Peak Prosperity - The Bank of Japan Is Ruining Life For Its People. Same As The Fed.

Episode Date: July 13, 2024

There’s no path back to monetary sanity. That means more printing and more undeserved rewards to Wall Street insiders while a front of economic despair marches steadily northward through the social ranks.

Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. From my perspective, they've become ever more desperate and ever more desperate to paint, to cover this lie instead of just telling the truth and talking to the American people, hey, we made a mistake. Hello and welcome everyone to this edition of Finance U, where you're going to have a couple of smart dudes with some experience and a few gray hairs discussing the state of all things economic in the world with you in ways hopefully you can understand. Paul Kiker of Kiker Wealth Management. Paul, good to see you again, buddy.

How are you doing? I'm doing good. Good to see you on this bizarro environment we're in. It's so bizarre. We're going to talk about that. I want to talk about Japan and just as a sort of almost like a cautionary tale, or it's just it's this weird thing. I want to talk about the housing market, but just general markets as well, because there are bizarre things going on. What was that old saying? The markets can stay irrational longer than you can remain solvent, you know, if you're short the markets, right? So markets don't have to make sense. We know that. But there's something extra weird these days, it feels like to me. It is.

It is. And I believe that was Jesse Livermore that made that quote, you know, and he was a famous trader during the bubble of the late 1920s and had to navigate through the Great Depression sell-off. So that is true. That's one thing that we've learned since the Federal Reserve and his printed money. Like it's water coming out of a faucet and the fiscal responsibility, irresponsibility by our politicians. This market can stay irrational longer than we can stay patient or solvent. And I believe we're seeing that people are just just, you know, they're throwing discipline and caution to the wind because of the desperation that they're facing with the inflationary pressures and, you know, wages that are that are not keeping up with inflation and making, unfortunately, which in hindsight will be horrific mistakes. You know, Paul, the thing that gets me about this is the cheerleading that goes on as if a rising

stock market means, well, it's an indicator for all things. As long as the stock market's going up, your lives must be getting better. It's always presented that way. Look, the market's going up. You should be happy with your lot in life. Now, of course, they leave aside the first problem, which is that 92% of all stocks are owned by just the top 10% of families, households. So 90% of households kind of not really participating in that. They just get to press their noses up against the window and say, I guess we're doing good, right? Because they tell me we are because the market's up. But let's be very clear. The financial markets have largely been a conduit for the wealthy to get wealthier. And this is something that you can look at. And

it's just simple data. The charts are everywhere. Very easy to find on the Federal Reserve's own website. And yet they still talk about it as if it's this mysterious thing that people are a unhappy or why the wealth gap exists they just pretend to be befuddled i think it's an act they can't be that stupid what do you think no i think it's an act as well i think it's justification to be able to try to hold the pieces of the the lie the picture that they're presenting on the American people together long enough with the hopes that it's going to work itself out without a big calamity on their watch. And from my perspective, they become ever more desperate and ever more desperate to paint, to cover this lie instead of just telling the truth and talking to the American people,

hey, we made a mistake. But you can find that graph. I wish I could find it right now to show, but the last time that we have seen the wealth disparity, this lopsided in favor of the top 5%, 10% was at the peak of the 1929 bubble. Now, I believe, Chris, with the automated trading, the lack of a gold standard to limit the ability for the government to print money, that it's possible that this could break all historical records by much more than anybody thought possible. It's impossible to know when this is over, but we're in a mania right now. And I think it's similar to late 1999 where it does.

Now, these numbers aren't exact, but this is approximate. So in late 1999, Buffett through Berkshire Hathaway was down approximately 19% in 1999. S&P 500 was up close to 20%. So I remember when your CNBC cheerleader was saying, Mr. Buffett's too old. He doesn't understand the new economy. He needs to resign or be replaced. He needs to step down, sunset off into retirement. And Buffett, when asked a couple of questions, challenged about why are you not chasing the internet stocks, instead of doing like I would do, unfortunately, and giving all the data and explaining exactly why,

he just leans back and goes, I don't buy what I don't understand. And, of course, nobody understood exactly what was taking place at the time, but in hindsight, when the market rolled over in November, not November, spring of 2000, and then went down 47% over the next three years, NASDAQ, I believe was down 80% from top to bottom, but, but the S and P was down about 47% from top to bottom. Buffett was up somewhere in the neighbor. I can't remember exactly. So this is just an estimate.

Berkshire was up somewhere around 45% over that period of time. Well, what he was doing is he was buying everything that, that people were selling to chase the internet bubble. So he was buying everything that that people were selling to chase the internet bubble so he was buying your banking stocks he was buying your value you know he's a value investor but he's buying everything and he had the discipline and courage from a long-term standpoint to buy them even though they were going down and stay the course well let's talk about that and we'll get to that market stuff in just a second because um I think there's still bargains out there right now. Because people are all heavy weighted. They're all on one side of the boat staring off at this pink pelican, you know, over here.

But one of those things to think, you know, that whole, I don't think I understand this. I was reading, somebody finally captured it really well. It was a Goldman Sachs analyst, the semiconductor guy, talking about AI. And he said, look, there's about a trillion dollars of investment in this. What trillion dollar problem are they solving? That was a great article, Chris. It really was. And that was on Zero Hedge is where I caught that one. But I don't know where you saw it. I saw it on Zero Hedge. Yeah, but it's a great question. Like what trillion dollar problem are we solving?

And if I remember correctly, he goes on in that article, because I've read a couple of in that theme from some of the Goldman traders right now, he said, look, programming, it's a benefit, but it's not enough to justify the expense outlay. And in the legal profession, it's a benefit, but it's not, you know, life changing or economically changing to the point now to justify this outlay. So, you know, life changing or economically changing to the point now to justify this outlay. So, you know, investors don't care about that at this point. But the reality is when you've got Goldman coming out and talking about that, you know, especially in the midst of a period of time where they could be making a lot of money riding this train, it's something to pay attention to.

