Higher and Higher?

Dano:
[0:03] Welcome to On the Markets from Sonoma Wealth Advisors. My name is Dan O'Weir. I'm the Marketing Director for Sonoma Wealth Advisors. I'm also a podcast host. And I'm also a guest host when Daren Blonski, CFP, is on assignment, as he is this week. We wish him well.

Chris:
[0:21] Joined by Chris Sipes.

Dano:
[0:22] CFP. Chris, we almost themed this episode after the band Creed and the song Higher. But you talked me out of it, and that's good because, you know, I'd like to be welcomed back someday.

Chris:
[0:34] Yes, yes, tha t's the good news. The bad news is now that song is on heavy rotation in my head. As it is in Earworm, it'll probably be there for the rest of this week.

Dano:
[0:46] So I'm going to try to find a way to quote it during the show today. We are talking about higher and higher in the markets and maybe in rates, too, which is a bit of a shock. We'll get to it after the obligatory intro.

Music:
[1:00] Music All right, Chris, thank you so much for having me on the show. In case you're wondering, what does a marketing director with no financial licenses do on a market commentary podcast? He tries to ask questions that you might have if you're a viewer, if you're one of our new YouTube channel subscribers. Because one of the goals of our firm is to really make this complex stuff simple and try to bring it down so all of our clients, all of our fans, all of our followers can really grasp what's going on because in some ways it is kind of simple, Chris.

Dano:
[1:29] Thank you.

Chris:
[2:05] You know, it is. And the other thing is, Dano, has anybody ever told you you've got a great voice for radio? You ever thought about using that?

Dano:
[2:14] You know, I decided to just screw around for 15 years and be a radio host. So, yes, I had a little bit of experience as a radio personality. And Daren may have talked me into a couple of audiobooks for him as well. So I use it every once in a while.

Chris:
[2:31] Love it. Love it. Well, as the chief slide maker here, I'm going to go ahead and tell you to look at this slide. And for those of you that just listen, it's a slide with two pieces on it. That's one side of it says obvious and full of missed opportunities. And it's labeled as the past. There's a line in the middle with the present. And then you've got the future, which is red and says unpredictable and full of risk. And it's got a line going down. And this is great from an account called Money Visuals. Love to follow this one. And it says how we view the past versus the future. And I think this is going to be important, kind of a little foreshadowing as we get into the slides, just to think about that where we are. In talking with a lot of clients, there's a lot going on in the world, as there always is, but especially so with the Middle East and elections and on and on and on.

Chris:
[3:35] It's easy to get caught up in all of that and be afraid to invest or continue to do things that have worked in the past. Of course, no guarantee of the future, that's for sure. But I think it's helpful sometimes to look back in history and say, okay, there's always been awful things happening. And in hindsight, they always look like obvious and full of missed opportunities.

Dano:
[4:06] Totally agree with you. And I was actually just thinking about this in the shower before I stepped on this episode. I don't know if that's too graphic for you or not, but that's where I do my best thinking. And I was thinking about, have you heard of this stock? Nabibia, Nazidia, something like that. something like that i

Chris:
[4:23] Think i heard it's an ai company maybe or they have something to do with ai.

Dano:
[4:27] Right yeah now when i was a kid nvidia graphics cards were the thing you needed an nvidia graphics card to play quake 2 you know this is and so it's it's almost it when when they've gotten in with had the success they've had with ai and now with their stock price to where it is it seems so obvious but you know if you look back in time if you were to go back to 1999 there's no way that you could have known that and it just as easily could have been intel you know it could have been ibm that could be you know off the charts with and if it had been ibm you would have been of course the long history of ibm you know you would have looking back it's so obvious you know but um And if you look forward, you know, who's to who's to say it's easy to have pessimism. So I think this is a great show.

Chris:
[5:17] Yeah, both both of those stocks that you you just mentioned happened to be having pretty well, I guess IBM's doing OK this year, but Intel's having a horrible rough go of it. Right, right, right. Yeah. And so this, this is another great one. So how can you combat that? How can you combat that fear? Well, one way is through something called dollar cost averaging. And I love how they put this, this visual together so you can see how, how it works.

