Jesse Felder: The Darkening Skies Over Wall Street – Ominous Signals for Investors
51:00 Share

We live in a fantasy role out. Reality has been destroyed. This is the time that we need to pay attention.

The probabilities are overwhelmingly on gold side.

That is the best environment to see gold increase itself. Welcome to palates. Gold radio.

I'm your host town, bojo s journey today is Jessie feller, founder, editor and publisher of the felder report. Got com. Jessica. Thanks for joining me today.

Always good to talk with the time.

Thanks for having me always a pleasure, Jesse. I think i'd like to start today by asking, you know if the inflation problem has effectively been addressed at this point and what data points might show us. Let's say this merage verses what reality is yeah .

well I think you know the question is, uh you know who sees this as a problem right? Clearly um you know american citizens see that as a problem and they they should have been a painful experience over the past you know three, four years um you know really sense the inflation took off as a result of you know massive money printing. Of course there were supply chain issues but you know the money printing um you know played played a big role in that um and I think the american people would say is still a major problem you know for them in their lives.

That was very interesting for me to hear a jay power when I asked the last fed meeting last week, you know if you going to have a period of uh above target inflation, does that make sense to allow for or detected try and get inflation below two percent for a period of times so that IT averages to they're they're so called target and um he very clearly said, no that is not their intention and so that I think that that was very uh you know maybe an under cited a part of that whole press conference is that yeah the fed has a two percent target the in twenty twenty one, I believe they they have changed IT to, uh inflation averages, age inflation. So at that point they were saying that you know, if they have a period of under target inflation, they would shoot to have the above two percent for a period of times. So that had averages around two, but IT doesn't work both ways, right? He made that very clear last week that yeah if they undershoot, we're onna try and overshoot.

But if they overshot, they're not going to try and undershoot. So essentially two percent now represents a floor or inflation, which is a major, major difference from what we've seen in years past. And so the fed is telling you, yeah, we're targeting two percent of lation, but we we really don't want to uh average to for any period time because really not going to let a gobble out. So I I I think from the fed standpoint, yeah, they're right in line with what they were try trying to do really when I close to two, but we don't really want IT below to we want you know to and change. And if IT goes back up again, we maybe will do something going to bring back towards to we don't really have any desire to kind of really bring you back down um so that sustainably around two and and I think so you know that's the fed saying, yes, we've we've rained in this inflation problem the way we see IT, but I think the rest of the world you know should look at that and say, okay, this is a fed. It's really cultivating an inflationary environment and what doesn't want to do anything to to kind of go against that or or uh uh you know not be supportive of us, uh um you know inflation that can can maintain above that level.

Well, I think it's interesting to consider, you know let's say what time frame they want to calculate an average of two percent over? If that was, if that was, let's say they are goal. And now with two percent being their floor IT seems like you know let's say maybe a soft acknowledged that they have now raised for all intense of purposes, now raise their inflation target in some ways, I think they are acceptable level of of inflation. That said.

yeah that I think that's absolutely reasonable to to to conclude that I mean you know as as thick points out on twitter all the time, the fees legal Mandate is zero person inflation. Now they've created this arbitrary two percent target. But now j POS telling us that they're not trying to average to, right? okay.

So then what is the two percent target mean? We want to try and bring you down near to right in that as you said, like you know, what he mentioned during the press conference was step okay, on a three months annualized basis were running in the low tools. okay.

Well, so now your target is uh is based on three month inflation, not twelve month inflation. I thought you know this. So they are kind of trying to look at all these different ways of saying, yes, we're very close to target. And the fact that they are willing to basically declare mission accomplish, that they they feel very confident that theyve done enough to bring inflation back down and that they're not willing to to train um undershoot to at all is very clear that yes, the the the idea of the inflation Mandate has changed.

So of course, we got another twenty five basis point cut at the november meeting. So considering financial conditions though, does the fed really need to be cutting more? Or are they do you think they're reacting to something else that isn't captured by the the market .

conditions as were I think what J. P. S. Trying to do is he desperately wants to try and pull off the soft landing, right? He he, you know, as stand dunk Miller, I recently said in an interview that, uh, no, the fed job really shouldn't be to try and and micro managed the economy, micro managed the unemployment rate, even micromanager inflation.

