Ted Oakley: ‘Smart Money’ Is Selling, A Minimum 15% Selloff is Coming
Summary
Market Outlook: Ted Oakley predicts a potential 15% market selloff due to conflicting economic signals, with smart money moving into cash and away from stocks despite market highs.
Consumer Sentiment: Oakley emphasizes the disconnect between Wall Street optimism and consumer struggles, highlighting rising inflation expectations and financial pressures on middle-class families.
Investment Strategy: He advises maintaining a balanced portfolio with significant cash holdings to mitigate risk, suggesting that even with partial market exposure, investors can achieve satisfactory returns.
Sector Opportunities: Oakley identifies energy as an undervalued sector with high free cash flow and attractive dividends, recommending a long-term investment horizon.
Precious Metals: He supports holding physical gold as a currency hedge and sees potential in gold and silver miners, despite possible short-term corrections.
Risk Management: Oakley stresses the importance of risk management and avoiding overexposure to equities, especially for retirees, to preserve wealth and ensure financial stability.
Geopolitical Risks: He warns of geopolitical tensions and unrealistic profit expectations for the S&P 500 as potential market risks that are currently mispriced.
Transcript
[Music] Hey everyone, welcome back. I'm Jeremy Saffron. If you're an investor right now, you might be feeling a bit confused, and frankly, you have every right to be. The headlines are telling one story, while the economy seems to be telling you another. Here's the bullish story. The Dow Jones has hit 46,000 for the first time. The S&P 500 is nearing all-time highs. And the consensus on Wall Street is that the Federal Reserve is going to step in and cut interest rates next week. But then there's the other story, the one that feels a lot more real for many people. According to the Department of Labor, weekly jobless claims just saw their biggest jump since 2021. And just this morning, a report from the University of Michigan shows that consumer sentiment has fallen sharply to 55.4. And what's really telling is that consumer's long run inflation expectations rose again, now up to 3.9%. Now, that leads us to a huge contradiction. If the stock market is so strong, why has a staggering $266 billion poured into the safety of cash over the last four weeks? Well, here to help us make sense of these conflicting signals is Ted Oakley, the founder and managing partner of Oxbow Advisors. Ted has over four decades of experience advising ultra high netw worth clients. He's also the author of 11 books, including his latest, Second Generation Wealth, which as someone about to be a dad for the first time, I truly recommend it. Now, when he joined us back in May, his warning about the market risk resonated with hundreds of thousands of you. And so, he's back. Ted, great to see you. Pleasure to have you back with us. Good to see you, Jeremy. Uh, let's talk about this market. I I mean, there's that puzzle, right? The market's cheering, expecting these rate cuts, but the data from the average consumer is showing that they're worried about their finances and expect higher inflation. In your view here, I mean, who has the better read on the real economy right now? The optimistic trader or the worried consumer? Well, I think it's the consumer. I mean, if you look at even upper middle class income, middle class, lowerass income, they are really in a hurt right now. These people that are in their 40s and 50s have children. uh they go to the grocery store, anything they buy for education, school, whatever, it's all going up a lot in price and it has them stymied quite a bit. I've talked to quite a few families like that and you know, their problem is is that they don't know what to do about it. I mean, they they have they can meet they can make me ends meet, but it's getting tougher and tougher and tougher. And for the lower side, they're not getting there. And I think that's what basically Wall Street forgets. You know, they're sort of sit in the ivory tower and they forget what happens on on Main Street. But I think Main Street is really where you are right now. Yeah. Yeah. It's been so interesting to see. I mean, of course, we had McDonald's CEO coming out talking about how even their consumers have changed and that there's a real big divergence here. People are hurting. But Ted, I want to bring up something we hear from our viewers all the time. They'll say, "Jeremy, I listened to the bearish warnings and the facts all make sense, but if id followed that advice, I would have missed this huge rally." And I mean, they are right. Right. I mean, the market is at an all-time high. But I guess my question is, had the old rules of investing been broken? Do fundamentals even matter in a market so heavily driven by this passive investing, this autopilot buying, and and then the expectation of the Fed rate cuts? Well, I know people get to thinking about that, but a dollar is still a dollar. Mhm. And if you get a dollar, if you buy a dollar for 80 cents, that still makes sense. And if you pay a$120 for a dollar, that doesn't make sense. That's sort of where you are in the markets today. And I guess where I would disagree with people on the berry side is you can have a safety net of 3540% treasuries or whatever. That doesn't mean you're not participating, okay? It just means you're particular about what you're doing and you're not going to go all in and and basically put risk fully on when you know things are at extreme price levels. And I mean really really extreme. So it's not necessarily you're not making an absolute 100% call. I'm I'm completely out or I'm completely in. I just think you have to pick and choose and know what you own. Um and I believe people that's where they've gotten confused. They felt like they had to be uh all in the market. I would have missed the market. Well, you wouldn't have. I mean, if you had if you had twothirds of your money in the market, you wouldn't have missed the market. Okay. But you would also given yourself a little sleep at night because if something goes wrong, you know, you have some liquidity. Yeah. Yeah. Well said. You know, we got this this data out from the EPFR Global. I mean, it's an analytics firm and they're talking about uh $26 billion has poured into cash funds in the last month. US stock funds have seen the outflows of about $19 billion. This means retail and institution money is obviously actively pulling out of this rally even as the indexes hit new highs. I mean, does that divergence tell you uh is is the smart money selling to an an algorithm-driven rally? What are your thoughts here? Well, usually at a high, and I've been through a lot of highs, what happens is is the late players and a lot of times individuals, I have to have to say individuals get bagged because they keep on buying into it and they can't see what's going on underneath a lot of the selling that's going on right now. I think I mean I know a lot of money managers and good ones uh and for the and then in this past 6 months nine months a number of those who said you know we've started raising cash now and and these are people that hardly ever have cash but they're good at what they do and I think individuals just keep right on going because they say oh well you know they're not going to let it go down uh Fed's going to be there to protect us and and and it works till it doesn't and and then you look back and you have to remember what Bob Frell said years ago. Um, whatever you go extreme in one direction, you'll usually eventually correct extreme the other way. It may take a number of years, but that's what happens. If the if the clients are, you know, raising cash, who's doing all the buying at these all-time highs? I mean, aren't your sellers just missing out? No. Well, I think I think a lot of people in our industry today have only been around for say 15, 16, 17 years. Yeah. They've never really seen what I consider a generational bare market or anything that really hurt them because they were real short term, four or five weeks down and then come back. And I think those people keep advising people to push that money and push that money in. And you have to think about this though, Jeremy, but with the 401ks, they're automatic. Yeah. Yeah, nobody ever comes in and tells you in a 401k, hey, you ought to lighten up here a little bit. That's not what they do. You know, it's a plug-andplay deal. And so all that goes on like that. So, sort of an automatic buy. And I think that's where most of the buying comes from. Yeah. You know, it's funny. I mean, we we have that 266 billion that has recently moved into cash. I guess you know the bullish argument is that as soon as the Fed cuts you that cash will be forced back into the market likely through these 401ks these passive index funds that buy everything indiscriminately it seems. Is it possible that this massive flow of money will keep the market elevated for years regardless of what happens in the real economy? Well, I don't think so. And I think people have to remember now I've been through a lot of these where the Fed starts lowering rates and the market goes down. Yeah. Because why? They wake up one day and say, "Well, there's a reason they're lowering rates. Things are slowing down." So, all these numbers are overpriced. All these uh profit margins are too high. All that starts to take place. But I I mean, I'm not saying you couldn't have it go longer because you can. I mean, you look at all the any of the bubbles of the past and that goes not just our country, but Japan and different places. I mean, they can go on because that money can keep driving in. Mhm. But you never know how long that goes. My guess is that over the next, you know, three years or so, you you you're going to catch you're going to catch a firm, you know, probably long-term peak in this stuff because the prices are so expensive. Yeah. That you you get to a point to where there's no return on what you're buying. And that's that's really what it mounts to in the long run. I got to ask you, I mean, I want to shift from sentiment to what people are actually doing with their money. I mean, you talked to a lot of people, Ted, and I mean, according to that recent report from Clearwater Analytics, the treasurers at major companies like Amazon and Uber, well, they're moving their cash out of money market funds and into long-term corporate debt. I mean, it it looks like they're trying to lock in higher yields before the Fed obviously cuts rates. But, you know, the last time we spoke, you said you were holding about 50%, a very significant position in cash, holding that much cash. Does it mean that you've missed out on this rally? I mean, for a client paying for performance, what are you thinking about sitting on the sidelines? Well, you know, Jeremy, it depends on what you own. I mean, uh, I