Speakers: Jon Gay, Bruce Hosler, Jason Hosler, & Alex Koury
[Music Playing]
Jon Gay (00:05):
Welcome to Protecting and Preserving Wealth, I’m Jon Jag Gay. I’m joined by the whole crew today, Bruce Hosler, Jason Hosler, and Alex Koury, all together for the first of two episodes talking about what the election of Donald Trump for a second term means for the economic outlook for the country. Gentlemen, great to be with all of you.
Bruce Hosler (00:21):
Jon, great to be with you today.
Alex Koury (00:23):
Good to be here.
Jason Hosler (00:24):
Same, Jon. How are you buddy?
Jon Gay (00:25):
I’m good. So, let’s jump right into this. The markets hate uncertainty, we’ve talked about that in previous podcasts. Now, the election is over, we’re recording this on December 4th. Much of that uncertainty has been removed and that showed right after the election, right?
Bruce Hosler (00:38):
Absolutely. And the markets just jumped, and they liked that there was clarity. That is, I think with the House and the Senate both being controlled by the Republicans, they now have a lot of certainty of what was going to happen going forward.
Jon Gay (00:55):
I think that was the big fear after 2016 and 2020 when it took a while to get a result. You guys down there in Arizona, myself, up here in Michigan and all these swing states, are we going to know … Wednesday, Thursday, Friday? We knew pretty quickly, and the market reflected that.
Jason Hosler (01:08):
Yeah, it really did. The results coming in quickly and the market’s reaction to that, and how it has traded up since then. I don’t think the markets care too much about the result, just that the uncertainty is removed.
Jon Gay (01:20):
And speaking of uncertainty and knowing what’s going to happen, there was a lot of uncertainty in 2016 when Trump was elected for the first time. Is there a sense of. we know more of what we’re getting this time around? It’s not as much of a wild card?
Jason Hosler (01:32):
I think so. We’ve already lived through Trump presidency for four years, and now, it’s flipped back to Trump. Now, some of his policies or some of the things he’s been saying lately in the news have been a lot firmer about what his direction is, what his goals are, economically and for the world just as well. But that should be no surprise to anyone about the direction he wants to take this country.
Jon Gay (01:53):
And a piece of that is removing regulations, right?
Bruce Hosler (01:56):
Oh, that is huge, Jon. The whole idea that the Americans, they can remember living through the Trump presidency. It wasn’t the end of the world, and he has removed a lot of regulations, and the business community especially remembers that, and that’s why the market celebrated and has been celebrating over the past month.
They have an idea that a lot of fat and waste is going to be cut out, they have an idea that a lot of regulations are going to be removed. This is going to be stimulative for many businesses up and down the spectrum, and widely across the entire country.
Alex Koury (02:34):
Especially looking at certain sectors like transportation, industrial production, where Trump has come out with his platform and talked about specific changes that he wants to make to those regulations in those industries.
We could just go down the entire list of different sectors of the economy. There’s probably not many that Trump hasn’t touched on at one point or another of wanting to make changes to the regulatory frameworks, and to make business easier in the United States.
Jon Gay (03:04):
I know we can’t touch on all of them, Jason, but I’ll throw this back out to the group. What are a couple sectors for us to focus on in today’s discussion?
Alex Koury (03:12):
Let’s talk about energy as an example. Trump wants to drill oil; he wants to produce more oil. What is that going to do? That’s going to potentially, of course, drive down the price of gas, which is a main driver of our economy, a lot of money to transport goods all over the place.
If we can do that, we can bring down cost for consumers. We can be hopefully more of a deflationary environment to really help a lot of people that need it right now. Costs are still really high when you look at gas, you look at food prices, wages are up, but they’re still not as up as what they should be.
A lot of people need that help, and I think that’s going to really drive and flow down and trickle down to those that really need it the most.
Jason Hosler (03:55):
Yeah, I’m hopeful that we see that materialize. Cutting regulation can do quite a bit in that sector and it affects everything like Alex was saying.
