Tech Collapse Imminent? How To Survive The Coming Storm (Uncut) 02-19-2025

when something has gone this far historically we would actually make the case that over the next two years you’re better off having a more Diversified portfolio across an array of stocks rather than being so concentrated like the S&P 500 is have a wider array of Industries and types of companies in your portfolio we think that’s going to outperform in the stock market over the next two years and now is as good a time as any to start rotating out of some of those positions that have done really well our next guess is chance fuk and

chief investment officer of Oxo advisors will be talking about his outlook for 2025 in terms of which asset classes May outperform the current situation with tariffs and how they may impact markets and whether or not the markets are pricing in higher inflation what consumers and investors would like can do about that chance welcome back to the show good to see you it’s happy 2025 yeah great to see you David thanks for having me back on you have a slide deck that uh I’ll be happy to share with the

audience I’d like to start with this particular slide interest rates are sending a message to the FED indeed the Tanger yield has been rising all throughout 2024 but in the first half of 20 in the first month of 2025 it’s been falling down but um what does this particular chart show and what in what message is it is it sending to the FED yeah I think what we’re trying to show at this chart is that the FED started cutting rates right around the time that the inflation rate was bottoming and starting to accelerate higher and

usually when the FED begins cutting short-term interest rates it’s because the economy is really starting to weaken and you start to see long-term interest rates either stay flat or fall but in this case interest rates on the long end of the curve have been rising for months and you make a good point that they’ve come back down a little bit here in recent weeks but in total they’ve been rising and we think that’s sending a signal to the FED that as opposed to trying to cut interest rates the way

they have been in the last six months they should really be focused on keeping inflation uh contained because we do think that the inflation rate it’s probably going to fluctuate around 3% uh here give or take over the next couple of months but could be heading back up towards 3 and a half% uh to the end of this year and that’s really going to make it difficult for the FED to take any more actions to ease in their monetary policy like they may have wanted to a year ago when you say that the 10e yield has been rising you you’re

correct I’ll show a chart on my screen just a bit um but why has it been rising is my question I’ve gotten all sorts of theories as to why the 10 year has been rising one that has been tracking inflation one that has been pricing and higher economic growth um what’s your take it’s a bit of both uh so if it’s gone up Say by 100 basis points maybe half of that is from inflation rate rising and the other half is from a little bit better economic growth rate and you’ve seen that with some of the more cyclical sectors performing well in

recent months uh we would make the case that going into 2025 we actually think that some of the defensive sectors that really sold off pretty sharply uh over the last couple of months that provide more opportunity than trying to continue to pile into some of these cyclical sectors that may exhibit either some absolute or relative weakness over the course of this year are you bullish treasuries overall for 2025 in other words do you think the 10 year um is going to have more room to come down from current levels 4379 is my last uh

number we think you’re going to have to trade it and be really Nimble with it uh right now we actually recently just took a small position for us in our income strategies in the 30-year treasury bond that uh we do think that yields could come down here in the short term but we’re very mindful of the risk in that and want to make sure that if uh any losses occur that we keep that minimal because uh the trend in terms of what we’ve seen since 2020 when you had this 40-year run 38 year run from 1982 until

2020 of long-term treasury rates falling and now we’re four or five years into the cycle going the other way it really pays to be nimble and I think what people should remember is right now the short end of the treasury curve uh know 3 month 6 month you’re getting a 4.3% return risk-free don’t have to worry about any fluctuation in interest rates compared to maybe you can get four and a half or 5% in a 10 or 30 year and there might be some opportunities on a short-term basis to try and get a little

bit of extra return if yields fall but there’s a lot of risk to buying and holding a 10 or 30-year treasury for years uh into into the future and we are mindful of that uh higher risk-free rate now compared to it’s funny to think it was only three or four years ago it was hard to even get a 1% uh short-term risk-free portfolio for anybody now you can lock in 4% easily which makes it a lot easier to try to have a base to then try and find some opportunities for better returns than that but you don’t

want to go too far out and speculate and risk a really significant loss when you know you can always fall back on an easy four or 5% return let’s evaluate how Trump’s policies may impact the bond market so first of all tariffs have been bullish for the dollar every time he’s announced tariffs whether or not he’s have to follow through with that the dxy has spiked and so the question is whether or not a spiking dxy uh would lead to a rising tenure yield or any any movement in the yield curve historically over uh recent years

