Speaker 1The stock is very oversold. It trades at a 0.12 peg ratio and a 10 forward PE. I mean, if I can buy NVIDIA at a 10 forward PE, it's pretty cheap.
Speaker 2Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart, welcoming you here at the end of the week for another weekly market recap featuring my good friend, the inauspicious portfolio manager, Lance Roberts. Lance, how are you doing?
Speaker 1I'm doing well. Glad to be back here after missing last Friday. So good to see you.
Speaker 2Good. Well, good to have you back, buddy. So I chose inauspicious because that basically sort of means unlucky, you know, in kind of a negative way. Certainly a good way to describe a lot of players in today's market. Especially NVIDIA, which we're going to talk about in just a moment. But I also thought it appropriate because we're filming this on Friday the 13th.
Speaker 1Right. Which for the month of October, statistically, I actually did some analysis this morning. Friday has a 50-50 chance of being positive. So on Friday the 13th.
Speaker 2Oh, really? Okay. So it gets a bad rap.
Speaker 1Historically, when Friday the 13th falls on Friday in October, there's a 50-50 chance of either being a winner or a loser. Right now, we're in the loser category.
Speaker 2Okay. But basically, same as any other day then, right?
Speaker 1Pretty much. Pretty much.
Speaker 2Yeah. Yeah. Basically, they just have a bad marketing agent, right? Friday the 13th. Yeah. Needs to get a better one. All right. Well, look, there's a lot going on in the world right now. So why don't we just grab the bull by the horns here, Lance? I think last time you were on, we looked at the TA, the technical analysis. And the TA was still, the tape was still kind of weak. And you were talking about kind of sort of, you thought the max downside would be if the market started really breaking to the downside. And if I recall from memory, you were thinking the S&P could get down to 7,200. We haven't gotten down to there yet. We did make, you know, we have made some progress and we've chopped around a bit. Obviously, what's going on right now with NVIDIA, is not helping things. And, you know, you and I have talked a lot over the past years about how the AI stocks, generally, but NVIDIA specifically, you know, their importance has grown to an outsized degree because they represent so much market cap in these indices that, you know, if they go down, it's really hard for the indices not to go down with them. So right now, let's just talk about what's going on and what implications are there. And I think that's, I think, that's a big part of what's going on. And I think that's a big part of what's going on. And I think that's a big part of what implications you think may come out of this. So I think if we had circulated a poll last week and said, what's the most important stock in the world? I think NVIDIA probably would have topped the list, right? And now we've had the CEO, Jensen Huang, and the stock was under some pressure beforehand, but all of a sudden, scandal, right? He's alleged to have an affair with not just anybody, but a Chinese spy, right? So that, you know, got the markets all caught in the tizzy. And as they were trying to figure out whether he's going to get fired over that or what the implications of that could be, well, it comes out he's had more affairs, right? And not just again with anybody, but with executives at NVIDIA, which I'm sure there's, you know, a massive stack of HR paperwork that says, you know, you shouldn't do that. And I'm sure that's against NVIDIA's code of ethics. And so it looks like Jensen is now out. Last headlines I've seen is the board saying, he's going to have nothing to do with the company in a public or private way going forward from here. He has resigned
Speaker 1and he has been replaced by the CFO.
Speaker 2By the CFO. Yeah. Also named a
Speaker 1board of director seat as well to add more controls. So they have replaced, Jensen Huang has now been replaced at NVIDIA.
Speaker 2Okay. So I saw an interview that he, he did not that long ago. It's kind of prescient. It was probably like a month ago or so where he was interviewed in the interview about succession planning at NVIDIA. And he, you know, basically sort of like Jensen, you've been the figurehead of this company. It's been a massive success, maybe arguably the most important company in the world right now. Who's going to replace you? And he said, well, that's kind of my job is to create the culture so that we can figure out who's going to replace me. Of course, he didn't know he was going to get replaced within 30 days. But the, the impression I kind of got from the interview was the succession plan wasn't super clear. And there was no succession plan.
Speaker 1He ran a very flat organization and he maintained complete control. He was the chairman, the CEO. He was the face of the company. He was the lobbyist for the company. He did everything. And that's a problem when you run a company that large and you don't have a succession plan in place. And this, and this is, you know, we've seen this happen with other companies as well. I mean, it's not well thought out. You have a company this large with this many employees and importantly, not just the most important company in the world in terms of just technology, but in the center of national security with AI development, and you don't have a session plan. I mean, if you forget about the affairs, what happens if you walked out into the street, got hit by a bus?
Speaker 2Yeah. So you're taking this where I wanted to go, which is, and we'll talk about the specifics implications for NVIDIA in a minute. But this is called key man risk, right? You have a company that's essentially built around one person, one personality. And if something happens to that person, you're getting hit by a bus example. It has a disproportionately negative impact on the company because there's nobody next in line to come in and take over the reins to provide smooth continuity. It's going to be a really big disruptive challenge. Seems likely to be the case here. Time will tell. But a couple of things have struck me about all this, Lance. One is, this isn't unique to NVIDIA. So as we talk about this AI race, which I think you can easily argue is the most important trend right now in commerce, potentially is the most important trend in national security. We're racing against China for this. If you look across the players, a lot of them have key man risk, right? Open AI. If Sam Dario gets hit by a bus, same thing. Elon Musk. My God, talk about key man risk. That's key man risk across multiple different megabillion companies, right? So we have this interesting situation right now where kind of the tip of the spear that's driving the most important elements in our society to key man risk, right? And what's interesting is, there's a lot of talk right now that China's strategy, if indeed this woman is proven to be a Chinese spy, China's strategy wasn't necessarily, let's get this woman to have an affair with Jensen and learn all his trade secrets. It may have been, let's get this woman to have an affair with him that then gets revealed so that he gets booted, because he's such a key player. NVIDIA is such a great strength for America. If we can throw sand in the gears, if we can get that guy removed, it really slows America down, right? So there is this real risk that, who knows, maybe there's other spies sleeping with other heads of these companies, or maybe there's a sniper out there. I hate to bring that up, but I mean, we are really vulnerable to this right now in a way that I'm not sure the American economy has been vulnerable in the past.
Speaker 1Trey Lockerbie : Well, not only that though, I mean, we just saw it in the recent election. We haven't had a chance to talk about the elections because I wasn't here last week, but we just had this blue wave sweep through the country and a lot of people were elected for offices and you start tracing the money back to the lobbies. There was a lot of money flowing in from China through NGOs into PACs for those candidates, because if I can get enough people elected that they put a kibosh on the AI data center build out process, that allows China to take the leap. Trey Lockerbie : Right. So there was certainly some benefit for kind of the election process for China as well. So it doesn't necessarily have to be, I've got to do an assassination or I've got to get a spy to sleep with the CEO of a company. If I can control policy through lobbying efforts, through money, et cetera, I can achieve the same results, which is to give China an advantage over US in terms of AI.
Speaker 2David Stein : Yeah. So it's really interesting. And we're probably going to get a whole bunch of comments, saying you've got no proof of this Lance, or this is all hearsay. I don't know enough to say one way or the other, except to agree with you that I think our system does have vulnerabilities to outside influences using our system against us. So like you said, Lance, as opposed to kind of a threat from the outside, it's a way to use our internal structure to drive an outcome that they would like to see anyways. So it's just super interesting. And I'm not deliberately trying to paint an ugly picture of the AI, you know, movement from here, a megatrend from here. But you and I have talked about a whole bunch of risks that this trend could face, right? It just could be trends from, you know, anything from, you know, pick a threat. Turns out the circular financing really, you know, is a sham and there's issues about that. It could be that the cost of compute is going to zero and, you know, these free models are going to destroy the economic models of the frontier companies here. It just could be we just don't have enough talented engineers or permitted land or water to build at the day. I mean, there's just a whole bunch of things there, right? But now there's this whole kind of geopolitical intrigue element to it as well that wasn't on a lot of people's dance cards a week ago. So it just makes the risk factor higher here, in my opinion. And one other thing I just want to opine on here is not, this is probably similar to how it maybe was during the nuclear arms race, where we put a lot of faith in the hands of a small number of people. I think of people like Oppenheimer, right? Hey, this thing has the potential to destroy the world. I mean, initially, when they were going to do the first nuclear test, they weren't entirely sure that it wasn't going to ignite the atmosphere of the planet and just burn the planet to a crisp. So there was a lot of faith that was put into a small number of people to get things right. We're doing the same thing now with AI, right? To make sure that A, we win the AI race, that B, that AI is going to be as transformative for humanity as it's being sold, given the investment we're making. See that AI isn't going to kill us all in the end, and it's going to be ethical, right? We're placing a lot of faith in the Sam Altmans and Darios and Jensen Wangs. He was right there in the epicenter of that. And we're learning is these are fallible human people, right? CEO of NVIDIA couldn't keep it in his pants and sadly made some really bad choices of who he decided to sleep with outside of his marriage. It does, again, kind of give you a reason for pause to say, are we placing too much in the hands of people that are too fallible? I don't know the answer to that. And I certainly hope the answer is no, but I don't know. No, I agree.
