Peak Prosperity - The Markets Don’t Reflect Reality

Episode Date: August 2, 2024

An attempted assassination. A Democratic coup. Kamala wasn’t the border czar. Conservatives are “weird.” And a bizarre opening ceremony at the Olympics in France. We live in crazy times, right? But the markets just shrug these narratives off.

Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. It looks like the markets is the only sport, per se, that defense doesn't seem to matter. Hey, welcome everybody to this edition of Finance U. So glad to be back. We took last week off for reasons. Paul, good to see you again. How are you doing today, buddy? I'm doing good, Chris. Good to see you too. And it wasn't a problem at all to skip with all the work that you've been doing.

So thank you for that. Yeah, I just, you know, for anybody who hasn't watched, I had to dive a little deep into the whole Trump assassination. Because you know what, Paul? I consider it kind of a big deal that that happened. And I know that that there's many people who are trying to move past it and, you know, said things that like, oh, it was just a hoax. It's not a hoax. People died, you know, and and then people who really don't understand guns at all said,

oh, well, maybe Trump set that up. I'm like, you got to spend some time at the range. Nobody allows that shot to be taken out there in the wind you know no so so but there was that whole side of things but but i do feel that that uh you know part of it is is that it's uh in this context of the fourth turning there's all this fracturing that happens right so here's a fracture people who think it was a hoax people who don't think it was a hoax. I've heard of actual people saying, God, I can't talk to my friend about it at all. There's another one of these breaks that happens.

It was kind of like around, you know, certain things around COVID policy. Some people went this way, some went that way. So I feel like, have you ever heard that? I can't do justice, Paul. Have you ever heard the joke where this guy's driving along and he sees a man, he's about to jump off a bridge and he pulls out and he says, hey brother, Paul. Have you ever heard the joke where this guy's driving along and he sees a man. He's about to jump off a bridge. And he pulls out and he says, hey, brother, can I help you? And the guy's like, no, I'm despondent.

I got to go. He's like, well, how about are you religious? The guy says, yeah, I'm religious. He goes, well, let us pray. Wait, what religion are you? He goes, oh, well, I'm Lutheran. He goes, oh, hey, me too. And he says, which branch?

I'm part of the Reformers. Oh, yeah, me too. And he goes down like six layers, right, of different schisms that you could possibly be down. And then he gets to the last one and he says, oh, are you this or that? And the guy says, I'm that. And he says, oh, pushes him off the bridge. I've not heard that. I've not heard that before.

Because he's the wrong kind. I wish I could tell the joke just right with all the divisions, right? But it's kind of like that. It's like, how do you feel about COVID? And you've got to get all the way down this thing. Do you think it was a hoax? There's all these schisms. I feel like it's intentional.

Or if it's not, this is part of what happens in what they call the fourth turning, where people lose faith, they lose trust, and things begin to break a little bit. And I think that's going to have a huge impact on the markets coming up, because markets have'm sure I could find it. But somebody made the comment along the line and says, look, you and I have talked about what for months now, six months, nine months. We know they're lying. They know that we know that they're lying. And I always butcher this. But everybody knows they're lying, and they don't seem to care.

So somebody made the comment and said, that's the point. Because if they can openly lie and continue to operate under this deception, the whole purpose or the end game is that nobody knows what to believe, so nobody believes anything anymore. And it drives everybody into these smaller camps to where everybody all of a sudden is the bad person. And we can't even connect. Like your joke, that's a perfect joke to bring that thought in my mind together. Because now it's all of a sudden, well, okay, Lutherans being Christians and all Christians should believe in Christ. We've got this one thing, we're saved by grace.

And that there's a higher power than us. And if we fail and we look to that and we keep going in that direction, well, all of a sudden, we're all created equal under God. He loves us all, and we have to fight through this world as best we can and help each other along. That's where it should be. So all of the branches should be able to get along. But then you get down to the point in today's society where, like you said, that joke has enough truth in it to where we laugh out of instead of crying that you get down to this area. It's like, OK, I don't want to I don't want to talk to you now. Right. So it sure seems by design or or maybe not by design.

Maybe that's too cynical. Maybe they're taking advantage of, like you said, what happens in the fourth earning and using it to their advantage. Yeah, well, here's my promise to everybody is I'll just follow the data. Wherever that goes is where we're at. And we're just trying to make sense of this whole thing.

And there's plenty of lying out there and people who are talking their book or, you know, self-interest, all that stuff. I'm not interested in that. I think we've got some issues that we're going to have to confront. First among them right now for a lot of people economically, you know, it's a really weird thing, Paul. You can track some statistics. Officially, things are okay. I've got other statistics I track that say we might as well be, for some people, in a Great Depression right now. It's really a tale of two worlds. It's pretty stark. looking back, but it's there's all kinds of stuff that just doesn't make sense under the surface in

terms of home sales, auto sales, credit card delinquencies. I mean, I got this huge list of things that align better with economic stress, not moderate growth, which is what they're telling us we have, but I don't think we do. No, we don't. But have you noticed, have you noticed with the, I mean, since you and I have talked last time, we've had the presidential assassination attempt. We've had a democratic coup, it appears, right? We've had an absolute shift from Kamala being the border czar to no, Kamala wasn't the border czar. And then, and then all of a sudden, you know, all conservatives are weird. So it's like this whole machine of narrative. It's amazing just what's taken place in the past couple of weeks and all the distractions. And then on top of that, you know,

one discussion that's been in our household on a pretty regular basis, even my kids were shocked, is just the display at the Olympic opening ceremony and that being trying to be erased. It's hard to keep up with everything that's going on out there. And what's amazing to me is the markets have basically ignored it all. I mean, we had a normal correction, but now it's like, you know, let's party on. So my concern is the housing market is frozen. All of the economic data is showing us that things are slowing. Dave Fairtax put out actually a really good statement in his, in the

