What’s More Likely: Impending Correction Or New Bull Market?

Adam Taggart 0:04
Welcome to Wealthion. I’m Wealthion founder Adam Taggart welcoming you back for another weekly market recap featuring as usual, my good friend Portfolio Manager, Lance Roberts. Hey there, Lance. How you doing, buddy?

Lance Roberts 0:16
Hey,glad it’s Friday ready for the weekend fo sure.

Adam Taggart 0:19
Yeah, yeah. Well, it’s not a dull week. And look, folks, this is going to be a really organic discount particularly organic discussion today because Lance, I recorded a special report earlier before our recording here with John Maxfield and Joseph weighing on getting the latest on what’s going on in the banking system. Those are two very experienced banking analysts. I’ll try to weave in some of the conclusions of that in this conversation, but did not have the chance to do my usual pre prep for our meeting here. So we’re literally going to be just we’re gonna wait it winging it operating without a net. But

Lance Roberts 0:58
what could possibly go wrong?

Adam Taggart 1:03
I’m kind of interested to find out actually. But lots of things to talk about this week. Let’s start with probably the one that’s going to have the most weight, which is the latest FOMC announcement. The FOMC met, they hiked another 25 basis points, which was largely expected Jerome Powell then came out and talked for a bit. You know, markets, kind of Aquila rated for a bit. But then on Friday, they decided they really liked what they heard. And of course, there was a big jobs report and big jobs number that came out. What did you take away from from the Fed part of this week?

Lance Roberts 1:45
Well, so first of all, when the Fed came out and made their announcement, the markets didn’t actually like that we sold off on Wednesday, we sold off on Thursday. So those two days the markets really kind of took it on the chin as they realized that hey, the Feds not going to be yes, the Feds not gonna hike rates anymore. But more importantly, there is absolutely no indication that they’re going to be cutting rates anytime soon. So that was pretty much a big disappointment to the markets Friday the market rally because we have basically seven stocks that drive the market. Apple is one of those. And blockbuster earnings report on Friday, revenue still fell, by the way, they just weren’t as bad as expected. So that was worth five points on Apple, which makes up a big chunk of the s&p return for free. Yeah. And

Adam Taggart 2:26
when I read that, right, I saw the stock pop. And then I heard, you know, wreck amazing quarter for Apple. And then I went and looked and said, well, actually revenues were down. But they were down from they were above expectations. And I was just hearing you in my head saying Millennials earnings season now it’s millennial revenue season.

Lance Roberts 2:47
Exactly. Yeah, no, exactly. Right. Everybody gets a trophy. But, you know, look at the market was getting oversold on a short term basis. We’ve been, you know, kind of selling off. You know, remember week before last we talked about getting ourselves signals. We have reduced equity exposure at that point, the markets been trending lower over the last week and we actually bounced right off that downtrend line from April. So very importantly, from a bullish perspective for the markets, despite you know, banking crisis in the Fed and employment reports and whatever else, this market continues to act very bullish Lee, we’ve wrote multiple times now we have come down, tested the 50 day moving average tested that downtrend line from April have bounced off of that with some volume and some strength and that’s the important message here. With this, the rally on Friday was a little bit broader in nature than we’ve seen lately. Now breath for the market overall remains pretty anemic. And so that’s one kind of concern as we head into summer, that we have a very small handful of stocks kind of driving the markets, but you know, but from a technical basis, the market continues to act bullish Lee. So we have to give that some some bias in terms of our portfolios. Okay.

Adam Taggart 4:04
So and I take it from your position from a technical standpoint, the more it goes down and tests that support and then then rebounds. That’s that those are bullish signals that okay,

Lance Roberts 4:17
yeah. So think about this way, you know, if, you know, as markets come down, and they test a previous level of support, right, so let’s think about, you know, building a bridge, so to speak, right? So, market comes down, test, that first level of support wherever it is, and that’s kind of one board for the bridge. And then we come down and we tested again, but we don’t break it, we added another board to the bridge. So every time that the market comes down or retest these support levels, it’s building on that support, because what’s happening is is that all the market participants are starting to key in at that level. And so as all the algorithm think about all the algorithms, all retail traders, everybody else they say, oh, every time we come down to this level, the market bounces. So I’m going to be a buyer And that’s where that by the mid that kind of that buy the dip mentality starts to really kind of build a base. And so every time we come down and test these levels, buyers are willing to step in and buy the market. And that’s why these technical support levels are important because it tells you where buyers are sitting and willing to buy, right. So when you have sellers that are willing to sell prices are coming down, but there’s buyers sitting here at this price down here going well, when you get down here. I’m willing to buy it from you. And that’s how markets work.

Adam Taggart 5:30
Yep. Okay. All right. Well, look back to the Fed for a sec. So they hike 25 basis points. Powell, to my recollection, said, as expect, as I expected, you know, he basically said, Look not committed any more future rate hikes from here, we’re going to take a wait and see very data dependent approach. Right. And I think that’s largely, you know, beginning to lay the air cover for like, Alright, folks, you know, don’t be surprised if you get a pause, you know, next time we meet, um, you know, it’s kind of interesting.

Lance Roberts 6:01
Can I just say one thing? So two things happened in that Fed meeting that were very important. So first of all, he’s he did make this statement that we’re going to start focusing on incoming data, right? Yep. This employment report on Friday was 269,000. Way above estimates, but most importantly, the employment cost side of that the wage growth side of that was very strong, it was up half a basis point. So incoming data suggests that the Fed needs to hike rates more. So, you know, while the Fed said that, you know, kind of gave this hint that they’re pausing, it was more of a hawkish pause than it was a dovish pause. It wasn’t it’s wrong palette, come out and said, ladies and gentlemen, why can 25 basis points, we believe that interest rates are now sufficiently restrictive enough to bring inflation down to our target rate hit they had said that now that’s a dovish pause that pretty much says we’re done. He didn’t say that. He said, we’re now going to We’re hiking 25 basis points, but we’re not going to focus on incoming data. And to ensure that inflation is coming down to our 2% target rate that’s a little bit more hawkish, that leaves that door open. I’m not saying he’s gonna hike rates more so don’t misinterpret what I’m saying. He left that door open for another rate hike at some point, maybe not the next meeting, maybe that whatever it is, so a little very nuanced, right.

Adam Taggart 7:22
I’m glad you brought that out in look, while while I think and I believe you have thought like me for a while that he should pause. He’d also be an idiot to close the door on additional rate hikes, right? So he’s, he’s saying the right things. But what’s interesting for those that are really hoping for a pivot, and what’s been so interesting is market expectations for the pivot had just been all over the map. And they switch ridiculously from like, every couple of days, right. I think last week, when we talked, they’d gone all the way back out to like November, December. They’re already back to like, July, June, at this point in time right. Now, I don’t know, I haven’t looked at it since the jobs report came out this morning. But that’s got to pour again, cold water on Pivot hikes, right? If you’ve got potential wage inflation concerns, and you said the wage growth component was really high this time around. But also just you will, I guess, let’s talk about the job well, before we get in detail on the jobs, but it was just it was a really big blowout number, it was a three sigma beat, right? So if he’s basically saying, Look, I care more about price stability, slash taming inflation right now than I do about my my full employment mandate. This gives him you know, plenty of green light to, you know, remain hawkish, whether that’s hanging out at five and a quarter now for the rest of the year, or potentially hiking more if he needs to. Yeah. So anyways, I just feel like there’s pivot, there’s pivot hopes, you know, are they’re incredibly volatile right now. But they still seem to be a little bit more enthusiastic versus the data. We’re sitting here.

Lance Roberts 8:54
No, no, there’s still pricing 180 basis points of cuts are talking about, they’re talking about bed bugs going from 585 percent to 3.8. By the first half of next year. That’s a huge cut in rates. And again, as we’ve said before, the only way that’s going to happen is that the feds having to come in and fix something they broke. And, you know, in right now, yes, we have banking issues going on. But the market really is absorbing that very well. I mean, you know, you would have expected with another potential bank failure sitting there, this market would have been down to three, four or 5% Over the last few days. And, you know, you rally 2% on Friday on the back of Apple earnings. So, you know, the market is really doing very well in terms of absorbing these impacts, versus what, you know, a lot of the, you know, the media in particular over the course of the last, you know, six months have been extremely bearish, you know, these all you know, all these things are cataclysmic we have this deep recession, not saying that we’re not gonna have a recession or anything. I’m just saying that there’s been a lot of very negative sentiment on the overall market that just hasn’t come to fruition yet. And that’s really starting to frustrate, you know, both sides of the participation. We have a record short level of this. I’ve got an article coming out on Tuesday, we’ve got a record short level on stocks and a record short level on Treasury bonds. Everybody’s bearish on everything.

Adam Taggart 10:18
And so I mean, this is this is part of where I want to go in the discussion. I do want to finish the Fed before we go here, though, but is like, you know, I just had Michael Howell on the program this week, who tells who’s very bullish, and he believes that the turn has happened, the market turn has happened. I also just interviewed a very successful investor, Dan Tapi. Arrow, that interview will launch next week. And he basically is right in the same camp as Michael. And you know, I asked Dan, I said, Look, you know, we we went from unprecedented liquidity and all time kind of, you know, bubble distorted highs in the market, the shutting off the liquidity, spigots, and we have all these litany of issues that you and I have talked about every week here. And I’m like, Are you basically saying that all we got is what we saw last year? And he’s like, yep, that’s what I’m saying that that was it. That was the market correction. Right. So let’s, let’s save that part of the discussion for a little bit later here. Good, because I do want to finish up on it. Yeah, I

Lance Roberts 11:21
think that’s very interesting. Yes,

Adam Taggart 11:22
yeah. But we’re at this point right now, where I think you’re getting really intelligent people who are seeing really different things right now. So it’s a really hard time for an investor to try to figure out what’s going on. Because you’re seeing lots of smart people say lots of different things. And I’m sure for your case is going to be really hard as capital manager again, let’s get

Lance Roberts 11:43
because there’s nobody smart on my side. So we’re just

Adam Taggart 11:48
but but one of the things I took away from the FOMC press conference, was that it was not a bunch of softball questions for Jerome Powell this time around, you know, people were actually really kind of probing and pretty hard.

Lance Roberts 12:04
Yeah. And I don’t know, did you watch the actual press conference?