Speaker 1And again, I don't really ever understand this is that, you know, you've got every, I posted a tweet on this last week. I mean, you run the largest company, you built the largest company in the world. You have everything, you're worth 140 billion bucks. You have everything you could possibly ever want. And if you're not happy in your marriage, divorce your wife, write her a check for half of your assets, be done with it, and then go have all the affairs you want. But nothing ever good comes from cheating on your wife. Now he's, you know, there's a great tweet. I wish I could take credit for this, but, you know, I just simply can't. Let me share this because it sums it up so well. NVIDIA stock fell 12% because of the election, 10% because of the erection, 11% because of ejection.
Speaker 2Oh my goodness.
Speaker 1And, you know, that really sums it up extremely well about what's been going on with the stock. And again, you know, all that could have been avoided just simply by divorcing your wife.
Speaker 2Or, yeah, or to your point, being honest and above board, right? You know, hey, our relationship has changed. I want something different. I'll give you the chance to go live your life. Here's more money than God. You know, it was a nice time. But, you know, and I wrote on X that I just never understand why the powerful in particular, you know, what they expect to get from lying, cheating, stealing, et cetera, right? Because the truth always comes out in the end. And of course, you know, it ignited a whole discussion around power corrupts and all that stuff. And I get it. And I also, too, I mean, Jensen Wang seems kind of like a normal guy from what I can tell. But from my time in corporate America, there definitely was kind of a psychopath factor, the higher up you got in the company. There was a higher degree of people who just thought that the rules didn't apply to them. And in a lot of ways, that was responsible for their advancement, right? Because, you know, there's a lot of people who, you know, they either, you know, outworked other people, but usually were happy to kind of knock, you know, cut the knees out from under their competition and do untoward things to advance their own position that a regular person with morals wouldn't. And I'm not saying that every CEO is a psychopath here, but, you know, they're just, that factor was definitely visible. I think we see the same thing in politics here. But interesting. So, another one of these kind of, you know, I won't call it this one, so much a black swan, but like, okay, so let's say Jensen's wife divorces him now and walks away with what? Well, the number keeps going down because the stock keeps going down. But last I heard it was 80 billion, but maybe it's now only 65 billion or something like that. Yeah. But if she walks away with that.
Speaker 1Let's just be clear. It's really hard to retire on $60 billion. It doesn't go nearly as far as it used to, but I'm sure he'll be okay.
Speaker 2Hopefully the poor guy, if not, can do a GoFundMe. But I've seen some rumbles of this and I don't know if it's necessarily true or not, but I don't know if the divorce itself would trigger any liquidity event, but let's say the wife just said, all right, you know what? I'm selling at least half of my Nvidia just to put that money into something else. That could be another big downward pressure on the stock, right?
Speaker 1Well, that's right. So, and I just wrote a whole piece on this today for our daily market commentary. And I went and looked back at previous companies that have ousted their CEOs over kind of similar things, indiscretions, et cetera. And the statistics are pretty clear is that over the course of, with the exception of Kohl's, when Buchanan got ousted in 2025, Kohl's actually did really well. But for most other companies, the average rate of return over the next year is about 11% loss. So there's certainly risk to the stock. Now, one thing is, is that Nvidia is going into this. It was already very oversold technically going into this. So, you know, the downside risk may be already built in a lot into the stock and with the replacements now with the CFO of the company and the gentleman being put on the board of directors, that's certainly going to help create this idea of continuity. And again, you remember that Jensen Wang, isn't building the chips. He's not building the GPUs. The engineers are still working. The employees are still there. Everybody's still producing, you know, you just are losing this kind of face of the business, which is important. And there's nothing wrong with that, but that doesn't change necessarily the earnings of the business.
Speaker 2Well, that's where I'm going here,
Speaker 1which is still there. The customers are still there.
Speaker 2Right. So that's where I'm going with this, which is, is this potential? So two things, one, I'm going to guess, I don't know if there's a way to tell. I'm going to guess. That those stocks all performed for the most part, pretty poorly in the year after the CEO was ousted. Yeah. On average somewhere. Yeah. Well, what were they ousted for? Were they all ousted for indiscretion or were some of them ousted because the company wasn't doing well?
Speaker 1No, these, these were the, so in this particular study, this was conduct driven removal.
Speaker 2Conduct driven. Okay, good. Then that makes more sense to the point I'm about to make. So this may be more like the key man thing that we're talking about, right? Where, Hey, this was the guy that was driving the company. Right. Right. Right. He had a plan. He had a star power. You remove that guy, hard to find a great replacement to come in and immediately continue that momentum. And then the company is at sea for some period of time until, and unless it now finds, you know, grows or develops another successor who gets their sea legs and then things start taking off again. So that might be the case for Nvidia from here. You can certainly make that case that, okay, the stock might have a tough year ahead of it, but also you could make the case, as you just said, Hey, this thing was really cheap beforehand and by really cheap, we're talking about like PE ratio, right? I think the PE ratio was cheaper than Coca-Cola's PE ratio. And this was pre scandal. And then now it's getting really beaten down. So is this kind of a baby with a bathwater moment where you're getting perhaps the most important, most valuable company in the world at a fire sale price right now? That's right. Do you have an opinion on that?
Speaker 1Well, yeah. I mean, you know, we, we, I laid out a piece on Thursday in our daily market commentary talking about specifically this is that the stock is very oversold. I mean, if I can buy Nvidia at a 10 forward PE, it's pretty cheap, right?
Speaker 2I think a lot of companies are cheap at a 10 forward PE, right? Let alone potentially the most valuable company in the world.
Speaker 1Peg of 0.12 on top of that's priced earnings growth. And so based on the earnings growth rates, the stock trades very cheaply. It's very, very oversold. It's, it's almost four standard deviations below its moving average. It's going to bounce. Now, again, when it bounces, there's going to be a lot of sellers that are trapped in the stock that will want to sell the stock. So, you know, be careful if you buy the bounce, it's a tradable bounce. You can certainly make some money in it, but it's going to probably eventually either retest lows or set higher lows for whatever reason. It's going to have to grind through this process for the next, you know, six, eight, 10 months as they get the new, and again, it's whether or not they keep the current CEO in place or if they replace her with somebody else, that's going to be the question. But, They've got to, you know, come back to this. The other option of this also, as everybody's forgetting, is that Jensen Wang may come back as CEO. He's got a lot of support from the entire world right now for his credibility with the company. And if he can get past these investigations from Congress and it turns out that there was no national security breaches, even though he was dating this girl that may be a spy, that's a big if, right? I'm just saying there is a small possibility that they could bring him back on as CEO at some point if he can get past all this other stuff.
Speaker 2Yeah. OK, so a couple of things in that. First off, just curious. Four standard deviations now, you know, below, I guess, where its historical trading range has been. What is RIA doing about that? You sitting and watching or are you actually adding?
