Investment Tools: Interactive Brokers introduced a new tool called Connections, which helps investors explore links between stocks, ETFs, bonds, futures, options, and macroeconomic themes, offering insights into marketwide themes like carbon capture and interest rates.
Market Outlook: The podcast discusses market reactions to potential rate cuts and highlights September and October as historically challenging months for the markets.
Investment Discipline: Emphasis is placed on treating investments with respect, conducting thorough research, and avoiding impulsive financial decisions.
Economic Indicators: Key economic data such as new home sales, durable goods orders, and GDP growth are analyzed to assess the likelihood of a rate cut by the Federal Reserve.
Real Estate Trends: The discussion highlights a potential downturn in the real estate market, driven by high interest rates and overvaluation, with significant implications for the broader economy.
Risk Management: Danielle Park emphasizes the importance of understanding risk tolerance and the potential consequences of overexposure to high-risk investments, particularly for individual investors nearing retirement.
Market Concentration: Concerns are raised about the high concentration of market value in a few tech companies, drawing parallels to the tech bubble of the early 2000s.
Investment Opportunities: The podcast suggests that treasuries may outperform stocks in the coming decade due to current high valuations and the potential for mean reversion in stock prices.
Transcript
This episode is sponsored by Interactive Brokers. And when it comes to investing, the smartest opportunities often lie in connections. In the connections that you can't see at first glance. That's why Interactive Brokers developed Connections, a powerful new tool that helps you explore how stocks and ETFs, bonds, futures, options, and even macroeconomic themes are all linked. Imagine analyzing a technology stock and instantly seeing its competitors. ETFs in the same theme, or maybe even option strategies to manage risk, or exploring marketwide themes like carbon capture, housing, or even interest rates, all in one integrated view. With access to over 160 global markets, Interactive Brokers brings you insights and opportunities other platforms can't match. Because the best informed investors will choose Interactive Brokers. Interactive Brokers is a member of SIPC. The risk of loss in online trading of stocks, options, and futures can be substantial. Learn more at ibkr.com/connections. >> The disciplined investor is all about you, your money, and the markets. Sit back and get ready for this edition of the disciplined investor podcast. This episode of The Disciplined Investor is sponsored by Horowits & Company. If you're looking for a portfolio manager, look no further. Horowits and company from seed through harvest. Cultivating financial success. [Music] [Applause] Markets react to the chance of a rate cut and how summertime low was anything but boring and September and October await both two of the seasonally worst months for the markets. And our guest today is Danielle Park. She's a co-founder of Venibal Park Investment Council. All this and much more on episode number 936 of the Disciplined Investor podcast [Music] [Music] and a very happy Labor Day weekend to you. Always a highlight of my year. I can tell you, I can remember this was the weekend that was the official quote official end of the summer and the start of the school year when I was a kid. I mean, I don't know how many of you lived in an area that that was the case because down here where I where I live now, Florida, it's like you go back to school and it seems like it's July, start college in in in August. But, uh, we did it right after the day like the Tuesday after Labor Day. It was the Jerry Lewis teleathon that was always the signal that was like, "Okay, summer is over." And it's the start of the school year. It's also time, you remember this? It's all, it was also the time to to put away those whites, the shoes, the pants, the belts. And I was talking about this with John C. D'vorak this week on DH Unplugged where we talk every Tuesday about all sorts of things financial. So, I did a little research on it because I was wondering where did that come from? The whole white thing. Now, some of you that are young, you're like, "What are you talking about?" I'm telling you, Memorial Day was like, "Okay, get out the white. You could wear your white pants. You could wear your white skirts if you're a lady." Of course, you could. Women could do whatever they want usually whenever. But guys, man, you wear those white patent leather shoes or the white leather shoes with the buckle and that white wide belt and the white pants, white shorts for that matter. So, I did a little bit of research. It turns out that it was in the late 19th and 20th centuries, that if you wore white, it was it was kind of a sign of wealth and leisure, especially if those were lightweight and they were breathable fabrics. And after Labor Day, which marked the unofficial end of summer, so you did this in Memorial Day or so, you started uh after Labor Day, which ended the the summer, you would return to your city life, right? You would you would go from uh East Egg, I guess. From the Hamptons. Oh, yes. From the Hamptons. You'd go back to your your digs in in in New York City or wherever it was that you would vacation at the lake and wherever wherever it was that this happened and you go back to your regular life, you'd switch to darker, more formal clothing. And if you didn't actually follow this shift in the colors and the and what everybody did back then, it was seen as a big a big fauxpaw, especially those trying to climb the social ladder. So there you go. That's a little bit of information and people followed along. They followed along aimlessly, kind of like sheep. Sort of like what appears to be happening now with the markets these days. I mean, it's easy to criticize and look at the upward trajectory saying, "Hey, you know what? Oh, this is a false breakout. You know, this is this is uh not based on anything but I don't know, pick your pick your poison what you want to plug in there. Why this is not a real rally. But if you do, you're nuts. The fact is, you could complain all you want and talk about how valuations and we do it. We talk about valuations are really questionable and you know the rotation is not there per se or you say oh well it's only a certain handful of stocks that are really leading the market. You could talk about that all day that you want but you're dumb dumb if you don't realize that in fact it's something you don't want to fight. Why would you fight the direction of the market up or down if it's on a long-term trend either way? Makes no sense. Why would you fight the trend for AI and tech? Makes no sense. As as investors, once I think we are all able to give into that higher power and just say, okay, in this case, by the way, it's the market gods. We'll call it the market gods. Once we give into that, that's when the time comes when we're less frustrated and I think much more satisfied with the fact that we're making money, earning money, and our money is working hard for us. Now, I'm not saying be stupid about it. I'm not saying be reckless. I'm not saying be frivolous with your money because a lot of times people are that, right? People get a little bit cavalier with their money. I I hear it all the time. People call me up like, "Hey, um, you know what I did this week?" I'm like, "What did you do? I threw a 100K into this investment." I'm like, "You threw a 100K into an investment? What does that mean? Or people call me up and they're like, "Uh, hey Andrew, I'm thinking about popping five large into an account that you'll manage for me." I'm like, "You're going to pop five large? Seriously? What does we got to What does that mean? Is that Is that how you treat your money? It honestly, it makes my It makes my skin crawl. There is a blatant disregard for your money when you do that. Your hard-earned money, in fact. And I think it's dumb. So, the first rule we going to do right now, just off the bat, coming out of the summer, after we put away our whites, is we're going to treat our money with respect. Treat it how you want it to treat you. That is where we're going to start the postsummer podcast of the disciplined investor. No longer are we just saying, "Oh, I don't know. I'll just throw it to this stock and see what the hell happens." No, that's not what we're doing. We do the research. We We spend the time. We we're disciplined in how we in fact do it. We're not going to throw this. We're not going to pop it. We're not going to talk about five large or you know 8K. So, you know what? I'm going to put $100,000 of my hard-earned money into this investment for the long term. And if it doesn't work out because this this maybe I'll change my mind. But generally speaking, that is what I want to do because I believe in that investment from the research that I did, etc., etc. Fill in all of the different blanks that go along with that. So, that's what we're going to do there. Let's talk about Jackson Hole for a second. Or as we're calling it, Jackson Holy man. Oh man, that was clearly a break in the was it the narrative or just a concentration of J. Pal. I don't know. But it wasn't that much of a change. There was, you know, the idea that they're going to follow the data and that the data points to nobody said we're going to raise rates. They didn't talk about much, but the the idea was now they're softening up here. It was enough to get the markets fired up in a big way last week. And I wonder if the data will hold up to where this 85% probability of a rate cut in September, in about 3 weeks from now, where the Fed's going to cut, I don't know, 25 base points, some are talking about 50 base points, which I think will be silly. Or maybe is it just simply that JP Pal is exhausted from President Trump's heranging because GDP looks good. Interest claims this week came out looking pretty. The employment numbers coming out next week. And what about all the numbers we saw from economics this week? Let's let's let's take a look at that. I printed up the key economic events from last week. You know, again, next week we have uh a few things coming out. We have ISM coming out. uh manufacturing on Tuesday I guess it is and then we have a few things and then we have the big number at the end of the week which is the jobs report. So let's take a look at what we saw last week and see for ourselves if we need a rate cut just from the weekly numbers. Right? That's just one look at a bunch of things. Pretty good amount of things though. We saw last week on Monday new home sales pretty important actual came in at 652,000 on annualized revised from 627 and what last was what prior was 656 so right in line not a terrible number not seeing any concern about new home sales durable goods or orders um the prior was negative9 this was a negative -2.8 Eight. Analysts were looking for about a negative 3.5 to four. So, not too bad. X transportation actually up 1.1%. Transportation, planes, cars, you know, that whole thing. That's what really held it back the months before. S&P K Stiller home price index up what? 2.1% on a year-over-year basis. Down a little bit. So, housing prices are coming down ever so much. Consumer confidence at 97.4. Last look uh was what prior was 98.7. So still within a reasonable range not like it's you know running off a cliff or moving too fast on the upside either. We saw u GDP. These are the important ones that came in. Um and then of course uh we saw what happened with PC prices on Friday. But let's talk about the GDP. That's the one I really want to focus in on because those two things are really in my opinion. I mean obviously the PC was very important but uh the GDP numbers that we saw um 3.3%. The economy was buzzing along at 3.3%. That's the second estimate and that's up from 3% by the way. So not too bad 229,000 initial claims. So again when we look at whether it's sentiment from last week or personal income spending from last week again that's one snapshot of one month and a period over a period etc. But when we look at that and we look at the inflation numbers and all you still have to wonder are we in a situation that is just like okay the hell with it. When we look at the totality of costs are not really going up that much. Well, PCI didn't. We saw without PCE. Um, but but we saw that that that uh the the producer PPI went up what is it point two weeks ago 0.9 I think it was and GDP is holding steady. I don't know. I don't know. Seems to me that right now that was just appeasement to get maybe somebody off their backs. way to get to our guest, but I want to talk about Interactive Brokers first and ask you, are you wondering if the market will go up or down? Well, the answer lies in the economy. In a bad economy, wages stagnate, spending just drops, companies, well, they struggle, and the market takes a hit. In a good economy, well, wages they rise, spending soarses, companies thrive, and the markets climb. So, how can you predict what's next? Visit IBKR forecast trader. Get up-to-date consensus insights and trade your predictions on yes or no questions. The best informed investors choose interactive brokers. Sign up today. Forecast contracts are not suitable for all investors. Let's talk about Danielle Park. She says over three decades of professional consulting experience. She's a lawyer, by the way, a chartered financial analyst, a certified financial planner. She's also an author. She's a regular guest on all sorts of shows and this fine podcast. the first time I think back in years. She's a member of the CFA Institute, the Toronto Society of Financial Analysts, and she also continues to be a member and uh of the Law Society of Upper Canada, where it's going to get cold very soon. She's the author of the bestselling mythbusting book Juggling Dynamite and Insiders Wisdom on Money Management, Markets, and Wealth That Last, as well as the popular daily financial blog, Juggling Dynamite. She's a co-founder of Venibal Park Investment Council and uh she's been writing, speaking, educating industry professionals, investors on risks and realities of financial behaviors. Let's get right to our discussion and welcome her right now. So Danielle, thanks so much for being here. I appreciate it. >> Hey, thank you. It's been a while. >> It's been like it's been like seven years. >> It's crazy. >> Well, I'm glad to see we're both doing well. both above ground and uh uh you know vertical versus horizontal. Um I wanted to u I want to start with some some things and set the stage on a couple of items here. Um and talk about you and your background and and I wanted to know because I was really interested in how how your experience as an as an attorney because that's where your background was right as an attorney. Um, it may have or may not have, I don't know, shaped your