Is a market crash inevitable and coming soon? Anthony Scaramucci welcomes Sven Carlin, Ph.D., of @Value-Investing , to explore why Buffett’s $325 billion cash reserves and significant selling activity indicate a looming bear market. Sven discusses critical topics like overvalued stock markets, rising inflation, debt risks, and speculative bubbles, including Bitcoin. He also explains how behavioral psychology drives market cycles and why value investing could be the key to protecting your wealth in the long term.
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Sven Carlin 0:00
If you don’t like losing money, then you should be worried. Because if Warren Buffett, that has been investing greatly for the last 50 years, that has seen the cycles, has been there in the 70s, through inflation, investing and everything, suddenly practically sold everything that could be sold. And I’m arguing he will sell the remainder of Apple this quarter, so all that’s left in is unsellable, the coca cola for Warren, or things like that. He’s not going to sell that because he gets the cash flows, the dividend, and that’s why he bought but if he sold everything practically, then it’s time to worry.
Anthony Scaramucci 0:50
Hi and welcome to the wealthy on network, this is speak up with your host, Anthony Scaramucci, today, our guest is Sven Karlin of modern value investing Sven. I can’t read this whole thing, by the way, because we’ll lose viewers, okay, but this is an illustrious biography, and obviously you are a great theorist. In addition to having a PhD, you have a value risk model for emerging stocks that I think is second to none. And so if you want to read about Sven, you can go to Sven carlin.com backslash about me, but this is a super impressive resume, which is why, of course, I’ve got you on the show, and I want you to start with where the economy is right now and our long term debt cycle and What the potential risks are, if any.
Anthony Scaramucci 1:42
Now, thanks for joining us, by the way,
Sven Carlin 1:44
thanks for having me. It’s a pleasure to be here and now, speaking of the economy, those risks are there and are piling up, but you never know when those will materialize. Will it be tomorrow or 10 years down the road? For now, we know that interest costs are rising, and this is how they tell always, you go bankrupt slowly, then suddenly. And it’s not like you go bankrupt, but higher inflation to pay those, to service those, those debt costs, is inevitable in time
Anthony Scaramucci 2:22
the debt. Talk about the debts. Fan, what are you worried about? I
Sven Carlin 2:25
am worried that if you use that, you live over your means, and that can be solved through inflation and liver living below one’s means. And I’m worried that the population is not used or doesn’t like to live below their own means, because we have been having zero interest rates higher and higher debt levels for a decade and a half now almost. And that means the population is used to having a good time, and it’s very unlikely that that will change, which leads to populism, to different actions, to long term, even costlier actions than just piling up debt. So
Anthony Scaramucci 3:08
I mean, are you worried about anything you know, Warren Buffett has raised record cash levels. Last time I looked at those, numbers are over $300 billion he has some metrics that he looks at in terms of overall earnings and the multiple of earnings to stocks. He then looks at the overall value of the market to the GDP, and on his economic dashboard, there’s some warning lights there. Is that something that we should be worried about, or is this something? Is something different in the system, or different in the model, that would cause you to worry less? I don’t
Sven Carlin 3:49
think we should be worried at all. If we like losing money, if you don’t like losing money, then you should be worried. Because if Warren Buffett, that has been investing greatly for the last 50 years that has seen the cycles has been there in the 70s, through inflation, investing and everything suddenly practically sold everything that could be sold. And I’m arguing he will sell the remainder of Apple this quarter. So all that’s left in is unsellable, the coca cola for Warren, or things like that. He’s not going to sell that because he gets the cash flows, the dividend, and that’s why he bought but if he sold everything practically, then it’s time to worry. I don’t know what he’s seeing. Maybe that inflation will be coming back, maybe the 10 year treasury yield going up despite the Fed lowering rates, which means that the bond vigilantes might come in, and if we go at the 5% normal interest rate, the stock market has to crash 50% just to adjust to normal value.
