Tactical Edge Podcast - Brought To You By TWM - Episode 8

The Tactical Edge Podcast with Raj Bhuyan returns for Episode 8 with a deep dive into one of the biggest questions investors are asking right now: Why are markets continuing to rise amid geopolitical instability, supply chain disruption, and growing macroeconomic stress?

Raj explores the idea that today’s market behavior may best be explained through the lens of a “right-tail” environment — a world where persistent currency debasement, excessive liquidity, and structural inflation drive nominal asset prices higher, even as underlying purchasing power erodes. Using historical examples, monetary data, and market internals, he explains why traditional valuation metrics alone may no longer tell the full story.

The conversation then shifts toward the growing importance of energy markets and global supply chains. Raj outlines how deglobalization, onshoring, and potential supply disruptions could reshape inflation, economic growth, and investment leadership over the coming decade. Later in the episode, Tactical Wealth Management CIO Marty Ruether joins the discussion to break down recent market rotations, concentration risk inside U.S. equities, the implications of a weakening dollar, and why risk management may matter more now than at any point since the 1970s.

Topics Covered:

• What a “right-tail” market environment means for investors
• How currency debasement impacts stocks, housing, and asset prices
• The relationship between money supply growth and market valuations
• Why policymakers may be incentivized to continue intervention
• Volatility vs. permanent capital impairment
• The parallels between today’s environment and the 1970s
• Market concentration risk and narrow market breadth
• Why energy, commodities, and precious metals may continue outperforming
• Deglobalization, onshoring, and the inflationary impact of redundancy
• Potential energy supply disruptions and implications for global growth
• India’s rising energy demand and the future of commodity consumption
• Why bonds may no longer provide traditional “safe haven” protection
• The role of cash, options, and dynamic risk management in volatile markets
• Weak dollar trends and their impact on international markets and commodities
• How Tactical Wealth Management approaches portfolio construction in uncertain environments

Disclaimer:
This content is for informational and educational purposes only and should not be considered financial advice. Please consult your advisor for guidance specific to your situation.

Transcript

SPEAKER_03 0:01

Welcome to the eighth installment of the TWM Tactical Edge podcast. I'm Raj Buyan, a managing partner at Tactical Wealth Management. And boy, we are all living in interesting times, it appears. And even though the geopolitical strife, for instance, is in flux and nearly impossible to discount in real time, we believe it's actually times like these where a highly dispassionate, quantitative, and dynamic approach is exactly what's needed. So we're going to break this episode down into three distinct segments. Number one, we'll talk about the rather incredible price action in the markets, especially segments of the markets in the last number of weeks and really work to see if we can find that angle where a right tail could be the best explanation. Number two, we'll talk about the energy markets and how the current and potentially future supply disruptions could really impact all of our lives from a multitude of angles. And of course, last but not least, we're going to bring Marty Ruther, our CIO, into the frame. I'll pose some questions to him along these lines, and as well as questions that we've received from some of you recently. So let's get into it.

SPEAKER_02 1:41

Thanks for joining us.

SPEAKER_00 1:47

Raj Buyon is a managing partner of Tactical Wealth Management. Advisory services are offered through New Edge Advisors LLC, a registered investment advisor. Opinions expressed and information shared are for informational and educational purposes only and should not be considered as a solicitation for the purchase or sale of any security. Please consult a tax or legal professional for any specific information related to those topics. Past performance may not be indicative of future returns. Investing involves risk and the possible loss of principal capital. For those seeking additional information, please visit our website at tacticalwm.com and contact us.

