Fed Chair Sparks Rate Cut Fever, Markets Zoom Higher | Lance Roberts

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What the market was looking for was an indication from Jerome Pal which he gave very clearly today that they are going to cut rates because of the weakening in the employment data which you and I have been talking about for months now. [Music] Welcome to Fal Money. I am Alpha Money founder and your host, Adam Tagert, welcoming you back here at the end of the week for another weekly market recap with my very good friend, the inexurable portfolio manager, Lance Roberts. Lance, how you doing? I'm doing good for a Friday. So, uh, it's been it's been an interesting week. Um, you know, kind of today's very interesting. It's one of the largest it actually is the largest a August opt options. I'm gonna spit that out in a second here. It's the largest August, say that three times fast, options expiration day in in history. It's like three trillion dollars today. So, you've got all that going on. Then, plus, of course, you had the Jackson Hole Symposium speech by Jerome Pal this morning that sent the markets just tearing off back to all-time highs. So, it it's pretty pretty crazy, you know, after a whole, you know, just headline after headline after headline that, you know, oh, the AI bubble's over and, you know, it's it's all coming down and this all week long was these really negative headlines and then one speech and the market's back to all-time highs, tech leading the way. So, everything everybody was concerned about now in the rearview mirror. All right. Well, look, that's where I want to start. Um I I did pick the word inexurable um which just to remind folks means um like a fataccom plea like it's it's almost unpreventable. It's something that's going to happen. Um uh there are some inexraable or or some forces that appear to be inexraable that are in play. Lance and I'm talking about the slowing of the economy. I'm talking about where inflation is likely to head. I'm even talking to a certain extent about the stretched valuations we have and at some point that there might need to be some sort of correction to bring them into back into better alignment. Um, but that being said, an extra bowl doesn't seem to apply on a day like today. It really doesn't. And speaking of this weekend's bull bear report is all about valuations and what they mean short-term and long term. So, if you haven't subscribed on X, you can just go to my Lance Roberts on Substack. I'll post that out on Saturday. But I'm going to go through kind of, you know, what valuations mean short-term because because the, you know, they're expensive. I mean, price to sales at three, you know, 3.2 times price to sales for the S&P, highest level on record, multiple, you know, price to book, market cap to GDP, all at record levels. Um, but doesn't mean anything in the short term. Um, it's all about sentiment and valuations are only a reflection of sentiment in the short term. Long term they they matter very much. It's all about returns long term, but you know, in the short term, valuations are telling you exactly what's happening in the markets right now. Okay. So, um, we will get there. And I also do want to give you a chance to walk through your recent piece that you have already released on your site about um the risk to earnings that recent data is is showing us. And of course, as we talk about a lot, but you say all the time, you know, um it's all about earnings at the end of the day, right? Um, and you know, a lot of today's earnings just seem fairly mathematically unrealistic, but again, sentiment is in the driver's seat right now, right? So, let's let's let's start with Jackson Hole. Um, I guess so I in in preparing for this morning, I actually didn't get a chance to to watch live. So, I don't know exactly what Pal said. I just know that the markets loved it. So, you know, it must have been relatively doubbish that, hey, I think we probably are going to cut. What I will say and and let you react to this in your answer is I mean Lance, wasn't the market already pricing in several rate cuts this year? So like what about what Pal said made people even more optimistic than they were before the speech? No. And no, that and look, you know, this is the one thing that we've really all got to get away from is that, you know, markets are pricing in all this stuff. So the markets were rallying to all-time highs on the expectation the Fed was going to cut rates. We sold off a bit this week going into that just in case and then basically PAL delivered exactly what the markets were previously expecting. So now markets are back to where they were previously. But you know look in the short term again you you have two things going on today. Um there was a lot of concern earlier this week. You know tech was selling off. But let me remind you you know here on the show last week or the week before I can't remember Adam. It was it was either last Friday or or the Friday before. I went through simplevisor and I showed you how uh healthc care was very oversold and technology was very overbought and we said hey this leads to rotations in the markets. Well over the last week in particular but actually starting the week before that rotation occurred. Healthcare has been performing great. There's been a healthcare has gone from very oversold back to to more kind of neutral but starting to move into overbought levels. Um technology worked itself from being very overbought to very oversold. So we saw that exact reversal occurring in the markets and of course everybody was like oh my gosh you know the AI bubbles over all these headlines and you know tech you know look at what you know Palanteer you know there there just this report came out Palanteer's down 10%. Palanteer moves 10% in a day all the time. I mean it tells you nothing about the stock. It's just a very volatile stock. But again, you know, that wasn't surprising. And a lot of that action was all these options traders getting ahead of expiration today, selling off positions, replacing positions, getting their options in in place for this Friday's expiration. So, a lot of that action that occurred this week was just technicals. Markets were, you know, technology was very overbought, very extended. It needed a correction. That's all that's happened. And and now we're starting to reverse that trade today on expectations the Fed's going to cut rates. Lower interest rates better for corporate earnings, lower interest rates, better for high beta stocks like technology stocks in particular. So those stocks are performing well today on the expectation the Fed's now going to resume their rate cutting cycle. Um, I'm curious. Um, this is just postulating, but does this set us up potentially for when the Fed does actually cut it be kind of a sell the news event because everybody bought the rumor? Well, yeah, that, you know, buy the rumor, sell the news happens all the time. Um, you know, this is this is pretty far out. The the meeting uh for the next rate cut is September, don't quote me, I think it's 15, 16th um of September. It's a Tuesday, Wednesday. Um so you know it's still a ways out and again just this is a one-day bounce. Uh markets gotten oversold shortterm so you're getting a bounce today. It's a very sizable bounce uh on a factor basis. Small cap midcap largely outperforming today. Um, you know, we talked about last week we on Simplevisor we launched all these different portfolios uh two weeks ago and they're kind of it's a very interesting setup because these thematic models are like factor markets and so there's a small cap midcap that that portfolio is up sharply today. um you know the the high dividend yield which has been performing very well over the last week because of that rotation to defense is lagging the it's it's up today but it's still lagging the overall market because it's not in those higher beta names right so you know when you take a look at that factor performance it kind of really tells you that money mo is moving back from defense to chase all the offense so basically buy the dip is what's happening in the markets today sure and you know we're seeing I mean pretty much everything go up um uh in particular crypto. Yeah. And crypto is you know so far at least has been very you know extremely risk and so this is a sign this is a risk on day right high beta. Y know yeah there's a very high correlation. I actually in our daily market commentary uh that we publish every day on Wednesday I believe I I was talking about the correlation between Bitcoin and the NASDAQ and there's a very very high correlation. They trade very closely each other and Bitcoin had been selling off and it tends to Bitcoin tends to lead the NASDAQ. So that selloff we had in the NASDAQ was really not surprising because Bitcoin was already telling you that that riskoff trade was occurring. Uh, and so to your point, today it's all risk back on again. And so Bitcoin's doing very very well today. Bitcoin's up um three something percent, three three and a half% right now. Uh back to 116,000. Small cap midcap stocks are up about 326. Sorry, they're about 4.1% now. So you know so all the risk on trade you got to remember small cap midcap most of those stocks in that small cap midcap space are unprofitable tech so those are the ones having the biggest gains today. Um so it's just basically buy risk on. So everything that was again hiding over in defense over the last really week and a half is moving back onto the offense field today. Okay. Um so I I I want to ask you a question about because you've been you have been saying hey look uh it's not a sell everything moment by any stretch but just be prepared for a correction at these stretch levels. Obviously the rubber band is now getting really stretched again. Um before we get there though a couple quick things. One um I did look up while you were talking the next FOMC uh release is going to be on September 17th. Okay. So 16th 17th is this meeting. Yeah. No, it's okay. Just want to make sure folks know that's a it's a Tuesday Wednesday. Um but um beyond I guess intimating that a cut is likely in September, did Pal say anything else to justify this kind of you know market reaction by the markets? Well, th this is, you know, what he said today was pretty much what we've been saying now for the last three, four weeks. You know, I've written a couple of articles about why the Fed, you know, why drone Pal was behind the curve. The e and and this is really kind of part of the article that's out today talking about how the economic data certainly doesn't support earnings growth. And that economic data has been weakening fairly substantially over the course of the last couple of months in particular. Um, and you know, heading into that last meeting, I I said that look, the Fed should be cutting rates now. The longer they wait to cut rates, the they risk getting behind the curve. And you know, so really what Jerome Pal said today, and what sparked the markets was he specifically focused on the employment date. And he says, "Hey, that employment date has been 35,000 jobs on average over the last three months. It's much weaker than we anticipated. We haven't seen it go into the tightness of the labor market yet, but that's what we want to avoid." So he pretty much just stated that they're going to start cutting rates again. Now the question becomes, is it just one cut and they're done? Is it two cuts this year? Is it three cuts this year? You know, how many is it going to be till the end of the year? That's going to be the next big debate. But you know what the market was looking for was an indication from Jerome Pal which he gave very clearly today that they are going to cut rates because of the weakening in the employment data which you and I have been talking about for months now. I was going to say I mean quarters. We've been talking a long time about how a the data just seemed to not be trustable and and and that it seemed skewed upwards and then of late we've been saying look there's more and more cracks that we're seeing. Yeah, absolutely. Yeah. So, array us. Um okay, so let me um let me just take this into a direction I think you'll like, Lance. Um so I I released a special video this morning. Um so we're recording on Friday as as usual. I usually don't release Friday videos. Um, but I did because I was able to get a hold of Steve Hanky. Um, and Steve is, you know, he's a a longtime professor of economics at Johns Hopkins, but he's really like zeroed in on inflation, right? And um, at times