Are today’s markets on a fragile foundation? Jesse Felder thinks so. He sits down with Wealthion’s Andrew Brill to uncover why insider selling is off the charts, Warren Buffett is more cautious than ever, and top CEOs are cashing out of their stock holdings. Jesse dives into alarming recession signals, the hype surrounding AI, the risks of passive investing, and the dollar’s overvaluation. Plus, learn why commodities could dominate in the years ahead and what the Federal Reserve’s policies mean for your portfolio.
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Jesse Felder 0:00
Warren Buffett has never been more fearful in his asset allocation than he is today. Insider buying is is evaporated, and so the sell to buy ratio is extremely elevated. And that’s to me, the leaders of corporate America saying we’re not bullish on earnings over the next 12 months, the dollar is about as overvalued as it ever gets
Andrew Brill 0:24
value of the dollar remains high, but is it going to stay that way? I’m your host. Andrew brill, if you need help keeping your finances high, go to wealthion.com/free for a free no obligation portfolio review. We’ll talk about the value of the dollar and where it’s headed right now. You I’d
Speaker 1 0:40
like
Andrew Brill 0:45
to welcome Jesse Felder to wealthion. Jesse, he’s a veteran of bear. Stearns also founded a multi billion dollar hedge fund now has founded Felder investment research and writes endlessly for people like you and me, who could use all the information we can get our hands on when it comes to finance. Jesse, thanks so much for joining
Jesse Felder 1:03
me. Good to be with you. Andrew, thanks for having me. So let’s start out.
Andrew Brill 1:07
I always like to ask the question about the economy. What is your impression of the economy as we sit here right now?
Jesse Felder 1:13
Well, I’ve been too bearish on the economy for the past year. It’s held up relatively well, I think better than than most expected. It would that said, you know that, I think the jobs report was interesting last week when we saw, you know, the household number show a significant decline again. And as my friend John husband pointed out to me, that it’s the first time that we’ve seen the year over year change in essentially the overall level of employment decline on a year over year rate. That’s typically something you only see during recession. So I think there’s signs that the labor market is weakening. Both ISM services showed kind of a disappointment last week. And manufacturing has been relatively weak for a long time. So it feels like, you know, things, things are generally not as good as maybe some of the bulls on the economy would hope that said, you get measures like the Atlanta Fed, you know, GDP now showing, you know, 3% plus. And so I think it’s just a it’s, there’s a lot of mixed messages, cross currents. It’s difficult to kind of, you know, make an accurate assessment of where we stand today, but I do think where the trend is, that is of a slowing economy, and, you know, it’s probably going to continue to trend that in that direction.
Andrew Brill 2:38
Jesse, have we seen number? You’ve been at this a long time. Have we seen this phenomenon where there’s just conflicting numbers all over the place that sort of don’t fit into the normal charts that we look at? You
Jesse Felder 2:53
know, I think it actually happens every cycle. I mean, we get this, the soft landing at the, you know, basically the top of every cycle you get the soft landing narrative gets really popular right into we saw in 2007 we saw it, you know, in 2000 you know. And every time the Fed hikes interest rates, you know, in a way, I mean, they, they’ve hiked, you know, they, they hiked pretty significantly over the last few years, until they started to ease. But every time you’ve seen that type of a rate hike. You know, environment, you know, the bullish narrative is we’re going to get a soft landing. The economy. It’s almost never happened. So you always get that kind of hope, and then what makes it difficult is a lot of the numbers that we see coming in end up getting revised months later. So like a lot of these employment figures, you know, the headline employment figures of 200 plus 1000 jobs created. It’s really hard to kind of, really put anything, any, any stock into that at all, when you know it’s going to be so heavily revised later on. So, you know, I think there’s always cross currents at this point in the cycle. You
Andrew Brill 3:57
know, as they, as the Fed, tried to bring the interest rate down. We all the term soft landing seems to be everybody’s I think it’s a hope more than it may be reality. I think everybody’s like, Oh, self landing. Great. You know, everything’s awesome. But do you think the Fed has done the right thing here? And do you think that, or do you think that recession might be on the horizon? Well,
Jesse Felder 4:20