Bruce Hosler (04:04):
We were on the meeting the other day with a couple, and they were saying, “Hey, would Trump being elected and the oil companies, he’s going to allow them to drill more? Should we be investing in them?” I’m saying, “Price of oil is around $68 a barrel right now, what happens when Trump does drill, baby drill and the price of oil drops down to $30 a barrel? Are those oil companies making more money or are they making less money?” Because right now, $68 a barrel, it’s more valuable to them.
And he said, “Oh …” and so, they realized that it’s deflationary to have more oil on the market. It’s going to be stimulative to a lot of economies because our economy is a distribution economy. Everything moves and distributed via oil. That’s going to be very stimulative to the economy, and the oil companies produce more oil, but they may not be making as much profit per barrel of oil, and it’s not as inflationary as many people think.
Jon Gay (05:01):
Good point. We’re not going to make specific recommendations for what’s to buy and sell here. Alex, go ahead, you were going to jump in.
Alex Koury (05:06):
I was going to say as well, when it comes to the business outlook, there was a survey that was done just after Trump was elected, and a lot of CEOs, about 60% of the CEOs that were surveyed said that they feel more confident about making more investments to spend their money, to invest in this AI revolution that we’re going through.
Again, as we’re talking about what’s the big deal about Trump being elected, we know what the rules are now. So, there’s a business confidence out there that I think everyone should pay attention to across all industries, because everyone realizes that in order to keep up, in order to stay relevant, you’re going to have to invest your money, and you can’t just sit back any longer doing not a lot when it comes to growing your business.
Jon Gay (05:48):
And you guys touched on oil a moment ago. I think natural gas is another thing that’s been in the news lately too. What does that mean geopolitically?
Jason Hosler (05:55):
The U.S. is creating excess natural gas. In a lot of cases, you’ve seen where they have to actually flare it off. That means they’re just burning it up because it’s not even cost-effective for them to store it from a production standpoint.
So, if we can use that excess natural gas, Trump has talked about being able to export that to Europe. If we can do that inexpensively, if we can provide security, reliability, they don’t have to depend on Russia as much.
That really changes the geopolitical game in Europe right now where they don’t have to depend on Russia, and it weakens Russia, it weakens Iran. It puts Europe in a different situation and puts U.S. in a better situation overall, being able to export those.
In the previous administration, that had been stifled. They need to have specific refineries and export facilities to be able to ship that over. We don’t have direct pipelines from the United States over to Europe, so that would be a really key issue for energy security in Europe and provide further income to those companies in the United States.
Bruce Hosler (07:08):
And so, what you’re talking about is LNG (Liquid Natural Gas). Regulations have been holding back those plants down along the Gulf Coast from being able to generate that natural gas into liquid natural gas.
But think of the certainty it creates and the stability for those countries in Europe to have stable sources of liquid natural gas coming to them. It removes the uncertainty, it gives stability, it gives profitability for those countries and companies over there in Europe to have sources of fossil fuel, liquid natural gas to provide for their production and for their manufacturing.
Jon Gay (07:46):
It’s true that the world is so interconnected now in 2024, and as we get into 2025, of course, as well, that what we do here in the U.S. affects our allies overseas and vice versa.
Look, every incumbent, regardless of party around the world was essentially voted out due to this recession or near recession depending on who you ask, that we’ve had in recent years.
The next thing I want to ask the three of you about is this term of a “melt up.” What is a “melt up” and what does that look like potentially going forward?
Alex Koury (08:13):
A melt up means that all assets, when you think about right now, especially the stock market, real estate, the bond market, you can even throw in private businesses, equity – cryptocurrency is another big one that’s become a big deal lately. Everything seems just to be bought up in either hype or the fear of missing out.
Again, there’s a lot of money on the sidelines we’ve talked about for the last two or three years now. Because of interest rates going up, everyone flowed their money towards the money market funds when they were yielding 5.5% or more.
