Fear Took Over The Market This Week | Lance Roberts & Adam Taggart

Lance Roberts 0:00
So again, market really hasn’t done anything drastically wrong. It’s certainly getting some pressure from you know what’s happening in Israel right now that’ll that’ll pass here in the next, you know, couple of weeks and everything Oh, everything will reverse from that, right. So gold prices will go down. Oil prices will drop as we get past, you know, past this whole kind of warfare thing. And then once that does the most will start to see the markets kind of balanced back out again. But again, we’re getting a lot of just initial kind of noise around what’s happening and this will sort itself out shortly.

Adam Taggart 0:35
Welcome to Wealthion and Wealthion founder Adam Taggart welcoming you back here at the end of the week for another weekly market recap featuring my very congenial friend Portfolio Manager Lance Roberts. How’re you doing? Let’s

Lance Roberts 0:48
Good, good. How are you today?

Adam Taggart 0:50
Good, good. Just trying to think of a good good synonym for likable. And I think congenial hits the mark. All right, well, the market didn’t find too much that it liked this week, s&p down about 150 points by the time we’re talking here at the end of the week, Lance. So that sort of seems like fear of many things is in the driver’s seat right now we got oil up three bucks. Gold is up really big over the past two weeks, it’s up from like, 1835 to near 2000 an ounce. At the time, we’re talking the 10 year just briefly kissed 5%. Even Bitcoin, you know, is on a tear now, about 330 1000. So what’s going on? Oh, amazing

Lance Roberts 1:37
what a few bombs in

Adam Taggart 1:38
Israel do for you. Right? Yeah. so badly. Yeah, that’s it.

Lance Roberts 1:43
I mean, you just have just pretty much it. Just fear mideastern contagion? Yeah, yeah, that’s it. You know, and again, this is, you know, just headline driven moves in the market market was doing fine. Monday and Tuesday, we were holding up near the, the 50 day moving average, and then do all these kind of headlines hit. And so you get this had a knee jerk reaction until we kind of sort this out. And, you know, as I talked about, with Fox Business earlier, this past week, I had a chart of, you know, the the history of the markets going back to 1900, with all the different, you know, kind of war events that have occurred, conflicts throughout history, whether it was, you know, the Civil War, or whether it was World War One, World War Two, you always get these initial kind of knee jerk sell offs in the market, because nobody really knows what the outcome is going to be. And there’s always concerns about this is going to spread into some, you know, vastly bigger. And so, you know, understandably, people, you know, can take defensive positions in that environment. You know, so but again, historically, this sorts itself out pretty quick, the markets will get its handle on it. And actually, wars are good for markets because it increases economic activity.

Adam Taggart 2:53
Okay. Okay. All right. So well, you know, speaking of technicals, and whatnot, maybe you can pull up the chart of the s&p Lance that we we like to look at every week if we can just to sort of show folks where we are, and when. So once we get that up, and I’ve got to give you authority to do that. But once we pull that up, if you can also maybe dial us through the simple adviser charts as well, just to give us a sense of you know, what sectors are oversold with or undersold vice versa? Sure,

Lance Roberts 3:28
absolutely. So yeah. So again, the market has not done anything really right or wrong or a different, you know, we had triggered a buy signal MACD buy signal earlier this month. Now, importantly, we’re still in October. And remember, I wrote this article, right at the end of September, I gotta keep my months in line, talking about October weakness. And I said, you know, it’s very likely we could continue to see some weakness through October, because until we get into November, that’s when the window for stock buybacks occur, that’s when you have your biggest inflows into ETFs and mutual funds for in the end of the year. So again, this kind of October weakness kind of continues to play itself out. But, you know, we had talked about earlier this week and our both in our three minutes on markets and money that we do every day. And also in our daily commentary that we write, we talked about the fact that you know, this market was trapped between the 20 day moving average and the 50 day moving average. And you know, if we broke to the downside of that, then we were likely going to test the 200 day moving average, which is where we are today. So we’re testing support the tuner day moving average, markets are not overbought by any stretch of the imagination. So again, market really hasn’t done anything drastically wrong. It’s certainly getting some pressure from you know, what’s happening in Israel right now. that’ll that’ll pass here in the next you know, couple of weeks and everything Oh, everything will reverse from that right. So gold prices will go down. Oil prices will drop as we get past, you know, past this whole kind of war fear thing. And then once that does the most we’ll start to see the markets kind of balanced back out Yeah, but again, we’re getting a lot of just initial kind of noise around what’s happening and this will sort itself out shortly.

Adam Taggart 5:06
Okay, so just looking at some of the action here. So we are coming down looking at the s&p chart there in the middle, to the black line to the 200. day moving average, right? Yep, absolutely, yeah. Okay, so sounds like you expect that to serve as resistance here. But

Lance Roberts 5:26
that’ll be support, sorry, Scipio. Support, sorry, support for, right. And then if we go through 4200, then we’re probably talking around 4150 ish, as kind of a next level of support, because that’s going to run across these previous tops. This was the breakout level that we had back in and really kind of June of this year, we know we base back in October, came off that for the kind of traded sideways February, March, April, May June, the market really went nowhere for about three months, and then we just exploded, once we broke out of that big consolidation channel, we kind of exploded the upside. So now we’re gonna come back down. And this is a very normal technical process as well. So we had this big breakout move from that consolidation. And so the market got very excited. So in June, July, we were up 15% For the year on the s&p. So for the market to retrace that come back down and kind of retest that breakout level support is kind of a natural process of market happens all the time. And if we hold there now, that’s the key word if we hold there, and the market rallies, and we’ll have a confirmed breakout of all that previous consolidation. So that’s gonna be a really good solid support level, between this 4200 level and a 4150, somewhere in there. That’s the kind of real critical support for the markets. Now if we break through that, for any reason, then we’re gonna go a lot lower. So, you know, again, we’ll have to reposition portfolios if that happens. But again, right now, we’re, you know, there’s nothing to be too overly concerned about a lot of headline risks. Don’t want to diminish that at all. But you know, I’m seeing a lot of nonsense and headlines and stuff in the markets that are extrapolating, you know, these issues into much bigger problems than they actually are.

Adam Taggart 7:14
Got it. Okay. So just to recap, you think that the probability is more likely that the market will find support down here, at some point, maybe it drops below the 200, day moving average, you said 4150 is just kind of the next key level of support. But then market finds its footing, you know, we bounced back maybe in the year strong. And we’ve talked about a number of potential reasons why that could happen. If it drops below 4150 4100, then you think things could really accelerate to the downside? Who knows, we’ll be tracking this closely. Looking at the MACD indicator up there, which, you know, last time we talked, it was it was rising nicely. Now it seems to be, you know, short term peaking a little bit, but that that pink circle there, where the lines cross, is that was that a buy signal is that,

Lance Roberts 8:01
that that was your buy signal. And normally, when you get bicycles from these very oversold levels, you get kind of extended rallies from those points. So again, right now we’re very close to triggering a short term sell signal, that’s not uncommon, by the way, you know, we can, if we kind of scroll back, you know, in time, you know, here’s another example, this was the October low, we triggered that buy signal, then came back triggered a sell signal, and then flip back right back over to a buy signal again. So again, this was kind of the same action that we saw back in October, market rallied nicely trigger the buy signal, we give it all back up, everybody’s panicking, oh my gosh, we’re gonna go a lot lower, and then the markets took off. So again, if you know when you’re at low levels like we are now these kind of head fakes on buying sell signals can occur. But normally, when you’re at fairly low levels, as we are now these are generally pretty good indicators that you’ve got a more bullish upside. Now if this kind of flip flop was going on at a much higher level, then what can also happen you can also have a buy signal of here’s a good example of this. This was the peak of the market back in January, December, December in January of 2022. So we went up, we triggered a sell signal, and here’s where we triggered a buy signal from a fairly high level and then triggered a short term sell and the market ran back up, we have a declining top which was a negative confirmation, then you triggered a sell signal and that really kind of started the ball declining so when you gotta get these flip flops of buy and sells at high levels. That’s normally a bearish signal at the bottom you can have these flip flip flops back and forth. But when the markets are oversold and have been through a kind of a big decline, those are typically not always and I look you know there’s you know, technical analysis is technical analysis, just looking at prices and making some money options. But normally when you have a deeply oversold condition in terms of these MACD signals, etc, those tend to be pretty good indicators. Again, they’re not perfect, you can have these flip flops sometimes, you know, we could very well trigger a sell signal come back down to this previous level the market declines to 4000, then you get another bicycle on that’s that’s the bicycle, right? So there’s, there’s certainly risk. And this is what we talked about all week long is, you know, making sure to keep watch on risk. Because, you know, there’s certainly some downside risk here. It’s not all just, you know, you know, flowers and candy at this point. But the odds are that in December, November, December heading into year end, markets are likely to be higher than they are now.

