New Market Highs By Year End? | Lance Roberts & Adam Taggart

Adam Taggart 0:04
Welcome to Wealthion. I’m Wealthion founder Adam Taggart back here at the end of get another week with my good friend Portfolio Manager, Lance Roberts, who’s going to make sense of everything that’s happening in the markets for us. Hey, Lance, how you doing?

Lance Roberts 0:17
I’m trying to figure it out.

Adam Taggart 0:21
So you are. Well, just like everybody else. Yeah, we’ll figure it out together here, folks, you may notice I’m in a different background than normal. I’m on the road this week, I’m actually back on the east coast. So taking time for my travels to make sure that Lance and I get your weekly market recap in this week, might be a little less structured than normal might be a little shorter than normal. My apologies for both of that. But we’ll still try to make it informative and entertaining. So Lance, to kick things off, up week in the markets here. What do you have to say about that? Market beginning to get a little bit of octane back in it?

Lance Roberts 0:53
Well, no. And again, this is pretty much exactly kind of what we would expect, you know, and as we talked about, let’s go back a few weeks. And we were talking about in August, that sorry, in July, that the markets were getting extremely overbought. And that we would need some sort of correction at that point, or three to five to 10% would be completely normal. And that shouldn’t be a surprise to anyone whatsoever. And of course, then in August, we had this bit of a pullback, and everybody’s like, Oh, my gosh, the bear markets back, which, you know, we also said that that would be the case, right? The bears would come out, say, See, I told you, it was a bear market rally. And now it’s all over. You know, but the reality is, is that that correction was very much needed. And now we’re just going through this very kind of normal process of, of, you know, kind of holding on to previous trends and these type of things. So let me share, if you don’t mind, can I share my screen real quick. So this is a chart of the s&p with a couple of just real simple indicators. The top chart is the MACD, that’s kind of our basic, very simple, simplistic, you know, buy sell, you know, kind of indicator. Now look, you know, there’s a, if you talk to people that are super adept at technical analysis, there’s about a billion different technical indicators. I’m not a technical analyst by nature. I’m a fundamental analyst. And so when we, when we do things, we look at fundamentals, we look at valuations, we look at earnings growth, we look at those types of things, we use a very simple overlay of technical analysis just to help provide some risk management to portfolio. So yes, I understand don’t email me a bunch of these indicators and that indicator, it doesn’t matter to me what I’m looking for some very, I have a very basic simple set of tools, I use three moving averages, a relative strength index and a MACD indicator. That’s pretty much it in terms of managing portfolios, because all I want to know is, is our prices trending higher, are they trending lower, or what’s going on? And so if we take a look at the s&p, we’ve been in a very nice bullish uptrend, really since going back to October of last year, but you can just see this kind of trend channel has been forming here lately. We got to the top of that trend channel. Every time we get there, we sell off to the bottom of the trend channel, then we rally back up to the top and back down again. And that’s all that’s going on in the market. So the rally this week, not surprising, you know, we’ve just been kind of flopping around here for the last couple of weeks. As we talked about earlier, July, August, September tend to be sloppy trading months. That’s exactly what’s going on here. That’s beginning to work, you know, some of this previous overbought condition we had, we got oversold. And we’re kind of slopping around here. Yesterday was quadruple witching day for options expiration, that was one of the largest on records that we had. And so you know, volatility here, you know, this whole week is not surprising heading into that options expiration. But this is all setting us up potentially for that end of the year push which is October, November, December, which typically tends to be more bullish. Does that mean absolutely with 100%, that we’re going to have a bullish rally into the end of the year. No, that does not that’s not what that means. What that means is that seasonally, historically, going back over time, October through basically May, that’s the strongest six months of the year that we talked about a good bit, those that seasonally strong period of time, end of the year and the beginning of next year is when money flows are coming into the market starting in October, you’re going to have roughly 5 billion a day and stock buybacks coming into the market. So again, corporations and this is going to be the mega cap stocks and large cap companies this won’t really affect small and mid cap much because they don’t do stock buybacks but in the large cap end of the index, you’re gonna have a lot of stock buybacks coming in through the end of the year. You’re also going to have portfolio managers chasing performance into year end, they’ve got to get their performance levels up. If you look at the bifurcation In between the s&p and the equal weight index, that there has not been a bunch of return, if you’ve owned stocks outside of the top 10, we’ve talked about this a bunch. But anything outside the top 10 really hasn’t performed well that year. So this year, so if you’ve had any type of diversification at all, your performance is well below what the s&p index is, unfortunately, if I’m a large cap manager, I’ve got to chase the s&p index. So look for some performance chasing into the year end, gotta get that window dressing done by the end of December, so that I don’t lose my job as a portfolio manager, because there’s what’s called career risk. So again, you’re right now what the markets doing exactly as expected exactly, which we’ve been talking about here, expected another week or so of kind of sloppy crappy trading. And then once we get through the Fed meeting next week, which I suspect they’re not gonna say anything different, that the markets will interpret that the Fed has now done hiking rates, and that potentially sets us up for some better performance heading into urine.

Adam Taggart 6:02
All right, keep this chart up for a sec glance. So great insights in great commentary, as always hear, you may remember, we had spent Henrik, who does TA for a living and looks at He does look at the billions of permutations and and he like you, I would say, you know, is quite bearish on on a fundamental basis. Buddy says, look, the markets trades as the markets trade. And this year, the market has traded extremely well, on technical analysis, technical analysis has had a lot more sort of predictive and explanatory power and, you know, defined defining or explaining what helping us understand how the market action has happened, way more than the fundamentals. And he’s saying, Yeah, at some point in time, I think the fundamentals will matter. But until they do, we got to trade the way the markets are going here. One chart to be put up, which you said isn’t really even true ta was just a chart of seasonality in the markets. And it was in an average of the previous 20 years of s&p market behavior. And he said, that’s basically the script the markets been following this year. If it continues to follow it this year, like you said, Lance, he said the market should finish the year substantially higher. Are you trying to you’re pulling up a link that’s related to what I’m saying?

Lance Roberts 7:34
Yes. Okay. Very good.

Adam Taggart 7:38
Thank you. Yes. So look at the end of of that, you know, the right end of that chart period. And you see that the sorry, I jumped on me real quick, no worries. But you see that the market kind of makes a big run there to the end of the year. Right. So, you know, that’s what Spanish just saying. I’m not saying that’s exactly what’s going to happen, but be mentally prepared for it, because this market has been following the script all year. Right. So if it does, you had that that that bullish uptrend channel in the previous chart, right. And it looks like we’re the market to run back to the high end of that channel. We’re talking what like about 4650 4700?

Lance Roberts 8:19
Yeah, yeah, 4600 4700 by year end, would not be out of the realm of, of ordinary look, there’s some, there’s some companies that Wall Street firms out there going 5100 By the end of the year, that’s probably not the case, I you know, there’s certainly a possibility that we could hit all time market highs by the end of the year, depending on how bullish things kind of get. But, you know, I think you get to the top of this trend channel by the end of the year, again, 4650 4700, maybe 4750, that’s probably a reasonable, you know, expectation for the markets between now and the end. Remember, if we get back to 4650 4747 50, we’re going to the markets going to the s&p as a as a as a index is going to be up over 20% for the year. And that’s, you know, pretty amazing coming out of a market last year where you were down, you know, 25% at the trough, you’re gonna have basically have recovered all of that correction last year, you know, this year, which again, that’s why last year was a correction. You don’t recover a bear market in one year. So, again, you know, what the markets doing this year is very typical following a correction here, like we had last year. And so that’s where we are.

Adam Taggart 9:27
Okay. And again, folks, you’re not necessarily calling for 4700 or 4750. On the s&p, but you’re setting the potential for it is certainly possible, and it’s really not dismissible. It’s almost sort of where the the trend is heading, getting that saying you’re calling it there. But if you’re a bear, this is what I’m underlying here. If you’re a bear, and if you’re saying, Wow, I just trust this market from a fundamental standpoint, and I want to start positioning against that maybe aggressively using shorts or whatnot. Just be cautious that the momentum right now is not it in your favor, unless you mentioned, you know, some calls of like 5100, or whatnot. And so for months now, as the market has been strong this year, I’d say once it’s sort of past 4300, I started getting a lot of comments from people saying, hey, you know, there are a couple of people out there who are calling for s&p 6000. And you’re going to get them on this channel, because here’s that melt up that they’ve been talking about. I just want to ask you, I mean, of course, anything’s possible. But how realistic do you think, you know, in the next six to nine months, we would see a melt up of that type of magnitude?

