A.I. Mania Creating Twin Bubbles In Stock Prices AND Earnings | New Harbor Financial
Summary
Market Outlook: Team highlights extreme market narrowness and potential blowoff-top dynamics, while relying on a rules-based dashboard and adjusting option hedges amid whipsaw signals.
AI and Semiconductors: AI-led semiconductor gains are driving indices; the vertical move raises risk of a sharp pullback unless breadth broadens beyond chips.
Energy Sector: Energy surged earlier on higher oil and Iran/Strait of Hormuz risks, but has cooled recently; sustained market advance likely needs broader sector participation.
Valuation Risks: Discussion of an AI valuation/earnings bubble, citing examples like Marvell’s spike after Nvidia’s CEO remarks and Microsoft curbing internal AI spend, raising rerating risk.
Real-Economy Support: Data center capex has surged to record levels, surpassing US transportation spend, potentially delaying recession but increasing macro dependence on AI-related outlays.
IPO Market: IPO window reopening with mega-deals (e.g., SpaceX) is seen as late-cycle behavior; historical stats show median IPO underperforms indices over 1–3 years, warranting caution.
Risk Management: New Harbor maintains moderate equity exposure and uses options for insurance, ready to re-hedge if indicators turn negative.
Key Mentions: Companies and tickers cited as context include Nvidia (NVDA), Marvell (MRVL), Microsoft (MSFT), Alphabet/Google (GOOGL), Berkshire Hathaway (BRK.B), and ETFs SMH, XLF, XLV.
Transcript
We probably have a valuation and an earnings bubble. Doesn't mean these aren't real. They're not transformative, just like the internet was. But we've gotten way ahead of ourselves. We we very much think Welcome to Thoughtful Money. I'm thoughtful money founder and your host, Adam Tagert, welcoming you here for our ongoing monthly series with the team from New Harbor Financial. They are one of the endorsed financial advisory firms by Thoughtful Money. And you see these gentlemen with me uh on this channel every week, usually coming on after one of our big interviews. Uh but once a month, we like to give them the full spotlight and uh dive deeply into what the team at New Harbor Financial sees currently going on in the macro side of things and then what their market outlook is. So, um as usual, I'm joined by John Lodra and Mike Preston. Gentlemen, thanks so much for joining me. Um, love to hear what you guys are seeing in your market crystal ball. And Mike, why don't we start with you? >> Hey, Adam, thank you. So, here we are recording on June 3rd. So, 5 months out of 12 of the year are gone and it's been a wild ride already. The conflict in Iran's been going on at least 3 months, longer than most or many have thought that it would. I can tell you a lot of our clients are concerned. talking to a lot of our clients are saying, "Well, geez, things just don't seem unsustainable. They think the conflict in Iran is going to get worse or something else is going to pop up ge geopolitically." And that's normal. There's always uncertainty in life. And the way that this market has been acting has been relatively concerning. It's been a straight up move and it's been a very narrow move. We're going to get into some some graphics that will show you just how narrow pretty soon, but it's very very challenging because as an individual investor or as a money manager, you need to try to make money for people to try to stay ahead of inflation to to to pay for life goals. And to be honest, this cycle that we're living in is different than others. It's different in this way. We have been at a relatively high extremely overvalued level for way longer than I think any time in history. The cycllically adjusted PE ratio, the Buffett indicator, any number of these indicators that you can look at that are statistically reliable reliable at predicting future returns have not mattered. And so that's driving people a little bit crazy. So what do you do to to to take emotion out of your decisions as an investor or as a money manager? The best thing that you can do is to have some kind of system that tells you what to do if there's some doubt and there's always some doubt because humans are emotional. Money managers are emotional. Everyone has their own psychology and their past to deal with. And hopefully that past is a past that has made you stronger that gives you depth in an experience. But even then with that experience, nobody really knows for sure what's going to happen next even with the best indicators. So the indicators are our guideposts. Our experience and our committee is what helps us execute and make exact decisions and those decisions aren't always absolutely correct, but at least we have skills and tools to be able to react if they're not correct. So we have a dashboard of indicators. It's really it's it's it's nothing super fancy. There's no black box that anyone can design that you can just press a button and have it print money for you. You I know that high frequency trading and hedge funds and algo trading they have they they try to find these things but that that field is so developed and so competitive. I'm just not really sure that that's there's really any edge there. What there is an edge in, I think, is be being willing to be different than the pack. having a system that you're willing to stick to, having tools like knowing how to use options that can hopefully round the corners or help you have some um a little bit more forgiveness when you're not exactly right. So, our panel of indicators include things like bullish percents. Bullish percents for the major indicators S&P, NASDAQ, NYSE, old school tools like point and figure charting that measure breath, bullish p bullish percents, relative strength analysis of sectors versus others in the market, moving averages, a lot of old school technical analysis. It's not perfect. Algorithms aren't perfect. Nothing's perfect. But when you have a system that works for you and you've developed confidence in it and you have experience and lots of years like John and I and the rest of our team have, uh, it works. It works. And so our indicators have been flipping back and forth. About a week or so ago, our indicators all went into the green zone again. We had breath come back into the market. Even though it's been narrow, our signals, our various signals said where we've got a bullish tilt. And so therefore, we took off our our index put. We had a July S&P 500 7,000 put. We sold it. We took a loss on it, but that's the cost of insurance and we preserve the value that was left in that in that put and we sold it. If our indicator flips negative again, we'll put something similar right back on. So, our indicators right now are bullish back and forth whipssaw action. But here's the thing about the whipsaw action. We're not saying we're in, we're out, we're in, we're out. Our equity exposure has been roughly the same, right around 48%. Which is another thing I would say that makes us different. We're willing to say, you know what, our indicators are bullish, but this environment is just insane. So, we're going to cap out at a high at a lower level of equity exposure than than a lot of our peers, and we're willing to underperform in a vertical up market for short periods of time. But we've been going back and forth on our indicators and instead of selling in and out of our positions, we've just adjusted our option hedges. And right now, we're in the green or the bullish zone, and we've taken off our option hedges. Just a couple more things to give you a market recap. I'll try not to drone on too long. Um the the market has been extremely narrow. I think I'd like to share a chart here briefly. And as that's coming up, this market, everyone knows it's narrow. We're talking to people and they're starting to feel FOMO, fear of missing out. I had a couple conversations today. Uh people want to be in semiconductors. They want to be in AI. Take a look at the S&P 500 through I think this is June 1st. The S&P 500's up 11%. What's up 11% or more? Well, I guess industrials are up exactly the same, but throw that one out for a minute because that's the same as the S&P. Really, it's just info and energy. That's it, right? So energy has been on a tear, kind of a quiet tear. People haven't noticed too much, but that certainly has been benefited u or it's been benefited by the higher oil prices in Iran. Technology is all about AI. I mean, semiconductors just went berserk. The ETF SMH semiconductor holders went from like 250 or 300 and it shot higher than 600 in a very short period of time. I will say this, there's some lagards in here like financials. XLF, the ETF for financials has been hovering around 50 stubbornly. Healthcare things like XLV or or pharmaceutical has been lagards. And so some of these things are going to have to start jumping in and participating or this market won't be able to keep going. So the narrowness is a warning sign and I but it's not necessarily saying sell because we don't really know if these things will broaden out and carry the whole market higher or if this is a sign of an impending top. It's something to watch, that's for sure. >> There's there's >> And sorry, Mike, just just let me chime in there. Um, you don't need to bring it back up, but that chart, it was energy and it was semiconductors essentially that were doing most of the the the line share of the driving. And energy has is kind of cooled, right? that that that that gain was really at the beginning of the year in the energy stocks um pre Iran and then obviously um as oil started creeping up or not creeping up shooting up because of the the straight of Hormuz closure um it got even more tailwind to it but it's kind of the past couple months I'm doing this from memory but I think they had been relatively flat the the action in the past two months has been the semiconductors and um you mentioned how what the semiconductor index there essentially tripled in like less than two months, Mike. Um, so that move is is almost becoming vertical. And you know, there's that old saying that vertical moves in the market uh don't resolve by going sideways. Um, they they generally have a a real market pullback. And we were saying the same thing about precious metals coming into the year when they were having their vertical price movement. Um, so I guess my question for you is, yeah, I know that you're asking, hey, does this momentum pull the other sectors up with it eventually or, you know, does it does it reverse and um, you know, take the indices down with it? I think we don't know yet, but I'm going to guess you're you're kind of concerned about the latter given the verticality of the the current semiconductor movement. Is that true? >> I'm a little concerned if this doesn't broaden out quickly that we're going to have an issue. It's it's interesting in in the investment committee many months ago. I remember saying and this is I don't know if you remember but there was a time there early in the year where we were saying well geez the S&P hasn't done anything in since August or September. there was kind of a rounded top and semiconductors were lagging and and we were saying, well, if the semiconductors don't kick in and start moving here, this market is not going to move higher and have this maybe blowoff top that we think might be needed to finally put a top in this market. So, there's no way that was going to happen without the semiconductors. And and here we have the semiconductors. They just doubled in a few months. So, there's there's the answer. It happened. We came off the the lows of the when we had the Iran conflict and we just went straight up, you know, a thousand plus uh points on the S&P and we broke out of the old highs at 7,000 and had that 500 S&P point gain in just a couple weeks. Something that we were looking >> violent reversals and and vaults to new highs sort of ever in market history, right? >> Yeah, certainly. Absolutely. I mean, certainly. And it wasn't even a deeply oversold situation like March 9th, 2009. I still remember that day. Anyone that was around that was the low and it was vertical. This was pretty much the same but from a higher level. Pretty crazy. >> Well, much higher level valuation wise because we talk about how extreme valuations have been all the time on this channel. >> Sure. It's it's been it's been pretty remarkable. So, I guess just to kind of put a put in a point on it, the semiconductors did kick in. brought us into that massive reversal and I think brought us into what would be like this parabola phase or blowoff phase. We're not going to continue from here unless some of those other sectors start to kick in. There's no way. So that's the big question. So and again, we don't know. So we'll have you on this channel every week um to give us updates in real time. But let me ask you this, Mike. Um, you have been, if I've been taking good notes over the years with you, you have been saying for a long time, the sort of long bull market cycle that the market's been in, um, uh, it's been one for the record books. uh you know in terms of of how much the market has moved in this bull cycle and valuations have gotten to these really um overextended uh you know readings that we talk about so often and you have said that your personal um projection is that this all ends in a blowoff top like you've been saying like kind of one big final harrah before it's not just a pullback back. It's not just a short-term correction. You think that this this will mark the end of the prolonged bull cycle that we've been in. And I'm not saying that's what's happening right now, but I I want to ask you, what are you going to need to see before you start saying, "Hey guys, I think this is it." >> Yeah. Let me let me just be honest and say that I haven't always thought that was going to be the case. In fact, um it wasn't probably until the last year or two that I that I personally and I think collectively New Harbor, I'm not saying everyone on the committee thinks that every time. We're not an echo chamber, but me personally here, just speaking from that angle, the last year or two became clear to me just in my gut that this is what we need because every single every single pullback, no matter how overvalued, got immediately bought in V-shaped recovery. in every V-shaped recovery was more vertical. So it became clear that this is just a bigger bigger cycle than we ever thought possible. We've had multiple indicators on inversion of the yield curve, sum rule, etc., etc., valuations. Nothing matters. Nothing, right? And so something's going to matter. And it's a matter of faith. And that's the hardest part about this business is people say, "How do you know it's going to matter? How do you know valuations matter? How do you know we're not just going to go up forever?" I don't know. It's a matter of faith. Faith in history and math. >> Okay. But I'm guessing are there any are there any indicators or milestones or data that would make you think okay this looks like we're in the last har you know would it be the S&P going up by a certain amount in a very short period of time like what what would get you to say I think this is it