Noise!

Daren:
[0:02] Chris, it's Saturday morning. It's, I guess, post-election, November 9th, 2024.

Daren:
[0:13] And we're going to try our darndest not to talk about politics today. It's getting even difficult with everything going on. But we titled today's slide deck or discussion noise, because that's what it all is when it comes to investing. It's noised. I was listening to Dr. Pippa Maldrom earlier today, and I think she said it best. And I wanted to start with this thought today.

Daren:
[0:46] And so we have lots of people who watch this show for two seconds and then turn it off so if you're one of those people this is the one point that we're going to drill home today and that is that the emotional position should not be confused with your trading position and i think there's a lot of that going on right now whether you feel really strongly about the Trump win one way or the other. Don't confuse your emotional position with your trading position because that is a recipe for disaster. All right. With that said, we're going to dive in and tell you all about why that might be and talk about the economy. And amidst everything else going on this week, Chris, there was one really, really important thing that happened that very few people probably heard about or read about, but the Federal Reserve actually cut the rate another 25 basis points this week. I'm excited to dive into that. I think it's really interesting in some of the things that Chair Powell talked about in his press conference. I took the time to literally read through every word on a 22-page document of that press conference and analyze what was being said. And I think there's some good nuggets in there. And I think some things that

Daren:
[2:02] we can focus on and talk about that I think will be helpful for investors out there. So as always, tons to talk about and discuss when it comes to the markets and let's dive in.

Music:
[2:13] Music

Daren:
[2:49] All right. So first slide, Chris, I thought this one was really important to talk about today. What are we looking at here?

Chris:
[2:56] I think we're just trying to get people ready for the Christmas season a little early this year. Is that right? Yeah. So this quilt is a forward returns of, I believe this is the S&P, right? And green is good. Green being, you know, positive returns, red being negative. Return. So I think, obviously, the first couple things to take from this is most of the squares are green. Usually, the market tends to do well. Asset markets tend to go up in value over time, historically, right? No guarantee of future results. And then the other thing is that I think It's interesting to see that the red clusters, they tend to be grouped.

Chris:
[3:51] We really haven't seen a grouped red cluster in a while. Many forget what it's like because usually when the market's gone down over the last 10 years or so, I guess you're really going back to the great financial crisis. The times that the market's gone down, it's recovered within a few months. So there's not really been any big drawdowns. But it's sort of normal, actually, because the market goes in these cycles of 10 to 15 years where it tends to do really, really well. Then years where it's slowing down. So there's been a lot of talk. We talked a little bit about that Goldman Sachs outlook that really aligns with Vanguard and some of the other GMO and a lot of the big firms that are saying, And hey, your outlook on the future returns of the market maybe should be a little bit more tempered because we've had such huge gains over the last 15 years in the market.

Chris:
[5:03] Is that likely to continue, especially in certain areas of the market that are very highly valued relative to where they've been historically? Probably not. So it's a weird thing because it feels like the risk has been lowered because markets have gone up for so long. But in actuality, that increases the risk counterintuitively.

Chris:
[5:27] But when you look at 20-year periods, I think the point of this chart is when you're looking at 20-year periods, hey, hold on, hold on, and just stick with it, right?

Daren:
[5:40] Chris, so I was kind of thinking about this, right? And so you and I often make fun of each other for being classic Gen Xers, right? The skeptics on everything, skeptic on the market, doing well, skeptic on institutions.

Daren:
[5:54] And I was looking at this chart and it's really interesting because if you look at it and you think about like my first investment account was at age 13 and I'm 43 right now, right? So we're in 23. So it means right when I turned 20 was this period of time in the market where the market was literally down for six years in a row and it went up a little bit and then down another two. And it's interesting if you look at how our biases as investors can be formed early on, like those core memories of the market, right? And so if you think about our ages, it's almost like our, although I started a little bit earlier in this, like, I don't think I like really started digging, digging into the market until I was about 20.

Daren:
[6:37] And this was my experience of the market starting in 2000, really of like that, you know, that while the market can go down, the market can go down in that, that understanding that you always have to balance risk versus reward and et cetera. Whereas if like I started investing in say 2009 and that was my perspective of the market and that formulated my core memories and my biases, I've had, I would have a very different experience because it's only been negative two years here or just recently. So I think there's a whole generation of investors out there. I would call it the Robin Hood crew that is rolling dice and playing in the investment apps and all that and have really never experienced a really awful down year.

