Peak Prosperity - Investing When Stocks Are the Most Expensive They’ve Ever Been

Episode Date: January 10, 2025

Let’s cut to the chase: Today’s financial markets, or ““markets”” as I like to refer to them, are the most expensive they've ever been by practically every single historical measure.Click here for Peak Financial Investing

Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. Countries have failed because they didn't pay attention. There's no excuse for us because we have enough history, that we have enough information and history to learn from the mistakes of the past and make better decisions. But I think we're going to have to do it individually because those in the halls of power just seem to fully believe

that they're immune to the consequences of these actions. The following is the audio version of a video released at peakprosperity.com. Visit peakprosperity.com to watch the video and to find other insightful content such as articles, discussion forums and exclusive subscriber only content. Hello, everyone. Welcome to this edition of Finance U, where we decode the financial spaghetti that's out there and help you understand it. We're going to walk through it carefully today.

Very, very special episode today. We are talking about China, some big warning signs coming out of that. What do they mean? But most importantly, how do you invest when everything is stupid expensive? That's the environment we're in. It takes a lot of very, very special care to navigate a moment in time like this. And if we have time today, we're going to talk about the rescues that have happened in the market. Everybody's gotten used to them. The question is, will the markets be rescued now that it's Trump in charge? Does that change anything? And if it does, what does

that imply? To help us decode all of this, Paul Kiker of Kiker Wealth Management. Paul, so good to be back with you doing this. Good to see you, Chris. Always a pleasure. Likewise. Well, the year is certainly getting off with a bang. I mean, there's been some creaking, popping sounds out of the markets. The first thing I want to talk with you today about, Paul, though, is, and again, this is what we're going to cover, is this. What is going on in China? I'm sure you've seen this 10-year treasury yield rate for China. It's crashing. It's down at 1.6%. The United States, call it 300 basis points, three full percent higher than China. That's crazy. On 30-year government bonds, you got China in blue over here. Let me get my little lasery pointery thing out. You got China in blue, Japan in green. Japan's 30-year debt now

yields more than China. This is crazy in the sense that it's never happened before. And what I got from the Kobayashi letter here that I wasn't aware of is that China's bond yield has declined by 215 basis points. Why? Because they've experienced six straight quarters of deflation, the longest streak since 1999. What do you make of this, Paul? We're going to find out very soon, but it's quite interesting. It's very interesting to me that the yields in China are lower. So if you just look at it from a default risk standpoint, are investors telling us that China has less risk than the United States with our yields creeping higher? That's a good question. I don't know. I mean, in the halls of the

institutional management, there's probably people cringing over the fact that I asked that question. But that tells us that there are some serious issues. I mean, globally, I don't see how in 2025 that the near entire global economy outside the United States being in a recession, on the verge of a recession, doesn't pull the U.S. into it. Because that weighs heavily on what happens inside the United States. So China is just warning, it's throwing all kinds of warning bells right now that we need to be paying attention to. They're dealing with reality by allowing deflation to take place, which is actually better for their citizenry because they have high savings rates in China,

unlike the United States where our saving rates are ridiculously low. But in the end, deflation is far better for the average citizen than what inflation is. Well, you know, the concern here is that it's a global financial system now and that, you know, as goes the United States, as goes the rest of the world. But this is true for China now, too. So if China's really in deflation, that plunging government bond yield to me, Paul, says that the financial market in there is suddenly realized that China's in deep trouble. Like that's normally what you see when you get into a deep recessionary environment or worse is people want assured returns of their money, right?

I don't want it with the bank, right? Bank might be offering better yield than one point, you know, whatever that was, 1.6% for 10 years. I'm going to hold it with the government because I'm pretty sure they're going to pay me back, right? So this could speak to a looming big financial accident or something. Deflation is just terrible for financial systems. That's why the Fed won't say it, but they like inflation because it's good for the banking

system, not people, but the system. And the expanse of the people. So if China gets into a financial accident, could that spread? Yeah. You know, they might have to sell treasuries in a fire sale to fund themselves or start selling stuff below the cost of manufacturing just to keep the funds flowing, which will be very difficult from a tariff standpoint, manufacturing standpoint. Well, and my question is, can they export that deflation to the rest of the world? And they can

if they start cutting those prices. Now, it may help corporate profits in the short period of time, but there's always going to be free market competition, as free as we can be. And if Trump does what he says he's going to do and get rid of some of this regulation, now that's going to open up other competitors that are going to take advantage of that to gather business from some of the other areas. And that deflation can come to the United States. So I don't see how if China continues with this deflation that it doesn't impact us at some point sooner rather than later. Are you feeling run down, low energy, maybe struggling with extra weight? Maybe brain fog has you wondering what's going on. The truth

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This is China's high yield real estate index. So I guess these would be sort of dodgy projects. But wow, from May of 21 to current, a minus 82% loss. If you are an investor in their real estate total return index on a high yield basis, that's a lot of punishment right there. That's a lot of punishment. And how many of those investors, those Chinese real estate investors in 2020 or 2021, would have argued with you all day long that that would not happen and that could not happen. I'll show you. Can't happen. Can't happen. Can't happen. Never happened. They're not making any more land. It only goes up.

That's right. And that takes it all the way back to 2006, correct? So the over-labor chip and wiped out. Look at that. Yep. Yeah, all those gains off, wiped, gone. By the way, that can happen here too. And if I have time, I'll find it. But somebody on Twitter just said, hey, just for kicks, here's the all-time high house prices for median house prices in six separate Texas locations compared to today. And they're all a lot lower today in

various. So it is happening a little bit. All right. So I said, though, one of the things that could happen is that, you know, China might sell their bonds. Obviously, the United States runs these huge trade deficits, right? I forget what it was at last count, 800 billion a year or something. And what that really means is that we buy stuff, we pay with dollars, those dollars are offshore, something has to happen with those. What really is good is if those can come back and land in treasuries. So China has a bunch of treasuries, U.S. treasuries. Then they sell them, Paul. And so one of the things I would expect to see if China was, if foreigners were no longer sopping up all of that trade deficit currency, is that we would see interest rates starting to go up here in the U.S.

Boy, are we. That was one of my six key predictions for 2025 was maybe, you know, I agree with, we talked about the, who was it? I think it was Tudor Jones. Anyway, one of those big funds saying, yeah, treasuries could be at 10% next year. So this is the 20 year. Yeah. Was it Tudor Jones? I think it was.

It was. Yep. So this is the TLT, which is the 20 year bond. Look at this, Paul. This was at almost 175, and now it's at 85. So as price goes down, yield goes up. And this surprised me. I just found this on Bloomberg this morning, that the 20-year Treasuries has breached the 5% mark.

That's pretty amazing, actually. I didn't realize that because I look at end-of-day rates typically and hadn't updated today. So reaching 5% is a big deal. Well, it's higher than the 10-year at nearly 4.7 and the 30-year clocking in at about 4.9, 4.95 maybe. But I didn't know that the 20-year could be higher than the 30-year. I thought that it would have been 30, then 20, then 10, then 5, you know, normal yield structure. So something's going on with the 20-year could be higher than the 30-year. I thought that it would have been 30, then 20, then 10, then 5, you know, normal yield structure. So something's going on with the 20-year bond. And here it is on a really long-term chart.

And the critical level to watch with us clocking in today at, what did I say, 85? If we get down to 80.74, we will see the all-time low ever, which was hit in 2004. And I would not be surprised to see that 2004 level broken. The question is, do we get a counter-trend rally in the short run before? But, Chris, here's a question I've got to ask. So, do you know, have you seen any data that China's been selling their bonds yet?