Adam Taggart 10:43
Okay. And so I just want to clarify, here, we have that buy signal, we have not yet triggered a sell signal,

Lance Roberts 10:51
correct. Again, and we’re kind of midday here on Friday. So you know, if the market rallies into the end of the day in, then that’s gonna pull that indicator back. This is a real time indicator. So what’s tracking moves every 15 minutes. So if the market turns around and rallies back into positive territory by the end of the day, then that’s going to pull that indicator back off that that signal. So again, it’s just gonna depend on where we end the week. Okay, great. By the way, let me just say one more thing. Just because you break a moving average, again, we could break the 20 day moving average, that’s not a sell signal. What you’re looking for is confirmation. So if we took out the tuner day moving average today, let’s just say the market just sells off into the end of the day, and we’re below the 200 day moving average, that’s not a sell signal. What you’re looking for there is for the market not to regain that level on Monday or Tuesday. You know, a lot of people talking about, I don’t like technical analysis, you get whipsawed. That’s because people see a signal and they immediately act on it. When you’re talking about moving averages and support levels. What you’re looking for is confirmation. Other words, you break a support level, you come back and retest that support level and fail. That turns that support now into resistance. That’s your signal to reduce risk. And so again, these support levels are only you know, valid, you know, after they’ve been tested and retested again.

Adam Taggart 12:15
Okay, great. All right. Well, look, if we can, let’s, um, oh, by the way. So I forgot to mention the beginning of this video, folks, while you’re watching this weekly market recap. Lance and I and all the other financial advisors for Wealthion are actually busy with Wealthion fall conference. So Winston, I wanted to film this for the folks that weren’t joining the conference so that you got your daily dose of Lance and Adam. But we were very busy. At that conference, listen to the amazing presentations there. And I gotta tell you, Lance, probably the one I enjoyed the most was having seen a preview of it was Tom McClellan’s presentation, you know, Tom McClellan, his family developed the McClellan Oscillator, highly highly respected technical analyst. He’s got an amazing array of charts that have just these really crazy oftentimes, like super unintuitive correlations. You know, when you have a data series like oil or gold, that may actually it’s highly correlated with other other asset classes like oils correlation with with the general market indices is actually pretty amazing. But they’re time shifted, right? And so it can be amazing because some of these are time shifted by, you know, a quarter or two, some of these are time shifted by year, number ones would oil or time shifted by like 10 years. And it’s amazing how the correlations hold up, even though there’s a 10 year time shift in the data. Anyways, long story short, he, his charts tell him that the markets are likely more likely than not to end the year higher, right. So it’s another vote of what you’ve been warning people about. And then his charts tell him that there was going to be kind of a wheels come off the car moment, at some point in the next and I’m going to put this out as a teaser in the next six to 18 months. And he his charts tell them essentially down to the month when he thinks that’s going to happen. So super fascinating, Lance, you’re gonna really enjoy that and I’m sure you’re probably enjoying it live with me right now. Because at about this time when this video goes live, it’s probably when Tom Cohen’s presentation is going live. Super interesting, but I just wanted to let you know Hey, he’s corroborating your hey don’t get Don’t you know if you’re on the bearish side, make sure you’re not too vulnerable to the market and in the your hire. But also guy he’s got some amazing fireworks that he expects coming up in the not too too distant future. So

Lance Roberts 14:50
but absolutely agree with that because you and I talked about the recession next year, probably second, third quarter of next year. You know, these interest rates that is it Interesting. You know, if you listen to Jerome Powell speech yesterday, he said, he said, you know, the market yield is restrictive. You know, we’re expecting slower economic growth, lower rates of inflation. And that’s what he wants. Right. So he’s keeping that one rate hike sitting out there. We’ve talked about this before, you know, he can’t take that off the table. When he said yesterday as an example, during his sorry, on Thursday, during his his news conference, you know, one of his comments was, is that, you know, we think yields are restricted, you know, sufficiently restrictive because of what’s been happening in the yield curve. And immediately, yields started selling off and you saw Bond prices go up yields go down. So then he had to come back and back that up with but we could still hike rates if needed, because economic growth is still a little bit too strong, and we need it to be weaker, and then yields ran back up again, because of this theory of one more rate hikes. So they can’t pull that off. Because the Fed knows that they pull that rate hike off, that everybody’s gonna run right into bonds, and then that’s gonna pull yields down, that’s gonna give support for the economy, which is exactly not what they want right now. Because they want it they want slower economic growth, they don’t want a recession, they’re gonna get one, because they always do. But that’s I agree with Tom is that, you know, next year, you know, that’s gonna be a year where bonds massively outperform stocks, and you don’t want to be in stocks next year.

Adam Taggart 16:23
Got it? Yeah, I will say, my, my beating of the drum of the lag effect really mattering. And we just put up a teaser. A lot of the presentations in the in our conference are heavily validating that I’m curiously it’s just asking you to guess here. But in terms of the Fed, having overtightened. At this point, how, how severely would you rate their level of overtightening? Well, Mitch, a tremendous amount, where would you put it?

Lance Roberts 16:55
You know, they’re going to figure out pretty quick that they should have stopped hiking rates, probably five or six meetings ago. But, you know, again, it’s it’s there always in daylight. And in fact, that’s my article for Friday on our websites called the Feds Waterloo. And

Adam Taggart 17:13
we’re getting to that, by the way, I’ve got that here on the agenda. Well,

Lance Roberts 17:16
and the whole point of that is, is that they may win the fight on inflation, but they’re gonna lose the war on the markets. And right now, they think that they can, you know, fight this inflation fight. And if you take a look at their projections, for economic growth, they project no recession over the next five years. So yes, we’re gonna win this war, as Napoleon won lots of wars until we got to Waterloo. You know, when that’s the economic war, that they’re gonna lose an extra gonna be a lot worse than people think it’s not going to be a little recession. It’ll be a fairly decent recession. Now, I’m not talking financial crisis, don’t go get your bunker hat on. But you know, we’re going to be talking about, you know, probably 6% unemployment rates, you’re going to be talking about much lower economic activity, probably going to be talking about a fairly decent surge in corporate bankruptcies. And the Fed is going to have to do a lot of QE to start trying to bail that out.

Adam Taggart 18:11
Yeah, which is, you know, I showed a chart couple couple weeks ago in this program of the Feds forecasts for the Fed funds rate. And it is just this gentle drifting down over many years, like it’s like four or five years from where it finally gets back down to like two and you and I looked at that, and you were like, we were both like it is going to be so much more violent movement.

Lance Roberts 18:37
Again, all you have to do is look at it. What amazes me is that, you know, these, you know, this, you know, the Fed is 400 PhDs. Right. And there was a great, just a good comment about this. There was an article in the Wall Street Journal on on Third Thursday. And I talked about it with Michael Liebowitz on our on our YouTube channel that the Fed says don’t worry about student loan repayments, because it’s only going to be about $56 a month for individuals. That’s that’s all it’s going to be. But later on down the article, that same article later on down the article, it says there’s 22 million borrowers they have they have saved because of the you know, the moratorium on student loan payments, they have saved like $220 billion over the course of the last, you know, two, three years that they haven’t had to make student loan payments, they’ve had this excess money to spend. So if you just do the math, take okay. 22 million borrowers actually it’s 44. but who’s counting the quarters? Yeah, yeah, it’s 44. But it’s the Fed, so it’s half, right. So but you take 22 million borrowers, you take $220 billion, that they that they were able to spend on other stuff, divide that right, and you come up with a $215 a month average payment, so if their average payment was 215 days dollars, however, they only going to contract by $56. When their payments restart, it’s just this is the nonsense that comes out of the Federal Reserve to try to, you know, appease people, and you have to kind of read through the ledger of it. But, you know, this is why if you go back and look at history, there has been, do you find, look, I will, I will buy the best steak dinner for anybody that can find me a period of time where the Fed cut rates slowly, over three or four years,

Adam Taggart 20:29
right? And especially into a recession, right? I mean, if you just look at every recession, you know, in living memory, the recession to start and then boom, you know, it’s an elevator down. Yeah,

Lance Roberts 20:40
exactly. It’s every single time. So you know, it’s just, you know, this, but again, you know, they can’t, you have to remember, the Fed can’t say, what they really want to say, because if the Fed had come out yesterday, as on Thursday and said, hey, you know, what, we’re done hiking rates, we’re seeing a lot of fractures in the economy, we just got a letter from the National Association, realtors said, if we don’t stop hiking rates, that, you know, we’re gonna blow up the housing mark, you know, if they said any of that stuff, immediately, you’d be in a recession, immediately, you would have interest rates falling to the floor, you know, immediately the wheels would come off the cart, so they can’t say any of this stuff. And yet the markets act like they actually know what they’re talking about. So it just, you know, just you gotta just, you know, kind of chuckle and move on with life,

Adam Taggart 21:26
you know, it seemed comes to my mind, would you say that, because we’ve talked about this, the Fed will never say, hey, we think we’re engineering a recession here. It’s that scene from you know, the movie airplane, right? Where everything starts shaking, and they’re telling people not to panic, and the signs blinking, don’t panic, and then it switches to Okay, panic, right? would be like, All right. And hey, just real quick, you know, to that, you know, your your anecdote there about the Fed and student loans. First off, I’ve never heard of anybody that has a $56 student loan payment, right. And secondly, interviewing Stephanie Bumble yesterday for the conference, she said that the number she had was that the repayment of student loans is basically going to take 200 billion out of the economy next year. That’s,

Lance Roberts 22:17
it’s about 15. I ran the numbers. And it’s been a while since I’ve done it, but it’s about 15 billion a month. So yeah, if you run that out over 12 months, you know, you’re you’re starting to push up on

Adam Taggart 22:29
that ballpark. Yeah. And that’s, you know, that’s not nothing, right. All right. So you were going through the simple visor data and then we got to the sidetrack by this, why don’t you pull that back up?

