Powell Out, Warsh In: How the New Fed Chair Might Change Interest Rates

DANO WEIR: May Day. I think it's May Day. I think that's what May 1st is. I can't believe it's already May. You scared me for a second.

DAREN BLONSKI CFP®: May Day what?

DANO WEIR: Exactly. Well, should we be worried? That's the question. We're going live right now on the markets. My name is Daniel Weir, Fermata Advisors, our private wealth firm, Sonoma Wealth. Asking the question today, Powell N. Warsh. Out. We have a change in the Fed chair, how the new Fed chair might change interest rates. We're going to look at how U. S.

DANO WEIR: Debt has passed an unthinkable threshold, how that new Fed chair might tackle that problem, or is it even a problem? Do we even care about fundamentals anymore? How gas prices have rendered your tax refunds irrelevant. And remember when the market felt doomed 60 weeks ago? We'll look at the signs Daren is seeing that point to nothing but bulls. Unless there's a shooting star, and we'll talk about what that means right now.

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DANO WEIR: Joined now by Daren Blonski, Chris Sipes, our managing principals. Guys, you know, it's a changing of the guard. And I don't know if you're throwing a party or if we're going to have a memorial, but we have a new Fed chair on his way in. Chris, Daren, what do you think of the change? And let's get some initial reactions.

DAREN BLONSKI CFP®: I already feel bad for the guy.

CHRIS SIPES CFP®: Yeah, I wouldn't want to do it. And I think you're going to look at this picture in a few years, and Warsh is going to look like as weathered as Powell does in this picture.

DANO WEIR: That's funny. So, yes, so Kevin Warsh is your new Fed chair. Your outgoing Fed chair is Jerome Powell. Who will not be going very far. Chris, can you detail for people? Because they're still going to potentially see him on camera at some point. What exactly is Powell doing? Because he's not really leaving.

CHRIS SIPES CFP®: Yeah, he's saying that he's going to be staying on as a Fed governor, because there's many, a lot of people think the Fed is run by one person and like one person makes the decisions around interest rates, for example, and that's not the case. It's a panel of governors and then there's the chairman who Powell was.

CHRIS SIPES CFP®: Previously and kind of does all the speaking, sort of like, you know, the head of the Fed, but he's not the only person that makes the decision. So he's going to stay on as one of the governors. So he'll still have a lot of sway in, in the voting.

CHRIS SIPES CFP®: And he basically said he's going to do so until he's sure that the whole investigation into him over the, you know, whatever they were investigating him for something about the building, is over. So, you know, so he doesn't have to worry about, about that. Coming back to bite him if he's not, doesn't have the protection of being a part of the Fed.

DANO WEIR: So it's, it's sort of like when a city council has a rotating, mayoral position and someone's the mayor and they're quote in charge. And then that, that moves on to another council member, but they stay on the council, right?

DAREN BLONSKI CFP®: Pretty much. That's like Sonoma is right. So like the may, they just like this rotating chair.

CHRIS SIPES CFP®: Yeah. But in the case of the Fed, at least my understanding of it is that... That's only happened one other time where someone stepped down as the chair person and stayed on as a governor. So it's not unprecedented, but it's not usual for sure.

DAREN BLONSKI CFP®: You know, the fly I would have loved to be on the wall for in the moment is I would have loved to be the fly on the wall in Jerome Powell's office when like three weeks ago, Trump goes, I'm in favor of higher rates.

DAREN BLONSKI CFP®: Can you imagine how absolutely teed off you would be? You're faced with a lawsuit because you're not lowering interest rates, and the guy who's ramping up his... Pursuit.

DAREN BLONSKI CFP®: Pursuing you basically legally to get you to lower your rates goes, yeah, I'm in favor of higher rates, and then, oh, yeah, we're going to drop that lawsuit now because inflation looks like it might be back.

DAREN BLONSKI CFP®: That's crazy making Like you gotta I don't know Like This is not a political statement at all Has nothing to do with politics Because we all know how Like Non-Committable I am When it comes to politics But You gotta have a hat off for Pal, man The things that guy has Taken us through Over the last 10 years I mean, think about all the times Chris, you and I have said, well, that's a first.

DAREN BLONSKI CFP®: Well, that's a first. And this is the guy, regardless of how the politicians and their power brokers are running their mouths. He's the guy behind the scenes, like trying to make it all still work.

DANO WEIR: And Daren, I'm glad you brought that up. I've actually got four things just quickly. If you don't really know who this is and the impact that he's had on your life in Sonoma County, California, or wherever you're listening. I got four things here, four notes.

DANO WEIR: Key notes from Jerome Powell's time as Fed chair. Number one, he spearheaded what is basically an unprecedented, whatever it takes response to COVID, utilizing massive liquidity injections and zero interest rates to, in some cases, depending on who you ask, avert a global financial collapse.