approach to portfolio management and and even client communications. >> Oh, I think it does for sure. Um, for I always like to say that business school teaches us everything that can go right and law school teaches us everything that can go wrong. >> Oh, yeah. Okay. So, so having been at this almost 30 years now, um, you know, the financial analyst side, the analyst community tends to be extremely optimistic and rightly so because most of the time the economy is in expansion and stock prices are going up. And certainly that's been the experience since 2008 where predominantly stock prices have gone up and multiples have expanded as you well know and people have um you know there's been a few really volatile crashes in there but generally speaking it's been to up and to the right. Um so that's all great but I also do work as a um and as an expert in financial litigation. So I am privy to cases of things that go wrong where people want to you know uh sue their advisors typically and um the adviser is often saying well it wasn't my fault it was the client's fault because the client did this or the client jumped out when they shouldn't have or this kind of thing. So I really do see all sides of these uh issues and I see risk I think quite differently than the average person because of that experience because I have seen uh so much of the details of human behavior and um things that can go wrong in terms of losses um you know and and like I've said many times individuals often don't have a clue what they're signing up for when they put their savings in publicly traded markets or even private equity which has you know become a huge part of the financial landscape in the last 10 years. um they think that it means kind of like their mindset is more like you know uh that it should go up X dollars every sort of month and that that would compound over returns you know and they usually have extremely optimistic expectations of what you know return should be um and they don't like draw downs so notoriously individuals um this is a huge disadvantage that individuals have relative to pensions and if If I was to do this career again in my next life, I would come back as a pension manager in terms of, you know, running some big uh long duration, long uh horizon portfolio for a major pension institution because they truly have um all of the uh ability to um look down the road and say, I think over the next 20, 30 years, you know, this asset class is going to do well. individuals tend to be much short f shorter focused and they do look at their statements as you know um and so if things have a draw down they tend to panic and want to do the wrong thing at the wrong time they can sort of call up and say sell my stuff you know so I I've always felt that because I'm indivi I'm managing assets for individuals in individual segregated accounts that I have to be very aware of volatility um because as I say individuals just don't take it Well, so that's really I think what informs everything that we do at at our firm in our management approach. >> You know, it's interesting because you talk about risk and then in the same breath we talk about volatility. Then we talk about in the same breath draw downs. Those two things are I I would say and and and I'd like your input, but those two things are what the risk is, what individual investors believe risk is. They don't look at the other risks. There's a there's a myriad of other risk items, right? There's the risk of reinvestment or non-reinvestment, right? There's there's um you know the risk of of not only loss but not making enough for example, right? So somebody could be, >> you know, need to make a certain amount of money because they have a certain goal in the future, but they've too conservative. And therefore, I can tell you a particularly personal story of someone, >> let's just say could be or may not be related to me. uh and they have been scared about quote unquote the stock market for years and decided that they aren't going to put their money into it and instead felt that it would be better to put it in things like fixed annuities >> and um other items of very low interest bearing. Now, this is years and years and years ago. fast forward to where they are today in a position where they're retiring recognizing now that oh my god I don't have enough money >> and now they say well of course I can't put it into the stock market now because I don't have enough money to live as it is right in other words rationalizing why this is the case all along anyway my point is in getting back to this risk you know you've talked about a lot in some of your writings and things that you talked about in the past um in in in your in your blog and your juggling dynamite and in in the book as well as I remember what we talked about because I looked it up what we talked about so many years ago. Um you know a lot of times people overestimate their risk tolerance. I think they >> they probably a lot of times underestimate their risk tolerance too, right? But why do you think that happens and how can how can investors better assess their true comfort level? >> So it's interesting. I don't know if anyone underestimates their risk tolerance. I think here's here's my take on this. Um, if you develop good fiscal habits, if you uh find a job or a profession or a business that you can make good steady income at, that's job number one, right? To have uninterrupted constant income that you keep at for a number of years. That's the first thing. And the second thing is to control your spending so that you're spending uh significantly less than you're earning. So that you have this net amount of savings which ideally comes in every month and you put it into your savings vehicles. This is the this is the first major foundation in my view of financial uh stability over time. And the second thing is to control your debt so that you're not you know constantly adding debt that you get out of the debt hole. very often we have to start with some debt because most people aren't born you know affluent um to the point where they are you know have someone pay for their education and they have someone to give them a down payment on their house etc. Most people have to take out some form of debt to get started but the goal in my view should be after the first of of getting a job or or a career going managing your your overhead so you're not spending too much is getting your debt paid and getting your consumption debt certainly all paid. So ideally then you get your roof over your head. Now here's where it gets tricky because this is where people think okay now I have a higher risk tolerance because now I I I'm you know saving and I want to make so much money. Sometimes what they do is they they don't save as much because they're looking at, you know, the stock market for example. And often times financial adviserss, as you know, will do retirement projections and things that use an assumption of an eight or a 10 or 12% rate of return. >> And um in my view, far too high um because it works for a little bit, but then it doesn't typically work. and then the person isn't often saving enough or when they get the bulk of their life savings, they're putting too much of it into the higher risk options. And as people get towards retirement, I would submit to you that they do actually have a lower risk tolerance. So your family person who you're referring to here now maybe they made a mistake, but maybe they knew themselves quite well, right? Maybe they knew that they aren't great with volatility, that they don't like to see their savings go down, that they like to have a set amount of income. And this is again where a real pension comes in. The beauty of them, of course, is that you know that at X age, you're going to get X dollars a year in income and it's going to be indexed ideally by the cost of living for the rest of your life. So there's not a lot of risk in that other than that the pension might go under, right? But you're not bearing market risk or, you know, um return risk, uh inflation risk, all that. You're really just you you you're you're job then is to live within your means and make sure that you can pay your bills and live comfortably on the income level that you have. So, what I think people do wrong is they overestimate their risk tolerance. they pile into the more risky stuff too much and they don't pull back on that as they age. And you know, as we look at the the data today, right, you see that the uh the average uh investor portfolio has never been as heavily allocated to stocks uh ever in the last 30 years, right? And and we know that for example, stocks have never been as highly valued and expensive and I would suggest overpriced. um in the last many decades as well. So I think those two things together, the really high overvaluations, the multi the record multiples of record earnings, all this optimism that's come in really around the AI movement in the past few years since let's say since 2022 has really um convinced people that they want more risk than I think is going to be comfortable for them when we get some mean reversion in some of these trends. And that's where my fear is. And then also, they're that much older now than they were in 2000, than they were in 2008. So, the prospects of trying to go back to work or work longer to make up for any losses, you know what I'm saying? I'm saying if a pension has a a a life a long-term horizon of 30, 40 years for bets to work out, surely individuals as they get into their 50s and 60s and 70s have a much shorter time frame where it has to work out. >> Yeah. risk and time horizon put together are really what you should be looking at. But you know, you mentioned a few different things here and how um you know, on one hand uh you know, we need to look at at at realistic and reasonable risk assumptions and people where they can handle risk, which of course is important because even you set up the most perfect plan in the world, someone for whatever reason sees a 2% down stroke in their investments and decides and freaks out and says, "I'm out." That's not good for them. It's not good for them. And and there's a small percentage of the population that is very risk-seeking and is very comfortable for whatever reason. Maybe it's genes, who knows? Very comfortable with high volatility, high risk. They they often are entrepreneurial in their real life. Um and sometimes they just they really want to shoot for the stars, you know, so they want a really aggressive equity exposure. Sometimes they use leverage. you know, margin use right now is at the highest we've seen since 2022. >> But the issue there again is that the longer you go without a major downturn that persists for more than a couple of weeks, and let's face it, we've had some pretty sharp pullbacks in the last couple years, but they've rebounded quickly. I don't think that's really the test of the metal. I think the test of the metal is when you get into a prolonged bare market like you know in 20079 or 2003 and that's when it really tries people because if they come into it with a lot of high exposure to risk leverage um then they tend to lose heavily in those periods and it's hard then to get them to focus on hey you know don't look at this just put it away you know uh 10 years from now you'll be glad you were in it that really doesn't work that well in in my experience >> and all that's happening right now with these quick v recoveries is reinforcement of hey we've changed the entire dynamic and things are different now >> yeah and and that and the math's not good you know like the the um a major houses of even like Goldman Sachs and Morgan Stanley are coming out and acknowledging that from current valuations it's more likely that bonds will outperform stocks over the next decade that treasuries will do better because they they have come up in yield significantly and stocks are trading at these obscene multiples you know which we saw in 2022 and even to a lesser extent in 2000 which was considered the techre top right we were young back then but um back then so were so were a lot of these people and they you know they lost their shirt uh it took 15 years to recover but people were like oh well I'll just continue to work and I'll continue to save and and many of them just shunned the stock market altogether as you know like you were referring to your to your uh your acquaintance there. So, so it's it's the getting scared out and then, you know, not wanting to jump back in typically till you get to peak mania again. And that's when people are sort of attracted back to the light. And that's often very destructive because >> a lot of gators in that lake. A lot of gators and crocodiles in that lake. >> It's wild. And you know the I didn't think that I would see a replay of the tech bubble again this quickly in my lifetime. But here we are 24 years after the last or 25 years after the last. You know, you've got the mag six and we know it's you know 30% of the market cap of the S&P and you know only two tech companies were in the top six S&P companies in the 2000 tech top. So we've got a a much more higher concentration today in just that handful of names. And you know my my son works in Silicon Valley in this space and I'm quite uh I follow it very closely and I use AI in my own business and I know that it's a great tool and I think it will be you know lifech changing for many of us for everyone probably over the next decade but the reality is that we have sort of overpriced again here the expectation you know like MIT just came out with a study saying that only 5% of businesses using AI have found any revenue enhancement from doing so. Um, so there's been a ton of money poured into investing infrastructure to try and build this space out. And I think we've become kind of overly optimistic in terms of what it can deliver to the bottom line. And then there's all these questions around how long the chips last and how we've been accounting for them. you know, the rate of um degradation that they've been writing off in terms of these companies. And you know, maybe they're going to have to replace chips a lot quicker than they've currently priced. And so there's so much risk around this and so much has been all the upside has been priced in, but I don't think any of the reality of what a you know long-term project this is is accurately reflect reflected in current pricing. So that's where the rubber always hits the road, right? It's that euphoric belief in a new technology. Often it is world changing just like the internet was, but the price that's paid just makes zero sense. >> Well, what you have is the Wall Street uh machine working it in the background. you know, the usual uh spa mania that we had, the Wall Street machine, whether that was actually a that was actually uh a variation of the traditional Wall Street machine, which is the analysts that are promoting and giving the numbers and increasing, you know, upgrading, increasing the price targets, lowballing