SKEPTIC’S GUIDE TO INVESTING
Straight Talk for All, Nonsense for None
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Your Hosts - Meet Steve Davenport, CFA and Clem Miller, CFA as they discus the latest in news, markets and investments. They each bring over 25 years in the investment industry to their discussions. Steve brings a domestic stock and quantitative emphasis, Clem has a more fundamental and international perspective. They hope to bring experience, honesty and humility to these podcasts. There are a lot of acronyms and financial terms which confuse more than they help. There are many entertainers versus analysts promoting get rich quick ideas. Let’s cut through the nonsense with straight talk!
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SKEPTIC’S GUIDE TO INVESTING
Trump 2.0: What Should Investors Track?
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In this episode of Skeptic’s Guide to Investing, Steve Davenport and Clem Miller discuss what investors should be tracking as the Second Trump Administration gets underway.
Will increased energy output be addressed on Day 1? Will these policies support not just increased oil drilling but also natural gas exports and nuclear?
Will the Administration and Congress get so side-tracked by social issues and retribution against perceived enemies that it will be unable to form a bipartisan consensus to extend the 2017 tax cuts?
Will proposals by Elon Musk and his so-called DOGE to drastically slash government spending, including entitlements, be stymied by Trump’s own allies in Congress? Is DOGE just another distraction? When will Trump dump Musk?
Will there be any efforts made to build out the infrastructure needed to keep U.S. industries competitive with those of other countries?
Will Trump’s cabinet and agency nominees demonstrate the competence necessary to manage government functions effectively?
Steve and Clem also discuss and debate the weak long-term return projections of several prominent investment management firms. These projections are lower than would be implied by long-term U.S. nominal economic growth trends, but do they embed an expectation of recession? Do they reflect a substantial multiple contraction?
Finally, we discuss how we’re positions our portfolios for the opportunities and uncertainties posed by Trump 2.0.
Straight Talk for All - Nonsense for None
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Hello everybody, and welcome to Skeptic's Guide to Investing. This is Clem Miller, and I'm here with Steve Davenport, and today we're going to be talking about the investment outlook for 2025, especially in various policies that the Trump administration might uh be able to put in place, uh, at the beginning of the year. So so, steve, uh let me throw this question to you Uh, there's going to be a lot of executive orders uh that are going to be put in place, supposedly on day one, as our president-elect likes to say. So let's start off by saying well, what do you expect to be the main, the most important executive orders on day one from an investment standpoint?
Speaker 2:I believe that the most important things that will change under a Trump administration will be in the areas of energy and infrastructure. I think those areas are ripe for more investment and also a government that is more supportive in terms of leases, in terms of opening up or expanding. You know, I think that there's talk about Keystone coming out of you know and coming back, which had been a big project for a lot of people and a lot of people's interest in terms of the energy space. I would love to see us, you know, connect Pennsylvania to New England in terms of infrastructure and pipelines. I believe that we are energy independent because of our relationship with Canada and Mexico, and I think that this talk of tariff and talk of, you know, trying to get others to pay more to the US, which, I believe, our two biggest allies on the East and the West, japan and Germany both need nat gas and we have too much nat gas. We're capping it. So, therefore, I would say, if we could figure out a way to use this nat gas to strengthen our position globally, I believe that that would be a legacy of some positive nature for Trump. I'm a little bit hesitant because one strategist used to say the market loves gridlock used to say, the market loves gridlock, and I believe that what you saw recently is this idea that Trump is going to, on day one, change everything and everything is going to come, suddenly go from being bad under Biden to being good under Trump. I think is just a false premise. Is just a false premise. I believe that right now, the majorities that exist of three in the Senate and five or six in the House are just too narrow. They don't allow the Senate to bring a vote, because you need 60 to do that, and I think that in the House, between people who are going to be called into the administration and then be reappointed by governors or have elections, I think there's going to be an uncertain amount of time that, if Trump isn't careful, what will happen to him in the first administration will happen in this administration.
Speaker 2:And what happened the first time for history is that he focused on getting rid of Obamacare. That was his main initiative. Everybody said you should focus on infrastructure. It's the only thing in which the House Republicans and Democrats all agree. So let's focus on infrastructure. And he said no, no, I promised everyone I was going to focus on Obamacare and getting rid of it and he did and it absolutely went nowhere. And his first year was a wasted time, when he had some goodwill. He had an opportunity and he didn't take it. And so I believe what will happen this time is some people will say, hey, if we have an opportunity, let's get some of these things done and in the books. Well, we can, because we don't know what the midterm will bring.
Speaker 2:And I think the central issue that will be most important for Trump in these first two years, particularly the first six months, is the question of extending the tax cuts for individuals. They expire in the beginning of 26. And I think that we will see a lot of news and a lot of talk, because this will be one of the most important issue to voters. The voters that elected Trump voters, the voters that elected Trump middle class, upper class, white voters, I believe are going to be impacted by this tax bill, and if it's a negative impact meaning their tax bills go up or are scheduled to go up I think the midterm elections could be disastrous for Republicans. The midterm elections could be disastrous for Republicans.