Daren:
[7:31] And then there's those of us that came about into existence and create our core memories of the market in an era where it was a lot of negative. So perhaps sometimes we're too biased negatively and too nervous about markets going down because that's what we grew up with. Just interesting how our core early market memories shape our investment behavior and how important emotional awareness, emotional intelligence of those biases is.

Chris:
[7:59] That's absolutely true. True. Yeah. And I think, uh, recognizing that, that you, you will have biases and that, um, you know, your, like you said, your strengths and your weaknesses, figuring out how you short circuit that, whether that's having an advisor that you work with that can, that, that sees that in you and is like, Hey, Daren, this is another one of those times, you know? Um, or, you know, uh, or, or maybe just, I'm coming up with my plan. I'm sticking with my plan, uh, you know, thick or thin. And I'm just, I'm going to, I'm going to keep, I'm going to keep with it, which has historically been the smart, smart thing to do is just to come up with your written, you know, investment plan and just stick with it. Um, when times get, and I would say that the, the tricky thing with investing is that when times get really good, it's, it's almost equally as hard to not get overly excited as it is to avoid being overly depressed when you feel like times are bad. Both of those extremes are really tough emotionally. So you have to figure out ways to short-circuit your emotions because they're going to happen to all of us, right?

Daren:
[9:22] They are. They absolutely are.

Chris:
[9:24] For me, peanut butter pretzels, my wife knows this. You ever get those peanut butter pretzels at Costco?

Daren:
[9:30] I do. Yeah. They're like the ones that they're like a little packet of peanut butter.

Chris:
[9:35] Yes. Okay. So, uh, and my good friends all know this too. This is my weakness. Like I don't care about candy. I don't care about desserts, you know? Uh, but man, salty, crunchy, peanut buttery, like, you know, for me, I know that if I'm going to, if I'm going to have two of those things, I'm going to have a hundred. So it's like, you got it. You got to short circuit yourself, right?

Daren:
[10:00] Mine's jelly bellies like i literally cannot buy jelly bellies i don't know what it is if i buy a jelly belly it's over i'm gonna eat the entire bag and so when i was a kid i used to buy the belly flops in fairfield at the the um the factory the factory there and you get these huge bags i just eat like half the bag and feel sick as a dog but i'd still just keep eating them because the flavors are so amazing uh yeah we

Chris:
[10:26] Digress yeah see i i could care less about jelly bellies you could give me whatever you want i wouldn't even touch them they're disgusting to me so oh we all have our weaknesses Daren we all.

Daren:
[10:36] Have our weaknesses

Chris:
[10:39] Yeah so um you know uh this was this is from bespoke where they show that uh the day after the election was the strongest post-election one-day rally in S&P 500's history. So we've talked a lot about how the market tends to do well during election years, and especially in November and December. This year so far looks like it's not been an exception. We've had a very good market leading into the election, which I will note the market was wrong about the outcome of presidential election and this is you know it was right something like 85 percent of the time so it was wrong uh so was uh the 13 keys guy who's been uh correct for like the last 40 years alan, Um, keep that in mind as predictions about what is going to happen in the future is coming up because we're getting to the end of the year where there's going to be a lot of that. And just remember, nobody knows nothing, right? Nobody knows nothing. nothing.

Daren:
[11:50] And they're all trying to sell right on a future

Chris:
[11:52] Right yeah like.

Daren:
[11:53] There's like you think about how these um these media sources grab eyeballs right they have to go to extremes now we're such an extreme culture

Chris:
[12:04] Well i mean if you look at that that chart the 2020 the 2020 pop was massive too i don't know if you remember that but uh the blue wave pop this this one you know until until we got this one this week with the red wave pop. Previously, the 2020 pop was massive, and that lasted all the way through 21. And if you remember, at the end of 21, things felt really juicy. That was when the world was opening back up from COVID, and Bitcoin was going to be 100,000 by Christmas, all the things. And then what happened? The exact opposite of what everybody expected.

Chris:
[12:46] We had 2022. which was awful for everything so um nobody knows nothing right stick with stick with your plan uh anyway you can go to the next chart um and you know uh we talked a lot about the jp morgan chart that basically shows the same thing and this is from morning consult showing the index of consumer sentiment and so this is one of those biases that we all have uh where our our party depending on if our party's in power or not, it affects how we feel about the economy and how we feel about the markets. So depending on which side of that you're on right now, recognize that, hey, the emotions I'm feeling are real. Acknowledge your emotions. This is 2024, Daren. We all need to acknowledge our emotions, right? But keep in mind, you're probably wrong. If you're super depressed, you're probably wrong. If you're super excited, you're probably wrong. Um, and, and, uh, so try not to get too wrapped up in it from an investment perspective. Um, that, that would be historically the smart thing to do is to just stay the course with your plan.

