Too High Too Fast? Increasing Signs This Bull Rally Is Extremely Overbought

Adam Taggart 0:04
Welcome to Wealthion. I’m Wealthion founder Adam Taggart, I’m here at the end of the week on a Friday with the lead partners from new harbor financial, one of the endorsed financial advisory firms by Wealthion. They’re here on the channel with me every week, joined by John loader and Mike Preston, Hey, guys, lots to get through here. There’s a lot that’s been going on this week, you got a lot of data to walk through. We’ve had probably a really important market development, maybe we should just start here. And then I want to talk to get your reactions on the interviews that we’ve had this week, because we we’ve had some really good ones. But, you know, for many, many weeks now, we’ve been mourning about what a narrow market this is, right? How most of the trading has been sort of hyper concentrated and just the, you know, fewer than 10 stocks that make up a hugely disproportionate percentage of the market value in the s&p and the NASDAQ. These are the big Fang stocks, the stocks that play in AI. And you guys amongst many of the other experts on this channel have been warning that that’s a very unhealthy sign when the market gets that concentrated. Now we’re all of a sudden beginning to see rotation into other parts of the market, smaller small caps as well. Comment on that what’s going on? And is this a good sign or not? John, why don’t we start with you?

John Llodra 1:27
Yeah, Adam, that is probably the most knows no noteworthy thing in markets over the last couple of days, even not even over the last week, we have been talking for quite a while about the narrow leadership in this market, we have a chart that we can share with you here just to kind of re emphasize what this year is look looks like. And I think Mike has some charts you can pull up that will will speak to Yeah, so this chart pretty much speaks to what what has been this year up until just a couple of days ago. You can see here the s&p 500 including these mega stocks, meta Amazon apple nividia, of course, Microsoft, Google Tesla, you know, this is the the return, you know, including these mega mega tech stocks are actually these are the tech stocks 53% up the s&p 500 all 500 cap weighted was only up 11%. And if you strip out those seven companies, and just call it the s&p 493, we were essentially flat and this is data through June 1. And here we are on June 8 recording this video. So lots changed. In a really rapid fashion. We we have a chart here that we’ll go back and reference it’s called it’s what’s called a bullish percent chart. And it’s a measure of breath in the market. And a couple of weeks ago, we shared this chart as a an indicator of the lack of breath. And it basically measures the percentage of stocks in this case in the trade on the New York Stock Exchange broad broad exchange index. And that just reversed up this past week. Which been means that a notable number of stocks have joined on. On buy signals, there’s many ways to measure measure breath but this is this is one that we oftentimes will look at. So you can see here this this chart has gone into a column of X’s which just means there’s been a notable reversal of stocks on buy signals here. And that’s a pretty broad indicator. We’d like to see it frankly reversing up from a lower level you can see back in October which is when this bull you know this this bear bull market rally in in in this in the market has has started a reverse for a much lower level so we weren’t quite washed out there but as it is a no notable expansion of breath and one thing we’d like to caution is just the the manner and how quickly this has come on we have a next chart here that really shows the record amount of of call option purchases on the Russell 2000 If you go to the next chart there Mike just off the charts record this chart goes back to 2013 or so and you can see the explosion of call option purchases this is not really a healthy complement to the breakout we’ve seen in the Russell 2000 We’re seeing a bit of a reconsolidation today, but we need to pay attention to this this does speak to a broadening it with nothing about this means suddenly you want to flood into the broader market, but it is a sign of broadening upward moves and you know we’re certainly taking a look at this and kind of evaluating different sectors that that may be relevant to add some exposure to but these are the kinds of things you want to be careful and patient about not not take as a light switch kind of indicator but it is notable it does result Well, some of the concerns that we and many others have had about the narrowness of of this market. So I’ll just pause there. And we can certainly talk more about that. All right, well, I think

Adam Taggart 5:09
you’ve got one other chart here. Maybe we pull up, but Okay, so you’re seeing call activity, you know, really spike here. We see some previous spikes in call activity there. And we remember, you know, 2021, etc, that that was around. Just rampant speculation, right. I mean, people that were buying call options, and Gamestop and Tesla get crazy nosebleed levels, right. And there’s a lot of discussion back then that that really wasn’t very healthy, because it was just ridiculously speculative. Now, the volume at least seems to be or the, the reading of this chart seems to be higher than all those previous spikes. I gotta imagine that creates some head scratching.

John Llodra 5:53
It certainly does. For us, again, it’s usually a, this is an indicator of of speculative kind of positioning, short term minded positioning, not hey, we’re off to a new durable bull market kind of investor reallocation, but, you know, we’ll watch for continued breath. And, you know, there’s plenty of head fakes that go on in our business, this may be one of them, but we do need to need to acknowledge the, the improved breath in the market.

Adam Taggart 6:22
Okay. Again, just on speculation for a second, I mean, we’ve been talking of late past couple of weeks about how the interest in the AI space has exploded this year, and that we are seeing things that remind us a lot of the extreme exuberance that we saw back in previous bubbles like the.com bubble, which, you know, you guys were actively investing during. So, you know, to see this sort of additional call buying in the middle of this, it’s, it just sort of adds to that, you know, potential criticism that, hey, we might be in a place now, where emotion is really taking the driver’s seat versus rational thinking, time will tell. But there was a chart that maybe we can put up and just talk to you real quick, which was the percent of unprofitable companies in the Russell 2000. So John, you’re saying that capital is now flowing into these other parts of the market? Okay, that’s good from a breath standpoint. Again, when can sort of scratch their heads and say, All right, you know, it’s flowing into companies that, you know, are increasingly unprofitable. And that’s not the end of the world, there are lots of companies that have traded that are unprofitable. But if we’re sort of still debating whether we’re going to have a recession, whether it might be a hard landing, and all that stuff. I don’t know, our I mean, the small caps have been beaten up a lot. And they’ve been beaten up to the point where there are real true values here, or do we need to look at this chart with a little bit of skepticism?

