AI's Sputnik Moment

Daren:
[0:01] All right saturday afternoon chris i guess it is and uh it's been a busy january with lots of travel for us both so it's made it difficult to film on fridays but here we are on saturday nonetheless to wrap up the week and talk about the economy and a wild week it was not only do we have the incoming stuff coming from the inauguration with um trump now in place and making changes.

Daren:
[0:28] We've got the impact from the tariffs that were just announced yesterday in the markets. It'd be interesting to see what happens Monday. But we've also got two really, well, we had the Fed also didn't choose to move rates this week, which was a big event economically and for the markets. And then just to make matters more interesting, on Monday, we got the news that in fact, there was this organization called Deep Seek, which was started by a hedge fund. And they built a AI bot, quote unquote, AI model that was more effective than chat GBT. And all of a sudden it was this Sputnik moment for the United States realizing that, whoa, maybe we don't control all these NVIDIA chips and whoa, maybe we don't need all these NVIDIA chips to really make smart AI.

Daren:
[1:19] Which then forced the market to reprice NVIDIA and just about all the AI companies. So that created a lot of volatility in the markets this week. And we'll see how it shakes out because now we got some pretty sizable tariffs to contend with. President Trump delivered, he followed through with what he said he was going to do yesterday. And he said he put tariffs on China, Canada, Mexico, 25% on all goods, except exemption for oil coming out of Canada. So that will have an impact. And apparently Canada has already threatened to

Daren:
[1:55] retaliate and we'll see how that impacts the markets on Monday. So anyway, lots to talk about today.

Chris:
[2:01] We're covering one week, right? Yeah, exactly. That was only one.

Daren:
[2:05] That was just one week.

Chris:
[2:07] I'm not misremembering. Okay. Okay. Good. Good.

Daren:
[2:11] So yeah, we're going to dive into it and be right back after this.

Music:
[2:16] Music

Daren:
[2:52] All right all right well Forbes pulls it off again right the fact that I don't know, man I'm scared now that Michael Saylor is on the front of Forbes that makes me really concerned more than any other technical I've ever seen for.

Chris:
[3:08] A bit yeah yeah yeah it should write the dreaded magazine indicator you know

Daren:
[3:13] Magazine indicator it's almost easy yeah.

Chris:
[3:18] Go ahead go ahead

Daren:
[3:19] Well It's almost as good as Jim Cramer saying a stock's a buy.

Chris:
[3:23] Yeah. Yeah. I think, you know, there's also something to do with like the EA sports. Gosh, what is it? It's one of the football. It might be, it might be all the sports. I don't know. But I know for football, there was one for a while where if you got on the cover of the EA sports, that was a bad sign. Like you were likely to get injured the next year or something like that. But, you know, I did see on the bright side, Daren, somebody mentioned that, hey, Mark Zuckerberg was on the cover, you know, back when, when meta was struggling and, you know, it's, it's crushed it since then. So, Hey, you know, and I shared with you, this, this gave me particular chills because of the John Stumpf cover when he was CEO of Wells Fargo. And I, I remembered that cover being way closer to when the Wells Fargo scandals broke out, but apparently that, that cover was from 2012 and the scandal didn't break out until 16 or so. So, uh, it's all, it's all a flash in the pan, I suppose, but nonetheless, uh, he's got, uh, he's got some dreaded company here, uh, in the Forbes, in the Forbes covers space.

Daren:
[4:35] It's getting pretty wild though. I mean, I don't care who you are, even if you're diehard Bitcoin or, and you're watching what Michael Saylor is doing with leveraging his company to buy more Bitcoin. I mean, it is an all in play. Like if it doesn't work out, it is going to be a cataclysmic event for all time when it comes to us stocks. And when it does happen, I can almost promise you maybe not this, this, uh, this particular administration, but an administration in the future will make some regulation around what they're doing. Cause if it doesn't pay well, it's going to be ugly.

