Ram Ahluwalia joins Andrew Brill to dive into how AI will reshape industries, creating massive opportunities for some and existential challenges for others. Ram, Lumida Wealth’s co-founder and CEO, also critiques the Fed’s recent rate cut, warning that it could lead to economic overheating because the U.S. economy remains resilient. From AI-driven investments to smart value investing strategies for navigating the current economic landscape, this interview is packed with actionable insights.
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Ram Ahluwalia 0:00
With the rise of AI, we’re going to see a dramatic feast or famine impact for companies. The companies that can pivot and refactor the business model and adapt to AI are going to thrive and take significant market share from the competition, and the ones that don’t will lose the Fed is confused. I legitimately think they’re not sure the right way to move with high conviction,
Andrew Brill 0:26
the markets continue their roller coaster ride as people are exiting stocks more than they are entering. I’m your host, Andrew brill, and we’ll talk about the ups and downs in the market and how to ride it out coming up next, I’d like to welcome RAM Aliya to wealthion. RAM is a veteran investor adept at finding the trends before they become trends. He’s the CEO of Lumina wealth RAM, welcome to wealthion. Tell us a little bit about yourself before we get started. First
Ram Ahluwalia 0:56
off, thanks for having me. I’ve loved investing since I was very young, I started in management consulting, helping to fix other businesses. And I said, I want to be an operating myself. I joined Merrill Lynch was there 12 years. And I said, Well, after the crisis, I want to build my own investment business. Started investing in esoteric asset classes that required an analytics like securitizations, the ones that blew up the 2008 crisis, bought those, went the big long and then I built and sold the data analytics business. After that exit, I looked around and said, there’s a better way to do investing, you know. And here we are at Lumina. So we provide private wealth, modern investing for founders, primarily.
Andrew Brill 1:40
So I was on your website and I was everything. Everyone’s still kind of bullish about the market, but what about the economy? People confuse the market with the economy, and they’re just not the same. What is your take on the economy right now? 100%
Ram Ahluwalia 1:55
Look, we’ve been consistent in the view that this is an economy that is robust, strong, and it’s just normalizing. We’ve had that view for the last two years. We didn’t think rate cuts were necessary. You just had a non farm payrolls report come out that was 250,000 jobs, 100,000 over expectations. So this is a robust economy. You’ve got corporate earnings at record levels. You know, last quarter’s corporate year over year, earnings growth was 16, 12% 16% depending on the category, versus expectations around 8% that’s one. Two is you have record employment and growth in employment. What’s confused the people is the denominator, the unemployment rate went up because of an influx of immigration, which actually helps expand GDP. You get more labor, and helps quell wage wage inflation. So you’re seeing bank credit growth expand. It’s very hard to see any signs of a weakness in the economy. I think people have been distracted by an increase in credit card delinquencies. What they’re missing is that household wealth is at a record high. If you measure the net equity the consumer has, which consists of their house, their equities, investments and savings, unless all the liabilities, the debt to income ratio for consumers is is more than fine. So yeah, we believe the economy is fine. In fact, we think next year, maybe at this time, the discussion will be, should the Fed do adjustment hikes, because they’re adding fuel to an economy that is already growing without the need for rate cuts.
Andrew Brill 3:43
So you stole one of my questions, because we’re talking about the Fed cutting unnecessarily, according to your calculations, what does this rate cut do? Obviously, you know it’s inflationary, and if it wasn’t necessary, and the employment is where it is. Obviously the employment figures came in much higher than expected. Probably will get adjusted at some point, but and then the unemployment figure came in lower. So you know, what does this rate cut do to us? Now, there
Ram Ahluwalia 4:17
are two effects. So one effect, which you correctly pointed out is the inflationary impulse. So in the two weeks following the rate cut, you saw a spike in oil prices, a spike in natural gas prices, spike in energy related companies like Shell and others. That’s one so you seem like a commodity rally. You’ve seen cyclicals rally. The second thing is, we expect that value stocks will outperform, because value stocks, on average, tend to have greater debt loads and they can refinance with lower rates. The irony, though, here’s the new wrinkle. We’re seeing the 10 year move now to 4% up from, say. Three and a half percent, where it was before the Fed cut rates, and most corporates fund off the mid to the long end of the curve. And so the long end the tenure is now at 4% plus, we believe, reflecting two things, higher nominal growth expectations and higher inflation expectations to compensate investors for owning dollars are gonna be worth less in the future, so that actually increases the financing costs of those companies. So we’re trying to analyze that now. Our view first was, hey, look, and I still think, by the way, value is the right tilt to have for a variety of reasons, tilt to quality value, but the increase in the long end of the curve could benefit uh, mag, four type names that don’t need to rely on debt financing to grow.