I know they've been selling some, but they haven't been selling progressively yet, have they? No, but it is, it's, it's, the air is coming out of that pile. So that I've seen. If their economy's struggling and they're recycling back in the treasuries to kind of keep that game going, that's been going, that's artificially held our yields down and they don't have the funds left over because of what they're struggling with right now, not to mention the weaponization of the dollar and Russia having sold the large majority of their assets, if it's just a lack of recycling back in, which has helped cause our rates to rise, how much worse is it going to be if they get into a situation where they need to sell those treasuries to help support their own economy? Well, this will be the double whammy, because follow along. This is how I see

it. So they'll probably get into trouble because a recession happens, right? And we've talked about it before. There's plenty of signs that we've somehow been neo-dodging bullets, avoiding recession to this point. I think there's some trickery in that, fakery, statistical fudging, yada, yada, plus a whole lot of money printing. But if we can't avoid it and we just have a recession, which we should have, and the California fires right now, Paul, teach us the importance of clearing out the underbrush from time to time. Yes. Right? Yes, it does. So they've avoided the recession because it's never a good time. I get it. But I think the next recession could be a barn burner, as it were.

In that scenario, now we're not buying China's stuff, so they have less to recycle anyway. Maybe they're in trouble, so they have to sell their treasuries. And that's going to be, Washington will not be able to help itself, Paul. They're going to want a stimulus spend into the maw of that recession, which will take treasury issuance higher. So now we could see a double whammy, foreigners selling because recession, and United States issuing more because recession. I think we could see that dynamic. Well, and not only that, basically all your global assets have moved into U.S. assets since 2014 because of the fact that we've so outperformed. I know we've shown that chart before. I can show it again if it's appropriate. But you've got an over-weighting in U.S. assets of not just China, but other foreign countries as well. So if we do crack and head into a recession and you start looking at valuations, valuations from a fundamental investing standpoint are far

better on the international and emerging market scale as bad as they are right now compared to the United States because of the fact that we're in a bubble. We're in a historical bubble by all measures. and pulling assets out, and if they pull them out of treasuries because the government's spending, right, then that's going to further increase yields. And is our government going to move into yield curve control? Are they going to start kind of, then we get into a serious inflation train that gets out of control. Well, and this is such an unusual time, right? Because everybody, myself, yourself, everybody watching this, our last 40 years of experience is declining interest rates. Yeah, lots of bumps along the way, but from 15% to basically zero. And now we're in the opposite of that.

Now we're in a rising trend. I think it's inarguable that we're in that rising trend. We've been there for a few years, so I think it's a trend. I think it's inarguable that we're in that rising trend. We've been there for a few years, so I think it's a trend. And for whatever reason, the long end of the curve seems to be going higher. If the Fed has lost control of the long end, Paul, they're going to have to step back in and buy that long end. They had an operation twist at one point, which is trading one duration for another, you know, fancy name, operation twist, but it's basically saying, we'll get rid of some on this end so we can buy some on this end to drive the interest rate down on that end, right?

Would you think, do you think would they do that again, or would they just say, ah, we're back to QE, we're just going to like clickety-click money up and buy long paper? What do you think they'll do? You know, that's a good question. I mean, basically, Japan, there's a good many individuals in the halls of power that look at Japan and go, hey, if we follow their path, then we're going to be just fine. But I think this is just an estimation on my part. I'm not a scholar in this area.

The global forces allowed Japan to get away with what they got away with. I don't think the global forces are going to allow the U.S. to get away with that same type of maneuvering. So they've got one of three options. Enter into the yield curve control, QE, or just allow us to go ahead and experience the deflation, which is basically going to cause any over-levered individual to lose their assets, to lose their shirts. The deflation would be the best outcome for the average individual because now it would allow the freedom of the middle class

to step back in there because those monopolies would have collapsed. The problem is I don't think that those in the halls of power are willing to give up their control. So QE and inflate it away, bails these major institutions out of their over-leverage at the expense of the average citizen in the United States. And that might kick the can down the road a little bit longer, but it's still going to collapse because at some point, that system's going to be unstable and fall.

So I really wish that we would go ahead and rip the Band-Aid off sooner rather than later. And because there's tons of warnings for people out there. I mean, there's all kinds of signs that we've seen. And you're going to show some more data here in a minute that this is an unusual period of time throughout history. And the euphoria is so great that as an investor, you seriously need to be considering your exit or how you're going to deal with the days ahead. Because if it's not completely different this time, then we're completely ignoring all of the warnings of the past. And right there, going back, the history of bubbles in the background, tulip mania to the South Sea bubble, to Tesla, to Bitcoin, to the everything

bubble right now. I like that chart, that picture back there, because look, it's cyclical. It's cyclical. This is just something that we go through. We've dealt through in the past. Countries have failed because they didn't pay attention. There's no excuse for us because we have enough history, that we have enough information in history to learn from the mistakes of the past and make better decisions. But I think we're going to have to do it individually because those in the halls of power just seem to fully believe that they're immune to the consequences of these actions. Well, it's been a long time coming. So we're going to keep our eye on China because that could send shockwaves out. Remember just last fall, China, sorry, Japan sent shockwaves out.

You know, the yen was threatening to breach 160 to the dollar. And then the Bank of Japan stepped in and then they started to lose their long end. This is all gets, it just gets very unstable. So that's what I'm arguing for here, Paul, is that we're coming into a period of instability. You know, stability begets instability. And so we've just come through a long period of staged managed stability. I don't think it was appropriate. I prefer the instability because you got to clear out the chaff every so often. I believe in Joseph Schumpeter's creative destruction. So with that, I just want to tell people that I am, aside from being CEO of Peak Prosperity, I'm also the head of this company, Peak Financial Investing. And I just want to tell you about it because our job

at Peak Financial Investing is to find you high quality wealth managers who can help you navigate these turbulent times. Peakfinancialinvesting.com. We have endorsed advisors. Hey, there's a picture of somebody. I know who that is. Paul Kiker's on there. It's pretty simple. You go there, you click one of those find an advisor buttons. There's a very simple form to fill out. It has all the regulatory requirements and required disclosures. Everything's on there. But everybody deserves to have access to a financial advisor who can speak about these things we're talking about in a calm and reasoned and experienced tone of voice. So with that, please come by Peak Financial Investing if you want to talk to Paul and one of his team.

Which brings us really to the core of today, Paul. This is what I want to talk about, because you were telling me the other day, as I've gotten familiar with your approach, how you manage risk. And it's almost unique, given how a lot of the industry runs. A lot of the industry runs, and I'm not here to cast dispersions on it, so it's a way, and a way that I think works well in periods of stability, maybe less well in times of instability. And that way is what we call passive investing.

I have money, comes out every month from my company paycheck, goes into my 401k. There's a pile. It ends up in some 401k fund manager. They have to buy the index, so it's a passive thing, right? You some 401k fund manager. They have to buy the index. So they just, they just, it's a passive thing, right? You just buy and hold and it works. That's pretty good during long periods of stability, but during instability, it's proven that maybe that's not

ideal. And so you have to come up with something that's more, more nuanced, more nimble. Okay. That's part one. Part two is this long period of stability, Paul, for me has been, it's like forever. I think there's like three bears left on the, on Twitter sphere, right? Nobody believes that they'll allow deflation to happen. Did you notice I even left it out? I'm like, do they print or print more? And you're like, Chris, there's a third option deflation, you know? I don't think they'll take that. And the worst part is, is the bears that are on Twitter. I think they're take that. And the worst part is, is the bears that are on Twitter, I think they're just being cynical. I'm not sure that they actually believe

it anymore. That's not true. No, but so we're in a really expensive zone. We're going to cover some of that data very quickly. But I want to, I believe my thesis, Paul, for 2025 is that we begin to return to what we call reality, which means fundamentals matter again. So can we just talk fundamentals for a second? Absolutely. A gentle reminder for these times, when we've just come through, when you invest in stocks because they're going to be worth more money in the future. No, you invest in stocks because stocks represent ownership in a company. And what does that get you? Well, you have some voting rights, but ultimately the value of a stock over time is very simply the cash flows that are returned to investors. This is something Warren Buffett knows well. He buys companies for their cash flows. People forget this. People buy

companies with zero earnings, negative earnings, PEs of 200, all of that. And I get it. But I just want to remind everybody that ultimately stock a stock has a value because you get cash back right like can you imagine paul buying like let's make it simple can you imagine somebody saying chris i'm buying this these bonds because i think they're going to go up in price like no you buy bonds because they have a yield right you know that's why you buy bonds we haven't lost sight of that entirely, right? There's still a lot of trading that's going on bond price appreciation, but you're right. They call it fixed income for a reason. You're buying the bond for the income

that it can generate over a certain period of time. Well, and then, you know, I see this, this drives me nuts, Paul. I'm reading the Wall Street Journal, and they say, Apple returned cash to shareholders in the form of a $2 billion share repurchase. And I'm like, oh, no, they didn't. They went out into the market and bought shares. Returning cash to shareholders is called a dividend. Why didn't they just issue a $2 billion dividend instead of buying shares back? We all know why.

