Interest Rates!

Daren:
[0:01] Happy friday chris i'm glad to be back with you um thanks to dan for stepping in last week i, have this stupid i don't know what it is the virus going around i could barely talk last friday it was really weird but i'm on the mend so that's good um what a week um what a week for california the fires we're having are absolutely tragic and unbelievable really when you look at the destruction i think it's going to be the most expensive fire in history last i saw it was like 250 billion dollars in damage from the fire so far and i don't think it's done burning yet, so the good news is the wind is changing but bad news is there's still a lot of cleanup to be done and go for the people losing their homes and always interesting to watch the political the political dance when these things happen uh but nonetheless we're here to talk about the markets and everything going on i do find it interesting i don't know if you know this is chris but, the fires going on at least around here have just dominated so much of the media and the news.

Daren:
[1:22] And everything that you almost have to like peel back all that just to see what's going on in the rest of the world right because there's a lot going on the world on top of that but then this has just dominated everything for us anyway um so that's what we're gonna try to do here today is talk about what's going on in the rest of the world and with the markets and the economy as we prepare for President Trump to take office. I don't know if he caught it today, but they sentenced him. And basically, Godspeed in the sentencing, which was a turn of events. I don't think many people expected, but a nothing burger after all, I guess. So we'll see how that, with that behind us, We can focus on the inauguration here in 10 days and a lot of changes coming. I think it's creating a lot of imbalances in the markets, imbalances in the economy. We're going to talk about one of those big imbalances, which is the interest rates and what's going on with the interest rates and surmise and hypothesize on why some of that is the way it is and how that could be impacting your assets, your investments, et cetera. Well, with all that said, we will be right back after this.

Music:
[2:40] Music

Daren:
[3:17] Well, Hedgeye coming home with a nice cartoon today, huh?

Chris:
[3:22] Yeah. Their cartoonist, he's on it. He's great, isn't he? Yeah.

Daren:
[3:28] I love when we can find one that works for the show.

Chris:
[3:31] Yeah. The wages continue to outpace inflation so far, but as you can see, the inflation is a rabid dog chasing them and shows Uncle Sam there doing its best to hold the collar back because we all know now, hey, inflation creates a lot of social unrest. That is for sure. So we've been talking a lot about the extremes in the market, extremes in the valuations, asking ourselves, do fundamentals even matter anymore? Right does pricing matter anymore uh is is the old style of investing just dead forever you know maybe i don't know but this is from callum thomas and he's showing the dot-com darlings from the the dot-com crisis and uh i will mention here that i shared with you Daren the uh the most recent memo from howard marks which anybody can look up howard marks of Oaktree Capital Management. He talks about his remembrances of various bubbles, but .com, he kind of centers on that. So this chart is from Callum Thomas, and he says, earnings versus the price paid.

Chris:
[4:51] The chart below shows how earnings did eventually come online for .com bubble stocks. Well, at least for some of those whom actually survived, but valuations came way down. In other words, all that glorious growth was in the price and he stresses in the price. And that is a really difficult concept I think for even professional investors to get is that, yeah, you pick the right horse. Yeah, you pick the right team, but also everybody else knew that and priced it to perfection to the point where you could never make money on it. And so here you see that the fundamental growth was there, but because the multiples were so high going in in 2000, those multiples compressed and went way, way down. The feelings people had and the willingness that they had to pay a high price for those earnings deflated. And therefore the total returns on those stocks were underwater for nearly 20 years. And so the returns just did not materialize because of the high price paid.

Daren:
[6:04] So Chris, just because some of our viewers probably don't know what the term multiples means, what does the term multiples mean?

