“The Road to Wealth in 2024: A Benzinga Seminar” – an insightful event designed to guide you through the financial landscape and unveil the strategies leading to wealth creation in the coming year. Join us for an enlightening journey as we explore the latest trends, market insights, and investment strategies propelling individuals towards financial success.
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00:00 Without further ado, let's bring Will on
00:02 our Road to Wealth webinar.
00:04 - Thanks, AB, how are you?
00:05 - I'm good, thank you for joining us.
00:08 Let's start off with, I mentioned 2024
00:11 looking a little rockier than it was in 2023.
00:14 What was driving us toward the end of the year last year
00:16 and what's been kind of lacking in that department here?
00:19 - Well, there's always a run into year end usually,
00:23 and I think there's a little bit of truth serum
00:26 coming into the markets in January, which is healthy.
00:29 Any year you're in an election cycle,
00:32 I think you have a different demographic
00:34 of folks paying attention to macro issues
00:38 than maybe do in non-election years, right?
00:40 So people aren't necessarily watching you,
00:44 CNBC, Bloomberg every day like we do.
00:48 And then all of a sudden the debate's on
00:50 and it's smacking them in the face
00:52 with what are the major macro issues?
00:55 You know, in this debate cycle,
00:57 we're seeing more geopolitical and more international issues
01:00 than we traditionally would,
01:02 which are warning signs to traditional investors.
01:06 And I think that's what's causing people
01:08 to look under the hood a little bit
01:09 is we're in this election cycle,
01:11 we're in this debate cycle,
01:13 and the news is really pushing out rhetoric
01:15 that might not necessarily always be positive, right?
01:17 So you're gonna hear the Republicans talk
01:19 about how bad things are,
01:21 and they're gonna push that into the market
01:24 because they want you to question the Democrats
01:26 and the sitting administration.
01:29 Well, that's not good for the economy in general
01:31 because it's casting doubt over the economy in general.
01:33 And so I think this is gonna persist,
01:36 you know, at least through November,
01:37 and we should hold onto our bootstraps for it.
01:40 - When interest rates were, you know,
01:44 at 0% or virtually 0%, you know,
01:47 it didn't really matter for companies
01:49 how much cash they were holding
01:50 or really how much debt they were holding for that matter.
01:52 And now that interest rates are higher,
01:55 the market is definitely rewarding companies
01:57 that do have large cash holdings and good balance sheets.
02:01 But is this a good thing?
02:02 I mean, is this good for investors, good for consumers?
02:05 - Depends on where the investors are allocated.
02:09 - Okay. - You know, I think this year
02:10 we're gonna see a real dislocation
02:12 between the haves and the have-nots,
02:14 and this is not what is healthy for, you know,
02:18 the general population.
02:20 What you're gonna see is the companies
02:21 that are very well capitalized,
02:24 that have big balance sheets,
02:26 therefore are gonna have better access to capital markets,
02:29 A, by using their own balance sheet and their own cash,
02:32 B, by collateralizing their existing operations
02:35 and their own cash and tapping into the debt markets.
02:39 And so they're gonna be active M&A players.
02:42 They're gonna be investing in emerging sectors,
02:46 you know, and doubling down on things like AI
02:48 and quantum that are sexy at the moment.
02:51 But on the other side of that,
02:52 unfortunately you have companies
02:54 that aren't well capitalized,
02:56 that are subject to the debt markets,
02:58 that, you know, aren't sitting on these cash piles.
03:01 And when they do need to fund their operations,
03:04 they go out into the markets,
03:06 they get debt at 10, 10%, whatever it might be.
03:10 Now all of a sudden that's a way higher threshold,
03:13 you know, as you reference to drive revenue
03:17 than when you're getting, you know, free debt.
03:19 And so growth comes from that free debt, no doubt,
03:23 but it also encourages bad behavior a little bit.
03:25 And some companies that maybe, you know,
03:27 shouldn't have gotten that lifeline got it.
03:31 And now the banks are gonna be scrutinizing that
03:34 and allocating that debt a little bit tighter.
03:37 And so that's good for the big companies.
03:39 That's good for the well capitalized legacy players.
03:43 That's bad for the small companies, right?
03:45 And so competition goes away,
03:47 which means pricing goes up,
03:51 which means the cost of execution goes up
03:53 for the general population.