the uh estimates of what the earnings are going to be and revenue for companies to hurdle that a little over the top. And that the spaxs for example and even the crypto even crypto was a version of but not led by Wall Street. It was led by a different sect of people which by the way didn't play by the same rules at least that Wall Street has to play by. >> Oh absolutely. And you know it's it's really become a mosh pit in in a lot of ways. We didn't crack down on the uh bad actors in 2008. Pretty much everybody walked. They got away with everything. they got bailed out and we've really just magnified a lot of those behaviors since uh you know when we last spoke in I think it was January of 2018. Um, I was looking back at, you know, I was concerned about the valuations were getting a bit ahead of themselves then. I thought, you know, that we had some headwinds for the economy and that sort of thing. And sure enough, you know, they ended up um they were hiking interest rates at that point. Um, and there was a lot of concern about how people were going to make ends meet, how they're going to pay the bills. And then sure enough, the stock market did actually tank uh in December of 2018. and it didn't make any real uh advance until we got into sort of peeking out again in early 2019 and then we got COVID, right? So CO was this huge uh you know meteor from outer space that really uh changed the world so to speak in the sense of we had massive bailouts like you know we thought we had massive bailouts in 2008. We got incredibly global mage. >> 800. What was it? 800. Was it $800 billion? No, 800 billion was the full bailout back then for all the banks >> in which in 2008. Yeah. Yeah. Something like that. Right. >> There was there was a $200 million under George W. Bush. I believe there was a $200 million uh plan of action to send money to houses in a stimulus package. And everybody's like, "Wow, that's fantastic." >> I know. Oh, it's cute. It's cute in retrospect. So, what we've done is we've really just aided and emedded this mosh pit of financialization which has taken over everything. And then of course the government's deficits uh you know the US has been running this massive fiscal deficit even during the you know the good times so to speak right in 2024 coming into the election it's continued. It doesn't seem to matter what color of government you get, they still do this massive fiscal deficits. And that money has really enabled, you know, uh that plus low interest rates of course during the COVID uh era when rates were at zero for years and years and years. All of those things really created these massive distortions. And so, you know, one thing I would like to point out and caution people on, there's a lot of people saying, you know, like, you know, there's diversification in things like uh, you know, Bitcoin and is different than stocks, is different than high yield debt, is different than even gold, precious metals, these things. People have these all in their portfolio thinking this is a lot of diversification. But if you look at what the prices have done, they've all essentially been the risk trade, right? They've gone up together into 2022 when that dumb movie was made about uh you know the the meme stock trading uh mania in the retail side and then everything basically crashed until October of 2023 together. all the prices went down and then it it has really rallied again in the last uh you know since the fall of 2024 but most but again with a big dive down in the spring this year huge volatility all I'm saying is I don't think you're going to know if you've got diversification in these kind of portfolios until we get into the next sustained downside test and if everything's moving together then you got a problem because like I said >> that's that's the trick that's the trick to make sure you don't have liquidity. >> Yeah, >> people need liquidity. They need cash and they don't plan well for that. And we look at the cash levels. Institutions have minuscule cash levels. Savings levels are minuscule around indivi individuals. Uh everyone's spending. You're seeing a spike in defaults. So, you know, this is the lawyer side of me, I suppose, but it's also the riskmanager side of me saying, "Guys, we've seen this now several times in my career." And it always goes the wrong way and it always le ends up in, you know, loss and regret and then years trying to grow back your losses. And, you know, the finance sector is really riding on on high right now because it's had the best of every possible world. But if it can't get any better in terms of, you know, fiscal support, monetary support, I mean, it's going to be interesting to see what the head of your FOMC does, uh, Chair Powell on Friday, because what a tough job he's got. He's now, you know, everyone wanting him to cut, but actually, I think the responsible thing to do would probably be not to cut a lot at this point, right? You've still got really low unemployment. You've got the stock market at all-time highs. Uh, so if you don't want to sort of have another surge of bubbledum, I think you've got to be responsible as a central banker in here and that's not what people are wanting to hear, right? So yeah, so that part's tricky. But the other larger theme, >> wait, wait, hold on a second. I want to get back to the word mosh pit. >> Oh, okay. >> Can we get back because I haven't heard that in a while. That was 1980s pistols, dead Kennedys, Ramon's. Is this your Is that your kind of music? >> Well, I was a teenager back then. I had a roommate that liked the dead Kennedys and introduced me. She was >> I had a roommate that liked the sex pistols in college. I didn't like that. And he had he had all sorts of piercings and leather. >> Yes, John. Yes. It was it was quite a lot of an education from a young for a young woman from a village in Northern Ontario. But anyways, the point is that uh yeah, I thought it was a good analogy for the mayhem that we're seeing. Options trading at all-time highs. you know, the the younger generation is just like trading their brains out. Uh I again, I don't think any of these people have a clue what risk looks like. You know, they just think that it's a it's a casino, it's a gamification, it's gambling. And that's all fine and well if you're talking about a hundred bucks or a thousand bucks, but if you're talking about you're in your 5060s and you're talking about the bulk of your life savings, that's quite a different matter. And I think that's that's the problem here is that people have lost their way with respect to their their risk exposure. But the other major theme, Andrew, that I wanted to touch on is, you know, there's a lot of talk about tariffs and it yes, it's been a wild card and it's a bait and switch and your president is amazing at, you know, directing attention and going not over here, look over here. You know what? I think he's a master at that. But the reality is that tariffs are are a problem for many economies. Uh they're attacks. You know, they're they're potentially inflationary to some degree on goods. That's all kind of to be seen. Uh we haven't really seen a lot of that yet in the data. But they're also attacks for, you know, that comes out of it either comes out of consumption or it comes out of profits, right? One or the other. So I think that's one of the potential headwinds for business. And certainly in Canada, our latest surveys are showing that 20% of our Canadian small businesses think that they are likely to go bankrupt in the next six months or leave or close. >> Wow. Really? 20%. That's not very optimistic. >> No, it's not very optimistic, but it's fact. It's fact, brother. So, this is what we're dealing with on the street because they are they are having to, you know, they've got a lot of debt. They've we've had a very weak economy in Canada for the past several years. Our housing market, Andrew, peaked in February of 2022 after, you know, five years of near zero interest rates and everybody was refying and uh the Canadian home prices went up about twice as much as income. Same as in the States, they went up about twice as much as income in the in the sort of decade leading up until 2022. Well, that's a problem because now we have we had home prices um that were trading at multiples of 8 to 12 times household income. It's absolutely bonkers. And the only way people were making it a go of that was they were borrowing against for example their home in a city and buying recreational properties or buying uh you know u income properties. But the income properties were negative yielding because it made no sense. They couldn't rent for you know enough to cover all the costs. But people were doing it because they assumed that prices only go up. And I heard so many people saying, you know, the really silly things like you can't lose the money in real estate and all these, you know, these tropes that we've heard in other cycles. But now prices have been falling since 2022. We're about three years behind China in this. Remember China and Everrand and now Everrand recently is been delisted. It's gone bankrupt. So this is a big real estate cycle globally, right? which was inspired by uh the ultra low interest rates and the mania that went around um the the beliefs the erroneous beliefs in real estate as an as an indentable asset class. So it is of course the most widely held asset class in the world. It's the most highly levered asset class in the world and many other things have spun off of that um base and now we're finding that we're in the midst of a major downturn in real estate. We're at, you know, 30-year lows in demand in many markets. Um, the Bokeh Canadian population lives in Toronto, Vancouver, but I also follow the US market very closely. And as you know, in many of your major centers there, uh, especially in the south and southwest, you've got a lot of inventory and not a lot of buyers. Your mortgage rates, as you know, are six and eight, 6.8 or so% these days. >> In Canada, we're around four. So, we're not even like historically pretty average, not really super high in terms of mortgage rates. Why then is affordability so obscene? Because prices became ridiculous. So, the average home sale price in the peak of February 22 was like 817,000. Well, it's since corrected about 18% to around 693,000. But we've got this wall of mortgages that were taken out 5 years ago. Many of them less than 2%, believe it or not. Andrew, and they're now coming up for renewal at 4%. Well, the math didn't work in terms of income and and rents, etc., when they were taken out under 2% and they sure as hell don't work at mortgage rates of four and, you know, higher property taxes, etc. So, we've just got this huge wave of properties getting listed for sale. Now, the reason I bring this up is because I believe this is a bigger theme and more durable than anything to do with tariffs right now. And yet the public's attention is sort of preoccupied with the tariff file. But in reality, you know, 30% of the population in the age 55% uh 55 and over group owns about 71% of housing equity. It's very similar in Canada and the US. This is the boomer uh theme, right? And they also own about 79% of the stock and stock funds according to Deutsche Bank studies. So this this age group has been you know I meet them every day. I talk to them every day. They are now focused on downsizing. They want to have less headache, less overhead, less properties to look after. They're more interested in travel experiential. They're not so much about all the responsibility and cost and they're looking to sell. So they were doing that. Uh, for example, many Canadians have properties in Florida where you live and you've you I'm no doubt are aware that they've been selling in or trying to sell putting their properties up in droves. Now, I would suggest they would have done this anyway because of the natural uh pre, you know, prediliction of their aging trajectory is that they want to have less to worry about and maintain and also to lower their their spending needs. But the whole, you know, Trump border stuff, etc., has really accelerated that uh that urge that on top of extreme weather and spiking insurance and then, you know, all those costs and some of the HMO stuff, the the collapsing building didn't help, right? The the fear around whether these uh general funds have been uh have sufficient cash to to keep the building in goodstead, all that stuff. So you've got these trends of that are reversing from the pandemic when everyone was as I say borrowing and buying and leaving you know the north to go to the south and all this good stuff and now you've got a reverse in that in as well as you have a reverse in immigration in both countries right because Canada too uh is now you know greatly reducing the amount of people that come into the country so I think this this theme of the real estate downturn is big and it's ongoing And you know, um, >> let me just interrupt you. Just to be clear, one of the reasons that it could be big, >> if it is big, is it touches so many different areas, right? You got the workers >> that are involved in construction and uh, development. So, that's a big issue. If that slows down, then you have the issue of, okay, fine, that slows down. All right. Well, you know, we don't need any more houses, let's say, right? But then people that are downsizing or in fact don't want to uh don't want to do anything more than just stay in their house, they may or may not do things like buying things for home improvement, right? It made that that whole we there is so much money that we spend on a regular basis on things like you mentioned whether it's insurance, taxes, mortgage payments, things around the house, repairs, uh all of that about the house that is a big part of everyone's expenditures whoever you are and whatever income level you're at because your house is bigger or smaller. >> Absolutely. And cyclally it drives the bulk of the economic uh sort of the the job cycle you know um because there's a certain amount of jobs that are sort of constant throughout time in the economy and that but construction in particular is a very cyclical industry. Well it had this huge boom in the zero interest rate era and that coincided with the pandemic and people wanting to move out to these more greener pastures so to speak and now we've got that reversal happening. So, everyone who overpaid during the 2022 salad days, you know, is now feeling the pain and looking to downsize, looking to to get out of from under. So, um, there was a a major bank up here, the Bank of Montreal did a report that actually just came out and it coincides with our own analysis. We've been ringing the bell on this for the last couple of years saying, "Hey, real estate downturns uh typically last like six years from peak to trough kind of thing and they very often don't recover quickly and Canada is often a leading bell weather for broader trends in the North American market. Um we're a pretty cyclical