I think that, you know, the right thing. I mean, that’s, that’s a really tough question to answer. I think that what they’re doing now, I mean, for the last few years, Jay Powell has said they’re determined to bring inflation back down to target. Now it’s clear that it’s not yet back down to target, and they’re lowering interest rates. So that determination to bring inflation back down has really kind of fallen to the wayside. And I think that might be another mistake that they’re making that, you know, there really aren’t any signs that inflation is sustainably back to target. And you know, they announced, you know, this the two. Target of, you know, average inflation targeting, I think, was the term they just we wanted to average 2% we get periods of under. We can, you know, get periods of over. We can overshoot for a time, but we’ve had a long period of overshooting in inflation. And actually, I thought it was very interesting that, you know, at the last press conference, Jay Powell was asked one of the final questions was, okay, now that we’ve overshot for so long, if you’re targeting an average of 2% would it make sense to undershoot for a period of time? And he said, Absolutely not. That’s not at all what we want. And so I think that’s a very clear message from the Fed. It explains why they’re lowering interest rates today, because they would rather err on the side of higher inflation and protecting the jobs market, then doing enough to really make sure inflation is going to come back down in a sustainable way, at the risk of doing damage to the to the job, to the labor market. So I think that’s a very clear message that that they’re willing to err on the side of inflation, and so are they doing the right thing? I mean, I guess if you are, you know, the more concerned about the labor market, you say, yes. If you’re more concerned about inflation, you say, maybe not,
Andrew Brill 6:05
right. So I want to get into your research a little bit and and talk about the dollar. Now, the dollar has been strong for a good period of time and remains strong, but we have a president coming into office that wants to devalue the dollar, I guess, in a sense, and in your research, you show that the dollar could be heading towards a bear situation. Can you explain to us where your stance is on this? Yeah,
Jesse Felder 6:32
I think the really, the key to you know, for longer term investors, I think, is watching the dollar is kind of having an idea of where the dollar is headed. So there’s a few ways to kind of think about this. I think one is the valuation of the dollar, right? I mean, every a lot of people talk about the valuation of the stock market, you know, based on longer term measures, the buffet yard stick or the cape ratio, we’re at very high levels on equity valuations, typically that suggests returns are going to be poor over the next decade or so. You can make the there’s the very similar relationship with the dollar. When the dollar is overvalued or undervalued to a significant degree, it typically leads to a reversion. So today, the dollar is about as overvalued as it ever gets, and I’m just talking about things like purchasing power parity or the real effective exchange rate, these things show the dollar is highly overvalued relative to the major trading partners, especially, you know, things like the yen. And so when you have that type of overvaluation, it typically leads to a longer term reversion of in terms of valuation. So $1 comes down relative to those other currencies in terms of valuation, and that has important implications for asset classes. I would just point out too, that, you know, one of the primary drivers of dollar strength or weakness is the direction of the federal deficit. So the last time, you know, we’ve had a major, you know, bull market in the dollar over the last 10 years, and that coincides with this time period of 15 really, now, losing track of time where you had the financial crisis right, and we had a huge deficit in the depths of the financial crisis, and that kind of repaired itself and trended narrower, really, until the last several years, and that was one of the driving factors of this dollar bull market that we’ve seen over the last 15 years. Kind of the same thing we saw in the late 1990s where you had going from kind of persistent deficits, much lower than we had today, to actual surplus in 99 2000 and that was really around the time the dollar peaked, deficit started to widen again, and dollar went into a bear market from that 2002 to about 2011 timeframe. And that coincided with the direction, and, you know, the fiscal, fiscal policy. So I think you know if, if deficits are going to continue to stay wide and potentially widen further, then that will be an important driver for, you know, the relative performance of the dollar versus major trading partners as well. So there’s the valuation component, and then there’s the trend and the fundamentals, which are which you know, regardless of who’s in the White House, it would seem that, you know, deficits are here to stay. Is,
Andrew Brill 9:18
is the the strength of the dollar a driver behind a lot of foreign investment into the US stock market. Yeah.
