Tariff Tit-For-Tat

Dano:
[0:01] If we're going live two times in one week, there must be something going on and we're here to help, hopefully, take a little bit of the panic off,

Dano:
[0:09] take a little bit of the edge off, talk you through some of the stuff we're seeing. This is On the Markets from Sonoma Wealth Advisors. My name is Daniel Weir. I'm the marketing director and podcast host for the firm. Daren Blonski on assignment this week, and Chris Sipes, CFP, here to talk us through the tariff tit for tat that we all went through this past week. Chris?

Chris:
[0:33] Yeah, surprisingly, if you didn't pay attention to the market all week and you just kind of checked in at the end of the week, you'd think, hey, market did all right this week. But boy, there's sometimes it's been overused, but it's true where, you know, decades happen in a week and it definitely felt like that this week.

Dano:
[0:53] We're going to talk about just how much the United States might actually possibly potentially make off of these tariffs if they were really were to go through as planned, if they really are a revenue generator and going to solve all of our debt problems. Also, which European stocks are feeling basically no pain through all this and why that is. And Chris is going to freak out because yes, he's got a chart from the 1800s

Dano:
[1:18] that we'll get to. But first, let's hear this.

Music:
[1:21] Music

Dano:
[1:58] Now, you know, Chris, that I love me a Trump meme, and I love any time it has the hair and the orange, and we've got it both on this one.

Chris:
[2:07] Yes, yes, absolutely. We got the orange swan event, which, you know, that's obviously a play on Nassim Taleb's famous black swan book. Now, Taleb's watching, which I'm sure he is. He would be up in arms because this was not a black swan event. Uh black swan event being something that nobody saw coming uh couldn't be predicted you know it's a random event basically um you know and and and this although unexpected in some ways was fully known and and telegraphed ahead of time so it could not be a a black swan event so nasim please keep your uh your hate mail don't send us your hate mail because when you get nasim taleb riled up, he can be a bit harsh. So we're not trying to get him worked up.

Dano:
[2:59] It still was the thing this week. We've talked on and on often about how, hey, the president is in the market. The market isn't the president. The market's not the economy. The economy is not the market. And there's so many instances where you draw a logical conclusion and there's an illogical result in the market. But no, this week it was pretty, you know, cut and dry. It was pretty clear this week exactly what was happening and, you know, who was pulling the strings as it were as a result this week when it came to the market.

Chris:
[3:35] I agree with that. This one, I literally laughed out loud. Logan Motoshami, who's the chief economist, I think, for Housing Wire, posted this. And we've got the Salt Bay with the candlesticks. These are going to be the only candlesticks in today's presentation since Daren's not here. So if you're waiting for candlesticks, you'll have to wait for next week.

Dano:
[4:01] I can't tell for our viewers who are triggered by Trump. I can't tell if they get a laugh out of this or if it's an instant turnoff moment. It was such a polar – it's like on SNL. It's like, is it making fun of him or is it endearing people to him? It's sort of hard to tell, very enigmatic.

Chris:
[4:21] You know, regardless, I have to wonder, as somebody who likes to read history, if there's ever been a person before that literally had as much, you know, sucked the air out of the room as much as Trump has for what, the past, what, nine years or so since he's been on the scene since 2016? Actually a little bit before that, but, you know, where it's like literally almost every day, all news revolves around one person. It's really wild when you think about it. I mean, I guess it's only possible in today's technology era, but you just wonder if that's ever been the case before with any person in history.

Dano:
[5:05] I can't think of one, certainly when it comes to politics, Although I will say what is often, and this is not getting super political here because that's not the focus of the show,

Chris:
[5:16] But I've just been coming back to the George W.

Dano:
[5:18] Bush years over and over again and how much people have forgotten those. He was a lightning rod, and there was this level of vitriol towards him. People have really forgotten that. So I'm aware that these are unprecedented times, and a lot of this stuff has, quote, never happened before. But I would encourage you to look back at the presidency of George W. Bush and try to remember just how visceral that whole thing was.

Chris:
[5:43] Yeah, no thanks, Dano. It can be helpful. Things are heavy enough, man. Let's keep it light. Let's keep it light. So speaking of heavy, the sentiment this week coming in again, bearishness above 50%. I had some charts, but we just ran out of room for charts. But just know that this is highly, highly unusual for sentiment to be this bearish and for us not to be in a recession and or after a major, major market crash. Now, we've had what some would call a crash, but it's really in terms of percentages, which we'll see here soon. And we've talked about on our bear market playbook and such, it's not gotten extreme in any way. So for people to feel this bad already is highly unusual. And historically, when bearishness has reached this level of intensity, that's usually been a good time to be an investor when you look at returns moving forward. We've got the CNN fear and greed index all the way up to a 15, Dana, which is still extreme greed, but it's off the lows of three last week. Three.