Adam Taggart 12:08
I watched, I didn’t watch all of it. But I watched good chunks of it. I was kind of multitasking.

Lance Roberts 12:12
No, no, that’s fine. It’s fine. You know, what I took away from that was is that you’re absolutely right. The questions that were coming in, were not the typical softball question. You know, one thing is like always, like when President Biden gives his, you know, his q&a, he already has the answer your Yes. The

Adam Taggart 12:26
questions you guys face? And the answer. Yeah, exactly.

Lance Roberts 12:29
You know, these questions were coming at Jerome Powell. And, you know, what was interesting to me, and you know, there’s a way to tell when people are lying, right? You can watch eye movements, you can watch body posture,

Adam Taggart 12:42
you can wonder their lips move. Yeah.

Lance Roberts 12:45
But that’s what’s politician. But you know, one of the ways to tell that somebody is potentially not telling the truth is is a if they repeat the question to if they stutter, stutter and stumble a lot. And I’m not saying to Jerome Powell was lying. I’m not making that statement at all. But, you know, when you’re when you’re very confident in your answer, the statement is very clear. It’s like you asked me a question, Lance, what do you think about this? I believe in my answer, I can answer the question. I’ve never seen Jerome Powell stutter and stumble as much as he did through that press conference. And I thought that was kind of an interesting tale, either he wasn’t prepared for the questions that were coming in. Or he was really trying to figure out a way to thread that needle to keep markets from, you know, over, you know, becoming overly exacerbated with the situation.

Adam Taggart 13:37
I think it’s the latter only because while the questions were tough, they were all questions that you or I would have asked like, I mean, easily anticipate double questions, right. But, and you even Steve

Lance Roberts 13:49
leasman, who is always you know, he’s always the clown puppet, you know, from CNBC. So, you know, he even asked tough questions. I was like, Steve, outside the bed this board or what?

Adam Taggart 14:04
Cameras? I’m trying to remember what question he asked, but it was pretty probing and I was like, Wow, all right, you know, like, you’re, you’re risking your little most favorite journalist position there right now.

Lance Roberts 14:13
Yeah, I think there’s a new guy for The Wall Street Journal now this week. Um,

Adam Taggart 14:17
who knows? I mean, it wouldn’t surprise me. So I guess I’m just trying to think Is there anything else that we want to clean out a clear out on the Fed side before we move on? I guess not. Except, you know, I guess I did. Well, it’s interesting. I saw I rolly iros on fin twit, and then, you know, social media, to piles repeated re assertions that the banking system is resilient. And you know, there’s nothing to worry about there. And I understand the skepticism. I totally understand the eye rolling I will say having just come from this special report recorded earlier today. And by the way, folks, if you haven’t watched that are interested in this I highly recommend you watch that after this video. I’ll put up a link to it right here by talking to both John and Joseph. It, yeah, they’re they’re kind of of the mindset right now where it’s like, yes, some other banks may indeed fail from here. But this isn’t a contagion situation, the banks that have have failed to date were the most vulnerable for, you know, idiosyncratic reasons for most banks. And, and honestly, the headlines seem a lot more dire than the real reality on the ground. And what’s interesting about that, that pairing and people is just if used to work at the Fed, so he really understands the plumbing of the banking system and how it works. And what the the central planners can do, to, you know, put duct tape on the system and keep it going. Where Jonathan speaks to banking executives for a living multiple times a week, probably multiple times a day. So he’s really like, got his ear on the ground to, you know, the pulse of the of the banking sector. And they both say, Look, you know, this, this stuff happens, Jonathan gave a really good historical overview and said, Look, anytime that you have a big liquidity spike, and we have had them at multiple points in US history, you have a readjustment of the system, almost kind of Lance, like your example of the rubber band that you pull too far, right. And when you come off the liquidity spike, you generally always have some banking failures. And he said, Look, what we’re seeing right now is really not that different from what we’ve seen, you know, time and time again, and it peters out after a while unless you’ve got something really systemically wrong, which we don’t seem to have at this point in time. And so, you know, they were, they were, I don’t want to say that they were dismissive of the concerns, because they weren’t at all, but they basically said, this actually may be providing a good investing opportunity for folks that are willing to put some capital at risk in the banking sector right now, you know, so what they were saying is, is given how dire the headlines are right now, and how how nervous, you know, the general kind of, you know, Gestalt is around the banking system right now, that there may be a lot of baby getting thrown out with the bathwater effect going on here. And that, you know, the sell off is providing an opportunity that maybe get into some really robust banks at favorable prices right now. And they’re saying, Look, you don’t have to go down the quality ladder, you don’t have to be trying to determine which of the small regional banks are getting wild right now, we’re gonna make it there, like, you want to speculate, you can do that. But you can just buy some of the bigger banks right now, because the overall banking sector is, you know, come off a bit on price right now. And you can buy potentially really robust, high dividend paying stocks for a better valuation they’d been at for a while, and then ride the recovery. So anyways, I just thought, you know, it’s

Lance Roberts 17:49
a good point. And this is something Mike and I, so a couple of things, first of all, is that I always think it’s funny that we say, Okay, this guy used to work for the Fed. So it really knows the plumbing. That’s great. But the Fed never catches these banking problems before the fact. Right, so we did talk about that, too. Right. Right. And so you know, the Fed even even Jerome Powell recently says, like, hey, we missed it, right? We screwed that up. And then same thing on the banking side, these bankers have been through these cycles before, and they never see it come and they always get caught short. So, you know, it’s one of those kinds of interesting dynamics that, you know, we go to the experts of the business that have never caught these things in advance. But, you know, the one thing to keep in mind here, so, you know, and again, we’ve been doing a lot of research, you know, internally looking for Yeah, so we agree, absolutely. Not every bank is going bankrupt. You know, so, you know, where do you start digging around? Well, you’ll look at companies like you know, truest financial or, or CO America or, you know, Capital One. And you find out when you start digging into these companies, they have a lot more liquidity risk than you realize, because their tier one capital ratios aren’t that far, you know, in the green, so to speak, I’m not saying that they’re undercapitalized. But they don’t have a lot of cushion. And so the problem is not the depressed asset prices on, you know, that they owe so, so again, you know, just a quick recap for everybody. When you make a deposit at the bank, the bank then loans that money out, and they have they only maintain a very small reserve of that money they lend out. So the money so when I make Adam alone, I can’t go to Adam and say, oh, man, we’ve had a lot of withdrawals. I mean, I need you to pay off your loan today can’t do. The only thing I can do is go sell these assets that I bought over here, which are typically, you know, treasury bonds, you know, mortgage backed securities, those type of things. But those have all come down in price because the Feds been hiking interest rates. So I have depress collateral values that now I have to go sell these depress collateral values to meet these withdrawals. And so what happens is, it’s really a function of not saying, Oh, the bank is fine. That’s not really the issue. The issue becomes the stock price. Because it’s not just the fact that in that we got two things that are going on with these with these midsize banks. The first is, is that depositors are going, Hey, what the hell, I’ve got $100,000. And over here, I can move it over to this money market fund, which is not run by the bank and make 5% on my money. So now that deposit leaves the bank, okay, so I’ve got to give that client is 100,000, that leaves my bank, I’ve got to sell assets to cover that 100,000. Then the other problem is, is the stock price starts declining, because of all these rumors in the market, that all these banks are going to fail. So what depositors do, man I met, you know, ABC, you know, regional bank, they may go under, I’m gonna move my money to JP Morgan, I know I get zero on my money market, but at least I’ll have my money. Right. So there’s so the decline in prices is also causing outflows of assets within compound this problem even more on this tier one capital liquidity side. So it’s a multiple compounding effect. And I agree with with their statement that we’re probably going to see some more banks in trouble. You know, the Fed can bail this out at any point, basically, by doing a form of QE and just saying, hey, look, you’ve got depressed asset prices, you need to sell it, we’ll buy them from you for face value,

Adam Taggart 21:15
right, which is what they’ve done, they’ve started doing but this failed ones, right?

Lance Roberts 21:18
Really not? Yeah, kind of sort of Adam. But what they did was they said, we’ll make you a loan, based at 100 cents on the dollar of collateral. I’m talking about a QE version of this, where the Fed just says, Hey, we’ll buy your mom’s, right. So kind of like QE where they were buying Treasury bonds from the banks for quantitative easing, they do the same thing. You’re saying, hey, look, if you need to sell your assets, if they’re trading at 70 cents on the dollar, doesn’t matter, we’ll pay 100 cents on the dollar form. And then we’ll just hold them on our books till maturity, and get our money back.

Adam Taggart 21:47
Right. Right. When it’s interesting, because I remember talking about this when Silicon Valley Bank went down like it like it is kind of interesting as a as a rescue. Step, right, because those are, as you’ve said, in many cases, money, good assets, right. Now, the question is, why don’t we just do that all the time, if that, you know, works well. And of course, that ends up creating moral hazard and encourages banks to take on more risk than they should and all that stuff. So I’m not necessarily recommending it. Yeah.

Lance Roberts 22:20
Yeah, we always have to do these bailout programs after, you know, bad behavior at the banks.

Adam Taggart 22:25
Yeah, no, exactly. Look, sometimes that’s just how you find out where the landmines are, as you you step on, right. I kind of get it as a as like a emergency thing. The problem is, is you don’t want it to then become, which is what always happens. But yeah,

Lance Roberts 22:44
exactly. No, I mean, so my point about all this is, is that look, you know, there is going to be there’s a lot of banks under a lot of pressure, right? Now, the trick is going to be to pick the right bank, or two or three. So you know, why if probably, if you want to invest in the sector, look, if you’re trying to really make a lot of money buying KR e as an example, which is the regional bank ETF is not going to make you a lot of money, you know, that, that could double in value. I mean, it’s it’s really so beaten up, we could see that rebound, you know, pretty sharply over the next couple of years. So you can certainly make some money in something like, Hey, are you and I’m not making a recommendation. By the way, this is not a recommendation. But I mean, if you really want to make some serious money, you would go pick up 234 of these regional banks do little small positions, and two, three or four of them, one of them’s probably one, two of them may fail, two or three of them may work out, and you’ll probably wind up making some some decent money that way. But, you know, trying to pick the one bank is risky, because you really just don’t know, at any point, you know, which one’s going to show up and go, you know,

Adam Taggart 23:49
I’m done. Yeah, and just to be super clear, what these guys were saying is as, look, you know, we’re not we’re not saying go speculate and chase and try to, you know, pick the one bank that that might recover from others. They’re like, go by JP Morgan, which is fine. By the big guys.