Chris:
[5:51] Dollar cost averaging is simply referring to adding money regularly. Okay. And so maybe you've got a schedule of once a month, every two weeks, whatever the time is. Now, during that time, the market or whatever you're investing in is going to be going up and down and sideways all over the place. But the idea is that when the market's down, you're buying more shares. When the market is up, you're buying fewer shares. And so on average, you can see that roughly that purple line there is the return from being in dollar cost averaging versus the person who tries to time it, take in all the information, do the calculations, assume that they know more than they probably do and try to go ahead and time the market. And we've all learned, especially since COVID, that timing the market is a fool's errand.

Chris:
[6:53] It is just beyond difficult, impossible, right? So this is a way that you can combat that through your own behaviors, through things that you can control, through a kind of a time-tested, boring, but reliable way to go.

Dano:
[7:12] And it goes back to the prior slide, which is to say, you should never say to yourself, I should have known. I should have known that. Well, how could you have known that ever? You know, give yourself a break. One, give yourself a break. But two, you know, this graph is showing, just be steady. Don't be crazy. Just keep on as you're just consistently doing it. And when it's down, you're buying more. And when it's up, you're buying a little expensive. And it all ends up kind of evening out if you can just stay consistent. That's what I read from this.

Chris:
[7:44] That's right. We've shown graph after graph. You know, that even if you did know, if you did know what, you know, the, the CPI was going to be, or you did know that, uh, you know, there was going to be a war, the, the actual outcome of that in the market, the, the other piece of that kind of think of it as a parlay and sports betting, that piece, you probably couldn't know, you know, you, even if you did know the, the, the input, But there's almost zero chance that you know the result of that input in the markets.

Dano:
[8:22] And by the way, if you did really know, maybe you shouldn't know, or perhaps you could end up in quite a bit of trouble if you did know and did something about it.

Chris:
[8:32] Yeah. Maybe you're in Congress. Yeah.

Dano:
[8:34] Oh, shots fired.

Chris:
[8:38] Yeah. So this one, you know, this was very interesting. Uh, graph that was, um, posted in, I want to say this might've been in the economist or, or the financial times, um, And they're showing the cost of childcare. So, you know, everybody knows demographically, it's like, oh, the younger generations are having fewer children. They're taking longer to get, you know, established and buy homes and et cetera, et cetera, et cetera. And we always talk about the cost of housing as kind of the main reason for that, which is historically high on pretty much every measurement that you look at.

Chris:
[9:23] But I feel like, I don't know about you, Dano, but when I was getting ready to have kids, people, everybody says, you're not going to sleep. Get ready. Enjoy your sleep while it lasts, blah, blah, blah. No one ever says, hey, prepare yourself for another mortgage payment. Correct. Um, in terms of childcare and, or you better hope that you have family around to help you take care of them. Um, so this is, this is kind of amazing to show that cost and across all the regions here, except for the West where housing is kind of more expensive than the rest of the country. The red, the, you know, other than the West, which it's kind of neck and neck there, child care is actually more expensive than housing. Um, and this is measured by a four-year-old in an infant in a care center, um, which don't get me started on the infant thing. Cause most people won't, you know, you can't even get an infant into care until they're two years old for most places. Um, so, um, anyway, I think it's very little talked about. Um, I think it would be something that could help, you know, if there was some way to figure this out for young parents, this could help growth and overall well-being of young families.

Dano:
[10:44] It's a constant juggle for parents you know, the parent for the child and it becomes a case of, you know, what do you want to do with your life? You know, and the expectation that, you know, everyone has to have a career or that someone, one of the parents should stay home or there's clearly, according to this graph, a financial benefit to it. Are you making more in the market than you would be if you were just not having to pay for childcare? You know, is that a push? Is that good for you? Cause it's worth it for you to get out of the house. You know, these are the types of questions that, um, you didn't think that you were going to have to ask when you just wanted to have kids, you know, and have a family. Uh, but this is a perfect example of where the economics and the emotional and all of these, you know, seemingly disparate parts of your life all kind to come to a head. And I'm, I'm stunned here to see that it's cheaper, almost cheapest in the West. There's maybe the only thing where I guess we're a little bit lower. So, um, yeah, it doesn't surprise me. And in fact, it seems low.

