Episodes

Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, we'll talk about our Top 10 Potential Surprises for 2024 and look back at what we said about 2023.

Dan Ferris: Feel free to tell us what's on your mind by e-mailing us at [email protected]. All that and more right now on the Stansberry Investor Hour.

Dan Ferris: All right. It's time to talk about last year and this year and what would surprise the heck out of investors. That's what we do here. That's what this exercise is.

We are not making 10 predictions. We are simply making a list of 10 things that would surprise investors based on where the markets are right now. So if the market is screaming higher, it would surprise people that it would fall. And if the market is plummeting, it would surprise people that it would scream higher, that kind of thing.

We look around at all the different markets and different parts of the world that might influence the market, including politics and other things. We make a list at the end of each year of the things that would potentially surprise the heck out of most investors.

Well, here we are once again, amigo. It's just about the end of another year. I don't know about you, but I turned 62 this year and this year flew by. I mean it just –

Corey McLaughlin: Yeah. They're all going pretty quick. These last five years for me have gone very quickly, ever since the pandemic when it seemed time-condensed, and it seemed like it stayed that way.

Dan Ferris: Yeah. Well, now that we've established that we're both getting old, maybe we'll take a look back at 2023 first and just kind of quickly run through the 10 surprises and whether or not they happened.

The first one was we said it would surprise investors for the S&P 500 just to have a normal return for 2023, like plus 10% or something like that.

That surprise didn't happen. As you and I speak, we're up about 25% on the S&P 500 and 43% on the Nasdaq. So no surprise there. The surprise did not happen.

Corey McLaughlin: Yeah. I was looking back at what we said last year, too. I think I said that 2023 might not be as bad as people imagine and have slight gains for the year. Remember, there's the same kind of discussion or talk out there in the market that we have now, about recession fears and everything.

It didn't seem like anybody was expecting any positive returns at all, and then yeah, like you said, outperforms what you would call average this year. So it did catch a lot of people by surprise, that part. A normal year did not. An outperforming year did.

Dan Ferris: Right. So No. 2 was also about the S&P 500, but it was a different surprise altogether. We said it would surprise folks if the S&P 500 went down 40% after a 50% rally off the October '22 bottom. What really happened was it went about 28% off the bottom, and then down about 10% after that. Then of course now we've taken off into a whole new rally.

So basically this one didn't happen. That's all there is to it. But let's keep moving here.

We said it would surprise folks if the Ukraine War envelops nearby countries and gets large numbers of NATO troops involved. That didn't really happen, but a whole new war started.

Corey McLaughlin: Right, and that war is still going on. So it's not over, and yeah, we have another one, a big one.

Dan Ferris: Let's see. The next one we said was GameStop and AMC fall 90%. This is weird. GameStop kind of went sideways. It's down only 3.6% as we speak, but AMC indeed fell 84% so far this year. So I'm going to say, hey, we got AMC right, but the GameStop half of that obviously was way wrong. Somebody thinks that's a real business.

Next, what do we have? We said it would surprise folks if the Fed kept raising rates through the entire year, which they did not do. That surprise didn't happen.

Corey McLaughlin: Well, they did through the alternate meeting thing, where they were raising every other meeting and they stopped in the summer. So, you know, halfway. I think the more important point there was that people were expecting inflation to totally crater this year, and I don't think we thought so, that the Fed would keep raising rates. They did a little bit and now we're in the pause cycle.

Dan Ferris: Right. The next one that we said, No. 6, was it would surprise folks if the CPI did not fall below 5%, which of course it did. It's like three-something. What is it, 3.1?

So I think at least we kind of demonstrate we know what the surprise would be. It would surprise people if what happened didn't happen. So we sort of get the trend right, but the surprise didn't happen.

Corey McLaughlin: Right. Maybe we should remind people that these are potential surprises. We were saying that this exercise is –

Dan Ferris: Yeah, they're not predictions.

Corey McLaughlin: Yeah, they're not predictions. They're things that maybe a lot of people aren't prepared for or thinking about or expect, and making sure that we are preparing and expecting these kinds of things to happen.

Dan Ferris: All right. No. 7 last year we said was bitcoin at new all-time highs. It didn't happen, but...

Corey McLaughlin: Yeah. I would say there's a significant "but" there. Bitcoin is up 150% over the last year. I remember saying this at the time, that I didn't think the sentiment around bitcoin could get any worse, at the end of last year, and that if you wanted to be a HODL'er you should keep on HODL'ing. If you did that in bitcoin, if you had any and you still have it, I think you're fairly happy about that.

Now we can talk about what may happen next with bitcoin, but I think the point there was to be prepared for a turnaround in something that was hated so much at the time.

Dan Ferris: Yeah. So it didn't hit new all-time highs, but you're right, there's a big "but" there.

