David Rosenberg: Markets Are Propped Up by the S&P 500 – and That’s the Risk for 2026
Summary
Market Outlook: Valuations are extreme (CAPE near 40) with sentiment all-in, making the market vulnerable to multiple compression and a potential recession not priced in.
AI: Generative AI spending drove capex but scrutiny is rising; the guest sees a bubble in investor behavior and warns the rotation into value may be short-lived if growth slows.
Precious Metals: Bullish on gold and silver as central banks keep reallocating reserves to bullion, with demand outpacing supply; recommends owning bullion and miners into 2026.
Energy Infrastructure: Favors power grid upgrades, LNG expansion, pipelines, and related services over oil-price-sensitive plays; maintains positions in US utilities and Canadian pipelines.
Natural Gas: Sees sticky pricing and strong setup; expects natural gas could be a top performer in 2026 given winter demand and infrastructure dynamics.
Consumer Discretionary: Advises avoiding the sector as rising fixed costs (insurance, healthcare, electricity) crowd out spending; utilities may benefit from higher electricity bills and a colder winter.
Credit Risk: Warns that tight credit spreads and optimistic default assumptions are unrealistic amid heavy refinancing needs and opaque private credit, implying spread widening risk.
Investment Stance: Prioritizes liquidity and defensives over high-beta equities; no specific tickers were pitched, with emphasis on precious metals and energy infrastructure for resilience.
Transcript
Kitco News Outlook 2026 is brought to you by Discovery, a growing North American precious metals company. Welcome back. I'm Jeremy Saffron. Markets are pricing continuity. Equities assume earnings hold up. Credit markets assume refinancing remains orderly. And policy makers continue to project control. But when you examine the economy through labor income, credit availability, and capital flows, a different picture is forming. Now, hiring momentum has slowed down. Small business stress is is rising. Household fixed costs are absorbing more income. There's not signals of necessarily a collapse, but they are signals of a transition. For investors looking ahead to 2026, the risk is not a sudden shock. It's a misreading the regime and staying positioned for an economy that no longer exists. Joining me for Outlook 2026 today is, of course, one of our favorite guests, David Rosenberg, president of Rosenberg Research. Dave, great to see you. Great to be back on. Thanks for inviting me. >> Yeah, of course. Uh, you know, part of the reason is we went back to the tape and we can start with that scorecard. I mean, last time we were on we had you on, it was just the end of August and you kind of warned us that this AI spending boom was really the only lifeline keeping the US out of recession. And you also pointed out that while firing was low, the hiring rate had fallen like a stone in your words. Fast forward to today, of course, labor markets contracting, the lifeline starting to fray. Uh, so before we talk forecast, David, I mean, I want to get to the framework and I want to make sure that that's right cuz when you strip away month-to-month volatility and look at labor income, credit conditions and and profits together, how would you characterize the phase of the cycle we're in right now? >> Well, you know, you you mentioned profits and um profit growth is doing just fine. Uh, you know, my my dilemma with the stock market is what's being priced into the future. Uh but you know there's really when you look at the overall pie of the economy from the income standpoint uh there's really only two major sources of income. uh there's profits which equity investors pay for but then there's uh labor income uh as you had mentioned and you know the real dichotomy uh in the economy when you consider that you know the labor income drives uh 70% of GDP otherwise known as the consumer and one of the biggest dichotoies out there and there are a lot there are a tremendous number of imbalances I would say more than I've seen in my 40 years in the business but just consider that since April uh real personal disposable income that's after tax income after inflation is negative almost negative 1% at an annual rate and yet consumer spending in real terms is up 2% at an annual rate. That's almost a 3 percentage point gap. So of course because we're all narcissists and we judge economic success by what spending is doing because that's what GDP is. It's all about spending. Um but the income side uh as it pertains to the personal sector, the labor market is actually contracting uh running negative. Uh and the only reason why everything looks okay is because of the stock market. Uh it all comes down to the stock market. The stock market has never before been such an important determinant of economic activity. you know, when I started in the business in the mid1 1980s, uh the questions used to be to the economist, uh what's the economy going to do? So, I can make a judgment on the stock market. >> And it's reversed. Uh I mean, the head and the tail of the dog have totally reversed because now it's economists that have to go to the strategist and say, "What's your equity market call so I can do my GDP forecast?" Because of the equity wealth effect on spending. That's what's happening here. It's um you know it's that top I wouldn't necessarily say 1% but that top 10% um of the income echelons is driving the whole system uh because of their fat equity market gains uh that they've recorded uh not just over the past year but the past couple of years and the equity wealth effect on spending is huge. Uh but that's really what's keeping the glue together right now. It's if you're going to ask me what's your outlook next year for the economy? Well, it's all going to come down to the stock market. Um, because the glue that's keeping the system together uh is the S&P 500 and what that's doing to the very high end in terms of consumer spending. If that goes away, then there's no doubt in my mind that we're going to have a recession next year. Uh, and uh that's a big surprise because no, nothing is priced for it. That's one of the big anomalies is that in 2022, 2023, we were all freaking out over recession. It never came. uh and now actually the risks are higher than they were back then and nothing's priced for recession and nobody really even talks about it anymore. >> So I mean you know if if if markets are pricing a future where growth holds up and you know policy remains supportive I mean what what happens if if one of those assumptions proves wrong? I mean which one is the bigger vulnerability in your mind? Well, to me, the vulnerability is what we're seeing play out in real time because although you could argue that the S&P 500 uh and say the Dow, they're still flirting near their record highs, um the reality is that uh the uptrend line seems to have become a little bit wobbly. Uh and that's because you've had uh a very significant correction in some of these large cap uh tech names uh related to uh the AI theme and there's all sorts of question marks. I mean this is uh I mean you're seeing the investor base now scrutinize uh what's happening in generative AI uh more now than they were 3 or 6 months ago. Uh what's kept the market together has been this rotation into value. Uh the question becomes you know how sustainable is that? We saw the same thing happen back in 2000. You know after the uh the tech bubble burst back then there was this rotation into value but inevitably that only lasted a few months and then everything went down together. It's the one thing that you know we have to keep in mind here that uh you know in a bare market uh you can choose just not to participate in equities and not lose money or it becomes a relative game where you're going to lose the least bit of money. So you'll lose the least bit of money in value. But I think people have to understand that whether you're taking a look globally at equity markets, they're all correlated. If you're taking a look at sectors, um they're all correlated. Uh you don't go into a recession or bare market and make money um outside of maybe Walmart is about the only stock that you can ever buy in a recession that doesn't go down, but it doesn't go up. So that's the dilemma right now. The dilemma for me is the mania uh the hype and the surreal expectations uh which I've seen before and they usually take place uh at market peaks. Uh so you know the way I see it you know just like with the internet and with uh uh you know large language programs and uh generative AI and all that technology. There's is a fundamental shift in the innovation curve. There's no doubt about that. The bubble's not in the technology itself. That's not where the bubble is. The bubble is in the investor mania. Uh the behavior of investors. Uh that's the animal spirits that John Mayor Kanes famously coined in the 1930s. Uh so if there's when you get to these sort of multiple levels and my favorite um valuation metric is the Schiller Cape you know the sickly adjusted price earnings multiple that goes back a 100 years. Uh it's now flirting with a 40 multiple. We're at 40. Uh we've you know we were last here basically in the late 1990s. Um, and that is technically a bubble because it classifies it's not just a two standard deviation event anymore. It's getting towards a three sigma event. And this represents actually the sixth bubble of the past 100 years. People don't like to talk about a bubble cuz it's very emotional and it makes people nervous. So, you don't talk about bubbles uh until after the fact. Then we look back and say, "Oh, it was a bubble after all." After all, the deniers say, "Well, no, it's not a bubble." uh there's a bubble in the valuations and so when you get to these sorts of levels um just uh news coming in it doesn't have to be bad news and it wasn't about bad news that undercut uh the tech bubble back in the opening months of 2000. It's when the news doesn't fit the narrative when it's not good enough. >> Um and so that's the vulnerability. It doesn't even take bad news. And so it's not so much even that get a recession, not a recession. We've had bare markets before without a recession. Um I started in the business in October 19th, 1987, the day of the crash. Uh and actually the market peaked um during the summer. It just uh reached a cataclysmic low on that particular day, but it was already down going into Black Monday. And it wasn't about earnings. It was about the multiple. We had a crazy overvalued stock market. The stock market today is more crazy overvalued by the way. But when you go into a bare market, 80% of the draw down in the stock market historically is the compression of the PE multiple. It's not earnings. Earnings account for 20% of the decline on average. 80% is the multiple mean reverting. Um, and when you get to these levels, it doesn't take much. And yet, you know, we got the uh what? We got the Bank of America global fund manager survey that just came out for December and uh the risk on atmosphere and market positioning sentiment are off the charts. They've never been this high before going into 2026 um at these levels uh of the multiple. But then, you know, you get people saying, well, you know, uh multiples only matter when they matter. Uh and you know, I've I mean, I heard that back in 2007. I heard that back in 2000. I heard that in 1989. Multiples only matter when they matter. But multiples matter. They're not a timing device, but they tell you at any point along the curve as to whether or not you're investing with the wind at your back or the wind in your face. And when you get to a 40 multiple and you look at the historical record of the cape, the future one year, three year, 5year, and 10 year returns in the S&P 500 are all negative across the board. Uh it's the only time of the investment cycle where expected returns are negative. >> And yet the anomaly is that bullish sentiment and positioning has never been this acute before. Uh so that's the uh that's that's what I'm struggling with right now. And uh and it's because if if if the news isn't good enough, doesn't have to be bad at these level of multiples, people are going to be in for a very big surprise. And then what happens is that if we get the mean version of the multiple, the multiple being the heartbeat of sentiment uh and you get either a correction or a bare market, the implications for the consumer considering who's supporting it right now are people who really spend based not based on their income. That's the low-end people and the middle income. The high-end people spend off the equity wealth effect. that goes into reverse and the next thing you know we're gonna have a recession that nobody expects and that has all sorts of unintended consequences attached to it. >> Yeah. Yeah. That income versus illusions. I mean, you know, spending data can stay elevated even as income growth weakens. But I mean, at this stage of the cycle, which matters more, how much people are spending or or how they're f funding that