Well, listen, I'm Paul, I'm very sensitive to the idea that I could be missing the boat, right? Like it'd be like saying, you know, is it VHS? Is it Betamax? Neither. It's Netflix, right? You know, things do come along, right? I get that. And I use chat GPT, got to confess, it's pretty handy for structuring things. It does certain things. It hasn't made my life a trillion dollars more efficient or anything like that. But I'm old enough to remember when I would get in all these arguments with people, 2018, 19, 20, right? Telling me about how cryptocurrencies, it's this killer app. It's just about to displace everything. The title, insurance, whatever. It's going to

displace everything. And here I am 10 years later, where's my killer app right and now bitcoin's behaving like digital gold it's not a peer-to-peer cash settlement system and but i'm still like where's that thing right to justify the trillion dollar market cap of of the cryptos right i believe that there is the possibility of a killer app but i'm old enough to know that they don't always come along i haven't seen one yet in that space i can't explain why i'm not enough to know that they don't always come along. I haven't seen one yet in that space. I can't explain why. I'm not an expert in that whatsoever, but we have that same feeling. I feel like I'm having the same conversations about AI.

It's what it could do, and I'm just going to be over here like, okay, I'm an open guy. If it does those things, I'm right here. I'll open arms. I'll accept it. But until then, I'm like, what problem is it solving? And how's it going to do that? Right. And I have no doubt that, you know, like the internet stocks in the late 1990s, and Amazon, for example, in the late 1990s, that stock was an incredible performer up until the year 2000. Because investors did recognize that this was new,

but nobody exactly knew how it was going to impact our economy. Well, you jump forward 20 years from now, we don't do anything without the Internet. I mean, we weren't doing, there was no Zoom back in the year 2000. So it's dramatically changed our economy. But most of those stocks didn't see the 2000 highs for 13 or 14 years. And, you know, just investors just overpriced where we were going to be. And I have no doubt artificial intelligence is going to make a big difference from a long-term standpoint,

but I believe there's a lot of things that are going to need to change and it's going to take a lot more time than what these investors are in the meantime, if it doesn't work, that's a lot of computing power for somebody out there to utilize in, in all kinds of manners. Some may not necessarily be good. Yeah, no, no. This is going to be a very two edged sword, maybe a three edged sword.

It's going to give it and take it away and destroy things. Right. So I can already I mean, listen, this isn't specific investment advice. I'm not picking on any companies for any particular reason except for education, which is that we can already see one area where we see that this AI is going to completely ruin business models are all the companies out there who sell stock photos and stock video footage, right? Yes. Because you watch these new AI things they are developing and we use them for this purpose, right? It's just so much easier for me to develop a new image, whatever it is out of AI, than to have to deal with all the copyright nonsense, you know? And it is nonsense. I mean, we had a thing pulled off of YouTube about a couple months ago because of a copyright violation. Now I have licensed that piece of software. Sorry, the music, yep.

And this company had filed a complaint, and then I had to actually go back to the company. They had to literally email me a PDF of my license, which I then had to send to YouTube. It was this whole giant rigmarole. And, oh, by the way, there's an AI program out there now where you just feed it lyrics and tell it sort of the genre of music, and it kick you out so like you can't tell that this was not produced i mean it's getting really good so that side of things so that's great we go wow i don't have to license but that's going to destroy a whole pillar right this is like buggy whip territory over here now, you know, and there's an automobile

now on the market, buggy whips aren't going to, so I can see that happening very quickly. I can too. Well, for me so far, and it sounds like what you're, what you're saying, it's a supercharged Google search. I mean, it's what it is. I remember back when the internet, you could, you could do specific searches and you could find anything, you know, and, and now you got to go through 25 pages of, of advertisements and, you know, uh, efficiency placement to get it at the top. But, you know, you're able to search this and find that information that you could find before a lot quicker. So it does help in efficiency and the research process. And there's all kinds of good things, but at this point, it's not driving my car for me. It's not flying planes for us. It's not,

you know, it's in, in who knows where it's going to come through, but if it is that good, that it replaces everything. Now we've got another problem, right? Because then that's going to be tough for the labor market. It might help corporate profits, but that means there's going to be a lot of labor force. That's not necessarily going to have the jobs that they had before. And with things that they're already struggling to make ends meet right now. So I think, I think the euphoria is beginning to wear off. Um, and that, that reality is going to set in and we're really not going to know for five, six, seven years, just a guess. I'm not an expert in this, guys, just a guess. Five, six, seven years, just how big of an impact it's had in the overall economy and how it's most efficiently used. I feel like with AI, we're

kind of like on the first or maybe the second date with somebody who's very attractive. You know, you're overlooking all kinds of red flags, you know, just ignoring just all kinds of things, you know, maybe you should pay attention to, right. You know, but eventually we're going to see those red flags, which is like, okay, it flies planes for us now, but now we don't have pilots who earned a lot of money, who then bought houses and had lives and could support children as they grew up. So what do we do with all the people who used to be pilots? And it's, oh, it's driving things for us now. So now we don't need conductors on trains and we don't need on and on and on. So is it, so let's take it to its, to its reducto ad absurdum. Let's take it all the way there. AI is now doing every single job. What do we do with ourselves? Like how,

what does that look like? And if you've got a universal basic income, then we're going to lose creativity in the future because you're going to reduce the benefit for pursuing excellence. So we're just going to sit around and be a hedonist society, I guess, if that's the case, if it's doing all the work and we've got a universal basic income. But, you know, the interesting thing is, Chris, I'm a full believer that if you have a universal basic income, you give everybody the exact same starting point. You jump forward five to seven years ahead. There are still going to be people that, that are disciplined and make sacrifices and accumulate more than, than others, because most of the problems in society are lack of discipline, knowledge of how to make better decisions, really. So I will not get excited about a world where there's nothing for us to do and we just have universal basic income.

Don't get me wrong, I love fly fishing, but I don't think I'd like to go fly fishing every single day, 365 days a year. No, no, me neither. Because it would become unspecial. And it needs to be special. I love the specialness of it. So so but let me let me. So I'm not sure we're going to get there for another reason, which is I showed this a while ago. I don't have the chart with me on hand right now, Paul. But it's the idea that right now, data centers, which AI is a big chunk of, are now consuming more electricity

worldwide than whole countries like more than italy like the whole nation of italy is using less electricity than data centers and the chart looks like this you know it just goes straight and and so what's the idea that we're going to get you know more and more eventually we're going to be and this is an interesting idea, somebody said, how do we know AI hasn't taken over already? I'm like, well, okay, well, what would it look like if it had? I don't know.