SPEAKER_03 3:08

And that is the idea of a right tail outcome that could be manifesting right now. And the best way to think of a right tail outcome is really more about a debasement in the underlying currency. If I look at this ratio that we posed way back in September of last year, we have this numerator over denominator. And when we look at a price of anything, we're always assuming, generally speaking, that the denominator is constant in nature. We don't think that's the case anymore. And so if a denominator in a ratio gets smaller, the only way to account for that is for the numerator to become larger. And so if we take the SP over a dollar, for instance, well, what's been happening with this dollar over the past 40 years? Politicians and policymakers have really gone to town with the dollar being the target. And if we look at it through just what the Federal Reserve has posted, we're talking a 42-fold increase in the supply of dollars vis-a-vis the M2 calculation. And if we look simply how many$20 bills would be needed to acquire one ounce of gold, it's gone from one and three-quarters in 1970 to nearly 240 today. That's a 99% decline in the dollars purchasing power to gold. And so obviously, if we look at the SP, for instance, and we have a dollar that's getting smaller, well, the SP obviously would be getting larger. Certainly we have higher earnings and other factors at play, but the main focus here we're talking about is to understand how much a decline in currency value or the purchasing power of that currency could impact pricing for a host of things, including home prices. So if we look at a nice house in suburban St. Louis in the early 1980s, quarter million dollars would have gotten you a really nice house. Today, a million two fifty, gets you something like this. We're talking$530 some odd dollars a square foot versus 33 a foot. That is insane unless you understand fully that this is mostly about US dollars losing value. Of course, all currencies around the world have also lost value, but we're focusing on the US dollar today. And this has been going on for a long time, ever since the early 70s, as we've already talked about in previous episodes. But things really took it to the next level once we got through the great financial crisis or in the midst of it. We had this really strong bear market using the NASDAQ 100, a minus 15.5% annualized return over nearly a decade, with the Nasdaq losing 83% from its peak back in March of 2000. And during the financial crisis in 2008 and 2009, the Federal Reserve really started doing things very novel in terms of starting this concept of QE or quantitative easing, which is in essence having the Fed go in and purchase assets with freshly printed money. Since then, we've seen a very strong bull phase, not in a straight line, but essentially a 22% plus annualized return in the Nasdaq on the other side. And certainly there's been a lot of innovation, a lot of growth and earnings, etc. But we also have the situation where the money supply growth has been so inordinately high, the release valve has been for higher equity prices to a degree. So we're going to look at this and analyze this through what we call feedback loops. If we have this government that is really going to town with regard to increasing spending, we have interest on the debt approaching 20% of all tax revenue. All of these drivers, we believe, has also propelled valuations for markets, which also has led to higher participation rate by investors, of course, very high price-earnings ratios, and also increased concentration levels in the marketplace. If we look at a market cap the GDP known as the Buffett Indicator, we're looking at all-time highs. So there is an incentive structure in play for policymakers to find a way to keep the markets higher. When you have a K economy, and a lot of folks out there that have benefited from the K economy have assets, if there's a big implosion in the price of those assets, we could see a spectacular decline in economic activity because we're already looking at the bottom 70-80% of folks out there all already hurting pretty badly. So understanding the incentives out there, there's probably going to be equal incentives for continued intervention, either covert or overt. And that's why we have this musical chairs approach in our methodology today. There's always going to be an unintended consequence when there is intervention from high levels. And the more the market goes down this road of extended valuations and higher sentiment measures from the investing public, the closer and I we need to keep on that chair for when the music stops. This is an idea that we've been talking about for some time here. We had this big decision the government had last spring of 2025 with the new administration coming in. And of course, it was pretty obvious from our standpoint, even though there was this talk of austerity early on, the can would be kicked. It is so much easier from a political standpoint to kick a can down the road, even as the can grows larger, because it is too hard to tell the public that, hey, we need to fix the economy, we have to go through higher unemployment. We're, you know, a lot of folks are going to lose their jobs, but it's the right thing to do over the long run. There's no politician that's going to get hired by saying anything like that. At least not enough politicians will get hired. Now, here's the big difference between what we saw in 2000 and 2008 to what we have today. And this is something we've already shown before, but maybe from a different angle. And that is this net international investment position we're in today. That is$28 trillion that we hope people around the world continue to invest here in our real estate, in our treasury bonds, and also in our stock markets. We did not have this issue in 2000 or 2008. We had much, much smaller deficits back then. Today, we need to play nice with the folks out there. If they start repatriating their assets in large numbers, that could really affect