Andrew Brill 5:52
So I want to ask about that. Value stocks versus growth stock. How do you differentiate between the two? Sure,
Ram Ahluwalia 5:59
it’s an excellent question. So when I think about growth stocks, I think of stocks that, on average, are 50% plus in terms versus their median PE ratio for that category. Okay, so if you’re a high multiple stock, simply put your growth stock. If you’re a low multiple stock, your value stocks, very simple, clean distinction to make. You know, growth stocks tend to have higher earnings per share growth than value stocks, and investors pay for that earnings per share growth in the form of a higher multiple. So
Andrew Brill 6:31
I want to go back to this rate cut for a second, because there’s all there’s talk about, you know, 1% by the end of the year. Did the Fed paint themselves into a corner. Do you fully expect them to pull back in the November meeting, which is just after the election, and say, You know what? Okay, you know, let’s the numbers. Because they said, you know, Chairman Powell just came in, I need more debt. I need more debt. I need to look at the numbers. And now the numbers are coming in, not much different from where they were, you know, each quarter. But yet they’re saying, I don’t know, we’re going to start an easing cycle. Have they painted themselves into a corner? No,
Ram Ahluwalia 7:05
they’ll walk it back. You know, there’s a state of Fed officials speaking today and tomorrow, like over a half a dozen speeches. And so they’ll walk it back. You’ve already seen in the CME fed futures contracts that the probability of 50 bips cut next month is close to zero, so I still think you’ll probably get 25 bips in cuts. So, but it’s quite ironic how in the last FOMC meeting, the minutes are coming out tomorrow, by the way, but in the last FOMC meeting, there’s only one dissenting voice, and that was a non consensus view, and that person’s been proven to be correct. But it wasn’t just the Fed that got it wrong. You know, asset managers got it wrong. You know, the they’re hungry for liquidity, hungry for rate cuts. I mean, I remember in June, as we all do, that it was like a deafening volume pushing for the Fed to cut rates that they’re behind the ball, when the reality is the economic data shows that the economies is fine, and now you’re hearing the world word Goldilocks. The Wall Street Journal had an article last week. It had the term Goldilocks. Apollo’s chief economist, who was bearish last year, by the way, now he’s bullish on the economy, he used the word Goldilocks. I think you’re gonna hear the word Goldilocks quite often in the quarter and months ahead.
Andrew Brill 8:30
What are they referring to when they when they use that term? Goldilocks,
Ram Ahluwalia 8:34
not too hot, not too cold, right in the middle, right? And meaning inflation to be earnings growth is there, and you have a volume of growth that’s sustainable. Most of what’s confused people is that there has been a stair stepping down in the trend rate of growth. That’s true. We came off like a nominal 6% year over year growth rate, but now we’re closer to like a 4% growth rate, which is what you had in 2019 what you had in 2019 2019 was fine. It was more than a fine year. So then you see that in the Visa card spend data up about 4% year over year. That’s a good number. The consumer is fine. Businesses are also spending. Small businesses should gain confidence with these rate cuts as well. But yeah, Goldilocks, is that the economy is not running too hot that you need to hike rates. And it’s not running too slow. They need to lower rates.
Andrew Brill 9:33
That’s right, right where we want. It is like, look, you know what? We’re not we’re not going crazy, we’re not going down. We’re just, you know, steady ship.
Ram Ahluwalia 9:40
Arguably, we were right where we wanted to be before the rate cuts, right? So now we’re adding some gas and fuel to the fire, and over the last year and a half, we’ve really developed this Boomer economy where you’ve got retirees living off of T bills. And they’re spending you know, if you go to your local restaurant, the restaurants are packed. Restaurant stocks are quite expensive, and you can usually spot like a grandma or grandpa around the table, and they’re probably paying the bill. So now, with rate cuts and treasuries paying less, that means less income for boomers, all right, so that means for retirees especially, and that means you’re going to see a shift in spending behavior and risk taking behavior, and so you’re starting to see dividend paying stocks that are going up so grandma grandpa now being forced to rotate from treasuries into equity markets, which have a lot more risk, where you’re at the top decile evaluations now. And you know, I don’t know if that’s the right move, because the economy, you know, adjusts to the prevailing set of circumstances. So when you suddenly change one variable, then the economy needs to go through this adjustment process again.