Chris:
[6:14] So multiples usually is referring to the price of a stock as a multiple of its earnings. This particular chart is showing a price to sales, but it's usually a price to some quantifiable metric. And so as an example if if you you know marks talks about this in his latest memo if you pay 15 times earnings that means all else being equal it's going to take you 15 years of earnings to pay pay back your investment in that stock okay but that doesn't take into account the the time value of money so actually when you look at your your interest rate over that time it's actually going to take you longer than that to recoup your money that you invested into that stock. And so the higher the multiple, the more growth is priced in, the more good news is expected out of that stock and that that stock is going to grow fast enough that those multiples don't seem as high as they are now because you've got some companies selling for 40, 50, 60 times multiples And obviously, nobody's willing to wait that long to receive their investment back. So they're expecting the stock to grow into those valuations.

Chris:
[7:40] Possible, but not always likely, especially on some of the bigger stocks that are as well-covered as any. Now, this is from Richard Bernstein Advisors. They're showing a similar kind of view on this, and they say, A dose of reality, only one of 1999's top five performing S&P 500 stocks outperformed cash over the next decade. Um, so meaning that, you know, if you bought, if you bought one of the top five performers in, in 1999, um, then you would have been better off just in cash for 10 years. Now, having worked with many, uh, investors at this point and read about human psychology and notice human psychology and myself and my friends and family, 10 years is an eternity.

Chris:
[8:41] One year is an eternity for some people. So 10 years is a long time. So I just think that much like you look at the, we've used the fire analogy in the past, because we went through the fires in 2017 in the wine country, right? And the lack of something happening doesn't mean there's less risk, it means there's more risk, right? So the fact that the forest had not burned in so long actually built up the risk. It didn't mean there was less risk just because you looked back, oh, 15, 20 years, 30 years, 50 years, whatever. They haven't burned. So I think we're good. No that means there's actually more risk in nature and in this case I think there's more risk in the markets right now

Chris:
[9:36] So taking a look at sentiment, we did drop down just a little bit. Stocks, pretty much all the major indices are negative on the year now. So I would expect this bullish sentiment to continue to drop along with the prices. And we did have some bullish highs. This is showing the one year bullish high was in July, but we were pretty close to that bullish high at the beginning of December. So here we are beginning of January and things are totally different. In terms of the vibe, the vibe session in the market, we've got the CNN fear and greed index at 28, which is fear. And that's actually down from 33 last week. So the lower the number, the more fear. And the Bitcoin fear and greed index dropped all the way down to 50, which is neutral, down from 74 greed one week ago.

Chris:
[10:33] So sentiment is shifting quickly, which I think is a characteristic of the modern markets, is that things just move faster. They move faster. Now, this is from Kevin Gordon at Schwab, and he says, wow, by way of Ned Davis research, I should say, wow, through the third quarter of 2024, U.S. Households held a record 36% of their financial assets in stocks. So everybody, like we talked about towards the end of the year, everybody was all in on stocks. Everyone is all in specifically on US large cap stocks. And so we've exceeded the prior peaks in this metric. So it's priced in. Everybody's expecting that same growth.

Chris:
[11:28] Interestingly, I think there's some shifting going on under the tides. Anybody that keeps track of interest rates will know that they have been really just going straight up since the Fed lowered rates on their end in September on the 19th. That was also, incidentally, about the time that President Trump happened to take over in the betting markets, and the probabilities of not only Trump, but also the red wave happening started to increase. And so since then, the interest rates have gone pretty much straight up. Now, this is from Pinecone Macro showing the 10-year U.S. Treasury notes are down 5.9%. This was as of January 6th, by the way, so they're actually down more. Since the Fed began rate cuts in September 2024, this is the worst performance at this time of an easing cycle since 1966. So always talking about the extremes that we're seeing in the markets. How many times have we said this has never happened before or this hasn't happened in X amount of years? We're there we're there across many many markets things that are happening that have not happened in a very long time and so we're at extremes in markets for sure

Chris:
[12:53] What kicked off the bad news today for the markets? Well, it was the good news or seemingly good news that unemployment wasn't as bad as we thought. So there's a brain bender for you. You think, gosh, unemployment wasn't so bad and yet the market sold off like crazy. Well, that's because the market is pricing in the fact that the Fed's not going to be lowering rates anytime soon. So that kicked out all the rate expectations until at least October at this point, where just a few months ago, there was as many as seven rate cuts priced in. So no rate cuts in sight at this time. The market is expecting the Fed to have to stay on pat because their metrics are showing that they're not given as much room to lower interest rates.

