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Portfolio manager Lance Roberts and Wealthion host Adam Taggart discuss the persisting sell signals Lance’s models are showing & whether this week’s rally in Tech stocks like Microsoft, Meta, Google, Amazon and Apple will soon reverse them. They also discuss the latest inflation, GDP and jobs data & debate whether a recession is indeed baked in or not.


Adam Taggart 0:04
Welcome to Wealthion. I’m Wealthion founder Adam Taggart welcoming you here at the end of another week for another weekly market recap with my good friend Portfolio Manager, Lance Roberts. Hey, Lance, how you doing?

Lance Roberts 0:17
I’m fine. It’s ready. Get ready for the weekend.

Adam Taggart 0:20
Yeah, well, you got your red shirt on and out you a little bit here. When we hopped on to record, you were sitting there strumming a guitar, like every good Texan cowboy should be doing.

Lance Roberts 0:30
Exactly right. So let’s do Friday on the range.

Adam Taggart 0:35
Yeah, I know exactly. Well, maybe we’ll have you do a little musical interlude coming into one of these videos in the future? No, we

Lance Roberts 0:41
won’t do that.

Adam Taggart 0:43
Hey, I got a lot for you here, including, I think an interesting topic. Not not a rant, necessarily. But hopefully we get we get time for that. But it’s it’s kind of a it has to do with stoicism. And we’ll get into that later if there’s time. But in the spirit of that mindset, I just want to say it’s nice to end the week, especially a little bit of a rough week with a good friend to have a good discussion. So I’m glad you’re here to join me.

Lance Roberts 1:10
I appreciate that very much. I feel the same way. All right, thanks.

Adam Taggart 1:13
All right. Well, let’s jump right in here. Um, let me get your thoughts on the week. Just setting up the context. The week was really a V shaped week, we kind of kind of fell into midweek and then things came roaring back on Thursday. Friday looks like it’s protecting most of those gains. So I guess we are now in that part of the market cycle where the earnings reports are starting to come in. And the market at least doesn’t seem to be hating yet. What it’s hearing, although I think there’s a lot of variety all over the board. I know Tech has done in general quite well, other parts of the economy not so well. What’s your assessment coming into this this week of reversals? Well, first of all, so

Lance Roberts 1:57
we got sell signals early in the week. And we have reduced some risks last week because of that. And now the market kind of sold off going into Wednesday, of course, then Thursday and Friday, big, big rally days because of technology stocks coming in with not so terrible earnings. And that was really, the theme of the week, which is not as terrible, as expected, was what was going on with earnings. But you got to keep this in mind. earnings for the first quarter in May of last year were $225 a share for earnings. They’re now down to 171. So you’ve had a $50 increase, sorry, a $50. Decrease in earnings expectations. So yeah, companies are beating estimates because we lowered the bar again, this is why I call it millennial earnings season. Everybody gets a trophy. But the good news was is that mega cap stocks, Microsoft, Google, Amazon all beat estimates. Amazon was down a little bit on Friday, but it was up big on Thursday was up almost 5% on Thursday gave about half that gain on Friday.

Adam Taggart 3:01
Can we just talk about that for a second? Because in after hours initially Amazon roared higher. It was up like 5% for the day on Thursday. So but then it rode like I want to say like 12% or something like that after hours, after hours. All of that back overnight.

Lance Roberts 3:16
Yeah, well, and again, you never didn’t look after hours that there’s like four people that trade that. So

Adam Taggart 3:22
you know, my point there was I think it was reacting, you had the print of the earnings release. But then you had the guidance being given in the earnings call that the market decided didn’t think was as rosy as just the print itself.

Lance Roberts 3:35
No, that’s exactly right. And again, it’s very thinly traded so that you can have these very outsized moves as my point. But yeah, the AWS revenue, their cloud services revenue was weaker than and the guidance really, it was really more about the guidance wasn’t as strong as they wanted. The other problem that Amazon had was they didn’t use the word ai 35 times in their earnings announcement, Google and Microsoft did so. You know, we’re now have moved you know, into era where if you want to have good earnings bump on your earnings, throw AI into your, you know, an asset I know you’re a food company or your your drug company, like Procter and Gamble, just throw some AI in there. It’ll help boost the stock a bit.

Adam Taggart 4:13
Yeah, I’m kind of trying to remember there were tons of examples back in 2001, where companies were just at the end of their name, even if they had nothing to do with the internet to watch their, their market values leap as a result. I’m trying to remember that there was a there was like a, like a like a Subway sandwich wasn’t even a chain. It was just like a store in New Jersey that got some ridiculous valuation a couple of years ago, and I can’t remember what was it crypto, there was something that they kind of hide under their name. And then

Lance Roberts 4:42
yeah, and they did that and yeah, and of course now they’re under investigation. So different story.

Adam Taggart 4:50
Not really a winning strategy. Yeah,

Lance Roberts 4:51
no, but you know, it’s interesting, though, right? You know, because too, you know, during the 2020 2021 was all about the metaverse, right everybody had to be in the metaverse and metadata, you know, Facebook changed their name to meta, because it’s all good meta meta is now it’s gone away. Yeah, it’s dead. Yeah. And again, you know, and Matt is announcement, you know, they came out and announced earnings stock had a big jump on the earnings announcement, mostly due to the cost cutting, but you know, there’s they’re gonna dump another 3 billion a quarter into the metaverse. And that’s really kind of old, old news. Now, it’s really all a, you know, AI, is now going to be the next revolution, we’ll see if that’s really going to be the case. But that’s what the market is going to latching on to.

Adam Taggart 5:34
Okay. And you may know this off the top of your head, I read a headline this morning yesterday, I can’t remember the exact details, but it was something like Facebook’s revenues, or maybe like, this could be wrong, I want to say like only 75% of where they were a couple years ago, I don’t know if their revenues are actually down. But But basically, the the market value to revenue right now is is more distorted than it was a couple years back. But it could be really expensive.

Lance Roberts 6:03
Ya know, and look, you know, Meta is cheap. You know, we talked about this before last year is you know, medicine was trading pretty cheaply last year. So, you know, it’s it’s rallying on basically, you know, you know, things are a little bit better, and they’re doing a lot of cost cutting, so people are chasing that stock. But really, it’s more than it’s not really people chasing value, if you’d like to look at the breadth of the market, the breadth of the market is more narrow. And now the it’s as narrow as now as it was back in 1999. You’ve got a very few number of stocks that are actually leading this market higher. More importantly, it’s mostly the mega caps. Let me give a good example of this. Okay, here’s two companies, one, company A has not grown sales in five years, it’s been advancing very sharply this year, it’s had just great returns this year. Its price to sales is nine times earnings. Do you want to own that company? Or would you rather own a company that trades at a point to nine times price to sales growth or sales every year and trades at a deep discount of fair value?

Adam Taggart 7:08
Right? Who wouldn’t? Right? Yeah, pick number take the difference between

Lance Roberts 7:11
that as McDonald’s and CVS. McDonald’s is trading like a tech stock at 9x sales, and hasn’t grown its earnings or revenues in five years, CVS is growing the revenue and earnings every year trades at a point to nine times sales with a three and a half percent dividend. You should want to buy CVS all day long. But that’s not what people are doing. They’re buying the stocks that are in the top market cap weighting of the index is basically just money hiding there, you know, but hedge funds, mutual funds, pension fund managers, etc. They’ve got to be allocated to the market because the markets going up. But how do you do that? You put it into the highly most liquid biggest market cap names. So it’s easy and easy out. And so that’s why we’re seeing this rush. It’s this FOMO right now to get into these companies to get money allocated. Because those stocks are going up and the markets are going higher.

Adam Taggart 8:01
Okay. And I do, I did just pull up the chart here of Mehta stock, it’s up 150%. Since November, I do want to give you credit, because you were saying back then, hey, it’s actually relatively cheap. And I know those words, were hard to come out of your mouth about a fang stock. But that did prove to be pretty correct at this point in time. Is it a good value at these prices? I think we can make a lot of arguments, probably not. But you know, it’s a good example of what you’re just talking about.

Lance Roberts 8:29
Yeah it was the then. But it’s not now. But there’s there’s a lot of good companies right now. They’re trading at a nice discount of fair value, but nobody wants to own those. Everybody wants to chase the stocks that are too expensive and going up, right? We’re just

Adam Taggart 8:41
not the sexy growth, which is what’s the rotation is going into right now. Right?

Lance Roberts 8:45
No, it’s It’s even companies like Procter and Gamble, McDonalds, Coke, you know, these, it’s these big blue chip names that everybody knows they’re not cheap, and they’re not valued. But that doesn’t mean that money flows aren’t going into them. Because they are

Adam Taggart 8:59
is this. You said earlier about kind of hedge funds hiding out and whatnot. Like, I remember back in my early days working in the, you know, in the internet. One of the challenges that we had going out to advertisers to get them to advertise online was resistance, because it was sort of a new medium. And a common line was, hey, look, nobody ever got fired for putting an ad in the Wall Street Journal. Right? Where it was sort of like, you know, hey, yeah, maybe it’s stodgy and whatever, but my boss isn’t going to fire me for making that that decision. Is that a little bit like, hey, my, until it crashes, my shareholders aren’t going to complain about me being in these, these these big name, you know, stocks, whether they’re really the right value or not, who knows, but in Lesson until they crack, I’m not gonna get in trouble for hiding out in them.

Lance Roberts 9:51
Well, it’s kind of that but it’s also just simply the function that most mutual funds, hedge funds, pension funds, they have to be fully allocated to something right You know, mutual fund has to have 95% of its assets invested, because they can’t bail you on cash. So there’s this need to be invested, then there’s also the need that when I put up my report, at the end of the quarter, I better own all those stocks that were going up right? In the end. And the other thing is just simply performance chasing, if I’m not generating performance, then money is going to leave and go somewhere else that is so you know, this is this is always that tug of war between what we call logic and it’s like, well, this doesn’t make any sense. And yet, markets are going up. And they’re going up fairly rapidly right now, because it really is ever since October, this markets been in a nice bullish trend. And that kind of defies all the logic that everybody talks about, I Oh, we’re having a recession, and this and that, and the other thing, but yet stocks to kind of climb this wall of worry. And that’s because there’s a tremendous amount of money sitting there, that’s gotta be invested. And everybody was kind of out of the market for the most part in the first half of last year. And as the market keeps going up, it keeps dragging more and more buyers back into the market reluctantly, right. They’re not not excited about getting the markets, but they’ve got to be invested. Because if they don’t generate returns, they lose their job.