spending? >> Well, I think it's just the um the concentration risk. uh which we talk about there's still concentration risk in the stock market even with this call it broadening out over the past few months um and there's concentration risk in the economy um you know the consumer I I mean the risk is basically if the equity market does not continue to go up um then that critical support from the top 10% on consumer spending is going to go away and then if you get a consumer recession which by the way nobody thinks is going to happen uh but you get a consumer recession it's going to have all sorts of other knock-on impacts uh and knock on impacts on uh on uh corporate spending uh knock-on impacts on uh credit spreads and defaults. >> Uh you know, it's been a long time since we had a consumer recession and I just finding that um the complacency is is just incredible. I I I I people telling me that they actually believe and a lot of this comes from what happened. I mean, we were really put to the test in 2022 and 2023. The recession that was supposed to come never came. Uh, aggressive rate hikes, uh, inverting the yield curve, massive inflation, uh, the recession never came. Uh, and so the problem is the is the mentality of everybody that I speak to, and I speak to a lot of people, they believe that the business cycle's been repealed. uh they believe that somehow some combination of Donald Trump and generative AI has repealed the business cycle and the market cycle's been repealed. Um and frankly, you'll never get me to ever say that, you know, that mother nature has been shot in the head. Um but that's what that that's the pervasive belief right now. And it's we got emboldened after what happened in 2022 and 2023. What happened in 2022 2023 were two things. We had the $2 trillion of uh cash stimulus checks still circulating through the economy from those um the Biden handouts. Uh that was a gift that kept on giving and uh the economy was still reopening postco so jobs are being created. Uh and so that's why we didn't have the recession. Um there are no more $2 trillion of excess savings. Uh everybody's talking about these tax refunds coming in the opening months of next year, but there's no permanency or multiplier impact from that. It's all we've seen tax refunds before. Um and this time around they'll be spent on the things going up in price like electricity and um uh and uh insurance premiums and uh and the like property insurance, auto insurance, they'll be going up and healthcare. Uh that's going to divert all of that uh those tax refunds. >> Interesting. So yeah, so basically you've got um you just got this incredible uh mentality that the business cycle has been repealed. Uh I don't I don't believe that. Uh and I don't even think frankly that you need to have a recession uh to get the stock market uh to wobble. Um you know, we had the stock market wobble big time in in 2018. There wasn't a recession. And 1987, as said before, was a horrible year for the stock market. There was no recession. It's really comes down to what will influence um the perceptions, what will knock off the perceptions of 15% earnings growth priced into the stock market right now for the next 5 years. And you're starting to see some of that already uh you know in in some of these big AI names and of course you know the the quality of the balance sheets and the financing and the circular arrangements. Um, and the one thing I know about bubbles of all sorts, um, and they always lead to they're always involved with the major renovation, but you get the excess capacity every time. That's why this is going to turn out to be deflationary, uh, for a variety of reasons. Um, but the thing is that, you know, if the multiple, if the cape was like 25 or 30, even if it was 35, I'd be less concerned. But we're just pressing against uh levels right now that to me uh are just a little too dangerous. >> I got to ask you too, I mean, you know, because it's not theoretical. I mean, we're seeing it in the data. Rising small business delinquencies, tighter, you know, lending standards, higher refinancing costs. Small businesses don't issue stock and they don't borrow at Treasury yields. I mean, obviously, they rely on bank credit and private lenders. when you look at what's happening in that channel right now, I mean, what does that tell you about the stress building in the real economy? >> Well, you know, that's again a huge dichotomy is that um when you're taking a look at where the job losses have been stemming from, they've been stemming from small businesses employment and small businesses down four months in a row. Um and that's a leading indicator for the economy because small businesses are right in the front window. They're in the front lines uh in the weeds of the economy. uh they don't have um you know human resource departments uh in ivory towers. Uh they make shifts right away based on what their order books are doing. And yet you know here you've had the Russell 2000 recently you know hitting new highs with small businesses in real disarray and you could see that in real time uh in the uh in the employment data because they're laying off people on mass. >> Mhm. >> Uh so that's again you know there's there's dichotoies everywhere low-end consumer high-end consumer. I could say actually the the low and mid-end consumer now because the problems have morphed into the middle income uh side of the uh income spectrum. Uh but low-end, high-end consumer, small business, large business. Um and then even within capex, you know, there's um a huge dichotomy. Uh once again, you know, people talk about a capital spending boom, but the capital spending boom is in AI. AI capex is up 17% so far this year. >> The rest of the capital spending is negative -3. So you know I talked about the divide between income and consumption, the divide between high and low end. The divide between small business and large business and the divide between AI capex and what we used to call the old economy capex wherever I look. Uh and then of course within the labor market, right? No hiring, no firing. And it's why you you opened up. You see, this is where things are going to get very interesting and everybody's just caught up right now in the minutia of the data and the government shutdowns and all the noise and the data. But when you're taking a look at the churn in the labor market, open up the hood, look at the engine, and you see a no fire, no higher economy. Okay? No higher, no fire. So again, there's another huge bifurcation. But you see the thing is that the hiring rate has gone down to such a low level. It's been like a hot knife through butter. Uh it's lower than it was before CO. The hiring rate is now so depleted that even if we get a modicum of layoffs, which the challenger survey data are showing is going to be a reality next year, you start to get a layoff cycle with the hiring rates for where we are right now. And we're going to start to get a su successive monthly declines in non-farm payrolls. And we're not going to be sitting there thinking, well, how much of this is due to immigration and how much of this is due to the government shutdown. We'll be past that. We will have in real time, I think, in the next several months, evidence that the labor market is not just cooling, but is contracting. And I think that's what see that's that was the missing link in 2022 and 2023 was there was no employment contraction and we get 2 3 4 months of negative non-farm payrolls. By the way, I think that's probably going to happen. then I think that this complacency is going to get shaken out because let's face it, we can talk about AI this, talk about AI that, but if the consumer starts to buckle and it's extends just beyond the low-end consumer and you start getting net job loss, which as you said has its implications for debt delinquencies, um then we're going to get something we're going to get something. You see the thing is that it it this is why this is why this is so interesting. We all talked about recession 2022 2023 we all talked about recession. 2022 was an awful year for the stock market and people thought it was going to get worse but the recession never came. >> Yeah. >> And now uh nobody believes it's ever going to happen. So we're like almost in the mirror image right now. uh the surprise in 2022 2023 the surprise major surprise was the recession never came and I think that the surprise on the other end of the spectrum is going to be that we we may well get a recession you know the push back is well you know we got the big the big beautiful bill and all the stimulus it's it's not going to be enough if companies feel that they're facing this relentless uncertainty there's still a hell of a lot of tariff uncertainty out there >> and there's There's a lot of global geopolitical uncertainty. Uh there's tremendous uncertainty around fiscal policy uh and around immigration. There's reasons why. And then of course we have AI on top of that. Uh and you're seeing the impact of AI. I was surprised that Jay Powell said he wasn't seeing an impact. >> Mhm. >> Because I think in each of the past four months in the challenger data, the layoff data, you weren't seeing this last year. you're seeing pink slips being handed out right now because of AI that this is just starting. So, um yeah, I think it's going to be a challenging year for the labor market. Uh and that comes down to the unemployment rate which is on a rising trend is going to impede nominal wage growth and uh I think that is going to be a big roadblock for the consumer. >> As I said before, it's already in place. It's just that we've had a cooling in the labor market, not really an outright contraction. That's something that's different. If you think things are rough now for the low and middle inome household, just wait till, you know, they're suffering an affordability crisis, just wait till they suffer from a major jobs crisis. >> Yeah. >> And then the question will be, what does the stock market do with all that? Uh are we going to continue to whistle past the graveyard? Because then if the stock market starts to see, oops, consumer demand's going down, analysts start to cut their earnings estimates. Um, next thing you know, the stock market's going down and and and the high-end consumer goes down for the count. And um, the stock market, the stock market and the AI AI trade, people say, well, you know, the AI trade, you know, but we'll just rotate in the value. I got news for you, okay? that rotation has a short shelf life because if the consumer buckles there is not going to be much of a trade in the value stocks either. >> It's interesting. I got to ask you about private credit and in the rollover risk too. You you kind of brought it up briefly there because obviously you know a growing share of the economy is now financed outside the traditional banking system and is higher rates meet refinancing schedules in 2026. I mean where does the risk concentrate Dave? I mean does does does does that surface gradually or does it tend to arrive all at once? >> Well uh it is going to be heavily concentrated in the next couple of years and uh that's why I think that um uh you know rates are pro are going to have to come down. Uh so we have an aggressive uh refinancing calendar. Uh, and I think that look the default risk. Of course, you know, it's hard to measure. It's so opaque and unregulated and private and private credit, but you can see in the public space, uh, I mean, credit spreads are just stupid tight. I mean, if you're taking a look at what's priced in, um, the markets are telling you that they expect the default rate, the corporate default rate to go from 6% down to 3% in the next year. And I don't know what what planet anybody is from that thinks that's going to happen. So I think that um I think that's one of the risks for for next year. And it's not just I don't think in private equity but also in in private credit but also in the in the public space. >> Totally. >> In the equity market nothing's priced for recession. Zero recession's priced in. I can tell you how that's possible because when I mentioned before about a 40 multiple and cape that's a 2.5% yield. The long bond yields trading above 2.5%. The stock market's telling you that we are in in such a riskless world. There's no risk. When when the equity risk premium is zero, the stock market's telling you that the S&P 500 is in the same risk bucket as Treasury bonds. Uh which is ridiculous, but that's what the market is telling you. And the credit market is telling you that there's no default cycle. Uh and so we're at extremes right now. Uh in terms of what's being priced in, as you said, in the in the corporate side, what's priced in for defaults is um doesn't look doesn't look uh like a base case scenario to me. Uh and the double digit earnings growth that we're seeing priced in, not just for next year, but for the next 5 years. Um double the historical norm. Uh doesn't seem realistic either. Not notwithstanding what AI is going to deliver. Uh the internet was uh also breakthrough