The AI Bubble Is Popping On This Day...

Welcome to the Money Tree Investing Podcast, stock market, wealth, personal finance, value stocks, invest in your life. Hello, smart money for Podcast listeners, welcome to this week's show. My name is Kurt Chisholm. I'll be your host and today I'm drawing with Doug Egeron. Hey Doug. Good morning Kurt. Can't speak this morning. What's new? Edgar Marbles in my mouth. Is it? Well, it was a wonderful weekend. It was fun. I had a wholesaler take me in a bunch of people out to do traps, skeet shooting. I guess technically it was sporting plays is what we did. It was a whole lot of fun and we were done before, loved it. My kids just told me that they wanted to do it too because they'd done it before, camp or something. So it was pretty cool. I got a new hobby. It's a hobby number one, so not many other hobbies. My hobbies are just this and family so it's an addiction. It is an addiction. It was freezing cold but it was worth it. Let's dive right into it. We got a lot to cover and not enough time to do it. This is going to be a big week in the markets and there's a bunch of stuff we're going to go over today but we know we've been talking about AI a lot and there's two areas I want to cover today. One is the fact that it's a big week this week so this week we got new home sales tomorrow. We got the Fed meeting on Wednesday and the rate decision which I think probably mostly people think is going to stay the same because the election is coming up another week. But who knows, we had a higher inflation number last week so that could certainly nudge them but I think just doing a turn election is just stupid. It's kind of like when Powell decided to lower rates 50 basis points right before the presidential election and no one thought that was political. Anyway, we also have earnings this week, Microsoft and Google and a bunch of others report this week. This is the big week for tech and there's a ton of earnings coming out this week so just stay aware of this week because a lot of companies are going to be moving and I'm not seeing a lot of how do I put this. The earnings generally are fine but what I'm not seeing is I'm not seeing the market react positively to good earnings. So the thing to look for for earnings is not whether the earnings do better than expected or worse than expected because pretty much Wall Street has attuned to the earnings so well that they always undershoot so that the company can overshoot earnings and do better. So it's a game that everybody plays, it's a ridiculous game so you kind of ignore that for the most part. What you should pay attention with earnings is how does the market react to it because you're never going to guess where earnings are going to be. You could say yeah, Alphabet has a dollar and it comes in at a dollar ten woohoo but the reality is does that really matter? Not really. What matters is how does Wall Street react to that? So the things you want to be particularly careful of watching is a company is doing well and it has done really well. The sale like big tech or AI has done really well with the semis and it's just blowing it out every quarter and then one quarter they still have good numbers but then Wall Street reacts negatively. That's a sign of a company's stock being overdone meaning that you probably don't want to invest in at that point because if you have really good numbers and the market sells off after the numbers that's not a good sign. On the inverse of that if a company is just beaten up like a Nike or Adobe was in the past year you come out with terrible numbers and the stock doesn't go down or it even goes up. That's a good sign. So you want to watch for signs where the stock does the opposite of what you'd expect based on the numbers. That means it's a sign of reversal. I'm not saying it's definitely going to reverse but it's a sign of reversal that you want to be particularly careful of. So this fall it's been an interesting earnings season to say the least and we've got a lot of earnings coming out so we'll talk about it on Friday when the week wraps up. We have PCE numbers on Thursday, we've got GDP numbers on Thursday, Amazon until on Thursday. I think about 20% of S&P 5-rented companies report this week. It's going to be a big week. In general I think the markets from what I've been seeing are let's just say not positively biased at the moment. We're not talking about crash but we're definitely talking about a bunch of data that's coming out and has people kind of questioning things. So we'll get into it in a bit but I do want to state that you want to be very mindful of what's going on in the markets right now. You also want to be very careful. Everything I'm hearing under the hood is not good when it comes to AI. We've been saying this for a while but we're starting to see signs of things letting off. You're seeing things like staples that are doing well in healthcare and those are signs of rotation. So I just want to point this out as well is that in this segues into my next piece. When you see the market rotating from tech into defensive names like staples, healthcare, those are defensive. When you see the market rotating that's healthy. It may not mean the market's going to go up. Rotation is healthy. What you don't want to see is money leaving equities and going into fixed income. That's unhealthy. That's a sign of liquidity problems or crash fears. But when you see rotations like last September until pretty much the war started, big tech was flat. But everything else was up and the markets are up. So the industrials are up. Staples are up. I think staples are the best performer in like January up to February. So industrials, staples, energy, financials, ton of stocks are doing well. Big tech wasn't. So if you're in big tech, you're probably like, what the