The the job, the friends of job, should really be to prevent us from running into major problems like the great financial crisis, like the housing, you know, housing bubble, like the dot com bubble, like this big burst of inflation that we've had. And so rather than focusing on preventing these kind of major things, the fact is very clearly focused on trying to micro O M mage the economy inflation and the unemployment rate in the short run, and that's where they kind of loose side of this these longer run um issues. And so I think that uh, you know that that's their big fault right now is is jpl really desperately wants to try for his own legacy to pull off uh, a soft ending in the economy.

So you know, that means that they don't want the unemployment rate to keep rising because typically that is a self, a positive feedback loop ate, uh, you start seeing layoff s so people get worried about losing their jobs. So they start spending less. So can't slows down more and more people lose their jobs and they kind of becomes a vicious cycle.

That's exactly jpl doesn't want on the unemployment side of the Mandate. That's why they are cutting interest strates. Um you know by the same token though, it's looking like inflation is kind of bottom ing in this you know mid the high tools range on core inflation, which is clearly to my mind, not anywhere near near their Mandate.

Um you know uh Michael ashton, you know an inflation expert that I pay close attention to, pointed out medium inflation and a lot of these things look like they are settling in in a much higher range in three to four percent. And so you know, that's that's a problem. But the fed is trying to thread the needle jape desperately.

I guess I wants to try thread the needle. He can feel like he brought inflation down enough, maybe not done to target, but not done well off its high and at the same time was able to prevent unemployment from really spiking higher. Now uh, whether they are able to pull that office open question at this point, but I think that's really why they're cutting interest strates right now.

But going back to let's a data points that can maybe show us more of the reality of the situation, what is the bond market telling us about where IT thinks inflation has had this? Well.

it's interesting because there's been a big divergence between interest strates and oil Prices. Uh you know over the last several weeks with uh you know interest strates shoot in higher without the oil Price. Typically these things are are highly correlated um because you know oil is such a big component of inflation.

Bonds are typically trying to Price inflation risks. So you have the bomb market saying it's worried about resurgence of inflation is how I interpret IT. Um at the same time the oil Prices are saying, you know IT doesn't really see IT uh at this point.

So um I I think that you know uh the other the issue um which could explain the disconnect between the two is just the amount of uh access treasury supply that's gonna coming under the market with a two trillion dollar you know annual physicals deficit. The supply of treasuries is just growing so so rapidly. So um that's also kind of in inflationary dynamic. So I think the bond market is telling you that, uh, it's potentially the bond market vigilantes is are starting to stir, starting to say, hey, we're worried about the amount of debt. We're worried about the fed that maybe is not as committed to raining and inflation and maybe there's just not enough term premium in the bond market to compensate for those risks.

So you know you point IT out earlier that you think the the borne market has basically bottom, possibly in this mid high. What do you see as the possible path forward? Foreign flag? Do we get something like the let the triple higher highs of the one thousand nine hundred .

and seventy in terms of inflation? Yeah, I mean, I I think we probably are in in a time period where we will see um inflation cycles, right where we'll see um and and know probably will closely respond, just like I did in the seventies to monetary policy. So fed was way too easy in twenty, twenty and twenty twenty one and that allowed for inflation to kind of go out of control to the upside.

Um I think it's very easy to argue today that the fat the fat is once again you know too easy or or you know not paying enough attention to the inflation side of the and so that leaves the the the door open to another resurgence of inflation. Um you know especially if we get you know bunch tariff s especially if you know geopolitical staff continues to heat up and oil Prices do do uh begin to rise again, is a lot of a lot of potential things out there that could uh stoke in uh resurgence in inflation. So I do think we are in an era, uh, where we're going to see belts of inflation that kind of go along with the monetary cycle. Um and so I know yeah fed zing today opens the door to another bout of inflation over the next whatever. Sixty.

eighteen months. Well, you know, you bring up an interesting point that the idea of terrifying and tax cuts, let's say, that the trump has has promised, how long would IT really take for, you know, any of those, any of those promises to actually be seen back in the in the fiscal side of the equation in the economy?

Mean, that's a good question, right? There's a lot of you know it's an open it's an open question as to you know what how much was just campaign rhetoric, how much actually you know is going to be implemented, how much this congress need to be involved in the implementation and how willing is congress to go on with the right? And we didn't see a red wave.

