Joey Loss 0:01

All right, welcome back to another episode of Wealth Unplugged. I'm Joey Loss.

Adam Van Wie 0:05

I'm Adam Van Wie.

Joey Loss 0:07

And it's been a eventful couple weeks in the market. The, the momentum that we have loved seems to have stopped. To be honest with you. I've been head down in tax plans and new financial plans, so I don't really know what the story is. So with all you listeners, I'm going to be learning right alongside you as Adam digs into it. Adam, what is going on? It doesn't seem good out there.

Adam Van Wie 0:31

Yeah, I think not good is a good way of describing it. But that comes with a huge asterisk. I think that if you weren't expecting this, you probably haven't really been in the market very long because we just saw six to eight months. Well, ever since April with the tariff tantrum, the market, when it turned around, it's, you've done nothing but go up seemingly every day. I know that's a bit of a hyperbole, but, but the market has been fantastic. And that is not a normal market state. A normal market state is much more like we're seeing now with a little bit of volatility. And I think it was overdue. Honestly. I expected it last month. October has a reputation of being a volatile month. What happened? October was a great month and so now we're seeing a bit of volatility in November. And does it really bother me? No, I think that it's just, it's just market, the market doing market things. You, you, you have a six, seven month period. Like we just saw. People are going to take some profits. There's, that's just inevitable.

Adam Van Wie 1:36

So yeah, I, I just try not to get too worked up about a few bad weeks in the market, especially when it's still a great year. If, if the, if the year ended today, it would be a great year. So that's, that's kind of the, the my take on it and I just think about like this too will pass. It will, we'll get through this and everything will be okay. The crazy thing is that there's really nothing driving this. It's. The news yesterday in particular was just outstanding. I don't know if you caught the headlines but we had a triple play of good news. We had a better than expected jobs report by over 100% beat on the forecast number. Then we saw Nvidia report and they crushed it. They are making so much money. It's unreal. Unbelievable. And it's all flowing through to the bottom line. And then we saw Walmart come out, the biggest retailer in the, in the world, and they crushed it too. So just great, great news all around. And what happened? The market went from 2% up, end of the day, 2% down. Huge reversal. Doesn't happen very often where you see something like that, but really just, there's no, there's nothing driving it. It just happened. It's.

Joey Loss 2:46

It's funny, like, thinking about this. I've been listening to some podcasts that they keep talking about how the market has a personality in time. And it feels like right now, like there's definitely some personality shifting going on because the fundamentals, I mean, I, I did see, you know, general writings about those reports. I did read the Nvidia report and was shocked at how good it was. And it felt like, I remember that whole day, we're like, man, it feels like the whole market's just waiting to find out how did Nvidia do? And the news was good and the market seemed like it was gonna be happy. And then by the end of the next day, it was not happy and it was like, okay, there's some personality shift going on. I can't really track it.

Adam Van Wie 3:24

Yeah. Right now I call it like a grumpy old man kind of saying, get off my lawn. Yeah. Like there's nothing that you can do to make the market happy right now. If yesterday didn't do it, if that three pronged good news day didn't make the market happy, then there's just nothing that will. It's just one of those times where people want to take profit and don't want to be long. The riskier parts of the market that are up huge this year too. Some of the biggest reversals have come in some of the areas that have really outperformed this year.

Joey Loss 3:57

Yeah. Something I find annoying. Like, I, I'm having more people who really aren't interested in finance. They're not clients, they're just people I know that are asking me about, like, well, what's up with this bubble? What's up with this? And like, it's. It's almost like when you get a stock tip from your plumber, like, probably a good time to sell that stock. You know, it's like that. It feels a little like that in my anecdotally, in my social life. Like, how can it be a bubble if everyone is talking about it?

Adam Van Wie 4:27

It can't. I mean, there's just no way. If bubbles were that easy to avoid, everyone would avoid them and they would never happen. I Think I said that on our last episode. It's just not possible. It's like a. It's like the. It's the reverse right now of 2007, when. When your plumber wasn't giving you a stock tip, he was telling you about the $800,000 house that he bought on a no DOC loan. And that was. Everyone was long housing, and nobody saw the crash coming except for one guy who we can talk about later if you want. But it was. It just. Everyone thought that it would go on forever, and of course it didn't. And now everyone's saying that this won't go on forever. And yet Nvidia still is growing like a weed. It's incredible.