Chris:
[7:06] Wow. So I don't know how many times in history that has been that low, but wow, really dragging off the floor there. And then Bitcoin at 25 extreme fear down from 28 extreme fear last week.

Chris:
[7:22] And uh you know we're we're talking with some of the advisors uh together internally and you know i knew i knew that trump was crypto friendly i did not know that assets in the u.s were going to be trading like meme coins what we felt like over the last couple weeks and in stocks and bonds uh for sure so it's been a wild ride it's uh.

Chris:
[7:48] Been a lot of phone calls, a lot of emails, been, you know, emotional ups and downs with folks. So just know that we're here to, you know, talk to you through this situation. And hopefully you feel that we've done our parts to get your plans set up and established and that, you know, we're here to assist you in these difficult times. So we've got tariffs, tariff rates and implied revenue. Now this is from Ned Davis Research by way of Kevin Gordon at Schwab. And by their calculations, the current implied average tariff rate is about 34.7%. And that is when you take the baseline of 10% plus the added tariffs on China. But when you weight it, because we have so much imports from China, that's why the implied average rate is going to be 34.7. Now, I tend to think of this as a consumption tax.

Chris:
[8:57] And maybe bigger picture, what they're trying to do is, if they're going to be lowering taxes, which sounds like at bare minimum, they're going to try to keep the tax cuts that were put in place in 2016. Um, and if they're going to be at minimum doing that, maybe lowering taxes further, given our deficits, given our debt in order to try to offset that some, maybe they're implementing this consumption tax, uh, on the other side. I don't know what the full, uh, you know, strategy is, um, or if it's going to work, what the end result's going to be. I don't think anybody does,

Chris:
[9:35] uh, things literally change daily. So, um, but that's where we're at right now is, is a severe, um, consumption tax in place at the moment. And, uh, you know, for all intents and purposes, almost just cut off trade with China at this point.

Dano:
[9:53] I want to try to walk through every step of what you're talking about there for people who aren't following, because I think I understand what you're saying, and you tell me if I heard it right. So first of all, do you happen to know how the tariffs are actually, actually, like at the moment of contact, charged? Like when the ship shows up in order for the stuff to get off the ship and make it onto the land, that's where the tariff happens? Do you happen to know that?

Chris:
[10:16] Yeah, there's a guy named Ryan Peterson from a company called Flexport. He's been on Bloomberg Oddlots with Tracy Alloway and Joe Weisenthal several times. He's got a public account on X. Um, and, uh, you know, their, their whole business is basically running imports and exports and such. And so, uh, when, when it is coming into the U S apparently there's just, you know, it's basically just a box that they fill out and, uh, and the duty is collected right there. So, um, sort of like, you know, all of us that have W2 wages, uh, before that money hits our bank account, it's disappeared into all the areas of taxes and such. From what he says, and look, I'm no expert, so he could be lying, but from what he says, it's a very easy thing to calculate and collect.

Dano:
[11:18] Okay. Then what you're describing then is you're saying at minimum, they're talking about, the Congress and the president are talking about at least keeping their tax cuts from 2016 and maybe lowering them further because they floated the idea of cutting income tax altogether, which would then theoretically give you and your family, your household more money. But then- If you have these tariffs when products are coming into the United States, those products are going to cost more money. So the more money that you have from reduced taxes, you may end up spending even more because the products are going to cost more. Therefore, you're saying it's basically a consumption tax.

Chris:
[12:01] Correct. So rather than an income tax, which is basically what we have now, or we have a lot of taxes, but that's like the main source of revenue, right? It's going to be also consumption tax so the stuff that you're buying you go to buy that flat screen i mean you check them where where most of your stuff is made hardly any of it says it's made in usa so pretty much everything that you buy will now have this tariff on it which is paid by the consumer um you know it's paid by the company initially but it's going to be passed on to the consumer. There's, there's no way they have market. The average company doesn't have margins of 34% to just give up and eat that, you know?

