Are we heading into a full-blown reset across financial markets? In this explosive interview, Jesse Felder, founder of The Felder Report, joins James Connor to issue a dire warning: stocks, bonds, and the U.S. dollar are all dangerously mispriced, and a major repricing event may be just around the corner.
Felder explains why:
- The S&P 500 remains dangerously overvalued, despite recession signals
- Retail traders are driving a leverage-fueled bubble, while insiders are cashing out
- Tech optimism is fading as AI giants freeze CapEx spending
- Bonds face a historic risk: a “vigilante revolt” amid surging deficits and inflation
- The Fed may soon face a policy trap, under political pressure to monetize debt
- The U.S. dollar may have entered a long-term bear market, shifting the global macro landscape
Later in the interview, Rocklinc’s CEO, Jonathan Wellum, shares his reaction to Jesse’s conversation, discusses his firm’s 28% cash position, and outlines where he’s still finding value in today’s volatile markets.
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Jesse Felder 0:00
With the decline in stocks, decline in bonds, and then decline in the dollar, all at the same time, is the world saying we’re not comfortable holding dollar based assets.
James Connor 0:16
Jesse, thank you very much for being with us today. How are things in Oregon?
Jesse Felder 0:20
Things are great. Yeah, thanks for having me. Appreciate it.
James Connor 0:24
So I’m sure you would agree with me when I say the times we’re living through now are very interesting, and it’s every day is like walking through a financial mind. So you got to be careful where you step. But during times like this myself, I’m more concerned about protecting my money than making money, and I’m hoping you can help me with that, because I do need a lot of help right now, and I want to start a conversation on the S P. We topped out earlier this year at 6100 we went down to that 4900 level. It rebounded nicely up to 5400 it looks like we’re under pressure again. Now we’ve had numerous profit warnings out in the last few weeks. Walmart came out with the profit warning. They took their guidance down from the air. DR Horton, the largest home builder in the US, cut their guidance. We even had LV MH come out and cut their guidance, or they didn’t cut their guidance, but they came out with lower than expected numbers. Sales were down 11% in Asia, down 3% in the US. So not even the rich are buying right now. So what’s your take on the s, p, do we buy it here, or do we sell it?
Jesse Felder 1:29
I think you clearly have to sell it. I think that there’s, you know, we’re still trading roughly 20 times forward earnings, and those forward earnings haven’t really come down much, you know, if we are, you know, if we’ve already gone into recession or we’re headed for one earnings estimates still have a fair way to come down. I think typically they come down. At least earnings typically fall about, you know, 10% and coming into the year, the expectations were for double digit gains in earnings. So we’re still in that process. I think of estimates on forward earnings needing to come down significantly. You know, typically, you know, I was actually my trying to just explain this to my wife. You know, it seems like there’s so many people, but, you know, buying the dip right now, if you look at flows into leveraged ETFs, they’re literally setting records every day. Everybody seems to think, at least retail investors, that this is another terrific buying opportunity in historically, you know, you look back and you know what’s average? The average multiple for the S, p5, 100 throughout history, it’s roughly 15 times earnings, and not 15 times forward earnings. We’re talking about 15 times trailing earnings right now, we’re trading probably closer to 25 times. So it’s really difficult, I think, to make the argument that stocks are anywhere close to cheap. When you look at things like the buffet yard, we’re still closer to record highs than anywhere near you know anything that’s been consistent with a low. So just from valuation standpoint, and from a sentiment standpoint, I think, you know, retail is still far too bullish. We haven’t, you know, stocks aren’t cheap yet, and there’s a real risk of, you know, being a more than a just run of the mill recession here, where you get an earnings decline of 10% you know, the flip side of I think this, this bullish sentiment in among retail investors, is last year, insiders were extremely bearish, probably more bearish than any point they’ve been in at least a decade. That has a really good leading indication of what the earnings in the economy are going to do in the 12 to 24 months ahead. So that suggests we’re still headed for a decline in earnings, and that could be, you know, bigger than, bigger than you typically see in recession, that is yet to be priced into markets. Well,
James Connor 3:54
it’s interesting, when you said, historically, they treated 15 times, and we’re now closer to 25 times, even if you take that number down to 20 times, like, what’s the ballpark estimate on the s, p at 20 times, it must be significantly lower,
Jesse Felder 4:09
yeah, you know. And actually, was just talking with my friend David hay about this. When you look at something like the equity risk premium, right? The earnings, the earnings yield today is, is, or the equity risk premium is just tiny. You know, the earnings yield on the S, P is still it’s another way of looking at the price to earnings ratio, right? We’re just talking, you know, earnings to price, instead of, you know, price to earnings. And, you know, typically, over the last 10 years, we’ve seen that earnings yield rise to about, you know, 6% six and a half percent at market bottoms over the last decade, that would put the S p5 100 at around 4000 on the S P, but right now, real interest rates are higher than at any point they’ve been in probably 15 or 20 years. I’m talking about the 30 year tips yield. So if you look. If you’re trying to create, like, look at what’s the equity risk premium usage you would compare to, I would compare earnings, you know, the earnings yield on on equities, to, you know, the something like the tips yield. And with that at a record high, you would have to think that the risk for stocks is, you know, a high. You know, in the earnings yield as well. So you could push seven, 8% on a bottom in the earnings yield, which would take the s, p further, you know, down to something like 3000 on the SPX. You know, that sounds insane right now, but in these major bear markets, like we saw in 2008 and back in 2001 and two a 50% decline from top to bottom, and the S, p5, 100 is not out of line. Hi. I
James Connor 5:46
hope you enjoy my conversation with Jesse fielder. Make sure you stick around until the end, when I will chat with Jonathan Willem for his thoughts on this conversation. Now back to the interview. Yeah, I would agree with that 100% and the other interesting point you just made was that people keep buying this dip right in and when you look back on the last 25 years, even if you exclude oh 809, because that was kind of related to the housing it wasn’t really a bubble like we saw with the tech bubble. And you know, I would almost argue that what we’re going through right now, especially with AI, but all these other little bubbles that we’ve had with the metaverse, with nfts, with Ico, so many bubbles in the last five years, it’s very much like the tech bubble of the early 2000s when the S P dropped 50% over two years and the NASDAQ dropped 80% do you see that happening now,