Adam Taggart 11:12
So can we just talk about that just for a second. So when when people ask me about the financial advisors that well, who endorses your firm, the guys that knew arbour, one of the things I tell them is, is like, one of the reasons why we endorse your guys’s is you have the confidence to be in cash when you think that’s the right time to be there in cash. And that’s very hard for capital managers, you’re saying not just for financial advisors, but for a fund manager as well. Because they think well, my clients could be in cash on their own without me, right? So I’ve got to actually deploy that money into something and I say, No, you’re, you’re paying them for the wisdom of when to be in cash and when not to be right. And and, you know, you guys show there’s a stripe of financial advisor that does that. But I don’t really see that on the money manager side of things, the institutional funds side of things. And I wonder like, why is that? Like, why don’t we have a mentality that says no, no, like, there are times where I’m running a hedge fund, but I might go to 20 30% Cash, because there’s nothing good to buy in our sectors right now.

Lance Roberts 12:20
Right? Well, there’s that first. Yes, the Exchange Commission, which regulates money managers, financial advisors, etc. If they come in and do an audit, and I have a whole bunch of cash sitting on the sidelines, doing nothing, it doesn’t matter what I think, right? If I have a whole bunch of cash just sitting there, I can get penalized by the regulator for having too much cash. Because theoretically, over the long term, markets always go up. So I’m not doing my clients a service by not having that money invested. And I can be penalized for that, you know, by that by the Securities Exchange Commission. Also, the other side of that is, is that, you know, how does that know if I have a good excuse, right, the, you know, our model says this, this is what the market is doing. And we’re, we have this money sitting in cash for this reason, you know, I can explain this. But if it’s not part of my investment policy, to hold a lot of cash, there isn’t there. And again, this is why most mutual funds and things like that, they have a policy that says 95% of money has been invested. Because if I’m billing the client on cash, the SEC will say, you’re not being a good fiduciary to your client, you’ve got them in cash, the cash is earning money market interest, and you’re billing them on something you’re not doing any work on. So there is a there is a push by regulators to get in the markets. The other side of this is also what we call career risks to financial advisors. And it all sounds great, fine and dandy, because you know, you talk to people and right now in the market, there’s a lot of turmoil, a lot of uncertainty. And so go I don’t want to get in the markets right now. I just kind of want to be in cash. Well, that’s that’s fine. Got no problem with that we’re going to be in cash right now as well. But once I began to underperform that market, and no, maybe it’s not six months from now, maybe it’s not the end of this year. But come next year, if I’m grossly lagging the markets, clients are gonna start going, you know, there’s this other buys over here that beat the market last year, and he’s killing it, blah, blah, blah, and whatever it is, and it’s going to be no matter what people say, right? People say this all the time. Oh, I’m super conservative, or I’m super aggressive. And then when things don’t go whatever way it is the markets going. They want that right. People tell me all the time, it’s like I just want a 4% return as soon as the market does 10 They go Why do I have 10? Right. Psychology is also the big problem. That’s a big career risk for advisors to hold cash, which is why they don’t do it.

Adam Taggart 14:54
Yeah, I totally get that. No, of course. You know, if you’re a As a fund manager who becomes more conservative, at the right time to be conservative in the markets plunge in your fund is relatively outperforming all the rest, then there’s the career bump of everybody saying I want that, too. So where I’m going with this is just, and it wasn’t expecting to get into this discussion, but it’s interesting, which is, do you think that that policy of 95% allocation all the time is an intelligent one? Or do we want to put other types of structures in place that maybe says like, okay, yeah, so when you go to cash, you make less money on the part that’s in cash, but you’re making that decision? Because you think it’s the right decision in the long run for the future? full portfolio return?

Lance Roberts 15:39
Yeah, no, no, that’s that. That is our philosophy, right? That is how we work. And it’s how we lay it out for our clients to

Adam Taggart 15:43
Oh, no, I know, it’s how you work, I’m saying the street,

Lance Roberts 15:47
right, but you got to remember, for the street as a whole, their job is to charge an asset management fee, right. So there’s no real incentive for them to be in cash, because here’s the argument from the SEC. So you know, here’s my risk as an advisor. So as an advisor, we have a policy that says, we’re going to do these things, right, we’re going to, we’re going to underweight cash, and we’re going to overweight equities at certain times, or whatever it is. And I can actually, I run a risk of getting in trouble with the SEC for underperformance and you know, for making these decisions, I am better off in terms of regulatory, the regulatory environment of just when a client shows up putting all their money into an s&p index fund and saying, You’re gonna be fine. And this is why buy and hold is such a big thing in the industry, you’re gonna be fine, because over the next 40 years, markets are going to trend higher. So once I start doing anything other than an index based investment, I run risk of regulatory issues with the SEC, potentially, I’m not saying absolutely, but there’s a potential risk, that if I’m billing a client for providing a service, and I’m grossly lagging the market and wonder, or I’m taking on a whole lot of risks and try to beat the market. And that is outside the client’s risk tolerance, their knowledge base, those types of things, I run a risk, I’m better off with the SEC, of just being an index fund investor and staying that way.

Adam Taggart 17:12
I get that that’s almost like my example of a buy that Wall Street Journal, I don’t get fired. But my question is, and then we’ll move on. But like in your head of the SEC, you can make decisions by fiat, I’m granting you full authority. Would you have these same regulations? Or would you have more provisions in there to allow these guys to take more chips off the table, when they felt it was necessary?

Lance Roberts 17:36
It’s it’s a fine slope, because that opens up a whole lot of other problems. You know, on the regulatory environment, the reason the regulatory environment runs, the way it does, is because history says that the safest path for investors is just to invest in the markets and leave it alone. That’s, that’s what history says. And so once you start deviating from that structure, you’re taking on inherent risks with capital, which may be a benefit or not to the client, and remember, I’m a fiduciary. So my job is to the best thing I can for our clients all the time, that’s what a fiduciary does. But when you’re a big mutual fund, you’re managing hundreds of billions of dollars, or, you know, literally some of these funds do, it is very difficult to be going a whole lot into cash or going a whole lot in equities, because you’re moving markets at that point, you know, think about a Vanguard s&p 500 index fund trying to, you know, hold 40% cash while the index is going down and trying to get back into the market, you know, they’re gonna move that market in one direction or the other. And because they’re making markets at the same time, so it’s not efficient for them to do that as well.

Adam Taggart 18:44
All right, that point is interesting. All right. So folks, sorry, for the tangent here. Hopefully, you found this kind of an interesting discussion. And it’s interesting, because I thought for initially, you’re gonna be like, oh, yeah, they totally should have, you know, incentives to go to safety when they think it’s right and whatnot, but it sounds like it is more complex than that.

Lance Roberts 19:00
It really is. And, look, there’s a lot of great managers out there that, you know, raise cash and do the right things. And then there’s, you know, you know, back in 2008, you know, the husband funds, right, you know, John husband, one of the most brilliant guys on Wall Street, right, if you read his work, he’s phenomenally, you know, great, and, you know, his fun, you know, grossly outperformed the markets in 2008. And then he lagged for the last, you know, 910 years, because he’s been very conservative. Has he missed the turn? Yeah, I missed a turn. And that’s, and that’s grossly penalizing. And again, you know, it’s, you know, this is the client’s problem, right. This is at the end of the day, it’s the clients issue. Because they set you know, they go I want ultimately to ultra conservative, I think this is going to happen, and this actually goes right into the article I just posted today. I’ve been promised you I was gonna post this article on conviction. And I posted it today on the website. But you know, I was talking about you have, you know, when people have these ideas about a certain thing, you know, we were all talking about bricks, right? We know everybody needs to invest in the bricks back in 2008. And, you know, being convicted to the idea that emerging markets are going to outperform the rest of the of the world has been a terrible investment. You know, so it’s important to understand, you know, what markets are doing. And then we have to set aside those convictions and say, I’m convicted to the idea that valuations are expensive. And markets are going to have zero rate of return, whatever your conviction is. But that’s not happening. I’ve got to do this over here, because that’s what markets are doing. And that’s, that’s the challenge that that asset managers have to deal with. I don’t like the markets now the way they are, but they’re going up. So I have to be aware of that.

Adam Taggart 20:50
All right, well, look, we’re gonna get to your conviction point. In just a few minutes here, Lance, I’ve got the article already printed out here, you make some really great, provide some really great sort of just investing axioms that are kind of timeless at the end, I want to make sure you get a chance to delve through those real quick, let’s go back to some recent data here, just so we set the full table here. We did get some new data this week. New inflation data, specifically PCE, the readings have come in showing that it’s still kind of stubborn still at this point in time. core PCE, which is what the Fed looks most closely at remain flat at 4.6%. Right? So it didn’t go up. Okay, that’s good, but didn’t go down. either. It’s still at 4.6%. That’s nowhere near where the Fed wants it to be down to the 2% range. Services, inflation X shelter is stubbornly not decreasing here. And that’s, that’s important, because we shelter makes up such a big part of the CPI calculation, which is the one that everybody and all the media looks at. And, you know, we say, Okay, well, look, that’s a lagging indicator. And real time data shows that housing is coming down. So we can, you know, we can kind of have confidence that that’s going to come down as time goes on. But if you’re stripping it out, which this reading does, it shows that inflation has really not been coming down over the past couple of months, right. And so in services, or what, like 80%, of the consumer spending part of GDP. So So that’s, that’s very material, right? You combine that with this tweet from Nick timorous, who is looked at as the mouthpiece of the Fed. If you’re looking at the Feds favorite and metric for unemployment, it’s still looking really pretty hot. Wages and salaries for private sector workers, excluding incentive paid occupations, showed no meaningful deceleration. In q1, it’s still up 1.5%, quarter over quarter, which is the highest reading on record. After the 1.6% gain in q1 of last year, it’s up 5%, year over year. So you take these together, right? You too Oh, sorry, when last data point, the University of Michigan inflation expectations, data came out, that jumped as well. So you take these sort of stuck high and stubborn inflation and reading some of them increasing in certain cases, with the stubborn and still high employment data, strong employment data. Again, you and I’ve talked about this last, but for folks that are expecting the Fed to pivot, you know, this type of data says to the Fed, no, you gotta keep you gotta keep your pedal to the floor here. Because everything you’re doing to destroy demand is still not getting reflected in the key metrics that you’re trying to move here. Right. And the latest CME FedWatch tool. You and I were talking about this last week, Lance about how within the span of about a month, it had shifted the pivot from I think, initially June of this year to September. Now it’s pricing in the pivot in December. Right, right. So the, the the markets expectations are fast shifting here in the pivot side of things you and I have been saying for a long time, that is probably not going to pivot that disconnect between market expectations and what the Fed is saying was going to have to resolve it is looking now like it’s beginning to resolve the way you and I have been thinking, although curiously, with a pivot getting pushed out pretty substantially over the past couple of weeks. Markets haven’t repriced downwards as a result of that. I find that really interesting.