Now, that rates have come down, so have money market yields, and eventually, it may get to the point where yields continue to drop because the Federal Reserve will continue to drop rates, money markets will come down, therefore, there’s a lot of money on the sidelines that’s going to have to be reinvested somewhere. They’ll be forced to move money out.
Now, I’m not saying all $6 trillion of this money will be flowing back into the equities and markets, but you can factor a good portion that’s going to. As businesses, investors, retirees all have to reallocate their portfolios, we have to keep up with inflation. Costs are not going down. They will not go down at all, even though that’s what we’ve been told.
So, everyone has a reason to have to invest in more riskier assets. So, it’s not surprising right now we’re seeing a technical melt up, but we have not reached anywhere near the frenzy that we may have seen back in 2007, 2021 at this point. There still may be a lot of room to go.
Jason Hosler (09:45):
Yeah, that psychology, that fear of missing out, as people see this market continue to trade up, they start chasing it. And you see this in markets as they approach their peak, and so I think that psychology is still coming into play.
Bruce Hosler (10:00):
Absolutely.
Jon Gay (10:01):
Related to that melt up, there comes a certain point where things might change. So, we’ve talked about it in almost every episode, I feel, because it is so important, but diversification is certainly key as we look a little bit more medium and long-term, right?
Bruce Hosler (10:16):
The interesting point on this, Jon, is that if we look at the magnificent seven, those big scalable tech companies that had almost all of the performance last year in 2023 and the other 493 companies in the S&P 500 were only level for the year, and almost all the performance was in those magnificent seven – if you look at what’s happened this year, they performed well early in the year, but over the last month or so, their performance has started to wane.
And we believe that in 2025, there’s going to be what’s called a broadening of the market, and you’re not going to be wanting to be as concentrated in those big, magnificent seven. You’re going to want to diversify your portfolio into some other companies and other areas that we still think have room to run up, and we’re looking at that right now for all of our client portfolios.
Jon Gay (11:14):
And just a quick note for any listeners new to our show, we’ve talked about them before, but the magnificent seven stocks that drove most of that growth in the S&P as we wrap up here, 2024: Tesla Meta, which owns Facebook and Instagram, Microsoft, Alphabet, which owns Google, Amazon, Apple, and Nvidia, who makes a lot of the chips of everything that we use.
Bruce Hosler (11:33):
Thank you, Jon.
Jon Gay (11:33):
Let’s wrap up with this point here in part one of our discussion. Inflation, and you guys hit on it a moment ago, but what are our thoughts looking into 2025 when it comes to inflation?
Jason Hosler (11:44):
So, we talked about inflation from the point of view of oil prices coming down, but that’s not the only thing that’s going to drive inflation. There’s a number of other factors that are making us think that inflation could be stickier than we would like and persist stubbornly over the next few years.
We think that Trump will try and implement policies to address inflation because he’s promised to try and do so to bring prices down, but it is going to be difficult to continue to keep inflation low when we see the velocity of money increasing. If we don’t get cuts in government spending, there’s definitely going to be a battle there.
Alex Koury (12:27):
In addition to that, let’s talk about the overarching themes with the markets and the economy. The biggest one right now is still artificial intelligence, and the amount of energy demand that’s going to really require to make this thing go. Now, we’re still in their very early stages of AI, but the demands of the future are way greater than what we can support today.
So, infrastructure is a big deal. We have to develop infrastructure, utilities, electricity, data centers. We’ve got to build, we have to upgrade not just in the United States, but globally. The global infrastructure needs to be upgraded as well to support this new system that’s moving through here.
As an example, Kamala Harris talked about she wanted to build 3 million homes in four years, and that’s not realistic. That never would be realistic, but homes still need to be built. We have a housing shortage of almost depending on who you talk to, anywhere between 3 and 5 million homes that need to be built here just domestically in our country, that doesn’t happen overnight.
