Peter Boockvar on The Fed, Volatility, Valuations and Market Shifts
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On the Tape.

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They are also the people behind the alternative investment industry's largest and most exciting in-person events. To find out more about iConnections events and members-only platform, visit iConnections.io. Welcome to the On The Tape Podcast. I'm Dan Nathan, joined by Danny Moses. Danny, how are you? I'm good, Dan. How are you doing? I'm doing great. We have one of our pod favorites, a guest today who's been back, I think this is his fifth time or so. This would be Peter Bukvar of TXL.

the Bleakley Financial Group. Peter, welcome back to the pod. Thank you, Dan. Thank you, Danny. I always enjoy hanging with you guys. Yeah, man. Well, you know, this is one that I think we're all looking forward to because we had a little volatility this week in the markets. I know this is something that Danny and you guys both track very closely. Danny and his dot plot, he can't quit it. And Peter, we know that for you, you know, this is kind of like your Super Bowl 10 times a year or so, kind of parsing out what the Fed thinks

So we're going to hit all that. Peter's also going to grace us with some of the things that he's looking for in 2025, maybe some contrarian views, some ideas there. So we're going to get to all of that. Guys, we got to talk about yesterday. We're recording this 24 hours from when the Fed chair Powell was speaking in his presser after the announcement. Things took place.

turned for the worse and kind of quickly and kept on crescendoing into the close. You know, today, as we're thinking about things, you know, the S&P, which was down nearly 3% yesterday, is only up 23 basis points, not particularly a healthy bounce here. Peter, give us a sense of what your expectations were into the Fed meeting and what you thought of just kind of the market's reaction, both in the treasury market, but also in the stock market.

Okay, let's start with the stock market. Heading into this meeting, because we all know that a lot of the market moves on the day of an event, whether it's a Fed meeting, an earnings report, or anything macro, a lot of that move is dependent on the positioning going into that day. The positioning in the stock market going into this day was basically having two different stock markets. You had the pile into Tesla and other big tech stocks and other speculative thrusts

And then you had everything else where the breath has just been godawful for the two weeks leading into this meeting. Layer on top of that, extreme sentiment. You had the city panic euphoria index where the euphoria threshold, and I see it every Saturday when Barron's reports it,

it was 0.41. It got to 0.62. It was 50% above the euphoria threshold. You had the bull bear spread in the Investor's Intelligence Survey that was approaching 50. Usually, anything above 40 is extreme. The National Association of Investment Managers measures their level of exposure

it got to 99. If it gets above 100, it means they're taking out leverage. So that was an implication that they're all in. So we're all leaning in one bull boat, even though the foundations of the market were rather weak. Then let's look at the bond market. Interestingly enough,

The Fed Funds Futures December contract for 2025 was already pricing in just two more cuts. We had a Fed Funds rate going down to 280 back in September. Then we shaved off 100. We were down to four. And then going into this meeting, the bond market was only pricing in two. So what did Jay Powell do?

He just agreed with the two. So there shouldn't have been this shock response in the bond market. And the equity market acted like the Fed Funds futures market didn't exist. It was like they weren't paying attention. So I do think all that put together, we really just took off a lot of that frost. The market was just too positioned, the stock market, in one way. Powell reminded the equity guys who just were not listening that, hey, we may not have too many cuts left.

So your playbook of, oh, let's just buy stocks. Let's be valuation agnostic because the Fed's in our corner. The Fed put us alive and we're just going to cut rates and everything's going to be fine. Well, maybe that storyline isn't going to have the same effect.

ending as so many people are used to. Yeah. You know, Peter, you just said something about breadth though. And I think this is the most important part, at least from the equity side of things is that folks weren't buying all the other crap, right? If you look at the equal weight S&P, if you looked at the Russell 2000, right? If you looked at a whole host of other things, the internals in the market were really bad. What they were buying was the faithful eight, right? And so the kind of

the last push for me was that Broadcom 25% one-day move that was followed up by another 12% rally. And so to me, that was the fate of the market, the overall exuberance in those eight stocks. And so I'm with you on all that, Danny. We just heard Peter rattle off something out of Barron's, something out of IBD. I think a lot of our younger viewers or listeners may not

know what the hell those things are, which I think is pretty old school. I think that's why we all have a meeting of the minds. But Danny, what was your take into and out of this meeting? Because again, I am also surprised that so many people were surprised by what happened. And maybe I was a little surprised also by the magnitude of the move, especially as we're like, what, a week and a half from the end of the year after a just bang up year in