Joey Loss 5:16

It's just. Yeah.

Joey Loss 5:20

Yeah, it is. It is truly incredible. And I just keep looking at the bottom line. Like price to earnings for the biggest companies moving the market are not that crazy. They're. They're fine. I mean, are they higher than historical averages? It depends on what you cherry pick to measure that against. But like, for those companies, it just doesn't seem that crazy. I think we're probably back near the levels where a month or two ago I said the price to earnings ratios, right? Which really is a good measure of how much are you paying to be entitled to the dividends of a stock. How many times its earnings do you have to pay to get that. That income?

Joey Loss 6:04

They were only 1% higher than they were a year before, and the market had grown 12 or 13% when I said that. That means there. If there was a bubble, first of all, it's been going on for a long time. That's step one. And then the next part is all that means is profits were up 12% for these stocks because the prices just rose with the profits and the price to earnings to ratios are the same. So to me, that seems healthy. I mean, does it. Does it matter if the market's totally healthy? Can speculative movement and a collective bad conversation move the market? Yeah, it does all the time. It kind of feels like that's what's doing it right now, but I'm not in it every day looking at the data like you are. So it's helpful to hear you're kind of on the same page.

Adam Van Wie 6:51

I mean, the market's down 3 to 4% this week, depending on what index you're looking at. So that 1% is gone. So really we're below, I would guess, at this point, where we were a year ago. So that that even makes it more logical or makes it make more sense. A Couple of things about that too. When you're comparing modern tech companies to historic S&P 500 numbers, there's just not really a comparison because you look at Nvidia, the size that they are with the profit margin that they have is unprecedented in the history of the world. No one has ever been as big and had a profit margin north of 60%. That's insane. That just, it's, it's. You cannot compare that to anything else. Apples to apples. And so pricing Nvidia is that much harder because there are no comps. I mean, the only other comps that you could even think about using are the other Mag 7 stocks. And it's not a, it's still not apples to apples. It, it's better, but they are truly unique at, at this point in time that could change. They, they might come under pricing pressure. A new entrant into the market with a better, faster chip, better technology could, could absolutely change that. But as of today, that doesn't exist. And so they're, they're buying that growth and that future profit in Nvidia right now. It's going to carry a premium to buy it.

Joey Loss 8:23

Yeah, I mean, I, if you had told me there would be a $5 trillion company whose revenue grew 22% from Q2 to Q3, wouldn't believe it. There are small companies that are nimble and agile and full of energy that can't do that. You know, 20% for a small business is a pretty darn good pace for a year.

Adam Van Wie 8:37

How is that possible?

Joey Loss 8:51

I mean, it's crazy.

Adam Van Wie 8:52

It's amazing that there's no politicians clamoring for like an excess excessive profit tax or something on Nvidia. I mean, they did it to the oil companies when. And their profits were nowhere near, nowhere near what Nvidia is making right now. I mean, not even in the ballpark. And they are just printing so much money. It is, it is almost unbelievable.

Joey Loss 9:16

So what do you. So I was talking with Elizabeth today about this, not necessarily Nvidia, but the whole market environment. And she's mostly listening to journalistic podcasts that just kind of talk about what's going on. And so you have people coming in and just kind of regurgitating the bubble thing. And this can't go on forever and all this and the concerns about AI investment being the source of these profits. And so if there's no like second tier growth and profits of all the companies that are investing in AI driving this, what does that mean? And I think that's kind of the Concentration point for the people that are saying it's a bubble. Can you just talk about that for a little bit? Because I gave an answer to Elizabeth. I'm not sure I felt it really moved the mark very much.

