Will 2026 Be The Year The Stock Bubble Bursts? | Kevin Muir

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Is it an AI bubble? 100%. And like anybody that tells you that when the world's largest stock trades at 33 times sales, not earnings, sales. Okay, this is the world's largest stock and it's basically just an AI stock at this point. I know they do other things. Nvidia does. They sell GPUs for video cards and there's a lot more, but in in reality, it's trading on the AI hype. That is obscene. It is going to end in tears. Is there going to be a correction? 100%. You go through look through time. These mag seven names, they are volatile names that regularly go through 50 or 1/3 to 50% haircuts and it is going to happen and it's going to be brutal and it's going to be difficult. Welcome to thoughtful money. I'm its founder and your host, Adam Tagert. After two years of 20% plus returns for the S&P in both 2023 and 2024, 2025 looks like it will close with another big double-digit performance. Three back-to backtoback years of performance like this is somewhat rare in markets. So, what's the likelihood the streak will continue in 2026? or is performance more likely to mean revert? To discuss, we're fortunate to speak today with market veteran Kevin Mure, founder and editor of the macro tourist, the highly acclaimed newsletter that currently ranks as one of the top financial substacks in the world. Kevin, thanks so much for joining us today. >> Well, it's my pleasure. Always fun chatting with you, Adam. >> Thank you, Kevin. Well, same here. And I appreciate you making the time around the Christmas holidays here. I know it's a busy time for you, but very much appreciate you coming on. It's always fun and I always love you and your your uh listeners. They're a great bunch of folks. >> Oh, thanks. It's uh it's right back at you, buddy. Um all right. Well, look, um I don't ask this question too much anymore, but since it's been a while since you've been on the program and because you have a bit of a an outsers's eye when it comes to the US because you live up in Canada. >> Yeah. >> What's your current assessment of the state of the economy in the financial markets right now? >> Oh, it's tough. Um it is a very very strange time and there's all sorts of different crosscurrens and it's easy to get kind of bogged down into one little you know niche is you know some people telling you the dollar is going to collapse and we're going to hyperinflation others telling you there's a funding crisis and then there's the folks that are saying that there's going to be a new Fed and it's going to be this big bubble and it's difficult. There's there's probably never been as much noise as there is right now in terms of the different um things. And not only that, >> you forgot to mention the administration loudly shouting, "Hey, the golden age is started." >> Well, that's what I was going to say is that not only that, we have some pretty dramatic changes in terms of how um the economy operates, how the world financial system operates. And so one of the things that I've been telling people is that if anyone tells you with any sort of certainty that they know for sure that this is going to happen in the coming year, you should probably stop listening to them. Um because the reality is that there is so much uncertainty out there and it is so difficult. It doesn't mean that we can't make some educated guess. It doesn't mean that we can't have views about which way we're going, but it's it's important to make sure you stay, you know, nimble. Like let's just rewind back to the point where Trump was elected at that kind of in that early January 2025 period. Everyone was super bullish on the US. It was this, you know, euphoria. It was um one of the most kind of uh exuberant periods that we've had. Within four months, we had the, you know, liberation day. It went from exuberant to basically hugely pessimistic. That's massive selloff. I was looking the other day at the Bank of America Global Fund survey and I thought it was like 45% of respondents and these are institutional respondents, people that should know expected a hard landing within the next year. Now, you know, fast forward in 8 months from there and from then and we're back to the point where only 3% of those respondents expect a hard landing. So, that is just an a hugely emotional swing. It is difficult. And so when you ask me like how do I what do I see in the markets and the economy it's it's not something that's very clear and I can say to you for sure we're going to have this and for sure the economy is weakening and for sure this is occurring because there's so many different parts that are happening. Like for example let's just take immigration. We had a recent uptick in unemployment. the unemployment rate was uh one of the um I think it was an uptick there and then in terms of inflation we had a down tick. So you would look at this and you would say oh you know what this actually the economy is doing poorly and yet we have the stock market racing to new highs. We have a lot of folks talking about the golden age of the American economy. It's it's it's difficult. So, okay. So, um if you don't mind, I want to tug on on several things. Um >> but but let me start with what might be an uncomfortable question. Um >> Sure. >> So, you're up in Canada. Um, President Trump >> didn't do himself any favors, especially at the beginning of this year in terms of building relations with Canada, whether it was everything from, you know, shaming Trudeau and the comments of the 51st state to slapping additional tariffs on even after having, you know, renegotiated trade in his first administration with Canada. So, I understand that there's some very justifiable hard feelings there. when you look at the economic playbook that the US was pursuing before right um which you know to to you know in President Biden's defense had some really big curve balls like COVID right as part of it >> but also ended up seeing you know runaway inflation and a bunch of other things. Um, when you compare that economic playbook of the previous administration to the the economic playbook of the Trump administration, what what what grade would you give the the current administration's economic policies? Do you think they're they're net better or net worse than what we had before, or is it too mixed? >> You just want to get me in trouble, don't you, Adam? Like, um, okay. So, one of the things I think that we should remember when we're trading and when we're investing is that our opinion about what should be done is almost irrelevant. It's what will be done and what how that affects the economy and how it affects the markets. So instead of giving a grade, why don't we just talk about what his policies are doing and where what they might, you know, cause where they might present opportunities, where they might, you know, present problems with the economy going forward. And this is also one of the things that it's difficult because, you know, one of the things that Trump has said and he was elected on was that he wanted to get Mid America working again. that was a big huge platform like he was main. >> Yeah, it was main street turn. And one of my big beliefs was and still is that if we have a situation where we're actually going to have Main Street doing well, it is going to be extremely difficult for Wall Street to also do well. And there's a a myriad of reasons and we can go through them all, but let's just