Lance Roberts 22:42
Just a couple of them. I mean, it just kind of where we are again, we’re you know, kind of looking for opportunities exist, you know, consumer discretionary transportation materials, industrials, real estate, financial, those are all have interest rate or consumer spending components to that. So those have been under the most pressures of late money still hiding in, you know, energy technology and kind of these big cap names. And that’s not surprising as the passive indexing effect that we’ve talked about before the big mind was robot.

Adam Taggart 23:12
Sorry to interrupt, but just real quick, does green mean, indicators? are reading oversold? Or is there a different way?

Lance Roberts 23:19
Okay, no, no green is oversold. So that’s when you’re, you know, those are good time to increase holdings in those areas. When they’re red, they’re overbought. And that’s good time to reduce those holdings. And if they’re Gray, they’re kind of in the middle. You’re not getting a great signal either way.

Adam Taggart 23:33
Okay. Oh, and I just talked overbought and oversold, you got your key right below there.

Lance Roberts 23:38
Yeah. Now, again, you know, we have to, you know, if we slip up, now, this is relative, so let’s just relative performance to the s&p, if we look at absolute, so this is absolute performance. So you know, this is just, you know, the absolute performance of the sector’s one versus their kind of overbought oversold condition. So this isn’t comparing it to the SP this is just comparing it to itself. When you get to this world, you can see that energy is grossly overbought. And basically, everything else, except healthcare and communication is really oversold. And so you start digging in looking, say, looking for opportunities. It’s very rare that the materials is example is this oversold, and this is what this kind of this top chart is, it’s very oversold on a relative basis. And then you know, we kind of look down into it’s kind of top holdings Lindi makes up 20% of that entire index. So you know, also we have to take into account the impact of you know, these, these passive ETFs so if you buy a basic materials, ETF, you’re buying 20% of lending in your portfolio, so you know but if you start digging through you know, Freeport, Mac Moran all these you know, except for cortiva That’s the only one that’s really not oversold here. The rest of them in the sector are pretty deeply oversold at this point. My basic material standpoint. So there’s some opportunity on the basic material side, but you got to have some caution here. If we get into a recession, economic growth slows, materials are going to continue to underperform because they’re economically sensitive. On a short term basis, you may be set up here for a year and rally for the next month or two. This is this is short term analysis. So always keep this in mind that, you know, this is, you know, you got to set up here that maybe materials will rally in the year end, but once we get to the next year, all bets are off. So just kind of keep that stuff in mind.

Adam Taggart 25:34
Okay, wow, it’s so funny this is so that map is so different from the way it looked back in July. So I think one of the last times we pulled this up and looked at it where, you know, almost everything was in the red, right? We had like almost every sector crowded up into that top, which is at the top right quadrant, they are the over oversold.

Lance Roberts 25:53
Yeah. And that’s right. So this is relative versus absolute. And to your point, you know, back, you know, in June, and July, all the sectors were crammed up in the upper right hand corner, where they were all over bought. Now, except for Communications and Technology at this point, which we talked about communications, that’s Google, Netflix, you know, pretty much, and then technology is Microsoft and Apple. So you know, in a video, so you know, those are still those have come down a lot, those are like in the far upper right hand corner, those come down a lot, but do you see the rest of the market is now pushed back into into fairly oversold territory. And if we look at factors, so factor performance is you know, small cap, mid caps, you know, mid cap values, semiconductors, you know, all that. So when we start looking at, you know, kind of, you know, all these different kind of factor performances, those are all now, you know, down into that lower left hand oversold category, emerging markets international been under a lot of pressure, you know, kind of large cap value has been under pressure, you know, the only thing that’s really kind of, you know, sticking up here, and kind of the overbought kind of territory is precious metal prices, metals. Yeah. Which is still holding up right now. But what does, so what just

Adam Taggart 27:14
the past two weeks, which is probably explaining that, right,

Lance Roberts 27:17
exactly, which is, so what this suggests is you sell precious metals, and you start digging around maybe, in emerging markets or international, I’d be a little bit cautious on those just because those economies are very weak, but you start kind of looking at, you know, kind of more your value sectors for rotation out of commodities back into value sectors,

Adam Taggart 27:36
right. And look, you know, I’m a big, long term, fan of precious metals for many reasons we’ve talked about in this channel. But yeah, when you have a move this big, that is largely, it seems being driven kind of by headline, emotion, it’s vulnerable to, you know, some sort of resolution in the headlines, and all of a sudden, you know, loses 100 bucks an ounce in a very short period of time. Right. Yeah. And

Lance Roberts 27:59
look, I mean, you know, precious metals are, it’s a fear, it’s a fear trait, always. It’s not inflation traits, not a currency trade. It’s, it’s, it’s, it’s a fear trade. So when you have a lot of fear, people buy gold, it’s just the offset for fear. And so right now, it’s playing well, because of what’s happening out in Israel. As soon as you get as soon as you get any resolution, gold will sell off. So you know, we bought gold in our in our all weather model, about a month ago is performed? Well, we’re probably getting ready to reduce that position and swap that into value.

Adam Taggart 28:31
Yep. Hey, can do me a favor? Can you go back to the previous chart where you had the different sectors? Sure. You know, the one that had the telecommunications and the tech companies in the upper right quadrant?

Lance Roberts 28:46
Oh, sorry. Yes, that’s that was the set actual sectors not factors. Just one second.

Adam Taggart 28:54
And all I want to corroborate with you is, you know, the markets have come down pretty substantially, you know, over the past couple of weeks, right? We were like, flirting with flight 4500 or something like that. And now we’re in 42 something. Right? And I just want to cry with you. That’s mostly due to these two, the the, the communications and the technology sectors, becoming a little less overbought, versus everything else falling into the oversold category, right, just because those seven stocks just make up so much of the market cap right. Now that

Lance Roberts 29:31
absolutely right. I mean, if we take a look at, you know, technology as a function, so this is relative. So this is, you know, relative to the overall index, overall to the s&p, you know, they just make up such a big chunk of that. And you’re right, that technology was very overbought, it’s now come down, it’s kind of in a neutral kind of spot right now. So you know, when you take a look at it, this is this is, you know, kind of an X you know why this is the case. So when you buy X LK every day Are you put into Excel K 23% of it goes into Apple 22% of it goes into Microsoft Four goes into the video. So you have 50% 50 cents of every dollar goes into three stocks.

Adam Taggart 30:13
Yeah. All right. And again, I just want to underscore here, kind of like our conversation about Golden headlines, right? It’s which is just if the Magnificent Seven catches a cold, like the entire rest of the financial markets is catching pneumonia?

Lance Roberts 30:26
Yeah. And here’s the problem. I don’t know what causes that. Because, again, because of the past, it flows into ETFs and mutual funds.

Adam Taggart 30:40
And sorry, but you’re saying you don’t know what’s going to cause it to catch a cold? Right?

Lance Roberts 30:43
Right. Because A, these are the companies that are generating growth, right, in terms of earnings and revenue. They’re just, they’re just, they just print money they have they’re basically monopolies in their industries to start with. So I mean, you’re not going to displace Microsoft or Apple anytime soon. And Apple is very, you know, it’s always funny, because, you know, I was having a conference, I was doing a video the other day, and a video interview. And we were talking about Apple versus Android. And they were just, you know, kind of picking up because I’m an Android user. And I’m like, Well, you know, you’re one quarter of the population, I’m in the three quarters of the population, right? So you don’t realize that, you know, Apple users only make up 1/4 of all mobile phone users, but they just print money, you know, every every year. So you know, what’s going to cause that to derail all of a sudden say, oh, Val, you know, valuations are a problem. You know, this is one of those situations where Apple’s got to stumble in some manner where they can’t grow earnings at all, and they can’t grow revenue. Nobody wants Apple phones or Apple products anymore. And then they’ve got to

Adam Taggart 31:46
because to be clear, they are not growing revenue, currently correct. This is

Lance Roberts 31:50
very true statement, but then buy my next statement after that was, and then you got to figure out how to reduce their market cap weighting and all these ETFs. Because again, it doesn’t matter what the stock what the company does, when you’re 22% or 23, or 25%, depending on what ETF, you look at it when you’re a quarter of that index, and you’re, you know, when the top 10 stocks make up 33% of the entire s&p 500 every dollar that goes in to s&p funds and think about all the people now and 401k plans and individuals, nobody’s buying stocks anymore. They buy ETFs, and you’re just fueling, you know, those top 10 stocks. So it’s very hard, you know, we keep looking around, well, what’s going to cause this to derail? I don’t know what some causes? Well, because you’ve got to break the ETF flows in order to break those stocks.

Adam Taggart 32:42
Yeah, I’d made a note, actually, when I was talking to Bill Fleckenstein, he mentioned Mike Green several times. And it Mike is being sort of the expert and to a certain extent, the, the creator of the term giant, mindless robot. So I’m gonna have Mike back on to do kind of another current deep dive into that. And that’s one of the questions I’ll be digging into him, which is, hey, we’re all worried about some potential day in which the giant mindless robots starts going in reverse. You know, what could cause that? You know, what, what do you think is the likely trigger for that?