people have said, "Hey, Adam, you should get Steve and Lance to to uh debate together." And uh, wasn't able to make that happen this time, but I did want to get Steve's thoughts heading into Jackson Hole. Um and he basically says Lance um he is on the he's he's he approaches inflation from a very academic standpoint. He relies very heavily on a quantitative theory of money. Um he has a pretty great track record of predicting inflation using that formula. Um he predicted well in advance that inflation was going to get up to 9%. Um, and I know he predicted this because he did it in an interview with me. Um, probably about five, six months before inflation rose that high. And at the time, people thought that that was just totally not believable. And he pretty much pegged it. Um, when inflation hit nine, he said, "All right, look, it's going to start coming down pretty materially." Again, leveraging or leaning on the quantity theory of money. And he proved to be right there. So, I asked him his thoughts about Jackson Hole. And he said, "You know what?" He said, 'I think I predict that everyone's going to focus on the wrong thing on Jackson Hole, which is what's the Fed going to do with the policy rate. And he said it's actually that that's looking at the wrong lever. Um, in his mind, it's all about money supply. And it doesn't it's not just about whether the money supply is increasing or decreasing. It is the rate at which is it increasing and decreasing. And basically based on his calculations he said that the money supply the current money that let me get see if I can get this right the money supply growth rate that supports getting inflation to the Fed's 2% target is 6%. But right now the money supply growth rate is only 4%. meaning that disinflation is going to be in control until and unless money supply grows faster than it's currently growing. So he's basically saying like look, it's almost kind of immaterial what the Fed decides to do with the policy rate right now. The the money supply factor is going to bring inflation down from here. Um how much further down from here? I know you're going to say you think very similarly, right? This wouldn't have been much of a debate. This I think would have been a really, you know, interesting mutual agreement discussion had you been involved in it. But basically, here's what here are his punchlines. Um, he thinks um disinflation's going to be in charge. He thinks the economy is going to continue to slow. He thinks the odds of it slowing into recession, Lance, are pretty good. Just FYI, despite inflation coming down, right, despite CPI coming down, he doesn't see bond yields coming down very much. And that might be a place where you two differ. Um, so he says, you know, look, if you're if you're betting on bond rates coming down, bond yields coming down materially, you know, I'd slow your role in that one. But anyways, I wanted to give you kind of his his general view of things. And um, you know, I don't think he'd be that surprised by what Pal said today, but I think he would say it's almost kind of immaterial because you got the quantity theory of money and money supply in the driver's seat and that's bringing things down, right? you know, and and and I guess you'd have to ask him the question, what does he mean by materially? Or or is he talking about, you know, bond yields going to zero, that that's not going to happen. Um bond yields going to one, that's not going to happen. Bond yields getting to two and a half or three, that's probably going to happen. Okay. And I think that's where you and he differ because I I got the sense he was like, they're not going to really go much below four. They're going to kind of hang out where they still are. So, well, there So, bond yields are a function of inflation and economic growth. So if you have a recess a recession and disinflation, you're gonna have lower bond yields. I I talked about this and I don't want to get stuck in this debate with you because I'm not the right guy, but but his response to that was there's still so much uncertainty about tariffs and trade and everything like that that the bond market. Yeah. Bond market doesn't care about that. Bond market only cares ultimately at the end of the day about the economic growth and inflation. So there's there's a lot of that thesis out there is like oh well there's this impact and that impact and that leads to the the what the what we call term premium and that's just sentiment. So as soon as sentiment fades and we're seeing you know like the whole tariff impact hasn't shown up and the bond market starting to get well past that now. Um but yeah so I mean if you see you know b if if if economic growth goes to about 2% or if we have a an inflation sorry a disinflationary environment bond yields are going to have to come down again. They're not going to go to one. They're not going to go to half a percent like we saw in the pandemic unless we just shut the whole economy down. But, you know, two and a half, three, three and a half% is going to be about where things, you know, kind of what we that's what we call the terminal rate for bonds and that'll be where basically bonds have have you have maximized the gains in your bond holdings and that's where you'll sell treasuries and move to something else. Okay. And I I understand that that is your point of view. I interviewed Jim Sterszo from Research Affiliates earlier this week who feels very similar to you. It would be interesting perhaps to get you and Steve to talk about this and it it might be a little bit of a difference between the academic and the guy that's in the trenches and and you know which one's out. I felt as he was talking I felt like you and he were pretty much in lock step right up until bond yields. Yeah. Yeah. No, no, no. And and it is it's you know in know from a academic standpoint he can make you know that case he makes is completely valid. I'm not arguing the point. There's just a different way you know as since we work in the bond markets every day. It's a big part of our job. There's a very different structure about how bonds actually work work versus the the theoretical frameworks and it's because the bond market like everything else is driven by people buying and selling and adjusting for what the opportunity costs are. So, you know, sometimes that's why academic theory and and actual markets don't always disagree and and that's what kind of what happens all the time. But to but back to your bigger point, um here I'll share a chart with you. He's absolutely right about money supply and and the the big problem that people have when they talk about money supply is they they talk about, you know, oh, money supply is going up. It has to go up. The money supply always has to go up because that's where economic growth comes from. If your economy is growing, your money supply, the the amount of money you have in the economy is going to continue to grow. The question becomes, is the money supply growing faster than economic growth? In other words, there's too much money in the economy or is it growing slower than the rate of the economy. So, you know, you have to always look at this in terms of money of monetary supply as a function of the economy. So, this is just straight into blue line is is straight into gross domestic sorry to interrupt. Can can you just increase the chart as you're talking to it for our our our site challenged boomers? Yeah, thanks. So, yeah, the red line is gross domestic domestic product. It's nominal, right? This isn't real. This just not This is all n M2 is nominal and gross domestic products nominal. So, you'll see though that as the economy grows, money supply grows. Has to. It's a function of economic growth. You cannot if you have no money supply growth, you have no economic growth. It just can't occur. So, you have to look at this in terms of what is your money supply relative to GDP. If your money supply is growing faster than economic growth, you got a problem. If it's not growing as fast as economic growth, you got a problem. The question is what problems you have? One is inflation. If it's growing faster than the economy, you're going to have inflation. Slower than the rate of of of the economy, you have disinflation, which is why inflation has been falling ever since that peak of 9% in inflation. So even though M2 the blue line has and basically M2 is about where it was um coming out of 2020 2021 when we just injected the economy with all kinds of of money but that's what caused that monetary spike because you had this massive surge in money supply faster than the rate of economic growth. Since then money supply has fallen sharply as a function of the economy which is why the economy is slowing down and why you're having disinflation. So he's absolutely right about the thing you should be looking at is M2, but as a function of economic growth, not M2 nominal. That's a very bad indicator to look at. Okay. Yeah. And there have been people out there saying, um, no, you know, inflation's going to come because M2 is rising and therefore it has to, right? And to your point, no, it's all about the relative rate, right? Well, no. And and look, we want inflation. Here here's the thing that that I think a lot of people misunderstand. They when we talk about inflation, we throw it in one bucket. It's like, oh my god, inflation. We people, we want inflation. We do not want disinflation. Disinflation or worse, deflation is very bad. You don't want that because that impairs the economic livelihoods of everybody. Job losses, everything is bad in a deflationary environment. That's quote unquote the depression. You don't want that. We want inflation. We want two or 3% rate of inflation in the economy because that means the economy is growing. You want increasing rates of money supply because the economy is growing. Everybody benefits from that. You don't if you have no money supply growth, you have no economic growth. If you have no money supply growth, you've got well, you have basically no inflation. And if it shrinks, if if if a lot of this, you know, we if if a lot of people got what they wanted, we cut out all the deficit spending and got rid of the debt, you would have a depression because we have a very large chunk of our economy dependent on deficit and debt spending because that fuels bank accounts for individuals like social security, Medicare, Medicaid, all that comes from the government. That's the debts and the deficits that come in. All your defense spending, all the money that gets spent for Loheed Martin, Rathon, all these compan that comes from the government that pays payrolls and salaries and benefits and all those type of things for the employees in in the economy. So that the the the the function of money supply is very important and the rate of that growth is very important for the economy. Now again, if it's growing much faster than the rate of economic growth, that's when you get debasement of the currency because you have too much currency in the markets at one time and that creates debasement. But we don't have that right now. So, um I I understand what you're saying and and I agree with the spirit of it. I just want to make one qualifier because I I can I can hear the screams of of people watching this which is uh you know disinflation deflation they have their moments in the natural cycle right and when you have a um when you have too much intervention especially when that intervention you know is done to try to as I like to say delay winter from ever happening right then the system gets deformed and distorted. Um and so uh and then then then you get everybody saying well look we can't ever now have disinflation or deflation because it would be too catastrophic right and so we got to try to just keep things permanently distorted forever which requires more and more intervention and so all I want to say is is there are times maybe uh I mean in a natural system there are times where you want some disinflation and deflation to kind of you know we call a recession. Yeah. A healthy recession to get rid of the now investment and whatnot. Right. Exactly. We want and this is and and look this is where I absolutely disagree with the Fed. Um I've been very vocal about this for years is stop trying to stop recessions. You know the ever since 2008 everybody got so flumxed by the 2008 financial crisis that it's like oh my gosh we can never have that happen in the economy ever again. You know, so they've gone to these extremes of of, you know, quantitative easing and zero interest rates for