technology. it didn't ultimately deliver 15% earnings growth over the next 5 or 10 years. Um it generated growth down the road and productivity. Uh but the expectations are just far too high. They were back then and they are today. >> Yeah. Um what about the fixed costs? They call it the quiet tax. I keep having people write me because, you know, they say hous inflation, you know, kind of cooled, but insurance, utilities, healthcare, uh they've all continued to rise. I mean there they aren't discretionary expenses. How how do those rising fixed costs change the way slowdowns unfold compared to you know past cycles? I mean basically does it does it make the economy more resilient or does it delay you know and concentrate the eventual damage? >> Well, you're talking about like you know these uh changes taking place and we're going to see it like the opening months of next year. We're going to get a little bit of an inflation shock. I'm not I'm not worried about it from a bond market perspective. um because it's going to be more like a tax. Uh but you know, you're talking about auto insurance. Uh and uh look, a lot of that has to do with the tariffs and the rising cost of auto parts. Um but rising auto insurance, uh rising uh health insurance, and of course this big debate going on about what to do uh with the Obamacare subsidies. Uh well, nothing's been done about it. Uh and you've got uh property and casualty insurance, property insurance going up. Uh and uh that's I think partly obviously due to the you know the environment and climate change. So there's some secular shifts taking place in areas that you can't substitute away from. Uh healthc care is probably really one of one of the biggest ones. And on top of that, which I didn't mention, was electricity. And this is where the inflationary impacts come in from AI as opposed to, you know, future productivity deflation and real-time electricity costs are going up a lot. These are things that you can't substitute away from. Uh, and so they act as a tax on the consumer. It's one of the reasons why if you're going to ask me outside of uh outside of the tax sector, what which area of the stock market would I avoid for next year, I would avoid consumer discretionary. >> Interesting. Um because even because I did the math and everybody's talking about well you know uh because of Donald Trump and no tax on tips and no tax on social security and uh we've got uh uh you know the salt deductions uh so on and so forth. Yeah. Okay. $1,000 per household. Um yet all the costs I talked about are going to cost the household sector in the first quarter next year 1,500. 1,500. So all that. So, I'm going to say, "Thank God we got these tax refunds." But they're going to be 100% plus absorbed uh by the areas that you're talking about. And and and when people say, "Well, aren't you nervous about inflation?" No, actually I'm more concerned because I can't be concerned about inflation when the unemployment rates going up because all these cost increases, even the ones, don't forget even the tariff increases um in a in a in a in an environment where the labor market is generating excess capacity. What happens with these cost increases is that they either hit the wall in the labor market and leads to lower real wages or gets absorbed in margins. You don't get final inflation out of it. You always have to look at the labor market. That's why when people say to me, well, about the Fed's dual mandate, unemployment and inflation. Well, you know, it's really just one mandate cuz inflation and unemployment are really joined at the hip. Okay? Because you're not going to get sustained inflation. The reason why we got we got 18 months of inflation in 2022, 2023, it wasn't the 1970s, but we had 18 months of inflation um because we had a wage price spiral for 18 months. the the price shocks entered into wages >> and then the wages went to prices and then the Fed finally got ahead of the curve. Uh what the Fed missed and what a lot of us missed was that the initial shock uh from COVID and the supply shutdowns um and even you could say all the fiscal stimulus. Everybody thought they were going to have like double digit unemployment as far as the I could see. But the the job market came back really quickly and then you saw all the young people out there hopping from job to job going for wage increase to wage increase. We had a wage price spiral. How are we getting a wage price spiral now? The unemployment rate is hooking up. You can see in the survey data that worker anxiety, job anxiety is rising inexurably. >> Mhm. >> Uh and so see what's going to happen with these cost increases is that real consumer spending is going to be going down and that's not factored in. Uh, so that's what's going to come out of this is basically because you can't just say I'm not going to heat my home, you know, and the electricity bill is really going to bite and it's going to be a colder than normal winter >> according to the meteorologists out there. Uh, so I think and yet all all you hear cuz of course, here's the thing, right? I I've been doing this 40 years. People love to be spoonfed a positive story. They need it. Especially brokers and financial advisors. They need to encourage their clients to stay engaged. They need the positive story. So, they don't tell them though that yes, we have the $1,000 rebate or tax refund. They don't tell them what it's going to be spent. Uh maybe you're being better off being in utilities, for example, than being in consumer discretionary cuz where is that money going to be flowing into? it's not going to be flowing into vacations, restaurants, and casinos. Okay. So, when people talk about the reasons to be bullish for next year because of fiscal stimulus, uh they're not looking at the other side of the ledger. >> Yeah. This brings me to I mean kind of Japan because if labor's weakening at home, the next question is where this global liquidity comes from too. And you know, obviously for decades, Japan supplied the world with cheap capital. Um, with the Bank of Japan now raising rates, what assumption about future liquidity do you think markets are still making that could be wrong here next year? Well, look, you know, you had uh ordinarily you'd think that uh the BOJ rate hike >> today, we'd be talking about the end of the carry trade and volatility and market weakness, but none of that's happened because >> the the it's all about because the BOJ has learned from the Fed how to massage and manage investor expectations. we went into today 100% priced in. What wasn't priced in was the messaging and all of a sudden you got the Bank of Japan saying, well, you know, we don't know how much more we got to do. We don't really know where the neutral rate is. And so, if you saw the first thing that happened cuz you didn't get much of a reaction out of the bond market. I mean, it was a small reaction to tell you the truth, >> but it was the yen that got the yen got killed. The yen was down like a percent. >> You'd think ordinarily they're hiking rates by the yen. Uh, I mean, I've had that view. And then they basically, you know, it's interesting. The Fed cuts rates and then says, uh, well, we're not so sure we're going to cut anymore. >> Yeah. >> And so that's why people say, well, the bond market's not doing anything. Well, it's got nothing to do with the rate cut. It has to do with the expectations that the Fed is trying to influence. And the BOJ did the exact opposite. Instead of telling the market, we're we're hiking today and we got more to do, they did the opposite. >> Yeah. Yeah. So, it's really uh for now it's really a nothing burger. What what they'd have to do to cause a real shakeup because I mean the the global carry trade really comes out of Japan. Um and they know that um it's hard to believe that core inflation in Japan is running like a roughly 3% and they got the the policy rate at 75. I mean, the negative real interest rates is how they're running their economy year in and year out. I I don't I don't know how that is going to be sustainable. Uh but they hiked today and at the margins sounded dovish. Uh and so the question is going to be when they start to uh signal to the markets that they have a a long road ahead in terms of uh adjusting rates to the high side. They seem like uh deer in the headlights. They seem a little nervous to do that. So right now there's uh there's no real liquidity implications from that. And frankly, you know, I don't even know, you know, people ask me about liquidity all the time. And how do you define liquidity? How do you define liquidity? You know, you know, if you look at if you looked at M2, it's almost always going up. Liquidity is just uh it's a euphemism for for confidence. It's the bid ask spread. That's what it is. Liquidity is just trust and confidence. Um that's what it is. Uh so, you know, all of a sudden next year we have a different sort of a market and people will talk about liquidity. >> Yeah. Um, so basically it comes down to uh uh liquidity to me is just the same as talking about market sentiment more than anything else. And you get to a you get to a situation where you can't trust your counterparty. Well, that's something different. That's when the bid ass spread starts to widen out and that's when you talk about liquidity, but it really comes down to, you know, confidence in the system. >> Yeah, it also sounds like that trust. I mean, thinking about the word trust all year. I think about gold. I got to ask you about metal prices. I mean for the KitKo audience because if 2026 is about protecting capital in that tighter less forgiving environment what do you think about you know metals first and then let's jump into equities just kind of your outlook for 2026 here Dave >> well you know look the everybody's woken up to the gold price in the past year or two without realizing that the bull market and gold started 25 years ago uh with the Washington agreement and the end of all the global central bank dumping uh of bullion. Uh so now everybody's caught on. This is not about you know the Indian diary season. It's not about uh Costco having runs in their aisles on uh their their gold bars. It's it's it's not about anything more than uh the great diversification as I call it the great reallocation of global central bank reserves out of greenbacks and into and in a bullion. Uh and so this is going to continue until the first central bank says uh we've done enough. And I I don't think we're there yet. But you see that the principal driver of gold has been um the central banks. >> Mhm. >> And they're creating a situation where demand growth is running between 2 and 3% but the available supply is only expanding 1%. So you don't need to be a rocket science rocket scientist economist to know that the the supply demand curves continue to move in the direction towards uh an ongoing bull market in gold. It's not going to be in a straight line. Um but I think that if you're asking me for 2026 will I'm not going to go into targeting the price just to say that I think that you're going to make money again in gold. Um you'll make money again in silver. I think the precious metal complex in general uh will do very well next year. Um, you can talk about, you know, those geopolitical risks. There's also going to be a risk of what happens in the US midterms. And of course, gold has this historical correlation with uncertainty. We don't know how the Supreme Court's going to rule on the Trump tariffs. If they rule against them, that's going to create its own recurring mayhem um as to what his response is going to be. Um, so I think next year is still going to be a year of elevated uncertainty. you know, you can put the global central banks aside and say, well, that alone will make me bullish on things that actually are correlated positively with uncertainty. So, the outlook for gold uh and um uh to me remains uh remains constructive. Uh you know, the central banks are still in the game. That's not changing. you when you ask me you know what is the day that I will start to turn bearish on gold and I've been bullish for many many years is when I see the one fundamental underpinning um behind it which has been the central bank's um reallocation of its reserves you can't look at this without the context of the previous 20 years before 1999 we're in a 20-year huge bare market in gold and that was because of the central banks and now you know we're running the movie backwards and uh my sense is that it's not over Yeah, >> well said. Uh, from a from a stock perspective, I mean, how do you think about gold and silver equities in 26? I mean, is the opportunity driven more by the the macro backdrop? Is it balance sheets or the fact that these companies have lagged behind the underlying metals? >> They Yeah, they've l they they've lagged behind. Uh, that's where the optionality is. Uh I mean the good news is that when we look at the situation >> um the uh you know the the gold mining stocks are only priced for gold at uh just over $3,000 an ounce. Yeah. >> So you have you have a lot of downside