Lance Roberts 10:37
Probably the 6000. That’s probably a if, again, you know, you could never say I’m gonna spit this out. So give me just a second. You can never say with certainty that absolutely. Something is never going to happen, right? That’s very dangerous perception about anything in the market. There’s always possibilities and always probabilities. And so as a portfolio manager, as an investor, you need to assign a probability to even the most outlandish, you know, prediction, say, okay, you know, I get it 6000, the s&p, no way that’ll ever happen. Maybe the case, but we need to give it a 10% Wait, that there’s certainly something that could happen that would drive stocks to that to that point, and what would that be? Well, that would be the Fed coming out tomorrow. And, you know, saying, you know, we’re cutting rates to zero tomorrow, and we’re gonna start doing 500 billion a month in quantitative easing, that would certainly drive the markets, right. I mean, that would be like, the next day, we’d be at 6000. So you always got to give it a possibility, because we never know what is going to happen, you know, economically, you know, this was last week’s article on our website, at real investment. vice.com on Tuesday, talking about market predictions, and you know, you always have to be careful with gurus who say, Oh, this is going to happen with certainty, by this time next year, we’re absolutely going to be here, you can take that and pretty much discount that for all of its worth, you know, even meteorologists, as we show in the in the article are only right for three days, at 10 days of weather, and you got to think about the amount of data real time data that that meteorologists have, right? They have weather patterns, humidity, you know, weather, you know, global temperatures, sea level temperatures, you know, atmospheric pressure, they have all that data to work with, and a bunch of historical data that says, okay, when these this environment is correct, this is what’s going to generate this weather pattern. They’re only at 10 dates, they are only 50%. Correct. So how can you take anybody with all the macro events that we have no control over economics, politics, geopolitics, you know, just earnings, corporate events, weather events that affect commodity prices? With all that uncertainty? How can you predict anything 12 months in advance, it’s just ludicrous. So that analysis is so very important in the short term, and why we rely so much on it in the course of a week or month or three months, because that’s about all it’s worth. Technical analysis is only good for a week to a month, at the most outside of that it starts even getting really kind of iffy trends are important. We can we can measure trends, we can monitor trends. But you know, again, back to your question, when somebody says, Oh, we’re going to have this extraneously large move in the markets in one direction or the other, it could be up or down, you know, there’s people out there saying, hey, this markets gonna be back at 3800. By next year. Maybe there’s certainly the risk of that happening. But we have to assign it a smaller percentage, the probability is markets are going to trade within a given range based on earnings and fundamentals for period of time market, psychology, liquidity, those are the things that are going to drive the markets in the short term. And markets are going to basically trend in one direction over time. And generally that trend is bullish, the more majority of the time that trend is bullish the minority of the time, that trend is bearish. And you need to keep that within your wheelhouse of measuring kind of market outcomes.

Adam Taggart 14:07
Okay, I’m going to re ask the question slightly differently, just to get a bead for what I think you know, the viewers are looking for here, which is some are saying, oh, you know, these people who’ve been making these big predictions? A Yeah, it’s taken a while longer than they thought but but but now is the opportunity. And let me just restate what I heard you say, which is like really extreme moves like that don’t happen very often. And looking at both the fundamental and the technical. I don’t think you see a irrationally high probability of a big upside move like that, unless, as you said, there is some unexpected, an extraordinarily extreme sort of central planner move, right, but, but,

Lance Roberts 14:55
but Right, right, so I just shifted my chart back in time. Just to get us to given just help define this point a little bit more. To your to your question right, even with so this is now 2021 through 22, peak of the market in 2022. Okay, so let’s go back to that period of time as a moment. What was going on then we were doing $120 billion a month and quantitative easing. We were doing, we had zero interest rates in terms of a fed. So even with all that, and then also don’t forget, we had 5 trillion in stimulus, we had checks going to households we had,

Adam Taggart 15:33
you know, yes, yeah.

Lance Roberts 15:35
So talk about the perfect environment for a market melt up that was just going to be extreme. You can even look at this chart, yes, we had a very sharp rise in the Marimar. Going from 3600 to 4800. In a year, right. So it was up 22% for the year. That’s a fairly strong advance, but look out, look how perfectly flat it was. It wasn’t it wasn’t a, you know, a skyrocket, higher, right? Even with all that stimulus and all that support, and all that bullets is a tremendous amount of bullishness, the market just kind of ground is way higher, and look all along the way the market was dipping. It didn’t, it didn’t dip a lot, those dips were one, two 3% Most of the time, excuse me, and you know, and so there wasn’t anything, you know, out of the ordinary, but it was just a nice steady upward trend over that whole time because it you know, as as money comes into the market, it doesn’t just come all at once, right? This was 120 billion every month that was coming from the Fed, it was, you know, checks being mailed to households, extended unemployment benefits, those type of things. So, you know, you don’t get this immediate impulse of money overnight. And so even in that environment, the most extreme environment that I can think of in recent history, the trend was a gradual trend higher. So yes, the market was melting up. But it was doing so in a fairly controlled manner.

Adam Taggart 16:56
All right, great. And sort of just as I gave a caution to maybe the folks who were on the very bearish side of things, I wanted to talk about this for the folks who are on the very bullish side of things. Because I think in both cases, there’s sentiment out there that I’m seeing a little bit more of where people are saying, Okay, this is the moment and I gotta push all my chips on the side of the table. And I’m not saying it can’t happen. I’m just wanted us to have a little dialogue here to say, what’s the likelihood of it happening, and it is a quite low probability event. So if you want to position for it great, but just be aware that, you know, you probably want to have a lot of your portfolio position for it not happening, because that’s a lot more probable, as best as we can tell at this stage.

Lance Roberts 17:40
Yeah, exactly. And look, you know, like, this is the way we’re, we’re right now, we’re pretty much fully allocated equities. We’ve been that way now for the past, you know, you know, past month or so. And, you know, we’re kind of positioning portfolios for this year, end of the year, push higher, which, again, you know, we’re looking at technicals, we’re looking at transhistorical, tendencies, those type of things. If that, if that fails to mature, if, for some reason, you know, we get some surprise piece of economic data, whatever, that suggests that the end of the year isn’t going to be, you know, maturing, then we’ll reduce that equity exposure. But if October, November, December starts to play out as expected, then we’ll probably overweight equity in our portfolio heading into year in now, again, you know, predictions are only good for a month or two. And predictions are shoddy, even, you know, once you get past a month, you know, I can pretty much guesstimate what’s going to happen next week, and we write about that every day in our daily market commentary, hey, here’s what happened yesterday, this is what we expect to happen today. And we can pretty much nail that most of the time. Because that’s just what markets do. That’s pretty that kind of prediction that one to three day prediction, five day prediction, kind of like kind of like weather predictions, is pretty easy to get right? Once you get you know, two weeks, four weeks out, it’s getting a lot more, you know, kind of hit and miss on that kind of prediction. So again, this is when we’re gonna pay so much attention to the trend of the market, what’s happening short term, pay attention to the sentiment sentiments, very bullish right now. So again, that’s going to drive, you know, the markets also the most important thing about where markets go to between now and the end of the year and into even into next year, pay attention to earnings estimates, earnings estimates precede market moves, why? Because of earnings estimates are going up people are going hey, I’m you know, earning estimates are going up. So that’s lowering the valuation today that I can buy a stock for and if the company is going to earn more money, the stock price is going to go up because of higher earnings I need to buy in today. So there’s a very good correlation between earnings estimates and Ford returns on the stock market over the course of the next 369 12 months. Now, once you get wait way out there to three years, that’s not the case. But over the short term earnings estimates and those are being ratcheted up right now because of expectations of stronger economic growth going into next year that’s also going to support the markets into the end of the year. Now once Economic Predictions Fail to pan out, those estimates will get high. And then earnings will respond accordingly. So you gotta be careful. It’s all about timeframes.

Adam Taggart 20:10
Okay, great. And that was actually going to ask you about where the trajectory right now of earnings estimates sounds like they are beginning to get ratcheted back up. You know, we’re talking here, right in mid September labs. And one One important element that drives stock prices, for better or worse, as we have discussed in the past, is stock buybacks. And we are entering the q3 stock buyback blackout period, really, as of right now. I think as of this weekend, roughly 50% of the s&p companies in the s&p index will be in that blackout period. Last roughly four to six weeks, they say, do you expect that to have any sort of near term impact in the market action? Yeah,

Lance Roberts 20:57
yeah, it’s, it’s an extraction of liquidity. So can see the market slop around shop around a bit? While they’re kind of, you know, in blackout period. So But again, as soon as we get back to things are gonna happen, right, you kind of have an offset in the short term. You know, you guess you get the extraction of the buybacks as you go into earnings season. But now we’re gonna have earnings season coming in. And earnings have been adjusted to a point to where, once again, we play the millennial earning season game, which is where everybody gets a trophy for beating earnings estimates. So again, you’ll get that support from earnings season, and then as soon as earnings season, and then you get to support a buybacks coming back. And as I said earlier, that’s gonna be about 5 billion a week.

Adam Taggart 21:38
Okay, so, you know, maybe sort of a pause on the upward forces of the markets while we’re in this blackout period. But obviously, that money will come back in once the blackout periods over. And hey, if companies start, you know, beating earnings estimates, maybe even more than folks were expecting, that could add additional upward fuel and maybe be some of the triggers for that potential run to the end of the year, we talked about earlier.

Lance Roberts 22:04
And I, you know, I, you know, again, you know, keeping your perspective, you know, the market could be anywhere between, you know, 40 546 50 by the end of the year, certainly possible. Anything outside of that I would start really kind of discounting the possibilities of Okay.