way too long and all these other type of things to try to keep recessions from happening. But recessions when normal, right, 2008 was a abnormal environment because of the whole financial crisis, the bankruptcy of Leman, all that. A normal recession, which we haven't seen one of those in a bajillion years, is actually good for the economy. It helps reset the table. you get some disinflation, things come down back to normality, you get a housing market correction, those type of things, and it allows the economy to function. And you know, for till up till 1950, we had recessions on average about every four or five years, which was okay. And then, you know, after 19 really about 1970, we started really spanning out the average recessionary period to 8 n 10 years. And that's just really too long. It it creates to to your point creates too much you know mal foration within the economy because you need those resets on you know you need corrections in the markets and you need recessions you just don't want depressions you know the you don't want you don't want the abnormal recessions you need normal recessions right right well I guess and here's my my academic question for you Lance which is because the system has been so heavily distorted for so long you Do we sort of almost need a depression to get back to a sustainable baseline? Right? Can we get there just with normal recessions going forward? I I I I I don't think so. I mean, if we just let put this way, if we just let normal market forces head their way, I think we'd have a depression, you know, hopeully. Well, yeah. No. If if you if you stepped in and said, "Okay, if if Adam was was king, right, and you stepped in, you said, "Okay, no more deficit spending, no more debt increases, we're freezing the debt where they where it is." Um, and we're going to No more QE, no more interest rates, no more QE, no. Yeah, we're going to get rid of the Fed, no more QE, nothing. You're going to have a depression, right? There's too much dependency in the economy for those supports. You have to do you'd have to wean it off, right? And you'd have to create many recessions over a period of time like you know just almost you know cut your policy at a rate that almost ensures you you know kind of almost like a Japan scenario where you have kind of rolling recessions every three years and that would take a period of time to kind of work you back towards a normal environment. Um you would be since you're king you know we can't depose you so you would just actually be murdered uh for doing that. But I would I would build a very deep bunker. Yeah. Exactly. Um because you're going to cause a lot of economic pain and and you know you're going to destroy a major functioning piece of the economy and and this is the you know this is the the misunderstanding that a lot of people have about debts and deficits. You know they are such they're no longer a bug. They're a feature of the economy and you you know when you start you pull them out the patient goes into violent withdrawal. Yeah. And it's and it's more like pulling life support, you know. Um and we don't have any medical directives right now for the economy. So that's so so this is the this is the knife's blade that we have put ourselves on here, right? As you look out further, right? It's like, okay, on one side is, you know, a depression of massive debt defaults, right? Which which really nobody in power is going to willingly choose unless you all make me king. Um and then on the other side is currency destruction, right? I mean, that's the long-term cost of the the constant intervention that we're doing, right? Is it it the purchasing power of your currency just gets more and more uh inflated away, right? Yeah. Well, and but but again, you have to keep that in perspective, too, right? There's there's this huge, you know, body of people out there is like, "Oh my gosh, you know, the the the person power of the currency is being inflated away." Yes, that is a good thing. You want that to occur. But see, what that assumes, Adam, is that you took all your currency in 1970 and stuck it underneath your bed and you never did anything with it. And so, yes, that $100 you put underneath your your mattress in 1970 has lost about 90% of its value, right? And that's that famous chart. I actually I think I have I think even more, but yeah, go ahead. Oh, here I've actually got a chart of it. Give me a second here. This is the chart everybody shares, right? This is the purchasing power of the US dollar. 90% decline since 1966. Okay. Okay. I thought it was morbid. Okay. Go ahead. Okay. So, but that's a good thing because that means that the economy has been growing. We've been having inflation. People are wealthier than they were in 1960. All those type of things. What this assumes is is that when when everybody shows this chart, they generally generally the people that show this chart are the ones trying to sell gold to somebody. So, but you want that defl you you want that. All this is and this is the this is the graph everybody shows. But all this is is the inflation adjustment of the dollar. Let me find it here. Here's it's the same exact chart. This is just the dollar measured against inflation. So inflation has gone up. So this assumes that you never invested any of your currency in 1966. It just sat there. So this is why it's so important that we adjust for our purchasing power parody of our dollars by investing them in things that grow faster than the overall all economy. And and so when we take a look at something so this was uh Peter Schiff did this, right? So Peter Schiff's you know, you know, big gold bug. Yep. and he wrote this whole article about well if you'd invested all your money in n in 1900 back then it cost $4142 to buy two suits and so if you had invested your dollars in gold back then fair statement right because gold has gone up over time then you could have bought you know five suits well so here's gold versus the S&P which one was a better inflation adjustment since 1900 to maintain the purchasing power parody of your dollars if I invested in gold my my $41 in 1900 is worth $3,600 today versus $30,000 or $31,000 if I just invested in the S&P 500. So again, it's doesn't matter where you invest those dollars, but the big the the big mis the big misstatement is this loss of purchasing power par of the dollar. That's only true if you never invested your capital. So, um I I get what you're saying and I actually don't want to don't want to potentially rat hole on this. Um and I so let's let's first start where we agree. Um the the uh opportunity and onus on us is to invest our our capital to grow at a rate faster than the economy and the inflation rate. Right. Right. Um so which is why which is the whole reason why we invest in gold or in bitcoin or in stocks or anything else. Right. Right. We get that that is what you have to that that's got to be your starting point when you invest which is I am investing first and foremost to at least keep pace with that purchasing power to basement. Right. Unfortunately though now we just turn markets to the casino. So we don't invest for that reason anymore. We invest to see how much how fast we can get rich. Right. Exactly. But but the real reason that we invest is to to maintain that purchasing power parody of our dollars. That's why we invest in any asset class. Yeah. So I'm I'm there with you. I I I I could have a whole other discussion with you about um you know is the right inflation that we've had uh over the much of the past year especially over the past 50 years you know is it is it the right one especially given all the intervention you said it's a good thing I think that's a dangerous thing to say blanket statement wise and and also it makes a really big difference uh whether you have assets or if you don't because those that don't have a lot of capital to invest um get absolutely crushed by all the bad of that inflation and none of the good. So there's a lot to be had there and I'm saying some of this Lance because I'm sure people were screaming at certain times here and I don't Yeah. And let's look let's not be extreme, right? First of all, let's let's not go to to massive extremes. First of all, a lot of people that don't have money invest is a lot of their own own fault, right? Because they but but labor has definitely suffered. Hold on. Hold on. Let me finish. Yes. 20% of the population is poor. They are there is every population throughout history is going to have 20% of the population. You're gonna have the prao principle. I agree with you. Exactly. The the the middle class they have money to invest if and and savings to invest and they do do that. They have 401k plans. They have other stuff. But a lot of their problem is that they spend way more than they make and you know this is why they're heavily in debt and a lot of those are personal choices. The the environment did not do any of that to them. But when we're talking about inflation, we're talking about the rate of inflation of economic growth as measured. Now, people can run around all day and say, "Yeah, but this gauge says it's 50%." Or, you know, if I go back to looking at the way we calculate inflation back in 1900, it was different than this day. Yeah, there's all those things. So, however you want to settle on your personal rate of inflation is entirely up to you. But the bottom line is is if you don't have inflation at least at the pace of economic growth, you're not having economic growth because inflation is a function of supply and demand in the economy. And if you want economic growth, which leads to prosperity and leads to more money in your bank account, you want inflation that runs at least at the rate of economic growth. Okay? And and I'm going to end this just by saying I agree with you. We want that economic growth over time. Um, let me get to the question I was hoping to ask you, which is just pretend with me for a moment here, right? Where um, you know, it's always fun to think about key moments in history and say, you know, what would happen if this worked out differently, right? Um, so if we could if we could if we could peer into a parallel universe here in 2025, a different universe where we just let things correct in 2008, where the city I've said this for years. Yeah. Where the So, yeah. So, we let the city banks fail, right? I mean, we let a lot of these too big to fail banks fail, right? Um my guess, my my guess is is we would have had a really rough 2008, 2009, maybe even 2010, right? It would have been, you know, a financial winter, a nuclear winter. Um it would have been painful. A lot of people would have lost their jobs. But we would have gotten over it and we probably would have gotten over it faster in retrospect than we thought it was going to take. Right. Right. And and you wouldn't have the wealth gap. You wouldn't have a lot of this other stuff. You wouldn't have five banks that make up 60% of the banking industry. Yeah. You would you wouldn't have moral hazard of corporations doing things they shouldn't do because they know they're going to get bailed out, right? I mean how much better would the economy and society be today you know whatever that is 15 uh 15 years 17 years afterwards whatever years after well figure figure three years for a depression so say 15 years yeah okay yeah but no it look it absolutely you know I I've been saying ever since the financial crisis I've been saying this is that the worst mistake we made was bailing out JP Morgan and Goldman Sachs and all these guys you got yourself into this mess This is why we have capitalism. But see, everybody was afraid back then. It was like, "Oh my gosh, if these companies go bankrupt, what is, you know, that's going to ruin the economy." No, that's why we have bankruptcy laws. All I'm going to get voted out of office, right? Well, you know, bankruptcy doesn't mean that companies go away. It just means that they restructure. They get recapitalized. Yeah. Or their operations get get absorbed into other companies that were smarter, which which we saw a lot of that happen, right? We saw companies get, you know, Washington Mutual, you know, got absorbed. uh Meil Lynch got absorbed by Bank of America. So, but you got yourself into this mess and you know, so you're going to have to Sorry. Um we have bankruptcy laws. You have to restructure. Your shareholders are going to get going to get zero. So, if you invest in Goldman Sachs, sorry partners of Goldman Sachs, your equity is now worth zero. uh debt holders get paid off with assets and then the