ALERT: 2027 Will Be A "Disaster" For Both Stocks & Bonds | Michael Pento

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Shop now at Palm Olive.com. 2027 is going to be a very, should be a very difficult year for the stock market and in the bond market. There's a small chance that 2027 won't be a disaster. But it's very likely that it's going to be a disaster. (upbeat music) - Welcome to Thalphamany. I'm Thalphamany Founder and your host, Adam Taggart, welcoming you for a special discussion here with Michael Penso. First off, Michael, thanks so much for joining us. - It's always a pleasure to see you, Adam. - Thank you, my friend. And this is a special recording. We're doing it on a Saturday. You're taking time out of your busy weekend schedule to give us an update here. The reason you're doing that is because you are a 20 point model which you have walked us through many times on this program is starting to tell you something new and you're a man of your word, you know, the best couple times you've been on. I've said, Michael, when your model starts to shift that we're entering into a new sector, please come on and let us know. Obviously, after you've let your own subscribers know, you're now doing that. So why don't we, let's talk about this any way you'll like. You can tell us what your model's telling you that's different this time. Or I know you wanted to provide a little bit of context here at the beginning because you know, I think I'm fairly get painted with the brush. As do I and many people on this channel of being a perma bear. That's not the case. You're very, very dated driven. - Exactly. Thank you again for having me on the program and it's always a pleasure to be with you Adam. So as promised, my model went, so anytime I was gonna go to either a net neutral position or short position, I was in like, I emailed you and I said, hey, things have changed. So the last time I did this was in late 2000 and 21. It was in December 2021. I became neutral and then bearish. And I was on your, that's about the time I started coming on your program. I just a refresher, 2022 turned out to be a pretty bad year for stocks and bonds in all candor. I stayed bearish longer than I should have. I did not factor in the draining of the reverse rebuild facility. So I was wrong for the first half of 2023. But since then, I've been in a net long position and that's verified by any interview. The plethora of interviews I've been with you in the over the years, I've ended saying, I am net long equities. What I have been, I would say permanently bearish on is the foundation, the structure of this economy, which is built on debt, asset bubbles, and money printing. And I said it would end badly at some time. But then I always caveat and say, look, right now I'm bullish, I'm net long. So there's always some troll or mutant that will go on the comment and comment, say, oh, this guy has been saying this for years. Well, I'm obviating and precluding that, that asinine comment by saying, anybody who knows me or any investor who's been with me understands that I have been net long the market since 2023. But now I am neutral. I'm not net short yet. I've neutralized the portfolio. And let me just tell you why. And if you just give me a few seconds here or maybe a couple of minutes, I'm sure you'll be interested in what I have to say, you and your audience. Absolutely. OK. So here's the reasons why. And there's three of them. Number one, the Fed is in the process of pricking the equity bubble. Now, the Fed is fighting inflation, or we're getting more accurately. Inflation is an increase in the money supply that ruins the market's interpretation of what the dollar is worth. It's perception of the dollars worth. So they're not really fighting inflation as much, but they're fighting the level of prices and the increase in prices. But there's three components of that. One, we have the Warren Iran. We have tariffs. And we have a debt-based monetary system and a debt-fueled AI spending spree. So those are the three things that are now adding to that aggregate price level that has eviscerated the middle class. Now, the Fed is fighting a battle by raising the Fed fund rate, but raising the Fed fund rate only affects the third one, which is the debt-fuel AI investment bubble. It does not increase the supply of oil. It does not solve the Warren Iran. And it doesn't recent tariffs. So the only thing they can do is raise the Fed fund rate to a level that pricks the debt-fuel AI investment bubble. And I think that's what they're going to do. That's a very dangerous road to tread on. Now, what is the raising the Fed fund rate really going to do? It's going to put more pressure on the middle class. The bottom, those bottom four quintiles, which have already been eviscerated, as I've mentioned already, is going to raise credit card payments, mortgage payments, it's going to raise auto loan payments. And it's going to take many rate hikes, a multiple series of rate hikes, to start to affect the AI spending spray, which is what they're going to do. And let's not forget, let's understand that the AI spending spray, this debt-fueled spending spray, which is responsible for 6% growth in M2 money supply because it's a debt-based monetary system. 