won't get into particulars. I can't do that. Uh, but I'd say our performance this year, you know, really look look at it this way. Just this the way I would explain it. If we're holding, we hold about 45% liquidity across the board now in treasuries, but let's just say the market's up 11 and and let's say let's say we're up eight. I'll use that as an example because and these are not but what I'm trying to say is if I'm earning if I'm earning you know 80% of what the market is earning with only 50% at risk see that that riskreward right there works that means that you're actually doing really really well because you're not out there on the full spectrum of risk and I think I think that's what people forget to see on the on the bond side, we just don't feel like you can ever buy long you'll buy long-term bonds and you'll chase these yields in here. It's the wrong thing to do in our opinion. I mean, we think by this time next year, you're going to be right back to the Fed raising rates, chasing inflation down, trying to push that number, and and it it looks to us like u you're not going to get a big you'll get a big bang out of this as far as the market. people feel good, but that's the wrong thing to do is to go out and buy 20 and 30-year paper right now. Yeah. You you've watched a lot of these Fed cycles. I mean, with what's happening right now, there's the politicization obviously, but there is a little bit of accuracy on some of the data. It's worse than was previously thought. I mean, have you seen anything like it? What's your thoughts? They're going to go and hit 50 next week. Well, even if they do, and I'll just use these numbers, you're at four and a half% on the Fed funds. Let's say you go to four. Yeah. And prime rate goes to seven. I mean, if I'm a business out here, and I'm in, you know, I'm I own part of a bank, so I know if if I'm loaning as a bank and I'm I was at seven and a half prime and now I'm seven, am I really going to get that much more demand for borrowing based on a half a point? I don't think so. I don't I think that number is still such that you won't get a big bang of it. It'll be people will think it will it'll make them feel good. But in the only thing it's really going to do is drop the rate that they're earning on the short-term treasuries or CDs. That's where it's going to really affect them. Yeah, it's so wild. I mean, obviously the audience wants to know how to apply this to their own portfolios. I mean, in our last interview, you gave us some really good specific names really. I mean, you you mentioned fertilizer companies like Nutrient Pharma, like Abbeby, New Miner, New Gold, I think you mentioned. I mean, that stock's up over 100% since we last chatted. I mean, it was one of the most popular parts of our conversations. And I want to kind of ask you, I mean, if if if an investor has new cash to deploy today, what's that one company, that sector that you believe offers a compelling combination of that value that you're talking about, but the safety in these uncertain markets, too? Well, if you'll give it if you'll give it one to three years to to us, it's the most undervalued probably is energy for for for two or three reasons. One, their free cash flow is really high. I mean, we're looking I'm talking about after capital expenditures, debt, everything. Your your free cash flow left over in all of these companies ranges anywhere from 8 to 11 or 12%. which is really and then if you look at the dividends all the energy that we own and have bought you know if you look at the yields on those they range anywhere from five all the way up to nine or 9 and a half so you're getting paid a lot to wait in in energy is at 63 oil at 63 and I've mentioned this before maybe it goes to 45 if the economy keeps on weakening it could so what you do is you don't buy full positions but you own enough of it to where if you get a breakdown back and they get a lot cheaper than that, you know, you can add to those. But if you look out 15, 18 months, two years, you know, there's a chance uh oil could be back at a new high, 150. You know, it came from 130 in 3 years to 62. Uh and it would be it wouldn't surprise us again 3 years from now and have oil at 150 or so. But you got to wait on it. You can't get all hung up on on well, I'm not beating Nvidia because these are truly good buys. In other words, they're paying you to own it. They're also cheap from any kind of vantage point you want to look. And uh and oil oil companies, what happens with them when they move, they really move. They they'll get with it. Um and they haven't done a lot. I mean, they've gone up some, don't get me wrong, but they they could drift a little in here if the economy weakens, you know, severely, but that's just part of owning those, but that's probably the cheapest sector in my opinion anyway. Uh, we own a lot of different things, but but that's one of the cheapest. Is this to I mean, is it kind of the picks and shovels to the to the AI boom? I guess you know, we need a lot more energy. Are you looking at things like natural gas, nuclear, anything like that? Or is it mostly these oil and gas giants that kind of been beat up? Uh Jeremy, no. We own a lot of natural gas. A lot. Um we own three or four natural gas pipelines which pay tremendous cash flows. I'm talking about 7 and a2% or higher 8%. Uh that pays on a K1. So you don't pay any current income tax on them. Uh but but but in addition, you know, we we own uh up and down the spectrum. You'll see where we own the big name like a Chevron uh like a Northern Oregon Gas. You'll see us uh own, you know, that kind of company. Um we own a we're really up and down the spectrum. Now, I will tell you, we don't own uh any of the drillers. Uh they they can move and they can do well, but that's not where we're concentrated. And uh we don't do own a lot of the offshore drillers either. So, we're really primarily in the producers of natural gas uh and the in the midstream, too. Yeah. Yeah. I mean, you know, I know you can't speak about those returns, but you're a very successful money manager yourself. I mean, Ted, let's make this kind of practical for our viewers. When when you look at a company today, knowing that this broad market is ignoring traditional valuations, what are the top or three specific metrics that you kind of focus on to decide if if a business is good investment? I mean, can you walk us through your process a little bit? But I think people have forgotten it. Well, for us, there's four or five things, but one, you know, I'll just start with a balance sheet. You want to make sure debt to equity is okay because if a company is heavily laden in debt, um, then you have to be perfect on the buyer or where they are in the cycle. So, that's really important, that debt to equity. the the the second thing that you look at is you really do look hard at free cash flow and what these can and for all your viewers out there in free cash flow it's really what's left over after you've paid everything else plus what you've had to reinvest capital expenditure wise to build new plant equipment etc. But you look at that because that's what gives them the ability to increase dividends, to buy back stock, pay down debt. No, that's that's all good stuff right there that you look at. And we look, you know, we look we try to go out about five years and estimate what we think these companies can earn. And then we discount it back with a with a with a uh with a with a sort of an inflation number that we'll put on it. For right now, it's about 3%. Uh and then we'll try to buy it a little better than that. And we're just trying to buy we try to get it we try to give ourselves as much buffer as we can against being wrong. People realize you need to realize what you have to do in money management is make sure that you don't lose a lot of money because that's where that's where it's hard to catch up. And I always recommend that to people. Remember risk management. It's the most important thing. Yeah. Take a little bit of profit from time to time. I've been through that myself. Uh, I got to ask you, I mean, we got to move on to the medals, but before we do that, I I reviewed the tape our last interview. As I said, it it did really, really well. And some of those, uh, names that you were buying at the time were very defensive names, like the Abby V, you know, the drug maker, food company, Unilever. With the consumer now showing signs of weakness, are those defensive sectors still kind of a a top focus outside of those energy picks that you just talked about? Well, we still own them, but I'll give you an example. um things we've been buying recently and these are not you know these are opening positions which means that they're smaller so you add to them over time but if you look at Crown Corporation which just basically makes cans that you drink out of u that sort of thing elevator I know these are mundane sounding companies but you use them every day believe me in what you do we just added Gilden uh active wear and For all you moms and dads out there, just go look in the back of that t-shirt and probably half of them will say Gilded. No kidding. You look at things like that because what are they going to do? They're ain't going to buy during bad times, they're not go down and and buy a lot of Ralph Lauren for their kids, but they're going to buy some t-shirts, you know, and things like that. Um it's things like you know it's a different group of stocks we found that are doing well but I and um it's it it's interesting we when they hit a cash flow number for us it hit the right numbers what like Regeneron which is a probably one of the best biotechs that's out there and Regeneron really came off a lot and when it got cheap enough and I'm talking about down quite a bit you know we took a position Regeneron we've owned that stock in the has and done well with it and uh very very well-run company I will tell you. Um and then um you know we uh we have lightened up on some things and uh too but generally we're still um probably across the board about in all three strategies about 45% in treasuries. Interesting. Okay. 45 still in in tea bills. Uh, I want to bring back cuz you talked about, you know, some of those uh, companies. You weren't buying Lululemon, right? I mean, you're not sitting there buying the expensive brands. You're talking about brands that would be on the average American. I mean, is that kind of the play here? Is that that economy that we're talking about? Those main street struggles, they're going to kind of be the the drivers of this economy. Well, for example, Lululemon and we don't own that stock and and haven't, but if you look at, you know, the last few months after they announced and everything, and you could tell that their buyers, you know, were obviously backing off and, you know, and and they're sort of a some ways you get one of those companies like that that's like a one one