Chris:
[5:10] Yeah. You know, I, I listened to the latest odd lots with uh with joe weisenthal and tracy alloway who they had um um uh, Levine, uh, blanking on his first name, the, the famous reporter and Matt, Matt Levine. And he was talking about micro strategy and what they're doing and how it works. And I was like, Oh, hopefully this will all understand this because he had the famous S, uh, episode with, um, Sam Bankman freed right before SBX blew up. Right. Uh, that was the name of the exchange that he had the Bitcoin or, or I guess it was all cryptos. Um, he, he did the interview with them on odd lots with Sam Bankman freed, like six months before that turned out to be a fraud. And he was asking all these questions about how it worked and it just got all wrapped up. And anyway, he's talking about the Michael Saylor thing and I still don't understand it. You know, he said something to the effect of like, you're paying two X the price of what they hold in, in Bitcoin. So if they hold $100,000 of Bitcoin, you're paying $200,000 for it. It's like, why wouldn't you just own the Bitcoin directly? So I don't know. They kept calling it a perpetual motion money machine, which really freaks me out.

Chris:
[6:33] Anyway, what are we looking at here? This is the Barron's cover. And it says the Trump effect. And if you want to know what's consensus, what's baked into the prices, what the market expects. Just read the cover of Barron's and here it is. Market volatility will get worse, but stocks can climb anyway, they say. And then down there at the bottom, of course, bond prices could fall further. Why that's bad for borrowers. So good sentiment on stocks, bad sentiment on bonds, likely be more chaos, but somehow it's going to work out for the markets in Trump's favor. And boy, are we seeing that already here in this week with the new tariffs that are announced and I guess finalized today.

Chris:
[7:23] Now, we talked a little bit about this, how he's kind of coming into a market that's stacked against him when it comes to the fundamentals and the values. Now, I know there's a lot of people that would say, hey, fundamentals don't matter anymore. The old valuation metrics don't matter. That's old economy. This is showing the CAPE ratios as a cyclically adjusted price to earnings ratios at the start of presidential terms. And unfortunately for Trump, he is coming in at the highest on record, even higher than Bush and Biden in 21. So significantly higher price to earnings ratios, significantly higher debt. I heard earlier that it was around 19 trillion. We had about $19 trillion in debt when he came in the first time. Interest rates were near zero. Now they're at $5-ish. And so a totally different set of circumstances to be coming into the market now compared to where he was in 17.

Chris:
[8:34] So this was interesting uh from ritholtz uh um ben carson and he you know wrote an article regarding the time spent in recession by decade and how we've if you're susceptible to falling into recency bias you would think hey you know the market never really goes down market's always going up. Well, when you look at by decade, the percentage of the time spent in recessions, of course, in the early 1900s, the U.S. Was more of an emerging market than the world dominant power. So there's been a lot that's changed. But even since the 70s, typically you spend somewhere around 20% of the time in recession. And throughout the 2010s and the 2020s, so far, We've only spent 3% of our time in a recession. And I would argue, Daren, that this is volatility suppression in the financial markets.

Chris:
[9:34] And usually, that doesn't lead to anything good. In the physics world, energy doesn't get destroyed. It is always conserved. It just gets transferred. and I think it was Corey Hofstein that said, in the financial world, risk doesn't get destroyed, it only gets transferred. So it's out there somewhere. The volatility suppression has been real since the great financial crisis and you wonder if that's not an unhealthy thing for markets. I would say that it's definitely an unhealthy thing, not allowing those washouts to happen from time to time to flush the market out.

Daren:
[10:21] Well, I think it's one of those balances, right? Because if you think about it, on the one hand, not allowing the washouts to happen has proved incredibly successful for China, right? You look, since they've really rose to power in their manufactured economy, they really effectively manage those moments where things went really south. You know on one hand you could say man they rose a power faster than anyone ever and you could also say yeah because they stole half of the things in which they manufacture and sell to the world, from other manufacturers around the world but you could also say that it's worked.

Daren:
[11:08] And it's interesting though with the u.s it seems like with the money printing that we've been doing over the last 10 years that we're taking that course too that we're suppressing volatility, i suspect though that it works until it doesn't right it's like it might minimize volatility for the first you know 10 15 20 years but then eventually there's not enough money that could be printed to suppress the volatility if you don't let the pressure off as you go and i and i suspect that's where we're headed right and um like him hate him whatever like i do think elon Right on this whole idea where they're trying to cut waste from the government and slow down the spending, you know, regardless of the politics of it and how they're choosing to deselect spending in the government. It's we've got to stop the spending or we're going to be in trouble, at least make it more sustainable.