So to Peter's point, the bond market was already pricing in through Fed Fund futures that you were going to cut now and two more in 25 and that was it. I think there was a slight push out from the March date maybe as the next one, maybe into the summer, but that was very slight. Obviously they took inflation expectations up a little bit.

a little. I think people are a little bit concerned now going back to inflation is transitory a few years ago that he's really nervous about what's going to happen. But something else happened yesterday. And as we sit here, the 10-year yields are up 100 basis points literally in three months. I mean, that is a, I don't know the standard deviation. I'm sure Peter can tell me exactly what that move looks like. But during that thing yesterday that happened, while the pressure is going on and all the noise in Washington from this continuing resolution in the budget, potentially not getting approved,

Because think about this logically, and Peter, I'd love to get your thoughts here. If the Fed's going to be more hawkish, even if their inflation expectations move higher, logic would tell you the 10-year yields actually should come in a little bit if the Fed is going to be intent on potentially slowing the economy down and not having less inflation in the future, potentially. So I think this term premium noise that's come back with the debt ceiling and this budget issues, you're getting a glimpse of potentially the chaos that could ensue in

And to me, all things being equal, you could have had a 10-year yield moving up to 4.55 yesterday with stocks even being flat or up yesterday. It would just be as concerning. So Peter, I'd love to get your thoughts on that because that was my big takeaway yesterday. I think I lost in kind of the Fed shuffle. Yeah, so take that piece by piece. So yes, in theory, if the Fed is tighter, thus keeping inflation in check, the long end shouldn't have sold off as it did.

I think part of the sell-off was positioning unwind as people were set up one way going into the meeting. But also, the Fed reminded us that higher for longer is a real thing. And it's a real thing not just on the short end, but potentially on the long end. Then you throw in the point of, okay, maybe we don't have a debt ceiling and we're

government spending is going to be very difficult to corral and that for the first time in our lives, debts and deficits matter. And it's not just here. Debts and deficits mattered in France when we saw yields rise when people were worried about the budget there. The UK 10-year gilt yield is at a one-year high post-Rachel Rue's budget that people were worried about. JGB yields in anticipation of a likely decline

hike in January, where they did not do one this week. The 40-year yield, which I like to look at because it's furthest out of the curve and least influenced by the manipulation of the short end, that is trading near the highest level since 2008. So there is a global sovereign bond pushback

to these rising debts and deficits, inflation that while has moderated, central bank rate cuts are not helping that situation if you want to keep your foot on inflation. And bottom line, we're in a bond bear market. And that started a couple of years ago, which followed a 40-year bull market, as we know,

And there are going to be fits and starts, puts and takes, and rises and falls. But the trend is up when it comes to interest rates. And all these put together, I think, is a reason to somewhat worry. Now, to your point on the Fed-

being more hawkish and long rates still going up. Sort of the opposite would happen in September where the Fed was more dovish by cutting 50 and long rates jumped. So I think either way, the Fed's in a very difficult situation where they're cutting short rates and long rates are staying very sticky. So many CEOs in their third quarter conference calls that have businesses that are interest rate sensitive.

They all talked about hopes that the Fed's finally cutting interest rates. This should lead to a good fourth quarter. And we're hopeful for next year, whether it was a home builder or Mohawk, which sells flooring and carpet and anybody related to that, even in the auto sector and commercial real estate people. Oh, you know, the Fed's going to save us and we're going to be able to refinance our loan.

Like this is very disruptive to a lot of plans, not having long rates fall at the same time the Fed was cutting short rates. And now the jolt of, oh, well, yeah, the Fed's cutting short rates, but they may only have two more left. Then what do we do? So I

Like I said, higher for longer is real. There's still, I believe, an adjustment to be made in this new rate environment. Interestingly enough, investment grade debt has the largest maturity wall in 2025, 2026, 2027, where there's enormous amount of debt that was priced pre-2022 that's going to reprice. Not that these companies were not worried about their solvency.

