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hey welcome back to two superu TR Sox I'm Dylan and I'm Vinnie and this is going to be kind of a cool video so we're going to take a look at TLT do a little TLT update but also the overweight PE ratio of the market the recession risk and the thing that's the news right now the inverted yield curve so we're going to take a look at multiple things we're just going to get right into it because it's kind of complicated but um when we do these TLT videos just for the record there's like G T I think zos edv there's other things that work guys that I'm just doing TLT if you think any of those are going to do well this then this is this evidence works for all of those it's they're all similar not the same yeah to be clear investment thesis is the same the vehicle you choose is your own choice it's just different vehicle um we we actually did a video on those but so this is just good old tealt it's just chugging away nothing special however do you know what the uh inverted yield curve is Vinnie yeah it's when that the yield on like shortterm bonds are is higher than the long-term one which is shouldn't makes sense right money should theoretically be more expensive over longer term Horizons exactly I'm going to minimize myself here um so essentially what's happening now if you look up what is an inverted yield curve uh on Google mean right now there's going to be a thing that'll say hey it can predict recessions it used to be able to predict recessions now it has a lower chance of predicting recessions which is kind of interesting so this the typical one usually the 10 year and twoyear you can you can do both so the gray area here can you see my mouse uh no there you go well now recession recession so this red line is where we have the inverted yield curve so each time it happened recession recession recession and then we have this long ass one where we've been under here for a long time no recession all right interesting well if you notice the gray bars are usually after the yield curve is uninverted yes that is correct I'm very glad you just said that because we're approaching a record right or something like that no we already beat the record oh okay yeah but I'm glad that you mentioned that it it usually other than the first two actually I can just go back to that and show you usually it'll recover and then we have the recession so recover recover recover recover not really recover not really recover all right okay now so we have since early July 2022 we beat the 624 days inversion in 1978 for the longest one since then and as Vinnie pointed out it looks like we're actually about to cross back to normal interesting you're calling for the longest uh yield inversion in history come to an end soon is what you you're thinking is about to happen to be fair that's not like a hard prediction because you could just say I think the longest inverted treasury yield curve is going to end soon because soon is relative so it'll definitely end in the next 50 years 100% yeah I willing to bet your life that in the next 50 years it's over yeah pretty confident um so yeah pretty interesting right now why are we talking about inverted yield curves I we're going to get there um now as we have pointed out the entire Market is being held up by like seven stocks the Magnificent 7 really not Tesla Tesla's actually had it on a tear but when you look at yearly gains it's it's not even close but those stocks 33% of the Spy 43% of the cues okay now I want to show you something all right this is the average PE ratio of the Spy again gray areas are here let me minimize you just a tiny bit gray areas are uh recessions okay so you have your recessions we can see the average PE ratio now of those super super large stocks I just I put in up here 2024 through 2020 the average PE ratio okay so okay 2021 was a little bit crazy but we're we're usually mid to low 20s okay for like last four years usually we're below that but we're pretty high right now actually in history quite high but pretty high relatively recently now look at you have Nvidia 76 Tesla 73 even Apple's Hefty 35 36 Microsoft 40 Amazon 40 Google and meta actually in high 20s they're still high but relatively valued to the rest of the max 7 they doing Prett well now when you have these stocks that are carrying almost the entire Market which I'm going to show you how they're doing that and they're also that overvalued and we have an inverted yield curve interesting let's just see what happens let's just see what happens here so this is gross this doesn't really have anything to do with what I was just saying it does a little bit but Nidia is responsible for more than onethird of the gains in the SP 500 this year here one company totally cool yeah that makes great sense I love it it's I mean they're an incredible company I would love to own them at a cheaper price I'm not on the video I would love to have a lot of my portfolio in them just not at this price it's just too much so here's why this is kind of crazy 38% of the sp500 have actually had negative returns in the first half of 2024 not zero negative and yet the Spy is hitting record highs and you have almost a record PE ratio it's crazy it does not make any sense all right I mean let's be fair those businesses are highly valued because they are fantastic businesses right they called magn six of the seven I agree okay never we're GNA get for that um so this is a I I had a couple comments saying um from mult people mean like bonds during recessions don't actually go up it's a myth I don't it's very easily searchable but I figured I just I just put it right here whatever so this is the SP 500 to Total Bond index so it's a ratio all right so the higher the ratio above this one here the the higher stocks are compared to bonds so you actually want it to be low so this is 2000 and then we have the bubble it shoots down meaning bonds shot up okay same thing 2000 boom same thing 1987 right so bonds either shot up or were less uh lost less value considerably less value than stocks or equities did that's really to be fair that is another conclusion you could draw I'm also just going to show you the graph okay so so no but I that's fair um but this is just if you wanted to read this it's just kind of explaining how the bond index Works essentially as they go down the number gets lower so here's your price comparison for TLT to spy not Bonds just TLT so you can see during this crisis TLT shot up by a fairly large percentage and then the Spy