when the ten your yield is rising then you’ve also got the US dollar outperforming other currencies of major markets so uh they kind of moved together and it’s interesting to see it’s sort of competing in terms of what you’re hearing from the treasury secretary and from president Trump uh they are thinking about tariffs which as youve said as pointed out usually leads to a stronger dollar when those announcements are made but then they also come out and say they’re really focused on keeping the 10-year treasury

yield lower and if you’re going to have a lower 10-year treasury yield historically that means that the US dollar is going to be a bit weaker so I think it’s just difficult to say which direction this is really going and I wouldn’t be making a really hard bet in either direction of of how this is going to play out well generally speaking protectionism isn’t great for Capital markets if you all else being equal um in theory people should rush to Safe Haven assets like treasuries and gold and perhaps that’s one of the reasons

why Gold’s been going up I’ll let you comment on that uh but the consensus that I’ve heard is that Trump’s policies May lead to a little bit more volatility given how uncertain people are about what he’s going to do next uh first of all do you agree with that sentiment and second if so how do you play higher volatility we absolutely agree with that and we think that’s the thing that’s not being priced into the markets yet you’ll see it for a shock for a single trading day or even half of a trading day if we

think about the couple big announcements in recent weeks um one with deep seek coming out with their AI model and what that did to some sectors trading the following Monday and then with the announcement about potential tariffs with Canada Mexico and China but by the middle of the first trading day after that announcement had already rolled back considering the delay of those potential tariffs with China or with Mexico and Canada that probably don’t even happen now so when we look at things like this we do think that the

level of uncertainty about where markets and the global economy goes has heightened and yet we’re not seeing that priced into financial markets yet which leads us to really want to focus more on the risk side of the cision and the potential downside with any new Investments that we make rather than thinking about how do we maximize our upside here where’s the real angle to to generate great returns right so that leads me to this particular chart here uh which is that the max 7 stock Eclipse entire country weights this is an

interesting title and what you’re showing here is of course concentration risk uh but what does that mean practically speaking for investors I mean as one hand to say that stocks are fairly Rich devalued but what do we do with that information chance our takeaway and there’s a lot of different ways to look at this but the top 10 stocks in the S&P 500 are now 38% of the weight of that index because they’ve risen so high and in some cases we think they can still be somewhat fairly valued so like we own alphabet we think it’s a

pretty fairly valued stock given the cash flow that they generate but when something has gone this far historically we would actually make the case that over the next two years you’re better off having a more Diversified portfolio across an array of stocks rather than being so concentrated like the S&P 500 is have a wider array of Industries and types of companies in your portfolio we think that’s going to outperform in the stock market over the next two years rather than thinking that the amazing

performance of these companies which they’re great companies but we think that the next five years or 10 years is not going to play out the same way as what’s happened the last 5 or 10 and now is as good a time as as any to start rotating out of some of those positions that have done really well but are still kind of pricing in a very Rosy outlook for those companies future and start moving into other areas that are more reasonably priced and uh there’s another chart I imagine you’ll show later on

that shows uh what happened coming out of the dotc bubble where things got so extended in some areas uh and yet owning just a simple dividend Aristocrat portfolio of companies that have a history of cons consist L increasing their annual dividend for 20 years or longer did just fine while the overall index was going down more than 40% yeah I’m not sure if this is the chart you’re referencing uh here this uh not the first time Tech has driven returns um that was a different one but I can discuss that one too yeah this is this

is an interesting chart so the I are you suggesting we’re seeing a resemblance to the 20 2000 Tech bubble first right now yeah and let’s put this in context things are not as overvalued now as they were during the dotcom bubble uh right now these top companies generate real cash flow they have good profit margins they’re good businesses whereas a lot of what was happening the.com bubble was just uh chaotic and and kind of crazy what some of those valuations were going to but what this is showing is that when

you go through a period where the performance of an index as big as the S&P 500 500 companies more than half of the uh return in the S&P 500 the past two years has come from seven stocks when you have that much of the performance coming from such a concentrated uh subset of the total portfolio these markets are cyclical everything in the financial markets the economy is cyclical it’s going to revert the other direction and so when you had this happen where only 30% of stocks in the index were outperforming in 98 99

you then had a fiveyear run where the majority of companies in the S&P 500 were outperforming because there was a snapback and it was better to have a more Diversified balanced portfolio across other areas rather than being so concentrated in Tech and we think this is going to play out similarly where the excitement about the opportunity uh in Ai and the buildout uh and the components and electrical equipment suppliers to Data Centers and the companies doing all this work has pushed the valuations of those companies so