But if they have to pay 200 basis points more in interest expense, two of the biggest contributors to profit margin expansion over the last 15 years was the 2018 cut in the corporate tax rate and lower interest expense. I'm going to get to credit spreads because I think that's a huge signal. And you've talked about tight credit spreads as another indicator that things are a little bit too bullish in general. But think about this. So the yield curve, so the measurement of the

two-year yields to 10. Obviously, you know that I'm explaining to people is now back to 25 basis points. The last time we saw this, right? Think about it in March of 22, what happened in March and May of 22 during that time period, we know what the market sold off 14% when that happened. We've talked about when a re-steeping occurs. And that was at the time where the fed started to raise rates and then go 75 at a clip. I know we're not doing that. What I'm saying is when you get this readjustment, right? In the bond market and how it

there is a major impact to what you're saying, cost of capital, the way people think. But talk about that for a second. And also, I do think, you know, with private credit and the amount of money that's been raised, and God bless them all for doing that,

Credit spreads have remained tight because you're getting so much oil in the machine, so to speak, buying credit card receivables, buying auto receivables, all this stuff. It doesn't take much. And Dan has been harping on this for a long time, that the stock market is basically a facture of the 10-year yields and the 10-year yields have been bid at four, offered at five. And as you get closer to 5%, I'm sorry, but every excuse in the world will come to sell this market. So give me your thoughts on that.

Well, in terms of the stock market, the context at which that rise would occur is an S&P 500 multiple that...

before the big Wednesday sell-off was approaching 23. And for context, it was 24 and a half in March, 2000. So we're talking rarefied air from a valuation perspective with rising interest rates. On the credit side, I looked the other day, the high yield spread to treasuries was approaching the July 2021 lows. Now on a yield basis, obviously the yield

is much higher, but the spread basis is compressing to that level. This gets back to the whole word and meaning of restrictives. Powell keeps talking about restrictive, but yeah, for part of the economy, rates are restrictive. If you're paying 23% interest rate on your credit card, that's usually restrictive. If you got to pay now above 7% for a mortgage rate, we know that's restrictive.

If you're a small business that's paying 10% on a loan or 12% even, if you go on a private credit, that's very restrictive. So that is then overlaid with the party going on in the markets up until Wednesday with the stock market, as we talked about, and credit spreads, as we talked about, and meme stocks and fork coins and all this nonsense. I mean, we saw the nonsense sort of repeat itself and the banana on the wall going for $6 million. Right.

So it's just this very weird sort of bifurcated economy where you have this fast lane economy in a slow lane. You have the two different stock markets, the ones everyone loves and basically everything else. And you have this parts of the world where, yes, you're restricted for some, but certainly not for others. It's like two different universes we're living here. So on that fart coin, and we'll never have to talk about it ever again or mention it on this podcast, but just for people that aren't paying attention, it's a 1.2

$2 billion market cap. I just want to be very clear on that. But Peter, you mentioned builders a second ago, and I always love looking at the earnings reports. We just got Lenar, and it always gives you a really easy look into what's going on. And people had always equated, and you can see the builders have obviously sold off 20% to 25% since the rates have moved higher here, bed cutting with lower mortgage rates. It hasn't been the case, right? And that's where we're talking about the long end of the curve. When you looked at the

quarter for Lenar, which I know I think you wrote about and you kind of identified it. I think that people need to understand that without AI and you look at a Micron, which is just a chip company that sells more stuff into the personal computing space. I know Dan will have some thoughts on that too. Companies that don't have that kind of extra way to kind of meme them to a degree or just think bigger out of the box, you're giving a real picture. So give me thoughts on kind of the real world stocks that we're seeing and what it's really telling us.

Well, Micron reminded us that capital spending in AI is sucking spending everywhere else. XAI, capital spending has flatlined for the last couple of years. Tech spending is all revolving around AI and coming from nowhere else. So if you're selling semis into smartphones, PCs, autos, industrial,

Business is sucking wind. Inventories are still too high. If you're not selling into that AI ecosystem, your business is down, and not down small, down like double digits. Lenore, in their release, it reminded us also that that incremental buyer that's going to buy that house. And this market does need more supply. There's no question. So there is pent-up demand for homes. It's just the affordability issue.

lever is so tight in that just a 25 to 50 basis point increase in mortgage rates, let alone 100 from the lows of just a few months ago, that the consumer immediately takes a step back, which then leads to Lennar saying, okay, we need to turn back up the discounting knob. We need to start increasing incentives, buy down mortgages even more to bring in that same potential buy-in.