Speaker 2:So I look at what Trump has to do and what he's thinking of doing and I would just say be careful what you want, or surely you will get it. And I think he is in the position where he wants change and he wants things to be different. But you still need to work with people. You're going to have to reach across the aisle and find some people who are going to agree with you, and I'm just not sure there's that many people in the House or the Senate who are going to go across the aisle. I think that was a thing of the past and we're not going to see that anymore, at least until there's a different tone in Washington and a different tone in this country.
Speaker 1:What do you think? So, steve, so I hear two main. You know if I had to distill what you just said down to two things. One is a drill baby drill, as he would put it and the other one is the absolute necessity of the extension of the tax cuts.
Speaker 2:Correct. I wouldn't say it's drill, baby drill, meaning that we drill everywhere, right. I would say that we need our energy policy to have a vision at least Right. I love the fact that we're starting to look more at nuclear. The success of Vogel in Georgia, even though it took longer, is an example of some energy suppliers who said I want to go through this regulation and, as a country, for us to build three reactors in a major way in one of the states was a real step forward for us. And as we look into AI and the power demands and all the other things, I think the energy question will be multifaceted and now it will include nuclear. I think it will, you know, with battery technologies and solar technologies. I think it will include more water and solar. So I don't think it's all drill on smaller reactors in smaller spaces that could subsidize or could support some of the server farms that are necessary for AI. So it is finding more energy, but I also believe it is finding new ways to use and create energy for us.
Speaker 1:So, steve, I'd like to hear your reactions to what I think are some of the obstacles to Trump getting much done distraction on certain items, such as, namely, revenge on his political opponents. I think that's one big distraction. A second one is a focus on social issues over economic issues. So I think those are the two big distractions. I think that the appointments or the nominations he's made for certain cabinet members, you might agree or you might disagree with some of them, but are they really the best people for those jobs? Are they really the people who can get things done? You know, I don't think so. Right Is my own personal perspective. Uh, I think that you know if, if, uh, to get things done. Uh, trump should have had better people. Uh, in some of these positions, trump should have had better people in some of these positions. Now, maybe he does have better people in the Treasury position and the state and the State Department position, but in some of these other positions he clearly does not have. He does not have the best and the brightest.
Speaker 2:So, yeah, I also wonder sometimes. We think putting the best and the brightest in these positions is going to lead to a result. When we first came in, he appointed the CEO of Exxon to be the head of energy one of the most well-known, comprehensive knowledge of all energy around the world and he didn't listen to him. He got frustrated and he left. So I think that you can have very qualified people, but you need some kind of a cohesive organization, and I think the difference between Trump 1.0 and Trump 2.0, is his chief of staff, a woman from Florida. I think she is trying to bring some order to the chaos. I'm not sure she'll be successful because I think it's a constantly churning with ideas about who we're going to get back and who we're going to primary and who were going to hurt. I understand that political aspect, but I also believe that his success was not unrelated to the fact that he had more reasonable people than Bannon and some of the other characters of 2016. The 2024 version had some people in positions of authority that really were able to. I'll go back to his debate with Biden in June. I mean the fact that he sat back and let Biden basically sell himself away out of the job with his answers and with his appearance I thought was a pretty big development for Trump, because Trump believes that everything he does is what causes things to go his way, and sometimes it's what others do that causes things to go your way, and I think he's matured somewhat. I still think there's a lot of room for error and there's a lot of ideas that could.
Speaker 2:I believe he will be distracted by mostly international, because I look at our last podcast that we just did, talking about all the issues around the globe and is he the person to deal with America as the beacon and be the supporter and help some of these nations get through some of these difficulties? Absolutely not. I think that's his weakest part is the international part, and so, to me, if an Achilles heel exists, I think that there'll be more and more pressure on him to answer some of these international questions, and that's definitely outside of his wheelhouse. I'm not sure he'll be able to make a deal. You've talked about him being the deal oriented and transaction oriented, and I believe you're right. That is a characteristic, and my question is could he make a deal with Ukraine and Russia? Is could he make a deal with Ukraine and Russia? I'm not sure he could, because there's so much intertwined NATO and German, france and others supporting that new situation, whatever it is, whether it includes Crimea or not Crimea, or what territories are included.
Speaker 2:I think that Trump's ability to understand and deal with these things in a more comprehensive and thorough manner it's just not in his wheelhouse. So I believe that's where his friction will exist and start to disturb, you know, the smooth flow of everything you'd like to do. I think he might be able to do something with immigration. I think he might be able to do something with immigration. I think we were close on immigration and I just wonder if people won't go back to that bill, because they will have the feeling that that was a Biden bill or that was the prior administration's solution and he'll want to have his own solution. So, yes, ego, yes, unfamiliarity with international I think those would be the things that clog up the administration. And if they don't get things done early, I'd say get it done early or you don't get it done at all, and then he's a lame duck for the last two years of his presidency. That's how I see things going.