Lance Roberts 24:10
Yeah. And that’s fine. You just not gonna make a lot of money at it. All right. I mean, JPMorgan hasn’t come down that much. You know, Wells Fargo hasn’t, you know, these, the big banks, everybody knows there’s their money. Good, right. So they’re systemically too big to fail. So they’re not they’re not declining that much. I mean, you take a look at it like a truest or, you know, co America, these stocks are down 4050 60% from their peak. So, you know, that’s where the money is going to get made. It’s not going to if you want to bet safe, yes, by JP Morgan, all day long, you’ll be fine. Right?

Adam Taggart 24:40
I think they’re saying like, look, you’re gonna get paid a nice dividend and you know, the JP Morgan’s off what, like 18% or something like that from?

Lance Roberts 24:47
It’s maybe, I don’t know, I don’t know if it’s that in May. I haven’t looked at it lately. Yeah,

Adam Taggart 24:51
I just I just looked at the numbers here. I’d say 15 18% or whatever, right. So there’s just like, but yeah, but that’s the super safe way. And then your point. There’s other points along the continuum.

Lance Roberts 24:59
There’s There’s, there’s regional banks that will double in value over the next 12 months. Right? If you have to find the right one,

Adam Taggart 25:06
right, right. And again, to just to underscore their point, I don’t want to totally rathole on this, but there were like looked at the biggest risk right now here is just the fear that the herd has right now. Right. And kind of your point about, hey, we see the stock price going down until we get even more frightened right. Now, it was kind of interesting, as they said, you know, obviously, things that got players like Silicon Valley Bank, and in first republic is they had a lot of their deposits concentrated in too few hands, right. And so you lose a few deep pocketed depositors. And that actually makes a big difference, right. And most regional banks have much bigger retail book of business. And so they’re much more resilient as as a result. But they said that with a capital flight that’s been going on the deposit flight that’s been going on. Instead, it really isn’t all that visible in the average retail account. You’ve got, you’ve got commercial, you’ve got high net worth. And then you’ve got kind of the regular people, and they’re like on the commercial and the high net worth. Yeah, that’s where a lot of money has been been fleeing, right. But but average people aren’t really running to the bank, and, you know, demanding that they take all their money elsewhere. Yeah, that’s actually not uncommon, that it’s pretty sticky. There’s

Lance Roberts 26:22
enough friction there that it takes an awful lot to get a lot of a lot of regular people to do that. You got to remember, a lot of regular people don’t have a lot of money. So you’re talking about 10,000 $20,000 accounts. What hurts you as a bank is when, you know, that’s easy to I’ve got enough inflows. So again, how does the bank work, I make a bunch of loans. So Adams got along, he’s paying his interest payment every month, I’ve got plenty of cash flow coming in to cover 10,000 or $20,000 deposit withdrawal, right? What I can’t cover is those $5 million withdrawals all at once. But more importantly, like with Silicon Valley Bank, you literally wake up, you go to bed on Friday, wake up on Monday and 40 million have left your bank. Right,

Adam Taggart 27:00
right. And that’s why they were hyper vulnerable to this. Yeah, I’m just saying like, you know, from the headlines, you would think like, oh, maybe like 10% 20% of regular people are taking, you know, their deposits. That doesn’t sound like it’s nearly on that scale.

Lance Roberts 27:14
So to your point, here, here’s kind of an interesting thing I’m actually working on article right now. So forgive me forgive my charts, they’re a little bit rough here, I haven’t quite finished dressing them all up just yet. This is money market funds buy tight. And this big blue area in the middle, which you can see is the vast majority of money market funds. Those are institutional prime money market funds, this is where corporate you know, Apple 130 billion in cash, Warren Buffett 130 billion in cash, whatever, that’s where that money is that that is corporate money, that is high net worth investors, those minimums are generally a million dollars to get into those money market funds, you got to see down here, this little yellow area, you can see how that’s expanded. Recently, a bit of money market funds, it’s a very small amount of money Geopoint out of, you know, the average retail mom and pop there, they’re not, you know, they’re they’re just trying to go to work everyday, come home and pay bills, and they got a little bit of money, you know, stuffed away in a savings account in the bank. You know, they’re not running around trying to capture a little extra yield on their money, or they shouldn’t be right. But you know, they’re just trying to live their life the best they can. So you know, but what’s really moving the market, what really impacts these banks is when this big money, that big blue areas starts to move into money. That’s what causes these problems. And you can see this big spike in money market funds here in here. Let me show you this next chart, it’s kind of cleans it up here a little bit. But this is this is total money market funds. And you can see just over the last really since March, you can see this massive run up in money market funds, the last time we saw that was back in 2018 2019, when we had all that liquidity coming into the markets, you know, prior to that, it was actually pretty flat going back to 2011. So, you know, and this is also kind of important, because you can see here in 2011 through 2018, money market funds, kind of basically stable at 3 trillion so there’s all this rumor all the times like oh, that money market money is gonna come flying back into equities. That never really happens. It’s just money markets generally there for corporations to pay for, you know, employees and rent and labor costs and healthcare benefits and buying inventory and all that stuff. That money generally never comes back in the market. unis even see that, you know, after that big run up in 2020, wherever, you know, remember there was the PPP programs where we sent money to companies to keep them in business. So you see that big run up in capital in money market funds and even during 21 and 22. During that big 2020 2021. With that big surge in the market. Money market funds really didn’t drop off a whole lot the little bit came out, but not a whole lot. And then since 2022, it’s going back in the money market again.

Adam Taggart 30:05
Yeah. Interesting. I would imagine that this chart has been highly correlated with them to last quarter of last couple months exempted. Yeah, it is. Right, because they’re going to basically never contracts except right now it is. But in general, you know, your, your point, you’re not seeing money flow into money market accounts, and then flow elsewhere, like back into the stock market. Yeah, exactly.

Lance Roberts 30:31
So, you know, the, to your point, Adam, you’re really what impacts the banks. It’s not the retail Mom and Pop, it’s when you get big depositors taking their money out to go buy mutual money, market mutual funds, right. And that’s what puts these banks in stress. And so when these prices start to decline, and companies get worried, like, man, if that bank goes out of business, you know, I’m not gonna be able to pay payroll, I’m not gonna be able to meet my obligations, or whatever it is. They’re taking, they’re taking that money, and even they may be even going to JPMorgan, getting zero on the money, but at least they know, they’ll be able to make payroll come the end of

Adam Taggart 31:08
the month. Right. Right. Right. But it’s what I want to underscore on this point that we’re making here, is it and again, this was echoed by the guys I’ve talked to earlier today. Is, they’re like, Yeah, you know, like, banks have generally always paid less than prevailing, you know, the prevailing federal funds rate, and they’re, they’re able to get away with it, in most cases, and most people just don’t, there’s just too much friction in the process for a regular person, that kind of care, or they’re, they’re perceived, the perceived amount of friction. And my point, I just want to underscore here is that for the proactive in, you know, conscientious investor, like the folks that watch this channel, you actually can, you know, with a little bit of attention and a little bit of proactivity, on your part, you can actually, you know, get superior returns on your cash in ways if you just kind of pay attention and are willing to go through a few extra hoops, but not too many. And this is why having a good advisor can help if you’re giving them all your capital manage, or if you want to do it on your own. You know, like, I can’t tell you how many people have reached out to me over the years, Lance, and you’ve probably heard the same thing like, Oh, I’ve been sitting in cash for so long, and I’m waiting for the market to turn. And you ask where their caches and their cash is sitting in a bank earning, you know, literally zero, where you’re like, wow, with just a few clicks on Treasury director by moving this to your brokerage and putting it into market money market cap there, you could be getting, like 1000s of extra dollars a year on this right. So I just want to underscore the point that like taking charge of your destiny, this cash management element is one area where quite often a little bit of work and can actually make a pretty meaningful difference.

Lance Roberts 32:53
Yeah, no, we actually have a portfolio that we build for corporate clients, where we do cash flow management, because there is, you know, so many opportunities for a business to maximize your cash flow. So, you know, think about it this way, you’re a business that produces a widget, right? So I have to buy product, and I have to seek capital into this building this widget, and then I sell my widget, and then I’ve got to wait 90 days, you know, to get paid or whatever my my timeframe is for that money to come back in. And then I get what I get back is I get my basically the sell of my widget plus my profit, right. So that’s where, you know, I make money. But for a lot of businesses that are smaller in nature, that timeframe, waiting for that money to come back is very problematic, because they still gotta pay bills, and rent and all these other things in the meantime. So we actually build accounts where you know, we can invest that capital create a higher rate of return on that they borrow from their own account to do these purchases. And then while that money’s out, they’re getting this interest rate deduction, to manage their cash flow better, they’ve got access to their capital, and then when that capital comes back, it continues to build this cash flow pool that they’ve got that they’re building over time. So it continues to give them bigger and bigger lines to work with. So they can sell more products. And that’s, that’s the whole goal at the end of day, but cash flow management is an extremely important part of a business. And this is but this is also why, you know, there’s so much money sitting in bank accounts that are paying zero because of that banking relationship. But you know, businesses in particular need a good banker, the other three, in order to be successful in business, you need a good accountant, a really good lawyer, and a really good banker. And if you have those three things, you’re going to be successful. But you know, if you take all your money out of the bank, you’re sick into a money market fund. That’s great, but now your banker doesn’t like you so much.

Adam Taggart 34:45
And you’ve also lost all the banking services like payroll and all that stuff to

Lance Roberts 34:49
ensure and so there’s there’s a lot of money sitting in banks not earning any money. Oh, why is that? Well, it’s you got to remember there’s also a relationship aspect and yes, JP Morgan’s Good example pays point 02 on their savings accounts, they’re getting paid five from the Fed, that spread is called net interest income. That’s how the bank makes their money. Now, they’re making a gross amount of money. And I think it’s funny that we go beat up on energy companies, because they’re making all these profits, you know, banks are ripping off customers left and right. No, complains about that. But that net interest income is a huge spread for revenue for banks like JP Morgan right now.