protection that that's where you you that's you know you can invest in the AI trade where there's all this exuberance and all you know and uh and enthusiasm and and in gold uh you know the the actual gold stocks um are not priced for where spot gold is or where it's going to be going in the future. So I think that's still where your best opportunity is going to be. I we we happen to have both in our model portfolio. We have the we have silver, we have gold, and we have the mining stocks as well. Um, and I would actually have a you know a a blend of of both in the portfolio. >> You've been constructive on energy infrastructure too, right? I mean, natural gas, nuclear, the grid. Um, we talked about it a bit there, but but why does that sector kind of retain demand visibility even in that weaker growth environment you talked about? >> Yeah. Well, look, the the areas we like, well, a lot of it is is related to uh no matter what's going to happen is we're going to have a a total revamping of um of the power grid >> uh and um LNG expansion and um we're bullish on, you know, we're trying to be very specific here because the oil price outlook is very uncertain. Mhm. >> Uh and you know, the old price could break down to $40. Um and you might argue, well, there's a floor at 50 cuz that's break even. Um it's tough to build right now a bullish case uh for the old price. Um so we're trying to invest in areas that um aren't correl with the old price. So we're sticking to, you know, the infrastructure plays. Uh we like natural gas. Uh broad energy infrastructure plays. uh the energy services that are tied to that. Uh and um you know we are in our portfolio we have Canadian pipelines. We have a big position there and we have a position in uh in US utilities. But our our next move our next move probably is going to be into uh into natural gas. >> Yeah. Interesting. these prices. Um well, it's not getting any warmer out there and they're sticky and those and that's the dicho once again that's an imbalance worth looking at is between oil uh and and natural gas. But the natural gas uh and where is it now? Like $5 or so. I mean it's it's proven to be very very sticky. So I I think that that is going to be I wouldn't be surprised if that's going to be the big winner of 2026. >> Interesting natural guess. Uh okay. Okay. Well, I I got to ask you, I mean, if on the upside, because it has been a surprising year, I mean, what surprised you the most in 2025? And and what do you think kind of forces this wrong thesis narrative in 2026? If you saw something, it goes, "Okay, well, I was wrong." >> Well, look, I I was like everybody else. Um, I was really uh I mean, it was nailbiting time, you know, back in April. Uh and then because because when I saw how the administration was calculating uh these ridiculous reciprocal tariffs >> Yeah. >> Um you know based on uh the trade deficit that these countries had relative to their exports. It was the stupidest calculation I've ever seen and it made me think that these guys don't know what they're doing. Um, so I I I you know I mean the big surprise was the bounce we had >> off the April lows. Uh I mean it uh it's one thing to say that we bounced off the October 2022 lows cuz we had we'll chat GPT. uh there's your uh inflection point in the technology curve. But this was basically I didn't expect that just because Donald Trump said I'm going to give this country reprieve that country reprieve um uh that we're going to get mega trillion dollars of investments coming into the United States. Uh and all of a sudden the the the market just took off and that's when people started thinking about well there's this >> there's a there's a Trump put. Um there's a Trump put. I don't know. Are we going to talk about AI? I I mean really um this is an really elongated story. That story started in the fall of 2022. >> Uh and um and it's continued ever since. Um but there's the whole notion that um that these tariffs are good. Um you talk to people, they think the tariff, you talk to Americans, they think the tariffs are good. American investors, the tariffs are good. It's going to it's going to create manufacturing activity. manufacturing activity in United States even with the uh data center explosion is is flat this year. Manufacturing jobs I think we've lost 70,000 manufacturing jobs in United States. Where are these jobs? All the bulls that were talking about how the tariffs are going to be stimulative. Uh I just don't see it. >> Um and all the foreign direct investment that that that to me is a fugazi. Uh I mean that's just something that's just pure talk. Um, but you see it was that it was it was, you know, not not so much even the AI trade, which I sort of understand. Okay, I understand how you can get hype and mania. We've seen that before, get behind this bubble, and it's human nature. What didn't make sense was people rallying around the fact that the average tariff rate in the United States has gone from 2% to 16.5. the tariff the effect of tariff rate in the world's biggest economy just went to the highest levels since 1935 and everybody's okay with it. That's what's really surprised me. That was the biggest surprise for me for the year for sure. >> That's interesting. Uh okay. Finally, I mean when you step back from all that data, I mean we talked about labor, credit, liquidity markets. What do you think? I mean maybe it was just what you just said there Dave. I mean what do you think investors are most wrong about heading into 2026? Is it kind of this this tariff rate? >> Look, it's basically, you know, what what what technology has not done ever. Uh and Generative AI is not going to do this either. Generi is is making us uh helping us work faster. They're making us faster, not smarter. And the one thing that hasn't changed over the millennia is in the investment world, the world that you and I are in, not in the business world, right? Not in the business world, in the financial world, >> yeah, >> is governed by extremes. The extreme emotions of fear and greed. I said before that's captured in the market multiple. And the market multiple basis point for basis point is far more powerful than earnings growth. People talk about the earnings fundamentals. Uh well the multiple you look at a bull market and 40 to 50% of a bull market is the multiple expansion. I said before 80% of a bare market is the multiple how the multiple moves and the multiple is well you called it liquidity before or it's basically the pulse of confidence and sentiment. So, we're going in like, you know, look, I was at Mel back in ' 09, right? March of09, we bought into 666, that devilish number on the S&P 500. People thought we'd never people thought Armageddon, and we're never going to recover. We're never going to recover. Well, guess what? We recovered. And um and you can go on and on at market lows. You want to go back in in in in in August of 1982, the PE multiple was eight on the S&P 500 at the bottom of the market. I can tell you people at Maril Lynch told me that back in 1982, if you were a Mel broker and you cold called an account, they'd call the cops on you. You know, that's and so right now we're the opposite extreme, right? The opposite extreme. Uh and so when I take a look at them, I I take look just take a look at the fact that um we're going to next year. There's a still a tremendous amount of uncertainty and you've got credit spreads are a two sigma event. The stock market is a two sigma event and everybody is all in. Uh portfolio managers are down to 1% cash ratios. >> Yeah. The average household in the United States is 72% in their asset mix and equities. Even the boomers are over 60% exposed to the stock market. They should be closer to 30 to 40%. Everybody is all in all at the same time. And then you got that Bank America, that fund manager survey blew me away that um and I guess that that would be one of the big surprises, right? Like could you have predicted that in April with the reciprocals in the market going down like almost 30%. That we finish the year with the Bank America sentiment the fund manager survey showing that everybody is all in all at the same time. And so I guess maybe um uh you know I guess maybe my my contrarian antenna is starting to get uh very sensitive. Uh so that to me that that to me that to me is the biggest risk going into next year is the extreme uh and not just the extreme in terms of valuations and market concentration but the extreme in complacency and sentiment and partly it's because you know my hero Bob Ferrell you know who ran uh strategy over at Miral Lynch uh uh technical strategy for like five decades he was the one the 1950s had that incorporated sentiment into his work. Yeah, Bob Farrell was the pioneer. Uh and so that has me unnerved the most really. I think that uh you could you could say that you know and what I'm waiting for next year and the reason why I think that people should have a lot liquidity on you should have liquidity because this is not sustainable and when sentiment cuz sentiment will always swing to extremes and you want to be there uh when the to pick up the pieces I'll just say this much okay Jeremy that we got to ask the question why why is Warren Buffett sitting on an over well not just over 30%. for the first time ever. How many crises has he been through? And you know, I I don't know him personally. I know people that know him and he they tell me that he hasn't lost a step. You know, I gave a uh I gave a presentation to one of the big banks uh their adviserss and this young buck says to me, "Whoa wants to listen to Warren Buffett." And this goes goes to show you how things have changed in our industry because there was a time where experience was respected. uh today it's just uh the only thing that's respected is price momentum. But you got to ask why he's almost $400 billion of cash. The biggest cash hoard that Warren Buffett has had in his history. What is he saying? What is he saying? Do you know and I keep on getting asked, oh this the other thing is basically the Fed. Oh, the Fed's doing QE with this $40 billion per month. Well, it's only for a few months in any event, and it's not really classic QE, but everybody thinks that money is going to flow into the stock market. But Jeremy, if if the Fed buys treasury bills from you, are you then and you don't have your treasury bills, are you going to go into the equity market? Oh, I don't have my treasury bills anymore. I'm going to put that in the in spiders. You know, I'm going to take what I used to have a safe asset on my hands and I'm going to go into the riskiest asset class out there. So the other question is we have to ask what is it that Warren Buffett is seeing and why is it that Jamie Diamond just announced that out of this so-called QE out of the Fed that JP Morgan is using it to buy I think he said $375 billion worth of treasuries. Why is Jaimeie Diamond buying treasuries? And why is Warren Buffett sitting on 30 30% cash ratio all at a time when portfolio managers have never been allin on the stock market and retail investors they are today? So there is another huge dichotomy and a huge imbalance I think is going to get resolved in the next year. But I'm going to tell you right now, I think I'm going to put my money behind Jamie Diamond and Warren Buffett ahead of the typical financial adviser on Bay Street and Wall Street. >> Uh, makes sense, David. Okay. Well, listen, I appreciate it as always. Our time goes too quick. That was a sharp and necessary conversation. Uh, thanks for walking us through the data, the risks, and the framework for thinking about 2026. Uh, happy new year. I hope to see you in 2026. Thanks for this. Thank you very much. A happy new year and uh buy gold. >> Yeah, buy gold. Interesting uh interesting place. Thanks again, Dave. Appreciate it. Have a great one. >> All the best. Take care. >> All right. Thanks, Dave. Now, if there's one takeaway from this outlook 2026, it's this. The biggest risk ahead isn't volatility. It's misreading this cycle. So, do your own research. We got labor, credit, capital flows. They're all shifting and markets haven't fully priced that transition in yet. Now, if you want serious datadriven macro analysis you won't find anywhere else, make sure to subscribe right here to Kitco News on YouTube and turn on notifications so you don't miss our upcoming interviews and market breakdowns. And before you go, we'd like to thank our Outlook 2026 sponsor, Discovery. Discovery is combining highquality gold producing assets in Canada with one of the world's largest underdeveloped silver deposits in Mexico. You can learn more at discoverys.com. And finally, this is our last show of 2025. And on behalf of everyone here at Kicko News, thanks for watching. Thanks for your trust. Thank you for making us part of your investment process this year. Have a great holiday season. We'll see you in the new year. I'm Jeremy Saffron. Happy New Year from all of us here at Kitco News. >> KitKo News Outlook 2026 is brought to you by Discovery, a growing North American precious metals company.