hell? Nothing happened. No, everything did great. Except for big tech. Right now, big tech's not doing well, but staples, healthcare are doing well. So just something to keep in mind. I think utilities have kind of popped back, but they're related to interest rates. So I kind of ignored that a bit. So it's tech too. Reminder, that's, I mean, interest rates go up. That's never been good for tech. Yeah. And that's totally different. Doug's correct. But it's something I have a bone to pick. That doesn't make sense to me. Because tech doesn't really bar. So it never made sense. I agree. That's what everybody says, but it just, to me, it just logically didn't make sense because they're not borrowing. They are now, but they borrow. Yeah, they definitely are now with AI, but yes, well, they are because I think it's kind of a, hey, we want to keep this bubble from popping kind of thing. I don't think they need to at all, but it is what it is. That's different conversation. Anywho, it is important to recognize that there's rotation going on, not the crash. And this segues into my section I want to talk about this week. The difference between solvency and liquidity crisis. Now over the last bunch of decades, there have been a bunch of crisis. And they're really segmented into one of two camps, one is liquidity and the other is solvency. Now, let me define them both to understand. A solvency crisis is where the company is effectively bankrupt. It means basically, we don't have any more money. We're bankrupt. Here's the keys. They're yours. A solvency crisis is not bankruptcy. We don't have enough cash to deal with this. It would be like, for example, Microsoft runs out of cash. That's not solvency. That's liquidity because Microsoft has plenty of assets, right? It's a huge company. Any huge company is typically not solvency. It's typically liquidity, not always. And sometimes it's both. Perfect example. Let's go through history and go through a few examples just so you can understand. For the Hunt Brothers, the Hunt Brothers are trying to corner the silver market. They called it Silver Thursday when they couldn't meet margin calls. What does that mean? Is that solvency or liquidity? It's liquidity. They weren't in solvent. The price was what it was, but the brokers, because they had levered themselves up and they had built this huge position, they had a liquidity problem. Remember, trading places, the movie, the dukes had a liquidity problem. They needed to come up with capital to meet the margin calls and they couldn't. So everything in the head was liquidated and they were actually it ended up being also a solvency problem. But the problem wasn't started by solvency, it was started by liquidity because they didn't have it because they levered themselves up. If you go in the 80s, black Monday, that was liquidity. It was mainly due to portfolio insurance, but effectively one of the biggest sell-offs in a day in the Dow was because of liquidity. The SNL crisis also in the 80s, if you remember this where a lot of banks failed, that was solvency. If you go in the 90s, you got Japan, the bubble burst. That was not liquidity. It was kind of more or less solvency, but I don't even know if that was solvency. That was just, it topped out, but a lot of companies failed because of solvency. Orange County bankruptcy was solvency. Basically. Not the GDP in most countries, so there you go. Yeah. I mean, it was basically, they couldn't pay their bills. Orange bank went to one rogue trader, which actually was a good movie, forget the guy's name, but. I think he was the guy who was. You want to know me? It was when he was younger. It was a good movie on it. I forget what it was called, but basically he was the rogue trader. Saberings bank went under because of solvency. The Asian financial crisis, along with the Russian default, with long-term capital management, that was actually a little both. There was both liquidity and solvency, so you can have situations where it's both. Enron Worldcom was solvency. If you go into the early 2000s, most of that was solvency. Correct. The movie is actually called a rogue trader. Okay. It is you and McGregor. Yeah. It was a good movie. I liked it. I didn't know much about the markets back then, but it was a good movie. So yeah. Enron Worldcom, if you go to the early 2000s, pretty much that was almost all solvency. But when you get into the '08 period, that was primarily liquidity. There was a little bit of both in the financial crisis. So if you look around the world, if you look at Iceland, that was solvency. But if you look at the banks around here, there was primarily liquidity, although there was some solvency. When you have a financial crisis, when you have a crash, it's pretty much liquidity. Solvency is, it's a different bag. It's a really different animal. The early 2000s, we had the market peak and then sell off over three years. That's a solvency problem. If you have a crash, it's typically a liquidity problem, meaning that you don't have the cash to pay off the leverage. And it's usually caused by leverage, by the way. If you go into 2010s, you have the flash crash, which is liquidity, Eurozone debt crisis, which is a little bit of both. Cyprus was Cyprus's government intervention, but you know, Deutsche Bank and Italian banks was solvency, you had a bunch of banks, which probably should have been bankrupt, but they allowed them to float. You have the COVID crisis. That was liquidity. You had the SVB signature bank first republic. That was mostly liquidity and ended up being solvency, but it was mainly liquidity. So you have these instances throughout history. I just want to set this up because I think people don't really understand what's going on in the financial markets right now. Now, everybody talks about an AI bubble. And what's the first