think about it in its simple terms. We've had a situation where for the past two decades, labor has been losing at the expense of capital. And all you have to do is look at labor as a percentage of the GDP versus profits as a percentage of GDP over these past two decades. Labor has been going down, profits have been going up. And the reason that is is that if we kind of step back and remember what happened a couple of decades ago, we had the fall of the Berlin wall, the fall of communism. That was a huge push of new labor entering the system. And then we had China entering the WTO. All of these were labor supply shocks. And when we had that sort of globalization and this huge amount of labor coming onto the into the system, it ended up being that when people would go and ask for raises or or push back and try to negotiate themselves a little more of the portion of the profits, you know, company owners would say, "Listen, you're lucky you have a job. We're thinking about outsourcing this to China and we're thinking about doing this. You know, you're just lucky to have a job." So this has been a situation where labor has just been losing for years and years and years and years and meanwhile capital has been doing better and better and better and that is >> and sorry to interrupt but I mean this is back to you know NAFTA days. I mean, right? I mean, >> it's and it's all it's it's it's a decades decades long trend. And it was part of the reason that Trump got elected was that we have this situation where regular folks are feeling the pinch and it's and it's all sorts of pressure and they're looking at the world and they're saying this isn't very fair and it's manifested itself in many different ways on the political side, but ultimately it's an economic issue and it's the reality is that people aren't doing well enough. So, one of the things that I've always kind of said is that if Trump really truly wanted to fix the problem and have a situation where Mid America was getting put back to work, it's actually you can do it. You can do it by lowering the dollar. You can do it by fixing the trade deficit. You can do it by, you know, imposing um curbs in terms of the capital entering in the US because these all these things make America unprofitable for manufacturing and make um it difficult for them to actually for labor to do well. And like another thing that we can think about is that the moment that labor finally got a little bit of an advantage in 2020 when COVID hit and all of a sudden we had no immigration in the postcoid environment. Um a lot of governments allowed excess immigration. In the US it was kind of Biden turning a blind eye to letting people across the border. Here in Canada, Justin Trudeau allowed the most legal immigration that we've had since the baby boom in the 1960s in terms of the we had a a population growth that was absolutely insane. And the reason that they did these things was because they were listening to uh their kind of business uh leaders and they were saying we're having trouble getting labor. And for the first time, labor was winning. And what did they do? They allow all this immigration. So, so this is the problem was that this was inherently bad for business but yet good for labor. And this goes back to my problem with Trump was that he wants Mid America to do better. He wants people to have jobs. He wants all these things. But at the same time, we have a US stock market that has been propped up by inflows of capital, which is the other side of the trade deficit for the past kind of 10, 20 years. and they're trading at obscene levels and to fix those problems to to have it so that labor is doing better in inevitably we're going to have stocks go down. And so when I would talk about the like the inflows of capital being the other side of the trade deficit and when I thought about his policies and the fact that he was going to do these sorts of tariffs and try to fix the trade deficit, it very quickly became clear to me that this would actually cause the stock market to go down. And when I kind of wrote about this, Adam, and and and kind of presented my ideas, you know, some people argued about whether you can have the trade deficit go down and the stocks stay up and and I happen to think you can't, but regardless, you know, that's their opinion, and I'll just take the other side of that. But the really smart guys, like I I remember one guy, a macro dude from uh a pod shop, he he reached out to me and we started chatting, but he goes, "Listen, I completely agree with you. If the if the you if the Trump does what he wants it says about the trade deficit, it's going to mean that the stock market goes down. The trouble is I don't think he means what he he's actually going to do what he says he's going to do. And this is the problem, right? Is that we become very political. We get Trump saying one thing and if he followed through on it, it would actually be easy to trade. But he goes, he does the tariffs and next thing you know, he's taco goinging. He doesn't really want the trade deficit to go down. he wants the stock market to go up. And so there's these huge pushes and pulls and it's a very very difficult environment because there are so many different macro um themes that are going out there. And one of the problems is that people will say, well, okay, he wants to have a, you know, he wants to run the economy hot. And sure, he wants to run the economy hot and he wants to, you know, make it so that the economy does better. But at the same time, if he does that, eventually the bond market is going to have a conion and we're going to have a problem there. And so he's trying to juggle all these different things. He's trying to let labor win yet also keep the stock market up. And they're just very very difficult to to to to manage. And I don't think he can. And so back to your question about like his grade, I don't think he understands the paradox of what he's trying to accomplish that he can't have Main Street win and also Wall Street win. And what I suspect he's done is he's gone and tried to basically blow this AI bubble, hoping that everyone wins in the meantime if we just blow this AI bubble big enough. And I it's a very extremely dangerous period for investors in US financial assets especially the stock market. >> All right. So um a couple things on that. Um one is uh just to give you credit um for being in the camp of other very smart people. Um, another person who I've interviewed who was probably the first uh to put on my radar, hey, if the trade deficit goes down, then foreign capital coming into the US goes down into our markets and therefore it's going to hurt the markets is Lacy Hunt. So, it's another another big mind that that thinks very similar to you. Um, look, I don't I don't purport to know anything that's in the mind of the administration. Um, one could make the argument that um, we have the uh, now now the AI bubble didn't blow under Trump, but but certainly his administration has done a lot to be supportive of AI for absolutely sure. and Trump. You know, it's funny. At the beginning of the year, he and and Treasury Secretary Scott Bessant and a few others, they were sending out messages to Wall Street like, "Look, we're going to go through a period, you know, it's Main Street's turn and and hey, we're going to go through a um I can't remember the exact term he used, but you know, a period of >> rebalancing or something like that." And you talked about the 333 