50% of all earnings growth, Adam. I'm sorry, 50% of all GDP growth, and 80% of all earnings growth has been based on this AI investment. This AI? Yeah. Yeah. OK. So that's reason number one. Let me give reason number two. I mean, the bond market is in the process of fracturing. And I want to tell you the reasons why the bond market is fracturing. OK. So while the Fed is raising the Fed funds rate, that's raising the short end of the bond market, short end bond market yields. The long end is becoming unmoored. So let me give you a few reasons why this is a secular trend. There is pressure now on the long end of the yield term. So we all know inflation has been above the Fed's target for six years. So we have that inflation problem. That's new. They can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. It's weeknight dinners, sitting around the table, everyone talking all at once. Shop now at palmolive.com. - We also have the insolvency problem. Everybody's aware of that. We have a debt to revenue ratio of 720%. 'Cause you can never, I had somebody who came on CNBS and said, well, we don't have a debt problem because well, the debt's only about 100%. This person was quoting publicly traded debt 'cause it's really 123% of GDP. But so we could always just tax GDP, 100% and you know, we would pay off the debt. But Adam, if you tax GDP at 100%, nobody would go to work. - Right, you get a new economy. - Yeah, I mean, you know, so this is the art laffer's napkin. I mean, you could lower rates to zero and get nothing. You could raise rates to 100% and get nothing. So there's some kind of, you know, calibration there. I don't, you know, it's very small calibration. You could raise it a little bit and then you might get a little more revenue or you could lower it a little bit and get a little more revenue. But you're never gonna get a 100% of GDP. So we cannot, we cannot pay off our debt. Our debt is seven, the way to look at this debt situation is it 720% of revenue. That is an insolvenation. So you have the inflation, you have the insolvency. But you also have this new phenomenon where foreign creditors are now issuing the ownership of treasuries. And that's because of things like confiscations and sanctions. They no longer want to park their excess reserves in our currency and our treasury bond market. Plus global trade is shrank as a whole anyway. So there's less of that surplus to be recycled into our bond market in the first place. Then you have the Bank of Japan selling They are selling treasuries to support their billiard and battered yen. The nucleus of the yen carry trade, which is borrowing in yen for next is nothing and investing in US treasuries for that massive spread, the nucleus of that is gone. So the yen carry trade is dissolving because now, so this is pretty much the same point. Is that the global anchors from German boons, which were 0% from 2005 to 2022, and the Japanese government bonds, which were going out 10 years, 0% from 2015 to 2022. Now they're above 3%, German boons are 3.5 and the Japanese 10 years are over 3. So they're competing with treasuries. So if you're going to cost you a lot of money to borrow in yen and it is, and then you factor in currency hedges, you're no longer doing that trade, the yen carry trade is dissolving. So those are the factors that are heavily influencing the secular wins or pressure upward on bond on bonds. Can I add one more to that to see if you add it to the list? This is what's called the crowding out factor, right, which is all of the credit that's being issued by the AI hyperscalers is now coming in the compete with treasury debt as well. Would you add that to the list? Well, you're front running, you're jumped over my list, but that's okay. That's because you're so smart. We're a simpatico. Yes, the trillions of dollars in AI spending is competing with a limited amount of capital that we have available to invest in fixed income. So I'm giving you the reasons. So we talked about inflation, we talked about salt, we talked about the bond market with the long end and the short end, the Fed destroying them. One of the major components of my model is the high yield spreads, the high yield spreads are widening sharply right now. Now, normally what happens when you're starting to get pressure into the bond market and the credit markets, this is what happens. People see stress in the credit market and what they do is they run to treasuries, buy treasuries, the price goes up, the yield goes down and they sell the more, the more economically sensitive parts to the market, which is the most sensitive part is