Pullback Underway? Did The Market Move Too Far Too Fast? | Michael Lebowitz

Summary

• Market Performance: Since August 1, notable market gains include crypto up 26%, AI up 17%, and small and mid-cap stocks also up 17%, reflecting a strong rally in risk assets.
• Geopolitical Impact: Despite potential peace developments in the Middle East, historical analysis suggests such geopolitical events have limited long-term impact on market premiums.
• Technical Analysis: The S&P 500 shows a steady upward trend with minimal volatility, supported by technical indicators like the MACD and RSI, though potential divergences suggest caution.
• Speculative Behavior: Current market trends resemble the late 1990s with high speculative activity in sectors like AI and crypto, raising concerns about potential overvaluation and market corrections.
• Sector Rotation: There is a notable underperformance in conservative sectors like utilities and staples compared to high-growth sectors, indicating a risk-on market sentiment.
• Precious Metals and Dollar Dynamics: The rally in gold and silver may face headwinds if the U.S. dollar strengthens, as a dollar rally could impact speculative assets across the board.
• Investment Strategy: Investors are advised to consider risk management strategies, including profit-taking in overvalued sectors and exploring undervalued sectors for potential rotation opportunities.
• TIPS Consideration: In anticipation of potential inflationary policies, understanding TIPS (Treasury Inflation-Protected Securities) can be crucial for managing bond investments effectively.

Transcript

So, what I'm showing you here is on August 1st, we introduced a series of new portfolios that investors can invest in. And they're they're they're our core portfolios, which are variations of percentages of stocks and bonds. Uh so you can see we have an a AI a growth an infrastructure small cap high dividend and what we can do is use these portfolio. You can invest in these portfolios but you can also just use the portfolios as a gauge of what the market's doing. And if you look at the top there look at the gain the P&L since inception. That's since August 1. That's two months. Two months in a week. >> And unbelievable. >> Crypto's up 26. AI's up 17. Small and midcap are up 17. Um it it's truly stunning. Welcome to Thoughtful Money. am Alpha Money founder and your host Adam Tagert. Welcoming you here at the end of a week for another weekly market recap with my good friend, the portfolio manager, Michael Liowitz. Mike, how you doing? I'm >> doing great, Adam. Great to be here. >> Thanks. Uh, folks, Mike is standing in for Lance. As you know, Lance has a lot going on right now. Um, so Michael very kindly is stepping in in hisstead and maybe doing so a little bit more frequently going forward, but that's okay because who needs that Lance guys anyway, right, Mike? >> Yep. Different uh different change of pace, too. Maybe we'll get into some things Lance wouldn't get into. >> Yeah. Well, anyways, Michael, when you're on, you definitely have a big following here of folks saying, "Hey, you need to have Michael on more often." So, hopefully we're pleasing them today. Um and and talking about pleasing things, um the world got potentially some of the best news ever last night, uh with the announcement that um apparently uh Hamas uh just agreed to the um proposed peace plan that the administration's been trying to broker with many other world governments uh between Israel and um and Hamas. Israel had already signed on to it. So presumably, unless there's a real curveball here, we might be seeing the start of a new peace uh in that part of the Middle East. Um I personally don't give it 100% probability. Um I'd like to give it as much as possible. I want to be really hopeful here. Um so I'm going to be. But this um in the interim, like I said, until until somebody potentially throws a wrench in the spinner here, this is pretty fantastic news. Yeah, it's certainly uh hopeful. You know, unfortunately, we've seen this on and off for the last what's it been 75 years. >> Yeah. >> Since they founded Israel. So, we'll see. I mean, but but they are dealing, you know, with Hamas. Hopefully with Iran who's behind Hamas and uh hopefully they can get to real peace in the area. That would be a boon for the whole world, not just that area. >> Yeah. So, let me ask you this, Michael. Um, I've asked Lance periodically about some of the big conflicts in the world. Um, you know, okay, what would happen if we woke up tomorrow and the newspaper said a Ukraine war over, right? And Lance had said, you know, because you guys do a lot of historical analysis. He says it's really markets aren't really moved much by that stuff. And hey, sure, maybe there would be a pop in the market if if if peace were announced, but it wouldn't be something that he would expect to really add a material, you know, new premium, sustained premium onto the markets. And um curious to know if you feel the same and and interestingly, at least, you know, this morning we're talking here uh after the um the news of the deal, um you know, markets are down a little. >> Yeah. uh on a one-off basis, I agree 100% with Lance. If you could tell me that the world will be at peace for the next 50 years and that China, Russia, the US, Iran, whoever else will all get along, everything will be great. That deserves more of a premium. But no one's going to tell us, no one can tell us with any certainty that's going to happen. So, you know, yes, you get resolution to to it to some problems and then other problems pop up. I mean, look, the market's been rallying ever since the Ukraine Russian war started. The the the markets don't seem to care too much about it. Um, obviously, the US government and other governments have been funding Ukraine. That's money that has been borrowed. That's had an effect on the fixed income markets to some degree. Uh it's a very unproductive use of money that has an effect on an impact on economic growth in the longer run. So there are some impacts, but daytoday, week to week, even monthto month, I think those impacts are very minor. Unless you can tell me again that we're going to have peace for the next 50 years, which point the market I think would really would change the longer term trajectory of the markets. >> Okay. Um yeah, I don't think anybody right now, even the most optimistic, feel they can make that promise. Uh Michael, but maybe this is the first Well, you would you would need a first step like this to get there. So, let's all hope that this is that first step. Um folks, I should have mentioned too right from the outset, Michael and I are recording this on Thursday. I think I gave everybody a heads up of that last week. Um but um we had to do that because of my schedule this time, Lance's and my schedule, but but but more mine now. Um and so we're missing obviously in this conversation whatever happens tomorrow, Friday. Um so hopefully the markets don't do anything too crazy tomorrow, Michael. Um, all right. And and then also folks too, just a quick reminder, we are um basically by the time you're watching this, we will be one week away from the thoughtful money fall online conference. Um, so that's obviously October 18th, Saturday. Um, if you are thinking about attending the conference, and you should. It is our best faculty ever this year, and it is probably the most timely conference we've ever had given everything that's going on in the world right now and all the uncertainty that lies ahead for 2026. So, um, if you haven't bought your ticket yet, time to go buy it. I think in you still have about 36 hours if you're watching this the the, um, morning this video comes out, uh, to get your ticket at the last chance to save price before it ratchets up to full price. And I would like everybody to not have to pay full price. So, if you haven't got your ticket yet, go get it now at thoughtfulmoney.com/conference. And if you um are a premium subscriber to our Substack, look for the code I've been emailing you that you can use to get an additional 50 bucks off of that. All right, Michael. So um fair amount to talk about here. Um you have done me a service. Um as you know, I put together a whole bunch of lists of topics here usually, but you've actually already put some slides together for me for the items that are kind of burning most brightly on your radar right now. So maybe I should just hand the baton over to you and let you go through those and then we'll we'll we'll pick it up on the other half of that. >> Yes. So I put together a few I guess what I would call topical type charts. I know you and Lance always kind of uh start off with the S&P 500. So maybe that's a good place to start. >> Let's do it. >> Okay. So what you can see here is three graphs within the graph. Top one is the MACD, the bottom is the RSI, and the middle is the S&P with a lot of lines and colors all around it. But >> although I follow Lance enough to know that there's a negative divergence going on here, so you'll explain it to us, I'm sure. >> Yep. And you know, I think most important is just this blue shading kind of uh covering the S&P going up with very little volatility. It's a beautiful trend if you're an investor. That's what you want to see in any asset. Just a nice steady incline, and that's what we've had. That red line is a 20-day moving average. And you can see that for the most part since May, it's stayed above that 20-day moving average. There were a day or two here or there where it went below it, but it didn't hold it down for long and it popped back above it. Uh we really