Chris:
[12:10] Well, if you look at China, I would agree with you that they tried to suppress the volatility and maybe they've suppressed the people's uprising because of the volatility. But really, since their property market burst, and I think that was 21 or maybe 20, I can't remember,

Chris:
[12:30] Their stock market's fallen 50% from the top in 22 to the bottom in 24, actually down more than 50%. So they were able to suppress the volatility for a long time, but it popped in a big way in their property market and in their equity market. So this was Monday. This meme literally made me laugh out loud.

Chris:
[13:00] I mean, Monday, wow, we got hit. And as usual, Daren, it's always something that nobody sees coming. Who even knew the word DeepSeek two weeks ago? And now it's all we're talking about, right? So DeepSeek gets released on what, late Friday afternoon? Futures markets look awful. Having flashbacks to COVID, the futures markets, I think NASDAQ was down like 4.5% or something in the futures market on Sunday night. And we open up on Monday and just dumpster fire here. And, uh, um, because the, the tech AI driven stocks are such a huge part of the market that, that news just literally leveled, uh, you know, a lot of the, a lot of the market on Monday. That this possible competitor was in the wings that it was so much cheaper, faster, all the things.

Daren:
[14:00] You know what I always kind of wonder in, We talk about this a bunch on this show, but it's curious that Trump announced the tariffs on Friday. He did say, in fairness, that by February 1st, they didn't cure fentanyl he was going to be putting the tariffs on.

Daren:
[14:19] But it's always just interesting how these announcements happen on a Friday after the market close. Um and then and then it's just kind of interesting to me like it's not like the people in the ai world didn't know about deep seek on some level right and yet out of nowhere it seems like all of a sudden the market says oh i need to absorb all this information and it's just interesting how that piece of news gets decided like oh we're going to integrate this now into the market like this is actually important uh i'm sure there's professors at very prestigious universities who study that process but i always just find the sequence of how things become a thing interesting.

Chris:
[15:05] Yeah i guess from from the investment world perspective i never heard anything about it till friday

Daren:
[15:10] Well i didn't either but then when you hear this i've listened to quite a few youtubes and whatnot and oh yeah yeah we knew about deep seek and this was happening i think the big surprise is that maybe that it was actually better than chat gbt and that it could do it cheaper with less power and that was kind of the reset for the market where the market had to say whoa you know maybe this assumption that everybody needs a hundred thousand nvidia chips to run ai, isn't true anymore and that there's innovative ways to do that and thus nvidia is not worth as much as it used to.

Chris:
[15:46] Be because of that yeah yeah i mean you're you're the early adopter i i get all my news from you Daren i'm the late adopter i'm kind of the luddite when it comes to to technology so the fact that you weren't already using it and telling me hey check out this deep seek thing i knew it must have slipped under a lot of radars at least because you're usually on the forefront of that kind of stuff

Daren:
[16:10] So you know i was not paying attention to deep seek but i think you You know, in fairness, like one of the things we always talk about, like, oh, man, this, this market's getting really concentrated, like all this money pouring in. I mean, the fact that NVIDIA as a stock is literally bigger than the entire financial sector, the United States or in the S&P 500 was sizably bigger than the entire oil sector. And it's one company that makes chips like. We've been at, we've been saying our oil.

Chris:
[16:41] Sector is bigger than most countries, entire, right?

Daren:
[16:44] Like it doesn't, it doesn't, it's not sustainable, right? Like it's some point things start to break down and then that has to unwind. And to me, I guess it's not shocking. The innovation is what's now undermining that.

Chris:
[16:58] I think the hard part is to like relay it to the average person as far as like, yes, it's a great company. Yes, they make a great product, but the price you pay for something matters. And maybe this, and I know we've read this before and you're probably sick to death of hearing me talk about it, Daren, because I know you've heard me say this a bunch of times, but this was from Scott McNeely, Sun Microsystems in 2002. So this is after the tech bubble was bursting or had burst. And he said, 10 times revenues, what were you thinking? He says, at 10 times revenues, so this is 10 times the sales of the company, so all the sales.