Chris:
[13:50] Now the contrarian in me thinks they they're probably going to get to lower rates but not because of the reason everybody expects and is hoping for uh which would be you know just to lower rates and help goose the economy i think they're going to be lowering rates because uh recession and if we look at the three uh three months to 10 year treasury the yield curve inversion, Old Faithful. This would be the first time in history that we have had an inversion, that we've gotten to this point in an inversion or a disinversion and not had a recession. So maybe this time is different. I'm going to go ahead and expect that this time is not different and that we're going to see the same thing that we've seen historically. And in recessions, the Fed typically lowers rates in response to that to try to stimulate the economy.

Chris:
[14:50] Home builders. We're going to talk a little bit about the housing market because that's probably the most affected by interest rates. And it's the one that's kind of closest to the economy. And if you look at the home construction ETF represented here, or one of them that's available represented by ITB. This is not investment advice, of course, but just to give you a representation of what the market is expecting in this sector, and you see that those trend lines are starting to turn south, it's a pretty steep drop. Now, I think it's probably too early to say for sure that this is going to be a recession. I mean, look at the drop we got in 22, and somehow Now, that was not a recession, although I think you could say that was a housing recession.

Chris:
[15:40] But nonetheless, we're starting to see some weakness in the homebuilders.

Chris:
[15:50] And that's because interest rates going higher also makes buying houses more expensive. Now, this is from Lizanne Saunders, and she's showing data from Redfin. She says, in 2024, a home buyer needed to earn an annual income of at least $116,782 to spend no more than 30% of earnings on monthly housing payments for a median-priced home. Record high and $33,000 more than typical household makes in a year per Redfin. So there's these old rules of thumb in planning and advice on how much of your money should you be spending on your house each month in order to have a comfortable payment. And that varies, but usually it's somewhere between 25% to 35% of your earnings. And you can see here that that's just not feasible with the average income and the median house price in the U.S. So with these big dislocations in the market, I think that not only are you seeing a lot of changes in the housing market, but also in the demographics of the country in terms of where people are going in order to be able to afford housing.

Chris:
[17:14] And boy, these fires in Southern California are not going to help anything on this front, I'm sure.

Chris:
[17:27] So housing starts. So if we look at the supply side of the market for a second, new houses because you see that that curl over on the home builders the housing starts are actually are dropping off as well now previously you can see the gray shaded areas are all recessions and typically housing starts drop going into a recession now we got that pretty major drop in 22 and so far there has not been a recession called but still in the downtrend on starts so no new supply on the horizon, or at least not enough supply on the horizon to lower the prices on homes.

Chris:
[18:13] Then you look at, we've talked about this chart a few months ago, the existing home supply. And one way of measuring this is as months of inventory that are available. And you've got two measurements of this. You've got existing homes and you've got new homes. So this would be like new home builders.

Chris:
[18:33] And we covered this, I want to say maybe in the summer, about how separated these two charts have become and it's only gotten more extreme. So we've got 11 months of supply in new single homes and we've got less than four in existing homes. And everybody knows why, right? A lot of the existing homes are already owned free and clear, or people have extremely low interest rates and do not want to sell and change their homes. So there's no supply coming on for existing homes. So that just leaves new home supply. Well, homebuilders have been able to kind of cobble together enough rebates and incentives and such to get people into new homes over the last couple of years, even with interest rates higher. But it seems like the market is saying that that runway is starting to run out a bit. And now the interest rates are back up over 7%. It's going to be more and more of a strain on those home builders to be able to offer those same incentives. Now, there's a metric that when home supply is generally under four,

Chris:
[19:50] Home prices are almost always higher in price a year later because of the lack of supply. But who knows, when you've got 11 on the new home supply side, I guess it would be good to know an average of the two. But typically, that's going to be a headwind for prices on homes moving forward.

