Portfolio manager Lance Roberts explains why he sees now as one of the best times — if not THE best time — in his career to buy long-duration bonds.
He and Wealthion host Adam Taggart discuss this in today’s Weekly Market Recap, as well as these other following topics:
- impact of the
- September CPI of 3.7%
- weak recent US 30-year Treasury auction results
- why now may be the best time to invest in long-duration bonds
- more evidence the consumer is weakening
- Lance’s latest trades
Lance Roberts 0:00
Whenever you have these very negative biases on an asset class, when there’s blood in the street, as Baron de Rothschild once said, that’s when you start looking at stuff. It’s painful. It’s terrible to try to own this stuff. It’s no fun to try to own it. But that’s it. You don’t get buying opportunities when everybody’s piling onto an asset. If everybody’s buying it, there’s no opportunity to make money with it. Right? You may make money over a month or two, but you’re not gonna make long term real money with it. You gotta buy stuff and nobody wants it.
Adam Taggart 0:30
So is this the blood in the streets moment for buyers?
Lance Roberts 0:33
Yeah, it’s been that way.
Adam Taggart 0:38
Welcome to Wealthion. I’m Wealthion founder Adam Taggart, welcoming you back here at the end of another week for another weekly market recap. Featuring my good and stalwart friend Portfolio Manager, Lance Roberts, Lance. Welcome, buddy. It’s a Friday the 13th
Lance Roberts 0:53
Yeah, exactly. So lots of stuff to talk about today.
Adam Taggart 0:57
Lots of stuff to talk about today. Actually an awful lot to talk about. Because since the last time you were on last week, we’ve had some very tragic, but very concerning global geopolitical developments. Very interested to see how that was, might affect the markets. They certainly for whatever reason, didn’t didn’t serve as a drag on them this week. Market is up for the week, but 100 s&p points so far. But I’m curious. What what impact either short or long term. Are you expecting from the recent developments in the Middle East?
Lance Roberts 1:34
Well, you know, it’s interesting that you said that, because I’m actually writing about that this weekend’s newsletter,
Adam Taggart 1:39
shocked, I’m shocked you’re writing an article about something?
Lance Roberts 1:43
Yeah, exactly. So yeah, real investment. vice.com. Our newsletter this weekend is actually I actually drew a very long term chart of the s&p 500, going back to 1900, and listed all of the war events that have gone on conflicts, wars, interventions, etc. And well, sometimes you get a kind of a knee jerk sell off in the markets, like, you know, oh, my gosh, this is gonna be really tragic. Wars are actually good for markets. The reason is, is they create economic growth, you’ve got to produce arms and supplies and all kinds of stuff for the war effort, either for your own troops or for supplying, you know, troops, sorry, weapons or support for other countries, that that generates economic activity. So markets are pretty quick to factor in kind of the more bullish impact on markets and earnings, you know, but you know, you can’t dismiss the human tragedy, that’s the important thing. But from a market perspective, they tend to be very kind of knee jerk events initially, and the markets tend to start to rally off of them after that.
Adam Taggart 2:48
Okay. Yeah, obviously, we don’t know how this is going to end up yet. And I hate to sort of put it this way, you know, if you’re an economy that is supplying war material to what’s going on, but you’re not actually engaged in it yourself on your own soil, you know, yeah, maybe it probably is stimulative in a, in a cruel way to think about it, you know, Middle East powderkeg area, this particular conflict, Israelis versus Arabs, I’m not a geopolitical analyst. But you have a lot of the world’s largest powers that have a side, you know, largely in that in that conflict, meaning they could be drawn into this if this thing continues to worsen. Right. And there’s, you know, all sorts of concerns that Israel may retaliate against Iran who it thinks, you know, funded the Hamas attack, and now Israel’s engaged with Hezbollah up in the north as well. So you know, this has potential to spiral and hopefully it doesn’t, but if it does, go up,
Lance Roberts 3:52
stop. This is the argument that always comes out every time there’s a conflict in the Middle East and not saying, Look, Nostradamus once said that, you know, one of his predictions was the world war three would start out in the Middle East. But don’t forget, we were in Desert Storm in 1990. We were invaded Afghanistan, we invaded Iraq, we’ve invaded, you know, we’ve been involved in wars with terrorists for the last 40 years. And every time that we get involved, or every time something happens, whether it’s Russia, bombing in Syria, or whatever it is, everybody immediately jumps uglies, like, oh, my gosh, this is gonna be the start of World War Three. It hasn’t yet and again, but this is the same narrative that comes out every single time there’s conflict in the Middle East. And, you know, it’s you simply have to realize that at the end of the day, while everybody’s got a hot, hot button for a nuclear war, nobody really wants it not even Iran wants a nuclear war because the consequences of that, look, Israel’s armed to the teeth with nukes Iran’s got nukes even though they won’t admit it. And so a middle a nuclear war in the Middle East. is not good for them or for anybody, nobody wants it. That’s why they call nuclear deterrence. But we’ve had this we’ve had the same narrative for 40 years. And this always continue immediately, as soon as something happens, everybody jumps to this kind of situation. I, Israel and the Palestinians have been in conflict with each other since 1965. You know, and it’s, you know, this is something that continues to happen over and over again, with them. And will this time, you know, will Israel push all the way to the closest time? And finally, in this issue with with Gaza and the Palestinians? I don’t know. That’s not my job. But you know, this, this i And again, I’ve gotten so many emails this week. Oh, this has been a world war three, any gold and bunkers. The markets are look past this very quickly.
Adam Taggart 5:50
Okay. So I certainly hope you’re right. Fortunately, history has been on your side so far, that none of the prior escalations here have gone all the way to 11, you know, in the threat level? Because, yeah, that’s, and that’s sort of where he’s going with the question, which is, Okay, hopefully not world war three, because that’s a nuclear. Like, that’s a whole other ball of wax. But let’s say it metastasizes to the point where folks think Lindsey Graham has a good idea. And we start, you know, blowing up Iranian oil refineries, in retaliation for you know, what’s happening on the ground with Hamas or whatnot. You know, that would obviously, destabilize the oil markets. I mean, is I guess my point is, is, you know, is there a risk premium here that if this continues to metastasize will creep into markets here and have some sort of notable impact? And if so, how would you expect that to manifest? Or? You just like, I don’t know, we just have to take it day by day?
Lance Roberts 6:54
You? Did you just take it day, by day? I mean, we can, you know, the problem was coming up with all of these kinds of, again, what we’re talking about here are third and fourth standard deviation events, right? So sure, anything can happen, right? And, and when it does, then you’ll have to make some adjustments at that time when occurs. But, you know, this is the whole problem that we’ve had with, you know, the inflation fight over the last year, and, you know, all these things that people said, well, you know, if you’ve got inflation, I don’t want to be in risk assets. But that’s exactly the place to be, you know, you know, everybody’s like, well, if you have inflation, you want to be in gold, that’s been the worst place to be. So, you know, it’s, it’s not, none of this stuff plays out as if everybody as as the way everybody expects us, because that’s how markets work, when, when everybody thinks one thing is going to happen, the markets always do something different. And so that’s why you got to always just take this for what it is, rather than making these one sided bets of, oh, I need to be in a bunker now, because this is going to definitely manifest itself into World War Three, if it does, none of this is gonna matter. It’s not gonna matter, you know, whether you’re in a bunker or not, it’s not going to matter. None of this is going to matter. So, you know, let’s just pray for the best that cooler heads eventually prevail. This is, this is kind of one of the normal conflicts that we’ve seen between the Israelis and the Palestinian Palestinians over the last, you know, 3040 50 years, and it resolves itself, and they go back to their separate their separate corners, and then we move on for a while, and this will happen again, but you know, we’ll, again, making these big one sided bets typically never worked out for the better.
Adam Taggart 8:31
Okay. And, you know, just to my question there about oil and its impact, you know, interestingly, looking at oil, you know, oil prices, it rose in response to this, but it’s not even back at the highest where it was like two weeks ago, right. So obviously, the oil markets not that worried at this point.
