Be Careful Wishing For Rate Cuts

DANO WEIR: Happy Friday. Happy start to the school year. Happy start of the football season. Trying to stay positive here before we get to the show today. My name is Dano Weir. I'm the Marketing director for Sonoma Wealth Advisors and our Fermata family of brands, Fermata 401K, Fermata Tax.

DANO WEIR: Fermata is our SEC entity and you are one of our clients or you're thinking about becoming a client and you're going to get up to date with some straightforward financial market updates. That's what our show is. Be joined today by Chris Sipes and maybe Daren Blonski. We're going to see if he comes in the side door or not. He had a conflict, but I think we're going to make it happen. So what are we talking about this week?

DANO WEIR: Might be rate cuts, but we're actually asking why you might want to be careful what you wish for when it comes to rate cuts, why that might be a scenario where we're facing a major economic downturn. Also, why single family homes are looking like 2008 right now. And in the last 20 years, should you have been in all gold or all stocks, jokes on you, it would have been a push.

CHRIS SIPES CFP®: More on that after this. Sonoma Wealth Advisors, Fermata 401K, Fermata Tax, and Fermata Insurance. On The Markets starts now.

DANO WEIR: Now, Chris, I was promised that rate cuts were going to fix everything. In fact, the president seems to think they should be at 0%. But the thesis for today's episode is maybe not a good thing.

CHRIS SIPES CFP®: Well, I guess it depends on the reason why rates are going lower. And while the Fed has some control over parts of the rate market, they don't have full control over all the rates. And the last time that they cut rates, which was about a year ago now, they cut 50 basis points and right before the election famously, which was somewhat controversial.

CHRIS SIPES CFP®: And the market rates went up. So even though the Fed had cut rates, which usually leads to the Markets, you know, kind of following that, the market actually priced a higher rate in. So the Fed, despite what many say, doesn't control everything.

CHRIS SIPES CFP®: And the market is going to price in the outcome that the market feels is most likely. And when I say the market, I mean millions of people around the planet, if not billions.

CHRIS SIPES CFP®: Putting money in, placing their bets on where things are going.

DANO WEIR: And just to, if you are in the know, this is going to sound super rudimentary, but it always bears repeating in my opinion, which is that some of the basics here are you've got the Federal Reserve and they set what they call the overnight rate, Chris, and that determines what they believe the percent that should be charged on money that is loaned.

DANO WEIR: But then that, as you just said, is not actually the real rate because the market then determines, yeah, well, here's what we're really going to charge. But setting that rate and the changing of that rate flows downstream for so many things, correct?

CHRIS SIPES CFP®: That's right. It's the overnight rate for banks in the Federal Reserve Network. So it's an extremely short-term rate. But that short-term rate is kind of what the rest of the market ends up getting. Priced on.

CHRIS SIPES CFP®: Because if you think about it, that's like the beginning of money lending. And that is what banks charge each other overnight to lend to one another to settle up. And banks have to be constantly moving money around to make sure that their books are closed for the day.

CHRIS SIPES CFP®: So with all the deposits and money coming in and going out. And so that rate is kind of the base rate on the super short term, literally overnight, and then rates flow out all the way to 30-year treasuries in the US. So there's all the timeframes in between.

CHRIS SIPES CFP®: And we commonly call that the curve, the rate curve, which usually looks somewhat like a Nike swoosh or in that direction where typically it costs less to borrow money in the short term. Than it does to borrow money for a longer period of time.

DANO WEIR: All right. So just clarifying that there, there is not a government organization in the sky that's setting your mortgage rate per se, but they certainly have an influence on it. And we're going to look at why several factors have come to a confluence. And the general belief is that there is a rate cut coming, but that may be a bad thing. So we'll look at that.

DANO WEIR: We are Sinema Wealth Advisors, part of the Fermata family of brands, Fermata 401K, Fermata Tax. We are your hosts today. We're going to get Daren here in a little bit. But Chris, the managing principal, myself, the Marketing director and a trained podcast host. So I have the voice, the Chris, I was loving seeing you rock an attack of the clones, a star Wars meme this week. And tell me what we're looking at here.

CHRIS SIPES CFP®: Well, this meme has been used many times. It's one of my favorites. And for those that are just listening, the guy says, we're getting rate cuts.

DANO WEIR: The guy is Anakin Skywalker. The girl is Padme, right? Queen Amidala from Attack of the Clones. And this is from Star Wars.

CHRIS SIPES CFP®: Yes. She's looking back at him and says, because inflation's falling, right? And he just looks at her and she says, because inflation's falling, right? And for those that watch the show know and really follow the Markets, the Fed has two mandates, which is price stability, AKA keeping inflation under control and deflation under control.

CHRIS SIPES CFP®: And the other mandate of the Fed is full employment. So it's kinda, it's, it's sort of like We'Ve talked about over the last few weeks is which one are they going to pick if they have to pick one, right? Because inflation has not come back down to their target. And just a week or two ago at Jackson Hole.

CHRIS SIPES CFP®: You know, palace said, Hey, you know, that whole 2% average that we were shooting for, forget about that. We're, we're no longer shooting for that. Cause they basically couldn't get it under three. And so they've already kind of removed that as a goal. And then today we got the job numbers, and, which were not good.

CHRIS SIPES CFP®: And, and, and the, and the market, the rates market really sold off me and the rates went lower. An anticipation of, hey, that's not good. The economy is slowing. There's going to be less demand for money. The Fed's going to lower rates. And so, yes, the rates went down, but not because inflation was coming down. The rates went down because the labor market outlook is not great.

DANO WEIR: So we're looking at kind of a nightmare scenario where prices are still high and people are losing their jobs.

CHRIS SIPES CFP®: I'd say it's too early to tell that at the moment, but yes, that would be the worry. You don't want high inflation with stagnant or retracting growth, the old stagflation.

CHRIS SIPES CFP®: That's not a good situation to be in.

CHRIS SIPES CFP®: Now, we talked a lot about how the U. S. Market's concentrated, it's expensive, but it has been for years. What can you do about it? Well, one of the areas that have really been shining so far this year is global equities. And we'll look at that throughout the show. And this from Visual Cap shows the cycles that We'Ve been in over time between US equities and international Markets.

CHRIS SIPES CFP®: First one, I didn't even realize that in 1985, the global Markets outperformed the U. S. By that much. That's wild. But we used to have kind of bigger swings, more frequent swings. Really, since the great financial crisis, We'Ve been on pretty much U. S. All the time, almost every year. And every time that the international Markets have started to outperform, that quickly reversed.

CHRIS SIPES CFP®: And so this might be another one of those. This chart was made in February. So the U. S. Market is lagging behind the international market by even more now that we're in September. But that could be a place if you don't already have some of that exposure in your portfolio that you might want to consider looking at for some diversification benefits if if we're starting to see some some headwinds in the U. S economy.

DANO WEIR: Chris, if there's a client right now who is not sure whether they have some or they want some, what do they do? Call their advisor and say, get me some of them global equities?

DANO WEIR: You just go buy a German tire company or what do you.

CHRIS SIPES CFP®: What do you do? I suppose you could typically, you know, picking an individual stock is really tough. Like We'Ve talked about, I will say that usually we kind of use clients requesting something as a telltale for, Hey, maybe, maybe this is, you know, an overcrowded area where the Markets, you know, Everybody's piling into it.

CHRIS SIPES CFP®: Famously, AI, We'Ve gone through timeframes where everybody's calling, how do I get more AI? How do I get more AI? Well, look, even if you just own the S&P 500, most of your portfolio is in AI. So it's maybe not necessary to go ahead and compound that even more. Right. But I will say that almost nobody has.