Speaker 1No, no, not right now. We laid this out in today's commentary. So here's this was as of the close yesterday, the stock's down a little bit more this morning, but this is where the stock was trading yesterday. So, you know, we've taken out a lot of support here that goes back. Oh, by the way, stocks trading back where it was in basically February of this year. So despite this whole decline, you're trading back about where you were at the beginning of the year. So, you know, it's you got to keep a lot of this in perspective. But the point here is, is that, no, you don't, you know, it is oversold. And, you know, typically. Within 12 months, when stocks like this, now, these are the stocks going back to the 17 CEO removals that were done for conduct reasons. Within 12 months, the stock was trading higher by about 4.7%. The worst trade point was over that over that 12 month period was negative 32. So, you know, there is downside risk, but it really depends on where, you know, the stock starts from when you get into this position. Again, NVIDIA was going to this very, very oversaw. And then, you know, we're going to have to take a look at how it's going to play out in the next couple of years and see if we can get it back to where it was when we were at the beginning of the year. But, you know, this is kind of where we want to start, you know, kind of thinking about it and certainly kind of changes what we were doing. So if you had bought a tranche, and we talked about this last week, is that if you want to add exposure to growth stocks right now, and again, our growth signal is over value right now. So if you want to start, you know, buying some of these beat down technology stocks going into year end, and there's a lot of reasons why tech should perform better in the year. And hedge funds and pension funds, et cetera, have been grossly liquidating positions. We've had some very, very large CapEx reductions in a lot of these positions with these hedge funds, et cetera. So they're very underweight, these technology companies going into year end. So they're going to have to regross a lot of that book for year end reporting. So there is some buying pressure potentially for growth related stocks in the year end. Earnings season has been very good. Buy back window is now. Completely open. We're on track for $1.5 trillion in announcements for buy back. So, again, there's a lot of capital that was sitting on the sidelines that now has to come back into play. So there's some good reasons why we could see a rally in the year end, particularly in technology stocks. But with NVIDIA specifically, you've got to just wait now. You know, so you got stopped out. If you bought on the initial buy, you know, when this thing kind of announced, close out your position. You know, take your. You know, use your stop losses and then kind of set your tranches now until we kind of get through Tuesday's earnings. So NVIDIA reports earnings on Tuesday. Then they have congressional hearings on Wednesday. You get through that. Then all of a sudden, you know, maybe we can see how the stock reacts to all of that news. If it starts to kind of form a bottom, you can buy back a tranche. And then if the stock starts to bottom, starts to become performing a little bit better, triggers some buy signals. Then. You add another tranche. And then as the stock begins to recover over time, you add your third tranche and kind of finish out your waiting. So, again, there's there's a process here to that. It's not something you go in and try to buy this bottom here because there could be more more downside to go. If we take a look, for instance, at NVIDIA. Just to kind of a good example, put this on a monthly chart, there's and I talked about this yesterday as well. The stock's trading this morning at 160, you know, on a monthly basis. So this is monthly closed stock. Hasn't closed today, so it's not reflected in the price yet. So on a monthly basis, the stocks at 160, there's downside to about 120. So you've got downside of about forty dollars on one hundred sixty dollar stock. That's not nothing. But again, historically, we've had these corrections before back to this long term moving average. Now, this is a four year moving average and it's like purples for your moving average. You've corrected to this twice before, held that support level and then rallied off of that. So if you get back down. Here to around this 120 level, this stock's going to be oversold on a monthly basis. You're already approaching oversold levels. You're on a sell signal right now. But if the stock can get down here, base a little bit, turn higher and hold that support. Those have been really, really good opportunities to add exposure for a longer term hold. So there is downside risk. And I don't want anybody to walk away from this conversation saying, oh, Lance said buy NVIDIA. No, you buy if you want to tranche into it and try to figure out where this thing is. I'd wait for earnings. I'd wait for congressional hearings Tuesday, Wednesday, next week by a small position with a very tight stop. And if you get trapped out of it, you close it out. You don't don't get into the hope cycle of, well, I hope it gets back to where it was and then I'll sell it. No, you're your stop and move on.
Speaker 2OK, so let me let me just ask you this. So you're the piece that you just showed that you wrote. It looked like a first tranche was already in play, right? And last time you were on. You talked about how you were starting to ride the anticipated shift of value back into growth, right? So I think you already had a tranche in play for somebody right now who has no exposure to NVIDIA and is looking at pardon me, I would just wait if
Speaker 1you've got no exposure, just wait through earnings and wait through the congressional hearings next week.
Speaker 2All right. So here's my question. So let me say I'm looking at this. I'm thinking, wow, this could be really attractive for standard deviations, right? Whatever. I realize it could go further, but I don't know. Right. This thing could turn around on a dime, right? Maybe the congressional hearings go great and they realize this woman's not a Chinese spy and all of a sudden the thing goes off to the races. Yeah. Would it not make sense potentially if you have no exposure to put an initial small trench in now just in case things turn around a lot, but still have 80 plus percent of your capital you might allocate to this in reserve to follow the path that you just laid out for us?
Speaker 1That's fine. No problem with that at all, but have a stop on it. So you buy it at 160, stock's trading at 159 right now. So you buy it here, you put a stop at 155, and if you break through that, you're done.
Speaker 2You're out. Okay. Yeah. So only a flesh wound if it goes against you, but at least you've got some position in there if it surprises to the upside.
Speaker 1Yeah. There's a lot of potential here. The stock could travel down to 120. And I'd be a heavy buyer around 120 if we can get it down there. I mean, we've owned Nvidia for a very long time. A very long time. So we have no principal value left in the company. We've taken profits out of Nvidia so many times that we've got all our initial principal.
Speaker 2But just to be clear, you still own it right now.
Speaker 1Oh, yeah. We still own it, and we're going to continue to own it.
Speaker 2But you're playing with house money at this point.
Speaker 1We're at house money. We're at a reduced position weight within our portfolio. We're underneath market weight in our portfolios. So we're not going to sell the position. We're going to manage the position. And when the stock forms a bottom, we will take that position back to target weight and then probably increase its weight within the overall portfolio when we can buy it because it's cheap on a fundamental basis.
Speaker 2All right, Lance. I've got a couple more questions to pull on this thread with you with. But before I get to that, folks, a quick message from the good people at Plod. In investing in financial planning, important insights often come from conversations with experts, advisors, or colleagues. But it's not always easy to remember every detail afterwards. That's why Plod Notepad. S is so useful. It's a small, wearable, AI-powered note-taking device designed for real-world conversations. As you can see, I've got mine right here attached to my lapel. I'm actually recording this entire conversation with Lance. With simple one-press activation and hands-free usage, you can stay engaged in the discussion instead of constantly taking notes. Whether you're meeting with a financial advisor, discussing investment strategies, or brainstorming with your team, Notepin S makes it easier to capture important conversations. And if you're someone like me who spends hours interviewing financial experts, discussing market trends, and taking important calls, a lot of valuable information can get buried in those long conversations. So if you need more record-taking horsepower, turn to the Plod Note Pro, a credit card-sized, AI-powered device designed to capture in-person conversations and phone calls with, again, simple one-press activation. And folks, it just fits conveniently on your phone, so you can easily take it around all day and not have to worry about where it is. Afterwards, Plod's AI turns the conversation into organized summaries, key insights, and action items. And with Ask Plod, you can revisit a previous discussion and ask specific questions like, "Hey, what were the key risks we discussed?" Or, "What follow-up action items do we agree on?" So folks, the value isn't just having a transcript. It's being able to retrieve important information when you actually need it. And like Lance, I'll send you a copy of Plod's summary from our discussion today. I'm sure that your team will love using it for marketing to come up with the best insights that they can make shorts out of. type of all this. All right, folks, so look, if you spend lot of time and important conversations and want to make sure you don't miss the insights that matter, Plod is worth checking out. And right now for Black Friday and Cyber Monday, you can get 20% off with our special code THOUGHTFUL. The offer is available on Plod's website and Amazon. And I've included the details of all this in the description below.
Speaker 1Dude, that'd be awesome. My team's going to love that summary, especially Brent, who has to do all of our shorts.
Speaker 2All right, great. The Plod folks are going to love that part. All right, so back to NVIDIA. So you mentioned that there's a chance that he could be reinstated at the company. And I know that probably seems super remote right now. Maybe it is. But it is interesting to see, again, probably back to this whole key man risk that we were talking about, kind of the AI ecosystem is really pulling around him. And they're basically saying, did the guy make poor choices in his personal life? Did he make poor choices in his personal life? Absolutely. Should he be on a much tighter reign going forward? Probably absolutely as well. But to the extent that this was manufactured by an outside adversary, again, if it's sort of proven that this woman was a Chinese plant, then do we kind of want to hand our adversary what they were putting into motion here? Or do we want to realize that, hey, our national prospects are better. This guy's the best hitter on our team. Whether he's got some transgressions in his personal life or not, we still don't want to take him off the lineup and have the nation basically suffer as a result of this. And it's an interesting question because I actually really get it. And I can easily say, yeah, maybe with some additional constraints bolted around this guy, he should stay in power for that reason. At the same time, it's really hard to rationalize rewarding reckless behavior like this. So I don't know. It's going to be interesting to see what happens. But to your point, the door is open and he actually could be reinstated, especially if the congressional hearings somehow exonerate the spy scandal. If not, though, it's also been kind of interesting. You probably saw the tweet to Elon where I can't remember who asked it, but they said, Elon, you should hire Jensen. He said, I would do that in a heartbeat. So Jensen may actually still find himself in a key position in the AI ecosystem going forward.