folks. Yeah, thanks Adam. That's right. That was your question. Really, that's somewhat of guesswork based on experience, too. And and I know we've said here on this program and I've said to clients and on our weekly videos that we do at New Harbor, plus 500 points or so within a couple weeks is what we'd be looking for. And not just from a V-shaped bottom, from a real breakout. If you look, and I can share a chart if you want, look at a chart of the S&P 500, you know, plus 500, maybe even a little more. looking for like 10% five maybe 7 to 10% within a few weeks time to me would signal that we started the this kind of parabola blowoff and it happened you know we broke out of the old high at 7,000 went right to 7500 within like 3 weeks we're sitting at 7600 here the market's narrow it's just a few stocks but man some of these stocks are just making amazing moves and uh if we if we broaden out you I I think we could see another thousand points past, >> you know, and I don't think you have to wait for that thousand points to say, "Hey, we're here in the blowoff." I think we already are in it based on what we've seen, the plus 500 in a short period of time. >> Okay. Well, as you guys know, because you sat in on the the interview with him, Darius Stale, I think, thinks that that's the more likely um uh outcome here, which is that with Kevin Worsh coming in, uh especially if Kevin Worsh indicates that he's not going to hike rates, that he's going to be patient and and uh kind of wait out the inflationary impulse that's going on right now. You know, betting that it's going to be transitory. Um Darius and several other folks I've talked to recently thinks that the mobile could market could then bubble up from there. So so we'll we'll certainly see. But of course this is the big question, right? Is that going to happen or is it going to be the reverse? And if the reverse, how painful is it going to be? All right, I'm going to trundle over to you, John. I've got a a question I'm waiting to ask you, but is there anything before I do that you want to add on to Mike's commentary there about the general market? I guess the the one thing I'd like to make I I we we pulled up a a graphic courtesy of the folks at NASDAQ Dorsey Wright that looks at uh and first happy to with you Adam. I apologize for the uh the drab background here. I'm on travels and I've been dealing with some internet instability. So I'm in a private room in a public library. So hopefully we we hang together here. Okay. >> Okay. Yeah. And I just so folks know it's been like planes, trains, and automobiles for you trying to find a place to record from. So I appreciate you taking all that effort, John. >> Exactly. My pleasure. So, um I'm going to share a chart here u because um we've had a very powerful move in the markets since the end of u end of March. March 30th was the recent swing low and some of the metrics, some of the degrees of the move in terms of consecutive weeks higher, things like that have gotten really extreme. And I want to kind of share some interesting data on that just to kind of put that in context. Um uh this one on the left here looks at um consecutive up weeks for the S&P 500. We're in our our ninth week now. I guess the juryy's still out whether we'll be reg registering a ninth up week in a row. Uh but at 8 weeks, you can see this is the um tally count going back to 1950 of consecutive streaks. You know, it's pretty rare. Only 20 times have there been eight consecutive weeks up in the S&P 500. Now, of course, there have been times where it's gone further. In fact, there's been a streak where it went as far as 13 weeks. And you know, the takeaway of this is is that things can get more extreme. And you know, it's it's tempting to say, well, geez, um, we've been up eight weeks, it rarely ever goes higher, so therefore we must be topping and it must be bound to turn down imminently here. That's not the way I would use this because we can see from history that it does sometimes go much further with a pretty high degree of probability. You can see the follow-through returns here are generally on average um, positive. And this speaks to our battery of indicators. You there's a bit more nuance nuance as to when these streaks run out and some of the weight of the evidence indicators Mike alluded to some of our breath indicators of um how many how how broad an index is participating above different moving averages and bullish percent of things we look at as weight of the evidence. All I say is yeah we're getting extreme here but this need not mean that we are imminently about to turn down. And the same if you look at the degree of the rally uh over the last eight weeks about 17% uh since the low um we're in the 99th percentile of that move. But if you look at prior um instances going back to 1950 of moves greater than 15% in 8 weeks. Um you know you look at the subsequent follow-through returns and and generally on average they're positive, right? And and with some pretty large gains. So again, these kinds of extremity indicators aren't very good timing tools at all. It's some of these more nuance things that really speak to when the market turns, it turns abruptly, but it's not doesn't turn just simply because it's uh it's gone on a on a hot streak. Um so we're watching those things very closely. Um you know, Mike alluded to the fact that our indicators are are broadly more bullish these days. Uh I will say that they've been a little bit wobbly. You might say whipsy. So you know, we don't fall in love with these things. We let them be the instrument panel on the plane, so to speak, that allow allows us to with some conviction position clients in in a relatively more offensive or defensive posture as the the case might be. So, I just wanted to touch upon that. >> All right. So, let me ask you this. Uh I'm going somewhere with this question but um as you look at what's happening with the semiconductor stocks right now >> from your perch how much of it is you know appears justified by data like oh okay we're you know their latest earnings are meriting this or they just announced earnings expectations that were better than what the market expected and how much of it is just narrative and momentum chasing to your I think a large part the latter. Okay. Um and it's you know a couple little anecdotes. I think it was the other day Jensen Jensen Hang the CEO of Nvidia um announced it at a conference or something that hey I think the next trillion dollar company is going to be I think he said Marvel technology if I'm if I'm not mistaken >> and the stock went up like 30% I think in a day right just simply because some you know demagogue of demagogue of a of a CEO techo said this is going to be the next trillion dollar company this is the kind of stuff that happens uh in latestage bubble type frenzies uh there's been a lot of um I think uh really uh well-meaning uh fundamental research out there. Uh there's been a emerging thread on are we in an a valuation bubble in the AI you know segment or are we in an earnings bubble and and to me and and the nuance there is you know are valuations reasonable or are earnings uh too optimistic? I think both. I think you got multiples that are uh because because a lot of these things are are based on upon forward earnings estimates that themselves are are we think if history's any guide very inflated and you know I don't want to get into all the questions about you know how how what the quality of these earnings are if you did a what's called a you know quality of earnings study on some of these earnings reports I think you'd find some interesting things like a lot of these um you know thirdparty deals and and circular financing all this stuff I'm not going to get into that here I I think you know there's there's a lot of signposts that there's no doubt that there's been growth in in these areas. No doubt that there's been very significant spend. But how sustainable is that? I think it was last week Microsoft um basically ska turn pulled in the reigns on their employee base using u agentic AI for coding you know because they're spending too much. I recall you had Yan Vanek on your program, Adam, some months ago, and he was talking about how they as a firm have greatly increased their spend. U some of these large firms are saying, "Wait a minute, we're spending too much. We're spending like like you there's there's reckless abandon here. We're not showing any return on that investment." So, that narrative can change in an instant. And I think that's the kind of phase we're in right now that we probably have a valuation and an earnings bubble. Doesn't mean these aren't real. They're not transformative, just like the internet was. But we've gotten way ahead of ourselves. We we very much think it doesn't mean the market tops right here because you know look at the the NASDAQ tech bubble and it it it peaked out in March of um 2000. Uh but between October 99 and March March of 2000 it went up 80% the whole index. We're not talking about a single stock. Um but that's the kind of phase that there are a lot of markers that uh sentimental and and you know fundamental that that have very similar um look and feel to that that phase which we live through and you know I know a lot of people today really haven't lived through a bare market so to speak. >> Okay. So that's that's what I really want to focus on here which is um we have kind of a phenomenon happening right now in the financial markets um which is that the AI trade is gaining this just miraculous momentum here right now and and there's not much breath in the market beyond that right so the entire market right the S&P and the NASDAQ they're revolving around the access of AI and pretty much only AI right now. Um, so it begs the question, well, what happens if if the bloom falls off the rose, right? And and I think you you know, you you've alluded to it could get pretty bad and we'll talk more about that in a second, but I want to I want to bring this also to the economy because there's an analog that's going on there in the economy. Um, I'm just going to bring up this chart here from Twitter. Um, okay. So, uh, US data center construction spending jumped 28% year-over-year in April to a record annualized rate of 50 billion. That now uh, sorry, at the same time, public spending on transportation came in at 49.9 billion. That means that data center construction spending has outpaced government transportation spending for the first time in history. Um, so basically we're just seeing a gargantuan amount of spending happening in the real economy from the AI trade, right? And so I've been saying publicly of late, it gets really hard to be able to see a recession happening anytime, you know, in the near future as long as this just tsunami of spending is going on. And so remember here we've got um we've got this this flood of AI spending. We've got the government still spending at a very healthy or unhealthy depending on the way you look at it deficit. Um and then we also have kind of the rest of corporate America also upping its its um capex investments because of things in the uh one big beautiful bill, right? So like the the bonus depreciation, right? So we're seeing a lot of companies, you know, start to invest in infrastructure because they can get an immediate tax write off for that. So there's just this wall of spending going into the the economy. So on one hand, I think you can make an argument like I just did, right? Which is, hey, you know, if you're worried about the recessions, you might need to punt those worries off until a future year. Um, you know, until and unless these um these uh the spending flows start to abate. And right now they're not. They're just getting bigger and bigger. And you can look at that and cheer it and say, "Hey, that's great for the US economy uh and for workers." You know, we just saw that um uh we just got jobs reports, two different jobs reports this week that suggest that that um jobs are getting created at a faster pace than they have been in a long time. Um certainly if you look at things like the um uh industrial production, that's expanding. If you look at the ISM manufacturing index, that's up at 54 now. That's the highest reading in years. So you can say hey this is all you know creating a lot of real economic growth in the economy that's a great thing right at the same time back to our conversation about the markets you can say yeah but man so much of the GDP growth now is contingent upon what's happening in the AI space so I want to bring it back John to the the question I asked earlier which is what happens if this gets compromised in some way shape or form how bad could it be for markets and how bad could it be for the economy right now. It seems to be great for both parties raging in both. But uh if if these are not sustainable and we can probably come up with a lot of arguments why they might not be what type of crash position do people need to assume in that point in time and I'm not saying it's going to happen anytime soon. It might not happen for a couple years. Who knows? But you know >> well that that chart you shared the chart you shared here was actually quite eye popping. Let for context uh we're based in Massachusetts. It's the land of the infamous Big Dig project. So, when we talk about public spending on on transportation, we know we're talking big numbers and and not necessarily wisely spent dollars when you look at that at a at a countrywide level. And to see that AI spending is is basically at that level is is pretty eye popping. >> And and look, these things, you go back to the the internet bubble, and I was trying to find a chart in our our chart book here, but I couldn't find it. But if you go back and look at uh information tech spending uh capex spending as a percentage of GDP it shot up like a rocket ship going into the tech bubble. All the spend on you know internet you know build out the switches the Cisco routers all the stuff that needed to power the internet the fiber the cable all the stuff it shot up like a rocket ship not unlike what we're seeing right now. And then it plummeted like a rock and stayed down for years to come. All the while the internet became a more and more important and indispensable tool in you know the modern economy. I think very much we're likely in that kind of phase right now. And the thing about this um these narratives when they change they change quickly. You know what happens? Um suddenly and probably reluctantly if history's any guide analysts start cutting the earnings forecast. They're usually playing catchup, sometimes saving face and trying not to look like, you know, like like idiots. Uh but, you know, suddenly you have a rerating on multiples. Hey, maybe I don't want to pay 30 times um earnings on a stock that's not growing the pace that that I thought it was. Maybe it's only worth 20 or maybe 15. Oh, and by the way, not only we're going to lower the the multiple that we're willing to put on that, but the earnings themselves, the very underlying fundamental that we're going to slap that multiple on also is being cut. So these things can turn around in a in a moment figuratively