CHRIS SIPES CFP®: Called and requested foreign stocks. Now there have been a couple actually over the last month, which is, interesting, you know, because really, maybe it was about two years ago or so. I would say we had definitely more people saying, why do I own foreign equities at all? Like, why do we, why do we have them in the portfolio?

CHRIS SIPES CFP®: And, That's the thing about diversification is that you never know when the catalyst happens and when the, when the change happens, it's only obvious in hindsight. And so, you got, sometimes you got to go through those times where you're looking at items in your portfolio going, Oh, why do I own that?

CHRIS SIPES CFP®: Because sometimes it's just right around the corner where, they start to perform well. And, so this year, so far. What you're looking at here is the start to the year.

CHRIS SIPES CFP®: And the blue line is the U. S. Equities. And they're having pretty close to their worst year since 2009 versus global equities. And I listened to an interview this week with the head of macro at Carlyle, and I'm blanking on his name, so I'll have to apologize on that.

CHRIS SIPES CFP®: But He was just mentioning about how in the early 2000s, when the international Markets, specifically the emerging Markets, were far outperforming the U. S., at that time it was, hey, if you want growth, you've got to be in the emerging Markets. They're the ones with the demographics.

CHRIS SIPES CFP®: They're the ones with all the growth. They're the ones that are adding all the manufacturing and output and production and et cetera, versus the U. S. The demographics are poor. There's no growth opportunities, yada, yada, yada. Kind of similar to what you're hearing about international stocks today.

CHRIS SIPES CFP®: And so be careful of the narratives, right? We're susceptible to narratives. We're susceptible to wanting to follow the crowd. And a lot of times at these turning points, it takes a while for that narrative to change. And you might miss out on...

CHRIS SIPES CFP®: On that growth at the turn. Cause usually at the turn is when you see the most, outperformance, the most relative outperformance is at the turn. And by the time it's accepted knowledge, usually that's, that's too late to get a lot of those, a lot of those returns, that you might've seen otherwise.

DANO WEIR: Was the interview with Jason Thomas, Chris?

CHRIS SIPES CFP®: Let me see here.

DANO WEIR: Head of global research and investment strategy of the Carlyle Group.

CHRIS SIPES CFP®: Yes, it was on the podcast with Alex Shahidi. And that's an excellent podcast, by the way, for any way that's interested in listening to some investment, really good investment videos or interviews from some of the top minds in the investment World. So this is the sentiment indicator. And from AAII, we're roughly even.

CHRIS SIPES CFP®: Across the board again this week. So not a whole lot of change here. Again, we look at this for extremes. When you see extreme bullishness or bearishness, it can be a sign that people are piled on one side of the boat or the other. This week, we don't really have that, luckily.

CHRIS SIPES CFP®: Now, the CNN Fear and Greed Index sometimes agrees with this from AAII, and sometimes it doesn't, because it's more of a positioning related. Index where it's actually looking at seven different positions in the market. So it's more based on how people are actually invested is a better way of saying it. This week it does.

CHRIS SIPES CFP®: Match up with the AAII, chart and that it's neutral 52 right in the middle. It's down a little bit from last week. It was at 60 greed last week. Bitcoin also agreeing at neutral 48. And that is unchanged from last week as well. So really kind of meh in the Markets this week. There's not a lot of sentiment I would say quite yet, in, in the Markets.

CHRIS SIPES CFP®: Now what caused the big brouhaha in the Markets this morning? Well, that was the unemployment or sorry, not unemployment, the employment number, which also led into the unemployment number. Now, for those of them following, there's been a lot of drama. It's been almost like a soap opera with the Bureau Of Labor Statistics. The numbers came out last month.

CHRIS SIPES CFP®: President Trump fired the head of the Bureau Of Labor Statistics because they revised the numbers down. Dramatically. And so they got rid of the head last month. And so this number was highly anticipated. They were expecting 75,000 new jobs in the month of August.

CHRIS SIPES CFP®: And the actual number came out after a delay, I'll add, right before the number came out at 8.30 Eastern, the BLS said, we're having technical difficulties. Of course, everybody gets all upset. What's this mean? Of course, there's technical difficulties. Are they trying to hide something?

CHRIS SIPES CFP®: The number comes out and it's 22,000, a huge miss, huge miss. And the market rallies, which is, would you guess that Dan with, with a horrible number? No. Do you think the market's going to.

DANO WEIR: And this is why timing makes no sense. Like the people who think if only you knew. If I knew the job number, then I could have done this. And I quoted shorted that. It's like, oh yeah, well, what about when it does something that's totally counterintuitive?

CHRIS SIPES CFP®: Yeah. So, so a huge miss. The market initially rallies dramatically on the assumption that, okay, this is a reason for the Fed to lower rates. See the job Markets week, you have cover to lower rates, not only by 25 basis points, which is pretty much baked into the cake at this point, but Hey, maybe they'll go 50.

CHRIS SIPES CFP®: Now, this is from earlier today with the CME group, and this is the futures market on rates. And so you see that 14.2, that was the probabilities that the Fed cut by a full half a percent at this next September meeting. Now, I'm looking at it right now, and that number has dropped back down to 8% probability.

CHRIS SIPES CFP®: But today's the first day that We'Ve seen any probability of a half point cut. And there's... Currently no probability of them keeping rates the same. So the market has obviously taken this job number into account and said, Hey, now We'Ve got a higher probability that rates are going lower.

CHRIS SIPES CFP®: And, and, and therefore the market initially rallied and then sold off. And we ended the day pretty much flat, in the S and P we were down, it looks like about 32 basis points. So not a huge move in the S&P. But a very decent size move in all rates really across the curve from short term to long term rates dropped pretty dramatically on this news.

DANO WEIR: Chris, I'm watching this Cowboys-Eagles kickoff to the NFL season last night. And towards the end of the game, there's a big fumble and it's now looking like the Eagles are just going to walk away with this. And wouldn't you know it, lightning delay right on cue. And it's just exactly the same as, oh, we're going to raise the job numbers.

DANO WEIR: Oh, technical difficulties. I mean, they just, the whole thing is scripted and, and you can start laughing at any point if you want, cause I'm being facetious, but, isn't it always funny how right at the last second, perfectly timed here comes the technical delay, the weather delay, the lightning delay.

CHRIS SIPES CFP®: Well, and anybody that's ever bet on sports, I think can relate a little bit more to how Markets work. Because sometimes you're like, okay, this is, this is so obvious. The hive mind is off. There's, there's no chance that, that these odds are correct. Right.

CHRIS SIPES CFP®: And, and I, I know better. I'm going to take, I'm going to take this bet. And lo and behold, half the time, it's like right at the end of the game, something changes and boom, it falls right within the spread. The team wins, it's supposed to win. And you're like, you lost your money.

DANO WEIR: Got you again.

CHRIS SIPES CFP®: The hive mind is usually right.

DANO WEIR: That's right. Speaking of 4D chess, Darren Blonsky is in the studio. Darren, welcome to the show. He is a great player of 4D chess. He's always thinking in multiple dimensions.

CHRIS SIPES CFP®: You know what I loved about joining a little bit late? I'm a little bit late today because I was finishing up a call, and I come on screen, and very first thing I hear, Dan, is you talking about football. Football. No.

CHRIS SIPES CFP®: What made me happy about that is at least you weren't talking about Disney, Dan. That's right.

DANO WEIR: Or Nintendo. So I'm a simple man.

CHRIS SIPES CFP®: Disney or Nintendo. I'm good. Let's do football, buddy.