Adam Van Wie 10:02

I think it's a valid, a valid point. I mean, you've got. We're just at the beginning of AI, the, the profits in true AI companies. Forget Nvidia. That's sort of the engine that drives AI. And so they're. People are buying chips to implement AI solutions. The solutions themselves are not wildly profitable, I want to say yet, because I do believe that there will be a time when AI companies actually make money. At least the winners will. There will be losers in this game too. So not all of these companies are going to come out on the other side being profitable and certainly not being wildly profitable, but I think there will be winners. And so the fact that we're not seeing it yet, you're not seeing Chat GPT make gobs of money, it's just not there yet. The whole industry isn't there yet. I mean, it's, it's a, it's a fledgling industry in my mind, and it has a ways to go before we see things like that. But right now you're buying Amazon when it was wildly unprofitable and didn't really look like it was ever going to be profitable. But if you bet on it early at those crazy, crazy multiples that it had when it was making no profit, you were handsomely rewarded when it came out profitable on the other side. So I think that the speculative nature of this is just part of the process. You know, you can't start being a wildly profitable company until you ramp up to that. It's not going to happen on day one. And I think there's a lot of competition. It's a crowded space. All the brightest minds in the world are focused on that right now. And there's. I don't know who's going to emerge as the winner. This is why we don't do stock picking. But there will be winners, there will be losers, and some of these bets are going to pay off and some are going to go to zero. And that's just kind of the nature of how the market works.

Joey Loss 11:58

Is it fair as a way to consolidate what you just said, like, into an example? If you took all these AI companies, ChatGPT, you know, let's ignore Gemini because it's part of Google, but if Gemini was on his own, maybe anthropic, and you just condensed them into One company is this just like before, you can have a price to earnings ratio and the price is just rising because people expect it to be something like in Tesla's case, for example, where remember for years like that stock would just keep going up and there was no profit. You couldn't even calculate a price to earnings. Yeah, because there were no earnings like that.

Adam Van Wie 12:31

I mean, that's, that's when the, the best profits come, when you take the most risk. And also the biggest losses come when you take the most risk. So this is truly extremely speculative. Bet on the future earnings of these companies that you have no way of knowing whether or not they will materialize or not. And so it's very risky. Type of. If you're buying individual stocks in this space, I would call that extremely risky. This is not buying a mutual fund or an ETF. This is buying something that could go to zero or could go 100x. And so you just don't know. I, I personally don't do that kind of thing. We don't do that for our clients. But if you're, if you want to place a small bet on something like that, fine. Just don't bet more than you can afford to lose because you could very well lose it all.

Joey Loss 13:22

Yeah, that's very good advice. And one thing that I keep thinking about and occasionally saying when it seems right in a client meeting is it's hard to guess with any of these new technologies who the winners are going to be. It could be that it's five or seven years until these AI companies themselves become the winners. And maybe they become huge winners at that time. But in the meantime, like, our business benefits from AI tools. Right. We don't use it for trading, but we use it for administrative functions. And it helps us genuinely do a better job of our job and it helps our business, it helps our numbers. There are going to be a lot of companies in a lot of different sectors that aren't necessarily directly AI, that benefit in a profit and revenue sense from AI technology. And maybe those end up being the winners. So I know people really focused on AI right now think like just owning AI might be the move. I think you may miss a couple tides if you just go all in on AI, it's hard to say who's going to benefit in what order and to what degree.

Adam Van Wie 14:22

Yeah, I think it'll be interesting to continue to watch quarterly earnings reports and see how many times non AI companies mention AI improving their business models. And that will be a really good indicator of the impact that AI is having on corporate profits. And I do think, I think we're starting to see it already and I think it's going to continue and in fact I think it's going to continue in a really big way because honestly I feel like we're just scratching the surface of what AI programs can do as compared to what they will do in five, 10 years.

Joey Loss 14:59

Yeah, I'm really like, I don't know if I'd say hopeful. I'm eager for AI to transform healthcare.

Joey Loss 15:09

There's so much admin and conversational bloat, you know, just too many people in the kitchen and that whole system, it's crazy. And so if AI can get in there and really streamline stuff, I think it could bring costs down, quality up.

Joey Loss 15:25

I say that knowing virtually nothing about the inside of the industry, I have no experience there, but I just feel like that is, I'm not saying it's a buy, I'm just saying like that's an industry I think that's ripe for benefit from AI type technology.

Adam Van Wie 15:40

Yeah, I agree. I think that's one of many that are really, really poised to take advantage of this. Now. There's obviously huge privacy and data concerns in that industry and all of that will have to be addressed, but that's just more work for. Okay, so AI, they're always worried about it replacing people, but honestly, usually when these breakthrough technologies come out, they do replace some people, but they create, create a lot more work in other areas. There's never been a technology that I can remember that didn't end up actually creating a bigger pie for everybody. And so hopefully this is the same. And I think that's a great example. Yes, the AI might replace low level data entry and people that move information from one place to another, but at the same time the whole privacy issues, addressing those, addressing the, the how things get from one place to another and ensuring that it's quality and it's efficient and it's in the right spot. All of those things are, are going to be jobs that are going to be created because of AI. So I, I, I am hopeful that it's not going to just create mass layoffs and not just move people around.