So there's huge sensitivity on the margin to these changes in rates. It doesn't sound like a lot of we go from a six and a quarter to seven and a quarter mortgage rate because they're still elevated anyway, but that has a big difference because it's coming on top of a 50% rise

and the average price of a home over the last four years. - Yeah, you know, I want to go to the Mike Brown point that Danny just made. So again, these guys are the memory suppliers, right? To the servers, but they also have NAND that goes into PCs and smartphones, right? So they have two components to this business, but they also have an industrial and an auto component. So those four that I just mentioned, like you used the term, Peter,

Sucking wind. They're sucking wind. And we've heard this from other parts of the supply chain as PCs, smartphones, and the like. I think it's also important to note that Apple's iPhones, they are not growing in 2024. They're literally flat when you have single-digit growth among Android. So that's not a big surprise, right? And if you look at maybe some auto sales, you can kind of figure that out, industrials. So the point that you just made is that all

All of the incremental CapEx is coming in and around generative AI. And who's doing that, right? It's the four hyperscalers for all intents and purposes, right? So it's Amazon, it's Google, it's Microsoft, and let's just throw meta in there, right? And so when you think about just the chip space, the high-end GPU space, I get it.

But there's one issue that just happened this week that I think is really important. And Dan Niles of Niles Asset Management highlighted this on Twitter. Bill Gurley and Brad Gerstner, they have this podcast, BG2. And Satya Nadella was on last week, the CEO of Microsoft. And they asked him specifically whether he was constrained as far as access to chips.

he said no. That's the first time that we have heard one of these major buyers of chips over the last call it year and a half or say, say no. And you know, we just had Jensen Wang, the CEO of Nvidia, I think it was a few weeks ago saying that Blackwell, this next generation of this hopper chip that all these folks have been jumping over each other to get access to double, triple ordering. And that's not even to mention China and the way they've gotten around some of the restrictions, right? So all of a sudden he's not constrained anymore.

Does that mean that they are not going to go all in on Blackwell? Because that is the story as it relates to NVIDIA. Now, we don't have to get that granular, but if he's only power constrained is what he said, and we know we've seen all those nuclear deals and the like here. Don't you think we are headed to a period of digestion for potentially a way overbilled as it relates to

these cloud infrastructure plays. We've already seen Dell, which is the server that goes into the data centers, right, to train the models. We already saw their guidance last month. We see Micron now, a memory provider, saying this. I just think that next year, or at least the first half of next year, might be the realization that all of this build-out might eventually be used. All of their customers might eventually get a return on investment, but the valuations afforded to them,

the price appreciation in the stocks might be a massive pull forward. So I'm curious, I know that was a little bit of a rant there, Peter, but what does that bode for 2025, the stock market, when the fateful eight is driving everything? And it's also driving a large part of the expected 15% earnings growth year over year that our main man Butters at FactSet

It's kind of pointing us to, and I'll tell you, 15% is kind of a high that we have not seen. It's kind of inched up from 11, 12 to now 15 expected growth. Yeah. So basically we are now going to see whether it's in January, February, the fourth quarter results, and then thereafter is to what extent were companies double, triple, and quadruple order?

And to your point of, yes, we have enough chips shows that that went on. And now we're going to see to what extent there's going to be hangover. The other thing in semi land that we have to pay attention to is will the Trump administration further reduce and limit

US semiconductor selling into China, whether it's on the equipment side or the chip side. I mean, I read the other day that half of Qualcomm's business goes to China. And at the same time, taking even a bigger picture over the next couple of years, China's building out a massive semiconductor industry.

Now, they're not certainly as advanced as we are, but in the next couple of years, they're going to be. And so now we should be worried about a flood of supply coming from China, which would then further depress, at least on the commodity side of chips, pricing here. So I do think that there's a lot of

things that semi-investors need to think about, both in the best part, as you talked about, the AI ecosystem, but a lot of the other commodity-type, less specialized stuff. There is a China competitive onslaught that's coming in

in the next couple of years. And they built a lot of factories, not worried about supply demand. They just wanted to build as much supply as possible because they wanted to rely less on the US. I know you give stock ideas and you state when you actually own it as an advisor, obviously, with what you do. But this traditional 60-40 model, we got a little glimpse again of what that looks like. Remember, a couple of years ago, it unwound all over itself. And we had a little glimpse

yesterday when bond market sells off with equities, we don't run and hide the long end. So how do you play that in terms of reallocation of capital in a day like that where it happens? You're buying quality, you're buying dividend yielding stocks. How do you think about that on a day like yesterday? I was curious. So when you look at the 40%, the bond side and that classic 60-40%,

For 15 years when rates were essentially zero, that 40 was only a buffer and a hedge at the stock market went down and you wanted to capture some price appreciation or bonds you owed, obviously provided you with no yields. There was no yield cushion. Now we have more yield cushion, but if you take on too much duration, you lose that in price.