So you know there's a good possibility that a lot of IT could get past um I think one concern that I have and I think maybe you know markets aren't um this counting enough, is A A the potential for a liz trust type of uh moment in the bond market. So you know you get say you get proposed um uh Terry s and tax cuts and these types of things. The bond market could easily going to do what I did in the U K.

And start to Spike on the long end and say, you know and the market start to and especially with the fed continuing quantity tightening right now, reserves running down at least things you we're kind of heading towards you know a lot of these things uh or or um setting up to see uh you know potential revolt in the bond market. Um it's something that H A lot of people have warned about for a long time. Um you know I know that you warn buffett and stand drug Miller have avoided owning long term treasuries for this very reason.

Bill deadly, former head of the new york fed, has spent this whole year morning about the potential for um you know kind of a problems in the bond market related to that. So if you have a two train by physical deficit and then you're talking about cutting taxes in a significant way on top of that during an economic expansion, you might see the bond markets you know bond market vigilantes start to say, hey, hold on um you know this this is not a workable scenario. So you could have something like that, that even happens before the inflation impacts are are allowed of those policies are allowed to kind of even move forward um and and so that's something that I would kind of be keeping a close I on going forward.

So between these you know these these let take the market expectations or the market conditions um the possible bond market revolt. Are we poised to possibly get another lost decade here if you still invested in in bonds .

and the stock market? Yeah I think you know um tips tips are pretty interesting to me. And you know tips and the gold Price move pretty, pretty close to together. I think typically you know and I ve been on this this ban wag in for several years now. Um is that real assets look very compelling relative to financial ones.

Um you know just the the macro set up, the uh you know the the set up with the you know fiscal situation, uh all of these things point to uh making a great deal of sense to protect yourself with assets that uh are very uh scarce in terms of supply um and cannot be uh you know uh manufactured in any way. I like financial assets can I mean you can always go issue more stocks, you can always go some more bonds and um and and that's what we're seeing is the supply of financial assets continues to grow um and you cannot grow the supply of you know a lot of different commodities and things without investing heavily. We haven't invest in those things.

They're dramatically undervalued relative to financial assets too. So yeah, I do think we are this this period over the last several years represents a major um tidal shift, a regime change and whatever you want to call IT where uh you know the the outperformance of financial asset stocks and bonds has lasted for you know fifteen years and uh real assets are starting to our perform uh in in a very material way from twenty one to twenty three. We saw you know energy stocks for the best I mean they're still the best performing sector of the stock market even though this has been difficult.

Um you know the gold Price has done you know Better than the stock market this year and has done phenomenally well over the last know the number of years. And so I I think we're still in the early innings of that transition. And part of that is, is due to these the macro the change in the macro o environ environment, but also part of us just due evaluations, right?

Uh, financial assets are significantly overfed. Like I said, it's not much term premium in the bond market historically. We've seen the average you know term training significantly higher than IT is today.

And that's even in an environment, a disinflation or environment. I would argue in a new inflation regime, the term premium should be significantly higher. And bonds and now you have the stock market is the most over varietes literally ever been in history.

If you look at you know things like the buffet yard's stick uh or um you Normalize valuations for profit margins, extreme profit margins. We've never were more reliable today than in two thousand, the top in one thousand hundred and twenty nine, even on a forward P E. If you just look at forward Price earnings ratio, we're right at basically where we were at the peak in twenty twenty one and nearly as highs we were in two thousand.

So stocks are extremely expensive and the Price you pay determines the rate of return paying high Prices. And these are definitely your necessarily, by definition, going to get lower rate return going forward. So um yeah I think generally, um you know we could very easily have a lost decade for sixty forty portfolio stock in stock bound portfolio over the next ten years.

You mentioned tips and also warn buffer in there. Do you think he's really acknowledging the same reality by buying or having the highest cash position ever in version health way? Now that seems like a very defensive plate IT.

absolutely. I mean, if you look at is what three hundred and twenty five billion years and cash just I we see the biggest nominal terms that perches health way is ever had, but it's also the largest relative to the total asset, bertran total asset. So this essentially, he's never had more cash as a percentage of the portfolio than he does today.

So yeah, and I think it's very important to also point out all of that cash is not invested in treasury bonds, is invested in bills very short term, three, six months, you know, t bills. Why is that? I mean, historically, you look back in the late one hundred and twenty is the last time, you know, when vertues building of a cash position.