Dano:
[12:46] So, so then it would be incumbent upon the companies then to have, if they produce the United States, they wouldn't have that tariff, therefore giving a huge advantage to the United States companies. Is that the theory at least?

Chris:
[12:57] That's the theory. Yes. Now how long it takes for those supply lines to shift, um, you know, You would think to build the factories, to get everything up and running, you're talking at least years, right? I mean, it's not like you can, but anyway. Yeah. Yes, that's the idea. So that basically the consumption is being taxed along with the income. So, yeah.

Dano:
[13:29] I just wanted to try to define that for people because all of a sudden, you know, a word which people have never used in their life, tariff, except for maybe when they were talking about Smoot-Hawley in high school when you're learning American history, you're suddenly saying it all the time and there can be a lot of misunderstandings. I will say just as a consumer myself, it's been funny to see the news media hype up. It's going to be higher prices and you don't even understand. And it's like, oh, I'm sorry, were these the low prices? You're not going to scare me with the price of an iphone it's already a mortgage payment like it's you know i just won't do it then you know so that that at least has been one piece that hasn't you know doesn't have an effect on me for sure yeah

Chris:
[14:13] So this is this is the chart you were referencing from goldman sachs by way of mike zacardi which i i hope i get to meet mike zacardi someday um He and I, I don't know what it is about the algorithms, but he seems to post just a lot of great content, and I really appreciate his work. But anyway, he posted this from Goldman Sachs going back to the 1800s, and it shows U.S. bear markets. So that's what those darker bars are in this chart. So that's the average decline. Now, the decline, what causes the decline matters. So you've got structural, think 2008, where, okay, you've got the actual financial infrastructure imploding due to too much leverage and just, you know, lots of issues that we won't rehash here. That's a structural decline. A cyclical decline, which is kind of your just normal business cycle.

Chris:
[15:19] And then you've got event-driven, so caused by an event, a political event. And so the good news is here, Goldman Sachs believes that we are in an event-driven bear market triggered by the tariffs. And so if that's true, on average, that has been a less painful decline in the markets on average than the other types of declines. So that's good news. uh then you've got the orange dot there where it says the average uh decline since post post world war ii so it's kind of considered like the modern financial era um.

Chris:
[16:05] And so what you'll notice or what I noticed here is that they are just as severe and maybe even more severe in terms of the decline across these. However, the length is much shorter.

Chris:
[16:21] And that's probably due to the authorities, whether it's the Fed, the government, or both, you know, basically coming in to put out the fire before it gets out of hand. And so severity is still there. I would argue the quickness is probably even more quick. It seems like every drop we get, it's like extreme quick. You know, market sells off so fast. Everybody has their phone. They can hit sell immediately, right? But the length of those drawdowns is not as long on the plus side. So if we are, in fact, in an event-driven bear market here, we're getting close to the max drawdown. I think we got down to about 20%, and it looks like the average is closer to 30%, so there might be some further to go. But then in terms of the number of months for that drawdown, on average, they've been less than 10. And so we're, what, two weeks in? Great.

Chris:
[17:32] Yeah. So, okay, we've got some measurements here to show us, okay, where are we in that process of everybody panicking? This is the volatility index or the VIX, which is like a measurement on the S&P of panic. And you can see that normal is under 20. So we've spiked close to 50. We ended last week over 40.

Chris:
[18:03] Let me see what we ended at today in the VIX. Sorry, let me look that up real quick. But we're elevated. Now, historically, when we get to these levels, like we talked about in Monday's call, we're at 37.56, we ended today. When we get to those levels, we're somewhere in the top 1% of VIX levels. And historically, when that has happened, forward returns for the S&P have been positive in pretty much every time frame you look at going out to like five years. So when everybody's fire sailing historically, now this time could be different, of course, that could always happen. But it looks like we're in a pretty high panic area if you're looking at the measurement of the S&P.

Chris:
[19:02] Which would align with the sentiment that we talked about. So if you go to the next chart, Dan, we'll look at what the bond market is saying. Now, the bond market, this is the spread between high yield, so companies that don't have very good credit, what they can borrow at in their bonds when they issue bonds, versus the U.S. Treasury. So U.S. Treasury is considered to be or has for a long time. We're going to talk about that for a second. But U.S. Treasury is considered to be pristine credit. And so in times of stress, it costs a company with poor credit a lot more to borrow money than it does the U.S. government. And so you'll see these spreads blow out. And so you see what happened in 2008 that was a structural decline obviously the spreads got massive over over 12 percent i don't know what they peaked at maybe 14 15 spreads between junk credit and treasuries and we're at 2.87 now which isn't which isn't crazy now we got historically low um just at the end of last year so that spread was was historically low so not a lot of return. The trade-off between high-yield credit and treasuries wasn't very much at that time.

