The Fed Cuts, but Wall Street Wanted MOAR!
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Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. We've got this future. Let Elon and Vivek do what they do best. Bring business people in here. Make hard decisions. Rip that band-aid off because if we don't rip the band-aid off now, we're going to lose limbs in the future if they try to kick this can down the road for their own pride. The following is the audio version of a video released at peakprosperity.com.

Visit peakprosperity.com to watch the video and to find other insightful content such as articles, discussion forums, and exclusive subscriber-only content. Hello, everyone. Welcome to this edition of Finance U. I am your host, Chris Martinson, and it looks like December 18th, 2024. Lots to discuss today. We are going to be discussing Fed rate cuts. What is going on with China? You look at their tenure. Something has happened. We're going to get Paul's reaction to that mine, and then...

Our Treasury's headed to 6%? This isn't some crazy guy on the internet. This is the head of fixed income for T. Rowe Price saying that. What happens? What does that world look like? But first, we're going to have to process the Fed rate cut and, more importantly, their forward guidance, which seems to have tanked the markets for the moment.

Wall Street's busy throwing a hissy fit. That's how I see it. Paul, you have more delicate language, of course, I know, for all of these things. Good to see you again. I wish I had a little bit more delicate language for that. Coup show is what I would start out with. It's a three-year-old in the checkout line. That's Wall Street today, right? Oh, my goodness. You know, I had to process that for just a second to make sure I said the right thing. Yeah.

Yeah. Well, as everybody can see, I have a new backdrop now. And this isn't green screen. That's an actual picture. But that's how you know it's FinanceU these days. So, Paul, let me start here with this is what we're going to be discussing today. This just happened just minutes before we came on to start recording this. Fed cuts a quarter point, but they're scaling back their 2025 outlook.

So before we talk about that, I'd like to look at the dot plot. The context for this for me is that if you don't pay attention to the stupid government inflation, core CPI, super core,

The Krugman Core, I guess that would be one beyond Super Core. I don't know. Anyway, forget that. This is U.S. Inflation Index from Truflation. They're just measuring prices. Would you look at this? Let me get my little dotty pointery thing out here. From September, I would say we're headed the wrong direction pretty steeply. So that's context. The Fed should not be trying to reliquify, cut rates, stimulate, get the animal spirits going again.

When inflation is doing that, unless their point of view is we don't really care about the people who get hurt by inflation. Charlie Bilello put it perfectly on November 10th. You know, this is the context for the Fed rate cuts next week, which is this week. Stocks, all-time highs.

Home prices, all-time highs. Bitcoin, all-time highs. National debt, all-time highs. Core CPI inflation over 3% for 41 straight months. That hurts. People are told inflation is coming down. No, the rate at which your prices are going up has slowed down a little bit.

but prices have not come down at all, which you would know if you went out to eat or shop with me and Evie. Stocks, 50s, S&P 58, record highs of the year. Feds coming in to cut all of that. They do cut, and then...

Wall Street throws its hissy fit. These are old. These are already, it's now twice as bad as when I took this just a few minutes ago. It's already like it's tanking, right? S&P, NASDAQ. We can look at those in a second. But the context for that is just, it's this.

The dot plot, the infamous dot plot, each one of these dots represents one of the sitting members of the FOMC, and they vote at every Fed rate cut meeting where they did not vote. They put their dot where they think rates are going to be in the future. So for 2025.

They went from, I would say, I'm going to average this out right about here at maybe 3.25%. That's where they thought on average rates were going to be. You can see it's a range of opinions. One guy or gal thought it was going to be about 4.1%. Other people thought it would be as low as sub 3%, but you average it all out, you get in right about here at about 3.25%. Oh no! In December,

My what a couple of months difference can make now it's centered around here, which I'm gonna call that about 3.8% That's a pretty big shift and that led to oh no sell stocks Paul What do you got you've been this isn't your first rodeo?

What do you mean call that? Well, what's amazing for me, just looking at what's transpired over the past six months, we have a panic half percent rate cut. Markets are at all-time highs. All of that's changed. They're just worse now than what they were before. House price is completely unaffordable. Panic half a percent.

guides the market that we're going to be substantially lower next year and then all of a sudden trump wins and the one narrative that i'm hearing around the edges is oh trump's going to be you know policies are going to be highly inflationary oh well maybe he's the scapegoat for what the fed's done in the background with juicing the economy and liquidity you know liquidity and lending capability is at the same level it was in late 2020 early 2021 right now

So this just doesn't make any sense at all. What I thought was quite interesting was the Fed comes out and says, oh, inflation is going to be closer to 2.5% instead of 2.1%. So they're telling us that we're risking higher inflation. Now, there are some concerning signs underneath the market, but what's going on?

Why would you waste a rate cut at this point when animal spirits are high? I have not seen this much speculation and investors outside of late 1999, early 2000. There's no regard for long-term fundamentals. There's no regard for any of the risks on the horizon. This is just pure party like there's no tomorrow. And it's sucking people in. Like it's sucking people off the sidelines in a manner that I have not seen before.

in at least a decade. Well, let me just take a quick scan here, see where we're at. Because again, this is just, this is a hissy fit that's being thrown here at the moment. Let's see, S&P's down, ooh, 95 now, at 59.55, so way below the 6,000 mark. The Dow peeling off 545 at the time of this recording. But this is like 1.5%, 1.25%, 2%, and 2.5% for the Russell market.

Not liking it, gold not liking it. And we can talk about the currencies in just a second. But how are the markets this surprised? Because I just read you, like we all knew this, like the Fed's obviously under some pressure. Obviously, it's becoming more of a political thing where you have TikTok now full of young people crying, and they should, about how far their paycheck does not go, how expensive eggs are, how eating well is almost impossible. So you got to eat the toxic stuff that's cheaper, blah, blah, all that, right?

So they know inflation is going the wrong way. And they've known this for a long time. And still they went with their emergency half point, another quarter and another quarter. Like, I don't get it. So, Paul, they must be fighting a battle we don't see. Well, I mean, there are a lot of concerning things that are taking place in Europe. There are a lot. I mean, China is an issue right now. And China could very well unleash deflation on the rest of the world because of the situation that they find themselves in right now. Are you tired of feeling down?

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We'll be right back.

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These things expired in June and it is now November. So what are they putting in our food that even black mold won't eat it? I don't know, but I've decided that if it's not good enough for black mold, it's no longer good enough for me. Once you start down that path, you realize that we have got sugar and preservatives and salt and

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Before we go on, I'm going to lose my way. I'm already off my script. Paul, check this out. This is China's 10-year rate just started plummeting hard starting in November. Look at this. This is not consistent with China growing 5.5%, like they say. Their 10-year bond is signaling massive trouble coming for China. That's how I interpret that.

Absolutely. It's signaling deflation in China. I mean, that—and we have to consider that the bond traders—I know we've said this time and time again—bond traders are the smartest individuals in the room on a typical basis. So, you know, they don't puke assets and yields at that rate lightly. So they're anticipating that deflation is coming into China. And the question is, is that going to—are they going to export that deflation into the rest of the world?

there's a high probability that that can happen. You know, give the Fed the benefit of the doubt. You know, we did see, and this is one chart that I would like to show. So we have had negative breadth, breadth,

here recently. So let me show this chart here. This is quite interesting. So it's on the zero hedge premium and I like the market here because they, they put out some decent information, but the S and P 500 negative breaths, a breath streak is in the hundredth percentile. So what negative breath is for the listeners in the hundredth percentile. Is that good? Well, the only other time that it gets this high is, you know, right late, you know, 2000, 2001, uh,

So negative breadth, this doesn't give us anything about long-term timing, whether this is a market peak or not. But what it does tell us is that under the surface, the market is unhealthy. So negative breadth means that there are far more stocks, percentage stocks declining than there are rising. You know, there are some concerning things under the market, but with this euphoria out there, you

You know, there's really no reason for the Fed to have this quarter point cut. Now they're turning hawkish, and the market didn't like that. One thing that was interesting to me is I've been watching the S&P 500 over the past couple of days or week really kind of consolidate here, and I like these candlestick charts. So this is the S&P 500 chart.

short term here, markets consolidating, waiting on the Fed to give their announcement. So they give the market a quarter point cut, but then they get much more hawkish in the dot plot, and then the market just craters right here in the short run. Now, this is a breakdown here. As of right now, we're down 1.5%, 1.56%. We're still above the 50-day moving average.

Is this just a short-term correction, or is this something where the market was looking for an excuse to roll over, and is the Santa Claus rally going to disappear at this point? We don't know. But the market doesn't like what the Fed said, and I think it's similar to a spoiled child that's wanting a little bit more candy before they get their dinner, and the Fed's not giving them exactly what they want, and we're getting a little temper tantrum here in the short term.