Speaker 1:Would you add to this list of obstacles or constraints the following two things One would be court action, especially in light of the unretirement of several of the judges that have been appointed by Democrats in the past, and actions by states, by Democratic states, to try to frustrate some of the immigration and other domestic type actions. So do you see those as significant constraints on Trump's ability to act?
Speaker 2:I'm not sure. When I think about immigration, I think of Texas and Florida, and maybe that's simplistic, but those two states and I think that they will have a great deal of influence into what becomes our immigration bill. I think that California, Arizona and others will have a different desire for that immigration bill. So, yes, I think there will be some problems coming together around a solution, but I'm not sure the state versus federal. I think that Trump will try to portray that he's for supporting state rights and letting states make the decisions and I think that in abortion that's been the case and I think that he will probably leave states to decide some more things for themselves. I think he has enough on his plate. Decide some more things for themselves. I think he has enough on his plate.
Speaker 2:I think, with all the talk we've had about the CHIPS Act, with the Infrastructure Act, I think that those things are ultimately the things that are going to make a big difference in this country.
Speaker 2:Again, energy in particular, I think, is going to be a beneficiary, but infrastructure and how we deal with that infrastructure and movement of more things onshore, I think is going to be potentially where he sees some success.
Speaker 2:And so success begets success and problems beget problems. So I would say his international situation is much more complex. Now that we've had, you know, an assassination in Russia from Ukraine and we've had these long range missiles being deployed by Ukraine against Russia, I think those situations are going to get more inflamed and therefore it's going to be harder and harder for him to focus on, you know, transgender operations and all the all the minutia of some of these state questions. I'm not sure the people that matter in my mind are the people that are really focused on the economics of a small business, on the economics of a small business. If small businessmen don't feel like Trump has done much that he promised to help make their lives better, I think that's where his real support was and therefore I would say they're going to be looking very hard at that tax bill and that's what I think will make or break the Trump administration.
Speaker 1:So in order to keep taxes low, they're going to have to do something about spending cuts. So my question to you, steve, is what is your view on this whole Doge, doggy Musk, ramaswamy, uh, effort. Is this? Is this just nonsense? Uh, is it? Is it really uh just uh? Public relations, or is this? Is there some meat to this? You think? Um?
Speaker 2:I think that he, like everyone else, runs on the idea that he's going to make government efficient, and I think that's a false argument. The two words do not go together government efficiency. So as an industrial engineer, I understand why companies need to operate more effectively. Government doesn't have that constraint. Government doesn't get measured for success. Therefore, I'm not sure if, without measurement, we can't have productivity, and I think that when we look at government, we don't measure. You know, how did the health care system? Do you know? Dollars per donuts versus other countries around the world Doesn't seem like we're killing it.
Speaker 2:And I look at some of the infrastructure and some of the things in the United States and I say we should be leading in this area and we're not. Why is it? And it kind of comes down to what areas does government have its tentacles in which make it hard for us as businesses and as individuals to succeed, and I hope that they are able to find things, but I think that hope isn't a strategy. I think that if this group was starting and they had listed the 10 projects or the 10 areas and how they were going to use technology, slash organizational procedures and clarifying rules to, you know, turn everything into a more efficient organization, I would have some feelings of hope. Right now, I just have questions, and you can't have questions this close to day one, when everything is going to change. So I believe that this is a campaign issue, a campaign promise that will not lead to anything. I don't think it will move the needle. I think eliminating some regulation in the energy space, I think improving some things in terms of how we regulate mergers and acquisition, how we regulate IPOs, I think that we could see a rebirth of IPOs that are going to be positive for the market. I think those types of things could be good, but I'm not sure on an individual basis. We're going to see the overall life of Americans get better on January 20th.
Speaker 2:I think what I'd say is Washington is still Washington and they don't let everyone just come in and make all the changes to the structure that they've created. I believe that the swamp, as we called it, hasn't been cleaned out in 2016 to 2020. And it's probably not going to get cleaned out in 24 to 28. Maybe I'm skeptic, maybe I'm even a cynic on this issue, but that's just my political leanings that are just towards. Maybe they're libertarian, maybe they're, you know, just agnostic towards any party.
Speaker 2:I believe that we have a problem with our debt, and the fact that we haven't even talked about the debt as part of the new administration in my mind is a huge, huge tell sign that something is missing here.