DANO WEIR: So he's the architect who basically sees us through the equivalent of 2008 in 2020. He definitely was known as labeling inflation as transitory. Chris, I know you took issue with that many times and the phrase soft landing. He loved to throw those around.

DANO WEIR: I didn't know what this one was, although it lists it. He shifted central bank strategy by introducing flexible average inflation targeting prior to prioritizing maximum employment and allowing the labor market to run hotter than his president. Predecessors. Chris, do you know what that is?

DAREN BLONSKI CFP®: This is a really important one, actually. This was a huge move when he came. I remember the day he said this.

CHRIS SIPES CFP®: Yeah. So they always had like an actual target. I believe it was 2%. They were saying like, this is our target inflation number. And of course, up until the pandemic, they could never hit it on the upside. They were always below target on inflation. And so as long as that was happening, they had an exact target of 2%.

CHRIS SIPES CFP®: When the inflation went sky high and went way above that, they started saying, you know what, we're going to target an average of 2%. We're not necessarily going to get to 2% all the way. We're going to actually just target an average. So one thing about the Fed is when they make changes, they do it very slowly.

CHRIS SIPES CFP®: And it's like every word is measured that they're going to put in their statement down to like they want to have certain words taken out like this most recent. Fed meeting, there were four Fed Governors that dissented and they dissented over a phrase in the wording that said they had a downward bias or something like that to interest rates. So those four Fed Governors wanted to take out the downward bias part.

CHRIS SIPES CFP®: Out of the whole statement that's probably, I don't know how many pages long, they objected to those words. And that's because when those statements come out, everybody analyzes it literally down to the word. And if they change something, everybody reads into it of, well, that means they're thinking about this or that means they're going to make this change or that change.

CHRIS SIPES CFP®: And so anyway, I don't know where I was going with that. But the average targeting was something that when Powell brought that up, it was like earth shattering, you know, in the Fed speak world. Right, right. The average person think, oh, what's the big deal? They didn't change the target. They just changed how they were going to measure it, essentially.

DAREN BLONSKI CFP®: So the Fed speak, let me just put a point in there, but the Fed speak world is really important. So when, this is before the AI days, even now it's a lot easier because when they, what's important is there's two things on the Fed Wednesday like we had on Wednesday is chair Pal comes out and he speaks and then they release the notes.

DAREN BLONSKI CFP®: And then literally all the algorithms now just. Absolutely sweat over every word, sentence structure, you name it, to try to get a hint at what the policy is going to be. Now, history hasn't always been that way, right?

DAREN BLONSKI CFP®: It used to be the Fed just did what they did and the market would figure it out later. But they started realizing that they could telegraph to the market and in a way, manage the market, manage the economy just by what they say and how they say it.

DAREN BLONSKI CFP®: Often what you'll see in these meetings like we had on Wednesday, they'll say something and it doesn't quite land right. And then you'll actually see all the other Fed presidents, all the other chairs come out and speak and they'll say something and kind of clean up something. Powell's been particularly very careful, very good.

DAREN BLONSKI CFP®: He's a lawyer by background, so his use of the English language strategically, I think in a lot of ways has really helped create a ballast in the economy. Lots to be critical of, but I think... It's helped create a ballast through a lot of turmoil we've had economically over the past 10 years.

CHRIS SIPES CFP®: And that's really important because the perception, and this has been the way it's been basically throughout history, even before there was a central bank. Back when people look to the financiers like JP Morgan as an example, when he was around the early 1900s, he was sort of the guy that would coordinate all the different financiers and there'd be a panic.

CHRIS SIPES CFP®: They would come out with a united front to try to slow the panic. And it had to be credible people. It had to be people that are calm, who are collected and they can project a strength, essentially a financial strength. Because so much of panics is just getting people to calm down and stop panicking.

CHRIS SIPES CFP®: Because things like bank runs, for example, they happen because I think you're going to panic. You think I'm going to panic. We both want to get our money out first. And, you know, it just feeds on itself. So whoever's running the Fed has to be somebody that's, you know, credible and able to, you know, be very calm in extreme situations.

DAREN BLONSKI CFP®: They they will happen they've happened in the past i'm sure they're going to happen in the future this is this is another big thing too that i think goes not talked about and this was the whole silicon valley banking crisis right the silicon valley banking crisis was this first time that we had a bank run happen with technology up until this time like the policymakers you know the idea was everyone was lined up at the door but literally like 40 billion dollars left the bank overnight all on being transferred on phones and Another huge thing that Powell has kind of guided us through in helping us understand that things have changed.

DAREN BLONSKI CFP®: The bank run now isn't people lined up at the door. The bank run is people hitting their phones and pulling money out, which is a completely different systematic risk to the financial sector.

DANO WEIR: And Daren, that actually was my fourth note here. He saw us through. Yeah, he saw us through. It.