Dano:
[20:23] This is the junk bond index, right?

Chris:
[20:27] Yes, the spread between junk bonds and treasuries.

Dano:
[20:30] And is this just sort of a freak-out meter, right? I mean, this is just so people can know when you're looking at this. Yeah, this is kind of just the overall health of the market and the economy based on how much it's costing companies with crappy credit to borrow.

Chris:
[20:47] That's right. That's right. Now, um... What has been happening, though, in the bond market is a bit concerning, to say the least, because equities are expected to be very volatile. It's kind of like par for the course. People expect that. Treasuries, people don't expect that, especially in a crisis. Typically in past crises, people from all over the world flood into treasuries. So both domestically and abroad, there's a buying of treasuries, which more demand for those treasuries pushes the rates down, pushes the prices up. So bonds tend to appreciate those treasury bonds have tended to appreciate in prior crises. This one, we got a little crazy on the day before the pause was announced. And some are saying, hey, you know, they saw that the bond market was freaking out.

Chris:
[22:02] And they flinched and they said, okay, we're going to do the 90-day pause. And then you saw the market rally. The pressures came off the treasuries. But if you look at this from Nick Timmeros at Wall Street Journal, you can see the rise in the rates in the treasury bonds since Liberation Day, along with the sell-off in the dollar, which is the DXY. That's the dollar versus other currencies, which also usually goes up in crises because people are buying U.S. Assets in crises, typically.

Chris:
[22:41] This is concerning. Well, let me just read what he says because it probably holds more weight than what I would say. So despite a decent auction, the 30-year treasury yield rose six basis points to 4.849 on Thursday. Yields are up every day this week by a cumulative 0.458 percentage point, the largest four-day yield gain since March 18th of 2020, so depths of COVID. Meanwhile, the dollar weakened nearly 1.6% on the day. From Evercore ISI, Evercore ISI is an institutional research firm on Wall Street. So from them, They say yields higher, currency lower is common in EM, which stands for emerging markets. We saw this in the UK during the trust debacle, but it's highly abnormal for the US. There are only four other episodes in the last 30 years in which the dollar depreciated more than 1.5% with the 30-year yield up more than 10 basis points. This is not about stagflation. Inflation break-evens have fallen. It reflects evaporating U.S. Growth exceptionalism and the reduced attraction at the margin of dollar assets for reserve purposes amid erratic U.S. decision-making.

Chris:
[24:11] So bottom line, confidence indicator, right?

Chris:
[24:17] How confident are others around the world and or Or do they want to own U.S. assets? Are they worried about them getting seized? Whatever it might be, for whatever reason, and I'm sure it's a myriad of reasons, treasuries are selling off right now. And that could create all kinds of problems.

Chris:
[24:43] It could take it from an event-driven situation to a structural situation pretty quickly if the treasury market gets disorderly. You've seen people like Jamie Dimon and others mention that this could happen. I think the so what to all that is that they would just expect the Fed to come in and hose the market down with liquidity to put out the fires in the Treasury market, which maybe that's what made rates go down today was a little bit of talking down like, hey, the Fed's basically saying, there's a backstop. I don't know, but that is definitely possible.

Dano:
[25:28] And I'm going to say this if you're listening or watching, and you perhaps have had your blood boiling at this idea that, because this is what's in the news feed now, is that Trump's Liberation Day and these tariffs were all part of an insider trading scheme, and he planned this all along. I can't speak to whether that's true or not, but I can tell you for a fact, he did not want this to happen in the bond market. This is the unspoken part of that narrative that you're not thinking about. These results are very, very, very bad for him and Secretary Besant. So that might speak to why they eventually balked. Chris, do you agree with that or am I off base?

Chris:
[26:11] Yeah, no, I agree. That would be highly, it weakens the negotiating hand if the treasury market gets unstable, right? So I'm not a big fan of conspiracy theories for a lot of reasons. And the biggest one, Dan, I don't know the exact number of, I should know this, but when you think about the size of even a small company, right? Trying to herd more than two people in the same direction for anything. Right, right. So if you're doing this on a grand scale where you're literally collapsing a global economy that's a benefit like wow props if you're able to do that that yeah you know if you're coordinating thousands of people amazing um.