John Llodra 7:53
Yeah, it’s, here’s a chart here, it’s still we still are in a backdrop of very extreme valuations. And things haven’t materially changed in terms of the broadness of the financial profiles of, in this case, the Russell 2000, this chart goes through 2022, you can see a pretty dramatic, steady rise in the percentage of companies in this index that are so called zombie companies, you know, basically, net cash negative on a cash flow basis. You know, this is still at a time where we are seeing more pronounced indicators of likely recessionary type forces taking taking root. We’ll talk a bit about kind of the jobs picture that came out last Friday, which the market cheered and some of the confute, you know, counter counter data has come out this week. But, you know, we’ve seen a pretty market trend in in corporate margins starting to kind of take a take a hit down. And we don’t think this this data has has resolved itself, we’re still very lofty valuations. And particularly in this index, there’s a pretty pretty high percentage of, of zombie companies that have been enabled over the last decade by just the ultra cheap cost of capital. And that’s still the interest rates that we have seen flowing through that have had risen over the last year really are just starting to flow through the economy, corporate debt refinances, commercial real estate debt rollover those are we’re starting to see data points that that’s that’s really becoming a sting in in kind of the the cost of capital and the financial footing of these

Mike Preston 9:43
these kinds of companies.

Adam Taggart 9:45
All right, well, um, crash when was it? Maybe five, six months ago on this program? We had David Trainor on who, you know, his firm follows basically zombie companies that’s that’s what they track We had a really interesting discussion about how many zombie companies are out there. And honestly, this was, you know, probably several 100 basis points ago in terms of Fed funds rate hikes. So I am kind of curious to see what he has to say about the prospects for the substantial fleet of zombie companies that are out there, folks, if you’d like to, maybe have us have him back on the program here? Let me know in the comment section below. If there’s enough interest, I’ll invite him back on. All right, John,

John Llodra 10:33
I think I think you might have called out some data in your in your kind of tweets in recent days about the uptick in bankruptcies, right, I think we’re starting to see corporate bankruptcies start to kind of notch up a bit. And that would kind of, you know, kind of flow through with the with this data that we’re seeing here, you know, it’s not being entirely

Unknown Speaker 10:55
healthy environment.

Adam Taggart 10:57
Yeah, well, so I mean, look, the bigger picture here is really, you know, what’s going to happen from here, right? We have this really big disconnect, as we’ve been tracking every week between the underlying fundamental data, largely, which still looks pretty grim. We had some reports come out this week, initial jobless claims just came out. And they’ve ticked up, they’re at a new, you know, multi year high at this point. So the trajectories, we’ve been tracking of initial claims as they clearly bottomed. Last fall, last late last summer. They’ve been rising ever since. And now the pace of increase seems to be increasing here. So the trajectory isn’t good, we’re still closer to, you know, record low levels than we are getting into, you know, troublesome territory yet, but the trajectory is concerning at this point in time. And we had the latest ITSM services data come out, which, you know, everyone has been saying, okay, that’s really been propping up the economy. It’s been looking strong. All of a sudden, you know, we’re seeing that data begin to weaken again, one data point doesn’t necessarily make a new trend, but it definitely caught people by surprise here. So, you know, the question is, is when you look at that data, but then of course, you turn to the markets, and you see all the bullish activity that we’ve seen, you know, in general this year, but extremely over the past, you know, month, month and a half. Boy, there’s a real disconnect. And it’s all about how is this going to resolve, right. And, you know, if we do if the economic deceleration actually really hits, and these zombie companies do start stumbling into the higher cost of capital, and we suddenly start having more job losses, which has been that big Bulwark, you know, that’s been holding us back against recession, a lot of people have pointed to and said, Hey, as long as John’s jobs are strong enough to worry, you know, then it’s a totally different ballgame. So, you know, we’re going to see what the data says, as Peter boockvar said in my interview with him earlier this week, which we’ll talk about in a minute. Things are very muddy right now. And I agree with him, it’s really hard to see clearly right now. But, but that big disconnect seems to be getting, you know, even bigger, just this week with what you’ve just talked about, John, it’s gonna be very interesting to see how that results in well, yeah, all right. So I know we got a few other things Data Wise to talk about. But But real quick, let me just take a detour through the the interviews, we had this week, love to get your guys’s top line reactions to them. Maybe let’s start with with Peter book fires. Mike, I’m coming to you with this. So, you know, great discussion with Peter said a lot of great things. What sticks out in the top of my mind is, you know, when when asked pressed on his outlook for whether we’re going to have a recession or not, I think you said 99.9% Sure, we’re going to have one. So that’s about as close as you’ll hear a macro guy coming to say, you know, to give you an absolute guarantee, he thinks it’s much more likely to be a hard landing than a soft landing for reasons we went through there. But two things that I took apart from there that I think were notable one was he said, he expects kind of a slow grinding downwards from here as we go forward to the rest of this year and in the next year. In other words, he’s not really calling for like a systemic break or a crash or a big sudden correction. He doesn’t think it’s going to be that type of dynamic this time round. You know, there are cross currents, but net net there to the downside and so he just thinks that we’re just going to be in this just slog going through the ground. So I kind of said, okay, so you’re not talking about so much of a hard or soft landing, that so much of a landing, you’re just talking of like just a slow burrowing into the ground as we go from here. And he seemed to think that that was an apt analogy. So there was that part and then there was and this was probably disappointing to a lot of people listening. We talked about housing. And you know, he said, Look, there’s Yes, obviously a lot of reasons why home prices should come down. But there are a lot of factors too, that may delay the reckoning enough that it might not really be a big reckoning, and that those who are, you know, saying Hallelujah, we’re finally at a place where the housing market starting to correct and we have these high mortgage rates, and they’re gonna, they’re eventually going to pull prices down over time. It just might take longer. We have unaffordability, and buyers are gonna go on strike. And if we have a recession, that’s going to make it all worse. Yeah, he was like, Look, he’s like my hearts with you guys. But I’m just not certain that it’s gonna work out that way. And the people who were sitting on cash waiting to get a really great deal on a house might be disappointed. I didn’t particularly like hearing that. But again, it doesn’t matter what I think it’s matters what the market does. So anyways, Mike, I’m curious, what else would you take away from, from by the interview

