Speaker 1: Welcome to another edition of the Chicks on the Right
podcast where we talk to our friend and sponsor of
the show, Zach Abraham from Bulwart Capital Management. Zach, it's
been a very busy week in the financial market world,
and on Monday we saw stocks and the Dow and
the NASDAC tank and then a bit of a recovery
on Tuesday. What is your prediction for what's next and
how should we be feeling about all this?
Speaker 2: And what are we calling it? We're calling it the
Kamala crash, right.
Speaker 3: Yeah, yeah, So, first of all, we've been talking about
so I kind of think you need to look at
this from a couple of different angles, right, So, we
were prepared for this. We had raised a lot of
cash and even had some short positions, which for what
that means is stuff that goes up when the market
goes down. Nothing crazy, but the way markets work. And
it's always funny to me because people always cheer market
dysfunction when it's working in their favor and they forget
about the flip side of it. Right. So, right, so
we were looking at this record divergence unlike really anything
we've ever seen in history between the popular tech names
the NASDAC and virtually every other index. Right. So, and
why that's a tell is because if you have and
everybody's like, well, AI, and you're like, okay, but why
is AI so popular? It's so popular because everybody believes
it's going to transform the world and we're going to
do things with robots instead of you know, people from
now on. So if AI is what everybody is making
it out to be, then the whole market should be rallying,
not just that one group of stocks. Right. It's kind
of this underlying thing that doesn't fit the narrative, right
where you're like, wait a second, And those are kind
of tells you look for where if something is so
benefit for this that it's you know, you in that
AI run up alone, those tech companies just off that bump,
you know, you increase the value of the stock market
by like three to four trillion dollars. Okay, So if
that's possible, then that must mean that those companies are
delivering that level of value to the overall economy. So
why aren't other companies rallying with it? Right? So that's
kind of a tell. And then you looked at how
extreme that got, like everybody was virtually selling everything they
owned and piling all of their money into Nvidia and
these AI type stocks. Well, markets are like a boat,
so when everybody gets on one side of the boat,
it becomes unstable and pretty soon people are going to
start running back to the other side. Right, So a
it was something that we knew had to happen. You
couldn't just keep loading up in this one sector without
seeing things slashed back to the other boat. So that
part of it, to me, is just mechanical. The other
interesting part about that is that this market is still
partying as if everybody's seeing stimulus checks and everything is
growing great. Now. I think the people out there saying,
oh my god, the economy is in free fall now,
and that was the first salvo. That also isn't true.
But you know, if you look at the economic numbers
just on balance, they don't look bad. They're slowing, you
see signs of economic weakness. But where I think the
breakdown is is it's not that everything looks horrible and
stock market's about the crater. But if we look at
the underlying data of the market, we look at earnings trends,
revenue trends, price, and reality have just gone in the
opposite direction. Right, this market is still priced even now
after the turbulence we've seen this week, it's still priced
as if we're in the go go days coming right
out of COVID, and we're not. It's just not at
all cost. The living's gone way up. You're seeing employment
fall down, job openings down deeply. You're seeing substantial wage
decreases for construction jobs. Right. You're seeing all the signs
of a slowdown. And it doesn't appear to me that
investors really want to take those signs. So, you know,
I think that there's and and that's always the case
in markets. It's so funny. It's like politics in life. Right,
everybody wants to pick out a silver bullet and go, oh,
this is what that means, or this is what happened,
And it's just never that simple.
Speaker 1: It's it's but are we in a recession or not
at all?
Speaker 3: No? I mean so by any and all definitions. No, okay,
but that doesn't mean like we were talking about, we
also need to take into consideration that the numbers we're
dealing with here. So you know, and we've said this before,
but if you think back to eight oh nine, the
Great Financial crisis, right, biggest financial issue that we've had
in this country since the Great Depression. That whole nasty
sequence carved three point eight per sent off of gross
domestic product. The government is currently spending six and a
half to seven percent of the size of the economy
in deficit spending. So I think what you're going to
continue to see is things that look very recessionary, right, Like,
for instance, I think if you look at manufacturing, I
think it's a really hard argument to make that manufacturing
hasn't been in a recession for the last twelve to
sixteen months. I mean, the numbers are recessionary. You look
at other sections of the market, especially those that are
more closely positioned to all the spending coming out of Washington,
and they don't look recessionary, and so I think you're
kind of in this in between area. That on the
concerning side to me though, would be the turbulence. One
of the most concerning signs I thought I saw this
week personally was the incredible turbulence you saw on the
price of the yen dollar swap, so the value of
those two currencies, and then the nie k, the Japanese
stock market being down twelve percent in a single session.
That could be a byproduct of what was going on
in our markets that imbalance. But we were just having
our investment meeting and one of the things I closed
the meeting with was, Hey, everybody, everybody in the general
media is going, oh, you know, the panic of twenty
twenty four is over. Get back in there and buy stocks.
