More retirees are rushing into equities, especially stocks with high dividend yields, but the sentiment on equities markets has now reached mania levels, said Peter Grandich, founder of Peter Grandich & Co.
our market's reaching mania levels. That is the theme of our discussion with Peter Grant edge of Peter greenwich.com. Today, we'll be talking about the crypto markets, gold stocks and our political environment and how that impacts the markets. Peter, welcome back to the show. Happy new year. Happy new year to you, Dave, and very much look forward to speaking with you.
It's been a few months since we last spoke. I remember last time you talked to me and you were talking about how markets at the time stock markets at the time were overvalued. Now they've run up a little bit since then. What's your sentiment now, have you changed course on your stance or are you still thinking they're still overvalued?
Oh no. They've, they've grown even more value and more stretched on all sorts of different mediums to look at whether it's a market sentiment, uh, extension of stocks, technically. There's a whole host of factors, but one in particular, uh, that showed that we've reached the highest. If you want to call it excitement, if Yuri or whatever word you want to use since 1987.
And when you get to levels like that, you're very close to the peak of this mania. Okay. So let's talk about this chart that you showed me earlier. Sentiment. So the, uh, the blue line shows the, uh, the level of, uh, sentiment in the market. So you Foria we're at, like he just said, uh, beyond 1980, several levels of euphoria, what does that mean as for an investor?
Does that, uh, you know, I've been told that valuations I've been I've, I've been taught in this called evaluations are very bad indicator of where prices are going to go. So, I mean, yes, the, this, this, this chart does show that the sentiment is at euphoric levels, but does that mean people should be selling their stocks right now?
Well, why I pointed out, uh, I guess it's still, maybe it's an old classic, but usually if everybody is so bullish, it also means that they've made all their bets. And so the fact is, you know, what is left to buy it. And then of course, When you look technically and you see stocks that are in semi power ball or pure power of Barack rises like Tesla and all it doesn't mean they still can't go further.
Like a bottle. Rocket can surprise you and go a little bit further than they normally do. But as soon that a pop and when they pop, they fall pretty hard back down to earth. And that's what I think the sentiment was suggested along with other indicators. And again, uh, while this is a. Different market than when I started at 37 years ago, we still are driven by psychology and sentiment.
And so that's why I think it's very, very important to continue to watch where market sentiment is. We saw it even in Bitcoin to the point where, uh, numbers would be in thrown out to levels that are going to occur in a matter of weeks a month. And normally it would take years. For something like that to happen.
So you have to be cautious when sentiment reaches extreme bearish or both when something like Bitcoin rises parabolically what's your initial reaction? Well, my initial reaction was just before we spoke over the weekend, after hearing people talk and give out numbers that. 20 or 30 years ago, they threw you out of the brokerage business.
If you, uh, pedaled stocks, you know, 20 times, 30 times returns expectations. Uh, I wrote a commentary that, uh, you know, early Sunday morning and on why I thought, you know, at the end to come to at least this wrong, if not the, the inevitable top in Bitcoin. And, uh, I didn't expect within hours, we'd be talking about, you know, a 20% decline, but there again, uh, you couldn't find a bear among the.
The constant bullish theme that we heard for weeks on end. And again, something that Rose parabolic Sandeman was at extreme, and everybody was talking as if it had already achieved these lofty levels. And let me make one other point that a lot of money managers are not going to like what I say this, but one of the things that's happening here, Dave, that's interested in us.
I don't know about other areas is we're about to see passive money on the passive management surpass money under active management. And eight out of 10 money managers have underperformed simply putting your money in an index fund. So when eight out of 10 money managers can't keep up with an index. And a lot of those money, same managers are talking about pie in the sky numbers for Bitcoin and other things.
I think it raises a caution flag, at least for this old timer. Yeah. So sidetracking a bit just on that note, have you ever read Daniel Kahneman's book thinking fast thinking fast and slow. I believe it's called. I had to read it a while ago. It's a, it's a book about psychology, but in it he illustrates, uh, the futility of money managers and he, he, he made, he, he used this as an example, so he had, there was an experiment done a while ago, so they had a board full of stocks and they had a monkey throw darts.
On that, on that board and whatever the darts will land on, they would pick those stocks to hold for the year that board outperformed most money managers that year. Well, it's funny you say that I won't name the show, but many years ago it was a very popular show in U us. And I was brought on. I gave my picks, the host threw a.at the.
Uh, New York stock exchange, uh, papers at the time that wasn't the internet and the stock picks that that host ended up hitting with the dots did much better than my picks and the only good news for me was the show in off the air before they could show the final results. Do you think the methodology of picking stocks.
