DEBATE | Michael Pento vs Adam Parker: What Comes Next After The Iran War Ends?

Summary

• Market Outlook: Panel debates post-Iran war effects, with potential second-half earnings impacts from energy-driven input costs and a generally complacent equity tape near highs.
• Sector Positioning: Underweights in Consumer Staples and Consumer Discretionary due to rising input costs; overweights in Healthcare and selective Information Technology; Energy moved to neutral near term.
• Semis vs. Software: Preference for Semiconductors (AI infrastructure) over Application Software, citing cost pressures and pricing pushback for software; examples included NVDA, MU vs. CRM, ADBE, WDAY, NOW.
• Healthcare Opportunity: Bullish multi-year view on Healthcare (managed care, hospitals, distributors, diagnostics) with steady revenue growth history and potential AI-enabled productivity gains.
• Energy and Oil: Expectation for Higher Oil Prices to persist beyond a quick reopening, with possible later rotation into energy equities if sustained; input cost pressures highlighted for consumer sectors.
• Private Credit Risks: Significant concerns about Private Credit and PE-linked products (gates, opacity, illiquidity) as a likely stress point in the next credit downturn.
• Gold Allocation: Moderate allocations to Gold supported by structural central bank buying; performance framed by real rates rather than headline inflation.
• Risk Management: Stagflation Risk if conflict prolongs; recession hedges include cash/T-bills/dollar/shorts, while market leadership remains tied to AI-related names.

Transcript

[music] And we should be live. Welcome to Zero Hedge Debates, folks. I'm Adam Taggart, founder and host of the financial podcast channel Thoughtful Money, and I'll be your moderator for the evening. Tonight's debate topic is the post-Iran war economy. Hopefully, a negotiated resolution to the Iran war um [clears throat] happens within the next few weeks or month. Um but if indeed so, well, folks, what comes next? What will happen to the price of oil and other key Gulf commodities like natural gas, fertilizer, and helium after the Strait of Hormuz reopens? Will they plunge, or will the damage done so far to world trade keep prices elevated for longer than many expect? What about the economy? Will it be able to shrug off the effects of the conflict, or is there a wave of demand destruction that can't be prevented at this point? Is a recession likely or not? To unpack for us, we've got the great good fortune to be joined by money manager Michael Pento [clears throat] of Pento Portfolio Strategies and researcher Adam Parker, CEO and founder of Trivariate Research LP. Gentlemen, thanks very much for joining us this evening. Yeah, thanks for having me. Great to be with you guys. All right. Well, look, I know Michael Pento very well from having him interviewed him on my channel over the past several years. Adam Parker, you and I are meeting for the first time here. Very excited to get to hear your insights here. As I told you before we got on here, it's a little weird for me because my middle name is Parker, but I'm going to get somehow going to get used to that. Um So, we're going to talk for the next hour or so. Um we'll hold to that loosely in case this conversation wants to go a little bit longer and you gentlemen can still stay around. If so, we'll try to take a few questions from the live audience, but I've got a bunch of ones already prepared for you here. And let's start with the top one here, which is assuming that the Strait of Hormuz opens tomorrow, how severe is the damage that's already been done? And when do you think it'll show up in the economy? Um Adam Parker, since you're the new guy here, let's start with you. Um well, I It's funny. I really don't think much about the economy. So, um me meaning like All right, I'll I'll go a little crazy and say I don't really think economists know what already happened, forget what's going to happen. So, I don't really rely on economists. When [clears throat] I worked at Morgan Stanley, there were 44 economists working there. I thought the correct number they should have was a lot closer to zero, maybe like four. So, and the reason I I'm doing that I say that is like I think 30 or 40 years ago was a very respected kind of Bachelor of Science degree, but now I think it's you know, I mean, I can use, you know, um any of the basic, um you know, kind of AI tools to get a summary on the economy in 1 second and get facts. And and then two, the correlation between the equity market and stock returns, I mean, the stock market predicts the economy, not the other way around. Um so, I don't I don't really think I think economists should be using um stock prices to predict things, not the other way around. And then lastly, like economics and stocks are completely, um economists want to raise their GDP, so they want higher capital spending and lots of hiring so they can raise their GDP, but [clears throat] I'm sure Mike will tell you if he owns a stock and they surprise him with tons of cap backs and tons of hiring, he's probably not super excited uh about the margin profile and the multiple. So, I don't really think about the economy. I'll take the tenor of your question of like, where are estimates more achievable and less achievable because of sustainably higher oil and when will that appear in the earnings and and revisions? And in that light, I'll say I'm most negative on on staples and discretionary uh consumer where I think and select industrials where I think there's just going to be rising input costs that aren't in the prices. And I think stocks go down when they miss what our biggest observation and then I'll pause is just the penalty for missing has been way, way harsher than the reward for beating. And so that's why I care. I care that the earnings could be too high for for companies that have high input costs, high exposure to input costs on on oil derivatives. Okay, Michael, I'm going to come to you in just a second. Just to stick with you for a second, Adam Parker. Um so if if market prices are all that matter, yeah, market doesn't seem too worried at this point, right? We're back at all-time highs, right? Um so do you think that that is as best you can tell the right pricing or are you concerned that the market isn't pricing in some of these shocks from the the oil price shock? You know, you could say it's complacent. I think I don't know a lot of institutional investors that are kind of proactively positioning or using a ton of derivatives around it. I think they're just saying, "Hey, last year I called 46 of the zero recessions related to tariffs. So I have some scar tissue from getting too economically negative. So hey, you know, this doesn't really affect the the Magnificent and and Broadcom, the Great Eight. It doesn't really matter that that much to semis. It shouldn't other than like transportation-wise affect healthcare or that many financials, utilities, materials. So they go down the market and think, "Okay, so maybe it hurts 10 15% of the companies, but I don't want to overreact and get too negative in the interim." And then so I think there could be complacency about it, but I also don't think it's going to necessarily hit a ton of earnings until the second half of the year. In meantime, big upper revisions in in in in tech and com services and and energy. So there's enough for the bulls to chew on about their earnings coming up, at least for now. Okay. And right before I go to Michael here, um that potential impact in the second half of the year, is that your expectation? Is that your default suspicion here or are you sort of like, "I'll just wait to see what happens"? Well, no, Uh we're we're recommending um you know, and obviously the devil's in the details on which specific stocks and industries, but we have sort of broad underweights in both consumer staples and consumer discretionary. One, I just checked all the earnings call transcripts over a thousand companies since March 1st on any commentary from the management teams related to Hormuz and oil. And staples and discretionary are a lot more negative than positive comments. So, I think it stands to reason that they'll probably have some you know higher up a cost. It's not just oil. I think the whole commodity complex is up. So, I do think that um that you want to be more cautious about estimating ability for a lot of the consumer companies. And then there will also be select industrials and and transportation and other stuff where they they don't they don't have hedges. So, it it will affect companies, but I'll say it's 15% of the companies, maybe not not 75% and maybe that's where the the devil's in the details. Okay. Um I think we might have a little bit of lively discussion here then because um I could be wrong, but Michael Pento, I'm pretty sure that maybe you have a different opinion at least in terms of the impact of of this on the general economy. Well, yeah, let's look at where we're starting from. First of all, the bottom four quintiles of consumers have been in a recession since COVID ended. Uh it's only really the top 20% that are keeping the economy going. And if you look at the stock market, it's really concentrated in tech companies, semiconductors that are doing the best. And like Adam said, just like the the uh consumer staples are are lagging pretty pretty sharply here. But even if the war were to end tomorrow, and I don't think it is because unless you get rid of the IRGC, um and manage to militarily control the Strait of Hormuz, we're going to have a lot of problems for a long time. But let's just say hypothetically hypothetically the strait opens up tomorrow. There's going to be a lot of hoarding of energy. And it's not just energy, it's it's fertilizer, it's it's sulfur, it's phosphorus, it's it it it pervades throughout the entire economy. So, I'm looking at inflation, which has been above the Fed's asinine target for 5 years, 2% inflation, which is 3.3% the last metric that we've seen, it's going to go north of 3.5% probably in April CPI. That's the way they hedonically and substitutionally count it. So, you're going to have a tremendous amount of pressure on the consumer. Uh now, does that engender a recession in the immediate future? I don't see any indication of that, surprisingly. Cuz that's how strong the top 20% of consumers are. They still have a a lagging wealth effect here, um and their incomes