haven't been below it now for two months. Uh again, just pointing to the steady incline. The MACD at the top, the moving average convergence, divergence, convergence, divergence is one of the more interesting I've ever seen. It's it's almost turning into a flat line. The red and the blue line just paralleling each other. Kind of going back and forth, but not but not really as volatile, not as oscillating as it typically does. And I think that points to the nature of the market. The MACD does. We're in a bullish trend. So the MACD is above zero, but but the bulls or bears can't really get ground on each other. The bulls kind of have kind of steady they're they're kind of winning the race, but but the back and forth between the bulls and the bears is kind of constant result, you know, but with the bulls having more strength. So the trend is upward, but it's not spiking upward. You're not seeing big drops. It's just this steady uh think of it like a tug-of- award. The Bulls are winning versus the Bears, but they're only moving the rope an inch a minute or something very steady. It's uh you know it, but it's irregular how flat that the two lines are compared to each other. And you can see that darker line above it is the divergence that you talked about that it's slowly the the the levels in the MACD are slowly uh the peaks are are declining. So that's called a divergent top. That can be a warning. Same with the RSI, relative strength index or RSI on the bottom. Lower highs. Um none of it is overly concerning. It's really kind of telling you what the market is doing. What I would pay attention to are the moving averages, the red, the blue, and the black lines. That helps give you a sense of risk management. If the market's going to sell off, the first line of support will probably be the 20-day moving average, which is um at 664. We're at 672. What's that? 2% and a half. Not that big of a deal. We could easily do that today, tomorrow, Monday. Uh then you get the 50-day moving average at 650 and the 200 at 600. At 600, which would be a 10% decline, a little bit more than 10%. So that provides a little risk management. You know, from from my perspective, what I want to see is how does the market handle a slightly bigger draw down than we've seen. So call it four, five, 6%, market drops a few days pretty quickly. Will will investors buy the dip or will they hop back in? If they hop back in, do we set a new high? Which tells you that the the the bulls are still in control. Sellers took a stab at it. They lost. Bulls took the reigns again and the market will probably trend higher from that point. Conversely, we we have a decent drop and I expect to see the buy the dip, right? Anytime the market goes on sale, doesn't matter what the price is. If it goes on sale 2, three, 4%, the uh you know, people come in and buy the dip. But what if they only buy it up halfway to the prior high and then it starts fading again? Well, at that point, the the bulls may become a little discouraged and the bears are saying, "Wait, maybe I should sell more. maybe I should short and they become a little encouraged to to kind of push their positions a little. So that could be the first sign of a of a bigger change in trend. That's where we may have to start worrying about the 50 or the 200 day moving average or other levels of support that are decently down, not just a few percent lower. Um move on to the next graph. I think what's really been uh amazing about this rally, it's not really the S&P, that's been on a steady glide path. It's been risk assets. And uh you know, the more speculative the better. The higher the beta, the better. And it's not just stocks, it it's assets in general. So, what I'm showing you here is on August 1st, we introduced a series of new portfolios that investors can invest in. And they're they're they're our core portfolios, which are variations of percentages of stocks and bonds. Uh so you can see we have an a AI a growth and infrastructure small cap high dividend and what we can do is use these portfolio. You can invest in these portfolios but you can also just use the portfolios as a gauge of what the market's doing. And if you look at the top there look at the gain the P&L since inception. That's since August 1. That's two months. two months in a week >> and unbelievable. >> Crypto's up 26, AI's up 17, small and midcap are up 17. >> Um it it's truly stunning. And then down below I I take uh the three portfolios and I I kind of cut cut part of the screen. And what I wanted to show you was the top gainers in those portfolios. Look at the crypto. BKKT is up 356%. >> In two and a half months, >> you know what they do, Adam? >> No idea. >> Okay, so they are a company that bought a kimono maker out of Japan. They are going to turn that company into a crypto holding company. >> That's like the thing to do these days, right? Help me understand this, Michael. How does that give you this instant incredible juicing? >> I I don't I I don't understand that, Adam. If if it should rise and fall with the price of crypto if that's what they're going to do, but clearly crypto is not up 356%. Um, are they using options? Are they using tremendous amounts of leverage? Maybe. Um, but it's stunning and we do rebalance these portfolios. We've sold the stock three times. We've already taken twice as much money out of the stock as we originally put in it and our current holding is still uh 25 30% more than our original investment. So, if you do own some of these stocks, congratulations. That's awesome. But don't be don't be afraid to take some profits along the way because this is a bubble in certainly in some of these stocks and you can see in the circle in the AI portfolio and small midcap in these portfolios gains of 30% or more you know up to over a 100% for some of these stocks again in two months Adam >> right and some of these are are are big companies like AMD. Yeah. Well, AMD just had to deal with open AI. >> Yeah, >> that's a whole different discussion. I probably should have included a uh graphic that's been floating around showing the relationship Open AI has with Nvidia, with AMD, with uh uh Coreeave and and many other companies. And this money is just circulating back and forth. And it's it's healthy in one respect because everyone is helping fund each other meet these goals, but it also creates an Achilles uh heel in in, you know, a potential big problem. If one of those bigger companies fails, what does that mean for all the other companies? What if O open AI can't be competitive? What if they just can't produce revenue? Right? So, so it's potentially a problem in AI, but for now it's like AMD is what up 30 almost 40%. Most of that came within the last four or five days on their announcement announcement with Open AI. Um, >> Michael, I'm just curious because, you know, we spent a little bit of time talking about this recently on the program. um you know that recycling uh it does introduce a lot of counterparty risk as you mentioned right if they're all dependent on each other what happens if one of them stumbles um but you use the term healthy and I'm I'm I'm struggling agreeing with that term um and and you know one because this smells a lot like the vendor financing that we saw during the dotcom which which we knew was a lot of sort of vapor revenue um And you know e even with say Nvidia gives money to you know one party who gives it to another and then they go back and buy Nvidia chips with it. If you're sort of financing your own sales um it gives a false impression right? You know Wall Street's going to value you on a multiple of sales. So it might say oh your sales are going up so we're going to we're going to increase your market value. But if you were just taking money off of your own balance sheet and and giving it to somebody to eventually give back to you, that's not really any net gain. >> No, no, you you are. The word healthy was not the right word. U it's helpful for the companies involved for the time being. They're getting funding >> meaning for their their immediate self-interests, but >> for their self-interest. >> Yeah. and for the development of AI to some degree at least for the companies involved because they are providing funding to each other like deal like dealer financing right um it allows it allows stores to buy goods u so you know it it it helps it's helpful it's not healthy you are correct there I agree with you 100% and it does create big potential problems because If someone stumbles, everyone stumbles and potentially falls, >> right? And my my point too, which you don't necessarily have to agree with, but is that it >> it it gives a false sense of the true value of of the company that's doing the lending and therefore you get overvaluation. >> I agree 100%. I I agree. This is potentially masking problems as well because they can kind of paper it over with money for the time being. Uh, it also creates some odd relationships. Nvidia is giving money to Open AI. Open AI is taking that money and giving it to AMD to buy chips. Well, AMD is really Nvidia's only competi potential competition. >> Nvidia has a huge moat and they're very successful at creating that moat. And now Open AI is basically giving AMD a pickaxe to try to knock that moat down, to try to get in there, to try to create competition for Nvidia, which means if they're successful, lower profit margins and potentially lower revenue. So, it's creating some strange bed fellows as well. >> All right. All right. Well, Michael, look, um, I've had a lot of people on recently sort of talking about whether AI is in a bubble or not, so I won't