Andrew Brill 11:00
So the shift Do you are you seeing a shift in some of those things where, you know, the older people are taking money from one place and putting it in a in another to, I guess keep that dividend.
Ram Ahluwalia 11:12
We’ll see. I It’s too early to say. I hypothesize that we’re gonna go see that. So you might measure it in travel and leisure spend and demand for, like crews, of course, restaurants, consumption of golf clubs at Dick’s Sporting Goods. So probably a few ways you might measure it, or, you know, you’ve seen weakness in, say, stocks like Hilton Garden vacations and like timeshare companies. So you’re seeing some weakness there. But I expect that it’ll continue. Look, this will benefit borrowers, of course, and it’s going to penalize savers and creditors, so borrowers will be able to benefit. You’re seeing, you saw, I should say, a boom in mortgage refinancings from homeowners that took out a mortgage at a higher rate. However, now mortgage rates have crept back up due to the tenure moving up and concerns around inflation. So the Fed right now has got to be smacking themselves on the forehead and saying, What the hell? Right. They They squeezed here and then something gave there. And in a way, it’s offset of what the Fed is looking to accomplish, because the long end of the yield curve is what funds the housing market right access to mortgage credit. It funds capex spending of corporates. It funds and is used to compare the earnings premium and yield that you have in the equity market versus the alternative, which is a 10 year bond of comparable duration the Fed is the Fed is confused. I legitimately think they’re not sure the right way to move with high conviction. How can you this is a complex story that the lot of moving parts with a set of circumstances that we haven’t seen before where consumers refinanced at very low mortgage rates, and so the sensitivity to interest rates was also lower.
Andrew Brill 13:07
Have you ever? Have you seen anything like this before, where the Fed you, you would think the Fed was looking for the 10 year to actually come down when they cut rates, and it popped again. It started to come down when people think, Oh, they’re going to cut, they’re going to cut, they’re going to cut. The 10 year came down, but then it popped back up again. Have you seen something like this before?
Ram Ahluwalia 13:28
I’m sure there are moments in history. We’ve seen all sorts of variations of this. The Yeah, the tenure initially came down because they thought the economy was slowing. And, you know, the data came in and it showed that that’s not the case. Now the tenure is going up. And as you know, the Fed doesn’t control the long end of the curve unless they’re going to do open market operations to buy mortgage backed securities or treasuries, which they don’t want to do, because they want to let the balance sheet gradually, you know, compress over time. But you know, when the Feds made mistakes, this has happened, you know, the 70s. It’s happened the Fed cut prematurely after they thought they had won the battle on inflation somewhere, like in the 7374 era, obviously you had a commodity oil OPEC embargo, which spiked oil prices and created inflation. But you know, there was a view that they had beaten inflation, they cut rates, and inflation came back, and they had to raise rates. And you know, the long end of the curve would move up in response to the market expecting higher rates. I’m not saying this is not gonna happen. This time, that’s not gonna happen.
Andrew Brill 14:36
So what does this do to the housing market? Because they figure, okay, let’s see if we can get prices to come down a little bit. But when mortgage prices come down, housing prices go up, and they’re at an all time high as it is. And you know, I don’t see housing prices coming down. Maybe if mortgage rates go back up, housing prices will come down. But even with high mortgage rates in the sevens, housing prices kept running. And it’s becoming tougher and tougher to buy a home, and there’s not a lot of movement.
Ram Ahluwalia 15:06
I would expect overall, that mortgage rates do come down because inflation, you know, is still on the mend. I would say, though, we have to watch this carefully. You know, it’s the other side of the story. Is that that the demand for housing increases as rates get lower, and therefore shelter costs go up. This is, this is, that’s the most important question actually, like, Where does housing go from here? Overall? I think housing’s on the mend. I think mortgage rates will come back down, but the Fed has to reassure the market that the battle for inflation has been won, right? That’s what it that’s what the housing story turns on. But the housing market has had almost two years now to settle at this higher level of mortgage rates, that’s good. The longer it has time to settle, then the less disruption, the less negative impact there is from a 4050, biFs increase in the mortgage rate. We were there not too long ago.