Chris:
[11:56] Yeah. Okay. So I know as a few slides ago, but remember when we said we were foreshadowing with the, uh, you know, the first slide saying that the future looks unpredictable and full of risk while the past is obvious and full of missed opportunities. So now we look at the sentiment, okay? Because this is one of the gauges that we look at weekly to tell us, hey, how are people feeling? Well, the AII sentiment indicator, we're at 49, very high. Anything approaching 50 is considered. People are feeling pretty good about the markets. We've got very low bearishness in the red down there at only 20. Historical averages are around a third in each one.

Chris:
[12:45] People feel very good. CNN Fear and Greed Index agrees with this. It's at 74, which is just slightly below the extreme greed reading for CNN. Then lastly, you've got Bitcoin Fear and Greed at 32, which is fear, which we'll talk a little bit more about. But I thought it would be interesting to look back now that we're at all-time highs again, and everybody's talking about this two-year bull market in the S&P 500, and just look back to two years ago at this time and see what the sentiment was in the market. Because I seem to remember people felt pretty crappy in 2022. Basically, everything had been obliterated, stocks, bonds, U.S., foreign. There was nowhere to hide. The Fed had just gone through its hiking cycle. People felt horrible. And can you guess what the bullishness percentage was back in October of 22, Dano?

Dano:
[13:45] You're saying it's 70. Wait, you're saying now bullish is 49%?

Chris:
[13:50] Yep, yep. Yep. Take a guess what it was in October of 22.

Dano:
[13:53] The way you're describing it, I'd say it's 22%. But since you're setting it up this way, I think it's going to be surprising. So I'll say 38.

Chris:
[14:01] Good guess. Good guess. It's actually 20%. Wow. So people had very low sentiment then. The bearishness was at 55%. So... Perfect example, right, of looking forward, everything looks awful, right? And had you known what the next two years were going to have in store, of course, everybody would have said, we'll jump in, right? And ride the wave over the next two years. But um it's it's never obvious in in real time and it's actually you've got to fight your you've got to fight your uh you know your own sentiment the hardest because everybody around you feels awful too usually when the the the timing opportunities are there that's when everybody doesn't want to do it you know um and.

Dano:
[15:02] For our viewers just simple question bullish and bearish defined as

Chris:
[15:06] Bullish means you feel like things are going to go up in value bearish feels like they're going to go down in value and.

Dano:
[15:14] You said that the bitcoin fear index was at 32 percent is that why Daren's not on the episode this week

Chris:
[15:20] Or yes he's just despondent uh at this point he's in his bunker yes he's always upset that they don't call him he's like i don't know who they're calling on this.

Chris:
[15:35] So this is the Bitcoin price. So forgive us, no candles this week. We should have said that right up front. So anybody that was looking for candles, since Daren's not here, there's no candles involved in this episode. So you can just shut it off now if that's what you're looking for. But you can see the Bitcoin price over the last three years. And we're still hanging in there at 60. I would say it's kind of in a downtrend. If we had the moving averages on here, it's below its moving averages. And so... But, hey, take into account those fear and greed indexes. The reason we follow those is to understand what is the environment you're in right now. And is it one that might be opportune? Because when you get extremes, that's when you want to really pay attention. You know, when people are very excited, you might want to worry a little bit

Chris:
[16:33] because, hey, the risk is building. And if people are feeling pretty awful about it, hey, that might be your sign, you know, that you should take a look a little bit further.