Chris:
[20:18] Um, next chart here is the, uh, National Association of Home Builders, Wells Fargo housing market index, which includes all kinds of things like mortgage, uh, mortgage applications and, you know, homes sold. And it's kind of like their barometer of the housing market. And you can see going back to the eighties, typically when this number has gotten below 50, um, the market or the economy have both been struggling pretty strongly because, uh, You know, housing in the U.S. Drives a lot of the U.S. economy. You think about all that goes into buying and selling a home, all the people that are involved with that. And then, you know, once you're in a home, all the spending that the typical person does to outfit that home. And so if the housing market slows down dramatically, that's going to put the skids on a lot of other ancillary industries. And you don't have to look very far to find realtors and mortgage brokers and such that are really struggling right now with the state of the current housing market. So a few more charts here uh home price appreciation since covid um has just been unbelievable right um there's some of these states i was just noticing montana that

Daren:
[21:41] Is bonkers man those numbers are bonkers.

Chris:
[21:44] Yeah i mean absolutely um Um,

Chris:
[21:50] Uh, the change has, has had to produce a lot of people across the country, you know, a Florida, same thing, 70%, nearly 70% home price appreciation. Um, and so it's creating a lot of migration across the country,

Chris:
[22:09] um, that creates tension, right. Um, and you know, it's not just people uh leaving one place which creates problems but also going to somewhere new right the infrastructure of some of these places my my sister one of my sisters lives in tennessee and she just talks about the amount of traffic that has increased there that they're just not used to and it's it's happened so quickly in the grand scheme of things that uh these places have not really been able to to catch up in terms of their infrastructure um

Chris:
[22:43] So, um, that, that will show from beginning of COVID, uh, till, till Q, um, three of 2024. And if you look at the next chart, this is kind of a cool thing. It shows U-Haul ranking of states, that migration, uh, by one way movers. So they've ranked the states, uh, red would be people moving in, um, and gray would be people moving out. And so you can kind of see where people are going and and you know a lot of people headed to the mountain west uh in the southwest along with the south and southeast um and so um you

Daren:
[23:25] Know i feel like washington idaho utah are like that's just people fleeing california.

Chris:
[23:29] Yeah yeah could be could

Daren:
[23:34] Be i mean it's oddly shaped in a ring around california which is just interesting.

Chris:
[23:39] Yeah. I wonder if the people were looking for like, you know, what's, what's like an hour and a half to two hour flight from California. Right. Yeah.

Daren:
[23:52] That's interesting.

Chris:
[23:55] Yeah so the costs are also being driven up by uh in california for sure talking to a lot of clients that are really just uh struggling with the cost of insurance and uh i don't see how that gets any better with the wildfires uh and natural disasters that that have continued to hit because you know at the end of the day an insurance company has to make money and that's hard to do with these massive events where they're subject to billions and billions of dollars. And so not only do you have the cost of money very high in order to get a mortgage, you've already got the housing stock in California as an example is already very expensive. But then on top of that, you've got the ongoing expenses of insurance that continue to go up year after year due to these wildfire events that we've

Chris:
[24:55] been just experiencing exponential growth in. So I think it's going to continue to drive a lot of demographic changes across the country over the next few years.

Daren:
[25:11] Well, Chris, just because it's Friday, I thought we would start with the U.S. National Debt Calculator.

Chris:
[25:18] Wow. Thanks, bud.

Daren:
[25:21] This would be uplifting and we'll just add another $250 billion. What's $250 billion in burned down homes and property in Southern California when you got $36 trillion in debt? This is the one that's crazy, right? So for every citizen in the United States, we owe $106,000 in debt. So every one of us, if we were to take all the debt and divide it by the number of citizens, the calculation would be about $106,000 or $107,000. The debt per taxpayer, which is even more staggering is $323,000. Now, how many people actually make $323,000 in the United States? I don't know what that number is, but it's probably not very high comparatively. So I think like the average income has got to be somewhere like 80,000, something like that. I feel like I remember seeing a stat like that, somewhere. But that's just mind-boggling to me. Let's see if any of these numbers have the average, compensation anywhere.