are rising in real terms. It's just the bottom 80% that has been crushed and is going to be crushed even further as this inflation bow wave pervades across the globe. All right, Michael, um couple questions. I How much weight do you give to the top 20% uh of of consumers, you know, of households that are doing really well, right? Um versus the CapEx in the AI space. Which do you think is propping the economy up more here? What's a bigger factor? They're They're both. I don't know if you have you have to weight one more than the other. Uh I think the the research I showed that like 40% of GDP is CapEx spending for um you know, the hyperscalers. Um so, yes, they both are working in tandem, but it's a it's a thin veil that masks really going on underneath the economy and with consumers and with the stock market. Okay. So, one of the questions I have here was sort of odds of recession. Michael, what I hear you saying is is I don't think we're going to see one in the near term. Um your your model, which I'm sure you'll tell us a bit about in in a moment, doesn't seem to be blinking that one's here. Adam, I get the sense from you, you don't really have any worries about a recession this year um provided things don't get worse in in Iran from here, of course. Remind me what recession is again. That's two consecutive quarters of negative GDP, is that what you mean by a recession? Sure, that's I think that's the standard definition of it, yeah. Yeah, I mean so the probability that that happens for the last two quarters this year given the stock market predicts by three to six months of GDP, I guess is pretty low. Yep. Credit spreads, financial conditions. 90-day credit card delinquencies, there's a lot of data points that don't show that's likely. That does not mean the stock market can't pull back 15% in that time frame. I'm not saying that. I mean this is a distribution of outcomes that include that, but in terms of like an economic recession, like I don't know, in sometime in the second half of 2027, I'm sure I'm sure some economist will tell us if there was a recession in the second half of '26. Can Can I just quickly interject something? And it's important cuz I I I feel I'm you know I'm pretty well off. I'm sure Adam's even more wealthy than I am, too. Both of you, maybe both of you as a matter of fact. But let's let's just be a little bit cognizant of what's going on with the the American consumer here. They are really seriously hurting. Let's not try to downplay that at all. No, there's not a typical NBER definition of a recession, but there is a very serious problem. Look at the University of Michigan Consumer Sentiment Surveys. You think You think they're the lowest in history because people are making stuff up? Yeah, I I totally agree with And I'm not going to I'm I'm not saying if I could just finish, Adam. I'm not saying that that that's indicative of a recession. I'm just saying let's not ignore the recession that is going on with the bottom four quintiles, and especially those bottom two. Uh they are really really hurting. And I just want to I just want to be empathetic to what's what they're experiencing. Yeah, I I um [snorts] because I just focus on the stocks, I didn't mean I didn't mean to you know not acknowledge your statement. It's just I think what that means for me is like we track businesses like who has pricing, who who doesn't cuz I think about growth versus a lot. And your point is like I would say quote unquote big companies like McDonald's talking about pricing, Pepsi with the Frito-Lay products they had to cut, uh Procter & Gamble's talked about it, Lulu, Chipotle. Like a lot of management teams are saying they're having trouble raising pricing, and those are kind of upper middle class consumers in some of those products. So, I I totally hear you on that. But, um so, if if the debate was about like the S&P level, I was just saying I don't think it matters. If if the debate's about as a If you're talking about as a human being, of course it does, but I was sort of responding more toward Adam's question about like the the whole stuff the S&P, you know, kind of level in the second half of the year. All right. And and if we have time, gentlemen, I I agree with you. I agree with you. Yeah, I agree if we have time, what I'd love to get into a little bit later is is what you think the societal impact of all that is, right? You know, Michael just said it's the bottom four quintiles, right? And I think that that maps, right? Top 20% doing great. These are the folks that own the financial assets that you're tracking, Adam Parker. Um but, you know, as the bottom 80% gets left further and further behind. W- Does that matter? Will that matter? If so, when will it matter? know the fact I don't know the facts on my fingertips, but I don't believe it's as bifurcated um uh down to the eight 80th percentile. I I I don't think it's quite that extreme. But, you know, but anyway, keep keep going. Okay. Well, I I I mean, I don't want to get into it right now unless Michael Pento you really want to and we can have you bring up your data there on the quintiles. But, but real quick, let me let me just sort of well, continue digging into Can I Can I just interject real quick? I I think it's like um I I forget right now. I didn't prepare the exact percentage, but I think it's 50 or 60% of Americans don't have $1,000 in the bank. It's It's for emergency situation. I mean, that's pretty dire. Right. And we're seeing, you know, debt defaults, uh debt delinquencies at least, and and defaults as well, I suppose, um beginning to rise um dramatically in those lower quintiles, but but even the even the prime borrower we're starting to see some of that as well. So, all right, we'll get into all that in just a moment here. Let me, um, let me get back to the Iran part just to to try to flush that out a little bit more. So, um, you know, I asked you guys, okay, so if everything ends tomorrow, right? What what impacts do you think might be rippling towards us in time, right? And and kind of what I'm hearing from you guys are you know, Michael, I'm hearing from you, well, there's definitely going to be an inflationary impulse um, that's going to hit a lot of uh, commodities, but maybe not as one, you know, strong enough to to send us into recession. Adam, I'm hearing from you, uh, markets don't really seem to care much at all right now. What would happen if this really turns into a quagmire, um, where we're we're stuck in Iran, the strait is closed for many more months, perhaps things get kinetic again, you know, maybe Iran starts uh, destroying additional infrastructure in the Gulf. Um, what does that do to your guys' outlook? Adam, let's start with you. Well, I mean, you know, it's hard to with that setup it's hard to say it would be great. I think you probably, you know, I mean, right? I mean, there's two things. There's the multiple and then there's the earnings. So, I I think on the margin that what you described is a stagflationary fear, which is typically bad for multiples, and you also described uh, probably some earnings issues for 15 or 20% of the company. So, I think that in that scenario you're talking about a pretty big growth scare that could move equities, you know, materially lower. Um, I I think the challenge is you know, if you look at and and again, like now I feel bad. Michael made me feel like I'm a bad human being cuz I don't talk about politics, but like I care about the stocks, okay? Like that's my job. As a human being I do cool stuff, but I don't talk about my political views or my human views on these kind of things. I talk about the stocks, right? That's what I do for a living. And like what the market's telling you is there's an asymmetric skew, right? Like if we get good Hormuz news, the oil prices go down way more than if we get bad news, they go up at this point. Right? So, when we get good Hormuz news, the stock market goes up way more than it goes down when we get bad news. Like, there's a currently an asymmetric skew, you can't deny that. So, the question is, will something change that? Right? I mean, I I think from the trading behavior, will something change that clear positive skew toward It's an insane sentence I'm about to utter, but the second derivative of Hormuz news. So, it has to get way worse for the skew. Could that change what you're describing? I'd say, yeah, it could. Um, but I think it would, quote unquote, take a real company to come in and tell you it's a problem. Obviously, if OdyFL says it's messed up, nobody cares. But, if Walmart comes in and misses big, then yeah, the stock market view will change. Okay. Let me just ask you this, gut feel. Um, let's say talks just break down tomorrow and epic fury two kicks off and, you know, US Israel start bombing Iran again, Iran starts shooting at other neighbors. What do you think the stock market will do in reaction to that? Obviously, that would be a negative, but how much of one do you think? Um, Nasdaq's down three, S&P's down one and a half, two. Okay. So, sort of like we've seen this movie before. Is that one Is that day one, Adam, or is that Yeah, I thought he meant T plus one, sorry. You meant like Yeah. Yeah, no, no, I I I meant T plus one. three week prolonged thing and then Yeah, I meant I meant the initial reaction, right? Maybe maybe one maybe one one and a half percent, something like that, yeah. Okay. Okay. It's been lasting yet recently, but we'll see, yeah. But, that was the beginning, that's what happened in the beginning on February 27th, right? All right. So, so, Michael, did this this prolonged situation question I just asked Adam, what what would your reaction be? Similar or do you think it would be more material? Prolonged uh, complication in the Middle East. Well, first of all, that would send CPI up even higher. Uh, and that would send interest rates up even higher. And, bear in mind, a lot of the a lot of this GDP growth is geared off of um, capital expenditures, which are more and more done with hundreds of billions of dollars in borrowing as opposed to cash flow. Mhm. So, interest rates are going to go much higher as they follow inflation higher. That put could could put the kibosh on all this borrowing. And I think that would send that that top 20% into the bunker because if interest rates spike and it's a reasonable rational conclusion if oil goes to 150 and stays there or thereabouts you'll see stocks drop and