Latest / Felix Nikolas Prehn's Podcast / The Only Time THIS Happened Was in 2020 (things are about to get weird) + Stock Market News 20 June 2024

Transcript

The Only Time THIS Happened Was in 2020 (things are about to get weird) + Stock Market News 20 June 2024 · Felix Nikolas Prehn's Podcast

• 0:01
  Speaker 1: And something extraordinary is happening in financial markets that we see every couple of decades, and I want you to understand what it is and what's likely to happen here, not just today, but this week, in the coming month and the coming year.
• 0:15
  Speaker 1: So you are best placed to make money for yourself.
• 0:19
  Speaker 1: That's our goal here.
• 0:20
  Speaker 1: Of course, I'm just a retired banker.
• 0:22
  Speaker 1: This is not financial advice.
• 0:23
  Speaker 1: This all comes from my cat, who's strolling around my feet and silking me and saying come on, let's play, but let's get cracking, let's get smart and make some money.
• 0:35
  Speaker 1: And NVIDIA is already out of another $100 billion to its market cap pre-market this morning.
• 0:41
  Speaker 1: So some things are definitely going up.
• 0:43
  Speaker 1: If you want to do the same, I'm not promising you $100 billion, obviously, but learn how we did 126% in 2022, 105% in 2023.
• 0:57
  Speaker 1: That's return on capital employed and this year so far, $14,000 on 30,000.
• 0:59
  Speaker 1: So 40-something percent we're up so far on our trading portfolio.
• 1:01
  Speaker 1: Then come and join me running two live training sessions due to popular request One on Saturday for you lot in England and Europe Links down below felixfranzorg slash webinar UK.
• 1:14
  Speaker 1: And this coming Tuesday for you in the US and North America and everywhere else.
• 1:19
  Speaker 1: So there are two links in the description.
• 1:22
  Speaker 1: Grab yourself a seat for the one that suits you most.
• 1:26
  Speaker 1: Now there's a little bit of charting, there's a little bit of data, a little bit of complexity we need to understand here.
• 1:33
  Speaker 1: So let me walk you through it and I promise you, by the end of this, you'll be like ah okay, so what the heck's going on here?
• 1:42
  Speaker 1: There are two types of S&Ps, basically.
• 1:49
  Speaker 1: So we have the equal weight S&P, which would assume that all 500 companies are equal.
• 1:56
  Speaker 1: It's sort of the communism in the S&P, so they are weighing all companies by the same token the same amount, same value.
• 2:05
  Speaker 1: And then there is the weighted S&P, which is how it's actually calculated.
• 2:11
  Speaker 1: The bigger your market cap, the bigger a percentage you have of the S&P.
• 2:15
  Speaker 1: And if you look at history, you have this 0% line here, and when you're above it, the communism wins.
• 2:27
  Speaker 1: So all stocks being equal wins, and when you are below it, capitalism wins.
• 2:40
  Speaker 1: What do I mean by that?
• 2:42
  Speaker 1: I mean that you get these moments like the big rallies 2020, you get the 2008 froth over here.
• 2:51
  Speaker 1: That's 2008.
• 3:00
  Speaker 1: This is 2020, you get where we are right now 2024.
• 3:02
  Speaker 1: And those are typically driven by just some sort of technology, something that's better and therefore those companies that are better rally a lot more.
• 3:08
  Speaker 1: So near the peak of a market this is 2012,.
• 3:11
  Speaker 1: Near the peak of a market, you typically are in the space down below, where the world's an uneven playing field and the big stocks perform, but the levels to which we are down here are pretty unprecedented.
• 3:25
  Speaker 1: We have not seen this amount of unevenness for about 20 years, 24 years even, and you can see that every day.
• 3:38
  Speaker 1: In how many trading days do we have what's called negative breadth, and what that means is that the majority of stocks are falling.