Adam Taggart 22:21
All right. So, you mentioned that the feds meeting next week, we’re gonna hear from the Fed next week, you expect them to pretty much keep things as they are and for the market to interpret that as Okay, yeah. And if it’s probably done here, maybe true, may very well be true. But let me just let me ask you this. Oil has made a big run in the past couple of months. It was in the 60s, just in June, as they were speaking here, Lance, it’s now over $90 a barrel. Yeah. Also, you know, when we caution folks about this, to expect it, because of base effects, and just general stickiness. Inflation is creeping back up right now, at least as measured by headline CPI. Right, the August data came out at 3.7%. That’s up from 3.0 in June and 3.2. In July. So, you know, yes, the Fed did a good job of knocking it down from nine to three, but now it’s creeping back up, right. You know, especially with oil going up, like the way that it has, could that be changing the game here a little bit? I mean, could this could that be really forcing the Fed to say, as much as I want to declare victory, I really can’t with oil, if there’s levels.

Lance Roberts 23:42
Now, oil doesn’t impact the Feds policymaking decision. Look at it. And this is there’s there’s a couple of reasons behind this. First of all, yeah, oil is got everybody’s attention here short term. And that’s fine and dandy and oil oil ebbs and flows over time. So you know, it’s oil prices are gonna go up, they had a big sell off in the summer, they got very oversold. So now you’re getting a reflexive rally in the markets. And remember, what drives oil prices, commodity traders. So these are all just bets. Oil tends to cool off historically, as we move into winter. If we get slower economic data coming out, that’s gonna pressure oil prices lower. If the dollar keeps shrinking, that’s going to weigh on oil prices. So you’re we’re probably close to the peak in oil prices near term. And so we’ll see that cool off. But, but putting that aside for a moment, the Fed doesn’t care about oil prices. So first of all, let’s talk about CPI and how we calculate it. Yes, big impact right now on what’s happening with inflation. And you should expect this is the year over year comparisons. It’s always a mathematical basis that we’ve had, we have very big numbers of inflation back in 2022. So when we got to 2023, we as you and I were talking about that inflation or sorry, 2021 2022. You and I were talking about in June and July, you know that we’d seen the peak in inflation because of the mathematical base effects, that number is going to come down very sharply. But as with all Economic data, you should never expect data to trend and just solely one direction, it bounces along the way, we’ve had a very big decline where nine to three you should expect about as the as the mathematical year over year comparisons, and then you’re gonna have another, then inflation is gonna start to tail off as we get into next year. Now, oil prices in particular, have a very small impact on overall inflation is about 3% of the inflation measure. And energy as a whole is 7% of inflation that includes heating oil, oil for your car, gasoline, electricity cost, utility costs, those type of things, all the factors of energy that goes into the household equation is about 7% of the index, almost 40% of the index is housing and housing related components. So the words the homeowners equivalent rent, that runs about a three to six month lag, home prices are declining, there’s still a huge impact of lower home prices coming in to the inflation calculation which far outweigh any impact ultimately coming from from energy prices. But more most importantly, because energy prices and food prices are so volatile. And they do they go up and they go down from one month to the next. The Federal Reserve excludes those from policymaking. If they if the Fed looked at oil prices as a function, and let’s say they look at headline CPI, they’d be changing monetary policy every month. And they can’t do that. So they strip out these more volatile sectors and look at the core inflation, which that came in at point three. So multiply that by 12. That’s basically 3.6% inflation, or long term basis, we’re going to average that around point 2%. Ultimately, so you’re looking at 2.4% inflation, on average, yeah, you’re getting a little bump every now and then. But you’re gonna start to average inflation back down towards 2%, on the core reads, and that’s and that’s going to remain suppressed primarily because of what’s happening with housing and rental rates, and what’s going on on the big factors that actually influence core CPI.

Adam Taggart 27:00
Okay, so you’re basically saying, You’re not that worried about the policy implications of the rising oil prices that we’ve seen over the past couple of months, oil being relatively volatile, you expect that we’re probably you said, getting your peak in prices probably come back down again, it’s kind of a non issue for the Fed right now, because it’s not even included in the core CPI that they’re navigating their policy by. So now, I presume there’s some level at which if oil got to or stayed above for a prolonged period of time, you might change your tune, but you don’t see anything yet to make you worry about that. No, no, no,

Lance Roberts 27:40
that’s not what I said. I said, the Fed doesn’t when you’re talking about policymaking, the Fed doesn’t include those points in the inflation metric, right? And they’ll always strip that out because of volatility. But don’t don’t be surprised if the Fed comes out says, hey, you know, we are watching energy prices, we are watching what’s going on, because that’s an impact to the economy. But those aren’t positive impacts. Right? So just think about historically what happens. So let’s just let’s just say that some of the people out there predicting 100 $120 barrel oil occurs again,

Adam Taggart 28:11
that’s where it’s gonna go. 220 it stays there for all of next year? Yeah.

Lance Roberts 28:16
For a whole year. Right. So what would happen to the economy at that point? And you know, what would happen with economic growth at that point? And see, these are the things that, you know, we often forget, and you know, that these have severe impacts to the overall economy. The subject of our newsletter last weekend was oil price, inflation, interest rates, and what’s the link. And that was that chart of seasonality right there. But we go back and look at the market over time. So again, talking about inflation, what’s the calculation of inflation, this is CPI broken down over the course of the last five months and the weights of each sector. And you can see housing makes up housing, everything related to housing is a very, very big chunk of the actual housing calculation. Energy isn’t even weighted, because it’s included in transportation and housing. And again, that makes up about 7% of that total calculation. So again, energy is a function doesn’t have a whole lot of impact on the overall inflation number. But here’s oil prices versus core inflation going back to the 1960s. And pause it so now what you’ll notice is, and we’ve talked about this before, is that when you have big spikes in oil prices, they don’t tend to stay around for exceedingly long periods of time. So generally, when you have a big spike in oil, you’re going to have some type of economic event that occurs and then oil prices are going to correct and that’s kind of just the history of oil prices as a function. Core inflation doesn’t really have a big correlation with oil prices over time and it has recently there’s been a pickup in the correlation Recently, because of all that money that we flooded into the system, you know, stimulus payments and everything else, we shut down the economy, we gave everybody you know, money to spend. So they all went out spend it. So that created a big surge in demand for all types of commodities. So the recent correlation of oil prices, as certainly Ben, let me back up one here, this recent correlation in oil prices, inflation is certainly evident. But that’s not the history of oil prices. And inflation, particularly going back to the turn of the century, there’s not a huge correlation. And we can actually see that this was a chart by Michael Leibowitz last week in our daily market commentary. This is crude versus five years and five year inflation expectations. And that’s a fairly high correlation. But once you spit this out, and look at crude versus inflation, that correlation drops to about 30 to 32%. And what that says is, is that people expect, oh, well, energy prices are up. So I expect there to be a big correlation with inflation, but the reality is drastically different. And there’s a very low correlation between as I just showed you the very low correlation between energy prices and inflation over time.

Adam Taggart 31:17
All right, interesting. But I’m just curious. You know,

Lance Roberts 31:22
there’s a whole lot more to this article, by the way, I just stopped there.

Adam Taggart 31:26
You know, oil prices go up? I think people say, gosh, you know, oils and everything that for it’s going to be inflationary. You’re saying the data doesn’t necessarily show that very often? I’m just curious, does it? Does it act with a delay? I mean, oil, isn’t everything. And so it goes up. Now, maybe there is a higher correlation, but maybe we don’t see it until nine months down the road, or 12 months down the road? I don’t know. Do you see that in the data at all? No, not really,

Lance Roberts 31:55
you know, they’re they’re, you know, again, you know, this is this is a better chart of oil prices over time. But, you know, you can see that every time there’s a spike in energy prices, it creates some type of problem economically, either recession or some type of event that

Adam Taggart 32:14
it’s almost like too high interest rates, right? It is.

Lance Roberts 32:17
But there’s also one other component of this is if oil prices go up, I’m an energy company, right? I’m Exxon Mobil. If oil prices go up, what am I going to do? Well, I’m going to take advantage of that. And that’s why, you know, back in night in 2008, we had, everybody was worried about peak oil, oil price. And now and this is always important. Remember, energy companies do not set the price of oil. You and me buying stuff at the gas station does not set the price of oil. Oil is set by NYMEX. It’s set by crude by, by energy traders that are buying and selling options, right. So back in 2008, everybody was like, Oh, my God, we’re running out of oil. And we were running up the price of oil like crazy. And then we discovered, you know, fracking. And this was the response by energy companies going man, at at $130 a barrel, I can do stuff that previously was not economically feasible, you know, at $80 a barrel, or $50 a barrel or 30, you know, we were down at $30 a barrel, I can’t drill offshore, it’s too expensive to drill offshore, at $30 a barrel, but at $80 a barrel, I can start drilling offshore again, and $100 a barrel, you bet your ass, I’m building a new drill out in the middle of the gold somewhere, I don’t care what’s going on, because I can extract that oil at an economically beneficial cost. So as soon as prices go up, energy companies are going to respond by drilling more oil. And that’s what’s ultimately going to happen is that if energy prices do go and look and energy prices are just again, you know, take a look at where we were last year, the Russia Ukraine war, energy prices had a big decline, you’re getting a bounce in energy prices, exactly what you should expect them to do. They just got really oversold. They’re bouncing here a bit. And then you’ll have your economic slowdown next year. And when you have a recession, energy prices decline. So I mean, that’s just that’s just a function of the way the world’s going to work.

Adam Taggart 34:18
I also just want to remind folks, too, that Lance, you are based in Houston, so more than the average financial advisor, you are kind of closer to the pulse of the oil industry, given your location and the folks that you interact with.

