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Andrew Brill 0:00 Hello and welcome to wealthion's weekly market recap I'm your host Andrew brill. This week on SpeakUp, David Rosenberg joined Anthony Scaramucci to talk about the widening gap between low and high income. And also high interest rates, home prices, lack of inventory in the housing market and low productivity in construction. Anthony Scaramucci 0:26 mortgage applications are down purchases for homes are lower by 4.4%. We've also seen refinancings down 6.8%. And you and I both know that housing is the heartbeat of small businesses. Many of the small businesses United States are tied to housing. That's where we see a lot of our job creation. Are you worried about that? Do you think the Fed is worried about that? And where do you think housing is going from here? David Rosenberg 0:55 Well, housing has been in the doldrums not prices. But volumes. For the better part of the past couple of years, we had a hiccup in the first quarter, but you look at all the incoming high frequency data on housing starts at home sales, and they're rolling over again. And of course, in lagged response to the bond induced run up in mortgage rates. It's a, this is the most complicated housing market that I've seen in my 40 years in the business. And a lot of it is the, you know, the byproduct of COVID. And the dramatic decline in interest rates to historically low levels. And then everybody and their mother locking in at those lows, and very fortunate very good move, but they become prisoners in their own units. So existing homeowners, there's no turnover. They're locked in, they can't move. So there's no inventory. There's a dearth of inventory in the market for resale homes, which is 85% of the total market. And what's really interesting is because it's a completely dormant market, you've got sales are negative sales are negative year over year in the existing housing market. And yet prices are up for like roughly 5, 6%. So we flipped economics on its head where demand goes down. And prices go up. Very unusual, except for the fact that we have a very sclerotic and elastic supply curve for housing and the resale market. So even with weak demand, the supply curve is so anemic, that prices go up. But of course, that even along with higher mortgage rates, forces, fence sitters who want to come into the market, they just get crowded out. That's why the homebuilding stocks for the better part. And I have done well, because that's been the only valve if you want to buy a home, that's where the inventory is. And it's interesting that in that segment of the market, sales are up, and prices are down. So it is a very bizarre and bifurcated residential real estate market. I would just say that, you know, the most unusual thing that I'm seeing in the data is this, that although the economy is really I mean, if there's one source of positive in the US economy, it's this resurgence in productivity. It's running two and a half percent year over year, which is very good out of nowhere. We just don't know the extent to which is that a secular trend? It seems a little early for AI to be generating that or is it cyclical, but the one sector where productivity is sinking isn't construction. You've got this bizarre situation where the employers in the construction industry are hanging on with their staff, even with depressed levels of construction spending. And I'm waiting at some point for something's got to give here. I mean, either construction spending has got to balloon, but that's not happening in the data, or the construction industry has started laying off people. And rather significantly, you know, that could be upwards of about a million people who lose their jobs and construction and things don't pick up because that sound bloated, the payroll is in that sector. Anthony Scaramucci 4:24 So I want to sit back for a second because you and I've been doing this a long time. And I'm looking at the economic dashboard of the United States. And it feels okay to me, but now I'm wondering if I have the Confirm biases of the group of people that I hang out with which is mostly Wall Streeters, and frankly elitist snobs if you don't mind me saying so. So I also hear from my buddies that are in the blue collar world that they're not as happy that the inflation is eating up their disposable income. There's economic anxiety about job stability. And I feel like we're in a tale of two economies. Am I wrong about that? Or what am I missing? Because in an economy like this looking at the dashboard, you would say, okay, the incumbent president of the United States is going to get reelected. But the incumbent president of the United States has a 37% approval rating. And at this stage in the election cycle, that's the lowest that any incumbent President has had since they've been recording this stuff. So isn't it the economy stupid, or am I wrong? David, tell me, tell me what you think? David Rosenberg 5:40 Well, I think the reason why so many people think the economy is so strong is because they take their cue from the stock market. But the stock market is not the economy. But that's why they think everything is so great. If you remember that the s&p 500 hit its all time high. On October 9 of 2007. When I was working at Mother, Merrill, we peaked at 1565. I went into the Fed in Washington and gave them a presentation on the day of the peak. And at the end of my presentation, because I was calling for recession, and I was laughed out of the room. And one of the research people there said to me at the meeting, Mr. Rosenberg, do you not realize that the stock market actually hit a record high today? And what do you know, the recession that nobody saw it coming began, less than two months later, in December of oh seven. But you see people conflate the equity market, and the animal spirits in the equity market to what's happening in the economy. They're not the same thing. And it also comes down to why there's this bifurcation, not just between the high end and the low end, but also bringing the high end and the middle class, because when you look at the data, and you look at the socio demographic data, and you look at where the concentration