DANO WEIR: In the bud what could have been you know a cascading banking issue that really held itself to just a couple of outlier institutions so an interesting guys i just think of it like this my son is seven years old he's really into star wars now and so in star wars it's very clear who the good guys are and the bad guys are and so he'll ask me about real people in politics and he'll say well is he a good guy or bad guy he's a good gal or a bad gal and i'm like what you know Jerome Powell, you probably didn't have a lot of feelings about him, but his decisions, good and bad, have impacted your life.

CHRIS SIPES CFP®: Yeah, people are going to nitpick about how they handled the inflation shock. I'm sure there's things that they could have done differently along the way. But I think on balance, I agree with your assessment that he's leaving with a pretty good legacy as the Fed chair.

DAREN BLONSKI CFP®: I think you're right on too, Dan. I don't think people recognize how impactful the Fed chair is. For people like us, because we spend our days thinking about these kind of things, but from every American who goes and fills up their gas tank, the Fed chair, Powell, had some impact on the cost of that gas there, right?

DAREN BLONSKI CFP®: And their decisions and how that impacted our day-to-day lives. I think that's really, really important. To in some ways tip our hat to right is this guy moves on and does something different and regardless of you know what part of the political spectrum you're on or think he's on like he did a pretty dang good job navigating both sides i.

DANO WEIR: Mean there's something we had to work with twice look look we had to work with twice yeah well let's take a look now as we just want to take a moment there at the start of the show because it's a pretty big shift so as we get into the slides now with Chris and the charts with Daren, let's look at what Kevin Warsh is inheriting, the situation that he's walking into. And my gosh, could you imagine if that was your new job?

CHRIS SIPES CFP®: Yeah, I think the position of the Fed is going to be even more important moving forward in the future. And that's because of the not only U. S. Debt, which you can see here, but also global debt in general.

CHRIS SIPES CFP®: So one of the fallouts of the great financial crisis was that a lot of debt was moved off of private balance sheets, you know, for private individuals and onto government balance sheets. And then that just took off times 10 during COVID, in response to COVID. So most sovereign balance sheets around the world are in pretty poor shape at this point.

CHRIS SIPES CFP®: And, you know, one of the jobs of the Fed is to be the buyer of last resort to be, to step in during a crisis. And if, And they have to. I'm sure that they are going to be a big player in the Treasury market to keep that market under control. We've done it before in the past, and I'm sure they're going to do it again.

CHRIS SIPES CFP®: Domestic holders, foreign holders, about 24% of U. S. Treasuries are held by foreign debt holders, but the rest is domestically held, so by U. S. Citizens. The Federal Reserve in interest, governmental debt. But our overall debt is pretty close to $40 trillion at this point. I think this one was from, I should have to, data as of March 19th.

CHRIS SIPES CFP®: So this is, I think, a good visual on where we are. I think the amount that we're beholden to foreign holders is kind of overhyped to the average person. I don't really think that foreign governments have as much of an impact on treasuries as one might think, especially when the Fed can step in.

DANO WEIR: And also on there, as far as overhyped, I mean, look how small Social Security is there. I mean, the one that, you know, gets people bemoan so often is one of the smallest on this particular chart.

CHRIS SIPES CFP®: Yeah. And the other thing is, look, look, we all pay into Social Security. So my feeling is like you're going to make cuts to something, cutting something that people literally put into their entire lives that that doesn't seem very fair.

CHRIS SIPES CFP®: You know anyway u. s debt now exceeds the size of the economy so that that's when you measure it as a percentage of GDP. So sometimes you look at that actual number, 30 some trillion, and you say, well, is that a lot? I don't know. Well, if you measure it as a relative to GDP number, yes, it's a lot. Now, we've been here before one other time at the end of World War II, but we're here again.

CHRIS SIPES CFP®: And at the end of World War II, obviously, we had just finished fighting a war. And the US kind of emerged as the global economic superpower after that. We still luckily had most of our economy intact while the rest of the world had to go into rebuilding.

CHRIS SIPES CFP®: And even then, coming out of that, we had to do things like yield curve control. And the Fed had to get, the Treasury had to get active in the Treasury market to keep rates under control, keep a lid on rates. And so, I don't know. That's my personal opinion that that's probably in our in our future guys, before too long.

CHRIS SIPES CFP®: And if you're thinking, well, that's not fair or this or that, like it doesn't matter. Like, you know, so I'd be, I'd be careful kind of betting against, betting against rates, because they can put their thumb on the scale they have before. And I'm, I'm guessing they're going to do that again. Okay. So, where do investors feel? How are investors feeling today? Well, the AAII sentiment indicator dropped down.

CHRIS SIPES CFP®: Man, we had a little spike last week up to 46%. We're back down into the 30s. Embarrassedness jumped back up. We're just living in kind of a manic world. I feel like we live week to week and then bomb on the weekends. The old term weekend warrior, it's got a new ring to it. The CNN fear and greed index were at 67. Greed, which is unchanged from last week, it's 66. Bitcoin's down to 26 fear.

CHRIS SIPES CFP®: And it was at 39 fear last week. So what's interesting is we've been doing some research, or Daren's been doing some research and shared with me that, you know, risk on versus risk off and the analysis there.

