In this Weekly Market Recap, Andrew Brill reflects on the interviews that took place on Wealthion over the past week in another Wealthion Weekly Market Recap!
Andrew Brill 0:00 Hello and welcome to Wealthions weekly market recap. I'm your host Andrew brill. I hope you had a nice and safe Independence Day holiday. Well, the Fed cut interest rates in September. That was one question Peter Boockvar addressed when he joined Wealthion this week. He also spoke about the possibility of the market being in a bubble with stocks being overvalued, the state of low income families and being budget conscious, and also gave us a hint about commodities being a good buy right now. James Connor 0:36 Peter, I want to start our conversation on the US economy, the q1 GDP was revised down from 1.6 to 1.3%. This implies a slowing economy. Walgreens recently announced that they're shutting down over 2000 stores. And one of the reasons is because of the weakening consumer. And the CEO did state that he continues to see persistent pressures on the US consumer. And we've heard this same sort of scenario coming out of Starbucks, and also McDonald's. What are your thoughts on the US economy and maybe you can also share your thoughts on how you think the US consumers doing? Peter Boockvar 1:11 Yeah, the comments were widespread amongst all retailers and restaurants and anybody selling consumer products, based on all the earnings calls that I've listened to over the past few months. One of them were sort of sad, but interesting. comments came from a company called KC general stores, which owns a bunch of convenience stores in the Midwest. They said the higher income consumer is doing fine when they pump gas or hop into their mini mart and, and buy stuff. But they gave an example of lower income consumers that are buying more fountain soda, instead of buying bottles out of the fridge. To save money, I mean, you're talking about saving, what 50 cents, maybe. So that tells me just know how value conscious and deal seeking a portion of the consumer population is. And it's not just low end, it's it's middle income, it's those that are making more than 100 grand 150 grand that are now you know, shopping at Walmart or going to Dollar General, because they're looking for bargains and in fact, Walmart at a bank of America conference, use the same word that I've heard from them from the CFO there for two to three quarters now, and was choice PFL. And consumer being again, budget conscious and prioritizing their spend on needs more so than wants on non discretionary things, more so than discretionary things. But all that said, we also had great numbers from carnival, saying that their earnings and their revenue and earnings and bookings and yield are at record highs and they have pricing power and business seems to be great, because they're catering to both a budget consumer for those that want to travel, lower cost, but also baby boomers and other retirees that are benefiting from a higher stock market 5% interest in common on their savings. So it is a very bifurcated sort of two lane consumer highway that we're seeing. And I think that can be said for other parts of the economy too, reflecting overall a very mixed and uneven economic situation right now. James Connor 3:40 So now that inflation is at least heading toward the Feds 2% target rate. The the Fed had a meeting in June, they left grades unchanged. We have another one coming up at the end of the month, I believe on the 31st. Do you think we'll see the Fed cut rates this month? Peter Boockvar 4:01 They won't cut rates in July. But I'm beginning to think that they could cut in September because a few fed speakers, including Powell, at that press conference at his last meeting did highlight the growing importance of them watching the labor market and the unemployment rate as something factoring into their debate on rates where for the last couple of years, we know it's all it's been all about inflation. And if you start to see, well, 4% unemployment rate we know is historically low, but it just so happens to be a two and a half year high. So if that all of a sudden starts to creep up ahead of that September meeting 4.1, 4.2, 4.3 whatever it is, because we're also seeing lessening demand for labor and the continuing claims data of pickup and firings and in the initial claims data, job openings that are shrinking, that if you get a further increase in the unemployment rate here, I think the Fed might try to squeeze one in in September now. They'll likely Telegraph that A Jackson Hole in August. But I do think September is a growing possibility. Whereas before, some commentary from like Mary Daly, for example, over the last couple of weeks, I was thinking, You know what they don't want even bother with the with the election, they don't even want to be perceived as being political. They're just going to wait till December. I think a 4.2, 4.3 unemployment rate is going to sort of pressure them to, to cut, but also couching that into similar to way the ECB did, as a hawkish cut that letting the markets know that this is not the beginning of a long string of rate cuts. But if it ended up being the beginning of a string of rate cuts, that would be because the economy is really rolling over. So I don't think we want to wish for that. James Connor 5:45 So it