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Speaker 3If the dollar stays between approximately 90 and 105 or 85 and 105 on a relative basis, the whole system can kind of work and the world can live with both dual carry trades that they have to deal with. But if the dollar breaks out to the upside of that band, that's when bad things start to happen. And we're getting relatively close to where that is now. Indeed Sponsored Jobs. Welcome to Thoughtful Money.
Speaker 4I'm Thoughtful Money founder and your host, Adam Taggart. Welcome you here for a very special guest on a very special day. We're going to talk about debt, gold, the elections, maybe even the tech wreck that's happening in real time as we're recording this with the dollar milkshake man himself, Brent Johnson. Brent, how are you doing? I'm good, thanks. It was good to see you last week. It was good to see you last week, Brent. It's always fun to spend time with you in person. And I guess I'll just, I was going to talk about this later, but I'll mention it right now. So we were hanging out in the green room and you were sitting next to Peter Schiff and I got in between the two of you, snapped a photo, posted it on X. And then within like two minutes, somebody posted this, it turned it into an AI sketch and it was right around Halloween. So it was a little AI sketch. I'll play it right now for folks so they can see what I'm talking about.
Speaker 5All right, guys, Halloween time. Let's do this. Yeah, let's get these costumes on. I'm going for the gold. Let's go. Time to shake things up. Feel the burn. I'm worth my weight in fun. Best Halloween ever.
Speaker 4It's pretty amazing. It is pretty amazing, but AI can do it. And I've been, I won't do it today, but I've been talking recently on this channel about how I've fallen deeply down the agentic AI hole and I'm having it just do more and more parts of my business and parts of my life. And it's amazing. But it is crazy how, you know, kind of good the AI stuff is going, getting. And look, that AI stuff isn't perfect. But again, like I said, it was done in like two minutes and I sent it to my wife and she was like, wait, wait, tell me this is AI because it looks real. And I was like, yeah, thankfully. But my favorite part about that clip, Brent, is of the three of us in the clip, you're the shortest on the AI.
Speaker 3Yeah, that's it. It just shows you not everything. It doesn't get everything 100% correct.
Speaker 4Yeah. And folks, in real life, Brent towers over me and Peter Schiff. I did, though, it made you the most enthusiastic one of the three of us in the video. So I thought that was really fun. It was. You've got to have fun with stuff like that.
Speaker 3You can't take yourself too seriously.
Speaker 4Very true. Although there is some serious stuff going on right now with tech. And if there's time, we'll get to it in this discussion. But the day we're recording this, Thursday, November 5th, the NASDAQ is down about 5% right now as we're talking. And of course, this has been after some weakness in the space. So I think some very legitimate questions are getting raised about like, wow, is this maybe the breaking of the confidence in the AI bubble? Or is this just a needed pressure relief? And then, you know, it will start running higher from here. If you've got strong opinions on that, we'll get to it. But I want to start with two things that you've been talking about. You can tell me which one you want to tackle first. One, obviously, is we just had the midterm elections. It was a pretty extreme result, meaning it was a very strong blue wave. There's a lot of ink being spilled right now about the significance of that. And you have been posting saying, hey, it's not that it's not significant, but this is sort of a movie we've seen many, many times in history. And this is just sort of the way the pendulum swings. We can talk about that first. Or we can talk about a recent piece you put out called Slow Shave, which is really talking about the growing demand for cash. The capital, which, you know, basically just means that there's there's there's leftover once we pay the things we have to pay to do the things we want to do. So which one of those two do you want to tackle first?
Speaker 3I'm happy to do any of them. Maybe we focus on the slow shave just to start.
Speaker 4OK, let's do that. So I'll let you. Well, why don't you describe it? And then, yeah, I've got some big questions, but I'll let you set the stage.
Speaker 3So. So there's two points I want to make about it. Essentially, what it is, is it's a paper covering sovereign debt, but in this case, Europe, because what we've seen in the last month and this is kind of died down a little bit. What we've seen in the last month is European sovereign yields have started to spike specifically in France. And the reason we think it's important is because we first of all, we've said for a long time that we thought that Europe was in trouble for many reasons. But we titled it. Slow shave, because we don't think it's helpful to just kind of come out and make these grandiose predictions all the time about collapse or a crisis or, you know, a great depression. But the point we've made for a long time is that part of the reason our thesis, the whole dollar milkshake theory, and we think that the U.S. is kind of the cleanest dirty shirt is not because the U.S. is clean, but just because there's these big, big problems elsewhere. And what we put out a couple of reports. A year ago, talking about how rising yields in the United States are a problem, but higher yields in the U.S. end up causing problems overseas. And we believe the U.S. is better equipped with the problems than those overseas are able to equip with them. And I think that's what we're seeing in France now. So that was the reason for putting out the paper now. Can I just mention two things about that?
Speaker 4One is in many ways because these countries just aren't as economically resilient and robust as the U.S., so higher rates hurts them more. But also because of the euro dollar market, a lot of these countries and their participants hold loans in dollars. So as dollars become more expensive on a relative basis, it's more expensive for those foreigners holding dollars because here in the U.S., the U.S. can print dollars to service its debt. Where you can't print dollars if you're in another country.
Speaker 3Not only that, I mean, you're absolutely right. And that's a point that we made in a previous report called The Band, where we talk about countries around the world have to deal with two carry trades. They have to deal with the carry trade in U.S. dollar terms because that's what they use on the global stage. And then they have to use their local currency terms, the carry trade associated with that, because all money, no matter where you're at in the world, has been loaned into existence. Now, what makes it even worse for France is they can't even print the local currency because they're part of the EU. So even in their local terms, they have a carry trade in a currency that they cannot sovereign, that they do not have sovereign control over. Now, they can influence it, they can beg, they can plead, but they can't make the EU or the ECB do something specifically for them. And so and that is one of the reasons. We have made this argument that rising yields are a problem for everybody, but that it will manifest in crisis overseas before it manifests in crisis here in the United States. And as you know, that's part of the reason why the dollar, you know, back in July, everybody thought Warsh was going to come in and start cutting rates like crazy and the dollar had sold off. And now it was going to, you know, fall precipitously because these rate cuts were imminent. And then, of course, the dollar does a 180 and it goes from like, I don't know, 97 or 98 to 101 or 102 in the space of two or three months. That is also at the same time that the euro started to fall because the the European growth is just not there. Sovereign issues are starting to be an issue and they've got a war right on their border and they're going to have to spend more on national defense than they typically or traditionally have. So all of these things end up manifesting overseas earlier than they do in the U.S. And the reason I should make this point, the reason we call it slow shave rather than collapse is because, again, I don't think it's helpful to plan for a collapse. I think you have to be aware of why that could happen. But countries abilities to kick the can down the road is better than most people think it is. All you got to do is go back 12 years, 14 years when Mario Draghi said, believe me, you know, we'll do whatever it takes and believe me, it will be enough. I remember when he said that thinking, yeah. yeah, you got one or two years. Well, here we are, you know, 13 years later. and it's still going on. So the predictions of imminent collapse, I don't think are helpful. But we call it a slow shave, because what they're going to have to try to do is what everybody has been talking about for years now, which is financial repression. They're going to have to cap yields at some point. And they're going to have to continue to spend from a fiscal perspective, which is going to have the added effect of removing purchasing power from the euro, right? Now, I think everybody is very familiar with this whole debasement trade as it relates to the dollar, because everybody focuses on the dollar. But those same dynamics exist in every other currency in the world.
Speaker 4And generally, to a greater extent.
Speaker 3Yeah, but just to a greater extent. So it doesn't mean that the dollar rising on a relative level is a guarantee of the dollar's purchasing power. That doesn't have to be the case. But the point is, is that Europe and not just France, but France specifically, but not just France, Europe has a problem with rising yields, and they are probably going to have to cap them in some form or another, which would lead to debasement of the euro, leaving the dollar out of it for now.
Speaker 4So one of the things that you talk about, so sorry, one thing that you've said many, many times, and we'll talk about it again today, is that everybody knows you as the developer, the dollar milkshake theory. So everybody instantly thinks Brent thinks the dollar is awesome. And you don't, you think it's a dirty shirt, you just think the rest of the shirt and the hampers are even dirtier, right? But you know, you've done, I think, a hero's work of warning people, yeah, the dollar may eventually fail at some point, but it's probably gonna take a long time, maybe even longer than our lifetimes. And two, it's highly likely to be the last fiat currency to fail for all the reasons that you talk about. But what do you think? Well, one of the things you tell people a lot is, given the dynamics that you just mentioned, the dollar can go up relative to foreign currencies, but gold can go up relative to the dollar, right? The dollar doesn't reign supreme over every asset class. It can do well on a relative basis to its peers, but it can get left behind by other assets that will perform better than it in terms of retaining purchasing power or increasing purchasing power. You're not as I'm saying this, but I'm capturing this.