Speaker 1Look, there's one thing about being the CEO of a company. It you do, you're going to be the CEO of another major company. I mean, Home Depot got run into the ground and they hired a CEO who basically had already bankrupted another company to come in and take over. This was years ago. So I mean, your track record as a CEO doesn't matter. Your ability to manage a company doesn't matter. You just have to be in that pool of CEOs because all they do is just pick from that same group of people and just keep circulating CEOs around these public companies. Whether you're good at it or not, you're going to be the CEO of another major company. So whether Jensen Wayne comes back to NVIDIA or winds up at X, don't be surprised. He will be back as CEO somewhere.
Speaker 2Well, and I would say, I agree with you, but I would say that performance does matter. And in the sense that like there are a lot of professional athletes, right, who had very colorful, very checkered personal lives, right? But they still would get picked up by teams, especially if they got booted by one for behavior, because the team was like, I need that guy in my ride. I don't care what he's like, personally. I don't care if he's an ax murderer. If he's, you know, if he brings his stats with him, he's on the team, right? Yeah. No, that's right.
Speaker 1That's right. I mean, you know, it's, again, if you can just get yourself in that CEO network, you're golden.
Speaker 2Okay. So if we can, Lance, you pulled up the chart there of NVIDIA. Can you pull up just the TA for the general S&P? Because as I mentioned earlier, you know, sort of so goes NVIDIA, so goes the markets in general, because it's such a key bill while they're in. It's just a freaking huge company, market cap wise as well. So if I took good notes, I think you still believe that odds are more likely than not, we will have an end of year rally to this market. A, is that still the case? And what is the TA telling you right now?
Speaker 1So let's back up two weeks since I wasn't here last week. I don't know. I don't know if Mike did technicals with you. Last week or not.
Speaker 2So we did. And just FYI, he echoed what you had said the week before, which was that sort of RIA's default expectation obviously will change if the data changes. Is that more likely than not to be a rally into next year? He did say, I'm much more nervous about 2027 than I am about the next two months. But yeah. Yeah.
Speaker 1So a couple of things. So two weeks ago when we talked, I said that if the market breaks down below this consolidation channel and we're going to get to the 200 day moving average, which we did on Thursday of last week. So that was
Speaker 2what, what was the
Speaker 1price there? 73, eight, 73, 66. Okay. All right.
Speaker 2And I remember, I think it was more like 72 when we were talking earlier, but that, that that's a rising trend line. So by the time we hit it, it was a little bit higher.
Speaker 1Yeah. Yeah. So, but so we got to 200 day moving average as expected, bounced nicely off of that. And we're giving up a little bit of that today, but we ran right into the 50 day moving average. Yeah. Yeah. So, but so we got to the 50 day moving average got rejected there over the last couple of days. So it'll be very important for the markets, but we're, we're back into this consolidation range, just hanging in here for right now. And again, if you look at the market itself, the markets basically as of last Thursday was back where it was in May of this year. So the market has just gone nowhere since May. Despite all this other stuff that's been going on with the markets, markets are hanging in there pretty well. And, but, but we are trading below the 100 day moving average. So we're kind of in the low resistance right now. So the 50 day and the 20 day are certainly kind of putting up downward pressure on the markets. We need to get through that. We're very close to trade. If we can get a rally first couple of days of next week, we'll trigger a momentum bicycle from a decently low level and markets are decent, not grossly oversold, but they are oversold and investor sentiment is very bearish. So we've actually got a really good setup here for a short-term high in the market because everybody's bearish right now because of the what's going on. There's a, this is a really good contrarian setup. Everybody's expecting the market to go down lower. Nobody's really expecting the markets go up, which kind of puts you in the position that a rally is becoming much more likely than not.
Speaker 2Okay. So you've reminded me that we haven't even talked yet about last Thursday. So we had this just massive bloodletting day in the markets. Biggest down day, I think, in five years, six years. One of them.
Speaker 1Yeah. We've had big ones, but it was definitely in the top five. Top five.
Speaker 2Yeah. And so, yeah, just a really big down day. And then of course, you had the whole Jensen-Huang news playing into that. So the question that I've been asking since then, I'd love to get your thoughts on it, was, was this just sort of a one-day bloodletting, right? And you know, I don't want to use the word froth, but whatever was in the market that shouldn't have been there out. And now, you know, we're recovering and more likely to see better days ahead. Or is this the harbinger of something more to come? So we'd love to get your thoughts on that. But one of the things that I've been, two things that I heard that might make me think that it was a short-term event. And I don't have any way to prove either of these. Curious to hear your thoughts. One is that there's been a reaction to the midterm elections. You had mentioned earlier, Lance, that as part of this blue wave, you had a lot of people, particularly at the local level, at the state level, right? Governors get elected on kind of a, you know, an anti-AI or at least, you know, I really want to slow the development of AI here. And that the market maybe got real scared that, okay, they're going to slow the rollout of AI. And that is going to lead to a downward repricing in these stocks as a result. So there's, there's a lot of people that are going to be, you know, they're going to be there's that potential narrative. And then secondly, and this would make sense to me, they're saying, look, somebody got caught on, somebody big got caught on the wrong side of this trade. And there were just forced liquidations during the day as one or multiple players basically just got taken out to the slaughterhouse. So in your opinion, is there much to either of those? Is this a one-day bloodletting? Is there more to come?
Speaker 1No, it was, it was pretty much a one-day bloodletting. There were several hedge funds that got
Speaker 2basically liquidated. Do we know who they are? Are those names public yet?
Speaker 1There's, there's a few. I don't have them off the top of my head.
Speaker 2Okay. But, but there are known casualties to this.
Speaker 1Yeah, yeah, absolutely. And again, that's not uncommon. You know, I've just kind of been waiting to see if the, who was that? Leopold, the situational awareness, you know, he went back into the same trades again. So I'm waiting to see if he's one of the casualties. Generally, it takes a few weeks for these things to show up in the media, but no, there was definitely people getting liquidated out of the markets. And that's why the markets rallied back so hard over the next couple of days was people basically repositioning themselves back into the markets after that liquidation. Right. Well,
Speaker 2also in the forced selling would have been likely been, been over too. And real quick, just to help folks understand. So, you know, hedge funds, these are, these are private funds out there that can invest in whatever they want to do. And a lot of those funds, and I know some guys out here. In the West who run some of them, you know, have, have built hedge funds all around this, this AI technology growth megatrend, and they have done fantastically well. But part of how they get fantastically well is not only are they long these stocks, but they use a lot of leverage, right? Hey, this is a sector that's growing a lot. Let me lever it up, and I'm going to grow by a ton, right? And just law of large numbers, there's some players in that space who are just using excessive amounts. These are the wild cowboys. And when things go against them, the losses can be pretty catastrophic pretty quickly. And so that's what it's looking like happened to some of these wild west cowboys
Speaker 1in this space. That's right. And again, this was not surprising. And look, we have record margin debt in the markets. We've got record leverage at hedge funds. There's just leverage everywhere you look. So it doesn't take a lot. And when the market starts to underperform, you can liquidate people very fast. There's an old saying about margin debt. Which is it's a double-edged sword. And unfortunately, the edge that cuts you cuts the deepest. So in other words, margin is great as long as the stocks are going up. But when stocks are going down, it gets bad really quick. And that's what we saw kind of on Thursday. We've had a very complacent market. In fact, this weekend's newsletters talking about the volatility spike last week and what generally happens after volatility spikes like that. And spoiler alert, markets tend to actually perform pretty well. You know, we got a lot of that, you know, offsides positioning got liquidated out. And now markets can kind of calm down a little bit and start to reposition themselves for what they kind of expect over the next few months.
Speaker 2Okay. So again, wrapping all this together, as you look at the tape here, you said markets, you know, hanging in here actually pretty well. And we've recovered a fair amount of the plunge from Thursday. So going forward here, you know, you're going to be on the lookout, obviously, for everything. But more likely than not, you think that especially as the buybacks start kicking in and portfolio rebalancing for end of year and all that stuff that we could, you know, you're expecting higher prices. Well, yeah, be careful
Speaker 1with the word expecting. I don't expect anything. You know, what we do know statistically, November, December tend to be fairly decent months for the markets with the exception, the first two weeks of December, when mutual funds liquidate holdings for their capital gains, dividends and interest distributions they have to make every year. That generally gives you a sell off in the first two weeks of December, which generally tends to be a good buying opportunity for that year end rally. And by the way, once
Speaker 2they've sold those positions, they have cash that they then deploy in the last two weeks of the month. That's right. And that's where we generally get the Santa Claus rally.