plan and >> Yeah. Yeah. But but just sort of giving a sense of like look, there's going to be some pain as we go through this. we inherited a mess and it's going to take a while and you know whatever and and again we're going to start favoring mainstream over Wall Street. >> But then very soon I think really right after liberation day when the markets freaked out you know Trump went back to saying look you know the S&P is my scorecard and it boy it went up today and isn't that a good thing right >> um but I wonder if um if what they're trying to do now may may they know it's not sustainable to to achieve both ends. We can't we can't make both Wall Street and Main Street, you know, ever better from here. We're going to have to take from one to feed the other at some point. I wonder if they're just trying to have their cake and eat it too until we get to the midterms and then, you know, then maybe they say, "Hey, you know what? Now we're going to start if if we were able to secure and hold on to Congress. Now we can start doing some of the real unpopular stuff because we we kept Congress. I'm Trump. I'm not running again. So I can I can spend the next two years doing all the unpopular stuff that should have been done a long time ago. I'm going to get a punch of blowback in the comments, I'm sure, from this. I don't know. But but but one one one could come up with that. But let me ask you this about AI. >> Okay. >> Um so you know a huge question has been are we in an AI bubble? And if we are, what's going to happen if and when it bursts? Because that's been pretty much the sole engine of market returns. Even though we've had these great backto-back market years that I mentioned, so much of that has been on the back of like 10 companies, right? And so if we lose that engine, what happens? And you know, there's there's trillions of market cap now that that is is is baked into the indices from from those small number of companies. there's so much that that sort of hangs in the balance there. Um, so I I the big question I want to ask you is is what are your opinion of whether we're in a bubble and if it bursts, you know, is there a way to get through a bursting of the AI bubble without a lot of collateral damage? But but real quick before you answer that, um, we've seen more skepticism creep into the AI trade over the past two months. Yeah, I'd say I'd say can they raise all this money? Is there any real return? Are we going to get anywhere near the return to justify this? Have we pulled in future value too much into today the same way we did with the.com bubble? Is there crazy circular financing going on that just there's a lot of vapor, you know, phantom stuff in here. So, there's been a lot of questions and in the past week there's been some real danger signs as you've seen some funders of AI start to back out like Blue A turning down Oracle's debt. a big example of that. The day we're talking, I think news just came out in the past 24 hours that the Saudis uh are going to put a hundred billion into um open AI. Um I think I got that right. I think it's 100 billion in open AI. Um and so I could this be the next extend part of the bubble where in other words, you know, maybe our domestic funders are starting to say, well, maybe I'm I'm reaching my limit. you know, whether it's natural uh a natural market bet or maybe it's it's pressure from the administration saying, "Hey, Saudis, one of the reasons why we're striking all these trade deals and stuff is we're going to scratch each other's back. You get to scratch mine and you get to put some money into the pockets of our AI guys so that I don't have a an AI bubble burst before the midterms. >> Is that going on here, do you think, too?" >> Uh, yeah, for sure. That's they're trying to do that. Let's go back to your questions. Is it >> sorry was a hairball of a question but no problem let's let's just go back and let's go through and let's answer is it an AI bubble 100% and like anybody that tells you that when the world's largest stock trades at 33 times sales not earnings sales okay this is the world's largest stock and it's basically just an AI stock at this point I know they do other things Nvidia does they sell GPUs for video cards and there's a lot more but in in reality it's trading on the AI hype that is obscene it is going to end in tears is there going to be a correction 100% you go through look through time these mag seven names they are volatile names that regularly go through 50 or 1/3 to 50% haircuts and it is going to happen and it's going to be brutal and it's going to be difficult and you are correct when you ask is the the stock market going to is that going to spread? Will that cause a problem that causes a recession that causes a crash? That is the right question to ask. But before we do that, let's just talk about how obscene this market is. And for anyone that, you know, tries to tell me, oh no, Nvidia is cheap. And like I'm not an idiot. I understand why they say that. It does have great profit margins and it and it does appear on a peg basis to be cheap, but I just wonder if they've people have stopped and thought about 33 time sales. Like let's go back to the old Scott McNeely of Sun Micros Systemystems from the 19 late 1990s, early 2000s. Afterwards, they were grilling him and saying like, "Why did this happen? Why did the bubble burst? And why did you let us do this?" And he's like, "What do you mean, let me do this? You guys were the ones who paid 13 times sales." And and this was the obscene level that he spoke about was 13 times sales. And he says, "Let's let's stop and think about 13 times sales. For you to get your money back, not even earn a return, for you just to get your money back, you would have had to take every dime I earned in terms of revenue and I would have had to give it to you. And then it would have taken and and that's assuming that we don't have any cost of goods. We don't have staff to pay. We don't pay taxes. yada yada yada. I would have taken 13 years to pay you back your money. Okay. And then that seemed crazy, >> right? Nominal, too, by the way. We're talking nominal. >> Yeah. And now we're at 33 times and it's the world's largest stock. Now listen, I understand why some companies should trade at 33 times sales because they're big. They're growing companies. but one that's the largest company in the world and I understand that the margins right now are 70 75% or whatever the obscene number is but that's just going to attract more and more competition it's extremely dangerous so when I think about the US stock market I don't think folks understand how topheavy it is and you go look at the S&P 500 and you talk about those top 10 names they're like 40 odd percent of the index and they're all they're all on up on the same kind of um numbers or sorry theme. And so one of the things that worries me is that when the correction does come and it's coming, I don't know if it's first quarter, second quarter, maybe 2027, but there's going to be a point when this bubble bursts and these things will get hald and everyone will say, "Geez, that was really surprising." and you'll be like, "No, it was it was you knew it was coming because there is just these things were priced for perfection." I was listening to Dan Niles the other day talking about this and he's a big tech bull and he was just talking about margin of safety and and and he was just reminding people that when you buy something at these obscene levels, you need