Tariffs, Tech & Turbulence: Navigating Q4 with Confidence

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Welcome to Something More with Chris Boyd.

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Chris Boyd is a certified financial planner, practitioner,

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and senior vice president and financial advisor at

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Wealth Enhancement Group, one of the nation's largest

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registered investment advisors.

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We call it Something More because we'd like

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to talk not only about those important dollar

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and cents issues, but also the quality of

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life issues that make the money matters matter.

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Here he is, your fulfillment facilitator, your partner

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in prosperity, advising clients on Cape Cod and

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across the country.

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Here's your host, Jay Christopher Boyd.

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Welcome, and thanks for being with us for

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another episode of Something More with Chris Boyd.

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I'm here with Russ Ball and Brian Regan.

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All of us are from the AMR team

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at Wealth Enhancement.

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Brian is our team's senior portfolio manager, so

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we're going to talk to him a little

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bit about Outlook.

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Brian, it's hard to believe it's been about

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six months since the day the tariffs were

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announced.

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The Liberation Day.

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It's been six months since Liberation Day, and

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here we are, and maybe a little more

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now, but here we are.

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We went through that roller coaster earlier, and

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markets just have been incredibly strong.

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Nothing seems to get in their way with

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regard to just higher highs.

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So let's talk about it, what to expect,

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and we'll think about it as we look

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forward and what's happening in our economy.

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Yeah, it's interesting you say that.

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I mean, it seems like it was smooth

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sailing and all that, but that first month

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was far from smooth sailing.

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I definitely have a few more gray hairs.

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Yeah.

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What markets look at, like 20% sell

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-offs, right, from their highs at that point?

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It's almost funny to me that you get

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three, six months away from an event like

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that, people were just like, oh, good.

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I don't know what we were worried about.

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In 2022, we had a pretty significant bear

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market.

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I find that it's pretty common for people

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just to forget about that altogether, right?

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People would just be like, oh, investing has

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been so easy, and it's like, we had

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a bear market in 2018, in 2020, in

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2022, and we had the tariff tantrum here

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in 2025.

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So if this is easy to you, then

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God bless you.

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I would say, though, that to your point,

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it's a great point to remind people, as

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we get complacent with higher highs, and it's

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exciting to see great returns as we go

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through the year, it's important to step back

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and recognize that markets do fluctuate.

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It's normal for markets to have a decline,

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as we just illustrated, of about 20%

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or sometimes more.

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Routinely, every few years, it's not at all

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uncommon to see that kind of a disruption.

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It can be more frequently, it can be

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less frequently, but it's not uncommon at all.

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As an investor, what we've been talking about

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in some of our client meetings lately, Brian,

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is to point out to people like, well,

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what if things went down by 30%?

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How would that affect your forecast?

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Or how would you feel about it?

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Does it change the way you think about

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your tolerance for risk?

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Oftentimes, when we show the forecast, right, Russ,

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with the financial plan, the impact is not

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devastating.

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It's pretty much business as usual.

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They can sustain that.

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But psychologically, would they be tolerant of the

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disruption and the anxiety that often comes with

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that?

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Having seen a financial plan in context sometimes

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can give you that confidence to say, okay,

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I have some cash reserves, I have some

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liquidity that I could utilize, and therefore, I

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see the plan could stomach that kind of

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a disruption, and I'd still be okay throughout

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my retirement.

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That maybe can help people to navigate when

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these things do happen.

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But I think for most people, when you

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have a disruption of, say, 30% or

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something, it's very anxiety-laden, you know?

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Well, what's interesting about that too, right, like

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all things equal, if the market were to

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go down 30%, you should be more bullish.

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Yeah.

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And if the market were to go up

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30%, you should be less bullish.

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But I would say with 95 out of

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100 people, that's the exact opposite case.

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So, you know, that's always something that, as

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advisors, we need to keep in mind when

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people call us and say, you know, I

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want to be taking more risk.

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Are you guys seeing what's happening?

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It's like, well, that's what happened.

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That's not what's happening, right?

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We don't want it to happen in the

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future with any, you know, complete clarity.

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So, you know, it's worth reminding yourself that

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regularly that you are human and you have

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a bias, and that bias is often dependent

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on what has just recently happened in the

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market.

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So does that cause you to think differently

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as you look ahead in this environment after

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we've had a pretty nice run this year

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and followed by following two previous years that

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were pretty fabulous run up?

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Does this cause you to think differently?

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I don't think that you should take that

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in any kind of, you know, variable in

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your decision making, right?

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It's not what has the market done, it's

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where are we now, what's happening now, right?

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So when I do my fair value analysis,

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which, you know, Chris, you've seen, it doesn't

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have any reflection on what happened in the

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past.

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It's all about what the Y60 earnings are,

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what interest rates are today, what people think

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earnings are going to be in the future,

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what people think, or what I think is

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a reasonable long-term expected growth rate.

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And you put all that together and I

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come up with a fair value analysis that

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has nothing to do with the last two

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years.

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Yeah, you're not looking backward in any of

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those data points.

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Yeah, that's a good point.

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Now, what happened over the last two years,

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that changes what the price is today.

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And I could bear what I think the

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fair value of the market should be and

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what the price is.

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Relative to where it is.

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Yeah, yeah.

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Right.

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But I don't say, hey, look, the market's

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up 25% in the last six months,

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you know, it has to go down.

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That's not even a question in my head.

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You know, the market went up for good

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reasons.

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Interest rates were lower.

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We dialed back on tariffs.

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The worst fears on the earnings hit expected

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from, you know, we were having 150%

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tariffs on certain countries at certain points.

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That's a dramatic effect and change in the

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landscape of things that we are here sitting

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at between 50% and 18% net

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tariff rate.

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So, you know, it's still not good.

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And that's, you know, part of what I

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wanted to discuss here, right?

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There's one of the reasons, one of the

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things that people also get wrong is they

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expect when an event happens, it's going to

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show up in economic data, you know, immediately.

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Right.

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Well, you know, some people, some folks will

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say, look, there's been no effect on the

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economy because of tariffs.

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We did hear that recently from a gentleman

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we were talking with.

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He made that very point.

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Yeah, I'm blown away by that statement.

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First of all, it takes some time to

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happen, right?

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Like there's lead time between ordering things, coming

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into the border, getting taxed, you know, getting

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shipped on rails and getting to the storefront

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and getting into your pocket, right?

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Companies are going to go through the inventory

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that wasn't tariff first.

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So, if there was pull forward, which there

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was plenty of, you know, leading up to

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April because we knew tariffs were going to

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happen, even if we didn't know how extreme

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they were, they're going to go through that

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inventory first and they're not going to raise

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price.

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So, it might take 90 days on average,

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let's say, for us to go through that

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existing inventory, three months, and before we actually

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start seeing any kind of price hikes.

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It's possible that companies will take a margin

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hit, right?

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But they're not going to reflect 100%

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of that tariffs.

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That's not only possible, it's likely.

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And sometimes they do it to either gain

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market share on competitors that are raising price.

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But ultimately, you know, companies are kind of

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charging as much as they possibly can, right?

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They're typically not leaving money on the table.

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So, you know, eventually the demand for the

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product is going to dial back if they

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have to raise price because of tariff concerns.

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And, you know, that's going to hurt their

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bottom line.

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But it can take time.

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And then even after all that happens, there's

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at least a month lag on the inflation

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data, right?

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So, what have we seen since April?

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Well, what we have seen is what was

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a robust job market become a bad job

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market.

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Let's just be blunt about it.

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We aren't even getting BLS data this past

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month, this past week, because the government is

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shut down.

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The government shutdown means that, you know, people

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aren't working, even though it's illegal for them

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not to get back pay when the government

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does reopen.

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You know, the country has had a funny

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relationship with the law recently.

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And, you know, that looks like it's possible

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that they might not get back pay and

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might be, you know, some of them might

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be furloughed indefinitely, which, you know, is really

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just a layoff.

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But, you know, ADP had a negative number.

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We shed jobs last month according to ADP.

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And ADP is a big payroll processing company.

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They have insight into many organizations across the

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country.

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To me, it's arguably a better metric than

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doing the BLS surveys, where they go out

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to businesses and say, you know, are you

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hiring?

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Are you not hiring?

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The continuing claims, the initial claims, we're seeing

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a tick up in initial claims.

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We're seeing a tick up in long term

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unemployed.

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We're seeing a dramatic tick down in the

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openings, job openings.