Speaker 2:They believe that I think they believe that the Fed was just going to keep lowering rates to 2% and that was going to just go right through the budget. As we'll have lower rates, therefore, everything will cost less and the government will have more money to spend. I think that that is probably one of the fallacies that I could see the Fed trying to stay here in the 4% range, and 4% is close to $800 billion in yearly expense to the government. That's going to go up because there are debts going up. So if rates stay higher for longer because of inflation, trump will have less flexibility with the budget and the overall economy will have less flexibility because of the prevalence of interest payments as a percent of our debt and as a percent of our overall government expenses. So I'm a little bit cynical. Are you cynical or are you skeptical about this?
Speaker 1:Well, you made an excellent point about, you know, comparing us to other countries in terms of benchmarking, and we don't do that right now. You know we don't try to measure government efficiency. I know there have been efforts out there to try to do that, metrics that have been created and whatnot.
Speaker 2:Educationally, we can look at the eighth graders.
Speaker 1:Yeah.
Speaker 2:That we're falling farther behind. So, I think we do do some benchmarking, but we don't talk about it much because we are not really proud of how America has stood up in terms of its education system.
Speaker 1:I was in Japan for a month, as you know, this fall, and comparing the US to Japan, the US is just so far behind Japan on many, many things, and you know infrastructure being the number one thing, and it's just. There's just so much we can do to improve this country, but you know the dollars aren't being allocated appropriately to that.
Speaker 2:Yeah, I think that, look, if we had a scenario where the Fed was going to cut 2% in the next two years and we were going to, go from, say, four and change to two and change, I would say we could see a real rebirth, because we're going to see some money going in and the GDP growth has been good for this quarter and it's projected to be good for the fourth this past quarter and I think it's projected to be good for the fourth this past quarter and I think it's going to be over three for the fourth quarter. So I see that there is potential here and I'm encouraged by the idea of less regulation, I'm encouraged by some of the verbiage, but I'm just not encouraged by what I call the turning the ideas and the words into actions. Yeah, and I think that's that's where we're going to see things come to fruition or fail miserably.
Speaker 1:So, steve, let me let me create, let me specify a dichotomy here, and I want to see if you agree with me. I'm not so sure that we're going to see a better economy, I'm not so sure that we're going to see a better fiscal situation, but I think we are going to see a stronger investment environment because I think companies will especially the larger companies, but smaller ones too I think we'll see less regulation in various areas. We'll have better freedom of movement in terms of their operations, we'll be able to operate their capital allocations in a freer way in terms of issuing new stock, in terms of being able to buy back stock, et cetera, and invest in, you know, do their own investing capital investments. So I think we're going to see this dichotomy of an improving an investment environment, uh, while at the same time, uh, seeing an economy that's not necessarily doing that great in fiscal situation, which is stressed. Do you? Do you think that's a good uh way to look at this?
Speaker 2:I think it's a hopeful way to look at it. Clamon you, you always have a little bit more hope than I do. Um, I think in general you're you're much more of a glass half full kind of guy and I believe that you know you believe in growth and you believe in. You know these things persisting for longer as we see some of these ideas come out, that there really is a dichotomy between what I'll call the invested class and the uninvested class, and 40% of the country is invested in the markets, 60% is not, and I think the fact that we ignore that in this election and we didn't focus on those. If I look at the Democratic Party and I say why didn't they focus on that lower 60% and try to be the people that would deliver results for them, I think the same is true.
Speaker 2:Now You're saying the markets are going to do well, but the economy it might not do much, and I look at that and say that's failure. If the markets go up because they believe companies have more flexibility and more ability to make money and none of it translates into better earnings or better wages for individuals and a stronger job environment, then I'm not sure that's success. I'm sure that we're going to see individuals and companies come public and get access to markets and the US markets. The US legal system, the US environment for graduate education is the greatest in the world. I don't think anybody questions that, because that's why companies come here. That's why companies want to be located here, and I think that will continue if we see less regulation. But all I'm saying is there's a lot of other problems around the world and I think we've become more globally integrated versus less, and I think that we can try to change that momentum and try to get more back on shore in the US. But I think it's going to take a long time. It's not going to happen in the first six months of his administration. It's not going to happen in the first two years.
Speaker 2:It's a longer change. It's a longer term change and I think the longer term changes we're just as a society here in America. We're not used to thinking long term. If it's more than three months, that's long term. In the US, remember, our average attention span has gone from about 12 seconds to eight seconds. So we're becoming a TikTok society. We are entertained by short ideas of interesting ideas and short images. But I think we have to look longer term as a society.
Speaker 2:I think our need is to get longer term and to be more thoughtful for the future. I'm more longer term, you know, with my kids and the thought of grandchildren growing up in this environment is just a kind of a difficult time for me. I look at things and say, boy, I hope they get better. But let's, let's see some action on the debt, let's see some action on creating an environment where businesses can do better and maybe something changes. But I'd say that there's a couple of big question marks that you've got to prove to me. If he gets the tax bill done, it's going to be a big check in his column and that's going to be a big difference in how those midterms come out. But knowing that there's going to be concerted opposition from both the Schumer in the Senate and the leader in the House, jeffrey, I think those oppositions are going to become even stronger and because the majorities are so thin, I'm not sure you can get much done.