Chris:
[16:50] So uh we've got the s&p here with the moving averages uh we're you know new all-time highs closing at new all-time highs that uh new all-time highs this week and you can see that the trends are you know so far uh moving in in parallel now dano i put on here the start date of august 5th any ideas why we would start on august 5th i.

Dano:
[17:17] Think that was the week that we had our flash crash our panic at the dow jones

Chris:
[17:22] Well good memory that was not what i was thinking but uh you are right um it's because fun fact uh with presidential election years oh market tends to be a very good, predictor of election results in the 90 days prior to the election. So August 5th would have been 90 days prior to the November 5th election. And it's not perfect. Nothing is right. But I believe it's over 80% of the time. When the market is positive in that 90 day period, the party in power tends to stay in power. And if it's negative, they lose power. And so I think it's most interesting right now because the Democrats are behind in the betting markets, which is kind of the other place that you look, hey, you know, people are actually putting money on this. Um you know there's there's there's skin in the game it's not just pollsters it's not just the people who answer the phone on you know random phone numbers calling them i mean how many people how many people are left that are doing that right but there must be some to collect polls, um so we'll see which one is right in the end um just a a fun a fun thing to keep an eye on well.

Dano:
[18:51] The good thing is this you know it's not like the party in power has any bells and whistles and levers that they can pull to adjust or inflate certain markets. You know, this is all brass tacks. This is all real. They would never make moves to try to make things seem better than they are.

Chris:
[19:08] No, nobody ever would.

Dano:
[19:09] Nobody, no party, neither party would ever, ever do that.

Chris:
[19:13] No, no, no.

Dano:
[19:14] It feels like that's a really good indicator.

Chris:
[19:17] Yes. Well, one of the times that it didn't work was the 2020 election. And that one, I think, is almost, it could have been a push because it was positive. Yes, asterisk. It was positive by like a smidgen and it basically went positive the day before the election. So otherwise it would have been flat to negative. So kind of a nuance there. Anyway, so we've got the S&P 500 two-year rate of change. In the 95th percentile. Those parents out there will know, hey, if your kid brings home a statewide test score and they're in the 95th percentile, you're feeling pretty good. So that just means that, hey, this is one of the fastest moves higher in the S&P going back to 1954. There's been faster. There's been larger gap ups, as you can see. uh but but this one has been a strong bull over the last two years uh from that sentiment low back in in october of 22 but.

Dano:
[20:36] Just to clarify a strong bull concentrated in like a handful of big stocks

Chris:
[20:41] Yeah right up until recently now it has been broadening out a bit it has been broadening out the small stocks have started to participate a bit even the foreign stocks have started to participate. So we are seeing more strengthening, I would say, across the board. But yes, you're right. It was absolutely led by a handful of the leaders.

Dano:
[21:05] I'm so glad this is in the deck. I love this slide. I love this quote.

Chris:
[21:10] Really? Okay. I thought this was going to be the nerdiest thing ever and nobody would want to pay attention to this. But so this is a quote that gets thrown around a lot, at least in financial advisor circles, I guess, or investor circles from 2002, the CEO of Sun Microsystems, Scott McNeely. So, you know, to put you in the historical terms, this is after the dot-com crash. So dot-com crash was in leading up to 99 and 2000.

Chris:
[21:43] You know, the internet was coming, it was going to change everything. And the companies that were tied to the internet, there was no price that was too much, basically. Investors just piled in, and it was a mania. It was the highest valuation that the U.S. Has ever been on many different measurements versus the actual earnings and such. Now, that technology came true. The internet did change our lives. We're talking on the internet right now. We do almost all of our business on the internet these days. It did come true. However, the valuations got so far ahead that the stocks that were related to that did not perform for a very long period of time.

Chris:
[22:30] And so anyway, Scott McNeely said this to investors kind of after that crash. He said, at 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Apparently that was over 10 times revenue back then. Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?

