Portfolio manager Lance Roberts & Wealthion founder Adam Taggart recap the major developments of the week, including:
- late breaking news of a possible debt ceiling deal
- AI bubble rages on. Better to play it or sit out?
- new data showing inflation is stickier than hoped for (especially in services)
- why the time for moving into longer-dated Treasury Bonds is likely upon us
- the trades Lance’s firm made this week
Adam Taggart 0:04
Welcome to Wealthion I’m Wealthion founder Adam Taggart welcoming you back for an another weekly market recap here at the end of a roller coaster week with my good friend Portfolio Manager, Lance Roberts. Hey, Lance, how you doing?
Lance Roberts 0:17
I’m doing great. Happy Memorial Day weekend to you, of course. Yeah,
Adam Taggart 0:21
I guess in theory the country gets a long weekend here. I’m pretty sure you and I don’t get to enjoy it, given our work schedules. But new slacker just took vacation. How was it?
Lance Roberts 0:31
I actually wound up. I was supposed to go to Amsterdam with my wife and the trip got canceled. So I actually just wanted to working all week, so
Adam Taggart 0:40
so it wasn’t even a staycation. It was just a stay at home to work.
Lance Roberts 0:43
Yeah, for the most part, we did run down to the beach for a couple of days. But that was it. I was still I was still writing articles while I was down there. So again, not much different than the usual workday.
Adam Taggart 0:54
It’s funny, I remember, way back a million years ago, seeing a commercial from AT and T which was sort of trying to blow our minds about where technology was going. And they said, What if you said Tom Selleck was narrating this? And he said, What if one day you could send a fax from the beach? And did we say back then that sounded crazy. And now you know, you’re at the beach and writing articles filled with charts and all that stuff? So I don’t know, technology can be amazing. And a big curse, right?
Lance Roberts 1:25
Yeah, it absolutely is. I mean, there’s, you know, there’s I was having this conversation with my younger daughter a couple of weeks ago. And, you know, I was telling her, I was like, you know, back when I was growing up, you know, our parents had to have a commercial that reminded them at 10 o’clock. Do you know where your kids are? Pretty much get out of the house and don’t come home. The only the only rule was, you know, you had to be home by the time the streetlights came on. And, you know, be in for dinner when when somebody whistled for dinner. But other than that, you know, you were outside playing, there was no Internet, there was no cell phone, there was no nothing. And you know, we had to make do with that. You know, what is? And you know, that’s pretty hard for them to fathom. But I kind of long for those days where life was a lot simpler back then we just didn’t have the issues.
Adam Taggart 2:14
Yeah, when you went on vacation, you were on vacation vacation couldn’t catch up to you. Yeah, that point really triggers a conversation I’ve actually had several times in the past week, I just made a note to him when we get to the latter half of this discussion if we have time to revisit it, because there’s actually some really, I think, important sort of societal impact to that commercial he’s talking about. But people will shoot me if we don’t get through all the, you know, chart corn and stuff beforehand. So let’s let’s get that out of the way. And then we’ll we’ll get to that. Well,
Lance Roberts 2:51
real quick, before we jump into it, I just you know, I do this every year, because this is an important weekend, it’s Memorial Day weekend. And this is as opposed to Veterans Day where we give our respects and thanks to the veterans who are still alive. Monday is Memorial Day where we give our respects and thanks to those who have sacrificed the ultimate sacrifice for all these freedoms that we have and the things that we do. And this goes back to 1776, the Civil War where the Republicans were fighting the Democrats over slavery, because the Democrats wanted to keep slavery, the Republicans wanted to repeal it all the way through Vietnam all the way through, you know, even Iraq and, and everything else we’ve been through. And if it wasn’t for those veterans that have given that ultimate sacrifice, we wouldn’t be able to have all of this freedom that we have. And that freedom, you know, is the ability to have all these different views and opinions and everything else that you know, has divided the country, but that’s still part of the freedom that we have, because of what that has been given. So don’t forget on Monday, while you’re barbecuing, and enjoying your family and having a great time, spend a moment just to remember why you can do that.
Adam Taggart 4:03
All right. So glad you did that. Yes. You know, we spent a lot of time bitching and moaning we you and I but also the country that many things and the freedom to do that is been given. Yeah, and again, we gotta get to the the economic stuff in just a second. But I was literally just having this discussion last night with was with a teacher who was sort of talking about you know, what a tough time it is to teach right now one because they’re, they’re so vulnerable with canceled culture and woke ism, they have to be very careful about what they say or how they discipline kids. It’s a totally different ballgame than it was in previous generations. But about how kids have so much anxiety and you know, there’s a lot to be fearing in today’s world. And then there’s truth in much of that, but it’s kind of like you know, you know, first off having anxiety isn’t like this new condition. It’s not an ailment, it’s a human emotion and we railed about this a lot, but like, yeah, there are things to be fearful about, but you know what? I mean, it’s no, really nothing worse than worrying about dying in a nuclear hailstorm during the Cold War, or getting you know, shipped off to Vietnam or having to go serve in World War Two and storming the beaches of Normandy, or, you know, fighting in the mustard gas trenches, you know? Well, I mean, it’s just, there have been so many other times in history where we have faced, I think, greater existential, immediate existential threats that we sometimes forget our perspective there. And to your point, we’re able to do all of this, we’re able to be, we’re able to expect the world to stop on a dime, because we have anxiety today, largely because people created such a safe environment for us by making all these sacrifices.
Lance Roberts 5:42
Real quick, I got to comment on that, because we, my son, and I were watching the Kingsman, last night. And it was just as on regular television, right. So we went to commercial break, and there were five commercials in a row for antidepressants from different companies. And my son looked at me, he’s like, What is going on? He’s, you know, he’s 2122. Now, he’s like, What is going on? What’s the deal? And, you know, with all these antidepressants, I said, Well, I said, this is how we, you know, people deal with stress these days is that they’ve got to see back when I was growing up, you just got slapped upside the head and said, get on with life. And that was it. You know, there wasn’t all these antidepressants. But yeah, to your point about anxiety, it’s certainly part of how we deal with things today is just, oh, here’s a pill for you.
Adam Taggart 6:26
I was gonna say to you tell your son, son, don’t worry about it. Just take yours off.
Lance Roberts 6:32
Yeah, that’s never been an option in my household.
Adam Taggart 6:35
All right. All right. Well, look into what happened this week, there’s a lot going on. You know, looking at the market action, we’re pretty much right back where we started the beginning of the week. But we had a pretty big dip. And then a pretty big recovery, as this week went on. What seems to be driving this big recovery late in the week is optimism around debt ceiling deal. We’re waking up this morning to headlines that a they might be close, they, you know, seem to come to some preliminary agreement on some terms last night. Tell us what you know about it.
Lance Roberts 7:11
Well, let’s go back a few weeks when you and I were talking about the whole debt ceiling debacle back then, you know, everybody was freaking out the debt ceiling is gonna causes massive default. And I said, don’t worry about it, because it’s a non event, and we’re going to get it resolved. And everybody’s going to cave in the last minute to get it passed. And that’s exactly what’s happened at this point. The spending cuts that are now on the table are point O 2% of GDP, a $10 billion cut to the $80 billion funding of the IRS and a few increased funding in the IRS. Yeah, correct and 80 billion so so the Republicans were like, oh against this is like how can you doubt dare you spend 80 billion, bolstering the IRS hiring all these IRS agents. So you know, they can claim a February they got it cut by the whole whopping 10 billion the IRS went, okay. So, you know, again, at the end of the day, we’re gonna get this passed, it’s gonna get done. And the markets are rallying on it. Actually, this week was extremely bullish. from a market perspective. We started the week last Friday, we talked about the breakout, we had a breakout to the upside. You had a very nice correction this week on light volume back to the rising moving average. And then from from that point, we turned right back up, and we’re going to close close to or at were a little bit early in the day right now on Friday. We’re kind of having a nice rally today. So we should close at or close to that previous breakout level. Again, we got a little bit of resistance there. But overall, the action this week, obviously a lot of it driven by the AI, the AI charge back of invidious earnings. But you know, that’s, you know, the mark is still in very bullish mode right now.
Adam Taggart 8:57
Okay. That AI is my next bullet here real quick on the debt ceiling. It seems I think that they also are talking about a two year cap on spending by the government, which is I understand the Republicans started with a 10 year cap on spending. So that’s a pretty big walk back. And we just should flag for folks that even though the headlines today are optimistic, and who knows, maybe this deal does go through how speaker Kevin McCarthy has a relatively tenuous hold on his position is we all remember, you know, he lost like, I don’t know, 17 votes before he finally got approved to speaker and the Freedom Caucus in the Republican Party. They’re really the ones that are the budget Hawks. And the big question right now is is will they accept the terms that McCarthy seems to have hammered out overnight here? And I think it’s a big question mark right now.
Lance Roberts 9:55
It is and there’s there’s a potential for still gets shot down. Um, initially, but you know, again, it’s still gonna get passed at some point. The only question Yeah, there’s
Adam Taggart 10:04
gonna be something passed. Yeah, yeah.
Lance Roberts 10:06
I mean, yeah, so the question is just two buckles more at this point. Again, the Democrats have played a very smart hand here, they’ve done a very good job of playing poker, you have to give them credit where credit is due, they didn’t budge. They didn’t give in, they stuck to their guns. And Republicans, as usual, have no backbone, and they caved on everything. So you know, we’ll eventually get that done. And again, the markets are going from here.
Adam Taggart 10:30
Yeah. So one of the things to in I think we talked about two years of spending cuts, I believe that that means that the debt ceiling won’t really be revisited until again until post the 2024 election. And I’m a little surprised, like, I’m not a political analyst. I don’t know the details of what’s going on there. But usually, it’s the party that is out of power that really digs its heels in at these, you know, these showdowns because they want the markets to get nervous. They want there to be pressure from the public, put on the administration to get a deal done. And it seems like, you know, the Republicans had some pretty strong advantages in their court this time, including, you know, being able to maybe force this issue again, during an election year, which is something the administration would absolutely not want to do. So you’d think that they would hold out, they would want the markets to be in a corrective mode, they would want the administration to really be sweating bullets, it didn’t seem like we got to that point, I thought we were gonna get down to like, you know, the 11th hour with it. The bomb clock is now down to like, one or two seconds before you cut the green wire, but better now.