Jesse Felder 6:41
absolutely, I think it’s, it’s very telling that, you know, Nvidia has been one of the stocks to lead to the downside as wealth de modern who does you know some of the best valuation work you know teaches, you know, the class Buffett took as a student at Columbia Business School on valuation suggested the start of year that NVIDIA was 50% overvalued, and that’s assuming its revenue growth and all these things that it’s seen the last few are maintained. I think what when the market is starting to wrestle with now is Microsoft basically put a hold on capex. Said, we’re not going to, we’re going to do our 80 billion this year, but we’re not going to grow from that point. We might start scaling back. We just found out today, I think, Wells Fargo reported that Amazon Web Services is kind of now in the same mode where they’re, where they’re shutting down additional capex on data centers, if we see, you know, a CapEx digestion phase, as they like to call it, in the tech world, that’s not priced into semiconductor stocks right now, any of them. Nvidia probably is the most important one to watch, so that if you do get a normal cycle, a down cycle, in semiconductors, the valuations are so extreme in that group, they’re definitely not priced for that. So, yeah, I absolutely agree that there is a potential bubble, you know, in, you know, around this AI theme that’s very similar to the telecom build out that we saw during the, you know, building out the backbone of the internet with laying fiber optic cables and, you know, all this stuff and networking that went crazy and benefited company like Cisco. You know, it seems like there’s, there’s potential for, you know, a massive overbuild again, this time around, and a digestion phase could result in a significantly more painful decline in the stock prices than we’ve seen so far
James Connor 8:40
well. And the analogy I was trying to make was during the early 2000s the NASDAQ, it was down like one 2% every day, every day, these stocks were bleeding, and we really haven’t seen anything like that. We’ve always had these pullbacks and then followed by a very fast correction. And it’s going to be interesting to see how investors, investors of today respond to this day after day, week after week, month after month, of just a slow bleed in the markets, you know, over the course of two years.
Jesse Felder 9:14
Yeah. I mean, it’s a great point. The Wall Street Journal had a statistic within the last week or two where they showed that this year, so far, has been the worst performance for a buy the dip strategy in the last 100 years. So it’s interesting that we see this huge push towards buy the dip and using leveraged products to do that at the same time, it’s not working. And so I think that’s a real concern of mind if we have so much money that’s poured into these leveraged products, and by the dip is not working, at some point that money is going to come out of those products, and we’ve really never seen a bear market driven by the unwinding of leverage in. Those types of things. They just weren’t around and during the great financial crisis, we didn’t have anywhere near like the leveraged ETFs and things that we have today, the zero data expiry options. There’s so much more volume in these leveraged products today than we’ve seen before, that maybe the only thing comparable is the use of margin debt back in the 1920s so it’s, I’m concerned about how you know this, this leverage might be unwound, yeah,
James Connor 10:29
and it’s this level of speculation. We’ve never seen it before. And I was reading a stat recently, both the number of searches on YouTube, YouTube being the second largest search engine in the world. And on any given month, there’s five to 6 million searches on trading, and that could be equity trading, commodity trading, whatever, but there’s 50 to 60 million searches on sports betting. So to your point, it’s just, it’s pervasive throughout society,
Jesse Felder 10:57
mentality. And you know, I mean, it’s, I think it goes along with, you know, I’ve been reading, you know, Ray Dalio book on the changing world order, order. A lot of people have been talking about, you know, the fourth turning in these things and and, you know, a lot of that is, you know, speaks to the division in in wealth, and people feeling like their only hope of kind of, you know, and we saw this during the 2021 you know, meme stock bubble. Somebody pointed out, I think, you know, there was a, you know, I can’t remember what they called them back in 2021 but it was one of these, you know, digital artworks that somebody paid $60 million for, and it’s NFT,
James Connor 11:43
yeah, it was an NFT, by people. It went for $69 million Christie’s,
Jesse Felder 11:48
and it’s worth 12, $13,000 today, according to estimates. And it just speaks to the, you know, the desperation I think there’s, there’s a class of people out there who have, who have, you know, who find, who found it very difficult to kind of climb the wealth ladder. You know, it’s very difficult with housing prices where they’re at, and so speculation and trading and and, you know, sports betting has become so popular. But you know, my friend Peter Atwater has done some really great work in this, and I think what it speaks to is, if we do get a major bear market, and a lot of people are really hurt by these leveraged products and things, it does set the stage for some type of a, you know, political backlash people being Even unhappier than they are today about the political situation and things, and it’s how you get major, major change in society. So, you know, I don’t dispute people like Ray Dalio and Neil Howe, who talk about, you know, we’re, we’re headed for some type of major societal restructuring. So
James Connor 12:57
the low we saw in the s, p here in the this month was 4800 it looks like it’s heading toward there again. Do you think we take it out? I
Jesse Felder 13:07
definitely. I think the only question that I have is, do we take it out and then do we bounce again? Or do we, do we, you know, get a another real kind of waterfall decline once we break those lows? I can’t answer that question, but I do think we’re headed for new lows. If you look at the early stages of major bear markets, a lot of times they start with a very steep waterfall decline like this, like we saw, you know, earlier in the month, and then they then they try and form a bottom. But if you even look at like the 1929 crash, it happened that way. It was a much, much, you know, steeper in percentage terms and what we’ve seen. But then, you know, it started to rally for a few months, and then rolled right back over and to new lows towards the, you know, which would be kind of in the fall of our time frame. So I don’t know which of those outcomes more likely, but if you do believe we’re in a bear market that’s associated with recession and earnings are going to decline, we’re probably headed for new lows. And as I said, it could be we just take them out briefly and then rebound again before making a, you know, another low in the fall. Or as I say, that the leverage that’s in the system right now has me worried about the fact that we could see an extension of the waterfall decline we saw earlier this month.