sounds like you have a big waiting toward commodities, your long energy, uranium and copper, what's your thesis there? Peter Boockvar 5:52 So copper, it's certainly a supply demand story. We know the growing demand for copper is not as is not no longer Chinese construction of apartment buildings, that it has obviously found some new use cases. Precious metals, it's, well silver is half the demand for silver is industrial. So there's some overlap there in terms of benefits that coppers deriving from that also very much bullish on the monetary side of, of gold and silver. Just because of the rising debts and deficits of the US, the growing central bank demand for metals, the growing demand. In terms of trade outside of the US dollar, like the Chinese buying oil from Saudi in renminbi buying oil and natural gas from Russia, in renminbi buying corn and soybeans from Brazil and Australia, I'm sorry, Argentina, in renminbi India buying oil from Saudi Arabia and rupee. To me, that's a very interesting, interesting dynamic, where dollars or less dollars are getting recycled, and US Treasuries. And whatever's left over, gets bought in the gold mining got the gold market. So to me that's interesting, AG has been beaten up. And we had own like mosaic of nutrients who fertilizer names going into the Russian invasion, and we sold it on that spike. But both stocks have gotten cut in half since we've recently reenter them. Think believing that crop prices are cheap. And there's an opportunity here where you get a good dividend cheap valuation. And believe that this kind of environment, it's pretty good opportunity because I prefer looking at things through a value lens. And that's what attracts me to names like that. Andrew Brill 7:46 We talked with Nick Colas of Data Check Research about the recent presidential debate, and what reaction markets might have. Nick also tried to explain why economists and market analysts see a completely different picture when it comes to the economy. And he explained how the debt hasn't yet affected the bond market. Now, Nick, I want to ask you, we talked a lot of economists. And then we talked to a bunch of market evaluators like yourself, market analysts. And if you talk to economist, it's gloom and doom recession is coming doesn't matter what you do, it's on its way. But when I talk to you, as a market analyst, you're like, No, actually things are looking okay. Why is there such a discrepancy in the numbers or in the way people look at the numbers? Nick Colas 8:34 I think the biggest reason is that the stock market doesn't discount GDP. It discounts corporate earnings. And that's a big difference. So an economist can be pretty cautious on the economy. And I can totally understand why things are beginning to creep higher and unemployment, the labor markets weakening, growth is weakening, but corporations managed through those problems they managed through in order to create higher earnings. That's just what they do. And so the stock market can work reasonably well. Even if the recession is slowing. And there's a risk of the economy slowing there's a risk of recession, because corporations are working to tighten the belts cut costs, and generate earnings growth. And that's what stock markets discount. It's GDP is interesting to the stock market. But it has no effect really on corporate earnings unless there's a big recession. And because of that the stock market will look at earnings and cash flows, and returns on capital in which businesses are doing best and shuffle capital off to those. And if it means in the case of what we're having now, we have a handful of companies doing extremely well with very high earnings with extremely high return on capital, that those groups are going to work and drag the market higher. Andrew Brill 9:36 You know, we just got through the first presidential debate, and obviously earlier than we expected. Do you see a switch? You know, we we read that we see the news, we read all about how each candidate did and I won't get into that but do you see a switch in different stocks that are sold off or bought because of what happened in the debate and what you know Everybody thinks is going to be elected president. Nick Colas 10:01 I mean, there's some obvious sort of churning names like the Donald Trump's SPAC. So on a single stock level you absolutely do. At a broader market level, it's more of a macro dynamic. We were just in in Europe visiting with with a lot of institutional customers and to a meeting, every single meeting, the first topic was the US elections. Now part of it's because we're a US based firm, and the European investors want to hear our point of view. But it was very clear to me that a lot of them are just not going to invest a lot in the US incrementally until the election is over. So creates a bit of a freeze on global asset flows, because they just, they're very sensitive to economic and political disruptions. We saw that in the UK, we saw that in France. And they feel that the US they'd rather just waiting to see who wins not just the presidency, but also Congress before they make a lot of incremental investment decisions. So it could create a bit of a near term freeze on global capital capital flows into US stocks simply because not that they're looking for bad news or worrying about what might happen. They