More Market Bloodshed To Come? | Michael Lebowitz

Generally, I do think we trend upward through the through the rest of the year. A lot of buybacks need to happen. Rebalancing there. There's reasons for it to go upward. Plenty of reasons I can say it could go downward, too. I'm more worried about next year than the next couple months. Welcome to thoughtful money. I'm thoughtful money founder and your host Adam Tagrant. Welcome you here at the end of the week for another weekly market recap. This time featuring my good friend the exanguinated portfolio manager Michael Iitz. Mike, how you doing? >> I'm doing great. What does what' you say exanguinated? >> Exanguinated. >> What does that mean? >> Means all the blood's been removed. So, we had a massive bloodletting yesterday in the markets and um I got a number of questions for you, Michael, but I think the one that's just on everybody's mind is what the heck just happened. So, we'll talk about that in a second. Our good friend Lance is away today, so Michael is stepping in. Um but yeah, Michael, you know what? S&P down over 4%. Uh NASDAQ down nearly six. Um it was a hell of a day. Um we're seeing a little bit of a recovery here uh on Friday, but what what in your mind um was the trigger? I know, you know, Lance is always telling us that we always try to ascribe some sort of narrative to market forces. A lot of times it's not really the full explanation, but what is the current thinking on the street for for why this bloodletting happened yesterday? So you know I think first of all it's important to understand that people investors especially institutional investors invest going into the election thinking things are going to whatever their thoughts are what's going to happen. the event occurs and then there's a period where traders have to rebalance where they have to hedge where they have to buy where they have to sell where they have >> in a lot of cases unwind hedges right that they put on before >> unwind or add hedges it you know all depends on which way they're leaning and so usually after an event a known event where people have been preparing for it like a employment number CPI a fed meeting um the election, you get some sort of unwind of some of those trades or add-ons to some of those trades. So you should always expect some volatility going into event whether the event goes off exactly as people thought or completely different. So, so just to add to the the cauldron, there was already um kind of some volatility built in and I think what happened was we had the sharp move up on Wednesday and then the sharp move down. And in the process, a lot of hedge funds got caught off sides one way or the other. And it and with that sell-off, it looks like a hedge fund went belly up or was forced to cover margin. Could have been more than one. You know, I've heard rumors. There have been about 10 names floating around. I honestly have no idea who it is. If it is someone, but there are some hallmarks that lead us to believe that that's the case. First of all, fundamentally, not much has really on an investment perspective, not much has changed with the elect with the election, specifically around AI. The Democrats have, you know, many of them have publicly stated they think we should slow down the buildout. They're they're voicing what they're hearing from their voters. The Republicans have been doing this, too. Governor Abbott in Texas, Texas is the first or second biggest day for data centers, already put a freeze on permits. The new governor is saying that everything under construction will go. She just wants to review the process. So, in the state of Texas, there may be changes in other areas, but with data centers seems to be kind of that same uh legislative uh track that it was on. And I think that's true for many other places. So to blame the tech wreck or whatever you want to call it what happened yesterday on there are going to be no more data centers I think is kind of is not correct. We're going to have data centers. They're far too valuable and if we don't they'll be in Mexico or Canada or somewhere else. Uh they will get built. Um, and you know, at at a the Senate and House level, it's hard for them. A lot of that is more local juris jurisdictional, whether it's county or state. So, a lot of those AI data center decisions come from that level, not the Senate or the House or even the executive branch. So, fundamentally, I'm not sure much changed from what we knew before the election to afterwards. Can I can I ask a question around that? So, um I think the I think it's fair to say that the blue wave was larger than most people expected, right? So, in other words, I I I think going in folks thought that um the Democrats were going to take the House, but it was unclear they were going to take the Senate. They took the Senate much more than folks expected, but they went a lot more governorships than folks expected. and and and there to your point, yeah, the data centers are still going to get built, but I think on the on the margin, Wall Street might be saying, "Yeah, but it's going to be even slower going forward than the resistance we thought because more of these Democrat people who ran on a I'm really concerned about data center platform got in. So again, it's not that the data centers are not going to get built and you know, to your point, even if it's not here, it might be in other neighboring countries, but that's slowing the capex buildout. And because AI is such a huge part of both the markets and the economy, even a slowing even a 20% ratcheting down in the buildout schedule, that's going to have pretty material market implications, won't it? >> Maybe they can't build them fast enough as is. So, you know, there's such a backlog of demand for data centers. I'm not sure. And there's so many in the progress of being built. I I'm really not sure of that story. You could be right. Um but it's one of those wait and sees and this is you know this this pressure on data center buildouts it's not just Democrat it's not blue. >> No I know >> it's both sides right. >> So that's my point is not necessarily it's just that what we knew before the election and what we knew after in in my mind is not material materially different and that's what matters. if if the market knew it before it was priced in. So what really changed and that's where I think it was much more technical unwinding of positions, margin calls, whatever triggered it. Um and then so then you look for more technical evidence. If this was really a crash, the beginning of a real crash in in the market, especially focused on technology, bonds would have done much better yesterday on uh Wednesday when the market got hit hard. Bonds were up a little, but it wasn't anything spectacular. Gold was okay. I would have expected to see more either up or down, but not kind of flattish gold. The dollar was relatively unchanged. So you didn't see it in other parts of the market where you typically see uh a bigger reaction >> like a democracy >> haven >> could be right Wednesday could be the beginning of you know the the the bubble in AI crashing like everyone you know like so many people are warning about but there's very little evidence and all this kind of the way it all happened around the election and and just leads me to believe that this was a technical issue. >> Okay. So, let let me ask a couple questions around this, you know, based on some rumors and stuff or or just narratives that are going along. U but first, >> uh would not surprise I think most people to find out that there was a big hedge fun several you know that got caught with their pants down and and were forced to liquidate and that's why things were just so relentless uh yesterday. But presumably there had to be some sort of instigation, right? Some some sort of trade where they realized, "Oh my gosh, we're way underwater on this trade." Um, do we have any sense of of what could have started that? So maybe it would have been a down 50 basis points kind of day except these guys found themselves overleveraged and and on the wrong side and then things cascaded down from there. But but what do you think was the you know the the the the trade that they might have been so on the wrong side of that then started forcing them to sell >> long AI but not the day not the hyperscalers long the buildout of AI and if you go back and look at uh Wednesday right Thursday was the blow up Wednesday was the day the market was up a lot the hyperscalers Amazon Microsoft etc neighborhood they were up five six seven Amazon they were up five six 7%. Those the chip makers the um uh like Caterpillar those companies were flat to lower. So there is was already pressure in those those sectors. They had grossly underperformed the day before. So there was already and they had been declining. They had been just out of favor. They've been out of favor for a little while. So, you know, go back to that situational awareness fund that blew up. What was that? Two months ago. >> They blew up. But on the other side, there was who who bought it all? Citadel. Citadel bought all their securities at a discount. My guess is that there were hedge funds that knew that there were that there were hedge funds off sides and were purposely shorting or selling or pushing some of those stocks down and it kind of created more of an avalanche than just one firm relenting. Um, so you know, I I think we have to be careful assigning fundamental political ration to something that I think at least at this point and look, no one knows for sure. Well, there may be a few people that know for sure, >> but from what we we know, what what we know, what I think, this is much more technical than it is um anything other than that. >> Okay. Um, so there are some people out there that are claiming, all right, look, the AI bubble has burst and now, you know, it's going to the next couple of months, quarters, you know, maybe the unwind of that. We don't know yet necessarily, but one of the things that they're saying, at least as of the end of yesterday, was um the NASDAQ's down 15 plus% from its its all-time high this year. Um, that's already getting close to like official correction territory, right? So they're sort of saying, look, it's it's in process, right? It's not it's not that we're we're trying to, you know, make a prediction of what's going to happen tomorrow. We're looking in the rearview mirror now and saying, look, enough damage has been done here that we're starting to say, you know, we're official corrections not too far away. What's your thinking on that? >> Have earnings have earnings forecasts collapsed? Have they changed? No. >> So, you know, you could say it was overbought technically and and it was. we got a correction. Uh but I don't you know first of all you have to when you you can't just say okay it's down 10 15 20% it's in a bare market right because if you take a utility stock down 20% with a very low beta that's a lot more meaningful than Intel which is up what were they up 3 400% for the year >> down 50%. So, you know, the the the NASDAQ is much more volatile than the S&P, than the Dow, than than the utility or staples sector. >> So, 15% for the NASDAQ is meaningful, but it's not the end of the world. It's not necessarily a correction. It's a consolidation. So, I think what they're saying is is, you know, we're getting growing confidence that top is in on this this mega trend. And, you know, we'll see what happens from here, but again, some people are are sticking their necks out and saying, "Hey, you know, we're not we're not going to make a new high here." Obviously, nobody knows exactly what the future lies, but it sounds like you you're not at this point >> willing to entertain anything like that, at least until you see earnings estimates start to get compromised. Is that a fair assessment? or or if to your point that data like there's new legislation that the Senate, the House, and the President are all agreeing on that would slow down data center growth or, you know, some other news event that we don't