Market Rotation: Expect a broadening away from mega-cap tech as valuations look stretched versus free cash flow and volatility likely rises later in the year.
Precious Metals: Long-term bullish on gold and silver but actively trimmed after a speculative spike; looking to add back after a deeper washout and stabilization.
Energy Opportunity: Accumulating oil and gas exposure, with emphasis on oilfield services and selectively offshore activity, viewing the sector as hated, under-owned, and supported by attractive dividends.
Rates and Allocation: Favor short-term bonds and avoid long duration in a higher, more volatile inflation regime; a 30/30/30-style framework prioritizes commodities and shorter fixed income.
Semiconductor Risk: Caution on semis given extreme optimism, especially semicap equipment and memory/storage; names cited as overheated include LRCX, KLAC, MU, and WDC.
AI Spending Skepticism: Elevated AI capex is compressing big-tech free cash flow yields; a sentiment turn could force price or capex to adjust closer to historical norms.
International and FX: Positioning for a weaker US dollar with more overseas commodity exposure and select international names; BKNG cited as benefiting from euro strength.
Transcript
I think you are seeing a broadening or a consolidation where some of the big winners that were driving the gains in the index in the last few years are starting to top out and there's starting to be some more questions about those and you're seeing other sectors, other industries of the market that are showing more strength. And so for anybody who had a more diversified portfolio that might have lagged in the last year or two, they're now outperforming uh because those other areas are starting to act the way that you would have liked. Welcome to thoughtful money. I'm its founder and your host, Adam Teagard. For years now, corporate stock prices have been growing substantially faster than their free cash flows. In theory, this shouldn't be sustainable. So, will 2026 prove to be the year that the math starts to matter? Today's guest, Chance Penukin, chief investment officer of high net worth advisory firm Oxbow Advisors, thinks it may be. Chance, thanks so much for joining us today. >> Hey, Adam, thanks a lot for having me back on your show. >> Hey, it's always a pleasure to have you on. Um, uh, as is having your partner in crime there, Ted Oakley. Um, you guys do a fantastic job there at Oxbow Advisors. Um you guys just put out uh your kind of your latest uh outlook. Um and one of the things it focused on as I just mentioned there in the um in the intro is how stock prices have been growing you know substantially faster than free cash flows really for the past bunch of years. So I want to talk to you about um you know whether or not you think that can sustain and if not what that means. But but before we start if I can just at a very high level what is your current assessment of the financial markets right now? >> Sure. When we look at it uh we think the the market cap indices such as the S&P 500 look expensive to us especially given the concentration in seven or 10 big stocks that uh that I'm sure we'll get into. the free cash flow production of those really large tech companies has gone down uh as they try to invest in AI which then creates more risk if it doesn't pan out. Uh we think there's a little bit more opportunity and more of an equal weighted diversified approach to your stock portfolio. And then the other thing we're monitoring is as much as it's been a little bit of a slow steady start for the indices uh through the first month of year. there's been a lot of movement under the surface uh whether that's in commodity prices specifically precious metals that we've been taking a lot of activity uh within our portfolios try to make sure we risk manage that well uh and then also through certain sectors within the stock market uh so it's been a lot happening uh in the first month of the year even though it seems like a bit of a normal start >> okay yeah and if you look at um the S&P even though it did has recently hit uh new all-time highs it finally cracked 7,000. It's been pretty rangebound since what, say October or so of last year. Um, do you see that as more consolidation or do you see that more as a topping process? We would expect at least we thought the first three, four or five months of this year was going to be more of a continuation of the the up move just because uh comparison to the first quarter of last year when you had slow GDP growth was going to make it look like the economy was accelerating in the United States that tends to be a decent backdrop for stocks. So we weren't expecting a break in the market uh in the first quarter. But to your point, I think you are seeing a broadening or a consolidation where some of the big winners that were driving the gains in the index in the last few years are starting to top out and there's starting to be some more questions about those and you're seeing other sectors, other industries of the market that are showing more strength. And so for anybody who had a more diversified portfolio that might have lagged in the last year or two, they're now outperforming uh because those other areas are starting to act the way that you would have liked. >> Okay. So, does that mean you guys see 2026 as more of a year of um rotation where money finally starts leaving the the hyperscaler trade which has kind of been hoovering up all the capital over the past couple years? um and it's more of a broadening out where that money is starting to find new parts of the market. >> Yeah, I would say we would expect a rotation as you're describing, but we would also anticipate more volatility uh specifically sort of around the middle to back half of this year. Uh we think that if you look at past midterm election years, we were just going through this in the office, you could go all the way back to 1990 and pretty much see volatility being higher than normal in every midterm election year uh for the US, whether that's 2022, 2018, 2014, 2010, you start working your way backwards, there was something that hit in the middle to the latter half of of each of those years, uh that created a little bit more chaos uh than investors would have liked. So, we would anticipate that there will be volatility uh later in the year and we see that as a chance to try to be a little bit more opportunistic and maybe add to the portfolio, but right now we're diversified, make sure we've risk managed things well uh so we can participate a little bit if this upside continues, but we're very ready uh for any volatility later in the year. >> Okay. And I want to talk about, you know, where you think that capital's going to rotate. So, as you diversify, what areas you're diversifying into? Um but first the midterms, you know, the second year of a presidential um administration tends to be the worst year stock uh market performance-wise. Um probably in some part due to the midterm chaos. Um uh also as I've been noting a lot in this channel, it's it's quite rare statistically to get three um years of double-digit, let alone kind of 20% average backto-back returns in the market. Very rare to get four years of such uh performance. So as you look to 2026 with your expected additional volatility and maybe just the statistics that I mentioned and then of course anything else you're seeing fundamentally technically otherwise what is your what is your um default estimate for the year for the markets um up year down year up by a lot up by a little down by a little down by a lot. >> We really don't try to set price targets and I'm not trying to avoid your question. I just I don't find it that helpful. I think I think we try to think more broadly where you just look at this and just ask yourself, do you think things are are pretty expensive right now or pretty cheap after to your point because we talk about the same things. You just had three straight years where the market was up at least 15% uh all three years. You'd have to go back to that 1994 to 1999 stretch where you had more than three years in a row that went at that pace. Uh, and so you don't know if we're have a fourth year like that, but we do know that when it ends, you're going to see significant weakness in the market because you're going to have to pull things back in after price has outrun the fundamentals uh for this long a period of time. So, we're just not trying to chase it and uh we'll be ready when there is a 15, 20, 30% pullback in the market. Um, but there's really just kind of preparing uh for that in the meantime. >> Okay. So, it sounds like, and don't let me put words in your mouth, but you guys are a little bit more conservatively positioned because things seem expensive to you and you expect more volatility. And the reason for that is is, hey, we want to be able to, if there is indeed a material market pullback, we want to be able to be in a position to deploy funds into that and then ride the recovery. >> Exactly. I think during a move like we had in the the past three years and really just looking at the past few months at our own activity, we've been trimming uh or selling some of our biggest winners to try and lock in some of those gains, especially if they're more cyclical industries rather than secular growth stocks. Uh we want to make sure that we take some of those gains that might have run ahead of the fundamentals. Uh and then you end up being able to manage a decline or volatility in the future a lot more easily. So that rather than scrambling thinking, oh, we still had too much invested in this area. Now what are we going to do? It's down 20 or 30%. You've already made the adjustments. And so you can start thinking a step ahead as to how much further do I need it to fall before maybe I increase that position again. And we can get into it whenever you want. But the example with gold and silver over the past week uh is a perfect case study for that. >> Yeah. Well, we're gonna get into that. Um, but but to your point about expensive, you know, I've I've mentioned with many of the experts on this channel over the past several years about how valuations have gotten to just very historically stretched levels in some cases the most extreme we we've ever seen them. Uh, and we've generally talked about, you know, common multiples, whether it's cape ratios, whether it's price to sales, whether it's, you know, at a high level the buffet ratio, etc. haven't really talked that much about it from a price to cash flow standpoint, but I've got to imagine from the data that you've you've surfaced here, um that uh price to cash flows have also got to be at very stretched levels if stock prices have been growing, you know, much faster than cash flows have, free cash flows have over the past bunch of years. Um you know, a a is that true? And and kind of to my question in the intro, I mean, nobody knows for sure what's going to happen in the future, but do you are are you suspecting that 2026 might be the year where the maths might start to matter and and that's going to have to be pulled back down into maybe more historical norms. >> We're definitely in the range where it this could be the year that matters. And the way to frame it is it's dependent on when investors decide to be more skeptical about all the investment going into AI. So this may not be the year for that. It may be that everyone's still very optimistic and bullish. And you saw the reaction to various tech company earnings releases last week, whether it was down on Microsoft but very happy with the investment being done by Meta or Tesla. uh you need more skepticism on the part of investors that would punish all this additional capex that these companies are spending uh with uncertain future returns. But if you just look historically uh going back to the start of the financial crisis in 2008 and 2009 on average uh the S&P 500 whether it was the cap weighted index or the equal weighted index trades at about 20 times free cash flow would be about the average. So be about saying like a 5% free cash flow yield uh when you're looking at the next 12 months expected free cash flow which seems pretty reasonable to us. What's