of wealth is, and we're talking principally equities, and housing, it's mostly in the upper class. So they are rolling in, not gonna say rolling in the dough, but they're certainly rolling in the net worth, from what's happening in terms of asset inflation. If you're renting, you're not getting a benefit from the housing wealth effect. And most people in the lower income echelons in particular, just don't have the money to put in the equity market. So you know, that's the, I mean, that's the real story in terms of high end versus low end. However, however, you know, when you listen to the retailer reports, and the latest quarter, you're hearing a lot of high rollers are now shopping at Walmart or Target like they're starting to trade down as well. But there is a huge growth gap between the high end and the low end. That much is true. And in terms of the interpretation of the economy. I just tend to find everybody is looking in the rearview mirror. Yeah, you know, we had a strong economy last year, last year 3% Real GDP growth. And 100% of that growth came from the fact that the Biden team widened the fiscal deficit by 25%. Imagine that in a sub 4% unemployment rate, that deficit expanded, that's virtually unprecedented, but that added to growth because government is part of that GDP. So huge impetus from government. And then we had the final chapter of the excess savings file in the consumer sector. You know, the history books showed that when confronted with a stimulus check, the household sector, which has always been narcissistic to a certain degree, but never like this, between YOLO spending and anger spending and revenge spending. All of the $2 trillion Biden fiscal stimulus checks doled out in 2021, it all got spent. And it was a gift that kept on giving right up until the end of last year. Of course, the San Francisco fed who I believe actually produces the best research among the Federal District banks, wrote a report recently showing that all of the excess savings have already been spent in the economy that had a big impact last year, the fiscal deficit spending had a big impact last year, and of course, we had a double digit growth boom in credit cards, which are now being cut up because the delinquency rates have hooked up to the highest level in 12 years. Those three things together credit card boom, the last leg of the excess savings file and the rapid expansion of the fiscal deficit believe it or not, without those three impacts GDP growth last year was zero. Now some people will say, well, Rosenberger data mining, to which I say no, that's just analysis. That is if I was an equity analyst, writing up a report on this as a company, I would put an asterix at the bottom saying non recurring items. And then we fast forward to this year. I remember, months before first quarter GDP was released, the Atlanta Fed was like somewhere close to 4%. What do we get? We got 1.3. And the second quarter, it looks like it's coming in somewhere between one and 2%. So you would argue, well, maybe that's not a recession. But when I started on Wall Street, back in the mid 80s, we would call one to 2%, growth stall speed. And that's where we're heading into. So the economy is no longer strong, it's weak, is a contracting. The whole economy is not contracting, although I would argue that there are sectors that are contracting. In fact, when you look at the data on a state by state basis, half the US economy regionally, is actually in recession. And it's the half that's not in recession that is creating the conditions for being just above the zero line. But that's where we are. The question is, where do we go next? We've gone from three into a one to 2% range. What's the catalyst? What is the catalyst? That takes us back to 3%? I just don't see it. So I think the economy is soft. And I think what's most important is that the growth in demand, which is what GDP is, is now slowing to a trend that is well below the growth where you were seeing an aggregate supply. I know I'm talking like a very nerdy economist. But the reality is that if you don't have a demand and supply curve, you can't forecast inflation. And so I don't even need I don't need or the Fed going to trigger lower interest rates over the course of the next six to 12 months. And that's, that's my highest conviction call. Andrew Brill 12:07 Jim Bianco join Wellesley on to talk about the most concentrated rally in history and how the lack of diversification is leading to a few stocks carrying two thirds of the market performance. Jim also touched on the growing deficit and how persistent inflation is going to play out long term. James Connor 12:27 The last time we spoke in January, the s&p was at 4600. And now it's at 5300. And Vidya has added about $2 trillion in market cap and bitcoins gone from 40,000 to about 70,000. Give or take and the Blackhawks didn't make the playoffs, I'm sorry to say, but how do you think things are now? Jim Bianco 12:46 Yeah, I mean, other than the Blackhawks, which was not a surprise, the market did have a very strong first half of the year. But really what highlighted it is what you mentioned about Nvidia increasing its market cap by $2 trillion. And I might add, you want to put that in perspective. Warren Buffett has been running Berkshire Hathaway for over 60 years, and Nvidia has created more value than Warren Buffett did in 60 years in four months. That's how extraordinary that morale rally is. Or you want to put it in another way. The s&p is up about 12%, year to date, half half of that is Nvidia. And if you were to add in some of the other Magnificent Seven stocks, you know, the Amazons, the Microsoft's, the alphabets, the metas of the world, you know, a couple of others, you're in about two thirds of the rally in the stock market is just a handful of stocks. It's been one of the most concentrated rallies ever, and I say one of the most concentrated rallies ever, because there's no accepted statistic for what is of concentrated rally, you can actually make the case it is the most concentrated rally that we've ever seen in financial history, that diversification has been the least effective that it's ever been. So that has been really quite an extraordinary run that