The Unforecast Episode: Making Our 2025 Market Calls to Show Why Forecasting is a Waste of Time

[00:00:00] The more confident somebody is that they've got the number exactly right, the more you probably want to fade them in most cases.

[00:00:05] The fact that the three of us averaged a much better forecast than all of Wall Street should probably tell you that this is something that's very, very difficult to do.

[00:00:11] I think it's going to be a below average year probably for the market in terms of returns.

[00:00:16] I think that even though there's the economy strong and stuff, I just feel like maybe some of the returns have got pulled forward.

[00:00:23] It feels like everybody right now is like either where the coming apocalypse is coming and the world is going to be destroyed,

[00:00:28] or we're in 1995 and we're about to have the biggest market run of all time.

[00:00:32] And so I'm like, you know what? I got to say something down the middle.

[00:00:34] Hedging yourself with both predictions, both a huge return and a huge decline.

[00:00:38] That's how the boss rolls, okay? That's how the boss rolls.

[00:00:41] Welcome to Two Quants and a Financial Planner, where we bridge the worlds of investing and financial planning to help investors achieve their long-term goals.

[00:00:46] Join Matt Zeigler, Jack Forehand and me, Justin Carbonneau, as we cover a wide range of investing and planning topics that impact all of us and discuss how we can apply them in the real world to achieve the best outcomes in our financial life.

[00:00:56] Jack Forehand is a principal at Validia Capital Management.

[00:00:59] Matt Zeigler is managing director at Sunpoint Investments.

[00:01:01] The opinions expressed in this podcast do not necessarily reflect the opinions of Validia Capital or Sunpoint Investments.

[00:01:06] No information on this podcast should be construed as investment advice.

[00:01:10] Securities discussed in the podcast may be holdings of clients of Validia Capital or Sunpoint Investments.

[00:01:14] So Matt, not only do we have a triumphant return today, but I think we can say we are joined by the most accurate S&P 500 forecaster on the street today.

[00:01:23] Is there a Bloomberg puff piece or something on this guy yet?

[00:01:26] I mean, does this, does, can we get a zoom in on his head?

[00:01:30] Is it too big for the frame?

[00:01:32] How's that?

[00:01:33] I am here.

[00:01:34] All hail.

[00:01:35] Great.

[00:01:37] Justin Carbonneau.

[00:01:38] Ladies and gentlemen, expert forecaster.

[00:01:41] So where, where did we end up, Jack?

[00:01:43] What was the, what's the final verdict here?

[00:01:46] Yeah, well, we'll get into it in a second, but actually you were within 30 points, right?

[00:01:51] And with the year hasn't ended yet.

[00:01:52] So you might be perfect.

[00:01:53] Yeah.

[00:01:53] You were within 30 points though, of what the S&P 500 is at today.

[00:01:58] And we'll, we'll get into a second.

[00:01:59] We'll put the chart up.

[00:02:00] There's no one else who's even in the vicinity of that, including all the professional forecasters who attempted to do it.

[00:02:05] Maybe Tom Lee.

[00:02:06] We didn't have him on our chart.

[00:02:07] I don't know what he forecast.

[00:02:08] Um, but he's the only one I could think of who was even close to what ended up happening.

[00:02:14] Yeah.

[00:02:14] Well, I mean, I guess you can be lucky sometimes, you know, if you remember though, we were so negative coming into the year and that was part of like my, my reasoning.

[00:02:23] It's just everyone.

[00:02:24] And we'll get into this when we look at the S&P targets from, from last year, but it was just crazy how much negativity there, there was.

[00:02:31] And I kind of felt like, you know, were we anticipating the Fed cutting?

[00:02:37] I forget exactly.

[00:02:38] But it was, you know, I kind of just use earnings estimates and a multiple to get at the number.

[00:02:42] Um, and you know, those two things have such a wide degree and variability in any given year, but that was kind of the methodology I took.

[00:02:49] And obviously I got lucky.

[00:02:52] And we've got clips, by the way, we've got clips of all of us from last time.

[00:02:55] Normally we've got clips of actually good investors that we play on this podcast, but now we've got clips of us, uh, explaining our reasoning for why we came up with.

[00:03:02] So we'll get to that in a second.

[00:03:03] Um, but first I want to start with this idea of forecast, because obviously the reason we do this is not because we think people should be following our forecast, but more to show both ourselves and the people that listen why this is so hard.

[00:03:16] So I don't know if either one of you want to talk about it, but the idea of why is this so hard to do?

[00:03:19] Like, why are these people out here creating these forecasts every year?

[00:03:23] They're always wrong.

[00:03:24] Like, why is this so difficult?

[00:03:25] More things can happen than will happen.

[00:03:27] I will say that until I'm blue in the face.

[00:03:29] More things can happen than will happen.

[00:03:31] And in a business like ours, as based on trust, you have to go out there.

[00:03:37] And as we know, you don't have to say something accurate or even true, but you have to go out there and say something with confidence so that the people who are following you can have that.

[00:03:46] Sense of trust to just follow you forward.

[00:03:48] The wall street industrial complex and the S and P targets.

[00:03:52] I don't want to say it's a completely useless exercise, but it's pretty close to it.

[00:03:57] You got to have some type of assumptions that you bake into your formulas and everything else, but more things can happen than will happen.

[00:04:03] The more confident somebody is that they've got the number exactly right.

[00:04:06] The more you probably want to fade them in most cases, unless of course it's Justin Carboneau.

[00:04:11] What about you, Justin?

[00:04:11] Well, I mean, I think in any, you know, in the short run, it's much more of investor psychology and possibly animal spirits and fear and greed that influences, you know, what happens in the markets over short periods of time.

[00:04:26] And if you think about it, just if you try to get micro with it, of course, you have like the economy and all the hundreds of thousands of moving pieces and then all the different companies underneath the surface.

[00:04:36] But like, I don't know what the exact standard deviation is in terms of a company's returns.

[00:04:42] It's going to vary depending on the type of company.

[00:04:44] If you're a consumer stable company, you obviously have a lot less variability than if you're a small cap biotech stock.

[00:04:50] But the market is made up of thousands of companies.

[00:04:53] And in any given year, those stocks, which are supposed to be a reflection of the discounted cash flows in the future, which are very hard to predict to begin with.

[00:05:03] But, you know, the standard deviation of stock returns is something like, I don't know what it is.

[00:05:08] Maybe you might have 30, 40 percent variation around the average return for the year.

[00:05:14] And so when you start to think of it that way, it just goes to show how difficult I think it is to predict sort of the markets in the short run.

[00:05:24] And the other thing I'll say is that there tends to be a it's like manager risk or, you know, a lot of these guys that give these forecasts, they don't want to be they don't want to be in the bottom of the barrel.

[00:05:36] And they don't want to take the risk of trying to do something so optimistic that they look like a fool, you know.

[00:05:41] So it's this groupthink mentality that sort of gets into these Wall Street strategies, which is why I like to follow the people I do pay attention to tend to be more independent in nature.

[00:05:53] Eddie Ardenny, some of the ISI stuff.

[00:05:55] I think it's ISI Evercore now.

[00:05:57] These guys that are like, you know, independent economists that aren't necessarily associated with an investment bank where, you know, there's tons and tons of products to be sold.

[00:06:08] So, um, I don't know.

[00:06:09] What do you think, Jack?

[00:06:10] What what else am I missing there?

[00:06:11] Yeah, well, no, to your point.

[00:06:12] I mean, remember, we had Michael Mobuson on the podcast and we asked him this exact question and he was saying, like, we were kind of joking him about the idea of take the average return and add, you know, plus or minus one standard deviation.

[00:06:22] And that, you know, 67 percent of the time or something, it'll be in there, which is not totally right because it's not normally distributed.

[00:06:27] But if you think about that, if you're if you're a forecaster and you're like, I'm predicting between minus five percent and 25 percent or whatever that ends up being like nobody's gonna listen to you.

[00:06:35] That's the most ridiculous wide range of all time.

[00:06:37] But that is kind of the way to think about it versus these exact numbers.

[00:06:40] Yeah. And just the other thing to sort of think about in terms of like bull and bear markets, and we've talked about this, too, is like.

[00:06:47] You're going to have these like 10 percent corrections are more commonplace than not throughout the year.

[00:06:53] You might even get a few of them, but it's more like, do you get is the correction, you know, happening in a recession?

[00:07:00] If it's not, you know, those usually just tend to be like buying opportunities.

[00:07:05] They don't tend to be full fledged bear markets.

[00:07:07] And that's kind of in terms of like what I what I was thinking and thinking back to like that.

[00:07:14] That, I guess, forecast I made was that I didn't think we were going into a recession.

[00:07:19] That was my. And what do I know?

[00:07:21] I just didn't see it necessarily.

[00:07:22] And I thought with the Fed starting to ease, you know, if that actually started to take place that we weren't going to.

[00:07:28] And, you know, we didn't we got a scare, I think, mid year.

[00:07:30] I mean, the market was down, you know, through the through the end of I think, you know, starting in June or whatever, through maybe end of August was a pretty weak spot.

[00:07:38] But then the market started to sniff out, you know, decent economic news and then the election.

[00:07:44] And so, yeah, so we got, you know, an S&P up what, like 27 percent for the year at this point or something like that.

[00:07:49] The bull bear base case like we're talking about this and it's like, here's our base case or we make our forecast for next year.