thing that comes to mind when you hear a bubble pop pop and it all crashes and we all lose lots of money, right? That's what everybody thinks we think of a bubble. Think of the housing bubble, think of the tech bubble, whatever, all these bubbles. It doesn't necessarily mean it's going to lead to a crash. And I don't think we're going to see a crash in the AI bubble. I don't think so. Because if you think back in the 2008 global financial crisis, that was a leverage problem. It was because everybody was over levered. And when everybody's over levered, that leads to a liquidity and eventually solvency, but mainly a liquidity problem because people can't get liquidity when they need it. If it was just one company, if the markets are fine and a company can't meet his debts, that's typically not leading to a crash. I mean, it might, if it's a crash is because it wasn't priced right in the first place, it should be a solvency problem, which is a more gradual thing. The crash is when something happens and people aren't expecting it and it's kind of like, oh, by the way, we were a doctor in the books for the last five years, that's a crash. But typically companies don't independently resolve themselves from liquidity. It's typically solvency. If you're looking at what's happening now with AI, you have a bunch of companies that are overvalued. The whole market is overvalued. It's been overvalued for probably over 10 years, frankly. Does that mean it's going to crash? No, it doesn't. We're all afraid of the crash. We're all afraid of the tail risk. Oh, my God, it's going to crash tomorrow and we're going to be destitute. That's not typically how markets resolve themselves. The liquidity crisis happened because of a very large event also happens if the system is inherently weak, like banks leveraging 40 to 1 instead of their normal 10 to 1, 40 to 1 is crazy. And as it was happening in the financial crisis to 10 to 1 is acceptable, 41 is not acceptable, but we just kind of allowed it to happen. Now, AIG also was levering the crap out of their balance sheet because they're AAA rated and they took advantage of that and then they blew up. GE also effectively was insolven, but government kind of allowed them to stick along. It's also kind of like what the auto companies happen during Obama's era, he bailed out the auto companies because it kind of had to, can't not have an auto industry. So they kind of got bailed out. Yeah, I'm a capitalist. I think it's horrible, but the same point I understand. I'm not going to sit here and be rigid about it's like, look, I understand we wouldn't have an auto industry right now. That would be a bad thing. Plus the impact of the countless employees. I mean, people forget they think, oh, the company got saved. The company's not a human being. You have to think about the domino effect to both the economy and individuals that sometimes takes a little bit deeper thought. Yeah, but the government doesn't care about employees unless they're voters. That's my point. They all vote. Right. Yeah, the Democrats care about the unions because that's the form and then Obama was an office. So I get it. I'm not going to sit here and criticize one way or the other because you got to make decisions. It's kind of like why didn't you out the banks fail was too big to fail is like, I don't know the financial system might not be around. I think they should have found a better way to penalize people for taking risks, but they didn't. And now we still have the same problem. The difference is is right now we don't have a structural leverage problem in the financial system. So crashes and liquidity problems are typically based in the financial system in one way, shape, or form because if you're Philip Morris, you can't lever yourself up to be a liquidity problem. And you're not big enough to be a liquidity problem. Now, you got the two big to fail tech bros, you know, the Microsoft's Apple Amazon, I don't know if Tesla's in there anymore kind of is but not really Google meta, you got those big companies, they're kind of in the two big to fail category. But the same time a they're not going to fail because they're not levered up in that way, we can see what their balance sheet looks like, so we're not worried about it. Do we see some shenanigans we call them shenanigans going on right now with the AI companies and the semi absolutely does that mean it's a liquidity crisis. No, it doesn't. It just means you got people swapping paper and it means that the numbers on the report and the quarterly or annual reports look funny, but does it mean they're a liquidity problem. No, Microsoft Apple Amazon meta all these companies, they have negative cash flow right now because they're basically pumping all that cash into AI companies. But when that stops, they're going to be fine because all I do is stop pumping their extra cash in there and their cash flow goes through the roof again. Those companies are not a liquidity problem that they would be a solvency problem, but I'm not even worried about solvency with those companies. So putting this in the context, you get some of the biggest companies in the world, don't have a liquidity or solvency problem right now. Now let's look at the rest of the sector, the tech sector. Do we have some problematic areas, yes, and software, absolutely with AI people are concerned, is that liquidity or solvency? I don't think so, not right now. So we don't have a problem in tech. Is it over price? Yes, absolutely. Is it going to pop and come off? Absolutely. I think it has to, but does that lead to a crash? No, in my mind, you don't, it doesn't mean it's going to crash. Does that mean it's going to maybe not do well for a while or even go sideways for a while? Yeah, I think it probably could. I mean, it did last year for six months from September until