In today’s video edition of The Freeport Navigator, we’re going over a smorgasbord of events that will affect your wealth in some way…

We live in an Age of Chaos. The presidential race is neck and neck with Donald Trump ahead by 1% one day and Kamala Harris up by 1% the next, depending on which polls or betting markets you’re tracking. Both candidates are making promises they cannot keep… and frankly, have no intention of keeping anyway. Neither shows any interest in dealing with the biggest problem this country faces – runaway debt. And the stock markets seem to exist in their own dream world. 

A recent example?

Nvidia (NVDA) reported earnings last week. By any measure, they were hugely encouraging… of the blowout variety.

What did Wall Street do?

It punished the stock for not meeting utterly unrealistic expectations.

And that’s just one example. Dozens of events take place almost daily that point to the need for us to be extra vigilant and smart with our investing so that we can protect and grow our wealth. We face shock after shock so we must stay agile and expect the unexpected, as I explain in this special presentation.

In light of this, I invited my friend and Freeport Society colleague John Pangere to chat about what the hell is going on and how we can best respond.

John is the editor of Freeport Strategic Opportunities (subscription required). In his early years, he was an investment banker who worked on late-stage venture deals and early-stage startups. John has successfully traded currencies, futures, and options, and he’s invested in stocks and real estate for years. And over the past couple of months, he’s started writing to you regularly in these Freeport Navigator emails. As I’ve grown to learn, John is also a history fanatic, sharing the most interesting bits of information you wouldn’t even think to think about.

So our recent conversation turned into a real gem.

Watch now. If you’d prefer to read the discussion, you’ll find the transcript below.

During our time chatting, we discuss… 

• What today’s market bellwether is warning investors about and why this is the time to take action, before volatility cuts you off at the knees.
• Why the upcoming interest rate cut is actually really bad news.
• The hazards of the reprieve investors have enjoyed since the first volatility warning shot at the beginning of August.
• The trigger that could see markets turn upside down.
• How to hedge against Donald Trump’s and Kamala Harris’s efforts to rob you of your hard earned wealth.
• And so much more.

Don’t miss this interesting and informative discussion. You’ll not only hear some insights not being discussed in the mainstream media, but you’ll also learn some fascinating historical precedents that could help you navigate this Age of Chaos and the next election shock I expect just ahead.

To life, liberty, and the pursuit of wealth.

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Transcript

Charles Sizemore: Hi, Charles Sizemore here, Chief Investment Strategist of The Freeport Society. And on this very special video edition of The Freeport Navigator, I have a special guest, Mr. John Pangere.

John, welcome.

John Pangere: Thanks for having me, Charles.

Charles Sizemore: John, I like to call you our macro guy. You’re the editor of Freeport Strategic Opportunities, you take a very top-down look at the world. Like I said, you’re our macro guy, so let’s jump right into it today.

Nvidia (NVDA) is the biggest story of not just the last year, it’s really the biggest story of the last several because it’s seen as the leader in AI. It’s almost synonymous with AI because its chips are the chips that have been powering this AI revolution. Well, they released earnings on Wednesday after the bell. And it was a little bit underwhelming. Now, I’m actually just going to read this verbatim because I want to make sure I get the numbers right, so bear with me here.

They reported adjusted earnings per share of 68 cents on revenue of $30 billion. This was much better than expected. The Street was expecting 64 cents per share on revenues of $28.8 billion.

To put this in perspective, this was a 122% increase in sales and a 168% increase in earnings. By all accounts, this was a killer quarter for any company in the world, except after hours, the shares actually sold off.

Now, what’s going on with that? First off, what’s going on with this company in particular, and what, if anything, does that tell us about the broader market and this broader AI trend?

John Pangere: Well, I think with Nvidia, it’s like the AI poster child, right? So everybody’s looking at it, and investors are looking for perfection. What I mean by perfection is they want a massive blowout quarter every quarter, and that’s just not something that’s going to happen. I mean, maybe a couple quarters, maybe even a year that they can do that, but they can’t sustain that over the long term.