And I'm sitting there going, eh, you don't usually see
major indexes like NIEK dropped twelve percent in a single
day for no reason.
Speaker 2: So you would tell, would you? So you would tell
somebody like if I were I just didn't look at
anything yesterday when it came to stocks or anything like that.
I just didn't look because I mean people like us
were just like I just don't la la la, right, okay, right,
So look because you think, okay, I'm just going to
ride it out. Is that what you would tell somebody
like us, Like you would just be like, okay, just
don't worry about it. Just everything ride out. Nothing to
see here, nothing to be concerned about. It's gonna be fine.
Everything's gonna be fine. Is that?
Speaker 3: No? Not at all, Not at all. And I'm not
saying this to be hyperbolic at all or even talking
my own book. But what you saw just happen is
something that we've been talking about for almost a year,
which is everybody in their mother think back to the
tech collapse in late nineties, think back to eight oh nine.
Everybody was loaded up on banks because how could you
go wrong? Okay, well what is that today? It's the
big tech companies in the AI play right, Well, what
you saw and the what the what lesson? And this
is what we've been talking about now for six months
in our in our inflation seminars that we're doing and
all that saying, guys, you are historically overweight the most
expensive stuck stuff stuff in the market, and you are
historically underweight virtually everything else. At the very least, you
need to balance out your portfolio because you are. And
look here, I feel like the message that everybody needs
to learn. Okay, Apple, it's safe, right, buy Apple. It
can't go down. Did you see what Warren Buffett did
over the weekend? He sold over half of it? Okay, well,
you guys have heard me griping constantly about how Apple's
price is a joke, their growth is stalled out, and
that multiple on the stocks blown out. I just think
people are ignoring a lot of normal warning signs. Yeah,
everybody goes, why did Buffett sell Apple? Why do you
think it's why he sells everything that gets too expensive?
Like you're selling a company that has zero growth over
the last eighteen months at thirty five times earnings. I'd
be hitting that bid all day long. As a matter
of fact, we sold out of the last of our
Apple last Thursday for the same reasons, right, like the
other thing, And this is the part of it where
you know, you don't ever want to be dominated by
greed or fear, But I think these investor changes in
the way people are positioned should be sponsored both by
fear and greed. Meaning not only has this stuff gotten
to a point where it's really hard to justify the
price based on you know, what's really going on underneath,
But the flip side is is you look at a
bunch of stuff on the other side of the market.
It's just been completely ignored because everybody and their mother
is levered up to their gills and this tech stuff, right,
So I don't think it's just about avoiding disaster. Here's
the other thing that nobody's really thinking about you're about
seven percent away. If the market pulled back another seven
to eight percent, you'd have a market that was flat
over the last three years. Wow, right, nobody. You don't
hear anybody saying that, right. There's still this attitude of oh,
you can't lose in the market and get in there
while the getting's hot and all that. And I'm sitting
there going, eh, guys, you got to You got a
market that's trending sideways. And what that usually tells you
is you have too much exuberance priced into a market
and the underlying reality isn't keeping up right. So that's
that's the that's the issue you've got. And I think
in an inflationary period of time, which we are most
certainly dealing with, a portfolio that isn't growing is a problem. Now.
What's one of the ways. There's a couple of ways
to get to get around that. A have stocks that
actually pay you to own them right by way of dividends.
Right where think over the last three years. If I
have a stock portfolio that's flat too, So let's say
it hasn't outperformed the market, but it's paying me six
percent dividends. Now I'm up twenty percent over the last
three years on a compounded basis as opposed to being
flat right, Well, how many people do you hear run
around talking about dividends nowadays? Nobody? Right, They talk about
how they just triple their money in Nvidia and all
this kind of stuff. And it's just one of those
anecdotal signs too of what should you be buying in
the market. You should be buying the opposite of what
all your buddies are talking about. And nobody's talking about
their big dividend pair, you know what I mean.
Speaker 2: Everybody needs a Zach that's done right, and they need
to They need to be paying attention to you on
your radio show.
Speaker 1: They need to be going to your seminars. Tell people
how they can find you and do those things.
Speaker 3: Yeah, pretty easy to find I me. You just google
Know your Risk Radio or Bullwork Capital Management. We do
our daily show twenty to thirty minutes updates of everything
important that goes on in the markets, in the economy,
and politics as it relates to finance, and then we
do our weekly show. Got a great a great interview
coming up this week with a PhD economist that worked
at the Treasury, but also has run a hedge fund
and got some really interesting insight into what's going on
on a policy level and things like that. So it's
gonna be a little wonky.
Speaker 2: But good stuff.
Speaker 1: All right. Well, thank you as always, You're always helpful.
Speaker 3: Thanks, all right, thank you, ladies. And by the way,
my wife has really been loving your content. She's she's
laughing out loud multiple times a day following your Twitter feeds,
so love it.
Speaker 2: Glad to have her. Yeah, that's awesome.
Speaker 3: Yes.
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Speaker 3: In