Employment Crisis Deepens: How Will Markets Respond? | Adam Kobeissi
Summary
Labor Market Analysis: The labor market is showing signs of cyclical weakness, with job openings declining and underemployment rising, partly due to AI disruption.
Fed Policy and Market Impact: The Fed's interest rate cuts amid a high inflation environment are expected to support asset prices, with historical precedence suggesting the S&P 500 could rise significantly following such cuts.
Asset Performance: Despite economic weakness, assets like gold, Bitcoin, and stocks are hitting new highs, driven by the Fed's monetary policy and technological advancements in AI.
Retail and Institutional Investment Trends: Retail investors are heavily investing in the stock market, with institutional investors also increasing net purchases, indicating strong market momentum.
AI and Tech Sector Outlook: The AI revolution is seen as a major driver of market growth, with tech companies like Nvidia leading the charge, despite concerns of a potential bubble.
Housing Market Dynamics: New home sales are surging due to constrained supply and slightly lower mortgage rates, with expectations of higher home prices as demand outpaces supply.
Inflation and Economic Risks: The Fed's balancing act between controlling inflation and supporting a weakening labor market is crucial, with inflation expected to remain above the Fed's target in the near term.
Investment Strategy: Investors are advised to focus on assets that provide yield amid rising inflation, with gold and Bitcoin highlighted as key opportunities.
Transcript
If you were to ask me next year today, where will the S&P 500 be? I would say Fox Business always calls me the world's youngest gold bull. What happens usually to the S&P after a Fed pivot? Does it usually go up by,000 points? So, Adam Coobesy returns to show. He is a founder and editor-inchief of the Copesy Letter. Check out his work. He's very active on X. He posts a lot of his economic updates pretty much every single day, several times a day. and we're going to be talking about his latest analysis on the latest data surrounding the labor market, inflation, Fed policy, stocks, where do you where does he see stocks headed, uh the housing market? We'll cover a lot of ground today. The most important questions that the average person uh in America needs to be paying attention to right now. Adam, welcome back to the show. Good to see you. Great to be back, David. Thank you. I want to start by talking about the labor market. the um this tweet in particular, the number of the current number of the current number of available vacancies is only 4.3% above the prepandemic levels seen in February 2020. Uh postings have now declined for 3 years straight. This is a chart you've posted from the um St. Louis Fed website. And then um concurrently, you've also uh tweeted this is concerning US aggregate weekly hours worked has fallen 0.2 2% over the last 3 months, the largest decline since the 2020 pandemic, 3-month percent change in aggregate weekly hours worked in the private sector. Um, you've also made a number of other tweets surrounding the labor market. Let me just going to ask you this as a broader general first question. Should the average person be concerned about layoffs going into 2026? Look, I think right now what's happening is it's no secret the housing the sorry, the labor market is weakening. Um and the Fed leaned very heavily into that of course in their latest interest rate decision. So it it's pretty wellnown now. Um now does this mean that we're going to have mass layoffs and it's a 2008 style event where everyone or unemployment is going to skyrocket and everyone's going to be you know in trouble? No, not necessarily. I think we're just seeing some uh some pretty typical cyclical weakness. You're starting to see some AI disruption. you are seeing some jobs being replaced by AI and technology. Um, and you also are seeing underemployment is is is pretty high. So, there's unemployment, right? But then there's also underemployment. And uh like I was looking at the three-month average of youth underemployment is at 17%. which is uh you know the highest since the pandemic uh nearly in line with 2001 2008 levels uh and and even at a high level for the entire economy it's above 8%. So I think yeah you are starting to see some signs of weakness. I don't necessarily think this is something that everyone has to panic about and and that we're going into some massive recession that is going to is going to be you know 2008 like it's it's it's just probably more cyclical weakness amid disruption new technology and uh the economy is evolving that's the way it works. When we say that the labor market is weakening what is that word weak actually mean practically speaking are we talking about fewer job openings? Are we talking about uh more layoffs? So we talking about um wages, real wages stagnating. Jerome Powell Fed chair has also uh not just implicated this but said outright that he sees a weakening labor market as one of the reasons for why he cut rates at the last FOMC meeting. So what does the word weak actually mean, Adam? Yeah, I mean it's a little bit of everything that you mentioned. I think it starts with job openings. It starts with these initial jobless claims kind of rising. Um and then it spreads a little bit. you start to see and real wages and an interesting topic. You brought up real wages. It's uh it's it's going to be an interesting time because inflation is still running above three above the Fed's 2% target near 3% above 3% on some metrics. Um but then the labor market is weakening. So it will be interesting to see what's going to happen with wages. I don't necessarily think wages are going to go down, but they probably won't outpace inflation over the near term. Um, and you know, you also will see job openings decline as we're seeing. Uh, but again, I think this is all just cyclical. It's amid a pretty big disruption from AI. And I think eventually everything will iron itself out. We're just kind of due for some a bumpy road ahead, which doesn't necessarily mean, and this has been my call for a very long time now, uh, which doesn't necessarily mean we're going to have a crash in asset prices, right? You can have weakness in the labor market with higher inflation, also known as stagflation as we're we're starting to see now, but not necessarily have assets crash over the near term. And we've actually seen that now over the last few months. Yeah, that okay, that leads to my uh next point about uh what to actually trade. A lot of the economic data that we're seeing right now, and you've been tweeting this as well, including the labor market data, showing signs of weakness in the economy. At the same time, assets hitting new all-time highs. Bitcoin, gold, stocks, the S&Ps hitting multi um, you know, multiple weeks, week after week, all-time highs throughout the year. So, what does this mean? How should we actually trade the data? Should we be trading the data at all? Yeah. So, you know, this is something this is a topic that we've really been talking a lot about. And I think, you know, a couple months ago, we put out a thread on Twitter and and just a or an ex in and a research note basically saying it's a great time to own assets or you're going to be left behind. And I think even the last few weeks have kind of proven that. The initial reaction to the Fed meeting, we're seeing all assets. I mean, gold is up four times as much as the S&P 500 amid an S&P 500 bull market year to date. That's like unpre typically, you know, gold and the S&P move inversely, right? The gold is a safe haven asset. Um, the S&P 500 is a risky asset. But what you're seeing now is the market knows that the Fed's the Fed's dual mandate, which effectively means they want to control prices, limit inflation, and also control uh limit up limit upsides and unemployment. So, keep unemployment low. Their dual mandate is now conflicting. And by the way, Powell also said this exactly word for word himself. Um, you know, inflation risks are to the upside and employment risks to the downside. So, the market knows that look, we're not getting to the Fed's 2% inflation target. We're probably going to run around 3%, maybe a little bit higher depending on what happens going forward. But, and and by the way, you're also have in the background the biggest technological revolution since the internet, which is AI. Uh but then not now you're going to have e easier moni mon monetary policy from the Fed and I think that's a very powerful thing that the market is still pricing in. I think over the near term you're going to see some more volatility but I think if you were to ask me next year today where will the S&P 500 be? I would say we'll probably be be close to 7500. Um and I think that could even be like just the base case assumption. So, um, as long as the the mag seven companies and tech continue to pump hundreds of billions of dollars into AI capex, the Fed is cutting interest rates and inflation is running above 3%. It's going to be, in my view, uh, a rush into any search for yield, right? That's what people are going to continue to search search for. And I think they're going to continue to find it in a lot of these risky and safe haven assets like gold, Bitcoin, um, and and silver and and these other assets that have performed exceptionally well amid an a pretty remarkable run in equities. Before we continue with the video, let me tell you about a very important topic. How to protect your privacy. Now, your private information doesn't just live in the inbox of your phone. It's being collected, packaged, and stored, and tracked by data broker websites all over the internet. even without you knowing. That's where today's sponsor comes in, Delete Me. I use Delete Me to protect my privacy. And here's how. It helps you. It's a platform that helps you remove your personal data, like your name, address, and contact info from hundreds of these data broker websites. When you sign up, you'll get a detailed privacy report showing where your data was found and what's already been removed. And Delete Me keeps working throughout the year, scanning and clearing your information regularly. It's an easy way to take back control of your digital footprint without trying to track everything down yourself. Go to joinme.com/davidin and use the promo code davidin at checkout to get 20% off of US plans link down below or scan the QR code to get started today. The fact that you think the S&P will gain another 1,000 points. Um can you just elaborate on that? Is that based on um historical precedence uh after a Fed cut? I mean, what happens usually to the S&P after a Fed pivot? Does it usually go up by a thousand points? So, we we put out uh an actual a note, like a research note that