Joining us today on the Chicks on the Right podcast is none other than our
friend and sponsor, Zach Abraham, chief investment officer at Bulwark Capital Management.
And you were telling us some stuff before we even started recording that was brains
explode, there's tea, and so we were like, please stop talking.
We've got to say this. Everybody needs to hear this and go okay.
So so we'll start it off with this. And I think that this is
so important for retail investors. And when when I say retail investors, I
mean anybody, I don't mean that in a pejorative term, right retail,
you know, people look down on it. There's some really good retail investors
that you know, invest their own money. But watching what retail investors do
is a very big signal for us in any other institutional money manager. And
the reason why is historically, retail investors are wonderful contra indicators, okay,
meaning when you see records selling from retail. So if retailer just in their
dumping stocks about ninety five percent of the time, that's a bottom okay,
it's a wonderful time to be buying. Conversely, and if we think back
to the tech bubble of nineteen ninety nine, right where you couldn't go to
a cocktail party or go to somebody's barbecue without talking about the hot new tech
play that they were in. When we see peaks in retail investor sentiments,
so they're very aggressively purchasing stocks. That typically coincides with either cyclical or secular
tops, meaning it's it's either you know, a top for a short period
of time and the market's going to correct, or it's the top of a
cycle. Right, and we all know this, you know, anecdotally,
people get the most excited about buying stocks when they've gone up the most,
and people get the most demoralized about buying stocks when they've gone down the most.
Right, we think inversely to what we should, So we pay very
close attention to these indicators. And we've talked a lot about how expensive this
market is, right, how interest rates are going up, bad things are
happening in the economy, and stocks keep going up and valuations get stretched.
Well, some really interesting data came out the other day that in this so
far in this quarter, you are seeing record inflows. So as in retail
investors have never been more aggressively purchasing stocks than they have been this quarter.
Now at this same time, let's contrast that with what's happening on the other
side of it. We got a report out every single year anybody that every
single quarter, any manager or company that manages over one hundred million dollars has
to file something we call a thirteen F which they have to report what they
bought and sold that quarter and what they currently own. And we keep a
big eye on that, like, for instance, Warren Buffett or Stan Druck
and Miller, those are guys who we watch. They're thirteen apps, part
of our process, part of our research process, to just see what some
of the greatest investors in the world are doing. Right. So, in
the same quarter that retail investors are buying more aggressively than they ever have,
the news comes out that over the last twelve months, Warren Buffett has been
a net seller of thirty billion dollars in stock and currently has a record hundred
and fifty billion in cash sitting on his balance sheet. What does that mean,
Well, so what it means is that he has a hundred and fifty
billion dollars sitting there in cash, i e. Short term US government bonds
waiting to buy something. Why isn't he buying things right now? If you
don't see Warren Buffett buying things when he's got a lot of cash on his
balance sheet, it's because he thinks they're ridiculously expensive. He does the opposite
of what retail investors do. When things get stupid expensive, He sells them.
He actually, he and Charlie Munger, his long term partner, they
have a saying, which is, we want to buy things when nobody wants
them, and we want to sell them when everybody can't live without them,
right, So they are doing when you see those court Now, look,
all of this is anecdotal, and Buffett has been wrong before, right,
But when we're sitting there talking about how ridiculous this market is, in contrast
to the backdrop, all of these things are lining up. Right. You've
got the most deeply inverted yield curve of all time. Whenever it's been like
this, you've had a recession within twelve to sixteen months, And we're right
about that twelve to sixteen month point from when the curve invertic. If we're
at the top of the cycle, we would expect to see record inflows from
retail check. We would expect to see really seasoned investors like Buffett, and
we would like to I'm not putting ourselves in Buffett's category, but there's a
reason why we're sitting on about twenty five to thirty five percent short term treasuries
too. Why these prices and market moves make no sense. Okay, companies
who are losing increasingly more money. Their stock is going up increasingly fast.
Okay, So you just look at all of this stuff, and what I
will tell people is that look, and this isn't just the overall market.
There are some cheap things that I think need to be in people's portfolios,
ie the stuff that warn't. And Buffett has actually been buying. The only
thing he has purchased over the last sixteen months, essentially in a meaningful amount,
is energy companies Exxon and Occidental Occidental Petroleum. So ironically, that's the
only stuff we've been buying too, Because as crazy as these other prices are,
you look at a lot of that stuff that benefits from inflation, and
it is generationally cheap. It's so cheap it doesn't make any sense, right,
So you just have this crazy market that I think people just believe that
tech stocks can't lose and that's how they're going to get rich quick. And
they're being price agnostic, meaning they're not paying attention to the underlying fundamentals companies
that are losing money or excuse me, not losing Like Apple isn't losing money.
But Apple's back to an all time high and an all time high valuation.
This is coming off the first period in twenty years where they've had three
consecutive quarters of declining earnings and revenue and rates are going up. Right,
So to us guys, these are the kind of things that you see at
the end of the longest ball market in human in US history, the biggest
bowl market in US history. Every time things went down over the last for
fifteen years, right, the only way you lost was but by not buying
the dip. So is there going to be I keep hearing the term thrown
around soft landing, which sounds very nice. So what's your take on that.