Now, Paul, like everything, the Santa Claus rally has been advanced. You know, you used to have to wait till after Thanksgiving to get the Christmas music playing over the loudspeakers. Now it happens kind of about Labor Day. So I think we already had our, you know, you could say we had our Santa Claus rally. It just happened earlier than it used to. I think so as well. I think so as well. It could have. It could have.

Don't know. But I want to talk about this animal spirits, this liquidity, like what the Fed has done. I accuse them of being serial bubble blowers. And I have a lot of data to back that up. But not least of which is, Paul, when you see this, this caught me by surprise. Again, I am not the world's greatest investor because I missed this one completely. The fart coins hit a billion dollars in capitalization. I presume this is very...

Yeah, it's probably very popular in 13 to 15 year old boys. I'm guessing a lot of lunch money went into this. But, you know, just what we got back to this. Remember, we were just there and then all these like meme coins blew up. Right.

And here they are again. And that's what I mean, a serial bubble blower. Normally it takes time to lick those wounds and forget about the pain. But now with somebody, air quotes, somebody, rhymes with marome wowel, and all his buddies throwing money in constantly, you get this kind of stuff. This to me is just a full-on indicator light on our dashboard that says...

We're anything but too restrictive in our monetary policy right now. Anything but too restrictive. I mean, especially when you've just got this much speculation. And most people think they're investing, but they're gambling is what they're doing. Yeah, yeah.

And when the Fed keeps this much liquidity, they keep blowing these bubbles in the short run. There's always some new shiny object for investors to roll the dice on. And we're in an environment where this is like playing Russian roulette. And we don't know when it's going to end, but there are certainly signs under the surface to tell us that

It's getting closer to the end than it is just the initial continuation. And I am actually concerned, you know, because just all this euphoria that's around Bitcoin right now and the cryptocurrencies is

are concerning to me because I'm seeing people take ridiculous risk and I'm seeing people that have had their lives changed from higher prices and they're reluctant to diversify and lock in some of those gains because greed has the temptation to take over. So this to me is a little crazy. I can tell you a lot of eyes were opened when Bitcoin hit 100,000. And I can tell you a hell of a lot more eyes are going to be opened when Bitcoin...

hits one million and and i'm confident it's going to hit one million i think we're all confident in this room that's going to hit a million okay i can tell you so so this isn't just anybody but this is trump's son eric trump and he goes on to say he recommended that maybe people mortgage their houses

Just empty their 401ks like he's that confident. Just just that's it. Just go all in like stuff that would get you and I rightly in a lot of trouble. You know, not financial advice. I didn't put that up there as financial advice for anybody. Let me be crystal clear about that. But I'm seeing that's a level of in my business. I consider that an irresponsible statement to make.

This, I guarantee this is going to a million and you should mortgage your house and dump your 401k and borrow money and put it in. I don't understand. I have trouble with that. I don't understand that at all. There's, there's a lack of respect for the position that he's in to be able to make that statement. And if this doesn't pan out the way that he's speculating that it is, and the assumption is, is that he has some type of inside information that,

Chris, these markets do so much damage to so many people when there's this much euphoria and this much liquidity and this much speculation because there are desperate people. There are people who want to own a house so bad they can't stand it, and they're going to take their down payment. They're going to put it in there. They're going to make these speculations, and if this isn't the single best investment in the future—

then they can be wiped out if it's no different than any other bubble that we've seen in the past. And my concern is, is Bitcoin is supposed to be a medium of exchange, but everybody's holding on to it. It needs to operate as money and we're exchanging back and forth. And I struggle with that because of a couple of things. One, it's not been tested during a major downturn. Okay, so what if we have an event like 2008 or a recession like 2000, 2002?

Furthermore, it's been tracking pretty much the NASDAQ movements for the past six months. So it seems to be a little bit more of a technological innovation and speculation when you overlay those charts together. I actually have that chart in here somewhere. It is quite interesting. It's busy. But, you know, I don't, you know, we just don't know because it's not been tested and it's a new technology. And here's the next concerning thing. Hmm.

You know, Google announces this Willow quantum computing algorithm. Thank you for that. And you know more about this than I do because you were the one that brought that to my attention, but...

If that can break the encryption, now all of a sudden Bitcoin's obsolete. So the question is, is this a new technology that emerges into something else? You know, is it kind of like the cassette tape? That was revolutionary when I could, you know, when I was a child and I could put that big old cassette tape on my hip and earphones and cut the grass and then it moved to CDs and now we're to digital files. So it's just, it's going to be aggressive in nature because it's an emerging technology that can be replaced by technology.

Yeah, let me pull this up because I think somebody put a pretty good thread up around this. Now, listen, a little bit of the Willow thing is PR. It's got a little marketing on it, right? So Google wants to talk about how exciting this is for them. But when I pull this up, let me see if I can quickly find this because...

Boy, wow, so many things to talk about these days. My bookmarks are packed. Here it is. I thought this was a really, this was a good...

Pull this up, full size it, and we'll come in. So G.C. Cook, the Graham Cook here, had a really nice thread on this. And he is a CEO, founder, making money smarter with blockchain, AI, author of Web3, ex-Google, founded and exited Qubit. So I think he knows something about this because Qubit is a measure of computational power within the...

so-called quantum computing space. So, at any rate, this was pretty interesting what they announced. With their random circuit sampling benchmark, the results are pretty surprising.

By our best estimates, a calculation that takes Willow under five minutes would take the fastest supercomputer 10 to the 25 years. That's a one with 25 zeros following it, or a time scale way longer than the age of the universe.

This result highlights the exponentially growing gap between classical and quantum computation for certain applications with their random. All right, so, okay, it's solved a fairly famous problem pretty quickly. That's a little geeky.

And... This was the surprising announcement out of that thing, which was... This is Google saying, yeah, you know, we cracked a pretty fast thing. And by the way, it lends credence to the notion that quantum computation occurs in many parallel universes. I don't know how to begin parsing that, right? You know, and for anybody that's wondering... It didn't show up here, so...

But here's the point. If you're going to say we want to establish Bitcoin as our reserve asset, I actually think it's incumbent on the person saying this is what we're going to do. They have to at least talk about this new breakthrough and say, because a reserve asset, like if we said we have gold in reserve, I'm confident, Paul, that you could lock that reserve up behind a door and in a thousand years you could open it up, it would still be there.

And we might value it differently, but the asset's still there. If the encryption for Bitcoin gets cracked, it no longer functions as an asset anymore. It's broken, right? So its value depends on its integrity. And this quantum computing may or may not, I don't know when, you'd have to talk to actual experts, but at some point in the future, it represents a threat to that encryption.

So I think before anybody says, oh, we should make this a reserve asset, they got to address this head on and say, well, how are you going to protect it? Like, how's it going to be a reserve asset in this world? And I'm not smart enough to, I don't know enough about that to address that. No, I don't either. I think the one thing that everybody agrees on is that our current system is dying. Our current system is insufficient to handle the needs of the future so that our hard work

our hard earnings that we have sacrificed to save can maintain their purchasing power, right? That there's some type, something that we can go into that's safe. So I understand, I mean, we all kind of agree that there needs to be a better system. But all I can think of when you were talking about that calculation or showing that video on the calculation, six years ago, we hired a specialist to come in and test our systems.

So, and it was really expensive to bring this guy in for one full day. And, you know, so Renee organized it. And when he pulls up for the first hour and a half, he sits in the parking lot. And I'm, you know, I mean, you want to make sure you get value, right? I mean, I'm like, I'm being this guy to sit in the parking lot.

So every time I get off the phone and come through, I'm complaining to my staff and he walks in and I'm like, first thing I do is like, Hey, introduce myself. So did I pay you to sit in the parking lot for an hour and a half? And he said, as a matter of fact, you did. I was like, okay, so what were you doing? He said, it took me an hour and a half to crack your wifi code.

And I'm like, wait a minute, you were working? So he sits in the parking lot, you know, to try to crack our Wi-Fi system, which is number one, I pay attention to every car that parks in the parking lot now, which is easy for us. He couldn't get through the firewall. But what he did was use some program that uploads to the cloud for some computer, you know, calculations algorithm. So we had this, we changed our passwords. You know, that's what you do. You test your systems to make sure that you got everything in shape.

So all I can think of when you're showing those calculations that fast on what quantum computing can do, can you imagine with that type of calculation power, they pull up into your parking lot and they crack all your codes and get in there. Seconds. Yeah, so that's the problem. If they can crack that encryption with Bitcoin, now all of a sudden it's an obsolete asset.

