3 Types Of Lies...

DANO WEIR: My name is Dano Weir. I'm the marketing director and a podcast host for Sonoma Wealth Advisors, Fermata Advisors. They're all the same family of brands, actually. This week, we've got a lot to look at On The Markets, and we're looking at three types of lies, and we'll tell you what that means.

DANO WEIR: But first, Chris, I got to start here before we get into the content of the show. Our co-host today, Chris Sipes, CFP, Managing Principal for Sonoma Wealth. Chris, we've got a new logo. We've been sort of slowly rolling this out, and we have a new logo for On The Markets. What do you think?

CHRIS SIPES CFP®: Yeah, it's very pleasing to the eye, Dan. And maybe for those that might have missed your great little snippet where I believe you were talking into a kitchen utensil making an announcement. Yeah. Maybe tell the people why the new logo.

DANO WEIR: So we've been efforting to ramp up and bolster and strengthen our show over the past couple of months, including what they call a visual identity in marketing speak. So wanted a fresh new logo. And also, a lot of people don't know that our firm is actually a few different brands. So Sonoma Wealth Advisors is our flagship private wealth brand that started it all.

DANO WEIR: But we also have 401k and tax services. And those brands are Fermata 401K and Fermata Tax. Our SEC registered entity is Fermata Advisors. So we've been mentioning those a little bit more on the show of late, and that it's part of the new logo. And I'll do you one better, Chris, because the new logo doesn't just sit there. We've got a brand new intro as well. Are you ready for it?

CHRIS SIPES CFP®: Send it.

DANO WEIR: For the first time ever, the new intro for On The Markets.

CHRIS SIPES CFP®: The stock market, the economy, your money. What's the latest and what could be next?

CHRIS SIPES CFP®: Find out now with Fermata On The Markets. Straightforward financial market updates for the brands of Fermata Advisors, Sonoma Wealth Advisors, Fermata 401K, Fermata Tax, and Fermata Insurance. On The Markets starts now.

DANO WEIR: I don't have an applause sound effect, but I'm assuming that there's applause happening somewhere.

CHRIS SIPES CFP®: Great job, Dan. Yes, great job. So if I was going to use an analogy, it's sort of like a person who, let's say this person's legal name has always been James, but for some reason everyone calls him Ace, and you one day figure out that, oh, your name's James, and I've been calling you Ace for 20 years. So nothing's really changed, no.

CHRIS SIPES CFP®: Nothing is actually changed under the surface. We're just, I guess, advertising better since we have an advertising person, right? A marketing professional.

DANO WEIR: So yes, show is exactly the same. Firm is exactly the same. Chris is here. Daren is on assignment this week. We'll be back next week. But that is a little taste of the new stuff for On The Markets. I mentioned we've got three types of lies that we're looking at this week. And Chris, this is a quote.

DANO WEIR: From it's attributed often to Mark Twain, but he actually popularized it back in the day, originally from a former British prime minister, which is that there are three types of lies, lies, darned lies, and statistics. And when I asked you, hey, what are we feeling? What's our theme for this week? This is what jumped out to you about what's happening in the economy right now.

CHRIS SIPES CFP®: Yeah, as we'll get to a lot of controversy over the jobs numbers today, some controversy around the, the inflation numbers, big, big, surprise there. There's always been controversy around those numbers.

CHRIS SIPES CFP®: But you know, in, in modern life, it's, it's kind of tough to know, you know, what, what the, what the real data is, of course. And so, take everything with a grain of salt and, try not to overreact one way or the other.

DANO WEIR: And I'm so glad that we're going here because I've felt over the past month or so that somebody's full of it. Because on the one hand, I hear nothing but X, Y, and Z, MagSum, Seven Company laid off this many people and this many people and this many people. And AI is taking jobs from this many people and this many people.

DANO WEIR: And grads can't find jobs and they're all stuck at home. And then you look at the economy numbers, the GDP, you look at the jobs numbers, and it's like, oh, things are good. It's growing. And it's like there's Something's wrong. Somebody's full of it here. Something's off. So we'll dig into it this this week.

CHRIS SIPES CFP®: Yeah. You know, this this quote. By way of Meb Faber. He posts a daily investment-related quote. And this one from Albert Einstein says, a calm and modest life brings more happiness than the pursuit of success combined with constant restlessness. And for whatever reason, I've been thinking a lot lately about what is wealth, right? And a lot of times we look at what's...

CHRIS SIPES CFP®: Easy to quantify, you know, the bank accounts, the brokerage statements, all of that net worth, obviously that's what we do every day. But when you really step back and think of it too, you know, true wealth is of course your health, you know, I forget what the saying is, but something like, as long as you have that, you know, then you can worry about everything else.

CHRIS SIPES CFP®: But as soon as you don't have your health, that's all you worry about. Right. And of course, being surrounded by people you love. Having friends, doing a job that you enjoy. Those are all things that should be a measurement of our wealth, right? And so a lot of us are much wealthier than we think and much wealthier than we sometimes appreciate.

CHRIS SIPES CFP®: So let's take a look at sentiment this week from AAII, a little more bullishness. Now this came out yesterday, Thursday. So if you're looking at the market today, Friday, you might be wondering where that bullishness came from, given that we were down a little bit today, but creeping up into the 40s now, a little bit higher on the bullish side, but not crazy.