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Same time, we're seeing, you know, what I

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call the big three dragging on the economy.

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We have tariffs, which Fidelity thinks is only

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going to be a $250 billion drag on

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the economy.

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Fine.

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You know, potential growth is $500 billion.

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$250 billion is a pretty dramatic cut, you

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know, working at 1%.

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Torsten Slag from Apollo thinks it's going to

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00:11:05,960 --> 00:11:08,420
be a 70 basis point hit because of

271
00:11:09,340 --> 00:11:09,860
tariffs.

272
00:11:10,840 --> 00:11:12,640
In addition to that, you have student loans.

273
00:11:13,500 --> 00:11:14,520
Student loans were...

274
00:11:14,940 --> 00:11:16,040
What's going on with student loans?

275
00:11:16,220 --> 00:11:18,980
You mentioned something about that in something I

276
00:11:18,980 --> 00:11:20,140
was reading that you wrote.

277
00:11:21,120 --> 00:11:23,840
And has that been a really big drag?

278
00:11:23,940 --> 00:11:25,840
I didn't realize that's been such a big

279
00:11:25,840 --> 00:11:26,140
issue.

280
00:11:26,700 --> 00:11:27,000
Sure.

281
00:11:27,200 --> 00:11:28,260
It's a huge issue.

282
00:11:28,400 --> 00:11:30,080
I'm not quite sure it's in the data

283
00:11:30,080 --> 00:11:32,520
now, but it's going to filter out again.

284
00:11:32,740 --> 00:11:33,960
These things take time, right?

285
00:11:34,580 --> 00:11:35,780
So a couple of things happened.

286
00:11:35,980 --> 00:11:38,640
People didn't have to pay their student loans

287
00:11:38,640 --> 00:11:41,040
for a while following the pandemic from four

288
00:11:41,040 --> 00:11:41,660
or five years.

289
00:11:42,740 --> 00:11:44,880
And then they got turned back on.

290
00:11:45,200 --> 00:11:47,300
And then in addition to that, after some

291
00:11:47,300 --> 00:11:52,680
lag time, nonpayment started getting reported to credit

292
00:11:52,680 --> 00:11:53,320
bureau agencies.

293
00:11:54,100 --> 00:11:56,060
So think of the effect of that, right?

294
00:11:56,100 --> 00:11:58,040
During the pandemic, you didn't have to pay

295
00:11:58,040 --> 00:11:58,660
your student loan.

296
00:12:00,000 --> 00:12:01,420
Many people got checks in the mail.

297
00:12:01,780 --> 00:12:03,240
They were able to pay down their debts.

298
00:12:03,400 --> 00:12:05,140
They were able to dramatically improve their credit

299
00:12:05,140 --> 00:12:05,400
score.

300
00:12:06,720 --> 00:12:08,800
Fast forward four years, they have a 7

301
00:12:08,800 --> 00:12:09,440
% interest.

302
00:12:10,340 --> 00:12:13,160
45 million people have student loans.

303
00:12:13,620 --> 00:12:15,180
10% of them are in default now.

304
00:12:15,500 --> 00:12:16,820
It's a straight up line.

305
00:12:17,520 --> 00:12:22,000
So that's 4.5 million people that are

306
00:12:22,000 --> 00:12:24,180
taking a sizable hit to their student loans.

307
00:12:24,500 --> 00:12:28,040
These are middle to upper middle income people,

308
00:12:28,340 --> 00:12:32,020
people with college degrees for the most part.

309
00:12:33,280 --> 00:12:35,740
Now, if you think about the hit to

310
00:12:35,740 --> 00:12:37,560
their credit, the hit to their income, their

311
00:12:37,560 --> 00:12:40,540
buying power dramatically decreases, right?

312
00:12:40,660 --> 00:12:42,100
Either the line of credits that they have,

313
00:12:42,340 --> 00:12:43,760
they're going to get tottered.

314
00:12:44,100 --> 00:12:46,340
Pay more next time they borrow money because

315
00:12:46,340 --> 00:12:49,060
their credit score will be higher or lower.

316
00:12:49,860 --> 00:12:50,740
They won't be able to borrow.

317
00:12:51,600 --> 00:12:54,140
If you think of the loosening in the

318
00:12:54,140 --> 00:12:57,360
housing market right now, it's rather significant even

319
00:12:57,360 --> 00:12:59,640
as interest rates are coming down or even

320
00:12:59,640 --> 00:13:00,920
as mortgage rates have come down some.

321
00:13:01,440 --> 00:13:04,020
We've seen more loosening in the housing market

322
00:13:04,020 --> 00:13:04,940
throughout the country.

323
00:13:05,200 --> 00:13:06,940
I know the data says the Northeast and

324
00:13:06,940 --> 00:13:10,480
the Midwest is not loosening, but I can

325
00:13:10,480 --> 00:13:12,120
tell you from experience living here in the

326
00:13:12,120 --> 00:13:14,640
Northeast, it is without a doubt loosening from

327
00:13:14,640 --> 00:13:16,680
the tightest levels that it was in.

328
00:13:18,040 --> 00:13:19,800
I think a large part of that is

329
00:13:19,800 --> 00:13:21,500
because people have lower credit scores and less

330
00:13:21,500 --> 00:13:22,200
disposable income.

331
00:13:22,720 --> 00:13:24,380
Now, add on top of that, that people

332
00:13:24,380 --> 00:13:27,400
might have been reaching for houses between 2022

333
00:13:27,400 --> 00:13:32,180
and 2025 because they were trying to catch

334
00:13:32,180 --> 00:13:35,240
onto the gravy train that was increasing prices,

335
00:13:35,520 --> 00:13:37,160
might feel the need to sell their houses.

336
00:13:37,600 --> 00:13:38,840
So inventory might be going up.

337
00:13:38,840 --> 00:13:40,460
Maybe they thought interest rates were going to

338
00:13:40,460 --> 00:13:41,960
fall dramatically down to 3%.

339
00:13:41,960 --> 00:13:42,780
That hasn't happened.

340
00:13:42,880 --> 00:13:43,980
It hasn't even come close to happening.

341
00:13:44,520 --> 00:13:49,440
So you see this kind of thing building

342
00:13:49,440 --> 00:13:49,860
on itself.

343
00:13:50,040 --> 00:13:52,360
These issues compound on themselves.

344
00:13:53,460 --> 00:13:56,520
Tariffs are a singular issue, mostly affecting goods.

345
00:13:56,700 --> 00:13:58,760
There's about $4 trillion worth of imports in

346
00:13:58,760 --> 00:13:59,220
this country.

347
00:13:59,320 --> 00:14:00,740
I have an 18% tariff rate.

348
00:14:01,200 --> 00:14:02,840
That comes out to $750 billion.

349
00:14:04,700 --> 00:14:06,160
Fidelity says $250 billion.

350
00:14:06,420 --> 00:14:07,900
I'm using that in my analysis just to

351
00:14:07,900 --> 00:14:08,280
be nice.

352
00:14:08,840 --> 00:14:11,100
But it could be a lot worse.

353
00:14:11,700 --> 00:14:17,900
So you extrapolate that student loan, that decrease

354
00:14:17,900 --> 00:14:19,480
in demand that I'm talking about, and then

355
00:14:19,480 --> 00:14:21,740
you add on the lack of immigration.

356
00:14:22,580 --> 00:14:24,900
Now, let's say that we had a million

357
00:14:24,900 --> 00:14:27,960
people coming into the country, and now we

358
00:14:27,960 --> 00:14:29,740
have a million people getting deported from the

359
00:14:29,740 --> 00:14:30,060
country.

360
00:14:30,920 --> 00:14:32,620
That's a 2 million person swing.

361
00:14:33,100 --> 00:14:35,200
On average, those folks are making about $30

362
00:14:35,200 --> 00:14:36,140
,000 a year.

363
00:14:36,740 --> 00:14:39,720
You put that together, and we're talking another

364
00:14:39,720 --> 00:14:42,760
significant detraction from the growth in the economy.

365
00:14:44,360 --> 00:14:46,640
So you put all this together, and without

366
00:14:46,640 --> 00:14:48,340
the other side of the economy, I think

367
00:14:48,340 --> 00:14:49,520
without a doubt, we're in recession.

368
00:14:50,020 --> 00:14:54,520
Between tariffs, student loans, the decrease in the

369
00:14:54,520 --> 00:14:55,480
housing story.