Jesse Felder 9:26
I mean, one of my favorite charts is there’s a, almost a perfect correlation between the relative performance of US stocks and the dollar. Right? US stocks outperform foreign counterparts when the when the dollar goes up, and that’s just a reflection of dollar. You know, money coming into dollars. Where does it go? It goes into the into the stock market. I thought it was interesting. You know, Rutger Sharma is one of my favorite editorial writers for the Financial Times. He’s the the chair of Rockefeller internationally. Wrote an interesting piece last week about he. Called the mother of all bubbles in the US stock market. And he may he, you know, kind of outlines this point that US stock market has been, you know, magnet for foreign capital for a number of years. And he was at an investment conference in Singapore recently, the moderator asked, How many people in this room don’t own Nvidia? And not a single hand went up. So it just tells you, you know, globally, everybody you know, wants to own the Magnificent Seven and all these stocks and and that is a trend that coincides with dollar strength. So you know, if we’re going, if we are seeing potential another peak in the dollar, similar to kind of what we saw in that 2002 time frame, then you know, we’re going to probably see the outperformance of us. Stocks potentially reverse course, and real assets probably outperform financial ones generally, just like they did from that 2002 to 2012 time frame. So as the incoming
Andrew Brill 10:59
administration and Scott Bassett trying to devalue the dollar a little bit, that would mean there could be an, I guess, an outflow of cash from us. Stocks at that point couldn’t there. And that could be a good, I don’t want to say, cause a crash, because I don’t want to, you know, set off any alarm bells, but it could seriously go down a little bit.
Jesse Felder 11:24
Yeah, you know, I mean, there’s, there’s a lot of foreign capital in US stocks. I think there’s evidence to see. You know, Japanese investors, Korean investors, even Chinese investors, support a lot of money into US stocks. I think, honestly, the bigger risk I’m concerned about in the short run is not necessarily foreign capital flight. It’s the fact that active, you know, the few active managers left in the market today have realized the only source of outperformance, or even even generating returns, is trying to front run passive flow. So much money has gone into passive and Mike Green wrote an interesting piece on this over the weekend about how, you know, literally, value investing hasn’t worked. You know, reversion to the mean hasn’t worked in any respect, in terms of for active, active investors. And what has worked is momentum. And the momentum factor over the last 12 months has had one of its, you know, best 12 month performances in history, you know, going back through the market. I mean, I think it’s 1999 and 2021 are kind of the only times we’ve come close to what we’ve seen. And I think that is just a a, you know, a function of active managers, you know, hedge funds and these types of things, realizing, when there’s a lot of passive money coming into the market, we’ve seen record inflows into Vanguard funds and passive vehicles. This year, the best way to make money is to front run those flows. And so you get, you get a compounding effect in the markets where everything is highly leveraged to flows. And that, you know, obviously creates some fragility, because as soon as you don’t, as soon as those flows, you know, Peter out or reverse course, everybody is on the same side of the boat, and that trade reverses. And I think that’s something that not enough people are really paying attention to. The you know, the history of the momentum factor also shows, whenever you have a year of big, strong momentum, there’s usually a painful hangover on the other side of that. It’s a very close correlation. It’s actually a very good predictor of 12 month returns in the s, p5, 100 the momentum factor. So you have a really good, strong year in momentum typically leads to a reversion in stock prices. Broadly speaking, over the next 12 months, we’ve had
Andrew Brill 13:45
Mike on, and he is very concerned about that passive investing, because it’s done a lot by algorithms. It’s not even someone saying, Okay, we’re gonna we’re gonna invest in this. It’s like, Look, if one numbers off slightly, doesn’t matter whether there’s a good reason or not, that passive investing could flow in or out very quickly, and it’s the retail investor that gets hurt. Yeah,
Jesse Felder 14:09
yeah. And I think that, you know, it’s as I mentioned, we’ve seen record inflows into passive this year. And so the best performing strategy in the market has been front run. Front run those passive flows. How do you do that? You buy the biggest stocks in the market. You buy the Microsoft, Nvidia, Apple, and, you know, I just look at a stock like Apple trading at 40 times earnings, witnessing its slowest revenue growth and earnings growth over the next, you know, 12 months. It’s seen in a long time, and its highest valuation at the same time, to me, that is just, you know, the fingerprints of passive, right, who’s willing to pay a record valuation for a company that’s seeing its slowest, slowest growth, you know, going forward. And that’s just price insensitive, insensitive buyers. And so, you know, it’s, you know, the. On the flip side of that too, you have Warren Buffett offloading the majority of his apple stake, because I think he’s realized these dynamics that, you know, at 40 times earnings, it does not, it’s not nearly as compelling a prospect to own this stock when it was 15 times earnings and they had a bunch of, you know, stock buybacks that they could implement in the future. I think it’s also telling that, Apple’s net cash relative to its market cap is essentially nil. Now. I mean, they essentially have almost no cash, net cash on the balance sheet relative to their market cap when it was, you know, 15, 20% only a few years ago. So you know that that opportunity to buy back massive amounts of stock at low valuations is behind it. That’s also been, obviously one of the drivers, but to me, it’s more more function. I think Apple’s kind of a poster child of how does passive affect the market? Well, take one of the biggest, you know, slowest, growing companies and put a record valuation on it. It’s not a coincidence that there’s been record flows into passive this year, driving that, that valuation extension,
Andrew Brill 16:03
it’s it seems to have a lot to do with AI. Now they don’t have the cash that they once did, but they’re pledging billions of dollars in investments, like many, many companies, The Magnificent Seven, billions and billions of dollars into AI. Are we getting fooled by AI. Is it not moving as quickly as we think, or is it maybe moving quicker than we think? It is?