03:55 And therefore, unfortunately,
03:56 you're gonna start to see a further separation
04:00 from the leaders.
04:02 You know, it's almost like you can picture
04:04 an Olympic race around a track, you know.
04:08 Yeah, when debt zero, everybody's running really tight
04:10 because they all are tapping into, you know,
04:14 the markets on the same terms.
04:17 But now all of a sudden they're making that turn,
04:19 you know, they're coming around the fourth quarter bend here
04:23 in a four-year election cycle.
04:25 And those that have the cash are moving fast.
04:28 It's like, you know, the F1 car is pulling away.
04:31 - Yeah, as if Apple and those guys needed even more
04:34 of a headstart on some of the smaller companies.
04:37 But now, like you said, I mean,
04:38 with the higher interest rates and investors
04:41 rewarding companies with good balance sheets,
04:44 it's, you know, I mean, they're the ones
04:47 that are already able to withstand that,
04:49 to withstand the higher interest rates
04:50 and they don't need to borrow money.
04:51 And then now, you know, so I mean, it's last year,
04:56 the big leaders, the Magnificent Seven,
04:58 really just crushed it toward the end of the year.
05:00 Again, off to a little bit of a rockier start,
05:03 but I think, again, if you were worried
05:04 about the current environment,
05:06 you're not really worried about those guys surviving
05:09 or doing well, really.
05:10 It's more the growth stocks.
05:12 I think about like Cathie Woods,
05:14 the companies that she's in and stuff like that,
05:17 that are really gonna struggle
05:18 if the interest rates do indeed stay higher
05:21 than what's expected or longer,
05:23 higher for longer than what's expected right now.
05:25 - So what you're gonna see as a byproduct of that,
05:28 and that's all accurate and dead on,
05:31 a byproduct of that becomes
05:33 that the well-capitalized companies
05:35 are gonna trade up in value.
05:37 Their stock's gonna be more and more valuable.
05:40 The under-capitalized companies
05:41 that do need to go into those markets
05:43 are gonna have lower stock prices,
05:45 and you're gonna see M&A activity,
05:48 and you're gonna see some of these big players gobbling up
05:52 some of the smaller folks in their industries
05:54 or getting into new sectors
05:56 because they can pick these guys off
05:58 at valuations that they probably shouldn't be able to.
06:00 And so there's gonna be transaction volume here,
06:03 but all that leads to, again, full circles, consolidation,
06:06 and I don't think that's good for the general markets,
06:09 but we have to live with it.
06:14 - Yeah, well, we've talked a lot about, I guess,
06:17 the domestic economics and the upcoming election,
06:20 but I mean, I guess we definitely should mention
06:22 there's obviously a lot of geopolitical risks
06:25 and tensions going on right now.
06:27 The market, I mean, you had Taiwan's
06:29 semiconductor report earnings this morning
06:31 and crushed it, and the stock's trading higher,
06:33 but this stock would be way higher
06:36 if it weren't for kind of the overhang
06:38 of geopolitical risks going on over there
06:41 with China and Taiwan, not to mention, of course,
06:44 the situation in the Middle East.
06:45 I mean, from a geopolitical standpoint, Will,
06:48 what are you watching the most
06:49 and should investors be worried in 2024?
06:52 - Unfortunately, yes.
06:56 I do think we have to more than ever track these.
06:59 We live in a global economy now.
07:01 We access product globally more so than ever.
07:06 You were talking earlier about shipping
07:08 and imports and exports and the ships,
07:11 the tangible ships that actually orchestrate that.
07:14 We live in that global world,
07:17 and so our products are dependent on supply chain
07:21 from other parts of the world,
07:22 and from, let's say, governments that aren't democracies,
07:27 for lack of a, I can't really say that any nicer.
07:34 And so if you're dependent on dictatorships
07:39 for critical supply chain, well, that's a problem,
07:44 especially in an environment where at any given moment,
07:48 our relations with that foreign government
07:50 could go up in smoke.
07:52 People point to why have we been so nice
07:56 with our frenemy Saudi Arabia for years
07:58 when there's been quite well-documented atrocities?
08:02 It's 'cause we need their oil.