Andrew Brill 16:20
I want to ask you about it. And getting back to, you know, dividend stocks and stuff, like when I asked you about an interesting tweet that you had about capital gains worse versus income. Whereas, you know, capital gains, obviously, is when you buy and sell stocks at profit and dividends is viewed as income. Now, when I was much, much younger, someone told me, Look, you know, buy five good paying dividend stocks and just reinvest the dividends. I did that. Even put a little bit more money in here and there, and the dividend just it kept building and building turned into a fairly nice chunk of change. Obviously, I’ve been paying taxes on that money. Am I thinking incorrectly? Should I have been doing that differently? Not necessarily?
Ram Ahluwalia 17:04
Look. Walmart’s done well, they pay dividends or plenty of high quality dividend paying stocks. As you pointed out, the dividend payments are taxed at ordinary income, which can be punitive. So it’s a consideration. However, sometimes dividend stocks can do well. My view is that this is a period of time where I think dividend stocks can do better, uh, quality stocks that you know have the earnings power to continue to pay out and potentially even grow their dividend and can refinance their debt so but it’s a good question. I would prefer stocks that just did buybacks, and then you can manufacture your own dividend by selling your shares, because it’s more tax efficient. And this year, it’s expected that we’ll see a trillion dollars in stock buybacks. So that’s up from about 700 $750 billion last year, by the way. So that’s a significant, significant amount of buyback access taking place in the market. But we’ll see. I think it’s over. Optimizing around these things is can be a mistake. It’s good to have a portfolio with the dividend producing stocks and growth stocks and value stocks. You know, you really need a like a professional to help you think through this and how to balance the portfolio correctly, right?
Andrew Brill 18:33
But balance is the key. It’s you want to have a little bit of everything in there. Would you throw bonds into that, into that portfolio as well? Well
Ram Ahluwalia 18:40
I’ll say what kind which bonds I would put mortgage bonds in that I think agency mortgage bonds are, once again, mispriced. I would own agency mortgage bonds because an agency mortgage bond is implicitly backed by the full faith and credit of the United States government. However, they offer a yield that is substantially higher than the comparable treasury, to the tune of 250 basis points, which is a nothing. So agency mortgage bonds, I think a really interesting idea. That’s one treasuries, I’m not a big fan of you can give away two and a half points of a 4% coupon on the 10 year in inflation. I also see that private credit strategies can dramatically outperform treasury yields. Right? You can get 10% to 18% depending on the nature of the strategy in private credit, for example, through funds that provide senior secure lending to middle market companies that have free cash from earnings but can’t get a loan from a bank. So senior secured means you’re first to get paid in line, right? So you’re on the top of what’s called the. Capital stack. There’s also strategies where you have asset backed financing, you’re making a loan and you’ve got collateral. So I like those strategies. Why would I own Treasury if I can invest in that now, the answer would be liquidity. So those strategies don’t give you liquidity. So
Andrew Brill 20:15
I want to focus on the market a little bit and talk about AI, because I know that you tweet a bunch about AI, and is AI something that you’re in right now? Is that you’re looking for that growth?
Ram Ahluwalia 20:27
Yeah, look, our growth stock portfolio is in Nvidia, meta, Google and app. All of them are index, the AI theme. We believe that the way to invest in AI is through the pixels layer. That’s Nvidia. They are the leader. Year to date, that thesis has played out. We want to avoid the people spending money on Nvidia like Microsoft, which is up 9% year to date, it’s lagging. It’s now just below the 200 day moving average. We also met at Google because we think that there are going to be winners in the AI race because they got distribution. They have billions of users. They have the technology chops. They are behind the ball in open AI, but they can close the gap. This is the search engine wars all over again. And we also invested in coreweave. Coreweave is the like AWS for GPU compute, AWS from via chips. In fact, they’re backed by Nvidia and Blackstone and magnetar, and they are the cloud provider that powers open AI. So Microsoft and OpenAI spend billions of dollars on core I like that. I like that idea. They’re the beneficiary of all the spend and the race amongst these big tech firms to be number one in AI, you know that race is a real race. It’s a race for existential survival, right? If Google doesn’t win the race, the risk is they might lose search. If Microsoft doesn’t win the race, they might lose the revenue that they get from the Microsoft Office product line, and do you really need Microsoft Windows in the age of AI? It’s not clear. So they’re all spending a lot of money to win the race for AI, and the beneficiaries are the picks and shovels infrastructure players. So
