Is The U.S. Consumer Flatlining? With Jeremy Schwartz.

Episode Overview

• Jeremy Schwartz discusses the Federal Reserve's recent dovish signals, suggesting a potential slowdown in rate hikes or even a cut in December, and what this means for the economy.
• The conversation covers the recent strength in US equities, particularly the "Magnificent Seven," and whether the current AI-driven rally is a bubble or supported by fundamentals.
• Schwartz makes a strong case for investing in Japan, highlighting corporate governance reforms, attractive valuations, and the benefits of currency hedging.
• The discussion explores diversification strategies, including the role of gold and capital-efficient ETFs that combine asset classes like stocks and gold futures within a single fund.

Key Concepts

• Federal Reserve Policy: Analysis of recent comments from Fed officials like Mary Daly, suggesting a shift towards a more dovish stance. The discussion touches on the Fed's struggle to balance inflation concerns with a potentially slowing labor market.
• The AI Trade: An evaluation of the "Magnificent Seven" stocks. While valuations are high, Schwartz argues that today's market is different from the 2000 tech bubble because the current rally is supported by strong earnings growth, not just speculative hype.
• Investment Case for Japan: Japan is presented as a top investment idea due to ongoing corporate governance reforms, a focus on shareholder yield (dividends and buybacks), and attractive valuations. The weakening yen has created a significant tailwind for currency-hedged strategies.
• Diversification and Gold: The role of gold as a portfolio diversifier is discussed, especially in the context of global debt, currency debasement concerns, and central bank buying.
• Capital Efficient ETFs: An introduction to innovative fund structures, such as a 90/90 stock and gold futures fund (GDE), which allow investors to gain exposure to diversifying assets like gold without having to sell their core equity holdings.

Quotes

• At 01:37 - "I do think the market started turning around on Friday, partly on the Williams speech, implying that there could be a cut." - explaining the recent shift in market sentiment based on dovish Fed commentary.
• At 02:17 - "Hey, you wanted dissent, you're going to see dissent." - commenting on the increasing number of differing opinions among Fed officials regarding future monetary policy, which his team views as healthy.
• At 13:42 - "I'd say today is like half of 2000... Tech as a whole today is at most half of 2000." - quantifying the difference in valuation between the current AI-driven tech rally and the dot-com bubble, suggesting it is less speculative and more fundamentally driven.
• At 24:39 - "Japan has been one of the places I love to visit, but also one of the biggest allocations in my own personal portfolio for the last decade, and continues to be. I mean, I think it's still one of our top ideas." - expressing strong conviction in the long-term investment case for Japan.
• At 22:48 - "What do you sell to buy gold?... We did that with gold... It's basically large-cap equities with gold futures on top. So it's a 90/90 combination... You get your stocks, you get your gold, you don't have to sell anything." - explaining the concept behind a capital-efficient ETF (GDE) that provides exposure to both stocks and gold without opportunity cost.

Takeaways

• Recognize that some key economic issues, such as housing affordability and supply-side constraints, are structural and cannot be solved by Federal Reserve monetary policy alone.
• Evaluate the current AI-driven tech rally based on earnings growth and fundamentals, as it is fundamentally different and less speculative than the 2000 dot-com bubble.
• Consider capital-efficient investment strategies, such as funds that overlay futures (e.g., gold) on top of an equity base, to add diversification to a portfolio without reducing your core stock exposure.