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Speaker 1: But if oil prices stay above one hundred dollars and

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now it's three months later, then the impact on economic

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activity not just in the US, but globally because there

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are other countries that are more dependent on energy coming

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out of the Middle East.

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Speaker 2: You are listening to Carrie Letz's Financial Survival Network, where

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you get valuable information you just can't find anywhere else

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to thrive in today's trying times. You need the Financial

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Survival Network now more than ever. Go to Financial Survivalnetwork

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dot com and get your free newsletter and gift. Financial

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Survival Network now more than ever.

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Speaker 3: And welcome you are listening to and watching the Financial

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Survival Network. I'm your host Carrie Let's Today with Us

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is Jim Welsh. You find him at macrotides dot com. Jent,

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it's great to have you back on the show. So

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we got a war going on. It's definitely having unintended consequences,

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not necessarily unexpected. What does it mean for what we're

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looking at here?

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Speaker 1: Yeah, Well, the amount of time I think is a

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critical component carry If oil prices are above one hundred

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dollars for a couple of weeks, you know, I think

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you can kind of look through that impact. Financial markets

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will respond as we saw early Monday morning. But if

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if oil prices stay above one hundred dollars and now

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it's three months later, then the impact on economic activity

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not just in the US but globally because there are

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other countries that are more dependent on energy coming out

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of the Middle East. For instance, Katar declared a force

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masure on all their natural gas shipments. Well, Europe depends

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on that natural gas somewhat significantly, so to me, the

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element of time is going to be the most important component.

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The longer this lasts and sustains higher oil prices, we

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will see the economy got dented a little bit. But

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Europe Asia even is probably more vulnerable than we are.

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A In two thousand and eight, when oil went up

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to one hundred and forty seven dollars a barrel, we

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were producing five million barrels a day. We're at like

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thirteen eight point eight million now, so we're more insulated.

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The energy content of oil and energy impact on GDP.

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In the nineteen seventies it was eight percent. It's now

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down three percent. So the increase we've seen is pretty

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significant percentage wise. But people, you know, may not be

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as familiar with what happened in the nineteen seventies. In

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nineteen seventy three, oil went from three dollars a bit

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old to twelve, and by nineteen seventy nine wound up

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at thirty nine.

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Speaker 3: Barrel dollars a barrel.

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Speaker 1: That was a thirteen hundred percent increase. So if you'd

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adjusted for the energy content and all the rest, you know,

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oil would have to be probably close to one thousand

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dollars to equal what happened back in the nineteen seventies.

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And you know, could it get to one hundred and

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fifty of course, that's where it was in two thousand

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and eight. I'll be leaving a little bit higher if

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things are more protracted and we actually see some production

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damaged significantly in the Middle East.

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Speaker 3: Yeah, and we don't know how long it's going to

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go on for. I think you know, war as always unpredictable,

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as we found out only too many times in the past,

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haven't we. Yeah, So how do you play this defensively?

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You're going to be in treasuries. Precious metals don't seem

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to be responding to the panic like we would ord Nearrow.

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Speaker 1: Where you expected until Yeah, in terms of precious metals,

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and I sent you a piece and there's a chart

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of gold in that piece, And basically when gold got

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to fifty five ninety five and then subsequently dropped almost

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twelve hundred dollars in about four or five days, to me,

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that was the beginning of a correction that was likely

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to last months and months, and the rebound then was

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a natural rebound. After that big of a decline, the

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gold traded back up to about fifty four to nineteen,

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I believe. But my take in the last week has

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been is we're going to get this rebound and then

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I think we're going to see it roll over again

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and drop below at least forty six fifty six, and potentially,

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as possible, we could see a retested at forty seven

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h seven low as well. So I'm not really completely

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surprised based on the chart pattern, the fact that you

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had kind of a parabolic move move up into that

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fifty five ninety five high where it was going almost vertically.

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Typically to unwine that level of bullishness, you need time

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or price erosion. So if it's going to be time,

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we're talking many months price erosion, maybe drops all the

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way down to thirty eight hundred to four thousand, right

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right now, all I'm reasonably confident, Carrier is I think

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we're going to see gold drop below forty six fifty.

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Speaker 3: Six really, so where will silver go? Then?

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Speaker 1: Maybe sixty five really could be.

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Speaker 3: It'd be I've heard it's low as fifty four. But

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but you think the bull mark it's still on and

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this is just direction.