changed is the largest companies in the index that drive more weight there. They're now spending so much on capex that their free cash flows have come down by a lot and now the S&P 500 is trading at nearly 30 times free cash flow. So one of two things needs to happen. either uh price needs to come down where investors become skeptical about that excess capex spending or the companies may decide that we're not getting the return we'd like on all that capex and they try to rein it in. But one of the two has to occur where something's got to catch up because right now things have gotten so extended. We think you're better off diversifying across more quality companies. If you look at the equal weighted uh S&P 500 price to free cash flow, that's still trading just above 20 times, pretty close to its average, you can find other good businesses that aren't cheap, but at least are trading at a more reasonable valuation compared to their history and feel like you're not going to get crushed if the sentiment turns on that whole AI story. >> Okay. Um and so you know all right so take your money out of the big dominant trade um or or or take you know some capital out of that big dominant trade put into other areas that that don't appear as overvalued. Now you guys at Oxbow from my previous conversations with you um have been fairly optimistic about the prospects for the commodity complex. Um, you guys have talked about the 3030 3010 allocation if I'm getting that right. Um, and maybe it might be worth just spending a second on defining that for folks. Um, Chance. >> Yeah. >> Um, well, why don't I let you do that first and then I'll get into the meat of my question. >> Sure. And to be clear, it's not as if it's a set formula, but our managing partner Ted Oakley has talked about the era of the 6040 portfolio, 60% stocks, 40% bonds, uh may not deliver the the same quality returns that we just had over the last 40 years where we were in a declining uh interest rate environment. Uh now we're in an era where inflation we expect to be higher, more volatile. That could mean higher interest rates, which is more of a headwind for long-term bonds. So our focus is more on a portfolio that's split between uh say 30% stocks, 30% more short-term uh fixed income uh maturities 5 years or less and then 30% in commodities. The remaining 10 is more just trading opportunities uh idiosyncratic opportunities that you find uh that you want to put in your portfolio. And we don't try to stick exactly to 30 3030, but the idea is that commodity piece we think is of increasing importance. And in the highinccome strategy uh that Ted's run for 25 years, that commodity piece, I'm just doing the math in my head, we're over 30% uh of of that portfolio right now that's allocated across various companies uh or metals uh in the commodity space. >> Oh, okay. All right. Um so uh I'm I'm going to imagine that again the capital that you're removing from the big trade uh probably a good amount of that's going into the commodity space. I want to know where you you uh see opportunity there. But I think the right path to take to that question is let's go through the precious metals. Um because I know that you guys have had a good outlook on the precious metals. Um, you actually warned in your your piece that you guys put out just last week that the price action, especially in silver, was getting too hot for your comfort. And as I've been saying on this channel uh for the couple weeks leading up to this as well um as a huge general bull of the precious metals um you know vertical price moves in any asset don't last forever and they tend to not correct by going sideways. They tend to have a you know fairly um violent pullback. Um obviously that's what just happened here. So, I guess question for you on the precious metals is is what is your current um thinking on them. Um, and I'll let me cram a couple questions in. You can answer it any way you like. >> Uh, we've had two big price blowoff spikes, you know, in the past 50 years with the precious metals. This was the third big one. The first two, their corrections were brutal. You pretty much gave up all the gains um of of the vertical move and the metals didn't really go anywhere for the next 10 to 15 plus years. Are we seeing do you see something similar like that here or do you still remain bullish on them and think that after some period of correction here they could maybe even get back to to new all-time highs? >> We think that we're still bullish. So if you looked out, we try to take a five-year view. We're still bullish on precious metals for the next five years. But the crescendo that you saw there in recent months, I it's pretty wild to say that silver after the decline that we just experienced uh last Friday, silver was still up 20% for the month of January and up 60% in the last three months. So, it kind of turned into a meme stock, started trading like Bitcoin. Uh that's it's not the norm uh for that metal. So, you need things to kind of calm down a little bit. We wouldn't expect much uh from that metal in the next several months, but we still like it for the next handful of years. I think what I pointed out in the video that we we published when we had this just looking at the last 15 years when you had this sort of extreme uh interest and a ton of volume right around a peak for the silver price in 2011 and in 2021, you had essentially a 40% decline in the price over the ensuing 18 months. This was a lot more drastic where you just went down 30 or 40% in a day or two. But it's still the same idea that you almost need something akin to a 50% wash out. Uh and then I think we would be more interested in building that position back up and increasing our exposure to the miners again. But over the course of the last few months, uh I would say our exposure to precious metals in the high income strategy uh that's really trying to preserve purchasing power for our clients, it got up to about 15% of the portfolio that was in gold, silver, and then miners related to those metals. We had trimmed that back down to about 7% uh over the course of the last few months, but really picked up the pace of the trims uh in the last few weeks just as we saw that behavior start to get extreme. Mhm. Okay. So, um I I guess just on the precious metals going forward, are you kind of like um you're not adding I think I just heard you say, but you kind of just you trim down. Are you kind of keeping what you had here and you're just going to wait for that to show signs of life again? And and whenever that however long that takes, weeks, months, years, then you'll start increasing again. >> Yeah. So, we're we're keeping what we have. Uh we've got a couple percent in gold, 1% in silver, uh a few percent across a few different miners that we've owned for years. Um so I think the way we view this is if we still like the long term, we did not want to sell everything because then it's very difficult psychologically to know when to flip the switch and and jump back in when trying to time that is difficult. So we wanted to keep some exposure. Uh but I think we're going to wait for things to calm down, wait till we start seeing prices again. We'd been saying for a good part of last year that we expected gold to correct back down to 3500. Silver could easily correct back down to $50 an ounce. Um, and you know, maybe those uh short to midterm lows that it makes off these highs are a little bit above those levels. Maybe it's $4,000 for gold and $60 an ounce for silver. But you've got further to go uh before we would think that you know these are prices and valuations that we might want to start increasing our exposure again. >> Okay. All right. So um you are bullish on uh commodities. Precious metals part of that complex. You're like well we're just going to let that cool for a while. Um where do you see the opportunity that attracts you enough to start moving more capital in there? We've been moving into energy for the last several months and you had a huge move in energy from sort of the middle of 2020 up through the summer of 2022 and then uh hasn't done a whole lot in the last couple years and it's become the most hated sector again. Uh and we actually see that as an opportunity. Uh and so we've been accumulating energy positions in both the high income strategy and our long-term growth stock strategy. uh and specifically looking within oil field services uh most recently where we think there could be a pickup in activity uh both in offshore drilling and in certain parts of the world where maybe there'd been a little bit of a a slowdown in drilling activity. >> Okay. And when you say energy, do you mean the whole complex evenly or are you looking more at oil, oil and gas? >> Yeah, it's a good coal. >> Yeah, it's a good distinction. Uh yeah, so to be clear, crude oil and natural gas are the main focuses. Um we don't have anything right now with coal or with uranium. Um not that you can't play along those same themes with those two areas, but uh at this time it's just been a focus on on oil and net gas. >> Okay. Um I'm going to disclose something and so I just want to put a big disclaimer in front of it. Um, you know, I I generally don't like to um tell people exactly what I'm doing. Not not because I'm not trying to be helpful. I just don't want them to blindly copy what I'm doing. Um, but uh I I I have disclosed this in the past that uh Oxbow is one of the firms that I personally work with to manage part of my my personal um portfolio. Um, and so folks, I think highly that says I think highly of Oxbow. Doesn't mean you need to rush out and become an Oxbow client yourself, although maybe that's something you might want to look into. But I I I mentioned that um a just to be transparent, but also uh you were kind enough uh Chance uh was like a month or two ago um because you're you're not the only guest I've had that has been starting to ring the bell on on the energy complex. And I've I've told my audience here it's something that I'm, you know, personally beginning to invest more in. um you're one of the the people I reached out to to say, "Hey, can you share with me some of the a list of some of the stocks that you are are watching most closely right now." Um and at a a week ago, I was at the Vancouver Resource Investment Conference and I had a keynote there and I I started the keynote by serving dessert first. I said, "Look, I'm sure you're here to get a list of companies to go um research everybody." And I had just interviewed Rick Rule as well about the oil and gas industry. And I basically read them through a list of companies that Rick had mentioned and that you had mentioned and that uh I'd also gotten a similar list from David Haye. And I just sort of went through, you know, probably two dozen companies for folks who were interested in the space to go research. So, I mentioned that to say if someone's watching this and you're looking for, you know, a list of oil and gas companies uh to research, you may want to reach out to the folks at Oxbow and and see if um you know, if it's appropriate, if they might be willing to to let you know which ones they're they're watching most closely. That list has done well for me so far. Chance, >> glad to hear it. And I think there's also another point to make within energy. uh my my previous firm that I worked for early in my career, the best analyst we had was our director of research who was also the specialist in the energy sector and all of his outperformance as an analyst for our firm came from being overweight or underweight at the right times in the sector relative to the index. So as much as it's the right call to try and identify the correct companies, find quality businesses, just being overweight this sector when nobody wants to own it and it's such a small percentage of the index, that can generate a lot of return for you uh just on its own. And then if you're able to pick out a few big winners within that, then it's just a little bit extra. >> Okay. And you know, your your your partner um Ted Oakley, you know, has always told me that the the firm has made the most money coming out of bare markets. Um and I think that's a general comment like