Lance Roberts 24:36
Well, the markets are now shifting their focus to again, first of all, just you know, I wouldn’t get too excited about the last couple of days it’s you know, again, earnings aren’t as terrible as everybody expected. Analysts are starting to ratchet up q2 q3 q4 estimates already. All those have risen by about 3% Over the last week, so they’re they’re already starting to have you know, Stronger expectations of growth and earnings. So in other words, the quarter one will be the trough in earnings, and they will be growing from here again. So that’s what Wall Street expects right now. They’re also looking at that GDP report, which came in at 1.1%. But spending was still strong. Now, you gotta look at that two ways. First of all, retail consumer spending declined by 35%, from the fourth quarter, but it was still positive is still positive 2.7% or 2.2%, ABLIS. In the first quarter, so you had a fairly sharp contraction spending but still positive. So there’s no real evidence right now that the consumers really hit the ropes yet, you know, to any great degree, we are seeing the link credit card delinquencies, and loan delinquencies, for consumers starting to rise. But that really hasn’t fed through the credit market yet. There’s really no stress of any sort in the credit markets. So you know, when you take a look at that, combined with employment, which still, you know, looks pretty strong here, there’s not a lot of to your point, there’s no real reason for the Fed to start cutting rates anytime soon. In fact, you know, I think there’s probably a reasonable expectation that we can hear some fairly hawkish language next week from the Fed when they do hike rates by 25 basis points, I think you may see some talk about that we may have to hike one more time before we’re done.

Adam Taggart 26:22
All right. And that’s a good reminder to folks that we do have the Feds next meeting next week. So when Lance and I are back on, you know, next weekend, we’ll have all the results from that that will be you know,

Lance Roberts 26:33
by the fifth of May, which is next Friday, we’ll have 87% of the s&p 500 will have reported also. But, you know, there was some, there’s some interesting reports in that I mean, ups and the packaging group, man, they had terrible earnings. You know, talking about, you know, the amount of shipments are slowing down and movement of transportation is slowing down. So, you know, there’s certainly some reports out there, there’s just the economy slowing down a lot more than it looks like. But again, it just haven’t fed through the headlines yet.

Adam Taggart 27:04
Yeah. And so interesting, let’s combine that, right. So the shipping companies, they are a great leading indicator into what the economy is going to do, because they are like, there’s packages or like their red blood cells going through the circulatory system, right, you know, they can tell us if more or less are flowing, and they’re saying less are flowing, right. And then it kind of the, the digital equivalent of that, because so much of the economy is now digital is these cloud computing forecasts, right, so that when Amazon is saying, Hey, we think that our you know, AWS cloud services are not going to grow as much. That’s sort of another side. It’s it’s like a twin indicator, right?

Lance Roberts 27:50
No, that’s, that’s, there’s a little difference there. And let me let me kind of break this up into two components. So when you talk about shipping? Yes, that’s absolutely correct. Because they count how many boxes did you put on a truck or a train or whatever? Right. So we’re talking about volume of shipment? We don’t really talk about the cost of shipping, we talked about the volume of shipping. And so, you know, the problem with the cloud services is that they may say, Well, we’re expecting our revenue to only grow by you know, 8% rather than 12%. Right? So you go okay, well, right there, right, less people using cloud service. That’s not really what that’s saying. What they’re saying is, is that there’s so there’s increasing competition in that space. And there’s more choices for people to make, I’m I’m only going to store data in one place, I’m gonna store it at Amazon or Microsoft or company BCV, whatever, right? So you know, as more competition comes online, prices for storage come down, just like anything else. So they’ve got to sell more storage at a lower cost to try to keep that revenue growth. So it’s a little different in from that standpoint of saying, shipping, I think shipping is a better economic indicator, because again, we talked about volume there, we don’t talk about the volume of story felt about cost. So that’s kind of two different metrics.

Adam Taggart 29:13
Okay, that’s good. Okay. So I was I was trying to merge them together. You’re saying they’re, they’re not quite apples and apples, not apples and oranges. But like apples in an apple orange hybrid? Got it? All right. Well, look, there’s um, there is a chart that I just wanted to bring up here. I’ve got a few other data points I want to go through. Oh, real quick. So you talked about, you mentioned GDP real quickly. So we’ve been talking for a couple of weeks about how the q1 GDP now number was kind of ping ponging around right. Started low, went lower than spikes up, came dropped a lot spike back up again. And then it actually dropped again, going into the last couple days of the quarter, so it actually closed at just 1.1%

Lance Roberts 30:00
GDP report was the nail. Yeah, yeah.

Adam Taggart 30:03
And then and then just so when I want to let folks know, we know the answer now to q1 GDP, it’s 1.1%. Growth, not great. And then right now they’re they’re starting GDP. Now for q2, this number is probably going to ping pong around just as much, but it’s at 1.7. Right now, just so folks know what the starting point is. There also was a chart I saw that I thought was interesting, where it shows how it basically survey results of consumers saying, Hey, I’m I’m, I’m beginning to find higher interest rates, or tighter bank credit lending a deterrent to my purchases in some key purchase areas, like homes and cars and whatnot. And it’s interesting to see these, these survey numbers have been spiking over the past couple of quarters, and in most cases are still, you know, on an upward trajectory here. And to me, this is just a really interesting visualization of the lag that that we see, right, you raise how it sorry, you hike rates, you tighten credit standards, it’s not that the world changes the next day, it takes oftentimes months or quarters for that to really flow through the economy in effort to really start to change customer behavior. And I think that this is kind of a good visualization of the trajectory of how it behavior is getting changed.

Lance Roberts 31:24
Yeah, no, absolutely. I mean, there’s there’s definite signs of pressure on consumption. But like I said, you take a look at the recent, you know, and what was interesting about that Atlanta Fed now, it kind of collapsed in the last month, it was right around 2.2, went to 1.1 fairly quickly. So, you know, it was almost like spending just kind of hit the brake in March. And you know, something really slowed down pretty dramatically since then. Now, we’ll probably see an uptick in spending in April and May because of tax refunds. So against that time of the year, also, that’s part of what’s helped helping fuel the market right now, as well. So as tax refunds command, people, you know, may be investing that money so. So it’s not uncommon to see April or May tend to be a little bit stronger month, we do have a sell signal that certainly suggests that’s in place right now. But that doesn’t mean just because you have a sell signal, doesn’t mean the market can’t rally a bit. But typically, more often than not, when that sell signal is in place, prices are lower over the next month or so. So again, that’s why we talked about, you know, taking a bit of profit, you know, use this rally to take a little bit of profit off right now raise a little bit of cash. You know, and then when, you know, as we get further into summer, we’ll probably have a little bit more of a correction here. The Fed hikes rates next week, and they’re pretty aggressive about their rate hike. In terms of language, we can see the market sell off of it wouldn’t be surprising at all. bullish news is we’ve clearly broken out a downtrend from last year have retested that have bounced off of it numerous times we stay above that downtrend line. And we’re now for four and a half percent roughly above the 20 day moving average, which net you know, once you’re more than 3.3%, above the 200 day moving average, that’s the end of the bear market, you’ve never gone back below it once you’ve gotten higher than that. So there’s enough breath now between where the market is not toward a moving average that are retested, that moving average is going to continue to provide support for the rally over the next few months. So again, use corrections as an opportunity to add exposure.

Adam Taggart 33:27
Okay, so a couple of really important comments you just made there. One, you said that your models currently still have a sell signal in place, which is very, very short term. Right? Yep, very short term focused. More importantly, probably, you’re saying that, that the markets have gained cruising altitude, if you will, right, so that they can, they can have some dips and whatnot, but they can still be comfortably in the UP channel. And so gosh, where to go with this. So they don’t really know where to go. It’s just what it is. It just is what it is. And that’s a big part of what you were saying earlier, and what you’re going to say when we talk about your piece, right? Which is like, Hey, don’t get too wedded to a conviction because you have to invest in the market that you have, whether you like it or not, whether it makes sense to you or doesn’t is that we can get more into this in a bit but but is that fact changing or impacting your frequently recently stated views on this channel that like I don’t know how we avoid going into a recession later this year? But I just know that technically things don’t look so bad.