Anthony Scaramucci 5:01
Situations, okay, okay, there, there. And again, I’m doing this 35 years I’ve been through nine bull and bear market. So there’s another school of thought that you’re right. You lose money in the short term, but if you hold the assets, you can ride out the cycle. Or you do not believe that. Do you think that, you know, we’re in a situation now where the market could drop 50% and it’s, you know, you know, Irving Fisher once said that we’re at a permanent plateau. And of course, two weeks later, we had a stock market crash, October the 29th 1929 but you think we could be at a permanent valley in the markets. I
Sven Carlin 5:43
think that you can ride it out if we are speaking price earnings ratio of 15 going to 10, then yes, you can write it out, because it will be back to that historical average. But we are now speaking the market at the price earnings ratio of 30. It has been only more expensive during the.com bubble, and it has been cheaper in the Roaring 20s each time. It took 20 years, or even 30 years, adjusted for inflation, for you to ride it out. As you say, that’s I don’t know what will happen, but the risks of just being long is crazy, especially when people have their pension fund invested in markets, and everyone thinks just stocks will go up 10% forever, history tells us differently. Okay,
Anthony Scaramucci 6:36
so let’s talk about market psychology for a second. Okay? Why then is there so much complacency in the market? Because
Sven Carlin 6:45
we are wired to see what has been going on and simply replicating that going forward. Each Wall Street analyst that looks at the share, they look at what has been going on, and they just replicated going forward. Nobody’s talking about recession, nobody’s talking about changing interest rate environment. The Fed will lower rates. Stocks keep going up 10% or more per year, 40% this year. But if you just look at history, it can go for on for another year, two years, three years, but it usually always reverts to the mean, and that is also what Warren Buffett knows. The only problem for Buffett is he cannot get out today. In one day. He needs years to get out of his risky positions.
Anthony Scaramucci 7:37
So let’s talk about the average investor, like you said, long stocks, long bonds. Maybe they own some digital currencies. Maybe they own Bitcoin, maybe they own gold. What are you recommending? You’re recommending a full scale liquidation into cash, or you’re recommending cut yourself in half. What do you what are you recommending?
Sven Carlin 7:59
So if you start from stocks, and if I take, I don’t know, the American investor that’s mostly invested in US markets, then Buffett is now going all into cash with more than 30% of his assets into short term treasuries, you get 4% the difference is from a value investing perspective, With the 4% three month Treasury you cannot lose. So you have 4% on one side and 0% of loss on the other side. If you own the SAP 500 Yes, maybe it can go up another 1020, 40% going forward, but you’re getting just the 1% yield, and it can crash 50% tomorrow. So so it is about seeing how that risk and rewards, risk and reward feels from a personal perspective. If you know, I need these 2 million to live on for the next 10 years to retire, well then you need to be a lot in cash. Now, if you think, Oh, I’ll be adding the next 20 years to my portfolio, then you can also risk it. But if you keep adding, especially if the market goes down, then you will weather it out. And actually, if the market goes down, that’s a great situation for those that are constantly building their pension. So it depends on the person and when, where the person is.
Andrew Brill 9:18
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Anthony Scaramucci 10:00
while I while I have you here, let’s talk a little bit about Bitcoin, because I know you, you’ve expressed in your reports and in your research that you’re worried about its meteoric rise as well, and you’re also worried about the low liquidity around it. This is, uh, apropos to what Stan Drucker Miller has been saying. The reason why Bitcoin is running hard is that it’s thinly traded. If people want to own it, it’s pushing the price up a lot. But that could also happen in reverse, right? If people decide, okay, they don’t no longer want to own it. So tell us your thoughts on Bitcoin. So
Sven Carlin 10:29
