Hello audience. Welcome to the sense of

things. Another week of fun in the sun.

Another week of fun in the markets and

economy. We we found out about interest

rates. Ron and I were on the button with

with what happened. So, we’ll talk a

little bit about that today. Ron’s got

some fantastic information that he did

some historical research about the

markets and what’s going on. We’re at

market highs in a lot of cases. He’s

going to talk about spin-offs today.

We’re going to talk about the dot plot.

So, all kinds of fun stuff to talk

about. So, stay tuned. We’ll be right

back on in just one second.

All

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right, everybody. Welcome to the show.

Ron, how you doing, my friend?

Good morning. Good. You only reduced it

by a quarter of a point and the world

didn’t end.

Yes. Yeah. Just the market went, whoa,

wait a minute. We thought it was going

to go to 50 basis points and if it had

gone to 50 basis points, the market

would have gone down because it was too

much.

I think if it went down a half a point,

I think the market would have really

sold off.

Yeah.

Because I would have been more of a

shock than anything else.

Yeah. Like I said, it was I listening to

financial media afterward. the market’s

down because the market was expecting 50

basis points and it was only 25 and oh

they’re behind the eightball and all

that. Okay, you would have complained no

matter what. That’s just how you guys

work. The only thing went up yesterday

was the company that that supplies

Prozac to to Wall Street at that point.

It’s funny because now they’re

dissecting pal speech today and

basically saying he’s looking at other

things that the White House is looking

at and so is the committee and we’ll

talk about that in a second. And now

people are thinking are we going to get

two more rate cuts? Look, they got to

talk about something. I get it. But it

was almost as bad as when they dissected

Greenspan’s Fed battle.

Yeah. Yeah. Same thing. Like I said,

once again, it’s just it drives me crazy

because somebody’s going to be unhappy

in any situation like that. So, you’ve

got some some fun stuff to kick us off,

right?

Yep. And as a continuation, we got this

week in history. I think next week is

interesting. Even if you even if you did

pay attention in school, the

Constitution was signed in 1787. Here’s

the funny part about that. A lot of

people are like, “Wait a minute, wasn’t

that signed in 1776?”

No, that was the Declaration of

Independence.

And I think a lot of people

Yeah.

confuse the Declaration of Independence

with the Constitution. No matter which

political side you’re on, like a lot.

It took a think about it.

We were building the framework of our

country. And after the Declaration of

Independence, it took 11 years to figure

out the core framework of our country.

Yeah. Anyway, I thought that was

interesting.

Yeah. No, I think it’s and it is and

people don’t realize how bad things were

between the end of the war and that

short period of time. It was ugly in the

country and a lot of political descent.

There was rebuilding. There was a lot of

parts to it. And 190,

you had Yeah. That you had the

Federalist and everything else. Okay,

cool.

Yeah. William Durant creates GM in 1908.

Nice.

Yes. He would be rolling over in his

grave today if he saw his company.

16. I thought this was interesting

because I just saw something on the news

the other day of Britain doing a

documentary on this about tanks being

introduced into warfare. And if you ever

saw what the original tanks look like,

they look like the little alien

vehicles. They were like really compact

with a little turret. Interesting.

Actually, and I didn’t realize this. I

would have been there in a heartbeat

somewhere in London. I it was during

this week when Trump was going to uh

England, they did I guess because of

this tanks introduced into war 1916,

there was a there’s actually a tank

museum

somewhere in Britain and it had all the

like the ones that were in Indiana

Jones, the original World War I tanks

and stuff like that. They have a whole

bunch of them in this museum. So next

time I go, I’ve got to go see this.

Definitely.

Just in case anybody cared, this was the

anniversary of Marilyn Monroe’s skirt

scene that everybody is very familiar.

Scene and a lot of men have tried to

duplicate since.

Yeah.

1957, Nevada is the first is the site of

the first ever underground nuclear

explosion.

I think they did one almost once a month

or couple of times a month after that

for 10 more years. One of the most

interesting museums I’ve ever been to is

the one in Las Vegas, the nuclear museum

in Las Vegas. It’s pretty bad. It was

It’s scary, but it’s interesting. But

yeah, they have a video where they show

you like that area where they tested and

it looks like the moon. It’s just all

these sunken craters and stuff.