Andrew Brill 22:14
when it comes to AI, you name the big names. But are there? Are there other avenues, people that, look, Nvidia makes the chip, there’s a person that makes the rack, this person makes the cooling system. Then there’s a person that’s a cool power, all of this stuff. You look at that whole avenue of investments and say, Look, you know what? There’s a chain here that we can, we can actually make money on. It’s
Ram Ahluwalia 22:39
a great it’s a great question. So we do exactly that. It’s called following the supply chain. You follow the money who’s spending on what. Right? So we invested in utilities. We actually sold our utility stocks yesterday. They went parabolic. So we were an investor in vistra energy. Utilities as an ETF, by the way, are up 30% plus year to date, outrunning the s, p, substantially a stock like VST in a year is up like 100% right? So we invest in natural gas. So these utilities, which are powering the data centers, which are powering the hyperscalers, right? The utilities, in turn, need energy. Wind and renewables are not enough, right? The wind might stop blowing. The sun doesn’t always shine. Nuclear energy is not here yet. We have some nuclear bets, though, and we also have investments in natural gas, liquid natural gas. So we picked up recently, navigator, ticker NVGs. They provide, and they own the largest liquid natural gas export terminal, and the world needs liquid natural gas. Europe needs liquid natural gas. It can’t rely on Russia for energy. And liquid natural gas is a clean or at the very least, it’s the least dirty source of energy. Data centers not gonna run on oil. So liquid natural gas is a good beneficiary of this whole theme as well. But you’re right. There’s a lot, there’s a lot of other ways to explore this. You know, energy transition and infrastructure plays. What we found, though, is in like the semiconductor category, we found that NVIDIA is the best way to play it because they capture the bulk of economics. So yes, they have. Nvidia has its own supply chain, like Taiwan Semiconductor and ASML. Those are amazing businesses, and they’re world class businesses. You know, if they ever get cheap, then you might want to consider taking a look at them. The problem is they, they’ve, they’ve, they’re at the highest decile evaluation as well. Nvidia was actually cheaper, excuse me, on a price earnings divided by growth basis, than all these other companies, what we call the PEG ratio, one of Peter Lynch’s favorite metrics, right? Nvidia’s PEG ratio is a closer to point three. Take the multiple for Nvidia and divided by the expected earnings. Growth. You’re not paying much for future growth. Now, obviously, Nvidia is like 135 now, you know, we bought at most recently was 105 we’ve been buying at lower prices. So, you know, we look for high quality assets that go on sale, then we go buy those assets. We make sure we do the research in advance. And when the Mr. Market offers an opportunity, it’s what you know. Warren Buffett and his mentor Ben Graham, have said, you know, Mr. Mark is saying out your door, quoting your prices. Sometimes they’re high, sometimes they’re low. You can ignore the prices. You don’t have to make a decision. You can choose which balls you swing at. Leave you low price. Go buy it gives you a high price. You can sell. So that’s the approach we’re taking here. In semis, memory infrastructure is very interesting thesis in in semiconductors, I would say that because you need not just the GPUs, but you need high bandwidth memory coupled with a GPU. So that category should do well now, like SK Hynix is a leader in hardware based memory, and then you have info providers like kalac that are the leader in also equipment testing, both for memory and also GPU. So as these chips get smaller and smaller, right? You go from six nanometer to three nanometer, two nanometer you need more testing equipment. So I think those are all good ideas. Obviously, you want to be deliberate about when you invest, you make your money on the buy.