We would be sacrificing our own selves and economy so that we could build it more data centers and get electricity to it, right? Yeah. So this is actually happening now where we are sacrificing the ability to have affordable or even reliable electricity in some zones. So the data centers can have first dibs because they need it, because I need to be able to ask chat GPT how to make a better remoulade sauce, you know. Well, hey, in addition to that, what was was it one query uses a liter of water this is

completely wrong but it was surprising how much water is required to be able to cool the data processing and we've already got a water issue within the united states now and i haven't seen it recently but a couple of months ago there were some reports about mexico city and the and the issues that they have with water down there. So it's consuming water, it's consuming resources. And I don't know, maybe you had read the article somewhere in the past week or read the article that made the comment that Google and some of the others had decided to be, you know, what is their carbon neutral by, they've reduced their carbon footprint by 2030. But at the pace that they're having to consume

energy for their artificial intelligence and the data centers they're up 36 percent if i remember correctly these numbers may be wrong but they're up above what they were prior to i wish i could reference that article but i don't have it in my my files here yeah paul we have a lot of this going on about the green this the green that but the truth of the matter is every single year more power is consumed more carbon goes in the atmosphere and yes that's been the story for my entire adult life and so nothing there's nothing on the landscape to change that if we wanted to you know we might say as a society look data centers are now consuming more electricity and therefore power and therefore resources than entire nation states. Is this what we want to be doing at this point in time with those resources?

Maybe the answer is yes, you know, but sooner or later, we're going to have to say we can't do both. So do we want to have nitrogen fertilizer for our food or do we want to have data centers for better searching? Right. We're going to have to make that decision at some point right we are and we're not having a discussion on it our leaders aren't having a national discussion they're they're they're telling us how we need to behave and and setting a direction with narratives and and theories that that they're not taking the time to really think critically through about whether it actually makes sense. That's a very good point. And if we continue down this path, then there's going to be even more pain for the average citizen that's not being listened to or heard or represented by their politicians in any manner, especially if they're representing the

corporate interests and serving money. I mean, unfortunately, Chris, we've gotten to a point in this country where, especially in the halls of power, it appears to me that they worship money. And I say that money's the god because they think that's the solution to everything. It's not, hey, let's have a better education system and let's really pay attention and let's have open debate and iron sharpening iron. It's do what we think you should do. And oh, by the way, you know, we happen to be lining our pockets relatively dramatically. Well, we're not quite there in the United States yet, but I just did a piece about the elections that happened in Europe, particularly around France, right? So in France, they did some shenanigans, apparently legal, but shenanigans that that through the election towards.

Well, now they have socialists in power and the socialists came right out of the gate and said, well, we would like a top marginal tax rate of 90 percent. You know, because I've missed your piece and that's on my list to look at to listen to. So, yes, 90 percent, 90 percent. Right. They already have a 45 percent marginal rate at one hundred and seventy three thousand euros, which if you're living in Paris. Isn't as much money as it sounds like it's like saying one hundred seventy three thousand in San Francisco. I believe that you can pretty much get on the poverty list as a family of four in certain zip codes there. Right. So. So at any rate. But they have the same solution, which is, you know what? More government's the answer.

And we want to distribute. So you're a successful business person, right? And businessman. And you're productive and you're sacrificing. You're giving up weekends. You're giving up your free time. You're taking risks. You do all of that.

And then somebody comes along who possibly has never worked an honest day in their life and says, you know, Paul, we're going gonna need to take what you have because you have too much yeah it's just and so you know what ends up happening all the pauls end up leaving france and then 10 years later france is like why do things suck so bad around here it's like such an easy thing to figure out you know and and they never do you know if that happened in the united states um you know i'm not going to come in at 530 in the morning when I wake up and have a cup of coffee, do my morning prayer and Bible reading and be here from 530 until 630 or 7. And I love it. I love talking to the people. It's not about, you know, making a difference. It's not about how much I'm making.

It's about making a difference in the lives and doing what I enjoy. And a lot of people can't understand that because all they care about is the amount of money they're making. But if you completely remove any incentive, then I'm not going to do that. And then you don't employ as many people. And then the economy becomes apathetic to everything. Nobody's excited. There's no drive. There's no drive. There's no major innovation. You know, there's nothing like excitement

and pursuing your dreams and trying to make a difference to bring through an innovation that blesses, you know, those who follow you and blesses the society that we live in. Now, I like to garden, you know. Garden's going great this year, right? I don't know why, but the nightshades are doing great. Potatoes, tomatoes, peppers, all just having a banner year this year and close to 100 out today. So they're probably loving it out there.

But if you said, Paul, hey, listen, Chris, the better your garden does this year, the more we're going to have your neighbor just walk in and start taking more and more of it right well there comes a point where i'm like well then i'm not going to plant anything right it's just that's right i'm stubborn that way but it it's just it's the simplest thing so charlie munger warren buffett's right-hand man said you show me the incentive i'll show you the outcome and if you take away my incentive to work hard the outcome is i don't work hard it's very simple it's not hard but i feel like there's a whole group of people i'll call them technocrats they don't understand this it's like those sandy council people in san francisco like well the solution to shoplifting is to raise the shoplifting live at level so you know anything under 950 is a misdemeanor you know guess what you have a lot of 949

dollar like shoplifting adventures going on it's so easy to understand they just they don't get it i don't understand i don't understand that i don't understand that it's like there's a way that seems right to them that causes all kinds of pain for the society that's around because they're sheltered from it in the halls of power. But yeah, there's a look, there's a this is brutal. But I have a friend of mine that graduated high school with was worked in the U.S. embassy in Australia. Her husband was in the banking business and ended up in Dubai. So she goes to gets in a taxi from the airport, goes for a job interview. She's getting a job over there, gets in one of the big buildings. And, you know, she said she was so

excited about being there. She gets on the elevator, goes up however many floors. I can't remember the name of that big building, but this is a real tall one. And as soon as she gets off the elevator and walks up to the receptionist, she's like, Oh no, I left my purse in the taxi. Okay. Now you leave your purse in a taxi in Atlanta. You're never going to see that purse again. So, so the receptionist says, don't worry about it. He'll find you. And she's like, what do you mean? And she said, oh, he'll find you. That's not going anywhere because if he steals a thing, they're going to deport him to one of the countries around here immediately that he doesn't want to be in. Or they're going to go immediately to jail.