know. But right now, this just really just feels like the market doing its thing and everyone wants to assign some kind of narrative to it. uh everyone you know so many people want to say AI is in a bubble and there are certainly some stocks that are in a bubble um but these companies these hyperscalers can't can't make they're making so much money um outside of AI they can support this um that doesn't mean every company will make it a lot of companies won't make it but when do you want to call the top on that right now it seems a premature. But again, you know, this is why we use technicals. If we're wrong, we'll see more technical breakdown. We will take action for our clients portfolios, but right now there's very little to see other than a short burst of volatility. >> Okay. So, um, one of the things that has defined this year has been the rotation of capital between growth and, uh, value. And that's something that you and Lance um have talked a lot about on this channel. Um and you've you've been trading, you know, uh based on that when it you think the pendulum gets too far one way, you start um lightening up and then adding up on the other side, anticipating the swing back. One of the things I found interesting about yesterday was I thought it was going to be um you know, the tech sector really driving all the action. There was some concern about tech that was pulling everything down and obviously the tech names got totally you know battered. But when you looked at the equal weight index, it got pretty battered, too. You I think the S&P was down a little over four, like I said, but I think the um the equal weight, sorry, the market cap S&P was down a little over 4%. But the equal weight S&P was down over 3%, I think, or close to that. Um what do you take from that? That it was kind of a broad-based sell-off versus just a tech sector sell-off. >> It was. So, you're right. In the morning, it was all tech. So, the the heat map was half green, half red. But you're right, as the day went on, as the losses became greater, the those greens turned red and tech led the way, value outperformed versus the S&P, but they were all down by a good amount. I think the Dow was down 3%. Uh, so you're right. And then >> you were kind of talking smack about gold not doing much, but in a day where there wasn't really any other place to hide, flat is better than down 3%. >> No. My point about gold was if this if this is the beginning of something real I I think it would it would be either gravit a lot of money would gravitate to it like bonds I would have expected gold and bonds to be up decently >> because you would have expected a flight to safety capital just rushing for >> correct and the dollar too and we didn't see any of that but but to your point and this is kind of the first time we've seen the heat map all red it's either half green half red on one side or the Um, so that is something to take away from that. But one day certainly does not make any kind of trend, especially after a big event and with all the positioning that went into it for months beforehand. >> Agreed. But I'm just curious, what do you think? Does that tell you anything about the state of the market? Um, if everything sells off on a day when everybody gets spooked, >> one day doesn't one day is one day. I think the I think people got spooked. Market, you know, market's holding in today. S&P's up, you know, almost a percent. Nasdaq's doing better. Dow is down or flat or whatever it is. So, you got a little bit of a reversal. Let's see how it does Monday, Tuesday. It's quite possible we come back come in on Monday and it just starts selling off again. And if it's selling off where it's all the whole market's selling off, that may start to tell us that there's a regime change and that, you know, we need to keep an eye on our because we're sitting at the 200 day moving average. That's a key level. >> So, you know, if we come in down decently Monday, we're breaking through the 200. that may change the way we approach the market, especially if everything is red versus the old half and half that we we've become used to. >> Okay? And look, I'm not trying to sell a narrative or an outcome here. I'm just probing to try to get a clear sense of of how you see it. And I will say a number of people that I've had on this channel, um, even those that are maybe kind of quite bearish for 2027, um, but I would say the majority of folks that I've interviewed recently think that things are more set up for a a, you know, strong end to the year. Um, so, you know, I don't think it would surprise folks like that to see that today was sort of a one-off or, you know, there's not too much follow through and then for a variety of reasons, stocks start to power higher into the end of the year, especially because we have the the uncertainty of the elections now behind us. Um, so again, I'm not not I'm not trying to force you to say, "Oh, I think things are going to hell in a hand basket right now." I'm just trying to to clarify. >> No, and generally, I do think we trend upward through the through the rest of the year. A lot of buybacks need to happen. Rebalancing there. There's reasons for it to go upward. Plenty of reasons I can say could go downward, too. I'm more worried about next year than the next couple months. Next year is when the interest the interest rate increases we've had over the last five months start having a bigger and bigger impact. Um, but you know, but [clears throat] right now I think the trend is generally higher, but we're sitting on a 200 day moving average and we need to pay attention to that and what that tells us. Um, like you said, I think it's important to note that everything was red yesterday. So, is that just one day blip or is there more to it? Those are the things we'll pay attention to over the next week or two. >> All right. Um, I think I heard you intimate this at least, but let's just clarify it. Um, nothing that you saw yesterday or even this whole week has caused you at RAA, you and Lance, portfolio allocation wise to make any, you know, immediate changes to the portfolio. Correct. >> Well, on u Monday we did make changes to the portfolio. We shifted That that that was in advance obviously if the election was not that would have happened. Yeah. >> In advance. No, right now there's there's really nothing that we're other than adjusting exposure to tech to value or just reducing exposure or adding exposure kind of more broad macro portfolio management. There's nothing in particular that we're really focused on that we want to make sure we add or subtract exposure from. you know, individual sectors or companies related to the election. >> Okay. So, I just want to put some words in your mouth and change them if you don't like them. But to somebody who looked at yesterday and is still kind of triggered and freaked out about it all, you would say, "Take a breath. Take a beat. We need to see more data before we can make any major conclusions here." And and we at RAIA aren't panicking or or or making a bunch of radical decisions. >> Yeah. Yeah. And I would add to that, look, you're in a market, you're in investments that can move multiple, you know, a few percent a day. This isn't a bond investment. You are in stocks and and this is what comes with 10, 15%, 20, you know, 20% gains year after year. There is volatility and you have to be able to watch the volatility, have a rational mind about it, know when to reduce, know when to just say, "Okay, let's just see how this plays out." It's it's usually dangerous when you have an event to react to react you know unless the event is decidedly different from what was expected or it's an event that no one expected it can be very dangerous to react to it because I mean look at the night Trump won in 2016 the market when I went to bed the S&P was down 7 8% they were stopping trading for periods of time I wake up and the market's on its way to being flat and I think it closed the day flat, right? It was the end of the world because Trump was going to win the night before and the next day everything was glory and for the next month the market just rallied. So you have to let let all these things kind of sort themselves out over a few days and then reassess the market. >> So we're we're still in that period, right? It the election just happened. There were some big flows trades that happened, big reactions. Let it settle out a little bit and not get too sensitive to losing a few percent in a day because the market's still up decently this year. >> Yeah, I just checked. It's up about 8 and a half. Um the S&P is up about 8 and a half since the beginning of the year. Um okay, so you know, if you're if you were freaking out yesterday, Michael says just take a beat, take a breath, don't panic. um I don't think this is the case, but are you looking at any um assets after yesterday's bloodletting saying, "Hey, we really want to get into these now because it's a better price." >> So, last night, Lance and I were talking. This was well after the market closed, and we both kind of wanted to jump into a couple of the tech stocks that have really gotten creamed. uh we said okay let's talk first thing in the morning before the market opens and those stocks were opening up 8 10%. >> So we kind of blew our opportunity. Uh we weren't going to add much but we're just going to add on the margin. Um so we thought more you know from the perspective of this again is not political not fundamental. It was just let's take advantage of what just happened and buy stocks that are already cheap. even cheaper. Um, we did nothing today because the market had already gained back half of those uh losses from the day before >> for those stocks. Not not for the overall market yet at least, but yeah. >> Right. Right. And um, you know, we're still in that mindset is let's just give this a few more days. Let let's just see how this works itself out um before we do anything bigger than just trying to I mean we were just going to cherrypick some gains. Nothing, you know, if we went wrong it wasn't going to be enough to really matter, >> right? >> But um that was, you know, a little insight into how Lance bugs me at 600, seven o'clock at night. >> Six, seven o'clock at night. That's pretty much when Lance goes to bed, >> right? It must have been as he was getting in bed, he called me. >> Yeah. Yeah. Um, all right. And I again, I really appreciate you, you know, sharing that transparency, but also just the thought process because that's the real value of having you guys on here is that people can see how a a quality portfolio manager thinks in real time, especially when things are are, you know, emotional in the markets. >> And Adam, that was that's kind of the trader in both of us >> more so than the uh portfolio manager. We just recognize things got very cheap. Again, doesn't mean they can't get cheaper, but the skew of returns at last night seemed much more positive to the upside. >> So, that's the trader and both of us. >> Okay. Um, so today, Michael, the the second thing that everybody's talking about beyond what the heck just happened yesterday, um, was the new jobs data, which was really good. Um it they came out beating I think every estimate on the street. It was one of these sort of five sigma beats. Um and kind of every job number was good. Um everything from uh hiring to um wage growth. Um the unemployment rate came down. So, you know, definitely seems to to show uh hey, there really aren't any problems in the in the in the job world. And and even the sort of no hire, no fire economy, there's some hiring going on. Um so it's not a zero hiring economy anymore. Um now, you know, you you can take some comfort out of that. All right? You know, the economy uh should should do better potentially as a result of this. At the same time, a lot of chatter that it's going to give the Federal Reserve a lot more air cover uh to hike. So, the the probability of of rate hikes are going up. Um that's probably one of the things that's weighing on gold today because when when real rates