Lance Roberts 34:42
Yeah, no, actually, it’s funny. I’ve been this weekend’s newsletter. I’m just I’m about three quarters of the way through writing it today. So I’ll have it out tomorrow. It’ll be up on the website in the morning. But the basically kind of going through and talking about earning season not as terrible as it was but you know, once you start kind of going through earnings. And then looking at kind of some of the underlying data UPS Paxton core, but others, you know, there’s certainly indications and again, it’s still, I don’t know how you look at all this data, and I’m gonna talk about that in a second. But just take a look at the Kansas City Fed manufacturing index Philly Fed leading economic indicators, you know, all those are certainly suggesting a recession is coming in yet the market saying no. So you really have a dichotomy of us here. And everything that we’re looking at is, you know, certainly historically speaking, every time this has happened, you’ve always had a recession. But here’s the caveat that I think we have to consider. Let’s talk about employment for just a moment. Because I think this will be something that we’re going to look back at and go, Oh, yeah, I missed that or not. But so employment right now is at 3.8 3.9%. Right? We have fairly strong employment data, you and I talk about every week, right? We do a layoff update, right? How many people are laying off jobs? And I’ve got one for this week, too. So yep. So layoffs are certainly there. And if we look at jobless claims, those have been rising, continuing claims have been rising. But one of the things that we may, that I you know, I’m always reticent to use the term that’s different than you know, this time is different, because generally never is but one potential risk to the employment view that Oh, employment has to spike higher, and we’re gonna have this big recession is and I look at this from the lens of my own business, right. So in 2020, you know, we shut down the economy, we laid off half of the country, right? So we have these massive layoffs. Now, with the exception of technology, right, wood technology went on a hiring spree, they just were hiring me, they were hiring people to basically go fetch bagels, and they hired people to assist them fetch bagels, I mean, it was just ridiculous how many people were being hired by tech companies to do stupid jobs. But those were, you know, we’re seeing a lot of layoffs in those companies. But if we get outside of that, and look at more of the small business to private business, they don’t operate that way. Right, they don’t have these massive amounts of cash flows coming in from, you know, you know, outside sources, investment banking, secondary offerings, you know, spec issuances, those type of things, most businesses like mine, were running a business. So it’s all about profit and loss. And we hired people going into the pandemic, we didn’t hire anybody during the pandemic, because, well, we were concerned like everybody else, what was going to happen coming out of that. And we’ve hired some people recently, but here’s the problem, you know, we hire the people we hire in our business, are the best of the best. We’re very excited. We just hired for our financial planning department, we just hired a professor from Texas a&m University, and we are ecstatic. She’s going to be an awesome addition to our staff. And those are the type of people we look for. So when you get an opportunity to hire that person, it doesn’t matter what happens economically, we’re going to do whatever we can to retain that person. Right. So my point about this is there’s a lot of businesses that hired people coming out of the pandemic, and they’ve got good quality labor, that they don’t want to lose, because if they lay them off, they may not get them back. And good quality, good quality labor is really, really hard to come by. So you know, when you start thinking about it in this term, this is what we call labor, hoarding. Companies will hoard labor as long as they can. Now there may be a point economically speaking, but they just can’t anymore. They’re like, man, we’re just losing too much money, we’ve got to go lay off some people, but because of that 2020 event where we had that massive layoff, so we’ve never had that type of event prior right prior to a recession, where you laid off a bunch of people hired them all back and fired them again. So this time, so what my point is, is that one thing we have to consider is that maybe that event, and then the issuance of hiring these people back and hiring quality labor, that we may not see this big surge in unemployment that everybody’s kind of expecting. And that will certainly have a little bit of an impact on the depth of the recession. You know, one thing that causes deep recessions, people lose their jobs, they can’t spend money, and there’s no jobs to be had. That causes a much deeper recession than going through what could technically be and I hate to use this term, because again, I’m not saying this time is different. I’m just throwing out an idea to think about, but going through going through a economic slowdown with full employment. And that’s something that that again, it’s just something to consider. I’m not saying that’s going to be okay. So don’t come back to me and six months ago say you were wrong. I’m just saying you know, we have to at least give that some consideration because was a bad event. And I’ve been I’ve been noodling on this for the last couple of months. Because, you know, we keep seeing these employment numbers come in and jobless claims aren’t spiking. They’re going up a little bit here, though. We’re seeing those layoffs in very select areas. And those were companies that really just went nuts hiring people after the pandemic.

Adam Taggart 40:18
All right, well, you heard it here, folks. Lance, Robert predicts No, no landing recession. All gonna be sunshine and roses. It’s a good, I’m gonna say devil’s advocate to think about, it’s a harder thing to measure. Simply because of the layoffs that we read about in the paper are de facto big brands that people know about. Right. They’re not writing about the sandwich shop down the street. Right. I will say corroborating your point there. Some of these recent I don’t think it was Philly Fed, but one of these recent reports like that. Regional reports came out and said, Hey, one of the biggest issues that the you know, the businesses in our area are reporting is the challenge of finding good labor. Right. So the labor market is still pretty tight at this point in a lot of places. Right? Yeah.

Lance Roberts 41:10
It’s I’m saying in the small businesses, that’s a real challenge. And in my business in particular, we have great employees. And, you know, we’ll take, you know, the partners will take take us before we fire people at this point, because we just can’t get these people back.

Adam Taggart 41:26
Right, right. Well, in your case, it’s really hard because you have to find somebody who’s willing to work with Lance Roberts. I mean, they exactly that’s a needle in a haystack. Yeah, exactly.

Lance Roberts 41:36
And that’s why they don’t. Alright.

Adam Taggart 41:40
Well, hey, just to hit you with the other side of the argument for a second. One, just to refresh folks that didn’t watch the interview that we did last week with Michael Kantrowitz, he has to help framework the E is employment. That’s the final stage of the hope framework. To your point, Lance, you know, he has said we have not seen employment degrade to the point yet where, you know, you expect that fourth domino domino to topple. So to your point, like, had hadn’t happened yet. And until it happens, you really shouldn’t put your money necessarily on a hard landing recession coming anytime in the near future. Once it does, obviously, it’s game on. So he basically just said, Look, I don’t know if and when it’s going to topple, I’m just telling you, I’m gonna be watching it real closely. And when it when I see employment start to get uncomfortably high, then I’ll let you know. Right. That being said, layoffs continue, I will mention a couple of names just just to sort of show the scale and the fact that it’s not just in certain sectors, it’s pretty much everywhere. Now. These are bigger companies. So they don’t disqualify your point about small business, which is the majority of the job creation in the country. I do want to say two things. One, I had a great interview with Darius Dale this week, and he made the comment that the Fed has indirectly projected a recession. And the reason why he says that is because he says by the Feds own projections, they are projecting youth unemployment, as measured by you three to be at 4.5% by December of this year. And if you look at history, you three hasn’t been that high, except in previous recessionary periods. Not saying that means a recession is coming. But it’s an interesting point, you clearly have a comment to it.

Lance Roberts 43:31
Yeah, no, he, the Fed is not indirectly made that comment about a recession. Jerome Powell has said, we expect a recession period, he said this, and one of the fascinating facts about that, and you know, this going back in the 90s, and in 2000, and in 2007, you never had a Federal Reserve official come out and say, we expect the potential of a recession. You ever, ever, ever, ever, ever, ever. And so the fact that they would that Jerome Powell actually said that. And again, you know, you have to remember that if what the Fed says is how the market reacts. So, if the Fed came out and said, Man, we really, you know, kind of messed up on monetary policy, and we can’t fix this and it’s gonna be a bad recession. I mean, everything would just seize up tomorrow, you’d have a recession, the fact that they’ve been dropped, they started out talking about, well, we might have a recession and could be, and now they’re getting more adamant that it’s likely we’re gonna have a at least a light recession. You’ve never heard of Fed Fed officials say that. So again, you know, the fact that they’re prepping markets for this and again, this is how the Fed works. Right? The Fed drops these little balloons so the market can adjust. And, you know, last weekend’s newsletter was talking about rolling recessions and how the markets had time between these events. Russia, Ukraine, IPOs Spax you know, that fall out then we had the bank crisis and these things have been spread out enough that the market takes a hit is able to recover. The next tip comes the market is able to recover in prices this stuff in. So that’s one thing that’s alleviating that big downside flush that everybody keeps expecting is because these hits keep coming with enough space to allow the markets to adjust for it. And the Feds been doing a good job of dropping these hints in the market and letting the market adopt that idea of a mild recession. Now the markets aren’t ready for a break like a big credit related break. Right. But if it is just a slight slowdown in the economy, the markets priced that in

Adam Taggart 45:36
already. Yeah. And of course, then the question becomes slight or heavy. Yeah, I won’t repeat it all. But the Kantrowitz, he’s he’s got all the factors for what determines a soft landing or a hard landing. Spoiler alert. Everything we’re seeing is hard landing right now. But that’s

Lance Roberts 45:52
in the market. And look, markets have not priced in the earnings decline that is necessary for hard landing. They’ve pushed in a mild recession. In terms of an economic earnings slowdown. They have not priced in an earnings slowdown for an actual kind of run of the mill. You know, real recession. Yep. Right now a credit crisis event. Nobody’s price any issue. Yeah. Yep.

Adam Taggart 46:19
All right. So one more point on this theme. Capital One CEO, Richard fair bank. He had some pretty sobering words. And remember, Capital One is a massive credit card company it sees consumer spending. He says the following says the delinquency rate for customers at least 30 days late on payment Rose 134 basis points from one year earlier, up now to 3.66%, reaching the highest level since March 2019. So delinquencies are going up, as you said earlier, but then he said this, we are assuming a material worsening of labor markets, with the unemployment rate rising from today’s very low levels to above 5%. By the end of 2023. We’re also assuming adverse effects from inflation and some further worsening of consumer profiles from the flip side of their extraordinary outperformance. In the earlier period, during the pandemic, I thought that was really sobering. I mean, to be to be calling for unemployment above 5%. In basically, what, seven months? That’s pretty big deal.

Lance Roberts 47:25
Yeah. But that’s what the Feds been projecting to. So all he’s basically repeating is what the Feds been saying. Right? So So again, the markets are pricing that in already, because that’s been pretty much the Fed, kind of the Fed mantra, really, since last year was unemployment between four to 5%. Take a look at their projections inflation remaining high, but coming down at the end of next year growth actually slowing to sub 2%, you know, their long term growth rates now 1.7%. So you know, all that, again, this is my point, you know, the markets have had all this to feed on. And so markets have been pricing this stuff in and that’s

Adam Taggart 47:59
giving markets are really pricing at a 5% unemployment rate. Yeah. So when did that happen? We’re at 41 something right now. I was that priced in?

Lance Roberts 48:09
Well, as it was last year, right. So you had the big earnings decline? You again, we dropped estimates by $50, a share estimate. Now now now, look, I’m just telling you what the markets are doing, you know, you take a look at earnings estimates, they’re still massively above long term trend growth lines. So you know, firms have expensiveness of the market. And the ability for companies to maintain profit margins at these levels, earnings at these levels are really, really difficult to justify, because you don’t have $5 trillion worth of liquidity being pumped into the markets like he did last in 2020. But having said that, you still have a lot of money in the system, right? m two as a percentage of GDP is still extremely high. So that circulation of money is still sitting out there. And the markets are seeing that come in, you know, sales, sales for companies aren’t terrible revenue for companies, you know, have, you know, met estimates, in some cases exceeding estimates, again, much lower, you’re right, they’re getting over these lower bars, but it’s not been terrible. So this is allowing that market to adjust for these outcomes because things aren’t just falling off the cliff. And the markets are good having enough time to adjust for kind of the realities of the company, you know, think about it’s the old you know, boiling frog in water, right? And you know, that things are happening slow enough that it’s allowing the markets to adjust for these more negative outcomes without just completely falling off the cliff. Oh, you know that if that makes sense.