CHRIS SIPES CFP®: And it kind of confirmed what we've been saying for a while is that actually, Usually when you're investing in a risk-off environment, when people feel like it's risk-off, your future returns tend to be better in that situation than if you're investing in a risk-on environment when everybody's ecstatic and bullish.

CHRIS SIPES CFP®: So I would think of these things as contrarian indicators. And when they get to extremes, you might want to contemplate what that means for the future.

CHRIS SIPES CFP®: All right. So taking a look at returns under Powell, this is from Bespoke Investments showing the various Fed chairs. We got Burns during the 70s. Now, this is why we always talk about inflation and why we do not want higher than expected and high relative inflation because pretty much nothing likes inflation. Socially, people hate inflation. Asset classes hate inflation. Look at the S&P's return during the 70s.

CHRIS SIPES CFP®: Under Burns. Then you've got a, you know, a few months under Miller, I guess he was like an interim chair. And then you had Paul Volcker come in. Who's like the most famous, you know, Fed chair. I feel like in American history, where he fought that inflation and brought it down, over time.

CHRIS SIPES CFP®: And, I think what people fail to mention though, is that the, you know, the price to earnings ratios, right? So Did a little research and in 1970-ish, the trailing price-to-earnings ratio was around 18. So kind of going into that decade with low returns.

CHRIS SIPES CFP®: When you fast forward to 78, 79, sorry, when Paul Volcker took over, the price-to-earnings ratio was down around 7.9. Can you guys imagine the S&P? Having a single digit PE. I think the only time in modern history that we've been there was right at the bottom of the great financial crisis in the spring of 09.

CHRIS SIPES CFP®: So anyway, Powell's returns look pretty good from 2018 to 2026 during his eight-year term there. Now, when he took office in 2018, the PEs were pretty high at 19.6. He's leaving with them at 30 to 31. Warsh has got the deck stacked against him again when it comes to coming in with high valuations.

CHRIS SIPES CFP®: We talked about that when the Trump inauguration was happening. He's coming in with the stock market at, relative to valuation measures, one of its highest in history. So, who knows, maybe they can hold it together and make it go even higher. You never know. But, that's, that's going to be a headwind I would think.

DANO WEIR: And not shown on this chart too is, I mean, great. You got a high return. What was the inflation at the same time? Because you know, a high, high market return is awesome. But if everything else in the world is also skyrocketing at the same rate, or at least a super high rate, you're not really making any progress.

CHRIS SIPES CFP®: That's right. Yep. That's what they call real returns. That's your return after inflation. All right. So now if you look at where the Fed Governors are today, this is a cool chart from B of A. And, you know, there's some nuances here, but they're showing the various Fed Governors and whether or not they're dovish, meaning that they want to loosen rates, they want to make monetary policy more easy.

CHRIS SIPES CFP®: And then you've got hawkish. Which are tighter monetary policy. And why would you want tighter monetary policy? Why would you want to be strict? Well, to keep inflation under control. And the two mandates of the Fed are price stability and full employment.

CHRIS SIPES CFP®: And so they don't want to let inflation get out of control because as we saw in 2022 briefly, It creates a ton of social problems. It's horrible for the financial markets, which creates even more social problems. So societies in general really don't like high inflation. And so most of the Fed Governors are pretty on the hawkish side now.

CHRIS SIPES CFP®: Some of them, I guess you would say, are centrists, including Powell. But then you've got Stephen Moran, who's appointed by President Trump in the dovish. Area. Waller's kind of been a little more dovish as well. So we'll see. I think that Warsh is coming in with a fairly split governor situation at the moment. So he's going to have to kind of rally the troops to get through his agenda, which might be difficult moving forward.

CHRIS SIPES CFP®: When we look at the market, what's the market saying? We take a look at the two-year Treasury, which is a market-based measure of short-term interest rates. A lot of people say they should just get rid of the Fed and let the monetary policy follow the two-year Treasury.

CHRIS SIPES CFP®: And you can see this is over the last 10 years. So you can kind of look at how that gray line, which is the target upper end of the Fed funds rate, follows that two-year Treasury rate. And, and usually when that Treasury rate is above the Fed funds, that's considered that the, The Fed is too loose.

CHRIS SIPES CFP®: They're kind of behind the eight ball, which we're just now starting to get. Look at that two-year Treasury rate pop up over that Fed funds rate for the first time in quite a while. The last time that happened was at the beginning of 2022, the end of 2021, right before we got that huge inflation spike.

CHRIS SIPES CFP®: You can see the two-year took off, and then the Fed was trying to play catch up. That was when the transitory comments came out. And they were really trying to navigate that spike in inflation. Let's all hope that that's not where we're headed today.

CHRIS SIPES CFP®: But I think it's of note that that two-year Treasury has spiked above the Fed funds rate. And as of right now, the market-based measure is saying that we're not going to see cuts. If anything, we might see a hike to keep up with the short-term interest rates in the market.