Chris:
[17:41] 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 it 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? 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? And that's what Scott said in 2002. Now, you look at a lot of stocks today, and I'm looking at a wide charts of NVIDIA. It's currently selling at almost 27 times its price to sales or its price to revenue. So instead of 10 years in this example, sub-27.

Chris:
[18:55] Now, obviously, that's because people are building in a lot of growth, right? But think about how much growth is being built into that price that you're paying and how much has to go right for that to work out over a long period of time.

Chris:
[19:16] Now, the market is also usually a brutal place to be, right? Lately, we've had a lot more injections by the feds and other authorities and whatnot, but this chart shows the top 10 largest companies by market cap going back to the 80s. So, and of course, 1980, it was IBM. 1990 was the decade of Japan. Let's see here, six, seven. Um, seven of the top 10 companies, eight, sorry, eight, eight of the top 10 companies were out of Japan. That's when Japan hit its Cape ratio of near a hundred, uh, one of the biggest bubbles of all time. Uh, and then after that, it went literally nowhere for the next 30 some years to the point where, you know, the Japanese stock market just got back to an all time high. I think it was last year, uh, from that bubble bursting. Then we had the 2000 bubbles, whereas Microsoft and General Electric were the top two, Exxon Mobile in 2010, PetroChina, so energy, energy, energy. And now we've got the Fab Magnificent Seven. But there's a lot of competition, right? And so today's winners are not very likely to be tomorrow's winners in most cases.

Chris:
[20:45] And uh this to your point about how much these companies are worth they are worth now more than every uh you know all these different stock markets so an entire country stock market uh except for japan japan being the only one that's slightly bigger than apple and nvidia so uh and microsoft so these companies are huge in terms of what they're valued at at this point. And one last chart, not to kind of beat a dead horse, but beating a dead horse here, showing the average company lifespan in the Standard & Poor's 500 index from 1965. Oh, sorry. Let's go to the next chart here. Yeah, here we go. Average company lifespan on the Standard & Poor's 500 index from 1965 to 2030 in years rolling. So this is a seven-year average. And so you can see that companies used to stick around for a lot, not a lot longer, but a decent amount longer back in the 60s and 70s. But stocks are a long duration instrument. And anybody that's traded long-term bonds

Daren:
[22:00] Chris, explain a long duration instrument because I don't think that's a very clear concept for most. A long duration interest.

Chris:
[22:08] So if you think about it from a bond perspective, duration is how long you're lending your money out. So the longer, obviously, you're going to lend a friend money till tomorrow, not a lot of risk. You're going to lend that friend money for 20 years. There's a lot that can happen in 20 years. 30 years, a ton that can happen in 30 years, right? So, and just like long-term bonds, which are very volatile, they're very volatile because there's so much that's happening, you know, and investors are always recalibrating what's going to transpire over those 30 years.

Chris:
[22:52] Stocks are similar, but they're even riskier in the capital structure because bondholders get paid first, stockholders get paid last in the case that if the company, you know, doesn't, doesn't last. Right. So, so these, this estimate by, you know, S&P and, and I think Colin Roche also has an estimate on the duration of a stock, a typical stock is around 20 years, 18 to 20 years. So that's the instrument uh length so um that's why they're risky that's why they're very volatile um and and you know not many companies actually have a lifespan that long uh even though that's the the kind of the duration of the investment on average

Chris:
[23:44] It's skewed by you know companies that have been around forever ibm you know philip morris all these all these companies so it took us a while to get here but this is the uh the sentiment indicators for the week we're we're back in the 40s uh low 40s um you know so drop drop just a little bit from last week um at 41 percent bullishness the cnn fear and greed index is at neutral with and it was at 42 which was fear a week ago and then bitcoin is really unchanged at 76 extreme greed uh no no real change over the prior week i

Daren:
[24:23] Feel like bitcoin spends like 99 percent of its time in extreme greed.

Chris:
[24:29] Extreme greed or extreme fear it's uh it's the very yeah it's a very manic bipolar asset uh so on monday we had such a strange day now I feel like this is the scene in the Peanuts where Lucy's holding the ball and Charlie goes to kick the ball and she just pulls it out from under him. But maybe we saw a turn in the market on Monday with the AI stocks because while those were down, we had such a weird day. Well, let me just read this. It says, and this is from Liz Young Thomas. She's a economist at SoFi. She says, it's rare for the S&P 500 to have a day as bad as it had yesterday, which was down 1.5%, with more individual stocks up on the day than down, i.e. Positive breadth. in the last three decades, that's only happened three other times, all during the dot-com bubble in 1999 to 2000. So yet another statistic that really compares this time to that time.