Then even in two thousand seven, a big, you know was the last time bertie had a cash position anywhere close to what IT has today. And he was buying in a bonds and he is going out in buying duration in the late ninety, he was buying zero coupon bonds baking. He essentially making a big bet that interest strates were gonna down.

Um he's not doing that today. He's staying short end of the hilt curve. Clearly, he's worried and I think he's written about this in in the last annual letter is worried about, okay, I do I want to take all the duration risk at a time when the fiscal situation is is potentially going in running out of control. And so not only is he extremely cautious towards the stock market by building cash, he's extremely cautious towards the bond market, didn't want to own any anything bonds of any significant urine at all, you could say, relative to financial assets. He's never been this cautious in his new half century long career, sixty year career.

Do you think it's possible that he's, you know, baby getting ready to shut down his successful firm if the markets continued to get even frothier from here?

I I don't think they will ever shut burch hathaway down. I mean he he's named a couple successor he's got um taught and ted who are basically the portfolio managers now and he's got CEO running the individual companies. So I I do think he's basically set this up to be a long term, a very long term uh uh you know business um I that you know they might pay out a dividend or something along those lines, but I do think the building of the of cash is what he's always used IT for. Like in two thousand five, he built up uh you know pretty big cash position and put that to work in two thousand and eight and two thousand and nine when he had terrific opportunities to buy things on the cheap. And I think that's exactly what is what is trying to do this time.

He wouldn't call in marketmen, but what he would say is when the equity market offers you, you know, when treasure bills offer five percent risk free rate to return and the equity markets not onna offer you, you know anything Better than that, then it's it's only only makes sense to keep your money in cash earning no risk you know four percent and change and waited for those opportunities to put that money to work when you can um you know have uh potential returns, you can recently expect returns to out outperform that uh risk free cash rate. You just I mean can't today, in fact, we look at some of the best my french john husband has put together the best single best measure of uh you know forecasting long term returns over a ten year period, twelve year period. And and um it's it's a measure that's very similar to the buffet yards to essentially kind of a Price to sales measure.

And right now it's forecasting negative uh, annual returns over the next ten years. So you know, when you look at that, the buff, the buffet yardstick is telling you probably gonna lose three, four, five percent year owning less and b five hundred. And I can get three, four, five percent and t bills. On the positive side, it's a no brainer to just build up the cash position, and that's exactly above I said at the last annual meeting, is we don't have any problem building up the cash position when equity evaluations are so rich and cash pays so much.

Well, the reason I asked was because I I have read an article that was saying that at one point he just didn't like the markets so much that he basically it's not that he closed but he basically shut the doors to yeah investment just because of the the clothes of the markets yeah .

I actually that was back in the uh in the sixties, he had essentially a hetch fund. IT was one of the early hetch fund was a partnership. But I had A A performer fee on IT so was very much like a huge fund.

And um what he did at the time was in in a sixty ine ish. I think he basically uh no couldn't find anything to invest in so he returned all the cash to his limited partners except for that cash that was invested in beta half way. Um and so you know that that became the um the the investment at that point. But he did basically shut down his hedge fund in one thousand nine sixty nine and uh and really just kind of close IT down to just just bircher became the the one the one investment so um yeah he's done that in the past where he he said markets are two fought y it's time to step back and and only who wrote about IT in one thousand eight ninety nine and two thousand one and fortune magazine that hey look, I don't want to sell my coca cola this is something I want to own for forever but uh IT probably doesn't make sense to be too heavily invested in equities at the moment. So I think he's at that same place today.

So because of that yellow, Jessie, is that why he doesn't? Or the the yellow that is getting on the on the cash, is that why he doesn't like gold? Because he doesn't offer that same type of coupon?

I think so but that's not um it's not deterred him in the past. There are times when when buffer t is owned a boat a bunch of silver uh actually in the late nineties he bought a bought a lot of silver um and I have been times in the sixties kind of he did the same thing when he was basically anticipating that the the the way that the federal government was going was uh inevitably going to debate the currency that makes sense to own those types of things.

Now I think it's very, very difficult for uh, you know bircher half way size to kind of make any commitments at all in the precious metal space. And so I think that's probably the biggest and why why he stays the way is like, you know he literally, you know, when you have three hundred plus billion in cash to put to work, it's it's very difficult to find opportunity ties. I mean, you know there are a lot of four thousand and five hundred companies see you would have to buy entirely uh, in order to kind of make any dent in his performance going forward. So uh, I think he's just too big now to kind of play in in, in certain markets.