Lance Roberts 33:14
Well, what you need is you’ll need a 2008 type financial crisis, where you literally panic people and just selling everything they own. So in other words, they just start dumping ETFs at random, you know, hey, I just want to get out, you know, the markets down, you know, look at 20%

Adam Taggart 33:30
of capital flows, right? If it gets net inflows become that outflows the giant robot turns into a vacuum cleaner, right,

Lance Roberts 33:36
exactly. And so, but, but let’s just look at it real quick. The 20% correction that we had in 2022 Didn’t spook anybody. As I you know, I wrote multiple times, you know, through 2022 There were too many people that were emailing me go where’s the bottom? You know, I can’t wait to buy this bottom your where’s the bottleneck because mean, I died? Well, I want to be in I want to buy these stocks. And again, there were a lot of stocks down at 90% Like in the ark funds, right, those those stocks got decimated, but everybody was just on pins and needles, they had FOMO of trying to find the bottom and I go well, this isn’t going to be the issue. So I mean, we’ve got to get to a point to where people go I don’t care about where the bottom is, I just want out of the frickin market because you know, I don’t want to lose any more money when that happens. And they began to just dump spider ETFs and XL K and you know, just every holding all these ETF holdings just to get out of markets, then that flow of money runs in reverse 30 cents of every dollar is coming out of the top 10 stocks which is going to cause those those prices to drop dramatically.

Adam Taggart 34:46
If that were to happen, that’ll be bedlam. Shouldn’t be what I think when I say that, but yeah, hopefully we can avoid that type of scenario. But you know, it’s one we got to be mindful of. Alright, so Uh, thanks for going through the world of equities there with us. Let’s now Trundle over to bonds. So as I mentioned earlier, the 10 year kind of kissed or came within a whisker of kissing 5% This week, I’m sure you get asked, you know, questions by nervous bond investors, you know, every three milliseconds, Lance. So first off,

Lance Roberts 35:24
don’t really know, I don’t really understand that, you know, it was like, Oh, my gosh, to testify, we were like, 4.8 4.9. You know, you’re talking about a 10th of a bit.

Adam Taggart 35:34
Four point like nine that and I’m

Lance Roberts 35:37
4.9 for the day before? So yeah, went to 4.9. I mean, you’re just talking about market movement from one day to the next. It’s not some, you know, you know, you know, giant move, it didn’t go from three to five overnight. Now, that’d be a good investment.

Adam Taggart 35:52
But we all have a memory of it back, you know, at one something not that long. Of

Lance Roberts 35:56
course, you know, this is called hindsight bias, right. And so we all have hindsight bias. And this is where it was, and now look where it is. And, you know, so we come up with all these dramatic statements. And that’s okay. I mean, there’s nothing wrong with it. But this is where you start making all your financial mistakes, right? This is where you start panic selling things. And, you know, making all the wrong moves in your portfolio, you’re worried about something that’s not a problem. And again, just you know, Mike, and I spent a long time on Thursday going through by math, you know, we have girl math, we have guy math, and now we have bond math. So, you know, we went through bomb math on Friday, you know, it look at Adam, it was like, here, here, let me give you let me give an example. Okay. You have a million dollars to invest. And you can only invest in one thing. And if I told you, here’s an investment that has 29% downside and 72% upside, are you interested?

Adam Taggart 36:53
I mean, I’d have to see what you’re comparing it to, but it sounds sure I’d hear the pitch.

Lance Roberts 36:58
Yeah. Okay. And oh, by the way, you have a guarantee return of principal function on top of that, so your risk is 29%? Downside, 72% upside with a guaranteed return of principal? Yeah, it sounded pretty good now. Yeah. Yeah. So that’s a 30 year treasury. So if interest rates go up, 300 basis points, your downside risk is 29%. If interest rates go back to one and a half, which we’ll do during a recession, your upside is 72%. So you know, why would you want to make that investment?

Adam Taggart 37:26
Right? No, I mean, you and I have talked about why, you know, it’s historically very attractive here. And of course, the big question everybody says, Has is this Yeah, but I don’t want to buy if it’s going up to seven or eight, and it’s gonna stick there for the next 10 years or whatever, right. And part of me asking this is for you to help people if anything’s changed in your thesis, I don’t think it has but let folks know. And I’m also trying to tee up your restrictive yields article. So that’s where we’re going with all this.

Lance Roberts 37:53
Oh, and this is the thing that people also miss out. So you know, right now, you can buy a five year treasury, right, that pays roughly 5% ish, right? And so you’re getting a 5% return over the next five years on your money, regardless of what interest rates do. Right? So why would you want that? facet? And here’s what’s fascinating to me out of this whole thing. So when interest rates were zero, right, and stocks are climbing through the roof, right? I cannot tell you how many investors you know, they everybody was convinced that the you know, since 2011, there were some very famous, you know, people that were on all the media channels saying, Oh, you’re gonna have a massive crash and bear markets coming. You know, the financial crisis isn’t over. You know, a lot of these guys that are massive short sellers, you know, Bill Fleckenstein and others, they were all out there. We’re gonna have to grab this massive crash. So for 12 years, they were calling for massive crash, and it never occurred. But during that entire timeframe, I had people coming to me said, look, if I could just get 4% on my money, I’d be happy if I could just get a 4%. I

Adam Taggart 39:05
went on this diatribe yesterday, which is I think for you, like forget, 10 years ago, during 2022. I lost count of the people saying, I just want to if I could just get 4% on my money going forward. I’d be I’d be in heaven right now. It’s like,

Lance Roberts 39:23
yeah. Because once it goes to six, what if it goes to seven? You know, so what you said you’d be happy for now I’m gonna give you you know, a 25 or 20% increase in that rate of return, and you’re still not happy. But see, this is the whole problem with the financial markets and why investors consistently underperform over time. I wrote an article on Tuesday,

Adam Taggart 39:43
to be clear, sorry, it’s not the problem the financial markets, but the problem with human behavior,

Lance Roberts 39:47
right, which is the article from Tuesday on the website called unintended consequences. And I go through the nine behaviors of industrials and why they consistently underperform markets over time

Adam Taggart 39:56
because we’re going there to

Lance Roberts 39:59
do So you have all these all these reasons 50% of the reasons why people underperform the markets are all psychological. So, you know, and this is because you worry about stuff you don’t need to be worried about. And the coolest thing about the bond market versus the stock market, is this, you can calculate to the penny, when you buy a bond, exactly what your return is here. I mean, you down to one cent, you can, you know, get know exactly what your returns if you can’t do that with stocks, you can do it with gold, you can’t do it with any commodity or a currency. You know, there’s no way to calculate with certainty what your return is gonna be we guessed at it, right, we say, Oh, we’re gonna 6% on this or whatever it is. But with a bond, a CD, anything that has guaranteed rate of return of principal in the future plus interest rates, you can guarantee yourself what your return is going to be. And all you got to do is be happy with it.

Adam Taggart 40:49
Yeah. And that’s human nature comes in right there when they don’t know as well on a relative basis, that can be a good return or not for the next 10 years, right. And you can kind of talk yourself into knots, right? But you’re making, you know, one of the key principal points why we encourage people to work with a good financial advisor, which is, as humans, our emotions more often than not influence us to make the wrong decision at the wrong time for the wrong reasons. An advisor is sort of like a reality check on you, right? Where they can say, look, hey, well, okay, buddy, I get the emotion. Let’s talk it through. Let’s go back to the math. Right. And they hopefully can help you help prevent you from making the worst of the emotionally driven decisions. All right, well, so yeah, so you made like, several the points I was gonna make. So, but anyways, so So yields are, where they are right now. And you’ve always said, Look, you know, hey, they may go higher, you know, before they start going lower, but you and while I know for sure that Michael is still very much on a great time to buy bonds, train, because he’s delivering that right now. That message right now at the conference. I assume you are to let me ask you this, I want to go to your article about restrictive yields will be the Feds Waterloo, because like him are not attractive as a bond investor or not, you know, cost of debt at this height with this economy is toxic for the economy. The longer it’s more corrosive, the longer it lasts. Right. So when I want to get to your Waterloo point here, real quick though. So Bill Fleckenstein is quite bearish on bonds, he is totally open to the fact that there may be a bounce in, you know, the relatively near future meeting between now and 18 months from now or whatever, right. So the thing I think you and Michael are playing for, but he thinks that inflation will be more intransigent for the coming decade plus, and he thinks that, you know, deficit spending will be higher, and he thinks that bond yields will generally be higher for the next decade plus, so he’s, he’s not saying your strategy right now is wrong. Let’s he’s saying, Sure, it could work out. Right. But he’s saying is I look forward to the next decade plus, I’m much less sanguine on bonds than I’d say was in the past 20 years. What’s your reaction to that?

Lance Roberts 43:16
And everything you said that interview because I got sent it by, you know, probably 2030 different people that watched it’s like, what do you think about this? Yep. Everything you said is entirely wrong.