Chris:
[25:41] But what that means is that, as she was saying, more individual stocks were actually positive on the day. Most of those stocks were in the, you know, value, medium, small, basically everything except for the big growth tech companies were doing pretty well. It's just those tech companies had that huge sell-off. So it was a real weird, you know, kind of under the hood, the opposite of what's been happening over the last several years, actually, which is, you know, basically the tech stocks had all the, had all the gains while, you know, the rest of these companies are down 30, 40, 50% and somehow the index is still up. We talked a lot about that, how that sea change was really happening under the surface. And maybe Monday was a reversal on that. It's too early to tell, but that might be a point we look back to and say, yep, that's where the turn happened.

Chris:
[26:37] So the next chart we've got uh this is from savita subramanian who subramanian who is the uh uh markets person at bank of america she's like their chief market i think equity strategist global equity strategist really sharp um she was on with meb favor this week really good uh interview to listen to she says uh we're going back to a world where dividends play a much larger role in total returns. Over the past decade, price appreciation dominated, but historically, dividends have contributed nearly half of total returns for the S&P 500. So you can see just how strange this time has been that we've been living through, where really dividend returns only accounted for a very small part of the overall returns in the S&P versus the long-term average.

Chris:
[27:28] That has not been the case where dividends have been about 40% of those returns. So it's her view, and I think she's been pretty accurate, that we're going to be returning to a more normal world where dividends matter again.

Chris:
[27:49] Last one. This is kind of an investing concept. We get asked a lot. And this is using the S&P as an example, but I think you could use other balanced portfolios as well, and you'd probably get the same outcome or something very similar. This is from Peter Malouk and Charlie Bielo. He said, what are the historical odds that dollar cost averaging into stocks over 12 months will beat a lump sum investment, it's only 32%. So meaning that about one in three times you're better off to dollar cost average than you are to just put your money in all at once. What about 36 months? It goes down to only one in four. When you have money to invest, the odds are in your favor if you invest it all at one time upfront. So it's a very shocking feeling for most people. I think most people would be very surprised to see that statistic. But historically, almost seven out of 10 times, you're better off to put that money in all at once rather than trickle it in a little bit at a time.

Daren:
[29:04] All right. Well, I thought today, Chris, we would start with the old faithful heat map. And I think this is particularly meaningful this week, given the flush out of NVIDIA and why that's such a big deal for the overall S&P, at least, stock market. The NVIDIA, what this is showing you is the S&P 500 on a cap-weighted index basis. So the companies that are bigger, have a higher capitalization.

Daren:
[29:35] Are showing up as a bigger square. And you can see that NVIDIA here is much larger than the entire financial sector, not to mention the energy sector, which is this general area down here on the S&P 500. The S&P 500 has 11 different sectors. So when NVIDIA, Microsoft, Apple all get washed out, it has a really big impact on the overall markets. And I would say given how the week started, though, it didn't end up completely awful. But you can see Microsoft down six, NVIDIA down 15 we actually got you know some green on the screen from the others underneath the hood which kind of kept the market together but the the ai world that's been really driving uh this market higher over the last year and a half two years uh got washed out this week pretty significantly and we saw that because of the deep seek announcement and it turns out that people can actually um.

Daren:
[30:38] You know do ai a lot cheaper than we thought um there's still some a lot of debate as to you know how deep seek achieved what they did and um there's some at least understanding or rumors i'm not sure which one that nvidia nvidia chips actually because they're it's illegal for chinese companies to buy nvidia chips um but some of it made it to deep seek through singapore and the reason for that is that these sophisticated chips would allow um the chinese government uh and the arm their army um to use them in warheads use them in various uh military equipment um which obviously the u.s and protecting our own self-interest would not like that but it appears the chips are making their way there um and so you saw this recalibration and we saw this huge drop on monday and nvidia and then we saw that bounce right and that's classic turnaround tuesday trade right there where you get this big move i'm actually gonna do four hours just to show a little bit more motion so you had this huge dump and then this bounce and then we went back down and we tested this general area as support and actually held it for the week so um you know i think in general like i don't think it's dire straits for nvidia the fact that we're.