You know, when I was reading about that in preparation for today, I was I was wondering if most people should not be really paying attention to the lessons for more and buffet, because of his firm size, because of his firm allocations. You know, this puts him in a very different place. Does IT .

not IT does um yeah absolutely. But I think that the underlying um philosophy, but behind what he does is probably one of the most important things for individual and best used to pay attention to. I I think one of the the um I guess um themes or uh new driving forces behind investing today is is especially misguided.

And that's um you know uh buy equities regardless of evaluation, right that's that's the passive investment. You know that putting your money into passive funds and set IT and forget IT this type of attitude um necessarily means they're gonna times when you are paying a uneconomic Prices, right? Um i'm going to be buying stocks like like I said today, if you were to use the buffet ards, stick to forecast returns.

You look at uh very likely going to see negative returns annually over the next you know average annually over the next ten years. Um that would you know us any basic investing methodology would teach you. Why would I want to commit capital to something that is likely to generate negative turns? It's almost like buying, uh, a bond with a negative yield, right, like we had a few years ago.

But at twenty, twenty, twenty, twenty one, there are a lot of bonds that had negative, negative interest strates. okay. Well, that that makes tough sense. Why I why would I buy those things? So uh, I think to kind of say that that type of uh, Price sensitivity, valuation sensitivity, something that investors should no, I I would disagree with that, but I do agree with with the sentiment that um you know there are um you know more opportunities available to individual investors and more things that uh you know potentially that uh are not at uh buffs fink tips.

You know like I said more about ve if you know can't really play the precious metal space, he can play in small caps, he can play and a lot of these different things as he just too big. Those theories of are open to individual investors who uh you know maybe see the great value and small caps today. Maybe we see that, yes, IT makes sense to have an allocation to precious metals and and these types of things um even if even if um you know warm but I can't uh can't do those things anymore.

Of course, since the election, we've seen golden and silver go down a you know reasonable amount here. Do you think that this is basically the the war premium portion of the gold trade coming out of the precious metals?

You know I don't know if it's the war for me. You know several weeks ago um I took down my precious metals exposure because uh you know for for a few reasons. One, the monetary cycle has been very a very clear pattern and driving the gold Price this cycle in the previous cycle. And uh when you over late, you you look at that is like a uh uh an analog, a Price analog.

Um go back and look at that uh you know twenty sixteen, seventeen two, twenty twenty one cycle uh in um you know the gold Price and we've essentially relived that over the last three four years where you had in uh twenty seventeen nineteen um you know jpl raising interest, strates gold Price, consolidating gold Price breaks out in anticipation of the power pivot in late twenty eighteen and from that point you know that is on an easy path we get the rio crisis in twenty nineteen and then cove IT hits and gold and shoot shoot re into the summer of twenty twenty twenty um and then peaks and right we've we had a belong consolidation from twenty twenty to basically twenty twenty three three years of sideways action in the gold Price. Now we had a very similar experience over the last few years where um you know gold Prices, like I said, peaked in twenty twenty and we're trading sideways til twenty twenty three dish when Marks started to um anticipate the gold Price started to anticipate another power pivot, right? So power said we're pretty much done hiking interest strates and gold Prices screamed higher.

We get couple of rate cuts. Gold Prices basically did again what they've did in in twenty twenty. If you look at that, that pattern, it's a very you know gold Price has responded almost exactly, you know, over the last years, as I did to the previous monetary cycle.

So that would suggest that you know based on just that, that analog that this Spike that we've seen is very similar to the twenty twenty Spike also from a technical standpoint. Um we had that period that I mentioned that twenty twenty and twenty twenty three was a very clear bullish flag pattern, you know uh in terms of technical analysis over that time period. So he had gold Price run up in salt and run up again and both of those run ups almost exactly seven hundred and fifty dollars in Price and I was almost perfectly no parallel move.

And so that would tell me that you know, you had to run up, you had a flag and then uh, projected target after that bull flag would be essentially, I mean, that technical analysis want to want you take that seven and fifty Price move, say gold should probably go up seven hundred fifty dollars after breaking out IT did exactly that so what filled the technical target? IT also fulfilled that monetary cycle target. And we also saw I managed money in the commitment trattes report, get extremely bullish um essentially kind of overcrowded positioning uh in terms of the at least in the futures market.