James Connor 14:30
Well, we’ve only had a few companies report here in the last few weeks. We still have a slew of companies coming out here in the next couple of weeks, all the big ones, Google, Tesla, meta, apple. So it’s going to be interesting to see the commentary out of these companies, but I think the real pain is going to come in. Q2, for sure, but so you’re negative on the s, p, let’s move on to the bond market. Now we’ve seen a lot of volatility in the bond market. They’ve gotten pounded in the last few weeks. The yield on the 10 year has gone from a low of 390 up to four. 60. Now it’s around 430 but the one that really concerns me is the 30 year it’s approaching this 5% level. Again. What’s your thoughts on the bond market?
Jesse Felder 15:11
Well, for the last, at least the last year or two, I’ve called the yield on the 10 year treasury the most important chart in the world, because I just think so much is priced based on that. And we’ve, we’ve seen a regime change, right for, you know, 40 years we got used to, you know, disinflationary environment and falling interest rates. And I think we broke out of that downtrend channel, you know, several years ago, on 2122 and we’re potentially in a new regime of rising inflation and rising interest rates. And so watching that 10 year yield is critical, because there’s so many indicators right now that point that suggest you know so many people would expect, if we’re going into recession, interest rates going to come down right Warren Buffett, this is another thing I’ve written about pretty extensively in recent months is is typically at this point in the cycle when Warren Buffett’s raising cash. He back in the late 90s and into the recession of 2001 he used that cash to buy long term zero coupon bonds and bet on a big decline in interest rates, which turned out to be a great trade. This time, he owns no bonds. It’s all in treasury bills at the very shortest end of the yield curve. So what? What’s different? Well, I think he’s, he’s worried about the fact that you could get a recession this time, and instead of interest rates falling, use markets of pricing and slower growth and slower inflation. Markets have to price in an increasing mismatch between supply and demand in the treasury market based on a further blowing out of the fiscal deficit, right? So you go in recession, tax revenues fall, and that that worsens the situation where we have, we already have a ton of debt to issue this year with a 7% to debt to GDP fiscal deficit. If that blows out further, this is going to create that much more supply in the treasury market at a time when we’re basically telling foreigners we don’t want your money. That’s a very, very difficult situation. So I think that’s why people you know, like Paul Tudor Jones, Ray Dalio Stan Druckenmiller, Warren Buffett, Bill Dudley, former head of the New York Fed, have been warning about the potential for a debt crisis for the past year or two. And you know, a recession could actually be catalyst for that, for that episode to play out. So I don’t have any interest in owning, you know, longer term bonds. I do think that even the 10 year could test that 5% level again. And even though, you know, a little bit higher, it looks, from a technical perspective, like we could hit five and a quarter, five and a half in if we really were to get some bond market turbulence,
James Connor 18:02
the one point I would push back on is the fact that we’ve been talking about these debt levels for decades now, okay, and here we are. It’s 2025 we’re still talking about the debt levels. Debt to GDP is around 125 or 130% but if you look at a country like Japan, it’s closer to 200% why can’t we just keep kicking this can down the road? Why is all this debt such a big deal? Well,
Jesse Felder 18:30
Japan was able to monetize their debt, right? The Bank of Japan bought up a ton of government debt, and there was no inflation. There was no cost to the central bank for monetizing that debt. We are already in an inflationary environment, so to the extent that we decide we do not need to address the fiscal side of things, we can allow the debt to grow exponentially, even in an inflationary environment, and then just rely on the Fed to monetize it. That sets up a real, you know, potential problem for, you know, bond vigilantes to say, I’m not, you know, willing to hold a bond of 4% if you’re not willing to get your fiscal house in order in an inflationary environment. So I would say, if inflation weren’t a problem, if inflation were back to the Fed’s target and the Fed were not having to monetize anything, then, you know, maybe we don’t need to be worried about the fiscal situation right now. But the fact that you know that, that the fiscal situation is what it is, we have a 7% debt to Gd, deficit to GDP in in economic expansion that you know the worst outside of, you know, wartime, by far that we’ve ever seen, you know, and that could potentially worsen significantly in a recession, and inflation is well above the Fed’s target, and has been for four years now, that sets up a scenario where, if the Fed is forced to monetize, we could see a revolt in the bond market. And one of the, you know, the people. I take the warnings and most seriously is Bill Dudley, former head of the New York Fed. He understands the workings of the money market and Treasury markets better than anybody, probably. And for the last year, he’s warned about this supply demand mismatch growing in the treasury market. And so when the former head of the New York Fed is warning about a debt crisis, I take it pretty seriously.
