April 6, 2025 • 45 mins
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When markets plummet in response to unexpected policy shifts like Trump's tariff announcements, distinguishing between panic reactions and thoughtful investment strategy becomes crucial. Steve Davenport and Clem Miller cut through the market noise to deliver a practical framework for navigating financial turbulence.
The duo examines three potential market scenarios ranging from a further 20% drop with sluggish recovery to a milder 5% decline followed by stabilization. Unlike systemic crises of the past, today's market challenge stems from policy decisions that could theoretically be modified more easily—though international responses, particularly from China, add significant complication.
What makes this episode particularly valuable is their focus on financial resilience rather than market timing. Before worrying about portfolio tweaks, they emphasize foundations: Do you have adequate emergency savings? Have you minimized debt? Can you sleep well with your current risk exposure? This perspective shift from short-term market movements to long-term financial health provides immediate clarity during uncertain times.
For those contemplating action, they suggest incremental adjustments over dramatic moves—considering reducing exposure to high-beta stocks, companies with significant short interest, and those with elevated forward PEG ratios. Their nuanced view on mid-cap stocks (conducting approximately 80% of business domestically) offers an intriguing alternative to both large-cap tech and small-caps during tariff uncertainty.
Ready to strengthen your investment approach during market volatility? This episode delivers the balanced perspective you need to make confident decisions when headlines scream panic. Share with friends who could benefit from a dose of calm, rational investment thinking during turbulent times.
Straight Talk for All - Nonsense for None
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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Steve Davenport (00:02):
Welcome everyone.
This is Steve Davenport withClem Miller as part of Skeptic's
Guide to Investing, and we'resitting here on a Saturday or
Sunday afternoon and we'resaying what are we doing,
talking to each other aboutinvesting on a Sunday, and then
we realized that all of themajor business networks are all
(00:23):
having shows tonight from 7 to 9to talk about the sell-off
since Trump's tariffs.
So we just looked at ourselvesand said what would we do?
What are we doing personally,and how will the different
scenarios play out over the nextsix, three, six, nine months,
(00:48):
over the next six, three, six,nine months?
And we just try to get to theheart of what we think might
happen, and therefore don't besurprised if this also happens,
because I think that, at leastdiscussing the possibilities, I
think you become a lot moresettled around something.
When it does happen, you say itwasn't as bad as I thought, or
this, this, this made thatbetter and it helps you to
become a better investor.
When you look at the waymarkets react in these tantrum
(01:11):
type moments, what do you think,clem, when that, when you look
out there, do you see just stuff, uh, yelling at you to buy
because they're so valuable, ordo you still see.
It feels to me like themultiples come down, but not as
much and as quickly as it wentup the last two years.
So it feels to me like there'ssome value to come out of this
(01:33):
market.
Where do you?
Clem Miller (01:34):
feel I would agree with that.
Really, there's threeparameters around which to make
some judgments.
The first parameter is how muchfurther we have to go down
after Thursdays and Fridaysdrops.
The second parameter is whenwill we reach a trough in the
(01:56):
market and how long will it taketo reach that?
And then the third parameter isat what rate will we recover
from that trough?
So those are the threeparameters.
Now, when you use those threeparameters, you can build some
scenarios around thoseparameters, and so I've sketched
(02:16):
out three scenarios here.
So the pessimistic scenario isthat there's a further 20% drop
over the next two weeks.
So that would mean that twoweeks from now we will have been
down roughly 30% from lastWednesday.
(02:40):
So a further 20% drop over thenext two weeks, followed by a 2%
per week recovery after that.
So now remember, 2% per week,doesn't you know?
The math doesn't worksymmetrically.
(03:00):
It takes more than 10 weeks torecover that 20%.
It takes more than 30 weeks torecover that, or more than 15
weeks to recover that overall30% drop.
So we're talking about quite along period of time before the
(03:20):
market actually recovers.
So the first scenario is truly apessimistic scenario.
Second scenario I have.
Well, let's go to theoptimistic one.
The optimistic one is that wehave a further 5% drop, probably
over the next week, right,maybe even tomorrow, monday, and
(03:43):
then the market goes flattishbut volatile.
So I think that's probably asmuch of a probability as the
first one.
I laid out that we're going tosee things kind of flatten out
(04:04):
but still maintain volatility.
And under this 5% drop scenarioI think it's going to be a
while before we start seeing themarket climb back up again.
And then my middle scenarioneither optimistic nor pessim,
sort of the the lukewarmscenario is that we'll see a
(04:27):
further 10% drop, say over thenext couple of weeks, and then a
uh, a 1% uh recovery.
So not as dire as the first uhpessimistic scenario, uh, but
still bad to that.
So now, if you give sort of, ifyou give kind of equal
(04:49):
probabilities to each of thosescenarios, you kind of end up
with the, you know, somethingclose to the middle scenario can
you honestly say that?
Steve Davenport (04:59):
that's the way you feel?
The way I feel yeah, you feellike the moderate is you think
the positive?
Clem Miller (05:07):
right now, I have to feel the negative outweighs
the positive well, no, when Isay, when I say my middle one,
I'm saying further 10 drop, yeah, yeah, and then a one percent
per week.
Steve Davenport (05:21):
Uh, recovery after that right, but I'm saying
you're offsetting thepessimistic and the optimistic
or the positive.
That's basically about the sameprobability and I'm just
telling you based on what I feelfrom people talking to them
about markets and some of the,let's just say, less than clear
things that have been done liketrying to tariff an island of
(05:45):
penguins I think there's a lotof question marks in the air
that make me feel like I'd haveto go with maybe 25, 20 or 2010,
.
Some odds of the negative beinghigher than the positive right
now odds of the negative beinghigher than the positive right
(06:09):
now.
Clem Miller (06:13):
Clearly there's a lot of incompetence going on you
can see that across manydifferent policy areas within
the administration.
So you know that would, I think, argue for a more pessimistic
scenario.
On the other hand, I think onething to keep in mind is that
what we're dealing with here isa kind of top-down policy
(06:36):
decision on these tariffs andthus perhaps more easily
rescinded to some degree.
I mean it's not.
COVID.
Covid was something youcouldn't, you know you had to
wait for, you know, for vaccinesto come in before you could
deal with COVID.
(06:56):
I mean, granted, the recoveryoccurred pretty quickly, but you
know, the real big recoveryafter COVID was when vaccines
came in.
Steve Davenport (07:08):
Yeah, I mean, I think you're going to the
longer term and I'm just worriedright now about what is the Fed
going to do.
Because if I was sitting hereand saying I think the Fed is on
hold and there's no way theyget in until we see, you know, a
quarter of negative growth andthen the Fed comes.
But then I look at someforecasters and they've gone
(07:30):
from one or two cuts this yearat the end of the year to a cut
at every meeting the Fed hasthis year, and getting down to
the half to one percent again.
So I'm sitting here saying well, we saw during COVID a reaction
in one weekend that we neverthought was possible.
Right, the amount of liquiditythey flooded the market with by
(07:53):
lowering 250 in one day, onemeeting, was just amazing.
And that's what I'm sittinghere saying is, are they?
Is every system going tooperate in whatever way it can?
And then there are these checksand balances like what's going
to happen with some of thesethings in the courts?
(08:16):
What's going to happen with theFederal Reserve?
Maybe the markets go crazyuntil the Fed says we're not
going to lower rates, but we'regoing to tell you we're aware of
the volatility and we're goingto do things to protect
investors.
I think that Trump is implyingthat he wants the Fed to cut and
(08:38):
wants lower rates and he's notafraid of causing some upset for
a period of time until thathappens.
And I mean, I think the mostcallous thing he did this
weekend was to go play golf inthe club championship.
Yeah, I just think it sends,even if he is the richest man in
the world.
(08:58):
I think it would be the wrongimage to say to the average
working class person yeah,you're worried about your job
now you're worried about yourretirement account, and now, all
of a sudden, you know he's outgolfing On the Fed.
Clem Miller (09:14):
you mentioned the Fed.
Steve Davenport (09:16):
Yeah, I think we're going to go into the Fed
and what's I mean?
Because that to me you make itsound like there's one and then
there's the other in the market,and then there's Trump and
they're going to have thisbattle.
But I would say that there isthis person on the sideline
who's going to try to keep bothof these characters in line so
(09:36):
that we go in a direction that'snot totally market based, but
also not totally that everythingcan fail.
Clem Miller (09:46):
So A few things on the Fed and Powell is tariffs
can cause recession, obviously.
Tariffs can also causeinflation, obviously, and so
Powell is kind of stuck with hisdata right, right.
Steve Davenport (10:07):
That's why I think this is such a unique.
