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Stocks managed yet another higher week as earning announcement continue to roll in. Plus, the Federal Reserve hiked interest rates again this week.

Portfolio manager Lance Roberts & Wealthion’s host Adam Taggart discuss that in this week’s Market Recap, along with:

  1. Will the S&P 500 start retracing to fill the many open gaps below?
  2. What are we learning about the health of corporate American now that more earnings are coming in?
  3. What were the key takeaways from the Fed’s rate hike & Jerome Powell press conference?
  4. Will the lag effect ever materialize/matter?
  5. How big a hit to the economy will student loan repayments result in?
  6. Lance’s trades for the week


Adam Taggart 0:04
Welcome to Wealthion. I’m Wealthion founder Adam Taggart welcoming you back at the end of yet another week for another weekly market recap featuring my very good friend Portfolio Manager at Lance Roberts, who’s looking a little picky here within the week. How are you doing that?

Lance Roberts 0:19
Danny was I went running today, just for we did this and it is hotter than hell in Texas right now. So it was it was brutal the heat this morning. So yeah, I’m a little bit I may be a little bit peak at here for a bit so we’ll try to recover my mojo.

Adam Taggart 0:36
Got it. I’m amazed you’re even awake. I was talking with Amy Nixon, Texas runner who’s appeared on this channel a couple of times. I’m sure folks know her. She’s a big runner. Hence her her handle there. She sent me the weekly forecast for Dallas, which is where she lives. And I think like 106 degrees was like the coolest day of the project. We can she’s training for marathon, a marathon. It makes this just bananas being out there running in that heat.

Lance Roberts 1:06
Yeah, well, she’s better off than I am to you. Because I’m in Houston. We’re on the coast, right versus Dallas, which is North Texas. So we’ve got humidity and then heat on top of it. So it’s pretty much like a microwave oven. When you’re running.

Adam Taggart 1:19
Have you just not heard of an indoor treadmill? Yo,

Lance Roberts 1:23
I do treadmill four days a week. So normally my workout routine, I kind of run a split. So four days a week I do weight training. But before I do the weight training, I do 20 minutes walking at a three and a half to four mile an hour clip and a 10 to 12 degree incline. So I do that indoors, because that’s all in my office. So I’m working in the office during the week I go down, I trained to do that on Friday, Saturdays and Sundays. You need some good vitamin D. d3 is one of your best

Adam Taggart 1:56
vitamins that you can get into your body to help build and maintain muscle mass collagen, etc. And you get that from the sun. So I like to get out on weekends and get some training in plus, running outdoors is just a very different environment than running on a treadmill in terms of building endurance and stamina. So I tried to blend the two together. All right. I’m there, whether you’re running outdoors, except there’s some temperature and humidity point at which I think I might have to draw the line. But anyways, kudos to you. Audience didn’t realize they were gonna get a bunch of fitness tips this week. But there you go, folks. All right. Well, look, Lance wants to talk about big news this week was the Federal Reserve announced another rate hike. That was very expected by everybody. We’ll talk in a moment about implications of that. And what Fed Chair Jerome Powell had to say in the presser he gave. But it’s interesting. The markets have really tried to sort of shrug off this rate hike, which they have done all year, right. They basically said we don’t care, that cost of capital is going up and that the Fed is trying to slow the economy. We’re going to keep pricing assets higher. was interesting yesterday, because the markets jumped aggressively at the start of the day. And then about midday, they just suddenly gave up the ghost and I was wondering if that was sort of an important reversal moment. But here on Friday, they opened aggressively again today so TBD but but we see a market that’s trying to continue the trend of saying we’re discounting everything the Feds doing. How are you looking at it?

Lance Roberts 3:37
Well, yesterday was that really had nothing to do with anything other than the kind of a fake headline that came out it was Japan has been has been talking about working on yield curve control now for a while they’ve been capping yields at half a percent. Well yesterday that was kind of I don’t want to call it a fraudulent headline because there was actually the Bank of Japan on Friday actually did change their kind of yield control curve they said well we can let the yields drift up to as high as 1% from half percent on the JGBs which was far different than what kind of just headline that hit the wire on Thursday which causes the sharp sell off it was just the headline was basically it’s like go Japan’s going full yield curve control etc You know, and it just kind of spooked the markets temporarily and so you did have a fairly sharp intraday sell off but that was pretty much sorted itself out and that’s why on Friday, once the market got the real kind of data in on what the what the what things Japan was going to do it was like oh, it’s a nothing burger and everything reversed back higher. So you know, we didn’t quite get back to yesterday’s highs that we had at the open but we did recover a vast majority of yesterday’s decline.

Adam Taggart 4:56
Okay, um, well, so it The short term, you know, we’ll see what’s going to happen here. But markets now looking to close the week higher with today’s you know, jump in well,

Lance Roberts 5:10
and will also close the month higher, which the which will put the s&p at five months straight of advances. And you know, historically there’s 100% win rate for the rest of this year, when you have five straight months in a row for the s&p, the rest of the year is always positive 100% of time. You know, so again, you know, the bullish momentum train is certainly, you know, progressing here and there doesn’t seem to seem seem to be much at this point leads to derail.

Adam Taggart 5:36
Well, and that’s exactly what I want to continue to dive into here, where, you know, last week, you said, look, the bull, the bull case is a technical case. And technically things are looking really bullish. And you just give us further insight into how that bullish momentum is continuing from here. Perhaps contributing to that, and I’d like to get your thoughts on this. In his presser. This week, Fed Chair Jerome Powell said something that I thought might goose the markets a bit and maybe it is responsible for yesterday’s initial jump, and then today’s strength, which is he was asked, because he is so interesting, on one corner of his mouth is talking about the lag effects. Right, and saying that we haven’t seen the preponderance of the impact of the tightening measures that we’ve been pursuing so far. But then he was asked about, well, what do you see as the likelihood of a recession here, Chair Powell. And he said that his base case, his chair, pals base case, is no recession that AI is the skillful pilot of the ship of the economy, airship for the economy in going to be able to manage the softest of landings, right. And we know that the Fed terrible at actually making its predictions come true. But he then said the Federal Reserve’s staff, which he says develops an independent forecast, from, you know, the voting execs has now changed their models to now saying that a no landing is the most likely scenario going forward. So again, if we want to listen to the Federal Reserve, the Federal Reserve is, you know, is singing a very dovish tune about what’s going to happen to the economy here. Like I said, the Fed has a terrible track record of actually manifesting what it predicts for us. But do you suppose that some of that, that news of hey, we don’t see that there’s going to be a recession, we’ve changed our models is adding some of the limitations to the markets right now?

Lance Roberts 7:42
Yeah, no, absolutely. Because, you know, again, you know, this is what we talked about last year. You know, the problem last year with the whole recession, Colin has remained the call so far, is that everybody was expecting a recession in 2022. And, you know, because of that, you know, there was probably not going to be a recession, because if we had had a recession, it would have been the most well forecast and recession ever in history, even the Federal Reserve was predicting a recession. So the fact that we didn’t have a recession is actually not surprising because of psychology and the way markets behave to expectations and markets adapt to expectations, and everybody was expecting recession. So the good news is, if you’re in the recession camp, and you’re wanting a recession to occur in the economy, you’ve actually got a much better setup for it now, because now even the Fed is pulled back and said, hey, no recession, Goldman Sachs, no recession, the vast majority of the financial media and the economist are now saying no recession. So now that everybody’s out of the recession camp, if you’re going to have this lag effect, and if you’re going to have a recession, you’ve now got a much, much better psychological case for that recession to actually occur. It’s just kind of contrary, and it’s the way markets work. And as we’ve talked about, before, markets know about something at prices it in and typically does something different. I would suggest, though, that’s that because of all this monetary impulse into the economy, if you take a look at GDP yesterday, as well, a 2.4% growth, you’ve got a lot of federal stimulus still coming in, you still got a lot of money sloshing around the economy. So if we’re going to have a recession, now that we’ve got everybody out of the recession camp, then it’s probably going to be late 24, early 25, just because of the time it’s going to take to work all that liquidity out of the market.

Adam Taggart 9:32
Okay. Yeah, we talked about this a bit last week, right. And the user actually provided some clarity, which is nice. So bull markets climb a wall of worry, right. And we talked about how at the beginning of the year, there was a big wall of worry, and certainly the market has the s&p has climbed that wall, right. So the question was, would it bear markets do? We couldn’t remember exactly, but apparently it’s a slide down the slope of hope. So you’re now saying that We’re beginning to see some real hope, come into the equation here. And that that then provides the opportunity potentially for a bear market to happen. Not saying it’s going to just saying, you know, you were much less comfortable about a recession occurring when it seemed like everybody was expecting it now that fewer and fewer are, maybe those probabilities increase. So pal, you know, the other thing that’s notable that, that I took away from at least what he talked about is, is he did stick to his guns. And I gotta say, I do commend Powell for how consistent and committed he has been to you since he started this hiking and tightening campaign of saying, Look, I’m not going to finish until we get inflation down where it needs to be. And that means it’s got to be at 2% or close to it. And we’ve got high confidence that it’s headed there. Right. So he talked about core CPI, which is still higher than headline CPI, it’s not moving down quite as fast. And basically just said, Guys, I’m literally not stopping. Until I’m certainly not pivoting until we get inflation where we need it to be. He’s they kept trying to kind of get him to predict how many, whether he’s done hiking, or how many hikes he might still do from here, he refused to play that game and just said, Look, I’m going to look at it on a month by month basis. And we’ll just figure it out as we go along the way. He did say I do not see us making any cuts in 2023. And he said we might make some next year. But it is wholly dependent upon inflation being where we needed to get to. So, you know, he is basically trying to continue to be really consistent with the markets to say, look, if you’re betting all your hopes on a Fed pivot here, you know, I’m still not planning to do that anytime soon. Now, we’ll see, we’ll see how fast inflation continues to come down from here, as we’ve talked about recently, we actually expect it may tick up in the next couple of months, just from the math of the base effects. Right. As we head into next year, it’s really just going to depend on on, I guess, with with with the market data does there. I’ve got some some additional thoughts on this. I’ll introduce in a bit after when we get to the point where I talk about my recent interview with Lacey hunt. But I’m just curious beyond his sort of, you know, continued steadfastness that like Hey, folks, I’m not taking my foot off the brake trying to slow this economy yet. Did you take anything else out of that meeting? We haven’t talked about yet?