economy. You know, our commodities impact, our lumber exposure, all that stuff. So we are sort of leading this down following China and the US is now um in that trajectory as well. It looks like 2025 is going to be the first time you've had a national decline in home prices in America since you know the 2008 downturn. >> Well, we're not really there yet, but it have to be year-over-year. But by the way, one of the things that will also happen is that when we have this lack of buying that may go on because interest rates are too high, housing prices are too high, etc. One of the things you have is an inventory issue. And what may in fact happen because developers are like puppy dogs. Puppy dogs will eat until they puke, right? >> Developers will build until they go bankrupt. >> Just the way it is. They don't stop. That is their By the way, just to be clear, everybody, why why is it that's their job? That's what they do. That's what they do. They build. If they don't build, it's not like, oh, let's market time the building here and stop the development because we think that. No, they don't do that. It's not like certain OPEC nations that they or or certain gold miners that may say, "You know what? We're going to slow down production to bring prices back up." That's not what developers and builders do. They just keep on keep on. >> Absolutely. Well, they have a very a lot of risk exposure there. Like hats off to them. I appreciate it's a very long investment horizon and they hope like hell that that it'll keep going long enough for them to make to market what the stuff they've had under development. But the reality is that the housing starts are falling in both countries now. Um they've built a ton of multi-family as you know which is fine but there's a cycle to that too. The I think the the real issue here is that again it's been a long time since we've seen a major downturn in real estate. And people uh don't appreciate I find that they tend to lead to the harshest economic contractions and impacts and the largest job loss cycles when you have these downturns in real estate. Now layer on to that this boomer wanting to downsize theme which by the way own the bulk of the really expensive real estate right I said the average real estate price is you know around 460 in 435 in the US and about you know 693 in Canada but in the high-end property market the inventory of homes that are more than a million dollars are enormous right because they again were built out during the ultra low interest rate period. And a lot of people are are still thinking they can sell for those prices. And realtors are all complaining, you know, people are so unrealistic, they won't lower their price. Well, eventually they do because they need to move. Um they need to move. And so that'll be a healthy development in the sense of it'll be better for younger families that have just given up on trying to buy real estate. You know, it'll be better for efficiency because your abode shouldn't take all your life savings. You know, like if people are spending all the money in the world that they can generate on their shelter, they've got very little they've got insufficient other funds for other things, including investing for their retirement. So, I think this has been a major kind of sucking sound of uh misallocation of resources in the past uh sort of >> I mean, I see listen, I'm down in South Florida and I got to tell you something and I'm on the east side on the water side. the prices down here. My house has literally tripled in price since two since 2014. >> Tripled. That's unbelievable. >> Can you sell it? >> Of course I can. Of course I can sell it, but I want to live on the water and that's a big problem because you move anywhere else. You know, the houses that were were uh $2 million back then are now six million. >> Yeah. >> And I don't feel like paying the tax on that. >> Sure. It's also it's also a a shrinking pool of possible buyers. Um I I live up on the a waterfront uh area in um Canada as well and it's a beautiful spot and everything, but the properties that have been listed for more than a couple of million bucks have been sitting now for a couple of years and they're not going anywhere. And you know, people would say things like, "Oh, high-end properties, rich people always have money." You know, not really because a lot of people use uh debt to acquire things as big ticket as real estate. um andor they don't want to take their money out of their retirement portfolios to to try and put the you know buy a shelter. Uh so it's it's a it's a tricky bit of business and I don't think I don't think rate cuts um as much as I expect that there's there's going to be some rate cuts. Um I don't think they're going to be the magic elixir to restart this. >> Well, you just mentioned that you said that Canada is at 4% and and that's not restarting the or or or or fueling the real estate. >> That has not done it. And also uh PS as you know uh builders have been buying down rates into the 3% range in both countries and new home sales are still in the tank uh because people don't have enough income. You know they have also a lot of other kinds of debt. Um they're also seeing you know some um 70% of people uh recently pled say they think that unemployment will be higher a year from now. I think they may be right because you know again back to this notion that uh cutting the bank of Canada or the Federal Reserve rate will be the cure for all cures past historically once they start cutting they're doing that in response to a downturn in the economy to weakening uh employment picture and that's when the bulk of the uh job losses actually happened while they're cutting you know the similar thing the the stock market often falls has the worst of its declines while they're cutting. Just think of what's happened in you know in 2020 uh when the you know they started the the market was falling they were chasing the market down not the other way around right and the same thing in 2008 they're slashing they're doing QE the market still doesn't bottom until the spring of09 so it's not true that all they have to do is cut rates and everyone goes back to >> oh it's a very slow mechanism rates are rates have got to be one of the slowest mechanisms because even if even if you Oh, okay. They dropped rates from, let's just say, 6% to 4%. 3%. You got to go through the process of getting the money, having the plan. It's it's it's a six-month process just to do that. >> So, so the the mechanism to make its way through the body of the financial system >> is is long and it's a difficult process and that's why rates are only one thing. Unfortunately, the media has uh I guess trained or hypnotized or brainwashed all of us to focus on that. There was a time when everybody that was into CNBC, Bloomberg, pick your particular financial show that you want to look at. The only question they were asked was when do you think and what is the Fed going to do? And you know, now it was all about tariffs. >> Yeah. >> Then it turned into all about only AI. Yeah. >> So, >> and these are these are po popular talking points and these are one of the reasons that we get into so much trouble is because there's so much media now impacting people in every turn on their phones on their, you know, everywhere they look, they're getting hammered. We used to just have the the stock guy with the paper on the corner, as you know, Andrew, calling out, you know, come read the paper and we'll give you stock tips. Now, we got it like 24/7 everywhere. And most of it is erroneous information or dangerous information part information um designed by product sales side to get people to part with their cash. You know, that's the reality. But I also think the the the other thing that I really note here is that we're still dealing with uh the aftermath of the inflationary impacts from COVID and from the supply chains impacts. you know, we're sto we're seeing infl the rate of inflation come down, but we haven't seen a reversal of those big price leaps. So, that's why you're seeing all kinds of people. Walmart saying, "Hey, good. We're still doing okay with sales, but we notice it's the over 150k a year people that are in here buying their groceries." Well, that's nice. That's revenue for Walmart. But that's a that says something about the fact that you know whether it's Prada bags selling 25% less or you know even uh basic staples are saying people are making you know Proctor and Gamble saying people are making alternates to cheaper alternatives like there's this push for people to try and you know spend less reduce their cost which is by the way that's the same thing as companies do you know we're no different as individuals and a company is much different than a government though government doesn't try cost but they just want to spend more the the individual and the companies and if people ask all the time how are those companies doing well think about your own situation I can tell you really quickly >> back in 2007208 I remember very distinctly I was like h you know what it may have been 2000 it was some bad time in the markets I walked around my office at the time there's a different office that I'm in now and I walked around the office I walked very slowly with a pad of paper in my hand saying what can we cut and I remember very distinctly saying we do you not need that water cooler? That water cooler was like 30 bucks a month or whatever it was at the time, you know, >> you know, do we really need that stamp machine? And I saved I remember walking I saved a few hundred a month >> on things that we really didn't need and I felt really good about it. But until you're pushed into a corner or some event happens, usually we're just kind of like, okay, whatever. Like how many times do people go to their credit card to see what recurring things they have on there that they should have shut down months ago? They don't do it until all of a sudden they realize, man, I got to cut corners a little bit here. >> Yeah. I spoke to someone yesterday who said, "Well, we have no idea how much we spend." And they have a very high relative income, but they're he's just saying, "We don't I don't know what we spend." I said, "Well, that's the first problem." Because if you could be making a million dollars a year, if you don't know what you're spending, you could be having a negative cash flow because you're spending too much. But the other thing is, I think it's really important to to get your head around. We had to deal with zero rates for years, which was horrendous, right? There was no alternative to anything other than the speculation side because there was no yields to be had on anything. But actually today, if you're a saver, you actually have real yields that are nearly 2%. We haven't had that's like for example the US Treasury yield minus the CPI, the consumer price index. What you have now is about 1.9% in to the positive right after having you know subzero or negative rates from yields from uh 2011 to 23. That period really drove all these massive distortions throughout the real economy and people's behavior and perceptions around money. Now we actually have yields that are worth uh compounding. You you you know the the what 11th wonder of the world is compound interest. It's when you get those yields and reinvest them. Now, that is attractive as I back to the point that treasury prices having gone through a major selloff for the past two two or three years are relatively very attractive today and treasury prices, treasuries have actually outperformed stocks during the last nine Fed cutting cycles. So if you can buy something today in America, you can lock in you know a yield with relatively little risk and and no duration and you know stocks have no maturity date and no guarantee of anything in terms of return. these things you can buy relatively, you know, two, three, four, five. I don't mean go out 30 years. Who knows what's going to happen fiscally over the very long run, but I'm saying you can lock in yields uh in Canada around three in the US north of four and have these fixed maturity dates and it's it's actually again likely to hold value or appreciate during the Fed cutting cycle. And when I talk about all these other asset classes, they don't have a good record of appreciating or holding their value during major downturns or Fed cutting cycles. They typically repric lower, including real estate. And then at some point there's going to be an opportunity there, which we haven't seen in a durable way for 15 years, which will be amazing. But if people have no cash set aside, you know, if they have no no plan other than just riding the pine, which is what they're doing today, you know, riding the risk pine and hoping and hoping, well, at some point that risk is misplaced in terms of your expectation. And again, people are expecting this this will continue. We hope, you know, they're thinking they're going to get double-digit returns here here going forward. Well, mathematically speaking, the rates are likely to be much less, even negative potentially, like we saw after the 2000 downturn, we had negative returns on on many stocks for more than a decade. And you know, you might say, well, that's not the end of the world because over the long run, and yes, I agree with you. If I was a pension, I would be keeping some cash and looking for things to buy in that environment. But if you're an individual, I I submit it's harder for people to tolerate that kind of setback and not have it impact their financial and emotional and psychological health. >> Yep. Good stuff. Danielle Park, tell everybody where to uh get in touch with you and how to reach you and how to find you and read you and all that. Well, I'm on um X um at K Danielle Park and I also write Juggling Dynamite pretty much every day of the week and it's a free blog just trying to educate the public. That's kind of my mission at this point in my life is trying to reach out and uh give a counter counternarrative because the the consensus is pretty one-sided these days. >> Yep. Very full one side of the boat. Thanks for joining me this time. Hopefully we'll do it again before seven years passes. >> Thank you, Andrew. Thanks. That's going to wrap it up of this episode, this last episode of the summer of the official summer, right? Well, if we if we say that Labor Day is the end of the summer, of course. So, I'm going to darn my whites one more time before the summer is over. I I actually don't think I have any. But, uh we're going to get uh to our next level of discussion very soon. Want to thank you for joining me this week and every week. Great guest coming up over the next few weeks. Jack Schwiger is next week. That's pretty cool. Make sure to be here for that as well. Uh he's uh the author of Market Wizards and has talk with some of the best investors in the world many times over. We always get a great amount of education from him. Thanks for joining me this week and every week. I'll see you again real soon. This podcast is intended forformational purposes only and does not constitute personalized investment advice. Investing involves risk including the possible loss of principle and past performance is not indicative of future results. The views and opinions expressed are those of the host and any guests and may not necessarily reflect those of Horowits and Company Inc. an investment adviser registered with the US Securities and Exchange Commission. Registration with the SEC does not imply a certain level of training or skill. Advisory services are only offered to a client or prospective clients where Horo is a company is properly registered or is excluded from registration requirements. 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TDI Podcasts: The Mosh Pit (#936)
