Transcript
Andrew Brill 0:00
Hello, and welcome to Wealthion. I’m your host, Andrew Brill. And with each release of economic data, the market goes on a wild ride. And of course, it takes us with us and Warren Buffett dumped some apple stock. And we’ll get into that and a lot more right now.
Our mission here at Wealthion is to help all of us keep and grow our money through interviews with our experts, like the one I’m about to introduce you to will break down Nechama economic trends, markets, and investments. But Wealthion is not just a channel, it’s a conversation with our community. So please keep the feedback coming. If there’s something you’d like us to talk about, or someone you’d like to hear from, let us know. And if you could like and subscribe to the channel, we would really appreciate it. Now let’s dive into discussion. I’d like to welcome the chief Market Strategist for Slatestone wealth, the managing partner at case capital, and my friend Kenny Porcari to the show Kenny, how are you doing?
Kenny Polcari 0:57
I am great, Andrew, how are you?
Andrew Brill 0:59
I’m doing well. Thanks. And I’d be a lot better if we weren’t on this roller coaster ride. But it seems that with any economic data that comes out, of course, the economic data Tuesday that sent the market down the economic data Wednesday that sent the market up. And then the economic data from Friday, of course, that said that inflation is still alive and well. So it’s talked to us about the numbers and what they all mean.
Kenny Polcari 1:23
So you have to take a step back, right? And look at the numbers from who you are, in terms of who you are in this conversation. Are you a long term investor? Are you a day trader? Are you someone who’s just getting started? Are you someone you know, that’s, that’s getting closer to the end. And so all that is going to play a role and maybe how you interpret the data, and then what it really means to you, and how nervous or not nervous that you should become. But one way or the other? As we know, and we’ve been talking about this ad nauseam now for a couple of years, is monetary policy of Fed policy? And what’s the Fed going to do? They’re going to lower rates are going to raise rates, what’s inflation doing? It’s up, it’s down. And so all that plays a role into kind of not only the data, but how people interpret the data. So on Wednesday, you know, we had a, we had a slightly hotter CPI, and I say slightly because it was up by one Yeah, it was it was, it was hotter by 1/10 of a percent, it wasn’t dramatic, it was just slightly hotter. But considering that, you know, we inflation went all the way up to nine and a half percent, you know, in 2023, and then then on its way down, and so, you know, we’re back to this 3.4% range, which is, you know, certainly down where it was, but higher than where they want it to be. So any move in the CPI and inflation and price data is going to cause people to react, and really what it’s going to cause in the market today, and we could talk about this too, is it’s going to cause the algorithms to react and sometimes the algorithms overreact, which in my opinion, I think they do a lot of the time. But they’re meant to they’re meant to trade right algorithms are meant to trade. They’re not meant for the long term investor, they create a lot of chaos, a create a lot of noise. And naturally what we saw on Tuesday, right, we saw the market pullback dramatically, although you say dramatically, because you know, you oh my god, the Dow was down 800 points, but in fact, it was down 1.8%. You know, when you think about where the Dow has been over the last 12 months, or 18 months, down 1.8% is is is really not dramatic at all right? Yet when the market does nothing but much higher every day. And then suddenly, you know, it’s off 1.8 or NASDAQ was off two and a quarter percent. The small caps are off 4%. Those are more dramatic numbers, right, the NASDAQ and the small caps. But broadly, we saw the s&p and the Dow pull back on Tuesday. And then by Thursday, they were right back up kissing the highs again as if you know, okay, we got that data, we interpreted it, we got it, no problem. We’re okay. And then we get hit with another Hot number on Friday with the PPI right, which is the producer price level. Now what’s interesting about this number is a producer price level is really a leading indicator people need to understand that that the producer price level tells you what producers are paying to manufacture product at the producer level. Well, if the producers are starting to manufacture the product, and they’re paying up those high end prices ultimately work their way down into the consumer price level in about four to five weeks. So what’s interesting is that on Tuesday, we had January’s CPI, which was already slightly elevated. Now we got the January ppi, which is now again, more elevated. And so that suggests that next month CPI is going to then be elevated once again. And so that’s causing the consternation in the markets. We see the markets pull back. They’re going to revalue based on okay, what’s the new narrative going to be in terms of what the Fed is going to do? Are they going to lower rates are not going to lower rates, they’re going to hold them longer are they potentially going to go higher from here? I don’t think they’re gonna go higher from here, but I think they’re going to be held longer for sure. I don’t think this this narrative of a march Romaine rate cut, I think that’s out the window.
Andrew Brill 5:02
And in there, we actually got the retail sales numbers, which were coming down as they adjusted the retail sales numbers for the last two months. And retail sales numbers for January were also down. So it shows as prices are going up, people were actually spending less money.