go up, uh precious metals go down a bit. They generally um so how material is this? And um do you guys expect any sort of you know implications investing wise coming out of this this news? >> Immaterial. >> Immaterial. >> One month does not make a trend. These numbers have been revised so much lower over the last couple years that you can't put stock into one month. Even if they have been revised, it's one month, right? You want to see a trend. If we get good job growth for three or four months, if ADP, if jolts, if the the ISM surveys start and the federal the regional Fed surveys start telling us that employment growth is getting better, then yeah, there is a the labor market's improving, but you know, fool me once, we've seen very good job numbers get go negative in in you know, as it gets revised down the road, >> future write down. Yeah. and and look even if right again but again there is volatility in in jobs numbers and there's a seasonal aspect and the way they account for the seasons can be very screwy and and this year is different from prior years so you know again if we see it for a few months I'll change my tone but right now it's a very stagnant labor market no hire no fire which is fine but if people start getting laid off there's really no cushion because no one's hiring. Um, so, you know, again, I I don't put put much stock into it. You know, the the the one thing though is it gives the Fed a little more rationale to raise rates at the December, I think it's 9th meeting, >> right? And again, >> but there is another unemployment number before then. And there's CPI next week. And CPI comes out the day after the Fed meeting. My guess is they will know that number when they're talking. >> Okay. Um so let let's just assume for a moment that the data that they get reaffirms this sort of you know continued strengthening of the jobs market. um if that makes them more likely to hike and they do, do you expect much to change in terms of asset prices as a result or do you think it'll all be priced in by then? >> Priced in now. So, you know, the market it's like what an 80 90% chance the Fed's going to hike. So, you know, barring something big changing, price of oil dropping to 70, um the unemployment being revised much lower and next month's unemployment negative, I suspect they will hike. That's what they want to do. Um they made that pretty clear. Why they didn't hike in October, I don't know. I don't agree with them, first of all. But if you're very concerned about inflation, I'm not sure why you hike and then you take a month off [snorts] waiting for a hike that can take many months to impact the economy. So I I think they do hike. Um again, unless there's something between now and then that that goes the other way. And that could include if yesterday was a harbinger of things to come and the market really starts tanking, Fed's not going to hike. Mhm. Um, so I got two questions on that. One is, let's say the Fed does hike as expected. Um, obviously that brings up short-term rates a little bit. What do you think, if anything, it would do to longer term rates like the 10-year? >> I think brings them down. >> Brings them down >> because the the Fed is basically pushing the it's increasing the odds of disinflation and lower economic growth. So I I think we've gotten to the point where the long end is cheering on the Fed to make a policy mistake to keep raising rates. The short end is saying no don't don't don't just stay where you are are. And you have this kind of like an animal house the devil angel scene u where you have one side of the market you know begging for the Fed to make a mistake and the other side saying please don't. Um, so you know, again, there's a lot of narrative built into bonds. So if the Fed keeps hiking, bonds could keep rising. But that would be my bet is that, and we've seen it already, that bond the longer end has really reacted positively to the last Fed hike and, you know, continued expectation that they do one or two more. >> Okay. So, um, you mentioned yesterday that you would have expected to see more money go into, uh, into bonds. Um, and you didn't see as much, but, uh, yield still went down. 10 years still went down, and I think it hit a new low for the year if I'm not mistaken. Um, >> not for the year. >> Not for the year. Okay. But new low for at least a number of months, right? So, it was down to like 4.8 eight and a half or something like that. >> I was gonna say a little lower, but sure. >> Okay. And maybe even a little I'm doing this from memory. Um so there is a fair amount of talk now that you know the peak is in for yields and that um you know the trajectory going forward is going to be lower for yields not higher which I think is a song sheet that you and Lance have been singing from you know much of this year. Um, I mean, in the immediate term, could we see a jump back up? Sure, for a little bit. But, but a lot of folks saying the trajectory is going to be downwards in yields. And again, I I believe you feel the same. And I just want to put up a chart here real quick. Um, I just got to see if I can do it in real time while we're talking here. Um, okay. Yeah, here it is. Um, here's the um price of the 10-year. So, remember that price is inverse to yield. So, as price goes up, yields go down. You know, you can see here that things really, it really does look like we put a bottom in in October and um you know, pretty definite. I don't even want to call this a cup or whatever. Um how confident are you starting to feel that the bottom in yields is in? So just looking at this graph right here, you could see that this thing was steadily downward trending until couple months ago. And then that trend uh became much more severe, right? Downward. So all we've done with this rally is kind of get back to where that trend would have taken us. So I'm not I'm not convinced that we've seen a bottom or a top in yields. Um but it it is uh the tone of the market has changed. We don't hear about deficits anymore. We don't hear about the dollar going away as a reserve currency. Some of that negative narrative is starting to fade a little bit. And you know, we've talked about it before that term premium is why one of the one of the big reasons why yields spike so much. Mhm. >> The underlying break even uh inflation data wasn't responsible for nearly that much of a yield increase. So you're you're you're kind of almost asking a little bit of a psychological question. Has the market gotten over that narrative? Are deficits no longer in that in the spotlights? Um, I I think we may have bottomed in price, topped in yield, but I'm not really overly sold on it yet. And we could look, we could be on our way to 2% yields, but we get a double bottom. Double bottom is a very in that graph you showed or double top in yields. That's a very common technical signal and very sturdy signal. So, you know, I'm not waving a victory flag. It looks certainly looks favorable. And, you know, the other part of it is that we've seen the impact of high yields on the hyperscalers for instance. They're they're starting to issue equity instead of debt. Um, we know there's a big wall of debt coming, corporate debt coming in the next year or two. Will they issue more equity over debt? So that's alleviating supply in the you know the long end whether it's corporate debt or treasury debt there's less supply because they're issuing equity which is also showing you that as yields rise it has impacts on the economy on other on the way companies finance themselves that higher yields beget lower yields. So I think we've started to see some of that. Um, but I wouldn't rule out that we're done here, that this is it's all gravy from here. >> Okay. So, you know, a big question that folks are asking right now is if the the peak is in for yields, you know, do we scramble to lock these in, right? Do you try to lock in a near 5% yield? If you >> Yeah. If I knew if I knew the peak was in, I'd buy as much as I could. >> Yeah. But, you know, nobody ever >> I don't know that. >> Nobody ever knows for sure. But as a capital manager, you got to place your bets to a certain extent. So my the spirit of my question was just >> are you guys increasing your bond exposure in anticipation of lower rates over the next, you know, couple years now or you are you waiting and seeing? >> Well, we did a little bit a month ago, whenever that was, we bought the five-year new Treasury issuance whenever it went at issuance actually at 5%. Uh so we did we did do that. Um, we're waiting to see though. We may add more. Uh, but we'll see. You know what this is? Yields at these levels are very attractive to pension funds, endowment funds, insurance companies. They're also very important for individuals. And I'm going to go off on a little tangent here, but I was watching a few weeks ago the Cowboys were I wrote about this in my article. Um, actually, it's my article to come out next week, but I'm watching a football game and the Buccaneers are beating the Cowboys by two touchdowns, 14 points. They have their ball on the goal line getting ready to score. It's fourth down. The question is, do you kick the field goal and go up by 17 or do you run for the try to get a touchdown and go up by 21? So, it it's kind of a question of do you want to how much do you want to guarantee the win versus letting the Cowboys back into it? They went for it, they didn't get it. The Cowboys score. There's still like six minutes left. The Cowboys easily could have scored again and won. A lot of that was because the coach didn't just take the easy three points and almost guarantee himself a lead. He tried to be a little more egregious and get seven points, which just changes that percentage of victory a little bit. But in doing so, he let the Cowboys back into the game. >> Mhm. >> The Buccaneers won. But the point is, if you're managing your retirement and you know that if you can make, pick a number, 6% on your money, why not add or at least have some exposure to bonds that pay five, five plus%. Kick the field goal. Stop worrying about what the market's going to do. There are times when it's okay to just kick the field goal. Focus on your goals. Um, and that's what ye that's where yields are. I think for a lot of people it's like why why why not reduce a little bit of my risk and just lock in a yield that I know gets me to where I want to be or where I need to be. So, uh, we did a little football there, but that's how yields I think we've seen strong buying. We saw incredible 10 and 30-year auctions about a 3 four weeks ago when I'm trying to buy municipal bonds half the time. So I'll get an email says, "Hey, we got, you know, whatever Minnesota state bonds at this level." I'll write back or I'll call back. I'll say, "Hey, can I get, you know, get this many for a few accounts already gone?" we were getting a lot of that where I just can't I couldn't buy bonds I wanted to buy. Um so there's definitely a strong demand when you get over 5%. >> So I think it's a really good um emphasis of the point I'm trying to make here which is let's say [clears throat] regular investors watching this and they don't have a ton of allocation to bonds right now. We've we've talked in the past about how, you know, right now, this year has been the record level year for equity exposure in all portfolios, especially older people's, right? Um, we've talked about how that's that's not super prudent. So, you know, people have the opportunity right now to do something about that if they want to while yields are still pretty high. Now, you said, "Hey, maybe we go back to a double top um or in yields or or who knows, maybe yields go even higher, you know, than that." Um, but we don't know that for sure, like you said. And in fact, the trajectory right now seems to be lower yields and you from your strategic outlook are expecting lower yields over the next couple years. So, you know, is this is this a potential sign that says, hey, look, the train may be starting to leave the station. we may not get another shot at 5% yields. So, if