We don't have theft in that kind of crime here. It just doesn't happen. And sure enough, it took him about 20 minutes to find out, but he was able to find out where she was and brought it up to her. And, of course, she tipped him well for his time. But, you know, I can't imagine that happening in Atlanta. Can you imagine that happening in Hartford or somewhere like, I mean, don't get me wrong. There are honest people out there in the taxi business. Okay. But they're not going to go out of their way to,

to track you down in most cases. So if the consequences to thieving were, were severe enough, then thieving would stop. It's not reducing the consequences to the thieving. Right. No. And it's bizarre the things that they are trying to attempt to reduce the consequences for. And I don't get it. And that's a whole nother subject. And people want to watch that. They can on my channel. But I want to talk now, Paul. So, you know, we did that whole webinar on the great taking, by the way, still, we're getting great reviews from that.

And I know you're talking with a lot of people around that. Anybody who's watching this, if you want to know about the great taking, there's a lot of videos on that. But if you want to know how to protect yourself from the great taking, that's what our webinar was about. You can come by Peak Prosperity and find that. We'll put a link to it down here. That's great.

It's all running. But you know what the lesser taking is, Paul? Inflation. And we're seeing a lot of inflation out there. And I want to talk about this real quick, which is, you know, what the heck, Japan? Because this is bizarre to me. Help me make sense of this if you can. I just pulled this off of Google. I asked the question, you know, what's the GDP of Japan? And it says that it's um in 2012 it was 6.272 trillion but currently in 2022 last reading for this chart it's 4.232 trillion so paul i'm no math whiz but i'm pretty sure 4.2 is less than 6.2 is that how you this? That looks like a lot less to me. It's 32% less. That's a miserable economic output for the participants. It is.

It looks, it just doesn't, it just doesn't look good. So you're thinking like I'm thinking, well, what's the harbinger? What's the marker of an economy? What would be your stock market but even with that from 2022 that was 2000 4.232 in 2022 and then in 2023 they logged in 4.21 which again is less so it's falling and here's this just came out uh in at the end of june japan downgrades its first quarter gdp for 2024 on construction data corrections, whatever. But it's falling at an annualized rate of 2.9 percent, which if it holds out at that rate for the rest of the year, means it'll have fallen all the way down to 4.08 trillion. So the economy of Japan is falling. The harbinger of any stock of any economy is its stock market and japan's stock market is up a hundred percent since 2020 100 right that's 100 and by the way it's on a real tear there today it's up it's up

almost 950 points at last time i checked so so we look at that that's crazy so just in 2024 while japan has been in a recession the entire time because i just showed you the data that's up 24 the stock market is up 24 now you're thinking well that must mean that that the economic readings are wrong no i'm going to submit to you paul that what we're looking at here is that this is a measure of inflation i would agree the japanese yen is tanking it's at 161.7 to the dollar just a year ago it was close to 100 to the dollar it is really having a hard time and so as everyone's like yay japanese stock market's going up the people are living there it's just getting harder and harder because their economy is contracting and their money buys less

and less and it's an island nation so it has to buy a hundred percent of its fuel right so any petrol any coal they need to use to to run plants all that is now 40 percent more expensive than last year whatever food they import anything they have to import is way more expensive than it used to be yeah everything they have to have, you know, and if I'm running an economy like that, I want the strongest currency that I could possibly have in the world if I'm having to import a lot of things. But you know, my concern about that, I think over the past couple of months, we I've asked the question several times, you know, what that reminds you of, as you go back and look at Venezuela's stock market. You look at the German stock market during the Weimar Republic.

Is this the leading stages of a global currency crisis? And investors are like, look, there's nowhere else to go, right? There's nowhere else to go. And that's the thing that's why inflation, I believe, is so evil because there is no conservative. There's no real prudent way. There are prudent ways, but just a view from 30,000 feet, there's no conservative or prudent way to protect your purchasing power from inflation.

It destroys the most conservative and prudent investors that are out there if they don't have a strategy that can help them adapt to it. That doesn't make sense in any world that Germany's stock market would be going up like it has with the decimation of their economy or the Japanese stock market with that decimation, economic data that you're showing there in their underlying economy. It just doesn't make sense. That's not something the textbooks teach you in any way. But history can can show those types of events and economies that are that are having, you know, hyperinflation. I just hope this is not the leading edge of that. I mean, I'm not saying that it is. I'm just asking that question.

Well, it looks like this is a the stock market when it gets disconnected from the actual economy tells me it's a financialization thing. It has something to do with finance, right? It has nothing. It's not about the real prospects of the country anymore. It's some sort of financial instability. So the stock market of Japan is clearly saying, well, we're expecting the yen to fall a lot more. So I don't want to hold the currency. I'd rather hold an asset that has some chance of appreciating something like that. So that's how I read that. But it should be that a rising stock market is coincident with a rising health of the economic milieu for the average

person. But now it's decoupled. That's what I'm seeing in that story. Right. So sure, it could be totally good for sony that the yen is weakening because now tvs are cheaper so they seem to sell more of them and they have a competitive advantage but is that good for the person in japan you know maybe if they work at sony but you know not not if they have to buy you know petrol or something anyways just it's we're getting to that funny part of the story where things don't make sense but i just use japan as sort of that fractal piece that represents the larger because i could do the same thing germany absolutely

plummeting industrial production and their stock market's just been it's been kind of hanging for a few months but i mean it's it it went way up in 2024 and it's been hanging there for a bit u.s stock market same thing yeah yes yeah you know and I'm I'm watching the dollar's been strong it's been relatively stable

but a weak currency in the US may very well bring about the same type of environment for investors to have to deal with

but if the dollar gets weak it may not necessarily be technology that's the strongest performing sector it may be something else so you know the strongest performing sector. It may be something else. So, you know, the important thing is investors have to have a strategy that they understand the strengths and weaknesses of that can help them navigate these periods of time.