you'll see home prices drop. And that really torpedoes the 20% top 20% purchasing power. So, I think that would I think the odds of a recession go much higher if it's protracted and if oil stays above 100 120 for any kind of duration, you know, a couple of months. It would be a big problem for the stock market in my opinion. Okay. day the first day who knows. See, you know, what happens the first day, Adam? Adam's who knows. I mean, you can get a tweet from Trump telling you everybody that hey, things are going great now and we're we're about to sign a deal. And then next thing you know, you turn around and you go to the bathroom, you come back and bombs are are being lobbed at chips. It's the It's that It's that um It's that stochastic. There's a big difference between like what we're talking about as human beings and like you want to start shorting stocks because of it. You know, I just point that out. Like you want to walk in the office today and you want to start shorting Micron. You know, go ahead. Like you know what I'm saying? Like so, I think it depends on what we're talking about. If you're I agree Well, I think we said the same thing. I think Mike and I agree. Like if you get a real stagflationary environment, it's going to be bad for equities and bad for multiples. I think that's for sure. But I mean, what the market's telling you is like the world's awash in oil and natural gas and on the other side of this, whenever it is, 12 24 months from now, it'll probably start slowly coming down. I don't think the average consumer care gives a crap about the Fed. If I tell you know if the person you're talking about, the average American, what they care about is we went from 279 to 450 national gasoline average unleaded, and that's a bigger issue for them than it would the Fed cuts another 25 bips or not. So All right. So let me let me ask you this then. that a lot as a human being. Yeah. So So let me ask you this Adam. Now flipping back to the optimistic side again. So let's say this thing ends soon. Um what do you expect oil to do in response? A swift decline or is it going to take a while before we get oil back to any place that that's really making gas prices comfortable for the average American? I mean I here I would say I'm just quoting other people that I rely on who are expert, not my own independent opinion. So but I think the consensus view is it takes much longer to normalize than what's in the 12-month forward Brent, which I think is last I checked high 70s. Somebody can quote me on that. Yeah, check that out. But the 12-month forward number it is probably not not likely to be revised to be revised higher. So my understanding is even if we already really truly re- reach you know reach some agreement now, then it would take several months to get back toward where we were already, maybe a year. Okay. I think there's damage done already to consumer discretionary and staples earnings. The only question that's more of a debate is like will the multiple expand just because people say yeah, but I know eventually it'll be better, right? The market's more anticipatory than the fundamentals. Okay. And so obviously that's got to be a factor why you're not super bullish on discretionary consumer right now or staples cuz that's going to be Yeah, the earnings big estimate achievability is below average and I think that's all that matters is you want to buy stocks where the estimates are too low and sell the ones where the estimates are too high. Okay. So then let me thing. Let me ask you about the oil and gas sector then. So if you think that prices are going to remain elevated for a good while, maybe more than the conventional Wall Street forecast is right now. Um, does that make you bullish on that sector? We were We were overweight both energy and materials till like 3 weeks ago, and then I downgraded them to neutral under a thesis that I didn't like how they were acting, the opposite of what we were just saying, right? Where we got, you know, good good news as human beings that they might be who might be done with this thing, and oil would go down way more than when we got bad news, it went up. So, I think everyone knows the estimates are a pretty cheap oil. The upper revisions have been pretty strong this year. That's I said I I think there's like a 0.8 correlation between the change in the oil price and the change in the net income of the energy sector. So, like people know the estimates are coming up, but I think the challenge is just do you just get multiple contraction that offsets it? So, I I I mean, look, also a lot of my clients institutional side, um, are trying to beat the S&P 500 long only, and, you know, energy, I don't have the exact number, I'll say 4 and 1/2% of the S&P. So, like can you own 5 or 6% and be kind of close to market weight? Yeah, that's what a lot of guys are doing cuz they're just worried about getting much more overweight in case we get, you know, a market reaction that's sharper than the fundamentals. You know, I'm going to lean over and call it the sun's drawing. Sure. Sure. As you do that, Michael, I'll give you a chance to add on to anything that Adam just said there. Let me also ask you this question though just to include in your response. Um, the statistic I've heard thrown out there is that 20% of the world's oil and gas transited through the Persian Gulf before it was closed. Do you think that when the if the war ends and the Gulf reopens, will we go back to that same level, or do you think that the percentage of of world energy that's going to be, you know, purchased through the Gulf is going to be permanently lower going forward because countries are changing their behavior and saying, "Look, I underestimated the political risk of the Gulf. I was happy to buy it when it was cheap and everything was fine, but now I got to I got to take political risk into account and I'm going to shift I'm still buy from there, but I'm going to shift more of my buying to quote unquote more politically stable sources. yeah, I the latter there. I mean I think because of hoarding and just insurance costs that have to be passed on to the consumers for these ships passing through the straight. Oil's going to be higher than $65 a barrel for a very long time. But I think we're I think we're getting too overly myopically focused on the Strait of Hormuz and what's going on. Um and right I understand why we're asking. This is, you know, the salient thing in minds of most investors right now, I think. Um but we have so many other things that we have to talk about. And and one of the things I want to I want to get make sure I get to is um I I love Adam's response to it. Is um does he see any changes in the the the flows of capital going into the stock market as it going out in the you know, the 2020s later 2020s and going forward as opposed to what happened from the 60s to say 2000. Cuz I see some I see some transient dramatic changes in the flows. I would love to hear what he what he has to say about that. More must more important much more long-lasting. Yeah. And impactful than the what's going on in the Middle East right now. Yeah. I love that topic. Um [laughter] Hey Adam, when I when I when I jump in just here for a quick second as someone who's interviewed Michael a lot. Um Michael has a framework for how he looks at the future. Michael, if I'm quoting you correctly, um it's a triumvirate of bubbles that you are concerned about here that I think play into the topic you're raising here. Bubble in the stock market, bubble in the credit markets, bubble in real estate. Um am I capturing that correctly and if so, to give Adam a fair chance to really respond to what you're talking about, maybe you might want to walk through some of the the slides that you prepared so he has a good grounding in what you're talking about. Um and I'm going to get to that. I just want to just give me a few seconds here. I won't take much If you if you want to set it up, feel free. I can tap dance or you can talk to Adam, uh whichever you prefer. You just smile and just let all the ladies look at you and that that's it. [laughter] Michael's a silver tongue charmer, Adam Parker, if you haven't learned that already. So I I look at I look at debt levels. We are we are becoming a debt um disabled country. And debt disabled countries tend to grow more slowly. I look at demographics. So for example, we had 2% population growth ex-World War II and now we're down to 0.5%. Um we had a very big increase in the labor force participation rate from the 1960s, '70s, '80s, '90s, 2000 when women were entering the workforce. Now that that is aging out. So we're seeing the labor force participation rate go from 60 to 66. Now it's down to 62. So that's that's that's a a headwind. And then we have I think we have decades, years if not decades, of rising interest rates and rising inflation. Um and and and even more, may not even more important, but as important, uh we have a new Fed chair coming in who was going to replace the biggest money printer in US history, Jerome Powell. And this individual wants to shrink the Fed's balance sheet. If you shrink the Fed's balance sheet, it's going to be ac- diametrically opposed to what's been happening since 2007, 2008. So you have a shrinking Fed's balance sheet, you have debt, you've got demographics, and you got rising interest rates. Uh there could be huge problems that sit on top of the triumvirate of bubbles that that I'm that I'm going to show you. If you if And Adam, and I apologize, Mr. Parker. I'm going to try to go through these as fast as possible. It's not a big It's not a big Oh, thank you. This is awesome. Here's the Fed's balance sheet. You can see from 2007 it was about $800 billion. It peaked at $9 trillion. Can you imagine in the United States of America? You Adam I mentioned something about people don't care about the Fed and and I agree with him. But my God, if they knew that they expanded base money supply from below a trillion to $9 trillion. That's That's to me is a completely pathetic and few few people are cognizant of this, but look at this QE that's been going on You see this since since the end of 2000 and 25. The Fed printed $170 billion because because of of the war I believe or just to go out with a bang. I don't know what Mr. Powell was thinking, but I think this is absolutely disgraceful that the Federal Reserve would be printing all this base money supply, high-powered money