It's because they dilute their stock by issuing warrants and options and things to their C-suite people. And then they have to soak those back up and they call that returning cash to shareholders. I call that executive compensation. You're right. Which is the opposite of giving cash to shareholders. Well, Darren, was it Buffett or was it Munger that said, show me the incentive and I'll show you the outcome? Munger. It was Charlie Munger. Yeah. So show me the incentive and I'll show you the outcome. Munger. It was Charlie Munger. Yeah. So show me the incentive, I'll show you the outcome. So how is the C-suite compensated or the highly, you know, the important employees in most companies through stock options and what does buying that stock back instead of distributing those dividends to the investors? But investors

haven't demanded that that be sent back to them either. So this is something where it seems to be everybody's playing the same game, but, but that's not, that's not the way it should be. They were stopped. My bags were outlawed prior to 1982, if I remember correctly. So I'm somewhere in that zone, early 1980s, but you know, I wish that they were, they were wish that they were banned outside of an extreme approval process so that we could get back to fundamental investing and distribute those profits to the investors and the shareholders through dividends. Through dividends. That's what it should be. And to be clear, if a stock has a dividend yield of 4%, I'm basically saying I'm willing to wait 25 years to get my cash back from this company.

Yeah, that's right. Right? It sure is. All right. Beyond that, getting back to this, though. I'm going to just rip through a few slides here, Paul, and then we'll get to the part of how you deal with all this, because you have the hard job. I just point it all out. You have to deal with it.

So here we're looking at the S&P 500, a universe of 500 stocks. This is called a forward price-to-earnings ratio. So their current price today, what analysts, divided by what analysts think their earnings are going to be next year. And so right now it says that the current level is around, let's call it 23. I know it's just under that, but so that's the current level. And then this is every year the stock market's been open. And so it's asking and answering the question, if the Ford PE was say 20%, I mean, it was at 11, what was the total return you would expect for the next 10 years? And if you were here at 11%, it would have been anywhere from a low of about 15% to a high of about 20%, right? Does that make sense?

So for any particular, I think you can see there's a very clear trend here, which goes like this. It's not hard, very easy to see. There's a trend which says the more expensive things get, the less 10-year returns you should expect to come off of those. And we're at a current level now, which is associated on average with a 0% 10-year return. Paul, how many of your clients are expecting a 0% 10-year return on their stock portfolio? Not one of my clients are expecting that, but I have prepared them for it and the testing that we've done to make sure that their plan's resilient enough to stand it. Right. And this is all of history. This is all of history here. So it might be different this time, but you know what? If it was different from time to time, you'd have dots like where my little red dot is

every so often. They really pretty consistent, aren't they? They just say that the more expensive a market is, the less you should expect in return. And some of these are actually negative expected returns. We're edging into that territory. They are. And I just counted those approximately. That's about 15 other times throughout history that we've been in this similar situation before, and it didn't turn out differently because those were actual subsequent returns from that period.

So, yeah. And the common theme of where we are is just the euphoria and the excitement and the, you know, because one of our weaknesses, Rafa DeBelly has a great book called The Art of Thinking Clearly. So it's just short chapters on all of our mental weaknesses. And one is hindsight bias. For whatever reason in our human makeup, in our brains, we have a hard time anticipating the next five years to be different than the past five years. So just that mental bias that we have and that mental weakness we have in our humanity makes it hard for people to imagine that the next five years could be anything different than what it's been. A lot of people are speculators that don't realize that they're speculators, but because they've been rewarded for that speculation through massive government intervention, they believe, hey, I've got this figured out.

I'm smart enough. I'm not going to be in trouble. And you've got a whole generation of mutual fund money managers and ETF managers that have replaced the gray hairs that came through 2008, because those who understand the pain of what can happen to individuals historically are handicapped to an extent, because we all recognize this is a dangerous environment. We have to play the game by the rules that are forced upon us, but this is a dangerous environment. And we don't want to be driving down the road 20 miles an hour over the speed limit. We need to be driving the speed limit with our foot very close to that brake to stop and turn if we have to. And we will have to.

I just don't know when it'll be. It will. And I forgot to mention my tagline, which, you know, investing at these levels, Paul, it's not easy. It either requires gray hairs or will result in them. That's right. All right. So we see how expensive, like, okay, like from a very long term perspective, expecting and this chart says very clearly for the rational person out there, not emotively driven, not trying to guess what the Fed will or won't do.

Any of that says that what you should expect is a zero percent return. That would be the that would be the betting person's wager in this environment. I'm going to hope for more, but I'm going to plan on zero. And I don't know that many people that are planning on zero. You mentioned euphoria. This is the euphoriameter, which is a combination of Ford, PE, VIX, bullish sentiment. People have never been quite as euphoric. And by the way, this is heavy duty on the retail side too, which is a whole other story. But as you and I know, well, wall street needs a bag holder when they decide to pull the plug. And so it always makes sense that you would get a lot of euphoria. Euphoria would climb right before a big falls. We saw in 2000, um, again, 2007, wasn't a giant stock euphoria. That was a different euphoria. But this, this is crazy.

At any rate, we got that. You've mentioned the Buffett indicator a bunch. I just wanted to put so people could see clearly what it is. It's the total value of the U.S. stock market divided by annualized gross domestic product. So if we take this number and that number, divide that by that, we find out the Buffett indicator is at 208%. That goes into that 2.08 times. Uh-oh. So this is the Wilshire 5000, which is the total universe. That's all stocks.

That's when we say, what is the total U.S. stock market value or capitalization? It's the Wilshire 5000. So the dot-com bubble, that ratio, the Buffett indicator got to 140%, was just over 100% in 2007. And today it's 208%. So when we say it's different this time, Paul, it is different this time. We've never been here before. But to put money down there and say, I need this to go higher, well, we don't have a lot of history to work from. No, we don't. And the leverage that's under the service of the market that's out there right now as well.

And one thing I will point out that I believe, that euphoria meter is not counting real estate specifically, if I understand that correctly. There was as much euphoria in 2007. It just wasn't in the stock markets. It was in real estate. Because I'll tell you, back in 2007, I remember, or 2006, when I started really warning people that there could be some concerns. 2007, I'm telling people, get out of your bank stocks. This is going to end badly. 2008, I'm really kind of ramped up. Just about anybody that was in real estate was telling me, I'm so sorry you do what you do for a living. Real estate is the place to be. So I think that's where that euphoria was just as much from what I saw in dealing with people in 2007. It just wasn't in the markets. Where we are now, we've got that euphoria in the markets and there's just as much

euphoria in the real estate as well. So what's on the other side of this to help pull us out? 2000, you had a real estate bubble to cover up the damage of the dot-com bust. 2008, the stock market went down dramatically, but it wasn't so overvalued that it was down 80%. Now you've got a stock value overvaluation. You've got real estate overvaluation. The bond market is not taking into consideration the reality of what interest rates are telling us yet. And the bond market may be the disciplinary function of the foolish spending of our government in the next couple of years. Because I wouldn't be surprised to see the 10-year-ago 0.75 basis points, three-quarters of a percent to 1% higher than where it is right now, sooner rather than later. Yep. Well said. And let's carry on to continue the it's expensive this time story. So this is the P2S, which is price to sales. So take the total market capitalization

of the NASDAQ and then divide it by its sales, not earnings, sales. So we're at now a multiple of about six and a half. Again, never been here before. It's wild. And so this is, again, stupid expensive, as in we don't have a historical analog for how expensive it currently is. Right. And we've seen the price to book. Right. This is now the most expensive it's ever been, higher than March of 2000, higher than 1929. And if you're going to buy the stock market at this level and say, you know. I think this is just going to keep going. Reminds me of that old movie quote, right? Well, do you feel lucky, punk? Do you? The problem is, sorry, Chris.