DANO WEIR: All right, Chris.

CHRIS SIPES CFP®: That's right. Okay. So we just talked about that nonfarm payrolls number. That's the 22,000.

CHRIS SIPES CFP®: I'm almost surprised that the market reacts so much anymore because we know these statistics are not right. Like We'Ve, We'Ve already been, you know, told how they come up with these numbers and why they get revised by so much.

CHRIS SIPES CFP®: And like, yes, it's statistics and they're, they're, they're trying to be pretty close, but it's not like this number is sent down from heaven. As you said, Dan, it, it is, it's a moving target and it's probably going to get revised. However, the market reacts and hangs on every word, especially with all the drama going on at the BLS. Everybody wants to know.

CHRIS SIPES CFP®: But if you look at a longer term, it's really kind of just in line with the trend. So we're not adding a ton of new jobs in the US, but it's not like this number has just dropped off a cliff or shows any huge signal when you look at it over a little bit of a longer term metric.

CHRIS SIPES CFP®: So that led to the unemployment rate, which ticked up from 4.2. To 4.3. And why we always put this chart on here that goes back to the 50s is so that you can see that cycle that tends to happen over time and the gray areas being the recession areas. And what you tend to notice with this is that unemployment goes down, down, down as the economy is expanding.

CHRIS SIPES CFP®: And obviously when we hit a recession. Unemployment goes up and it tends to go up very quickly, at least in the past when We'Ve had prior recessions, that unemployment number moves up very quickly. And so we got very low. We got to 50-year lows in, I believe it was 2021 in terms of unemployment rates, sub 4%.

CHRIS SIPES CFP®: Anything under 4% is extremely low. Really anything under 5% is considered pretty low historically. And, but now we're ticking up to 4.3, but again, it's not like you're seeing yet a, a huge jump. I wouldn't say that there's a, there's a massive jump in the unemployment rate yet to where you would say, yep, obviously we're in a recession.

CHRIS SIPES CFP®: But, but that, that number is trending on the upward trajectory, on the employment side of things.

CHRIS SIPES CFP®: So let's take a look at the, two-year rate and And, the gray line is the Fed funds rate. The blue line is the two-year treasury. And I hesitate to bring this up since, you know, Bob Elliott was like very kindly sort of like, nah, I don't think that that, that whole theory holds any water about the, the, the Fed funds following the, the two-year treasury, or maybe you guys heard it differently, but he didn't seem to.

CHRIS SIPES CFP®: He didn't seem to put as much credence in it as we do, but we're almost a full percentage point off in terms of what the two-year treasury or the market, aka the market, the two-year treasury rate is set by everybody betting, right?

CHRIS SIPES CFP®: And what the Fed funds rate is, which is what's said by the Fed, which is that gray line. That spread, that 1% spread. Spread is about where we were last year at this time in September when the Fed also cut. And at that time, they cut by 50 basis points. And that's where you see that dramatic drop in that gray line.

CHRIS SIPES CFP®: Now, why we kicked off the show with, hey, be careful what you wish for with lower rates. What you'll notice here on this chart when you look at the gray lines for the recessions is that when rates go lower. They go lower quickly and it tends to be in response to a crisis.

CHRIS SIPES CFP®: So the Fed comes in and tries to stimulate, but also the market is also lowering rates based on the fact that there's less demand. There's less demand for money when the market, when the economy is not expanding. People don't need to borrow money to buy houses, to expand their businesses, to buy cars, to do all the things that they need to do.

CHRIS SIPES CFP®: There's just less demand in the market when we're going through a recession, which lower demand for anything is going to lower the price. So you get a lower demand on rates and that price is going to drop. So if rates were to drop from where they're at now to down to say 1% or 1.5%, which I've heard thrown around there a bit.

CHRIS SIPES CFP®: First off, that would be a huge huge difference for the Fed funds to be that far ahead of the two-year rate. But if the two-year rate dropped down to one or one and a half percent, and you didn't tell me anything else, I would assume something pretty catastrophic has just hit the, the economy and the Markets and that the, the market is screaming like, Hey, this is bad.

CHRIS SIPES CFP®: We, so Hopefully that makes sense. I don't know, Dan, let me, let me pause there and see, see what you think.

DANO WEIR: I mean, it makes sense to make a risk, but what, Darren, what do you think?

CHRIS SIPES CFP®: I just trust whatever Chris tells me.

CHRIS SIPES CFP®: You guys are watching football on the other screens, aren't you? No. I was actually looking at the Dom farm employment change and the way they just adjusted the June number. So we actually lost jobs in June and, and.

CHRIS SIPES CFP®: Thinking to myself how utterly ridiculous it is that the market even cues off the job numbers when they're this wrong every quarter. Exactly. Exactly. We're hanging on these numbers every time. And you know, that, that brings up a good point too.

CHRIS SIPES CFP®: I feel like really this whole COVID era, We'Ve been so trained to follow every single thing that the Fed does that we're following these numbers like so closely, the inflation rates, the payroll rates, because everybody wants to know what the Fed's going to do because everybody feels like Fed equals what the market's going to do, right?

CHRIS SIPES CFP®: It's kind of like the Fed is training the market to feel that way. And this reflects the fact that people feel pretty confident that the Fed and the government are backstopping the equity Markets. Because if you look at the aggregate financial asset allocation across households, mutual funds, pension funds, and foreign investors, people are into equities.

CHRIS SIPES CFP®: And they're into equities probably more so than ever, at least going back to the 50s in this chart. And this is even higher than we saw during the dot-com boom. Now, obviously, the companies that are dominating today are complete.

CHRIS SIPES CFP®: Completely different than the companies that dominated during the dot-com boom when there weren't profits. A lot of these companies were pre-revenue, et cetera.

CHRIS SIPES CFP®: And now you've got maybe the best companies ever created by man dominating the market, but still you have a concentration of, of, equity value in, in these large companies in these large U S companies. And I think maybe for the first time ever, you have all those companies pretty much doing the same thing. You know, it wasn't like the, the fifties.

CHRIS SIPES CFP®: And Dan, you'll have to mention that person from Carlisle again, because I have to reference him that he, yeah, he, he brought this up that, that the diversification is really lacking now, given the fact that those concentrated companies are basically in the same industry providing much of the same.

CHRIS SIPES CFP®: You know, services, etc. So it's, it's not like the nifty 50, you know, that was that were all blue chip companies, but in different sectors, they did different things produce different things. So you got more diversification back then, during that particular run up in those companies, then you have now where, you know, you're really just concentrated in the tech sector.

CHRIS SIPES CFP®: And, and so it's a different, it's a different thing today. Now, on the flip side of that debt, which is bonds, you know, under-owned relative to, to, to history at only 17% and then cash at 13% is kind of about the same as usual. So it looks like people have really taken money from their bond allocation and put it pretty much exclusively in inequities.

DANO WEIR: I want to try to give an example here of what I think you're talking about, Chris.

DANO WEIR: If you're listening right now, let's say you were a person who wanted really big muscles and you really liked the look of having like being really fit and all your friends started taking steroids and what did they get? Really big muscles. And they stopped eating because all they needed to do was do the steroids to get the really big muscles.

DANO WEIR: And Chris is over here saying, hey, if you eat a balanced meal, you need some vegetables. You need to work out, but you also need to sleep. Chris is preaching that. And they're saying, my friends are just getting muscles off the steroids. I just do the steroids. Is that not kind of the difference between all equities in a diversified portfolio?

CHRIS SIPES CFP®: Yeah, I think that analogy works. And you know what? It's not. It's, you know, you can't blame people for feeling this way, right? Because just taking steroids has worked.