product, you know, the the stretch bands for women, that's a big product for them and then all of a sudden they get competition. But yeah, we I think right now you have to buy if you can get them cheap, you have to buy the mundane. Yeah. Companies pay you good cash flow, pay a good dividend. And people have to remember too, Jeremy, on a dividend, um, you know, I'm getting, you know, say on a dividend, you can buy the corporate bonds all the time, but you're going to pay, uh, ordinary income tax on that. But on a dividend, I'm only going to pay 20%. Uh so it it has its advantages and the treasuries have their advantage. You don't pay state tax with those. So there's a lot of things fit together and all of that, but um that that's that's that's how we're structured right now. Yeah, makes sense. I mean, you got to think about those tax jurisdictions, too. I want to pivot to another asset class that's been telling a very different story from the S&P 500. I mean, I'm talking about precious metals, which have had a truly historic week. I mean, gold just flew past its 1980 inflation adjusted peak, hitting an all-time high of 3674 on the futures this week. You told me in May that you hold a lot of physical bullion. I mean, and you also said all the way through as a core currency hedge. I mean, is this record run the ultimate kind of indication of that long-term thesis? And where do you see it going from here, Ted? Well, I what what I said then is what I always say is that we have three strategies, but in the in the conservative fixed income strategy, almost everything we own in there, we own this less than 60 month maturity. Okay? And if you're going to own that as a currency hedge, because we feel like long-term the dollar will continue long-term continue to decline. If you're going to own the fixed income, you have to to us, you've got to own some bullion, some gold bull to to offset it. And that's that's what will offset it. And and and it's a different time now. I know people want to think about it, but most of these major countries are lining up against us, not for us. Look at Russia, China, India, um to extent some of the South American countries and they're going to they're buying gold, you know, they're not turning their dollars around and trying to buy back into the assets of of this country, particularly treasuries. They want they want to own something. Even a lot of them against their own currencies are doing that. So, I think you have to own it as a hedge like that. We're in a different era, a different time when probably a lot of currencies, look at the sterling, pound sterling, you look at the euro, yen. Uh, you can't have faith in a lot of these, including the dollar. And I think that's why more of them side by side, they own the gold bullion. And that's what I think people have to keep in mind. Yeah. Yeah. They haven't stopped buying it either, even at these record prices. Uh you were SP talking about cash flow before getting back to those basics and bringing up cash flow. I mean the miners, some of these miners are printing cash. Um are you looking at the miners right now? Do you think that there's still room to go? I mean a lot of them have had some great upside but still early. Well, we you know we own a number of miners now in our stock account. We only own the royalty companies like Franco Nevada, right? a royal gold and a wheaten but in a high income account which is sort of a commodity offset account pays a lot of cash flow we own the direct miners I mean we own a um like I mentioned before little company new gold but but we have also in there we own royal gold weeden but uh I think people have to remember and I think this will bother them probably but if you get a correction in gold and let's just say you went from you you went down to 33,000 or 3100. I think people would think it's over and it's done or whatever. It's probably not uh because of way the world set up this next decade, especially we feel like commodities uh and inflation are coming back. That's going to be a new that's going new world order. And if that's the case, you don't you don't want to get shaken out on a downturn like that because you could very well get it. But um you know, for new money, yeah, we still buy them. We may not buy quite as high a position as we would have uh a year ago or a year and a half ago, but we still own the same ones. Yes. So, a little bit of panic hands. I mean, we've seen that in that cyclical industry, right? There seems to be a pullback. Everyone kind of reacts. Is it a time then I guess what you're saying is to buy the dip if that happens. I mean how much do do you think it's too euphoric here? Do you think gold needs to come down a little bit? Take a breather. I don't know. Um I think it confused a lot of people Jeremy when it went through 34 3500s. They thought that was it and uh and you you can't ever tell till afterwards but it really didn't. It kind of drifted sideways for quite a while. Mhm. But you know, there's uh there's there's just a lot of reasons why with all of the turmoil that's in the world, I think that that gold will become uh more owned. See, people like, you know, it's not a very highly owned asset. You look at the miners, virtually nobody owns them. Yeah, I mean they're uh you know, you're looking at gold and gold miners. They've been one of the best groups, maybe the best group this year, but yet you never you're not going to hear it on Bloomberg or CNBC. I hear it from you. But uh good, keep listen. It's it's wild that just a little bit of volume, a little bit of buying in this market can trigger, you know, 50% uptake on some of these equity sides because there's just no liquidity there. Yeah, they're very profitable though. If you go in and look at the today's numbers, I'll just give you this example and I used this graph in a presentation last week. I said, let's just take the the GDX, which is the large gold miners. Okay, we have just now equal the price of the GDX as to what it was in 2011. That's 14 years ago. I mean, we're just now even. We're not breaking in the new highs yet. And you're you're not even close on the junior miners. Yeah. No kidding. And so while they've had a move, they have to realize how cheap they were. And if you look at the cash flow numbers now on gold miners, if you were to sell those same multiples of that cash flow as you had in 2011, those stocks would double or triple from here. Do you think that there's still some value? I mean, I know that it takes a lot more due diligence to look at the juniors, but I mean, you know, has it been kind of some of these major caps, Nico for instance? I mean, yeah, they're printing capital, but their stocks are up. Who's got more of an opportunity to run? Well, they probably do. You have to be good at that area, though. And you not, you know, I think people that do well in the junior minors, that's what they do. That's not what we do. And we're not we're not good enough to do that. Uh so if you're not good enough then you don't need to be in there because there's a lot of things going you know I think there'll be a lot of merger acquisition in that area though and probably do some really good I mean and then we own you know we own silver bullion too and we own pan-American silver but see it will it will really outstrip gold some someday I mean usually when it starts moving this is good tid I mean it's almost like you're you're reading my notes here because we haven't talked about silver but it's been on an absolute absolute tear. I mean, it's hit a 14-year high of nearly $43 an ounce. How are you looking at silver right now? Do you see it as a better value? Like you just said, you know, having more upside than not just the bullion, but I guess the miners too here. Yeah. Well, we only own one minor. We own Paname. Um because we but it's again it fits what we do. Um on the bullion, we own it. We don't own as much as we own in gold because it's more volatile and it's not as I don't know how to explain it to us. It's not as stable as gold is. But when it when it really moves, it moves much faster and stronger than gold does. But we we own them together really in the particular high income portfolio. And that's how that that's structured uh together. Um, but yeah, I I I think you can own a little bit of silver, too. Yeah. Well said. We just had Ross Media on Pan-American Founder. I mean, do you follow how close do you follow the management teams? Is that kind of I mean, you've seen and been through a lot in this minor market. Are you kind of looking towards those teams as opposed to maybe the asset itself? Well, I wish we could bring Pierre Lasan back uh to run some company. Amen. For all of those who don't know, he was a founder of Franco Nevada. Really bright man. Uh but no, I have a I have quite a few contacts in the business and that's how I check them. That's how I check a lot of the management people, you know, because you know that's a that's sort of a that's sort of a business unto itself. Yeah. Yeah. You got to know you have to know what's happening. So I what I do is really what we do is we we stay in contact with a lot of people that know those people, you know, and they can tell you, hey, um this is bad management here. They got a good asset, but bad management or reverse, you know, good management, they can turn that asset around u and see what happens. Yeah. No, well said. Uh, okay. This has been an incredible move in precious metals, you know, in this rally, but I it really speaks to the deep desire for wealth preservation, which is kind of the central theme of your book, Second Generation Wealth. I mean, that that part of our last conversation really stuck a chord with the audience. So, I want to spend a few minutes there. Let's start with the basics. I mean, for a young person watching today, who feels like they're behind, which a lot of them do, uh, you know, with little or no wealth to even speak of. I what's the single most important step, first step maybe that they can take to start, you know, building this future? Well, I tell a lot of young people this and and I don't think they're as many of them are listening, but you have to get out of debt. Okay? You're not you're if you are debt laden, you're you're never you're never going to get ahead. I mean it you have to figure out some way to really save more than you're spending and uh I mean save have some left over and and I think people a lot of young people right now just living for the moment they're living for the experience this that and the other but that doesn't do them any good for the long run. If I sit down with them and say, "Hey, you know, if you'll put X amount of money aside, let me show you what that would do." And they just and use a nominal number, you know, six, seven%. And it'll it'll surprise them at how much money they would have, but they have to get out of debt first. And they haven't been afraid of debt. And I think um