So I think that's where there's sort of more risk to that model. But at least you're getting some yield. I think on days like yesterday, the markets go through phases in terms of being valuation agnostic.

like we've certainly seen taking us where we are today. And then a reminder that when rates go up, valuations should matter and let's look at other things to buy. I think in July, when all the big hyperscalers reported their second quarter earnings,

And investors started to ask questions about the rate of return on all this AI spend. And $15 to $20 billion a quarter of CapEx is going to be an expense drag for years to come and depreciation for a lot of these companies. And the stock market said, you know what? There's actually another 493 stocks out there. Maybe I should take a look. There's actually 2,000 stocks in the Russell. Maybe I should take a look. So you had this big catch-up trade that

I thought would last, but then got sort of disrupted over the past, call it month, after Trump won and people started to focus back on the big names. But I do think that the days of the outperformance of those big names is coming to an end. Not that their business prospects are going to take this big downturn, but when you get to $3, $4 trillion market caps-

just pulled forward so much. And now you can argue that the fundamentals are beginning to change and Google's seeing more competition than they ever have in their existence. And Apple's still not growing. And Amazon is a great company, but retail is still a tough business and AWS is slowing. And that just maybe that other parts of the market

could have a fighting chance to outperform those big names. And Tesla going to a trillion and a half, like a trillion was astonishing. A trillion and a half now, and that's stuck when parabolic. And you can white out the stock symbol. When you see a parabolic chart, you know how that's going to end. So I just think to your question that there is a fighting chance for other parts of the market

And I do think that some of the defensive areas of the market, like the food sector has gotten thrown out. A lot of the food companies like Conagra and Nestle and Kellogg's, which is actually now getting taken over, a lot of them relied on price to drive revenue when we had the inflation spike.

Now they don't have that lever, but still dealing with high costs. But a lot of these stocks are not getting really cheap and they're paying good dividends. So I think a focus on quality, not crap, focused on reality, not froth, is probably a better, I think, position as we go into 2025. So as we sit here, I know you've talked about passive versus active, the growth of passive.

We're sitting here in the month of December, and I think we all agree that if we had had this move in October, we would probably see some more follow through to the downside where the time of year where the year is effectively over. And as I said to Dan on Monday on our episode of On The Tape, this is the time of year, big bucks, no whammies. Well, we got a little bit of whammy yesterday, but tell me, because as you guys are talking here and we can talk about the software stocks more, you realize that

You're talking about companies that are trading at 30 to 40 times earnings, companies or have no earnings or companies that are trillion, two trillion market caps. You'll look back at some point and say, well, that was obvious unless you can keep growing at the pace. And Dan just described the scenario and all the tidbits he's picking up where that's not happening. So what's going to be the cause? I guess what I'm asking, what's going to be the cause of how you make passive flows change direction here? Is it just lower price?

you know, begets outflows over time? Or what do you see as kind of the tipping point there? The risk to the passive trade is, I'll point to the baby boomers. I'll point to that 70, 75-year-old household that just through amazing appreciation and the stock market always rebounds type thought, which it has, stock market always goes up. And I'm just going to consistently put money in the market to the point where stocks as a percentage of

financial household assets is at a record high, if the market gets shaky legs and that 70-year-old says, finally wakes up to the fact that I'm overexposed to equities. And while I still want to be there, maybe fixed income is actually paying me a risk-free rate of a pretty decent return. And instead of being 70-30, I'm going to be 60-40, or I'm going to be 50-50, or I'm going to be 40-60.

So I think that is one of the risks to that passive trade is if the worm turns and the market doesn't continuously go up and rates are staying high for longer, a reminder that that's actually a pretty good alternative. That is something that can change it. Or if just those mag seven, if the fundamentals change,

and those stocks stop outperforming, and therefore the S&P 500 stops going up relative to other parts of the market, maybe the pass-up flows just maybe pivot within the stock market, but not driving the S&P, but we know everyone measures the stock market by that, or just realizes that...