DANO WEIR: Right right they're getting the bigger muscles they're not of course but it's it got it in it's got an inherent like eventual like blow-up date right i mean it's it's not perpetual it doesn't sure sustainable sure i mean and and the thing is about all you know market.

CHRIS SIPES CFP®: History is that each time it feels like well yeah steroids didn't work in the past but this time let me tell you Like it's a different kind of steroid.

DANO WEIR: This, this is a special from the Bay Area lab corporation. It's going to be great.

CHRIS SIPES CFP®: They told me there's going to be no side effects. I'm sure it's going to be fine. Right.

DANO WEIR: This is not steroids. This is HGH. Totally different.

CHRIS SIPES CFP®: Yeah. So, and, and, and people, we all suffer from something called recency bias. And, and when you look at the time between the S and P 500 all time highs, this, this chart shows that really since the great financial crisis. Buying the dip has made sense. And a lot of times those dips have just been a few weeks.

CHRIS SIPES CFP®: So there's really, you know, market participants have, it's a Pavlovian response, you know, like we said with the Fed. And it is a reason why everybody hangs on every word of the Fed because they've just, everybody's been trained that the market comes back quickly. Every time it goes down, there's going to be something that brings it back up.

CHRIS SIPES CFP®: Valuations don't matter anymore and don't worry about concentration these are the best companies ever etc etc etc and and so it's easy to see why people are looking at that as the easy way out you know and the low risk way and but just like you know with the wildfires in California we all know that if a place is burned previously and it's been a really long time since it's burned that actually builds the risk.

CHRIS SIPES CFP®: It's not like you look at it and go, well, it burned a hundred years ago, but it's been a hundred years since it burned. So we're probably good to go.

CHRIS SIPES CFP®: You would look at that and go, geez, now, now the risk is elevated because now you've got all the, the, the trees that are, that are, you know, mature and there's tons of, you know, brush and everything everywhere. So it's, it's not like, well, it just got burned last year. And so there's really nothing left to burn. Right. So hopefully, I don't know if that we're mixing mixing metaphors here and analogies.

CHRIS SIPES CFP®: But if you look at the CAPE ratio, which is the cyclically adjusted price to earnings ratio, and this is a looking at earnings over a 10 year period. So it's trying to look at a longer time period to say, hey, you know, where are we going? And a lot of people will say, look.

CHRIS SIPES CFP®: Cape ratio has been elevated for a long time. So if you just invested solely on this, you would have not participated in, in the S and P and that's not what, that's not what we're saying, right?

CHRIS SIPES CFP®: It's just more consider moderation, you know, instead of just throwing everything into those, into that one asset class or that one company, that's why you want to look it some moderation because While in the short run, it's a terrible timing tool, in the long run, it tends to revert to fundamentals.

CHRIS SIPES CFP®: And you can see at the previous times where the CAPE ratio has been elevated, when you look at the 10-year nominal return, which is not net of inflation, returns tend to be low going forward in the 10 years. And if you look at the real return, which does show you net of inflation, it's not a good place to be.

CHRIS SIPES CFP®: So take the 70s as an example, while the nominal return, so yes, you got positive returns in the S&P when that CAPE ratio was elevated. However, the real return after you took into account inflation was negative.

CHRIS SIPES CFP®: And so now the vice versa of that is, okay, well, if it works on the expensive side of things, does it also work on the inexpensive side of things? And the answer is, it looks like, yeah.

CHRIS SIPES CFP®: When you go back to the prior times when this CAPE ratio has been very depressed and very low, the forward-looking 10-year nominal returns and real returns have been very high. And so most people forget that even though when you look at a long-term 100-year average of the S&P. You say, oh, it averages, you know, 10% a year.

CHRIS SIPES CFP®: Okay. And that is usually made up of many years of 15 to 20% returns and many years of zero to negative returns. And it hardly ever just, hey, falls right into that nice, nice clean slot in the, in the high double digits.

CHRIS SIPES CFP®: Now, speaking of a. An index that has not gone anywhere in a while. We look at the Russell 2000. This is the US small cap stocks, which have lagged the larger companies. And this is from Seth Golden. He says the third longest streak without the Russell 2000 achieving a new all time high. Will 2025 end this streak?

CHRIS SIPES CFP®: History identifies one catalyst in particular that ended such streaks in the past, maybe just around the corner Fed rate cuts. Each major streak ended via lower rates. So the streak that he's referring to is the streak of not getting an all-time high. It's not exactly a streak you want.

CHRIS SIPES CFP®: And rate cuts previously have been disproportionately beneficial to small companies. I'd venture to guess probably because small companies borrow more money and need more credit to function and grow, etc. So when that cost of money comes down, typically those smaller companies seem to be the beneficiaries of that, at least in some way.

CHRIS SIPES CFP®: And speaking of beneficiaries of fiscal policy, gold hit another all-time high this week. And this from Charlie Biello showing total returns of gold. Versus the stock market. So stock market in blue and gold in gold going back the last 20 years. I don't think most people would guess this. And I think it's surprising to most people.

CHRIS SIPES CFP®: What's also interesting about this to me is the correlations of gold and equities over, you know, the last five years or so, because previously, if you look like 2015, I guess it would be further back than five years. But if you look prior to like 2015, you can see that gold kind of went the opposite direction of equities.

CHRIS SIPES CFP®: Remember right after the great financial crisis, everybody was piling into gold that topped in like 2011 when the European debt crisis was happening. And everybody said, you just put your money in gold because everything's collapsing. The U. S. Going down, Europe's been down, going down. And so they were moving in opposite directions. And now... Gold and equities seem to be moving together, which is abnormal.

CHRIS SIPES CFP®: And I believe that 2024 was the first year ever that both gold and the S&P were up over, I think it was 25% in 2024. And so that's not happened before. So I'm not exactly sure what that's saying at this point, but it seems to be the market saying something when you look at that type of... That type of incident.

DANO WEIR: And Chris, I think when you look at that peak in like 2011, 12 there for gold, right? And then it starts to come back down. That slide is such a perfect moment for an investor who will feel like, oh, I missed my moment. Now it's going down. And this is just a downhill slide, right?

DANO WEIR: If you're an individual investor, you start to think those things sometimes, I think, and look where it ended up going if you held it. And that's not indicative of everything, right? Past performance is not indicative of future results. But in this particular case, it's a perfect example of if you didn't need this right now and you held it, you held this particular gold ETF, you'd be higher right now.

CHRIS SIPES CFP®: Well, that's a great example, Dan, because 2011, you look over, when did it, it went down and it never got back to its peak until 2021. So that's 10 years. Right. And while you're looking at this chart, you're like, oh, no big deal. I could have done that. But remember.

DANO WEIR: Investing years are like dog years every year feels like seven years so yeah you're exactly right that's a lot of years of looking at your portfolio going gold's down again gold's down again i could have sold it at i could have sold it at right but do you need it right now no if you didn't need it right now you know could have been anyways good interesting.

DANO WEIR: Exercise, I think, to look at.

CHRIS SIPES CFP®: Absolutely. Yeah. So, now you tease this at the beginning. I found this interesting that new single family homes for sale have reached 499,000. Talked about how the housing Markets all whacked out right now.

CHRIS SIPES CFP®: Record, record, what do you call it? Unaffordability. You know, when you look at the the price of the average home versus the, the average income. And, however, when you look at the number of houses for sale and you think, okay, if more supplies coming online, if more houses are for sale, typically that leads to lower prices.