No. 8 last year was mortgage rates below 4% or above 12%, like lots of volatility. Neither one of those things happened. It was probably kind of a dumb surprise, as was the next one, gold below $1,000 or above $5,000, lots of volatility, crashing or soaring, some big event that would make either of those two take off. I don't have any of those for this year.

No. 10 was just kind of my pet annual surprise, where I said S&P 500 down more than 20% in a single day, because supposedly the markets are set up so that it physically cannot happen, and they'll shut down the exchange if the S&P 500 falls 20%. Maybe if this one doesn't happen in the next couple of years I'll take it out, but I don't know.

Corey McLaughlin: Well, that will happen, so don't so that.

Dan Ferris: Yeah, that's right. That will happen and we'll say, "Remember when I used to say this could happen."

Nvidia may be America's top-performing stock after more than doubling this year alone, but if you're holding Nvidia or thinking of buying it to get a stake in the $7 trillion AI market, you're going to want to see Marc Chaikin's new AI prediction first.

Marc is a regular on many major news outlets, from Fox Business to CNBC. He built the stock indicator Wall Street uses to find winning stocks. His award-winning system flashed "buy" on Tesla before it climbed 335%, Moderna before it climbed 300%, and Riot Blockchain before it climbed 10,090%. It also found Nvidia at the start of 2023, before its massive bull run.

But right now, Marc is stepping forward to warn people to stay away from Nvidia. "My system has indicated that Nvidia is no longer the best stock to buy to profit from AI," Marc says, "In fact, it just flashed 'buy' on a totally different AI stock."

Today, he'd like to hand you the name and ticker symbol of his No. 1 AI stock to buy right now. For a limited time, you can get this information for free at www.AIFrenzyReport.com. Again, that's www.AIFrenzyReport.com for a free copy of his new report.

So that's 2023. Like I said, those last couple there I think are kind of dumb, so I won't do those anymore.

All right. Let's look ahead to 2024. The first one I think would probably surprise people for 2024 is if the Magnificent Seven just suck wind. As we speak, they're up 114% on average, those seven stocks: Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta, Tesla. Up an average of 114% as we speak and an average P/E of 51X earnings, reminiscent in my mind of Cisco and the other no-brainer kind of stuff that were priced for perfection in March of 2000, or even the Nifty Fifty in the early '70s. A similar kind of vibe to me.

Corey McLaughlin: Yeah. They are up there in terms of returns and valuations. I think the thing I would prepare for is for them to suck wind and what that means. What does that mean for the rest of the market?

We talk about just the headlines, like the S&P 500. We talk about how much of – you know, a cap-weighted basis, how much those stocks make up of the U.S. benchmark. So if they struggle at all, maybe it won't be great for the overall market and the sentiment out there in general and could contribute to, I don't know, volatility and fear in the year ahead.

Dan Ferris: Right. Or I think what could happen, what I would expect is that if 2024 is a pretty good year in the stock market, these just don't perform anywhere near as well as they did. I mean, three of them – Nvidia, Meta, Tesla – all up triple digits this year. Meta and Nvidia are 193% for Meta, 241% for Nvidia. It's not just barely 100%.

So maybe they don't do so well in 2024, but we've had this thing recently where within 30 or 35 trading days the equal-weighted S&P went from a 52-week low to a 52-week high, and the Russell 2000 did the same thing. So maybe we just sort of rotate out of this stuff and into something else.

Corey McLaughlin: Right. If you believe that the trends are going to keep going higher, it would logically make sense that the rest of the 493 and small caps and everything else would follow what the Magnificent Seven have already done, and the opportunity would be there rather than Nvidia and Tesla.

Although I still love Google, it hasn't been up as much as Alphabet. It hasn't been up as much as the others, but yes, point taken. The run for these has been great. So what happens next?

Dan Ferris: So as we speak, Apple is up 52%, Microsoft up 56% for the year, and Google up 59%, almost 60%. So those are three laggards in the group. They only went up 50 or 60%. Amazon up 84%.

So it's just like, look, if you got the trade right, good on you. You're awesome. If I got the trade right, I'm not saying I would necessarily sell them. I just wouldn't be buying anymore and I'd be doing other things, and I think there's a lot of other things to do.

So this kind of falls upon the next thing that I think would surprise the heck out of investors, and that is if the S&P 500 ended the year with a negative return in 2024. I think that would be a pretty big surprise right now. I think we're back in bull mode.

Corey McLaughlin: Yeah. I think so too. I was surprised by that one when you sent it to me, myself.

Dan Ferris: Yeah.