when the market falls into a bare market, nobody wants to touch a stock, you know, if if you're buying in then and and you time it right, you know, you ride the upcycle, you make a ton of money. Um, but I think it's also true sector-wise and as you've said kind of oil and gas sectors been in a bare market now for a good number of years and I think you use the term it's been the most hated sector up until recently. Right. So it seems like you're trying to ride that same phenomenon here just in that specific sector. Correct. >> That's correct. And I think sometimes uh people might think that it's incredibly complex variables that are being used, but sometimes it's pretty simple where uh if the comparisons that a company has to work against from the previous year are really easy where it's going to make it look like their growth's accelerating and things are improving. It can be just that simple where uh they have a series of quarters where their year-over-year growth in a revenue or cash flow accelerates. Uh that's all you need to start seeing some real outperformance. And on the flip side, uh when you've got businesses like uh in the tech sector and the Magnificent 7 that were reporting huge increases in revenue and earnings per share in 2023, but now you're seeing those growth rates decelerate back towards the rest of the S&P 500, then it makes it more difficult for those stocks to outperform because they're no longer such standouts and those difficult comparisons start to act as a headwind. >> Right. Right. Um All right. And then one other thing about um the oil and gas sector um is uh oftentimes when you're building a position in in anticipation of of an upswing um or secular change in in in a a sector um there's an opportunity cost to that capital, right? So if if if the the market is not moving, um you're not getting any return on that capital. Basically, if you're you're the sector you're putting your money or the stocks you're putting money in are languishing. Um the oil and gas sector right now, at least the larger companies there, uh they're still paying pretty attractive dividends here, right? So one of the the pleasant differences in this sector is is you can get paid while you wait and and that payment can largely cover your opportunity cost to capital. >> Yeah, absolutely. And I think that opportunity cost now if you're comparing it to whatever the short-term Treasury rate is, Fed funds rate, uh and that appears to be continuing to come down slowly but steadily and uh will be below 4%, maybe it goes down to 3%. If we're able to find a quality company where a business is stable to growing uh that pays a dividend yield of above 4% uh that starts to look more and more attractive in a a environment with lower short-term rates. Uh and that's something that we've been seeking out across a number of sectors uh and you know something that's been working for us and we're going to continue to try to identify those opportunities for the rest of the year. >> Okay. And you know, just speaking of of of short-term rates, uh, you know, the precious metals just got destroyed on Friday. Um, the market sort of swooned and the narrative over the weekend was, well, the market didn't like the fact that Kevin Worsh was picked as the the new Fed governor and that's sort of why everything took it on the chin. The day we're talking here, stocks are actually up a fair amount. So, doesn't really seem that the the worst factor was that big of a deal. Um, there probably just were looking for reasons for why, you know, some assets like the precious metals just hit their dog whistle moment where all of a sudden sellers outnumbered buyers. But do you guys at Oxbow have any particular opinion on the selection of of Kevin Worsh as the the new Fed chair? >> Uh, Ted and I haven't talked. He might feel a little differently than I do, but from what I've been reading, and we read a lot of the same research sources, uh my takeaway is that uh it seems like he's going to be okay with lowering the Fed funds rate, which is in line with what President Trump wants. But if you look at Wars' history, especially when he was on the was a Fed governor there from 2006 2011, uh he's not a big fan of increasing the balance sheet at the Fed. uh and so he might try to use lower interest rates as a way to stimulate uh things rather than increasing the balance sheet uh like what we saw with QE at various points in time over the last 15 years. >> So less less QE but more interest rate cuts. >> Yeah. Yeah. Uh, and I will say, you know, it's it's something that is very easy to say for anybody in any role, uh, you know, whatever you're doing for work, it's easy to be the person to the side assessing the person in that chair, uh, as to what they would do in that situation. But I would imagine somewhere in the next four years when Wars is there as the Fed chairman, there is going to be an event whether it's like we had 2023 with the banking crisis or 2020 with COVID. Uh there's going to be something where his uh saying that he's not going to increase the balance sheet at the Fed is going to be tested. Uh because in the past, whoever's in that seat ends up having to do what it takes to try and keep financial markets propped up. uh and maybe he'll do things differently, but that would lead to more pain uh for risk assets uh if he just let things play out however the market decided. So uh we'll see. Um I mean the best example of that currently is uh Treasury Secretary Bessant uh was very clear that he wanted to stop uh what Yelen was doing as the head of the Treasury of issuing all these short-term Treasury bills. He was going to start issuing longerterm Treasury notes. Well, he got in there and it wasn't really possible. and he's doing the exact same thing, issuing short-term bills and just hoping that the long-term Treasury yield comes down at some point in the future. So, we'll see what happens when he gets in there. Um, but yeah, my take is lower rates, but maybe less activity on the balance sheet. >> Okay. What is Oxbow's opinion on longerterm rates? Um, you know, as you just said, the administration would love nothing more than to get them down uh to reduce its its borrowing uh cost there. Um, and that's been pretty stubborn. So, um, you know, we'll have a new Fed chair that maybe will continue to try to hammer down the the the lower end. Do you think high the longer end will follow it down or do you think we're just going to end up with this ever steepening yield curve here? >> It could long-term rates could come down in the short to intermediate term. But, uh, I think from our standpoint, things changed starting in 2020 where that seemed like a generational low. you had a nearly 40-year run. Uh these interest rate moves tend to last three or four decades, either moving steadily higher or steadily lower. And we think since 2020 that you're now in a phase where this could go for a long time where interest rates are slowly but steadily moving higher over time. Uh and that really doesn't make it appealing to try to own long-term Treasury notes or bonds. Uh unless you're trying to play some really short-term move, and that's not really our style. uh we'd rather try to take advantage of the volatility and the rising inflation rate in other ways. Uh and that's also goes back to why we've been so much more focused on building out commodity related positions because those tend to be the biggest beneficiaries of an era where the inflation rate is rising but also inflation is getting more volatile. uh I'd seen this from 1995 to 2020 there was a 25-year period where the core CPI was about 2% but more importantly the standard deviation or the uh the movement from year to year was only about half of 1% it was very stable and so far in the 2020s we're at nearly a 4% average core CPI and the standard deviation is one and a half points in either direction from year to year triple or quadruple the volatility of what we'd all experienced there for a couple of decades. So that makes it difficult to try and be a long-term treasury bond owner uh when you have that sort of environment as a backdrop. >> Okay. Which explains in your 30 30 10 the 30 is bonds that are five years or or uh shorter. Correct. >> Correct. And and really mostly two years or shorter um is is really been the focus. Yeah. >> Okay. All right. So back to commodities. Um precious metals you're kind of leaving leaving them lie. I definitely very excited about oil and gas. You're you're expanding your um exposure there. Any other parts of the commodity complex right now that you are actively moving capital into? >> Yeah, it's not to the same extent but um buying miners or players whether that's in uh iron ore, copper, agriculture, um things of that nature. So, I mean, not the the super soft commodities, uh, but anything in sort of like the base metals area we've been trying to get some exposure to as well. And one benefit of that is it's led us to some companies that are based overseas, which uh, we think there's a increasing possibility that you might see more US dollar weakness in the years to come relative to other currencies. Uh, similar to what we saw in the 2000s where you saw a little bit more outperformance by emerging markets and and international businesses. So adding uh miners in Australia or Brazil uh places like that I think adds a little bit more diversity and an opportunity for our performance if a trend like that with the US dollar continues. >> All right. And I was actually just going to ask you about that. So um uh emerging well the rest of the world international stocks actually outperformed the S&P last year uh and have continued to to do well so far this year. Um the dollar has been weakening and I believe you showed this in your presentation from the other week. It's actually just broken down through um a long-term uh trend line, right? So sort of a breakout to the downside. So true that you you expect more dollar weakness uh in the future versus other currencies? >> Yeah, we would think so and we're not betting the entire portfolio on it, but it is something that we've made incremental decisions to have more things in the portfolio that would benefit from that. And that could be international businesses. It could be more exposure to commodities where there's companies that are in emerging markets or overseas that play more in the commodity space because it's a bigger part of their economy. And then sometimes it's just a business that has a lot of international exposure. Um so for instance, we've owned Booking Holdings uh which is one of the big uh online travel agency stocks for the last several years. And people may not realize that their biggest market is Europe. Uh and so if you start seeing uh increasing strength in the euro relative to the US dollar, that's positive for their business results. And so trying to find different unique ways to play that um you know across sectors and different themes. Okay. All right. Um Okay. Any other areas besides the ones that we've talked about that you guys are moving capital into right now? Just want to make sure I'm not missing anything important. >> Yeah. I I think we're trying to just pick off things. It's it's been difficult to find things that are truly cheap and and one thing that we've noticed uh we track about 500 companies that meet our quality criteria uh for the stock portfolio. And I would say about 60 of them right now, which is surprising to have a number this high when the market's at record highs, but about 60 of the 500, uh, look really cheap on the surface, but I would consider them value traps because they're going through disruption or or some sort of real significant headwind that it's been the right move to just stay away, continue to watch and see if they ever stabilize. Uh but there are businesses like that that it's almost been as much about dodging those sorts of bullets and then try to figure out um you know where there's opportunity. So TED for instance has found two or three uh pharmaceutical stocks that pay high dividend yields for the high income strategy that uh appear to have made a turnaround and they're not the most exciting businesses like Bristol Myers Squib or GSK