CHRIS SIPES CFP®: You know, when you start getting into the 50s, approaching the 60s, that's where you start getting, you know, a little bit lopsided on the sentiment. The CNN fear and greed index was at 75, which is extreme greed, which is.

CHRIS SIPES CFP®: Not really changed from from last week and Bitcoin at 70 this is as of yesterday so it's probably down some today which was greed down slightly from 73 greed last week now we look at especially Bitcoin is kind of a leader of the risk on sentiment you know the leader of the the tip of the risk spear in some ways and so we look at it as a it's an early mover both good and bad And so, you know, all of these sentiment indicators are a way that we can kind of try to quantify how people are feeling about the Markets, how investors are feeling about the Markets.

DANO WEIR: When you say tip of the risk sphere, early mover, you mean if something is going to happen in the S&P, good or bad, it may possibly frequently be happening in Bitcoin right before.

CHRIS SIPES CFP®: Correct. Especially with the NASDAQ, which we all know. Most of the S&P's returns have been driven by the major stocks that are a big part of the NASDAQ.

CHRIS SIPES CFP®: There's been a high correlation of Bitcoin with the NASDAQ, and that's exactly right. So if you see a movement up or down, at least recently over the last few years, that move in Bitcoin portends the move in the NASDAQ, which therefore portends the... The movement in the S&P given the high concentration. Now this question, they have a special question every week. And I'll admit, Dano, I don't always read it.

CHRIS SIPES CFP®: And shame on me because there's probably some really good nuggets in there. But this one really struck me. The week's special question was, how do you describe the current valuation of stocks? And what you'll notice is that almost half of the respondents, 45.6% said stocks in general are overvalued. Now the next largest cohort was at 37.8% saying valuations are mixed with some stocks expensive and other stocks cheap.

CHRIS SIPES CFP®: And only 13%, 13.5% said they're fairly valued and only 1.5% said they're undervalued. So I don't know what that says to you, Dan, but to me, I interpret that as like, Everybody kind of understands that stocks are expensive relative to history. You know, maybe the good news is all priced in. But at the same time, we're all just going to keep dancing until the music stops. Is that kind of how you would read this?

DANO WEIR: I would. And if you want to know what a drop feels like, you know, this is how people were feeling kind of during COVID, I think. And i was like oh it's going to be fine and then what was it 21 22 you know not the same performance and then it's now it's kicked back up again so it I think in general, it's, what do you call it, the barbecue indicator.

DANO WEIR: When you start hearing from people, you know, the barbecue, we're finishing up summer here. We're getting ready to kick off football.

DANO WEIR: I'm sure as your college football starts with your Ohio State Buckeyes, there's still going to be people asking you about the Nibibia, Nzidia, you know, whatever that stock is titled. You know, and it's when you start hearing that, that it's sort of like, you know, you start to get a little worried, I think.

CHRIS SIPES CFP®: Yeah, absolutely. You know, a lot of people are surprised to know that they own it. Right.

CHRIS SIPES CFP®: And if you think about it, and that's because most, especially with, with, you know, a client of a wealth management firm, most of those clients are going to be held, holding funds rather than individual stocks for risk purposes, risk mitigation purposes. But if you hold a fund of US stocks, you very, very likely have a position in NVIDIA.

CHRIS SIPES CFP®: And a significant one at that because it is the largest position in the S&P 500 right now, north of 8% of that index. And so if you're just a passive investor and most people have some S&P 500 either in their investment portfolio with their wealth manager or their retirement plan at work or both.

CHRIS SIPES CFP®: And if you're one of those folks that likes to diversify your S&P 500 with some NASDAQ, then you're heavily weighted already in NVIDIA. And I say that jokingly because I've heard that many times of people saying, well, I'm diversifying in those two. And if you look at the stocks that are under those two indices, you are not diversifying your S&P with the NASDAQ and vice versa. You're holding much of the same in both.

CHRIS SIPES CFP®: Okay. So we got this, we got this payrolls report today and I don't know if other people look at the financial Markets like we do, especially in now where there's just so much drama. This is like, this is like a soap opera every day. There's something happening. It's like, can you believe they did this or said that, or what this is happening?

DANO WEIR: Does it feel a little bit like a reality TV show?

DANO WEIR: That would be a shocker.

CHRIS SIPES CFP®: A little like storylines in wrestling. Yeah.

DANO WEIR: Interesting. I wonder what.

CHRIS SIPES CFP®: Yes. Yes. So let me read this from DoubleLine. They're an asset manager. Jeff Gunlock is famously the head of DoubleLine, and he has a lot of content. He's an easy investor to find his opinions on things. But anyway, DoubleLine put out this chart. It says, for the month of July. Nonfarm payrolls showed 73,000 jobs were added.

CHRIS SIPES CFP®: The previous two months were revised down 258,000. The private sector gained 83,000 jobs during the month. The three-month average monthly change in private payrolls at 52,000 near the cycle low seen last summer. The good producing sector Sector shed 12,000 jobs driven by losses in manufacturing.

CHRIS SIPES CFP®: The private service sector added 96,000 jobs concentrated in education and health services. Government employment declined 10,000. So obviously the big key there being the revision, revision down. Now, huge revision. If we look at this chart showing... Just how big that revision was historically.

CHRIS SIPES CFP®: And, this is, the BLS revised these non-farm payrolls from the previous, months down by 258,000. That's the largest downward revision since 2020 when, you know, everything was coming apart at the seams. Now, we also, if you look at that other big downward revision, and About this time last year in 2024, I think people forget that we had a massive downward revision.