Has changed over your career? Oh, no question about it. When I entered the business in the early 1980s, 90% of the volume on the New York stock exchange. And remember then it was really just the New York stock exchange, the American stock exchange, not all these off base changes now, but most people bought stocks.
So what would the original reasons are to be part owners of companies? They would hope that a service or a new product would come out. The value of the ownership would rise and then they would sell to the next person that thought it can go higher and higher. Now the market has really become driven by two main forces, all computer driven.
You have one group that's trading on algorithms based on headline news is they're going to buy and sell stocks based on something in a headline that they don't even know. Who's running the stocks that make up that they're buying or selling or what they do. They just care about an algorithm that suggested then there's another group that's using a lot of sophisticated programs of selling options, et cetera, all within speeds that we never imagined.
A markets could trade in, hoping to net a return better and beat the market. To me, that's a high-tech casino and, uh, All the casinos I've ever known. Those seen most of them end up winning. So I don't want to bet against the casino. And therefore I think the markets have become very, very difficult for individual stock selectors.
And the other problem with that also is is that on the lower type small cap, stocks is very little following of them now compared to the major. So it's very hard to get your story told, especially say for instance, out of Canada, where. There are a lot of junior type mining stocks and all that. Trying to get exposure in the us.
That's almost impossible. Now, compared to 20 or 30 years ago, do you think with a limited quantitative easing zero interest rates and the political and economic environment that we have, it's easier or more difficult today to beat the markets. And it wasn't be 10 years ago, Peter. Well, I never been able to beat the market and I've met very few people over 37 years.
That could, so I would just say to you, in terms of beating the market, uh, one of the things that's happened is. We have about two thirds of the workforce here in the United States that have only been giving investment advice since the year 2000. And since then, it's basically been a one-way street interrupted by two short-term serious bombs.
And so most of the people guiding others have only learned to drive on a one-way street. The quantitative easing was a big part of keeping that mainly a one way street. There will come a time. Most likely in my lifetime where even that won't work anymore, the Fed's ability to keep saving the markets are running hotter and hotter to do.
And when that happens, suddenly there'll be a two-way street with most people having no idea what the heck do I do? And that's my biggest fear. Uh, I don't know what day that's coming and I don't know what level is coming, but I know in my heart a hot it is coming. And, and then that plays into what we just talked about earlier.
That sentiment is so bullish. So thinking one way. And not really taking into account that markets do tend to go both ways. So I just think there'll be additional troubles because of lack of experience and of how people have really gotten used to the fed, bailing them out. Let's go back to the sediment chart.
Now, this is a, what I don't understand is why it's run up so high. If you look at the line here, if you overlay that line with the S and P 500, they more or less correlate. But what, what, what doesn't make sense is the last bit here, the last run-up. The S and P 500, well, none of these stock indices, I've run up that many times from its lows in, you know, from it's from his base in November.
So what exactly our markets are euphoric about right now, the stock markets haven't run up, you know, two times since November the economy hasn't recovered dramatically. It, you know, COVID is still wet this despite a vaccine, what exactly are people excited about right now? Well, David, here's where we're at.
We have one group of people and that's mostly the. People that play the stock market invested in the stock market and, and manage money, or what have you over here. And they have this tremendous outlook that things are going to get a lot better. The COVID thing. Remember we were already supposed to have gone through a V bottom, which we ended up not having it, but now we're talking that, you know, COVID is going to assume be behind those things are going to get better and stocks are really worth it because they're going to fly because business is going to return and consumers are going to be better off, et cetera.
That's about 10% of the population. And last year that's about who did well, uh, overall, and within that group, the upper 1% really did really well. Then you have. The 90% of the general public or main street, they really didn't go anywhere. Last year. In fact, many kind of fell off the charts. They lost their jobs.
They lost their businesses. They're struggling to stay afloat. Only three things can happen. One catches up to the other or comes down to the other. To meet in between, or we stay a little bit more stretched to the point where it just breaks from the fact that all the people that can't make it, just try to overthrow the few that are that's where the political and social aspects come involved.
And some of the concerns, and we, we just saw recently, uh, what's transpired now here in the States. So, uh, the bed is, and the excitement is, and why you, you, you have that level. There is because. This group, the 10% group is so optimistic that that's going to happen. And sentiment is so strong that they're going to pull the rest of the people back up and we're going to return to much better times.