Chris:
[14:07] Okay. And I know that all this is like the most boring information ever right there. And it's like, Hey, you know, keep eating your vegetables and going on your long walks and avoid, you know, too much sugar and processed foods. Like who wants to do that? That's boring as can be. Right.

Daren:
[14:24] But it is interesting, you know, when you think about it, right? Like it's how often our culture and society nowadays, it's like the boring advice. No one wants to listen to it. they all want to hear this, you know, the, the advice that's far extremes. Like our brains are trained that way.

Chris:
[14:43] Yeah, absolutely. Uh, so some good, good research here from, uh, Ryan Dietrich, fellow Ohioan. Uh, he says October is the worst month of the year in an election year, uh, which is what we got, uh, this year. So maybe down some last month shouldn't be a huge surprise what also shouldn't be a surprise is strength in november as this is the best month in an election year um so this has been historically uh going back to 1950 so post world war ii um i always think it's funny how we kind of group data investment wise into two groups we either go back to 1926 just prior to the great depression or we start in 1950 post world war ii i guess you could look at it that way of like okay that's when the u.s really became the global superpower dominant you know uh economy etc etc so maybe that's why um but for whatever reason november and december people tend to to feel pretty good and that's an election year and as you'll see on the next chart, that's also true in non-election years.

Chris:
[15:58] And so historically, so this is not election years. This is just years in general. November, December, and January are historically the best three months. And so we're coming into a seasonality period where the market tends to do well.

Chris:
[16:16] There are exceptions to that. Well, I don't think you or I will ever forget the Christmas time of 2018 aggressively tax loss harvesting around Christmas time with the sharp drop in the markets. So, but, but nonetheless, you know, we normally get the, the, the quote unquote Santa Claus rally this time of the year. So coming out of a seasonally week period and, and going into a seasonally strong period.

Chris:
[16:51] So we take a look at sentiment, and I'm actually surprised that this isn't higher, given what happened with the markets this week. We didn't even mention the fact that we did get a quarter percent rate cut from the Fed, which was 100% expected.

Chris:
[17:10] The rates markets had that priced in perfectly. And um you know boy i think another takeaway from from the election was the power of betting markets the power of markets in general to predict you know and um so if you're someone that doesn't really pay attention to investment markets but you really paid attention to this this recent political uh market with the betting and everything it should you should understand that it's very similar in, in the financial markets where a lot of these things are already priced in. And yes, there are surprises. Yes, there's a spectrum of outcomes that can happen, but usually the market is ahead of things that are happening. Um, and it predicts it correctly using the power of, uh, the hive mind, you know, uh.

Chris:
[18:09] Millions, if not billions of people around the planet, putting their money where their mouth is in terms of where they expect things to go and getting the outcomes of that. So anyway, bullish sentiment on the AAII, the CNN Fear and Greed Index jumped this week to 61 greed, which was up from 44 of fear just a week ago. So a huge switch on the CNN Fear and Greed Index. And that's the one that's more, how are people positioned, Not just asking them how they feel, but how are they positioned. So that's interesting.

Chris:
[18:45] And then Bitcoin hitting 75 unchanged from last week.

Daren:
[18:51] Chris, you can't, and this was one point I did want to make about the elections as much as I want to avoid the topic, but the betting markets, Polymarket, Kalishi, they, they, they had it pinpointed, like they were accurate in their real-time adjustment and their ability to real-time adjust. And what people are doing is they're putting their money where their mouth is, right? Instead of these polls, right? I mean, you look at like the Iowa poll that was completely wrong. And that lady was considered one of the best pollsters in America. So I think it's just really interesting. I wonder in the next election cycle, polls, I guess we'll still do them because they're more of a tradition than anything. But, you know, that's now the second election. election, we've watched the betting markets very, very closely and they remain undefeated. Absolutely. Note to self, you know,

Chris:
[19:45] Old, old media versus new media. You know, I personally don't pay attention to the polls at all. Um, I think it's been easily proven that they don't, they don't, they're not accurate, but look at the betting markets. Um, and you'll, you'll have a good idea what's likely outcome. So the consumer continues to be strong.

Chris:
[20:07] I think you hear a lot about the level of credit card debt being extremely high, which is true, but what that leaves out is the denominator in that. And that is what are people making? So what's their debt versus their income. And that's continued a downward trend since COVID. So meaning that the percentage of a person's income that is taken up by their debt payments continues to trend lower. So the consumer looks pretty good. Who looks awful are the governments. Governments globally are in a lot of debt and the United States is at the top of that list. So that problem didn't magically go away overnight, that is still a very real issue for, you know, we as Americans to deal with moving forward. And it's going to be interesting to see because basically what happened in 2008 is we took the credit off of the personal balance sheets and we put it on the government balance sheets and we unwound it over a decade plus off of personal balance sheets to, you know.