Not only if Trump didn't hatethe power of the Fed so much, it
would be one thing, but then tohave them kind of back
themselves into a corner wherethey know they have trouble if
they loosen money supply now andthere's extra inflation.
It's like they've made this betand they just don't want to
(10:30):
lower just because they lookvery hypocritical.
And I think that Trump wouldlook at it and say, hey, I
texted on Thursday and thishappened on Monday.
I guess it took them a littlelonger to realize I was right.
And I guess when I look at thisI just wonder.
And I guess when I look at this, I just wonder and it's crazy.
Clem Miller (10:51):
You see all these conspiracy theories now on the
net about how.
Oh well, this is some kind offour or five dimensional chess
that Trump is playing that isaimed at getting the Fed
involved and this is he's tryingto lower the overall debt, so
that when we refinance $7trillion in the next two years.
Steve Davenport (11:12):
I saw this post and there's going to be $7
trillion in refinancing and theywant it to be at lower rates.
So what they're doing bytanking the economy, is really
going to save us in interestpayments over the life of these
loans.
And I'm just sitting here goingboy.
Clem Miller (11:29):
I mean these are people who are trying to hawk
Teslas from the White House.
I'm just sitting here going.
I mean these are people who aretrying to hawk Tesla's from the
White House.
So I don't, I don't, I don'tgive them any, I don't give them
any credence in terms of beingsmart about.
Steve Davenport (11:42):
I guess I'm just saying for the average
investor and the average guywho's listening to the news how
does he determine what's reallyright and wrong for him and what
is the real problem here?
And that's where I just like tosay to people you know, we've
always talked about investinghere and how to get good returns
and how to get a good riskadjusted returns, and we think
(12:02):
that's the way that you addvalue in your life and in
anything you do with your money.
And I guess what we haven'treally I think we've talked a
little bit about is what are thethings you need to make sure
that a period like this doesn'tderail you and push you off into
a bad place where you're notgoing to recover financially for
(12:23):
a long time?
How do we avoid those pitfalls?
And I guess I would say do youhave money saved?
Do you have money in case youlose your job or something
happens and you get injured?
Is there a way for you to coverwhat your expenses are?
Do you know what they are?
How much debt do you have?
(12:43):
Is it a lot or is it a little?
And, if you can, can youeliminate some of it so that if
there was a bad event, you'd bemore resilient and more able to
respond.
Do you have a HELOC?
Do you have some capacity toborrow money?
That's not going to be hard toget If you need the money.
If you need the money, do youhave a capacity to borrow from
(13:05):
someone or someplace?
And the last thing is do youhave other assets?
Because I think that what usedto make me real happy when I was
in the beginning of ourmarriage is we had a house and I
used to look at the house and Iused to look at the equity and
look at what the market said itwas worth and it gave me some
confidence that there was somecore there in my savings,
(13:27):
because we put all our savingsinto our house and that just
feels like that made me steadywhen the markets would follow.
So I think you need to look atyourself and say, hey, what's my
rent or what's my mortgage andhow do I feel about where I live
?
And then I think it comes downto can you sleep well at night?
(13:48):
If you can sleep well at night,then you've got the right
amount of risk.
So if you're having too much,then you're not sleeping.
Clem Miller (13:56):
I think you've got to take care of you first, steve
, you're laying out basicprinciples, and let me overlay
something on what you're saying,which is thats, 30s, uh, you're
(14:17):
going to have an entirelydifferent um perspective, or you
should have an entirelydifferent perspective on what's
going on now, uh, than somebodyour age or, you know, somebody
in their 40s or 50s, um, evenright, should have a totally
different perspective, becauseyou got you, you who are younger
(14:39):
20s and 30s, and even to someextent in the 40s uh, are going
to live past this.
Steve Davenport (14:47):
Really, this is going to be a line on the graph
that you're going to say, wow,that felt bad when it was in it.
But when you look at the lifeof the market, your time frame,
30 or 40 years, there is not agreat deal of worry Even at this
point.
Clem Miller (15:04):
if you look at an S&P 500 chart, if you look at
the 2008 drop, you look at the2020 drop, these already look
like small squiggles.
Steve Davenport (15:20):
Yeah, I'm not trying to diminish it, because
there are different people right, we've got people who may just
be retiring and they just sawwhat they thought was their
total at the beginning of themonth get hit pretty hard, and
so I think that this gets intothis whole point about what
should be allocated and how muchrisk should you take, and I
(15:41):
think that when you're gettingcloser to retirement, you want
to be having you take the riskoff at a higher level than
having the market take it off,and that's what I just want
people to be constantly lookingat themselves and saying, hey,
am I where I want to be?
Am I doing the things I can do?
And then you just leave therest up to the assets and your
(16:03):
allocation.
I think that looking at itdaily is not a good idea, and I
think the media coverage tonighton bloomberg and cnbc and
everywhere having a specialbecause it was so volatile last
week I find that to be like whydo we celebrate the negativity
instead of right, you know,celebrating the fact that we
(16:24):
have so many great ai companies?
Yeah, I don't, yeah, I don't.
I don't think that we're, we're, we're a media of negativity.
Clem Miller (16:32):
Let me say it.
I think that negativity canaffect you.
I have no plans to watch thoseshows.
Steve Davenport (16:39):
Well, no, that's because you're going to
be working on your podcast andtrying to make sure you release
the best you can release.
So we're trying with this totake a different approach and be
more reactive to the newsaround us, because we think that
when we did some reactionpieces to what happened with
(16:59):
CrowdStrike and what happenedwith the GLPs and what happened
with NVIDIA and some of theirquestions, their early
valuations, we felt those weregood and were received well by
our listeners.
So we're looking at this sayingwhat would you tell people if
you gave them 20 or 30 minutesand you said, hey, this is
(17:19):
really what you should thinkabout in your overall
perspective of money investingand the volatility of markets.
It's a moment to learn and it'sa moment to think about things
that are important to you.
Clem Miller (17:31):
And if you're doing those things, then you realize
that that these squiggles, theyaren't as big a deal yeah, so
steve um just uh, you know, forour audience here, um, in terms
of, uh, you know what I've beendoing, okay, to prepare for this
and during it, uh, this crisis,the last two days, as I've
(17:54):
mentioned on prior podcasts andin some blog posts, I have been
ratcheting in beta, lowering thebeta of my portfolio.
I've always looked for stockswith lower short interest.
Yeah.
Steve Davenport (18:13):
I noticed today , this week, some of those
really spiked up there, like Isaw Exxon at 10 or 11%.
Yeah, I mean it's crazy.
So I wondered does Clem have tosell all his names if that
number goes up, or does he youknow?
Does he say?
Clem Miller (18:28):
no, well, I'm watching this.
The only problem is is that alot of the short interest comes
out.
The short interest data onlycomes out twice a month, so
there's a data latency problem.
I thought.
Steve Davenport (18:45):
I had somebody that was telling me live on TV
that they were seeing shortinterest.
I thought when I looked at it,maybe that was, that was yeah,
maybe.
Clem Miller (18:57):
Yeah, finra puts it out every twice a month.
But and then forward pegs, well, they're certainly coming down
a lot for some of thesecompanies.
And so you know, as you know,steve, you know I sort of grade
these stocks.
But one of the things based onthose criteria, but one of the
(19:18):
things that that I've donelately, and I think you would
appreciate this is I kind ofmultiply through those three
things.
You know, I take the shortinterest, multiply it by the
forward peg, multiply it by the,by the beta.
That's cool and uh, and itgives me like a single number.
And if I um, you know, if I seesomething that's above two,
(19:42):
then, um, you know, shortinterest, times, beta times,
forward peg, if I see somethingabove two, then I want to get
rid of it, right, and I likethings that are sort of in the
below one or, you know,somewhere between one and 1.5,
somewhere along in that, in thatrange.
Steve Davenport (19:59):
Well, that's what I was going to ask you is
this there's different ways toadjust your beta, right?
Yeah, taking it all out,putting it into cash, and that's
going to adjust your overallbeta, yeah.
And then there's all the stocksyou want to own.
Do I want to clip some in thefront end to have that great run
?
Do I want to clip some on theback end so that I can take a
loss, and that might help mewith my taxes.
Clem Miller (20:20):
So by getting rid, looking at those three
indicators and getting rid ofthe ones that multiply out to
two or above, I've added to mycash.
Above I've added to my cash,I've added to my gold.
(20:41):
And I've done something just onFriday that I think you're
going to be very surprised at,which is I've added some bond
exposure.
But I'm going to add some morebond exposure, but just a little
bit.
Steve Davenport (20:51):
Okay, I don't want you to leap anywhere.
Clem Miller (20:54):
You're not comfortable with.