It's just, yeah, but this is looking at that price to book, but just blown up. So we're just looking at the last part of that curve there, not the whole thing. And here we can see it from 2000 when it hit that peak at just a hair over five. And now it's at 5.19. But very interestingly, it had a big sort of an aggressive expansion here from the fall of 2023. If we have time, Paul, I want to talk about fall of 2023 and the rescues. But for now, I just finish this whole section up by saying this is looking at that Buffett indicator over time. And this is stock prices here in the blue wiggly line. And in terms of that ratio, now it's standing at 208%, 67% higher than the long-term trend line, right? So if we were

going to fall back to that long-term trend line, it would imply a 30% decline in stocks. But if we went back just one standard deviation to back to, you know, below, that would be a 60% decline. And if we actually overshot, if we went two standard deviations to the high, and then we went two to the low, I don't know, that's 50% off a 200, it'd be about a 75, 80% decline, roughly. And this is the last slide. For workers, for the people who are working diligently, getting their salaries and putting their monthly 401k contributions in or biweekly, whatever the cadence is. This is looking at the standard and poor 500 index divided by the median hourly wages, asking and answering the question, how many hours would you have to work to just get one unit of the S&P 500? And again, never really been higher standing here at about 193, when somebody back in 2016 only had to work

90. So you have to work an extra 100 hours to get the same buy-in to the S&P, the same exposure that somebody did back there in 2016. This is what everybody is thinking will continue. Everything's normal. And it's those charts, Paul, that make me think, you know what? Passive investing had its run, but I think people should consider that it's time to maybe switch ponies in this race. And now here we are at this part of the conversation. So very excited for this. How do you do what you do given all that? Well, that's a great question. It's quiet and bald. So really from the standpoint of managing the risk,

the portfolio management is the easiest part of the whole process of what we do because we got tools and adaptation and we've got everything built to tell us when to make those shifts. We're not going to try to pick the top of the market. We're not going to try to pick the bottom of the market because it is impossible to time the market perfectly and consistently. But you can make adaptations in the portfolio to lower risk and adapt those tools to lower that risk when markets are expensive like this. When markets are really, let's say, 2007, 2008, you have to react quickly to lower risk. Once you get into 2009, you can basically pull those risk management tools off for two or three

years after a major decline because you've got a fairly valued market. So the first thing that we have to do from a portfolio management side is make some adaptations. But before we get there, we have to do the planning with clients so that they understand the journey that they're on in relation to history. So let's kind of talk through that, Chris, and don't let me go too fast because I want to get to the year by year chart. So just to kind of set the stage for everybody out there, you've heard the term past performance is not indicative of future results. And that is so true. And the time of which you start makes all the difference. And those are forces that are so far outside your control. So what we're going to do is show exact same strategy

with different starting years. So the program that we use in the retirement planning process uses actual historical returns, which are called rolling period analysis. So the first thing I'm going to start with is somebody that's the age of 70. We're going to assume that they're going to live to the age of 92. And we're going to start with 1926. And we're going to go forward 22 years. Start with 1927 and go forward 22 years, 1928 and so forth. So we can actually go all the way back to the year 2000 and go forward because we have data up to 2003 with actual historical performance. Now what's fascinating before I get into this, our whole industry uses Monte Carlo analysis with all of the financial planning programs. And it's really fancy, it's really sexy, it the financial planning programs. And it's really

fancy. It's really sexy. It's all this mathematics. And it's one way of dealing with an unknown future. But the problem is, is it uses so many calculations that are out there, it dilutes historical reality. And what I have found, just anecdotal, not full evidence, you know, I haven't done the mathematics behind it, but in my experience of comparing plans to the actual historical rolling period, to the Monte Carlo analysis, it overestimates your probability of success by about 15%. So now that I've laid that kind of background, let's dig into this just a little bit. So the first thing I'm going to do is just quickly take you through the data that we put in there. So in this scenario, I'm assuming that someone needs $100,000

a year of income, and we're going to look at three and a half percent inflation. So for 22 years, so in each scenario, we're going to increase that cost of living by three and a half percent. And that's the reality of what I've experienced. I will tell you this, in 26 years of working with retirees, starting in 1998 in this industry, it's not the market declines that, don't get me wrong, they can wipe you out if you're not prepared for it, but not planning for inflation is the one thing that causes people the most trouble. So if you're 70 today and you need to live on 100,000 in income, by the time you're 92, you're going to need 296,000 in income just to maintain the same standard of living. Okay. By the time you're 80, you're going to need $141,000 a year in income just to buy the same amount of soup and beans. And if you're healthy and you're

80 years old, you're still traveling a lot. I mean, I have people that will tell me though, but well, I won't travel as much when I'm 80. If you're fortunate enough to be healthy, you're going to travel just as much, if not more. Now also taking consideration of social security, I just picked a number, $2,000 a month, but in our retirement analysis, we run a 2.5% increase in Social Security because the unspoken little evil secret is the Social Security adjustments. And I would say prior to 2020, I would say it was 30% less than the actual cost of living. I would say it's half the actual cost of living now. So I'm undercutting that by 30%. So then I'm taking a portfolio. I just picked $2 million. I can take different portfolios,

put in tax rates and fees, and I'm doing 60% intermediate government bonds and 40% treasury bills. So in that scenario- It's very safe. This person's all on fixed income. Very good. All on fixed income. Very good. All on fixed income. They're scared. They don't know what to do. They don't want to pay any fees. They put 100% in there.

Now, the average person is going to say, hey, I'm 70. I've got $2 million. I can live on $100,000 a year. I don't need to carry any risk. Let's take a look at that throughout history. So when I look at this, it does the calculations every single time, so it takes a few minutes to get through there because computing power is cheaper than storage power. So what it comes out with us in this situation is it tells us

that if you live to 92 and inflation is 3.5%, you get a 65% probability of success and a 35% probability of failure. Okay. So I've had people tell me, look, I won't live that long. Okay. I've got clients that didn't think they'd live past the age of 82 that are 93 now. And because I was persistent enough and helping them plan for the future, they've not gotten themselves in trouble.

But this is what's really powerful right here. So when we go back, okay, remember, this is a very conservative portfolio. It's all in fixed income. So if we go back historically, this is the actual account balances that this individual would have had in this hypothetical scenario if today was 1981 and they went forward. Well, Chris, what was the common theme of 1981? We had really high interest rates in 1981, didn't we? So that was the best historical period that you could have been in. Yeah, because you could have got 10-year bonds at 14%, but if we're assuming inflation's 3.5%, your green line goes up. That was awesome. You're exactly right. So perfect scenario, right? This is other periods like 1973,

we get down to 1963. That's the actual, so same strategy, different starting year, and a different following economic environment. Okay, so if it's a green line, it means our strategy succeeded. We might have had in that green line a little less left over to distribute to our heirs in probate, but we made it without running out of money. Okay, because it's a green line. All right. Yeah. So green line is success.

Red line is failure. Okay? So when we get down in here in 1933, okay, after the worst decline of the great depression, interest rates were low for a long period of time, you would have actually run out of money at about the age of 90. So you can see because it's fixed income, this is a slow decline, but the worst period would been if today was, let's see here been if today was 1941, that same investor would have outlived their funds. Now, for that individual, let's assume that they own their house cash and paid for. You can use that as a reverse mortgage, but you're still looking at a situation where you run out of money before you run out of life.