Corey McLaughlin: Because I think even if you have a recession, how long will it be? How bad will it be? The optimist would say then there will be some time to recoup some losses through the end of the year. We're in a presidential election year and we can talk about the presidential election cycle with the markets, where that fourth year tends to be not as great as the third year, but still positive. So there's different things you could look at, reasons why the returns should be positive, but why couldn't it be negative? I don't know. Anyway, it's certainly possible.

Dan Ferris: Sure. If you look at all the historical data – actually, our own Scott Garliss sent me some stuff this morning. It's similar to the stuff I've quoted from the folks at SentimenTrader before, and Scott did the same kind of work. They all say when you've had a year like this, the logical thing is to expect another good year. Historically, that's what happens. Most of the time, two-thirds of the time the market goes up, and only one-third of the time does it go down.

I think it's in the zeitgeist. People are happy. They're optimistic. They're buying stocks. That's what everybody expects, so if they get a negative return they'll be like, "Holy hell, didn't see that coming."

Corey McLaughlin: Which, by the way, I think it's always wise to think about that stocks will have a negative return, especially if you're on a one- or two-year, a short time frame with what you want to do with that money. It's always smart to think about it. Yeah.

Dan Ferris: Yeah, exactly. It is smart to think about it. Our recent guest, Hari Krishnan, who has spent his career doing it and who does it regularly, says, "Yeah, I think it's kind of time. It's time to think about hedging. It's time to worry about it." His trade that he liked was kind of being wrong. I think we were talking about Nasdaq or something, just being wrong, but hedged.

So yeah, you should think about it. You shouldn't obsess about it, but you should think about the possibility. Sometimes it's a good time to prepare for it.

Hari said right now is a good time. I said I think that's true as well. But let's face it, being bearish most of the time is a bad idea, and right now investors are in bull mode. So do what you will with that information.

All right. Do you want to move on here?

Corey McLaughlin: Sure. We have next, No. 3, the Federal Reserve cuts rates less than two times. Right now, the expectation, the most recent expectation is for the Fed to be cutting three times, three 25-basis-point cuts in 2024, which is what they wrote down, even though they're saying now that they aren't talking about rate cuts afterward, after putting out their most recent projections.

So yeah, I think that would – you're saying less than two times, so that would be once, right? So just one or none.

Dan Ferris: Once or none.

Corey McLaughlin: Yeah. I think that probably would surprise a lot of people at this point, given what we've seen in market behavior recently. It seems like everything is reacting to the idea of multiple rate cuts in 2024. So if that doesn't happen, yes, I think things will move around a bit.

Dan Ferris: You know, it's funny because the surprise should be that the Fed would cut rates at all with unemployment still scraping like 40-some-odd-year lows and housing actually doing pretty well. Housing starts, you know, kind of went [makes whooshing sound] straight up, 18% last month, up 42%, off the bottom not too long ago. Unemployment, housing, GDP above the average of the past, whatever, decade or so or more was like 1.8, 1.9, something like that, and now we're in the 2.5'ish range.

They're talking about cutting, which they usually wait for the weakness in labor or something to show up. I don't know what they're looking at when they're saying cutting. The only thing that I've heard is that there's a lagging effect to all of this monetary policy, so we want to start cutting before we get the policy rate down to – before inflation is 2% and before, I guess, things start breaking in the economy is maybe the underlying message.

Corey McLaughlin: Yeah. He said that before, like a couple months ago, that we will start cutting before inflation gets to 2%. So I think that's why people are expecting that now because he said it.

Now whether that's true or not, I don't know. Maybe there is a lot of overreacting happening. Like you said, unemployment still trended down last month. It's been ticking ever so slightly higher throughout the year, but still nothing horrible yet. So yeah, maybe everybody is getting ahead of themselves and they're just in pause territory for a while longer.

Or, like you said with the housing, housing prices haven't gone down. They've been going up on average nationally. So it's hard to knock off the inflation, the last part of the high inflation with that happening.

Dan Ferris: Yeah, I agree. It's hard to see this, but we've been given the explanation and we'll see how it plays out.

So surprise No. 4 is gold hits $3,000. Now I said I was going to stop doing the crazy stuff, where I said gold either below $1,000 or above $5,000.

Corey McLaughlin: $3,000 is good. That's actually right in between $1,000 and $5,000, Dan. So that's not crazy at all. That's the target, right? From a technical perspective, I've seen a lot of people that have been talking about it.

Dan Ferris: Yeah, and we're just above $2,000. That would be a big move though. Fifty percent in gold is a big move. The gold stocks would just be on fire, absolutely on fire.

But I guess the real point is to talk about what would cause that. It's funny because I don't really know. I just tell people, "Well, it's a good idea to hold some gold because you don't know what's going to happen." Maybe the U.S. would get much more deeply involved in either of these two wars going on than we expect them to, much faster than we ever expected.