CHRIS SIPES CFP®: The Fed kind of freaked out in August when they saw that data. And that's when they cut the famous 50 basis point cuts right before the election. That's become such a huge lightning rod for everyone.

CHRIS SIPES CFP®: Now obviously given that the Fed has two mandates. They, they full employment and price stability, AKA don't let inflation get out of control. Don't let deflation get out of control. We need price stability. So, unemployed, the, the unemployment rate is a big factor in whether or not they decide to lower rates.

CHRIS SIPES CFP®: We had a Fed meeting this week, Wednesday, which feels like an entire year ago at this point. And Powell was very hawkish and sort of like, hey, everything's pumping along. There's no need for a rate cut. The economy's doing great. Unemployment's low, et cetera, et cetera.

CHRIS SIPES CFP®: The odds on a rate cut plummeted. So the market sold off on Wednesday thinking like, geez, we're not going to get this rate cut that everybody was expecting in September. Lo and behold, after these job numbers posted, that flipped on its head on Friday. So we've been all over the board here this week.

DANO WEIR: And this then resulted, if you've not seen the headline, this then resulted in President Trump firing the commissioner of the Bureau Of Labor Statistics, Erica.

DANO WEIR: Mick and turfer who was a holdover from the biden administration and she has presided over both of these massive revisions and so i this is not a political statement but i it it definitely you it definitely between a very suspicious rate cut right before the election and just seemingly random revisions of job numbers I have to wonder what it is that happens in the one week between publishing job numbers and then revising them.

DANO WEIR: What changed? That has never been shared publicly or loud enough because clearly the jobs numbers have a huge impact on the market. So how could you be that wrong multiple times? It's just pretty astounding.

CHRIS SIPES CFP®: Yeah. And I don't pretend to know all the details.

CHRIS SIPES CFP®: However, as we'll see in a little bit with some of the other numbers, they are using imputed data more and more. So I agree with you, especially in today's hyper politically charged environment. It feels like we've got to figure out a way to see if we can make these numbers more accurate, right? People do not like the revisions.

CHRIS SIPES CFP®: Whether it's political or not, of course, it's looked at that way. And depending on which side is in power, you know, which side of the aisle you fall on, you know, you're going to see it, you're going to see it as something suspicious, right? But if we look at, this is from Goldman Sachs, their estimate, their estimate of the underlying pace of job growth based on the payroll and household surveys.

CHRIS SIPES CFP®: Now stands at just 28,000. And that's not really the point of this chart for me. If I look at kind of the bigger picture and you just kind of blur your vision a bit and see what is happening with the job growth, it looks like a downtrend, right? And part of this is due to the participation rate, which is a measurement of how many people are.

CHRIS SIPES CFP®: Participating in the, in the workforce, that number has been going down for a long time, many, many, many years. And so I'm sure that's a mix of, you know, the largest generation, the baby boomers retiring in mass, you know, probably AI, having some impact on here. But if you look at that number back, at the end of last summer, similar kind of low, point.

CHRIS SIPES CFP®: Then we started adding more jobs going into the fall and then we've started to see that fall off. But the overall trend seems to be, seems to be lower here, in job growth. So, you know, I'm sure there's many, many factors. There's not just one thing that you could put your finger on, but overall, you know, the jobs, jobs growth seems to be slowing.

DANO WEIR: And getting back to our theme for this episode, lies, darn lies and statistics. The accusation is that again, heading into the fall of 24, that a lot of those quote jobs that were being added were just federal jobs that were literally being invented, to try and say that the jobs numbers were good. So, that's at least one thing that's floating out there.

DANO WEIR: So, you know, which, which is it, which is really going on? Cause it is, you know, is as a participant in the economy, you know, I, I don't know about you, Chris, I'm not bumping into a lot of people who are. Feeling like there's a ton of new opportunities out there and a ton of great jobs out there. It seems like people are kind of happy to be in the ones they're in.

CHRIS SIPES CFP®: Yeah, yeah, I'd agree with that. I'd agree with that, especially the younger cohort is really struggling right now. We talked about that last week with recent college grads being, you know, the age cohort that is struggling the most. Now, when we look at this is the CME FedWatch tool, and this is a probabilities of the cut.

CHRIS SIPES CFP®: Coming up and you see this is for the September 17th meeting which is the next meeting and right now we are looking at a quarter percent cut as an 84 probability but if you look at just one day ago on this chart that was basically you know two-thirds 62 percent chance that they weren't going to cut at all.

CHRIS SIPES CFP®: So it was more tilted towards it. We're not going to cut today that changed to 84. So this is a, this is a somewhat volatile number when you get, especially when you get surprises like you did today. Because if these, employment numbers are accurate, then the Fed is likely to start acting, and by lowering rates, on the front end, which brings me to the next point.

CHRIS SIPES CFP®: And that is that If you go to the next chart, Dan, this will show the two-year Treasury yield, which is largely seen as the market's approximation of short-term interest rates.

CHRIS SIPES CFP®: There's a lot of people that say, we should just get rid of all the people at the Fed and just have our Fed funds rate follow the two-year Treasury yield, which is the market's pricing of short-term rates. And so, Yes, the Fed controls the Fed funds rate, which has an influence on interest rates, especially at the short end of the curve.