Mike Preston 15:57
with Peter? Yeah, Peter basically said, like, like you said, that there’s in his view, 99% chance of recession. We think that’s, that’s right. We might already be in a recession. But as far as housing goes, he essentially says, and I don’t know if you use this word, exactly. But he essentially says it’s a terrible time to buy a home.

Adam Taggart 16:21
Well, it’s it is the I mean, the CNBC just recently ran a report that said, it is the worst time ever for first time homebuyers to buy a home right now, you know, when you combine this still very high prices. And the high cost of financing, it is literally the worst time it’s been in living history.

Mike Preston 16:38
Absolutely, he said 70% of people I think is the number of us have a 3% or lower interest rate and 90% or 4%, or lower. So, you know, the markets kind of locked up, we had this this huge expansion of all asset prices that clearly included housing. And then we saw rates go from two or 3%, up to 7% on mortgages. And yet, home prices, by and large are sitting there on this plateau. And frankly, the stock market has to seems like a a permanently high plateau and asset prices. It probably isn’t. But But new buyers are being priced out. And who knows how long this is going to take to work through the system. People can’t move. Not only can young buyers not buy but people that own these houses can’t move. If certainly if they have a mortgage, if they’re cash buyers, there’s not much of a problem. But a lot of people don’t own mortgages, and like we just said 90% of them are at 4% or lower. So how are they going to sell a house and buy a new one and go from a 4% to maybe a 7%? Mortgage? That’s going to be a huge jump in prices. So or monthly payment, I should say. So So yeah, they’re locked in and new buyers are locked out. But you had another guest on the program in the last week or two. And I’m not sure who it was. I’m sorry, I can’t remember the name. But might have been John Rubino. But he said that real estate is priced on the margin. And he’s absolutely right about that. Remember that people still get divorced, unfortunately, people still pass away and estates have to come to market and liquidate these homes. So if a house that was previously selling at a million dollars is now at 800,000, or 900,000, because an estate has to liquidate it, or somebody got divorced, that does affect pricing. Now, that’s just happening in a relatively small way. I think overall, over time, that will increase just because that’s, that’s, that’s how it works. And these things will work through the system. You know, I think that the market will move lower and may coincide with an s&p market drop. Who knows exactly what the timing will be. But if you take a look at the average home price as a percentage of household income, it’s taken a major step change and stay there. And that’s just not really going to be it’s not going to be feasible long term. And he talked about Peter talked about the housing market, kind of being in stagflation. It’s probably right. I still think that if people want to buy a home, they’re better off waiting 12 to 24 months and see what happens on the margin. I think there’ll be a better time to buy he also talked about commercial real estate and how commercial real estate is more impacted by by credit. We are seeing some contraction in commercial credit. I do believe that your other guests Tabby Costa talked about that. We’re seeing tightening lending standing standards we’re seeing commercial credit drying up a little bit so commercial, real estate may be impacted, impacted more. Peter also talked about the stock markets and the relatively narrow breadth which we already talked about on this video. In the said this essentially two markets the s&p 10 and in the top 10 stocks in the s&p and then the are 490 companies. So there’s been very narrow breath recently, we started to see a little bit of a reversal. And that just in the last few days, there was a major unwind of, of tech stocks versus Russell 2000. Even just yesterday, it was strange, the small cap stocks were up, maybe 2%. and the NASDAQ was down 1%, it seemed like there was an unwind of that spread trade. We’ll see if that continues. And Peter talks about the opportunities outside of the United States more so than in the United States. We think that’s probably right. valuations of emerging markets are very attractive relative to the US companies. He says it’s okay to focus on US companies have they have a strong international presence. But we’ve long favored in emerging markets, they haven’t performed relative to the bubble that we’ve seen in US markets, but we think there’s much more opportunity going forward there. He’s particularly positive on on Asia talks about China reopening but he mentions Japan, which you also talked about on this program. And in the last week or two, Japan could be an opportunity. And we’re doing some research there as well. And lastly, I guess I’ll recap with a note here saying that the market is turning a blind eye to quantitative tightening, there has been tightening of bank lending standards, after we’ve seen some bank failures, which by the way, we don’t think are over we’ve seen a handful of bank failures, there’s probably going to be more. And you know, and don’t forget with the resolution of the budget ceiling that the Treasury has to refill the TGA or the Treasury general account. So there’s going to be an issuance of treasuries and tabi talked about that, too, which who knows, could be negative on treasuries short term. But this is all tightening, it’s not loosening, this is taking liquidity out of the system. So all of these things are warning flags for us for the markets.