Lance Roberts 8:47
Well, again, you had you had a massive overvaluation of oil. You know, just a couple of months ago, oil prices had a very big run. They were extremely overbought, we were talking about that you and I were talking about very extremely overbought oil. We sold down our positions in oil stocks a couple of months ago. In anticipation of that correction. We’ve had a very nice correction and yesterday we added to our oil positions again because now they’re oversold and you know not yesterday day before yesterday but now that oil prices were oversold so you just needed a headline of some sort to create some commodities buying in that so again, yeah, traders are buying some oil futures right now and it’s driving up the price of oil on anticipation that you know, this could be something else and this could crap supplies. But again, Israel and the Palestinians are not that big of producers of oil on a relative map so they’re the only way this really starts to to take hold as if you know, OPEC says Guess what, we’re not going to ship any oil at all now because of we don’t like what’s going on. You know, they’re not producing more oil. They’re keeping their cuts in place for right now. So that is going to work. Sy, obviously, we have the issue with the SPR here in the United States, that’s got to be refilled at some point. So that’s going to crimp on supplies. So there’s certainly some catalysts that keep keep oil prices elevated. But the markets already kind of factoring all that stuff in.
Adam Taggart 10:15
Okay. And so speaking of the market, do me a favor if you can pull up your s&p chart that we try to pull up every week here. Back up. So you know, one of the reasons why we’re we’re kicking things off here with what’s going on over in the Middle East, is I think, you know, an understandable question that the armchair investors had is Oh, my gosh, is this like a sell the market kind of news event? Certainly hasn’t been so far. I think you’re saying no, it probably isn’t. We’ve been talking a lot about how the market was approaching strongly oversold levels on a technical basis. And you got the chart up here right now. You we can we can see the bounce that it took, you know, two weeks or so back a few weeks back. And, you know, we tell people look, if you’ve got a really big bearish thesis right now, just know that from a technical standpoint, the market looks like it’s poised for a bounce, it actually did bounce. It’s now coming back down as you’re putting that line in there to some sort of support. And so I’m going to hand you the torch. But I The question here is sort of, you know, should this is this a sort of sell the news market? Should we all get real defensive? I’m gonna guess your answer is not until we see some more confirmation.
Lance Roberts 11:31
Oh, well, a couple of things. First of all, is that you know, you we came down the 10 day moving average, as we talked about, and last week, we wrote in the newsletter, Hey, Mark is sitting on today’s moving average support, we expect a strong rally next week is we had an earnings season, that will trigger a MACD buy signal, and that all occurred. So we had this very sharp rally earlier in the week, ran right into resistance at the end, which is those two moving averages where they’re basically touching, that’s the 50 and 100 day moving average. So the first test at resistance failed. And we’re now sitting on the 20 day moving average, that orange line, which is support and this is very normal for a an initial reflexive rally off an oversold condition. Importantly, though, we did trigger the MACD buy signal so that triggers are seasonally strong period for the markets. Just started earnings today at Citi Group, JP Morgan, others reporting bank earnings today, those came in better than expected. And also they had less loan loss reserves at this time suggesting that charge offs aren’t as much of a concern as they were. So that’s, that’s important. But you know, get it, get it, get a pullback here support work off some of the real short term over kind of that overbought move we’ve got. And then potentially you get another attempt to break above those moving averages, which if that’s going to occur will happen next week or the week after we’ll start we’ll get that push higher as we get further into earnings season. And then of course, once we get through the end of the month, we’re going to hit buyback season, which will begin November the first.
Adam Taggart 13:08
Okay, so there’s a lot of, you know, potential tailwinds for this market coming ahead, right, you said, you know, the seasonally strong time of the year for markets, and it’s for the economy to write. I mean, we have, obviously, the holidays coming up, you have mentioned on the past couple of videos that Halloween is a surprisingly big commerce day for the economy. So you know, lots of consumer spending about to go on. And the buyback window opening back up, that’s obviously going to be more more than likely than not supported for stocks. So, you know, I’m glad that we’ve started this practice of bringing this chart up again, and again, week after week, Lance. Because, you know, there, there have been periods along here where understandably, you know, the emotion either on the fear or the greed side, you know, has kicked in, and, you know, you as an experienced capital manager, you know, are urging caution. So, back in what July, you know, you were saying, Look, we’re really overbought here, folks, I know everyone, you know, the markets are now partying like it’s never going to end. But we’re probably going to have a three to 10% pullback, it’s pretty much exactly what we’ve gotten here. And then as things were looking kind of darker, and everybody was freaking out about that bear steepening and yields and how high yields were going in the long end of the curve just a couple of weeks ago, you said, Guys, look, I can jump on that macro train of all the concerns you have bought from a technical standpoint and otherwise in the history of markets suggest we’re oversold, and this is likely gonna bounce. That has been what has happened. Now you don’t have a crystal ball. You’re not right all the time. Right. But, but what you want to be is that Warren Buffett quote, you want to be I’m not getting exactly right. But you sort of like you want to be approximately right rather than being precisely wrong.
Lance Roberts 14:53
Yeah. Well, we can come back down here and retest the 200 day moving average, you know, that’s still doesn’t change, you know where we are. And so you know what happens over the next three, four trading sessions, you know, you can have more of a sell off here. Absolutely. And you know, and then you get set up. And again, this is markets going to just kind of work its way, as we kind of go through this cycle. And again, the know, the strongest period of the October through May strong period is actually November, December, January. So the stronger months actually current November and December, get that urine rally the Santa Claus Rally always talked about, then, of course, everybody comes back from the holidays, and they want to position for the new year. So November, December, January tends to be really strong months, February tends to be a little bit weaker month, and then you get March, April, May. So you know, you’ve got see from a seasonal perspective, and just, you know, kind of just traditional markets, you’ve got three of the strongest months coming up once we get through October. So again, you know, expect a little bit more sloppy trading for the next couple of weeks. So, you know, depends on how earnings season goes, earnings are going to be good. We’ve lowered earnings from $224 A share to 180. So you got a 20% decline in EPS estimates for this quarter. So you’re you’re getting an 80% Beat rate millennial earnings season, right, everybody gets a trophy. And you know, what will be important? There’s about four guidance. So we hear a lot of stuff about oh, my gosh, you know, we’re about to have layoffs, and you know, the outlook is terrible. If that’s the case, then, you know, we could see a very different market begin to shape up. So what really happens over the next couple of weeks in earnings is going to drive markets more
Adam Taggart 16:36
than anything. Okay, just a quick plug for our upcoming conference in a week, super excited to hear from Michael Kantrowitz with his hope framework, you know, a huge part of that story is going to be with what’s going on in the employment sector. And we’ll be diving deep into the employment data with Michael as a reminder, the E in the hope framework is employment. And obviously, you know, earnings drive, how much companies can afford to employ people. And that’s, that’s actually the O in sorry, that’s the key and Michael’s hope framework for profits, corporate profits, so we’re gonna get a really detailed update on both of those in Michael’s presentation there. Alright, so real quick, back to this chart, Lance, and then we’re gonna move on to another topic related to it, which is, you know, there’s that poem, that famous poem, if by Rudyard Kipling, which starts, if you can keep your head when all about you are losing theirs, and blaming it on you. I’m going to come back to this poem later on at the end of our discussion today. But that really is your job, right? As a client capital steward, right, as it’s your job to keep a clear, steady head, no matter what’s going on, to let the emotions of both the market and individual investors, you know, your clients emotions, you’re kind of supposed to be the bulwark, you know, against them to say, hey, yep, I know, things are emotional right now. But we just got to try to remain level headed and prudent and just look at the data. I think you’ve done a really good job of that this year, for the reasons I talked about. And, you know, you take a lot of abuse for that, right. So back just a couple of weeks ago, when it looked like we were coming down to test the 200 day moving average, you know, there are a lot of people who, you know, were emailing you and saying, Lance, you don’t get it, this is it, this is the beginning of the end, right. And you had to just keep your head and you know, be the steady hand on the tiller. And lo and behold, the price action has proved out to be what it is. So I want to I want to commend you for that. I do want to trundle in a second to a topic that people are still blaming you for today, which is bond yields and the impact that that’s having on bond prices. Real quickly, before we go there, can we just make a detour through inflation, because we got the new inflation data out this week, which, you know, on a surface level that maybe people might take as kind of good news. Because, you know, the inflation rate basically stayed the same on a year over year basis. 3.7%, it actually was hotter. On a month over month basis, it came in at 0.4% on a month to month growth rate in September. So, you know, maybe maybe a little bit hotter than the Fed wants to see right now. But I’m curious, what’s your what’s your, what’s your takeaway of the importance of this? The CPI print, if any?