370
00:14:56,120 --> 00:14:58,820
We've seen an increase in bankruptcies over the

371
00:14:58,820 --> 00:14:59,600
last two years.

372
00:15:00,000 --> 00:15:03,980
Most recently, we just saw 11% year

373
00:15:03,980 --> 00:15:07,920
-over-year change in bankruptcies.

374
00:15:08,160 --> 00:15:09,800
Now, they're still not where they were in

375
00:15:09,800 --> 00:15:11,760
the mid-2010s, but they're getting there pretty

376
00:15:11,760 --> 00:15:12,160
rapidly.

377
00:15:14,340 --> 00:15:16,660
So there's a lot to look out for

378
00:15:16,660 --> 00:15:16,900
there.

379
00:15:17,120 --> 00:15:20,940
You start talking about the strains on things

380
00:15:20,940 --> 00:15:23,180
like private credit, and you can start to

381
00:15:23,180 --> 00:15:25,880
see that build on itself a lot quicker.

382
00:15:26,360 --> 00:15:29,740
Well, Brian, hearing you talk about it, it

383
00:15:29,740 --> 00:15:34,520
sounds a little bit gloom and doom, the

384
00:15:34,520 --> 00:15:36,400
way you're talking about all these risks.

385
00:15:36,720 --> 00:15:38,460
But I don't get the sense that you're

386
00:15:38,460 --> 00:15:43,480
actually feeling that it's a bad time to

387
00:15:43,480 --> 00:15:44,080
be an investor.

388
00:15:45,000 --> 00:15:46,160
Well, we have this other side of the

389
00:15:46,160 --> 00:15:48,420
economy that's absolutely booming, and that is the

390
00:15:48,420 --> 00:15:49,120
AI economy.

391
00:15:49,320 --> 00:15:51,060
And the AI economy has huge tentacles.

392
00:15:51,820 --> 00:15:54,160
If you think about what it takes to

393
00:15:54,160 --> 00:15:59,980
build the AI future, we're talking about large

394
00:15:59,980 --> 00:16:00,540
data centers.

395
00:16:00,720 --> 00:16:04,440
We're talking about huge amounts of semiconductor chips,

396
00:16:04,620 --> 00:16:07,280
whether they be GPUs, but also ASIC chips,

397
00:16:07,560 --> 00:16:09,140
and you're going to need CPUs still too.

398
00:16:10,300 --> 00:16:13,240
And we're talking hundreds and hundreds of billions

399
00:16:13,240 --> 00:16:13,680
of dollars.

400
00:16:14,040 --> 00:16:18,180
Just the hyperscalers alone are spending about $400

401
00:16:18,180 --> 00:16:19,140
billion a year.

402
00:16:19,680 --> 00:16:21,140
They're talking about data centers the size of

403
00:16:21,140 --> 00:16:24,160
Manhattan throughout the world, not just in the

404
00:16:24,160 --> 00:16:26,860
United States, but in South America, Saudi Arabia,

405
00:16:27,220 --> 00:16:28,640
China, I mean everywhere.

406
00:16:29,380 --> 00:16:30,980
So we're going to need capital equipment for

407
00:16:30,980 --> 00:16:31,620
those semiconductors.

408
00:16:31,720 --> 00:16:33,360
We're going to need foundries for those semiconductors.

409
00:16:34,500 --> 00:16:37,000
Once the databases are built out, there's going

410
00:16:37,000 --> 00:16:38,080
to be all sorts of applications.

411
00:16:38,460 --> 00:16:41,600
For the cloud infrastructure, you're going to need

412
00:16:41,600 --> 00:16:42,060
security.

413
00:16:42,320 --> 00:16:43,720
It's going to need to be scalable.

414
00:16:44,260 --> 00:16:45,580
The data is going to need to be

415
00:16:45,580 --> 00:16:45,920
clean.

416
00:16:46,680 --> 00:16:47,940
And that's before you can get to the

417
00:16:47,940 --> 00:16:51,260
applications, like let's say autonomous driving, let's say

418
00:16:51,260 --> 00:16:51,980
Roblox.

419
00:16:53,460 --> 00:16:57,300
Right now, according to the AI experts of

420
00:16:57,300 --> 00:16:59,600
the world, we're only scratching the surface on

421
00:16:59,600 --> 00:17:02,280
what we can expect from the future of

422
00:17:02,280 --> 00:17:02,820
AI.

423
00:17:03,079 --> 00:17:06,619
But here and now today, there's hundreds and

424
00:17:06,619 --> 00:17:08,380
hundreds of billions of dollars being spilled in

425
00:17:08,380 --> 00:17:12,579
to build out these things.

426
00:17:12,940 --> 00:17:15,920
So from power to data centers, that's kind

427
00:17:15,920 --> 00:17:17,079
of where we are now, right?

428
00:17:17,160 --> 00:17:19,579
The power build out and the data center

429
00:17:19,579 --> 00:17:20,140
build out.

430
00:17:20,839 --> 00:17:24,680
And that's been a big offset to this

431
00:17:24,680 --> 00:17:25,640
tariff issue.

432
00:17:25,839 --> 00:17:27,620
So I wouldn't say it's fair to say

433
00:17:27,620 --> 00:17:30,860
that we haven't been hurt from the tariffs.

434
00:17:31,780 --> 00:17:33,960
I would say that it is fair to

435
00:17:33,960 --> 00:17:39,000
say that the AI story has saved us

436
00:17:39,000 --> 00:17:43,460
from the negative effects that we would be

437
00:17:43,460 --> 00:17:47,380
experiencing in the market if it weren't for

438
00:17:47,380 --> 00:17:49,100
the AI story.

439
00:17:50,060 --> 00:17:52,040
Let me ask you, and Russ, I don't

440
00:17:52,040 --> 00:17:53,900
want to, you might have something you want

441
00:17:53,900 --> 00:17:55,400
to ask as well, so feel free to

442
00:17:55,400 --> 00:17:55,800
jump in.

443
00:17:56,040 --> 00:18:01,280
But I keep hearing, in addition to my

444
00:18:01,280 --> 00:18:05,100
own sentiment, I hear other people comment at

445
00:18:05,100 --> 00:18:09,400
times that something about our current situation with

446
00:18:09,400 --> 00:18:14,160
regard to AI feels similar to the late

447
00:18:14,160 --> 00:18:14,760
90s.

448
00:18:14,900 --> 00:18:17,500
That notion that there's a lot of money,

449
00:18:17,680 --> 00:18:20,860
there's a recognition of the great potential of

450
00:18:20,860 --> 00:18:24,920
this game-changing use of the internet or

451
00:18:24,920 --> 00:18:28,560
computer age at that point.

452
00:18:29,740 --> 00:18:32,020
PCs everywhere and so forth.

453
00:18:32,440 --> 00:18:37,800
And then that the winners take time to

454
00:18:37,800 --> 00:18:39,960
identify who really are going to be the

455
00:18:39,960 --> 00:18:42,000
winners, how this is going to be applied.

456
00:18:42,760 --> 00:18:45,700
That there's a lot of investment going into

457
00:18:45,700 --> 00:18:52,360
artificial intelligence today, but will the way it

458
00:18:52,360 --> 00:18:55,300
gets utilized and who will be the benefactors

459
00:18:55,860 --> 00:19:00,420
as an investor that may materialize differently over

460
00:19:00,420 --> 00:19:00,820
time?

461
00:19:01,220 --> 00:19:02,800
I'm sure you've given this thought.

462
00:19:02,980 --> 00:19:04,860
Do you mind commenting a little bit about

463
00:19:04,860 --> 00:19:08,360
how do you think about this notion of,

464
00:19:09,080 --> 00:19:10,660
gee, it feels like the late 90s in

465
00:19:10,660 --> 00:19:12,120
a certain respect?

466
00:19:12,600 --> 00:19:14,140
I think there's a lot of parallels.

467
00:19:14,660 --> 00:19:17,620
I think be naive not to think so,

468
00:19:17,680 --> 00:19:17,840
right?

469
00:19:17,880 --> 00:19:20,720
We have a generational change going on in

470
00:19:20,720 --> 00:19:23,420
the economy and a ton of money is

471
00:19:23,420 --> 00:19:24,240
being thrown at it.

472
00:19:24,980 --> 00:19:27,520
I think the big difference is most of

473
00:19:27,520 --> 00:19:29,660
the money is coming from the cashflow of

474
00:19:29,660 --> 00:19:31,040
these hugely profitable companies.