or Fizer but they've been going down for so long and then have stabilized uh and appear to have good solid cash flows to pay a dividend yield and could be a good way for us to be able to generate some additional return in that strategy but not be exposed to some of the key themes. that could break down later this year if investor sentiment towards something like the AI trade turns negative. >> Okay. All right. Um well, let me ask you this. So, I've been asking you about where are you seeing opportunity and where are you moving capital? Um you know, we've talked about a few things. Weakening US dollar. Um you're not a huge fan of of uh long-term bonds or whatever. Beyond those two things, are there are there any parts of the market where you're just feeling like there's a lot of risk and we definitely want to stay away from that right now? >> Yeah, I would say semiconductors and that memory and storage space. So, uh, one screen or thing that we look for, it's a simple metric, but just looking at what stocks are on the market that are the price is trading at more than double the the stock's 200 day moving average, which just tells you that things have gotten so extreme and the the optimism is so high that it's been bit up to a level that's probably not sustainable and and there's a turnaround and a decline coming. Uh, and it was interesting because last week one of those areas was silver and silver miners and that's already started to recede. So the one area left where you still see and it's even a subindustry within semiconductors, it's the semicap equipment makers like Lamb Research and KLA which are very excellent businesses but have really taken off and uh gone to levels that are kind of unforeseen for its history. Um and then the memory and storage players like uh Micron, SanDisk, Western Digital uh those are at levels now that we would expect uh some sort of a pullback just because the the optimism is such an extreme that you know it's not sustainable. >> Okay. Um thank you uh for not just answering it but giving such an actionable answer and mentioning you know specific companies and the warning signs you look out for. Um last major question. Uh, is there anything else that's burning brightly on Oxbow's radar right now that I just haven't thought to ask you about yet? >> I think it's it's a good example, I think, just to tell people, you know, it's it's great to talk about the examples where things have worked out really really well and how to trim and manage that. I think it's important for us to also point out um we've been invested in a space in uh software that we thought there'd be a a bounce back going into the year and it's just accelerated down. And it's important to know how to manage positions that aren't working as well. Um, so, you know, normally there's two or three positions a year that just don't work out for whatever reason. If we take a 20% loss, we have to decide whether we're going to double down and invest further for a turnaround or more likely you just end up uh needing to just take it out of your portfolio and walk away. And we've looked at past examples like this where if you have a 20% loser in your portfolio, uh when we have sold it, uh in the couple years since then, the average return is flat. You're not missing out if you just kind of walk away and take a step back. So, this movement uh in software lately has caught a few of our positions that we've ended up selling in January uh just because it hit our stop-loss limits. But we consider that good risk management and we'll be able to reallocate elsewhere. and it's just been a move that's been more extreme than we anticipated. We do think there will be some winners from that space eventually, but you need to see more stabilization in the share prices and a little bit of a turnaround uh before you really want to move back in. On the flip side, we think the semiconductor move has gotten really extreme. Uh and we would expect that, you know, those have been the winners within tech. We would expect that to to turn around the other way. So that's been the space within tech that we've been watching very closely along with uh all the movement we've been trying to keep our eyes on within precious metals. >> All right. Um, I very much appreciate that answer and you you do a really good job of of demonstrating the discipline that I try to, you know, tell people about. Um, which is one of the big benefits of working with a a financial adviser, um, is, you know, you guys have a framework. You have a set of rules which you use to kind of get all the emotion out of the trade, right? You know, a lot of real regular retail investors, they're in a trade that's not working the way they thought. It's now down 20%. You know, that's where you're starting, you know, your bargaining with God, right? Okay, just please let it go back a little bit higher. I promise I'll sell out if you get me back to even, right? Where you guys have just learned over time the discipline of, "Hey, look, if it's not working the way you need it to," and it's it's, you know, and and importantly, it sounds like when you enter a position, not only do you have expectations that say, "Okay, if it starts failing to meet these expectations, we want to think about selling it." But it sounds like you use the term stop-loss, but it sounds like you you kind of have a price that says, "Hey, look, no matter what happens, if it drops to this price in a relatively quick period of time, it's a signal to us that something's wrong here and we need to pull the the rip cord." >> Yeah, that's correct. So, when we enter into a position, we're buying at a price that we think the expected downside is less than 20%. So, we don't anticipate that to happen. Um, and sometimes we'll leave ourselves some wiggle room or we'll buy half of the ultimate position size we want. So that if it does go down by 10 or 20% initially, then we've got that room to double the position size. And that's worked out well for us on a number of occasions. But if we have a full position that we thought we bought in at a reasonable price and it still goes down 20% from our cost basis, that tells us that there's just something we missed or it could have been something unexpected that happened in the company's business that just bad luck. But it's time to move on and and reallocate somewhere else. And usually you end up feeling relieved that you got out of the portfolio because I can give a number of examples where it just kept going down and it was the right call not to just try to hang on. >> Okay. All right. Well, Chance, thank you. We're at the part of the conversation where I ask you um you know, where can people go to to follow you and your work? Um, it's a little bit uh different in the case here of of Oxbow because I'm going to drive folks to a very specific URL if they want to talk to you guys. But first, uh, just give a quick reminder to folks of the type of clients that you serve. Um, because you are, I think I mentioned in the intro, you're a high net worth advisory firm. Um, so you're you're not for everybody, but I know you try to help as many people as possible, but but if someone's watching this and they're like, "Oh, you know, I think I might like to learn a little bit more about Oxbow." What's the the type of client that fits well for who you're looking for? >> Yeah, we we work with high netw worth individuals. Uh the original starting point of Oxbow is working with uh founders and entrepreneurs after they sold their companies. Um but you know, we we broaden that out a bit more to just anyone who really is a fit with our style of investing. We know it's not for everybody to uh take more of a cautious approach that's more focused on the downside and preventing uh really significant losses, but we seem to identify very well with a lot of people that like this approach to investing and trying to maintain and grow purchasing power through an investment cycle. Uh so that's really who we try to click with most. And typically we're we're looking for, you know, 2 to 5 million minimum to be able to manage our strategies uh in the way that we think is the best way to run money. >> All right. I appreciate that. I just wanted to get those those filters out or those thresholds out just because I don't want people to be disappointed if they reach out and you tell them, "Hey, sorry, you're just too small for us to work for with." Uh that being said though, one thing that that Oxbow very commendably does is it publishes a lot of of educational materials that are available to to everybody. I know Ted has written a bunch of books and a lot of those I think you guys give out to people for free. So technically if people want to get one of those free books if they don't have millions of dollars they can still reach out to you guys and get the books. Correct. >> Yeah, you can uh order the books for free off oxbowadvisors.com. Uh you fill out a form there uh and let us know which books you'd like to have shipped to you. Uh and then to your point about just sort of other content, we we have our own YouTube channel if you search for us at Oxbow Advisors. Uh, and we're usually putting something up there several times a month just to give you a sense of what we're seeing and what we think is most relevant. >> All right. Um, okay. So, with all that background out of the way, um, if if uh, you perhaps fit the criteria of a client of theirs and you're interested in talking to the Oxbow folks about working with them, um, go to thoughtfulmoney.com/oxpo, fill out the very short form there. It should only take you a couple seconds. Uh and then the Oxbow team will be in touch with you right away after you do that. All right. And finally, one last thing in wrapping up. Um the thoughtful money spring online conference uh is now officially launched. Uh it's going to be Saturday, March 21st. Don't worry if you can't watch live on that actual date because everybody who buys a ticket will also be sent replay videos of the entire event, all the presentations, all the live Q&A uh right after the event. We're getting pretty good at sending those replay videos out just within a couple hours after the end of the event. Um, as usual, it is our it's the best faculty that we've ever assembled. Um, we've got Lacy Hunt starting off with his usual tremendous keynote. We've got uh let's see, Luke Groman, we've got Ed Dow, we've got Matt Taibbe. Uh, both Ed and Matt are new this year. We've got uh in addition to Luke Roman, we've got Brent Johnson. We've got uh Mr. Liquidity, Michael How, we've got Darius Dale, uh we've got Rick Rule, we've got uh Andy Sheckchman, we've got Judy Shelton, Daniel D. Martino Booth, Grant Williams, Stephanie Pomo. As you can see, this is just a list of like the greats of the greats. Uh I've got Melody Wright talking about housing. Uh I think we've got one or two more as well. I'm not remembering at the moment. Um, but you can get all the details uh over at thoughtfulmoney.com/conference. And if you go there now, you can buy your ticket at the early bird price, which is the lowest price we're able to offer it at. I want to make sure that everybody possible gets that lowest price. So go there now and buy your ticket. And if you are a premium subscriber to the Thoughtful Money Substack, you can get an additional $50 off of that early bird price to do that. Just look at the email I've sent you. It's got the discount code that you should use in there. Chance, uh, as usual, it's just, uh, it's always a wonderful time interviewing you. You've got a steel trap mind. I ask you a question. I get very specific, concise answers. Uh, it's just a joy not to just interview you, but also work with you and and your colleague in crime there. Um, Ted Oakley as well as the entire team there at Oxbow. I just very much appreciate it. Look forward to having you back on soon. >> Yeah. And thanks so much for for always having us on. It's always really Ted and I really look forward to these conversations with you. >> All right. All right. Well, thanks so much, buddy. Really appreciate it. Hope to have you and Ted on again soon. >> Absolutely. Thanks. >> All right. And everybody else, thanks so much for watching.