Speaker 1But again, to my point, statistically means on average and averages, you know, sometimes it's better. Sometimes we don't get a Santa Claus rally. And so, you know, there's no, there's no sure bet of anything. That's why I'm saying we don't expect anything. What we, what we are looking at is, is that statistically, seasonally, looking at liquidity, looking at the oversold condition of the markets, there is a better than not, and I'm particularly looking at you know, like our fear greed gauge and our weekly newsletter, looking at our money flow breadth indicator, which is extremely low levels. Now, those are all contrarian indicators that suggest that markets are in a better position to rally than actually to go lower at this point. But does that mean markets can't go lower? Yes, markets can go lower. And you need to be aware of that. And that's why you need to have stops on your positions, manage your risk, rebalance. We're holding extra cash right now. We've taken profits recently, all those things that we've been talking all those type of things to make sure we're in a position to kind of weather the markets here for the next couple of months, regardless of what happens.
Speaker 2Okay. So one other thing that happened recently was we got an unexpectedly hot CPI print. And it's interesting, that has really battered some interest rate sensitive assets.
Speaker 1It wasn't unexpected, by the way.
Speaker 2Well, no, it came in higher than expected.
Speaker 1I think the expectation, I mean, the fact that it came in hot was not a surprise. Oil prices ran back almost to $100 a barrel.
Speaker 2Yeah, but in the distribution of analyst forecasts, I think there was one analyst that had that point forward.
Speaker 1Throw that distribution of analyst forecast out. It's useless. You know, there's a reason why that whenever, like most CPI prints, they're always at 0.2. You know why that is? Because every analyst goes back and looks at CPI over the last 25 years, it's been 2.4% a year. 2.4% divided by 12 is 0.2. So they just plug in the average as their estimate because they're going to be right more
Speaker 2often than they're wrong. Okay. But here's why what I'm saying matters, which is inflation, sorry, rate cut expectations increased after this print.
Speaker 1Rate hike expectations increased, yes.
Speaker 2That's what I meant. Did I say cut? Oh, I'm sorry. Rate hike expectations, exactly. So it was high enough for Wall Street to say, oh, you know what? We think it's now more likely the Fed is going to cut in December and again early next year than before, right? And so interest rate sensitive assets like the precious metals, like Bitcoin, have gotten whacked since then. And understandably so, right? That's kind of mathematically what they should do if you're expecting the Fed to keep hiking rates from here. Stocks sold off a bit, but to your point, I mean, and they had that nasty flush, but they're actually still holding up pretty okay from this. Do you expect any other reverberations from the increased expectations of rate hikes? Or do you think it's all priced in?
Speaker 1That's most, a lot of that expectation is going to be reversed. PPI came in on Friday, weaker than expected. PCE is going to come in weaker than expected. That's going to bring those rate hike expectations back up. And that's going to bring those rate hike expectations back up.
Speaker 2Interesting. Okay. And I'm curious, why do you say that? You say that with a lot of confidence that you know what the number is already.
Speaker 1Well, no, just looking at PPI, PPI is going to feed into PCE. PCE is going to be, will come down relative to what current expectations for PCE were because of PPI.
Speaker 2Okay. And also just where I'm going with all this is-
Speaker 1A lot of three-letter acronyms, by the way.
Speaker 2Yeah. Where I'm going with all this is mathematically that higher interest rates should weigh on all assets, right? Or yeah, should weigh on all assets, prices of all assets.
Speaker 1Higher rates weigh on long duration assets, which is why technology has been under a lot of pressure over the last three, four months.
Speaker 2Yeah. And we've talked about this, I don't want to get too wonky, but the reason for that folks is you have to discount out the future cash streams. And when the interest rate, basically when the cost of money and cost of capital increases, it increases the discount rate at which you have to discount those cash flows. And therefore, mathematically they need to be lower. So another potential risk here, and we don't know exactly what's going to happen, but another potential risk here is that the price of oil goes back up again, right? And you always say, look, don't get distracted by the headlines in the newspapers, but there definitely is a narrative out there that, well, now with the midterms behind the scenes, you know, chips lying as they, as they now are, you know, Trump may say, all right, look, the political risk of getting kinetic again versus Iran. Yeah. It's, it's, it's a lot lower for me now because the election's already behind me.
Speaker 1Well, but the problem is, is he's already been making statements otherwise to the contrary. Like for instance, he talked about immigration the other day saying, well, maybe my immigration stance on immigration was too, was too onerous. Maybe I need to ease that up a bit. He's already made some comments potentially about, well, you know, we don't really need to deal with Iran. We can just kind of use our naval blockades to do the same thing. And our allies like the naval blockade.
Speaker 2So part of that statement too, was, yeah, we don't need a peace deal with Iran. We're just going to, we're just going to keep up, you know, hammering them economically. Yeah, exactly.
Speaker 1So, you know, all of that, you know, is kind of setting the table potentially for him not going kinetic. And that's why oil prices have, you know, very quietly, by the way, oil prices went down to $85 a barrel.
Speaker 2Yeah, I know. I know. That's one of the reasons why I'm mentioning this is there's, there's potential room for them to go back up now, but we don't know what's going to happen here. My, my question to you, Lance, is just if they do, as you start looking to 2027, you know, and I, I'll let Michael explain, you know, why he, he's got concerns about 2027, but remember,
Speaker 1Michael's always bearish.
Speaker 2Well, no, he's part of team Eagle. Right, right, right.
Speaker 1He's, he's, he's the perma bearer. So Michael's always bearish.
Speaker 2Okay. But my, I guess my point to you is, is if oil prices rise from here in a sustainable way, either because of what's going on with Iran or something else, you know, how impactful do you think that's going to be for 2026? How much of a risk factor do you feel that is?
Speaker 1Well, no, I mean, look, oil prices feed into the economy directly, right? High, high gasoline prices, higher diesel prices, higher food costs, those type of things. The demand destruction is showing up within the economy. We are seeing it on the consumer side. It hasn't fed through yet to the broader economic environment. because the CapEx expenditures are covering up for a lot of that weakness. And CapEx added about four-tenths of a percent to growth in the last quarter. So we're getting this flow of CapEx into the economy from the AI data centers, which is covering up the weakness in the consumer. The CapEx spending, the economy would be running a lot slower than it is now. You have disinflationary pressures in the economy because that demand destruction is feeding through. And this is the challenge for the Democrats, which is if I was on the Democrat ticket, I would have not tried to win this election. I would have just let the Republicans have the election this time around because they're going to hang themselves over the next two years with Iran and with all the other stuff that's going on. Then win the 2028 election, because now the problem is, is you're saddled with what happens over the next 24 months going to the next election, where you need to keep your salary. And the general overview from where we are economically, if you start imposing policies that restrict the CapEx spending into data centers, you're going to slow the economy. That's going to impact the overall voter even more than they are impacted now, which again, voters tend to go to the polls and vote for change when they're not happy. So you've got to be very careful with what policies you enact, that you don't make things worse rather than making them better. And a lot of the things they ran through, they ran through, they ran through, they ran through, and they're not going to be the same thing. So you've got to be very careful with what you're doing.
Speaker 2Right. Or you change regulation to enable more development.
Speaker 1Yeah, you can create more supply. But if you but but any but historically, anytime government gets involved in something, it makes the affordability worse. Look at health care.
Speaker 2Right. They slow it down. And I do think, you know, broad brush, more Republicans are for, you know, reducing regulations to enable more building versus the platforms that Democrats have run on. So. So to me, I've always thought that this. Yeah, I've always said,
Speaker 1look, I don't want to get off on that topic. But the my point is, is that anytime you enact regulations to try to fix a problem, you wind up making it worse. So the Democrats have control of a lot right now. They have a lot of power to do stuff. They just need to be very careful how they do it, because the economic consequences could be far worse down the road than they are now. All right.