08:04 Why did we play nice in the sandbox with Russia
08:06 as long as we could?
08:07 It's 'cause we needed their oil.
08:08 We needed their gas.
08:10 Why are we playing nice with China?
08:12 It's because we need their tech.
08:14 We need their labor.
08:16 We need their buying power in the global economy.
08:21 And so what you're gonna also see
08:22 as this election cycle matures
08:24 is do people think Trump's gonna win?
08:28 Well, that's gonna cast a different doubt
08:31 on different relations than Biden, right?
08:34 How is our relations?
08:35 What are the odds of political uprisings
08:38 in some of these testy markets
08:40 under a Trump presidency versus a Biden presidency?
08:43 You have to contemplate that stuff.
08:45 And I think you're gonna see,
08:48 you see Taiwan semiconductor, they'll do really well
08:51 if Trump's in office.
08:53 They might do less well if Biden's in office
08:56 and China feels like they can push him around
08:58 as they've shown a willingness to do
09:00 way more so than they did in the previous administration.
09:04 And so not taking a political stance here at all,
09:09 but just pointing out the differences
09:11 in how different administrations have been viewed.
09:15 And so what's gonna be further interesting
09:17 in this election cycle, not to stay on that,
09:19 but we have to pay attention to it this year,
09:22 is that our debates, which I hope we have,
09:27 and I hope Biden is able to show up to them
09:29 'cause we need that.
09:30 And we need that for education of the markets.
09:34 But for the first time ever, as far as I've seen,
09:39 you have the ability to have two
09:42 formerly sitting presidents debate each other
09:45 on real track record.
09:47 You know, they say Applebee's sells more dishes
09:51 on the sizzle, right?
09:53 And on the sizzling plate before you taste it,
09:56 it looks good, then you taste it,
09:57 it ain't as good as it looks, right?
09:59 And so every president that runs for anything says,
10:01 I'm gonna do all these things.
10:03 And okay, four years later,
10:05 we actually have your track record to point to.
10:07 And so in this election cycle,
10:08 we probably are gonna have two candidates
10:11 that have track record.
10:13 And we're gonna be able to really assess
10:14 which of these track records are gonna play well
10:17 in the current environment that we're in.
10:19 It's gonna be fascinating to watch,
10:21 but I also think it's gonna have direct effect
10:24 on certain sectors of the economy and certain geographies.
10:28 - And I mean, do you think we'll see the market
10:30 kind of being able to tell us what it thinks
10:32 about the election as the election cycle goes on?
10:36 And if you see, you know, the polls and the odds
10:39 start shifting more heavily in Biden or Trump's favor
10:43 one way or the other,
10:43 and the market might go up or down because of that?
10:46 - Well, you know, yes.
10:49 Overnight after Trump won Iowa,
10:52 there was a whole slew of China stocks
10:54 that traded off massively.
10:55 And it was interesting to see literally that night.
11:00 And so, you know, there are betting markets
11:04 more so than there were in the last election
11:06 or eight years ago,
11:08 but no more public are the betting markets
11:11 than, you know, the global macro environment.
11:14 And so I think more and more,
11:16 as we all have access to more data than ever before,
11:20 you know, and news much more readily available through X
11:24 and wherever it might be,
11:26 we're getting our news real time now.
11:29 And we're getting news from whatever sources we seek
11:32 as opposed to what those, you know,
11:34 the few main media companies want us to see.
11:37 And so people are assessing that data
11:39 on another level than has ever been done before,
11:42 which is why you see such volume and such volatility
11:45 and why you see the markets react as fast as they do.
11:48 Now, there's a lot less of a lag, you know,
11:50 in the public equities markets
11:52 to reacting to geopolitical news and political news
11:56 than there's ever been.
11:58 - Yeah, and I mean, you know,
11:59 you might be someone out there in the audience
12:01 that's, I don't wanna, you know,
12:03 talk about politics or follow politics, this or that,
12:07 but I mean, to Will's point,
12:08 if you're an active participant in the market,
12:10 you kind of need to pay attention what's going on there,
12:14 because again, the market will give you clues
12:16 as to how it's feeling about certain things
12:18 as the election cycle plays out
12:21 and we get some more clarity.
