This was another great interview by Adam Taggart on the Thoughtful Money channel. Some of the main points:
- Kevin says in 2023 many investors underestimated the impact of fiscal stimulus on behalf of the Federal government. These big pieces of infrastructure legislation like the CHIPS Act take a very long time to implement and therefore the billions of dollars in spending is drawn out over a period of years, keeping the economy afloat. This has counterbalanced the monetary tightening efforts of the Fed and will continue.
- Despite the theatrics of Republicans about balancing the budget, they always give in and end up approving more debt spending.
- Bullish on gold! Many central banks have part of their reserves in gold. China's percentage of reserves in gold is currently very small. If they wanted to increase their reserves, it could very strongly drive up gold prices.
- 25:00 Mixed success with Bitcoin. He initially thought it was silly when he first learned about it at $5. After seeing it go up to $50, he thought maybe it could go farther and got into mining. He didn't explicitly say he cashed out of Bitcoin, bit it sounds like he did when it went through a bear market around 2018.
- At the end of the day, Kevin is a skeptic on the long term outlook for Bitcoin and prefers gold. He believes it is more vulnerable to technological and regulatory risk than people believe. He brought up a plausible scenario - what if China invades Taiwan, the internet lines are cut, and the Bitcoin network gets forked into two ledgers? He believes the government has the ability to shut down Bitcoin easily.
I agree with Kevin's points about Bitcoin. A very long time ago I put out a video talking about the downsides of Bitcoin and I bring up many of the same points.
- 49:00 Kevin believes that the economy will run hot and there will be more inflation. The December 2023 FOMC meeting in which Powell suggested possible rate cuts in 2024 Kevin considers to be the "pivot" everyone's been waiting for.
Trading Psychology Takeaways
- 29:00 He mentions Anthony Bourdain's tattoo which says "I am certain of nothing." Kevin says that's a good trading mindset. He's open to being wrong about a prediction. I also find that to be an essential quality of being a good trader.
- 1:01:50 He talks about why some stocks just run like crazy and attributes it to the institutional investor mindset.
- Big institutional investors are very slow. It takes them weeks to enter or exit a position.
- They don't have the luxury of being patient. If the market is ripping and hot stocks like the magnificent 7 are going up, the institutional manager has to chase those stocks because there is career risk. If that manager underperforms the market and doesn't own those names, he gets fired.
- Greenspud: This is the cornerstone of my trading strategy. I don't worry too much about valuations because at the end of the day what moves stocks is institutional buying and selling. I use technical analysis to try spotting those kind of moves and join them. When a stock is on a crazy run, valuation suddenly doesn't matter because multiples can expand to ridiculous levels when the stock is being chased. A cheap stock can also remain cheap indefinitely if it doesn't catch the interest of the whales.
- 1:30:00 "Equal weight outperforms market cap weight over time." Big institutions can't equal weight their holdings because of their size and liquidity. Due to the performance risk too they have to chase select stocks that are outperforming.
- There's also a mean reversion at play. Because the Magnificent 7 had a great year versus the rest of the market that the odds of that continuing that kind of performance into 2024 is unlikely, so many big money managers will sell those stocks, driving down the price. There will be a rotation into other stocks. Greenspud: let's see if this plays out in 2024 as is suggested by this interview. I think the Mag 7 may have the momentum to continue into Q1, but there will be a correction that pulls them down 15-20% at least and I'm awaiting the technical signals for that.