Top Three Videos – September 17, 2023

Quick Summary Bullets:

Market Analysis and Predictions

• Technical analysis has had more predictive power than fundamentals in explaining market action this year, suggesting that trading based on market trends may be more effective than relying on traditional financial analysis.
• “Markets are going to trade within a given range based on earnings and fundamentals for a period of time, market psychology, liquidity, those are the things that are going to drive the markets in the short term, and markets are going to basically trend in one direction over time and generally that trend is bullish.”
• “The most important thing about where markets go to between now and the end of the year and even into next year is pay attention to earnings estimates…there’s a very good correlation between earnings estimates and forward returns on the stock market over the course of the next three six nine twelve months.”
• The stock buyback blackout period may cause short-term market volatility, but once it ends, the influx of buybacks and strong earnings season could fuel a potential market run to the end of the year.
• “While two years of declines in treasury bonds is rare, betting on a fourth year of decline is highly unlikely, making it as close to a sure bet as it could probably get.”
• There is a discrepancy between the data used by the housing industry and the actual observations on the ground, suggesting a potential flood of inventory in the market in the next couple of years.
• “If you want home prices to come down and get affordable, stop doing stuff that distorts the price of mortgages.”

Importance of Authenticity and Education

• Lance Roberts aims to make sense of everything happening in the markets, showing his expertise as a portfolio manager.
• While Lance Roberts focuses on fundamental analysis, he also incorporates basic technical analysis indicators to provide additional risk management to portfolios.
• Despite the need to censor certain language, Lance Roberts emphasizes the importance of being authentic and true to oneself while creating content.
• Audiences are seeking deeper and more unbiased financial information, turning to online platforms like Wealthy on to self-educate and explore all sides of an issue.
• Analysts who spoke the truth about overvalued stocks in the late 90s received death threats from investors who didn’t want to hear the truth about the market.

Impact of Economic Factors

• “This is by far the largest change in rates we’ve ever had in history period, so if you don’t think this is going to ultimately revolve into and especially if you think rates are going to keep going up if you don’t think we’re not going to have a financial event or recession.”
• “The Central Bank intervention in the market has an end date, as eventually, you can’t have functioning markets anymore and the currency and economy suffer.”
• “The resumption of student loan payments is projected to subtract at least 0.5 percent and likely much more from quarterly annualized GDP growth in Q4.”
• “There’s a lot of uncertainty and a lot of decisions that the average person needs to take into account in deciding how to navigate their wealth through what may be coming.”

Transcript Summary:

• 00:00 The recent market correction was expected and normal, and now we are going through a process of holding onto previous trends.
  • Portfolio manager Lance Roberts and founder Adam Taggart discuss the current state of the markets, acknowledging that this week’s market recap may be shorter and less structured than usual due to Taggart being on the road.
  • The recent market correction was expected and normal, and now we are going through a process of holding onto previous trends.
• 01:51 The speaker suggests that the market is expected to continue trading well based on technical analysis and seasonality, potentially reaching new highs by the end of the year, but warns bears to be cautious as momentum is currently not in their favor.
  • The speaker uses a simple set of technical indicators, including moving averages, relative strength index, and macd, to manage portfolios and provide risk management.
  • The market has been trending higher since October of last year, with a pattern of selling off at the top of the trend channel and rallying back up, and the recent volatility and options expiration could potentially set us up for a push at the end of the year.
  • The strong seasonally period at the end of the year and beginning of next year, along with stock buybacks and performance chasing by portfolio managers, are expected to drive a bullish rally in the market.
  • The speaker suggests that the market is expected to continue trading well based on technical analysis, and if it follows the seasonality pattern of the previous 20 years, it could finish the year substantially higher.
  • The speaker suggests that the market has the potential to reach new highs by the end of the year, possibly around 4600-4700, and warns bears to be cautious as the momentum is currently not in their favor.
  • It is unrealistic to predict a significant upside move in the market unless there is an unexpected and extreme central planner action, as extreme moves like that are rare and difficult to predict due to the uncertainty and complexity of various factors.
• 15:08 Despite gradual influx of money and controlled market growth, being overly bullish on the stock market is cautioned against, with the possibility of a year-end rally fueled by buybacks and potential market reaching 4,500-4,650; while oil prices may impact inflation, the Federal Reserve is not concerned but prolonged high prices could have negative effects on the economy.
  • In 2021 and 2022, despite massive stimulus and support, the market steadily rose in a controlled manner, with small dips along the way, due to gradual influx of money rather than an immediate impulse.
  • The speaker cautions against being overly bullish on the stock market, emphasizing the low probability of a year-end rally, while also highlighting the importance of paying attention to market trends, sentiment, and earnings estimates.
  • Stock buybacks entering blackout period may cause short-term market volatility, but once earnings season begins and buybacks resume, it could potentially fuel a market run to the end of the year, with the possibility of the market reaching anywhere between 4,500 and 4,650.
  • Oil prices have risen significantly, which may impact inflation, but the Federal Reserve is not concerned about it and expects inflation to decrease due to mathematical base effects.
  • Oil prices have a small impact on overall inflation, and the Federal Reserve excludes them from policy decisions, but if oil prices were to rise significantly and stay high for a prolonged period, it could have negative effects on the economy and economic growth.
  • Oil prices do not have a significant correlation with inflation over time, and when there are spikes in oil prices, it tends to create economic problems, but energy companies respond by drilling more oil.
• 34:45 Interest rates and bond market performance are discussed, with the belief that rates have peaked and may come down by the end of the year, but the return of bond vigilantes and negative bond returns for three consecutive years are unlikely.
  • The speaker discusses the difference in timing regarding the outlook for U.S. treasuries, with one person waiting for the right time to extend and the other already extending their bond portfolio.
  • The speaker discusses their portfolio allocation, with 40% in bonds and the belief that interest rates have peaked, leading them to shift into 20-year treasury bonds at a rate of 4.5% for better portfolio returns.
  • If the world demands higher interest rates on loans, economic growth will slow down and interest rates will eventually come down to reflect the negative impact on the market.
  • The Bond vigilantes, who have been anticipated since 1980, have not returned despite the largest change in interest rates in history, suggesting a potential financial event or recession.
  • Since 1787, the bond market has never had negative returns for three consecutive years, making it highly unlikely for it to happen this year or for four consecutive years.
  • Interest rates are currently reflecting wage growth, inflation, and economic growth, which may result in lower bond prices and lower rates by the end of the year.
• 42:41 Interest rates are being artificially suppressed by central banks to prevent damage to the economy and financial markets, but this intervention cannot be sustained indefinitely, leading to concerns for the future.
  • Interest rates should reflect economic growth and inflation, but currently they are not due to central banks stepping in as the sole bond buyer to prevent damage to the economy and financial market.
  • The Federal Reserve stepped in to create a new funding facility in March to address instability in the banking system caused by interest rate hikes, and if interest rates were to rise significantly, it could lead to a financial crisis similar to 2008, requiring the government to buy bonds to suppress rates, and the Federal Reserve would have to monetize a significant amount of debt to keep interest rates at functional levels.