Steve Davenport (20:55):
I want you to gradually move places so that
you might sit there for a while,right, I look at bonds now and
I think about whatever durationyou want to look at a two or a
four year.
I look at two mainly becauseit's kind of after.
A lot of noise happens in thefirst six to nine months and I
think that you get rates overfour or two.
Clem Miller (21:17):
So I like that kind of mathematics I mean, with
yields coming down-.
Steve Davenport (21:25):
With yields coming down.
It's going to help us with thelittle capital gain right?
Clem Miller (21:29):
Yeah, TLT is going to go up.
Correct, that's a longerduration item.
Steve Davenport (21:32):
So if you want to play, the longer duration TLT
is going to go up.
Correct, that's a longerduration item.
So if you want to play, thelonger duration TLT is to play.
If you want to really play it,then you look at options on TLT
and that's really applyingleverage to something that's
already kind of pretty clearlycorrelated to what the market's
going to do?
Clem Miller (21:52):
TLT has done okay through the last couple of days.
Steve Davenport (21:58):
Yeah, I mean one strategy an endowment told
me about was they sell puts onTLT.
So when it shrinks and there'sdemand for safe assets, they go
down, the price goes up and youlook at that and you have a put
(22:23):
in place so you can takeadvantage of it.
Clem Miller (22:27):
Yeah, so for our audience, if you're kind of
confused, what the heck areSteve and Clem talking about
with TLT?
It's a long-term treasury bondETF and so it's a way of
investing in long duration,which basically is another way
of saying that if yields go down, the price of this thing goes
(22:51):
up, you're going to get a nicesolid return, but vice versa, if
yields go down, there's goingto be a loss.
So it's not something thatwould ever be like a core of my
portfolio, but you know, maybeon the edges it would be.
Steve Davenport (23:08):
It would be like gold we are trying to help
people with.
We don't have information, soeverybody should make sure that
they tech with their tax andinvestment advisors.
We're just kind of throwingaround ideas and I looked at the
three categories.
I'd just be a little more like20 or 30% in the bucket of the
(23:31):
negative and the pessimistic andI put probably 10 in the
positive and then the remainderin the middle, which would push
you a little towards more like a15 percent decline overall yeah
, go ahead.
Clem Miller (23:46):
Sorry, one of the things I was going to ask you,
one of the things that surprisedme on Thursday and Friday, is
that gold actually went down.
Steve Davenport (23:55):
I know, and so did silver.
I mean, there's a lot of peoplein the metal space who are
saying silver has not reallykept up in this move in gold.
Yeah, and is it gold movingjust because of the safety trade
, or are there several safetytrades going on?
You want to be out of themarket, but you're also worried
(24:15):
about inflation, so you want topick something that you think is
going to benefit in both cases.
And I think when you look atsilver, it probably has more of
a consistent demand from dentaland chips, so it probably
doesn't have the same amount ofspeculation in it.
The gold is basically beingheld as a speculative asset for
people to hedge their portfolios.
Clem Miller (24:37):
Well, that plus also, there's a lot of central
bank demand for gold right nowand that was one of the theses
by which I was holding gold, andyou know also preparation for
something that you know tariffdrops or or some kind of crisis
and and that hasn't played outas well as I thought it would.
(24:59):
Gold was really, really doingwell and it was a big
contributor to my portfoliothrough through Wednesday and
Thursday and Friday.
It didn't didn't quite work aswell, so I'm not selling any of
the gold, but I'm not going toadd to it, which is why I
thought about the bonds.
Steve Davenport (25:19):
Right, I think it's good to have different
levers you touch, and then Ithink the gold is one of those
levers.
When we look at government'sgold, china needs and wants as
much gold as it can to try tomake its currency more of a
reserve currency.
Right now, the US is somewherearound 6% to 7% of its currency
is based in gold, and China isbelow 1%.
(25:41):
So they need an awful lot ofgold because their economy is
growing fast and so that numberkeeps getting bigger and bigger,
and so they don't export anygold for the rest of the world.
They're only buyers.
And so when you look at a buyerlike China out there and you see
this demand for what they wantto do, if they take their money
(26:02):
out of treasuries, what do theyput it in that's going to give
them safety?
Would they put it in some othercurrency?
Would they put it in?
Because they know that most ofthe currencies of their allies
are going to be currencies thatare probably going to behave
opposite of the US dollar.
So therefore, you don't want toblock in a loss, you're trying
to block in a gain, if anything.
So I think the way thatgovernments look at.
(26:24):
This is a big part of what'shappening.
Clem Miller (26:28):
So, steve, let's take it back to tariffs for a
second.
One big catalyst well, two bigcatalysts would be if the EU
decides not to retaliate and ifChina decides to pull back on
its retaliation and reach somekind of an agreement.
I'm skeptical about both.
(26:51):
I'm more skeptical about Chinabecause China has actually come,
really has had a very powerfulreaction to this not just the
tariffs, but also cutting offrare minerals exports and
putting some more companies, uscompanies on their so-called
(27:15):
unreliable entities list.
Steve Davenport (27:24):
Right.
I mean you could tell they gotserious when they told employees
no holding Apple phones anymore.
They are making a clear-cutdelineation that they will
develop the technology that willbe the leading tech in AI or
other spaces going forward.
I think that if the US thinksthere is not a fierce competitor
there, we're missing the boat.
But the bottom line is the USgovernment has a lot of assets
(27:46):
and a lot of resources, and thequestion I think that Xi in
China is trying to figure out iswill the US get so distracted
by tariffs that they forgetabout security and they do
things that are a mistake ineither the Ukraine or Israel or
in Taiwan, and I think those arethe three international spots
(28:08):
and you're going to say is thereanything that could make this
tariff story go worse?
It would be some type of anupset in one of those two, three
regions.
That would just add to thisnegativity of the overall global
economy.
And I think that, when I lookat the reasons that we're going
to recover one, it could be thatthe market has overreacted.
(28:30):
It could be that this you know,this stuff gets backed off
after two to three days.
It could be, you know, a muchdifferent scenario.
But people are being set up fora longer term problem here.
So if I was going to just pullthe, you know, pull the wind,
the, pull the windows open andsay, hey, what's happening?
(28:51):
I'd say that there's.
There's more likelihood thatthis goes on for a period of
time.
Clem Miller (28:55):
So, as a longer lasting item, that's why I'm
more pessimistic well, I thinkit's easy to be pessimistic
about a lot of policies thatwe're seeing come out of this
administration and the inabilityof Congress, of this Congress,
to try to get its act together.
(29:16):
I just you know we're at a badjuncture with respect to
governance in the United Statesand that doesn't help.
Steve Davenport (29:29):
That doesn't help, I guess I would say that
the thing that gives me somehope is that the Fed is sitting
here and the Fed knows that ifthey were to do anything to make
an indication of the marketthat they were going to support
it.
Clem Miller (29:42):
that would be like a moment where things would turn
around and yeah, and here's theproblem If the Fed decides well
, you know, trump got into thishimself, he's got to get out of
it himself.
If the Fed decides that theworst case scenario is, trump
could decide to fire Jay Powell.
Steve Davenport (30:03):
Yeah, I think that I think there's scenarios
that are more likely this weekand more likely in two months
and I think that it will take awhile for the process to work
where he fires Powell and Ithink it will be it will take
some time and I think I honestlythink the Fed will cave and
probably lower rates in Juneinstead of, you know, september
(30:25):
or December, like they had beenpredicted.
So I think they'll pull thecuts forward and they'll
indicate that they'll cut more,and I think those two things
will stabilize this market.
Clem Miller (30:36):
They could stabilize this market.
Steve Davenport (30:38):
Yeah, it depends on-.
Clem Miller (30:39):
There's a lot of other variables.
Yeah, it depends on whetherwhich is of greater concern at
the moment inflation orrecession.
Steve Davenport (30:50):
Right.
I think the Fed doesn't want tonot be at the switch, but I
also think they don't want tofeel like they're kowtailing to
Trump tweets.
So, in order for them to keeptheir respect, I think that you
can't.
You can't really see somethinghappening in April or May.
I think that they will want tosee what happens with this
budget and want to see whathappens with the extension of
(31:12):
the tax cuts.
If you see two events aftereach other, being the Fed lowers
and the tax cuts are extended,you're going to see an
accelerated market and too muchinflation, and I think the Fed
would like to see that decidedbefore it goes ahead with the
question about cutting.
Clem Miller (31:32):
They'd like to see what happens with the budget
first Correct.
I think that I agree with that.
Steve Davenport (31:37):
And I think that if we look at this thing
and take a longer time frame,that's what I would say Make
yourself comfortable this weekwith your allocations and if you
want to sell, sell If you don'twant to generate some.