Lance Roberts 11:40
Yeah. Oh, no, it’s very much okay. Look in the market didn’t ever buy it either. So, you know, despite all these rhetoric headlines from Janet Yellen that we’re going to default on our debt, which, as I said before, was never going to be an issue. We weren’t going to default on our debt, but just died all these headlines of catastrophic outcomes. We don’t raise the debt ceiling and market, everybody. So markets has been the markets have been doing fine, they remain in a bullish trend. Economic data is improving on the services side. So again, you’ve got some some relatively bullish optimism there. So the financial markets didn’t put any pressure on the Democrats. And again, the economy’s holding in there very well, just printed a 1.3% growth rate in the first quarter employment still remains low jobless claims came down from the recent kind of peak that it put in. So again, no pressure to your point, there’s no pressure on the Democrats to do anything, because everything’s fine. As far as their position is, and that’s why they’ve been able to really hold firm to their guns because they’re not getting any pressure.
Adam Taggart 12:43
Right. And again, we’ll move on from this topic. But like, I just wonder what so why the Republicans making a deal right now? Why not drag it out? Further? Right,
Lance Roberts 12:51
I would have you again, know
Adam Taggart 12:54
if you were if you were a, you know, bastard politician who’s willing to throw the public under the bus for your gains. But yes, well, no, no,
Lance Roberts 13:01
it isn’t even that because again, you know, who’s gonna get hurt here? Right. So again, let’s go back to the basics of this mandatory spending, it’s got to be paid in 1995 Bill, so security’s got to get paid regardless, it doesn’t matter what happens. So security gets paid interest payments on the debt get made. We’re gonna have to close parts we have to layoff 900,000 government workers, there’s the pressure on the Democrats, right? You say, Yep, I’m not raising it, let the thing go. We’re gonna go past the debt ceiling debate, you’re gonna have to shut down the government that’s on you, man. In once you have to start laying off, you know, government employees, and all of a sudden the Democrats are now under a lot of pressure. Now, of course, the Democrats have played a great game. And again, they are much better at the meeting, Republicans suck at messaging period. That’s the only way to put it. Democrats are great at this game. They’ve already been blaming, oh, if the government shuts down, it’s all the Republicans fault, because they want to cut spending and all this other stuff. But again, as as you know, the Republicans have had the opportunity and the ability because the markets and the bond market, the credit markets, nobody’s really worried about the payment on the debt. I mean, the markets are telling you there’s no risk of default. In the in the books. If we go back to 2011 when the s&p Global downgraded the debt from triple A to double A and the end and basically on the verge of a government shutdown over the debt ceiling debate with Obama back then the market declined by 20%. And that’s what forced the Democrats into the position of coming up with this bipartisan commission to come up with a trillion dollars worth of spending cuts in the budget. Right. And that was set with a timer that at 220 13 If the Bipartisan Commission didn’t come up with these cuts, they would be automatically enacted. That was a very good deal that was hammered out by the Republicans back then. But they had support from both the bond market and the end the financial markets to make that deal. They don’t have at this time.
Adam Taggart 14:54
Right, right. It totally agree and look at is the leverage point right now if you were the RIP publicans and again, you and I are scratching your heads maybe we don’t know why they’re not really using it. My point about slamming the politicians was, you know, I think we’re just all super tired about how the only time we really get serious about this stuff is when the debt ceiling comes up like I would just rather have these guys hammer out a bipartisan agreement normally and not have to take us to the break of this kabuki theater that we talked about all the time
Lance Roberts 15:22
needed to talk about going back to 1940, when the division between both parties was very, very small. In fact, both parties work together on getting bills passed all the time, we have the highest level of partisanship and Congress ever in history right now. In fact, the ability to reach across the aisles and workflow even the Reagan was famous for reaching across the aisle to get deals done. But ever since ever since really Reagan was in office that by that partisan split within Republicans, the Democrats in Congress have have basically devastated in the ability for really compromise and political, you know, kind of a political work of getting the economy going in the right direction.
Adam Taggart 16:04
Yeah, it’s so funny how the the old days of you know, Reagan and Tip O’Neill, you know, duking it out during business hours, and then go into getting a beer together afterwards, right? It just seems so incomprehensible in today’s environment. But again, not a political channel, Word and economics channel, we’ll get back to the markets, folks,
Lance Roberts 16:22
I know that this all has to do with what we’re going to wind up,
Adam Taggart 16:25
which is it bears on the markets and obviously public effects. Alright, so you mentioned that, you know, a big part of the recovery this week was was relief that oh, a deal might be getting done. But it also is still largely being driven by the euphoria. And there’s no I mean, I think I’m understanding it. Now when I say euphoria around AI. The NASDAQ is now it’s at a new high for the year as we’re talking here, it’s up 25% for the year, pretty amazing year, especially after getting beaten up last year. But in video, you just alluded to, they had a really strong earnings beat, they had an amazing earnings call, in Vidya is now trading around 384 bucks the time we’re recording this, that’s up 80 bucks a share since just their earnings call on Wednesday, and it’s up 161% Since the beginning of the year,
Lance Roberts 17:20
and over and over 200% from its lows of October.
Adam Taggart 17:24
Okay, so 200% from the October lows, I mean, just an amazing return here. And you and I have talked a little bit about, you know, previous weeks, with the share prices now seem quaint compared to today’s, but in previous weeks about just how fantastical and I really want to underscore fantasy and the word fantastical these valuations are because Nvidia has to make a ridiculous amount of money for the next several decades at a ridiculously high profit margin to justify these prices. So
Lance Roberts 17:57
I mean, actually, I actually did a report on this on Tuesday, on the website talking about the AI. And actually Nvidia will have to own 100% of the GPU market over the next 10 years to justify its current price to sales. And it’ll still be expensive.
Adam Taggart 18:14
Okay, and that’s where I was going with this. So it feels like they really like literally have to invent cold fusion, you know, to justify these prices. So, in your report there, you had a couple of charts showing the extremity of the overvaluation of Nvidia and maybe if you can remember them, and I’ll try to bring them up on the screen
Lance Roberts 18:38
in front of me. Great.
Adam Taggart 18:39
So let me share. Absolutely. Hold on one second.
Lance Roberts 18:42
Actually, if you don’t mind, I want to back up just a little bit. And we’ll talk about the market but also in video as well.
Adam Taggart 18:49
Great. Backup, and yeah, maybe when you’re talking about it. The other related question I had to this was, I know you’ve expressed concerns about the market being really narrow right now in terms of the companies that are driving it and how that’s generally not a good sign. So if that’s still the case, if you can sort of tell us what the current state of market breadth is. So
Lance Roberts 19:10
you know, right now, it’s important understand, we saw this passive indexing effect that’s going on in the markets. And you know, as a function 10 stocks make up 32%, almost 33% of the s&p 500. So for every dollar that goes into a passive ETF, you’re talking about 30 cents of that going into just those 10 stocks and video being one of those, and this is this is an important point because oops, sorry, wrong direction will be going the other direction here. Good right way. You can see the black line is the year to date Return of the s&p 500. And you can see that Apple, Microsoft, Google and which there’s two parts of Google Amazon and Vidya. You can see the chart there. Mehta, which has been the other big driver and Tesla, those stocks that square Oh, All the return of the s&p 500 has come from this year is just from those stocks. And in fact, if you strip those stocks out of the index, the index will be down 2% for the year, not at nine and a half, almost 10. So, you know, that’s the issue. And, you know, so when you start looking at the spread between the NASDAQ, and the Nasdaq equal weighted, so think about the index, the NASDAQ is market cap weighted, so the biggest stocks have the biggest impact on the s&p and Vidya is now almost a trillion dollar company. Compare that to an equal weighted index, you have the largest spread right now, although it’s actually 13%. Now, when I did this chart on Tuesday, it was only 11%. It’s now 2%, more just in a week. But that spread is now the largest we’ve ever had between an index that would be equally weighted, taking out that market cap weighting effect of those top 10 stocks and equal weight those in the index versus that market cap index. And so it just goes to show you that there’s really a bifurcated market here. And when you take a look at this is, from our simple visor platform, we have analysis in there that we’ve talked about before, which analyzes the relative positioning of sectors relative to the s&p. So in other words, you know, what’s oversold relative to the s&p What’s overbought relative to the s&p. And normally, you have about an even split of sectors that are kind of performing better than the s&p versus those performing worse, we have a very bifurcated market technology and communications are way way over outperforming the index versus every other sector, which is really dragging. And so again, this goes back to this conversation about the issue itself, in terms of this bifurcated market, what’s happening here. And of course, a function of that is that as we’ve talked about, before, liquidity is increasing. And the despite the fact we talk about oh Feds interest rates are up and quantitative tightening, liquidity has still been coming back into the market, and that’s providing that lift for equities at this point. But this was this is a chart of Nvidia and Vidya this, this chart was on Tuesday, before they reported their report on Thursday. And at that time, in video is trading at 32 times price to sales. Now, I’ve got a link in there to the old Scott McNealy, we’ve talked about here a million times 10 times price to sales, basically, you can’t pay anybody anything, including the IRS labor, payroll taxes, none of that gets paid no dividends, 100 cents of every dollar has to go to the shareholder just to justify a 10 times price to sales. And video is trading at 32 times price to sales on Tuesday, it’s now 39 times price to sales today. What it shows you though, is is that I projected out, they have to grow their revenue on end, so the stock price can never move at 385, the stock price can never move again for the next 10 years. And they will have to grow revenue on uninterrupted, they can’t have one down quarter one down month, one down year in revenue, there can’t be any economic slowing in the AI Chase, they’re gonna have to grow their revenue at 1% a month, which they’ve never done every month from here on into eternity. And that will only lower their price to sales to roughly 10 times price to sales. And so this just kind of shows you, you know, how much people are putting in to this idea of what this company can generate. And yes, their revenue report was great. They said they’re gonna, they’re gonna, they’re gonna increase their revenue by 50%. next quarter. That’s awesome. They’ve got it, then do that 50% quarter after that. And after that, and after that, and eventually the problem becomes is that there is a limit to the size of the GPU market, and they are not the only provider of GPUs. But they will have to literally own 100% of the GPU market just to bring their prices sales down to 10 times, which is still massively expensive.
