Is The Risk Of Recession Now Behind Us? | Michael Kantrowitz

Summary

• Market Outlook: Michael Kantrowitz describes the current economic environment as a "Goldilocks" scenario, characterized by good growth, low inflation, and declining interest rates, which are favorable for equities.
• HOPE Framework: Kantrowitz's HOPE framework (Housing, Orders, Profits, Employment) suggests that the economy has avoided recession and is showing signs of broadening recovery, particularly in housing and manufacturing sectors.
• Employment and Interest Rates: Softer employment data is allowing interest rates to decline, which is beneficial for the economy and equities, as it supports housing and manufacturing recovery.
• Sector Rotation: There is potential for a market rotation where small caps and other lagging sectors may outperform, as earnings expectations improve and the market broadens beyond large-cap tech.
• Investment Strategy: Kantrowitz advises staying long in the market, focusing on undervalued and underloved stocks with strong earnings potential, while being cautious of overvalued sectors like AI.
• Economic Risks: While acknowledging the risks of high valuations, Kantrowitz does not foresee a major downturn unless there is a significant change in the fundamentals, such as a spike in unemployment or inflation.
• Policy Impact: The market's reliance on policy measures suggests that central banks and policymakers will continue to support the economy to prevent a significant downturn, given the market's size relative to the economy.

Transcript

Right now, and I think for the foreseeable future, we are in this somewhat sweet spot where softer employment is allowing interest rates to decline, allowing the Fed to cut slowly and steadily. And that is starting to show up in both forward-looking data sets that uh forecast housing employment, I'm sorry, housing PMIs or orders and profits and I think is already starting to show up in some better housing data which tends to be the most rate sensitive part in the economy. So, you know, it's of a no pain, no gain backdrop, if you will, and I think that's particular to this environment after the 22 inflation shock. And while is it it is uncommon in the last 30 years, if you go back 60 years, it it's actually happened quite often. So it's not uh unprecedented. [Music] Welcome to Thoughtful Money. I'm thoughtful money founder and your host, Adam Tagert. Um folks, we are very lucky uh to be joined today by Michael Caneritz, chief investment strategist and managing director at Piper Sandler. I think it's a very opportune time to have Michael on. Um Michael is best known for his hope framework which is a highly effective way to measure the health of the economy and to tell whether it's getting stronger or weaker. Uh as we approach the end of the year here 2025, there's a lot of uncertainty heading into 2026. There's a lot of crosscurrens going on and I think being able to look through his lens, being able to look through his framework gives us a really good sense of where things actually stand right now and on a net basis where things are trending. So anyways, Michael, thanks so much for joining us today. Yeah, always a pleasure, Adam. Good to see you. Good to see you, too. Look, um, lots to talk about and if we can, um, I have you do this every time you come on, but if you can just give, you know, perhaps 30 to 60 seconds in terms of background on this, um, which is kind of the the the hero visual for your hope framework. Um, just explain what it is and why it's so effective for you as a lens to look at the economy through. Sure. So the hope framework uh it as you can see the acronym is housing orders profits employment and it was an analysis we did I did many years ago that I was looking at the impact of changes in uh interest rates uh specifically Fed policy and how different popular leading coincident lagging economic indicators reacted to that through uh history which goes back to about the 50s and uh the results not surprising uh you know start off with your early cyclical sectors like housing which is has historically been always the first data set to begin to improve before a broadening recovery in the economy or just a broadening in general followed by orders uh which I look at a lot of PMI data which is stands for purchasing managers indicators so there's services and manufacturing and when you get those two data sets to improve or deteriorate it more often than not correlates to a change in the profits picture, whether or not profits are growing or slowing and whether they're broad or narrow. And then of course whether we go into a economic contraction is uh generally a function of the employment backdrop. And so having this framework helps me understand a what's going on, keeps me honest and helps me communicate a road map uh particularly when the Fed is in a tightening or easing cycle to point to different metrics in the macro data that I am looking for to either corroborate a view or to um perhaps change my view. So yeah, we're at an interesting time now because um with the weak employment uh software employment data of the last several months, uh employment has once again uh it seems like we were at this point a year ago as well become the the focus of many investors. Okay. Yeah. And we've got we'll get into it and I know you've got a whole bunch of slides that'll give us the true picture, but um I mentioned sort of crossurrens earlier. you know, housing has languished. Um, you know, employment was strong, but now looking weak. Uh, profits have been generally pretty strong, but then tariffs kind of threw some curve balls earlier this year. Um, so there's just a lot sort of swirling around here. So, I'm really looking forward to just getting into the details of your latest data here. But I guess before you you pull up any particular charts, if if you just had to sort of summarize at a very high level your general sense of the economy right now, how would you describe it? I and this will be fun and controversial for for your listeners. I I would call it the Goldilocks backdrop. And you know I think it's the Goldilocks idea I think is generally viewed through the inflation lens predominantly uh you know good growth low inflation which is of course a great backdrop for equities though I think there's a nuance that we've all experienced and seeing play out in markets in a postinflation shock world so the 2022 inflation shock which has made a Goldilocks changed the definition if you will um or or added to it. Uh and in this case I would I call it Goldilocks because yes we have softer employment data and this is coming after a period of rising interest rates, rising inflation that have more often than not been the problem for equities. Whether it was a point in 23 where higher rates or in 22 pushed the market down broadly or for the last 3 years led to a very bifurcated market. You know that we have a big bifurcation in the stock market. Obviously on the the top of that bifurcation is is AI but when you look at those sectors and stocks and uh parts of the economy that have lagged there are a lot of reasons for that but I think interest rates is number one. So, ironically, softer employment, which I I have thought uh has been needed to get down interest rates, is a positive for both the economy and equities today. Of course, to a point. You know, if we get negative 200,000 payroll data and unemployment goes up to 5 and a half%. That's too much uh too much of that. But right now, and I think for the foreseeable future, we are in this somewhat sweet spot where softer employment is allowing interest rates to decline, allowing the Fed to cut slowly and steadily. And that is starting to show up in both forward-looking data sets that uh forecast housing employment, I'm sorry, housing PMIs or orders and profits, and I think is already starting to show up in some better housing data, which tends to be the most rate sensitive part in the economy. So, you know, it's kind of a no pain no gain backdrop, if you will. And I think that's particular to this environment after the 22 inflation shock. And while it it is uncommon in the last 30 years, if you go back 60 years, it it's actually happened quite often. So, it's not uh unprecedented. Okay. Really interesting. I wasn't expecting the term Goldilocks. Uh so that was a surprise but um I I I understand sort of how you're defining it here. Let let me ask you a couple quick questions. One is according to your framework um I mean we've been talking for several years now Michael um and and the hope framework really shows how an economy either falls into recession or gets out of recession and it's the same progression in either way. Housing first and then all the way through to employment. Yeah. Your framework says that we did not enter recession over the past couple years, right? I mean, I know coming in 2022, everybody thought we were going to by the end of that year, early 2023, but but I just want to clarify your your system did not say we entered recession. Correct. I would say I guess I two two responses to that. one I think it's the word recession is thrown around so much so often and I think there's that means different things to different people and obviously we're not nobody's trading recession there's no uh you know binary contract on whether the US goes into recession and you know so we have to define what that means to me it means a broad broad-based contraction in the economy and we We have factually not seen that. Okay. So, we've not seen that. Okay. So, we we we did not have recession coming out of COVID, we did we avoided recession. Well, we had we had a recession in CO. I guess we had the COVID recession, the blink recession in 2020, right? But what I'm saying after everything that went on during CO, you know, afterwards, we we have not fallen back into recession. So, we sort of No, what I'm trying to say is we kind of dodged that bullet, right? We didn't the economy didn't go into recession. Yep. Um and then secondly, coming out of 2022, we've had backto backto back kind of blockbuster years for equities, right? Double digit gains 220 plus and then we're going to find out this year, but we're already where like 14% or so something for that year. You know, you know, it's crazy. We've had, I think, since 2019, uh, I don't have the numbers on top of my head, but we've had a 20% move every year in the market down in 22. Um, since I think 2019, um, you know, either entry year or for the, you know, most of those years, the calendar year, which is not very typical like it's been this kind of boom, mostly boom, fortunately, uh, and otherwise bust in 2022 backdrop for the markets. Like we haven't had a year where like the market grinded out 5% in a long time, which you know does happen quite often. Yeah, it's funny. Everybody looks at that as the average and think that's what you're going to get, but you're you're getting all over the map. So I I guess reason I was trying to set all that up is I think there are a lot of people who would say really god we had this massive we shut down the world. We had all this crazy stuff going on. Everybody thought we were going to have a recession in 2022, but we didn't. We've had three amazing years since and then sounds like you're saying and the party looks like it's going to continue. Looks like maybe the economy is actually starting to strengthen here. Uh don't mean to put words in your mouth, but I kind of took that vibe from you. Maybe not barn burner, you know, strengthen, but but positive direction and things look really good for equities in terms of this Goldilock setup that you just mentioned. Yeah. Yeah. And and to me it's more about we we're finally seeing the seeds of a sustained broadening in both the macro and micro backdrop. So it's really you know think of like a um a quadrant or a matrix uh and you have got on one on one axis you've got uh strength or magnitude and on the other axis you've got breath. So if you think about, you know, for a good part of the last three years, we had a very strong market, but we had fairly weak breath. So I I would say we're what I see coming looking ahead is acknowledging we had a very strong market and valuations are high, credit spreads are low, and um there's not a