Stanley Druckenmiller said that he tried to buy 20 million of Bitcoin, and he couldn’t, because he doesn’t want to buy something where he is the one pushing the price up, and then he went to sell it, and it took months just to get out on on the position he built. And then you have this low liquidity, inelastic markets, but where, with a few billions like micro strategies doing now, you can push the price significantly and look like a genius. The same strategy was applied by Kathy Wood in the great 2020, arc ETF year, she would find these stocks that she could market all around social media with low liquidity that’s very inelastic, and with a few billions, she could push stock prices up to 410, times, even 20 times. With some positions, we know how that story ended. And from being the next Warren Buffett Kathy Wood lost all the gains in the subsequent years to 2020, and if that trend reverse with the Bitcoin, it will go three times faster in reverse than it went up. And I think it actually happened. We already had the Bitcoin peak a few years ago, only to see it crash 60% or more later. And now we have a new story developing that’s pushing it higher,
Anthony Scaramucci 11:59
okay, but tell me. Tell me this is a valuation call by you. Is this a Peter Schiff call that Bitcoin is worthless and it’s just a Ponzi scheme? That’s his narrative. Or there’s Michael Saylor that sees this as digital property. Digital gold sees it as part of the future of the way we’re going to account for other assets in the world. And then there’s Peter Schiff that thinks it’s worthless. Obviously. Warren Buffett also thinks it’s worthless. He has said repeatedly he wouldn’t spend $25 on the entire Bitcoin network. And so where are you? Those are the two extremes. Sven, so where are you? I
Sven Carlin 12:38
am always trying to invest in producing assets. I don’t own gold, except for a coin that I inherited, because I’m trying to own businesses that will produce something over time. And gold, there is a lot of it there. It has been around for 1000s of years, but when I look at Bitcoin, I think that everyone that owns Bitcoin, it is owning it because they want to see it go up in US dollars or in whatever other currency. Bitcoin is measured in value. So I sense huge psychological, let’s say exuberance around it, and therefore that is the driver, simply supply and demand and a lot of inflows going in. And for it to be a more serious situation, or currency, or this or that, it should be much more stable, it should be much more liquid, which it unfortunately isn’t okay. So,
Anthony Scaramucci 13:41
I mean, let me just push back a little on that, because there are now, and he’s actually created this, you can get yield on your Bitcoin. You know, you could go to certain places where you could lend the Bitcoin and you could receive interest back on the Bitcoin. Now, obviously, things like block fi and Genesis and those things, frankly, failed doing that and they weren’t properly regulated. But are you suggesting that, even if that were the case? Let me make that supposition to you. Let’s say I could get a four treasury, like yield on Bitcoin. Would that change your view of Bitcoin
Sven Carlin 14:20
depends if I have a Bitcoin and I’m lending it to someone that someone is not using it to buy a tractor to, I don’t know, work a field. They are just using it to speculate that I’m paying here 5% yield on the person that wants to get 5% so that I make on the Bitcoin going higher in price. It’s not like you are investing into something. If you can sell, I don’t know, corn for Bitcoin, and then you have an whole ecosystem around it. It’s just based on speculation. So okay, you can get 5% when the other person, if bitcoin crashes, go bank, go. Bankrupt, then the whole also the lender, everyone the clearing house, and everyone goes bankrupt too, which is, again, not a great way to create a financial system.
Anthony Scaramucci 15:12
Okay, so let me ask you this. There were tulip bulbs that, and there was a tulip mania in in Holland, in the Netherlands. This lasted for many, many years, and the tulips prices went extraordinarily high, and then they crashed and busted. And, you know, tulips are still very popular in Holland, but they’re you can buy them for, you know, a fraction of what they were trading at back in the tulip mania. Is Bitcoin, another example of tulip mania. As as
Sven Carlin 15:42
long as people want to pay up for it, the price will go higher. I am scared about what happens, because if you look at all the Bitcoin holders, and my friend is a Bitcoin DECA millionaire, he’s just pumping the price up. And when someone is just piping pumping the price up because he wants to see it go higher, then you know what happens on the reverse, the same as with the tulip mania. Because if the asset isn’t producing anything, we know the results sooner or later, unfortunately for all the people holding it.