Jesse Felder 16:26
It’s a good question. I really do think that, yeah. I mean, you have Amazon, alphabet, meta, Microsoft, pouring tons of money into this space. I think it’s telling that the revenue generated, you know, by it so far, hasn’t even come anywhere close to the spending and so, you know, and actually, you know, I think you could argue that a lot of the revenue that’s been generated is, you know, you know. I don’t want to say it’s not real, but when you have, you know, company like Microsoft, who is investing $5 billion in open AI, no money changes hands. You know, Microsoft just says we’re going to give you $5 billion in Cloud Credits, and Microsoft claims 5 billion in revenues. But money, money never changes hands. You know, that’s 5 billion of revenue generated out of, out of thin air. I think there’s a lot of that going on actually. I think, you know, Nvidia is doing a lot of that kind of vendor financing as well, where they’re saying, you know, okay, we’ll sell you a bunch of chips, and we’ll give you the money to buy them. We’re going to invest in this startup. We’re going to put, you know, put a billion dollars into this startup, and then, you know, they’re going to pay us a billion dollars for the for the chip. So, you know, there’s, I think there’s a lot of that kind of stuff going on, which really risks the potential for a kind of a rationalization of all this spending over the next 12 months. I think that’s probably the biggest risk facing these stocks, is if they realize the revenue generation isn’t there, right? We don’t have the killer AI product that is going to support this type of spending going forward. So we’re going to have to start to scale this back some. And already, the growth in anticipating, in PLA in promised spending, is slowing dramatically. I mean, it’s 100 was 100% year over year, 20% year over year. I think in 2026 expect to be, you know, single digits, but it could, you know, reverse even lower than that. And that’s really the history of the technology space. Is you see these huge booms in spending, and then they kind of retrench. And so I think there’s a, there’s potential retrenchment coming, which could be bearish for for the whole AI boom that we’ve seen. It’s interesting because
Andrew Brill 18:42
they, a lot of people, compare the AI boom as, as we call it, to the the.com bubble and the the advent of the internet. I mean, we’re sitting here doing this, this interview over the internet, basically. But it doesn’t sound as we sit here right now. It doesn’t sound like AI is going to get to that point. Yeah, Apple has a phone that they say, oh, it’s got AI in it, and we all use chatgpt, but I’m struggling to find the the internet creation version of AI at this point. Yeah,
Jesse Felder 19:20
no, I think it’s, it’s probably coming. But as you mentioned, you know, when was the.com bubble? It was 25 years ago, right? So we’re using this incredible internet technology 25 years later, you know, zoom and these companies that developed these types of technologies, you know, only came about in the last five years. And so it took many, many years for that technology development. But the problem with the.com bubble was they over built so much capacity all the fiber optic network and lines, and, you know, things that they put down were only being, you know, there’s 90% of excess capacity that was built out. And we saw the same. Kind of with railroads early on in the in the railroad boom, right over capacity built out. It’s a great thing for society because it creates really cheap infrastructure, but it’s not great for the companies involved that are, you know, very early on, because there is that time period where the hype doesn’t match up with the reality. So you have a rationalization of the spending and these types of things, as I was saying. So I think we’re rapidly approaching that time in this cycle, during this hype cycle, where we’re seeing a massive build out, and it’s going to be a great thing for all these companies that are developing all these AI things for years to come, but it’s going to take years for them to develop. I mean, you