And whoever has that computing power can steal your, your coins versus have, you know, your crypto versus, you know, if versus the alternative, which is the one that has been tested over time is your physical metals. You know, they've got to get into that vault system. They've got to get through the security. It can be done, but it's a lot harder to do than just accessing everybody's data over the cloud with massive computing. So yeah,

It's concerning to me. That's just another concerning thing in the crypto space. I believe, you know, I mean, I'm not making a recommendation right now. It makes sense to have exposure to the whole future network. Digital, the software, the hardware, the financial banking, but we don't know if Bitcoin is going to be that answer.

And, and with what Eric Trump stated is terrifying to me because, because there are going to be people that are going to take huge risks. There's going to be tech people that are going to refuse to harvest some of the gains that they have been rewarded with over the past six months for the speculation in that sector. And unless he has inside information and can predict the future that some new technology is not going to emerge, uh,

This could do a lot of damage to a lot of people. And these, you know, this is a speculative, highly aggressive asset. And you have to think very deeply and critically about the speculation you're making in that asset class.

Except when it comes to fart coin just I go all in obviously I'm making a joke. That's just that was not serious advice obviously come on I Can't well there's one called bar coin that's worth buying just for the fun of it not me not exactly That's why he's doing so well good. It's a good name goes far um so so

But you're making a point here that so I'm of an age where I was there when there was no Internet and now there is one. Right. I was there when, you know, I have boxes of the stuff from when I was in graduate school, which doesn't feel like that long ago. But I guess it is because we have these things like zip disks. I actually have actual three by five floppy disks in there.

You can't, like, there's, you can't get those to talk to current computers, you know, unless you go to the Smithsonian and rummage out an old floppy drive, you know, or something. I don't know. Point is that the technology changes very, very rapidly. And I could foresee easily if we crack into this quantum space, computing space, that all of a sudden we're just caught in one of these never-ending cat and mouse games. Well, now we've made a quantum resistant computer.

you know, algorithm. Ah, somebody cracked that. That's okay, we made a better one. Somebody cracked that. This will just keep going until people finally realize that the cost of attempting to push things into that space may be more than it's worth, you know, overall, because instead, just have stuff out of that space. Like, if you can't shield or protect from what's the development cycle in the digital world, then don't put your assets there, you know? Put them somewhere else.

It's going to be a big deal because we talked about it in the context of Bitcoin, but if quantum computing can just pull up into your parking lot and crack all your passwords like banking, brokerage accounts, anything, anything digital is now at risk. I think we ought to have a larger national dialogue around that, but...

We should, we should. And you know, and I'm not for a lot of government regulation when it comes to, you know, because it is restricted. And I think that's one of the reasons why we have so much hope with small business and just, just the optimism that's out there. I've talked to so many people that feel like they have some hope again, because we have a chance for the Trump administration to come in, break these ridiculous government regulations and get the boot of the government off the necks of the people and

And really, they've surrounded themselves with individuals who have so justified their corruption by saying trickle down economics. We'll give it to us and we'll trickle it down to everybody else that we've been in the situation where they have protected the monopolies and the big businesses and the big donors that come to them. So, you know, if we can get get small business innovation where it expands again.

Then we've got this hope for the future. And if we can get our monetary system fixed, we've got some hope for the future in there as well. Well, I'm hoping, Paul, that we can get to a point where we can flip the script because I would like to see the right people rewarded and the wrong people punished, you know?

And it's been the right people have been punished and the wrong people have been rewarded. And I don't like that at all. Right. You know, so we saw this with the latest pardon set. It was like criminals pardoning criminals is one of them. I know every so often, you know, pardon is about commuting the sentence of somebody who's maybe done something unsavory. But these are some bad people. I mean, putting kids in prison.

And they ended up committing suicide. And you kept doing that anyway, knowing that you were causing driving kids to suicide for money. That's unpardonable, but not to the Biden administration, I guess. No, no, no. Well, and the sheer amount of money you made me think about just the amount of money they're spending going out the door right now. I don't know. They're just...

Yeah, they're throwing everything out the door right now. I just did a signal hour earlier this week on the continuing resolution, all 1,546 pages of that continuing resolution to spend more money. It is a horrifying thing when you dive in even slightly.

what they're doing in there. It's amazing. It's absolutely amazing. It's Washington. What are you going to do? What are you going to do? So did you have something on that? Cause that leads me to somewhere right away, which, which really caught my attention, which was this. So T row price here in Bloomberg on December 17th, this is important. Everybody who's interested in money finance, you better consider this as a thing. There's the link down there.

So the Fed is busy trying to engineer lower interest rates right now, and then you got this person coming in. Here's from that article.

A couple of pieces from that. So this person, Arif Hussain, who is the chief investment officer of fixed income, I think he manages about $140 billion, has a very good track record doing that, says that Treasury 10-year yields may climb to 6% for the first time in more than two decades as U.S. fiscal woes worsen and Donald Trump's policies are going to help keep inflation elevated.

According to this T. Rowe Price guy. So, yeah, 5% in the first quarter 2025. Going the wrong way. And citing fundamental things, Paul. Persistent U.S. budget deficits, which, by the way, have nothing to do with Trump yet. It could, but that predates him here. And as well as potential tariffs, immigration policies that would sustain price pressure. So he's inflation. So he's talking about two things. Inflation and inflation.

These deficits without talking about the deficits already showed it. Inflation is already not doing good things here. Headed the wrong way. And as inflation goes up, you might expect to see more of this stuff he's talking about here. And the other thing he talked about was that, yeah, all this stuff we just talked about, the inflation, everything. But check this out.

Falling global demand for treasuries also bodes ill for their outlook. According to Hussein, Japan, largest holder of U.S. sovereign debt, sold a record $61.9 billion in the third quarter of this year, 2024. And China, another major owner, offloaded $51.3 billion in the same third quarter period, second largest sum in its own history. So that's $111.12, almost $13 billion, $113 billion.

Demand, not just demand, that's negative demand. That went the wrong way. So what would happen if I am not personally prepared for 10 years to go to 6% in the sense that I haven't wrapped my mind around that yet?

What do you think? Could that happen? Is the Fed losing the long end? Well, absolutely. So, you know, this goes back to a couple of years ago. Well, it's our behavior in the past, just spending too much money, not taking advantage of low rates and locking MM for a long time. Janet Yellen's been issuing a lot on the short end of the curve.

You've got inflationary pressures that are continuing to run. The Fed had their chance. I mean, they should have just not cut rates in my opinion, but who am I? Shouldn't have cut rates back in September. Yeah.

Because the market was already acting frothy. Liquidity was easy. House prices are high. Let us have some pain before you do this. So they're signaling both on their side that they're going to suppress rates. You've got the government administration who is spending money like they'll never have any more to spend in the future, which they're out of power, so they won't be able to do.

And then we've isolated the bricks through all of the weaponization of the U.S. dollar, the sanctions on Russia and everything that's there. So you're driving the large majority of the producers, the producing countries that have been recycling that debt back into the U.S. away from us. So we've got fewer and fewer buyers that are out there. And I'll tell you, one of the things that our tools have said, and this is one of the things that I'm stressing to people when I talk to them,

Don't own any of the long bonds right now, unless it's a speculative trade in the short run. And to be clear, I do have a speculative trade in the short run, the 20-year period.

But that's a high risk, high reward in the short run. I think it's going to be a failed position trade in the short term, but it's saying danger across the board. I mean, really, with the government policy out there and their willingness to let inflation run higher, Powell's cutting rates, and then he's coming out and telling us, oh, we're moving it to 2.5 instead of 2.1, and the trajectory of inflation higher means

Why in the world would you risk owning 10, 15, 20, 30-year debt right now? Because what's their playbook, Chris? We all know what they've done. You know, things get bad. We're just going to print, print money, and we're going to hope that that solves the problem, and we're going to let inflation run high to deal with the debt. So the debt is so high, you've got default risk. And on one hand, if they allow deflation, on the other hand, you've got inflation risk with the Fed that's just willing to, what was it Bernanke said, you know,

You know, we'll we'll print money and put it out from helicopters or helicopter money, you know, until they get another playbook. You know, I am extremely concerned about long term debt. I'm extremely concerned about the retirees that are out there that own bonds that are maturing 20 years from now, thinking that that that's going to be an inflation hedge for them from a long term standpoint, because I don't think it is based on where their actions are.