went down by a fairly large percentage okay that's 2008 financial crisis yep right there you can look at the graph it's and also Doom bubble it's just straight up and then you also have as this is tanking going down at the exact ex same time TLT boom went up hit 180 actually which is insane for a bond yeah but it's it is a direct inverse relationship I'm not really sure why people are saying it's not um this is also during a cutting phase because we are entering a cutting phase with the FED on what usually happen so during it happening bonds historically have the best return over stocks and real estate okay then you have quarter after where it then gets outpaced but during it happening bonds are the key about bonds bonds are the winner all right now let's go back to this recession probability here okay I have a little bit of a problem I'm going to play Devil's Advocate on myself here because these recession probabilities are absurd okay if you use the treasury spread tenure Bond with three rip bill you can see it they do Spike up each time there's a recession and currently the probability is 55% of a recession so I mean I get it it's very high it looks like we're definitely going to have a recession but just to play Devil's Advocate on myself here's the that using that formula the recession percentage chances by month so in the red box these are months that we have already passed or I guess we're in July yeah the recession risk has been over 50% that entire time it did not happen all right and it is it is projected through June as being above 50% except for October which is odd because that's usually when Market crashes happened that one through I can't figure that one out but getting the rate cut September already so that's what they that's they're basing that on yeah but I mean just historically seems I throw that one up there I guess I don't know um but you can see through 2021 all the way through 2023 you know it is a very very low risk they were correct I they were wrong in this one we will see what happens but for the TLT play The best scenario not that I'm hoping for a recession I I this is a weird thing to hope for but rate cuts and a recession bonds are going to kill it it's not even going to be close it's going to be awesome I do think that is going to happen just cuz the other socioeconomic things are happening with unemployment in particular then rate cuts no recession stocks will probably outperform I think the market is very overvalued right now I got to be honest there's a lot of analysts calling for an 18-month bull market from here on I don't I don't see how it's possible but I also can't were this high so I could 100% be wrong yeah okay um a few thoughts one uh you've definitely seen an interesting switch with like we talked about rotation a little bit and uh that kind of equity's indication you had there I didn't know if it parsed out like total US Stock Market or was just tracking S&P 500 but uh small cap stocks historically do better during those recessionary time periods which is why all of a sudden you saw CPI go negative and now we're Maybe look at rate cuts that the S&P 500 tanked on Thursday but you saw the Russell 2000 Index have a 3% positive day I want to say they the the this Delta between the two returns for the for the indices was either the largest or second largest in history of the stock market on Thursday this week then Friday they added another 1% to Russell 2000 is your was your question was the negative return S&P 500 stocks or all stocks yes it was S&P 500 so would like to yeah see what that data looks like comparing bonds to small cap indexes personally sp500 that's true you know certainly if we're looking at recession we're looking at probably a consumer-driven recession right like everyone's complaining about money right now um and I'm starting to you know anecdotally experienced a little bit personal life like last night I went to dinner at my favorite local Irish pub and we got there like six o'clock pm on a Friday and it used to be parking lots would be packed you couldn't get a table and we walked right in and there were multiple Empty Tables last night like I think people are pulling back in discretionary spending particularly for things like that and you're starting to see the you know fruition coming that consumer spending may actually start to take a downturn as people tighten their their pockets or their belts a little bit more so I want to show this one thing because I you hit it on the head um I do think we will not have a recession once again I don't know what I'm talking about guys you know I'm just an idiot on the internet um I don't think yeah we I don't think it's going to happen until this inverted yield curve ends and that could definitely take a while I think that there's going to be a couple of rate cuts that need to happen and then I think we did a video one time on the bottom of the market after the first pivot and I believe it was like 180 days yeah that was I think the average duration but it it was a pretty wide dispersion where like half of the market bottoms were before the cut half were after the cut it wasn't a useful metric um but I want to say that was probably like the mean time between the the rate cut to the First Rate cut and the market bottom but it doesn't necessarily I don't even know if when they said Market bottom if they were talking about large cap versus small cap or total stock market index I don't know honestly the probably best indicator of this would be if Apple Microsoft or Nvidia have a terrible quarter then it's probably over because all that money is going to rotate rotate out because there historically so high it's crazy if if like apple and Microsoft specifically I didn't put this slide in because Tesla and Amazon kind of ruined it but if you because their PE ratios Tesla had like a th 2020 because there was a weir earnings thing it just ruin the graph but Microsoft and Apple are historically almost more the higher sorry highest PE ratio not highest but towards the higher end than they have been in a decade I believe it I mean and apple is barely growing at all anymore Revenue wise like you know they're eaing out single digit gains so to to me to pay high 30s PE for a company that's got barely any growth at all is extremely uh questionable I'd rather pay 75 PE for a company that's growing like Gang Busters like Nvidia at that point yeah that's fair all right guys let us know what you think catch you next one
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