Lance Roberts 12:32
No, not really. I mean, you’re right. And, you know, the thing is, is again, you know, he keeps putting out there that yeah, you know, the Federal eventually cut rates, but you got to ask yourself, why will be cut rates, and we’ve been through this numerous times here on this podcast, is that the only reason you’re cutting rates is because that recession has finally showed up? You know, so so when you take a look at the economic surprise index, that’s been rising very sharply here, obviously, economic strength remains fairly robust here as well. The question with inflation falling, you know, that’s going to that’s going to help ease some of the pressure on the consumer and consumer sentiment has been turning up rather sharply here, which typically leads an increase in economic data. So because of that increasing consumer sentiment, we should start to see actual economic data improving over the course of the next couple of months, which is really going to be a conundrum for a lot of the more bearish outlook, just horrible. Where’s the recession, if you start seeing economic data improve, but that doesn’t mean again, that none of that precludes the fact that market cycle, and you’re gonna have this potential uptick in economic growth. And that’s why I’m saying by the time you go through that, you know, kind of this downward cycle we’ve had, we’ve gotten very extended to the downside on this economic data, you’re going to get a bounce in the data. And that’s why I’m saying that next recession, you know, talk is going to probably be somewhere late 23, sorry, late 24, early, you know, mid 25, by the time you complete an economic cycle recovery, and then have your next downturn. All right.

Adam Taggart 14:04
Interesting, because I’m sure we have a couple people whose heads probably exploded, did you just say, wait a minute, this recessions now, a year and a half put off from here? Do you? Do you think that’s probable at this point? Or is it too early to really,

Lance Roberts 14:19
it’s a good everything is there you know, you know, what I tried to do is just put into place, you know, the fact that we’ve got so much liquidity in the markets, federal spending is ticking up sharply here. So you know, when you take a look at the amount of money that’s coming into the economy, through federal spending programs, etc, you know, it’s just going to delay the impact. And we talked about this pig in the Python, you know, so many times it’s, it’s, you know, almost funny now, but you know, it’s just the simply the fact is they’re so good Python, you’re right. Yeah, yeah. I mean, it’s just, it’s just there’s so much stimulus out there again, student loan payments haven’t restarted yet. And again, as we talked about last week, and the week before, you know, that’s the one caveat out there that may, you know, trip this whole thing up and accelerate that recession. But you know, a lot of economists are kind of writing off the restarting of student loan payments is pretty much nothing burger. I’m not sure it is. But you know, the consumer is awful resilient, and we have to give credit to the consumer, they continue to spend, you know, the latest GDP report, personal consumption expenditures did decline from the last reading, but was still pretty strong. So, you know, despite, you know, all this talk about a recession and a slowdown, you know, the consumer kind of keeps hanging in there, and that 70% of our GDP, you know, that’s an important part of it. So again, all I’m trying to just tell you is if you’re if your whole portfolio is based on this idea of a recession is coming, and I’m still getting a lot of emails from your viewers, you know, they’re like, you know, I’m just really worried about, you know, about, you know, the the economic catastrophe that’s about to happen. And I’m like, What are you looking at? Because there’s nothing out there that suggests an economic catastrophe is about to happen, does it mean it won’t, but it’s nothing out there right now as suggesting that it’s going to happen next week, next month, next quarter?

Adam Taggart 16:06
Yeah, I mean, that, I think we can find lots of points in the data to see to show certain areas that do look pretty grim. But then to your point, there’s other things out there that we can find data that shows you know, more robust strength, I do want to talk about their recent 2.4% q2 GDP, because Laci actually spent some time sort of dismantling that, that from his read, the vast majority of that, like 2% of the 2.4%, or 80% of the number came from the auto industry. And it came from sort of the resolution of pandemic era supply chain issues, and it’s not a repeatable boost. So you take that out, and all of a sudden, you know, q2, economic growth looks a lot less robust. But But

Lance Roberts 16:53
no, no, no, it’s a good point. And the deflator was a big, you know, we had almost a 50% decline in the deflator, which was also a big boost to GDP number. So you know, but the point is, is the numbers the number, right, how we got to that number, and we and we have this conversation often, right? Every time we have a GDP number, we dismantle it, we say, Okay, well, that’s not repeatable. And then something else happens, that boosts the GDP, the next quarter go, well, that’s not repeatable. And then the next quarter, we have something else that happens, that’s not repeatable. You know, we have this over and over and over again, the point is, is to pay attention to the trend of the data, not the number. So if you want to know, if you’re going to get into a recession, you got to see the trend of that data begin to reverse, you’re not going to have 2.4% growth in the second quarter 2% In the first quarter, and then a negative 4%. And the third quarter, that’s probably not gonna happen.

Adam Taggart 17:44
Yep. Yeah. Well, again,

Lance Roberts 17:46
not saying it can’t, right, right, there’s never gonna be anything but just probability, tend to stay intact longer than you expect. Right. Right. And

Adam Taggart 17:56
again, this is beating a dead horse, or maybe a dead Python, we’ve talked. But but, you know, you do a very good job of reminding us that, yes, you know, there’s an ebb and flow here. And, and rarely do you get the we wake up in the morning, and the world has changed, and that people who put all their chips on the table expecting, you know, an abrupt phase change like that, whether it’s on the bullish or the bearish side, tend to oftentimes get very disappointed, right. So your job as a capital manager, because you have to, you can’t just have an opinion, you actually have to shepherd capital safely, is to do a certain extent, listen to the tune that is being played. And while you’re keeping your eye on the long term, macro picture, you know, you’re you’re trying to actually dance to the tune that’s being played so that you can make money for your clients. Alright, so one thing I wanted to get your opinion on here, because I saw this chart right before we got to filming here is we’ve had this big run up in the markets, right? Totally. That’s just is what it is. You know, a lot of people have made a lot of money who were long at the beginning of this year, and few people were long at the beginning of this year, because sentiment was so bad, and everybody was fearful that we were going to tilt into something even more catastrophic than what we saw in 2008. But in the in the ramp up here on the s&p, there have become a number of gaps up that have appeared in the chart. And so I’m just going to put up a chart here from spent Henrik, the technical analyst who has been on this channel from time to time. He just put out on Twitter, this chart of the s&p showing all these open gaps and said that the s&p has become the market of unfilled gaps. And there’s this sort of, you know, old saying and investing or in trading that that all gaps fill or most gaps fill right. So I know that you take tea your new account and your work plants? I mean, how? How probably do you think it is that we go back and, and fill those gaps? Because if we do, we’re talking about I mean, I think the first one here in the charts down at 3875.

Lance Roberts 20:18
Yeah, so, so know, if you, if you’re going to fill the first gap, you’re gonna go down to 4525. But then you got to come down and retest support at 4475 ish, which is the bottom of that next gap. So you know, each one of those, you know, basically those gaps that you’re going to have to fill are going to be support levels. And again, this is the one thing we keep talking about is taking a look at the trend of the charging, draw a trend line across the bottom of those, most of those lows, and it’s a nice 45 degree angle, but each one of those bottoms are going to provide support. And of course, if you overlay the 50 day on that the 200 day moving average on that those are both sloping positively now. So from a technical basis, you get a lot of positive positive momentum in the markets markets are very overbought here. But each one of those levels are going to be providing support on the way down. Now, if you do fill a gap, that’s not that’s not bullish, that’s becoming more bearish in nature, and suggests you’re going to have lower prices. But again, as you keep coming down, you’re going to keep hitting levels of support, where buyers will start to step into the market. And this is always the issue of a market itself is where are the buyers? And where are the sellers, right now, there’s very again, always, always view the market, like two rooms, right? So go into, like, go sit your living room, right, and you’re looking, you’re seeing your living room, and on one side, you’ve got one bedroom and the other side, you’ve got another bedroom. So in one bedroom, you’ve got all people wanting to buy stocks in the other room, you’ve got all people willing to sell stocks. Right now, there’s very few people willing to sell stocks. And the reason the market keeps going up is because there’s a whole bunch of people in the buy room going I want to buy stock, right? I mean, you’re bullish sentiment, the National Association of Investment Managers is now over 100% long in their portfolios. And they are they have a terrible track record of being, you know, a contrarian trader. So whenever they have over 100% exposure, that’s typically near short term market peaks, you typically get a three to 5% correction, they come bailing out of the market, and it’s a good time to buy again. But right now, all those professional managers are sitting over the environment going, I’ll buy stocks, and the people that have stock to sell, those few people are going okay, I’ll sell my Apple shares to you, but you’re gonna have to pay me $3 more than what you paid me yesterday for those shares. And so one of the buyers says, Okay, I’ll do that. And so $3, higher, he does those shares get sold. So one buyer leaves, one seller leaves, now there’s even fewer sellers, and the next seller goes well, if he got three more, I want six more, and so buyer eventually step up and pay six more, that’s why prices trend higher. Now eventually, at some point, the buyers are going to go, I’m not willing to pay any more than this, and the seller is gonna go, I’ll sell you my Apple shares for $2 Higher, there’s gonna be no buyers there. And then okay, about $1 Higher, no buyers, and then he’s gonna start going, Okay, I’ll tell you what, I’ll sell them at $1 discount, no buyers $2 $3 $5. And eventually, that’s where you start finding these support levels in the market. That’s all the markets telling you is there some level here where where prices will start to discount, and buyers are gonna sit back and they’re gonna go, Okay, I’ll buy it at that price. And then that’s where buyers will step back into the market. And that’s why you have these resistance and support levels in the market resistance is where sellers failed to find the buyer support is where buyers find sellers again. So you know, those, that’s how the markets are just That’s how markets work over time. And that’s why technical analysis is important. That’s a really simplistic explanation of the market dynamics. But you get the idea is that what you’re looking for is a pullback to a level to where buyers will step in. And they say that’s enough of a discount for me to buy for me to start buying that stock. And that’s what you’re looking for as good entry points for markets.

Adam Taggart 24:07
Okay, yep. Good lesson. I’m going to ask my question again, though, which is, as an experienced investor, how concerned that does that number of unfilled gaps given that the markets risen so far, so fast? Does it worry you or not so much, it really

Lance Roberts 24:25
doesn’t, you know, on the way up, you’re gonna get gaps higher and you can go back in history and look at this, what you’re looking for is a gap down that doesn’t fill and if you have a gap down in the market, you get down two or 3%. And then you rally back one and a half percent and don’t fill that gap that’s bearish. That’s where you want to start becoming much more concerned. If you take out that low of that previous gap down then you really want to become more concerned but until you start seeing gaps to the downside gaps to the upside is very bullish. That’s just part of the trend but gaps to the downside You start seeing no show up. That’s much more concerning.