Adam Taggart 22:00
All right. All right. Great summary. And on that last point, there’s a lot of interesting developments. So you know, what? So Tommy’s presentation, which you just referenced, you know, it really started with his warning of the huge debt challenge that we face. As a nation, generally, just starting with the debt that we have right now, we now have higher interest rates on that debt. But you know, we’ve been up against this debt ceiling, it just got removed. So that debt is going to start going up really fast. At the same time, we have to refill the TGA, which means we’re going to have to issue even more debt. So we’re going to issue even more debt with the TGA. And then at the same time, we’re still pursuing Qt, right? So we have all these things that are, you know, both increasing the debt load. But decreasing liquidity from the system, just places more and more strain on things. And so real quick, Wolf Richter shared a chart here that says that the US national debt spikes by 359 billion on the first day after the debt ceiling was suspended. So, you know, we’re always, you know, all of a sudden, we’re off to the races, again, in terms of adding debt. Right, we haven’t been able to add it for the past couple months because of the debt ceiling. But now bang, you know, we add, you know, basically a third over a third of a trillion dollars in a single day. Right. John, thank you have some charts here that were from Liz Ann Sonders, right, talking about where the Treasury expects the TGA to be around the end of June. And that’s a non trivial amount of money, right? I mean, that’s going to be sucking some serious liquidity from the system in just the next couple of weeks.

John Llodra 23:53
That’s right. I’ll share that chart right now. Can you see this? Okay.

Adam Taggart 23:58
i Yeah, we see it right there.

John Llodra 24:00
Yeah, so this is a blob. So this was in the context, you know, so here, you saw a massive spend down to the TGA account, while this whole debt ceiling saga played on, and the Treasury is expected for that account to be back 425 billion or so at the end of June, this does that here basically shows, you know, in a pretty much a fell swoop, most if not all of that stimulus, effective stimulus that the spin down of the TGA account over the last few months. Provided right away you have that getting sucked right out. So this and that, and that’s just the start of it. There’ll be more they’re going to obviously be more issuance and more extraction of liquidity out of the market through the issuance and build up that account. But really, we think it’s gonna be a big factor playing into this, of course.

Adam Taggart 24:51
All right, so sorry, I’m gonna ask you to pull up your chart in there because you’re Yeah, you have another chart from from Liz Ann Sonders. So you The one of the concerns that we’ve talked about for a while right, knowing that the TGA was going to have to refill itself because that was going to drain liquidity from the system. There are also some things that have been tied to the debt ceiling deal that could also be depressive, of economic activity, liquidity, etc. One of the big ones is, you know, the repayment of student loan payments, right, which have been in forbearance for two plus years at this point in time, right, that’s going to impact 45 million households, that all that debt has to start going into repayment by the end of summer now. So you have a chart here from pull up the one about the the s&p is for returning yields. So the US Treasuries,

John Llodra 25:52
there it is, yeah, basically, this chart basically shows that the risk premium, if you will, for stocks over over over bonds, 10 year treasury bonds is at its lowest level, since 2007. And we all should know what 2007 was, that was the calm before the storm of the great financial crisis. So So the bottom line is that the stock prices relative to you know, their, their their yield, basically has been driven up so much that we’re at Lowe’s not seen since 2007. On a comparative earnings yield versus the 10 year Treasury yield. usually not a good aiming indicator to be going going headlong into into stocks, it’s really, you know, kind of a contrarian indicator.

Adam Taggart 26:41
Yeah. And just to put this in simple terms for people, right, so stocks are riskier than bonds. Right, in general. And so you, the market demands a higher return for stocks normally to compensate for that risk, right? Well, now, if there’s really no difference in return between stocks and bonds, then uh, you know, the same thinking investor would say, Well, then why do I want to be in stocks? Because I can get the same return in bonds for a lot more safety. Right. And, you know, now we’re talking about these factors that will be, you know, depressive of liquidity that tends to be depressive of money flowing into stocks and whatnot, see that you hear that? And you say, Okay, well, maybe stocks aren’t going to perform that well, for that reason alone. And then you hear about this new four step debt issuance that we’re talking about, and is forced to refill the TGA. And all the bonds that are getting sold? Well, you flood the market with bonds, investors are going to demand a higher yield to buy those bonds, right? Because you’re just pumping them out. Right? So that’s just going to potentially exacerbate this ratio to the continued downside, will it for sure. I don’t know, we’ll keep an eye on it closely. But, you know, same thinking says it could, right. So your point there, John is just looking at this alone, it’s not a super compelling time to get into stocks. And then we just talked earlier about kind of, you know, the the mania that’s going on right now in the stock market, it seems really poorly matched to this chart.

John Llodra 28:10
Yeah. And broadly speaking, this is even worse than this chart. Because as as you know, interesting as this data point is, the earnings yield isn’t always the best indicator. It’s not a very robust indicator of forward returns. And we can look at other indicators. And John Hussman, analysts who we reference all the time because he does fabulous work. Some of his work looks at various metrics that have a very robust statistical, historical, predictive value. And, you know, from these current levels, saying nothing about what the stock market does over the next day or week or month or even year, over the next decade, the data would have you reason to believe that and predict that stocks the passively held bra, these s&p 500 for the next decade are likely to go barely anywhere, in fact, likely somewhat negative on an average annual return basis. And that sounds absurd, but it’s what happens when absurd valuation levels like we have right now get reached and that that says nothing about that there won’t be opportunities because usually what happens in these kinds of scenarios, there is a retreat in markets that then give rise to really quite compelling return opportunities. It’s just timing is everything. And we’re not talking about timing one day to the next we’re talking about you know, major moves in the market and having the ability and keeping powder dry to be able to to enter a larger equity position when return levels are much more compelling.