Lance Roberts 19:27
No, it was absolutely a they’re a non issue in the Feds gonna look right through this because this is still the majority of what we saw in the inflation report. And this is a chart of CPI on a monthly Annual Percentage chain basis. What we saw on the report was essentially just the lag effect, remember, so when CPI is calculated, it’s using energy prices from three months ago. It’s also using housing prices from three months ago. So when you take a look at rentals and you know what was going on with homeowners equivalent rent and oil prices three months ago, those were escalating higher. So the print you’re seeing right now is going to cool off sharply over the course of the next couple of months. And particularly as we get further into the winter, so, but if we just look out and again, you know, this is such a critically important thing. And you and I touched on this last week, and again, everybody forgets this, the the, the Federal Reserve does not want deflation. They don’t want zero inflation, they don’t want negative inflation. So the price of gasoline, the price of used cars, the price of houses, they don’t want those to go down, they’re still going to be higher next year than they are now they want them to be 2% higher a year from now than they are today. That is not deflation. So if you’re expecting housing prices to go down gas prices to go down food prices to go down, you’re not understanding what the Fed wants, the Fed wants inflation, they want 2% inflation, which means gasoline is not $4 a gallon, it’s $4.08 a gallon next year. That’s what they want. And so this whole idea that oh my gosh, you know, we’re not getting, you know, 2% inflation right now, and prices are still too high. Yeah, they’re too high. From the way we’re used to having them, but they’re not going down anytime soon, until we get into a recession, then those prices are going to drop pretty quickly. But that’s, you know, a different story. And that’s a different topic that has nothing to do with with the inflation print. So no, inflation is running. You look at ppi, we can CPI, we can import export prices, they’re trending lower. And again, if we just kind of run a projection out over the next, you know, 12 months, we’re going to be pushing somewhere around 2.6%. But this time next year, just assuming normal run rates.
Adam Taggart 21:50
Okay. And you know, obviously, for folks looking at this chart, the dotted red line at the far right end of the chart is sort of RAS prediction of the likeliest trajectory of where the CPI rates gonna hit from here,
Lance Roberts 22:04
correct? Yeah, well, this is something we started about six months ago. So the latest print is this little uptick right here that you see on this, that we have this downtrend and this little pop up. That’s the latest print. And so it’s just basically following almost exactly to a tee what we laid out almost a year ago.
Adam Taggart 22:27
Okay, great. So the script is playing out as you have expected it to. Okay, so. So now let’s, let’s turn it on over to bonds. So bond yields have cooled off a little bit. And then of course, it came down a little bit after the the weekend with the geopolitical events in the Middle East. But they, you know, they’ve kind of ping pong around a little bit this week. I love on the one of the comments there on that Twitter feed that you just close to where the guy said Lance dude, was just watching your show what the heck happened in bonds yesterday. Right. So I know you’re getting bombarded with this. Real quick. I just want to get your thoughts on the latest US 30 year Treasury auction, which apparently was one of the poorest showings for an auction that we’ve had, you know, in a while. And this, there’s a lot of kind of headlines going on about that, which is like, you know, all of a sudden, you know, the Feds trying to jawbone, the dollar down. Janet Yellen is over in China, folks feel like she’s just asking, Hey, you know, please buy our bonds. So, you know, this sort of narrative coming out right now that all of a sudden the folks at the top were beginning to get nervous about this, this bear steepening in yields. Any any feedback on that latest auction its level of importance.
Lance Roberts 23:49
Yeah, I was actually just looking over Zero Hedge, they had a chart about this, just a it’s this, this falls into the realm of Dumb and Dumber for a lot of these comments that you just made. For the most part, fine chart.
Adam Taggart 24:04
I’m sorry, we’re might remind the dumb comments or the dumber combo, you
Lance Roberts 24:07
know, you’re you’re relaying the the general premise of the market. And I can’t find this one chart I was looking for. Anyway, if you take a look at auctions, they look like a rubber band. They’re up and down, up and down, up and down. And so when you have a poor auction one week, you have a really great auction the next week. And so it just depends on what’s going on in the market in any particular given time. And it has absolutely no relevance to what’s going on. But let’s talk about this whole idea. This thesis you just brought up is that Janet Yellen is over seas begging people to buy our bonds. That is complete load of crap. The reason is, is that, you know, people have been coming out lately going, Oh, China doesn’t want our bonds in Japan doesn’t want our bonds. Okay, so first of all, China owns $800 billion worth of our bonds. We have 33 trillion in debt. That’s about two In a half percent of our total debt load is owned by China, if they dumped all of our bonds, it would make no difference, because they don’t own enough of our bonds to matter. The Federal Reserve owns 8% of our bonds, right, they own a trillion dollars worth. So they own a very big chunk of our bond. So if the Fed starts stepping bonds, that’s going to be a different issue. Japan owns a very small amount of our bonds as well. So they have no real big impact, but they’re not. And yes, they’ve reduced their holding some that has nothing to do with not wanting our bonds or anything else. It’s about balancing currency and balancing trade. And we talked about this before, China sells 50 billion picking number $50 billion a year and stuff to the United States. If they took $50 billion worth of purchases from that we make from China and and pull it all back into their currency, their currency would be astronomically stronger than what the relative to the US dollar that makes things on a trade basis on equal and not advantageous to China at that point. So China has a choice. When the dollar is too strong, or the dollar is too weak, they can opt to sanitize trade. And they do that by storing those reserves created from transactions in US Treasuries. And this is why people store reserve currency and US Treasuries, and as a function of balancing trade and keeping some level of stability and currencies so they don’t get too far out of whack. Yes. And that’s
Adam Taggart 26:28
a great point, I just want to explain for users hear what you’re saying, because it’s really important, which is because they don’t want to absorb the dollars that we’re giving them for all the stuff that we buy from China, into their economy in therefore, cause their currency to shoot the moon. They’ve got a challenge, which is, well, what do I do with these dollars? Right, that I don’t want to absorb? Well, I gotta put them somewhere. Well, what’s the biggest safest market out there to store dollars in? Its US Treasuries, right. So that’s why so many countries park their money in US Treasuries. It’s also when this whole concept of, oh, you know, something’s going to replace the dollar as the world’s reserve currency. One of the big challenges to a contender is you have to have a really big, deep, safe market to park stuff in, right, and most other currencies just don’t have that. So I just mentioned this, so that when people, you know, see all the very, you know, all the reasons why we could very validly get concerned over the long term health of the US dollar, you have to answer that question. And without a really good alternative, the dollar is probably not going to get toppled from its reserve currency status anytime soon.