Kenny Polcari 5:16
Well, because it makes perfect sense because stuff is more expensive. So people now are buying, they’re buying less of what they want, and more of what they need, right? Because you have to prioritize especially when price is going up. People need things to live versus they want things. So they’re so they’re pulling back on the wants, and they’re putting more money to the need. So yes, to your point, that slowdown in retail spending is, is that’s a negative. But what it tells you is that consumers are starting to feel the pressure of these ongoing high prices. And so that’s that’s just a negative perception. Right.
Andrew Brill 5:51
Explain to me how that all works. Because we’re seeing the PPI, we’re seeing the production side go up, we’re seeing the consumer side go up, we’re seeing spending go down, which is exactly I think what the Fed wants, there’s a little bit less money circulating. But but we’re there’s still the inflation numbers are still rising?
Kenny Polcari 6:11
Well, so that’s what the Fed doesn’t want, right? They want to see the consumer pullback. Yes, they do. But they don’t want to see inflation start to turn up again. Because, you know, you may not remember this, if you were you were probably in high school. But when this happened the last time, you know, in 1970 1979 1980 1981, when when inflation kind of took off, and then they then they got it under control, or they thought they got under control the Fed at the time cut rates prematurely, and then inflation reared its ugly head again. And then they lost control of it. And that’s when Paul Volcker was Fed chairman at the time, had a jam rates to 20%. right to kill, they killed the economy for two years. But it’s in a deep dark recession for two years. But they ultimately collapse. Inflation, but it took back. And so today, what the Fed is really sensitive to is if they prematurely cut rates, and then it ignites inflation, because remember, cutting rates is actually stimulative to the economy, right? Local lower cost of money, lets people say okay, well that and I can afford this now. It’s not gonna cost us. So creates demand and it stimulates the by all accounts, the economy doesn’t need to be stimulated. Notice what the other data is saying jobs remain strong. Unemployment is at historic lows. PMIs, which is the purchasing purchasing managers indexes. Those are eco data points that continue to remain an expansionary territory versus contractionary. So those are all things that suggests the economy is functioning just fine with five and a quarter percent rates. And so therefore, there is no real data point that saying, Okay, you have to cut we’re not circling the drain, the economy is not going down the drain. This is not a 2008 scenario by any stretch at all. Which is why it’s confusing, right, because the Fed is trying to stay the course. And I think they will, I think the Fed will not cut rates, and they’re going to hold them here. I don’t think they’re going to go up. I don’t think they’re going to cut them at all. And I think they’re going to hold if you look if CPI, PPI continue to go up next month, and then the month after that the month after that, then the conversation about could the Fed hike rates is absolutely back on the table. I don’t think we’re there yet. And I think they’re just going to hold them right here.
Andrew Brill 8:26
That was gonna be my question. Is there a point where you expect the PPI and CPI to start coming down with consumer spending? Yeah,
Kenny Polcari 8:34
so yes. So then I would suspect if if if we see the drop in retail spending, again, that would suggest that consumers are tiring, they’re exhausting. And so they’re, so they’re not going out demand who should fall and then prices should once again start to come down, I don’t think we’re going to probably see a couple of months of where inflation picks up a little bit, like we saw in January, I think it’s going to happen again in February. But then I think it’s going to get stuck there kind of in the mid threes. You know, right now, I think we’re at 3.4% Excellent energy, I think it’s going to stay between, you know, say 3.4 and 3.8%. I think that’s where it’s gonna get stuck. And there’s 2% target that the Fed that the Fed has in mind, the one that they keep talking about, I think it’s going to be more difficult to achieve, which is what’s going to force them to keep rates higher for longer as much as they want to, you know, the market is demanding almost stamping their feet, you know, you have to cut rate jumps, cut rates, they don’t have to cut rates, and the sooner you know that, that people recognize that, you know, cutting rates would be a negative because it’ll be stung a little bit or reignite inflation, and then they’ll it’ll be a repeat of 1980 where they have to force them really higher, they’ll bring the economy to a darker recession. Equities will fall in price fairly dramatically, in my opinion, if they have to do that.
Andrew Brill 9:53
Do you see equity prices falling? I mean, the markets are at highs. Anyway, I know in your article, you say there’s a pullback claiming that yes, you know, you clearly mentioned the the blip on the radar that was this week it dropped 1.8%. I know we have the brakes in place for that 7%. With that cooling off. That seems like a long way to get there. Maybe they have to adjust that number to.
Kenny Polcari 10:16
Yeah but well, they the brakes that you talk about these circuit breakers. That’s if the market falls 7% in one day, right?
Andrew Brill 10:24
Right.