Unknown Speaker 34:30
Right. Yeah, exactly. All right.

Adam Taggart 34:34
Look, I want to I want to switch gears here a little bit. So earlier this week, I interviewed Michael pento. Who you know, so I think, you know, I think you guys see the world very similarly, in most cases. One point of difference and it’s really just a difference of timing. It’s not it’s not a difference of expectation or philosophy. I think it’s just a difference of when certain events might happen that Michael highlighted that I think a lot of viewers have been talking about. It has been his outlook for US Treasuries, where right now he is pretty much sitting in the very short end of the curve. And saying, I don’t think it’s time yet to go out on the long duration side of US Treasuries, there will be a time, when he’s waiting to do that he has a model he’s created, that he’s waiting to tell him that it’s that time. Now, obviously, you and your partner there, Michael Leibowitz, have relatively recently said, you know, I think now is the time to start extending, and you talked about how you have swapped the, the TLT part of your portfolio for actual long bonds themselves in commensurate with that, have you been increasing the part of the portfolio that you’ve been shifting from short to long?

Lance Roberts 35:49
Not yet. So we still have half of our bond portfolio fairly short in duration. But we did extend the longer in part of our of our so we run a bond barbell, right. So we’ve got different maturity ranges across the board in terms of bonds. And right now there’s, you know, there’s no reason to shift out of that really shorting because we’re getting paid well on it at you know, 4% yields, or whatever

Adam Taggart 36:14
it started. You said you’re about half and half right now shortly. Okay. And I just want to emphasize that because I believe that is different from Michael, I think Michael is 100% Short right now.

Lance Roberts 36:23
Anyways, yeah, so yeah, so actually, we’re not even half and half. So we have 40% of our portfolio in bonds. And you could, okay, my backup real quick. So our portfolio is a 6040 allocation. So we have 60%, equities, 40% bonds out of our 40% bond portfolio, we have 13%, in long duration, right? Everything else is medium to short or cash, right. So we still hold a pretty big cash holding, even on the on the bond side of the portfolio. And then our equity portion portion is 60%. So again, as we start to see interest rate, and look, interest rates have probably peaked where we are, we’re probably not gonna see substantially higher interest rates here. Sure, we could get to four and a half. But bad things can start happening once you get above four, or four and above four and a half percent, that things will start happening economically. So we’re probably either at or near the peak and interest rates. So we wouldn’t have made that shift last week, by switching from into an actual 20 year treasury bond locking in that rate, because you’re a foreigner a half percent, you know, that’s a big help to the portfolio return over time, but just I can throw four and a half percent in the portfolio. That’s easy. So that part we did, and you know, but there’s been a lot of talk lately about the return of the bond vigilantes and how, you know, the, you know, with inflation, where it is and what the Feds doing, where things are going that, you know, nobody’s gonna want to buy the treasuries unless they get paid much higher rate, and there’s just not a lot of support for that case.

Adam Taggart 37:54
All right. If we’re gonna say why that’s so?

Lance Roberts 37:59
Well, why isn’t it? Well, let me ask you a couple. First of all, today’s article on our website is actually discussing this. But let me just ask you a couple of questions here real quick. We have 32 trillion in debt. Right? So what and that’s just in government debt, that doesn’t count, you know, that 150% of leverage that we have in households and corporations that are all based upon ultra low interest rates. So what happens if the world says, Okay, I’m demanding a higher rate, if I’m going to loan you money, I’m going to loan corporations money, if I’m going to loan households money, I’m going to demand a much higher rate, what happens economically?

Adam Taggart 38:35
Well, this is what you and I’ve been talking forever with a lag effect, right, just less can get done. That’s right.

Lance Roberts 38:41
And, and so eventually, if if less gets done, economic growth slows, and if economic growth slows, since interest rates are a function of inflation, expectations, economic growth, expectations, opportunity cost, the interest rates are going to come down to reflect that reality of what’s happening economically and with inflation. So as as the negative impact of higher rates weighs on the overall market, then interest rates will start to reflect that just we’ll just go through it. So some quick analysis here. And this is really again, this if you want to take your time and read the article, and and look into charts, more detail. It’s on the website, real investment vice.com. It’s just called bond vigilantes in the Waiting for Godot, because so first of all, the term bond vigilantes was turned by Ed Yardeni back in 1980.

Adam Taggart 39:37
I didn’t know that.

Lance Roberts 39:37
Yeah, back in 1980. And we’ve been waiting on the bond vigilantes to return since 1980. And they haven’t. And you know, what’s interesting is that we now have so what this chart shows you that I’m looking at that you’re looking at right now is the tenure interest rates, versus the change in rates on an annual basis versus, you know, economic events over time. And every time that you have big changes in rates, you have either a recession or some type of financial event or crisis that then in turn makes interest rates go lower. This is by far the largest change and rates we’ve ever had in history, period. So if you don’t think this is going to ultimately revolve into, especially if you think rates are going to keep going up, if you don’t think we’re not going to have a financial event or recession, there’s no evidence to support that going back at least to 1954. But let’s go back even further, how about 1787? Not my chart. This is by Bank of America. But since night since 1787, the bond market has never had a negative return three years in a row, if it does it this year, this will be the first time since 1787. The point though being even in the 70s, where everybody was, this is what array refers back to as like the 70s were terrible for interest rates, the bond market cranked out positive returns almost every year, even during the 70s. And so if you’re gonna bet on an ongoing negative return in bonds, after this year, that’s a very, very tough bet to hold on to because again, history going back since in 87, doesn’t support bonds, having negative returns more than two years in a row, much less three years in a row, much less four years in a row. So again, just history is really starting to wait until way on your side or go back. I’m sorry, go back. Yes.

Adam Taggart 41:33
Finish your point.

Lance Roberts 41:35
I’m finished. I was moving.

Adam Taggart 41:38
Alright. So you know, basically, we’re saying, Look, two years of declines in Treasury bonds, is extreme. It is rare. Three years of declines never happened before in this data series might happen this year. Right? You’re saying betting on a fourth? Highly, highly, highly unlikely, right? You’ll never say never, as you said earlier, but you know, it’s as close to as sure this one could probably get right. So let me just ask you, though, so. Okay, so we’re having this unprecedented third down year so far, you know, maybe the year ends with lower higher bond prices and lower rates, but maybe not. Right. So what is causing this? Is this basically just a reflection, as you said earlier, that this is the most aggressive rate hike period we’ve ever had?

Lance Roberts 42:27
Yeah, well, again, you know, interest rates where they are currently are reflecting three things. They’re reflecting wage growth, they’re reflecting inflation and their growth. What’s coming in right now from the Atlanta Fed? Have you looked at the latest read? It was fine. It was four point, like 5.2 or 5.3. The other day,

Adam Taggart 42:49
it’s 4.9. As the day we’re talking, okay, so 4.9.

Lance Roberts 42:52
So you have 4.9% economic growth. So just that math, right, if 4.9. If you have 4.9% economic growth, what should the interest rate be?

Adam Taggart 43:02
Well, it should be somewhere, should

Lance Roberts 43:05
be somewhere around 4.9. Right. So we’re 4.3 ish. That’s about where it should be. That’s, that’s so where’s inflation, inflation’s 3.7 on the latest rate, and you’re at 4.3, on on an on GDP on the interest rates and, and 4.9 on GDP. So interest rates are just reflecting where you are in terms of economic growth. And inflation, also reflects where the Fed is the Fed currently at 5%. So, you know, the 10 year rate is really just reflecting all these economic and financial variables. And unfortunately, whenever the Fed has had rates this high previously, outcomes have not been great for either the stock market or for the economy. And so this is and but again, and when we go back and talk about bond vigilantes for a second, let’s remember one thing, is that the statement, the and, you know, to Ed Yardeni, his point about the bond vigilantes are now saddling back up, this, this is all based upon the premise that all else is equal. And I want you to take that home and think about it. If all else is equal, then Ed Yardeni is probably right about the bond vigilantes saddling back up, or Jeff gunlock, or whoever, whoever else is saying this and what their arguments are, is that this is that in the current environment, that bond buyers are going to demand a higher rate for Treasury bonds to compensate for higher rates of inflation and higher rates of economic growth and higher wages. Right. So that’s there’s a very close correlation of that. And they’re absolutely right about that story. So if all else is equal, if I’m the if I’m the guy out here buying bonds, and the government comes to me and says, Lance, I’m gonna offer you a 10 year Treasury at 2%. I’m like, why inflation is four. So if inflation is four, why would I Take two on a 10 year Treasury when I’ve got to accommodate for 4% inflation, I’m losing money. So the so as a bond buyer, I’m going to say, Hey, you got to step up the rate in order for me to buy it. So all else equal, that’s the way the market should work the mark, but we’re not in an all else’s equal environment anymore, because as soon as interest rates get to the point that it starts damaging the economy, or starts creating financial scenarios, central banks globally have been stepping in to be the sole bond buyer of bonds. So we’re not in an all else’s equal environment. We’re in an environment where in the event, the market doesn’t show up to buy bonds and keep rates suppressed, because again, going back to our previous statement, which is the economy can’t withstand higher rates, because of all the leverage 32 trillion and government debt, not to mention corporates and households. So as soon as you start to break either the financial market or the economy, which will happen, the central banks are going to step in, don’t believe me, let’s just go back to March for a second. Adam, what happened in March, in particular this year?