rehash that here with you, but given your your substantial career as a market analyst and portfolio manager, um, seeing these valuations again, not just in AI, um, but in not even just in the speculative, uh, themes here, but but even just some of the basic ones, small midcap stocks, for example. Um, how nervous, if at all, does this make you to see things running this hot in such a short period of time? >> I don't know if nervous is the word. Uh, you know, what it reminds me of is 1999, 1998 in in so many different ways. Um, you know, back then the markets were doing were rising. They were doing really well. They were shunning value, shunning dividend stock, you know, shunning conservative stocks and the leaders were going up going up nicely. And then you had all these other stocks that had.com in their name or fiber optics or or things that kind of were involved in the internet. And those were the stocks like the BKKT that we mentioned that would just go up 50% in a day just because uh that that were just creating these gains that were astronomical and the chase was on to get the next big AI player regardless of whether they were going to fail in a year or two. Um, so you know, the problem is in 1988, 1998, the market had a big hiccup on the Russia long-term capital thing, and that's when it took off. From that low point to 2000 was a year and a half or so, a year and a quarter. So, you know, the problem is that what we've seen since April, call it, this could go on till next summer. That's still potentially a long ways to go. Uh if you look at Cape, a lot of people look at Cape and say, "Well, in 1999 it got up to 44 and we're at called 41 right now. That's pretty close." It is, but in 1997 the cape was 29, which is the same level it was right before the Great Depression. So you could have said back then, we're at Great Depression levels. What are we doing here? Out. Let's get out. We're done. And you missed two and a half years, two years of incredible gains. So, does it make me nervous? It makes me anxious. It makes me very uh pay It forces me to pay close attention to a lot of different things. trying to find the chinks in the armor that that that are telling me that something may be breaking and that that it could be pulling not just one little sector like I saw a graph today of uh the four big private equity public companies like Apollo, Citadel, Carile, uh forgot what the fourth one was. Their stocks have what's >> KKR maybe? >> Yeah. Or Fortress. What? I forgot which one. doesn't matter. The their performance has not been that great lately. It was doing really well and there's been a huge rush into private equity, speculative like all this other stuff. So, so you're looking for things like that canary in the coal mines u that are telling you something is changing that the speculative uh sentiment may be shifting and that's what we have to be super receptive to today where in other markets you don't have to be as receptive. So >> it really uh forces you to be on your game day in and day out. >> Okay. Hey, two questions on this one. Um, quote by Chuck Prince, the former CEO of City Bank, um, right leading right up to the great financial crisis, >> uh, when asked about the exuberance in the market, said, "Yeah, you know, things look look kind of richly valued here, but the music's still playing, and when the music's still playing, you got to be out there on the dance floor dancing, right?" And that did not work out well for him. Um, City Bank got got absolutely clobbered in the GFC. He lost his job. Um, and obviously a lot of people got got clobbered as well there. Um, but but is that essentially as a capital manager sort of what you need to do is is um to your point because you don't know the timing. You don't necessarily want to leave the dance floor and then realize that the dance is going to go on for two and three more years. But at the same time, you do want to try to, you know, like like everyone, I'm sure, on the dance floor telling themselves, well, I'm going to be near the door and I'm going to be one of the first out the door, which of course mathematically everybody can't be. But how how do you deal with that tension? So, let's be clear why City almost went under and probably would have gone under without the government because of their stupid investments in subprime because of all the games they were playing and allowing to be played in subprime. So, they were in the riskiest assets that that had stupid valuations, right? So as we dance, we could be dancing a slow dance or a fast dance, right? So we could be owning a bunch of BKKTs, which could which could kill us in in a day or two, or we could own a bunch of utility stocks and dance with those that are just going to have a slow grind higher. So So what's in your portfolio? How are you positioned? And with our clients, we are in balanced portfolios. We have stocks and bonds. Within the stocks, we have some some of the high-f flyers and we have conservatives. We have the Proctor Gambles of the world, the Duke utilities. So, so I guess it's it's the analogy is tough, but it's how are you dancing? Not really are you near the near the exit, but when that music stops, what does your portfolio look like? And City had a really bad portfolio. So the way we manage it is with balanced portfolios with diversification with active trading so that we can reduce our exposure when when the time comes but we're not you know it's the amount of exposure we have to begin with is nothing like city as a comparison or bunch you know some of these people that own just crypto and crypto stocks and the AI craze type stocks So it's important to understand what you own. >> Got it. And yeah, I mean in any richly valued market, it's the folks that are blindly long um you know some sort of theme or narrative who get hurt the most when it reverses. Um so obviously your point is is look have have intelligent uh risk manage you know be intelligent what you invest in in general but but also have intelligent risk management practices in place. you know, harvesting, position sizing, diversification, >> not being fully long. If you've seen, you know, some warning signs out there, holding more cash, you know, all sorts of things. >> And and look, just take profits if you are in some of this stuff. There's nothing wrong with taking profits. Take that money, put it aside. Um, certainly nothing wrong. C >> can I ask you this because I hear a lot of novice investors make this comment. Yeah, Michael, I mean, I hear you telling me that, but but one, I think this thing's still going higher, but but but even if I'm, you know, that's uncertain, man, I've got so many gains, I'm just gonna have a big tax bill. And I I' I've heard from seasoned investors like you is that you should you should almost really never let the tax implications influence the decision whether or not to take a profit. Um, if you've got a profit and you want to realize, I mean, profit's not real until you realize it. You know, you can you can save a lot of capital gains taxes if you ride something that went way up, way back down again. >> Have I told you my CNQ story? >> Not that I recall. >> It This was my lesson in taxes. It was 2007 or eight. Remember when oil got up to like 150 a barrel? >> Yep. >> And I own shares of CN Canadian National. They were doing the uh the the oil sands up in Canada and uh the stock was going gang busters. So I was like I'm going to sell this thing. Oil's 150. None of this is sustainable. I didn't have a good This was I believe in March actually of08. I didn't like what was going on in a broader markets and I had a big game. I'm like I'm out. So I go click in to trade and I was like wait before I do this I've held this for a while. let let me see if I have a long-term gain on it or not. And I look and it was like a week off or not even a few days off from being a long-term gain versus a short-term gain. The damn thing fell like 20 30% between the short-term and long-term gain. And that's that was kind of a big lesson for me. Just take your profits, deal with the taxes later. You don't necessarily have to take it. you can hedge, you know, and we do that for some clients. We'll buy puts, we'll write calls. There are various things we can do to kind of protect the stock if you just don't want to take the tax game. But generally speaking, tax is important, very important, but that's kind of the second order. Focus on the risk and the potential returns. >> Okay. All right. Um well folks, yeah, if you're watching this and you're sitting on some pretty tasty gains from this year, which I'm guessing probably a fair amount of viewers are, um just listen to Michael's counsel here and ask yourself if you shouldn't be maybe trimming some of those back, realizing some of those gains. Obviously, if you want to get some help in making that decision, you can talk to your financial adviser or if you don't have a good one, talk to one of the ones that Felful Money endorses. You could talk to Michael and his team there at RA if you want to. Um, all right, Michael. Um, I think I I I slowed Oh, sorry. I did have one other question for you, though, before we get to your next chart. So, you mentioned um that the publicly traded private equity stocks um have have all of a sudden shown a little bit of softness and I was interviewing Jesse Felder the other day and um he that definitely caught his attention and you know he thinks it's it's tightly connected to the surprise collapses that we've seen and some private equity funded uh companies and first brands most notably >> and uh and I I just seen some of