Yeah. So let me, let me pull this up real quick because important point here. So, um,

These are bonds. So remember, for everybody listening, when prices go down, yields are going up and vice versa. If prices are going up, yields would be going down. So the 30-year bond has been selling off, came from about 120 to 115. A 10-year note, been selling off, so yields have been going up. And this is from October, November, December, okay? But let's just look at how the bond market interpreted today's

A little bit more hawkish view here. Obviously not liking it all that much. So 10-year interest rates are going up. Interest rates are going up across the curve as a consequence of this. The interest, the bond market was not expecting that hawkishness today. I think it's fair to say the bond market was a little surprised. That's sort of a, that's a surprise right there. That's a knee-jerk reaction. Yeah. Well, that's a computer knee-jerk reaction. Yeah.

And I like to show, you know, we call that a chip twitch. A chip twitch. A chip twitch. We've got to update our language there. Yeah. So, you know, and one thing that I'll show just a different version of that, because you're showing the prices, but I'll show actually yields.

So this is in the day. So it's not going to be updated until tomorrow. It doesn't reflect what's taking place today. Yeah. Look at that though. Going up. We go back to September. This is the half point rate cut. And what did the market do? Hey, it was anticipating, anticipating, anticipating. Now I've been meaning to take the time to go back and study and see, but I've heard people say that this is, I'm, I'm prescient ed throughout history, but yields go higher. Okay. We get the next cut and now we're going to, I'll have to mark today's cut. That's in here.

But yields are ignoring this. They're starting to work up. The only thing that's working down is the one thing that the Fed can control, which is this purple dotted line right here, which is really reflective of the three-month yield, which is Treasury. Now, I want to jump down to the 10-year here, Chris, because this is important to answer that question. So this is the TNX. This is a candlestick chart of the 10-year Treasury. Now, I'm going to move this for the sake of allowing everybody to see that

This is the yield as of right now. So they're spiking today. And what I'm going to pull down here is a resistance chart. So support and resistance is important. So what I see here is one, two, three, four. And now our fifth time, the question is, are we going to fail here? If we break out of this, this tells me that yields are wanting to go a lot higher and

And that's a different environment than what we had back in the spring, because in the spring, you know, the market started anticipating that the Fed was going to cut. It did. And then it sold that news. And in addition to that, we've got a potential inverse head and shoulders right here, which means that this would be a very bullish breakout for yields going higher. And the question is, is how is that going to affect the economy? So this is a very important level where we are today. I'm curious to see what's going to happen over the next week or two.

But if this pattern executes to the top side and we break out of that range, then we're probably going to see yields head substantially higher over the next 12 months. And what's that going to do to the underlying economy?

Well, two things. It's probably not going to help this out, which we've talked about before, but this is commercial mortgage-backed security. So this is in the office space in particular. There's lots of different types of commercial real estate. This is just looking at the office component. But the CMBS for office is just as bad as the height or depth, depending on how you think about it, of the great financial crisis.

Yeah, that's that's not going to help. Rising interest rates will not help those delinquencies. No, they're not at all. And Chris, Chris, think about this because on that chart right there. So so that's pressure. That's pressure on the banks. OK, so if yields go higher, what took Silicon Valley Bank down? What did they do? Well, that was my second point was the mark to market losses because of that. Right. Yeah. Take us through that dynamic.

Yeah, so what took Silicon Valley Bank down was they were, you know, yields were so low, banks are limited on the investments that they can purchase. So they went way out on that yield curve to buy these longer dated treasuries. You know, they had a lot of 20 year, a lot of 30 years. So when rates started going up, like a seesaw on the playground, when rates go up, the value of that bond goes down.

because, because you have to sell that bond at a lower price to, you know, to get your yield to maturity at what the market is. So that mark to market accounting is what really took Silicon Valley bank down because they speculated that rates were going to go stay lower for longer. I'm assuming that they speculated in hindsight, that's what it looks like. They're trying to maximize profitability for their shareholders. They're thinking that the feds got their back. And then all of a sudden, boom yields go a lot, a lot higher and,

In other words, like Buffett says, the tide went out and they were swimming naked and it took them under. So if you have yields going higher, which is further going to put pressure on delinquencies, and we're seeing delinquencies in credit cards, we're seeing delinquencies in auto loans, we're seeing delinquencies in commercials specifically, that's more pressure on the balance sheets of the banks, right?

And that may be one of the reasons why individuals are saying that we're headed towards a potential credit crisis here over the next six to 12 months. Potential. Yep. And if yields break out, I think that's going to increase the likelihood of that.

Yeah. Well, just to round out that story too, that's all exactly right. Tracy Shuchart Chee Girl on Twitter, who I follow. Yeah, she's good. So we just talked about this black line rising ominously, poking its head over 10%. That's the office component. Hospitality's been pretty fine, just sort of like, you know, hanging around five. Retail, no worries. Mixed use starting to climb.

In multifamily, surprisingly, normally very, very low. I know it's a lot lower than these other ones, but it's higher than it normally is. Industrial having no problems, and probably I wouldn't expect it to for quite a while because I think we'll see a lot of onshoring of industry under Trump. That would be my guess. But at any rate, so now you can see the different components of the CMBS space there and how they're breaking out. But the office space,

Mm-mm. I don't think that's coming back anytime soon. That's a trillion-dollar boondoggle right there. I don't know what the Fed's going to do about that one. I don't know what they're going to do. We've been papering over it for a while, but can't do that forever.

You know, the most surprising part of that chart, Chris, was multifamily housing that's breaking out because right now housing is so unaffordable. There's so many people that are required to rent. My question is if those delinquencies are coming from the really smart players that have offloaded some of these properties at top.

and you've had inexperienced speculators come in and buy these things, and all of a sudden inflation has gone up to where they didn't have enough profitability in there to do the repairs and the upkeep that they needed to. I'm curious about that one. It depends on the mortgage type, but if you had some kind of a five-year fixed but then floating, and you picked that up in 2018 at 2.5%, 3%, but now it's going to reset at 7.5%, 8%,

A lot of these deals don't make sense anymore. You know, they're cash flow negative. And so now you have to decide, are you going to sit there and throw cash at it waiting for the market to turn around from a capital basis? But that's not where people make money in multifamily. It's got a cash flow. So.

There's going to be some upside-down cash flows, even though on paper it looks like it went up in price. And rents are still strong. But it doesn't matter. When you're paying four extra points on your mortgage and you had a cap rate that was three, it's just hard to get by on that. That's right. Depending on the specifics. So we have those resetting yields that are coming in. That does make sense. But the question is, yields are going higher with the Fed cutting right now. So...

What good is that doing with yields going higher while they're cutting in the short run if they can't, you know, what are they going to do, step in at some point with yield curve control? That would be an absolute nightmare for long bondholders because and it's going to further eliminate our measures of inflation to anticipate where they are. So this could be very devastating for the bond market.

Well, I actually think, too, on top of that, I think there's a wild card here, and it's Elon. All things come back to Elon. I don't know how he became the most powerful man in the universe, but probably because he bought Twitter, you know? And editorially, Paul, I love people like, oh, he wasted $44 billion on Twitter. Like, A, no, he didn't. It's still worth something, so he didn't lose all of it. B, it's the most powerful news organization in the world right now.

I can't imagine he's lost money at it at this stage. We'll find out. So anyway, he keeps talking about curbing the deficit. America's in deep trouble, he says, if we don't do this. No different than a person who gets in too much debt. This is music to my ears, Paul. This is what I've been saying for years. It's just common sense.

So you now have a very powerful man with a much larger pulpit, obviously, saying common sense stuff. And the one thing that our government fiscal monetary situation doesn't do is comport with common sense. And we all know that. So this is part of the narrative structure now. I think you have more people going...

This looks like a problem because it is obviously it's a big problem. Yeah. What do we got here? GDP growth of 184% spending growth, 267%. Ah, that's your deficit right there. And it's getting worse. COVID was bad, but it didn't come all the way back and it's still bad. So at any rate, we have a spending problem and I don't know how you cut it in time.

Without causing a giant recession, which I don't think Trump is going to go for politically. That's the question. I mean, I keep going back. So Obama comes in and in 2008, the market craters 2008 was just a disaster in the markets.

Of course, they printed money. I wish they had taken the time to just let the system clear itself back then. Indeed. But they juiced the system. They stop it. Things are looking better by the time 2012 comes around. What I really wish that Trump would do is just go in there, let the pride go away. That's the one thing that concerns me. If it's pride, or maybe you know something we don't know, but it seems like pride to me.

And just let these markets deflate over the next 12 months. Let housing deflate. Let that go down. Stop the bragging. Don't worry about who they blame it on. Get rid of this reckless government spending. Fire all of the government employees that aren't having a specific function that's working for the American people.

but also get rid of the regulations like Malay did down in Argentina. And I think if you get rid of all those regulations and you free business back up so the American spirit and ingenuity and innovation can come back full force, then we're going to find the floor without the government having to destroy our future financial situation.