Adam Taggart 46:06
We had a lot of instability in the banking system. Right? And what did the Fed do? It stepped in and created a new funding facility, the BF TP

Lance Roberts 46:14
they exactly. And so can you imagine if that was and why did we have this problem was because interest rates went up, it suppressed the collateral values of the banks, we had banks fail, because they didn’t have these were bad banks. These weren’t banks that were doing subprime mortgages or bad loans. They were holding treasuries. It’s just a function of their because we do fractional reserve banking, the value of their good quality collateral fell, because the Fed was hiking interest rates created a collateral problem for the banks, and they had to get bailed out. And so the Federal Reserve stepped in, can you imagine what would happen to not just regional banks, but CIT, JP Morgan, to Bank of America to Wells Fargo, to our systemically important banks, if interest rates were at five, or six, or 7%, in terms of their collateral, we would be right back in the midst of a 2008 financial crisis. And the federal government would be stepping in to buy bonds to suppress rates in order to get that that situation resolved very quickly. So all else is not equal. And when we talk about the so the level of debt in particular, we’re at 32 trillion approaching 33 trillion right now, the CBO just projected and just did their projections through 2050 on the amount of debt to GDP. So if we work that number, we’re talking about roughly 140 trillion in debt by 2050, the Federal Reserve will have to monetize roughly 30% of that debt. So you’re talking about the Federal Reserve’s balance sheet between now and 2050, going from, you know, eight to $8 trillion to roughly $40 trillion in order to monetize enough debt to keep interest rates at levels that are systemically functional. And so when you start talking about bond vigilante ism, it sounds great theory. It’s just we don’t have a normally operating functioning, you know, bond market, much less we have a normal function stock market, but we certainly don’t have the bond market and aren’t going to have it because central banks are standing ready, not just the Fed. It’s the ECB is the BOJ, it’s the Bank of China.

Adam Taggart 48:23
And nobody’s done this more than the BOJ. So you’re way, way, way, way, way, way.

Lance Roberts 48:28
Way my punch line. Okay, sorry. Sorry. Sorry. So, yeah, but no, you stole my thunder, because, again, if you want to take a look at, you know, a microcosm of where we’re headed. Since 1995, Japan’s Debt Debt to GDP ratio has gone from basically 65%, or over to under 20% of debt to GDP. In the US, we’re about 120 ish right now. And look at what’s happened with economic growth and interest rates over that time, economic growth has slowed, interest rates have slowed interest rates near zero. And they’ve been that way. For a long time, the bond vigilantes never showed up in Japan, and if all these ladies were to show up anywhere, it should have been in Japan. And the reason that they didn’t show up, it’s because the Bank of Japan now owns roughly 80% of the bond market, the stock market and the ETF market. And so that’s how they keep rates suppressed, and try to create some rate of economic growth. But as you can see, Japan’s plagued by recessions about every three to four years, and it’s just they have these little spurts of growth, and then the impact of debt and economic realities show up and you have another recession again, but you know, importantly, going back over time, interest rates are relative around the world you can have one country with with one set of rates and another country with another set of rates and Japan and the US have a lot of similarities aging demographics, large import export economy, high debt to GDP ratios, high dependency on welfare programs. low savings rates, structural shifts and employment. So the outcome ultimately for interest rates is not one of a higher interest rate environment. It’s one of a much lower interest rate environment, and one where central banks are going to be maintaining those low interest rates to keep the economy on life support. Now I’m done. Go.

Adam Taggart 50:16
Okay. Yeah, no, so great analysis. And lots of questions. But let me get to the main one here and keep that chart up for one second. Oh, sorry. Get rid of it. Well, that was fast. Let’s do that. So big, big picture. Question. Is the US Japan a fine? Yes. Yes. And it’s interesting, because we can look at there’s a delta between the US data there and the Japanese data share their US data is higher, but the trajectory in both cases is down. And if you look at, you know, where we are, you know, let’s say where we were in the mid 20. Teens. You know, that’s where Japan was in the 90s. Right? And so we’re just heading on that, that that trajectory. So you believe that because of the debt situation, more and more, the Fed is going to have to intervene. And it will eventually be buying more and more and more of the debt issuance of our nation the same way it’s happened in Japan.

Lance Roberts 51:22
Yeah, well, and same way it’s happening in Europe, same way, it’s happening, you know, everywhere else. And, yeah, that’s not going to change because, again, what central banks can’t afford to do? And again, you and I have talked about this before, what is it that politics and let’s remember, central banks are a function of, of who the politicians, what is it that the politicians don’t want to do. And again, we’re about to come up on this whole, you know, we’re about to have a government shutdown here in October. So we’re about to have the Republicans come out, I’ll beat their chests, how they’re going to hold everybody hostage to get cuts and spending and separate Ukraine spending out from you know, other spending, and they’re gonna have a lot of chest beating, and at the last minute, they’ll all cave and pass a continuing resolution to continue spending more than 8% increase, because at the end of the day, what no politician wants is a poor weak economy, because they won’t get elected. And they know this.

Adam Taggart 52:15
So you know, they will, they will not pursue austerity willingly. It’s

Lance Roberts 52:20
exactly. And so until and again, you say, well, that’s just going to happen anytime. Now. You know, one, one important part about this chart between Japan and the US is remember that Japan is running a 30 year headstart on the US. So where our interest rates are now, or where the Japan’s interest rates were previously, and they’re 30 years ahead of us on where rates will ultimately wind up. And, again, you know, we’re talking about a period where interest rates are going to be stuck near zero, because you can’t afford higher rates, because when rates go up, you start impacting debt across the board. And again, this goes back to basic economic growth, where does that economic growth come from comes from wages, if wages aren’t growing fast enough to keep up with the economy, which they’re not, then people have to delve into credit card debt sustain your standard of living, this is my credit card, it takes roughly about $8,000 a year and additional credit card debt, just to supplement the incomes of individuals to maintain their living standard. So again, interest rates go up, I can’t take on more credit card debt, the economy slows down, I have a recession. If interest rates go up, you impair the banks, there’s there is no good outcome for higher rates, where the Federal Reserve is not required to step in and central banks and the governments to step in to suppress interest rates back to low level. So you know, the bond vigilantes are going to get, you know, basically wrangled by the sheriff’s eventually.

Adam Taggart 53:51
Okay, and that’s where it’s gonna go if you titled your article, their bond vigilantes and the town sheriff, right, but this pro bank being the town sheriff here, and let me just recap, because I want to make an important point here. In the 80s, the bond vigilantes had a lot more power to push the bond market around right now, because the system is so heavily indebted. The economy at large can’t support interest rates above a certain threshold. And that’s something the central bank knows well, and so it has to intervene in order to keep the economy. limping along, chugging along whatever analogy you want to use. It’s got to come in and get interest rates down when they get above a certain level right now. It has raised them to high relatively high levels recently. And it’s doing that almost like the way that you use chemotherapy in a patient, right. You know, you’re putting a poison in the body, but your hope is you’re going to kill the cancer first and then you can, then you can bring the patient back to health. That’s what the Federal Reserve’s trying to do right now. But to your point, you’re saying it’s going to have to bring those things down. That’s what you’re counting Known as the town sheriff coming in to do that. So that’s what’s different this time, right? That’s what’s different from the early 80s. Now, you said, Look, you know, we’re seeing this happen worldwide, Japan is giving us, you know, a decade’s ahead view of where we’re going to end up, right? So, you know, we had the chapter where the market ran more freely, we now have the era of big central bank intervention. But that has an end date to Lance, right, you can only get the point where the central bank, you know, owns everything, right, where you don’t really have functioning markets anymore. And you’re basically just printing fresh currency to meet all these nominal debt payments. And basically, you’ve killed your currency and your economy goes moribund. So there will be a post central bank intervention error. Right? We have no idea when that’s going to arrive. But I just want to say this playbook that’s being run cannot be run forever, correct?

Lance Roberts 55:52
Well, yes, that would make completely logical sense. And 30 years later, Japan still doing it. You know, back in 2020, we were writing articles talking about Japan being you know, a fly in search of a windshield. And just at any point, you know, Japan was going to implode couldn’t sustain their debt to GDP, you know, long term 23 years later, that flies still searching for that windshield. So you know, how long you know, how long can it take? Is it 30 years? Is it 50 years,

Adam Taggart 56:21
we may not be alive when this error ends, but I feel sorry, for whoever it

Lance Roberts 56:25
is, it’s going to be terrible for Gen Z years, I guess, or maybe whoever, what comes after Z, you know, the gin ones. Now,

Adam Taggart 56:33
if you can believe it, they’re going to a, okay, so you an

Lance Roberts 56:36
alpha, maybe it’s their problem. But it’s not going to be you know, you know, the era of financial capitalism is is coming to a drastic end. And it’s unfortunate, because it’s what made America the wealthiest economy in the world in the history of the world by far. You know, we’re destroying that as fast as we can. But, you know, and I feel sorry for those that are coming down the road because they just won’t have the opportunities because of the debt.

Adam Taggart 57:05
It’s very sad. I’m going to try to find this this comic, but there’s a, like a New Yorker comic out there that that shows this man in like a tattered suit, right. It’s just it’s rags at this point. And he’s sitting around a campfire with these young children. And he says, Yes, we destroyed the world. But for a brief moment, boy, did we create a lot of shareholder value.