post for your subscribers is, hey, are we in an inflationary recession already? Which is a really good, which is really good hypothesis. But can they paper this over to the election or keep this this narrative going and have the markets running into the election i don't know you know i thought there was enough momentum to carry us to all-time highs by by mid-july we've got a little bit of a correction if we're in a topping process i wouldn't be surprised to see us reach you know all-time highs again in that final last gasp by the time we get into mid-August. But it's going to get a little bit harder to hide that data the further we go along from here. So my big question is, can they keep it up until

the election? I think on the other side of the election, we'll get at least a little bit more honesty. Well, let's explore that. Can they keep it up till the election? So there's a number of problems that the Fed faces right now, and they're just one piece of this overall puzzle. So I'm sure you're keenly aware, like most people listening to this, is that we just crossed the officially $35 trillion debt mark. That's just for the federal government. It doesn't even include all the other debt in our country. So $35 trillion careening out of control. A lot of that is driven by the interest rates that the Fed has put into place, right? Because the higher the rate of interest, the more the federal government has to borrow to make the interest payments on the new stuff it just pushed out the door.

And so it starts going really faster and faster. So that's a ticking clock. The Fed at some point is going to have to reduce interest rates simply to prevent that thing from spiraling out of control. Right. The overall debt spiral. Right. I have to borrow money to pay my interest payments, which means I have more interest payments, which means I have to borrow more. And you just keep going round and round and it just gets out of control quick. So I think they're going to have to lower interest rates. And this is something I was talking with Tom about the other day, who you know, nobody else knows who we're talking about. But he was wondering about that dynamic,

and I explained it. And so I realized I probably ought to run through that. So again, when they need to get something done, they often pass the baton. So it's like, hey, ECB is doing all the bunny printing. We're not doing any. And then, oh, it's the Bank of Japan. And, oh, now it's our turn. And they make it seem like it's this, they divvy up the duties a little bit, if you will. So in the United States, they're divvying up the duties of providing liquidity. And right now, that's being provided by the U.S. Treasury Department.

And here's how so right now we're at a current run rate of about 1.6 trillion dollars a year in interest payments what does that mean well that means all the people out there who hold Treasury notes bills bonds get these coupon payments right so they're pretty regular right so they have some cadence to when you get your interest payment so that 1.6 trillion that's cash that comes out and what do you do with all that 11.6 trillion in cash? Well, sometimes you just buy more bonds with it, right? You just roll that through. So that's real cash, Paul. That's $1.6 trillion, a hot cash coming out. Where did that come from? Well, the U.S. Treasury Department borrowed it.

Well, now they had to borrow the cash that takes cash from the market, assuming the Fed's not buying it. But then they put it back they put these things out so people need to understand those treasury bills and notes act like tier one they act like cash right there's no difference whether i have a hundred dollars in my or a thousand dollars in my bank account or i have a treasury note i have a thousand dollars it's just as liquid. I mean, it's just, you know, in the scheme of things. So the U.S. government is throwing $1.6 trillion of what I call stimulus back into the system. And so off we go. Now, if they have to start dialing that back, surprise, try and act surprised. This is my surprise face.

When the Fed says, oh, this will be a good time to begin expanding our balance sheet again. They pass the baton. Right. That's the whole thing. And it's supposed to pretend like, oh, we're being fiscally responsible. No, they're not. They're printing whatever they need to keep this whole thing going for another day, week, quarter, year. That's that's the game. Right. By shortening up those issuances, correct, that provides extra leverageability in those cash tier one type assets. And then you've got the fiscal responsibility, irresponsibility is what it is. And then that provides the fuel into the economy to make the data look a little bit better. And market participants are going along with that, right? I mean, they're ignoring everything that's taking place. The FOMC came out today, kept rates unchanged.

It was a unanimous decision, which is what, the 17th unanimous decision in a row. And Chairman Powell, it sounded a little hawkish from the tape that, you know, from what I was hearing, reading was being said, but then the market's expecting these massive rate or rate cuts to start by September. So there's a disconnect between what's taking place. So Chris, what do you think? You think the market's like, these guys are just telling us what we want to hear in the interim period. And we believe they're going to cut rates as soon as they can. Is that what it is? Or is the market expecting the Fed to do something they're not going to cut rates as soon as they can is that what it is or is the market expecting the fed to do something they're not going to do you know i i've paul i can't these markets i i have i have no faith anymore right so i really just don't um you know back in the day so i cut my teeth back

in the day when fundamentals actually mattered like like I haven't actually cracked an annual report for a company in over a decade. It used to matter, right? You would look at things. Who's leading the company? What's their sort of competitive thing? What's their debt ratio? You know, how much receivables? Like that was information that actually provided some alpha.

Like you could actually know a good company from a bad company. Now, it doesn't even matter. It doesn't. Like junk companies float along. You see price earnings ratios of well over 200. There's no fundamental analysis that makes any sense in that context, you know? So what do you do? Well, and Mike Green with Simplify, he's the head strategist at Simplify. He's probably the guy that I think is the expert on indexing and the effect that passive investing has. So his comment is basically everybody's chasing performance. The