There could be some shenanigans with the currency. If they really crank up the CBDC rhetoric and then actually begin to – well, they've begun to implement it, but it's in a very small way and we don't see it mostly. But if they say, "We're going to roll out Central Bank digital currency to the whole country, and that's what the U.S. dollar is going to be from now on," that would be chaotic, I think. People would hate it and they would buy gold and bitcoin like crazy.

Corey McLaughlin: Yes, for sure. There are plenty of reasons just to expect chaos in general in your head, and gold is a chaos hedge, as some people like to say. I don't know if you've seen it, but people have been buying up all the gold bars at Costco and Walmart recently, too, as many as they can. It's like Black Friday every day. It's gold every day. So that tells you about where people's heads are at, too.

Dan Ferris: Yeah. It's strange. It's strange that – that story just struck me as so odd. I'm not even sure why. Of all the places – when I buy gold, I don't say, "Let's pick some up at Costco." And if I saw it at Costco, I'd think, "Well, the spreads are probably too wide here. It's probably not a great deal. I should go to the reliable folks that I normally go to locally and just do it that way."

But yeah, I found that story very odd. I don't know – I mean what is your sense that that is really – you know, you said, "if that's where people's heads are at," but I never got the sense that it was a panicky thing. You know what I'm saying?

Corey McLaughlin: I really think that people are just fearful of what's going to happen next this year. I think with elections and with the government in general. I mean with all the things we've talked about, who knows what's going to come next. Maybe there is something that we don't know about, a push, some groundswell of – we have some idea of it, but maybe it's way more powerful than we think, and just collectively. Each individual – these are individuals just buying gold, gold bars at Costco and Walmart.

I don't know. I think it's reflective of just the mood of a lot of people in the country.

Dan Ferris: Yeah. It would certainly cause a lot of people to worry a lot, if no matter who gets elected the other side doesn't accept the results. I think the odds of that happening are higher than they've ever been in my lifetime. So that could scare you a little bit.

People are watching these movies about civil war and leaving the world behind and all that stuff. Then they might see this other person get elected, from whatever side, and think that they did it illegally. You're right. People could be – I see the mindset now.

Corey McLaughlin: Yeah. I mean nobody thought four years ago that – or three years ago that the January 6th would happen. We've seen all kinds of stuff fall out from that. So if something like this happens again, people want to be owning gold, I think.

Dan Ferris: I think so. Let's move on to No. 5 then. Maybe you should read this one since the bitcoin surprise really came from you last year.

Corey McLaughlin: Sure. This one is that bitcoin falls 50% or more.

Dan Ferris: It would surprise the hell out of me. I know that.

[Laughter]

Corey McLaughlin: I think I just said on another episode – well, I did just say on an earlier episode that it wouldn't surprise me if bitcoin fell 40 or 50% after a 150% gain this year, just because it still trades so volatilely and wildly.

Dan Ferris: OK, so maybe the surprise would be more than 50%.

Corey McLaughlin: Yeah, more than 50. I mean – yeah. It could still fall 50% and be above the lows from last year. That's how quickly this thing moves. I think if it does fall 50%, that would be for the reasons I explained or talked about the last time. That would be a great buy for me, a buy at that point, given the longer-term patterns and terms and play for bitcoin, I think, as a speculation again.

But yeah, I think it would surprise people at this point, after getting past all of what looked like – what has been a low last year and all the SV 50x nonsense and the SEC going after crypto. So it would probably surprise a lot of people, so yes, but it could very well happen for reasons we have no idea about right now. So that covers all the bases then.

Dan Ferris: Yeah, it does. I don't know what else to say about bitcoin except the usual stuff. I still don't see it behaving anything like a currency. I know you've made it clear that it's sort of a speculation. It's almost like an option on monetary issues or something, monetary issues or tech stock speculation or something like that.

But my head is stuck in the white paper. My head is stuck in the reason they created it, which was to be able to transact outside an unreliable financial system filled with middlemen, who are levered up and could collapse any minute, the way they did in 2008. I just don't see that happening.

To me, it's still, as you said, it's a speculative asset. If you want to transact in it, it's just dollars. You just buy it with dollars and you convert back to dollars after you do whatever transaction you do.

By the time that's not true anymore, if bitcoin really does become a currency or a gold-like store of value with monetary characteristics, I'll look stupid probably because by then it will be a million or two million bucks or something, and then it will just stay there and go sideways forever and be a reliable store of value.

Corey McLaughlin: Yeah. Just one more thing on that. Bitcoin itself I think is more speculative than not. If you look at Ethereum and the other networks and those kinds of things that our colleague Eric Wade researches and talks about all these things in Crypto Capital, there are very good use cases for specific cryptocurrencies as well. I'm not saying that.