Adam Taggart 24:17
Yeah. So you know, I want to hand it to you again, because you had been warning people that, yes, there’s a lot of doom and gloom data out there. And we’re still going to talk about some of that in a little bit. But, you know, once once once a maniac gets going, and you know, we talked about last couple of weeks about sort of echoes of the past and what we’re seeing now in AI that what we saw in the.com, boom and stuff like that, that it can really go a lot longer and a lot farther than folks can expect. And we’re in the process of seeing that here with Nvidia. I mean, this is this this is just as bad if not worse than what we saw in the.com Bubble
Lance Roberts 25:00
Yeah, actually, this is, you know, very similar to what we saw, you know, starting in 1999. And again, if you kind of think back to what the market did last year is a good example. Right. So we had a 20% correction in the markets last year. If you go back to 1998, we have long term capital management, Asian contagion and Long Term Capital Management. That was where Long Term Capital Management was $100 billion, basically leveraged Fund, and the Fed had to wind up bailing them out, because they were worried about the impact on the global financial markets, if that if long term capital went under today, long term capital management is a drop in the bucket compared to people like Silicon Valley Bank, and yet the markets don’t blink anymore. So just kind of tells you where we are. But if you look at 1998, as 2022, then the tech the.com rally really took off in 1999. And we’re tracking that kind of parabolic move with AI stocks, just like we saw back in 1999 with.com. And it’s interesting. For instance, on Friday, Microchip Technologies was up like 27%, on Friday, because they said, Oh, we’re gonna be focusing more on AI. And so this is very reminiscent, and you’ll remember this Adam back in 1999. It was, well, I don’t have anything to do with the Internet. But hey, we’re gonna launch an internet strategy and change our name to such and such.com and launch a website and the stock would be off like 100% In the next day or two. So
Adam Taggart 26:30
we’re local sandwich shop.com.
Lance Roberts 26:33
Exactly. Exactly. And so you know, there, that’s kind of the similarities. We’re getting in the markets today. It’s, you know, good, bad or indifferent. It’s what’s going on?
Adam Taggart 26:44
Yep. Yep. Yeah, as I mentioned, you know, we’re going to shift to the domain to wealthion.ai. Going forward. Maybe we’ll just call it wealth, AI eon. And we’ll just spell it with AI. And at the end, yeah,
Lance Roberts 26:58
I like it, we’ll have to change our name from our IA advisors to our AI advisors.
Adam Taggart 27:04
That’s even better. I love it. Our API, that’s perfect. Of course, then I’m just going to be talking to like a Max Headroom version of you going forward.
Lance Roberts 27:14
Yeah, exactly. Exactly.
Adam Taggart 27:16
All right. So Well, I mean, let me just ask this, because this is on everybody’s mind, which is like, Well, alright, well, where where do you think we are in the bubble lands? Right? Are we just the beginning? Should we pile in and ride this thing and get out before it implodes? Or could this wouldn’t be a lot more vicious and short than previous ones?
Lance Roberts 27:35
That’s the thing about these kinds of these moves is that they can last a lot longer than you expect, you know, if you take a look at the chart of the NASDAQ, today, versus 1999, we’re probably in the April May, June, you know, position of that rally, which lasted through the end of the year. In fact, the NASDAQ had its most parabolic move at the last, you know, October, November, December of 1999, and into the three months of 20, up 2000. So, you know, then that’s just assuming that we’re having the exact analogy, right. And that’s, you just don’t know that. So, A, it’s not too soon to get in to this rally, the market itself is not really running as much as a few stocks in the index, I’d be a little reticent about chasing and video at this point, you know, if if you don’t own it, it’s hard, it’s hard to buy it here, you’re gonna get a correction at some point of some amount, you know, 5% 10%, whatever, I would use, you know, dips in the stock to accumulate a position if you if you want to own that stock, there’s a lot of other, you know, companies that are going to play and participate. You know, we bought a position in AMD, a couple of about three, four weeks ago, we’re already up like 35%, and that stock so it’s just, you know, the, the insanity Rush is there, but you’re gonna the markets are pretty overbought here on a short term basis on those stocks right now, not on a big bulk of stocks. But on those stocks in the technology and communication space. They’re all two, three and four standard deviations overbought, so you’re gonna need something to give you and you’ll get it even had this during the 1999 bubble, you’ll get little corrections along the way. Use those corrections to buy into it. But then a bit importantly, don’t forget to sell. Right? You got to remember that part of it. You can buy it, just remember you got to sell it at some point.
Adam Taggart 29:28
Yeah, and I think we talked a little bit about this last week, but like, you know, in a bubble, you gotta just rely on things like trailing stops or whatever, right? Because nobody knows when the bell gets rung at the top and the bursting can be vicious and swift. Okay, but it sounds like we’re gonna get to your trades later on, but it sounds like you guys are are still in the pool. And in past weeks, you were saying you were beginning to add the Are you beginning to take some of that cash off the sidelines because you were getting more and buy signals. Where are you in that process? Are you still taking action adding in?
Lance Roberts 30:06
Yeah, it’s still it’s still buying. And we’ve got a good list of stocks that we’re going to be adding to. And so you know, we’re look, we own Apple, we all Microsoft, we own Google, we own Amazon. We own AMD, we own a lot of those stocks. Unfortunately for us, we don’t own enough of them. But it’s an you know. And what I mean by that is, is that in order for us to benchmark the market right now, we that those could be the only five stocks that we own. So we’re never, we’re never going to own enough in a 6040 allocation to benchmark the s&p 500. But we do own those stocks. And we’re going to look for we’re looking for pullbacks, to add to those positions and increase size and weights in those positions. We’re also looking at a couple of other companies that we want to add in that space that are fundamentally sound, they’re going to be participants in AI as it continues to evolve. Look, every company is going to be using AI to some degree, it’s only a function of time, whether it’s a service company, or a, you know, a manufacturing company, whatever it is, AI is going to be part an integral part of that business at some point, otherwise, you’re not going to be in business, that’s just going to be the reality of the situation, we get down the road. So we’re looking for those companies to add into it. But we still own, you know, companies that are not in favor right now, unfortunately, and that’s dragging on performance. But look, I mean, we’re all getting older. So we still own healthcare. We have a very small weight in in public storage company, which is, you know, personal storage of stuff. And we’ll have more stuff in place to store it’s necessary. So we own a position in that most of our companies pay dividends, which are a big part of our portfolio structure. And so there’s there’s other areas right now, whether it’s defense or energy, or you know, we recently we recently added two small regional banks, PNC, I shouldn’t say small, they’re not small. There’s a small compared to JP Morgan. We added, you know, truest financial and PNC Bank, in that space as well, because we didn’t have any financial exposure, we’ve added some small weights to energy over the last couple of weeks, because energy is getting fairly oversold here and out of favor. And again, if you go back to that relative performance chart that I showed you from simple visor, you’re gonna get a rotation in the market, from those out of favor sectors to replace what’s leading. And a good reminder of this, by the way, is that in 2022, Adam, let me ask you a question real quick. In 2022, what were the two most hated sectors of the market? Nobody wanted them?
Adam Taggart 32:45
All right. Well, near the end, it was the banks.
Lance Roberts 32:48
Yeah, it was technology and communications, right, what what was the most love sector of the market and 2022, it was up 40%. And the year while the market was down 22 energy? What is the worst performing sector this year energy, what’s the two best performing sectors this year technology and communications. So the point is, and this is always, this isn’t an anomaly. This is how it always happens. The sectors that everybody hates become the sectors that everybody loves, for one reason or another, and vice versa. So this rotation will occur, maybe not this year, but next year, or the year after, you’re gonna see a rotation in the market out of the SOT stocks that are favored back into the stocks that are on favor, which is why we continue to run an allocation in our portfolios.
Adam Taggart 33:33
And your, your underscoring just a great fundamental of investing, which is you make your money when you buy, right, you try to buy at good values, right? And so you’re you’re not, you know, buying a video right now is just clearly not a good value. It’s time to make some money on the speculative Throg proc, but it is not cheap by any metric. In fact, it is wildly overpriced. When was everyone but focusing on buying where value is being uncovered? Yeah, it doesn’t necessarily pay off the next day, but you’re securing yourself at future gain by buying now it’s the valuation is the price is below sorry, price is below its true valuation. Alright. So on the on the, you know, concentration of the market and these these top stocks right now, these top tech stocks. One of the challenges of this is if you play this out, right, is the market value has been increasingly concentrated in the fang stocks as really the past decade has gone on. Right. And that’s like super driving things this year. Right. I think and I’d love to have you respond to this, but I think one of the real risks here is when markets get distorted. And, you know, they’ve been distorted by, you know, tons of cheap liquidity that’s been sloshing around the world because of central planner policy and stuff like that. They’re now kind of distorted still, because of the passive investing. algos that are out there that as you’d said earlier, cram 32 cents of every dollar that goes into the market of these top 10 stocks, right. So, you know, eventually the market. You know, I mean, investors are like any animal, right, you know that they’re going to move to where they’re treated better. And if they’re whipped, you know, they’ll move away from the places their web. So they kind of get corralled more and more into these few top 10 stocks, right, which, for a while, continues to rise everything up, as more and more money says, Okay, I guess this is the only pocket of the market where I can get a return. Right? But but you get the risks, but I kind of call like The Towering Inferno risk, right, where you get the risk where everybody’s packed in. And then something happens either valuations have just gotten way too divorced from reality, or just the business opportunities, prospects of that sector, you know, all of a sudden start to not look as good, and everybody’s trapped. And you know, then the market corrects, and because all the value is crammed into that part of the market, you get really big market drawdowns that happen really quickly. How worried? Are you about that in the longer run here? And be kind of how do you play that as a capital manager right up to your point, you got to kind of play the markets as they are, but you don’t necessarily want to just blindly follow that. Right?