  • The speaker discusses the similarities between the US and Japan in terms of debt, economic growth, and interest rates, suggesting that both countries are heading towards a lower interest rate environment maintained by central banks to support the economy.
  • Central banks, including the FED, will continue to intervene and buy more debt due to the debt situation, as politicians do not want a weak economy and will not pursue austerity willingly.
  • Interest rates are likely to remain low due to the impact of debt on economic growth, and central banks will continue to intervene to suppress rates, but this intervention cannot be sustained indefinitely.
  • The speaker discusses the long-term impact of the current economic situation and expresses concern for future generations.
• 56:44 The era of financial capitalism is ending, potentially limiting opportunities for future generations due to debt; potential drags on GDP growth in Q4 include student loan payments, government shutdown, and reduced auto production; money market inflows continue to hit new highs, indicating unresolved banking crisis; truckload carriers believe bottom of cycle has occurred in shipping industry; concerns of housing market similarities to 2007 bubble; distortions in housing market due to high prices and low down payments; bleeping out language in video to comply with YouTube guidelines.
  • The era of financial capitalism is coming to an end, which is unfortunate because it made America the wealthiest economy in the world, and the speaker feels sorry for future generations who won’t have the same opportunities due to debt; additionally, potential drags on GDP growth in Q4 include the resumption of student loan payments, a government shutdown, and reduced auto production from a potential strike.
  • Money market inflows continue to hit new highs and banks are still tapping into the rescue program, indicating that the banking crisis is not resolved and capital is still fleeing banks due to the higher returns offered by money market funds and t-bills, which will only change if the Fed cuts rates or interest rates decrease due to an economic slowdown.
  • An increasing number of truckload carriers believe that the bottom of the cycle has likely occurred, indicating a potential stabilization and recovery in the shipping and distribution industry, which may be a return to normalcy after the abnormal increase in activity caused by stimulus and the pandemic.
  • The speaker discusses the concerns of a mortgage lending industry worker who has observed similarities between the current housing market and the 2007 housing bubble, including bad decisions, speculative building inventory being held off the market, and a potential flood of inventory in the coming years, challenging the belief in a housing inventory shortage.
  • Selling homes when prices are high and allowing low down payments on mortgages are causing distortions in the housing market and preventing home prices from aligning with inflation.
  • The speaker explains that they have been bleeping out certain language in the video to comply with YouTube’s guidelines and avoid penalties or de-platforming, but they assure the audience that they are not trying to censor or restrict the speaker’s expression.
• 01:12:11 Experts in the financial media industry are shifting towards online platforms to express their ideas and analysis, while the speaker discusses their portfolio adjustments and the importance of personal platforms in promoting their business.
  • The speaker discusses their recent portfolio adjustments, including selling Coca-Cola and buying Apple and Procter Gamble, in an effort to decrease the number of holdings and increase the weights in their portfolio.
  • Experts in the financial media industry are increasingly turning away from traditional platforms like TV and towards online platforms that allow them to fully express their ideas and analysis, as they find it more beneficial for their business and believe it provides true value to the audience.
  • The speaker discusses their personal experience with media and how they have found more success in promoting their business through conferences and their own platforms rather than national media.
  • Henry Blodgett, a former analyst for Wall Street, was banned from the financial industry due to his calls during the 1999-2000 market crash, but he went on to found Business Insider.
  • Valuations of companies were stretched to unprecedented levels during the late 90s and early 2000s, and analysts who spoke out against the overvaluation received death threats, while the SEC only intervened after the market bubble burst.
  • Missed Enron, Worldcom, Lucent, Global Crossing, and the financial crisis; now in a mini AI, platforms like this are part of the future of media.
• 01:23:37 A new channel dedicated to unbiased market commentary is being considered, with the goal of providing valuable information and opinions about the stock market, while CNBC is criticized for its bias; the importance of the upcoming FED meeting is discussed.
  • The idea being considered is to create a new channel dedicated to market commentary in order to provide more in-depth coverage of daily market activities.
  • The speaker discusses the possibility of creating a new channel to provide more focused and valuable market-related information to interested viewers, and encourages audience input on the matter.
  • CNBC is biased because most of the people on the channel are paid advertisers, so it would be beneficial to have a channel with unbiased technical analysts who can provide honest opinions about the stock market.
  • There are many informative things that could be done to help people manage their money better, such as televising portfolio meetings and creating channels on financial planning.
  • Tickets for Wealthian’s online fall conference are still on sale at a discounted price, and it is recommended to work with a professional financial advisor who can create a personalized financial plan and take into account macro issues.
  • The speaker discusses the importance of the upcoming FED meeting and expresses uncertainty about what will happen next week.