Lance Roberts 27:45
And it’s not Bitcoin. So good. Now moving on, let me finish this up real quick. Because this, there’s, there’s more to this. So first of all, in our date, so we run a daily market commentary on our website every day and and we publish this out 730 sharp every morning. So if you subscribe to it, you’re gonna get this by email every morning. But the last two days, we’ve been covering this topic and particular and the first one was on your stuff, I’d say. So again, this chart is incredibly important. So there’s two things, there’s a couple of things on this chart that that you need to know. So here’s here’s a couple of context about what’s going on with the headlines, right? People don’t want you know, nobody wants our debt right now, because we’ve got too much at 33. We’ve had a deficit for almost 40 years. And it just became a problem last week. I mean, we’ve been running deficits since 1980. So now all of a sudden deficits are a big problem. And our debt to GDP ratio were 214% of debt to GDP. That’s a problem. Now, when it wasn’t a problem at 100% of debt to GDP, it took us to get the 100 It wasn’t a problem at 111. And now it’s a problem with 114. Japan is 250% of debt to GDP, and they’re doing just fine. Why? Because Japan, the Central Bank of Japan owns 80% of the bond market. I’m not saying that’s a good thing. I’m just saying that this whole notion that interest rates are gonna go to the moon because nobody wants to buy the debt is a very false narrative, because opening the day, the Federal Reserve will buy the debt. In fact, Janet Yellen just recently saying lower for longer Michael leave, which just wrote an article about this on our website, acknowledging the fact that we have to have low interest rates in order to sustain the growth of our debt, which is directly tied to the growth of our economy. But what these charts show a couple of things that really kind of bust that narrative in general. So first of all, the the upper right hand quadrant is our total federal debt on a log scale. We’re running below trend in terms of our debt issuance right now, based on our long term trend of debt issuance. The bottom chart is Our Debt to GDP, which has been declining now. Really, ever since the pandemic. So in other words, Our economy is actually going faster than our debt issuance. So that’s actually a good thing we want we want that to be the case. And so this is so this other idea that nobody wants to own our debt everybody all or for all foreign governments, we’re selling our debt, etc. not believe the case. This is federal debt held by foreign investors and the the upper trendline. Yeah, it’s, it’s it moves up and down over time. And again, we’ve had a very strong dollar lately. So that doesn’t surprise us that, you know, we’re seeing a little bit of reserve sell off here not, that’s not a big issue. But again, the trend of debt ownership and is continuing to rise. So you know, there’s this whole narrative of other people not wanting our debt, and all this is just not true, again, to the very point you made, which is absolutely correct. You’ve got to have a currency where you’ve got a rule of law, you’ve got a very deep liquid market, you’ve got stability and the rules of how things operate. And you can count on the function of that debt being a debt that you have being made good on, and, you know, name another country that you can go to and have all those kinds of variables put in place where you’d be willing to store your currency is the Chinese you want the Brazilian in the Brazilian dollar, you know, what is it there’s just not, you know, Iran, Iraq, I mean, you know, pick pick a country, there’s just not a lot of good choices out there, where you got that kind of stability and depth of market to store your to store your reserves. And so these narratives just don’t hold any water and are not the issue of what’s driving the market. If you want to know what’s driving the market. It’s the fact that we have a the one of the largest short positions against bonds on ever, and that alone has been one of the key drivers for higher interest rates, there’s momentum trade going on right now you’ve got everybody piling onto this momentum trade of shorting bonds, that’s driving yields up. And as you saw earlier this week, as soon as there’s any type of, you know, retracement, in that narrative of wanting to be short bonds, you have very, very big moves in yields very quickly. And that’s that short covering process. So when you get into a trend of lower rates, that short covering is going to accelerate that downtrend when it occurs.
Adam Taggart 32:20
Okay. And look, you there is an article you wrote this week, we’re gonna get to in a second called Bond valuations are cheap. But you just you just made a statement, that might be news to a lot of viewers, and it might be maybe a missing piece for a lot of them. Or you just said, the bond market is being shorted to an extent that we’ve rarely seen before. Right, elaborate? Well, I was doing it
Lance Roberts 32:47
the same people that short commodity futures or short oil prices, you know, how did we have negative oil prices and 2021? How could that happen? Right? The supply stop all I mean, the demand for oil stop all together. Now, it’s all driven by the commodity in the options markets, and on NYMEX where we trade futures. And so right now, you’ve got a huge chunk of what they call computerized trading algorithms. And these kind of hedge fund driven portfolios that manage billions upon billions and billions of dollars, they are, you know, there’s a trend, there’s a negative trend in the momentum of the bond market. So they’re piling on to that trend. So whenever there’s a trend in one direction, they tend to exacerbate that trend, whether it’s negative or oil prices are rising yields, they’re shorting bonds on a consistent basis to ride that momentum. And they’re going to keep riding that momentum until that momentum changes direction. And when it does, then they’re going to flip to being buyers. And so every time yields move, they’re going to be buying more and more bonds, which are going to drive yields back towards zero. So this is how we get into these prices related events in the in the markets, which is and more so over the last, you know, 1015 years in particular because this is really the advent of computerized computerized algorithms and all this other stuff that’s going on these what these kinds of momentum bets that are being done is what’s creating this bigger volatility in markets and why you see stocks fall 90% You know, why you taught why you why you see these exacerbated moves and commodity markets that don’t really make sense relative to the fundamentals, but it is what it is because you’ve got huge groups of people with lots of money and control driving these prices in one direction or the other.
Adam Taggart 34:41
Okay, so do we, when you use your analogy there about oversold and overbought right as the elastic band that’s getting further and further stretched. Do you see the bond market at a point right now where bond prices have been oversold to the point where that how stretched is that rubber band? under these current conditions
Lance Roberts 35:02
about it’s about, it’s on a longer term basis. It’s rarely been this over this over done. So, you know, you’re done. That doesn’t mean it’s going to enhance is why, you know, we talked about before, when I’m buying bonds in my portfolio personally, I keep telling you, it’s 18 to 36 months, it’s 18 to 36 months, you know, it’s a longer term timeframe. But you have very rarely seen in history where you have the bond market, four standard deviations above long term monthly moving averages, that just doesn’t happen.
Adam Taggart 35:31
Okay, so would you put this on a comparable basis with what you just mentioned with oil back during the pandemic, when it got to negative prices briefly for a moment? That was it? That was a very oversold moment for oil? Are we sort of at a similar level of oversold miss here? Yeah,
Lance Roberts 35:47
I mean, this is this is equivalent to negative oil prices. This is equivalent to stocks in 2009, you know, March of 2009. And it’s always interesting psychology is exactly the same, right? March 2009, I couldn’t get you to buy stocks to save my life. But that was the time to buy stocks, right. So you know this, and now it’s the same thing. Nobody wants to own bonds, everybody’s gonna buy probably CSIS why nobody wants to own bonds, that tells you is probably about time to start buying bonds, just just because all of these thesis and analysis and all this stuff, it’ll change. And when something occurs, some type of recession prices event, whatever it is. And again, there’s no telling when that’ll be timing is always the issue. But when you get the reversal of that momentum in the markets, in a way very strongly.
Adam Taggart 36:35
Okay, so maybe we can go to your article, and you can pull up any charts on that that you want to in answering this question. But one of the reasons why I’m putting my finger so directly on this is, I think what I hear you saying is, look, in my career as a portfolio manager, as a as a steward of client capital. I’m seeing one of those rare moments in time, where, you know, you don’t always get a bright light, shined on something that says this thing is really under priced right now, from a historic basis. It sounds like you were saying to me that this that’s happening with bonds, would you say that, like this was one of the best time to buy bonds, if not the best time to buy bonds that you’ve seen in your career as a portfolio manager?
Lance Roberts 37:22
Well, that’s why I’m, you know, that’s why I’m buying bonds personally. And that’s a yes. Yeah. So I mean, I’m just telling you what I’m doing. And you can take from that what you will, I’ll tell you this, on February 14 2008, I wrote an article at that time and published it called eight reasons for a bull market. And, of course, in February 14 2009, the markets down 20%, from the peak in January, not to mention the previous, you know, 30 40%, down from the previous year. And of course, the, at that point, I was like, Are you crazy, this market is going to zero who wants to own stocks here, it was the end of the world as we knew it. And then of course, March, the ninth was the bottom, you know, of the market. So again, you very rarely get these opportunities where the world is so convinced that something is dead, you know, give you a couple of good examples, you and I were on this show, right? And 2020 in November 2021, I’ve said right here on the show with you that, you know, going into 2022 is gonna be a great opportunity to own energy stocks, because everybody hated them. ESG was dead, and oil was dead. Nobody wanted it because of ESG. And I was like, You very rarely get this type of opportunity to own energy stocks. And then on November the fourth of 2022, just last year, wrote an article our Fang stocks debt, the hated Fang stocks, and those have been the best performer this year. So again, whenever you have these very negative biases on an asset class, when there’s blood in the street, as Baron de Rothschild once said, that’s when you start looking at stuff, it’s painful, it’s terrible to try to own this stuff. It’s no fun to try to own it. But that’s it. You don’t get buying opportunities when everybody’s piling onto an asset. If everybody’s buying it, there’s no opportunity to make money with it. Right? You may make money over a month or two, but you’re not gonna make long term real money with it. You gotta buy stuff and nobody wants it.
Adam Taggart 39:16
So is this the blood in the streets moment for buyers? Yeah,
Lance Roberts 39:19
it’s been that way. It’s been that way for a year. You’ve never had three negative years since 1787. You’ve never had three negative years in a row for bonds. And this will be this will be the third year if it happens.
Adam Taggart 39:31
Okay. I was going there with this question. How likely do you think it is that we have a fourth year?