You know, you're going to have to be instrument rated to use a flying pilot analogy because we're in a period of time where you're in the midst of a thunderstorm as a pilot, and you, you know, you can't see the horizon. You're just having to navigate by your instruments, because there's a lot of things that don't make sense. Well, we've talked about, we've talked about some of the things that don't make sense, and so let's, let's go to those, that instrument panel real quick. So the S&P 500, kind of bizarre to me. Here we see that, you know, this is from Grok on Twitter, which is increasingly becoming useful to me as a tool to summarize things. Said the S&P index today as of Wednesday, July 11th, 2024 here has reached new all-time highs, surpassing 5,600 points for the first time. This marks the index's sixth consecutive record close the longest streak since 2021 market sentiment is bullish this must be awesome there must be a lot of really awesome stuff going on

right yeah well at the same time you got Powell sitting there in his testimony going well you know we may have to signal rate cuts because there are economic risks. I'm like, well, they're not in the stock market, big boy. And they're not there because you, Jerome Powell, made this stupid, stupid, cheap, easy, like the liquidity his firm, his private firm there called the Federal Reserve, has funneled into the markets, have given us this. The way I translate his statement is, is it, you know, rich people, they just aren't getting rich kind of at the pace they'd like so so i gotta do something man i gotta give them a little taste you know like like my junkies are getting a little antsy up behind here you know

but it's just unseemly to me that you're that he's having financial assets roar to these highs and by the way bonds are up today. Stocks are up the whole time. Everything's up, which means that financial conditions are ridiculously easy. And now he's saying, well, we might need some rate cuts right now. And he doesn't bother to explain that. And nobody asks him the obvious follow-up question, which is like, what are you looking at, pal? Because let me pull up the S&P 500 right now. Are you seeing this?

You know, I don't get it. And by the way, this is today's sector map. And, you know, you can clearly see it's still a story of NVIDIA, which is AI and Apple and Google and Meta and Tesla, although Tesla does make actual stuff. But all of this stuff is sort of services and AI. You know, that's the story that's been driving this whole giant thing for a really long time.

And it leads to this, which is that there are just 10 stocks in the S&P 500 now make up a record 36.8% of the index. So almost 40% of the index, if I round up wildly, just 10 stocks, 40%. It's crazy. We've never seen anything like that. And here it is, you know, that index concentration going all the way back, you know, through time. And we've never been here before. So this is a little weird, isn't it, Paul?

This seems a little, this is just like a couple of guys going, oh, you know, markets looks a little exuberant. It's historically exuberant and lopsided. It's historically exuberant and lopsided. And people don't think about this. You know, they dollar cost average as a passive investor into the S&P 500. And don't get me wrong, if you're working, you should be dollar cost averaging in. Now, not a recommendation, but I'd rather be looking for assets that are undervalued right now and investing into those. But if you put $100,000 in the S&P 500 index, rounding up your $37,000 in NVIDIA, those top seven stocks, whether you choose to be there or not, whether you choose to be there or not. And I've got a little bit of data here, Chris, just to kind of

show how bizarre this is in relation to history. I've subscribed to Sentiment Trader for a long time. They do really good data analytics on the overall market just to kind of let you know what's going on. So this is their ex-post. It says, we're in a bizarro world. As noted by the fine folks at Bespoke, the S&P 500 index has been doing one thing while its underlying stocks do another. And they go on to say anyone with a family member with oppositional defiant disorder can relate to how maddening this can be. To the greatest degree in history, by far,

stocks within the S&P 500 are defiant against whatever the index is doing. So I'll make that a little bit larger here so that individuals can see. But this is going back to 1928. Is it 1928 in there, Chris? Because I can't see the bottom of my corner screen here. I can't go back. I think it is 1928. So the number of days in the past 30 sessions when the S&P 500 moves one way and the net advanced decline line moves the opposite, this shatters any record that we've seen in history.

Now, for people listening, the advanced decline line, as I understand it, is very simply 500 stocks. If 250 of them went up and 250 went down, the AD line would be at zero because it's just balanced out, right? That's exactly right. So it's the number of rising stocks against the number of declining stocks. And it's used to gauge the health of the underlying rally in the market. So if you've got a good strong rally, the number of stocks against the number of declining stocks tends to have a positive trend. So this tells you there are by far more stocks going down on the S&P 500 during this 30-day session than what there have been going up. So typically this is going to occur during a declining market or an extremely weak market, but we're setting record after record after record.

And then to go on to another extreme, if you take the S&P 500. Hold up, hold up. Let's go back. I don't mean to break your flow, but, I mean, that's astonishing. We've never in history by a wide margin ever seen a situation like this where most of the S&P is actually falling while the s&p 500 goes up yes so to put this in perspective on the top corner there when that and this is what i like about sentiment trader they'll take these conditions and they tell you how the market performed in the in the period

immediately following that throughout history so when that indicator is above eight, okay, which it's around 15 right now. So when that indicator is above a, the annual annualized return over the next 12 months averages negative 7%. And it's twice that practically. And it's positive. It looks like I've got the, I don't have the full data here, but it looks like it's positive 2% of the time. And the average annual return is negative seven. Okay. So that's, that's when it's above eight. And if you look at this, my mouse won't show up, but if you look at that, that's a minority of history when it's above eight. Very tiny. There are a few times you can count them. Yeah. So in that, the beefier section where it's between two and eight, um, you know, that's still elevated, but the average annualized return over the next 12 months is 4.9% where the market is positive 69% of the time. And when it's below two way down here, you know, where, where the large majority of your stocks are participating when

the market's going up, your average annualized return is 18%. And so those percent positive are wrong on that side because they're 28. But, you know, basically in every historical period of time over the next 12 months, you've, you've had a high probability of a loss when it's this high. And this sets the record that we've seen in the past so now back in the day i used to call this sneaking out the back door right so while we're all watching the front door which is the the headline s&p and of course that's all they'll tell you about when kai rizdahl and market watch comes on or cnbc they'll just be like oh my gosh a record six straight day and the whole idea behind that the reason i say this a little

dismissively paul it feels like it's just geared at retail people to get them whooped up because a market pro would look at this and look out the back door and say well if this market's doing so great why did so many companies sneak out the back door on this thing right they actually are falling while the market's rising and they only look at the rising side. I feel like, I feel like, you know, there's, Hey, shiny things, shiny things, you know, they're wagging their keys in front of us, you know, And rate cuts are the bell for Pavlov's dog. And there it is. Speaking about retail investors, look at this.

So this is another article that, that sentiment trader put out. And I found it it's within the past week but this is small speculator index positioning so basically the calls you know the how aggressive so when you go back through history and i can't see how far this one goes back but this is 2000 here so it probably goes back to the 1990s this shows your extreme levels here so when you look at this this is shattering any record that we've seen going back to approximately, that's 1986, going back to 1986 and how aggressive your small speculator tends to be. Now that's your retail investor. These are not your big institutions.