I'm not in that camp. Yeah. Let's talk about the social and political environment. Now, how does that impact the markets? What you've been seeing so far? Well, whether you like it or not. You know, when I first entered the business, 37 years ago, my sales manager says, Hey, Pete, if you want to be a successful stockbroker, cause that's what we used to be called back then.
Don't talk about three things, politics, religion, and other men's wives. Well, I've managed to talk about politics and religion enough, I stay out of the other men's wives story, but, uh, the bottom line is whether you like it or not. Based on what's transpired in the election and clear whenever that what's happened in recent days, the country's moving to the left, not to the right.
It's moving to some sort of more socialist type of environment and therefore the likelihood and expectation with one party in control of all three branches, they're going to have a fairly good. Run at doing what they think is important, which would be spending a lot more money to provide a lot more programs and et cetera.
That's really, really important to me because I believe the single biggest area and why every remained the strong Goldbug is that the debt levels are getting to a point of being unsustainable. And if there's any pickup in interest rates at all, and I don't mean a lot, it's even going to become difficult to service.
Our interests that we let along the principle. So it's important that we look at the political act expectations, but how they're going to affect the economics of stuff. And while the stock market has gotten in a sense, weaned on money and stimulus, and that somehow keeps things afloat eventually. It's too good of a thing, no matter what.
And a party comes to an end and they normally end abruptly. So when you tie that in with the sentiment that we discussed, that's the real flashing yellow, it's not red light that I think people looking at the general equity market, not related to gold, not related to uranium, not related to copper, uh, markets that I liked.
I think you have to be extra cautious. There are several guests I've had on that. Have told me similar things. So their conclusion is that we're headed for the biggest market crash in our lifetime on one extreme end. On the other side, I have had analysts say that we're headed for the best year for earnings growth across all sectors.
In recent years. Which camp are you in Peter? Well, I definitely, I don't believe there's going to be a crash. I don't hope for it. I don't wish it. I know a lot of people be hurt from it. What I'm simply trying to say. And what's left in the Twilight of my career is. The time has come to be cautious in a lot of areas.
It's hard to make an argument. I certainly wouldn't want to start a general portfolio, general equities. I certainly wouldn't started buying Bitcoin at 40,000. So when you see things like that, I just think you have to err on the side of caution, especially when you've been still fine and it's hard to find, but there still are areas and sectors that aren't anything close like that.
As you know, I remain a go up. Bug, if you want to call it at that point. Now I think uranium is one of the most classic bullish arguments ever in my 37 year career. And even the copper argument, you had a phenomenal guest on not too long ago. And he was really, really good. And in depth about. If, how the world is moving, how much more electricity and electrifying we're going to be and all those needs that come with it.
And the, and the investment opportunities at copper and other things give I rather speculate and take my chances on that than a product like Bitcoin or a thing like Tesla, that's gone up just straight parabolic. I just think. You have to be extra cautious and try to take risks as much as you can out of the equation.
Okay. So then Peter, what do you advise your clients to do today? I know you work with a state planning and retirement planning. What, what should people be doing today to plan their retirement? Well, there's a big challenge out there, David. Uh, we have seen the federal reserve destroy the fixed income market.
It is, uh, just. Three or four months ago for the first time in my career, I actually turned bearish on bonds because the rates became so low and there was just no way they were going to be able to sustain it down there. And people were going to look at potential double digit principal losses in something that a few years back in the better days, uh, where you preserved your capital and you earn some income on it.
So. There's a real challenge to retirement planning. Now there's a 4% rule. It's very difficult to find 4% without taking risks. So, uh, one of the big challenges and, and we're seeing that, especially for the LD or especially the people that already retired. And when they made that plans 10 or 15 years ago, it included a return.
Now that's become harder and harder to find. That's why they're chasing more and more. Uh, risk oriented, uh, products in order to hope to match and sustain their lifestyle. So I think that's, that's the untold story. And I think that's the story over the next few years. Uh, you had a guest recently, Kevin Leary spoke about that too.
A great detail that a. People are not prepared for it. They don't, they're not prepared financially. They're also not prepared educational-wise and unfortunately the financial security and the, she has a hole. And while there's a lot of good people within it, doesn't spend a lot of time on education. It spends far more time on selling.
So there's going to be a challenge to, to, to handle retirement. As people got used to over the last couple of years, let me just understand this. Peter. So you're saying that the federal reserve has lowered rates to such an extent that retirement plans have now pushed, uh, have now pushed the market into risk assets.
Instead of, instead of bonds and save havens and, uh, and, uh, fixed income things. Yeah. Let me, let me give me an example, Dave. Uh, I live in a senior community and we don't, we don't get their order clubhouse now because it'll lock down, but I get to see them as I'm walking and people come up because they know what I do.
