I’m Not Worried About a Market Crash (Here’s What I’m Watching Instead)

With midterms just days away, there's a lot of uncertainty on Wall Street, and we've been getting some great questions from you all. So, today, I'm putting Louis on the spot. We're answering your questions about the market, interest rates, AI, and what investors should expect heading into the end of 2026. Dad, let's start out with a viewer who brought up one of Wall Street's oldest sayings. Stocks climb up a wall of worry. They made the point that if you wait until all the uncertainty disappears, you probably already missed the opportunity. Do you agree with >> Yeah, I do. I should be very clear. The naysayers uh spew false propaganda. And as we head into the midterms, a lot of that's coming from 200 plus Chinese bots trying to undermine America. Now, Russia also tries to undermine America. When Ukraine hit one of the Russian data centers, a lot of Russian bots disappeared for a while. What you'll notice is right after the midterm elections, all the naysayers will disappear and we'll focus on friends, family, football, food because the holidays approaching. Everybody cheers up and everything will be fine. But this quarter has reconfirmed that the AI spending is out of control. It keeps rising. That's why Meta is doing a secondary stock offering to raise more money. Google, which stock we recommend and the family owns Google. But the main thing about Google is even it AI spending uh caused its earnings to be below analyst estimates. But that doesn't really bother me because Google's very serious about AI. They still dominate search and they're working really hard with Nvidia and quantum computing. So there's a lot of good things that associated with Google, but yeah, the the order backlogs are ridiculous. They keep growing. And see that that's what I'm obsessed with. There will come a time when a company's order backlog will no longer expand, but it's not yet. And I don't know when it's going to stop. I don't know what's going to stop next year or in two years from now. The orders in the pipeline are ridiculous. And we're definitely out to 2032 right now for robust AI spending. So, let's just enjoy it. >> How would you distinguish from normal market worries from legitimate warning signs? >> Well, I'm obsessed with analysts. So my warning signs are multiple. They all go back to that eight factor fundamental model. But if the analyst cut estimates, that's a warning sign. If operating margins come under compression, that's a big warning sign. Right now, operating margins are all time record. Last I looked, there's 16.9. That's pretty fat for the S&P 500. The other thing is you don't want earnings misses. Okay, Google's kind of exception because they don't provide guidance and the analysts have a hard time figuring out what they're doing, but you know, you do not want stocks to miss earnings estimates. So, when these things break down on a factor fundamental model, that is an alarm to me. So, I guess the best example is Super Micro Computer, which is a stock that, you know, we're up several hundred% in. We got in well before most people, and it got attacked by Citron, which was led by this guy, Mr. left and Citron has since shut down and Mr. Left was sentenced to jail. I think it's on appeal now. But anyway, the Citron criticism was that they're booking orders now that they're not going to deliver for five plus years. That just means it goes in the company's order backlog. Okay? And although Citron alleged a lot of things and once you get one naysayer out there, you get others to copy. There's a lot of copycats on Wall Street. We had no analyst cuts. Okay? So, I stuck with Super Micro the whole time. And of course, it just announced uh that's going to have 280% sales growth and it trades at under six times forecasted earnings. I only panic when the analysts panic. And no one's panicking. They're still revised their estimates higher. I mean, in the last 3 months, my average stock has had their earnings estimates revised, I think, 19.6% higher. And positive balance revisions often precede earning surprises. So, that's what I look at. But there are a lot of nasty unscrupulous people on Wall Street that try to manipulate things and most of them are related to short sellers. The other thing is let's just say for argument's sake that these naysayers are right, okay? That all the companies are borrowing to fund this and the borrowing's going to dry up or that the order backlog shouldn't be booked as current sales because, you know, they they're so far out. That means the accounting industry is wrong. Okay? That means the KPMGs and the PWC's aren't aren't doing things right. And that's not true. These are big accounting firms. They take their shops very seriously. So all these allegations are false narratives. And if anything is obvious right now is that the AI spending is higher than ever. It's not slowing down. The order backlogs are getting bigger and bigger. And this is an incredible economic boom that's going to ensure five plus percent GDP growth for a long time. >> Well, speaking of false narratives, one of our viewers asked about a short seller report questioning chip lifespan. How much weight should