like March, April during that time, it was sideways. It was in a huge strideways range. And since June, it's been a sideways range. So these things happen. I know we're not used to it. We think it just always goes up, but that's not typically how markets work. So what are the areas of problematic areas? Well, Europe is obviously a problematic area. I would say France is a big problematic area. I mean, think about French bonds right now. People have to buy treasuries, even though we have a show of a government balance sheet and debt and income and expense and all, just to simplify it. Our government financials are a show. But people have to buy treasuries around the world because we're the global reserve currency. Do you have to buy French debt? No, you don't. Would you buy French debt right now? Hell no, I wouldn't touch it because if you think about it, France can just reevaluate their debt. They can just have a default and they could move on just kind of like what Greece more or less did. We could do what they did disciples and just go grab money. I mean, a whole bunch of things can happen because people are taking on the streets and they're unhappy and this happens every once in a while in France. They're not the only country, but they're definitely one on the headlines. So they've got a solvency problem and they could potentially do liquidity problem, but they're a solvency problem right now. I think the European Union is a bug in search of a windshield. They've been that way for like the last since 2010 and I don't see it getting any better. So what's going to happen? Who's going to bail out France? Who would bail out Germany? I'm not saying Germany's the biggest problem, but who would bail out Germany and France? They're the ones that keep the EU together. So France goes down. Who's going to bail them out Greece? Certainly not. So I don't know. It kind of brings it back to what are the big concerns right now in the markets liquidity or solvency? I'm not seeing any liquidity problems. I'm not saying they're not there. I'm not saying I'm not seeing any. And I look, believe me, I look for these things. These are the black swan events that I look for are liquidity problems. Where are we seeing them? And they do happen during COVID. Mortgage read fund blew up and liquidated their entire portfolio in a day. Just dumped on the streets. Those mortgage reads went down like 50% 60% in like a single day. That was a day you could go and buy those things because of liquidity problem. The solvency was perfectly fine. Those funds were fine. But you see these discrepancies because of liquidity problems. SVB signature first. Actually, they weren't all a problem. The government stepped in and closed up a few of them that weren't really a problem. But anyway, you will see occasionally some liquidity problems. It only becomes a systematic event. If it's big enough. And I'm not seeing something that's big enough. You could see pockets. I don't think it'll be a problem. What I'm guessing is going to happen in this bubble popping and it is starting to look like it's popping. I'm not saying it is, but it's starting to look that way. And from what I'm hearing a lot of people saying is definitely seeing the signs of it popping. This would lead to more of a solvency problem, not a liquidity problem. And a solvency problem looks like Japan in 1990, the tech bubble in 99. This is where it's a multi year drawdown, not a crash. So if you look at 2000 to 2003, you had a negative 15% year, negative 25% year, negative 20% year. They're not good, but it's not a crash. Crash is does not good. It's hard to get a crash anymore in markets. I handed over to Doug, but I just want to say that for everyone here who is emailing me about a crash, when's the crash going to happen? It's not going to be a crash. I'm not seeing certain things have to happen to be a crash. And those are not popping their heads up right now. And if they do, we'll talk about it in the show, but I'm not seeing any signs of that. We are seeing signs of solvency and higher interest rates does push solvency to the brink. If we stayed at these rates for the next 10 years, you'd see a lot of solvency problems. Because people have to roll over their debt at higher rates, they can't afford it, they're done. That could be a problem, and we could see that happening here and again, but I'm not seeing it right now, and if they're one-off companies, so be it, that's not a problem. So I just want to point that out, don't be afraid of a crash, be afraid of a recession, is what we would call it. A solvency problem that's like 2000, 2003, that was a recession. Those are normal, I know we haven't seen one a long time. Those are normal, I expect the AI bubble pops, we will see recession, not a crash. So just be ultra-clarer. You have plenty of time to reallocate your portfolio in a recession, just to be clear. When you see this rotation to defensives, that's the sign of a recession. Not saying there is going to be one, I'm saying that's the sign that the market rotates into the areas that are defensive. Staples, healthcare utilities, those are defensive names, and those are names that you want to be mindful of. Hey Doug, did you hear? We're giving away free money. 