So, you know, the interesting thing is, is they tend to be right for two to three months. Okay. But they tend to overweight their speculation at the worst time. So if you go back and look at the record that was set prior, this was late 2021, right before the market peaked and had the correction in 2022. And they surged on the initial side. They were right for a couple of months. Market pulled back. They surged in there. And then it was a bloodbath for those investors over the next six months. So that's another extreme that we're facing right now. Now, you know, the way I interpret this, too, is that actually.

So one of the things I've been waiting for, Paul, and this is not investment advice, is the idea that we needed retail participation in order for stocks to actually fall again. And here's my thesis for that. That when the retail isn't there, it's just pros against pros, right? You've got these high-frequency trading algorithms. They're all hedged and dynamically balanced. And they've got these super complicated strategies. But they're basically just like hitting that badminton back and forth across the net, you know? And there's nobody to hold the bag.

Here's the thing about when you have a market decline. Wall Street doesn't like to hold the bag. They're really good at not holding the bag. They're really, really good at unloading their product inventory on the suckers, right, which is, to put it that way, the dumb money is what they call it. But, you know, markets fall better when the big guys and gals have managed to get rid of all the stuff they don't want to hold. So that means you have to have a bag holder. Yes. Unfortunately,

the historic role of bag holder has fallen every single time to either the retail investor or large German banks. That's right. Well, and we have the environment, you know, the man, the mad King and his research publication pointed out something from an institutional standpoint, you know, when institutions typically will sell on the first rate cut in an environment like this, but this market is surging on the hopes that we're going to get a rate cut because, you know, it may be different this time. Maybe those institutions are wrong in the short run. But you look at a couple of other indicators to talk about the risk.

So one of the things we want to pay attention to in a situation like this, and any of these indicators aren't a magic bullet in themselves, but it's the weight of the evidence. So if you take the S&P 500 and you divide it by the S&P 500 equal weight. So to explain to you, to the listeners out there, the S&P 500 that's quoted is a cap weighted index. So that means your larger value companies carry more of a vote in the index. And that's why, you know, your larger companies are at 37%. As long as they're performing well, the large majority of the stocks can go down and the index will go up.

The equal weighted index is different. So there are times where we will overweight, you know, we'll purchase the equal weighted index, you know, 2009, 2010, as an example, and late cycle, you want to own the cap weighted index typically, but you want to pay attention to what's taking place there. So before the 2008 meltdown, before subprime became a debacle, the S&P 500 equal weight ratio was at a high. Now that's an indication that the S&P 500 is outperforming the average stock. So the average stock is struggling. Now you get down into 2013, you know, the, uh, they were, you know, they were, the S and P 500 equal weight was performing better. And then, you know, we had a nice recovery that lasts from there really even 2010. So we had another peak there late 2020, 2021, before we had the big correction in 22. And now we're well above where we were there.

And, of course, the author of this speculates, you know, are we about to have a big downturn? So, you know, there's all kinds of evidence. And then the one last thing that I wanted to share, you know, Mr. CNBC personality can make fun of Warren Buffett in late 1999 and talk about how ridiculous he is, but everybody quotes Warren Buffett if they're and talk about how ridiculous he is, but everybody quotes Warren Buffett if they're an investor from a long-term standpoint. Whether they're a value strategist or not, he is a legend because he's disciplined, he controls his emotions, and he looks at the numbers and invests from a long-term standpoint. So his favorite indicator, according to his statements throughout history, is the Warren Buffett indicator, which is the wheelchair 5,000 or the total market cap compared to the GDP in a ratio.

Going all the way back to 1974, we had a record that was set in the year 2000. I can't remember exactly what that number was then. The next record was set right before in uh in 2021 but we've set another all-time record at 195 percent now so you know this just tells us the market is overvalued at a time where the small speculator is piling into this market believing that it you know whether they're saying it they believe it's different this time. Well, they're operating, Paul, on a belief system, which I can't fault, which is that, well, the Fed will rescue this because they know that, again, relationship goals, Paul, find somebody who loves you as much as Jerome Powell loves the stock market, right? The Fed's

always going to be there to catch this. That's the idea. But what if that hypothesis is wrong? What if the Fed steps aside? What if it's time for a market clearing adventure? What if the Fed's actual clients, because they pretend as if you and I and everybody listening to this are the clients. We're not. The main clients of the Federal Reserve are the banks and the financial institutions in the clearinghouses that make up the system that the Fed is in charge of making sure operates, right? And they have some rationalization, right? They're like, oh, you know, if the markets are functioning smoothly, you get capital efficiencies and flows, and then people have jobs, right, or whatever.

I mean, that's how they sort of talk about it. But the truth of the matter is push comes to shove. The Fed is there in service of its main clients. Of course they are they should be that's what every every like if you're a mechanic you owe your allegiance to the person whose car you're working on right that's right that's just how it is i get it but it's not presented that way so i like to dispel that myth that the fed has dual mandates of full employment and price stability right right? They could care less, right? And they do. So what if there comes a time when their main clients are all positioned to make money hand over fist by the market falling?

The Fed will stand aside. Of course they will. They'll get the call, right, from, you know, the people who put them there. So at any rate, I worry that, you know, you always have to test your assumptions in these markets. And one of the biggest assumptions out there is that the Fed's going to ride to the rescue. Now they have consistently since 2008, they have, I get it. That's a long time. Well, and Chris, here, here's the point for an investor. This is a point in time that you have to understand the strategy that you're investing in. And if you don't understand your strategy, you have a big problem.

Okay. And do you have to understand exactly how the engine works if you're working with a professional? No, but you have to understand the strengths and weaknesses of the strategy and what it will do. So if you're going to be a passive investor and you're going to hold on, then you have to understand that if this isn't different this time and things haven't completely changed, and if first by inflation, then by deflation they rob you of all your wealth, then you could see a 40%, 50%, 60% market decline. Now, John Husband has done a phenomenal job putting the math behind it.

It's irrefutable. There is far greater than a 0% chance that we don't have a 50, 60% market decline to rebalance this. Even in an inflationary environment, 1973, inflation surges again, and the market went down 46, 47% while corporate earnings continue to go up. So corporate revenues continue to go up, not corporate earnings. So, you know, you have to understand how to navigate this. Now, Wall Street, because it's easy, because if you're in modern portfolio theory, cookie cutter, put it on the shelf. The only thing I have to tell you is, you know, just hang in there. It'll all be okay. I use all these data that tells you, Hey, if you miss the 10 best days in the market, you know, your return is going to be

horrible. The problem with that is, is, is it leads to emotional investing. So when the market's like this, investors get too greedy. And when the market's really bad in 2008, they get too scared and they make emotions at the extreme. So if you're going to ride through that just passive investing buy and hold, you need to understand that the market could go down 50 to 60 percent. And the worst thing that you could do is sell there. Now, if you're running a risk managed approach where Wall Street will say, hey, you can't time the market perfectly. Well, Chris, how would it be if one of your kids had a coach at rec league basketball that said, you're not going to make every shot, so never try?