Do I want to take the same risk? I'm 75 and I'm way over my skis in terms of my equity exposure after this incredible bull run that we've had. All right, Peter, say it with me. Fateful eight.

fateful i do like we're done with the max seven you know the market is in the fate of the market is in those eight stocks all right no and i'm messing around a little bit dan what if broadcom goes back below a trillion dudes to go back to this you know why because it was it was actually the last sort of like you know push that you know that those stocks in my opinion had because to peter's point about tesla that went literally from an 800 billion market cap to one and a half

trillion in a matter of weeks, you know, like those are just not sustainable. I mean, we understand that the whole idea of gravity, right? We've been stuck on this world long enough where we understand how that works, right? So, I mean, one of the things, Peter, it's funny when you mentioned like the banana stuck to the wall. I will tell you that a good friend of mine is the CEO of Sotheby's and he called me up a few days after that and said, you guys had one hell of an auction, you know, a couple of weeks ago. And, you know, he loves bananas stuck to walls or

sharks and cases of formaldehyde. But that banana was not too different than Beeple. Now, Beeple, whatever that thing was called in 2021, that was $69 million. That was something that you couldn't actually take off of a wall. Actually, you put it on a wall. But you get my point. A lot of folks are trying to make some sort of comparison to the late 90s into 2000. And that's fine. I can see a lot of those comparisons. I think they're

companies are very different now the monopolies the moats the managements the balance sheets all that sort of stuff they could afford to do these build outs it really won't change much than others some of the their metrics right as far as growth and and that sort of thing which will affect their multiples what this really reminds me of and you two and guy adami have been on this train of higher for longer for a very long time right it reminds me of 2021

It reminds me of the absolute mania that we saw in so many different sorts of risk assets. And as soon as the Fed singled that they were going to start raising rates to battle inflation, well, it was a big rug pull, right? And then we had a bear market in 2022. So part of my question is, how does that happen again, right? So like, how do we have a 22 and 25? And I think a lot of people forget that Netflix...

that Tesla, that Meta, that NVIDIA, they all went down 75%. Now, there are much smaller market cap companies then, but how can you just forget that as you're pouring money day in and day out, chasing the performance? So talk to me a little bit about that comparison to 2021. That was with zero interest rates and massive QE, which QE puts beer goggles on investors. When the Fed funds rate and interest rates across the curve are north of 4%,

That should actually be more sobering for investors. But that obviously did not happen. And investors got drunk again that we've seen this year. So it's a different rate environment, but the same sort of risk taking that we saw. I think in what will disrupt it next year is if

we start to realize that this higher level of interest rates still sort of chips away at economic growth. It still is a big negative for small, medium-sized businesses. It could affect earnings growth next year because I mentioned all these investment-grade companies that are going to have to refinance and interest expense may clip earnings here and there. The dollar is very strong. If you're a big multinational doing business in Europe, not only are you selling into an area that has no growth,

But now the dollar has strengthened dramatically. So those are the things that I think we need to look at. And you talked about 15% earnings growth expectations for next year. I don't know how that can reconcile with some of the things that we're talking about here and what we're seeing. It just seems to be very unrealistic. And I want to make one last point on this. What are the hardest things to do

as an investor is trying to predict where a PE multiple is going to go. Yes, we can model out earnings. Obviously, some companies are easier to do that with than others, less cyclical ones. You can better model with confidence relative to something more cyclical. I can better model Procter & Gamble than I could GM, but you can still come around to something. Trying to figure out what that PE multiple is going to be. That's why 2024 confounded everybody. It

is because no one thought that the PE multiple would rise as much as it did in the face of still higher rates. Now, yes, the Fed caught 100 basis points. You can say, okay, I'll throw in some extra couple turns of multiple on that, but not to the extent that we have. So going into 2025, we have to ask, okay,

on the multiple basis, can we sustain this level of PE in the face of higher rates? I don't know. That's now going to be a challenge that's about to be tested. And maybe Wednesday was a dress rehearsal for that test. And can the E part meet those double-digit earnings growth expectations?

And I think that is going to be difficult to do because we know in 2024, all of the earnings contribution has come from the hateful eight. Hold on, hold on, dude. Don't just destroy my thing. It's the fateful eight.

The fateful eight. I'm thinking of the movie, The Fateful Eight. It's a play on that, but the word couldn't be better to describe these eight stocks and what they might mean for the stock market. Go ahead. Go ahead, Peter. Go ahead. So the other 492, 493, earnings growth,

And your friend John Butters talked about this, is what, 2%, 3% maybe? Outside of, yeah. So the assumption for 2025 is that the growth rate on those big names are going to slow, but it's going to be offset by an increase in earnings per share from the rest of the market. Now, I hope that that is the case since I own a bunch of the other stuff.