Adam Taggart 49:41
It does. It does I get it but I’m going to ask this partially for me, but for other viewers that might be wrestling with the same which is so as you said, earnings have come down over the past year what s&p earnings was like 220 something 275 bucks a share. Up to 25 to 171. Okay, and when was 25? Last Last May last May? Last May. Okay. And the s&p is down how much in that interim period?

Lance Roberts 50:12
We’re down from January of last year, we’re down. I think we’re down like 12%. Now. Okay. Yeah, we were, we were down 2018. With, you know, total return basis, we were down to 18%. At the end of 2022.

Adam Taggart 50:29
Yeah, yeah. But my point, though, is, is we’re down. And I guess if I do the math in my head, from what you just said, it’s 50. Yeah. I mean, it’s not quite as it’s we’re not this and p is not down as much as earnings estimates have come down. Right. Yeah. And so, you know, I just, I don’t know, I just sort of wonder like, Well, where is the repricing then? Shouldn’t it be? Shouldn’t it be lower from here? Right? Well,

Lance Roberts 50:55
technically, it should. Right. But again, you know, remember, markets, price board expectations, not trailing expectations. So you had the sell off last year, and now Ford expectations are rising. So again, from an investment standpoint, I’m buying future cash flows, and the future cash flows are improving. I want to buy that now. Because I want to get, you know, I want to get in early to get those future cash flows. Right. So that’s the mentality of the herd. Right? So that’s kind of what’s going on. I mean, you know, and again, over the last couple of days, markets are starting to kind of get this sense that, you know, the markets have, you know, are starting to stabilize here, the economic data is very low, right. So one thing that you’ve also got to factor in is we’ve had big declines and a lot of this economic data at some point that’s going to trough. And as we’ve talked about before, there’s simply shame that at some point, you’re going to just, you’re going to run out of stuff, and you’re gonna have to release no inventory was a big drag in the GDP report. Well, eventually, people are gonna run out, we had all this excess inventory from 2022, right, everybody stocked up after the pandemic, and we’ve been selling all that inventory down. But at some point, you’re simply going to run out of inventory. And you’re going to have to go buy more inventory, right, there’s always going to be some demand and maybe less demand, but there’s still going to be demand there. And at some point, you’re gonna get low enough on inventories, that you just simply have no choice but to go buy something. And that’s going to start economic activity again. And so that’s what markets are trying to figure out. They’re trying to price that in, in terms of how far have we come? Have we come enough? And And look, there’s a good argument that we haven’t, there’s good arguments that this market has got another 10% to the downside, this summer. And that wouldn’t surprise me at all. But, you know, we’ve got to also start realizing we’ve been in 12, or 15 months now have a pretty negative economic environment. And those periods will end. The question is, and we are getting to the longer stretch of that kind of negative economic environment, those environments lasts between 12 and 24 months, and we’re 15 months into this. So we’re getting onto the other side of just where the normal economic trough of an economic downturn will occur.

Adam Taggart 53:18
Yeah, and I think this is really important point. So you can see Lance that my brain is wrestling with the, we haven’t seen the reckoning that I feel the data has been telling us that we should have, right and I know that you share that in many ways. But you’ve got the seasoned experience of somebody who’s managed capital in the markets for decades, and said, Hey, looking at these markets, they they have cycles to them, and they behave in certain ways. And what I hear you saying is, is people who get to convicted, and we’ll get to your piece in just a moment, they could be potentially at risk for what happened to a lot of people coming out of 2008. Right, which is to say, Hey, I, you know, we papered over the problems, we didn’t do any real structural reforms that, that addressed the key issues that created, you know, the financial crisis, and, you know, pretty quickly stocks and housing, you know, within a couple of years, we’re kind of back up near their, their, their 2007 highs, right? And people were like, well, we’re just right back to the bubble top right. And, and clearly, this is going to roll over again. And then we had basically, you know, nine more years of the market, just hitting new highs year after year after year, and you missed all that, right? So you’re basically just saying, you know, look, you gotta be, you gotta be conscious to the fact that markets have these cycles, we’re pretty far into a down cycle. And at some point, it’s going to bottom the market is going to snip that out early. It’s going to start taking off faster than you expect. And then you could very well get stuck in that saying, well, it’s moved so much now I gotta wait for it to come back down. And then you know, may not Right. So you’re just you’re just telling us to be, you know, not convicted?

Lance Roberts 55:05
Well, it’s kind of like, you know, those, you know, I love, I love espionage movies. And I like I like, you know, shows where, you know, there’s some criminal that’s being chased or whatever, I love that kind of stuff, right that, you know, where there’s a really smart criminal at work of some sort. And, you know, and this is kind of the ID you kind of almost got to approach this as, like one of the, you know, the CIA agents or the FBI agents in these movies. And you’ve got, you’ve got this, you got this evidence that you’re working with, and, you know, clearly on the murder weapon, you know, I’ve got the fingerprints of the culprit, I’ve got, you know, I’ve got the murder weapon in my hand, and all the evidence points to this one particular individual. But as we go through the movie, we figure out that well, the fingerprints were planted and the evidence the DNA was planted. And it really wasn’t this guy, it was his whole shadow organization over yourself, that kind of stuff. You know, but that’s the way you’ve got to approach this market is that we’ve got to take look, the it’s really easy to take the the the anecdotal evidence that we have, we take all these little individual pieces of evidence and say, oh, yeah, every time this happens, there’s a recession, because that’s what the evidence says. All I’m saying is, is that just because the evidence says that this has to happen, it doesn’t necessarily mean it has to happen. And we have to be able to parse through this data and say, what’s keeping the economic recession from happening? Well, what’s different, we have two as a very high, but liquidity, you know, we have a liquidity index that we track, I was on Charles Payne yesterday talking about this very thing, that index has turned down. And that suggests lower asset prices as that liquidity index is declining. Now, that hasn’t happened yesterday or today. But there’s not those don’t particularly move in lockstep markets can do things that are really irrational short term, but liquidity index says lower prices over the next couple of months, which is why, you know, we have a sell signal, we talked about raising some cash, that doesn’t mean sell everything just means take, take some profits and raise liquid cash to kind of hedge yourself a bit rebalanced risks, I think we’ll have a better buying opportunity at some point this summer. But we’ll also have more data. So every time we go through these kinds of buy and sell cycles in the market, we keep piling up more and more data, more and more evidence that’s pointing us to the real culprit of the the the economic environment that we’ve got. Yeah.

Adam Taggart 57:48
So look, I understand there’s going to be some people who have been long term watchers of this channel, saying one week you guys are bullish. And then next week, you sound bearish. And now it’s making me think that the markets never going to correct again, and we’re not going to have any landing.

Lance Roberts 58:01
Yes, yes, the market is going to correct again, it’s not going to go down 30%, but it is going to correct and go have an opportunity to put some money to work. Yes, absolutely.

Adam Taggart 58:11
Okay. So but what I what I want to reiterate is what we sort of said coming into this year, is it was going to be the year the audible, right it was going to it’s probably going to look very different that from month to month, maybe even times it week to week and the euro certainly proved that true so far.

Lance Roberts 58:31
It’s frustrating.

Adam Taggart 58:32
It is frustrating. And I asked you obviously about your trades a little bit. But but maybe before asked about the specific trades, like just like, how are you approaching managing in this environment? Where I am sure, like you said last week, you said luck. You know, we sit down around the table, we said who wants to be the bowl, argue the both side? And everyone’s like, I don’t want to you know, it seems like the losing case. Right. But to your point like, you know, sometimes Blofeld, wins. Right. Yeah. You know, even if

Lance Roberts 59:00
no, no, no, no, that’s a great example. Right. Blofeld, wins, sometimes, but he always loses in the end, right. Eventually, he always gets caught. It may take a couple of movies to catch Bowfell. But eventually he gets caught. Right. So you know, just because the evidence that you have in front of you doesn’t work out right now. Doesn’t mean it won’t either. You know, again, there’s, you know, is there a potential of a deep recession later on this year? Sure. Absolutely. That’s, there’s a risk of that, you know, the one thing that is going to take for us to have a, you know, for those that are hoping for a 35% decline, and like, you know, I’m convinced that you know, we’re gonna have this big, you know, repricing of risk, you need a credit event. A credit event is nothing that we have economically right now. It you know, so what I mean by that is, is that we talked about this last week with the Lehman moment. There’s anything that you can think of right now, the market is already aware of it. That’s already priced in, what the market hasn’t priced in is some event that nobody’s thought

Adam Taggart 1:00:06
about something that’s nobody thought of it has thought, yeah,

Lance Roberts 1:00:09
it could be. You know, it has to be an it would have to be something big, right? It has to be Goldman Sachs, right? Going under, you know, that type of isn’t going to happen, by the way. But, you know, it’s got to be something so shocking, that the entire market literally just shuts down. That’s where you get that big 35% decline outside of that, you know, we’re gonna have another five to 10% correction probably this year. And if we do I buy it.