CHRIS SIPES CFP®: We got the PCE, the personal consumption expenditures, this week on Thursday, which was high and higher than what was expected. You can kind of see that spike. Now, previously, this has been one of the favored measures of the Fed because they feel that this measure tends to lead inflation.

CHRIS SIPES CFP®: Now, Warsh said during his... Confirmation hearing that he prefers a different measurement. I think it was like the trimmed mean, some obscure thing. I can't remember what it was, but of course that one was showing that inflation was down.

CHRIS SIPES CFP®: He likes the one that fits his narrative. He knew the data he needed to reference for sure.

CHRIS SIPES CFP®: Anyway, we might see the narrative changing with the new Fed governor and he's going to point people in a different direction in terms of what they're looking at. You know, to meet their objectives and goals. So it wouldn't be surprising to see this one fall off the radar if it continues to head on the north side. This was from Nick Timoros at the Wall Street Journal.

CHRIS SIPES CFP®: And it shows the annualized rate over the last three months, over the last six months, and then change from a year earlier, all of them moving higher. Of course, the short-term measurement is much noisier, and that's where you see the biggest spike. But hard to tell if we're heading. Back to something like what we saw in 22, let's hope not, but it did move quickly.

CHRIS SIPES CFP®: Now, on the other side of the Fed's mandate, which is employment, we got a very, very low initial claims number for unemployment claims. So this would show strength in the labor market. According to Jim Bianco, the U. S. Jobless claims at 189,000 in April And they had an estimate of 212. It's been around 200 to 220 for seems like the last five years or so, four or five years.

CHRIS SIPES CFP®: But Jim Bianco says this is the lowest reading since September of 1969. And he does say, note, this is subject to revisions. We all know the payroll numbers get changed after the fact, after nobody cares anymore. And a lot of times those numbers get changed dramatically. But at least in the short term, this is showing, hey, employment is very strong.

CHRIS SIPES CFP®: And so the Fed, if they're looking at their dual mandate, they look at employment's very strong. We're probably okay there. But inflation is starting to take off. We might need to focus on inflation, which that, if you're weighing those two things, you would say, okay, likely to see tighter policy, higher interest rates.

CHRIS SIPES CFP®: Let's see here. Sorry, I skipped ahead there. Retail gas price has jumped. Now, should this longer term just to kind of put it in perspective of what's interesting to me is gas prices are essentially where they were in 2008. And, you know, that's a long period of time for gas to be kind of flat. And I think that one of the underappreciated aspects.

CHRIS SIPES CFP®: Of this bull market that we've been in since the great financial crisis was the technological advancement in shale discovery in the energy markets. And when the U. S. Kind of pioneered that technology, it created, it made the U. S. One of the largest oil producers or the largest oil producer in the world and lowered energy prices, kept energy prices under wraps, you to me has been a stimulus to the economy.

CHRIS SIPES CFP®: And I'm sure that's not, you know, revelatory to anybody, but, but I think it's something that's kind of underappreciated. And so, but nonetheless, everything in the markets are relative and we are very high relative to where we were prior to the war. So far, the market has not cared one iota.

CHRIS SIPES CFP®: We've seen pretty much no reaction in the markets, but you are starting to see that in the underlying inflation numbers. And if these numbers stay elevated in gas prices and such, this is one of those numbers that people tend to keep an eye on, right? Everybody knows what they pay for gas. It seems like. And so that's a political football there.

CHRIS SIPES CFP®: One of the reasons why that matters today is according to B of A, the higher gas prices have offset about half of the tax refund stimulus. So remember, we got a tax cut with the new administration coming in. And according to B of A, they feel that the increase in gas prices has offset about half of that. Which is significant.

CHRIS SIPES CFP®: And it's kind of a hidden cost of the war in the short term. But that's not the only place that the prices are going up. From Charlie Bielo, this shows the different price increases and all kinds of things from iron ore to jet fuel. Look at jet fuel, 82%. I know I went to book a flight, and this is probably two weeks ago, and I was like flabbergasted at the prices.

CHRIS SIPES CFP®: I don't know. I know, Darren, you've been traveling some lately, but wow, the prices to fly now, unbelievable. So we'll see how these things play through. Again, right now the market does not care and is showing zero reaction to this in any way. It's kind of astounding.

CHRIS SIPES CFP®: But like you said, Darren, the biggest thing that it comes down to is liquidity. And as long as they're pumping a lot of liquidity into the system, that's it. All that money's got to go somewhere. And at the moment, it doesn't seem to be going out of asset prices. So another week, and we'll see what happens, guys.

DANO WEIR: We're going to take a look at how a new Fed chair potentially could affect the market. What is the market that Kevin Warsh is inheriting? And we're sitting in a good spot. All-time highs, bull market. Or is it a shooting star, Darren?