But, you know, we'll have to see. We'll have to see if that's the case, if you're going to get to double digit earnings. So, Peter, the only person that's been busier than you in the last few days is Caleb Silver at Investopedia, because, you know, in the last 24 hours, people are looking up, can a debt ceiling be abolished? What's a continuing resolution? What asking all these questions all of a sudden about budgets and so forth. But

All roads lead to you know where I'm going. And you just talked about how the dollar's been really strong, which has been obviously hitting gold here recently. But it's giving you an opportunity, in my opinion. I know you talk about it a lot on gold, which I'm going to guess is one of your top picks into 2025 here.

Of all the times that we've gone through this cycle over the last kind of four to five years with gold, does it now feel the risk reward on this given the sell-off, call it $150, $170 here in the last week or two, set itself up? Because at some point, if the market corrects itself enough, the Fed's going to be more dovish. Give me your thoughts in general on how this setup looks here in the gold. Yes, I agree. I think the setup continues to be very good.

I mean, when you take a step back and you look at the dramatic rise in real rates over the last couple of years, and gold's essentially at a record high,

That tells you that there's something else going on. And we know what's going on. We know central banks are buying gold hand over fist. And in fact, November, China resumed their gold purchases after supposedly halting them back in April. Now, they still might have bought, but in terms of announcing their purchases, they resumed it in November. And I know gold initially sold off.

when Trump won, believing that, okay, we'll get spending under control and the debts and deficit issue will be contained and let's solve gold. But central banks are not selling their gold and they're not going to buy less because of his election. And yes, maybe if we can get contained the budget deficit relative to GDP, but that's going to be a tough pull because 85% of government spending is mandatory spending plus defense plus interest expense.

Well, the interest expense is now getting worse with the rise in rates. So even if you cut 100 billion or 200 billion here and there, it's not necessarily going to change the trajectory. So I do think that there is going to remain a strong bid for gold. And if rates eventually tip us into recession, because we know government spending has been a big support to the economy, well, at some point, those chip plans are going to be finished.

The EV battery plants are going to be finished and that construction is going to be done, so you get less impetus from that. If the government spending then, while I think we need to cut government spending in totality, which is positive over a multi-year timeframe in the very short term, that's negative for economic growth, which then limits tax receipts, which then potentially

Even though you get spending cuts, the lack of tax receipts causes a bunch of deficits to go up. So I think everything is setting up for a continued rise in the price of gold. Because what's actually happening now is people are viewing gold as an alternative to owning bonds. So when you say, okay, how am I going to allocate in my portfolio some money to gold? Where is it going to come from?

And I know firsthand, there's some financial advisors that are saying, let me own less fixed income and let me own some gold instead. Because that's what central bankers are doing. Central bankers have their global FX reserves amongst different fiat currencies. And they got to figure out, okay, how am I going to allocate this? Gold is now a big, a growing sleet in that allocation. So they're deciding, do I want to own treasuries? Do I want to own bullens? Do I want to own JGBs? Or do I want to own more gold?

So it's happening from a central bank perspective, and it's also happening from an individual perspective.

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So, Peter, we talked about before we get out of here, we definitely want to get some of your contrarian picks. I just also want to make one point, not a question. I've been in the market since 1997, and a lot of folks, you know, kind of remember what they think they remember was just this melt up 97, 98, 99. And yes, the S&P and the Nasdaq kept tripping higher and higher. But there was a lot of volatility based on stuff having nothing to do with the Internet.

bubble, right? It was long-term capital. It was the Russian, you know, there was a whole host of things, right? And I look around the world right now and I was in a closed door dinner with the CEO of a large bank. This is a few weeks ago. And he had just gotten around the world, seeing a bunch of clients and the like, and he said to us,

which I thought was really interesting. He said that the world is worried about the U.S. So this was two weeks after the election, okay? The world is worried about the U.S. Now, I look around and I see what's going on in Canada's government, in France's government, in Germany's government, in the Ukrainian situation with Russia, right? I look at Syria. I look at Israel and

And Gaza, I look at Iran, I look at South Korea, I look at China. I mean, the list goes on at Brazil. It seems like on almost every continent, we've had this level of instability from the government level, the top

down that I cannot remember. And it just really, I don't know if enough people are paying attention to that and what that might mean. And then you think about just how weak China's economy is, right? And you think about this surging dollar. And to me, I just think it sounds like a recipe for a lot more volatility and risk assets globally. Again, that's a comment. You know what I mean? I

I don't know. Maybe that works a little bit into some of the ideas that you have for 2025. Yeah. So that is an amazing point. And just the global mistrust of the governments that have taken us to where we stand now around the world.