Lance Roberts 36:28
Right. Well, let me share my screen here real quick, I’ll show you to your point. And again, a little bit this is is just, you know, kind of the reality of where we are, but this is this is a chart of the technology index versus the s&p 500. index. And right now, you’ve got this, you know, kind of this, this massive, you know, deviation between the technology sector and the rest of the market. And again, this is previously it’s been unsustainable, it’s probably unsustainable at this time. So if there’s going to be a correction at some point in technology, now, I don’t expect the.com type crash, there is a dip, there’s a very important difference. And so when you look at this chart, I don’t want you to look firstname.lastname@example.org bust and say, Oh, that’s what’s about to happen to the tech check sector. That’s not the case. And Adam, you can attest to this, because you went through it with me back then, the vast majority of those companies back in 2000, made no money, they did not generate revenue, they had no viable business plan, they were just simply sticking.com under their name and throwing up a website hoping it was going to work. And so a lot of those companies went out of business entirely. The difference today is the stocks that are driving this rally, they are real companies, they are big companies, and they generate real revenue and a lot of it, you know, Nvidia is going to generate $33 billion, annualized in the next quarter. So I mean, that is that is real money. And so these companies are not going bankrupt. But again, it doesn’t mean that you’re not going to have a correction, it just but I wouldn’t expect to have a.com crash. So to your point, Adam, you know, there’s going to be a realization that earnings growth and revenue growth in the markets can’t keep up with the pace of what prices are doing. And this was something that, you know, we talked about just recently, you know, if you take a look at analyst estimates, right now, the estimates in q4 we will we earn $272. A share. This is gap reported, by the way not operating BS. So when a gap reported basis, reported $172 in q4 171, so earnings actually trough in the fourth quarter of last year. And there’s some reasons for that we’ll talk about that minute. But estimates right now are taking us back to a level even higher than we were at the beginning of January 2022, which was the peak all time peak and earnings growth in January 2022. So analysts are right now very optimistic about where earnings are going to grow not just for technology, but for all stocks in the index itself. And there’s certainly a lot of concern with those estimates. Again, the deviation from the long term growth trend of earnings is exceedingly elevated above what the economy can actually generate. And so you know, despite AI and despite all this other stuff that’s going on, revenue comes from what people spend and so if if people aren’t spending as much money, revenue growth isn’t going to be as much so you know, so risk to invidious example, they’re saying, okay, everybody’s gonna go AI Okay, that’s fine. Everybody’s got to spend money on getting the AI right. So we’ve got to buy all the GPUs we’ve got to buy the networking, we got to buy everything involved to get AI related right and to be ready to go, but if my business isn’t getting dollars in the door, from consumers, my spend on going AI isn’t going to be as great because my business isn’t growing as fast as what everybody’s expecting. And so that’s the risk to these kinds of really accelerated earnings expectations is that the market really in the economy can’t keep up with the expectations of that going forward. And again, and so to your point, so this is from simple visor, this is the relative versus absolute. So we look at absolute performance relative to the s&p and relative performance to the s&p. And you can just see that in this upper right hand quadrant, you can just see it Okay, XL CXLY. That’s all your AI stocks. That’s Amazon meta, and basically, Vidya Google, those guys, and everything else is shoved in basically the oversoul category. And again, that’s just that rotation doesn’t last for very long, and you very rarely see it this skewed and this deviated to where you have just this big spread between what’s performing what’s not performing. So again, that’s, you know, I don’t know, what causes this rotation, ultimately, my expectation is, is that slower economic growth, which is going to happen, we’re gonna have slower economic growth. And I’ll tell you why, you know, there’s, there’s a reason we may have a soft landing this time, versus the deep recession draw, everybody’s expecting, but I still think you’re going to have some type of significant enough slowdown, that earnings expectations have to come down somewhat.
Adam Taggart 41:30
Yep. Okay. And obviously, back to your point about Nvidia being priced for, you know, decades and decades of capturing all of the revenue of its industry, right, is, yeah, everyone’s all of a sudden saying, Wow, we got to, you know, we gotta invest for AI, right, we got to, we got to buy servers and processors, and, you know, put our data centers in place and all that stuff, right.
Lance Roberts 41:58
But the and also to, the thing that people have to remember is, is that, that is also going to spur demand for new businesses. So again, Nvidia has the lock on the GPU market right now, hands down, they make the best GPUs period, there’s nobody even close. But that doesn’t mean that a new company, there’s a lot of other companies out there, there’s AMD, there’s a variety of others that are going to get into that space when they because when companies see that opportunity, they’re gonna go, I can build a GPU, and they’re gonna go try it.
Adam Taggart 42:29
It’s just like, we talked about the comparison with cloud, the cloud, right? Where, you know, all of a sudden, everybody got in the cloud, because there was a ton of profit there. But my point was that everyone’s making that land grab right now where I need to get this stuff because I need to compete and yes, in video, what can I buy from you this quarter, and I’m throwing money at you. But eventually, they have the infrastructure they need, right? And so that that buying wave, you know, ABS, right, and so to your point about right now, they’ve just got to keep delivering those same breakout results quarter after quarter after quarter for decades to like, it’s just not realistic,
Lance Roberts 43:02
competition is gonna be a problem, pricing is gonna be a problem. Just like with cloud, you know, the profit margins are going to have to come down as the market becomes more saturated. And that’s just a function of how things work. So but again, it doesn’t mean you can’t make a crapload of money on Nvidia over the next couple of years. That’s certainly very possible. Again, just don’t forget to sell at some point.
Adam Taggart 43:22
Right. And I think we talked about this last week, but you just got to be real careful not to be Isaac Newton, right were made a bunch of money in the South Sea bubble got out felt like a genius. But then his friends stayed and made a lot more. And he was like, geez, they’re getting rich, I gotta jump back in. And of course, wrong time.
Lance Roberts 43:36
I’m having my Isaac Newton moment as we speak, you know, we owned in video last year. And we sold it when we were up over 100%. And of course, I’m kicking myself now for selling it. And now I’m trying to figure out how to get back into it. So yeah, I’m in that Isaac Newton trap right now.
Adam Taggart 43:51
Right. But remember, as we said that nobody went broke making a profit. Congratulate yourself and getting a green return on that. And that’s
Lance Roberts 43:58
all fine and dandy until your client reminds you that you sold it. So yeah.
Adam Taggart 44:04
All right. Well look real quick on energy. When you showed the chart, you just showed one reason I’m not sure which chart was was more up to date. But the energy sector is the most oversold right now. And if I’m remembering correctly, the chart that you showed earlier, it was in like the dark green. Is that the most recent one, because you showed
Lance Roberts 44:27
there? They’re both recent. This is a little bit this is a little bit different analysis, though. So the other the other chart I showed you was relative. So again, how is energy trading relative to the s&p 500? So very oversold on an app so we analyze everything on two bases absolute. What is it on its by itself so of itself is energy overbought or oversold relative to itself? So that’s absolute relative is how’s it doing to the s&p as a whole? So the first chart I showed you is that energy as compared to the s&p is extremely oversold. But even on an absolute basis, energy is extremely oversold from historical perspective. So both on an inner of both on an absolute and relative basis, energy utilities, real estate are the most oversold components of the market.
Adam Taggart 45:24
Okay, so if I’m remembering the relative one energy was in the dark green, just like the communications and technology are in the dark red right now. You don’t have to go back and get it. I can describe this but but basically, on a relative basis. It was it was in the the highest at the highest extreme of relative oversold pneus. And the Absolute One, it’s in the middle green, which is still pretty oversold. So you said, hey, yeah, we’re looking at this industry. We’re starting to kind of nibble in here because we think it’s been left for dead and it’s going to swing back into favor at some point. That all makes sense to me. My question is, what are they what indicator? What’s going to tell you when it’s time to really start going hard into it
Lance Roberts 46:07
when you start seeing it move from being relative and absolute oversold back to not as oversold. So you’re seeing that rotation back from underperformance. outperformance so as it begins, so again, so if we go back to the kind of the quadrant basis that I was showing you, you know, in the upper right, right quadrant, that’s where everything is overbought, right? That’s where things are. They’re, they’re in the biggest momentum part of the move right now. They’re extremely extended and overbought in the bottom left quadrant, that is the most oversold. So as you think about how stocks operate, they move in a counterclockwise cycle, they go from leading to lagging sorry, leading to weakening, to lagging to improving. So as they move through that cycle, we went from energy was leading last year, then it went to weakening and we saw technology turning up weak. Now energy’s gone from weakening to lagging the market. And when it begins to move into the improving where it’s now improving relative to the overall market, it’s improving on an absolute basis, in the in the difference between the green colors, the really dark green on the relative basis, it’s extremely oversold. But that was where we were buying some energy for the portfolio and energy has improved a bit since then. So that’s why the green on the absolute basis isn’t as dark green, it’s because it’s been improving here recently. But as it moves, it moves into improving where it becomes kind of in that middle section. That’s where you were, that’s where, you know, you’ve now got the Trent the kind of the wind behind you, and you can more aggressively add to those positions. Okay, great. So
Adam Taggart 47:37
just to repeat, I’m guessing you’re you’ve got some sort of dial dollar cost average, like we’re just gonna keep nibbling in while it remains this oversold. And then when it starts to make the move, that’s we’re gonna say, Okay, we’re gonna think about, like putting in some big buys now, because it looks like the wind shifted, it’s now at our backs.
Lance Roberts 47:56
Right? So that’s why we always talk about, you know, position sizing, you know, our max position waiting in any position is 5%. Our minimum is one. So when we go buy a new position, and so let’s just use invidious example, how can I buy Nvidia with some type of structure behind it? Right, so so, you know, even if things go terribly wrong, you know, and then we actually had this conversation. Mike and I did the date on Wednesday, before Nvidia announced earnings, and we said, look, we could buy position and Vidya the risk is that they could be up 20% or down 20% The next day? Because if they if they missed earnings, right? Or are they disappointed say, hey, the markets not growing as fast as we want? There’s a lot of risk there.