• 3:49
  Speaker 1: So right now this paints it a little bit more clearly the number of US stocks that are doing better than the index right now, what percentage of stocks do you think is doing better than the index?
• 4:03
  Speaker 1: It's about 18%, which means 72% are underperforming.
• 4:13
  Speaker 1: I have to write very slowly, then apparently it works End up performing.
• 4:24
  Speaker 1: So what does that mean?
• 4:26
  Speaker 1: It just means that most of the market is a load of rubbish and 18% of the market is a bunch of good stocks, and that's a pretty unusual setup, right, pretty unusual setup.
• 4:37
  Speaker 1: And then you have a few other things that have come into this.
• 4:39
  Speaker 1: Banks are in trouble.
• 4:41
  Speaker 1: The losses of banks are enormous.
• 4:45
  Speaker 1: These are all losses down here, and you can see they account for, I mean, 500 billion just in the last quarter.
• 4:55
  Speaker 1: So you've got trillions of losses in banks.
• 4:59
  Speaker 1: Have we had that before?
• 5:00
  Speaker 1: This was 2008.
• 5:02
  Speaker 1: If you thought 2008 was bad, look at the balance sheets of banks right now.
• 5:09
  Speaker 1: Right, it's a total, freaking disaster.
• 5:13
  Speaker 1: So why isn't the market collapsing and is it likely to?
• 5:16
  Speaker 1: Well, stick around and I'll walk you through it.
• 5:18
  Speaker 1: What if you're a real business and you've been trying to get a loan?
• 5:23
  Speaker 1: Do you think it's easy right now?
• 5:25
  Speaker 1: So in 2022, which is the blue line here, this was 2022, the loans were growing at a rate of 10% on the year.
• 5:36
  Speaker 1: In 2023 and 2024, which is this down here they're growing at like 2%.
• 5:43
  Speaker 1: And why is that?
• 5:45
  Speaker 1: Well, it's since banks started collapsing last year.
• 5:50
  Speaker 1: Banks are not lending.
• 5:50
  Speaker 1: Why not?
• 5:51
  Speaker 1: They haven't got any money.
• 5:52
  Speaker 1: Look at this.
• 5:54
  Speaker 1: They haven't got any freaking money to lend.
• 5:56
  Speaker 1: So if there's no money, there's no lending.
• 5:59
  Speaker 1: And what does that mean?
• 6:01
  Speaker 1: You're going to get a recession.
• 6:04
  Speaker 1: You're getting a recession.
• 6:06
  Speaker 1: 2% loan growth.
• 6:08
  Speaker 1: You're getting a recession.
• 6:08
  Speaker 1: It's happening.
• 6:14
  Speaker 1: But there is some good news in here for us investors that we're going to be somewhat divorced from the reality of Main Street by profit growth.
• 6:21
  Speaker 1: Earnings growth this year is expected to be well 37% for Microsoft, nvidia, amazon, google and Meta, but still a somewhat decent 6% for everybody else.
• 6:35
  Speaker 1: 2025, still looking at 19% growth for the top mega cap tech stocks, and then the rest catches up actually to 11%.
• 6:44
  Speaker 1: So this is all pretty good news.
• 6:46
  Speaker 1: So the market, the party, keeps going, even though the real world is going to fall off a cliff right, and this is a very good description of the short term here.
• 6:58
  Speaker 1: And this is Bank of America.
• 7:00
  Speaker 1: Occasionally, they know what they're talking about and what are they saying.
• 7:02
  Speaker 1: They're saying Felix, you're thirsty, pour yourself a cup of America.
• 7:03
  Speaker 1: Occasionally, they know what they're talking about and what are they saying.
• 7:04
  Speaker 1: They're saying Felix, you're thirsty, pour yourself a cup of something.
• 7:09
  Speaker 1: Winstonian friends I like that.
• 7:15
  Speaker 1: Logan, do investment bankers actually trade?
• 7:17
  Speaker 1: Depends on what kind of investment banker you are.