Adam Taggart 1:00:38
Okay, and yeah, let me let me ask about that, too. So, you guys have had more cash this year than I think you normally do. Right? Ever. Okay, you

Lance Roberts 1:00:48
have more cash this year? Since 2008. Right? Yeah,

Adam Taggart 1:00:51
I would, I would bet that a lot of people watching this channel, manage their own money probably done the same. And they probably also bought more T bills than they’d ever had before to. As you rightly said, you know, that’s not a destination. Right? If you’re looking to build your wealth over time, you know, through investing, sitting in cash, all the time, sitting in T bills all the time is not the way to get there over the course of your investing horizon, you have to begin to put that money to work, obviously, you want to do that, when the risk return ratio looks favorable, right. So, you know, how will you be making that? So let me ask this early put it this way, I interpret what you’re telling people is to, you know, like, be actively vigilant about that risk return ratio, because there may indeed become opportunities even this year, right, while there’s still sort of a specter that yes, there could be a deep recession coming in until we see some really big indicators that it’s coming soon, there’s going to be opportunity to put some of that cash to work, not all of it, but sit put some of that cash to work in a better way than just having 50 plus percent of your, your wealth just just parked. Right? Well,

Lance Roberts 1:02:11
no, like, you know, earlier this year, we bought more Microsoft is example we like what they’re doing as a company. So there’s those opportunities, Microsoft had a big decline. We bought Amazon back last year, you know, stuff like that, right? This year, we’ve been doing a lot more trading where in February, we wrote an article talking about, hey, need to take money off the table, we got sell signals. In March, we said, hey, time to put money back to work. And you know, we bought some index ETFs to trade that rally. And we took those off over the last, you know, couple of weeks, you know, and because we’re back on sell signals, and that’s really going to be a big chunk of the of the of what this year looks like. Now, if we get another five or 10% correction, we pull back towards some level of of good support for the markets get the markets really good and oversold, we’ll probably take our allocations back to full weights, as you know, depending on what the environment looks like at that point. But if we get a good blow off in the market, that gives us an opportunity to buy some oversold assets that are still in bullish uptrend, we’ll want to actually, you know, we’ll definitely want to add those into our portfolio for sure. And get that capital put to work because as long as markets remain in a bullish trend, we want to participate with that rally, because again, at some point, you know, my clients will forgive me this year if underperform because, you know, there’s so much uncertainty, we’re having this conversation right here back and forth, they’ll forgive me this year, you know, when we go to have our company just had client dinners for the last few days, you know, just, you know, meeting with people going over stuff and etc. And you know, we’re gonna be doing a lot of these this year, we’ve got a whole slate of client appreciation events that we’re putting together to go meet with our clients get in front of them talking about what’s going on in the markets, because it’s a very turbulent time. I wish we could do it for every one of our clients. We’ve got other stuff that we’re doing for everybody. But you know, there’s just this is a time where you need more touch with clients. And this is why we send out, you know, emails to our clients every Monday, every Tuesday. We have daily market commentaries, we have weekly newsletters, I mean, we flood our client base with information, you know, every week to keep them on top of what we’re doing, because this is going to be a year of a lot of uncertainty. But if I underperform this year, they’ll forgive me because you know, hey, it’s a tough market finding form next year and the markets are strong, and I haven’t form next year, they’re not going to forgive me. Because, again, you know, everybody in the world looks at their portfolio performance from one year to the next. They don’t look at it over a longer term timeframe. So once you start to underperform for very long, you’re gonna start losing clients to other other managers. And that’s just an eighth festival I talked about earlier is called career risk. That’s just the nature of the beast. That’s the way the money management works. And despite what people say, they can say I’m extremely conservative and I don’t want to take any risk in the markets but as soon as the markets are up 10 Or 15% They’re calling you up, why am I not in the market? Look, you told me you didn’t want any risks, you know. So that’s the, that’s the challenge, why we have to navigate markets because we ain’t we love our clients, we want to make sure our clients reach our reach their goals, and you know, sitting in cash isn’t gonna get them there. But, you know, what they’re depending on us to do is to navigate these markets with at least with the least amount of risk possible, but they still expect us to perform in the markets. And that’s what we have to deliver.

Adam Taggart 1:05:30
Yeah. It’s great insight into your, you know, your role there. And, but it you know, it’s like, I feel the frustration. I would I think most people watching this video, they’re just like, God, it’s so freakin complicated, right? Like, you know, a lot of people are like, Look, I just don’t like the game. So I’m gonna sit on the sidelines, right. And I’ve had a, I’ve had a complaint for the last decade plus, which is that the Federal Reserve and the other central banks, they basically removed the sidelines as a safe place to be right, because you couldn’t get any return. Right. And so, a lot of people, especially those who were older, and were expecting to live off of fixed income or whatnot, it was almost like a sword at your back out on the pirate ship plank, right? And just forcing you out the risk curve, right? And, and now, you know, it’s like, oh, okay, well, you can sit and safety and get paid, right, you can get paid, you know, near 5% on a T bill, which is great. But the only reason you can do that is because the central banks on least are assisted and unleashing all this inflation. And you’re still not getting a real return yet on that, right? No, it still isn’t great, right?

Lance Roberts 1:06:43
Look, if you get 4% on the money market, that’s not bad, right. But I call it Gilligan’s Island, because it’s a three hour tour, you know, you know, this is gonna be a very shortly, this little stint on the sideline where I was tasked to get 4%. Now that’ll stand on the sidelines is not going to last very long rates are going back to zero with the Fed either late this year or next year. But they’re going back to zero at some point. And it’s just a function of time we get there because you can’t have as much debt as we have. And as much debt issuance as we need. With high interest rates rates have to come down. Because our whole society is built upon cheap debt 30% of the Russell 2000 depend on debt refinancing just to stay in business, they can’t do that at 5% interest rates, it’s just not going to happen.

Adam Taggart 1:07:30
Right. Right. So and obviously, it’s a reason big reason why your firm is has been pretty bullish on bonds. And Michael has been saying, look, I think the the peaks are already behind us a pretty good time to lock in some of these rates on lower longer duration bonds, because they’re not gonna be around for very long, right, you want to lock them in and ride the appreciation. Just to finish my point, it’s, I understand the frustration of folks who are looking at this and just saying, like, yeah, there’s this like, basically, what you’re saying is, is you have to really be an active manager of your portfolio. Now, probably more than normal, right? Because it’s this year, the audible and things are changing and whatnot, right. And if you just do a set and forget it, if you just go along, right, there’s still enough risk in here that you can get punished badly in these draw downs. And if you just go to the sidelines, as you said earlier, you know, there’s a chance of getting left behind if we stay in the sub channel, and we don’t break it break, break through it to the downside, right? So I understand people’s frustration, who may not necessarily want to have to be active manager, and have to follow the markets as closely as you and I do every week on this channel. But that’s kind of the market environment we’re in, right. And it’s almost kind of like, I don’t put words in your mouth, but it’s almost kind of like, yeah, you got to do it, or you got to at least choose somebody to do it for you and make sure you make a good decision when you’re picking who’s going to do it. But you know, it’s there’s not there’s not a great return profile for the person who’s just looking for the set it and forget it solution, whether it’s pure safety or whether it’s pure long.

Lance Roberts 1:09:07
Well, yeah, you know, you kind of say that though, but, you know, outside of just a little bit of a drawdown we had last year buying holds worked pretty well since 2009. It’s and that’s a you know, that’s a tough thing to say for an active manager. Right but you know, it’s it has it hasn’t really hurt anybody to a great degree because we never had that big cataclysmic drawdown but me Look, even with the decline we had last year, we’re still above 2019 peaks. If you look at a chart of the s&p 500 That’s 35% drawdown and 2020. It looks like a little blip now because the subsequent return on the market from 20, the lows of 2020 through 2020 was so huge. It completely mitigates that drop off in the markets.

Adam Taggart 1:09:49
It does but you’re if you’re somebody who ejected from the workforce in 2021, because you I’m retiring early because like my portfolio when it matters to you Okay, yeah, no, of

Lance Roberts 1:10:00
course no, I’m no I’m not. Look, I’m not poopoo in the, you know, saying that drawdowns don’t matter because he’s no brag to managers, because we believe drawdowns matter, a whole heck of a, you know, your your

Adam Taggart 1:10:11
Mr. Don’t lose years of your life having to read?

Lance Roberts 1:10:15
Yeah, all I’m just saying is, is that, you know, the way this markets behave since 2009, because of $44 trillion worth of liquidity is, you know, certainly supports that case that people put out there about just buy and hold investing right now, you can’t time the market, just buy and hold an ETF and you’ll be fine. You know, that doesn’t work long term. And if we do get, you know, and going forward, the risk is going to be and I’m actually writing an article on this, right now, that future returns will probably approach zero, because if you do go to 1.7% growth, and you don’t have $44 trillion worth of liquidity getting pumped into the markets, and you don’t have Simlish, text, the household where’s your return is going to come from? Right. Right. So that’s the risk going forward. And I think, you know, the problem that we have now is, if you look at the market this year, this kind of just up down sideways, churn, you know, just grind you through the mud type market, this could be the market we’re in for the next several years, where there’s not a lot of upside, there’s not a lot of downside, but there’s a whole lot of chop in the middle, so we’re just gonna be forced to trade this, you know, much more tactically, then then the normal and buying whole won’t make any money, you’re gonna have to actually manage this markets over the next, you know, three to five to 10 years. Okay, good.