as it's called. Um and of course this is uh and and and think of a Look at this neg- This is the real Fed funds rate since the year 2000. Every time since we're such a a financialized economy with so with so much debt, every time the Fed tried to raise interest rates, we've had a recession. So here's a 2 and 1/2% real Fed funds rate, boom, right back to where it was, negative. And it's riding along here for like 14 years. Look at this post-COVID, minus 8% real Fed funds rate. That's pitiful. Never before happened in history. And here we are back up here trying to pretend like we're a real economy again and a strong currency for our middle class and our consumers and we're right back down to 0.5%. So we're having zero to negative real funds rate which engenders all these bubbles. Look at the reserves for banks. You you wonder why Oh, well look we we have such a great banking you know, what strong financials we have. Look at this money that they've created. These are reserves in for financial institutions. Look at the boom in Look at the boom in M2 money supply. I would love for people to hear about this. Um let's just talk about the debt bubble. Leveraged loan market was 800 billion in 2007, now it's over 2 trillion. Private credit market has grown from 100 billion in 2007 to 3.5 trillion globally. And it's on pace for 5 trillion in 2029. Here's some debt metrics that I think people should understand. Total business debt is 70% of GDP, same as it was in the 2007 global financial crisis. In 2007 we had just 10.4 trillion, today it's 22 trillion. Add to that the national debt, which was at 30% of GDP in 1980, it's 123% today. Now if you want to look at total US non-financial debt, total debt, public, private, everything, has soared to 77.9 trillion or 256% of GDP. It was 19.3 trillion or 189% of GDP in the Nasdaq bubble of 2000 and 33.7 and 234% of GDP at the start of the global financial crisis. Stock ownership, let's talk about the stock bubble for a moment here if you don't if you don't mind. Stock ownership is at a record high. That's the percent of household assets that are invested chasing this bubble higher. This is the margin debt relative to GDP, also off the charts. This is um 5 Wilshire 5000 GD to GDP, okay? This is the ratio. Look at where we are. Even it it dwarfs where we were in in the in any other period of history. Total value of public and private companies to GDP. This is all thanks to the money printers that sits at the Eccles building. Who's Thank God he's on his way out. They're very concentrated stock market as well. Uh I'm almost done, Adam. Here's some valuation metrics that everybody should understand. Total market cap to GDP I just showed 227% highest on record. The average is 90%. So the So the value of all companies relative to GDP should be around 90%. It's 227%. Price to sales is 3.5. It's the highest in history versus the historical mean of 1.8. The Shiller uh uh Cape ratio cyclically adjust cyclically adjusted PE ratio 41 second highest in history just below 42, which was in March of 2000. We all know what happened then. We have the lowest dividend yield in the past 50 years. And one more data point equity risk equity risk premium is negative. So the earnings yield is 3.2% T-bills are 3.6% meaning equity risk premium is near the lowest negative and near the lowest in history. Um uh I lied. One final chart here. Here's the Here's the bubble in in in real estate. Look at the home price to income ratio courtesy of courtesy of long-term trends.net. Higher than the housing bubble and you know what? The real estate is also not it's not not just the home price to income ratio. When you add in taxes and and insurance and HOA fees, believe me I know living in in Naples what what those are like. It's the It's the most unaffordable housing market in history. So these are the These are the triumvirate of bubbles. I I didn't make it up. I don't want it to be true. Those are all facts. They're irrefutable facts. And we have the most expensive stock market and real estate market in history and we have a gigantic gigantic gigantic debt bubble. And they have to recon- be reconciled. And they usually reconcile with both the numerator and denominator falling. So that's my uh that's my two cents. Sorry for the if I went on too long, guys. So Adam, I'm going to let you respond to that. I I have I'm quite familiar with this this framework and argument cuz I've interviewed Michael quite frequently. But very curious and you're a stock guy. So I'm suspecting some of your answer might be I'll care about it when the market starts caring about it. But I think Michael raises a lot of really good sort of just secular points. Yeah, there's some there's What's your reaction to them? Um Well, no, I appreciate the perspective. I mean you know trying to keep the human element in mind since he he started off that way. Um what I would say is I go on TV a lot. Right? And if somebody says to me, "Are you at all worried about US government debt?" I feel like a jerk if I say no. I I think the better question though is should I position an equity portfolio today for the inevitability that's going to matter in the next 6 to 9 months. So nothing you said actually affects that that second question because you could have said every one of those things that are all really big issues every year for the last 15 years. That's my initial reaction. I'm going to talk a little bit more because I'm not Again, I don't I think what you're right. I think you gave factual things. Most of the facts you gave about the equity market are correlated to each other. So in some ways you just gave one fact with seven different data points that are the same fact, but I'll get to that and that's not an insult. It's still a problem and I'm not refuting that. Um My my my real answer is I think a lot of the concerns you have like equity risk premium um have zero predictive value for the equity market in time frames less than 3 years, have some modest in 3 to 5, and have some success but not a ton in years 5 through 10. I sat next to a guy named Marty Leibowitz when I was at Morgan Stanley. Marty is the most published person in the history of financial journals. Basically invented bond yield math when he was Bloomberg's boss at Salomon in the '60s. He's still a wonderful human being. And he wrote a book on this topic that I was lucky enough to collaborate with him on an update. And we kind of showed that equity's premium does not have predicted value in time for it. So, I think the problem is every equity investor um might be worried about these issues, but they just don't think they need to position for them now. And so, the number one signal that tells them they need to is going to be negative momentum, which I know it seems tautological, but that's just the fact. So, I I don't dismiss anything Michael said. Um the only in terms of the facts, I the only thing that I think we could debate further would be your comment about expensive equity market. And the reason I would push on that is I I know Cape and Shiller PE and grant them don't have any predictive value, and I would have probably ruined my career if I listened to any of them in the last 10 years. Um because all they're really saying is the same thing, which is that gross margins are going to get killed for the average US equity or for the sort of bowl of of of um you know, gross profit dollars. And the reason market looks expensive in EV to sales is because the market has the most market cap ever had with above 60% gross margin ever. So, you just have a different constitution you had in the '70s or '80s when eight of the 10 biggest 10 equities were were energy or more capital intensive. So, I think there's some rationale wise to trade at higher multiples in the future than the past. But again, that doesn't refute anything that you said uh at all. I think the only pushback or only thing I struggle with is how to time when to get bearish based on things that have been sort of obvious an obvious problem for a long time. The one last comment I'll make is uh I 100% agree with you on the balance sheet of the Fed. Not from your criticism of the Fed cuz I don't feel like I'm I'm qualified, but more that I study the week-over-week change in the Fed balance sheet, which comes out every Wednesday, versus the week-over-week change in the equity market, and that's highly statistically significantly correlated. So, when they've expanded the balance sheet, for sure it's made the equity market go up. That I I I'm 100% on board with. Adam Taggart, can I introduce Sorry, two loud reactions, Paul. No, no, that was perfect. I really You might be surprised to hear my answer Adam Taggart and Adam Parker. So, I actually agree with everything he just said. What I just mentioned there, that presentation has zero to do with timing. I have a No, I agree. I have a I have an inflation deflation economic cycle model that looks at the second derivative of inflation and growth to tell me when to get nervous. That presentation has everything to everything to do with to tell me when we have a recession or or when we have and not I didn't use the word if. When we have a recession and when we have a credit crisis, how far can asset prices crash? That is the that is the total purpose of creating that's that's that the PowerPoint today, not timing. And I might be surprised to know it, Mr. Mr. Parker, that I am not short the market at all. I'm actually net long. Yeah. I do have a lot of I have a feeling you were going to say that. I have a lot of T-bills in the I have I admittedly have a lot of T-bills um in the portfolio because of the the the the uh Michael, you know why I get pissy about economics economists? Is because when I worked at Morgan Stanley, they called for interest rates to rise every single year I worked there and every single year they went down. And so, I have like serious PTSD on that topic. They always lead with this view that tons of supply is coming online and it won't be met by demand and so, bond yields are backing up. And then what happened is when people got afraid, they bought the 10-year yield and it went lower anyway. So, if I impregnate their back up in yields into my equity view, I make the bad call. So, it's it's a little bit of that that was behind my initial, you know, diatribe. But I agree with you. Like, look, two our math is about 65% of the S&P 500 is an AI semiconductor ETF. So, when I do my meetings, I did a couple meetings today in person, all I'm trying to figure out is, you know, what what who's over-earning the most to the least in the AI exposed part and then what's actually fundamentally doing well that isn't correlated to that cuz we we do a lot of risk management work. We have a ton of clients that send institutional clients that send us their books to do custom risk work. And we're just trying to help them figure out how to diversify. I think if we all know when the data center over bought becomes obvious, we want to be out of equities 9 months before that and that'll probably supersede everything you said or exacerbate everything you you said. So Michael, just for the record, I wasn't surprised at all that you had a lot of commonality there. I'm very familiar with your the second derivative primacy of your your model there. All right gentlemen, I I want to get to um where you see opportunity in this market. Just a second. Real quick, let me just toss in here. Um how much are you worried if at all about the headlines that we've been seeing in private equity and how much does that factor if at all in terms of your current market outlook? Adam, why don't we start with you? I let Michael go first. Can we let him go first? I feel like I you know, like I I want him to get lathered up. [laughter] I think that's the nucleus of the the credit market. private equity, not credit, correct? Did I say equity? I meant private credit. I don't I don't I personally, and this is just my opinion, the major funder of PC the PC market is private equity. 