we've seen in the market right now. You strip out those seven stocks, and you're down around a four or 5% gain in the stock market for the first half of the year. The other thing I think that's been very interesting about what's happened in the first half of the year has been the rise in bond yields. I know it's hard to remember, but we forgot that we started the year back in December at around 3.9%. On the 10 year note, we got as high as 475 in April. And right now is we're talking word around, you know 445 450. So there's been a big rise in yields, as well. And that is took a lot of people by surprise because back in January when we talked, everybody was bullish on bonds and everybody thought that yields were going to fall and they wind up doing something different. James Connor 14:51 So I want to get your thoughts on inflation now continues to be very sticky and a lot of this has to do with the massive fiscal spending we're seeing by the federal government it and I want to discuss this too. But before we do that, I want to ask you about stagflation. And I'm reading a lot about this lately. Do you think Stagflation is a possibility here in the coming months? Jim Bianco 15:11 Oh, the dreaded S word stagflation? Yes. Let's what the problem would Stagflation is, what is the definition of it, right? Stagflation is supposed to mean that you get slower growth and higher inflation at the same time. Now, typically, growth is a driver of inflation when the economy's going along very strongly. That creates economic activity. People buy things, they push up prices, when the economy slows quite a bit or goes into recession, because it's murdered. People stop buying things and prices fall Stagflation is the economy slows, and yet, but prices continue to move higher. So to the director to the specific definition of stagflation, are we seeing it? I would argue, yes, we are seeing it because we're seeing the economy slow. And we're seeing inflation pick up. But when I say that people, you know, their heart skips, skips a beat, because they think stagflation means the late 1970s, it means the economy is crushed by near recessionary type of slowing of growth, and 100 year high in inflation. Well, that's an extreme form of stagflation. But that doesn't mean that that's the only definition of stagflation. So if you ask me, clinically, yeah, we're seeing slowing growth. And we're seeing a little bit higher inflation, and that would qualify stagflation, but nothing at all, like what we saw in the late 1970s, and maybe into the early 1980s. That brings along the other question, you brought up What about inflation? I've been of the opinion, that the inflationary cycle that we were used to have, you know, 2%, or lower inflation year in and year out, that ended in 2020, with the pandemic, that we're in a new cycle of higher inflation, persistent inflation 3% to 4%, inflation, not 2% inflation. And why are we in that persistent era? I think three things. I think, first of all, the D globalization trend is only accelerating, and maybe it started, probably started after the financial crisis of 2009 got accelerated with the Trump tariffs, of 2018. But one of the few things that the Biden administration has done that has been an extension of what the Trump administration has done, has been to seem put up more barriers to globalization. So whether or not Trump or Biden wins doesn't matter. Globalization hammering China, trying to protect American jobs is going to be the norm going forward. That is going to raise costs because more expensive to do things here than it is to do things other places. Now, you could argue it's coming a heavy toll, because it's create it's got it whole industries, because they've moved overseas. I understand that argument. Deglobalization is one reason you're going to see, you're going to see higher inflation. The The other thing I think you're going to see is just a complete mindset change. I know the Fed talks about inflation, meaning maintaining, it's being well anchored. And I will violently push back on that No, it's not it is not well anchored, people have become accustomed to the idea that prices go up, and that they're used to prices going up. And that's why the President's approval rating is down. And that's why cutting through everything. If you ask in all the political polls, what is the number one issue that people are going to vote for in the United States in November? And the answer is inflation, it is overwhelmingly inflation, immigration being second on that list, as well. So that is going to definitely see a push back as well to in third. In this gets to stories that we're seeing this week. oil and energy is being used as a political weapon. And that is going to keep the price elevated, that we might have found a bottom on the price of oil in the mid 70s. Not in the 40s or 30s, like we were used to prior to 2020. And you add all that up, and I think we are going to stay into a period of stickier inflation. And that doesn't even get to remote work and wage inflation. remote work is changing the nature of work and that is creating, I think more wage inflation. So we are in an inflationary period, a sticky persistent inflationary period. Now, why did I go through all that? Because if you ask most economists, they don't think that the cycle changed in 2020. They're all thinking that we're in the last mile to 2% inflation. And I don't think that that's been the case at all for four years. This was kind of the way it was in the early to mid 80s. As late as 1985. The typical economic forecast was we were going to return to 14 or 15% inflation, although it peaked in 1980. It took them five years to realize that that cycle changed as well to we're four years into this, maybe in another year, they'll start to realize that we're in a different, you know, inflationary cycle of higher inflation. And last thing about inflation, what I didn't say, was 810, Zimbabwe inflation, I didn't say that. I said, three to 4% inflation. Well, why is that important? Because it gets back to a comment they said earlier, four and a half percent in the 10 year note, you know, when the stock market starts to struggle, because it's competition, if we're in a three to 