The casinos back then when they knew

when they were going to blast off, they

used to have like parties and have these

things where people would come and you

could view it from 20, 30, 40, 50 miles

away. So they have these viewing

parties.

So this week, 55 years ago, Jimmyi

Hendricks died.

Jimmy Hendricks died.

Probably the biggest shame ever.

Know this. This is before he was

president. He files a report on UFO

sighting.

Interesting.

I did not know. He lived in Podunk,

Georgia. So, you know, it they only ever

go to Podunk areas. They never go to a

big city. So,

of course not. 1976, NASA unveils its

first space shuttle. And if people

remember, in 1979, it was used in the

James Bond movie, Moon Breaker, three

years before the they had an official

launch of the space shuttle.

Yeah. Which is pretty cool.

And of course, here’s another

anniversary we want to forget. 17 years

ago, Lehman Brothers declares

bankruptcy.

September of 2008, one of the toughest

months I remember being in this

business.

Yep. September 15th. Yeah.

Yeah.

Okay, here we go. Let’s get into it.

We’re gonna have some fun here. I

snagged this at the end of the day

yesterday from Jim Biano. He had posted

it on LinkedIn.

So, the dot plot to explain it and then

I’ll let you give your thought. So, to

people that aren’t used to what the dot

plot is, basically it’s a Fed member

survey. Each member says, “What do you

see for projected rate cuts this year

and in the upcoming years?” And I don’t

even know why the upcoming years means

anything because data changes month to

month, quarter to quarter. Who cares

what they see two or three years from

now, but I think what was interesting is

they’re trying to figure out who this

person was here. I think we all know who

that was. It’s the new Fed member.

Yeah.

Thinking that there was no way they were

going to cut this far. So, I just

thought this was Judge. I just wanted to

get your thoughts.

Yeah. Now, it’s interesting. I like the

farther out version where you see them

scattering out a little bit, but that

tells me, okay, it’s in line or most of

the Fed’s kind of in line with what you

and I have been talking about because

you hear on the news it should be at 3%

and I I think that number in between

three and a half and 375, that was what

we discussed last week. That’s probably

the neutral number at this point. I

don’t think three is even remotely

realistic and I certainly don’t think

four and a half or four and between four

and four and a quarter is realistic. I

think it needs to be lower because we

are seeing a lot slowing down fast. And

thing he identified who the hell is the

person that thought we got a rate hike?

We got a rate hike. It’s what what are

you smoking?

But I think this is interesting. Five of

Well, actually, this is six dots. But

these members here didn’t think we’d get

any cuts.

Yeah. Yeah. Yeah. It’s just we’re going

to leave it the same. Okay. Let’s just

keep

over analyzed, too, because this is

Let’s just keep fiddling while Rome

burns. Let’s keep fiddling. Yeah. Or so

some of them are now you see them

switching as you go into 2026. It looks

like we’ll have rate cuts into 2026. But

yeah, it’s what’s the one smoking that

thinks that they need to raise them this

year.

But if this is where we are now, look at

next year at how many people think we’re

going to get one to one and a half% rate

cuts

at for the year.

For the next year, I think this is more

interesting and compelling knowing that

this is 12 plus months out. Yeah, that

tells me that it’s very likely for the

next six to eight months we’re going to

see a quarter point rate cut every month

that they meet.

Yeah. Again, data dependency. All right,

here we go.

This is good stuff, though. It’s

interesting information because it’s

good to see where they’re thinking.

Yep. So, look, we hear this all the

time. Bubble valuations this that and

the other thing. And I like this chart

here because here are a lot of the

valuation ratios that people will use.

PE trailing PE cape a I like cape a lot

even uh all these good stuff market cap

to GDP a lot of people look at that and

I think it’s looking at all of this and

I thought it was interesting if you go

back in history the two biggest let’s

just say peaks in the market that people

remember are 1929 and 1999

and we’re above that what are your

thoughts I don’t know I think

well yeah and I once again anything can

be manipulated and everything else but I

think it’s a reality check. I think some

of the especially when you look at some

of the stocks that are in let’s say the

AI space I think the advantage that we

have this time is yes we do have high

valuations but different from 1999

which a lot of those wild valuations

that we saw were companies that weren’t

making a dime at all. A lot of the

valuations we have today are companies

that are actually making money, which is

good. They actually have real profit.