[00:07:55] But it's really important to have like, what's the bullish scenario?

[00:07:58] I see. What's the bearish scenario?

[00:07:59] I see. What's the base in the middle?

[00:08:01] And you kind of always want to have those three forecasts running concurrently so you can say what's happening.

[00:08:06] And that was one thing, Justin, just watching the way the year played out where it's like, OK, the Fed's cutting.

[00:08:11] That's usually still pretty optimistic for what markets do.

[00:08:14] And we already had a pretty well, well-structured market going into that point.

[00:08:18] So it's you're allowed to have more things in your brain and not be solely committed to one extra, extra mobison.

[00:08:24] So I think the takeaway here is don't listen to us or any other market forecaster because we're there basically.

[00:08:30] And again, we don't we don't criticize them for doing it.

[00:08:32] And like we said, and I think we did this last year, like you want to give me two million bucks?

[00:08:35] I'll throw you an exact number up there for the S&P.

[00:08:37] And maybe they should hire Justin for two million bucks because he actually came up with the right number.

[00:08:41] But, you know, you don't criticize anybody for doing it.

[00:08:43] They're just trying to do something that's impossible.

[00:08:45] So I think as we start here, the first thing we should do is I'm going to throw up this chart here of all the predictions from last year.

[00:08:50] So we put this in our episode last year.

[00:08:51] This were the these were the predictions beforehand for what would happen this year.

[00:08:55] And we put ourselves on here along with all these forecasters.

[00:08:57] And obviously, Dubrovko, Lakos, Buhas was the was the worst here with 4,200 on the S&P, which did not did not work out.

[00:09:04] But the one thing you notice here is they're all really, really, really low.

[00:09:08] I mean, we're almost at 6,000.

[00:09:10] And Justin is sitting there by himself at 59,33 on our chart.

[00:09:13] There's no one near him.

[00:09:16] I'm the next best at 54,40, which is not even close to where we are.

[00:09:20] And then you've got all the rest of the people on Wall Street.

[00:09:22] So the fact that the three of us and we'll explain how we came to our forecast with the fact that the three of us averaged a much better forecast than all of Wall Street should probably tell you that this is something that's very, very difficult to do.

[00:09:33] So when we start here, we're going to go look back at the clips of us actually making our forecast.

[00:09:38] Because before we judge ourselves for what we came up with, let's actually watch it.

[00:09:43] And so there's two things you're going to learn here.

[00:09:44] One is we have no idea what we're talking about.

[00:09:46] And two, we've aged significantly in one year.

[00:09:48] So first, let's start with me.

[00:09:51] Here was my forecast for the S&P 500 for last year.

[00:09:54] This is a tough year to predict, as is every year, a tough year to predict.

[00:09:57] But I tend to think whenever I get too pessimistic, and that's kind of where I am personally.

[00:10:03] I think I'm worried about inflation coming back.

[00:10:06] We just had a huge run.

[00:10:08] Valuations, if you look at any kind of long-term thing, are really high.

[00:10:11] But I also know a couple different other things.

[00:10:14] One is this is an election year.

[00:10:16] And as much as people talk about the fact that the Fed is not influenced by what's going on in an election year, they probably are.

[00:10:22] They've indicated they're going to cut.

[00:10:25] So when I look at that stuff, and also whenever we have a run like this, I always tend to think it's over way before it actually is over.

[00:10:33] I'm obviously a value investor, so that's my nature is I always think it's over before it is.

[00:10:38] And then the other thing is I'm somewhat optimistic about what AI is going to mean.

[00:10:42] I don't know what it's going to mean.

[00:10:43] But I know whatever it's going to mean, the market will always take that future and pull it back into the present.

[00:10:48] Think about the discounted value of that future.

[00:10:50] And so I think there might be some sort of outlier positive on AI this year that maybe will impact the market in a positive way.

[00:10:58] So basically that ends up with me predicting about a 15% return this year.

[00:11:02] I think that's a noble prediction.

[00:11:04] And say what your number is.

[00:11:05] So were you coming off a 4,600 or 4,700 from today?

[00:11:09] What was your number?

[00:11:09] Yeah, 4,715.

[00:11:10] So I think I came up with 54,40.

[00:11:13] So yeah, so I came up with 54,40.

[00:11:15] But I came up with that with a, I would say, a pretty inexact process.

[00:11:18] I was just saying, you know, I think we'll get about 15%.

[00:11:22] So I just added 15% to wherever it was when we recorded the episode.

[00:11:26] And I'm like, that sounds good.

[00:11:27] And, you know, that actually ended up above every Wall Street forecaster.

[00:11:30] So, I mean, maybe I should get a little bit of credit, even though I was nowhere near close to the reality of it.

[00:11:34] But this was kind of like that split the difference, like down, you know, down negative five or up 20.

[00:11:40] You're kind of in that cone, right?

[00:11:41] That's not a bad average approach.

[00:11:45] Well, the other thing, Matt, before I get Justin's opinion on this is, I've allowed you to evaluate everybody else's backdrop throughout the year.

[00:11:51] So this leopard sofa I'm sitting on doing is something that I was sitting on giving that is something you probably have to take a shot at.

[00:11:58] That was cool.

[00:11:59] No, nothing but praise for this.

[00:12:01] I mean, you are just, you know, cruising through that middle American mall with confidence, dropping that forecast on us.

[00:12:08] I was in my mother-in-law's house.

[00:12:09] So it is not my leopard print sofa that I was sitting on.

[00:12:13] Deny it as much as you can, like a proper Wall Street.

[00:12:16] If you do it for anybody else, you got to be able to do it today.

[00:12:18] That's okay.

[00:12:19] I'm living in my war zone right now after moving.

[00:12:21] So your leopard print's forgiven.

[00:12:23] I'll get the full animal carcass up there in no time, I'm sure.

[00:12:26] But I'd say I guess you did pretty good on two of the other things, right?

[00:12:30] With inflation and rates, I think that those were directionally accurate.

[00:12:35] Yeah, you know, I was okay.

[00:12:36] The rates weren't great.

[00:12:37] I've got to clip on that too.

[00:12:39] But I did get something somewhat right.

[00:12:41] Like there was actually a discussion, which we'll play in a second, of Matt and I about inflation that seemed to have some truth to it, maybe a little bit.

[00:12:47] Which is probably better than you can say for the rest of this stuff.

[00:12:49] But first I want to get through the S&P ones.

[00:12:51] So let's go.

[00:12:52] Let's shift to Matt next.

[00:12:54] So Matt had a very in-depth model that utilized all kinds of econometric data that led to his target of 5150.

[00:13:02] So let's have Matt explain that.

[00:13:04] These are like police codes for different things.

[00:13:07] Okay.

[00:13:07] Oh, I gotcha.

[00:13:08] So, you know, 187 on an undercover cop.

[00:13:11] Yeah.

[00:13:11] 420.

[00:13:12] Yeah.

[00:13:12] Anyway.

[00:13:13] So 5150 is the police code for a mentally unstable person in California.

[00:13:19] And not, I mean, in one part I might be saying that that's the reason for my forecast.

[00:13:24] And the other part of it though that I think is 5150 is also the album that comes after, like, that's when Sammy Hayard comes into the group.

[00:13:33] And you have this giant change.

[00:13:34] And I think kind of like Jack, what you said with AI, I think the big change here in this year is David Lee Roth to Sammy Hayard level.

[00:13:42] And that's like the Fed actually changing from a nominal policy-driven response to a real, real rate policy-driven response.

[00:13:51] Warren Pies has been talking about this.

[00:13:53] Jim Bianco has been talking about this.

[00:13:54] I think this is really interesting.

[00:13:55] That inflation rate, where that goes, how it affects unemployment, what the Fed's going to do and what they're responding to.

[00:14:01] I think that playbook just changed.

[00:14:03] And that's a lot like swapping lead singers.

[00:14:05] And therefore I am arriving at my 5150 price target.

[00:14:09] Yeah.

[00:14:10] So I don't even know if I totally understand.

[00:14:11] Van Halen was involved.

[00:14:14] Was there any sort of like actual data about the market or the economy that played into this or not?

[00:14:19] I'm not sure.

[00:14:20] First in my defense.

[00:14:22] Eruption.

[00:14:23] Clearly.

[00:14:23] Clearly.

[00:14:24] That's the result here.

[00:14:25] We got eruption.

[00:14:26] We went full two hand tapping on this market.

[00:14:29] Exceeded expectations.

[00:14:30] I want to say 5150, Eddie Van Halen's AMP, which was definitely all the econometric data crunched for that number.

[00:14:37] I'm actually realizing that this is more Eddie Van Halen when he's depicted as the hamburger in Better Off Dead.

[00:14:44] I think that's what I needed to go for, where we've just departed from all reality.

[00:14:48] The world is crazy.

[00:14:50] Yes.

[00:14:51] John Cusack's character can get chased by a paper boy and go down the K-12 slope on just one ski and pull it off.

[00:14:57] And it's all magical.

[00:14:59] And everything's glorious.

[00:15:00] And Doge is going to come in here.

[00:15:02] I don't know.

[00:15:03] I don't know.

[00:15:04] That was how I made my target.

[00:15:06] Yes, it was not a nerding's multiple.

[00:15:07] It was an Eddie Van Halen AMP.

[00:15:09] That was conveniently close in price.

[00:15:11] I will do that one better this year.

[00:15:14] I promise.