Summary
Transcript
This episode is sponsored by Interactive Brokers. And when it comes to investing, the smartest opportunities often lie in connections. In the connections that you can't see at first glance. That's why Interactive Brokers developed Connections, a powerful new tool that helps you explore how stocks and ETFs, bonds, futures, options, and even macroeconomic themes are all linked. Imagine analyzing a technology stock and instantly seeing its competitors. ETFs in the same theme, or maybe even option strategies to manage risk, or exploring marketwide themes like carbon capture, housing, or even interest rates, all in one integrated view. With access to over 160 global markets, Interactive Brokers brings you insights and opportunities other platforms can't match. Because the best informed investors will choose Interactive Brokers. Interactive Brokers is a member of SIPC. The risk of loss in online trading of stocks, options, and futures can be substantial. Learn more at ibkr.com/connections. >> The disciplined investor is all about you, your money, and the markets. Sit back and get ready for this edition of the disciplined investor podcast. This episode of The Disciplined Investor is sponsored by Horowits & Company. If you're looking for a portfolio manager, look no further. Horowits and company from seed through harvest. Cultivating financial success. [Music] [Applause] Markets react to the chance of a rate cut and how summertime low was anything but boring and September and October await both two of the seasonally worst months for the markets. And our guest today is Danielle Park. She's a co-founder of Venibal Park Investment Council. All this and much more on episode number 936 of the Disciplined Investor podcast [Music] [Music] and a very happy Labor Day weekend to you. Always a highlight of my year. I can tell you, I can remember this was the weekend that was the official quote official end of the summer and the start of the school year when I was a kid. I mean, I don't know how many of you lived in an area that that was the case because down here where I where I live now, Florida, it's like you go back to school and it seems like it's July, start college in in in August. But, uh, we did it right after the day like the Tuesday after Labor Day. It was the Jerry Lewis teleathon that was always the signal that was like, "Okay, summer is over." And it's the start of the school year. It's also time, you remember this? It's all, it was also the time to to put away those whites, the shoes, the pants, the belts. And I was talking about this with John C. D'vorak this week on DH Unplugged where we talk every Tuesday about all sorts of things financial. So, I did a little research on it because I was wondering where did that come from? The whole white thing. Now, some of you that are young, you're like, "What are you talking about?" I'm telling you, Memorial Day was like, "Okay, get out the white. You could wear your white pants. You could wear your white skirts if you're a lady." Of course, you could. Women could do whatever they want usually whenever. But guys, man, you wear those white patent leather shoes or the white leather shoes with the buckle and that white wide belt and the white pants, white shorts for that matter. So, I did a little bit of research. It turns out that it was in the late 19th and 20th centuries, that if you wore white, it was it was kind of a sign of wealth and leisure, especially if those were lightweight and they were breathable fabrics. And after Labor Day, which marked the unofficial end of summer, so you did this in Memorial Day or so, you started uh after Labor Day, which ended the the summer, you would return to your city life, right? You would you would go from uh East Egg, I guess. From the Hamptons. Oh, yes. From the Hamptons. You'd go back to your your digs in in in New York City or wherever it was that you would vacation at the lake and wherever wherever it was that this happened and you go back to your regular life, you'd switch to darker, more formal clothing. And if you didn't actually follow this shift in the colors and the and what everybody did back then, it was seen as a big a big fauxpaw, especially those trying to climb the social ladder. So there you go. That's a little bit of information and people followed along. They followed along aimlessly, kind of like sheep. Sort of like what appears to be happening now with the markets these days. I mean, it's easy to criticize and look at the upward trajectory saying, "Hey, you know what? Oh, this is a false breakout. You know, this is this is uh not based on anything but I don't know, pick your pick your poison what you want to plug in there. Why this is not a real rally. But if you do, you're nuts. The fact is, you could complain all you want and talk about how valuations and we do it. We talk about valuations are really questionable and you know the rotation is not there per se or you say oh well it's only a certain handful of stocks that are really leading the market. You could talk about that all day that you want but you're dumb dumb if you don't realize that in fact it's something you don't want to fight. Why would you fight the direction of the market up or down if it's on a long-term trend either way? Makes no sense. Why would you fight the trend for AI and tech? Makes no sense. As as investors, once I think we are all able to give into that higher power and just say, okay, in this case, by the way, it's the market gods. We'll call it the market gods. Once we give into that, that's when the time comes when we're less frustrated and I think much more satisfied with the fact that we're making money, earning money, and our money is working hard for us. Now, I'm not saying be stupid about it. I'm not saying be reckless. I'm not saying be frivolous with your money because a lot of times people are that, right? People get a little bit cavalier with their money. I I hear it all the time. People call me up like, "Hey, um, you know what I did this week?" I'm like, "What did you do? I threw a 100K into this investment." I'm like, "You threw a 100K into an investment? What does that mean? Or people call me up and they're like, "Uh, hey Andrew, I'm thinking about popping five large into an account that you'll manage for me." I'm like, "You're going to pop five large? Seriously? What does we got to What does that mean? Is that Is that how you treat your money? It honestly, it makes my It makes my skin crawl. There is a blatant disregard for your money when you do that. Your hard-earned money, in fact. And I think it's dumb. So, the first rule we going to do right now, just off the bat, coming out of the summer, after we put away our whites, is we're going to treat our money with respect. Treat it how you want it to treat you. That is where we're going to start the postsummer podcast of the disciplined investor. No longer are we just saying, "Oh, I don't know. I'll just throw it to this stock and see what the hell happens." No, that's not what we're doing. We do the research. We We spend the time. We we're disciplined in how we in fact do it. We're not going to throw this. We're not going to pop it. We're not going to talk about five large or you know 8K. So, you know what? I'm going to put $100,000 of my hard-earned money into this investment for the long term. And if it doesn't work out because this this maybe I'll change my mind. But generally speaking, that is what I want to do because I believe in that investment from the research that I did, etc., etc. Fill in all of the different blanks that go along with that. So, that's what we're going to do there. Let's talk about Jackson Hole for a second. Or as we're calling it, Jackson Holy man. Oh man, that was clearly a break in the was it the narrative or just a concentration of J. Pal. I don't know. But it wasn't that much of a change. There was, you know, the idea that they're going to follow the data and that the data points to nobody said we're going to raise rates. They didn't talk about much, but the the idea was now they're softening up here. It was enough to get the markets fired up in a big way last week. And I wonder if the data will hold up to where this 85% probability of a rate cut in September, in about 3 weeks from now, where the Fed's going to cut, I don't know, 25 base points, some are talking about 50 base points, which I think will be silly. Or maybe is it just simply that JP Pal is exhausted from President Trump's heranging because GDP looks good. Interest claims this week came out looking pretty. The employment numbers coming out next week. And what about all the numbers we saw from economics this week? Let's let's let's take a look at that. I printed up the key economic events from last week. You know, again, next week we have uh a few things coming out. We have ISM coming out. uh manufacturing on Tuesday I guess it is and then we have a few things and then we have the big number at the end of the week which is the jobs report. So let's take a look at what we saw last week and see for ourselves if we need a rate cut just from the weekly numbers. Right? That's just one look at a bunch of things. Pretty good amount of things though. We saw last week on Monday new home sales pretty important actual came in at 652,000 on annualized revised from 627 and what last was what prior was 656 so right in line not a terrible number not seeing any concern about new home sales durable goods or orders um the prior was negative9 this was a negative -2.8 Eight. Analysts were looking for about a negative 3.5 to four. So, not too bad. X transportation actually up 1.1%. Transportation, planes, cars, you know, that whole thing. That's what really held it back the months before. S&P K Stiller home price index up what? 2.1% on a year-over-year basis. Down a little bit. So, housing prices are coming down ever so much. Consumer confidence at 97.4. Last look uh was what prior was 98.7. So still within a reasonable range not like it's you know running off a cliff or moving too fast on the upside either. We saw u GDP. These are the important ones that came in. Um and then of course uh we saw what happened with PC prices on Friday. But let's talk about the GDP. That's the one I really want to focus in on because those two things are really in my opinion. I mean obviously the PC was very important but uh the GDP numbers that we saw um 3.3%. The economy was buzzing along at 3.3%. That's the second estimate and that's up from 3% by the way. So not too bad 229,000 initial claims. So again when we look at whether it's sentiment from last week or personal income spending from last week again that's one snapshot of one month and a period over a period etc. But when we look at that and we look at the inflation numbers and all you still have to wonder are we in a situation that is just like okay the hell with it. When we look at the totality of costs are not really going up that much. Well, PCI didn't. We saw without PCE. Um, but but we saw that that that uh the the producer PPI went up what is it point two weeks ago 0.9 I think it was and GDP is holding steady. I don't know. I don't know. Seems to me that right now that was just appeasement to get maybe somebody off their backs. way to get to our guest, but I want to talk about Interactive Brokers first and ask you, are you wondering if the market will go up or down? Well, the answer lies in the economy. In a bad economy, wages stagnate, spending just drops, companies, well, they struggle, and the market takes a hit. In a good economy, well, wages they rise, spending soarses, companies thrive, and the markets climb. So, how can you predict what's next? Visit IBKR forecast trader. Get up-to-date consensus insights and trade your predictions on yes or no questions. The best informed investors choose interactive brokers. Sign up today. Forecast contracts are not suitable for all investors. Let's talk about Danielle Park. She says over three decades of professional consulting experience. She's a lawyer, by the way, a chartered financial analyst, a certified financial planner. She's also an author. She's a regular guest on all sorts of shows and this fine podcast. the first time I think back in years. She's a member of the CFA Institute, the Toronto Society of Financial Analysts, and she also continues to be a member and uh of the Law Society of Upper Canada, where it's going to get cold very soon. She's the author of the bestselling mythbusting book Juggling Dynamite and Insiders Wisdom on Money Management, Markets, and Wealth That Last, as well as the popular daily financial blog, Juggling Dynamite. She's a co-founder of Venibal Park Investment Council and uh she's been writing, speaking, educating industry professionals, investors on risks and realities of financial behaviors. Let's get right to our discussion and welcome her right now. So Danielle, thanks so much for being here. I appreciate it. >> Hey, thank you. It's been a while. >> It's been like it's been like seven years. >> It's crazy. >> Well, I'm glad to see we're both doing well. both above ground and uh uh you know vertical versus horizontal. Um I wanted to u I want to start with some some things and set the stage on a couple of items here. Um and talk about you and your background and and I wanted to know because I was really interested in how how your experience as an as an attorney because that's where your background was right as an attorney. Um, it may have or may not have, I don't know, shaped your approach to portfolio management and and even client communications. >> Oh, I think it does for sure. Um, for I always like to say that business school teaches us everything that can go right and law school teaches us everything that can go wrong. >> Oh, yeah. Okay. So, so having been at this almost 30 years now, um, you know, the financial analyst side, the analyst community tends to be extremely optimistic and rightly so because most of the time the economy is in expansion and stock prices are going up. And certainly that's been the experience since 2008 where predominantly stock prices have gone up and multiples have expanded as you well know and people have um you know there's been a few really volatile crashes in there but generally speaking