the recent headlines on those. I mean, it's they they do sort of sound a little bit like the great financial crisis and in in the way that they're like, "Hey, we're looking at this company that just lost like $2 billion. We have no idea where it went. We have no idea how they wasted this money, this capital." >> Um, so it does seem like some funky things may have been going on, just like there was a lot of funky stuff going on during the subprime crisis. Um so you know private equity and private credit in particular uh has you know they they've grown a lot in recent years uh to the point where there's a lot of there's a substantial amount of of lending now to the corporate fleet that's done through private credit and private lenders aren't regulated the way that banks are and it's a very opaque and I think I'm being generous environment. In other words, we just don't really have much visibility into what loans are being made, what the quality of those loans are, etc. And so, an open question is is well, hey, are these private lenders lending prudently, you know, or are they making reckless loans that we're not going to find out about until they explode and the bodies start floating to the surface just like First Brands just did? >> I mean, I guess first of all, everyone's different, but it's valuations like anything. there's you know are you getting the right price for the risk that you're taking that's the same thing we do as an investors in big stocks that private equity firms do with what they do that private lenders do in the way they they operate so so the question is are they are they being forced to buy things that are expensive or are they just slowing down their investments because they can't find anything and every one of them is different. They they'll give you different answers to what they're doing. So, that's kind of the question for them. Are they chasing? And if they're chasing, that's where they're going to end up on the wrong side u more often than not. Um so you know it you don't you don't have much insight into these funds but if you do and you can ask the portfolio managers that's a question I would ask is are why are you still bu are you still building are you still buying despite cap rates being low or or just the yields on your investments being low or the the potential return on the private equity not being as high as it used to be. Mhm. >> So, you know, potentially you can ask those questions, but again, it's it's tough to really know what's going on. >> Yeah. And so I guess my question to you is is how how concern how how actively do you think about the risk of hey the the the credit market credit system might be a little more vulnerable than we all appreciate right now because we just don't know what the the quality of these private credit loans are going to be and if we're going to have more surprises like we we've just started to see here. Um, is that something that you you kind of actively think about and monitor right now or is it sort of like, look, I I I can't see it, so I'm just not going to really factor it in until it emerges. >> No, I see it. Uh, I think about it. And in fact, that's kind of a good segue to my next graph or next graphic. So, let me click on that. >> And what we're seeing, so you're talking about like private lending, private equity, right? >> Yep. Let's go to the to the corporate corporate world. AAA, single A, triple B, big companies, right? What are they doing? So everything you're you know that we were talking about the chase, the speculative fever is going on in the corporate bond markets as well. And you know again that this kind of risk averseness is very widespread and it's easy to point out some AI stocks and crypto and gold private equity but it's going on in some safer markets too right doublea bonds are not going bankrupt most likely you know um but but they're spreads so when we talk about a corporate bond spread that's the yield of the corporate bond versus the yield of a comparable treasury. So a five-year corporate bond to a five-year treasury. What's that difference? The US Treasury is considered risk-free. The corporate bond has credit risk. Company can default. Um and that that that premium can change over time which introduces price risk if you're not holding to maturity. So this is from our simple visor and the what I'm showing is the tripleB spread uh in the graph and that's the spread again of a tripleB bond index. So TripleB is investment grade but it's the lowest level of investment grade but it it it incor incorporates many well-known companies of which they're very wellrun and they will be around for the next 5 10 years if not more. Uh they have a very low historical default rate. Um but you can see its current yield on the sort of the left is 0.95. So, so you're getting paid almost a percent more than a US Treasury to buy a tripleB bond. Then you kind of look over at the graph, actually the circle area, where does that stand in relation to where it's been in the last 20 years and 28%. So basically, it's the lowest it's ever been. >> And the reason it's not zero is probably because it was zero. It was slightly lower a day or two ago or in the last couple weeks. And if you look down that line, they're all basically at zero. C is a little bit higher, but but they're all at historical low levels. And that's what the graph is showing you, too, going back to 2008, that that spread is at 0.95, well below the 20-year average of 375. And I drew a dotted line there at at 2%. Even just to get up to that level would imply yields have to rise by 1%. So on a 5-year bond, that could be pretty that could entail a 5% change in price. >> Mhm. >> So So you're picking up 1% on a tripleB bond a year. you could potentially lose 5% in a day if that spread were to instantly go back up. Uh more concerning, I kind of think about this in more of a recessionary environment. Not necessarily that the yield of the corporate bond will rise necessarily. It could, but that Treasury yields really fall. So, when we talk about this spread, maybe it widens out to 2% because the five-year Treasury drops 1% and corporate bonds stay where they are. So, how does that make you feel if you're buying a corporate bond and yeah, you earned 1% over treasuries, but treasuries gained 5% in price because their yield fell and yours didn't. Yours stayed the same. So, you know, again, this is just another way of showing that there really is this very risky behavior in very risky assets and very non-risisky assets that's going on. Um, and so, so the question is, and I put together a couple screens here that I'll start with the bottom left. What that shows you is the relative performance to the S&P 500 for the different sectors. And look how many sectors are down 20% or more verse the S&P 500. So the S&P 500 has beat those looks like five of them five of the sectors by over 20% over the last year. And there's three sectors that are beating the S&P 500. So what's be what's happening here is that you're you have your winners and your losers, your outperformers, your underperformers. And uh what's interesting is if you look at those underperformers, it's utilities, it's staples, it's energy, financial, right? It's the um more conservative, the higher dividend paying um sectors, right? So again, just one more way of showing you risk on behavior. >> Yeah. Nobody wants value. They just they just want growth slashsp speculation, >> right? Again, and what did we see in 99? So So you kind of talk about about, you know, you know, like the dance floor or the the move the old proverbial movie theater when there's a fire, you want to be the first one out the door, right? You don't have to be out the door. You need to think about what sectors have grossly underperformed and may do just fine. In 2000 and 2003, that was small cap. That was value. Some of that stuff did really well. It didn't just beat the market because the market was down 50 and it was down 10. It was up. So, so part of understanding where all the speculation is is also understanding what's been left out, what's been kicked to the curb. And >> yeah, and Michael, sorry, let me just interject for a second because folks I hear from a lot of folks that um you Lance talks about this a lot that investors they they tend to think of investing as binary, right? I got to be in the market or I got to be out of the market, right? It's sort of an allin either way, right? And when they think about, oh gosh, you know, there's a lot of overvaluation in today's market. I think it might have a big correction, they think that everything is going to go down. >> Right. >> Right. And I just want to underscore the point that I hear you making here, which is that like, hey, you know, sometimes that happens, right? Sometimes like in 2008 when the credit market sees up and everybody starts, you know, stops trusting everybody else. Uh, yeah, there's a there's a big vortex that kind of takes everything with it. But probably much more often it's a rotation of capital. It's hey, it's coming out of these super highly speculative areas and it goes to the unsexy parts of the market that you know didn't get caught up in the speculation, >> right? That that's a huge point. 2008 was a liquidity crisis. The the whole banking system was borderline bankrupt, right? 