So that's one scenario. So that's a safe scenario. Well, let's go look at other scenarios. So if $100,000 a year, $2 million, intermediate term government bonds and treasuries, you've got a 65% probability of success if inflation is a half percent. If you go up to a moderate growth portfolio and none of these are risk managed, okay. Risk management is an overlie. The reason we don't run risk managed and the historical back test is what if a new goes off in Los Angeles, right? Nobody can prepare for that. You know, God forbid, sorry, I had to pick a city. So, uh, or if the new Madrid was to go off in St. Louis, we can't prepare for that. God forbid. Sorry, I had to pick a city. Or if the new Madrid was to go off in St.

Louis, we can't prepare for that. So I still want clients to be able to survive a major decline if it's an event that we can't prepare for. So here's the counterintuitive part, Chris. There's so many people that retire on one side that say, I'm scared of the market. This is a crazy game. I don't want to participate in it. I don't understand what's taking place. So I'm going to go all into fixed income. They think they're making the right decision. But if inflation continues going forward, they're actually putting themselves at a greater percentage probability of failing than somebody who does a moderate growth portfolio. So let's take a look at this one. We're going to have some more variability. I haven't changed anything in this scenario, except we've gone up to 70% equities in a modern portfolio theory portfolio and 30% in fixed income. So what we want to do is we go

take a look at that spaghetti chart. Guess what? A completely different number one year is 1975 you know the the problem that i'm seeing right now chris when i talk with people and when i look at the industry at what i know i i have a lot of really good relationships with with advisors that are on the the buy and hold modern portfolio theory passive side and i have a lot of conversations with them asking them, so, you know, what are you showing clients and what's the data? All of the data that they're showing clients and all of the information that they're giving is assuming that the next 22 years or 25 years is going to be the same scenario as to what happened in 1975 going forward or 1979 or 1980. These are all of these starting years.

And then you've got 1976, you've got 1977, and even 1984. So that's a highly unusual period of time throughout history. So remember, exact same strategy, different period of time, different economic environment. If this was after the Great Depression in 1932, you know, you're okay. But what if today is 1929? That individual that's 70 years old would have run out of money by the time they were 88. If they were 60 and retired, they would run out of money by the time they were 78. So you can see 1929, 1928,

1927 are the historical periods of time that it was taking somebody out. 1926, 1937, 1931. And look at that, 1999 was successful, but barely. Barely, yep. So, you know, one of the ways that we deal with it is to go back and show clients, look, based on your situation, the income that you need, the assets that you have, we count rental property income, we count pensions, we count everything that's there. You know, what's, you know, what is your trajectory and what is your risk? And it's all about balancing out that risk and reward. And once we get a resilient plan in place, then we turn around and implement the investment strategies that will help maximize their probability of success against their

unique risks. So if you're an individual that is appropriate to be 100% fixed income, we establish parameters that, okay, if inflation heads at this level or your portfolio gets down here, we'll have to increase that risk. Now, I like to show this because so many investors are much more aggressive right now. It always happens at the top of the market because all they can think is, hey, it is different this time. But one common theme, and this is what I saw back in the year 2000,

is so many investors had given up on bonds, they'd given up on value stocks, and they didn't want to be in a 70-30 equity portfolio because they felt like this was going to go on forever. They went to 100% equity portfolio. We think that we can get wiped out going back to the Great Depression. But in this scenario that I have highlighted right here, if an individual was 70, had $2 million, increased it at 3.5% a year inflation,

and was 100% equity portfolio, and they retired in the year 2000, they would have run out of money at the age of 90. So if they lived beyond the age of 92, they would have been in trouble. And nobody anticipated that would happen back then. So this isn't just a phenomenon that goes back to the Great Depression, this thing in the past that we think that we'll never see again. It goes all the way back to the year 2000. So we don't even have to have this massive Great Depression for people to be unsuccessful right now. Because most people don't realize the risk that they're carrying in their portfolios. They're just kind of partying like it's 1999 without the realization

that the stock market was getting ready. The S&P 500 was going to go sideways for the next 14 years. So, Paul. Yes. Three and a half percent. Let's say I'm a little more bearish than that. Let's imagine that I don't believe the government's three and a half percent. But let's just say

my personal experience looking at property taxes, looking at prescription drug prices, looking at my grocery bill. Let's imagine that I actually think for some weird reason that my inflation is twice that. Now what happens? Well, I don't have twice that at 7%, but I was prepared for that. I've got 5.5%. So one of the things we do with clients,

I take everybody through 3.5% and 5.5%. And then some people I take through 7. and a half and five and a half. And then some people I take through seven and a half. The problem is most people would have to dramatically alter their lifestyle at five and a half, at seven and a half. But five and a half can do a lot of damage. So let's go back and look at this scenario. $100,000 a year at three and a half percent. Very conservatively invested, had a 65% probability of success versus that lightning within the next hour. I don't know about you, Chris, but I'd sit in my car for the next hour, right? Now, where you were at 95% before in a moderate growth portfolio at 3.5% inflation,

now you're at a 79% probability of success. So you are more successful in a more aggressive portfolio at 3.5% and 5.5% inflation, but you still have to consider that situation and build in some extra alternatives. So what would I do? And know, and if you're at a hundred percent equity portfolio, you're at 74. So five and a half percent inflation can be absolutely devastating for those who haven't planned for it and haven't prepared for it. So what I try to do when I'm working with clients, go ahead. No, I'm sorry. I just want to see some of those spaghetti charts here. Um, maybe for the 34%, I mean, is that, are we crashing and burning 10 years into our program or is it like, like what's happening? Oh yeah. Let me go back. I hit

the moderate growth. So I'm going to have to go back just as soon as this is done here. Well, we can look at that one. That's fine. So I'm here. Yeah. 34%. So the interesting thing is, this is representative interest rates through actual interest rates throughout history for 60% of those funds being in intermediate-term government bonds and 40% being in short-term government bonds. So, with the interest rates that were paid, you know, earned, and let's assume that the government, you know, continues to have a heavy hand over interest rates, in 1946, a 70-year-old would have used up all of their assets by the age of 87. And there's not much variability because it's a slow decline. Well, Chris, here's the same thing that I saw. I mean, I've had people come in in 2014 and 2015 who bought 7% CDs in the year 2000, and they were giddy that they missed the market decline. And then by the time the year 2014-15 came, they'd had 0% interest rates for four or five years,

but their cost of living had doubled over that period of time. And then they had to make massive revisions, and most of them had to make massive lifestyle changes, sell the home that they hoped that they would never have to sell and downsize at the age of 80 because they were healthy and might live another 12 to 15 years. So yeah, you can look at that and see if it was the year 2002 and you were conservatively invested because that's 2002 right there. And the reason that you would have failed is because interest rates hit zero for such a long period of time and you had to increase your income you're either going to have to use those assets up to maintain your

standard of living or you're going to have to completely sacrifice your standard of living to preserve those assets there's because of poor planning there's going to be pain to pay at some point in the future for the individual who took this path in the year 2002. That make sense so far? It sure does. Yep. Okay. So let's, now let's go look at that moderate growth. You can stop me, Chris, if I'm beating this, beating this to death. I love this data because I'm telling you the clients that I take through and I do this with, they have a peace of mind and they consistently tell me that they have a peace of mind. Not that they still don't worry about all the things, but they know that they've done everything that they can prudently do to put themselves in a position of success.