Adam Taggart 48:41
It would it just as big just to the other direction? Exactly. Correct. And
Lance Roberts 48:45
so if you buy it today, before earnings, you end up you have that that binary risk up or down 20. So one of the strategies was is that we could buy 1% Going into the earnings announcement, if we’re down 20, we buy another percent, if we’re up 20. We don’t do anything. Right. So that would have worked, except in but we opted not to do that for a couple of other reasons. So that’s a different story. But let’s say today, now the stocks extremely overbought, how do you get into it? Well, the stock could simply just trade here sideways for a while and go nowhere, and then accelerate higher again. So you buy 1% If the stock declines to a reasonable Stop Loss level, and doesn’t violate it, you buy another 1%. When it turns back up, you buy another 1% and you keep working your way into it over time as it goes up. But always maintain that stop because at some point, you’re gonna violate that stop and the trade is going to be over. And the where where risk happens is people go okay, well, I violated my stop, but I’m gonna hold on to it because it might go back up and it keeps going lower and lower. Then you’re in the trap and you can’t get out of it. So you can work your way into a position. Technically, as long as you just have a really good discipline about obeying the stuff We have others we have AMD, which is, you know performing. So I’m just going to wait on Nvidia, I’ll get the entry opportunity I want at some point to buy Nvidia. So we’ll add it back to the portfolio at that point, we’ve also got a list of 10 other AI stocks we’ll be, we’re both we talked about before, we’re building an AI centric portfolio as a sleeve for our models. But then we’re also going to add some of the stocks to the portfolio itself, but we’ve just got to wait for the, you know, the right entry opportunity, and that’ll happen, it might be later this year. And this is part of the issue of trading, you know, you might wind up, you know, buying a stock at, let’s say, you know, Nvidia, right, we might wind up paying 385 For Nvidia, after a winter for 15 came back to 385. So you know, it but at that point, even though 385 Today is extremely overbought, and extremely expensive, 385, six months from now may not be because it went up in the corrected a bunch of that overvaluation. But you’re back at the same level. And that can happen. And that’s where you’ve got to be willing to step in, when you get the right variable setup, you got to be willing to step in and take the risk, and then just continue to make those maintain those stop losses. All right,
Adam Taggart 51:12
all right, great. I love how you give the audience you know, just a transparent view into the mind of a portfolio manager and how books do this. Alright, well, look,
Lance Roberts 51:22
if I really get the crap out of you.
Adam Taggart 51:26
Well, in folks, you know, every week we’ll be tracking Lance’s thoughts on, you know, these overbought, oversold sectors of the market. And you know, we’ll see if AI continues to do what it’s doing. And we’ll see if energy ever picks itself up before here and finally catches a bid. If it happens, you’ll hear about it here. All right. Well, I gotta move on to a couple other things. You mentioned this really briefly earlier on, but this is kind of become like a sort of a, it’s obviously becoming sort of a prevalent theme, which is that we have been in disinflation as you and I predicted, you know, over a year ago. But the sledding ahead from here is looking like it’s going to be referred going in terms of getting CPI down, you know, from here around 5% 4.9 to two or less, which is what the Fed has said, its mandate and goal is. What we’re finding, though, is that it’s like I said, it’s likely to be stickier than then we’ll certainly the Fed would like and I think maybe the markets have been expecting recently. And a big issue with that is services. Right, you talked about the services sector of the economy is kind of hanging in there. But when you look at the Feds preferred inflation measure, which is core CPE, that actually rose recently, so the latest data actually rose, it’s not it’s being stubborn, it’s not coming down. If you look at core CPE services, X shelter, which removes the housing component from services, that hasn’t gone anywhere, since it spiked up at the end of 2021. And it’s just hung out there since like, that’s not coming down at all, despite 500 basis points, you know, or more fed tightening in the interim. So nothing the Fed has done, has moved that number yet. Now, we expect that the shelter component of CPI to start coming down because it’s a bit of a lagging input in there. But the other parts of services are. I mean, they’re just totally ignoring what the Feds doing right now. So I had an interview earlier this week with Wolf Richter that went really deep into why he thinks you know, this inflation is going to continue to be super sticky. So folks, if you’re looking for a really detailed discussion on that, go watch that video with with with Wolf. But Lance, how big of an issue do you think this is going to be? Well,
Lance Roberts 53:52
it’s a bit of a quandary because and again, you’re starting you’re starting to see read high guides for the next meeting go up, you know, now starting to give a give at least a nod towards a five and a quarter percent rate, you know, Fed funds rate, which would be another quarter basis point hike, certainly not in the cards for the market. That’s not what the markets expecting at all. And starting
Adam Taggart 54:14
to wrap up but Bullard from the Fed said he he thinks the Fed should hug two more times from here. So he’s even talking to more aggressive game.
Lance Roberts 54:21
Yeah, well, and again, you know, you know, this is kind of this weekend’s newsletter on the websites, if you go to real investment advice.com and click the subscription button. I’ll email you the newsletter on Saturday, but I’ve just shared with you a few times, because I’m, you know, I’m having the same conundrum as everybody else, right, and trying to figure this out. But just just real quick, you know, if you take a look at GDP on an annual real rate, you know, it is declining, and there’s a very important thing that we need to understand. I’m gonna go a little bit more detail on this in a second. But GDP is clearly declining. And this you know, we’ve been all expecting this deep recession and those type of things and one of the Things to consider and this is to your point about the services sector. You go back to 2011, we actually had a manufacturing recession. And that was when you know, Japan was had had an offshore offshore earthquake that led to a tsunami that flooded the country that created a nuclear meltdown. The only thing that didn’t happen at that point was Godzilla didn’t rise back up and devastate the rest of the country. But it was bad. I mean, it we
Adam Taggart 55:28
heard they saw Mothra. I heard.
Lance Roberts 55:31
I’m sure it was, but we import a lot of stuff from Japan. Think about all the auto parts, the car parts, the actual autos, everything that we import from Japan. So it impacted our manufacturing sector. And this was all going on exactly at the same time. We’re having to beg the big debt ceiling default debate, right. But we had this big kind of economic drag. Well, by the end of the year, we resolved the debt ceiling issue. And Japan came back online and the economy started growing again. Of course, you know, we ran the mill Operation Twist with Ben Bernanke at that point. And then in late 2013, we started QE three on concerns of the fiscal cliff, which was the result of that debt ceiling debate. So, but interest rates were zero. So there are some differences between now and then that funds rates were zero, not 5%. We were doing Operation Twist, not QT. So certainly some differences between today and what we had back in 2011. But the point is, is this, if you look at the economy right now, and had we had the decline in economic growth from a normalized GDP, so if GDP over the last 12 years has been running, actually, since 2000, to be exact, has been running right around 2.2 2.3%, we’ve had a 12% decline, roughly, in GDP. So if we, if we were at 2%, and experienced a 12% decline in GDP, we’d be a negative 10. Right, that would be on par with what we saw on the economic shutdown during the pandemic would also be much greater than we saw in the financial crisis, which was only a 4%. Net draw of the economy, but it was down 6%, basically, from the 2% growth rate, you know, and so going back to 2000, we barely even got negative and had a recession. So the point is, if you look at where the economy has slowed from, right, we’re all expecting this big, this big negative number to show up. But we’ve already had a fairly significant drawdown in the economy. And so we’re seeing that impact of those rate hikes, we just haven’t seen it yet fully kind of fledged through. And one of the reasons for that is what you know, I’ve built this monetary Conditions Index. And this monitoring conditions index takes into account inflation, short, long rates in the US dollar. And the reason is, is obviously inflation that impacts spending and what goes on in the economy short, long rates impact everything from capital expenditures to consumer spending, you know, short rates are basically variable credit card rates, those types of things long rates impact capex expenditures for businesses, the US dollar obviously has a big impact strength or weakness of the dollar has a big impact on exports, which make up 40% of of, you know, kind of corporate profits. Ultimately, it has a big impact on the GDP number. So when you combine those together, create an index, it gives you a pretty good indication of what’s happening within the economy overall. And you know, if we take that and look at and if I invert that index and compare it to GDP, we can see that that monetary Conditions Index is improving to the point that is supportive of stronger economic growth, there’s a bit of a lag to the index, because it takes time for all this to filter through, but that improvement in that monetary Conditions Index suggest that we’re going to have some stronger supporting the stronger GDP numbers that we’ve been getting this year. Again, and again, that that improvement in the monetary Conditions Index is supportive of the s&p 500 rally, whenever that index declines that’s been good for stocks historically. Flip that and again, a lot of this I’m flipping this from inverted to inverted to show correlations, but the monetary positions index has a very high correlation to the rate of change in annualized earnings for the s&p. So the bottom and earnings that we saw on the fourth quarter GDP aligns very clearly with the bottom of the monetary Conditions Index. And so and we see that you know, with the market itself, so, again, you have this, you know, this kind of indication that the monetary conditions are becoming more supportive of the economy overall. And the important fact here is again, you know, we We really talk a lot about faint fed about manufacturing. You know, we talked about the Fed manufacturing index is Oh, look how bad those are, look at the look at these other manufacturing indexes, look at what’s going on is terrible, we’re going to be in a recession. But the economy is about 77% services only 22% manufacturing that’s inverted, by the way from where it was back in the 1970s, when we were nearly 80%, manufacturing 20% services. So there’s a big difference. And this all kind of culminates into this one chart, which is services have actually been improving over the last couple of quarters, manufacturing, still under a lot of pressure here. And if we go back to 2011 2012, go back to 2015 2016. Yes, we had a manufacturing recession, but services never got into recessionary territory. When services are recessionary. That’s when you have an economic recession.com, crash, financial crisis, etc.
Adam Taggart 1:01:01
Got it. So, you know, services are, you know, kind of carrying us carrying the economy through and those surprises us that they’re they’re three quarters of the economy at this point. That said, that’s where we’re seeing inflation be the stickiest. So, you know, the, by far the biggest chunk of the economy is getting more expensive, you know, for its customers, which can’t be great. But you’re explaining why we haven’t fallen into recession yet, at least because services have to get dragged down. Real quick, do me a favor, just I want to I want to make sure that the folks who saw your charts there followed it the way I was trying to the the monetary index that you created, right? I know it was inverted in some of these different charts. But basically, because it’s made up of inflation, long and short rates and the strength of the dollar, when it goes up, that’s generally depressive, of economic activity, and stocks go down, right? Because everything is getting more expensive, right? Inflation is raging cost of capital is going higher, you know, right? dollar gets stronger.