80% or so. So I don't disaggregate the two. Um so that's the nucleus of the bubble. It's that's where the riskiest loans are. They're illiquid, highly leveraged. So I I I I see that spike in default and delinquencies. I see the gates going up. Um it's just a a prelude to what's going to happen to the the overall credit market. And I think a perfect catalyst, like Mr. Parker and I were talking about, um neither one of us are short the market. That's not how we invest. Just cuz the stock market's expensive, that's a terrible timing tool. You'll be looking for a new career if that's what you're going to do. But if you're monitoring, my model looks, you know, assiduously at credit markets and financial conditions and that tells me when I should when I need to, you know, reduce longs and start to increase shorts. And and I'm myopically focused on the on the PC and PE markets cuz that's where I think the trouble lies. That's that's that's in the vanguard of the breakup of the credit bubble. Yeah, I mean, one of the things I feel like I've learned through the years is um that any product you're not willing to invest in yourself, you probably shouldn't like love that much the companies that do it. Like a couple years ago my financial advisor presented me with a private credit opportunity. I think it was like a 13% uh um unlevered uh interest rate. And so he knows me pretty well, so he knows there's going to be some incoming feedback to the product suggestion. And I was like, who the heck is lending to me at these rates? Like how many nail salons in Naples, Florida or or just saying that cuz he lives, you know, like how could that be like that I would get 13%, right? So there's no question that when I meet the CIOs of these big wealth networks, their their clients seem to want more privates. They they want more alts, right? But in the products themselves a lot more bad products. They're they're and I agree with you. When I when I saw, I would say not just, you know, some of the stuff last fall and and not one or two alts funds, but I saw Blackstone, BlackRock, and Morgan Stanley put gates on. Like these are the most real companies. This isn't so I agree it's a problem and I I personally would not put any of my individual dollars in any of these things. But I view that I kind of think that about private equity, too. I think they're both really not user-friendly products and I would recommend anyone who's trying to allocate themselves to have a very small amount in those those sort of things. Let me ask you this question that I've asked Michael in previous discussions, Adam. Um Personally, I have a hard time looking at this move to give the retail investor access to private equity. Um it's hard for me to look at that as anything other than the private equity investors saying, "Okay, how can we dump our worst performing, you know, dog investments on an unsuspecting public?" Um it just seems like it provides them with some some exit liquidity for their least favored assets. Do you look at that similarly or do you have a different opinion? That's probably more negative than I would look at it. I think it's just more that they can't fund new investments cuz they're tied up in some poor previous performers. So, they need to access more kind of initial investments um to to fund future growth. Um and um I mean, I dig your cynicism. Don't get me wrong. I think you're starting to rub but just if that were the case, wouldn't just human nature be sort of if we want to raise some some uh some new capital and need to sell off some of our assets, well, let's sell off the ones we don't want the most. If they can. I mean, if the challenge is like a lot of them they can't. So, it's not even like they're you know, they're underwater and they they don't want to market or whatever the issue. They're hoping for things to recover. Like it's not all just they don't even know how bad some of them are yet. So, there's there's some kernels to what you're saying that I agree with. But like I I I'm not even that negative on I don't think people are trying to mislead as much. It's just they want more inflows. Like here's why the product's terrible. Okay? I mean, the average product, okay? One, they charge you fees when they don't even call the capital. Okay? Imagine that I I tell you I'm going to give you a a dollar and you don't even call 85 cents of it for the next 5 years, but I pay you two and 20 the entire time on the dollar. Yeah. So, that's one problem I have. Two, I have no idea he it's a very non-user-friendly product. I can't figure out my 17 passwords. Then, you call capital, then you return capital, you know, you haven't called it all, and at the end you make up these metrics that no one I I don't want to sound like I'm an accounting expert or whatever, but I think in like a court of law I would probably be considered an expert. Okay? I mean, I'm pretty confident I would be. Mhm. And and like I don't even know what the hell they're to my guy's is talking about. He's using Moak. I don't even know what the numerator or the denominator is. Okay, all I know is that what's in my checking account at the end is completely unrelated to what was there in the beginning relative to what he told me my IRR was. Mhm. So, I think it's a product uh for most people and I wouldn't recommend your average individual you know, retail investor start piling in cuz they they know somebody worked at KKR and got rich there. Okay. think that whatever their math is they got to be careful. And I'm not saying KKR won't be a good stock from here maybe in a two or three year review or woo. I'm not making that individual stock comment. I'm just saying people got to remember because there was massive wealth made in the '80s and '90s because of a one-way interest rate environment and uh some other you know, uh you know, kind of tax advantage situations and other stuff. But that is not what the individual person's going to experience from here in mass market. Okay. Um I don't want to spend a ton more time on this topic, but Michael anything to add Michael Michael just if Michael loves it now I feel bad. No, I I know that Michael doesn't love this. So, No way he loves it based on his comment. I I don't I'm not a big fan of Wall Street to begin with. But I mean here's Wall Street. One thing Wall Street did that was very good in my opinion is they managed to make um investments very liquid and and transparent. So, it's but leave it to Wall Street to say I I can reverse engineer this whole thing. I can make a a loan to a highly leveraged corporation. It's a liquid, it's opaque and we'll market to model. Oh yeah, give me some of that. And I'll charge you fees on it the whole time. charge you fees on it. Yeah. So, And I won't pay taxes on the carry. And I can and I can put up gates and walls and tell you you can't have your money. I'm pretty conservative on a lot of financial topics, but the it's hard for you to explain to me like if if you're a regular double W-2 employee for a lot of your life like you worked at Morgan Stanley, explain to me the math on the carry. Explain to me why that's cool. Mhm. All right, keep going. Now we get Now we're human Michael. Oh, you like the I got pretty human there. Adam [laughter] Mike Mike I I have I just have to apologize to him. I you were very human. My My point is I just want to make sure that people understand that the diff the differences between the economy in aggregate and consumers in aggregate and then Totally why I said the economy and the stock market are unrelated cuz like the economy affects you every day person but the stock market has nothing to do with that. That's kind of I totally I said it differently but I agree. Yeah. Well with that point Adam and I appreciate you keep bringing it back to the human element. I actually want to try to bring out the Vulcan in you. The guy that says, "All right, forget about all that. I just want to make money." Um so as you look ahead to the rest of 2026, where do you see the biggest opportunity right now for investors? You know, it's funny. I find myself more in like blow up avoidance mode um than bullish on some things. I guess I'll tell you what my calls have been and we can criticize them. But one has been and I I'm a former fundamental semiconductor analyst, okay? So we've had this view that our North Star, we wrote it over two years ago plus, is to own semis over software. Lately after the huge rally in semis, I find myself more negative on software than so to saying buy a bunch of Micron today. Um but I think it's one of those challenges of like you put a gun to my head and Sorry, you said software. Did you mean you're you're now more negative on semis than you were? No, I'm more negative on software than You're even more negative positive on semis on Yeah, it's a it's sort of you know, and and and I can walk through the details of that if you're