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If anybody has been monitoring trading screens for the last 72 hours, the institutional code is just completely scrambled. I mean, we're looking at a market structure that is flashing some of the most bizarre, historic anomalies we've seen since the absolute peak of the dot com bubble. And I think that a lot of that does correlate to what you're talking about as, hey, there's things out there to be watching closely. I mean, on Thursday, the market cap waited S&P 500 dumped over 1%. Yeah, I mean, these days it's kind of a normal day, but the equal weighted index actually gained ground. Now, this is a divergence that extreme has only happened twice in the last 30 years. April 1999 and March of 2000. A lot of people love the market cap waited S&P is certainly outperformed the equal weight because as we've talked at nauseam, most of the S&P 500 are just a bunch of dirty dogs. They haven't been performing. The market cap has been supported by a very narrow band of performers and market cap weighted performers there. So to see the equal weight gained ground when the S&P dumps tells you something about this top heavy companies which big tech is officially on trial. Wall Street is potentially waking up the reality that these neocloud tech giants are starting to take on staggering amounts of leverage to fund these AI data centers. Elon dropped a bomb over the weekend warning that over 200 AI companies are potentially facing a brutal, as he said, guppy level death from over borrowing. Meta just led a five member mag seven bleed by shedding nearly 10% of its value in a single week. Zuckerberg, from the social media side of things, Facebook is predominantly dominated by the older generations. The younger generations don't use it, but they've been able to remain relevant in other areas. It's starting to have more cracks. Smart money is beginning to, I wouldn't say panic, but they're definitely beginning to look at tech with a much more cautious eye. And they are starting to move, rotate for cover in the fixed income markets. You talked about if fixed income's outperforming equities, that's negative. And of course, the interest rate doesn't help that. I mean, when you look at a 10 year US Treasury yield, it slams on the brakes. The Treasury yield experienced the largest single day drops since the Silicon Valley bank collapse to fall back below 5% threshold. Investors treating sovereign paper as a pure safe haven again, because they realize the federal reserve is now starting to be trapped in a state-flationary corner, heading into Wednesday's rate decision. We always say, "Curt, the markets don't like uncertainty." I think there was a lot of certainty that they were gonna raise interest rates before. We knew that, we talked about it. Going back to two votes ago, there was a real divergence of thought on the board. Pretty much predicted that by the next time it was going to be a unanimous decision to raise them. But this means now they're in a really tough spot because when you raise interest rates, it has a headwind effect often on markets, at least temporarily. So if you raise them too quickly, it can be like running into a wall, but at the same time, again, they've been facing forever, so don't raise them, you have this inflationary. Welcome to stagflation. This time it doesn't have anything to do with an oil crisis. I mean, although oil's really high, so maybe it does because you got around going on, but different than it was 40, 50 years ago. So if they're trapped in the stagflation corner going into Wednesday's rate decision, now the markets are not as certain as they were before what the Fed's gonna do, because they know the Fed's decisions are getting more challenging. University of Michigan came out with data that showed consumer inflation expectations accelerated to a five-month high of 4.7% due to the Iran war squeezing oil. Yet business activity just keeps flying ahead. Bank of America's warning that worse might have to shock the world with a heavy lift rate hike just to protect the inflation fighting credibility. And that is, of course, when you talk about liquidity, we talk about the markets and reaction to that would not be very positive in the short run. And especially if that timing comes right around the midterms, it's potentially like taking a sports car, you're driving a Ferrari down a nicely paved road, and then the guy driving it decides, hey, let's see how the suspension's gonna do for off-roading. Don't expect a comfortable ride if that occurs. And if you want to see the real world casualties of tech, layoff and interest rate vice, again, look at the housing market. If you're on air right now, Plano, Texas. I lived in Plano for several years. It was an area that was definitely heavily dominated by foreign investment. And it's now a controlled demolition of suburban home equity. Home values in Plano just registered the fifth largest decrease in the United States. Prices in Cali County plunging 9% year over year. Why? Because massive H1B visa pipeline, the power of the Texas housing boom has also, along with everything else going on, been choked out by new federal restrictions, and an insane $100,000 petition fee. When a software engineer gets hit with an AI tech layoff, they've exactly 60 days now to find a sponsor or face deportation. Huge community down there on H1B. Now you're facing a 7.4% mortgage rate, an underwater asset. And those families, they're just gonna abandon properties and walk away. I mean, we have a system here economically designed to penalize you and make you feel guilty to owning your responsibility, as long as you're staying in the United States, creditworthiness is an American issue. It's like, hey, you do this, you default on this, we're gonna come after you for the amount you walk away from, you're gonna have tax penalties, you'll still have liability, we're gonna destroy your credit rating, you're gonna have to declare bankruptcy and solvency. H1B just goes back to whatever country they came from and may never plan to come back again. There's no recourse. And so that creates a completely different challenge in the housing market that we have potentially ever seen, along with everything else. Even in 2008, the great recession, this was still mostly a domestic credit crisis, where ultimately there was still recourse to those that walked away from homes at that