Of all the thousands of people on Wall Street I’ve met through my involvement with CNBC, Jim Lebenthal is one of my absolute favorite. Which you might not have expected to hear given how frequently he and I disagree on the Halftime Report. But it’s true. Respectfully disagreeing with people is something of a lost art these days but when you find someone who’s great at it, it’s gets your attention. Jimmy is one of those people and, as a result, he and I have engaged in some of the best conversations ever featured on the network (in my humble opinion). It’s part of what has made Halftime the number one daytime show on the network.

Michael and I hosted Jim Lebenthal on The Compound and Friends this week for a wide-ranging discussion about:

Separating politics from policies and focusing more on the latter
The impact of tariffs on US stocks
The post-earnings sell-off in Nvidia and the Mag 7 stocks
Apple’s massive investments in American jobs and manufacturing
Citi, AbbVie, Cisco, Delta and some of Jim’s favorite stocks at the moment
How spending by the top 10% of wealthy households is driving the markets
…and much more.

You can watch or listen to the show below:

Podcast:

Tariffs

Are you concerned about tariffs and the potential for them to roil the plans of Corporate America plus add increased volatility to the inflation story? Of course you are. Everyone is. And maybe that’s the good news.

Look at how quickly retail investors have gotten maximally bearish, with the S&P 500 not even in a 5% drawdown yet! This has literally never happened before.

At the height of the pandemic sell-off, the AAII sentiment survey hit 52% bears. We’re at 61% now and literally nothing has happened yet.

What’s going on? I think it’s a combination of people responding to the political volatility and being shocked by what Elon Musk’s been doing throughout the federal government. It’s the shock and awe in the headlines spilling over into the survey of investors. I also think the fact that some of the hardest hit stocks are those very popular with retail traders - Palantir, Tesla, Nvidia, Strategy, Coinbase, Robinhood, etc. Not only are these stocks all in big, sudden drawdowns, they’ve also got single-stock 2x leveraged ETFs adding to the intraday swings in their share prices. I’ll throw the overnight 25% plunge in Bitcoin onto the pile too, although the age of the typical survey respondent probably limits the impact of crypto stuff on their feelings.

This stuff is rattling the investor class and helping to produce a crazy read-out from AAII. The Wall of Worry is being rebuilt and the re-introduction of downside volatility is a good thing, not a bad thing. It keeps animal spirits in check and sets us up for a new leg higher once the tariff concerns have worked their way through the system.

We had two separate but equally drastic pullbacks in 2018 at the height of the Trump I trade wars. Stocks fell 20% in February and in December that year as the tariff news kept getting worse. The Federal Reserve was forced to act after telling markets it was “nowhere near” being done hiking rates that year. Turns out they were fully done and they just didn’t know it. And then, on Christmas Eve, Jerome Powell gave his pivot speech and by Q1 the Fed was into a new rate CUTTING cycle.

The Fed’s been telling us they see no reason to continue cutting given sticky inflation this winter. The Fed has a terrible track record of predicting GDP growth, the economy, inflation and even its own future actions. They have no idea what they’ll be doing next month or this summer. If the trade war forces their hand, you’ll hear their rhetoric about remaining restrictive change in a hurry. Your job as a long-term investor (as opposed to, say, a global macro hedge fund portfolio manager) is to hang tight and let this play out.

Not anticipate.

Hang tight.

Goaltender

At Ritholtz Wealth Management we employ many tools and tactics to help investors do just that. One of them, our tactical asset allocation strategy, is now celebrating its 10th year in operation. We call this tactical strategy “Goaltender” and its name is a double entrendre. On the one hand, it’s meant to literally keep the puck out of our net and play defense when stocks go into a statistical downtrend. On the other hand, we’re using it so as to tend to our clients’ long-term goals - it offers investors an emotional release valve so that they don’t do anything stupid with their core asset allocation.

I wrote about Goaltender in the spring of 2015, a decade ago, and with a few adjustments along the way we’ve been running this strategy pretty much the same way ever since. Ben Carlson wrote about it in the spring of 2017 and explained it as an evolution on his thinking about asset allocation.

He said:

This is one of the things we explain to new clients as they come aboard. Evidence-based investing forces you to acknowledge the evidence of how people actually behave in the presence of volatility. You can’t pretend that there isn’t a human component to this stuff whereby people wildly over-estimate future risks and react accordingly.

Our rules-based tactical strategy has been fully-invested in stocks for a long time now. Month after month the rules have kept us long the market. That may not be the case should the current fears (and realities) of tariffs continue to upset the investing public. We’ll let the rules dictate how we will or won’t react. It’s gotten us through hundreds of sell-offs since 2015 and it helps our advisors do their jobs.

If you want to talk to us about whether or not this strategy might make sense for your portfolio, Certified Financial Planners are standing by. Go to ritholtzwealth.com to learn more.

Okay, that’s it from me today. Thanks for reading, watching and listening. Have an awesome weekend!