interested, but the call we've had that's been the most wrong How about that? Is I like health care. It's not because it's cheap. It's because I think the whole point of all of this is that people live longer and they're more productive while they're alive and there's so many businesses there that have lots of employees, lots of revenue, low margin and if they get better at predicting their employee and customer behavior, are going to have margin expansion. So I like these things like Quest and LabCorp McKesson, and Cardinal and Centene Corp and I like some of the managed care and hospital businesses, and I like tools and diagnostics. We have a lot of old people that demand these things. And so, revenue per share for the S&P 500 healthcare has grown every year, 30 years in a row, including financial crisis, COVID, whatever. They have a lot of, I think, AI productivity beneficiary potential. Right now, only 16% of S&P 500 comes even saying they're doing cost-related AI stuff. So, it's all on the come. The sector has really low correlation to AI semis. There's tons of deals. Like, I like it, but the aggregate Some of those stocks have been decent, some haven't, but like the aggregate call looks like it's it's bad. And so, um you know, I'm worried I'm tethered to the thesis, but I'm very bullish on I guess I'll stop by saying the market's telling me there's 0% chance healthcare is the best-performing sector in the next 5 years, and I think it's 30 or 40%, and so I'm just trying to I'm interested in that differential. Okay. It's one of the It's one of the In Adam's, um just to just underwrite what he said, it's one of the few areas that are making, you know, producing a lot of jobs. Regularly. Um yeah, and at least until the robots come along, um that probably still will continue to be the case. All right, so Adam, I heard you say you were sort of talking about your past calls, but if I got you right, you said I I like semis over software. I think I I don't know if I heard you say you like semis even more, but I heard you you like software even less. Yeah, I I still like semis over software. I just feel like sometimes you feel like there's things you're saying where you're seeing the ball clearly, and sometimes you're not. And I feel like our I I don't want to be one of those guys. There's nothing grosser than someone who victory laps when they weren't even right in the first place. So, I wanted to acknowledge the healthcare call has been a bad call. I just have I really like the thesis, okay? And I'm trying to figure out if anything change my mind, and I don't want to be intellectually dishonest and all that. But, the call we've had, I think, a good call on is to be negative on software. And the reason I think I'm seeing the ball clearly there is whenever you see multiple contraction like you've seen there where the stocks are bad, I think what happens is pretty clear. One is the first phase is multiple contraction, the second is they start missing on earnings. And that really resonates with me because there's two ways they're going to miss on earnings. One of the challenges with all the big software companies and I'm talking the loved ones into it now, Salesforce, whatever, Adobe, Workday, whatever is the sell-side analysts don't have the gross margins or the net margins going lower ever in their models for the next five years. They assume 80% gross for every company. So, I think the problem is they're going to have to spend money both OpEx and CapEx to attach all the AI tools that are going to enable them to keep customers. So, I think the average company is going to miss on that cuz they're going to have more cost. Moreover, the CTOs, the chief technology officers of the big financial institutions and others are going to be able to push back on pricing. And so, they're going to miss in quarters 1 through 6 or 7 or 8 on earnings. Then the second phase is 3 4 5 years from now they're going to miss on sales. And so, what the market's telling you on average is correct that the distribution of outcomes for the average software company in 2030 is skewed to the negative. And I think that means the median software company will underperform by another 30 to 50% over the next few years. There could be individual names that are great, but the ones that are going to be good are not cheap ones and are not slow growing ones. The ones that are going to be good are expensive ones cuz the market average is already right that it's sussed out you know, security and other stuff that probably are are never going to get stripped out. If Michael If I If I worked at Morgan Stanley and I said, "Hey, I cloud quoted some awesome security." And then Ted Pick listened to me, we'd both be fired if there was a security breach for being idiots. So, you might just pay Palo Alto forever or CrowdStrike whatever just because you want to just say you have the best even if you think you have Right. You've got the best brand. So, there will be some that work and I'm not saying all of them are terrible. But, I think the median one's in trouble and I think the market's telling you that pretty clearly. Okay. And is is that pessimism about the sector in general largely due to the AI threat? Yeah, I think it's what I've described. I think it's just, you know, you're going to have to spend money to to attach. It's less pricing and and and the amount like one of the guys who works for me coded 30,000 lines using two agents in the last two days. It would have taken him six months and it took him two days. So, like just the ability to produce things that are value add are going up. And so, the grip that these companies are going to have is going to is going to slow over the next few years. I think the problem is the way the analysts do work and I'm sure Michael agrees with this. What do they do? You're sell-side analyst. You call the CTO of a few companies. Your channel checks and you say, "Hey, are you going to get rid of ServiceNow?" And they say, "Hell no, we could never get rid of them." Then you call the IR guy and you guys crying you crying in your beer together and you say it's an overreaction by idiot retail investors or whatever you want to blame it on. The reality is they're going to miss earnings in 2030 by a lot and you have you don't know that. Okay. Two quick questions and more quick questions for you than Michael. I'm coming to you. And Michael specifically I'm going to come to you and ask you uh if you wouldn't mind sharing how your portfolio is currently allocated given what uh phase the market thinks we're in right now. But real quick Adam, staying with you. So, okay. Sounds like you're saying, "Look, I still like semis. I like software even less than I used to. Damn it, I think there's still opportunity in healthcare and I don't care what you say. I'm going to, you know, still be long there." Um any other places right now where you're just saying, "Okay, this is what's going to be a hot part of the market for the rest of the year?" I mean, our official overweights are healthcare and tech and our official underweights are consumer consumer discretionary and consumer staples. Um you know, obviously in in individual sector there's always tons of, you know, sub plots that are interesting. But the main challenge is that when you manage a fund, say long only versus the S&P, that sector-based management doesn't make any sense. Cuz the way a lot of money is run is, you know, there's an analyst in every sector. So, the industrial guy says, "Oh, well, what's going fast? I'd like construction around the data center. So, I'll I'll own CAT and I like Eaton for for electrification. And then utility guy says, "Well, I like GE Vernova and Vistra and uh I like Constellation." Cuz and then the financial guy says, "Well, I want to own some stuff that's funding the data center." And the semis guy wants Nvidia or whatever. And it turns out that all those stocks are 0.85 correlated to each other. So, there's like a thematic bet that makes um is so dramatic. So, I think you've got to find stuff where the fundamentals are decent and it's not exactly correlated to that same trade. And so, there's some individual names we we provide for our clients all these screens of like 0.2 or lower correlation to the AI semis basket up 10% or more in the last 6 months. There's some energy, there's some defense, there's some you know, health care and select health care and other stuff. But it's it's got to be it's just a main challenge is risk managing around the AI trade. Got it. Okay. And I'm just going to ask you this question because it got asked by users and I just promised them I'd ask it. Um best gut feel at the end of the year, um do you think the stock market is materially higher, kind of around where it is right now, or materially lower? Is that that's me or Michael or Michael? That's you. That's you. Adam Parker. Yeah, I mean [laughter] Just given what you know right now. I don't really think that I I know I don't have any skill in forecasting the S&P in like a really short horizon. And I also know that nobody else does. Uh and I can explain to you the research on that that we've done is extremely comprehensive. Uh but and I think it's a terrible idea to try to make one month one month market calls. And uh short-term market calls and I can prove that. I think it will destroy value over most people's lives. And I'm happy to talk about that more. Um but because I have a PhD in statistics and I look at data, I'll just take higher. Because you know, about 65 or 70% of 6 months periods the market goes up. And so, I'll just always say higher every time I'm asked that for the rest of my life and I'll probably be more right than wrong. But but like that's not it. Answer based on statistics, not necessarily anything that's going on right now. I'll give you I'll try. I'll try. But I I should start I should have started by saying everything I'm saying could be wrong. I I know enough to know that. Okay? But I'll answer the 10 of your question. The bottom-up sell-side estimates are for little more than 20% earnings this year and 15 next year. Even if they're way too high, the market the growth itself, even if it's fueled by Micron and Nvidia and a concentrated set of names, might be strong enough that even with multiple contraction, the market could be up another 5, 10, 15%. And timing that is going to be super challenging. So I think it's I I think it's biased toward higher, uh but that's um