It’s just it’s getting stretched. And I

think it’s not out of the ordinary or

anything that I would say would be a bad

thing of saying, hey, we might see a bit

of a pullback here. I mean, there’s I

think a lot of economic data coming out.

And I hope the Fed keeps going as far as

cutting cutting interest rates because

it can get really scary if we get too

far into this and then all of a sudden

it throws us into a recession or

something.

I agree. I agree. To be determined. All

right, next one. Yeah,

this is a quick chart. Goldman Sachs put

this out.

They I heard this stat the other day

that Nvidia’s market cap is bigger than

the entire London stock exchange.

And this is Yeah, you can say anything

you want about our country and our

economy and our markets, but this is way

out of bounds. This is just insane.

Yeah.

Yeah. It’s amazing, you know. And

yes, I hear people talk about you need

to have diversification and

international and all that, but the

problem is I look at this chart and I

go, “But why are they not catching up?

It’s just why are they not catching up?

Even you look at China as basically 6%

of the world’s global equity at this

point. Yet everybody talks about oh it’s

the world’s largest economy and

everything or behind us the world’s

largest economy. Yeah, but it’s 6%.

Right. But the other I think the reason

why to answer your question is because

the top 10 stocks that are leading the

world and everything are on are is on

the S&P 500.

Yeah.

And right now I just heard it. I’m sure

you’ve seen it, too. The top 10 stocks

are now 40% of the S&P 500. That means

the other 490 make up 60%.

And it’s not like the top 10 stocks

aren’t profitable. They are by leaps and

bounds.

Yeah.

But holy crap, if you’re in the market

for another 20 to 30 years,

why would you have your money anywhere

else if if you weren’t looking to

diversify? It just doesn’t make any

sense. The one’s not over yet, but it’s

going to come to an end some point.

Oh, it will eventually these things will

step on their own toes or whatever and

we’ll see it pull back. But

for the foreseeable future that I can

see, I just don’t see it slowing down or

I don’t see the world taking over and

rebalancing this as far as I can see

in the future. I benchmark against the

S&P 500. I’ve got to stay pretty much in

the game here. I can’t afford to slow

down my performance by having other

stuff that is just not performing.

And the funny thing is some people said

if I follow this model you should have

25% international exposure. And I’m like

look I’m all in for diversification

but prior to this year why don’t you

compare the European market and the UK

market to our market over the last 10 or

15 years.

Yeah. you would have made you would have

made 50% of the money.

Yeah.

Yeah. Okay. All right.

Totally agree.

I thought this was interesting kind of

just looking at earnings, right, for 90

years since 1935,

it’s pretty much traded in a channel.

And I think this is interesting. Other

than a hiccup here in 2020 and a hiccup

here in 08 and 09 where we went out of

that, this is don’t forget too post 1990

is when ETFs were introduced. This went

also the first real 401k was in 1982. So

you got to look at it took about 10

years for it to get more adopted in more

companies. So if you really look at post

1990

money is just continuously flowing into

the market every pay period. So it’s

going to push the market up. Whether or

not they’re going into the funds are in

good companies or not is another thing.

But the funds diversify people, which is

why we’ve only seen a couple of major

swings.

Yeah. And the other other argument I

remember when people would talk about

when the baby boomers start to retire,

then you know they’re going to have to

diversify into bonds and things like

that. Bonds have been lost money

basically for the last 10 years. They’ve

performed absolutely atrociously.

So you haven’t seen that switch. Part of

that was the Fed keeping interest rates

basically at zero for way the hell too

long. But bonds have been an awful

investment for a long time and a

terrible income investment

for income. More recently, it’s worked.

But here’s the difference, too. A lot of

the baby boomers that were invested in

the market in the last 10, 15 years

made more money above and beyond what

they were going to need at retirement.

So they still have a portion that’s

invested in the market.

Absolutely.

It’s not 100% converted to income. It

may be 70. It may be 80% that’s only

converted to income.