You know I'm selling myself inmy IRA, my IRA account.
I have no taxes, so I take backsome S&P exposure and I looked
(31:59):
and added some exposure to myFLQM, which is my mid cap,
because on on a risk-adjustedbasis, I look at mid-cap as a
place where you get compensatedand tariff risk doesn't affect
mid-cap because the companiesare 80% doing their business in
the US.
So mid-cap tends to have asmall cap and even higher.
(32:20):
But small cap doesn't have thebalance sheets of mid cap.
So I'm putting some money inmid cap and taking it out of
large cap and saying, okay, I'mnot sure what's going to happen
here, but this is in aretirement account and every
situation is different.
So in my mind, we want to havemore dry powder.
We want to be able to deployquickly.
(32:42):
I think the question that Clemasked is a good question about
what duration you want to be.
Do you just want to be theshortest treasury you can and
have no risk up or down.
I feel like if the market'sgoing to tell me something, it's
telling me right now thatthere's more likelihood they're
going to cut rates than raiserates.
So I think it will take monthsof data before we know the
(33:03):
inflationary effect of tariffs.
It's going to take more thanmonths because we don't even
know how quickly somebody mightbe taken off right.
We could have an agreement withFrance, but not with Italy.
We could have an agreement.
I don't know if the euro willact as one.
Maybe they should negotiate asone, but Germany wants to do no.
I can see Trump trying tofracture the euro and trying to
(33:27):
fracture whoever is not in hisgood graces, and I look at that
and say the damage here longterm is not just that he did
this tariff thing, but that itjust created such disruption
that people now have less likelyto understand and respect the
US in these markets that peoplenow have less likely to
understand and respect the US inthese markets.
Clem Miller (33:52):
Yeah, he may try to help out the countries that
have governments that are morefriendly to his ideological
perspective Correct, and wecould you know, we could see a
long lasting impact from this.
Steve Davenport (33:59):
What I think is probably happening is he's
under a lot of pressure as CEOsand financiers go to Mar-a-Lago
and try to visit and say this isreally bad for us.
This is why you need to change,and I think he will do what he
does, which is he will generateheadlines.
He would love to claim success.
He's already said that tariffsare going to add trillions of
(34:23):
dollars to the US Treasury.
I think it's one of the thingsthat has to happen with the
market is you've got to look atit as a discounting mechanism
and you need more data.
Nobody knows.
Therefore, I think a lot ofthese people on these shows and
a lot of the people in themarket here are trying to say I
(34:45):
know what's going to happen andin reality, we know that if we
sleep well, if we exercise, ifwe keep a balanced approach to
life, there's a better chancewe'll live well.
I think that all of thesethings about market timing and
market levels and how long themarkets will go down, the
markets will go up and if youallocate it reasonably, you
(35:09):
should be able to participate ina way that adds value.
Clem Miller (35:13):
That's all I try to do, mike GREEN.
Yeah, the last thing you wantto do is react.
Don TAYLOR, don't sell 100%100%.
Steve Davenport (35:22):
Person who gets out at one time says they know
perfect information.
Yeah, I look at it and say, do20 percent, do 10 percent, do
some number that makes you feelmore comfortable?
And you can look at the numberand say, hey, my annual, my
monthly expenses are three grand.
I'm going to look at that andsay I saved 30 grand.
I get 10 months of expenses.
(35:43):
That's more than enough.
And that's how you have to lookat your life and say, hey,
these things can immunize me andmake me feel better.
Or I can continue to cognateand think about it and let it
roam right around and bouncearound at night.
I think I've lived that life andI'd suggest another approach,
(36:04):
which is get yourself to anallocation.
You feel comfortable and fromthere I wanted to end with an
opportunity where I seesomething and I see opportunity
and energy, and I especially seeopportunity in dividend payers.
I think the overall sell offhas taken some number away from
(36:26):
some names that were alreadygood values, especially European
companies, and made them bettervalues.
And so when I look at what'shappening, I think I'm glad I
have this allocation to thesetypes of securities and I think
they add value, especially now,because what's the likelihood
that any of these companies aregoing to cancel a dividend
(36:47):
between now and the next two orthree quarters?
Almost none.
They've got cash on hand tocover the dividends, but their
businesses are still thriving.
I went to Costco, I went to HomeDepot, went out again for
dinner.
They are all doing fine.
I think that if you look at UScompanies, there's some great
(37:15):
companies and if the price goesdown, I'd suggest that people
think about it, but only thinkabout it if you have the right
risk perspective.
What do you think we should buy?
Clem Miller (37:23):
well, apart from, um, some bond exposure, um, uh,
I would well, in terms of whatto buy or what to sell.
Okay, what, what do you?
Steve Davenport (37:35):
want to be lighter in.
What do you want?
You want to have more.
Well, I want to have.
Clem Miller (37:39):
I want to have less of all three of these things
less beta, less short interestand less forward peg.
And so when you multiply thosethrough, uh, generally speaking,
that means right now, what thatmeans is uh is getting out of
(37:59):
most technology almost alltechnology actually.
Actually.
It also means more consumerstaples.
It means more utilities and itmeans more insurance companies.
What healthcare?
(38:19):
It means some pharmaceuticalcompanies in healthcare.
Okay, surprisingly well, Idon't know, not surprisingly
there's no consumerdiscretionary in that mix.
What about industrials?
(38:41):
No industrials in that mix.
What about energy?
Energy, I'll tell you, we mayhave a difference of opinion on
energy, right, and the reason?
So just a few beyond the threeindicators I talked about, a few
observations I would make.
(39:02):
One on energy is that we'veseen a very big drop in energy
prices over the last two, three,four days.
That may make your stockscheaper to buy more of, right,
steve STEVE DIGGLE.
Steve Davenport (39:18):
That's why I'm reacting, because I think it's
gotten for areas that havehigher beta.
I understand why there's are-rating of Amazon and video,
but when I look at Exxon and Isay what's been re-rated, I
agree.
The thing that was a little bitthat people aren't talking
about, as the cause of that wasthe fact that OPEC agreed to
(39:38):
increase production and so OPECagreeing to increase production
at the same time Trump putstariffs on has kind of made a
double whammy, double whammyright, and my question is is
that whammy going to persist oris it a?
Clem Miller (39:52):
temporary opportunity.
It depends on whether we enterrecession.
Steve Davenport (39:56):
Right and I think we're not going to know
that for six to nine months.
Clem Miller (40:11):
The other thing I would mention is that insurance
which meets generally speakinginsurance companies meet my
criteria, but there is a problem, a qualitative problem, with
that, in that some of theseinsurance companies, like All
First, are dependent onautomobiles and automobiles are
subject to the tariffs, and sothere's an issue there that I'm
(40:36):
concerned about.
Steve Davenport (40:38):
Yeah, I mean, I think that all these ideas are
valid, and I guess what I'd sayhere on Sunday afternoon is you
know, it's a beautiful springday In order to have a balanced
view of your portfolio you needto Maybe where you are it's
beautiful, but here it's raining.
It's 65 to 75 today and it's alittle bit hazy, but it's still
(41:04):
warm and the stuff is bloomingand it's really a pretty nice
spring.
And so I guess I'd say topeople is make sure whatever
you're doing, you're doing itwith some thought and some care.
If you are, you're likely doingthe right thing.
I think if you're reacting,hold on.
You should be only acting on.
(41:26):
You should be only acting.
You're acting to achievesomething that is going to make
you feel and believe that youroverall wealth is going to be
sustained or increased in theway that you want.
And if it's with taking morerisk and you're comfortable with
it and you swallowed a coupleof times and you're still going
to do it, that's fine.
See how it goes for a week.
You can always change.
I think that when I look atthings, it's trying to be a
(41:49):
little more holistic and I knowit sounds a little bit like I
should have a tie-dye shirt onand I should be in the 70s, but
I really don't think we're in aposition where I have a lot of
systematic risk concerns.
I think there are concernsabout tariffs.
I think there are concernsabout costs and inflation, but
(42:11):
these are not like they werewhen we had financial collapse
around the real estate market orwe had a collapse around COVID
a pandemic.
So to me we've got a problem.
That's a shorter term problemand I don't think it's been
dimensioned yet.
So when it gets dimensioned Ithink we can react more
completely.
But right now it's much tooearly and I think we need to
(42:33):
step back and just make surewe're on the right path,
anything else.
Clem Miller (42:38):
Glenn, no, I think we've pretty much covered it.
I would just say to everybodyyou know, don't panic, don't,
don't react in in in reallymassive ways.
You know, make changes aroundthe edges if you need to, but
(42:59):
but don't, you know, don't thinkthat the world is falling apart
.