investors give reports like that? >> None at all. That's just another thing to try to knock the chip stocks. So, I I'll be very clear. So, in Nvidia's case, we have Ver Rubin. The ramp up is really next year and then we'll have another chip. But the ver Ruben chips are obviously still going to be used years from now. And you know, chip lifespans are at least five plus years. Okay. Uh but the irony is there's a replacement cycle that will continue to boost sales. But that is a report filled with just lots of innuendo and false narratives. So that should be ignored. It's like our computers. They update the processors all the time. I have an M1 chip on my Mac and you can get an M5 now. Okay. You know, I think you have an M3 on yours. Okay. And so the old chips work fine. Okay. And and the old GPUs work fine. You only need to upgrade if you want to just turn up the speed of the processing. So to me, that that was a just a another report designed to aid in the bet short sellers. >> Let's move away from AI for a moment. We got several questions about gold miners and critical mirrors, including rare earth companies. Are these areas investors should be paying more attention to? >> Unfortunately, no. I have moved out of almost all my gold mining stocks largely due to the fact that the central bank buying pressure of gold has become increasingly erratic. The reason I was buying gold mining stocks is that central banks were buying it and it was actually distorting our trade deficit of all our gold sales. But that buying pressure has become more erratic. I think most central banks are very happy buying our treasuries. Uh, not only are the yields pretty good, but the dollar is very strong. So, you're a foreign country and you buy US treasuries and the dollar goes up 5%, you get 5% plus your interest. I think the confidence in the dollar is impeding gold sales near term. be honest with you as far as rare earth is concerned obviously the US is going to try to be ramping that up and whether that's US MP materials there's no doubt that those companies are throttling up but their earnings aren't as strong as originally forecasted so it's going to take longer for them to ramp up so I'm not invested in those stocks right now we have written special reports on that Trump administration obviously has taken positions in some of the rare earth companies long-term it'll be good but uh near-term I just want earnings earnings earnings and I'm in the middle of earning season and that's really what I'm focused on right now. >> Now, you've talked about small caps doing well towards the end of the year and into January. But one viewer had a really good question. If interest rates stay elevated or even rise higher, wouldn't that hurt small caps? >> It hurts the interest rate sensor stocks and hurts the value stocks, but it doesn't traditionally hurt gross stocks. There's no doubt that, you know, the big stocks, the fancy IPOs, you know, first we had SpaceX, now we have Anthropic, it seemed to crowd out the attention that a lot of small caps get. That's why I think that Russell realignment in November, it's the second one this year, is so important because the stocks that get added to the Russell 1000 2000 indices should naturally benefit. The other thing is half the S&P sales come from outside of America. And so when the dollar gets strong, it can slow the the big stocks down a bit and that would cause people to allocate more to small midcap. And of course, we had Seth on the other day, Seth Coswell, that showed how strong the midcap stocks that he was recommending were doing. So yeah, we do expect the small caps to be better from November through April. Some of that year on pension funding, some of that's pension funding the new year. They're more hyper sensitive to volume. But as you've very well documented, when you go down the market cap and start buying stocks, you're essentially buying bunnies that sit and hop, sit and hop. And you have to realize you have to wait for your liquidity before you exit the stock. So just be aware of that. But yeah, that we should have a lot of them melting up in the November and and that's called early January effect. And that means the real January effect occurs in January will be awesome. So yeah, I'm still very bullish on those stocks. I buy more than just AI and although AI has been incredible this quarter, you know, the oil refiners have been stunning and the oil tankers have been stunning. So there's other places to invest and Lily, of course, is our big pharmaceutical bet. They had incredible results. So, you know, we're going to invest in more than just AI. >> This next comment really stood out to me. One viewer is worried about predictions of a major market crash, especially because their retirement account is limited to broad market funds, and I think a lot of investors can relate to that concern. But Dad, what would you say to someone who's genuinely worried about a market crash? >> Okay, so let me go back and just talk about your 401k or wherever that money is invested. It is unfortunate that when you work for some companies, they don't give you good investment choices other than indexing. I want to assure you that if you're in the S&P 500, at least