but that and you know, what do they say? 250 gets you a ride downtown. Sure. Sure. Is it fair to say that um unless we start seeing some weakness in those few power horses that are pulling everything along, it's going to be hard for the market to underperform? I mean, I I don't see how the S&P's awesome and Nvidia's terrible. I don't I don't see how that's possible. Mhm. You know, you know, one of the one of the if I if I did a TV show with you guys every night where we watched uh financial news all day and then said here's the 10 biggest pieces of BS you heard like we myth busted all day, one of the things that I would probably point to is is is breadth having any predictive value at the market level. And I would just say look at the last three years. Like the market was awesome in '23, '24, '25. If you owned a low-fee index fund, you got a lot wealthier doing that. And um there wasn't a ton of breadth. You know, the two periods where there the market sold off, Q1 of '25 on terror fears and the first two or three months of this year, um the the great eight, if you keep keep rocking there, underperformed. So the market was bad when when there was breadth and it was awesome when there wasn't. So even like the recent data points contradict that. Another thing I'd say is breath is a weird word like um all all that you mean is the market's really concentrated. Like like Michael said, 37 or 38% of the S&P is eight stocks, Broadcom plus the Magnificent Seven. So, it's extremely concentrated. So, but I I I didn't check today, so this is roughly Guess um the best performing stock of the Great Eight this year. Um guess how many S&P 500 stocks are better than that. I'll tell you when I check, this could be plus or minus. The 89th best performing stock in the S&P this year is the best performing of the Great Eight. So, everyone wants to say it's concentrated, and I'm like screw you, there's 88 stocks that have been better than any of these things. All you're saying is that there's eight massive companies. That's true, but there's still 88 stocks that were better than the single best one of those. I think it's Google when I checked or whatever. So, like the point is it's a good stock selection environment, and that's a lot of what I do for a living is like can can I focus people on where they can generate alpha, where it's company specific, where it's chi, like all the quant stuff that we do. So, it's Some of this stuff I'm like I feel a lot more confident adding value there than I'm making a six-month market call. Okay, great, and totally understood. All right, um so Michael, we're going to come to you for this answer, and then after yours, I'm going to take, if I can, one or two questions in the audience, then we'll wrap things up and get out of here. Um Michael, as I as I know you, um correct me if this is wrong, but um the way in which you allocate client capital doesn't have a lot to do when you're actually making the trade calls um with what Michael Pento himself feels emotionally when he wakes up in the morning. Thank god for that. based upon what your model is telling you to do. So, what is your model telling you right now? So, um I'm I'm positioned for a mild stagflation right now, even though viscerally I'm just scared out of my mind. As a matter of fact, just to touch on what Adam was talking about, um maybe I'm just wired to be a a Cassandra. I don't I don't know, but what's happening today in the investment in AI reminds me a lot of this of 1929 and in the 2000 internet bubble. Not not that they not that in 1929, you know, the radio and autos and How old are you? Let's do [laughter] I look good for a 100, right? 140, you look awesome. So, um So, I mean, there's there's a lot of uh productivity associated with the internet, with the radio, with TV, with the electric uh appliances, with the with the AI, but there's also a Wall Street tends to bastardize these things and overinvestment and and over leverage. And that's what I'm that's what I'm afraid of. It's one of the things I'm worried about longer term. But having said that, and and as I said, I look at the second derivative of inflation, which is accelerating, and growth, which is sort of flatlining here. Um I'm not short at all. I have uh aerospace and defense. I'm long energy, that's fossil fuels, also uranium, uh clean energy, agriculture, precious metals, um emerging markets have a little bit about, you know, about 3% and a lot of T-bills. That's how I'm in no shorts at all in the portfolio. If I had any shorts right now, it would be short the long long bond. Uh I think we have a lot of bad inflation prints coming up and uh and they could and that could be uh extended, protracted, and intensifying unless this war gets um gets satisfied pretty quickly. That's how I'm positioned right now. All right. Uh Adam, any reaction to that before we move on? I mean, I you know, obviously it's all these things are very specific to whoever's money you're managing, right? And if somebody's, you know, if if your client is Mr. and Mrs. Rich Bags and they own 400 million bucks of Microsoft and they're spewing off a tiny bit for tax reasons every year and and diversifying away from it, it's a totally different problem than if somebody's got a few million bucks and they're trying to like make a Like it's very specific question, but I I think a chunk of assets that I would recommend is an extremely low fee long only S&P 500 product, which I think likely performs high singles till, you know, 10% per year over a a 10 or 15 an S&P allocation, but like I don't, you know, but I don't um I don't think I have a lot of skill at making short-term market calls. So, if somebody gave me a ton of money today, I would dollar cost average it into the equity business over the next 3 months, 1/3 1/3 1/3. I've done a lot of research on that and that's the best risk-adjusted way to put the new business to work. So, it depends exactly on the question you're asking, you know what I mean? Yeah. Yeah, and 90% of 90% of money managers don't beat the S&P 500. I mean, that's that but but do you benchmark to the S&P 500? I mean, who who would put 100% of their money at 70 years old into stocks? That's That's just That's just imprudent. Totally. So, the question is the where where I a long short strategist like myself is hey, we've had many many corrections, 30, 50, 80%. You have to identify those, protect and profit from those, as well as ride these bubbles higher. If you can do both, then you can get generate alpha. It It just And again, like I totally agree with everything he said. It I think it just also depends on how rich you are. Right? And what your other assets are. Like, you know, I know people who are like, you know, incredibly wealthy and so they might say, "Yeah, I, you know, I really care about like capital preservation and like and and I want to live off the interest." Like, it there's a whole range, you know? So, I I totally agree with what he said. It just depends on the You know, when I worked at Morgan Stanley, the average advisor was in their early 60s and the average client was middle late 60s. So, it was a very yield sensitive, you know, kind of income sensitive cohort, right? But, you know, other other people like uh the younger generation is more into like financial nihilism. Like, they want to like they want to have like 100% of their assets in like crypto or something. You know, they're not They don't care about diversification the same way. I will Can I just say one thing before you Adam you say I know you're going to toss it to a couple of questions real quick. It wouldn't surprise me if by the end of the year we saw um everybody gets tired of chasing their tail to get into the next semiconductor stock and the next AI play. And they sell those and go into energy. Cuz that seems to me a very overlooked sector right now, especially what's going on with the price of energy. So that if I had to make a prediction and and Again, like Adam says and I agree, my model says what's happening today in the immediate future. Anybody who tells you what's going to happen later in the year Well, what happens if Jerome Pow- what happens if um Kevin Warsh shrinks the balance sheet by a trillion dollars? I mean, who knows? I don't know what this guy's going to do. But if he does then then everyone Everybody who predicted a higher closing If he does that, Trump will tweet that he's an idiot. [laughter] Yeah. Well, I I That would be the kindest thing he would do. Yeah. Yeah. Yeah. But he does And and to his credit, Kevin Warsh is pro-Main Street and anti-Wall Street. He wants He will He will lower interest rates on the market. He'll probably buy mortgage-backed securities and you'll have to buy housings home builders. Yeah, Jerome Powell was buying mortgage-backed securities in in the spring of 2022. Oh, I know. Absolutely horrific job that he's done. I actually agree with Donald Trump that I actually agree with Trump to get rid of Powell as fast as possible. The fact that he wants to stay on as a governor is abysmal to me. Um but I actually have the opposite opinion of Powell. And Trump does. Trump cuz he he didn't destroy the value of the dollar fast enough. He wants rates slashed. And I don't think he's going to be able to cut rates given that it's it's a committee that sets rates, not just the Fed chair. think the market's going to go up if they cut rates. Oh, because the long end of the long end of the of the bond market is not going to like it, right? Is that what you're laughing at, Ollie? Well, Cuz I agree with that. That's what Maybe. Yeah. Yeah. Or just like it's cyclical, right? The If you're a genius, you were short Nvidia and and and Tesla and and uh you know, meta in 2022. And then on December 20th, 30th, you covered your shorts, you got max long in Jan 1, 23. And your logic was, well, they're closer to the end of the hiking cycle than the beginning. So, as you're early phase of the cycle, you anticipate the accommodation and it's bullish for multiples. And we track, of course, the statistical significance between Fed fund future 24 now and the price of what earnings of growth stock. You could track that, okay? Then, now aren't we 3. whatever 4 years later now? And you're like, okay, well, if they start cutting here, well, you got to be closer to the end of the cutting cycle than the beginning. It's like eventually tightening is coming. Like it's it's more like the market reaction to it. And