Speaker 2So I want to dig into this, actually, because I don't think it's a tangent. I've always said that my biggest concern here for the markets and for the economy, is a slowing, an unexpected slowing of the capex for AI, because it is driving so much of the economic growth and it represents so much of the markets. Right. So if that economic growth slows for any of the reasons that I've mentioned in the past, many of which I've already mentioned here on today's discussion, you then have to write down the prices of the stocks. And that gives you, you know, both less money entering the real economy and then you get a negative wealth effect. And that's a big problem. And I think that's a big problem. And I think that's a big effect of what's going on from the market correction. And, you know, we'll see what happens. Two questions for you. One, I'm not sure how much at a national level this blue wave is going to be able to change things. And the reason for that is, even though the Democrats control both houses of Congress, Trump still holds the veto pen. Right. And he's being very vocal right now of, hey, anything I don't like, I'm vetoing. Right. He's already got the red veto cap. Right. Replacing NAGA with veto. So I'm not so sure what really they can do. And to your point, Lance, you know, maybe it is the worst of both worlds where if things go poorly for the next two years, the voters are still going to remember that, well, you're the change guys that I voted for two years ago. I don't like where we are right now. So I'm voting for change again. I'm going to vote for the other side of the aisle. So we'll see what happens there. I'm much more concerned. Go ahead. Real quick while you're there.
Speaker 1I just wanted to point out that this was the entire sub of last weekend's newsletter is midterm election goes blue. What happens to markets now? And we actually went through an entire analysis of what the Democrats can do, what they can't do in terms of the office of what they've got going on. And again, you know, very low probability of a federal data moratorium because exactly the veto power repealing tax cuts, very low probability because of veto about the only thing they can do is just pause, you know, build out the veto power and build out a new data center. And I think that's a very good point. In Democrat one states like Texas, which makes up 25% of all the data centers, you can only pause new plans, right? You cannot pause the build out on already permitted facilities. So all they can do is slow the development of future plans, but there's nothing new there. Greg Abbott did that back in, I think, April or August. He already put a moratorium on all new data centers back in August. So, you know, there's really not much that, you know, they can do in Texas in terms of data centers. And really most everything else is legislative. That is a very, very low probability of happening. Now they can have hearings and they can have a lot of things like that, which don't amount to anything. You have all the hearings you want.
Speaker 2But that's just gridlock, gridlock, gridlock, which market tends to like anyways.
Speaker 1Exactly. Exactly. And that's kind of the juxt of this entire article as we go through is that, you know, you take a look at returns in markets over the next 12 months after this is all night 19 midterm elections.
Speaker 2They tend to be real positive. Yeah. And that's all right.
Speaker 1This is all 15.1%. But when there's a Republican president, Democratic Congress, it's 15.5.
Speaker 2Yeah. And look at that. None of those is negative, right? That third administration year tends to be a really good one for the markets.
Speaker 1That's right. And so then if we look down and this is so this is GOP president, Democratic Congress, this is by year. So this is Eisenhower, Nixon, Ford, Reagan. The worst drawdown is during Reagan in 1987. Right. 1986 was the year 1987 was the financial was the Black Monday on or Black Friday on the Dow. But most of these drawdowns in turn are short lived and 12 month returns. Again, this goes back to, you know, the 15 and a half percent are positive. And so it really doesn't matter. You know, there's a lot of talk. And again, let's let's just remember one thing. When Democrats get into office, just like Republicans, when they get into office, they all have great plans. You know, you elect me. I'm going to go to Washington and I'm going to I'm going to fix the budget. I'm going to fix the deficit. I'm going to fix all these things. I'm going to make things right for you. And then they get up there and then the lobbies hit them with millions of dollars for their next campaign. And all of a sudden, all those promises go out the window. So, you know, that's why Washington ever changes. You know, you know, the deficit's going to increase under the Democrats, just like it did under Republicans. The debts are going to increase like the Republicans. There's going to we cannot pass a budget. We'll continue to do continuing resolutions, which is the we're going to have another government shutdown. Markets tend to perform well under government shutdowns because they get resolved by continuing resolutions. And since 2008, that's been the status quo. And you want to know why the debt's going up? Because every continuing resolution adds eight percent to last year's spending. Yeah. So do the rule. So, how fast does money double at eight percent a year?
Speaker 2Well, it's 72 divided by eight there.
Speaker 1Yeah, nine. So every nine years, the debt doubles because you're compounding at eight percent a year. And that's why if you take a look at the debt trajectory, almost to the point, it's doubled at that rate. So, you know, but but again, we'll still have another government shutdown. And of course, the big question is, you know, midterms don't set bond yields either. They're going to get into office. There's be a lot of fluffs and stuffs and talks, but nothing much is going to change. It's really going to come down to economics and drive yields, economics and inflation. And over the last 19 midterms, they've been up nine. The yields have been up nine times and down seven times with a four basis point spread. So, you know, it's just the bottom line. Again, if you want to read the whole article, it's on our website. It's our bull bear report from last week. But we went through this entire kind of breakdown of what the midterm election means. And regardless of what side of the aisle you're on, it just means really two things. One, stocks tend to perform well. B, nothing's really going to change. And C, all these headlines are really just headlines. So focus on what matters, which is fundamentals and earnings.
Speaker 2OK, super important reminder. Great write up. A couple of quick things. One, I just have to ask this. Has anyone ever thought about doing a portfolio where basically years one, two and four of a presidential administration, you're just parked in bonds and then year three, you're just maxed to the wall equities? I'm curious how that would perform.
Speaker 1You would if you were parked in bonds in one, one, two and four. You would you would grossly underperform in every president in every presidential cycle. Every year of a presidential cycle has a positive rate of return on average. Right. Some years don't. Right. Obviously been through crashes. But on average, you look at the four years of a presidential cycle and every one of those are positive years. Third year is the best year out of the four.
Speaker 2Right. But the third year from your research there, if I got it right, is always.
Speaker 1That's just midterms. That's just midterm elections. Right. So if you go back and look at presidential cycle, I have a chart on this. Let me see how this.
Speaker 2OK, but don't you always have midterm elections in a presidential cycle?
Speaker 1Yes. Yes, of course. But but when you're talking about the presidential cycle, that's the four year cycle of stocks under a president.
Speaker 2So. Right. And that's what I'm saying. Yeah. I'm just wondering. And again, this this assumes that the third year in the presidential cycle is always positive going forward. Right. But this would be the avoid any down years ever strategy. Right. Is why I'm saying you're in bonds for the three years that have variability and you're all in on the year that you have a high confidence will always be a positive year.
Speaker 1Well, that's what I'm saying. That's that's not quite accurate. So this is the presidential cycle going. This is three years. I did this three years ago, so I don't have the recent performance under Trump. But you get the idea here. In the third year, stocks are up 36 times and down 12. So you so you're you've got a point that in the third year of the presidential election cycle, you're up more often than you're down. But it's the same in the fourth year, up 36, down 11.
Speaker 2Oh, OK. All right. It's not a guarantee. I must have. I must have. And so this is the.
Speaker 1So this is your win rate by presidency. Right. So you won 56 percent of the time and you're 162, 75, 76. And this is your average rate of return in the market. So, again, to your point, the third year is the best return. But if I miss one, three and four, my overall returns are going to be a lot lower.
Speaker 2Got it. OK. All right. I don't want to get I want to get too sidetracked. And I do want to get back to you. Yeah, it is an interesting question. So and I always find these things super fascinating how. Tom McClellan has a bunch of the correlations here. And it's amazing sometimes the patterns that history will give you here. And of course, the risk is you bet hard. Does that do you bet hard the year the historic correlation breaks? Right. You know, so but beginning back to, you know, a key takeaway from your write up there was like probably not much is going to change. Right. Even though we had this blue wave, probably not much is going to change. The one thing I do worry about is the data center. The data center slowed down at the local level. Right. And you talked about Texas and you said it could happen for future stuff. But there's a lot of stuff for the next couple of years that is already contracted under development. That's still going to happen. Probably true. But that's just Texas. Right. So I don't know what the situation is in other states. And I guess the question is, is over the next two years, could enough material regulation, policy, et cetera, actually start to. To be enacted to start to bring down the forward earnings expectations for this sector, because that's as you say, it's all about earnings, right?
Speaker 1Yeah, absolutely. I mean, you know, if they can if they can pass in Ohio and Nevada, where you live in Texas, where I live, you know, if they can pass rules to put moratoriums on these build outs of new data centers, that's going to impact the economy. It's going to impact earnings for all companies, not just the A.I. data center. Related companies, but all companies, you know, but then at some point, you've got to start really questioning yourself, you know, why are we doing this? Why? You know, this is a very important industrial build out. Why are we trying to slow that process and who does that benefit?