kind of looked into what what happens when the Fed is cutting interest rates with uh with the S&P 500 at all-time highs. And by the way, this has only happened, right? September's rate cut was the third time since 1996, the third year I should say, since 1996 where the Fed began cutting interest rates uh with S&P 500 near record. Last year, 2024, September 2024 was also one of those times. And as you saw how the market has performed since then um in 100% of cases where this has happened over the last 40 years we've actually or or close to 50 years actually we've actually seen the S&P 500 end higher one year 12 months later and that's usually an average gain and Morgan Stanley put out a note on on this as well saying the average gain is roughly 15%. Um and that's kind of part of our base case assumption here. I also just think that AI capex is going to remain extremely robust. You're starting to see um these tech giants like Nvidia and Oracle and these other these other names that have kind of started leading the market or have continued to lead the market higher pivot into the next inning for AI. So I think that's going to continue to to drive uh equities higher. And ultimately, you also have a an administration right now that is obviously highly um cognizant of what's happening in the market and supportive of higher asset prices. Um combined with this whole deregulation wave that we're seeing. So, I think it's just there's so much momentum right now. It's a tough trend to fight. I will say like I've said already the next month or two, yeah, we may see some draw downs and that's completely normal when the S&P 500 rises 40 close to 40% in five months. Even a 10% pullback would be warranted by both bulls and bears by the way. Bulls love pullbacks because you can buy these quality names for much lower multiples than that what they were at just a few weeks ago with the way the market moves these days. So yeah, that's kind of the highle basis of how how we came to that conclusion. This is an interesting tweet. uh retail investors piling into the stock market. According to Goldman Sachs, weekly retail purchases were the largest since December for the week ending Wednesday. This is four times above the 2020 to 2024 September daily average. Um in the second month straight where buying exceeded the prior 4-year average by this much. Retail investors are piling into the stock market. What does it mean? What does it signal when retail investors are piling into the stock market to this level, Adam? Is this Some people would interpret this as saying this is probably the end of the bull market. is not. So, it's a and this is a great chart because if you take a look th I mean retail has absolutely crushed this rally. If you look at uh let's just go right back to April and and right when we were in that that tariff crash, retail was basically buying all the way into that that spot and even after that spot, it's been pretty consistent uh net inflows by retail investors. Now, if you look at institutional flows during this same time period, retail was actually right. A lot of institutions were not only selling but shorting into what has been now one of the best five-month rallies in the in the history of the S&P 500. Um, and and I actually think I'm not necessarily looking at at this and saying, "Oh, yeah, retail is now behind the top and we're going to crash and everyone's going to be trapped." Um what I view it as is look now if you look at the flows for institutional side of things they're actually large net purchases happening week over week and I think institutional investors are now saying all right if we missed part of this rally how do we answer to our investors in Q3 and Q4 and Q1 of 26 if this continues and we're not not even short necessarily just not participating in the market or more in cash so I think cash levels have come down for both retail and institutional investors purely because it's just the market has been so strong that no one wants to step in front of it for now. And I think that's in a way kind of driving itself higher. So I will say like that in a way does sound like a topping top type sentiment, right? I have to buy because that's the only thing you can do. Um but you you can't ignore the the other big macro drivers in the background that are happening and and that's why I think that you know we will see brief draw downs that that could exceed 5 or 10%. But I don't necessarily think that's going to derail the market in a way that we saw in early 2025. Sure. Were you bullish on the stock market all year round, Adam, or was there a point throughout 2025 where you became a little bit more bullish? Yeah. So, I would say in the early part of the year, um, we we kicked off 2025 pretty bullish. I think as the tariff situation started playing out more, um, and and the S&P 500 clearly reversed its uptrend that was seen throughout 2024, we shifted more bearish, and it wasn't necessarily even a long-term bearish view or short-term. It was more just kind of playing these near-term swings. It was an a remarkable time to trade to be honest in in Q1 and Q2 of 2025 because the moves that the S&P and commodities and bonds were seeing on a daily basis sometimes were exceeding the annual moves that were seen in those assets just because of how much uncertainty there was. I think heading into May um and June, we started shifting a little bit more neutral until we knew what was really happening with tariffs. And then from there, we've kind of just been progressively raising our S&P 500 target um ju just because of, you know, this huge push into uh AI. This capex situation that I explained already and now this Fed pivot coming into inflation um I think is adding more more fuel to the fire over the medium to long term here. This next tweet highlights um the concentration risk that I've heard a lot on my show. Uh, another day of the record, the top 10 stocks now reflect a record 41% of the S&P 500's market cap. To sum up, tech stocks effectively are the stock market. So, if you're bullish on stocks for the long term or even the medium-term like you are, are you then just basically saying you're bullish on tech? And another way to put this is let's say if you just take the Russell 2000 for example which has been lagging the S&P 500 not just this year but for the last five years. Could you be less bullish on let's say the rest of the stock market that's non tech? Right. So it's a great question. I mean this the chart you have up here it's it's it's definitely something that I wouldn't necessarily it's alarming but it's something that you can't ignore. Now uh this has really been the case now for the last 2 to 3 years where tech stocks effectively are you know the stock market and they are driving this this run all all the way across the board. Um what I will say about it is though that the the names that are driving higher are the names that are kind of evolving the entire world the entire technology and just business landscape as a whole right the the Nvidia of the world even Meta now becoming one of the biggest companies Tesla uh Microsoft these companies are massive I mean Nvidia itself is bigger than almost every stock market in the world except for a handful so uh you know you you as an investor If you're buying an S&P 5 S&P 500 index fund, yeah, you're half almost half your money, 40% of your money is going towards just a few names, but I don't necessarily view this as something that is uh I wouldn't call it polarizing in either direction. I think what it really means is that when we do see these names move to either direction, it will drive the market as we saw earlier this year and now. Um, but I think generally I'm pretty bullish on these names as a whole. So I that that's why right right right now over the short term it's not something I'm saying I I continue to emphasize this point and it's not something I'm saying is bearish necessarily or even bullish. It's just more a trend to keep to keep uh keep in mind and know that yeah you do have outsized exposure to a lot of these big companies that are at the forefront of AI revolution. Okay that's that's important to note uh to your earlier point about how bad news could just be interpreted as good news because it's going to incentivize the Fed to cut. Let me just ask you a hypothetical. What if the Fed disappoints and if they don't cut as much as we would want and then I think that would definitely be a major major blowback um to to the bull case. Right now the market is pricing in cuts preemptively. Um if the Fed decided to come out and say, you know, we're we're not cutting interest rates at all for the next year until we see inflation back to 2% or whatever variation of that it may be, that would absolutely uh you know, send send yields higher, send stocks lower. Um, but I think you also have this uh interesting backdrop right now where Powell's term as Fed chair has a few months left. May 2026 is really his his when he will be out. Obviously, Trump has made it very clear that he will be out. And the people that Trump is not only putting on the board now, but also considering for Fed chair um are like, you know, you saw the dot plot, right? like the most recent Fed governor that was appointed by Trump was like in his own camp. It wasn't even like an extra rate cut or I think there was a descent. He wanted two cut he wanted 50 basis points last uh last year. Exactly. And I and I think he wanted over 100 basis points this year alone. So Wow. Um, I think the market will continue to price that in. And I think as long as Trump sticks with this narrative and I think the only way, by the way, that Trump's narrative can change is if we have some huge resurgence in inflation where he just where he really just can't say anymore we need to cut rates because people will be feeling the pressure of higher prices. Right? I think right now people are feeling the pressure of higher prices, but it's not like it was not that prices have come down, but the rate of change has definitely come down. Um, and then also the market is doing well. So when the market is doing well, it's pretty easy to say, you know, status quo is pretty good. Just cut the rates and we'll deal with it. And he and he's alluded to this, by the way, like in those truth social posts that he made in the summertime. Uh, President Trump and some of them some of them said, I think we should cut rates by 100 bips, 200 bips, and if inflation comes back, we can raise them again or we can stop. So he he did say that one point and I think he does know that. But I think over the near term the market's just going to continue to even even into early 26. I I I don't really think the market is going to price out interest rate cuts. Even if the Fed starts saying, "Oh, we're going to go on pause." At some