Anthony Scaramucci 16:17
Okay, let’s switch gears for a second, and this is why, you see, I love bringing people like you on my show. I brought Peter Schiff on as well. I’m obviously a long term Bitcoin holder, but the point of this show is not for me to debate you spend. The point of this show is for you to articulate your wisdom and articulate your vision. So let’s, let’s take it one step further, because you have a PhD in behavioral psychology and so you you’re an interesting person, because you’re applying behavioral psychology to fundamental analysis. So given that intersection, what, where do you find value today? Is it in the swab ETF that offers a dividend yield three times higher than the S, P? Is it in Asian markets? Is it just in treasuries? Hey, this thing is completely overbought here. It’s going to end in tears. Where do we go? So
Sven Carlin 17:15
if you compare fundamentals with human psychology, usually whenever something is hot, people want to flock into it, and then they overshoot the fundamental value on the reverse side. When something stops being hot, people in panic over sell. So you can always go and look for the pockets that were hot, and now people have completely capitulated and forgotten about it. One example for is lithium. Two years ago, everyone was crazy about lithium, lithium, stocks, batteries, car makers and everything like now, the craziness is for AI and for for Bitcoin or crypto currencies, and for lithium, car stocks, etc, everything has already reverted. So you can go into such places. And from a behavioral perspective, you seek where there is panic, where there has been panic that’s oversold. And thus you look at such markets,
Anthony Scaramucci 18:23
share an example of a stock that you feel is overpriced. You know, one of my producers said, maybe that’s Walmart to you or or if it isn’t share, one that it’s share. One before I go to the questions of the audience, share one you think is overpriced, and one that could potentially, even though the market’s high, be underpriced at this in this period of time. So
Sven Carlin 18:45
the crazy thing with Walmart is that it is more expensive than Amazon. Amazon is this great company, and if you just, if you adjust for the $65 billion that Amazon is investing into new products, into their ecosystem. They don’t need to invest 65 billion. If they would invest 30 billion, they would still collect a lot of cash flows. And therefore, Walmart is trading at a P ratio of 40, while Amazon is trading at a P ratio of 30. What is the best company? Of course, we don’t have to argue that Amazon has so many leading points and so much more future growth ahead than Walmart, and Walmart is most expensive. So I don’t know why Walmart is trading that expensive, but this is another showing how the stock is going up and people are flocking in. On the contrary, if you look at the American market now, two years ago, inflation, there was a boom with food stocks, and everyone was running into food stocks, and now that has reverted as globally, foods. Bucks, food prices started to revert, and now you have companies that are providing the meals you will eat tonight tomorrow, like Archer Daniel Midland, trading at 10% free cash flow yields and well, the food cycle might continue to go down, but it usually reverts because we have to eat, unlike doing things with cryptocurrencies, and there you have a 10% free cash flow yield, a dividend that has been growing for 50 years and things like that. And you can slowly build the portfolio around those value pockets. But yes, if the market crashes, everything will crash. However, you will have much higher dividends to reinvest. And, let’s say, ride it out when the time comes.
Anthony Scaramucci 20:50
Okay. I mean, very, I mean, this is why I wanted John’s fan. Okay, you’re, uh, you’re, how old are you, by the way, uh, 4141 all right, you’re like a 41 year old with like an ancient soul. You know? You’re, you’re, you’re talking like a 91 year old, which is why you’re going to be very rich and continue to be very successful. Let’s go to the audience questions. What’s the most important piece of advice you’d give to someone just starting in investing? This is Jacob from New York. Start
Sven Carlin 21:22
just set aside a monthly amount that you are going to invest, and then invest and then investigate, because you have to learn so many things. And I think that learning about investing takes five years just to understand how the cycle works, how human psychology works, impacts prices. So I always say to people starting, just start, and then look what’s going on. And that five years with little money will be huge educational and hugely benefit. 1020, 30 years down the road, when you are making big money, when you have your great job or great business, and then you need to know how to invest. Let’s
Anthony Scaramucci 22:08
go to the next question. Sven, how do you stay disciplined in your investment approach when market sentiment and hype, which is what’s going on right now, suggests otherwise. Justin from Canada, I
Sven Carlin 22:22
think one should be just happy for everyone else getting rich, like you with cryptocurrencies. I’m happy for you, and you just need to look at things and how things work over your life investing cycle. So if I am investing from 20 to 6070, that’s 40 years. Usually in 40 years, we have, as you said, nine bull markets and nine bear markets. That’s short term cycle. Then there is also the long term debt cycle that we discussed at the beginning, which when it reverts, it takes 2030, years to get back to normal. So you have to understand cycles, and you have to do things that will increase your wealth no matter what. So I look at owning businesses, owning assets, owning more of those, if the price crashes, reinvesting and just building that asset pile over time. Okay,
Anthony Scaramucci 23:22
let’s go to the next one. Do you recommend holding cash as part of a long term portfolio? Or should every dollar be actively invested? Maria from Florida,
Sven Carlin 23:35
I prefer actively investing because over the long term cash is certain that it will lose, especially in the environment, will live in all its purchasing power, all the currencies. And now I’m saying something positive for Bitcoin holders, but all the currencies are made to go to zero. That’s a given. That’s how the economic system is working. And we all agree that. So currencies is a no. Unfortunately, our pension funds have 50% of their assets invested in bonds yielding nothing. So it’s very important to own more assets, because you cannot, let’s say, count on the pension there.