Steve Davenport (43:05):
Yeah, I'm not going to a big box and buying
anything.
I was trying to think of somethings.
We thought about some bakedbeans, we thought about some
tuna.
But we're going to go with.
The system will remain intactand we'll go shopping next week
and we won't be really kind ofstocked up on anything.
Clem Miller (43:24):
Yeah, don't buy anything that comes from the
herd in McDonald Islands.
Steve Davenport (43:31):
Stay away from the penguins.
They've been trying to takeadvantage of America for years
now and I think those penguins,we're going to get back at them.
So live well, enjoy and untilwe speak again, it's Skeptic's
Guide to Investing.
Thank you everyone.
Please tell your friends andshare us with anybody who you
(43:52):
think we can help.
Thank you.
Welcome everyone.
This is Steve Davenport withClem Miller as part of Skeptic's
Guide to Investing, and we'resitting here on a Saturday or
Sunday afternoon and we'resaying what are we doing,
talking to each other aboutinvesting on a Sunday, and then
we realized that all of themajor business networks are all
(00:23):
having shows tonight from 7 to 9to talk about the sell-off
since Trump's tariffs.
So we just looked at ourselvesand said what would we do?
What are we doing personally,and how will the different
scenarios play out over the nextsix, three, six, nine months,
(00:48):
over the next six, three, six,nine months?
And we just try to get to theheart of what we think might
happen, and therefore don't besurprised if this also happens,
because I think that, at leastdiscussing the possibilities, I
think you become a lot moresettled around something.
When it does happen, you say itwasn't as bad as I thought, or
this, this, this made thatbetter and it helps you to
become a better investor.
When you look at the waymarkets react in these tantrum
(01:11):
type moments, what do you think,clem, when that, when you look
out there, do you see just stuff, uh, yelling at you to buy
because they're so valuable, ordo you still see.
It feels to me like themultiples come down, but not as
much and as quickly as it wentup the last two years.
So it feels to me like there'ssome value to come out of this
(01:33):
market.
Where do you?
Clem Miller (01:34):
feel I would agree with that.
Really, there's threeparameters around which to make
some judgments.
The first parameter is how muchfurther we have to go down
after Thursdays and Fridaysdrops.
The second parameter is whenwill we reach a trough in the
(01:56):
market and how long will it taketo reach that?
And then the third parameter isat what rate will we recover
from that trough?
So those are the threeparameters.
Now, when you use those threeparameters, you can build some
scenarios around thoseparameters, and so I've sketched
(02:16):
out three scenarios here.
So the pessimistic scenario isthat there's a further 20% drop
over the next two weeks.
So that would mean that twoweeks from now we will have been
down roughly 30% from lastWednesday.
(02:40):
So a further 20% drop over thenext two weeks, followed by a 2%
per week recovery after that.
So now remember, 2% per week,doesn't you know?
The math doesn't worksymmetrically.
(03:00):
It takes more than 10 weeks torecover that 20%.
It takes more than 30 weeks torecover that, or more than 15
weeks to recover that overall30% drop.
So we're talking about quite along period of time before the
(03:20):
market actually recovers.
So the first scenario is truly apessimistic scenario.
Second scenario I have.
Well, let's go to theoptimistic one.
The optimistic one is that wehave a further 5% drop, probably
over the next week, right,maybe even tomorrow, monday, and
(03:43):
then the market goes flattishbut volatile.
So I think that's probably asmuch of a probability as the
first one.
I laid out that we're going tosee things kind of flatten out
(04:04):
but still maintain volatility.
And under this 5% drop scenarioI think it's going to be a
while before we start seeing themarket climb back up again.
And then my middle scenarioneither optimistic nor pessim,
sort of the the lukewarmscenario is that we'll see a
(04:27):
further 10% drop, say over thenext couple of weeks, and then a
uh, a 1% uh recovery.
So not as dire as the first uhpessimistic scenario, uh, but
still bad to that.
So now, if you give sort of, ifyou give kind of equal
(04:49):
probabilities to each of thosescenarios, you kind of end up
with the, you know, somethingclose to the middle scenario can
you honestly say that?
Steve Davenport (04:59):
that's the way you feel?
The way I feel yeah, you feellike the moderate is you think
the positive?
Clem Miller (05:07):
right now, I have to feel the negative outweighs
the positive well, no, when Isay, when I say my middle one,
I'm saying further 10 drop, yeah, yeah, and then a one percent
per week.
Steve Davenport (05:21):
Uh, recovery after that right, but I'm saying
you're offsetting thepessimistic and the optimistic
or the positive.
That's basically about the sameprobability and I'm just
telling you based on what I feelfrom people talking to them
about markets and some of the,let's just say, less than clear
things that have been done liketrying to tariff an island of
(05:45):
penguins I think there's a lotof question marks in the air
that make me feel like I'd haveto go with maybe 25, 20 or 2010,
.
Some odds of the negative beinghigher than the positive right
now odds of the negative beinghigher than the positive right
(06:09):
now.
Clem Miller (06:13):
Clearly there's a lot of incompetence going on you
can see that across manydifferent policy areas within
the administration.
So you know that would, I think, argue for a more pessimistic
scenario.
On the other hand, I think onething to keep in mind is that
what we're dealing with here isa kind of top-down policy
(06:36):
decision on these tariffs andthus perhaps more easily
rescinded to some degree.
I mean it's not.
COVID.
Covid was something youcouldn't, you know you had to
wait for, you know, for vaccinesto come in before you could
deal with COVID.
(06:56):
I mean, granted, the recoveryoccurred pretty quickly, but you
know, the real big recoveryafter COVID was when vaccines
came in.
Steve Davenport (07:08):
Yeah, I mean, I think you're going to the
longer term and I'm just worriedright now about what is the Fed
going to do.
Because if I was sitting hereand saying I think the Fed is on
hold and there's no way theyget in until we see, you know, a
quarter of negative growth andthen the Fed comes.
But then I look at someforecasters and they've gone
(07:30):
from one or two cuts this yearat the end of the year to a cut
at every meeting the Fed hasthis year, and getting down to
the half to one percent again.
So I'm sitting here saying well, we saw during COVID a reaction
in one weekend that we neverthought was possible.
Right, the amount of liquiditythey flooded the market with by
(07:53):
lowering 250 in one day, onemeeting, was just amazing.
And that's what I'm sittinghere saying is, are they?
Is every system going tooperate in whatever way it can?
And then there are these checksand balances like what's going
to happen with some of thesethings in the courts?
(08:16):
What's going to happen with theFederal Reserve?
Maybe the markets go crazyuntil the Fed says we're not
going to lower rates, but we'regoing to tell you we're aware of
the volatility and we're goingto do things to protect
investors.
I think that Trump is implyingthat he wants the Fed to cut and
(08:38):
wants lower rates and he's notafraid of causing some upset for
a period of time until thathappens.
And I mean, I think the mostcallous thing he did this
weekend was to go play golf inthe club championship.
Yeah, I just think it sends,even if he is the richest man in
the world.
(08:58):
I think it would be the wrongimage to say to the average
working class person yeah,you're worried about your job
now you're worried about yourretirement account, and now, all
of a sudden, you know he's outgolfing On the Fed.
Clem Miller (09:14):
you mentioned the Fed.
Steve Davenport (09:16):
Yeah, I think we're going to go into the Fed
and what's I mean?
Because that to me you make itsound like there's one and then
there's the other in the market,and then there's Trump and
they're going to have thisbattle.
But I would say that there isthis person on the sideline
who's going to try to keep bothof these characters in line so
(09:36):
that we go in a direction that'snot totally market based, but
also not totally that everythingcan fail.
Clem Miller (09:46):
So A few things on the Fed and Powell is tariffs
can cause recession, obviously.
Tariffs can also causeinflation, obviously, and so
Powell is kind of stuck with hisdata right, right.
Steve Davenport (10:07):
That's why I think this is such a unique.
Not only if Trump didn't hatethe power of the Fed so much, it
would be one thing, but then tohave them kind of back
themselves into a corner wherethey know they have trouble if
they loosen money supply now andthere's extra inflation.
It's like they've made this betand they just don't want to
(10:30):
lower just because they lookvery hypocritical.
And I think that Trump wouldlook at it and say, hey, I
texted on Thursday and thishappened on Monday.
I guess it took them a littlelonger to realize I was right.
And I guess when I look at thisI just wonder.
And I guess when I look at this, I just wonder and it's crazy.
Clem Miller (10:51):
You see all these conspiracy theories now on the
net about how.
Oh well, this is some kind offour or five dimensional chess
that Trump is playing that isaimed at getting the Fed
involved and this is he's tryingto lower the overall debt, so
that when we refinance $7trillion in the next two years.