Joey Loss 16:54

Yeah, I don't think there's an end of the world type. I mean businesses are really good at finding new, finding or creating new problems. And if the speed of execution of everything you're worried about right now speeds up, I promise businesses are going to find new problems, a new scope that they can tackle, which was never available to them before. And the Best example of that is I remember,

Joey Loss 17:17

at least I've heard your dad mention quotes of like, well, what are we all going to do when the computers do all the work? And this was like what, 80s, 90s? You know, and look at the world now. I mean, 70, 80% of the jobs that exist were unfathomable in 1998. And they're just so normal to us now.

Adam Van Wie 17:25

Yeah.

Adam Van Wie 17:35

Definitely whoever who knew that computer engineers would be one of the highest paid jobs in the, in the world 20, 30 years ago, it was just the computer was something that sat on your desk and basically had the same power as a calculator. And now they do everything.

Joey Loss 17:53

Yeah. And those supercomputers at MIT are a fraction as capable as the phone in your pocket, which is an essential piece of business now. For everybody.

Adam Van Wie 18:01

Exactly. Yeah.

Adam Van Wie 18:05

It's really hard to wrap your mind around change and the future. And I think it gets harder every year because the change goes faster and it gets exponentially larger. And so I think, I think back to my childhood, it looked nothing like the world looks now. And I can't even imagine what's coming in another 40, 50 years. It's going to be, it's just so hard to wrap your mind around. And I think that's part of the problem that humans have trying to imagine

Adam Van Wie 18:35

what the next, what the world's going to look like. And even, even five years, it's, it's difficult right now because it is changing so fast.

Joey Loss 18:42

I'm curious, I feel like this is going to be one of the later frontiers. I'm curious about how like housing construction ends up being impacted by AI in the future because obviously housing is a huge topic right now that. Mark, can you actually, can you share a little bit about just like recent data points? Where's that market?

Adam Van Wie 18:59

Yeah, it's not great, the housing market, at least anecdotally it feels like it's stalled. If you look at the data, I mean, home builder stocks are basically in a long term downtrend. You've got all the data around. Housing is pretty bleak. We did see a little uptick in mortgage applications. Almost all refis when rates came down a bit. That's people refiing out of a 7 1/2% percent mortgage down to a 6% mortgage. So that's an area that I think you'll continue to see increase as rates come down. But home buying and selling, it depends what part of the country you're in, Obviously is, is just not going well right now. We've got too many People sitting on the sidelines not wanting to sell their houses. We have it in our own clients. They have 2% mortgages. They want to downsize, but they're certainly not going to leave a 2% mortgage to go and take a 6% mortgage. It's cheaper for them to stay where they are right now.

Joey Loss 20:03

Yeah, they have a 2% mortgage on a $800,000 house. They want to buy a $400,000 condo and it's more expensive for them to move.

Adam Van Wie 20:10

It's not crazy, but we've seen it in our, with our own clients, we're.

Joey Loss 20:14

Not moving, which is part of the problem, right?

Adam Van Wie 20:16

Absolutely. Because a young family wants to buy that $800,000 house but is not available because there's an older couple staying in it because it's cheaper for them.

Joey Loss 20:27

So actually that's a good segue into. So recently Trump announced or was Talking about the 50 year mortgage and portability of mortgages.

Joey Loss 20:36

The portability piece would be interesting, I think. I think that's a huge lift. I don't have a lot of faith that anything like that would happen. For listeners, the portability idea is just that you can move your mortgage with you. It's not necessarily attached to your home. You can move that over to a new property which in the cases of these older people who want to get out of their big house, move to a condo. You know, that's a huge deal that makes them want to do the move. It would be better for them. Then frees up that bigger house. A young family can come in and buy it. They need the space. That's good. The place. I don't have the faith that something like this would pass is it would require a complete reconstruction of the whole mortgage system. And I don't see where the incentive is for banks to participate in that because they make money. They want people leaving a 3% mortgage to go get a 6% mortgage. That's a huge payday for them.