Lance Roberts 39:40
Anything anything is anything’s possible? I know that anything is possible. I’d suggest highly suggest that it’s not going to be the case.
Adam Taggart 39:50
Lance Roberts 39:51
it didn’t. It didn’t even happen in the 70s. Yet you never even had three years in a row during the 70s inflation spike. You didn’t have three years in a row negative bond return So right
Adam Taggart 40:00
it have asked us to view and I think a couple people recently, but I just wanted to do it again, given your very good diatribe here. The fact that we are having a third year this year is historically unprecedented. Right? It never happened, you know, since they started keeping records in the late 1700s. Right. Now, we’re at a point where, you know, the odds of a fourth, you know, it’s sort of like flipping a coin, right? The further and further you go out getting all the same, the probability, yes, on any individual flip, it’s a 5050 probability. But the series probably that probably been happening in series gets incredibly less the further you go along. So all right, so Lance, Thanks for Thanks for helping me shine this bright light on here for viewers, which is, you know, you’re basically waving a flag now saying, Folks, we have a historically attractive moment in time here, you’ve shared that you’re, you know, putting your money where your mouth is not just on the accounts, you’re managing for your clients, but that personally, you’re being even more aggressive. In this asset class going forward.
Lance Roberts 41:02
You think? You think I’m being aggressive? You can ask Mike Liebowitz when you when he speaks at your conference, but he’s buying call options on bonds. So even more aggressive than I am? Because he’s putting a timestamp on his I’m not, I’m willing, I can wait 1836 months, his call options expire.
Adam Taggart 41:19
Thank you for reminding folks that and folks, yes, Michael will be speaking at our conference in a week. He will also not just be giving a presentation. But he’ll He’s making himself available for live q&a. So if you have specific questions about the bond market, show up at the conference and ask them them directly. Alright, Lance, anything else to say about bonds? Before we move on from that? I mean, it’s it’s, I guess one question is, is it sort of like a rubber band analogy? Is it the kind of thing that when it starts reversing, it’s highly likely to reverse? Pretty quickly? Because you’re going to have the whole short covering aspect to it?
Lance Roberts 41:59
Yeah, you know, this is one of those things, I, you know, go well, you know, there’s like a lot of people that are going well, I’m just in cash right now. And I’ll buy bonds when they start to improve. The problem with that is, is by the time that you recognize the improvement, you’ll have already missed 40% of the move. So you’ll miss the biggest chunk of the move, because it’s going to happen very, very quickly when it occurs. And particularly if the Fed starts cutting rates, it’ll happen very fast.
Adam Taggart 42:26
Okay, so the point being is this is one of those things that to capture, you know, a material chunk of the appreciation, you’re going to have to be in the position when that happens, right. And so well, we’re gonna get to your trades in just a moment. But I assume, I assume you think that this is a time for people, especially if you haven’t been in the bond trade yet? To start dollar cost averaging in, right, where you’re using the the current low prices as a good entry point? And yeah, it might take another 12 to 36 months, like you said, right? So don’t necessarily expect it to go to the moon tomorrow. But you’re increasing your exposure. And then your, as time goes on, you’re getting closer to that, that turnaround date whenever it finally manifests. Yeah.
Lance Roberts 43:14
And again, it’s just you know, and, you know, you said that you’re like, I’m shining a light on this. It’s like, No, I’ve been talking about this for the last six months, right. So
Adam Taggart 43:23
I know you’ve been talking about, I just want to make sure the audience is really picking up. This isn’t like,
Lance Roberts 43:27
you know, just Oh, today I just woke up and did this. Now, this is a, you know, this conversation we’ve been having for four months now is that, you know, the undervaluation and bonds relative to stocks makes them extremely attractive, versus stocks, and particularly, you know, rising interest rates are not great for about for stock valuations. So when the Fed starts cutting rates and interest rates start to fall, valuations are gonna be falling along with them, because earnings will be declining. So there’s a you know, there, that rotational shift from equities into fixed income is also going to be a big driver of that gain in price.
Adam Taggart 44:05
All right, and I’m going to ask you to just speculate here in terms of the level of overvaluation, kind of like, What are you playing for? And maybe we’ll, we’ll say this with your personal holdings. So, you know, it’s not necessarily, you know, not holding you to something that your clients might hold you to, but like, you know, the tenure right now in the high four percentiles, like what do you kind of play in for like, like a 2% handle on the town or 3%?
Lance Roberts 44:35
If you if you have a if you have a recession, you’ll be 1% ish. Don’t forget we got 2.3 on the 10 year, and 2020.
Adam Taggart 44:46
Okay, so what rough math in your head, what kind of percentage price appreciation Do you would you expect to have in bond yields under those types of scenarios?
Lance Roberts 44:57
You should get anywhere from 30 to 50%.
Adam Taggart 45:00
Okay, so basically, you’re getting you’re setting yourself up for a 30 to 50% gain in price while getting paid in the high four percentiles, you know, along the way. Yeah. Yeah. I mean, you’ve got the safety of the US government to, you know, as the backer of the principle of those, those bonds. So from a risk return standpoint, yeah, I mean, that’s pretty freakin hard to beat right now. Yeah. And again,
Lance Roberts 45:27
now, again, you know, it’s going to be different if you run out and buy a, you know, 10 year bond today at par value, and then yields fall tomorrow, that bonds gonna go up in price, but your greater appreciation is going to come from buying deeply discounted bonds that were issued at much lower coupons, because remember, it’s always price and yield are the same thing. So you know, people go, Well, what should I, you know, there’s, there’s a bond out here that’s currently got a coupon of three and a half, or I can buy this four and a half percent coupon, you know, it’s the same thing, it doesn’t matter which one you buy, they’re both gonna yield four and a half, because yields are always the same. It’s the price that varies. So my greater appreciation is I can find, you know, a 10 year bond it’s issued, add that, that has a much lower coupon, I’m gonna have a big depression and price. So when that bond matures at par value, I’m gonna have a bigger price appreciation on that return to par.
Adam Taggart 46:25
Alright, that’s really interesting. I’m glad you brought that up. And I hope folks are realizing this where most people who are not super experienced bond investors would just look at the coupons. Yeah, right. I get this higher coupon better. But you’re really saying look at the yields.
Lance Roberts 46:40
Yeah, because the yield is what matters at the end of the day, the coupon doesn’t matter. It’s always the yield to maturity. So if I’m because Because government bonds always going to mature at face value, so governments. So just just in theory, right, if I could find a 10 year Treasury that was trading at 50 cent, you’re not going to do this, by the way, I’m just maybe I need easy math. But if I found a 10 year Treasury that had a that was trading at 50 cents on the dollar, and I buy it at 50 cents on the dollar, it’s going to mature at 100 cents on the dollar, the government when it matures, it’s going to yield 100 cents on the dollar. So I’m going to get that appreciation. But this is why yield is what matters. If I look at that bond, it’s going to have exactly the same yield as a new issue coupon bond, because the yields are always the same. Why? If Adam has a bond with a 3% coupon, and I have a bond, and I’m issuing a bond at 5%, why would anybody want to buy Adam’s bond? Right? It’s a 3% coupon. So the only way to make that bond attractive to a buyer is he’s got to discount the price. So that ultimately when that bond matures at face value plus that 3% coupon, it’s exactly the same yield as my 5%. Coupon today. So never buy a bond for the coupon. It’s always about yield to maturity.
Adam Taggart 48:07
Okay. So it basically bond market hyper efficient, right. So it’s doing the real time pricing for you as everybody bids for this stuff. Right, whatever the coupon is, it’s getting the yields to equilibrate. Again, just in case folks didn’t get it. Why do you expect the the bond that sells at a lower price, because it has a lower coupon to appreciate more than, say, a brand new bond issued today, if the future plays out the way you think it’s going to?