company restructures, come out of bankruptcy and they resume operations leaner, meaner, none of the none of this, you know, kind of legacy tied to them. You wouldn't have five banks making up 60% of the bank or 70% of the banking industry like it is today. So, you'd have much better competition across banking. Um, a lot of these midsize banks would have absorbed all the accounts for so when Goldman Sachs went out of business like, "Oh my gosh, terrible." Well, no. All that happens is that Meil Lynch gets some of those accounts and Schwab gets some of those accounts and um you know Fidelity gets some of those accounts that that weren't involved in all of your hanky panky, right? Or or smaller independent firms like IRA get more of those accounts, right? Absolutely. Absolutely. And so, you know, everybody was so afraid that this was going to cause this massive economic destruction and and yes, there would have been a lot of economic pain. Lots of job loss. Goldman Sachs goes out of business. JP Morgan goes out of business. You know, they're going through bankruptcy. Lots of job losses, lots of destruction. Yeah. It's going to be really rough for a couple of years. And but then probably sorry, but probably more jobs in the long run with a healthy economy afterwards. Right. Exactly. Well, that's the whole point is right. So you have this economic devastation and from that everybody rebuilds. You now have a much broader financial base of banks that are operating within the system. Companies are leaner and meaner. They've gotten rid of a lot of their debt. They've gotten rid of a lot of their overhang. Um all the bad stuff they were in has now been cleared off the books. So now they're lean, mean, and healthy. They come out of this. They're going to start hiring people like crazy. The economy is going to take off running. Markets are going to start to recover. you know, instead of a 50% decline, maybe it would have been a 70% decline in 2008, right? Um, but now you wouldn't have a wealth gap. Instead of 10% of the people owning 90% of the assets, maybe you have now 50% of the people owning 90% of the assets. Everybody's better off. But again, we don't want to but no, but it's all it's all theoretical. It's all hindsight, right? Nobody actually wants to go through that. Everybody talks about and this is the what cracks me up about all these people, you know, talking about the end of, you know, the end of the world is coming. They're doing that to get clicks and views. At the end of the day, they don't want that any more than anybody else because they won't have a job. And you know, it's like it's it's this idea sounds romantic in nature. We have this massive global reset and everything's going to be honky dory, but nobody really wants to go through that because the the pain of that is going to be very traumatic. We're going to have poverty rates of not 20% but 50%. We're going to have massive homelessness. We're going to have just a a tremendous amount of economic devastation while we reset the system. And that's just something nobody wants to tolerate. Well, and and yeah, nobody in power is going to Yeah. Nobody in power will be in power. Well, but they're never going to proactively choose to to go through that. Um and I agree that like, you know, be careful what you wish for, right? If we get this system cleansing, which I mean, honestly, intellectually, I'm all for it, right? I I' I'd rather take the pain and just get to someplace a lot more sensible and sustainable and fair. But I but I'm smart enough to say as I'm going through it, I'm gonna totally I'm going to I'll have changed my mind and say I wish I hadn't chosen this, right? It'd be terrible. But but the difference is like probably you and your family could probably weather something like that. You've got money in the bank, you've got savings, you've been investing, you know, you've got a cushion. Well, I know a guy who gives hard money loans, so you know. Yeah. And you know a guy that makes hard money loans. Um, boy, my rates are going to go up a lot. So, just thinking about that. But, um, but yeah, I mean, you'll be okay. You've got to think about the 80% of the population that is one paycheck away from basically losing their house. Oh, it'll it'll be absolutely terrible. It my the point I was just going to make is as bad as a case as you could make for how 2008 would have been had we just let the system cleanse, way wor hard to imagine, it would be way worse now. Yeah. But see, this is where but this is where I think the Fed made I think this is where the the the White House made a mistake. So remember Obama was president back then and he did we did u the we did H we did HARP we did cash for clunkers cash for you appliances we did all these type of bailout programs. Um we did TARP uh which was the infrastructure that was 800 billion and then we started having the Fed step in with QE and all these other things. the be in my opinion the better thing would have been to do is a first of all so so let's say we're going to not let all these banks go into bankruptcy right but instead of letting JP Morgan swallow up everybody in the on the on the block which they did is really you know proactively think about hey what are these consequences of us doing this now you know kind of doing a little bit of forward thinking but then secondly not providing all that support not doing QE, leaving interest rates where they were. Interest rates were running about 4% um back then on the 10-year Treasury. Keep interest rates where they were uh for the most part. Don't cut rates to zero with the Fed. Don't do those type of things. Don't overstimulate. We we just overstimulated the economy and we gave we basically gave the market cocaine and got everybody addicted to the cocaine at that point. Um you know but then that would have we and yes that's where you know what we said earlier Adam we would have had the financial crisis had a bit of a recovery another recession probably two three years later a bit of recovery another recession two years later a bit of recovery and then by that third or fourth cycle of that the economy then is going to be back on its feet housing's going to be back under control we won't have this housing bubble that we've got now housing is going to start doing what it's supposed to do which is running at about 3% annually on growth about the rate of inflation. Um you know so all those type of things would return to the normality that we saw from 1900 to 2000 or really 2007 about the way that house prices grew the way that you know insurance rates grew. Get government out student government should have never been involved in student loans all those type all those all those types of of things that the government got involved in got malformed and that's what's caused all these problems we have today. and we wouldn't have any of those problems if we had just let to your point just kind of let normality enter into the picture. And then the government could have stepped in and done some bailout programs, right? You could have done a tarp. You could have done you know um you know some other you know type debt programs to help you know kind of stabilize you know you know kind of kees right during an economic recession government spends. So as you're going through this government spends some money kind of helps stabilize recessions but we don't do all this other stuff that created all these mal formations. So so I'm right there and and look I I do want to get to valuations in a second. Um but um interesting. This is a good interesting academic exercise. And I I'd like to think that King Adam what what he would have done is said, "All right, we're just going to let natural market forces do what they need to do, right, to to get us to a true water line here economically." But to your point, um you know, sort of like to the extent you have a central bank, at a minimum, it should serve as a lender of last resort, right? the government should step in and try to, you know, what role do you want it to have in in a depression, right? And rather than bail out all sorts of different players, what I'd love to see is sort of like, and this might be a naive thought, but I'd love to just sort of see government works programs that invest in the future productivity of the country. And so, so the the modern equivalent of the shovel ready let's build a new national highway system. So maybe this is let's rebuild the electrical grid. Maybe it's let's rebuild our decaying bridges and roadways. Uh whatever it is so that anybody who you know is out of money and needs to eat can come. They can do an honest day's work. They can get paid enough to you know afford to feed their families and and weather these rolling recessions that you're talking about that over time will get less and less and then we get to the Yeah. But that way there's no investment left over. There's no you're not even really competing with private private enterprise. um you're you're building like national infrastructure that will be used for the entire economy to benefit from in the future. Yeah. And and that's something you and I have talked about for ages is that, you know, that's where government, you know, there's only two things the government should be doing, which is basically Yeah. There's national security, right? And infrastructure. That's their job. That's their only job. All this other stuff, education, health care, you know, the Affordable Care Act, that's not the government's job. That should It's all mission creep for the most part. Yeah. Exactly. But yeah, absolutely. You know, you know, we did this pre we've talked about the Hoover Dam before. We talked about Tennessee River Valley Authority. Those are all productive debt investments and that would have been that creates jobs. It creates economic activity. The debt pays for itself over time. You wouldn't have debt levels where you were. You'd have much stronger economic growth. But you and I are just, you know, two old guys sitting around going, "Yeah, well, you know, this this is the way we should have done it, but we're not the government, unfortunately." All right. Well, let's let's take our old man energy and now trouble back uh into the markets. So, um I want to get back to my my point earlier about how um I don't think the situation has changed that you have been warning us about for a good while now, which is um valuations are really stretched and earnings uh estimates seem unrealistic. And so at some point uh you know market valuations are going to have to right size or at least correct a little bit to get closer to right size. Um obviously right now market doesn't care today. Um so you just recently wrote a piece called the US economy recent data suggests risk to earnings. So what what's your latest on sort of where earnings are and the risk of of correction? Again, we're talking risk of correction. Yeah. 5 10 15%. We're not talking 50 plus percent. Yeah. Yeah. Yeah. Um so, you know, the problem is is that if you take a look at Ford earnings estimates right now, you can draw an earnings an exponential trend line for earnings going all the way back to 1900. And we are more deviated above that exponential growth trend line than ever in history. on and this is forward estimates going into 2026 which means that that ultimately we're expecting earnings to grow at a faster rate than the economy can actually generate. Now here's here's a very important takeaway from this conversation. Economic activity is what creates the revenue for companies. So when you and I go out and we buy something, we we transact a transaction. We go to, you know, uh, we go to a store, we buy a pair of jeans, and those jeans create revenue for the company. The company then subtracts their cost of goods sold, etc., their expenses, payroll, salaries, all that. That gets you down to earnings at the bottom line. You then multiply number of shares outstanding. That's how you get earnings per share. But if you don't have the economic growth, you don't have the revenue at the top line. And so if you take a look at GDP versus personal consumption expenditures, which is what makes up 70% of GDP calculation, they have an extremely high correlation, as they should. There's also from that a very high correlation between the annual rate of change in earnings and personal consumption expenditures, which makes complete sense because that's the money we're spending in the economy. So PCE is slowing down. That means that transactions for revenue are going to slow down which means that earnings will eventually