lot of risk priced into markets today. What I see is not necessarily a market that's going to continue to boom because for that to happen, I think you need to continue seeing uh multiple expansion and I think we're kind of long in the tooth of that story. But I do see earnings uh the conditions for earnings to start broadening out. So I think you'll see a a market that is not as strongly led by, you know, the top 10 largest stocks or just large cap growth, which we have seen some of that um recent months. What I believe is that we we're finally getting to a point where it can be sustained. You know, we've had this is the sixth rally in uh where small caps have outperformed large caps since 19 uh since 19 uh since 2023. And on average they only lasted 30 days. And the reason in my opinion why they didn't sustain because you the whole rally took place because you got some macro relief. Inflation came down. The Fed was going to start cutting or stop hiking. Uh or we got a soft labor market. Uh and it just didn't sustain itself because the earnings picture never changed for small caps. you just had this gargantuate gap between mega cap earnings and uh which were rising and small caps which were flat or falling and we were beginning we have seen that changed in the last two and a half months. This is the broadest improvement in earnings we've seen uh really since 2021 and I think it can be sustainable uh finally. Um, but again, I want to make sure it's not a this is not a binary conversation. It's not like all boom or bust, the shades of gray in the middle. You know, it'd be convenient every if everything was that black and white, but um we certainly see a backdrop where we're going to see um more competition from ex the largest companies and I think that has a lot to do with actually softer employment. Okay. So it sounds like what I hear you say is you expect the market to become less bifurcated meaning the the bottom part which had really been getting left behind uh you think is is starting to heal and you know get a bit stronger. Um, so when you say Goldilocks then a Goldilocks backdrop for the markets, then maybe you're not necessarily saying, "Hey, I expect the S&P to like leap forward from here, continuing to be propelled by the the high growth, the mega growth companies." Presumably, we could we could kind of go sideways for a while, but this bottom half could do very well. So is is it more of a of a rotation that you see where capital is actually coming out of richly valued mega caps and going more into the other parts of the market or or no? Do you see growth in everything going forward? Yeah, I think there's again I like the term broadening um rotation I think we have to be careful with because you I still think the secular tech story is quite strong. Um yes there are very uh big expectations built in and in some stocks very high elevated valuations and one day that may end. Uh I just don't think that day is today. So, I think um it's really from the the bottom part of if we look at this as a K-shaped economy, I I think we're beginning to see some healing in specifically some of the more leading aspects uh of that can represent that bottom part of the economy. So, even in housing, um do I expect home prices to move higher? No, not really. In fact, they'll probably fall. But do I expect permits and refies uh and uh sales data and permits I already said permits uh applications to to start improving or continue improving I would argue in some cases. Yeah. Um I think in summary it's really I can really simplify it. I think employment is going to remain soft and it's going to allow rates to come down and that's going to allow housing to start healing in some of the leading indicators of housing. And similarly for manufacturing activity, I don't think it's going to be a V-shaped boom, but I think it's going to be a healing. You know, when I look at the housing and manufacturing data, it's really been an L-shaped story for the last few years. You know, we haven't seen this broad-based sustained decline in housing activity. It's it's really kind of hit a bottom in some cases, like you look at total home sales, like it's hard for them to really go much below, you know, 4 a.5 million uh annualized. So I think we're starting to see come we're coming out of that a bit. So again a slow and steady broadening not a Vshape but I think we finally have those conditions where that can be sustainable recognized and would give investors a reason to say okay you know I'm not going to just buy small caps because I think the Fed's going to cut but now I'm actually starting to see some improvement in earnings expectations in some of these companies that have been drastically lagging for many years. Okay, that's very useful. So, in in terms of the bottom part of the the market and the economy doing better. Let's talk about the market for a moment. When you say bottom, like are you talking about the small caps? you talking about the Russell or are you talking like about the S&P 493? Uh well, I think all of it, but there's a couple uh I think important nuances that I I think are really worth acknowledging. So, typically, you know, your best backdrop for small caps is, you know, after a big market downturn where they get crushed. So we kind of saw that uh in March and April and so you get a rebound in equity. Investors jump into risk. Those are only sustained if you have followthrough from earnings. So they tend to be driven initially by multiple expansion and macro relief and then they can continue if the earnings picture is uh persisting. So you tend to see that coming out of a recession where everything broadly goes down. So that's not been the backdrop. But we of course have had this big rebound uh since the pause in tariffs in early April. So when I think about small caps, we don't have the best environment for them, which is what I just explained, but we do have a better environment for them. And I think if we look back at the last five months and say okay well predominantly what drove the whole market higher was pees reexpanding or you know kind of risks and uncertainty coming back down and you could see this in data looking I mean credit spreads are near all-time lows which is corroborating why pees are back to very high levels whether you look at small caps or large caps. So that kind of part of the story is I think a bit played out already in the last two months why I think small caps have really taken over is because they saw the benefit of macro relief which everything kind of benefited from that rising tide and we've seen an improvement in earnings expectations there for a lot of reasons. So when I think about going forward and say okay well if there's two catalyst stocks going up it's PE expansion and better earnings. I mean that's it is that simple. I think we're going to it's going to really the burden is going to be on the earnings story and we've kind of used a lot of the fuel up in the macro or PE expansion part of the story. So I don't think it's a blindly go by small caps because we're all worried about something or the market's worried about something and that's going to that worry is going to go away. That's what's happened over the last five months from here. You got to deliver on earnings. So, I don't think we're going to be a see a strong enough economy coming out of this or even when I'm talking about breath, I don't think housing is going to do a Vshape or PMIs are going to be in the high 60s anytime soon. So given that I think it's kind of a more of a a slow and steady healing which is I think again a big deal. I don't think it's going to be a boom and so I think you're going to have to be still selective but yeah I think there's going to be more of a diversified return set from the market going forward and smaller companies will benefit. uh cyclical sectors I think will continue to benefit and I think large cap tech is going to do fine but uh I think where the biggest rates of change are happening are going to be outside of mega cap tech. Got it. Okay. So, um, don't let me put these words in your mouth if they're incorrect, but, uh, it sounds like sort of an active investment strategy is probably going to, in your opinion, have a higher likelihood of of doing better going forward than sort of the passive just buy the indices and ride them. Um, because to your point here, it it may not be a generalized boom here. Um but you'll see pockets of the market uh outperform as those parts of the economy start to heal more. Yeah. I mean we've been really in a growthdriven stock market. I mean you really you can go back to 2007 was the peak of value leadership going back a hundred years. And valuled markets are much better for active managers because they tend to be broader. and growthled markets. You know, if we think back the Mag 7 the last few years, even 10 years prior to today, you think of Fang and even going back to um the kind of GFC mark, it's generally been a very large growth uh driven market, which is for active managers, it's hard to beat because they tend to be narrow and they tend to reward disproportionately those stocks that are at the top of the Kshape. So I think we're cyclically um that that K is somewhat I don't know closing or whatever the opposite of bifurcation is. I think we we're we're kind of conver reconverging a bit. Okay. But I don't think I don't think it's a like I don't think the outperformance of large growth is going to be matched in the next couple years by the outperformance of small value equally. So I don't think it's a full rotation. Yeah. Okay. But, um, it sounds like, hey, if you're if you if you've gotten used to these tasty gains in the stock market, um, you're probably more likely to get them by finding these pockets of the market that are going to be going through this healing process than just sort of riding the general market indices. Yeah, absolutely. This this is the and I don't want to say it because everyone says it and it's so cliche but this this is where this is an environment of course if this plays out where being more active is especially in today's benchmark uh has a far better shot of u beating it. Okay. All right. Well look um let's see where to take it from here. So um you know we we Well, I guess why don't we look at housing and maybe use it as an analogy for some of these other parts. So, the the housing market has largely kind of been frozen, right? Um yeah, and I I imagine part of the healing you're talking about is just hey, transactions are going to start picking up here, right? that um more and more people are going to be able to transact that that either can't right now um either because you know mortgages are unaffordable or I've got a house I want to sell it but uh at the new mortgage rate I'd have to take out it just the math just doesn't math for me. Um obviously lower rates are going to start helping with that problem. Right. Is is this just a story of rates or I think I heard you say that it wouldn't surprise you if actually prices came down in the housing market and I guess this is this is sort of what I want to put my finger on the heart of what I put my finger on which is healing may mean lower prices right like you know yeah absolutely absolutely housing market's a great example when so much of it is unaffordable to so many people that's not a healthy market right well what do I guess what do like what do we want do we want high prices and low activity or do we want high activity with somewhat lower prices? I would take the ladder when I'm thinking about the breadth of the economy. Yeah. And you know, I think we got to be careful about everyone's got 07 in their minds and you know that that that is not the backdrop we have and I I know you speak with a lot of people who know a lot more uh detailed data in the weeds about housing and and and yeah, I agree the housing backdrop is in bad shape. Some areas are in very bad shape. Some areas are still, you know, northeast there's no inventory still, so prices are still very high. Um, you know, we have an affordability problem. Well, how do you get affordability to improve? You need lower rates andor uh lower prices. You know, wages. If we if wages are the solution to affordability, we're going to be waiting a very