Daren:
[32:02] Holding this 120 area and that we closed up above it and we got kind of a.

Daren:
[32:10] A candle here that suggests that there was a lot of buying happening down in the bottom here towards the end of the day on Friday. I think that's okay. When we look at it on the daily chart and we look at the fact that it closed below this hundred period moving average, that's not a good sign. The fact that it's bunching up around the hundred period moving average and going to the lower side of it um i think that's something to pay attention to um it could have been that um we saw our all-time highs right up in here with nvidia that appears to be the case at the moment um we'll certainly see how things adjust um this was kind of lower on the news but right after deep seek came out alibaba came out and said oh yeah we can do that too uh so i think we had this sputnik moment. And of eras of past, the great space race was on with Russia. I think the great AI race is on now with China. And I think you're going to start seeing some interesting stuff come out around that area.

Daren:
[33:17] When we look at the SPY and how that impacted overall on the daily, you can see it just really sold off on Monday and then worked its way up through the week. And actually, that's fairly bullish still with the S&P. We maintained all the key critical moving averages for the week. The 9 EMA, which is the most sensitive one, we closed right on top of it for Friday. So given all the news and how it started on Monday, the market did a pretty good job of recovering because the rest of the market did the lifting. And you can see here, this is the RSP, which is the equally weighted index. So this, when you have an over-concentrated market, what our equal weighted index does is it gives every company in the S&P 500 an equal representation in the index. And, uh, Monday when we had the big dump, um, you can see that this index held up pretty good. And I would say that's a bull flag right there and we're likely going higher. So right now I actually think from just a basic read of the SPY and the RSP, I think probabilities are in favor that we go higher. Um, let's take a look at 10 year because the 10 year note.

Chris:
[34:31] Uh, real quick, Daren, just on, uh, since you mentioned Alibaba and we were talking price to sales on NVIDIA, just to give you an idea of how cheap the Chinese stocks are or were. They were even cheaper a year ago because they were in the doldrums, absolute doldrums. They were uninvestable. Since then, they've outperformed the NASDAQ and the S&P. But even today, the price-to-sales ratio on Alibaba is at 1.8. So not 18, but 1.8. A lot cheaper on a price-to-sales basis there.

Daren:
[35:15] Yeah, for sure. So let's take a look at the 10-year. The 10-year is kind of a critical treasury bond with the U.S. Government. A lot of things in the financial sector are set on the 10-year treasury, two-year treasury. It's an important kind of barometer of where things are and where they're headed. And part of the issue that bonds have really had is that interest rates have been going higher since September of 2024.

Daren:
[35:47] And we thought we were going to have a recovery on the ag and bonds, and then it turned around and has gone back up. And it still looks like there's some... Some, a correction happening at the moment, but I think the momentum still looks upward trajectory there. Um, it'd be really interesting to see how the tariffs, um, get, um, responded to because one of the weapons that, um, China and other countries have against us when we slap on tariffs is they can choose not to buy our treasury bonds. And what that does is that forces the yield of the 10-year higher. And when the yield of the 10-year goes higher, that impacts everything. Most importantly in the U.S., our number one consumption tool, which is our homes, which then will impact mortgage prices, much for the reason I'm assuming why President Trump said that interest rates need to go lower. So one of the weapons that I think we're going to see come out with the tariffs that came in Friday is our tenure headed up North.

Daren:
[36:52] Unless, unless, you know, Trump's using this as kind of a way to get a reaction so that he can get something and they don't actually go through. But it sounds like he's pretty set on it at this point. One of the reporters that interviewed him on the Oval desk on Friday asked, well, are you just doing this to try to get a concession? He's like, no word. This isn't going to happen. I'm not looking for any concession. This is the way it is. And, uh, so we'll see how that impacts, but that impacts the yield curve, right? So the yield curve, um, is the, um.