Chris:
[21:21] Heal the economy basically but that didn't that debt didn't go away it just got shifted to another area which is governments and um and so uh it's still it's still i think going to be an issue moving forward.

Chris:
[21:40] And this is from Apollo, and I'll just read what Mike Zaccardi said, or sorry, this is from Torsten Slock at Apollo. He said, the U.S. budget deficit is the biggest among OECD countries. If growth slows and the unemployment rate rises, the U.S. Fiscal position will deteriorate even further. So um no way around it we are spending more than we were bringing in and we have been doing that for a very long period of time through multiple administrations and uh multiple you know party control and we're starting to reach a point where it's like we've been doing that for enough months now our credit card's getting kind of maxed out uh at least you would think uh we'll see we'll see what's going to continue. I think it's interesting that rates have gone up, even though the Federal Reserve has cut the Fed funds rate, the rates in the market have continued to go up. So are the bond vigilantes coming back and saying, hey, we're going to need more return for the level of risk that we're taking on this fixed income? Or is it just a short-term blip on the interest rates?

Daren:
[23:04] I think regardless of, again, what matters is will the next political leadership keep spending the way the last one did? And that has everything to do with whether or not the market continues. And my general outlook is they have to. They can't stop spending. And until that changes, until the dynamics of the spending change, the fiscal stimulus that's coming out of Washington changes, you know, we probably should expect more of the same. And that's just a reality of it. Unfortunately, at some point, that spending will come to an end, but it will probably go on a lot longer than any of us think it will.

Chris:
[23:44] I i totally agree totally agree i think the only thing that changes is some sort of crisis yeah, And so the other thing with this new administration coming in, they'll be inheriting a market, a U.S. Market, that is fairly highly valued compared to where it's been historically. With most of that high valuation being concentrated in the top 10, this again from Torsten Slock at Apollo, the average price to earnings ratio of the top 10 biggest companies in the United States is almost 50. Now, note that this chart was out before the election, and Tesla is up something like 30% in the last week, if I was looking at that correctly, which I'm not exactly sure how Tesla's company valuation is affected that much by one week's worth of changes in events. But we'll see. Maybe Tesla is returning as a meme stock. But regardless.

Daren:
[24:55] I think it's totally obvious how it's. I mean, I mean, the fact that I mean, great. Fundamentally, data like the business didn't change. But the ability for Elon to, let's call it, align the political waves in his favor as a company have just changed drastically, case in point. I mean, he was literally on the call with President Zelensky of Ukraine and Trump two days ago. And like his ability then to align those political processes to support his businesses. I mean, it's totally different, right? I mean, I don't think there was any mistake that the other side didn't like Elon. Um so yeah i i think that changes the fundamental outlook for the company drastically um

Chris:
[25:44] Well the market definitely agrees with you.

Daren:
[25:46] Chris i wasn't going to share this with you but i will just because i know how much you love dogecoin um but i mean he's a perfect example of what i'm talking bit about. Dogecoin, which has been, I guess you could say, highlighted by Elon Musk and somewhat involved, arguably he's heavily involved. I don't know the details of that, but you can see just from the election, Dogecoin took a rocket moon and went up pretty considerably here after the election. So again, it was part of his trend. It was up, but certainly helped it. But anyway, so I do think, you know, as much as I think the economy will continue to roll and continue to move and continue to grow, I think there'll be different parts of the economy that are highlighted versus other parts of the economy had a different party one.

Chris:
[26:44] Yes, absolutely. Next time you bring up Dogecoin, can you tell me to mute my mic so that I don't come back?

Daren:
[26:54] Did you puke back in your mouth?

Chris:
[26:57] Yes. Yeah. I don't know if I could come back from that one, Daren. I'll do my best here. I'm going to hold it together. Um yeah so uh anyway going back to to valuations current market valuations is bespoke's um bespoke says the u.s stock markets annualized total return over the last one uh two five and ten years has been stronger than the long-term averages for all four periods and uh they say it's been quite the decade for stocks. And you can see over longer periods of time, the percentile rank were right in the middle, which is really interesting. But the shorter timeframe you look at, really going out to the last five years, the returns in the S&P are in the upper percentiles, meaning that it's much higher than normal, basically, over the last five years. And with the last year in particular being in the 92nd percentile. So to our point, you can't predict these things. You don't know what's going to happen in the future.