Speaker 3Yeah, I mean, that's kind of always been my, my, my, my opinion. And I, it's important to understand, like, I think when people hear me talk about the dollar, because so many people have been, when they initially bought gold, they were told to buy gold because the dollar is dying. That is a central position for the gold world. You got to buy gold because the dollar is dying, whether through purchasing power, or, you know, the bricks are going to start another parallel currency system, or the United States just can't pay its bills, whatever the reason, you know, the dollar failing is kind of a, a central cornerstone argument for why you own gold to begin with. And I think that has a small bit of truth to it, but it, but, but by doing that, I think it glosses over the strength of the dollar on a relative basis. And the strength of the dollar on a relative basis is probably the single most important variable in all. And all of global finance, because it affects literally everything. So if the only thing an investor has to worry about is purchasing power and they don't care about corporate profits, they don't care about geopolitics. If they don't care about inflation, if they don't care about anything other than purchasing power, then they can just go buy gold, go sit on a mountaintop somewhere and just wait, because that's all you have to worry about. But if you run a business, if you operate on the global stage, if you do take an interest in capital markets, if you do have an interest in geopolitics, the dollar is one of the most important variables in all of those. And the dollar ends up impacting all of those other markets, even if it's losing purchasing power. And so that's the point that I've tried to educate people on is that if the, even if the dollar dies law last, that is an extremely important concept to understand how impactful it dying last is to everything else.
Speaker 4Um, okay. Well, I'll let you continue to expand on that as relevant to the discussion as we go forward from here real quick, just because we're now fully looking at the dollar. What's your, what's your default outlook for the dollar for next year?
Speaker 3My default outlook is I, I, I try not to make too many predictions. I, you know, the, when I first started talking about the dollar, I made a very specific prediction because I felt we had a very specific set of circumstances that I thought raised the high possibility that we would have a currency crisis or a sovereign debt crisis. And in that event, I thought the dollar had the potential to go up significantly. Now that currency crisis and that sovereign debt crisis came close, but it never actually happened. They were able to kick the can. Down the road. And as a result, that prediction of the currency crisis and the dollar returning to its all time high did not play out. And so from that perspective, I got it wrong, but directionally everything that we said that would lead would happen as a lead up to that crisis, all the different asset classes moved in the direction that we thought. So I don't think it's helpful again, for me to come out here and say, I predict the dollar is going to go through this super spike. But what I would say is we have all of the, the variables or all the, you know, scenarios are on the table right now that could lead to the dollar breaking out from its band. And, you know, again, I've referenced the band earlier. I think the dollar is like at 102 or something. So it's not there yet, but it's getting kind of close. And with all of the scenarios that we have on the table, I think the likelihood that it breaks out to the upside is higher than the likelihood that it breaks to the downside. Now, here's the thing, if I'm wrong, and it breaks to the downside, that should be helpful. So if the dollar breaks out to the upside, that's what we need to be prepared for. And that's what we need to hedge against. So we always have some hedges in place. We always have some short-term cash on the sidelines. We always have some downside protection in case that does break out to the top. Now, going back to the specific question, my guess is that the dollar kind of stays, my base case is that it kind of stays between 100 and 110, but probably tests the upside of that sometime in the next year. But I don't have a strong conviction, but that is what I worry about. I don't worry about the dollar going down, because if it goes down, then I'm probably in pretty good shape. It's when the dollar rises significantly, the bad things start to happen.
Speaker 4Okay. So just to make sure I understood, kind of your default is an elevated dollar throughout next year, but no breakout to the upside that causes sort of the knock-on effects that you're worried about.
Speaker 3It's not the base case, but you have to be prepared for it. Right. The breakout to the
Speaker 4upside is not your base case. But we're close enough that you're watching it closely because you are a little worried it could happen. And basically, you're saying, look, if you're wrong and it breaks out to the downside, fine, because then your other risk on assets should do pretty well. Exactly. Exactly. Okay. All right. So you haven't seen it yet because it launched pretty much right as we got on to record here, Brent, but I just released a video with Jam Carson. And I won't go into the nitty-gritty details of it. Folks can watch that video after this if they want to. But Jam is all about volatility and studying where capital flows are going to go. But always, kind of, with an eye to where asymmetric events might happen. And he is kind of sticking his neck out here and saying that the odds, he thinks, are quite high that we're going to have, in his words, a crisis next year. Not necessarily a sovereign debt crisis, but something that causes the markets to plunge. And plunge meaning drop pretty far pretty quickly. So that there is going to be a central planner response. So it's the playbook that everybody's expecting, right? High valuations we have, something trips them up, they fall quickly. That gives the, who knows, the Fed, the Treasury, both of them, whatever, the green light to come in and shove a ton of liquidity in the system. He thinks that's quite likely. He actually thinks it's likely to happen in Q1, right? Yeah. Who knows if he's right or wrong. We'll find out. His logic is compelling, but I interview a lot of people who have compelling logic and then things don't work out the way they think. I'm sure you're familiar with that. But let's just assume for a moment that the dollar might be the trigger of that. Jim didn't say that, but you've said there could be a risk of the dollar breaking out to the upside and then bad things happen. Just describe to me if it did, how do you think the cascade of bad things happening would go? What would you expect to break if the dollar were to jump 105 110?
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Speaker 3Hiring now? Yeah, well, I think if the dollar goes from like 102 now, let's say if it goes to 105 in a hurry, I think you're going to see elevated volatility. If it then goes from 105 to 110 in a short period of time, you're essentially going to be having a liquidity event. And in a liquidity event, basically anything that isn't bolted down gets sold to meet margin calls or to raise the liquidity that's needed for debt payments or debt service. Or invoices that are owed or whatever it is. Because you got to remember in a liquidity event, asset prices fall, but debts do not, right? Your debt stays at par. And so I think that would look very similar to what we had in 2008, or what we had in 2020, or potentially even what we had in early 2022, when the world was not ready for the Fed to aggressively raise rates. And so in that environment, I would expect everything to fall. I would expect stocks to fall. I would expect Treasury to fall. I would expect the stock market to fall. I don't know if you could make a very good argument that yields would fall dramatically in that environment. I'm not sure if that's the case. I can certainly understand why they would. But I think on a short-term fixed income would be a good. Short-term US fixed income is, I think, the place to hide out. I think gold and silver would probably fall in that environment just because they always have.
Speaker 4And that's mostly because of the margin call factor, right? Just everything. That's right.
Speaker 3And I would expect US equities to go down. The question then becomes is, does real estate start to fall precipitously as well? Because. And I think that depends on how long this whole liquidity thing would last. In other words, if you go back to 2020, the liquidity event essentially lasted 60 days. If you talked about most of February and most of March, and then it was kind of over. But if you go back to 2008, you went for. Nine months? Nine months, yeah. Summer of 2008 to March of 2009. That's a different environment, right? And so it kind of depends on how long it lasts. But long story short is, if you think that Jim is right and that this is a higher likelihood than not, or if your net worth is such that you cannot afford a 20% drawdown or 25 or 15, whatever the number is, then you need. to be prepared for that to happen. So you need to have some type of hedges, you need to have some cash on the sideline, you need to have a secondary liquidity source. Because what you don't want to do is you don't want to become a distressed seller in that environment. Because for the same reasons that your interview with him just noted, there will be a central bank response, right? Now, the question becomes, does the central bank response work? Now, traditionally, it has. But just because it traditionally has doesn't mean it's guaranteed to. So the point is, is you don't want to have to liquidate your entire portfolio at the bottom. But you also can't guarantee that that central bank response at the bottom is going to work. So you the point is, you need to have some liquidity already on the sideline when that events happens. Because you don't want to be the distressed player, you want to have the optionality to potentially be a distressed buyer.
Speaker 4Right. Or to be a buyer from distressed sellers. Better way to say it.
Speaker 3Yeah, right. That's exactly exactly. You want to be the buyer that's buying the distressed asset.
Speaker 4Yeah. But you can't do that.
Speaker 3You can't do that if you're fully invested right now, because you will be riding it the whole way down. You have to have liquidity at the bottom in order to be the distressed buyer.
Speaker 4That's very true. So there's two things here. There is maybe having some liquidity now, dry powder, whatever, or at least hedges. So that you are protected somewhat against the drawdown. Right. So you get to sidestep at least part of it. Right. The second part is having cash at the bottom to deploy the way you're talking about. And I just want to contrast that. There's a big difference between somebody who had dry powder, watched asset prices go down, then says, you know, I think valuations are screaming deal now. I'm going to go buy from these distressed sellers. There's a big difference between that person who was fully invested and who was not. And then there's a big difference between that person who was fully long, wrote it down, then sold near the bottom because they just were like, I can't stay in this thing anymore. Right. It's a capitulation sale. Right. Because one, you've lost a ton of your starting capital. And two, you know, everybody, everybody watching this, I think, says, wow, this this, you know, if this happens, it's going to be rough, but I'm going to be the guy that buys in at the bottom and then rides the central bank rescue recovery where all asset prices shoot the moon. Right. It is really not easy to come to the bottom. Right. Because it looks like it's just going to keep on going down and keep on going down. And if you've capitulated out, then you're really gun shy. So you're going to want to have the market demonstrate to you that the bottom's in. But what generally happens there, especially if it's being engineered by a central bank rescue, is, you know, it's a pretty like once you hit the bottom, it starts moving up pretty quickly. And then you start saying, oh, gosh, well, the market's moved so fast, I got to wait for a pullback now. And then it might not. And then you basically get left out. And then you start saying, oh, gosh, well, the market's moved so fast, I just want to say there's a really big difference about having some stuff up front to protect you and to deploy later versus getting pushed out. And yeah, you got you got some capital left in cash because you finally capitulated, but you're in a much worse emotional state.