Adam Taggart 35:27
Yeah. What are you? Well, you and I have complained about it often in the past on this. But and I just, I just want to hit this point one last time, because I want to get you to make any comments on it you want but yes, cash flow management, very important for companies. You just explain why. But it’s very important for individuals to Right, yeah, that have enough cash for this to be meaningful for? Oh, yeah,

Lance Roberts 35:48
absolutely. I mean, if you’ve got 100 grand sitting in cash that you’re, you know, one of the things that we do in financial planning for all of our clients is we set up what we call Dave Ramsey calls in an emergency fund, we call it a buffer, find, you know, but what it is, is that you just need a pile of cash sitting somewhere, it’s not invested in the market. So you don’t want to subject it to risk. It’s not investing in something illiquid. So you don’t go buy bonds with it. But you know, you have 100,000 in cash or whatever you whatever your year’s worth of income is, right? You want a year’s worth of income kind of sitting in to some emergency resource fund. That way, if you lose your job, whatever it is, because whenever something happens that you’re going to need to tap this emergency fund, you don’t want that money invest into the markets, because probably the issue of you losing your job is also coinciding with a recession in the market. So you know, this is one of the things though, that, you know, if you have, you know, whatever your income is, you want kind of one year’s worth of income sitting aside. And that you can put into a money market fund because it’s liquid, you don’t want to put into treasuries because that has lack of liquidity. If interest rates spike up, potentially you lose money, and you have to sell your bonds at a loss. You don’t want to buy stocks, because typically, if you just lost your job, we’re probably in a recession or some sort stocks are down. So don’t invest that money in anything that can lose principal. So but you know, have that emergency fund sitting aside and yes, to Adams point, a couple of clicks, move that to an online bank somewhere that’s FDIC insured state on your limits of 250. But get a higher yield on that money, because you might as well it’s just sitting there for an emergency anyway.

Adam Taggart 37:23
All right. All right. Okay, well said that the only other thing on Bangstyle mentioned before we finish here, we’re gonna get things eventually, eventually. But but this this is a little bit of I know, it’s gonna trigger a rant response. And, you know, one of the questions I did ask was, you know, talking about the difference that at least used to exist between insured and uninsured banking deposits, right, and asking the question that hey, you know, it seems like they’re kind of a lot of people are making the implicit assumption at this point in time, that based upon the recent rescue responses from the Fed, and the Treasury and FDIC, that now all bank deposits are going to be insured going forward. And it did kind of surprise me the answer that that John Joseph game gave where they were like, yeah, that that seems like it might be the case. Now, I was kind of expecting to think that like, now, we’re making too much of an assumption here, but they were like, No, I mean, that seems to be with. And so the question I asked was like, okay, like, is that possible? Is that a good thing? Like, or is that just magical thinking? Like, okay, yeah, we thought that there should be a distinction between insured and uninsured deposits. But no, we think everybody can we afford to do that, of course, the FDIC fund, we know, is an insurance fund. And you know, if too many banks go down, that fund runs dry real fast. Right. So you know, what is this backed by and they would like is probably just backed by the money printer with them fed at this point in time? Well,

Lance Roberts 39:03
yeah, it’s all backed by the taxpayer. Ultimately, I was trying to explain this to somebody the other day, it’s like, we know the FDIC, that comes from fees. Yeah. Who pays the fees? Tax? Tax? Right. So I mean, only today it’s on JP Morgan, you know, the acquisition of first republic. Thank you. First Republic by JP Morgan, I thought was a classic example of just the nonsense that goes on. You know, JP Morgan will eventually will have one bank eventually, you know, that, you know, they will Highlander series, they’re loyal, that can only be the only one that’s gonna be JP Morgan. Eventually, it’ll be JP Morgan, and they will also be the Federal Reserve. It’ll be one bank and the same. But, you know, the typical kind of crap, right? The first public goes belly up. And then there’s also sets a precedent by the way, I’ll tell you in a second, but JP Morgan goes, Oh, yeah, we’ll buy it. You give us a discount on the assets. So we bought the assets at a discount and no liabilities. So the liabilities were taken over by the FDIC, were 515 Bill billion dollars that FDIC has to absorb. So what a great deal for JP Morgan, see somebody with some colonies in Washington said no, JP Morgan, you want the bank that fine, you can have all their assets. Okay, we’ll give you the assets and 15% discount, but you also get the liabilities, you have to pick up the whole tab, you don’t get to pick and choose. And see this is now set a really bad precedent. Because now when the next bank fails, or let’s let me back it up. Let me restate that. So now when the next bank gets in trouble, right, instead of a bank showing up going, hey, you know what? Before, you know, bank, ABC goes out of business a lot, you know, let me let me acquire them. Right, I’ll acquire the assets and the liabilities. And we’ll just make a merger. Right? And we’ll just keep everything okay. See, they’ve now killed that possibility. Because now every other bank is gonna sit there and go, well, we’ll just wait. Right? Well wait for the fire sale. Yeah. And we’ll just wait, let him go under. And then we’ll get to pick off some assets and no liabilities, the FDIC will step in absorb liabilities, and you know, hey, it’s all good for us. You know, the First Republic is going to add $100 million dollars worth of revenue or Yeah, like $100 million worth of revenue in the first quarter of the acquisition for JP Morgan, you know, yeah, it was a great deal for JP Morgan. So yeah, by the bank, because, you know, they’re gonna be there. But you know, that, but we’re setting really bad precedents with all of this. I mean, it’s just, it is not good fiscal management by government. It’s not good policy by the Fed. It’s not good policy by the FDIC. And then somewhere in some case, somebody’s going to start standing up to these banks and saying, no, if you want these assets, you’re going to buy them lock, stock and barrel.

Adam Taggart 41:44
Yeah. See, I knew this was going to trigger a little bit of a rant for me, which is,

Lance Roberts 41:48
because now I’m all upset. Go ahead.

Adam Taggart 41:51
Well, it’s just funny, you probably seen the same headlines I’ve seen recently where they now call JP Morgan, JP more gain. Yeah. Yeah. And you’re right. You know, I mean, what we’ve we’ve provided I talk a lot about the importance of incentives. And we have now provided a disincentive for the banking system to self heal. Instead, they just, you know, this is like classic. The criticism that folks say about the banking system where it’s privatized gains and socialized losses, right, we basically just said, oh, yeah, this is our new process for socializing the losses. Yeah. And you get all the tasty assets, and oh, to the last stuff, well, that FDIC will pick that up, which and in your purview, you know, just as well, the taxpayers will take that up at the end of the day, right. Yeah.

Lance Roberts 42:38
And, you know, look in the FDIC and the Fed had a great opportunity to diversify the banking sector a little bit more right, sell it to anybody other than the top five banks sell it to PNC so it’s a truest sell it to you know, co America sell it to Capital One financial, you know, we need to diversify our banking system away from five banks, and we got five stocks to drive the market, five banks that control the banking sector, you know, you’ve got to basically start diversifying that base, you can’t keep selling everything to JP Morgan, you know, Bear Stearns, everything else. You can’t just dump everything on JP Morgan, and you

Adam Taggart 43:12
can if you want to create a highly concentrated unfair system, but yeah, exactly. Curious, you know, I’m not a bank expert. But, you know, in certain cases, you would hear people say, Well, look, this was, you know, one of the biggest regional banks, and, you know, a lot of other regional banks maybe couldn’t swallow or or, you know, afford to pay for the require the whole thing or thing might be true. And my question is going to be whether or not that let’s assume it’s true for me that that would be difficult. Couldn’t you just slice it up and say, Okay, great. That’s just, they’re just assets. Okay, smaller bank, you get a fifth of their assets. Other small bank, you get? Yeah,

Lance Roberts 43:53
yeah, no, that’s, that’s exactly why I was calling that the bunch of hooky, because again, you don’t have to sit Yeah, oh, I’m sorry, you might actually have to come to work, and actually work for a couple of days to get this done. Rather than just, you know, calling it in from your desk on, you know, on some beach and say, Oh, just Jamie, you buy them all just get done with Oh, no, you break it up. And again, again, that makes our banking system more sound, you give some of the assets to some of the banks, some assets to the others, you know, you break them up by region. Look, we’ve got depositors in California. So we’ll pick a bank out in California m&t Bank, whatever, and we’ll give them some assets. We’ve got some depositors over here in Florida. So let’s give them some assets. You know, you break it up and you start, you start giving these midsize banks a little bit better foothold in the economy. A it makes them more sound. It gives them a bigger footprint. It makes them more stable long term. And it diversifies our banking sector, which is more advantageous to the consumer, right. It’s a win win for everybody. But instead the easy solution is just to give it to JPMorgan. Yeah.

Adam Taggart 44:56
All right. Well, I lied. One last thing on this Gonna make your blood boil at an even hotter temperature? You know, I asked the question about like, okay, so, you know, banks are overseen by the individual Federal Reserve regional banks. Right. And Mary Daly, who is the Fed President of the San Francisco fed Bank, which is responsible for the West Coast, including California has having a really bad batting average this year, right? She’s got most of these, most of these big banks are banks that are under her purview, right, that are going under. And so it’s just sort of asked like, alright, you know, do you think she’s gonna be long for this role? You know, does she bear some, you know, responsibility here. And both of them but mostly Joseph, who’s much closer to the Fed, he was just sort of like, yes, in a, in a real in a just world that would work that way. But he’s like, you’re talking with an institution here that doesn’t like to admit fault. And and it’s sort of, you know, like Teflon when it comes to accountability. And so we shouldn’t really be expecting that much to stick on anybody here, which is infuriating to hear.

Lance Roberts 46:09
Yes. I’m not gonna rant on it. I’m just gonna let you get to the next topic.