U.S. has been the only game in town because behavioral investing studies have said this for a long time. What most people do in their 401k, if they're not working with an advisor, and a lot of times they're not because you know the the 401k companies people are just busy working they're participating they talk to their friends but they look at what's done the best for the past one two or three years and then that's what they overweight to so that's why we get in the situation right now like i've got to show this chart give me just a second to pull it up because it's a great illustration of what's taking place and the power of indexing so can you see that there chris sure can yeah so so what what i'm showing here is a chart of the major market indexes so the black line is the s p 500 index

going back to 2008. the blue line is the gnx which is is the Goldman Sachs Commodity Index going back to January 1st, 2008. The red line is the MSEFA, the Developed Market Index, and the Emerging Market Index in green. So what we can see is since 2014 was when commodities finally rolled over outside of that little birth pain, which I believe was a good birth pain to give us an indication of what's going to be good going forward at some point when this changes. But right now we've got the U.S. index is the only game in town. So if you take the psychological behavior of investors, and one of the things that I've seen in a lot of reviews that come in from 401k participants for do-it-yourself for investors that are waking up and realize that, hey,

maybe what's worked in the past is not going to work in the future. Is there substantially overweight U.S. markets and have no exposure to commodities and hardly any to emerging markets or developed markets? So you've got this just massive amount of money that is price insensitive. So if everybody's doing indexing, then there's no benefit or reward whatsoever to taking the time to get your certified financial analyst designation, which is a CFA, or any fundamental research whatsoever because it's literally just a popularity game. So, you know, indexing has distorted the market. And I believe that that indexing has led to passive investors, which are complacent investors, which have been rewarded right now. But ignorance is bliss until you get hit in the mouth with a baseball bat. And at some point here soon, that's the hard part is, you know,

people want us to say, well, it's going to occur three months from now. It's going to occur three days from now. It's impossible to determine exactly when it's going to occur. However, there are tools out there that can give you warnings, but it's not going to pick the top. And that's not the point of picking the top. The point of using those tools is to understand the strengths and weaknesses of them and say, hey, this will at least give me a chance that when this turns and it tells me that I have to batten down my hatches and focus on principal protection playing defense, because sometimes it's just as important. I mean, it looks like the markets is the only sport, per se, that defense doesn't seem to matter. Historically, it's always mattered,

and I believe that it's going to matter in the future. We just happen to be in a period of time where all of this deception that has benefited your CEOs because their compensation is largely on the performance of the stock. That's one incentive that has changed over the years that helps fuel this. Politicians, because, you know, hey, they certainly believe that if the markets were better, that's at least going to help the incumbent a little bit more. So everybody's got these incentives to keep this deception going a little bit longer.

And it's decimated those in the industry. We are fortunate by God's grace that we've been able to run a risk-managed strategy, stay the course, and adapt enough to make some changes. But see, the pain of running a risk-managed strategy are periods of time like 2015 to 2017 where for a risk-managed strategy, that's our 2008, right? So if you're a buy and hold strategy and a passive strategy, your 2008 and the weakness of that strategy is a 50% decline or more, you know, and hopefully it's not like the Great Depression where it takes 25 years for it to recover. Because if you're 70 years old and you're not running a risk-managed strategy or you're 65 and the markets go down 50%, and even if they recover from an inflationary standpoint, but they don't keep up with inflation, then you don't have time like a Harvard institution,

which is what modern portfolio theory is kind of designed for that buy and hold asset allocation, no risk management, passive investing, they've got time for that to recover. So that's the hard part on where we are, Chris, is when this is over, there's a lot of people that are going to think that what they know just ain't so. Who was it? Was it Mark Twain that stated that? It's not what gets you in trouble is not what you know.

It's what you think you know for certain that just ain't. So I think that's his quote. You're really good at remembering that. So please do correct me. And I know I could Google it right now and look at it, but so, so I'm concerned about what this is going to lead to, because I really believe that, that this ignorance of a lot of investors, one is chosen ignorance because they don't want to think about the implications. And I'm still seeing a lot of cognitive dissonance out there with what's going on with everything that's happened over the past month. So fast, people just, they're having a hard time embracing the courage that it takes to have another part of their worldview broken. I think to an extent people are wanting to hold on to these prior worldviews so hard that

they're afraid to allow their worldview to be shattered because now there's no certainty in the future. And really, we've never had any certainty in the future. We've just been told that we have it right. Well, I mean, you know, the way I look at it is that, you know, because I grew up at a time when the books that really influenced me were things like A Random Walk on Wall Street and understanding that, you know, you needed to have the efficient market hypothesis because it's fundamentally unpredictable, right? So you have uncorrelated, diversified assets, and so you get this sort of efficient frontier, all that stuff, right? I don't believe in that stuff anymore because I don't think it's a random walk anymore.

I believe in my heart of hearts that the Federal Reserve steps in and intervenes when things aren't going the right way. I think they're just, I don't think they have the stones, if I can use that term, to weather even a 5% downturn without panic ensuing in the boardrooms at the central bank. So they've just shown themselves to be very asymmetrical. They're perfectly happy with explosive upside moves and things. They get really panicky about any downside. So that creates an asymmetry. It's no longer random anymore. So people can be forgiven for having been habituated into thinking that's how it works i'm old enough to know that

it's not how it always works and maybe now it is different but it's never different right i know why the fed has done that and i see how they've institutionalized the practice of wanting to support and protect and make things go up and now i believe they have a whole generation of people working there's like oh well this is what you do like it's institutionalized right but it's institutionalized failure as far as i'm concerned because they're just making this more and more and more unbalanced and so the things you have to do to keep all those plates spinning the mixed metaphors just gets wilder you know i think paul prediction the next time the fed has to crack open the old fed checkbook, they're going to double their balance sheet again. It's going to go from $7 trillion to $14 trillion, $15 trillion.

I think that, and then it's going to do that one more time. And the whole time, it's just getting worse and worse. And nobody's stepping back to first principles going, wait a minute, wait a minute, what's our plan? What are we actually doing here? Right. Because they've forgotten what they're here to do. They're here so that average, everybody shares in the prosperity of the land. Not a few people, not their buddy Jamie and, I go back. My daughter called me the other day. That's another thing I was kind of sharing with you.