Speaker 1:Are you more?
Speaker 2:optimistic of the. You know when you say you're optimistic in the market. Clems, we've had two 22% years. We don't usually follow the 20% plus performance in the third year. What's your projection for 25? If I had to get a number from you, plus or minus two around what mean?
Speaker 1:12. 12?.
Speaker 2:Yeah, wow, that's above the historical.
Speaker 1:but yeah, I know it's normally seven or eight, right. I, I would say 12, uh, and I think we're still seeing a technology driven market. Okay, uh, you know it's slowing up a little bit, but I still think we're seeing a technology-driven market. I think we're seeing. Think about it this way, steve You've got GDP growth let's say 3%. You've got inflation let's say 2%, that's 5% percent. You've got inflation let's say two percent, so that's five percent, right. You've got stock buybacks, you know, maybe add another one or two percent. You've got dividend yield maybe two percent. You know, when you add all those up, you know, really it doesn't require much earnings growth real earnings growth in in order to get to around 12%. So that's why I have that Now. If you get a recession, that changes things. But right now nobody's expecting a recession. Well, let me take that back. There's always somebody who's expecting a recession. But I was looking at the conference board leading economic indicators. They're not expecting a recession, well this leads me to my.
Speaker 2:One of the topics we said we were going to cover was projections on equity returns. Yeah, well, let's talk about. Bank of America is somewhere around four for the next 10 year and Goldman Sachs was at 3%. Yeah, both numbers. That, I think, shocked people when they said this is our equity projection for the next 10 years, not our equity production for next year, but for the next 10 years.
Speaker 2:Right, and I look at those numbers and I'd say you know how much time and play they got on CNBC? Almost none, because nobody wants to hear that. Nobody wants to hear that we've had abnormal returns because of abnormal behavior from the central bank. Therefore, if the central bank is less involved, we should have less involvement and less return. 10, 15 years, how much has central bank involvement in markets led to higher expected returns? And I think the answer would be probably 25% to 50% of the return. And if you look at it and we probably averaged closer to 10 or 12. And we typically average eight, that's about 50% better, with about 4% coming from that extra support for markets.
Speaker 2:And my question is can that exist forever? Can you keep pulling from the future by lowering rates and making things more acceptable. I don't think you can, and I think that's what these economic forecasters are trying to say. The one thing we need to get out of this debt problem is growth. We need extra normal growth, so if we have extraordinary growth, there's a way for us to pay off the debt, which is at a lower rate, and get to a better situation.
Speaker 1:So, steve, I think the forecast it was B of A, and who was the other? Jp Morgan, goldman Sachs, goldman Sachs, I think projections of 3% and 4% for 10 years are, in my mind, ridiculous projections.
Speaker 2:Right, I understand your opposition to a different, but let's be honest, there's, there's, there might be a few more PhDs and people who realize how outrageous they are.
Speaker 2:Yet they still came out with the forecast. And my question is why would they focus on such a low forecast? And the only thing I came up with was the movement right now is towards private credit and private equity. They're trying to get people because we've had less corporate issuance in the last 10 years and more companies have been merged and taken out of the Will Share 5, it's now closer to the Will Share 3600. And so when you look at that, you say the market has moved to more private and more private credit is becoming a bigger and bigger thing. So if you wanted to get people into those, you might come up with a projection that says, hey, the public equity market's going to only be three or four, this private market it's 10 or 12. And therefore you get those people to then adopt more private credit, even if we know that that, mathematically, the way they're calculating it is not accurate right.
Speaker 1:So, steve, I I think what you're saying, uh, quite cynically and I agree with this, I'm very cynical too is I think these, I think these uh forecasts are a marketing tool to try to get their private wealth clients to invest in private equity.
Speaker 2:I mean, could it be that simple?
Speaker 1:You know, and if you think about it, all these companies… You've done a few forecasts, you've been involved in done a few forecasts.
Speaker 2:You've been involved in creating a few forecasts, yeah, I have.
Speaker 1:And for these how is the sausage made? Yeah, for these. Well, the sausage is typically made by looking at GDP growth, looking at inflation, looking at dividend yields and some buybacks, looking at inflation, looking at dividend yields and some buybacks, and if you look at it, and also multiple expansion contraction, which is really what you're getting at and you know when you put all those into the sausage maker, you know you end up getting, you know, something between seven and 15 percent growth, right? Or returns let's say Total return including dividend yield, by projecting three or four percent.
Speaker 1:What these companies are doing is they're saying you have to invest more with us in order to have enough money down the road for retirement and for other, you know, for other things you might want to buy in the future. You know instead of you know we we're saying that that the return is 3% a year, so you need to put twice as much with us than if we were expecting 7% a year. So I think it's than if we were expecting 7% a year. So I think it's pretty blatant marketing to try to get people to invest more.