4% inflation world, then the neutral funds rate, or the rate that the Fed might think this neutral, is no longer two and a half percent, or two and three quarters percent, but it might be closer to four to five. And that four and a half 10 year note might be closer to fair value, and get used to four and a half fiveish interest rates, that that is kind of standard fare for what we're going to be moving forward. And that that option of I could get over half of the stock market's gains with which much less stock market risk of those bigger interest rates are going to be with us for a long period of time. And we need to start to adjust expectations for that, largely, because if we're going to have that persistent inflation at three to 4%, that that is going to keep it up there. James Connor 21:20 And I want to get your views on speculation and the level of speculation we're seeing now. I think it's on par with what we saw in the late 1990s. And when I look at the hype surrounding AI, cryptocurrencies NFT's you probably forgot about those. But the metaverse and these mean stocks. I don't know if you watch roaring kitty last week, but I did. It's back here. He's back. But what are your thoughts on this level of speculation we're seeing now and does this concern you? Jim Bianco 21:48 It does concern me. But let me back up. This is not surprising in one respect. We are a gambling culture. Look at what we do right now. You know, online gaming is exploding in popularity if the government will allow it to happen. Otherwise, everybody's doing it overseas through a VPN. We have seen a massive explosion in you know, gambling on sporting events. The league's have embraced it, it has graced the value not only of their, of their franchises, whether you own a major league sports team, but also if you watch sports television in the United States, half the shows are about betting, you know, how do I how do I position my fantasy football league? Or who do I take this week in my fantasy baseball league? That's what all the TV shows are about. They're not about breaking down the games anymore? No, I went through that because we are a gambling culture. So why should we be surprised that that gambling is showing up in zero days to expiration options, over half of the options that are traded in United States expire today at four o'clock Eastern, zero days to expiration? We trade daily options, half the volume is in that stuff. Mean stocks are going ballistic, as well cryptocurrencies, alt coins, otherwise known as ship coins are going are going ballistic. So I'm not surprised by the gambling that we're seeing in the United States. And yes, we should expect it to, you know, reverberate into, you know, the financial markets as well. That brings up you know, what, what's different now is, there's a centralized marshaling force behind all this fancy words for saying social media. Sure, we had gambling culture in the late 90s. But you didn't have the Reddit boards, and you didn't have x, you know, to basically, you know, start narratives and get everybody to say, Yes, we all gotta get into GameStop. or Yes, we all got to rush into Bitcoin, or something like that. We were all doing that independent of each other, not being able to communicate as a group. So that's what we're seeing in this economy. And, quite frankly, the regulators are really struggling about it. You mentioned worrying kitty, Keith Gill, he put out you know, he came back two weeks ago, where he put out a meme, a picture, where it was a guy with a game controller leaning forward. And in the gaming community, that is the mean for this is about to get interesting. And, and the Wall Street Journal was asking, you know, should the SEC be investigating him? And the answer was, he put a picture on any anon and put a picture excuse me, on his Instagram and on his ex account, it's all he did, was he put a picture everybody interpreted it as being such, but welcome to 2024 where a lot of our regulatory rules look, you know, pre like prehistoric right now, for the type of world we're in. And maybe we don't want to be censoring people for putting pictures on the internet by saying that that is some form of security fraud that is a dangerous slippery slope to be going down. So it's a whole Brave New World. So yeah, I'm not surprised by it. Yeah, I am worried about it. Because typically, you know, you know, the the word for it is Dejan DeGeneres short for degenerate gambling, the Wall Street Journal had a big story about how degenerate or Dejah degenerate gambling is really exploding in popularity. And I always remembered that, you know, when it comes to degenerate, gambling, there's only two types of degenerate gamblers, those that have lost all of their money, and those that will lose all of their money. And if you're a degenerate gambler, and you haven't lost all your money, keep at it, and you will. And that's the problem. That's the problem with gambling like this. Now, you could argue, you know, societal impact and everything else. And it is concerning, but I don't know if you could really or nor do you really want the government to be heavy handed in breaking down all of this gambling, but right now, we are a gambling culture. And it is showing up in not only sports, but in our culture, and it's showing up in our financial markets. And it's an unfortunate reality, and it isn't going to go away anytime soon. Andrew Brill 26:16 AI and oil are two things Adam Johnson spoke about when he joined wealthy on this week, how far will Nvidia go? And what is the right price to sell was a topic of conversation along with problems associated with investing in clean energy with high interest rates. James Connor 26:36 So one of your big themes is artificial intelligence. And I want to spend a little bit of time here and of course Nvidia is the go to name that everybody talks about, is this a name that you're currently invested in? And maybe you can also touch on some other names that would fall under this category? Adam Johnson 26:53 Sure. So we'll, we'll just because it's easier, I can't wrap my head around yet around the the recent 10 For one split on Nvidia. So we'll talk the old price terms, right. I bought it at a highlight in it