you don't already have enough bond exposure in your portfolio, at least give some allocation to it now. And if it goes up, if yields go up even higher, great. You can add to it and lock those in. But if they don't, at least you've locked in an around 5% yield on on some of these instruments to help you to, in your words, kick the safe field goal and don't don't, you know, don't worry too much going forward. As long as you can hit your financial goals by the time you want to hit them, then don't try to beat the market every year. Just try to increase your odds of making sure you hit the goal by your your deadline. And then, you know, enjoy the rest of your life. Don't worry, you're taking on less risk. >> That's why we invest. You go to the you go to the horse track or you bet on sports to try to make a quick profit. You invest to meet your financial goals. So, there are times >> as safely as possible. >> Right. Right. So there are times where it's I'm not saying go all into bonds at 5% and call it a day. What I'm saying is add a little exposure. Think about how it's nice to have that steady rock earning 5% in a portfolio. It just reduces the risk of the other part of the portfolio. Um a little math here, Adam. If you let's just we'll use round numbers. If you had bought the 5-year bond at 5%. If yields go up to about 610 620 in one year, you're break even. You get the coupon. You'll lose in price. You'll basically earn zero. If yields drop to 4%, you'll get your 5% coupon and you'll make four four and a half% you'll make call it 9%. So your your riskreward was on a 1% move 9% 0%. Or if it goes nowhere about 5%. So that's a nice skew. But now consider that if yields go to 6% the economy is probably toast. We're probably looking at disinflation because the economic demand will start really becoming problematic. you're you're talking about more financial pressures on these companies that have to borrow money. So 6% begets 4%. So even if you have that year where you make nothing, you're you're actually in a good position to get, you know, to for it to a better position for it to reverse, >> right? And even more even more so, while it is, you know, starting to reverse from 6% because it's weighing on the economy, um the equity market's probably not doing very well in that. >> That's a great point, too. >> As the bonds start recovering, you're recovering, collecting your income, and you're watching all the equity holders around you take it in the shorts, >> right? And and the other side of it, let's say yields go to 2%. You you do really well in your bond. My guess is stocks are really struggling. there's something going on. The economy is really, really getting hit. Earnings are probably getting hit. Stocks are probably getting hit. You can sell your bonds and you can buy stocks that are now on sale. So, you know, you put all that together and yes, yields can rise. But again, even if they rise a percent, you're break even on the five-year. you know, on the 2-year, they probably have to rise 2%, 2 and a half% to break even. Um, so you know, it's just from a just a rational point of view, mathematical point of view, it makes a lot of sense for someone to, you know, for someone that wants part of their portfolio to just be a, you know, a nice solid, I'm not going to say no lose bet, but decent probability of earning a decent return. You're not going to earn 30% 40% on a 5-year bond, but if you can kick off five, six, 7% between coupon and price, that's a nice bedrock for a portfolio. Okay, so um just to make this meaningful for folks. So, uh for better or worse, a lot of investors don't have um nearly as much experience bond investing as they do in stocks. For a lot of people, it's well, bonds requires some math, and when it gets mathy, I start to not really be able to understand it. Um, which I get, but at the same time, the math isn't really that hard, folks. We're still talking about, you know, addition, subtraction multiplication um division. It's it's not calculus here. Um, but if somebody just wants to sit down with an expert to say, "Hey, look, just walk me through what would make sense for me right now given my goals and my specific situation." Obviously, that's something that you and the team at RA can do for them, right? >> Absolutely. Please give us a call. We'd be happy to talk to you about it. >> All right. So, obviously, folks, if you want to do that, just fill out the very short form at thoughtfulmoney.com and the team there at REA or whomever you're matched with will be happy to help you walk through all that. Um and and then just lastly on this, um we don't know where yields are going, but you you basically just outlined that the the downside risks from here seem not nearly as much as the potential safety and and potential upside that you could see here. So, um the spirit of my question was sort of like is this one of those you're hearing like the the the whistle at the train station that the train might be leaving soon? So, if you're not already on it, at least get some think about getting some exposure now. possibly. Again, with that riskreward skew, it's not the end of the world if you get on the train now and it goes backwards a little bit. >> Yeah. >> Um >> and you can even add there if you have, you know, some more dry powder at that time right? >> Absolutely. So, it it's look, I'm not definitively saying that yields have peaked and they certainly could go higher, but again, higher yields beget lower yields. So and if look if yields keep going to 7 8% we got much bigger problems. Yeah, >> the economy, right? So again, that can happen. Highly doubtful. Then you start talking about disinflation, deflation, and your real yield is unbelievable. Uh the Fed probably steps in. The Treasury does what they can do. So there there is downside, >> right? >> I'm not saying there's not. If you hold it to maturity, you're going to make 5% a year. Yeah. So, >> but but I hear you saying through all this is just the outlook for bonds looks pretty good for all those reasons. Um and um so yeah, if you don't if you have exposure to them right now, do so. But yeah, I mean if if the Fed I if if it goes up so high that we're having all those issues that you're mentioning um uh you know the great part about these bonds and right now too is you don't have to go out to 30 years in duration, right? You can you can go out to, you know, three years, five years and still get pretty close to what the 10 year or more is offering and let's say it goes against you, right? Well, you just hold it to maturity. It's like you're you're going to get your money back and you're going to get paid. So, you're not going to be losing. And if we get to the point where it becomes calamitous um and we get a big central banker response, you know, there'll be the flight to safety and then yields might get pounded down to three less than that. And if so, not only you getting paid a very attractive yield giving what yields will be doing in that environment, but you'll be getting a really material price appreciation on these things. So, it kind of seems if you play this smartly, your worst case scenario just might be, all right, I got to wait three years or five years to get my principal back and get paid along the way. >> Field goal isn't always sexy, but if it wins the game, it wins the game, >> right? A Super Bowl ring is a Super Bowl ring. Doesn't matter how you how you win it, right? Yeah. >> Yep. >> Okay. Um, last thing on bonds. Um, you know, I'd been talking a couple weeks ago about um how MUN bonds were were starting to look pretty attractive and I was asking around who I should interview for MUN bonds and Lance said, "Oh, you should get Mike Lowitz. He's like the master of munis." So, two questions for you. Can you give us just a highle um take on on what you see right now in terms of the opportunity in munis? And then secondly, is that enough or is this a topic that we could do a full standalone video on? Mike. >> Yeah, I fully like I've traded bonds. I've managed big institutional bond portfolios. I understand bonds inside and out. The only difference between a MUN bond and a corporate bond is the there's a lot of differences, but at the the the highest level, it's just the issuer of the bond is a is a municipality, whether it's a state or a town or a you know, some other entity. Um, when you trade them, they're a little different because they're tax deferred. So I if you really want to get into the weeds on municipals, I would talk to someone that really trades them inside and out. But you know, from someone that fully understands the market, you can pick up additional yield over treasuries, just like corporates, the one thing you have to be a little careful on is it's much easier to sell a corporate bond than a municipal. It's not hard to sell a municipal bond, but there's a wider bid offer spread. So, it means when you go to sell it, you may not get the price you want on a municipal bond. The it's a much tighter bid spread on corporate bonds. You'll get very close to the price you want. And treasuries, there's almost no bid offer spread. So, there's a little bit of illquidity in municipal bonds. Um but you know like corporate bonds you know so you can take a treasury at 5% maybe you can buy a high-grade corporate bond at 530 or municipal bond when you add in the tax benefit at 530 540 they're all worth considering um but you're also taking credit risk >> and by that I'm not saying that the corporate bond or municipal will go bankrupt but if corporates spreads widen. So if the difference between a MUN and the Treasury or the corporate and the Treasury widen out, it could widen out like this. Treasury yields go down, municipal bonds go yields go up. May not it may you may be right to be in bonds but in the wrong bonds. So that's where credit spreads and uh we've been talking about that more and more recently are incredibly important to follow. and >> and hip and whiting in general recently. Correct. >> They have and we I can show it you know in a little bit when I start sharing my screen but munis tend to track corporates to some degree. Um so a lot of people look at corporate spreads as kind of a proxy for municiples for bank loans for other sources of credit to understand what's going on with yields at the actual econ. So from an economy point of view, who cares where the 10-year yield is? I want to know where mortgage rates are, where auto rates are, corporate loans, bank loans. You know, that that's what drives the economy. So that's where the spread is important. >> You know, fiveyear treasuries at five doesn't tell me where IBM can borrow or where McGomery County, Texas can borrow or where, you know, pick the issuer can borrow. So that's where that spread is so important and that spread could tell you a lot about are our financial conditions getting uh more restricted or more or easier. So we pay close attention to that and it's also a gauge of liquidity. And actually if you want we can just why don't I pull that page up. >> Yeah. >> Share that page. And uh so what I am going to show you here is coming from our new simple visor. We updated it. I'm not sure you've seen it, Adam. >> Lance has shown one or two like deep views of it, but we haven't spent much time with it yet. >> Okay. So, um maybe we'll go through credit spreads. I can show you a little bit about what's going on in the markets in general afterwards. So, this is corporate credit spreads and this is an index. So, where I'm at now are tripleB bonds. Everything above tripleB triple B and above is considered investment grade. Below it is considered high yield or junk. Um, tripleB is kind of like the S&P 500 or the corporate bond market. That's, you know, if you had to go to a desert island and only had one piece of corporate bond data, it would be tripleB. Um, so what this is showing us is that the spread over the treasury, same maturity treasury as the index, it's about 5 years is 1.16% 116 basis points. So, um, to the right we could see, well, that alone means nothing, right? We we we need it