Kenny Polcari 10:24
But the market could fall 7% over a period of weeks. And those circuit breakers are not those circuit breakers are only if it happens during a single trading session. Right. But do I honestly think I would like to think and I said this today. In my note, I said it actually on TV this morning, I was on with Stuart Varney on Fox Business, that I would love to see the market pulled back like five to 8% Shake the branches a little bit because I think the market got well ahead of itself. There was this narrative that was created in the end of October, November, December that after the after the November Fed meeting, when when Jay Powell suggested that the thinking in the Fed is now you know, for potential rate cuts in 2024. You know, he he signaled that the dot plot that the Fed creates suggests that a maximum of three potential rate cuts could have happened. Well, three went from six to seven, the market suddenly was talking about six to seven rate cuts in 2020. Well, think about how ridiculous that is just first of all on its on the face of it, that the Fed, you know, took it, they waited too long on the front end, inflation got out of control, then they had to raise rates, right. And then they brought inflation down. And now they’re getting it to a level where by the way, you and I both know this 5% on federal funds is actually normal. Right? If you go back and look at history over time, five, between four and 6% is very normal. These, these zero to 2% rates that we had for the last 15 years during the crisis was not normal. But there’s a whole generation of people, let’s call them the millennials that came into the business when 2007 was happening. And for 15 years, all they know is zero interest rates. It’s not their fault. They don’t know anything other than zero interest rates. So to them 5% is Oh my God, these are astronomical. Dude, let me tell you, my first mortgage was 15 and a half percent in 1983. Today, you know, they’re pushing, okay, so they’re seven and a half percent. Okay. But for 15 years, they were 2%. Right, which wasn’t normal either. I’m not saying 15. and a half percent was normal. It was not, but neither was two and a half percent, you know, rates in here are right where they’ve been historically. So. So I don’t know how that narrative changed in this November in December that they were going to be not only multiple, but they were going to be five and six and seven potential rate cuts starting in March and and going every Fed meeting till the end of the year. Well, here’s the other issue. You know, here’s another data point that everyone should know, it’s a presidential election year, the Fed, the Fed is not supposed to move on rates in either direction, within a six month window of the election. So the election in November, by May, if they’re going to make a move, they got to do it by May, if they don’t do it by May, they should not do it until after the election for fear of being seen as political. Right? in either direction. They can’t move them up. They they’re not supposed to move up nor move them down. And so this idea that they’re going to be seven rate cuts in 2024, or six rate cuts starting in March or going every meeting was illogical to begin with, was illogical to begin with. And so what we’ve seen now in the market from the data points, is that is that that’s most likely not going to happen. The fed by the way over the last six weeks. It’s the first of the year has been very, very specific. Jay Powell has been pushing back on this idea that there were going to be multiple it that that that conversation didn’t come from him and even the three potential rate cuts all he all he suggested was that the thinking by some members of the Fed was that we could see up to three he never said the Fed is going to cut three he just said the thinking is kind of going there. All that means is we’re discussing it and it turned from the thinking is going there until we’re getting seven and they took the market up. Look they took the NASDAQ up 30% In from from October 31 until December 31 till December 31. Right so when an eight and eight weeks they took the NASDAQ up 30 minute they s&p up 20% It’s ridiculous. And so for somebody to say you know the if the if the NASDAQ backs off three or 4% Oh my God at the end of the row, it is so not the end of the world. Actually, actually, the other thing people should know is that if the market trades you know within from zero to 9% is very much considered a normal trading pattern for the market. So we could see if the NASDAQ back off 9% That’s not even in correction territory yet. That’s still within the normal trading band. So people need to understand that right? I would love to see, as a long term investor, I’m not a day trader, I’m a long term investor. I’m a wealth manager, I build long term portfolios, right? I’m not day trading. But I would love to see the market back off five, six or 7%. Because we’ve got a lot of catches waiting. I’m not I’m not chasing stocks at the highs, certainly not chasing tech up here. We own it. I’m not chasing it. But I’d love the chance to get to buy more tech, but I want to see it back off. And a 1.8% pullback is not a pullback.
Andrew Brill 15:33
Right.
Kenny Polcari 15:33
You’re know what I mean?
Andrew Brill 15:34
Yup.
Kenny Polcari 15:34
5,6,7 percent would be something much more exciting.
Andrew Brill 15:38
So if the market you would suggest if people if if it does go down, five, six, jump in.