CHRIS SIPES CFP®: Now, I don't know for sure, but when you look at the previous recessions that We'Ve had and home prices, a I guess maybe in the mid-90s would have been kind of the only example where we had a ramp up and a fall off in homes for sale that wasn't caused by a recession. But it's interesting that so many houses are for sale now.

CHRIS SIPES CFP®: This is an absolute number, so I wish this was adjusted for population growth. So obviously 500,000 homes for sale in 2027, 20 years after 2007 is not the same because population's grown a lot since then.

CHRIS SIPES CFP®: So it's not exactly adjusted for the proportions. So keep that in mind too. But nonetheless, we're elevated in terms of number of homes for sale when you look at the historical data here.

CHRIS SIPES CFP®: Manufacturing PMI. We got that number this week, which was 48.7. This is like an activity indicator on manufacturing. Anything below 50 is considered contractionary above 50 is considered expansionary. And, so we did get a tick up.

CHRIS SIPES CFP®: However, we're not above that 50 yet in terms of expansionary in manufacturing. So manufacturing kind of continues. It's, you know, struggles that we see, we saw starting in 2022 when that number went below 50. And, and We'Ve really been in that manufacturing recession since, since then.

CHRIS SIPES CFP®: All right. Darren, you're going to take over on candles or should we go through the asset classes with the simple moving averages, the, the, the poor man's charts?

DAREN BLONSKI CFP®: Poor man's charts. I've got some candles. We can do both.

CHRIS SIPES CFP®: All right, let's do candles.

DAREN BLONSKI CFP®: Definitely a few things I want to take a peek at on candles today. Light it up. All right, let's do that.

DAREN BLONSKI CFP®: Let's take a look.

DAREN BLONSKI CFP®: You know, Chris, we haven't talked about Dr. Copper in quite a while. So I thought we would start with talking about Dr. Copper. Why do we like Copper? What's so interesting about Copper is the question, Dan, you might ask.

DAREN BLONSKI CFP®: Copper has historically been looked at as Dr. Copper, meaning that we tend to see market pullbacks come first in Copper. For whatever reason, just the nature of that particular metal, how it's used in industrial applications, etc. The pricing got pretty out of whack because the Green New Deal was pulling in and using so much Copper for motors.

DAREN BLONSKI CFP®: Transitioning off gas engines etc but very interesting that we saw this massive drop in Copper going back to July 30th and now we're just starting to see some cracks come through on the economic data especially as it relates to the job numbers which i talked about were absolutely hideous this week what i thought most interesting though and i thought so the This is the non-farm employment change.

DAREN BLONSKI CFP®: And you can see We'Ve been on a downward trend, which is not good. That means that we're not adding jobs. This month, the forecast was to add 75,000 jobs.

DAREN BLONSKI CFP®: We only added 22,000 jobs. But what's interesting about this data is the data comes out and then they revise the data. So you've got three different colors on here. You've got this light blue and then the dark blue and then the gold. And if you look at June's number.

DAREN BLONSKI CFP®: It came out and the June number was at, let's see, I guess that's $136,000. And they just revised June down to right here, which is like 14,000 jobs were added in June, which goes back to us talking earlier how much of a joke it is the market like cues off this number and then oh yeah, yeah, no just came and got that wrong.

DAREN BLONSKI CFP®: The jobs data is very noisy. This is what we call noisy data set. And so you can see the gold being the forecast. The darker blue being after the fact, revisions. We're not seeing a lot of upward revisions, so that's important to note. Whereas, like you can see back here in January, there was an upward revision. You can see in November of last year, upward revision.

DAREN BLONSKI CFP®: It's all either the revisions are coming back drastically lower or in line, and we're on a downward trend. That tells you that the labor market is softening, right? So the question is, well, how long? Does it soften before the Fed steps in and move rates? Getting back to some of what Chris was talking about earlier.

DAREN BLONSKI CFP®: When we look at the unemployment rate, actually, I'm going to look at the unemployment rate over here because I think it's a little easier to look at. When we look at the unemployment rate for the United States, you can see the tick up here, and we're ticking upwards, which is perfectly in line with...

DAREN BLONSKI CFP®: The yield curve, right? We'Ve talked about this a lot on this channel, but the steepening of the yield curve is often an indicator that things are going to slow down. We'Ve started seeing that steepening if the Fed drops the rate. So the way to think about this is this is the yield curve.

DAREN BLONSKI CFP®: And so what the yield curve is, is it's one month rate, three month rate, six month rate, one year, two year, three year, five year rate. So this is the government debt. So what you can get your, you can give the government your money and what you'll get paid to give it to them. So Right now, currently, this is the current one.

CHRIS SIPES CFP®: I think we're seeing the correct screen there.

DAREN BLONSKI CFP®: Oh, we're not seeing it right now.

CHRIS SIPES CFP®: There we go. Sorry. There we go. There's the Nike swoosh we were talking about earlier.

DAREN BLONSKI CFP®: There it is. All right. So this is the current, September 5th. Okay. This is the current yield curve. You can see the one month rate. So that means that if you gave your money to the government for one month, you would get 4.2%. If you gave your money to... The government for seven years, you would only get 3.791%. Now that doesn't seem very intuitive.

CHRIS SIPES CFP®: And those are annualized numbers. It's not like if you gave it to them for one month, they give you a full 4.2%. That's correct. That's, that's an annualized as if you got that same one month rate for a full 12 months.

DANO WEIR: A hundred bucks in January, three bucks in December.

CHRIS SIPES CFP®: Sure. It's too, too late in the day for me to do that math, Dan. But what I'm saying is you don't get the full, you get, you get one 12th of that number, because it's only one month that that number's annualized.

DAREN BLONSKI CFP®: So like if you're a CD shopper, for example, and you're out there shopping CDs, like here's kind of the range. If you give your money to the government for one month, three months, six months. You actually going to get more money than if, or the bank, I should say you give your money to the bank. You're probably going to get more than if you give it to him for three years.

DAREN BLONSKI CFP®: At this point, we call that an inverted yield curve. This is a sign of something's not right in the economy. It's something that's been in place for a long time now, longer than it's ever been this way. And we're starting to see the re-inversion when, when this changes and goes back to a normalized curve, which should be up and to the right. That's a normalized curve because it makes sense.

DAREN BLONSKI CFP®: If you give your money to the government for, say, one month, you should be getting paid less than if you give your money to the government for 10 years. That's not necessarily the case right now on the very short end. Well, the feds control the short end. So when they start to drop these rates down, that's going to re-invert the curve. The curve is usually re-inverted when there's a recession upon us. Something's going on.

DAREN BLONSKI CFP®: Secretary Besant have been on the Fed. That's why all that drama and hoopla we saw earlier last month. And then We'Ve seen the Trump administration attacking Governor Cook for mortgage fraud. They're trying to get at the Fed in any way they can to drop these rates.

DAREN BLONSKI CFP®: Why? Because it's driving the deficit out of whack, because the cost of money for the government is high. And also they know that if the rates stay too high too long, the economy will slow.

DAREN BLONSKI CFP®: When you raise rates, there tends to in lower rates, there tends to be a nine month lag. Well, I'm not a mathematician, but if we get the rates down now, right now. And it takes nine months for the stimulation of that to kick into the economy and for real, like really kick into it.

DAREN BLONSKI CFP®: Well, that's looking pretty good for reelection time. So, or I shouldn't say reelection time for the president, but reelection time for the house and for the midterm elections. So not that's kind of conspiratorial, but if I was a politician, I would be doing everything I could to push rates down so that I could solve for the election coming up.