Chris:
[23:37] Now, that's right next to this chart where current valuations and that price to sales, so sales being revenue, that price to sales number for many of the top or for the top 20 members by market cap. This chart, by the way, is from Jeff Weniger at WisdomTree. So you can see apple is approaching that 10 times revenue at 9 nvidia is at 53 microsoft's 12 you've got some that are pretty cheap walmart uh at less than one times revenue barely um you've got exxon at 1.6 etc etc um the two that jumped out on here that i was very surprised about were visa and mastercard at 16 and 18 um broadcom 23 that's one i don't hear a lot about everybody's asking about nvidia everybody talks about you know apple's like the home you know everybody owns some apple right um right uh but not me you know people talk about eli lily um but visa mastercard um and Broadcom are definitely, they were not on my radar for this type of evaluation.

Dano:
[24:54] So if you're not following this quote, I want to try to boil it down because I think I understand it. You tell me if I'm understanding it right, Chris. Basically, what he's saying is that at this time, so much money had been poured into the stock price, and all that money that had been poured in, is tied to how much money they think Sun Microsystems was going to make, therefore fueling the price higher. But he's saying, this price is already astronomical. There's no way that I could ever make enough money to ever send this any higher. Is that what he's saying? Correct.

Chris:
[25:30] Correct. Basically, there's no way he could grow into that valuation and provide a return to the investors. So that the investors had priced in so much growth that there was no way the company could keep up with that growth and and provide value uh in the stock price um and kind of once everybody recognized that the the price fell and the air came out so what does that mean well you know, investing is one of the weirdest things where sometimes when you look at what's done the best over the last 10 years. That's probably what's going to do the best in the future. Ain't wrong. A lot of times that means that there's more risk built up going back to that sentiment. Usually the opportunities are there when everybody feels horrible about things. Think about the spring of 2009. That was a great opportunity in hindsight. You know it it but but when when everybody is saying there's no way we can lose that's when you want to be careful because that's when there's more risk built in to the system.

Chris:
[26:44] So um the uh hard left turn here sorry the slides got mixed up a little bit we'll get to we'll kind of get back to that topic here in a second no uh well yeah let's go let's go to keep going one more uh one more i'm looking for the apple there's apple and microsoft on a certain slide there we go so just to just to get an idea what this looks like historically um this is, microsoft's uh price to sales ratio uh which you can see at 12.65 now and apple at 9.184 versus is where they've been historically and that's what i'm talking about with the the you know uh so you can see that spike in microsoft during the 2000 uh dot com explosion 2021 a lot of people would say 2021 was another bubble period um you know so anyway it's just look is apple a great company yes is microsoft a great company yes i use both of them i i have apple products laying all around me right now. And we use Microsoft products all day, unfortunately.

Dano:
[27:59] Ouch.

Chris:
[28:01] So are they a great company? Yeah, they are. But that's part A. Part B is what do you pay for those companies? So just, you know. It's not as easy as just, A, it's a great company.

Dano:
[28:17] And we're not necessarily a firm that is big on picking stocks anyways.

Chris:
[28:22] No.

Dano:
[28:22] But it's interesting to follow it, and it's interesting to understand it. And it's interesting to, in some ways, I'm totally the wrong person for this business sometimes because I think you should do what you say. And when your price to earnings is at 30, you're probably not going to be able to do what you say. You're not going to be able to meet all that demand and there's going to be some kind of a major downside coming. You can see that in this chart. So it's interesting to follow and it's interesting to see the ones who just kind of keep plugging along. How about this one?

Chris:
[29:00] So let's rewind one more above that to the emerging markets just to check in there. So back to what happened in the markets this week, we're still seeing strength in the emerging. The trend lines are positive there. Some signs of life, mostly after the Chinese stimulus was announced a couple weeks ago. So you go to the next chart, we'll take a look at developed markets. So this would be mostly Japan. Japan makes up about 25% of the developed markets index. And then you've got other countries like Canada, Australia, Europe, a lot of the European countries are here. So also doing well, not at all time highs, but, but, you know, still in the trend, still a healthy trend, right? So we use these simple moving averages a lot just to understand kind of more of a smoothing of what's happening while the lines wiggle around it and kind of normal volatility.