everything to go well and go perfectly for it to continue to work. And the other thing that I think I always find kind of amusing about markets is that people will say, "Oh, but you know, AI is this revolutionary technology." And I always ask them, I'm like, the reality is that markets are always pricing in forward expectations. So when you're bullish on AI, you not only, you know, it AI not only has to do well, it has to do better than what the market is priced in, >> right? And that is the part I think that a lot of folks are are just forgetting is that they're not really thinking about okay I have uh you know a variant view that AI is not only going to be great it's going to be even better than what is priced in and so I I'll take the other side I would say given there's the fact that there's so much enthusiasm so much um hype built into these things that it's actually easier to bet on the short side or just not play, which is what most people should be doing. Most people should just be walking away from the Mag 7 and not investing in it at all. And it's just cuz it's going to end in tears. And I know that's a that is a kind of not something a lot of folks will say out loud, but the reality is that, you know, if you are an investor that has the ability to not participate in this, it's probably a better idea to just walk away and not play the game. And I was kind of reminded about the fact that, you know, one of my buddies, he's a broker up here in Canada and he has all these rules about making portfolios. And I'm sure Adam, you're you're very familiar with this in terms of concentration limits and what you're allowed to do for clients and stuff like that. and he said that if he were to go make the QQQ portfolio, he would be instantly shut down by compliance because it's too concentrated in this, right? And and I and I I think that people are just missing that and are and are unfortunately just not thinking about that straight. Um I I saw the other day that Ed Yardini um who's this, you know, legendary strategist and one it seems like one of the nicest guys out there. He recently went to a um a reduce on Mag 7. He's been a huge bull and he said, "Okay, I looked at the portfolio and I realized, you know, these stocks have gone up so much. I I can't in good conscience keep, you know, telling people to invest because it's too much of a portfolio. And I wonder in terms of when you've we want to kind of put on our traders hats and think about what's going to happen here. I don't think that we're going to get any real selling between now and the end of the year. I was hopeful that maybe it was gonna come, but it's not coming. And but come the new year, I wonder if there's going to be a lot of long-term sophisticated money that is going to do the same analysis that Ed Yardini did. And they're going to look at their portfolios and say, "Holy smokes, this is extremely concentrated. It's they're getting it's a risky bet. It's too much of our portfolio." And not only that, Adam, you highlight it's actually already wobbling. There's already problems with it. we're starting to see some issues and things like that. >> So, to me, it's it's it's a terrible riskreward um that most people just shouldn't be involved in. And it, you know, and if you're kind of a real trader, I would argue that you should be short. >> Wow. Okay. So, I think what you're saying probably resonates with a lot of folks here. your your last comment there makes me think um I think you would not I think you're saying you would not be surprised if even if the stocks those those top stocks finish the year well which they they they could in the sense that they've been you know they've had a rough go the last couple of weeks but they're still up a lot for the year >> and at the end of the year your portfolio managers have to do a lot of window dressing right they got to they got to show you know when they they publish their 10K or whatever that okay I was in those hot stocks in 2025 right even if I bought them in the last couple of days right >> but you're saying those guys might once we start in January they say well hey look I don't have to really worry about that window dressing until a year from now and for all the reasons you mentioned these things don't look like the sure bet that they've looked like for the past couple years so I might lighten up here at the start of January and just see how it goes this year for them so um it is interesting that's an argument for kind of a Q1 selloff in these just from a a concentration standpoint like you're talking >> and like go back to 2021 and look at the the high of the year was basically the last day of the year. >> Yeah. I think in the next couple days it might have drifted a tiny little bit higher. >> You're right. >> 2021 it finished December 31st and it and then it was straight down for the whole year. And that goes also to one of the other problems with this market is that it's increasingly becoming oh geez I guess how to describe it like options and other uh derivative products are becoming a larger and larger role in it and also um kind of quant investors and it's making these seasonalities on weird things like the you know the fact that we closed the year at the highs um much more uh it doesn't make a lot of sense when you think about it logically but you understand it when you start looking at the flows why this occurs because of the way that it works like the JP Morgan option whale that people talk about there's this quarterly uh option position that is so large Adam that it affects the market regularly and there's more and more of these things and one of the things that a lot of folks have been talking about is these auto callables that are that are sold primarily in Asia and those have a very much a seasonality to them. And I suspect that that December 31st top is a function of all these other derivative products causing a confluence of events that make it, you know, top at that point. >> So there's a million things going on from that perspective. And again, there's another reason why I'm so worried about this market. It's the I I I was chatting with a buddy the other day and he was explaining to me that he had gone out with one of these um Swiss uh wealth manager dudes and he said that the amount of these auto callables that they're selling is through the roof. Like it's insane. And for those who don't know what they are, they're kind of like special notes. And what you'll say to them is you'll say,"I think that Nvidia won't go down 30% anytime this year and I'll I'll buy a bond where if it goes down 30% I'll lose either like the interest or I might lose the whole principle and then what coupon will you pay me for this?" And it's a way of them betting on the individual stocks so that they and in essence selling volatility to to Wall Street to earn a coupon and to earn an outside what they think is a good return. And this this issuance of these things is just absolutely gone bonkers. It's crazy. It's also causing other distortions in terms of what they call the dispersion trade because Wall Street is long all these individual gamma in these stocks. And so what they do is they go and they own that and then they'll sell index v. And when this all comes undone like and I think there will hit a point where it comes ungun done. you'll have these just spikes in VIX and it's part of the reason that the liberation day was so ugly was that all of a sudden we had a spike in VIX correlation went up and we