in context. So over the last three months, it's in the basically the upper end of the range, the 98 and a half percentile. It's it's about as high as it's been, but when you scroll back over time over five years, it's about average. It's about in the 50th percentile. And going back 20 years, it's only in the it's in the bottom 15th percentile. And we can Oh, I'm sorry. I was Yeah. So let's click on that and we can graph these. So here's tripleB. This is the spread over the last three years. And you can see they to your point they've been rising. They were 95 in September and now they're 116. So they're up um you know 20 basis points or so. But when you look at that graph, that short-term graph, it's like okay, they're up. But even just back in um you know with the tariffs they got up to 140 150ish. Now if we look back over time on the right you could see that you need you need a microscope here to see that it's even ticked up right now. A lot of that is because the whole yaxis is so skewed from from the financial crisis. So if we let's just look at tenure that backs that financial crisis out. You can see it is increasing but this is nothing to be concerned about yet. Kind of a normal variation. >> We should keep an eye on it because it is increasing. >> What is a little more disturbing is triple C. So this is the junkiest of the junk. And to be fair, it's not the most liquid. There aren't that many bonds in it. and a couple bonds have a problem, it can skew the whole index. But you could see that we've had a significant increase in triple C yields. Uh that's been materializing actually for a while here. >> And even when we look out over 10 years, it's you know, it's not just, you don't need a microscope, you can see it pretty clearly. >> Yeah. I mean, it's basically the second highest in the data set, more or less, >> right? Since co >> Yeah. Um but you know again you back add the financial crisis uh and you can see these spreads could blow out a lot more. Um >> and you know 20 years it's in the 88th percentile. So it's pretty high. Um and Michael sorry to interrupt but um so you know we looked at tripleB not a problem. Um, and who knows what's going to happen from here, but is it generally with credit spreads a contagion effect where it's the worst debt that starts failing or you know, >> you're reading my mind. >> Okay. >> You're reading my mind. So, what I was going to show next is >> if this is a problem, you'd start seeing it rise from the bottom up. So, single B, double B, you would start to see those spreads rise. And if you look singleb you know again it's in the upper it's basically at the the highest range in the last year. Five years it's a little above average and 20 years it's 26%. So it's in a lower quartortile. Um but when you look at you know the three-year it's this looks a little different than triple B. It's rising more and you can see it here on the 15-year graph. uh whereas on tripleB you couldn't really see it. The the other way to look at it is here. Uh these are the spreads. So to make it easy, this bottom 1272, that's the spread of triple C over AAA, not treasuries anymore. Now we're comparing bonds to bonds to see how that contagion is happening. Are those lower credit qualities increasing more in yield than the higher credit qualities? Um, so if you look over here, you could see over the last four weeks, triple C has gone up um, let's just look at this first tripleB has gone up 54 basis points. But what we've just started to see over the last week or two is that now singleb is starting to have to increase. About two weeks ago, these numbers were all low single digits. So we're starting to see a little bit in single B territory. >> Uh you can see double B still negligible. >> Um so that's something we're keeping a close eye on to see if this is spreading. um that's a concern and it feeds liquidity. It's a gauge of liquidity. So from there and I want to take you to um we created a new liquidity gauge uh which is right here and right now it's slightly towards tighter uh liquidity not very concerning but what we do want to note is that you could see a month ago down here it was 523 so it's moving to the left >> and as credit spreads blow out, you would expect it to move further to the left. Correct. >> Potentially that there's eight factors in there. Um it's things like credit spreads, it's overnight borrowing rates. Uh so there's these financial banking it's reserves it's banking issues and then some market issues like bond yields uh dollar uh price trends uh and volatility of the dollar and bonds along with kind of that banking financial aspect. >> Okay. But but all other things being held even if credit spreads rise it pulls it to the left. Okay. >> Yes. So when we diagnose why has this been weakening this really all comes more towards the financial banking the financial plumbing of the system is this is not alarmist but showing some signs of liquidity strain. So for instance bank reserves have dipped below three trillion which is the level of comfort for the Fed. Not much below three but it has dipped below. So bank reserves are a little weak and that just means banks are not as easy as easily able to make loans as they were. That has an economic impact and a financial markets impact. The overnight there's kind of two overnight borrowing rates. One is which the Fed targets the Fed funds rate and the other is the sofur rate. It's the old lie rate and that's sofur is collateralized borrowing. So you have treasury collateral backing a loan. In theory, a bank would rather take a sofur loan because it has collateral than a uncolateralized Fed funds rate. And because of that, they tend to trade at the same level. Recently the collateralized rate has been 5 to 10 basis points above the U uncolateralized Fed funds rate. Not a big deal. something we're watching. So, you know, you're starting to see just a little bit of a liquidity squeeze, which should be exp. That's kind of what the Fed is engineering. They're trying to take some liquidity out of the market, trying to reduce demand. So, again, this is not doesn't keep us up at night. Credit spreads don't keep us up at night. But I guess the way to say it is I look at it every day now versus just checking in on it once every few days or a week. >> It's just, you know, a something to to watch. Um >> and and Mike, let's just say the contagion all of a sudden really starts ramping up. What would that influence you to do? So this is part of what happened in 2019, right? When we talk about those uh Lance and I had a good analogy, we said some guy comes to our house and says, "Hey, can I borrow $10,000?" And um you say no. And then he says, "I'll park my Maserati in your driveway and it's all yours until I pay you back." And you say, "Absolutely." But the way the market was treating that is they were saying, "Well, we want to charge you 7% instead of what should be 5%. There's something wrong. People just don't have the money to lend." And that's that's where you have to be careful. And in in 2019, we saw that happening. We were reducing our equity exposure. Okay? We weren't smart enough to know that COVID was a thing, but we did see that liquidity in the system was drying up. We we watched how the Fed lowered Fed funds, instituted a QE of sorts to try to fix that liquidity uh problem. So, you know, these things seem very mundane talking about collateralized versus uncolateralized borrowing overnight or what's single B, you know, single B or double B bonds doing versus double A bonds. But they really provide insight into the foundation of markets. It's money, right? Everything is all about money and the cost of borrowing. Uh we're very credit driven society. the economy. So, you know, just any insight you can get into what's going on there. Are there stresses that are brewing? Are there just things we just need to keep an eye on because they're they're acting up a little? So, yes, it ultimately could impact what we do on our portfolios, but right now they're just let's look at it daily instead of weekly. >> Yeah, you're not ringing the bell, but you are monitoring more closely. And um you you shared the key thing which is if they really started blowing out meaningfully um you would then be thinking about reducing equity exposure based upon the knock effects of the higher cost of money. >> Um okay so we got on this credit spread topic because we were talking about munis. Um so we can bring it back to munis. Um I guess just at a high level is is this does this remain an attractive environment to consider municipal bonds in? >> Absolutely. But just be careful know which you know munis tend not to default. They default at much lower rate than corporates. But every bond that's not a treasury has default risk. So you know you have credit issues with municiples. And again they may not default but if there's worries or concerns those yields could go much higher and you may not get the desired price changes. they'll still possibly mature, but you know there is some volatility in the price. If you're living in income u where a state like Maryland where I live with an income tax, you want to buy Maryland bonds or whatever state you're in because you get that benefit as well. So, a and you know, [clears throat] most likely I know I certainly know about my county and the financial health a lot more than I do about name a county in Nebraska or Wyoming >> or a utility district in Minnesota. So, you know, it also goes to that whole uh just know what you're buying. So, yes, municipals, there are opportunities here, but just know what you're buying. um when you look at the yield, look at it on a tax equivalent yield. So you're going to see yields that are about 3 1.5%. You're going to say, "Why would I buy that?" But when you you factor out the tax benefit, it gets you to five, five, whatever the yield may be. >> Yeah. And so this is the tax equivalent yield, right? You want to be that you want to be comparing Yeah. Comparing that versus just owning a regular >> uh treasury or whatever. So, um, so again, just to make sure folks understand, uh, if you own a municipal bond, um, it is exempt from federal, uh, capital gains taxes. Um, and it it sorry, it's exempt from federal tax on your income. >> Correct. >> Correct. Am I right about the capital gains or not? I want to make sure I didn't miss like when you sell the bond. >> Yeah, you I think you still have capital gains. >> You still have capital gains. Okay. But on a on a state level, you also if you're you live in that state, >> right? So to your point about Maryland, not only if I buy a Maryland municipal bond, not only is it exempt from federal taxes on the income, the income's also exempt from state income taxes. Um now somebody who lives say in Florida or Texas or Tennessee or in my home state of Nevada, um >> buy whatever you want. >> Sorry. You can buy munis anywhere, right? because you don't have to worry about the state tax part because your state doesn't charge state income tax. So, you can really cherrypick. You can you can look for the best of the best. Now, to your point, Michael, about >> I don't know anything about counties in Nebraska. >> Can you f like can firms like RAA help do help you do the research to say, "Hey, we've we think these are some of the best of the best out there and we've looked enough into the the risk of this particular municipality to feel comfortable recommending this mun." We have tools that help us analyze the bonds we own that bonds that we may buy. But to be clear, it's a uh somewhat opaque. That's why all things being equal on a corporate vers, I'd rather buy a corporate. The the SEC filing, the documents, just everything is just out there, very easy to get your hands on. Um we have tools, we use them. We're very comfortable with our municipal investments. We're very comfortable buying them, but it it's just a it's not as clean a market as corporates. At the right spread, it makes a ton of sense to corporates. At the same spread, because of that bid offer spread, because of the information, because