long time. And I don't think we're going to get back to what whatever normal affordability levels are. You know, we had this affordability pop or unaffordability pop because of an event that took place with COVID with which both led to extremely low mortgage rates and a increased value of a house, right? You know, we still start to, but I'll just say it was it was preceded too by an era of zer which had already pre-inflated housing prices artificially. Um, yeah, I guess I have to look at some of my affordability. I mean, it it did, but I mean, what we saw in 21 to or 2020 through 2023 or, you know, unprecedented was it was just Yeah. I mean, even though we had 15 years almost of zero rate uh sorry, not 15 years, eight years of zero rates. Yeah, I was just saying that happened on top of an we we could have had a inflated housing price discussion precoid and co just yeah, you know, hyperdistorted it and and that was because obviously it wasn't just a demand story. It quickly became a supply story, right? And both. Yeah. Um Okay. So uh again that's just a nuance I want to make sure that people are are taking away from here. When you say hey it's going to be a healthier environment that doesn't necessarily mean you think uh higher prices go hand in hand in that and it's going to be different across the landscape here. Let me go back to the stock markets for a moment. So, um, uh, you know, you think that, uh, we may see some some pretty good returns in some of these pockets of the market that are broadening out and healing, as you said earlier. I think you said, hey, we could definitely still see big tech do fine. Um, but let me ask you this, Michael. So, um, we don't know. So this is a big caveat here, but right now there's a lot of um concern uh of the level of valuation. You know, you talked about the multiple expansion, but the level of valuation in these AI hyperscalers, right? Um and you know, we're seeing things like the roundtpping of capital, right, that's beginning to happen with Nvidia and some of its its key customers. um that not saying it is but it it smells like some of the funky uh suspicious uh vendor financing that we saw during the dotcom era. Um there also is just talk of like wow you know the the profits in the AI space they may turn out to be a lot less than than what the market's currently assuming here. Again, we don't know what's going to happen here, but let let's just say for a moment, um there is an AI market valuation bubble. Um if the market changes sentiment on that, um how does that change your outlook here? Well, that would given the concentration of the that space would likely have a equal negative effect to the extent of that change in view. Um, you know, when the Deep Seek news came out earlier this year, man, that feels like already like five years ago at this point. It does, doesn't it? Yeah. Um, yeah, that was obviously a concern. Um yeah I mean that would that would change things. I mean by definition it would change things. So yeah that that is a risk. You know I I certainly don't um put put uh say that I am an AI expert or you know I think you should speak to those folks that focus in on that sector specifically. I think a lot of strategists talk about it but it's kind of more superficial. Mhm. Um you know I think there's two risks. There's of course a macro component risk which you know when you look at the tech bubble in 99200 you had I would say you know far more bubicious than things are today uh at least from a valuation perspective and at the same time we had a massive sharp tightening cycle into 99 or starting in the middle of 99 into an economy that actually was already just beginning to slow. So you had for you know 20-y year high prices in oil and the Fed raised rates aggressively and that really started to hit parts of the economy and took out a lot of the excess froth and speculation in the stock market and excess froth and speculation was the predominant driver of that tech bubble. This is different and uh I don't think I'm saying this time is different because there's only you know we're talking comparing to 2099 the fundamentals of this story are very different. I would agree we're you know we are in an earnings bubble and you know similar to how Bear Sterns and um Lehman Brothers were in an earnings bubble in 2004 2005 2006 though few people would say they were expensive but that was because they had such good earnings that were not sustainable. Uh so I if the earnings view and the margins and the AI story really radically change, yes, the the story's over and the story changes. From those folks that I listen to who I think, you know, know a lot more about it than me and from the data I see, I don't think we have a macro risk that is going to disrupt that like we had in 99. I mean, again, that was the beginning of a Fed tightening cycle. So right now I don't see the Fed tightening anytime soon. I don't see a risk that oil is going to spike or rates are going to spike or um unemployment's going to spike to cause that on its own. So then it goes back to really uh the story of the specific sector and the fundamentals of these companies and are they going to radically change and as of right now I I I don't see that you know causing any kind of collapse and big uh big downturn. But yeah, again, obviously there's risk in these assets. They're highly um everyone owns some of it. And the question, yeah, the party ends when the catalyst that created the party ends. And uh in this case, it's not I don't I wouldn't agree that it's as much valuation as it is the actual fundamentals that are being generated. And at some point, yeah, that'll peak and roll over and slow down. and how quickly it slows and how much fluff was in those estimates will determine how much downside there is for those stocks. Okay. I um I agree that I don't think that there's sort of like a credit risk um that was the sort of thing that set off you know the the 2000 the great financial crisis right um but I just wonder given how widely owned these stocks are um I mean when they make up a huge chunk of of the market indices market value themselves but they're also just owned in like almost every ETF that's out there. Well, you have you well what I was talking about before I mean tech has if we look back 10 years tech is the only sector that's outperformed the S&P from point to point over 10 years that is that is not common perhaps even unprecedented and let me see if I can actually I can show you some charts here's a chart of that yeah I mean look at that that's so yeah and look look at the S&P that that's the that's the second Fine. So that's fang plus 2019, you know, the when the Fed cut in 2019 and long long duration tech growth stocks started, you know, really doing well and then COVID came along which was also heavy tech and then AI came along. You know, tech is the only sector that over a hundred years has essentially remained in an uptrend and you know I can show you that chart too. this is tech and com services because problem today is that sector definitions are not actually really correct and they're kind of um they're a little bit faulted. So this is tech and com services and yeah it's at a 100redyear high right now and so you could see that chart and be like ah that's really scary. The difference though is this chart here on the left. Let me see if I can zoom in a little bit. Nope. Let's see. Oh, I zoomed out. Oh, man. I gotta do this. I'm sure there's a keystroke to this, but I don't know it. So, no worries. Um, so this is this is to me a really eyeopening difference. And again, just because it's different doesn't mean it's not risky and you may not may not end well or may end well. But this this is different. And uh I think again that means it may end differently. So, uh, what this chart's showing here is, uh, the dark blue line is the weight of the least profitable stocks in the market. I actually have this data going back a hundred years. It's from French and FMA. You could pull it up on their website. It's free. So, if we took it's not junk debt. This is this is quote junk equity, right? Well, yeah. If we consider companies that don't make money junk, and you know, it's it's we're using it loosely here. So nobody get offend nobody get offended but um profitless companies let's say the bottom 10% so I would guess that the vast majority of them um most of the time are not making money so I'm showing that next to the weight of the tech sector back to 90 uh in this case 95. So you can see some pretty distinct differences between the late 90s and today. So, everyone's looking at the tech weight and saying, "Oh my god, the tech weight is now." And I think we're actually now above those 2,000 levels or pretty close just above it. Just looking at tech, not including comm services. And that really scary. And look at what happened last time we were there. But that dark blue line is a really important line because that is not what has driven the tech sector. And it just shows you how how much more froth was in the market back in that period compared to today if and and froth being lack of fundamentals. Got it. Meaning the the recklessness willingness to the reckless willingness to speculate on junky companies that didn't have great prospects. Um yeah. Or think about the duration of these companies. You know, everyone back then you could argue well looking at the chart you could say well they were betting on there was more of a bet implied in those prices whereas today it's more of a reflection of realized activity and fundamentals. Yeah. And so that that is a fact. What you know what that means of course um is just that that is different. And so we have to think about it differently and we just got to be careful with comping a uh a sample of one with 2,00. But again, I I would say there was far more froth in the market in the equity market. And not to say there's not a lot of froth today between different asset classes and within the equity market. But I think there's less systemic risk compared to the late 90s, 2000s, early 2000s, uh as of today compared to that. Got it. Okay. And I mean I I I totally understand how this this chart, you know, makes makes that argument. Um we don't need to spend too much more time on this, but but I guess just my question was given how much market cap they make up, given what a percentage of holdings out there they make up, the the the big tech stocks. Um given how they are kind of in almost everything. I mean you're hardressed to find an ETF that that doesn't have a healthy amount of the mag seven in it. Um is there sort of a special impact that it has on the wealth effect positive or negative um such that if there was a material repricing of of AI stocks and I'm again I'm not saying this is going to happen I'm just saying it's a potent it's a it's a possibility where you know all of a sudden that sector goes through a pretty dramatic repricing because folks just say oops there's not as much the pot of gold at the end of this isn't as big as we thought. Um yeah, could it pull enough of the economy? Yeah, enough of the economy with it, I guess, given the the negative wealth impact. Absolutely. The wealth uh the wealth effect cuts both ways and it's been a really good thing. And if you think about 2022, we can kind of use this as a little bit of a roadmap. 