Andrew Brill 26:28
So you think Nvidia has room to run? I’d say so many people saying, oh, it’s overpriced. It’s overpriced. You think it has room to run? Yes, because and their Blackwell chip is about to ship in, I guess this fourth quarter, yeah,
Ram Ahluwalia 26:41
the demand is strong. Like the next few quarters, Nvidia is going to hit their significant revenue and earnings growth. That’ll happen. The question isn’t about 2025 it’s more around 2026 and you can reassess with incoming data. But you know, if you take a step back, look, Saudi Arabia wants to build 60 data centers. They need permission from the US Department of Commerce to get Nvidia chips. They’re going to have something it might not be the Blackwell series. Might be a modified version that like what China can buy, but the demand for GPUs is insatiable. The issue isn’t the demand. The issue is, do you have enough utilities and space to plug in these data centers? These are massive energy sync so give out. Microsoft is inking a deal with Constellation Energy, which owns Three Mile Island to power a data center. Think about the energy output of Three Mile Island of a full blown nuclear reactor, a large nuclear reactor facility. So that’s the issue. The issue is not the demand. This is strategic. It’s strategic not just the mag seven companies, which have loads of free cash flow and can spend and have an imperative to spend, is strategic for countries, right? I mean, you’re going to have aI defense, AI cybersecurity, offense and defense. You’re going to have modern warfare. Will transform, you know, you’re going to see more drone warfare powered by AI and autonomous systems. So, you know, you’re going to see the defense budget. You know, 25% of the energy produced in Virginia goes to data center, goes to data center, and you have significant infrastructure supporting the federal government in Virginia, of course. So
Andrew Brill 28:36
you know, talking So Microsoft is going the nuclear route. Do you see a nuclear play at some point? There’s a lot of talk about uranium mini reactors powering things. Do you see in it may not be tomorrow, it may not be, you know, in a few months, but eventually we’re going to have to turn
Ram Ahluwalia 28:56
to that. Yes, yes, it’s inevitable. It’s happening two years ago is unthinkable. Now it’s inevitable and popular, and Congress is starting to focus on it. The Nuclear Regulatory Commission is starting to focus on it. You know, the United States forgot how to build nuclear reactors. We have something like 80 plus nuclear reactors in United States, by the way, haven’t built them in decades, but we have a bunch of them, and United States forgot to build them. South Africa decide to build them. China is building up many nuclear reactors. So China has plenty of energy. And so we have the GPU. China has the energy we need the energy China needs a GPU. So our race is on the energy side. Their race is on delinking the dependency on Taiwan and Nvidia, and they’re trying to, you know, get around export controls. So, yeah, nuclear will make a comeback. Building a plant takes over a decade, though it takes you got permitting concerns you got, not in my backyard, concerns you have technology. Know how concerns you. I think it’s a great it’s a great thesis to bet on. It’s a very difficult thesis to bet on. By the way, the vast majority of nuclear companies are unprofitable. I see people investing in stocks like SMR, which stands for small modular reactor. The Small Modular actor is actually a really good idea. We’re going to see that too. You can see small modular reactors, not Big Three Mile Island reactors that are right next to the data center, but some of these companies, like small modular reactor, last I checked, like the CEO sold all his shares like the insiders are sold out. It’s just trading like a beam stack. So you have to carefully pick and choose your spots in the nuclear category, and many of nuclear names are unprofitable. They don’t make money. And then the nuclear miners, they can be upside down, because they make forward commitments to sell uranium at a future price. But if they cannot deliver and mine enough, which many miners experience that issue, then they’re technically short uranium. So you thought you were buying a uranium miner. So you get long uranium exposure indirectly. And it turns out the miners actually short because they made a commitment to deliver in the future they cannot meet. So they have to go buy in the spot market, right? So uranium is a is a difficult category to invest in. I do think they’re good opportunities there.
Andrew Brill 31:24
I want to touch on China for for a minute, because they’re the second largest economy in the world that wasn’t doing so well. Obviously, their their stock market’s doing much better than their economy. They just pumped billions and billions of dollars into their economy. Do you think that’s going to help them? Do you think they need more and and what? How did the stock market just all of a sudden go up 20%
Ram Ahluwalia 31:49
we’ll go we’ll work backwards. So David Tepper, the CIO at Appaloosa, went on CNBC 230s ago, and Becky quick said, Hey, what do you like? He said, China. She said, What are you buying? He said, everything. It doesn’t matter, futures, the index, the stock, this thing and that thing. And he said, last time I was here, 10 years ago, talking about a name, I high conviction in I said, buy everything. And that worked out pretty well. And so that created a massive short squeeze in China. You have a lot of quant funds that were short China. I checked yesterday the short interest in FXI, the China index, 60% and a lot of, you know, a lot of short interest. And also carry trades. You know, we had the Japanese yen carry trade online in the summer. But let’s discuss. But also real is the USD remni Be carry trade people fund in China. And you can fund by going short these stocks. So that works as long as they don’t rally. So that’s the one that was. Now the other catalyst there was, as you pointed out, the monetary stimulus. But what we haven’t seen is significant fiscal stimulus, in fact. Now the new narrative is that there’s not enough stimulus, and that’s why China stocks are down. So the thing to watch in China is going to be when do property prices stabilize? The root cause the issue is overbuilding in property. Property is about 30% of the balance sheet of of a Chinese household, that’s how they save. They invest in real estate, primarily through property, right? You You know, there’s a cultural convention that’s unwritten where you can’t get married unless you own a home. We don’t have the United States, so you have to own a home to get married. Think about the motivation that own a home, and then you also save by buying another home. Now there are too many of these homes, so the issue is, you’ve got to see property prices stop to decline. We’ll see that when that happens. It hasn’t happened yet. The pace of price drops has slowed down, probably stopped sometime this year. We’ll see, and markets will look ahead of that. They’re not going to wait for the actual bottom right. Markets will look ahead, as they’ve done overall. We think China’s bull market. We wrote about that on that X on Twitter. It had a capitulation. There was a volume climax. Was a washout. We cans are washed out. However, we actually sold our China stocks, like a week ago, because now you just had this parabola where everyone’s showing up. They’re late. It’s weak hands, and they’re chasing momentum. These stocks have gone up 30% in two weeks. So you know, maybe there’s room to run, but we like to sell into when we see a parabola, you you know, you try to hang on as long as you can, but I’m not trying to stick around for the last move. And, you know, FXI dropped like 10% today.