Chris:
[26:41] Let me pull it up here. I just had it, I think, on that housing chart. Let's see here. The median income. Find the notes here Yeah. Okay. So, uh, it's around 80,000. Yeah. And that's, that's household income. So that's not individual income. That's household income.

Daren:
[27:14] So how that, that's even worse, right? Because that was taxpayer. So imagine there being two taxpayers per household on average. If you have two adults living in the house, let's just say, and those two taxpayers are averaging 80 together.

Chris:
[27:29] And yeah that's the median average median uh home home uh household income

Daren:
[27:35] Right so let's just make the assumption to two adults in a household the average income somewhere around forty thousand dollars and the average debt poor taxpayers three hundred twenty three thousand dollars like that's that's problematic that comes off the rails at some point folks All right. So let's look at the S&P 500. So the S&P 500 is a measurement of the largest 500 US-based stocks.

Daren:
[28:02] These particular stocks are the S&P 500, often what people refer to when they say, oh, the market is usually the S&P 500.

Daren:
[28:13] It's a cap-weighted index so what does that mean a cap-weighted index means that the bigger companies um more of the allocation of the index goes towards the bigger of the companies so like what you see on the screen here microsoft nvidia apple amazon google meta tesla these are the bigger companies back during the nifty 50 areas in the 90s xom was the biggest box on this chart and you can see how things have migrated. So when the big dogs, and they call these the Mag-7, go up or down, that really impacts the market. And this week, basically, technology across the board got just slammed. And a big part of that was some comments that was made by the founder and CEO of NVIDIA, where he said that we're a ways off from robotics yet. They announced all these really fancy chips, etc., but we're still a ways off from hitting what we would need to see for mass adoption of some of these chips coming out. So right now the market's being completely driven by these tech stocks.

Daren:
[29:19] And then they're saying, well, maybe it's not driving as much as perhaps the market thinks. And so that created a lot of the selling that's happening in the markets. All right, so now let's take a look at the charts. And the charts are just a kind of visual way to look at the behavior of the market, right? So we were just looking at those squares that represent the S&P 500. Now let's look at the S&P 500 on a chart. And when we look at the SPY, so this is what we just looked at on that heat map, this is the S&P 500. And you can see it's been a real steady raise movement upward, really all of 23 and 24, which we somewhat expected, right? Given that it's an election year and you would expect things to go up in an election year. And certainly the administration, it's about the outgoing, did everything they could to make the market go up in the way of fiscal stimulus and many other tools.

Daren:
[30:23] Well, now where we're at with the sell-off and currently in the market, this is the four-hour chart. So every one of these candlesticks represents four hours in the chart. And I like to look at the four-hour chart just from a shorter time horizon to help me kind of read the market. And you can see we, in the first four hours of the market today, we found a support at a hundred moving average of on a four hour chart, not a daily. We look on the daily though, it doesn't, we haven't sold off quite as bad, but I would say generally a bearish close today. And the reason I say that is because this was support right here is 584. And then we closed below it and down into this territory here.

Daren:
[31:01] And there wasn't a big WIC buying up, right? So WIC looks like this. So you can see this is Friday, Thursday, Wednesday, Tuesday, Monday. So last Friday's candle, we saw that WIC get bought up in the market and that's support stepping in. So that's buyers. When the price moves down, buyers step in and move it up. And then we close below that or right on that wick line there. So anyone that argues that there's no symmetry to the market is not operating with their eyes open because it's amazing how that close today was right at the bottom of that wick from last Friday, which also coincided with this support region right here in the market. So it's finding support right here currently. The fact that it closed down into there and didn't get bought up at that moment.

Daren:
[31:53] Is a sign of, I think, overall weakness in the market at the moment and largely being driven because these tech stocks are selling off. And when these tech stocks are selling off, it creates a headwind for the market.