So if we're at a five and a half percent inflation with moderate growth, look at this. If the valuations that we have today and you don't have a strategy that can reduce your risk, so if you're passive, you're a long-term buying holder. You're never going to sell. You're not going to make that mistake. If you have convinced yourself of that and you're ignoring what's happened when periods of time throughout history that the markets have been this expensive, then right here's exactly what happened in 1929. Okay. I'm a, I'm a long-term investor. I'm going to buy and hold. Now you're down 70, 80% in overall markets. And then by 1934, the market bounces a little bit. Then you have this

big decline from 1937 and the 1942. And then your portfolio is done and you're out of money by the age of 84, 14 years into your retirement. So what if you're 60? What if you've done great? Hey, I've been a great investor and I'm aggressive and I can handle this volatility and I'm going to retire at 60. And you're drawing 5% off of that portfolio and you have to increase for inflation and it's not completely different this time, what are you going to do if you're 74 and you run out of money because you weren't aware of what would have happened historically for that lack of knowledge? And not only that, you're talking right there's the year 2000, Chris. So if you were an investor

that retired at 5.5% inflation in the year 2000, you're 60, you're out of money at 78. Guess what? I didn't have any clients that experienced that by God's grace, but I've talked to a lot of people that have come in and said, hey, is there some miracle that you can work? No, there's not. You've got to sell your house and downsize or do a reverse mortgage or dramatically cut your standard of living. You can't take those trips you wanted to take anymore. And it's miserable. It's heartbreaking for me because I saw people that still had the health to be able to go do these things, but because they didn't understand history and they were convinced in the midst of that 2000 euphoria that it was different this time, and they've suffered the consequences. But those people get pushed to the back. That's not somebody that CNBC brings on there because it doesn't sell stocks.

It doesn't sell mutual funds. It doesn't sell. You don't hear about those people, and they're certainly not still at the country club telling you about what happens because they can't afford to be at the country club anymore. So anyway, I hate to get on my soapbox, but right there is 2002. Right there is 1963. Well, let's put 2000 on there. Can you find 2000 for me?

Right there is 2000. Can you see that, Chris? That one,000. Can you see that, Chris? That one, 2,000, yeah. So all the charts we just reviewed prior to this section, right, where you said it's not just expensive, but these are the most expensive ever. Our closest historical analog is going to be that red line right there. Yeah. We're basically starting at that red line, only maybe even more expensive right now. Correct. But everybody's expecting,

because their advisors on the passive buy and hold side who don't study history and understand it are saying, hey, this is like 1975. You know, Trump's going to be just like Reagan was in 1982. We're going to be great. Well, it's possible. It's possible. But your advisor ought to be able to answer the question when you say, tell me how I'm positioned the way I am. Tell me how that would perform historically given current valuation levels. What are my odds? They should be able to answer that question. It's a very obvious question, right?

It is. It's a very obvious question. And unfortunately, it's something that our industry just doesn't do. And look, I understand that Monte Carlo Analysis utilizes that, but Jeff Manry, the creator of this program, and I tell him, I talk to him all the time. I'm like, what you have done and the program that you have created, I pray that I leave a legacy that's that impactful in people's lives because the tool that he created, you know, going back to 1991, because he had seen so many problems of people coming out of the 70s. And even though the 80s were great, people were having trouble.

So he was a student of the markets. You know, he explained how Monte Carlo even puts in some vamping of the volatility in there. And look, I can't tell you how many people have come in, and I sit down with them, and I'm like, look, you have an 80% probability of success if you retire today. And I don't feel comfortable doing that, considering the markets are high. If this was 2009, I'd feel a little bit more comfortable, because we've already got that overvaluation behind us, or maybe, yeah, 2000, 2002, 2009.

And they're like, well, I went to so-and-so, and they're telling me I've got a 95% or 100% probability of success, and I go look at it, and it's a Monte Carlo analysis simulation. And look, I understand we have an unknown future, but if I have Monte Carlo simulation versus a historical rolling period analysis, I'm going to choose the historical rolling period analysis. And I can't remember the name of the individual. There's a famous mathematician. I can't think of his name right now. I had a Canada that that's done a lot of studies on this, that I've got a couple of books unveiling the retirement myth

and a few others that are powerful that point this out. And do you really want somebody giving you all kinds of sunshine and rainbows for your retirement? You want to have the reality of your situation and make those adaptations now.

And I can't tell you how many times, there's two things that people don't know. When I send them the questionnaire, 90% of people send back, I really don't know how much I need to be able to live the lifestyle I want in retirement. Because what our industry does, it says, go accumulate $2 million. You can draw four or 5% off of that and you're going to be fine. Okay. Well, that's great on the data they're going back to the 1975. But if you look at the rest of the story, I used to love Paul Harvey when I was younger, listening and here's the rest of the story.

Maybe that's what's wrong with me today, but that's it. But it helps me help clients. Let's put it that way. But the rest of the story is you have to assume perfection. So, you know, I get to meet with clients and I'll say, okay, here's where you are. And then they spend some time thinking about it. And once they understand how important that number is that they need to live on, they come back to me. Well, I actually need a little bit more because what you don't want to do is get into retirement. Think you can live on a hundred

thousand a year and you're actually spending one 50,000. So once we have that plan in place, the investment side is easy. I mean, don't get me wrong, it's stressful, especially in an environment like this. But those tools, it's pretty clear. When it says you need to sell as a fiduciary, we sell on lower risk. Park it in treasuries. 2022, it had us reduce risk. I looked, Chris, to buy TLT in 2022, and I said, nope, TLT doesn't look good. So we parked it in money market, and we took a lot in treasury money market, and I took a lot of heat over that from some clients. But I just explained to them, I said, look, you know, this is what it's telling us. Let's just wait and see how this unfolds.

Give me three more months. Give me four more months. When I don't know what to do, we're going to park it in something safe. In hindsight, that was a good decision. And only with the benefit of hindsight do we know. The thing about doing this plan to help people prepare is we can use the benefit of hindsight and estimate to the future so we can say, okay, what type of environment is it historically that would have wiped you out and caused you to be unsuccessful? And Chris, we just showed the exact same type of environment we're in right now is the one that would have caused people to be unsuccessful historically. So you have to assume that it's completely different this time. And if somebody chooses to ignore it, I mean, I've had clients that have had a 50% probability of success. And I'm like, I would not retire if I was you. And they're like,

Hey, I'm good with a coin toss. Okay. Well now we know, I know what I got to deal with. And here's how we're going to, you know, help you walk the path that you're comfortable walking on. Well, that's really important. I just love that approach. By the way, I find it calming, but that assumes somebody has $2 million, right? So not everybody's calming because you say, look, for the most part, you really still have a really good chance of success as long as you are managing the portfolio appropriately, given the environment. But if this comes to pass right here, I could easily imagine 60%, 70%, 80% declines from here if they allow it to fall, right? They may decide to pump it, but if they decide to pump it, Paul, that's fine. The stock part stays up, but then inflation also goes up, right? Exactly.

So it's not, it's kind of like pick your poison. When you're this expensive, there's really no easy way out is what I'm trying to say. They could make it look good, but it's not actually good. Remember you and I talked about this, the Venezuelan stock market went up 600,000% over a period of time, which was great. Unfortunately, inflation went up 2 million%, so it wasn't great. So given all those moving pieces, you had a chart that we saw before that was looking at this with the same sort of a thing, right?

Yes. But looking at, like, just I want to ask and answer the question, what if we went back of a thing, right? But looking at like, just, I want to ask and answer the question, what if we went back to fair value, right? Which is a price to earnings ratio that would be represented. My dad would understand what he was looking at, right? You know, something like 10 or 11 or 15 or something like that. So what is this chart? Can you explain that for us? Yeah, let me hit back. So this is a chart of the S&P 500, and I just titled it PE Ratio 2. S&P 500 on a monthly basis line chart going back to 1925. So the dotted lines here, the red dotted line is a price earnings ratio of 20 for the S&P, which is considered overvalued.

Blue dotted line is an S&P priced earnings ratio of 15. And the green is a priced earnings ratio of 10. So one thing we notice is going back to the Great Depression, market briefly stayed overvalued. Of course, earnings went down. Look at this. The interesting thing is earnings went down during the Great Depression, and the market hugged the overvalued line until it cracked

and hit undervalued in 1932. So then we stayed undervalued after World War II. The market actually bottomed, if I remember correctly, after it reopened on the bombing of Pearl Harbor. But the market stayed undervalued, investors get complacent, we get overvalued in the 60s, and then we go flat all the way into 1982. But when inflation surged in 1973, earnings went up, but it cracked the nifty 50, the market declined, I think it was 47%, if I remember correctly, and all of a sudden it became

undervalued and stayed there for some time. Now, one thing that I'll tell clients is, look, when the market is undervalued, which we've not seen since 1987, and the last time we saw it fairly valued was 1992, you really don't have to manage risk, right? Because no major declines, you go sideways for a while, but no life-altering declines occur in an undervalued market. At least they haven't at this point throughout the history we see there. Then we get the year 2000. We go sideways.