CHRIS SIPES CFP®: So the, you know, the shorter timeframes, but they do not have control over interest rates. They're not, they don't have that kind of control over the market. So I think that's a common misperception of the average person that, you know, the Fed's going to come out and say, okay, all interest rates are lower.

CHRIS SIPES CFP®: Your loan interest rates are lower and everything is lower. Those rates are ultimately set by the market. And today you saw a big reaction in the two-year based on those job numbers. We got a massive, massive drop. And if you don't watch the two-year all the time, this is probably like, I don't see that much difference in this line.

CHRIS SIPES CFP®: But trust me that the two-year rate doesn't all it doesn't usually drop like this now if we had zoomed out and we went back to when silicon valley bank was imploding and first republic and we were going through the banking crisis the two-year was also dropping very quickly now if this continues next week i would say and we get out of this range because you can see that this is even though we got a big drop today we're still kind of within the range that we've been in for quite a while now.

CHRIS SIPES CFP®: If we start to get directionally lower, I would start to worry more about a recession. This is the market saying, hey, something is seriously off here. If next week we kind of get back to normal and this recovers and, you know, that to me is the market saying, ah, not as big a deal as we freaked out about on Friday. So a number to definitely keep your eye on. Big, big drop in the two-year today.

DANO WEIR: Do you think it's time for the Fed to cut rates?

CHRIS SIPES CFP®: If you asked me yesterday, I would have said no.

CHRIS SIPES CFP®: With asset prices as high as they are, you know, all the, but if these job numbers are correct and if the two year more importantly is correct, I would say yes, because we've looked at that chart of a whole bunch where you say, where's the two year, where's the Fed funds rate. You don't want those two to have too much of a spread. You don't want those two rates to have too much of a spread.

CHRIS SIPES CFP®: And up until yesterday, that spread wasn't that much. So yeah, they could cut a quarter and maybe be closer to the two-year yield. Maybe 50 basis points would get them there. But they weren't like dramatically out of the ballpark, right?

CHRIS SIPES CFP®: With the big drop that we saw today, that spread has gotten a lot larger as of today. And if that continues, I think more importantly. Which will obviously have a lot more data by the September meeting, then they might need to recalibrate.

CHRIS SIPES CFP®: And I would also say too, that not just this Fed, but Feds in general tend to be reactive, not proactive, right? They tend to respond to crises, not be proactively trying to fight them. And that's always been the case. They were slow to increase rates when inflation was going up.

CHRIS SIPES CFP®: You know, some would say they were somewhat slow to respond to the COVID crisis, but once they did, they tend to kind of overreact in both directions. So now this is the 30-year fixed rate. So this is kind of the more, so what about interest rates?

CHRIS SIPES CFP®: Well, for most people, the biggest so what about interest rates is mortgages. And here again, you see the market adjusting interest rates lower. Based on these numbers. And so lower rates tend to correspond to less activity in the market, less demand for money.

CHRIS SIPES CFP®: In recessions, rates tend to go down. So it's also sort of a case of be careful what you wish for, right? Because if interest rates are at rock bottom lows, that's usually the market and the Fed responding to. A not so great situation.

CHRIS SIPES CFP®: So, but the market, the market under the surface, regardless of what the Fed is doing is already lowering rates. And here we are back to the mortgage rate is back to where it was in October. So pre pre-election. And so the market has already lowered, lowered interest rates based on these numbers.

DANO WEIR: Is this, we've mentioned that they're separate. So if the 30 year mortgage rate is dropping. Despite zero cuts from the Fed. Is that the mortgage industry saying, because of these jobs numbers, we think there's less people who want to buy houses, therefore we're dropping the rate to try to be more attractive?

CHRIS SIPES CFP®: Sort of. So mortgage people are going to take those mortgages that they're selling to you and me, and they're going to bundle them up, and they sell them to investors. And those investors... A lot of which are working with us and other advisors. They're on the flip side of that.

CHRIS SIPES CFP®: They're saying, you know, how much are you going to give me for me to lend you money? Right. So they're seeking a higher rate. And what happens is when people get worried, less risk taking, they tend to shift money into fixed income. Into bonds, into mortgages, into quote unquote, the safer assets.

CHRIS SIPES CFP®: So they're willing to take a lower return in exchange for more safety. And, and so that's, that's what it is. It's, it's more demand for those mortgages. More people are willing to buy them. Therefore, you know, the price is going lower on that money. There's more people willing to, to, to lend that money, than, than. Previously.

DANO WEIR: Gotcha.

CHRIS SIPES CFP®: And so, we talked about the imputed data. Now, this was in Bloomberg and, and you, you know, a big part of CPI. And I, I will admit, Dan, I don't know enough about how this imputed data is collected to say this is good or bad.

CHRIS SIPES CFP®: I am, I don't want people to misconstrue. That I'm saying, hey, these numbers are, you know, wrong. They could be right. Maybe this imputed way, you know, maybe there's using AI and AI scraping it from, you know, Walmart prices or something. Who knows? I don't know.

CHRIS SIPES CFP®: But for whatever reason, the imputed prices that are going into CPI now are approaching or are over 30% of the prices that are are going into the CPI data collection are imputed. And you can see that that's a big change relative to what we've seen previously.

CHRIS SIPES CFP®: So again, I don't know enough to judge whether this is good or bad, or there's a reasoning behind it. But I think people should know, especially because CPI affects probably most importantly, the adjustments to social security.