speaking. And that's what happens. You we've talked a lot. You've talked about, you know, like the giant mindless passive robot with folks like Mike Green. And the the thing is is these these shifts in market sentiment and behavior, they happen at the margins. It doesn't take, you know,5 trillion dollars of selling to to cause prices to go down. It just takes on the margin buyers being somewhat less eager than sellers. That's really all it takes. Just like if your house is on the market or not on the market, but but one house, one one neighbor in your your neighborhood decides to sell their house and they get 20% less than what Zillow said it was. Well, guess what? Your house isn't worth what you thought it was. It's that single house in a in that big neighborhood that reset the whole market. That's how the stock market works. But all it takes is a little shift in narrative, a little shift in um in sentiment and confidence and it can happen really quick. And that's that's what these kinds of episodes you can't call the actual top. It's very difficult. But when it turns, it's usually without any news headline. It's just the simple exhaustion of the thing that has has uh has has become a beast of sorts. >> Yeah. Yeah. And I want to note one thing to kind of to my question there, which is um uh the the capex spending can continue. Um and to the extent that there may be a stock market bubble or an asset price bubble in this asset class and of you know AI related stocks that could still correct, right? So they're not they're they're not completely dependent upon each other. In other words, the market can be overpricing the impact of the spending. So even if the spending remains consistent, the market could could get to a an such a level of overpricness that it could then correct no matter what the the spending does. That said, I think if the spending does get compromised, like if it turns out, you know, right now I think the projection is that there's going to be about a a trillion dollars spent this year in the US and 1.2 trillion or whatever spent uh I don't know if that trillion's in the US or worldwide number, but then more than that per year thereafter. If that only comes in at 60% of that, the stocks are going to have to repric down. So, I think I think the markets are a lot more connected to the spending than the spending necessarily is as connected to the markets. Um, but I guess John, let let's say it's it's a there's a negative surprise somewhere in there, right? either the the spending flows aren't as big as we thought. Um or, you know, valuations get to a point where people say, "Look, there's just no way to justify this." >> Um, and and I know you won't really know till we're in there, but do you see it more like a capital rotation like we sort of saw at the beginning of this year where money started leaving these stocks and going into the value stocks for a couple months? Um, so is it more sort of like a negative sum game where it's just a the market value is going to go from here to here or do you see it more as as a really a true I guess correction is what I guess what you need to say where kind of like your analogy of the the house with the marginal um buyer the next marginal buyer in the AI space is just at a much lower level than folks were expecting and a lot of that market value just goes poof doesn't go anywhere it just goes is the market value heaven? >> Yeah, it's a great question, Adam. Um, can't say I have the perfect answer for it. Um, the real answer is we'll watch our indicators. We'll watch for relative strength, you know, shifts between sectors and and styles, if you will. But look, it's not like the broader market uh is is cheap, right? I mean, we still have had a a pretty massive run going many years in in in and you know, I know we've committed this error before, but it's it's oftenimes invogue to show a chart that says, "Hey, look at the utility sector is the cheapest it's ever been to the S&P or the bank." I saw one the other day, the financial sector is the cheapest it's ever been to the SM S&P. And it's kind of like a a chart crime of sorts because, you know, you're comparing something to another thing that's never been more expensive. So that doesn't mean that other thing is cheap. It just means it's less crazily expensive, right? >> Um so I think there's a good chance and and part of the narrowness that Mike spoke of is is concerning. That may be like if you look at major market tops, they usually start to fall apart from within. Even while the indices are are reaching new highs, they start to lose participation. the the rest of the market says, "You know what? This thing's this thing's run its course. We're we're we're we're running for shelter." And it's usually those last, you know, leaders that suddenly start to turn down and that can take the whole market down. Um and honestly um I think there's a very plausible scenario where that is the case but um we'll have to watch um you know if we see other se like financials have been laggers um I don't see a catalyst for them to suddenly start to perform but you know if we start to see some of these sectors pick up and broaden out I think it could be more of a rotational event than a than a heavy reset of markets. >> Okay. Well, again, you'll be on every week, so you can kind of update us as your indicators tell you what what's more likely. But to your point there, John, so um some of what we're seeing sort of smells and sounds like latestage uh speculative bubble um behavior. Um at in the late stage of a bubble, that's where kind of everybody comes out of the woodwork to try to get get theirs while the getting's still good. And so, Mike, I'm coming to you with this, but but we are now seeing the IPO window back up, and we're seeing some I'm using this word a lot today, gargantuan uh offerings coming to market. Um, probably the the one that's getting talked about the most right now is SpaceX, but we've got anthropic coming up. Chat GPT. Um, Google just announced a massive raise and uh I think uh uh Berkshire Hathaway is is taking a chunk of that. Um so I don't know what do you think about these IPOs? Is that a is that a sign of health that hey we've got these great companies that are tapping the public markets or does it smell to you like uh these are those latestage guys that come and try to try to get juicy valuations while they still can. Well, there's certainly a lot of buzz about IPOs. A lot of clients are calling um and asking about SpaceX and you know the SpaceX is there's news out every day. In fact, it seems like today they just announced that they set a price. I think $135 a share is what the target price looks like it's going to be. >> Yeah. Sorry, sorry to interrupt, but it came out like right after that that Morning Star is is advising that the price should be about half that. >> It's not a surprise. It's going to have a huge, you know, what$ two trillion dollar valuation. We've got a couple slides to show you. Interesting. John and I have been in this business a long time. Essentially since the since the peak of the tech bubble. And I've got one slide here I want to show you. And these things are bad timing indicators. So with that caveat of that disclaimer, which we'll say a million times, bad timing indicators, but they tell you kind of what the weather looks like and where the wind is blowing. So this chart goes back to 2000. is really our whole careers and this is the tech bubble back here 2000. Take a look at this chart and you'll see one big kind of different bar here. This is postco after basically the world shut down and everything opened back up again and the United States put $4 trillion of stimulus into the system and there was all this you know stimulus that people had and day traders were doing all kinds of stuff and meme stocks and GameStop and everything else. there was this massive issuance and so I think this is kind of an outlier uh but but it is what it is um and that wasn't so much a market top that was kind of a kickoff of the postcoid market run but if you kind of take this out of the picture and you say okay what else was relative highs well you'd say that now this I think is full year 2025 if I had a 2026 bar here probably would be up here uh Um, you know, you you probably also say somewhat in this area. 2007, you know, was a relative high. 2014 was a relative high. I'm not really sure that that showed much of a market top there, but certainly the tech bubble was a relative high. So, you know, it's not it's not exact. It just tells you that as you get into these zones when we have spikes in in IPOs, these are relatively market highs, particularly 2008, 2000, I think. I think the 14 doesn't really tell us much, but maybe this bar tells us of an impending top. We don't know. That's the problem. We've got a couple more slides on IPOs. SpaceX, we just talked about SpaceX. Um, yeah, these are these this is the the actual IPO side the the rank by funds raised at the time of the IPO, not adjusted for inflation. So, just real dollar, not real dollars, but nominal dollars. SpaceX 75 billion. Really bigger. Three times bigger than the next biggest one. This was Saudi Aramco. Visa that goes way back. Facebook. Remember Facebook? That feels like it was yesterday, but it was a long time ago. And I remember thinking some of these things, oh jeez, it maybe this is a uh some sign that we're near a top. None of them really mattered. So the big question is, will this one matter? I don't know. Again the big warning is don't use it as timing indicator but uh you couple this with valuations which we haven't shown in the charts and the narrowness it would at least cause one to say potentially lower your exposure tighten your stops and look at your hedges. One more chart on this. Take a look at SpaceX. This is basically uh valuation at IPO, right? Valuation at IPO of each of these names and what they're at now. So Nvidia is up here at like 5 trillion, Alphabet, Apple, Microsoft, the all these guys, um you know, the fang stocks or the the market leaders, whatever name you want to put, they're all three trillion plus now. And it feels like it was yesterday we said, "Whoa, we have our first trillion dollar company." I think it might have been Apple and that was not even that long ago. Now look, five, six trillion. Well, SpaceX comes out with a two trillion market cap on its first day. None of these other guys did that. So what does that tell you? Well, SpaceX is either that awesome, that much different, or or we're kind of, you know, a little over our skis here. >> It's very richly priced. And don't don't many IPOs end up trading at a pretty notable discount? >> Yeah, there's one more chart here. Um, >> yeah, the many times they do. There's one more chart I guess I'll bring up. Um, I might have closed it too soon. >> Yeah, it's not a guarantee, folks, but it does it does it's it's something that happens quite frequently. >> So, here's um average IPO return to index and median. So, you know, here's the first day. And so, you're going to have some and of course averages are going to be pulled up by outliers, right? So, you have some winners. Yeah. >> Yeah. The winners are going to pull the average up. So, if you go out a year, you still have an a, you know, an average positive return, but the median IPO is down 10%. So, I hope you can pick the winners if you're going to play the IPO game, you know, and we've got a market here that might be topping soon as well, which would only make things worse if we had a major market top. So, you know, this is a cautionary tale. Three years out, the median IPO stocks down 40% and even the average is down almost five. So, I think that it probably answers your question. >> It it does. And look, folks, this is not personal financial advice, but I actually think SpaceX is a really cool company. Um, I think, um, Elon's going to continue to combine a bunch of the things in his empire under it. Um, I would love to own it at some point. I don't think I'm going to buy it for the IPO. I think I'm going to buy and wait um because I think that there's potentially pretty good uh probability that I might be able to buy it at a much better valuation than the IPO price. Don't follow me because I'm saying that, folks, and I reserve the right to change my mind. But that's sort of where I am right now on this. Mike, you're nodding. Okay. Um, John, let's let's bring it back to you. I know we don't have a ton of time here because um uh I think your time restricted on that location, and I've got a little bit of one as well. Um, let's let's try to spend some time talking about what you guys do on a daily basis, which is actually working with real people to help them improve their odds of hitting their financial goals and and really their financial goals are important because they're they're that's the money that's going to fund their life goals. At the end of the day, this is all about living the life that you want. um you know, in this crazy market right now, um what are you spending your time with, uh with with your clientele right now? Is it is it talking people out of FOMO because their idiot brother-in-law is making a ton of money on a semiconductor company? Um or or or what is it? Is it trying to make sure they're not super vulnerable in case this is the blowoff top that Mike's worried about or that the semiconductors really pull back hard? um what what's what's what are you finding the highest use of your time right now in terms of benefiting your clients? >> Yeah, thanks for that question, Adam. And it's it really is to the essence of what why we're here, why why New Harbor Financial exists, right? Um we spend a lot of our time, Mike and I and our investment team obviously working on our investment discipline or craft of tactical investing, right? We think that's a really important piece of the equation, but it's not the whole thing and it really brings it back to the lives of the people whose money that we're being asked and entrusted to help them manage. And that's where in fact the right before jumping on with with you here today, Adam, it was a little bit late because I was working through a financial planning analysis for our clients. Mike and I are both certified financial planners. Folks might be familiar with that designation. So this gets beyond the investment into the kind of really connecting it back to clients lives and um we do a lot of this work and and this is what really helps clients ground themselves. We think uh sleep better at night. We hope that they're not fearful that hey I got to participate in every you know speculative advance in the markets to to be have a chance to be able to retire and live comfortably or you know sometimes it's they think they need to work for 10 more years when maybe they don't. Um, you there's a lot of unspoken fears that simply are there because the questions aren't asked. You know, I thought it might be helpful just to um there there's some great financial planning tools out there. We have a great tool that that we use. It's a tool called Right Capital. There's plenty of great tools out there, but like with any tool, um it it's it's a black box that uh is only as good