475
00:19:31,580 --> 00:19:33,820
And I think that is the biggest difference

476
00:19:33,820 --> 00:19:34,720
I'm seeing so far.

477
00:19:35,600 --> 00:19:39,400
That's not true throughout the economy though.

478
00:19:39,500 --> 00:19:41,280
For example, open AI has made a lot

479
00:19:41,280 --> 00:19:44,820
of promises to a lot of companies without

480
00:19:44,820 --> 00:19:46,280
having the cash to fulfill it.

481
00:19:47,000 --> 00:19:51,120
So that is where I think a lot

482
00:19:51,120 --> 00:19:54,160
of this rhetoric and comparison to the 90s

483
00:19:54,160 --> 00:19:58,020
is really getting some fire behind it.

484
00:19:58,400 --> 00:20:00,660
And that's because of the situation with open

485
00:20:00,660 --> 00:20:00,960
AI.

486
00:20:01,260 --> 00:20:03,620
There's a lot of promises without the there

487
00:20:03,620 --> 00:20:03,820
there.

488
00:20:04,020 --> 00:20:07,500
Now, the reality is, and people do, I've

489
00:20:07,500 --> 00:20:09,380
seen more diagrams over the last week about

490
00:20:09,380 --> 00:20:15,300
the circular nature of investments with vendors and

491
00:20:15,300 --> 00:20:19,260
consumers and the whole AI ecosystem being dominated

492
00:20:19,260 --> 00:20:21,340
by a handful of companies.

493
00:20:21,880 --> 00:20:24,800
And the reality is that's all going to

494
00:20:24,800 --> 00:20:27,020
get driven, in my humble opinion, through investor

495
00:20:27,020 --> 00:20:27,300
money.

496
00:20:27,540 --> 00:20:30,460
I think the capital is there to be

497
00:20:30,460 --> 00:20:31,620
invested and they're going to be able to

498
00:20:31,620 --> 00:20:32,060
raise money.

499
00:20:32,600 --> 00:20:34,600
Open AI is still a nonprofit company.

500
00:20:34,760 --> 00:20:38,160
It's laughable, but when they become a for

501
00:20:38,160 --> 00:20:40,980
-profit company, when they go public, they're going

502
00:20:40,980 --> 00:20:41,860
to be able to raise a lot of

503
00:20:41,860 --> 00:20:42,460
equity capital.

504
00:20:43,020 --> 00:20:44,540
They already have some revenue.

505
00:20:45,360 --> 00:20:47,460
I'm familiar with their financial statements because they're

506
00:20:47,460 --> 00:20:49,700
not public, but they have revenue.

507
00:20:50,560 --> 00:20:51,800
They're going to be able to raise a

508
00:20:51,800 --> 00:20:52,860
ton of money, which means they're going to

509
00:20:52,860 --> 00:20:53,840
be able to raise a ton of debt

510
00:20:53,840 --> 00:20:54,140
too.

511
00:20:54,480 --> 00:20:56,360
I think people are only concentrated on the

512
00:20:56,360 --> 00:21:00,620
equity capital, but for every dollar in equity

513
00:21:00,620 --> 00:21:02,060
capital, they're going to be able to raise

514
00:21:02,060 --> 00:21:05,540
at least $3 in debt, would be my

515
00:21:05,540 --> 00:21:06,760
thinking.

516
00:21:07,500 --> 00:21:09,720
Most likely convertible debt would be my guess.

517
00:21:10,400 --> 00:21:13,640
And that's going to be the lifeblood of

518
00:21:13,640 --> 00:21:15,260
that ecosystem.

519
00:21:15,440 --> 00:21:18,760
Now, that's not unlike how the economy works

520
00:21:18,760 --> 00:21:19,380
in general.

521
00:21:19,500 --> 00:21:20,660
I mean, sure, these are some of the

522
00:21:20,660 --> 00:21:23,160
bigger companies, but this is a new industry

523
00:21:23,160 --> 00:21:26,640
and there's some reasons to be concerned there.

524
00:21:27,120 --> 00:21:28,320
But I'd be working out for a couple

525
00:21:28,320 --> 00:21:28,760
things.

526
00:21:29,300 --> 00:21:30,960
Does the investment money dry up?

527
00:21:32,000 --> 00:21:36,840
And does the shortage in computing power change

528
00:21:36,840 --> 00:21:37,580
into an excess?

529
00:21:38,740 --> 00:21:40,880
If we have an excess in computing power,

530
00:21:41,200 --> 00:21:42,880
well, you don't need to buy Nvidia chips

531
00:21:42,880 --> 00:21:43,120
anymore.

532
00:21:43,260 --> 00:21:44,740
You don't need to buy Broadcom chips anymore.

533
00:21:44,840 --> 00:21:46,580
You don't need AMD chips anymore, right?

534
00:21:46,940 --> 00:21:48,620
You don't need any more data centers, which

535
00:21:48,620 --> 00:21:51,500
means you don't need Eaton, which is an

536
00:21:51,500 --> 00:21:52,200
industrial company.

537
00:21:52,460 --> 00:21:52,560
Yeah.

538
00:21:52,700 --> 00:21:55,220
I mean, you remember fiber optics and the

539
00:21:55,220 --> 00:21:59,940
way the whole telecommunications got impacted by suddenly

540
00:21:59,940 --> 00:22:03,680
there was this immense investment that had been

541
00:22:03,680 --> 00:22:07,420
made, and maybe it just wasn't needed as

542
00:22:07,420 --> 00:22:08,520
much at a certain point.

543
00:22:09,280 --> 00:22:09,400
Yeah.

544
00:22:09,540 --> 00:22:12,000
And then I think, I tried to think

545
00:22:12,000 --> 00:22:13,160
creatively about these things.

546
00:22:13,260 --> 00:22:14,960
We have this other side of the economy.

547
00:22:15,740 --> 00:22:17,940
I don't think the AI story is completely

548
00:22:17,940 --> 00:22:20,020
insulated by the weakness in the other side

549
00:22:20,020 --> 00:22:20,720
of the economy, right?

550
00:22:20,840 --> 00:22:25,000
So let's say that you have a weakness

551
00:22:25,000 --> 00:22:28,980
in a white collar workers, for example, and

552
00:22:28,980 --> 00:22:30,620
you don't need as many copilot seats.

553
00:22:31,360 --> 00:22:35,160
Well, Microsoft's revenues growth will suffer.

554
00:22:35,320 --> 00:22:36,900
Are they going to pull back on their

555
00:22:36,900 --> 00:22:38,920
AI spending because of that, right?

556
00:22:39,000 --> 00:22:41,300
So you could have a decrease in investment,

557
00:22:41,840 --> 00:22:47,080
even though it's completely unrelated to the AI

558
00:22:47,080 --> 00:22:47,560
story.

559
00:22:47,620 --> 00:22:49,920
It could be another part of their business

560
00:22:49,920 --> 00:22:51,200
that they need to make up for by

561
00:22:51,200 --> 00:22:52,200
pulling back on investment.

562
00:22:53,000 --> 00:22:54,780
They have to pay their right hand with

563
00:22:54,780 --> 00:22:56,140
their left hand, in a sense.

564
00:22:57,320 --> 00:22:59,620
So it's more complicated than just kind of

565
00:22:59,620 --> 00:23:03,060
getting wrapped up in one way or another.

566
00:23:03,200 --> 00:23:05,420
These things are related and they do speak

567
00:23:05,420 --> 00:23:05,860
to each other.

568
00:23:05,940 --> 00:23:08,960
But right now, my understanding is there's still

569
00:23:08,960 --> 00:23:11,340
a shortage in computing power, and I don't

570
00:23:11,340 --> 00:23:13,160
think that there is any shortage of capital

571
00:23:13,720 --> 00:23:14,900
to fund all these ventures.

572
00:23:15,400 --> 00:23:18,860
So the outlook is promising in that regard.

573
00:23:19,460 --> 00:23:20,480
To me it is, right?

574
00:23:20,620 --> 00:23:23,100
So how have we expressed this in our

575
00:23:23,100 --> 00:23:24,380
portfolios throughout the year?

576
00:23:25,980 --> 00:23:27,400
Well, you can't ignore the part of the

577
00:23:27,400 --> 00:23:28,300
economy that's suffering.

578
00:23:28,500 --> 00:23:29,660
You can't do that, right?