1999 was a valuation coupled with a recession and that's where you had your rotation and that 1999 experience while severe is much more representative of other recession market downfalls uh where there's actually a rotation. People are selling but they're buying something else. And so again we look at all the speculative stuff and we can marvel at it. we can even participate a little bit but understand what else there is what what's being left out and what I did was a simple simple simple visor uh analysis towards the right of the screen again a lot of confusing lines but that top graph with the blue and that that trend arrow is the price ratio this is over the course of the year I just realized I cut off the dates at the bottom this is over the course of the year you can see that the price ratio of XLP, that's the staples sector, has just been falling constantly to the MGK, which is the meggaap uh ETF. So, basically, staples have been decently, you know, consistently underperforming mega caps. That's no secret, right? We can see it in that bottom left table. But what what's interesting is that first that second line with the purple and the gold that's a propriet proprietary model that we have. It's somewhat similar to the MACD but a little different. And you can see it's very oversold at this point potentially turning around flipping to a buy signal which would mean you buy XLP you sell MGK. Um the bottom indicator is a stochcastics model. That's kind of similar what our model is telling you that we could be approaching a flip. And the uh the MACD in the middle is kind of telling you what we saw in the MACD. It's just kind of going nowhere. It's drifting. Um but again, just because these the stochastics in our model flip, you could see they flipped before and it hasn't meant much. It meant Staples went up a little bit versus MGK and it was very short-lived. Uh so, you know, maybe it just means the S&P is going to fall a few percent, Staples will outperform, large cap will underperform, and then we just go back on our merry way back up into that upward trend. But, but I but where I would caution, I think what you you said was very appropriate, Adam. Just because the market is overvalued doesn't mean everything is overvalued. And you know if pees if the market PE was eight like it it's been down there I would be so unconcerned about the economy about the macro environment about anything because I'm buying something so cheap that my downside is very limited my upside is spectacular. We're at the exact opposite end of that. So just because the PE on the market is the KP is 41, that doesn't mean there aren't stocks that don't have a PE of 10 and there are stocks with pees of 200 or 300. So you know kind of separate out markets indices from individual investments. And I think that's uh you know equally important to watching the fireworks is understanding what's what's being shunned. >> Yeah. A um and again I think we beat this this horse enough but um you know a way to hedge um yes you can go more to cash but a way to hedge just might be well maybe I'm going to find some blue chip value stocks that are you know paying a nice dividend and have done so for a long time and are trading at you know reasonable to low valuations here and I'm going to park in that and get paid for a while and and maybe you know maybe the party still continues But I'm still on the dance floor somewhere dancing with somebody. Um, >> right. >> But if uh if all of a sudden the popular girl that everybody wants to dance with suddenly becomes unpopular, you know, maybe everybody wants to start dancing with my partner. >> Exactly. Exactly. Um, so that's a good point. So if you don't mind, you want to move on to uh the dollar, gold, silver? >> Let's keep banging through. Yeah. >> Um, I'm going to start with silver. I was originally going to do this in the opposite order. This is silver going back to 76. Can you see it with your silver eyes, Adam? >> I can see it with my silver eyes. And I don't know if anybody can see me in the small thumbnail here, but I I've just started wearing readers. Uh, so I can see it even better these days with my >> Oh, no. I meant your Twitter picture. >> No, I know you did. I know. I know you meant my silver laser eyes now in my Twitter. >> Silver laser eyes. So this is a graph of silver and it gives you some perspective for what it's done in the past. And to me it's a little concerning if I own silver. It's had spectacular runs right from 5 to 50 in 1980 from 5 to 50 from 2004 to 2010 and more recently from 15ish to to near 50. I think it actually went over 50, didn't it? Or it's very close to 50. >> It's very close. Well, actually, just just just to emphasize your point on how volatile it can be. Um, in the past, uh, really pretty much since we've been talking, um, silver spiked up to just under 50. Silver futures spiked to just under 50 and now they're down to 48. So, it's already shaved two bucks an ounce off in the what 57 minutes we've been talking, >> right? I mean, look, it's gonna hit resistance at 50. Maybe it's going to 80, but it's going to slow down at 50 for a few minutes. Uh, but my point here is you see those spectacular runups and they're both followed by spectacular falls. And that's what you have to be careful of is that this is this a bubble or is this truly the end of the dollar? Um if it's the end of the dollar, I'd rather be in gold. Gold is really considered among the the precious metals the most moneylike. Um so, you know, if you own silver and you're doing well, that's great. Congratulations. But if it keeps going up, does it mean that the dollar's in trouble? Because if the dollar is really in trouble as the world's reserve currency, you know, all the roles it plays, you have much bigger problems. Silver's a nice hedge. That's great, but we got much bigger problems. So, um, this is gold. Uh, gold hasn't been as volatile as silver in the past, not even close. And it's it's a scent from late 22 23 has been nice. I mean I mean it's a what is that a 250% gain? 300% >> from back then. Sure. >> Uh but but the but the the thing to keep in mind is that even if gold's in a bull market and will be for the next 10 years, it's extended. Look at its 50-day moving its 50we moving average is down at 3,100. That's a 25% decline to get to a key moving average that even if it gets there, so what? It's still on trend, right? So, you know, consider that you may be right there. You know, if you're buying gold and silver, you may be right that they're going higher in the future, but don't lose fact. Don't lose sight of the fact that they may be very overdone in the short run and could fall 20 25% just to get back to a meaningful trend line. Um so the question is what would be the culprit of that? I don't see fiscal responsibility as being the culprit. Um hard to see the Fed doing anything that would really tell gold and silver investors I got to get out of gold and silver. Fed is so great. They're doing everything perfect, you know, and again, same with the government. The dollar, I think, is the one and and Lance has been on this. I'm kind of stealing this one from Lance. I I think the one thing that could happen in markets that really investors aren't prepared for is a dollar rally. And what I'm showing you here with this graph is that the dollar has been bottoming since April, since really since the the whole tariff liberation day uh event. And I've circled the two double bottoms. Typically markets bottom market bottoms are are you can predict them a little better if they're double or even triple. We have a double here. You can see that darker line going across has acted as resistance. It acted as support before June. It's a line. We've slightly gone through it. Not incredibly meaningful. You got another sort of support resistance line coming in at 100. I But I think, you know, most importantly, we're above the 20-day. We're above the 50-day. The 200 day comes in at 101 which is 2 3% 2% above here that may start getting changing the behavior within the foreign currency markets on the bottom you can see the MACD divergent bottoms right that's a that's a bullish signal so you know if you're in this camp that the reason gold's going up is because the denominator the US dollar is going down. I'd be a little careful with that argument right now because look, the dollar is no great shakes, but is euro is the yen or are or it's the pound is the yuan. And when you're looking at the dollar index, it's not just the dollar on its own, it's the dollar versus other currencies. So, you know, make sure you you understand that perspective u and that there is a risk that the dollar could not only grind higher from here that it could jump because there's a huge number. Zero Hedge had something out on this I think or market here through Zero Hedge that there are a lot of dollar shorts out there and if dollar shorts have to cover that could be very that could push the dollar up rather quickly um and cause problems. And look, we saw this with the uh the Japanese yen. I think it was April of 24 or August of 24. Remember when the yen appreciate appreciated quickly and what problems that caused >> the whole carry trade blew up? >> Yeah, >> that was the yen. This is the dollar. Whole different ballgame. So, you know, if you are in precious metals and if you're in crypto and if you're in AI related stocks and some of these other speculative ventures, keep an eye on the dollar chart. I think that's that's the one that that people aren't really looking for that could really change the tone of the markets. >> Okay. I really appreciate you doing that. You know, I we talk about precious metals a lot on this channel. I have been saying of late uh that if you're sitting on big gains, you should consider at least hedging, if not taking some profits there, as you and Lance have, uh, you know, always strongly recommended, no matter the asset class. that