David Rosenberg: Markets Are Propped Up by the S&P 500 – and That’s the Risk for 2026
Summary
Transcript
Kitco News Outlook 2026 is brought to you by Discovery, a growing North American precious metals company. Welcome back. I'm Jeremy Saffron. Markets are pricing continuity. Equities assume earnings hold up. Credit markets assume refinancing remains orderly. And policy makers continue to project control. But when you examine the economy through labor income, credit availability, and capital flows, a different picture is forming. Now, hiring momentum has slowed down. Small business stress is is rising. Household fixed costs are absorbing more income. There's not signals of necessarily a collapse, but they are signals of a transition. For investors looking ahead to 2026, the risk is not a sudden shock. It's a misreading the regime and staying positioned for an economy that no longer exists. Joining me for Outlook 2026 today is, of course, one of our favorite guests, David Rosenberg, president of Rosenberg Research. Dave, great to see you. Great to be back on. Thanks for inviting me. >> Yeah, of course. Uh, you know, part of the reason is we went back to the tape and we can start with that scorecard. I mean, last time we were on we had you on, it was just the end of August and you kind of warned us that this AI spending boom was really the only lifeline keeping the US out of recession. And you also pointed out that while firing was low, the hiring rate had fallen like a stone in your words. Fast forward to today, of course, labor markets contracting, the lifeline starting to fray. Uh, so before we talk forecast, David, I mean, I want to get to the framework and I want to make sure that that's right cuz when you strip away month-to-month volatility and look at labor income, credit conditions and and profits together, how would you characterize the phase of the cycle we're in right now? >> Well, you know, you you mentioned profits and um profit growth is doing just fine. Uh, you know, my my dilemma with the stock market is what's being priced into the future. Uh but you know there's really when you look at the overall pie of the economy from the income standpoint uh there's really only two major sources of income. uh there's profits which equity investors pay for but then there's uh labor income uh as you had mentioned and you know the real dichotomy uh in the economy when you consider that you know the labor income drives uh 70% of GDP otherwise known as the consumer and one of the biggest dichotoies out there and there are a lot there are a tremendous number of imbalances I would say more than I've seen in my 40 years in the business but just consider that since April uh real personal disposable income that's after tax income after inflation is negative almost negative 1% at an annual rate and yet consumer spending in real terms is up 2% at an annual rate. That's almost a 3 percentage point gap. So of course because we're all narcissists and we judge economic success by what spending is doing because that's what GDP is. It's all about spending. Um but the income side uh as it pertains to the personal sector, the labor market is actually contracting uh running negative. Uh and the only reason why everything looks okay is because of the stock market. Uh it all comes down to the stock market. The stock market has never before been such an important determinant of economic activity. you know, when I started in the business in the mid1 1980s, uh the questions used to be to the economist, uh what's the economy going to do? So, I can make a judgment on the stock market. >> And it's reversed. Uh I mean, the head and the tail of the dog have totally reversed because now it's economists that have to go to the strategist and say, "What's your equity market call so I can do my GDP forecast?" Because of the equity wealth effect on spending. That's what's happening here. It's um you know it's that top I wouldn't necessarily say 1% but that top 10% um of the income echelons is driving the whole system uh because of their fat equity market gains uh that they've recorded uh not just over the past year but the past couple of years and the equity wealth effect on spending is huge. Uh but that's really what's keeping the glue together right now. It's if you're going to ask me what's your outlook next year for the economy? Well, it's all going to come down to the stock market. Um, because the glue that's keeping the system together uh is the S&P 500 and what that's doing to the very high end in terms of consumer spending. If that goes away, then there's no doubt in my mind that we're going to have a recession next year. Uh, and uh that's a big surprise because no, nothing is priced for it. That's one of the big anomalies is that in 2022, 2023, we were all freaking out over recession. It never came. uh and now actually the risks are higher than they were back then and nothing's priced for recession and nobody really even talks about it anymore. >> So I mean you know if if if markets are pricing a future where growth holds up and you know policy remains supportive I mean what what happens if if one of those assumptions proves wrong? I mean which one is the bigger vulnerability in your mind? Well, to me, the vulnerability is what we're seeing play out in real time because although you could argue that the S&P 500 uh and say the Dow, they're still flirting near their record highs, um the reality is that uh the uptrend line seems to have become a little bit wobbly. Uh and that's because you've had uh a very significant correction in some of these large cap uh tech names uh related to uh the AI theme and there's all sorts of question marks. I mean this is uh I mean you're seeing the investor base now scrutinize uh what's happening in generative AI uh more now than they were 3 or 6 months ago. Uh what's kept the market together has been this rotation into value. Uh the question becomes you know how sustainable is that? We saw the same thing happen back in 2000. You know after the uh the tech bubble burst back then there was this rotation into value but inevitably that only lasted a few months and then everything went down together. It's the one thing that you know we have to keep in mind here that uh you know in a bare market uh you can choose just not to participate in equities and not lose money or it becomes a relative game where you're going to lose the least bit of money. So you'll lose the least bit of money in value. But I think people have to understand that whether you're taking a look globally at equity markets, they're all correlated. If you're taking a look at sectors, um they're all correlated. Uh you don't go into a recession or bare market and make money um outside of maybe Walmart is about the only stock that you can ever buy in a recession that doesn't go down, but it doesn't go up. So that's the dilemma right now. The dilemma for me is the mania uh the hype and the surreal expectations uh which I've seen before and they usually take place uh at market peaks. Uh so you know the way I see it you know just like with the internet and with uh uh you know large language programs and uh generative AI and all that technology. There's is a fundamental shift in the innovation curve. There's no doubt about that. The bubble's not in the technology itself. That's not where the bubble is. The bubble is in the investor mania. Uh the behavior of investors. Uh that's the animal spirits that John Mayor Kanes famously coined in the 1930s. Uh so if there's when you get to these sort of multiple levels and my favorite um valuation metric is the Schiller Cape you know the sickly adjusted price earnings multiple that goes back a 100 years. Uh it's now flirting with a 40 multiple. We're at 40. Uh we've you know we were last here basically in the late 1990s. Um, and that is technically a bubble because it classifies it's not just a two standard deviation event anymore. It's getting towards a three sigma event. And this represents actually the sixth bubble of the past 100 years. People don't like to talk about a bubble cuz it's very emotional and it makes people nervous. So, you don't talk about bubbles uh until after the fact. Then we look back and say, "Oh, it was a bubble after all." After all, the deniers say, "Well, no, it's not a bubble." uh there's a bubble in the valuations and so when you get to these sorts of levels um just uh news coming in it doesn't have to be bad news and it wasn't about bad news that undercut uh the tech bubble back in the opening months of 2000. It's when the news doesn't fit the narrative when it's not good enough. >> Um and so that's the vulnerability. It doesn't even take bad news. And so it's not so much even that get a recession, not a recession. We've had bare markets before without a recession. Um I started in the business in October 19th, 1987, the day of the crash. Uh and actually the market peaked um during the summer. It just uh reached a cataclysmic low on that particular day, but it was already down going into Black Monday. And it wasn't about earnings. It was about the multiple. We had a crazy overvalued stock market. The stock market today is more crazy overvalued by the way. But when you go into a bare market, 80% of the draw down in the stock market historically is the compression of the PE multiple. It's not earnings. Earnings account for 20% of the decline on average. 80% is the multiple mean reverting. Um, and when you get to these levels, it doesn't take much. And yet, you know, we got the uh what? We got the Bank of America global fund manager survey that just came out for December and uh the risk on atmosphere and market positioning sentiment are off the charts. They've never been this high before going into 2026 um at these levels uh of the multiple. But then, you know, you get people saying, well, you know, uh multiples only matter when they matter. Uh and you know, I've I mean, I heard that back in 2007. I heard that back in 2000. I heard that in 1989. Multiples only matter when they matter. But multiples matter. They're not a timing device, but they tell you at any point along the curve as to whether or not you're investing with the wind at your back or the wind in your face. And when you get to a 40 multiple and you look at the historical record of the cape, the future one year, three year, 5year, and 10 year returns in the S&P 500 are all negative across the board. Uh it's the only time of the investment cycle where expected returns are negative. >> And yet the anomaly is that bullish sentiment and positioning has never been this acute before. Uh so that's the uh that's that's what I'm struggling with right now. And uh and it's because if if if the news isn't good enough, doesn't have to be bad at these level of multiples, people are going to be in for a very big surprise. And then what happens is that if we get the mean version of the multiple, the multiple being the heartbeat of sentiment uh and you get either a correction or a bare market, the implications for the consumer considering who's supporting it right now are people who really spend based not based on their income. That's the low-end people and the middle income. The high-end people spend off the equity wealth effect. that goes into reverse and the next thing you know we're gonna have a recession that nobody expects and that has all sorts of unintended consequences attached to it. >> Yeah. Yeah. That income versus illusions. I mean, you know, spending data can stay elevated even as income growth weakens. But I mean, at this stage of the cycle, which matters more, how much people are spending or or how they're f funding that spending? >> Well, I think it's just the um the concentration risk. uh which we talk about there's still concentration risk in the stock market even with this call it broadening out over the past few months um and there's concentration risk in the economy um you know the consumer I I mean the risk is basically if the equity market does not continue to go up um then that critical support from the top 10% on consumer spending is going to go away and then if you get a consumer recession which by the way nobody thinks is going to happen uh but you get a consumer recession it's going to have all sorts of other knock-on impacts uh and knock on impacts on uh on uh corporate spending uh knock-on impacts on uh credit spreads and defaults. >> Uh you know, it's been a long time since we had a consumer recession and I just finding that um the complacency is is just incredible. I I I I people telling me that they actually believe and a lot of this comes from what happened. I mean, we were really put to the test in 2022 and 2023. The recession that was supposed to come never came. Uh, aggressive