point, uh the new phantom Fed chair who's going to be appointed who's going to be announced by the Trump administration in the coming months will have more impact on monetary policy than Powell just because markets will start looking out beyond May 2026. All right. So, a few certainties we've know based on what you said. Pal's going to be out next year. Whoever is going to replace him, we don't know exactly who yet, but whoever is going to replace him is more than likely, almost certainly going to be aligned with Trump on lowering interest rates. How many rate cuts up for debate, but it's going to be lower for sure. Now, the question is, what is that going to do to inflation and growth? This is a very important tweet you've made. 72% of CPI components are now surging faster than the Fed's 2% target, the highest share in three years. Okay, I'll let you explain that. I'm I'm just thinking, look, if let's say they cut into a rising inflationary environment, the general American public isn't going to be happy about that either. Of course, the Trump administration will blame all sorts of things on inflation, not the Fed if they point, you know, a Trump friendly Fred Fed governor. Uh but it's just it just doesn't look good. But anyway, I'll let you comment on this. Suppose the Fed actually does care about inflation. At what point does inflation surge out of control, so to speak, eclipsing the weakening labor market that they have to deal with? Yeah. So, it's it's a it's a delicate balance because you're you're you're moving in opposite directions on goals that are supposed to be moving in the same direction. So, it's what happened was inflation was the biggest risk and then the labor market started weakening and then the labor market. It's not that inflation got that much better. It's just that the labor market got that much worse. And now if the labor market can come back in and inflation starts getting worse, then yeah, you're going to see the Fed pivot again in the hawkish direction. Um the the the thing is though is I I think the labor market is really weaker than most people think it is. And I think the Fed knows this. So it's not like we're really it's headtohead right now. I I I really think the the Fed would be pretty happy with inflation running at 3% or a little bit above 3% if they can contain the labor market before this gets much worse. Um and I I again part of my bull thesis over the long term is the fact that inflation is coming back and and rising again. I I really do think that will drive asset prices higher, especially on a nominal basis. We saw that before. We saw them that that in in you know right after the pandemic similar kind of situation. I I think um the Fed they're not going to just completely take another 180. They're they need to see more evidence and that will take months by the way months of of labor market data to say yeah the labor market is now in control or the labor market is now strengthening again. So when I'm looking out with with with the projections and we're typically looking you know a few months out to maybe a year out at most. We're not looking five years down necessarily. Um I think that that really does support the bull case. And I I I think dips will continue to be bought even after maybe a near-term correction um happens. And just on that note, a lot of major companies, Adidas, Walmart, Home Depot have just recently in the last month announced that they're going to raise prices soon. So we may see uh uh you know higher prices next quarter reflect. Uh so we'll see what happens. What is your base case for how the CPI is going to trend in the next quarter or two? Yeah, I mean I look I think we're going to see you know the 3% plus CPI especially on a core basis. Uh PCE is probably going to inch above 3% on a core basis and this was also the first Fed rate cut in over 30 years with PC core PCE inflation at or above 2.9%. Um, so we we have a high baseline to start with. And I think the other mystery here that the Fed is kind of weighing is are tariffs going to have the inflationary effect that some thought they were going to have in April? As of right now, I would say it's not nearly as severe as some were expecting. Um, the question is who's eating the costs and how long will they continue to eat the costs? Right now, it seems like maybe producers are eating a lot of those costs because they're looking a little bit f further out and saying, "All right, trade deals are happening. Maybe tariffs won't be will be longived and we'll we'll be able to maintain price levels." But on the other hand, you mean you see some leading indicators like for example, manufacturers are paying higher prices for their inputs on basically every metric. uh that's a clear indication of inflation at least partially due to tariffs because of their input costs are rising. Um and it it just becomes a matter of when that will be passed through to consumers and I think ultimately that does lead us back to what I as I said 3% plus inflation uh on on a core and and most likely headline CPI basis is what the Fed doing kind of unprecedented. Take a look at my chart here. Uh I'm going to overlay the effect of Fed fund fed funds rate with the um US inflation rate here. As you can see if you zoom out um there tends to be a correlation over over the long term going back to the 50s. Uh whenever inflation goes up, you need to restrict monetary policy and vice versa when it goes down. Right now it seems like they're doing the exact opposite with inflation is inching up and they're cutting rates. Is this do we have a historical precedent for this? Yeah, I mean if you if you look back to the 80s and 90s and even the 70s like for example the 70s you saw two waves of inflation uh coupled with with Fed everyone's probably seen that chart that overlays the 70s versus 2020 2020 2025 um I I think what what the difference is here is like there I don't really see a case where the Fed goes so crazy with rate cuts where they you know they do 75 bips cut or or even 50 bips But I I over the next call it 8 nine months I don't really think that's that's necessarily necessary or going to happen. Um and I think you're also like the baseline is different. It's not it's not like we have some impending crisis some impending economic crisis where GDP is is collapsing or or there's there's nothing really causing panic where that would cause the Fed to have to move so quickly yet at least. um in in the past typically that was the situation. So um I think the Fed can and hopefully will continue to be calculated in this way in in what they're doing. A 25 bips move here and there is is not, you know, not huge or pretty average, you know, historically speaking. And I think if you if they continue to take it meeting by meeting, you'll be able to at least keep things somewhat balanced on the on on both sides of the dual mandate. What happens to markets when the Fed cuts in an inflationary environment? Um whether it be during a slowdown like stagflation or just normal growth. Which assets typically perform the best uh when that happens? Yeah. So um obviously I've mentioned you know we think stocks are heading higher. I think also gold. We have been all over the gold for a long time. Um, you know, F Fox Business always calls me the world's youngest gold bull and um, we, you know, we were calling for 3500 and then now we're nearly at 3,800. I think we definitely, we we definitely are due for a pullback. We're starting to see some weakness over the last couple of days, but I think gold is heading to 4,000 plus. Um, I also think that you're going to see the commodity world is interesting. Like if you look at oil prices for example um you know inflation with oil typically will drive oil prices higher in a time of inflation just because oil is denominated in US dollars right um but the the Trump admin has also been pretty pretty vocal about keeping oil prices lower. They want oil below 60. So that's actually been a very tradable commodity. We were short and then we actually went long and we actually just closed longs and now we're kind of just somewhere in the middle around 65 a barrel. But I think there will be opportunities in the oil markets and I also think Bitcoin is going to ma remain very strong. I think more record highs are ahead of us for Bitcoin. I wouldn't be surprised if we see $150,000 for Bitcoin by year end. Uh and I I I really do think um investors are going to just continue to search for yield in in any form possible. they are going to search for yield because they know um prices are going to continue to rise at a at a pace that's that's significantly above 2% per year. So bas basically everything is going up. Adam everything's going up. Um what about bonds? We haven't talked about bonds. Where do you see the yield going? I mean um are you bullish in bonds? So that's a great question. That was going to be my next point. So we have not been chasing this bond rally recently as the 10year has come back down towards 4%. Yeah. Um, and that's something that I've I think I discussed this with you previously on this show and I discussed it on a on a lot of different shows is the fact that deficit spending is beyond out of control. The year-to- date fiscal 2025 deficit is at two trillion. Um, we're, you know, we saw the deficit exceed 300 billion in August, uh, and and nearly 300 in July. Tariff revenue is not even 10% of the monthly deficit that we're getting now. So I think in the background you will see yields come down a little bit but you're not going to see some huge drop off in yields because of the fact that the US government is just continues to flood the the the Treasury market with so much supply to fund deficit spending um and and inflation's running high concurrently. I don't think that's a a mark that's a situation that's conducive of the tenure falling to something crazy like two or 3% as we've seen historically. I'm just curious on the gold front the um Fox is calling you the youngest uh gold bull ever. Have you talked to your peers, friends of yours, associates who are also about your age? I'm just wondering if there's renewed interest with a younger crowd now that gold's at almost $4,000 pushing to 3,800. It's up 100% in two years. That's like that's that's crypto levels of gains almost. So I'm I'm just curious if that's attracted the younger crowd with this market. No. Yes. Here and there. I I would say, you know, the young crowd is fixated on on two things, AI and crypto. And I think that's been the case. I do think those that are really into markets, those that really follow markets and are searching for diversity in their portfolio are moving increasingly into gold. Even physical gold. there's there's people that are buying physical gold. Um, but I don't know. I I think it's mixed. I think it really