that's appreciated so much. Um, and I, you know, there's that old expression, um, born on third base and thought you hit a triple. Um, I mean, I I think look, that longtime gold, uh, and silver investors, I think, are getting some very welldeserved, >> uh, uh, you know, um, fruits of their labors in terms of they hung in there. there's some really hard years and I think their thesis is proving out here. But um we've had a weakening dollar now for a good while and I think people begin to to sort of just take that tailwind for granted. Um they just they kind of forget that it's there and they think that oh well this trade's doing so well because I'm so smart and I foresaw all this not realizing how much of a role the falling dollar might be playing there. So, no guarantees here. And and you know, Michael, there's historically been a pretty inverse relationship between the dollar and the prices of price of gold. Um, but it's not a law of nature. You know, there are definitely periods of time where they've both risen and fallen together. So, if there is a dollar rally, it doesn't doesn't automatically mean that gold is going to suffer. But I think you're right, Michael, that it is probabilistically more likely than not that it would cool uh gold's uh fervor here. So, um it's just a risk factor that I think folks need to pay attention to. And just back to your earlier council to folks, which is, hey, if you're sitting on big gains right now in the precious metals in general, you should be, you know, locking some of them in and and and um uh, you know, practicing good risk management, but specifically because of the potential here for the dollar to make a a big rally. You know, that's a risk that somebody says, okay, you know what? I shouldn't be putting all my chips naked on this this one gold trade with that uh risk. uh you know hanging out there. I I think and one of the themes I've been I think kind of saying here maybe I'll try to put it together a little better here is that a lot of these speculative assets not gold I mean gold silver bitcoin stocks corporate bonds you know there there's private equity there's a bunch of them they're tra they're they're on the same fuel speculative fever and my concern is something that causes that to change will affect all of them. You know, the the dollar the the dollar the basement, you know, whatever narrative is driving gold, what's driving it is it goes up every day. People are buying it. They're being caught up in a fever. Same thing going on in AI and crypto and everything else. when that behavior changes and it can change rapidly, you know, you're going to these narratives are going to fall apart and these instruments assets most likely are going to come down. You know, whether they're crashing down or just correcting back to longer term tread lines, I don't know. But I I my concern is that they're all part of the same trade. Yeah. And and I I wanted to just dig into that a little bit because you use the word speculative and some people are going to say two things about gold. Well, Michael, no, gold's not speculative. It's a risk-off asset. Those other things, AI, Bitcoin, whatever, sure, those are all risk. Gold's a different animal, right? But I think one of the things that you're pointing here is is as a capital manager, you get nervous when correlations go to one across all asset classes. You know, asset classes that in theory should either be uncorrelated or maybe even have in certain cases negative correlations, but when they're all trading in a pack, there's kind of a larger trend going on. And you what you're saying is is, hey, just be aware of that because if that trend reverses Yeah. that that if that tide is rising all boats, it's highly likely to sink all boats if the tide starts going out. Right. And you're nodding as I'm saying this, >> right? Yeah. Exactly. And look, we can debate all day whether gold is a risk asset or not. It's it's a price and the price of gold can be cut in half. I consider that risk. Gold's not going to zero. I'm not saying it's going to zero. Stock can go to zero. Stock can go bankrupt and literally go to zero. A bond could be almost worthless. Gold's not going to zero. Gold will always have value. My point is, it's a risky asset to hold because its price can drop significantly. And you know, whether you want to call it a risky asset or not, I don't care. I know that there's a lot of risk in holding gold at these at these at these levels. >> Yeah. >> Again, 500 an ounce all in. >> Yeah. Well, and also too, in the best of days, gold is volatile, right? It's a volatile asset. Goes up, it goes down more so than than most assets. So, one, that's just a price of entry you got to pay to be an investor in it. But to your point, Michael, um you know, even a riskoff asset can get caught in a speculative fervor, right? And we've seen that again. We saw that in the 80s. We saw that in in 2011 there both in the charts that you showed earlier. Right. So it certainly certainly happened before. >> Certainly looks like it could be happening now. Now they're people are going to be saying, "Michael, nope. This is this is the, you know, they just it's so funny that that I guess it took 400 ounces, sorry, $400 an ounce gold for the traditional financial media to wake up to the fact that gold is actually a hedge against fiat currency depreciation. And so they're now calling this the debasement trade." like it's something totally new they just invented. >> So, there are going to be some people that say, "Michael, you don't get it. This this is the moment. This is the grand reper repricing of of gold and silver because the world is finally waking up to what's been happening with uh fiat currency debasement. And to be honest, just showing my cards, I think there's probably some amount of that going on here. I I think the world kind of woke up to, you know, the the intervention that our central planners are doing and how that really clobber purchasing power of the currency and we just happen to see that happen in a big way in a short period of time and now more people are aware of that. But absolutely, I I I I think that there is a fair amount of fervor here too. And you know, to your caution there, Michael, no matter what happens, just given given all these extremes that we're seeing and the fact that gold's done nothing but go up every day um for the past what month? >> Um and it's up what you said 250% in the past two and a half years. >> Yeah. that you know any asset that that moves that far that fast is going to have material pullbacks even if it continues in a bull market from then >> right and Adam as a disclaimer I own gold I own physical gold and I own a little ETF gold and I've held those for years and years I bought the physical I think it was 2000 or I bought the ETF like you know way before the financial crisis so both of them and I I just I kind of put them way. I don't think about them. It's insurance. It's nice. Uh the recent gains have been that's wonderful. And there have been years where they've done nothing. They've gone down. Uh so I do own gold and I guess, you know, I'm happy that gold's going up, but I don't believe the thesis that that the dollar is going away and gold is here to stay. Um, you know, I think there are some concerns about the way we're running our fiscal and and most other major countries are running their deficits. Um, but look, to be honest, the Fed is still doing QT. The Fed, by most measures, has rates at or above the rate they should be. They're restrictive. So the Fed, you know, gold's going up, but the Fed is not giving out easy money like it has in the past, which tends to be more correlated with rises in gold. So that is something unique. And you know, on the fiscal side, yes, we've been running, you know, we ran a massive fiscal shock in 2020, 21, 22, 23 even. Um, but our debt to GDP ratio is still below where it was when it peaked in 21. >> So, the economy is growing too. And I get it that the government spends more and more money each year. But put it in relation to the size of the to the size of the economy as well because the economy has grown pretty, you know, pretty well too since 2020. And you know then we can debate all day how is AI going to change the economy productivity and growth? Um how do demographics change it? There's a lot to unpack there for a different conversation. But just make sure if you really think the dollar's going away, you've really thought through what that means and what's going to replace it because it's not going to be gold. >> Yeah. And um you know I've talked about this many times with Lance, but like um you know that that that thesis um may be right in the long term, right? and and uh look to replace the dollar as the world's reserve currency is is a massive uh tall order and you have to have something at the ready to replace it which the world certainly doesn't seem to have waiting in the wings right now. Um so you know I've just >> Yeah. >> Let me just stop you real quick right there. You have to also have Americans America's approval to stop it. >> Right. Right. And >> because we have the military might as well. >> Right. And Brent Johnson makes this argument better than than than anybody and and I I don't want to completely rehash it here. My my point is just I've seen in the 15 years I've been doing this, Michael, and I'm sure you've seen more folks than I who have said, "Hey, look, the dollar is getting debased. I think eventually the jig gig is going to be up for all fiat currencies and the dollar, whatever, right?" And they have put all their chips on this