Yesterday's Winning Stocks Becoming Tomorrow's Losers? And Vice-Versa? | Chance Finucane
Summary
Transcript
I think you are seeing a broadening or a consolidation where some of the big winners that were driving the gains in the index in the last few years are starting to top out and there's starting to be some more questions about those and you're seeing other sectors, other industries of the market that are showing more strength. And so for anybody who had a more diversified portfolio that might have lagged in the last year or two, they're now outperforming uh because those other areas are starting to act the way that you would have liked. Welcome to thoughtful money. I'm its founder and your host, Adam Teagard. For years now, corporate stock prices have been growing substantially faster than their free cash flows. In theory, this shouldn't be sustainable. So, will 2026 prove to be the year that the math starts to matter? Today's guest, Chance Penukin, chief investment officer of high net worth advisory firm Oxbow Advisors, thinks it may be. Chance, thanks so much for joining us today. >> Hey, Adam, thanks a lot for having me back on your show. >> Hey, it's always a pleasure to have you on. Um, uh, as is having your partner in crime there, Ted Oakley. Um, you guys do a fantastic job there at Oxbow Advisors. Um you guys just put out uh your kind of your latest uh outlook. Um and one of the things it focused on as I just mentioned there in the um in the intro is how stock prices have been growing you know substantially faster than free cash flows really for the past bunch of years. So I want to talk to you about um you know whether or not you think that can sustain and if not what that means. But but before we start if I can just at a very high level what is your current assessment of the financial markets right now? >> Sure. When we look at it uh we think the the market cap indices such as the S&P 500 look expensive to us especially given the concentration in seven or 10 big stocks that uh that I'm sure we'll get into. the free cash flow production of those really large tech companies has gone down uh as they try to invest in AI which then creates more risk if it doesn't pan out. Uh we think there's a little bit more opportunity and more of an equal weighted diversified approach to your stock portfolio. And then the other thing we're monitoring is as much as it's been a little bit of a slow steady start for the indices uh through the first month of year. there's been a lot of movement under the surface uh whether that's in commodity prices specifically precious metals that we've been taking a lot of activity uh within our portfolios try to make sure we risk manage that well uh and then also through certain sectors within the stock market uh so it's been a lot happening uh in the first month of the year even though it seems like a bit of a normal start >> okay yeah and if you look at um the S&P even though it did has recently hit uh new all-time highs it finally cracked 7,000. It's been pretty rangebound since what, say October or so of last year. Um, do you see that as more consolidation or do you see that more as a topping process? We would expect at least we thought the first three, four or five months of this year was going to be more of a continuation of the the up move just because uh comparison to the first quarter of last year when you had slow GDP growth was going to make it look like the economy was accelerating in the United States that tends to be a decent backdrop for stocks. So we weren't expecting a break in the market uh in the first quarter. But to your point, I think you are seeing a broadening or a consolidation where some of the big winners that were driving the gains in the index in the last few years are starting to top out and there's starting to be some more questions about those and you're seeing other sectors, other industries of the market that are showing more strength. And so for anybody who had a more diversified portfolio that might have lagged in the last year or two, they're now outperforming uh because those other areas are starting to act the way that you would have liked. >> Okay. So, does that mean you guys see 2026 as more of a year of um rotation where money finally starts leaving the the hyperscaler trade which has kind of been hoovering up all the capital over the past couple years? um and it's more of a broadening out where that money is starting to find new parts of the market. >> Yeah, I would say we would expect a rotation as you're describing, but we would also anticipate more volatility uh specifically sort of around the middle to back half of this year. Uh we think that if you look at past midterm election years, we were just going through this in the office, you could go all the way back to 1990 and pretty much see volatility being higher than normal in every midterm election year uh for the US, whether that's 2022, 2018, 2014, 2010, you start working your way backwards, there was something that hit in the middle to the latter half of of each of those years, uh that created a little bit more chaos uh than investors would have liked. So, we would anticipate that there will be volatility uh later in the year and we see that as a chance to try to be a little bit more opportunistic and maybe add to the portfolio, but right now we're diversified, make sure we've risk managed things well uh so we can participate a little bit if this upside continues, but we're very ready uh for any volatility later in the year. >> Okay. And I want to talk about, you know, where you think that capital's going to rotate. So, as you diversify, what areas you're diversifying into? Um but first the midterms, you know, the second year of a presidential um administration tends to be the worst year stock uh market performance-wise. Um probably in some part due to the midterm chaos. Um uh also as I've been noting a lot in this channel, it's it's quite rare statistically to get three um years of double-digit, let alone kind of 20% average backto-back returns in the market. Very rare to get four years of such uh performance. So as you look to 2026 with your expected additional volatility and maybe just the statistics that I mentioned and then of course anything else you're seeing fundamentally technically otherwise what is your what is your um default estimate for the year for the markets um up year down year up by a lot up by a little down by a little down by a lot. >> We really don't try to set price targets and I'm not trying to avoid your question. I just I don't find it that helpful. I think I think we try to think more broadly where you just look at this and just ask yourself, do you think things are are pretty expensive right now or pretty cheap after to your point because we talk about the same things. You just had three straight years where the market was up at least 15% uh all three years. You'd have to go back to that 1994 to 1999 stretch where you had more than three years in a row that went at that pace. Uh, and so you don't know if we're have a fourth year like that, but we do know that when it ends, you're going to see significant weakness in the market because you're going to have to pull things back in after price has outrun the fundamentals uh for this long a period of time. So, we're just not trying to chase it and uh we'll be ready when there is a 15, 20, 30% pullback in the market. Um, but there's really just kind of preparing uh for that in the meantime. >> Okay. So, it sounds like, and don't let me put words in your mouth, but you guys are a little bit more conservatively positioned because things seem expensive to you and you expect more volatility. And the reason for that is is, hey, we want to be able to, if there is indeed a material market pullback, we want to be able to be in a position to deploy funds into that and then ride the recovery. >> Exactly. I think during a move like we had in the the past three years and really just looking at the past few months at our own activity, we've been trimming uh or selling some of our biggest winners to try and lock in some of those gains, especially if they're more cyclical industries rather than secular growth stocks. Uh we want to make sure that we take some of those gains that might have run ahead of the fundamentals. Uh and then you end up being able to manage a decline or volatility in the future a lot more easily. So that rather than scrambling thinking, oh, we still had too much invested in this area. Now what are we going to do? It's down 20 or 30%. You've already made the adjustments. And so you can start thinking a step ahead as to how much further do I need it to fall before maybe I increase that position again. And we can get into it whenever you want. But the example with gold and silver over the past week uh is a perfect case study for that. >> Yeah. Well, we're gonna get into that. Um, but but to your point about expensive, you know, I've I've mentioned with many of the experts on this channel over the past several years about how valuations have gotten to just very historically stretched levels in some cases the most extreme we we've ever seen them. Uh, and we've generally talked about, you know, common multiples, whether it's cape ratios, whether it's price to sales, whether it's, you know, at a high level the buffet ratio, etc. haven't really talked that much about it from a price to cash flow standpoint, but I've got to imagine from the data that you've you've surfaced here, um that uh price to cash flows have also got to be at very stretched levels if stock prices have been growing, you know, much faster than cash flows have, free cash flows have over the past bunch of years. Um you know, a a is that true? And and kind of to my question in the intro, I mean, nobody knows for sure what's going to happen in the future, but do you are are you suspecting that 2026 might be the year where the maths might start to matter and and that's going to have to be pulled back down into maybe more historical norms. >> We're definitely in the range where it this could be the year that matters. And the way to frame it is it's dependent on when investors decide to be more skeptical about all the investment going into AI. So this may not be the year for that. It may be that everyone's still very optimistic and bullish. And you saw the reaction to various tech company earnings releases last week, whether it was down on Microsoft but very happy with the investment being done by Meta or Tesla. uh you need more skepticism on the part of investors that would punish all this additional capex that these companies are spending uh with uncertain future returns. But if you just look historically uh going back to the start of the financial crisis in 2008 and 2009 on average uh the S&P 500 whether it was the cap weighted index or the equal weighted index trades at about 20 times free cash flow would be about the average. So be about saying like a 5% free cash flow yield uh when you're looking at the next 12 months expected free cash flow which seems pretty reasonable to us. What's changed is the largest companies in the index that drive more weight there. They're now spending so much on capex that their free cash flows have come down by a lot and now the S&P 500 is trading at nearly 30 times free cash flow. So one of two things needs to happen. either uh price needs to come down where investors become skeptical about that excess capex spending or the companies may decide that we're not getting the return we'd like on all that capex and they try to rein it in. But one of the two has to occur where something's got to catch up because right now things have gotten so extended. We think you're better off diversifying across more quality companies. If you look at the equal weighted uh S&P 500 price to free cash flow, that's still trading just above 20 times, pretty close to its average, you can find other good businesses