James Connor 20:21
And when you you just mentioned a revolt in the bond market, what do you mean by that?
Jesse Felder 20:26
I mean that, you know, the bond market vigilantes say we are not going to hold, you know, 4% four and a half percent, long term treasuries in an environment where inflation is headed higher than that. And the debt, you know, is potentially, potentially growing exponentially. And you’re, you’re printing money to repay debt holders. I think that is, that is a very real possibility, you know, right now. And actually, we’re already seeing it. You know what we’re seeing today with a decline in stocks, decline in bonds, and then decline in the dollar, all at the same time is the world saying we’re not comfortable holding dollar based assets, whether they be stocks or bonds or anything, and so especially with the administration President Trump, putting pressure on fed independence, that only potentially worsens the scenario where, you know, if they were to fire Powell and put in somebody, you know, Kevin wars, sounds like the name that has been bounced around and require, you know, monetary policy to reflect the will of the administration. I think that would, that would potentially, you know, trigger that type of revolt in the bond market, where people say, I’m not comfortable, you know, holding these bonds, if you’re going to try and try and, you know, monetize the debt in that way. So
James Connor 21:59
where do yields go? Do they go to five and a half?
Jesse Felder 22:05
Yeah, I think in the short run, I’m looking at, you know, just, just over 5% on the 10 year. I think that’s the level where the Fed might start. You know, have to get concerned and and say, Okay, we need to completely shut down quantitative tightening and go back into easing, you know, in kind of a Liz trust moment, like the Bank of England came back in and said, Okay, we need to, you know, intervene here, because we can’t afford to let the bond market kind of run away with with interest rates, I think that’s, that’s somewhere above 5% on the 10 year where the where the Fed would have To set up and take notice.
James Connor 22:41
Okay, so you’re negative on the s, p, you’re negative on the US bonds. Now let’s talk about the dollar. It was up as measured by the d x y. It was up 7% 2024 it’s now down 8% on the year, and we’re only four months into the year, and it’s trading around 98 Where do you see the D, x, y going?
Jesse Felder 23:04
Well, you know, this is really why I’m bearish on financial assets generally. Is because I do believe we’ve entered a new dollar bear market, and in that environment, you typically want to favor real assets over financial ones. So if you look back at the last time we had $1 bear market, I think the dollar peaked around 2002 and declined into, you know, post GFC, around 2000 you know, 10 or 11 sometimes. You know, around that time, it’s about a decade of a falling dollar. And what you wanted to own in that environment was precious metals, oil, commodities, generally. And I think we’re once again in that type of an environment where we’ve had $1 bull market for 15 years now. And you know, I think that the Trump administration has made it very clear the dollars overvalued. They want a lower dollar to make us manufacturers, goods more competitive around the world. Kind of rebalance trade. It’s very similar to what we saw back in, I think, the early 1970s with the Nixon shock, where you know that we were running out of gold reserves. The world was was exchanging their dollars for gold, to the point where we said, Okay, we can’t afford this any longer. We need to close the gold window and try and reset the global trading system somehow. I think we’re in a very similar episode right now with the Trump shock, with the tariffs and these types of things, and what they really do want is a lower dollar to kind of help rebalance trade in these things. Dollar is overvalued, especially relative to things like the Japanese yen. And so if you believe we’re in $1 bear market, that’ll probably last a number of years, you really need to favor real assets over financial ones. They typically do far better in that type of environment. And I think that’s I. Leave. The signal that gold is telling us right now is gold is saying the environment has changed. It’s radically different. Something, you know, big is coming down the pike, and you know, it typically leads the prices of other commodities. And so I think at some point we’ll see the oil price reverse strongly higher. Copper price is already pretty strong, but they could get a lot stronger, you know, in the months and quarters ahead. I’m sorry,
James Connor 25:26
why do you think oil is going to reverse and go higher? Well,
Jesse Felder 25:33
for one we’re right now. I believe $60 oil price is already priced recession. That’s typically how the oil price trades is in the lead up to recession, you see a crash in the oil price. And then as soon as recession begins, oil price bottoms and reverses strongly higher. And that’s the oil prices way of reflecting the monetary and fiscal stimulus that are that are going to come once the world, once the consensus, you know, has decided that recession is underway. We’ve seen, you know, the managed money position in in, you know, West Texas Intermediate futures. The only time it’s been lower than it is today was at the COVID bottom. Managed money traders have the lowest net long position they’ve had essentially in a decade. So people are extremely bearish on the oil price, and a lot of that selling from the management position is, you know, responsible for the oil price falling to the level that it has. I think my friends at Gering and Rosenzweig also have done some incredible work on showing that the, you know, the shale, the supply response from shales is just it’s just not there. I mean, the depletion of shale wells in the Permian is probably going to be a lot faster than anybody expects. And so supplies, oil supplies in the United States are probably lower than markets currently believe. And you look through demand through recessions, even in the Great Recession, oil demand didn’t fall very much. And in most other recessions continued to kind of it slowed, but it continued to grow. And when you have emerging economies like China and India that are going to be, I mean, China’s really going to start some major fiscal stimulus, probably here to kind of help them get through the trade war. I wouldn’t be surprised to see the oil price start to reflect the fiscal stimulus that’s going to come from China here in the near future. So yeah, I’m very bullish on energy stocks and the oil price over the next few years,
James Connor 27:41
I saw an interview recently with Ray Dalio, and he thinks the US is on the brink of a recession, and he possibly something much worse. He didn’t say depression, but he was alluding toward that. What are your thoughts? Do we head into a recession here in the next quarter, two quarters, I
Jesse Felder 27:56
think we could already be in recession. I think that, you know, with the tariff shock could be is, you know, it could be very similar to what we saw in COVID, where right COVID hit, and everything kind of came to a stop. It seems like this is what’s going on with a lot how a lot of companies are reacting to the tariff shock is, we don’t know how to handle this. We don’t know what the world’s going to look like a month from now. We don’t know which tariffs are going to be implement. Be implement, and so a lot of stuff is just coming to a stop. As I mentioned, I think it’s very telling that Amazon Web Services has said we’re going to stop planning on for future data center development. And this AI build out, has been really the strongest area of economic boom that we’ve had in recent times, in the fact that Microsoft and Amazon are now both literally saying stop, means that everybody else is probably doing, doing the same things, and we don’t. We need to go into a mode, as you said at the very beginning of this interview, of protecting and it’s not just investors and protecting their wealth. It’s corporations protecting their balance sheets and these types of things. And so when you get a basically a complete halt in activity or close to it, you know, we could already, there’s a good chance we’re already in recession right now.