I'm just saying bitcoin itself, the most popular one, has like what you said. It's kind of like that anti-monetary Fed policy. It's got that going with it, which lends itself to some speculation, right, because the Fed is still around and the system is still around. That's all I'm saying there.

Dan Ferris: I hear you. And if we get the conditions where gold would hit $3,000, I think bitcoin is six figures easy – easy – and maybe the first number is not a 1.

Corey McLaughlin: That would be conservative I think, too. Yeah.

Dan Ferris: All right. No. 6 is if the Personal Consumption Expenditures Index comes in around 4% for most of the year. Of course, the Personal Consumption Expenditures Index being an inflation gauge that we know the Federal Reserve looks at much more so than the Consumer Price Index, the CPI.

As we speak, PCE hasn't fallen as steeply as the CPI, which fell from 9.1%, June of 2022, to around 3.1% now. PCE, that peaked at around 5.6% in February of 2022. It's been a much shallower decline and now it's 3.5%. So it's below 4% and it has sort of picked up downside momentum, if you look at the chart in the past few months here.

It's just not falling as steeply and we know that's what the Fed looks at. So I think it would really surprise people if it kind of stayed here or went higher, hung around 4%, or even got above 4%. Then maybe we'd see more of that damage or whatever it is anybody is looking for.

Then maybe we'd see some cutting going on at the Fed or be more justified because now we're talking about low unemployment, good GDP growth, a good housing market, et cetera. If that continues, if things are as good as they look, interest rate cuts could just melt the market straight up, which it's done in the past couple weeks here, but that could really just continue and be another crazy speculative year if the cuts are kind of unwarranted by the economic data.

So yeah, I think it would surprise people at this point if inflation were more persistent and PCE came in around 4% for most of the year – or even for part of the year at this point. If it ever sees 4% again, right?

Corey McLaughlin: Right. Everybody is obsessed with 2%. Nobody is thinking about it going the other way.

I would think, wouldn't you, if inflation then rebounds to at or around 4%. That would cause the Fed to maybe hike rates again and then cause more damage down the road, potentially. Maybe we're in that, like what you said before, that we're in a rate-hiking cycle with small cuts within it. We're still in that uptrend of rates generally.

Dan Ferris: Yeah, I'm sorry. I misspoke. I said cut, didn't I? I should have said hike.

Corey McLaughlin: Yeah, OK. That's what I thought you were talking about. Yeah, it would be hiking at that point, which would then cause all that, everything you said. Yeah, that would certainly surprise people, and it's certainly possible because, as we've seen, higher inflation has stuck around longer than a lot of people thought and there's tons of risks for it to rebound again globally. I think we're seeing that right now, even just with what's going on in the Red Sea and oil prices going up a little bit.

Dan Ferris: All right. I think the next one, No. 7 – well I'll just say it. I won't try to explain myself. I think it would surprise people if Donald Trump is elected president in a landslide victory, or even at all at this point. I personally can't imagine it.

Corey McLaughlin: You can't? See, I'm imagining it more and more every day. So –

Dan Ferris: I think I hear what you're hearing in the news. He plays to his base. They're in love with him. Joe Biden's popularity in whatever polls you look at is not good. No other Republican candidate is polling nearly as well as Donald Trump, but I think – here's what I think about Donald Trump.

He was absolutely perfectly aligned with the moment in 2016. He said all the right things, and he went to all the places where Hillary Clinton thought she had it locked up, and he took them away from her and he won.

He said these things about making America great again and lowering taxes and all kinds of things, and it sounded great. But in the end, I don't think he behaved – he didn't clean up any swamps. He didn't clean up the swamp.

My personal opinion about our presidents is that there's really no meaningful difference between Joe Biden, Donald Trump, Barack Obama, George Bush, Clinton, the first Bush, Reagan, Carter, Ford, and Nixon. Go back as far as you want and there's no meaningful difference between them. If you can get elected, it's because you're doing and saying the things that someone needs to do and say at a certain moment to get elected. It's not because you really would be good at the job of president.

I think those things tend to all sound kind of the same, even if they all sound very different. They all sound like, "I'm going to use the government's awesome power. I'm going to use the awesome power of the most powerful government in the world in a way that you like." If you say that message the right way, you get elected.

Tell stories about America that people want to hear at a given moment, making America great again in 2016. But I think his moment has passed, and I don't think his base really understands that. They still want to hang on to the vibe that he had in 2016. Just my two cents. I have no idea what's going to actually happen.

Corey McLaughlin: Yeah. It's interesting, like you said. I've seen the polls. I think it was Chris Christie during one of the debates, during one of the Republican debates called Donald Trump like Voldemort from Harry Potter... like you should not say his name, because everybody dating on stage is essentially for second place in the Republican Party.