Lance Roberts 1:02:14
In which is what you saw last year. So last year, we had that index was very strong and rising, and we were having a lot of depressive activity in the markets in the economy. Now that’s reversing,
Adam Taggart 1:02:24
right, this reversing not it was certain long rates are still powering higher right now. But inflation has been coming down and the dollar has been weakening this year. So net net, that thing’s coming down. Correct. Okay, great. It’s a really interesting way to look at it. Okay, so we’re beginning to get in the back half here. So I want to I want to tick off a couple of quick things before we if we have any time, I’ve got one or two other questions for you that are should be more fun to discuss. I do just want to put up a chart here. I’m going to skip our general sort of way through, you know, all the recessionary risks that are out there, though, a lot of them are still there. Although as Lance says, you know, there are some things and services is still on an uptrend here. But the consumer balance sheet still looks like it’s headed in the wrong direction here, latest data shows that the savings rate has dipped again, it’s down near, you know, historic lows, and revolving consumer credit, the total revolving consumer credit out there is still in its moonshot, right. So we still seem to be maybe not so much changing our purchasing behavior yet, as a society. But I think we are continuing to shove more and more of it onto revolving debt at this point in time, which Lance, you and I have talked about that that has a an end date, at some point, you can’t do that forever, you begin to hit debt saturation. Who knows if we will, but it’s still not headed in the right direction. So just want to make sure we’re keeping your eye on that.
Lance Roberts 1:03:58
Just Just real quick, I don’t want anybody to walk away from the conversation and going oh, Lance is just so bullish about everything. And I’m not saying that at all, you know, what I’m trying to get across is, is that as when, as investing goes right, we have to analyze the data and really understand what’s going on. There’s certainly risk, you know, to the economy to the markets there. And I’m not denying that at all. And this is this is the big challenge that we go through every week. And if you if you go to our website and real investment advice.com And just read our blog posts, there’s like bullish, bearish, bullish bearish because we’re we’re just as confused as everybody else about why, historically, when you have all these interest rate hikes and all this stuff going on, you’ve always had a recession. Why isn’t happening this time? And so and part of that reason is is that we have such a big inflation and GDP because of all the monetary liquidity that is taking much longer to wring that out. And it certainly doesn’t mean that we can’t get into recessionary territory. It just may be 2024 Before we get there, so Don’t I just don’t want anybody to leave here thinking that I’m like Uber bullish in our present long stocks is we’re not
Adam Taggart 1:05:08
glad you’re giving that clarity. I hope we haven’t painted you as Uber bull here. But you do do a good job of making sure that we don’t get trapped in too much Uber bearishness, either. I think one of the things you’re you’re doing in just did with that, you know, key analysis you just walked us through is to say, look, yeah, there’s a chance that the show may end here, right. And we all get to get super defensive. But we know kind of how the show goes, and it’s not over till the fat lady sings and we’re just not seeing her on stage yet. Right.
Lance Roberts 1:05:43
Rexach right now, so.
Adam Taggart 1:05:46
But basically, we’re just saying, look, there are certain indicators that you know, we expect to see when we’re in the murder my metaphors here, we’re in the last innings here. And you know, we’re maybe we haven’t seen the seventh inning stretch yet. So don’t don’t leave the ballgame yet, folks.
Lance Roberts 1:06:04
By the way, you need to be politically correct. It’s when the full figured woman sings.
Adam Taggart 1:06:07
I knew somebody I knew. Yeah, whatever. Just wanted
Lance Roberts 1:06:11
to just want to get I just wanted to get it in before he got
Adam Taggart 1:06:16
feel free to hit me, folks. But we’re, you know, we’re gentleman of a certain age, right. You know, we use a lot of the vernacular, the Gen X. Generation we grew up in not not meant to offend. Alright, so there was a, I think, an important article that you wrote this week, which I just wanted to touch on really briefly, because I know we’ve been touching about touching on bonds for a long time here, you wrote a report, just very recently saying, time for Treasury bonds may have come. So I know that we’ve had we’ve been asking you every week like, hey, Lance, when’s it you’re really going to be time to start going further out the duration curve? And when do you think, you know, you’ve been nibbling it over time. But when you get to get real serious about it sounds like you might be getting serious.
Lance Roberts 1:07:02
Yeah, that yeah, we need to get and I know, that’s right. That’s confusing. Though, the only reason, the only reason right now that I’m not buying them today is just this whole debt ceiling deal. We’ve got to get the debt ceiling done. When the debt ceiling data is completed, they’re gonna have to issue a good bit of debt, which could cause a very momentary spike in rates and out when we’re talking about us getting asked about that, right. So when we’re talking about a spike in rates, by the way, we’re not talking about interest rates go into five and a half percent on the 10 year treasury, we’re talking about maybe going from three, eight to three nine type thing. So we could see a bit of an uptick, bonds are getting very oversold here because of concerns over the debt ceiling. And, you know, that’s going to that’s providing us a much better entry point. But like I said, as soon as this debt ceiling deal gets done, the Treasury is going to issue some debt, we see a very little bit of an uptick in Treasury bonds, but we’ll be buying that uptick.
Adam Taggart 1:07:59
All right, great. And that was my question was gonna be you’re gonna use that as the opportunity to buy into almost in some ways, you could say, a little gift. Right?
Lance Roberts 1:08:08
Yeah, you don’t get those opportunities very often. And again, if you, you know, just go back and look, and again, you know, it’s like, oh, and seven would agree with you. Okay, fine. Don’t agree with me. It’s, it’s completely okay. Go back and look at 2011. When we went through the whole debt ceiling debate, take a look at a chart of the s&p and 10 year treasuries back then, yields were falling during the entire downgrade of the debt. And yes, there was a little bit of an uptick very small, that was your buying opportunity before yields went plunging through the end of the year. So, you know, it’s just a function that at the end of the day, yields are a function of inflation and economic growth in wages, and those are declining.
Adam Taggart 1:08:47
Okay. So just to help folks sort of, again, scope the opportunity here, there’s a inverse relationship between bond yields, and prices are the coupon on the bond and prices. And if if yields go up, prices come down, as Lance is saying, that’s your opportunity to buy in at lower prices. But what Lance is expecting is that there could be bond yields have gone up a fair amount in the past year or so. Lance is expecting that they could come down and maybe even possibly pretty materially over the rest of the year, early next year, especially to if something breaks in the system and the Fed has to reverse policy and do a true pivot and come back in. So there’s sort of few things to look out for at this point in time. If you think that’s going to happen. You can try to play that appreciation and bond prices. And you know, there are ways to do that through ETFs. We’ve talked about TLT on this program a lot, right? But also as your partner Mike Liebowitz has said, you know, he believes that the peak is in for yields are very close to it. We’ve probably seen the peak you know, maybe we’re gonna go get little bump here when they’d have to refill the TGA. But he’s basically saying we may not see yields as good as they’d been recently for the rest of our lifetimes. And so he’s like, you just might want to buy a long dated Treasury pond, and just get a nice safe yield for 1020 years, right? Oh,
Lance Roberts 1:10:17
it’s very much the case. And again, this is one of the things you know, let me I’m doing a lot of sharing today, I apologize. But sharing is caring, Lance. I know. Well, so. But so this is the article, it’s on our website right now. But you know, to your point, you know, there’s two kinds of two graphs I want to show you. So to your point, this is what you’re talking about. So this is the graphic of what Adam was saying, when interest rates go up, bond prices go down. When Bond when interest rates go down, bond prices go up, there’s just this inverse relationship between those two. But the important part is, is that, you know, when you look at the long term picture dynamics of what’s happening, you know, with yields and what’s going on. So again, if you’re expecting, you know, if you’re, if you’re bent towards this idea, that we’re going to have a big economic drawdown just, you know, I’ll see, you know, the end of the world is coming, etc, then you want to buy long dated treasuries, because those are going to be the big, biggest beneficiaries of the end of the world type scenario. And the reason is, is that if we go back and look at the long term, and this, this chart goes all the way back to I gotta move your picture over here, Adam, I’m looking at your picture. We see it fine. Yeah. So but, you know, so this is the long term, this goes back to basically 1854 Excuse me, I don’t know why Microsoft added this feature, and I hate it. So this goes back to 1854. And if you look at through every cycle of economic growth, inflation, short term rates, long term rates, you know, that, you know, the, the ultimate drive of yields is a function of the trend of economic growth in wages and inflation. And so, you know, pre World War II on post World War era. So since post World War Two, you know, the weaker economic growth gets, the weaker that we’re going to or the lower that we’re going to see yields because it’s a function of economic growth. Interest rates are very much driven by economic activity, because again, the bond market is driven. And this is the key factors right here is that the way the bond market works is that as a bond trader, I don’t care about the AI feed, right, so I’m not buying Nvidia stock. I’m buying Nvidia bonds as an example. So if I look at the NVIDIA bond, what am I looking at? Well, I’m looking at what’s their default risk? What’s the interest rate risk relative to their ability to pay bills? What’s the inflation risk? How’s that going to impact their balance sheet, their income statement, those types of things? What’s the opportunity risk that, you know, if I buy a video bond at 1% interest, what’s my opportunity risk of not buying a 10 year Treasury at 5%, I’m just throwing out numbers. Economic growth risk, if economic growth falls, that means yields are going to come down, bond prices go up if economic growth is expected to get stronger, that’s not going to be good for bond prices. So the point is that bonds are priced specifically on very important risks that are tangible, there they are, they are calculable, they are understandable. It’s not any, there’s nothing in the bond world it’s based on. I think that that NVIDIA can grow to 100% of the GPU market, that’s never a consideration. So when you think about bonds, you just have to get down to the granularity of where do you expect economic growth and inflation to be over the next 10 years, 20 years, because of the debt because of what we’re doing with consumer credit, what we’re doing with our productive versus non productive investments in the economy, all those types of factors doesn’t suggest that we’re going back to 8% growth rates in the economy anytime soon. And if that doesn’t happen, then 10 year Treasury rates at four and a half or a 5%, or whatever that number turns out to be being the peak, that’s going to be the best number you’re gonna see over the next decade. And you know, like people did 30 years ago that were buying 12% treasuries, they said on 12% returns out of Treasury debt for 30 years before those bonds matured. So you know, that’s in this is the important part about understanding bonds. And again, this is really the premise of the article is that people don’t understand how bonds work, right? We don’t talk about bonds in the media. We don’t talk about bonds in the markets. We don’t do any of that. We talked about stocks all day long. But what this article kind of delves into a bit, it’s just helping you understand how bonds work, why bonds work the way they do and why now is probably a good opportunity to buy them.