Speaker 2:Okay, but I guess I would. The part that causes me to question it is it's not a unanimous call, right? You've got Morgan Stanley, you've got others who are not projecting this lower for longer returns. So the question is, why would they stick their necks out and potentially be calling for these low numbers when in reality, if that's the way you talk about markets, then I'm not sure I want to talk to you.
Speaker 2:So I think there's a part of it that says maybe they are making a mistake, maybe they are just taking away too much negative information and negative. But I also look at it and say most prognosticators want to give somebody something good to feel about, to feel good about right, something good to feel about, to feel good about right. And so why are these prognosticators turning dark? Why would you turn dark in a period where you're getting a new president who you would want to say hey, your economy and your markets are going to be great, wouldn't it be, you know, if you were afraid of retribution? Wouldn't this be the year that you don't come out with a 3% forecast? Is that cynical or is that skeptical?
Speaker 1:That's just as cynical as saying it's a market.
Speaker 2:You're hurting my feelings, clem. Come on, it's the holiday season, aren't you going to feel a little generous and give me a? You're putting coal in my stocking. I've been good all year.
Speaker 1:I haven't been naughty, I've been nice. Yeah, it could be as simple as it could be as simple as you know. When you build in a recession, right, do you build in a recession? Do you build in a recession at all into your forecast? Do you build it in early? Do you build it in late? If you build it in late, then the overall return is going to be lower than if you build it in the middle of your forecast. Okay, it could be as simple as that, but the more cynical perspective would be to say that they're keeping it low in order to try to RAOUL PAL MD MPH the rise and the upside.
Speaker 1:Yeah.
Speaker 2:Okay, I guess I would be closer to that four or five than I would be a 12. Yeah, I think we're going to have slightly subnormal return for 25. I think it will be wise to you know, rebalance and make sure that you don't have too much exposure to one name, as we always talk about diversification one name, as we always talk about diversification. I look at what's happening in Europe and some of the uncertainty and I'm looking for opportunities. I'm looking for something to get mispriced in a world-class company that would potentially offer good long-term results, whether it's LVMH, whether it's some of the companies like Nestle's. I think there are great companies all around the world and I think that Toyota and getting involved with EVs is an example of a company that has, in my mind, a great brand, and now let's talk about Nissan and Honda merging together because they can't compete against Tesla and others in the EV space alone. So I think the markets are going to move. I think it's going to be an interesting period in 2025.
Speaker 2:I guess I would be just a little more skeptical about the overall returns, given the extraordinary returns we've had for two years. So I'm a big reversion to the mean guy and we've been reverting pretty far away and I'm just looking at Morningstar and their valuation indicators. We're about 5% overvalued. I think that's probably a pretty good number and if we see that 5% come back to, we're more fairly valued and we see some of the opportunities we've talked about for the Trump administration happen. Yes, we could do better, but I also believe that we're going to have challenges, and the one challenge we haven't really talked about is Taiwan and chips. I mean, how do you see Taiwan and chips? Is anything going to happen in 2025, or is it a further out?
Speaker 1:event for China China invading Taiwan, taiwan Straits. That's not going to happen in 2025. Okay, yeah, they don't have the capability of uh, of doing that yet. Um, capability of cutting off the island. They don't have it yet that.
Speaker 1:I mean they have the they just increase their navy, or, yeah, they have practiced, uh, to see if they do have the capabilities or if they can beef them up, but I don't believe that they have the capability of being able to, you know, effectively address US support, naval support, to Taiwan, because you know that now I'm presuming that we're presuming the US would interact Right. And Biden would have. I'm not sure about Trump.
Speaker 2:That's my. I mean, we have to deal with the reality of today, not the reality of Biden. So I'm looking at this saying to you it has changed. We've got to change here and I think we've got to. Is Xi going to come to the inauguration? No, he's not Okay.
Speaker 1:But that would be unusual Is.
Speaker 2:Trump's relationship with him going to be better, the same or worse than Biden's same biden's wasn't too good okay so you think he's more open to g, but you don't think the relationship will be better no, okay, trump tends to be more anti-china and pro-russia.
Speaker 1:Okay, which was, uh, a difference, you know, pre from pre-trump, which was more of an anti-Russia, pro-china standpoint. But I think one of the things we have to look at with regard to a possible Chinese action on Taiwan is how Japan and Australia and some other countries would react, because you know, we're dealing with a situation where it's not just US, china and Taiwan. There are interests of other countries at stake here too, including Japan and Australia and Japan has been quite pretty pacifist, I'm not sure.