If we have some economic troubles ahead of November, typically that's not good for the sitting president. So if Trump is the Republican nominee, I don't see why he couldn't win. But given all of the sensitive things around him just as a character and a person, all that aside, I'm just saying that from the setup of it – I'm not getting it out.

But I think the economic point is – let's not forget that during COVID, what the government did with the amount of spending that was approved through Congress when Trump was president first. Then when Biden became president, it was the same thing. It just continued. That was probably the real overkill in 2021 and 2022, but like you said, everybody behaves the same, to be the most popular at any given moment. That's how we've gotten to this point.

So yeah, who knows? I am so sick of politics at this point. Somebody else needs to emerge who just is somebody else. I don't know who they are, and I don't think anybody knows who they are. Yeah, that's all I've got to say about that.

Dan Ferris: So, Corey, let me ask you, man. If this would not surprise you, feel free to sort of rewrite the surprise here. What politically would surprise you? Maybe there's nothing in particular. Maybe nothing would surprise you at this point, and that really is the point.

Corey McLaughlin: Yeah, I guess that might be the point. I would be surprised by a landslide, as you put it. I would be surprised by that. On the headline, I would be surprised by that.

I'd be surprised if an Independent won. That never happens. So that would be something different and probably welcomed. If a moderate candidate won, I think that would be pretty surprising at this point.

Dan Ferris: All right. I think we've firmly established that Dan knows nothing about politics and Corey doesn't want to hear about it anymore. So let's go to No. 8.

Surprise No. 8 for 2024 would be, "A nasty recession begins," is how I phrased it. Maybe I'll get better at writing surprises because you could say that this is with No. 2, that the S&P 500 ends the year with a negative return, which would go along with a recession.

If the Fed does cut rates and if the economy behaves in such a way that justifies cutting rates, we would expect there might be a recession and that the S&P 500 might not do so well, because it tends not to do so well during recessions. But this one, I don't know. I feel like talking about a recession, just saying the word recession just made my IQ go down.

[Laughter]

Corey McLaughlin: That is funny. Yeah. I was looking at the Fed projections lately, and people are expecting the rate cuts because I think they expect a recession with higher unemployment, which makes some sense, but it might be worse than what those projections show right now. I was looking at some research and the Fed has historically underestimated where employment goes in a rate-hiking cycle by an average of 2.5%, which, if that happens, would put the employment rate around 7%.

So would that surprise people? I think so. Then in that scenario, you're talking about rate cuts and all the same stories of the past, devaluing the dollar. Then we're seeing gold go up and bitcoin and all the things. Then depending on how bad or how long it goes, yes, a negative return for stocks. Or depending on how quickly the government responds, not a negative return and all those things.

I would be prepared for it. It doesn't mean you need to be all out of stocks and everything right now, but certainly something to think about.

Dan Ferris: Yeah. It is something to think about and it's nothing that you should try to predict.

Corey McLaughlin: Anybody who predicted it last year was not right. If anything, we already had a recession in early 2021 with the two negative GDPs, which wasn't acknowledged by the powers that be.

Dan Ferris: In a way, saying that it would surprise folks if a nasty recession would begin, it's kind of an odd thing to say right now because the Fed is penciling in three rate cuts. Three 25-basis-point cuts maybe is not a very big deal, but if they do any cutting beyond that – I mean the market is pricing it – at one point, the market recently, within the past couple days I saw in a post from "The Daily Shot," the macro chart guy, they were saying the market at that moment was pricing in like 140 basis points of cuts.

So that's like there is something going on and we are trying to stimulate the economy. That's more serious. If that sort of market-based prediction, whatever you want to call it, is right, then we could see a recession. We could see the Fed cutting at least three times, and everything that they're saying right now would make a little more sense. The only thing that wouldn't make sense is if the market is on fire.

Corey McLaughlin: I think you hit on it right there.

Dan Ferris: OK. What hit on it for you right there?

Corey McLaughlin: I think when you're saying the only thing that wouldn't make sense right now is the way stocks are performing. If the recession – that's why I keep writing as much as I can. When the rate cuts start happening, that is not good for stocks. That would –

Dan Ferris: Generally speaking.

Corey McLaughlin: History has shown that – yeah, generally speaking, every single time, especially when valuations are expensive, which they are now and for those Magnificent Seven, so yeah.

Dan Ferris: All right. Let's go on to No. 9 here, which is I said if the 10-year yield stays above 4% would be the surprise. But at this point, if it goes back above 4% because it's 3.9 as we speak. So 4% at all and then staying above 4% I think would surprise lots of folks. It would probably be – I'm going to say it would be roughly neutral to not so great for market valuations, meaning stocks would stay about where they are or get cheaper, something like that.