When they come out with these numbers – and it’s a great quarter by any measure – people are disappointed, and so you see shares sell off after hours. What I think we’re seeing is there’s froth coming out of Nvidia in particular, and I think that’s also kind of a bellwether for the market overall.

Where’s it going to go from here? It’s anyone’s guess. If you’re asking me, I’m looking and saying there’s probably some more downside overall. I don’t know how long they can keep sustaining these kinds of numbers, especially when you look at some of the additional things that have to happen in order for all these data centers that are using Nvidia chips to go up. Like the electricity, the water that they need to cool down these servers. The resources just aren’t there.

So, I think that they’ll probably slow down. That’s going to disappoint a lot of people. Eventually, shares will probably come back down to Earth, and then they can just march on from there.

Charles Sizemore: What’s interesting to me is the Magnificent Seven is almost like a closed ecosystem because the other companies that make that up, the Apples, the Amazons, the Microsofts, et cetera… they are also Nvidia’s biggest customers. 

I don’t recall the exact percentage, but something like 75% of their sales are going to the other members of the Magnificent Seven. You look at that, and you look at the valuations as well.

Historically, 30-times earnings would be considered a pretty aggressive valuation for a large-cap stock. It’s not to say that these companies wouldn’t warrant that because they are highly profitable, but they’re not trading at 30-times earnings. Some of them are trading at 30-times sales, which is… I really haven’t seen valuations like that since the dot-com boom of the late ’90s. And of course, we do know how that ended. 

It’s not like the internet didn’t happen or the internet boom didn’t happen. What happened was these companies, the expectations built into their stock prices got so ridiculously ahead of themselves that even though the companies continued to grow, their stock prices cratered. A lot of them fell by 70, 80%. The Nasdaq as a whole fell about 80% from peak to trough following the dot-com bust.

So you know, we’ll see. History never exactly repeats itself, but it does look a lot like a rhyme from the late 1990s to me.

John Pangere: Yeah. I mean, you go back through history, you always have these market leaders in whatever space they’re in. Back in the 1970s you had the Nifty 50, right? What happened to those companies?

Charles Sizemore: True.

John Pangere: You had the dot-com leaders. Obviously we know what happened there. I mean, look at even in the chip space itself, Intel (INTC) was the company for the longest time. And after decades, they just got stagnant. And Nvidia came, swooped in, and basically outplayed them.

So, these things go in cycles. Nvidia is probably going to be, I don’t know how many years from now, it could be a while, but they may not be the market leader forever. So it’s just a matter of watching what these companies are doing, making sure you’re not – especially if you want to invest for the long term – not buying in at too high of a valuation. Anything over 10-times sales, I personally, I stay away from. It’s just not sustainable.

Charles Sizemore: By the way, five or six-times sales would’ve been considered ludicrous, ludicrous, not that long ago, and now we’re talking about double-digit price sales, multiples, is almost normal for the large-cap tech. So, I hear you. 

And when you start seeing analysts having to come up with creative ways to justify a valuation, that tells you that perhaps this is not the best entry point.

John Pangere: Right.

Charles Sizemore: Moving on, let’s talk about Jackson Hole. The Fed has this shindig in Jackson Hole, and it’s always a big deal. 

This year, more than most because there’s been this narrative all year that the Fed is just on the cusp of cutting rates. And we’ve been, since the year started – actually since before the year started – since the end of last year, all we’ve heard from Wall Street is, “Fed’s going to cut rates, Fed’s going to cut rates, Fed’s going to cut rates,” and it looks like finally they are. Nine months into the year, it looks like they finally are going to actually cut rates.

Powell doesn’t like surprises. So when Powell says, “The time has come,” that tells you he’s going to cut rates. The last thing he wants to do is pull a fast one on us and not lower rates, and then really throw the market into a spin. He likes to be very transparent about that.