Are we gonna crash and burn or is there going to be a soft
landing? Yeah? So I think the soft landing thing is hilarious. I
remember the same terms being thrown out in two thousand and eight, Right,
soft. Yeah, not at all. And here's and here's why we think
now look full caveat and I think this is just a lesson to everybody listening
right now. Anytime you hear me or anybody else that does this for a
living, tell you what they think. Know full well that me and anybody
else you listen to does not have some secret information and does not know the
future. Right. So I can be wrong too. But when we look
at a soft landing, I actually, on the face of it, find
it ridiculous, okay, And the reason I find it ridiculous is the whole
idea of a soft landing is the economy slows gently and it allows the FED
to cut. Okay, well, why is the FED gonna cut if nothing
bad is happening? Everything it's bad, Everything is happening that's bad right now,
And they keep raising rates right right And the reason and the reason they
keep raising rates is due to what we call the leg effect, meaning this
happens every cycle too. FED starts raising rates, everybody freaks out for four
to six months. Then they kind of pop their heads up and go,
hey, nothing really bad is happening, the coast is clear, and interest
rate hikes never hit the real economy. It takes twelve to sixteen months for
them to filter through. So we're right at that point now. And the
other part of it is it just fits all up anecdotally. We look at
record retail exuberance about buying stocks is occurring right as the impacts from higher interest
rates are starting to show up in the economy. I'm just waiting for the
interest rates to stop rising. Well, they're We're probably close to it right
now. I just said that they were going to do another one, and
I'm like, they may on the margins, right, but I mean,
if they throw another twenty five basis points at it, what's the difference.
It's twenty five BIPs, So it's not going to really matter. Here's the
other thing that I don't think people are realizing economically. If the Fed cuts
fifty to even a hundred basis points, it'll probably make the short stock market
go up in the interim, but it really isn't. And it might bring
mortgage rates down a little too. But other than that, it's not going
to really do anything positive. And the reason for that is is the biggest
wind economically that's provided through lower interest rates is the ability it provides consumers and
corporations to refinance their debt at lower levels. Okay, well, if the
FED cuts one hundred basis points, which would be a very large cut,
you're still way above where we've been for the last fifteen years. So it's
not going to trigger any refinancing because that means you'd be going into a higher
rate. Right. So this is our whole point is we think the FED
will cut aggressively, but not until bad things start to happen. And if
you want to see an example of that, just look at every recession for
the last forty years. Does the FED cut, Yes, but it's usually
after something breaks, Right. The FED is reactive. They're not predictive,
right, They're not getting out ahead of things, so they're they're a totally
reactive body. And so yeah, I just and when you think of it
that way, it's to me the whole and to our analysts and everybody that
we've got here, I just think it looks like a very It's like a
children's story, right, a soft landing. It sounds nice. Is it
going to happen? No that the Fed's never pulled it off before, right,
So I mean, you know, could that could that pig grow wings
and fly off the farm? I suppose it could. I'm not gonna say
it's impossible, but it's never happened. So that's that's that's the way we
view it. And I think that's just a lot of stuff going on right
now is people are looking at data points that line up with what they think,
and I just don't think people are being very realistic about what we're up
against. That's great, It's always such an uplifting conversation with us. Yeah,
I really, I know it's like, but there is hope here.
There is there is silver lining right first of all, And I'm not just
trying to pump the way we do things, But first of all, we're
looking at all these we're looking at all these great clouds. You can make
more interest now taking zero risk than you've been able to for sixteen years.
Here's the other thing. There are great bargains out there, you just need
to know where to look. And here's the other thing. If we manage
risk properly, market downturns become opportunities because we prepare for it, and then
we can step in there and buy great assets at cheap prices. So you
know, we tell all of our clients. Look, one of the reasons
we manage risk and we're constantly looking at protecting your downside is because that means
we'll have the most amount of money when things go on sale and so market
devastation, we'll equal our opportunity. And I'm not gloating about that, right,
but we've got to do what's best for ourselves and what feels, you
know, what's the most responsible with our money. And so I think I
think the upside is you're getting paid more to wait and be conservative now than
you have at anytime over the last seventeen years, and we're probably going to
see some phenomenal buying opportunities over the next year to two. So look at
that. Okay, that's good. Yeah, I can pull a Warren Buffett.
Yeah. Well, And unfortunately, the stuff that I think looks really
good over the next five to ten years is the stuff that nobody owns.
They're all loaded up on video and AI and ARC and all this tech stuff.
It's grotesquely and ridiculously overvalued, and they're probably gonna get smashed unfortunately.
Yeah, yeah, makes sense. This is the complete the kind of good
information that we always learn from you, and that everyone else can too if
they just go and check out your website tell people where to find you.
Yeah. So, and we actually just started a new one too, so
yeah, easiest place to find us is Know your Risk Radio dot com or
Bulwark Capital Management dot com because we do our weekly show that airs on Saturday,
and then we've just started an extension to that show, so if you're
a subscriber to the podcast, you'll get this automatically. So we put out
this every day. It runs about ten to fifteen minutes. It's called Daily
Dots, and it's just a condensed down version of everything important that happened in
the world of finance, investing in markets and economics that day and the whole
idea. Yeah, it was just to make a simple easy people on the
ride home can get a download of everything that happened of importance that day in
a short, concise manner. So that was fantastic. Yes, everybody should
check that out. That is awesome, Zach, Thank you and thanks has
always forgiving us an update and having a happy ending. That was really really
important. Yes, hey, there is hope, right. If favorable what
is it? Opportunity favors those who are prepared, and I think it's just
a wonderful time to get prepared, all right. Love it, good message,
Thank you Zach. Appreciate it. App