Yeah. Yeah. I look at it from that

percent. The old game plan of you switch

over into a bond portfolio and you draw

income off your bond port, it just

hasn’t worked. And us as managers, we’ve

had to work around that. and the stock

market’s been a better investment for

that time period. And quite frankly, if

you look over it over time, I think

regardless of where you’re at, you

should still have a pretty significant

chunk of your portfolio even in

retirement in the stock market because

if you don’t, you’re just going to go

flat basically and it’s not going to

keep wandering up. Yeah, it’s not always

the most It’s not just a straight line

up, but you can see it’s a straight

channel up over time. I just want to

point out three very quick things on

this and we’ll move on to to probably my

two favorite slides in this

presentation. But if you take a look at

where the EPS

just went above its its area here of out

of bounds in the channel, we have we

followed the recession.

Yeah.

81

99

07.

Yep.

Just saying it just can’t be tied. Can’t

be 10 stocks. All right, here we go.

Yeah, it could happen. Yep.

So, you know what prompted me to find

these charts, and I’m glad I did this

one and the next one is because I was

telling people for years GE was dead

money. I said the only way GE is going

to make any money is if they break up

the company. They did, and some of those

pieces have just absolutely done well.

And then here we got about less than a

month ago to Warren Buffett’s dismay.

Craft Hind is now after they put it

together.

Now they’re going to split up. And this

was interesting looking at this that the

amount of spin-offs is near a decade

high. But the bigger chart here is this

one because people say, “Look, you’re

going to do better.” We were having a

conversation pregame about 18 45 years

ago when they were forced to break up.

They all did well and then they figured

out, wait a minute, oh yeah, this

let’s put them all back together again.

But hey, maybe if we put a couple of

these pieces back together again. Yeah.

But I thought this was interesting

because the S&P 500 has done well, but

the companies that spun off

have done well, but not as well.

Yeah. And I But I think you get back to

the point too that anything can be

manipulated here. Yes. The spin-offs

haven’t done as well as the S&P, but the

S&P has done extraordinarily well

because of a very small segment of

stocks that have kept pulling it up over

time. If you were to take out those top

10 stocks from the S&P index, I’d

venture to say that it would have

underperformed the spin-off.

That’s exactly what I was about to go

because this is only a 10-year chart.

Yeah.

So, obviously, you had a divergence here

90 in 2019 2020, but you’re right. take

out those top 10. I bet you the

spin-offs. So, it’s still I still think

you want to look at a spin-off, you

know, of this. Oh, DuPont, remember

DuPont split into three companies. Two

of them aren’t doing that great stock

price-wise. But again, you can probably

sometimes Yeah, sometimes it’s a good

thing to split some of these things off

because you’re those are dragging your

company down and you can get that out of

the mix and hopefully the main company

can do well.

The whole part about a merger is not

just to expand maybe in markets that you

may not have access to or to strengthen

the markets that you’re in. But the

whole idea about it is to get rid of

a redundancy that’s cost.

Yep.

Because that goes right to the bottom

line while you’re expanding the top

line. That’s the purpose typically the

purposes of a merger to break it apart.

Now you’re gonna have redundancies

again, unless you’re creating a holding

company that’s going to take on a lot of

that.

Exactly. Absolutely.

Yeah. So, it’s interesting. Like I said,

I I would love to be able to take that

chart and pull out those top 10 stocks

and see what the rest of the market did

in relation to that spin-off. The

reality is it doesn’t matter. You know,

the S&P 500, I think, is the benchmark

for the world. I’ve looked at different

benchmarks of S&P versus Wilshshire

versus all that and in the end the most

consistent that I’ve seen from a

benchmark perspective is the S&P and it

is what it is. We’ve got to live with

the fact that those top 10 stocks make

up 40% of the index at this point. And

it’s not like they’re 40, you know, it’s

not like they’re 10 stocks that aren’t

making any money and it’s just hype

that’s pushing them up. They’re

continuing to make more and more money.

And I we’re in an interesting time

period where those 10 stocks are now

starting to leverage and utilize AI and

technology to make lots more money.

So, so that said, who knows? But we’re

going to keep reporting on it every

week. And Ron, thanks for putting this

together. That was fantastic stuff. So,

folks, we’re here for you every week. We

we do this stuff because of you. And

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