depends on the person. It depends on your investment style. And I think, by the way, like it's you need to not ignore the fact that gold is for sure has a lower beta than Bitcoin. It's definitely less risky than Bitcoin. Um, so it is in a way still a hedge even though it's moving concurrently with a high correlation coefficient to the S&P 500 and other risky assets. Uh, it really is still a hedge. So I I wouldn't discount the value of it. I do think to answer your question, I do think the younger generation is basically all in on AI and crypto. I I that from my conversations, that's the two biggest things that the younger people are asking me about. How do you feel about the AI boom right now? Is that uh drawing to a close in terms of valuations or is there still a lot more room to climb? I personally think that we are we have a lot more room to climb. I think we're in the early days of AI. I think um one day in Nvidia really could be the world's first $10 trillion company. And I I think that people that are calling AI a bubble. Two things can be true at once. It can be a bubble and it can also be the next big thing. The internet was a bubble and it was the next big thing. But I also think if you look at multiples like forward multiples for Nvidia, they're going they're going down as the stock goes up just because of how rapidly the operating metrics for Nvidia are rising and other tech giants by the way. I mean this can be said for other other big big stocks. So I think if you're in the right places, the AI the AI uh the AI revolution really does have a lot of room to run. So uh two we have to differentiate um the two things you said. So something could be a bubble but also could be the next great thing. the internet was a bubble. Um, and the the technology of the internet stayed even when the bubble of the stocks popped. So, let's just separate that. So, I think we all agree that the AI revolution is here to stay. I mean, you know, AI isn't going away. It's only accelerating. How about the tech companies and the VCs pitch being pitched AI companies every single day in their inbox? Is that sector in a bubble? Um I mean it look a lot of there's so many varying degrees right like there's sure I I really think it's not like a company like Nvidia or um these these the Mac 7 a lot of the Mac 7 names Microsoft Google it's not as speculative as you may think it is because there's so much investment behind what they're saying and there's already proven revenue and operating operating metrics that are uh supporting you know effectively supporting the valuations we're seeing If you get into the more small cap space or the more niche AI, you know, things that we're seeing, yeah, I mean, there might there's definitely some things that are probably overhyped that could be uh that could be, you know, resembling of a of a bubble. And even if we are in a bubble, it could still have a lot more room to run before it pops, right? I mean, that investors in the in the 1990s that were able to you could have traded the AI boom for five years before it popped, you know, or more. So, um, it's just because even if you do think that we're in a a bubble from either a valuation or technological perspective, it doesn't necessarily warrant just not doing anything over the the near to medium term with your with your um portfolio in my view. I understand. I want to close off on the consumer in the in the housing market before we uh take off now. Adam, new home sales soar 20% in August to a three-year high. Surprised a lot of people. Sales of newly built homes rose to a much larger than expected 20.5% in August compared with July to the highest level since January 2022. At the same time though, same day, same news uh site mortgage demand stalls after many refinance booms. So um less people applying for mortgages, uh more refinancing and a lot more new home sales. What's going on? Yeah. So if you look at the data, so the mortgage demand, let's start with that. So heading into the Fed decision uh on September 17th, there was a a a very big jump in mortgage demand and that's because of course the market is forward-looking. The market was pricing in the interest rate cut that was coming and mortgage rates fell. If you look at early September, we saw one of the biggest single day draw downs, actually the biggest single day draw down in mortgage rates over the last 12 months, which is completely normal. people were refying, applying for mortgages into that weakness in in the bond market and the and in yields, sorry. Um, now of course the rate cut was implemented and our view also was that yields were going to rise a little bit as a 50 biffs cut was not coming but the market was pricing in around a 10% probability of that happening and as it has happened yields have come up a little bit and rates have stopped falling which makes sense as well. So, it makes sense that that um a lot of the people that were looking to either refy or purchase a home and wait for, you know, a little bit of a drop in rates, they got that and they capitalize on it. That's why you also saw a new home sales spike. But if you look at the the broader picture, um one, you know, the existing home, the median existing home price is now actually above the median new home price. And one out of three homes for sale are new inventory. and supply remains historically low. So you have a situation where you have moderately warmer/h hotter mortgage demand. You have a supply situation that's pretty much still constrained. And you have interest rates coming down a little bit, enough to to drive some more demand, but not enough to remove what I like to call the financial dis disincentive for current home owners and and investors more specifically to sell property, right? Because like right now, if you're the average mortgage rate on a on a single family home right now in the US is, you know, under 4%. Like basically the majority of of people that own a home have a rate below 4%. um and those people and and and specifically investors during the pandemic era there was a huge resurgence of investors piling into these these properties. You're actually your biggest asset even more than the home sometimes could be the fact that you have a 2.5% interest rate on your mortgage or 3% or even 3.5%. More than basically half of where we are now. Uh those people don't want to sell. So that explains exactly what I was saying initially. you have a lot of new home supply because builders are building and that's basically all you can buy. Uh the supply situation is is stagnant aside from those new homes and uh mortgage rates are coming down. They're going to come down a little bit more in my view as the Fed cuts 25 basis points at a time and sees what's happening. But we're not going to have 3% mortgages again. So, I I actually think we're going to see much higher home prices ahead because of the fact that demand is going to resurge into a weak supply situation and and uh the market is going to largely remain as is aside from that one factor, more demand into limited supply. I think that's that's a that plays right into my view of assets concurrently all kind of rising into early to mid 2026. I I noticed that um well, one more question, I'll let you go. So, when the Fed funds rate was dropping end of well, mid July 2024 to uh the end of the year 2024, I remember asking people, well, what does this mean for the housing market? Are we going to start seeing a lot of new units being put on the market? And actually, what we saw was no. People were actually just kind of waiting, I guess. Um you you remember what happened then? What what's different this time, Adam? I mean, as far as, you know, I don't think it's that different to be honest. I mean, if home prices are were up another 1% year-over-year in August, um I I I think we're just kind of pumping more, you know, the people that are looking for rates to come down a little bit and they're looking at the market and they're thinking, okay, I'm going to wait. Maybe mortgage rates will come to five, 5.5%. Maybe 4.75 if I'm really lucky. there was some huge, you know, drop off in the in the Fed funds rate, but and those people are stimulating demand, but I don't see anything that's going to really cause supply to rise and that's the golden factor here. If you look at previous housing uh market downturns, like take a look at 2008, you had foreclosures, right? You had a lot of things that were sending supply onto the market. Right now, I don't see an external shock factor that's going to really send a lot of supply into the market because one, mortgage rates on existing homeowners are so low that most people are not falling behind on their mortgage debt. They're falling behind on auto debt and credit card debt, but not mortgage debt. Number two, uh yeah, the labor market is weakening, but we're not seeing like mass unemployment or, you know, mass layoffs happening. People are generally a gen generally able to keep their jobs or at least keep a part-time job right now. um if they if they are already in one. It's more for new new uh job market participants that are having trouble finding jobs. Um and and you know, you couple that together and I really think supply remains fairly tight. It might alleviate a little bit, but not as much as demand's going to rebound as rates come down a little bit and it leaves it leaves in exactly what I was saying, that sweet spot where rates are low enough to drive prices higher, not drive and supply remains limited. And I think we see higher home prices one year from today. Excellent. All right. Thank you very much, Adam. where can we follow you and learn more about you? Thank you, David. Thanks for having me. You can follow us on every social media platform at coobasylletter and also the coobasylletter.com if you're interested in reading um our reports. We publish a macroeconomic report. We cover the S&P commodities, bonds, all the stuff I talked about today. We do like complete in-depth breakdowns and uh and and explain exactly what we're looking at investment wise. Everything that we look at is basically weighted from a risk-to-reward basis with a stop, a target, a stop-loss, a target, and an entry. And we track all our performance. Transparency is what we try and do is is the name of our game. And we publish it in our annual reports on our website. So, if you're interested to see how we've performed over the last 5 years, you can look at every single trade we've ever made directly on the kobaser.com. Interesting. All right. Very good. Thank you very much, Adam. We'll take a look at that. Put the links down below. So, make sure to follow the Coobas letter there. speak again soon. Adam, take care for now. Thank you, David. Thanks for having me. Don't forget to subscribe, hit like, and uh we'll see you next time.