Adam Van Wie 21:22

I think about this all the time. My bank would love to get out of my mortgage. It's such a bad deal for them. It is. I mean, I pay and it's so they're they're getting everything that they were promised when they made that really dumb loan. But in a, in a 6% rate environment, it's just ridiculous that I'm able to pay so little now. I feel very fortunate. But it's. And it's not my problem, it's theirs. But yeah, they would love to get me Out. So why would they want to port it to. If I bought a new home, there is no way they want that 6% mortgage. They want me to refi up into that and I'm not going to do it. So I'm stuck too. I'm one of the, I'm guilty.

Joey Loss 21:26

Yeah, you're the worst note they have.

Joey Loss 22:02

Yeah. So obviously that's an idea that's floating out there. I'm sure people have seen some stuff about it. And then the 50 year mortgage internally, we've talked about this at length and have mixed opinions on it. Do you think that's got a shot of becoming a thing?

Adam Van Wie 22:18

I, I think so. I, I don't know why it couldn't. It's just another financial product. I don't think it's a, I, I don't. As long as you make sure that the down payment is sufficient on that, I don't see it as being a huge risk to the market. I don't love the idea, but I don't think it's like this crazy concept that shouldn't exist either. I just, I'm just kind of indifferent to it. If somebody wants to do that for. There could be a, I can think of a lot of scenarios where that might make sense and sure, why not? I, I, whatever. It just doesn't, it doesn't bother me as much as some people. The initial backlash was very, very strong and I, I kind of get that. But I also feel like it's gotten a bit political, which why an idea like that needs to be political is just, I mean it just says where we are as a country right now. But it's, it's just kind of silly that it's political. I mean it's just an idea. I, I'm glad that people are thinking about ways to potentially make housing more affordable because that is a big problem that faces our country today.

Joey Loss 23:26

Yeah, that's a fair take. And

Joey Loss 23:30

yeah, I mean when you dig into the numbers, it's not great. Like if you compare a 30 with a 50, I think your principal stands. Right. Like should we eliminate the option for people to do this? No, I don't think it's a sub, I don't think it's equivalent to subprime lending. It's not the same as long as the down payment and other important debt metrics are assessed on the front side. We're not creating 2008 by creating a 50 year mortgage. My, my office, my general opposition. But not like stuff steadfast. Like if it became a thing, I'm not gonna be upset about it.

Joey Loss 24:04

Is Built into the numbers, if you have a, let's use a 6% mortgage on a $400,000 home. Right. I think 400,000 is about the average cost of a home in U.S. something around there, 6% mortgage, $400,000 home. At the end of 10 years, on a 30 year mortgage you have a little over 16% equity that you've paid in. On a 50 year mortgage, it's 4% equity. That's a big difference. The difference in payment, which is really the piece that would make this attractive in the first place, would be something like 3000 versus 2700. So about 10%. Is that the difference between people getting into a home or not? Absolutely, yeah. Sometimes a couple hundred bucks, especially young people. My concern is that if I was a rental real estate person, I would love the 50 year because I want a cash flow. 300 bucks on every property I've got. That's a lot of money. That's a big deal. That expands my operation significantly. So my concern is like with that mentality and then just like a flush of new access to capital going into the market at the lower to middle end homes, what happens to price and does it wash out that $300 of savings? I worry a little bit about that, but it's not the same as like a straight up government infusion. It's not the same as stimulus. That is literally pouring money into a system where you've changed nothing on the other side of the equation, which is why we had inflation in the last few years. It's a little bit more complicated when you're talking about a vetted form of debt that just has a longer note. But still in my mind it increases the money supply. Am I, do you see what I'm pointing at with that?

Adam Van Wie 25:40

Yeah, I do. I just wonder what percentage of mortgages would actually be written as a 50 year. I, I don't know. I, I honestly want, I would be curious if they could if somehow do a study of how much this would actually be used. Is it 1%? Because then I wouldn't really worry. 25% then I might be a little worried. So yeah, I, I'd be really curious to see the, how pervasive this idea would actually get.

Joey Loss 25:59

Yeah, I wouldn't care.

Joey Loss 26:09

Yeah, yeah. Well it'll be, I mean luckily no one's calling me asking for my political,

Joey Loss 26:17

my professional opinion as far as making legislation or not to make it happen. So we'll just get to watch and see. But yeah, if there's any big updates there, we'll Bring it up. But it's definitely a pertinent topic. A lot of people are thinking about it.