So, you have things like timber, there’s such a scarcity of that. Everyone’s going to want this as a source to build homes. Again, prices go higher because of that. We can’t satisfy those demands so quickly. So, demands may continue to be more than what the supply is in the current environment, and that could be a trend that plays out over the next 10 to 15 years.
Jon Gay (13:46):
Ask anybody who’s worked with a contractor to try to build a house in the last year or two, and they’ll completely agree with everything you just said, Alex.
Alex Koury (13:52):
Yeah. Some people can’t even get cabinets still.
Jon Gay (13:55):
We’re going to wrap up part one of our discussion here. We’re going to pick up part two in a couple of weeks with some more points about the outlook at the beginning of the Trump presidency, Trump’s second presidency, and we’re going to include some questions that people have, some concerns that folks have had looking forward economically as well.
But in the meantime, Bruce, if somebody wants to come talk to you and your team at Hosler Wealth Management, how do they best find you?
Bruce Hosler (14:16):
Hey, they can best reach us at the website, hoslerwm.com, or they can reach us at either office in Prescott, (928) 778-7666, and certainly down in Scottsdale, (480) 994-7342.
Jon Gay (14:35):
Excellent. And if you want to check out episode two of our podcast in a couple weeks, be sure to follow our show for free on Apple, Spotify, or wherever you’re listening right now. Thank you, gentlemen.
Bruce Hosler (14:43):
Thank you, Jon.
Jason Hosler (14:42):
Thanks, Jon.
Alex Koury (14:42):
Thanks, Jon.
Jon Gay (16:20):
Securities and advisory services offered through Commonwealth Financial Network, a member of FINRA/SIPC, a registered investment advisor, forward-looking commentary should not be misconstrued as investment or financial advice.
The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.
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Accordingly, Hosler Wealth Management, LLC does not warranty, guarantee, or make any representations or assume any liability with regard to financial results based on the use of the information in this podcast.
By
In the first part of our two-part series, we discuss the economic implications of Donald Trump’s second presidential term, focusing on markets, regulation, energy, and inflation. With the election concluded, markets have responded positively to the reduced uncertainty, reflecting a renewed sense of clarity. We highlight how a Republican-controlled House and Senate could further enhance this stability. Drawing from Trump’s first presidency, we examine his policies on deregulation, their stimulative effects on businesses, and their potential for deflationary outcomes, particularly in the energy and industrial sectors. With Trump advocating for increased oil and natural gas production, energy is a key focus. While this could lower fuel costs and stimulate economies based on distribution, we also note its potentially deflationary impact on the profits of oil companies. Natural gas could serve as a geopolitical tool, especially with proposals to export excess liquefied natural gas (LNG) to Europe. This increase in production would help reduce reliance on Russia and bolster U.S. influence abroad. Implementing these plans will depend on overcoming regulatory barriers and building necessary infrastructure, such as Gulf Coast LNG facilities.
We explain the concept of a “melt-up,” in which rising asset prices are driven by the fear of missing out and the reallocation of sidelined capital. We explore the broader market implications, suggesting diversification as essential for navigating an environment where gains have been concentrated in a handful of tech giants—the “Magnificent Seven.”
We also anticipate a market broadening in 2025, encouraging a shift towards other growth-promising sectors. Inflation remains a persistent concern, which we address from multiple angles. While increased oil production may help temper fuel costs, broader inflationary pressures, such as rising energy demand driven by AI infrastructure and housing shortages, pose significant challenges. Building adequate global infrastructure to support AI’s growth requires long-term investment in utilities and materials like timber, which keeps costs high. Trump’s policies aim to tackle inflation, but their success will depend on reducing government spending and addressing structural economic demands.
Don’t miss What To Expect From Trump’s Second Term – Part 2, of this discussion where we delve deeper into these themes and address listeners’ questions about the economic outlook for Trump’s second term.