Speaker 2Right, right. But but but the so two things, one, you look at what's committed and you realize that, hey, if you slow this down, you are impacting jobs. And so I. I can understand the argument you're making, which is, whoa, wait a minute, you want to lean back and say, do you really truly understand the cost of trying to slow down this megatrend? But that's what they got elected on. And I think if you look at the populace, the populace is not doing that long term math. They're doing the short term math right of my electricity is going up right now. I'm worried this is going to take my job anyways. Right. And so I don't know, but I see a material. Potential for, you know, the anti database and data center build out to to a movement to continue to grow from here, because in many ways the populace will continue demanding it.
Speaker 1Right. Well, no, that's and that's you know, there's there's so many false narratives about AI data centers in relation to water usage and power usage and job losses. And again, the average person, right, the average voter has just been inundated. With all this negative headline that a lot of it's just not true. And we've written a lot of articles about about AI and the build out and what's true and what's not true in the past. But, you know, there's a lot of this misinformation that gets spread over social media, scares people to death. And so they go to the polls and they it's like I was told that AI data centers are going to cause cancer. So I don't want one in my backyard, you know, in certain areas.
Speaker 2But even not even just information, it's just short term thinking, which you mean, right?
Speaker 1But seeing this comes down to really bad communication, you know, if you go back to the sixties when JFK was talking about the space race, right, he gave the most important speech in the history of the United States.
Speaker 2That's not what you can do, what your country can do for you.
Speaker 1Right. Not only that, though, you know, we're not doing this because it's easy. We're doing it because it's hard. And but that but he got the the point is he got the nation behind the space race. Everybody was like, yes, we have to win this thing. And the media, the tech companies, the administration in particular, has been a terrible communicator around the importance of AI and the and the need that we we need to win this race because it will dictate the future for whoever does dominate the space. And do you want China in charge of AI? I mean, it's just the question you need to ask yourself. And if you if you do, if you're like, hey, I'm all in for China. I'm doing it so great. OK, that's that's you. I personally don't think that's a really good outcome. But again, that's my point, not yours. So but I think that to your point, we're thinking very short term and that's very scary. And again, there's so many people out there saying, you know, AI is going to destroy the world and we're all going to blow up. It's, you know, Skynet's coming in. There's certainly some risk. I'm not saying there's no risk at all, but, you know, I think we need to start thinking longer term about the decisions we're making because they are going to have very big impacts, not on me. I'm old. I'm old as dirt. I'm going to be dead in 20 years. But for, you know, for everybody, for the younger generation coming up. This can mean a lot to them and will mean a lot to them for their future and how we're positioned in the future as an economy and as a country. And a lot of the decisions that we're making today, based on a lot of irrational fears and headlines aren't leading to decisions that are leading to better future outcomes. Unfortunately for them, the path that they're choosing is a worse economic future than they would have otherwise.
Speaker 2Yeah, I think and look, folks watching, you can determine for yourself which side of the line you fall on. I think what Lance and I are really just saying here is, is we need to have much more of an eyes wide open discussion and decision about this. And there are tradeoffs or tradeoffs on both sides. Right. I mean, again, I have said many, many times and I'm still there. If the AI build out continues at the pedal to the metal rate that it is, I still don't know how we don't avoid tremendous jobs displacement in a way that will be very painful to many. And the more I've been using agentic AI, Lance, the more convinced I am on that than ever. And I'd love to be proven wrong. But at the same time, if you're if you're saying, look, I want to slow down the AI spread for whatever reason to so you don't have a noisy data center in your backyard making your electricity more expensive or, you know, for reason X, Y or Z, you then have to also say, OK, but that's going to come at the cost of X amount of jobs in the future, or that's going to come at the risk of here's what a future if China wins the AI race over us looks like. And that way we can determine, OK, well, which which tradeoff do you want? Right. There's there's there's always tradeoffs in life. And so let's just make sure we're making the eyes wide open decision here. OK, so I guess, you know, we'll watch this really closely and see what happens. But but to me, this is sort of the biggest risk that I'm very curious to see how it unfolds here.
Speaker 1Yeah, I agree. And, you know, again, it's just it's all about the choices that we make. And again, what do we want for everybody? Right. We want everybody to have a job. We want everybody to be able to raise their family, you know, pursue the pursue the path of happiness. Right. Whatever that means. We want everybody to be able to raise their family, you know, pursue the path of happiness. And if we make decisions that erode that capability for creating job growth, allowing capitalism to function properly within the system, the outcomes in the future are not nearly as bright as they were previously or even as they are currently. And it was interesting. I saw a really great chart last week. There are more 18 to 24 year old entrepreneurs today than ever before. And that has everything to do with social media, right? I can go online, become an online social media commentator. I can make a living doing that, something that I would have never wanted to do. expected to see. But, you know, when the internet was first coming around, you know, people were building websites and stuff, and then YouTube came along. And now we've got a whole generation of people playing video games online, making a living from that, right? And, you know, so there's all these opportunities that exist today because of technology, that if we impede that ability to continue to advance in technology, we're going to take those opportunities away from people to run their own business, create their own opportunities for the atoms of the world to create a video channel that makes a lot of money by, you know, having discussions online about finance. That's what capitalism is all about. And we're making decisions politically that are eroding that capability for young people to have that opportunity to create their own business and to create their own wealth and do what it takes to move forward.
Speaker 2So the other side of that coin, and I got to talk quickly here because I see, Lance, we're coming back. I'm coming up on your time constraint here today. Yes, there's that risk. The other risk here is maybe the more sort of existential national security one, which is, let's say we lose this race, right? And China is already ahead of us, as I understand, in at least the humanoid robotics world as well, right? But think about the future where, you know, an adversary country, and China's a trading partner. I'm not trying to paint them as being super evil, but they are the rising superpower that national security-wise we're the most concerned about. Let's say they win the AI race, right? And robotics at the same time. There's the risk of either A, our economy and nation getting crippled by cyber attacks by a smarter, you know, cyber adversary. And the day we're talking, Lance, I don't, Microsoft Outlook has been down for the past like 24 hours. I don't even know if it's still up or not, right? But it has been crippling to the country, right?
Speaker 1Honestly, I'm just going to say, it's been really nice not getting emails for two days. I'm on Gmail, so it hasn't affected me. But I'm dreading when they get this thing turned on, my inbox is going to go blue.
Speaker 2Yeah, exactly. Well, and it's funny, because I've seen both politicians and industrial folks like you being like, well, that's it for the day, day wasted, right? It's like, oh, my God, like, we got stuff done in the world in a pre-email society. But now when you can't get your email, it's like, that's my excuse to just. You can just not be able to do anything. But I mean, but it's a good sign of kind of our vulnerability to cyber outages. And then even worse, and I'm not saying China's going to do this, but it could if in this future I'm painting, you know, if it makes millions of smart humanoid robots, you know, what's to prevent them from arriving on our shores someday? And we literally have sort of the Terminator future where it's, you know, killer robots at massive scale, that are driven by an intelligence that's smarter than our defense weapons can cope with. So look, not trying to freak everybody out. I'm just trying to say.
Speaker 1All I'm saying is, is that if robots show up on our shores, we've got about 5 million rednecks in Texas that'll take care of that.
Speaker 2Okay, well, hopefully. But the point is, is, you know, hopefully these are really thin tail events that we're talking about. But they are not out of the realm of the possible here. And the more we get, we fall behind in this race. The more these potential, or the more we constrain the current AI megatrend, the more these risks start to increase. So, okay, I got to wrap it up here, Lance. Trades, what trades, if any, have you guys made
Speaker 1over the past week? No trades this week. We have rebalanced portfolios. We've done our tax loss harvesting. We talked about all this previously. Our next kind of trade setup will be to start looking for some of these really beaten up technology stocks and rebuilding them back to core weight. That may be next week, might be the week after, but we kind of want to see this market start to kind of bottom here a bit, see these technology stocks start to bottom here a bit, turn up on positive buy signals, then we'll add back into them.
Speaker 2Okay. Hey, how has the year been for RIA now that we're getting near the end?
Speaker 1As far as like portfolio performance? Yeah, yeah. Performance. It's been good. We just recently set a new high in our, like our 60-40 model, just set a new high, you know, like last week or week before. So, you know, we're trading very close to our benchmark as well. And it's been trading decent this year. Okay.