CHRIS SIPES CFP®: And so that number should be accurate for a lot of reasons but but the biggest one being that we need people to be able to trust the statistics to you know feel like they're not feel like they're getting the raw end of the deal when it comes to CPI adjustments on things like social security.

DANO WEIR: CPI, Consumer Price Index, which is average price for a, quote, basket of goods, whatever might be in that basket.

CHRIS SIPES CFP®: So if we look at the Truflation site, you know, if we say, okay, well, that's imputed, maybe I don't totally believe it, etc. You can look at alternative methods of coming up to this, like one popular one being Truflation. And like we talked about a few weeks ago, that seems to be pretty well flat, flat to down. You know, we're kind of still in this range. And they, if you notice, list what the BLS reports.

CHRIS SIPES CFP®: So the BLS reported rate is 2.7, which of course the Fed is going to go off of those numbers. At least I assume the Fed goes off of those numbers. So it's important that the BLS numbers are correct at 2.7. But Truflation is actually tracking under that number at 1.67. Now, I think that further would be in the camp of the people that argue, hey, tariffs are not inflationary. They're a tax. Taxes are deflationary.

CHRIS SIPES CFP®: They reduce demand. People are going to buy less. And so therefore, those prices will come down. It's a deflationary input, not an inflationary one. It's probably too early to tell. You know, you can see a little bit of uptick in this trueflation number since April when the tariffs were announced. But I don't think it's enough to be able to say one way or the other that that's, you know, affecting things quite yet.

CHRIS SIPES CFP®: So Now, if you look at why, why is that important? Well, this survey and probably many others, I don't always trust surveys. You know, I think they're heavily skewed by whoever's taking the survey, of course, and the way it's collected and yada yada. But we know that inflation is a big factor for people, probably the biggest factor in the last election.

CHRIS SIPES CFP®: And so inflation is key. For keeping people happy. You know, we talked about, you know, in 21, we've got the market up, we've got, you know, on at least on paper, you know, net worth is so high, et cetera, et cetera, but everybody's upset.

CHRIS SIPES CFP®: And that's because people really, don't like inflation. That's not just modern Americans. That's every society that's gone through it in the past and is going through it. Now people people really don't respond well to inflation and it creates a lot of fragility in, in the culture and, in society.

CHRIS SIPES CFP®: And so governments everywhere are, you know, keep, they keep a close eye on inflation for that reason. Now, at least according to this survey, people care a lot less about tariffs and trade policy, as you might imagine, then inflation and, and some of the other things that are on, on this list, you know, it's barely registering, on the list here.

CHRIS SIPES CFP®: So, so people aren't really paying as much attention to it, which might also be a reason why the Markets have done pretty well. Despite the fact that the tariffs are, you know, still in place and, and coming down the pike, people seem to have shrugged, shrugged that off as, along with the market.

DANO WEIR: You know, Chris, I think speaking to the importance of inflation.

DANO WEIR: Chris, are you able to hear me?

CHRIS SIPES CFP®: Let's see here. What we got next here.

CHRIS SIPES CFP®: When we look at average years in the market. Now, those that have been investing for a long time know that that whole average of the S&P is. It is barely ever recognized. And this chart really visualizes that for you. So what you see in the light gray are the years where the S&P landed between 5% and 10% in terms of returns.

CHRIS SIPES CFP®: Most market forecasters at the beginning of the year, whenever we do our January outlooks and such, they almost always are in that range, 5% to 10%. Percent. Which is kind of weird because that's the average and that's kind of what everybody always expects. However, in real life, the market barely ever lands in that zone. It's almost always much better or much worse. And that average is somewhat deceptive. And so.

CHRIS SIPES CFP®: And no matter the way the rest of this year goes, we've already seen quite a bit of ups and downs in the market to the point where it's not hard to believe that the market can be up a lot by the end of the year or down, and both would be equally likely.

DANO WEIR: Chris, can you hear me, buddy?

CHRIS SIPES CFP®: Okay, so it looks like I'm having trouble hearing Dano. Dano, I'm sorry if I'm talking over you at the moment.

DANO WEIR: That's okay. I've tossed it out a couple times.

CHRIS SIPES CFP®: Keep firing on. I'm going, where's Chris?

CHRIS SIPES CFP®: Okay, valuations. We talk a lot about valuations in the market being high. In the US, especially in the S&P. However, and we've said this many, many times, don't use that as a timing mechanism for many reasons, but this chart quantifies it.

CHRIS SIPES CFP®: We're looking at the forward price to earnings ratio and the implied forward annualized return using today's number. Now, If you can't really see that gray dot, it's 1.1%.

CHRIS SIPES CFP®: So if you were strictly using valuations to predict what the return in the S&P 500 was going to be this year, that number would be right around 1%, which is in line with a lot of the larger providers like Vanguard that have said, hey, if you're looking over the next 10 years, given the valuations, we're not expecting a whole lot, especially out of U. S.

CHRIS SIPES CFP®: Growth stocks. And so we may be in for lower returns, especially over the long term, but in the short term, it is next to impossible to measure that based on valuations.

DANO WEIR: One second here. You there, Chris?

DANO WEIR: Technical difficulties on the live stream. One moment.

DANO WEIR: I'm going to move on to the next slide here in a second. Chris, can you hear me?

CHRIS SIPES CFP®: Okay, there we go. Sorry about that, Dano. Not sure what was happening with the audio.

DANO WEIR: Hey, that's okay. I'm back. We're back together. Let's roll.