from my subscribers at 175 two years ago, went up to 1200 and change. But my first target was 475. I sold a little next target 675. So little next target 900. So low. Next target 1200 sold a little, my current target is 1575. Or I guess now that it has split 10 For one, that would be 157. We'll call it 160. And here's what's so amazing about Nvidia, yes, the stock has run up dramatically. But so if the earnings. Four years ago, the company earn $2. This year, they'll own their they'll earn $30, right? I mean, that's, it's like 350% growth annually for four years, that won't last forever. I think it'll slow. And so I'm saying for next year, there will earn 45 bucks. Again, this is just to make the math easy before the 10 for one split. So if you put a 35 Multiple PE ratio, which is where Microsoft trades on $45 of earnings for next year, that gets you to 1575, call it 1600 or again 10 For one split. What is that? 16 bucks. I mean, it's just it's hard to, to think in terms of 10 for one split when I've been thinking the other way. So that's how I get to my current target 160. And also some more when it gets there. The reason being that if I start off with a 3% position, and it doubles, now it's a 6% position, you know, all else being equal doubles again, now to 12%. Position doubles again, out to 24. Right, and it becomes just too big in the portfolio. So you have to sell as a responsible Portfolio Manager, you have to sell a name that grows that quickly. Any name, whether it's growing quickly, or just one that grows slowly but does get bigger and out of proportion. Because you never want to have too much of your clients money in one name. So yes, I continue to love and Nvidya even though I have been selling it, and then you ask me Yeah, but what if somebody new comes in and is buying it up here? Fine. I'll buy 3% position. So that's that's how I deal with Nvidia. And growth. And yeah, gosh, there are a ton of other AI names you could talk about if you want to. And if there was one risk to your whole growth assumption on Nvidia, what would it be? Well, that that demand suddenly slows down that people realize maybe AI is going to take longer than we thought and so we can't justify spending as much so we're going to pare back our purchases of AI related equipment from Nvidia chips to systems created by Super micro to database chips created by Marvell, etc. If the capex capital expenditure growth curve slows, then that would that would have a negative impact on chip sales and therefore invidious growth rate and therefore invidious stock price. James Connor 30:08 And I'm curious about what you said about EVs. Especially given that you're you're trying to jump on these themes. And we've had massive growth in 2020, there was 3 million EVs sold globally, this year, they're projecting I believe it's 16 million give or take. That's not the type of growth you want. Adam Johnson 30:28 It's been a disaster. Everything I've done in clean, clean energy has been a total disaster. I mean, I've lost money on virtually everything. The only quasi clean energy name I have currently is APTV, APTV. Which is a spin out of the old Delphi technologies, which is, you know, classic Detroit auto parts company. What distinguishes APTV is that it specializes on the electronic chassis that sits atop an actual metal chassis for cars and trucks. And not only are they number one for EVs, but they're number one for good old internal combustion engine vehicles as well, because they're now up to believing 3600 semiconductors, and sensors on every car made not EVs just good old fashioned gasoline powered 3600. So the electronic chassis or overlay that you need to coordinate all those systems is staggering. That's what app TIF does. And growing dramatically, they supply every car producer in the world, they're really the go to, and that whole business has really taken off. That's the only and it's not really clean energy. It's just electronics, it's American ingenuity, right? I mean, it's electronics business, which you could argue is a play on EVs. But the problem with clean energy is that it depends upon subsidies. And it used to depend upon low rates. In other words, very few of these companies actually make money, or very few of them are profitable to an extent that you, you know, can be proud of the company. They're young companies. And so they needed they need cheap money, low interest rates, and they need government subsidies to be competitive. Well, that business model doesn't really work, right rates started to go up. And also they lost their access to cheap capital. And government subsidies. Well, that's just the government handing out money that it we don't have anyway. That's just incurring more debt. And that's not a very prudent business model. So you sort of as an analyst, like me, you say yourself, well, that's not sustainable. That doesn't work. So everything I've done in clean energy has been a total disaster, from solar, to evey stocks to autonomous sort of, I never really bought into autonomy. Autonomy works in a controlled setting, like a warehouse, where you're talking about forklifts, it doesn't work on a road where you're talking about people who've been drinking, or suddenly a, you know, someone gets dizzy and crosses a line or you know, whatever. There's just too many variables out on a road warehouse, fine, but not on the road. So autonomy is a market, but it's limited market. Clean Energy. Oh, my gosh, what a disaster, every single clean energy stock I owned, just, and I held on to them way too long. I lost 50, 60%. I kept saying, Yeah, but I mean, this thing could, you know, it could really be great. No, it's a Heartbreak Hotel, just sell it lesson learned, you know, not everything. I've outperformed the market significantly. And I would have outperformed even more significantly, had it not been for clean energy. But we learned these lessons. Sometimes we need to relearn them. James Connor 33:59 So let's talk about cryptocurrencies now. Because once again, this has been a very significant theme we've seen here in the last few years. What are your thoughts on cryptocurrencies and maybe more specifically Bitcoin? Adam Johnson 34:12 Yeah, well, I'm a believer, but I'm