She was in a little bit of a panic, just kind of seeing what's going on in the world. Not a panic, just concerned, need dad to kind of give her a little bit of direction. But she made the comment. She said, dad, I've heard you tell people when you read the, uh, about how, when you read the Bible front to back for the first time. Now, please, people don't take this out of context. I don't mean it this way. I'm just, this is my point of teaching when I'm talking to people, but it's really what I thought and my arrogance. Cause

I was a lot younger than I was like, man, those Israelites are idiots, right? Like they, they, they seek the Lord. They learn these ways. And that's a point where I think we're all going to come back to the choose you this day blessings or curses. But they choose the right path. They're blessed. And in their prosperity, they turn away from those things that they were taught to do well. The sinfulness of our human nature turns over. We give in. Weak men create hard times.

We give in to our desires out of our weakness and then it brings pain upon society so it's this cycle that we go through right blessings and collapse blessings and collapse so she was laughing because they're going through she's about halfway through the old testament now and she's like you were right like like it's amazing how that cycle goes and we had a good conversation about that human nature. And I believe we find ourselves in a time where we are today. And I believe it's very important, Chris. When I was talking to her, I said, honey, you know, there's a point and forgive me because I've been focused on so many other things. And I've not spent a lot

of time in the old Testament here recently. I think it's Deuteronomy where it says they're chosen choose you this day, blessings or curses. And then they announced the blessings and they announced the curses and the things that you have to follow. I believe we're a point in time where we as individuals have to choose this day, um, how we want to see the world. Do we pursue truth and a love for the truth? And if that truth causes us to change our mind, right? We change our opinion. What was it? John Maynard Keene said, if the facts change, I changed my mind. What do you do, sir? That's relevant throughout society, right? That's so important because if we love the truth and we're pursuing the truth, then we're going to have the

courage to follow it wherever it'll take us. And we're going to have the courage to admit that, hey, this adaptation and Chris, I've always admired you because you're one of those individuals. But as a society, I think we need to focus on that. And as an investor, I believe that we need to focus on that. But, and that's one of the things that I have to do in guiding the people that we work with is, you know, is follow the truth wherever it'll take us. So here's one of the things that we can say from a historical standpoint, this market is irrationally expensive, right? I mean, this only qualifies in periods of time like 2000, 2021, and 1929. Now, I wish I could show it to you, but I don't have it framed yet. I found a poster that's a history of all the bubbles that I'm going to have behind this here as soon as I can get it framed.

But the reality is, is this, you know, we got to play the game by the rules that are forced upon us. And that's such a cynical thing to say, but that is the truth of where we are. And if we break out into an inflationary Holocaust, right, we don't get that downturn, then we've got to make that adaptation. Now, my thesis is still believe that there's going to be that one drop of sand that causes this thing to collapse in the interim period, and for those investors who are adaptive are going to be able to thrive through that environment, not that they won't get scars. There's going to be no way to navigate this perfectly. But if you can limit your decline to say 10% for an example, because you have some adaptations, some tools that can tell you when you've crossed a decision point to make a decision to lower that

risk versus going down 50 or 60 or 70% of the mathematics that John Hussman is, is constantly trying to educate people about are correct, then, then you've set yourself apart. Your, your prudence that has foreseen the danger has put you and your family in a better position to, to both protect yourselves, but then also be in a position to where,

Hey, maybe you can use those resources to help shape the aftermath for the better. Well, where exactly does one go to hide in this particular universe of things? So again, you know, this has bothered me for a long time, Paul, is looking here at all the different indices. We have the Dow Jones here. We've got the S&P. Looks identical. It doesn't matter if you're a tech or a big cap. NASDAQ, kind of hard to tell a difference between these two. You know, just sort of squint at them. They kind of look the same, even though they theoretically are composed of different things doing different whatnots. which has been bouncing along here, surprisingly not doing as well since they started their yen intervention. You've got your euro stocks up here, and my all-time perennial what the F is going on, the German DAX hanging out, banging along near all-time highs, just parked there,

and they are experiencing, Paul, right now, industrial production that might as well be the Great Depression for their energy-intensive industries, down a full 23%'s it's just it's a bloodbath right yeah and but the associated stocks are doing just fine you know it's just it just it all feels like that wiley i cody coyote thing he's off the off the edge you know but hasn't hasn't looked down yet you know i don't know. I like to make sense of things. That's my problem. Maybe I should just stop because I'm just trying to make sense of that.

I would prefer that the indexes of various countries and agglomerations of companies would somehow reflect something you could look at and go, oh, yeah, that makes sense. That's up because, you know, and you get a story that makes sense. Germany, I can't figure it out. I don't know what's going on. I just don't. No, it, it, it doesn't make sense. And that's what concerns me. So when you get into a period of time where there's so much deception and people are understanding there's deception everywhere, right? I mean, for those that are, that are lodged to the far left,, they they focus on the lies that have been told by those on the far right. And that's all they can hold on to. So they don't believe anything else and vice versa, which has taken place. And it goes down to the granular level. So that's why it's so important to be honest and tell the truth on a regular basis, because our world is hungry for people that just have the courage to tell the truth and accept whatever that

is. That's one of the things Jordan Peterson spends a lot of time talking about. So where do you go? And that's a good question. So when fundamentals don't matter so much, now don't get me wrong, our individual stock strategies, we have fundamental filters that bring them down. And we've had to tweak those a little bit from a historical standpoint. The one I haven't really tweaked that much is our value filter. But we've tweaked those a little bit. We still have a fundamental component because you want to invest in those companies that are more fundamentally sound no matter what. And then you have basically kind of, I call it money flow. It's, it's more than that's easier to understand relative strength or what asset classes are performing over others. And, and you have to

kind of focus on some of those, those classes. Now it's not chasing performance like NVIDIA or some of those others. So I can't chase NVIDIA right now, even though it's one of the strongest performers that are out there, but there's a lot of money that's chasing that category. What you can start looking for is where's that money going to go when it leaves there. Okay. So if it's not something that qualifies from our portfolio right now, where do I pay attention to? And you have to look at investments as any tool to help you accomplish your goals and protect your assets, right? too much of wall street's going to say hey gold is not a place to go but gold is telling us that money's going there for you know for some reason so that's something that you have to pay attention to not a recommendation of those that

are out there in the portfolio but we have exposure to it in our portfolios and i recommend that clients have exposure to it there are times where we want to average into it because prices move very strong. But from a long-term standpoint, it looks like that's a place that could provide a safe haven. Your cryptos seem to be providing a safe haven, even though I've not seen them tested in a year like 2008 on what's on the other side. And we don't know how they're going to survive if the governments roll out their digital currency. So there's some questions there, but obviously there are investors that feel that that's real safe.