had all these things happen at once and so what you find is that you go along everything seems great everything seems great and then all of a sudden out of nowhere the whole t tone of the market changes and it changes quickly and I think that investors should remember that and they should remember that this environment, the makeup like the plumbing portion of like the option market is much different than it's ever been. And like I'm not like I a lot of people will talk about the zero DTE. I don't think that that's the disaster. Like yes, there's a potential, but the thing about zero DTE is that they expire every day. So, I'm not going to I'm not going to ring the alarm bell on the zero DTE, but I will say that these auto callables are causing positions on Wall Street that are probably more unstable than the market realizes. >> Yeah. So, this reminds me a lot of um I mean going into the global financial crisis where things were just way more interconnected than Wall Street appreciated. And once the domino started falling over here, people got surprised that there were implications over here, right? And I it just seems like that the market is substantially more interconnected now. Uh these auto call things you're talking about, I mean, even though they might be dead instruments, they just seem like an additional type of derivative. And so it's so complex. Again, no, nobody really can fully understand where all the interconnections are. And one thing you didn't mention is leverage. The market is extremely levered right now, right? I mean, everything from margin debt to all these levered ETFs to um you know, >> the pod shops. Yeah. >> And you know, listen, can I talk a little bit of the pod shops because >> Sure, please. >> Uh they they are uh they've done unbelievably well there. A lot of them are my clients. So, you know, I and I love them to death. They're very smart people. Um, but one of the things that you just need to realize is that their um their response to markets moving is different than what a lot of folks understand or or realize. And so when we get a increase in volatility, they cut back on positions extremely quick. They are unbelievably great risk managers. But what this does is it creates a proyclical you know when V is rising they're they're they're cutting down and they're reducing positions and when V is decreasing they're increasing their leverage. So right now we have a situation where if you go look at like the prime brokerage accounts they're at their all-time like gross leverage highs meaning that the pod shops and the other quants and and other prime broker clients have the largest amount of positions longs and shorts. It's not net. And that's one of the things that I wanted to kind of just bring this back to your other question was you asked, can we get a correction in the MAG 7 without the world kind of falling apart and without things going crazy? And I think that is a terrific question. And it's something I've been asking myself for a while now because I'm unsure because I'm thinking that we could get a situation where this leverage that's out there and it's on a gross le leverage basis like there's lots of shorts out there that they could go and be buying the other names while MAG7 goes down. And one of the things that you need to remember is that the mag 7 is a huge huge market cap portion. And even if they just took some of that money and went and tried to buy these other names, they would move those names in an way more than folks are expecting. And one of the things the examples I'll give is that I was really bullish on um gold miners at the beginning of the year. And I I kept pounding the table and saying, listen, the gold price stop the the price of gold keeps going up. These gold miners are going to start printing money. And when they start making money, what you're going to find is the EPS estimates are going to start rising and then what it'll occur is that the quant guys will end up having to buy it and then eventually the real fundamental guys will come and and that was what exactly what happened. >> Congratulations on that pressure. >> Well, thank you. It was um it's nice to get one right every now and then. And uh but the thing about the reason I bring that up was the amount that it went up surprised me. I didn't expect it to be one of the like this great of a of a rise and I look at it and the reality is that it's just such a tiny market and so it wouldn't take much for these other sectors to go up that sort of amount as well. So although I am extremely bearish on Mag 7 and the risks of to those top 10 names and the things that everybody owns and you could probably add some other stocks like Costco trading at 50 times earnings and Walmart and some other things, some quality compounders that people are hiding in. I'm extremely bearish on those things. I could see a situation where when those finally, you know, start correcting, these other things are going to fly. And I think that even now, Adam, we're starting to see some of it. We're starting to see small caps do better. We're starting to see some other resource names going. It was used to be that you would have to own the Mag 7 and nothing else worked. And in the last three months, other stuff has started to work. And let me explain why I think these other things might work. And we're going to just go back in terms of on a macro picture and think about what I think is occurring throughout the globe. Love them or hate them, Trump has changed the way the global financial system operates. And what do I mean by that? One of them is the tariffs. And that was something that, you know, for the past four or five decades, tariffs have been going this way. and he switched it and we're going upwards. Put the tariffs aside though and just think about the fiscal policy. And what Trump did was he went around the world and he said, "Listen, this is ridiculous that we're running this huge deficit and we're paying for everything. You guys should smarten up." And let's just take Canada because that's an easy one for me to explain. In the last year of Biden's administration, the US ran a deficit of 7%. Around there, maybe six and a half or seven. Everyone when you ask a lot of folks, you know, what do you think Canada's deficit was? They would say, well, that's a smaller country. We don't in terms of deficit to GDP. That's a you guys are much more socialist than us. You guys spend a lot more. You guys must be at like 10%. And they were often shocked to hear that it was actually 2%. that we were running a, you know, a deficit to GDP that was much more reasonable. And when you go through the world, you'll see that that that year it was very much like the same story. Europe was 2 and a half or something and Japan was 2 and a half or three. The rest of the world was running deficits that were very kind of reasonable compared to the US monster deficit. Fast forward to Trump. He comes around, he goes around the world, he tells everyone that they got to smarten up. And we as Canadians, for example, say, "Okay, gez, we can't rely on America the same way anymore. We can't even rely on them buying our oil or, you know, all the things that we've done in the past. We better start investing in ourselves." So, we get to work. We're building pipelines. We're becoming more entrepreneurial. We're encouraging business. We're doing this because it's an existential threat to our very existence. And so now our deficit to GDP has gone from two and it's