• 7:21
  Speaker 1: So there's the corporate investment banker who just does deals like mergers and acquisitions, and then there is the trading floor inside an investment bank where you actually have bond traders and stock traders and derivative traders like options traders, like me, and then you have the brokerage team and everything else.
• 7:38
  Speaker 1: So, yeah, of course.
• 7:39
  Speaker 1: Of course they trade.
• 7:39
  Speaker 1: Have a look at every big company's earnings bank's earnings report.
• 7:45
  Speaker 1: It always says that trading profits this quarter were $10 billion or something right, look at JP Morgan or one of those.
• 7:50
  Speaker 1: So yeah, of course they trade.
• 7:54
  Speaker 1: Okay, this is what Bank of America says.
• 7:56
  Speaker 1: It says a late June lull could set up an early July rally.
• 8:00
  Speaker 1: Now, why is that?
• 8:02
  Speaker 1: Well, there are two factors here, and today is going to be data land.
• 8:08
  Speaker 1: It's the way we're going to play it.
• 8:09
  Speaker 1: Okay, buybacks and we touched on this a day or so ago.
• 8:15
  Speaker 1: Buybacks are slowing, just like this Microsoft whiteboard are slowing.
• 8:24
  Speaker 1: So that means there's less buying right, which means the market isn't going to rally as much.
• 8:28
  Speaker 1: But the SPX went up 2.9% over this period for the last 100 years, so a potential low could follow this strength given uninspiring seasonality over the last 10 sessions.
• 8:45
  Speaker 1: However, this pause can set up a solid seasonality early July, which is the strongest 10-day period of the year, which is true Sort of the big hurrah before everybody goes off on their boats and yachts and Hamptons and everything else.
• 9:00
  Speaker 1: So I kind of my feeling is the same that I think June might be a little bit boring, and then we come out kicking again as we head into July.
• 9:10
  Speaker 1: So that's just from Bank of America there.
• 9:12
  Speaker 1: But let's get to some really, really juicy stuff here.
• 9:15
  Speaker 1: Right?
• 9:15
  Speaker 1: The private equity, if I could spell private equity, the private equity monster, kkr, who got listed out into the S&PP, just beating Palantir to it.
• 9:27
  Speaker 1: They're saying that everything's going to be all right and, yes, you may break out in song.
• 9:34
  Speaker 1: And what are they saying?
• 9:36
  Speaker 1: They're talking about labor productivity.
• 9:38
  Speaker 1: So you work at B productivity and in the 2010s it was 1%.
• 9:47
  Speaker 1: Just got 1% more efficient every year because you used, I don't know, mondaycom or something.
• 9:53
  Speaker 1: In the last four quarters that's increased to 2.3% thanks to a little bit of AI, and we're expecting that to go up.
• 10:01
  Speaker 1: And I'll show you a bit more data on that.
• 10:06
  Speaker 1: And Look at the productivity changes we had in the 90s.
• 10:10
  Speaker 1: 90s was the internet right?
• 10:13
  Speaker 1: The internet made people more productive, computers got better and so on.
• 10:17
  Speaker 1: I don't know what happened in the 60s.
• 10:19
  Speaker 1: I think that was sort of factory automation and breaking down jobs into simpler things and so on.
• 10:25
  Speaker 1: But since the global financial crisis, it's been like 1%, which is bugger, all really.
• 10:32
  Speaker 1: So we are getting back to high productivity improvements, which means companies make more money out of you.
• 10:40
  Speaker 1: You're not going to get paid more.
• 10:41
  Speaker 1: There's no bloody hope in that, because the companies exist for us shareholders.
• 10:46
  Speaker 1: But very, very important, productivity goes up.
• 10:52
  Speaker 1: Companies make more money and you're seeing that already.
• 10:55
  Speaker 1: You're seeing like the big tech companies laying off tens of thousands of people, yet they're making more money.