I mean, your kid's never going to be a basketball, right? Even Michael Jordan, should he have not tried because he didn't make every single game-winning shot, but he was the, you know what, I think it was 60%, 65%, somewhere around there that he made. Guys, if y'all are sports fans, I'm butchering that number. But the point is, is he didn't make every single game-winning shot, but he was a legend for those game-winning shots.

He wanted the ball. So you're not going to time it perfectly, but if you have a strategy that can tell you when to lower risk and you understand that it's not when to lower risk and you understand that it's not going to be perfect and you understand, Hey, you might miss a little bit of opportunity because you're walking out the door when the, when the cops are on the way to the party at four o'clock in the morning. And there's a bunch of underage kids there. I mean that for high school kids, you know what I mean? The consequences being severe,

couldn't think of anything else, but there's a severe amount of consequences for being there and you're walking out. Yeah. You might miss something funny that happened in that 30 minutes, but you're not there when the cops show up. This is a point in time when the market's really high. If you're a passive investor and you're concerned about what's taking place, this is the point. Cause this is about as strong as the strengths of that particular strategy are're going to get, and you can find another strategy out there that can offer some risk management. If you're in a risk-managed strategy and you're adequately diversified, as an example, guess what? Because the average stock's not participating, you're not making as much as the overall market, and that's okay. That's okay. Because that's the weakness of an approach that you're taking

from a prudent standpoint. So this is a point where into late July, early August, and then all of a sudden the economic data, which looks like it's continuing to deteriorate, gets really ugly. And then the supposed Fed rate cut to save the day is when the professionals unload all of their shares on the final retail guys that are partying like it's 1999. I mean, that goes exactly in line with where it is. By the time this is over, for decades, I think people are going to be saying, hey, party like it's 2024.

So at least we'll, 1999 statement will go away and be replaced with 2024. Well, the markets are ignoring a lot of things. I can't find any semblance of risk in there so they're they're they're doing something but let's talk about so you keep mentioning strategies so let's imagine paul i had a strategy um where i'm gonna buy a house and i'm gonna rent it out as an airbnb right and my strategies component of that strategy is that house is going to go up in price. So I'm going to make a capital appreciation. It's going to cash flow. I've got it at a rate of interest.

That's fine. I, you know, I'm caught in some nice, you know, adjustable rate. And then all of a sudden we fast forward a little bit and part of your strategies just blown up on you. Right. Which is that now your interest rate might've doubled on the next refi, right? You said I don't know. Your cash flow just went to, you know, got compressed to atomic levels. So this is interesting.

Just on Zero Hedge, I just caught it today. Housing market cracks. Record number of unlisted, sorry, of listed homes have price drops. So things are still cooking along. The first thing in this is the median sales price here, plus 4.9% year over year, you know, not too shabby. And you can see that year over year increase. This is 2024, but we got 2021, 22, 23 down here. Okay, fine. So prices are still up, but as we've talked about before before housing has a weird dynamic where prices are like this like this last slow thing in before prices drop other things begin to drop right yeah like uh

you know we see other things so we all know that affordability uh is not good you know so asking prices have started to plateau here right we've seen that they're actually drifting down a little bit so asking prices were up but they're just sort of like flatlining here a little bit. So asking prices flattening out. Pending sales, ooh, no good. Pending sales, which are a contract signed, but, you know, things may be in escrow, but they haven't closed. So pending sales are actually down. So now we're getting a different story here.

It's like, well, asking prices are kind of flat. You know, people aren't. So what happens when pending sales are down? Well, the flip side of that is inventory is up. So active listings of homes for sale are up 18% year over year. So if your strategy was, I'm going to sell my house to somebody else for more money. You got to be really worried about this, which is that almost 7% of listings had price drops, right? So that's not the end of the world. You could have listed it for 4.9% more and only 7% of those have started to drop their

prices. But we're starting to see those signs that you normally see at the end of a cycle, which is inventory up, prices beginning to stall, and then eventually stalling prices turn into dropping prices. And I'm going to keep my eye on the South, Paul, because this is new homes for sale in the South. There are now more homes for sale in the South than at the peak of the great housing bubble bursting back there in 2009. And you live in the South. So does any of that track with what you're seeing? It tracks with what I'm seeing. I actually have had to do some remodel to the office here, you know, just maintenance and upkeep that I'd put off because things were kind of crazy.

And people are accepting that they're competing in bids right now. Second, I'm having conversations all over the place, unsolicited because it's, you know, maybe it's, it's, you know, unsolicited because I'm always like, Hey, you know, how's construction business going? How are things going? Uh, it's come to a dead stop in a lot of areas. Now, some of the high end homes are still moving. There's still construction that's being finished off. Prices are essentially frozen and everybody's looking at each other like, don't cut before me. I need to sell my house. So, you know, an interesting thing, this reminds me of that period of time in late 2007, early 2008, Holly and I,

because of the indicators that we had and because of data very similar to what you're showing, we had built a home that we lived in from 2003 and we got an offer and, and, uh, uh, you know, and it was low from where our house was real estate agent said, you're going to get here. And we got an offer here. Well, I knew that they were offering low and I countered, you know, Holly and I argued for two days, my wife, Holly, for where we were going to counter. And I said, honey, I really think we need to cut prices before everybody else because everybody's frozen. So we sold that home at about 10%, 15% discount from listing price and rented. And it was a cascade effect. I'll never be that lucky again. It was pure luck, but it was a cascade effect that covered after that. I had

other clients. I'm like, you know, even here recently that had to move from a Florida town out West to get closer to family house was frozen for six or seven months. And I'm like, look, if you really want to go, you're going to have to be the first to cut. So they cut it to, you know, cut the price 10%. So people are frozen right now. And, and there is data. The, the native, the narrative has been we're underbuilt, we're underbuilt. But there's a lot of data to say that we're not underbuilt at all. And if that's the case, then I am concerned we're going to see deflation in housing prices, and we're already seeing some deflation in rent. And as soon as those rents come down, I mean, imagine a world, Chris, where they do cut rates and now people are mobile.