579
00:23:29,700 --> 00:23:31,800
You have to have some things that are

580
00:23:31,800 --> 00:23:33,480
a little bit more defensive than your portfolio.

581
00:23:34,920 --> 00:23:36,880
And if you did ignore it, you probably

582
00:23:36,880 --> 00:23:37,640
did very well.

583
00:23:37,840 --> 00:23:39,380
But does that mean that it's going to

584
00:23:39,380 --> 00:23:42,300
be repeatable in the future?

585
00:23:42,620 --> 00:23:45,080
Yeah, I mean, when you invest, you want

586
00:23:45,080 --> 00:23:47,740
your process to be repeatable and defensible, right?

587
00:23:48,440 --> 00:23:51,440
But we also used April as an opportunity

588
00:23:51,440 --> 00:23:53,340
to lean into the AI story because we

589
00:23:53,340 --> 00:23:55,600
got a lot of these great companies on

590
00:23:55,600 --> 00:23:55,880
sale.

591
00:23:56,360 --> 00:23:59,600
So we got into semiconductors and we've been

592
00:23:59,600 --> 00:24:00,680
in utilities for a while.

593
00:24:00,820 --> 00:24:03,700
Utilities are a big beneficiary because of the

594
00:24:03,700 --> 00:24:05,620
enormous amount of power that these data centers

595
00:24:05,620 --> 00:24:06,660
are going to need, right?

596
00:24:07,080 --> 00:24:09,220
To give you an idea, there's more data

597
00:24:09,220 --> 00:24:10,880
centers under construction right now than there are

598
00:24:10,880 --> 00:24:11,780
data centers in general.

599
00:24:12,680 --> 00:24:15,800
So there's actual real shovels in the dirt,

600
00:24:15,940 --> 00:24:16,060
right?

601
00:24:16,120 --> 00:24:17,600
This isn't just kind of a hope and

602
00:24:17,600 --> 00:24:19,460
a prayer thing.

603
00:24:19,860 --> 00:24:21,260
So we've done very well there.

604
00:24:21,380 --> 00:24:23,600
We leaned into some more NASDAQ 100 names.

605
00:24:24,760 --> 00:24:27,240
And those are the positive sides of our

606
00:24:27,240 --> 00:24:28,080
portfolio, right?

607
00:24:28,140 --> 00:24:30,120
And the negative sides of our portfolio have

608
00:24:30,120 --> 00:24:35,440
been the healthcares and the staples and the

609
00:24:35,440 --> 00:24:39,600
low volatility type stuff that just hasn't been

610
00:24:39,600 --> 00:24:40,280
participating.

611
00:24:41,140 --> 00:24:41,480
Why?

612
00:24:41,640 --> 00:24:44,120
Because things seem good, as they've been driven

613
00:24:44,120 --> 00:24:45,400
by the AI side of things.

614
00:24:46,980 --> 00:24:49,420
And there's just been no reason for them

615
00:24:49,420 --> 00:24:51,040
to accelerate.

616
00:24:51,660 --> 00:24:53,580
And as frustrating as they can be in

617
00:24:53,580 --> 00:24:55,840
my portfolio, you also have to have the

618
00:24:55,840 --> 00:24:57,360
discipline to keep them in there to some

619
00:24:57,360 --> 00:25:02,840
degree and not get irrational about the prospects

620
00:25:02,840 --> 00:25:03,720
for the future.

621
00:25:04,820 --> 00:25:07,160
So that idea of the utilities, you've made

622
00:25:07,160 --> 00:25:09,660
this, you know, that picks and shovels kind

623
00:25:09,660 --> 00:25:11,400
of notion talked about before.

624
00:25:11,500 --> 00:25:13,460
You don't have to only be in maybe

625
00:25:13,460 --> 00:25:16,560
semiconductors to still benefit from the AI theme.

626
00:25:16,680 --> 00:25:19,420
There's other ways to benefit from that.

627
00:25:19,460 --> 00:25:21,420
And that utilities is maybe one of those

628
00:25:21,420 --> 00:25:26,760
examples that's maybe a different risk dynamic, but

629
00:25:26,760 --> 00:25:29,160
it still is going to get some benefit.

630
00:25:29,160 --> 00:25:31,920
Well, the fact that it's a different risk

631
00:25:31,920 --> 00:25:33,180
dynamic is amazing, right?

632
00:25:33,300 --> 00:25:36,000
Because that means you're allowed to have the

633
00:25:36,000 --> 00:25:39,540
semiconductor exposure that would typically gross up the

634
00:25:39,540 --> 00:25:41,080
risk in your portfolio, at least on a

635
00:25:41,080 --> 00:25:44,800
quantitative level, because you're taking such a historically

636
00:25:44,800 --> 00:25:47,560
low risk type of investment in the utilities.

637
00:25:47,820 --> 00:25:50,500
So when they both do well, you know,

638
00:25:50,500 --> 00:25:51,220
it's a grand slam.

639
00:25:51,320 --> 00:25:54,280
It's something to celebrate because for a reasonable

640
00:25:54,280 --> 00:25:57,320
amount of risk, you got a lot of

641
00:25:57,320 --> 00:25:57,660
return.

642
00:25:57,660 --> 00:26:00,260
Now, I would say the one big benefit

643
00:26:00,260 --> 00:26:04,860
from being invested, you know, diversifying and being

644
00:26:04,860 --> 00:26:08,980
invested across the spectrum to some degree, and

645
00:26:08,980 --> 00:26:11,720
acknowledging that that negative part of the economy

646
00:26:11,720 --> 00:26:15,260
exists, has been international stocks.

647
00:26:15,780 --> 00:26:18,700
So international stocks have really benefited from the

648
00:26:18,700 --> 00:26:19,220
falling dollar.

649
00:26:19,380 --> 00:26:22,900
The falling dollar really started during the tariff

650
00:26:22,900 --> 00:26:23,320
tantrum.

651
00:26:23,780 --> 00:26:26,160
And justifiably, you know, some money left the

652
00:26:26,160 --> 00:26:29,400
United States and tried to find another home.

653
00:26:30,400 --> 00:26:32,120
You know, one of the big beneficiaries of

654
00:26:32,120 --> 00:26:35,160
that has been international because typically those stocks

655
00:26:35,160 --> 00:26:36,140
are priced another currency.

656
00:26:36,360 --> 00:26:38,520
So, you know, a one for one decline

657
00:26:38,520 --> 00:26:40,160
in the dollar typically means a one for

658
00:26:40,160 --> 00:26:42,780
one increase in those stocks to some degree,

659
00:26:42,860 --> 00:26:43,060
right?

660
00:26:43,480 --> 00:26:45,920
So if you've had international exposure, if you

661
00:26:46,740 --> 00:26:49,260
insisted on diversifying away, you did very, very

662
00:26:49,260 --> 00:26:49,740
well there.

663
00:26:50,760 --> 00:26:52,640
And, you know, I can only say that

664
00:26:52,640 --> 00:26:53,500
I wish we had more.

665
00:26:54,040 --> 00:26:55,940
I'm glad that I'm glad that we were

666
00:26:55,940 --> 00:26:57,040
investing that.

667
00:26:57,200 --> 00:26:57,840
Why we had some.

668
00:26:58,240 --> 00:26:58,340
Yeah.

669
00:26:58,820 --> 00:26:59,140
Yeah.

670
00:26:59,140 --> 00:27:01,000
The other thing this year too, the other

671
00:27:01,000 --> 00:27:06,020
thing is that the longer term, high quality,

672
00:27:06,700 --> 00:27:10,620
investment grade bonds have done exceptionally well as

673
00:27:10,620 --> 00:27:12,860
well, too, because as interest rates have come

674
00:27:12,860 --> 00:27:17,320
down with fears of a worsening economy, those

675
00:27:17,320 --> 00:27:20,080
positions have done well too.

676
00:27:20,080 --> 00:27:22,660
So what I wanted you to talk about

677
00:27:22,660 --> 00:27:24,460
next to just that, how they're sort of,

678
00:27:24,540 --> 00:27:26,380
and that often plays into another theme as

679
00:27:26,380 --> 00:27:29,540
it relates to your investing outlook for the

680
00:27:29,540 --> 00:27:30,560
remainder of the year.