So we have some minor exposure there. But from a big picture standpoint, what I'm concerned about is the U.S. has been the only game in town. And I'm going to show one other chart that I just can't get off my mind. And I don't, you know, maybe it doesn't, not presentation, sorry. Maybe it doesn't matter, but I believe that there's a lesson here because of what's taken place with Japan and their currency, and we haven't even gotten to that yet. But guess what, Chris? Can you see my screen now? Sure can. Okay, so what I'm showing is a chart of the Tokyo Nikkei average going back to 1975, okay, up to today. So as of

Tuesday, maybe it's in today. No, it's a real chart. So they closed down 2.67% yesterday. But from 1983 to 1990, performance chasing reached its culmination over that period of time in the Nikkei index. So that index was up 377% 1983 to 1990, outperforming, you know, US indexes dramatically. And I have it overlaid with other indexes. But I mean, this was the chase where it was on. So as a Japanese investor, if you had tools, you're in that journey. Now, it reversed very hard. But for a Japanese investor, what did you need to do with your money? You needed to be invested in the rest of the world, right? Because from 1980 or 1990, for 34 years, it was down and it took it what?

So that was 34 years, was 24. So 35, 36 years. Here we are 2024 before we broke that all-time high. It was down and it took it. What? So that was 34 years was 24 to 35, 36 years. Here we are 2024 before we broke that all time high. But what was even worse is from 1989, 1990, all the way into 2012. That was basically an absolute downtrend that bottomed in 2008. So for a Japanese investor who was overweighted the Japanese index during that 77 to 90 period, or maybe 85, 90, 100% of their investment in that category, that was the right place to be for that period of time. In hindsight, looking back, but I can tell you, I don't know for sure because I've not read journals, but I know enough about human investing and what I've seen over the past 26 years and all the behavioral studies.

By the time this cracked, just about all your Japanese investors, I would assume, were nearly fully invested in that index. And how quickly did they change? Right. So if you have tools that can tell you, hey, I'm not going to pick the top. Maybe you're here by the time you get out, or let's just say you're even here, right? You get to this point, you're way off the top. But if you'd made that adaptation to move into U.S. indexes, as an example, or other asset classes that perform better and redirected your investment focus because you were using other tools that you

had something telling you that you needed to focus on, then you were far better protected. So, you know, from my perspective, if the markets come apart, treasuries may be the best thing to go into because technically in the U.S., they're still the safest asset. Brent Johnson has a good argument with his milkshake theory that if the U.S. markets come apart, that the dollar is going to strengthen in the interim period because of the deleveraging that will take place. So that may be a great place to be initially. But then on the other side of that, you're going to have to deploy. And who knows what that's going to be? Is it going to be precious metals?

Is it going to be commodities? Is it going to be precious metals? Is it going to be commodities? Is it going to be emerging markets? I mean, I think that when we see the rebalancing occur, it's going to be commodities and international and emerging markets are going to outperform. And then your value stocks, it should. And especially if they print so much money that we end up in a currency crisis, a U.S. investor may need to be not a recommendation, just a discussion for just a discussion. U.S. investor may be better off to be 85% ex-U.S. But Chris, how many investors today have the tools, how many, you know, tools or even the willingness and the courage to make that adaptation, you know, and what tools are they

going to have guide them to do that, that they can do it confidently and as a fiduciary and instead of an emotional decision. There's so many great quotes. Investing is one of the hardest things to do. I'm going to misquote it, but I think it was Ray Dalio said something along the lines of, look, if you're not aggressive, you're not going to make any money. And if you're not defensive, you're not going to make any money. And if you're not defensive, you're not going to keep it. So you've got to know when to play offense, when to play defense. I think that's what I find troubling right about now because the markets have been, I want them to make sense and they're just not making sense to me, right?

They're independent of any news. Right. You know, they just do whatever they want to do. And I like them to be connected to something I can maybe assess. So they're not right now. So there they are. They're sort of trundling along. They're doing whatever they want to do. But this is a huge moment of indecision and uncertainty. Right. Because it's for sure, no matter how this next election goes, roughly half the country is going to be bitterly disappointed, right? Yes. And I just, I can make that prediction. It's just how it's going to work out, right? So, and the chance of it going smoothly is low, right? And I know everybody's thinking the same thing in the back of their mind, which is

that, well, maybe there's going to be another assassination attempt on Trump. Right. And that and that that's now in the mix. Like that's apparently something we do now. Right. Through incompetence or some other mechanism. So, you know, you look at all of that and it's just like hard to imagine, like why stocks in particular have no risk premium built in. They're just like, ah, it might as well be the best year you've ever heard about with nothing on the horizon. There's no Ukraine. There's no Middle East. There's no whatever. It's pretty bizarre. So I think in that Ray Dalio quote, how do you balance being aggressive versus being defensive at a time like this? Well, very carefully.