just want to know what is going to happen. And that kind of uncertainty has a tendency to reduce investor interest. Haven't heard that as much from us clients, yet. They're still focused on you know, how do I beat the market in the third quarter? But it definitely from a global perspective, I see that happening. It's a bit of an interesting dynamic where again, they're not worried about one candidate winning over the other, just want to know who's going to be in charge. Andrew Brill 11:24 Let's talk about bonds and interest for a minute, the debt, Nick is gone crazy. And it's going to cost us down the road. But obviously lowering interest rates is going to help the debt rise slower, I guess, then, then it has been how do we get out of this rut? And you know, where and who is worrying about the debt? It seems that double if both these candidates will continue to spend, our debt will continue to rise. And it's going to create a an even bigger problem than it is now. Nick Colas 11:56 Yes, it's a super important dynamic, I make two points. The first is, what's really interesting about this latest round of incrementally, much larger federal debt, isn't it yet hasn't yet really affected bond prices. So if you look at real yields real X inflation yields over the last 20 years back to 2004, or five, six, you'll find that real yields are no higher now than they were pre financial crisis or anywhere on 2%. So if you think inflation expectations have a little bit over two, and real yields make the balance, you get to the four and a half percent 10 year yield that we have now. So real yields are no higher than they were pre financial crisis when you think they would have because pre financial crisis, we're reading 60% debt to GDP, now we're doing 120 nominal. And yet, yields are not reflecting any kind of incremental risk. We also see it in the corporate bond market. So again, you think that if people were worried about the federal debt, they might want to buy triple A double A corporates, because they're very safe. And they're very well run companies with great competitive advantages, great cash flows. And yet the spreads of triple A's, double A's, single A's over treasuries are just as the same level now as they were a pre financial crisis. So the market has not yet incorporated the federal debt problem that we all recognize into bond prices, because the dollar has remained the reserve currency, if the dollar is caught 34% since 2010, versus a basket of other currencies. So there's nothing yet triggering markets to acknowledge that the debt issue is a serious one, a bit similar, because the dollar is still the world's reserve currency, fiat currency. So we're not yet seeing the tension and markets that you would expect, given these very large deficits. And that's both a good thing and a bad thing. The bad thing is it doesn't create any catalyst for change, which I think we would all agree the US needs. On the positive side, it does maintain the government's ability to borrow which is very important for economic growth. You know, more broadly, the issue about the debt is, again, this comes from conversations we have with a lot of European investors, they don't so much mind that debts, because they feel the US economy is better structured than any other global major global economy. So it's the Switzerland, the Swiss have a great economy, but it's a very small, the US has a very strong economy with a lot of innovation, a lot of growth, and a lot of systematically important companies. And they see that is kind of the offset to higher federal debt levels. So yes, they would also like the debt to be lower, they think it's kind of unwise to issue so much debt, but they recognize that the money goes into the US economy, which is still the best structured economy in the world, both in terms of its labor force, flexibility, and in terms of innovation. So we end up with a situation where, yeah, that that is crazy, but at least he's going into the US economy, which is by and large, a better structured economy, both for the current and for the future than anything else in the world. And the issue with capital is it has to go somewhere and so capital chooses destination, and it's still us choosing the US even with the debt even in spite of the debt, because the other dynamics in the economy are so good. Andrew Brill 15:05 We get asked all the time about crypto currencies. So Anthony Scaramucci turned to expert John D'Agostino of Coinbase to get his thoughts on how to avoid scams when it comes to purchasing cryptocurrencies. John also pointed out there's a lot of misinformation out there regarding crypto, and how to educate the misinformed. He also said the story on the crypto ETF and having has not yet played out. Anthony Scaramucci 15:32 To the extent you can comment on us regulation, if you can't, that's fine, because I understand the situation with the company. But the extent you can comment generically on us regulation. Please do if not, I'll go to another question. John D'agostino 15:47 Generically, because Coinbase puts out public statements on it, I made, you know, and I'll say my personal opinion, which I think aligns well with with the overall corporate view. You know, I believe that the average person who works at a US regulator wants what's best for this country? I generally