681
00:27:31,380 --> 00:27:34,200
So way on the equity side as well,

682
00:27:34,260 --> 00:27:37,120
but elaborate on, you know, this, this dynamic

683
00:27:37,120 --> 00:27:39,180
of it's confusing to people when you talk

684
00:27:39,180 --> 00:27:41,300
about interest rates, because we focus on the

685
00:27:41,300 --> 00:27:45,780
Fed and the expectation that, well, the, there

686
00:27:45,780 --> 00:27:48,120
is a presumption that the Fed is going

687
00:27:48,120 --> 00:27:50,660
to continue to reduce interest rates to some

688
00:27:50,660 --> 00:27:51,100
extent.

689
00:27:51,800 --> 00:27:54,320
So interest rates may be falling.

690
00:27:54,460 --> 00:27:55,980
And on the one hand, that seems like

691
00:27:55,980 --> 00:28:00,940
that would be unattractive to investors in that

692
00:28:00,940 --> 00:28:03,720
declining interest rates means I'm going to get

693
00:28:03,720 --> 00:28:04,460
less yield.

694
00:28:05,600 --> 00:28:08,100
And, and then that whole dynamic of what

695
00:28:08,100 --> 00:28:10,080
happens on the short end, isn't necessarily what

696
00:28:10,080 --> 00:28:12,080
happens on the long end.

697
00:28:12,280 --> 00:28:15,280
And maybe just elaborate on how that, what

698
00:28:15,280 --> 00:28:18,260
you're envisioning there and how that's playing into

699
00:28:18,260 --> 00:28:20,180
some of the way you're thinking about finding

700
00:28:20,180 --> 00:28:20,840
opportunities.

701
00:28:21,980 --> 00:28:22,140
Yeah.

702
00:28:22,240 --> 00:28:25,080
I mean, a lot to talk about there.

703
00:28:25,320 --> 00:28:28,680
Interest rates are a very important aspect of

704
00:28:28,680 --> 00:28:29,160
the economy.

705
00:28:29,840 --> 00:28:32,780
And there's a good argument from David Kelly,

706
00:28:32,780 --> 00:28:37,180
JP Morgan's chief economist, who believes that a

707
00:28:37,180 --> 00:28:39,160
small change in the Fed funds rate, which

708
00:28:39,160 --> 00:28:42,280
we had, that we've had so far in

709
00:28:42,280 --> 00:28:44,100
the last month, and, you know, that we're

710
00:28:44,100 --> 00:28:45,600
expecting to have throughout the rest of the

711
00:28:45,600 --> 00:28:47,720
year, you know, the expectation is for two

712
00:28:47,720 --> 00:28:52,100
more cuts, is actually a negative because there

713
00:28:52,100 --> 00:28:57,360
are so many people, you know, of the

714
00:28:57,360 --> 00:28:59,340
baby boom generation, which has the majority of

715
00:28:59,340 --> 00:29:03,000
the wealth that have had the great benefit

716
00:29:03,000 --> 00:29:06,380
of having higher interest rates without taking any

717
00:29:06,380 --> 00:29:06,740
risk.

718
00:29:06,820 --> 00:29:08,760
And it's been contributing to their budget and

719
00:29:08,760 --> 00:29:09,460
their cashflow.

720
00:29:09,800 --> 00:29:11,920
And when you take away 20% of

721
00:29:11,920 --> 00:29:14,400
that, you know, all of a sudden what

722
00:29:14,400 --> 00:29:16,180
has been a tailwind for the economy is

723
00:29:16,180 --> 00:29:17,860
now a headwind.

724
00:29:18,040 --> 00:29:23,320
So there's, there's that kind of, you know,

725
00:29:23,320 --> 00:29:24,720
point of view.

726
00:29:25,600 --> 00:29:25,700
Yeah.

727
00:29:25,940 --> 00:29:26,120
Yeah.

728
00:29:26,200 --> 00:29:26,560
Yeah.

729
00:29:26,740 --> 00:29:28,740
I think we all assume that interest rates

730
00:29:28,740 --> 00:29:30,740
will go down and economic activity will go

731
00:29:30,740 --> 00:29:31,040
up.

732
00:29:31,480 --> 00:29:33,580
And I believe that he estimated that that

733
00:29:33,580 --> 00:29:36,660
effect to be of the effect of around

734
00:29:36,660 --> 00:29:38,980
a hundred billion dollars, which is, you know,

735
00:29:39,040 --> 00:29:41,500
again, going back, the expected growth of the

736
00:29:41,500 --> 00:29:44,140
economy is $500 billion in any given year.

737
00:29:44,900 --> 00:29:46,680
On average, if you take away a hundred

738
00:29:46,680 --> 00:29:49,660
billion, that's a big impact.

739
00:29:50,160 --> 00:29:51,920
And the reason for that, the other reason

740
00:29:51,920 --> 00:29:53,200
for that he says is that the people

741
00:29:53,200 --> 00:29:56,180
borrowing money have mostly fixed rate debt, which

742
00:29:56,180 --> 00:29:57,280
he's right about, right?

743
00:29:57,540 --> 00:30:00,160
Most people, the majority of the debt that

744
00:30:00,160 --> 00:30:02,660
people have is through their mortgage, which most

745
00:30:02,660 --> 00:30:05,400
people have gotten religion and have a fixed

746
00:30:05,400 --> 00:30:06,320
rate mortgage.

747
00:30:07,000 --> 00:30:09,620
So, you know, is it, if you're borrowing

748
00:30:09,620 --> 00:30:11,440
money at 20% of your credit card,

749
00:30:11,580 --> 00:30:14,060
if you, if you start borrowing at 1975,

750
00:30:14,200 --> 00:30:16,040
is it really going to change your spending

751
00:30:16,040 --> 00:30:16,420
habits?

752
00:30:16,920 --> 00:30:18,020
Probably not, right?

753
00:30:18,740 --> 00:30:21,500
Your student loans are fixed grade and, you

754
00:30:21,500 --> 00:30:23,900
know, 10% of people already can't pay

755
00:30:23,900 --> 00:30:24,500
that anyways.

756
00:30:25,360 --> 00:30:28,260
You know, the, the majority of the borrowers

757
00:30:28,260 --> 00:30:29,720
probably aren't going to be affected.

758
00:30:29,960 --> 00:30:32,820
It's more about future borrowing than, than, than

759
00:30:32,820 --> 00:30:35,240
past borrowing and past borrowing is important in

760
00:30:35,240 --> 00:30:37,640
this case because it affects, you know, your,

761
00:30:37,840 --> 00:30:40,420
your debt service payments going forward.

762
00:30:41,060 --> 00:30:43,300
So he, he makes a good argument that

763
00:30:43,300 --> 00:30:46,260
short changes, small changes will actually be detrimental

764
00:30:46,260 --> 00:30:47,800
and you have to make a big change.

765
00:30:47,960 --> 00:30:50,420
So his thought process is if you cut

766
00:30:50,420 --> 00:30:52,880
75 basis points, fine, but that means you're

767
00:30:52,880 --> 00:30:54,260
going to have to cut 300 basis points.

768
00:30:56,020 --> 00:30:58,080
And I, you know, from that point of

769
00:30:58,080 --> 00:31:00,680
view, if that, if that is your point

770
00:31:00,680 --> 00:31:03,560
of view, I think you need to have

771
00:31:03,560 --> 00:31:05,320
more exposure on the longer end of the

772
00:31:05,320 --> 00:31:09,140
curve because that means that the economy is

773
00:31:09,140 --> 00:31:10,040
going to be very, very weak.

774
00:31:11,420 --> 00:31:13,260
And you know, we're not going to have

775
00:31:13,260 --> 00:31:15,540
the inflation that the market expects right now.

776
00:31:15,540 --> 00:31:16,900
The market expects over the next year to

777
00:31:16,900 --> 00:31:17,960
have inflation of 3%.

778
00:31:17,960 --> 00:31:20,900
Then after that, the expectation isn't supposed to

779
00:31:20,900 --> 00:31:21,160
come down.

780
00:31:21,360 --> 00:31:23,200
Now, 3% is very high, right?

781
00:31:23,220 --> 00:31:24,740
We're supposed to have 2% inflation and

782
00:31:24,740 --> 00:31:27,180
the federal reserve seems to be ignoring that.

783
00:31:27,800 --> 00:31:29,040
Why are they ignoring that?

784
00:31:29,160 --> 00:31:31,140
Well, you know, you could say it's political

785
00:31:31,140 --> 00:31:33,580
pressure or you could say that they expect

786
00:31:33,580 --> 00:31:36,900
the current tariffs to roll off 12 months

787
00:31:36,900 --> 00:31:37,300
from now.