a lot of us, especially for those that may not be invested accordingly. No risk management, perhaps way too much in long-duration bonds, or in concentrated issues without any type of real risk management plan. And that's a topic that Louis Gov did pose a few weeks back with regard to this idea of risk and volatility being inverted from what was most important back in 2000 or 2008 from what we have today. And that is we are possibly in this inflationary structural environment. And when you have a structural inflationary environment, we're going to get a lot of volatility. And volatility is something we would want to work to mitigate, at least from our standpoint. But we don't want to associate volatility with actual risk. Volatility is something that is going to be more temporary, risk is something that's going to be more permanent. And that is what folks need to be looking at from our standpoint. Let's look at a tough environment, a 15-year environment from the late 60s to the early 80s. We had all this back and forth in the stock market with a lot of volatility, a lot of inflation. And if you own the stock market, you made a percent. If you own other parts of the market, you could have done a lot better. This here, though, is a very volatile environment, but it is not a necessarily a risky environment when it comes to losing all of your capital if you have been diversified properly. Conversely, if you look at someone who puts their money under the mattress or puts all their money in, let's say, municipal or government bonds or all of the money in a bank, we're looking at people that are actually losing upwards of three-quarters of their purchasing power and their underlying assets. That is permanent. Debasement can be seen as a permanent phenomenon. We really can't find the analogs where a country has gone down and debased a currency by 70, 80, or 90% and has found a way to change that without doing some type of major reset along the way. So the more we all understand that, we now can use this as a construction principle moving forward with regard to what we're trying to get done for our families, for our legacy goals, for philanthropic goals, etc. Okay, let's look at the market action lately now. The rally we've seen in the markets going back to the late March has been pretty amazing. We had the market going through a slow churn deterioration over the course of a number of months, and then of course, starting in the last couple of days of March, we've seen this pretty spectacular ascent to all-time new highs. But the one thing we want to focus on, even though the nominal chart for let's say US large cap stocks looks pretty good, we're looking at something that looks very different through a relational lens. So let's look at these large cap stocks in the United States versus let's say emerging market stocks, we see a very different trend unfold where we had a peak way back in early 2025, and we have nothing that looks like a bull market from this standpoint. If we look at the US stocks versus, let's say, the precious metal mining companies, which has been something that we've obviously been enamored with for some time, we have even a weaker trend in terms of US large cap versus the precious metal miners. And this is a deep bear market the US stocks are in on this relative basis, 30 some odd percent below the falling 88-week moving average. So it's been a really nice move for the precious metal miners over the past couple of years. Our March 2025 newsletter actually highlighted that the stock-to-goal ratio was going into quad D at the time. And since then it appears we've seen nearly a 160% move in the mining companies versus a 31% move for US large cap stocks. Of course, if we looked at the flow data, you would not think that was the case. We've seen nearly all the flows continue to go to US large cap stocks, and we're actually looking in negative flows for mining stocks and energy stocks since the latter part of 2021. This is what we've been posting as a crowded bull market bus for U.S. stocks. It doesn't mean that US stocks are going to drop tomorrow. In fact, using this right tail thesis that we've been maintaining, we could see even much higher prices in the coming months and even years for this sector. What it means is that when you have a crowded bus, you have a lot of latecomers that are really not convicted in the trade. They're disowning it because someone else told them to buy it, or maybe their neighbor made a lot of money in it. And when things get tough, you basically have a lot of potential for irrational behavior, which could exacerbate the volatility in the underlying currency and make things really kind of wild. Conversely, the empty bull market bus is much quieter, a lot more elbow room, and you basically have now something where you have a chance to attract people to get onto the bus down the road. These are the folks that could really help propel an underlying instrument for a sustained period of time. This is where I get my favorite quote from James Grant from the interest rate observer: the key to successful investing is having everyone agree with you later. Now, let's talk about what's happening in the strait. Of course, a lot of us now are much better at geography in the area than we were maybe three or four months ago. And the question might be with all of that's going on today, how what are the things that we can do to prepare for the potential of an energy crisis? That's going to be the really the toughest thing out there because we kind of are in uncharted territory. So let's set a baseline, and that is the idea that abundant energy is the lifeblood of humanity, at least from the angle with regard to how humans have designed humanity over the last several hundred years. So let's look at a very simple chart with two axis. On the left, we have basically the consumption of energy per capita using kilowatt hours in logarithmic format, and on the bottom we have GDP per capita, and we have all the countries in the world listed there. And