Daren:
[37:28] A measurement in a way we look at, I guess it's probably one of the more consistent measurements for when a recession is coming are predictors of it. It's not perfect, but when we move above zero, we have a reinverted yield curve. And it's not perfectly reinverted across all timeframes yet, but typically when we go back above zero after being negative on the yield curve, which means there was an inversion, that's the time where the recessions start. And we look back over a number of months and that's what happens. I think it'll be really interesting to see how we avoid a recession, given all the cutting that's happening at the federal government. I mean, that's the last couple of years has been our primary tool to keep this economy going forward. So they've really got a balance on their hands with slapping tariffs on everybody, cutting federal spending at the U.S. level, which some would argue has to happen, right?

Daren:
[38:30] But how are they going to keep this economy going forward? And then we're taking a close look on oil. So we finally got that breakout I've been talking about for months, it felt like. And then it broke out and then got rejected and went back down. So right now, this is that breakout that I was talking about. It came back in and got rejected along that long-term trend line. If oil spikes up, though, I can see that as being strength. You could make the argument that there's actually just the beginning of an upward trend in oil happening right here. And if oil costs start going up, that could be the writing on the wall for a recession as well. Because guess what?

Daren:
[39:10] Lots of things in our homes and things we consume in this world are products of oil. We look at a measure of how likely volatility is looking 30 days out or how complacent those who trade the S&P 500 futures are. They seem pretty complacent at the moment. So nothing there that I would say is particularly telling or suggestive of something moving forward to be concerned about. Um the um dow jones transportation so if this is the arteries of the economy so this dow jones transportation index measures those transportation companies and what this is telling you is that the arteries of the economy are selling off right i would say that um there's some slowdown here um forming you can see that downtrend line that's being respected at the moment um you can see it tried to trade up and got rejected over the last few days and we closed down. So I would say we're on the side of weakness at this point and that'll need to be watched. IWM, which also can be an indicator, a market leading indicator, really trading in range. I don't see anything that makes me too excited there other than the fact that we're holding this support line. We came down in, traded up. I would almost say that looks almost like a bull flag that's there.

Daren:
[40:37] Which would suggest that the dollar is going to get weaker because we need a weak dollar for this part of the sector to really do well.

Daren:
[40:44] And I think that's, So it'll be interesting to see the dollar getting weaker, why tariffs are getting slapped on every country. I mean, literally Trump came out yesterday, said I'm putting tariffs on China, I'm putting tariffs on Canada, I'm putting tariffs on Mexico, stop the fentanyl from coming in, and I'm going to do the European Union. Like, is there anyone left to put tariffs on? I would say one bright spot, IGV, which is the front end of that risk curve, that definitely looks like a bullish flag there in the making. And, um, so something to watch for sure. Um, uh, let's talk gold for a minute. We hit some all time highs with gold this week. So that's pretty exciting. Uh, the gold bugs taking victory laps. It looks like a lot of.

Chris:
[41:35] Strength in gold, right?

Daren:
[41:36] Yeah. A lot of strength. Um, which makes me wonder, right. If gold going higher, like I think you have the makings of a recession, right? You've got a reinverting yield curve. You've got gold going higher. You've got tariffs from a geopolitical standpoint being slapped on every country in the world. That'll slow things down. I don't see how it doesn't, at least in the short run. Long term, it could be a really great thing for the United States anyway. But in the short run, I would think that slows things down. Interesting that Enphase, which is one of the darlings of the Green, I guess it's not really showing too much life, though. It was up at least on Friday, but this is one of the darlings of the Green New Deal that lived and died in the Green New Deal. Um, and phase makes inverters for all those solar panels.

Chris:
[42:32] You know, bigger picture, you got to think like, you know, they're talking about the, the oil companies, right. And how it's drill, baby drill now, but they also have to look at this like, Hey, you know, it's great and all, but what's it going to be like four years from now is the next person that comes in going to completely change all the rules again, because look at how we've been whipsawed, you know, over the last few years. And if you're an oil company, I mean, it's not like you can just go out and stick a straw on the ground and start pulling energy out. Like it takes a lot of money and time to put all these things in place. And the fact that we changed the rules like dramatically, you know, seems like we don't really have, you know, laws made by Congress anymore. It's more like each person comes in and puts in their executive orders. And that's just what we live by now somehow. That jerkiness doesn't seem like, from a business perspective, doesn't seem like a great thing to live under when you're trying to promote longer term investment, smart investment over a longer period of time. The rules are changing that quickly all the time. I don't know how these big companies navigate that.