Adam Taggart 25:03
Okay. Okay. All right. Well, look, I now want to get on to the, the topic of the lag effect, because last week, we said we would make this week’s video focus, promise to do it. Yes. Yeah. And what’s interesting is, you know, you’re, you’re singing a chipper tune. And to a certain extent, that’s your role in this weekly recap is to just make sure that we don’t get too wrapped around a lot of the the, you know, concerns that many of the speakers raised on this channel during the week. And again, it’s not because I’m seeking out people who are quote, unquote, perma bears, I’m just bringing on analysts, and still the preponderance of ones that come on, are concerned about the macro data. I have gone on record, though, personally, saying that I think the lag effect is the single biggest, single most important, slash most ignored factor in the economic soup right now. And I very well may be proved wrong time will tell. But basically, we’re talking about, you know, all of the the efforts that the Federal Reserve and the other world central banks, or most of the other major world, central banks have been taking to slow economic growth. And we’ve spent a lot of words over the past many months explaining to people what the lag effect is and how it works. So I won’t rehash it all here. But you just said yourself earlier, a lot of people are like, I’ve been hearing about this stuff forever. And you know, the Feds continuing to hike, but everything looks great. Markets are up, unemployment is low 2.4% GDP inflation is coming down. You know, like, Guys, this is this is the Goldilocks world, right? So the big question is, is, is the lag effect going to matter? Or not? So, you know, my thoughts were?

Lance Roberts 27:01
Yeah, it’s gonna matter. You know, look, you know, it’s, you know, what’s really funny is two things that have happened over the last, I guess, really six, seven months ever since October, when we you and I started talking more about being bullish on the markets, because

Adam Taggart 27:14
and to give credit where credit’s due, you were doing the majority of that talking about things getting bullish.

Lance Roberts 27:20
Yeah. And what’s funny is, though, is that, you know, I get all these tweets is, like, Lance has gone full bullish now. It’s like, No, I’m really not I, personally, I’m still very bearish on economic data, fundamental data. And if you read my articles that we posted on our website, you’ll find plenty of really bearish ones up there. You know, talking about economic data is today’s you know, today’s macro view blog on our website is $32 trillion debt and why it matters.

Adam Taggart 27:46
We’re gonna get into that stuff. All right. Well,

Lance Roberts 27:49
I’m just saying that, you know, there’s, you know, everybody thinks I’m just gonna, you know, look, the markets are bullish, period. argue with me, if you want. They’re up 18% This year on the s&p that is clearly bullish. And the trend, you know, go back to show your chart from Spin Heinrich, it’s clearly a bullish trend. I mean, you can you can fight it, you can argue with it, you can throw sticks at it all you want, but it is what it is, but to the economic data and the lag effect and all these type of things. Yeah, it’s it’s super concerning, the lag effect is real, you’re going to have to pay a consequence at some point for higher interest rates, which are going to impact consumption through the consumer. And again, that’s why I keep going back to the student loan repayment, which is giving people an extra, you know, two 300 bucks a month to spend, that they wouldn’t normally have, because they were making student loan payments. So when those start back up, immediately, these households are going to have an immediate cut of up to 5% of their income for this repayment, restarted student loan payments. That’s that’s that’s important, right. And that’s going to certainly weigh on this. We’ve had so many anomalies over though, and this is the thing that we keep going back to when we’re talking about the lag effect. We’re all looking back at history, we go Well, look, every time it’s the Feds hike rates, that then you’ve had a recession within six months, nine months, pick your timeframe, right. Every time the Fed has done this, you’ve had this outcome historically, going back throughout history. This time is not the same, right? Yes, the Fed has hiking rates, but you forget the Fed is hiking rates with 5 trillion in stimulus 1.7 trillion and inflation Reduction Act, numerous other spending, a federal reserve that was doing 120 billion in QE expanded their balance sheet by $3 trillion over the course of just you know, a year and a half. You know, they’re just in that now they’re, they’re reversing that. Yes, they’re doing quantitative tightening, but at half the rate of what they were expanding and so, you know, this is going to take time to get all this liquidity this monetary stimulus out of the system because it does doesn’t evaporate. It’s had to work its way through the system, and it’s gonna take a long time. And so the lag effect is real. But the lag effect may take substantially longer than anybody is expected. You know, we keep expecting this to show up, and I’m guilty too. I wrote articles last year talking about, you know, we’re gonna have a recession, then probably late 23, everybody was expecting recession last year, as a, we’ll probably have a recession, late 23, we’re not gonna have recession this year, it’ll probably be 2425, it’s going to take time to work all that out. So the lag effect is real. But it’s getting really delayed because you have this tidal wave of liquidity that’s helping support economic data.

Adam Taggart 30:41
Very good explanation. And one element I want to add to that, too, is there are there are counterintuitive trends going on that that actually make things look better in the near term that I think give people a false sense of security that we’re through it all that like, oh, 2022 is over guys, right? We took the pain now we’re through the storm, everything’s better, right. And I’ve been mentioning this on the channel, the past couple of videos, but I’ll mention it here again, Lance, because I’d love to get your your thoughts on it. In the past, when when the cost of debt when interest rates have gone up making the cost of debt higher, you have seen the net interest expense percent for corporate income statements increase, right, they’re having to spend more on debt. And so your interest payments go up, you have less money leftover that eats into your profits, your corporate profits go down, right. So that’s what you normally expect to see in cycles like this. Instead, right now we’ve been seeing the opposite. And I just want to share my screen again here. With

Lance Roberts 31:51
ya out, my good friend, Albert Edwards, from sight June, produced that chart. We talked about it recently on both our radio show as well as in some of our daily market commentaries. What’s important about that chart, and again, what he’s saying here is that normally, you should see a pickup in net interest expense. But if you go back and look at some of these other periods, what you’ll see is there’s a lag effect to that to a degree. And so just to be clear,

Adam Taggart 32:17
that’s why I’m bringing it up here because it’s instructive of the lag effect argument. But go ahead, yeah, there’s

Lance Roberts 32:22
a lag, there’s a lag to where that interest payment goes up. And because think about this, corporations financed a whole bunch of debt at very, very low rates. And now that if there’s no reason to refinance that debt, that’s very low at this point. So right now, you’re not seeing that big increase in their balance sheet yet, again, there’s a lot of problems with the small and mid cap companies. But that’s a very small percentage of debt compared to the amount of corporate debt held by major corporations like Boeing and Apple and Microsoft, etc. You know, so when you start to take a look at the magnitude of the debt, just a lot of that debt was financed at low rates, when that debt starts to reset, you’ll start to see that net interest expense go up, but it’s too soon right now, because we don’t have a lot of debt. We don’t have a debt wall or debt maturity wall coming up. In the next few months, probably 2526, we’ll start to see that net interest expense rises, debt gets refinanced at higher rates. Yeah. Assuming rates are still higher when we get there. Right. Yep.

Adam Taggart 33:25
Me. Yeah. Presumably, if the Fed had to make a pivot beforehand, they these companies might make it through the worst of these high interest rates. But but if they don’t, and, yes, there’s a lag effect. Although I do think you look at this chart, you don’t see a pronounced divergence anywhere near like this, you know, in the past 40 years, right. But you know, what this says to what Lance was saying is, yeah, they have this, this great kind of Goldilocks moment right now, where they haven’t had to rollover their existing low interest rate debt. And they’re making a lot more money off of their cash balances. So like, great. So everyone can look at the short term data and say, well, companies are doing great, right. But with a lag effect. If indeed, when it comes time for these companies to have to refinance because their existing cheap debt matures. Who thinks they’re gonna be refinancing if rates the say hang out where they are right now? At like twice the cost of debt? Yeah.

Lance Roberts 34:23
Also to think about the IRS. The other you know, the other issue going on right now is that companies are sitting on a boatload of cash, you know, we talked about this, you know, $5.5 trillion worth of money and money market funds, very small amounts of that very small is retail money market accounts. The vast majority of those money market funds are corporate our corporate balances. And so a lot of companies are talking about Apple as an example. You know, they got 130 150 And I don’t know what the number is right now, but it’s like 150 billion in cash on their on their balance sheet. They were taking apple was taking on debt at low rates to do share buybacks. So they were going, okay, look, I can buy back my shares, and I can increase my share value by this and I can borrow super cheap and write off the interest expense to do that share buyback, that makes sense. So that’s a good use of leverage for them. I don’t think it’s a great, I don’t think it’s a great idea, but it is for them. And so they took on some debt, they can pay that debt off anytime Apple does eat issue debt, right. So that’s part of this is a lot of these companies are sitting on so much debt, I’m sorry, so much cash, paying four and 5%. There’s no need for them to go out and issue debt right now. So that’s another reason why we may see that suppress, and see net interest payments start to go up somewhere in the future.

Adam Taggart 35:44
Okay. Well, it’ll be super interesting to see, again, what happens from here. But again, this is to my, I think, overall point here, which is, we know that as long as the cost of capital stays this high, that is these companies have to then go out and refinance. And a lot of them will, right, not every company is an Apple just sitting on a total war chest here, right. That we’re going to see corporate profits start getting hit by that, but people are sort of short termers, you know, and they, they just look at what’s happening right now. And they projected, what’s happening today is just going to happen out in the future. So you get this sort of, again, this sort of false promise of what tomorrow is going to look like. So if indeed, the lag effects are right, arrive, if you and I are correct, there may be a lot of people right now that are making bets on the status quo that could get very disappointed down the road. Yeah, no,

Lance Roberts 36:39
look, and look, you know, Albert’s work is spot on. You know, he’s he, you know, he does great work. And his analysis is absolutely correct. You know, the only thing that we’re all trying to process and then none of us have the answer to I don’t nobody does is how long, you know, good. Because, again, think about this also, right? Let’s talk about unemployment for a second. In a normal economic environment, right? We’re hiring people. And we’ve got, you know, employment that such and such level. So we’re, we’re 95% employed, we’ve got, you know, 5% unemployment, pick a number. Now, in a normal environment, the economy starts to slow down, everything, you know, companies go, okay, they’re last to hire less to fire companies wait a long time to hire people, they want to make sure the trends are in place, it’s very expensive to hire and train somebody. So I really try not to lay off and fire people unless I absolutely have to. So their last hire last fire. So in a normal environment, the economy starts to slow down as economy starts to slow down, and we start laying off workers and unemployment rises as you head into a recession. The difference this time, is that in 2020, we just shot a hole through companies and told them Look, nobody can come to work. So we laid off half the labor force, right? So now all we’ve done is basically higher back to where we were in 2019, where you kind of pre pandemic. And so if you start looking at normal workloads of companies and say, Okay, I’m normally producing this, and I’ve adapted to this hybrid environment, etc. So I’ve got less workers than I used to have. My my labor force is cleaner than it used to be. There’s not a real need right now, potentially, for a big round of layoffs, because I never really hired back. Everybody I had, and again, in a normal environment, I tend to hire people back and then over hire No, we saw a bunch of layoffs last year. And were in mostly in tech companies that were just over, they were hiring people was like, hey, we need people to monitor social media, right? So they just hire a whole bunch of people to do that. They were really just unproductive. And so we saw a lot of layoffs in the tech industry. But in the rest of the world, that is very much more balance sheet income statement conscious. We saw them hire back, but they were tentative as they were hiring back. So there’s not a lot of excess labor to go lay off. So we may not see this big rash of layoffs and firings, and terminations, because of what we did in 2020. We kind of screwed up the normal cycle of the employment. And so that’s another one of these issues. Again, as we go back and start talking about this lag effect and why this time is different and why things aren’t occurring as fast as they’re there they should, is because we had this whole big anomaly and 2020 of stimulus and shutdowns and all this that really sucked a lot of the normal recessionary tinge out of the economy and never really fully came back. And so, you know, there’s there’s a lot of reasoning why this time is different because of what we did in 2020, which was not a natural, organic driven recession.