it's been to up and to the right. Um so that's all great but I also do work as a um and as an expert in financial litigation. So I am privy to cases of things that go wrong where people want to you know uh sue their advisors typically and um the adviser is often saying well it wasn't my fault it was the client's fault because the client did this or the client jumped out when they shouldn't have or this kind of thing. So I really do see all sides of these uh issues and I see risk I think quite differently than the average person because of that experience because I have seen uh so much of the details of human behavior and um things that can go wrong in terms of losses um you know and and like I've said many times individuals often don't have a clue what they're signing up for when they put their savings in publicly traded markets or even private equity which has you know become a huge part of the financial landscape in the last 10 years. um they think that it means kind of like their mindset is more like you know uh that it should go up X dollars every sort of month and that that would compound over returns you know and they usually have extremely optimistic expectations of what you know return should be um and they don't like draw downs so notoriously individuals um this is a huge disadvantage that individuals have relative to pensions and if If I was to do this career again in my next life, I would come back as a pension manager in terms of, you know, running some big uh long duration, long uh horizon portfolio for a major pension institution because they truly have um all of the uh ability to um look down the road and say, I think over the next 20, 30 years, you know, this asset class is going to do well. individuals tend to be much short f shorter focused and they do look at their statements as you know um and so if things have a draw down they tend to panic and want to do the wrong thing at the wrong time they can sort of call up and say sell my stuff you know so I I've always felt that because I'm indivi I'm managing assets for individuals in individual segregated accounts that I have to be very aware of volatility um because as I say individuals just don't take it Well, so that's really I think what informs everything that we do at at our firm in our management approach. >> You know, it's interesting because you talk about risk and then in the same breath we talk about volatility. Then we talk about in the same breath draw downs. Those two things are I I would say and and and I'd like your input, but those two things are what the risk is, what individual investors believe risk is. They don't look at the other risks. There's a there's a myriad of other risk items, right? There's the risk of reinvestment or non-reinvestment, right? There's there's um you know the risk of of not only loss but not making enough for example, right? So somebody could be, >> you know, need to make a certain amount of money because they have a certain goal in the future, but they've too conservative. And therefore, I can tell you a particularly personal story of someone, >> let's just say could be or may not be related to me. uh and they have been scared about quote unquote the stock market for years and decided that they aren't going to put their money into it and instead felt that it would be better to put it in things like fixed annuities >> and um other items of very low interest bearing. Now, this is years and years and years ago. fast forward to where they are today in a position where they're retiring recognizing now that oh my god I don't have enough money >> and now they say well of course I can't put it into the stock market now because I don't have enough money to live as it is right in other words rationalizing why this is the case all along anyway my point is in getting back to this risk you know you've talked about a lot in some of your writings and things that you talked about in the past um in in in your in your blog and your juggling dynamite and in in the book as well as I remember what we talked about because I looked it up what we talked about so many years ago. Um you know a lot of times people overestimate their risk tolerance. I think they >> they probably a lot of times underestimate their risk tolerance too, right? But why do you think that happens and how can how can investors better assess their true comfort level? >> So it's interesting. I don't know if anyone underestimates their risk tolerance. I think here's here's my take on this. Um, if you develop good fiscal habits, if you uh find a job or a profession or a business that you can make good steady income at, that's job number one, right? To have uninterrupted constant income that you keep at for a number of years. That's the first thing. And the second thing is to control your spending so that you're spending uh significantly less than you're earning. So that you have this net amount of savings which ideally comes in every month and you put it into your savings vehicles. This is the this is the first major foundation in my view of financial uh stability over time. And the second thing is to control your debt so that you're not you know constantly adding debt that you get out of the debt hole. very often we have to start with some debt because most people aren't born you know affluent um to the point where they are you know have someone pay for their education and they have someone to give them a down payment on their house etc. Most people have to take out some form of debt to get started but the goal in my view should be after the first of of getting a job or or a career going managing your your overhead so you're not spending too much is getting your debt paid and getting your consumption debt certainly all paid. So ideally then you get your roof over your head. Now here's where it gets tricky because this is where people think okay now I have a higher risk tolerance because now I I I'm you know saving and I want to make so much money. Sometimes what they do is they they don't save as much because they're looking at, you know, the stock market for example. And often times financial adviserss, as you know, will do retirement projections and things that use an assumption of an eight or a 10 or 12% rate of return. >> And um in my view, far too high um because it works for a little bit, but then it doesn't typically work. and then the person isn't often saving enough or when they get the bulk of their life savings, they're putting too much of it into the higher risk options. And as people get towards retirement, I would submit to you that they do actually have a lower risk tolerance. So your family person who you're referring to here now maybe they made a mistake, but maybe they knew themselves quite well, right? Maybe they knew that they aren't great with volatility, that they don't like to see their savings go down, that they like to have a set amount of income. And this is again where a real pension comes in. The beauty of them, of course, is that you know that at X age, you're going to get X dollars a year in income and it's going to be indexed ideally by the cost of living for the rest of your life. So there's not a lot of risk in that other than that the pension might go under, right? But you're not bearing market risk or, you know, um return risk, uh inflation risk, all that. You're really just you you you're you're job then is to live within your means and make sure that you can pay your bills and live comfortably on the income level that you have. So, what I think people do wrong is they overestimate their risk tolerance. they pile into the more risky stuff too much and they don't pull back on that as they age. And you know, as we look at the the data today, right, you see that the uh the average uh investor portfolio has never been as heavily allocated to stocks uh ever in the last 30 years, right? And and we know that for example, stocks have never been as highly valued and expensive and I would suggest overpriced. um in the last many decades as well. So I think those two things together, the really high overvaluations, the multi the record multiples of record earnings, all this optimism that's come in really around the AI movement in the past few years since let's say since 2022 has really um convinced people that they want more risk than I think is going to be comfortable for them when we get some mean reversion in some of these trends. And that's where my fear is. And then also, they're that much older now than they were in 2000, than they were in 2008. So, the prospects of trying to go back to work or work longer to make up for any losses, you know what I'm saying? I'm saying if a pension has a a a life a long-term horizon of 30, 40 years for bets to work out, surely individuals as they get into their 50s and 60s and 70s have a much shorter time frame where it has to work out. >> Yeah. risk and time horizon put together are really what you should be looking at. But you know, you mentioned a few different things here and how um you know, on one hand uh you know, we need to look at at at realistic and reasonable risk assumptions and people where they can handle risk, which of course is important because even you set up the most perfect plan in the world, someone for whatever reason sees a 2% down stroke in their investments and decides and freaks out and says, "I'm out." That's not good for them. It's not good for them. And and there's a small percentage of the population that is very risk-seeking and is very comfortable for whatever reason. Maybe it's genes, who knows? Very comfortable with high volatility, high risk. They they often are entrepreneurial in their real life. Um and sometimes they just they really want to shoot for the stars, you know, so they want a really aggressive equity exposure. Sometimes they use leverage. you know, margin use right now is at the highest we've seen since 2022. >> But the issue there again is that the longer you go without a major downturn that persists for more than a couple of weeks, and let's face it, we've had some pretty sharp pullbacks in the last couple years, but they've rebounded quickly. I don't think that's really the test of the metal. I think the test of the metal is when you get into a prolonged bare market like you know in 20079 or 2003 and that's when it really tries people because if they come into it with a lot of high exposure to risk leverage um then they tend to lose heavily in those periods and it's hard then to get them to focus on hey you know don't look at this just put it away you know uh 10 years from now you'll be glad you were in it that really doesn't work that well in in my experience >> and all that's happening right now with these quick v recoveries is reinforcement of hey we've changed the entire dynamic and things are different now >> yeah and and that and the math's not good you know like the the um a major houses of even like Goldman Sachs and Morgan Stanley are coming out and acknowledging that from current valuations it's more likely that bonds will outperform stocks over the next decade that treasuries will do better because they they have come up in yield significantly and stocks are trading at these obscene multiples you know which we saw in 2022 and even to a lesser extent in 2000 which was considered the techre top right we were young back then but um back then so were so were a lot of these people and they you know they lost their shirt uh it took 15 years to recover but people were like oh well I'll just continue to work and I'll continue to save and and many of them just shunned the stock market altogether as you know like you were referring to your to your uh your acquaintance there. So, so it's it's the getting scared out and then, you know, not wanting to jump back in typically till you get to peak mania again. And that's when people are sort of attracted back to the light. And that's often very destructive because >> a lot of gators in that lake. A lot of gators and crocodiles in that lake. >> It's wild. And you know the I didn't think that I would see a replay of the tech bubble again this quickly in my lifetime. But here we are 24 years after the last or 25 years after the last. You know, you've got the mag six and we know it's you know 30% of the market cap of the S&P and you know only two tech companies were in the top six S&P companies in the 2000 tech top. So we've got a a much more higher concentration today in just that handful of names. And you know my my son works in Silicon Valley in this space and I'm quite uh I follow it very closely and I use AI in my own business and I know that it's a great tool and I think it will be you know lifech changing for many of us for everyone probably over the next decade but the reality is that we have sort of overpriced again here the expectation you know like MIT just came out with a study saying that only 5% of businesses using AI have found any revenue enhancement from doing so. Um, so there's been a ton of money poured into investing infrastructure to try and build this space out. And I think we've become kind of overly optimistic in terms of what it can deliver to the bottom line. And then there's all these questions around how long the chips last and how we've been accounting for them. you know, the rate of um degradation that they've been writing off in terms of these companies. And you know, maybe they're going to have to replace chips a lot quicker than they've currently priced. And so there's so much risk around this and so much has been all the upside has been priced in, but I don't think any of the reality of what a you know long-term project this is is accurately reflect reflected in current pricing. So that's where the rubber always hits the road, right? It's that euphoric belief in a new technology. Often it is world changing just like the internet was, but the price that's paid just makes zero sense. >> Well, what you have is the Wall Street uh machine working it in the background. you know, the usual uh spa mania that we had, the Wall Street machine, whether that was actually a that was actually uh a variation of the traditional Wall Street machine, which is the analysts that are promoting and giving the numbers and increasing, you know, upgrading, increasing the price targets, lowballing the uh estimates of what the earnings are going to be and revenue for companies to hurdle that a little over the top. And that the spaxs for example and even the crypto even crypto was a version of but not led by Wall Street. It was led by a different sect of people which by the way didn't play by the same rules at least that Wall Street has to play by. >> Oh absolutely. And you know it's it's really become a mosh pit in in a lot of ways. We didn't crack down on the uh bad actors in 2008. Pretty much everybody walked. They got away with everything. they got bailed out and we've really just magnified a lot of those behaviors since uh you know when we last spoke in I think it was January of 2018. Um, I was looking back at, you know, I was