it's very easy to see a very strong correlation with income rising and energy usage also rising per capita. In fact, if you go to the bottom right of this chart, you'll see there's a void, there's simply no high-income low energy usage countries out there. It shows you how important energy is, especially as people's income rise, they consume more energy, and once people have a taste of access to energy, they really don't like to go backwards. Now, this all gets more complicated with regard to what's been going on globally for the past six years. Really, since COVID or the response to COVID in 2020, the world is really starting to switch from this globalization path, high proficiency, you know, this idea of basically build it wherever you can for the cheapest amount, knowing that you're going to have pretty open shipping lanes and no major wars, that's all well and good. Now we're seeing something very different. We're seeing a very strong push towards onshoring or friendshoring. Onshoring and friendshoring is redundant in nature. Redundancy is expensive, redundancy is inflationary, and the types of assets that outperform in a quote unquote redundant environment or a path towards redundancy can be very different to the types of assets that might have done very well during this push towards globalization, we would argue. And so if we look to see how things have changed over the past 50 years, we have a very similar backdrop when it comes to the energy usage. We had basically 93% fossil fuels being the basically primary energy source in 1973. And today, with all of the investment in wind, solar, and nuclear, hydro, etc., we're still at 83% fossil fuels. Now, a barrel of oil is used for a lot more than just heating oil and gasoline and jet fuel. In fact, the one thing that kind of keeps us up a little bit at night is the potential for supply disruptions with petrochemicals and feed stocks, basically fertilizers. And so if we continue to see disruptions with regard to oil getting out there, we could have some major problems with basically crop yields around the world, and that could be a major problem. If we see where the OPEC oil has been going the past number of years, we're looking at about 20 million barrels being exported. Less than 1 million barrels comes to North America from OPEC, a vast majority goes to Asia, and in response to this supply disruption, we're seeing 400 million barrels pledged to be released from different countries. In fact, the United States has pledged to release 173 million barrels from its SPR. Our SPR is going to drop down to around 220 million barrels, which is maybe about 11 to 12 days of supply. So we'll also maybe have a separate discussion about whether or not that is a good idea. Because when we're keeping prices low artificially, it actually also dissuades from additional investment for basically, you know, a better supply, demand, and balance in the future. In fact, if we see what's happened to demand and supply in recent weeks, we've only seen about 4 million barrels of demand destruction per day, where supply is dropped by 16 million barrels. So about a 12 million dollar deficit, we have it's really adding up, by the way. It's now we're at 850 million barrels in total that's just disappeared and not showing up. And we're seeing, you know, basically stress. Um, we have Prime Minister Modi in India basically just a couple of days ago saying, hey, we need to like kind of pair some of our own usage here. We need to be a little more efficient with uh what we're doing, and not surprisingly or not, you know, coincidentally, we're seeing India also really start to ramp up energy independence. So we're seeing uh basically a push towards onshoring or frenchshoring uh productive capacity, and that of course is going to be very expensive. Now, sticking with India theme here, just show you how different it is between what people in America use in energy usage versus the average Indian, it's a big difference. In the United States, we use about 32 kilowatt hours a day. It comes out to a little less than 12,000 a year, 10 times almost what typically is used in India. In fact, in India, only one in 20 households has air conditioning. And of course, with the Himalayan mountain range, there's really not a lot of coal fronts that come down and cool things off from time to time. So most of India is like New Orleans in the summertime for about 10 months a year. That obviously is something where you have a 6% plus growth rate. Not sure how that's going to be slowed down easily. In fact, the the elasticity to prices will probably be relatively low as income continues to rise in India. People are going to want to have more creature comforts. I mean, if you look at our creature comforts in the United States, here's our 32 kilowatt usage. Typically, you know, you got a fridge, central air, EV charger, if you have an electric car, uh washer dryer, all that stuff. It's 32 kilowatt hours per day. In India, they're using one-tenth of that. Once people get a sense of air conditioning and uh, you know, how to use a washer dryer and all that kind of stuff, they really don't want to go backwards. And this is where it's going to be really tough to really quell this demand on a sustainable basis. That's why there's going to have to be additional supply as this growth continues from our standpoint. Okay, let's get Marty Ruther into the mix on this discussion. Okay, for this segment, we have Marty Ruther, our CIO, back on the frame. And Marty, I can't believe it's been four months since you were here last time. Yeah, nothing's happened. Yeah. Nothing much has happened uh this year. Uh just a little back and forth. So going back to January, we were talking about this idea of a major rotation taking place. Some of the big leadership in the equity markets peaked last fall in the October to early November timeframe. And so tell me, what how do the first two months, let's go to January, February 1st, how do the first two months play out uh with regard to that thesis?