Adam Taggart 39:48
Yeah, so I totally get that the pandemic era was full of all sorts of unnatural things that that we had never seen before in things that we probably never should have done. too, but anyways, they all happen to write that

Lance Roberts 40:03
up all the end. My point is it just screwed up the economic data. It,

Adam Taggart 40:07
I get it, I think this is an important point, which is there’s so much sort of new dust in the air that’s kind of clouding everything that we got to be more cautious than normal about predictions that we’re making, because because there there are things that are new this time. I do think, though, that,

Lance Roberts 40:25
eventually, it’ll all work itself out. Right? Eventually, we’ll get back to normal. It’s just, you got to deal with this.

Adam Taggart 40:31
Yes. And I guess what I’m saying is, and this is me sharing my personal bias here, which is, if you want to take the Contra argument to the folks that think a recession is coming for all the many reasons that we and many other experts on this channel have discussed, then you really have to have a data supported, and we really well reasoned rationale for why it is different this time, right. And you just gave an example for how it could be on the employment side of things. I don’t necessarily see that it going that way. For some reasons that we’ve discussed in the past. And if you look at the employment data, you actually are seeing a lot of erosion there in the leading indicators that you expect to see fall first before the rest of the employment market hits. And if you’re interested in learning more about that, go watch the video that I recorded a few weeks ago with Eric bass Meijin, where he gets into that data specifically, but I want to mention something that Lacey hunt mentioned on this topic, Lance, which is we talked a fair amount about productivity and the importance of productivity, worker productivity. And Lacey basically said like that is kind of the metric, right as your the productivity of your workforce goes, really so goes the trajectory of your economy. And his conclusion was that worker productivity has been declining on the decline for a concerning period of time now. And he says, Look, the only way that that gets right sided at this point is by a rationalization of corporate workforces, or labor forces, which is sort of diplomatic, economic speak for layoffs. You got you gotta you gotta rationalize the cost of labor versus what the output of the labor is right now. And that’s been declining, and the only real way that they’re,

Lance Roberts 42:22
it’s not really layoffs. That’s that’s a that’s not, that’s not what he means.

Adam Taggart 42:27
Well, I dug into it with him. And it didn’t mean he didn’t either expect that layoffs were going to have to happen,

Lance Roberts 42:34
will have the layoffs will happen. But if you’re going to right size, your workforce increase productivity, you’re not gonna like the outcome of that. Right. And because that means fewer workers that are producing more at a better cost structure, and that’s lower wages. And again, you know, what we’ve done to our economy over the last, you know, 1020 30 years, productivity has been declining since 1990. Right? This isn’t something new. This didn’t just show up since post pandemic is like, oh, my gosh, where’d all the productivity go? Productivity has been declining on a per worker basis for a long time now, because of the changes to the technological workforce that we’re doing. And the fact that we’re outsourcing most of our labor to other countries. Hey, Lacey’s absolutely right. You’re just not going to like to fix for it. And he’s absolutely right about that, too, as

Adam Taggart 43:21
I agree. Sorry. Just to just to put some numbers to what you’re saying. You said that real GDP per capita, from 1870 to around 2000. averaged around 2.2%. Yep. From 2000. On, it’s dropped to 1.3%. Yep. And it’s gonna get worse. Yeah. So, yeah, look, I’m not saying anyone’s gonna like this. I’m just saying that this was Lacey’s sort of inescapable, like, I don’t see how we avoid this. It’s going to have to be rationalized through

Lance Roberts 43:57
right now. And look, and I agree, okay, you’re talking about two different things. What he’s talking about as a long term solution to fixing productivity, right. And that’s something that’s got to change if you’re going to have let me back up. Three 2000, really pre 1980 Our economy was growing at six and 7% rates of economic growth since 1980. Because of all the debt and everything else we’ve been doing to the workforce, etc. Since then, wages have been declining, the profit per worker has been surging. This is when we have people complaining about the you know, the disparity in wages between CEOs and the workforce. And we’ve done all these things, you know, share buybacks are part of this issue. compensation structure is part of this issue. You know, there’s the shift of pension liabilities off to the worker through shifting everything into a 401 K plan, say, Hey, you’re responsible for your own retirement adds to that whole problem. So you know, the reason that we can’t have Higher rates of economic growth. And the reason we can’t sustain a higher rate of inflation is because of all the debt and because of the the economic disproportionate wealth structure within the economy right now. So what he’s talking about is absolutely right, this is a long term problem, it’s going to continue to get worse, what you’re talking about is we’re gonna have a short term recession, and we’re gonna have layoffs go, that doesn’t fix the problem that he’s talking about, oh, very different issues.

Adam Taggart 45:26
There are two separate but related issues here, right, there’s the big macro one that you’re talking about, right. And we are going to still get to your your piece that you wrote about the debt and why it matters and why it is dampening our long term prospects. But we also were talking about the relatively near term acceleration and decline in productivity, if you will, since the pandemic and that is what he was saying is more in the short term he expects to materialize in the next recession, we’re going to we’re gonna see those layoffs because they need to help people save what will be happening to corporate profits. Yeah, absolutely.

Lance Roberts 46:02
And that’s where you’re gonna see a big influx of you know, Google just recently signed is working on signing a deal with the New York Times and The Washington Post to have their AI write news articles. So how many how many jobs are now going to get lost to AI in the next and the end, this has been part of the job loss structure we talked about is this implementation of technology, where, you know, less and less people are needed to produce the same job, you know, what I do a radio show every day, I’ve been doing a radio show, for almost 23 years. Now, every day. Back in 2000, it took about six people to produce that radio show. And that was no video involved. That was just simply getting the thing on the air, there was a producer, there was a director, there was a board operator, there was all kinds of all these people took six people to get a radio show produced today, we produce audio video, the whole nine yards with me the host and one other guy. Yeah, right. And, and so five people lost their job to technology, and they’re never coming back,

Adam Taggart 47:05
they’re never gonna met. And that’s pre AI and looking at the positive flip side of this great time to be an entrepreneur, right? You can you can do things that we would have taken an army of people in previous generations to do for you, right? The shadow side of that same coin is the fact that tons of people aren’t needed anymore. Right. And we’ve talked about this last, which is, we have created a terrible mal incentive in corporate America to shed as many real people employees as you can, right, we’ve made the cost of employing people, so high for employers, and it really is felt in the small business side of the world, right? Where it’s, you know, everything from, you know, rising wages, you know, rising minimum wages, and I’m not, I’m not Look, I know, it’s nearly impossible these days to live off a minimum wage. But if you get a smaller employer, employer who’s already got pretty razor thin margins, when you lump into, you know, health insurance, and OSHA, and you know, just all the things that come on with employing people and the fact that, you know, it’s a risk employing somebody, right, you hire them, and then they might walk out the door, two weeks, they might not work out, right, you invest in them, and they know, they just don’t show up, or whatever, there’s, there’s all sorts of issues, there’s lawsuits and, you know, legal concerns and all that type of stuff. So we’ve made it really painfully expensive to hire labor and and up until recently, you know, we kept the cost of capital so cheap, that, you know, it was pretty cheap to borrow to invest in automation and outsourcing and all that type of stuff, right? And now with the technical advancements, both in robotics, general software, but now AI exploding onto the scene, you know, there’s this increasingly sweet siren song for businesses to say, Yeah, you know, how can I get as much of this stuff done with fewer people than I have? Right? So that’s a bad societal thing. And I want to tie this to an interview that I just recently watched between Jeremy Grantham and David Rosenberg, and Grantham, you know, as he does his expertise is in asset price bubbles. And so, you know, he was most of the interview was opining on the great bubbles of the past century and how he believes we are living through the bursting of the last great bubble and what he expects to come going forward and spoiler alerts, not very good. But he concluded by basically saying that his his perhaps bigger concern here is that the real crisis that unfolds from the bursting of this latest bubble may not be a financial one. and that the real crisis may be a social one, that we have just turn the screws on labor for over a half a century where the past 50 years labor has lost out to capital. And the benefits of the prosperity that has the the economy and society has gained has gone so disproportionately to those that that have capital and own the means of production. And that labor has gotten increasingly squeezed. And if you look at things like real wages, and the the growth and net worth of the bottom 50% versus the top 1%, all that stuff, you can just see that labor has just been getting screwed. And his fear is that it gets to a point finally, and maybe it takes AI just vaporizing, you know, huge swaths of the economy that that low level or, you know, entry jobs, or just regular blue collar jobs, take for enough people to finally just say, Enough, we can’t stand this. And then you get some sort of social revolt. Not entirely sure, in his end, how that manifests, but he says it’s something that keeps him up at night.

Lance Roberts 51:08
No, I mean, it’s look, you know, the problem that you have is wages, you have to really separate stuff out into kind of reality versus fantasy land. I call it fantasy land Wall Street. Because, you know, where do you find this abnormally high discrepancy between the CEO pay and worker pay, it’s in publicly traded corporations where your C suite executives have stock options, they’re granted these things. And they you know, of course, then, and I just wrote an article last week talking about how companies beat earnings estimates and how they literally, they CFOs have admitted to fudging up to 10% of their accounting to generate these earnings for the reason of stock based compensation. And so you know, you have this disparity that occurs in the real world. And this is this is your, your guy that’s down the street running a small industrial machine shop, or, you know, you know, the guy on the corner running a convenience store in the real world, that disparity between the guy that owns the shop, and the labor is not that big? Absolutely.