Chris:
[28:13] But we're coming in hot. Let's put it that way. All while some of the old trustees, And maybe the yield curve inversion is going the way of political polls, Daren. Maybe it's no longer does it matter and that it's now noise and not a signal. But of note, we're getting very close to disinverting on the three-month tenure. That has not happened yet. And why is that important? Because previously, once we've gotten back to zero in terms of the difference between the short-term rates and the long-term rates, that has been a sign of a recession. A recession usually has happened pretty closely after we get that disinversion back to zero. So the gray bar is there showing that. So we're at 32 basis points as of Thursday and Friday on the 10-month three-year. So where are we in the cycle? We did that show a few times ago with Dano. And, you know, there's a lot of signs that point we're further along in the cycle than, you know, we're in the seventh or eighth inning instead of first or second inning.

Daren:
[29:37] Chris, just leading into that, good time to just look at the Fed funds rate because the Fed did lower the rate by 25 basis points. There were a lot of questions in the transcript from the press conference this week where various reporters were asking, well, why are you guys lowering rates? I mean, it feels like interest rates have been going up, telling us that the economy is heating up and inflation is still a possibility. Chair Powell's response to that was, well, we don't necessarily see it as inflation going up. We're very comfortable with where inflation is and it's going down towards 2%. They think there's just lag effects from the housing, right? It takes time for, for example, rentals. The people living in rentals have to move and then they have to pick up a lease somewhere else. And it takes time to kind of reset those things. There's a lag time.

Daren:
[30:29] And, but the feeling was that interest rates are going up is because they're expecting growth to do pretty well moving forward. However, on the flip side of that, it's almost, it's so interesting when you listen to these guys talk, Chair Powell and whatnot, and they have all these tools and models and ways of predicting and analyzing. And, but you almost just get a different feeling, right? When you're out there talking anecdotally with people. And so it's hard to kind of make sense of that disconnect at times but then when i look at the fed funds rate and you look at every other time we've rolled over from a chart perspective forget all the fundamentals forget everything they're saying i'm more of a technical guy and i'm looking at the technicals and i was looking back at this kind of rollover we had or pattern we've had here now where rates went up they flattened out and then now they're starting to go down um you know you kind of got like this period of time that you saw a little bit of a flattening. But almost every other time, it's like when we get to this point, at least in recent history, we end up seeing rates get dropped pretty fast, pretty considerably because we hit some kind of economic issue that comes up. And I think whoever won this week, they have a very difficult job ahead of themselves because they've got valuations that are high. They've got a market that's been ripping for a long time. They got to keep that thing going.

Daren:
[31:57] And the only thing that I think really keeps that market going, especially if Trump actually follows through on some of the stuff he's saying is they're going to have to print a ton of money and a wall of money to keep the economy popping. Because if you look back at what's kept it popping over this last year, It's really been government stimulus, government jobs. Chair Powell talked about what we're really comfortable with the labor market is. What he didn't talk about was that what's really been driving the labor market and it's staying intact is the fact that we've been hiring government workers left and right.

Chris:
[32:34] Yeah. So let's see, let's go to the next chart. And to your point about the two-year, so where is the two-year treasury, which is what I would consider the market's assumption of where short-term interest rates should be, where the Fed funds rate should be in the purple here at 4.21 versus where is the Fed. And this is post cutting on Thursday. So 4.75. So we're getting closer to an equilibrium there. The market's still saying the Fed's just a little bit too tight by about a half a half a point. But it's hard to tell where that short-term rate is headed because coming into the election, about the same time that the betting market started showing that the Republicans were pulling ahead, interest rates started going up and they've really continued that march. So are we going to get a reversal in the market's assumption about their short-term rates? Or to your point, is there going to be some sort of crisis that happens in which case you usually see the short-term rate plummet when that happens because people flood into short-term safety in the form of treasuries, and that just drops that interest rate like a rock.

Chris:
[34:01] Which is what's happened previously when we've kind of been in this position. So I think it's going to be interesting to see. So far, no signs of stress on that short-term two-year in terms of heading down. And then lastly, the unemployment rate, which much like the inverted yield curve, tends to start to hook on the upside when you're heading into a recession. We saw 50-year lows. I think it was last year when we hit about 3.5% in the unemployment rate. We're now at 4.1%. We've stayed at 4.1% this most recent update. But usually when you start to see a turn up in that unemployment rate, it doesn't just stop and kind of go sideways. That doesn't happen very often. Usually, once it starts going up, you see a recession and it goes up rapidly and then comes down slowly. So we'll see. Only time will tell where we are in the cycle. And I think that's why it's prudent to stay diversified, don't assume anything, and try to just stick with your overall plan and not try to get too cute with assuming you know what's going to happen in the future.