So of all those things you know to me said, okay, the the move might be over for a little while. That's not to say that I am barish at all. I still have a sizable you know gold position and I think that we're in a longer trimble market. But this this uh cycle of the of the global market might might uh have have run its course for a time and we might be in for another period of consolidation.

So just you've mentioned that basically the the over exeo brance of the less the general stock markets here, does the does this really make any sense as a little a reaction to trumps election? And is IT possible that this is basically just being driven by momentum buyers, which could show us a steep you a waterfall on the other side of this?

Yeah, I mean, there is a bunch of indicators that I look at that are all kind of pointing in additional evaluations. Evaluations, as I mentioned, are as extreme as they've ever been up in history. But you know, evaluations aren't to a timing tool.

And so I use other kind types of indicators to to help uh in that process and one of those is um you know just looking at momentum and h trend exhaustion indicators. Uh I use the mark indicators to mark sequences and demarch combo or two two indicators. We we literally this month had a new desk um thirteen trend exhaustion call signal on a monthly time frame in the S P five hundred.

We've had several in the mazda as well. That suggests that the longer term trend is vulnerable to a reverse. The last couple thirteenth that we've gotten have marked kind of the end of the uptrain for uh for the S P five hundred. We had one kind of in late twenty twenty one was the last one before this one we just got and we had been also in late twenty seventeen and right before the mag den.

And um obviously in some might remember the the late twenty eighteen cell off that we had in the stock market that period after the last couple of demarkation monthly uh combo sell signals has been uh the very good kind of indicator of a potential reversal in the longer term. train. At the same time, we've had a time I mean, the red bread has been terrible.

I mean, the way that I measure IT. So you can look at what you know, hinton burgos s and titanic syndrome. These are basically indicators that trigger when the market is at an all time high and you have the number of new laws are growing and you so basically, it's it's a it's a sign of uh, lagging participation.

And every time we've seen the number of titanic syndrome. Cross above fifty over a trAiling twelve month period. It's always you know kind of rym with these demarkation rend exhAusting signals.

So um you know we just hit I think fifty three uh titanic syndrome over the last twelve months on the nazi, we've had an all time record. We ve had forty three tie tani sydney in the nazi over the last twelve months. I mean we only literally had like twenty seven at the door pie peak of the door com bubble. We have thirty in two thousand and seven.

We have forty three titanic syndrome in the aztec over the last twelve years literally the the the loudest screaming breath warning you know on on record um and at the same time, I think that I would just finally point out that uh insiders um the insiders shelter by ratio, something I watched very closely and insiders have been uh just about as barris h as individual advisors have in and read uh institutional investors in bullish so you have bullish positioning um by retail investors by institutions is just off the charts to bullish insiders have almost never been as barriers as they are today. There is almost no buying them on the part of insiders literally the the the the least amount of buying we've seen sense twenty twelve and at the same time you see massive of selling so you said, you know James and one is sold know a ton of invidia stuck. Jeff bazo is sold, I think cost of thirteen billion dollars with the amazon stock this year um in twenty twenty one, he only sold like five six billion and amazon and those that was really good timing before the twenty twenty two bear market. He's basis almost three times as much stuck this year as he did in twenty one. So uh, there's just tons of evidence that insides generally are using the strength to to take money off the table and there's just almost no buying interested all so you put all those things together and to me and they're all kind of just scream, it's time to be cautious and then that respectively just understand why warn about IT as is literally position more cautiously than he's .

ever been in his career. So just see how do you think investors avoid a lost decade, that very least if that's what is to occur. Again.

what most investors should probably use some type of asset allocation model where they they can scale exposure. You know, maybe they don't sell all their stocks and you go to cash, but you could scale back your equity exposure and say, you know does make sense to own more cash than in terms of that cash exposure. I don't really want long term bonds.

I want to stay on the shorter end of the yield curve, and I also want to make to have a healthy allocation to uh to real assets. And so that would be precious metals. And I think energy stocks right now still are just very, very compelling. I I think I would just point out too, I think I am not exactly sure a Better half ways allocation to energy is today but doesn't be five hundred, has about a two and half percent allocation to energy. And I know that buffer t has at least four times much money I gated energy so that's a massive overweight um you know that's access patrol um and I think severan you know another big position of his so you know I think energies is compelling. I think that makes sense from an asset allocation standpoint to scale back your exposure to equities to long term bonds, have more cash than you know yielding a nice, nice a mount today and make have enough exposure to to real assets to commodities, energy stocks, precious metals, tips.

these types of things, you know, with the with the stock markets at these lofty levels, IT makes these racial charts, like, for example, of emerging markets verses U. S. Stocks or or U.