CHRIS SIPES CFP®: Okay. All right. Apologies if I talked over you 15 times, but I couldn't hear you, so I was just going with it.

DANO WEIR: Like what I did to Darren, so it's fine.

CHRIS SIPES CFP®: Yeah.

CHRIS SIPES CFP®: There you go. Okay. Relative performance, US versus rest of the world. Again, a reason you cannot use valuations in the short term as a timing tool.

CHRIS SIPES CFP®: I was talking to a client that's in the healthcare industry. I said, I'm a pretty big health nut. What would you say is really key? What are some things that you should be doing? In your video. She said, you know, The craziest thing is that sometimes you can be doing all the right things and the outcome is not ideal. And a lot of it just sometimes comes down to our genetics and such. And that's the way it is in investing too.

CHRIS SIPES CFP®: Sometimes you can have the fundamentals nailed, you can have the valuations nailed, etc., etc., etc., and it might not matter. Right and we've seen this epic run in the u. s versus non-u. s price performance that's the black line on this chart. So the price performance is just completely decoupled from the earnings performance, which you see in red. And this is a totally different situation than we saw in the.

CHRIS SIPES CFP®: Eight nineties where that price performance was following the earnings performance. You know, the U S was, was doing well on an earning standpoint and therefore their price was also outperforming. And then you look at the, the eighties, really the early seventies and into the early to mid eighties where, the U S is earnings performance was doing great.

CHRIS SIPES CFP®: But yet the price performance really wasn't. And so it's very strange how investors, not only in the US, but globally, value these things over time. But I think if you look at this chart, I wish this went back for even further than 70s.

CHRIS SIPES CFP®: But if we look at it, you know, on a 50 year basis, we're, we're, we're disconnected. And so maybe this is a totally new regime. Or maybe what we're seeing right now is is the kind of start to the return to a more normal cycle in that price relative to earnings performance.

DANO WEIR: And if you're trying to wrap your brain around this chart, because I always think that the pricing of stocks is really difficult for the human mind to perceive unless you do it every day because you can't see a share of Tesla and really put a price on it like you can an apple that you eat, not apple stock.

DANO WEIR: The imagine, imagine the red line here is the performance of a Honda Civic and the value to you as a person of that Honda Civic is that it can get you to from point A to point B and the performances, it's fuel economy. And so in the seventies, that fuel economy is 22 miles per gallon. And then maybe by 2023, it's up to 27 miles per gallon. It's increased a little bit, right?

CHRIS SIPES CFP®: Yeah.

DANO WEIR: But the price of that. Fuel economy in the 80s was 15 grand versus not much more fuel economy today and the price is 45 grand yeah so you're basically getting like minimal amount of more stuff it just costs way more than it used to is.

CHRIS SIPES CFP®: That about what this church saying yeah it's sort of sort of i think that's a good analogy or if you were saying like In sports, you think this player is going to be an amazing player and win multiple championships.

CHRIS SIPES CFP®: And you and all the other Teams are willing to pay up for that. And you end up paying a really high price for that player. Now, if everything goes as expected, maybe you got your money's worth.

CHRIS SIPES CFP®: But if that player gets hurt in year two and then they're on the injured reserve and then all your salary cap is taken up and blah, blah, blah. You know, there's more there's more downside potential than upside. That's that's not already priced in. Right. And so that's that's the key is what's what's already priced in.

CHRIS SIPES CFP®: And there's a lot of good news priced in at this point. Now, shifting to real estate for a second. I thought this was interesting, Dan. For the first time since the pandemic, inventory is back to pre-pandemic levels.

CHRIS SIPES CFP®: So U. S. Single-family homes is what we're referring to here. According to Mike Simonson, who's a great follow for real estate-related research at Altos Research, which he says inventory. And this is actually the compass.

CHRIS SIPES CFP®: Data that he's referencing, but, inventory is plenty high sales are a little head, a little ahead of last year and new listings volume is decelerating 860,000 single family homes in unsold inventory, which is up 27% over the last year.

CHRIS SIPES CFP®: So significant. I think that maybe the housing market might be exiting the whole pandemic era era. Craziness that we all experienced.

DANO WEIR: And definitely in talking to realtors locally here at Sonoma County, that's definitely been the case. And they're seeing, I mean, the cash offers are much less. The contingencies are back in vogue. Price cuts are back in vogue. These are things that were not happening as everyone was in the race, race, race of 2020 and 2021.

CHRIS SIPES CFP®: That's right. You sent me something, Dan, I guess we can't really verify it, but it was showing a realtor in Canada that was selling condos and there were those little real estate lock boxes all along the handles. And there was like hundreds of them and they were just like trying to figure out which lock box was the one they were going to show their client.

CHRIS SIPES CFP®: So no matter how crazy you think the U. S. Housing market is. The Canadian housing market is even crazier and has been for quite a while, completely disconnected from incomes.

CHRIS SIPES CFP®: So this is one of those charts where you look at and you say, okay, you know, going back to the valuations thing or the U S versus versus foreign or big versus small, like these things can go on for a long time and they can be way crazier than you can ever imagine.

CHRIS SIPES CFP®: But we, we have seen some, you know, cooling off in the Canadian housing market, which is going to also have an effect on the U S a housing market, given that, you know, a lot of folks from Canada, buy homes here as well.

CHRIS SIPES CFP®: Especially, you know, I would think that if they have more and more equity in their own house, it's easier to take out a loan or whatever, go buy another property in Florida or wherever. Have a place to get some nice weather in the winter.