Adam Taggart 29:49
Okay, great. All right. Well, look I want to get before we finish up here I want to get to you know, how you guys as capital managers are navigating this Some whether you’ve made any material changes to how you’re managing the portfolio in the recent past, given, you know, some of the strength we’re seeing right now in the equity market. Before we do that, though, Mike, I want to go back to you. So, you know, I know that precious metals, our core position in the new harbor, portfolio, core portfolio, for many reasons we’ve discussed on this channel in the past Tommy’s presentation, you know, started with all of the the challenges presented by our current debt situation. But then he sort of combined that warning with an outlook that says, he thinks we may see one of the best performances, you know, in history of gold going forward from here, and he thinks the timing of that is relatively imminent. And you know, folks, if you’re interested in that, go watch the video. With Tavi, it’s like almost two hours long. It is just cram packed with crosscuts Amazing Charts that they produce there. It’s amazing the output of that shop in terms of the analysis they do and how they visualize it in ways that make it easy for us to see what’s going on. But, you know, like, I know, you’ll watch that, and you saw that sort of tour de force and all the reasons why he thinks gold is going to perform well. So I wanted to give you a chance to, you know, share any other potential observations you had about that presentation, because I’m assuming you guys found that validating of the current positions that you hold in the precious metals.

Mike Preston 31:32
Yeah, SAVVIS presentation was, was packed full of packed full of information. You know, just to to recap a couple of things that he talked about, I think, all of which many of which are supportive for, for gold. And he talked about, he brought a bunch of different charts up that that were that were really good he showed about. He showed Central Bank’s gold holdings, and they’re at relatively low levels of them and increasing over the over the last few years. And you know, he speculated, and I don’t think anyone really knows this number. But I think you asked him, What do you think that percentage ownership is of gold and precious metal mining shares on an institutional basis, and he said something less than 3%, it wouldn’t surprise me if it was less than 2%, or even 1%. There’s a very, very small percentage of holdings in a traditional institutional 6040 portfolio in this space. And there’s a lot of macro data and macro tailwinds for gold, and frankly, other real materials and commodities as well. He said the debt to GDP versus gold is very highly correlated. Well, Jett, he put up a chart that just showed debt to GDP going right off the charts, particularly since 2008 hotkeys there, Anna. And, you know, he also talked a lot about he he’s a strong believer that there’s an inflationary wave coming. Almost certainly true, given the fact that we’ve got very, very few other options other than to print more money. Ultimately, when we have our next accident, we’ve really had stick saves every single time since the the tech bust in 2000. The only real response has been to print more currency, and not just by our Federal Reserve, but by every central bank in the world. And there doesn’t really seem to be any other option, any, any plan B, it seems like we’re just gonna keep doing the same thing. And he talks about the gold to s&p ratio, what that does after yield curve inversions. Here, we sit today with, I think, the largest yield curve, inversion that we’ve ever seen. It’s just a really, really strange market. This yield curve has been inverted, it’s been inverted. For a long time, the amount of the inversion is at record levels. And he talked about how the gold to s&p ratio performs very well, sometimes by gold going up in the s&p going down. Sometimes, they both go up and gold goes up more, but no matter how it happens, following yield curve inversions. It’s it shows a very strong correlation.

Adam Taggart 34:10
Yeah. And Mike, sorry to interject, but I think that was the slide he said that the IMF reached out to him and asked him to explain it to explain to them or maybe even they asked him to prepare it for them and then explained it to them. But in looking at the chart, I think it shows you know how that s&p to gold ratio performs over the next two years, once 70% of the yield curves invert, which tabi said sort of happened like around November ish. And if you look at the trajectory of those charts, it shows you know that over the two years, that ratio really goes off to the races becoming much more gold favorable, but the real ramp up kind of begins to happen near the end of the first year. So it If indeed, history repeats itself here, because the key inversion moment happened in November, you know, he’s really expecting q3 But particularly q4 of this year to really be very strong for gold relative to the s&p. Again, no guarantees that history is going to exactly repeat here. But But from that data, which the IMF clearly was very interested in, we should be looking really closely at that time period for precious

Mike Preston 35:29
metals. Yeah, absolutely. And what an honor to be to be contacted by the IMF and asked for one’s opinion. That’s I think that’s huge kudos to Tabi. For receiving that inquiry. I’d like to just maybe finish by by sharing a chart of gold itself, because Tavi talked about a triple top I’ve read other people, I’ve heard other people’s opinions saying that, Oh, look, you gold’s putting in a triple top, that must mean it’s done that’s bearish. He points out the triple tops very rarely work in practice. And I think he’s right. In general, markets tend to punch through and test those levels, at least test those levels. And sometimes when they punch through and test them, they accelerate, very. So what we did here is we put both charts up together on top, there’s the gold chart, and this is a 20 year chart, a monthly chart. So it shows you a wide a long piece of history, going back 20 years on the top is the gold chart, we had the 28th 2011 top followed by a 10 year consolidation, bear market consolidation triangle. This is the first peak, it broke to the upside and failed, there was a bit of a fake out, that’s the second peak. And then over the last six or seven months, we’ve come right back presently trading at around $1,982 in the futures market. Anyway, this is a futures chart. So you got 123 peaks. Some people interpret that as bearish. Tavi thinks that these really work we agree with him, I think it’s quite likely that we break through here after some consolidation, a measured move, even just on a technical basis would add about this distance or about $500 An ounce to the breakout level and that projects to about $2,500. I think that’s the same number that Tabby used in his presentation. Maybe he arrived at that number differently. But we’ve been on this program saying pretty consistently that this to us looks like it’s a bullish consolidation, a high tide flag, if you will, even if it’s a sloppy one. And we think it’s going to break out to the upside and go to 2500. On the bottom, we’ve plotted GDX, which is the largest exchange traded fund that owns the major mining companies. Well, this is kind of puzzling, because even though gold has been at relatively high levels here, gold miners haven’t really participated as much. If you take a look at here, down below that they had the same bullish triangle consolidation, and a breakout, they did not reach the previous peak on that breakout like gold did above. And then in they actually had a much deeper reaction to the gold drop last year. And they’re just, if you take a look at this, they’re nowhere near where they should be. If you know, gold is back at its old high, I mean, GDX should be somewhere around 45. And if it was to test, its old high, maybe it needs to be somewhere around 55. So this is pretty puzzling. So either there’s something going on here, for instance, some people speculate that foreign governments are extracting more and more out of these companies, through tax levies, and in other kinds of controls. You know, certainly there’s been some disruption of capital by management in these companies by by investing too much or investing poorly. Or maybe, maybe the market just hasn’t woken up yet. And you know, frankly, if we break through 2100 and move higher, I think the market will will wake up and these these companies will snap higher. And I think Tabby mentioned that too. I know he did in his presentation saying that gold mining stocks, and this is the bullish perspective, I know. But gold mining stocks, particularly once we get a breakout here, we’ll play catch up, it’ll be kind of like the realization moment for these precious metal miners. So we see the divergence, Tavi sees the divergence. We do believe the market will wake up and bid these things higher. And you know, that’s what, that’s how we’re positioned.