Lance Roberts 48:35
Well, we’re talking about percentages, right? So we’re talking about centage gain, percentage gain. Exactly. So if if I have a bond, so what’s a bigger percentage movement? So let’s say I have a bond that I issue out at 100 cents on the dollar. And when yields fall, it’s going to trade at a premium. Now, it’s going to go from 100 to 110. Right? Because as it as the price moves up, the yield comes down again, it’s always matching yield to the market. If I can find a bond that’s trading at you know, 80 cents on the dollar, and I’m just I’m just throwing out math, right? But I like those 100 because now everybody wants that, that that bond as prices are falling, it’s going to gain 20% So there’s going to be some potential arbitrage in the market and look the bond market is going to flush out arbitrage really fast and this is why you know we were talking about a minute ago, you’ve got to be positioned before this happens because the any arbitrage is that exists in the bond market are going to go away immediately. Because everybody’s gonna figure this out very fast. But again, this is why you know, if you’re buying none of this matters, if you’re buying TLT or you’re buying ETV whatever this conversation has nothing to do with you because it’s the price is going to move with the with the appreciation and bond prices. But there are there are bonds out there In the markets that are marked much lower than probably where they should be. And so there’s some potential arbitrage there that, you know, if you’re able to find the bonds and able to to acquire them, you’re going to make a better return potentially, then buying a new issue coupon, my point of the conversations is that I’m getting a lot of emails saying, I want to sell my old bond that has a 4% coupon to buy this new one as a foreign five eighths coupon, it doesn’t matter, the yield is exactly the same. So all you’re doing is selling one bond and loss to buy another bond with the higher coupon. And it’s fine, if that makes you feel better. But it’s all about yield at the end of the day, and just selling a bond that’s down in price is not going to matter. Because at the end of the day, when when everything goes to equal, the yield is going to be exactly the same. Right situation and coupon versus just coupon.
Adam Taggart 50:56
Okay, got it. So I guess I’ll just sort of summarize as a takeaway for folks listening here is a great time to buy bonds, there’s real opportunity within bonds, to to create better gains than just buying the latest bond that’s being sold in the most recent auction. But it’s a little mathy, you need to have experience doing it. If you just want to ride the general trend, use the ETFs, you just mentioned, you know the names of a couple of them like TLT. But if you want to explore something a little bit more sophisticated than that, and you don’t have a ton of experience trading bonds yourself, which from the feedback I’m getting from folks, the vast majority of people, you know, work under the partnership and guidance of a experienced professional financial adviser who you know, understands these instruments and can give you advice on that.
Lance Roberts 51:48
And look, just real quick look, you know, we kind of went all around the circle there. But there’s, there’s a lot of moving when you’re building a bond portfolio. Look, I’m not a bond expert. That’s not my bailiwick. That’s my bailiwick. That’s what he does for us. But there this is what Mike and I are doing all the time is that we’re looking for situations that are unfairly priced relative to where they should be in the market, whether it’s mortgage backed securities or closed in funds trading below par value, there’s a lot of opportunities where things get mispriced. And there’s you can take advantage of that. But those those Miss pricings won’t last long, because the market will figure that out when things start to move and then they’ll price them fairly. So that’s that’s my point of the conversation, which is, you know, again, going back, don’t get caught up in the coupon that has nothing to do with anything. It’s only yield that matters. And ultimately what we’re playing for here is for the Fed to cut rates have a recession yields come down, prices go up. That’s your opportunity.
Adam Taggart 52:52
Okay, awesome. All right. Moving on from from bonds and great discussion there, Lance. Thanks for going deep with us on that. I I kind of had to chuckle a little bit today. reading some of the latest headlines about FTX. Right. This is Sam Beckman, Fred’s crypto exchange, it kind of fell out of the headlines for a long time. I was I was interested in watching the 60 minutes the other week where they interviewed Michael Lewis, right. Probably the greatest financial What do you want to call him? You know, storyteller, forensic journalist. You know, he’s he’s written just iconic books about some of the greatest excesses of Wall Street. And as fate would have it, he was embedded with Sam bank, Winfried, all through this whole process. So he was writing a book about the whole, you know, FTX sort of miracle. And then was there watching it once the news came out and the whole thing started to fall apart. Right. So we’ve got probably the best man for the job. You know, there were the front row seat during the whole thing. It was kind of interesting is, you know, he is basically saying like, he doesn’t think that he said, I don’t think Sam bank Winfrey truly, really believes he did anything wrong. You know, in this story, it wasn’t like a mustache twirling guy who was trying to defraud investor investors and run it through Ponzi scheme. But what’s interesting is what’s coming out now is when a SAM Beckman Fried’s top lieutenants his former girlfriend, Caroline Ellison, who ran Alameda research, which is basically the entity that they were, they’re gonna get in a lot of trouble for. She’s basically admitting she kind of turned state’s evidence and said, Oh, my God, you know, I was being forced to write, create balance sheets to reflect that we were doing things. You know, we were much better off than we were. And you know, Sam was siphoning off client funds to do things he shouldn’t have been doing. So it actually does look like criminal real criminal activity was going on. And it just sort of shows that like, it’s just it’s just more of the same, right like, this is the It’s truly these these stories that are too good to be true. They generally always end up playing out the same that Yep, it was it was overhyped, and it was unsustainable, oftentimes, ill gotten criminal activity at the core of it. And FTX at this point seems like it probably was no different.
Lance Roberts 55:18
Well, again, you know, we, but we’ve seen this going, you know, all the way back to Mt go, you know, that, you know, money disappears, we saw, you know, with by Nance and a lot of others. So, you know, it’s, you know, this whole look, I get it right, cryptocurrency, it’s a, it’s a cool thing, we’re all going to move to a digital currency at some point, that’s just a function of time, we’re there. Now, I mean, for the most part, I can’t remember the last time I actually pull cash out of my wallet. So, you know, we’re all definitely headed in that direction. But as I’ve said before, it’s going to require ultimately a lot of regulation. And it’s not going to be this kind of free for all wild west thing, that, you know, there’s complete anonymity and, and all that because no government is going to allow that to occur because the flow of currency is very important not only to economic stability, but also the national security guard know where the money’s gone, or funding terrorist organizations or whatever. So, you know, there’s eventually going to be a cryptocurrency the government’s gonna highly regulated, every, every government’s gonna regulate their own their own currency, at some point, we’ll definitely be there. What the ultimate future for Bitcoin is, and Aetherium, I own some, just full disclosure, I don’t know, you know, I’ve owned the, you know, the currencies for, you know, three, four years now started as an experiment, and just to learn more about them, and again, just a still hold them now just kind of watching the the ebbs and the flows, but I don’t really see what the future is going to be, there’s not there’s not to date, really any viable, you know, use for these things other than, you know, potential one off transactions where I can maybe buy, you know, something with Bitcoin, but you know, Tesla tried it, they abandon that very quickly, because of the volatility, you know, I can’t have a current, if I’m gonna have a currency, I can’t have a currency that’s moving 10 or 20% a day, that’s just not viable for business, it’s got to be stable. That’s one beautiful thing about the dollar. Yeah, maybe Fiat, but it’s stable, I can make a transaction, I can pretty much count on the value of whatever that dollar is that I’m receiving for my goods or services that I’m providing. So eventually, someday, this is going to have to be more organized and more stable. And whether it’s a central bank, digital currency, or whatever it is, it will be regulated. These issuances will be regulated. And again, doesn’t mean there won’t be other current or other coins that are issued. But they are going to fall deeply within the Securities and Exchange rules and regulations for issuing securities. And because that’s the way they will ultimately be treated is is oh great. You want to issue a a coin. That’s awesome. It’s a security it’s just like going IPO with a with a with a company stock. So you have to meet all the requirements. And again, that’s to help eliminate fraud and people losing millions and millions of dollars, which is always terrible when it happens. But I do find it interesting. You know, it’s it’s always at the end of the day, Adam the woman scorned. She is definitely having her day in court.
Adam Taggart 58:27
Oh, man last Yeah, you’re gonna get us in trouble with both the crypto fans and the ladies watching this channel.
Lance Roberts 58:34
Look, I’m not trying to offend crypto fans. Again, I own them. Right. I’m just I’m just saying from my personal perspective, I have not seen a valid use yet for the cryptocurrency that I own. And maybe they remember because we remember when cryptocurrency was first gaining, this was supposed to take the place of all real estate transactions. We were you know, crypto is going to take the banks out of the middle, we’re gonna do you know, peer to peer transactions and all this stuff real time. It’s yet to occur. Not saying that it won’t, right. It just hasn’t yet. And you know, it’s been over a decade now. So we’ll see. We’ll see. I again, I’m not I’m not Pooh poohing cryptocurrency at all again, I on some, you know, but, you know, I just, I think there’s a I think we’ve got a lot further to go than what a lot of people think before we get to some end use of whatever cryptocurrency is and eventually become.