that aren't cheap, but at least are trading at a more reasonable valuation compared to their history and feel like you're not going to get crushed if the sentiment turns on that whole AI story. >> Okay. Um and so you know all right so take your money out of the big dominant trade um or or or take you know some capital out of that big dominant trade put into other areas that that don't appear as overvalued. Now you guys at Oxbow from my previous conversations with you um have been fairly optimistic about the prospects for the commodity complex. Um, you guys have talked about the 3030 3010 allocation if I'm getting that right. Um, and maybe it might be worth just spending a second on defining that for folks. Um, Chance. >> Yeah. >> Um, well, why don't I let you do that first and then I'll get into the meat of my question. >> Sure. And to be clear, it's not as if it's a set formula, but our managing partner Ted Oakley has talked about the era of the 6040 portfolio, 60% stocks, 40% bonds, uh may not deliver the the same quality returns that we just had over the last 40 years where we were in a declining uh interest rate environment. Uh now we're in an era where inflation we expect to be higher, more volatile. That could mean higher interest rates, which is more of a headwind for long-term bonds. So our focus is more on a portfolio that's split between uh say 30% stocks, 30% more short-term uh fixed income uh maturities 5 years or less and then 30% in commodities. The remaining 10 is more just trading opportunities uh idiosyncratic opportunities that you find uh that you want to put in your portfolio. And we don't try to stick exactly to 30 3030, but the idea is that commodity piece we think is of increasing importance. And in the highinccome strategy uh that Ted's run for 25 years, that commodity piece, I'm just doing the math in my head, we're over 30% uh of of that portfolio right now that's allocated across various companies uh or metals uh in the commodity space. >> Oh, okay. All right. Um so uh I'm I'm going to imagine that again the capital that you're removing from the big trade uh probably a good amount of that's going into the commodity space. I want to know where you you uh see opportunity there. But I think the right path to take to that question is let's go through the precious metals. Um because I know that you guys have had a good outlook on the precious metals. Um, you actually warned in your your piece that you guys put out just last week that the price action, especially in silver, was getting too hot for your comfort. And as I've been saying on this channel uh for the couple weeks leading up to this as well um as a huge general bull of the precious metals um you know vertical price moves in any asset don't last forever and they tend to not correct by going sideways. They tend to have a you know fairly um violent pullback. Um obviously that's what just happened here. So, I guess question for you on the precious metals is is what is your current um thinking on them. Um, and I'll let me cram a couple questions in. You can answer it any way you like. >> Uh, we've had two big price blowoff spikes, you know, in the past 50 years with the precious metals. This was the third big one. The first two, their corrections were brutal. You pretty much gave up all the gains um of of the vertical move and the metals didn't really go anywhere for the next 10 to 15 plus years. Are we seeing do you see something similar like that here or do you still remain bullish on them and think that after some period of correction here they could maybe even get back to to new all-time highs? >> We think that we're still bullish. So if you looked out, we try to take a five-year view. We're still bullish on precious metals for the next five years. But the crescendo that you saw there in recent months, I it's pretty wild to say that silver after the decline that we just experienced uh last Friday, silver was still up 20% for the month of January and up 60% in the last three months. So, it kind of turned into a meme stock, started trading like Bitcoin. Uh that's it's not the norm uh for that metal. So, you need things to kind of calm down a little bit. We wouldn't expect much uh from that metal in the next several months, but we still like it for the next handful of years. I think what I pointed out in the video that we we published when we had this just looking at the last 15 years when you had this sort of extreme uh interest and a ton of volume right around a peak for the silver price in 2011 and in 2021, you had essentially a 40% decline in the price over the ensuing 18 months. This was a lot more drastic where you just went down 30 or 40% in a day or two. But it's still the same idea that you almost need something akin to a 50% wash out. Uh and then I think we would be more interested in building that position back up and increasing our exposure to the miners again. But over the course of the last few months, uh I would say our exposure to precious metals in the high income strategy uh that's really trying to preserve purchasing power for our clients, it got up to about 15% of the portfolio that was in gold, silver, and then miners related to those metals. We had trimmed that back down to about 7% uh over the course of the last few months, but really picked up the pace of the trims uh in the last few weeks just as we saw that behavior start to get extreme. Mhm. Okay. So, um I I guess just on the precious metals going forward, are you kind of like um you're not adding I think I just heard you say, but you kind of just you trim down. Are you kind of keeping what you had here and you're just going to wait for that to show signs of life again? And and whenever that however long that takes, weeks, months, years, then you'll start increasing again. >> Yeah. So, we're we're keeping what we have. Uh we've got a couple percent in gold, 1% in silver, uh a few percent across a few different miners that we've owned for years. Um so I think the way we view this is if we still like the long term, we did not want to sell everything because then it's very difficult psychologically to know when to flip the switch and and jump back in when trying to time that is difficult. So we wanted to keep some exposure. Uh but I think we're going to wait for things to calm down, wait till we start seeing prices again. We'd been saying for a good part of last year that we expected gold to correct back down to 3500. Silver could easily correct back down to $50 an ounce. Um, and you know, maybe those uh short to midterm lows that it makes off these highs are a little bit above those levels. Maybe it's $4,000 for gold and $60 an ounce for silver. But you've got further to go uh before we would think that you know these are prices and valuations that we might want to start increasing our exposure again. >> Okay. All right. So um you are bullish on uh commodities. Precious metals part of that complex. You're like well we're just going to let that cool for a while. Um where do you see the opportunity that attracts you enough to start moving more capital in there? We've been moving into energy for the last several months and you had a huge move in energy from sort of the middle of 2020 up through the summer of 2022 and then uh hasn't done a whole lot in the last couple years and it's become the most hated sector again. Uh and we actually see that as an opportunity. Uh and so we've been accumulating energy positions in both the high income strategy and our long-term growth stock strategy. uh and specifically looking within oil field services uh most recently where we think there could be a pickup in activity uh both in offshore drilling and in certain parts of the world where maybe there'd been a little bit of a a slowdown in drilling activity. >> Okay. And when you say energy, do you mean the whole complex evenly or are you looking more at oil, oil and gas? >> Yeah, it's a good coal. >> Yeah, it's a good distinction. Uh yeah, so to be clear, crude oil and natural gas are the main focuses. Um we don't have anything right now with coal or with uranium. Um not that you can't play along those same themes with those two areas, but uh at this time it's just been a focus on on oil and net gas. >> Okay. Um I'm going to disclose something and so I just want to put a big disclaimer in front of it. Um, you know, I I generally don't like to um tell people exactly what I'm doing. Not not because I'm not trying to be helpful. I just don't want them to blindly copy what I'm doing. Um, but uh I I I have disclosed this in the past that uh Oxbow is one of the firms that I personally work with to manage part of my my personal um portfolio. Um, and so folks, I think highly that says I think highly of Oxbow. Doesn't mean you need to rush out and become an Oxbow client yourself, although maybe that's something you might want to look into. But I I I mentioned that um a just to be transparent, but also uh you were kind enough uh Chance uh was like a month or two ago um because you're you're not the only guest I've had that has been starting to ring the bell on on the energy complex. And I've I've told my audience here it's something that I'm, you know, personally beginning to invest more in. um you're one of the the people I reached out to to say, "Hey, can you share with me some of the a list of some of the stocks that you are are watching most closely right now." Um and at a a week ago, I was at the Vancouver Resource Investment Conference and I had a keynote there and I I started the keynote by serving dessert first. I said, "Look, I'm sure you're here to get a list of companies to go um research everybody." And I had just interviewed Rick Rule as well about the oil and gas industry. And I basically read them through a list of companies that Rick had mentioned and that you had mentioned and that uh I'd also gotten a similar list from David Haye. And I just sort of went through, you know, probably two dozen companies for folks who were interested in the space to go research. So, I mentioned that to say if someone's watching this and you're looking for, you know, a list of oil and gas companies uh to research, you may want to reach out to the folks at Oxbow and and see if um you know, if it's appropriate, if they might be willing to to let you know which ones they're they're watching most closely. That list has done well for me so far. Chance, >> glad to hear it. And I think there's also another point to make within energy. uh my my previous firm that I worked for early in my career, the best analyst we had was our director of research who was also the specialist in the energy sector and all of his outperformance as an analyst for our firm came from being overweight or underweight at the right times in the sector relative to the index. So as much as it's the right call to try and identify the correct companies, find quality businesses, just being overweight this sector when nobody wants to own it and it's such a small percentage of the index, that can generate a lot of return for you uh just on its own. And then if you're able to pick out a few big winners within that, then it's just a little bit extra. >> Okay. And you know, your your your partner um Ted Oakley, you know, has always told me that the the firm has made the most money coming out of bare markets. Um and I think that's a general comment like when the market falls into a bare market, nobody wants to touch a stock, you know, if if you're buying in then and and you time it right, you know, you ride the upcycle, you make a ton of money. Um, but I think it's also true sector-wise and as you've said kind of oil and gas sectors been in a bare market now for a good number of years and I think you use the term it's been the most hated sector up until recently. Right. So it seems like you're trying to ride that same phenomenon here just in that specific sector. Correct. >> That's correct. And I think sometimes