know, artificial general intelligence is really kind of the holy grail we’ve been seeing is generative AI, which is just these predictive models that are really good at looking looking at like they are intelligent, but they’re really not intelligent, right? And we have all these, you know, problems and issues with them that make them unreliable in most senses. But really the holy grail that I mentioned is artificial general intelligence, real, true intelligence, you know, in a computer and things that can actually think about how to fix things that’s, that’s years and years down the line. I mean, there’s really, you know, I think a lot of these companies have come out recently and said the technology we’re using today, it doesn’t matter how many semiconductors, how much computing power we throw at it using the systems and the strategies we’re using today, we’re not going to get to AGI. We need to kind of rethink this. And that comes from Yann LeCun at meta. And, you know, a lot of these guys who are at the top of the industry, and if that’s the case, that means that it’s years down the road. And so, you know, the hype right now is that these companies are going to get AGI in the next year or two. So that’s not materializing. You know, the hype is, the reality is not living up to the hype, and I think that creates some real short term risks here for something that has a great deal of long term potential.
Andrew Brill 22:07
So are we looking at, you know, we’ve talked about earnings, and obviously, if there’s a barter system and you put billions of dollars on your balance sheet as earnings that aren’t really there are we looking at a sort of an explosion of sorts, where all of a sudden people are, well, no, our earnings weren’t that and now we’re going to go back and adjust last year’s earnings, or two years ago was earnings where there could be a house of cards that tumbles here. Yeah,
Jesse Felder 22:37
I mean, and it’s not just, you know, the kind of anecdotal evidence from these companies investing and kind of the circular revenue type of models that we see. It’s, you know, the difference between reported earnings, smff earners and GAP earnings, right? There’s a pretty big, pretty big discrepancy there. There’s a pretty big discrepancy also between reported earnings and then earnings reported, you know, by the BEA and you know that are just general corporate profits. That’s typically what you see at the top of the cycle. You know, my friends over at Gav Cal intelligence have pointed out that when you know, you only see kind of leading up to recession, those huge gaps between, you know, general corporate profits, and S, P reported profits kind of at the top of the cycle. And I think we’ve been there for about, you know, a year now. But yeah, the other thing I would point out, you know, that I think is one of the most important things that I pay close attention to, is insider activity. And so these are the top executives at these companies we’ve seen just Jeff Bezos sell $13 billion or the stock this year, insiders of Nvidia have sold over a billion dollars. Palantir is the one recently where we’re seeing massive insider selling. But overall, when you aggregate these types of things, you know, all of the insider executive trading, the sell to buy ratio is a really good predictor of the economy and the trend in corporate earnings. So we have a matt with the sell to buy ratio today is above 25 the only time in the last decade it’s ever been that high was in late 2021 right? What happened to earnings in 2022 we had an earnings recession, bear market. So we’re kind of at that same place again today, where insider selling is off the charts, insider buying is evaporated, and so the sell to buy ratio is extremely elevated. And that’s, to me, the leaders of corporate America saying we’re not bullish on earnings over the next 12 months. We’re not bullish on the economy over the next 12 months. Stock market’s likely to, you know, have the same message. So yeah, I think there’s, there’s definitely a risk to earnings disappointing, the elevated estimates that are kind of priced in right now.