James Connor 29:14
So I gotta ask you about the Fed. You brought this up earlier, but the President’s rhetoric has really heated up here in the last few days, and he likes calling Jay Powell Mr. Too late, and he also called him a major loser, which is probably historical. But what are your thoughts here? What does the Fed do? The next meeting is coming up in the first week of May. Does the Fed just sit back and watch as things unfold. Does a cot What do you think he does?
Jesse Felder 29:46
You know, they are in the most difficult situation. I think a central bank can be put in, because, as I said, there’s a good chance we’re already in recession at the same time. You know, tariffs and things could result in another. Their wave of inflation already. So many indicators are pointing to this type of thing, right? I mean, copper prices are typically a good leading indicator, and, you know, they’ve been very strong. We you look at prices paid in the manufacturing surveys, prices intense on prices from small businesses. Everybody’s trying to raise prices right now heading, you know, to kind of anticipate tariffs and the cost of it going to be to their businesses. So, you know, yeah, you have this situation where you could have another strong wave of inflation at the same time unemployment is rising over the next few, few months. So I do not envy the Fed, but I do think the mistake that they made was not being more aggressive in bringing inflation down in the first place. I don’t think there’s, if you I can understand making the mistake on saying, Okay, this is going to be transitory, then deciding you’re wrong, but then at the point where they literally decided to never take the Fed funds rate even up to the level the Taylor rule would prescribe. You know, they still, you know, essentially erred on the side of dovishness all through the inflation problem. And, you know, cutting interest rates last year. I don’t really feel like there was, there was enough justification for that, with inflation still well above target. My question becomes, and I think this is probably the question the world has, is, if you know, we get another transitory bout of inflation based on the tariffs, how many transitory bouts of inflation that push inflation above target for many years. Does it take to create a secular wave of inflation? And I think that’s what the world is starting to ask and realize that, okay, you know, we can’t just say every one of these waves is transitory, because that is how you get a replay of the 1970s was, you know, perhaps every secular wave of inflation that lasts a decade or longer is simply driven by a number of transitory factors that play one after the next. And so I do, I do think the Fed, you know, cannot afford to cut too soon, given the fact that inflation has been above target for four years. And, you know, even, according to the Fed zone estimates before the tariffs wasn’t going to come back to target within the next two so I think they’re, they’re really kind of in a difficult spot. But it’s not, not entirely of of, you know, you know, the makings of the tariffs. They’ve kind of, you know, made their own bed here too. The
James Connor 32:41
President claims that inflation is non existent. We’re approaching zero. Well,
Jesse Felder 32:47
the numbers don’t support that. I mean, you look at median CPI, median CPI, year over year, is still three and a half percent, right? And it’s looks like it’s bottoming and turning higher from three and a half. If that’s the case, then it’s, you know, then the reality of, you know, the median inflation price in the economy is still well above the Fed’s target. So Jay
James Connor 33:11
Powell’s term ends on May the 15th, 2026 little more than a year away. Does he survive?
Jesse Felder 33:18
I think it’s pretty clear that he doesn’t, you know, I don’t think he will. You mean, does he survive to to the end of his term, or does he serve? Does he get Yeah, I don’t think so. I think you know that. You know. It seems like you know, one of the I wrote in January, a piece called are markets prepared for a policy shock. And my thesis at the time was that there was going to the new administration was going to implement a number of policies that would represent a serious shock to the economy. I didn’t you know, to the extent that they have is much greater than I thought that they would. But I think Scott Besant has been very, very clear that they see the economy heading for an economic calamity. That’s the term that he, he were he used during his confirmation hearings in Congress. And that’s related to the the expiration of the track the tax cuts, you know. So you have this expiration of the tax cuts that we’re headed for, which would represent a tax hike in the middle of an economic slowdown, would be very bad for the economy. So they want to renew those those tax cuts, but renewing those tax cuts could create the the type of debt crisis that we were talking about before. So I do think what this administration is trying to do is head off that crisis, you know, get in front of it. And what they may need in order to do that is a compliant fed. You know, if J PAL is not going to lower interest because you can’t cut taxes, if the bond market is going to revolt, right, the bond market will revolt. And. Not allow you to cut taxes. That’s a real problem for this administration, as they see that those tax renewing, those tax cuts, I think, is their top priority. So they may need a compliant fed in order to get that done. And that would mean, yeah, we have to fire J pal, we have to bring in Kevin Warsh, and he may need to implement some type of yield curve control in order to allow us to implement the agenda that we want to try and implement. And
James Connor 35:25
where do you think the s, p would go under those circumstances?