12:23 And of course, you know, I mean,
12:24 I think it is probably worth looking at those
12:27 betting markets and stuff,
12:28 so you can see where things are trending,
12:30 where the polls are trending and whatnot.
12:32 Will, let's transition real quick to,
12:35 I know holiday spending, retail shopping
12:38 came in the December, numbers were great,
12:39 came in higher than expected.
12:41 For all intents and purposes, I mean,
12:44 it looks like the economy is holding up strong.
12:46 Do you expect these trends to continue?
12:49 Is there a flip side to that and saying,
12:51 yeah, okay, sales were great and the economy's strong,
12:53 but that also means inflation's gonna hang out
12:56 and be higher for longer?
12:57 - I believe that it will be higher for longer.
13:01 I was surprised by those numbers.
13:03 I've been surprised by the numbers every quarter
13:05 for the last eight quarters now.
13:07 So at some point, you know, you can't fight that any longer.
13:13 It's been amazing how resilient the markets have been
13:16 and the consumer has been.
13:18 I do think, you know, the debt,
13:21 you showed a chart earlier with Charles
13:25 that showed the outstanding debt,
13:27 which I think is important to track.
13:28 And, you know, we all have to look at our own personal life.
13:31 Do we have more debt than we had a year ago,
13:34 four years ago?
13:35 The markets would say yes.
13:38 And the other thing that, you know,
13:39 is gamifying some of those numbers
13:42 from the consumer spending is the rise of platforms
13:45 like Indeed and the 0% immediate financing.
13:49 You know, you can't check out for anything online anymore
13:52 without being offered, you know, pay this over 18 months.
13:56 And, you know, those are all,
13:58 those all empower these big consumer brands
14:02 to book revenue immediately
14:04 and to get the consumer to spend money
14:06 that they might not have down the road.
14:07 But then those consumer brands don't care
14:09 whether or not they have the money down the road
14:11 because they're gonna get paid.
14:12 And so, you know, we're just finding new ways
14:15 to push debt into the market
14:17 and pushing debt into the market rises consumer spending
14:20 and rising consumer spending, you know,
14:23 rises, you know, revenues and stock prices.
14:26 And so that trickle down is certainly occurring,
14:30 but, you know, we do have to continue to look under the hood
14:32 and say, what are those, what is driving those numbers?
14:36 Is it stimulus money?
14:37 Is it debt, easily accessible consumer debt?
14:41 And is that long-term healthy for the market?
14:43 Or is that kind of putting lipstick on a pig?
14:45 I continue to think it is lipstick on a pig,
14:49 but like I say, I've been proven wrong for a long time.
14:53 - Yeah, and I mean, I don't know,
14:55 the buy now pay later stuff, Affirm and all that,
14:58 it kind of scares me in the sense that it's like,
14:59 all right, how many of these people
15:00 that you think that are doing this
15:02 already have credit cards and already have credit card debt
15:04 and then now they're doing these like loans and stuff.
15:06 And it's like you said, it's kind of just feels
15:08 like it's pushing it down the road and saying,
15:09 well, that's a problem for a later date.
15:11 And I feel like we've been down that road before
15:13 and a lot of times it doesn't end pretty,
15:15 but like Charles, I mean, showed us the chart.
15:17 It's like not that crazy high debt
15:19 compared to the household GDP.
15:21 So who, I mean, if it does hit a boiling point,
15:25 like a lot of people think it will, it could get ugly.
15:26 But I think for right now, you know,
15:29 it's not necessarily maybe, you know,
15:32 like the sky is falling chicken little,
15:34 let's sell everything.
15:35 - Overall, I mean, speaking of that,
15:37 do you think you would be, you know,
15:39 like a seller or a buyer of the overall market right now?
15:41 Do you think we end the year 2024 with the S&P 500
15:45 higher or lower than what we're at right now?
15:48 - I do think there's gonna continue to be this haves
15:50 and have nots thing play out, you know, magnificent seven,
15:53 buying the S&P 500, you know,
15:58 the markets are now educated to see
16:01 that the seven dragged the 493.
16:04 And so why should I buy the broader 500
16:06 if I can just buy the seven winners?
16:08 - Right.
16:09 - So unfortunately you're gonna see,
16:10 again, not great for markets,
16:12 but you're gonna see people pouring into the winners
16:14 and pulling out of the losers.