time. They were still within our borders and there was still a way to come after them. That is not the case when people leave the country and they'll come back. I think this is an area where, you know, not to get political, but if we go back to Bernie Frank and we go back to history, the real estate industry and real estate legislation and the government as. always can continuously tried to figure out how to work in the real estate market to expand the real estate accessibility to keep that, whatever you would call, bubble-floating by making sure that more and more people have access to it. And every time they create this massive accessibility, it ends up being a situation in which the rise is heavy and the fall is fast. This is still something that, unlike 2008, is very, very dependent on area. So there are many areas in the United States who are much more immune to this than others. But those are exposed, are going to potentially continue to feel extreme duress from some of these both regulatory changes, immigration changes, interest rate changes, etc. But active inventory is stacking up, Khan County foreclosure exploded by staggering 44%, which is incredible. You know, the wealth of illusion, I think it's officially fractured. I mean, first trust just verified nationwide, housing starts have cratered their lowest levels since the pandemic, since builders are trapped by surging input costs, unyielding labor shortage. The elevator down doesn't have a lot stops right now. A tech leverage peak is rolled over, mainstream is running on empty. Just a couple of other things, then I'll turn it back to you. On October 22nd, the market cap waited SEP, fell 1.2, the equal-weighted SEP gained by half percent. That as I said, it only happened twice before. AI has set us on trial or the 200 companies. They're facing some challenges, but there's also a flight to treasuries going on right now. A lot's happened in a week since we spoke again. I don't know if you have any thoughts on that, but I think this all comes back to one thing that I think you stated very clearly if people are listening. It's not an imminent collapse, but if stagflation is starting to become a more higher probability of settling in, that has never been something that has been a fast reset. It is often something that has a longer term, more painful grind of discomfort. We don't have the same challenges that we ran into in the 70s with the oil embargo. We control oil greater than we ever have, where the number one producer. But I do want to remind people that when we went into stagflation, it started in 1968 and it didn't end until 1982. That is 14 years in which at that point, and I don't see this happening now, except maybe in certain areas, but inflation peaked at around 14% and returns in the market. Again, the S&P average about 0.4% a year. For those of you that sit there and say, "I want to stay in the market." The market's always go up, you know, touting these boilerplate. Look, the S&P, it's going to get you 8 to 12% a year. I call this Fintwit because there's lots of that out there on social media where people will tout these wonderful guaranteed averages that have no concept of sequence of returns, the times in which it has not matched that rhetoric. They haven't been as plentiful as when it has. Obviously, the markets are positive, well more than they're negative. And over the long run, they absolutely have met those averages. But when they haven't, those times have often been long and painful. So again, if you're going in this blind and you don't have at least some sort of preparation or awareness to make sure that you're going to be able to be as comfortable as possible during those durations, then the story for you could be very different than someone else. A few points I want to get to when we got like 10 minutes here, so I want to just wrap it up. I want to share a few charts here because I think it's important to just keep things in context. So I saw this the other day, the annual average health care premium for a family in the US. If you look back in 2000, it was right around 6 grand. Now it's a 28 grand for a family. I think it's just important to just keep that in context if you really kind of think about the costs and inflation and what's impacting people. Health insurance premiums, you're looking at seven grand a person on average family of four. You're looking at seven grand a person at H.E. We have a lot of costs that are going up. We got energy costs that are pretty much double what they were last year. We got food costs, which depending on where you live, I think in Massachusetts, I think the average inflation costs in the last five years, about 11.3 percent. F the government for their CPI numbers, which are bogus, but around here it's been about 11.3. You know what's funny is if you think about the industries that have the highest inflation, health care, college and housing, what are they all three have in common, Doug? Most people at least emotionally need them all. No, worse, the government's involved. Yeah, you have to have them and the government's involved. Absolutely. So for all those people love socialism, it's just because you don't understand economics. Highly regulated. Basically any industry that's not government regulated pretty much has normal inflation, but when they're heavily influenced by the government or heavily regulated by the government, inflation is going through the roof, college, health care, housing, all heavily government regulated. And inflation is really high in those areas. So just something to think about if you don't understand economics, you should probably go back to economics 101 and learn it. If you believe socialism, the answer because they're actually the cause, but that's a different podcast. All right. I also want to point out because interest