DAREN BLONSKI CFP®: Well, how about the betting markets for the market that Warsh is going to inherit? So kind of some interesting stuff happening this week with some special ops people betting on what's happening and going to happen, obviously. So basically the story was that there was one of the special ops people.

DAREN BLONSKI CFP®: Knew something was going to go down with Venezuela and went on to Polymarket, which is this, what you see on the screen, and then bet that, you know, in the next so many days that we would invade Venezuela or take Maduro out or whatnot. And then ended up getting indicted on five federal, you know, what's the term? Anyway, they arrest him for five different offenses.

DAREN BLONSKI CFP®: Kind of interesting, right, that all our politicians trade and have become literally millionaires, Pelosi being one of the kind of poster children of insider trading and using it to her advantage and her husband's advantage.

DAREN BLONSKI CFP®: But the Polymarket now, and I saw this headline earlier this week, and Polymarket is where the insiders go to make money, right, because it's not technically the stock market.

DAREN BLONSKI CFP®: Chris, you and I have been looking at Polymarket, I think, long before it became as popular as it was to look at who we think is going to win the elections. And as it turns out, the more we look at this, it's actually people with insider information making outsized bets on it.

DAREN BLONSKI CFP®: And so it becomes even more accurate that way. So you want to see what the insiders that are cheating the system are doing. They're going to Polymarket and making bets on whatever topic you think it is.

DANO WEIR: Darren, I got to give you another one I heard this week too, which is similar. It's much lower stakes than the Maduro operation, but on these websites, Polymarket and others, you can also bet on the weather, which we've talked about, we've touched on before. So a guy in France bet the over, basically. Oh, I saw that one.

DANO WEIR: He bet that they were going to set all time temperature records somewhere in France. He found the weather device, the weather reader, the weather meter. And just went up to it with a hair dryer. And heated it up for the correct amount of time and then walked away. And he did it like six times or whatever. And, you know, of course, made all of his bets.

DANO WEIR: And then they arrested him. But similar to the Maduro guy, arrested them for what? I mean, what are the laws or the rule? What rules? I mean, this is literally the wild, wild west. So in these like casino laws, the arresting part of it is where I kind of question it, because like you said, I mean, that's what Congress does.

DAREN BLONSKI CFP®: Well, there are laws that if you're trading and doing things and making money on non-public information, especially if it's a legal security registered, you cannot trade on that inside of the bank.

DANO WEIR: Of course, of course, a security. The weather isn't a security. We're betting on life.

DAREN BLONSKI CFP®: Well that's what will be really interesting to see where these cases go Because like this special ops guy You know his He he entered into the court that I'm not guilty. Right. So it'd be really fascinating because securities law says you can't do that. But who said you couldn't just go bet on, you know, whether or not you think that, as you see on the screen, James Comey is sentenced to prison in 2026.

DAREN BLONSKI CFP®: I don't know. It's really interesting.

CHRIS SIPES CFP®: And what's the number one topic there? It says, Will Jesus, are you, are people really betting on. Jesus is coming back. We're under Hot Topics there to the right.

DAREN BLONSKI CFP®: Let's see.

CHRIS SIPES CFP®: Up a little bit. Up, up, up.

DAREN BLONSKI CFP®: Where are you looking?

CHRIS SIPES CFP®: Go up.

CHRIS SIPES CFP®: You're going down. There we go. Hot Topics right there. Right there, Hot Topics. And the very first one. See it on the right?

DAREN BLONSKI CFP®: Hot Topics. I'm looking at like Spirit of the Night. Are you seeing what I'm talking about? It's going to go bankrupt.

CHRIS SIPES CFP®: Just to the right of that.

DANO WEIR: It just says, Will Jesus. Right there, right there. Right there. What is that one? Yeah, what is that one?

DANO WEIR: Wow.

DAREN BLONSKI CFP®: The second coming. Oh, wow. So, 4% chance, guys.

CHRIS SIPES CFP®: Oh, wow.

DAREN BLONSKI CFP®: So, yeah, like you can bet on anything in Polymarket, right? But it's interesting.

CHRIS SIPES CFP®: As a parent, I'm telling you guys, this scares me a lot. Thankfully, I have mostly girls, and I don't think girls are usually, I mean, who knows, going to be interested. Man i really hope none of my kids get get hooked on this stuff i mean this is i i think this is so bad for society i just i i think this is unequivocally terrible for society in every way possible yeah.

DAREN BLONSKI CFP®: Yeah there's there's a lot to be said here but it is like let's take this for example okay Spirit Airlines is a publicly traded stock in the last few hours it is shot up to 58% are betting that it's going to liquidate before May 31st, which is interesting because it's so in the next month that it's going to liquidate, right?

DAREN BLONSKI CFP®: And this is my point, like did somebody with insider information come in here and make a big bet and they know something that maybe after all the Trump administration is not going to bail them out?

DAREN BLONSKI CFP®: And that's what we're seeing here, right? So... If nothing else, I think paying attention to Polymarket and Predict It's another one that we've watched for a long time, it actually matters. You have to pay attention because apparently it's where the insiders come to play.