as the data and assumptions and perspective that are wrapped around that tool. And I thought by way of sharing a glimpse at, you know, our our tool, I can kind of highlight some of those things. So, let me do that. >> I'm a huge fan of these tools, folks. By the way, I haven't seen the specific specific one that John's about to pull up here, >> but um this is one of the things I think in this sort of modern era of investing. Everybody should a be using one of these, but also like you should just be playing around with it on a regular basis, updating it as your life, you know, conditions change and playing a bunch of whatifs. What if I do this? What if I do that? And see how the numbers play out. Um, so anyway, sorry, John, I didn't mean to. I couldn't be a bigger proponent of this. >> Yeah, I'm going to give a real brief rund just to point out some of the pitfalls, but also the ways these things can be used. So here I've got a I've gone through I've modeled the clients but you know this is a hypothetical client. I creatively called it test client and co- test client. Uh so this is not a real person but it it simulates a real person. Um I've modeled all their assets all their spending you know uh projections you know kind of retirement lifestyle spending health care expenses things like that goals travel uh whatever their desires might be. Um, and you can come up. So, a lot of these tools, they have they have really robust abilities to kind of look at scenarios, right? So, a lot of these tools really start with the the question of, you know, what are the chances you're going to be able to fund all your needs during your lifetime? Uh, in this case, I think I've assumed that the the husband and wife or the couple live to age 95. We can play with that variable, but a long hopefully a long retirement period. And on the surface, this, you know, this tool comes up and says, "Hey, there's a 67% chance you're going to succeed." Meaning, there's a 33% chance of failure. And now, here's here's pitfall number one. First thing, what does it mean to fail? These 33% of scenarios and and I'll just back up. These tools you oftentimes use a simulation methodology called Monte Carlo simulation. Uh, I studied operations research in college. It's discipline of engineering. I I lived and breathed this kind of stuff. Probability theory, modeling, simulation. So, this kind of gets into my geek mode, but um essentially Monte Carlo simulation basically says we've made some assumptions about returns, but we know the future returns are going to be uncertain. So, how do we test that? And basically Monte Carlo simulation basically randomly simulates different patterns of returns. Some are very positive returns, some are very negative returns and all kinds of different patterns of those returns. Sometimes it's big down years up front followed by productive years later on and vice versa. And you know that's what these scenarios the percentage of scenarios represent. It's basically saying 33% of the scenarios if we look here you're running out of money before you turn I guess I modeled till age 90. So this is this is showing the range of scenarios. the the dark blue is the 50% you know plus or minus 25% around a median scenario but for a whole bunch of scenarios 33% this this plan runs out of money. Now the first problem with this is that a scenario that runs out of money by $1 is considered a failure. So in this in this particular scenario I've assumed a you know one of the one of the pitfalls of of these kinds of tools is they oftentimes are are built on pretty rigid spending. um assumptions. Okay, basically, you know, hey, I'm going to I'm going to withdraw four or 5% of my starting capital. I'm going to increase it every year for inflation, and I'm just going to be on autopilot, give myself a raise every year. In reality, that's not how life works. U I'm going to look at a different one here, which I call guard rail spend. And basically this is a a different kind of spending theory if you will that instead of a fixed straight spending adjusted by inflation you're gonna like most people they're going to loosen their purse strings if they have good years in the markets and they're going to tighten their purse strings if they have challenging years. And that's exactly what this does. It says you know if you if you kind of be careful how much you spend and the pattern you spend given what happens in markets you can actually increase your odds of success quite dramatically. You know, there's a whole bunch of stuff that you can run through here, but it's only as good as the data that goes in. Now, the one final thing I'll mention, those those simulation tools are great, but they're not the beall and endall because one of the flaws of of those tools is that they assume kind of uh the same coin flip uh probabilities of negative returns, for example, no matter where we are in the market cycle. When in reality, the likelihood of negative returns or lost decades we've talked about, they don't just happen randomly. They happen almost predictably and reliably when we're at very extreme valuations like we are at now. So a lot of folks are running these kinds of analyses either with the by themselves or with an adviser. And I would say for passive investor they're they're building these models with a a very overly optimistic assumption about likely returns. Um and and I think that's setting up a lot of people for a lot of lot of failure here. Uh and that's why we advocate uh you know certainly in this current time a tactical approach but also one that is shifted down on the risk spectrum you know because these aren't random events that a tool like that might have you think it's they're really grounded in reliable things like starting valuations you know it doesn't say where we're going to be over the next week or next year but the next decade it'd be highly improbable if history is any guide that we get any really meaningful kind of returns. a whole bunch of stuff we could talk about that but very independ indispensable part of what we do and every person involved or or concerned about their financial situation. It's not enough to focus just on the investment side. You really got to focus on the planning side and understand how it ties into your life. >> Yeah. Uh su super true. And um John, I'm thinking I would love to see more of that tool. Uh, I know you only had time to show us just sort of the front door of it, but um, you know, I've used similar tools and and they get really quite granular and I'd really like to show people what that looks like. Folks, if you're interested and if if there is interest, let us know in the comments section and one of the next times I have John and Mike on, I'll have them walk through that that software in more depth. Um, but you said a couple things that I think are so important, which is um, you want to you want to plan for as much as you can, but you really want to focus on the things that that are under your control, right? And and what's not under your control is what the market does, right? Now, you can plan for it like you said that, hey, when markets are very richly valued, they then tend to be followed by a period where markets aren't so richly valued, right? It's just reversion to the mean and the cyclicality of markets. Um, so that if you're doing your planning here and if the markets are at valuation extremes like they are right now, wink wink, nodn nod to everybody, you probably want to in your planning discount uh your market returns, you know, for the next couple years and then let yourself get pleasantly surprised if the market still continues to go up from here. Yeah, I have I don't have time to get into it, but for example, I've got a a return pattern there in there that we could uh we could say, what if you retired in the year 2000, right before the tech bubble, and we could actually show what a client's plan would look like if they actually observed or witnessed the same exact return profile that happened in the tech bubble bust followed by the housing bubble bust followed by the bigger bubble that has now been created. So all the point is you can stress test these things to build that level of comfort that level of confidence that hey I'm I'm I'm I'm robustly prepared or I'm not and at least I know at least I know that right it's bringing it into consciousness. I mean, I think there's a there's a fair amount of people who probably avoid this, like avoid going to the dentist, right? Because they're like, "Look, I'm pretty sure I'm going to hear news I don't want to hear, so I'm just not going to go hear it, right?" Um, but obviously, folks, avoidance isn't a strategy. And um the the benefit of of knowing that you might not be on a track to hit your goal uh super important because then it opens the conversation or the the the strategizing of okay well what can I do right can I lower my my my cost behavior um or or can I increase my income in some way shape or form and and again tools like this are really valuable because as you start to ask yourself those things you can say okay well what would it take for me to reduce my my my monthly costs by 10%. And then if you put that in the model, you can see how much of a difference that makes. You might realize, oh, you know what? It's not a cost thing. I could I could stop eating and and live in a cardboard box and I'm still not going to hit my goal, right? I've really got to lean in on the on the bumping my income up part of thing. Or you might find, hey, it only takes you don't have to double your income. You only need a 6% increase in your income. And that might actually fill the gap. And then you can start thinking about well okay tactically what could I do to do that right it it it's this catalyst and enabler that that unlocks the strategizing to find the solutions that you need and to you know John's earlier point if you find out that you're fine and that you're fine under even some scenarios that you were worried about but you've now run the numbers and realize you're still going to be okay well man think about the peace of mind that comes along with that. So last point on this then we'll start wrapping up. Um, I do just want to underscore that, um, look, who knows what's going to happen with the markets in the near term here, you know, is this massive runup that we're seeing in AI, all these distortions, is that what's going to create the next really big market downdraft? I don't know. Certainly could happen, right? I think you'd be silly to ignore that as a potentiality, but who knows? What I think we can have greater confidence in, as we've said on this channel a lot, especially with Mike and John, is if you look at where valuations are right now, they are at historic extremes. And when we've been at previous historic extremes and valuations that were lower than where we are right now, they were followed by prolonged periods where the market didn't go anywhere. Right? And you're seeing a lot of analysis out there, including ones from the big Wall Street firms like Goldman Sachs, that are basically saying investors really should expect negligible to like zero or in John Husman's case, even negative um annualized returns over the next on average over the next decade, right? So if you have just retired um or if you're hoping to get to retirement um there's a lot of people out there that I am not certain if they can deal with a lost decade, right? So, the the call to action here is do the planning. And folks, if you're good, crunch the numbers at home, great. Do it yourself. But there's a lot of great tools out there like the ones that John and Mike uh just showed us through. Get your hands on one of those or go, you know, talk to your adviser. But play around, run, do the math, run the numbers, and really try to get a strong sense of of your likelihood to hit your goals under status quo conditions. But certainly what happens if some of these you know known risks that we know of occur and also these models can be pretty good too about helping you identify your your vulnerability just to unknown unknowns you know just random things that might happen out there that could derail your plan. So all right I'll end it on that. Um John and Mike guys thanks so much. Really enjoy these monthly deep dives. Folks if you're watching and you do too with the New Harbor team here let me know in the comments so we can continue doing this going forward. Um, uh, I guess real quick, both you guys, anything majorly burning on your radars that I haven't asked you about here before we we fully wrap it up? Uh, Mike, let's go to you. >> I don't think so, Adam. Uh, normally we take a look at the precious metals complex, but I can tell you there's really no change from last week. They're kind of floating along the their correction low levels. And so that's a trade that requires patience right now. >> Um, there's really nothing else besides that. I did I did and we'll have to punt this to next week, but I did want to ask you about um Bitcoin because we actually have seen Bitcoin break through some some pretty notable price support levels. Um and it's starting to open the question of sort of like what's going on and how low could this go? But that's we don't have time for that discussion, but we'll ear market for next week. How about you John? Anything else in wrapping up? >> No, I don't think Adam I think this was um we always appreciate the opportunity to chat with you and your and your your viewers. appreciate the opportunity hopefully to educate and uh we really thank you for having us on. >> All right. Well, folks, look, please give your thanks to John and Mike. Uh let them know you'd like to see them continue this monthly deep dive that we do with them. Let them 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. Um and uh like I said, um if you haven't certainly if you haven't created your own financial plan, make that a top priority right now. But even if you have um if you haven't revisited it recently, definitely blow the dust off um and rerun the numbers. But if you haven't played around with, you know, some of these software tools that uh you John's been showing us here, highly highly recommend you do that. So anyways, if you want to get help in any way, shape, and form, in any way, shape, or form with your financial prospects here, but particularly about financial planning, if you don't already have a good financial adviser who's doing that for you, consider talking to one of the ones that Thoughtful Money endorses. Maybe you'd like to work with John and Mike and the team at New Harbor in doing this. Uh to do that, you can just set up a consultation with them by filling out the very short form at thoughtfulmoney.com. As a reminder, these consultations are totally free. There's no commitments involved. It's just a service they offer to be as helpful to as many investors as possible. And with that, gentlemen, I look forward to seeing you next week. Thanks so much again, guys, for this latest deep dive. >> And thank you everybody for watching. And thank you, Adam. We'll see you soon. Thanks again, Adam. See you next week. >> All right. And everybody else, thanks so much for watching.