Chris:
[30:06] So now CPI, the Consumer Price Index, we got that announcement yesterday. This is looking at it over a long-term period. It did come in a little bit hot yesterday versus the consensus. It always kind of amazes me how, how minute we are and how exacting, you know, we get down to a tenth of a percent. And if it misses by one, you know, tenth of a percent, if it's 2.8. Two instead of 2.1, the market just goes bonkers. So, um, so I think it, it's useful to pan out a little bit. Where are we versus where we've been historically? Um, you can see that we went through that, that big ramp up in, uh, coming out of COVID. Um, but you know, we're kind of back to semi-normal levels, kind of back to where we were in 2018, 2019 prior to COVID. As measured by this year-over-year change. So I'm not saying that the prices are back to where they were pre-COVID. I'm saying the year-over-year change is back to...

Dano:
[31:18] They're not going up as high. Yay. They remain high, but they're not going up as high.

Chris:
[31:23] They're not going up as much anymore. Yes, at least by these measurements.

Dano:
[31:29] The In-N-Out double-double is still over $6. Sorry, guys. It's not coming back down.

Chris:
[31:35] Right. So the other interesting thing is interest rates. So interest rates had been falling into the Fed meeting where they said they were going to, you know, they were hinting that they were going to cut. We thought it was going to be a quarter to a half. It turned out to be a half. You can see that towards the end of September. And this is going back, I believe, over the last year. And so you can kind of see the normal ebbs and flows. Now, is this uptick a normal ebb and flow, or are we starting to see rates go back up again? Because they did move very quickly, especially the two-year rate has jumped almost a half a percent just in the last few weeks. Now, what could be causing that? Is it expectations of inflation coming back? Is it the fact that over the last couple of weeks in the betting markets, the Republicans have taken the lead and possibly, I guess, more of a possibility they could take the House to, which would give them all three branches, whereas before it was expected to be split.

Chris:
[32:50] So maybe there's some uncertainty in the markets being priced in there around the election. I don't know. But rates have decisively turned higher over the last couple of weeks. Now, they are reaching their kind of resistance if you're looking at those moving averages again. So it could be that this is just a blip and it's going to roll right over and go back to normal over the next month. I don't know. But nonetheless, it's been a hard fork in the road in the interest rate world. And here you're looking at the main ones that we always look at. The two-year rate, so short-term. The 10-year rate, which is kind of the base rate for a lot of different lending standards. And then you've got the 30-year rate, which is the long-term rate. So what does the long-term market think is happening in rates in blue there?

Dano:
[33:41] Now, Chris, we're over 30 minutes on this episode, and I'm sure you have your 18 kids you have to get back to and get them from daycare. But we have two people watching right now, and I want to ask this question because I want to pin you down on this. What am I looking at here? Two-year treasury, what am I really looking at here, and who sets that rate?

Chris:
[34:00] This is set by the market, which is millions of investors across the planet. What are they willing to take on an interest rate to lend money to the U.S. Government for two years, 10 years, or 30 years? And the U S government is widely considered, um, kind of the base rate globally in the financial markets because they have, um, pristine credit. Um, even though they're not rated pristine, um, they're, they're considered to be credit risk free, um, not interest rate risk free, not any of that stuff, but credit that you're going to get your money back. So this is kind of the place where you hide if you need to hide money. If you're a big corporation or something or a country, a sovereign wealth fund, you can't just go put your bazillions of dollars in the bank. They store it in financial assets around the planet. And the treasury market is the biggest, most liquid place where that happens.

Chris:
[35:10] And so these rates are what investors around the world are willing to accept. So it's driven by supply and demand. Hmm.

Chris:
[35:25] Um, so with rates going up, that's been a headwind for the bond market works like a teeter totter rates up bond prices down, uh, rates down bond prices up. So you can see, you know, the, this is the aggregate, uh, one measurement of the aggregate bond. So in the U S basically like the, the total bond market in the U S. Um, and you can see that while the, the trend lines are still up, we've broken below that top trend line, the kind of more sensitive indicator. And at this point, you would kind of expect to see it hit that bottom trend line before we see a reversal. So maybe there's more pain to come. But nonetheless, the bond market continues to struggle with interest rates kind of bobbing around and not heading lower as was expected.