Adam Taggart 52:17
You know, oftentimes, it’s that owner who’s like, basically taking a salary many times just exactly so fluid, right? Yeah, exactly.

Lance Roberts 52:26
And so the problem is, is that we lump all this together. And it’s just like anything else, you know, you take a look at the top 1% of income earners, right, and they have this massive disparity of wealth. And this is why you can’t look at things, you know, there’s a lot of data that’s put out by the government, it’s like, okay, look at debt to income ratios, look at, you know, savings ratios, and look at these, you know, whatever is the ratio, you need to take it throw it out the window, pretty much, because the vast majority of the top 10% of income earners that have all the wealth, they have no debt, right? And but that skews, all those ratios to a big degree, because if you strip them out all of a sudden becomes much more proportionate with the rest of the economy, because the rest of the economy is pretty fair, fairly well balanced across that it’s just what’s happening in this kind of fantasy world we created. And that really started in 2000, when we changed, you know, compensation for executives, and all these other types of things. So, you know, is there is there a problem absolutely doesn’t need to be fixed? Yeah. How are you going to do it, you got to start with getting rid of stock based compensation that gets you get rid of stock based compensation, you get rid of fudging of accounting statements, you get rid of all this other stuff that goes on, to manufacture manipulate earnings, to beat Wall Street estimates. And then you can kind of probably get back at some point actually having fundamentals matter for companies. But you know, the rest of the world is just really struggling to make ends meet because the economy is growing at 2%. That is not strong enough to generate massive amounts of economic prosperity. And

Adam Taggart 54:04
so here’s the question that I think Grantham asks, and I don’t know the answer to it, which is, I agree with you, Lance, that that’s where the reform needs to start. Yep. Is the reform gonna start there proactively? Or is it going to take some sort of social revolt to force it?

Lance Roberts 54:20
Now? I don’t even know how you force it through social revolt, honestly. Right. You know, you can show up with pitchforks and torches. But until you get Congress until you get the Senate until you get Wall Street, to all agree, basically to change the compensation structure, because this is all that’s got to be legally mandated. Right? You’ve got to have Congress pass a law that says no more stock based compensation. You know, that’s what Bill Clinton did back in 1999. He thought he was going to try to fix this problem. So he says CEOs can’t make more than a million dollars in salary.

Adam Taggart 54:52
Right? And they just found a hole and wait.

Lance Roberts 54:56
No problem. We’ll do stock based compensation. That’s even better. Oh, you know, you got to go back to saying, Look, you can’t have stock based compensation. You can’t do these things. Your CEO has to make a salary. That’s it. Look. If a company, let’s just pick a company, Apple. If you told me that you were going to pay Tim Cook, says $50 million a year to run Apple, I would probably say, Okay, it’s a $3 trillion company, that company just pumps out revenue every single year. can I justify him paying? You know, could the board justify paying him $50 million a year and a salary? Probably?

Adam Taggart 55:38
Right, right. The apple, the apple CFO could shake the couch cushions at Apple and come up with 50 million. I mean, yeah,

Lance Roberts 55:45
you know, there’s, but as soon as you go back to salary, right, and so this is the important thing about salaries. All of a sudden, if you start paying salaries, that shows up on the earning statement, right, because that’s direct deduction from the revenue that comes in. So if a company earns a million dollars in sales, right, you have sales of a million dollars, and the CEO of the company is really greedy. So he says My salary is a million dollars. Well, now all of a sudden, 1 million less 1 million, you’ve got $0 to work with to pay all the other expenses in the company. Right? So there’s no way to pay that salary of dollars, was the company only making million dollars, right?

Adam Taggart 56:23
And let alone just distribute anything to shareholders? Right? Yeah, absolutely

Lance Roberts 56:27
correct. So all of a sudden, you go back to just salary based compensation for everybody. Right? The company can only pay out so much. And there’s only so much that can go to the CEO of the company based on the profitability of the company to deliver shareholder value at the end of day, which is their job. So again, this the only solution is to go back to purely salary based compensation. It’ll never happen, because Wall Street makes way too much money on stock based compensation measures. And well, since Congress and the Senate are bought and paid for by corporations to pass little bills and lobbies and everything else and fun packs, they’re not going to change it either. So any changing but that’s the only way to fix it. Yeah, it’s

Adam Taggart 57:10
probably not just to go back to Grantham for a second. So he talked about how computer The Economist warrant, you know, about a century ago, that capitalism could become too successful, where you end up with this captured system, right, where the companies that succeed, the best reinvest the proceeds of their advantage back into the system to get even more advantage, right. And you end up with a bunch of, you know, industrial cartels that have, you know, but the government, and then the government’s government’s rules and regulations to their bidding, and knocking about this.

Lance Roberts 57:53
But that’s not capitalism. That’s not capitalism.

Adam Taggart 57:55
That’s cool. But he’s he’s talking about this. It’s like, hey, that that doesn’t sound too different than what kind of where we are right now. Right? Yeah, I’ve talked about this. We’ve got corporatism or crony capitalism, or however you want to define it,

Lance Roberts 58:06
however you want to define it. But that’s not capitalism, because capitalism is you, right? You started this podcast, you’re creating a business, you’re taking advantage of capitalism. Every little small mom and pop shop around this country, I just, my wife and I went out to dinner the other night. And this new little bakery opened up around the corner from our house. It’s called Chinese bakery. And it’s a walk up. It’s not even a restaurant. It’s just a walk, we have a slight open window, you walk up, you get coffee, and cookies, donuts, whatever they have so cute. It’s just a really cute little front that they got going on. It’s a great idea, great concept man line wrapped around the building for this capitalism. That’s awesome. Right? That’s we should have a bunch of Chinese bakeries all around the country participating in capitalism, it gets screwed up as soon as you take that company public. And that’s where all the evil begins to happen.

Adam Taggart 58:56
Right. Okay. So two things. One is is this constriction of unbridled capitalism? Right, is is? The I think Schumpeter’s fears are largely getting realized today, right? And then what results from that is things like massive wealth inequality, like we’ve been talking about, where you know, labor has been getting crushed, and that’s probably only gonna get worse going forward to current trajectories. So you know, I mean, I, I agree with you that none of it is going to change proactively right? The folks that are running the system and controlling it, they have no incentive to do this, right. And I think they’re almost kind of I don’t think it’s as guys who meet every, you know, week behind closed doors and rub their hands together, saying, Oh, how can we take over the world even more this week, but it’s just human nature. It’s just the greed and drive to have more, right. And so it almost acts like that, in effect. It’s just going to keep continuing until we get to a point where societally enough people just say whatever We can’t keep the status quo going, because it’s just not working for enough of us. Right. And I don’t know how it’s what how it’s gonna manifest. You know, we saw one extreme example of that last year in Sri Lanka, right? We’re just literally the entire country basically showed up at the presidential palace and said, Dude, you’re out. We don’t have a plan for what comes after you. We just know we don’t want you right? I’m not sure exactly that that would happen here. But I could see us getting to a point where they elect somebody, kind of like a Bernie Sanders type, who’s just, you know, who’s just a total Dark Horse, you know, different type of candidate and say, you have this mandate, you know, you have got to deal with this. And that guy comes in, that’s now now one person might not be able to affect that much change, right. But it becomes a political movement. And they get enough senators and congressmen that finally wrap around. I don’t know, I’m not trying to sing sling Pollyanna sunshine here. But I don’t know, there’s only one way that would be preferable to something even more bloody.

Lance Roberts 1:00:57
Let’s put it that way. Yeah. But look, there’s only one way to fix it. You’ve got to get corporations out of politics. Right? corporations can’t contribute to political campaigns, they can’t run PACs, they can’t have lobbies. Look, the Constitution is pretty clear. Americans vote for their representatives, who then go to Washington to vote their constituents wishes, right? That’s it, right. The only people that should have a voice in politics is the people, right? The individuals, the people that live here, the citizens of the country, they vote, they send their best candidates to Washington to vote, what is best for them and the things that they want to see. As soon as they go to Washington, though, they get they get, you know, lobbied and bamboozled and taken out to you know, five star dinners and lavish trips and private jets all

Adam Taggart 1:01:41
paid for the Borg of the swamp, just assimilates them.

Lance Roberts 1:01:45
And they forget who they’re there to represent. You’ve got to get it. And so you’ve got to get rid of corporations, they’ve got to get out of politics, period, no contributions, no donations, no packs, no lobbies it has. So if you’re gonna run for office, you’ve got to go door to door down your street, and you’ve got to raise money for your campaign from the citizens. And if you can’t do that, you don’t get to run for office, because obviously, you’re not telling what they want to hear. But that’s the only way you fix it. That’s never gonna happen either. Because again, it’s like, it’s like, it’s like term limits. Everybody goes, oh, we need term limits. And Congress. Yeah, we do. What congressman is gonna vote for a term limit

Adam Taggart 1:02:20
is gonna vote for it. Yeah. No, I get it. And look, I’m with you, where it’s not going to change in and of itself. And I just wonder, you know, do we just become the perpetual serfs of the top point 1%? Forever? You know, or is there some sort of massive breakdown in the system are enough pain where enough people stand up? We have we have a massive new political movement to get corporations out of politics. That’s, that’s above my paycheck. And honestly, folks, I spent more time on this in this video than I intended to, but hopefully that was interesting. Okay, we got some important things to get through not a lot of time. One thing I do just want to talk about real quickly, Lance, because in typical Lance fashion, you opened your mouth last week and a lot of comments resulted in the comment section. You were bashing, probably a policy of the current administration. And we got a lot of people saying, hey, you know, Lance is super partisan, you know, you shouldn’t make these things political. I totally agree that we this, this is intended to be a nonpartisan you know, series here, the whole platform here at Wealthion is very intentionally nonpartisan. That being said, we have to make political comments, we have to comment on political developments that impact the economy. That’s just part of what comes along here. And I’m going to put words in your mouth and feel free to change them, Lance. But I believe you’re like me, where you’re just very comfortable calling a spade a spade where you see it. You see a lot of spades on both sides of the political aisles. You’re not pushing any sort of political ideology here. The factor being is Is the administration that is currently in power is probably going to get the majority of the slings and arrows just because they’re the ones that are making the current decisions and creating the policies that we’re reacting to in real time. But I know you and I have railed about, you know, many perceived in justices of policy that we’ve seen over the past bunch of decades, whether it was the bailing out of the too big to fail culprits that caused the global financial crisis, whether it was all the QE support afterwards in the buying of the MBAs that rewarded all the the speculative real estate players, whether it was unfair tax breaks to the wealthy, whether it was the crazy amount of, of stimulus that was given blindly through PPP loans and other programs during the pandemic that resulted in billions of wastage. There’s, we can point to all sorts of developments that have happened across multiple administrations and blame them all equally. So I wanted to give You have a chance to, to write the ledger hear that you’re not pushing just one side of the political spectrum.