Speaker 1:Well, japan has been, has been building up its military forces. Well, compared to nothing I think, yeah, well, it's been. No, it's been actually building up its military forces. It, it, uh it has a more pacifist sounding names for them, but it's actually been building up its uh, up its naval forces and has been engaging in joint operations with various countries. So, and australia, too, has been building up its uh, its forces. So it's not just a um, you know, it's not just a us china, taiwan no, I I take your the point as well.
Speaker 1:taken, it's very much like, if you think about, if you think about Russia and Ukraine, you know, you think about, you know the US, russia, ukraine, maybe Germany and France, but you know who's taken a big lead in in the Russia Ukraine situation? Poland, in terms of supporting Ukraine. So you know, japan could play the role of a Poland with respect to, of supporting Ukraine. Japan could play the role of a Poland with respect to China and Taiwan.
Speaker 2:ED HARRISON. Okay, I guess I'd like to lead to what do investors do in 2025? And ask you what sectors or opportunities do you think exist in 2025 that people should take advantage of, and what risks or other things should they avoid? Maybe your top two buys and your top two sells. Not necessarily names, just sectors or ideas in general. If you say AI, I'll think you're copping out a little bit, but if you give me some, you know the communication sector or something like that. I'll feel a little bit like you're playing the game.
Speaker 1:Well, let me take a look at my handy list here of companies that I currently have in my portfolio, and I won't list all of them, I'll just go through a few of them here. So I have Apple, I have Amazon, I have Arista Networks, which I really like, I have Apollo, global Markets, aries Management, broadcom, american Express, blackrock, berkshire, brown and Brown Insurance, boston Scientific, cummins, costco still, these are names I think are going to do well. Yeah, these are names I think are going to do well. Salesforce, cintas, curtis Wright, fiserv, fiserv.
Speaker 2:I thought you said Fiserv.
Speaker 1:No, no, no, fiserv Fis. Yeah, uh, I've got some gold in my portfolio.
Speaker 1:Okay, uh, the spider gold shares, uh alpha that doesn't pay a dividend right, no, hartford financial uh ingredient which is a like a spices and flavorings company. Uh, jp Morgan Chase, mastercard, meta, motorola Solutions, netflix, nvidia, oracle, procter, gamble Uh, perhaps my favorite uh is Progressive Insurance. They've been doing really well. Parker, hannafin, philip Morris Are you just listing every stock in your portfolio? No, I'm skipping a few here. All right, ferrari, shopify, spotify, t-mobile I like T-Mobile, I like T-Mobile. Walmart, and I skipped maybe 10 or 15.
Speaker 2:Okay, I just in general feel like, as I mentioned before, I think energy is going to do well. I think that some of the US companies Chevron, exxon, I think, some of the but, steve, let me stop you there.
Speaker 1:Doesn't that depend on what's going on with energy prices? Correct? I think that some of it will depend on the oil price You're making a call on energy prices and I don't like making a call on energy prices. I don't like making a call on energy prices.
Speaker 2:I just look at what government involvement is in that space. You don't have to have prices go up for them to make more money. If you decrease regulation, If you're able to start a lease on some space off the coast of Oregon and that field is going to cost you half as much as the other fields that were available last year on leases, the lower cost to drill and to ultimately get approval is going to lead to higher profitability.
Speaker 1:But Chevron and Exxon, those are global companies that have operations everywhere, including in some of the crazy countries, crazier countries.
Speaker 2:First of all, there are no crazy countries, Clement. That's not a woke way to look at things.
Speaker 1:I didn't name them Just characterizing people from another country that way. That's not a woke way to look at things, yeah.
Speaker 2:I didn't name them, but you know Just characterizing people from another country.
Speaker 1:That way, I didn't characterize people, I characterized countries.
Speaker 2:Okay, I'll pretend you didn't say that, but I understand your point. But I guess I'd say that if this is where they're domiciled and this is where a lot of their taxes and other items are taken care of, then I think that there's a possibility that they're better off. So I think that some of these companies will be in a more favorable environment that could lead to a better OK. Ok, I agree with a lot of the technology names. I think some of the names that haven't gone up as much might be where I focus. You know, analog devices is one, and I think there's. You know, I like Oracle, because it was kind of forgotten in this whole AI run, and I think that they, you know ServiceNow.
Speaker 2:Yeah, I think there's some good companies and I think that we could have some good results. I think the question that I pose is what first, what will be the thing that happens on the 20th after the inauguration, that we say boy, this is a really good sign. And I think the area that I'm worried about will be healthcare. I think that this whole OLP and obesity drugs. I have a feeling that these prices are not going to be maintained, especially if they get approval from Medicare. So I think there's going to be a lot of pressure to bring down the pricing of some of these.
Speaker 1:Well, I think we've already seen the share prices of Novo Norisk and Eli Lilly fall back. So I think they've already been they went up so much that yeah, they went up so much that they had to fall back.