• 11:00
  Speaker 1: So they're making more money per employee, which means the stock prices go up right.
• 11:05
  Speaker 1: And then KKR the cockroaches sorry private equity company who are pretty much everything says.
• 11:16
  Speaker 1: Unlike in the dot-com bubble 20 years ago, the companies financing this spending this cycle have bulletproof balance sheets, lower cost of capital and a more consolidated market.
• 11:28
  Speaker 1: And who is he talking about?
• 11:29
  Speaker 1: Well, he's talking about Microsoft.
• 11:32
  Speaker 1: He's talking about Google.
• 11:33
  Speaker 1: He's talking about Google.
• 11:34
  Speaker 1: He's talking about Tesla Video coming out on their AI supercomputer at the moment, which is not technically Tesla, it's XAI.
• 11:47
  Speaker 1: All these guys, they've got tons of money.
• 11:49
  Speaker 1: Apple, amazon, they all have lots and lots of money and they can borrow very, very cheaply, whereas in the dot-com boom that was a bit of a different story.
• 11:58
  Speaker 1: So we're in a much, much better shape now than we were in 1999.
• 12:06
  Speaker 1: However, index investors will be homeless.
• 12:10
  Speaker 1: Why is that?
• 12:12
  Speaker 1: Because house prices will go up too much.
• 12:15
  Speaker 1: You won't be able to afford one if you're an index investor.
• 12:17
  Speaker 1: Why?
• 12:17
  Speaker 1: Because the big stocks are seeing their earnings growth 38% this year.
• 12:24
  Speaker 1: Everybody else, the S&P 495, it's minus 5%.
• 12:31
  Speaker 1: So those stocks are not going to do very well, but the top stocks are going to do very well.
• 12:37
  Speaker 1: So you got to ask yourself is it right to be an index investor?
• 12:40
  Speaker 1: And I'm going to get some flack for this but is it better to be an index investor than not invest?
• 12:45
  Speaker 1: Yes, is it better to be invested in the big tech stocks right now than in the index?
• 12:49
  Speaker 1: Well, it certainly has been for the last couple of years.
• 12:52
  Speaker 1: So you know, make up your mind.
• 12:55
  Speaker 1: And well, software developers they already are homeless.
• 12:59
  Speaker 1: Why?
• 13:00
  Speaker 1: We've lost, I think, about 210,000 software developer jobs.
• 13:06
  Speaker 1: To whom?
• 13:09
  Speaker 1: Chatg, gpt?
• 13:11
  Speaker 1: Seriously, it's much, much faster, it's much, much easier, it's much, much more efficient to write code now than it was a year or two ago.
• 13:21
  Speaker 1: So we're going to need less software developers.
• 13:24
  Speaker 1: So everybody who was told learn to code.
• 13:26
  Speaker 1: It's the only way.
• 13:27
  Speaker 1: If you're exceptional yes, if you're not, you're in trouble, and I think that's the way the world's going.
• 13:34
  Speaker 1: You've got to be exceptional to have a job, because otherwise AI will be able to do your job.
• 13:39
  Speaker 1: So you've got to be exceptional at using AI or you're going to do something that you control, that you make money from, because companies are going to be able to sack a lot of people, a lot of people.
• 13:50
  Speaker 1: What do I do?
• 13:51
  Speaker 1: This small portfolio we're trading with here just to show people that it's possible $14,000 on 30K.
• 13:59
  Speaker 1: So far profit this year.
• 14:00
  Speaker 1: You're going to learn how we do that.
• 14:02
  Speaker 1: You know what to do.
• 14:03
  Speaker 1: Join the live trading session, either on Saturday that's for you in Europe or London felixrentalogswebinaruk or, if you are in the US and that'll be 5 am for you, which I don't expect you to get up for.
• 14:15
  Speaker 1: So we're running one at London time on Tuesday felixfrenzorg slash webinar.