16:16 And that is just gonna create this broader dislocation
16:19 between the haves and the have nots,
16:22 you know, which I'm not happy about,
16:23 but it is the world we live in.
16:26 And so will the S&P be higher in 12 months?
16:30 I think that will be tied to how the election cycle matures,
16:34 tied to global macro and geopolitical events,
16:38 and tied to how much the haves pull away
16:43 from the have nots and drive enough gain
16:48 that it does lift up the rest of, you know,
16:51 the less healthy companies with it.
16:52 I'd way rather, you know, double down on my winners
16:56 and take less risk moving into this environment.
16:59 - Yeah, I mean, to your point,
17:00 it's like we already have so much consolidation
17:02 in those top names.
17:03 You look at the market caps of those companies
17:06 compared to the other, you know, 493 stocks in the S&P 500.
17:11 And that's just astonishing numbers.
17:12 I don't know how much more consolidation
17:15 we can really get there before it becomes,
17:17 you know, pretty unhealthy.
17:19 And I know, you know,
17:23 streaming's been in the news recently, of course,
17:25 over the weekend, you had NFL playoff games
17:28 that you had to buy, you know, Peacock for
17:30 and all this stuff.
17:31 What do you see in there in the streaming world?
17:34 - Yeah, I think, you know,
17:36 to the same comment in broader arc,
17:38 there's gotta be consolidation there.
17:40 You know, you're starting to see just in your home,
17:44 you know, when my kids all go to bed at night
17:47 and I get a quiet moment, I flip on the TV.
17:49 I rarely go to cable anymore
17:51 unless it's to watch a Celtics game.
17:53 Between Netflix and Prime and Disney
17:57 and all these different platforms,
17:59 and you can see it right in front of your face
18:01 who has the, you know, evolving content,
18:06 who is able to secure content that's of interest.
18:10 And it's just gonna broader separate.
18:13 And so I think that'll lead to some consolidation.
18:16 You know, I think people are better educated now
18:18 about the cost of bundling
18:20 versus the cost of signing up for all these different,
18:23 you know, crazy television services.
18:26 I have personally, you know, matured into that myself
18:29 and tap into way more subscription stuff
18:33 than I am finding a need for cable providers.
18:36 And so I do think
18:37 that there's gonna be consolidation there as well.
18:39 And I think that on the inverse of our previous conversation
18:43 is good for the consumer
18:44 because we don't need 10 different logins, you know.
18:47 Let's just boil it down to what we need
18:49 and happy to pay for it.
18:51 - Yeah, and I know Netflix is talking
18:52 about bringing live sports to its platform.
18:54 So maybe one day you'll be even able
18:56 to watch those Celtics games on Netflix.
18:59 Yeah, they got a big win against the Spurs last night,
19:02 against Wemba Nyama and the Spurs.
19:04 But yeah, well, it's been a great conversation.
19:07 I mean, touched on a lot of different things
19:08 going into 2024.
19:10 Any other hot takes or things you wanna leave us with
19:13 before I let you get on with the rest of your Thursday?
19:15 - No, I think investors should be, you know,
19:17 really careful about what we're talking about.
19:21 And I think a barbell will further persist, you know,
19:25 take some assets and put them in treasuries,
19:27 take some assets and put them in very, very secure
19:30 yield producing corners of the market.
19:34 You know, it's been a long time
19:36 since we've been able to get 5% basically risk-free.
19:40 Take that, be happy with that, don't be greedy with that.
19:43 And then on the other side of the barbell, you know,
19:46 I think lean into the winners
19:49 and the winners are gonna have a good year
19:51 and the winners are gonna prosper
19:52 and the winners are gonna consolidate.
19:54 And, you know, pay attention to the election,
19:57 even though some of it's gonna be really hard to watch.
20:01 Try to listen to the message that each participant
20:05 is spewing more so than, you know,
20:08 the tone at which they spew.
20:10 - Yeah, and how the market is responding to it
20:12 for sure as well.
20:13 So Will McDonough, again, the chairman and founder
20:15 of Core Stone Capital, thank you for joining us
20:18 on the Road to Wealth webinar.
20:20 forward. Hopefully we get to chat again soon. It's been a great conversation. Yeah, thanks, A.B. Great job.