And there's one thing that does make sense to me about these markets that I'll come back to in just a minute that I didn't think about until you just mentioned that. But very carefully and with a well-considered approach. And from our standpoint, we have decision points. And they're lines in the sand. You cross this line or your indicators cross this line. You have decision to either trust the historical decisions that have been put in place, understanding that, you know, I'm just going to pick a number. Okay. 80% of the time, they're correct. 20% of the time they're wrong. Now in the markets, if you get 80%, you're doing

incredible. I'm not, you know, 80% exact. I'm not saying that I'm just picking a number. Okay. Are there 70% correct and 30% wrong? Well, what is wrong? Okay. Is wrong mean I lose 50% or is correct mean I lose 50%. So if, if it's 60% of the time and, and you lose 50% if it's correct, and 40% of the time you miss out on a 5% gain, well, you know what? I'm comfortable taking that risk right there. So you want to use those tools, knowing that they're not going to work perfectly in the future and those statistics can't change, but at least it gives you a basis to make consistent decisions instead of just your emotions. Because what happens if we let our emotions get in there and make that decision for us,

then we're going to get a little greedy or we're not going to be able to stay the journey because it's too subjective. So we have to have something that can direct our decisions that has some historical analysis and some percentage probability outcome understanding. What are we talking about? Is that like a certain threshold on the stock market from a price level? understanding what are we talking about is that is that like a um a certain threshold on the stock market from a price level like what are we what are we talking about here yeah it could be so so i'll give an example of how you could do that just to kind of walk through the strengths and weaknesses and let me go back in here and and lord i'm sure there's a thousand disclosures one this is not a specific strategy that I'm gonna share here but it is a tool that can be used as a risk management tool okay now this

is barbaric it's one of the things that I pay attention to but it is not our only decision maker just so you know so what I have here on the screen, if you can see my screen, Chris, is the S&P 500 index. And this is in monthly candlesticks. So this is monthly going all the way back to late 1999. And this tool on the bottom that's generating some of these sell signals is called the Price Momentum Oscillator. It was developed by Carl Swindlin, and it's just a mathematical analysis of the momentum behind the market. Okay. So what it can generate for your decision point.

So red that is here, general areas of defense. So, you know, if you were to follow this tool, the strength of that tool, you know, it gives you some warning. So, for example, if you had a warning in late 1999, some people would use that as a cell signal and they would exit in late 1999. The way we would apply that in our circumstance is, okay, we've got a warning signal, but the 20 month moving average is going to be our absolute last line in the sand. Okay. And for the audience out there, this is theoretical. I'm not saying this is exactly what we do because this is not exactly what we do. This is just teaching purposes. Okay. So in that case, if you were an investor and it dropped below that 20 month moving average and you exited and you played defense, then guess what? You missed that whole market decline that ensued

right after that. Correct. Now, the problem is, is people try to make these things too fast, and they want to try to pick a bottom. But if you just waited for that to move back on a buy signal, well, you exited here, and then you reentered there. And theoretically, you would have moved sideways, and then you protected yourself in that period of time. Now, the other side of that is, if that's on a buy signal during periods of green, that's offense. You have to err towards the offensive side. So we can see the strength of that here helping sidestep a major decline. The weakness is you're not going to pick a bottom, but it did help you stay invested during that uptrend. Now, 2008, it had a little bit better timing on the signal.

But if you followed that 20-month moving average, you got defensive here. And that would have protected you. So that's a strength of a tool like that. Now, when I talk about the strengths and weaknesses, okay, the weakness of a buy and hold approach is you're going to endure a 50% decline. You're going to rally. You're going to endure another 50% decline. So one strength of a buy and hold strategy is you're going to endure another 50% decline. So one strength of a buy and hold strategy is you're going to do exactly what the market does. The weakness is you're going to do exactly what

the market does. So the red periods are defense. Let's talk about the weakness of approach like that. So if we go back and look at 2015-16, this was a pretty challenging period of time for us in our portfolio where we left some returns on the table, you get this warning sign, then you get the market sell off. So if you sold, and this is not what we did back then, it was just a challenging period of time, our tools would have caused us to exit a little bit quicker. But if you waited till you got below that 20-month moving average, just to talk about the weaknesses of this, well, you exited and you were on defense until it turned green again, and you left some money on the table. So you missed opportunity.

And that's just an example of how you can, you can implement, you know, that during a period of time where you've got something that can help you make decisions. And if you understand, Hey, worst case scenarios, I'm going to miss a little bit of opportunity for a period of time, but I will go back to offense. Now, you've got to have the emotional courage to buy at a higher price if that happens. And that's why following those rules are so important. So that's just one tool that's out there. I mean, there are hundreds of tools that have been developed by portfolio managers and technicians, what are called technical analysis individuals over time that work. The McClellan oscillator is one that other people use, but you have to understand the strengths and weaknesses and you have to play the statistics and stay in them and follow them.

And, you know, just like passive investing takes courage to stay there. You've got to have, you know, courage and faith that passive investing is going to work. You've got to have some faith that you have to put into those and then make smart adaptations as time goes along. So it's not rocket science. It's just controlling those emotions and having a series of tools that you trust and rely upon. And that's what I've had the benefit of doing over the past 26 years because I've been through periods of time where they upon. And that's what I've had the benefit of doing over the past 26 years, because I've been through periods of time where they work and I've been periods of time through, I've experienced the weaknesses.

And I'll tell you, for me, as competitive as I am, when we hit that period of weakness from 2015 to 17, I thought the world was coming to an end. And I had a client, it's like, Hey, I had a client look at me and it's like, Hey, it's not that bad. I mean, I'm still making money. I just didn't make as much as, as, as what my, you what my bragging brother-in-law did, but that's fine. I'll survive the test of time and he may not. So that's just a different approach.