2022, we obviously had a big negative wealth shock from equities. However, at the time there was a ton of income um supporting the US economy from all the stimulus like we were at max stimulus uh basically at that point. So in hindsight, we we all know this now that that that dramatic drop in financial assets, everything from crypto to equities and bonds. I mean, it was probably one of the worst port Yeah. I don't know. There was not many places to hide. There weren't many places to hide. Gold. Gold hung in there, but very few others did. Yeah. And maybe some utility stocks. Yeah. And and uh Yeah. Yeah. Well, yeah. That's when T bill and Chill really really took off. Yeah. T- Bill and Chill. Yeah, I forgot about that. So yeah, I think there there's there's a very big risk. The bigger the market has become, the bigger the contribution of the wealth effect has become. And you know, we t typically think of the wealth effect as well, the market going up, the market going down, but I think we have to think about the contribution of the wealth effect, which is how big is the market as a share of income or as the share of the economy. And if you plotted those charts, it would kind of look similar to these. it you know the stock market's uh about two two times the size of the economy today. So so the the tail really has become the dog here. Uh absolutely and I think if we look at all the policy over the last couple years and something we've written about going back to 2019 so this is before co this idea that because the numbers back then were also quite high that the market has become too big to fail and perhaps that's why policy makers whether it's Fed uh policy makers you know quickly and very kind of a rifle shot acutely making sure that the regional bank crisis in 23 didn't spill over or you know the fact that we have kind of sustain sustainably high deficits today you know the policy makers have are continue to pull out every tool they have and you know they're very creative about it and I think they will continue to do what they can to avoid a sustained downturn in the market because it's become a bigger risk factor Um and I think you know the wealth effect is essentially you know it's always been targeted essentially by the Fed indirectly and it's again it's a double-edged sword. So in 22 we had all that stimulus that offset that and we had a a repricing and everything. Tech stocks got really you know we had kind of the the postcoid bubble uh plus inflation shock. So, we had stuff, you know, like large cap tech down, the NASDAQ down, I think as much as 33% or so. And then you had other well-known investors that were owning more long duration speculative tech names that, you know, were clearly in a bubble and just got really uh decimated down 60 70%. So and the difference there was the fundamentals um were were you know what what held up better had better fundamentals and what got destroyed is you know where there was much more speculation and longer duration tech and growth and innovation stocks. So, as we look ahead to now, there's arguably more risk if the market would decline so sustainably because there's um the labor market softer. There's less stimulus to the consumer. Again, everything compared to 2022 is there's less stimulus. Okay. So, that's a big comment you just made that the market has become potentially too big to fail here. Um, and I guess I want to ask you like h how does that make you feel being at that conclusion? You know, is it like a hey, that's just how things have gotten to or are do you do you have concern over the fact that this is a dangerous place to be? Um, the the analogy that kind of comes into my mind is the old uh Peter Pan um you know Tinkerbell like you have to believe if you don't believe in fairies they die. So let's all believe that you know let's all believe in this market. let's all keep, you know, making sure that we all think that uh prices are going to keep going up so that prices do indeed coming up because if they don't then potentially this whole house of cards unravels or or similarly and I'll let you speak um in the service of trying to keep everything going up, there's no free lunch. You know what what pays the price? Well, what what seems to have paid the price a lot in the form of the stimulus that we we put out there during CO, but pre-COVID and and the stimulus we're doing now running these massive deficits is the purchasing power of our currency, you know, goes down as a result of trying to keep this whole thing going. So, how to your point of of sort of healthiness, how healthy is this situation? It's hard. You know, I like to think of numbers. Uh, and it's hard to it's hard to to answer that quantitatively, but you know, I I think we've gotten to this point because of all the various fiscal measures and monetary measures that have taken place. And again, you can this is not just in the last 10 years. This has been going on for a long time. Yeah. And you know, quantitative easing, you know, President Kennedy did it um back in the early 60s, Operation Twist. So, this is not necessarily new. It's just pronounced because our economy has become so financialized and the the barriers to entry to become a an investor have dropped to zero. So it it you know more financialized economy means I guess we got more financial risk and to mitigate that risk we get these policy makers doing things that try to plug up problems from getting worse. I don't think we'll ever let see well I don't want to say ever but maybe hopefully not in my lifetime we'll ever see a policy maker let a bank go again like like Lehman Brothers. Um I don't see that you know that being allowed to happen again. And we could say, well, it's unfair or it's not, you know, a moral hazard. Okay. But, you know, I think having that view or or disagreeing with it really sets the tone of how you think about the health of financial markets. So, it is what it is, Adam, I guess. And, you know, instead of debating what's right or wrong, I just think we have to as investors and uh understand kind of what the rules of the game are and where the risks potentially could be. And I don't think that's largely changed over time for markets regardless of how much it's up or how big it's become. But it's it's obviously become a big part uh bigger bigger part. But again, as long as the economy is doing okay, as long as we have good policy that allows for innovation and risktaking of businesses and capitalism, etc. And um it's still, you know, kind of the the old what is it? The Paul McCaulay, the dirtiest, the cleanest shirt in the the laundry. In the laundry. Okay. Yeah. I got I got so many threads on this I'd like to pull, but I I I don't want to derail things too much. So, let me let me build off your last point there. So, I'd be curious to hear in general what scorecard you give the new administration because its economic policies are are quite different from previous administrations. And and secondly, the intent of the new administration's policies, at least as I read them, is to really stimulate the economy. Um, you know, tax relief, deregulation, um, bringing a lot of foreign capital into the country, you know, um, uh, do you expect that they will bear fruit? And if so, the question is becomes okay, when when do we think uh we'll start seeing some real measurable impact on the economy from these policies? Well, I think the tax bill had some pro-yclical policies in it in the form of the expensing and freeing up um I guess incentivizing companies that were either planning on doing it or on the edge of doing capex to to do so to free up some cash flow. So um we're already hearing from companies on you know how many dollars of free cash flow that's opening up. So, I think we're already starting to see that, but that should have a long, I think, positive tale to it. You know, it's essentially a tax cut uh without, you know, as blanket of a tax cut as we saw in the first Trump administration. I think it's too early to judge the administration on how their policies are ultimately going to play out because obviously things happen with a lag and there's often unintended consequences or unintended positive surprises. I I think having oil prices remain very low has been a super big positive in this backdrop. You know, if you look at real oil prices, we're at a 25-y year low and uh that's part of this Goldilock story. Yeah, there's a lot there's been a lot of concern from tariffs with respect to inflation and we undoubtedly have a narrow inflation pickup from the tariff pass through. If oil was higher today, we'd have a bigger inflation problem. I know that sounds kind of obvious, but the fact that it's not kind of gives that gives more room for that tariff pass through to not become a broader issue. So, I think that's been uh that's worked out for the economy thus far. But, you know, we'll we'll see we'll see how things play out. Uh, you know, I know the administration is trying to figure out a way to help the housing sector. In some ways, there's not much they can do, you know, besides trying to get rates down and inflation down, which probably the the healthiest way to help the housing sector. So, we'll see. But, uh, I I I would say the economy has momentum now because of many of, uh, the administration's policies. There's been some things that, you know, again, whether I disagree or not is not the point. The point is whether I think it's going to be a positive or negative for the the economy, the market, and for many versus, you know, few. And so I'd say I think I think the the future right now looks brighter given those current, you know, given my recent comments uh so far. Okay. All right. So, we're kind of getting the last 10 minutes or so. Michael, getting kind of the so what. Um, and obviously if there's anything key that's on your radar we haven't talked about yet, please introduce it. But like, um, okay, I'm I'm a regular person watching this video. Michael has just told me, hey, things actually might actually start kind of getting better, uh, on net in the future. Um, with the nuances that you've described for us, um, how does that translate into an investing thesis from here? Yeah. So, I'll keep since I think I'll keep it broad because I think that's where I think things are moving, but I I'll I'll keep it to the the the indices. But you know I maybe I'll talk through it and and and talk about two different things at once because you know I think there is a misconception around the stock market and rising unemployment and if you you see this chart right here that I'm showing I do. Yeah. So, so that is the S&P 500 and um the unemployment rate which have been moving together and again this I most people I I actually just did this morning I put a survey out on Twitter and said how many you know of the last 10 recessions how many times did the stock market go up while the unemployment rate was rising and I think everyone pretty much got it wrong uh or probably asked Chad GBT I bet I bet very few actually looked at before they answered. Um, so the answer is actually quite often look at these four charts. Make this a little bigger. So there's there's your 90 uh 1990 recession, 1980, 1960, and 1953. Does that surprise you, Adam? Uh, it does surprise me. Um now I will say it looks like most of these started with a pretty big correction in the stock market. They did after which stocks rose with the rising unemployment rate. They so it's not that investors got off without any taking any licks. Um perhaps but I think and and this is where I think you know people actually doing some work and understanding what was going on here it can be really helpful because I think the general conventional wisdom is that well the unemployment rate's rising so I should get more bearish and you know that was right in here's here's 07 and 2000 absolutely as soon as the unemployment rate started going up in those two periods um the the market went down essentially until you know the uh economy broadly bottomed you two years later in both cases. So that's not what happened here. So um I think the message I I I'll convey is I think equities um I think yes they're expensive but I think they're going to remain expensive. I think they will continue to rise. I think they will continue to broaden. I think bond yields will continue to slowly come down and perhaps you know if you look at the 10ear we've kind of been in the side wage range for two and a half years. I think we kind of settle out at a lower range. I don't see it going down to 3% on the 10-year like 3.0. I don't see the Fed aggressively cutting. I think we're in this again this Goldilocks backdrop where yes, the employment backdrop is soft, but that opens the door to rates to come down, which makes the housing backdrop better, and the manufacturing backdrop better, which makes earnings backdrop better. All of what I just said I think is actually a pretty decent backdrop for equities. So I guess my message would be to stay long and look for opportunities that of stocks that are cheap, undervalued, underloved, undercrowded that have really lagged for the last couple years and potentially could see some upside under that scenario. So if you