rate hikes, uh, inverting the yield curve, massive inflation, uh, the recession never came. Uh, and so the problem is the is the mentality of everybody that I speak to, and I speak to a lot of people, they believe that the business cycle's been repealed. uh they believe that somehow some combination of Donald Trump and generative AI has repealed the business cycle and the market cycle's been repealed. Um and frankly, you'll never get me to ever say that, you know, that mother nature has been shot in the head. Um but that's what that that's the pervasive belief right now. And it's we got emboldened after what happened in 2022 and 2023. What happened in 2022 2023 were two things. We had the $2 trillion of uh cash stimulus checks still circulating through the economy from those um the Biden handouts. Uh that was a gift that kept on giving and uh the economy was still reopening postco so jobs are being created. Uh and so that's why we didn't have the recession. Um there are no more $2 trillion of excess savings. Uh everybody's talking about these tax refunds coming in the opening months of next year, but there's no permanency or multiplier impact from that. It's all we've seen tax refunds before. Um and this time around they'll be spent on the things going up in price like electricity and um uh and uh insurance premiums and uh and the like property insurance, auto insurance, they'll be going up and healthcare. Uh that's going to divert all of that uh those tax refunds. >> Interesting. So yeah, so basically you've got um you just got this incredible uh mentality that the business cycle has been repealed. Uh I don't I don't believe that. Uh and I don't even think frankly that you need to have a recession uh to get the stock market uh to wobble. Um you know, we had the stock market wobble big time in in 2018. There wasn't a recession. And 1987, as said before, was a horrible year for the stock market. There was no recession. It's really comes down to what will influence um the perceptions, what will knock off the perceptions of 15% earnings growth priced into the stock market right now for the next 5 years. And you're starting to see some of that already uh you know in in some of these big AI names and of course you know the the quality of the balance sheets and the financing and the circular arrangements. Um, and the one thing I know about bubbles of all sorts, um, and they always lead to they're always involved with the major renovation, but you get the excess capacity every time. That's why this is going to turn out to be deflationary, uh, for a variety of reasons. Um, but the thing is that, you know, if the multiple, if the cape was like 25 or 30, even if it was 35, I'd be less concerned. But we're just pressing against uh levels right now that to me uh are just a little too dangerous. >> I got to ask you too, I mean, you know, because it's not theoretical. I mean, we're seeing it in the data. Rising small business delinquencies, tighter, you know, lending standards, higher refinancing costs. Small businesses don't issue stock and they don't borrow at Treasury yields. I mean, obviously, they rely on bank credit and private lenders. when you look at what's happening in that channel right now, I mean, what does that tell you about the stress building in the real economy? >> Well, you know, that's again a huge dichotomy is that um when you're taking a look at where the job losses have been stemming from, they've been stemming from small businesses employment and small businesses down four months in a row. Um and that's a leading indicator for the economy because small businesses are right in the front window. They're in the front lines uh in the weeds of the economy. uh they don't have um you know human resource departments uh in ivory towers. Uh they make shifts right away based on what their order books are doing. And yet you know here you've had the Russell 2000 recently you know hitting new highs with small businesses in real disarray and you could see that in real time uh in the uh in the employment data because they're laying off people on mass. >> Mhm. >> Uh so that's again you know there's there's dichotoies everywhere low-end consumer high-end consumer. I could say actually the the low and mid-end consumer now because the problems have morphed into the middle income uh side of the uh income spectrum. Uh but low-end, high-end consumer, small business, large business. Um and then even within capex, you know, there's um a huge dichotomy. Uh once again, you know, people talk about a capital spending boom, but the capital spending boom is in AI. AI capex is up 17% so far this year. >> The rest of the capital spending is negative -3. So you know I talked about the divide between income and consumption, the divide between high and low end. The divide between small business and large business and the divide between AI capex and what we used to call the old economy capex wherever I look. Uh and then of course within the labor market, right? No hiring, no firing. And it's why you you opened up. You see, this is where things are going to get very interesting and everybody's just caught up right now in the minutia of the data and the government shutdowns and all the noise and the data. But when you're taking a look at the churn in the labor market, open up the hood, look at the engine, and you see a no fire, no higher economy. Okay? No higher, no fire. So again, there's another huge bifurcation. But you see the thing is that the hiring rate has gone down to such a low level. It's been like a hot knife through butter. Uh it's lower than it was before CO. The hiring rate is now so depleted that even if we get a modicum of layoffs, which the challenger survey data are showing is going to be a reality next year, you start to get a layoff cycle with the hiring rates for where we are right now. And we're going to start to get a su successive monthly declines in non-farm payrolls. And we're not going to be sitting there thinking, well, how much of this is due to immigration and how much of this is due to the government shutdown. We'll be past that. We will have in real time, I think, in the next several months, evidence that the labor market is not just cooling, but is contracting. And I think that's what see that's that was the missing link in 2022 and 2023 was there was no employment contraction and we get 2 3 4 months of negative non-farm payrolls. By the way, I think that's probably going to happen. then I think that this complacency is going to get shaken out because let's face it, we can talk about AI this, talk about AI that, but if the consumer starts to buckle and it's extends just beyond the low-end consumer and you start getting net job loss, which as you said has its implications for debt delinquencies, um then we're going to get something we're going to get something. You see the thing is that it it this is why this is why this is so interesting. We all talked about recession 2022 2023 we all talked about recession. 2022 was an awful year for the stock market and people thought it was going to get worse but the recession never came. >> Yeah. >> And now uh nobody believes it's ever going to happen. So we're like almost in the mirror image right now. uh the surprise in 2022 2023 the surprise major surprise was the recession never came and I think that the surprise on the other end of the spectrum is going to be that we we may well get a recession you know the push back is well you know we got the big the big beautiful bill and all the stimulus it's it's not going to be enough if companies feel that they're facing this relentless uncertainty there's still a hell of a lot of tariff uncertainty out there >> and there's There's a lot of global geopolitical uncertainty. Uh there's tremendous uncertainty around fiscal policy uh and around immigration. There's reasons why. And then of course we have AI on top of that. Uh and you're seeing the impact of AI. I was surprised that Jay Powell said he wasn't seeing an impact. >> Mhm. >> Because I think in each of the past four months in the challenger data, the layoff data, you weren't seeing this last year. you're seeing pink slips being handed out right now because of AI that this is just starting. So, um yeah, I think it's going to be a challenging year for the labor market. Uh and that comes down to the unemployment rate which is on a rising trend is going to impede nominal wage growth and uh I think that is going to be a big roadblock for the consumer. >> As I said before, it's already in place. It's just that we've had a cooling in the labor market, not really an outright contraction. That's something that's different. If you think things are rough now for the low and middle inome household, just wait till, you know, they're suffering an affordability crisis, just wait till they suffer from a major jobs crisis. >> Yeah. >> And then the question will be, what does the stock market do with all that? Uh are we going to continue to whistle past the graveyard? Because then if the stock market starts to see, oops, consumer demand's going down, analysts start to cut their earnings estimates. Um, next thing you know, the stock market's going down and and and the high-end consumer goes down for the count. And um, the stock market, the stock market and the AI AI trade, people say, well, you know, the AI trade, you know, but we'll just rotate in the value. I got news for you, okay? that rotation has a short shelf life because if the consumer buckles there is not going to be much of a trade in the value stocks either. >> It's interesting. I got to ask you about private credit and in the rollover risk too. You you kind of brought it up briefly there because obviously you know a growing share of the economy is now financed outside the traditional banking system and is higher rates meet refinancing schedules in 2026. I mean where does the risk concentrate Dave? I mean does does does does that surface gradually or does it tend to arrive all at once? >> Well uh it is going to be heavily concentrated in the next couple of years and uh that's why I think that um uh you know rates are pro are going to have to come down. Uh so we have an aggressive uh refinancing calendar. Uh, and I think that look the default risk. Of course, you know, it's hard to measure. It's so opaque and unregulated and private and private credit, but you can see in the public space, uh, I mean, credit spreads are just stupid tight. I mean, if you're taking a look at what's priced in, um, the markets are telling you that they expect the default rate, the corporate default rate to go from 6% down to 3% in the next year. And I don't know what what planet anybody is from that thinks that's going to happen. So I think that um I think that's one of the risks for for next year. And it's not just I don't think in private equity but also in in private credit but also in the in the public space. >> Totally. >> In the equity market nothing's priced for recession. Zero recession's priced in. I can tell you how that's possible because when I mentioned before about a 40 multiple and cape that's a 2.5% yield. The long bond yields trading above 2.5%. The stock market's telling you that we are in in such a riskless world. There's no risk. When when the equity risk premium is zero, the stock market's telling you that the S&P 500 is in the same risk bucket as Treasury bonds. Uh which is ridiculous, but that's what the market is telling you. And the credit market is telling you that there's no default cycle. Uh and so we're at extremes right now. Uh in terms of what's being priced in, as you said, in the in the corporate side, what's priced in for defaults is um doesn't look doesn't look uh like a base case scenario to me. Uh and the double digit earnings growth that we're seeing priced in, not just for next year, but for the next 5 years. Um double the historical norm. Uh doesn't seem realistic either. Not notwithstanding what AI is going to deliver. Uh the internet was uh also breakthrough technology. it didn't ultimately deliver 15% earnings growth over the next 5 or 10 years. Um it generated growth down the road and productivity. Uh but the expectations are just far too high. They were back then and they are today. >> Yeah. Um what about the fixed costs? They call it the quiet tax. I keep having people write me because, you know, they say hous inflation, you know, kind of cooled, but insurance, utilities, healthcare, uh they've all continued to rise. I mean there they aren't discretionary expenses. How how do those rising fixed costs change the way slowdowns unfold compared to you know past cycles? I mean basically does it does it make the economy more resilient or does it delay you know and concentrate the eventual damage? >> Well, you're talking about like you know these uh changes taking place and we're going to see it like the opening months of next year. We're going to get a little bit of an inflation shock. I'm not I'm not worried about it from a bond market perspective. um because it's going to be more like a tax. Uh but you know, you're talking about auto insurance. Uh and uh look, a lot of that has to do with the tariffs and the rising cost of auto parts. Um but rising auto insurance, uh rising uh health insurance, and of course this big debate going on about what to do uh with the Obamacare subsidies. Uh well, nothing's been done about it. Uh and you've got uh property and casualty insurance, property insurance going up. Uh and uh that's I think partly obviously due to the you know the environment and climate change. So there's some secular shifts taking place in areas that you can't substitute away from. Uh healthc care is probably really one of one of the biggest ones. And on top of that, which I didn't mention, was electricity. And this is where the inflationary impacts come in from AI as opposed to, you know, future productivity deflation and real-time electricity costs are going up a lot. These are things that you can't substitute away from. Uh, and so they act as a tax on the consumer. It's one of the reasons why if you're going to ask me outside of uh outside of the tax sector, what which area of the stock market would I avoid for next year, I would avoid consumer discretionary. >> Interesting. Um because even because I did the math and everybody's talking about well you know uh because of Donald Trump and no tax on tips and no tax on social security and uh we've got uh uh you know the salt deductions uh so on and so forth. Yeah. Okay. $1,000 per household. Um yet all the costs I talked about are going to cost the household sector in the first quarter next year 1,500. 