SPEAKER_04 23:48

Yeah, I think when you go back to our previous conversation, we talked about the rotating market. Uh, we saw a lot of deterioration from the mega cap stocks, especially the tech stocks. You know, when you're looking back, you see that you know, companies like Meta, Netflix, uh really across the board, some of the big cap stocks peaked in October, uh, NVIDIA at the time. So, what you had in that kind of November, December, January, February timeframe is a lot of money came out of the tech stocks and actually bullishly rotated into called the unloved sectors or the unknown, untalked about uh sectors. So that was really beneficial for energy materials, uh, consumer stocks, uh, and select spaces did well. International stocks were also a huge winner. Uh so that was that was kind of the exciting part when from an allocator standpoint in our situation is seeing other stuff work and not just concentrated in the the tech market. Uh, so that was actually give us really good uh returns from a rotation standpoint. We were able to take advantage of that and also not have the downdraft in the technology stocks that we saw in you know kind of January, February uh timeframe where they really kind of lagged the average stock.

SPEAKER_03 25:01

Gotcha. And then we've got this war outbreak on the last day of February, and all of a sudden everything seemed to change uh in uh one fell swoop.

SPEAKER_04 25:13

Yeah, that's right. When I'm looking at the year as we started progressing from January 1st to the beginning of the war in March, you know, portfolios really held up well in general because of that rotation. You know, gold and silver really had a nice move, uh, you know, the energy material stock. So the unloved stuff really helped us well to where we really between that and raising cash, that's we had a high amount of cash in the portfolio. We kind of were, you know, had a pretty good defense put up uh for the upcoming sell-off that happened in March. Uh, you know, obviously when you get something like the war happen, it became a situation where it's just sell everything across the board, you know, as people uh honestly probably got liquidated in some of their tech stocks that they never thought we could be down 30, 40 percent with this whole kind of AI disruption. Uh probably some of that bled over into the winners of the year, you know, the the energy materials, gold, silver international, to where people just had to sell everything. And you know, in our experience, even as you know, two, three decades now, we look for certain oversold conditions to really take advantage of the panic. You know, going back to last year, you know, we we saw massive amounts of panic in the spring on the tariff move. And I'd say, you know, that being a level of scale, 10 out of 10 panic, you know, we kind of got to that six, seven out of ten scale this time. So we didn't really see the big fat pitch we were looking for for all that cash. Uh obviously markets have recovered you know very nicely since then. Uh, but really this is where it's important to do well before the sell-off because you didn't experience a bunch of down volatility. Uh so when you get the up volatility, you can actually be patient and sit and look where the the winners are, the performance are. And that's what I really like about the last say two, three weeks is the market has gave us a nice risk reward now. That last low of around 6,300, I believe, on the SP, you know, should hold. And there's no reason if we're in a bull market, we should not go below that low. Because if we go up below below that low, below our age moving average, which kind of sets our quadrant, you know, we'd be a negative quadrant. So the nice thing for something like us is we can now say we can set the portfolio up from a risk management standpoint where we have insurance kind of at the low. It's on the screen right there where that kind of blue line is. You know, we gotta put option protection to protect us below that because we know for a fact, you know, undeniably, not an opinion, that that's a lower low, that's when the markets are changing. And I'm sure there's something breaking in the market or the economy that's driving us there. So we're really excited about the rest of the year that we have a risk reward point to play off of. We've really seen the leadership of the Fang 2.0 stocks we talked about last time actually continue. You know, there was a little bit of break here in the August or uh April bounce in the tech stocks, but when you look at the longer-term trends, we're still seeing those as new quad A winners. You know, the that space is really still longer term still turning that way. And I really think from a concentration level standpoint, you know, in early January, I'm going, man, if I wanted to match the SP 500 from a waiting standpoint, I got to be 40% technology communications. And, you know, Rajby and you've been doing this a long time. We remember when technology was 15% and you know, energy was 20%. So, you know, these these cycles go in time, and and what I'm most excited about now is the divergence between technology and say energy materials as wide as it's ever been from a percentage of the SP standpoint. And as we know, things always revert to the mean. We don't know when, but they always do. So we're positioned well for that reversion. And the good news about the energy material company as well is you know, they're much more reasonably priced, great dividends, great balance sheets. I mean, it's great to see a three, four percent dividend on a stock that's trading at 10 to 12 times earnings instead of 40, 50 times earnings. So it's exciting to see the opportunities that that lay out there for us.