Steve Davenport (11:12):
I saw this post and there's going to be $7
trillion in refinancing and theywant it to be at lower rates.
So what they're doing bytanking the economy, is really
going to save us in interestpayments over the life of these
loans.
And I'm just sitting here goingboy.
Clem Miller (11:29):
I mean these are people who are trying to hawk
Teslas from the White House.
I'm just sitting here going.
I mean these are people who aretrying to hawk Tesla's from the
White House.
So I don't, I don't, I don'tgive them any, I don't give them
any credence in terms of beingsmart about.
Steve Davenport (11:42):
I guess I'm just saying for the average
investor and the average guywho's listening to the news how
does he determine what's reallyright and wrong for him and what
is the real problem here?
And that's where I just like tosay to people you know, we've
always talked about investinghere and how to get good returns
and how to get a good riskadjusted returns, and we think
(12:02):
that's the way that you addvalue in your life and in
anything you do with your money.
And I guess what we haven'treally I think we've talked a
little bit about is what are thethings you need to make sure
that a period like this doesn'tderail you and push you off into
a bad place where you're notgoing to recover financially for
(12:23):
a long time?
How do we avoid those pitfalls?
And I guess I would say do youhave money saved?
Do you have money in case youlose your job or something
happens and you get injured?
Is there a way for you to coverwhat your expenses are?
Do you know what they are?
How much debt do you have?
(12:43):
Is it a lot or is it a little?
And, if you can, can youeliminate some of it so that if
there was a bad event, you'd bemore resilient and more able to
respond.
Do you have a HELOC?
Do you have some capacity toborrow money?
That's not going to be hard toget If you need the money.
If you need the money, do youhave a capacity to borrow from
(13:05):
someone or someplace?
And the last thing is do youhave other assets?
Because I think that what usedto make me real happy when I was
in the beginning of ourmarriage is we had a house and I
used to look at the house and Iused to look at the equity and
look at what the market said itwas worth and it gave me some
confidence that there was somecore there in my savings,
(13:27):
because we put all our savingsinto our house and that just
feels like that made me steadywhen the markets would follow.
So I think you need to look atyourself and say, hey, what's my
rent or what's my mortgage andhow do I feel about where I live
?
And then I think it comes downto can you sleep well at night?
(13:48):
If you can sleep well at night,then you've got the right
amount of risk.
So if you're having too much,then you're not sleeping.
Clem Miller (13:56):
I think you've got to take care of you first, steve
, you're laying out basicprinciples, and let me overlay
something on what you're saying,which is thats, 30s, uh, you're
(14:17):
going to have an entirelydifferent um perspective, or you
should have an entirelydifferent perspective on what's
going on now, uh, than somebodyour age or, you know, somebody
in their 40s or 50s, um, evenright, should have a totally
different perspective, becauseyou got you, you who are younger
(14:39):
20s and 30s, and even to someextent in the 40s uh, are going
to live past this.
Steve Davenport (14:47):
Really, this is going to be a line on the graph
that you're going to say, wow,that felt bad when it was in it.
But when you look at the lifeof the market, your time frame,
30 or 40 years, there is not agreat deal of worry Even at this
point.
Clem Miller (15:04):
if you look at an S&P 500 chart, if you look at
the 2008 drop, you look at the2020 drop, these already look
like small squiggles.
Steve Davenport (15:20):
Yeah, I'm not trying to diminish it, because
there are different people right, we've got people who may just
be retiring and they just sawwhat they thought was their
total at the beginning of themonth get hit pretty hard, and
so I think that this gets intothis whole point about what
should be allocated and how muchrisk should you take, and I
(15:41):
think that when you're gettingcloser to retirement, you want
to be having you take the riskoff at a higher level than
having the market take it off,and that's what I just want
people to be constantly lookingat themselves and saying, hey,
am I where I want to be?
Am I doing the things I can do?
And then you just leave therest up to the assets and your
(16:03):
allocation.
I think that looking at itdaily is not a good idea, and I
think the media coverage tonighton bloomberg and cnbc and
everywhere having a specialbecause it was so volatile last
week I find that to be like whydo we celebrate the negativity
instead of right, you know,celebrating the fact that we
(16:24):
have so many great ai companies?
Yeah, I don't, yeah, I don't.
I don't think that we're, we're, we're a media of negativity.
Clem Miller (16:32):
Let me say it.
I think that negativity canaffect you.
I have no plans to watch thoseshows.
Steve Davenport (16:39):
Well, no, that's because you're going to
be working on your podcast andtrying to make sure you release
the best you can release.
So we're trying with this totake a different approach and be
more reactive to the newsaround us, because we think that
when we did some reactionpieces to what happened with
(16:59):
CrowdStrike and what happenedwith the GLPs and what happened
with NVIDIA and some of theirquestions, their early
valuations, we felt those weregood and were received well by
our listeners.
So we're looking at this sayingwhat would you tell people if
you gave them 20 or 30 minutesand you said, hey, this is
(17:19):
really what you should thinkabout in your overall
perspective of money investingand the volatility of markets.
It's a moment to learn and it'sa moment to think about things
that are important to you.
Clem Miller (17:31):
And if you're doing those things, then you realize
that that these squiggles, theyaren't as big a deal yeah, so
steve um just uh, you know, forour audience here, um, in terms
of, uh, you know what I've beendoing, okay, to prepare for this
and during it, uh, this crisis,the last two days, as I've
(17:54):
mentioned on prior podcasts andin some blog posts, I have been
ratcheting in beta, lowering thebeta of my portfolio.
I've always looked for stockswith lower short interest.
Yeah.
Steve Davenport (18:13):
I noticed today , this week, some of those
really spiked up there, like Isaw Exxon at 10 or 11%.
Yeah, I mean it's crazy.
So I wondered does Clem have tosell all his names if that
number goes up, or does he youknow?
Does he say?
Clem Miller (18:28):
no, well, I'm watching this.
The only problem is is that alot of the short interest comes
out.
The short interest data onlycomes out twice a month, so
there's a data latency problem.
I thought.
Steve Davenport (18:45):
I had somebody that was telling me live on TV
that they were seeing shortinterest.
I thought when I looked at it,maybe that was, that was yeah,
maybe.
Clem Miller (18:57):
Yeah, finra puts it out every twice a month.
But and then forward pegs, well, they're certainly coming down
a lot for some of thesecompanies.
And so you know, as you know,steve, you know I sort of grade
these stocks.
But one of the things based onthose criteria, but one of the
(19:18):
things that that I've donelately, and I think you would
appreciate this is I kind ofmultiply through those three
things.
You know, I take the shortinterest, multiply it by the
forward peg, multiply it by the,by the beta.
That's cool and uh, and itgives me like a single number.
And if I um, you know, if I seesomething that's above two,
(19:42):
then, um, you know, shortinterest, times, beta times,
forward peg, if I see somethingabove two, then I want to get
rid of it, right, and I likethings that are sort of in the
below one or, you know,somewhere between one and 1.5,
somewhere along in that, in thatrange.
Steve Davenport (19:59):
Well, that's what I was going to ask you is
this there's different ways toadjust your beta, right?
Yeah, taking it all out,putting it into cash, and that's
going to adjust your overallbeta, yeah.
And then there's all the stocksyou want to own.
Do I want to clip some in thefront end to have that great run
?
Do I want to clip some on theback end so that I can take a
loss, and that might help mewith my taxes.
Clem Miller (20:20):
So by getting rid, looking at those three
indicators and getting rid ofthe ones that multiply out to
two or above, I've added to mycash.
Above I've added to my cash,I've added to my gold.
(20:41):
And I've done something just onFriday that I think you're
going to be very surprised at,which is I've added some bond
exposure.
But I'm going to add some morebond exposure, but just a little
bit.
Steve Davenport (20:51):
Okay, I don't want you to leap anywhere.
Clem Miller (20:54):
You're not comfortable with.
Steve Davenport (20:55):
I want you to gradually move places so that
you might sit there for a while,right, I look at bonds now and
I think about whatever durationyou want to look at a two or a
four year.
I look at two mainly becauseit's kind of after.
A lot of noise happens in thefirst six to nine months and I
think that you get rates overfour or two.
Clem Miller (21:17):
So I like that kind of mathematics I mean, with
yields coming down-.
Steve Davenport (21:25):
With yields coming down.
It's going to help us with thelittle capital gain right?
Clem Miller (21:29):
Yeah, TLT is going to go up.
Correct, that's a longerduration item.
Steve Davenport (21:32):
So if you want to play, the longer duration TLT
is going to go up.
Correct, that's a longerduration item.
So if you want to play, thelonger duration TLT is to play.