Lance Roberts 57:26
Yeah. It’s unfortunate. But yes, that’s that’s the that’s the case.

Adam Taggart 57:31
super sad. All right. Well, look. Real quickly, you mentioned the potential of a government shutdown coming. I just want to note there, there’s an article that recently came out about, I think, was by Goldman, saying, hey, there’s sort of three things that it’s got them looking at to say, these are likely going to be drags on GDP in q4. And let me just list them because we’ll probably come back to talk about them in future videos. One we’ve already talked a lot about, its the resumption of student loan payments, they’re projecting that’s going to subtract at least 0.5%. And likely, much more, they say, from quarterly annualized GDP growth in q4. So we’ve been talking about keeping an eye on that impact. Secondly, they said that government looks more than likely to shut down for some temporary period of time as all those histrionics go on, you talk about plants, they say that’s going to impact growth by about 0.2%. And then they say, and I haven’t been keeping enough of a close eye on this, I guess, that reduced auto production from a potential United Auto Workers strike could reduce annualized growth by point 1% of GDP for each week, it lasts here. So we got to keep our eye on these three things, because these could be things that that, you know, weigh more heavily on growth than than we currently have right now.

Lance Roberts 59:03
Well, and I’d also expect that just from the function of the lag effect of of interest rates and inflationary pressures, etc, that, you know, the bump we’ve seen in GDP growth in the first half of this year, because of the inflation Reduction Act, we’re probably getting towards the tail end of that. So seeing some weaker economic data in q4 And if not, in q4, q1 q2 of next year, won’t be surprising at all because there’s not another big spending package coming behind the inflation Reduction Act, which didn’t really reduce inflation but actually sustained it a bit. But you know, that’s that’s going to fade out as we get into early part of next year. So I think we’re gonna start to see weaker economic data coming in as we get further you know, the one thing to really watch into your point about student loan payments is watch holiday spending because that’s where I think you’re gonna see the that really showing up office is, as that student loan payment resumes, how much does that really impact retail spending, which is 40 percentage of the PCE number, which is roughly 70 percentage of the GDP calculation. So it could be more than half a percent impact as Goldman notes. Okay.

Adam Taggart 1:00:19
Well, you know, folks, we’ll keep a close eye on this. And we’ll be reporting on this week after week going forward. So we’ll let you know how the numbers are flooding out there. A couple quick things I just wanted to note. One is money market inflows continue to hit new highs. And banks are continuing to tap the the be FTP program, right that that rescue program for, for banks. So it’s, you know, I think we’re still seeing here that the banking crisis is not resolved here, right, you know, this, this BTF P is supposed to be, you know, some bit of a scarlet letter, you know, for a bank to tap, but it’s not keeping them from doing that. And, you know, more and more, it looks like, you know, capital is still fleeing the banks understandably, right. While there’s still such a big arbitrage between where you’re, the lesser amount your bank is willing to pay you on your savings versus what you can get simply by making a mouse click or two, in a money market fund or just buying T bills directly.

Lance Roberts 1:01:23
Right? That’s right. Yeah, and then look, and the reason that’s the case is, is rates haven’t come down yet. So you know, that that problem is not going to alleviate until we start to see either the Fed cutting rates or interest rates come down on their own, which will be in relation to an economic slowdown.

Adam Taggart 1:01:39
Okay. And I know when it gets to your, your trades glance that you made for the week, but real quick, I do want to mention one bit of data. And this one is actually maybe on the positive, you know, surprisingly positive side, but freightwaves, which was a, it’s a trucking industry association, that that, you know, tracks all the data from from shipping and trucking industry has said that increasing number of truckload carriers are saying that they think the bottom of the cycle has likely occurred, they’re saying it’s, you’re probably not going to see a lot of improvement until at least sometime, you know, substantially into 2024. But that kind of a hemorrhaging of that sector seems to be ending here. So if true, that’s, you know, we’ve been talking a lot about how a lot of these shipping and distribution companies, you know, they’re the, they’re the circulatory system of the economy of real things getting from point A to point B, and the numbers there have been pretty dismal for the past year and a half, to hear that things may actually be stabilizing there. Well, that’s, that’s maybe an early indicator that, you know, there was there was maybe some more recovery in the story than than we’d been estimating so far. But I don’t know, we’ll keep an eye on if it’s the first time I’ve heard something positive, out of this industry in a good while. Well, and

Lance Roberts 1:03:04
again, you also remember that we had such an abnormal increase in that activity, because 5 trillion in stimulus, we shut down the economy, everybody sitting home ordering stuff online, you know, going to Home Depot and

Adam Taggart 1:03:16
Lowe’s to buy them they couldn’t unload the ships fast enough. Yeah,

Lance Roberts 1:03:20
exactly. So we had this man, you know, I was reading articles, you know, back then, where they were willing to pay truckers $600,000 to, you know, truck because they couldn’t find anybody to do that. So really, what’s happening always have to keep economic data kind of in check, is that a lot of the stuff that happened in 2021, and 2022 is just returning to normal. If you take a look at the stock market, going back to 2009, it’s a good example, we had such a massive increase in the stock market, because of all that stimulus that while 2022, that that correction was like, Oh, it’s a bear market. And the world’s coming to an end, all we did was return back to the bullish trendline that we had from 2009. We just worked off all that monetary excess. And so a lot of this that we’re seeing is just a return to normalcy, but because it was so good there. Now it looks terrible, right? So, you know, it just may mean that we’re getting back to normal, and we don’t see that type of really, we’re getting back to that 2% growth trend in the economy, maybe a little bit less, and that’ll be the new normal.

Adam Taggart 1:04:24
All right. Well, yeah, I think, you know, we’ve talked in the past too, about kind of the bullwhip effect, right. And that’s pretty much with a pandemic was on steroids. Right. I mean, it just it whang things around to remarkable extremes and to,

Lance Roberts 1:04:38
hopefully, we learned our lessons about the stupidity of MMT. So now that we’ve gotten that out of our system, hopefully we won’t do that again,

Adam Taggart 1:04:45
hopefully, and I said, we get your trades, but now that you mentioned that I mentioned this really quickly, if folks haven’t yet. And if you’re interested in the real estate market, really recommend that you watch the video that we released earlier this week with housing analysts melody right She has worked in the mortgage lending industry your whole life, she very much remembers the damage caused during the 2007 housing bubble bursting. She very much remembers just a completely ill advised, you know, decisions that were made back then to sort of extend and pretend and thought we’d never ever do that, again that that the industry clearly learned its lesson. And she’s been increasingly discomforted by kind of hearing and seeing very similar echoes now of of bad decisions, bad practices, magical thinking, extended pretend all that type of stuff that you saw back then, she’s beginning to see that a lot now in the housing market. She she talks a lot about it in the interview that I did with her. But one of the things that’s that’s so interesting about her current analysis is you know, she does a lot of data crunching and that’s what she does for a living but she also has just gotten in the car and driven to a number of the you know, recently most active real estate markets across America the Austin’s the Phoenix is the Las Vegas is the Nashville’s the Miami’s and just like literally driven around and done a lot of boots on the ground investigation. And she’s found that there is certainly this this the the industry itself is suffering from a lot of bad data, or just incomplete data. And one of the things that she’s finding by driving around is that there’s an awful lot of speculative spec building inventory that is been built, but it’s being held from being on the market. And so it’s not appearing in MLS listings, obviously. And then she’s finding other areas where there’s a lot of properties that are being available for sale, oftentimes in these kind of like multi dwelling communities that are being kept from MLS. So basically, her story is is, you know, what you see on the ground is not matching the data that the industry itself is using. And she’s ringing a bell similar to the one that that Amy Nixon is ringing kind of where the Airbnb market is, there was a lot of inventory that looks increasingly likely that it’s going to be kind of flooding onto the market at some point over the next couple of years. And so everybody who is sort of living and breathing by the like, oh, we have this housing inventory shortage, housing prices can’t possibly come down, because we don’t have enough units. That would if you believe that at all, you definitely should watch that video with Melody.

Lance Roberts 1:07:38
So I wrote an article probably about a year and a half or so ago, talking about how there never is there never is an inventory shortage. And that’s a myth of the market, because it’s all a function of price. And, like, in many ways, the oil. Exactly. And so when prices hit a point to where, you know, I’ve either it just works in two ways, right? So if home prices are going up, that’s going to drag more inventory in the market, because I may be sitting on my house going, I’m not really well. I did it right back in July of last year, you know, prices were going up and I’m like, I’ll never see this value on my house, I love my house, I didn’t want to sell it. I mean, we built it as our custom home, we built it from scratch, me and my wife, we loved everything about as a beautiful house. But the prices were so ridiculous we go, we can’t afford not to sell this. And so we sold it. And and the same thing comes comes down to and when prices are coming down, there’s a point to where people that are sitting on equity in their home. And they have equity in their home when they start to see that last. And remember, for most people, when you look at net worth, a big chunk of their net worth is the equity in their home. And when that equity in their home starts to erode. They’ll sell it and they’ll they’ll do something else. And so works in both manners. But there’s never an inventory shortage of a certain price point inventory will flood the market. And that’s either has to do with interest rates or price or whatever it is, but you’ll get a big uptick in interest rates. And so it’s interesting right now because you know, I talked to a lot of young people. And they’re like, well, it’s just not fair what blood homes cost these days. And I go hey, I get it. But you know, it’s, it’s, you know, the very people trying to sell you the house that’s creating the problem. And no better example that this week now, you know, Fannie Mae recently came out with a 3% down mortgage, stop doing that if you want home prices to normalize with letting people into a house for 3% down, make them have some skin in the game 20% Down Home prices will come back down to where they’re supposed to be. But now Zillow and Rocket Mortgage are eating 2% of that downpayment. So now you can get to a house with 1%. Last week we saw that stuff we ask you well, it was back in 2006 2007. So yeah, if you want to hold prices that has to come down and get read and get a four Trouble, stop doing stuff that distorts the price of more of mortgages. Right? And you know, start and, look, you didn’t have housing price bubbles back in the 80s in the 90s, because you had to put 20% down, you couldn’t split your mortgage between two mortgages to avoid PMI. We didn’t have all these adjustable rate funky mortgages. You know, just get back to, you know, you put 20% down on a house, housing prices will align with inflation and you’ll be able to afford to own a home.