look at these four examples, you know, yes, you did see um the market, you know, in 1990 right here, right? that big draw. Y I can tell you for a fact that had nothing to do with rising unemployment. One, because at the time it happened, unemployment was down here. And I don't know, I don't really know anytime the markets actually went down before unemployment went up. Side issue. This right here was the spike in oil prices during the Persian Gulf invasion. And this day right here, which was the day the market bottom, was the peak in oil when Bush senior said, "We're going to get involved the US." And that was the end of that that was the end of that bare market. And so even if you don't want to buy that, but I advise anyone to go look at that chart. Um, it was actually something I I I guarantee in one of our last few interviews, if we were talking early this year during the tariff thing, I was showing all these charts of every time the market goes down, it's what caused it to go down. when that sees relief it goes back up and and we were talking about uh trade uncertainty and I guarantee I showed you this chart not with the unemployment rate but with oil but look it it then when oil bottomed the mark oil peaked the market went up for the next two years and unemployment during that time went from 5 and a half to seven and 3/4 in this period I mean I don't you know the market really didn't go I guess you had this down move right here that's 1980 that's when Vulkar raised rates to 20% right there. And then look what happened. Unemployment went up and what did he do? He cut him to 14. Cut him down pretty sharply. Market rallies with higher unemployment. Why did he cut rates? Why did t why did the market go up? Because rates came down. It's the same thing happened here in 90. And then 1960 again unemployment and the stock market were moving together. And I mean I don't really see unemployment having any effect. Again, I don't buy this idea that the market's like so forwardlooking of unemployment. Like that wasn't the case in '07. That wasn't the case in ' 01. The S&P was at an all back to all-time highs in August uh 2000 before and then as unemployment went up, it went down. So right here again, it was interest rates which were probably rising and then boom, the Fed cut as unemployment went up and the market followed suit. Same thing happened here. The market was going down because rates were going up. The Fed was tightening 1953. Then they stopped tightening and cut. Market bottomed. Why? Because unemployment rate went up. What's happening today? Same idea. You know, we had this inflation problem. And then in 2024, we had from April through um right here through here, four months of rising stock prices because we had unemployment going up and then we had a bit of a too cool uno unemployment number in uh the August or July report in which was early August and the market kind of freaked out for about a week and then all the employment data got better and oof breathe a sigh of relief and the market kept going up. So I think this can actually persist for for as long as the unemployment rate doesn't go like that like really sharply vertical because again we're in a backdrop where everyone is so fearful overanalyzing high rates high inflation and there's nothing more bullish for bond yields than soft employment to a point that that's good for equities and the commonality in all four of those examples and by the way I talked about this in my podcast last week the title was the my your the enemy of my enemy is my friend and the point is that our enemy is inflation. The enemy of inflation is higher unemployment. It really is very deflationary. So therefore, you know, higher unemployment is my friend. In these four examples, 1953, 60, 79, 90, housing was improving at all of them. You know, not not interrupt, but this is this is where I was going to go, which I wasn't actually that shocked as you started explaining this because in your framework, E in the hope framework is the laggiest last domino, right? when you're when you're the economy is slowing down and what's the last domino to recover when things start picking up. So I was going to ask you so presumably when you hit the bottom and the stock market housing orders profits were starting to improve even though um employment hadn't gotten the memo yet. Sounds like that's exactly the case. Well, and it was higher unemployment that allowed that to happen. That's the point. It's a circular loop. That's right. that I mean look this is why the Fed cuts see those green dots notice they're all at periods with the gray lines going up so in some in some in some ways you need higher unemployment when you're in a bifurcated state because of high prices and high interest rates to produce the low interest lower interest rate healing that is necessary to lead things to broad to broaden out and that is why I call today's backdrop goldilocks because we need higher unemployment Why did the Fed cut last year? Why is the Fed cutting? You know, why did they cut last September or this most well both September? Unemployment, not not about inflation. So again, there's obviously a limit to this. If if if in six months from now unemployment at 6%, I I I would say that was probably too cold. But I don't see that. I think we've gotten past the risk of or the past the window of the highest risk for the economy to see a downturn. And I and whether it was fiscal stimulus that kind of carried through or the combination of oil going down when the Fed was raising in 23 and 24 helping to offset some of that or the stock market creating such a massive wealth effect and the housing market for for whatever reason and and anything else we've I think gotten past the the the window of biggest risk. Now I do think the employment data is going to remain soft but I actually see that if let's try to be forwardlooking as a positive and I think today's a good example we got bad ADP and the market's not tanking because rates are down and everyone the conversation next week's going to be oh well maybe the Fed will cut three times. Yeah. So, Michael, is this analogy accurate where um to have the recovery eventually, you need the fire of higher unemployment? Because what that does is it makes the central planners come out with their fire hose to put out that fire and that water germinates the seeds of the recovery. Yeah, in some sense. and and also the the amount of you know if you look at this chart and I like to look at a lot of single variable uh or two lines on a on a chart uh I don't like using regressions and you know rely on kind of common sense stuff so we can have a business cycle or an acceleration or deceleration without a recession just they won't be as booming they won't be as dramatically strong like 20 well I can't use 2019 because we had co right out of there you know, and even in, you know, that's what soft landings are. They tend, you know, they're soft landings, but soft landings usually don't initially kind of come out of the gate booming recoveries out of a recession do because there's a lot more stimulus behind it. So, if you think about kind of Sir Isaac Newton's action reaction framework, this is that with a lag. And so, the action i.e. the stimulus due to the higher unemployment rate and lower inflation, the Fed cutting. To the extent they do that, that creates an understanding of how, you know, strong things could become thereafter. And so, I think it's going to be slow and steady stimulus because I don't think the unemployment rate is going to be skyrocketing, spiking aggressively higher. And I think that's a good thing. We don't want these boom bust, boom bust, you know, these we don't want the Fed to be aggressively reactive. We want them to be steadily proactive. Okay, that makes that makes a lot of sense to me. Um, obviously it sounds like you'll change your tune if unemployment rises a lot more aggressively than than than you think it currently will here. Yeah, and I could show you a chart real quick on that just Okay, but it sounds like your advice to investors right now would be, hey, you know, don't get shaken out of the market. It's it's there's a lot of reasons to to still want to be long here, though you might want to be more active in your approach. Just take care not to lose your job. Yeah. And you know the the unfortunate thing is that so for the market and I would argue for the broader economy in this backdrop where again high rates high prices has been a big problem. Unfortunately I said earlier no pain no gain but unfortunately some are going to have to see their job go away. the the the aggregate will benefit from that. I don't know how to how to say that you know I mean it's it's a shitty thing if that if you know for lose your job for any reason but u but that's always been the case you know across history um when when there's easing right how many times would the Fed have cut rates if we'd never saw an unemployment go up very r very rarely. So my point is that as long as it's slow and steady and the unemployment rate is creeping higher, not shooting higher for housing, think about this. You know, you get a little bit of an uptick in the unemployment rate, which is what we've had in the last few months, and you get mortgage rates now at, you know, they're at multi-quarter lows. And you got refctivity improving. You've got mortgage purchase apps grinding higher. Again, nothing booming. and you've got data sets that suggest that in the next two to three months we should see, you know, some followthrough from that in the housing data. Now, if we don't see that, that's what will get me to kind of question because that's why I have the hope framework. So, for this whole story to play out, we need to see housing data grinding higher. Yeah. It doesn't need to boom. I don't need the NHB at 80. I just, you know, it's at 40 now or something. If it goes to 45 to 50 to 60, that's phenomenal. So, um, don't underestimate, you know, how little it would take from a area that everyone's very bearish on to really quickly change the narrative and start extrapolating something positive. So, uh, I think it's a very unique backdrop, but I think, you know, similar to those other four episodes, we're we're in in a dynamic where we could have this Goldilocks backdrop. And unfortunately, you need higher unemployment for that. You know, here here's something completely, you know, um, counterintuitive. Russell 2000 stocks are up because unemployment's up. It goes along with the counterintuitiveness of home prices were up in 22 and 23 and 24 because the Fed raised rates. But that's the dynamic. Why did everyone jump into small caps the last three months? Because the Fed's going to cut. Why is the Fed cutting? Because unemployment's up. So again, you got to watch this for the pace. And this is the chart I wanted to show you. The pace of rising unemployment has gone from a 15% rise a year ago where it was, you know, going from really low levels at 3 and a half all the way up to 4.3 in 2024 and it's at the same level that it was as it was last year, which means it's at the same level as it was last year. So yes, we're seeing lower weaker numbers in some of the NFP data and ADP and I think there's a lot of reasons for that. But again, I think it's going to remain soft but not systemically problematic. Okay. All right. Well, look, that's a um you know, I people keep asking me, hey, where are the optimists? Um I would put you in the guardedly optimistic camp right now, Michael. So, um, a thank you so much for coming on and and being so, um, transparent with all your data here. It's so fascinating, but but just so helpful. Um, would love to have you come back on, uh, in a couple months, Michael, just to give us an update. Are things playing out the way that you thought, you know, or is have there been any curveballs along the way? Um, most important question for you. Um, where should folks go who would like to follow you and your work? between now and the next time you come on. Sure. Uh I'm on X at Michael Canantro. I'm on LinkedIn, but you know, I I'll post there sometimes. Um of course, if you're an institutional investor, an RAIA, uh you can reach out to Piper Sandler or reach out to me at Piper Sandler. Uh we also uh earlier