uh people might think that it's incredibly complex variables that are being used, but sometimes it's pretty simple where uh if the comparisons that a company has to work against from the previous year are really easy where it's going to make it look like their growth's accelerating and things are improving. It can be just that simple where uh they have a series of quarters where their year-over-year growth in a revenue or cash flow accelerates. Uh that's all you need to start seeing some real outperformance. And on the flip side, uh when you've got businesses like uh in the tech sector and the Magnificent 7 that were reporting huge increases in revenue and earnings per share in 2023, but now you're seeing those growth rates decelerate back towards the rest of the S&P 500, then it makes it more difficult for those stocks to outperform because they're no longer such standouts and those difficult comparisons start to act as a headwind. >> Right. Right. Um All right. And then one other thing about um the oil and gas sector um is uh oftentimes when you're building a position in in anticipation of of an upswing um or secular change in in in a a sector um there's an opportunity cost to that capital, right? So if if if the the market is not moving, um you're not getting any return on that capital. Basically, if you're you're the sector you're putting your money or the stocks you're putting money in are languishing. Um the oil and gas sector right now, at least the larger companies there, uh they're still paying pretty attractive dividends here, right? So one of the the pleasant differences in this sector is is you can get paid while you wait and and that payment can largely cover your opportunity cost to capital. >> Yeah, absolutely. And I think that opportunity cost now if you're comparing it to whatever the short-term Treasury rate is, Fed funds rate, uh and that appears to be continuing to come down slowly but steadily and uh will be below 4%, maybe it goes down to 3%. If we're able to find a quality company where a business is stable to growing uh that pays a dividend yield of above 4% uh that starts to look more and more attractive in a a environment with lower short-term rates. Uh and that's something that we've been seeking out across a number of sectors uh and you know something that's been working for us and we're going to continue to try to identify those opportunities for the rest of the year. >> Okay. And you know, just speaking of of of short-term rates, uh, you know, the precious metals just got destroyed on Friday. Um, the market sort of swooned and the narrative over the weekend was, well, the market didn't like the fact that Kevin Worsh was picked as the the new Fed governor and that's sort of why everything took it on the chin. The day we're talking here, stocks are actually up a fair amount. So, doesn't really seem that the the worst factor was that big of a deal. Um, there probably just were looking for reasons for why, you know, some assets like the precious metals just hit their dog whistle moment where all of a sudden sellers outnumbered buyers. But do you guys at Oxbow have any particular opinion on the selection of of Kevin Worsh as the the new Fed chair? >> Uh, Ted and I haven't talked. He might feel a little differently than I do, but from what I've been reading, and we read a lot of the same research sources, uh my takeaway is that uh it seems like he's going to be okay with lowering the Fed funds rate, which is in line with what President Trump wants. But if you look at Wars' history, especially when he was on the was a Fed governor there from 2006 2011, uh he's not a big fan of increasing the balance sheet at the Fed. uh and so he might try to use lower interest rates as a way to stimulate uh things rather than increasing the balance sheet uh like what we saw with QE at various points in time over the last 15 years. >> So less less QE but more interest rate cuts. >> Yeah. Yeah. Uh, and I will say, you know, it's it's something that is very easy to say for anybody in any role, uh, you know, whatever you're doing for work, it's easy to be the person to the side assessing the person in that chair, uh, as to what they would do in that situation. But I would imagine somewhere in the next four years when Wars is there as the Fed chairman, there is going to be an event whether it's like we had 2023 with the banking crisis or 2020 with COVID. Uh there's going to be something where his uh saying that he's not going to increase the balance sheet at the Fed is going to be tested. Uh because in the past, whoever's in that seat ends up having to do what it takes to try and keep financial markets propped up. uh and maybe he'll do things differently, but that would lead to more pain uh for risk assets uh if he just let things play out however the market decided. So uh we'll see. Um I mean the best example of that currently is uh Treasury Secretary Bessant uh was very clear that he wanted to stop uh what Yelen was doing as the head of the Treasury of issuing all these short-term Treasury bills. He was going to start issuing longerterm Treasury notes. Well, he got in there and it wasn't really possible. and he's doing the exact same thing, issuing short-term bills and just hoping that the long-term Treasury yield comes down at some point in the future. So, we'll see what happens when he gets in there. Um, but yeah, my take is lower rates, but maybe less activity on the balance sheet. >> Okay. What is Oxbow's opinion on longerterm rates? Um, you know, as you just said, the administration would love nothing more than to get them down uh to reduce its its borrowing uh cost there. Um, and that's been pretty stubborn. So, um, you know, we'll have a new Fed chair that maybe will continue to try to hammer down the the the lower end. Do you think high the longer end will follow it down or do you think we're just going to end up with this ever steepening yield curve here? >> It could long-term rates could come down in the short to intermediate term. But, uh, I think from our standpoint, things changed starting in 2020 where that seemed like a generational low. you had a nearly 40-year run. Uh these interest rate moves tend to last three or four decades, either moving steadily higher or steadily lower. And we think since 2020 that you're now in a phase where this could go for a long time where interest rates are slowly but steadily moving higher over time. Uh and that really doesn't make it appealing to try to own long-term Treasury notes or bonds. Uh unless you're trying to play some really short-term move, and that's not really our style. uh we'd rather try to take advantage of the volatility and the rising inflation rate in other ways. Uh and that's also goes back to why we've been so much more focused on building out commodity related positions because those tend to be the biggest beneficiaries of an era where the inflation rate is rising but also inflation is getting more volatile. uh I'd seen this from 1995 to 2020 there was a 25-year period where the core CPI was about 2% but more importantly the standard deviation or the uh the movement from year to year was only about half of 1% it was very stable and so far in the 2020s we're at nearly a 4% average core CPI and the standard deviation is one and a half points in either direction from year to year triple or quadruple the volatility of what we'd all experienced there for a couple of decades. So that makes it difficult to try and be a long-term treasury bond owner uh when you have that sort of environment as a backdrop. >> Okay. Which explains in your 30 30 10 the 30 is bonds that are five years or or uh shorter. Correct. >> Correct. And and really mostly two years or shorter um is is really been the focus. Yeah. >> Okay. All right. So back to commodities. Um precious metals you're kind of leaving leaving them lie. I definitely very excited about oil and gas. You're you're expanding your um exposure there. Any other parts of the commodity complex right now that you are actively moving capital into? >> Yeah, it's not to the same extent but um buying miners or players whether that's in uh iron ore, copper, agriculture, um things of that nature. So, I mean, not the the super soft commodities, uh, but anything in sort of like the base metals area we've been trying to get some exposure to as well. And one benefit of that is it's led us to some companies that are based overseas, which uh, we think there's a increasing possibility that you might see more US dollar weakness in the years to come relative to other currencies. Uh, similar to what we saw in the 2000s where you saw a little bit more outperformance by emerging markets and and international businesses. So adding uh miners in Australia or Brazil uh places like that I think adds a little bit more diversity and an opportunity for our performance if a trend like that with the US dollar continues. >> All right. And I was actually just going to ask you about that. So um uh emerging well the rest of the world international stocks actually outperformed the S&P last year uh and have continued to to do well so far this year. Um the dollar has been weakening and I believe you showed this in your presentation from the other week. It's actually just broken down through um a long-term uh trend line, right? So sort of a breakout to the downside. So true that you you expect more dollar weakness uh in the future versus other currencies? >> Yeah, we would think so and we're not betting the entire portfolio on it, but it is something that we've made incremental decisions to have more things in the portfolio that would benefit from that. And that could be international businesses. It could be more exposure to commodities where there's companies that are in emerging markets or overseas that play more in the commodity space because it's a bigger part of their economy. And then sometimes it's just a business that has a lot of international exposure. Um so for instance, we've owned Booking Holdings uh which is one of the big uh online travel agency stocks for the last several years. And people may not realize that their biggest market is Europe. Uh and so if you start seeing uh increasing strength in the euro relative to the US dollar, that's positive for their business results. And so trying to find different unique ways to play that um you know across sectors and different themes. Okay. All right. Um Okay. Any other areas besides the ones that we've talked about that you guys are moving capital into right now? Just want to make sure I'm not missing anything important. >> Yeah. I I think we're trying to just pick off things. It's it's been difficult to find things that are truly cheap and and one thing that we've noticed uh we track about 500 companies that meet our quality criteria uh for the stock portfolio. And I would say about 60 of them right now, which is surprising to have a number this high when the market's at record highs, but about 60 of the 500, uh, look really cheap on the surface, but I would consider them value traps because they're going through disruption or or some sort of real significant headwind that it's been the right move to just stay away, continue to watch and see if they ever stabilize. Uh but there are businesses like that that it's almost been as much about dodging those sorts of bullets and then try to figure out um you know where there's opportunity. So TED for instance has found two or three uh pharmaceutical stocks that pay high dividend yields for the high income strategy that uh appear to have made a turnaround and they're not the most exciting businesses like Bristol Myers Squib or GSK or Fizer but they've been going down for so long and then have stabilized uh and appear to have good solid cash flows to pay a dividend yield and could be a good way for us to be able to generate some additional return in that strategy but not be exposed to some of the key themes. that