Andrew Brill 34:56
Seems that there’s a, there’s a FOMO going on in China, where a lot of people. And I was also reading this on your website, people are selling their crypto to get into equities, which is kind of strange, thinking that here people are hanging onto their crypto, waiting for it to go up and up and up. But the market went up so quickly that people were, you know, afraid of just missing out
Ram Ahluwalia 35:17
on sides. They’re caught offside. So this is what I call the hot ball of liquidity, which is there’s amount of money moving from one investment theme to the next. And the latest one is China. Before that, it was utility stocks. And you see these periods of one to three weeks where there’s a dramatic movement in the index the ETF. You saw that in home builders in July. You saw that in small caps over the summer, when the Mark was expecting red cuts. These moves only last one to three weeks. You saw that in uranium. That move is done now, right? That move finished last week. When people talking about the need for nuclear energy, you had all the podcasts come out and the VCs start talking about nuclear, that’s when you know that. It’s probably in the later end of this. So, you know, Bloomberg, they had wall to wall coverage in China in the last week. You know, the most shared articles were all around China. So when there’s that much focus on attention, on an idea, you can be pretty sure that you’re it’s either fully priced or maybe overpriced So, but yeah, there’s a there’s a funny dynamic in markets, though, where people are chasing momentum, and you see the rise of Robin Hood, and, you know, day trading, and there’s a lot of active investors at the average holding period for a stock now is under a year. So I think all that plays a role into it, as well as the covid stimulus and fed liquidity, all this stuff plays into this.
Andrew Brill 36:48
So rom you’re sitting with your family and your friends and your and they ask you, how am I protecting myself today, and where am I sticking my money for a long term growth
Ram Ahluwalia 36:59
Well, you know, that’s a great question, because with the rise of AI, we’re going to see a dramatic feast or famine impact for companies. The companies that can pivot and refactor the business model and adapt to AI are going to thrive and take significant market share from the competition, and the ones that don’t will lose. So you have to make prediction about which business models, which management can pivot and survive. I am probably investing in a startup that intends to disrupt Salesforce. Salesforce is trying to get into AI, and they showed me an experience that doesn’t require Salesforce. We don’t use Salesforce anymore in our at our business. Like, do you really need Salesforce? Do you really need Microsoft Office? If you can give a dictation to your AI agent, who can then create a word process document for you instantly? So there’s a lot of feast fam. And so when you talk about themes that you know are going to happen no matter what, let’s start there. We know land, it’ll be fine. Land is AI proof and income should go up. Productivity rates should go up. So the demand for land will do well, what kind of land, Travel and Leisure people are gonna have more free time? So if you can invest against that thing, I think that thing will do well, another thing will be aging on longevity, people living longer than ever. We’ve got these, I guess, miracle drugs called GOP ones. They help you lose weight, they address dementia, they they seem to do a lot of things that is going to create more demand for Aging and Longevity. I won’t see that going away. I don’t think AI is going to disrupt that either. Healthcare as a sector of the US economy has continued to expand as a share of GDP, decade after decade after decade. It’s the only category, by the way, and the beneficiaries of that, they vote, so that’s not going to change. So I think that’s a good category. What else I think financial services are highly regulated banks. You’re going to see transformation from Ai, but more as an enablement play. You’re going to see more compliance as a service via AI. You’re going to see AI agents interacting with customers rather than call center agents, so they’ll be a beneficiary overall. They should have lower costs, they should have better lending decisions. And banks are highly regulated. You cannot. You need a banking license from the FDIC to take deposits. So they have a moat that’s protected by regulation. I think they’ll do fine. Insurance companies, they’re gonna do fine too. Same reason your moat highly regulated. AI can be a beneficiary to that. Now you got to find the winners and losers in each category. The ones that can adapt will do better. So I think you got to go, you know, category by category, and take a look at, you know, a category I want to avoid is software, especially Software as a Service, and that category has been in the dumps. Look at the ETF, wcld. 30 it’s in a bear market. Look at stocks like snowflake. When public 2021, it’s down dramatically. 