The question is of course, how much does he cut? Is it one and done? Does he cut a few more times throughout the year? 

Well, more important than any of that, should we be concerned about this? Is this good news? Everyone seems to think it is. But when everybody’s on one side, I tend to look at the other side. I tend to take the contrarian view that this has gotten lopsided. What say you?

John Pangere: Here’s what I think. Powell really didn’t tell us anything we already didn’t know. So, if you look at what people’s expectations were, they’re saying, “Well, they’re going to cut at some point.” And yes, that was always going to be the plan. But most people are looking – especially on the analyst side – and they’re saying, “Well, we have nine rate cuts priced in through 2025.” 

I don’t think that’s going to be the case at all. You listen to some of the other Fed Board presidents like Patrick Harker, who’s in the Philadelphia Fed, and he’s telling you they’re going to go slower than you actually think they are.

So, what’s going to happen at the next meeting? I’m thinking 25 basis points, maybe 50, depending on what’s happening at the time. But I’m looking at 25. I don’t know that we’re going to get even another cut after that, just based on the things that I’m seeing as far as what these Fed Board members are saying. We’ll see what actually happens.

Charles Sizemore: And John, I want to cut in.

John Pangere: Go ahead.

Charles Sizemore: To your point, Bostic is another one. I don’t know where Wall Street gets some of their projections. Do they just not listen to the Fed governors? Because if you listen to their words, the explicit words they’re saying, it’s been consistent that, “Yes, we are going to go slow here. We are terrified.” 

It was Raphael Bostic that just said this past week, that he was concerned that if they cut too aggressively, they’re just going to have to raise again if inflation pops back up. So they have been very explicitly clear, “We’re not cutting rates as aggressively as everyone seems to be pricing in.”

That brings up another question… If the Fed does go in strong and starts cutting rates very aggressively, what does that mean? Does it mean the economy is weaker than we thought it was? Does it mean the Fed sees something on the horizon that we’re not seeing yet, and should we be concerned about that?

John Pangere: Well, I’ve always been of the mind, just like what you said. Bostic and Harker coming out and saying, “We’re going to go slower,” it’s always been, to me, higher for longer. But I think what Wall Street is telling you is, “We want this to happen instead.” The Fed’s not really bowing to the pressure. If they do, I think we’re in for a world of trouble. If you go back through history and you look, after every rate hike cycle, once they start cutting, that’s when the market falls, right?

I think they really need to just slow down the pace. If we don’t want to come into a really bad situation of the market falling and inflation roaring back up – which that’s a whole nother topic we could discuss too – they have to go slower. So, I’m still concerned even as they start this rate-cutting cycle, that we’re going to see a sell-off in the markets because a lot of this stuff has already been priced in.

Charles Sizemore: Interestingly enough, yeah, the market always has a recency bias. They always look for the most recent instance of something, and then they extrapolate that going forward. 

When the Fed aggressively cut rates in 2020, yes, we had an epic bull market. It was the FOMO bull market. It wasn’t just a bull market in stocks, it was a bull market in everything – in bonds, in crypto, in meme stocks, you name it. It was the everything bubble because the Fed had not just cut rates to zero, but also injected five trillion dollars into the capital markets through bond purchases, through quantitative easing. 

Great. That happened. That happened in 2020.

What happened in 2008 when the Fed started aggressively cutting rates? And by aggressive, I mean 50-basis-points and 75-basis-point cuts. They were slashing it like crazy. And last I checked, the market still fell by 56% peak-to-trough in that bear market. The Fed’s efforts to inflate did not catch a bid until a few years into it. Then they brought in quantitative easing. You know, QE1, QE2, QE infinity, all that came later, and that eventually inflated the market. Also, the market was coming off a much lower base at that point, but it didn’t help at the time. It took years for that to be effective.