high yield junk, junk bonds. Which I find interesting and most disturbing this time, Adam, is that the credit spreads are widening and they're widening very quickly and sharply as we speak. And they're doing so as treasury yields are rising and high yield spreads are rising. The high yield spreads are rising so quickly, the cost of borrowing that debt is rising so quickly and so sharply, that's actually causing the credit spreads to widen. That I find very disturbing because that's very unusual, normally you'll see that credit spreads will blow out because treasury yields are falling and junk bonds are rising. This is not the case, they're both so, so we have we're having a big fracturing in the bond market. And the final thing that got me to go to neutral and I've been doing this for a couple of weeks now I started, I ended, I ended a neutraling out the portfolio this week is why I promised I'm man of my word I came on your program. The market breath is future is got really bad morning breath. So, so to put a number on that 70, a little bit above 70% of the S&B 500 is in a correction. So, you know, 10% down or more. Off the 52 week high 60% is down 20% okay so you know well over half of the market is down over 20% and 40% of the market is down 30% which my definition is a crash or 10% is a correction 20% is a bear market 30% is a crash. So, the internals of the market are really, really scary. So, when you add all this together Adam I said I come on your program I did I neutral out the portfolio I'm I am not net short yet and I'm sure you'll have some questions for me but it's it's to the point now where I think the risk award ratio is no longer in favor of aggressively being long you're buying hold 60 40 portfolio you could be in big trouble in 2027. So, first off thank you so much for coming on and sharing all this with us more or less real time is your models changing so you said okay now is no longer the time to be aggressively net long. It sounds like you're not even net long at the moment your neutral right so clear is it your model saying it's just not the time to be long anymore. I'm not that I am I am long I'm long I don't know you'd ask me that me just I'm long energy I'm on I sold my gold miners I have physical gold about 5% of that health care aerospace and defense but every long is offset by a short that's why I mean my neutral so if you add the short so long together it's completely offset and I have T bills and I have one to three year treasuries because I because I am now saying this is like me in this is October early October this is like me in December of 2021 telling the audience and I was like one of the first person to first people I know on your program to do it 2027 is going to be a very should be a very difficult year for the stock market and and in the bond market included and that includes all durations I do not think the next time we have a recession I know there'll be a Pavlovian response to go into the long end of the yield curve once the recession becomes manifest but I don't think it lasts very long I don't think it's very intense or acute it'll be a short live you know Pavlovian response to go into long term bonds but when you're when your deficits are going to $6 trillion and the Fed's going to be very reluctant to start monetizing and start cutting rates to 1% that's what works you know you know Fed people like I do I know works pretty well as as a as a as a Fed governor as now chair of the Fed I don't think he's going to come with alacrity and start printing trillions of dollars he's going to let this thing really bite first. If I can just add on to that so I literally just came back from a private investor event that I was at featuring Tom Homan sorry Tom Hanig who was CEO of the Kansas City Federal Reserve and then served on the FOMC during the Ben Bernanke era with Kevin Worsh so he actually knows Kevin quite well and he totally agrees with you Michael where he really does believe that that Worsh is trying to draw the hard line to say look Congress you guys need to get your fiscal spend spending house in order and I am no longer the Fed is no longer going to be your enabler right now there's a lot of people that think I when the times get tough the Fed's going to fold we'll see but it seems very clear that his starting position is no I'm going to be quite different than what you saw with pal and yelling and Bernanke and so we'll see. So to that point and this is you know I for you listen I'm 63 now so I sometimes forget to to to add things to my list that I try to memorize from. So the last five months to your point illustrate your point and to our audience make it very clear the last five months of Jerome Powell's tenure he printed 200 billion dollars of Fed credit his balance sheet expanded by 200 billion dollars. So what that means it used to be very clear with our audience the Fed creates credit out of X Nilo out of thin air and they just buy bonds they go to the primary deals and buy bonds. Industry minute of price buying bonds they the deals get credit the Fed takes bonds out of the market out of the market pricing sphere and and they're latent blame follow on their balance sheet well in the since Worsh took office I did the math the other the other day so he came. And I think was made twenty twenty second he came in. 