Adam Taggart 59:27
Yeah, and it’s kind of interesting, you know, Bitcoin is has been hanging in at the sort of 26 20,000 range for a good while right now. I mean, its volatility really has kind of gone down. And I’ve just been interested, is it is it stabilizing? And is that sort of a show of strength and it may power higher from here because for whatever reasons, you know, or is this just, you know, sort of the coyote is still just hanging out mitad or, you know, gravity’s taken a lot of kicking, who knows. And I don’t want to make this a cryptocurrency video just because I’m totally not prepared to have that discussion right
Lance Roberts 1:00:06
now. And that’s not my expertise. That’s no
Adam Taggart 1:00:09
and it’s not either but but where I’m going with this is actually, I’ve seen an increase. You know, I always get a couple of weeks, but I’ve seen an increase over I’d say the past month of viewer saying, hey, you know, Adam, bring somebody from crypto from crypto, at least Bitcoin on. And, you know, let’s hear the latest sort of fair argument for you know why it’s got a big future ahead of it. Folks, if that would be of enough interest to enough of you? Let me know in the comment section below. And if there is enough, I will i Your wish will be my command, I’ll go out I’ll try to find one of the most prominent Bitcoin or crypto specialists will try to keep it as agnostic as possible, and hear what they have to say. Alright, so I the only the only bow I want to put on this part of the conversation is that no matter how potentially perfect, the underlying asset that you are working with, fraud is a human story as old as time and it looks like this time was was no different, you know, the miracle that was happening and FTX that nobody could fully explain, but everybody wanted to be on board. At the end of the day, it does look like it was had its roots in just pure old fraud.
Lance Roberts 1:01:22
Well, and just remember, you can’t have fraud without greed. And at the end of the day, this is all about greed. And maybe, maybe he maybe his simple Jack argument will will prevail in court, we’ll see. It certainly doesn’t look away right now. But I’m not sure the I was too stupid to know better is going to play. Right, especially
Adam Taggart 1:01:45
especially after Caroline, I guess mentioned the words, tie prostitutes. Whenever that comes up, you know, in the deposition, that’s not good. And apparently what she was talking about is they they look like they paid a lot of client funds is basically a bribe to foreign nationals, which highly likely was players in the Chinese government and potentially, a group made up of what might have been sort of, I don’t know how Chinese prostitutes came in, in the mix, whether it was a ring that that ran a bunch of Chinese prostitutes, I don’t know if there’s the Thai prostitutes themselves, but it’s just not looking good. We’ll put it that way.
Lance Roberts 1:02:22
Yeah. But again, like I said, You they it’s all about greed. And look, you’re never going to extract greed from the financial markets, and you’re never going to extract greed when you have, you know, an ability to just issue something without any real rules or regulations. And, you know, so, you know, this is, this is always the issue that we talked about, when you’re thinking about doing any type of private investment, any type of unregulated investment of any sort, you’ve got to do multiple levels of your due diligence, because this is how people get scammed all the time, you know, from a variety of deals, but crypto was super easy, because there wasn’t, there’s not anything really out there to stop or to formulate the creation, right. It’s not a it’s not a you know, cryptocurrency doesn’t have a gold backing to it, it’s not doesn’t have a an asset behind it a lot of cases is just somebody’s idea and some code. And that’s very easy to replicate, when you have so much demand for it, everybody’s wanting to go out and get, you know, whatever the latest one was, it was very easy to create a fraudulent environment for that and sell something that that may have had no value and no real intent at all. And we saw it and it wasn’t just FTX. Again, we saw several of these where money just evaporated. And people went on the lam and nobody ever heard from them again. So, but that’s, that’s why you’ve always got to be really careful when you’re making investments. And one of the reasons that, you know, buying things that are highly regulated, like stocks, like bonds, you know, like commodities, which are highly regulated, you know, those at least, you know, there’s oversight over those assets, which helps and doesn’t solve it. Obviously, you have you had Alan Stanford and Bernie Madoff, it doesn’t keep you from having fraud. It doesn’t keep you from being defrauded. But it certainly helps minimize the risks of what because you own that asset in your account. It’s held in your name, you know, at Fidelity at Schwab, you can see it on your statement, there’s a value attached to it every day, that really reduces the risk of you winding up in some type of fraudulent transaction and losing all your life savings.
Adam Taggart 1:04:42
Right well, and also the financial reporting that’s required by regulations, which total nightmare if you run a public company, but it’s there for a reason, right? And you gotta be very careful in the private markets. We’ve talked a little bit about this in the past like it’s not a lot but a little and just again here in the the FTX example Well, Caroline Ellison was saying that Sam Backman fried demanded that she creates seven different versions of the balance sheet so that he could pick the one that he wanted to show investors. Right? Yeah, can’t really do that with a public company. It’s not that they can’t still monkey stuff around. But their ability to do so is much less limited than like, hey, let’s just make up some numbers and show a piece of paper to our investors. And that’s all we’re gonna give them for
Lance Roberts 1:05:23
the year, right? Absolutely. Absolutely. All right,
Adam Taggart 1:05:27
so we’re beginning to get tight on time. So I’m going to start winding down, I want to put up one chart here, if I can. Just to note, you know, we talk a lot about where the economy is going. And the fact that we have a big consumer driven economy. So as so goes to consumer, so goes, the economy, at least in theory, we are seeing consumer spending, really beginning to look quite weak. So this is the percent change in consumer spending, I think it’s percent year over year change. If I’m not mistaken, I don’t think it’s monthly. But But basically, you can see 2023, really starting in October of last year, so it’s basically been a year of negative growth. And we’ve now in the past month, we’ve exceeded the worst monthly growth, or worst monthly negative growth month that we experienced during COVID, which was April of 2020. So to me last, I mean, this, this catches my attention. This is definitely like a strong, blinking light on the dashboard of the economy. I’m curious to get your reaction to
Lance Roberts 1:06:33
this. No, it’s, it’s what you would expect. If you look at 2021, you had 34% 22% 16% 10%. So not surprising that as the money’s been running out, and now that you’re restarting student loan payments, that you’re starting to get a reversal of that spending. And again, but you’re reversing that spending from very, very high levels, and we’re working our way back towards a normal trend of spending. So it’s important to extract the number that you’re looking at, it’s like, oh, my gosh, we’re down. 10%? Yeah, that’s a big number. But don’t forget that we were up 10.8, you know, 9.8% 2021, and another 1% 20 22%, for the the same month in September. So, you know, yeah, we’re reversing and 13% in 2020. So yeah, we’re reversing some of that spending that we had previously, you know, as savings run out as the student loan payments restart, and that’s going to help that’s gonna, that’s gonna do two things, it’s going to slow the economic growth, and it’s going to pull inflation now.
Adam Taggart 1:07:34
Right. And just to just to use your analogy on this, the direction is important, right? Like, let’s say your change in altitude is 1000 feet, right? That’s important, but it’s much less of an issue. If you’re starting from 30,000 feet and going down 1000 feet, it’s a much bigger deal that if you started at 900 feet, and then you’ve gone down 1000. Yeah, that’s where you have impact, right? So it really matters where you are in the story. But, you know, when we’re looking at trends, when we’re looking at direction and momentum, this is showing that the consumer is weakening.
Lance Roberts 1:08:06
Yes, and exactly he should expect. And that underlines that narrative of potentially, you know, softer profit growth, softer earnings as we go into next year.
Adam Taggart 1:08:17
Okay. as we as we wrap things up here, I just want to, I want to go back to that we’re gonna get your trades in just a second plants. But we’ll actually when we get to your trades now, we’ll get to your trades now. And then I’m going to do a little personal opining. So what trades have you guys made over the past week?