Because most people forget that all debt is is simply pulling future consumption into today. Now, it makes sense if you're going to do it for business because you're pulling future potential business into the day that business is going to generate the revenue to pay that debt off.

If you buy a real property at the right price, you're borrowing money and there's tenants are going to pay it off. The problem is, is even rental properties. Now people are having to pay, you know, it's going to take 40 years to pay off the note. If they're borrowing that, if they're paying cash, it's a little bit different, but still the math doesn't add up as great from a long-term standpoint. But if he'll take the opportunity to go ahead and just let the system clear in the first year, then

And then get the government off the back of the people, stop protecting the monopolies and let innovation come back. Even if the market isn't back to the level that it is right now, four years from now, that hope and the American dream will recover with the average American person. And it won't just be the Magnificent Seven that is pulling everything along.

That's where I think that he could build a base to where now we've got this future. Let Elon and Vivek do what they do best, bring business people in here, make hard decisions, rip that bandaid off, because if we don't rip the bandaid off now, we're going to lose limbs in the future if they try to kick this can down the road for their own pride. Well, you either stop on your own terms or some other terms, right? Yes.

You know, it's either how did John Michael Greer put it back in the days like the choices between voluntary simplicity or involuntary simplicity?

You know, one, you have a little control over the over the circumstance. But so so again, I don't talk about specific issues shares because I'm making any specific recommendations for or against. I don't do that just to be crystal clear about that. But I do like to talk about the ones who I think have a leadership position that.

Paul Navidia, we've talked about it a bunch. AI, AI, AI, all of that. What do you make of this chart here as a chartist? So this, according to your bar chart, looks like a textbook head and shoulders pattern. This is the head. Oops, let me get my little laser pointer back. This is the head. That'd be a shoulder. That'd be a shoulder. This would be what's called the neckline. And obviously, when they drew this chart, the neckline was sitting there right at about 132 inches.

It just closed out at 129, so just poked below that here. And Mark, it just closed seven minutes ago at the time I'm saying these words. What do you see? So, one, we need at least 3% breakdown on the bottom side of that to have a full execution. But, I mean, that's a classic topping pattern. And when you take the psychological environment behind on NVIDIA and AI right now, you have max hype.

but yet you've got this clear behavioral pattern where you've got sellers that are entering and getting more aggressive in selling. So I do see a topping pattern there. I saw the warning that occurred earlier in the year with that one spike. We had a correction, and then you had the final blow-off phase. And in that final blow-off phase after the split, it's amazing to me just how much –

demand from retail investors that a split announcement brings to the table. It is interesting. It is. And this is what I explain to investors. I'm like, look, if you get a 10 to 1 split, yes, future potential is higher. But in today's environment, all you're doing is taking a $100 bill and swapping out for 10 tens. Or if it's a two for one split, you're taking a $100 bill and swapping it out for two 50s.

But just the hope and the dream that that split brings, and that was amazing, just the push of demand that I saw, or inquiries come in for NVIDIA upon that split. So that looks like a topping pattern to me, and that's a warning that that AI bubble is potentially about to burst. All right, and...

I think you can see all the way down here, it's $4.09, so the market's closed at $4.00. NVIDIA closed at $1.2891, so right way below that $1.32 neckline. And then it's continuing here in the after hour, so it closed at $4.00. In the next nine minutes, it peeled off another 1.6%. So I don't know what's happening yet, but this is not my first rodeo, Paul. This is what it looked like.

when I was watching all those former high flyers tank back in the day, once in the housing bubble. And prior to that, the so-called internet craze, um, I was there. I have, I have, I have war wounds. I was a proud owner of something called world comm at one point. There was world comm lucent, a O L. Yeah. Enron Enron's back by the way. I don't know what that means, but

Is anyone seriously bagged? Did somebody buy that name and decide to start trading the stock? It hasn't come across my radar, if it is. There was an ad that came out and it said we're back, but I didn't chase it down. I'm pretty sure I got punked on that one. So I think that's, I don't know. I don't know. It wasn't worth my time. But that's what it looked like, what I just showed there. This, you know, where you see, you know, things fall.

and they continue falling in the after hours they don't get rescued something's happening you know and um i'll have to turn to my friend who does volume analysis to find out if that was it in his estimation because what happens is you get these huge bursts of volume right at the end and when you if you could de-unpack that volume you i bet you would find institutional players were busy getting stale product off their shelves you know this is there and where do they want it

in retail hands as much as possible because that's the name of the game for wall street uh usually well it is i mean unfortunately chris you know and this is one things i tell clients i always remind them this i've taught my kids this is there are people that are close to you that you can trust okay there are people that they want what's best for you but the average individual that you come across all they want to do is reach into your pocket for their own benefit

So when you take that on Wall Street, Wall Street pulls those types that are chasing a greed. Unfortunately, you know, I spent a lot of time in prayer, just Lord protect me from the sludge and the industry that I'm in. Right. There's so many temptations that pull at you. So,

But that's the classic play, and that's why legendary investors, like everybody admits that Warren Buffett's a legend. They quote his quotes that are so apropos for the environments that we're in.

And he says, be greedy when people are scared and be scared when people are greedy. So this is a period of time where there is so much euphoria. There is so much optimism. And I think we're overestimating how quickly a lot of these changes are going to take place. And this is a time for investors to look at their big picture and say, okay,

If I have been fortunate enough that I haven't woken up to the concerning issues that are taking place under the economy, but I'm, but I've been red pilled and I'm waking up now harvest some of those profits, right? The question is, is how much is enough? And this is what, this is what I do when I go with the planning through people. It's like, okay, how much do you need to be able to retire? Pill that much off the top, get out of debt, park that over here and run it into the diversified strategy. Now you can afford to let the rest of it run.

But those people haven't seen situations like I did. And all I can think of right now, Chris, there was this lady in 1999, 2000. I ran into her. She was a secretary at Lucent Technologies. Her 401k was $1.6 million back then. Okay. That was when 1.6 million was a lot of money. She had never made more than $50,000 a year.

So she was an executive secretary and she was following exactly kind of what Lucent was doing, all Lucent stock. And I ran into her and I was like, look, you could retire right now and actually double your income from where you are right now after tax income and be set for the rest of your life. And she's like, no, you know, I really want to hold it till we get to three million.

Well, then the market turns, right? So the stock craters and she's like, it's a buying opportunity. I'm a long-term holder. And then, you know, it balanced and had a chance for her to get out and then it cratered again. Well, by the time it was over, she only had like $50,000 left and ended up having to work a lot longer. So she had a life-changing opportunity in that interim period of time to

All she had to do was diversify, but just that euphoria and that euphoria at its base case is greed. And that's what we have to do as investors to be successful from a long-term standpoint is when there's this much euphoria out there, we have to counter our natural indication for greed and pull some off the table.

And, and make sure we're in this foundation. You don't have to sell everything, but if you've had a life changing increase in those asset classes and some people have that have speculated on these asset classes, it's prudent to pill some off because you got to look into the future and say, okay, what happens if I pill off enough to where I'm set, no matter what happens and I can retire comfortably and have the freedom to pursue the desires that I want to pursue, uh,

then, you know, but you've still got some over here and it doubles or triples. Yeah, you could have had more, but for each individual, it either is going to work out or it's either not going to work out. That's kind of, it doesn't matter what the statistics are. It boils down to, are we impacted by those statistics?

So what I worry about is the individuals that had the chance right now to peel some off, set themselves up for life, and now they can really let the less. I'm not saying that you stay overweight and I can't give that recommendation, but now they're in a position where if it blows up, they're okay. And if it takes off, they're a lot better off than what they otherwise were. But now they've got a foundation of which if they fall, they fall back to this foundation to where it's still life changing if everything goes away.

This is the environment where people are tempted not to do that. They allow greed to take over. I'm a big believer that when everybody is scared to death and nobody wants to buy a house, nobody wants to buy stocks again, which is exactly the environment we were in 1974.

That's the time that you want to be aggressive. That's the time you want to err towards, you know, putting all your chips on the table. Right now is not the time to where you want to err towards putting all the chips on the table, in my opinion. I agree. You know, obviously, you know what, Paul? It's not different this time.

It's just it's just never different this time. So this is we've just come through one of the most unusual periods This is I think you know bubbles always have blow-off tops But what we just experienced, you know, you know, I've talked about this my view is this is we're in a grand super cycle of bubbles right and this one was massive right in 2019 it included 18 trillion dollars of negative yielding sovereign debt, whatever that means right negative yielding debt. It's an oxymoron right? It's like

Like that, that live dead person over there. Right. It's just it's a weird thing to say. Right. You know, so that was a component of the bubble that enabled this huge blow off in all kinds of governments, just not just the U.S. government, just borrowing like crazy and doing it stupidly.