Daren:
[35:27] You know, one thing I thought that Fed Chair Powell did really well in the meeting notes from the conference here is just threading the needle of saying, look, we're going to just, a lot of the reporters were trying to get him like, well, how many times are you going to move next year, year after? And he's like, look, I'm not going to speculate on that. We're going to look out at each meeting. We'll make the decision as we go and balancing our dual mandate of stable prices and, you know, a full workforce. And I think he's doing a good job of kind of threading that. There was some kind of funny moments. Three of the reporters pressed him on, you know, hey, is Trump going to fire you? And what will you do if he fires you? And he, which is interesting. He basically just said, he can't fire me. Not under the current law. And uh so that's that i think will be an interesting dynamic we'll see in the news coming forward and what kind of pressure that the trump administration who's been pretty critical chair powell um which i i think uh chair powell has actually done probably a pretty remarkable job of managing and navigating uh the covid crisis and um some of the other things we've seen in the country in recent years um so certainly not perfect but i think he's certainly done a great job.

Daren:
[36:42] Uh, managing a lot of news and a lot of things happening. Um, let's take a look at the markets for the week on the S and P 500. So all time high close this week on the S and P 500, um, really coming out of the, the gate. Um, you know, we, we saw some softness before the election and then the election happened and it just ripped higher. Um, you know, too early to tell if this is just a momentary kind of like celebration. We see some of that, as we talked about earlier happen right after elections like this. But we moved pretty high, pretty fast. So I would expect some correction coming into next week, some settling down, some people saying, oh, this is so wonderful, more like tempering there. And people who are really upset, tempering that, being really upset, coming back to the middle and then the market's going to do the same thing. And that's this trend line you can see that's been really important. We continue to bounce along and we move up and then down up then down and we jumped way up so typically when you see that you'll see it dip back down so i would expect a correction here in the next few weeks i i don't think this is just going to play out as smoothly as perhaps the market thinks it is at this point i don't know but um that's speculative in nature uh but all in all market continues to move higher one of the things we've watched and talked about a lot um over this last bit is just how

Daren:
[38:07] Concentrated the markets become in these major positions. So this is a picture of the S&P 500 in boxes, which represent the capitalization size of each of the companies, smaller boxes for companies that are capitalized smaller, et cetera. And one thing you've noticed is that these companies are just such big juggernauts. And so in order for the market to continue going higher, these smaller cap companies have to kind of catch up at some point. And we see that kind of rotation. And so when we look at, one way to look at that is the SPY, which is a cap-weighted index, meaning the bigger companies get more credit. We look at the RSP, which makes all those 500 boxes look the same. So every company gets the same weighting. And you can see even on the RSP, things have been going up. So we're seeing that participation rotation too early again to tell whether or not it's just a momentary blip in the market cycle. But I think positive for now. One thing was talked a lot about in the conference or the Chair Powell's press conference this week on the 7th. He talked about the five-year and a lot of the reporters were really pressing him on the five-year and saying, look, this five-year is going up and what do you think about that and how are you lowering rates um and um

Daren:
[39:36] Why? If the interest rates are going up, it tells you to grow stronger. I think really the communication from Chair Powell is, from what I'm reading between the lines, is he's just saying that the move in interest rates is a short-term move. It's not going to last. It's going to fade. And if you look at this chart, which is interesting, it would seem to indicate similar, right? Because you can see here that this trend line, more or less, and you could kind of argue where you put that thing, but give or take this range is the trend.

Daren:
[40:06] And we can see we've moved up into it. It's been rejected now on that area. And that would suggest that now it's going to start rolling back down. What you have, though, is this kind of triangle building, right? See if we put another kind of a descending triangle within our support line somewhere around there. I'd expect it to go back down, and then we would expect that somewhere around 3.4, we hit next, and then we'd want to see what the support is around 3.4. 3.8 is going to have a lot of support as well. But I would say on its face right now, that's how I'd read the chart that it's the move is in and the rates are going to head back down, which is good news for your diversified investors, people who like to invest in bonds like the egg, because when interest rates go up, then bonds go down. And that's what we've seen. But interestingly enough, if we look on the bond chart, we see that we've had a basing formation here with bonds and now we're working our way back up. So I think going into the next last two months of the year, the market, what I see on that chart, at least at the moment, a pretty good basing effect, a lot of trading happening right around that range of 98 and then a lot of support in that arena. That's good for the diversified investors picking up coming into the end of the year.