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Speaker 1: Yeah, I'm glad you raised that question, because gold bottomed

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in December of twenty fifteen at one thousand and forty

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six and then rallied to two thousand and seventy, then

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pulled back to six teen sixteen in September of twenty

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twenty two. The rally from that level to the fifty

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five to ninety five, I think is Wave three. We're

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in Wave four, and once this is concluded, we'll see

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another move to higher highs in both silver and gold.

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So I believe the bull market is intact. But I

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think you know, Wave two took gold down from twenty

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seventy to twenty seventy to sixteen sixteen. You know that

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was a twenty percent plus correction, so and it took

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quite a while. I mean, it took like more than

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a year I don't think we're going to take that

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long this time, but again, it just reinforces a the

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longer term trend I think is still positive. We're going

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through this pullback and I just think it has more

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to go.

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Speaker 3: Okay, let's talk about AI stocks. AI rop predicted the

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war almost to the other cycle investors out there nail

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this thing. Pack cycle starting right in mid March a

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week before isn't too bad. What do you think of

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AI in terms of the market, in terms of how

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it changes investor behavior, That's what I'm really interesting. Yeah,

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I don't really care about, like how wonderful investment thesis

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it is. The story's out, but change you as an investor.

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Speaker 1: Well, first of all, I think you have to separate

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the economic impact from how the stocks may perform. Economic

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impact is going to be fairly significant this year. We

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add up all the hyperscale spending plans for twenty twenty

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six and it amounts to about one point seven percent

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of GDP. So, no matter what happens to the stocks,

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the economy is going to get a fairly significant lift

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this year. It may will be less as a percent

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of GDP next year, but it's still going to be

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fairly significant the psychology behind all those stocks. Again, historically,

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you get new technologies and people bid them up beyond

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what's likely to happen in the very near term. And

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so to me, we're in this phase like the Internet.

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The Internet became everything people imagined in two thousand and

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probably more, you know, but there was this dip where

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she whiz didn't happen quite as fast as we thought

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it was going to happen. And I think we're in

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that mode where you're going to see a valley as

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people start to focus on and well, look at how

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much they're spending. It's going to be out of this world.

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To man, there's yere spending a lot of money oneer

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if they're ever going to really make our money on

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all that an investment return on all that spending, and

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we're kind of net phase now. Carry So I think

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there's more downside possibilities for AI stocks, AI related stocks

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that are going to be hit by that. So that's

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why you saw a thirty five percent decline in software stocks.

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The idea being as hey, people aren't going to need

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those guys, or need them far less because AI is

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going to replace a lot of what they're doing for us.

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So the ramifications are many. Ultimately, will there be job losses, Yes,

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there will also be job creation as everyone adjusts and

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adapts to this. When spreadsheets came out in the nineteen eighties,

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people thought bookkeepers and accountants were going to be negatively impacted. Yeah,

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and a few hundred thousand jobs were lost. But the

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net result was a lot of people learned how to

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use spreadsheets and make them a management tool, and more

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jobs than were subsequently created. So the transition is going

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to be bumpy. Carry at the end of the day,

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there's going to be dislocation, but I think at the

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end of the day it'll wind up being more positive

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than negative.

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Speaker 3: Okay. So as far as making you a better investor,

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I don't know if you played with AI, you're using

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it or not. How does that effect How does that

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affect the market? Because I can look up any stock

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anything I want to find out about it now, yes,

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and instantaneously. I don't got to go digging through k

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ones and you know all that stuff.

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Speaker 1: Basically it's at your fingertailer tips yep, yep. Well, I

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think that obviously more information helps people get up to

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speed more quickly understand what's happening better, more thoroughly. At

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the same time, you mentioned something about psychology. It's a

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huge component of investing. In nineteen eighty two, the S

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and P spe ratio was eight. By two thousand it

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was thirty three. Now there was a company that made

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a dollar. In nineteen eighty two, the stock was eight

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bucks and in nineteen in two thousand it was thirty

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three dollars. So the psychology shifts that take place are

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of extreme importance. Right now households have more money allocated

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to the stock market than any other time in history.

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Prior peaks well in nineteen sixty eight, well, what followed

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about fourteen years of crummy markets. Two thousand was another peak.

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What followed well about nine or ten years of crummy markets.

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So when you evaluations get stretched, it's a reflection of

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psychology being all in and the pendulum swings the other way.

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So to me, AI is all great, Kerrie. But you know,

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when we get to the point where people can understand

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the counter intuitiveness when everything's looking really good, then at

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some point in time it's going to be less good,

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and then it's going to shift to being not so

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good to bad. That's the way things work. So I'd

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like to think that the human understanding and component of

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the whole equation won't be completely replaced by AI.