trade happening really soon because they're just so convicted that it's going to. and then it doesn't, right? I mean, these things take a long times and loss of a reserve currency could take, you know, multiple human lifetimes. So, it it might be happening right now, but the odds of that really being the case are probably pretty darn low. So, again, we're just back to risk management, right? Which is, hey, you know, if you like the thesis, stay in there. just make sure that especially during times right now where valuations have zoomed really far really fast and gold's kind of a tricky one to value because there's no income stream, right? Um so lots of different people can have lots of different interpretations of what its true value is and that can change relatively quickly. So just make sure that um you know if you're if you're going to continue to be in the trade that you've got some sort of plan B in case the trade starts going against you. And you know like you talked to Michael I mean I own precious metals and I've been very transparent about that. I I am probably not going to sell my physical ounces for a long time if ever because I I do believe that there's a you know a long-term rationale to owning this. Um, but it doesn't mean I'm not hedging that position, right? There are ways to hedge uh to protect your vulnerability, the downside risk, and the price without having to actually sell your physical ounces if you really want to hold on to them, >> right? Let's look at Microsoft. Microsoft was a bet on the internet, on a bet on technology. It did incredibly well from the mid 80s to 1999. It was the stock with the largest market cap. It got crushed in 2000. It didn't get back to where it was in 1999 till 2013. So you had 13 years of negative returns. Microsoft was the right bet. You had it right. Microsoft was the company that was going to benefit as much if not more than any other company from all the technology that was being touted in 1999. But you suffered mightily because that stock got way over its skis. It got way too far ahead of itself. So, you know, AI may be incredible, but are we getting too far ahead of ourselves? Gold, you know, maybe the the world's reserve currency is going to change at some point, but is it going to change as soon as gold is pricing in? You know, we can have that debate with all these topics and how far ahead is the market getting from reality. doesn't mean the market's wrong. It just means it's getting ahead of itself. >> Yeah. And just last point on this is uh I think it was only like a month ago that gold matched its inflation adjusted high from the price it hit in 1980. >> Meaning it took you 45 years if you bought at the peak in 1980. It took you 45 years to have a positive real return on that investment. me meaning you could have just bought a 45-year tip and been just about the same. >> Yeah. Yeah. I mean, just bananas. So, anyways, um I think we've I think we've made our point there. Um Did we make it through all your slides there? >> I have one more if we decide to go there on my recent article about tips and >> Yeah. Well, I think we're there because uh I we I wasn't sure how long it was going to take to go through your slides, but we ended up having a lot of material to chew through there. So, I don't have too much more. >> So, so I got a question actually. I was with you a couple weeks ago. >> We we had a a live discussion, right, a couple weeks ago and I got a couple questions from that and I've had similar questions from my clients. One of the things that I've mentioned is I am bond bullish but down the road I have a concern if we go into a recession how low will yields fall and what would the government response be to a recession? My concern is that they take the playbook from n about 1920 from 2020 and 2021 writing checks to the public create try to create inflation to stimulate economic growth which is detrimental to bonds. So, it's it's not a concern today, but at some point that concern grows and it it it kind of dictates when we may want to sell out of bonds or hold on to them. And a lot of, you know, a couple of your viewers and a couple of our clients said, "Well, would you switch to TIPS?" And, you know, the answer is maybe. We'll see. These are just contingencies we think about and you know it's not that you know we're going to sell bonds. Well, we also have to think about what are we going to do with the money? When would we sell bonds? There's a lot of questions we ask ourselves. So, you know, I got these questions. I said, you know what, now's a good time to kind of update a a tips 101 primer. And I thought the best way to do that was to have some of the basic tip facts and how they work, the mechanics so to speak. But I I led the uh I'm going to share my screen again here, Adam. I led the discussion with uh with the experience from what happened over the last five years. So I took two two bonds, a five-year TIP and a five-year regular bond. I call them nominal but you know a regular coupon paying month. Both US Treasury they both were issued right around u October of 2000 and they both mature in about a week. So we have more or less the full lifespan of both bonds. And let me let me walk you through what happened. And I think as you kind of see some of the data, the graphs, and what I'm going to tell you, it helps you understand what tips are and when and how you might want to buy tips or at least how to think about them. So the tip had a price of 107 and a half when it was issued. It was going to m it's it always matures at 100. The bond, the nominal bond had a price of 99.6. it too would mature at 100. So right off the bat, the tip holder knows they're going to lose 7% in price. The nominal bond holder knows they're going to make about a third of a percent. The coupon on the tip was, these were the good old days when you earn nothing, was a eighth of a percent and it was a quarter of a percent on a nominal bond. So what the tip doesn't tell you, so what those statistics right there tell you is, and it's not on this sheet, the yield to maturity at that time for the tip was minus 1.32%. For the bond, it was the plus uh 33 38 uh 38% whatever that is. So if you subtract those two, there's a 1.65% difference. So why would you buy the tip bond over the nominal bond? And the reason is is that the tip bond has a factor and the factor grows with CPI. So if CPI is 1% the factor goes from one to 1.01 and you multiply that factor times your principal. So really what's happening, you know, kind of make this a little bit easier is that you get paid for inflation. In this case, inflation returned over that 5-year period. It averaged foreign change over the year. It paid off 24.66%. So your total return was in aggregate was 16% for the year for the five years versus 1.6%. And you could see the total return annualized. You know, if you had a tip, you were you were being told that the break even inflation rate was 165. In reality, it was 443. So, you got paid a lot more. That three, you know, you got paid that difference minus that that original negative yield. Confusing, but the bottom line, Adam, is you can look at break evens. You can see what they are. They're, you know, roughly around 2.5 2.6% today. Historically, inflation has been closer to the Fed's 2% target. And if you're looking out over the next five years, you make that bet. Is is the break even rate really going to be two and a half? Is it going to be two? Because if it's two, I'm I'd rather have a regular a nominal bond. If it's going to be three, I'd rather have a tip. So, I'm not saying tips are the instrument for today, but if we get in that environment where we're concerned that the Fed's going to start writing checks and gooseing inflation, tips may be the way to go. Understanding how work, how tips work before we get to that is important. And so through example and then through a discussion of the mechanics, I'm hoping the article can kind of help answer the questions we've had and at least get people prepared to be able to answer that question with knowledge as opposed to gut instinct. >> All right. So to to read it, folks should go to um realinvestmentadvice.com and then click the resources tab, right? And then blog. >> Blog. Correct. And uh right now it's at the top of the list, but that'll change as more articles come out. >> Okay. Um well, thank you for doing that. I think that's really helpful. So, Michael, the key takeaway there is sort of you you buy tips if you expect the period for which the tip is going the duration of the tip uh is going to be a period of rising inflation. Um you obviously wouldn't buy it if you thought it was going to be a period of falling inflation or disinflation. No, not necessarily. If you think that the average inflation rate will be more than the market thinks, more than the break even rate, doesn't matter whether it's rising or falling, will that average inflation be more than what the market thinks it will be at that time? >> Okay. Okay. That's that's the right way. >> That's the key right there. >> Okay. So, um, look, I think the market would think if we entered recession and the Fed announces one day, okay, you know what, we're we're going to slash rates and we're going to go back to QE and all that type of stuff. Um, I think the market expectations would would skyrocket in terms of what they think inflation was going to do. So when when you're thinking about potentially using tips, if if you start getting concerned about uh you know the the reaction function of the central planners, when would you plan to to start entering that tip trade? Would