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The balance she's only grown about like fifteen twenty billion it my memory is certainly correctly it's the pace of increase in the feds balance sheet has attenuated significantly so they're 10 taking a lot less supply off of the market. And that means the market buyers and sellers are now. The seller's being the treasury and buyers being the actual people have to hold a 10 year treasury, a 30 year treasury, have to go through the calculations of, well, really, how solvent is this nation? What's the inflation rate gonna be 30 years from now? And so bond yields are going up for all the reasons I mentioned and the fact that the Fed is stepping away from being the enabler, the great enabler of this government and its issuance of debt. - Okay, all right, so if indeed that does continue to be the case, as we go into 2027 if there is trouble, you think the Fed is largely gonna sit on the sidelines. It's not gonna ride to the rescue the way that it has with alacrity in the past. - Yeah, with that caveat, you said, with alacrity. I think when banks start closing down in the money markets freeze and the repo rates go to double digits, even worse is like, oh, I gotta do something. - So if you basically like to critics, you think the Fed will eventually cave. You just think the Fed's caving point is far, far there out than what people are assuming right now. - Exactly, and even though we had, let's just go back to 2007. When Bernanke started blinking in the, I think it was July of 2007, when we had some crash, some questionable mortgage hedge funds. But more gambling on these mortgage derivatives, these hedge funds started this experience pressure and he started caving. And that was in the summer of 2007. And then by the end of 2000, but that didn't stop the recession. The recession started in December of 2007 and the market carnage didn't end until March of 2009. - So I think you have a more, you have a more of an Austrian, laissez-faire free market, he wants the market to work. The market's gonna work in a really negative way, sending bond prices down and yields surging. And I don't think he's going to sit by, idly by for very long, I mean forever, he'll be dragged into the fight, but it's gonna be like I said, reluctant to do so. - Okay, so it sounds like Michael, you think that 2027 could look a lot like 2022, but maybe it'd be a little bit more violent in terms of the corrections. 'Cause 2022 is kind of a slow deflate throughout much of the year. First off, I think you're not a little bit, but can you clarify is that true? It's a year where both sort of stocks and bonds, you think won't perform well? - Yes, both three, you can throw a third one. So the credit bubble pops, it's popping right now. That pops whatever is left in the real estate market. You still have to have home prices crash. I mean, there's just way too high relative to incomes. The highest they've never been. And then Adam, the stock market's still trading at 235% of GDP, market equities. So that's in the thermosphere, not even in the stratosphere. That's in the thermosphere of history. I mean, the normal ratio there is more like 90 to 100%. So we have a long way to go down. And the only caveat I will say here, and this is something that could possibly delay this, I could be wrong. And if I'm wrong, I'll change my, I'll go long again. If in the next two quarters, the Federal Reserve is able to stop raising rates, in other words, if Trump is able to end this war in Iran, get energy prices much lower and quickly, that could stay the Fed's hand enough to for stall this, what I call, great reconciliation of asset prices. That's a big if, I don't know if that's gonna happen. If you looked at, I was looking at the commodity, CRB index recently, the amount of increase, is this a 50% increase in the CRB index in the past year of year period? 