[00:15:15] Did we get there because they were going on tour or something?

[00:15:18] Or was I wearing my Van Halen shirt?

[00:15:19] Or how do we?

[00:15:20] I forget.

[00:15:21] I'd love to blame you or them going on tour.

[00:15:24] So maybe we can question that that was what happened.

[00:15:28] I did at least like the idea that you were the least accurate of the three of us with that method.

[00:15:32] So maybe there's some sort of something to be said for actually trying to pretend to use some sort of data to come up with it.

[00:15:39] I don't know.

[00:15:39] Maybe not.

[00:15:39] Where's Lopez Lira when I need him?

[00:15:41] Somebody tell me I can use uncorrelated data sets to get my projections.

[00:15:46] Well, I'm wondering if somebody asked ChatGPT for their prediction this year.

[00:15:48] Justin would be my leading candidate to have done that.

[00:15:50] We'll see when we get there if he did that.

[00:15:52] But with these new tools available, maybe someone utilized that.

[00:15:55] I'm not sure.

[00:15:55] We'll get there in a second.

[00:15:57] So let's go to Justin's forecast, which was the most accurate by far.

[00:16:00] So here's Justin talking about how he came up with it.

[00:16:02] My methodology was kind of pretty simple.

[00:16:04] I took Eddie Ardini's estimate for S&P 2024 earnings, a 250.

[00:16:13] And I basically then took the average of the forward multiple of the S&P 500 over the last eight quarters.

[00:16:23] And that gets you a multiple of like 23 set or yeah, about almost 24.

[00:16:28] And I just multiplied those two things and it gets you gets to a number of like basically a little over 5,900 in the S&P, which is a 25% return.

[00:16:36] And I don't know.

[00:16:38] I mean, I think in an environment where the Fed is easing, you know, could you have a above average multiple?

[00:16:44] And could investors be assigning, you know, higher multiples to stocks?

[00:16:48] I think it's certainly possible.

[00:16:51] The 250 on earnings seems a little bit aggressive, but I mean, he's been like we were talking about before.

[00:16:56] You know, he's been one of the more accurate guys at forecasting sort of where the market's going to be and where earnings are going to come in at.

[00:17:03] So I'm kind of relying on his number, which his is above, you know, most of the street is at a number lower than his with their EPS.

[00:17:12] I think the average is actually, no, the average is no, the average is 250.

[00:17:19] No, no, but the average is here.

[00:17:21] Hold on.

[00:17:22] The average is 234 on the S&P.

[00:17:25] So he's $15, $15 a head.

[00:17:27] But I think to your AI point, Jack, you know, you I could certainly see margins.

[00:17:33] I mean, that's been one of the arguments that a lot of people have been making is that margins are historically high.

[00:17:38] And obviously with higher interest rates and higher financing costs and, you know, maybe slower growth, obviously that cuts into those margins.

[00:17:46] But if you, you know, some of these companies start utilizing AI and figure out ways to cut costs and all the jobs that are going to be affected.

[00:17:53] I mean, you could certainly see a step up in margins that could.

[00:17:57] I mean, maybe it doesn't happen next year.

[00:17:59] Maybe that's not the driver to 250 in earnings.

[00:18:01] But, you know, over time, you could see that.

[00:18:03] And if the market starts to sniff that out, it's going to, you know, it'll discount that way in advance.

[00:18:08] It's not going to it's not going to have to wait.

[00:18:11] So I don't know.

[00:18:11] That's that's pretty optimistic.

[00:18:13] Yeah.

[00:18:13] So I think you at least had you had the best process of us.

[00:18:17] You looked at some of Ed Yardini's research.

[00:18:19] You applied some multiples.

[00:18:20] You made an attempt to do something intelligent, I think, which is better than me just guessing 15 percent and Matt using Van Halen.

[00:18:27] Yeah.

[00:18:28] And I guess it just I don't think I because the market's not at 24 times.

[00:18:35] So I guess the earnings must have.

[00:18:38] Well, maybe I don't even know.

[00:18:40] I'd have to look.

[00:18:40] I'd have to look at what the earnings came in.

[00:18:41] Maybe the earnings came in.

[00:18:42] Yeah.

[00:18:42] A little bit above a little bit above.

[00:18:45] But but yeah, I mean, it seemed aggressive, I guess.

[00:18:47] But, you know, that's the one thing it's like even coming off of a year.

[00:18:52] And, you know, there hasn't been a lot of back to back 20 percent plus years for the market.

[00:18:58] There's only been a handful of that.

[00:18:59] And that I think is going to influence to some extent how I'm going to approach this year's forecast.

[00:19:04] But, you know, the one thing that we've talked about a lot is just sometimes the strength of momentum and momentum is a very strong, you know, intermediate term signal.

[00:19:15] We were coming off.

[00:19:16] So we had we had the bear market of 2022.

[00:19:22] Right.

[00:19:23] And then the good returns in 23.

[00:19:25] And then there was the question of and I was a little bit more like because I knew to get here, you'd have to be the mag seven.

[00:19:34] We're going to have to continue to put up good results.

[00:19:37] And I I sort of was a little bit in more of the camp that the gains were going to be picked up by more companies.

[00:19:50] And I think if we looked at the return breakdown for this year, you're going to see NVIDIA, you know, the mag seven maybe didn't have as strong of a year, but they they were decent.

[00:20:00] And then there was some other, you know, Tesla and a few others that put up really good, you know, larger cap names that put up really good sort of numbers, which drove, I think, the market higher.

[00:20:11] Did you see the numbers for what what mag seven earnings growth was just going back to your multiplier as like the core of your your analysis here?

[00:20:20] And I say this in the best way possible.

[00:20:22] The did you see what the earnings growth was for mag seven versus for this year?

[00:20:26] The less magnificent 493.

[00:20:28] Do we call the rest of them something?

[00:20:30] Do they have a good name yet?

[00:20:33] Everybody.

[00:20:33] Yeah, no, I.

[00:20:34] But I think money.

[00:20:36] Yeah.

[00:20:38] Equal weighted bunch of garbage.

[00:20:41] So that this was on fact set.

[00:20:43] This was from sometime in the last week or so.

[00:20:45] It said mag seven earnings growth was 33 percent.

[00:20:48] You want to harbor a guess at what the rest of the market did for earnings growth?

[00:20:51] So everybody else just, you know, stacked on top.

[00:20:53] I'm going to say I'll guess that and this is just a guess.

[00:20:56] I'm going to say.

[00:20:58] Six to eight percent or something.

[00:21:01] That's my guess.

[00:21:01] I want to venture, I guess, Jack and it was all embarrassing.

[00:21:04] It's less.

[00:21:05] Yeah.

[00:21:06] 4.2.

[00:21:07] Wow.

[00:21:07] 4.2.

[00:21:08] So what a weird thing with this year, too, was just how how non broad that earnings growth

[00:21:14] was.

[00:21:15] And that'll be something we'll talk about a little bit.

[00:21:17] But it is projected to broaden out next year, which is also really interesting where the

[00:21:21] mag seven don't put up is quite a strong number.

[00:21:23] But do you think this too, Justin?

[00:21:25] Does mag seven have to do another completely kick butt year to drag the market higher?

[00:21:31] It's sort of hard just given how much weighting that these companies have, it's hard to see

[00:21:38] a market cap weighted index doing that without those type of fundamental results from the

[00:21:46] largest companies.

[00:21:47] But, you know, the other side of that coin, if you're an active investor is, you know, you

[00:21:54] don't always have to buy a market cap weighted index like the S&P 500.

[00:21:58] You can buy an equal weighted index or you could tilt towards other areas of the market

[00:22:02] that might be cheaper on a relative basis.

[00:22:04] Justin, so there was also as much as you were as the best forecaster of all of us, there

[00:22:08] was another prediction you made.

[00:22:10] And I think we're going to give you a loss on this one.

[00:22:12] I'm not positive.

[00:22:12] Um, so you predicted a major event at Berkshire Hathaway.

[00:22:16] Um, so I don't know if you're selling the apple.

[00:22:18] Does that count as a major event?

[00:22:20] You would highlight it, maybe an acquisition, a significant buyback, Warren Buffett stepping

[00:22:23] down.

[00:22:24] Right.

[00:22:25] I actually mean, did you read the Lee Lou thing?

[00:22:27] Are you familiar with this Lee Lou thing?

[00:22:29] Have you been tracking this story at all?

[00:22:31] No.

[00:22:31] I saw him popping on Twitter the other day, but I'm not, yeah, I'm not sure.

[00:22:36] 30.

[00:22:36] I want to say he's 38 years old.

[00:22:39] Uh, Charlie's family fortune.

[00:22:40] So like the night, like $90 million goes to this guy, Lee Lou.

[00:22:45] And if you haven't read, you have to like Google translate it from China.

[00:22:48] Somebody sent it to me and I was pretty sure I was going to, you know, infect my computer

[00:22:51] and ruin everything, but it was actually a legitimate thing.

[00:22:54] Uh, I want to give you this one, Justin, as you're, maybe this is one crazy thing that

[00:22:59] happened.

[00:23:00] We have some 38 year old, a parent super, super investor who's been involved with

[00:23:04] Munger since like the early two thousands in some way, shape or form.

[00:23:08] And Munger was like, here you go, kid.

[00:23:10] Uh, in China, mind you like, here you go, kid.

[00:23:14] Here's $90 million.