Speaker 3So what you're talking about right now is exactly the point that I've tried to make over the years is that especially in the last few years where inflation has been a higher concern than deflation. And the thesis is that cash is trash. And if you're in a situation where you're in a situation where you're in a crash, you can't have cash on the sideline, because you're going to be getting eaten up by inflation, and you're losing purchasing power. And yes, overall, that is true. But there's two parts of it that you got to remember is that number one, markets don't move in a straight line. So while the debasement of fiat currency over a 10, 15, 20 year period is almost guaranteed, there's no guarantee that that lasts over the next two or three years, right. And the second thing is, is if you have some cash on the sideline, and you get a pullback, and you are and that but while markets are going up, that cash is a drag on the other, let's say you have 20% in cash, and 80% invested, and let's say the market goes up 20%. And so you're up 16. And the you know, the other the other part of your portfolio is it's it's got a direct because it's not making any money. Well, first of all, you can actually get 4% now for sitting in cash, which isn't so horrible. But then the other thing is, if we get this strong drawdown that you're talking about, and you can use that 20% in cash to buy distressed assets, and then that distressed asset goes up 15 or 20%, you have more than made up for that drag that you had in the in the in the period where markets were going high, and inflation was going against you. And so it's my belief, and I don't really have a way to measure this. But it's my belief is that the drag that is associated with having cash in an inflationary environment will pay off over time, because markets don't move in a straight line. And if you can use that dry powder, tactically, during periods of high drawdowns, over time, you will be better off. Now, again, I can't prove it. I'm sure there's some mathematician out there will say, well, we back tested this. And you know, that's not actually true. It doesn't, to me, the most important thing is, is protecting your capital base, and, and the preservation of capital. So if mathematically, it can be proven that I'm wrong by a little bit, I can live with that, because I'm still in the game. The whole point, and I know I'm rambling a little bit, but I feel pretty strongly about this. The whole point is, is if you remain invested, the compounding effect of returns over time will help you win the game. But if you get knocked out, then the compounding effect of returns over time will help you win the game. compounding doesn't matter, because you're no longer in the game. Right. And so even if on a few years here and there, you trail the market, because you have a cash allocation, if it helps you remain in the game where other people get knocked out, And over time, you're going to be better off.
Speaker 4Yeah, the way I sort of think of it is, even if you're close, right, even if your strategy underperforms by a little bit in the super long run, the part that's parked in cash during the good times is a mild irritant, right? It's a, ah, I would have loved 20 this year instead of 16, right? But it is a massive benefit in Boone during the drawdowns, right? That's exactly right. As you're saying, right? Exactly right. You can pretty much get to the same place, but with a much higher quality of living. You're not sticking your head in the oven or risking a heart attack during the tough times. And in general, just your level of risk is lower. And that's always the name of the game in investing. It's not necessarily get the highest possible return. It's to hit your goals, whatever they are, by the time you want to hit them with the lowest risk possible.
Speaker 3Yep, exactly. And, you know, and going back. Going back to what, you know, what Jim was saying about an elevated likelihood of a crisis next year. I will say that I have up until this point, and I'm actually, I don't know right now. And when I have an opinion, I don't have a problem expressing my opinion. But when I don't know, I also don't have a problem saying I don't know. Leading up to this election, I didn't have as strong opinion as I've had in the past. And so, in other words, in 2016, I thought Trump was going to win, and he did. In 2020, I thought he was going to win, and he didn't. In 2024, I thought he would win, and he did. And then coming into this election, I didn't have as strong opinion as I usually do. But I did believe that while there would be some Democratic gains, I did not expect them to be as strong as they were. My base case was that the Democrats would get the House, but would not get the Senate. I was not expecting them to get the Senate. I was not expecting them to get the House, but would not get the Senate. And I was not expecting some of the governorships to flip to the extent that they did. So that's a bit of a surprise to me. Again, I'm not shocked by it, but that wasn't my base case. And because I thought the base case was that the House was going to win, or the Democrats were going to win the House. And if you look back over the last, it's like, I don't know, the last 50 years, after the midterms, the market typically does pretty well. Mm-hmm. Mm-hmm. I thought that with the Republicans in charge of the Senate and the presidency and the Democrats in charge with the House, that my base case was that we would just kind of continue on with the same. Not screaming higher, but not some dramatic pullback. But markets don't like uncertainty. And I think that's what we're seeing today. The market's trying to figure out where to go from here. Now, if we would have had this pullback today with both the House and the Senate still Republican, I would probably be buying the dip. Because I think there is less uncertainty associated with that than what we have now. I think right now, we don't know exactly what the Democrats are going to do. We don't know if they're going to hold a number of trials and investigations. We don't know if they are going to try to pass a bunch of stuff right away to counter the moves that Trump has already put in place. We don't know for sure how Trump will react. There's, you know, lots of theories out there. But the bottom line is, we don't know.
Speaker 4We don't know. Can I interject with one second? You address it in your answer. Yeah. I think one of the things that heightens the uncertainty here is so much of the markets and so much of the economy or economic growth centers around AI capex spending. And a lot of these people got elected, especially the governors, on like an anti-data center platform. And so one of the things they're trying to digest is. Is the AI spending juggernaut going to be able to continue or is there a monkey wrench going to get thrown in it? Because if it is, man, we got to reprice everything.
Speaker 3Exactly right. And that's the uncertainty. People are trying to figure out what are they actually going to do. Now, here's where I think it gets interesting is. I don't think it's. On the one hand, it matters a lot. But if you zoom out, I don't think it really matters who won the midterm. Typically, the opposing party does come out ahead in the midterms. That's not an unusual event, right? And so and it's not unusual to have a divided Congress and versus the president.
Speaker 4Yeah. And sorry, just to underscore your point, though, I've had tons of people on over the past year presenting the data that show that not only does the midterms usually go against the incumbent, but also in a presidential cycle, the third year, i.e. after the midterms, is the strongest year in the stock market. So just historically, it's always kind of gone this way. And yet the world hasn't.
Speaker 3Yeah, yeah, exactly. And I think there's and listen. And this is one of the points I was trying to make, I think I sent out some posts yesterday and when and this is going to take me a minute. But but if you don't mind, bear with me. Yeah. And if you want to talk to
Speaker 4those charts you posted, let me know and I'll pull them up as you're talking.
Speaker 3Well, not yet, but the first one I would say is in 1994, I was a congressional intern in Washington, D.C., and that is the year that Newt Gingrich and the Republican Party came out with this can't or what was it called? It was called the contract with America. They they they they had all these ideas that they were going to change things and they were going to institute these new policies and it was going to be the dawn of a new era. And they won and they had a huge. Landslide, that landslide was very similar to what just happened on Tuesday. But then but but but Clinton was president and so they were kind of at odds for the next five or six years and then Bush won. Right. Bush came in and this was going to be a new era. But then eight years later, Obama won and this was going to be a new era. Right. And then.
Speaker 4Compassion of conservatives, hope and change.
Speaker 3Right. And but but did Obama really and then all that much? Yeah. Obama didn't really change all that much stuff. And then MAGA came in and this was going to be this new dawn. We're going to make America great again. And then four years later, he lost. And then four years later, he won again. And it was just two years ago that everybody's like, oh, this is the new Republican wave. They're going to be in power for decades. The Democrats really shot themselves in the foot. Well, then you know what? Two years later, Trump shoots himself in the foot and now the Democrats are back. So my point is, is for the last 30 years. Years of my life, these swings back and forth always come with big proclamations, big promises that never really materialize. Now, will it materialize? Maybe. But you're going to have to actually show me before I fully believe it, right? And it's possible that if we have this market event that we're talking about here in the next two years, the Republicans will blame it on the Democrats who just came to power. Maybe. But you're going to have to actually show me before before I before I fully believe it. And they will say, see, this is the market voting on your policies. And I think the reason the Democrats won this time was really not about Trump's policies, but about the economy. You know, it goes back to that whole thing. It's the economy, stupid. Right. That was that was the slogan back in 1992. So if the economy continues to get worse over the next two years, who's to say it doesn't flip back again? So my point is I think a lot of people want to ascribe certainty to what happened on Tuesday, and I just think this is very far from certain. So one of the things that leads me to believe that we're just not certain where this is headed yet and why the Democrats winning this election don't necessarily change my overall thesis is my overall framework has been based on historical precedent. And that precedent typically plays out over a very long time period. Now, this has played out multiple times in history, but the one that I use most often, because I think it is the best demonstration, is Rome in the years like 130, 140 BC to like 60 or 70 BC. And during this period of time, a lot of the problems that Rome was dealing with are remarkably similar to the problems that the United States is dealing with now. And during this time, you saw a very strong political infighting. You saw these different cult of personalities. You saw families come and go that were politically dominant. You saw foreign wars. You saw inequality. And these policies would swing from one extreme, and then they would come back to the norm. And then they'd swing to an extreme, and then they would come back to a norm. but over that 60 70 80 year time period if you looked at the overall trend it was decidedly in one direction and this is what i call kind of the pendulum and the ratchet i think the pendulum of politics is going to swing back and forth from the left to the right and who you know based on what's going on in the economy or social issues but i think we're in this period of time where history, we're going to go through this fourth turning, and the whole world is decoupling, the whole world is deglobalizing. And I think that overall trend is going to last 10, 20, 30, 40, 50 years, regardless of what happens. you know, year to year politically. And in many ways, I think Trump is a symptom of what, in other words, I think Trump is a response to the market. I don't think the markets are responding to Trump. And my position has never been predicated on Trump needing to be president. When I first started talking about my overall viewpoint, Trump was president. But when he lost in 2020, my viewpoint didn't really change, because I thought historically, this is where we were headed. And so whether the Republicans lose in 2028, whether the Democrats, you know, have some masterful campaign over the next two years, to me, it doesn't really matter in the overall scope of things. I think history is taking us in a certain direction. And the politicians are just a symptom of that. And I think the that overall, that overall market environment, both geopolitically and domestically, is going to lead to certain outcomes, regardless of who is in power. So my thesis always has geopolitics and political inputs in it. But those geopolitical and political inputs are not determinant upon the direction, if that makes any sense.