Lance Roberts 1:08:35
Well, we did two things. This week one, we had a, we’ve owned Costco for a long time. And we had grown into a pretty significant position in the portfolio. So we trim that back a little bit. Part of that has been on the underperformance of staples as of late because of this news on his Olympic, which, you know, we’re having a bit of an AI moment with these fat with these weight loss drugs is like oh my gosh, everybody’s gonna take these weight loss drugs and everybody’s gonna lose weight, nobody’s gonna eat junk food anymore, everybody’s gonna get new clothes. So we’ve seen a bit of a contraction and staple stocks, that’s pretty much that’s that’s going to be a fairly false analysis going forward. These drugs do make you want to eat less, but it doesn’t make you want to eat better. So you don’t stop eating junk food, you just go to McDonald’s, you order your Quarter Pounder with Cheese or whatever. And instead of eating the whole thing and a complete clean order of fries, you eat three bites and you’re full and you don’t want anymore so but you’re still spending the same amount of money on junk food. So, you know, the the narrative will work itself out over time. Plus, there’s some really bad side effects from from these drugs that have to be worked out over time. And again, if you’re not prescribed a drug, it’s $1,000 out of pocket, there’s not a lot of people that are gonna do that. So this this kind of narrative that everybody’s going to get on the drag is probably not valid. But so again, we did trim back our staples, just a little little bit, we were overweight staples in our portfolio anyway, trim that back. And then we had sold Exxon Mobil a couple of months ago, that didn’t sell at all, we just taken some profits out of it because we talked about gardening. And so whatever, Tuesday or Wednesday of this week, we took that into an overweight position. After the day, they actually announced their acquisition of pioneer resources, stock took about 5% hit and we overweighted our position ExxonMobil because we liked the company long term and the acquisition of the shell driller really expands their their whole kind of base production model. So it’s, it looks really good going forward.
Adam Taggart 1:10:42
Okay, and just FYI, folks, again, dimension, the conference, Rick Rule, just interviewed, recorded his presentation, as he did last time, he just leaves it all on a playing field just shares dozens of companies and tickers of the companies that are on his personal watchlist, or in his personal portfolio, he gave a bunch in energy. And he gave a bunch of names that probably most people, you know, we don’t hear every day. But he did say that ExxonMobil was just at the top of his list for those that want to, you know, invest in quality. And he said that they are probably the only oil major that is investing in capex enough to maintain their current levels of production. So just FYI, you know, if there’s sort of a gold standard in the space, I think, I think Rick would say it’s definitely Exxon. So do you think it’s a good time to buy them? Lance? It’s probably saying something. Yeah. Okay. You because your product was epic? I just got to ask you this. So you and I were we’re big health and fitness guys. Right? I’m just curious, what, what do you think about this ozempic trend? You know, part of me, part of me wants to resist it a bit. Like, you know, it’s the easy button. And the easy button is never really it, it addresses the symptoms, but it’s not really curative, right? Is this mostly that or at the same time? Like, are we just happy that it’s better than not doing it right? Is it better to be morbidly obese and not take it? Or is it better to lose the weight and get some of the health benefits from being you know, less overweight? But you’re not necessarily, you know, it comes with side effects. And that, again, it’s maybe not necessarily still curing, you have a core unhealthiness of your lifestyle? What do you think
Lance Roberts 1:12:29
so, so just, I have personal experience with this. So my wife is going through menopause. And hopefully, she will never see this video that I’m making with you right now, you for sharing all this personal. This will be my last video she finds out. But my wife’s in her late 40s She’s beautiful. But you know, and you know, when you go through menopause, your body changes a lot. And losing weight and trying to keep weight off becomes very difficult or harder. At that age, and especially when you’re going through that hormonal change, within within females guys go through it too. You know, we have a big drop in testosterone. And that’s why you see all these centers out now, you know, come in and get your testosterone shot, right, boost your testosterone and lose weight. So but as men ages, well, you know, we, you know, our hormones and our testosterone fall, and it becomes very difficult for us to lose weight as well. So, so this is Olympic and related drugs, I’ll work off of what’s called this mega tide, which is basically this, this chemical that makes you not want to eat effectively. And, and so it’s, it’s almost like a force of diet to, for lack of a better term. And so part of my wife’s regimen, that so she’s going through hormone balancing right now, and we work with a very specialized doctor, both I and her to balance our hormones and, you know, get us, you know, keep our health standards as high as possible. Of course, you know, having said that, as you know, and as we talked about your on the show, we combine that hormone balancing, it’s not that’s just not all we do. We very, very healthy, we exercise every day. So we have a very, a very rigid program that Moshe and I are on. But I can tell you that this magnetized issue and my what kind of version you go, it just makes you not want to eat. In fact, the sound of food, in a lot of cases just makes you kind of ill, it’s like I just, you know, she goes to the she’s like I would love to eat, but I just want to look at food. I’m just like, I don’t want it. And so that restriction and that caloric intake. You’re starving yourself for lack of a better term and it forces your body to start consuming itself and so the issue that you have from a health factor is that yes, you’re going to lose weight, but you’re not going to be healthy. The yes, if you’re a diabetic, you’re going to lose weight. And that may help with the diabetic syndrome. But it doesn’t force you to eat a healthier diet, it doesn’t force you to go out and start exercising and doing all the other things that are necessary to be healthy. And to conquer that disease long term. And you can’t take this drug for the rest of your life, you can only do it for a very set period of time, and then you’ve got to come off of it. Because it’s not good for you, the side effects are not great. So you know, you know this, again, you know, everybody’s jumping on this, this kind of weight loss miracle is the new AI trend for stocks. And you know, it’s going to have an impact, I will tell you, and these drug companies are going to make a crap ton of money off of this, and they’re gonna be sued down the road out the wazoo because of all the side effects. But the drug companies don’t care about this, they’re gonna make billions of dollars, and they’ll settle this thing for a couple of billion down the road. And, you know, it’ll be fine. They’ll, you know, they’ll be very profitable from this. But this isn’t the cure all this is this is the easy pill to try to lose weight. But, you know, we were having this conversation. This morning, I have friends of mine, that are very overweight. And they’re perfectly happy being overweight, they’re they they like going out and drinking, what they drink and eating what they eat. And they don’t care that they’re overweight. I mean, they’re, they’re very happy and content, they’re not going to get on these drugs ever, right? Until somebody forces them to. So you know, I’m not sure this turns out to be the massive gold rush that people are building into companies right now that are producing these drugs, it is going to be beneficial, they are going to make money off this. But you know, I think this runs its course, kind of fairly quickly over the next next two or three years.
Adam Taggart 1:16:54
All right. I actually got a ton of questions. I’d love to keep talking with you about this, but we are super tight on time. So we’re gonna have to pick them up next time. Lance, I know you gotta hop because you’ve got a video another interview to do, I think now. So I’ll say goodbye to you. And then I’ll just a walk folks out here. Thanks so much. So it’s been a great week. Next week. All right, folks, just details on the conference real quick. If you haven’t registered for it yet, if you’re watching this this weekend, it’s time to to lock things in, we still have the last chance to save discount price up until midnight on Sunday. So if you’re able to do so, head over to wealthion.com/conference, you’ll find all the details of the conference there. And you’ll be able to lock in that last chance to save discount before it rises to the full price on Monday morning. And if you’re watching this video after that, well, you still have until up until the morning of October 21, which is a Saturday to buy your ticket because on that Saturday, we’re then doing a conference. If you can’t watch the conference live, don’t worry. Everybody who watches is going to be sent a replay video of the entire event, all the presentations, all the q&a. So it’s at everybody’s gonna get a chance to get the developer to watch everything within 24 hours of the event ending hopefully even sooner. And as we do every week on this channel, I think Lance made a couple of great points on under this week, especially if you’re interested in buying bonds like individual bonds, I highly recommend that you work in trying to figure out what to how to guide your capital through what’s coming work under the guidance of a good professional financial advisor who understands all the macro issues that Lance and I talked about and takes them into account in their portfolio allocations. If you’ve got a good one, he’s doing that for you. Great, stick with them. But if you don’t, or you’d like a second opinion from when he does, perhaps even Lance and his team there at Ria, then fill out the short email@example.com to schedule a free consultation with one of the financial advisors that Wealthion endorses. These consultations are totally free. There’s no commitment to work with these guys. It’s just a free public service that these financial advisors offer to help as many people as possible position as prudently as possible for what’s most likely to happen ahead. Thanks so much for hanging out with me everybody. If you enjoy these weekly market recaps with Lance want to see them continue into the future. Please vote your support for that by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it. Thanks so much for watching, everybody. We’ll see you next week.