high and assuming such a perfect uh outcome for those businesses it may play out that way but so much of it is already priced in we actually think it’s better to look other places to round out your portfolio and we think that will hold up much better over the next two years all right so which other areas of your portfolio should you be focused on we talked about treasuries any other sectors that you think or asset classes that are um the opposite of what we just talked about which is undervalued well

that’s the nice thing about markets is that you’ve got these companies that uh they’re for good businesses their cash flow their growth is pretty consistent fluctuates within a certain band but uh the good companies we look for tend to grow at a pretty consistent rate over time but their share prices move in a very wide range just based off of sentiment and what people think about the future for their industry so just recent examples of areas of you’ve got consumer staples and health care that have really sold off sharply um Consumer

Staples it’s concern about uh weight loss drugs uh ruining demand for some of their products it’s people not wanting to own defensive businesses and Healthcare it’s the risk about uh disruption to healthcare policy in the United States which is a risk but we now think it’s so priced in that there’s opportunity there that uh wasn’t there six months ago uh and even examples such as uh the Aerospace and defense business if you look at a company like Lockheed Martin uh their growth in cash flow is very consistent about 8% a year going

back 15 years or more and uh in the middle of last year sort of at the height of uh multiple Wars going on around the world uh their valuation was extremely high for its history now it’s traded all the way back down because there’s a possibility of peace and some of these wars that are happening in other parts of the world but if you’re just looking at the company their growth rate’s pretty consistent and that just pullback in price off the cament gives you an opportunity to start a position and that’s the type of thing we’ve been

looking to do across a number of Industries you think gold is fairly valued overvalued or undervalued right now at new all-time highs well we’ve owned own it for years and it’s pretty remarkable that it’s gone up 40% in price in the last 12 months I don’t think anybody expected that uh we think it could keep going higher uh if it gets to $3,000 I think it’s something that uh both that gold position and we own a number of the miners and uh gold royalty businesses in our clients portfolios we probably ended

up trimming some of those positions just being mindful of the fact that it’s run so far so quickly that uh it might need to take a breather for some time but it’s one of those core positions that we always want to have some exposure to just because it can protect you in chaotic environments and it goes back to that idea about uh uncertainty increasing and more volatility happening around the world and gold is something that we think uh is able to generate a good return over a long economic cycle

at a a fraction of the volatility of other asset classes interesting well um let’s take a look one more time at the bond market this is an article I want you to address please chance so Elon Musk says he’s teaming up with Jamie Diamond to convince the bond market that what he’s doing is good for us debt so he’s going to do a live talk with um Jamie Diamond later this week in a spaces event live streamed on X musk said that the talk would be aimed at convincing Bond markets that his doge cost cutting initiative should instill

confidence in US debt um it’s reported by Doge uh officially that a billion dollars is uh saved every single day in government waste and so if that is indeed true and the government is spending less money on certain expenditures does that have any impact whatsoever on the bond markets yeah I think it would I mean in theory I think the goal is to bring down the uh deficit that the US is running right now and trying to get a handle on our fiscal spending and so if the government’s able to spend less and that deficit as a

percentage of GDP comes back down I know the treasury secretary has targeted a deficit of 3% of GDP which would be a significant over improvement over what’s been recorded in the last few years uh you want that that deficit to come back down to a more contained number because if we end up going into recession at any time it’s not about a prediction it’s just recessions cause that deficit to widen and so you want to make sure that your fiscal spending is in line uh with your GDP so that you have some room if

it uh if it spreads out in a bad time for your economy and how significant is the trade War uh in regards to stock market performance take a look at this piece of research here um in 2000 the US was the main trade partner for most countries in the world in 2020 China was the main trade partner for most countries in the world 41% of revenue from the S&P 500 companies come from abroad and so uh tariff threats let’s go back to that if we do have less trade with other countri countries in because of higher import costs and retaliatory

tariff measures what would happen to earnings what would happen to S&P 500 margins um would they find another way to get around with would are you confident that the large caps would find other ways to maintain their margins or not so much it would be problematic so just to give an example because I’ve seen this happened I started my career covering all the consumer staples businesses uh and so like a a beer company uh an Heiser Bush inbev uh there can be a country that decides to increase the tax on alcohol so let’s say