not an owner, which probably means I'm not that big a believer except I own Coinbase and have for a long time and I'm thrilled with Coinbase I also own a square or block, if you prefer, for some related reasons. There when you talk cryptocurrencies, I think you have to talk about two different sides of that coin, you have to talk about the processing coin, a side of the coin, which is blockchain, right, the protocols that enable cryptocurrencies to transact and then he can talk about the cryptocurrency itself, like Bitcoin, or ether or ripple or whatever. I think we spend far too much time talking about the price. People talking about Bitcoin. And what they're really saying is, should I buy it here at 71,000? Or is it a short? That to me is like redesigning your house and saying, you know, we're going to redo all the bathrooms and do we want the shiny nickel hardware? Or do we want the oil rubbed bronze? Oh my gosh, nickel bronze, nickel bronze. That's what you see what you really should be talking about is the plumbing behind the tile. And the plumbing is the bitcoin is the blockchain. And that's far more interesting to me than the shiny glitzy stuff that's on the outside that we can, you know, sort of see. But the real value is, is the plumbing. And I'll give you an example of why. XRP ripple was originally intended as an institutional way of moving money much more efficiently. So let's say the Bank of Mitsubishi in Tokyo wants to transfer $100 million worth of yen, from its Tokyo branch to the New York branch. Again, on behalf of a client, well, it needs $100 million worth of yen in Japan and it needs $100 million worth of dollars in New York. So it's tying up $200 million of capital, if in fact, you were able to just attach the transfer to a token, it happens instantaneously, and you free up $100 million worth of the capital, you don't need to tie up the capital. And again, it happens instantly be so there's no worry about interest, do overnight, etc. It's much more efficient. That is I think why Jamie Dimon of JP Morgan, even though he hates Bitcoin, is still willing to embrace the concept of cryptocurrency. It's about transferring money more efficiently. And yes, I do own Coinbase and yes, Coinbase even though it's kind of hard to build a revenue and therefore earnings model around it. Because, you know, are they taking commissions? And if so, is that dependent on the price of cryptocurrencies? The answer is yes. And yes. Are they starting to build out a business model where they serve as a prime broker? The answer to that is yes. And that's more reliable. If you are a Black Rock client anywhere in the world, and you want to trade crypto, you're on the, the coin base infrastructure system. So it has become ingrained and institutionalized. Whether people realize that or not, again, the Coinbase platform has become ingrained. You know, for for BlackRock, very conservative and largest manager in the world to adopt the Coinbase system. That's, that's a pretty powerful endorsement. So yes, the answer is given you a very long answer. But yes, the answer to your cryptocurrency question, I like it, and I'm invested in it. Even if narrowly. Andrew Brill 38:08 Private market investments were the topic of conversation with Michael Weisz of yieldstreet. He said, private markets are a good way to stay safe within a turbulent economy. And the returns are much better than the stock market, especially during volatile times. How can investors go about alternative investing to sort of shed some of that volatility? I would imagine, you can't shed all of it. But you can certainly protect yourself through alternative investments. Michael Weisz 38:40 That's the whole value proposition, Andrew, right. It's all about saying, listen, the way to have the best performance in your portfolio is to have the right mix of investment strategies, you're gonna have some stocks and bonds and portion of it is going to be in the private markets and alternatives. We think that portion should be 30% plus. And what you're going to do within that is you're going to diversify your portfolio within private equity, private credit, real estate, real assets, etc. And so you're always going to have, in my opinion, some correlation to events that are occurring in the market. But what you want to have within your portfolio is you want to do two things, you want to shield yourself from volatility as much as possible, right. And so for example, interest rates have a major impact on real estate performance, right? So real estate is largely a business in which you are buying a building, you're hopefully getting an attractive mortgage. You're looking for the right read growth over time, and the dynamics of the economic market are going to drive what are those interest rates for your mortgage and how much money your tenants are going to make, which will inform how much they can they can pay for the rent, versus having private credit, where now we're getting, you know, four or five or 6% more interest than we would have gotten before because the interest rates have grown and so we get a lot of benefit in the private markets. From the economy, we get shielded a lot from the daily or monthly or quarterly volatility. And the diversification allows us to weather through whatever storm is playing out of the time. I think a big part of what you're seeing Andrew right now is geopolitical risks. Right? Like a lot of people are saying, oh, election risk, election risk. I'm not so sure how much I agree with that, in the sense that we already had a Trump and we already had a Biden. So we know, pretty much how both of them behave, and how they impact the economy. I don't think that's the biggest surprise, I think we're fighting too many wars around the world. And there's too much uncertainty right now on the geopolitical front and creating a tremendous amount of volatility. And that's not something that you can really price in or get ahead of, for 99.9% of us. And so being exposed and rebalancing your portfolio to include more private investments where you're shielded from that volatility, in our opinion, is very healthy. Andrew Brill 41:00 Michael, I started out, I guess, a little gloom and doom and I said that