Daren:
[32:07] So that's the S&P 500 on a cap-weighted index. And if we look at an equal-weighted index, when we look at these squares, it means that every square is the same size. So it doesn't overweight it towards different stocks. So sometimes it's an easier way to look at the market and make some determinations as to what the market's doing. and you can see a similar structure, but more exaggerated, right? We found support right in this area, which happened to be exactly almost where the support was. In this case, not last Friday's, but that's looking roughly about two weeks ago and found support there. What I will say though, that on the equal weighted index, I think probably more downside in the future right here, because this is a double top right there. It's also coming in long. It looks like it has this sell down and then consolidation, and then it's got that weakness right here. So I think we'll probably go down. I wouldn't be surprised if we take a look at this 100-period moving average on the equal weighted index. So that means that generally we'll probably see some selling off. It does appear to be a lot of support in these areas. So I would expect to see buyers step back in here coming into the next week.

Daren:
[33:33] All right. So let's see, let's take a look at the eggs. I think, you know, when we talked today about, you know, interest, everything being about interest rates and really Chris talked about this earlier and how it's such a headwind for the building, the home market, interest rates are really a headwind for the overall market. And it's not really a good look when we have this long-term trend line up, we saw selling off and now we reclaimed it and closed above that long-term trend line up. Because we closed right here, that tells you that strength and that interest rates are likely to keep going up. And so the question is, how are interest rates going up if the Fed keeps cutting rates? Well, it's a little more complex than that. So one of the incoming administration has made a lot of threats about tariffs. And when government makes threats about tariffs against China, and China's one of the primary buyers of the treasury, one of the ways they fight back against those tariffs is they say, well, fine, then we won't buy your treasury bonds, which then forces the yield on the treasury to go up because it has to go higher to induce more buyers to be interested in it. And that's ultimately can be difficult then for the Federal reserve to control.

Daren:
[34:51] Because we're kind of at the end of a lame duck presidency here since the election, there's not really anybody doing anything. We're in this pause moment, right? So nobody knows really what's going to happen. And you have China saying, well, we're not going to buy any treasuries in there. The marginal buyer, right? And that marginal buyer is what drives price more than anything. So if they're out of the market, that becomes problematic.

Daren:
[35:18] Then we look at our dollar right so the dxy and the dxy is a is a basket of currencies um and the dollar being one of those currencies in that weighted index and the dxy shows us how strong the dollar is in juxtaposition to the other currencies or major currencies around the world, and dollar strength is actually not ideal for u.s companies because if the dollar is strong it makes it very difficult to send our goods and services overseas so if you have this whole if you think about what's happening if you have all these threats of tariffs all these tariffs threats happening and then you have a strong dollar that becomes a headwind for u.s companies because one of the ways that the other countries will fight back on tariffs is they'll say fine then you know we're going to make it more difficult on your companies it what goes around comes around kind of story so and then we see the jobs data come out like we saw today um where it was pretty strong right so you can see the unemployment rate actually went down and the non-farm employment change was higher than expected pretty significant now the onion the the.

Daren:
[36:34] The work data, the employment data is usually very, very noisy and they adjust this stuff. So I won't be shocked if they change it next month on what they said. But this idea that, wow, there could be more inflation in here than we expect happening.

Daren:
[36:50] And you can see here, inflation expectations move back up to 3.3. So the expectations also came in that there is more inflation out there. And that's problematic for obviously lowering rates further. So then the feds come out, or not the feds, but then all the big banks came out today and said, oh, guess what? We're not going to raise rates anytime soon. Or we don't think the feds are going to raise rates or lower rates further, excuse me, anytime soon. And then that becomes an issue and so keeps interest rates higher as well. So you've got the China issue with the tariffs. You have the strength in the dollar issue. You've got interest rates moving up because inflation expectations are going up.