For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management: Visit them online at https://www.hoslerwm.com/
Call the Prescott office at (928) 778-7666 or our Scottsdale office at (480) 994-7342.
To listen to more Protecting & Preserving Wealth podcast episodes, click here.
Limitation of Liability Disclosures: https://www.hoslerwm.com/disclosures/#socialmedia
Copyright © 2022-2024 Hosler Wealth Management LLC, All Rights Reserved. #ProtectingWealthPodcast #ProtectingandPreservingWealthPodcast #HoslerWealthManagement #BruceHosler
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Guest Profile
Alex Koury CFP®, CERTIFIED FINANCIAL PLANNER® professional and Wealth Manager in Scottsdale, has worked in the financial services industry for fifteen years as a financial advisor and Financial Planner. He holds Series 7, 9, 10 & 66 securities registrations– and is a Registered Representative with Commonwealth Financial Network®.
Jason Hosler holds Series 7 and 66 FINRA securities registrations. He brings a technological edge to our firm and helps many of our clients stay current in the fast-moving age of the internet.
Podcast Host
Bruce Hosler is the founder and principal of Hosler Wealth Management, LLC., which has offices in Prescott and Scottsdale, Arizona. As an Enrolled Agent, CERTIFIED FINANCIAL PLANNER® professional, and Certified Private Wealth Advisor (CPWA®), Bruce brings a multifaceted approach to advanced financial and tax planning. He is recognized as a prominent financial professional with over 27 years of experience and a seven-time consecutive *Forbes Best-In-State Wealth Advisor in Arizona. Bruce recently authored the book MOVING TO TAX-FREE™ Strategies For Creating Tax-Free Retirement Income And Tax-Free Lifetime Legacy Income For Your Children. www.movingtotaxfree.com.
In the Protecting & Preserving Wealth podcast, Bruce and his guests discuss current financial topics and provide timely answers for our listeners.
If you have a topic of interest, please let us know by emailing info@hoslerwm.com. We welcome your suggestions.
*2018-2024 Forbes Best In State Wealth Advisors, created by SHOOK Research. Presented in April 2024 based on data gathered from June 2022 to June 2023. 23,876 were considered, 8,507 advisors were recognized. Not indicative of advisor’s future performance. Your experience may vary. For more information, please visit.
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Transcript
Speakers: Jon Gay, Bruce Hosler, Jason Hosler, & Alex Koury
[Music Playing]
Jon Gay (00:05):
Welcome to Protecting and Preserving Wealth, I’m Jon Jag Gay. I’m joined by the whole crew today, Bruce Hosler, Jason Hosler, and Alex Koury, all together for the first of two episodes talking about what the election of Donald Trump for a second term means for the economic outlook for the country. Gentlemen, great to be with all of you.
Bruce Hosler (00:21):
Jon, great to be with you today.
Alex Koury (00:23):
Good to be here.
Jason Hosler (00:24):
Same, Jon. How are you buddy?
Jon Gay (00:25):
I’m good. So, let’s jump right into this. The markets hate uncertainty, we’ve talked about that in previous podcasts. Now, the election is over, we’re recording this on December 4th. Much of that uncertainty has been removed and that showed right after the election, right?
Bruce Hosler (00:38):
Absolutely. And the markets just jumped, and they liked that there was clarity. That is, I think with the House and the Senate both being controlled by the Republicans, they now have a lot of certainty of what was going to happen going forward.
Jon Gay (00:55):
I think that was the big fear after 2016 and 2020 when it took a while to get a result. You guys down there in Arizona, myself, up here in Michigan and all these swing states, are we going to know … Wednesday, Thursday, Friday? We knew pretty quickly, and the market reflected that.
Jason Hosler (01:08):
Yeah, it really did. The results coming in quickly and the market’s reaction to that, and how it has traded up since then. I don’t think the markets care too much about the result, just that the uncertainty is removed.