A.I. Mania Creating Twin Bubbles In Stock Prices AND Earnings | New Harbor Financial
Summary
Transcript
We probably have a valuation and an earnings bubble. Doesn't mean these aren't real. They're not transformative, just like the internet was. But we've gotten way ahead of ourselves. We we very much think Welcome to Thoughtful Money. I'm thoughtful money founder and your host, Adam Tagert, welcoming you here for our ongoing monthly series with the team from New Harbor Financial. They are one of the endorsed financial advisory firms by Thoughtful Money. And you see these gentlemen with me uh on this channel every week, usually coming on after one of our big interviews. Uh but once a month, we like to give them the full spotlight and uh dive deeply into what the team at New Harbor Financial sees currently going on in the macro side of things and then what their market outlook is. So, um as usual, I'm joined by John Lodra and Mike Preston. Gentlemen, thanks so much for joining me. Um, love to hear what you guys are seeing in your market crystal ball. And Mike, why don't we start with you? >> Hey, Adam, thank you. So, here we are recording on June 3rd. So, 5 months out of 12 of the year are gone and it's been a wild ride already. The conflict in Iran's been going on at least 3 months, longer than most or many have thought that it would. I can tell you a lot of our clients are concerned. talking to a lot of our clients are saying, "Well, geez, things just don't seem unsustainable. They think the conflict in Iran is going to get worse or something else is going to pop up ge geopolitically." And that's normal. There's always uncertainty in life. And the way that this market has been acting has been relatively concerning. It's been a straight up move and it's been a very narrow move. We're going to get into some some graphics that will show you just how narrow pretty soon, but it's very very challenging because as an individual investor or as a money manager, you need to try to make money for people to try to stay ahead of inflation to to to pay for life goals. And to be honest, this cycle that we're living in is different than others. It's different in this way. We have been at a relatively high extremely overvalued level for way longer than I think any time in history. The cycllically adjusted PE ratio, the Buffett indicator, any number of these indicators that you can look at that are statistically reliable reliable at predicting future returns have not mattered. And so that's driving people a little bit crazy. So what do you do to to to take emotion out of your decisions as an investor or as a money manager? The best thing that you can do is to have some kind of system that tells you what to do if there's some doubt and there's always some doubt because humans are emotional. Money managers are emotional. Everyone has their own psychology and their past to deal with. And hopefully that past is a past that has made you stronger that gives you depth in an experience. But even then with that experience, nobody really knows for sure what's going to happen next even with the best indicators. So the indicators are our guideposts. Our experience and our committee is what helps us execute and make exact decisions and those decisions aren't always absolutely correct, but at least we have skills and tools to be able to react if they're not correct. So we have a dashboard of indicators. It's really it's it's it's nothing super fancy. There's no black box that anyone can design that you can just press a button and have it print money for you. You I know that high frequency trading and hedge funds and algo trading they have they they try to find these things but that that field is so developed and so competitive. I'm just not really sure that that's there's really any edge there. What there is an edge in, I think, is be being willing to be different than the pack. having a system that you're willing to stick to, having tools like knowing how to use options that can hopefully round the corners or help you have some um a little bit more forgiveness when you're not exactly right. So, our panel of indicators include things like bullish percents. Bullish percents for the major indicators S&P, NASDAQ, NYSE, old school tools like point and figure charting that measure breath, bullish p bullish percents, relative strength analysis of sectors versus others in the market, moving averages, a lot of old school technical analysis. It's not perfect. Algorithms aren't perfect. Nothing's perfect. But when you have a system that works for you and you've developed confidence in it and you have experience and lots of years like John and I and the rest of our team have, uh, it works. It works. And so our indicators have been flipping back and forth. About a week or so ago, our indicators all went into the green zone again. We had breath come back into the market. Even though it's been narrow, our signals, our various signals said where we've got a bullish tilt. And so therefore, we took off our our index put. We had a July S&P 500 7,000 put. We sold it. We took a loss on it, but that's the cost of insurance and we preserve the value that was left in that in that put and we sold it. If our indicator flips negative again, we'll put something similar right back on. So, our indicators right now are bullish back and forth whipssaw action. But here's the thing about the whipsaw action. We're not saying we're in, we're out, we're in, we're out. Our equity exposure has been roughly the same, right around 48%. Which is another thing I would say that makes us different. We're willing to say, you know what, our indicators are bullish, but this environment is just insane. So, we're going to cap out at a high at a lower level of equity exposure than than a lot of our peers, and we're willing to underperform in a vertical up market for short periods of time. But we've been going back and forth on our indicators and instead of selling in and out of our positions, we've just adjusted our option hedges. And right now, we're in the green or the bullish zone, and we've taken off our option hedges. Just a couple more things to give you a market recap. I'll try not to drone on too long. Um the the market has been extremely narrow. I think I'd like to share a chart here briefly. And as that's coming up, this market, everyone knows it's narrow. We're talking to people and they're starting to feel FOMO, fear of missing out. I had a couple conversations today. Uh people want to be in semiconductors. They want to be in AI. Take a look at the S&P 500 through I think this is June 1st. The S&P 500's up 11%. What's up 11% or more? Well, I guess industrials are up exactly the same, but throw that one out for a minute because that's the same as the S&P. Really, it's just info and energy. That's it, right? So energy has been on a tear, kind of a quiet tear. People haven't noticed too much, but that certainly has been benefited u or it's been benefited by the higher oil prices in Iran. Technology is all about AI. I mean, semiconductors just went berserk. The ETF SMH semiconductor holders went from like 250 or 300 and it shot higher than 600 in a very short period of time. I will say this, there's some lagards in here like financials. XLF, the ETF for financials has been hovering around 50 stubbornly. Healthcare things like XLV or or pharmaceutical has been lagards. And so some of these things are going to have to start jumping in and participating or this market won't be able to keep going. So the narrowness is a warning sign and I but it's not necessarily saying sell because we don't really know if these things will broaden out and carry the whole market higher or if this is a sign of an impending top. It's something to watch, that's for sure. >> There's there's >> And sorry, Mike, just just let me chime in there. Um, you don't need to bring it back up, but that chart, it was energy and it was semiconductors essentially that were doing most of the the the line share of the driving. And energy has is kind of cooled, right? that that that that gain was really at the beginning of the year in the energy stocks um pre Iran and then obviously um as oil started creeping up or not creeping up shooting up because of the the straight of Hormuz closure um it got even more tailwind to it but it's kind of the past couple months I'm doing this from memory but I think they had been relatively flat the the action in the past two months has been the semiconductors and um you mentioned how what the semiconductor index there essentially tripled in like less than two months, Mike. Um, so that move is is almost becoming vertical. And you know, there's that old saying that vertical moves in the market uh don't resolve by going sideways. Um, they they generally have a a real market pullback. And we were saying the same thing about precious metals coming into the year when they were having their vertical price movement. Um, so I guess my question for you is, yeah, I know that you're asking, hey, does this momentum pull the other sectors up with it eventually or, you know, does it does it reverse and um, you know, take the indices down with it? I think we don't know yet, but I'm going to guess you're you're kind of concerned about the latter given the verticality of the the current semiconductor movement. Is that true? >> I'm a little concerned if this doesn't broaden out quickly that we're going to have an issue. It's it's interesting in in the investment committee many months ago. I remember saying and this is I don't know if you remember but there was a time there early in the year where we were saying well geez the S&P hasn't done anything in since August or September. there was kind of a rounded top and semiconductors were lagging and and we were saying, well, if the semiconductors don't kick in and start moving here, this market is not going to move higher and have this maybe blowoff top that we think might be needed to finally put a top in this market. So, there's no way that was going to happen without the semiconductors. And and here we have the semiconductors. They just doubled in a few months. So, there's there's the answer. It happened. We came off the the lows of the when we had the Iran conflict and we just went straight up, you know, a thousand plus uh points on the S&P and we broke out of the old highs at 7,000 and had that 500 S&P point gain in just a couple weeks. Something that we were looking >> violent reversals and and vaults to new highs sort of ever in market history, right? >> Yeah, certainly. Absolutely. I mean, certainly. And it wasn't even a deeply oversold situation like March 9th, 2009. I still remember that day. Anyone that was around that was the low and it was vertical. This was pretty much the same but from a higher level. Pretty crazy. >> Well, much higher level valuation wise because we talk about how extreme valuations have been all the time on this channel. >> Sure. It's it's been it's been pretty remarkable. So, I guess just to kind of put a put in a point on it, the semiconductors did kick in. brought us into that massive reversal and I think brought us into what would be like this parabola phase or blowoff phase. We're not going to continue from here unless some of those other sectors start to kick in. There's no way. So that's the big question. So and again, we don't know. So we'll have you on this channel every week um to give us updates in real time. But let me ask you this, Mike. Um, you have been, if I've been taking good notes over the years with you, you have been saying for a long time, the sort of long bull market cycle that the market's been in, um, uh, it's been one for the record books. uh you know in terms of of how much the market has moved in this bull cycle and valuations have gotten to these really um overextended uh you know readings that we talk about so often and you have said that your personal um projection is that this all ends in a blowoff top like you've been saying like kind of one big final harrah before it's not just a pullback back. It's not just a short-term correction. You think that this this will mark the end of the prolonged bull cycle that we've been in. And I'm not saying that's what's happening right now, but I I want to ask you, what are you going to need to see before you start saying, "Hey guys, I think this is it." >> Yeah. Let me let me just be honest and say that I haven't always thought that was going to be the case. In fact, um it wasn't probably until the last year or two that I that I personally and I think collectively New Harbor, I'm not saying everyone on the committee thinks that every time. We're not an echo chamber, but me personally here, just speaking from that angle, the last year or two became clear to me just in my gut that this is what we need because every single every single pullback, no matter how overvalued, got immediately bought in V-shaped recovery. in every V-shaped recovery was more vertical. So it became clear that this is just a bigger bigger cycle than we ever thought possible. We've had multiple indicators on inversion of the yield curve, sum rule, etc., etc., valuations. Nothing matters. Nothing, right? And so something's going to matter. And it's a matter of faith. And that's the hardest part about this business is people say, "How do you know it's going to matter? How do you know valuations matter? How do you know we're not just going to go up forever?" I don't know. It's a matter of faith. Faith in history and math. >> Okay. But I'm guessing are there any are there any indicators or milestones or data that would make you think okay this looks like we're in the last har you know would it be the S&P going up by a certain amount in a very short period of time like what what would get you to say I think this is it folks. Yeah, thanks Adam. That's right. That was your question. Really, that's somewhat of guesswork based on experience, too. And and I know we've said here on this program and I've said to clients and on our weekly videos that we do at New Harbor, plus 500 points or so within a couple weeks is what we'd be looking for. And not just from a V-shaped bottom, from a real breakout. If you look, and I can share a chart if you want, look at a chart of the S&P 500, you know, plus 500, maybe even a little more. looking for like 10% five maybe 7 to 10% within a few weeks time to me would signal that we started the this kind of parabola blowoff and it happened you know we broke out of the old high at 7,000 went right to 7500 within like 3 weeks we're sitting at 7600 here the market's narrow it's just a few stocks but man some of these stocks are just making amazing moves and uh if we if we broaden out you I I think we could see another thousand points past, >> you know, and I don't think you have to wait for that thousand points to say, "Hey, we're here in the