Daren:
[41:26] People who have bought bonds in the last couple of years, it's been absolutely trash from them. And it's been really frustrating to be a bond investor because you're watching the market go up, but bonds are not doing well. And because of that, investors get frustrated. Like why, you know, why should just buy all stocks, you know, but you really have to keep the flip side of it. And on one hand, I would argue, yeah, yeah, maybe you should just buy all stocks, especially with the chart that we just showed you early on that only a few years out of the last 30 years, you actually had a negative down year. But the question is when we do have that negative down year, can you stay in place and go through that volatility? Just anecdotally, Chris, you and I have talked about this a long time. We find that usually around 10% down is where clients just freak out and they start having a lot of anxiety and we get a lot of calls and things happen.

Daren:
[42:24] So 10% seems to be the threshold and the bigger that dollar value is, the more emotional impact it has. Well, that's why people keep bonds in their portfolio from diversification. We just have not seen diversification pay off over the last few years. And so then the question is, is this time different? Is diversification dead? And usually when you start asking those questions, then we're getting to the end of things, right? And then it comes back and roars. So you have to be so careful with it, right? Because the inclination sale, shit, let's just put everybody in stocks. We'll all be in stocks. and to the moon and the government's going to keep printing and this is going to be all wonderful until it's not.

Chris:
[43:03] That's true. And that 10% thing, I think a couple, what's so interesting is it's not just your conservative investors that, you know, maybe are a little more panicky than the rest. It's also aggressive investors. They're all of a sudden not quite as aggressive as they thought they were, you know, like, ooh, what's happening, right? But also, I think on the bond side, one positive is that interest rates coming up, you do collect a coupon with a bond. So it is paying you interest regularly, sometimes they're monthly, sometimes they're quarterly. It depends on the bond. But now, those rates are much higher than they were a few years ago. So even though the principal of the bonds might be fluctuating up and down, at least you're receiving income in the mid-single digits for most cases that can kind of buoy you while you're holding it. So, um, I think that's important to note now as well. It's not like it used to be where interest rates were, were zero practically. And, uh, so you're just holding these bonds and not really collecting any income off of them. Um, that, that is completely different now than it was a few years ago.

Daren:
[44:25] Well the pushback on that would be like well so what about the five percent you're making me on my bonds markets up 30 right and that's usually so it's this it's just this trade-off right there's a consolation prize for holding bonds and that's the you know the interest you get paid yeah the challenge with that is it's um uh you know compare i mean right if you get an interest in a bond and stocks are ripping it

Chris:
[44:52] Is all relative right and and we've we've been managing money long enough to know the times where hey five percent feels really good when the market's down 25 you know well that's why i kind.

Daren:
[45:07] Of i go back to what i talked about earlier where like i wonder how much of that perspective because i think you and i have that perspective for sure has to do with our core first memories in the market where when we really came into the market like they were got beat up for five years in a row. So we have that memory in our brain, whereas some of the newer investors, they just don't even, it's just not even on their radar.

Chris:
[45:31] Yeah, absolutely. Absolutely.

Daren:
[45:33] So core PCE, this is the Fed's preferred measure of inflation, right? There's lots of debate and discussion about like, how do you measure inflation? But at least this is what they say is their core. And so what core PCE is showing you is right around 2.7 is where inflation is. And you actually want inflation right around 2%. So this is kind of right here is the sweet spot for the Fed. And that's where they try to keep the economy at. And you can see we're coming right into that area. The real fear is we get a moment like this that we got in the 70s where inflation came up, it started to come down, but there wasn't enough pressure on putting inflation down. And we got the second wave of it. And then that really became a political headwind and took out Carter and the Carter administration. Uh so politicians are really nervous about that and i think that's where trump now has to really be careful because in he might not like chair powell and he might not like you know the current federal reserve but you know they can make his life very miserable um should they choose they do have a lot of power because their ability to manage inflation not saying that they would act politically because they've worked very hard i think over the years to be an apolitical organization But I think, you know, I sent you a post earlier, Chris, where that's probably in question some.

Daren:
[46:51] But nonetheless, and what they're saying and why they're lowering rates is they're saying, well, we think inflation is coming back into where we want it to be. We think we're restrictive enough where we need to be. And so I think that's good news, right? And I think that's positive news. And that's why they lowered the rate this week, kind of surprisingly, given how strong interest rates have been moving up.