[00:23:15] Um, you know, maybe he wants to be on excess returns.

[00:23:17] Not bad, right?

[00:23:19] Not bad.

[00:23:20] No.

[00:23:21] $90 million.

[00:23:22] Yeah.

[00:23:22] So he was investing it on like Muffet hired him as like an outside manager to manage the

[00:23:27] money.

[00:23:27] Yeah.

[00:23:28] I guess Munger did like that.

[00:23:29] I'm still trying to piece together the story.

[00:23:31] And then this guy went through some crazy stuff.

[00:23:33] He lost his oldest daughter the same time Munger passed away.

[00:23:35] And it was like, he lost his mentor.

[00:23:37] Yeah.

[00:23:38] It's a crazy story, but definitely LILU, L I L U two words.

[00:23:42] Look up, look up this guy.

[00:23:44] That's my crazy Berkshire wrinkle.

[00:23:46] I never would have saw coming because he wasn't even on my radar, you know, a year ago.

[00:23:51] You know, one of the things this is, I'm going to go out on a tangent here, but I'm just

[00:23:54] thinking of this cause we're, we're talking about it and Jack, I may have to pull you in

[00:23:58] to help me, but I was trying to, cause it, cause what blows my mind is that Berkshire

[00:24:03] sitting on $325 billion in cash at this point.

[00:24:07] So the operating companies have been generating excess cash.

[00:24:10] You know, they kick off billions and billions of dollars.

[00:24:12] And plus he's been lightening up.

[00:24:13] We know that Buffett, you know, sold some of his Apple brought his Apple stake down.

[00:24:17] And so, I mean, $325 billion, there's like only maybe, maybe a couple dozen, maybe not

[00:24:23] that many even companies that have market caps that much.

[00:24:27] And that's what Berkshire Hathaway has in cash on hand.

[00:24:29] But the one thing that I wonder, and this is what I was working on, uh, is if you go

[00:24:35] back to like 09 and look at Berkshire's cash that it had in, at the end of every given

[00:24:43] year.

[00:24:44] And both percentage you mean like just total, total cash on hand.

[00:24:47] Total cash on hand.

[00:24:48] We know, and Buffett's wrote, they'll always, they're always going to reserve like he see,

[00:24:53] I know a few years ago, he wrote like 20 billion will always be the minimum they'll have.

[00:24:57] Okay.

[00:24:57] That's kind of the minimum cash on hand.

[00:24:59] But if you were to take like any cash in excess of that, and if he would have put that in

[00:25:05] the S and P 500, what the opportunity cost of not being invested with that excess cash

[00:25:13] would have been.

[00:25:14] Cause it is, it is, I think it's massive.

[00:25:17] And I'm not, you know, he uses cash differently in terms of market timing and being the lender

[00:25:21] of last resort.

[00:25:22] I get all that, but it's just, it's pretty crazy that, I mean, I think Berkshire quite

[00:25:29] possibly could be possibly the most valuable company in the world right now.

[00:25:35] If that excess cash had been invested because it's been a crazy 15, well, you know, 13,

[00:25:44] 14 years for the S and P 500 over that time.

[00:25:47] I think like when I looked at the numbers, cause I had this spreadsheet I'm running to

[00:25:49] try to calculate this and figure this out, which is, it's, it's crazy.

[00:25:52] Like, you know, each, the annualized return is like 14%, 15%, you know, 16% annually over

[00:26:00] like that period of time on multiple years.

[00:26:02] So we're talking like major opportunity cost here.

[00:26:06] Someone had asked him about that at the meeting.

[00:26:08] I saw, I saw the, like the answer to it.

[00:26:09] And he basically acknowledged what you said, which is that he, it would have been a better

[00:26:12] idea to invest in the S and P 500 than to have the cash.

[00:26:15] Berkshire would certainly have more money.

[00:26:17] The only thing he said on the other side is like the thing he did in 2008 with Goldman

[00:26:20] Sachs and stuff.

[00:26:21] Those things have been good returns.

[00:26:23] Those types of things that he wouldn't have been able to do them if he didn't have the

[00:26:26] cash on hand.

[00:26:28] Yeah.

[00:26:28] It's so interesting.

[00:26:29] Cause it comes back to like this optionality thing.

[00:26:32] Like, yes, you give up all these things, but look at all the other opportunities it's afforded

[00:26:35] him in the track record.

[00:26:36] I guess that's probably, it's impossible to unpack.

[00:26:39] Right.

[00:26:41] I think so.

[00:26:42] And I mean, it's not like Berkshire has, Berkshire has been a decent stock, you know,

[00:26:46] stock.

[00:26:46] I don't, I don't think it's being the S and P that would have been tough, but I mean,

[00:26:48] it's still been a decent stock even with that like cash drag if you, you know, so.

[00:26:54] Yeah.

[00:26:55] And to clarify only for the people in the comments will care.

[00:26:59] Lee Lou is now 58 years old.

[00:27:02] He was like 38 when Munger tapped him and was your, you're the family asset manager.

[00:27:08] Pretty good run still.

[00:27:09] So bring that money into a lot more money.

[00:27:11] Yeah.

[00:27:11] Wild.

[00:27:12] And just, just to wrap up the market section, I have to acknowledge my additional prediction

[00:27:16] that I kept out of the clip that the Russell 2000 will be of 30% and the value stocks

[00:27:20] will lead the way this year.

[00:27:21] Cause that obviously aged exceptionally well.

[00:27:25] So if I was even in the vicinity of the S and P 500, I pretty much made, I make that prediction

[00:27:29] every year and I'll probably make it again this year, but it's been consistently wrong

[00:27:33] throughout this whole time.

[00:27:34] I might as well throw in that international stocks will outperform as well while I'm at

[00:27:37] it.

[00:27:37] So we're all hoping for that.

[00:27:39] Yeah.

[00:27:40] We're all hoping for those things.

[00:27:42] Like even one of them would be good, but unfortunately we'd probably get zero.

[00:27:45] So, uh, so this next step, we're just going to talk about what we mentioned before, which

[00:27:47] is here's us talking about the economy, inflation, mortgage rates, and what we thought would happen.

[00:27:52] I kind of feel like we're sort of going to be where we are on inflation.

[00:27:55] Um, like, I don't feel like it's going to, I think there is a risk of it accelerating in

[00:27:59] the future.

[00:28:00] Um, for a lot of reasons, like there's a bunch of like, you know, higher level reasons that

[00:28:04] will play out over multiple years where I think we have the risk of it accelerating,

[00:28:08] but in the near term, um, you know, it seems to be coming down.

[00:28:11] Like to me, if I had to guess this year, you know, I would put something in the 3% range.

[00:28:15] Um, I think it's going to be hard to get down to 2%, but I also think, you know, uh,

[00:28:19] yeah, it's, it's, it's probably going to settle in there.

[00:28:20] And like I said, I mean, I think the fed may be, you know, it's probably going to be a

[00:28:23] little more aggressive on easing due to an election year than they normally would be.

[00:28:27] Um, and then like you, you said, Matt, like the whole idea of targeting real rates, um,

[00:28:30] changes things a little bit too.

[00:28:31] So I think that is the chance to maybe accelerate inflation in the future.

[00:28:34] But as we know, like the, the economy is a glacier, um, it's a barge or whatever you

[00:28:39] want to call it.

[00:28:40] Like it takes a long, long time for, for things to change.

[00:28:42] So I feel like we're kind of are where we are for now.

[00:28:45] And with inflation, I think, and this goes back to understand the logic of what's going

[00:28:50] into these numbers.

[00:28:52] Don't just get hung up on like the, the number of the soundbite.

[00:28:56] And so I'm with you.

[00:28:57] I think like 3% ish sounds perfectly reasonable.

[00:29:00] And I think the big, the big trick is going to be, we've got certain goods and certain things

[00:29:06] that are getting cheaper again, or at least the rate of change is not what it was.

[00:29:10] Like hopefully our grocery bills don't keep going up by the rate they were going up.

[00:29:13] But at the same time, wages are really sticky.

[00:29:16] And between the trend in deglobalization and the trends in demographics, which is mostly

[00:29:22] getting boomers to retire.

[00:29:24] And we're about halfway through that.

[00:29:26] And we know that we're not replacing them with enough millennials or like zoomers in the

[00:29:30] workforce yet.

[00:29:31] So it's probably going to be upward pressure on wages for the foreseeable future.

[00:29:35] So if goods go back down, if wages hang in there tight, like inflation is going to keep

[00:29:41] changing for the positive.

[00:29:44] And we're probably not going back to 0% inflation.

[00:29:47] So hovering around like 3% and just being stubbornly present probably sounds like a pretty good,

[00:29:53] pretty good target.

[00:29:54] Yeah.

[00:29:54] And to your point, we're also seeing some stuff on the Fed in terms of like the relaxing the

[00:29:58] 2% target a little bit, not necessarily changing it, but talking about like targeting bands

[00:30:02] and things like that.

[00:30:03] So we're probably not going to see the Fed being like, I'll drive the economy into the ground

[00:30:06] if I have to, to get to 2%.

[00:30:08] You're probably going to see some adjustments around the edges that allows them to live with

[00:30:12] the fact that it might sit at higher levels for a little bit.

[00:30:14] We're officially in the language around how they're explaining the target has changed.

[00:30:19] And it's not exactly a 180, but it's like, just like with transitory, we've entered a

[00:30:24] new phase of how we're going to explain this thing.