this year launched an ETF that is uh an actively managed small cap ETF uh partnering with a firm called Simplify Asset Management. The ticker of that Mike Green's firm. Yeah, absolutely. Mike Green's firm. Uh so um the ticker of that is Little Liit TL. We launched that in April, late April, I think, or early Yeah, late April. And uh so that's a that's a way that's that's that's one of the ways we uh try to take our all you know all of what I'm talking about you know what what what we end up doing with all this for our institutional clients putting together baskets of portfolios and they're baskets that are a function of what type of flavor of equities the market's going to gravitate towards. you know, large cap growth, small cap value, you know, that's a super high level way to think about it. But, um, so we we we do boil this down to actual stock recommendations for institutional clients. And the the little ETF is, uh, our long model within the Russell 2000 small cap space. Yeah. And that's available to anybody. So, anybody watching this video who wants to get some exposure to you and an actual part of what you just mentioned for us can go look at little Yeah. And with within the context of today's discussion and the market and valuations etc and risks or little risk being priced in our current recipe is heavily earnings focused and and again that's how I think the types of names you want to own going forward. Don't just own a name because you think the Fed's going to cut and if that works then you know yeah the stock will go up a lot. Don't just own something that needs a macro catalyst. earn some own something that has a fundamental catalyst, you know, in a in a macro backdrop that's not, you know, dramatically changing uh certainly for the worse. Uh and I think that's, you know, that's the going to be the big difference from where we've been the last three years where pees and valuations have all extremely moved higher and where we're going going forward. You know, credit spreads at all-time lows. It this is about uh setting us up up for a very idiosyncratic backdrop. Okay. Uh, Michael, I'm I'm shocked that you mentioned the F-word on this public program. Uh, fundamentals. Um, they haven't taken a long time. Yeah. And you're saying Yeah. Yeah. Well, see, I disagree with that. I disagree. They haven't mattered. Yeah. I I so strongly disagree that fundamentals haven't mattered. You know, the best performing stocks have had the strongest fundamentals. And when we look at valuations, well, fundamentals are macro. Look at these four charts. Look at the profit margins of the S&P in the top left. Look at inflation inverted with the S&P in the top right. Look at oil in the bottom left. Look at credit spreads. There's reasons valuations are high. These are macro fundamentals tied with micro fun. We should have really high pees today. The risk is not that they're high. It's that we get a problem that these charts the lines go down because oil spikes, inflation spikes, rate spikes, or as you mentioned earlier, the AI margin story collapses. The market never has gone down just because it's expensive. Something in the narrative changes. And understanding what the narrative is is of course the first step to understanding what could change, right? And as Lance Roberts reminds us every week on this program, you know, at the end of the day, what's going to matter is earnings and earnings expectations. And so it doesn't matter what the narrative is, doesn't matter what happens unless until and unless it impacts expected earnings. Yeah. Yeah. Um but I'd say going forward the risk to markets since 2022 is going to continue to be in periods where fears of around inflation and rates going up flare up and that can come from the economy really being strong or that and a combination of inflation you know and commodity prices moving higher and you I think we'll we'll see some periods of that uh next year in 2026. All right. Well, when we do, we'd love to have you back on this program to discuss them. U Michael, I really can't thank you enough. So, oh, and by the way, when I did this, I will I will put up the links on the screen to your exhandle, pipers.com, the little ETF and all that. And folks, the links will be in the description below this video as well. But again, Michael, can't thank you enough. It's always such a pleasure. All right. Always uh same here, Adam. Two, one. All right. Well, now is the time on the program where we bring in the lead partners from New Harbor Financial. I'm joined as usual by John Lodra and Mike Preston. Uh we'll hear their reaction to the interview we just did there with Mr. Caneritz and then we'll talk about what's been going on in the market over the past week because a number of things have happened. Um gentlemen, thanks so much for joining me. Mike, why don't we start with you? Um I know there's a lot there in that discussion with Michael Canterowitz, but what were some of the key things that you most reacted to? Thanks, Adam. I'd like to just respond to the highlights I think that that Michael talked about there and one or two points that I think we've got some disagreement on. Um but respectfully, I think it was an excellent talk and um he's talked about some of the themes that we've been noticing internally as well. You know, number one big theme I think he talked about is the fact that the Fed has seen and the economy has seen softer unemployment data or softer employment data I should say has led the Fed to start cutting rates. That has been positive for equities particularly small and midcap companies. Our systems are showing us that the market is broadening out too. Now, we don't know if this is going to continue and we haven't seen enough broadening to really trigger our own measures of relative strength of, for instance, midcaps versus S&P because our systems have a relatively high bar. Just as an aside, we're happy to jump in at higher levels once our indicators tell us to, but there are early indications that that midcaps and small caps are starting to broad out. Michael talks about that. you know, I the paradox that um employment numbers are going to have to get worse for there to be further fuel, particularly in midcaps. Well, we'll see. We'll see. Um he he does touch on some things that we're really concerned about, though, and he seems to be less concerned about them than we are. For instance, he says that um we've had over we've had this market that's been overvalued for a long time. In fact, he talked about stock market capitalization divided by GDP, which by the way is up around 220%. These are nosebleleed levels. He doesn't he he doesn't seem to think that's a big concern though because he talks about a number of different things. Num he talks about um the the central bank, the Federal Reserve that's been very involved and said one thing that I am a little bit concerned about. He said, "I don't see a policy maker letting a bank fail again like they did during the great financial crisis." Lehman Brothers, maybe he's right, but I think I take the other side of that. I think that I think that perhaps the policy makers don't want to let a bank fail and maybe they'll be successful, but you know, I I personally think the market is likely to have a date with destiny. And finally, data is going to matter and central banks will likely not be able to bail out the market this time. So, we'll see. There's been two big bubbles in the last, you know, 30 years, my career. There's been the the great tech bubble, then the housing bubble, and now we're in the everything bubble. And I just I I think that Michael's a little bit too optimistic in the fact that he thinks that this bubble can be kept from bursting and that even if it does burst, that central bankers can bail it out. So, um, the way that we the way that we approach all of this is we acknowledge that there's additional risk in the market because of insanely high valuations that history tells us always has some kind of correction or equilibrium. I don't really think this time is different. And the way that we handle it is we've got a relatively lower equity allocation, 45%. And we have stops in place uh at least mental stops in place and we have options that we can use to hedge. And these things helped us for instance during the April time frame when we saw a 20 plus percent drop in the market we were only down you mid uh low to mid single digits at worst for from most accounts. And so you know he acknowledged that a more financialized economy equals more financial risk. Absolutely agree. I think that we just think that that financial risk is going to be uh realized through some financial pain. So whereas Michael's very optimistic, I would say that we're slightly bearish pessimistic. I don't want to say we're pessimistic. We just look at the reality of what we think is coming. And we view our date with destiny as as being real because of where we are in this cycle, this fourth turning cycle. We think we're in likely the last 3 to 5 years of a fourth turning climax. We can see central bankers throwing every single thing at this at this problem to make sure that it doesn't come to roost. We think they're going to fail. And so therefore, I just don't see the um you know, a lot of optimism. It's not to say we're bearish. We're not short the market. We're long the market. Clients are enjoying good returns this year and last. We really view our job of bringing people through this and try not to get we try not to get hurt on what's the turn in the market and what we see as the big drop ultimately. It's not an easy thing because we kind of have to play the game but be very cognizant of the risks and be ready to batten down the hatches and and put our hedges on if need be. So, um that's the way that we see it. Lastly, I guess I'd say um with his final thesis, he basically said stay long and look for lagards in the market. If it if it broadens out, don't get shaken out. I'd say this in this type of market, which has been straight up a straight up bull. In fact, we've got another new high here in the market as we speak today. Personally, I think you're better off staying with leaders than lagards. I don't think that value is the place to be right now unless we start to get those signals. market leaders have been leaders and will probably continue to be leaders if this market stays strong. So, we probably have a disagreement there. And um you know, he he talks a bit about Goldilocks. Again, we just we think it's a very dangerous time and uh we'll see who's right. So, with that, I'll I guess I'll take a pause. All right. Thanks, Mike. And and again, you know, I want to note that um look, this is why we have markets, folks, is that people look at the same data differently and come to different interpretations. Um, Mike, I think that, you know, Michael Caneritz, obviously I can't speak for him. Um, I I think he would say, "Hey, you know, to a certain extent, Mike, I share some of the concerns that you have, but until they start really materializing in my dashboard, uh, you know, in this framework, I'm I'm not going to worry too much about them because the framework is what he uses to look at kind of the market that we have today, not not the markets that we wish we have." But again, there I'm sure there are some additional points of difference and again, that's that's why we have a market. smart people can look at things differently. To that point, John, feel free to add anything on to what Mike said there, but let me just redefine what I wrote down when Michael Caneritz was talking about Goldilocks because it, you know, I I get it, right? Uh he says, "Look, you know, economic growth is good." And on the day that we're talking, I I checked earlier today, the Atlanta Fed GDP now estimates coming in, I think, at 3.9% so far for Q3. Now, that'll bounce all around the place, but still that's, you know, not bad. um low inflation. And while people might, you know, argue in the comments whether they think inflation is truly low or not, it's definitely a lot lower than it was two years ago, right? The rate of inflation annually. Um lower rates, you know, lower rates are coming down and in part because of of weakening employment. Uh but Michael did a really good job of kind of