Adam Taggart 43:26
Okay. So basically, you have a different, and hey,

Lance Roberts 43:32
no, it’s not me having a different opinion. Everything you said is factually wrong, about how interest rates and inflation work over time. And, you know, there’s no there was another guy that got email and his name escapes me at the moment, if I think of it, I’ll tell you, but he was using a bunch of my charts and doing a podcast and he was doing, and he’s like, there’s no precedent for the amount of debts and deficits that we have in the US right now. There’s no precedent, this is like, really go look at Japan. You know, Japan has been running 30% deficits for the last 30 years, their interest rates are zero, they’re doing they’re doing yield curve control to keep their interest rates from going negative. So you know, none of those factors that are mentioned are even close to being factually correct. So over the next decade, the risk that US runs is more debts and more deficits, lower economic growth, lower inflation, lower interest rates, worse economic prosperity. I worry for my kids, and what their ability to generate an income is going to be over the next 1020 30 years. They will not have the opportunities to create capital, like boomers did like Gen Xers do.

Adam Taggart 44:46
Okay. Interesting. Certainly not looking to pick a fight between you bill Fleckenstein. And Bill and I talked about the fact that hey, people have different opinions and hey, it’s smart people looking at the same data and coming to different conclusions is what makes a market You know, if you think there’s sort of more kind of fundamental like, Hey, I think we’ve got different facts here. Maybe and if he’s open, maybe an interesting, you know, polite discussion between the two guys would be interesting. And I’m happy to host it if you want to, but

Lance Roberts 45:17
with Lacey hunt.

Adam Taggart 45:20
Yeah. And speaking of which I just thought Lacey’s slides yesterday, and

Lance Roberts 45:24
what’s his opinion on the long term trend of interest rates?

Adam Taggart 45:28
Ah, it’s, in fact,

Lance Roberts 45:31
if you want I can pull up his third quarter report that he just came out. And he’s Yeah, I

Adam Taggart 45:35
know. I know. I know. I know. Look, I mean, it’s the Lacey’s deflation, right. I mean, that’s his. That’s his big concern. I told him. I talked about Trump’s side, I said, I’m pretty convinced that my audience is going to give you a standing ovation at the end of this presentation, and then turn around and go stick their heads in the oven.

Lance Roberts 45:52
Yeah, look, I mean, because, again, you know, the people that are arguing, so here, let’s go back. Right. And this is actually the subject of my newsletter this weekend, which is debts and deficits. The bears new mean, you know, and Bill Fleckenstein is a great example of this. He’s been bearish on equity markets for 12 years. Now. He’s bearish on the bond market for another 12 years. He’s been wrong for the last 12 years. So why would it be right over the next 12 years, we’ll see. Maybe, maybe it’s maybe there’s some type of environment that comes out that we have higher inflation, but in order to get higher inflation, okay, what drives inflation? What drives inflation is very easy. It’s economic growth, it’s wages, and, ultimately, demand in the economy. So what you have to

Adam Taggart 46:45
supply and velocity of money and right, and

Lance Roberts 46:49
all that comes right back down to economic activity. So in order to have inflation, sustainable rates of high inflation, you have to have sustainably higher rates of economic growth. In order to have that you need to have rising wages, you need to have more activity within the economy, you got to have a booming financial sector that’s just is able to loan a lot of money to individuals to go buy bigger houses, bigger cars, and build more plants, properties, those types of things. So make the case for me about in an environment that we’re in now, how are we going to create that type of economic activity. So we had that type of economic activity back in the 60s and 70s. Which action because we were able to create $5 for every dollars worth of economic growth. Today, it takes $5 of debt for every dollars worth of economic growth, you don’t have the capacity to generate the economic activity required to sustain higher rates, which is a function of consumption equate economy if the Debt Debt is deflationary period, end of story deficits are gonna take a look, we’ve been running a deficit now since 1980. The trend of the deficit is lower the trend of interest rates is lower, they are highly correlated. Debt is deflationary. There’s a negative multiplier effect on government spending, versus every other dollar spent in the economy.

Adam Taggart 48:10
All right, sorry. I’m just chuckling here because it’s so weird to have you. Who are you’re always in the seat of telling me to slow my roll. When I start getting on my my bearish tirades.

Lance Roberts 48:26
You’ve been going up this morning.

Adam Taggart 48:30
Clearly, I looks like espresso double shot. So I’m looking at the time as I’m just gonna jump to this one topic, we’d have to spend a ton of time on it. But it’s interesting because Lacey goes through. Actually, I go through the the economic data in the conference with several people. Michael Kantrowitz, obviously being one, right. That’s the E and the hope framework. And that was fascinating. Lacey ends his presentation by going through a lot of the jobs that sorry, the like hours worked, and average wage data. And it’s very clear that that is struggling here and clear that that basically companies are you know, shifting full time hours to part time hours, then they’re reducing both at this point in time. So the only thing I think that’s moving right now, on the wage side, is these wage increases that we’re starting to see in certain parts of the industry. I just wanted to note here that we’ve got, you know, strikes right now going on in Hollywood, in the automakers industry, in hospitals, like out here in California, Kaiser has got a massive nursing strike. Now casinos have joined the fray here. And so, you know, who knows what the long term impact of this stuff is going to be? But in the short term, how inflationary Do you think that that’s going to b, which is the higher wages that these folks are likely going to get from the strikes,

Lance Roberts 50:05
it’s negligible. You know, they’re they’re a very small portion of the entire employable workforce. So it’s going to, they’ll get a pay increase your bid, just like Walmart, announced recently, you know, they pay increases before now they’re cutting pays for new hires. So people that they hire now are gonna get paid less than the old people. So, you know, again, it’s just a function that, yeah, you may get more, you may get more money now, but we’re going to reduce hiring after you. So, you know, we were going to hire as example in the writers strike. So okay, great, you guys are going to get more money. But we weren’t going to hire five, you know, 500 more writers, we’re not going to hire those guys now. So it just basically works itself through the economy, because we’re, you know, again, when it comes down at the end of the day, what what are wages, wages are an expense to the corporations. And so when it comes to a function of profitability, which is what Wall Street demands them to produce, right, that’s how they make earnings. If wages, and wages are the biggest wages and benefits are the biggest cost any business. So when it comes down to net profitability for that business, if wages go up on one side, there’s gonna be cost cut somewhere else. And that’s either going to be a reduction in the labor force, you may, you may get a raise right today, but you may be out of a job in a month. Right. So, you know, that’s, that’s why it always works itself out over time.

Adam Taggart 51:27
Yeah. So again, talking to Stephanie, you know, she, she talked about how s&p earnings are currently projected to grow by 12%. Next year, and she was like, you know, she was definitely taken the under on that bet, which I, I, you know, recognized her for, and she said, Yeah, but like, that’s not a heroic thing. She’s like, it’s a pretty damn easy, better to make.

Lance Roberts 51:50
Well, look, and just as well, you know, I’ve talked about this before, it’s what we call it millennial earnings season, they always go, right, it’s to 20. You know, it’s 12%. Higher. Now, by the time we get there, it’ll be 2%. Higher or 3%. Higher, so they always just give themselves.

Adam Taggart 52:05
Yeah, well, that’s business as usual. Right. But but I think she’s also adding into that, that at some point, you know, there’s going to be some sort of reckoning where, you know, some sort of earnings recession, where companies are going to have to start to your point, making the tough cost control decisions that they really haven’t yet made. I mean, we’ve seen obviously, more layoffs over the past 12 months, and we’d seen in like a decade, right. So I mean, that’s beginning to happen. But I think you know, that she’s thinking what we’re seeing now is still a relative trickle that what’s likely to come. And what’s interesting about that is you’re you’re nodding as I’m saying this, I’m guessing you think, yeah, there’s decent potential that could happen. We spend so much time when we think about layoffs, looking at the big corporations, right and reading the headlines. Oh, so and so it just laid off, you know, 10,000 workers, whatever. But it’s important, remember, and Lacey Lacey helped me remember this, which is that small businesses account for three quarters of all jobs. Right, right. And that’s what really matters from a job loss standpoint. Right? Because those companies aren’t. They’re not flushed with cash. Right. And they have a lot harder time getting access to credit. And banks are in a big tightening cycle right now. Right? So you know, those are the companies that are going to fall and stumble first. And, you know, that’s where we can see, you know, a tremendous amount of potential job losses, because they’re the most vulnerable. So the

Lance Roberts 53:29
quarters are, yeah, they’re vulnerable. So most of those businesses that five or fewer employees, they don’t have access to credit markets, they don’t have access to equity markets, they can’t go do a secondary stock offering to raise capital to get them through a tough time, because they can’t tap the public markets for help. Yeah, exactly. So I mean, you know, we’re seeing bankruptcies on the rise right now. And again, you know, when we get into a recessionary spat, we’re gonna see a very large chunk of businesses go out of business, and particularly that risk runs high and the Russell 2000. There’s a there’s about 20% of the Russell 3000 could theoretically go out of business over the next two years.

Adam Taggart 54:04
Yeah. Okay. Wow, you definitely got up on the bearish side of the bed this morning. It’s so interesting.

Lance Roberts 54:09
No, those are just facts. I know. I know,

Adam Taggart 54:11
they’re fat. Not usually we’re trying to put some sort of nice, you know, polish on him today.