Dano:
[27:02] Anyway it's highly it's highly more likely that he's just shooting from the hip which is maybe more terrifying than an evil scheme but um i just want to put that in your brain if you're trying to process some of the stories you're seeing.

Chris:
[27:14] Good point. Good point. Now, underlying all this is that there are, things in the market that are going to be serving as a constraint on these negotiations, on this whole environment that we're dealing with. And one of them is the U.S. debt. And here you're seeing our public debt versus our GDP. And as a percentage of GDP, our public debt is as high now as it was at the end of World War II. And so it's very high. And so it's ancient wisdom that the borrower is slave to the lender, right? You've heard that many times. And there's ancient wisdom them for a reason, Dan. There's a reason why people pass down certain knowledge for thousands of years because, It usually tends to be true, right? And when you're dealing with those kind of constraints, which I think we saw this week, we're trying to make these power moves and such, but then our debt markets are like, no, no, no, no.

Chris:
[28:25] You're not going to be able to do that, right? And what they're talking about, whatever court ISI was talking about in that quote was the trust moment, the Liz trust moment, where they tried to pass a budget and tax cuts in the UK and the equivalent of their treasury market, the guilt market, sold off, got completely unwieldy. Their central bank had to step in and it basically was like, no, the rest of the world's like, hey, we're not cool with you guys doing this. It's not fiscally responsible. So if you want to do it, fine, but you're going to pay us way higher interest rates to borrow money. And so to your point, these things are beyond any one person's control in terms of the bond market. The bond market is global. It's way, way bigger than the stock market.

Chris:
[29:18] And it yields a lot of power, wields a lot of power, I should say. So, you know, Besant and the whole admin is going to have to be cognizant of what's going on with the U.S. Treasury market for sure.

Dano:
[29:33] And I think as much as, you know, immediately when he announces the tariff pause, you see the S&P spike, right? So that is like concrete proof that one man is basically affecting the market there. And yet you've got, and yet you've got the bond market also saying, nah, dog, like, no way, you know, like, oh, that's cute. So in, in another, it's another, in another, in another breath, they're saying it's way bigger than one person. And one person can have, you know, one spikes worth of input. And yet the rest of the party can show up and go too bad. You know, you think that you're in control. Well, guess what? Find out, find out what we can do to your bond market, in which case he has to back off. So you've got a little bit of both going on. You've got, yes, one person has a major impact, and yet it's also so much bigger than one person.

Chris:
[30:25] That's right. That's right. So, now this is illustrating Ferguson's law, Niall Ferguson, where he's a famous historian. And he has done studies to say, okay, when countries start spending more on their interest, the interest on their debt, than any other line item, that is a sign of, you know.

Chris:
[30:56] Empire decline, basically. It can get out of hand quickly. And anybody that's ever been in debt understands how this works, where it's manageable, it's manageable. Oh, uh-oh, it's not manageable. It starts taking on a life of its own, and it can get away from you quickly. So keeping these interest rates down is extremely important for the U.S. Government because that's their cost of borrowing. That's our cost of borrowing as taxpayers, right? And it feeds through to the whole rest of the economy. It affects interest rates on mortgages, credit cards, car loans, everything.

Chris:
[31:35] My old economics teacher used to call the u.s government big papa steve because apparently in his family you know they would go to the barbecue and you know big papa steve if he got there before you he'd eat everything and there wasn't anything left for everybody else so you wanted to get to the barbecue before big papa steve and uh and that's the way i i it's funny how things just stick in your mind, you know, 20 some years later, uh, I, I still, I'm like, Oh, I actually get that. I get that analogy. That makes a lot of sense. So when the U S government is the biggest borrower, not only in the world, but in the history of the world, uh, in terms of how much we're borrowing, like that affects the interest rate of money around everything else. So it's hugely important, hugely important. Um, now, uh, the, uh.

Chris:
[32:31] Index of consumer sentiment. This came out this week. And let me just quote what double line said here. The University of Michigan consumer sentiment preliminary survey for April dropped to 50.8 from 57. The previous month with decline seen consistently across all groups by age, education, income, wealth, political affiliations, and geographic regions. So double lines of fixed income. Well, they're, they're a, they're a asset manager, but they're kind of famous for fixed income. So, um, and interesting here that, you know, now we've seen two times where this consumer sentiment has dropped off this severely and somehow we're not in a recession where previously when you'd see these types of drop-offs in consumer sentiment, typically it's associated with recession.