Adam Taggart 1:11:34
Well, the this is a good segue, I’m going to jettison a lot of the other stuff I had just in the interest of time. But this is a good segue into your recent piece, on conviction, specifically, your article was titled conviction, or how to lose a lot of money and investing. Like I said, you have some great sort of general investing axioms at the end. But before we get to those, what are what are the key parts of the article you’d like viewers to take away with them? Yeah, well,

Lance Roberts 1:12:03
it’s the idea that Yeah, and again, we’ve talked about it on, you know, the gist of the article came from you, actually, because we were talking about these things here, which is, you know, it’s really easy to listen to all the information. And, you know, and one thing I tried to do with you is, is, you know, every week we try to talk about both sides, you know, the bearish side, we try to talk about the bullish side. And we try to bring these together, because, you know, the biggest risk we run as an investor is getting trapped in what we’re called confirmation bias. In other words, I don’t you know, I listen to Adam, and Adam said that all there’s all this negative data, and so we’re gonna have this massive ret recession. So I’m gonna go put all my money in, you know, gold or Beanie Weenies, or whatever it is, because I don’t want to be in equities equities are surely going to crash. And then, you know, you get me on here. And I’m like, Look, markets are going up, we got to do this. Nobody goes, Wait, you’re crazy. Did you hear what Adam said about all this? So that’s why you and I, that’s why I enjoy doing this this with you every week, because we can debate, you know, these points and all your points are correct. And yet the markets are doing something entirely different. So how do we blend this together. And that’s the whole point of this article. And I go through a couple of convictions that people have had, you know, over time, coming out of 2008 2009. That was when we established this whole idea of the BRICS, which were Brazil, India, China, Russia, and that was going to be you needed to have all your money in the BRICS, because they were just going to dominate the world over the next decade and just crushed the s&p, you didn’t want to be in domestic stocks, you need to be in bricks in the emerging market businesses. And they had moments, right, they had moments where they rallied pretty well. But if you’d invested in bricks back in 2009, or the s&p, the s&p Slaughter, you made you lost a lot of your retirement potential. Investing in BRICS versus investing in the markets. Same thing is, is that you know, a lot of financial advisors, they want to put you in just to a diversified basket, right, I really can’t manage the market. So we’re gonna do is we’re gonna buy a little of everything. And hopefully that’ll work right. And this is the Harry Markowitz, no portfolio modern portfolio theory from the 1970s Right. So I have some real estate I got some emerging markets and international small cap mid cap large cap, if you did that you vastly underperformed just buying the s&p 500 So the point of the of the article is saying look, convictions are fine, but be convicted to what is working in the markets and invest accordingly and if it’s not working, do something else. You know, there’s the old you know, the old adage that you say you tried something over and over again, it’s the definition of insanity. Well, same thing with investing. Just be it. Look, there’s there’s moments in time that gold had been great investments right in the 1970s gold was awesome. She’ll the s&p 500. And then it did nothing for 20 years and all your money was made the s&p 500. And then that’s gone back and forth over time. And so there’s there’s moments in time to own every at every asset class has its moment in time. The what is important as an investor is understanding what time you’re in. And that’s a big challenge. Peter shift, have this down the article a bit, but Peter Schiff did an article talking about using suits as a measure for how gold protects, you know, for inflation, going back to 1900. And he’s right, you know, if you put your money in gold 1900, you could, it grew over time, you could buy more suits with the same purchasing power parity of $1. But if you put the same money in the s&p 500, you could buy 15 suits versus two. So which was a better investment for you over time and your portfolio? Now, there’s points in time again, that, you know, again, gold was a much better investment than the s&p. It’s just understanding what those periods were. Because here’s the one most important fact, we don’t live 120 years, or 123 years, it doesn’t matter what it did back in 1900, it doesn’t really matter what it did in 2000. Because if you weren’t 5055, or you’re 55, now, you’ve only got 10 or 15 years, whatever it is, until you retirement. So if you make the wrong and if your conviction about whatever it is, is the wrong conviction for this 10 or 15 year timeframe, it’s going to damage your portfolio returns, and it’s going to damage your financial goals. So the whole point of the article is just to say, be careful, I’m not saying don’t be convicted, right, you’re more than welcome to do it. I’m just saying be careful about conviction, because it can really damage the outcomes, your financial plan, if you choose the wrong conviction, based on some piece of data, what you heard on the media, or whatever it is, don’t listen to me either, because I could very well be wrong. And you know, the one thing with me is, is that once I realize I’m wrong, I’m going to change it. And that’s what we have to do as investors.

Adam Taggart 1:17:06
Yeah, this kind of sounds in a nutshell to me, like the old Reagan. Strategy of trust, but verify, right? You come up with your hypothesis, and you say, Okay, this is going to be my primary investing thesis, right? But I’m gonna watch it all the time. And if the data is suggesting that my thesis might be wrong, you know, I’m going to change course, right, where we’re too many investors, they don’t do that they go with a conviction. And they don’t really assess whether it was right or was wrong until they have the final results. And of course, by that time, you know, you’ve either made a ton of money gone nowhere or lost a lot, but there’s not much you can do about it at that point.

Lance Roberts 1:17:45
That’s exactly right. Look, you know, and sometimes the biggest, you know, the challenges that we have, as investors is always our psychology. And the one, you know, the one big psychological challenge that I have. And I know Adam has this, for sure, because I know Adam, but you know, this is what most investors have is that once we think we’re right about an idea, we’re gonna ride that idea until it dies. You know, it’s like, I know, it’s not working now, but it’s gonna work, you know. And that’s because as human beings, we don’t like being wrong, we don’t want to admit that we were wrong. And that’s the one skill that we have to do as investors is to be have that willingness, it doesn’t mean that you’re stupid, you’re an idiot, that, you know, it just means that whatever thesis that you had, at the time, the environment changed. I’m gonna give you a good example, meta. I was on this show with Adam, back in October of last year, and we bought meta in our portfolios to two days before their earnings announcement, we looked at that stock, and we said, You know what? That company is so beaten up and this thing trades at nine times earnings. You know, I think all the bad news is priced in and we bought this, we bought very small, it was like one person, and then it crept a bit, right. They missed earnings, the stock was down 20%. And we got stopped out. And we didn’t get back in. That’s a see that’s where we made a mistake. And in that was a didn’t kill our portfolios. But there was an opportunity we missed because we got stopped out. And we should have waited our 30 day period and bought it back because the value based philosophy of our decision was right, the price action was wrong. And we listened to the price action rather than our fundamental statement. So we allowed our conviction to be broken by the fact that price action was different and that was a mistake. We should have stayed with our conviction in that particular value basis and either hung with it or you know, bought it back at some point. We didn’t do it. But so at this point, at some point, we’re gonna have to make that decision. Do we buy the stock back? 150%? Higher? The answer is gonna be no. But there’s other stuff to buy. Now, we just missed that trait. But this is my point, you know about things is that, you know, you know, last year, the average retail investor lost 35% of their portfolio, the market was only down 20, how did they lose more money than the markets because they were convicted to bad stocks, they were like, Oh, this is a great company, you know, Roku, whatever it is, it’s going to come back. And those stocks were down 60 7080 90%. And like Pinterest on Friday, other some of these other kinds of high fliers of, you know, the 2019 2020s, they were slaughtered on Friday. So they’re still missing earnings. And they don’t have the growth model, they don’t have the earnings model to support the valuations even at these depressed price levels, but being convicted those stocks is costing you a lot of money, because the thesis is wrong. And you’ve got to change your idea about that. So again, it’s it’s not one asset or another, it’s just understanding, you know, what is your thesis? How convicted are to to it? Are you and have the facts change that you’re not considering? That’s the thing you’ve got to evaluate?

Adam Taggart 1:21:12
All right. I couldn’t agree more. I think it’s super, super valuable that we’re kind of hammering this point home for people, maybe the horse carcass is a bit bloody at this point. But it’s such an important point. And I mean, being transparent. Yeah, I’ve been victim of my convictions in the past, honestly, one of the reasons why I created Wealthion was to try to address that, right, which was just to get a constant stream of different perspectives on this program. So that, you know, I and our viewers don’t fall in love with any particular projected outcome. Now, granted, you know, when we have a lot of people sort of sing from the same song sheet, I think it does give us maybe a little more confidence that a particular conviction might be more likely if you have a lot of smart people with different methodologies coming up with it. But you’ll always have to keep your eyes open and your ears open to other points of view, like you. And I’ve talked about a lot here. I guess I’d say one challenge I have is there’s a there’s a difference between perseverance and stubbornness. Yeah, yes, it can be a fine line and a hard line to discern. And, you know, perseverance can be a very valuable trade and investing. Right? So for example, you could have gone back into that Facebook trade saying no, no, no, you know, we even though we just got burned when we touch the stove, this time. We’ve looked at the data, and we still believe that this is really even better value now that the stock got hammered in that bad earnings report, right? That’s where perseverance can reward you. Right. But sometimes, you know, staying into a trade for too long, you know, and we’ve all done it can be the absolute surest way to lose the most amount of your money. So how do you as a capital manager discern between the two?

Lance Roberts 1:23:12
Well, you know, so when, you know, we have, so when we ever were buying a company, right? We have perseverance in our thesis that, you know, based on fundamentals, or whatever it is that, you know, this is going to be a company that will make us money, you know, long term just because of cash flows and earnings and those type things. And, you know, the Met is a good example of this is that they were loot, they were bleeding cap, they’re still bleeding capital, they’re there, even though they announced earnings, you know, for the first quarter that beat estimates, they’re still losing 3 billion a quarter on this whole Metaverse idea. And the question is, are they ever able to get that to turn around. So that’s, that’s a little bit different. And we were looking at that company going, Hey, maybe all the bad news is really kind of priced in and seemingly right now. Maybe it is, but you’re still bleeding a whole lot of capital on this idea that may or may not ever come to fruition, as opposed to a company like CVS, which healthcare company, we’re all getting older, we’re all spending more on medications, you know, they’re got multiple product lines, they’re in the health care with that and they grow earnings every year, they traded a point to nine times price to sales of three and a half percent dividend. I can hold that stock right now and get paid for it while I’m waiting for that, that price appreciation to work out for me. But even with that we have price levels to where we just simply will have to say at some point. I can’t take any more downside on that stock. I’ll come back to it later. But there’s clearly something I am missing in my analysis that has proved me wrong or something will come out in earnings or you know in the news that say okay, my analysis was based on you know, Have some event to happen. And that event is not happening now. So that will change that. So I can I can persevere with a price decline in a position, as long as the underlying fundamentals in the thesis remain intact. But as soon as that thesis is broken, then we have to make a different decision.

Adam Taggart 1:25:19
When I saw that sounds like the thesis is broken, meaning Oh, we were investing in it for cash flows, and they’ve just cut their dividend or whatever, right, that breaks the thesis. But I also hear you’re saying, there’s also just sort of some performance, you know, thresholds I have to have in here that just say, Look, if this thing is just going nowhere, or leaking, and it just leaks for way longer than we thought we could, we’re gonna cut bait to, right?

Lance Roberts 1:25:45
Yeah, not if it’s if it’s just going nowhere. I’m okay with that. Because I’m getting paid 3%, right, or three and a half percent, in this case with CVS, right. So I’ll just, it can sit there and do nothing for a period of time, as long as I’m getting paid. But if it just keeps going down in price, I’ve got to start with like, what does everybody else know that I’m missing? What is it that I’m missing? Because obviously, remember, the markets a market is buyers and sellers, and the whole crowd is selling it and you’re the only guy go over here is like I’m buying this? You know, at some point, you’ve got to ask yourself, Well, what did I miss? I have missed something in my analysis, what is it?