DAREN BLONSKI CFP®: Because like good old Clinton, President Clinton once said, it's the economy, stupid. And if you're not raised, if the economy is not kicking trash when it's time for reelection, you're not going to do very well.

DANO WEIR: Darren, if I'm trying to read into these one year through five year rates, which are lower than the short term rates, would this be the bank basically saying like, yeah, you know, we're not so sure what's going to happen. From the Fed side when we start going further out. So we're going to drop that because it might be lower at that time. Is that kind of what they're saying? Uncertainty about the Fed?

DAREN BLONSKI CFP®: I mean, I guess you could extrapolate that. I mean, it's saying a lot of things. What the Fed is saying is they're not sure that inflation is under control and then thus they're keeping the short end of the rates high because the Fed only controls the short end of the rates and the The market controls the long end of the rates.

DAREN BLONSKI CFP®: So the Fed's keeping rates elevated, and that's where Secretary Besset and President Trump have been like, look, lower rates, lower rates, lower rates. The problem is everyone's like, oh, lower rates, and that'll make everything better. I can afford a house again. I can refinance my house. But along with that comes a whole other bag of tricks and things we have to combat with in the economy.

DAREN BLONSKI CFP®: And if they can very slowly and carefully let the. Pressure out of the bloom with the rates, if tariffs don't push inflation much higher, which there's a ton of debate about, then things work out okay. And growth actually picks up, inflation continues coming down. The issue is if inflation goes up, but all of a sudden, we're seeing these jobs data come in that doesn't look good.

DAREN BLONSKI CFP®: That's telling you that growth is likely slowing down. And you've got inflation high and growth slowing. That, my friend, is called stagflation. And that is not good and very difficult. To deal with. And so the Fed has been very hesitant to lower rates because they still see elements of inflation in the system. And thus they say, hey, we can't lower rates.

DAREN BLONSKI CFP®: If we lower rates, we might stimulate too much. That might push inflation up. Meanwhile, we have the politicians saying we don't really care about inflation. What we care about is getting reelected and to live, to die another day. So you have this political macroeconomic battle happening now.

DAREN BLONSKI CFP®: In front of us on the stage, on the Wall Street Journal, on Financial Times, in your local news station. But that's the drama unfolding right now. And with the data coming in on the jobs, that gives the Fed more coverage now to say, maybe we can lower rates because you're starting to see that tick up. Now, we're only at 4.3 on the unemployment rate right now.

DAREN BLONSKI CFP®: What's interesting is when you look at the unemployment underneath the hood, it's far worse. For younger workers. And some of the postulation is the reason for that is because AI is taking entry-level jobs now. And we're already starting to see the impacts of AI, which seem to be something that will be very significant.

DAREN BLONSKI CFP®: I suspect in these next midterms coming up, you're going to see a lot of the politicians talking about those type of problems, because it is something that the politicians are going to have to contend with and figure out. In order to make things keep working for us economically. Which is also, and I don't, I mean, it's a wag the dog thing.

DAREN BLONSKI CFP®: I think it's also interesting that we're in these very interesting and precarious economic times with literally, we are living through the equivalent to the industrial revolution that we all read about in the history books. We're living through the technology revolution, the AI revolution. In the next 10 years, we're going to go through like 100 years of technological development. I don't think it's coming right away.

DAREN BLONSKI CFP®: I do think we're going to hit the S-curve first, which means everyone's all stoked about it, then it goes into the basement, and then all of a sudden it changes all of our lives. I do think the S-curve of adoption is headed our way. I do think we're going to have a bubble in AI. I do think these stocks that everyone's saying are always going to go to the moon and forevermore will, will eventually come back in.

DAREN BLONSKI CFP®: Case in point, NVIDIA, you saw in Microsoft. Both down today, market actually wasn't that negative across the board. It was just really technology in Microsoft, NVIDIA, and financial and insurance, all these companies down here. Really impacted by a quick drop in rates. What we saw in the 10-year earlier today was a pretty strong move down.

DAREN BLONSKI CFP®: And you can see this is the 10-year rate moving down. We talked about this a couple of weeks ago where we think support's kind of coming in here around four and change somewhere in there. I could easily see a move over the next few days right down into this area, bounce up, and it continuing to consolidate along this area. We lose this line of support right here.

DAREN BLONSKI CFP®: Actually, that was really ugly drawing on that one. But if we lose the line of support right here, I think we'll have lower rates pretty quick. The problem, and we say this a lot, it doesn't matter so much what direction the market is headed. If rates go down really fast, that's problematic.

DAREN BLONSKI CFP®: If rates go up really fast, that's problematic. I. e. You saw that in 2022, when rates went up really fast, that was problematic for bonds. All the banks collapsed. That was problematic for the stock market. So if rates go down really fast, in theory, that could really be stimulative to the economy.

DAREN BLONSKI CFP®: The problem with that, if rates go down really fast, it's because something else, the wheels have come off the bus. So let's dig a little deeper and see if we can find out what else the market's telling us. So if we look into oil and say, okay, what might oil be telling us? If you think of oil is in everything.

DAREN BLONSKI CFP®: Look around the room you're in listening to me talk right now and 90% of the things you look at, you're sitting on, you're staring at, have oil-based products in them. They are all through our house. They are everything in the economy. And so we watch oil really closely because it is one of the base items that everything is manufactured off on some level.

DAREN BLONSKI CFP®: Even the machines that even manufacture things that aren't made out of oil had to use oil. So it's pretty important. And as much as people might... Hate the pollution oil gives everybody drives a car. So, and you can see, we're looking at this rate right here.

DAREN BLONSKI CFP®: This, or this oil chart and right around sixties, while I'm watching closely, cause if we lose 60, I think we got weakness. Here's what I don't like about this chart, which makes me think oil is going lower. One, We'Ve obviously been in a downward trend to, we went down to this area once and twice and support held.

DAREN BLONSKI CFP®: When charts visit the same spot over a short period of time consistently, what happens is the buyers that are buying at these support areas tend to get worn out, meaning there's not as many buyers there eventually. And then the sellers overwhelm the buyers, and that's when we go down.

DAREN BLONSKI CFP®: Based upon this chart, if the economy is about to slow, if unemployment is going up, people are spending less, they're pulling back, they're driving their cars less. There's less oil to go around. They're not traveling in planes as much. That all impacts oil.

DAREN BLONSKI CFP®: Additionally, if we see things start to calm down in Ukraine, in Russia, and the oil politics of the World, and we see the Middle East calm down, that means there's more oil coming online, coming into the system. More people are going to be consuming that oil or able, or there'd be more out there. And supply and demand laws basically say you got more supply, and if demand doesn't meet that supply, then price goes down.

DAREN BLONSKI CFP®: So watching the oil chart really closely here, I do think it is something to pay attention to. We're revisiting this area again. It's not been very long. We revisit it back early part of the year. And here we are again, that tells me there's probably weakness here that the buyers, probably getting worn out.

DAREN BLONSKI CFP®: So where would it go? I definitely could see, can see how important this area was on the chart. Back in 2019, I could see a stop in this. General vicinity with oil. Things get really bad. Then you see a plummet and you could see during COVID where it just fell out of bed and hit its head.

DAREN BLONSKI CFP®: Let's take a look at NVIDIA. NVIDIA is the stock that is priced for perfection. It's a stock We'Ve been talking a lot about for a long time because it's propped up so much. The S&P 500 is the largest 500 US-based stocks. NVIDIA is the biggest stock. So if NVIDIA goes down, look at all the other stocks that have to stay green for the market to stay up.