rates, even though they come off the peak recently in the last week or so, it's also important to look at charts like this because the interest rate itself is not really what's important. What's important is the interest rate compared everything else. So this is comparing utility stocks with dividend yields. So what this is showing is what percentage of utility stocks and using their dividend yield as a marker is greater than the 10 year treasury. Now if it's utility stock, why would you buy utility stock if yielding less than the U.S. Treasury? You wouldn't. U.S. Treasury's fraud intent to purposes the risk-free yield. I know it's not exactly in the 10 year, but U.S. Treasury is considered broadly to be a risk-free yield for that maturity because U.S. government only defaults if it chooses to because it can't technically default unless it chooses to at this point. You want to see investments yield based investments. So like real estate, utility stocks, things like that, or even stocks, they don't have to utility stocks, but stocks that have a good dividend yield that you're pretty much buying for the dividend yield and maybe a little growth, the growth and income sort of stocks as people would consider. You want those to have a higher yield than U.S. Treasury or else, why would you bother taking risk? Just put it in treasuries. You have no risk and just I know there's a technically risk, but virtually no risk. And you can put it in there and you can just get your yield and you don't have to worry about it. You don't have to wake up at night because utilities could go bankrupt. There could be a fire in California and they decided it's your fault and all of a sudden you've got a bankrupt utility. So there's risk in utilities. It's very low, but technically exists, especially if you live in California. So when you see this, what it really means is there has to be a reprison. There has to be a repricing of the Treasury debt, which I don't think there needs to be, or utilities, which means utility prices have to go down a lot so their yields go up because a yield is basically the dividend compared to the price. So the lower the price, the higher the yield and comparison the dividend because the dividends generally pretty static and generally stays more or less the same. It means the price has to come down to make the yield go up. Same thing with real estate stocks. You want better yielding real estate stocks, real estate stocks, you need to go down and the yield goes up. Same thing with a lot of these other, I would call them like defensive companies. You want a higher yield. You need a lower stock price to have a higher yield. So it's important to recognize that portion just because it's something that people don't think about a lot, but it's really important to recognize. And here's another example of this. Here's the S&P 500 earnings yield over the 10-year Treasury spread. And this is basically the same thing. So when these are negative, it means that the S&P earnings yield is less than the 10-year Treasury. Now, if you've seen some of the really positive performing years, this is when the S&P 500 is earning more than the 10-year Treasury, which means that you should favor, if it's in the positive territory, it means you should favor equities and when it's negative, you should favor fixed income. Doesn't mean you sell your equities. It just means you should favor equities when they're positive because you have a positive return over the lower risk fixed income. So I think it's really important just to recognize signs like that because when you see that, it really kind of shows you where the institutional investors are favoring or should favor. Since we just mentioned inflation, I'll hand it back to Doug. I also want to point this out. CPI for different countries. This is the weight in food. Nigeria is 40% of their CPI is in food, Thailand, similar Philippines, India, Egypt, Vietnam, Malaysia, 30% or more. Then you got Mexico, Indonesia, Turkey, Peru, Chile, Brazil, South Africa. As countries get more quote-unquote developed, the weight in food tends to be less and less in comparison. But if you look at some of these countries that are 30, 40% of the CPI is in food, food inflation is going to really impact them. I just pointed that out just to kind of like share what's impacting people on a daily basis. Also one last chart here. This one is Anthropics Quarterly Revenue is now in the top large companies. It's right ahead of Intel and Uber and Coca-Cola and Netflix. and Salesforce like, oh, okay. But this is quote unquote revenue. It's not profits, it's revenue. There's all sorts of shenanigans you can play to game revenue, which is where a lot of people have complaints. But when they go public, all will be revealed and then people will do with it, what they will with stocks. I think they're gonna be really lucky to get this thing public before the bubble pops. Open AI is shortly thereafter, if they're able to get it out at all. I think if there's any sort of gamesmanship to keep this industry going, it's probably so they can go public. We'll see what happens. I think there's gonna be a reckoning in the AI space. I think it's can impact most of tech and most of the markets as well. The indexes especially because big tech is such a big significant part of it. So we'll see what happens. I am not over positive on really the stock market at the moment. Being cautious is really important. And you have the election coming up. We've got about two weeks to see what happens. And then after that, we'll see if the market's correct in sales or if they just keep going. Doug, you wanna take us home here? - There's a wrap up. There's something that connects a lot of boy's costs. We have a stock market where investors are having to rethink valuations. Treasure yields are competing with