Speaker 4It makes sense. I think what I'm taking from what you're saying is for everybody freaking out saying, hey, the world just changed because we had this, you know, big swing in regime. You're like, no, not really. Big picture wise, I still expect the same things to happen over the arc of time.
Speaker 3Yeah, let me give you a really good example. And if I am proven wrong on this, I'll come back on the show and I'll say, hold up, I got this wrong. Let's use Venezuela as an example. Now, I don't think the Democrats would run for president. I don't think the Democrats would run for president. Right now, say, oh, that was a masterful move by Trump, or that was something that should have happened, or that was in our U.S. national interest, right? For a lot of reasons, I'm sure they would take the other side of that. But if they stay in power, let's see whether or not they give the oil or the energy back to the Venezuela, right? Let's see if they say, hey, that was a mistake. We're going home. The United States companies are no longer going to be involved, and you guys are on your own. I don't think that's going to happen. Now, maybe it will. And if it happens, I don't know. But I don't think that's going to happen. I have no problem admitting that. But my point is, is behind the scenes, I don't think that they are really that upset that the U.S. now controls that biggest energy source in the Western Hemisphere. They might not like the way it was done. They might not have done it the same way themselves. They may think it hurt us from a visual standpoint in the short term. But from a big picture standpoint, I don't think that they are really going to be that upset that it is now under U.S. control.
Speaker 4No, I get that. And I would just use another example. Whether it was the current administration in power or whether it's the next president, if they're a Democrat, you probably don't think much is going to change in terms of our fiscal spending profligacy. And so the knock-on issues that come from that, that's not really going to change very much.
Speaker 3No, I remember I was on a program. I think it was with George Gammon. Sometime around right after Trump got elected. And maybe it was just before Doge. And the comment was, well, you know, the Republicans are going to rein in spending and they're going to cut the budget. And George and I, we both just started laughing. We're like, that's so silly. That's not going to happen. Right. And so I don't think that's going to happen now. I didn't think it was going to happen then. I don't think it's going to happen now. And in some ways, having the Democrats back in power kind of moves us back to where we were either, you know, five years ago or 15 years ago. And under that scenario, the U.S. was still the dominant power in the world. The U.S. was still the biggest economy in the world. You know, they still had the global reserve currency and the rest of the world still on a relative basis had less power than the United States. So it doesn't mean that the U.S. can just do whatever it wants. It doesn't mean that there's no blowback. It doesn't mean that things can't go wrong. But I'm just not yet ready to say this is a wholesale change and the United States' role on the global stage is now going to fall precipitously. I just, to me, that doesn't square with reality.
Speaker 4Yeah. So again, what I'm taking from you is just, hey, folks, if you're wound up about this one way or the other, take a beat. It doesn't really change the grand arc that you are playing, you know, the game that you are playing. I just want to note one thing, too, that you said, because I totally agree with it. One of the reasons why, so in some ways, you know, we've talked about the political situation a lot this year, and it's not to take any sort of partisan viewpoint, even though I get a lot of people who think I'm total pro-MAGA and I have a lot of people who think I'm a total commie as well. It's really funny. But the reason why I do it is because, obviously, I'm not going to be Obviously, policies impact the economy. And I'm of the mindset, I think it sounds like you are too, which is that unless somebody is feeling really confident and really flush, when they pull that lever, they're really voting based on Maslow's hierarchy of needs, on the base of the pyramid. If they're not feeling safe security-wise, they don't feel like they have enough money in their pocket, that's really going to drive their vote. And I think we just, in many ways, saw a lot of that. And I'll probably get a lot of pushback from people who said, no, people voted against Trump for all these other reasons. But I think largely it was because people are still feeling pain in their pocketbooks. And what's so interesting is you could make the argument that, OK, well, you were feeling pain in your pocketbook when Trump got elected. That's why people still had fresh memory of the 9% annual inflation and the massive spike in cost of living. So, all right, throw out the old guys, bring in a new guy with a different plan. Inflation's much lower. Prices haven't come down materially. And the price of gas is high. But it was high at times over Biden as well. But the fact that it didn't, the fact that it's still not great was enough to oust the current roster of people, right? So you can make the argument that it's not relevant to go back to the old playbook. That was even worse. But people just think in the moment, but I don't feel good now. So I'm going to just throw the bums out.
Speaker 3Yeah. I don't think the people that voted red in 2024 voted blue this time because of immigration policies or because of border policies. I don't even think they so much did it because of the war in Iran as they did the knock-on effects of the war in Iran, which was a lot more expensive. Yeah, exactly. And so from that perspective, it's an own goal by the Republicans for trying to pull that off, you know, six months before a midterm, right? So, um, what I would say on that, though, the other thing, here's the other part of it. I don't think that that story is over yet. I don't think the United States is going to turn all the ships around and bring everybody home from the Middle East and that the Iran situation is now over because Trump lost the midterms. Now that might happen. I can't rule it out, but that that's not my read. My read is that as long as Trump is president, which for now, it's another two more years that the policy. Policies towards Iran are going to stay what they have. I don't think it's over yet. I think there will be more action. I don't know how exactly it will take place. I don't know when, but I would be surprised. And again, I'm happy to come on here if I'm wrong. And if the U.S. kind of turns and comes home and does nothing else there, I'm happy to come and say, yeah, well, they didn't. But regardless of which way they do it, and this is I don't know if you have that second chart that I that I sent you is I think this is the better way to look at the role. Of the United States in the world is this is a distribution of outcomes. And the point that I've tried to make many, many times is that. Capital markets, geopolitics, the world in general is a relative game. And if you don't think that this administration and every administration before it has a plan or has a foreign policy objectives, I'm just going to disagree with you, you may think they're. Misguided, but there there is a current plan, and it's not even Trump's plan, and it's something that has been planned for literally decades and contingency plans put in place. But just because a plan exists doesn't mean it's going to be executed perfectly. Now, this plan obviously was not executed perfectly, but part of the reason, even though it's been around for 20 or 30 years, part of the reason it hasn't been attempted is because it is extremely hard. Hard to do. And if you screw it up, the political cost is extremely large, which is exactly what we just saw. But if you think about it like a poker game. And I listen, I know some people are going to say, Brent, this isn't a poker game. Real lives are at stake. I agree with you, but that's not the way the people in Washington think the way the people in Washington think is that it is a game and that they are they are the big stack at the table and that they will. Use their power and their weight and their skills and their design of the system to reach a favorable outcome for them. And as long as they can take the left tail off the case, which means they are no longer the big stake at the table, every other outcome is either best or acceptable. And I think that is still the case today, even in Iran, in Venezuela, with the economy, with relations with China and Russia. It doesn't mean everything has gone perfectly. It clearly hasn't gone the way they wanted it to go. But that also does not necessarily mean the U.S. now is no longer a power on the global stage and that the rest of the world is, quote unquote, automatically going to take over. And I think if you start looking at things as a distribution of possibilities, rather than trying to predict everything perfectly, I think the board becomes much more clear. Because I think that's the way the people in power think about it. Now, obviously, when things go against them, they don't like it and they may have to implement contingency plans or new ideas. But largely, I think this is when they're trying to make a decision whether to do something or not, this is how they look at it.