Corey McLaughlin: Yeah. I don't have too much to add there, other than if they went back up to five that would be a different story.

Dan Ferris: Five would be "risk off" – we're in a bear market again. Absolutely. Yeah, five would be a nasty moment. I mean we bounced off five and off the bottom of the stock market. That's what did it. Rates turned around at 5% and the market turned around at the bottom there. So, yeah, five .Ouch.

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All right. I guess we're ready for Dan's surprise No. 10. It's the same as last year. I think it's the same as the year before, so third year in a row at least. That is it would surprise everybody if the S&P 500 dropped more than 20% in a single day.

For any new listeners, I should explain this. The New York Stock Exchange, they have what are called circuit breakers. So if the S&P 500 drops 7% in one session, they halt trading for 15 minutes so that everybody can sort of collect themselves and just calm down a little bit and allow some of the order activity to play out. Then they continue trading.

Then if on that same day the market is down – I think it's 13%, yeah, 13%, the same thing, a 15-minute trading halt. Everybody collects themselves. Let the order activity kind of sort itself out for 15 minutes. Then if on that same day the S&P 500 drops 20%, they close the market.

So technically speaking, the way it's set up the market can't drop more than 20% in a single day. But as a purely philosophical issue, like if you are a floor trader or you're inside that industry in a way that you understand the operation, the daily operation of this 10 times better than I do, I hear you. I'm not arguing with you. I'm not saying I understand the mechanics better than you.

I'm saying that philosophically I don't think humans control markets. I think humans are in markets the way fish are in water. We don't control the wind or the tides or the currents or anything about the water. We influence it because it's made up of our activity. So it's not exactly like fish in water, but it's enough like it and we don't control it nearly as much as we think we do.

It could easily happen that investors get just scared to death, the way they were in March of 2020 or on October 19, 1987, and that the market could indeed fall more than 20% before they close it down. That would surprise the heck out of everybody, except for the folks who took Hari Krishnan's advice to hedge.

Corey McLaughlin: By its very nature, that would mean people are surprised, right? Everybody is panicking and selling everything. You're saying 20% in the markets, but then what about individual stocks too? It could be different things happening with those.

Dan Ferris: Right.

Corey McLaughlin: The last time we really saw the circuit breakers was March 2020. It was a couple days in a row and a couple times per day. I remember tracking all that. The circuit breakers worked then, but what if they don't?

Dan Ferris: Right.

Corey McLaughlin: What if they don't? You never know.

Dan Ferris: You don't. It would admittedly be a terrifying moment and you're right. It's the definition of surprise, that kind of thing. It may not be a perfect analogy, but you've seen this happen in the very biggest cap stocks, like Apple and Meta and even Microsoft.

If you look among the top 10 one-day market-cap losses, like hundreds of billions of market cap just [makes whooshing sound] gone in an instant. Not just in one day, but in an instant. That means there were no buyers at one price and then all the way, 20%, down to another price. Zero bids in between there and the price just collapsed right down to that other price.

So I'm saying that can happen for the market as a whole, and if it happens when the market is already down, whatever, 15% or something and five minutes or two minutes until the close, and then, wham, you get no bids, down another 10%, there you are.

Corey McLaughlin: Dan, let me ask you. If somebody is worried about that happening, what would you say to them? What would you recommend?

Dan Ferris: Well, I've consistently told people to hold plenty of cash. I've consistently – well, I don't know about consistently, but I've frequently told people that it's a good idea at various moments to hedges, to buy some put options.

I agree with our recent guest, Hari Krishnan, that now is one of those times. He was talking about going out two years, down maybe 15% on the S&P. If you did that and this 10th surprise happened, you'd make a ton of money on that hedge and you'd be able to put it to work.

Sure, at that moment you'd probably get the V-bottom of all – the skinniest V-bottom you ever saw in your life at that moment. So yeah, I'd be looking around and seeing what was getting really super cheap and attractive at that point, because when it when it happened in 1987 that was a decent moment. Around that time is when Warren Buffett started buying Coke, if I'm not mistaken. So yeah, there'd be things to do, and things to do beforehand to prepare for it.

Corey McLaughlin: Very good. Yeah. It was the same thing in March of 2020. Once the panic stopped in the middle of March, that was the time to buy.

Dan Ferris: That's right. The circuit-breaker day came toward the end of the episode. The really big down days were toward the end of it, and that was the time to buy.

That was right around the time when Porter came out. I remember he did a little video presentation with – gosh, why can't I think of the guy's name?

Corey McLaughlin: Austin.

Dan Ferris: Yeah, Austin. Sorry, Austin Root. I'm so sorry I couldn't remember your name. Porter and Austin did a video presentation and he was saying, "I think you should buy great companies now and hold on to them. This sort of thing will pass," blah, blah, blah, and he was right, almost to the day as I recall. It was a really good call. So I have no reason to believe that wouldn't happen again.