Lance Roberts 54:17
Look, you know, I keep telling us, I think next year, we’re gonna have a recession. And look, it could be late next year, it could even be 2025. You know, timing, the recession is gonna be very hard. And, you know, timing, the, you know, the impact of the unemployment is going to be difficult because we never really hired back all the people that we laid off full time employment is still lower than it was back in 2019. So we laid off a bunch of people. We hired a bunch of people back, yes, we didn’t, we didn’t over hire. So we do not get this big surge in unemployment. These big jumps in jobless claims that are normally coincident with a recession. We can still see a recession, but it could be a fully employed recession.

Adam Taggart 54:56
Because I’m going to take the under on that but you’re right it couldn’t And I’m just saying

Lance Roberts 55:01
we just we just didn’t, we didn’t go through this massive hiring spree. You know, you hear these numbers like, Oh, we’ve created 12 million jobs since the pandemic? No, we did not. We just hired back two people we laid off. So you know, there’s there’s a lot of unemployment out there that exist people that have never gotten jobs that are coming down.

Adam Taggart 55:19
Alright, I’m going to jump back to bonds real quick, because I wanted to give you a chance to talk about your article, restrictive yields will be the Feds Waterloo. Right? We’ve mentioned it briefly. But why don’t you just kind of cut to the heart of of why you wrote it?

Lance Roberts 55:35
Well, this, you know, this is, you know, kind of the conversation that was on Thursday, when Jerome Powell statements, you know, he made, he made a couple of very important statements, you know, talking about, you know, additional evidence of persistently above trend growth, or the tightness and labor market is no longer easing could put further progress on inflation at risk, could warrant further tightening, and that’s fine, he’s got that, again, that’s got it, he’s got to leave that one rate hike sitting out there, you know, in this fight, because again, if he doesn’t, it’s going to reduce financial cuz it’ll, it’ll, it’ll ease financial conditions, which will create inflation. So he’s got to kind of keep his is in a very bad position at this moment, because the the interest rates are going up, which are creating much more restrictive financial, tightness in the economy, that is going to lead to something breaking and always has historically going back, you know, as long as we can track this stuff, there, there is always a negative outcome from this, we just don’t know where it’s gonna show up. Is it gonna be, you know, in the general economy, is it gonna be in the financial sector is going to be in the housing market, it’ll show up somewhere, we just don’t know where it is. And, and so the point is, is he may win his fight on inflation, he’ll be able to Pat himself on the back because like, yeah, we beat inflation. Yeah, we destroyed half the planet doing it. But we did beat inflation, right? So again, you win the battle, but you lose the war. And you know, the war is ultimately is this is going to cause a bigger economic contraction somewhere. And we just need to be prepared for that. But it again, it because of the lag effect is going to take a while to get here.

Adam Taggart 57:15
Okay. I’m just going to ask this more for historical interest reasons. You compare it to Waterloo, Napoleon’s Waterloo, right? Have you ever seen this chart? This is Napoleon’s losses on his campaign into Russia. And it’s a little it’s a little hard to see. But But it starts here on the left in the beige, the brown chart here. So that’s the size of the full army that he departed with. And you’ll see here, it just gets winnowed down, the further and further they get into Russia, then then the black line is returning back to France, from Russia. And you see, they’re just getting decimated all along the way. So he gets back, he’s got this tiny little black line versus, you know, this massive Adi army that he had left with. So I guess my question is, is, do you think it could be more Waterloo or more like the Russia campaign disaster for? Well,

Lance Roberts 58:11
just, you know, it’s interesting, because if you look at the graphic that I used on that actually use this program. It’s it’s artificial intelligence. I said, Give me a picture of Jerome Powell is the Polian so it gave me that image. And, and so you know, just the idea, though, that show when, you know, when the Polian went into Waterloo, he was it just come off a string of victories. He’s very confident that he’s going to win the battle of Waterloo and then he loses badly. And that’s that’s kind of the point here is the Fed is very confident they’re going to win this, this, you know, they’re going to be able to beat inflation and not have a recession. They are overconfident in that assessment. The economy is going to beat them in this battle. And the question is only when they’re going to get data you’re gonna get disinflation and actually get deflation when they get the recession. And you know, they’re hopeful that they’re not going to have that problem but you know, there’s really just no way to avoid it at this point.

Adam Taggart 59:07
Got it. Your point is they may succeed beyond their wildest dreams Yeah, well, you got you got inflation below 2% But you probably didn’t want it that far below so interesting. Actually, I didn’t take a look at that that image on the article that closer I just pulled it up here that That’s so creepy that AI just is able to do that so quickly.

Lance Roberts 59:27
It is literally took about two minutes for that graphic.

Adam Taggart 59:31
Wow. I mean, it’s a cool graphic it definitely isn’t Napoleon is power but creepy that yeah, that’s That’s only two minutes of AI work. We’re all gonna get replaced. There’s gonna be

Lance Roberts 59:42
I actually have a guy that I pay to draft, you know, graphics for stuff. He’s a really good artist. And so we’ve we’ve produced you know, a few of them here and there about Powell and, you know, different things from time to time, Janet Yellen and stuff. And I’m like, Well, I just put him out of the gym. because I don’t need him anymore, I just go to this AI program, which is completely free online and I can generate graphics.

Adam Taggart 1:00:07
That is the wave of the future. For good and ill, gosh, will look when you when you replace me with an AI generated image on this, Lance, just make sure you’ve given me defined abs. Okay?

Lance Roberts 1:00:20
Absolutely. You know, and that’s the thing is that they have those AI programs now that you just give it, you give it an image, you write out everything you wanted to say, and I can make I can I can create an AI you and tell it exactly what to say.

Adam Taggart 1:00:35
All right, well, why don’t we do this next time, but you’d be you and Adam headroom? You know what, we’ll see how it goes. All right,

Lance Roberts 1:00:43
that makes it work.

Adam Taggart 1:00:47
All right. There is another chart I’m going to put up here in just a second I want your reaction to but but while I’m looking for it. Here’s the headline China liquidated the most US Securities in four years to prop up the plunging one. There’s some charts in this article, and maybe I’ll pull them up in a second to that just just show what a net seller, China and other foreign central banks have been over the past couple of years. And I guess when you sort of see it visually, it really is kind of striking. Now I know we’ve talked about this, the volume of the selling is not existential. To the US Treasury market. Yeah. But you know, as these countries get more and more, you know, beat up by a strengthening dollar. You know, this, what the the beatings will continue until morale improves, or what? Yeah, basically,

Lance Roberts 1:01:41
you know, again, you know, the reason that, you know, countries buy or sell treasuries, is mostly to ought to what we call sanitized trade, in order to keep their currencies kind of closely pegged, since the dollar is the reserve currency. And that’s where the vast majority of your trades occur, about 70% of your trades are done in dollars. So they buy or sell treasuries in order to keep that relationship somewhat line, they can’t control it entirely. But they can do that to try to, to, you know, sanitize these trays to keep imbalances from occurring. You know, but let me show you a chart of this because we can just put this to bed really fast. This has been one of the kind of misnomers running around the market is Oh, my gosh, all these you know, all these people are selling all of our bonds, nobody wants our debt. This is net purchases of US Treasuries and billions. The only seller that we have right now is the Fed. US financial sector is buying bonds, US households, and nonprofits are buying bonds, other domestic investors are buying bonds, the rest of the world is buying bonds. Yes, those have come down over the last couple of years. Because as we came out of the, you know, the COVID, you know, everybody, you know, us wasn’t just an isolation, right? The whole world was in isolation, we, you know, Europe shut down, everybody was locked down, you know, France and England, everybody, Germany, that all shut down their economies, don’t leave your house, stay home, don’t do anything. And so there was this big imbalance that went on, she didn’t see that, you know, the purchases, if you go back to 2000. And look forward, you can see where central banks became involved in 2008. And we’re basically running at levels right now that we’ve kind of been the average of since 2008. Of of foreign countries, and, you know, other individuals buying bonds, you know, you see that one big spike there and 2020. That is either, you know, half of that spike of that total and 20 billion in bonds was 10 billion was bought by the Federal Reserve. The Fed. Yeah, yeah. So yeah, but right now, you know, there’s not a, you know, these countries aren’t net selling our bonds, yes, they may be selling a little bit here a little bit there. China owns 800 billion of our bonds. So which is negligible when you talk about 33 trillion. So yeah, they sell a little bit to help balance currency. But you know, this whole thesis that everybody, nobody wants our bonds, that’s why interest rates are going up here. That’s one of the big fallacies,

Adam Taggart 1:04:10
basically, you’re saying is, Treasury buying right now still seems to be somewhat near the mean, the historic man, so there’s no, no real reason to freak out. Right? And