I think that's the first thing they have to do. Yeah. Everyone gets free money, right, at 22%. Well, I I think too um what I say in the book is more about parenting and if you have a lot of wealth, uh don't don't don't bestow that on your children. Let those let those kids have to go out and earn it the hard way and then they'll appreciate money. I always say you can't appreciate money if you've never experienced having a lack of money. Like if I if I show up and I'm uh which I don't agree with this, but a lot of financial people, financial planners and stuff, they want to bring them in at 16, 17, 18 years old and say, "Look, here's how we manage the family wealth, blah blah blah blah blah." Well, you just took all their ambition away from them. Yeah. You want them, you don't really want them to know that right now. I disagree with that concept. Yeah. I mean, I remember reading that in the book. I mean, your advice is not to talk to children about a large inheritance until they're in their 30s. You, as you mentioned, that ambition for for those I mean, expand on that. I mean, for if you're not talking about the numbers, what should parents be teaching their kids about money in their teens and 20s to prepare them properly? Well, number one, you want to live by example. Mhm. So, uh, if you're sloppy with as a parent with how you spend money, and I think it comes into play more than anything, Liz, we work with a lot and over the years, we've done that since 1983, work with business owners that have sold companies. And that's where the problem is because their one lifestyle was pretty frugal and, you know, they're working in the company and all of a sudden, boom, they've got 50 or hundred million dollars. Yeah. and they start spending and doing sort of crazy things with the money. Um, and and the kids see that and they think, you know, gosh, we're ultra wealthy and so I don't have to do anything either. I think example is one number one. Number two, though, you have I think every nobody understands the the quality of work. Yeah. If you can require your kids to go out and work for six, seven, eight, nine years, whatever, and then if you want to try to bring them back to the business or the family office, and that's one thing, but you need to wait till they've hit the wall a few times and gain some experience because that's what gives them self-esteem. That's what you want for your kid anyway. You want self-esteem. You want them to be able to stand on their own two feet and they you know I always say uh make them stand up so if you didn't have any money they'd still do okay and I but I think a lot of parents though come in a lot of money and u they take the easy way out which is just give them everything they want. work ethic, huh? Accountability. Imagine that. Um, all right. That's great advice. Uh, let's get to the other side of the spectrum. For those who have built their nest egg, right? I mean, you've given that stark warning in May about retirees kind of being dangerously high in equities. I mean, with the stock market even higher today, what's your direct advice to the person watching who's who's looking at their portfolio balance and they're feeling euphoric? I mean, maybe even a little invincible. Well, I know they don't think about anything could go wrong. Uh, and it's interesting if you look at them. There's a lot of accounts that we can have somebody come to us um example, they've got, you know, 510 $10 million account and they they're older, what I mean they're 75 or 80 or higher, but they have a lot of that portfolio in stocks and they want to stay that way. Okay. Now, we won't take those kind of accounts. And the reason we won't is because from a f fiduciary standpoint that's not the prudent thing to do because that person is not at that stage to where you know numerous things could go wrong. I mean health a lot of things can happen and they're not at a point where and I always ask people particularly if you're over 60 okay if whatever you name the reason 40% of that portfolio is gone tomorrow morning how would you feel about that in other words really hit that between the between the ears there how would you feel about not having that money most of I think it would really really bother them. I think it would I think it would not only be economically tough, but I think it' be socially tough for a lot of them. And I say this over and over again. It would be socially tough and economically tough for their kids because if they lose a lot of money, guess who's going to take care of mom and dad? And I but I I I think people have grown so accustomed to the Federal Reserve and fiscal policy of just saving everybody that they think you really it's no big deal. I've made so much money. I'm not I'm not worried about it. But believe me, when they lose money, they worry about it. But I always come back to this. What what can I what can happen to my portfolio and I'll continue to sleep good every night. Get up next morning, feel great, whatever. What what's that number? Okay. And it's different for different people. I know it is. But as you get older, you don't have a lot of choices. Okay. Not only uh choices in terms of earning back wealth because most people over 70 have all the wealth they're going to have as far as uh you know what they have. It can be a lot of money, don't get me wrong, but it's what they have. And so then you got to start thinking about preservation. H what's the line between investing and gambling? Well, investing is buying in a productive asset. Yeah. I mean, pure and simple. If I buy and that can be a lot of things now, I know it could I love real estate. It could be real estate. It could be oil and gas. It could be private private companies. It could be a lot of things. But it's a productive asset that produces profits, produces cash flow, produces returns. To me, speculating is just what that sounds like it is. It's putting a dollar on the line and hoping the next person comes along will pay you $2. Now, well said. To me, that's not that's not investing. Yeah. Invaluable advice for uh families everywhere. Ted, appreciate it. Hey, before I let you go, let's wrap up with a few quick forecasts on the market. Uh, first, the S&P 500. I mean, where does it close out in 2025? Oh, I have I have no idea. No correction maybe this year. Feels like one of the things I always say is don't don't predict price and don't predict time. Um, but I will say this to answer your question. I'm not trying to um if you look at it, it won't be surprising anywhere in here that at a minimum you get a a 10 or 15% selloff just just as a as a situation where something goes wrong or you know these numbers keep coming in weaker and weaker and people say you know uh you got to remember now these portfolio managers when you get down into October, November, if they've got really decent numbers, they're going and boost lockdown on it because they know they've made their year already. Yeah. Yeah. And so that's that's part of it too. But I I wouldn't be surprised if we don't get kind of a short uh it's kind of what I call a sobering up selloff. Maybe not the end selloff where you really have a big move down. I think I think that comes eventually and it may come from a different maybe it comes from 7,000 or something on the S&P. Yeah. Yeah, but things gets expensive and they stay that way for a while and then something changes that changes the whole situation and then all of a sudden you go into what I call sort of more of a generational bare market kind of thing. I don't think you're there in it right now obviously, but you know, you have to remember people in this industry, our industry, you know, they a lot of there's a lot of them that have never been through inflation. Yeah, no kidding. You know, I've had to manage through inflation. That's a different game. All right. And they've never had to manage through, you know, downturns. You go on and on and on and they and they they really hurt and you just can't get ahead on them. Um those are things they've never experienced. And so I I feel like that that's coming some point in time. And um you're going to be able to see who who knows how to weather that storm. Yeah, well said. Experience key. I mean, history does repeat itself. And I mean, on the price of gold six months from now, I mean, is it going to be higher or lower than it is today? I know we don't have a crystal ball, but I mean, are we going to get that pullback? What are your thoughts? Well, if you get a sell off in the market, Jeremy, gold and and and gold miners are going to sell off too. Yeah. But I would tell you it' be like 08. They call they they sold off in '08. By the time we got to the end of '09, they were a new high and we we started and then they really soared all the way up to 2011. And so, um, you know, they'll sell off. They're not they're not immune. When the market sells off strong, the only thing that's not immune, uh, is the 90-day Treasury in our opinion. Okay. Um, and people try to hedge it and do this, that, and the other, all sorts of things. But if you really that it anything that's up is going to get sold. So, they'll sell them. But I think if you looked out a couple of years from now, two or three years from now, you know, gold will be higher, silver beer, miners will be higher, even if you had a correction. Yeah. I was going to ask you, I mean, that was my last one. Do you think, you know, silver is going to finally break that iconic 50 mark this next year? you know, wouldn't be surprised um as you go through 26. Yeah. Yeah. Let's let's zoom out here. Last question to you. Uh appreciate your time again. I mean, you know, when we think about all we've talked about today, Ted, I mean, what's the single biggest risk to the market right now that you believe is completely mispriced? I mean, looking into 2026, what do you believe is the the the biggest financial surprise? The one event or trend that no one's kind of talking about today? Well, geopolitically I think is a big one. I think we this idea that the US is so strong that we can throw our weight around on China, Russia, India, all these other countries and we're not we're not that strong uh to do that and it's that that geopolitically that is one. Okay. Secondly is that that when you get into this tariff situation where countries are are hitting against each other that's what happened you know during the uh during the smooth hauling and all that you had countries there were vying against each other and what happens when that h is that you have all sorts of things get out of line and you that there could be some blowups there and then the second thing is that companies just are not as profitable people don't realize this the estimates for the S&P for 2026 are up 16% on profit. We don't think there's any way they can hit that number. And I think all of those things will be surprises in one way or another that could hurt you. Um but again, if the companies get cheap enough, we would buy them anyway, but they're not there right now. Yeah. Yeah. Well said. Uh all right. Powerful forecast to end on. Appreciate this. Ted Oakley, founder of Oxbow Advisors, author of the second generation wealth. Uh, thanks for your time sharing your wisdom today. Appreciate this. All right, Jeremy. All right, have a great one. Appreciate it. All right, for more market moving interviews and analysis, make sure to subscribe right here to KCO News. Turn on notifications so you never miss an update. I'm Jeremy Saffron. We'll see you the next time. [Music] Heat. [Music] Heat. [Music]