And it's not trying to keep up with the Joneses. It's trying to manage your money as prudently for you. And that's what we try to help people do to make those adaptations. Well, you know, what's absolutely true in my case, because you may not know this about me, I spent almost three years of my life as a day trader. While I didn't know that first, first putting the crash course together, you know, and it was a full contact sport for me, you know, 930 to four, the bells in there. Eventually, though, what I learned was the old adage was true,

that a portfolio is like a bar of soap. The more you handle it, the smaller it gets. That's really good. I've never heard that, but I like it. So actually, my best trades have been just sitting. I just sit on things. I figure out what's right and true, and I sit on stuff. And that's been my problem is I've kind of lost faith in fiat currency,

but I trust that the Fed's going to print money and throw it at it. So I don't have that much concern about where things are going, just from a numbers standpoint. I am worried that that, of course, doesn't make the country a better place and it rewards certain people who live in the same echo chamber bubble as the Federal Reserve people. So they don't notice, you know, what's actually happening. And I worry that it's not it's not a good thing long term. But but it is the game currently against that. Yeah. You got to kind of balance things against that.

You and I talk all the time and we're talking offline, but we're talking about our other portfolios, which is measured in feet of fencing and horsepower of high flow hydraulics and, you know, good things going on at the farm. So, you know, that, that's also wealth, right? Oh, absolutely. Absolutely. It is. So I was, I was laughing. I think we're only down to about uh three dozen eggs a day right now but i'm keeping my whole staff you know there's yeah uh three six of us here at the office now and they were making the comments like you know i haven't bought eggs at the grocery store in

and at least a year or since my production's been picked up and i've got another 20 32 hens that are getting ready to start producing so i I'm going to have to, I don't know what I'm going to start doing with all these eggs. Start freeze drying them actually. Yep. Yeah. Harvest dry. Yeah. I got my,

I had to do some technical work on my freeze dryer over the past couple of weeks. And I've got to tell you, Chris, when's the last time that you had somebody that was in a customer, customer service department actually annoy you because you were too busy to return their phone call that seriously happened like i've talked to the guy two times because i've got one piece that

i've got to put in there and i told the guy from harvest ride i'd love to say his name because if he was close i'd hire him i don't even know i don't even know anything his background but i'd hire him and he he's called like every single day for two weeks. And I'm like, man, I've been getting home at like seven 30 at night. And Holly and I've had to talk and the kids are going on. I just have not fixed it. Can you give me till next Tuesday? Next Tuesday comes, I still don't have it fixed. And he's called me. He's like, come on, Paul, you got to get that fixed. I want to finish this project for you. So their customer service is amazing. Just so you know, and I had to replace the motherboard, and it was like $69.

And I was expecting it to be, yeah. I mean, whatever their cost was, they shipped it in. And it was my fault when I was moving it, I cracked the screen. And, you know, they stepped me through how to fix it. I've not experienced customer service by harvest right in any area of my life. And I keep telling my team, I'm like, this is the level of service that we want to give, except we don't want to annoy people as much as that guy did me over the past two weeks. But I do appreciate it. Everybody listen, HarvestRite is a freeze dryer, not to be confused with a dehydrator,

totally magic device. A freeze dryer is magic. It's like human science magic. That's one of the most amazing things ever. Yeah, it is. And Holly and I've always canned, you know, she'll usually do 80 to 100 quarts of beans a year. She'll usually do 80 to 100 quarts of vegetable soup and other items. And it's unbelievable amounts of work with canning. And we like it. We still do it,

but it's a lot of work compared to that freeze dryer. So once you get it prepped, the worst that I've done is we do a lot of okra in the south. And one thing that I've done in the harvest right freeze dryer, Chris, and I don't know if I've told you about this, you've got to do it. If not, I'll ship you some okra because our okra is starting to come in really good. The worst part is standing over the sink because I can do like five gallons of okra and i have to slice it forever but you put it in there and it tastes exactly like southern fried okra without the the grease in there i don't know what it is but it's crunchy and it's nice and

and i just pull it out and eat it in snacks and strawberries and apples course, here in apples in the fall, I think I've got, I've done 35 or 40 number 10 cans of Pink Lady apples in the fall because they're abundant around here, and we just go get them. You slice them up. You know this. You put them in there, turn it on, and when it's done, throw them in a number 10 can with some oxygen absorbers, and I crank that lid down, and in 10 minutes, I'm done. It's great. A lot easier than canning. Yeah. And it lasts a lot longer. And I'm just astonished at how good the food is when you rehydrate it, when it comes out.

Well, and I can't remember the statistics, but it retains a lot more minerals and vitamins than, than what canning does. But as far as, you know, not to sidetrack too far, as far as back to the markets, I think this is a point where diversification matters and we have to take a look at the big picture. And that's just one thing we have to come back to is be ready and get rid of all those biases that we have. You know, capital gains rates may go up in the future.

And this is one thing I've been talking to people about. This is not a bad idea, right? You may be fully convinced that we're going to have a currency crisis. Currency crap. Currency crap the bed is what I just about Freudian slit with. But a currency crisis and hyperinflation, and I believe that that's the ultimate end game before this is over. But at the same time, you can harvest some of these profits in the portfolio and reduce your debt level on your primary residence just to get yourself more resilient on where you are. Invest in some of those things that are outside the system, precious metals to hold from a long-term standpoint. One thing I tell people when I recommend the precious metals is I don't think this is going to be the case, but I want to mentally thought this way. Let's pull something out of the system and set it aside and look at it like fire insurance on your home. 10 years from

now, we hope that it's the exact same price that it is today, because that means we haven't had hyperinflation or all kinds of chaos and things have settled back down. Or if we had a major deflationary event, gold's really good at the extremes. And I know you know this, Chris, but I want to share it with people out there. If we had a deflationary collapse, and first by inflation, as Thomas Jefferson said, then by deflation, and the price of everything goes down 90%, well, most companies are bankrupt, but gold has no creditors. So you still should have that purchasing power. And the one thing that makes me feel a lot more comfortable about it now is just that

consistent step by the bricks Brazil Russia India China South Africa and all the others and their continued movement towards that unit that decentralized currency that they want to offer as an alternative to the dollar that their plan written into their white papers that's going to be 40 back by gold so uh so it it should have some value if this global leadership changes dramatically well um i was just looking it up here because it's really important somebody was um i was doing a town meeting the other day and um one of my favorite subjects came up which is silver right and um and somebody's like i don't really know you know silver what does it really represent so i have a coin with

me usually so i pull it out i put it in her hand and i said what this represents is that somebody somewhere took about two tons of rock which is about the size of a small car and drug it up out of the ground crushed it into the finest dust you can imagine heap leached it then ran it through a refining process purified it out beyond that and stamped it into this coin you're holding now if you want to tell me you'd be willing to do that all day long for 29 bucks this you you're right that you know silver doesn't have that much value embedded in it but if you understand how much how much work went into getting that out of the ground it's really astonishing everything that has to be there for for that ounce to to exist in exist in that form in your hand.