Andrew Brill 24:50
Yeah, I think that we all need to take heed to that, because if the insiders, the ones who have some knowledge, are selling, we should. Be thinking about that too, at least taking our profits off the table and saying, Hey, look, you know what, I’ve been on a nice run here, and Palantir is what, that’s almost 4x this year alone. It might be time to listen to them and worry about that. Hey, look, maybe you know what, there could be a little bit of upside to the market. But maybe we’re going to go through a period where earnings aren’t as good and the growth isn’t as as exponential or as steep as what we’ve seen in the most recent past. Yeah,
Jesse Felder 25:32
you know. And as I said that sell to buy ratio. Najat Sehun is professor of, you know, of Business at the University of Michigan, you know, business school. And he’s really quantified this data in in and published a couple of books on it and shown that it’s, you know, this insider sell to buy ratio is one of the best predictors of economic activity and earnings over the next 12 to 24 months. And so the message from insiders is very clear, is that the economy and earnings are likely to disappoint over the next 12 months. That’s definitely not priced into a stock market trading at, you know, very high valuations, even the forward price to earnings ratios about as high as it’s ever been. So you know, what’s priced in is this soft landing narrative. And insiders, I think, are sending a message that, hey, we’re not headed for a soft landing. We’re headed for something, you know, that’s that’s not quite as benign.
Andrew Brill 26:24
Do you see a market crash coming at all, or a big, big election? You
Jesse Felder 26:31
know, I think it’s, you know, foolish to try and predict a crash, but I will say that I think if we did have a stock market crash, I think you’d have to look back and say there were signs, right? And those signs are the strength in the momentum factor driven by this piggybacking on passive investing, and then, you know, the extreme leverage that’s being used today. I would just point to, you know, the assets in leveraged ETFs. You know, the Bloomberg published a piece, I think, on Friday, that showed at the 2021 peak, that the assets in leveraged long ETFs were five times greater than those in short ETFs. And that five to one ratio was a pretty bearish bear signal to, on Friday, we hit 11 times. So we’re, you know, there’s, there’s, literally, it’s twice as extreme the amount of leverage and leverage ETFs today that we saw back in 2021, you know, there’s also things like the commitment of traders report. You look at small speculators and S, p5, 100 futures, and they’re about 10 times as long today as they were in 2021, so there’s, not only is there this piggybacking on the momentum factor, like I said, I think is front running, the passive flows, but it’s they’re utilizing, you know, such a, such great, you know, great amount of leverage in order to Do that, via leverage, ETFs, via futures, via these types of things that it does concern me that once those flows reverse, and they obviously, they always do, right? Nothing goes on forever. And these flows always go in cycles, right? They always go, you know, big year, kind of a reversal year. And so I think when their flows do reverse, I am concerned to see, how does the the system kind of absorb this type of a de leveraging, because it’s really something we haven’t, haven’t seen before.
Andrew Brill 28:31
We talked earlier about the strength of the dollar and the influx into equities. Is there? What if they devalue the dollar, could the outflow go from equities into commodities? Is there a, is there a situation where the dollar is lower, but the influx of money goes into commodities?
Jesse Felder 28:54
Yeah. I mean, it’s basically, you know, yeah, as I mentioned before, I think the dollar holds the key to the to what you want to own over the next 10 years in $1 bull market. Yes, you want to own financial assets, right? You want to own stocks and bonds in $1 bear market. You want to kind of underweight those things and overweight things like commodities and real assets. So that’s, you know, precious metals, that’s energy stocks, that’s, you know, those, those types of things. And I think that, you know, we, we’ve already kind of really in 2020, and 2021, is when this trend began. I mean, energy stocks are still outperforming the broad market over the last four years, right? They’ve had a difficult last year or two, but over the last four years, they’re still outperforming the S p5 100. And I think that, you know, gold is outperforming the S p5 100 this year, so, you know, they don’t get a lot of mention, but I think those are the types of things that that are you’re going to want to overweight in an environment in which the dollar is trending lower. And I think that’s. Likely what we’re going to see over the next decade. And like I said, if that’s the case, that has really important implications for that overall asset allocation model.
Andrew Brill 30:10
Does the FOMO model concern you at all with I guess it’s retail investors, people like myself who say, Oh, you know what? Equities just keep going up. Keep going up. I mean, we mentioned it, the s, p, over 6000 the NASDAQ near its high, very close to its high. And the Dow, not far either. And people like, oh, you know, I got to get in on this. I got to get in on this. And all of a sudden there’s a downturn. The CEOs are selling, and all of a sudden the passive investing goes in the other direction, and it all falls off a cliff, Cliff. Does this concern you at all?