Adam Taggart 1:10:29
Well, how will your brother I mean, I’m right there behind you on that. It’s funny when when Zillow I think I was I remember who I was interviewing the day that that Zillow announcement came out. It might have been Stephanie Pomeroy. And I said to her All right, I’m calling it right now. T minus 12 months when we start seeing the headlines that say Zillow exits disasterous 1%. You know, mortgage salutely? Absolutely, because they’re gonna ask that the smart money was taken the under on that? Yeah, absolutely. Yeah. Real quick, just because you mentioned it, you caught yourself and you said stuff. I have bleeped out some of your more colorful language recently. And I’ve had a couple of people in the comments, say, come on. We’re all adults here. You know, what are you doing? And just to be super clear, it’s not the language. I would love to let you be yourself, Lance as much as possible. The reason why we’re bleeping it out, folks, just so you understand the business behind all this is I don’t care about it. We’re all adults here. YouTube cares about it. And so you know, in terms of getting these videos watched and shared, if there’s stuff in there that the algo doesn’t like, it will basically penalize the videos. In certain cases, it can give you strikes or even D platform you that’s why we’re doing it.

Lance Roberts 1:11:44
All I gotta say is, is that in Texas, bull poop is a real word.

Adam Taggart 1:11:49
Yeah, sure it is I’m sure that is not profanity. That is

Lance Roberts 1:11:54
just the reality of where we live so I call something that’s what it is. Anyone ever hear me dropped the F bomb but you’ll hear me say the best word a lot. So yeah.

Adam Taggart 1:12:07
By anyways folks, just letting you know, I’m not I’m not trying to you know, it’s not my morality being layered on Lance. It’s really more of the algos. Alright, well, let’s trades. So what if any have you made over the past week,

Lance Roberts 1:12:18
we’re really just kind of working on rebalancing the portfolio. Again, we’re expecting this kind of October, November, December rally, wherever it starts, it’ll start could be November, it could be October, it could be early December. So we’re just basically realigning our portfolio trying to benchmark get closer to our benchmark waiting. And so this week, we sold Coke, we bought Coca Cola enterprises, sorry, Coca Cola Company. Previously, kind of we were looking at, we talked about earlier, I think in June or July about sector things, and staples will pull. And so we did did the fundamental work. And we we settled on buying coke in the portfolio for basically a kind of rotation to the staples. It didn’t work. And so we sold that. And we rotated that those shares into Apple, and to Procter and Gamble, which we also own. So what we’re trying to do is decrease the number of holdings in our portfolio and increase the weights. So our goal, we were 26 Holdings, our goal is to get down to 20. And so over the course of the next couple of months, we’re gonna be making some more consolidated movements in the portfolio.

Adam Taggart 1:13:26
Okay, great. All right. Well, looking wrapping up here, folks, I just wanted to end by opining on something that you and I talked about Lance after we, we finished recording last week, which is, if you’re a fan of Wealthion, hopefully, I’d love to get your folks his opinion on this. But I’ve had several people on this channel. Several of the guests that I’ve interviewed, I make similar comments, which I just wanted to share with folks because I thought it was so interesting. So I’ve been in digital media, most of my career here. And I’ve seen, you know, the evolution from the start of the Internet to more and more, you know, media getting digitized and coming online new formats happening online. And, you know, I would say sort of the general migration of audiences from traditional media sources into digital ones, for better or worse. You know, there’s there’s lots of pros, lots of cons. But in the case of financial media, you know, big reason why I started Wealthion was because I didn’t feel that people were being terribly well served in the standard mass financial media. And if you’re watching this video, you’re probably is probably resonating with at least a good deal of view is you’re not getting what I like to call kind of financially nutritious enough information through a lot of the soundbite or advertiser advertorial. You know, that gets pushed on, you know, a lot of the viewers of traditional financial media, and so you’re coming online, trying to self educate and find information that’s at least goes deeper gives you more than two soundbite lets you really explore, you know, all sides of an issue. But in many ways, I think, maybe, you know, a lot more agnostic, a lot more unbiased, you know, whatever, that that’s my, that’s my bias for having started this channel. And obviously, it’s collected a number of people who, you know, I guess it’s working for, which is great. So that’s on the audience side. But what’s interesting is on the expert side, I’ve talked to some experts recently who have basically told me that they are pretty much done going on a lot of these traditional financial media sources, especially TV, like, like, cable or network, you know, financial TV, they’ve said, Look, you know, I’ve done it for a number of years, I’ve noticed I get less and less bumped in my business from it, I don’t get to explain myself fully. It’s kind of like a lot of hassle. And I get very little return for it. And I’m really just only now focusing on the platforms that, you know, really, let me get me ideas, get me my ideas fully out there where I can fully express my thinking and my analysis, and that drive my business. And I just found it so interesting that, you know, in the course of, I don’t know, you know, seven days, I’ve had unprompted, several experts basically say, you know, hey, thanks for letting me come on Wealthion. In fact, I’d like to do more with you, because platforms like yours, are really where, you know, I see the true value. And so it’s kind of interesting. And just sharing this as a student of media is, you know, we’re seeing this kind of interesting overlap now, where we’re more of the audience, and more of the experts are coming more on to platforms like this, because it works more for them. Now, honestly, I’m not an unbiased party, you know, in this, this hunt here, because I have this channel. But folks, if you’re watching, and you have any feedback on that positive, negative, or just personal anecdotes to share, please let me know in the comment section, I’d really like to know and Lance, I don’t want to speak for you. But when we were chatting, I got the impression that you’ve more or less come to similar conclusions yourself as an expert

Lance Roberts 1:17:04
out there. Ya know, I used to do a tremendous amount of media, I only do the only the only media I do now is I have a kind of a regular spot that I do on Fox Business with Charles Payne. But outside of that I do you I have my own podcast that we run every day. And just a couple of others that you know, people I really respect that I’ll do stuff with, but outside of that, I’ve pretty much cut out doing most of the media. And even while I enjoy doing Fox Business, and it’s it’s, it’s, you know, it’s a nice thing, you know, that it does nothing really, I don’t get any traction to my website, I don’t get any traction to my blogs, any any of that from from national media. So again, I agree with some of the other commenters that have said that is that there’s not a whole lot of benefit to doing that. You know, I’ll go speak at conferences, where I can, you know, have a full discussion, promote, you know, our blogs, promote our newsletter, which are all free by the way, we don’t charge for that stuff. But that’s what ultimately gives, you know, our business the ability to grow, which is what keeps me coming back here to do this. So there you go. Cool. Cool. Yeah, absolutely agree with that.

Adam Taggart 1:18:17
All right, well look interesting, because you mentioned Charles Payne, who’s a really good guy, just to say, folks give you a little window into kind of the arc of my journey in digital media. So right out of getting my MBA from Stanford, was in my late 20s. I ended up at Yahoo Finance, I was running marketing for Yahoo Finance. And back then Yahoo Finance was starting, I think, one of the first online financial shows, basically, and it’s a show called finance vision. If I can’t remember, I think it was yahoo finance division. I remember correctly. And Charles Payne was one of these like, new talents. I don’t think if it wasn’t his first job, it was very early job in his financial journalism career. And it’s been great to see you know, what’s happening with him over time, find insufficient didn’t last for very long. It was replaced by a few years later by another similar financial media show that that Yahoo was doing called Yahoo Finance, tech ticker, and it was chaired by Henry Blodgett.

Lance Roberts 1:19:28
Yeah. And then Henry did that. I did that within Ria. Okay.

Adam Taggart 1:19:31
Yes. You remember David Perry. And then Henry went on to found Business Insider, right, which became a really popular online financial media.

Lance Roberts 1:19:40
Of course, you also have to remember though, that he got banned from the industry because of his calls during 1999 2000. He got banned from the financial industry, which is why you want to start Business Insider.