Like if my government had decided to throw a trillion dollars of 100 year paper out the window at one and a half percent, I'd be like, yeah, you should you should have done that. Buyer beware. Obviously, there'd be a lot of sad people on the other side of that trade. But if you could have, that would have made sense. But they didn't. They took the low rates and leave it up on the short end. Thanks, Janet. Not as smart as she looks. She doesn't look that smart. Yeah.

And then we have stocks, and 75% of the world's total aggregate value of stocks belongs just to the U.S. stock market. Anyway, so signs, signs. We've talked about all those signs. So here's another sign I want to talk about because I like omens and signs that may be meaningful. So we've talked about Brent Johnson's dollar milkshake theory, the idea that, hey, come hell or high water, guess what? The U.S. dollar is going to do okay because there's so many of them floating around out there.

I have a different theory. I call it the dollar roach motel. And it's that towards the end of that grand bubble super cycle for reasons that Brent has articulated perfectly structural reasons why the dollar is going to go up, even if it looks like it's no longer the best horse in the glue factory. Right. Because there's so many of them and you have to floating around, you have to unwind the bets.

One of the things I've been looking for, Paul, is that last sign of late-stage dollar milkshake converting into roach motel behavior is the dollar's going to spike higher. Okay? This is the euro today, okay, in the context of this slightly more hawkish Fed thing.

It just peeled off another 1.17%. But look at that. We're not that far away from breaking parity. One euro to the dollar. It was 120 a while ago. You know, cost you $1.20 to get a euro. Now it costs you $1.03. So I'm just saying.

This is now trade, you know, obviously Europe is sick, but it's not just that. We just saw the Canadian dollar take another big, you know, hike today. And it went from 133 back there in late September. Now it's at 144, you know? So Canada's dollar actually for all of 2022 was hanging around 135. I mean, 2024. I mean, it's just hanging around just sort of up and down. But now since, you know, let's call it since October, it's decided that

It's going to really sell off hard here. This is the kind of stuff, Paul, that I, you know, maybe we could talk about in terms of tariffs and, you know, Trump bashing Canada is like the 51st state. Trudeau's government is now busy collapsing, which I'm just like, yay. You know, that's, that's good news. I didn't like the guy. That's my political statement for the day. But I actually think we might be able to interpret this in terms of this is what happens when the, when the big bubbles unwind. Yes. Potentially.

Well, and we're starting to see movement in the currency markets, which is something that hasn't really taken place since 2013. I mean, I have several currency trading strategies that I implemented individually, not for clients, that just died in 2013 around that area. And now we're starting to see movement in currency markets, which tells me we're starting to get back to a more normal regime or they're losing control of the clamps that they have put in place.

And I want to say, I'm glad you pointed out that milkshake theory with Brent Johnson, because when he first came out with that, it was kind of shocking. And I was like, no, I don't think he's right, but he's a very smart guy, so I'm going to start really digging. And I mean, I've listened to everything I could. I read everything. I spent hours and hours trying to argue against, you know, not argue with him, but argue against his thesis between me and his thesis.

And it actually helped us be better investors to look at that because that was something that I hadn't taken into consideration. It didn't make sense to me initially, but he did such a good job of explaining it. I think he helped a lot of people. He took a lot of heat over that initially until everybody did kind of what I did. And then they're like, yeah, you got a really good theory there. And it's kind of played out that way so far. Well, it has. Now, you know, we just had some news too that –

it was on zero hedge that China said, well, we might have taken five tons off of London, but they took 55 tons of gold in October. Yes.

And so, you know, the BRICS sort of came and went out of the news because of that October 22 to 24 meeting that was in Russia. You and I talked about it. I don't think that's off the table. I think it's still cooking along in the background. So it's kind of it's this is a really hard environment for investors to sort of stay focused because look at all the things that could distract you, Paul. We haven't even talked about drones and Syria falling and.

You know, whatever might happen. Like, there's huge things unfolding here. Will we even make it to the inauguration without something weird happening? You know, it's a very high uncertainty period of time.

And for investing, that makes it even more uncertain. Plus, we've had like the market's not sending signals for a while, just like they're bulletproof. They don't care. Nothing matters. Anything goes right. They go up. That's that's the rule. Well, maybe we just saw a hiccup in that story today. But I think you and I both know that if.

The hiccup comes at the end of bubbles. What do they say? It's an escalator up and an elevator down. That's correct. Meaning, you know, you sort of stairway up and then, but when it goes down, it tends to be pretty quick. So you kind of have a strategy. You got to know what's coming beforehand. You have to know what you're going to do, right? What does it say behind you? Right. Invest your plan, not your emotions. That's right. Yeah.

That's right. And now that you brought that up, I pulled this up earlier. I want to share a picture. There's a guy by the name of Carl Richards. He wrote a book called The Behavior Gap. And I purchased this years ago, so I have the rights to be able to show it, but I also want to give him credit. Behaviorgap.com if you want to look at Simple Advice.

The difference between an investment return, those who follow Buffett or any investment strategy, right? The difference between that investment return and the investor return. So the average investor doesn't make as much as what the average mutual, you know, even the mutual funds they invest into or the strategies that they invest with.

Warren Buffett's investors typically don't make as much as what Warren Buffett does because he stays the journey. And that allowing those emotions to take over it and that behavior gap is the difference between an investment's return or an investment strategy return and the investor return. So the one thing that I want to encourage people is you've got to have a strategy, understand the strengths and weaknesses.

Study it, and then once you join that journey, you have to follow it through a full market cycle to be able to be successful. And hope is not an investment strategy. We hope that an investment turns out well, but we stack all of the odds in our favor. And euphoria, optimism, you know, optimism can help you be a good investor. It can help you be a good speculator.

But, you know, you have to follow a strategy to help deal with these ever-changing market environments. And you had mentioned how stressful this environment is. It's probably one of the most stressful environments that I've had in 26 years of this industry. Really? Working right now because, you know, negative breadth is high. It's in the 100th percentile and only lines with the year 2000. We've got all kinds of things that are lining up with market tops in the past.

I've been so laser focused on watching what each position is doing. The past two weeks, we've seen the Magnificent Seven take off in leadership again. That's what's controlling the whole market. Russell 2000 has not broken out to new highs. S&P has been unable to break out to new highs, but the NASDAQ has. You've got all this speculation. In Bitcoin, we don't have this broad, uniform market rally.

Okay. That's really concerning to me because the optimism can be powerful, but at the same time, the optimism can lead to complacency that can lead to speculation without knowing that. And you have a road pull where that elevator goes down and takes away, you know, the little gains that people have had over the past 24, 36 months. And if it's not different this time,

You know, valuations are so high, and if we get back to efficiency and pulling out all that extra fiscal stimulus that's been juicing everything and we go back to a real sustainable spending from the federal government, 50% below here is not outside the realm of possibility. I don't know when it'll come, but it is a high possibility and even a probability that we have a 50% to 60% decline.

So, you know, this is a concerning environment to me right now. It's stressful because you have to play the game by the rules that are forced upon you. But you've got to be ready to bolt for the exits. You don't want to bolt too soon because you don't want to, you know, you just got to trust what your tools are telling you and follow accordingly. Are they flashing any like amber lights yet? Yellow? Anything?

I do have some Amber. I have basically yellow on all of my charts right now for the S&P 500 because we're in a warning period, so be careful, be cautious. Err towards buying something that's at support. Don't chase anything at its top. So yeah, I have a lot of warning signs that are up right now. It's not flipped to red. It's not flipped to start running towards the door, but it's telling us to start moving

itching towards inching towards the door and be ready to react quickly. You know, if this continues to escalate today's just another, you know, a data point to let us know, Hey, is this a short-term correction? Are we going to resume the trend or are we going to start that battle back and forth at the highs to establish a top and that resistance to where we break off in the other side? I don't know, but we're being ultra diligent.

Maybe you can help me understand this one because I hadn't encountered this chart before. I think I know what it means, but I'll ask you instead and find out what it actually means. So Eddie Elfenbein on Twitter saying that the S&P value ETF has just been closing new lower lows 13 days in a row. Do you know what the value ETF is?

Well, I don't exactly know the value ETF because we run a value stock strategy. So I don't really necessarily track that sector. But it's anything that would qualify as a value stock, lower price to range ratio, high quality management, established business, got a moat around it. Basically then investments that Warren Buffett would qualify for is the type of investment, that style of investing. And that's another thing that's concerning to me because you've had such –

You've had such momentum and euphoria chasing the speculative investments. Value's getting hit hard. When's the last time we saw that? Warren Buffett was down 20% in 1999 when the S&P 500 was up 20%. And everybody said he didn't understand the new economy. So this is just another sign of a potential market peak because they're selling the high-quality stuff that they're going to wish that they continued to own probably 24 months from now.

to chase the speculative things because nobody's saying it out loud, but it's the new normal. Well, this certainly isn't part of the narrative that I was reading on Yahoo Finance News and anything like that, right?