Adam Taggart 1:14:53
All right, great. And for folks that want even more, you know, meeting what we just talked about, go to Lance’s website, read the full Report. But, you know, most importantly, Lance, you know, we’ll keep checking in with you as we, we do these weekly videos here, but you know, we may be coming close to the point where, you know, you guys are gonna say yeah, guys, this is sort of the moment if you believe in this trade, it’s time to move on it. Yeah. Okay. All right, well look, I’m wrapping up here, we’ll get to your your trades in just a moment. There was a, this was the thing I’ve wanted to gauge with you on here, cuz I’m sure you’re gonna have opinions on it. So I put out a tweet on Twitter, the other day of Gen X is just mentioned a few minutes ago, and technically in what’s called the sandwich generation, right, where we’re, you know, paying for our elderly care, parents, you know, why, like your care, and we’re also putting kids through school, college, you know, early life issues, early life, you know, expenses and stuff like that. So you feel really squeezed. And I gotta say, you know, coming out of the pandemic, with the explosion, and the cost of living and everything. And even before that, you know, two of the biggest expenses that we’re outpacing inflation, general inflation by an awful lot, you know, we’re education costs and health care costs, right? So I think that that sandwich generation is the squeeze the amplitude of the force that squeezing them has really ramped up in the past couple of years. And, you know, dealing with some issues with in aging parents, and of course, I’ve got one kid almost done with college, one kid about to go in. And, you know, I’m doing okay, making it through, but like, just sweating myself, but also just looking around and saying, how are the millions of other people that are dealing with this? You know, how do they, how are they dealing with this? I mean, some of these expenses are pretty damn, you know, they bite and you don’t know how long they’re gonna be, they could go on for a lot longer than you think. And the costs increases annually have been just mind boggling. I know that, you know, your, your firm is all about financial planning, and you know, helping people find their life goals and whatnot. I’m sure a ton of your clients are in the sandwich generation right now. You know, what, what type of advice or counsel do you have for people that are going through that right now, because that tweet that I put out there generated a massive, I mean, it definitely hit a nerve, it really resonated with a lot of folks that are that are feeling that squeezed. And, you know, a lot of folks are saying, Look, you just do what you can but man, I don’t know, I’m gonna keep my head above water here.
Lance Roberts 1:17:37
Well, you know, part of it is that, unfortunately, a lot of people advice that they don’t want to hear, which is, well, you can’t pay for your kids to go to college, you can’t it’s a big one. Yep. You know, you can’t do these things that you want to do, or that you think you’re going to want to do, because you just simply can’t afford it. And so, you know, there’s, there’s a lot of our clients, they, you know, obviously, if you’re, if you’re hiring a money manager, you’re doing much better than most, you know, most of our clients, and when I say this, you’re gonna go REITs. That’s crazy, right. But most of our clients are in the top two to 3% of wealth savers in the country. By the way, if you have more than about $100,000, in the bank, you’re in the top three to 5% of the entire day. Yeah, it doesn’t take a lot when you consider 80 to 90% of people don’t have $500 in the bank. But that’s and so you know, it’s very easy to get separated when we’re on this channel, talking about investing and buying stocks. 90% of the population is not on the Wealthion channel, trying to figure out how to trade stocks and buy stocks and manage money. They’re just trying to figure out the pay bills. So this is a very big problem, globally. And it’s something we’ve talked about for years. And this is why you’ve got to think about your situation. And unfortunately, we’ve talked about this before on the show, you may want to pay for your kids college, that’s a great admirable thing. I don’t have a problem with it, if you can afford it, but being able to afford is a big question. And the real question you got to ask yourself is, before you step out there, put yourself in a problem paying for your kids, you know, college, do you want to be a burden on them when you get into retirement, and now they’re in the sandwich generation of having to take care of you and their kids. So, you know, you have to make those choices, not necessarily maybe not something they’re keen on right now. It’s like, I can’t believe my dad’s not helping me pay for college. But they’ll they’ll thank you for it later when you’re not living with them.
Adam Taggart 1:19:35
Exactly. And maybe can we just say that that sort of is a rule of wealth building, which is you have to prioritize your retirement over your children’s higher education experience. Expenses are, you know, early, early adult life getting started expenses, because they’ve got all their earning potential ahead of them and if comes down between the two much better to not have to be a burden on them later on in life versus, you know, stealing from your retirement to help them early on, but then making a lot of asks for them later on in life, you’re not
Lance Roberts 1:20:13
gonna know. Absolutely. And look, it’s like I said, you know, we have these conversations on a regular basis. They’re tough conversations, it’s people stuff that people don’t want to hear. And sorry about that. And we’ve, we’ve raised an entire generation of people that think it’s their, you know, their, that’s their responsibility to pay for kids schools and pay for kids cars, and pay for kids phones, and all those type of things. Again, you know, I go back to my, my baby boomer Gen X roots, and that was, that was never a consideration, you know, my parents. And, you know, so we’ve got to start thinking a little bit more rationally. And again, we have a big financial education problem, this country, we’ve got a big financial problem in this country. And it’s not because of, well, I don’t get paid enough at my job, it’s because you live beyond your means. And we’ve got to start accepting responsibility for our situation, then we can start fixing it.
Adam Taggart 1:21:08
Yeah. And, you know, it’s I mean, it’s, it’s interesting, there’s, there’s, you know, on the on the parenting side, there’s sort of this collision of the era of helicopter parenting that we came into, where we just do a lot more for our kids, and probably too much as we’ve talked about a lot in past past videos. But also, you know, there’s, I mean, one, just the parental desire to help but but also, like, younger generations, I mean, they do have a tougher road to hoe than, than we did in the sense of affordability. I mean, things are so crazy, affordable, right? And affordable right now. You know, I’ve got a daughter, like I said, it was who’s just graduating now. And it’s really hitting her like a ton of bricks of just how freaking expensive the world is. And, and I’m sympathetic, because, you know, I’m still giving her the same speech of like, hey, look, here’s all the ways that I had to totally, you know, sacrifice and my meager starts and, you know, living in the rat infested apartment, you know, in Manhattan with 20 other people and all that type of stuff. But just the absolute, you know, the are their relative and affordability is even worse today. So I am, I am quite sympathetic to that. But, you know, I do agree that when you have to make that trade off, securing your retirement is a priority over over them getting started in life, give them all the emotional support, all the mentoring and all that stuff that you can, but you know, if you’ve got to get a pinch dollars, pinch it towards your retirement, not they’re launching stuff. It’s a little bit harder with parents, right? Because, you know, nobody, nobody likes to turn to a parent and say, sorry, but you know, you know, whatever, right, I’m trying not to sound too cruel. And, you know, I think we’ve, we’ve talked about this a little bit, Lance, I know that your financial planners there, Danny and Robert, Richard, Richard, Danny and Richard, you know, they, they’re experts on so many topics, but but sort of senior care, like ways to help plan for, I mean, we should all be doing our own estate planning. But but but to help, you know, if you’re in a situation we’ve got parents to care for, there’s a whole bunch of things that you sort of have to become an expert on, right, you’ve got to understand, you know, Medicare, and Medicaid and senior living, and just all the things that come along with that, if that’s something those guys could talk about. You know, folks, if you’re interested in perhaps us doing a webinar about sort of how to care for aging parents, from a financial standpoint, I’m guessing there’d be a ton of interest in that, Lance, is that something those guys could talk about? Oh, yeah,
Lance Roberts 1:23:47
we actually run those we have regular every month, we have two events that we run on our website once called the lunch and learn. And then we have candy coffee, which is kind of just a live interactive discussion. But, you know, every every month we’re running, you know, discussions on Medicare, Social Security planning, you know, retirement planning, you know, all these things that impact, you know, people moving into or are well into retirement and having to face those issues with caring for parents, long term care, all these type of things. So yeah, absolutely. You know, we can pick a whole range of topics that you want to cover, and, and we can do something.
Adam Taggart 1:24:27
Okay. Okay. Well, folks, if you’re interested, let us know in the comment section below. I will tell you as somebody who’s going through this right now, if it’s one of those things that like with a little bit of planning a decade or two in advance, you know, it would have been a much easier process than having to just sort of like slam into all these challenges because I had an elderly parent who didn’t really want to talk about this stuff. And they’ve ended up in an enviable position where they really don’t have any assets. They don’t really have any income. And that’s that’s made it a rough road in a lot of ways. But in a lot of other ways, Lance, it’s amazing once you hit that level what you can qualify for? Yeah. And I know sometimes there’s there’s proactive strategies where you can sort of transfer assets to children and whatnot and make the elderly person on paper look like you know, they, they have nothing, and therefore, they, they qualify for some of these things. Not the case with my parent, they actually legitimately qualify for all this stuff. But it is amazing, I’m just amazed at the amount of medical care that she gets to the system for free, that she’s in senior subsidized housing that is incredibly affordable, it took us years and years and years to get her in there. There’s massive demands and waitlist for these types of opportunities. So you need to know about them, so you know what to go for. But it’s amazing, once you qualify for this stuff, you know, what, what you services that you can get, and you know, it is amazing what we would if we were paying out of pocket for what we have, I mean, it would bankrupt bankrupt us extremely quickly, the level of care that she gets right now largely for free from the state. So again, sort of being armed with what’s out there can save you an awful lot of money. But what’s crazy is is like there’s no easy expert to go to who just says oh, here’s the punch list of things that you should do. Like we had to uncover each one of these things painstakingly on our own.