Adam Taggart 39:41
Okay, thanks so much for going through all that. We’ve talked about this before. But if you’re interested in playing the miners here, because they’re a leveraged play on the price of the precious metals. When they move, they do tend to move really quickly. And so Mike, you’re saying In here, hey, given the current difference in performance between the base metals themselves, and the underperformance of the miners, if the miners correct to make up for that, by appreciating the way they should, given gold’s appreciation, you can see a real slingshot event there. And I’m just underscoring this because it’s the type of move that tends to happen so quickly, and guys, correct me if I’m wrong, but it tends to happen so quickly, that if you don’t have your position in advance, it’s a hard move to catch. You know, by the time it moves, the majority of the move is is over. If you were sitting on the sidelines, Mike, just want to make sure I’m not talking out of my ear here.

Mike Preston 40:43
Absolutely. It happens that way, particularly if this this divergence is simply because the markets not paying attention, right? And gold breaks to higher all of a sudden, investors gonna say, Okay, well, how can I invest in this, and money will flood into the mining sector, and it’ll happen very quickly, you might see something like GDX, go from 32 to 42, you know, in a relatively short number of days. Now, that’s not saying that you couldn’t buy higher up in the 40s and still make a good return. But it’s better if you’re a believer in this thesis, if you’re a believer in gold, silver and the prospects for it, it’s better to have a position. And we have a position, we have it, at least partially hedged. Because we know it can move quickly. And we really don’t want to be out of it because of that.

Adam Taggart 41:31
Yeah. And we were the three of us were in a meeting recently with some precious metals, mining investors. And, you know, I took away from that meeting the kind of the exasperation of one of the fund managers, they’re just saying, how unbelievably cheap some of these great companies were, that were in his portfolio. And he was, you know, basically saying, like, I’m super glad for me that I can be buying these things right now at this valuation. But it’s crazy, that the market is not yet giving these companies their due. So very much for a lot of the same reasons that tabi mentioned that presentation. So folks, if you’re interested in really diving deep into all the reasons for why there’s such a potential great buying opportunity here again, go watch that, that interview with Tommy’s. And if you’re interested in this space, and haven’t been an investor in it before, I do feel the need just to remind people, it’s a highly volatile space, you really get to know what you’re doing. If you’re picking individual stocks. If you’re just doing it yourself, I highly recommend you just play with the major indices like GDX, or even better work under the guidance of a professional financial advisor. Like the guys that knew Harbor that know this space, well track, it can put downside protection in like Mike mentioned there, that’s kind of the bread and butter and superpower that the guys that new harbor have is that risk mitigation on volatile positions like miners. So you can do that, or, you know, there’s lots of guys out there who follow this space and publish newsletters of their top picks. And I usually tell people look, rather than as an individual trying to pick the right best company, your focus really should be on trying to pick the right best expert to give you their list of top companies so that you’re basically letting them find the diamonds, you know, in the midst all the other garbage, honestly, that that’s there in the space. All right, John, we’ll come back to you and beginning to wrap things up here. You know, we talked a lot about, you know, some of the big challenges that capital managers are facing right now, in light of a lot of the concerns, but at the same time the market is in party mode. Have there been any material changes to your guys’s portfolio

Unknown Speaker 43:46
in the past week or two?

John Llodra 43:47
Most of the changes we’ve done have been in terms of adding or adjusting hedges. As we talked about earlier on, there has been a notable expansion of breath that we’re going to watch very closely. We’re looking for some follow through in some sectors like energy, industrials, and some of the sectors that have been laggards, frankly, we’re looking for some follow through on those and we may very possibly add some tactical exposure there. I do so with some belt suspenders with the hedging tools that we have the writing covered calls or collars, you know, all circumstantial based upon what we see when we see it. But we did for example, we we do have a tactical position in longer term treasuries, we agree with with Tommy and the big picture that treasuries aren’t the safety trade that they they once were, perhaps especially with the fiscal situation that we’re looking at, but we do think there is a shorter term tactical trade there and I’ll just share share charts just to put that in perspective.

Adam Taggart 44:48
Just real quick, when you say treasuries aren’t the safety trade they once were, you’re talking more about longer dated treasuries, right?