Adam Taggart 46:13
Okay. Well, we talked about the payrolls earlier. And I just want us to dig into this for a moment, because it’s, it’s a big beat, the markets are clearly responding to it. In addition to some of the big, you know, tech earnings, like Apple, the payroll number was a big beta, they rose by a little over 250,000, which was a really big jump from the March number, I’m going to put up a couple of charts here. One is to show that okay, we’re now this is the 13th consecutive beat versus expectations, right. And when you look at that, versus a historical chart over the past, you know, 20 years or so it just stands out. Just blatant departure. In other words, we haven’t had a stretch of beats like this ever, in this 20 plus year data series. As I mentioned earlier, it’s a six sigma, or sorry, a three sigma beat. So it is it is a statistical standout, that that we would not expect. But what’s interesting, too, is is kind of the gist of this article, which I that I pulled these charts from, which is coming from Zero Hedge is showing that. You know, it seems that the game that seems to be being played here is a really big positive number that smashes expectations. And then, when you release that number, you also release the revisions to the previous few months worth of data. And I’ll put up a chart here you can see for January, February, March nonfarm payroll revisions were all to the downside. And, you know, some people, I’m not going to necessarily say this is exactly what’s going on, but are saying that this is just sort of intentional window dressing, to just make things look better than they are, you know, for the administration have something to point to and say, Hey, we’re doing a good job here. But whether that’s true or not, if the data is doctored, intentionally or unintentionally, and we know from the way in which, you know, the calculations of this are reported, is that a tremendous percentage of the numbers that come into this are calculated, right, the restaurants. So we know that that there’s a lot of just kind of finger to the wind stuff going on here. But this is data that policy is being made based on right.

Lance Roberts 48:41
Well, and that’s why, you know, when the Fed looks at things like, you know, employment, they also look at some other sub indicators that do a good job with claims, which are clearly rising. They look at continuing claims, which are clearly rising as well. You take a look at, you know, the inflation data, they looked at trim mean PCE, which is still very sticky. So, you know, the Feds like, you’re absolutely correct in what you’re saying. I mean, you know, the jobs report is a main input into their financial decision making. And again, that number today, was our, you know, our sorry, yesterday, sorry, that number yesterday was, you know, certainly not fed friendly in terms of bringing inflation down. I wrote an article today talking about, you know, the Feds biggest fear is wage inflation. And you’ve got that problem. You know, you look at the employment cost index, we’ve had a huge surge in that side of it, which is going to keep inflation more elevated than what the Fed thinks here at least well, just simply because of this money that’s still in the system. Coming out of that wanting 2020 21 You know, injection of capital, that’s still there supporting prices, and and also, these higher wages that we’re paying is having a trickle up effect in the markets and that’s also going to weigh on inflationary pressures. Okay, yeah.

Adam Taggart 50:00
So, I don’t know. I mean, you and I have taken these jobs numbers out to the woodshed, you know, many times the past so we don’t need to do it again here. But it is frustrating. It’s frustrating. And look, I’m not trying to say that the jobs number, the real jobs numbers a lot worse than than what we’re being told, although I can easily argue that and I do think it’s, I do think that’s probably likely the case. But, you know, what bothers me is that we just don’t have good data, right? It’s like we are, feels like we’re intentionally monkeying around with the instrumentation on our cockpit dashboard, right, which I just don’t think it’s ever smart for anybody who wants to fly safely to any place, and why I keep looking at employment so frequently, and I bring it up week after week after week on this program, largely goes back to the Michael Kantrowitz framework where hope is hope framework II is the last stage of the of that framework. And in many cases, as goes, the employment numbers will go the economy in terms of whether we’re going to go into a recession, or into a new upcycle here. And so to have bad information or bad signals, signals, we can’t trust on the employment side of things. You know, I just think it’s really dangerous to everything, you know, in terms of true price discovery, you know, efficient markets, but just helping people decide what actions to take today versus what might happen tomorrow.

Lance Roberts 51:38
But again, so so I’m not disagreeing with you. Okay. So take that for what it’s worth. But look, but all I’m saying is, is that whether it’s the hope framework, or whether it’s any other type of framework that you’re working on the employment data is the employment data is the employment data, it’s what we have to work with. That’s the input into all these factors. So if the employment numbers are strong, whether you agree with them or not, it’s strong employment, right, and look, and ultimately, at some point in time, we will likely get negative revisions, I’m not discounting that at all. But for right now, what the markets are going to respond to, is that data for what it is better or worse, and we can we can parse it all we want, we can make all these assumptions that this is bad, that’s bad. This is a lie. And that’s bullshit. But the end of the day, the markets are going to respond to two things, right, is the economic trend stable and earnings growing, and, you know, earnings actually picked up from the last quarters low. So from fourth quarter, the first quarter earnings have improved. Not saying but you know, so the initial take from this earnings season is that a earnings are better than expectations, and B, it looks like earnings dropped and last quarter. So to you know, this idea, you go back and look at stocks, they dropped in October of last year, so stocks have dropped in October of last year, earnings have dropped and the fourth quarter of last year and employments remaining strong, along with economic growth. So right now GDP now is at 2.7% for the second quarter coming off 1.1 for the quarter. So you’ve got this, you know, you’ve got this improvement in economic activity and earnings growth, which definitely suggest that the market is on the right trend here. Now, again, we may not agree with all the data, but the data is what we have to work with. Oh, you actually

Adam Taggart 53:27
just caught me by surprise there by citing GDP now. Because last week when I cited it, it was down at like one point. Something. First Quarter. No, no, no, no, no, it was the start of the second quarter. Oh, sorry,

Lance Roberts 53:41
the second quarter. So yeah, I believe we’d seven now.

Adam Taggart 53:46
It is 2.7. Now I just pulled it up right after you said that. So yeah, no, so you raised the point that I was was making my way towards, which is mean, you’ve said this before many times, right? You know, we we don’t get the luxury of, you know, investing for the markets we want we have to invest for the markets we have. Right. And we gave a little bit of nod to this earlier. But you know, there are now increasingly intelligent analysts who are saying, hey, you know, I’ve got indicators or, you know, have my own data that I’m looking at that say that it’s time to actually start getting bullish here. And I know that that’s gonna sound anathema to a certain percentage of people who are watching this video and have heard us rant for years about a lot of the secular fundamental issues that we are dealing with right now. You know, let us issues are still very much in play right now. It’s very, yeah, so it’s a very confusing time. And I guess, you know, let’s talk about that for a moment here. Like it’s just we’re at a time have you had mentioned this morning several times earlier that this is one of the heart Last, if not the hardest times to trade in your investing career, because the path forward looks like it could take so many different directions right now. But let me put this way, nobody knows what’s going to happen here. I think you have to, you have to take a balanced approach. And however you’re allocating it to say, look, if my primary thesis is wrong, do I have enough exposure on the other side of the table that I’m not going to get wiped out if my primary thesis is turned out? Not to be correct. But but let’s assume just for a second here, that folks like Michael Howe and Dan Tapiovaara, who I mentioned, let’s assume that they’re right. If they are, this is the moment where you deploy or at least start deploying capital buying into this market, because this is where the valuations have yet to catch up to what they think, you know, is coming ahead, right. It’s the time to, you know, be greedy when others are fearful. Right. And I want to be super clear right now, that is not my statement right now that this is the time, but I’m saying that we are beginning to see signs that it couldn’t be right now. If it is I will feel just as angry at the universe, that we did not get the cleansing effect that we need to get a lot of the malinvestment out of the system. And do I think that just looking at, you know, equity asset prices? Do I think that they are historically overvalued, still and all that yes, none of that has changed. But I’m, I’m willing to vote to hold the the alternative in my head along with my, you know, existing assumptions, and to have a debate and to begin to challenge my assumptions and say, Hey, maybe do I want to be doing anything different based upon some of these new inputs that are coming in? So Lance, I want to give you a chance to talk about this, because you’ve done a good job of this on this program, of saying you have to you have to keep your eyes open to what may be happening, even if it is definitely what you don’t think should be happening.

Lance Roberts 57:00
Exactly. No. So you know, you know, it’s a really interesting point, right, that you just made. So let’s let’s just play some assumptions here for a moment. Right. Valuations are still elevated, no doubt about that. earnings have come down a little. But if you look at the long term trend of earnings growth, earnings are still 20% deviated above their long term growth trend line. That’s unsustainable long term. So I’m making so I can make very easy cases why, you know, the market could come down some more, but here’s another, think about, and this is what we’re talking about here. So, first of all, let’s go back to 2020 for a moment and think that actually, we have to go back a little bit further, most likely 2018. So in September of 2018, the Federal Reserve says, Hey, we are nowhere near tight enough interest rate policy. In fact, Jerome Powell, his words were we’re nowhere near that neutral rate. And that was in September 2018. And market declines 20% into the bottom of 20 2018. At that point, Donald Trump says, hey, you know what, dude, I’m gonna fire you as fed, you know, Fed President, you’re done. And so, Jerome Powell wanted to keep his job quickly changes his tune, and says, Oh, yeah, we’re right there at the neutral rate, we’re good, we don’t need to hike rates anymore. And in fact, we’re probably gonna be cutting rates sooner than later by June and the following year, in 2019, they’re cutting rates to zero, then. So this is an important part of the story. So just follow with me for a second, right, because this all makes sense in a moment. So then, in 2019, and about September, the National Federation of Independent Business serving comes out. And I wrote an article at that time saying, recession signals everywhere, from the National Federation of Independent Business recession will be here within six to nine months. The Federal Reserve at the same time is doing this backdoor repo to bail out Citadel and a bunch of other hedge funds that were that were short on liquidity at that point, and needed access to funding. So we had this massive surge in repo through the last half of 2019. Now everybody’s at this point, it’s like, well, nobody could have seen the recession coming in 2020. Right, when we shut down the economy, because the pandemic but all the signals were there, the National Federation, get in business, what was going on with the Fed banks, everything else? And as is always the case, right? You got to have the structure for for a recession, you need a trigger, and that trigger was the pandemic and the shutdown of the economy had and all this other stuff not already occurred. It’s possible we could have shut down the economy just had a really mild recession real short. And you know, things might have been different. But because of that shutdown, and these other weeks structures in that point, we had this very deep decline and then we hit the system with liquidity. Now, here’s the point I’m making. Everything that we’re looking at now, and we’re going all these things say we should have a really deep recession are a bit skewed. because of what happened in 2020, we front load, we manufactured a recession, that causes deep economic drawdown, we laid off all these employees 50% Drop in employment, the whole nine yards. So now these companies have hired people back. Nobody wants to fire people, right? Our business, we don’t want to fire anybody. We’ve got good employees. And if we fire them, we’re not going to get them back. They’re gonna go work for somebody else. So there’s what’s called labor hoarding going on right now, that’s one thing that may be contributing to these, you know, kind of sustainably high employment numbers that we’re seeing, we are seeing labor force participation rates increase, that’s also important here. So all this stuff that we’ve been expecting to happen, may be offset somewhat by 5 trillion in liquidity. And this front loaded recession that we had last year, remember, normally, when the Feds hiking, interest rates, stock prices are declining, and you’re having a recession? You know, when the Fed starts cutting rates, normally, I said that backwards, let me rephrase that. When the Fed is hiking a trace, normally, stock prices are increasing because of momentum in the markets, right? Everything’s going upward, a bull market, everything’s great, the Feds hiking rates to slow down the economy, but that’s impacting anything yet. But this time, and 2022, the Feds hiking rates and markets are going down. So we front loaded that drawdown in equities as well. So now we’re to the point where we’re pausing. You know, we’re seeing this kind of stubbornly strong economic growth. And, you know, all of a sudden, we’ve kind of gone through this recessionary, you know, kind of earnings drawdown that now at least appears at the moment I think it has, but at least it appears to have stabilized at some level. So if that’s the case, this market could have bottomed in October, as we said, and to your guest point, the bottom may be in, but that doesn’t mean here’s, here’s the point I want to make. That doesn’t mean that there’s a another 12 years of 15% a year advances ahead of us, it just means that maybe we’ve seen the bottom of the market, we could see because valuations are still elevated, earnings are still above long term growth trends. Profit margins are still above long term trends, you know, some of those things have to go through the function of economic growth that drives those things, I can’t have, you know, massive profit margins, if I’m having 2% economic growth, those just don’t jive with each other. So we may be into a period where stocks don’t go down. But it doesn’t mean they go up a lot either. You know, we could be in a year of where returns on an annualized basis are no longer 12% a year, like they were from 2009 to 2020, which was four percentage points above the long term average from 1900 to 22,009. But maybe we’re going to be in a period of 567 percent rates of return, which are normal, by the way. But those are going to seem like they suck, because you’re so used to 12% returns in the markets over the last decade.