Lance Roberts 1:26:21
And then look at that said, we cover that, you know, we do seminars on this regularly we do we write reports on this stuff, and we do all kinds of educational things on our website to help walk start people through this process. But you’re absolutely right, is that, you know, it’s it’s very complicated to get in very different by states. Yeah, it’s different by state, there’s different issues. But you know, this also goes back to one of the things and I’m glad you brought it up, you know, we hear a lot of people’s like, well, you know, health care in America, so unaffordable, it’s not fair, we need, you know, we European style medical care. Well, the reason that it’s expensive is that people that actually pay for health care are also covering all those that don’t pay for health care. Everybody gets health care in the country, whether it’s free or paid for everybody gets health care, they get quality health care. And yes, there’s certainly flaws of health care system. But to your point, Adam, you know, when you need health care, and particularly later on in life, when it’s the most expensive, the average seniors gonna spend $350,000 on medical care in the last few years of their retirement. So if you think you’ve got 500,000 in the bank for retirements, like I’m just gonna live off that just take 350 of that shove that away, because that’s going to get used on health care, because we don’t take care of our health, we don’t eat right, we don’t exercise enough, we don’t do the things that we do. And so our retirement years are not the golden years, they’re the medical years, and you’re going to spend a lot of money on that. And that’s why annuities are important. You should be considering those when you’re younger, and preparing for that long term care. Nobody wants to buy that. But it’s incredibly important. Life insurance is incredibly important. These are the things that that you can do to prepare yourself for those retirement years to make it easier, not just on you, but on your family.
Adam Taggart 1:28:06
Yeah, absolutely. Okay. And I will say looking at it sort of from the sidelines, you know, as we’re going through all this stuff with my parent, I am just saying My God, this is just not economically sustainable for our country, like you were, if she’s sort of an average of what’s being spent, it’s just like, there’s just no way we could do this for the, you know, tsunami of boomers that are heading towards the same destination. All right. So a real quick to just because we were sort of talking about both ends of the sandwich, do you guys also have material in terms of, you know, planning for launching your children into the world in ways in which you can, you know, you can do that more affordably. So like, for example, I live in California. We have a pretty good UC system here. You know, for colleges, the values, the prices have been going up, but the values are still quite good. That school my daughter’s graduating from is honestly I think one of the best values in the country. And it’s amazing school like I mean, I went to an Ivy League undergrad, if I could do it all over again, I would go where she is going she goes to Cal Poly and San Luis Obispo if anybody knows that school, you know what I’m talking about. But my younger daughter is in high school, she’s going to graduate soon. She’s looking at Cal Poly and a few other schools. And there they become really competitive. You know, when you talk to in California from a generation ago, they’re just shocked. And it is sad because they’re kids who have four point fives these days that can’t get into these colleges. And you know, when you and I were going to school and you couldn’t get higher in a 4.0 Right. But there’s a great community college system here in the state and there’s a number of them that have like the two schools my younger daughter is most interested in if she doesn’t Get into the school when she applies directly. There are programs where she can go to the community college for two years, which is dirt cheap. And many kids we know get grants when they go, and they’re actually making money to go to community college. And then as long as they get a certain GPA and take a certain amount of classes, the university that she initially got tonight from has to take her for her junior year. So you go into great, you spend your second half of your college at that university, you get the diploma from there, nobody’s the wiser, except you got it for half the cost. I mean, it’s a pretty amazing system. It’s amazing plan B. Now, not every state offers stuff like that. But there’s just lots of ways like that is to say, hey, look, you know, maybe we can’t give you as much money as we want. But if you play the system a little bit here, you still may be able to get the outcome you want at a much smaller fraction of the price.
Lance Roberts 1:30:47
Absolutely. Yeah, we have that same system in Texas to Texas a&m has a as a
Adam Taggart 1:30:53
junior college that they work with for that. Great, great. So I’m just curious is Richard and Danny is this type of stuff? They have material around as well? Yeah, they they cover all this stuff? All right. Well, folks, let us know in the bottom comment section, if you’re interested in the eldercare, if you’re interested in helping kids out if you which one you’d like more if you’d like them both. Based on the demand. We will add that to the list of now the growing list kind of webinars that we’re a little bit behind and delivering people we got. We got to do that insurance one quickly because folks hanging on me for that. All right, well, look, went a little bit longer today, folks can’t tell. But we had a couple of technical issues while we were recording this. So this has been kind of a Murphy’s law written. Shoot today, but I think we’re ending it. Well, Lance, you did share a fair amount of detail of trades you guys have been making recently. But specifically this past week, would you guys do
Lance Roberts 1:31:45
that? Now this week, we’re kind of where we want to be at the moment. So we’re going to, we need to see this market and kind of figure out what it wants to do here. And so probably in the next week or two, we may make some more trades.
Adam Taggart 1:31:57
Okay. And at the risk of making this video, maybe unbearably long for folks, I just looked at my notes. And remember that you started the conversation talking about that old public service TV commercial, it’s 10 o’clock, you know, your kids are right, I was watching an interview with a human development specialist that really just caught my attention I really thought you’d enjoy and I’m sure have have a reaction to this, where he said, there’s a really market difference between how Americans parented their children, probably the West, but specifically Americans have their parents or their children that started in the mid 90s. He said, There’s a definite shift. He said, If you talk to anybody who’s 40 years or older, and you ask them, you know, what’s your first memory of when you were able to go out unsupervised? Right? When your parents just said, Hey, you know, get back in time for dinner. Right? And for people who are 40 or older, the the answer is kind of like as somewhere between five and eight. It was when I could go out in the neighborhood and play with my friends and then come back when I was reading, right? And if you ask somebody who’s born after 1995, the answer was like, well over 16. Yep. Right. And getting back your spot for that. That one also a big factor was was cable was cable news. And it was, you know, like the poly class abduction, which happened not that far from where I live now in California, but also like America’s Most Wanted, which was started by that guy. Joe Walsh, I can’t remember his name, but his child had been abducted. And that was a big reason why he got into the business of trying to track down criminals. Right? So it just became embedded in the national consciousness that oh, the world out there is a lot more unsafe than I realized. And that was sort of the start of the helicopter parenting movement, right. And basically, what this development specialist said, is, is going out earlier in life, this sort of five to eight range, he said that that’s much more sort of normal for humans. And so we were out there socially, exploring the world interacting with, with people, playing games, with friends, inventing rules, working through, you know, resolving disputes, things like that. And, you know, by the time we went off to college, you know, we were very resilient about kind of how the world worked, and how to deal with adversity and uncertainty and all that type of stuff. Because we’ve delayed that so much now, by the time kids get to college, they just haven’t had enough time to do that, which is why like things like canceled culture and everything that, you know, isn’t exactly what they want is perceived as a personal attack, right and why microaggressions need to be tamped down and we need to have safe spaces and all that stuff. It largely stems from this, like depriving them of this decade of key social development. So you’re smiling as I’m saying this. I know from previous comment you made on this channel, you must have some strong opinions on this. Oh,
Lance Roberts 1:34:50
yeah. Well, I mean, but again, you know, I grew up in the I’m like you I grew up at a time and I raised my kids this way too, which is, you know, you my two boys would get An argument and send them in the backyard, they would punch each other in the nose and they figure it out, right? I mean, that’s, you know, then and today, they, you know, they’re, they can deal with, you know, these issues, they, they, they’re more like a Gen X, and they are anybody else they laugh at most of this stuff is like, you gotta be kidding me, this is how people deal with stuff. But again, these are important lessons, you we, you know, yes, people should not be violent with each other. But, you know, letting kids resolve an issue on the playground, nobody’s gonna get hurt, right? They may get a bloody nose, but they learn to resolve the difference. And they learn, you know, they learn to have a bit of a backbone to deal with things and not be afraid of the world. So I know I’ve been here before I’ve dealt with this, I know how to deal with it. And it gives him the ability and the character to you know, make those decisions. There was a great comment the other day where, you know, it says you need to raise your kids to be absolute monsters, and then teach them to control that because once that they know how to be a monster, they can deal with the world, the world doesn’t intimidate them. But then they can control their ability to control their environment around them. And it’s a great thought when you think about that if we build warriors, you know, good warriors know how to control that warrior ability and be good, productive citizens, but they can also deal with adversity when it comes their way. And that’s the important thing.
Adam Taggart 1:36:26
Yeah, and just tying it back to the previous conversation we had. And we’ve talked about this a number of times in the channel based on the research of the PhDs that wrote The Millionaire Next Door. It’s, it’s, it’s when we try to protect and shelter our children from adversity is when we’re actually maybe doing them some of the greatest disservice over the course of their lifetime, right? Because we we prevent them from developing the skills to deal with adversity and around wealth building. The data is just really clear that that self made wealth tends to get lost by the end of the second generation, because that second generation wasn’t taught how to, you know, become a successful entrepreneur or be a good steward of wealth. Because you have to learn how to deal with setbacks and school of hard knocks and be an aggressive competitor and a competitive environment and all that type of stuff. So, I mean, it’s important both for social development, but but also if you just care about the dollars and cents. It’s important for that, too. Yep, absolutely. All right. Well, look, another great week, Lance, thanks so much. Just a reminder to everybody. It’s crazy time in these markets. So it looks like we’re, you know, riding this, this AI euphoria right now, and as Lance says, that might continue for higher and longer than folks imagined. But there’s still all the other risks out there that we talked about. For the most people watching this, I highly recommend that you navigate all this with the guidance of a professional financial advisor who understands all the risks that we talked about here and takes it into account for the personalized portfolio plan that they’re building for you. And then they’re helping execute it by your side going forward. If you’ve got a great one that does that, absolutely. Stick with them. If not, or if you’d like a second opinion from one who does then consider scheduling a free consultation with a financial advisors that Wealthion endorses, maybe even Lance and his team there at raa. To do that, just go to wealthion.com Fill out the short form there doesn’t cost you anything totally free, no commitment to work with these guys. They offer it as a free public service just trying to help as many people as they can. If you’ve enjoyed this weekly market recap, which Lance and I do every week and would like for us to continue doing this please do us a favor support the channel by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it Lance as we head into this long Memorial Day weekend with parting bits of wisdom do you have for folks,
Lance Roberts 1:38:54
have a great weekend. Enjoy yourself, enjoy your family and then don’t forget to it is Memorial Day weekend. So don’t forget those that have fallen.
Adam Taggart 1:39:02
All right. Very, very good way to end this. Alright. Thanks so much, buddy. Look forward to seeing you next week. Everyone else thanks so much for watching.
Transcribed by https://otter.ai