of it's just very hard to track a water district in Ohio if you live in California. That's why you have to think about all these things before you just say I'm gonna buy a MUN, >> right? >> And that's kind of where I'm going on this is if there are advantages to owning munis right now and you haven't invested in them before, you probably want to work under the guidance of somebody who knows how to value this market and do the due diligence and do the research given that it is more opaque than just buying say a publicly traded corporate bond. So that's kind of the message I'm trying to get out there. >> Yeah. Adam, I'm not dodging your question. Yes, we can certainly help. We have tools. We can do it. Um, just give us a call. >> Right. Or I mean, look, if there's a better solution out there, let's direct people to it. But I I I I think the answer is is you want to talk to a firm that has in-house expertise in buying these things. It sounds like RE is one of them. Yeah. >> Yes. >> Okay. All right. Um, so we I skipped from stocks to to bonds. Um, but I forgot to ask you to um, look at any TA if you've got any easy access to it. Um, just as we're looking at the markets after yesterday, how much technical damage may have been done? What are some of the key indicators you're looking at going forward? >> So, let's go back. Um, okay. So, here's SPY surrogate for the S&P 500. One of the most important things to note here, this whatever color you want to call that, that brownish box, the market has gone nowhere since early May, >> right? We >> Yeah. Well, literally now after yesterday, >> right? But, you know, even before that, we had these four days in early August where the market had a rally. But if you kind of strip out those four days, this would almost look like a straight line. Mhm. >> Now, beneath the surface, there have been a large amount of stocks gaining and falling and then flipping around. I I did some work. There have been 60% of S&P 500 stocks that at some point this year have been 20% below their peak level of the year. >> Mhm. >> So, according to some, that's a bare market. 60% of stocks have been in a bare market this year, and the index is telling you nothing. Um, so as much as you want to pay attention to the S&P, you also need to pay a lot of attention to the sectors and to the stocks and what's going on beneath the surface. I think that this year has been more important than other years. Uh, >> and I just want to pause there for a second because this is very validating of what you and Lance and many others have been saying on this channel for the past couple years is that we are highly likely entering an environment where the passive set it and forget it investing strategy that worked great over the previous 15 years is is likely not going to work as well as an active strategy. And this this box that you've drawn here is a great example of that. Passive investors, your return right now is zero. But if you've been following the active approach of firms like yours, Michael, where you guys have been trying to ride those capital rotations between growth and value, you guys haven't actually been able to get a positive return over that period. Correct. >> Right. Right. And May 7th, we're at the same exact price level today as we were on May 7th on the S&P 500. Uh but going back to this, you could see I'm sure Lance Lance talks about this a lot. These white uh lines are the Ballinger bands. Uh they got very tight, meaning there's very little volatility. That's when you expect things to break out to some degree. Um we had a little bit of that. We're now we're now trading well below two. We're about we're below three Ballinger bands. Even though I don't show it here, we're sitting on a 200 day moving average, the blue line. The 50-day, this yellow line. So, we're at a point where you'd like to see a bounce. We're getting a little bounce today. You can see it. Uh, zoom in, you see a little more, but it pales in comparison to yesterday. Um, RSI got very oversold. You know, if you go back and look, the last time it was oversold was before that 4-day rally. We got a little rally at this one and we got a much bigger one here. So, the market got very oversold yesterday due for a technical bounce. Um, but the question will be can it hold on to its 200 day moving average. I think that's kind of the key level to keep an eye on going forward. uh at least you know for the next few days to week. Can we retake the 50-day or will we go back up to the 50 and bounce off it? Um those are kind of your two lines in the sand for now. >> And I just want to note, you know, you look at this chart when you go outside of the Ballinger bands, you tend not to stay there for very long. So, you know, looking at March, we were we were out of them for maybe like a month or so, but we were really kind of skirting along the bottom and then we went back into the channel. Um, in August, we got above it for a week or so and then we we went back in. So, much more often than not, when you punch through the bands like we have now, you generally go back inside them. So, I'm going to guess you would say technically there's a bias to, you know, this market recovering at least enough or going flat for a while long enough that it gets back in with the Ballinger bands. Were it to break the 200 moving day average soon, I would assume that would be a really bad sign that would that would basically say there's something going on here that is breaking the the normal relationship. Would you agree? >> Yes. But keep in mind with the Ballinger bands, like right where my my cursor is, the Ballinger band expanded. So that lower band was declining. The market was kind of sticking alongside the Ballinger band, right? To your rule, doesn't really get too far below it, but the line's declining. That's not necessarily a good thing. So the question is, is this line see a little decline here? If this keeps going and we follow it lower, right, that's the Ballinger band isn't necessarily helping you. Um, but yeah, we really want to stay above the 200 day moving average, but you can see the MACD D is getting it can certainly be more oversold. It's getting decently oversold here along with the RSI and Williams. So, there should be some sort of bounce. I guess the question is what happens? How far does that bounce take us? And what happens if it fades? Can we hold on to the 200? >> Yeah. Okay. Um well, again, just to sort of put a bow on this from our earlier conversation, um it sounds like you think, look, yesterday was probably a confluence of some one-off things like some a big firm or two getting caught off sides. Um markets pretty technically oversold here. Probably going to, you know, bounce back a bit over the next couple of days. We'll see. But your bias is right now short of any other data coming in. You think the market could still pretty much have a decent end of the year? >> Yeah, that that's my bias. Again, you know, bias gets thrown out the window. Technicals take precedent. So, bias is nice. I look, I think my Washington commanders are going to win every week. That doesn't really get me very far. No, but I mean but but as a portfolio manager, you have a bias of where things are going to head and then you are watching the technicals to see if that's proving out the bias or not. Right. >> Right. Right. So Adam, I kind of want to show you this stuff. This is pretty interesting. So this is a market style grid. So you have value, core, and growth, large cap, midcap, small cap. And we're using ETFs to show us what those sectors are doing. Today for instance, growth is up 1 and a.5%. Large cap value is basically flat on the day. But let's go back 20 days. So look at this. Large cap growth is down 10%. Value has been up, right? It's a that's a stark difference over just 20 trading days. >> And you can see as you go from midcap to small cap, those gains are actually a little better. Um so you know and we go down here. So today technology communications are leading the way. Staples are really the only red sector. A few sectors close to zero. Um the S&P up uh almost a percent. But let's back that down 20 days. The S&P was down 5%. If you had put all your money in conservative sectors, healthcare, staples, real estate, let's just say you put in those three, you're up 9% for the for that 20-day period. If you put it on tech, you're down 18%. That's why, like we said, the market's been relatively flat. There's been a ton of churn. Sometimes healthc care staples leading the way, sometimes technology leading the way. So trying to I'm not saying go all into health care or all into technology, but shifting your portfolio towards what looks to be undervalued and getting it out of things that are overvalued >> has been very helpful in managing portfolios for the last few years, but it's become more more so this year. >> Much more so this year. Yeah. And I I feel like I'm making this video, this week's video into a continued commercial for you and your services here. But um that's great visualiz visualization of of what you've been telling us. And you know, I think for if if you're a really engaged DIY investor, the Simplevisor tool super useful in staying on top of those flows, that rotation and and trying to position yourself on the right side of them. >> For the average person who's, you know, got a job and a family, you know, like it feels like it's a full-time job to try to stay on top of these capital flows. That might not be really practical for most regular retail investors. But the fact that you guys are living and breathing this, you know, you can Okay, great. Outsource that. Let me let me rely on Michael and Lance to be the one to surf these these inflows and outflows from these different sectors. Uh, and I can get on and focus on my life and maybe focus on making the money to give to them to ride this. But if this is going to be sort of one of the key winning strategies going forward for the foreseeable future to be on the right side of these capital rotations, you know, having this type of information again, whether you're going to own it as a DIY investor and and watch it all the time or whether you're going to leverage a firm like yours that is is um is doing that, that seems like a really uh potentially smart thing to be doing. >> Yeah, I agree. And this, you know, this gives you the tools if you want to do it. If nothing else, it shows you some of the tools that we use to to make our decisions. I'm going to show off our wares one more and then I promise I'll I'll stop sharing my screens here, Adam. >> It's great data. >> So, this is really interesting. So, what about five years ago ago, we created this absolute relative grid framework. When you look at this is at a sector level. So let's just look at XLV healthcare. What we want to do is compute two scores. So the absolute score, what we're doing is we're taking the stock price, we run it through about 13 technical models and we basically from all those models, how overbought or how oversold is it? Then we do those same using all those same models but we say instead of using the price of XLV let's use the price ratio of XLV to SP to the market to the S&P 500 and we create a ratio and basically we run that ratio through the same exact analysis and what we get is how overbought or how oversold is it on both an absolute and relative basis. And right now you can see health not surprisingly healthcare and staples are very overbought. XLK technology very oversold. What we have found is and this is a new feature um we can create custom um lists. So I created this one for you Adam. >> Thank you. It's large cap value VTV and mega cap growth. So it's a very good indicator of the growth value um trade that's been going on and you can see value is decently overbought uh large cap mega cap growth getting very oversold. What we can do though now is first of all we can see so I just put the tails on it where has it been can go daily gets sloppy but on a weekly basis how have they moved over the last u six or seven weeks that I'm on you could see that