Kenny Polcari 15:45
I would, again. Again, yes, I would say jump in, I’m very prepared to jump in. I know a lot of wealth managers that business, everyone’s waiting for this pullback, right. And everyone’s got plenty of money to put to work. But here’s the deal. And I often, you know, it’s very funny about that. Because you know, when the market starts to get antsy, and it sells off, people get nervous because it’s their money, and they go oh my god, I’m gonna lose my money. Okay, first of all, you have to decide what money is. Is it retirement money that you can’t touch for 30 years anyway? So a What are you worried about? Be? What’s funny is, and I use this, I use this all the time, because it really it speaks to the point when Bloomingdale’s has a sale, women run in there and they buy three dresses because they’re on sale for 30%. How can you leave it on the rack? They have to buy it, but Apple goes down? Apple does down 10%? And so my apple, because it’s down 10%? No, no, no, no, that’s the wrong thinking. If you’re a long term investor, that’s when you need to buy more apple. Now let’s let’s qualify that has a fundamental story change in that stock? Is that why it’s selling off? Because it’s the fundamental story changes, then it’s a new good, it’s a different conversation, if the stocks I own if the fundamental story is intact, but the market broadly sells off. And all these good names that I own IBM and Apple and Amazon and Bank of America and Verizon, if they back off. Am I panicking? Absolutely not. Now, did the story change in IBM have is if suddenly their their product? I know is no good. No one’s buying it. That’s a fundamental shift than that, like, that’s gonna make me change my mind. But if that doesn’t happen, why am I panicking? I own all these big names in the industry that I want to be and these are the these are the motherships and all the different sectors. Why am I panicking? Right? I’m still young. I mean, I’m 62. I’m not, you know, this isn’t money I need tomorrow, I probably got another bout 20 years. Right? You’re even younger than me, you’ve got plenty of time on your side, then the other thing people need to understand is time is the most important factor in this as an investor as a long term investor. Look, if you’re day trading, you want the chaos and the noise and you want the stocks go up and down because you want to hit the buy and sell buttons all day long. But if you’re a long term investor, that’s not what you want at all right?
Andrew Brill 18:07
Absolutely. But Kenny, a lot of our viewers are older, they’re they are retired or writing, right? They’re at retirement age, they don’t have that time to wait, where do they go? What do they do?
Kenny Polcari 18:18
So listen, it’s so good. Those are those that are clients I talked to all day long, right? Those are people that I talked to Iowa. So they need to have a strong well diversified portfolio, they have to again, decide is this money that they’re living on? Or is this money that they’re leaving to their grandchildren, because here’s the other point, if you’re 60 or 70 years old, and you’ve got plenty of money for yourself, and you’re not worried about it, but you still have all this other money that you’re going to leave to a generation or two generations behind you. Once again, guess what’s on your top, what’s what’s on your side is time. So that money can be more aggressive. But if you’re talking about your own money that you need to live on, then you need to, you know, that needs to be that needs to be sacred, right? So it needs to be in high quality names. If you’re going to have market exposure, you need to be in high quality names. A dividend paid portfolio that’s going to spin off an income without you having to touch your principal that will last forever you need that certainly have some bond exposure in there as an older investor. And then you need you know, you need to and you also listen, you have to take into account your whole portfolio. So real estate, you all that other stuff. So it’s a much broader conversation. But I guess the point is, you shouldn’t be even at 60 or 70 years old, you shouldn’t be afraid of the markets, you should just have the properly the properly laid out and qualified and diversified portfolio.
Andrew Brill 19:39
Talk to me about unemployment, the unemployment seems to be low, but everybody keeps announcing layoffs.
Kenny Polcari 19:46
Yeah, it’s confusing, isn’t it?
Andrew Brill 19:48
Because I’m confused.
Kenny Polcari 19:49
Yeah So am I, by the way, because I think those those are gonna start to show up. We’ve had a lot of late Yeah, they have to start to show up unless these people are going out and getting new jobs right away with They couldn’t, because the job market is strong, there’s a lot of job opportunities out there. So you could get laid off today and get another job tomorrow. And then you don’t really show up in those, you don’t show up in that data, right? It’s the people that are not going to get new jobs right away, that’s going to start to or should start to show up in the data. And by the way, the Fed in order for the Fed to be successful, they need to see the unemployment rate tick up, the longer unemployment stays at historic lows at 3.7%. That’s another reason the Feds not going to be so quick to cut rates, right, they need to see it and it will be painful for some people, they need to see that number tick higher in order for them to kill demand, once again, kill demand and bring prices down. So the longer unemployment stays at these historic lows, which on the one hand is great because everyone’s working. But it doesn’t help Jay’s story. It doesn’t help him craft the story to say, Oh, great, I can cut rates down doesn’t really help them do that. But to your point, I think these these layoff numbers are going to start to show up, unless all these people turn around, you know, they lose a job today, they get a job tomorrow, right away. Right?
Andrew Brill 21:04
Is it possible, these numbers are skewed in that some of these companies may have offered packages, and they can’t apply for unemployment or stuff like that some took early retirement?