have to be brought down. Earnings estimates will have to come down to meet with what's actually going on the bottom line. Now you you know there there is a big gap right now between the revenue at the top line and earnings at the bottom line because of accounting gimmicks. Um you know this is one of the issues that hit coreweave uh earlier this week. Um, also the buyback issue reduces number of shares outstanding which manipulates the EPS at the bottom. So there's a lot of things that go on that manufacture higher rates of EPS versus revenue growth. This is why it's always important to watch what's happening with sales at the top line as to really understanding the health of a company that you're investing in. Are they actually growing revenue or are they not? Because if they're not growing revenue, but they're growing earnings per share, go take a look at how many buybacks they're doing. And if that if the number of shares outstanding are dropping like a rock, that tells you what's going on, eventually that revenue growth will matter. And if they're not growing revenues, it's going to Sorry, I got Well, they actually grew they actually grew revenue in the last report for the first time in like five years. So, kudos to them. So, um, but yeah, those are the things to pay attention to and and again, estimates right now in the markets are very high because that's how Wall Street justifies their price targets. If I want you to buy stocks, if I want you to buy Palunteer or Coreweave or whatever company is I'm promoting through my firm, so Goldman Sach, I'm Goldman Sachs right now and I'm doing an underwriting for the new shares of Corewave. They're coming to market. I'm going to give you these really rosy optimistic projections about how great this company's going to be and we have these decades long of revenue growth because if I told you that, hey, this company's coming out at a massive premium to earnings and we don't know if they're actually going to be able to grow into that or not, you're not going to buy the shares, right? So, they can't offload those shares on you. So, this is why estimates are always optimistic. estimates are always elevated and particularly at the beginning of a quarter for the next quarter and then they revise them down very quietly in the background because nobody's paying attention to them. But that's why we always get much lower estimates by the time we get to the end of a quarter. So let me let me just clarify one thing on that because someone will hear that and say, "Well, if they if they guide me to a big number and then they start walking that number down, then how come the stock price isn't adjusting?" And it's because they'll say, "Look, um, a year out, 12 months from now, we think we're going to have these amazing earnings, right? A quarter later, they say, "Well, actually, now that it's nine months away, those earnings aren't as good as we thought they were going to be, so we're ratcheting those down. But 12 months from now, man, that number is going to be awesome." Right. And they just kind of keep pushing that roll. They keep rolling it out there. Yeah. Exactly. So, so, so, so again, it's just really important to to pay attention to kind of what's going on. And if you take a look at the economy itself, you know, that's just not growing that fast. Here's a a chart of So, this is the ISM composite services index. Whoops. I want to share these two charts with you. So, this chart, so this is the ISM composite index. So this is ISM services and ISM manufacturing and they're economically weighted for the economy. So 70% services, 30% manufacturing because that's how our economy is currently weighted give or take. What you'll notice is is that the economy on a weighted basis is barely treading expansionary territory. I mean we're just kind of hugging along these lines. If you go back kind of in history, whenever we were at these levels, we were having the Japan shutdown, debt downgrade, we had the Euro crisis, Brexit, you had the pandemic, financial crisis, invasion of Iraq.com, you know, long-term capital. When you're normally at these that these points in the economy where the economy is just barely chugging along, estimates are coming down, the markets are struggling. Um, you know, there's worries about a recession, but we're we're we're ignoring all of that right now because we have such booming earnings. Earnings are absolutely just booming. If you take a look at the the last earnings for quarter 2, 85% of companies beat estimates. The the uh earnings earnings grew by like 9% uh on an annualized basis. So, everybody's like, "Oh, this is great." Problem is that all those earnings are coming out of two sectors. the megga cap and tech sector and the financials. Outside of that, there was no earnings growth. If you took those two sectors out of the economy, the the markets and the economy actually had negative uh earnings growth over the last quarter, which would look more like kind of what's going on economically in the economy, right? Let me let me just clarify something you said. So, you said um all the earnings growth is pretty much just in a couple sectors, right? It's it's it's basically about 10 stocks. It's pretty I'd say close to 20 stocks. It's the major banks. It's JP Morgan, Goldman Sachs, Bank of America, Wells Fargo, and then it's Palanteer, you know, Microsoft, Google, Meta. Okay, that's it. So, so, so all the earnings growth is in 20 companies. You also said 85% of companies beat their earnings expectations. I just want to that might sound contradictory to folks but you could have projected negative earnings that were better that were less negative than you expected. So that is an earnings beat even though it is still a loss not not actual positive earnings or or or it was when they say earnings beat they say okay um but I'm just making up an example but let's say that last quarter a company earned a$125 a share this quarter they earned a$123 a share right so they earned less than they did last quarter but the estimate was they were only earn a$1.15 a share so they beat earning So, but that's the whole problem is that going into each quarter we lower these estimates down lower lower until they can find and then that way we get a big bunch of companies that beat their estimates because we got the estimates below where the actual number should be. Okay. So, their earnings were actually declining but it was still a beat. It was still a beat and that's why, you know, taking a look at beats is is really not a good measure of the of the health of the overall market. Okay. Makes total sense to me. Again, I just wanted to square that up for people who might have been hung up on that dichotomy. Yeah. Okay. Um well, look, um let's let's get to the rubber meeting the road here, Lance. Um the average viewer is going to say, "All right, Lance, makes sense to me." Like, when is this going to matter? I I don't know when it's going to matter. I know you don't know. But but with a declining economy um it does become a matter of time unless something changes that trajectory of growth. Right. And I want to make one other point and I'll let you you know build on this but something that you've said is is look um uh you know a lot of the factors that many macro folks were worried about over the past two years they they didn't matter as much because we were still coming down from such a high degree of you know economic growth and we spurred the economy through all the the stimulus from um COVID and whatnot. Um but now that we are, you know, basically through all that, we're now basically just flying just a little bit over the horizon, over the ground at this point. And so dips in the economy now have the the potential to do much more damage or to be much more felt in the economy because we're so much closer to the zero bound at this point. True. True. But it doesn't matter. And this is this is the this is the the I don't want to say it's a bad thing because that's not that's not the word I'm looking for. But look, we've changed the market dynamic uh particularly in the last 5 years ever since really 2020 when we sent checks to households. We turned and and you know Robin Hood came online. We've we've turned the markets into this whole whole casino thing. Here's a chart of this is what's actually kind of stunning when you think about this. This is a chart of of ETF flows and you and I talked about this whole market. So this is a very important factor and when you talk about valuations and you talk about you know you know the the detachment of earnings from fundamental reality etc. that doesn't matter in the in the short term. It doesn't matter because we have so many people now just throwing money that top line that's just going 45 degree horiz, you know, vertical. That's retail ETF purchases. So retail investors are just throwing money into the market. They now we have now convinced them that the easiest way to wealth is through the stock market. Uh, in fact, there was John Penn and I, we we do this show on Tuesdays called Two Dads on Money. And we kind of just talk about how we manage money for, you know, teach our kids to manage money. Hope to try to help other parents with their kids. And we reviewed recently this article that was out. They did this survey of people under the age of 35 and they said, "Okay, when do you want to retire?" And the and the vast majority responses, I'll retire by the time I'm 35, but I'm not going to get there through saving through my job. the only way I'm going to get there is by investing uh in the stock market. And so this is what you see is that you see this whole dynamic of people that really didn't even come to the market until 2020 now seeing that's their own. So I'm buying Bitcoin. I'm buying, you know, ETFs. And of course, we talked about the whole function of ETFs. It just funnels money into the top 10 stocks of the market. Those 10 top 10 stocks keep going up. That drags the whole market up with them. their earnings are being generated by all these people now online, you know, buying ads and and buying stuff offline. That's just, you know, we're seeing massive growth in ad revenue for companies like Meta and Google and everything else. So, it's just a self-filling cycle right now. And that's just kind of distorting the whole market. And and the more money that we pile into ETFs, the more it distorts the market because it's just funneling 40 cents of every dollar, about 38 cents of every dollar into 10 stocks. And that just keeps lifting the whole market up, which then the market goes up, we get all excited, so we keep buying more of the ETF because it keeps going up. And you see where this goes, right? Now, what event what what eventually reverses that? Well, at some point you've got to get people to sell those ETFs. And I don't know what causes that. I don't I don't have any idea, but something's got to happen in this market that people start to question their ability to get rich by investing in the markets and they start selling their ETFs. Okay. Well, so as I'm looking at this chart, Lance, we've got the light blue line up in the top, which is the individual investor ETF flows that are taken off as you were talking about, but we have the the darker blue line at the bottom, which is the professional investors ETF flows, or more appropriately, outflows. So, is this an example of the smart money leaving out the back door, selling everything it can to the pathy coming in at the end? Well, you you say that, but you know, lately um you know, really over the past five years, professionals have been selling this market. Retail investors are buying the dip and retail investors are making the money. So, are retail investors now the smart money is the question because they're buying every dip on the expectation that that the Fed's going to bail them out, somebody's going to bail them out. And they've been right every time in April, good example, right? Everybody's all concerned about tariffs. professionals out there selling the market because tariffs are going to destroy the economy. They're going to create all this inflation. Retail investors were buying that dip the whole way down. They were right. None of the stuff that professionals were worried about came to pass. Okay. So, I'm just I'm just I'm just kind of stating the obvious, but we got to start we need to start questioning who the smart money is now. But so, okay, look, I I don't believe that you believe the retail money is the smart money here. I I believe you think they've things have worked out their way. But but