the earnings are going to be about 33 this quarter, if not higher. So, I don't want you to worry too too much about that. Now, as far as why you hear about crashes all the time, uh it sells good. If you look at the biggest newsletters out there, uh they are negative. Okay? Fear sells. Okay? And same thing in politics. You know, we have an election coming up and what political strategists do is they try to scare you. Fear sells. Fear gets attention. So, there will always be narratives out there that the world is ending, okay? And that the stock market's going to peak. But I want to reassure everybody that this is the best earnings environment I've seen in my lifetime. I want to assure everybody that P ratios are low. You know, we uh talked about how one of our refiners, PF Energy, was trading under four times forecasted earnings. Micron was trading 4.17 times forecasted earnings. Seagate was very low P ratio. and a super micro computer was a very low P ratio. So, we're in a very unique environment now where we have incredible growth with low P ratios. And of course, when you have spectacular earnings, as most of our stocks do, they compress the P ratios further. We are positive people. We eat our own cooking and we buy our own stocks that we recommend. So, I think that what makes us different is, you know, we're investors, okay? We're not trying to sell newsletters because a fear campaign might work better than a than normal campaigns. >> Well, let's look ahead. Once the midterms are behind us, what should investors be watching for the rest of this year? Historically, how have stocks performed following midterm elections? >> Well, I think we we had a pleasant surprise with the the FOMC statement that well, although we had two Fed officials trying to raise rates, there's still uncertainty about the December rate hike. Okay? because market rates have come down. I personally think they're going to hike. They like to hike in the holidays when no one's paying attention. But thing clearly things have cooled off. There's some important inflation statistics coming out like PCE. The other thing is you just read the Wall Street Journal. It's in there as I talked to you today is like why is oil above $100 a barrel when the exports from the Persian Gulf at a record high? And the answer is well they're waiting to see if we're going to attack Iran. uh because you know that there's a perception that the US is going to attack Iran after the midterm elections. There's also a perception that the hoodies are going to continue to attack Saudi Arabia. Once some of these things get resolved, oil prices should moderate and that inflation caused by energy should moderate, but it's going to be a temporary lull because demand drops in in the fall and it'll go back up in the spring. So by February, I do expect crude oil prices to be firming up. Let's just say they between now and then they go down to $90 a barrel. Well, they'll probably be headed back up in the spring because worldwide demand will ramp up. Anyway, people like to worry. I don't like to worry. I just like to see the positive things and I enjoy earning season and you know earnings have obviously overpowered the market and uh any dip is only going to be a day or so. So, any dip on our stocks is a phenomenal buying opportunity. There was a quote that you said recently in one of our videos at investor place that people can worry but you won't profit. >> Correct. That's right. That's why we have oil tanker stocks. That's why I have oil refining stocks. I mean the price of at the pumps are high. You know, I've been driving around Florida and I'm not used to paying these higher prices. We'll see if it's temporary. I had somebody in the media quote President Trump about, you know, they wasn't worried about gas prices stuff and they wanted me to comment. I chose not to. I says, "Why don't you call um Chris Wright, the energy secretary, he'd be more qualified to comment?" But, uh, we do expect the inflation to be what we call transitory or fleeting, but there's no doubt the prices for electronics and things like that have definitely gone up. And, you know, Apple just announced a new uh computer and the prices are shocking. >> Yeah, the touchscreen computer. I saw that. >> Yeah, that's shocking. Uh >> that's gonna I kind of want one because that would help me with this editing. >> Well, you're welcome to get one. Okay. Uh as you know, you already have a very powerful computer. It's an M5 processor. I think they'll be have a new processor next year. So, just keep that in mind. But, uh you know, in your case, because you do videos, you have to have the dual processors. You have to have a lot more memory. So, yeah, I suspect if you spec a new computer, it's going to be for you, it's going to be over $6,000. Yikes. Well, Dad, thanks so much for answering all these questions and thank you to you all who submitted a comment. I know we still have a lot of questions about individual stocks, so we're going to save those for our next video and we'll do a buy, sell, or hold episode for Wednesday. So, make sure to leave your tickers in the comments below. But, thank you all so much for watching. Give this video a like and subscribe and we'll see you on