Lance Roberts 1:04:20
that and our issuance of debt is actually kind of below its trend right now. So we’re not doing this massive issuance of debt. So again, seeing a little bit slower purchasing is important, because, you know, again, we don’t have a lot of excess demand, but we also don’t have a lot of excess supply right now. Hang on a second. Let me show you a couple of charts here. So you know, the top this top chart right here is the total federal debt of you know what kind of goes on so you see in the background, the blue lines are total federal debt and it certainly looks like we’re just issuing this massive amount of debt right? is just, you know, off the hook. And this is what’s got everybody gets, I was like, Oh my gosh, we’re just issuing so much debt. It’s just crazy. But you know, when you go back and look at your annualized, you know, three year growth rate over the last three years our growth rates been about 6% in terms of our debt. So, you know, again, it, while it may seem like issuing a lot of debt, we really aren’t, in fact, when we take a look at the total total federal debt on log scale, so this changes it into percentage terms, we look at the long term growth trend of our of our federal debt going back to 1968, we’re actually issuing debt at a slower pace than what we were back in the in the in the late in the 90s, when we were, you know, really issuing a lot of debt early on. So, again, you know, it’s important to keep these things in some type of perspective. More importantly, take a look at total federal debt, as a percentage GDP is declining, it’s not growing, you see that big spike in 2020, where we just went crazy issuing debt to try to bail out all the pandemic stuff. But since then, we’ve had fairly robust economic growth. So our debt issuance as a function of GDP is actually declining the total debt as a percent of GDP. So again, a lot of these concerns that people are throwing out there about oh, my gosh, this is, you know, you know, we’re just issuing debt like crazy, and it’s why interest rates going up? No, it really don’t have anything to do with that. And our debt issuance isn’t all that dramatic relative to historical terms. And so we take a look at inflation versus the US Treasury yield, treasury yields are trading white about where they should be, what’s inflation right now. 3.7 3.8. So interest rates are a little bit above where inflation is at the moment. Now think about that for just a second. When I’m a bond issuer, and I’m loaning money to somebody, so Adam, I’ve gone through this with you before, but Adam, I’m gonna loan you $1,000, and you’re gonna pay me back over 10 years that $1,000. So what do I need to compensate for? I need to compensate for inflation. So 3.7, I can’t charge you 3.7 Because I wouldn’t make any money, right, I get my money back on an inflation adjusted basis be like issuing a zero, right. But, you know, I need to make a little bit of money. So I charge you 1% More than inflation. So 4.7 ish, right now, inflation is at 3.7. That’s about right where the Treasury rate should be. If we take a look at where real economic growth is real inflation is, at this moment, we’re about 1% Too high relative to where interest where treasuries should be trading. And that’s that’s just a function of psychological impacts and money movement in the markets. And you know, people shorting you know, shorting bonds heavily right now, that’s a big momentum trade that’s been driving yields, but yields are about 1% higher than where they should be yield should be closer to 4%, not 5%. So again, just kind of go through the math, and kind of look at you know, where we are relative to, you know, the fair value for bonds, our you know, and go through the period of time rate should be a bit lower, but not dramatically lower, we shouldn’t be at 2%. Right now, we shouldn’t be at two and a half should be closer to four, four and a quarter somewhere in there, because that’s where the economy is actually growing, when you get in a recession, that all that all that math reverses. And yes, you should have lower yields, because you have lower economic growth and lower inflation.

Adam Taggart 1:08:29
Got it. And just to tie it back to your thesis for holding longer duration bonds right now is you are expecting that at some point, recession is going to arrive, and inflation will drop, and therefore yields will drop and therefore bond prices will go up. Yep.

Lance Roberts 1:08:46
And then when that happens, I sell all my bonds and I buy stocks.

Adam Taggart 1:08:51
Okay. All right. And speaking of stocks, great transition to this question. Here’s the chart I wanted to reaction to. So, right now, the six month treasury bill yield is above the current earnings yield for the s&p for the first time since the start of the new millennium here. So what’s the past 24 years or so? So, interesting time, I guess another reason to be, you know, loading up on bonds, right?

Lance Roberts 1:09:22
Well, so two things, I have bills. Yeah, well, I have a real problem with earnings yield, you don’t get earnings yield, right. It’s just that’s the inverse of the P E ratio, its earnings divided by price, you don’t get if you buy a stock, you don’t get a monthly check for your earnings yield. Right. If I don’t want a bond, I get an interest payment every quarter or a year, whatever it is, so I actually get money. It’s a nice calculation. It just says what this what this does say is that you’re better off theoretically right now just buying a five 5% Treasury bond versus what you would get out of owning stocks.

Adam Taggart 1:09:56
Right. I mean, it’s showing you on a on a historically historical basis, right? relative valuation, you’re getting a much better risk return on T bill than you are in a stock right now. Right now are on the s&p in general. Yeah, that’s great. Okay. All right. Well, look, we’re gonna have to start wrapping up here. As always, Lance, great, I’m gonna get to your trades in just a second. I did want to go through your consequences are always unintended. I think those sort of life lessons on, you know, good and bad investor behaviors. So which ones to adopt, which ones to avoid, that’s important enough that I want to give that its full attention. So I’ll keep it here on the edge of my desk to next week. I’ll just add, I’ll just end on you know, one last life topic here, which is, it’s been a it’s been a big and kind of Banner week for the Taggart family. I have a sibling who has been basically culminating, like a almost like a decade long, professional journey, and, and ended up having to sort of present his case. And this has been like a like, almost like a cassette like it like a decade long journey in the making. He did that this week, and unfortunately, ended up getting the news that he was hoping for out of that, I’m kind of going through my own thing, which I will hopefully be able to share publicly with folks relatively soon. But in the midst of all this, you know, kind of like fighting the good fight for for yourself, but also just for the people that depend on you, and really just trying to sort of like, you know, kind of live your authentic self. And, you know, consequences be what they may, the whole process has reminded me of this great. This great little paragraph written by President Theodore Roosevelt, I’m sure you’re familiar with this. Lance, The Man in the Arena.

Lance Roberts 1:12:11
We used to have lunch together. Great guy. You and even Teddy Roosevelt. Yes, definitely. Yeah, that’s how old we all are now. But Tuzla, we’d used to play my song. And

Adam Taggart 1:12:24
I just want I’m sure you’re familiar with this piece here. And I’m going to read it quickly. Because I also think it applies to guys like you and I who are out there every day, you know, in the content creation world. So anyways, it this, I think, is applications for everybody. So let me quickly read it for those that can’t read it on the screen here. It is not the critic who counts, not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who airs who comes short again and again. Because there is no effort without error and shortcoming. But who does actually strive to do the deeds, who knows great enthusiasms, the great devotions, who spends himself in a worthy cause, who at the best knows, in the end, the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly so that his place shall never be with those cold and timid souls, who neither know victory, nor defeat. Now, Lance, I’m sure for a guy like you who, you know, did MMA, right? I mean, you’ve literally been in the arena, you’ve you’ve taken the punches for your errors. I’m sure you’ve known some high achievement in there. But basically, you know, this is an ode to, to perseverance, to grit, right? To dreaming, and having courage to standing up for yourself to pursuing a goal. And just putting yourself on the line, right. And I think all of us, you know, could use more of this type of affirmation in our lives and this type of courage and putting ourselves out there. You do it, you know, every day as a capital manager, right? Not every call you’re going to make is going to be the right one, you’re going to error, right? But you’re there trying to do the best thing you can for your clients. You’re going to take their slings and arrows and they’re justified when they’re going to call you up and say Lance, Why’d you buy that thing that didn’t perform right? But you’re in there you’re also doing the same thing you know, on your your YouTube channel every morning, you know, putting yourself out saying I think this is what’s going to happen in the market, but it doesn’t always happen that way. So anyways, I’d love your feedback on this because I think this is this is the kind of encouragement that I think we all kind of need in our daily lives, right, which is to not shrink from the tough things because they’re hard and there’s risk and you know, all that stuff, but you know, kind of a David Goggins style like, you know, just Man up, you know, a woman up, grab life by the horns. And you know, you’re never going to always succeed. But the the, the rewards are in the attempt, really at the end of the day and that’s what life is all about. So I’ll stop. I’ll stop my opining here but but I’d love to get your reaction.

Lance Roberts 1:15:18
No, it’s absolutely right. You know, it’s, it’s, you know, so first of all, you know, I did MMA before it was MMA I’m old, right. So I was just doing full contact martial arts before you know, they commercialized it so I don’t wait by looking at MMA Lance Roberts, I wasn’t on MMA. It was before all this but it was full contact. No, no pads, no rules. And it was it was brutal.

Adam Taggart 1:15:40
It just caught it street fighting back then.

Lance Roberts 1:15:42
It really kind of was Mad Max Thunderdome.