1,500. So all that. So, I'm going to say, "Thank God we got these tax refunds." But they're going to be 100% plus absorbed uh by the areas that you're talking about. And and and when people say, "Well, aren't you nervous about inflation?" No, actually I'm more concerned because I can't be concerned about inflation when the unemployment rates going up because all these cost increases, even the ones, don't forget even the tariff increases um in a in a in a in an environment where the labor market is generating excess capacity. What happens with these cost increases is that they either hit the wall in the labor market and leads to lower real wages or gets absorbed in margins. You don't get final inflation out of it. You always have to look at the labor market. That's why when people say to me, well, about the Fed's dual mandate, unemployment and inflation. Well, you know, it's really just one mandate cuz inflation and unemployment are really joined at the hip. Okay? Because you're not going to get sustained inflation. The reason why we got we got 18 months of inflation in 2022, 2023, it wasn't the 1970s, but we had 18 months of inflation um because we had a wage price spiral for 18 months. the the price shocks entered into wages >> and then the wages went to prices and then the Fed finally got ahead of the curve. Uh what the Fed missed and what a lot of us missed was that the initial shock uh from COVID and the supply shutdowns um and even you could say all the fiscal stimulus. Everybody thought they were going to have like double digit unemployment as far as the I could see. But the the job market came back really quickly and then you saw all the young people out there hopping from job to job going for wage increase to wage increase. We had a wage price spiral. How are we getting a wage price spiral now? The unemployment rate is hooking up. You can see in the survey data that worker anxiety, job anxiety is rising inexurably. >> Mhm. >> Uh and so see what's going to happen with these cost increases is that real consumer spending is going to be going down and that's not factored in. Uh, so that's what's going to come out of this is basically because you can't just say I'm not going to heat my home, you know, and the electricity bill is really going to bite and it's going to be a colder than normal winter >> according to the meteorologists out there. Uh, so I think and yet all all you hear cuz of course, here's the thing, right? I I've been doing this 40 years. People love to be spoonfed a positive story. They need it. Especially brokers and financial advisors. They need to encourage their clients to stay engaged. They need the positive story. So, they don't tell them though that yes, we have the $1,000 rebate or tax refund. They don't tell them what it's going to be spent. Uh maybe you're being better off being in utilities, for example, than being in consumer discretionary cuz where is that money going to be flowing into? it's not going to be flowing into vacations, restaurants, and casinos. Okay. So, when people talk about the reasons to be bullish for next year because of fiscal stimulus, uh they're not looking at the other side of the ledger. >> Yeah. This brings me to I mean kind of Japan because if labor's weakening at home, the next question is where this global liquidity comes from too. And you know, obviously for decades, Japan supplied the world with cheap capital. Um, with the Bank of Japan now raising rates, what assumption about future liquidity do you think markets are still making that could be wrong here next year? Well, look, you know, you had uh ordinarily you'd think that uh the BOJ rate hike >> today, we'd be talking about the end of the carry trade and volatility and market weakness, but none of that's happened because >> the the it's all about because the BOJ has learned from the Fed how to massage and manage investor expectations. we went into today 100% priced in. What wasn't priced in was the messaging and all of a sudden you got the Bank of Japan saying, well, you know, we don't know how much more we got to do. We don't really know where the neutral rate is. And so, if you saw the first thing that happened cuz you didn't get much of a reaction out of the bond market. I mean, it was a small reaction to tell you the truth, >> but it was the yen that got the yen got killed. The yen was down like a percent. >> You'd think ordinarily they're hiking rates by the yen. Uh, I mean, I've had that view. And then they basically, you know, it's interesting. The Fed cuts rates and then says, uh, well, we're not so sure we're going to cut anymore. >> Yeah. >> And so that's why people say, well, the bond market's not doing anything. Well, it's got nothing to do with the rate cut. It has to do with the expectations that the Fed is trying to influence. And the BOJ did the exact opposite. Instead of telling the market, we're we're hiking today and we got more to do, they did the opposite. >> Yeah. Yeah. So, it's really uh for now it's really a nothing burger. What what they'd have to do to cause a real shakeup because I mean the the global carry trade really comes out of Japan. Um and they know that um it's hard to believe that core inflation in Japan is running like a roughly 3% and they got the the policy rate at 75. I mean, the negative real interest rates is how they're running their economy year in and year out. I I don't I don't know how that is going to be sustainable. Uh but they hiked today and at the margins sounded dovish. Uh and so the question is going to be when they start to uh signal to the markets that they have a a long road ahead in terms of uh adjusting rates to the high side. They seem like uh deer in the headlights. They seem a little nervous to do that. So right now there's uh there's no real liquidity implications from that. And frankly, you know, I don't even know, you know, people ask me about liquidity all the time. And how do you define liquidity? How do you define liquidity? You know, you know, if you look at if you looked at M2, it's almost always going up. Liquidity is just uh it's a euphemism for for confidence. It's the bid ask spread. That's what it is. Liquidity is just trust and confidence. Um that's what it is. Uh so, you know, all of a sudden next year we have a different sort of a market and people will talk about liquidity. >> Yeah. Um, so basically it comes down to uh uh liquidity to me is just the same as talking about market sentiment more than anything else. And you get to a you get to a situation where you can't trust your counterparty. Well, that's something different. That's when the bid ass spread starts to widen out and that's when you talk about liquidity, but it really comes down to, you know, confidence in the system. >> Yeah, it also sounds like that trust. I mean, thinking about the word trust all year. I think about gold. I got to ask you about metal prices. I mean for the KitKo audience because if 2026 is about protecting capital in that tighter less forgiving environment what do you think about you know metals first and then let's jump into equities just kind of your outlook for 2026 here Dave >> well you know look the everybody's woken up to the gold price in the past year or two without realizing that the bull market and gold started 25 years ago uh with the Washington agreement and the end of all the global central bank dumping uh of bullion. Uh so now everybody's caught on. This is not about you know the Indian diary season. It's not about uh Costco having runs in their aisles on uh their their gold bars. It's it's it's not about anything more than uh the great diversification as I call it the great reallocation of global central bank reserves out of greenbacks and into and in a bullion. Uh and so this is going to continue until the first central bank says uh we've done enough. And I I don't think we're there yet. But you see that the principal driver of gold has been um the central banks. >> Mhm. >> And they're creating a situation where demand growth is running between 2 and 3% but the available supply is only expanding 1%. So you don't need to be a rocket science rocket scientist economist to know that the the supply demand curves continue to move in the direction towards uh an ongoing bull market in gold. It's not going to be in a straight line. Um but I think that if you're asking me for 2026 will I'm not going to go into targeting the price just to say that I think that you're going to make money again in gold. Um you'll make money again in silver. I think the precious metal complex in general uh will do very well next year. Um, you can talk about, you know, those geopolitical risks. There's also going to be a risk of what happens in the US midterms. And of course, gold has this historical correlation with uncertainty. We don't know how the Supreme Court's going to rule on the Trump tariffs. If they rule against them, that's going to create its own recurring mayhem um as to what his response is going to be. Um, so I think next year is still going to be a year of elevated uncertainty. you know, you can put the global central banks aside and say, well, that alone will make me bullish on things that actually are correlated positively with uncertainty. So, the outlook for gold uh and um uh to me remains uh remains constructive. Uh you know, the central banks are still in the game. That's not changing. you when you ask me you know what is the day that I will start to turn bearish on gold and I've been bullish for many many years is when I see the one fundamental underpinning um behind it which has been the central bank's um reallocation of its reserves you can't look at this without the context of the previous 20 years before 1999 we're in a 20-year huge bare market in gold and that was because of the central banks and now you know we're running the movie backwards and uh my sense is that it's not over Yeah, >> well said. Uh, from a from a stock perspective, I mean, how do you think about gold and silver equities in 26? I mean, is the opportunity driven more by the the macro backdrop? Is it balance sheets or the fact that these companies have lagged behind the underlying metals? >> They Yeah, they've l they they've lagged behind. Uh, that's where the optionality is. Uh I mean the good news is that when we look at the situation >> um the uh you know the the gold mining stocks are only priced for gold at uh just over $3,000 an ounce. Yeah. >> So you have you have a lot of downside protection that that's where you you that's you know you can invest in the AI trade where there's all this exuberance and all you know and uh and enthusiasm and and in gold uh you know the the actual gold stocks um are not priced for where spot gold is or where it's going to be going in the future. So I think that's still where your best opportunity is going