50% and that's, that's inputs to inflation that is gonna pervade, not just with energy, that's, there's 19 components in the CRB index. It's gonna pervade throughout the entire economy, with a lag. So I don't, I'm not saying that this is, I'm not, I'm not trying to hedge myself what I'm saying. I'm saying there's a small chance that 2027 won't be a disaster, but it's very likely that it's going to be a disaster. - Okay, and I think your answer is yes, but I'll just ask it, this is gonna happen kind of no matter really what happens with the midterms in your opinion. - Yeah, I think it's a, totally irrelevant. - Okay. All right, so, you know, it's interesting, there's been some discussion on the channel recently about bonds that bond yields have come up so high, so quickly, you know, there are some arguments that folks have made that they're not gonna be able, you know, kind of like oil, the price for high, cure for high oil prices is high oil prices, where they say, you know, cure for high yields or it's high yields, and that yields are gonna peak out and start coming down, and that might actually be a good time to get into bonds, lock in these high rates, and if bond yields do trend down over the next year or two, you'll get the nice rate plus you'll get the bond appreciation. It seems like you're saying, no, no, no, this is too early from your perspective. - I'm not only saying this too early, I'm saying that you gotta be very picky about what duration you're buying. Yeah, I'm buying one to three treasuries because I think that the two-year note at 4.8% is already factoring in three rate hikes that may or may not happen. And when they happen, it's already priced in, and then that then the Fed's gonna have to, you know, say, okay, you know, no, Moss, I gotta stop. This is not working, and I'm gonna lower, I don't know if he's gonna go to zero, probably one or two percent. There's a lot of money to be made, hopefully on the short end of the yield curve. The long end, again, there'll be a Pavlovian reflex action into the long end, but I just don't know how long that lasts 'cause deficits go up 200%, 300% in recessions, so we're talking about a $630 deficit. I don't, who's gonna buy all that debt? This is new, so if you look at the 2000 recession, we had a surplus that year, Adam, so deficit went from a surplus to a $100 billion deficit. No big deal in that recession. And even in the global financial crisis, the deficit peaked out at one point something, trillion dollars, one point two, four, something went on there. After being like $300 billion in it, but now it's gonna go from $2 trillion, one point two in interest payments to $6 trillion. It happens automatically. It's not like all the Congress is gonna, are you sure they're gonna do UBI? Are you sure they're gonna do helicopter money? No. What happens is that the automatic stabilizers kick in, and the revenue disintegrates. That happens automatically without any help from government to blow up the deficit. So when you have a deficit of $6 trillion and a national debt that's 123% of GDP and $40 trillion national debt, the Pavlovian response into the bond market is gonna be muted at best. That's my opinion. Okay, so just to make sure folks understand, when things start to get rocky next year, if and when things start to get rocky the way you think they will, you think there will be quote a Pavlovian response, which is that US Treasuries of the Safe Haven. And so there'll be a movement of capital into bonds and likely part of that into the long bonds. But again, you think that it'll be short lived and that you think the bond market, the bond vigilantes, if you will, will then as they look at what's happening during the recession we'll say, oh my God, deficits are blowing out to these unimaginable numbers. I need to be compensated with this for this and they're gonna start demanding high long bond yields again. - Well, you're watching a movie, but you already know the end of it. This is not a new venture. You've seen what happens. So what's the response from government? Spend trillions of dollars. What's the response from the Federal Reserve? Monetize it all away, Adam. - So when bond vigilantes say, oh, we're now going to spend $6 trillion a year in deficits, we haven't even talked about UBI. We haven't even talked about any kind of TARP program to reflate the banks, reliquate the bank and make their balance sheet solve it again. And then the Fed's gonna have to print all that money. What's gonna happen with inflation? We just have six years of inflation above the Fed's assasign, as I'm so fond of saying, two percent target. Where's it going to, and it went to nine percent? You're gonna be, how fast are you gonna buy a 30-year bond yielding five something percent? When you know inflation's gonna go to nine plus a lot more. You're not, right? So that's the calculation. That's the, that's the rationalization, that's the-- - Okay, got it. All right. So I just wanna note for folks, some interesting divergences against professionals as to where they think, whether they think bonds or getting attractive or not. Michael, your model has a bunch of different sectors. And so what is the sector for net neutral? You think you know a browser, but Gemini and Chrome, that's new, it can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Ready to make anything online make sense? And the new convenient pump makes cleaning even easier, so you can spend less time tackling dishes and more time together. So we are in sector 4, as well right now, which is in the second derivative, is where inflation is