We were overvalued, but look where we are here. So to pick that number, I wanted to explain that chart through. S&P is about 5,910 right now. To get to an undervalued market, which is price-to-range ratio of 10, that's 2,002 for the S&P. You're not talking a year. You're saying the number 2,002. The number 2,002, correct, which would actually take us back to about 2013 as far as market level. And that's assuming the earnings hold up.

In 2000, earnings went down. Government printed money and we had housing. Housing was not a bubble before the technology bubble burst. So there was juicing that housing bubble and bringing that up kind of held the economy up what do we have to hold us up right now hey even if we go back to fair value chris that's 3004 right there i know that's hard to see for you uh for y'all watching out there but that's 3004 with a price earnings uh ratio of 15 so that's that's what nearly a 50, that actually is a 50% decline because we're right at 6,000. Yep.

Same concept. But, you know, the far right end of that chart just shows that we're about as overvalued as we've been in a long time, which is, you know, something that obviously we've been hammering on here for a bit, right? You know, just kind of expensive, kind of expensive, kind of expensive, very expensive, you know, very expensive, very expensive. So that brings us back to, well, Paul, how could it be different this time? I think that's the investor psychology right now is the Fed will always bail this out with the PPT or whoever's pulling the machinery to drive futures up, you know, over the night or however they do this thing, slam the VIX, whatever. They've got their complicated ways. We have computers now, Paul. We got AI. We have tools that they didn't have before. And we have a very activist Fed that won't let it happen. How do we approach that?

They may think they won't let it happen, but we have to kind of look at it in context from this standpoint because there's always a point of diminishing returns in anything that we do so if i send my wife flowers on valentine's day and her birthday then i get a big impact if i send them to her every single day of the year, then she's going to be tired of throwing flowers out and fussing about how much money I spend. My concern is that we've reached the point of diminishing returns, okay? Because we've seen now the Fed was able to print a whole lot of money after 2008. We didn't get a whole bunch of inflation. Quantitative easing one, quantitative easing two, quantitative easing three, and they bought into this, hey, it's going to be this trickle-down effect in the economy, and that's

not what's happened. They basically enriched the top 10% of the asset holders because it's generated asset price inflation, which occurs typically first, and now we're seeing inflation across the board. So my question is, how can you know, how can they continue to print, right? Because we've got an economic backdrop out there where we've weaponized the dollar. That's basically forced the BRICS to look for their alternatives, which we've talked about before, which is the unit. There's nothing stopping that train right now. I just don't know if it's 10 years or 15 years, but they're moving in that direction because they're not going to make the same mistake twice to be in a position where they can get the boot on their neck again.

So that puts us at a weaker position. So who's going to absorb that money? So what if they start printing all of this? China chooses deflation. They get on the other side of it. We choose to print money, okay? And I don't think we're going to end up like Japan in that circumstance, but we print money. The rest of the world decides to pull all the dollars that have circulated into our markets and into our

asset classes out. Now we've got a falling dollar with everything manufactured outside of our country and a government that's trying to print money. That's a hyperinflationary holocaust that we could ultimately end up in. Now, is it going to be hyperinflationary? I don't know. But I would assume that it's going to be above all measures of historical inflation for a much longer sustained period of time than what we saw in the 1970s, because this is a completely different economic backdrop right now than what we had in the 1970s. Can you pick holes in that kind of thought process, or how do you see it unfolding, Chris? Well, you know, yes, I'm not picking holes in it.

I'm saying I understand it because, and maybe I'm just going to be that guy who's just like desperate for return to some fundamentals. But fundamentals matter. I think that you can have long periods where fundamentals don't matter. We call those bubbles. You have a chart of them behind you over your head there. And they happen. And I have to understand this from a psychological perspective, right? This has been well characterized. People were writing about this in Cicero's time, the tulip bulbs, Charles McKay in the 1850s, right? You know, the popular delusions and the madness of crowds, right? And we had railroad bubbles. It's just, it's a human thing. That's a psychological thing. At the end of it, though, there has to be some fundamental squaring of things. Like what did Dan Rand say? You can ignore reality, but you can't ignore the consequences of ignoring reality. So for a long time, our leadership and our feckless, you know, financial press has been busy ignoring reality, right? I can't remember a single press conference where any journalist has ever

asked the Federal Reserve an appropriate question, which is, what's your exit strategy? I see you printing. How do we get out of that, right? How do we get back to normal? And you can't. And along the way, so this is amazing, Paul. This is amazing. So this is in this weekend's Wall Street Journal, right? And they say here, what happens when a whole generation never grows up? So they're looking at Gen Z. And of course, this is probably written by some non-Gen Z or a boomer because, you know, they make it sound like these kids are just complaining today, right? And they go through some of the things that are happening to these poor kids today. You know, blah, blah, they're living at home. They're not

starting families. They're never getting married. But they say right here on the second page, they say in many ways, this age group is in a better place financially on average than their parents were at this age. The problem is they don't seem to know it. So taxed from the reality. They must not have any average American citizens within their sphere of influence or as a friend to actually think that's the reality of the situation today. Or you have to believe the government statistics. I mean, on paper, inflation's not that bad, but if you get out in the real world and you actually go shopping and you understand that... So I was, you know, we haven't got a car, our Pathfinder, it's 2016, it's fine,

it's in the shop right now, but, you know, eventually, sooner or later, got to start thinking. So I looked at new car prices. Everything's 50 grand or higher like the last time i went car shopping you could still get one for 30 grand because that was 2016 right how how would yeah like and if you want like a decent truck or something i mean we're talking six digits now in many cases without breaking a sweat you want a really nice car we're talking what i consider high six digits you know buck 50 it's crazy you know it is i won't even tell you what

my first house cost right less than that right so you know shaking fist at cloud right but no i mean i i really get annoyed and if not angered, if not infuriated, because the Federal Reserve created the conditions which threw that entire generation under the bus. And now they're the ones who. So you gave us a 70 year old and you're planning thing. I'd love to have this conversation again, but let's start at 25 or 30. Right. Now they have time on their side, but they're also investing at the most expensive time ever. So they may have to, you know, thanks, Fed. I might have to wait 20 to 30 years to begin to have returns again. That's a long time to wait. And that's barring something else goofy not happening like a world war or something exogenous like that.

Right. But so I think it's really tricky and I'm annoyed by articles that are written like that because they have nothing to do with the actual reality that people are experiencing right now. No, they don't. And, and, and it's a judgment and it's an arrogance because they don't really understand the reality of what's taking place. So I got in big trouble in Sunday school, I guess it was about six months ago or so. Cause I was giving a talk about financial prudence and management and the guy that I love very much kind of made the comment like these kids today, they just don't have the work ethic. Now that's true. There are kids out there that don't have the work ethic, but then he, then he goes on kind of talking about a situation

with, with a young couple that's working hard, they're making sacrifices, but they can't buy a house. He's like, they're making more money than I was back then, and you know, they just need to sacrifice more. And I just kind of really just unloaded all of the data that we had and said, you're, you know, I'm sorry, but you baby boomers are completely detached from reality, right? I'm completely detached from reality and from what our kids are facing. My wife and I came out of college and bought a decent three bedroom, two bath home. Now I think it was like 1400 square feet, but we paid $47,000 for the thing and turned around and sold it for 65, two or three years later, and then stepped up from there. You know,

and there's kids that yes, technically they're making, I mean, I know 23 and 24 year old kids with work ethic that have their head on their shoulders that get out there and actually make some sacrifices that are making some ridiculous amounts of money starting out compared to what we did back then. But they still can't afford the average home that's out there now because they've got school debt. Cars are ridiculously expensive.