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Speaker 3: Well, what you're talking about is like Thomas McKay of

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popular delusions and the madness of crowds. So, no matter

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what happens with tech, no matter what happens with the

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information in AI, human behavior is still human. Here. There's

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only two elotions on Wall Street, fear and greed, and

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depending what's going on in the world determines which one is.

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Speaker 1: Predominated in play right right. And the thing about greed

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is it can last for a while. As long as

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the underlying structure of the economy and whatever driving the

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current bull market remain intact. You can greed can last

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two three years, and sentiment can stay relatively high. In

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other words, fifty two percent of people are bullish and

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the Investors Intelligence Survey and now it's up to sixty

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percent and people are like, oh my god, we're going

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to top. No people need a reason to sell. This

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business is structured to be long only. Institutions buy for

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three to five years. Financial planners tell their clients, Hey,

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we're looking at it for the long term. Well, when

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things start to turn south and become less positive. People

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then react like a reason to sell. We've just seen it.

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Last year we had the increase in tearis that provided

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a pretty good increase or reason to sell. So that

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component always has to be factored in, and I'm not

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sure a lot of people really understand the importance and

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the dynamics of the reason to sell, because that dictates

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whether you have a three to five five percent correction,

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a ten percent correction, or wow, we're in a recession now.

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The S ANDP on average is down thirty six percent.

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So anyway, that's what I try to pay attention to,

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as well as technical analysis support levels. So we've seen

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in the last couple of months the SMP get down

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to sixty seven to seventy I think on four different occasions,

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and bounce each bounce carry went to a lower high. So,

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in other words, the springboard was losing gas and so

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on last Thursday in March fifth, I sent out a

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special report to my subscriber saying we're about to break

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sixty seven to seventy and when that breaks, the probability

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is then increased that you'll see the S ANDP drop

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to sixty five fifty because we now have a reason

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to sell. That's going to last for a while.

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Speaker 3: But in the final analysis, when we look at capital flows,

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it's away from Europe and Asia into the United States.

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That's kind of vailing. Forced to keep rates at least

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at their current rate. And yet the inflationary pressures are

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going to build if the price of oil stays up there.

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So it's a less major part. It is. Everything is

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energy now. The airlines, they're smarter nowadays. They hedge. Southwest

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was the one that started it, so their fuel prices

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are locked in probably for the next six to eighteen months,

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many of them. The rest of us we got to pay.

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Speaker 1: Gee, I didn't hedge my gas solam consump et.

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Speaker 3: Well, you could hedge it. This is like a little

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theory I created. You can hedge your electrical prices by

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buying key utilities. You can hedge. You can hedge your

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your energy consumption by buying petroleum companies, right because that

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on a spike on this so you really can hedge

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buying food companies.

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Speaker 1: Yeah, consumer staples are yeah. Well the other thing and

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it's a great point you're bringing out because even if

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if the market gets hit much harder than anticipated. At

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this point, those stocks will hold up way better for

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the very reason you're citing. You know, you need a

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lot of staples every single day. We all need to

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brush our teeth, we need to clean clothes, things like that.

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So it doesn't matter what's happening in the world. People

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that demand for that kind of stuff isn't going to

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change materially, which is why those sectors do well during it.

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One thing we're going to point out, all the hyper

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scale spending is going to erode the free cash flow

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that they have for things like stock buybacks. So over

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the last four or five years, stock buybacks from these

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Microsoft and Google and Apple, oh yeah, you know all

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of them, Meta so have been very, very big. Well,

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now you know, two or three years ago, all this

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spending was about thirty percent of cash flow. It's up

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to ninety two percent this year. Jaried and we've already

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seen it. Last year companies started issuing debt. Meta actually

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did some debt transactions and kept them off their balance sheet.

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So my point is one of the biggest props under

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the market has been stock buybacks because they removed the

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amount of shares outstanding, and which has been a natural

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lift force, if you will. Underneath the market, they're going

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to change and be far less of a contributing factor

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over the next couple of years because the companies aren't

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funding all this spending as much through cash flow as

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they were three years ago.

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Speaker 3: All right, well, it's been an interesting conversation, more on

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the macro side than the micro side, which we always appreciate.

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Macrotides dot com go there, subscribe and I appreciate your

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coming on as always, and we will talk to you

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again soon. Questions comments for Jim, myself, klafcarrieluts dot com

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and Jim. We'll talk to you soon. Thanks, Carrie, stay.

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Speaker 2: Well, thanks for listening to Carrie Letz's Financial Survival Network,

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your solution to today's trying times. For the latest, go

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to Financial Survivalnetwork dot com. Financial Survival Network now more

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than ever