concerned about the valuations were getting a bit ahead of themselves then. I thought, you know, that we had some headwinds for the economy and that sort of thing. And sure enough, you know, they ended up um they were hiking interest rates at that point. Um, and there was a lot of concern about how people were going to make ends meet, how they're going to pay the bills. And then sure enough, the stock market did actually tank uh in December of 2018. and it didn't make any real uh advance until we got into sort of peeking out again in early 2019 and then we got COVID, right? So CO was this huge uh you know meteor from outer space that really uh changed the world so to speak in the sense of we had massive bailouts like you know we thought we had massive bailouts in 2008. We got incredibly global mage. >> 800. What was it? 800. Was it $800 billion? No, 800 billion was the full bailout back then for all the banks >> in which in 2008. Yeah. Yeah. Something like that. Right. >> There was there was a $200 million under George W. Bush. I believe there was a $200 million uh plan of action to send money to houses in a stimulus package. And everybody's like, "Wow, that's fantastic." >> I know. Oh, it's cute. It's cute in retrospect. So, what we've done is we've really just aided and emedded this mosh pit of financialization which has taken over everything. And then of course the government's deficits uh you know the US has been running this massive fiscal deficit even during the you know the good times so to speak right in 2024 coming into the election it's continued. It doesn't seem to matter what color of government you get, they still do this massive fiscal deficits. And that money has really enabled, you know, uh that plus low interest rates of course during the COVID uh era when rates were at zero for years and years and years. All of those things really created these massive distortions. And so, you know, one thing I would like to point out and caution people on, there's a lot of people saying, you know, like, you know, there's diversification in things like uh, you know, Bitcoin and is different than stocks, is different than high yield debt, is different than even gold, precious metals, these things. People have these all in their portfolio thinking this is a lot of diversification. But if you look at what the prices have done, they've all essentially been the risk trade, right? They've gone up together into 2022 when that dumb movie was made about uh you know the the meme stock trading uh mania in the retail side and then everything basically crashed until October of 2023 together. all the prices went down and then it it has really rallied again in the last uh you know since the fall of 2024 but most but again with a big dive down in the spring this year huge volatility all I'm saying is I don't think you're going to know if you've got diversification in these kind of portfolios until we get into the next sustained downside test and if everything's moving together then you got a problem because like I said >> that's that's the trick that's the trick to make sure you don't have liquidity. >> Yeah, >> people need liquidity. They need cash and they don't plan well for that. And we look at the cash levels. Institutions have minuscule cash levels. Savings levels are minuscule around indivi individuals. Uh everyone's spending. You're seeing a spike in defaults. So, you know, this is the lawyer side of me, I suppose, but it's also the riskmanager side of me saying, "Guys, we've seen this now several times in my career." And it always goes the wrong way and it always le ends up in, you know, loss and regret and then years trying to grow back your losses. And, you know, the finance sector is really riding on on high right now because it's had the best of every possible world. But if it can't get any better in terms of, you know, fiscal support, monetary support, I mean, it's going to be interesting to see what the head of your FOMC does, uh, Chair Powell on Friday, because what a tough job he's got. He's now, you know, everyone wanting him to cut, but actually, I think the responsible thing to do would probably be not to cut a lot at this point, right? You've still got really low unemployment. You've got the stock market at all-time highs. Uh, so if you don't want to sort of have another surge of bubbledum, I think you've got to be responsible as a central banker in here and that's not what people are wanting to hear, right? So yeah, so that part's tricky. But the other larger theme, >> wait, wait, hold on a second. I want to get back to the word mosh pit. >> Oh, okay. >> Can we get back because I haven't heard that in a while. That was 1980s pistols, dead Kennedys, Ramon's. Is this your Is that your kind of music? >> Well, I was a teenager back then. I had a roommate that liked the dead Kennedys and introduced me. She was >> I had a roommate that liked the sex pistols in college. I didn't like that. And he had he had all sorts of piercings and leather. >> Yes, John. Yes. It was it was quite a lot of an education from a young for a young woman from a village in Northern Ontario. But anyways, the point is that uh yeah, I thought it was a good analogy for the mayhem that we're seeing. Options trading at all-time highs. you know, the the younger generation is just like trading their brains out. Uh I again, I don't think any of these people have a clue what risk looks like. You know, they just think that it's a it's a casino, it's a gamification, it's gambling. And that's all fine and well if you're talking about a hundred bucks or a thousand bucks, but if you're talking about you're in your 5060s and you're talking about the bulk of your life savings, that's quite a different matter. And I think that's that's the problem here is that people have lost their way with respect to their their risk exposure. But the other major theme, Andrew, that I wanted to touch on is, you know, there's a lot of talk about tariffs and it yes, it's been a wild card and it's a bait and switch and your president is amazing at, you know, directing attention and going not over here, look over here. You know what? I think he's a master at that. But the reality is that tariffs are are a problem for many economies. Uh they're attacks. You know, they're they're potentially inflationary to some degree on goods. That's all kind of to be seen. Uh we haven't really seen a lot of that yet in the data. But they're also attacks for, you know, that comes out of it either comes out of consumption or it comes out of profits, right? One or the other. So I think that's one of the potential headwinds for business. And certainly in Canada, our latest surveys are showing that 20% of our Canadian small businesses think that they are likely to go bankrupt in the next six months or leave or close. >> Wow. Really? 20%. That's not very optimistic. >> No, it's not very optimistic, but it's fact. It's fact, brother. So, this is what we're dealing with on the street because they are they are having to, you know, they've got a lot of debt. They've we've had a very weak economy in Canada for the past several years. Our housing market, Andrew, peaked in February of 2022 after, you know, five years of near zero interest rates and everybody was refying and uh the Canadian home prices went up about twice as much as income. Same as in the States, they went up about twice as much as income in the in the sort of decade leading up until 2022. Well, that's a problem because now we have we had home prices um that were trading at multiples of 8 to 12 times household income. It's absolutely bonkers. And the only way people were making it a go of that was they were borrowing against for example their home in a city and buying recreational properties or buying uh you know u income properties. But the income properties were negative yielding because it made no sense. They couldn't rent for you know enough to cover all the costs. But people were doing it because they assumed that prices only go up. And I heard so many people saying, you know, the really silly things like you can't lose the money in real estate and all these, you know, these tropes that we've heard in other cycles. But now prices have been falling since 2022. We're about three years behind China in this. Remember China and Everrand and now Everrand recently is been delisted. It's gone bankrupt. So this is a big real estate cycle globally, right? which was inspired by uh the ultra low interest rates and the mania that went around um the the beliefs the erroneous beliefs in real estate as an as an indentable asset class. So it is of course the most widely held asset class in the world. It's the most highly levered asset class in the world and many other things have spun off of that um base and now we're finding that we're in the midst of a major downturn in real estate. We're at, you know, 30-year lows in demand in many markets. Um, the Bokeh Canadian population lives in Toronto, Vancouver, but I also follow the US market very closely. And as you know, in many of your major centers there, uh, especially in the south and southwest, you've got a lot of inventory and not a lot of buyers. Your mortgage rates, as you know, are six and eight, 6.8 or so% these days. >> In Canada, we're around four. So, we're not even like historically pretty average, not really super high in terms of mortgage rates. Why then is affordability so obscene? Because prices became ridiculous. So, the average home sale price in the peak of February 22 was like 817,000. Well, it's since corrected about 18% to around 693,000. But we've got this wall of mortgages that were taken out 5 years ago. Many of them less than 2%, believe it or not. Andrew, and they're now coming up for renewal at 4%. Well, the math didn't work in terms of income and and rents, etc., when they were taken out under 2% and they sure as hell don't work at mortgage rates of four and, you know, higher property taxes, etc. So, we've just got this huge wave of properties getting listed for sale. Now, the reason I bring this up is because I believe this is a bigger theme and more durable than anything to do with tariffs right now. And yet the public's attention is sort of preoccupied with the tariff file. But in reality, you know, 30% of the population in the age 55% uh 55 and over group owns about 71% of housing equity. It's very similar in Canada and the US. This is the boomer uh theme, right? And they also own about 79% of the stock and stock funds according to Deutsche Bank studies. So this this age group has been you know I meet them every day. I talk to them every day. They are now focused on downsizing. They want to have less headache, less overhead, less properties to look after. They're more interested in travel experiential. They're not so much about all the responsibility and cost and they're looking to sell. So they were doing that. Uh, for example, many Canadians have properties in Florida where you live and you've you I'm no doubt are aware that they've been selling in or trying to sell putting their properties up in droves. Now, I would suggest they would have done this anyway because of the natural uh pre, you know, prediliction of their aging trajectory is that they want to have less to worry about and maintain and also to lower their their spending needs. But the whole, you know, Trump border stuff, etc., has really accelerated that uh that urge that on top of extreme weather and spiking insurance and then, you know, all those costs and some of the HMO stuff, the the collapsing building didn't help, right? The the fear around whether these uh general funds have been uh have sufficient cash to to keep the building in goodstead, all that stuff. So you've got these trends of that are reversing from the pandemic when everyone was as I say borrowing and buying and leaving you know the north to go to the south and all this good stuff and now you've got a reverse in that in as well as you have a reverse in immigration in both countries right because Canada too uh is now you know greatly reducing the amount of people that come into the country so I think this this theme of the real estate downturn is big and it's ongoing And you know, um, >> let me just interrupt you. Just to be clear, one of the reasons that it could be big, >> if it is big, is it touches so many different areas, right? You got the workers >> that are involved in construction and uh, development. So, that's a big issue. If that slows down, then you have the issue of, okay, fine, that slows down. All right. Well, you know, we don't need any more houses, let's say, right? But then people that are downsizing or in fact don't want to uh don't want to do anything more than just stay in their house, they may or may not do things like buying things for home improvement, right? It made that that whole we there is so much money that we spend on a regular basis on things like you mentioned whether it's insurance, taxes, mortgage payments, things around the house, repairs, uh all of that about the house that is a big part of everyone's expenditures whoever you are and whatever income level you're at because your house is bigger or smaller. >> Absolutely. And cyclally it drives the bulk of the economic uh sort of the the job cycle you know um because there's a certain amount of jobs that are sort of constant throughout time in the economy and that but construction in particular is a very cyclical industry. Well it had this huge boom in the zero interest rate era and that coincided with the pandemic and people wanting to move out to these more greener pastures so to speak and now we've got that reversal happening. So, everyone who overpaid during the 2022 salad days, you know, is now feeling the pain and looking to downsize, looking to to get out of from under. So, um, there was a a major bank up here, the Bank of Montreal did a report that actually just came out and it coincides with our own analysis. We've been ringing the bell on this for the last couple of years saying, "Hey, real estate downturns uh typically last like six years from peak to trough kind of thing and they very often don't recover quickly and Canada is often a leading bell weather for broader trends in the North American market. Um we're a pretty cyclical economy. You know, our commodities impact, our lumber exposure, all that stuff. So we are sort of leading this down following China and the US is now um in that trajectory as well. It looks like 2025 is going to be the first time you've had a national decline in home prices in America since you know the 2008 downturn. >> Well, we're not really there yet, but it have to be year-over-year. But by the way, one of the things that will also happen is that when we have this lack of buying that may go on because interest rates are too high, housing prices are too high, etc. One of the things you have is an inventory issue. And what may in fact happen because developers are like puppy dogs. Puppy dogs will eat until they puke, right? >> Developers will