Daren:
[43:51] It's interesting in my observation, like him, hate him when it comes, whatever you feel about him, that's not the point of this comment. But when, when you look at Trump, like you can almost just see like people playing him like a fiddle in some ways, because he like, it's who's going to come and gratiate the king next, you know? And it feels like a lot of the decisions getting made although i have to say i think there's more consistency to what he's doing this administration than last administration so far at least but i feel like whoever's in front of him willing to pay homage is the person who's going to get the next executive order it almost feels that way right um but i don't think it was any different for the biden

Daren:
[44:35] administration and in its own way either no i.

Chris:
[44:39] And that's what i'm saying is the fact that, you know, we live, we live by executive order. Uh, and it just, you know, from a business standpoint, it doesn't seem like it's,

Daren:
[44:49] Uh, it's great. Yeah. Well, and I, I think, I mean, you and I running a business, Chris, like we've definitely seen that with regulations.

Chris:
[44:59] Right? I mean, absolutely. Yeah. You never know what's going to change from time to time. And, um, you, it takes a lot of it takes a lot of resources to ramp up and and go in one direction and then when that direction completely changes depending on the administration yeah it's a really uh it's a lot of malinvestment i'll put it that way yeah

Daren:
[45:22] Yeah big time um so this is the dollar i was talking about earlier the dxy and i i think you can see the strength of the dollar which doesn't bode particularly well for the small cap stocks, right? And, um, There's this fine balance or this kind of paradox, right? Like you actually don't want the dollar that strong to help your economy. And so it'll be interesting to see these tariffs get slapped on. I just saw a headline that Canada's prepared their purposeful tariffs in response to our tariffs.

Chris:
[45:59] Which are supposed to escalate, right? If they escalate, we escalate.

Daren:
[46:04] Yeah, yeah, exactly. So that'll be fun. Um, yeah, like there's this, there's this part of me that like says, well, yeah, we should do tariffs, man. We're paying so much money and our tax money is going across the world. And, but then there's just also this part of me that like, you know, the global citizen part of my brain, that's like, well, yeah, I mean, like we benefit from all that around the world too, right? Like our cheap products get made around the world and, and therefore we're able to afford our livelihoods because we externalize all our industrial waste, et cetera. But I don't know. I don't know what the right option is, right? But it'd be interesting to watch. I sure like being somewhat neutral, right? Because then you don't have to defend anyone's side. You just like, okay, well, let's see what that is. Well, I see the value in that approach. But I think it's important too, just going back to that recession, like when you look at this is the fed funds rate pushing up really fast and then this kind of flat top rate and pretty much in every other time in recent history when this nine um ema has crossed over this 20 like it did right here we've seen a pretty fast rate reduction it's been a long time since it went flat and then actually went sideways um.

Daren:
[47:32] So I think that'll be interesting to see right now. I think the bets are rates go lower. In order for rates to go significantly lower, we'd have to see some sort of a recession-type environment, or Trump's able to actually influence the Fed more than he is right now. Um it was pretty clear though from chairman powell and his remarks on wednesday that yes they think inflation's back a little bit it's not under control it was pretty clear that they don't plan on bending to what trump wants them to do which is drop rates across the board.

Chris:
[48:07] Yeah i think they're they're afraid of inflation coming back uh they've they've seen what an uproar that creates in society

Daren:
[48:13] Yeah which they should be right like yeah frankly like all the spending last year all the fiscal spending last year it makes perfect sense that inflation would come back like why wouldn't it we're pumping money um for all kinds of stuff as we're finding out through doge what we're actually all spending our tax money on um which is interesting did you notice you see that headline where the u.s treasury where the guy who was in charge of the auto pay for the U.S. Treasury system quit. And now they're investigating all this money. It was just going out of the U.S. Treasury on auto pay. Awesome. That's going to be interesting. Yeah. Anyway, well, we'll leave it there. It's Saturday night and we're going to be with family.

Daren:
[48:58] But other than that, have a wonderful rest of the weekend, everyone. And we'll be back next week to wrap it up. Take care.

Music:
[49:05] Music