Anthony Scaramucci 24:21
Next question, Sven, what are your top three recommended books for someone who wants to dive deep into value investing? This is Connor from Washington, so
Sven Carlin 24:34
I would always recommend as a great book start with the snowball Warren Buffett’s biography. It’s a fat book. It’s 700 pages, but you read and you get his mindset and psychology that goes behind value investing, which is, I think, essential just it’s a great story about his life, then we have you can read margin of safety by Seth Klarman. One. If you just type it PDF online in Google, you will get the whole PDF for free. And that it’s a little bit old. It was written 45 years ago, but it gives you great insights into the market, into everything that’s going on, just applied to a different, different time. Let me just chip in my book modern value investing. So that is also something that gives you a little bit more tools, a little bit more food for thought and the mindset for, let’s say, doing something that, no matter what happens to the markets, you do, okay,
Anthony Scaramucci 25:36
okay, let’s go to the next one. I was hoping you were going to say the little book of Bitcoin by Anthony Scaramucci, but I, I didn’t hear that. Sven, I didn’t hear it.
Sven Carlin 25:45
Sorry, you, you’ll have to send it to me, and then I’ll read it. Okay,
Anthony Scaramucci 25:48
sounds good. How should investors manage risks like currency fluctuations when looking at stocks in emerging markets? That’s Eli from United Kingdom, the United Kingdom,
Sven Carlin 26:00
I have analyzed currencies a lot, and the best thing I can say is, sometimes you win, sometimes you lose. For example, now the dollar is very strong and emerging markets are cheap, and now could be a very interesting time if you want to build a little bit of emerging value to your portfolio with a strong dollar. Now, everything is way cheaper from the state, so you can play a little bit around those, let’s say, long term cycles. But in general, buying a good, good business dividend yields, I don’t know, emerging markets of six 7% that are there, normal should compensate for all those fluctuations over time. And as I said, sometimes you win, sometimes you lose, all
Anthony Scaramucci 26:47
right. Well, Sven, I enjoyed having you on. I think it’s an important message for people I have, I have found in my careers, when Warren Buffett is selling, we do have to take a very close look at that. And you know, having said that, by his own admission, there’s been certain things that he’s missed in his career. As an example, I’m old enough to remember the two thousand.com crisis and the two thousand.com crash, where Amazon went down 90% I was actually at the Sun Valley Allen and company conference. When this took place, Mr. Bucha gave a very big speech about how to why to avoid these technology stocks. And simply to his credit, he said they were outside of his circle or his circumference of competency. And so he said, to avoid them. And so I avoided them, most of them, but it was, it was probably the largest investment idea of our time. Had you held on to things like Amazon or purchased Google on its IPO and oh four or others? These, these companies, over 25 years, became massive, trillion dollar company. So, so I’m with you. I think, as a value investor, we have to study this stuff. But there’s a lot of things about the market that are tricky, that sometimes we don’t we don’t pick up right away. I’m gonna send you my book on Bitcoins. Fan, all right, you got to read it, and then when you when you read it, we come back, we have a discussion about is that
Sven Carlin 28:20
good? I’ll also make a video about it. Send it to me.
Anthony Scaramucci 28:23
Okay, well, I appreciate it. Thank you so much. Sven Carlson of modern value investing, I hope to get you back on brilliant commentary today. Thank you.
Sven Carlin 28:33
Thank you for having me. That’s a
Andrew Brill 28:36
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