John Llodra 44:54
Exactly. And the when I talked about safety that they once were there was a time where we’re Folks considered bonds and treasury bonds as the counterpoint to equities, you know, when one went down the other one up and kind of, in other words, the Save head safe hedge about declining stock markets, that that has been distorted beyond belief in our opinion. But we so so you know, we’re in a new regime the last 40 years, if you look at 19, early 80s, through about a year ago, interest rates basically dropped, and that was a great four decades to be a bond investor. We think there’s been a sea change, to borrow a phrase buy from Howard Marks one of the legendary credit investors, where we’re gonna see interest rates higher for longer, certainly not static, there’ll be ups and downs. But this is not an environment where we’re bonds will will have the wind at their back like the last four years as as they’ve enjoyed. This chart, here is a chart of TLT, which is an ETF that holds 20 plus year treasury bonds, we do own a position in this or similar holding to this for clients. And it’s not a recommendation to viewers here. Obviously, you want to do this based upon your your own situation. But what we’ve seen here is a this is a daily chart, you’ve seen a pretty, you know, set out range here between about 100 and 110, we’re at the lower end of that range, we actually added a little exposure for clients that were underweight our roughly 50 per 15% target. And we did add some hedges though, because if we take out this lower range, it very well could see another revisitation for the low 90s here. So we did put a hedge in on at least part of the pitch position where we’ve bought some put option protection, just a tiny bit below this range, and we paid for it by selling some call. So we are still very much thinking this is a sound, tactical trade, we would not be surprised at all to see that retest the upper range of this bound, and possibly breakout above it. But we do need to pay attention to the potential breakdown here. And we did add some hedges in that regard. But again, we’re really looking broadly across all sectors and we cannot ignore the valuation and speculative kind of data points we’ve seen here. But we are looking for improvement and some of the sectors that are much more compelling via valuations have structural fundamental tailwinds. But things like energy, industrials, basic materials, and we’re looking for some some improvement there. And we may very well add some some tactical exposure there, if we see some follow through.

Adam Taggart 47:47
Okay, just for folks that didn’t see the tabi, Kosta presentation and don’t necessarily have the nearly two hours to sit through it all. I just want to run through Tommy’s commentary in terms of his his counsel on what to look at and how he’s managing his portfolio, because I believe it’s largely similar to you guys. And Mike, I’ll ask you to validate this. On the short side. He said short, the mega caps, you know, the big thing stocks, the AIS that have had such a big run up, short PE private equity, short corporate bonds, and short, high cost of capital companies. And that’s largely because like you said, John, you know, he’s expecting that we’re in a sea change, we’ve gone through a sea change, we are in a new era, that’s just going to have a higher cost of capital going forward. And then here’s what he’s long. He’s long volatility, he’s long commodities. He goes through the major ones, the precious metals, we’ve already talked about. He talked about the electrification metals being in really high demand for a good long time, especially, you know, for many trends, but big one is, is all the trillions and government infrastructure spending that’s going on. fossil energy, oil gas, he thinks are dirt cheap right now, and maybe even gonna get dirt, even dirt cheaper, dirtier and cheaper for a little while. But he thinks that capital is going to flow back into that space again, with a vengeance, agriculture. He talked about biotech, for reasons we agreed we’d go into deeper in a different day. But he also talked about, you know, he’s bullish on resource dependence, a resource producing economies, particularly economies that produce lots of these commodities that he thinks are going to be in demand. South America is a big region that’s rich in a lot of countries like that. Brazil is particularly a country that he thinks is really high prospect, and that’s been doing well of late. I know you guys have some exposure to Brazil. But so tabi sort of talked about, you know, seeing lots of opportunity outside of the US. Peter boockvar also said that that’s where he expects some of the bigger gains to come from going forward and that’s where he He’s looking at much more closely these days. Mike, I just want to give you guys a quick opportunity to react to that.

Mike Preston 50:08
The valuations are better number one, Adam. And secondly, they tend to be countries and economies that are that produce a lot of commodities, real things, things that make sense going forward, Tommy shared a chart, I believe, and it’s also in his presentation, it showed the commodities to equities ratio chart, and it’s a long, it’s a long time span. And we are at extreme levels, in terms of commodities being very, very low relative to financial assets, or s&p. That chart alone is pretty compelling. You can see that that chart goes in cycles, it’s clear that financial assets are dramatically overpriced because of years of quantitative easing and money, money printing. So it’s likely for a lot of different reasons that commodities will do well, emerging markets tend to produce a lot of commodities that should be good for people that invest in those emerging markets. Tavi is originally from Brazil, I believe it’s one of the one of the it is, I think, the biggest country by landmass and South America. There’s a number of other countries that are investable in South America, Brazil, Colombia, Mexico, in Chile, I think were the four that were mentioned by another guest on your program a few weeks back, there’s exchange traded,

Adam Taggart 51:26
we’re gonna get people saying that Mexico is Latin America, not South America, but Well, that’s the geographers away. Yeah, exactly. that were mentioned.

Mike Preston 51:34
Yeah. Yeah, Latin and South America kind of go in, in the same bucket. But you’re right, absolutely Mexico, Brazil, Colombia and Chile. So there should be lots of potential opportunities there. And there are ETFs that you can buy that, you know, have exposure to the whole group, you don’t really have to pick a single country, we happen to be in Brazil right now. We really liked the chart. We liked the fundamentals there. We liked the dividend yield, and it continues to perform. And so you know, lastly, we just we do remain very, very heavily in cash equivalents. I guess I’ll point that out. We’re over 40% in cash equivalents, we’re probably going to be putting a little bit of that to work pretty soon with some of these short term technical indicators reversing up. We’re not at all bullish in the intermediate term, certainly not long term. But, you know, this market has refused to go down and some of the short term indicators are pointing up. And so we’ll be looking to add exposure in places that make sense. And it could be more in places like this, potentially more emerging markets. Or it could be some of the old school industrials that John had mentioned, a few of the sectors, particularly industrial sector, material sector, you know, that we’re probably going to be the areas that we focus on going forward in the near term.