Speaker 2All right. Good. I always like to check in.
Speaker 1Our factor rotation model is our best performer. It's up like 29% for the year.
Speaker 2Yeah, that thing's crushed it. I can't remember. I think it was Michael was walking us through that last week. And that really has crushed it this year. And we had a really interesting conversation about, you know, being active management is much more important than passive.
Speaker 1So we've created, so, you know, as you know, and I think Mike, I walked you through some of the new SimpleVisor last week in particular, but, you know, in that model, we run basically four different gauges and we've now implemented, we've got four more gauges that we're about to bring out, but we've built two new models, which is one, the factor rotation model, which we've now implemented across all of our models. So all of our models maintain a bit of that factor rotation model in it. And then we've also built the money flow and breadth indicator that's in our weekly chart. And so, you know, we've built two new models, which is one, the one that's in our weekly newsletter. That's a contrarian indicator. When it gets very oversold, you buy, when it gets very overbought, you sell. And so a lot of our risk reduction that came earlier this year was because of that indicator. And we're going to start implementing that into the models as well. So we've got a couple of things going into next year that should help improve performance and keep volatility risk fairly low, should improve performance in portfolios next year. Okay.
Speaker 2We got to also have you do one on one of these weekly market recaps soon. Have you done a real deep dive into the new simple visor bells and whistles? Because you and Mike have been showing some, but I think it's the tip of the iceberg and we should really let folks know what's out there. All right. So you mentioned that you guys have already done your tax lost harvesting and all that stuff. That's you guys as at RIA as an investment firm. Right. There's millions of investors out there, many of which watching this video right now, who perhaps haven't done that yet. So do you just want to give any public service announcement to folks about, you
Speaker 1know, what's going to get. Yeah. There's certain things you need to do before year end, you know, open your IRA. So if you, if you haven't opened an IRA for, you know, your contribution, you have to have that, you have to have it open. You can fund it by tax day of next year has to be open by year end, but tax loss harvesting is a really good process. And one of the things that we don't do as investors is we don't sell our losers because I'm down on this position. And so I'm a dummy because I bought this position and it went down. No, you're not an idiot. You're not stupid. It happens, right? I mean, you don't make money on every investment you make. That's part of the investing process, but take that loss because you can offset it against your gain. So this is a really great time of the year to go look at your portfolio and say, okay, I'm down in this position. I love this company and that's fine. A company can be a great company. NVIDIA, it's a great company. It's got super cheap fundamentals, but it's just not performing right now. So you can sell NVIDIA, you wait 30 days, 31 days, and then you can buy the stock back and you can take that tax loss. And at the same time, go into your big gainers in your portfolio, rebalance those back to target weights, and you can take that loss and offset it against your gains in your portfolio and help reduce your capital gains tax going into year end. So it's just, it serves two purposes. One, it can mitigate your taxes to a degree. And B, it's a great way to rebalance the risk in your portfolio. And, you know, because we, too many investors that I've seen, they're like, I won't sell a loser because I'm losing money and I don't want to lock in the loss. I don't want to sell my gainer because I don't want to pay the taxes. Those are horrible reasons not to sell.
Speaker 2Yeah. Yeah. And just so for anyone that was a little, I don't want to say freaked out, but like you're all right, NVIDIA, I'm sell it. Then you wait 30 days to buy it back. You know, a person might right now might say, well, but Lance, I mean, NVIDIA could, could pop in between and I would miss the thing. Right. So, but you can put your money into an asset that is highly correlated with the stock price of NVIDIA in the meantime. Right. So it's not like you have to sit on the sidelines.
Speaker 1Yeah. Yeah. You could, you could literally sell NVIDIA and go buy a single stock NVIDIA ETF.
Speaker 2Because those are two different assets. They're two different financial instruments. Yeah. That's right.
Speaker 1Yeah. So there's, or again, just buy, you know, buy another stock that is very highly correlated to NVIDIA historically price-wise, buy that stock instead. So yeah, there's so many ways or just even if the stock bounces in the next 30 days, it's going to be a recovery process. It's going to be just the beginning of probably a much longer run in the stock. You're not going to miss anything.
Speaker 2Okay. And Lance, I know I've got to get you out of here real quick. I just want to note something that I've learned and would love to get your quick thoughts on it, which is say for things like precious metals, right. Which aren't a regulated security apparently. And I have checked this with my CPA who says it's true. Everybody else you should check with your own CPA just to verify. But because it's not a publicly traded security that's overseen by the SEC, it is not subject to the wash rule. So if you bought, let's say silver, you know, back in January.
Speaker 1Wait, you're talking about the physical metal.
Speaker 2I'm talking about the physical metal. I'm not talking about a SLV ETF or a GLD ETF. I'm talking about the actual physical metal. Those are regulated. But if the actual physical metal, thanks for confirming that. say you bought a ton of silver when silver was at you know, 120 in January, right? You just got caught up in the hype. Now Sober's down below 50, right? And you might think, well, I think it's going to come back. So I don't want to get rid of my bullion. What you can do is you can literally, so like Andy Sheckman talked about this last time he was on the program. If you've got bullion, say, in storage, say with a firm like his, they'll buy the bullion from you. Then you can buy it right back from them like a minute later. And there has been a transaction, right? And it's recorded that you sold and you basically get to capture that loss. And yet at the end of the day, you still have the same number of ounces of Sober as you did before because you're not subject to the wash rule there. So you can, and again, in Sober, that's an over 50% capital loss this year if you bought at the top. And you can use that to offset, you know, other income or other gains that you have.
Speaker 1Yeah, I would double check with my CPA just to make sure.
Speaker 2I want to totally underscore that. Definitely go check with your CPA. But I personally, I have checked with more than one and gotten the same answer.
Speaker 1I'm not arguing with you. I'm just saying the responsibility is on you to go check with your CPA. It's just like ETFs. And with ETFs, each ETF is a different instrument. So I can sell SLV and buy PSLV, even though they're both silver, right? Related directly to silver, right? So I, but that I could, I could sell SLV, take the loss and buy PSLV and be back in silver. Those are two different instruments.
Speaker 2But you can't, but you can't buy SLV again.
Speaker 1And for 31 days, 31 days, I can't buy back the same ETF. I can buy another ETF that's just like it, right? And that doesn't violate the washout rule, but don't take my word on that. Go check with your CPA.
Speaker 2Yeah. Yeah. Okay. Great. All right. Well, look, folks, no rant for today, given the short time. I just want to say, we'll make this a micro rant, which is given that we're near the end of the year, you have been giving thought to the things that really matter. And I talk about how money is great, but it's a means to an end. And what's true wealth in life generally boils down to three things, quality relationships, living with purpose and good health. And, you know, one or two times in the past, I've brought in experts and done a video around that. For example, I had my wife on like a little over a year ago. She's a couples therapist. And we talked about, we talked about the relationship side of things. I've got a guy I'm thinking of bringing on to do an interview on the health side of things. I've had one or two. People want to talk about meaning I'm thinking I want to do more of that in 2027. Not not a ton more, not talking about every week or even every month, but I'm just saying a little bit more in the rotation of those truly important things that matter in life. What true wealth is. And if that's something that folks you would like to see more of, let me know in the comments section below. And if that validates my plan, I'll go ahead and do that. All right, Lance, my friend, thanks so much. I know you got a lot going on. I'll let you go real quick, folks. Please thank Lance for doing everything he does by hitting the like button and then clicking on the subscribe button below. So what was that little bell icon right next to it? And of course, if you would like to get help with end of your stuff, tax loss, harvesting, figuring out how your portfolio is positioned for 2027, any and all of that stuff. If you don't already have a good financial advisor who is counseling you through all that, consider scheduling a free consultation with one of the financial advisors at Thalful Money Endorses. Maybe you'd like to talk to him. You can talk to Lance and Mike and the team there at RIA directly to do that. Just fill out the very short form at ThalfulMoney.com and the firms will be in touch with you right away. A quick little teaser to I am announcing a new free resource for the Thalful Money audience. I think you're all going to really like it in tomorrow's video. So if you're watching this video on Saturday when it releases, this will be the video coming out the next day on Sunday. Keep your eyes out for that. Lance, my friend, thanks so much. Good to have your back and we'll see you next week.
Speaker 1Absolutely. See you then.
Speaker 2All right, everybody. Y'all, thanks so much for watching.
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