do. I know, I thought that that's not very popular and crypto is its attempt to demonize the entire staff. I think that's wrong. And I don't think any more from Coinbase has done that. And I, I admire them for that. I think that it's scary for them. Faced with the new technology, and faced with the burden, they have to protect protect markets. I think that they've gone astray. In terms of the direction, I don't ascribe any malicious intent to that personally, I think that it's how it's that that bad way of governing is losing, I think it's clear that it's losing, its losing in terms of the market is telling them that it will survive, regardless of what they do. overseas markets are saying we will gleefully bring this business in. You know, one of the conversations I've had recently, which which, which struck someone I think is fairly compelling at that level was, if you could go back in time, 50, 75 years. We had a time machine, go back in time and say, okay, and you can grab whoever whoever's in charge at that point and say, hey, you know, I know you guys don't think that computers are going to be a big deal. But just in case, you're wrong, maybe it's not a great idea to have all semiconductor fabrication occur on a small island at arm's length from China. Like, just maybe we want to rethink this just in case, this computer things not a fat, virtually 100% of people say yeah, that would probably have been a good idea. And so when you frame it that way, when I when I meet somebody who's bizarrely antagonistic to math, and that's really what it is, if you if you hate long, if you don't think Bitcoin is a good asset to buy or sell to own, we can have an intelligent discussion about that not everyone believes in every asset. If you think that it's a Ponzi scheme, or you think that it's, you know, has a higher probability of fraud. You're either you're either misinformed or using you're using weaponized misinformation, which some people absolutely are there. They're smarter than that. They're aware of what's going on. They choose to weaponize misinformation, Bitcoin and crypto as a tool for money laundering for terrorism. The classic example of weaponized misinformation we know demonstrably, it's not true. So if you're faced with that, you know, that that type of misinformation, I think you either have to, you know, if it's the first type of misinformation where someone's just genuinely unaware, you educate them. If you're faced with weaponized misinformation, you have to just fight back through either litigation or or through the political political means or through public appeals. And I think the industry is doing that very well. And so I think the industry is winning overall, I'm disappointed in the reaction. I think of regulators when seeing that the markets are demanding something and seeing that they're working, I think they should, in the face of that information, reevaluate their position. That doesn't seem to be happening here. So that's disappointing, but I'm very, very confident that the smart good people at these regulators will continue to do their work. And then over time, we'll see the US gain game back prominence in in this in the sector. Anthony Scaramucci 19:07 I'm gonna push this narrative on you and just test you. Peter Thiel, an early investor in Bitcoin made a fortune off of Bitcoin said at the Aspen Ideas Festival last week that he thinks it's done. It's fully valued the ETF story is played out the having story is played out. There's no more incremental investors in Bitcoin is sort of done not that it's gonna go down, but it's sort of gonna plateau in value here. How would you respond to that? John D'agostino 19:39 I guess it's easy to say when you've when you've caught the initial wave. And by that I wouldn't say those people invest in Bitcoin because they think it's gonna go up another 10,000%. That's silly. You know, I haven't seen his full comments but I'd counter that with you've got really, really smart macro and macro guys like Bob Elliott on Twitter talking about rewriting neutral inflation expectations from historical 2% to 4.5, 5%. What does that do for risk assets? Like the coin? You know, do you think we're moving into an era of increased stability on this planet political or otherwise? No, I don't. We haven't. Anthony Scaramucci 20:17 You know, so unfortunately, no time soon, I don't I don't see an era of you know, I mean, just terrible, say, but it's just not anytime soon. John D'agostino 20:28 What I respond to is it's that analysis sounds like the analysis, we hear every four to five years about crude oil. You want to if you want to laugh, google Forbes, I think it's Forbes or Fortune magazine covers about crude oil for the last 30 years. Every two or three years, they do a cover saying we're awash in crude oil. Crude oil is going to zero. And then three years later, there's the same cover, except it's a desert. We have no more crude oil. It's going up forever. Right. So that's the nature of these commodities. Anthony Scaramucci 20:56 They do that a lot. Unfortunately, I'm trying to understand that. I mean, they did that to us in the 80s. They told us that we were running out of oil, they said it was well theory that we're running out of oil. And then of course, we didn't run out of oil. You know what I mean? John D'agostino 21:10 