S. Stock verses commodity producers make IT makes them look so dramatic. Is this another let's a good way to start looking for sectors that could at very .

least just revert to the me you know and for me, you know the way that I look for those things is I come back to the insider. Um i've seen any of the inside of buying that i've seen of the last few years has been in the small cap space or it's been in the energy space. And so those that those to me are are are relatively compelling.

If I going going to have equity exposure, I want to sew IT towards small caps. I want to sew IT towards towards energy because that's where i've seen you know I mean for example, heartland express as a small a small cap trucking company where the the owner um in a second generation owner of the company has been just buying tons of stock. Um you know there's been uh you know energy stocks to that i've had significant buying. A lot of its just been you know billionaires like uh Jerry Jones buying comstock resources or you know buffer buying oxide al or you know carlo slim buying P B F energy. Um to me it's very clear the smart money uh, where the smart money is put putting money to work and that's kind of where I want to kind of skew my equity exposure.

Just you've talked or or you've mentioned energy stock quite a bit here, is that only lets say oil and gas, you is that middle am producers and you know, with this rise of A I, with the rise of meeting nuclear energies power centers to to really supply all the power for these bigger eye centers, is that something you're starting to look into or or double?

You know not really. You know the rally that we've seen in utility stocks as part of the A I thing is to me um just the sign of kind of too much animal spirits, too much euphoria in in the space. So I kind of avoided the utility sector um generally A I I am primarily focused on an oval and gas.

And I think that's because if you if you do believe that inflation two percent is now floor for the first inflation, I think it's you just look at the chart right, look at the chart of interest strates right. Know very clearly with A A uh bottom in two thousand and thousand or sorry, two thousand twenty, two thousand twenty one. And uh you know we're in a in a pattern of probably higher highs and and higher lows, you know going from down train to up training in rates, two percent.

You can now think of as a flour and inflation. I look at the oil Price, and I see a very similar things I mentioned before, interest strates and oil Prices inflation in the all kind of are all tied together. And for the last you know up to twenty twenty seventy dollars was really kind of a ceiling for the oil Price for after the twenty sixteen, you know uh twenty fourteen and fifteen sixteen you know Price oil Price crash, we kind of have a seventy dollar ceiling uh in europe and I think seventy dollars probably not floor.

And if that's the case, then IT changes the whole dynamic of uh investing in these stocks um and why I say that you know as the floor is just the supply demand dynamic is changing where demand keep hitting records. We have we're not investing in supplies at all. The whole esg boom really put a damper on investing in the space.

And so the supply and demand dynamics, I think are very bullish um going forward uh just from from that standpoint. And uh you know I biden um news, draining the strategic petroleum reserve really helped kind of cap oil Prices over the last few years. But now know I think the prospect going forward is okay.

We're going to be looking to kind of refill that because with all the geopolitical attention out there, we can afford to not have a strategic petroleum reserve. And it's about as low as anybody would would ever wanted to be. So you know, if you get under seventy dollars, you're gna start saying, okay, let's start feeling that to cheek control reserve and you know these types of things happen.

I starts i'm going to stock we're going to stock pile oil, you know these so I think from that standpoint, um you know I have switched my minds everything okay, two percent is now floor and inflation interest strates. Now on a period of higher hires, higher lows, seventy dollars now floor for the oil Price in that environment, that's dramatically different than what we got used to with a tenuous prior to the pandemic. And it's it's a paradise shift that I can't emphasize enough um just how important IT is. And as I said, that makes the case for for investing in in energy producers that much more compelling to have that type of floor and underneath reds of them, a ceiling on your your key production on common holiday, right?

Yes, it's been brought up on the show before that really the when the S. P. R was that they built end as at its biggest capacity, we didn't have nearly the production that we domestically do now. So it's been argued that we don't need that same capacity just kind of sitting around. Is that something that you you see as as a reasonable argument against going back to those those lofty levels that we did have at one time?