mega cap has gone from being very overvalued to being very undervalued and VTV has almost gone the opposite direction >> we can now get And that red trail, just FYI, when I was talking earlier about some people saying starting to stick their necks out and say that the bubble is over in in tech or or has has burst, um this trajectory is a big reason why, right? It's been kind of a relentless grinding downwards. >> Right. >> Right. So, let's just focus on this. Right. Right now, this is just mega cap growth. On October 1st, it was here. It was very overbought relative to the market and just the price itself. We would have said it's getting overbought here. Probably has a high RSI, high MACD that may have been flipping above its moving averages. And you can see it's just a steady deterioration both its absolute score and its relative score. And then at the same time, value has kind of done the opposite. its absolute score, you know, from October 1 started improving and then starting October 8th, it really started gaining against the S&P 500. So, what we can do from this is, and this is really cool, we can animate it. And you can uh we're going to go back to September 10th, and we can just watch a video of mega daily >> a value beat the pants off mega cap tech. >> Well, watch how they behave. Notice how they're almost moving in opposite directions. When one goes down, one goes up, one goes the other way. That just shows you how well negatively correlated they are. >> Yeah. >> Um and eventually they're going to end where we just showed them. But that's the point is that they're behaving opposite of each other. So ideally, you want to buy the one that's most oversold and sell the one that's most overbought. Um, and this is hard to see, but if you look at the last move, this was yesterday for the most part, VTV moved to the left. Its absolute score weakened. It traded poorly, but its relative score increased because it beat the S&P 500. MGK also traded to the left. Its absolute score deteriorated, but it also underperformed S&P. So it went downward. It downward sloped. So I know that's hard to see, but just an interesting tidbit. >> Now, um, so there's a lot you can take from this, right? One is is is the flows from value and tech and you want to be on the right sides of them. Um, but another thing is that they they don't live in these quadrants for too long, right? Especially the more you get towards the the corner of each, right? These are extremes and extremes are called extremes for a reason. They don't they don't last for very long. So, um I'm assuming here at some point, you know, you're you're getting ready to for this to start switching, right? >> Well, we on Monday we traded. We are factor we have a model that drives off this same concept that uses uh a different set of technical indicators but it told us to buy growth sell value and we did that we have our factor rotation model does that that's the whole basis for the factor rotation model but we use it in our equity and sector models as well. Um, in the equity model, it's buying individual stocks or selling other individual stocks that reflect those themes. Same in the sector, but at a sector level. >> Okay. Um, I guess you're maybe wishing it you'd waited a week before making that switch just given what happened to to growth yesterday. But >> but the day before growth killed it. >> Yeah. >> Right. I mean, it was really the mega especially mega cap growth. Amazon, Microsoft, those guys were up five, six, seven%. So, you know what we found is that our model can be a little bit early, but it's been incredibly accurate. Um, >> yeah, I I was just busting your chops, but you know, nothing can top tick uh with precision every time. I'm curious though, um, how has this performed this year because this is a relatively new model for you guys, right? >> Yeah. So we can go to our portfolios page and uh we started it this year. It's up 26% this year. The S&P is up 7 and a half 8%. >> Okay. So it really has worked. >> Yeah, it's really worked. Now bear in mind that it's an 100% stock index. It doesn't have bonds. If we think the market's going to collapse, it's going to still own 100% stocks. I was going to ask >> it goal is to beat the S&P 500. If the S&P 500 is down 60% and this is down 50%. It did a great job. >> Okay, >> you may not be happy with it, but it did a great job because its purpose is to to just beat the market. >> Okay, that's actually really a really great clarification where >> if you like this approach, you shouldn't just say, "Oh, I'm going to put all my money in this portfolio." You want to balance this with other strategies in your portfolio, >> right? And that's why we factor it into our equity and ETF portfolios. Conceptually, it works. But in those portfolios, we'll we'll sell stocks, we'll reduce risk, we'll add hedges, we'll add bonds, we'll do other things to protect that downside. Um the factor rotation model will switch between growth and value when appropriate. >> Wow. Yeah, that really is killing it this year, especially relative to the other portfolios that are here. >> Yep. Well, remember again, it's all equity. These have bonds in them. This is dividend focused. >> The other thing is we have these thematic portfolios. And regardless of whether you invest in them, which you can, they give us a little insight into what's going on in the market. So, if you look at the P&L today, I just sorted it. AI growth focus, small and midcaps are kind of leading the way. High dividend is down. All weather, which is a conservative model, is down slightly. International is flat. Um, so, you know, these kind of give you a nice just kind of view as to what >> Yeah. Which which themes are playing well. Yeah. >> Yeah. Energy is doing well, etc. Scroll this up to the top for a second because I just want to drive one point home too. So your equity portfolio is 60/40, right? So 60% equities, 40% bonds, right? So someone might look at this and say year to date 7.1. Yeah, it's doing about as well as the general market, a little bit less. So why would I want to be in that portfolio, not just in the general market? And the reason is is that 40. It's the bonds part of it that are giving you a lot of safety in that portfolio and diversification. Um, meaning you achieved about that portfolio achieved about the same return as the S&P this year, but with a lot less risk, >> right? Taking Yeah, I'm not going to say 40% less risk, but about that. >> Yeah. So that's a key thing to keep in mind and I just I know we say this a lot but I can't hammer it enough which is your goal as an investor is to be able to hit your you know life funding targets. I want to retire by this date. I want to buy a house by this date. I want to you know support my children by this date with this much money. Your goal is to hit those goals by that date with the least amount of risk possible. And that's why a lot of these diversification strategies are so important and everybody just tends to focus on, yeah, but what did it do last year? You can't just look at that. You have to look at the return versus the risk it took to get there. It's >> a great point. It's called the sharp ratio in financial geek terms. It's basically the return over the risk that you took. So, you know, the return versus the S&P 500 is somewhat similar, but we did it with taking much less risk. And that's what really matters. >> Yeah. Okay. All right. Well, Michael, um, this whole new Simplevisor thing is looking fantastic. I got to get you or Lance to just do like a full walkthrough of it in one of the the upcoming market recaps just to show everybody the bells and whistles. >> Whenever you want. >> Okay. Is it ready? Is it at the point where you guys can >> It's out there ready. Yeah, it's being it's we it went public on Monday. >> Oh, okay. Great. Well, fantastic. So yeah, folks, if you're interested in Simplevisor, go check it out right now. But yeah, maybe next week, whether it's you or Lance, we can devote some time to just walking through all the major um elements of it for folks to go explore and play around with and take advantage of. Um, okay, we're at the trades part. I think you've you've already largely told us most of what you've done, I think, right? It's it's was basically positioning more to get back into growth. Um, was this just um well, how did you do that, I guess? Were you selling the value uh names? Were you just taking some cash on the sidelines and putting that more into growth? How were you doing? >> So, so in the sector model, we designate uh roughly a third of the portfolio to two ETFs, one value, one growth. And when our model switches, it switches. So, um, you know, it's it goes from 8020 growth to value to 8020 value to growth when it switches. So, we we basically brought growth up, we brought value down, we we we sold value, we bought growth. >> Yeah. >> In the equity model, we do it more with stocks. So, in stocks, we sold we took profits on uh a few of the stocks. the rest we just rebalance lower. So over time when value outperforms the market and outperforms growth what was 4% of your portfolio can become four and a half or 5%. >> So we sell it back down to our stated model weight of 4%. So we did a combination of actually reducing weight and taking profits both and in some just rebalancing. On the buy side we rebalanced upwards. they had gone below their weights. We bought up and we added 1% of Palo Alto Networks. Um kicking ourselves for selling it in the first place 6 months ago whenever we sold it. >> Cyber security. Um looking for an opportunity to add to it. Um so but another and other that we added to five or six of the high growth names we're generally sticking in sticking with the big companies the hypers hyperscalers >> we do have some GEV we have some exposure to the buildout but and AMD with the chips but we're largely a lot of that growth exposure is in the big hyperscalers. >> Okay. Um, all right. Well, thanks so much for sharing that. And of course, folks will we'll keep tabs every week on what RA is doing here. Um, all right, Michael. Don't have too much of a a rant here to wrap things up with, but I got a little bit of one. Anything else going on in the markets or the decisions that you guys are making at REA right now that we should let folks know about that I haven't thought to ask you about? >> No, I mean, we covered a lot of ground today. Uh obviously the election is top of mind right now and and what that means for markets. Let it play out. Will Trump work with Congress and get things done? Will he fight him? That's a big issue. How how are both parties going to posture? Because now starting now the presidential election campaign has kind of kicked off. So how are both parties going to posture for that? Will they live up to their campaign promises or is it just hogwash like normal? >> I was gonna say that that's the easy one to answer which I think on both sides the answer is no. >> They rarely never almost never do. >> Right. So, you know, I I think they said things that may excite people, that may concern people. Most often none of it gets done. So, on either side, temper your emotions. Um, but no, we're just kind of figuring it out how to go to year end, keeping an eye on our technicals, keeping an eye on liquidity, credit spreads, that kind of stuff. Um, and we'll see how it plays out. >> Okay. All right. Um All right. Well, very well said. Okay. So, let's get to the rant real quick and then wrap things up. Um, so I I I think especially after, you know, all the hot emotions that an election can release. Um, you know, they they drive people emotionally so much, they trigger people, they make people elated, obviously depending on how all the results go, but we really don't have any control over that, right? And so, you know, my advice to people is um don't get too wrapped up in it. And again, focus on the things that really matter. And as I say often, it's not money. Money is a means to the important things in life, but it is not uh an end in and of itself. And the things that really matter