[00:30:28] And that's, that's really important here.

[00:30:30] Anything about housing or any other parts of the economy that you guys want to?

[00:30:34] No, I don't think we have to cover that too much.

[00:30:36] I mean, I'm reiterating my 5% mortgage rate target because it was wrong.

[00:30:39] I have to, I think the appropriate forecaster move is just to double down when you're wrong.

[00:30:43] So I'm going to go ahead and double down on 5% again this year.

[00:30:46] And I'm hoping that those spreads will go down and that I'll be right at the end of the

[00:30:49] year.

[00:30:50] I'm going to say 6% on mortgages.

[00:30:52] I'm going to top tick you and it'll probably be like seven because sometime in about 12 months,

[00:30:57] I'll probably be house shopping.

[00:30:58] So whatever the maximum point of pain.

[00:31:01] It's headed to 14, basically.

[00:31:02] Oh yeah.

[00:31:04] We're going back to the 80s levels for real fast.

[00:31:07] So yeah, I think we got, I mean, actually Matt, like I mentioned before, like our discussion

[00:31:11] on inflation was actually somewhat intelligent.

[00:31:14] I don't know.

[00:31:15] Like, I mean, we both have kind of come down on like 3%, like above the Fed's target, but

[00:31:20] not too high.

[00:31:21] Like it seemed we ended up about there, right?

[00:31:23] Is that guys, is that right?

[00:31:24] I think we did all right on that.

[00:31:26] And I think, you know, that was some good rationalizing.

[00:31:29] We both did there.

[00:31:29] I think it made sense.

[00:31:31] And I think we kind of called what was going to happen, which was we weren't in a situation

[00:31:35] where it could run away higher, but we definitely weren't in a situation where it was just going

[00:31:39] to roll off and go back to two, let alone zero.

[00:31:43] And how about on mortgage rates?

[00:31:45] It was probably not as good.

[00:31:47] So I was predicting a 5% 30-year mortgage rate, which is not even in the vicinity of where

[00:31:52] it is now.

[00:31:53] And I'm going to actually give you a win on yours just because you had predicted 6%,

[00:31:56] but then you had also predicted that if you bought a house, it would be 7%.

[00:32:01] And so you did buy a house and I believe it is 7%.

[00:32:03] So I'm going to give you the win there.

[00:32:06] Yes.

[00:32:06] I still paid up.

[00:32:08] I still got the mortgage.

[00:32:10] Not quite 7%, but yeah, it was one of those.

[00:32:12] I actually, it's really funny to hear this back now and be like, damn it.

[00:32:17] And I was also not intending to buy a house that time last year.

[00:32:22] I wasn't intending to buy a house a couple of months ago, but this is how the market works

[00:32:26] too.

[00:32:26] Weird stuff gets foisted upon you and you have to act.

[00:32:29] And these prevailing rates determine what can and can't happen.

[00:32:33] Good human reminder.

[00:32:34] Let me ask you a question, Matt.

[00:32:36] So, you know, Jack and I, I'm going to say we were fortunate enough.

[00:32:41] That might not be the right way to position it, but you know, rates were so low for so

[00:32:44] long.

[00:32:45] So anybody that bought after the financial crisis up and through, I guess, COVID,

[00:32:50] you know, was pretty much able to get a 30 year at somewhere between two and a half percent

[00:32:57] and maybe 4%.

[00:32:58] And if they didn't, they were refining when those rates inevitably.

[00:33:02] So I'm wondering like, just from a buyer's and you know, I sort of was of the belief,

[00:33:12] given the data that, you know, those rates were artificially like low.

[00:33:15] When you look at mortgage rates historically in this country there, I don't know, it's something

[00:33:20] like maybe between five and 6% or maybe even a little bit higher.

[00:33:23] Um, I'm just wondering, like, obviously you guys made the decision to buy the house.

[00:33:30] You felt financially comfortable that you were able to, do you think, um, but do you

[00:33:37] think that, um, what's, what am I trying to ask here?

[00:33:40] See, for me, it's like, I guess because I've had these low rates, I'm thinking to myself,

[00:33:46] I'm never going to want to pay anything higher than, you know, 3% or something like that.

[00:33:50] Yes.

[00:33:51] But I wonder like for people like first time home buyers where they're buying now that

[00:33:56] they've never seen like those ultra low rates, like their mentality isn't that way.

[00:34:00] So they're more likely to basically say, well, this is, this is the first home I'm buying.

[00:34:05] These are the rates and they, they aren't biased to those like low rate environment that like

[00:34:09] Jack and I maybe were, were part of.

[00:34:12] So I don't know.

[00:34:13] It's just an interesting thing that over time, if rates stay higher, you know, you could just

[00:34:18] get people accepting that because, because eventually all the new buyers won't know that

[00:34:23] those lower rates were really ever there because they were never able to access them.

[00:34:26] So I don't know.

[00:34:27] It's just an interesting discussion here.

[00:34:28] I think there's a residual memory that works on both sides because it's the people who

[00:34:32] bought, it's the person who's been in the house for 30 years and halfway remembers when

[00:34:37] they had a 15% mortgage.

[00:34:39] Yeah.

[00:34:39] But also knows that they refinanced down to like two or four.

[00:34:42] And now they're like, oh, I have to turn around.

[00:34:44] I have to get a higher rate than I have now from last time I refied.

[00:34:47] And the value of this condo is worth three times what the house was when I bought it 30

[00:34:51] years ago.

[00:34:52] I'm seeing a lot of those conversations when I talk to older people and they're figuring

[00:34:56] out the downsizing, usually around retirement stuff.

[00:34:58] And then the flip side and my wife and I fall into this category.

[00:35:01] We're, we're an example of the post COVID, post COVID relocations.

[00:35:08] So we're coming from like new England and greater Chicago and coming back to Northeastern

[00:35:14] Pennsylvania where the minimum wage is literally half of what it is in the rest of the country.

[00:35:19] So it's, it's a different cost of living and it's a different price of home ownership

[00:35:22] in this area.

[00:35:23] And so like the higher rate, it's still, we're doing better than we were doing way, way

[00:35:28] better than we were doing on rents in either of the cities where we previously were.

[00:35:32] And then we're doing even better than we were on rent locally with the purchase at the

[00:35:36] higher mortgage rate.

[00:35:37] So on like a pure financial planning perspective, like running all the numbers on this thing,

[00:35:41] it's been really interesting to think through the trade-offs.

[00:35:44] I do wonder if this is part of the, one of the points I made about just where demographics

[00:35:49] are.

[00:35:50] If that 30 to like 45 year old, that millennial-ish cohort, the ones who were displaced from work

[00:35:58] in the cities and are like, yeah, I'm too old for Brooklyn now, or I'm too old for whatever.

[00:36:02] And now all of a sudden that, that 6%, you know, a mortgage rate is not so bad if you're

[00:36:09] not going into another major, major market.

[00:36:11] And it's weird.

[00:36:12] I've talked to a bunch of friends and a bunch of people in my age range who have made similar

[00:36:17] decisions just in different parts of the country where they've settled in and didn't

[00:36:21] see that coming either.

[00:36:22] That's been a really interesting development.

[00:36:24] So just to wrap up last year's predictions, we did also make a prediction on YouTube subscribers

[00:36:29] for excess returns.

[00:36:31] And I believe Justin was the most accurate with 20,000.

[00:36:34] We're going to end up 25,000 and change.

[00:36:37] I was way low.

[00:36:38] I think that was low as well.

[00:36:39] So we, yeah, we actually did a lot better than we thought we were going to do.

[00:36:43] Hopefully we do that again this year.

[00:36:44] Man, thanks to Justin's mom and that bot farm.

[00:36:46] What a great investor.

[00:36:48] Exactly.

[00:36:49] Well, Jack, I mean, legally, but who cares?

[00:36:53] No, we're, we're all organic with our traffic.

[00:36:55] And, uh, I mean, huge shout out to you, Jack, who spent considerable time figuring out, like,

[00:37:02] you know, trying to figure out everything we can about the YouTube algorithm.

[00:37:05] And I believe me, I've seen a lot of highs and lows in Jack's, uh, throughout the year

[00:37:11] where like things were going really well with the channel.

[00:37:13] And then like, it would just completely fall apart.

[00:37:15] And Jack would be like, I can't figure it out.

[00:37:18] All the stats are right.

[00:37:19] We should.

[00:37:20] And it was just like, I don't know, man, but, uh, you know, yeah.

[00:37:25] That's where we are right now, by the way, because we just had a ridiculous couple months

[00:37:29] a couple months ago.

[00:37:30] And now we're down to a level that's still way ahead of where we were at the beginning

[00:37:33] of the year, but like half where we were before, because that's just the nature of YouTube,

[00:37:36] the way the views go.

[00:37:37] So like now I'm sitting there at 4am every day, like making change in covers and being

[00:37:40] like, this is not working.

[00:37:42] What do I need to do?

[00:37:43] So, uh, hopefully, hopefully I'll find a solution in the next month or two.

[00:37:46] But it takes the lesson to anybody out there trying to do it.

[00:37:49] You have to have a Jack Forehand.

[00:37:51] Jack Forehand is our Lee Lou here.