Brazil decides to increase tax on alcohol what ABM Bev whenever that would happen is they would just 100% pass through the tax onto consumers uh so they will take a hit on volumes uh because now the pric has increased and consumers are going to buy less but that’s going to be what you end up seeing is if tariffs do start going through the Company’s trying to sell their products overseas they’re going to have to increase prices which will hurt their volumes uh it’ll end up hurting their earnings and uh and will end up

being inflationary for consumers so uh it’s not a a good thing uh it would say the big risk is uh retaliation back and forth that starts to spiral and escalate and that’s the thing that you don’t really know yet and we’re not trying to make a prediction on what tariffs are going to be put in place you already saw the example where there was some tariffs that were put in place with China and China’s come back with um some things of their own and then what happened with Mexico and Canada already seems like

it’s not really going to be anything so it’s difficult to forecast and that’s why we’re just trying to be very mindful of what it is we’re paying for the riskier assets that we do want to own in our clients portfolios and that’s we just keep coming back to the same two or three points but it’s just really be mindful of what is your downside you know if you own a stock or you know it could be exposure to a commodity or something like that uh really look at the over the last even 10 years and how

far has it traded down to during there’s been three or four difficult times for risky assets not even including the great financial crisis you’ve got 2011 you had a hiccup in the early part of 2016 you had the end of 2018 the pandemic in 2020 and then the second half of 2022 where did your risky assets trade at those points in Time versus where it trades on valuation today that’s your downside and that’s not even getting into if the earnings take a hit and for us we really focused on trying to buy into businesses that have very

consistent cash flow histories and then try to mitigate if there is some unexpected things that happen they’re going to cut into that and we’ve talked about Consumer Staples what about consumer discretionary take a look at this story here private payrolls expanded by 183,000 in January Top me expectations ADP says um ADP says company created net 183,000 jobs slightly more than 176,000 in December we’ve had a pretty good jobs um uh report in the last month um BLS also reported similar outperformance relative

to consensus expectations and so the question is whether or not consumer strength will be a theme this year and whether or not consumer staple stocks or sorry discretionary stocks rather uh will do well as a result uh what’s your take well right now the labor Market’s holding up it’s slowing uh but it’s still holding up okay and we’re mindful of if that’s going to weaken further but uh it’s really Case by case the consumer discretionary era really there’s a lot of sub Industries you’re going to look at O’Reilly Auto

very differently than how you’re going to look at Nordstrom like it’s you really need to pay attention to the sub Industries and Retail as much as any other industry in the entire Market you could choose from is not an area where there’s a regression to the mean if a company is getting stronger it will keep getting stronger if a company’s getting weaker it’s going to keep getting weaker so you really want to try to stick to the areas that are reporting good results and it tends to just Compound on

itself yeah so uh there’s examples like the um the Home Improvement retailers or the online travel agencies the auto parts retailers there’s some areas that we’re kind of just holding the positions that we’ve had in recent years we’re not trying to add a lot within consumer discretionary we’d rather have a better margin of safety before we increase our exposure but like you said things are holding up okay so we’re not in a rush to get out of what we’ve held for anywhere from uh last two to five years

at this point okay and uh finally let’s talk about oil and gas are you bullish in this sector Scott SEC secretary Scott wants to drill more as you know but um I’m just using Exxon Mobile as an example here but uh it doesn’t look like Exxon and a lot of other companies are taking that particular piece of news well uh since the inauguration of trump actually not even the inauguration since the election win of trump exxon’s just been going on downhill spiral and then just recently consolidating um you you

know you you would expect news like we want to drill an additional 3 million barrels a day to be bullish for oil companies but I guess not what’s going on here do you have a do you have a view on this sector yeah yeah it’s uh drilling more increases the supply and any commodity it’s about the relationship between supply and demand uh so if there’s significantly more Supply coming online to be sold uh without the equivalent amount of demand growth then too much Supply the price is going to go go down and that’s the

problem it it we wouldn’t say that it’s going to really kill the the oil price but it is going to keep it range bound uh so I think for anybody investing in energy and we’ve got exposure to to energy businesses and our high income strategy and our longterm growth stock portfolio um it’s you want to make sure you’ve got exposure across an array of sub Ministries within energy you want exposure to the oil Market you want exposure to the Natural Gas Market you want to own Pipelines uh along with some

