Transcript:
Caroline Woods
Stocks on track to end the week with substantial gains. Are investors getting this right or are they getting complacent? Rebecca Walser, CEO of Walser Wealth Management, and joins us now. Rebecca, great to have you back at the desk.
Rebecca Walser
Glad to be here.
Caroline Woods
So it seems like stocks right now are acting like the worst is behind us. Do you think that’s actually the case? Are they right or are they investors getting ahead of themselves?
Rebecca Walser
So it’s really hard to predict what’s going to happen with us and Iran. We’ll see. Obviously we have this week and session to try to get to the table of some kind of deal that the really big concern is if we get this close to an agreement and then we don’t get an agreement that’s going to put the markets again ahead of their skis and having to retrench back.
Rebecca Walser
And then unfortunately, the retrenchment could be worse than what we saw the first time. And the reason that would be is because if we got this close to a deal and we couldn’t get to it, then the situation becomes a little more hopeless. It’s not a hopeless situation, but we have less hope than we would have had prior to getting this close to an agreement.
Rebecca Walser
And then seeing that we cannot get to the table and actually ink an agreement. So I think that this weekend and the next two weeks, and even if the cease fire is actually going to last for these next two weeks, because as we see, we don’t really have a lot of ships moving through. So even though it’s technically reopened the strait, is it really reopened?
Rebecca Walser
Are they really living up to their end of the agreement? And if Trump at any moment says you’re really not living up to it, then that the two weeks won’t even be two weeks?
Caroline Woods
Is that likely why oil is still elevated? We’re looking at U.S. crude around $100 a barrel. Are you surprised that the market is rallying, regardless of the fact that oil is still high?
Rebecca Walser
I am, and I think that maybe I don’t want to say that the higher, you know, numbers are baked down, because I don’t think that’s the case yet. If you look at this is December Futures, they have been coming down. They were still they were always in the high 70s and they’ve even been trending down. So I still think that from the very beginning, investors in the market expect this to be a short lived conflict such that by December, futures would be back to a normal I love 70 range per barrel.
Rebecca Walser
But again, if we get so close to resolution with the ceasefire and it doesn’t come to fruition, that is really where I think the market could have a much bigger volatility ship to the downside. And I just want investors to brace and prepare, do not have high, high, high expectations of complete resolution immediately because then you’re going to get shocked.
Rebecca Walser
Volatility is a factor right now. And you should plan on being a factor for at least the next 3 to 6 months.
Caroline Woods
So dig in. What does brace and prepare actually look like?
Rebecca Walser
If your, tolerance for risk is not such that you could withstand a 3 to 6 month aggressive pullback, then you’re two risk on and you need to look to other alternative investments in the short term to to be secure through this volatile period. It could be that we do get a deal and everything goes up, up, up and away.
Rebecca Walser
But if that doesn’t happen and you’re too overleveraged and risk, then you’re going to potentially have to, you know, retrench and then and then get into something that’s safer and then recover, and that’s going to be a slower recovery because you’re in a safer asset class.
Caroline Woods
So what are some of those safer areas?
Rebecca Walser
You know, normally, you know, I love precious metals. You know my gold and silver bug. Those have been asked acting like risk on assets. As soon as we saw the deal and we saw gold, we turned to that 4800 level, which clearly we expect it to be probably around the 54 to 5600 level by the end of the year.
Rebecca Walser
That’s our normal prognostication with central bank buying and as a reserve, as the world is kind of making currency transition, stablecoins, those kinds of things. But again, if we don’t get a deal, precious metals are acting like a risk on asset. And a lot of liquidity drawing down has been happening to be able to afford the higher energy costs.
Rebecca Walser
So that would be not necessarily a safety play either. Then we’ll have to look at other things. Of course, always oil itself. If there’s no deal then oil itself will be elevated and that will be a great place to earn some yield.
Caroline Woods
So if I have cash on the sidelines right now, should I put it to work or should I wait for a better entry point?
Rebecca Walser
Such a tough question. Normally, I think, you know, I always look at the individual risk profile. If you have risk appetite, you absolutely should not have, you know, lazy money should definitely put it to work. If your risk appetite is less risky, then you should still put it to work. But you should put it to work in more conservative things that could potentially either benefit from continuing conflict, or would at least be stabilized through a continuing conflict.
Caroline Woods
3 to 6 months, though, of potential volatility and downturn in the grand scheme of things for a longer term investor isn’t all that long. It’s nothing and you’re not a trader. So how are you putting money to work?
Rebecca Walser
I mean, we are really we are looking. So we really balance a portfolio. You know, we’re looking at, always having enough cash to meet, meet immediate needs. But then we’re looking for longer term. We definitely want to be on the fourth industrial revolution. We want that for our clients. We want them to participate in that to the extent that they can handle the risk of it.