let me ask you this then. So to me, I kind of look at that and I get more worried than just a regular correction, right? Like Yeah, you should. Yeah. Okay. So my follow at some point, Adam, and again, I don't know what causes it, but at some point something will happen. It will be unexpected. It'll be exogenous. be nothing that we're talking about today or you can fathom right now something will happen that causes people to question Bitcoin causes people to question stocks qu and that starts the outflows. Um this chart right here this is the earnings per share of the magnificent 7 versus the other 493 shares of the company that of of the index that is not sustainable. You cannot have an index trading at 25 times earnings with only seven companies driving the earnings. It just doesn't make sense. But in periods of exuberance where people throw caution to the wind, I'm buying call options out the wazoo. I'm not hedging my portfolio. I'm not buying who wants puts. This market's never going down. You know, this can last for a long time and this could last weeks, months, years, who knows? And speaking to your point of of who wants puts, I think the put to call ratio is back to plumbing. It's it's near its all-time lows right now. Absolutely. Uh sentiment's getting very optimistic again. Um you know, we take a look at sentiment indexes, we take a look at positioning indexes, those are getting very bullish again. Uh technicals are getting very stretched, although this kind of recent correction we had this week relieved those a little bit, but they'll be back up to all-time highs next week if this rally continues. Okay. Um, so just a reminder to folks, you know, the best time to buy insurance is when you don't need it and ideally when it's on sale. Um, and when nobody wants it. Yeah. So, you know, maybe not a bad idea to consider just adding some, you know, longer term uh, put options to your portfolio here if you're experienced hedging with puts or if not, talk to your financial adviserss about what what what affordable hedges might make sense right now given your current portfolio allocation. Um, okay. So, let's see here. Um, okay. So Pal is talking about um apparently today talked about uh the integrity of the employment market and and maybe indicating that it he's starting to get a little bit more nervous about it than he he has been which I think is kind of interesting Lance because all year when he's done his his press conferences the the media corps which generally treats him with kid gloves has I think voiced some um you know uh some cons you They they've said, "Pal, you're saying, you know, Chair Pal, you're saying everything's just fine, but we're hearing these stories about the jobs market maybe not being as robust as it seems." And Pal really kept trying to dance around like, "No, it's not. It's not getting worse. It's just normalizing. This is all good." Sounds like maybe he's finally beginning to not be able to dance around that as much as he has in the past. So, obviously, where the employment market goes is critical. Where employment goes, where unemployment goes, the economy goes, right? Um, but another big factor around people's um, sense of of personal financial well-being and ability to spend is housing, right? And I've done a couple of of interviews this week with housing experts. Um, one of which which is has released already. The other one's going to release the day after this video airs. Um, the first one was with Ivy Zelman. The second one is with Melody Wright. Um, Ivy is um, you know, she's she's she's much more sort of establishment. She's a very, you know, popularly followed housing analyst. Um, she has a lot of corporate clients and whatnot. And, and honestly, this not Ivy hasn't said this. This is my interpretation. It's harder for her to be bearish publicly um because she has a lot of paying clients and because there's a lot of mainstream media that kind of hangs on what she says. Um that said, she believes that um you know a housing um correction is in play and uh we will see a uh a drop in national housing prices in 2025 by the end of this year. Um now she thinks it's it's you know we're probably seeing the worst of it right now and in her words we'll be grinding along the bottom for a year or so but but she thinks you know the healing is slowing slowly starting. Um, you know, I'd be interested to see her debate with with Melody, right? Because Melody uh thinks that we are at the start of a of a multi-year housing correction here. But my point here, Lance, is is you've got, you know, analysts on different parts of the housing spectrum saying things are going to get worse before they get better here. It's just a degree of how much worse they get. H how big of an impact do you think that's going to have? like when you say things that make people start to slow their role in terms of their level of speculation, you know, would a material enough housing correction get enough retail investors to say, you know what, I I I got to start playing it safer here. Um, no. Um, and the reason why there's Well, let me let me back that. Let me say that up. It depends. It's not a no. It's it's it depends. If the housing correction happens literally overnight like we had in 2008 where you had the mortgage industry just lock up and freeze. Yeah, that's going to be a big problem. If this is something that just grinds along for two or three years, markets will adapt and it won't be a factor because everybody will just become aware of it. Now, what that will do is that's going to put a lot of downward pressure on inflation because housing makes up 40% of the CPI population. So, right, which is another thing in in Hanky and yours camp there, which is the biggest factor is def is disinflating right now. Exactly. Well, it's actually deflating right now in a lot of markets. Yeah. Exactly. And so, but but yeah, when you look at the housing market, there are a couple of interesting things going on and and this is, you know, everybody's hang everybody's hanging out. So, I talked to a lot I have a lot of real I have a lot of real estate clients that I do hard money loans with. Um I do I have a lot of contacts in the real estate industry and they are all like this for Fed rate cuts because it's the Fed cuts rates that incre that that that m that helps boost the whole value of the underlying real estate project. Um because you start having cap rates improve, everything else gets better. Your discount rate gets lower. Yeah, exactly. Lower discount rates. um easier for people to get financing for deals. A lot of these real estate deals that are getting built right now are all hinged on lower rates to refinance, you know, two or three years from now so they can refinance all their investors out of it. Um so everybody's hanging on to this and there's a there's So the question though becomes what market are we talking about? Because if we're talking about the new home market, that's one thing. If we're talking about the existing home market, that's another thing. Because for the first time on record, existing homes actually cost more than a new home. Because a lot of people are sitting on their houses because they can't sell their house and then go buy another house because the mortgage rates are too high. They've got a 2% mortgage. They don't want to go get a seven. So, we've got a lot of pinup in potentially pin-up sales. We talked about this before that maybe one of the surprises is rates come down and we have a big drop in housing prices because so much supply hits the market. I don't know if that's the case or not, but that could be a surprise that nobody's thinking about. I think it shouldn't be dismissed. And also just one other thing too which is I mean many both Ivy and and and uh Melody think this which is the builders are showing us the way of the future. They are doing mortgage buy downs, price concessions and other non-pric concessions to move these homes. Right. So it's basically just showing that like look what clears inventory is lower prices. Yep. Well, and again, then the other side of this is is maybe rates come down and we get this massive surge in, you know, the the the developers go, "Okay, rates are down. Let's go." You know, we've been holding back on building, you know, new new multifamilies or new housing divisions or whatever. Maybe they come to market and just start building a lot of supply and we have a big jump in supply that we're a bit short right now. We have a shortage of supply. We've got about eight month eight eight last time I checked it was around eight months of supply right now to get into markets. All of a sudden you get a big jump in supply that depresses pricing more. So my point is is that I think there's a lot of unanticipated consequences coming to the housing market that maybe we're not all kind of thinking the way through because right now it seems to me most everybody I talk to in the real estate market they're just crossing their fingers for cuts because this is going to just cause their business to boom. And maybe they're right, but I just think there's a maybe there's a risk out there that that doesn't come to fruition like everybody thinks. Yeah. Um I I hate to speak for other analysts, but I think Melody would say I'd be very cautious if that's your strategy here. Um last point and and then we'll get to your trades, Lance. Um Melody said something really interesting. So for years when I interview housing experts um now I I have bandied about the intellectual exercise of we've got all these baby boomers you know what's going to you know the the the last of them are still hitting retirement age you know at the rate of 10,000 a day right um but the older cohort is getting closer to the day where 10,000 of them are going to be aging out right meaning either going to the nursing home or dying, right? Um, and so the the the intellectual question I've I've I've asked them to expound on is, you know, what is that going to do for the housing market? Is it going to place a multi-deadal headwind on housing because you're just going to have this relentless inventory coming on, you know, day by day for for 20 years, right? And in most cases, those homes get sold, right? You got multiple kids, you know, the kids start fighting about who gets the house and they're just like, you know what? just sell it, right? We'll sell it and split the money, right? Um, so I would say in general, everyone I've talked to has said that, yeah, that is going to be a real demographic trend here in housing. It's going to change housing for a prolonged period of time. You're going to have this just, you know, unstoppable headwind. Um, which could be a good thing. Oh, it could be a great thing for affordability for your right. I mean, it'll be a bad thing, as we've talked about, for those boomers who are who are expecting to sell their homes for a certain price. where you may be able to sell your home in the future, but there may not be demand anywhere near what you're currently hoping you're going to get for it. But but the important thing was talking to Ivy, she was like, "Yeah, I asked her about it this time." And she was like, "Yeah, I still think that's going to happen and it's coming soon." And I said, "Well, you know, when it does, let's let's sit down and talk about it in real time." Talking to Melody, she says she's seeing signs. It's already started. And I think that's really interesting that we're going from the academic to the real. Yeah. No, I've seen some data lately that, you know, look, I'm I'm I'm not I do enough real estate analysis for my hard money business, so I understand what's going on that STEM front. Um, but no, I've seen I've seen some data lately that kind of supports Melany's point that, you know, that that that slowdown is occurring and we're starting to see, you know, houses sit on markets longer, those type of things as well. So, you know, I don't think it's it was interesting. There's this um company uh here in Houston. They um have been running they they do like educational classes and seminars and stuff like that for multif family housing and they recently just quit advertising with one of the radio stations here in town because the the lead flow has slowed down dramatically. And I I think that's just a function of of kind of really what's happening in in the overall markets. We're starting to see, you know, a lot of those like a lot of those opportunity zone deals. When Trump was first in office, he created this tax break called opportunity zones. And we saw all these people run out build