could break down later this year if investor sentiment towards something like the AI trade turns negative. >> Okay. All right. Um well, let me ask you this. So, I've been asking you about where are you seeing opportunity and where are you moving capital? Um you know, we've talked about a few things. Weakening US dollar. Um you're not a huge fan of of uh long-term bonds or whatever. Beyond those two things, are there are there any parts of the market where you're just feeling like there's a lot of risk and we definitely want to stay away from that right now? >> Yeah, I would say semiconductors and that memory and storage space. So, uh, one screen or thing that we look for, it's a simple metric, but just looking at what stocks are on the market that are the price is trading at more than double the the stock's 200 day moving average, which just tells you that things have gotten so extreme and the the optimism is so high that it's been bit up to a level that's probably not sustainable and and there's a turnaround and a decline coming. Uh, and it was interesting because last week one of those areas was silver and silver miners and that's already started to recede. So the one area left where you still see and it's even a subindustry within semiconductors, it's the semicap equipment makers like Lamb Research and KLA which are very excellent businesses but have really taken off and uh gone to levels that are kind of unforeseen for its history. Um and then the memory and storage players like uh Micron, SanDisk, Western Digital uh those are at levels now that we would expect uh some sort of a pullback just because the the optimism is such an extreme that you know it's not sustainable. >> Okay. Um thank you uh for not just answering it but giving such an actionable answer and mentioning you know specific companies and the warning signs you look out for. Um last major question. Uh, is there anything else that's burning brightly on Oxbow's radar right now that I just haven't thought to ask you about yet? >> I think it's it's a good example, I think, just to tell people, you know, it's it's great to talk about the examples where things have worked out really really well and how to trim and manage that. I think it's important for us to also point out um we've been invested in a space in uh software that we thought there'd be a a bounce back going into the year and it's just accelerated down. And it's important to know how to manage positions that aren't working as well. Um, so, you know, normally there's two or three positions a year that just don't work out for whatever reason. If we take a 20% loss, we have to decide whether we're going to double down and invest further for a turnaround or more likely you just end up uh needing to just take it out of your portfolio and walk away. And we've looked at past examples like this where if you have a 20% loser in your portfolio, uh when we have sold it, uh in the couple years since then, the average return is flat. You're not missing out if you just kind of walk away and take a step back. So, this movement uh in software lately has caught a few of our positions that we've ended up selling in January uh just because it hit our stop-loss limits. But we consider that good risk management and we'll be able to reallocate elsewhere. and it's just been a move that's been more extreme than we anticipated. We do think there will be some winners from that space eventually, but you need to see more stabilization in the share prices and a little bit of a turnaround uh before you really want to move back in. On the flip side, we think the semiconductor move has gotten really extreme. Uh and we would expect that, you know, those have been the winners within tech. We would expect that to to turn around the other way. So that's been the space within tech that we've been watching very closely along with uh all the movement we've been trying to keep our eyes on within precious metals. >> All right. Um, I very much appreciate that answer and you you do a really good job of of demonstrating the discipline that I try to, you know, tell people about. Um, which is one of the big benefits of working with a a financial adviser, um, is, you know, you guys have a framework. You have a set of rules which you use to kind of get all the emotion out of the trade, right? You know, a lot of real regular retail investors, they're in a trade that's not working the way they thought. It's now down 20%. You know, that's where you're starting, you know, your bargaining with God, right? Okay, just please let it go back a little bit higher. I promise I'll sell out if you get me back to even, right? Where you guys have just learned over time the discipline of, "Hey, look, if it's not working the way you need it to," and it's it's, you know, and and importantly, it sounds like when you enter a position, not only do you have expectations that say, "Okay, if it starts failing to meet these expectations, we want to think about selling it." But it sounds like you use the term stop-loss, but it sounds like you you kind of have a price that says, "Hey, look, no matter what happens, if it drops to this price in a relatively quick period of time, it's a signal to us that something's wrong here and we need to pull the the rip cord." >> Yeah, that's correct. So, when we enter into a position, we're buying at a price that we think the expected downside is less than 20%. So, we don't anticipate that to happen. Um, and sometimes we'll leave ourselves some wiggle room or we'll buy half of the ultimate position size we want. So that if it does go down by 10 or 20% initially, then we've got that room to double the position size. And that's worked out well for us on a number of occasions. But if we have a full position that we thought we bought in at a reasonable price and it still goes down 20% from our cost basis, that tells us that there's just something we missed or it could have been something unexpected that happened in the company's business that just bad luck. But it's time to move on and and reallocate somewhere else. And usually you end up feeling relieved that you got out of the portfolio because I can give a number of examples where it just kept going down and it was the right call not to just try to hang on. >> Okay. All right. Well, Chance, thank you. We're at the part of the conversation where I ask you um you know, where can people go to to follow you and your work? Um, it's a little bit uh different in the case here of of Oxbow because I'm going to drive folks to a very specific URL if they want to talk to you guys. But first, uh, just give a quick reminder to folks of the type of clients that you serve. Um, because you are, I think I mentioned in the intro, you're a high net worth advisory firm. Um, so you're you're not for everybody, but I know you try to help as many people as possible, but but if someone's watching this and they're like, "Oh, you know, I think I might like to learn a little bit more about Oxbow." What's the the type of client that fits well for who you're looking for? >> Yeah, we we work with high netw worth individuals. Uh the original starting point of Oxbow is working with uh founders and entrepreneurs after they sold their companies. Um but you know, we we broaden that out a bit more to just anyone who really is a fit with our style of investing. We know it's not for everybody to uh take more of a cautious approach that's more focused on the downside and preventing uh really significant losses, but we seem to identify very well with a lot of people that like this approach to investing and trying to maintain and grow purchasing power through an investment cycle. Uh so that's really who we try to click with most. And typically we're we're looking for, you know, 2 to 5 million minimum to be able to manage our strategies uh in the way that we think is the best way to run money. >> All right. I appreciate that. I just wanted to get those those filters out or those thresholds out just because I don't want people to be disappointed if they reach out and you tell them, "Hey, sorry, you're just too small for us to work for with." Uh that being said though, one thing that that Oxbow very commendably does is it publishes a lot of of educational materials that are available to to everybody. I know Ted has written a bunch of books and a lot of those I think you guys give out to people for free. So technically if people want to get one of those free books if they don't have millions of dollars they can still reach out to you guys and get the books. Correct. >> Yeah, you can uh order the books for free off oxbowadvisors.com. Uh you fill out a form there uh and let us know which books you'd like to have shipped to you. Uh and then to your point about just sort of other content, we we have our own YouTube channel if you search for us at Oxbow Advisors. Uh, and we're usually putting something up there several times a month just to give you a sense of what we're seeing and what we think is most relevant. >> All right. Um, okay. So, with all that background out of the way, um, if if uh, you perhaps fit the criteria of a client of theirs and you're interested in talking to the Oxbow folks about working with them, um, go to thoughtfulmoney.com/oxpo, fill out the very short form there. It should only take you a couple seconds. Uh and then the Oxbow team will be in touch with you right away after you do that. All right. And finally, one last thing in wrapping up. Um the thoughtful money spring online conference uh is now officially launched. Uh it's going to be Saturday, March 21st. Don't worry if you can't watch live on that actual date because everybody who buys a ticket will also be sent replay videos of the entire event, all the presentations, all the live Q&A uh right after the event. We're getting pretty good at sending those replay videos out just within a couple hours after the end of the event. Um, as usual, it is our it's the best faculty that we've ever assembled. Um, we've got Lacy Hunt starting off with his usual tremendous keynote. We've got uh let's see, Luke Groman, we've got Ed Dow, we've got Matt Taibbe. Uh, both Ed and Matt are new this year. We've got uh in addition to Luke Roman, we've got Brent Johnson. We've got uh Mr. Liquidity, Michael How, we've got Darius Dale, uh we've got Rick Rule, we've got uh Andy Sheckchman, we've got Judy Shelton, Daniel D. Martino Booth, Grant Williams, Stephanie Pomo. As you can see, this is just a list of like the greats of the greats. Uh I've got Melody Wright talking about housing. Uh I think we've got one or two more as well. I'm not remembering at the moment. Um, but you can get all the details uh over at thoughtfulmoney.com/conference. And if you go there now, you can buy your ticket at the early bird price, which is the lowest price we're able to offer it at. I want to make sure that everybody possible gets that lowest price. So go there now and buy your ticket. And if you are a premium subscriber to the Thoughtful Money Substack, you can get an additional $50 off of that early bird price to do that. Just look at the email I've sent you. It's got the discount code that you should use in there. Chance, uh, as usual, it's just, uh, it's always a wonderful time interviewing you. You've got a steel trap mind. I ask you a question. I get very specific, concise answers. Uh, it's just a joy not to just interview you, but also work with you and and your colleague in crime there. Um, Ted Oakley as well as the entire team there at Oxbow. I just very much appreciate it. Look forward to having you back on soon. >> Yeah. And thanks so much for for always having us on. It's always really Ted and I really look forward to these conversations with you. >> All right. All right. Well, thanks so much, buddy. Really appreciate it. Hope to have you and Ted on again soon. >> Absolutely. Thanks. >> All right. And everybody else, thanks so much for watching.