DANO WEIR: All I want to say is if you're participating in Polymarket or Kalshi, I don't want to hear a dang thing about the K-shaped economy. If you're on the bottom part of the K and you're using Polymarket, you belong to be there.

DAREN BLONSKI CFP®: Yeah, but for real, you've got to empathize with that person. They're like, dude, I'm never going to work. I'm never going to get ahead of this game. So I'm going to YOLO it. Maybe I'll get lucky.

DANO WEIR: No. I mean, I get where they're coming from. And that's why Polymarket is as successful as they are.

DAREN BLONSKI CFP®: Yeah.

DANO WEIR: Next. Next.

DAREN BLONSKI CFP®: This is another one. Predict it, right? So you can kind of, and Chris, you and I have used this one for many years. And I guess we're looking at JD Vance and Mr. Gavin Newsome right now as our two choices. Yay. Excited. All right. Well, let's not get political and talk about markets.

DAREN BLONSKI CFP®: We're getting spicy this week. So we've got the S&P 500, right? Spy, it's the largest 500 US-based stocks. It's a measurement of what the economy is doing, the market's doing. We know the politicians in power love to connect their ego to the S&P 500. We've had a nice, nice, nice run over the last five weeks.

DAREN BLONSKI CFP®: Five ups. This is what we told you about a couple weeks or five weeks ago. We're like, that might've been the bottom. And sure enough, it was. You know, when you get a run like this, it wouldn't be crazy to see some pullback right now, you know, kind of come back in and test this high here.

DAREN BLONSKI CFP®: To consolidate when we look at the daily chart you can see today we had this shooting star that was referred to earlier by dano and so that's when the trade during the trading period of time the the price moves up and then it sells off so people go oh i like that price but i'm gonna sell it off so would not be shocking now that we've kind of moved up we see that spike that it comes back in and so interesting King.

DAREN BLONSKI CFP®: I don't, I, all, all the measurements I'm looking at, I think risk is still very much on. We might get some deep breaths here, a pause, but nothing crazy. We continue to see the oil charts, just not knowing what the heck of make of any day or hour, just bouncing around, depending on what's going on with Iran and the blockade, et cetera.

DAREN BLONSKI CFP®: The fact that we're hanging out right in the hundreds though, I mean, that's, I guess, helpful. A little bit. But it's going to make summer travel, like you said, Chris, pretty expensive. And all those tickets that those airlines sold early on in the year, I'm not expecting this. They're going to be losing some money, thus the Spirit Airlines fiasco, right?

DAREN BLONSKI CFP®: When you've got an airline that's already on the verge of bankruptcy, and then you stick it with obligations for gas and jet fuel, problematic. Now, they use the futures to help mitigate some of that risk as companies, but I guess it's just too much. For Spirit Airlines. So there was some talk of Trump saying, hey, we're going to bail out for $500 million Spirit Airlines and we'll just fly soldiers on Spirit Airlines.

DAREN BLONSKI CFP®: I'm like, what a smack in the face to the soldiers. Really? I don't know if you've flown on Spirit Airlines. I never have, but everything I hear about it is it's like you get kind of a seat and then anything extra you want, like to bring luggage, you pay more, all that kind of thing. To bring a carry-on, you pay more.

DAREN BLONSKI CFP®: I guess it's true capitalism. I don't know.

CHRIS SIPES CFP®: Apparently they weren't paying enough.

DAREN BLONSKI CFP®: Apparently not.

DAREN BLONSKI CFP®: But it has kind of a bad reputation. Like Southwest used to be like the cattle pusher, right? Now I think it feels like Spirit Airlines took that reign. When we look at gold, we're still staying under resistance here.

DAREN BLONSKI CFP®: So I think the downtrend is still on for gold, although we might be starting to build. Some upswing. Let's look at, you can see we're still under that 20 though. So I'm still going to call downtrend on gold. I think we come into this blue line and it's looking like, as the 200-day moving average moves up on gold, we'll see if it can withstand that. It's gone so hard so fast.

DAREN BLONSKI CFP®: Wouldn't be shocking to see some down on gold. But that chart's not looking particularly nice. If you're all on gold, I would reconsider.

DAREN BLONSKI CFP®: Silver. Wow.

DAREN BLONSKI CFP®: That's, that's silver versus dollar. Let me look here. You can see maybe silver is leading the way, but I think we're headed down with silver. I think we head back down into the 50, 60 range. I think we'll find support somewhere around here.

DAREN BLONSKI CFP®: It's not, I mean, there's some support right in the 64, 65 area. I would expect if Trump can manage things that he would want things to kind of slow down going into the midterms. Big decision out of Supreme Court this week with racial gerrymandering.

DAREN BLONSKI CFP®: Possibly going to reset things quite substantially for the election. I was looking to see if that had come through the predicted indexes yet, but I didn't see much yet. So IWM, leading indicator, looking strong. So that's why I say risk on.