Employment Crisis Deepens: How Will Markets Respond? | Adam Kobeissi
Summary
Transcript
If you were to ask me next year today, where will the S&P 500 be? I would say Fox Business always calls me the world's youngest gold bull. What happens usually to the S&P after a Fed pivot? Does it usually go up by,000 points? So, Adam Coobesy returns to show. He is a founder and editor-inchief of the Copesy Letter. Check out his work. He's very active on X. He posts a lot of his economic updates pretty much every single day, several times a day. and we're going to be talking about his latest analysis on the latest data surrounding the labor market, inflation, Fed policy, stocks, where do you where does he see stocks headed, uh the housing market? We'll cover a lot of ground today. The most important questions that the average person uh in America needs to be paying attention to right now. Adam, welcome back to the show. Good to see you. Great to be back, David. Thank you. I want to start by talking about the labor market. the um this tweet in particular, the number of the current number of the current number of available vacancies is only 4.3% above the prepandemic levels seen in February 2020. Uh postings have now declined for 3 years straight. This is a chart you've posted from the um St. Louis Fed website. And then um concurrently, you've also uh tweeted this is concerning US aggregate weekly hours worked has fallen 0.2 2% over the last 3 months, the largest decline since the 2020 pandemic, 3-month percent change in aggregate weekly hours worked in the private sector. Um, you've also made a number of other tweets surrounding the labor market. Let me just going to ask you this as a broader general first question. Should the average person be concerned about layoffs going into 2026? Look, I think right now what's happening is it's no secret the housing the sorry, the labor market is weakening. Um and the Fed leaned very heavily into that of course in their latest interest rate decision. So it it's pretty wellnown now. Um now does this mean that we're going to have mass layoffs and it's a 2008 style event where everyone or unemployment is going to skyrocket and everyone's going to be you know in trouble? No, not necessarily. I think we're just seeing some uh some pretty typical cyclical weakness. You're starting to see some AI disruption. you are seeing some jobs being replaced by AI and technology. Um, and you also are seeing underemployment is is is pretty high. So, there's unemployment, right? But then there's also underemployment. And uh like I was looking at the three-month average of youth underemployment is at 17%. which is uh you know the highest since the pandemic uh nearly in line with 2001 2008 levels uh and and even at a high level for the entire economy it's above 8%. So I think yeah you are starting to see some signs of weakness. I don't necessarily think this is something that everyone has to panic about and and that we're going into some massive recession that is going to is going to be you know 2008 like it's it's it's just probably more cyclical weakness amid disruption new technology and uh the economy is evolving that's the way it works. When we say that the labor market is weakening what is that word weak actually mean practically speaking are we talking about fewer job openings? Are we talking about uh more layoffs? So we talking about um wages, real wages stagnating. Jerome Powell Fed chair has also uh not just implicated this but said outright that he sees a weakening labor market as one of the reasons for why he cut rates at the last FOMC meeting. So what does the word weak actually mean, Adam? Yeah, I mean it's a little bit of everything that you mentioned. I think it starts with job openings. It starts with these initial jobless claims kind of rising. Um and then it spreads a little bit. you start to see and real wages and an interesting topic. You brought up real wages. It's uh it's it's going to be an interesting time because inflation is still running above three above the Fed's 2% target near 3% above 3% on some metrics. Um but then the labor market is weakening. So it will be interesting to see what's going to happen with wages. I don't necessarily think wages are going to go down, but they probably won't outpace inflation over the near term. Um, and you know, you also will see job openings decline as we're seeing. Uh, but again, I think this is all just cyclical. It's amid a pretty big disruption from AI. And I think eventually everything will iron itself out. We're just kind of due for some a bumpy road ahead, which doesn't necessarily mean, and this has been my call for a very long time now, uh, which doesn't necessarily mean we're going to have a crash in asset prices, right? You can have weakness in the labor market with higher inflation, also known as stagflation as we're we're starting to see now, but not necessarily have assets crash over the near term. And we've actually seen that now over the last few months. Yeah, that okay, that leads to my uh next point about uh what to actually trade. A lot of the economic data that we're seeing right now, and you've been tweeting this as well, including the labor market data, showing signs of weakness in the economy. At the same time, assets hitting new all-time highs. Bitcoin, gold, stocks, the S&Ps hitting multi um, you know, multiple weeks, week after week, all-time highs throughout the year. So, what does this mean? How should we actually trade the data? Should we be trading the data at all? Yeah. So, you know, this is something this is a topic that we've really been talking a lot about. And I think, you know, a couple months ago, we put out a thread on Twitter and and just a or an ex in and a research note basically saying it's a great time to own assets or you're going to be left behind. And I think even the last few weeks have kind of proven that. The initial reaction to the Fed meeting, we're seeing all assets. I mean, gold is up four times as much as the S&P 500 amid an S&P 500 bull market year to date. That's like unpre typically, you know, gold and the S&P move inversely, right? The gold is a safe haven asset. Um, the S&P 500 is a risky asset. But what you're seeing now is the market knows that the Fed's the Fed's dual mandate, which effectively means they want to control prices, limit inflation, and also control uh limit up limit upsides and unemployment. So, keep unemployment low. Their dual mandate is now conflicting. And by the way, Powell also said this exactly word for word himself. Um, you know, inflation risks are to the upside and employment risks to the downside. So, the market knows that look, we're not getting to the Fed's 2% inflation target. We're probably going to run around 3%, maybe a little bit higher depending on what happens going forward. But, and and by the way, you're also have in the background the biggest technological revolution since the internet, which is AI. Uh but then not now you're going to have e easier moni mon monetary policy from the Fed and I think that's a very powerful thing that the market is still pricing in. I think over the near term you're going to see some more volatility but I think if you were to ask me next year today where will the S&P 500 be? I would say we'll probably be be close to 7500. Um and I think that could even be like just the base case assumption. So, um, as long as the the mag seven companies and tech continue to pump hundreds of billions of dollars into AI capex, the Fed is cutting interest rates and inflation is running above 3%. It's going to be, in my view, uh, a rush into any search for yield, right? That's what people are going to continue to search search for. And I think they're going to continue to find it in a lot of these risky and safe haven assets like gold, Bitcoin, um, and and silver and and these other assets that have performed exceptionally well amid an a pretty remarkable run in equities. Before we continue with the video, let me tell you about a very important topic. How to protect your privacy. Now, your private information doesn't just live in the inbox of your phone. It's being collected, packaged, and stored, and tracked by data broker websites all over the internet. even without you knowing. That's where today's sponsor comes in, Delete Me. I use Delete Me to protect my privacy. And here's how. It helps you. It's a platform that helps you remove your personal data, like your name, address, and contact info from hundreds of these data broker websites. When you sign up, you'll get a detailed privacy report showing where your data was found and what's already been removed. And Delete Me keeps working throughout the year, scanning and clearing your information regularly. It's an easy way to take back control of your digital footprint without trying to track everything down yourself. Go to joinme.com/davidin and use the promo code davidin at checkout to get 20% off of US plans link down below or scan the QR code to get started today. The fact that you think the S&P will gain another 1,000 points. Um can you just elaborate on that? Is that based on um historical precedence uh after a Fed cut? I mean, what happens usually to the S&P after a Fed pivot? Does it usually go up by a thousand points? So, we we put out uh an actual a note, like a research note that kind of looked into what what happens when the Fed is cutting interest rates with uh with the S&P 500 at all-time highs. And by the way, this has only happened, right? September's rate cut was the third time since 1996, the third year I should say, since 1996 where the Fed began cutting interest rates uh with S&P 500 near record. Last year, 2024, September 2024 was also one of those times. And as you saw how the market has performed since then um in 100% of cases where this has happened over the last 40 years we've actually or or close to 50 years actually we've actually seen the S&P 500 end higher one year 12 months later and that's usually an average gain and Morgan Stanley put out a note on on this as well saying the average gain is roughly 15%. Um and that's kind of part of our base case assumption here. I also just think that AI capex is going to remain extremely robust. You're starting to see um these tech giants like Nvidia and Oracle and these other these other names that have kind of started leading the market or have continued to lead the market higher pivot into the next inning for AI. So I think