blowoff." I think we already are in it based on what we've seen, the plus 500 in a short period of time. >> Okay. Well, as you guys know, because you sat in on the the interview with him, Darius Stale, I think, thinks that that's the more likely um uh outcome here, which is that with Kevin Worsh coming in, uh especially if Kevin Worsh indicates that he's not going to hike rates, that he's going to be patient and and uh kind of wait out the inflationary impulse that's going on right now. You know, betting that it's going to be transitory. Um Darius and several other folks I've talked to recently thinks that the mobile could market could then bubble up from there. So so we'll we'll certainly see. But of course this is the big question, right? Is that going to happen or is it going to be the reverse? And if the reverse, how painful is it going to be? All right, I'm going to trundle over to you, John. I've got a a question I'm waiting to ask you, but is there anything before I do that you want to add on to Mike's commentary there about the general market? I guess the the one thing I'd like to make I I we we pulled up a a graphic courtesy of the folks at NASDAQ Dorsey Wright that looks at uh and first happy to with you Adam. I apologize for the uh the drab background here. I'm on travels and I've been dealing with some internet instability. So I'm in a private room in a public library. So hopefully we we hang together here. Okay. >> Okay. Yeah. And I just so folks know it's been like planes, trains, and automobiles for you trying to find a place to record from. So I appreciate you taking all that effort, John. >> Exactly. My pleasure. So, um I'm going to share a chart here u because um we've had a very powerful move in the markets since the end of u end of March. March 30th was the recent swing low and some of the metrics, some of the degrees of the move in terms of consecutive weeks higher, things like that have gotten really extreme. And I want to kind of share some interesting data on that just to kind of put that in context. Um uh this one on the left here looks at um consecutive up weeks for the S&P 500. We're in our our ninth week now. I guess the juryy's still out whether we'll be reg registering a ninth up week in a row. Uh but at 8 weeks, you can see this is the um tally count going back to 1950 of consecutive streaks. You know, it's pretty rare. Only 20 times have there been eight consecutive weeks up in the S&P 500. Now, of course, there have been times where it's gone further. In fact, there's been a streak where it went as far as 13 weeks. And you know, the takeaway of this is is that things can get more extreme. And you know, it's it's tempting to say, well, geez, um, we've been up eight weeks, it rarely ever goes higher, so therefore we must be topping and it must be bound to turn down imminently here. That's not the way I would use this because we can see from history that it does sometimes go much further with a pretty high degree of probability. You can see the follow-through returns here are generally on average um, positive. And this speaks to our battery of indicators. You there's a bit more nuance nuance as to when these streaks run out and some of the weight of the evidence indicators Mike alluded to some of our breath indicators of um how many how how broad an index is participating above different moving averages and bullish percent of things we look at as weight of the evidence. All I say is yeah we're getting extreme here but this need not mean that we are imminently about to turn down. And the same if you look at the degree of the rally uh over the last eight weeks about 17% uh since the low um we're in the 99th percentile of that move. But if you look at prior um instances going back to 1950 of moves greater than 15% in 8 weeks. Um you know you look at the subsequent follow-through returns and and generally on average they're positive, right? And and with some pretty large gains. So again, these kinds of extremity indicators aren't very good timing tools at all. It's some of these more nuance things that really speak to when the market turns, it turns abruptly, but it's not doesn't turn just simply because it's uh it's gone on a on a hot streak. Um so we're watching those things very closely. Um you know, Mike alluded to the fact that our indicators are are broadly more bullish these days. Uh I will say that they've been a little bit wobbly. You might say whipsy. So you know, we don't fall in love with these things. We let them be the instrument panel on the plane, so to speak, that allow allows us to with some conviction position clients in in a relatively more offensive or defensive posture as the the case might be. So, I just wanted to touch upon that. >> All right. So, let me ask you this. Uh I'm going somewhere with this question but um as you look at what's happening with the semiconductor stocks right now >> from your perch how much of it is you know appears justified by data like oh okay we're you know their latest earnings are meriting this or they just announced earnings expectations that were better than what the market expected and how much of it is just narrative and momentum chasing to your I think a large part the latter. Okay. Um and it's you know a couple little anecdotes. I think it was the other day Jensen Jensen Hang the CEO of Nvidia um announced it at a conference or something that hey I think the next trillion dollar company is going to be I think he said Marvel technology if I'm if I'm not mistaken >> and the stock went up like 30% I think in a day right just simply because some you know demagogue of demagogue of a of a CEO techo said this is going to be the next trillion dollar company this is the kind of stuff that happens uh in latestage bubble type frenzies uh there's been a lot of um I think uh really uh well-meaning uh fundamental research out there. Uh there's been a emerging thread on are we in an a valuation bubble in the AI you know segment or are we in an earnings bubble and and to me and and the nuance there is you know are valuations reasonable or are earnings uh too optimistic? I think both. I think you got multiples that are uh because because a lot of these things are are based on upon forward earnings estimates that themselves are are we think if history's any guide very inflated and you know I don't want to get into all the questions about you know how how what the quality of these earnings are if you did a what's called a you know quality of earnings study on some of these earnings reports I think you'd find some interesting things like a lot of these um you know thirdparty deals and and circular financing all this stuff I'm not going to get into that here I I think you know there's there's a lot of signposts that there's no doubt that there's been growth in in these areas. No doubt that there's been very significant spend. But how sustainable is that? I think it was last week Microsoft um basically ska turn pulled in the reigns on their employee base using u agentic AI for coding you know because they're spending too much. I recall you had Yan Vanek on your program, Adam, some months ago, and he was talking about how they as a firm have greatly increased their spend. U some of these large firms are saying, "Wait a minute, we're spending too much. We're spending like like you there's there's reckless abandon here. We're not showing any return on that investment." So, that narrative can change in an instant. And I think that's the kind of phase we're in right now that we probably have a valuation and an earnings bubble. Doesn't mean these aren't real. They're not transformative, just like the internet was. But we've gotten way ahead of ourselves. We we very much think it doesn't mean the market tops right here because you know look at the the NASDAQ tech bubble and it it it peaked out in March of um 2000. Uh but between October 99 and March March of 2000 it went up 80% the whole index. We're not talking about a single stock. Um but that's the kind of phase that there are a lot of markers that uh sentimental and and you know fundamental that that have very similar um look and feel to that that phase which we live through and you know I know a lot of people today really haven't lived through a bare market so to speak. >> Okay. So that's that's what I really want to focus on here which is um we have kind of a phenomenon happening right now in the financial markets um which is that the AI trade is gaining this just miraculous momentum here right now and and there's not much breath in the market beyond that right so the entire market right the S&P and the NASDAQ they're revolving around the access of AI and pretty much only AI right now. Um, so it begs the question, well, what happens if if the bloom falls off the rose, right? And and I think you you know, you you've alluded to it could get pretty bad and we'll talk more about that in a second, but I want to I want to bring this also to the economy because there's an analog that's going on there in the economy. Um, I'm just going to bring up this chart here from Twitter. Um, okay. So, uh, US data center construction spending jumped 28% year-over-year in April to a record annualized rate of 50 billion. That now uh, sorry, at the same time, public spending on transportation came in at 49.9 billion. That means that data center construction spending has outpaced government transportation spending for the first time in history. Um, so basically we're just seeing a gargantuan amount of spending happening in the real economy from the AI trade, right? And so I've been saying publicly of late, it gets really hard to be able to see a recession happening anytime, you know, in the near future as long as this just tsunami of spending is going on. And so remember here we've got um we've got this this flood of AI spending. We've got the government still spending at a very healthy or unhealthy depending on the way you look at it deficit. Um and then we also have kind of the rest of corporate America also upping its its um capex investments because of things in the uh one big beautiful bill, right? So like the the bonus depreciation, right? So we're seeing a lot of companies, you know, start to invest in infrastructure because they can get an immediate tax write off for that. So there's just this wall of spending going into the the economy. So on one hand, I think you can make an argument like I just did, right? Which is, hey, you know, if you're worried about the recessions, you might need to punt those worries off until a future year. Um, you know, until and unless these um these uh the spending flows start to abate. And right now they're not. They're just getting bigger and bigger. And you can look at that and cheer it and say, "Hey, that's great for the US economy uh and for workers." You know, we just saw that um uh we just got jobs reports, two different jobs reports this week that suggest that that um jobs are getting created at a faster pace than they have been in a long time. Um certainly if you look at things like the um uh industrial production, that's expanding. If you look at the ISM manufacturing index, that's up at 54 now. That's the highest reading in years. So you can say hey this is all you know creating a lot of real economic growth in the economy that's a great thing right at the same time back to our conversation about the markets you can say yeah but man so much of the GDP growth now is contingent upon what's happening in the AI space so I want to bring it back John to the the question I asked earlier which is what happens if this gets compromised in some way shape or form how bad could it be for markets and how bad could it be for the economy right now. It seems to be great for both parties raging in both. But uh if if these are not sustainable and we can probably come up with a lot of arguments why they might not be what type of crash position do people need to assume in that point in time and I'm not saying it's going to happen anytime soon. It might not happen for a couple years. Who knows? But you know >> well that that chart you shared the chart you shared here was actually quite eye popping. Let for context uh we're based in Massachusetts. It's the land of the infamous Big Dig project. So, when we talk about public spending on on transportation, we know we're talking big numbers and and not necessarily wisely spent dollars when you look at that at a at a countrywide level. And to see that AI spending is is basically at that level is is pretty eye popping. >> And and look, these things, you go back to the the internet bubble, and I was trying to find a chart in our our chart book here, but I couldn't find it. But if you go back and look at uh information tech spending uh capex spending as a percentage of GDP it shot up like a rocket ship going into the tech bubble. All the spend on you know internet you know build out the switches the Cisco routers all the stuff that needed to power the internet the fiber the cable all the stuff it shot up like a rocket ship not unlike what we're seeing right now. And then it plummeted like a rock and stayed down for years to come. All the while the internet became a more and more important and indispensable tool in you know the modern economy. I think very much we're likely in that kind of phase right now. And the thing about this um these narratives when they change they change quickly. You know what happens? Um suddenly and probably reluctantly if history's any guide analysts start cutting the earnings forecast. They're usually playing catchup, sometimes saving face and trying not to look like, you know, like like idiots. Uh but, you know, suddenly you have a rerating on multiples. Hey, maybe I don't want to pay 30 times um earnings on a stock that's not growing the pace that that I thought it was. Maybe it's only worth 20 or maybe 15. Oh, and by the way, not only we're going to lower the the multiple that we're willing to put on that, but the earnings themselves, the very underlying fundamental that we're going to slap that multiple on also is being cut. So these things can turn around in a in a moment figuratively speaking. And that's what happens. You we've talked a lot. You've talked about, you know, like the giant mindless passive robot with folks like Mike Green. And the the thing is is these these shifts in market sentiment and behavior, they happen at the margins. It doesn't take, you know,5 trillion dollars of selling to to cause prices to go down. It just takes on the margin buyers being somewhat less eager than sellers. That's really all it takes. Just like if your house is on the market or not on the market, but but one house, one one neighbor in your your neighborhood decides to sell their house and they get 20% less than what Zillow said it was. Well, guess what? Your house isn't worth what you thought it