Adam Taggart 52:59
Okay, great. All right. Well, real quick, I just wanted to note that that chart of commodities, versus the s&p, it’s showing that we’re at this sort of historic trough and perhaps about to have a commodity supercycle burst to the upside. I believe that chart was initially put together by Marin Katusa. And I’m just flagging that, because he’s going to be one of the guest experts on this program next week. So if folks are marine fans, you’ll be happy to hear he’s coming on. All right, John, I’m gonna give it to you just to sort of walk us out here. Any bits of parting advice for viewers, especially based upon the conversations that you guys are having every day with clients and potential clients calling you and you know, just anything reflective of the gestalt of the, the mindset of the people that are reaching out with questions or concerns these days?

John Llodra 53:48
Yeah, sometimes we can get buried in charts like we did today. And sometimes that’s helpful. But it all comes back to the people and the lives that are people’s our clients live. We’ve had a vast array of conversations this week and every week had conversations of young people about life insurance and their growing family. We’ve had conversations with people who have sold businesses and are looking for a safe and sound way to entrust and steward the capital of their hard labor as represented their business sale. Folks have come to us with portfolios heavy in stocks, but also perhaps heavy in unrealized capital gains. So we’ve worked very closely with them to help them direct but also be very mindful of of tax consequences. These are just kind of a sampling of of the the real life kind of counsel that we give our clients and it was what makes it really special for us to be able to do what we do. But you know, people are confused. They see the head Lions the, the, you know, they don’t believe what they see many of them they’re seeing a shadows or ghosts of prior Manias, especially, you know, when it comes to things like AI. And we help them by, you know, illuminating that through data and perspective as to where we likely are and what it means for their, their lives. And their and their hearts are harder and saving. So yeah, I mean, just every day is a new day and what we do for clients, and we’re thankful we get to work with folks on such a intimate matter in their lives.

Adam Taggart 55:35
All right, well, look, folks, one of the big reasons why we have John and Mike on this program every week is to model to show you what a financial advisor that takes into account all the macro issues that we discussed with our experts every every week on this channel, how they think the day to day look at the considerations they make when determining how to make portfolio allocation changes. And we highly recommend that you, you know, especially if you’re confused, like John says most of the people that are calling are very understandably confused about how to manage their wealth through this very muddy time to use Michael book bars terms, I highly recommend that you work with a good professional financial advisor and one that takes into account all the macro issues, challenges and trends that we talked about here. If you’ve got a good one great stick with them. If you don’t find one that looks like John and Mike, or if you want to talk to John and Mike directly, you can just go fill out the short form@wealthion.com. And you can have a free consultation with them or with whichever Wealthion endorsed financial adviser is most appropriate for you. Those conversations are totally free. There’s no commitment to work with these guys. They just offer it as a free public service. Alright guys, we’re gonna wrap it up for this week. Thanks so much. Very quickly for folks, just want to let you know, if you haven’t heard already, Wealthion does two online conferences every year, we’ve just locked in the date for our fall conference, it’s going to be Saturday, October 21 2023. There’ll be many more details about that coming up as that that date gets closer, but I just want to let you know it now. So you can mark it in your calendars and block it off. If you can’t watch live that day, don’t worry, everybody who registers for it is going to get replay videos, every single presentation and all the q&a. So don’t worry about that. But it’s going to be great. And we’ve already locked in a couple of great guests, including Lacey Hunt is going to return for another keynote. And if you’ve seen any of our conferences in the past, you know that that is worth the price of admission, alone in and of itself. Jim Grant is going to come on as he’s already signed on, we’ve got another slew of big names that I think you’ll be really excited about. Hopefully, in the next week or two I can I can share with you that that we’ve locked in agreements with them as well, but the roster is coming along great. This is going to be an amazing, amazing conference. With that said, John and Mike. Thanks so much, folks, if you enjoy these weekly recaps with these financial advisors, and just enjoy everything that we’re doing here at Wealthion. In general, please support this channel by hitting the like button and clicking on the red subscribe button below, as well as that little bell icon right next to it, John and Mike, guys, thanks so much for joining me. I’ll see you here next week.

Mike Preston 58:19
Thank you, Adam. We’ll see you next week. A lot of fun once again, Adam, see you soon.

Adam Taggart 58:24
All right, everyone else. Thanks so much for watching. If you’d like to schedule a consultation with one of the financial advisors at new harbor financial simply go to wealthion.com. These consultations are completely free, and there are no strings attached. The good folks at new harbor was simply answer any questions you have about your investment goals or your portfolio and give you their best advice given their latest market outlook. They’re willing to do this because they care about protecting people’s wealth. And because Wealthion has connected them with so many thoughtful investors just like you over the past decade. We started doing this because so many people have approached us in frustration looking for a solution because they’re feeling out of alignment, or downright ridiculed by the standard financial advisors who have been managing their money. You know, the type, the kind that just pushes all of your money into the market. scoffs at the idea of owning gold. And when you bring up concerns about the market sky high valuations, they say don’t worry, the market will always take care of you. For many of the reasons discussed in today’s video, we think this is one of the most challenging and treacherous times in history for investing. We strongly believe that today’s investors are best served working in partnership with a conscientious professional financial advisor who understands the risks in play. Now we’re agnostic, which professional advisor you’ll work with, as long as they’re good. If you’re already working with one that’s fantastic, stick with them. But if you don’t, or are having trouble finding one you respect or trust, then consider talking to John and Mike and the team at new harbor. For those about to ask yes, there’s a business relationship between Wealthion and new harbor, which we’ve put in place to make sure everything is handled according to SEC regulations. All the details on this are clearly provided on the wealthion.com website. Also, it’s important to note that new harbor is able to work with US citizens, green card holders, and those with existing assets in the USA, but for regulatory reasons, they aren’t able to take on non US clients. All right, with all that said, if you’d like some insight and guidance on how to protect your wealth during this unprecedented time in the markets, go to wealthion.com to schedule your free consultation with the good folks at you harbor. Thanks for watching.

Transcribed by https://otter.ai