Jon Gay (01:20):
And speaking of uncertainty and knowing what’s going to happen, there was a lot of uncertainty in 2016 when Trump was elected for the first time. Is there a sense of. we know more of what we’re getting this time around? It’s not as much of a wild card?
Jason Hosler (01:32):
I think so. We’ve already lived through Trump presidency for four years, and now, it’s flipped back to Trump. Now, some of his policies or some of the things he’s been saying lately in the news have been a lot firmer about what his direction is, what his goals are, economically and for the world just as well. But that should be no surprise to anyone about the direction he wants to take this country.
Jon Gay (01:53):
And a piece of that is removing regulations, right?
Bruce Hosler (01:56):
Oh, that is huge, Jon. The whole idea that the Americans, they can remember living through the Trump presidency. It wasn’t the end of the world, and he has removed a lot of regulations, and the business community especially remembers that, and that’s why the market celebrated and has been celebrating over the past month.
They have an idea that a lot of fat and waste is going to be cut out, they have an idea that a lot of regulations are going to be removed. This is going to be stimulative for many businesses up and down the spectrum, and widely across the entire country.
Alex Koury (02:34):
Especially looking at certain sectors like transportation, industrial production, where Trump has come out with his platform and talked about specific changes that he wants to make to those regulations in those industries.
We could just go down the entire list of different sectors of the economy. There’s probably not many that Trump hasn’t touched on at one point or another of wanting to make changes to the regulatory frameworks, and to make business easier in the United States.
Jon Gay (03:04):
I know we can’t touch on all of them, Jason, but I’ll throw this back out to the group. What are a couple sectors for us to focus on in today’s discussion?
Alex Koury (03:12):
Let’s talk about energy as an example. Trump wants to drill oil; he wants to produce more oil. What is that going to do? That’s going to potentially, of course, drive down the price of gas, which is a main driver of our economy, a lot of money to transport goods all over the place.
If we can do that, we can bring down cost for consumers. We can be hopefully more of a deflationary environment to really help a lot of people that need it right now. Costs are still really high when you look at gas, you look at food prices, wages are up, but they’re still not as up as what they should be.
A lot of people need that help, and I think that’s going to really drive and flow down and trickle down to those that really need it the most.
Jason Hosler (03:55):
Yeah, I’m hopeful that we see that materialize. Cutting regulation can do quite a bit in that sector and it affects everything like Alex was saying.
Bruce Hosler (04:04):
We were on the meeting the other day with a couple, and they were saying, “Hey, would Trump being elected and the oil companies, he’s going to allow them to drill more? Should we be investing in them?” I’m saying, “Price of oil is around $68 a barrel right now, what happens when Trump does drill, baby drill and the price of oil drops down to $30 a barrel? Are those oil companies making more money or are they making less money?” Because right now, $68 a barrel, it’s more valuable to them.
And he said, “Oh …” and so, they realized that it’s deflationary to have more oil on the market. It’s going to be stimulative to a lot of economies because our economy is a distribution economy. Everything moves and distributed via oil. That’s going to be very stimulative to the economy, and the oil companies produce more oil, but they may not be making as much profit per barrel of oil, and it’s not as inflationary as many people think.
Jon Gay (05:01):
Good point. We’re not going to make specific recommendations for what’s to buy and sell here. Alex, go ahead, you were going to jump in.
Alex Koury (05:06):
I was going to say as well, when it comes to the business outlook, there was a survey that was done just after Trump was elected, and a lot of CEOs, about 60% of the CEOs that were surveyed said that they feel more confident about making more investments to spend their money, to invest in this AI revolution that we’re going through.
Again, as we’re talking about what’s the big deal about Trump being elected, we know what the rules are now. So, there’s a business confidence out there that I think everyone should pay attention to across all industries, because everyone realizes that in order to keep up, in order to stay relevant, you’re going to have to invest your money, and you can’t just sit back any longer doing not a lot when it comes to growing your business.