Adam Taggart 1:03:00
All right, let’s well look it to build off of that. So I think back to a term that Brent Johnson made recently on this channel, which is that, you know, he wouldn’t surprise him at all, if markets continue to go violently sideways from here, which is the term that he used. So you chuckling at that. But it couldn’t be in John Hussman. I know that you’re not saying this way. It’s but John husband’s models still project, basically 0% returns for the next decade total returns, right. So it’s not that it’s a flatline? You know, it’d be much more sort of a picking pony, but but kind of range bound. And why law a decade later, markets really haven’t gotten very far.

Lance Roberts 1:03:40
Yeah, absolutely. Absolutely. Right. And that’s, you know, Vault, I think we’re about to see potentially a period of volatility that, you know, is going to be, you know, where you have 10%, you know, up years followed by, you know, 5%, down years, 10%, down years, followed by another 10 or 15%, up year, followed by a 10%. Down, I mean, that kind of, you know, it could be all the entire year, I mean, you could have a 10% gain, and it goes to a 10% loss back to flat, you know, by the end of the year, I mean, it’s enough to make you nauseous, but that’s the type of market we could see here for a while.

Adam Taggart 1:04:11
Yeah. And that really underscores a theme that that you and I have been mentioning, but but a lot of the experts that I have on this channel dimension now for well over a year, which is look, you remove the great financial crisis from the data and from you know, 2001 to 2021 It was pretty much a straight elevator ride up, right? That That era is likely over now and but passive investing strategies work great, right? And so we have a whole investor class that’s, that’s very used to passive investing, right? Where the type of environment that you’re talking about here active investing becomes much much more essential to both making gains but protecting them as well. Right. So you know, in this type of invite varmint and I know that this observation kind of, you know, talks your book and talks Wealthion In terms of recommending people to advisors, but it’s a big reason why we do this, which is to say, it’s a different playbook than what most folks are habituated to right now. So if you don’t know the new playbook, then find somebody who does and draft off of them.

Lance Roberts 1:05:20
Yeah. And I think this is also really important about expectations, as well from investors is that, you know, market volatility is, is market volatility. And that means, you know, prices move up and down. So, you know, regardless of what financial advisor you work with, you know, don’t go in expecting that in a down year, they’re gonna make a lot of money, or in an up year, they’re gonna make a tremendous amount of money. You know, maybe they’ll get lucky and do that once or twice, but you cannot find, you know, really an investor that can repeatedly do that, over time, you know, what you’re looking for somebody that can perform, when markets are going up and mitigate losses on the way down still means they’re gonna lose some money, but just not lose as much as the market. But in and this is gonna be especially important, over a decade of time, where potentially you have the zero rate of return, the what will make the difference between you netting out zero and a loss is mitigating those downsides. It’s not the upside that matters. As long as you’re making some money on the upside, that’s great. But if you mitigate those downside losses, those upside gains, in the years you have them will compound and you can net out a positive return over a 10 year period, which is what the goal of investing is to begin with, but don’t have unreasonable expectations, because that leads you to taking on way too much risk that in a volatile market will really penalize you heavily.

Adam Taggart 1:06:40
Great point. Actually, there’s an interesting headline, I want to talk to you about volatility in just a second. But just to build up that point there. So I would expect that you would encourage people when looking at an advisor to look at average returns over time, versus Hey, would you do last year or the year before? Because what tends to happen a lot Human nature being what it is, is you look at the guy who had a killer year last year, and you say great, I want to put my money with that guy. And not only is it highly unlikely that they’re going to potentially be lucky again, if they were lucky there but but you what you’re doing there is you’re putting yourself at a disadvantage to reversion to the mean, right, which is what investors do all the time you put your money to the person who outperformed. And math just says hey, hit an outperform year, he’s probably going to have an underperform, you’re pretty soon. And so a

Lance Roberts 1:07:27
great example of this right last year. You know, in 2021, we said, you know that energy stocks were really undervalued, they’ve been really beaten up, there’s likely going to be a big outperformer they were big outperformance 2022. Then at the end of last year, everybody was piling into energy stocks, and they’re the worst performer this year. So the next two banks, I think banks have finally caught up with them. But you know, you know, but to your point, that’s it is the worst mistake that people make is chasing last year’s returns. And this is also important. We talked about average returns over time, never look at 135 and 10 year returns that Morningstar puts out those are the worst metrics for measuring portfolio performance, because that assumes that you started 135 or 10 years ago, if you started at anywhere in between those, those levels, your returns will be vastly different. So it’s important to look at every year’s returns relative to the market, averaging that out over time and say, okay, look, this manager and there’s some great mutual funds out there that just, you know, you see these reports every years like 80% of mutual fund managers outperform their index last year. Okay, so just go index and that way you can have average returns, that’s all you’re gonna get right? You’ll get market returns by investing indexing less your piece you’ll still underperform. But there’s some mutual fund managers out there that if you invested with them 1015 20 years ago, you have slaughtered the stock market they because they are great managers. But did they outperform every year? Absolutely not? Did they lose money? Absolutely. But over time, they’ve killed the market over time by by mitigating those downside losses and creating returns when they can it appears. Okay.

Adam Taggart 1:09:06
Real quick, just before I forget this, then we’re gonna move on to our last topic and get your trades. I just saw a headline right before I came home with you. I don’t know if you saw it earlier. But apparently some Mr. Mystery investor just put down a $5 million bet that VIX is going to rise to 70 at some point here. So just because we’re talking about volatility, who knows if that that’s going to pay off if it does more power to that guy. That’s a that’s a really bold bet. And you know, what’s right now 15

Lance Roberts 1:09:37
At the end careful with that, though, Adam. I mean, those make great headlines, but you don’t know the context. Right? So let’s let’s just presume for a minute, I’ve got $100 Million Dollar Portfolio. And, you know, I’ve got some gains in my portfolio this year. Markets are up, you know, seven 8% this year so far. And I want to hedge some downside risks. So I go put on a $5 million short position. There are $5 million position on vix to hedge my long position. So it’s that but the headline says $5 million bet that VIX is gonna go to the moon. Right? Actually, I’m just mitigating some risk in my portfolio. So you know, the problem these headlines are, they’re great, but they’re taken out of context. Now the guy is just, you know, balling it and saying, I got nothing else. I’m just gonna bet 5 million on this, then. That’s a move that’s got so

Adam Taggart 1:10:25
yeah, it look, I don’t think we know. Like I said it was sort of mystery investor. I’m not sure if they know why. And it could it probably likely is for a reason like you’re talking about here. But but it does underscore the fact that volatility as measured by the VIX, right now, it has been extremely suppressed. And there may be some elements to that with the advent of zero day, to expiration options and whatnot. But

Lance Roberts 1:10:53
unless you’re sure the VIX is telling us what we think it’s telling us because of that,

Adam Taggart 1:10:57
yeah. And I guess that’s kind of where I wanted to go here. So we talk about a more volatile, you know, period ahead. Some people might say, Oh, great, well, then I’ll just trade volatility, right. How do you do that in an environment where the VIX may be broken?

Lance Roberts 1:11:11
Well, so there is no, I mean, look, the easy way to say this is that if you’re the retail investor, if you’re just doing this on your own, I would not try trade. There’s a couple of reasons why. The first reason is, is that the only way you trade volatility and really do it well, is to actually trade the VIX options, right? So you’re gonna take on a bit of risk to do that. And then and the problem with trading options is, is that there’s plenty of historical data 90% of all options go to zero, right? So the odds of you making money trading volatility index is very risky. So probably trading ETFs is like, well, I’ll just buy volatility ETF, the problem is, is that they have the options in those ETFs. And those options expire, and there’s this time decay a premium on those options. And there’s, you know, these these, and they have to be rolled over, you know, on every period. And that is when those expire worthless have to be rolled over well, that eats into the return of the VIX. So if you buy the VIX, if you happen to buy it just right, and volatility spikes the next day, it’ll work for you, especially if you’re doing leveraged ETFs, you’ve got to time those just right. Because anytime that you have to hold those for a period of time, that internal roll of those options eats away at the profitability of that ETF and so it does not perform, you can overlay the VIX versus these ETFs. And they’re not a match. You don’t get that big upside bang that you’re looking for. So the only reason it really the only way to really do it is to trade the actual vix options. And I just, you know, it’s really, odds are unless you’re really adept at it and really know what you’re doing. And you know, have an understanding of the capital you’re putting at risk and why you’re putting it at risk. I would recommend you don’t do it, because you’re probably going to wind up hurting yourself more than you help yourself. Unless you look, you could get absolutely lucky. timing just right. Make a bunch of money. Sure. Good.