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Speaker 4I think this is super helpful. I love that point about looking at a continuum of distributions as opposed to just trying to put all your arrow behind one event happening and being right on it. All right, I got to move on from here only because time is getting short. And there's some other really important things that I want to talk to you about here. Let me get back to your slow shave framework for a second. So you said the things that are going to kind of increasingly weigh on other countries, which also will on the U.S., just not quite as heavily, is that on a going forward basis from the past couple of decades, do these countries have to spend more on the following? One, debt service. And that's because the cost of their debt has been pushed higher by the market, right? So, again, that's just more stuff you've got to pay creditors versus being able to invest in your society. The second is they're having to pay more in Europe. They're having to pay more for defense. And this isn't just Europe, but Europe's really feeling the pinch because the U.S. was basically covering the check until recently. So now they've got to also steal from what they were going to put to their social programs to now invest in defense. And then third, to the extent that they're investing in AI in those countries, there's AI spend that they have to do. Again, they weren't doing that before. Now, hopefully there'll be some nice return off of that, but it's going to be at some point in the future. But those are three big things that are taking what used to be cash flow that they could spend elsewhere. And they're now having to kind of a sunk cost, if you will. Again, that's true in the U.S., but it's going to weigh more on those guys. Here's the question I have. You know, you've seen the charts that show that China is by far right now the global leader in electrical generation capacity, right? U.S. is racing to catch up. You know, Europe's in a world of trouble because they've they've underinvested in a lot of their energy infrastructure. The U.S., though, so China's the winner in electrical production. And that's a huge part of the AI race, right? I guess you have said that race is largely going to be won on who has the biggest supply of the cheapest electrons in the U.S. We are we're trying to catch up there, but we're also saying, OK, well, once the playing field's even on electrical generation, it's going to be won by who's got the most compute. So we have more data centers and everybody else. Right. So where I'm going with this is, is. It's a question I've asked Michael every and I'd love to get your thoughts on it, because I know you and Michael know each other well and build on each other's thinking. But as the world goes on and the U.S. tries to protect its exorbitant advantages that it has, which is part of your framework, how likely do you see as compute becoming a weapon? Right. So like Europe is not investing in data centers the way that we are. So if they want their AI models to be able to do stuff, they're going to have to basically rent U.S.-based compute to get it done. Is this another factor kind of like stable coins, which we haven't even talked about yet, where it's like, hey, as long as you're playing along with us, great. But if you're not and really sorry, your token prices are going up or you know what, there's just not as much compute for you this month as there was last time. Could this become something that the another exorbitant. Benefits cudgel that the U.S. wields, I
Speaker 3think 100 percent. And so over the last three or four years, well, over the last five or six years in presentations, I've kind of talked about this overall power competition. And in the last couple of years, when we started our research service, we've written about this extensively as we think that the underlying driver of everything going on geopolitically and in many cases in the capital markets these days or over the last couple of years is this great power competition between the United States and China. And we think largely the power competition between the United States and China is a technological race or an AI race. In other words, we think it would be extremely difficult to lose the AI race and yet remain global hegemony, right, or win that overall power competition. We think the technology component is is the highest or one of the highest components in that overall race. And so this is this this actually leads to I think some people misunderstand my position when it comes to China, I think because I push back on this. Ascendant China narrative and that it's an automatic given that they that I think that they're not formidable. That's not the case at all. I think they're extremely formidable. Their manufacturing prowess is obvious. I don't need to go into the details there, but a big part of their ability to generate this compute is what you just talked about, their electricity production. That those two things alone make them extremely formidable. My point has just been that just because they're formidable doesn't mean it's a given. And just because the United States has challenges doesn't mean it will automatically lose. I do think that in the last three or four years, the United States has kind of finally woken up to this problem, if that's the way you want to describe it, and they are putting efforts in place to counter this. And I think that makes a huge difference. But China has many problems of its own as well. But this electricity generation, is not one of them, and it is a big deal. And so in my mind, there is no question that the United States and China will weaponize compute if needed. And I think the losers in that are probably Europe, Africa, Southeast Asia. And again, part of the reason part of the reason that the electricity generation by China is such a benefit to them is the likelihood that traditional energy sources are going to go up in price, whether it's natural gas, whether it's oil, whether it's diesel, all of these other things. And that's what, you know, at the beginning you said or just at the beginning of this little segment, you mentioned there's three things that are going to cost Europe to spend more, but the thing you didn't mention was was energy. Because remember, energy is priced in dollars. Traditional energy, regardless of where it's sold in the world, is priced in dollars. Now, it might be invoiced in the yuan or it might be invoiced in euros, but it's priced in dollars. And as that energy price goes higher and as the dollar remains strong versus the euro or other currencies, that is another source of pain for Europe to remain relevant. Right. And so again, and this contributes to their ability to service that debt, which then goes back to the whole point of that paper we just wrote about. They're going to have to probably quickly implement financial repression to service that debt.
Speaker 4Mm hmm. Which obviously one of the benefits of that is assets like gold will continue to have a tailwind behind it.
Speaker 3Well, certainly in euro terms, I think that I think that's I if we get into this liquidity event that you were talking about earlier, I think it probably falls in dollar terms. The question is, does it fall in all currency terms? I don't know, because if the euro or some other currency is falling precipitously, as well, it might not fall as much in euro terms.
Speaker 4Yeah. And look, we're taking the jam. crisis as a given in this conversation right now crisis calling super duper hard it's it's it's the end tale there from your distribution so it's don't hang your hat on all folks but i'm guessing and correct me if i'm wrong if it does happen and precious metals do fall largely as i think i mentioned earlier you agreed due to sort of the margin call factor you wouldn't expect them to be down and out for all that long right um that they can get whacked in in the downdraft because just things have to get sold to meet margin calls but they would probably recover in and of themselves from that if once the margin calls stop and obviously then when the rescue comes that's an asset that you would expect to do really well if it's the traditional open liquidity floodgates type of rescue that's right yeah okay so we didn't uh get a chance today to talk more about stable coins um which we did get to do at the conference that we were at a week ago at the new orleans conference um so i guess i'll just sort of let you wrap here by giving any update on your stable coin outlook that you would like to give and maybe in your answer talk about how um perhaps uh your thoughts on why perhaps the adoption hasn't proceeded as swiftly as you thought that it might not that it hasn't been proceeding but maybe not as swiftly as you thought that it
Speaker 3might well i think so that we first put out our report we put out our first report on the stable coin outlook and we're going to talk about the impact that we've had on this topic about a year ago and we called it empire by code because we think it's a way that the u.s has co-opted when i say the u.s i kind of mean the u.s government has co-opted this private market innovation called stable coins which is really kind of a parallel system to the traditional monetary rails and plumbing that works and we think that they figured out a way to kind of co-opt that system to their own benefit and we think that that is well underway we think the powers that be actually we know the powers that be but we think that the powers that be have recognized this and are working furiously to kind of implement these policies i think part of the reason it hasn't proceeded as quickly is again markets hate uncertainty and because they hate uncertainty there's been some slowness to fully implement these possibilities and in fact there's this thing out there called the clarity act which which is a follow-on to the g so the genius act kind of legitimized um stable coins the clarity act is seeking to make more clear the rules regulations and the the possibilities surrounding this this emergent technology and until that is clarified i think that is probably holding things up but regardless of of where it eventually comes down what the rules are what the possibilities are that are allowed from a regulatory standpoint i think this becomes a much bigger issue and i think it grows tremendously and if we move into if we do eventually get into the the the the the the the the the of this sovereign debt crisis or or currency crisis i think the use of stable coins will i think that would be the tell because i would expect them to be used a lot much more dramatically in that type of an environment as part of the solution as part of the solution exactly so anyway so but but long story short is you know i feel like we're kind of swinging back and forth on the pendulum but in my mind the ratchet is still moving in one direction and it's all moving towards um you know de-dollarization as opposed to de-dollarization it's moving towards the u.s being more authoritarian for lack of a better way of saying it on the global stage than they have traditionally been and while that will certainly cause pain in u.s markets um and perhaps from a reputational standpoint i think the rest of the world will feel that pain more acutely than the united states does and i think from a big picture standpoint from the planners and the you know the mandarins and the people in the strings i think that's an acceptable outcome to them so if people hear me saying this is they say how is this going to benefit me i don't know that it is going to benefit you right i think this k-shaped economy probably continues to grow uh i i expect uh that inequality will probably continue to move in a negative direction which i don't like any of these things but i try as hard as i can whenever i you know do these programs to not tell what i want it to be and what i would like to see happen because what i would like to see happen i think is largely irrelevant i just try to look at the board as dispassionately i can and come to a conclusion of where it's headed and i think that's i think that's where it's