Jon Gay (05:48):
And you guys touched on oil a moment ago. I think natural gas is another thing that’s been in the news lately too. What does that mean geopolitically?
Jason Hosler (05:55):
The U.S. is creating excess natural gas. In a lot of cases, you’ve seen where they have to actually flare it off. That means they’re just burning it up because it’s not even cost-effective for them to store it from a production standpoint.
So, if we can use that excess natural gas, Trump has talked about being able to export that to Europe. If we can do that inexpensively, if we can provide security, reliability, they don’t have to depend on Russia as much.
That really changes the geopolitical game in Europe right now where they don’t have to depend on Russia, and it weakens Russia, it weakens Iran. It puts Europe in a different situation and puts U.S. in a better situation overall, being able to export those.
In the previous administration, that had been stifled. They need to have specific refineries and export facilities to be able to ship that over. We don’t have direct pipelines from the United States over to Europe, so that would be a really key issue for energy security in Europe and provide further income to those companies in the United States.
Bruce Hosler (07:08):
And so, what you’re talking about is LNG (Liquid Natural Gas). Regulations have been holding back those plants down along the Gulf Coast from being able to generate that natural gas into liquid natural gas.
But think of the certainty it creates and the stability for those countries in Europe to have stable sources of liquid natural gas coming to them. It removes the uncertainty, it gives stability, it gives profitability for those countries and companies over there in Europe to have sources of fossil fuel, liquid natural gas to provide for their production and for their manufacturing.
Jon Gay (07:46):
It’s true that the world is so interconnected now in 2024, and as we get into 2025, of course, as well, that what we do here in the U.S. affects our allies overseas and vice versa.
Look, every incumbent, regardless of party around the world was essentially voted out due to this recession or near recession depending on who you ask, that we’ve had in recent years.
The next thing I want to ask the three of you about is this term of a “melt up.” What is a “melt up” and what does that look like potentially going forward?
Alex Koury (08:13):
A melt up means that all assets, when you think about right now, especially the stock market, real estate, the bond market, you can even throw in private businesses, equity – cryptocurrency is another big one that’s become a big deal lately. Everything seems just to be bought up in either hype or the fear of missing out.
Again, there’s a lot of money on the sidelines we’ve talked about for the last two or three years now. Because of interest rates going up, everyone flowed their money towards the money market funds when they were yielding 5.5% or more.
Now, that rates have come down, so have money market yields, and eventually, it may get to the point where yields continue to drop because the Federal Reserve will continue to drop rates, money markets will come down, therefore, there’s a lot of money on the sidelines that’s going to have to be reinvested somewhere. They’ll be forced to move money out.
Now, I’m not saying all $6 trillion of this money will be flowing back into the equities and markets, but you can factor a good portion that’s going to. As businesses, investors, retirees all have to reallocate their portfolios, we have to keep up with inflation. Costs are not going down. They will not go down at all, even though that’s what we’ve been told.
So, everyone has a reason to have to invest in more riskier assets. So, it’s not surprising right now we’re seeing a technical melt up, but we have not reached anywhere near the frenzy that we may have seen back in 2007, 2021 at this point. There still may be a lot of room to go.
Jason Hosler (09:45):
Yeah, that psychology, that fear of missing out, as people see this market continue to trade up, they start chasing it. And you see this in markets as they approach their peak, and so I think that psychology is still coming into play.
Bruce Hosler (10:00):
Absolutely.
Jon Gay (10:01):
Related to that melt up, there comes a certain point where things might change. So, we’ve talked about it in almost every episode, I feel, because it is so important, but diversification is certainly key as we look a little bit more medium and long-term, right?
Bruce Hosler (10:16):
The interesting point on this, Jon, is that if we look at the magnificent seven, those big scalable tech companies that had almost all of the performance last year in 2023 and the other 493 companies in the S&P 500 were only level for the year, and almost all the performance was in those magnificent seven – if you look at what’s happened this year, they performed well early in the year, but over the last month or so, their performance has started to wane.