CHRIS SIPES CFP®: And so you're probably going to see some effects of that Canadian home price sell-off having an effect in the US. Now, a bigger part of their market is affected by interest rates because they typically have, from what I understand, around five-year loans.

CHRIS SIPES CFP®: So they don't have that 30-year fix like we do here in the US, which is kind of a unique feature to the US. And so interest rates, higher interest rates will have a bigger impact on a market like that in Canada where those interest rates reset more often.

DANO WEIR: And I don't have it handy. So this is just anecdotal. But I lived in Vancouver for a few months. I worked at a record label up there, Chris. I'm a Renaissance man.

CHRIS SIPES CFP®: I know this about you. The Vancouver time.

DANO WEIR: I loved it. This is where I fell in love with hockey. It was great. It was great up there. But But one thing that Vancouver is maligned for, Google the Vancouver skyline, because whoever approved it approved 18 of the same condo building. And it is just, I mean, just sea of sameness.

DANO WEIR: So the video that I'd sent you as a social media video, it was a realtor who, you know, when you're showing a place, there's a lockbox that has the key in it. And she was saying this is the reality of I think it was Toronto that she was showing. But it was literally like 100 lockboxes because there were that many condos for sale in that particular building.

DANO WEIR: And so I find it very interesting, especially looking at this graph, because, you know, there's this dream that prices will be low or that things will be fixed if there was more supply. You know, it looks like in Canada that hasn't exactly been a solve.

CHRIS SIPES CFP®: Yeah. Well, I like looking at that chart where. And let me just go back to it for one moment where you look at home prices. And now I'm looking at the U. S. Home prices versus incomes. Now, you'll notice that that spread between those two is about the same as we saw prior to the great financial crisis. However, it's for two completely different reasons.

CHRIS SIPES CFP®: And that's that's very important. Important thing to know because it's less likely that we see a, you know, a crash like we did in 2008 because the 2008, spread was caused by people getting loans, and, and borrowing money on properties. And, and so they were over levered, you know, there was, there was more debt in the system.

CHRIS SIPES CFP®: This price difference is based on the fact that nobody is selling their homes because they have low interest rates. And it's almost the opposite problem where you have so many people that own their homes outright and or have so much equity in their house with a low interest rate that they're not selling their house.

CHRIS SIPES CFP®: There's less inventory and the demand and demands really stayed the same. So the prices have gone up. And so but that's still likely to kind of put a ceiling on these home prices as far Whereas you can only get so far disconnected from incomes before. Those home prices really have a hard time continuing to go higher.

CHRIS SIPES CFP®: All right, so quickly, we'll jump through the various asset classes with the moving averages.

CHRIS SIPES CFP®: Now, I remember Darren saying, hey, we're coming into that seasonality period where we're likely to see some pullbacks.

CHRIS SIPES CFP®: The reason is unknown yet, but it's likely based on the technicals. We saw the S&P especially get pretty far away from its 50-day moving average and be elevated above that for for quite a while. And today we saw that pullback a bit, but you can see we're still off that 50-day moving average, which is the orange line here.

CHRIS SIPES CFP®: And so despite the pullback, still a lot of strength in that chart. Does not look like there's been technical damage done to the market yet, at least when it comes to the large US stocks in that moving average.

CHRIS SIPES CFP®: The small stocks however might be a different story. Now, these are a lot noisier, a lot more volatile. And you saw that today. Sorry, we're not on small stocks yet. We are on the IFA. Sorry, this is developed Markets. Apologies. So developed Markets saw a cut through that 50-day moving average, but still moving average is still intact overall.

CHRIS SIPES CFP®: However, the price did breach that 50-day moving average this week, despite the trade deal announcement with Europe last weekend. We saw weakness in the developed Markets, of which Europe's a significant portion. So it could be just a healthy pullback.

CHRIS SIPES CFP®: Europe and the developed Markets have seen a lot of strength this year. And so not, you know, surprising to see this pullback, but a little bit concerning that we breached that 50-day moving average.

CHRIS SIPES CFP®: And when we look at the emerging Markets, kind of similar to the S&P, where we were much elevated above that 50-day moving average, and we saw a pullback today. But I don't think that you could look at this and say, hey, that's significant yet.

CHRIS SIPES CFP®: The uptrend is still in place. The technicals still in place on the emerging Markets. Of which China makes the largest part of this particular index, about 30%.

CHRIS SIPES CFP®: Bonds.

CHRIS SIPES CFP®: I don't want to go so far as to say you could get excited yet, but given the last few years we've had in the bond market, you probably don't want to see any excitement in the bond market, but we are seeing a little bit of technical strength in the bond market. We got the golden cross, albeit not like it.

CHRIS SIPES CFP®: It punched through, Dan. It's not like we got that golden cross just with an uppercut upwards. It is just a little bit over that 200-day moving average, just a smidge. We're moving there slowly. And the U. S. Ag finished above its 50-day and 200-day moving average today. We saw strength in bonds today, which is a good thing.

CHRIS SIPES CFP®: Back in the spring when we were seeing the selling pressure on the equity market in stocks, we saw weakness in bonds at the same time. And that is devastating to not see your bonds working when stocks are also not working. So good day for bonds today with interest rates down.

DANO WEIR: I do want to throw this in there because we were just talking about a little bit of a correction in the S&P.