Daren:
[47:22] Um let's take a look at oil because i think oil is one of the big conversational pieces right and he actually chair pal cited this in the press conference where he the one thing he said well you know geopolitical risks depends what would happen with oil because oil could really throw everything awry and we've been talking about how oil has been bouncing on the 68 support level for quite some time it appears at the moment that things have settled down ish in the middle east I think all the parties and powers that be that are, um,

Daren:
[47:52] You know, at each other's throats, whether Israel, Iran, uh, any of the other countries over there, there's definitely some waves happening after the election. Uh, you know, what oil does could, could really, uh, change that whole dynamic. Um, one of the things that we've heard a lot of rhetoric around is drill, baby drill, right? More oil, more oil, which would impact Putin in Russia, uh, in his ability to fund his war with Ukraine. Um, so very interesting. The oil, I think, is probably one of the most important geopolitical influencers in what's happening out there. And I think often when you see the various strifes we see throughout the world, oil can either exacerbate the issue or calm the issue based upon where it's at.

Daren:
[48:39] So keep an eye on that one. I don't think we can go out of the day without talking

Daren:
[48:43] about gold because gold has finally rolled over in a substantial way. You can see this trend line that's been in place for a while right along this we're now trading below it and that's of note so i think we get some downside on gold notice that rates start going up and gold goes down gold really took off when rates started going down so if we get rates turning around maybe we see gold head back north but kind of interesting right like you know just that how gold played it through that election and um now it seems to be calming down but Chris i'm just not going to let us off without talking bitcoin so um the uh i know it's your chagrin but

Chris:
[49:30] Well we already covered dogecoin so.

Daren:
[49:34] Why not yeah we already called we already went deep into the belly of the bitcoin

Chris:
[49:38] So vanilla compared to the doge you You know, it's so accepted.

Daren:
[49:45] But there's one thing I got to show you in my charts, and this cracks me up, Chris. I just have to show this. When you click on the Doge chart, look what happens. And so you click on this chart. Oh, it's not working. Why is it not working? Like usually the Doge dog comes out dancing. I don't know who did that.

Chris:
[50:01] Oh, wow.

Daren:
[50:02] They programmed in the Doge dog. It's not going right now. Maybe live it doesn't go, but that's pretty funny. So Bitcoin, right? So let's go back to the fundamentals of Bitcoin and people are like, I don't get it. Why doesn't this thing just die? It's just fake money. Well, not really. And here's why. So the thing you got to think about is that Bitcoin has 21 million Bitcoin on the chain that will ever be mined. Most of them have been mined. And with BlackRock in their ETF that tracks Bitcoin, IBIT, they are gobbling up Bitcoin on a day-to-day basis in huge quantities. And so there's this demand, it's inherent supply and demand that's coming for the Bitcoin in the market, but there's a finite supply. And it continues to move higher. And what we saw break out to all-time new highs this week. You can see this level right here was the all-time new high range right in here at 71. The all-time high during a trading hour got right up to 73. And now we're at 75, 76 and currently holding support.

Daren:
[51:12] And what I've noticed, I mean, it's just like clockwork. Like it moves higher, consolidates, consolidates, consolidates, moves higher. And there's a lot of seasonality to Bitcoin. At least there has been historically. Too hard to say it's going to continue. We don't know based upon all the new instruments coming out. But you see this consolidation. We're definitely in the season where you would expect more of Bitcoin to do better. After the election, you have all these states, federal government calling for strategic Bitcoin reserve. Yes, federally, they are calling for Senator Loomis out of Wyoming and has a bill that's going to get floated soon that will basically have the U.S. Government buying a strategic Bitcoin reserve along with many other states. Everyone asks why. Well, there's a lot of push to de-dollarize the world and that Bitcoin doesn't allow the governments to print money and do the things they've been doing to manipulate the overall markets. So that being said, Bitcoin continues to move higher.

Daren:
[52:14] There's now 250 pro Bitcoin people sitting in the House and Congress versus 50 that are considered anti-Bitcoin. So the Bitcoin money has done a lot over the last five years to get in there and lobby the snot out of our politicians. And we all know our politicians are a bunch of turncoats, and they will turn their coat depending on who's paying their bills. So with that in mind, there's your Generation X skepticism coming out. I was

Chris:
[52:45] Going to say it came out there a little.

Daren:
[52:46] A little strong so but anyway that's what's going on with Bitcoin fascinating to watch interesting to watch that's why it refuses to die alright well Chris I think we're going to leave it there so people can get on with Saturday and appreciate each of you thank you for taking the time to watch this episode of On The Markets and as always we'll be back next week to wrap it up and see what happens Take care and have a great weekend.

Music:
[53:16] Music