No, I don't see that as a valid argument because the oil the type oil that we produce, we had we ship overseas because it's not the type of oil that we we typically use here in the united states. So we we ship over lights, we crawled and that typically what we refine in here and use here in the united states. And so that's typically what we probably want to keep in the strategic petroleum serve, not the type of oil that we're producing from shale, from fracking in these types of things so that it's not really kind of a one for one.

By the same token, the those shale wells deplete so much quicker then um you know for example, a kind of set know saudis, uh you know uh oil reserves and so you know there's a case we made that uh yes, we have a lot of production but it's we're not producing the type of oil that we need in this country and the depletion uh, is so much quicker from those wells that is probably not the um it's not equivalent at all to having a strategic patrolling reserve uh and to you know especially because the oil of the it's also affects how those well companies want to produce IT too. So you look at companies and you know that producing IT and they're saying we're not we're not onna drill IT uh when it's not economic um and so you know uh they're going to try. And I think the fact that they're being so careful with a you know drilling a lot of these things right now tells you just how were they are about the depletion.

And and my friends are gearing in rosen, so I point IT out that a lot of these major um um drilling areas could hit peak production um a lot sooner. Then people anticipate. And so that would put uh uh an important um uh would be an important shift for the for the uh the supply dynamic that how people see IT as in the supplies a plenty today, the the potentially are not as as plenty as uh as markets potentially um are anticipating today. You know if that depletion is quicker, then I then anticipated. So um you know yeah I I I don't think you know it's it's a safe to say we don't need S P R any longer now that we are producing so much simply ough for those reasons.

And just thinking through the consequences of that, if we do end up if and when we do end up in a higher inflationary environment, combined with a sooner than expected, let's a peak oil scenario in the U. S. That would create just you know, A A terrible storm for inflation.

Do you have any indication on, as you said, when that that type of peking could hit the U. S. markets?

You know, I just have to clarify. I am no expert. I rely experts to kind of even I on this this sort itself, as I, as I pointed out, I I really rely on. I really like the work that G N R does, caring in reasons why I can. I've been talking to those guys for a few years now.

Um they they seem to have a much less single perspective on the the length of those uh and you know those reserves um you know and in a lot of the share basis. Um so I I think that uh you know IT IT all depends on you know markets right now. I think our pricing oil as if supplies are are over on IT and demand is is a winning either for economic reasons as part of recession or because you know the transition to alternative you know electric vehicles in these types of things is going to really impede the demand for for fossil fuels. Um I think it's A A very easy case to be made that kind of both sides of those equation, maybe wrong, that supplies are not as abundant as markets believe and that demand is going to remain more robust than markets are currently pricing in. I think that's probably why this billion or class of CarOlina slim or in buffet, Jerry Jones are investing so heavily in the space because it's misplace for those reasons.

interesting. While so many things as usual to to try to to keep your best of justice, I really appreciate you filling up on some of those. Is there anything you'd like to leave our listeners with here today to think about before rap up here?

I think I would just you leave people with the the thought of you know about the equity market. That's that's my major focus. Um my if I had any x area expertise at all, it's probably an equity. Although i've been um you know wrong this year in terms the overall direction, but I but I do think um you know that people should not discount the message from buffet raising cash to these levels, discount the message from insiders positioning about us conservatively as buffet.

Um those are very close signals that um you at least from an insider standpoint, uh you know that that by cell ratio is perhaps the best leading indicator of the economy, earnings and stock Prices that i've seen in my career right now. Insiders are saying that earnings are likely to disappoint. The economy is is like good to disappoint and stock Prices are going to reflect that probably over the next year. And given the fact that valuations are so extreme with that potential of disappointed on the horizon, I think IT IT makes a great deal sense to be about as cautious as your own discipline will allow.

Well, I certainly find IT hard to argue with those arguments, Jessie. And I think all of those indicators that you mentioned really paint that picture extremely well. Of course, all of Jesse work available at the felder report dot com F E L D E R and at Jessie two S S one e at Jessie felder on twitter, just say, thanks so much for your time today.

really preciate IT. Hey, thanks, tom. Always fun the dog. We appreciate IT.

This podcast is for general informational purposes only. Nothing on this podcast should be taken as investment advice. Guests on this show are not compensated for their appearance.

Listeners are urged to educate themselves and make their own decisions. Do not base any investment decisions on the information contained. If you our full disclaimer, please visit our website.