Kenny Polcari 21:15
For sure. Absolutely. And some of those people don’t cause as dramatic as it looks like, you know, all these people get laid off. A lot of that is true, a lot of these companies target certainly, you know, the upper end, and they give them these retirement packages, and they pay them out. And they don’t then they don’t get on the rolls. That’s part of it. But some of these companies that that are not doing that they’re just you know, some of these younger companies that over hire during COVID, or whatever, and they now they realize they’re not making it and they’re just throwing people out. Those are the ones that should start to appear on the rolls. But you don’t. The other thing that’s very interesting, is that there’s a whole underground gig economy, really in the world in this country, for sure. But in the world, you know, the gig economy where these people aren’t necessarily counted, right? They’re just doing the you know, they’re doing their side hustle. Right? And so and so they have to figure out a way to figure out really, because I actually think the employment number. I think if you if you count all these people that have this side hustle going on, I actually think that number is even lower. Right. Wow. So I think that’s an issue
Andrew Brill 22:17
They’re not looking for jobs because but they’re making money somehow
Kenny Polcari 22:21
That’s correct, right? They’re making money somewhere else. However, however they’re doing it, but they’re, you know, the societal stuff? I mean, listen, places like, you know, Upwork and Fiverr. Are those are those sites that you can go that people would experience they put themselves out there who’s a bookkeeper who’s a web designer who’s this and that they have that throw a little businesses, you can call them up? I need a website design. Yeah, hire some kid, you pay him whatever it is five 6000 bucks, whatever the number is, you just Venmo in him, he’s not on any payroll, there’s none of that stuff to keep track of, which is what, you know, obviously, also, the Fed is trying to do they’re trying to get more control of that, so that not only they can tax them, but they can they can try to clarify clarified the numbers.
Andrew Brill 23:03
So let’s talk about housing a little bit, the housing numbers came in housing starts flat, I guess. But Fannie Mae comes out and says, Oh, you know, mortgage rates went up this month, and are at the highest they’ve been in the last two months or something like that. They’re around 7%. Now you and I, I my first mortgage was above 7%, your first mortgage is probably way above 7%
Kenny Polcari 23:25
It was double, it was 15 and a half.
Andrew Brill 23:27
So I’m thinking that 7%, six and a half 7% could be more of the norm, like you said, 2% was ridiculous. And the anomaly, whereas the 7% is the norm. i
Kenny Polcari 23:38
You’re absolutely right. And I think you’re right, and people need to get used to that. And then and so buyers need to get used to that. But sellers need to get used to that as well. So they think their house is worth 4 million in a 7% environment. It really isn’t. And so the sellers also have to get used to, you know, that’s where prices will have to adjust. Right. And so you see that in existing homes. But what’s interesting is use you know, existing homes actually ticked lower last month, and new home sales actually ticked higher. Meanwhile, rates are still the same, right? Here’s the difference. And and I did it once. So I know when you buy a brand new home from a builder, right? I bought the home I had an armlock I bought from Toll Brothers. It was a brand new home. I did it in 2000. But Toll Brothers was building a house, they could offer me upgrades if that you know the market was soft, they could offer upgrades for free right to upgrade your kitchen cabinets, upgrade the flooring, upgrade the tile. They also own the mortgage company and finance it through Toll Brothers and guess what else they could do? They can buy down the rate versus what the bank is going to give you on an existing home. So if the rates were seven and a quarter of seven and a half then you know it depending on your own credit score, you might have been you might have gotten a mortgage with Toll at 6.8 Or maybe 7% which was a significant savings right So what you’ll see in New home sales numbers, you’ll see those numbers continue to go higher. Because look, you know, once you walk into a brand new home, and it’s brand new, and then they have it, you know, all decked out and decorated, you could see yourself living in there. And your wife says, Honey, that’s the house I want. I don’t want to look at I don’t want to get existing homes anymore, because you won’t get through existing home. It’s definitely an older home, you got to renovate it, you got to change the bathroom, get all that crap, right? Which is why you see the divergence between what existing homes are doing and what new homes are doing, why they’re why one is going up. And the other one is kind of going down.
Andrew Brill 25:37
Is there a psychology and I’ll ask you put on your psychologist hat because I know as a financial analyst, and all that you’re you’re and you’re talking to people all day about their money, you have to be a little bit of a psychologist and talk them off the ledge sometimes. Yeah. Is there the thinking that look, you know, what the interest rates are high, the economy must be great.