You know, 13 days in a row. And I call that sneaking out the back door. Those aren't giant. You see the trading ranges overlap. There's no big gaps. That's what sneaking out the back door looks like, right? I like that. That is true. Well, that's kind of what our strategy is telling us to start walking towards the exit, right? You don't have to run. You don't have to panic yet.

But a walk can turn to a jog to a full sprint so that you're out that door. Because what happens in these speculative euphoria is when everybody gets all in. And there's another good chart that I can show right now that's another data point that gives us an indication that we're closer to a top than not. So this is from the marketeer. Good data. So stocks over cash.

Add it to the crowd that's getting very bullish stocks. So if we pull this up and take a look at it, the net percent overweight equities versus the net percent overweight cash. Okay. So overweight cash, October of 2008. That's a time that you want to get really aggressive.

September 2022, that's a time where it made sense to be a little bit more aggressive. Now, February 11th and 2010-11 wasn't a major market peak, but this does show you that investors are highly overweight stocks at the second highest level that they've been going all the way back to 2001. So that's just another sign that we're in the midst of this kind of euphoria here

At the same time that you've got, you know, stocks in the 100th percentile with negative breadth, those are data points that are telling us, be careful right now. Just be careful.

So this is October. I don't have more recent data than that. But, you know, I really like advisor perspectives, Doug Short. This is a sort of this is an other side of what you were just talking about there. So this is margin debt. So, yeah, if we're a little light on cash, heavyweight stocks, maybe we've got margin debt, too. Right. Let's take this out for a second. So I think we're looking here at the S&P 500 and sort of this teal light blue line. Purple is margin debt.

Obviously, we were a lot higher back here in 2021 in a total aggregate. That was well over a trillion dollars of margin debt. But I think it's easy to see here that these things kind of go up and down together. So margin debt is still pretty high, hanging out $800 billion of margin debt. That means people have borrowed to...

speculate or invest depending on which term you like to use in the market. And again, these would be margin borrowing. This is all the stuff, Paul, that you and I talked about that got exposed in this idea of the great taking.

That these would be the types of accounts where if that $800 billion suddenly got in trouble for some reason, the associated accounts, potentially the associated accounts of those intermediaries, clearinghouses, etc., could be exposed because there's $800 billion sitting there of margin debt.

Which, I don't know, that sounds like a big number to me. That is a big number. A hundred billion is a big number. Yeah. But generally speaking, the line goes up, but they are coincident sort of like behaviors between these things here. And so there you mentioned December of 2022. That was the moment there where people were pretty heavy cash and maybe the market was going to go that way for a bit. Now we're here.

Yeah. Right here again. So what is interesting to me is that's typically institutional investors that are going to leverage margin. I mean, you really have to be a professional in the margin that much. I know individual speculators do, but you've got all of this euphoria in retail, but those margin numbers aren't showing the euphoria in institutions at this point. I could be wrong on that maybe, but there's a little bit of a disconnect. And you've got insiders that are selling at the largest pace that they have in quite some time.

You've got institutions that are careful. I mean, you've got major institutions that are coming out and talking about the excess euphoria and warning that the future may not be as bright as what people are expecting as far as the markets go. But we have generated the perfect environment to offload shares onto the market.

average retail individual that's hopeful right now that just doesn't understand the speculation and the risk that they're carrying in their portfolios. Yeah, and this is margin debt. There's whole portions of the markets we can't see anymore and we don't understand or know, and I don't think anybody does. If they do, they don't share it widely, which is how much are derivatives in or out of the money? Right. That doesn't show up on a margin debt chart. No, it doesn't.

It doesn't. You know, and that brings me back. One thing that I kind of want to share and, and you, you know, I think the work that you did on the great taking webinar is still valuable and, and still useful information today. But for you listeners that are out there, if you're not using margin in your brokerage account, make sure you're in a top one account. And that just means that legally you,

that broker cannot re-hypothecate those securities. So what our industry does from time to time is put people in type two accounts. And it's one thing if you're going to borrow against your stocks for a business purpose or short-term car purchase to avoid having to pay capital gains, typically you have to do that in type two account.

But if if you just make sure you're not in a type two account, because if you're not using it for a specific purpose, you can always turn it into a type two account in the future and use margin. But there's no reason to keep it in a type two unless you're utilizing that in the short term. Keep it in a type one because the type two accounts are at the greatest risk from the great taking.

Yeah, and and if you don't know what any of that means you you should if you have if you have brokerage accounts You need you need to know what Paul just said there. So the great taking series will get to that and by the way, you just I have to I One more thing. I always have one more thing. This is really important. I got to find this real quick I know Okay, it must have been a couple days ago

Ah, here we go. So part of that great taking series was with Suzanne Trimbath, who knows more about the plumbing event than anybody I've met, particularly around the idea of what's called failure to settles. So when you and I trade a stock, you sell a share, I buy a share. It goes through this whole labyrinthian complicated thing, and it's book entries on a variety of intermediaries, but fundamentally a settle is

You gave up your notional ownership, took my cash. I took ownership of that, gave the cash, right? So that has to go through a step, right? If it turned out I bought the share from you and three days passes and you're like, I don't have it, that would be a failure to settle because we couldn't settle the account, right? Okay. So with that, Suzanne Trimbaugh said, I frequently compare fails to deliver or stock settlement fails to a game of musical chairs. I call it musical shares.

I like that. All right. In musical shares, as long as new money keeps flowing in, everything kind of looks fine. Once the money stops, and this is where the allowing settlement fails, FTD is like enabling a Ponzi scheme. Somebody ends up without the shares. Now, get this. When the global markets collapsed in 2008, lots of people found out they did not have a seat.

governments around the world bailed out banks and brokers leaving taxpayers burden with public debt and individual investors are eight times more likely to be holding phantom shares meaning you bought something that did not exist you're on the receiving end of the of an ftd a fail to deliver in their brokerage account than institutions

Like I said, Paul, Wall Street likes to make sure it's well taken care of, all that. So it's against that backdrop. This really made my eyes, ears go up, eyebrows go up, ears open. Did you see this the other day, just two days ago? A Dubai-based company, they were naked short selling something, we don't know what, but they were selling shares they didn't have, resulted in $126 million losses, $126

Right. And they had to close it all down and, you know, all that stuff. And it's in receivership and all that. But it was a Dubai based company, but they were operating out of the Caymans. And it's a couple of dudes here. So anyway, so they are poof. Now, one hundred and twenty six million were people. Let's say it was you and I on the other side of that. We thought we bought whatever these gentlemen they were selling shares they didn't have.

Could have been, say, GameStop or Exxon. Doesn't matter. They were selling something. We would have bought it. We would have seen it in our account. It may have gone up or down in the intervening time. This happens, and then they have to quietly come in and go, those shares never actually existed. Now, the question becomes, what happened to the money that we paid for those? Because these things might have been sold months ago. Mm-hmm.

Do you get that money back? What's the restitution process? Who's at fault here? You know, they're operating offshore. Is the SEC really involved? This is international financing now, but how are international companies selling shares short on the U.S.? It's a very complicated affair, but this is the kind of warning. When you see something like this, this is usually, Paul, hidden. They usually sweep this stuff under three rugs and then put a cinder block on it.

So when I started hearing about stuff like this, this also is one of those little creaking popping sounds you sometimes hear at market tops or returning points. Right. Not saying it is, but I'm just this is interesting.

Yeah, the only thing that we can do is gather evidence because, you know, and I hear people say, well, technical analysis doesn't work. Okay, no, it doesn't work perfectly. Nothing works perfectly. But what it does is give you repeatable, measurable places that you can analyze data and attract supply and demand. But we're in one of those environments right now where,

especially in these euphorias you don't know how much longer that euphoria is going to last i mean you know you started to see some of the stocks that were struggling and then google comes out announces willow and then poof you know magnificent seven takes off again the belief that we're going to have this continued semiconductor run all the while nvidia's got this you know head and shoulders pattern developing so it's impossible to know how much longer this will last but

We need to be discerning and pay attention to the details under the surface right now more than ever so that we can protect ourselves. Because if it isn't different this time, and all of history is any gauge, and history

I haven't been able to hang this picture that's got the history of all the bubbles going back to the tulip bubble. This is a repeating pattern that we go through because we allow our emotions, our fears, our greeds to drive us at the market extremes. And that's what your sharks on Wall Street, your professional investors, your professional traders, they don't know you. You're just a number out there somewhere.