was. It's that single house in a in that big neighborhood that reset the whole market. That's how the stock market works. But all it takes is a little shift in narrative, a little shift in um in sentiment and confidence and it can happen really quick. And that's that's what these kinds of episodes you can't call the actual top. It's very difficult. But when it turns, it's usually without any news headline. It's just the simple exhaustion of the thing that has has uh has has become a beast of sorts. >> Yeah. Yeah. And I want to note one thing to kind of to my question there, which is um uh the the capex spending can continue. Um and to the extent that there may be a stock market bubble or an asset price bubble in this asset class and of you know AI related stocks that could still correct, right? So they're not they're they're not completely dependent upon each other. In other words, the market can be overpricing the impact of the spending. So even if the spending remains consistent, the market could could get to a an such a level of overpricness that it could then correct no matter what the the spending does. That said, I think if the spending does get compromised, like if it turns out, you know, right now I think the projection is that there's going to be about a a trillion dollars spent this year in the US and 1.2 trillion or whatever spent uh I don't know if that trillion's in the US or worldwide number, but then more than that per year thereafter. If that only comes in at 60% of that, the stocks are going to have to repric down. So, I think I think the markets are a lot more connected to the spending than the spending necessarily is as connected to the markets. Um, but I guess John, let let's say it's it's a there's a negative surprise somewhere in there, right? either the the spending flows aren't as big as we thought. Um or, you know, valuations get to a point where people say, "Look, there's just no way to justify this." >> Um, and and I know you won't really know till we're in there, but do you see it more like a capital rotation like we sort of saw at the beginning of this year where money started leaving these stocks and going into the value stocks for a couple months? Um, so is it more sort of like a negative sum game where it's just a the market value is going to go from here to here or do you see it more as as a really a true I guess correction is what I guess what you need to say where kind of like your analogy of the the house with the marginal um buyer the next marginal buyer in the AI space is just at a much lower level than folks were expecting and a lot of that market value just goes poof doesn't go anywhere it just goes is the market value heaven? >> Yeah, it's a great question, Adam. Um, can't say I have the perfect answer for it. Um, the real answer is we'll watch our indicators. We'll watch for relative strength, you know, shifts between sectors and and styles, if you will. But look, it's not like the broader market uh is is cheap, right? I mean, we still have had a a pretty massive run going many years in in in and you know, I know we've committed this error before, but it's it's oftenimes invogue to show a chart that says, "Hey, look at the utility sector is the cheapest it's ever been to the S&P or the bank." I saw one the other day, the financial sector is the cheapest it's ever been to the SM S&P. And it's kind of like a a chart crime of sorts because, you know, you're comparing something to another thing that's never been more expensive. So that doesn't mean that other thing is cheap. It just means it's less crazily expensive, right? >> Um so I think there's a good chance and and part of the narrowness that Mike spoke of is is concerning. That may be like if you look at major market tops, they usually start to fall apart from within. Even while the indices are are reaching new highs, they start to lose participation. the the rest of the market says, "You know what? This thing's this thing's run its course. We're we're we're we're running for shelter." And it's usually those last, you know, leaders that suddenly start to turn down and that can take the whole market down. Um and honestly um I think there's a very plausible scenario where that is the case but um we'll have to watch um you know if we see other se like financials have been laggers um I don't see a catalyst for them to suddenly start to perform but you know if we start to see some of these sectors pick up and broaden out I think it could be more of a rotational event than a than a heavy reset of markets. >> Okay. Well, again, you'll be on every week, so you can kind of update us as your indicators tell you what what's more likely. But to your point there, John, so um some of what we're seeing sort of smells and sounds like latestage uh speculative bubble um behavior. Um at in the late stage of a bubble, that's where kind of everybody comes out of the woodwork to try to get get theirs while the getting's still good. And so, Mike, I'm coming to you with this, but but we are now seeing the IPO window back up, and we're seeing some I'm using this word a lot today, gargantuan uh offerings coming to market. Um, probably the the one that's getting talked about the most right now is SpaceX, but we've got anthropic coming up. Chat GPT. Um, Google just announced a massive raise and uh I think uh uh Berkshire Hathaway is is taking a chunk of that. Um so I don't know what do you think about these IPOs? Is that a is that a sign of health that hey we've got these great companies that are tapping the public markets or does it smell to you like uh these are those latestage guys that come and try to try to get juicy valuations while they still can. Well, there's certainly a lot of buzz about IPOs. A lot of clients are calling um and asking about SpaceX and you know the SpaceX is there's news out every day. In fact, it seems like today they just announced that they set a price. I think $135 a share is what the target price looks like it's going to be. >> Yeah. Sorry, sorry to interrupt, but it came out like right after that that Morning Star is is advising that the price should be about half that. >> It's not a surprise. It's going to have a huge, you know, what$ two trillion dollar valuation. We've got a couple slides to show you. Interesting. John and I have been in this business a long time. Essentially since the since the peak of the tech bubble. And I've got one slide here I want to show you. And these things are bad timing indicators. So with that caveat of that disclaimer, which we'll say a million times, bad timing indicators, but they tell you kind of what the weather looks like and where the wind is blowing. So this chart goes back to 2000. is really our whole careers and this is the tech bubble back here 2000. Take a look at this chart and you'll see one big kind of different bar here. This is postco after basically the world shut down and everything opened back up again and the United States put $4 trillion of stimulus into the system and there was all this you know stimulus that people had and day traders were doing all kinds of stuff and meme stocks and GameStop and everything else. there was this massive issuance and so I think this is kind of an outlier uh but but it is what it is um and that wasn't so much a market top that was kind of a kickoff of the postcoid market run but if you kind of take this out of the picture and you say okay what else was relative highs well you'd say that now this I think is full year 2025 if I had a 2026 bar here probably would be up here uh Um, you know, you you probably also say somewhat in this area. 2007, you know, was a relative high. 2014 was a relative high. I'm not really sure that that showed much of a market top there, but certainly the tech bubble was a relative high. So, you know, it's not it's not exact. It just tells you that as you get into these zones when we have spikes in in IPOs, these are relatively market highs, particularly 2008, 2000, I think. I think the 14 doesn't really tell us much, but maybe this bar tells us of an impending top. We don't know. That's the problem. We've got a couple more slides on IPOs. SpaceX, we just talked about SpaceX. Um, yeah, these are these this is the the actual IPO side the the rank by funds raised at the time of the IPO, not adjusted for inflation. So, just real dollar, not real dollars, but nominal dollars. SpaceX 75 billion. Really bigger. Three times bigger than the next biggest one. This was Saudi Aramco. Visa that goes way back. Facebook. Remember Facebook? That feels like it was yesterday, but it was a long time ago. And I remember thinking some of these things, oh jeez, it maybe this is a uh some sign that we're near a top. None of them really mattered. So the big question is, will this one matter? I don't know. Again the big warning is don't use it as timing indicator but uh you couple this with valuations which we haven't shown in the charts and the narrowness it would at least cause one to say potentially lower your exposure tighten your stops and look at your hedges. One more chart on this. Take a look at SpaceX. This is basically uh valuation at IPO, right? Valuation at IPO of each of these names and what they're at now. So Nvidia is up here at like 5 trillion, Alphabet, Apple, Microsoft, the all these guys, um you know, the fang stocks or the the market leaders, whatever name you want to put, they're all three trillion plus now. And it feels like it was yesterday we said, "Whoa, we have our first trillion dollar company." I think it might have been Apple and that was not even that long ago. Now look, five, six trillion. Well, SpaceX comes out with a two trillion market cap on its first day. None of these other guys did that. So what does that tell you? Well, SpaceX is either that awesome, that much different, or or we're kind of, you know, a little over our skis here. >> It's very richly priced. And don't don't many IPOs end up trading at a pretty notable discount? >> Yeah, there's one more chart here. Um, >> yeah, the many times they do. There's one more chart I guess I'll bring up. Um, I might have closed it too soon. >> Yeah, it's not a guarantee, folks, but it does it does it's it's something that happens quite frequently. >> So, here's um average IPO return to index and median. So, you know, here's the first day. And so, you're going to have some and of course averages are going to be pulled up by outliers, right? So, you have some winners. Yeah. >> Yeah. The winners are going to pull the average up. So, if you go out a year, you still have an a, you know, an average positive return, but the median IPO is down 10%. So, I hope you can pick the winners if you're going to play the IPO game, you know, and we've got a market here that might be topping soon as well, which would only make things worse if we had a major market top. So, you know, this is a cautionary tale. Three years out, the median IPO stocks down 40% and even the average is down almost five. So, I think that it probably answers your question. >> It it does. And look, folks, this is not personal financial advice, but I actually think SpaceX is a really cool company. Um, I think, um, Elon's going to continue to combine a bunch of the things in his empire under it. Um, I would love to own it at some point. I don't think I'm going to buy it for the IPO. I think I'm going to buy and wait um because I think that there's potentially pretty good uh probability that I might be able to buy it at a much better valuation than the IPO price. Don't follow me because I'm saying that, folks, and I reserve the right to change my mind. But that's sort of where I am right now on this. Mike, you're nodding. Okay. Um, John, let's let's bring it back to you. I know we don't have a ton of time here because um uh I think your time restricted on that location, and I've got a little bit of one as well. Um, let's let's try to spend some time talking about what you guys do on a daily basis, which is actually working with real people to help them improve their odds of hitting their financial goals and and really their financial goals are important because they're they're that's the money that's going to fund their life goals. At the end of the day, this is all about living the life that you want. um you know, in this crazy market right now, um what are you spending your time with, uh with with your clientele right now? Is it is it talking people out of FOMO because their idiot brother-in-law is making a ton of money on a semiconductor company? Um or or or what is it? Is it trying to make sure they're not super vulnerable in case this is the blowoff top that Mike's worried about or that the semiconductors really pull back hard? um what what's what's what are you finding the highest use of your time right now in terms of benefiting your clients? >> Yeah, thanks for that question, Adam. And it's it really is to the essence of what why we're here, why why New Harbor Financial exists, right? Um we spend a lot of our time, Mike and I and our investment team obviously working on our investment discipline or craft of tactical investing, right? We think that's a really important piece of the equation, but it's not the whole thing and it really brings it back to the lives of the people whose money that we're being asked and entrusted to help them manage. And that's where in fact the right before jumping on with with you here today, Adam, it was a little bit late because I was working through a financial planning analysis for our clients. Mike and I are both certified financial planners. Folks might be familiar with that designation. So this gets beyond the investment into the kind of really connecting it back to clients lives and um we do a lot of this work and and this is what really helps clients ground themselves. We think uh sleep better at night. We hope that they're not fearful that hey I got to participate in every you know speculative advance in the markets to to be have a chance to be able to retire and live comfortably or you know sometimes it's they think they need to work for 10 more years when maybe they don't. Um, you there's a lot of unspoken fears that simply are there because the questions aren't asked. You know, I thought it might be helpful just to um there there's some great financial planning tools out there. We have a great tool that that we use. It's a tool called Right Capital. There's plenty of great tools out there, but like with any tool, um it it's it's a black box that uh is only as good as the data and assumptions and perspective that are wrapped around that tool. And I thought by way of sharing a glimpse at, you know, our our tool, I can kind of highlight some of those things. So, let me do that. >> I'm a huge fan of these tools, folks. By the way, I haven't seen the specific specific one that John's about to pull up here, >> but um