Chris:
[36:23] And then you've got the longer term treasuries. So this is a widely traded fund that kind of tracks the longer term U.S. treasuries 20 year plus. And you can see that has run right into its lower trend line there and just below it. So So on the longer-term rates, you would think if there's going to be a switch back to a lower rate expectation and it's going to resume its uptrend that we've seen kind of all year in terms of the price of the long-term bonds, meaning that rates are going down, you would expect to see that soon on the long end.

Chris:
[37:04] So uh short-term rates which are set by the fed um you'll remember that from our podcast dan the the target rate uh for for overnight um fed funds rate is currently at 4.75 to 5 percent and right now the futures market is expecting about a 90 chance that they cut, 91.9 to be exact, chance that they cut by a quarter percent. And you can see now they've taken the half a percent rate cut pretty much off the table of expectations for the November 7th meeting. And now there, as of yesterday, there was actually like over a 10% chance, but as of today, a little less than 10% chance that they do not cut at the next meeting based on this hotter than expected data that's come out on the inflation front this week.

Chris:
[38:06] So checking in on gold prices, gold has continued its uptrend, not quite at the all-time high that we saw a couple weeks ago, but those trend lines are showing a healthy appreciation there, parallel, almost like skis, right? The ski tracks, that's a good sign. Healthy trends moving forward so far in gold. What do you attribute that to?

Dano:
[38:39] I know no one really knows, but is it foreign governments moving into gold because they don't know what's happening with the election? Is it gold at Costco? So is it because, because what we're looking at here, is this a gold, is this a gold ETF?

Chris:
[38:59] This is, this is a, yes, a gold ETF. Correct. And probably the, I don't, I don't have this as a fact, so don't quote me, but it's probably the most traded gold ETF. But yes, just to give you an idea of what, what paper gold, so, so to speak is trading at. Now if you want to go get physical gold usually that you have to pay a premium to the spot price um to get actual physical gold um so and.

Dano:
[39:31] Then you gotta walk around with it

Chris:
[39:33] And then you gotta walk around with it yep now this chart we already talked about this is the price to sales so that was the one that got out of out of order apologies on that um now, Bringing it back to two years ago, the sentiment. Now, two years ago, this is also from Jeff Weniger showing the yield curve inversion, and specifically on the three-month, 10-year, meaning that that's when three-month interest rates went higher than the interest rates for 10 years. So that is not a natural state of what they call the yield curve. Usually, you would get paid more to lock your money up longer. And we've been in an inversion for 25 months, so over two years. So again, put yourself in those shoes two years ago where you're like, oh, the yield curve inversion has happened. In the past, that's led to recessions, usually within about 14 months. Well, here we are two years later, bull market in the S&P, all-time highs, and the yield curve has just happened to be inverted for the longest time ever. So, so you, you know, even if you knew, even if you knew the, the outcome, the, the, the result in the market was unknown, um, and completely opposite of what anybody was expecting a couple of years ago.

Dano:
[40:59] So I want to, I want to hit this home because I think I understand it. And I, I told Daren one time he brought up on our podcast, we have another podcast called It's all money. You can also find it on this channel. He mentioned the yield curve being inverted, and I was just like, please explain to me what this is. He said it 15 times, and I don't really know what it is. But imagine if you're going to buy a three-month treasury, they're going to give you 5%. But if you're going to give them your money for longer, 10 years, they're only going to give you 4%.

Chris:
[41:37] That's right that's counterintuitive.

Dano:
[41:39] Right and so yeah you're absolutely right this has been an indicator one of the most reliable for a long time and so far not right

Chris:
[41:48] Yeah yeah if you if you pictured remember back in math class where you had those grid papers and on the left side if you had interest rates and then on the on the bottom uh axis i forget which one is x and y I think it's the y-axis, the one that goes left or right. Oh, okay. So x would be x is up and down. I think x is up and down. Mr. Pilgrim is going to crush.