Adam Taggart 1:26:24
It’s kind of going with which is like, you may not find the answer that question all you might know, but it’s just not performing the way that you need to where I’m going with this is I want to hear sort of saying is when you buy you also at the same time need to set Yeah, my thesis is x, but here are kind of my thresholds where I need to eject if this thing’s not going my way, right? Yeah, absolutely.

Lance Roberts 1:26:45
Right. And, and those can be fairly broad, right? I can I can, like, for instance, a good example, in 2020. I the way I think back on my dates now. So I may be a little wrong. One ExxonMobil, the a couple of other energy companies, and we were down 20 25% of those positions, because remember, at that time, oil prices went negative. And you and I were talking on here is like, you know, everybody hates oil, because, you know, that’s, you know, the, you know, it’s climate change, and they’re all going to be run out of business. And like, no, that’s not gonna be the case. And ultimately, these are, are great assets with great cash flows, we went up selling those companies for 50 to 80% gains, 100% gains and a couple of points, you know, so we went had to go through this period where we were down 20 25% of these holdings, and we but we knew that the cash flows were going to be there, we just had to wait for the market to catch up with our thesis. But if those had just kept coming down and oil prices didn’t recover, we would eventually, you know, cut bait on those, we’re willing to give them some fairly decent room to work. If we are if we have a really good assessment of what the underlying fundamentals are going back to the metal case, as a good example, we didn’t really know what that case was, we were just assuming that the worst was priced in they announced earnings missed and they were down 20%. Clearly the worst was not priced in the market eventually came around or our thesis and our mistake was not buying it back. But that’s a different story. But, you know, the point there was is that the premise was based at the worst of the news was priced in and it wasn’t. So that’s why we gave that one a lot less room on the downside. Well, because your thesis got disapproved pretty quickly. Right. Exactly. All right. Great.

Adam Taggart 1:28:37
Well look, in the interest of time here I’m going to start wrapping things up It’s too bad we don’t have time to go in sort of the stoicism mindset part because it’s so germane to what we’re just talking about here. I’ve got time I don’t have class today. Thanks. You’re gonna get everybody are angry with me but we’re bumping up against our hour and a half threshold promise people I’m not going to try to go much longer than that. As I said, your piece ends with a bunch of of like, valuable like time honored lessons that you have as a capital manager. I’m just going to tell people to go to your website, real investment Read this conviction piece, read the whole piece but definitely go to the end and see those nuggets of wisdom that Lance laid out there. I’m not going to read the layoff list. Except just to note that it these are really big brands doing the interview do really pretty sizable layoffs. Everything from Disney to GAAP to 3am to Tyson Foods. Ernst and Young BestBuy Bed Bath and Beyond, declared bankruptcy Apple even Apple, which has pretty much resisted doing layoffs apparently is now beginning to do some strategic ones. So the layoff wave continues to build. In fact, LinkedIn here says that mass layoffs have continued to take their Total across industries, the number of job cuts in tech is up 38,487% versus a year ago. And for finance companies, it’s up 419%. I mean, those are bonkers numbers. Let’s and I already talked about what may or may not happen with with employment. So I won’t go any further except just to say, you know, the last wave at this point is still arising time. Okay, a couple of couple of quick, free resources for folks to let you know about and then Lance will talk about your trades and wrap things up. You guys, if you’ve been a longtime watcher, you every, you know, a couple of quarters come on when there’s a holiday coming up where you’ve got to buy gifts for your spouse, and I talk about the company over there, which is the 24 karat gold jewelry and sterling silver jewelry company. Wealthion has some similar investors in both. So I know the CEO there Gina love very well. Oftentimes, she went holiday comes around, she does a special offer. For the Wealthion audience, she’s done one again, this season for Mother’s Day, which is coming up. So just to let you know, if you want to take advantage of that discount that she’s offering to Wealthion Viewers, it’s 15% off their full price jewelry, go to over and enter the following code au dash wealth dash mom 15. And that, right now, that’s a special offer that will be made available to the general public in a couple of days. But for the next couple of days, it’s available exclusively to Wealthion. Folks, so go forth and take advantage of that if that’s of interest to you. And there’s nobody better to pamper in life than mom, obviously. And then a reminder, the strategic investment conference, which is that massive macro conference that’s put on every year, I had an insert in last week’s video talking with a D’Agostino of the company that produces the event. That event starts next week. As a reminder, it’s a two week macro conference. I mean, it’s massive. Like I said, it’s five days interspersed over those two weeks, but the first day starts on Monday. reminder, if you can’t watch the whole thing, and I’m sure most people can’t live, there’s replay videos of all of the presentations that are sent to everybody who registers. So if you’re interested in registering for that, just go to si 20 You can find all the information and you can register there. Reminder for folks, I’m hosting a panel this coming Monday with Thomas Thornton and Milton Berg. It’s going to be a panel focused on on TA and there’s a lot going on in their worlds right now. It should be a fascinating discussion. All right, Lance wrapping up here. Tell us about what trades you’ve made for the week. It sounds like you’re lightening up still given that sell signal from earlier. No, no, we

Lance Roberts 1:32:55
actually didn’t do any trades. This week, we had sold all of our trading and our index trading positions last week and the week before. Again, we’re so once we triggered the sell signals, we reduce some of our risk. So right now we’re we’re pretty underweight, equity, overweight cash. Very interesting, though, we’re getting very, very close to another buy signal on bonds. And there’s a huge short position on Treasury bonds right now, that is stacking up, which is going to make for a very interesting trade later on this year and long duration bonds. But we’ve got to get through this debt ceiling first. But I think that opportunities coming up by the end of summer.

Adam Taggart 1:33:31
Okay. All right, super fascinating. So what what needs to happen for you to have a buy signal on T bills and talk about why there’s a big short position on them right now.

Lance Roberts 1:33:43
So there’s so commercial traders are this, like there’s a massive short position on equities. That’s one thing really kind of driving the markets right now as well, is there’s this A, we have the biggest short position on the stock market since 2009. And so again, whenever there’s a rally, it causes a lot of short covering in that rally. So a lot of people were negative bonds last year, you got a lot of traders that are short bonds for Oh variety of reasons. But you know, concerns about inflation and higher interest rates, you know, they they’re, they’re hedging their books by being short bonds, when yields falling enough, you’re gonna trigger a big short covering of those bond positions, which is gonna force yields down very rapidly, and that’ll occur when the Fed starts cutting rates or you get into an economic recession later this year. Again, you know, we talked about last week, this divergence between the one month and the three month t bills because of the debt ceiling and that’s just again, Bond positions are traded or hit you know, bond bond traders are hedging for a potential you know, delay of payment on on debt, but because of the tax receipts right now, the the time timeframe for the debt ceiling, push has gotten pushed up to like June or July so, and last week, McCarthy apparently proposed was the debt ceiling limit bill. So we’ll see how that works out the next couple of weeks. But again, they’re gonna hate the debt ceiling. Once that’s done, the Treasury has got to issue a lot of debt to catch up on all the payments, and refund all the emergency measures they’ve been using, which could cause a little short term uptick in rates, but we’re going to be if that happens, we’re going to be buying long duration bonds on an uptick in rates, because that’ll probably be the peak and rates for the year.

Adam Taggart 1:35:25
Okay. And just a reminder to folks, as we have talked about this a bit on previous videos in this channel, the because of the debt ceiling, we’re at it right now, Janet Yellen has been taking, quote unquote, extraordinary measures to fund the government by basically writing checks from the Treasury general account, which is kind of like a savings account for the US Treasury. And once the debt ceiling gets raised, she has to basically by law, she’s got to then go refill that Treasury general account by selling treasury bonds, as Lance just mentioned. So flood of bonds hitting the market, people are basically wanting a higher yield on them to, you know, take the effort to stop them all up. That’s what Lance was talking about here. But let you think that’s going to be relatively short lived. And that’s going to create a buying opportunity, which you plan to take advantage of.

Lance Roberts 1:36:20
Right? Yeah. So when they issue this debt, theoretically, you should see long duration, you know, 10 years 20 or 30 years should see those rates tick up a little bit. And again, that’ll probably be the peak is probably one of the some of the better pricing you’re gonna get for the rest of this year. Because again, if we do, as we start to see the economy slow down more, as the Fed was trying to hold rates at higher levels for as long as they can, it’s gonna slow down consumption, slowdown, economic growth, yields or long duration yields, not the short end that’s fed, but a longer ration, that’s inflation and economic growth. So those yields are gonna start to fall. So any opportunity you get to start buying, you know, bonds, I would do it because once bond traders are forced to cover, you’re getting a pretty sharp drop in yields. And that should coincide with the onset of a economic slowdown or quote, unquote, in a recession.

Adam Taggart 1:37:08
All right, great. Well, Lance, just another great week, buddy, thanks so much for hanging with me every week doing this, these are great discussions. Great way to end the week. All right. So just in wrapping up here, folks, as Lance and I’ve talked about many, many times, you know, tough, challenging environment for the individual investor, I won’t go through my regular dog and pony show here at the end, except just a quick reminder to folks that, if that’s something you don’t want to be navigating on your own, and I think most people shouldn’t, because you have real life to focus on, right, you got your family, you got your job, whatever. Then your really big important choice here is to figure out who you’re going to partner with, to manage your money for you, right? And if you’ve got a good one who takes into account everything we’ve been talking about here, stick with him for sure. But if you don’t, or if you’d like a second opinion, from wonder, does perhaps the lance and his team there at real investment Then go to Fill out the short form there, schedule a free consultation with these guys hear what they have to say, and then do it yourself and those instructions to your existing advisor. Or if you’d like these guys, keep talking with him. They just do this to help as many people as possible, navigate through what’s ahead. All right, well, in wrapping up, folks, real quick, I just want to remind you of those free resources, go to a and enter in the code au dash wealth dash mn 15 If you want to take advantage of this special offer that Jean is offering. If you want to learn more, perhaps register for the strategic investment conference, go to si 20 And if you’ve enjoyed this conversation, half as much as Lance and I do every week, do me a favor, support this channel by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it and last and we let you have the last word as usual.

Lance Roberts 1:38:59
Have a great weekend. We’ll see you back here next week.

Adam Taggart 1:39:02
All right. Have a good one. Lance, everybody else thanks so much for watching.

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