If you want to really play it,then you look at options on TLT
and that's really applyingleverage to something that's
already kind of pretty clearlycorrelated to what the market's
going to do?
Clem Miller (21:52):
TLT has done okay through the last couple of days.
Steve Davenport (21:58):
Yeah, I mean one strategy an endowment told
me about was they sell puts onTLT.
So when it shrinks and there'sdemand for safe assets, they go
down, the price goes up and youlook at that and you have a put
(22:23):
in place so you can takeadvantage of it.
Clem Miller (22:27):
Yeah, so for our audience, if you're kind of
confused, what the heck areSteve and Clem talking about
with TLT?
It's a long-term treasury bondETF and so it's a way of
investing in long duration,which basically is another way
of saying that if yields go down, the price of this thing goes
(22:51):
up, you're going to get a nicesolid return, but vice versa, if
yields go down, there's goingto be a loss.
So it's not something thatwould ever be like a core of my
portfolio, but you know, maybeon the edges it would be.
Steve Davenport (23:08):
It would be like gold we are trying to help
people with.
We don't have information, soeverybody should make sure that
they tech with their tax andinvestment advisors.
We're just kind of throwingaround ideas and I looked at the
three categories.
I'd just be a little more like20 or 30% in the bucket of the
(23:31):
negative and the pessimistic andI put probably 10 in the
positive and then the remainderin the middle, which would push
you a little towards more like a15 percent decline overall yeah
, go ahead.
Clem Miller (23:46):
Sorry, one of the things I was going to ask you,
one of the things that surprisedme on Thursday and Friday, is
that gold actually went down.
Steve Davenport (23:55):
I know, and so did silver.
I mean, there's a lot of peoplein the metal space who are
saying silver has not reallykept up in this move in gold.
Yeah, and is it gold movingjust because of the safety trade
, or are there several safetytrades going on?
You want to be out of themarket, but you're also worried
(24:15):
about inflation, so you want topick something that you think is
going to benefit in both cases.
And I think when you look atsilver, it probably has more of
a consistent demand from dentaland chips, so it probably
doesn't have the same amount ofspeculation in it.
The gold is basically beingheld as a speculative asset for
people to hedge their portfolios.
Clem Miller (24:37):
Well, that plus also, there's a lot of central
bank demand for gold right nowand that was one of the theses
by which I was holding gold, andyou know also preparation for
something that you know tariffdrops or or some kind of crisis
and and that hasn't played outas well as I thought it would.
(24:59):
Gold was really, really doingwell and it was a big
contributor to my portfoliothrough through Wednesday and
Thursday and Friday.
It didn't didn't quite work aswell, so I'm not selling any of
the gold, but I'm not going toadd to it, which is why I
thought about the bonds.
Steve Davenport (25:19):
Right, I think it's good to have different
levers you touch, and then Ithink the gold is one of those
levers.
When we look at government'sgold, china needs and wants as
much gold as it can to try tomake its currency more of a
reserve currency.
Right now, the US is somewherearound 6% to 7% of its currency
is based in gold, and China isbelow 1%.
(25:41):
So they need an awful lot ofgold because their economy is
growing fast and so that numberkeeps getting bigger and bigger,
and so they don't export anygold for the rest of the world.
They're only buyers.
And so when you look at a buyerlike China out there and you see
this demand for what they wantto do, if they take their money
(26:02):
out of treasuries, what do theyput it in that's going to give
them safety?
Would they put it in some othercurrency?
Would they put it in?
Because they know that most ofthe currencies of their allies
are going to be currencies thatare probably going to behave
opposite of the US dollar.
So therefore, you don't want toblock in a loss, you're trying
to block in a gain, if anything.
So I think the way thatgovernments look at.
(26:24):
This is a big part of what'shappening.
Clem Miller (26:28):
So, steve, let's take it back to tariffs for a
second.
One big catalyst well, two bigcatalysts would be if the EU
decides not to retaliate and ifChina decides to pull back on
its retaliation and reach somekind of an agreement.
I'm skeptical about both.
(26:51):
I'm more skeptical about Chinabecause China has actually come,
really has had a very powerfulreaction to this not just the
tariffs, but also cutting offrare minerals exports and
putting some more companies, uscompanies on their so-called
(27:15):
unreliable entities list.
Steve Davenport (27:24):
Right.
I mean you could tell they gotserious when they told employees
no holding Apple phones anymore.
They are making a clear-cutdelineation that they will
develop the technology that willbe the leading tech in AI or
other spaces going forward.
I think that if the US thinksthere is not a fierce competitor
there, we're missing the boat.
But the bottom line is the USgovernment has a lot of assets
(27:46):
and a lot of resources, and thequestion I think that Xi in
China is trying to figure out iswill the US get so distracted
by tariffs that they forgetabout security and they do
things that are a mistake ineither the Ukraine or Israel or
in Taiwan, and I think those arethe three international spots
(28:08):
and you're going to say is thereanything that could make this
tariff story go worse?
It would be some type of anupset in one of those two, three
regions.
That would just add to thisnegativity of the overall global
economy.
And I think that, when I lookat the reasons that we're going
to recover one, it could be thatthe market has overreacted.
(28:30):
It could be that this you know,this stuff gets backed off
after two to three days.
It could be, you know, a muchdifferent scenario.
But people are being set up fora longer term problem here.
So if I was going to just pullthe, you know, pull the wind,
the, pull the windows open andsay, hey, what's happening?
(28:51):
I'd say that there's.
There's more likelihood thatthis goes on for a period of
time.
Clem Miller (28:55):
So, as a longer lasting item, that's why I'm
more pessimistic well, I thinkit's easy to be pessimistic
about a lot of policies thatwe're seeing come out of this
administration and the inabilityof Congress, of this Congress,
to try to get its act together.
(29:16):
I just you know we're at a badjuncture with respect to
governance in the United Statesand that doesn't help.
Steve Davenport (29:29):
That doesn't help, I guess I would say that
the thing that gives me somehope is that the Fed is sitting
here and the Fed knows that ifthey were to do anything to make
an indication of the marketthat they were going to support
it.
Clem Miller (29:42):
that would be like a moment where things would turn
around and yeah, and here's theproblem If the Fed decides well
, you know, trump got into thishimself, he's got to get out of
it himself.
If the Fed decides that theworst case scenario is, trump
could decide to fire Jay Powell.
Steve Davenport (30:03):
Yeah, I think that I think there's scenarios
that are more likely this weekand more likely in two months
and I think that it will take awhile for the process to work
where he fires Powell and Ithink it will be it will take
some time and I think I honestlythink the Fed will cave and
probably lower rates in Juneinstead of, you know, september
(30:25):
or December, like they had beenpredicted.
So I think they'll pull thecuts forward and they'll
indicate that they'll cut more,and I think those two things
will stabilize this market.
Clem Miller (30:36):
They could stabilize this market.
Steve Davenport (30:38):
Yeah, it depends on-.
Clem Miller (30:39):
There's a lot of other variables.
Yeah, it depends on whetherwhich is of greater concern at
the moment inflation orrecession.
Steve Davenport (30:50):
Right.
I think the Fed doesn't want tonot be at the switch, but I
also think they don't want tofeel like they're kowtailing to
Trump tweets.
So, in order for them to keeptheir respect, I think that you
can't.
You can't really see somethinghappening in April or May.
I think that they will want tosee what happens with this
budget and want to see whathappens with the extension of
(31:12):
the tax cuts.
If you see two events aftereach other, being the Fed lowers
and the tax cuts are extended,you're going to see an
accelerated market and too muchinflation, and I think the Fed
would like to see that decidedbefore it goes ahead with the
question about cutting.
Clem Miller (31:32):
They'd like to see what happens with the budget
first Correct.
I think that I agree with that.
Steve Davenport (31:37):
And I think that if we look at this thing
and take a longer time frame,that's what I would say Make
yourself comfortable this weekwith your allocations and if you
want to sell, sell If you don'twant to generate some.
You know I'm selling myself inmy IRA, my IRA account.
I have no taxes, so I take backsome S&P exposure and I looked
(31:59):
and added some exposure to myFLQM, which is my mid cap,
because on on a risk-adjustedbasis, I look at mid-cap as a
place where you get compensatedand tariff risk doesn't affect
mid-cap because the companiesare 80% doing their business in
the US.
So mid-cap tends to have asmall cap and even higher.
(32:20):
But small cap doesn't have thebalance sheets of mid cap.
So I'm putting some money inmid cap and taking it out of
large cap and saying, okay, I'mnot sure what's going to happen
here, but this is in aretirement account and every
situation is different.
So in my mind, we want to havemore dry powder.
We want to be able to deployquickly.