walking us through why that provides the fuel for economic uh growth going forward. Um, and then as Michael said too, we've got low oil prices and there's no doubt that that is not helping the economy and keeping inflation a lot tamer than it otherwise would be. So, you know, if I didn't show you the the the valuation charts that Mike Preston here was just reacting to and I just noted all those factors, I think you might say, "Yeah, those are pretty good conditions for stocks." So, um, how do you, again, react in any way you like, but I'd love to hear kind of your reaction to to that Goldilocks scenario, too. Yeah. Hello, Adam. Great to be with you. Um, yeah. So, when we hear the word Goldilocks, I also think of another um guest of yours who I think we can both call friends, Darius Dale. Darius Dale. Yeah. In their framework, their grid framework, one of the four economic regimes is Goldilocks. And I'm I'm um certain that uh just cuz we follow some of their work um that they also conclude that we're in the Goldie Goldilocks framework. And I think both Darius and Michael and I know we here at New Harbor, we don't that word isn't meant to interpret that everything is great and uh everything is just with the world and just with markets. No, it actually um I think every one of us in our way would say it speaks to um you know a condition a set of conditions that can further distort things. So if we're in a bubble um a goldilocks market can just make that bubble last longer and go higher. That's that's really I think the takeaway. It doesn't mean that you know we agree with the market backdrop and that it's immune from ultimately correcting. It just means that the conditions are permissive at least for the time being for things to be, you know, held together with tape and duct tape and staples and and whatever you want to imagine. And that's why we're even though Mike rightly points out we're about 45% in equities, we'd probably be much less in equities if it were just valuations alone. And I I will point out that yeah, we're only 45% in equities, but it doesn't mean we're uh not in in anything else. In fact, you know, probably um the untraditional portfolio that we've had, and this isn't investment advice for anybody listening, um we've had a a much higher than traditional market weight in things like precious metals and commodities and non-doll den denominated assets. So, you know, even though we're underweight equity, it doesn't mean there aren't areas that one can look to for uh uncorrelated rep performance even in the face of a of a significant bubble. So that's the the one thing I would I would just add to what Mike and you have already talked about there. Um okay. Um well look so uh one of the things that Michael Canritz talked about was um this this broadening out and look for uh sectors that have been unloved and uh and that may start uh you know fairing better. Um Mhm. Uh and uh one sector um that I've been looking at increasingly closely is the energy sector, but especially oil. Um it has uh you know as the oil prices have have come down uh the you know price of oil seems to be you know relatively low. Um uh I I I want to say I think somebody said on a well anyways um yeah price of oil low price of the uh oil related stocks seem to be um you know we'll say not loved by the market right now. Um and uh I I I you know it's it's an essential commodity for the world. Oil is probably one of the most cyclical commodities out there, right? tends to be sort of a boom bust uh type of industry and uh so obviously in the spirit of hey you want to you want to buy low and sell high uh I think there's a pretty decent argument that can be made that this may be a really good buy low uh moment in oil. Um I understand that you guys have made some recent changes to your portfolio there at New Harbor. I'd love to know what they are, but I I believe energy maybe even specifically oil are part of those trades. Yeah, we actually just yesterday uh I don't know when this video will air, but just yesterday we did a a lateral move within our portfolio. We had a um a slice of uh energy pipeline mastered Libina partnerships in a in a vehicle that holds several of those and um you know we saw a distinctive improvement in kind of some of the traditional energy names. We actually added a slice of a an ETF that holds a diversified basket well basket not diversified basket of companies within the oil and gas services. Um so these tend to be the you know obviously you can invest in large oil companies energy companies that's one way to play it. The energy services are tend to be a more a levered way not not debt levered but a more operation operating leverage kind of way to play an improvement in the space. Um, and I'll just show you a chart of of what that looks like. I'm going to share our what we usually lose use as a charting tool, so-called point and figure charting. And this is an ETF that we added yesterday. And this is not investment advice. Um, you know, for for folks that are watching at home, you know, we do this for our clients knowing their situation and how it fits into their overall portfolio. But you've seen here, this is this is going back, you know, several, you know, a few years. Uh, 24 starts here, 25 starts here. And you can see all while the market has been powering higher these these this sector had had been struggling until just recently we've seen some dramatic performant improvement on a technical basis but also on a breakout. We've seen this you know every time this these column of X's signifies a rising price and you see there's been several successive breakouts above prior resistance points. uh just the setup has has been such that it's uh it's you know very much come on our dashboard for a a valid uh addition to the portfolio. Um it's up nicely in the couple days we've owned it and that's not uh you know a couple days does not make a trend but we we had enough improvement across our technical dashboard to you know justify adding it to our our portfolio. Um I I would like to comment briefly on um Michael's uh pointing out at the improvement in kind of small and midcaps and let me just share a dashboard here that is another one of our tools and it's kind of looking at what we call fund scores and these are just the broad US equity uh styles and and and capitalizations and you know the fund score is a it's a it's a pulled together on a technical dashboard put together by no NASDAQ Dorsy Wright and it's a combination of trending and relative strength factors. About onethird of the waiting is trending price trending. The other two/irds is relative strength. Both peer-to-peer relative strength but also relative to markets. And you can see um the direction here. This is the move the relative move in scoring over the last six months. And you can see at the top of the heap the biggest positive moves have been in kind of micro cap and small cap. Now that is I speak I think speaks to a lot of what Michael Canrich was talking about. you know, these things have rallied on the removal of some concerns. You know, lower interest rate expectations tend to have an outsized um tailwind effect for these this segment of the market, which tends to be highly levered relatively speaking and a lot of the debt is variable rate debt. Now, it's time for this sector to kind of prove itself by improved earnings and improved, you know, relative strength. It's still the fund scores are definitely still lagging. for example, the S&P 500, which is nearly a five versus, and this gets really into the the weeds of what we do here. But all to say is we have seen improvement there that has been early but uh promising and that would speak to a broadening of the market that we would want to see uh to see that this market f likely has further legs even if some of the market generals and the mag seven and and large tech stocks start to kind of stall out here. Okay. And if you were to see that, which would be corroborative of Michael Canerwitz's thesis, would that then lead you to increase your percent equity exposure in your portfolio? It very well could. And it also might uh uh warrant a tactical shift, a rotational shift from some of the large large caps into the, you know, if you go back, for example, in the wake of the tech bubble busting, um small caps outperformed tremendously. um you know in the wake of that. So so just because we may have a a dramatic pullback in cap weighted stocks doesn't mean all mark all segments of the market are are uh beaten down uh equally. You know we can rotate and you know generally speaking unless we get a meaningful pullback in the market here or something dramatic on the the fundamentals front we're probably not likely to get more you know you know significantly more invested in equities. what I would expect is more likely a shifting on, you know, within the composition of our equity exposure. Yeah. Okay, great. Um, and and for folks that, you know, took note of me kind of proddding Michael Caneritz to talk about what would happen if if there was a major correction in the AI stocks. Um, look, I have no idea what's going to happen with that, but I understand the growing concern um out there and I think amongst the material number of viewers of this channel as well. Uh, you there's there's an increasing number of really big names uh many of whom are involved in the AI industry who are outright saying, "Hey, it looks like that industry is in a bubble right now." Um, so just know I have been trying to uh land a guest who can talk really knowledgeably about that. Uh, for the many folks who are pinging me to get Fred Hickeyi on the channel, just know I've reached out to Fred a lot. Um, he is unable to come on anytime soon. Uh, so I'm continuing to look for others. Um, but but just know that that is a topic that I am hoping to do uh, a dedicated interview on at some point relatively near future. Mike, coming back to you. Other big news this week is as of midnight last night, the US government has just shut down. Um so um market doesn't seem to care at all about that so far, but uh what implications, if any, do you expect investing wise from this government shutdown? Really, really nothing. Excuse me. Really nothing, Adam. I really I don't think that there's there's anything to to really be concerned about regarding the shutdown. Um, there's data out there and we looked at internally a chart this morning that showed stock market performance and gold market performance during all of the previous shutdowns and it really hasn't mattered. And in fact, as we speak today, and John's sharing that chart right now, as we speak today, the S&P 500 is touching a new high. But, you know, this particular chart shows gold prices and and that's in the white charts in the center during the last three government shutdowns. And I think you can see that really it's nothing. It's a it's a nothing burger by and large. And if you look at on the the left side of the chart shows really I don't see any statistical correlation here or any trend. Sometimes the market's down in the week after. Sometimes it's up in the week after. So I think this is mathematical proof that it doesn't matter. And I could say right now that both gold and the stock market are at new highs right now. So, as far as the government shutdown goes, I wouldn't take your investing signals or cues from that. There's always a solution. Almost certainly there's going to be a solution here as well. All right. And ju just to make sure it's crystal clear, doesn't sound like you guys are making any changes whatsoever to your portfolio allocations because of the government shutdown. Not based on this, Adam. We're going to We always take our cues from technical signals. We not we're not making any any changes based on the government shutdown. If the market does something different, if the market were to collapse or or you or drop severely, we would certainly end up taking some stop uh some stops. If the market goes up even more, which is kind of what we anticipate short term, we're not likely to make any major changes either other than perhaps um tighten hedges, tighten stops, maybe take some profits in that into that type of ramp. But we're not going to get a whole lot more aggressive if the market goes up