that's going to continue to to drive uh equities higher. And ultimately, you also have a an administration right now that is obviously highly um cognizant of what's happening in the market and supportive of higher asset prices. Um combined with this whole deregulation wave that we're seeing. So, I think it's just there's so much momentum right now. It's a tough trend to fight. I will say like I've said already the next month or two, yeah, we may see some draw downs and that's completely normal when the S&P 500 rises 40 close to 40% in five months. Even a 10% pullback would be warranted by both bulls and bears by the way. Bulls love pullbacks because you can buy these quality names for much lower multiples than that what they were at just a few weeks ago with the way the market moves these days. So yeah, that's kind of the highle basis of how how we came to that conclusion. This is an interesting tweet. uh retail investors piling into the stock market. According to Goldman Sachs, weekly retail purchases were the largest since December for the week ending Wednesday. This is four times above the 2020 to 2024 September daily average. Um in the second month straight where buying exceeded the prior 4-year average by this much. Retail investors are piling into the stock market. What does it mean? What does it signal when retail investors are piling into the stock market to this level, Adam? Is this Some people would interpret this as saying this is probably the end of the bull market. is not. So, it's a and this is a great chart because if you take a look th I mean retail has absolutely crushed this rally. If you look at uh let's just go right back to April and and right when we were in that that tariff crash, retail was basically buying all the way into that that spot and even after that spot, it's been pretty consistent uh net inflows by retail investors. Now, if you look at institutional flows during this same time period, retail was actually right. A lot of institutions were not only selling but shorting into what has been now one of the best five-month rallies in the in the history of the S&P 500. Um, and and I actually think I'm not necessarily looking at at this and saying, "Oh, yeah, retail is now behind the top and we're going to crash and everyone's going to be trapped." Um what I view it as is look now if you look at the flows for institutional side of things they're actually large net purchases happening week over week and I think institutional investors are now saying all right if we missed part of this rally how do we answer to our investors in Q3 and Q4 and Q1 of 26 if this continues and we're not not even short necessarily just not participating in the market or more in cash so I think cash levels have come down for both retail and institutional investors purely because it's just the market has been so strong that no one wants to step in front of it for now. And I think that's in a way kind of driving itself higher. So I will say like that in a way does sound like a topping top type sentiment, right? I have to buy because that's the only thing you can do. Um but you you can't ignore the the other big macro drivers in the background that are happening and and that's why I think that you know we will see brief draw downs that that could exceed 5 or 10%. But I don't necessarily think that's going to derail the market in a way that we saw in early 2025. Sure. Were you bullish on the stock market all year round, Adam, or was there a point throughout 2025 where you became a little bit more bullish? Yeah. So, I would say in the early part of the year, um, we we kicked off 2025 pretty bullish. I think as the tariff situation started playing out more, um, and and the S&P 500 clearly reversed its uptrend that was seen throughout 2024, we shifted more bearish, and it wasn't necessarily even a long-term bearish view or short-term. It was more just kind of playing these near-term swings. It was an a remarkable time to trade to be honest in in Q1 and Q2 of 2025 because the moves that the S&P and commodities and bonds were seeing on a daily basis sometimes were exceeding the annual moves that were seen in those assets just because of how much uncertainty there was. I think heading into May um and June, we started shifting a little bit more neutral until we knew what was really happening with tariffs. And then from there, we've kind of just been progressively raising our S&P 500 target um ju just because of, you know, this huge push into uh AI. This capex situation that I explained already and now this Fed pivot coming into inflation um I think is adding more more fuel to the fire over the medium to long term here. This next tweet highlights um the concentration risk that I've heard a lot on my show. Uh, another day of the record, the top 10 stocks now reflect a record 41% of the S&P 500's market cap. To sum up, tech stocks effectively are the stock market. So, if you're bullish on stocks for the long term or even the medium-term like you are, are you then just basically saying you're bullish on tech? And another way to put this is let's say if you just take the Russell 2000 for example which has been lagging the S&P 500 not just this year but for the last five years. Could you be less bullish on let's say the rest of the stock market that's non tech? Right. So it's a great question. I mean this the chart you have up here it's it's it's definitely something that I wouldn't necessarily it's alarming but it's something that you can't ignore. Now uh this has really been the case now for the last 2 to 3 years where tech stocks effectively are you know the stock market and they are driving this this run all all the way across the board. Um what I will say about it is though that the the names that are driving higher are the names that are kind of evolving the entire world the entire technology and just business landscape as a whole right the the Nvidia of the world even Meta now becoming one of the biggest companies Tesla uh Microsoft these companies are massive I mean Nvidia itself is bigger than almost every stock market in the world except for a handful so uh you know you you as an investor If you're buying an S&P 5 S&P 500 index fund, yeah, you're half almost half your money, 40% of your money is going towards just a few names, but I don't necessarily view this as something that is uh I wouldn't call it polarizing in either direction. I think what it really means is that when we do see these names move to either direction, it will drive the market as we saw earlier this year and now. Um, but I think generally I'm pretty bullish on these names as a whole. So I that that's why right right right now over the short term it's not something I'm saying I I continue to emphasize this point and it's not something I'm saying is bearish necessarily or even bullish. It's just more a trend to keep to keep uh keep in mind and know that yeah you do have outsized exposure to a lot of these big companies that are at the forefront of AI revolution. Okay that's that's important to note uh to your earlier point about how bad news could just be interpreted as good news because it's going to incentivize the Fed to cut. Let me just ask you a hypothetical. What if the Fed disappoints and if they don't cut as much as we would want and then I think that would definitely be a major major blowback um to to the bull case. Right now the market is pricing in cuts preemptively. Um if the Fed decided to come out and say, you know, we're we're not cutting interest rates at all for the next year until we see inflation back to 2% or whatever variation of that it may be, that would absolutely uh you know, send send yields higher, send stocks lower. Um, but I think you also have this uh interesting backdrop right now where Powell's term as Fed chair has a few months left. May 2026 is really his his when he will be out. Obviously, Trump has made it very clear that he will be out. And the people that Trump is not only putting on the board now, but also considering for Fed chair um are like, you know, you saw the dot plot, right? like the most recent Fed governor that was appointed by Trump was like in his own camp. It wasn't even like an extra rate cut or I think there was a descent. He wanted two cut he wanted 50 basis points last uh last year. Exactly. And I and I think he wanted over 100 basis points this year alone. So Wow. Um, I think the market will continue to price that in. And I think as long as Trump sticks with this narrative and I think the only way, by the way, that Trump's narrative can change is if we have some huge resurgence in inflation where he just where he really just can't say anymore we need to cut rates because people will be feeling the pressure of higher prices. Right? I think right now people are feeling the pressure of higher prices, but it's not like it was not that prices have come down, but the rate of change has definitely come down. Um, and then also the market is doing well. So when the market is doing well, it's pretty easy to say, you know, status quo is pretty good. Just cut the rates and we'll deal with it. And he and he's alluded to this, by the way, like in those truth social posts that he made in the summertime. Uh, President Trump and some of them some of them said, I think we should cut rates by 100 bips, 200 bips, and if inflation comes back, we can raise them again or we can stop. So he he did say that one point and I think he does know that. But I think over the near term the market's just going to continue to even even into early 26. I I I don't really think the market is going to price out interest rate cuts. Even if the Fed starts saying, "Oh, we're going to go on pause." At some point, uh the new phantom Fed chair who's going to be appointed who's going to be announced by the Trump administration in the coming months will have more impact on monetary policy than Powell just because markets will start looking out beyond May 2026. All right. So, a few certainties we've know based on what you said. Pal's going to be out next year. Whoever is going to replace him, we don't know exactly who yet, but whoever is going to replace him is more than likely, almost certainly going to be aligned with Trump on lowering interest rates. How many rate cuts up for debate, but it's going to be lower for sure. Now, the question is, what is that going to do to inflation and growth? This is a very important tweet you've made. 72% of CPI