788
00:31:38,320 --> 00:31:43,060
But sure, that's possible, but you also could

789
00:31:43,060 --> 00:31:44,540
make the argument that we haven't seen the

790
00:31:44,540 --> 00:31:45,520
effects of tariffs yet.

791
00:31:46,220 --> 00:31:48,020
So 12 months from now, you know, we

792
00:31:48,020 --> 00:31:50,620
might only be in the full throes of

793
00:31:50,620 --> 00:31:54,320
tariffs, but either way, you know, that is

794
00:31:54,320 --> 00:31:55,140
their position.

795
00:31:55,660 --> 00:31:57,340
And you know, if you believe what David

796
00:31:57,340 --> 00:31:58,720
Kelly is saying, then you want to get

797
00:31:58,720 --> 00:32:01,640
longer out on the ill curve.

798
00:32:02,320 --> 00:32:05,400
You know, that's probably not a good outlook

799
00:32:05,400 --> 00:32:09,340
for the labor market.

800
00:32:09,660 --> 00:32:11,780
That means that things could get much worse

801
00:32:11,780 --> 00:32:12,480
before they get better.

802
00:32:12,580 --> 00:32:14,000
It's probably not a good outlook for the

803
00:32:14,000 --> 00:32:14,600
stock market.

804
00:32:15,360 --> 00:32:18,120
Things could get, you know, that, I mean,

805
00:32:18,180 --> 00:32:20,040
that's pretty much you saying that we're probably

806
00:32:20,040 --> 00:32:22,580
going to have a recession unless this AI

807
00:32:22,580 --> 00:32:26,300
build continues to keep us out of one.

808
00:32:30,700 --> 00:32:34,540
Thinking about how you invest in stocks as

809
00:32:34,540 --> 00:32:35,280
well though, correct?

810
00:32:35,420 --> 00:32:36,680
Certain kind of industries.

811
00:32:37,320 --> 00:32:37,580
Yeah.

812
00:32:37,800 --> 00:32:41,560
So let's say, you know, we disagree with

813
00:32:41,560 --> 00:32:43,280
David Kelly's assessment, right?

814
00:32:43,820 --> 00:32:45,320
And we go with the market consensus.

815
00:32:45,460 --> 00:32:47,460
The market consensus is we're going to have

816
00:32:47,460 --> 00:32:50,340
3% inflation and 1% growth over

817
00:32:50,340 --> 00:32:50,920
the next year.

818
00:32:51,240 --> 00:32:52,180
We're going to avoid a recession.

819
00:32:52,240 --> 00:32:53,200
We're going to have 1% growth.

820
00:32:54,260 --> 00:32:54,540
Okay.

821
00:32:54,580 --> 00:32:55,180
That's consensus.

822
00:32:55,820 --> 00:32:59,140
Now that means that you should have interest

823
00:32:59,140 --> 00:33:00,800
rates of at least 4%.

824
00:33:02,400 --> 00:33:04,600
And we're going to have a few more

825
00:33:04,600 --> 00:33:05,780
cuts here this year.

826
00:33:06,940 --> 00:33:09,560
You know, according to the consensus, which means

827
00:33:09,560 --> 00:33:10,380
what do we have?

828
00:33:10,400 --> 00:33:13,380
We'll have a Fed funds rate that is

829
00:33:13,380 --> 00:33:14,360
below 4%.

830
00:33:14,360 --> 00:33:17,880
We're going to have longer on the curve,

831
00:33:18,060 --> 00:33:19,220
higher than 4%.

832
00:33:19,220 --> 00:33:21,100
And that is called a steepening yield curve.

833
00:33:21,160 --> 00:33:22,560
One's coming down and one's rising.

834
00:33:22,800 --> 00:33:25,400
In fact, as we cut, we might see

835
00:33:25,400 --> 00:33:29,360
expectations for growth in the future increase in

836
00:33:29,360 --> 00:33:29,780
the future.

837
00:33:29,900 --> 00:33:31,800
Maybe not necessarily over the next year as

838
00:33:31,800 --> 00:33:34,680
David, you know, as David Kelly is saying,

839
00:33:34,760 --> 00:33:36,120
you know, it could get worse before it

840
00:33:36,120 --> 00:33:38,000
gets better, but out in the future, 10

841
00:33:38,000 --> 00:33:39,200
years in the future, which is what was

842
00:33:39,200 --> 00:33:41,580
reflected in the 10-year bond, you might

843
00:33:41,580 --> 00:33:43,140
see increased growth and you might also see

844
00:33:43,140 --> 00:33:46,940
increased inflation, which we'll say is four plus,

845
00:33:47,240 --> 00:33:47,460
right?

846
00:33:47,760 --> 00:33:51,140
If 2% inflation and 2% growth

847
00:33:51,140 --> 00:33:53,600
is the longer term goal, you know, we'll

848
00:33:53,600 --> 00:33:54,640
say it's at least 4%.

849
00:33:54,640 --> 00:33:57,120
So that gives you a steepening yield curve.

850
00:33:57,280 --> 00:33:59,700
Now, what benefits from steepening yield curve?

851
00:34:00,700 --> 00:34:04,340
The biggest sector that benefits is banks, particularly

852
00:34:04,340 --> 00:34:07,440
regional banks, really, because what can they do?

853
00:34:07,500 --> 00:34:08,540
They can borrow short.

854
00:34:09,020 --> 00:34:10,580
They could take your deposits and pay you

855
00:34:10,580 --> 00:34:13,179
less, whether they be time deposits, broker deposits,

856
00:34:13,400 --> 00:34:15,460
checking accounts, they could pay you even less

857
00:34:15,460 --> 00:34:16,739
than they're paying today, right?

858
00:34:17,880 --> 00:34:19,400
And they can lend for more.

859
00:34:20,120 --> 00:34:21,980
And this is, you know, an arbitrage that's

860
00:34:21,980 --> 00:34:23,260
very typical throughout banks.

861
00:34:23,580 --> 00:34:27,179
And yes, there is a mismatch in durations

862
00:34:27,179 --> 00:34:27,960
most of the time.

863
00:34:28,679 --> 00:34:31,139
And that's why we have things like, you

864
00:34:31,139 --> 00:34:32,260
know, the Fed Fund.

865
00:34:32,460 --> 00:34:33,540
That's why we have Fed Funds.

866
00:34:33,540 --> 00:34:35,100
That's why we have a discount window.

867
00:34:35,880 --> 00:34:37,380
You know, lots of different ways for banks

868
00:34:37,380 --> 00:34:39,340
to get liquidity that me and you couldn't

869
00:34:39,340 --> 00:34:41,219
get as a non-regulated bank.

870
00:34:42,679 --> 00:34:44,920
So, you know, if you think financials are

871
00:34:44,920 --> 00:34:47,159
going to benefit through that scenario, well, that

872
00:34:47,159 --> 00:34:48,239
might be a place that you want to

873
00:34:48,239 --> 00:34:50,120
put your equity capital.

874
00:34:50,120 --> 00:34:51,940
Now, keep in mind that if things get

875
00:34:51,940 --> 00:34:55,500
really bad and the longer end comes down

876
00:34:55,500 --> 00:34:57,560
as well, you know, you might not get

877
00:34:57,560 --> 00:34:59,360
that arbitrage and you might have a credit

878
00:34:59,360 --> 00:34:59,640
event.

879
00:34:59,940 --> 00:35:01,440
So you don't want to like over-index

880
00:35:01,440 --> 00:35:02,240
the financials, right?

881
00:35:02,280 --> 00:35:04,660
There's always a discipline to find the right

882
00:35:04,660 --> 00:35:07,300
sizing that you want in your portfolio.

883
00:35:07,460 --> 00:35:09,740
But that's an area that I'm very interested

884
00:35:09,740 --> 00:35:10,420
in right now.

885
00:35:11,100 --> 00:35:12,720
In addition to that, you know, I've written

886
00:35:12,720 --> 00:35:14,560
about this and I've talked about it extensively

887
00:35:14,560 --> 00:35:19,380
and it's headline news right now, but gold

888
00:35:19,380 --> 00:35:20,460
has done very, very well.

889
00:35:21,580 --> 00:35:23,700
And I always say that I look at

890
00:35:23,700 --> 00:35:27,480
gold as a global currency with a 0

891
00:35:27,480 --> 00:35:28,180
% interest rate.