(32:42):
I think the question that Clemasked is a good question about
what duration you want to be.
Do you just want to be theshortest treasury you can and
have no risk up or down.
I feel like if the market'sgoing to tell me something, it's
telling me right now thatthere's more likelihood they're
going to cut rates than raiserates.
So I think it will take monthsof data before we know the
(33:03):
inflationary effect of tariffs.
It's going to take more thanmonths because we don't even
know how quickly somebody mightbe taken off right.
We could have an agreement withFrance, but not with Italy.
We could have an agreement.
I don't know if the euro willact as one.
Maybe they should negotiate asone, but Germany wants to do no.
I can see Trump trying tofracture the euro and trying to
(33:27):
fracture whoever is not in hisgood graces, and I look at that
and say the damage here longterm is not just that he did
this tariff thing, but that itjust created such disruption
that people now have less likelyto understand and respect the
US in these markets that peoplenow have less likely to
understand and respect the US inthese markets.
Clem Miller (33:52):
Yeah, he may try to help out the countries that
have governments that are morefriendly to his ideological
perspective Correct, and wecould you know, we could see a
long lasting impact from this.
Steve Davenport (33:59):
What I think is probably happening is he's
under a lot of pressure as CEOsand financiers go to Mar-a-Lago
and try to visit and say this isreally bad for us.
This is why you need to change,and I think he will do what he
does, which is he will generateheadlines.
He would love to claim success.
He's already said that tariffsare going to add trillions of
(34:23):
dollars to the US Treasury.
I think it's one of the thingsthat has to happen with the
market is you've got to look atit as a discounting mechanism
and you need more data.
Nobody knows.
Therefore, I think a lot ofthese people on these shows and
a lot of the people in themarket here are trying to say I
(34:45):
know what's going to happen andin reality, we know that if we
sleep well, if we exercise, ifwe keep a balanced approach to
life, there's a better chancewe'll live well.
I think that all of thesethings about market timing and
market levels and how long themarkets will go down, the
markets will go up and if youallocate it reasonably, you
(35:09):
should be able to participate ina way that adds value.
Clem Miller (35:13):
That's all I try to do, mike GREEN.
Yeah, the last thing you wantto do is react.
Don TAYLOR, don't sell 100%100%.
Steve Davenport (35:22):
Person who gets out at one time says they know
perfect information.
Yeah, I look at it and say, do20 percent, do 10 percent, do
some number that makes you feelmore comfortable?
And you can look at the numberand say, hey, my annual, my
monthly expenses are three grand.
I'm going to look at that andsay I saved 30 grand.
I get 10 months of expenses.
(35:43):
That's more than enough.
And that's how you have to lookat your life and say, hey,
these things can immunize me andmake me feel better.
Or I can continue to cognateand think about it and let it
roam right around and bouncearound at night.
I think I've lived that life andI'd suggest another approach,
(36:04):
which is get yourself to anallocation.
You feel comfortable and fromthere I wanted to end with an
opportunity where I seesomething and I see opportunity
and energy, and I especially seeopportunity in dividend payers.
I think the overall sell offhas taken some number away from
(36:26):
some names that were alreadygood values, especially European
companies, and made them bettervalues.
And so when I look at what'shappening, I think I'm glad I
have this allocation to thesetypes of securities and I think
they add value, especially now,because what's the likelihood
that any of these companies aregoing to cancel a dividend
(36:47):
between now and the next two orthree quarters?
Almost none.
They've got cash on hand tocover the dividends, but their
businesses are still thriving.
I went to Costco, I went to HomeDepot, went out again for
dinner.
They are all doing fine.
I think that if you look at UScompanies, there's some great
(37:15):
companies and if the price goesdown, I'd suggest that people
think about it, but only thinkabout it if you have the right
risk perspective.
What do you think we should buy?
Clem Miller (37:23):
well, apart from, um, some bond exposure, um, uh,
I would well, in terms of whatto buy or what to sell.
Okay, what, what do you?
Steve Davenport (37:35):
want to be lighter in.
What do you want?
You want to have more.
Well, I want to have.
Clem Miller (37:39):
I want to have less of all three of these things
less beta, less short interestand less forward peg.
And so when you multiply thosethrough, uh, generally speaking,
that means right now, what thatmeans is uh is getting out of
(37:59):
most technology almost alltechnology actually.
Actually.
It also means more consumerstaples.
It means more utilities and itmeans more insurance companies.
What healthcare?
(38:19):
It means some pharmaceuticalcompanies in healthcare.
Okay, surprisingly well, Idon't know, not surprisingly
there's no consumerdiscretionary in that mix.
What about industrials?
(38:41):
No industrials in that mix.
What about energy?
Energy, I'll tell you, we mayhave a difference of opinion on
energy, right, and the reason?
So just a few beyond the threeindicators I talked about, a few
observations I would make.
(39:02):
One on energy is that we'veseen a very big drop in energy
prices over the last two, three,four days.
That may make your stockscheaper to buy more of, right,
steve STEVE DIGGLE.
Steve Davenport (39:18):
That's why I'm reacting, because I think it's
gotten for areas that havehigher beta.
I understand why there's are-rating of Amazon and video,
but when I look at Exxon and Isay what's been re-rated, I
agree.
The thing that was a little bitthat people aren't talking
about, as the cause of that wasthe fact that OPEC agreed to
(39:38):
increase production and so OPECagreeing to increase production
at the same time Trump putstariffs on has kind of made a
double whammy, double whammyright, and my question is is
that whammy going to persist oris it a?
Clem Miller (39:52):
temporary opportunity.
It depends on whether we enterrecession.
Steve Davenport (39:56):
Right and I think we're not going to know
that for six to nine months.
Clem Miller (40:11):
The other thing I would mention is that insurance
which meets generally speakinginsurance companies meet my
criteria, but there is a problem, a qualitative problem, with
that, in that some of theseinsurance companies, like All
First, are dependent onautomobiles and automobiles are
subject to the tariffs, and sothere's an issue there that I'm
(40:36):
concerned about.
Steve Davenport (40:38):
Yeah, I mean, I think that all these ideas are
valid, and I guess what I'd sayhere on Sunday afternoon is you
know, it's a beautiful springday In order to have a balanced
view of your portfolio you needto Maybe where you are it's
beautiful, but here it's raining.
It's 65 to 75 today and it's alittle bit hazy, but it's still
(41:04):
warm and the stuff is bloomingand it's really a pretty nice
spring.
And so I guess I'd say topeople is make sure whatever
you're doing, you're doing itwith some thought and some care.
If you are, you're likely doingthe right thing.
I think if you're reacting,hold on.
You should be only acting on.
(41:26):
You should be only acting.
You're acting to achievesomething that is going to make
you feel and believe that youroverall wealth is going to be
sustained or increased in theway that you want.
And if it's with taking morerisk and you're comfortable with
it and you swallowed a coupleof times and you're still going
to do it, that's fine.
See how it goes for a week.
You can always change.
I think that when I look atthings, it's trying to be a
(41:49):
little more holistic and I knowit sounds a little bit like I
should have a tie-dye shirt onand I should be in the 70s, but
I really don't think we're in aposition where I have a lot of
systematic risk concerns.
I think there are concernsabout tariffs.
I think there are concernsabout costs and inflation, but
(42:11):
these are not like they werewhen we had financial collapse
around the real estate market orwe had a collapse around COVID
a pandemic.
So to me we've got a problem.
That's a shorter term problemand I don't think it's been
dimensioned yet.
So when it gets dimensioned Ithink we can react more
completely.
But right now it's much tooearly and I think we need to
(42:33):
step back and just make surewe're on the right path,
anything else.
Clem Miller (42:38):
Glenn, no, I think we've pretty much covered it.
I would just say to everybodyyou know, don't panic, don't,
don't react in in in reallymassive ways.
You know, make changes aroundthe edges if you need to, but
(42:59):
but don't, you know, don't thinkthat the world is falling apart
.
Steve Davenport (43:05):
Yeah, I'm not going to a big box and buying
anything.
I was trying to think of somethings.
We thought about some bakedbeans, we thought about some
tuna.
But we're going to go with.
The system will remain intactand we'll go shopping next week
and we won't be really kind ofstocked up on anything.
Clem Miller (43:24):
Yeah, don't buy anything that comes from the
herd in McDonald Islands.
Steve Davenport (43:31):
Stay away from the penguins.
They've been trying to takeadvantage of America for years
now and I think those penguins,we're going to get back at them.
So live well, enjoy and untilwe speak again, it's Skeptic's
Guide to Investing.
Thank you everyone.
Please tell your friends andshare us with anybody who you
(43:52):
think we can help.
Thank you.
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