SPEAKER_03 29:07

Awesome. So here's your question then. So we've got this rally that started the end of March, been quite sharp for some parts of the markets, especially. And we were looking at the data and we're seeing a lot of really negative breath. In fact, we've seen almost record new 52-week lows, even as the SP is hitting you know, 52-week highs or all-time highs. Why does poor breath even matter from your standpoint?

SPEAKER_04 29:34

Well, where it matters, if we look at analogs, once again, what I like about what we do here at Tactical Wealth is we're always looking back at analogs to find history to guide us. You know, it's never, never just what we think at the moment. So it's based on okay, what are precedent? What is probabilities? Well, if we look at narrow rallies in the past, you know, when you see very few uh sectors participating. So go back to 1998, 99, 2000 standpoint, that was kind of the end of the dot-com rally. A lot of great sectors. I I remember seeing United Healthcare trading at 10, 12 bucks a share and just very cheap. Uh so there's a lot of unloved sectors, unloved companies that nobody wanted small caps, nobody wanted international, it was just dot-com everything. And that was a rally in the SP that was well in 98, 99, early 2000. But when that falls apart, everybody's that concentrated. And there's so many examples of concentration going back to 73, 74, which is, you know, I know we've talked a lot a bit about how we feel this environment we're going into, not coming out of going into is more of the 70s. So I think there's a lot of times when you look at this level of concentration and lack of breath in the market, it typically leads to an unwind and an unwind in the crowded trade where everybody is. I mean, we look at so many portfolios that we see that are not with us, and then we we get them and they're all loaded up in technology. It's how many ways can I own NVIDIA in 14 different ways or Apple in 14 different ways? And these are all great companies, and you know, we do like those companies. We have a waiting in them, just not 40% of somebody's money. You know, I think valuation-wise, you know, you've spoken at length in previous podcasts about earnings ratios, you know, percentage of stocks that people own, households, you know, stocks of GDP. There's so many obvious factors that probably when we look in reverse months from now, we're gonna say, man, it was kind of obvious that things were expensive. So once again, we're not trying to predict the future. We're just trying to take the data as it comes to us. And, you know, yeah, we're seeing a few clouds on the horizon as we tell people there's a few clouds on the horizon. We're gonna make sure that we're prepared for that storm.

SPEAKER_03 31:44

You know what's funny? Uh markets go up on an escalator, and when they go down, it feels more like an elevator. That's gets so tough to try to catch that last percent move. So when it comes down to what we're looking at right now, what are the top two or three things that you're really focusing on with regard to, let's say, risk management or opportunities or what to avoid even?

SPEAKER_04 32:05

Well, and just to you know, look at a point you just made, you know, it's been a couple good three, four years, really, it's been a good decade, right? So, I mean, there's a lot of a lot of gains that's been earned over the previous, you know, one, three, five, ten years. And from a lot of our clients' standpoint, it's you know, let's keep our let's keep our money. You know, there's there's a standpoint where there's a side you got to choose at some point where it's do you go after every single little dollar of upside? Yeah, I'm still worried more about the that concentration unwinding, which based on history, losy leads to a 30, 40% drawdown potentially. Uh, you know, you got to weigh that out versus the upside may be 10, 20. So I think keeping that in background, what is it to keep this market going? I think it's kind of what you're asking is hey, what what are you seeing that makes you kind of bullish about the short-term to midterm? Yeah, for one is the chart of the dollar. You know, when the dollar is weak, you tend to have commodities do well, precious metals do well, you tend to have international stocks do well because of repricing a lot of their earnings in dollars uh versus their own currency. So when you look at a weak dollar environment, you think once again back to the 70s. You know, when was the dollar weak? When was the the US weak? When was the US going through changes? I mean, right now we're going through a lot of call it deglobalization. Uh we got AI disrupting things. Uh, we have a large deficit that you've spoken in length about, uh, how the government's uh you know running deficits and printing money. And it's hard to have a strong currency when you're doing that. So I'm very bullish on the weak currency. If you can see on this chart here, we had a big sell-off last year, and we just haven't had any kind of a rebound or lift. So it's kind of like we're just pausing this decline. And since we're below the moving averages, you have to assume that the client is going to continue. Uh so that decline does to continue in the back half of the year. Once again, the leadership so far this year is has not been uh broad tech, it's been energy materials, you know, uh income stocks, high, you know, high stocks leverage to commodities international. So I think that could continue, which we're positioned for. And then the other thing I'm looking at is the bond market. You know, I I think big picture, a lot of clients out there, investors out there, uh, they have a lot of money in the bond market. I mean, I know you've spoken at length about how the flows since 2020 have just been crazy in the trillions of how much people are still allocating the bonds. When you look at this chart since 2020, they've produced no results. And when you got inflation running, use a governance number at 3.4, or the average person price as 8 to 10, you know, you're losing against inflation. So one of the things that I'm excited about how we allocate portfolios is having cash that's pretty much earning the bond interest rate. And we're able to use that dry powder as you speak to it as opportunities to scale in the market, use options, it's clear, you know, cash is collateral for option trading to create the return of the bond market inventory.