Ted Oakley: ‘Smart Money’ Is Selling, A Minimum 15% Selloff is Coming
Summary
Transcript
[Music] Hey everyone, welcome back. I'm Jeremy Saffron. If you're an investor right now, you might be feeling a bit confused, and frankly, you have every right to be. The headlines are telling one story, while the economy seems to be telling you another. Here's the bullish story. The Dow Jones has hit 46,000 for the first time. The S&P 500 is nearing all-time highs. And the consensus on Wall Street is that the Federal Reserve is going to step in and cut interest rates next week. But then there's the other story, the one that feels a lot more real for many people. According to the Department of Labor, weekly jobless claims just saw their biggest jump since 2021. And just this morning, a report from the University of Michigan shows that consumer sentiment has fallen sharply to 55.4. And what's really telling is that consumer's long run inflation expectations rose again, now up to 3.9%. Now, that leads us to a huge contradiction. If the stock market is so strong, why has a staggering $266 billion poured into the safety of cash over the last four weeks? Well, here to help us make sense of these conflicting signals is Ted Oakley, the founder and managing partner of Oxbow Advisors. Ted has over four decades of experience advising ultra high netw worth clients. He's also the author of 11 books, including his latest, Second Generation Wealth, which as someone about to be a dad for the first time, I truly recommend it. Now, when he joined us back in May, his warning about the market risk resonated with hundreds of thousands of you. And so, he's back. Ted, great to see you. Pleasure to have you back with us. Good to see you, Jeremy. Uh, let's talk about this market. I I mean, there's that puzzle, right? The market's cheering, expecting these rate cuts, but the data from the average consumer is showing that they're worried about their finances and expect higher inflation. In your view here, I mean, who has the better read on the real economy right now? The optimistic trader or the worried consumer? Well, I think it's the consumer. I mean, if you look at even upper middle class income, middle class, lowerass income, they are really in a hurt right now. These people that are in their 40s and 50s have children. uh they go to the grocery store, anything they buy for education, school, whatever, it's all going up a lot in price and it has them stymied quite a bit. I've talked to quite a few families like that and you know, their problem is is that they don't know what to do about it. I mean, they they have they can meet they can make me ends meet, but it's getting tougher and tougher and tougher. And for the lower side, they're not getting there. And I think that's what basically Wall Street forgets. You know, they're sort of sit in the ivory tower and they forget what happens on on Main Street. But I think Main Street is really where you are right now. Yeah. Yeah. It's been so interesting to see. I mean, of course, we had McDonald's CEO coming out talking about how even their consumers have changed and that there's a real big divergence here. People are hurting. But Ted, I want to bring up something we hear from our viewers all the time. They'll say, "Jeremy, I listened to the bearish warnings and the facts all make sense, but if id followed that advice, I would have missed this huge rally." And I mean, they are right. Right. I mean, the market is at an all-time high. But I guess my question is, had the old rules of investing been broken? Do fundamentals even matter in a market so heavily driven by this passive investing, this autopilot buying, and and then the expectation of the Fed rate cuts? Well, I know people get to thinking about that, but a dollar is still a dollar. Mhm. And if you get a dollar, if you buy a dollar for 80 cents, that still makes sense. And if you pay a$120 for a dollar, that doesn't make sense. That's sort of where you are in the markets today. And I guess where I would disagree with people on the berry side is you can have a safety net of 3540% treasuries or whatever. That doesn't mean you're not participating, okay? It just means you're particular about what you're doing and you're not going to go all in and and basically put risk fully on when you know things are at extreme price levels. And I mean really really extreme. So it's not necessarily you're not making an absolute 100% call. I'm I'm completely out or I'm completely in. I just think you have to pick and choose and know what you own. Um and I believe people that's where they've gotten confused. They felt like they had to be uh all in the market. I would have missed the market. Well, you wouldn't have. I mean, if you had if you had twothirds of your money in the market, you wouldn't have missed the market. Okay. But you would also given yourself a little sleep at night because if something goes wrong, you know, you have some liquidity. Yeah. Yeah. Well said. You know, we got this this data out from the EPFR Global. I mean, it's an analytics firm and they're talking about uh $26 billion has poured into cash funds in the last month. US stock funds have seen the outflows of about $19 billion. This means retail and institution money is obviously actively pulling out of this rally even as the indexes hit new highs. I mean, does that divergence tell you uh is is the smart money selling to an an algorithm-driven rally? What are your thoughts here? Well, usually at a high, and I've been through a lot of highs, what happens is is the late players and a lot of times individuals, I have to have to say individuals get bagged because they keep on buying into it and they can't see what's going on underneath a lot of the selling that's going on right now. I think I mean I know a lot of money managers and good ones uh and for the and then in this past 6 months nine months a number of those who said you know we've started raising cash now and and these are people that hardly ever have cash but they're good at what they do and I think individuals just keep right on going because they say oh well you know they're not going to let it go down uh Fed's going to be there to protect us and and and it works till it doesn't and and then you look back and you have to remember what Bob Frell said years ago. Um, whatever you go extreme in one direction, you'll usually eventually correct extreme the other way. It may take a number of years, but that's what happens. If the if the clients are, you know, raising cash, who's doing all the buying at these all-time highs? I mean, aren't your sellers just missing out? No. Well, I think I think a lot of people in our industry today have only been around for say 15, 16, 17 years. Yeah. They've never really seen what I consider a generational bare market or anything that really hurt them because they were real short term, four or five weeks down and then come back. And I think those people keep advising people to push that money and push that money in. And you have to think about this though, Jeremy, but with the 401ks, they're automatic. Yeah. Yeah, nobody ever comes in and tells you in a 401k, hey, you ought to lighten up here a little bit. That's not what they do. You know, it's a plug-andplay deal. And so all that goes on like that. So, sort of an automatic buy. And I think that's where most of the buying comes from. Yeah. You know, it's funny. I mean, we we have that 266 billion that has recently moved into cash. I guess you know the bullish argument is that as soon as the Fed cuts you that cash will be forced back into the market likely through these 401ks these passive index funds that buy everything indiscriminately it seems. Is it possible that this massive flow of money will keep the market elevated for years regardless of what happens in the real economy? Well, I don't think so. And I think people have to remember now I've been through a lot of these where the Fed starts lowering rates and the market goes down. Yeah. Because why? They wake up one day and say, "Well, there's a reason they're lowering rates. Things are slowing down." So, all these numbers are overpriced. All these uh profit margins are too high. All that starts to take place. But I I mean, I'm not saying you couldn't have it go longer because you can. I mean, you look at all the any of the bubbles of the past and that goes not just our country, but Japan and different places. I mean, they can go on because that money can keep driving in. Mhm. But you never know how long that goes. My guess is that over the next, you know, three years or so, you you you're going to catch you're going to catch a firm, you know, probably long-term peak in this stuff because the prices are so expensive. Yeah. That you you get to a point to where there's no return on what you're buying. And that's that's really what it mounts to in the long run. I got to ask you, I mean, I want to shift from sentiment to what people are actually doing with their money. I mean, you talked to a lot of people, Ted, and I mean, according to that recent report from Clearwater Analytics, the treasurers at major companies like Amazon and Uber, well, they're moving their cash out of money market funds and into long-term corporate debt. I mean, it it looks like they're trying to lock in higher yields before the Fed obviously cuts rates. But, you know, the last time we spoke, you said you were holding about 50%, a very significant position in cash, holding that much cash. Does it mean that you've missed out on this rally? I mean, for a client paying for performance, what are you thinking about sitting on the sidelines? Well, you know, Jeremy, it depends on what you own. I mean, uh, I won't get into particulars. I can't do that. Uh, but I'd say our performance this year, you know, really look look at it this way. Just this the way I would explain it. If we're holding, we hold about 45% liquidity across the board now in treasuries, but let's just say the market's up 11 and and let's say let's say we're up eight. I'll use that as an example because and these are not but what I'm trying to say is if I'm earning if I'm earning you know 80% of what the market is earning with only 50% at risk see that that riskreward right there works that means that you're actually doing really really well because you're