it be at or after the authorities announced their plans or would you be trying to anticipate them? >> Obviously trying to anticipate. Uh but again, if I think they're going to goose inflation, but the market does too, and the market's has a break even inflation rate of 6%. And I think it's going to come in high, but at 4%. I don't want to touch them, >> right? >> So in that case, maybe we just go to cash or we find something else to invest in. So, so again that's why you have to understand what the market thinks because that's your benchmark. Do you think it's higher or lower? And then you can decide if that's the right investment for you. >> U if not but you do think there's going to be a lot of if you agree with the market there's going to be a lot of inflation but not as much as the market then maybe just sell bonds. you just get out of the bond market for the time being or you sit in cash or you, you know, you buy very chill, you know, chill in the money markets and tea, bill and chill. Couldn't find the words for that one, but T bill and chill and ride ride yields higher. >> Okay. And and in terms of just your yield expectations right now, um I I think you and Lance continue to believe that yields will trend down into next year. And I don't think you would be interested in owning a short-term tip right now because my guess is your inflation estimate is lower than the markets right now. >> Correct. Exactly. I think we're heading to two. I think that's going to become a little more obvious early next year that that inflation's starting to come down again. I think it got it was on the right trend and tariffs tripped it up a little. They kind of made it sticky, right? They bounced up a little higher, but we certainly haven't seen the feared inflation from tariffs that some people were touting, but it certainly has kept especially the prices of goods higher than they otherwise would have been. the time same time we're seeing service prices not not reflecting the inflation as much and actually starting to come down a little and we're starting to see the economic effect we see it in the jobs numbers because of tariffs um which will also weigh on inflation so you know I think as we kind of get past the initial tariff effect we start getting into some of the the other impacts that it's having and and that's more deflationary disinflation ary versus inflationary. And again, I start I think we start seeing inflation fall a little bit more as we get into next year. >> Okay. All right. Well, look, um I'm going to start wrapping things up. Great discussion, Michael. Thanks so much again for stepping into the fray here. Um real quick for folks just back on the precious metals for a moment. um if Michael's instincts prove correct and there is a you know material pullback hopefully short term uh in the precious metals that that obviously would create potential better entry points than today for people especially who maybe have woken up to the precious metals but hadn't been in the trade yet. Um, and so if you want some help in just sort of understanding how to potentially enter uh the precious metals space, whether it's how to buy physical, whether it's the different ways in which you can own uh precious metals, um whether it's understanding the mining stocks and when they make sense, um we put together a free primer on all this uh about two years ago here at Thoughtful Money. If you haven't read it yet, just go to thoughtfulmoney.com/gold. It's totally free. Uh but hopefully that'll be a useful resource. Um, all right, Michael. Um, what trades, if any, have you made at Real Investment Advice, um, in the past week? >> Um, I don't think we made any trades. Um, >> okay. I know you did a lot of rebalancing recently. Um, because Lance, >> we we did some rebalancing a couple weeks ago. Um, we didn't do any trades this week. Don't hold me to that, but but the best of my memory, you know, these weeks tend to flow into each other. >> Um, >> yeah, I don't we didn't do any trades. >> Okay. Are there any trades right now that you're you know, kind of poised to make or just waiting for the right uh, you know, entry price to come in or are you kind of letting the portfolio ride uh right now because it's you had a pretty good year? >> You know, we're always kind of tinkering around the edges. uh we're willing to to keep our equity exposure up, waiting for some technical indicators that that maybe the markets starting to top, turn over. Uh but there's no reason not to stay involved for right now. Uh we're monitor monitoring all the different rotations going on, you know, like some of those conservative stocks being out of favor, the the high-f flyers continue to be in favor. uh we use the tools we showed you and many others to help us understand what's going on. Uh but right now we're we're relatively content with what we have our sector model. We may make a few changes to to try to just uh bring it back up sort of rebalance a little bit but nothing major. We don't have anything major on the horizon here. >> Okay. All right. >> Doesn't mean doesn't mean we won't next Wednesday, but today we don't. >> Well, that's why we have you and your partner on this channel week in and week out, so that as those things happen, we pick up on them on them early. Um, all right, Michael. Um, folks, no rant today. Um maybe just a quick um note that as many regular viewers know um I moved states a while ago um mid year and uh it it has gone just surprisingly well and and and the main driver of of the move was um moving from the highest uh state incomes tax state in the nation uh to one of the lowest. And um it really was an economic decision. Um primarily I almost was sort of it was almost sort of immaterial to me how I was going to like the new the new location. Uh I have liked it so much more than I thought I would. Um and obviously uh I'm really enjoying the um uh the tax situation here. And as I was telling Michael before we turned the camera on, it's funny because my old state, California, you know, would say, "Well, look, we have to charge you so much uh state income tax because that's how we're providing all our services to you." And anyone who lives in California um knows it's it's a magnificent state in terms of its natural beauty and and and whatnot. But a lot of the services there aren't aren't great shakes. you you you look at the public transit system, uh you look at the education system, you look at the health care system, etc. Um you know, there's some bright spots, but in in many cases, uh it's not it's not bestin-class and a lot of those have really been degrading. I'm over here in Nevada and um you know, 0% uh state income tax and the services seem just fine. C certainly not less that I've encountered so far and in some other ways, a lot more manageable. So anyways, um if folks would be interested in having me expound more in a future uh video about the process that I went through uh in terms of both thinking about the move and moving and some of the you know calculations in terms of the tax differences and just the cost of living differences, too. It's it's cheaper to live here for the most part. Um I'd be happy to do that if there'd be enough demand. So folks, let me know in the comments section whether or not you'd like me to do that. Um all right, Michael. Well, look, um can't thank you enough. Um, real quick folks, let please share your appreci appreciation for Michael dropping what he was doing and coming in to pinch it here for Lance by hitting the like button and then by clicking on the subscribe button below as well as that little bell icon right next to it. uh if you would like to talk to a professional financial adviser uh who understands all the macro issues that Michael and I have talked about here in um looking over your portfolio and seeing if if uh you know you're doing everything that that would make sense for your personal situation given all the issues and the potential outlook that Michael has shared with us. Um again, highly recommend you get that guidance from a good professional financial adviser who takes all these macro issues into account. If you've got one who's doing that well for you, fantastic. don't mess with success. But if you don't have one or you'd like a second opinion for one who meets those criteria, perhaps you'd like to even talk to Michael and the team there at RA, then consider scheduling a discussion with one of the financial adviserss that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. To do that, just fill out the very short form at thoughtfulmoney.com. These conversations are totally free. There's no commitment to work with these firms. It's just them uh being as helpful to as many people as possible. Lastly, if you haven't got your ticket yet for the conference, like I mentioned, you've only got a week left to do it and you've got, like I said, about 30 probably 35 hours at this point in time, maybe 34, uh, to lock in that last chance to save price before the ticket jumps to its full price. So, if you haven't bought your ticket yet, go to thoughtfulmoney.com/conference. And again, if you're a premium Substack subscriber to this channel, u, make sure you look for the code I've sent you can use to get an additional $50 off. Michael, thank you so much, my friend. I hope you've got a good weekend lying ahead of you here. >> I do and thank you for having me. I really appreciate it. >> It's always a pleasure, my friend. And I'm sure you're going to get a lot of good comments from folks here. Uh but thanks so much again for for jumping in and everybody else. Thanks so much for watching.