Adam Taggart 1:15:47
I don’t know, whatever. Yeah, but no, it

Lance Roberts 1:15:48
was very brutal, very challenging. And yeah, last fights, one fights. And you know, when you lose a fight, you have a choice, you can either quit, or you figure out what you did wrong, and and you go to win. And so you know, if I lost to a guy, I would go figure out what I did wrong, and why I lost that fight. And then the next time I would fight him, I could win the fight, because I haven’t figured out how to fix those errors. Same thing goes with, you know, look, I lived out on my truck for three years trying to build my first business. And you know, it was tough, it was a struggle. But once I got it finally off the ground and gotta go, and then you know, the success came after that. So, you know, but all through life. I mean, there’s been success and failure and everything that we do. And it’s always interesting, because, you know, I talked to a lot of people, and they’re like, Well, you know, I tried to start my own business. And you know, this happened. And so I quit. Well, when something happens, that’s not when you quit, that’s when you start. Because it’s easy to start a business I can go out and you know, you see all these tick talks about oh, just go form an LLC, and then get this other LLC and do this and borrow a bunch of money that doesn’t belong to you then do this, and you’re gonna make all this money. That’s all great, fine and dandy, but that’s not the way business really works. At the end of the day, and you know, the difference between people that succeed and fail, are the ones that failed in the process of becoming successful. Because for most people, the first obstacle is the obstacle they quit on. The guy that succeeds is the guy that hits that obstacle figures out how to get himself back up, dust himself off, and start again,

Adam Taggart 1:17:33
right, as they say, failure is the best teacher but you got to you got to listen to it and interact with it. You can’t just abandon it. Yeah,

Lance Roberts 1:17:38
exactly. And, you know, it’s a tough process, you know, there’s no visible thing about there’s no overnight success, it only took a decade. You know, but that’s it’s a very true statement. And this is the one thing that bothers me more than anything right now. You know, you know, whether it’s on social media or just want to talk to people in the public, it’s like, oh, well, you know, the baby boomers had the best of it. And you know, we don’t have any opportunity now. And that’s such a load of crap, because there’s nothing, there’s absolutely nothing stopping you right now from getting up tomorrow morning, starting a business of whatever it is, and building something great. There’s no restriction in this country that keeps you from building opportunity, creating something great, Adam started for nothing created Wealthion. And now he’s being very successful doing that, if he hadn’t started it, if he hadn’t tried to start it, it wouldn’t exist. But you know, here it is. And there’s nothing stopping you from doing exactly the same thing. So if you have a passion, it doesn’t matter what it is, go follow that passion. And yes, it’s going to suck, you’re not going to get paid for the first two or three years, you’re not going to have health insurance, you’re going to be living hand to mouth, it’s going to be 80 hours a week, you’re working on it. But eventually, you will become successful. And eventually, all the other traps and things that come along with success, you will have, but you’ve got to be willing to do the sacrifice to get there first. And when you know, I don’t wish you to live out of your truck for three years. That’s kind of what I’m recommending. But that was my sacrifice I was willing to do when I came into Houston to build my business, you know, but you can do it your own way. But you got to be willing to sacrifice and understand and one of the biggest mistakes I see of business owners when they start out, they launch a business and they try to pay themselves $100,000 a year plus, you can’t do that you’ll be bankrupt before you know it. So you’ve got to be willing to sacrifice you’ve got to be willing to fail. And when you fail, you’ve got to be willing to get up and keep going because you know if you stop that’s when you truly do fail.

Adam Taggart 1:19:49
So totally agree with all that and we’ve talked a lot in the past too about you know, as parents you know, we I feel like our paths are tight. him in the arena has informed a lot of our parenting style, right. And a big part of that is knowing how critical learning how to overcome adversity is. Meaning you get knocked down a lot by life, right? But it’s how, how hard you can get hit, and still get back up, right. And in, you know, for most parents, it’s hard to see their kids suffer, they step in the helicopter, and the kids never get the opportunity to develop, you know that that ability to overcome adversity. The other thing about this, too, and I think this is a big reason why Roosevelt wrote it, because he was a president that that broke things, right? He he really challenged, you know, the status quo. He did a lot of stuff, kind of kind of, he was a total Maverick, right? And he had a lot of people crapping on him for it. Right. And I think what he wrote about this is like, look, you know, unless you’re like in the arena getting smacked around, like, I don’t care what you say, right? But a lot of people do, right? A lot of people don’t start because Oh, this guy said, it wasn’t going to be a good idea. He didn’t share my, you know, my dream, or, you know, I tried it, and this guy didn’t like it. And so I just gave up, right? Like, so much of this is, is looking internally and making that shift, I think we’ve talked about in past conversations where to be a to fully step into mature adulthood, you have to shift from living a life based on others expectations of you to living a life based on your own expectations of you. And that basically means like, I don’t care what other people think, right? You know, is it meaningful for me, and if it is, then I’m gonna go do it. Now, the last thing I want to say is on this is what I mentioned briefly earlier, which is, look, there are no guarantees in life. Right? You know, you may have the dream, you may pursue it, but the millions may not follow that you initially thought, right. But the value really is in the attempt, right? Not everybody who starts a business is going to be the next Jeff Bezos, or Elon Musk or whatever, right? But if you are creating value in the world, that that is meaningful to you, and you are using your life energies every day to make the difference in the world that you want to make. That’s winning life, you know, as we talked about, with the old people, right, and people live over 100, what do they care about? They care about relationships and meaning, and then health, obviously, but that that’s self evident. So anyways, if you were not familiar with that man in the arena, it’s what is it’s not a poem, it’s a little, I don’t know, quote, I guess, you know, reflect on that today and ask yourself, you know, what is my Arena in life? And and how can I can, you know, spend more time in it, and in, you know, benefit from the glories of the victories and learn from the setbacks, to great, great piece of writing. All right, Lance. So wrapping up here, what trades if any, did you guys make this week,

Lance Roberts 1:22:49
none this week, probably within the next week or two, we’re going to start shifting more of our shorter. So in our bond portfolio, within our within our portfolios, our bond section or portfolio, we have a lot of short, we’ve got a good bit of enter of kind of intermediate, and we’ve got a chunk of long duration bonds, we’re probably going to shift more towards long duration next week. So we’re kind of just watching here, kind of where yields kind of settle out over the next few days. But we’re about to make another shift in the bond portfolio, it’s more to the long side, on the equity side of the portfolio, we’re going to probably start within the next, you know, we’re still expecting this rally in the year end. And then on that rally, the year end, we’re probably going to shift a lot of the portfolio equity side of the portfolio and to high dividend yielding, you know, deep discount value stocks to weather a type of economic downturn.

Adam Taggart 1:23:37
Okay. And let’s I do just want to point out here real quick here that that you are modeling? Well, what a what a quality financial advisor does, right is you have to have the courage of your convictions, right. And you are, you’ve made the case for a long time as to why you think long treasury bonds are going to pay off well, you’ve kept us updated as you’ve been, you know, first, dipping your toe in the water on the longer end of the duration curve. And then you’ve been, you know, increasingly adding to that, and you’re continuing to, and I know that every week, you know, every week that goes by that rates yields go up, you’re taking more and more slings and arrows. And your job is to not do it dogmatically right. And I know every week you and Michael are duking it out in your portfolio meetings to determine if this is indeed still the right thing to do. But once you’ve made that decision, you’re doing it right. And so, you know, the slings and arrows will continue and to be honest, you know, who knows what’s going to happen in the future? I certainly hope you’re right. And I think you’re going to be proven right? If not, you’ll come back and tell us what was wrong about that thesis. But that’s the point of a good steward of others people capital is that you’re not being buffeted around. buffeted around by headlines are the winds of opinion. You’re sticking to what you think is the right thing to do and be damned when everybody else didn’t run the world might be saying about it.

Lance Roberts 1:24:56
It’s interesting. You said that and like if I’m wrong on my interest rate thesis Is I still win. And the reason I still win is, is because in order to have higher interest rates, so you know, eight, nine 10% interest rates, we got to have booming economic growth, which means the equity side of my portfolio, the s&p is going to be trading at 10,000 versus 4500. So I win. And so you know, the great thing about where I am, is I can’t I really can’t lose, I mean, lose on one side of the trade, but I’m gonna win on the other.

Adam Taggart 1:25:28
All right, all right, my friend, well, well, every week, we’ll give you the chance to keep us updated as to where things are going. Alright, folks, so yes, if you watch this, it means you weren’t watching our conference, if you would like to order the replay videos of the entire conference, all the presentations, all the live q&a, just go back to that same URL wealthion.com/conference. And that’s where you can purchase the replay videos. And as we say, every week and I think Lance did a really good job modeling the benefits of it this week. For the type of future that’s coming, especially for the many reasons that Lance mentioned that there’s a lot of clutter reasons to be kind of looking with trepidation going into 2024, you should work under the guidance of a good financial advisor, not just a good one, but one that takes into account all the macro issues that Lance and I have talked about here. That narrows it down to a pretty small percentage of the financial advisor world, maybe Lance at some point, we should talk about what to look for in a financial advisor. Because you know, even better than I that there is a ridiculous spectrum of quality out there. And for the types of advisors that really focus in the details of the macro stuff that we talk about. It is a pretty thin slice of the universe that’s out there. But anyways, if you’ve got a good one who’s doing all this for you, great, you should stick with him. But if you don’t, or you’d like a second opinion from when he does, maybe even lanceton his team there at Ria, then consider scheduling a free consultation with one of the financial advisors that are endorsed by Wealthion. To do that, you just fill out the short form over@wealthion.com only takes a couple seconds to fill out the form. These consultations are totally free. There’s no commitment to work with these guys. It’s just a free public service. They offer to help as many people as possible position as prudently as possible in advance of the potential developments that Lance has talked about in this past hour and a half. All right, we’ll look Lance. Thanks so much, buddy, everybody else if you just think the highest and best use of humanity’s time is to watch these weekly, weekly market recaps with Lance and AI then please let us know by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it Lance, buddy as always get the

Lance Roberts 1:27:42
last word. And we’ll see you all next week. Have a great weekend. All right.

Adam Taggart 1:27:46
Thanks so much, everybody. See you next week.