opportunity zones. And we had a lot of clients coming to us going, "Hey, we want to invest in opportunity zones. What do you think?" I'm like, I would be very careful with that because you're getting a whole bunch of properties built in areas that, you know, are not great and these projections are really optimistic and if rates go up for any reason whatsoever, you're going to be screwed. Yeah. It's exactly what happened. And a lot of these people now, they were looking for deals where they could be out of them in three years. They're locked up in them for decade or more maybe before they actually get out of these things. So, you know, again, this is why, you know, if you're going to do private equity investing, real estate investing, whatever, make sure you really understand how to do your analysis because, you know, they all these optimistic projections are always extra rosy going into these to to get you to invest. You got to really think about, okay, well, let's stress test these things. What happens if rates go to here? Or if this happens, what happens to my investment? And a lot of times you'll figure out that there's a lot more risk in these than you think, right? Well, look, um, I'm sure that the real estate's going to give us a lot to talk about going forward here. So, we'll we'll pick up this baton again in the future as need be. All right. As we begin to wrap up here, Lance, trades. What trades have you guys at RA made over the past week? None this week. You none none this past week. You know, previously we added healthcare. We trimmed back tech about three weeks ago. We were a tad early, but that's worked out very well for us. Um portfolio is doing really well this year, holding up well against the market. Um the the interesting ones that I've really been fascinated is all these thematic models over the last you know two and a half weeks uh actually three weeks now because just to watch that that there's so much information in those telling you where money is rotating the markets and you can just see you know like the all weather portfolio which has gold and precious metals and those type of things you know it's done okay but small midcaps are crushing it by over by about 100%. %. So, wow. You know, just in three weeks. When you talk about these theatic models, you're talking about the new models that you released on Simplevisor that we walked through last week, right? Yeah. Exactly. So, um you know, and you can kind of see them here. Um but basically, you take a look at all weather. It's just again, this was just two and a half weeks ago, the all weather portfolio, which is gold, silver, you know, has, you know, some dividend yielding stocks in it. It's very boring. Um it's up about 2 and a half%. Small midcap's up 4.1%. Um, you know, so it's it's been, you know, and and but interestingly enough, we have what's called an accumulator model. I know. I love how that's crushing it. Yeah. Yeah. Now, the accumulator model is it's just five ETFs basically. It's real estate, international, emerging markets, u uh S&P and NASDAQ. And it's up 4.86% over the last two and a half, three weeks. Um, and keeping pace with small and midcaps. But that's but you dig into that that portfolio. This is for people just getting started out. So, you got like $5,000, you just want to get invested in a portfolio, whatever. Um, this is kind of a good place to start because you can just kind of start building this model and then start kind of just adding to it. But, you know, that is really a function of your you're when you dig down into that, you're seeing that it's international, it's emerging markets, those are really outpacing the overall market. So when we saw that rotation to defense last week, we saw money rotate the more defensive areas like real estate. That really helped that portfolio outperform. You know, it's up 2% today because the market's up too. Um but you know, small midcaps and crypto are crushing it today. They're up three and a half% each. So it's just interesting, like I said, to watch the factors of the markets kind of because that's what these are really representative of because it kind of tells you where it's risk on or risk off. Yeah. Well, and this is this simpleizer is great for a whole bunch of different um types of people and we talked about it last time around, but it but it is really great for people that are just starting out who, you know, to your point, Lance, they just need to accumulate so that they can get up to the point where they can graduate to a full service relationship with an adviser like you where they can start getting really customized um uh strategies implemented. Um so um when it's great you've got that accumulator model that gives them good diversification and they can just you know benefit from that over the course of their their accumulation phase but simplizer also lets them look like I know you've said um uh you know before you um uh build a car you know just get in a car and drive around to get a sense for how the car works right so you've always said like yeah just just get in the market and Just watch the market before you start getting real sophisticated with individual trades. Just understand how the market works. You know, what it does when certain things happen, what it doesn't do when other things happen. And what's cool about all those other models you have there is they give you a sense, a better sense of kind of the heartbeat of the model. Oh, given what's going on right now, yeah, everything's going into small caps or everything's going into the high-tech high beta companies or whatever. Right. Exactly. It's it's it's very good for as you're accumulating to just sort of get that exposure to how the markets generally function. So by the time you're getting to the point where you're starting to be more specific about I want specific exposure to X Y or Z, you have a good sense for how that asset sector class or sector responds. Exactly. And again, that's why we again that's why you know like last week we were going through the sector rotation looking at what sectors are out of favor versus in favor. It gives you just it just gives you a lot of information about because money doesn't leave the market. It just rotates where it is. So over the last week or so the high dividend model and the accumulator model did really well because those are more def and the and the all weather model which are more defensive did really well. Today they're not doing so much because every the money's coming out of that to go back into the all you know the risk on model. So it just, you know, watching these rotations can teach you a lot about, you know, not only where to invest in the markets, but when to take profits, how to rebalance, you know, when to rotate between momentum and and and value, those type of things, because those can help you really outperform over time. You know, we get all wrapped up into one thing. We're just, oh, we're all momentum. That's great until momentum stops working. And if momentum stops working in your portfolio, where's the money in your portfolio going to go? Is it going to go somewhere else in your portfolio? are going to leave your portfolio and go to somebody else's. And that's why it's really important to understand and have a balance of these things within your your overall financial structure. Okay. All right. Um well, look, let's um let's let's get to the rant and then we'll wrap things up here. um you know last week for sure but but often on this channel Lance we talk about um you know dealing with adversity and um the fact that culturally um we have become less resilient, right? I we talked a lot about Greg Lucinoff and the coddling of the American mind. We talked about how um you know more often than not um people are want to adopt a victim mentality rather than just take control you know of their lives and solve their own problems. We've certainly seen that kind of been sold to younger generations. You know, it's victims and oppressors, right? Um, so today I was trying to see if we could maybe talk on on the other side of things, right? On the more positive side of things, there's no positive. It's all it's all doom and gloom. Well, yeah, but also just like, you know, so so what's the inverse of that, right? And and and the word I I I kept coming to was grace. Um uh you know living life uh dealing with adversity uh with you know grace and uh uh you know positivity but you know the ability just to not um wallow in self- despair right. Um, so, uh, I've always, you know, I'm I'm I'm generally a pretty like non-emotional guy, but the topics that I I I have the most emotional resonance with is when I see somebody, uh, you know, really performing with grace under pressure. Um, so I want to tell a quick story and then then uh then we'll hand the baton to you. Um, I mean, this really was terrible. I remember uh this is probably like getting close to 20 years ago. Actually, it was more than 20 years ago. No, no, I'm sorry. Uh it wasn't that long ago. It was um I don't know 10 years ago. Um uh I I we were visiting my in-laws and they had the newspaper on the table and on the cover of the newspaper was a terrible tragic story about a family that was camping in Yusede and um they were right there in um like the main camping area. Um so they weren't, you know, totally off in the national park on their own. Uh and uh the son was with a friend. So these are teenage boys, probably 15, 16. And uh they were sleeping in their own tent and the a branch from one of the giant redwoods there broke off and landed on their tent and killed the boys. Um just a terrible development. And the the uh article talked about it was written by somebody who was there and they talked about how you know the the the morning stillness was pierced by a woman's scream who it was the mother waking up and realizing what had happened to her her son and his friend. Just a terrible heartbreaking story. Um, so later on within a week or you know so I learned that uh the woman who screamed the mother was a good friend of mine from business school and uh uh just a you know terrible terrible loss. Um, as these stories go, this young man was, you know, top of his class, bright, shiny kid, accomplished musician, you know, beloved by everybody, star athlete, you know, just just the whole package, right? It's how these stories go. And of course, devastating to my friend uh and her husband and their their daughter and um you know, just just broke her the way that you would imagine this would. But um she you know persevered through it all and um has become somebody who speaks very openly about it but but doesn't wear the grief like um you know uh a permanent veil you know over her body. um she she uses it as a way to um you know process how she's feeling in any given moment, but really to show others that there's a a way through devastating loss and big life challenges and that there is an other side to get to. You know, you're forever changed by by tragedies like that, but they don't have to define your entire identity and they don't have to permanently break you. Um and so she's ended up um you know really helping people deal with loss as a result of that. Um it's not what we she does for a living. She has a regular job. Um but she is very involved in in helping people who have had terrible things happen to them learn how to get through them. Um so anyways, she is a great example of of persevering with grace. And uh you know what's what's great about this is her name is Grace. Um so anyways, wonderful person. Um where I'm going with this is, you know, my wife is a a couple's therapist and um she has a lot of clients who are very successful, you know, a lot from Silicon Valley. And what I've learned from the sidelines watching her do her work is that, you know, no matter how great anybody's life looks, Lance, you know, everybody has their own stuff that they're going through, their own trials and tribulations. Um, and it's it's uh really at the end of the day, the choice that you make, you know, am I going to am I going to am I going to make myself a victim out of this? Am I just going to rat hole in how much life sucks and talk about all the things I wish were different but you know how the universe hates me or the system is is broken or bad or whatever. Um or am I just going to, you know, deal with it however it is and just find a way to get to a better place here and kind of, you know, become the hero in my own story even if the process may suck, right? I'm I'm just going to not let it define me. I'm not going to let