not out there on the full spectrum of risk and I think I think that's what people forget to see on the on the bond side, we just don't feel like you can ever buy long you'll buy long-term bonds and you'll chase these yields in here. It's the wrong thing to do in our opinion. I mean, we think by this time next year, you're going to be right back to the Fed raising rates, chasing inflation down, trying to push that number, and and it it looks to us like u you're not going to get a big you'll get a big bang out of this as far as the market. people feel good, but that's the wrong thing to do is to go out and buy 20 and 30-year paper right now. Yeah. You you've watched a lot of these Fed cycles. I mean, with what's happening right now, there's the politicization obviously, but there is a little bit of accuracy on some of the data. It's worse than was previously thought. I mean, have you seen anything like it? What's your thoughts? They're going to go and hit 50 next week. Well, even if they do, and I'll just use these numbers, you're at four and a half% on the Fed funds. Let's say you go to four. Yeah. And prime rate goes to seven. I mean, if I'm a business out here, and I'm in, you know, I'm I own part of a bank, so I know if if I'm loaning as a bank and I'm I was at seven and a half prime and now I'm seven, am I really going to get that much more demand for borrowing based on a half a point? I don't think so. I don't I think that number is still such that you won't get a big bang of it. It'll be people will think it will it'll make them feel good. But in the only thing it's really going to do is drop the rate that they're earning on the short-term treasuries or CDs. That's where it's going to really affect them. Yeah, it's so wild. I mean, obviously the audience wants to know how to apply this to their own portfolios. I mean, in our last interview, you gave us some really good specific names really. I mean, you you mentioned fertilizer companies like Nutrient Pharma, like Abbeby, New Miner, New Gold, I think you mentioned. I mean, that stock's up over 100% since we last chatted. I mean, it was one of the most popular parts of our conversations. And I want to kind of ask you, I mean, if if if an investor has new cash to deploy today, what's that one company, that sector that you believe offers a compelling combination of that value that you're talking about, but the safety in these uncertain markets, too? Well, if you'll give it if you'll give it one to three years to to us, it's the most undervalued probably is energy for for for two or three reasons. One, their free cash flow is really high. I mean, we're looking I'm talking about after capital expenditures, debt, everything. Your your free cash flow left over in all of these companies ranges anywhere from 8 to 11 or 12%. which is really and then if you look at the dividends all the energy that we own and have bought you know if you look at the yields on those they range anywhere from five all the way up to nine or 9 and a half so you're getting paid a lot to wait in in energy is at 63 oil at 63 and I've mentioned this before maybe it goes to 45 if the economy keeps on weakening it could so what you do is you don't buy full positions but you own enough of it to where if you get a breakdown back and they get a lot cheaper than that, you know, you can add to those. But if you look out 15, 18 months, two years, you know, there's a chance uh oil could be back at a new high, 150. You know, it came from 130 in 3 years to 62. Uh and it would be it wouldn't surprise us again 3 years from now and have oil at 150 or so. But you got to wait on it. You can't get all hung up on on well, I'm not beating Nvidia because these are truly good buys. In other words, they're paying you to own it. They're also cheap from any kind of vantage point you want to look. And uh and oil oil companies, what happens with them when they move, they really move. They they'll get with it. Um and they haven't done a lot. I mean, they've gone up some, don't get me wrong, but they they could drift a little in here if the economy weakens, you know, severely, but that's just part of owning those, but that's probably the cheapest sector in my opinion anyway. Uh, we own a lot of different things, but but that's one of the cheapest. Is this to I mean, is it kind of the picks and shovels to the to the AI boom? I guess you know, we need a lot more energy. Are you looking at things like natural gas, nuclear, anything like that? Or is it mostly these oil and gas giants that kind of been beat up? Uh Jeremy, no. We own a lot of natural gas. A lot. Um we own three or four natural gas pipelines which pay tremendous cash flows. I'm talking about 7 and a2% or higher 8%. Uh that pays on a K1. So you don't pay any current income tax on them. Uh but but but in addition, you know, we we own uh up and down the spectrum. You'll see where we own the big name like a Chevron uh like a Northern Oregon Gas. You'll see us uh own, you know, that kind of company. Um we own a we're really up and down the spectrum. Now, I will tell you, we don't own uh any of the drillers. Uh they they can move and they can do well, but that's not where we're concentrated. And uh we don't do own a lot of the offshore drillers either. So, we're really primarily in the producers of natural gas uh and the in the midstream, too. Yeah. Yeah. I mean, you know, I know you can't speak about those returns, but you're a very successful money manager yourself. I mean, Ted, let's make this kind of practical for our viewers. When when you look at a company today, knowing that this broad market is ignoring traditional valuations, what are the top or three specific metrics that you kind of focus on to decide if if a business is good investment? I mean, can you walk us through your process a little bit? But I think people have forgotten it. Well, for us, there's four or five things, but one, you know, I'll just start with a balance sheet. You want to make sure debt to equity is okay because if a company is heavily laden in debt, um, then you have to be perfect on the buyer or where they are in the cycle. So, that's really important, that debt to equity. the the the second thing that you look at is you really do look hard at free cash flow and what these can and for all your viewers out there in free cash flow it's really what's left over after you've paid everything else plus what you've had to reinvest capital expenditure wise to build new plant equipment etc. But you look at that because that's what gives them the ability to increase dividends, to buy back stock, pay down debt. No, that's that's all good stuff right there that you look at. And we look, you know, we look we try to go out about five years and estimate what we think these companies can earn. And then we discount it back with a with a with a uh with a with a sort of an inflation number that we'll put on it. For right now, it's about 3%. Uh and then we'll try to buy it a little better than that. And we're just trying to buy we try to get it we try to give ourselves as much buffer as we can against being wrong. People realize you need to realize what you have to do in money management is make sure that you don't lose a lot of money because that's where that's where it's hard to catch up. And I always recommend that to people. Remember risk management. It's the most important thing. Yeah. Take a little bit of profit from time to time. I've been through that myself. Uh, I got to ask you, I mean, we got to move on to the medals, but before we do that, I I reviewed the tape our last interview. As I said, it it did really, really well. And some of those, uh, names that you were buying at the time were very defensive names, like the Abby V, you know, the drug maker, food company, Unilever. With the consumer now showing signs of weakness, are those defensive sectors still kind of a a top focus outside of those energy picks that you just talked about? Well, we still own them, but I'll give you an example. um things we've been buying recently and these are not you know these are opening positions which means that they're smaller so you add to them over time but if you look at Crown Corporation which just basically makes cans that you drink out of u that sort of thing elevator I know these are mundane sounding companies but you use them every day believe me in what you do we just added Gilden uh active wear and For all you moms and dads out there, just go look in the back of that t-shirt and probably half of them will say Gilded. No kidding. You look at things like that because what are they going to do? They're ain't going to buy during bad times, they're not go down and and buy a lot of Ralph Lauren for their kids, but they're going to buy some t-shirts, you know, and things like that. Um it's things like you know it's a different group of stocks we found that are doing well but I and um it's it it's interesting we when they hit a cash flow number for us it hit the right numbers what like Regeneron which is a probably one of the best biotechs that's out there and Regeneron really came off a lot and when it got cheap enough and I'm talking about down quite a bit you know we took a position Regeneron we've owned that stock in the has and done well with it and uh very very well-run company I will tell you. Um and then um you know we uh we have lightened up on some things and uh too but generally we're still um probably across the board about in all three strategies about 45% in treasuries. Interesting. Okay. 45 still in in tea bills. Uh, I want to bring back cuz you talked about, you know, some of those uh, companies. You weren't buying Lululemon, right? I mean, you're not sitting there buying the expensive brands. You're talking about brands that would be on the average American. I mean, is that kind of the play here? Is that that economy that we're talking about? Those main street struggles, they're going to kind of be the the drivers of this economy. Well, for example, Lululemon and we don't own that stock and and haven't, but if you look at, you know, the last few months after they announced and everything, and you could tell that their buyers, you know, were obviously backing off and, you know, and and they're sort of a some ways you get one of those companies like that that's like a one one product, you know, the the stretch bands for women, that's a big product for them and then all of a sudden they get competition. But yeah, we I think right now you have to buy if you can get them cheap, you have to buy the mundane. Yeah. Companies pay you good cash flow, pay a good dividend. And people have to remember too, Jeremy, on a dividend, um, you know, I'm getting, you know, say on a dividend, you can buy the corporate bonds all the time, but you're going to pay, uh, ordinary income tax on that. But on a dividend, I'm only going to pay 20%. Uh so it it has its advantages and the treasuries have their advantage. You