It conflicts with some of my thoughts in the sense that I'm constantly looking for those underperforming markets. And those underperforming markets, unfortunately, continue to underperform. So you look at the emerging market world, even in the developed world in Europe, as you said, all this distress when it comes to the government. But a lot of these countries, particularly South Korea, grow in spite of their government, not because of it. And I

I still think that there's a lot of opportunities in these emerging markets, particularly emerging Asia, where I still find to be a very exciting economic growth story. There are no clean situations out there, but a lot of times when you're trying to find investing opportunities,

Going to the dirtiest places ends up creating the best opportunities. But unfortunately, it's so hard to get your timing right and you can be stuck in underperforming situations for a while. But I still get attracted to things that have hair on it because they end up being cheap. The problem with this market is that cheap has stayed cheap and expensive has gotten even more expensive.

And when that switch turns and goes in the other direction, that's where going from a bad situation to less bad can create a lot of interesting opportunities. I just want to make one more comment since I know this is going to be front and center and Trump has brought this up and it's a dead ceiling. I want to remind everyone out there that in March of 2023, when Civ B was blowing to smithereens,

and we needed to give money to the banks. And by the way, you're going to hear a lot of these venture capitalists complaining, oh, we should get rid of the debt ceiling. Well, they got bailed out, and we postponed it for the reason of the election coming in. We've gone from $31.2 trillion to $36.4 trillion in that time period. And again, maybe it doesn't matter. Maybe it won't matter. Just for people that are listening, put it in context and what you've had that it does matter. And if you're going to run a company, you're going to run the USA, like a company, you need to budget this over a longer term and all the things that you and Dan had just discussed.

going around the world. We got to get our, I think our house in order here. So I hope people take that one seriously. I know cutting budgets here and there doing this stuff, but the debt ceiling is something that we need to be paying attention to for sure. It's a reminder that debts and deficits really matter. And bond markets around the world are sort of speaking out against all this excessive spending. And unfortunately in the U S it won't really matter in terms of a crisis until the 10 year yield starts

starts to go uncontrollably high. It's 5.5%, 6%. That's when you'll start to get an aha moment, or I should say a panic moment on the floors of Congress that it's time to actually start to act on things that we've talked about in the past, but never did anything about in terms of

reducing the budget deficit relative to GDP. All right, Peter, one last thing before we get out of here. What do you think the probability is that the 10-year U.S. Treasury yield will be above 5% and possibly be able to establish, let's say, a new range above that level for more than just the kiss that it gave a year and a half ago or so? And again, we talked about that a little bit ago. That is the thing that probably spooks

a lot of investors, it would probably signal some sort of stagflation, which a lot of people were kind of suggesting that might be the case in 2023. So I'm just curious, like, do you think we will make new highs in the 10 year, you know, at some point in 2025? Yes, I think the 10 year yield is retesting that 5%. And it's not just like you said, going to kiss it and come right back down again. I think

higher rates are in our future and higher lows, higher highs is the chart pattern we should get used to. And we're going to retest five and we'll see how the Trump policies play out and how the market digests that in determining whether we break on through or not. But even so, just staying at around those levels, every day, somebody's loans coming due, they're

That was price pre-2022. And I'm not just talking about the private sector. It's the U.S. government, too, that still has a lot of low-cost debt. They're going to be repricing every week in these auctions. Yeah. And to your point before, with 100 basis point cut in Fed funds this year, that gave a couple turns higher to the S&P multiple. So the opposite should be true if we are in the scenario like you're suggesting. If we get rid of the dots of

of two 25 basis point cuts in 2025 and the 10-year yield continues to go higher, you're going to have to take a few turns off that S&P multiple because it's going to do a number on S&P earnings for the most part. So listen, Peter, we really appreciate you being here. We appreciate not only you coming on the pod, we know that you're an avid listener

listener and supporter of the pod. So we really appreciate you. We hope you and your family have a great holiday and we will see you early in the new year. Just as any of us wake up and brush our teeth in the morning, I wake up every day, every week, listening to On The Tape, OK Computer, Market Call podcast every week. It's just part of

the daily and weekly routine. Well, you're in our daily routine. I read your notes every day. We quote you, probably plagiarize you, or I do at least on the show. So thank you for your contributions, Peter. But not only on our podcast, you get shout outs on Fast Money too, Peter. You are a prolific writer. We really do appreciate it. You guys should all check out the book report. That's B-O-O-C-K report. So thanks, Peter. We wish you guys a great one. Thanks, bud.