892
00:35:28,540 --> 00:35:29,880
Now, if you look at all the other

893
00:35:29,880 --> 00:35:32,660
global currencies throughout the world, where are their

894
00:35:32,660 --> 00:35:33,760
short-term interest rates headed?

895
00:35:34,500 --> 00:35:37,780
Well, if they're heading closer to zero and

896
00:35:37,780 --> 00:35:40,840
the economy is getting worse, then gold should

897
00:35:40,840 --> 00:35:42,280
get more competitive.

898
00:35:42,280 --> 00:35:44,580
And so, you know, I think that's another

899
00:35:44,580 --> 00:35:46,540
place that you could go.

900
00:35:46,880 --> 00:35:48,840
And there's this huge benefit, right?

901
00:35:48,880 --> 00:35:50,400
And you think of, all right, you're in

902
00:35:50,400 --> 00:35:52,760
the AI names, you're in the AI sector,

903
00:35:52,880 --> 00:35:55,140
the AI part of the economy, and you

904
00:35:55,140 --> 00:35:56,600
have this other part of the economy that's

905
00:35:56,600 --> 00:35:58,920
not doing well, but you want to diversify

906
00:35:58,920 --> 00:36:00,680
away from the AI a little bit, right?

907
00:36:01,760 --> 00:36:03,580
What are some places that you can go

908
00:36:05,080 --> 00:36:09,540
where, you know, if the expectations for a

909
00:36:09,540 --> 00:36:11,760
poor economy on this other side, you might

910
00:36:11,760 --> 00:36:13,580
get some diversification benefit, right?

911
00:36:13,760 --> 00:36:14,780
You don't want to just be on one

912
00:36:14,780 --> 00:36:16,580
side of the boat, but you also just

913
00:36:16,580 --> 00:36:18,560
don't want to like lose money on the

914
00:36:18,560 --> 00:36:19,060
other side.

915
00:36:19,380 --> 00:36:21,100
You want to try to find smart ways

916
00:36:21,100 --> 00:36:22,020
to be diversified.

917
00:36:22,580 --> 00:36:25,280
And I think those are two ways that,

918
00:36:25,300 --> 00:36:26,880
you know, we can do it better going

919
00:36:26,880 --> 00:36:27,880
forward in the next quarter.

920
00:36:28,980 --> 00:36:29,180
Excellent.

921
00:36:30,140 --> 00:36:32,700
We're going to talk more in future weeks

922
00:36:32,700 --> 00:36:33,320
and so forth.

923
00:36:33,520 --> 00:36:37,440
Maybe we'll include some discussion about this notion

924
00:36:37,440 --> 00:36:39,160
of how to mitigate risk or how with

925
00:36:39,160 --> 00:36:41,620
some innovative approaches we're trying to use to

926
00:36:41,620 --> 00:36:44,860
think about how to manage risk while giving

927
00:36:44,860 --> 00:36:48,220
us the opportunity to take risk with parts

928
00:36:48,220 --> 00:36:49,060
of our portfolio.

929
00:36:50,000 --> 00:36:52,000
Certainly, that might be one of them, but

930
00:36:52,000 --> 00:36:54,180
there's other things that we've found that to

931
00:36:54,180 --> 00:36:56,920
be interesting and worthy of consideration.

932
00:36:57,480 --> 00:37:00,040
Listen, we'll wrap things up here because we've

933
00:37:00,040 --> 00:37:02,360
gone a little bit long, but Brian, if

934
00:37:02,360 --> 00:37:08,160
our listeners are thinking that, gee, this sounds

935
00:37:08,160 --> 00:37:12,260
like it's pretty deliberate and thoughtful, you know,

936
00:37:12,280 --> 00:37:14,480
it's a reminder to say, look, we take

937
00:37:14,480 --> 00:37:16,740
an approach, we call it active allocation with

938
00:37:16,740 --> 00:37:17,560
our team here.

939
00:37:18,020 --> 00:37:20,060
If you'd like to learn more about how

940
00:37:20,060 --> 00:37:22,560
we can help with anything you might be

941
00:37:22,560 --> 00:37:24,800
looking at with your investing, you'd like to

942
00:37:24,800 --> 00:37:27,580
get a second opinion on what's your portfolio

943
00:37:27,580 --> 00:37:30,940
positioned like and with some of these considerations,

944
00:37:31,320 --> 00:37:33,520
where there might be risks and how we

945
00:37:33,520 --> 00:37:36,340
might be able to help you navigate that,

946
00:37:36,460 --> 00:37:38,280
don't hesitate to reach out to our team.

947
00:37:38,860 --> 00:37:40,780
We're here to be a resource.

948
00:37:41,720 --> 00:37:47,520
For our clients, Brian, you've got a webinar

949
00:37:47,520 --> 00:37:48,980
coming up pretty soon.

950
00:37:49,660 --> 00:37:51,900
What is the date of that that we've

951
00:37:51,900 --> 00:37:52,300
got that?

952
00:37:52,580 --> 00:37:53,140
October what?

953
00:37:53,500 --> 00:37:54,820
October 28th.

954
00:37:55,360 --> 00:37:55,960
28th.

955
00:37:55,960 --> 00:37:58,720
And for our clients, we'll be putting that

956
00:37:58,720 --> 00:37:59,840
out to you in an email.

957
00:38:00,140 --> 00:38:03,020
We'll do a version that'll be available for

958
00:38:03,020 --> 00:38:06,320
the public as well posted on our YouTube

959
00:38:06,320 --> 00:38:12,880
and our webpage at somethingmorewithchrisboyd.com.

960
00:38:12,880 --> 00:38:16,720
So, with that, Brian, thanks for some really

961
00:38:16,720 --> 00:38:17,660
interesting stuff.

962
00:38:18,900 --> 00:38:22,880
Lots to consider, lots to evaluate, and I'm

963
00:38:22,880 --> 00:38:24,600
glad you're doing a great job keeping us

964
00:38:24,600 --> 00:38:25,040
on track.

965
00:38:25,200 --> 00:38:26,180
Thanks for being with us today.

966
00:38:27,160 --> 00:38:27,460
Thank you.

967
00:38:27,980 --> 00:38:30,300
Until next time, everybody keeps driving for Something

968
00:38:30,300 --> 00:38:30,540
More.

969
00:38:31,480 --> 00:38:33,800
Thank you for listening to Something More with

970
00:38:33,800 --> 00:38:34,480
Chris Boyd.

971
00:38:34,800 --> 00:38:36,940
Call us for help, whether it's for financial

972
00:38:36,940 --> 00:38:40,880
planning or portfolio management, insurance concerns, or those

973
00:38:40,880 --> 00:38:42,920
quality of life issues that make the money

974
00:38:42,920 --> 00:38:44,000
matters matter.

975
00:38:44,460 --> 00:38:47,620
Whatever's on your mind, visit us at somethingmorewithchrisboyd

976
00:38:47,620 --> 00:38:50,840
.com or call us toll free at 866

977
00:38:50,840 --> 00:38:56,400
-771-8901 or send us your questions to

978
00:38:56,400 --> 00:39:00,340
amr-info at wealthenhancement.com.

979
00:39:00,560 --> 00:39:02,460
You're listening to Something More with Chris Boyd

980
00:39:02,460 --> 00:39:03,300
Financial Talk Show.

981
00:39:03,480 --> 00:39:05,900
Wealth Enhancement Advisory Services and Jay Christopher Boyd

982
00:39:05,900 --> 00:39:08,220
provide investment advice on an individual basis to

983
00:39:08,220 --> 00:39:08,780
clients only.

984
00:39:08,960 --> 00:39:10,920
Proper advice depends on a complete analysis of

985
00:39:10,920 --> 00:39:12,100
all facts and circumstances.

986
00:39:12,400 --> 00:39:14,200
The information given on this program is general

987
00:39:14,200 --> 00:39:16,240
financial comments and cannot be relied upon as

988
00:39:16,240 --> 00:39:17,820
pertaining to your specific situation.

989
00:39:18,060 --> 00:39:19,980
Wealth Enhancement Group cannot guarantee that using the

990
00:39:19,980 --> 00:39:21,980
information from this show will generate profits or

991
00:39:21,980 --> 00:39:23,100
ensure freedom from loss.

992
00:39:23,300 --> 00:39:25,460
Listeners should consult their own financial advisors or

993
00:39:25,460 --> 00:39:27,560
conduct their own due diligence before making any

994
00:39:27,560 --> 00:39:28,340
financial decisions.