You can sell this house and you can move somewhere else, even if the prices are lower and get a better, you know, an equivalent situation of where you are now. So I do think there's troubles coming for the housing market. I don't know when, but all of the signs are there. Well, this little chart says it's already arrived. The recognition of it may not have arrived, but the troubles are already there. They have arrived. And by the way, I actually think house prices should fall, right? Let me be that guy, right?

Because I think it's obscene how much money people have to spend out of their, either that or incomes magically have to double, right? Right is, doesn't seem that's not in the card. So, so I think they're too high. I think it's horrible that young families can't get started. I think that, um, you know, if rich people want to, you know, swap trophy properties with each other, I don't care, you know, go for it, have those go up a million percent. But for everybody, like the whole bulk of middle america can't afford houses anymore that's not right i and that the fed did that by the way that was an act of policy this wasn't some bad omen you know thing passed through the sky that we didn't

understand and prices rose for no good you know because the gods were angry it wasn't that this was an act of policy the fed wanted house prices to go up for reasons. I think they were bad reasons. I don't think they were supportable. I think that they were basically social vandals for what they did to household formation. And we see it now. The impact of that is people are not having babies. They're not starting families.

That's an atrocious outcome to what the Fed did. And we should talk about it that way. Even though I know that every time I ding on the Fed this way, somehow I get a little bit shadow banned. The system is a little sensitive about this. And I understand that. But I think we should still talk about it because it's actually an important thing. Since I happen to be here, my last name will become an issue all of a sudden too, right? We don't have to explain that.

No, and it's a couple of white guys. So it's like, we're just tripping over ourselves as we fall down the stairs of the algorithms. And here's another thing that's ridiculously concerning to me, Chris, because I experienced it with even one of my staff has two young children. The cost of child care is through the roof, and the regulations are through the roof. I mean, between housing and child care, it's active policy by our government to make sure that our younger kids aren't having kids. I really believe that it's intentional in their application because if you price child care out because you're sending billions of dollars overseas instead of investing into an infrastructure that allows families to be able to work if they're wanting that to work, and then you price them out of the housing market um you know and then you you let inflation

and and college degrees go through the roof to the point that you're going to have to make 25 a year you know to have your savings have become anywhere close to equaling what needs to be done for college education all of a sudden the cost of having children is just too costly for most families to bear. And I hope that it's not that dark and deep, but in hindsight, it really looks like it's an active policy because it's clear, Chris, you're right. It's clear. All of the data says you drive interest rates low, it's going to spur housing. Well, you keep them low for an artificial period of time. Then you convince people that that's the single best asset that they can own.

But the problem is people don't think about upkeep and cost and recessions and things that come along. So, you know, this may be that first by inflation, then by deflation by choice, or it may be because it's the one grain of sand that caused the pile of cars, the pile of sand to collapse. And we get deflation on the other side and the things we want to own cars, houses, you know, second homes, things of that nature, and then severe inflation and the things that we have to have foods, fuels, you know, energy taxes, not that we have to pay taxes but yep well my my friend robert kiyosaki really sold me on this because i didn't think about it this

way i've been raised in sort of a very middle class environment where your home is your asset and oftentimes your home is maybe your primary asset your number number one asset. And he just looked at me like I was an alien and said, Chris, assets put cash in your pocket. Liabilities take cash out of your pocket. What does your home do for you? Well, anybody who's a homeowner knows the answer to this one. That thing is a money pit. It is not an asset if you have the definition that an asset works on the positive side of your

balance sheet and a liability is on the negative side of your balance sheet. Now, when you sell it, you might be able to achieve some sort of a capital gain and take that money and move that to the asset side. But that was a real, I had to really push my mind around that. And of course, the Fed tries to perpetuate this whole thing. We're trying to help, you know, increase the value of people's number one assets. I'm like, but they aren't assets because as the value of my house goes up, my property taxes go up. Yes. And as the value goes up, my insurance goes up and the cost of upkeep goes up. Right. In general. So generally, I find that it becomes a large, the more the price goes up, the larger a liability it becomes in this definitional framework. Yeah.

Well, you know, every now and then when I get the questions that I need from people to do their retirement plan analysis, you know, I ask for home, whether you have any debts, value of your home, things of that nature. But when we get into the plan, and I'll tell people this ahead of time, but let's say we're short on time, client doesn't have a tight window, and I go straight to it. I don't count their house as an asset. And I'm like, look, you're talking about retiring. Your house is not an asset. The more valuable that house is, I mean, yeah, it's on your balance sheet. You can go borrow money against it, but it doesn't produce income for you. It takes income from you. So a rental property is an asset that generates income that puts something in your pocket itself. leech that consumes from your ability to spend with your, with your resources. And especially, you know, you retire at 65 years old and you don't have a brand new roof on that,

or something happens depending upon the size of the home. That's 25, 35, 45, $55,000 to replace that roof that you may have to do it at a point in the future or leaks. And, you know, I mean, things it's ridiculous how much I'm having to spend on this office building just to do some maintenance that needs to be done to it. So you're right, Chris. And he, he phrased it. Well, that's a, isn't it good to have friends like that, that would change your thought process and get you thinking in a different manner. Like, like that's, that's one of the best type friends that you could possibly ask for. Yeah. The people I value most changed my thinking all the time, right? You know, yeah, that's just a great way to look at it.

So, hey, well, I've got a, I actually have to go check on one of my assets soon here. We're looking at maybe getting one of our parcels logged and a logger wants to stomp on it with me and talk about goals. So I got to leave for that. But for anybody who's interested in talking with Paul and his amazing team, you can fill out a simple form at peakfinancialinvesting.com and somebody will get in touch with you shortly through the email system and or you could leave a phone number. So with that, please do that. And Paul, thank you so much for your time today. Thank you so much for the amazing service you provide for everybody that we've been able to send your way. I'm just thrilled.

Thrilled as can be. It's my honor, Chris. I have a blast. I've met some of the smartest, wisest, prudent, just great people. And I love meeting them. It's an honor. So thank you. Fantastic.

Well, until next time, thanks, everybody. And I hope you enjoyed. It's an honor. So thank you. Fantastic. Well, until next time, thanks, everybody. And I hope you enjoyed this edition of Finance U.