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Speaker 4i gotta start wrapping up here but um you and i have had enough discussions that folks if you haven't if you haven't listened to my previous discussions with brent on stable coins and you want to learn more about this which i completely urge that you should um go to our you know go to thoughtful money's youtube channel and you'll see the the videos that we did um earlier this year um i think we did the first one november of last year or so a year ago and then we did one or two more uh cents and it is mind-blowing mind-expanding in terms of um why as brent says we're the trend is more likely to be a re-dollarization of the world versus a de-dollarization going forward um and the more i think about stable coins brent the more you know i i see them as a very unfair advantage uh that the u.s will wield um in this grand story that will support the dollar milkshake right that the u.s dollar is going to be dominant for a lot longer than than many folks are thinking um i am increasingly though thinking similarly about compute i mean i don't think we're going to weaponize it from day one but you know it is so clear to those who use ai that you know it is the future of commerce it is the way of the world going forward and that is going to be built on compute and kind of unlike uh the uh the fiber optic cables that the internet runs on which are which are kind of you know they're worldwide and fully distributed nobody really owns them there's nobody who's really a toll keeper on them i could see compute being toll kept in the u.s and and and um and potentially you know china might be doing the same thing but it's going it's to me it's just a massive ring of power if you will that the u.s has that i don't think is on anybody's or not on many people's radar right now as a way for the u.s to affect what it wants to have happen elsewhere in the world right and and one of that things will be keeping the dollar strong and dominant so yeah it's um yeah it's it's maybe not one ring of power in it now it's the what is it the infinity gauntlet it's one of the one of the stones in the infinity gauntlet in the u.s here yeah exactly okay um so just in wrapping up here um if i if i remembering correctly from our previous discussions uh you know you've been talking about the fact that you've been talking about the fact that you've managed capital at santiago capital and i believe your allocation is mostly the following please tell me if this is still correct or if you've made changes um you've got some cash equivalents for the reasons that you mentioned earlier kind of just dry powder um blue chip u.s stocks real estate gold um and then now um it's you know essential commodities commodities that the u.s and other sovereign governments are saying that they're elevating to say hey we really need these things going going forward rare earths that type of stuff um as well as what i'll call a pro-sec trade and that's a that's a term i'm stealing from peter chur but these are um industries that are going to be very essential to national production or national security going forward so you know reassuring of manufacturing or homeland defense did i catch it right yeah that's
Speaker 3right and and part of okay so what we will often do is when we see a big tactical trade or a big theme that we think is going to play out over the years ahead we will try to find an asymmetric way to play it and the reason is it's it allows you to take a smaller percent of a portfolio and put it into a theme and because we think it's so asymmetric it can end up having a big impact on the portfolio even though you're not taking a lot of risk because the piece of your portfolio is not that big and the pro-sec if that's how you want to call it or or defense initiative or you know national security initiative we think that is probably going to be the biggest wave of capital with the possible exception well ai is kind of part of that now right so we we think it'll be over the next five or ten years we think it'll probably the biggest wave of capital we've ever seen now that's i've been doing this for 26 years and i've seen quite a few comes and goes i've seen booms and busts i think that that arena will see more capital flow into it than anything i've seen before and if i'm even a little bit right on that we have the opportunity to make a lot of money so we think we have a pretty unique way of playing that we think it has asymmetric upside and it's pretty
Speaker 4exciting all right um well um we're going to have you on the program many times going forward brad so as that trade develops um you know we'll just have you come back on and let let folks know you know how you see it going and and if you can provide any additional sort of detail as to how you guys are playing there at santiago capital i know folks would love to hear that
Speaker 3okay yeah i'm happy to do that if anybody has any questions on that now um they can email me or call me i'm happy to share how we're doing it okay
Speaker 4great well this is this is the um the point of the video where i say if folks want to follow you and your work in between now and your next appearance where should
Speaker 3they go probably the best way to to follow along with us on a daily basis is twitter because i'm always making comments there and interacting with people so if you go to santiago au fund on twitter we have a weekly show that we do called milkshakes markets and madness you can find that on youtube we have two different levels of research if you go to research.santiagocapital.com you can see the two different levels of research that we provide there and then that stuff is also available just at santiagocapital.com so there's a number of different ways to interact with us or follow our work all right
Speaker 4and um brent as usual when i edit this i'll put up the links there on the screen so that folks know exactly where to go folks the links will be in the description below the video as well um brent always such a pleasure thanks so much for coming on doing this i will note um the nasdaq is now down about six percent and the s&p down four percent so definitely kind of a bloodbath in the markets today gonna be really interesting to see what happens coming out of this buckle up all right thanks so much buddy all right thanks all right well now is the time of the program we bring in the partners from new harbor financial one of the endorsed financial advisory firms by thoughtful money i'm joined today by lead partner mike preston john lodra has the week off he's traveling um mike thanks so much for joining us um let's just tackle the elephant by the trunk and maybe that's the wrong analogy here but but face the bull directly um the markets are melting down as we're talking about here um as i mentioned s&p sorry the nasdaq is down close to six percent s&p was down around four percent when i checked just a few minutes ago um this is a this is a i think the biggest down day in a couple years um let's talk about how you as a capital manager surf slash survive a day like today and uh and specifically how is how is new harbor's portfolio doing versus the general carnage we're seeing out there in the market today hey adam that was a good
Speaker 6interview thank you so much for joining us and i'll see you thanks uh it's it's a really difficult market adam like you said we're seeing one of the biggest down days in a couple years nasdaq's down about six s&p's down around four taking a look at the nasdaq composite it's down around uh 24 000 right now which seems like it could be a support area but who knows when things get this crazy and emotional anything can happen we could slice right through it almost feels like this market could literally crash from here or have a face ripping rally and so that's what's so hard is that nobody's going to be able to do anything nobody knows the future what's the only thing that's certain is that the future is uncertain and if anyone says they know different they're they're lying including including me including us what we go on is probabilities on long-term averages on support zones on resistance zones we set our our allocations our risk level based on what our systems are telling us and what the macro environment is giving us and so it's not an exact science i'd like to say it is but it isn't it's an art really a lot of it is an art and art basically is skill combined with interpretation so you know skill and experience how do you actually apply that what type of risk level do you set what are your stop levels how do you know when you're wrong that type of thing so things are getting pretty emotional out there and there's no doubt that we're very very overvalued if we talk about the macro we talked about that for years we're probably three times long-term averages on the s&p 500 but we're also in a regime or a realm that almost has to stay that way or the whole scheme worldwide kind of starts to fall apart so we're all forced to play this game the best we can i can tell you this the nasdaq is close to uh 12 percent down by my latest calculation and it's it's just up a couple percent for the year and so we should bounce when you say 12 percent down over what period of time i just don't know from the high counted from the high okay okay down six percent today but but not 12 percent today yeah that's right i mean that's true but six percent of that 12 percent is till today alone and that's quite a lot and some of these ai stocks are down 50 60 percent in just a couple weeks and so um there's a lot of fear out there now this type of fear and you can take a look at the vix i could show a chart of it in a little bit if you want the vix is up in the high 20s it has spiked very very quickly now it doesn't mean that it's going to reverse it means that fear has come into the market very quickly so what do you do what do we do as a money manager we are we're a whole holding up pretty well we're holding up okay in the face of this um our model is down today but it's a it's down a fraction of what the s&p and and the nasdaq are down first of all we're not fully exposed i mentioned earlier we set our our risk levels based on what the macro is telling us the macro is telling us that valuations are absurd at the same time believe it or not most of our signals have been in the green zone and strengthening we've actually seen some some broadening in the market before today we'll see what the indicators say after this but we actually saw some constructive things and we actually just went up slightly over the last week from about 39.5 to 42.5 star however we have a few of our positions that are violating levels here today and we're almost certainly going to pull the trigger on one of them later today by the time you watch this video where we're going to let energy or energy services go which should bring us back down to around 37.5% stocks now we come on here every week and we're talking about being 38 40 45 percent stocks that should tell you something we know that we can't predict perfectly what happens next and we don't have to we have to have some underlying gains with equities hopefully with our risk levels like we have and hopefully some of the other stuff we're doing kicks in like gold silver miners and that's been a big contributor last year it's been a little bit of a drag the last couple months to be honest but you don't
Speaker 4have to go let me just note there that the day that we're talking here at least for now gold is up for the day about a percent and sober is up a teeny tiny bit but they are so far providing ballast in your portfolio they're not getting dragged down with this tech wreck absolutely and it's
Speaker 6and it's um it's nice to see i know that you and brent talked about the fact that we might see gold silver precious metals down if there's a big market crash because that's essentially what's happened a lot of times but not always it happened during the during the great financial crisis but if you look back at the past year it's been a lot of things that have happened over the last couple of years but if you look back at like the 87 crash um it did not happen gold silver went up so i don't know that i'm convinced that gold and silver is going to go down just because the market goes down i know that when we the iran conflict started everything was sold it was kind of like a sell everything moment but here now today and one day does not make a trend it's
Speaker 4nice to see gold silver and metals holding up yeah um in many ways you're again this is a one-day uh case study folks so you know lots of things can change from here but i'm not sure what's happening but i'm not sure what's going to happen here but i'm not sure what's going to happen here but it's sort of a demonstration of what brent was saying right which is um if you are concerned as you guys have been very vocal about um you know extreme market valuations and there being a material um downdraft um you guys have had some dry powder already on the side right you said you've had your equity exposure down 40 or less at times um and you've had some hedges in the portfolio gold being one of them but have you also had um i mean normally at new harbour guys do a lot of risk management using defensive options did you have any put options at play in the portfolio prior to today no
Speaker 6we sometimes do and i i'll come right out and say that unfortunately we do not have index puts right now and the reason for that is the underlying signals that we we so closely follow have all been flipping up to the green zone right other than tech right other than tech things have been broadening out we saw great action in healthcare and we still see it healthcare portfolio we pivoted to that about a month ago we added to it and made it a full position about a week or two ago we added software as well which is holding up surprisingly well even today it's down a little bit holding up holding up really really well so we we added healthcare and software but we took out a few other things uh and like i said we're going to sell uh it looks like we're going to sell energy services today we're going to bring us to around 37.5 but no nothing's perfect looking at what's happening in the vix i wish we did have them on uh but we're managing risk by low equity levels 37.5 as i mentioned today at the close of at the close of business the one thing that you and brent talked about that i underlined here a few times is liquidity do not be a distressed sell seller this market will find your weakness and it'll push you into a corner and it'll make you pull the trigger and capitulate and that won't happen if you have some liquidity and you're not overexposed if you've got leverage if you're on margin you're not going to be able to survive that
Speaker 4and that's one of the things we've we've been talking about is, you know, the fear meter has been creeping in a little bit over recent weeks. But in general, you know, we've largely been just at a very high level of speculation in the market historically. And it's those speculators that really get carried out on stretchers on days like today.