DAREN BLONSKI CFP®: Sox indicator, leading indicator, saying risk on. I think we're still risk on, guys. I don't think there's anything to step in the way of this one. I think inflation's back in the system. They're saying it's slowing down a little bit, but I think it's still pretty strong.

DAREN BLONSKI CFP®: That's the wrap for me. I'm not going to belabor it this week, but things look good and strong, and I just keep on keeping.

DANO WEIR: Can you take me back to the S&P, which is where a lot of people focus? And can you, based on where it's at right now, because our episode today, we've got the new Fed chair coming in.

DANO WEIR: How does this change? Is it as simple as rates up, market down, rates down, market up? I mean, is it that simple? Based on what, you know, depending on either of those moves or no move from Warsh, how could that affect the S&P?

DAREN BLONSKI CFP®: Well, I mean, at the end of the day, like. Chris mentioned earlier, it's just all about liquidity. It really does. Nothing else really matters. And what is liquidity? It's just how much, how many dollars, and as long as the U. S.

DAREN BLONSKI CFP®: Remains the reserve currency of the world, and dollars get printed, it's just dollars being printed into the economy. And when you have dollars going into the economy, that's going to push higher. It has to come out somewhere. That's just the reality of it.

DAREN BLONSKI CFP®: So if that keeps going, the S&P keeps going up. And the other thing you have to think about... Twice a month, a huge portion of America pulls money out of their retirement and puts it into the S&P. And so as long as liquidity stays high, meaning there's not a lockup in the capital markets and they're continuing to pump more money in it, the S&P continues.

DAREN BLONSKI CFP®: And I think right now you would be crazy to step in the way of this from a long-term perspective.

CHRIS SIPES CFP®: You know, if you get a chance, I sent you guys the link, so I'm positive you... You listened to it, which was the Paul Tudor Jones interview with Patrick O'Shaughnessy on invest like the best. Now Paul was talking about the U S is reliance on the stock market. And, if you get a chance, just, just listen to it.

CHRIS SIPES CFP®: He's talking about the percent, the, the amount of equity via, as a percentage of GDP and you If we were to see a 30% to 35% drop in the stock market, which isn't even an extreme event in stock market history, about the amount of GDP that would wipe out, and I think more importantly, the amount of tax receipts that that would wipe out via cap gains losses.

CHRIS SIPES CFP®: And you just wonder, again, wouldn't want to be the Fed in this situation, but now that this much pressure is built in the system, how are they going to handle that? Do they just never let the stock market go down again? Now that the S And P is America's pension fund.

CHRIS SIPES CFP®: I don't know. It's too good. Chris, not only.

DANO WEIR: Not only did I listen and watch what you sent me, but I actually referenced it in a podcast episode that Darren and I shot this week in person or other podcasts. That's all money, which was about the Trump accounts. The Trump accounts that are coming out for kids, can only.

DANO WEIR: Be invested in basically the etfs for the S&P and i we were talking about how that's basically just assuming and of course we want it to be that way but that's basically just assuming that the S&P is always going to go up 10 a year like basically you know and allowing no diversification and how interesting how much of a shift that is from from prior generations it.

CHRIS SIPES CFP®: It was an amazing interview. Actually, I enjoyed it more for the non-financial things, specifically the story he told around when Patrick asked him what's the kindest thing anyone's ever done for him. Man, that was a powerful story. So I think even people that aren't really that interested in the markets might like that interview with Paul Tudor Jones. So an interesting guy.

DANO WEIR: We'll wrap it up for this week. Thank you for finding our show. If you're one of our Sonoma Wealth clients, we appreciate your time and especially getting all the way to the end. We hope you found it educational. That's our whole goal here. We want to educate.

DANO WEIR: We want to inform you and keep you posted on what we're seeing in the markets. If you're a future client, if you want to learn more about Sonoma Wealth, get to our website, SonomaWealth. Com. You can book your wealth analysis.

DANO WEIR: It's a private, confidential conversation where we analyze your entire situation and show how we help clients building financial plans. Sonoma Wealth.com to book that wealth analysis wherever you found the show. Subscribe. We'd appreciate that on YouTube, on Spotify or Apple Podcasts. And we'll see you next week on the market.

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CHRIS SIPES CFP®: And listeners. Fermata Advisors, LLC is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempt from registration requirements. This content was produced by Fermata Advisors, LLC, DBA Sonoma Wealth Advisors, DBA Fermata 401K, DBA Fermata Tax.

CHRIS SIPES CFP®: The opinions expressed by Fermata Advisors, LLC on this show are their own. Information presented on this program is believed to be factual and up-to-date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed.

CHRIS SIPES CFP®: Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented. Information presented is for educational purposes only.

CHRIS SIPES CFP®: And does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual.

CHRIS SIPES CFP®: Viewers and listeners are encouraged to seek advice from a qualified tax, legal, or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.