it uh uh steal my agency. uh and I'm just going to find a way through this to a to a better point. So, um I I'll wrap it up here, but my my advice here to folks is, you know, recognize and practice grace more actively in your life. Um whether it's with the the challenges that you're going through um or whether it's, you know, recognizing those who are dealing with trying times, but but doing so with grace, right? not not not letting their problems uh become everybody else's problem or not just spinning in despair. Um we need more of those people. We need more of that grace in life. Uh and uh you know we'll get it by practicing it. And I I'll end by noting Lance um you know I know you and your family are going through a bit of a challenging time right now. And yet you know you're here doing this this interview. You're not letting on that you've got other balls that you're juggling in your life. You're doing a good job of being an example of grace right now. Yeah. Yeah. When you were going going through this, I was like, this is hitting a little bit too close to home right now. So, I don't really have a lot to say right now on it because I don't want to break down. But, um, yeah, you know, just, you know, and this is but, you know, this does bring up, you know, a lot of the stuff that we talk about here from time to time, especially for the younger generation. And a lot of times, you know, we'll we'll talk about topics and then I'll get, "Oh, he's just an old boomer. He doesn't understand he doesn't understand our plight because he's an old boomer." And I'm not a boomer. I'm Gen X. But, you know, same thing. Um, you're all Gen X, but you're Gen X. Exactly. Right on right on the cusp. Um, but but the point is is that, you know, we can all just curl up in a ball and go hide in a closet and hope it'll go away or you can just kind of pick things up and say, "Okay, recognize what the problem is, come up with a plan to fix it and and then move forward." One of the greatest pieces of advice, so I told you before, I have this mentor. one of and and you know it's always funny when people talk about success they go oh look how successful that guy is overnight success well it only took 10 years to get there but you know just like Adam overnight success took him a while to get here but you go through when you're when you're doing 54 year overnight success yeah exactly right so you're trying to go through you know when you're trying to build anything you're going to go through a lot of challenges a lot of hurdles a lot of disappointment things aren't going to work the way you think and you're going to have to to start over a But eventually you're going to get there, right? It's just but you got to stay to it. And so the the easiest thing for us to do is just to quit. It's like, okay, well, I just, you know, I can't I can't afford a house because everybody tells me I can't afford a house. Now, you haven't really done the work to figure out if you can afford it. You just assume that you can't because that's what you hear in the media every everywhere in the media. It's like, oh, housing unaffordability, you can't afford a house. Yeah, that's using some means and some some statistics and a lot of assumptions, but real estate's very different everywhere you go. It's different California, it's different in Texas, different Wyoming, you know, there it's just everywhere. So So when you hear these these media headlines that tell you you can't do something, ignore it. You can do whatever you want. Now, it may be a challenge. It may require a lot of hard work. It's going to require discipline. It's going to require getting up and and slaying. You know, I tell my wife every morning I get up like, "Okay, honey. I'm off to slay some dragons today." Yeah. And you know, and she does the same thing. And every day we're, you know, we're pushing forward together. And and and right now, um, like Adam mentioned, we're in a very, very tough spot. And but, you know, we woke up this morning and said, "Okay, this is this is our challenge. This is what we've got to get through." And you know, we're praying a lot and we're just figuring out, okay, it's not how to get to the end goal, it's how do we get to tomorrow? And if we get through today till tomorrow, then we'll figure out how to get to the next day from tomorrow. And we're just and we're just taking it one step at a time right now until we can see clarity as to how do we get to the end of this road of of wherever this turns out, good, bad, or worse, and and we'll deal with it. But that's, you know, for a lot of people though, they just quit and they say, "Okay, well, this is too big. It's too daunting. I'm told I can't afford a house, so I'm not even going to try to save money to buy a house, right? I'm I'm just using as an example, but it's everything, right? I can't go start a business because everybody says I can't start a business. I can't build wealth because, you know, everybody tells me I can't build wealth." You know, whatever. You know, pick what it is. And then one of like I I was going back to my mentor. You know, one of the things he told me was is that whenever you have a problem or a challenge in life, there's certain things that you can't do anything about today. I can't do anything about the situation that I'm dealing with right now. So, I take that, I put it in a box. I'm going to put it up on a shelf here for right now because I can't do anything about it today. I'm going to focus on the things I can control. I'm going to show up here for Adam. I'm gonna continue to run my business and I'm going to continue to do the things I need to do that I can control because that gives me a sense of control about what I have in life. At some point there's going to be a solution that presents itself for that problem that's on the shelf and I may have I have like 10 problems on my shelf right now. So, you know, and and as a solution presents itself, I go take that box off the shelf. I deal with it. But if I just sit around and worry all day about those boxes on the shelf and and wallow in the idea that I just can't solve that problem, it it just ruins me. I get nothing else done and I get I I make no progress on any other front because I'm so tied up into this one problem, this one singular problem I can't solve right now. I'm so tied up into that I can't do anything else. So he told me that piece of advice and it was one of the greatest mental changes that I ever implemented which was and I'm not ignoring the problem. I know the problem's there. I just can't do anything about it. But instead of focusing on that, I'm focusing my efforts on the things I can control. And that gives me control, which is the one thing that we're always wanting in life. We just need control over outcomes. Our worst despair and our worst depression comes when we allow the uncontrollable to take over for everything else in our life. Yeah. Well, look, very well said, my friend. And um yeah, you know, I I hate to pull the slogan because I hate lot lotteryies, right? But it's the you can't win if you don't play or that Michael Jordan or whoever said it, you know, you miss 100% of the shots you don't take, right? Um the people that give up, right, that that that just capitulate like you said, Lance, you're guaranteeing the failure that you're you're ruing, right? where you know if you if you want to have a better tomorrow uh it is a matter of getting up you know grabbing that sword and heading out to face that dragon uh or just you know putting those the James Clear the atomic habits just start doing what you can and to your mentor's point um yeah to today the doors might be closed to you to to to get to where you want to get to but if you still put yourself out there every day um when one of them starts cracking open you'll be in a position to start, you know, forcing that door open the way that you want it to be. So, anyways, um, you know, I I just I wanted to inject some positivity, uh, into this discussion, even though we're talking about heavy things here, um, is, you know, to your point, we we will hear in the comments sometimes, a you're just a bunch of old boomers who don't get it or you guys are just doomers, you only want to talk about negative things, right? You know, I I think really recognizing and then emulating uh the things that we need more of in this world. And I think grace is right near the top of the list. Um it's something that's in with within all of our controls and and we are all dealing with challenges. I am absolutely sure that everybody watching this video, Lance, has uh things in their lives that they're saying, "I don't I'm not sure how I'm going to get beyond this thing yet." Um and uh hopefully you take a little bit of of uh faith, hope, and inspiration from us to just say, "Hey, look, just practice grace. Just keep getting up and doing it, you know. Um uh keep calm. Stay calm and carry keep calm and carry on. That's the old World War II one, right? Um, so I'll end it there, but but again, buddy, I just want to say you're you're doing a great job of practicing it right now. Well, thank you. It's I don't know how I'm going to get through this, but we'll get through it. All right. Well, you will. And as we've talked about off camera, you know, anything you need from me, I'm sure anything you need from this community as well, folks will step up. Um, all right. Well, look, in uh in beginning to wrap up here then, folks, um uh very important announcement. If you didn't hear it already this week, the thoughtful money fall online conference um is now uh officially open uh for registration. The conference itself is going to be Saturday, October 18th. Uh if you can't watch live, don't worry. Everybody who registers, just like all our past conferences, will get all of the uh presentations and all the live Q&A, so you won't miss a beat. can watch those replay videos, re-watch them to your heart's content. Uh we've got a fantastic faculty. I won't go through it all right now because I I went through it in uh a video that I just launched yesterday on the site. So, you can go watch that video and get all the details or you could just simply go to thoughtfulmoney.com/conference. Get the details there and you can register at the lowest early bird price discount. That's the lowest price we're going to offer uh for the conference. So, I want to make sure as many people as possible get to lock in that lowest price. And as a reminder, if you are a premium subscriber to the Faloney Substack, uh, go look at the email I sent you, you'll have a code from me there that you can use to get an additional $50 off of the conference. And just a quick reminder, if you don't subscribe to the premium Substack yet, it's only $19 a month. So, if you want to gain the system, sign up for a month, pay the $19 to save the 50 and pocket the 31 difference, great. I'm happy. Take advantage of the system like that. I just want as many people as possible uh to get the lowest prices possible to um to attend and enjoy the conference. Going to be a very important conference this year, folks. A lot of uncertainty heading into 2026. So, we've got the best minds in money in the markets there to tell you what they think is most likely to come. So, as a reminder, uh run do not walk to register if you haven't already at thoughtfulmoney.com/conference. All right. And if you think one of the absolute best ways you can start practicing grace more in your life is to continue to watch Lance Roberts on this channel week in and week out, please let him know that by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. And as always, if you would like to get some help in figuring out how to navigate your uh financial wealth through what the future may hold in store for us, if you don't already have a great financial adviser who's guiding you through that, consider scheduling a free consultation with one of the ones that thoughtful money endorses. To do that, just fill out the very short form at thoughtfulmoney.com and these firms will be in touch with you right away. Uh Lance, my friend, another great week as usual. I'll give you the last word here. Well, I just think that if you're showing up here to listen to this every week, that's a lot of grace right there. So, I'll take it. Yeah, if you've made it all the way through the end of our long uh rants every week, that that's exhibiting. That's a lot of grace. That's a lot of great I appreciate it very much, by the way. Thank you. All right, my friend. Thanks so much. And everybody else, thanks so much for watching.