50, 60% something like this and those companies, these SaaS companies, were initially pitched to the public as these are capitalized businesses with high margin. Well, guess what? Now they got to spend a lot of money, billion dollar plus on GPUs to Nvidia and that whole supply chain. So they’re not capital efficient. Their margins are lower. And you have these startups creating SaaS killers. They’re building better AI versions. Do you do you really need Microsoft Windows, Microsoft Office? Do you really need Excel spreadsheets in the future, AIS can develop that with some instructions, right? I see a startup doing investment banking analyst work via, you know, as a service. So we see a lot of change ahead, but monopoly businesses that you know require licensing or a link to these secular trends should still do well. Utility should still do well, right? I think they’re expensive now, but that’s in the short term. Industrials, you know, you’ve got chips act, you got inflation Reduction Act, you still have a lot of spending funded by the government. And so industrial stocks, although I think they’re overbought right now, where we stand, they should do well over the next 10 years. You got to build out the data centers, right? So there’s still more work to be done there.
Andrew Brill 41:24
We got to do our homework. And again, if I find it, finding the stocks that you’re talking about, it’s
Ram Ahluwalia 41:28
it’s a stock pickers market, that’s for sure. It’s a stock pickers market. You can’t just get the theme right, right? If you pick, uh, semiconductors, that’s a good theme. But if you own Nvidia, you’re doing well, most semiconductors have been lagging. Mag seven stock pictures, market Tesla’s been lagging. So, yeah, I think this is going to it’s going to be an incredible time for active management and investors in the next 10 years.
Andrew Brill 41:58
Rob, where can we where can we find you? I know that we can find you at your company, but where on Twitter can we find you? Where can we find some of your research? Thank
Ram Ahluwalia 42:06
you. I have a newsletter. It’s called lumida ledger, l, u, M, I, D, A n, as in Mary. Lumida. If you Google that, we have a weekly newsletter. We publish every Sunday. We talk about our views, talk about different ideas. That’s one on Twitter. My handle is at Ram alawallia. I know that’s a mouthful to R, A, M, a, H, l, u, w, a, l, I, a. We also have a podcast called Lumina, non consensus investing. And I interview people that I’ve worked alongside, George Soros and Stanley Druckenmiller, that was last week, interviewed someone that worked at Harvard management company that was in the morning Stanley equity derivatives desk. Now he’s doing some interesting things. We interview, you know, people in my network that I learn from and train ideas with. It’s all about who’s your peer group, and how do you get into a dialectic to try to uncover what you think is the best possible truth in the world at that moment in time. So that’s how you can find us, lumina.com we have a news it’s like a Drudge Report for investors. Can sell a lot of news at lumito wealth.com is where we kind of have our flagship homepage. Thank you.
Andrew Brill 43:16
What is? What is Lumina stand for?
Ram Ahluwalia 43:19
From the light, from the light providing clarity. I made that up, though it’s not actually Greek or Latin word, but when we fought about it, I said, if it meant something, it would mean from the light, right? So, you know, the I studied some of the Romance languages back in the day. So loom means lumen light, right? So de means from so from light Anyway, okay, it’s working, so we’ll get there.
Andrew Brill 43:45
Rob, thanks so much for joining me. I really appreciate it, and I hope to have you back again soon.
Ram Ahluwalia 43:49
You bet. Thank you for having me always a pleasure. Thank you be well. Cheers.
Andrew Brill 43:53
Thanks so much for watching our discussion here on wealthion with Ram alawalia. It was a pleasure having him, and hopefully you got some good insights. If you need more insights and help being financially resilient, please head over to wealthion.com/free for a free no obligation, financial review. And of course, if you could like and subscribe to the channel, we greatly appreciate it, and don’t forget to turn on notifications. So you know when we post new videos to the channel. And please do the social media thing with us all. The links are in the description below. And if you like this content and looking for more ways to achieve long term wealth, watch this video next. Thanks again for watching until next time. Stay informed. Be empowered and may your investments flourish.