there's some uncertainty in the markets and private investing, has alternative investing has done much better than the markets or bonds over the long term. During these crisis. Can you explain how that happens, and how important that is for people to get into it? Michael Weisz 41:25 Sure. So data will show that private markets have outperformed the s&p in every crisis since 2008. During the.com, crash of oh, one US buyout funds declined by less than 13%. While us for a while European funds lost slightly above seven, which was much lower compared to a 40% drop in the s&p. And so we can go on and Oh 709, private equity experienced much less of a significant drawdown and a much quicker recovery than public equities. The resilience of the private markets is unbelievable. I think for those reasons, we've seen $13 trillion of capital flood into the private markets, we have all this volatility right now, we have this uncertainty, we have geopolitical concerns. And we have demonstratable results that private markets will perform better, and have performed better than the public markets. And so there's a real opportunity for folks to mirror the institutional strategy to get more and more of their portfolio into private markets. And that's special because for so long, they're just you haven't been able to access them, the minimums were so high. And there was no way for these types of investors to participate in the private market. So I think it's a really, really unique moment in time. Andrew Brill 42:53 10 years from now, where do you see private markets investing in private markets going? Obviously, yieldstreet will be part of that. But where do you see it going in? Or do you think that there's private markets that you're not in yet, that you can envision getting into? Michael Weisz 43:09 In 10 years from now, in my opinion, every single portfolio is going to private markets, period and the story. You won't have a portfolio that doesn't have private markets, whether you do it at yieldstreet, whether you do to trawl, Schwab, whether you do it at Fidelity, Vanguard, they're all talking about, I've met with all of them, every single portfolio in this country, and in many places around the world are going to have private markets over the next 10 years. That's what I see. The market itself has to develop, we need to create more access, and you create more simplicity, and you create some liquidity. So there's a lot of things that have to happen within the private markets for to continue to grow. And to ultimately get to where I'm, I'm saying we'll, but all of that is happening and will continue to happen. And 10 years from now, my opinion, every portfolio in the world or in America and in many other places is going to have private markets. Andrew Brill 44:04 Finally, next week on the trading floor feature Justin Nugent of market rebellion. He gave us his winner and loser for the week and on the unusual options activity he was seeing. We also talked about this week's Fed meeting and the recently released CPI number. There were 272,000 jobs created, they were looking for 190,000 jobs created. So that was it's all conflicting, because then you come up with unemployment, which is up to 4%. And there's a number that we haven't seen since January of 2022. So I don't know if you can, but I'm hoping you can make some sense of this for me. Justin Nugent 44:45 Yeah, absolutely. I think other than that 270 versus 190 Number. A lot of the jobs data we've seen is showing a weakening labor market, right. Last week's initial jobless claims came in hotter than expected this week's initial job was claims came in harder than expected. Obviously unemployment is back to where it was before we even started hiking rates and the jolts as well hotter than expected. So I think generally speaking, we have a weaker labor market with some noise built in there. And it all really leads nicely into a live stream from the original roaring kitty before there was a roaring kiddie pumping up GME, there was one man pumping up the stock market. And his name is Jerome Powell. And he's about to come at you on Wednesday, where I think he might do the same thing. And this is the last piece of key data, this unemployment report that he's really going to see on Tuesday, when they all meet up and start putting those dots on those plots and start prewriting, that transcript that's going to release on Wednesday. And I think that that is going to lead them to probably be a bit more dovish than a lot of the market expects, even without seeing this CPI that's going to come out on the same day that they start talking and have to do this q&a. Andrew Brill 46:02 So you expect them to sign it, sort of stand pat, as it seems and put out a report that says look, we're still going to watch the numbers, but we're not making any moves yet. And that seems to be the consensus that you know, nothing yet maybe in September, but we'll see what obviously, Wednesday brings. And then July also, let's look at last week, and let's look at our our predictions. And you know, our winner for last week wasn't exactly that Mark picked Vista Corp. And I kind of feel like this is a longer term play, not just a weekly thing, because AI is a much longer term play. And what VISTA does is supply the power so that AI can work. So look a down week, if you took the advice and said, you know, let me put a little money into VISTA. It's I would assume it's going to come back. But for right now, that pick was down a considerably. Justin Nugent 46:57 Yeah, absolutely. And that's why we use options. So VISTA is something that we've been seeing a ton in our ULA over the past few months as it ripped and ripped and ripped higher, they've been rolling up and rolling up and rolling up to chase this while cutting down their risk, which common themes is something that we talked about, of course, the last time that I was on. And by doing that they're taking a lot of their profit off the table while remaining that exposure. So even though VISTA is down considerably, they're likely still profitable on this and longer term, I still think VISTA can do quite well as well. But yeah, it's reasonable to expect a pullback after such a huge rally. Andrew Brill 47:35 