[00:37:53] He's like our secret weapon behind the scenes, like trick tricking out these, these covers

[00:37:58] and images and trying to do everything possible to have something that's just enough for somebody

[00:38:03] who's never, I mean, 25,000 plus people subscribing to the thing says something to get that 26,000th

[00:38:10] person or whatever it's going to be.

[00:38:11] They have to see something that catches their attention first and how to do that without putting

[00:38:15] an exploding kitten on the cover or whatever.

[00:38:18] Right.

[00:38:18] Terrifying.

[00:38:18] I haven't tried that yet.

[00:38:20] Well, you know, see what 2025 holds.

[00:38:23] I don't know if YouTube ever allows like live action covers, that's going to be a whole kinds

[00:38:26] of other kinds of problems.

[00:38:27] It's like, you could actually have a fire burning live as opposed to just a burning fire on the

[00:38:31] macro channels.

[00:38:32] Like it would be, yeah, it'll, it'll be interesting, but I hope hopefully it doesn't come to that

[00:38:35] because that's a whole nother rabbit hole for me to go down and try to figure out

[00:38:37] how to animate stuff.

[00:38:38] I hope you can stick to just heads and quotes for at least a little bit longer, but it would

[00:38:42] be good.

[00:38:48] And we're going to each again, give a specific target backed up by incredible amounts of

[00:38:53] data.

[00:38:53] So Justin, you won last year.

[00:38:55] So you go first.

[00:38:57] So I think that a couple of things, I think that we're probably, this is all just guessing.

[00:39:08] Cold spoil it.

[00:39:09] Right.

[00:39:10] Cold spoil it.

[00:39:10] It's not a guess.

[00:39:11] So I think it's going to be a below average year, probably for the market in terms of returns.

[00:39:16] I think that even though there's the economy strong and stuff, I just feel like maybe some

[00:39:21] of the returns have got pulled forward.

[00:39:24] I also think, you know, there's some potential for just at the fiscal level with tariffs and

[00:39:31] Doge.

[00:39:32] And I mean, the government's just a huge spender of money.

[00:39:36] And these guys come in and start really trying to look for efficiencies and stuff.

[00:39:42] I think it's going to have an effect.

[00:39:45] It could have an effect on jobs.

[00:39:46] It could have an effect on government spending, which I think in the long run probably is good

[00:39:51] for the economy.

[00:39:52] But in the short run, there'll probably be some some pain there.

[00:39:56] Um, I mean, we're, you know, we're the markets kind of, it's not cheap in here.

[00:40:02] And so, um, and to your point, Matt, about like where the earnings growth is going to come

[00:40:07] from, you might get broader earnings growth from more companies, but really what moves

[00:40:13] the needle is those large companies that would have to, you know, deliver again.

[00:40:17] I just don't know if that type of earnings growth, even though the large, larger keep on getting

[00:40:21] bigger and whatever eating the world, it's, it's just, you know, so, so yeah, I'm thinking

[00:40:26] something like maybe I didn't even put a number on it.

[00:40:29] I mean, something like an 8% return for the year between five and 8% at the end of the day,

[00:40:33] you'll probably get, I mean, based on people that I, I, um, sort of read and listen to,

[00:40:38] you know, a lot of people are thinking there's going to be some choppiness here at the beginning,

[00:40:44] at the outset, as investors look to that didn't want to take profits this year and book those

[00:40:50] gains as they look to maybe reposition and pare down some positions.

[00:40:55] Um, so you might see some choppiness at the beginning of the year here and, you know,

[00:40:59] maybe, maybe like that.

[00:41:00] I mean, the market to me is it's not acting like a typical December.

[00:41:04] Usually December is a pretty strong month, particularly like in this holiday, um, time

[00:41:09] when there's not a lot of volume and it tends to have an upward bias and you're just

[00:41:13] kind of not seeing that.

[00:41:14] So I think under the surface, I don't see good action right now.

[00:41:18] Um, and, but I think they're, you know, like anything there and Zspo put out, I was going

[00:41:24] to riff on this list, but, um, they, Zspo put out like their, they put out like a pros

[00:41:31] and cons report and they did a good job.

[00:41:33] They have like maybe a dozen, a dozen cons and a dozen pros, um, in terms of what could

[00:41:39] happen in the market.

[00:41:40] The other thing is when this is from the report, you know, the,

[00:41:44] uh, first year of the presidential cycle usually is it's, it's usually the second weakest

[00:41:50] of the years in a four year presidential cycle.

[00:41:53] And actually Republican, just because of the way it probably shakes out with bear markets

[00:41:57] is bull markets and stuff like Democrat led, uh, I guess president, you know, presidential

[00:42:05] terms are much stronger than Republican.

[00:42:08] You would think it'd be the opposite, but it actually doesn't work out that way.

[00:42:11] So anyways, the point is, is that there's just a lot of pluses and minuses going on.

[00:42:15] And I'm a little bit more like the market's going to take a breather.

[00:42:18] Last thing I'll say though, to, to hedge myself is that, you know, if those, um, tax cuts

[00:42:24] come in, you know, that could be a good thing for the market.

[00:42:27] And I don't really know where like it stands on the priority thing with Trump, but I think

[00:42:32] he wants to go from like, where is the corporate rate?

[00:42:35] Is it 21 or 28%?

[00:42:37] Aren't we at 28%?

[00:42:38] Does anybody know?

[00:42:39] I think he wants to go down to like 15 on corporate taxes.

[00:42:43] It's lower than 28.

[00:42:44] I think I'm not sure what it is.

[00:42:45] If that comes through, you know, you got to remember that when those tax cuts come in,

[00:42:50] you know, you're not just talking, the market will discount.

[00:42:53] Not only like the next year's, that's like a, that's like a long-term stream of higher

[00:42:59] profits that then need to be discounted back into current prices.

[00:43:03] So on the upside surprise, if that happens, you know, you could get, that could be good.

[00:43:09] And that would kind of just probably, um, make my forecast maybe a little bit too conservative,

[00:43:14] but I don't know.

[00:43:16] That's where I'm coming in at.

[00:43:17] So I'm going to give you 6480.

[00:43:20] Uh, I assume we're around 6,000 now, 8% is 6480.

[00:43:23] And the reason I was able to do that off top of my head is because I was going to make

[00:43:25] the same exact prediction.

[00:43:27] Um, so I had already written down on my paper that 6480 is 8% above where we are right now.

[00:43:31] So I'm also going to change mine now because I can't just agree with you because that would

[00:43:34] be no fun because then they can't figure out who won.

[00:43:36] So I'm now going to go with 6532, um, at the end of the year.

[00:43:40] And the reason I'm going with this is basically it goes back to when you guys interviewed Ben

[00:43:43] Carlson.

[00:43:44] He was talking about this idea about extremes, how everybody wants to be at extremes.

[00:43:47] And it feels like everybody right now is like either where the coming apocalypse is coming

[00:43:51] and the world is going to be destroyed or we're in 1995 and we're about to have the biggest

[00:43:55] market run of all time.

[00:43:56] And so I'm like, you know what?

[00:43:57] I got to take something down the middle.

[00:43:58] I don't, I don't like either one of those.

[00:43:59] So I was going to go with 8%.

[00:44:00] So I went a little more than 8% now to disagree with Justin.

[00:44:04] I end up with 6532.

[00:44:06] All right.

[00:44:06] Well, I'm here to throw cold water on this one.

[00:44:08] And by cold water, I mean a tall glass of kerosene.

[00:44:12] I'm going 7,000.

[00:44:15] Oh, wow.

[00:44:15] You're going the highest.

[00:44:16] Nice.

[00:44:17] Nice.

[00:44:18] I'm going 7,000.

[00:44:19] I'm going to give you the, I learned from Justin Carbinoe school of thought and then I'll

[00:44:24] give you the actual school of thought.

[00:44:26] Is this going to be a price is right type thing or something?

[00:44:28] Like you have to do it without going over or whatever.

[00:44:30] No, I mean, well, unless I don't have more faith than yes.

[00:44:34] The price is right would probably be better if I was even using the strategy, but it'd be

[00:44:38] more like a Bob Barker meta commentary at this point.

[00:44:41] Then you would go $1 above me if you were doing that.

[00:44:43] Yeah.

[00:44:43] Yeah.

[00:44:43] That's what I'd be playing for.

[00:44:44] So the mag seven projected earnings, 21%, the other 493, the losers, 13%.

[00:44:52] That's the broadening that I saw in the facts at data that averages out to 17%, which is

[00:44:58] that's the Justin Carbinoe path to my broadening rally.

[00:45:02] 17%, another crazy positive year.

[00:45:05] My actual thing though, where it came from before I had to self-justify the numbers of finding

[00:45:10] facts at data to support and data mine.

[00:45:12] My claim is that I was thinking lucky number sevens.

[00:45:15] I was thinking this is the Atlantic city economy.

[00:45:18] This is basically we're going slots on it.

[00:45:20] And I'm not just talking about, it's actually less about Trump and his history with Atlantic

[00:45:25] city.

[00:45:25] And it's way more about the Bruce Springsteen Atlantic city.

[00:45:29] They blew up the chicken man in Philly last night style.

[00:45:32] So that's where I'm going with this one and not Bruce in the Nebraska era.

[00:45:36] I'm thinking of 70, whatever year old boomer Bruce now all shiny and plastic and flat looking

[00:45:42] or whatever, and just clinging on to the Atlantic city dream as we just try to get a couple more

[00:45:48] good years out of this economy.

