years. And that the simple idea is that a lot like Europe, you know, we’re going to become a little more of a rentership society. That was the premise 10 years ago. And I think, you know, that’s proving true, and for a lot of reasons, part of it is, as you said, Andrew, these homes are so expensive young people, they’re going to have to rent. But there are a lot of people choosing to rent, and they’re choosing to rent for a variety of reasons. And you know, it can range from flexibility of jobs. You know, these young people might be in Dallas for one year of their career and two years in New York, and then they’re in San Francisco. They’re all over, right? So the premise of buying a home and getting settled only really works if you’re there for multiple years. And we’re even seeing it on the older end. I think somewhere near two thirds of the rental growth, between 2004 and 2019 was in the age category of 55 years and older. So people are repositioning their lives after 55 they’re following their kids and grandkids. They’re moving to new cities and saying, Well, I don’t really know this area. Maybe I’ll rent for a while first. So with all that said, there’s a more of a demand for rental, but a lot of people still want a home like experience. So the idea of built to rent is building a community from scratch, much like a single family neighborhood, just a little tighter. So picture kind of a wall gated community, and you drive in and there’s a pool and nice central area, and then there’s little casita style one to three bedroom homes. The caveat is, these are just like apartments. They rent like apartments, so you don’t put a down payment down. It’s maintenance free, but it feels like a home in the sense that most units are standalone and they have a private backyard. It’s pet friendly. You know, all these things that a home affords you probably get 95% of it in a community like this. So it’s kind of this hybrid concept, maybe the new the new rental arrangement, or the for a lot of people, as close as they may get to home ownership.
Andrew Brill 47:05
So these are actually single family homes, and they rent just like an apartment would.
Brett Rentmeester 47:13
Yeah, yeah, it’s a complete hybrid. So imagine, you know, a lot of times in newer areas, you’ll see a master plan community of a builder. You know, it’s just pure dirt, and they’re building 300 homes to be sold. Imagine that. But now, instead of that, they’re building one of these communities. They’re going to build this all up. These are always meant to be rented, so maybe it still has 300 little casita style homes. It’s always to be rented, so people never buy the home. It’s not that kind of model. It’s like you’re renting it out, just like an apartment, just like an apartment, you’re getting annual rent. A benefit compared to an apartment, as you’re building these is they do these things in phases, so you’re moving people in in the first phase, even when you’re working on phase two, three and four, versus if I built a 20 story Tower in Chicago or something. You know, I can’t get people in until it’s completed. And so it is a different concept, and it’s one that’s, I think, really resonating with tenants. They’re one to three bedrooms, but like an apartment, they’re financed, like multifamily, or apartments would be and ultimately, as investors. When you go to sell it, you sell the whole neighborhood. You’re not selling individual units. You sell, quote, the whole building, just like you would the high rise. So from an investor point of view, it’s a great way to be in rental real estate, like we were talking about earlier. Some people have ambitions of owning a couple units and renting them out. That’s great, but you’ve still got to be the landlord. You still need a repair person. You need to deal with issues of the property if you want to be in something kind of innovative in that same lane, something like this, you know, takes those pain points away.
Andrew Brill 48:51
So let me ask you this, about these, these build to rent. So this is really, it’s, it’s almost owned by investors. This isn’t a builder goes in and, like you said, before builds 300 homes, tries to sell the homes. He’s finished the homes. He sold them. He’s out. Now these are done by, obviously, builders, but the builder is building it for an investor, or a group of investors that are building the same 300 homes, maybe not as big, but they’re going to rent these out for a period of time until they decide, You know what, valuable real estate now, we’ll sell it off after we’ve made a whole bunch of money. Is that how that works?
Brett Rentmeester 49:29
Yeah, that’s exactly the model. That’s exactly the model. Andrew,
Andrew Brill 49:33
so explain to me the build to rent model, help us understand the opportunity as an investor behind this Sure,
Brett Rentmeester 49:44
I mean, what I would say is maybe to give a little context to that question, first, renter preferences have changed over the last decade. Pretty, pretty remarkably, and we mentioned a couple things. Earlier, but there’s been a tremendous drain from big cities to southern sunbelt states. So that’s one big change. Second big change is a lot of young people are seemingly preferring the flexible lifestyle of spending money on Dining Out and iPhones and whatever their things they enjoy are over putting all their money in a home, or said differently, they’re choosing to rent closer to entertainment and their job, instead of trying to buy a home an hour out on the edge of town. So a lot of those preferences are changing. The other preferences relate to things like pet ownership, like the communities we’re involved with, something like 70% or more people have a pet. So if you have a pet and you live in an apartment that’s just up and down, there’s not a lot of green space, it’s difficult, right? The other thing is, I’d say similar statistics, 70% plus are female tenants. I mean, at least co signing, and so because it’s maintenance free, because it’s a walled, gated, safe concept, and has community, you know, I think it really resonates with a female renter, and maybe more, even more strongly than a male renter. So from a investment point of view, you take all this together with these preferences, and you go, whether you’re in Phoenix or Austin or Dallas or Tampa, if you’re looking for a rental option for you or your child, and you’re looking around, it’s kind of apples and oranges you’re going to see, you know, 20 apples, which is conventional apartment living, and one orange, which is, oh, this is different. This feels more like a single family home. It’s got these different elements. There’s a little dog park, you know, things that that may resonate now. It might be a slightly more expensive from an investor point of view. You know, the company we’ve invested with has a pretty good scale at this point, having done over 60 of these across the Southwest, Southeast. And, you know, I think it’s back to renting on paper economically is a better option than owning for many people, and growing percentage of people. So I think from an investor point of view, that’s the concept. It’s something that’s not going away. You’re probably going to see we already have seen, but you’re going to see a lot of people mimicking this concept in every major city in America. And at some point, maybe it’ll be 10 to 20% of the rental options will look something like this.