components are now surging faster than the Fed's 2% target, the highest share in three years. Okay, I'll let you explain that. I'm I'm just thinking, look, if let's say they cut into a rising inflationary environment, the general American public isn't going to be happy about that either. Of course, the Trump administration will blame all sorts of things on inflation, not the Fed if they point, you know, a Trump friendly Fred Fed governor. Uh but it's just it just doesn't look good. But anyway, I'll let you comment on this. Suppose the Fed actually does care about inflation. At what point does inflation surge out of control, so to speak, eclipsing the weakening labor market that they have to deal with? Yeah. So, it's it's a it's a delicate balance because you're you're you're moving in opposite directions on goals that are supposed to be moving in the same direction. So, it's what happened was inflation was the biggest risk and then the labor market started weakening and then the labor market. It's not that inflation got that much better. It's just that the labor market got that much worse. And now if the labor market can come back in and inflation starts getting worse, then yeah, you're going to see the Fed pivot again in the hawkish direction. Um the the the thing is though is I I think the labor market is really weaker than most people think it is. And I think the Fed knows this. So it's not like we're really it's headtohead right now. I I I really think the the Fed would be pretty happy with inflation running at 3% or a little bit above 3% if they can contain the labor market before this gets much worse. Um and I I again part of my bull thesis over the long term is the fact that inflation is coming back and and rising again. I I really do think that will drive asset prices higher, especially on a nominal basis. We saw that before. We saw them that that in in you know right after the pandemic similar kind of situation. I I think um the Fed they're not going to just completely take another 180. They're they need to see more evidence and that will take months by the way months of of labor market data to say yeah the labor market is now in control or the labor market is now strengthening again. So when I'm looking out with with with the projections and we're typically looking you know a few months out to maybe a year out at most. We're not looking five years down necessarily. Um I think that that really does support the bull case. And I I I think dips will continue to be bought even after maybe a near-term correction um happens. And just on that note, a lot of major companies, Adidas, Walmart, Home Depot have just recently in the last month announced that they're going to raise prices soon. So we may see uh uh you know higher prices next quarter reflect. Uh so we'll see what happens. What is your base case for how the CPI is going to trend in the next quarter or two? Yeah, I mean I look I think we're going to see you know the 3% plus CPI especially on a core basis. Uh PCE is probably going to inch above 3% on a core basis and this was also the first Fed rate cut in over 30 years with PC core PCE inflation at or above 2.9%. Um, so we we have a high baseline to start with. And I think the other mystery here that the Fed is kind of weighing is are tariffs going to have the inflationary effect that some thought they were going to have in April? As of right now, I would say it's not nearly as severe as some were expecting. Um, the question is who's eating the costs and how long will they continue to eat the costs? Right now, it seems like maybe producers are eating a lot of those costs because they're looking a little bit f further out and saying, "All right, trade deals are happening. Maybe tariffs won't be will be longived and we'll we'll be able to maintain price levels." But on the other hand, you mean you see some leading indicators like for example, manufacturers are paying higher prices for their inputs on basically every metric. uh that's a clear indication of inflation at least partially due to tariffs because of their input costs are rising. Um and it it just becomes a matter of when that will be passed through to consumers and I think ultimately that does lead us back to what I as I said 3% plus inflation uh on on a core and and most likely headline CPI basis is what the Fed doing kind of unprecedented. Take a look at my chart here. Uh I'm going to overlay the effect of Fed fund fed funds rate with the um US inflation rate here. As you can see if you zoom out um there tends to be a correlation over over the long term going back to the 50s. Uh whenever inflation goes up, you need to restrict monetary policy and vice versa when it goes down. Right now it seems like they're doing the exact opposite with inflation is inching up and they're cutting rates. Is this do we have a historical precedent for this? Yeah, I mean if you if you look back to the 80s and 90s and even the 70s like for example the 70s you saw two waves of inflation uh coupled with with Fed everyone's probably seen that chart that overlays the 70s versus 2020 2020 2025 um I I think what what the difference is here is like there I don't really see a case where the Fed goes so crazy with rate cuts where they you know they do 75 bips cut or or even 50 bips But I I over the next call it 8 nine months I don't really think that's that's necessarily necessary or going to happen. Um and I think you're also like the baseline is different. It's not it's not like we have some impending crisis some impending economic crisis where GDP is is collapsing or or there's there's nothing really causing panic where that would cause the Fed to have to move so quickly yet at least. um in in the past typically that was the situation. So um I think the Fed can and hopefully will continue to be calculated in this way in in what they're doing. A 25 bips move here and there is is not, you know, not huge or pretty average, you know, historically speaking. And I think if you if they continue to take it meeting by meeting, you'll be able to at least keep things somewhat balanced on the on on both sides of the dual mandate. What happens to markets when the Fed cuts in an inflationary environment? Um whether it be during a slowdown like stagflation or just normal growth. Which assets typically perform the best uh when that happens? Yeah. So um obviously I've mentioned you know we think stocks are heading higher. I think also gold. We have been all over the gold for a long time. Um, you know, F Fox Business always calls me the world's youngest gold bull and um, we, you know, we were calling for 3500 and then now we're nearly at 3,800. I think we definitely, we we definitely are due for a pullback. We're starting to see some weakness over the last couple of days, but I think gold is heading to 4,000 plus. Um, I also think that you're going to see the commodity world is interesting. Like if you look at oil prices for example um you know inflation with oil typically will drive oil prices higher in a time of inflation just because oil is denominated in US dollars right um but the the Trump admin has also been pretty pretty vocal about keeping oil prices lower. They want oil below 60. So that's actually been a very tradable commodity. We were short and then we actually went long and we actually just closed longs and now we're kind of just somewhere in the middle around 65 a barrel. But I think there will be opportunities in the oil markets and I also think Bitcoin is going to ma remain very strong. I think more record highs are ahead of us for Bitcoin. I wouldn't be surprised if we see $150,000 for Bitcoin by year end. Uh and I I I really do think um investors are going to just continue to search for yield in in any form possible. they are going to search for yield because they know um prices are going to continue to rise at a at a pace that's that's significantly above 2% per year. So bas basically everything is going up. Adam everything's going up. Um what about bonds? We haven't talked about bonds. Where do you see the yield going? I mean um are you bullish in bonds? So that's a great question. That was going to be my next point. So we have not been chasing this bond rally recently as the 10year has come back down towards 4%. Yeah. Um, and that's something that I've I think I discussed this with you previously on this show and I discussed it on a on a lot of different shows is the fact that deficit spending is beyond out of control. The year-to- date fiscal 2025 deficit is at two trillion. Um, we're, you know, we saw the deficit exceed 300 billion in August, uh, and and nearly 300 in July. Tariff revenue is not even 10% of the monthly deficit that we're getting now. So I think in the background you will see yields come down a little bit but you're not going to see some huge drop off in yields because of the fact that the US government is just continues to flood the the the Treasury market with so much supply to fund deficit spending um and and inflation's running high concurrently. I don't think that's a a mark that's a situation that's conducive of the tenure falling to something crazy like two or 3% as we've seen historically. I'm just curious on the gold front the um Fox is calling you the youngest uh gold bull ever. Have you talked to your peers, friends of yours, associates who are also about your age? I'm just wondering if there's renewed interest with a younger crowd now that gold's at almost $4,000 pushing to 3,800. It's up 100% in two years. That's like that's that's crypto levels of gains almost. So I'm I'm just curious if that's attracted the younger crowd with this market. No. Yes. Here and there. I I would say, you know, the young crowd is fixated on on two things, AI and crypto. And I think that's been the case. I do think those that are really into markets, those that really follow markets and are searching for diversity in their portfolio are moving increasingly into gold. Even physical gold. there's there's people that are buying physical gold. Um, but I don't know. I I think it's mixed. I think it really depends on the person. It depends on your investment style. And I think, by the way, like it's you need to not ignore the fact that gold is for sure has a lower beta than Bitcoin. It's definitely less risky than Bitcoin. Um, so it is in a way still a hedge even though it's moving concurrently with a high correlation coefficient to the S&P 500 and other risky assets. Uh, it