Speaker 2:Right, and so my question is is the new administration going to be better or worse for the health care industry? I think there's going to be, uh, probably some some strain on the pharma companies, because I do believe there will be some negotiated rates that will be lower than people expect for some of the drugs. Yeah, I agree with that. So I'd say that that's an area I have trouble getting excited about. I also think that there might be some freedom to some of the financial services. Just like Elizabeth Warren talked about creating utilities with the finance companies, I think Trump will.
Speaker 2:As a real estate person who depends on banks, I think he'll probably be more conducive or positive towards the banks. So banks and energy would be my buys and my sells might be in the utility space. I think there's going to be some challenges, and I think there's going to be some challenges in, and I think there's going to be some challenges in healthcare, because I believe that rates are going to stay higher for longer, which isn't good for utilities, because they depend on being able to raise rates, and if the rates are higher in terms of borrowing, I think that's not good for the utilities. So I'd look for the new year to bring us some surprises. If you were to say what's a surprise that some investors should think about happening in 2025, that maybe they aren't expecting and we'll wrap it up on that question what's a surprise?
Speaker 1:The big surprise, the one I'm worried about most.
Speaker 2:No, not necessarily negative. It could be a positive surprise.
Speaker 1:Well, the one I'm worried about, the negative that I'm worried about most and with the greatest level of cascading impacts throughout financial markets, would be a collapse in Bitcoin. I think Bitcoin prices have soared on the basis of expectations that the Trump administration will, you know, fall over backwards, for, you know, trying to support Bitcoin and the crypto industry, if you want to call it an industry, and I think that that we, that we could see, uh, a collapse in, uh, in bitcoin. We've seen it in the past, uh, but you know there are many, you know this is at a higher level than we've seen and any large drop could have, I think, significant impacts, especially when there's been more integration of Bitcoin into the financial system. I think Bitcoin could have a very significant impact negatively if there's a crash in it.
Speaker 2:I'm going to go on. The positive surprise that we see some development in the LNG space and the US becomes the provider of nat gas to both Japan and Germany. Yeah, the East Coast, out of New Jersey, because of the connection that they develop with or potential expansion of pipeline from Pennsylvania to New England, and I think also we're going to see something similar on the West Coast, and I think that LNG capability would really help the US to become a leader in that space and I think that some of the suppliers in that space could be a good investment for us going forward. I agree with that. Any last comments and these are the last moments of 2024 on the skeptic's guide to investing Do you have anything you want to say to the investors?
Speaker 1:I would say you know, hang in there. You know, don't be swayed by whatever yesterday's stock returns were. You know you have a big negative day, like we had yesterday. You know, don't be scared by that. Don't be enthused by a day like today when the market's back up again. Just hang in there. I would maintain slightly higher cash than you have in the past, given the higher level of uncertainty. Given the higher level of uncertainty, I'd maintain a beta that's below one, although not substantially below one, but a beta that's less than the market. I would look at somewhat lower short interest ratios. Short interest ratios of, I'd say, no greater than 2% of free float Betas. No greater than 1%. I would look as highly profitable companies I think we should see that growing companies and peg ratios. I know you look at peg ratios, Steve. I would say a peg ratio of no greater than two.
Speaker 2:Forward peg Any wishes for the holiday season? Do you have anybody you want to wish a merry merry to.
Speaker 1:Well, Steve, to you I know, you think. I'm a cynic. Also to my family, to Renee and Colin, all right.
Speaker 2:I guess my wish for all of our investors is that they continue to realize that their personal capital is the biggest capital they own. Capital they own and their personal capital has potential, but they need to take care of it with good things in terms of health and mental well-being, and I would say that whenever things look doubtful or look dangerous, I'd ask everybody to take a deep breath and try to be patient. A deep breath and try to be patient, because patience in the markets is the biggest determinant of success. So I've really enjoyed this podcast. I enjoy preparing them for you, our listeners, and sharing our ideas with my partner.
Speaker 2:I appreciate you, clem, and I think that we are looking at 2025 with a little bit of apprehension because we're skeptics, and I think that we are looking at 2025 with a little bit of apprehension because we're skeptics, and I think it's natural and I think it's good.
Speaker 2:So let's try to make sure we have continued success by continuing to be patient, continuing to be thorough and continuing to be kind to others in our world and understand that others are going through things that we never know about. So let's try to be a little kinder and let's try to look at the world and put out an olive branch to a lot of these countries, because I think there's a lot of challenges in a lot of these governments and a lot of these situations that we don't understand as Americans, because, although we have a somewhat challenging conflict between the views in this country, I think that all of those challenges are trying to find a better solution and I hope in 2025 we find it. So it's been great and we've enjoyed doing this, and thanks to all our supporters and continuing to share and like us as much as you can so that we can continue to add value for you. Have a great holiday and New Year.
Speaker 1:Thanks, steve Look forward to seeing you then. Thanks, Steve.
Speaker 2:Yep.