to be. I we we happen to have both in our model portfolio. We have the we have silver, we have gold, and we have the mining stocks as well. Um, and I would actually have a you know a a blend of of both in the portfolio. >> You've been constructive on energy infrastructure too, right? I mean, natural gas, nuclear, the grid. Um, we talked about it a bit there, but but why does that sector kind of retain demand visibility even in that weaker growth environment you talked about? >> Yeah. Well, look, the the areas we like, well, a lot of it is is related to uh no matter what's going to happen is we're going to have a a total revamping of um of the power grid >> uh and um LNG expansion and um we're bullish on, you know, we're trying to be very specific here because the oil price outlook is very uncertain. Mhm. >> Uh and you know, the old price could break down to $40. Um and you might argue, well, there's a floor at 50 cuz that's break even. Um it's tough to build right now a bullish case uh for the old price. Um so we're trying to invest in areas that um aren't correl with the old price. So we're sticking to, you know, the infrastructure plays. Uh we like natural gas. Uh broad energy infrastructure plays. uh the energy services that are tied to that. Uh and um you know we are in our portfolio we have Canadian pipelines. We have a big position there and we have a position in uh in US utilities. But our our next move our next move probably is going to be into uh into natural gas. >> Yeah. Interesting. these prices. Um well, it's not getting any warmer out there and they're sticky and those and that's the dicho once again that's an imbalance worth looking at is between oil uh and and natural gas. But the natural gas uh and where is it now? Like $5 or so. I mean it's it's proven to be very very sticky. So I I think that that is going to be I wouldn't be surprised if that's going to be the big winner of 2026. >> Interesting natural guess. Uh okay. Okay. Well, I I got to ask you, I mean, if on the upside, because it has been a surprising year, I mean, what surprised you the most in 2025? And and what do you think kind of forces this wrong thesis narrative in 2026? If you saw something, it goes, "Okay, well, I was wrong." >> Well, look, I I was like everybody else. Um, I was really uh I mean, it was nailbiting time, you know, back in April. Uh and then because because when I saw how the administration was calculating uh these ridiculous reciprocal tariffs >> Yeah. >> Um you know based on uh the trade deficit that these countries had relative to their exports. It was the stupidest calculation I've ever seen and it made me think that these guys don't know what they're doing. Um, so I I I you know I mean the big surprise was the bounce we had >> off the April lows. Uh I mean it uh it's one thing to say that we bounced off the October 2022 lows cuz we had we'll chat GPT. uh there's your uh inflection point in the technology curve. But this was basically I didn't expect that just because Donald Trump said I'm going to give this country reprieve that country reprieve um uh that we're going to get mega trillion dollars of investments coming into the United States. Uh and all of a sudden the the the market just took off and that's when people started thinking about well there's this >> there's a there's a Trump put. Um there's a Trump put. I don't know. Are we going to talk about AI? I I mean really um this is an really elongated story. That story started in the fall of 2022. >> Uh and um and it's continued ever since. Um but there's the whole notion that um that these tariffs are good. Um you talk to people, they think the tariff, you talk to Americans, they think the tariffs are good. American investors, the tariffs are good. It's going to it's going to create manufacturing activity. manufacturing activity in United States even with the uh data center explosion is is flat this year. Manufacturing jobs I think we've lost 70,000 manufacturing jobs in United States. Where are these jobs? All the bulls that were talking about how the tariffs are going to be stimulative. Uh I just don't see it. >> Um and all the foreign direct investment that that that to me is a fugazi. Uh I mean that's just something that's just pure talk. Um, but you see it was that it was it was, you know, not not so much even the AI trade, which I sort of understand. Okay, I understand how you can get hype and mania. We've seen that before, get behind this bubble, and it's human nature. What didn't make sense was people rallying around the fact that the average tariff rate in the United States has gone from 2% to 16.5. the tariff the effect of tariff rate in the world's biggest economy just went to the highest levels since 1935 and everybody's okay with it. That's what's really surprised me. That was the biggest surprise for me for the year for sure. >> That's interesting. Uh okay. Finally, I mean when you step back from all that data, I mean we talked about labor, credit, liquidity markets. What do you think? I mean maybe it was just what you just said there Dave. I mean what do you think investors are most wrong about heading into 2026? Is it kind of this this tariff rate? >> Look, it's basically, you know, what what what technology has not done ever. Uh and Generative AI is not going to do this either. Generi is is making us uh helping us work faster. They're making us faster, not smarter. And the one thing that hasn't changed over the millennia is in the investment world, the world that you and I are in, not in the business world, right? Not in the business world, in the financial world, >> yeah, >> is governed by extremes. The extreme emotions of fear and greed. I said before that's captured in the market multiple. And the market multiple basis point for basis point is far more powerful than earnings growth. People talk about the earnings fundamentals. Uh well the multiple you look at a bull market and 40 to 50% of a bull market is the multiple expansion. I said before 80% of a bare market is the multiple how the multiple moves and the multiple is well you called it liquidity before or it's basically the pulse of confidence and sentiment. So, we're going in like, you know, look, I was at Mel back in ' 09, right? March of09, we bought into 666, that devilish number on the S&P 500. People thought we'd never people thought Armageddon, and we're never going to recover. We're never going to recover. Well, guess what? We recovered. And um and you can go on and on at market lows. You want to go back in in in in in August of 1982, the PE multiple was eight on the S&P 500 at the bottom of the market. I can tell you people at Maril Lynch told me that back in 1982, if you were a Mel broker and you cold called an account, they'd call the cops on you. You know, that's and so right now we're the opposite extreme, right? The opposite extreme. Uh and so when I take a look at them, I I take look just take a look at the fact that um we're going to next year. There's a still a tremendous amount of uncertainty and you've got credit spreads are a two sigma event. The stock market is a two sigma event and everybody is all in. Uh portfolio managers are down to 1% cash ratios. >> Yeah. The average household in the United States is 72% in their asset mix and equities. Even the boomers are over 60% exposed to the stock market. They should be closer to 30 to 40%. Everybody is all in all at the same time. And then you got that Bank America, that fund manager survey blew me away that um and I guess that that would be one of the big surprises, right? Like could you have predicted that in April with the reciprocals in the market going down like almost 30%. That we finish the year with the Bank America sentiment the fund manager survey showing that everybody is all in all at the same time. And so I guess maybe um uh you know I guess maybe my my contrarian antenna is starting to get uh very sensitive. Uh so that to me that that to me that to me is the biggest risk going into next year is the extreme uh and not just the extreme in terms of valuations and market concentration but the extreme in complacency and sentiment and partly it's because you know my hero Bob Ferrell you know who ran uh strategy over at Miral Lynch uh uh technical strategy for like five decades he was the one the 1950s had that incorporated sentiment into his work. Yeah, Bob Farrell was the pioneer. Uh and so that has me unnerved the most really. I think that uh you could you could say that you know and what I'm waiting for next year and the reason why I think that people should have a lot liquidity on you should have liquidity because this is not sustainable and when sentiment cuz sentiment will always swing to extremes and you want to be there uh when the to pick up the pieces I'll just say this much okay Jeremy that we got to ask the question why why is Warren Buffett sitting on an over well not just over 30%. for the first time ever. How many crises has he been through? And you know, I I don't know him personally. I know people that know him and he they tell me that he hasn't lost a step. You know, I gave a uh I gave a presentation to one of the big banks uh their adviserss and this young buck says to me, "Whoa wants to listen to Warren Buffett." And this goes goes to show you how things have changed in our industry because there was a time where experience was respected. uh today it's just uh the only thing that's respected is price momentum. But you got to ask why he's almost $400 billion of cash. The biggest cash hoard that Warren Buffett has had in his history. What is he saying? What is he saying? Do you know and I keep on getting asked, oh this the other thing is basically the Fed. Oh, the Fed's doing QE with this $40 billion per month. Well, it's only for a few months in any event, and it's not really classic QE, but everybody thinks that money is going to flow into the stock market. But Jeremy, if if the Fed buys treasury bills from you, are you then and you don't have your treasury bills, are you going to go into the equity market? Oh, I don't have my treasury bills anymore. I'm going to put that in the in spiders. You know, I'm going to take what I used to have a safe asset on my hands and I'm going to go into the riskiest asset class out there. So the other question is we have to ask what is it that Warren Buffett is seeing and why is it that Jamie Diamond just announced that out of this so-called QE out of the Fed that JP Morgan is using it to buy I think he said $375 billion worth of treasuries. Why is Jaimeie Diamond buying treasuries? And why is Warren Buffett sitting on 30 30% cash ratio all at a time when portfolio managers have never been allin on the stock market and retail investors they are today? So there is another huge dichotomy and a huge imbalance I think is going to get resolved in the next year. But I'm going to tell you right now, I think I'm going to put my money behind Jamie Diamond and Warren Buffett ahead of the typical financial adviser on Bay Street and Wall Street. >> Uh, makes sense, David. Okay. Well, listen, I appreciate it as always. Our time goes too quick. That was a sharp and necessary conversation. Uh, thanks for walking us through the data, the risks, and the framework for thinking about 2026. Uh, happy new year. I hope to see you in 2026. Thanks for this. Thank you very much. A happy new year and uh buy gold. >> Yeah, buy gold. Interesting uh interesting place. Thanks again, Dave. Appreciate it. Have a great one. >> All the best. Take care. >> All right. Thanks, Dave. Now, if there's one takeaway from this outlook 2026, it's this. The biggest risk ahead isn't volatility. It's misreading this cycle. So, do your own research. We got labor, credit, capital flows. They're all shifting and markets haven't fully priced that transition in yet. Now, if you want serious datadriven macro analysis you won't find anywhere else, make sure to subscribe right here to Kitco News on YouTube and turn on notifications so you don't miss our upcoming interviews and market breakdowns. And before you go, we'd like to thank our Outlook 2026 sponsor, Discovery. Discovery is combining highquality gold producing assets in Canada with one of the world's largest underdeveloped silver deposits in Mexico. You can learn more at discoverys.com. And finally, this is our last show of 2025. And on behalf of everyone here at Kicko News, thanks for watching. Thanks for your trust. Thank you for making us part of your investment process this year. Have a great holiday season. We'll see you in the new year. I'm Jeremy Saffron. Happy New Year from all of us here at Kitco News. >> KitKo News Outlook 2026 is brought to you by Discovery, a growing North American precious metals company.