And if they can get the media on their side to help fuel this psychological bubble, then they're reaching into your pocket without you knowing it and pulling money out for their own benefit. So they create an environment where they can offload their shares on others. Now, you have to be a long-term investor, but you have to know how much risk you need to carry for yourself to be successful. We shouldn't drive down the road any faster than we have to to get to our destination on time.

So that's why it's important to know where you are on your retirement plan journey, have some analysis of that, and then at least you're educated at the risks that you're taking. Most people...

are walking down a dark alley thinking that they're investing and they're speculating, and reality is going to hit them in the mouth like a baseball bat out of the blue. And they're not going to see it coming because this cycle has been extended for so long that

that they've been trained that the Fed's going to come in and bail out. But we got the Fed trying to bail the markets out right now at all-time highs for whatever reason, but yields are starting to go up. So this is completely different than what I have seen in the past during my career. And it's telling us it's a dangerous time. Indeed it is, which is why.

If people are going to have their money managed, it has to be by somebody who takes that risk-managed approach, especially at a time like this. I would submit to you, Paul, that we are at the tail end of a very long story that honestly began with Alan Greenspan's bailout in 1987. And the Greenspan put, kicks the can. We had 1998 long-term capital management. Then we had the 2000 crisis. But then we had Ed Van Bernanke's 1% blowout rates that gave us

hairdressers in Vegas with 19 homes and they had to bail that out and they bailed that out. And so it's just been a never ending series of can kicking bailing moments without ever anybody asking the Fed one question, which is what's your exit strategy here? How do we get off this treadmill? Right. You know,

I feel like we're just running faster and faster on our treadmill. And the bailout plan is we're going to step off and face plant, you know? Well, there's nowhere else to go to right now, Chris. And this is one of the things that we hear the everything bubble, but people don't think deeply about that, what that is. So to give a little bit of context to that,

In the 1990s, we had the technology bubble. The NASDAQ was the bubble. It pulled all kinds of speculation in. I remember television, CNBC was talking about day traders renting out offices, high-rise offices in Atlanta. And when the technology bubble burst—

It was over. But Greenspan fueled, and then you had this kind of political backdrop that came after Clinton. Everybody needs to own a home. Housing was not in a bubble when the technology bubble burst. And as that's down 80%, low interest rates fueled the housing bubble.

Well, when we had the housing bubble in 2007, we were not in a stock bubble. I mean, yes, the stock market was high and the market got cratered, but it wasn't ridiculously overvalued historically. But when the financial system, the liquidity dried up, then you had the stock market drop too. Now we're in the midst of the everything bubble. So unlike the technology bubble burst where you had housing that was able to take that baton and keep things going, you

After 2008, you know, you had, you know, the system nearly collapsed in and of itself, which I wish they'd have just let it collapse and have a good foundation to go forward from. Now we've got the everything bubble. Okay, so what else is going to help U.S. investors? And that's why I'm now concerned that we may be similar to what Japan experienced by the time this is over because you've had U.S. investors chasing the U.S. markets. You've had international investors chasing the U.S. markets. Right.

So if this bubble bursts, right, where's the thing that's going to save it from a global standpoint? It may be U.S. investors have to have a new play card because they don't have any more bubbles to inflate. We're just going to have the pain of higher inflation, credit defaults, and a credit crisis on our side, and U.S. investors are going to have to

to adapt and not be 85 to 100% invested in the US and recognize that there are other investments around the world from emerging markets to developed markets, not necessarily Europe right now, that have learned to live within their means and their fine-tuned machines that the money is going to flow to. Because that's what happened in 2000 and 2003.

Everybody was selling what Buffett wanted to own in 1999 to chase those technology stocks. But when that bubble burst, they realized we need large companies that are fairly priced, that pay good dividends, that have a good business that may be boring, but it's a proven business that can generate good capital over time. That's what we need to be looking for as investors. And then you have

Those opportunities like this where you can peel some of those profits off and these euphoric runs to build a better foundation for the future. Just hard times are going to come. We just don't know when. Well, you know, the thing I despise that the Fed has done is they've done this habituation program where they just got everybody habituated to the idea that numbers go up and to the right.

Yeah. And that's not healthy for all sorts of reasons, but least not least of which is the idea, Paul, that I actually want my kids to be able to buy into fairly priced markets. So they have a chance to accumulate wealth, forcing next generations to buy in at like nosebleedy territories. That's cool. If you want to self reward, which is what the feds been doing, let's reward everybody who's already been playing the game, but we're not going to let new people in this game. Right. Right.

And that's just immoral, right? Young people should have affordable homes and should be able to buy into reasonably priced equities and participate in the same game. This whole thing the Fed came up with, which is like, oh, no, it should only ever go up to higher and higher levels. Again, I want somebody to ask and answer the right questions, right? Come on, Fed. Tell me, OK, what's the exit strategy and how is that fair?

Because they're engineering it, so they ought to answer for it. I'd like my kids to be able to start out at much more reasonable levels. I'm not a person who fears falling prices. You probably people have already detected. It's like, I actually want to buy Exxon for half the price it currently is. I think that'd be great.

I would like to get into some of these technology shares at fractions of their current price. Oh, I would love to, too. The businesses are going to be there long term. I mean, you take Amazon, cratered from the year 2000, took it 12 years to get back, 11 or 12 years. I'm going off of memory, so give me some margin for error there. It was 11 or 12 years before it got back to that 2000 price.

But that euphoria just overestimated how quickly the business was going to grow. And you look at where Amazon is today, I mean, that's a household name from a convenience standpoint. So these technologies are still going to be there. But I think this euphoria and just investor behavior in the short run turns into speculation without knowing it.

And, you know, they're going to wish that they had some, some dry powder. Cause here's the problem. If you're in a buying hole strategy and you're fully invested at all times and you never pull anything off the table profits off the table, then when you have that inevitable downturn that has happened throughout history, uh,

then what do you have to invest with, especially if you lose your job in that downturn or have some major emergencies come up? So please, listeners that are out there, if you don't have 12 to 24 months of money in emergency savings, peel some off the top.

put it to the side. Don't worry about how much it makes. It's there for when you need it. Okay? Use this euphoria and this backdrop of the market environment to put yourself in a better situation. Okay? Because if you never harvest some of those profits,

then you're at risk of, you know, it's just play money until you actually harvest some of those profits. Indeed. And as I, at the close of this, Paul, I just scanned very quickly, you know, some red, obviously, but nothing interesting.

it's it's weird that the one thing that stands out green is um united health of all things gonna ask i couldn't tell what that was that's that's massive carnage in the market right there yeah health care plans turns out to be the only winner today i i don't i'll have to analyze that i don't want to speculate for the moment but it's pretty broad-based it's it's around every every little sector and um even consumer defensive in this upper right corner which was hidden there as uh

A little bit. Not that bad. But, I mean, overall, yeah. Can I speculate on healthcare? I want to speculate on healthcare a little. Healthcare has been crushed since Trump was elected. Yeah. So that's the one asset class that was down relatively substantially outside of Eli Lilly. Yeah. Healthcare in general. Yeah, healthcare in general. Weirdly, GameStop, which we mentioned earlier,

No, that's CME Group. I was hoping it was games. I thought it looked like a G to me. But then I was like 237. No way. Somebody died if that happened. So CME. Financial data stocks and exchanges. Yeah, that's it. So who knows? We'll see.

So with that, hey, Paul, thanks for your time today. Another great conversation. And I guess we're going to take next week off because that would be Christmas week. And so, hey, we have great holidays for you, Holly, your kids. Have just a wonderful time.

And at peak prosperity, we'll be running, obviously everybody's holiday favorite, no Christmas or holiday season is the same without it. That would be Dave columns year in review, which is, you know, everybody's pick me up a feel good read of the year. I'm so looking forward to that coming out. It is, but it is fun. I admit it is a guilty. I like it. Guilty secret pleasure. I love it's fun. It's fun. So,

Um, with that, and I know it is the holiday season, but if anybody here watching this is interested in having their portfolio reviewed, their strategies reviewed, having a conversation with somebody who sees the world the way Paul and his team do, please go to peakfinancialinvesting.com, fill out a simple form, and somebody will be in contact with you within 48 business hours, unless that's a big major old holiday. Um, so we'd have to tack that onto the 48 hour window. Yeah.

I think the office is closed Christmas Eve and Christmas Day. So we'll have Monday and Thursday if somebody sends in. So be patient week of Christmas. There we go. Probably also the same thing on New Year's Day. So with that, Paul, thank you so much for your time today. Really best holiday season to you. Thank you. Many blessings to you and Evie and the family and may God bless your time together. Thank you.