Dano:
[33:21] Do you think we're in a recession?

Chris:
[33:25] Um i think it's hard to say um i think it matters even less from a market's perspective because you know the the markets will bottom out long before the recession is over um and so if you're trying to use it from an investment perspective it's pretty much useless um and so um i guess the long and short of is usually you don't know that you're in a recession until it's already passed. Yeah. Whereas you can definitely tell when you're in a stock market pulldown, right? Yeah. Now, in terms of rates, there's a lot of people calling for the Fed to lower rates. They're saying, oh, the, you know, the interest rates are, and the Fed, to be clear, the Fed only controls very, very short term interest rates. So up until now, we've been talking about longer term interest rates,

Chris:
[34:19] which are controlled by the market. You know, millions of people, billions of people around the world trading those prices. the Fed controls just the overnight rate, the Fed funds rate. And typically, it tends to follow the two-year treasury yield pretty closely. They lowered rates in September.

Chris:
[34:41] And most recently, they've said, look, our hands are kind of tied right now. And that's because if you look at But the next slide, I mean, so this slide shows they're maybe a little tight compared to the two-year yields, but not way off. They're not like super tight. If you look at the next slide, this slide, though, it shows you the reason why the Fed's hands are kind of tied right now is that they're supposed to take care of two things, which is maximum employment and price stability, a.k.a. Don't let inflation happen, don't let deflation happen. We want price stability. and with the tariffs especially at least in the short term they are expected to be inflationary now we got good numbers on ppi today um decent numbers on cpi earlier this week um and so it hasn't really but that's that's looking backwards and that's what everybody's saying like hey that's because we're looking at previous month what about next month um so those inflation expectations taking off in the short term, the Fed's like, well, we can't lower rates with inflation expectations going up. And with unemployment staying low, the unemployment is still low.

Chris:
[35:57] So this is from Richard Bernstein, advisors. They say the Fed's job is getting harder because they can't rely anymore on globalization constraining inflation, aka cheaper labor in other countries, producing cheaper goods, keeping prices lower. De-globalization is happening and secular inflation expectations are rising. So trade-offs to everything in economics, and one of the trade-offs could be to manufacturing more in the U.S. Is that the prices will likely be higher, at least in the short term. Now, PIMCO's view on this, another fixed income manager, so they have to keep a really close eye on inflation. They recently said, look, we think it's going to be inflationary in the short term. However, due to demand destruction, a.k.a. People buying less, they believe the prices are actually going to go lower and that this will be deflationary and not inflationary. That would be my best guess, too, if I had to guess.

Dano:
[37:06] And if you're trying to think of an example where that happened, I remember during COVID, I imagined, for whatever reason, it just felt like gas prices were going to go up to like $17 because they weren't selling as much gas. So it'd be like, well, they still want to get their money, so they would make it like $20 a gallon. And during COVID, gas prices just fell to the floor because they were trying to get rid of all their supply. So this is a perfect example of sometimes the logical conclusion that you draw from price can actually – how dare you use logic in economics? The opposite is sometimes true.

Chris:
[37:44] So up until now, we've been trading on American exceptionalism. And what I mean by that is that companies in the United States and our debt received premium prices because we were considered to be stable, fast-growing, rule of law, et cetera, et cetera. Uncertainty was lower in the U.S., especially versus the rest of the world. And so since the great financial crisis, the prices as measured by the price to earnings ratio on the S&P 500 have been going up steadily, right? And that's illustrated here, again, from Mike Sicardi and Goldman Sachs, showing that if you're looking at our forward price to earnings multiple, on the US, it's much higher than what it's, what's normal, basically. So people have been paying more, the expectations that the uncertainty is low, the growth is high, et cetera, et cetera.

Chris:
[38:49] And so if that is ending, or if that at least is coming to a slowdown, Where else can you go? Is diversification finally starting to help? Is the regime changing now? Maybe. You know, if you look at, say, a country like Japan, kind of the opposite of where the U.S. is, and you look at, okay, what's Buffett been doing, right? The GOAT. he he's been he's been purchasing assets in in japan um and so uh and then you look at europe and hey europe's market's done pretty well why is that well part of it is because the prices are dirt cheap you know and so uh valuations are going to be a tailwind for some of these other areas in the world, while valuations is going to be an additional headwind for the U.S. Based on the fact that we're priced basically for perfection coming into all this, you know, into this trade war.