if they're really doing it, it's probably because like earnings or maybe the economy, which I you know, like maybe they're just getting bad enough that you're not like psyched they're doing it. So, I think it's like a different interpretation at this point in the cycle, I guess. But but in the end, I think it's the same thing you said. All right, this is great stuff, Jens. I hate to start bringing this to a close. Um few quick questions and I'll ask you guys where um the audience can follow you and your work. Um couple of questions I'm just going to collapse into the one general one. Uh lot of interest in gold. Folks are wondering what your outlooks uh are for gold. So, Adam, why don't we start with you? I like it. Uh you know, I think it all changed in the Ukraine war. Uh and uh when um we froze uh the US froze uh foreign country reserves and every other country looked around and said, well, I can't afford that to ever happen to me. And so, there's going to be a lot of structural buying. And uh you know, there's times where it looks correlated to AI, times it doesn't, and all that. But I like it. Now, old school people would say there's no there's no cash flows and whatever. So, you know, I'm not saying you own 100% of your assets in it, but you know, I don't I don't mind somebody who's got, you know, 20 million bucks on it, a million bucks of gold, or whatever. That, you know, a few percent allocation I think is interesting. And um I I I I think it it it probably is, you know, it could be six or eight thousand in in in five years and I I I don't mind that cuz I don't think it's exactly the same as as a data center build out. All right. And Michael, how about you, my friend? We're We're 6% precious metals right now. Um the reason I can go as high as 20 in the portfolio. Um the reason why we're not longer is because gold loves falling real interest rates, falling nominal rates. You just not getting that right now. So, I I have to see a sharp slowdown or at least a significant slowdown in in economic activity before I would increase the position. Um but it there are structural central bank buying How does that square with your inflation view? Like if you're right that inflation is skewed to the positive, isn't gold decent for that? Or how do I think about Well, because gold doesn't care much about inflation. Gold Inflation could be very damaging to gold. It just depends on the level of real interest rates. So, if nominal rates are rising faster than inflation, then your real rate real rate real interest rates are are rising and that's not good. So, I bought full disclosure, I bought all mine that I owned the day after um I read that UBS money market accounts were backed by auction rate securities in 2008. Oh, wow. I've never sold it. I probably won't. I guess my bull case is when I die, there's like a shoe box with his grandkids' name on it and it says It better be a strong shoe box. They think of me think of me kindly, you know, something like that. [snorts] Yeah. Gold is I said 5%, he said 6%, so I don't think we're that Yeah, I'm just trying to do the math. In 2008, it was what? Like 675, 700? No, I think it was like 1200 when I bought it, something like that. Was it? Okay. I bought a bunch of silver at like 12. Um the only thing that's been crap is I bought a little bit of platinum, too, but but like it was just more of like this doesn't How How does How does UBS tell you you had a dollar in there today and it's 92 cents tomorrow. I just it like melted my motherboard. Yeah. Cash [laughter] is the cash, you know. So, whatever. I I did it and then whatever. But, I I I think it's a sensible allocation at mid single percent. Like I don't know. actually Adam, hats Patrick to you, Mr. Parker, because gold has been a better performer than the S&P 500. Not since I bought it, but Yeah, but yeah, yeah, but in since 20 2008 or 9 has, but it's been it's there so far. I I I don't mind having it. It's shiny, you look at it, it's nice. But, like I don't think it should be 20%. I I, you know, something mid singles. Well, it depends on the it depends on the economic situation. It would only be 20% as we enter into a recession because that everything goes to a correlation of one eventually and everything gets sold. One of the challenges like institutional investors have right now for sure is like how to get defensive, right? Because the traditional defensive stocks like it when we were formulating our investment heuristics were things like pharma, telcos, staples, whatever. But, they've been missing more. So, they're not really providing any defense at all and the defensive part market cap is really small relative to the offensive market caps. You can't even like equilibrate it. Right? So, it's it's sort of been like, you know, how the traditional way to do it is buy low beta, buy narrow estimate dispersion, look at what worked in prior downturn. Like all that stuff has not been a super instructive way. So, there's only four things Adam that work in a recession and that's cash, T-bills, long the dollar, and shorts. Those are the only four things that work. Right, but a chunk of my clients are more than half are long only fully invested S&P 500 managers. So, they got to like reposition within the book to beat the index. And I I I don't like but I hear you on that. Yeah. Yeah. Yeah. All right. Well, gentlemen, this is Yeah, you're an interesting guy, Michael. We we should uh break bread at some point. Okay, I'll meet you in the middle of Alligator Alley. In Alligator Alley, right? Yeah, cuz that one of those we'll meet one of those boat one of those boats go with the fan boat. We'll meet in a fan boat. Yeah. I was going to say you guys don't live that far from each other. I I you should definitely make that happen. And I want to thank you, gentlemen. This has been a wonderful conversation. Um I'd like to give each of you the opportunity just to sort of deliver any wrap-up that you'd like to uh to the audience. Um and I'll just, you know, give you a slight bit of guidance on that, which is what would your parting counsel be to today's investor, you know, watching this program and just trying to position themselves for success uh with uh you know, an acceptable amount of risk management going forward. Mr. Pinto, let's start with you. Well, I guess we'll end with a disagreement with Mr. Parker. Um I think it's more important now than ever to be in with an active manager that has a robust model because the dangers, as I I presented very clearly, are evident. Getting the timing right is everything. And like Mr. Parker does agree, everything goes to a correlation of one. You have to be in T-bills, cash, dollar, and shorts if you want to protect and profit from the next recession. Not not if it happens, when it happens. So I would suggest you get involved with an active manager with a robust model. Of course, that's self-serving, but it's it's it's man it's mandatory that you do so, in my opinion. Um if you like what you hear uh today, you can subscribe to my podcast. It's the Midweek Reality Check. It's $50 a year with a 5-week uh free trial. Um it gives you my high-level view of the economic salient economic data of the week, um and a high-level view of the portfolio. And if you're uh qualified for a long-short strategy or a US citizen, $100,000 to invest or more, I will manage your money directly in the inflation-deflation economic cycle portfolio. The website is pentoport .com. And thank you both very much for the opportunity to be on your program. A lot of respect for both you, gentlemen. All right back at you, brother. And Mr. Parker, how about you? Yeah, no, tha- thanks. It really was a pleasure. Um yeah, I mean, I I I think I don't want to disagree with what you said there, either. I mean, I I just said in the equity portion only, but you need someone to toggle between the asset classes, and I think a lot of what he's suggesting makes sense. Within the equity part, I you know, um if 90% of the people underperform, then maybe for the average person they shouldn't spend a lot of time picking their own stocks cuz it'll be hard for them. There's a lot of smart people with big computers and big budgets and they can't outperform. So, I think a lot of people shouldn't be trying to do it themselves. Um and I would probably be, you know, focused on taxes and fees and other stuff. Um our core business, Trivariate Research, is really a product a product set focused on institutions that pay us, you know, multiple six figures for the products. But, we have an in an a business where we sell to individuals and advisors a newsletter, several uh pieces a week, a weekly videos, and then also monthly zooms like this where people ask me questions. We do ETF analysis and the like. It's called Trivariate Research, t r i v e c t o r. Trivariate Research. The idea behind the tri is macro, quant, fundamental applied equities. That's what our whole background is. It's a $110 a month or $1,200 a year uh subscription. And we'd love it if people went to Trivariate Research and signed up. And then you can also I just joined X last week. So, that's uh Adam_Parker_Tri if you want to see what we do. Uh and also on LinkedIn, you know, we publish a lot of uh put a lot of stuff on there, too. So, a really pleasure. I didn't know what to expect, but this was really uh fantastic and I appreciate you guys including me. And great great to meet everyone. All right. Well, um very happy you were able to join. Big thanks to the folks at Zero Hedge for producing this and putting this all together. It's been my honor to be the moderator here tonight. Uh definitely folks go and investigate both Adam and Michael's services there. And I can't recommend uh either enough. And uh if you want to see more deep discussions like this about all sorts of uh macroeconomic issues, uh feel free just to come over to thoughtfulmoney.com and you'll find uh all of our media services there as well as some financial solutions that we try to put in front of investors who want to take action based upon what all these experts are saying. Um, Michael, my friend, so great to see you again. Adam, really nice to make a new contact here. Really look forward to seeing both of you in the future. Yeah, me too. God bless. All right, and everybody else. [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] [music] Hey! [music] Hey! [music] [music] [music] [music] [music] [music] [music] [music] Hey! Hey! [music]