Speaker 6Yeah. And I really wonder who's being taken out today, Adam. I think that we might find in the next couple of days, we might see some stories. Do you think there's
Speaker 4some big institution that's been caught here and that's why we're seeing such a big day today?
Speaker 6It feels like it. You know, you can take a look at the minute by minute chart and I can bring some up if you want of like small caps, mid caps, S&P equal weight. It's like literally every minute just straight down, like with no uptick. And these are the types of times that you learn later that there's been one or two or more players that were basically squeezed into that corner that were forced out of the game. So we'll see. Like I said earlier in the video, maybe we do crash right from here and we have a plan for that. We're not betting big on that not happening. But I also wouldn't be surprised as we're approaching these support zones if we get a big move higher here. There's a lot of damage that's happening. I think the next couple of days will tell. I still don't think the whole melt-up theory is dead. It certainly has taken a lot of water over the bow here, but we need to see how we close today and what the next couple of days bring. But, you know, if you're forced to do that, it's going to really stink. You have to have a plan. And that's why we're selling a position today. We're raising some more cash. If things get worse, we'll sell some more positions. Unfortunately, there's always some give back. You know, in general, we're still positive on the year, but we've given back a chunk from the highs. And I wish that didn't happen because no system is absolutely perfect. What we were really hoping for is some kind of blow-off parabolic top so we could sell into that and reduce into that. And maybe we'll still get that chance. But this market has been really, really stealthy sideways for so long with only AI stocks and tech working. And then those stopped working. And then some other things start working like health care. Although if this continues, everything will come down. But right now, all I would continue to coach people to do is raise some cash. Don't be mentally cornered. Like Brent said, it isn't easy to buy the bottom. And we never know when the bottom is. You just don't. So you have to have a plan of how to ease out and ease in. So today, we're going to ease out a little more. But we're going to go right back in the next couple of days if we get a reversal.
Speaker 4OK. So a couple of things. That reversal risk, I think, is more likely. This is my personal opinion. I think it's more likely than not because that's been the trend of the market for so long here. We haven't had a big crash any time in the past couple of years. We have some flushes like this. And then things continue to the upside. When Lance Roberts was on for the market update last weekend, we were looking at the technicals. And he didn't necessarily think this was the most likely outcome. But he said if the market was to start to break to the downside, the technicals look like it could get down to about 72 or so if it broke the support line, which it obviously has. S&P right now is about 74. So we've already made a fair amount of progress down to potentially 72. But we could get to 72 and bounce right off of that. And that wouldn't surprise, I think, many, many technicians. So I think this is sort of the market's going to have to prove to you it's sicker than it's just looking today before I think you should start thinking about crash mode here. I also want to note, too, I mentioned the interview that just released with Jim Carson. While he was very concerned about what he thinks is going to happen in early Q1 of next year, he said from a flows perspective, it actually looks very likely that it's going to happen in the early Q1 of next year. So he's very supportive of an end-of-year run here, like a positive end-of-year run to the market. And so could we flesh out today and maybe another day or two from here and then have a vicious face-ripping rally, like you said, Mike? Absolutely within the realm of the possible.
Speaker 6I think so, too. And if I could just share up a chart so that your viewers could see what we're talking about here, I will go ahead and do that.
Speaker 7Absolutely. I think so, too.
Speaker 6Absolutely. I think so, too.
Speaker 4Absolutely. Absolutely. all right, today might feel pretty bad, but if there's a risk of it being even worse, want to feel even worse if that indeed happens. I don't want to walk into that blind. If it does happen, I want to feel pretty good about where I'm positioned. So take that nervous energy, if you're feeling it this week, and really use it to drive you to look at your overall portfolio, figure out how you could perhaps be better allocated, should indeed Gem be right. And if you don't feel like you've got that skills yourself, and as I say often, then talk to a good financial advisor who understands all the macro issues we're talking about here and get their input. But just don't shrug this off and then blindly walk into something that could be potentially a lot bigger and more substantial. So Mike, I'm sure you're getting calls from people as we're recording this right now, who might be freaking out a little bit about the sea of red they see on the screen. What counsel do you have for people beyond what I just said?
Speaker 6I just basically repeat some of what I already said. If we're managing their money, then we want to tell them we have a plan and we absolutely have a plan. We're reducing risk into these types of declines. We're not increasing them. We're not saying never sell. We're not saying double down or add. We're saying we have a plan. Let us execute that plan. Now, it's not comfortable though, because still people see fluctuations, negative fluctuations in their account. Our accounts are down today. They're down, like I said, at the moment, a lot less than the indices are down because we're not fully exposed and our metals positions are holding up. But really what we want to do is help them get to a point where they can disengage some. Because sometimes people and even professionals get so glued to the screen and they get emotional. And emotions are your enemy. I know we've said it a thousand times. Emotions are your enemy in investing. So we'll basically walk them through. We'll sell them down. If they're not a client, let's say they have a lot of high value. We'll sell them or a heavy stock position will help to talk them through how to start picking away at that and or hedge it. But for the most part, it's all about having a plan and disengaging from emotion. And on top of that, most importantly, don't take too much risk before you even enter the game. If you do that, you're just going to lose the game no matter what happens. Because at some point, you're going to get pushed into that corner we talked about, that tail that Brent talked about. Avoid that tail. Because if you're in that tail, guaranteed you're going to get pushed out. It just really comes down to therapy, really. And then making sure that you adjust things. Well, we call it
Speaker 4financial therapy, right? Helping bring down the emotion part of it, help people think about it rationally, and then help them make decisions so that A, hopefully they're being proactive and putting themselves in better places before action happens. But no matter what's going on in the moment, you're helping them hopefully make the best next decision. One thing I just want to note, too, in case anybody thinks that it might have sounded contradictory, we talked about how the third year in a presidential administration tends to be the best year for the markets. But we're also talking about Jim's concern that there could be a pretty big market dislocation at the beginning of next year. Two things could be true. We could have a really big market drawdown at the beginning of next year, and we could still end with the markets a lot higher by the end of 2027. Especially if there's a big, substantial central planner response to the market downdraft, which is what Jim expects. I asked him, where would you put your estimated response of the central planners to this drawdown versus 2008 versus 2020? And he basically said, well, what we're seeing is that every time the central planners have to ride to the rescue, they have to bring more and more liquidity to get the job done. So in his mind, it's going to be even bigger than what we saw during COVID. Now, again, is that going to be true? We'll find out. But if there is, then yeah, you could see the market being really juiced from all that liquidity by the end of the year. So again, I don't want folks to think about this overly binary, oh, potential for a big drawdown in 2027, that means I'm going to write the year off. No, it could actually be potentially a really big year nominally. The point is, is you've got to be paying attention. And as they say, you've got to be positioning for where the puck is headed. So anyways, I feel like I've beaten this drum loudly enough here. So why don't we get to that, Mike? I mean, for, I'm going to talk to you about gold in just a second, but I think people should take today as a wake-up call, again, to reevaluate risk in their portfolio and to, you know, come up with a plan for next year in general, given their financial goals and everything, but also from a defensive side in case Jim is right. Obviously, that's something that you guys can help them with at New Harbor, right? So if they fail out, they're really, really short form at thoughtfulmoney.com. They can be connected with you, John, and the rest of the team at New Harbor and basically say, hey, look, I don't want to be wiped out, you know, or unduly exposed to a big draft next year. Can you guys help me construct a portfolio to make sure I'm still going for prudent growth, but not taking too much risk and really focusing on capital
Speaker 1preservation? 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, setup required compatibility and availability varies 18 plus.
Speaker 6Hiring now? Absolutely, Adam. I think one thing we're really good at is talking with not just clients, but people that are just wanting to talk with us. You offer a free portfolio review. We do that. We're very good at direct, just no nonsense talk, right? And particularly cutting through the fear, which is really the enemy of every investor. And normally the fear doesn't come into play until days like this. Overconfidence is usually what happens in recent years. And so a lot of people are out there passive indexing, even if they say they're not. And so if you're passive indexing, we're going to just point it right out point blank. You're too overexposed. You don't want to let those fears go down other than to hold forever. That's not really a plan. So we'll say it very directly like that. Or we'll take a look and say you're very overconcentrated in one sector or the other. And we might say whether we disagree or agree with that. A lot of people have overweights in precious metals and miners, and we kind of agree with that sector, but we want to point out just how bad it can get and make sure that they can psychologically and financially take that move if that happens. So it's direct connection, no nonsense feedback. And I think that's what people like, is that they just get direct talk, just real talk. And we're happy to do that with anyone that wants to.