Dano:
[42:14] Me for this

Chris:
[42:15] X. Okay. So you've got years on.

Dano:
[42:20] X runs horizontal. X runs horizontal.

Chris:
[42:22] You've got years on the bottom and you've got interest rates on the left-hand side. And you're going to take and plot. Okay. What's my one-year paying? Okay, 5%. What's my two-year paying? Oh, it's only paying 4.9%. You're going to make little dots all the way across your graph. Then you're going to take your pencil and connect those dots. It's going to make a curve. That's what they call the yield curve. Now, normally those short-term rates are lower. And so your curve kind of looks like a Nike check mark a lot of times where it's like up and to the right, which makes sense. If you're going to lend somebody money for 30 years, usually you're going to want more in return in terms of interest rates. There's a lot that can happen in 30 years. That's a lot more risk than, Hey, you can borrow my money for three months and let's see what happens in the next three months. Right? So when they say it's inverted, that means instead of it looking like a Nike check Mark, it looks more like, I don't know, uh, an eyebrow inverted and yes, like an eyebrow. That's a, that's a perfect example. So, um, so that's, that's what we're talking about when it's when we're talking to inverted to give you a visual.

Chris:
[43:38] So lastly, just to wrap up, expectations, expectations, expectations. So steeper yield curve. So meaning that we go from an eyebrow to the Nike check mark. Well, the fund manager survey, which means that professional investors basically are expecting the yield curve to steepen. That is at the highest expectation. So the most respondents saying, yes, that's what we think is going to happen, um, you know, going back on record. So it's like everybody, you look at that, you look at that inversion and you're like, okay, longest on record, that's probably not going to stay. So now everybody's thinking, well, it's going to, it's going to, you know, uh, reinvert and steepen, um, back to, back to where we, uh, would, would be a more natural state. Um, So that's the expectation. We'll see if it actually happens or if the market continues to dumbfound us all.

Dano:
[44:40] Yeah and two factors tell me if i'm wrong here Chris because i frequently am but i do feel like two factors you know we're talking about all-time highs in the market and it makes no sense that there wasn't a recession and yet i feel like the two things that are lurking in the background are the printing of cash by the government and all-time highs in credit card debt which are i feel like are going to come to pass at some point am i wrong Well,

Chris:
[45:09] There's controversy around the credit card debt because, yes, the dollar amount is all-time high, but as a percentage of the borrowing power of the customer, it might not be. Now, government debt-wise, yes, and we're running these massive deficits and debts pro-cyclically instead of counter-cyclically. So the theory has always been, hey, the economy sputters, you know, people start losing their jobs. Then that's when the government comes in and starts spending money that they don't have, but they kind of support the market until it gets back on its feet. And then they pull back and start collecting the revenues and they go back to not running deficits. Basically, they're there to kind of run in when everything's going badly. Well, it's been pro-cyclical over the last couple of administrations where it's like everything's going great and we're just going to pump more money in. Right. So that's the part that hasn't really been tried before. And that's not, by the way, you know, one party or the other. They've both done that. And so the outcome of that is to be determined.

Dano:
[46:21] Just food for thought.

Dano:
[46:24] Well, Chris, that was the last slide. Yes. Yeah. Thanks so much for the discussion today. It's always great to be on the show. If you're new to the show and you're new to the channel, we always ask to hit us with a like or a subscribe. We appreciate you checking this out. This show is weekly. As mentioned, we have other content here on the channel, including another podcast called It's All Money. Deep dives on specific topics. And uh Chris any final words as we should i make you sing the creed song do you want to do that are

Chris:
[46:58] You gonna are you gonna take us out with uh creed can you take me higher a little music video to get everybody pumped.

Dano:
[47:05] I do have a music video Chris but it's this one

Music:
[47:09] Music