Adam Taggart 1:13:11
Anybody can get lucky. When you pick a bottle that would be because

Lance Roberts 1:13:15
consistency is the key. So

Adam Taggart 1:13:19
so but I’m just curious, like does the buying options on vix strike? Does that does that even work in an era now where we’re not sure if the VIX is even doing its job?

Lance Roberts 1:13:29
Well, no, it’s like for instance, everybody’s trading zero DTE I just read it. I was just reading an article, I think on Wednesday or Thursday. Most of those retail traders that are trading zero VT options are losing money in it. Yeah. You know, it’s just in at some point, it’s just you run out of money or you you’re or you get lucky. And so that’s

Adam Taggart 1:13:48
alright, it’s we’re getting a little short on time. But if we could if you could actually, could you just give the 62nd explanation of the zero DTE options and and why we went to this new system like white where they were introduced recently.

Lance Roberts 1:14:06
They’ve been around for a while actually. But they just become very popular because it’s a great way to speculate. So what options are out there all the time. So like for instance, you know, Apple is going to report earnings next quarter again, right? So they just reported earnings, and so they’re gonna report earnings, you know, three months from now. So I can go buy a call option as an example which is just an option to buy, you know, shares at some future price and on a specific date. That’s all that’s all an option is just a contract between two people Adam and I right we do a contract between each other. And we agree that if Apple is at x price on X date, Adam will sell me his stock. Otherwise he keeps his stock and I have paid Adam for the right to buy his stock at that price. And so he also gets money for me for that. So I lose all my money if the if the stock is not at that price. If it is at that price. So I get to buy it from Adam and he sells it to me. So that’s that’s basically our call option work put options are betting on the downside. So it’s exactly the same thing in reverse

Adam Taggart 1:15:08
it traditionally they’re the contracts are kind of monthly contracts, right you buy. You can go out further and by leaps and stuff, but but generally the timing frame was a month, right? Yeah,

Lance Roberts 1:15:20
you can go to Yahoo. finance’s example, pull up a stock symbol, and then go to the Options tab. And you can see all the call options for every given month, right and use and there’s basically a strike price of where the option is expected to be on a certain date, and then the buy and the sell price, right. So it’s all there for you. But you can see this, and I don’t really get complicated with all this. But normally, options are kind of future dated, well, what everybody started doing is, hey, look at what I can do here, this ops. And this started a while back, we would be going into like a triple witching, or it’s a Friday where futures index and stock options all expire at one time. And so we have these odd on the third Friday of every month, all these options expire, what people are doing is going in the night before, and then betting on how that option would trigger that stock would trade the next day. And they were buying these options with a very with less than 24 hours to maturity. So then as this kind of gain momentum, everybody says, hey, well, we can just issue these things. And so now we have daily options of these zero day to expiration, so it’s less than 24 hours to the maturity of this option. So people are trading these options on a daily basis, just basically betting on where the markets going to be. So just imagine, say, Adam, market closed at x price today, where do you think it’s going to open on Monday? Right? Or close on Monday? You say? Well, I think it’s going to rally on Monday, it’s gonna be 14 4200 on Monday, and I go, why thinks it’d be 4000 on Monday. And so we can make that bet. Right. And that’s all we’re doing. We’re just literally betting a where the market will open or close, you know, next week.

Adam Taggart 1:16:59
So for like a regular retail investor is is trading these just basically like day trading on steroids.

Lance Roberts 1:17:05
Yeah, it is. Because it’s high leverage, right? I can buy 100 shares of an s&p index for a very small amount of money. And if I win, I can make really good money at it.

Adam Taggart 1:17:17
Yeah. All right. I mean, this to me, this just sort of has the smell of for the I can understand that institutional traders, there might be reasons to do this for you know, other trades you’re taking and whatnot. But for the average retail investor doing this, to me, this is no different than just pulling the lever on the slot machine. Yes. Yeah, no control over this, you have no insight angle on what the market is going to do in any given day. Right. Exactly.

Lance Roberts 1:17:41
And remember, the guys that are selling you the option, they’re generally hedging something else they’ve got, you know, these are the, you know, the options makers, they’re basically taking orders in from somewhere else saying, Okay, I’m, I’m a, you know, $2 trillion asset manager, and I need to hedge off, you know, X amount of percentage of risk in my in my portfolio. So I’m going to sell these options against my portfolio to hedge the risk, well, you’re buying those options. And so there’s generally a, you know, somebody on the other side, that’s probably better prepared than you. And this is why again, most people trading zero DT options lose money on the retail side. But But think about it this way, your odds of winning, you know, are 5050, you could be right, you could be wrong. Maybe you make 50%, if you’re right, but you lose 100% If you’re wrong. Right. Right. And that’s, that’s, that’s the risk analysis you have to make if I’m right, how much money can I make versus losing everything on the street? Because that’s what’s going to happen? I mean, the risk of that 50% Risk of Loss is 100%. Loss of your principal. You might make some money on the 50%. If you’re right.

Adam Taggart 1:18:48
Okay, is it is it fair to say I’m going to make an extreme comment, but just to put a coat on this? Is it fair to say that the viewers that are watching this regular retail investors, if you’re if you’re going to trade zero DT options, you should just do it with house money that you you’re comfortable losing, like just just go into it, knowing that it’s just pure speculation like going on buying a lottery ticket today.

Lance Roberts 1:19:13
Let’s see that that that doesn’t work for me because I hate losing money, period. But yeah, this is what we call Vegas money. So think about it this way. You know, when you go to Vegas, your wife says, Okay, you can spend you know, right by your dollars in Vegas, right? Do not tap the credit card, do not put the mortgage up, right. So you know, that you’re basically going to bet money that if you lose it, you know, you’re not going to you know, devastate your lifestyle, right. So wipe out your investment account. Is this like I lost it. But the important thing is just always remember that when you lose a couple of grand, you know, you’ll add just a couple as like $30,000 worth of retirement money if you’d invested it properly. Yeah. So don’t ever wide off those two grand losses because they mean a lot long term. Yeah, you’re not gonna lose it. little bit of money that I’m not talking about where your portfolio declines a little bit near term, I’m not taught you, my portfolio was down five grand, let’s say, you know, I’ve lost 50,000 retirement. That’s not what I’m saying. I’m talking about when you lose something by taking on a speculative bet

Adam Taggart 1:20:14
that goes horribly wrong. Yeah, this is funny. This is the investing lecture you’re giving, which I give my older daughter who’s at college, and you know, his her first credit card. And, you know, I talked about the $350 pizza, right? Like, don’t don’t just use it to get the pizza now that by the time you’ve paid it off, you know that the whole thing is going to cost you interest and everything, you know, ultimately about 350 bucks. Right? So, great point. All right, um, well, look, we’re gonna get your trades in just a sec. But in the spirit of risk mitigation is interesting. I was gonna talk about this anyways, but I just saw a tweet that Mohamed El Erian put out talking about how, you know, JP Morgan just took over. So JP Morgan sent communications out to first republic, depositors saying, Hey, here’s what’s going to happen over the next couple of days. And they said, Look, if you get calls or texts from JP Morgan Chase, or first republic, it’s not us, we’re never going to recommend that you send us money via online tools like Zell, or wires, or electronic funds transfers. And the reason for all this, is there’s just a rampant amount of fraud going on right now. of scammers, you know, trying to build people out of, you know, their money, but targeting financial brands like that. And I gotta say, Lance, you know, same thing has been happening with myself and a lot of other players in the online Twitter space. For people who have followers, I get pretty frequent reports of, you know, people that are imposters that are trying to impersonate me, they’ve copied my Twitter handle, and they’ve just changed one little letter or period or something like that, to try to fool people. And what’s very common is is they reach out and they start a conversation and the person’s like, wow, hey, I don’t mean, I’m great to hear from you, right. And then they have a long conversation that ultimately, winds its way into, Oh, hey, I’ve got some great crypto model I’m really excited about it’s got great returns you interested, and then they try to get people to share their funds. This is a big issue. And it’s, it’s I know, it’s a big issue for the social media, social media platforms to try to, you know, get their arms around, and they’re not doing a great job of it right now, which is why I want to have this quick conversation is just to warn people that look, it’s going on, there are people out there that are trying to use other people’s brands and personalities to prey on you. And I just want to underscore that, you know, you’ll never hear from me and Lance, if you’ve said the same thing on this channel, you’ll never get directly solicited over social media, from myself from Wealthion, from RIA, or from any of our other financial advisory partners that are on this program. But you know, it’s amazing. And I know, Lance, I think some of your clients have recently lost money to a few of these scammers as well. It’s they’re pretty good at playing on, you know, people’s emotional weaknesses, are they I mean, they’re, it’s surprising how many smart people still find themselves becoming victim of scams like this.