Lance Roberts 1:05:05
Yes, I am. I am pushing once. I know I don’t I don’t care about who’s in office. It’s about policy at the end of the day. You know, look, I have I rail equally on both Republicans and Democrats. So if you have a bad policy, I don’t care what your political leaning is. It’s a bad policy. And there’s a ton of bad policies that are going on right now that are not helping you. And they’re not making things better, and they’re not going to make things better. And oh, you know what, I don’t even know what I bashed about last week, but you have to remind me whatever it was, but it’s probably bad policy, and that’s why I was bashing on it.

Adam Taggart 1:05:38
Okay. So let’s let’s let’s bash a little bit more. It’s not necessarily bashing, but it is talking about a policy issue. And I can’t remember if this is the one that caused the kerfuffle,

Lance Roberts 1:05:51
you don’t know what’s good. You don’t know what you want?

Adam Taggart 1:05:53
I can’t remember I think I think you mentioned the name Biden. I think that’s what set people off where they felt like you were you were kind of anti Biden, where I think you were literally,

Lance Roberts 1:06:02
I mean, I’m anti every politician. So yeah,

Adam Taggart 1:06:06
I know you. And that’s why I wanted to do this. But But I want to pick up a thread that you mentioned earlier, which was the impact of student loan repayment, right? Because you have said multiple times on this channel, I just wanted to give you a little bit more time to talk about it, which is like, hey, that’s actually one of the things that is on the horizon. It’s not a black swan. It’s one that we can actually it’s a swan, we can actually see. But if that thing comes home to roost, that actually could be a material factor in souring the superior and really beginning to, you know, put the economy on a trajectory that could make a recession, more likely here. And as I let you react to that, let me just give out some top level numbers here. So it’s approximately 40 million borrowers out there for student loans. total outstanding student loan debt right now is 1.7 5 trillion. The average debt is somewhere between the approved per borrower, somewhere between 30 to $35,000 92% of these loans are loans to the government. And you and I have have railed in the past of why. And this is actually what what started the kerfuffle last week, because it was a it was a policy that was actually done under Obama, which I think you mentioned by name. And it was that’s that’s when this policy came in place, which is the secondary education market. The preponderance of loans were made by private lenders in previous generations, when you and I were going to school. Now, it’s been almost all taken over by government lenders, and that has created, you know, surprise, surprise, you get government involved in industry. And, you know, it creates all sorts of distortions and deformations. And what it did is it basically brought in a blank cheque lender, that gave institutions the incentive to raise fees as high as the market would bear. Right. And we have this massive, you know, crisis of way too many borrowers with way too much debt. 50% of those borrowers, when we go into repayment will have to pay at least $200 a month. 20% will be paying at least $500 a month. I think if we should have take the average payment, it’s somewhere in the three hundreds. And I think that’s commensurate with the numbers that you were mentioning earlier. And so it’s estimated that when we go into repayment, that will be about a $70 billion hit annually to consumer spending.

Lance Roberts 1:08:17
Yep. Well, I mean, if you just do simple math, right, 40 million. Let’s use really simple numbers, right? Because I don’t have a calculator for me. 40 million borrowers. $300. apiece, that’s, well, billion dollars a month. Right? By 12 months, it’s not 70 billion, that’s 140 billion a year. Right? That’s just simple math.

Adam Taggart 1:08:38
That 70 billion came from?

Lance Roberts 1:08:41
I know, I know, I get it. But

Adam Taggart 1:08:44
But yeah, simple math, simple math, you know, it’s in the 100 billion range, maybe more.

Lance Roberts 1:08:50
And that’s the one thing I’ve been saying, Look, I wrote an article on this on the website as well. So this is the one thing that could accelerate the recession, because again, that’s an immediate drain of liquidity out of the market, that people really, and this is the one thing that I don’t think the market has given enough credence to, as we talked about before, it’s always these exogenous events that occur, that create these problems and things that markets haven’t really thought about yet. And I think this is one potentially that the market hasn’t given up wait to, and as we were talking about previously, is that, you know, this was bad policy that started this and created the created, you know, this massive problem with price increases of college education, we didn’t have that problem free 2008 before the government got involved in student loan debt, use that to actually qualify for your loans. And all of a sudden, you have to do this anymore, and they had to be used for very specific purposes. And so now we’ve got this problem $1.7 trillion. And now we’re trying to figure out how to forgive it. Right. So okay, well, don’t worry about the people that actually loaned the money. Let’s just give them the finger. You know, let’s not worry about you know, contract law which is a very critical component A component of economic stability. Let’s not worry about the law

Adam Taggart 1:10:04
and democracy, democracy in general, right?

Lance Roberts 1:10:07
Yeah, so let’s not even talk about that this just look, it’s bad policy. And, you know, the what we did during the pandemic, I get it, we were trying to give people relief, while we artificially shut down the economy. But at the end of the day, this is going to have to come back around. And if the numbers are true, right, if and no matter how you kind of dig at these numbers, they kind of come out the same way, you’re talking about a pretty significant hit to discretionary spending on a monthly basis. And, you know, companies like Amazon, and others, which were long Amazon, so you know, we’re watching this very closely, I, you know, when when all of a sudden a household comes up, $300 short, next month on being able to make ends meet, it’s got to show up somewhere, and is most likely not going to show up in their non discretionary spending, they’re gonna have to make the rent payment, they’re gonna have to make their mortgage payments, you have to make the car note, otherwise it loses our house, it loses a car, it’s going to come down to restaurant spending, which, you know, restaurants have been doing very well, McDonald’s just reported very good numbers. Maybe I don’t go out to eat as much at McDonald’s or Chipotle or some of these other companies that were that’s gonna be the first impact that you’re gonna see is a retraction in eating out and leisure activities and those type of things.

Adam Taggart 1:11:21
Right, and this is coming at a time where, you know, household indebtedness continues to accelerate here, right, you know, coming out of the pandemic, we’ve seen these these household debt numbers, the cost of that debt is the most expensive it’s ever been right, the highest interest rates we’ve ever seen in revolving credit so far. So these these places already pinched in Lance, you cite the stat all the time about, you know, the gargantuan percentage of American households that can’t come up with what like 500 bucks, 300 bucks emergency should hit, and already another all of a sudden, gonna have to start repaying 300 bucks more every month, going forward, right?

Lance Roberts 1:11:59
Yeah, no, I mean, it’s amazing. I get a lot of emails from people, they’re like, Okay, I’m, I’m 25 years old, and I want to start investing for my future, great. First thing you’re gonna do is pay off all your debt, except your mortgage, and then you’re gonna start saving 30% of your income. And as soon as you say that somebody’s like, I can’t do that. I can’t do it. Yeah, yeah. And like, Well, why not? Well, because my rent my mortgage, my, this, my that my other thing. And this is why you have to pay off all your debt. So you can, you know, save more money, but that also means that you can’t, you know, live above your means every month, that means you’re gonna have to really knuckle down live on rice and beans for quite a while. And you know, really focus on on getting your savings in order and then hopefully will happen as your in your salary will increase over time, and you’ll be able to maintain your lifestyle, and the excess savings will be will be there to continue to grow. And you’ll be able to increase your savings rate over time. But, you know, there’s no get rich quick scheme. But we keep telling people to live beyond their means we keep you know, enticing them to buy bigger houses, more expensive homes. And again, you want to fix the housing problem. I always say, well, housing is too expensive. Okay. That’s great. That’s all a function of bad policy started under Clinton went through Bush went through Obama and his and his progressed under Trump as well as bike right, if there you go, all of them contributed to the housing. Right. It’s also a function of fiscal policy through Well, actually, I apologize. It also started Yeah, let’s go back. Yeah, Glenn and Greenspan. Right. So it started with him. Because Greenspan was promoting adjustable rate mortgages. So all of a sudden, in late 90s, we got we started come up with great ideas like, hey, we’ll get two mortgages 80% And then a 20% mortgage to avoid PMI. So you really have to put that much money down on the house, okay. If you want housing prices to come down, the only thing you got to do is lower demand, right? Immediately get rid of all mortgages, except for a 30 year mortgage with a 20% downpayment, and you have to have a 700 or better credit score to qualify, housing prices will come down and they’ll start to align with normal economic growth and inflation. That’s just supply and demand. But you’ve got to get rid of these low interest rates, no, no money down 3% Down Fannie Mae mortgages and allowing people to buy houses they really can’t afford to start with, but that’s what’s keeping housing prices, elevated supply and demand.

Adam Taggart 1:14:14
Yep. Well, okay. So bad policy, again, interfering with the natural economic forces of supply and demand. No huge surprise there. One other factor that’s in play here, though, that I find really interesting is I did have that interview this week that I’ve been telling you I was looking forward to with with behavioral economist Dan Ariely. Yeah. And as expected, super interesting, folks, if, if you find the topic of behavioral economics interesting, or if you aren’t familiar with it, you should definitely learn about it. Go watch that video. I’ll put up a link to it here. Super duper fascinating. Because basically, the whole premise of the discipline of behavioral economics is that we would expect people to make exceptional rational decisions around money because it’s so quantifiable, we make Incredibly irrational decisions, right? And so the student loan thing is so I think it’s such a great example of behavioral economics where basically the borrowers were promised, hey, you know, we’re going to help you out, we’re going to put a moratorium on your payments, right? And what buyers should have done is said, Okay, I understand some more moratorium, great. I should be saving it, whatever I was going to spend towards my student loans, I should put in savings and just have it there for when my my loans go back into repayment, right? No, that’s not what they did. They just spent it right. Then you started getting the narrative out there of like, well, hey, and we might even forgive this debt for you, right? And so you know, people said, well, great, then I don’t need to save this money at all, I can just spend this money because my dad’s gonna get forgiven, right, even though there were plenty of risks out there that this might not go through. Right. And basically, people just have assumed that it was a guarantee, right. And that’s one of the risks that people humans are really poorly wired for, if there is a risk of pain, but it’s not an immediate one, we just kind of way more than we should. And if there’s an element of uncertainty in it that like, it’s probably going to happen, but somebody might come along and actually fix things for me, we discounted way more than we should. So this was kind of like both, it was like at some point in the future, your student loans we’re gonna go, we’re probably going to go into repayment. But even though it doesn’t seem constitutionally justifiable, the current administration is going to try to actually forgive that for you. The rational person should have said like, Okay, well, there’s uncertainty here, I should at least just save this money in case my loans go back into repayment, Nope, it’s I’m going to buy another car, or I’m going to, you know, go take that vacation, or I’m going to eat out or whatever. Right? So we’re just really bad for preparing for stuff like this. Yeah,