Kenny Polcari 25:56
Yeah, so that’s a double edged sword. Right? The fact that rates are where they are, does suggest the economy is strong, right. And so it’s hard to it’s hard, then to make the argument that, you know, the rates need to go down because the economy is weak, the economy is not weak. And so you have to tie that that’s where you have to talk to people, but look, the market and it that’s actually been proving it, as we’re kissing all time highs with rates where they are, the market can function with 5% rates absolutely could function with 5% rates, right? The economy is good. Look what happened in the last earnings season that we just we just finished, you know, this this past week, these companies all reported strong numbers 82% of the beat their estimates and offered very upbeat forward guidance for you know, the next four and six months. And the truth is, as an investor, you don’t really care what the earnings were because their history, you really want to hear what the C suite is saying about the next four to six months. Are they upbeat? Are they positive? What’s it look like? What are the sales projections, because that’s, you’re really buying stocks on what their the future value is going to be? You’ll get straight there. And you know, $2, a share Perfect, great, but I want to know what they’re going to earn next quarter, the quarter after that. And a lot of that is dependent on what they say, right. And so this last quarter, the fourth quarter of 2023, which we just got done with was better than expected. Right? The 80 83% of the company’s reporting beats on the bottom and top line, and a lot of them were very positive going forward. Certainly, the tech space in the AI space and anything AI, you know, was a boon for for a lot of these companies. And so I think that the market is finding it right. Do I while it could pull back? I’m not necessarily worried. But this is what I talk to clients about because yes, you’re doing something you have to talk off the edge. Look, here’s his here’s a quick story. When in October, I remember when the market backed off six or 7%. By October 30, we were down 6% or 9% on the NASDAQ 6% the s&p. It was because they were they were they the market was assuming that the Fed was not going to cut rates and they weren’t even sure that they were done raising them. And so there was all this panic and blah, blah, blah. So I had a client called me up at the end of October after the market had already lost 6%. And who owned all top quality names in the sectors we were in. I want out I want he was an older guy. 6667 years old. I want out I can’t do this. I can’t sleep at night. i I’m nervous. I bet if I listen, come down, you’re good. You’re good. You don’t you’re not using this money right now. It’s got it invested. You know we I mean? I talked the whole story, though. In the end, I want out, okay, it’s your money. I am your wealth manager. But I’m gonna do what you tell me to do you want out? You got out. I said, but I hope you’re not making a mistake. Bank. He sells everything out. Guess what it was October 28, or 29th. Right at the low of October. Look at the chat in October. The next day. The narrative started to change the Fed maybe was going to start to cut rates and boom, the market went up 30%, the NASDAQ from October lows to and he has to be 1.2%. And and he’s a good guy. But he but he’s wounded now because he said to me, I should have listened. I hear you. But you don’t mean because the reason I was confident about that is because the fundamental story hadn’t changed. Right? If the fundamental story had changed, I’d say no, you’re right. We should get out. But I was at I was actually telling him he should buy more because the fundamental story, Jake, but he was so nervous. And okay, great. I was I hear you. You want out? No problem. I’m going to take you out. It’s not what I would do, but I’m gonna take you out. And so if we did, and he went into treasuries, which is fine, because he’s earning 5% In treasuries so he’s okay. He can sleep at night. He’s not worried about it. He knows the money’s there and that’s perfect. That’s perfect. But yes, I spent a lot of time playing you know, as, by the way as to a lot of wealth managers because people get nervous when they don’t understand and it’s, it’s perfectly legitimate.
Andrew Brill 29:58
Is that what would you sugget to the people who can’t stomach the roller coaster ride or, you know riding it out is get into treasuries you know exactly what you’re getting. They’re safe. And you can get
Kenny Polcari 30:11
well you can get into treasuries now, because they’re yielding 5% or 10 years yielding four and a half percent. And you know, the shorter durations are yielding, you know, two years are yielding 4.7 to three and six months on an annualized basis are yielding 5.4%. So yes, I would say you got to put you it’s, it’s stupid to have your money sitting there doing nothing. So you have to have it do something. So if you don’t want to exposure to stocks, you should put it someplace and in treasuries, it’s completely safe, right? Unless you’re telling me the US government’s gonna blow up which I tend to think of that, but but let’s like know that. Yeah. Then you would put your money in treasuries, which is exactly what this guy did. So, you know, he moved from he moved from his portfolio to treasuries. So he locked in, you know, for I think we locked in 4.35%. But he was happy with that. Meanwhile, he missed the 30% move. Right. And he knows he missed it. And he said to me, I should have listened. That’s it, I hear you. But you can only do what you can do, right. Ultimately, the client, from my perspective, the client is the client, the client wants out, you’re out. Right.
Andrew Brill 31:18
And, you know, we’ve heard this a lot lately. FOMO Fear Of Missing Out is a lot of the market being driven by that, look, we just went through earnings season, like you said, AI anything AI was going nuts, and people pouring money pouring money pouring in, because they don’t want to miss that ride.