don't pay state tax with those. So there's a lot of things fit together and all of that, but um that that's that's that's how we're structured right now. Yeah, makes sense. I mean, you got to think about those tax jurisdictions, too. I want to pivot to another asset class that's been telling a very different story from the S&P 500. I mean, I'm talking about precious metals, which have had a truly historic week. I mean, gold just flew past its 1980 inflation adjusted peak, hitting an all-time high of 3674 on the futures this week. You told me in May that you hold a lot of physical bullion. I mean, and you also said all the way through as a core currency hedge. I mean, is this record run the ultimate kind of indication of that long-term thesis? And where do you see it going from here, Ted? Well, I what what I said then is what I always say is that we have three strategies, but in the in the conservative fixed income strategy, almost everything we own in there, we own this less than 60 month maturity. Okay? And if you're going to own that as a currency hedge, because we feel like long-term the dollar will continue long-term continue to decline. If you're going to own the fixed income, you have to to us, you've got to own some bullion, some gold bull to to offset it. And that's that's what will offset it. And and and it's a different time now. I know people want to think about it, but most of these major countries are lining up against us, not for us. Look at Russia, China, India, um to extent some of the South American countries and they're going to they're buying gold, you know, they're not turning their dollars around and trying to buy back into the assets of of this country, particularly treasuries. They want they want to own something. Even a lot of them against their own currencies are doing that. So, I think you have to own it as a hedge like that. We're in a different era, a different time when probably a lot of currencies, look at the sterling, pound sterling, you look at the euro, yen. Uh, you can't have faith in a lot of these, including the dollar. And I think that's why more of them side by side, they own the gold bullion. And that's what I think people have to keep in mind. Yeah. Yeah. They haven't stopped buying it either, even at these record prices. Uh you were SP talking about cash flow before getting back to those basics and bringing up cash flow. I mean the miners, some of these miners are printing cash. Um are you looking at the miners right now? Do you think that there's still room to go? I mean a lot of them have had some great upside but still early. Well, we you know we own a number of miners now in our stock account. We only own the royalty companies like Franco Nevada, right? a royal gold and a wheaten but in a high income account which is sort of a commodity offset account pays a lot of cash flow we own the direct miners I mean we own a um like I mentioned before little company new gold but but we have also in there we own royal gold weeden but uh I think people have to remember and I think this will bother them probably but if you get a correction in gold and let's just say you went from you you went down to 33,000 or 3100. I think people would think it's over and it's done or whatever. It's probably not uh because of way the world set up this next decade, especially we feel like commodities uh and inflation are coming back. That's going to be a new that's going new world order. And if that's the case, you don't you don't want to get shaken out on a downturn like that because you could very well get it. But um you know, for new money, yeah, we still buy them. We may not buy quite as high a position as we would have uh a year ago or a year and a half ago, but we still own the same ones. Yes. So, a little bit of panic hands. I mean, we've seen that in that cyclical industry, right? There seems to be a pullback. Everyone kind of reacts. Is it a time then I guess what you're saying is to buy the dip if that happens. I mean how much do do you think it's too euphoric here? Do you think gold needs to come down a little bit? Take a breather. I don't know. Um I think it confused a lot of people Jeremy when it went through 34 3500s. They thought that was it and uh and you you can't ever tell till afterwards but it really didn't. It kind of drifted sideways for quite a while. Mhm. But you know, there's uh there's there's just a lot of reasons why with all of the turmoil that's in the world, I think that that gold will become uh more owned. See, people like, you know, it's not a very highly owned asset. You look at the miners, virtually nobody owns them. Yeah, I mean they're uh you know, you're looking at gold and gold miners. They've been one of the best groups, maybe the best group this year, but yet you never you're not going to hear it on Bloomberg or CNBC. I hear it from you. But uh good, keep listen. It's it's wild that just a little bit of volume, a little bit of buying in this market can trigger, you know, 50% uptake on some of these equity sides because there's just no liquidity there. Yeah, they're very profitable though. If you go in and look at the today's numbers, I'll just give you this example and I used this graph in a presentation last week. I said, let's just take the the GDX, which is the large gold miners. Okay, we have just now equal the price of the GDX as to what it was in 2011. That's 14 years ago. I mean, we're just now even. We're not breaking in the new highs yet. And you're you're not even close on the junior miners. Yeah. No kidding. And so while they've had a move, they have to realize how cheap they were. And if you look at the cash flow numbers now on gold miners, if you were to sell those same multiples of that cash flow as you had in 2011, those stocks would double or triple from here. Do you think that there's still some value? I mean, I know that it takes a lot more due diligence to look at the juniors, but I mean, you know, has it been kind of some of these major caps, Nico for instance? I mean, yeah, they're printing capital, but their stocks are up. Who's got more of an opportunity to run? Well, they probably do. You have to be good at that area, though. And you not, you know, I think people that do well in the junior minors, that's what they do. That's not what we do. And we're not we're not good enough to do that. Uh so if you're not good enough then you don't need to be in there because there's a lot of things going you know I think there'll be a lot of merger acquisition in that area though and probably do some really good I mean and then we own you know we own silver bullion too and we own pan-American silver but see it will it will really outstrip gold some someday I mean usually when it starts moving this is good tid I mean it's almost like you're you're reading my notes here because we haven't talked about silver but it's been on an absolute absolute tear. I mean, it's hit a 14-year high of nearly $43 an ounce. How are you looking at silver right now? Do you see it as a better value? Like you just said, you know, having more upside than not just the bullion, but I guess the miners too here. Yeah. Well, we only own one minor. We own Paname. Um because we but it's again it fits what we do. Um on the bullion, we own it. We don't own as much as we own in gold because it's more volatile and it's not as I don't know how to explain it to us. It's not as stable as gold is. But when it when it really moves, it moves much faster and stronger than gold does. But we we own them together really in the particular high income portfolio. And that's how that that's structured uh together. Um, but yeah, I I I think you can own a little bit of silver, too. Yeah. Well said. We just had Ross Media on Pan-American Founder. I mean, do you follow how close do you follow the management teams? Is that kind of I mean, you've seen and been through a lot in this minor market. Are you kind of looking towards those teams as opposed to maybe the asset itself? Well, I wish we could bring Pierre Lasan back uh to run some company. Amen. For all of those who don't know, he was a founder of Franco Nevada. Really bright man. Uh but no, I have a I have quite a few contacts in the business and that's how I check them. That's how I check a lot of the management people, you know, because you know that's a that's sort of a that's sort of a business unto itself. Yeah. Yeah. You got to know you have to know what's happening. So I what I do is really what we do is we we stay in contact with a lot of people that know those people, you know, and they can tell you, hey, um this is bad management here. They got a good asset, but bad management or reverse, you know, good management, they can turn that asset around u and see what happens. Yeah. No, well said. Uh, okay. This has been an incredible move in precious metals, you know, in this rally, but I it really speaks to the deep desire for wealth preservation, which is kind of the central theme of your book, Second Generation Wealth. I mean, that that part of our last conversation really stuck a chord with the audience. So, I want to spend a few minutes there. Let's start with the basics. I mean, for a young person watching today, who feels like they're behind, which a lot of them do, uh, you know, with little or no wealth to even speak of. I what's the single most important step, first step maybe that they can take to start, you know, building this future? Well, I tell a lot of young people this and and I don't think they're as many of them are listening, but you have to get out of debt. Okay? You're not you're if you are debt laden, you're you're never you're never going to get ahead. I mean it you have to figure out some way to really save more than you're spending and uh I mean save have some left over and and I think people a lot of young people right now just living for the moment they're living for the experience this that and the other but that doesn't do them any good for the long run. If I sit down with them and say, "Hey, you know, if you'll put X amount of money aside, let me show you what that would do." And they just and use a nominal number, you know, six, seven%. And it'll it'll surprise them at how much money they would have, but they have to get out of debt first. And they haven't been afraid of debt. And I think um I think that's the first thing they have to do. Yeah. Everyone gets free money, right, at 22%. Well, I I think too um what I say in the book is more about parenting and if you have a lot of wealth, uh don't don't don't bestow that on your children. Let those let those kids have to go out and earn it the hard way and then they'll appreciate money. I always say you can't appreciate money if you've never experienced having a lack of money. Like if I if I show up and I'm uh which I don't agree with this, but a lot of financial people, financial planners and stuff, they want to bring them in at 16, 17, 18 years old and