Jesse Felder 30:45
You know, as I, as I said, I’m very concerned about it, because I do think there are signs, you know, you’ll get sentiment measures right. And allocations. You can look at allocations to equities in a variety of different ways. They all show record allocations by households, by retail investors. Record degree of bullishness, whether you’re talking like market vein or even, you know, the consumer confidence figure, more consumers expect stock prices to rise over the next 12 months than we’ve ever seen before, going back, you know, 40 years. So that type of bullishness. I mean, if you’re a Buffett fan, like I am, right and you believe it’s, you know, wise to be fearful when others are greedy, there’s so much evidence pointing to, you know, greed is off the charts today. That’s why Buffett, I think that you know, so many people said, well, how, why does Buffett have the biggest cash cash position in his career, not just nominally speaking, but he has the biggest cash position as a percentage of the portfolio today that he’s ever had. So Warren Buffett has never been more fearful in his asset allocation than he is today, and I think that’s just merely a function of what he’s been telling investors to do for half a century, be fearful. One of his agreed greed is off the charts. Today. It’s time to be about as fearful in your asset allocation as you can stand
Andrew Brill 32:12
in your research. You talk about oil versus gold, and obviously the our parent company is gold bullion International. We they sell precious metals, and gold has done very, very well this year alone. But oil, for some reason, even given the issues in the Middle East, is down. You make the correlation between gold and oil? Can you explain that? Yeah,
Jesse Felder 32:39
I think one of the, one of the ways that I’ve learned to kind of value commodities, and I get this from my friends at Gehring and Rosenzweig, who do terrific work in the space, is what, what is the relative performance of of these commodities to each other? Right? So the silver to gold ratio can, can tell me a lot about sentiment, right? When silver is dramatically outperforming, it tells me that investors are pretty excited about precious metals, and they want to own the higher beta for, you know, of the two, and so we’re going to pile into silver rather than gold. I you know, we haven’t seen that those kinds of signals and precious metals. But you can also look at, you know, the ratio of crude oil to the gold price. And I think this is a good indicator of when you want to favor, you know, if you’re bullish commodities, when I when do I want to favor one over the other? And when you know gold prices get overextended relative to oil, that’s usually a good sign that you know the relative performance is going to revert and oil prices likely to do better going forward. We are. We recently hit one of those kind of marks where the price, the relative performance of nominal performance of gold, has been fantastic over the last 1215, months, and oil price not so much. And so that ratio has gotten to a point where it suggests that oil price is undervalued relative to precious metals. And so to me, that suggests that it’s time to be, you know, bullish in that, in that energy patch. You know, there’s also been interesting buying, insider buying. It’s really kind of the only interesting insider buying I’ve seen over the past six months or so is these, you know, billionaire investors really are the only area they’re committing capitals in the energy space. It’s Carlos Slim in pbf energy. He’s been buying, you know, almost every day, buying millions of dollars of pbf energy, a big refiner. It’s Jerry Jones, you know, owner of the Dallas Cowboys, buying Comstock resources, you know, natural gas company that’s, that’s, you know, poised to benefit from, you know, exporting liquid natural gas. And so you have, you know, new fortress energy is another one. And Warren Buffett, obviously, until very recently, had been buying a bunch of Occidental Petroleum. Buffett has, you know, in the SMB five. 100, there’s about a two and a half percent exposure to the energy sector. It’s one of the lowest, essentially, allocations to energy that we’ve seen in the s, p5, 100. Buffett’s allocation, I think, is somewhere closer to 20% so you have, you know, these billionaires who are making a big bet on on being over weighted energy versus the the market. So I think they’re kind of on board with this idea that, hey, if, if commodities are likely to outperform real or sorry financial assets in the years ahead, what’s the best way to play that energy patch is kind of the first one that comes to mind, and really kind of one of the only areas for billionaires to put enough money to work, yeah, because precious metals market is potentially too small for many of them. You know, in order to put money to work, to kind of have exposure to those types of trends.