And then in the penalty box last week, and this is head this was Dell and Dell was down about 5% Seven Bucks. So this was a this was a good play. If the unusual options activity. You hopped in on and said you know what? I'm going to short sell Dell you you made, you know, there was it went down $7. So that's not that's not a miss. That's a win. Justin Nugent 47:55 Definitely. This is why you go on right live when next week on the trading floor airs. You look at it. And if there's something that you're interested in putting your money on, you gotta move on it because Dell opened even on Monday after that live stream had aired, and then just tanked all day. And those options soared immediately within a few hours of the live stream going on. So I think that that's definitely a good sign for why we love to follow the smart money. Andrew Brill 48:28 And then in the unusual options, activity, we looked at DraftKings and DraftKings. We bet on the puts. But it was the Colts that I think were the winners there. That was up about 6% for the week. Justin Nugent 48:41 Yep. And that was a believe 34 strike. So not all that far from the money. But with these weeklies. Sometimes you never quite know it's worth the shot. But sometimes it doesn't work out. That's how the stock market is sometimes. Andrew Brill 48:56 Can you explain your vertical spread approach that you use to make these predictions? Justin Nugent 49:02 Yeah, you use vertical spreads, usually to mitigate something called Theta decay. That's a fancy word for the amount of time left and your option. And as time ticks on, if your stock isn't moving, your options probably moving to the downside. So you need that to be moving higher, or you need some method to protect yourself from that Theta decay. And vertical spreads can do that a little bit. It'll still matter, but it'll matter a lot less because we're we're buying an option. And then we're also selling an option against it. So the one that you're selling is is gaining value as data ticks down while the well the one that you are buying is is theoretically losing value against theta. And of course, we use this strategy when options are typically overpriced, something like like GME, for instance, if you were going to try and play that, you know you look at the option prices higher than Snoop Dogg, honestly, they're very, very high. And you don't want to overpay for these options. And so you can lower the amount of capital that you can outweigh with something like a vertical spread. For Robin Hood personally, I think that these options are relatively cheap. And I think that you could opt for the straight call and this but if you want to protect yourself a bit of vertical spread is never a bad idea. And this is, by the way, how Jon Najarian loves to trade, RUOA. He uses that vertical spread to his advantage. Andrew Brill 50:34 That's awesome. And it's, you know, he's been successful as have you. And I know that you're behind the scenes giving him some of that information. But I you know, it's nice to see that, you know, there is a method to the madness. So just, uh, now that we understand John's vertical spread approach, that's not the only way you guys look at unusual options activity, you have something called the rebel pit, which is another product where you give insights into other stocks that you think are going to go up or down. Justin Nugent 51:04 Yeah, we're really proud of our rebel pit service. It's created by former floor traders and pit traders to sort of give that trading floor feel to rebels, where we're looking at zero to five day expiring options. Those are really short term options. And they have the potential to go up quite a bit, while they allow you to lower your risk by paying very little on these options. And as an example, this week, we hit two really incredible, very short dated trades. One was in coin, which has been just ripping to the upside all week, a perfect target for very short dated options. And another one in Costco, which is also a relatively expensive stock. But by using these short dated options, we can limit our risk while gaining that 100 Share leverage. And you know, when powered by technical analysis and insights from professional traders, we can really make something out of these short dated options. Andrew Brill 52:10 So if you're looking to get into these stocks, make some money. It's market rebellion.com. Look for rebel pit, and you can get in on that action as well. So Justin let's recap. You're going against the grain with your winner, and it's a little bit longer term and that's the SP why the s&p 500. You think that's going to about 6000. So I know that's unpopular, and it's okay to be unpopular, but we're, you know, that's what you're going with. Justin Nugent 52:38 Yeah, to clarify, the SPY is the ETF of the s&p 500. So I think the SPY has gone to about 600 the s&p probably goes to pretty close to 6000 it's usually just a bit behind the the SPY Andrew Brill 52:54 Right so I was right on when I said about 600 Because I I did look that up and I knew it was the ETF but the 606,000 got me a little confused, but the spy ETF for the s&p 500 You're going with the unpopular 600 right now in the in the around the 520s area. So that would be a nice game for anybody. And for the penalty box this week. We're going with Vail Resorts. Sorry to all you skiers out there. But it's that's in Justin's penalty box and Robin Hood. We're looking at the calls for that, Justin? Justin Nugent 53:28 Absolutely, yes. Andrew Brill 53:30 So we're betting on Robin Hood to go up. Thank you for watching this week's recap, don't forget to head over to wealthion.com for a free no obligation portfolio review with one of our registered investment advisors. And please follow us on social media for the latest news and information to help you invest wisely. If you haven't done so already, please make sure to like and subscribe to our channel. And don't forget to turn on notifications so that you never miss a video. Thanks again for watching. Until next time, stay informed, be empowered, and may your investments flourish. And if you like this content, and they're looking for more ways to keep and growing your investments, watch this video next.