[00:45:50] I wouldn't be surprised if it, I wouldn't be surprised if it happens.

[00:45:53] If we get some of those tax cuts, if we get some of those other things, just the sheer fact that it's

[00:45:58] so rare that we ever get three back-to-back giant returns in a row.

[00:46:03] And I'll point out what Justin said earlier, 2022 was uniquely bad across the board.

[00:46:08] Maybe we get one more big hurrah here before we, uh, you know, blow up the old chicken man one more

[00:46:15] time and, and purring down the hill.

[00:46:17] And my alternate scenario, if I get a bear case, we're down 17.

[00:46:21] I haven't even done the math on that.

[00:46:23] That'll be my bear case.

[00:46:24] If we're not up 17, we're down 17.

[00:46:29] Hedging yourself with both predictions, both a huge return and a huge decline.

[00:46:33] That's how the boss rolls.

[00:46:34] Okay.

[00:46:35] That's how the boss rolls.

[00:46:36] So just, just for me to throw in some other predictions is that since my first one's clear

[00:46:39] going to be wrong.

[00:46:40] Um, number one, I have to reiterate the Russell and value outperforming because I can't claim

[00:46:44] to be right when that eventually happens if I don't say it every year.

[00:46:46] So I'm expecting significant outperformance from the Russell 2000 and value.

[00:46:49] And I'm also thinking we're to probably have, we haven't had a good 10% correction.

[00:46:53] Also, I'm thinking we're gonna have two this year, uh, two 10%.

[00:46:55] Nice.

[00:46:56] So I have no, no basis for that other than it hasn't happened in a while, but I'm going

[00:46:59] with those two.

[00:46:59] I don't know if anybody else, before we move to the economy, I don't know if anybody else

[00:47:02] has any other, uh, equity market predictions they want to throw in.

[00:47:05] I like your Russell one.

[00:47:06] I'm going to go in with you on the Russell one.

[00:47:08] I'm, I'm joining you.

[00:47:09] I think we can have a big year for Russell.

[00:47:10] And I think we have a big year.

[00:47:12] If that earnings broadening actually happens, there's so many of those things that didn't

[00:47:16] just have rough years this year, but also really gotten tanked in the last month.

[00:47:20] And I think it would be really interesting to see that set up, uh, reverse from a not

[00:47:25] glorious last year.

[00:47:27] Justin, I would say definitely a big year for emerging markets, particularly those that

[00:47:30] invest that are more free.

[00:47:32] I would be, would be another prediction I would throw out there, but I'm, that's just

[00:47:34] coming out of nowhere.

[00:47:35] I don't know where that came from.

[00:47:37] I am 110% behind you on, on the hoping for that.

[00:47:42] Hence the, just in case anyone hasn't noticed you, I'm sporting a bunch of merch here.

[00:47:47] So we got the excess return hat, the excess return neck guard, and then the FRDM index

[00:47:54] hoodie.

[00:47:55] Um, because I am a new employee of life and liberty indexes and we run the freedom 100

[00:48:01] emerging market index.

[00:48:02] So that's congratulations on that.

[00:48:05] Thanks.

[00:48:05] Awesome.

[00:48:06] I know you're a big 2024.

[00:48:08] Yeah.

[00:48:08] Congratulations, sir.

[00:48:09] And second of all, I didn't even know we had a neck gaiter, but apparently we didn't.

[00:48:13] So, uh, things keeping me warm.

[00:48:15] Right.

[00:48:16] It is a little bit in the Northeast right now.

[00:48:17] It is quite cold.

[00:48:18] It is cold.

[00:48:18] Yeah.

[00:48:19] Yeah.

[00:48:19] Yeah.

[00:48:19] I can understand that.

[00:48:21] So moving on to the economy.

[00:48:22] Um, I'll start first this time, I guess.

[00:48:24] Uh, I am predicting a, that the soft landing has now happened.

[00:48:28] Um, we're not going to have a recession and inflation is not going to rage out of control.

[00:48:32] Again, going back to my Ben Carlson thing of just kind of going down the middle.

[00:48:34] So, yeah, I don't see a recession next year.

[00:48:37] And I think inflation probably hangs out about where it is.

[00:48:40] You know, that two and a half, 3% probably doesn't go back down to the target.

[00:48:42] Probably doesn't go crazy.

[00:48:43] And probably, probably much of the same.

[00:48:46] Justin.

[00:48:46] I'm really interested just to see if, you know, cause M&A has just been basically dead.

[00:48:54] I mean, you know, mergers and acquisitions, the IPO, uh, market.

[00:48:59] And, you know, one of the hoax with Trump coming in is that that stuff starts to pick up the pace,

[00:49:05] which actually could be an interesting backdrop for, um, you know, for a higher market.

[00:49:12] If, you know, more and more companies are looking to make strategic acquisitions, put capital to work.

[00:49:19] Um, and then the IPO market starts to heat up because, you know, a lot of these VCs,

[00:49:24] they haven't had any exits in the last, like, you know, three years.

[00:49:28] Um, those investors in that vintage of, you know, portfolios that are,

[00:49:34] or vintage of investments, you know, that, that could go public.

[00:49:38] Like that could be interesting for the market, um, as well.

[00:49:43] I mean, the other thing we haven't talked about, but I still think it's like ridiculous.

[00:49:46] I think 2024 is going to be, will be the biggest year in terms of, uh, buybacks, stock buybacks.

[00:49:52] So, you know, those continue to be, you know, as, as share count falls, it makes earnings per share go up and it effectively,

[00:50:02] you know, makes whatever equity we own as public investors worth more.

[00:50:08] And it seems like, you know, a lot of companies have really woken up to this returning capital more tax efficiently through buybacks.

[00:50:16] And it's, it's pretty crazy when you look at, like, if you look at the last 10 years, the amount on, you know, year by year of buybacks continuing to increase.

[00:50:24] Of course you want, you know, you hope that companies are buying back their stock at attractive prices.

[00:50:30] So they're not destroying shareholder value, but you know, a lot of these just have these buyback approved mechanisms and they just kind of kick it off and it just goes.

[00:50:39] So I don't know, those are just some things I'm kind of thinking about as we think about next year.

[00:50:43] I was listening to all in a podcast recently and they, they were saying the same thing on the mergers and acquisitions on who knows how reliable their information is, but they were, they were saying like non mag seven MNA should be huge.

[00:50:53] Like the, the, you know, scrutiny of the mag seven might still be pretty high here, but like under there, you know, all the, probably it's going to be a much freer, you know, type of market for, for MNA.

[00:51:04] So that they expected a lot more too.

[00:51:05] The policy should be friendlier and we just, lest we forget these rate cuts were more about liquidity probably than anything else.

[00:51:13] So if we're actually injecting liquidity back into the system via the red cut, via the rate cuts, if we look at where credit spreads are now, we think about those other 493 companies.

[00:51:23] Yeah, we should definitely see some, some MNA activity.

[00:51:26] And that would also be something you'd think would be bullish.

[00:51:28] So on mortgage rates, I'm going to, I'm going to raise my guess from last year a little bit, because 5% just seems ridiculous at this point, which means probably we're going to get 5%, but I'm going to six.

[00:51:37] I'm still thinking it's going to come down a little bit.

[00:51:39] You know, the spreads have been very wide in there.

[00:51:41] I think, you know, things will just calm down a little bit.

[00:51:42] So I'm going six.

[00:51:44] And I'm, I want to throw my hat in on this.

[00:51:46] I also think no recession.

[00:51:47] I think inflation possibly is stubbornly higher, maybe back and loaded in the year.

[00:51:52] I think inflation starts to drag back up towards four.

[00:51:55] And I think because all that too, I think mortgages probably stay firmly in the sixes, thus making the Ziegler household unable to refinance.

[00:52:05] Yeah, I think the Fed's going to be interesting.

[00:52:07] You know, it's like one of the points that the bespoke report made that like they're sort of saying one of the, I guess, risks is, you know, the Fed turns to more of a neutral stance.

[00:52:18] It's not like they're in this easing mindset as much as they're just like neutral on it because there may be some of this inflation, even though it's come down, it's sort of stickier in some areas.

[00:52:31] Which could be, that could be sort of a headwind, possibly not for mortgage rates, but just back to the market in general.

[00:52:40] I don't really have an opinion on mortgage rates.

[00:52:42] I'll let you guys, you guys battle on that one.

[00:52:45] Can we add Fed, Fed rates or hikes or cuts next year?

[00:52:48] Can we add that to the mix?

[00:52:49] We can add that.

[00:52:50] Jonathan, I'm smart for not having an opinion on mortgage rates because we shouldn't have one either.

[00:52:53] That's not even our qualifications, but we just throw it out there anyway.

[00:52:57] What do you guys think?

[00:52:59] Less than expected, which I don't know what the, I don't, I haven't.

[00:53:03] It's only like a couple of cuts in there for next year now, I think, because that just changed the last, or maybe two or three or something.

[00:53:08] It changed with the last meeting when he was, you know, a little bit more hawkish.

[00:53:11] There aren't as many in there as there were before.

[00:53:13] But I mean, think about how, sorry, Matt, but think about how like, you know, eight months ago, how many cuts the market was anticipating.

[00:53:24] And now here we are today and it's, you know, far, far less.

[00:53:29] Like this stuff is so hard.

[00:53:32] And that's hopefully what we're getting across here is, you know, all there's so many different variables.