SPEAKER_03 35:05

You know what's interesting about that is we've got seven and a half trillion dollars has moved into bond ETFs and mutual funds since 2009. And that is, you know, that's a very good chunk of the global stock market capitalization. It's like, let's say, 10% of the equity capitalization of the entire U.S. stock market. And so we do think that is going to be a place that's gonna look for a new home at some point, especially if we do get a breakdown in bond prices and actually an increase in yields. The existing bonds will lose value. And a lot of people that have already been not so enamored with their bond returns for the last half decade, yeah, they're very likely will be reaching out to their advisor.

SPEAKER_04 35:50

That could be 2022 all over again. Once again, looking at the chart on the screen, you know, you see that big drop in the chart. That's when bonds went down with stocks. You know, stocks were down 15 to 20 and bonds were down 12 to 15. I mean, there was no safe haven trade in the bond market. And and obviously, when I look at today and I go, Marty, what could you see happening three, four months from now? How could you see this playing out? Typically the market likes to challenge new Fed governors. I mean, the president and the Fed has been talking about the cut rates, right? That's kind of the goal is hey, can we cut rates? When I look at the charts of the 10-year bond, 10-year treasury yield, you know, it looks like to me rates are going higher, right? If you just know nothing and just looked at the trend, rates push higher. Well, if rates push higher, that's usually been a canary and a coal mine for stocks to go down because they've been they're trading together. They're not trading opposite like they were for decades. So I think if we look out three, four months from now, we have to what is a potential pitfall that could happen in the next three, four months is if rates put higher, higher inflation, uh, which obviously goes back to our 70s thesis of the pain trade is inflation. But then owning inflation assets help that. So, you know, of course, gas prices are up, oil prices are up. Well, having a portfolio in energy stocks. So looking at energy being 3% of the SP 500 today, that's kind of the worry is owning the SP 500, you're not covering that inflation risk enough. You know, that's the nice thing about stocks, is stocks over the long term can provide some inflation protection. But if you got all your money in tech stocks and energy is going up 20% and you only have 3% of your money in it, it's hard to get that offset.

SPEAKER_03 37:24

Yeah, that's the hardest thing about these indexes or all the people that are closet indexing, is they'll be underweight the stuff that you may want to own more of until those things do extremely well and become a larger weighting in the index. It's kind of funny how that all works.

SPEAKER_04 37:40

We can just be have a 20% tech, 25% tech instead of 40, 45% tax. I mean, once again, we're just trying to keep things balanced at this point in time when valuations and concentration levels are so high.

SPEAKER_03 37:53

Gotcha. So we've got a really interesting time period coming up. We're gonna see how this uh global supply chain issue might creep up. We've got obviously we're gonna see shortages of oil or other types of petroleum products and a lot of basically goods that are related to those instruments uh coming in the coming several weeks. We'll see how it plays out or doesn't play out, and maybe we'll see if there's any type of resolution in the Middle East in the coming weeks. So we'll keep a very close eye on your behalf. If anything material does formulate, we'll get back on this podcast and update you all. And we, of course, appreciate all the great feedback we've received in the past several weeks, and we will be in touch.