Rebecca Walser
And then, of course, you’re going to look at shorter term things to just grow the portfolio or to stabilize the portfolio. So we would be an oil right now. We’ve definitely, been moving more towards the oil space. We have trimmed some and taken some profits because it’s obviously been very good. But, you know, if this conflict doesn’t get, you know, resolved, as we anticipate, we could see potentially and I don’t want to scare people, but we could see $150 a barrel, and that would be a great upside swing for us that we would definitely take advantage of.
Rebecca Walser
But it also means more volatility and it means more risk on other asset classes.
Caroline Woods
What are some of the names for the fourth Industrial Fourth Industrial Revolution that you like right now? Because I will say we have seen this rally in tech this week, but software hasn’t participated.
Rebecca Walser
Yeah. Software is definitely going to be, a different story. You know, we definitely have software coming down this year, you know, and we also have the private credit, you know, kind of, it was a depression. And I mean, impact because of the fact that, you know, they’re they’re basically leveraging private. So, you know, private companies haven’t gone public yet.
Rebecca Walser
So I like, you know, to look at two, I would say I would still look at I play and I would look at two different camps. So the first one I would say is like Jabil, for example, we I’ll put a buy on this, this week. We like it. It’s gone up even since we put a buy on this week because of the ceasefire.
Rebecca Walser
But, you know, they’re they they’re like, cheap. I play and comparison to semis and optics. Right. They’re like 0.89 price to sales, which is expensive for them. But in the realm of an I play they’re they’re really cheap. You know, they’ve got networking server connectivity. So this is like a traditional backbone but still necessary for AI to be successful.
Rebecca Walser
So that would be one another though when we like is micron. Micron is memory. This is an aggressive supercycle like memory backlog is phenomenal. Their net income is up 700%. You know year over year revenue up almost 200% year over year. And the backlog is massive. As long as CapEx spending into AI continues, which we expect that it will.
Rebecca Walser
I mean, we might see some trimming as you know, it always the supercycle. It starts aggressive and it comes trims down. But it we do believe long term Micron’s got a runway now on the other side of the I, I would say new technology. So optics laser and for that we’re really like coherent. That is a play that we think long term.
Rebecca Walser
This is the new technology. This is AI connectivity through optics. And it’s different from what we’re used to. It’s definitely the new frontier. But the problem with that for investors is it’s got a very high beta, almost a two beta, which means that it’s like super aggressive or double almost the volatility of the market. And so if you don’t have the risk appetite for that, then that would not be a play.
Rebecca Walser
It’s again a longer term play that you’re going to have to hold through volatility as we monetize AI.
Caroline Woods
The other issue is Jabil Micron and Coherent aren’t beaten down. Expect stocks so far this year. They’re double digits. So it’s not too late to get into these names.
Rebecca Walser
Oh no. Because we’re still at the very beginning. We’re at the beginning of the monetization of AI. So you will see, you know, these kind of names jump out massively and they will retrench. But as long as your runway is longer, as long as we’re not looking for, you know, taking profits in the next six months, especially right now with this, you know, Iranian conflict, if you’ve got an 18 month window, as long as you can hold the volatility for the next 18 months, we expect these will have a runway that will be very beneficial to you in the next 18 months.
Caroline Woods
We were talking at the top, really, about the impact of the cease fire on the market. And if we don’t see some sort of resolution. But what about all of the other factors that could impact where this market goes? If we do see a resolution, is that the all clear for this market to run higher, or is there are there other concerns that you have that could get in its way?
Rebecca Walser
Yeah, I mean, not to go into the macro that we talked about, I’m trying to keep it as low, low level as we can on micro. But the truth is, is that with a new fed, chair coming in next month in May, with Powell out, we don’t even know if he’s going to stay. He said he’s going to stay as long as the Department of Justice investigation is going on.
Rebecca Walser
So we know he’s going to be a factor, at least for a little bit longer. We’ve got a new fed chair. We’ve got labor issues really trying to raise their head. You know, we can see the quit rate is a really big problem for the fed. And yet they’re being they’re not yet saying, hey, we need to be accommodative.
Rebecca Walser
They still are keeping yields. And we see yields coming up because of the pressure of oil and inflation. So I think we have a macroeconomic issue with rates with price of money, with costs. It’s not good for the Russell 2000 is not good for the people that need cheap money to really invest in R&D and R&D. And CapEx is really big.
Rebecca Walser
At the beginning of the fourth industrial evolution and the position of AI. So those factors like the cost of money. And then, of course, we have the issue of the ability for America to continue to sell its debt to the rest of the world. Do they still look at it and say, yes, this is a great play? Or are they saying, hey, we want to see maybe more to the east, we see a lot of players moving and moving in with this alliance with.
Rebecca Walser
Since Russia got kicked out of Swift in 2022, we definitely see more movement of funds and reallocations of assets to the east. And that’s another thing that could be a headwind for the US.
Caroline Woods
So a lot of headwinds. Is this a market that should hit the old highs, but then power through them and hit new highs?