Jesse Felder 35:30
Wow.
James Connor 35:32
You know, you might hit that 4000 target pretty
Jesse Felder 35:35
quick. Yeah. You know, I think that that’s where you get that type of waterfall decline like I was talking about, where you don’t just take out the recent lows, but you take them out with, you know, with some some fireworks. You know, I think one of the clues to me that we’re headed for this type of a scenario this year was right after the election, when when Trump went to the floor of the New York Stock Exchange and talked with Jim Cramer and just, you know, said, this is the time when sand Druckenmiller was saying, you know, he’s never seen such high spirits among corporate America and these types of things. And Jim Cramer was ecstatic, and he asked, asked Trump, you know, do you do you think people should just, you know, buy the s, p, hand over fist, because things are going to be so great. And Trump normally would say, Yeah, we’re going to make America great again. Absolutely. And he said, You know, I don’t know stocks go up and down. That’s kind of really your area of expertise. And him, for him to shy away from saying, buy stocks was very clear to me that, as they’ve been saying, they’ve been very clear the administration that we’re going to favor Main Street over Wall Street. We’re not too concerned about what happens in the stock market. We’re really concerned what happens in the bond market. And so what does that mean? That means that they they they’re not afraid of courting a recession, if that’s what it takes to bring interest rates down.
James Connor 36:59
Okay? So you’re negative on the s, p, negative on the bond market, negative on the USD. Where do we put our money?
Jesse Felder 37:08
Real Assets, gold has had a terrific run. It’s difficult, I think, to recommend it here. Honestly, you know, I still have a core position in gold, but to my trading positions, I’ve taken off because it’s just had such a such a strong run with the way, one of the most interesting, interesting ways, I think, to value commodities is to compare them to the gold price. And so when you do that today, gold price has been so strong, the oil price relative to gold has has never been cheaper than it is today. At least in the last 30 years. The only time is obviously when oil price went negative in 20, in 2020 in the wake of COVID. So you could argue that the oil price is extremely cheap relative to the gold price today. And that’s one of the ways that I like to determine, Okay, which commodities do I want to buy, which which ones do I want to kind of lighten up on and conversely, you know, back in 2022 this indicator told you it’s time to back away from energy as as a theme and get really aggressive in the gold price. Because, relatively speaking, gold was cheap, oil was expensive. So we’re at the reverse of that right now, where I think energy stocks are really cheap, if we are going in, like I said before, $1 bear market with persistently high inflationary environment, stagflationary environment, typically, the best equity sector you can own, by far is the energy sector. It’s also the cheapest sector of the stock market right now. And one of the only areas where I’ve seen compelling insider buying over the past 12 months is in some of these energy names we’ve had. You know, it’s really the only thing Warren Buffett has been buying is Occidental Petroleum over the past year. You can buy that stock well below his cost basis right now. There are other names. Jerry Jones, owner of the Dallas Cowboys, was buying Comstock resources hand over fist last year. We have Carlos Slim, Mexican billionaire who’s been buying pbf energy pretty, pretty aggressively over the past year. So I see a number of these successful billionaire investors who’ve been basically lightening up everywhere except the energy space. And I believe that’s a kind of a macro signal as what they expect in the years to come. Yeah,
James Connor 39:27
the operative word there is years to come, if we get a if we enter into an environment like Ray Dalio is looking for. I mean, I can only assume oil is going to be taking out his 2020 lows, which was 25 bucks a barrel, give or take, especially when you get this wealth effect, okay, if we get the s, p pulling back to 4000 you even threw out 3000 Okay, that’s That’s a decrease of 50% if we get the same sort of pullback in. Real Estate. Well, those are your two biggest sources of wealth, right there. There’s no way this economy, like this economy, will go into a tailspin, and I think oil will go with it.
Jesse Felder 40:11
You know, it could be, I’ve heard, you know, Javier blas, who’s a writer for Bloomberg, does terrific work on supply, demand dynamics. You know, in the space thinks that oil is headed for $50 in a recession. I personally think that, you know, any deflationary environment is the only way you’re going to get oil prices below, below, much lower than they are today. And deflation would require, you know, a financial crisis. I think type of type of scenario. I don’t think we’re anywhere near deflation right now, and in an inflationary environment, and in an environment where money printing and fiscal stimulus are likely to be the policy remedies for for recession. It sets the stage for much higher oil prices. You know, in the next 18 months, that’s really what the market wants to try and price. It’s not what the next six months or 12 months, what will the world look like 18 months and two years from now? And so, as I said once, I think we hit that recession consensus where the world says, Oh, wow, we’re obviously in recession. Right now, the oil price will have already bottomed and turned strongly higher, because it will start anticipating the fiscal and monetary stimulus. And as I said, it’s not just what’s going on in the US. I think to, like I said, to deal with deal with the this trade war. We’re already seeing massive, massive fiscal stimulus being talked about in Europe, massive fiscal stimulus being talked about in China and Japan. Probably, you know, will follow suit as well. So if you have the developed and the developing world all kind of go into a massive fiscal cycle at the same time, that could be supremely bullish for the oil price.