stocks for capital, housing affordability, pressure, cost of things, families can't stop buying, like healthcare, housing inflation, or an education inflation that is highly regulated, continues to challenge. And it brings me to a question, particularly for those of us in generation X. What is the biggest risk to your retirement? And what if it isn't a market crash? What if it's spending another five to 10 years working does nobody ever help you figure out what you actually needed to or whether you had to keep working? And by the way, I am starting to see an acceleration of people who are getting laid off or having those questions, like whoa, wait a second, didn't see that coming. A lot of them are very successful, highly paid. And we're starting to see these layoffs and middle management, upper management. Now, you've spent 25 to 30 years building a career, maybe a business, saved, invested, accumulated, real estate, substantial net worth, but maybe you're tired. Maybe the business is restructuring. Maybe you've been laid off. Maybe you think about selling the business or nothing dramatic has happened. And maybe you're just simply ready for something different. And there's a voice in the back your head that's asking whether you can afford to make that change. And unfortunately, traditional retirement planning hasn't always done a really good job of answering that question. You sit with an advisor, they run a simulation, they tell you they have a 90% probability of success. Well, that's nice. But what does it mean for your life? Can you stop working next year? Can you spend $10,000 a month, $12,015? And what if the markets drop 25%? Can you still spend that? What if you lived in '95? And perhaps just important, what if the markets actually do better than expected? Are you going to spend your entire retirement afraid of joining the money that you've actually never needed to save? Or what if you could actually see that these prices continue to go up? Can you keep the spending up with inflation? Or even more, can you actually go to your boss, you, and get a raise? And I think that's what we approach retirement income differently at my firm, urgent advisors. I mean, rather than relying on a single probability success score, we work to translate your financial picture into something you'd actually use, your retirement paycheck. And what can you easily spend? Where does that money come from? How do taxes affect it? When's it good time to convert? Should you? And what would need to happen before we recommend adjusting that spending? And we establish guardrails, so there's a process for responding when markets change, which they will, how? We don't know, but we know it's going to happen. Rather than leaving you wonder whether every downturn means your retirement is in jeopardy. And this is where one plan becomes so important, because retirement isn't separate from your investments, taxes, social security, insurance or state. And for families of children, college planning, part of the same equation. We've worked with families who are preparing to spend extraordinary amounts on college, only to discover the coordinating college funding with tax and financial could dramatically change that outcome. Because every unnecessary dollar that leaves your balance sheet for college, taxes, or inefficient financial decision, that's a dollar that is not available for retirement, your family or the life you want to live. And here's one more thing. Do you know where everything is? Does your spouse? Could your children make sense of it if something happened to you? Because I'm working with families all the time and have no clue where everything is or how to articulate it, or where they would turn if something changed. Have you spent your career accumulating assets of investments in financial products that you're now responsible for coordinating? And managing all that's supposed to become your next full-time job in retirement. That is not financial freedom, at least for most people. Financial freedom is having choices. It's understanding trade-offs won't up to make them confidently. So if you're in your late '40s, '50s, or early '60s and you've done very well financially, but you're still starting to wonder whether it's time to slow down, I'd encourage you to listen to that question. And it's not necessarily because you need to retire tomorrow. It's because you deserve to know if you could. Visit our website, MergentAdvisors.net. It's M-E-R-G-E-N-T, M-E-R-G-E-N-T, MergentAdvisors.net. Learn about one plan, because you've spent decades working to accumulate your wealth. The next chapter shouldn't be about proving how much more you can earn. It should actually be about discovering what everything you've already earned will make possible in your life. Thanks for coming on Doug. And that's the show for this week. Thanks again for joining us in "Money to Investing" podcast. My name's Kirk Chisholm, Wealth Manager of Innovative Advisory Group. We don't just manage your wealth. We make your life better. You can find more about me at InnovativeWealth.com. And of course, you can find me every week here on the show. We share a lot of charts on the show, so if you're looking for charts or show notes, check out our show at moneytreepodcast.com. Don't forget, do your own research. This show is for informationally or solely. We're not telling you what to think merely how to think about investing. We're also not selling products and services so do not consider this advice. If you're seeing financial advice, give us a call. We take clients electively. But only if we like you. Have a great week ahead and remember no one. We care about you money like you do. So invest in your life. Thank you for listening to the money tree investing podcast. Visit us at moneytreepodcast.com. For more free investing resources.