Dano:
[40:01] Buffett's buying in Japan, huh? Yes.

Chris:
[40:05] Japan, huh? Look at the performance. This is from Jeffrey Kleintop at Schwab showing the performance of European stocks with less U.S.

Chris:
[40:18] Tariff exposure. So, Dan, you and I talk a lot like, hey, who cares about my political opinion? Who cares about your political opinion? Sorry, no offense, Dan. I mean, I do care, right? Oh, yeah. But most people don't. What is the market saying, right? Stan Druckenmiller, he always says, I don't look at economists, I look at the inside of the stock market. What's the stock market saying? Because price is telling you something, right? And right now, the prices are telling you that some of these international companies, maybe it's due to price, maybe it's due to whatever, the expectation is that you're seeing better performance out of these companies. Even today, we saw rallies in the U.S. Markets. We saw better rallies in the developed and emerging markets. So what's price telling us? And this could be another fake out. I don't know. Diversification hasn't worked in a long time. People have not wanted to own any foreign stocks for a long time because the u.s has been dominant for you know well over 15 years um but if if we're in a regime change it might be worth considering uh your paradigm and maybe it's

Chris:
[41:42] shifting at this moment is.

Dano:
[41:44] It too late though i mean because it's doing well now and you've often said you know don't chase trends so is it would you say that it's too late? Should you, you should have done this, you know, five years ago.

Chris:
[41:56] Well, maybe you're teeing up the future charts here, but short answer, I'd say probably no. Okay. So now we're getting into the major asset classes. What's going on with them? What are the trends? We don't have candles this week, so we're just using the simple moving averages, the simple man's technicals. Okay. I'm just a simple country boy, Dan, and we're just going to keep it minimum here as far as the candles. Now, the two most common would be the 50-day and the 200-day moving averages. And you can see here on the S&P 500, we are getting very close to the dreaded death cross, which is the 50-day moving average crossing over the 200-day moving average in a negative way. So we're doing that barrel roll, getting close. Now, today, market was up a little bit, so it's going to help that. But you can see, you know, markets, the U.S. market over the last five years has done really well. Up until recently. Now, go ahead.

Dano:
[43:11] Sorry. The next, the last, so for people who don't know, moving average is basically you've got up and down going in the line, you know, the lines going up and down for the S&P 500, the daily activity. But then the yellow line is showing, yeah, but in general, over the last 200 days, what has it been about at? And then the same thing for the 50 day. And so when the 50 and the 200 cross, as you said, a death cross, because that's showing, hey, no, for real, we're really going down now. It's not just a down day. Across multiple timeframes, it's actually going down, and it's a downtrend, like you can see back towards early 2022, correct?

Chris:
[43:51] Yeah, it smooths out all those zigs and zags to show you what the overall trend is or has been. And you know traders look for those those crosses because that's like a confirmation of a trend, usually right so now to your question about some of these other areas is there is there room to run now we didn't really talk about us small caps but small companies in usa are this chart looks awful, right? They haven't gone anywhere since mid 2021. Uh, so we're going on four years with ups and downs, but, but nothing showing for, for the U S small companies. So price price wise right now, there's not, it's not saying, Hey, uh, all this business is coming back to the U S and get ready for a huge, um, price run in the U S small companies so far there. They're on the ropes. They've already got the death cross.

Chris:
[44:57] And if we do start to see signs of life there, they've gone nowhere for four years so there's absolutely room to to turn that around um and and hopefully that would be the case now if you're looking at that and going oh well that could never happen to that the the beautiful s p 500 right wrong that this what you're looking at here can happen to any asset class which is why you want to diversify because um it can happen at any time And so if you're concentrating on one asset class, it's very easy to have lost several years. Decades are not impossible. It's happened before where even the U.S. Stock market has not gone anywhere for 25 years, right? So diversification is the logical way around that to have some other assets to avoid the dreaded sideways movements over long periods of time.

Dano:
[46:01] And was this chart not also Europe and international for so long until this year?

Chris:
[46:07] Yes, which is what we're looking at next. We've got the developed markets. So to your point, is there room to run? Yeah, because they've also gone pretty much nowhere. Now, if we extended this even further, it's ugly, Dan. They've really struggled for a long period of time. So that's why I'm saying it could still roll right back over. This could be just another one of those. But if it is starting to break out, if things are changing, there's absolutely room to run because it's been a long time since you've seen any signs of life in foreign stocks. And even more so in the emerging markets. If you go to the next slide, you're looking at emerging markets now. Same deal there. They've really struggled for even longer than the developed markets. So if things are changing and the prices are cheap enough now where you'll start to see some returns.