build until they go bankrupt. >> Just the way it is. They don't stop. That is their By the way, just to be clear, everybody, why why is it that's their job? That's what they do. That's what they do. They build. If they don't build, it's not like, oh, let's market time the building here and stop the development because we think that. No, they don't do that. It's not like certain OPEC nations that they or or certain gold miners that may say, "You know what? We're going to slow down production to bring prices back up." That's not what developers and builders do. They just keep on keep on. >> Absolutely. Well, they have a very a lot of risk exposure there. Like hats off to them. I appreciate it's a very long investment horizon and they hope like hell that that it'll keep going long enough for them to make to market what the stuff they've had under development. But the reality is that the housing starts are falling in both countries now. Um they've built a ton of multi-family as you know which is fine but there's a cycle to that too. The I think the the real issue here is that again it's been a long time since we've seen a major downturn in real estate. And people uh don't appreciate I find that they tend to lead to the harshest economic contractions and impacts and the largest job loss cycles when you have these downturns in real estate. Now layer on to that this boomer wanting to downsize theme which by the way own the bulk of the really expensive real estate right I said the average real estate price is you know around 460 in 435 in the US and about you know 693 in Canada but in the high-end property market the inventory of homes that are more than a million dollars are enormous right because they again were built out during the ultra low interest rate period. And a lot of people are are still thinking they can sell for those prices. And realtors are all complaining, you know, people are so unrealistic, they won't lower their price. Well, eventually they do because they need to move. Um they need to move. And so that'll be a healthy development in the sense of it'll be better for younger families that have just given up on trying to buy real estate. You know, it'll be better for efficiency because your abode shouldn't take all your life savings. You know, like if people are spending all the money in the world that they can generate on their shelter, they've got very little they've got insufficient other funds for other things, including investing for their retirement. So, I think this has been a major kind of sucking sound of uh misallocation of resources in the past uh sort of >> I mean, I see listen, I'm down in South Florida and I got to tell you something and I'm on the east side on the water side. the prices down here. My house has literally tripled in price since two since 2014. >> Tripled. That's unbelievable. >> Can you sell it? >> Of course I can. Of course I can sell it, but I want to live on the water and that's a big problem because you move anywhere else. You know, the houses that were were uh $2 million back then are now six million. >> Yeah. >> And I don't feel like paying the tax on that. >> Sure. It's also it's also a a shrinking pool of possible buyers. Um I I live up on the a waterfront uh area in um Canada as well and it's a beautiful spot and everything, but the properties that have been listed for more than a couple of million bucks have been sitting now for a couple of years and they're not going anywhere. And you know, people would say things like, "Oh, high-end properties, rich people always have money." You know, not really because a lot of people use uh debt to acquire things as big ticket as real estate. um andor they don't want to take their money out of their retirement portfolios to to try and put the you know buy a shelter. Uh so it's it's a it's a tricky bit of business and I don't think I don't think rate cuts um as much as I expect that there's there's going to be some rate cuts. Um I don't think they're going to be the magic elixir to restart this. >> Well, you just mentioned that you said that Canada is at 4% and and that's not restarting the or or or or fueling the real estate. >> That has not done it. And also uh PS as you know uh builders have been buying down rates into the 3% range in both countries and new home sales are still in the tank uh because people don't have enough income. You know they have also a lot of other kinds of debt. Um they're also seeing you know some um 70% of people uh recently pled say they think that unemployment will be higher a year from now. I think they may be right because you know again back to this notion that uh cutting the bank of Canada or the Federal Reserve rate will be the cure for all cures past historically once they start cutting they're doing that in response to a downturn in the economy to weakening uh employment picture and that's when the bulk of the uh job losses actually happened while they're cutting you know the similar thing the the stock market often falls has the worst of its declines while they're cutting. Just think of what's happened in you know in 2020 uh when the you know they started the the market was falling they were chasing the market down not the other way around right and the same thing in 2008 they're slashing they're doing QE the market still doesn't bottom until the spring of09 so it's not true that all they have to do is cut rates and everyone goes back to >> oh it's a very slow mechanism rates are rates have got to be one of the slowest mechanisms because even if even if you Oh, okay. They dropped rates from, let's just say, 6% to 4%. 3%. You got to go through the process of getting the money, having the plan. It's it's it's a six-month process just to do that. >> So, so the the mechanism to make its way through the body of the financial system >> is is long and it's a difficult process and that's why rates are only one thing. Unfortunately, the media has uh I guess trained or hypnotized or brainwashed all of us to focus on that. There was a time when everybody that was into CNBC, Bloomberg, pick your particular financial show that you want to look at. The only question they were asked was when do you think and what is the Fed going to do? And you know, now it was all about tariffs. >> Yeah. >> Then it turned into all about only AI. Yeah. >> So, >> and these are these are po popular talking points and these are one of the reasons that we get into so much trouble is because there's so much media now impacting people in every turn on their phones on their, you know, everywhere they look, they're getting hammered. We used to just have the the stock guy with the paper on the corner, as you know, Andrew, calling out, you know, come read the paper and we'll give you stock tips. Now, we got it like 24/7 everywhere. And most of it is erroneous information or dangerous information part information um designed by product sales side to get people to part with their cash. You know, that's the reality. But I also think the the the other thing that I really note here is that we're still dealing with uh the aftermath of the inflationary impacts from COVID and from the supply chains impacts. you know, we're sto we're seeing infl the rate of inflation come down, but we haven't seen a reversal of those big price leaps. So, that's why you're seeing all kinds of people. Walmart saying, "Hey, good. We're still doing okay with sales, but we notice it's the over 150k a year people that are in here buying their groceries." Well, that's nice. That's revenue for Walmart. But that's a that says something about the fact that you know whether it's Prada bags selling 25% less or you know even uh basic staples are saying people are making you know Proctor and Gamble saying people are making alternates to cheaper alternatives like there's this push for people to try and you know spend less reduce their cost which is by the way that's the same thing as companies do you know we're no different as individuals and a company is much different than a government though government doesn't try cost but they just want to spend more the the individual and the companies and if people ask all the time how are those companies doing well think about your own situation I can tell you really quickly >> back in 2007208 I remember very distinctly I was like h you know what it may have been 2000 it was some bad time in the markets I walked around my office at the time there's a different office that I'm in now and I walked around the office I walked very slowly with a pad of paper in my hand saying what can we cut and I remember very distinctly saying we do you not need that water cooler? That water cooler was like 30 bucks a month or whatever it was at the time, you know, >> you know, do we really need that stamp machine? And I saved I remember walking I saved a few hundred a month >> on things that we really didn't need and I felt really good about it. But until you're pushed into a corner or some event happens, usually we're just kind of like, okay, whatever. Like how many times do people go to their credit card to see what recurring things they have on there that they should have shut down months ago? They don't do it until all of a sudden they realize, man, I got to cut corners a little bit here. >> Yeah. I spoke to someone yesterday who said, "Well, we have no idea how much we spend." And they have a very high relative income, but they're he's just saying, "We don't I don't know what we spend." I said, "Well, that's the first problem." Because if you could be making a million dollars a year, if you don't know what you're spending, you could be having a negative cash flow because you're spending too much. But the other thing is, I think it's really important to to get your head around. We had to deal with zero rates for years, which was horrendous, right? There was no alternative to anything other than the speculation side because there was no yields to be had on anything. But actually today, if you're a saver, you actually have real yields that are nearly 2%. We haven't had that's like for example the US Treasury yield minus the CPI, the consumer price index. What you have now is about 1.9% in to the positive right after having you know subzero or negative rates from yields from uh 2011 to 23. That period really drove all these massive distortions throughout the real economy and people's behavior and perceptions around money. Now we actually have yields that are worth uh compounding. You you you know the the what 11th wonder of the world is compound interest. It's when you get those yields and reinvest them. Now, that is attractive as I back to the point that treasury prices having gone through a major selloff for the past two two or three years are relatively very attractive today and treasury prices, treasuries have actually outperformed stocks during the last nine Fed cutting cycles. So if you can buy something today in America, you can lock in you know a yield with relatively little risk and and no duration and you know stocks have no maturity date and no guarantee of anything in terms of return. these things you can buy relatively, you know, two, three, four, five. I don't mean go out 30 years. Who knows what's going to happen fiscally over the very long run, but I'm saying you can lock in yields uh in Canada around three in the US north of four and have these fixed maturity dates and it's it's actually again likely to hold value or appreciate during the Fed cutting cycle. And when I talk about all these other asset classes, they don't have a good record of appreciating or holding their value during major downturns or Fed cutting cycles. They typically repric lower, including real estate. And then at some point there's going to be an opportunity there, which we haven't seen in a durable way for 15 years, which will be amazing. But if people have no cash set aside, you know, if they have no no plan other than just riding the pine, which is what they're doing today, you know, riding the risk pine and hoping and hoping, well, at some point that risk is misplaced in terms of your expectation. And again, people are expecting this this will continue. We hope, you know, they're thinking they're going to get double-digit returns here here going forward. Well, mathematically speaking, the rates are likely to be much less, even negative potentially, like we saw after the 2000 downturn, we had negative returns on on many stocks for more than a decade. And you know, you might say, well, that's not the end of the world because over the long run, and yes, I agree with you. If I was a pension, I would be keeping some cash and looking for things to buy in that environment. But if you're an individual, I I submit it's harder for people to tolerate that kind of setback and not have it impact their financial and emotional and psychological health. >> Yep. Good stuff. Danielle Park, tell everybody where to uh get in touch with you and how to reach you and how to find you and read you and all that. Well, I'm on um X um at K Danielle Park and I also write Juggling Dynamite pretty much every day of the week and it's a free blog just trying to educate the public. That's kind of my mission at this point in my life is trying to reach out and uh give a counter counternarrative because the the consensus is pretty one-sided these days. >> Yep. Very full one side of the boat. Thanks for joining me this time. Hopefully we'll do it again before seven years passes. >> Thank you, Andrew. Thanks. That's going to wrap it up of this episode, this last episode of the summer of the official summer, right? Well, if we if we say that Labor Day is the end of the summer, of course. So, I'm going to darn my whites one more time before the summer is over. I I actually don't think I have any. But, uh we're going to get uh to our next level of discussion very soon. Want to thank you for joining me this week and every week. Great guest coming up over the next few weeks. Jack Schwiger is next week. That's pretty cool. Make sure to be here for that as well. Uh he's uh the author of Market Wizards and has talk with some of the best investors in the world many times over. We always get a great amount of education from him. Thanks for joining me this week and every week. I'll see you again real soon. This podcast is intended forformational purposes only and does not constitute personalized investment advice. Investing involves risk including the possible loss of principle and past performance is not indicative of future results. The views and opinions expressed are those of the host and any guests and may not necessarily reflect those of Horowits and Company Inc. an investment adviser registered with the US Securities and Exchange Commission. Registration with the SEC does not imply a certain level of training or skill. Advisory services are only offered to a client or prospective clients where Horo is a company is properly registered or is excluded from registration requirements. 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