And we believe that in 2025, there’s going to be what’s called a broadening of the market, and you’re not going to be wanting to be as concentrated in those big, magnificent seven. You’re going to want to diversify your portfolio into some other companies and other areas that we still think have room to run up, and we’re looking at that right now for all of our client portfolios.
Jon Gay (11:14):
And just a quick note for any listeners new to our show, we’ve talked about them before, but the magnificent seven stocks that drove most of that growth in the S&P as we wrap up here, 2024: Tesla Meta, which owns Facebook and Instagram, Microsoft, Alphabet, which owns Google, Amazon, Apple, and Nvidia, who makes a lot of the chips of everything that we use.
Bruce Hosler (11:33):
Thank you, Jon.
Jon Gay (11:33):
Let’s wrap up with this point here in part one of our discussion. Inflation, and you guys hit on it a moment ago, but what are our thoughts looking into 2025 when it comes to inflation?
Jason Hosler (11:44):
So, we talked about inflation from the point of view of oil prices coming down, but that’s not the only thing that’s going to drive inflation. There’s a number of other factors that are making us think that inflation could be stickier than we would like and persist stubbornly over the next few years.
We think that Trump will try and implement policies to address inflation because he’s promised to try and do so to bring prices down, but it is going to be difficult to continue to keep inflation low when we see the velocity of money increasing. If we don’t get cuts in government spending, there’s definitely going to be a battle there.
Alex Koury (12:27):
In addition to that, let’s talk about the overarching themes with the markets and the economy. The biggest one right now is still artificial intelligence, and the amount of energy demand that’s going to really require to make this thing go. Now, we’re still in their very early stages of AI, but the demands of the future are way greater than what we can support today.
So, infrastructure is a big deal. We have to develop infrastructure, utilities, electricity, data centers. We’ve got to build, we have to upgrade not just in the United States, but globally. The global infrastructure needs to be upgraded as well to support this new system that’s moving through here.
As an example, Kamala Harris talked about she wanted to build 3 million homes in four years, and that’s not realistic. That never would be realistic, but homes still need to be built. We have a housing shortage of almost depending on who you talk to, anywhere between 3 and 5 million homes that need to be built here just domestically in our country, that doesn’t happen overnight.
So, you have things like timber, there’s such a scarcity of that. Everyone’s going to want this as a source to build homes. Again, prices go higher because of that. We can’t satisfy those demands so quickly. So, demands may continue to be more than what the supply is in the current environment, and that could be a trend that plays out over the next 10 to 15 years.
Jon Gay (13:46):
Ask anybody who’s worked with a contractor to try to build a house in the last year or two, and they’ll completely agree with everything you just said, Alex.
Alex Koury (13:52):
Yeah. Some people can’t even get cabinets still.
Jon Gay (13:55):
We’re going to wrap up part one of our discussion here. We’re going to pick up part two in a couple of weeks with some more points about the outlook at the beginning of the Trump presidency, Trump’s second presidency, and we’re going to include some questions that people have, some concerns that folks have had looking forward economically as well.
But in the meantime, Bruce, if somebody wants to come talk to you and your team at Hosler Wealth Management, how do they best find you?
Bruce Hosler (14:16):
Hey, they can best reach us at the website, hoslerwm.com, or they can reach us at either office in Prescott, (928) 778-7666, and certainly down in Scottsdale, (480) 994-7342.
Jon Gay (14:35):
Excellent. And if you want to check out episode two of our podcast in a couple weeks, be sure to follow our show for free on Apple, Spotify, or wherever you’re listening right now. Thank you, gentlemen.
Bruce Hosler (14:43):
Thank you, Jon.
Jason Hosler (14:42):
Thanks, Jon.
Alex Koury (14:42):
Thanks, Jon.
Jon Gay (16:20):
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