James Connor 42:02
You mentioned that you thought gold was at a level where it was too rich to buy it. So it’s right now. It’s around 3300 3400 bucks an ounce. Do you have a target price on gold?
Jesse Felder 42:15
Not, not in the near term. I think it’s overvalued in the near term. I think that you know, when you look at it compared to real interest rates, it’s another one you can compare to the change in the 30 year tips yield, kind of like, you know, talking about with stocks. And if you do that, you know, it’s, it’s, it’s mispriced in the short run. We also have massive, you know, chasing, right? We just had record inflows into gold, ETFs, and so we’re starting to see that chasing that we didn’t see when gold first broke out above 2000 so, you know, I think sentiment and the valuation of it argue for, you know, another corrective phase here, the longer term. I’m very bullish. I think, you know, when you typically see these, these bull markets, you know, they go up at least, you know, five five fold, something like that. So I don’t think, you know, well, gold bottomed it, you know, around $1,000 an ounce back 10 years ago. You know, you probably expected to go five to 10,000 an ounce before this bull market is over. But it could take a number of years yet to come before you get those, those higher price targets? Well,
James Connor 43:21
Jesse, that was a great discussion, and I want to thank you very much for spending time with us today. If somebody would like to follow you online or find out more about you or read your research, where can they go?
Jesse Felder 43:32
My website is the feldreport.com I put up a free blog post every week. I do lots of you know, pretty much I spend all my time reading and looking at charts and things, and I pick out kind of five things a week to share in those in those blog posts. And so I send out a Saturday email with those five things every week. So, and that’s just a free thing. You can sign up for my website, as I said, the federal report.com,
James Connor 44:00
once again, Jesse, thank you. It was a pleasure. Thanks for having me. Jonathan. Thank you very much for joining us. So we just listened to Jesse, what are your thoughts? I want to first ask you, what are your thoughts on? What he had to say about the S P. S P is currently around 54 100 it’s been under pressure the last couple of days. Looks like it might test this 4800 level. What are your thoughts on the S, P? Do you think it breaks through that 4800 level and heads down to 4000
Jonathan Wellum 44:28
I think it’s a distinct possibility. There’s no question. As I think Jesse laid out, valuations are on the higher end, and you’ve got businesses now adjusting earnings down. And so I think forward, earnings are looking like they’re going to come off a little bit. The optimism is still pumped into a lot of the stocks. The AI spending, which he talked about, which has really been driving quite a few of the businesses. There’s no question that that’s settling down somewhat, and that’s going to be a damper on a number of businesses he mentioned a couple of times. You know, Amazon, spending, Microsoft. Spending. And those are real pullbacks. And I think they should expect that, as you know, the way the market goes, it tends to overspend, and all of a sudden it makes these adjustments. But in light of the valuations, in light of the capital spending coming off, in light of the tariffs and some of the uncertainty, there’s no question that the S P could drop substantially from here still. And so I think investors need to be wise, very careful in terms of the kind of businesses that they’re
James Connor 45:25
buying. I think Jesse raised a very interesting point when he talked about the fact that he was comparing this cycle to what we saw in the early 2000s and a lot of the people that are present today, whether they be investors or traders, they’ve never seen a pullback like we saw in the early 2000s and he also made mention of the fact that there’s a lot of buying on the dip out there, that whole mentality. And it’s going to be interesting to see if we do have a market like we had in the early 2000s when the S P was down 1% 2% every day, and he went on for two years. It’s going to be interesting to see how these people respond to this environment. Yeah,
Jonathan Wellum 46:04
I mean, living through that myself, we, fortunately, back in those days, in the late 90s and into the early 2000s had very little tech exposure. That was just the way we were managing money at the time, back of the AIC funds, and we took a lot of flack for it. It was quite interesting, though, to watch people jump into companies like Nortel. Nortel was a really, you know, big one up here in Canada and, of course, in the US also. But there was many of the other ones, Cisco and so on. And they would buy them all the way down and, and some of those actually went down to, as, you know, zero and, and so you have to be careful if you’re going just because something’s off. 10% 20% 30% even 40% you still have to go back and make a proper valuation on that business. And when they’re starting from such high levels, stocks can come down an awful lot. So be very careful. And you got to constantly revalue the business as it’s coming down, not just assume that it was, you know, maybe a little heavy valued at one point, and just because it’s off 40% does not mean it is actually cheap.
James Connor 47:05
Now, Jesse was also negative on bonds, and he said he can see the yield on the 10 year approaching 5% what are your thoughts on that we’ve
Jonathan Wellum 47:15
we’ve been very short on bonds, and that’s because we just don’t think we’re smart enough to figure out exactly where the yield curve is going to go. And I think he mentioned some of the major risk factors, and that is, there’s a tremendous amount of debt out there. Debt has to roll. People are concerned about the dollar, the Federal Reserve is concerned still about inflation, and so they’re not interested in pulling the rates down as fast as the President Trump wants to see it. So I think those are all issues. The bond market is sort of rejecting some of the policies. Is concerned about policies, and is not going to give ground, I think, very easily. And so, you know, we are approaching 5% on the on the 30 year. And even as we’re speaking today, with the market off, you know, the 10 year is yields back up again too. So I had so I think I would agree with Jesse on the bond side. Be very careful. Be very careful. Now.