Andrew Brill 35:53
I mean, we are, is that one of the areas where, over the next few years, I mean, AI, with everybody talking about AI we’re having, going to have to power this somehow, the natural gas, the uranium, you know, all this stuff is energy. One place that could be bullish that’s been bearish for a while
Jesse Felder 36:15
now. Yeah, I absolutely think so. I mean, it’s very clear that, you know, demand for energy is growing in a way that we haven’t seen in this country for a long time. You know, I think a lot of it is the growth in these data centers. And so they’re looking at, okay, how do we ramp up energy production? Nuclear is obviously a longer term way to do it, but it can’t be ramped up and in the near term. And I think the most obvious way to do that as quick as possible through natural gas, right? We have an abundance of natural gas in this country. We’re blessed with that, and it’s a relatively clean way to rapidly increase energy production. So I think that that, you know, is one of the things going for it. There’s also the fact that natural gas prices in Europe and elsewhere are much, much higher than here in the United States. So there’s an arbitrage opportunity. If you can figure out how to export liquid natural gas to Europe, you know, there’s, there’s, you could probably make about, you know, $5 per, you know, BTU, pretty easily in that type of trade. So, yeah, as we start using more natural gas to produce energy here, start exporting more natural gas to kind of take advantage of that arbitrage of prices. You know, demand for it is, is only going higher. And I think that’s, that’s, that’s very bullish. I think the supply side of it too. As my friends at Gering and Rosenzweig pointed out, is maybe not, as you know, overly abundant as a lot of people expect. It might be a little bit tighter, more constrained than is widely believed, and that’s just a function of the fracking you know, those those kind of fracking wells are don’t have the lifespan of traditional, traditional wells, and are depleted much more rapidly. So I think we may find that those types of wells deplete faster and the demand goes up, and that the combination of those things is kind of a very bullish dynamic in the years ahead. Last
Andrew Brill 38:23
question, you’re sitting around the holiday table. You’re having a great meal with family and friends. They say to you, Jesse, you know, I’m in the market. I have some things that. What advice are you giving them today to protect themselves for the next few months, to a year. Well,
Jesse Felder 38:41
I think, you know, the to go back to just finance 101, diversification is the only free lunch in the markets. I think people forget the virtues of diversification when you get in these types of markets ago. I, you know, I, I mean, the evidence, you know, Exhibit A of this, this kind of idea is the fact that we have single stock leveraged ETFs that are massively popular today, right? Okay, talk about what is the opposite of diversification. It’s a one I want a 2x MicroStrategy fund. I want a 2x Nvidia fund, and I’m going to put all my net worth into that. And the Wall Street Journal has interviewed these people, and I say, Yeah, I’m trying to be less risky. So I’m putting, you know, 50% of my net worth into Bitcoin and the other 50% in a 2x MicroStrategy ETF. That’s not diversification, right? Diversification is I want to own, not just a wide number of stocks. I want to own a wide number of assets. And, you know, I think, you know, diversification very important. But also, I would just note too, that, you know, with Warren Buffett having a bigger cash position than he’s ever had in his career, that’s probably good advice for most people, as well as is what is for you, the most conservative position that. You’re comfortable within your framework, and what does that look like and and maybe consider kind of adopting such a pro and approach.
Andrew Brill 40:07
So Jesse, where can we find you? On social media? Where can we see your research? And you have a couple of podcasts. Tell us about those as well. Yeah,
Jesse Felder 40:14
I’m still on x. It’s at Jesse Felder, and I recently started using blue sky as well. That’s Jesse Felder there. My websites, the Felder report.com, I try and put out like a free blog post every week, just kind of the most interesting things that I’m reading coming across during the week. And the podcast is going to be making a comeback. I’ve been on kind of a year long, or a little bit longer than that hiatus, but I’m ready to bring it back. There’s just too many interesting things going on and too many interesting people to talk to. So stay tuned for the podcast to make a comeback pretty soon. So look
Andrew Brill 40:49
out for Jesse Felder’s podcast. You’re getting back, back on the podcast horse, so we’ll look forward, we’ll look forward to hearing that as well. Jesse, thanks so much for joining me. Have a great holiday season. I really appreciate
Jesse Felder 41:00
it. Yeah, you too. Andrew, thanks. That was a lot of fun. Yes, thanks
Andrew Brill 41:05
so much for joining our discussion here on wealthion with Jesse Felder. If you would like help being financially resilient, please head over to wealthion.com/free for free, no obligation, financial review. And of course, if you can like and subscribe to the channel, we greatly appreciate it. Don’t forget to hit the notification bell. So you know when we post new videos to the channel, and please do the social media thing with us all. The links are right below in the description. And if you like this content and are 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.