rising on a second derivative basis, and growth is rising on a second derivative basis. But understand, I believe firmly, that the collapse in the bond market, the fracturing of the bond market is going to bring us to sector 2 and sector 1. So I have neutral out the portfolio, even though we're in sector 4, which is normally a place where you'd be most long, that's the best sector to invest in. And there's different stocks, bonds, currencies, and commodities to own in that sector. But when you see sector 4, we had the same thing in 2007. We had oil prices resourge in 2007. We did not have a disinflationary problem in 2007, but that was the time that you knew. You sort of bond markets start to crater, you start sorting inflation, soaring, then you saw the cure for higher oil prices, it was higher oil prices. It just killed the, it just crushed the economy. We are in the process of crushing the economy, what's going to send you to sector 2, and then sector 1. That's the, that's the playbook. So I'm ignoring the, the normal playbook for sector 4 right now, because I know, I know, I know what's happening in the bond market is so critical. If you look at, you go and back test what happens with high yield spreads blow out to this degree. And then you factor in the fact that they're blowing out, despite the fact that treasure yields are surging, you can have a real problem. It's just not worth it for me to, it's just, it's not, I think the risk of a ratio is skewed to being neutral right now, not net or crystal clear about that. Okay, got it. And you said sector 4, you're not deploying a normal playbook for sector 4, because you expect us to get into sector 2 and then sector 1. Sector 1, you don't, you know, and officially call it this, but it's sort of the all hell breaks loose sector, right? And so at some point next year, when you're in sector 1, you're going to be in your four horsemen, right? Correct. Correct, yeah. Yes, in your remind folks, I even have, I'm sorry. I was just going to remind folks, your four horsemen for which is when, you know, things are kind of crashing, deflation is the official name of the sector. It's, it's, it's cash, it's T-vill's, it's US dollar investments, and it's a little bit of gold, correct? And it shorts, you forgot shorts, shorts, shorts, shorts, yeah. And I am now, I have, I have CTAs in the portfolio, I have, and I have two short ETFs in the portfolio to offset my longs that are in aerospace and defense and energy, a little bit of gold and healthcare. Okay, I'm curious, so again, just to remind folks, your, your, your current, which is sort of a semi unique holding for being in sector 4, is your long energy, your long gold, your long aerospace and defense, and you're holding onto a fair amount of T-vill's and one to two your treasuries. You said you have sold your gold miners. You expect to buy the miners back at any point here, or are you going to wait until the dust settles from sector 1? So, so if you remember what happened, like rigorously back test, this is not my, you know, imagination of what I think could happen. So if you remember what happened in the teeth of the credit crisis, so you're going back the fall of 2008, it's a liquidity crisis. So it's, so sharp disinflation, which is like sort of the tail end of sector 2, or outright deflation, which is sector 1, are really bad places to be long anything. Right, because of margin cost, everything gets sold, right? Everybody wants one thing, they want liquidity, and that includes gold. And gold stocks, which are a leverage play on the precious metal, are a really bad investment. So again, I'm a gold bug, I love gold, I have gold, you know, I don't wear much jewelry, but I just, I just love, I just love, I love that, that competition for paper fiat currency. And the time you want to overweight gold is when the interest, the real interest rate that you're getting on paper money is negative and falling. That's the, now right now we've had a sharp rise in real interest rates. So I'm not even too keen on my gold position right now. Right, I'm curious, are you, are you taking any heart that even a gold spend week? It hasn't been walloped, given how fast real rates of risen? 