Adam Taggart 1:19:52
Exactly. And my college started my business school roommate actually was working for Henry at that time when that all went to out. So he’s crazy nice

Lance Roberts 1:20:01
guy. Nice nice guy, by the way,

Adam Taggart 1:20:03
very nice guy, very smart guy. Yeah, only, you know, nice things to say about him. I don’t know a ton about exactly what went down for those trades, but I have heard him him address all questions very openly and honestly,

Lance Roberts 1:20:17
ya know, it look at it he you know, unfortunately, and this always happens, you know, in the financial industry is that in 1999 was really no exception to 2007. You know, in early 2008, you know, he was, you know, he was an analyst for Wall Street, and everybody was out pumping every stock out there, right, I mean, SD Li, or JDSU, they all of these stocks are going to the moon, because as I’ve showed you before, you know, when, when Wall Street, you know, looks at what’s important to them, the retail guy is very bottom of list. This is about investment banking. This is about relationships with these big companies so they can make revenue, and he was just doing his job as an analyst. But you know, when everything fell apart, the SEC starts looking for, you know, who’s the guy that we’re going to put a noose around, and Henry Blodgett was one of the rising stars of the industry at that time. And, you know, there was 50 other guys right behind him doing exactly the same thing. Unfortunately, he just, you know, he got the he got the axe.

Adam Taggart 1:21:17
Yeah, it has the kind of remembering, you know, I think one of the things that got him where it was evidence was in an email or two, in turtle, he had written something like, you know, I have no idea how this company is worth as much as it is like, this is bananas. Right? Of course, it was bananas. And it was in an unprecedented time where valuations got stretched to a point where they had never gotten to, especially for companies that weren’t making any profits nor might not make any profits, right. And so they sort of held that up as like, how could you be recommending a stock publicly when you were saying internally, like, I just don’t understand all this stuff, right. But as you said, everybody was doing it at the time. It was,

Lance Roberts 1:21:54
if you didn’t do it, you were out of a job. There were plenty of emails back back in 1999 2000, where analysts would come out and make recommendations under basically, the threat of losing their job. In fact, there was one analyst I can’t remember his name off top my head, but he was a big guy back back in the late 90s. He came out and started saying these stocks, he told the truth, these stocks are overvalued, you should know, the guy got death threats from investors, literally. I mean, I’m not talking about you know, just shut the hell up. I mean, literally, people were threatened to kill this guy, because he was speaking the truth about what was going on the markets. Nobody wanted to hear this. Nobody want to hear the truth. They just want the bubble to last forever. But you know, we see this every time and then, of course, as is always the case, the SEC promotes and supports this stuff until it blows up. And then they come in and you know, they come in like the cowboy with a white hat. And we’re going to hear the sheriff we’re going to clean up the town now. It’s like, Well, great. You know, you missed Enron, you miss WorldCom. You miss Lucent you miss, you know, global crossing, you missed the financial crisis. Good job, fellas. Their headlines on a whole rampage here. So

Adam Taggart 1:23:08
it’s no, no, it’s just super interesting to go back through that history there. Right. And it’s instructive because, you know, like an AI right now we’re back in it in a mania in AI at least right? So you get you get you to keep that context in mind that perspective in mind. So last point on this, and then we’ll end up folks. But um, so platforms like this, you know, I think are hopefully, you know, sort of part of the future of where things are headed and media, you know, good for us. We’ll pat ourselves on the back and have a little humblebrag moment here. But But more important, you know, we’re continuing to always say, look, well, how do we make this better? Right? How do we better serve the needs of our viewers? And I just want to put an idea out there, Lance, I hope it’s okay with you, because we were kind of following this a little bit last time hits. You know, I’ve long said, look, there’s there’s only so much commentary that we can create in a given week on one channel here at Wealthion. Right? So Wealthion is, is mostly a macro channel, right? It’s mostly a, hey, here are the trends that are most likely to impact the economy and the markets going forward. Right. We try to give as much market commentary as we can. And Lance, the main vehicle for that is these Saturday, weekly market recaps that you and I do. But there’s only so much that we can pack into, you know, an hour and a half ish or so. And there’s a lot that goes on every day in the markets that we the folks who are really intently interested in the markets, you know, we’d love for us to dig into, we just don’t have the time and we literally don’t have the space in a given week since we’re already doing five to six videos a week on this channel to do so. One of the ideas that we’re kicking around at this point in time is creating a new channel, a markets channel, right where there’d be lots of other commentary in there, you know, okay, what did the market do instead of what are the market do this week and why did it matter? You know, what are the markets likely to do today? Okay, what are the markets do today? A What were the big, you know, action driving headlines? What are the implications of them? Hey, on a weekly basis, which companies look, you know, most undervalued? What are kind of the best bets here that we should be looking at? Oh, what, what news just came out today? Or what are the Fed say today that’s most likely to impact markets going forward. I mean, there basically is a zillion different other topics that we could be talking about related more to just market action. And look, not everybody is super interested in the markets. And so they don’t have to watch that channel. But for those that are, we could be serving them much more fair than we’re able to on the existing Wealthion channel. So Lance, I’ll let you give your two cents in just a second. But folks, if this is something that might be of interest to you, or if there’s other types of information, insights, etc, you’d like to see brought to you by Wealthion, in some shape, or form, on this channel on a new one we create, let us know in the comment section below. We’ll definitely be listening to this. But because Lance and I are beginning to kind of ideated on what this could look like, I just wanted to put up a trial balloon here amongst you, the audience that we could start getting your input, when it’s anything you want to say to that,

Lance Roberts 1:26:01
I think it’d be interesting, you know, again, you know, the problem is, as you said earlier, is that, you know, CNBC is great problem is, is that you get a bunch of paid advertising, most of the people you hear on CNBC are paying to be their or their big sponsor, you know, it’s a big mutual fund, company, whatever it is, it buys ads, and those type of things. So you don’t always get kind of the real kind of unbiased truth. So I think a channel would

Adam Taggart 1:26:24
be better what happens, it’s always a great time to buy stocks, because they’re getting paid to say that right? Yeah,

Lance Roberts 1:26:29
exactly. So I mean, could you imagine channel where you have a technical analyst that was on there saying, hey, you know, we’re really overbought here, probably over the next week or so we’re gonna have, you know, some some risky or maybe we’ll take some chips off the table. Right. I mean, imagine hearing that on CNBC, that would never happen.

Adam Taggart 1:26:44
Because it never be invited back on. Yeah,

Lance Roberts 1:26:46
exactly. So you know, and again, you maybe have like a bull bear segment where you have a bull guy and a bear guy, and they debate it off, you know, I mean, there’s so many things that you could do to be really informative. You know, and 30 minutes or an hour, once a day, I think we fantastic.

Adam Taggart 1:27:02
We could we could tell if it was you’re comfortable. I don’t wanna speak for you. But we could, we could literally televise your portfolio meetings with Michael, where you guys are just going through delegation decisions we’re gonna make what are we, let’s argue, what do we ended up deciding here? I mean, there’s, there’s a zillion things we could do.

Lance Roberts 1:27:17
Yeah, no, no, absolutely. And I think there’s, there’s so many good people out there. In terms of, you know, other you know, financial analysts and, and financial investors and professional investors that, you know, you could do a whole lot with a channel that I think would really help people figure out how to manage their money better. And then you could create a whole nother channel just on financial planning, because that’s a whole a whole nother baileywick already on the radar. Yeah, I mean, just stuff that people need to understand about how to manage their money better.

Adam Taggart 1:27:47
Yeah. And you know, I mean, today, I asked you your opinion of Michael Pintos, Outlook, they’re on US Treasuries. We could have had you and Pinto here talking about it yourself. Right. And we, again, there’s so many things we could be doing with this medium. All right. Well, look, we’ll leave it there. Folks, just in wrapping up, I want to remind everybody that tickets for Wealthion ‘s online fall conference, are still at sale at the early bird price of nearly 30% off. So if you haven’t yet and registered and registered for it, do so soon to lock that lowest price in. And of course, if you’re an alumnus of our previous conferences, check your email, you’ll have a code for me to get an additional 15% discount off of that 30% discount that I mentioned, but I can’t remember exactly when that expires, but it is coming up. So act soon. And as we say always, every week, you know, there’s a lot of uncertainty and a lot of decisions that the average person needs to take into account and deciding how to navigate their wealth through what may be coming, whether it’s a run up to the end of this year, or whether it’s something surprising in the markets that get those people that are, you know, saying look, you know, we could crack below key support. Who knows, but the point is, is you should be working with a professional financial advisor who can guide you through all this, create a personalized bespoke financial plan for your portfolio and implement that plan for you, while keeping you well informed. There really aren’t that many out there that do that in a way that takes into account all the macro issues that Lance and I talked about here. But if you have a good one who’s doing that for you should stick with them. But if you don’t, or if you’d like a second opinion from when it does, maybe even Lance and his team, they’re at real investment advice. Then highly recommend that you talk to one of the financial advisors that Wealthion endorses and to set up a free consultation with them. Just fill out the short form@wealthion.com only takes you a couple seconds to fill out that form. Consultations are totally free. There’s no commitment to work with these advisors. It’s just a public service they offer to help as many people as possible position as prudently as possible today. Well, it’s it’s been wonderful, my buddy, folks watching if you enjoy seeing Lance and I go toe to toe every week, mano a mano like this. Do It was a favor support shows your support for this program by hitting the like button, then clicking on the red subscribe button below. As usual, Lance, you get the last word for the week.

Lance Roberts 1:30:11
Have a great weekend. I have no idea what’s going to happen next week but the Fed meeting will be key for that and we’ll talk about it next Saturday.

Adam Taggart 1:30:18
All right. I look forward to talking about that with you next Saturday with everyone else. Thanks so much for watching.