Chris:
[47:12] There's a long way to go because they've been sideways for over a decade, Now, U.S., what they call the ag, so this is kind of medium-term bonds, roughly around five to seven years is usually where the ag runs in terms of the duration of the bonds that make up this portfolio. And this is if you were to buy basically the U.S. bond market.

Chris:
[47:45] Although they've bounced around all year, we've seen good days and bad days where they've offset the stock market. It's yielding in the 4% range, so it's paying you coupons. But the price has really been pretty much sideways for a few years now. And I wouldn't say there's any way you can tell from this that we're getting an uptrend or a downtrend. It looks decidedly sideways for the short term.

Dano:
[48:16] Yeah.

Chris:
[48:18] Same thing with the U.S. long-term bonds. So this is the long-term treasury. So over 20-year treasuries, so long-duration bonds just haven't been able to break out of their doldrums. And normally, in times of stress, this is their time to shine. This is normally where you would see signs of life in the long-term bonds. Nothing yet, decidedly sideways.

Dano:
[48:45] And I think that's what is unmentioned when people are talking about the crisis, because they're all focused on Trump and the tariff and the 90 day and S&P and this person made this much and this and this and this and this. Usually, you know, these two are not correlated. So, you know, one goes down, the other's going up, the other one's doing well. It seemed like everything was down. Nothing was doing well during that crisis that we're still in, I guess.

Chris:
[49:09] Yeah yep um bitcoin now um this doesn't have as long a history because this is just using the etf the iShares etf um you know not not great i think it's been a little disappointing um if you're thinking about bitcoin as an alternative to gold but who knows i mean it can It can do anything at any time. And I'm always wrong about it, so I'm not going to even comment on it, Dan. But you can see what's happening with it.

Dano:
[49:47] Well, it was an interesting test, though, because, again, as you have the S&P going down, you've got bonds, gold, Bitcoin, and others, of course. But those might be, quote, safe harbors or places where people would then go if they were to leave the S&P. and you just didn't really see a surge in Bitcoin or in bonds. And obviously gold did well, although it had a, not this week, but I think it was last week Daren was talking about a drop there as well. So there wasn't like an obvious, oh, they left here and went there.

Chris:
[50:18] Yeah, well, just to end the week on a positive note, gold, gold, gold, gold. Man, wow. It has been really the only thing that has held up during this sell-off. Lots of reasons for that. But it has shown more of a safe haven asset status than treasuries, more of a safe haven status than Bitcoin. Some are saying that global central banks are buying gold instead of treasuries. You're seeing all kinds of stuff about gold getting shipped out to India and China and all these other places that are maybe concerned about having their treasury seized like we did with Russia. So who knows all the reasons, but the point is the price is up on gold and it has been And so in a big way, so that trend continues and those trend lines continue to show strong signs of the ski tracks going straight down the hill, but up the hill in this case.

Dano:
[51:31] And again, just sticking with our theme of sideways trading, sideways 21, 22, 23, 24, and then boom. All it took was the uncertainty of the American political system, and people are flocking. So when you've got that thing in your portfolio, you're like, why? Why this? Chris, you're my CFP. Why this? Get this out of here. This is barely a plus. You can say, well, look at this.

Chris:
[52:06] Yeah. Now, in moderation, right? Because gold is one of those assets that people get really strong emotions about it, and they're apt to say, wow, I just put everything in that. Well, you know, while it looks like a great decision in the short term, gold has its times too, where it does very, very poorly. And so just be careful with making any big sweeping changes like that. But it is nice to know it's there if you're using it as a diversifier in your portfolio.

Dano:
[52:41] Chris, thanks so much for joining, for being on the show this week. That's nice to be able to step in too. And Daren, obviously, we'll be back next week. If you're new to us or new to our firm, we are Sonoma Wealth Advisors. And you can learn about us. Take our free wealth analysis at sonomowealth.com. Depending on where you're listening to us or watching this, make sure to subscribe so you don't miss future episodes. This is our show on the markets. We talk about the markets. We have other podcasts as well on our channels. So check those out. And Chris, looking forward to next week.

Chris:
[53:17] Thanks, Dan.

Music:
[53:19] Music