from here. If it goes down from here, we're going to take appropriate defensive measures. But in the meantime, we're not really doing anything instantaneously based on the news of the government shutdown. We just would prefer to take a wait and see. And if I had to guess, it's probably going to be short-term up versus down. Okay. All right. Well, look, we only have a couple minutes left. Um, Mike, I will come to you for this question. Then John, we'll come to you to wrap it up with um, you know, any major trends you're seeing with the the actual real life people that you're talking to in your day-to-day work. But before we do that, Mike, real quick, um, gold and silver, I think on the day we're talking, uh, I've been recording for the past couple hours, but last time I checked, gold was, I think, back at an all-time high. Uh, silver futures at least, I think, were maybe back above 47 uh, bucks an ounce. So, silver getting close now to its all-time nominal high. Um, anything else to say about the incredible bull run that we've had in the Metals over the past couple of months? Yeah, I'd like to point out a few things on the chart and I'm we're going to use our um charting package, Think Pipes, and and which shows SLV easier than spot silver. So, let me just point out a couple things here as this is coming up. So, here is SLV at 43 right now. Hit another high today, 4340. And as you said, spot is up around 47 or so, about $4 higher than this. This has been an incredible run. This is a daily chart. This light green line is the 21day exponential moving average. Uh we have once we broke out of this area down here, and I'll go to the weekly chart in just a minute. It's been nothing but up. We broke out here from a triple top back in I guess June and it's been really respecting this 50-day moving average and more recently as we've accelerated it's respected this 21-day moving average. Having said that, we're getting really stretched. It's getting hot in here as they say and um there's some contrarian signals. you know, some prospects and clients are talking a lot about gold and silver, asking about them. And even though we believe that they're going higher, we know anecdotally when people start to go all in or or start to want to talk about that more than anything else, it's at least a short-term caution sign. Here's a weekly chart of SLV. We're on uh nine weeks here now straight up. You know, here's the triple top that I was talking about back on $35 spot silver. We were talking about this all during this time. We haven't gotten anywhere near the 21week moving average. Now I remember a few weeks ago you had Sven Henrik on and he likes to use the five period exponential moving average. So let me change that here. I don't know if you can see it but that light green line on the five exponential moving average. Y this market's been walking straight up there. But, you know, we're starting to really put in some white space or in this case, black space below there. You know, all that is to say, we're getting really kind of uh hot. You know, really, really kind of not necessarily overheated, but we're telling people all the time here, if they're feeling nervous, if they're overexposed, if they need money for other things in their life, they should start taking some profits into this ramp. And guaranteed, you're probably going to to, you know, to sell too soon. We don't think you should sell everything, but sell 10% here. Another 10% if we go higher. Another 10% if we go higher. That type of thing. Take a look. Let me just add on to that, too, which is, hey, not only if you're feeling fearful, but if you're feeling greedy, right? If you're really being honest with yourself and saying, you know, you're really just enjoying these daily huge moves up and you're beginning to expect future ones just because that feels like, you know, a natural force now. um that oftentimes is the classic trap that you get in um near the end of a a bull run. Um and so, you know, consider taking the advice that Mike just mentioned. And if you really don't want to sell any of your core underlying positions, um that's fine. There are other ways to hedge. Um we've talked about them before on this channel, but obviously if you want to talk in detail about the full range of options, talk to your financial adviser or give the guys here at New Harbor a call. But the point is is there are lots of different ways to try to give yourself some downside protection if indeed um we are, you know, at an uncomfortable risk of a pullback happening at some point in time. Yeah, absolutely. We can we can we'd be happy to speak to anybody that wants to talk and and talk about how you can use things like options to create collers, both a ceiling and a floor on an asset, that type of thing. But the simplest thing to do perhaps is just to start selling a little bit. take a I'm going to continue focusing on silver because it's been as we expected. It's been better than gold in terms of its its percentage move up lately. Although gold has done very very well um in its own right. But take a look at what happened back in 2010 2011 when silver had its move last time. It had three big months straight up pulled back to the five period uh exponential moving average and then had a blowoff. Here we've have 1 2 3 four five straight up months well off the five period moving average and who knows we might extend further but we shouldn't be surprised going back to the daily chart if we start to get some sideways consolidation here and so who knows maybe this is some kind of shooting star that's being put in today I think this some folks thought that was the case a couple days ago but here we have yet another high just know yourself. The investors should know themselves. And if you're starting to feel greedy, like you said, if you're starting to expect every single day to be up, you know, I know that I've looked at the market each day lately thinking, "Wow, it's up again." And some people out there are probably feeling that it's going to go up forever. It isn't. So, just get to know yourself and again, sell into this rally a little bit perhaps makes sense for for you, for most people. Again, everyone's different. We're happy to speak with your you about your personal situation, but ring the register a little bit and use that money elsewhere. It'll give you more mental flexibility later. All right. Thanks, Mike. Um, okay, John, just uh in our last couple quick minutes here, uh, anything that you are seeing or hearing from the general investing public in your discussions with, you know, the folks in the thoughtful money audience that reach out to you or existing clients? Um, nothing that we haven't already co covered, Adam, that there there has been, and we always get this this time of year, kind of a tick up on year-end tax planning, taking taking stock of where folks are on capital gains or losses and being smart about that. You know, we talked in our feature video with you last week, Adam, about uh year-end retirement um saving tactics, funding IAS, corporate retirement plans, Roth conversions, which can be a a savvy way to try to smartly take elective distributions from IAS, traditional IAS, and um you know, convert them into Roths, pay the tax now, but for for thereafter would be taxfree. I do have to make a correction and hopefully uh some of the viewers that saw our video last week. I misspoke and I apologize for this. So the deadline for for funding traditional or Roth IAS is actually tax filing deadline not plus extensions. So April 15th of next year to make a contribution for 2025. Now SE IAS for example for you know uh retirement plan IAS it's deadline plus extension. So key key distinction there that I misspoke about last week. Uh the Roth conversions I'll remind folks again that's got to be done by calendar year end. You don't end of the calendar year. So just just uh those are those are no-brainer things to be thinking about for folks that are as as we approach year end here. And don't wait till last last day of the year. It's always a crunch for the custodians and and um folks like in our in our our company to handle these things. And it's just never a good idea to wait till the last day of the year. Yeah. Very good. And um yes uh and I also got a lot of interest from folks about doing a dedicated webinar on the corporate uh defined benefit uh pension plans that we discussed there. So folks, I will get busy on setting one up. It's probably going to be earliest later in October, probably at some point in November, folks, just because we've got the conference coming up in just a couple weeks here. Um all right. Well, in wrapping up here, I meant to ask say this while you were talking, Mike. Um, given that gold is now really has been taken off uh gold and silver for a good while now, I'm curious if anybody watching this video has their own has experienced their own um sort of shoe shine boy moment, right? Where uh normally those of us who invested in gold notes that almost nobody owns it and nobody wants to talk about it. Um, but we're now beginning to see more mainstream media articles beginning to cover gold and whatnot. And I'm just curious if folks are starting to hear in their lives, regular people who they wouldn't normally think would be thinking about gold all of a sudden beginning to talk about it. So, if that's happening at all in your life, let me know in the comments section below. That'll be an interesting early indicator. Um, all right. With that being said, uh, let's start wrapping things up here, folks. If you enjoyed having Michael Caneritz on and would like him to come back uh at the end of Q4 to give us his updated outlook for the start of the new year, please let him know that by hitting the like button and then clicking on the subscribe button below. Uh as I mentioned, the uh conference for Thoughtful Money, the online fall conference is coming up in just three weeks now. Uh if you haven't got your ticket yet, get it for it fast. Go to thoughtfulmoney.com/conference. We are still offering our lowest early bird discount price for the conference, but it expires in a couple of days. So again, go to that URL, buy your ticket now. I want everybody to get the lowest price possible for the conference. Also, a reminder that if you're a premium subscriber to our Substack, I've emailed you a number of times now the code to use to get an additional $50 off of that lowest early bird price discount. So, please use that discount when you buy. Um, and lastly, if you would like to get uh some professional assistance in managing your portfolio for the road ahead, whether it unfolds the way that Mike Caneritz thinks it will, maybe whether some of the other curveballs that think the guys at New Harbor think it could happen, or maybe something nobody else has uh envisioned yet, um, highly recommend you get that good professional advice from a good professional financial adviser, one who takes into account all the macro topics that we've uh, talked about here in this video. Uh if you don't have one who's doing that for you, um then uh consider talking to one of the folks uh that Thoughtful Money endorses. These are the financial advisory firms you see with me on this channel every week. Perhaps you'd like even to talk to Mike and John there and their team there at New Harbor. So to set up one of those discussions, just fill out the very short form at thoughtfulmoney.com. Only takes you a couple seconds to fill out. These uh discussions are totally free. There's no commitment to work with the firms. It's just a service they offer to be as helpful as they can to as many people as possible. With that being said, John and Mike, another great week. Really appreciate you guys coming on. Very interesting times. Fun time uh for those of us that have owned precious metals and uh have been fans of them for a long time like you guys have. Uh but as you said, Mike, nothing goes up forever. So, we've got to be ready for the curveballs here as they happen. We look forward to you guys calling the balls and strikes for us here on a weekly basis. So, good to be here, Adam. We appreciate it. and we'll see you soon. Thank you as always, Adam. We'll see you soon. All right, and everybody else, thanks so much for watching.