Lance Roberts 1:16:57
I’m looking at this. It’s just, it’s just a consequence of a bad policy decision. You know, another another really interesting one is during the pandemic, you know, we increase increase all these child tax credits, and you know, to get people help with childcare, and that sounds like an awesome thing, right? So who would argue against a policy that gives people more money to take care of their children? Nobody would argue against that. Right? It’s terrible

Adam Taggart 1:17:20
in spirit, you know, guys like you and I would say, Well, okay, how is that sustainably afforded but different story,

Lance Roberts 1:17:25
right. And since since they did that childcare costs have almost doubled. And exactly what you would expect, right? You get people if all of a sudden if I’m a childcare provider, and I’ve realized that people are getting, you know, an extra 1000 bucks a month for childcare? What do you think I do with my raise my rates, right? And so this is this is all part of these bad economic policy decisions. Look, here’s the thing as a voter, right, you want to talk about your vote. Whenever the government is giving you something, it’s bad policy, it’s just almost always across the board. Bad policy, because the money’s got to be generated from somewhere and there’s a knock off effect every time the government gives you something. So if the government’s giving you something for free, it’s costing you right, you’re either gonna pay for it through higher taxes, slower economic growth, or ultimately the the de higher costs, right. And inflation. And you know, we’ve got this was the whole you remember Stephanie Kelton, who had like, 15 minutes of fame over my MMT? Yeah, yeah. Yeah. I don’t know what’s happened to her. I haven’t heard from her and like, a year and a half now. But MMT was tried and failed beautifully, right? Because you gave people a bunch of money, and you had massive inflation. Everybody’s like, okay, that’s not good policy. Right. So so this is why we have to start going back to the basics of economics. And how it works is that whenever you’re spending money that you haven’t earned, it has a cost, somebody’s got to pay for it. And that somebody is anybody that earns wages.

Adam Taggart 1:18:53
All right, well said, I gotta move on from us being cranky old men, yelling at government policy setters to get off our damn lawn here. Because we don’t have much time left. And I do want to hit a couple of quick highlights. And I want to get your trades, obviously. Let me share my screen real fast. So your colleague Michael Liebowitz wrote a really great article talking about how our national debt, just the interest expense, and our national debt is just not sustainable at these levers levels. Okay, all of a sudden, I’m seeing this rotation through these charts. Let me

Lance Roberts 1:19:28
push the pause button at the top right. Yep, I got it.

Adam Taggart 1:19:32
This is the chart I wanted. So what you’ll see here, folks, is you know, we’ve had this exponential increase in federal debt. That’s no surprise. We’ve talked about this forever. But I want to direct your attention here to the blue line, which is the interest expense on federal debt. And you’ll see it’s just started doing a moonshot. Since the Fed has started hiking interest rates, and commensurate with that, look at the green line, right, which is tax revenues. Which is actually kind of nosing over here at the moment here. So we’ve got the worst of both worlds, we’ve got a fast increasing, invest increasing interest expense line, and the tax receipts to pay that are actually, you know, not growing nearly as fast to put it politely. So basically, I just want to get to the punchline of his piece, which was, the Fed has got to get interest rates down, meaning it’s got to kill inflation, right, so that it can get back to getting to lowering rates again. Because the current trajectory we’re on, we’re going to hit whatever wall we’re going to hit fast. And so to slow that, it needs to bring interest rates down. And so you know, it’s got to do it’s got to do in the very immediate term to kill inflation so that it can then bring those rates down. This is one of the reasons why I think Michael is so sanguine on US Treasuries right now, which is that, you know, those rates are likely going to come down as the Fed has to bring interest rates down once it gets inflation under control. And therefore, if you enter the market now, you can get paid nicely. And then you can ride the appreciation of the underlying treasuries as the government eventually resorts to having to get interest rates back to low levels. Again, that a captured correctly.

Lance Roberts 1:21:18
Yep, absolutely. Right. And in fact, that little nose over in those tax receipts is actually a fairly sharp decrease in tax revenue, which is here we go. Drumroll, please. A very free recessionary indicator.

Adam Taggart 1:21:33
Okay, one thing.

Lance Roberts 1:21:36
I’ve got an article coming out next week, actually. Okay.

Adam Taggart 1:21:39
And I appreciate you tossing me a bone here, that recession may be coming, this may be a sign of it. But is that drop? I’m just curious for folks that might push back. Is any of that or any material part of that coming from the delay? In? No, in California, because of the wildfires out here? They gave residents until October to file their taxes this year. So could it be the fact that that income taxes that should have come in haven’t come in yet from that?

Lance Roberts 1:22:11
Is that wouldn’t account for the magnitude of the drop?

Adam Taggart 1:22:14
Okay. Okay. I didn’t think so. But I just wanted to had that question off at the pass. Okay, so in a remaining couple of minutes here, Lance, before we get to your trades, can you walk us through the key takeaways from your recent piece on debt because you take this debt story, and bring it further basically to say, look, we may need to expect sort of lower economic prosperity in the coming decades because of this debt overhang?

Lance Roberts 1:22:42
Yep, I can do that. Let me grab a couple of charts here real quick and, okay, so yeah, so So basically, you know, what the article is about is that we’ve had this massive surge in debt, you know, and not just recently, not just under the Biden administration, but also under the Trump administration, which increased by 9 trillion under the Obama administration, you know, another massive surge in debt. I mean, we’ve increased our national debt by over 20 trillion, just in the last three administration. So you know, the unbridled spending that’s occurring. As I said before, whenever the government says they’re going to give you something that comes with a cost, and that cost is either higher taxes, lower economic growth, or inflation, it’s, it’s one of those three things or a combination of those things. And, you know, we keep talking about I don’t understand we have this wealth problem in the country and we have this problem and that problem in what you have with all these social uprisings around the country social justice all this stuff is all a function of people just getting you know, we talk about these riots, you know, your abs like, well, Subway, everybody’s gonna write, they were rioting already. Right, they’re upset, they just don’t understand. They don’t know what they’re upset about. But they’re upset about something and they’re let you know, they’re, they’re pushing back. And yoke is think about it, if everybody was doing well, right? If everybody had great incomes, and everybody’s wealth was good, and life was great, nobody, right? Right. I mean, everybody sit at home, and they’re happy, and they go deal with their families, right? So people are lashing out for a reason. And it’s because of what we’ve been doing economically for the last 2025 30 years in particular. And, you know, you can look at this chart, this is this chart goes back to 1900, and is basically deficits, GDP and inflation. And you can see that really, we didn’t have any deficit, even during World War Two, the deficit was very minor. We have a little bit of a deficit starting in 1980, when Reagan was really trying to battle you know, surging inflation rates and trying to, you know, kickstart the economy again. You saw a bit of a surplus there and late 90s. And that was basically an illusion because that was just simply the Clinton ministration took money so security, threw it onto the income statement said, Oh, look, we have a surplus and then that’s why it went away almost immediately after. And then since then, we’ve just had a consistent run lower of Joe spending to try to keep economic growth somewhat stable around 2%. And of course, you see those two big blue bars to the bottom. And that surge in GDP, which is now reversing, that that’s those stimulus drops that we did. So of course, if you’re going to drop 5 trillion into the economy, you’re gonna get a boost and economic growth problem is just not sustainable. And that’s why we’re now back to 2% economic growth. And that’s just a function of the debt. But where do you you know, when you start talking about your tax dollars that you pay, and again, this is this is the whole problem that exists. And, you know, my car, I have two partners, Richard Roscoe and Danny Ratliff, and they hate when I talk about Social Security, because Social Security is a huge problem. And they’re like, Well, you know, people depend on this for as much as 100% of their income in retirement. So we’re always going to have to have social security, otherwise, people will be stepping over bodies in the street and that type of thing. So Social Security is all going to be here forever, it’s just going to have to be okay, fine, you can have that argument. Here’s the problem with Social Security. Right now, we spend roughly 100 cents of every dollar that comes in and tax revenue, just to fund interest on the debt, and social welfare. Everything else is paid for by debt. And as interest rates keep going up, and as Mike talked about a second ago, with interest payments, that’s eating more and more of those tax dollars, we’re now over a trillion dollars in interest service alone on the debt, that’s a truck. So we if we raise 5 trillion in revenue, and taxes 1/5 of it just goes to pay the interest on the debt, the other four fifths go to pay for Social Security, what are you going to do for the rest of the spending, right, and we keep wanting to spend more money, we want to do 1.7 trillion and tax, you know, inflation Reduction Act, it’s really not inflation reduction, but it’s just spending on on projects. That’s great. No problem with infrastructure. But you got to pay for that we get that increases your interest service. So every time we want to spend more money, it’s all in debt. But we don’t think about the consequences of that debt and how it impacts things over time. And how it impacts to the economy. Again, you can see the the pandemic spending that came out, and we’re still picking up, you know, basically another trillion dollars right now, and just new debt. And this is this is as of the end of last year. So we haven’t picked up the 600 billion in new debt that was issued this year, just to meet the debt ceiling requirements. So that spike is even going to be higher in 2023. But again, as we start looking at this, you know, we’re spending $4.50, roughly a debt to create $1 of economic growth, that’s unsustainable. And that’s just since 2009. Right? And since 2009, this this chart, right, this is how much debt has increased since 2009. Versus economic growth, right, economic growth is up 30% and total since 2009. Since the financial crisis when Obama took office, that’s how much the economy has grown. That’s how much debt has grown to support that little bit of economic growth. If it had not been for that debt issuance, we would actually have negative economic growth. That’s the red line. That’s debt free economic growth. And so you can see just how much is required in debt just to sustain a small 2% rate of growth in the economy. What this chart shows you is the total debt versus the normalized structural debt level. If we go back to the 1950s and 60s, we were growing at about 8%. On average, in the economy, savings rates are running about 8%. Economics was very healthy, the average household had about 60% of debt to their household net worth. So that was mostly their mortgage, they didn’t have, you know, maybe a little bit of auto debt, primarily their mortgage, everything else they paid for in cash and had savings. Since then, if we used that, that kind of economically beneficial debt to income ratio, that’s that black line running out that you’ve got here. We would have to revert debt in the economy by over $30 trillion, just to get back to a manageable sustainable debt level that would create economic prosperity. And of course, the last time that we had some type of debt reversion like that was during the Great Depression. So you know, the problem with debt is the function that erodes economic growth. It erodes inflation, it keeps us at a suppressed level of activity in the economy. 2% economic growth mind you used to be considered pre recessionary prior to 2000. If the economy was going at 2%, pre 2000. We were worrying about a recession. Today, we’re just hoping to get 2% economic growth. In fact, the Feds long term growth projection right now is 1.8%. On the economy at 2%. growth in the economy, you only bring in enough activities support the labor force, it doesn’t account for the new entrants into the labor force. This is why we take a look at labor statistics got 190 million, you know employee It will people in the economy. There’s like 50 million people that are unemployed, we don’t count them because they fallen out of the labor force. But this is why you have this economic disparity within the economy. Now back to Social Security for a second, the problem there. You know, back in the 1940s, when Social Security was first installed, and you know, first put together, there were 16 workers paying in for every worker that was taking out today, we had the lowest birth rate in the economy since the 1940s. We have a lot of immigration coming in, but it’s at the lower end of the working wage class. And we have less than two workers paying in for every worker taking out that number is going to get worse because of more and more boomers moving on to Social Security. So explain to me mathematically how without the zoo out massive issuances of debt, how Social Security is sustainable to keep paying out if the rate is going because you have a depressed economic demographic growth rate of contributors into that pool of funds. It’s a problem. It’s and basically it’s about a $90 trillion problem that we haven’t talked about yet.