I remember buying a really nice car for $5,000 that was reliable and took us places. You just can't find those. A good used car now is $30,000. I mean, I know there's some cheaper than that. I'm just talking about a good used car or more. So, you know, there is this—it's hard for them to understand. We had manufacturing here. There was more freedom. There was more freedom.

There was less regulations. There was less taxes across every aspect of the board. Healthcare insurance was much more affordable. I mean, kids coming out, you know, my son's getting ready to have to turn, he's turning 26, so he'll come off of the family plan. You're looking at $1,000 a month. That's something that they didn't have to spend that type of cost in early 1980s so yeah my concern is excuse me my concern is they're completely detached from the reality of the situation in those positions and those uh authors are writing that you know i think that's why the podcasting and the community, this alternative media and what you have done, you have relationships with everybody across there. I have relationships

with everybody across the economic spectrum. And because we care about people and we care about the truth and we care about the fundamentals and a path that's sustainable and hands off to the next generation something better than what we receive, we recognize the weaknesses in the system where I think those in the positions that are writing those articles have an arrogance about them that doesn't allow them to see the reality of what the average American's facing, and especially the younger individuals. Yeah, very well said. And you know, my first piece that I put out for 2025 at peak prosperity was just my six predictions going forward. And my prime one, Paul, is that this is the year reality, the consequences of reality become unavoidable. Like we can't we can no longer

ignore them. Right. So we're going to see this on a fiscal dimension for the U.S. government. We're going to a lot of people are running into brick walls right now with, we see auto loans, delinquencies, credit card delinquencies. The inflation is coming back, not receding. There's a lot of things going on. And so they're going to try and do this business as usual can kicking thing. But if the foreigners decide no longer to fund that, we discover real quick that we didn't hit a triple in this story.

We were born on third base, you know, and we kind of squandered that moment, you know, diluting ourselves in some important way. So at any rate, I do think this is the year that that comes back. And by the way, bad news, good news. Bad news, I think it creates a lot of volatility, which is code speak for I think markets go down potentially, not always up and to the right. You know, I think that real estate corrects a bit because it has to, because it's way out of bounds with what incomes can sustain.

And that is the definition of a bubble. A bubble exists when an asset price has risen beyond what incomes can sustain, right? I think we'll see this in the AI space. So with all of that, that's the bad news. The good news is that gives you an opportunity to buy back in at lower prices, which is a much better starting point, right? As you and I have discussed before. So I would be okay with that, which means though, you have to know where you are in the cycle. You have to set some dry powder aside, you know, not be greedy, pick your moments, be patient. These are all things that are more what I would

call fundamental investing styles rather than the latest momentum speculative styles that have really taken root across the landscape. So that's my prediction for this year. Reality comes back. Not everybody's acquainted with the reality. Some of them aren't going to like it, think it's a bad deal, but it just is what it is. I believe that's a very good prediction, and you're right. This is a behavioral environment, and Chris, the investors who have been unaware of the situation, if you're a listener out there, you're a passive investor, you come across this, or a friend sends it to you so that you can listen to it, and you're like, wait a minute. I've not heard this.

You've been very fortunate up to this point because you've been in a passive area and the government has been able to bail us out to here. But I do believe with you that reality is going to come home to roost sooner rather than later. This is a time to take the path less traveled. When everybody's going all in, we know all kinds of stories throughout our lives and individuals that made sacrifices and took a going all in. We know all kinds of stories throughout our lives and individuals that made sacrifices and took a path less traveled.

And it's kind of lonely. It's scary sometimes, but that's where true life is. And that's what discipline is on a daily basis. You know, getting up and going to the gym every morning or saving when other people's arm, buying a car that's a little less affordable,

sacrificing a little bit today so that you can have a car that's a little less affordable, sacrificing a little bit today so that you can have a better future tomorrow. For some investors, that's going to be sacrificing what you think those returns are going to be over the next three to four years so that you can walk that path less traveled and be a sustainable position. Because if you're fully invested at all times, then what money do you have to buy with if we do have a 70% or 80% market decline?

I don't know if it'll drop that much, but even if it's 50% or if it's 30% or if it's 40%, if you don't have any dry powder available to take advantage of it, then you're just going to have to ride through and hope that it recovers as quickly as it did after the year 2000, but that was 14 years sideways. But you've got the risk that it could be 25 years sideways like it did during the Great Depression. And what's that going to do to your retirement if you're 55 or 60 or 65? And that's the most important job I have is to show people, look, here's the risk you're carrying. And here's the minor changes you can make to make yourself more resilient so that you can have a better outcome than, you know, individuals just trusting the government, which I don't think that any one individual should have 100% of our trust like that, or institutions specifically, and whistling Dixie thinking

nothing's going to happen when a baseball bat's coming your way and you're blindfolded because you refuse to open your eyes. Very well said. And I haven't done this analysis in like 10 years, but I bet it's still true. I asked the question a while ago very deeply. I said, hey, during ripping bear markets, you know, CNBC's crying and the New York Times and Wall Street Journalists, it's just red, a sea of red. Paul, it's like there's no hope, right? I asked the question, was it ever true that everything went down? And the answer is no. There are always things that are going up for other reasons, even during the worst bear markets, right? So the key is that instead of playing the market, which on average might go down 20, 30, 40, 50, 60 percent, once that starts to happen,

you know, you start asking the question, well, this will come back in vogue again, right? You know, the defensive rotations, you go to here instead of there during this environment. There are places to be, but I worry that our markets have been pitched to us as if they're this one monolithic thing, which I've complained about because they are. Japanese market, German market, French market, U.S. market all go in lockstep as one giant monolithic thing, which I think is very bad because there's no firewalls. There's no bulwarks in the ship. You know, the whole thing sinks.

It's one Titanic, you know, but even within that context, there are places to be. And so maybe it's true that there are, it's going to be a ripping market where everything goes down, but I'd be surprised. And this is a conversation for another time, but I like things that are out of favor a lot. I prefer things that are out of favor. In. I prefer things that are out of favor. In fact, during a bubble, the majority get it wrong. That's the nature of them. That's just how it is.

So don't be in the majority if you think you're in a bubble and things are at the most expensive ever. But then you got to find. So I can show you sectors today, Paul, that are deeply hated. They're very out of favor. And we'll be talking about those. They're in the commodity space. Some of them, right? That's right. I can, I can be vague in this business, right? That's as close as I'll get, but, but man, I, there's some things out there I think are going to do really well.

Even with all of this, but. I'm like the kid in the candy store. My mouth is watering and I'm looking through the glass going, I can't wait to get in there. You know, all I need them to do is just open the door and I'm running in. So I'm waiting on our tools to give us an indication that it's time to buy. And it's like we aggressively move because they are so undervalued. They're just unpopular right now. Yep. Yep. Yep. Okay. So with that, we're going to have to save that last part for next time, which I'm going to talk about market rescue. That'll be next week. So until then, for everybody, if you want to talk with Paul and his amazing team,

please go to peakfinancialinvesting.com. You fill out a very simple form. And what happens next is within 48 business hours, somebody from Paul's team gets a hold of you. You schedule a discussion and he will take you through that amazing tool and planning process if that seems appropriate and you want to go through it. No obligation. And it's completely free, all of that. But boy, Paul, everybody who's gone through it so far has told me it's been a great thing. So thank you for for doing that for people. I really appreciate that. It's my honor. So what, what it, what it, you know, it helps people, it just helps settle them down and it helps them deal with reality. So that's one of the reasons we take the time to do

it. And I enjoy talking to people and, you know, for those of you that are out there that want to call in, we're, we give you advice. We have a conversation. We're all in this journey together. We just want to help those that are there, whether it's appropriate to work with us or not. It doesn't matter. Our goal is when you get done with that conversation, that we've given you something that helps you have more wisdom

and make better decisions for the future, because that's what we need for the days ahead. We need wisdom. We need to embrace wisdom and knowledge so that we can make good, educated, prudent decisions. Excellent. Well, with that, Paul, thanks so much for your time today, and we'll see you next week.

Look forward to it, Chris. Thank you.