Andrew Brill 52:29
I guess my question is, how do I fund like this? Sounds like a great investment. I mean, obviously it’s going to give you a return, because there’s rents that continue to, you know, pile up. How does someone like me, an individual investor not working with Winrock? How does someone like me find these things? Or is it usually you have to go through, you know, WinRock or another investment, you know, management company that’s, that’s, has these deals?
Brett Rentmeester 52:58
Yeah, I think, you know, again, it’s, it’s, how do you want to approach real estate? There are publicly traded REITs, Real Estate Investment Trusts that trade as stocks, so somebody can find, theoretically, an apartment REIT and that, you know, put a small amount of money in. When you start talking about these private kind of investments and communities, it really is dependent on knowing the space, knowing the operators, and being with the right partners. I don’t want to say all are equal. You know, real estate, as we said earlier, is a very local business. So, for example, the ones we’re involved with, they, you know, in Arizona, they have local Arizona teams. In Florida, they have partners in Florida, you’ve got to use local specialists that know the market for renting it out, no building conditions, etc. And so generally speaking, unless you’re great at your own due diligence, you know, finding finding an advisor or someone that can navigate that space. And you know, one other point, just thinking about due diligence that makes this kind of an interesting, attractive space is private real estate can take you a lifetime of due diligence, meaning there could be a single property that you’re trying to analyze and see if you should buy. It might take you six to 12 months to do the work on that. Then you buy it. Great. Now you’re on to the next one. Start it over. This is a little more of a repetitive kind of assembly line approach to investing, because these communities, although they look and feel and have different local touches depending on the market, different, you know, differences conceptually. They’re the same bones inside the same same model. So we think of it more as an assembly line business. I’d say the last real estate concept I recall that did something like this. Was self storage, which I remember in the early 80s, you started to see this pop up. And believe it or not, here we are, whatever, years later, and it’s still a growth industry. And that was a good example of a rinse and repeat kind of model. If you found the right formula, you could. Do that in, you know, 100 different markets, and so I think we’re seeing something similar here. So there’s also a benefit to an investor. Of you don’t have to redo the due diligence and rethink it. You have to find a model that’s working, that resonates with you as a good solution, and then you’ve got to take it to different markets.
Andrew Brill 55:18
So what does the return on the investment look like now? Is it a one time return? Where, okay, we invested X and they’re giving us our money back once this is built? Or do you get ongoing pieces of that, rental properties?
Brett Rentmeester 55:34
Yeah, no, it’s great. It’s a great question. And to break that up, oftentimes in development, there’s a couple year cycle of getting things built and leased up. So let’s call that for what we’re doing, on average, you know, two years at about the two year to two to three year mark, it’s leased up. It’s a full community. Now, you go back to the bank and you say, hey, look, this used to be desert dirt. Now it’s a cash flowing full property, they value it much higher, and you refinance it and generally kick back a fair amount of money at that point. But again, because of the positive attributes of the tax law, most of that is offset by depreciation or considered return of capital. So you get good amount of your money back in a perfect hypothetical thing, and then from that point on, you’re getting rental income for a number of years until you ultimately exit and sell the building. Now the biggest pop of return will generally be at exit for the communities we’ve been involved with. These are generally two to five year kind of windows of time for getting money back, versus there are plenty of real estate deals we look at where someone’s investing in an office building, and it’s a 25 year proposition. So we find a lot of investors that want to be in private real estate. They just don’t want to tie their money up for decades. So I don’t know if that answered your question, Andrew, but that’s kind of the profile of it. Thank
Andrew Brill 56:58
you for watching this week’s recap. Don’t forget to head over to wealthion.com and hit the find an advisor button for a free, no obligation, portfolio review and follow us on social media for the latest news and information to help you invest wisely. If you haven’t done so already, please make sure to like and subscribe to our channel, and don’t forget to turn on notifications so you never miss a video. Thanks again for watching if you like the content and are looking for more ways to keep growing your investments. Watch this video next until next time. Stay informed. Be empowered and may your investments flourish. You