Adam Taggart 1:31:04
All right. Well, before we move on from this chart, I just want to that’s it. I first started, I first started paying attention to this jet debt to GDP will go back to the debt to GDP chart first. It first started catching my attention back in like the mid 2000s. You know that for the first so right, right as we were getting back to the peak of where we were in World War Two. And I guess what is that? What what Yeah, it’s well, we’re well, what are

Lance Roberts 1:31:37
you talking about that big spike? Yeah. Yeah, that’s, that’s, that’s heading into World War Two.

Adam Taggart 1:31:45
Okay, heading into World War Two, I guess. Yeah. But anyway, so when it got up there, I it back up there. I remember thinking, Oh, my gosh, you know, we’re at this massive extreme. Now. We got to prepare for the reversion, right. But it just punched through the ceiling. And it’s just, you know, I think at this point, it’s, it’s making its way into the, you know, out of gravity well of Earth out into just pure outer space at this point in time. That’s all right.

Lance Roberts 1:32:12
We now know there’s UFOs for real now. So

Adam Taggart 1:32:16
okay, yeah, exactly. Exactly. So and so our debt to percent of GDP, percentage, that may be the first thing to contact alien life life in a future distant galaxy, given the trajectory it’s on. But you know, I think you did a great job. Basically, just dispersing earlier said that, you know, some people think that you’re, you’re just too bullish, and you’re just, you know, selling sunshine and seeing unicorns and roses everywhere. I think you just dispelled people for?

Lance Roberts 1:32:53
Yeah, no, I mean, there’s a lot of really very stuff long term, I’m not optimistic on the markets or the economy over the next decade. Right now, we’re in a bullish mode. So we need to treat it as such, but, you know, over the next decade or two, it doesn’t look great,

Adam Taggart 1:33:08
right, and we’re gonna have to end it there. But that’s a good way to end it, right. Which is because it really shows your true colors, which is, look, you’re a guy who has a lot of concerns about where things are headed. But your job is to safely see your clients capital to the best future you can bring it to. And right now, it’s a bull market, and you gotta you gotta play the market you have. So in terms of playing the market, you have what trades if any of you made over the past week,

Lance Roberts 1:33:34
so gotta kind of go back a couple of weeks because some things have been going on. So over the last couple of weeks, we increased exposure to some of our big mega caps, like we bought my course a little bit more Microsoft this week, after the earnings, the stock got hit a bit, came back down to the 50 day moving average got a little bit oversold the short term basis. So we added to Microsoft, we previously bought Amazon and Google added to those positions Apple as well. So we so going into earnings season, we increase some of our exposures to the mega cap stocks, we’re still underweight those positions, we’re about 6% shorter than the NASDAQ where we should be. So we’ve got about five 6% in cash still on our portfolio waiting to be allocated, but we need a three to 5% correction to get that last 5%. We’re right now running about 55% exposure out of the 60% exposure portfolio. So likely, if we’d have three to 5% correction, the markets will be at full exposure at 60. And then if the markets do recover from that we’ll probably go to 70% equity in a 6040 model because we can overweight exposures in our portfolios but we also have been doing some rebalancing. This week we trim back on Costco and got three overbought so we turn back on that we kind of rebalanced our positions and Abbott, we also added to our Raytheon position that had really good earnings report. Their earnings for Raytheon to RTX Technologies was that actually really good, the stock got hit almost 20 15% in a day and actually finished the day down like 10% on their earnings report because they said that they’re going to have to pay for our we call on their powder coating on some engines that’s going to cost them. And they’ve already set aside the money for it, they bought about $500 million, but the stock took about a $4 billion hit. So there’s a big differential between what the actual cost is going to be versus the hit to their market cap. So we took that opportunity to add to that position as well.

Adam Taggart 1:35:30
Right. So it sounds like a lot of gardening. This past week is a lot of gardening over the last few weeks. Okay. All right. Well, look, just before we wrap up, we are sort of in the midst of earnings seasons right now, as the picture is becoming a little more clear for you. Any any key takeaways from it better than expected bad is what we thought.

Lance Roberts 1:35:52
But no, of course, it’s better than expected because we lowered earnings dramatic. I

Adam Taggart 1:35:56
know. Yeah. So

Lance Roberts 1:36:00
earnings season, yes, we’re all beating earnings estimates, we’re all very happy, I think you gotta pay attention to the fact that companies reporting lower revenues. They’re beating estimates, but the revenue on a year over year growth basis is lower. So again, that’s just part of the economic cycle we’re in. But if we’re going to have this market sustain itself, we need to start seeing a pretty aggressive growth structure and top line revenue. Since 2008, we’ve had revenues grow sorry, we’ve had earnings grow, but operating earnings are up by foreigner percent reported earnings up by 500%. sales growth is only up 100%. Since 2009. So how you manufacture a foreigner percent growth in earnings on 100% increase in revenue shows you how much is going into. And this is this is in the article on the website that I wrote last week talking about this, this, you know how companies manufacture earnings. And there’s a lot of charts and graphs in that about how companies fudge numbers. And there’s some surveys in there about where the retail investor actually sits in terms of Wall Street’s concern. But let me just give you fair warning, you’re not at the top of the list. But, you know, that all feeds into the fact of how they can manufacture these great earnings numbers, but not really have revenue growth and revenue comes from economic growth. So how do you get fantastic earnings growth in the 2%? growth economy? You fudged the numbers?

Adam Taggart 1:37:21
Yeah. Which is why the top line revenue numbers are so important because they are much harder to fudge. Right? So they’re giving us a truer sense of where things are headed. All right. Well, look, I gotta wrap it up here. I’ve been getting the side I from my wife, we’ve been recording here she is gonna spit me away, because it’s my birthday today. And she could have made Yep, so thanks. So we gotta go out and let let let my wife be nice to me, which is going to be fun. But in wrapping up here, folks, first just a reminder, if you didn’t hear it last week, we have locked in a date for the sort of senior care Senior Living end of life, everything around taking care of the seniors in your life. Or if you’re a senior, making sure that the the the last chapter in your life is the best of a chapter as you can make it that free webinars going to happen on Friday, August 25th, at noon, Eastern 9am Pacific. And just wrapping up here, as always, I think we did a really good job again this week, showing you know all the challenges that investors that regular investors like those of you watching, have in just trying to navigate what’s coming on here with a lot of the bigger concerns that Lance and I waited through, but also the fact that the markets, partying right now and you know, you if you want to, if you want to be capturing some of that you have to find a way to play in it. That’s prudent, right? So anyways, if you’ve got a good financial advisor, we always recommend that unless you’re highly experienced investing on your own, that you work under the guidance of a good professional financial adviser, but specifically one that understands all the issues that Lance and I talked about in today’s conversation. If you’ve got a good one who’s taking good care of you, great, stick with them. But if you don’t, or you’d like a second opinion from one who does maybe even Lance and his team there at real investment advice, then consider scheduling a free consultation with the financial advisors that Wealthion endorses to do that, just go fill out the short form only takes a few seconds and these consultations are totally free. They don’t cost you anything, no commitment to work with them just to public service. These guys offer to help as many people position as prudently as possible. Lance as we wrap up here, I’m gonna let you have the last word but before I do, folks, if you enjoy these weekly market recaps and just can’t wait to get to the end of them to hear Lance’s brilliance when it gives the last word, please do us a favor and support this channel by hitting the like button and then clicking on the red subscribe button below as well as that little bell icon right next to it. Alright, let’s the floor is yours.

Lance Roberts 1:39:54
No problem. First of all, happy birthday my friend. So it’s great to be you know, young 39 I wish I was starting And again, I agree

Adam Taggart 1:40:01
it would be great to be younger 39.

Lance Roberts 1:40:05
But look, I look, I know I get a lot of emails, like I said from your viewers saying, Oh, you’re too bullish, but trust me, I will be happy to be bearish again when it comes time to be bearish again. Yes, I’m bullish right now because that’s what the markets doing. But when there comes time I got plenty of bullish ammo sitting in the pipes right now that when that time comes we still bearish? Yeah, I’m sorry. You got plenty of bearish ammo? Yes, plenty of stuff stocked up for you that when it comes down to be bearish again, I will be amply bearish for you.

Adam Taggart 1:40:36
Alright, great. And just to be super clear, Lance, there is zero pressure for you to be bearish or bullish. The only pressure I want to put on you is to call it as you see it, which I think you do a wonderful job of every week. You’ve missed my job grounding force here on this channel. And I think, you know, again, I want to give you props. You were one of the few voices at the end of last year, really preparing folks that things could change faster than they expected. And I think you did people a great service by really playing that role on this channel. So just keep doing what you’re doing, buddy.

Lance Roberts 1:41:10
No problem. Happy birthday. Enjoy yourself and give your wife a kiss for me.

Adam Taggart 1:41:14
We’ll do alright thanks. But she I’m sure she prefer one from your from me too. All right. Thanks so much. But see you next week everybody else thanks so much for watching.


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