exploration and production businesses so it’s not something quite as simple as uh just having 5% concentrated just in Exxon or Chevron or something like that um and so for us uh we really like uh continuing to own the pipeline businesses uh they generate very consistent cash flow uh pay out a very good dividend and it’s less dependent on the fluctuations in the underlying commodity price and then the natural gas area has been a good place to be just because of the increase uh need for liquified natural gas around

the world uh and actually some of those stocks have gone so far that um we probably need to be uh trimming or selling some of those just because they’ve done so well uh and you use that sort of diversification to uh to give yourself more more at bats to try and hit well within that sector that’s great so let’s let’s follow up on uh what happens then uh with the um energy sector in a couple months I like to see how scop planet works out um finally uh you’ve mentioned to me Offline that several risks could perhaps take CH

chunks of valuations out of the stock market and perhaps um it’s already sober the valued that any bad news would bring volatility so could we just maybe think about some of these risks um how they may materialize and so we can at least investors mentally prepare when they happen yeah like let’s just start with uh the the Deep seek news and uh you know a group of a Chinese firm coming out with an AI model at uh the fraction of the cost of what’s being spent by some of these huge technological companies in the US and yet having an

equivalent amount of Effectiveness in their AI model and what was interesting about the news was it seemed like all of the players involved in this space uh kind of use the news to double down on their own biases or whatever their opinion was on how this is all going to play out and our take is it’s still way too early to know what’s going to happen um you can make the case it’s positive for the hyperscalers like Amazon Microsoft and Google because this is going to accelerate the adoption of AI

and you’re going to need the cloud or you can make the case that the fact that this is becoming cheaper uh to produce and you may only need it to use on your iPhone you’re not even going to need any data centers or Cloud uh would be negative for them it’s too early to tell so what you’re looking at when you’re looking at the share prices of some of these businesses that have really taken off for the moon in the last couple of years is what’s priced in what’s the growth rate that’s expected and it’s

Nvidia uh as a good example but it’s even suppliers to Data Centers uh it was interesting to see which Industries really sold off on that news and if they’re selling off like that in our opinion that means they’re overvalued to begin with and pricing in a perfect scenario uh for their business trajectory and we just don’t want to part of that because we think it’s way too unknown as to what’s going to happen and uh if things break differently than what’s priced in they’re going to come down a long way if uh if you look at the

history of Nvidia fantastic company that’s done amazing things but when they go through a down cycle their share price Falls by at least 50% so it peaked at around 150 it could easily fall back down to 75 uh and that would just be in line with its normal swings but I don’t know that people are thinking about that are you positioned for Less geopolitical volatility given that uh Gaz the Gaza War has already uh there was a ceasefire though it’s not really being respected but at least Israel is going to the

negotiating table um with Hamas uh similar situation with Ukraine uh Trump wants to make a deal with Ukraine and Russia and so the underlying theme is just deescalation of current conflicts and to the extent that it impacts markets it could be bullish for either risk assets and or bearish for safe havens like gold um is this something that you’re looking at yeah I think the difficult part with such a complex environment as the global economy is you’ve got to push and pull so there’s this possibility of Peace in some of the

major um Wars going on around the world but like we just discussed earlier you’ve also got discussion about tariffs which could be a problem for uh just the running of the global economy and how do you weight those two together so we goes back to the same points but like we’re looking at what’s priced in we’re looking at the high valuations in the market and it’s not just stocks if you look at uh the spread on what you could get on a a junk bond compared to a treasury bond it’s in the lowest 2% of readings in the

last 40 years same thing with an investment grade corporate bond and when the spreads are that low in the bond market uh historically it’s not great returns for risky assets over the next five years you’re just not getting enough of a premium there to make it worth your while so it’s less about us trying to predict what that’s going to mean for uh financial markets if there’s a a decrease in geopolitical tensions it’s more about what’s are we paying for for certain assets and with where things are at currently we’re just trying to

stay pretty defensively positioned uh and there will inevitably be a time that things end up looking a lot like a better opportunity for some more aggressive uh picks in the market but right now that’s not it all right chance excellent analysis thank you for your breakdown of the markets where can we learn more from you and follow you and your work yeah you can look up our team at Oxo advisors.com or look up our YouTube YouTube channel at Oxo advisors okay we’ll put the links down below take care now and we’ll speak again soon

cheers thanks a lot thank you for watching don’t forget to like And subscribe