In this episode, we talk a pay homage to Will’s mentor by focusing on value and discipline, two things very much out of favor in the market at present. It is easy to see why as in the wake of five consecutive months of market gains, statistically the odds favor further appreciation. Moreover, even though valuations are high, historically valuation has proven a sub-optimal timing tool as it relates to near-term returns. With the Fed now more inclined to look more at weakening employment versus inflation, accommodative monetary policy seems supportive of valuation even at these elevated levels.

In terms of what has been working recently, it is a strange combination of the largest technology stocks, which are now involved in myriad deals reminiscent of the late 1990s in terms of vendor financing and capital spending, and speculative retail favorites, many of which have no revenue, much less positive earnings. We still find opportunities and lower valuations among smaller and mid-cap stocks, especially those that are higher quality.

However, since 2010, we have seen two very different markets. In the wake of the financials crisis, from August 2010 through August 2010, high quality stocks outperformed low-quality stocks by a factor of almost 3x. However, since that time, low quality stocks are up 140% versus high quality gaining only half that much. Retail investor speculation and the gamification of “investing” are contributing factors.

We also discuss the challenge facing consumers in terms of housing affordability, especially as the lower and middle income cohorts experiencing declining wage growth . To simply return to pre-Covid levels, it would take one of three things, or a combination thereof:

• Home prices fall 38%.
• Incomes to rise 60%.
• Mortgage rates to decline to 2.35%.

With the first two seemingly unlikely, can the Fed get there with rate cuts, or is some form of yield curve control required.

We are hoping for a Red October on the baseball diamond but not in the market, but only time will tell.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

In this episode, we talk a lot about the job market, which is anything but hot, and its implications for the Fed, which is under pressure. All of the below tend to support President Trump’s criticism of Powell being “too late”:

• weakening job growth this summer (only +22k jobs in August, mostly in health care).
• likelihood of significant negative revisions this week.
• unemployment that would be over 5% if not for lower labor force participation.

Although unemployment is not an issue (yet), the risk in the labor market is a dearth of new jobs, with the odds of finding a job if you lose on today only 45%, the lowest level in over 12 years. We believe that AI is having an outsized effect on job openings, especially at the entry level.

All of these factors, along with a shift away from a focus on inflation by the Fed, support the market’s consensus view of a rate cut being on tap for next week, with two or three more likely to follow in quick succession. Historically, this has been a positive for equity markets if (and that is a big if) a recession can be avoided. the Fed has cut rates after an extended pause (like the one we are in now) eight times in the last forty years; four times we avoided a recession, and markets gained, on average, around 15%. the other four times, we entered a recession, with markets typically experiencing a 10-15% drawdown. Although there are some parallels between now and the late 1990s, valuations are not quite as stretched at the top, with the median P/E of the top 10 stocks around 31x versus a 41x multiple in 1999. However, investor allocation to equites is now at 55%, above its prior peak in 1999.

We also discuss the reasons why, despite Fed rate cuts, the all important 10-year yield may not cooperate. Chief among these are the lagged impact of tariffs on prices and the relatively high (and growing) level of U.S. government debt. Will the U.S. be forced to suppress yields a la the bank of Japan in order to unlock the housing market, and is that what is causing tempers to flare between members of the administration?

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.

In this episode, Will and Adam examine former Secretary of Labor Robert Reich’s comments comparing today to the Gilded Age. We acknowledge there are several similarities, including increasing wealth disparity, the emergence of disruptive technology, and widespread commingling of government with business. We specifically discuss the recent discussion around the government taking stake in public companies, which, though has a precedent, was used in the past during times of financial crisis, i.e., to keep automakers afloat during the financial crisis.

We discuss the (until just recently) ebullient vibes in the stock market, and why some of the forefront of the AI revolution are starting to sound a little more cautious about what AI can deliver in the near-term. However, that has not stopped investors from returning to familiar favorites from the 2021 run-up, with this rally’s best performers including:

• Non-profitable tech
• Most shorted stocks
• Meme stocks

With Fed chair Powell on tap for Jackson Hole, we look at the recent Fed minutes, which indicating a focus more on inflation than jobs, and why that could change if job revisions continue to be revised lower. However, with the inflation effect of tariffs expected to shift from businesses to consumers soon, will the Fed have the flexibility to cut rates as much as investors currently believe? With both anecdotes and hard data indicating a struggling consumer, the Fed is in a tough spot and under continuing political pressure.

We conclude with why it is important to remain systematic and focused on long-term investing success and resist the temptation of the continued gamification of stock trading, with platforms like Robin Hood now exploring the addition of traditional sports wagering alongside retail investment accounts.

Learn more about Formidable Asset Management, Will Brown, and Adam Eagleston by visiting www.formidableam.com.