100%. I'm surprised, and I took down, I sold my miners a while back, and I was thinking of taking out the gold down to like nothing. But I'm just, I'm just so surprised. And I said, yeah, I guess you can say, you can be surprised as a money manager, right? I am surprised that it hasn't gotten walloped. Because real interest rates have spiked violently. I think, I think the gold market pre-sages, like hey, we've seen this happen before. We know what's going to happen to credit markets. And then we know the Pavlovian mandated response from government. They cannot let, because they cannot let the process play out. Because of the massive financialization of this nation and really all developed nations, you can't say Japan is any better off or Europe. When you're, when you have 235%, that's the market cap of equity is a GDP. And you have a crash, you're wiping out the economy. You're not, it's not a little major, you know, hiccup that's, oh, you know, it's just a few people on stocks and not going to be, not going to bother them that much. No, it's an existential threat to the nation. And when home prices are this rich, this deer, and they drop by 30%. And you have, so you have credit imploding, housing imploding, the market imploding, and there's going to be so much stress in the financial system that they have to react. Otherwise, it's not a reset. The short-lived, you know, speed bump of recession is off the table. It's a depression that they have to try to avert happening. And on the other end of this, and I've said this, you know, again, I've said this over and over again. I have been bullish. I am net long. But I've also warned I said on the other end of this is going to be what I've coined the term hyperstagflation, because I don't think you get much real growth at all. But you get a tremendous amount of inflation when they have to monetize trillions and trillions of dollars a year just to keep the, just to keep the lights on in the banking system. And I, you know, and it sounds, boy, that sounds like I'm a Cassandra. But Adam, I remember listening to Richard Fisher back in the '90s when I first got in the '90s. And he was adamant. The Federal Reserve will never have a problem with inflation, because inflation comes from monetizing debt. And the Federal Reserve will never monetize trillions of dollars in the US. He said it. And it happened. The laws, the laws of economics apply to the United States just as they apply and everywhere else on the planet. I don't see any rate, I don't see any easy way out of this. The only escape patch we have is twofold. I think I mentioned it already. Is a dramatic and quick resolution to the war and a massive productivity boom from this oldest CAPX spending in AI. Those are the two ways out of this depression, or at least the manifestation, the beginnings of a depression. Okay. I'm glad you mentioned that because I was literally going to bring that up next. So, you have been listening. I was just listening yesterday to a long recap of the AI council that the president had just called last week. And, you know, there's a lot of people in that business who are extremely optimistic about the output of this massive trillions of investment that's being deployed right now and how that's going to really juice the economy. So, that would be, I think, a counter to kind of your dire outlook. And it sounds like you're saying, yeah, it could be. So, what are you going to be looking at besides end of the war? You know, low diesel prices to say, hey, you know what? It's time to get net longer again. Well, that's why that's why I built my model because my opinion is meaningless. Right. Right. Looking at I'm looking at the turnaround of financial conditions. They are now tightening. I'm looking at that blowout and credit spreads. I mean, I just to be clear, I've narrowed and honed my model from 20 points to 12 points. I didn't know that. That's okay. Yeah. It's a 12 point model. So, there was a lot of redundancies that I said, let me just take that out. And so, now I have a 12 point model. I'm going to be my optically looking at that model. So, let me know when the insiders who control the world, they're not always the same people, but it's the generals, it's the captains of industry, it's the, you know, the the Pluto crats, right? When they start making their moves, my model picks up on it. And I'm looking at what they're doing right now with credit spreads and financial conditions. And it's an early warning sign to get cautious. And that's exactly what I have done. - Okay, all right. Well, look, thank you so much for taking the time, especially at your weekend to come on and tell us about this change. If you don't mind, Michael, I mean, we're gonna have you on on your regular normal cadence going forward, but if I could be greedy and just ask you, especially since you expect to go from sector four to sector two to sector one, as the model does flip into new sectors, come back on even if it's out of the normal cycle, just to let us know I'd be ever in your debt for that. - You know what, it's the hardest part is this part because it's like people say, well, the S&P 500 is only off like one or two percent from as high or whatever it is. But look at the internal, look at the internal carnage in the market, look at the arcane things in my model and it's not that what they're talking about on CNBS. - Right. - So when my model flips and I will come on absolutely, but you'll see, you'll see the CRB index crack, you'll see oil prices crack, you'll see the five year, five year, four year break even inflation rate tank. That's not your signal that everything's okay. That's your signal that