Rebecca Walser
I think that this is a market that would only be able to do that with the headwinds that we’re facing from a macro economic perspective with the A, I had you know, with the AI basically versus the AI and the fourth industrial revolution could power us through and probably would be the only thing that could power us through the headwinds that we are facing because of our basically currency issues.
Caroline Woods
And if we don’t see a resolution with Iran.
Rebecca Walser
We don’t see a resolution with Iran. We are going to experience, you know, higher CPI. I think, you know, the forecast I see would be possibly a 3.7% CPI. You’re talking about a fed that would definitely have to get accommodative, making money cheaper, which would only make the rest of the world more doubtful of our ability to continue to supply capital and sell our, you know, our public debt.
Rebecca Walser
So again, more, more of this takes longer. We’re looking at a lot a much different market situation by the end of the year.
Caroline Woods
So if I’m a retail investor listening right now, what’s the biggest mistake I could make here?
Rebecca Walser
The biggest mistake is to get scared and go sit on the sidelines and be an all cash, because you’re going to lose either way. You’re going to lose. If there’s upside, you’re going to lose. If there’s downside, because you’re not going to know when to get back in and you’re going to see on the sideline for far too long and you’re going to miss the recovery.
Rebecca Walser
So either way, you always need to assess your risk tolerance and be invested to the level that you can sustain the risk. I mean, meaning that you don’t need to cash out of that portfolio for, you know, 18 months of two years at least.
Caroline Woods
Okay, I think this is a good time to transition to our rapid fire round of this or that you’ve played before. You know the rules. Are you ready? I’m ready. All right. Here we go. Ceasefire rally. Real deal or head fake.
Rebecca Walser
Head fake if it doesn’t last. So, I’m praying it does, but I’m worried that we’re going to see more consternation on this.
Caroline Woods
Stocks. New highs are back to the lows.
Rebecca Walser
It depends on what happens with the geopolitical worth arriving. But I think, I think by the end of the year we’ll be more resolved and we’ll see upside.
Caroline Woods
Where will oil prices settle?
Rebecca Walser
I think if we get the ceasefire to go, I mean, a lot of analysts are thinking that they’ll be back down into the 70s and 80s. But right now, I think, you know, I would barometer 90s just because that way we’re looking at, you know, actually inflation prices. But that still would indicate some kind of resolution in the near term with American.
Caroline Woods
Oil opportunity or falling knife.
Rebecca Walser
I think it’s still an opportunity because as long as you can this way you would have to trade more frequently. Would it be more of a not a long term play? But absolutely, if you’re able to trade it, frequently, then I think it’s still an.
Caroline Woods
Opportunity for overall strategy. All in or play defense.
Rebecca Walser
Overall strategy or I would say overall be defensive right now. But you still need to take some risk.
Caroline Woods
Market jump in or wait it out.
Rebecca Walser
There’s definitely plays to be made. And so strategic plays. Yes. All in.
Caroline Woods
No
right now stocks bonds or cash.
Rebecca Walser
Stocks.
Caroline Woods
S&P market cap or equal weight.
Rebecca Walser
Equal weight. This year I.
Caroline Woods
Big tech bounce or a bull trap.
Rebecca Walser
Hum. Gosh. Oh gosh why are they so tough? I think I was talking legacy tech. We’re going to have some problems and we’re talking AI type. We’re going to have about we’re going to have a bounce.
Caroline Woods
So mag seven buyer trim.
Rebecca Walser
Take profits trim and then rebuy when we get some more lows.
Caroline Woods
One big tech name you’d buy here.
Rebecca Walser
I’m a big tech name. I think Apple.
Caroline Woods
When you’d sell
Rebecca Walser
Microsoft right now AI leader micron or Nvidia.
Caroline Woods
Oh. Oh me that is tough. I just think micron I have to go with Nvidia.
Caroline Woods
Hard asset gold or bitcoin gold. Always private credit opportunity or risk.
Rebecca Walser
It depends on the private credit lender that you’re looking at. So we like certain private credit lenders that are really conservative and really do their due diligence and have partnered with private equity that basically remember their senior loan position and they will, win first. So you’d have to lose almost 40% of the portfolio to really be impacted.
Rebecca Walser
So I still think it’s an opportunity.
Caroline Woods
Rates higher for longer cuts coming.
Rebecca Walser
If we don’t get resolution the fed will have to go accommodative and then we’ll see cuts. But right now with where we’re at you would we would be forecasting you know rate hikes.
Caroline Woods
Inflation sticky or rolling over.
Rebecca Walser
Again. So much depends on Iran. If we don’t get resolution we have sticky.
Caroline Woods
Markets by year end. Higher or lower?
Rebecca Walser
Higher.
Caroline Woods
One word to describe how you’re feeling about the market right now. Volatility Rebecca Hauser always a pleasure. Thanks so much. That’s Rebecca Walser CEO of Walser Wealth Management.