this is one of the things I think in this sort of modern era of investing. Everybody should a be using one of these, but also like you should just be playing around with it on a regular basis, updating it as your life, you know, conditions change and playing a bunch of whatifs. What if I do this? What if I do that? And see how the numbers play out. Um, so anyway, sorry, John, I didn't mean to. I couldn't be a bigger proponent of this. >> Yeah, I'm going to give a real brief rund just to point out some of the pitfalls, but also the ways these things can be used. So here I've got a I've gone through I've modeled the clients but you know this is a hypothetical client. I creatively called it test client and co- test client. Uh so this is not a real person but it it simulates a real person. Um I've modeled all their assets all their spending you know uh projections you know kind of retirement lifestyle spending health care expenses things like that goals travel uh whatever their desires might be. Um, and you can come up. So, a lot of these tools, they have they have really robust abilities to kind of look at scenarios, right? So, a lot of these tools really start with the the question of, you know, what are the chances you're going to be able to fund all your needs during your lifetime? Uh, in this case, I think I've assumed that the the husband and wife or the couple live to age 95. We can play with that variable, but a long hopefully a long retirement period. And on the surface, this, you know, this tool comes up and says, "Hey, there's a 67% chance you're going to succeed." Meaning, there's a 33% chance of failure. And now, here's here's pitfall number one. First thing, what does it mean to fail? These 33% of scenarios and and I'll just back up. These tools you oftentimes use a simulation methodology called Monte Carlo simulation. Uh, I studied operations research in college. It's discipline of engineering. I I lived and breathed this kind of stuff. Probability theory, modeling, simulation. So, this kind of gets into my geek mode, but um essentially Monte Carlo simulation basically says we've made some assumptions about returns, but we know the future returns are going to be uncertain. So, how do we test that? And basically Monte Carlo simulation basically randomly simulates different patterns of returns. Some are very positive returns, some are very negative returns and all kinds of different patterns of those returns. Sometimes it's big down years up front followed by productive years later on and vice versa. And you know that's what these scenarios the percentage of scenarios represent. It's basically saying 33% of the scenarios if we look here you're running out of money before you turn I guess I modeled till age 90. So this is this is showing the range of scenarios. the the dark blue is the 50% you know plus or minus 25% around a median scenario but for a whole bunch of scenarios 33% this this plan runs out of money. Now the first problem with this is that a scenario that runs out of money by $1 is considered a failure. So in this in this particular scenario I've assumed a you know one of the one of the pitfalls of of these kinds of tools is they oftentimes are are built on pretty rigid spending. um assumptions. Okay, basically, you know, hey, I'm going to I'm going to withdraw four or 5% of my starting capital. I'm going to increase it every year for inflation, and I'm just going to be on autopilot, give myself a raise every year. In reality, that's not how life works. U I'm going to look at a different one here, which I call guard rail spend. And basically this is a a different kind of spending theory if you will that instead of a fixed straight spending adjusted by inflation you're gonna like most people they're going to loosen their purse strings if they have good years in the markets and they're going to tighten their purse strings if they have challenging years. And that's exactly what this does. It says you know if you if you kind of be careful how much you spend and the pattern you spend given what happens in markets you can actually increase your odds of success quite dramatically. You know, there's a whole bunch of stuff that you can run through here, but it's only as good as the data that goes in. Now, the one final thing I'll mention, those those simulation tools are great, but they're not the beall and endall because one of the flaws of of those tools is that they assume kind of uh the same coin flip uh probabilities of negative returns, for example, no matter where we are in the market cycle. When in reality, the likelihood of negative returns or lost decades we've talked about, they don't just happen randomly. They happen almost predictably and reliably when we're at very extreme valuations like we are at now. So a lot of folks are running these kinds of analyses either with the by themselves or with an adviser. And I would say for passive investor they're they're building these models with a a very overly optimistic assumption about likely returns. Um and and I think that's setting up a lot of people for a lot of lot of failure here. Uh and that's why we advocate uh you know certainly in this current time a tactical approach but also one that is shifted down on the risk spectrum you know because these aren't random events that a tool like that might have you think it's they're really grounded in reliable things like starting valuations you know it doesn't say where we're going to be over the next week or next year but the next decade it'd be highly improbable if history is any guide that we get any really meaningful kind of returns. a whole bunch of stuff we could talk about that but very independ indispensable part of what we do and every person involved or or concerned about their financial situation. It's not enough to focus just on the investment side. You really got to focus on the planning side and understand how it ties into your life. >> Yeah. Uh su super true. And um John, I'm thinking I would love to see more of that tool. Uh, I know you only had time to show us just sort of the front door of it, but um, you know, I've used similar tools and and they get really quite granular and I'd really like to show people what that looks like. Folks, if you're interested and if if there is interest, let us know in the comments section and one of the next times I have John and Mike on, I'll have them walk through that that software in more depth. Um, but you said a couple things that I think are so important, which is um, you want to you want to plan for as much as you can, but you really want to focus on the things that that are under your control, right? And and what's not under your control is what the market does, right? Now, you can plan for it like you said that, hey, when markets are very richly valued, they then tend to be followed by a period where markets aren't so richly valued, right? It's just reversion to the mean and the cyclicality of markets. Um, so that if you're doing your planning here and if the markets are at valuation extremes like they are right now, wink wink, nodn nod to everybody, you probably want to in your planning discount uh your market returns, you know, for the next couple years and then let yourself get pleasantly surprised if the market still continues to go up from here. Yeah, I have I don't have time to get into it, but for example, I've got a a return pattern there in there that we could uh we could say, what if you retired in the year 2000, right before the tech bubble, and we could actually show what a client's plan would look like if they actually observed or witnessed the same exact return profile that happened in the tech bubble bust followed by the housing bubble bust followed by the bigger bubble that has now been created. So all the point is you can stress test these things to build that level of comfort that level of confidence that hey I'm I'm I'm I'm robustly prepared or I'm not and at least I know at least I know that right it's bringing it into consciousness. I mean, I think there's a there's a fair amount of people who probably avoid this, like avoid going to the dentist, right? Because they're like, "Look, I'm pretty sure I'm going to hear news I don't want to hear, so I'm just not going to go hear it, right?" Um, but obviously, folks, avoidance isn't a strategy. And um the the benefit of of knowing that you might not be on a track to hit your goal uh super important because then it opens the conversation or the the the strategizing of okay well what can I do right can I lower my my my cost behavior um or or can I increase my income in some way shape or form and and again tools like this are really valuable because as you start to ask yourself those things you can say okay well what would it take for me to reduce my my my monthly costs by 10%. And then if you put that in the model, you can see how much of a difference that makes. You might realize, oh, you know what? It's not a cost thing. I could I could stop eating and and live in a cardboard box and I'm still not going to hit my goal, right? I've really got to lean in on the on the bumping my income up part of thing. Or you might find, hey, it only takes you don't have to double your income. You only need a 6% increase in your income. And that might actually fill the gap. And then you can start thinking about well okay tactically what could I do to do that right it it it's this catalyst and enabler that that unlocks the strategizing to find the solutions that you need and to you know John's earlier point if you find out that you're fine and that you're fine under even some scenarios that you were worried about but you've now run the numbers and realize you're still going to be okay well man think about the peace of mind that comes along with that. So last point on this then we'll start wrapping up. Um, I do just want to underscore that, um, look, who knows what's going to happen with the markets in the near term here, you know, is this massive runup that we're seeing in AI, all these distortions, is that what's going to create the next really big market downdraft? I don't know. Certainly could happen, right? I think you'd be silly to ignore that as a potentiality, but who knows? What I think we can have greater confidence in, as we've said on this channel a lot, especially with Mike and John, is if you look at where valuations are right now, they are at historic extremes. And when we've been at previous historic extremes and valuations that were lower than where we are right now, they were followed by prolonged periods where the market didn't go anywhere. Right? And you're seeing a lot of analysis out there, including ones from the big Wall Street firms like Goldman Sachs, that are basically saying investors really should expect negligible to like zero or in John Husman's case, even negative um annualized returns over the next on average over the next decade, right? So if you have just retired um or if you're hoping to get to retirement um there's a lot of people out there that I am not certain if they can deal with a lost decade, right? So, the the call to action here is do the planning. And folks, if you're good, crunch the numbers at home, great. Do it yourself. But there's a lot of great tools out there like the ones that John and Mike uh just showed us through. Get your hands on one of those or go, you know, talk to your adviser. But play around, run, do the math, run the numbers, and really try to get a strong sense of of your likelihood to hit your goals under status quo conditions. But certainly what happens if some of these you know known risks that we know of occur and also these models can be pretty good too about helping you identify your your vulnerability just to unknown unknowns you know just random things that might happen out there that could derail your plan. So all right I'll end it on that. Um John and Mike guys thanks so much. Really enjoy these monthly deep dives. Folks if you're watching and you do too with the New Harbor team here let me know in the comments so we can continue doing this going forward. Um, uh, I guess real quick, both you guys, anything majorly burning on your radars that I haven't asked you about here before we we fully wrap it up? Uh, Mike, let's go to you. >> I don't think so, Adam. Uh, normally we take a look at the precious metals complex, but I can tell you there's really no change from last week. They're kind of floating along the their correction low levels. And so that's a trade that requires patience right now. >> Um, there's really nothing else besides that. I did I did and we'll have to punt this to next week, but I did want to ask you about um Bitcoin because we actually have seen Bitcoin break through some some pretty notable price support levels. Um and it's starting to open the question of sort of like what's going on and how low could this go? But that's we don't have time for that discussion, but we'll ear market for next week. How about you John? Anything else in wrapping up? >> No, I don't think Adam I think this was um we always appreciate the opportunity to chat with you and your and your your viewers. appreciate the opportunity hopefully to educate and uh we really thank you for having us on. >> All right. Well, folks, look, please give your thanks to John and Mike. Uh let them know you'd like to see them continue this monthly deep dive that we do with them. Let them 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. Um and uh like I said, um if you haven't certainly if you haven't created your own financial plan, make that a top priority right now. But even if you have um if you haven't revisited it recently, definitely blow the dust off um and rerun the numbers. But if you haven't played around with, you know, some of these software tools that uh you John's been showing us here, highly highly recommend you do that. So anyways, if you want to get help in any way, shape, and form, in any way, shape, or form with your financial prospects here, but particularly about financial planning, if you don't already have a good financial adviser who's doing that for you, consider talking to one of the ones that Thoughtful Money endorses. Maybe you'd like to work with John and Mike and the team at New Harbor in doing this. Uh to do that, you can just set up a consultation with them by filling out the very short form at thoughtfulmoney.com. As a reminder, these consultations are totally free. There's no commitments involved. It's just a service they offer to be as helpful to as many investors as possible. And with that, gentlemen, I look forward to seeing you next week. Thanks so much again, guys, for this latest deep dive. >> And thank you everybody for watching. And thank you, Adam. We'll see you soon. Thanks again, Adam. See you next week. >> All right. And everybody else, thanks so much for watching.