we're heading into the teeth of a recession slash the threshold and you need to get really nervous. - This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block or finally break down that long article you've had open for weeks. Check responses set up required compatibility and availability varies 18 plus. - This episode is brought to you by Palm Olive. Palm Olive's most powerful formula removes up to 99.9% of grease, leaving your dishes sparkling clean and the new convenient pump makes cleaning even easier so you can spend less time tackling dishes and more time together. - All right, well look, I wish this out of cycle update was for a cheerier reason, but very important that you're letting us know of this. And again, thank you for that. Michael, for folks that would like to follow you and your work in between now and the next time you come on here, where should they go? - So the website is pentoport.com. If you have $100,000 to invest and you're interested in a long short portfolio that I myself managed on some kid out of the college, I will manage your money in the IDEC strategy personally. You have to be a US citizen as well, qualified for a long short portfolio. But if you don't, you just like a regular guy, he wants a guy a gal has $50 a year to invest in my podcast is called the Midweek Reality Check. I'll give you a very high level of view of what's going on, I won't get you in specifics and sectors and waitings. But let you know what's happening and the correct or at least my version of the correct unbiased interpretation of the economic data and the macroeconomic cycle as it deteriorates. - All right, well thank you so much Michael. As usual, I will put up the URL to your pentoport.com website and have the link in the description below the video as well. And folks, if you could please, especially this time, join me in thanking Michael for taking the time out of his weekend to give us this important update. Please thank him by hitting that like button and then clicking on the subscribe button below as well as that little bell icon right next to it. All right, and lastly, obviously given the importance of what Michael has just talked about here, I highly recommend that you consider talking to your professional financial advisor about Michael's warning here and whether it's something that you want to take steps to address and advance in your own personal portfolio. If you don't already have a good advisor advising you who takes into account all the macro issues that Michael and I discussed, hopefully you can find a good one and if you want help with that, feel free to talk to one of the ones that offer money endorses these are the firms you see with me on this channel, Week in and Week Out. To do that, just fill out the very short form at thoughtfulmoney.com. Only takes a couple of seconds to fill out the form. These consultations are totally free. There's no commitments involved. It's just a service they offer to be as helpful as many investors like you as they can. And lastly, in wrapping up, just want to remind everybody that tonight is the night. If you're watching this video, the day that it comes out, tonight is the night to lock in the early bird price for thoughtfulmoney's fall online conference before the price discount expires at midnight tonight. So if you're watching this run, don't walk now to thoughtfulmoney.com/conference and buyer to get there at the early bird prices. Reminder, the conference is taking place in two weeks. Officially a little less than two weeks now. That's on Saturday, October 17th. Don't worry if you can't watch live. Everybody who buys a ticket will get replay videos of the entire event later than same night as the conference. We get them to you very, very quickly. And a reminder that if you are a premium subscriber to our sub-stack, you've been sent a code that you can use to get 50% off that whatever the price of the conference is. But if you do it right now, you'll get it off at that lowest early bird price that I mentioned. If you're not already a premium newsletter subscriber, go to thoughtfulmoney.com/newsletter. Sign up now. It's a 19 bucks a month. Spend the 19 bucks for one month. Pocket the $50 discount. You're gonna walk away with what? That's $31 a profit. I'm totally happy if you game a system like that. Like I said, I want everybody to get the lowest price possible. So again, run, don't walk right now to thoughtfulmoney.com/conference and buy your ticket. Michael, it's just always such a joy of pleasure, a privilege of treat to have you on. And we'll do it again soon, hopefully. Maybe even sooner than we. Thank you for your model changes in the near future. Again, I wish it were for better reasons, but super important that you're informing us of this. Thank you. - And God bless us all. - All right, my friend, perfect way to end it. Thanks so much. Hope to see you soon. 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