Also, going back, we mentioned the dot-com bust. When Greenspan started slashing rates, he didn’t quite make it to zero, but he got close. It got down to 1%. There was no… He did not reflate the market. The market was overpriced, and even before the September 11th terror attacks – which caused a whole nother leg of the bear market – in the year 2000, 2001, stocks just went lower and lower despite the Fed aggressively cutting rates.

So this idea that, “Oh, Fed rate cut, bull market.” No. That happened in 2020, which was a special event that is not in place right now. Last I checked, we don’t have a global pandemic, unless Mpox counts. And there’s certainly not stimulus checks and everybody getting money in the mail and everything else. All of the other things that all came together to make that bull market possible simply aren’t there.

I’m pivoting a little bit here. At the beginning of August, we had a massive spike in volatility. It was almost over as quickly as it hit. I wouldn’t quite call it a flash crash, but it was kind of close to one, right? To me, that seemed a little bit odd. To me, a spike in volatility like that doesn’t just happen, one and done.

Do you think we might have more volatility coming down the pipeline?

John Pangere: With the election coming up, absolutely. I look at that as sort of a sign. Like you said, it was very, very quick. We had the sell-off volatility spikes, things eventually came back, but now going into… We’re a few months away basically from the election. I think it’s just going to be an increase from here.

Also, because a lot of Wall Street traders take the summer off. Well, they’re coming back. And once they get back at their desks, that’s going to probably ramp up volatility too.

So I think it’s more of a time to be cautious. That was kind of the sign that the market’s telling us, “Hey, something’s not necessarily right. You got to be careful.” And I think it’s only going to ramp up from here.

Charles Sizemore: I’ve heard you make a comment – you mentioned the election – I’ve heard you make a comment, and I’m just going to plagiarize you, I’m just going to steal your words here. You said that Trump and Harris are really just two sides of the same coin.

I would agree with you. Because while they may be very different in style, very different in some of their policy prescriptions, at the end of the day, both are addicted to deficit spending. Both are addicted to effectively buying voters with the promises of tax cuts that aren’t actually affordable at current spending levels – or spending increases that also aren’t affordable at current tax intake. They’re promising things that they can’t really deliver, or if they do deliver it in the short term, it’s going to cause us pretty significant problems down the line in terms of credit worthiness as a country, inflation, et cetera.

How are you suggesting to your readers that they hedge this risk coming down the pipe?

John Pangere: Well, what I mean by two sides of the same coin isn’t necessarily their policies. It’s more of the spending aspect of it, right? 

I’m looking at it from a numbers aspect and wealth. What’s that going to do to your wealth?

The way that I want to play this is, if both of them are going to spend, and that’s probably going to ramp up inflation at the end of the day, I want to buy hard assets. That means commodities, like gold and silver, and watch what happens to oil. Everybody’s short oil right now if you look at the Commitment of Traders (COT) reports.

If you look at pretty much every inflationary event that we’ve had, it’s always led by commodities. So when inflation ramps up, commodities tend to do really well. So what I’m really telling people is, “Okay, you want to buy these things.”

I don’t know if you know the story of Hugo Stinnes who was the inflation king from the 1930s Weimar Republic. He came in and he essentially levered up his entire account, bought every hard asset he could knowing that inflation was coming, and he made a fortune off of it. 

I’m not saying to lever up to do that, but you want to be positioned in these types of things because those are the things that lead pretty much every time.

So, when I’m looking at Trump and Harris, regardless of who ends up getting into office, those are the types of things you want to be positioned in.

Charles Sizemore: Yeah, and I would note that gold in particular is really in a nice uptrend right now. Gold is up about a little over 30% over the last 12 months, and I feel like gold is just pricing in the obvious here. It’s pricing in that no matter who wins the election, the deficit spending is not slowing down. If anything, it’ll probably speed up, and you want to protect yourself. You want to protect yourself from a general weakening of the dollar with hard assets like this.

On that note, I will let you go. Thanks for joining us this week. And to all of our viewers out there, thank you for joining as well. 

To life, liberty, and the pursuit of wealth, this is Charles Sizemore, signing off.