[00:53:37] And even if you have the best, most empirically driven methodology and it sounds great.

[00:53:43] There's, there's like the expectations you can't.

[00:53:47] You know, as, as, as an expectations in the market change and investors expectations change.

[00:53:52] And it's just so difficult to try to game this stuff.

[00:53:56] So that's kind of a lesson, right?

[00:53:58] You're taking, we make three cuts, the over under, you're taking the under.

[00:54:03] I, I'll take the under on that.

[00:54:04] Yeah.

[00:54:05] The projection is two 25 basis point cuts for next year.

[00:54:08] Is that okay?

[00:54:09] FedWatch tool says, yeah.

[00:54:10] I was giving him a little leeway because if I give him two, it's hard for him to take the under.

[00:54:13] Um, because then, yeah, it's one.

[00:54:15] It's basically that he's got to go with one cut.

[00:54:17] Yeah.

[00:54:18] I don't know.

[00:54:18] I think I could see two happening, but I think before the end of the year, we're talking about

[00:54:23] hikes again, back to that.

[00:54:25] I think inflation, if stuff works out, there's almost no way there's not some inflationary

[00:54:29] problems.

[00:54:30] And part of that just being like GDP probably gets a lift.

[00:54:33] If we don't have a recession and we start reshoring jobs and cutting taxes and try to say,

[00:54:38] let's incentivize people to do mergers and build stuff over here, there's just no way

[00:54:43] that's not inflationary in my mind.

[00:54:46] This is a brutal one to do.

[00:54:47] Like this is a really hard year to predict because there's so much uncertainty about Trump.

[00:54:51] Um, and the different, we're going to have, whether you like the policies or not, we're

[00:54:54] going to have a big change in potential policies.

[00:54:57] And when you have that plus, you know, we're not really sure, you know, inflation, it, yeah,

[00:55:01] it was getting a little higher than people wanted to.

[00:55:03] And then the latest PEC report was a little bit low, which got the market right.

[00:55:06] So like, you've got the economic uncertainty plus the policy uncertainty.

[00:55:09] Like this is a, I could see it going either way.

[00:55:11] I could see there being like one cut this year.

[00:55:13] I could see there being like six cuts this year.

[00:55:15] Like I could see anything.

[00:55:16] Um, you know, it's just, it's six cuts and six hikes.

[00:55:19] Let's get them all in there.

[00:55:20] Uh, Kyla Scanlon's piece.

[00:55:22] Did you guys read the, it was like something with narrative in the title of it, but it was

[00:55:26] a memes as policy proposals.

[00:55:28] Did you read that piece?

[00:55:30] I didn't yet.

[00:55:30] I feel like that will be one of the most prescient pieces for what's to come next year, because

[00:55:36] it basically says you put something out there and you start from, instead of starting in the

[00:55:40] middle, like we normally do, but like, you know, you ask your spouse, like, what do you

[00:55:43] want for dinner tonight?

[00:55:44] I don't know, honey.

[00:55:45] What do you want for dinner tonight?

[00:55:46] You start like a, a nice sane central place.

[00:55:49] If instead you start at the fringes and you just make like a bold claim, and then you're

[00:55:54] looking for the reaction to triangulate back.

[00:55:56] Like memes as policy proposals is basically this idea that you can throw an idea out there,

[00:56:01] you know, online on Twitter or true social or whatever.

[00:56:04] And then you start triangulating back to the center from there.

[00:56:06] So it's this response in this active, uh, reaction to whatever the active crowd does with

[00:56:11] their thing.

[00:56:12] That could be nauseating for how crazy it could make a markets and try to predict some of

[00:56:17] this stuff.

[00:56:17] Is that kind of like that Mont and Bailey thing Ben Hunt always talks about?

[00:56:20] It's very similar to a Mont and Bailey.

[00:56:22] And I think to me, this is not Kylo's words, but just that understanding of if I start from

[00:56:27] a sane place, we're working from the center and then we're working out to the fringe cases.

[00:56:31] In this case, especially with meme culture, you start in the fringe cases, you start with

[00:56:35] the dumpster fire or something terrifying, and then you slowly work back in the middle.

[00:56:39] You come out and to use the administration from, you know, the first time Trump was in office,

[00:56:45] it's like tariffs on everything.

[00:56:47] And then here's the Apple carve out and here's the Tesla carve out.

[00:56:49] And here's the other thing.

[00:56:50] The tariffs end up looking way different, but you start at the fringe and then you work

[00:56:54] back towards the middle.

[00:56:55] That can create a lot of volatility because of all the extra uncertainty you lead with,

[00:57:00] as opposed to the uncertainty creeping around the edges over time.

[00:57:04] That's, that's an interesting transition.

[00:57:06] I think we've been under for over eight years at this point, and it's probably only picking

[00:57:10] up.

[00:57:10] We'll have to get Ben Hunt back to talk about that one with us at some point here.

[00:57:14] Well, I'm glad that, um, looks like we're going to keep the Federal Reserve and Jay Powell

[00:57:20] will have his job.

[00:57:21] So that's good that, you know, we're not coming in and just firing the Fed and, you know.

[00:57:27] Watch out Bitcoin reserves.

[00:57:28] I don't know what you're talking about.

[00:57:29] You should go.

[00:57:30] Doge is here, baby.

[00:57:32] As we wrap up, we have to do the YouTube channel because we did it last year.

[00:57:35] So I believe the current number is 25, three and change.

[00:57:40] Um, Justin, where do we end next year?

[00:57:42] I'm going to say a double.

[00:57:43] I think that's a good trajectory.

[00:57:45] I think that's a, I think what we're going to find is, you know, the longer we go, the

[00:57:51] more dedicated we are.

[00:57:52] We have some, I think we have some good big guests sort of on, on the tape.

[00:57:56] So I'm thinking, yeah, 50,000 for next year.

[00:58:00] Matt.

[00:58:01] I mean, I'm going, look at the swag that Justin's wearing alone.

[00:58:04] I mean, if you're not telling me.

[00:58:05] It's a neck gator.

[00:58:06] Come on.

[00:58:07] If that doesn't convert.

[00:58:09] The eyeballs.

[00:58:11] It's just, yeah.

[00:58:12] No, I'm going with, I have, it'll be forever etched in my brain as just one of those moments.

[00:58:17] Uh, Bernstein and Rosie back in the Merrill days of the financial crisis.

[00:58:22] When for, for a solid year, they were like, you know where the S and P probably bottom ticks

[00:58:27] six, six, six.

[00:58:29] And I'm going to say, this is where our next uptick is.

[00:58:32] I'm looking for 66.6 K on the, uh, the demonic upside for 2025 for us.

[00:58:38] What do you think?

[00:58:39] First of all, I hope you guys are right.

[00:58:40] Second of all, now I feel a lot of pressure to be like changing more YouTube covers than

[00:58:43] I'm already changing to try to get this thing right.

[00:58:45] I just explained memes as policy proposals.

[00:58:47] If you think I'm not gaslighting you, I think six, six is the turn.

[00:58:51] I got to keep you moving at 4am buddy.

[00:58:53] So I've always got to be the most realistic.

[00:58:55] So I'm going 40 grand, uh, which I think we, I think we hopefully could do that.

[00:58:59] But I, I know, you know, we were very lucky this year and we had 200,000 plus episodes and

[00:59:03] those are very hard.

[00:59:04] You know, we had Asphalt to Motor and Jack Schwager, which was an old episode, but

[00:59:07] it had a, you know, it only did like 20 going in this year and did another hundred this year.

[00:59:11] So, uh, those are hard to repeat.

[00:59:13] So, uh, I'm going with the logical of 40 because I think it's going to be hard to repeat

[00:59:16] what we did this year.

[00:59:17] I think it's going to be super hard to repeat what we did next year, but I also think we're

[00:59:22] having fun with this.

[00:59:23] It feels good.

[00:59:24] These are genuine conversations that we would be having anyway.

[00:59:27] We're just recording them and releasing them.

[00:59:28] And when we get to share insights from other brilliant people like the Aswath Demodurans

[00:59:32] and, you know, hopefully get like a Schwager back and some of these people, uh, Cliff

[00:59:36] Asnes, think about all the amazing guests we had this year.

[00:59:39] Uh, if I watched that episode anyway, I'd want to tell three friends about this thing.

[00:59:44] So I think it's testament to the good work and I'm, I'm a

[00:59:47] appreciative of both of you guys for having me be a part of this too.

[00:59:50] It's a good time.

[00:59:52] Me as well.

[00:59:53] And we're also appreciative of everybody who listened.

[00:59:54] Um, happy new year to everybody.

[00:59:56] Happy holidays.

[00:59:56] And we'll see you next year.

[00:59:58] Hi guys.

[00:59:58] This is Justin again.

[01:00:00] Thanks so much for tuning into this episode.

[01:00:02] You can follow Jack on Twitter at practical quant.

[01:00:05] You can follow me on Twitter at JJ carbon and follow Matt on Twitter at cultish creative.

[01:00:11] If you found this discussion interesting and valuable, please subscribe in either iTunes

[01:00:16] or on YouTube or leave a review or a comment.

[01:00:19] Also, if you have any ideas for topics you'd like us to cover in the future, please email

[01:00:23] us at access returns pod at gmail.com.

[01:00:26] We would like this to be a listener driven podcast and would appreciate any suggestions.

[01:00:30] Thank you.