say, "Look, here's how we manage the family wealth, blah blah blah blah blah." Well, you just took all their ambition away from them. Yeah. You want them, you don't really want them to know that right now. I disagree with that concept. Yeah. I mean, I remember reading that in the book. I mean, your advice is not to talk to children about a large inheritance until they're in their 30s. You, as you mentioned, that ambition for for those I mean, expand on that. I mean, for if you're not talking about the numbers, what should parents be teaching their kids about money in their teens and 20s to prepare them properly? Well, number one, you want to live by example. Mhm. So, uh, if you're sloppy with as a parent with how you spend money, and I think it comes into play more than anything, Liz, we work with a lot and over the years, we've done that since 1983, work with business owners that have sold companies. And that's where the problem is because their one lifestyle was pretty frugal and, you know, they're working in the company and all of a sudden, boom, they've got 50 or hundred million dollars. Yeah. and they start spending and doing sort of crazy things with the money. Um, and and the kids see that and they think, you know, gosh, we're ultra wealthy and so I don't have to do anything either. I think example is one number one. Number two, though, you have I think every nobody understands the the quality of work. Yeah. If you can require your kids to go out and work for six, seven, eight, nine years, whatever, and then if you want to try to bring them back to the business or the family office, and that's one thing, but you need to wait till they've hit the wall a few times and gain some experience because that's what gives them self-esteem. That's what you want for your kid anyway. You want self-esteem. You want them to be able to stand on their own two feet and they you know I always say uh make them stand up so if you didn't have any money they'd still do okay and I but I think a lot of parents though come in a lot of money and u they take the easy way out which is just give them everything they want. work ethic, huh? Accountability. Imagine that. Um, all right. That's great advice. Uh, let's get to the other side of the spectrum. For those who have built their nest egg, right? I mean, you've given that stark warning in May about retirees kind of being dangerously high in equities. I mean, with the stock market even higher today, what's your direct advice to the person watching who's who's looking at their portfolio balance and they're feeling euphoric? I mean, maybe even a little invincible. Well, I know they don't think about anything could go wrong. Uh, and it's interesting if you look at them. There's a lot of accounts that we can have somebody come to us um example, they've got, you know, 510 $10 million account and they they're older, what I mean they're 75 or 80 or higher, but they have a lot of that portfolio in stocks and they want to stay that way. Okay. Now, we won't take those kind of accounts. And the reason we won't is because from a f fiduciary standpoint that's not the prudent thing to do because that person is not at that stage to where you know numerous things could go wrong. I mean health a lot of things can happen and they're not at a point where and I always ask people particularly if you're over 60 okay if whatever you name the reason 40% of that portfolio is gone tomorrow morning how would you feel about that in other words really hit that between the between the ears there how would you feel about not having that money most of I think it would really really bother them. I think it would I think it would not only be economically tough, but I think it' be socially tough for a lot of them. And I say this over and over again. It would be socially tough and economically tough for their kids because if they lose a lot of money, guess who's going to take care of mom and dad? And I but I I I think people have grown so accustomed to the Federal Reserve and fiscal policy of just saving everybody that they think you really it's no big deal. I've made so much money. I'm not I'm not worried about it. But believe me, when they lose money, they worry about it. But I always come back to this. What what can I what can happen to my portfolio and I'll continue to sleep good every night. Get up next morning, feel great, whatever. What what's that number? Okay. And it's different for different people. I know it is. But as you get older, you don't have a lot of choices. Okay. Not only uh choices in terms of earning back wealth because most people over 70 have all the wealth they're going to have as far as uh you know what they have. It can be a lot of money, don't get me wrong, but it's what they have. And so then you got to start thinking about preservation. H what's the line between investing and gambling? Well, investing is buying in a productive asset. Yeah. I mean, pure and simple. If I buy and that can be a lot of things now, I know it could I love real estate. It could be real estate. It could be oil and gas. It could be private private companies. It could be a lot of things. But it's a productive asset that produces profits, produces cash flow, produces returns. To me, speculating is just what that sounds like it is. It's putting a dollar on the line and hoping the next person comes along will pay you $2. Now, well said. To me, that's not that's not investing. Yeah. Invaluable advice for uh families everywhere. Ted, appreciate it. Hey, before I let you go, let's wrap up with a few quick forecasts on the market. Uh, first, the S&P 500. I mean, where does it close out in 2025? Oh, I have I have no idea. No correction maybe this year. Feels like one of the things I always say is don't don't predict price and don't predict time. Um, but I will say this to answer your question. I'm not trying to um if you look at it, it won't be surprising anywhere in here that at a minimum you get a a 10 or 15% selloff just just as a as a situation where something goes wrong or you know these numbers keep coming in weaker and weaker and people say you know uh you got to remember now these portfolio managers when you get down into October, November, if they've got really decent numbers, they're going and boost lockdown on it because they know they've made their year already. Yeah. Yeah. And so that's that's part of it too. But I I wouldn't be surprised if we don't get kind of a short uh it's kind of what I call a sobering up selloff. Maybe not the end selloff where you really have a big move down. I think I think that comes eventually and it may come from a different maybe it comes from 7,000 or something on the S&P. Yeah. Yeah, but things gets expensive and they stay that way for a while and then something changes that changes the whole situation and then all of a sudden you go into what I call sort of more of a generational bare market kind of thing. I don't think you're there in it right now obviously, but you know, you have to remember people in this industry, our industry, you know, they a lot of there's a lot of them that have never been through inflation. Yeah, no kidding. You know, I've had to manage through inflation. That's a different game. All right. And they've never had to manage through, you know, downturns. You go on and on and on and they and they they really hurt and you just can't get ahead on them. Um those are things they've never experienced. And so I I feel like that that's coming some point in time. And um you're going to be able to see who who knows how to weather that storm. Yeah, well said. Experience key. I mean, history does repeat itself. And I mean, on the price of gold six months from now, I mean, is it going to be higher or lower than it is today? I know we don't have a crystal ball, but I mean, are we going to get that pullback? What are your thoughts? Well, if you get a sell off in the market, Jeremy, gold and and and gold miners are going to sell off too. Yeah. But I would tell you it' be like 08. They call they they sold off in '08. By the time we got to the end of '09, they were a new high and we we started and then they really soared all the way up to 2011. And so, um, you know, they'll sell off. They're not they're not immune. When the market sells off strong, the only thing that's not immune, uh, is the 90-day Treasury in our opinion. Okay. Um, and people try to hedge it and do this, that, and the other, all sorts of things. But if you really that it anything that's up is going to get sold. So, they'll sell them. But I think if you looked out a couple of years from now, two or three years from now, you know, gold will be higher, silver beer, miners will be higher, even if you had a correction. Yeah. I was going to ask you, I mean, that was my last one. Do you think, you know, silver is going to finally break that iconic 50 mark this next year? you know, wouldn't be surprised um as you go through 26. Yeah. Yeah. Let's let's zoom out here. Last question to you. Uh appreciate your time again. I mean, you know, when we think about all we've talked about today, Ted, I mean, what's the single biggest risk to the market right now that you believe is completely mispriced? I mean, looking into 2026, what do you believe is the the the biggest financial surprise? The one event or trend that no one's kind of talking about today? Well, geopolitically I think is a big one. I think we this idea that the US is so strong that we can throw our weight around on China, Russia, India, all these other countries and we're not we're not that strong uh to do that and it's that that geopolitically that is one. Okay. Secondly is that that when you get into this tariff situation where countries are are hitting against each other that's what happened you know during the uh during the smooth hauling and all that you had countries there were vying against each other and what happens when that h is that you have all sorts of things get out of line and you that there could be some blowups there and then the second thing is that companies just are not as profitable people don't realize this the estimates for the S&P for 2026 are up 16% on profit. We don't think there's any way they can hit that number. And I think all of those things will be surprises in one way or another that could hurt you. Um but again, if the companies get cheap enough, we would buy them anyway, but they're not there right now. Yeah. Yeah. Well said. Uh all right. Powerful forecast to end on. Appreciate this. Ted Oakley, founder of Oxbow Advisors, author of the second generation wealth. Uh, thanks for your time sharing your wisdom today. Appreciate this. All right, Jeremy. All right, have a great one. Appreciate it. All right, for more market moving interviews and analysis, make sure to subscribe right here to KCO News. Turn on notifications so you never miss an update. I'm Jeremy Saffron. We'll see you the next time. [Music] Heat. [Music] Heat. [Music]