going to go to five. And this is happening everywhere. Germany went and it used to have a a debt break of.35% of GDP like less than a half%. That they would be trying to balance their books. And now all of a sudden they're like, "Hey, wait. We got Russia, you know, taking, you know, invading Ukraine. These guys are right at our doorstep. We better help them out. we better figure out, you know, we better spend some to, you know, >> and America's not paying for NATO anymore. >> And so the rest of the world has now gone and everyone is going and doing fiscal spending. And this is one of the problems I think that I w that folks are overlooking in terms of the US situation because when we had a situation where the US was the only one willing to run fiscal deficits and run big trade deficits, it was very clear that the US would have the best growth in the world. And and you might folks might not like it, but the reality is if you go spend enough money in the government side, you stimulate the economy, >> right? >> And it was a self, you know, fulfilling positive reinforcement loop because if you're sitting there as an entrepreneur, you know, in Germany or Italy and the economy is stagnating and not doing very well because there's not enough money in the system, right? You you go, "Oh, I'm going to go to I'm going to go to the US." So was this kind of everyone went there then capital was attracted to it US dollar went up financial prices went up but unfortunately that's why you know you guys can't make anything anymore the US dollar is too expensive your stocks are everyone you know is is done well from stocks but the person in Mid America is not doing well but now we go and we get a situation where the rest of the world is spending we have now for the first time everyone throughout the world is spending and is doing fiscal. Now, the capital's not as easy to come by. And ultimately, this is why I think we're going to have a situation where when the AI bubble finally bursts and we get a situation where people go, "Oh my goodness, I own too much stocks because everyone owns way way too much US stocks as a percent of their portfolios because it's been the only place to be for the past, you know, two decades. we're going to get a situation where they're going to sell US stocks and they're also going to sell the US dollar. And that's in essence going to help, you know, labor because ultimately you do need a correction in the US dollar to make yourselves more competitive, but it's not going to help the stocks. Now, so going back and just kind of thinking about things and like how that portfolio works, what this will mean is that if we have um the bubble burst, we will have a situation where old companies will start to do well again. And I'll just give you, you know, an example of a of a name that I am a >> old companies more kind of like value companies versus >> value companies um uh just small cap companies. Things that in the past hadn't worked might start working again. And I'll give you uh uh uh one of my recent uh themes that I that I wrote up and it was about a month ago and it I started to talk about aluminum >> and aluminum is like one of these uh sectors that had destroyed money for two decades. And if you want to know why, the reality is that China, every time, you know, aluminum prices went up, they made another smelter. And China let it made it so the margins were extremely small. And so I think you guys in the US used to have 23 aluminum smelters. You're down to four. Basically, you know, China drove them out of business. >> Yeah. Just flooded the market and p pushed their competitors into bankruptcy. Yeah. >> Yeah. And the reality is that that was a like that was a a policy error by many different governments to allow China to do this. >> And I will be the first to say it. I think that it should have been dealt with by the currency. The currency should have been forced to go up. The the remi shouldn't have been allowed to be, you know, stayed so low. But but it doesn't matter. It was it was a policy error that in essence allowed China to steal some manufacturing. Okay. So now let's think about what's occurring currently. First of all, the US administration has rightfully recognized that there's all these sorts of um essential industries that that China controls that really should be coming home. So that from that perspective, we know that it's it's something that will be encouraged by the government. But even more than that, it's what China is also doing. If you go listen to China, their problem is that they've gone and they've created all of this growth and they've driven margins down to zero uh to help people get employed, but they're they're not really making any money. So, they've gone and pre president Xi has called this thing called the anti-involution. It's basically stepping back and saying, "Hey, this this move down to zero margins is ridiculous. we're going to go and we're going to encourage companies to actually be able to make some money because the reality is we don't need to put a 100 million farmers to work anymore and we and we're only hurting ourselves by having our companies not make any money. So they've said that we're going to stop this race to zero in terms of margins. They've also said that they will go and they will only export 45 million tons of aluminum or whatever. I can't remember the exact thing, but for the first time, we've actually bumped up against that. And so, China is not increasing it. They've they've shown they've said, "Nope, we're going to stick to that level." And not only that, if you think about it uh from an uh AI perspective and the fact that governments view this as a threat to their sovereign like sovereignty, like everyone needs to have their own AI. um a lot of the uh electricity in the U in in China is going to start to go and start to go into AI more. And for those who don't know, aluminum's biggest input is actually electricity. That's what you need. That that's the cost of it. Um, so one of the things that I the reason I got bullish on aluminum was there's all sorts of positives to aluminum and the demand has been rising for a while and for the past 5 years you could have made the argument that you should own aluminum because of the electrification and the fact that it's lighter for cars yada yada yada. And the problem was that you can have a bullish demand side of the story, but if the moment that the the demand rises, there's supply there that cuts it off and make sure that it doesn't rise in price and nobody makes any money, then it's not a good bull story. Like it's you need both demand rising and supply not being able to respond. And so when I looked at this, I said, "Hey, look, for the first time, we actually have a situation where the supply response in in aluminum has changed. We're no longer going to see when aluminum prices go up, we're not going to see the Chinese going and just immediately making another smelter. We're not going to, in fact, they might actually be closing some of the other kind of less profitable smelters because it's wasted electricity. They should be using it for AI." And so I got bullish on Alcoa. Alcoa is this old stock that nobody liked that that absolutely nobody talked about. Um over the last five years they've been quietly paying down debt. They've been going and uh immunizing their their pension obligations, taking it off the balance sheet so that they're nice and clean. And they were kind of one of the last, you