Yeah, so the scarce essential assets. And again, it depends if you believe I believe Bitcoin is a scarce essential asset. I think if you live in a part of the world, where the government could just break down your door, hang you up at a hotel beat you until you give you their money. Having an immutable, storable fungible store value is scarce and rare, scarce and valuable. And if you believe that, then we'll go through these peaks and valleys but the long term pressure should be consistently up. Now his argument is we're not going to have another 10,000% appreciation. We can have a discussion about that. I don't know how I feel about that. But but but to argue it's done. You know, that's a bit of an entitled argument. I think that it's maybe done for you, but I don't think it is done for all the parts of the world that need it. Andrew Brill 22:01 This week, we also put together a new video on how to purchase T bills directly from the Treasury Direct website. So fIying T bills is something you're interested in. This should give you the tools to do so. This is a quick video as part of our Wealthion Academy on how to buy very short dated US Treasuries known as T bills directly from the US Treasury. Using the Treasury Direct website. T bills are offering yields around 5% investors who are concerned about the volatility of today's financial markets, you have somewhere safe to park capital, keep it relatively liquid and can't pay again and get paid a decent return on it. Until recently T bill yields has been at record lows for much of the past decade, down near 0%. For many years, you can see from the chart, the last time they were this high was 2006. And with the inflation rate as measured by CPI falling T bills offer a positive real return when adjusted for inflation. I can't tell you how many times we've had viewers investors say I'm too spooked by the turbulence of today's uncertain markets. If I could just find a safe place to get four to 5% return on my money for the time being, I'd be thrilled. Well, that's possible given where short term yields are. T bills are a particularly attractive option right now for folks with cash sitting in bank or money market accounts. According to bank rate, as of the filming of this video, the national average yield for savings accounts is just point five 8%. It's pretty awful and low. While the Fed has raised the federal funds rate faster than at any time in history over the past year. Most banks haven't followed suit, they've been reluctant to raise their yields on savings accounts, money market accounts and CDs. Even though the Fed dramatically increased the interest rates that banks receive on excess reserves. They're just keeping the difference to themselves rather than sharing it with depositors. Not exactly fair, since you're depositing your money in their bank. But as the saying goes, sometimes life isn't fair. And while you can find some banks mostly online ones offering generous, generous rates, they still they're right around what T bills are offering right now. But those rates will go down as soon as the Fed starts to cut rates. And those lower rates also come with Counterparty Risk greater than that of owning a T bill. So we here at Wealthy on are going to show you how to purchase T bills directly from the Treasury Direct website. The same process can be used to buy longer duration US Treasuries, notes and bonds also, but this wealthy Unacademy video will be geared toward the short term treasury bill. You can also buy and sell T bills through a brokerage account. But there could be other fees involved that you don't pay on the Treasury Direct website. There are differences between using Treasury direct versus brokerage platforms to transact and with T bills. In short, Treasury direct gives you more options when purchasing them and brokerage accounts are more convenient when it comes to selling But for most people selling doesn't come into play very much because of the short duration that T bills have. In most cases, you just let the T bills mature and get your full principal back at the end. As a quick rule of thumb, using Treasury direct makes sense when you've got cash in the bank, and you want to earn a better return. I'll show you how to link your bank account to the Treasury Direct website. And once that's done, that Treasury will put the funds from your bank account to buy the T bills, and that deposit the full amount back into the same bank account or another account of your choosing on the date that the bill matures. If you have cash already in a brokerage account, you want to buy treasuries with them, it probably just makes sense more sense to buy the bills through your broker. Thank you for watching this week's recap, don't forget to head over to wealthion.com for a free no obligation portfolio review with one of our registered investment advisors. And please follow us on social media for the latest news and information to help you invest wisely. If you haven't done so already, please make sure to like and subscribe to our channel and don't forget to hit the notifications bell so that you never miss a video. Thanks again for watching. Until next time, stay informed, be empowered, and may your investments flourish. If you like this content looking for more ways to keep growing your investments. Watch this video next.