Daren:
[37:38] All that to be said, President Trump, like him, hate him, don't like him, whatever, step up beside the politics. He's stepping into a tinderbox and he's going to have a tough job ahead of him. A lot of what's been going on in the economy, kind of my overall read of it, is that the previous administration did everything they could to keep the market going, to keep the economy floating through the election, and then the fallout of that has to happen now. Now, for every economic input, there is an economic output and you don't always know where the economic output is going to come from, but you can't print money the way we're printing money and have that continue forever without there being some type of output. And the output in this case is rising interest rates, inflation, et cetera, slowing down home market because people can't afford to buy the homes. I mean, when you look at the difference in buying a home just five years ago versus now, it is staggering on what it costs now to buy a home, which is pricing out much of the next generation, which then creates dissent between the generations and then foments economic

Daren:
[38:49] pain and dissent amongst different classes of people in society. So with inflation heating up, that doesn't bode well for peace in the world, I guess I would say that.

Daren:
[39:06] All right. So let's go take a look at gold, speaking of inflation.

Daren:
[39:10] And when I look at the gold chart, that to me- Hold on.

Chris:
[39:14] Daren. We're not seeing the gold chart yet. Yeah, there we go.

Daren:
[39:18] All right. So when we look at the gold chart, we've been watching this kind of wind up for a while. And to me, that just looks like a bull flag waiting to happen. So it's just consolidating on a, Uh, you can look at it as a bull flag. You can look at it as also, you know, a triangle that's, uh, winding up to break out, uh, much like we were looking at oil the last few weeks. Um, and I think we've getting close to a breakout in oil and I'll show you that in a minute. Um, so that's interesting. Um, so I hate to say it, Chris, but I called this one. Don't call them all, but I do call some.

Chris:
[39:58] Yeah. Yep. Nailed that one.

Daren:
[40:00] And so you could see for weeks we've been talking about this kind of pattern. And I was like, hey, this is getting ready to break out. This is getting ready to break out. And you saw the breakout happen. But what's even more interesting is that's a shorter term consolidation. But if we look out in the longer term, there's a long term consolidation, which is a much more problematic chart. If we keep breaking up and break out like this, that's not good for the economy at all. When oil goes up, it's interesting that prior to being a financial advisor, because we were talking about this earlier, I worked in the fire service. And I worked for the forest service. And I also worked for, um, UC Davis fire when I was going to school and I grew up with the dad who was a fire chief and Godfather was fire chief. And, you know, my family was in the fire service. So I've grown up just listening to fire talk. And a lot of people have been saying, well, how come all these houses burned down and none of the trees around it burned down all over Twitter and X. And I've been, I respond to one. I'm like, Well, because your house is full of things that are built with oil, they're combustible, right? I mean, you look at everything from the furniture you sit on to the stuff your furniture is made out of to your desks.

Daren:
[41:23] Everything we consume almost is just full of plastics and combustibles. And trees are actually meant not to burn on some level. and actually some trees need fire to burn or to grow and to heal so yeah.

Daren:
[41:40] When the economy slows down because oil is going up, it's because the cost of everything is going up. So if you have inflationary pressures happening and you have inflation happening also because of oil going up, that's not a good combo. That doesn't look good. And this doesn't look good. So what we want to happen in this chart really quickly

Daren:
[42:02] is for this to settle back down and for it to go this way or sideways. Anyways so um excuse me the um but what i've also been talking about now i talked about earlier in the show how this week's been dominated by fire news one of the things that's percolating in the background and i saw this headline last week that there's a proposal on the table for israel to take out iran and now is that window um i think had president trump not said hey um whatever you got did you net on you to take out iran go for it i think we would have been seeing them already go after um iran but uh because it seems to be that trump's an agreement that and given that um trump did some pretty significant damage to iran in his last presidency um i don't know that we're seeing anything happen quite yet.