DAREN BLONSKI CFP®: And NVIDIA is priced for perfection. And when you've got a stock priced for perfection, that can be problematic over the long term because life ain't perfect and nor is any stock. And then add Microsoft, the other big AI company. And you can see we certainly seem to have topped out.

DAREN BLONSKI CFP®: At that point, we stopped a long support right where we're at. At $4.95. Looks like, though, based upon that close today, that's pretty weak. I think we're probably in for $4.80. Right on time, though. Dan, Chris, have we not been saying? World's going to fall apart in September. I don't know what the excuse is going to be. All the traders come back. Here we go.

CHRIS SIPES CFP®: Well, it's interesting too. The, if you look at the two year rate, we also were at a similar bottom in the two year rate about this time last year in September. So that seasonal weakness happened around then that's when the Fed cut. And, and that's where we're at today. I think we got below that, that low from a year ago, but.

DAREN BLONSKI CFP®: Interesting that that also happened in September in the seasonal seasonal period yeah so seasonality what does seasonality even mean and it just means that there tends to be ebbs and flows to how the market goes and as much as retailers like to think that they're the big dogs in the market they're not they're the small dogs and those diamond hand Reddit readers there's just not enough of them to overwhelm the World of institutional trading and What we tend to see in the summer is things float higher.

DAREN BLONSKI CFP®: We come back to September and magically the Markets go down lower. Why? Well, who knows? But we could surmise that perhaps all the traders on the street don't really like the prices that floated up in August. That's conspiratorial. However, could be. So what do we expect?

DAREN BLONSKI CFP®: We expect it would not be shocking to see a rough September. September. It would not be shocking to see all kinds of ugly headlines coming out and jobs, data, this and jobs, data, that it all is going to be the end of the World and the Markets are going to fall apart.

DAREN BLONSKI CFP®: And then lo and behold, some around mid October, approaching November, the Markets are going to pop and they're going to go back up. Why? Well, everyone gets bonused in the end of the year. So Markets tend to recover and we want to have a good Christmas. Christmas comes in, January comes in, everyone overspends things. Tend to be pretty mixed going through that.

DAREN BLONSKI CFP®: Then you have the spring come on and then we get into summer. But September tends to be a season where the market doesn't do great. So expect that. Don't get emotional with your portfolio. Back off. Go read a book. Enjoy the fall weather here in California. Hopefully it's not too smoky.

DAREN BLONSKI CFP®: All right. So interesting though, Chris, that's a good point where that two-year went to and where it's sitting, which is rather precarious, signaling to me once again that I think it's more likely that rates go lower at this point than they go up. Look at the ag for a clue. What does the ag say? The ag is the largest.

DAREN BLONSKI CFP®: This is like the aggregate of the bond market. So this is, quote unquote, the bond market. We talked about this, Chris, last week. I said, hey, you're excited, Chris, because we're coming right into the neckline of this important double top we had way back when. And look, lo and behold, it's coming up. And there we are.

DAREN BLONSKI CFP®: We broke above that neckline. We popped above it. We came in, we tested it. I think it's blue sky for the egg, which is really great for our diversified investors. We can only hope the stocks don't completely tank, but We'Ve had lots of investors who are less risky than some of the Reddit crew and like their stocks.

DAREN BLONSKI CFP®: And let's take a look at EDV, which got absolutely crushed and pummeled and beat up all through 2022. And it has not done a thing. EDV is the long extended duration treasury. So it's buying treasury bonds that go way out on that curve. And we had a nice little jump today. Look at that jump, Chris. That must have made your heart pound.

CHRIS SIPES CFP®: Well, like you said, though, it hasn't gotten out of no man's land yet. Although the good thing with those long-term treasuries, is, you know, with rates, they were knocking on the door of 5%, you know, not that long ago. So you are finally getting paid something to hold them.

CHRIS SIPES CFP®: You know, there's a carry to bonds, unlike most of the 2010s period when rates were practically nothing, culminating in 2020. You know, there's just, there was hardly any income from bonds and that's changed with this with this sell-off that we had in 2022.

DAREN BLONSKI CFP®: So Chris, you can get super excited when we break above this line right here. I think we break above that. I think we're going to see some higher sky with the extended duration. Here's the bad news. If Chris gets excited about the extended duration treasury bond, that means that rates are going way down.

CHRIS SIPES CFP®: Yeah, you're back to the good news, bad news.

DANO WEIR: Careful what you wish for.

CHRIS SIPES CFP®: Good news, bad news, yeah.

DAREN BLONSKI CFP®: Exactly. So in LTPZ, this is the 15-year PIMCO ETF. Again, another example of the long... Duration type bond holdings. And that's starting, that's a pretty good little bounce in one day.

CHRIS SIPES CFP®: That's the inflation protected version of long-term treasuries.

CHRIS SIPES CFP®: And again, you see the drop off when the rates went up dramatically, it just crushed bonds across the board, even those that were inflation protected. So a lot of people say, well, gosh, these are inflation protected. We got high inflation. Why did they do so poorly? Well, it's because of the, the, the interest rate portion of that, that, that got hit, but where are we now?

CHRIS SIPES CFP®: You know, We'Ve been trading sideways for years. There's actually a decent, like there's a decent yield, you know, that's, that it's paying while you wait. And, and if we get that, that lower interest rate environment, and even if we don't, like if it holds steady where it's at today, real rates are above 2%, which is a, is a, you know, a decent historical place for them to be.

DAREN BLONSKI CFP®: It's a decent place. If you like use cars and Mercedes Benz.

DAREN BLONSKI CFP®: All right. All right.

DAREN BLONSKI CFP®: I mean, Chris, if you want to get excited about 2%, you do that. You go boy.

CHRIS SIPES CFP®: Well, it's 2% real. So that's over inflation.

DAREN BLONSKI CFP®: All right. So gold, let's talk about gold, gold broke out. So we, it would look like it was distributing. And I think we talked about this a couple of weeks ago. I'm like, I don't know, that looks like it's distributing out. And I was watching this support line right here and we moved right up, gold breaking out with a, I guess we can call this a bull flag now.

DAREN BLONSKI CFP®: So I would expect a pretty decent size move in gold if it holds here, upwards, which again is not good for risk assets because if gold's going up, well, guess what?

DAREN BLONSKI CFP®: Oil is probably going down and treasuries are going lower interest rates going lower and bonds i mean stocks are probably going to follow we'll see if bonds are the true diversifier that they say they are and they haven't been depending on what happens here again it's all about the rate at which it moves whichever way it moves interesting day okay spx which is the sp500 red, RSP, which is the equally weighted index.

DAREN BLONSKI CFP®: Actually not as bad. So it is possible that we're starting to see a rotation. What do I mean by rotation? All of the money has been going to Microsoft, NVIDIA, Apple, Amazon, Tesla, Google, Meta. Money's been flowing into those stocks.

DAREN BLONSKI CFP®: It's possible we're seeing a rotation now where thing or the beginnings of where money is going to rotate out of those stocks and go into the other stocks oh Dan look at Disney what a bad day for Disney shocker so oh i'm waiting for the the jest back come on Dan you guys i can't you know what i guess i'm not i'm all good dude i'm i'm all good i'm very happy okay for the audience Dan loves Disney and we go back and forth all day long about.

DANO WEIR: I have certain pieces that I really like about it. Yes, I do.

DAREN BLONSKI CFP®: Yes. Okay. We'll let you have certain pieces, Dan.