are quality relationships, purpose, and health. And um two things happened this week recently that are in the past 24 hours that I' I've just chosen to put aside all the the drama and the angst of what's going on in the world that I can't control and focus on, you know, the things that I I can control. So, on the quality relationship side, last night, uh, I went and had dinner with David Haye, who's on this channel, you know, every every so often, um, who's one of my favorite people to interview, you know, very smart, very well experienced, uh, investor and capital manager, uh, but also just one of the nicest guys in this space, um, I'll say. And, uh, he was, he and his wife were passing through the Tahoe area. And so, um, I drove out and had dinner with them last night. And boy, it was just so wonderful. You know, it's just it's it's so great to spend time with um somebody who I already consider a pretty good friend from the interactions that we've had in the years, but we were able to deepen that relationship because I'd never met him in person before. And this was, you know, the first time I was actually, you know, able to sit down with him and folks, he is >> even nicer uh and even smarter uh in person. Really just a total gentleman, a total class act. And so, uh, the return I got off of that investment of time was priceless in my mind. I mean, far better than what I could have gotten in the markets, you know, this week. Um, so, uh, I just encourage people to really lean into investing in in those things that matter. You I just listed off, but if it's a a friend you haven't spent time with in a long time or somebody you want to get to learn better, get to know better, um, I'm just coming off the high of that experience. And of course the monetary cost is tiny compared to the psychic value that you get uh out of strengthening these quality relationships. On the second side and we were actually driving back from dinner um and we were talking to my daughter who's in college. She's a design major. Um, and uh, she, you know, went in with a certain type of design that she was interested in and and while getting exposed to a whole bunch of other different types of designs. Um, there's this thing called experiential design, which in a lot of ways is like putting on creating experiences. In some ways, it kind of bleeds over in event into event production. Uh but she really likes bringing people together around some sort of shared experience and um she also uh she's a big musicile and um for those that have watched this channel for any length of time, they've probably heard me talk about the Johnson O'Conor aptitudes test that I highly recommend everybody take. But but I think it's one of the best things you can do for somebody who's in their later teens or early 20s and helping them understand themselves better so that they can make more informed choices about what to do with their lives. And one of the things that came out of that that aptitudes testing for her um as they they told her in her her um you get a readout like an hour and a half. You sit down with a researcher who kind of helps you understand all the results. They said, "Charlotte, you are wired for sound. It's just people like you, you know, become audio engineers or whatever. They just sound and music is just a huge way in which they process the world around them. So, she's a big music fan as I mentioned and she's into creating experiences. So, um she's been working hard to create her own kind of music festival around Davis, which actually is making a lot of progress. I'm super proud of her for it. But she also reached out to Bottle Rock. And I don't know if you know Bottle Rock, um, Michael, but if anyone lives in the West Coast, particularly California, um, it's this really big music festival up in Napa that happens every year, and they get, you know, just massive names of of performers and stuff. It's a it's a really fun, amazing uh, music festival. And she just knocked on their door and she's been knocking on it for about a year and a half saying, "I'm really interested in design. I'm really interested in music. I would like to help you out in some way, shape, or form. And they finally reached out to her and said, "Yeah, you know, we've been noticing you and thanks for being persistent, and we basically want you to develop the VIP experience at this coming year's Bottle Rock." Um, so she's going to work with their team to to build and design all this, and she's again just a junior in college at this point in time. It's fantastic work experience for her. You know, it's really showing initiative. uh it's going to look great on her resume, but she's just in heaven because this is kind of her ideal thing that she would, you know, if she woke up in the morning and they said, "You could do anything today in the world, what would it be?" It would be something like this. So, um I I I'm sharing this because as a parent, I'm I'm proud of her, obviously. But it's a really great example of somebody stepping into that meaning, that purpose part of, you know, the three things that I said were were really important. Um and so um my hope here is that you know anybody takes any inspiration from that that they like to to to reach out and strive to do something that that is really meaningful for them. But I know there's a lot of parents that are um in the audience here and you know hopefully it gives you some inspiration about um maybe a story you can tell your kids and say hey look if you're just proactive and persistent um and you're you're aligning that persistency with the things that you're naturally talented and good at doors start to open in life. So anyways, I'll end it there, but I'm I'm again I'm I'm just trying to emphasize here on folks, especially after a really hyper partisan and and emotional uh and and maybe kind of, you know, frictionfilled time like we are right now. Try to put that aside and just focus on making investments in the things in your life that that matter the most. And again, investing in quality people, investing in purpose, or I didn't talk about it this time, but investing in your health, those all provide outside outsized returns, and in many cases, you don't have to spend much or any money to get those. So, that's my rant Michael. >> Amen. >> Amen. >> You want to end it there? >> No, I I when you were I'm not going to I'll try to keep this quick. When you were talking about your daughter, I was actually thinking about my I have three kids. Two kids are chasing the American dream. They're both in marketing, one in Chicago, one in New York, and they're worried about their careers, and they're not they they like their jobs. They don't love them. They're they're worried about, you know, making money, and they're getting caught up in the same trap that we all get, you know, so many people get caught up. My third son is now in Paraguay. He joined the Peace Corps. Uh he's been there for almost two months. the kid if he's lucky, you know, I mean, he he'll do well, you know, doing what he's doing, but he's not going to make a lot of money and he's probably going to be the happiest of the three because he's doing what he wants to do. >> And I think that's the investment you're talking about, investing things that that really make life worth living, that make you happy. And it it's it doesn't, you know, it's hard to do what he's doing. I that's not me. I can't go to to do that. And my older two kids certainly can't. And they're, you know, they're they're all they're in awe of him that he can do this, that he can live in someone's house in, you know, in the middle of nowhere and just do this. But it goes to the point, I think, if you can do what what you really want, like your daughter, she, you know, whether she gets paid or not to do that, she's going to love it. And that's more important than making a ton of money. and being glued to the markets and you know just live life. >> So totally agree and look I can talk forever about this stuff so I'll I'll try not to but um you know as I always say if you focus on those three things quality relationships purpose and and health um the money may come the money may go. You don't really have a ton of control over that. I mean I I feel like you increase your odds of financial success by playing to your strengths. Um but you know sometimes in life just things happen right bets go against you or things just don't materialize the way that you think. But if you wake up and spend your day living life in the way that fulfills you when you go to bed whether you made the money you were hoping to or not you know as long as you can meet your basic needs like you're winning life >> right you know. Exactly. So um and look I mean it can be in marketing. There's nothing against your other kids. The the key thing, you know, that I want to encourage is just, you know, invest in the time to develop the self-standing so that you can live authentically. You can you can know how you're wired. You can know what fulfills you and just go pursue that stuff. And again, you're likely to outperform versus everybody else because you are playing to your strengths and to your passions. And again, you know, whether it makes a ton of money or not, that's not nearly as important as you feeling like you're living the life that you were placed here to live. So, um, anyways, folks, I hope everybody takes, uh, inspiration from this. And for those of you that, uh, have not heard me talk about the Johnson Oconor aptitudes test in the past, if you go to, um, the Thoughtful Money YouTube page and you type in, well, if you I this might have been an I'm not sure if I've done this video since I've been with Thoughtful Money, but if you go in and type Adam Tagert Johnson Oconor, it'll pop up. you'll see me interview the executive director of the testing service and we go into everything that it provides and and if you think that's something your kids might be interested in, uh I'm on record saying I think it's one of the best investments you can make in their futures. So, all right, we'll end it there. Michael, thank you so much, my friend. Um folks, please thank Michael for coming in, especially as Lance couldn't be here today. Um thank him by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. We talked a lot about a lot of things in today's video where you know you can really see the immediate benefit of working with a good financial adviser who has the expertise on the issues that we were talking about. You know whether it's [snorts] uh riding the capital transitions between growth and value whether it's you know helping you assess mun bonds whatever it is. um if you'd like to get some help from a good professional financial adviser um on a lot of these issues or just anything about your your financial makeup and remember we're we're getting close to the end of the year. So, there's a lot of things that you need to take care of at the end of the year and I don't want you to wait uh after Thanksgiving because it's a mad dash then it's it's a nightmare trying to get that stuff done uh in a panic at the end of the year. So, anyways, if you don't already have a good financial adviser providing all that guidance for you, consider talking to one of the ones that Thoughtful Money endorses. These are the firms you see with me often on this channel. Uh to do that, just fill out the very short form at thoughtfulmoney.com and the firm you're matched with will be in touch with you right away. If you want to talk to Michael and the team at RA, you can say that specifically. I want to talk to them. So, just put me with them. Uh as a reminder, these are totally free. There's no commitments involved. It's just a service these firms offer to be as helpful to as many investors as they can. Michael, my friend, have yourself a great week. Whether it's you or Lance, next week we will have RA again on here soon making sense of things for people. Thanks so much for doing what you're doing. >> You're welcome. Thanks, Adam. >> All right, and everybody else, thanks so much for watching.