Kenny Polcari 31:35
Right. And I think that’s true in that space. I think that’s true, the fear of missing out and, and I mean, look at what happened to some of these names. SMC AI super micro computer. It was a it was a $300 stock. Who’d ever heard of it? Not a lot of people. They came up with their earnings. And they talked about AI in the next four to six months, the stock went from 350 to 700. Almost overnight, almost overnight, I think it took three or four days to go, that it moved up. 100%, right. Because because it talked about it and anything, any stock that talks about AI in their earnings releases really was rewarded. And look, here’s the other thing. You can get AI exposure in a range of sectors, you don’t have to buy AI to get exposure, the bank, the financials, the financial sectors are using AI healthcare is using AI. Right there. All these sectors are using AI to help streamline their businesses and all that. But if you want to be in specifically AI, then yeah, so it’s names like Nvidia and AMD and MCI and ASML. And Taiwan sent me and all that stuff. Yeah, those are names. And what you saw was you saw this, this, this, this crazy Fear Of Missing Out, and money just piled in. Right, which is why like I said, I’m no longer buying tech up here, because I think it’s I think it’s stretch. I own it. I didn’t sell any of it. But I fully expect that it’s going to retreat, I hope it does, because that’ll give me a chance to buy more. So
Andrew Brill 32:57
what do we read into Warren Buffett’s selling Apple stock at 10 million shares? This is so such a miniscule amount of what he owns.
Kenny Polcari 33:06
It’s less than let’s do this. It’s less than 1% of his apple holding. So that’s like pocket change. So you got to put it in perspective. Yeah, 10 million shares sounds like this big number, and it is multiply 10 million times, you know, $180. It’s a big number. There’s no doubt about it. But but it’s but it the position was less than 1% of his total holdings. So So I don’t think you read anything into that. It’s not like he’s changing his mind and apple with it. If he sold 20% of his position, I’d say, okay, he’s changing his mind. He sold he sold less than 1%. It’s like a house cleaning issue. Right? He’s just taking all the money he’s getting from the dividends and redeploying it makes perfect sense. It’s called investing. So I don’t think anybody should read into the idea that Warren Buffett sold 10 million shares of Apple don’t do that. Don’t do.
Andrew Brill 34:00
Mr. Buffett when it whenever he sneezes people like oh, what does this mean? So because
Kenny Polcari 34:04
Well, that’s because that’s what they do, but but the fact is, if you really look at Warren Buffett’s history, he’s really a buyer and a buyer and a buyer. Right delete that he’s and by the way, notice when he sold the apple, he didn’t sell the apple in October when it was going down. He sold the apple in December in November in December on strength, he didn’t sell into weakness, he sold on strength he bought on weakness when the lot you know, not just apple, but other things he did during that during the meltdown, he’s much more of a buyer and he says all the time, right? You gotta be you gotta be fearful when others are greedy and greedy when others are fearful. So you want to be a buyer when people are, you know, jumping out the windows, and you want to be a seller when they’re coming after you. Right? Which is exactly what he does. And that’s a great mantra to live by. And that it’s difficult for a lot of people to you know, have that in their head to you know, to feel comfortable because it can be very uncomfortable. You know when you but but remember, you only lose money in the market. If you actually make the sale, if you own it, and you don’t ever make the sale, okay, so today, you might be down at about $10,000 or $5,000, or whatever the number is. Okay? But if you did that on Tuesday, when the CPI came out, and you panic and you sold everything, and then by Thursday, went back kissing the highs again, what did you do? Now you got this catch, you gotta get back in now you’re paying the highs? Like, do you understand what I mean? So it doesn’t make sense, you have to get comfortable with being a little bit uncomfortable. But if you can’t, if you can’t get there, then it makes sense for you to you know, to do much safer thing. So whether put your money in Treasury to put your money in CDs or someplace that’s going to make you able to sleep at night and feel comfortable
Andrew Brill 35:44
Take the emotion out. Use your common sense, right, basically. Yeah, yeah. Well, last night, I’d love to touch on because you touched on it was oil and gold oil sitting around $75. Obviously, OPEC wants it to be in the 80 range. You know, gas prices are? I wouldn’t say they’re low. But they’ve obviously come down from where they were. What is oil at $75 a barrel me.