DAREN BLONSKI CFP®: So, the, anyway, so where there could be seen a rotation happening, right? So, that's interesting, but the RSP doesn't look nearly as bad, which is equally weighted, which is those boxes all being equal sized. Now people say, well, but Darren, the stock market's still going up. Yeah, it is still going up, but look what happens. It, as it goes up and it kind of slows down, then you get these events where it falls out of bed.

DAREN BLONSKI CFP®: And perhaps we're seeing that. So what am I targeting is support. Let's say the market sells off. The World's going to end in September and all the media scares everybody here. What, here's what I'm looking for. I'm thinking somewhere around there is support. That's what I'm watching, for support. Is somewhere in this range.

DAREN BLONSKI CFP®: If things sell off, there's obviously a lot of support right in here first, but I could see something like that with the correction and then a move forward. So I wouldn't be freaking out, but that makes sense that we would trade down into that zone for the next month, month and a half, have a nice little correction, which just happens to coincide with this all-time high here would...

DAREN BLONSKI CFP®: Make a ton of sense to see a lot of buyers sitting right here and right here. And if the market trades in, say, we'll take the price that's moved. That makes a lot of sense to me. So good time just to be patient. To not worry about what the media is pumping through your brain, and to stay the course with your investment lineup. Let's look at the front end of the tip when it comes to the tip of the spear for risk.

DAREN BLONSKI CFP®: This is the Bitcoin chart. You can see we had a double top and we had a neckline. What's interesting is we broke below the neckline. We came up into it and sort of looks like a rejection of the neckline, which isn't great. Let's look at a one-hour chart on the Bitcoin chart and just take a look. A little bit closer look on this and you can see there's that neckline right here.

DAREN BLONSKI CFP®: This is the neckline of that double top. The double top again is here and here, the neckline right here. And we traded below, we couldn't hold it. We went back below, we tested it, couldn't hold it, went back up, couldn't hold it. That's showing me there's weakness here. That means there's a lot of sellers sitting right in here. So anytime... Bitcoin goes up to there, they sell it.

DAREN BLONSKI CFP®: Based upon that chart, it wouldn't shock me to see movement downwards.

DAREN BLONSKI CFP®: Front end of the spear kind of signaled this one, guys. What can I say?

DANO WEIR: So you're saying that because of the action in Bitcoin frequently, We'Ve said this before, but if you're new to the show, Bitcoin's a leading indicator, meaning it's happening in Bitcoin potentially before it's happening in the S&P. You're seeing downward trend in Bitcoin right now, or at least some sideways action. Therefore, you think it's similar in the S&P?

DAREN BLONSKI CFP®: Yeah, I mean, I just think that you're starting to see, you saw the weakness in Bitcoin first, and now you're starting to see some of that weakness in the S&P.

DAREN BLONSKI CFP®: I'm not going to write home like this was a super weak chart. I don't think that's the case. We got a pretty good drop out of that jobs data today.

DAREN BLONSKI CFP®: And that brought the chart right back under this resistance, which is buyers said, I'll sell there, I'll sell there. But it didn't plummet the thing all the way down or anything into this support level. So I'm not overly concerned about the S&P at this point.

DAREN BLONSKI CFP®: I do think we're going to see a more difficult market through September. The other option is you kind of get this sideways choppy thing here and then it comes into that support line. But over a longer period of time, but you, you know, I'm kind of personally, and this is just complete speculation.

DAREN BLONSKI CFP®: I have no idea what's going to happen on this side of the chart, right? Like that's the $10,000 question. But I could see the market trading into here and then, you know, there, there'd be support here and then some type of news event will send us up into the end of the year.

DAREN BLONSKI CFP®: Everyone says that Markets aren't political, but I just, they are. So, I, I don't, it's like the Fed isn't political, but they are.

DANO WEIR: It's not even political though. It's just gossipy. It's like junior high. It's like, oh, what are you talking about? Oh yeah. That's a thing now. Are you into that thing? Oh yeah, definitely. I'm very into that thing. Oh yeah. That's going to be huge. It's going to be massive. Oh yeah. Oh, we're off that now. Yeah. We're off that. You know, it's not actual politics.

DAREN BLONSKI CFP®: Yeah. Yeah. It's interesting. This will get developed and emerging, right?

DAREN BLONSKI CFP®: So just kind of a similar chart being diversified globally in stocks isn't doing you much good at the moment it did help you a lot earlier in the year but at the moment not although they had a nice day to day not doing a ton of diversification value right now i think Chris wants to comment on that just sitting here waiting for you to throw it to me all right well Okay.

CHRIS SIPES CFP®: If you look at the longer term on the develop chart, you'll notice that we're finally hitting all time highs after, I don't even know how long, many, many years.

CHRIS SIPES CFP®: And so again, if you're looking for a place that's kind of been left for dead and there possibly is some upside, you know, it's just now hitting all time highs. It's not like the S and P that's been hitting new all time highs for, you know, years and years and years. Right.

CHRIS SIPES CFP®: And same thing with the emerging Markets were, were not even back to the high that it saw in 21, despite the, the strength that We'Ve seen so far this year in, in emerging Markets as well. So, you know, roughly they're outpacing the S and P two X right now. And so we'll see if that continues.

DAREN BLONSKI CFP®: Yeah like right now you can see 25 this is where it was what is it Since the beginning of the year, we were down here 24% up. In developed World.

DAREN BLONSKI CFP®: Yeah. I don't think anyone called that one very well.

DANO WEIR: Yeah. And you're probably loving it. If you did, if you pick this up five years ago when no one was calling you about it, Chris, you know, to Chris, people still don't like, people are still shocked when you tell them that, that this is happening.

CHRIS SIPES CFP®: They're like, what really? You know? So it's, it's, it's still under the radar for sure.

DAREN BLONSKI CFP®: Here, Chris, we'll give you an applause.

CHRIS SIPES CFP®: Ah, thanks guys. Thank you.

DAREN BLONSKI CFP®: I mean, to Chris's credit, like he's been, I've heard him over and over in appointments with clients being like, yeah, you need some emerging. Yeah, you need some developed. Everyone's like, ah, global stocks are garbage. And he's like, no, you need some, you need some.

DAREN BLONSKI CFP®: And people just weren't having it. And, but he was right, man. It really proved the diversification. What I was saying didn't do really much. It's just right in the moment. Right. It's kind of locked up. Right here, just like the S&P is.

DAREN BLONSKI CFP®: All right. I think that covers it all. Did enough damage for the day. Any last thoughts, guys?

DANO WEIR: Chris?

CHRIS SIPES CFP®: No, I think it covers it.

DANO WEIR: Let's just wrap up our initial question, which was be careful wishing for rate cuts. So the idea with this episode was that, hey, rate cuts seem like a really great thing, especially if you have been waiting to refinance or...

DANO WEIR: If you've been looking for funding for your small business or something like that, but that also could indicate that we have a significant economic downturn happening, which is why they're doing the rate cuts. So we showed that over several slides. And Chris, just out the door, your opinion, rate cut, yes or no, should it happen?

CHRIS SIPES CFP®: Yes, but not as dramatically as what's being called for.

DANO WEIR: Darren?

DAREN BLONSKI CFP®: Are you asking me, do I think a rate cut should happen?

DAREN BLONSKI CFP®: I think a little bit of rate. I think they should start letting some of the rates go down. I don't think I would aggressively move them down because I do think inflation is still a risk.

DANO WEIR: We are Sonoma Wealth Advisors, the Fermata family of brands, including Sonoma Wealth, Fermata 401K, Fermata Tax. If you're one of our clients, we thank you so much for checking out the show. This is a fun thing for us three to get together and do at the end of the week, wrap up the market and see some of the happenings and share that back with you, give our take on it.

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