know, companies standing in terms of being able to compete with them. And so I look at companies like Alcoa and I say, okay, in this new brand new world that we're entering, they actually are trading at a cheap level, nobody owns it. If we get a situation where the AI trade comes unglued and these comp and and these portfolio managers are looking for something to own, a name like Oko is exactly what they're going to do. And so for the first time, you know, than the in a long time, we're seeing it run. We're seeing these things work. And I would say that, you know, people say, well, why now? Like, why are you bullish on these things now? And I'm like, part of the reason is the market's actually rewarding you now for the first time. >> It's not just uh MAG7's going up. Some other things are starting to work. >> And going back to your question, can we have a situation where the mag 7 goes down and the index goes up? I don't know. But I'm do know that we could have a situation where the MAG7 goes down and a lot of these other stocks go up. And I would just say that there's no reason to go and own the S&P 500. It's a terrible benchmark because the reality is too concentrated. So put it away. Don't compare yourself to the S&P 500. Don't think about it. >> You like going back, you know, even the S&P 500, I don't think my broker buddy would be allowed to buy that portfolio either. it's too concentrated in those tech stocks. So this this arbitrary comparison to this index that is created that is obviously flawed and is not something you want to own is just is something that we should put aside especially retail investors that can't. >> All right, great answer, Kevin. So um I I was going to get to you know sort of what's your general market outlook and what what are your favorite assets? I think you've already answered a lot of that. Um, so let me just let me ask a version of that question. So if if I followed you correctly, it sounds like you think your bingo card next year has these on it. This is not necessarily your predictions, but maybe what you think is more likely to happen is that um the tech will cool off. You know, the MAG 7, the AI tech will will cool off and cool off could be anything from flatten out to have a horrific correction. Yeah. >> Um you expect the US dollar to likely go down um given for some reasons you've mentioned and you've also written about this on your site of late. >> Um it won't necessarily be all bad news for everybody. um to your point that capital may start rotating, maybe even fleeing, uh the trades that have been working like you know the hyperscalers into these value stocks that are now a much less crash likely and b have some positive fundamental tailwinds against them. Aluminum uh being one of them. Um anything else major you'd want me to add to that list? I guess I'll ask about gold just because you mentioned the minors this year um and it's done so well this year. you know, questions are rising, is this overvalued or is this a repricing and you know, even better times ahead? Do you have any default outlook there? >> So, when people ask me about gold now, I kind of laugh and I say, um, the value that I add is trying to find names that people aren't thinking about and to present ideas that might be something we talk about in the future. Now, it seems to me that gold, everyone knows about it. It's very much a traders market. you're better off >> Yeah. Yeah. You're better off listening to guys that'll trade the squiggles. Um ultimately for me, >> I understand the bull case. I do think we're headed a lot higher. I understand the risks of um a Federal Reserve that is overly aggressive. I I I understand everything in terms of why you would want to own gold. I have trouble owning it up here just because it's so popular. And I do think we're going to have a correction. Um I have kept some, but it's way way smaller than it used to be. I expect at some point we'll get a a correction and people will telling me it's all over and that it's you can't own gold anymore. And I I suspect that that'll be the time that I'll that I'll be coming >> get back in. >> Yeah. But I'm not listen if if you said to me I really want to own gold because I think that the that the the risks are to the upside still. I would completely agree. The big picture risks are that it continues to go and like I think about always when I when I imagine an asset I always ask where will the surprises be and when you're thinking about it on the long term the surprises in gold will be to the upside and I and I continue to believe that. Okay. Um, but you are not banging the table the way that you were at the beginning of >> Yeah. I'd rather go own coppers. I'd rather go own aluminums. I think that there's a million other things stone. >> Okay. >> And you you highlighted the fact the US dollar. One of the things that as a American investors have been focusing rightfully on the S&P 500 and the fact that they've done it's done so well for so long. And one of the things that I just like to highlight is that when you go look at the returns of this year, I was pulling it up earlier. I think the S&P 500 is up uh let me grab it here. It's up uh where are we here? >> Should be around 17%ish or something. >> Yeah, 16.5%. But when you go look at like the MSCI World XUS, you'll see that it's like 26 or something. And one of the things that I wanted to kind of say is that the MSCI World XUS has done much better with less risk, with less volatility. And that's going back to my theme about the fact that the rest of the world for the first time is doing fiscal. And that has made all of a sudden a whole bunch of other countries much more investable than they've ever been. And I I I would encourage people to spend some time looking at other kind of indexes and looking at other opportunities like just someone was telling me the other day, yeah, Spain is up 48%. Like 48%. Like it's a huge like Mag 7 is good. Like everyone's talking about the growth in Mag 7 and how great the AI is. And meanwhile, you've, you know, you're up almost 50% in Spain. Um, you know, I'm looking even here in Canada, we're up 29% this year. >> And that that's in that's those are in local currency terms, too. Like in a lot of times if the dollar, you know, does poorly, then you even do better, >> right? So, so given your outlook of next year of um potential continued weaknesses in the dollar and the the potential for capital to to leave the US for all the reasons we talked about, you'd probably add international assets to that list I mentioned earlier. Correct. >> Oh, 100%. I think I like I I I for me I would if I I would own as little US stocks as possible or at least tilt them into the names that I I liked. So, here's a chart of the um Morgan Stanley US index, which is in essence pretty close to the S&P 500 and the Morgan Stanley World Index XUS. And I've gone back to 2006. And what you'll see here is that it's the PE ratio, right? It's the PE of what they call the NEC NTM, the next 12 months. Uh so, it's kind of the forecast of it. And from 2006 to maybe 2015, the the two indexes traded very close, you know, plus or minus two or one, you know, PE points. But since then, we've gotten into a situation where it's gone up and up and up and to the point where I was talking about the enthusiasm when Trump first took office. We had a situation where the US was trading at 8 PE h turns higher than the rest of the world. Eight. >> Wow. >> And and it's just it's one of these