really is still a hedge. So I I wouldn't discount the value of it. I do think to answer your question, I do think the younger generation is basically all in on AI and crypto. I I that from my conversations, that's the two biggest things that the younger people are asking me about. How do you feel about the AI boom right now? Is that uh drawing to a close in terms of valuations or is there still a lot more room to climb? I personally think that we are we have a lot more room to climb. I think we're in the early days of AI. I think um one day in Nvidia really could be the world's first $10 trillion company. And I I think that people that are calling AI a bubble. Two things can be true at once. It can be a bubble and it can also be the next big thing. The internet was a bubble and it was the next big thing. But I also think if you look at multiples like forward multiples for Nvidia, they're going they're going down as the stock goes up just because of how rapidly the operating metrics for Nvidia are rising and other tech giants by the way. I mean this can be said for other other big big stocks. So I think if you're in the right places, the AI the AI uh the AI revolution really does have a lot of room to run. So uh two we have to differentiate um the two things you said. So something could be a bubble but also could be the next great thing. the internet was a bubble. Um, and the the technology of the internet stayed even when the bubble of the stocks popped. So, let's just separate that. So, I think we all agree that the AI revolution is here to stay. I mean, you know, AI isn't going away. It's only accelerating. How about the tech companies and the VCs pitch being pitched AI companies every single day in their inbox? Is that sector in a bubble? Um I mean it look a lot of there's so many varying degrees right like there's sure I I really think it's not like a company like Nvidia or um these these the Mac 7 a lot of the Mac 7 names Microsoft Google it's not as speculative as you may think it is because there's so much investment behind what they're saying and there's already proven revenue and operating operating metrics that are uh supporting you know effectively supporting the valuations we're seeing If you get into the more small cap space or the more niche AI, you know, things that we're seeing, yeah, I mean, there might there's definitely some things that are probably overhyped that could be uh that could be, you know, resembling of a of a bubble. And even if we are in a bubble, it could still have a lot more room to run before it pops, right? I mean, that investors in the in the 1990s that were able to you could have traded the AI boom for five years before it popped, you know, or more. So, um, it's just because even if you do think that we're in a a bubble from either a valuation or technological perspective, it doesn't necessarily warrant just not doing anything over the the near to medium term with your with your um portfolio in my view. I understand. I want to close off on the consumer in the in the housing market before we uh take off now. Adam, new home sales soar 20% in August to a three-year high. Surprised a lot of people. Sales of newly built homes rose to a much larger than expected 20.5% in August compared with July to the highest level since January 2022. At the same time though, same day, same news uh site mortgage demand stalls after many refinance booms. So um less people applying for mortgages, uh more refinancing and a lot more new home sales. What's going on? Yeah. So if you look at the data, so the mortgage demand, let's start with that. So heading into the Fed decision uh on September 17th, there was a a a very big jump in mortgage demand and that's because of course the market is forward-looking. The market was pricing in the interest rate cut that was coming and mortgage rates fell. If you look at early September, we saw one of the biggest single day draw downs, actually the biggest single day draw down in mortgage rates over the last 12 months, which is completely normal. people were refying, applying for mortgages into that weakness in in the bond market and the and in yields, sorry. Um, now of course the rate cut was implemented and our view also was that yields were going to rise a little bit as a 50 biffs cut was not coming but the market was pricing in around a 10% probability of that happening and as it has happened yields have come up a little bit and rates have stopped falling which makes sense as well. So, it makes sense that that um a lot of the people that were looking to either refy or purchase a home and wait for, you know, a little bit of a drop in rates, they got that and they capitalize on it. That's why you also saw a new home sales spike. But if you look at the the broader picture, um one, you know, the existing home, the median existing home price is now actually above the median new home price. And one out of three homes for sale are new inventory. and supply remains historically low. So you have a situation where you have moderately warmer/h hotter mortgage demand. You have a supply situation that's pretty much still constrained. And you have interest rates coming down a little bit, enough to to drive some more demand, but not enough to remove what I like to call the financial dis disincentive for current home owners and and investors more specifically to sell property, right? Because like right now, if you're the average mortgage rate on a on a single family home right now in the US is, you know, under 4%. Like basically the majority of of people that own a home have a rate below 4%. um and those people and and and specifically investors during the pandemic era there was a huge resurgence of investors piling into these these properties. You're actually your biggest asset even more than the home sometimes could be the fact that you have a 2.5% interest rate on your mortgage or 3% or even 3.5%. More than basically half of where we are now. Uh those people don't want to sell. So that explains exactly what I was saying initially. you have a lot of new home supply because builders are building and that's basically all you can buy. Uh the supply situation is is stagnant aside from those new homes and uh mortgage rates are coming down. They're going to come down a little bit more in my view as the Fed cuts 25 basis points at a time and sees what's happening. But we're not going to have 3% mortgages again. So, I I actually think we're going to see much higher home prices ahead because of the fact that demand is going to resurge into a weak supply situation and and uh the market is going to largely remain as is aside from that one factor, more demand into limited supply. I think that's that's a that plays right into my view of assets concurrently all kind of rising into early to mid 2026. I I noticed that um well, one more question, I'll let you go. So, when the Fed funds rate was dropping end of well, mid July 2024 to uh the end of the year 2024, I remember asking people, well, what does this mean for the housing market? Are we going to start seeing a lot of new units being put on the market? And actually, what we saw was no. People were actually just kind of waiting, I guess. Um you you remember what happened then? What what's different this time, Adam? I mean, as far as, you know, I don't think it's that different to be honest. I mean, if home prices are were up another 1% year-over-year in August, um I I I think we're just kind of pumping more, you know, the people that are looking for rates to come down a little bit and they're looking at the market and they're thinking, okay, I'm going to wait. Maybe mortgage rates will come to five, 5.5%. Maybe 4.75 if I'm really lucky. there was some huge, you know, drop off in the in the Fed funds rate, but and those people are stimulating demand, but I don't see anything that's going to really cause supply to rise and that's the golden factor here. If you look at previous housing uh market downturns, like take a look at 2008, you had foreclosures, right? You had a lot of things that were sending supply onto the market. Right now, I don't see an external shock factor that's going to really send a lot of supply into the market because one, mortgage rates on existing homeowners are so low that most people are not falling behind on their mortgage debt. They're falling behind on auto debt and credit card debt, but not mortgage debt. Number two, uh yeah, the labor market is weakening, but we're not seeing like mass unemployment or, you know, mass layoffs happening. People are generally a gen generally able to keep their jobs or at least keep a part-time job right now. um if they if they are already in one. It's more for new new uh job market participants that are having trouble finding jobs. Um and and you know, you couple that together and I really think supply remains fairly tight. It might alleviate a little bit, but not as much as demand's going to rebound as rates come down a little bit and it leaves it leaves in exactly what I was saying, that sweet spot where rates are low enough to drive prices higher, not drive and supply remains limited. And I think we see higher home prices one year from today. Excellent. All right. Thank you very much, Adam. where can we follow you and learn more about you? Thank you, David. Thanks for having me. You can follow us on every social media platform at coobasylletter and also the coobasylletter.com if you're interested in reading um our reports. We publish a macroeconomic report. We cover the S&P commodities, bonds, all the stuff I talked about today. We do like complete in-depth breakdowns and uh and and explain exactly what we're looking at investment wise. Everything that we look at is basically weighted from a risk-to-reward basis with a stop, a target, a stop-loss, a target, and an entry. And we track all our performance. Transparency is what we try and do is is the name of our game. And we publish it in our annual reports on our website. So, if you're interested to see how we've performed over the last 5 years, you can look at every single trade we've ever made directly on the kobaser.com. Interesting. All right. Very good. Thank you very much, Adam. We'll take a look at that. Put the links down below. So, make sure to follow the Coobas letter there. speak again soon. Adam, take care for now. Thank you, David. Thanks for having me. Don't forget to subscribe, hit like, and uh we'll see you next time.