Kenny Polcari 36:09
So So here’s what I think about oil. It’s interesting, because I sent us a note this morning, that you know, there’s a couple of conflicting data points, you got OPEC and the Energy Information Administration here in the country that predict oil demand and growth is going to continue through 2050. You’ve got the IEA, which is the International Energy Administration that came out today. And they say that demand is going to win through 2024 and into 2025. Right? So he’s got these conflicting forces. Now, listen, I’m in the camp, that demand is demand that the world is going to continue to demand energy and oil. And we’re not all going to EVs and battery powered cars and trucks and airplanes. Some of the Yes, but the demand for energy is going to remain and so therefore I’m in the camp, that oil goes higher. Now, look, we’ve become once again, almost a swing producer United States, right, we’re pumping oil at a rate that we were pumping when Trump was President, when we were the swing, producer, right, we’re getting to that level again. OPEC, on the other hand, is trying to cut their production because they need to stabilize prices. Because remember, when we were the swing producer back in 2016 2017, you remember, oil was trading at 30 $40 a barrel, right? Today, then it traded up to in the high 80s, low 90s. When when when Biden came in, and now it’s come back to the mid 70s. But now you got this conflict in the mid 80s, which is going to provide a floor underneath whether it’s in the Red Sea, whether it’s in Israel, Gaza, whether it’s in, you know, Iraq and Syria, that whole that whole area continues to have conflict. So that will provide a natural floor under oil prices just because of the tension. Right? If if that tension goes away, if we can clear up though, the Middle East situation, if we can try to bring some peace back, then you’ll see that risk premium kind of fade, and then oil oil should come in a little bit. But look, the Saudis want to see oil $80 a barrel, because that’s where they’re able to balance a budget below 80, they can’t balance a budget, and they hate when they can’t balance a budget. So they’re going to do anything they can to try to keep oil elevated. I actually think somewhere in here, I think oil stuck in the 75 $85 range. And because I don’t think the Mideast conflict is going away anytime soon, I think that’s going to continue to hold it there. But if we see if we see progress there, then you might see oil test lower against $70. But I don’t think it’s going to go much below that. And I’m a buyer of energy. I’m a buyer of oil, because I’m a buyer of energy, I do believe that demand is going to remain strong. And so having exposure to oil exploration and services names and Big Oil names like Exxon and Chevron and stuff are places where you should where I should have exposure. And I do, right, and I think most most portfolios have an exposure and energy they should if they don’t, they should.
Andrew Brill 38:58
Yeah, and gold this week has come down a little bit. It’s hovering around the $2,000 range.
Kenny Polcari 39:02
So gold is interesting because gold is a commodity oil is a commodity, but gold is another commodity is much more sensitive to what the dollar does, right? The dollar comes down to value gold typically goes up in value dog goes up in value, gold typically comes down in value. And so what we saw prior to Tuesday, was gold was hovering in between his 2030 2100 range trying to figure out okay, what’s next? What’s the Fed going to do because it felt like it wanted to take off. But there was a pressure sitting on at about the Fed when the CPI number came out on Tuesday, and then again on Friday, and it became clear that the Fed was not going to cut rates. That meant that the dollar would still be you know, with higher rates, the US is an attractive investment for foreigners, they’re going to come in and buy the dollar. And so that was going to put upward pressure on the dollar. upward pressure on the dollar puts downward pressure on gold. And so what we saw on Tuesday, the dollar spiked higher and gold got whacked right Trading down about 40 bucks right to the 2000 level where it found some support, it broke through all the trendline. So 2000 is not a trendline support, but it’s kind of a big round number. So that’s kind of where it finds what now it is since bounced off or did anyway, let me just see where it’s trading right now, as we’re talking because it it was headed it was trading like 2010 this morning, before the PPI number came out. And so yeah, so now it’s still managing to, it’s actually uploaded up $6 Because it’s managing to think that gold that they don’t think rates are going up, they may not be coming down, but they’re going to hold steady. And so that offers some clarity. So gold is kind of finding some stability, it’s still below where it was, and will probably remain below where it was until until we get a move out of the Fed. And that may not happen until November. So gold might just be stuck right in this range for a while.
Andrew Brill 40:48
Kenny, I know people can find you on substack and they can also get a great recipe. But you know, with each article you put out you put out a good recipe. can people find you on social media?
Kenny Polcari 41:00
Yeah, you can find me on Twitter. It’s just at Kenny Polcari. You can find me on my LinkedIn. You can find me on my YouTube channel, which is Kenny Polcari media all one word, because there I do my I take my written substack note and I actually turn it into a daily video. So in case you’re in your car, you can’t read you want to listen to it. You can find it there.
Andrew Brill 41:20
Alright, thanks Kenny. Thanks so much for joining me. And if you haven’t already, check out Kenny substack I know you’ll really enjoy it. That’s a wrap on another discussion here on Wealthion thank you for joining us. If you need help being financially resilient, of course please head over to Wealthion.com Sign up for a free no obligation consultation from one of our own vetted registered investment advisors. And remember, please please follow us on social media for the latest news and information to help you invest wisely. Thank you for watching, and until next time, stay informed, stay empowered, and may your investments flourish.