things. Let me go and I'll show you. I have another chart. Um and here is if we look at this market cap of the MSCI US index versus the market cap of the MSCI um world XUS index. You look from 1990 to 2015 they actually traded the US was about the same size as the rest of the world. At one point the rest of the world was a little bigger. one point the US went back a little bigger. It was up and down, you know, a a few trillion and then in 2015 it started to take off and then COVID hit and it got really insane. And so we've gone to a situation where now all of a sudden the US the market cap of that index versus the entire rest of the world. The US is 33 and a half trillion bigger. And like when you stop and think about it, is the US gonna continue to make the majority of the world's profits and and and uh have these companies that are going to dominate at this level. And I do I understand why this has occurred. This has occurred because technology is um so important and has made so much money and the US has dominated in that aspect. But at a certain point, you just have to ask yourself like, is that already in the market and what happens if there's just like a regular correction, you could still believe American is exceptional and is going to win over the long run, but you could at the same time say the price that I'm paying for that exceptionalism, the the the risk that I'm taking is just too high. And that's what I I I I just want to leave people with is this idea that just because the last five years or 10 years has seen the US go up up up up. It always it wasn't always this way. And we do have periods where there is some meme reversion. And we've kind of gotten into the situation where it's a little bit of the boiling frog where we've have um not realized how much these indexes have moved and how much more expensive they are versus the rest of the world. And so one of the things that I would just encourage people to do is to start looking for other assets. go out and and let's go back and like look at this and we say instead of paying 23 times for the stock market in the US go out and buy the rest of the world at 15 or 16 times earnings and the reality is that the rest of the world for the first time is growing because they've gone and changed their fiscal policies >> right so so you got a number of great things in there you know one is hey US market's rich you know there's just the risk of kind of mean reversion whatever Then there's just the basic diversification, right? Which is like, hey, you know, as a smart investor, you should diversify into other asset categories and international assets being one of them. But then your last point there, well, but then there's valuation, right, which is just, hey, these assets are they're better value than the US assets, so you know, buy them because they're better values. And then there's your point of hey the US might still run the race but if we're giving all the other you know runners in the race uh you know empetamines you know they're going to run faster and so it doesn't mean the US will necessarily lose the race but but it might not be leading by as much as it is right now because they're all juicing their runners right now with this fiscal stimulus. >> Right. And the other point though that I like to make is the fact that if you go and you say I think the I don't know like the Buffalo Bills let's imagine that they were hugely favored to win the Super Bowl. Like it was it was like very clear that they were going to win. And you say well I think the Buffalo Bills are going to win the Super Bowl. And you might say okay great. Well so does the market. Let's just assume that it's trading at 10 to you know 10 to one that the other team wins right? like that the the reality is that they're heavy heavy favorites. It doesn't mean that betting on the Buffalo Bills to win the Super Bowl was a good bet. Like they will probably win the Super Bowl, but if you do that bet too often, and if it's trading at a level that is you're not getting compensated for the the amount of times that the Buffalo Bills don't win the Super Bowl, then it's a bad bet. And that's ultimately what I just where I really come down to is that the US might be as great and as exceptional as everyone says, but it doesn't mean that you that isn't already in the market, right? >> And it doesn't mean it's the right bet. >> You know what's sad about that analogy is not only is it is it accurate a great analogy, but it's probably more understandable to to more Americans because we become such a sports betting society. We don't do true investing anymore. We just speculate and gamble. >> You're absolutely right. >> All right. Well, look, uh, Kevin, this has been fantastic. So, for folks that have really enjoyed your take on the markets and the world here and would like to follow you and your work, the good news is they can. I mentioned at the beginning here that um, your Substack is is still right up there and at the top of the list um, amongst the top financial substacks in the world. So, where can folks go to follow you and your work? >> Uh, the macroourist.com. And you can send me an email at kevinthemacroourist.com and I'll shoot you some recent letters. >> That's so nice of you to offer that. Um, all right. Well, Kevin, thank you for the courage of putting your email address out there. I will put both the URL to the macro tourist and your email there on the screen so folks know where to go. Folks, the links will also be in the description below this video. Um, but Kevin, I can't thank you enough. Folks, please thank Kevin for coming on and being so generous. uh with his analysis and his time. Um let them know that by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. Uh if in addition to reading Kevin's excellent newsletter and subscribing to it, if you'd like to get some professional help in figuring out how to position your portfolio for the year ahead, especially if you might want to um you know take advantage of some of the themes that that Kevin sees. Uh if you don't already have a good professional financial adviser who can advise you through that uh consider talking to one of the ones that ThoughtfulMoney endorses. These are the firms you see with me on this channel week in and week out to schedule a free consultation with them. Just fill out the very short form at thoughtfulmoney.com. Only takes you a couple seconds. Uh these are totally free. There's no commitment to work with the firms. It's just a service they offer to help as many people as they can. Kevin, thank you so much my friend. This has been wonderful as usual. First and foremost, merry Christmas to you and to everybody up there in in the north in Canada. >> Yeah, thank you very much. Sand will be visiting us first because it's on the way to you guys. So, uh you know, we'll we'll get the presents a little ahead of you guys, but merry Christmas to everybody and thank you very much uh for everything. Adam, I really always have a great time on your show. All the best to you and your family and to all your listeners uh families in the new year. >> All right, we're right back at you, my friend. You're such a class act, Kevin. Really can't thank you enough. It's always such a pleasure to have you on. I look forward to having you back on. Hopefully in early uh 2026 you can kind of call an audible for us too when we know how the the first of the year starts. >> Sounds great. >> All right and everybody else, thanks so much for watching.