Daren:
[43:03] And this chart's telling me something's building in the Middle East. Something's getting ready to go off. Usually some type of macro event happens, geopolitical event that drives up oil. And you can see like this, this was Russia, right? This is Russia going into Ukraine, right? So there's something building here. And just from a chart perspective, it's telling you that it's been winding up. The pressure is cooking. There's more and more and more and more and more and more and more pressure until it finally breaks out. And we saw that happen down on a shorter time frame. And now we're looking at a medium to long time frame. So next couple of weeks is going to be a very, very interesting time and will come through the markets pretty significantly.

Daren:
[43:49] So I think it's a good moment, Chris, because in this chart or in this show, we talk a lot about diversification, the importance of diversification and the frustration that comes from diversification. Because diversification in the last couple of years has not done well by people. And the people who have done really well in the stock market is because they've been highly concentrated in stocks like NVIDIA.

Daren:
[44:13] And I think, you know, you say, well, it's okay that it's volatile because it'll go up and down. But I think if you're investing for the long run, I think it's a good week to remember that also with those returns that comes from stocks like NVIDIA, also comes these downs. You can just see this week it was up 12%, and then this week it was down 12%. So good week to just remember why we diversify, right? So if all your net wealth is in NVIDIA, well, you had a pretty volatile week. It's pretty crazy to think that in one week it was up 12% and then down 12%. That's pretty wild when you think about it.

Chris:
[44:55] Very wild. Yeah, absolutely.

Daren:
[45:00] All right. Let's take a look at AG. So AG is the bond index. So we've basically been through our worst three years in history in the bond markets. People who have bonds who are generally more conservative, investors have been very frustrated with the markets. And bonds are not looking particularly good right now. We lost the 100-day moving average on the bonds. You can see it was an important support area here. We were supporting along it here and we lost that. I mean, there's not a lot of buyers there. There's not a lot of people stepping back into buy. And with the inflation numbers coming in this week, I think it's more likely we see more downside on bonds.

Daren:
[45:42] Albeit, we do have some support in this zone right here and we're back into that zone. But you had this double top pattern here and now we broke the neckline. So you can expect probably that distance of it. So my guess is we'll touch into the 94 range before we find too much support just based upon that chart. So I think interest rates continue to go up. I think that we'll see more downside

Daren:
[46:09] on the bond markets for the near term. And I think until we get the, really see what the hand of the Trump presidency is going to offer, then we can start positioning to figure that out everything's rhetoric until it happens and and that's what we're watching closely um in over the next few weeks um but i i was reading an article the other day where something like a hundred they're planning a hundred new executive orders in the first day i'm like that's that's mind-numbing uh.

Chris:
[46:44] Yeah.

Daren:
[46:45] So we'll see how that goes. Yeah. That's going to be like, I don't know if there, I don't know if I want to call it Christmas day, but something like that, you know, like the surprise day, like surprise, here's all these, you know, but I did, I didn't mention that this was actually, I don't know if this is true, but like, I don't know if you saw the headline Chris this week that Trump wants to rename the Gulf of Mexico to the Gulf of America. And there's a lot of stuff going on before the fires caught on and people are talking about that. But I heard this really interesting theory, which would make sense. One of the things that Biden has pushed through at the last minute is this to stop drilling in a lot of areas off the U.S. coast. So you can't drill for oil. And one of these people is surmising that Trump actually wants to rename the Gulf of Mexico to the Gulf of America. so that in the law, it's not forbidding you from drilling oil. And I was like, that's 3D chess, dude.

Chris:
[47:48] That is 3D chess. Wow.

Daren:
[47:52] Let's take a look at VIX. VIX is a measurement of the complacency of those who trade the S&P futures or looking 30 days out, what they expect volatility. And you definitely see that kind of build of volatility happening, right? Because it's going up. And so as it goes up, that typically means we're looking towards volatility. And the fact we're trading up, that's kind of interesting. So I think the next 10 days are going to be really interesting. There's a lot going on out there. And as always, we're going to be right there with it, trying to figure out how to read it and what the best way is to manage it.

Daren:
[48:30] But it'll be interesting, and I hope everyone stays safe and we get these fires out soon here in California. And have a wonderful weekend and take care.

Music:
[48:38] Music