Lance Roberts 1:23:15
No, absolutely. And look, these, you know, this is why, like, I threw a big fit a while back, because I was like, I’m not paying for verification on my Twitter account, right? And I was like, This is ridiculous, why would you I don’t care, because I cuz social media, to me is like, stupid. You know, it, you know, it’s a good resource for people and I can put out comments and we can put out research and those type of things. But I was like, I’m not gonna pay for that. And then shortly after I said that, and this is always the problem, I stick my foot in my mouth. We actually had a client get scammed. And he thought he was talking to us at this point. And, you know, it was looking at an account, had my picture had my banner, you know, had copies of my tweets on it. But it only had like, 12 followers, which was, you know, kind of the first hint that it might not be me. So, you know, but overlooked all that, right, just assumed it was me and got sucked into one of these scams. And this is why we said before, so that’s why I paid for verification. So if you ever get something from me, and it’s not from my verified account, and you know, I’m soliciting you something, it’s not me, because I will never solicit you, I’ll never, you know, tell you to do something or send money or anything like that. And in fact, I probably won’t respond to you much at all, because I’m actually working most of the day and not on social media. So you’re welcome to leave comments. I might get back to you. I might not on Twitter, if you want to talk to me, email me off my website, answer every email every day that comes directly to me. So if you get a response from me from that you will know because it’ll be my email address. Yeah. And

Adam Taggart 1:24:51
let me just add on to that too, which is look, if you’re ever at the part where you are going to part with some of your money For whoever you’re engaging with about some sort of transaction, absolutely verify, right? Pick up the phone, email, the headquarter, whatever. And just make sure that indeed the party that you think you were dealing with, can verify and prove to you that they are who they say they are. Because that’s, that’s where the ball seems to get dropped in the most painful way in these types of scams, is once the person sends the funds, and then they get that pit in their stomach of like, oh my god, wait a minute, I just get duped. You know, a little bit of pre verification could have saved the expensive lesson of sending your your funds off into the ether. Yeah,

Lance Roberts 1:25:35
it look this is this is one of the benefits of literally working with a financial advisor, which is we go through a lot of training, like we have consistent updates that we have to do for our training for SEC regulations. All of it is involved around scams, and email phishing, and all these things because all about client protection, right about protecting the client, their data, their accounts, their money, these type of things. And so like if you if you are a client of buyers, and you email and say, Hey, I need you to wire $40,000 to here, if you call, leave a message, we can’t act on any of that, we have to call you on the phone and say, Adam, got an email from you says you want to do this? Is that? Is that what you want to Yeah, once you Okay, well, you need to sign this form, I’m gonna send you this form on a secure email, you sign this form and send it back, then we’ll wire the money for you. But in a case of a client that did get defrauded, you know, pay attention to what your bank says, you know, he got into this, this issue, tried to send the wire, the bank kicked back the wire and said, This is clearly a scam. And he forced the wire through anyway. You know, if the bank is telling you, it’s a scam, it’s probably a scam. If you’re if your advisor is saying, Don’t do it, don’t do it. Right. Maybe it turned out that that investment was the greatest deal on the planet. And you would have made a million dollars and you can be mad at your advisor all day long for him talking you out of doing it. But 99.9% of the time, he’s going to tell you the right thing and probably keep you out of trouble and not losing that money. He’s a lot more important than maybe the one time that you would have made money on something.

Adam Taggart 1:27:16
Okay, thanks. Thanks, Lance. And look, folks, the reason why we’re bringing this up is not because it’s not just important message to deliver generally. But you know, we have heard some reports of people that have become real victims of this. And so it does happen. We want to try to minimize that from happening again. Alright, let’s look.

Lance Roberts 1:27:34
Real quick. Just last point, if it’s something on social media, just do it. Right. I mean, there, there is nothing good going on with social media. There’s a great I had a research article, sorry, a research chart on my Twitter account the other day, which is funny because it’s on social media, but it basically linked, you know, teen suicide rates and teen depression. And it says, since 2010, there’s been this massive surge of teen suicide and teen depressions. You know, when Facebook came public was Yeah, yeah, yeah. And so, you know, you know, the rise of social media has made people more, you know, more isolated, more depressed, more sad, more, you know, and more victim, because you don’t have a way to actually verify these issues. And there’s a lot of senior elderly scams that go on through social media, as well.

Adam Taggart 1:28:28
And a big reason why I’m bringing this up, folks is you know, you’re all seeing the headlines now about what’s going on with AI, but in AI, see it at an exponential rate. And that means it gets faster and better. It gets better at an accelerating pace, right? And so it’s just gonna get harder and harder because they’ve already have examples of cases where AI was used to basically mimic a family members voice, you know, calling a grandmother and saying, Oh, Grandma, I’m in jail, and I need money right now or else they’re gonna throw me in prison. And it you know, answers questions, just the way that you would expect your family member to answer right. And of course, that’s only going to get better as a improves. And in fact, just to just to show you an example of how convincing it can be, I just posted a video or retweeted a video on Twitter, where somebody did a deep fake of Jerome Powell coming coming back from his press conference the other day saying, Okay, guys, everything I said he was wrong. Here’s what I really meant to say. And it’s it’s hysterical. It’s funny, it’s very off color, just FYI. Set, but it’s pretty good. I mean, like you can kind of see it’s, it’s been manipulated, but like, you know, if you didn’t know who Jerome Powell was, or you know, whatever, like it’s not bad. It looks pretty convincing. It sounds just like him. And you can imagine how great it’s going to be in six months, how much better it’s going to be in six months or 12 months, right? So the risk of the scam The fraud parts are only going to get worse as this technology continues to accelerate. Alright, enough about scams. That’s what trades affinity you guys make this week? Yeah.

Lance Roberts 1:30:11
Yeah, we sold her index trading positions about two weeks ago, markets been in a correction since Friday was, you know, was a strong Friday. But again, it was pretty much driven by Apple for the most part, there was some other participates. Oil did pretty good on Friday, banks rebounded a bit. But that’s kind of a reflex of bounce promote kind of a short term oversold condition, we’re still on a sell signal right now. So you know, just we’re seeing a little bit of extra cash. When we kind of get to the point that we get a good buy signal and markets holding support, then we’ll probably take our portfolios to full weightings. Again, we’re just not quite there yet. Okay.

Adam Taggart 1:30:51
This is this may be a conversation to explore on a future podcast, but like we were just talking earlier about how it just seems that the banking system is going to keep consolidating until just JP Morgan, you know, owns the world, right. And we talked about these fewer and fewer number of stocks that that make up the market and an Apple seems to be the biggest. So you know, make it a joke. But maybe one day, the market is all just, you know, one company, it’s just Apple, right? The s&p one, right? Well, maybe

Lance Roberts 1:31:25
but you know, the problem is, is Apple’s buying 90 billion a year back in stock. So you keep that up long enough, you’re a trillion dollar company, well, it only takes 10 years to buy all your stock back. So

Adam Taggart 1:31:36
that’s actually really good math. But But where I’m going with this is like, you know, we we seem to have these parts of the sectors where there’s almost kind of a winner take all mentality. Right? And yeah, it might not be one company that wins. It might be a small cartel that that, you know, Hoover’s everything up. But but, you know, I don’t like it. But could that be a successful investing strategy going forward, which is like, just just own the cartels?

Lance Roberts 1:32:06
Well, there’s nothing wrong with it. You know, like, right now, I’m having a hard time with companies like McDonald’s is a good example. We’ve talked about this before, McDonald’s is a great brand. You know, even McDonald’s came out lately and said that customers are having trouble paying $9 for a hamburger at McDonalds. But, you know, this company, this company has not grown cells in five years, and they trade at a nine times price to sales. Now, that’s tech stock territory all day long Scott McNealy at Sun Micro said, You’re crazy paying 10 times price to sales. That means I can afford to pay nobody anything no taxes, no, no, no dividends, no payroll, no health care, no nothing. Everything’s got to go back to the the investor at 10 times right sells and that’s illegal. So, you know, there’s companies that are great companies Procter and Gamble others that Coca Cola massively overpriced relative to their earnings growth and their futures. Then there’s companies like Monster as a good example, monster beverage, which has been a huge characters lately, but trades at nine times price to sales was growing earnings that are very rapid rate. So theoretically, they can grow into that, that sales growth, ultimately, Apple is a mature company, it can’t grow cells that Fascinating, right? It just It can’t. And Microsoft is the same way. And so everybody’s now banking on Well, it’ll be AI, so AI is going to change everything. Even if Microsoft takes over on AI, which they’re making, they’re just now agreed to fund AMD to build more AI centric chips, you know, that’s going to be very hard to grow sales, when you’re that large, it’s just trying to turn the mic trying to turn the Titanic, it’s just you’re not gonna you have to grow sales a lot to make an incremental increase in your rate of sales growth. So there’s gonna be other companies out there, they’re gonna be much better bet. So, you know, it’s it may be the invidious of the world. It may be the MDS, but those are getting to be more mature companies as well. So the ones that really probably went from Ai, are probably companies we haven’t heard of yet. They’re small private companies coming up, they’re gonna develop some great technologies or get absorbed or eventually go public. But those are going to be the ones where you’ll make a lot of money. If you want to be safe. And play the ai ai venture, you buy Microsoft, Google, Amazon, Apple, AMD and Vidya. You make a portion of your portfolio those you know, those four or five stocks and you’ve probably got a bulk of the AI wind at your back.

Adam Taggart 1:34:31
Okay. You kind of ended up answering sort of a different question about hey, you know, here’s the way to invest in the AI wave. Let’s actually if you don’t mind, let’s earmark that to dive into more in a future discussion here. Because there’s getting you’re probably getting the same surge I am gonna

Lance Roberts 1:34:51
I’m gonna start an AI portfolio probably in the next couple of weeks. So

Adam Taggart 1:34:55
you jesting as you’re saying that are you?

Lance Roberts 1:34:57
seriously considering it? I’m trying to work through the mechanics of it right now, but I’m thinking about building a portfolio sleeve. That’s kind of AI centric.

Adam Taggart 1:35:07
Okay. Yeah. Because I’m getting tons of questions about just, hey, what’s AI is impact going to be on the the general economy? But then lots and lots of questions about, hey, you know, what are some ways to play this? So, so anyways, let’s earmark that for once you’ve done your research and you feel like you’ve got, you know, good direction on that. Alright, great. Well, look, folks, as we wrap up here, just want to remind folks of a couple things. One, if you are interested in seeing that new banking sector special report, while it’s still fresh, go watch that after this video, I’ll put a link to it in the description below. Lance did his usual great job of explaining, you know, how he’s thinking of processing through this challenging market environment. But you know, the one of the key takeaways is, you know, if you’re like most people, you’re you’re better your neural power is better spent on saying, How can I find the best navigator for me in this world, as opposed to trying to figure out which stocks to buy on your own given what a challenging environment is, how tough it is to do generally, and how most regular people who have jobs and families and other obligations just don’t have the bandwidth to do that. If you’ve got a good advisor in your life, who’s already doing that for you, great, stick with them. But if you don’t, or if you just like a second opinion of one who does take in all the factors that Lance and I have talked about here, perhaps even Lance and their team, they’re at real investment advisors, just go to wealthion.com, fill out the short form there, have a free consultation with these guys hear what they have to say. And with that being said, if you’re continue to enjoy these weekly market, recaps would like to see them continue, please support this channel by hitting the like button, then clicking on the red subscribe button below, as well as that little blue icon right next to it. Let’s, as usual, I’ll let you have the last word on the way out here.

Lance Roberts 1:36:56
Have a great weekend. We’ll see you all here next week. All right.

Adam Taggart 1:37:00
Thanks so much, Lance, everybody else thanks so much for watching.

Transcribed by https://otter.ai