James Connor 48:10
What about gold? He gold is up somewhere between 25 to 30% on the year. He was bullish on gold. I think he still is bullish on gold. But he said, if you’re not long, it’s gone too far, too fast. What are your thoughts? I know the last time you and I spoke, you were long gold and you were also long some royalty companies.
Jonathan Wellum 48:27
Yeah, we’ve had a significant position in gold over a number of years, really, since I started rocking back in 2010 but, but so we’ve maintained a large position because we’ve been concerned about the monetary situation, the debt and so on. So, I mean, Jesse, I think Jesse’s point is well taken, that gold has gone up an awful lot, so investors should be careful entering into it. They shouldn’t just, just because it’s up, just run into it quickly. But I do believe, and Jesse also mentioned this over the longer term, gold is going to continue to be, I think, a solid investment. And that’s because all of the paper monies, whether it’s the US dollar or whether it’s the euro or the yen, all of these currencies, I think, are going to be under pressure. And as Jesse was pointing out, also, now you’ve got Europe wanting to spend more money. Japan wants to spend more money. China’s doing more stimulus. Well, where’s all that coming from? I mean, they’re not running balanced budgets, and so I think there’s just going to be more debt out there. So I would tell investors, listen, gold’s gone up a lot. Be careful. Maybe just back, dial it down a little bit, and don’t, don’t sell, but just out back, your your buying program, just, but still continue to just prudently acquire and look for opportunities. I think in some of the stocks, there’s some stocks that haven’t gone up as much as the gold price, and so there’s some opportunities there. So we remain bullish on gold, and that’s because we’re negative and don’t have a great feeling on all these paper currencies and what the governments are doing, and the uncertainty around the world, and a lot of the what Trump is doing, which I agree you want to. Re industrialize your country and so forth. Having said that, that uncertainty and the angst against America around the world, I think central banks will continue to acquire gold and and go for that. So yeah, so we remain bullish, maybe just a little bit more bullish than Jesse is, even in the short run, but certainly in the long run, very much bullish.
James Connor 50:20
And the last time we spoke, you had a high cash position. I don’t recall what it was, but do you still, and if so, what is, yeah,
Jonathan Wellum 50:27
we are still sitting around 28% or so cash, and we’re maintaining that we can we we’re in buying securities and moving around a little bit. I mean, we’re longer term buyers, and we’re trying to take advantage of the volatility, but we’re also keeping a little powder dry. We do see, you know, more downward pressure potential on the market, and we want to be buying lower, if at all possible. But if we do see a good opportunity in the market, a company that we believe is trading a good price, then we will be in there. And we are nibbling away in even. Even today, we’re nibbling away on a couple of companies so constantly looking for opportunities, but also being cautious, again, given the uncertainty and current valuations in the market.
James Connor 51:11
And of course, you don’t just don’t have that cash sitting there. How do you deploy it?
Jonathan Wellum 51:15
Yeah, we have it in investment savings account, short term interest bearing securities, short term bonds, for some of our higher net worth clients, we’ve gone in and bought discount bonds. Of course, there was a lot of bonds issued at 1% half a percent coupon, coupons, and so some of those have taken a drop down below par. So we can go step in and buy those bonds, and as they go back up to par, of course, people are getting a capital gain versus interest income, so there’s just ways to try to get a little extra return, but not taking any, really, any kind of duration risk in terms of our investments. And
James Connor 51:51
were there any other points that you agreed with or disagreed with in regard to Jesse’s conversation?
Jonathan Wellum 51:57
Yeah, um, I think over, I mean, overall he’s he’s offering, I think, a cautious note, which I think is very valuable to investors. There’s just a lot of uncertainty. So I appreciated that. And of course, he’s backing them up with a lot of numbers. His his bullishness on oil, I think, is an interesting one. And of course, only time will tell. I would still be a little bit cautious on oil. And I understand the dynamics of oil, and I also understand, when you do value it against gold, which I think is valuable over time, it does look very cheap, but the Trump administration is really trying to get, you know, drill, drill, drill, baby, drill. And they’re trying to get as much oil out in the marketplace. And if there is economic weakness, I think I agree with you, it could go down a little bit further and maybe not make the kind of returns people are expecting. Having said that, there’s a lot of very profitable oil companies, and there are free cash flow yields on some of these businesses quite high. And so I do think there’s opportunities in that space, but maybe not quite as optimistic as he was pointing as Jesse was pointing out, but again, that’s, that’s the beauty of the market. There’s two positions and and we’ll see how that all
James Connor 53:07
works out. That’s what makes a market. A difference of opinion is exactly right. Well, those are great comments. Jonathan and I want to thank you very much for spending time with us today. If somebody would like to learn more about you and your firm, where can they go? Yeah,
Jonathan Wellum 53:20
just probably the website’s the best, which is just rock link.com, rock link is R, O, C, K, L, I, N, C, so it’s a link. It’s spelled with a C at the end. Rock link.com and has all our particulars on there. Reach out, contact us. We work with wealthion and clients that are up in the Canadian marketplace, and we are always interested in talking to clients and in telling them how we’re investing and how we can help them and work with them in the future. Yes,
James Connor 53:45
and we have a big election coming up in Canada next week, on April the 28th so maybe you and I can have a conversation after that. That
Jonathan Wellum 53:54
would be, that would be great. I’m sure we would enjoy that very much.
James Connor 53:59
Jonathan, once again, thank you great. Thank you very much. Jimmy.