DANO WEIR: Our dear friend, managing principal of the firm, Darren Blonsky, on assignment this week. We'll return next week. But he's here virtually via a Teams message in which he said, for the record, three minutes ago, for the record, I called this correction technically last week.

DANO WEIR: He's taking victory laps even though he's not even in the show.

CHRIS SIPES CFP®: Well, I did not see that Teams message, and I did remember what he said, so I did try to properly give give Darren credit on that hopefully hopefully the recognition made it out to him so long-term bonds oh man we're just plumbing the bottoms here but at least we're not going lower if you want to look at the if you want to look at the bright side this is long-term treasuries nothing really to see here we've been down here since you know The summer of 23.

CHRIS SIPES CFP®: So we're going on two years now. The only saving grace for this is that, hey, at least you're getting some carry, as the pros call it. You're getting paid some interest to just hold this asset, which is north of 4% right now. So at least that is a bit of solace for the long-term bondholders that have just been up and down and up and down, but really just in the same range here for the last two years.

CHRIS SIPES CFP®: Nothing really to say on this one, Dan, no big movements there.

DANO WEIR: I think that is an interesting point though, Chris, because I was talking with a friend recently, we were talking about his investments and he was talking about performance. And I said, well, you know, is it all in US stocks?

DANO WEIR: And he said, as if he hadn't even considered anything else. But can you clarify for people? Because unlike stocks, bonds pay you that interest rate. What is that exactly functionally as an investor when you have a bond?

CHRIS SIPES CFP®: Well, if you think about it, when, when you buy a bond, you're, you are lending your money out. So anybody that's ever borrowed money knows that typically you've got to pay on that every month. Right. And, that's, that's, your payment, your payment on your loan is a, is a, is an interest received by whoever owns that loan And it works the same way when the government borrows money, they issue bonds.

CHRIS SIPES CFP®: When corporations borrow money, a lot of times they issue bonds as well. And they're going to pay something called a coupon. And that is the stated interest rate. When they issue the bond, they'll say, hey, you lend us money and we'll pay you 5% for the year.

CHRIS SIPES CFP®: And we'll pay that out either monthly or quarterly. And so that interest rate. Is something that bondholders get. Now you can still get fluctuation in the price of that bond based on that interest rate.

CHRIS SIPES CFP®: So going back to that same example, if you just bought something with 5% and you fast forward five years and let's say new bonds are coming out at 8%, nobody wants a 5% bond. Why would I take your 5% bond when I can get an 8% bond now? So therefore you got to lower your price. To make sure that that coupon is competitive in the market. And that's why bonds fluctuate with interest rates.

CHRIS SIPES CFP®: And so really long story short, if you're one of those people that feels like interest rates should be much lower, and if they should be hitting 1%, it'd be interesting to know if President Trump has a whole huge portfolio of long-term treasuries.

CHRIS SIPES CFP®: Because if we did take rates that low.

CHRIS SIPES CFP®: And, and the market followed that Fed funds rate lower, which is not, not necessarily, it has to, the market can do whatever it wants. The Fed lowered rates last fall and the market took interest rates higher. So, but if, but if it did go lower than long-term bonds would do extremely well in that, in that situation.

CHRIS SIPES CFP®: So anyway, gold speaking of doing well, gold. We've been sideways for a few months here in gold, and you can see it's been just trading in that trading range. I'm sure that's a flag of some sort. I don't know if it's a bull flag or a bear flag or just a neutral country flag. But gold saw a pop today.

CHRIS SIPES CFP®: We got a big price spike in gold today, and it finished above its 50-day moving average for the week. So that's a good thing for gold. That trend is sort of starting to kind of peter out. We've just been going sideways here in gold, but not surprising given the run it's had over the last few years.

CHRIS SIPES CFP®: Bitcoin, again, we saw a pretty decent sell-off in Bitcoin, but just like the S&P that we were looking at on a technical level, it's just a blip and no real signal there that I can see. We've definitely got...

CHRIS SIPES CFP®: Upward trend based on the moving averages is still intact with Bitcoin.

CHRIS SIPES CFP®: Reits are a way for people to get exposure to commercial real estate. Think office space, think apartment buildings, hotels, that type of space. And you can see that we've really been in this trading range since If I went back even further, it's probably the same as since 2021. So similar to small stocks, we've just been in this range.

CHRIS SIPES CFP®: Got a little bit of a golden cross, Dan, but that does not look very strong. Not a lot of signal in this chart from the moving averages. We're kind of sideways. But this is another industry and another asset class that is also driven, at least in part, by interest rates. And so if we see interest rates go lower, that would be a good thing for the REIT space in general.

CHRIS SIPES CFP®: So with that.

CHRIS SIPES CFP®: Sorry, Dan, I, I, I believe that I tempted the audio gods by saying that since Darren was here, wasn't here today that we were going to be good on audio and, karma comes quick, man. Yeah.

DANO WEIR: Yeah. Just when you got it all set, that's when the, the tech decides to let you know who's boss. So it all happens. And we thank everybody who checked out the show today. As we said, Darren will be back next week. We'll have the full crew together. And thank you for checking out the show this week. And our new logo and our new intro.

DANO WEIR: We are On The Markets from Sonoma Wealth Advisors. And our firm also has 401k tax services, Fermata 401K, Fermata Tax. And Chris, we're not done with the new visual identity because we've also got a new outro. So I hope you're ready for it. I'm about to hit it right now. Can you count me down? Three, two, one, go.

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