Some of them take way more than two tons of rock. They do, don't they? And so I do like silver from a long-term standpoint too, and especially the four nines, you know, the Canadian maple leaves, as you say. And explain that to the viewers out there again, Chris, because the four nines, which are the Canadian maple leaves in most cases, again, not a recommendation. We're just having a conversation, but I do like silver, not telling you to go buy it, talk to your financial advisor, um, uh, versus the three nines, which are the American Eagles. Explain that to everybody again, because I believe that is

important from a long-term holding investing standpoint. Well, I think it is. I think it could be. And so the nines refers to something being, if something's a hundred percent pure, it would be 1.00 in purity. But if it's only 99% pure, that would be 0.99 pure. But if it's 99.9%, that's 0.999. That's really pure. But if you're four nines, you are 0.999 that's really pure but if you're four nines you are 0.9999 pure so why is that important well because when you're four nines purity that's the standard grade that a lot of industrial applications need straight up so that if we came to a point in the future where there's some sort of silver shortage and companies were scrambling maybe it's a solar panel manufacturer, or who knows, right? Let's use a lot of processes. And they said, ah, we really want four nines. So either they're going to have to buy your three nines from you and then run it through the refinery process

to get that last nine kicked on there. Or maybe they just buy your four nines straight from you. I think it gives you that little extra bit of potential future liquidity, meaning it can just go straight into the pipeline and i got this idea um from a guy uh robert mish who was who owned probably still has a coin store in palo alto and he was there he was 80 at the time i knew him back in the day um he was there paul during the the great silver run of 1980 79 80 when it went to then 40 of that those of those dollars 40 of those 40 1980 dollars was that equivalent today six million dollars it's it's a lot um so i asked him what was that like and he said oh man we chris we had two lines stretching around the block one to buy one to sell and there were all these, you know, 40 bucks was 40 bucks back then, you know, for an ounce.

And so Grandma Silver was coming in. So we said, we have this whole room of what we call junk silver. It's sterling grade, 0.92 or even coin, old coinage at 0.90. He said, we were piled up. And all of a sudden the refineries had this big backlog and they weren't taking it from us. And I had to start discounting that. It was silver, but I didn't have any place for it to go into the system anymore because everything

was clogged so he said the discount hit over 35 percent at at the at the height of this whole frenzy so people are bringing a gram of silver tray thinking they're getting 40 bucks an ounce but they weren't they were getting closer to 26 27 announced right for it because they didn't have any place for it to go so if we get into this next thing where we're going to have a silver crisis at some point comics will manage itself badly it'll happen um at that point you know it may be that you know people don't need more three nines that gets clogged up the refi the refineries like i don't know if people know this, but, I mean, there's not that many places you could actually bring silver to get purified. There's a few of them.

There's not that many. And it's a really small, tight market. So if there was a sudden flood of need to create, you know, four nines out of three nines or old junk silver, which is 0.95, if there was ever a need for that, we'd be back to Bob's, you know, Mish's great explanation of what happened in 1980. The system would clog up, and you'd be getting a discount for the stuff that you had, that everybody had a lot of, but you might even be getting a premium for the other stuff. So I'm like, well, in this day day and age when there's really no price difference in fact i can buy a maple leaf typically with less premium than a u.s uh silver eagle which is three nine yes i can get it for cheaper so i'm like well why not why would i not do that um so

that's been my thought process of late yeah well i'm with you when you started pointing that information out to me of course i've always bought whatever was cheaper over the years between the Maples and the Eagles. And it's been a long time since the Eagles were cheaper than the Maples, but it has happened in the past before. So now I'm leaning towards the four nines just because every time I pick them up, because that makes sense. I want to stack everything in my favor to maximize that return. If something happens or minimize my risk, if it doesn't come through and prices are the same down the road that I can. And I think that's something that we forget when we get into these manias and this theory thinking, I say, we as a nation, not we as into us, as individuals talking here, we wouldn't be talking about this as a nation, not us as individuals talking here. We wouldn't be talking about this.

As a nation, we forget about that. As investors in general, as these manias start, and then we start to believe these narratives that may not necessarily be true, but we've convinced ourselves that they're true because we need them to be true because somewhere in our subconscious we know this is unsustainable. So I'm going to look for that confirmation bias to help me be foolish when I know I shouldn't be. With that, for everybody who's interested in talking with Paul or his team to have a portfolio review, please go to peakfinancialinvesting.com. Simple form there to fill out. Somebody will be in touch with you.

And Paul, again, thank you so much for the service you provide for people. It's really important. You're just getting great feedback from everybody who's had a chance to meet you and has had the lucky opportunity to work with you and your team. So thanks for doing what you do. Really appreciate it. So important. It's my honor. It's my honor.

It's enjoyable to be able to, to talk to people and, and, uh, and help make a difference in their lives. And if we can make a difference, everything else will take care of itself. Indeed.

Indeed. Well, with that, thanks everyone for being here. We'll be back next time. Paul, have a great weekend. You too,

Chris. Thank you, Chris. Thank you.