Speaker 4All right, great. And folks, as I say, I don't understand why you wouldn't do this. And it doesn't have to be with one of the financial advisors that Thoughtful Money endorses. It just should be with a good financial advisor. And if you already have one who's fulfilling that role for you, well, great, fantastic. But it's times like now to lean on them and say, hey, wait a minute. Let's make sure I'm not too overexposed. Let's make sure I feel really good about where I'm positioned heading into 2027, given the potential risks out there. All right. Well, so two quick things. One, I am noticing, Mike, that today's plunge, I've said many times, given how much the tech sector drives the overall indices, you could have the tech sector go down, but all other stocks go up. And yet the indices still go down big because tech is such a big part of the indices. What we're seeing today, though, is somewhat of that, but the equal weight index is down a fair amount, too. I think the equal weight index is down a little less than 3%. The S&P is down 4%. So the market weight is down 4%. So my point is, there aren't many places to hide right now in today's washout. It's kind of getting everything, except, as we said, the precious metals and energy as well. But the last time we talked about the precious metals, things were looking especially grim, right? We talked about the kind of hope, if you will, at that point in time, of a capitulation bottom. And then Ronnie Stiferle from InGoldWeTrust started tweeting about that last week. He said, I actually think a capitulation bottom is only a couple of days away. That seemed to have proved prescient. Can you pull up the chart of gold here and tell us how good you feel about the bounce that we're seeing here? Basically, the big question, which of course we don't know for sure, is this just a reversal rally that's going to reverse again? Or do we think that a sustainable bottom for the year has been put in?
Speaker 6We'll see. It's been really, really brutal in gold and silver land. And I think there's a good chance we have seen the bottom. This is GLD, an ETF that tracks the price of gold. We have rallied up to the 50-day moving average. Take a look at the January top and how brutal all of these months have been. We were trying to break out of this purple downtrend line. And I was watching the chart. I was watching the chart. I was watching for it, this in both gold and silver. And it has been really difficult for anyone one that bought wrong or too late if you bought early you probably weren't feeling this quite as bad and it was really difficult for the for the gold bug community or people that believe in precious metals i should say or or you know or believe in even the debasement trade because there's so many years of just sideways action let me just go back to a monthly chart for the heck of it 10 years post 2011 finally broke out here back in 2024 24 25 big move finally vindicated after all those years right but look at that nine ten months of pullback and it's still only taken back oh maybe a third of the move on gold so it's still a valid breakout and probably just a test or a a pullback or a retest of the breakout and yet it feels horrible while you're going through it well we finally broke out of that downtrend back in august and it looked like we were off to the races like we were going to uh recover and then look at that just drip lower lower lower lower lower lower finally took out the july lows and i it it felt like if you went to x that's all you would see is people negative on gold and silver i know it's really really hard to pick a bottom find a bottom measure sentiment i can tell you it was getting really negative the nicest thing that we can see right now is one two three days right down there with a gap down three days sideways and a gap up that's called an island reversal i hope that i hope that holds if i zoom in you can see it a little better these are daily bars gap down usually it's only one bar but these you know in this case it's still valid gap down three days gap up is this an island reversal in gold this is right around 3850 or 3900 in gold it might be i hope so we'll see and it's somewhat similar in silver here's silver that whole big downtrend line we were talking about all these months that pop out roll over took out the july lows and right now we're almost back to those july lows and if i zoom in you can see gap down three days gap up is that going to end up being a reversal like jeez i don't know i will tell you one thing we would never bet so large that we could we would have to sell if this has another leg down the best advice i could give to anybody is set a position size that you can literally just sit and have faith with if it ever gets to faith time because that's what really it's been faith time here recently and like i said lastly go to like gdx to see gold stocks big triangle formed here over the summer we broke out back in august and then rolled over gold stocks did not take out their lows maybe that's a positive divergence in the last couple days gdx went from 76 to 86 88 in like four days so we're back to the 50 day so i don't really want to stick my neck out and say oh boy the bottom is definitely here but i can tell you fear was there negativity was there i think the fundamentals are there silver was down 60 gold was down 30 mining stocks i believe could still just go back to the monthly chart here it could very well double from recent highs before this bull market is over i have no way of knowing that for sure i just believe that that could happen based on history it's the monthly chart we went from what 50 on gdx more than doubled gave back about a little almost a half of that move this is a big triangle on the monthly let's see if we can break higher in the coming year or two if we do then it could be a powerful move up to or who knows maybe a double on gdx you know again there's nothing guaranteed don't bet more than you can afford to sit with but it's been a hard pullback and i think we may have seen the lows that's what we're hoping great mike do me a favor go back to
Speaker 4the gld chart just for a sec okay i'll go back so yeah so so finally obviously you know in contrast to today's carnage in the market we finally ironically have some positivity here in the precious metals um so the price still seems to be below a number of the moving averages there um at what threshold at what what level would you say okay you know what i i'm feeling pretty confident we're out of the woods now
Speaker 6well right where i have this big red line right here i'll make it a little wider uh we'll be around uh 390 on gld what would that be let's see we're around 41 4100 or so so another 150 something around 4400 4400 44 to 4500 get above this red line because right now this red line is the 50 moving average maybe i should actually change the color on this one to maybe purple this purple line we get above there that's around 43 4400 on spot gold and then we leave these lows behind okay right and then you're above the summer
Speaker 4lows too all right great okay so tbd folks um but obviously we'll be continuing to track it here on this channel all right mike i got to start wrapping it up here um but i i do want to you know if i can express uh you know my general sentiment to folks here is um we don't know what's going to happen from here for the rest of the year this six percent drawdown you know could be just a an event but it shows the instability of the system and this is something that mike and and the guys at new harbor and many other guests on this channel have been saying you know for a good long while which is um yeah we've been hitting new all-time highs uh over the past couple years but the sustainability of those highs there's a lot of reasons to call them into question especially if there's any sort of hiccup in um you know the ai mega trend because it makes up so much of the demand it makes up so much of the gdp growth that's going on right now um there definitely are some big questions that are creeping in here right so you know i mentioned with brett uh this new democrat controlled congress with a lot of people especially governors who just got voted in on kind of a anti-data center um mandate that might slow the ai capex role and that's going to have real repercussions and and if it slows it down things have to be repriced downwards um it also just could be you know the craziness of the valuations you know that we've been talking about when you look at a lot of the stocks um especially in the ai sector this year you know they were trading at price to sales type valuations and things like that that we just never saw outside of bubbles so you know that's the potential risk here so anyways even if we make it through the week fine and there's a there's a face ripping rally as mike said that could happen that happens soon um just understand that this is the you know potentially the universe sending you a message that if and when the unsustainable elements here end things can go south quite quickly as brent says you know bad things happen um i want to make sure that as many people as possible are as protected from as much of the bad things that could happen as possible and so take this as a maybe a strong tap on the shoulder from the universe to say especially if you're taking some losses today go re-evaluate your positioning bring in smarter people than you if you feel like you know uncertain about your ability to do this well and you know make sure that you're entering 2027 with as um prudent a portfolio allocation as possible one where if times are good you'll feel like you're still making enough money to hit your goals on time but if things turn out to be bad that you're not taking it fully on the chin the way that many investors who are just blindly long are going to take it obviously if you want to get some help from one of the financial advisors at thoughtful money endorses you can easily do that by filling out the very short form at thoughtfulmoney.com only takes a couple seconds to fill out the form these consultations are totally free you're going to get bespoke customized uh advice from these advisors based on your specific financial situation your goals your risk tolerance etc like i said i don't know anybody wouldn't do this and again you don't have to do it with the folks that thoughtful money endorses you can do it with anybody that you think is good or better than them just do it is is the point um and again you know if you're using one of the advisors that thoughtful money endorses there's no cost to it there's no obligations involved it's just a service they offer to help as many people like you as possible navigate what might happen in the future with that said mike any closing bits of council you want to mention to folks before we wrap
Speaker 6it up not really i think we covered everything i just be careful with your emotions if you're feeling super emotional reach out to us we'll be happy to have a a quick chat we don't know what's going to happen next i wouldn't be surprised to see a bounce from here okay so
Speaker 4in addition to getting portfolio you know counsel get your get your financial um therapy as well they're
Speaker 6one in the same a lot of times adam to be honest so yeah happy to happy to do that it's gonna be it's gonna be fine we can help you make
Speaker 4sure that it will be all right well mike again thank you so much um for the service that you and john and the team there at new harbor provide folks that steady hand on the tiller um you know it it's always a boon for people but particularly in times like this when emotions you know start running amok so i thank you for the role you played in the past i'm going to thank you for what you're going to do in the future too because i know you're going to have a lot of people reaching out to say hey i need a little bit of that
Speaker 6therapy yeah thank you adam happy to do it and we're in this position it's an honor to be in this position and thanks to you
Speaker 4all right guys well thanks so much folks if you haven't yet hit the like like button and subscribe to the channel if you haven't yet as well that really helps important videos like this get pushed out in the world through the youtube algorithm and we'll continue making a lot more videos like this. great set of experts lined up for the next couple of weeks. I think you're really going to like those coming videos. And of course, we'll have John and Mike on the channel weekly to keep you updated going forward. Thanks so much, Mike. Thank you, Adam. Hope to see you soon. All right. Well, we'll see you next week. And everybody else, thanks so much for watching. Now at McDonald's, the new Frosted
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