Adam Van Wie 26:28

Yeah, I just, I hope we get some more conversation around the topic of what, how do we, how do we make the world more affordable? Because man, the last five years have been brutal as far as inflation and wages. Well, they have gone up more than the average wage rise over recent history. They just have not caught up with what the actual inflation on goods and services has been.

Joey Loss 26:53

Yeah. And that brings me back to my original point, which started housing, which was, I'm curious to see what AI does to the housing construction

Joey Loss 27:04

world in general. Because first of all that's such a, if you know anybody who's successful in that business, they are probably one of the best business owners you'll ever meet. Because that is such a difficult business to be successful in for a long time. It's a very volatile business. Housing construction, residential or commercial, but especially residential I think. And it's difficult, it's expensive. You're beholden to the cost of supplies everywhere and labor. There's always going to be labor challenges. If AI gets in there and does takes some of the burden off, I think that can help the supply side of the whole housing problem in a significant way. How does somebody implement that? What is that going to look like? I have no idea. But that would be my other hopeful categories. Healthcare and housing, I think are two things that are probably ripe for improvement.

Adam Van Wie 27:56

Yeah, I have a hard time seeing where it could help in housing and maybe it's just my own lack of vision, but healthcare seems like the obvious one to me. I just don't know how AI could help with home building. It's like you said, it's so labor intensive, it's so the timelines are long, the material prices are volatile. There's just so many issues with that business. And you're right, it is a extremely difficult business to not just start, but actually getting into it isn't that hard. There isn't these huge barriers to entry. But the real problem is staying profitable and, and not going bankrupt in it. That's, that's the real challenge.

Joey Loss 28:38

Yeah. Cash management is insane in that business. And I think I, I, I'm saying AI is a catch all for like robotics. I'm curious, like if robotics actually would be the thing that maybe makes a difference. Yeah. But anyway, put that in Joey's hopeful board.

Adam Van Wie 28:51

I wonder.

Joey Loss 28:58

Any, any other pertinent thoughts?

Adam Van Wie 29:02

We've had a lot of clients, I don't want to say freaking out, but they've definitely been more concerned and that happens after a period like we've seen over the last six, seven months. People tend to get complacent, think that the market only goes up. And memories are very short when it comes to volatility. But remember in April we saw an almost 20% decline on the S P S P 500. And so it's not like this is unprecedented. Even in this year there, there's been a lot of volatility. It's just that that six month period is just enough that what you said earlier that the, the market has a personality. The market likes to mess with you and it's really good at it too. It knows exactly how long it takes to, for, for people to get too comfortable and apparently that's about six, seven months because the, that is, you're just seeing it with, with people kind of freaking out about a 5, 7% drawdown in their equities and they're getting, they're getting very, very uncomfortable with that. When you, when you're probably up already 8 to 10% this year, even after the drawdown, that's a really good year. Better than what we thought it would be. Most of the forecasts going into this year were like 2 to 6%. And so if you ended up this year 8% up, are you really going to be upset about that? I'm not. And so I, I just think taking everything in perspective is, is really important during these times of volatility. This is, this is a normal market. Nothing, nothing crazy is going on. We're not in 2008, it's not crashing. So just try and try and remember where you started this year. Remember where you are now and remember that the market can't go up unless it goes down too. So it's something to take into the weekend and hopefully we, hopefully better times are ahead.

Joey Loss 30:55

Yeah, I think that's a really good closing thought. We've got clients who saved maybe 10 or $12,000 a year for their career. And if they average 10%, you've got well over a million bucks when it's time to call it quits. And so yeah, don't sleep on a 10 year. Even if it was weird and you wanted to Keep going just 10 years, 10% is great.

Adam Van Wie 31:19

Yeah, it's a good year. Basically the average on the S P over the last, I don't know, 20, 30 years. And so an average year is, is, I'll take that every year. If we could, if we could, Garret. If anyone could guarantee me a 10 return every year. I will take it.

Joey Loss 31:35

Yep. Awesome. Well, we'll circle back in a few weeks and see what's changed.

Adam Van Wie 31:40

Sounds good.

Joey Loss 31:41

All right, Take care.