Corey McLaughlin: One more quick thing on that, that part in March, when the bottom happened, that happened after a Fed emergency rate cut. The cut happened to zero and then the market kept falling after that. So again, the rate cuts are not the fix. It's like the signal that things are going wrong, to get back to one of the things we were talking about before.

Dan Ferris: Right. To be fair though, low and falling rates since 2009 have kind of taught people to think this way and to behave this way, to be really fair, because they tried to hike. They got from zero to 2.5% starting in 2015. They got up to 2.5% in 2018. Then September to December was minus 20% on the S&P, wasn't it, in the fall of 2018.

I think they wound up cutting in July of 2019. Then of course from 2019 to right up to a month before the March 2020 panic, those were new highs in February of 2020.

So I understand why people think this way. They think rate cuts are good. They stimulate the market. They stimulate the economy. Whatever. Economy or not, they stimulate the market, so they're good.

But as you've pointed out, I believe in more detail and more often than I have, historically, especially when they start cutting, it's like hold onto your hats. It's not necessarily good.

Corey McLaughlin: Right, history shows. Maybe history will be wrong, but I don't believe that.

Dan Ferris: Yeah. Well, we've certainly had a weird time since the pandemic. The pandemic shut everything down and then everything opened back up. So it's hard in real time to look at it and just say, "This is all because of the pandemic. Don't worry. Everything is going to be fine."

I'm not saying everything is going to be fine. I think that the extreme measures taken and the extreme low in interest rates that prevailed for many years before the pandemic, I think those things program people to think a certain way, and I think that way is probably not quite right.

I think it also inspired a lot of misallocated capital. It just puts people of a certain mind to believe all kinds of things about markets that aren't really true. Those beliefs usually accompany speculative peaks, and those speculative peaks are usually followed by pretty poor performance. And when they're really, really bad, when they're mega-bubbles like 1929 or the Nasdaq in 2000 or the Japanese market in 1989, December of 1989, then they're followed by horrendously bad sideways markets for decades, a decade and a half, two decades, three, four, whatever. So that's where my head is at.

Corey McLaughlin: Over in Japan, that's where your head is at. Yeah.

Dan Ferris: Well, sort of, yeah.

Corey McLaughlin: Sort of. Well said, yeah. Let's not underestimate still all the effects of all of that stimulus. We're still not out of that story. I mean maybe not for another five or 10 years we might not be.

Dan Ferris: Right.

Corey McLaughlin: It's still happening.

Dan Ferris: Then maybe 10 years from now, we could wind up looking back and saying, "Wow. That was quite a big speed bump, but in the end, it was OK."

I don't predict this, but I do think the risk is high that we do have a difficult next several years. Even if we get new highs in stocks, there's a precedent in the '60s and that whole sideways period, the late '60s to early '80s, for stocks making a new high and then still going sideways again for several years.

A new high I don't think gets us out of the woods necessarily. I think you should be prepared for things to be very different, and for different assets to perform better than what performed better over the last 10 years or so, before 2022, period, just right there.

All right. I feel like we've come a long way here, just in the course of this one episode. When you cover all these different surprises and things and entertain all these scenarios, it feels like we've been talking for three hours. I hope it doesn't feel that way to the listener.

Corey McLaughlin: It does, yeah. There's a lot. I feel like I've just prepared for a whole year, which I guess we just did. We covered a lot there with the different asset classes and whatnot, and we will see what happens. I mean, again, it comes down to your timelines – at least that's what I try to keep in mind – your timelines for whatever investment you have, what you think is going to happen or what you can know what's going to happen or not happen, which is mostly you can't know.

Just try to stick to your goals and your plan and your time horizon, and how much you can afford to put in the market at any given time or on any given position. We don't know what's going to happen here, but we will find out.

Dan Ferris: Right. We don't know what's going to happen, but I think, to your point, there is no reason to abandon your search for good businesses that you intend to put into your account or your 401(k) or whatever and hold for the long term. With all the stuff we talk about, there is no reason to stop doing that, because a really great business is going to continue to be a really great business.

I think the Magnificent Seven are fantastic businesses. I just don't think they're priced for interesting – they're not priced for good performance over the next year or three. Put it that way. But if they're higher 10 years from now, would anybody be surprised? I don't think so. So yeah, we continue to invest from the bottom up and worry from the top down.

All right. That was a lot of fun. I hope you enjoyed this episode, where we looked at our Top 10 Potential Surprises for 2024 as much as we really did.

We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also do me a favor. Subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram. Our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want us to interview? Drop us a note at [email protected] or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week I'm Dan Ferris. Thanks for listening.

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