They know my background at all and they say to me, Hey, huh? Do you think this stock is going to be okay? And I ask them why they're only concerned that they're going to be able to pay the dividend. They really don't even care about the stock falls 20%. They just want to make sure the dividends safe because they need that income to sustain their life.
And we're seeing that not only in the retirement community. But people getting close to retirement and trying to plan on a return that realistically at CDs and bonds at 1%, can't be because we all know inflation is above that. So they're already losing money based on purchasing power. It's the untold story it's not being covered.
I don't expect it to be covered, but I think we're going to wake up one day. And see a lot of people suffering from that story. So what's going to happen when we go back to the sentiment index what's going to happen when the stock markets are no longer euphoric, like they are today and all these, uh, people going into retirement.
They're they're, they're heavily loaded up on equities. Yeah. That's, that's my biggest concern. That was new year's commentary that, uh, we could awake one day and find, and that may play into the people that talk about a crash. But I, I, when people think crash, when people think 20, 30, 40% down in a day, I don't think that I, I hope not.
In fact, I think there's a lot of things to protect that from happening in the manner that it's happened at past. But I do think eventually over time, We can lose that percentage. And there, as you said, since everybody's overwhelmed inequities, uh, a lot of people who we're hoping to have a certain amount of dollars in retirement and more importantly pass on, uh, is a big challenge.
And if I can add one other thing, this is a story that isn't being told, but will be once a Biden takes all. And if he lives up to what he ran on, but I didn't want to make. Some very significant changes to estate planning. He wants to lower the inheritance tax, which currently starts at 11.5 million here in the U S to as low as 2 million.
He wants to take away the spousal passing of one's, uh, uh, the dockable versus yellow. So like if I die now the five, that 5 million, 500,000 that I could have and pass it onto my wife before it's taxed. They want to eliminate that. But his biggest concern, which I think is just, uh, a death blow, uh, to, to a lot of people is he wants to raise a no longer keep the step up process, which means when you get assets passed out here in the U S uh, whatever your past that you use, the current price as your base.
So mom, where grandpa left you shares of IBM, you don't use there. Original costs. You used the current price. Well, he wants to eliminate that he wants to go back to the original course because there'll be a lot more money to capture them when it comes, when those things are sold. Not only will it be difficult to find out what stocks might have been 50 or a hundred years ago, or a piece of property to value the enormous cost of that, uh, in terms of what take out of peoples.
Pockets is tremendous. And I just think there's going to be a general wealth attack, at least for the next two years. Unlike anything Americans have seen. And, uh, there's a great rush. It's not something spoken on the nightly news, but I can tell you how many people have come in over the last few weeks.
After the election figuring out, well, how can I do it? I'm so afraid they're going to do this, that and the other and, and estate planners and CPA has got a lot of work and a lot of good future work in front of them because those are the things I expect. We're going to see the new administration and the democratic controlled Congress.
And, uh, to try to implement speaking of new things, but you add cryptocurrencies like Bitcoin to people's, uh, estate planning and real, uh, retirement plans. Just went down 22%, by the way, as we speak in one day, something like that. Well, again, I already gotten the hate mail here. I am. First time I ever make a comment early Sunday morning, he gets on the internet and the, I guess the Bitcoin group targeted to be now, whatever.
But the bottom line is this. There is a place for cryptocurrencies. I think they are going to be part of the future. It's just that we have a history of when technologies and new technologies come in and they have people get overwhelmed and they get too far in front of their development. And that's what I just think has happened with cryptocurrencies.
It'd be healthy. I don't expect the group after this decline. That's. This billionaires talking about owning Bitcoin. I don't think they're just going to lie down and never speak about it again. I think they'll bring encouragement and try to buy this decline and back. But I do want to say that to the small, to mid-size retail investor in all, if you weren't in by then, which was at 40,000, my argument was.
Just consider it a boat and wait for another boat to come in. And if you're in and like the guys that I heard that had 10 to 20 times return, it didn't take profits. There's an old saying, I hope you don't mind me sharing it, but it fits perfectly. And that was, and I used it in my report. There's bulls bears and pigs, the bulls and bears David each have their days, but the pigs always ended up at the slaughter house.
And, uh, as you said down 20%, I don't know if that's the slaughter house, but it certainly is no fun. Yeah, well, people would see in the cryptocurrency community just another day in the week at the office for Bitcoin. Well, Peter, it's been a pleasure speaking with you and catching up with you for the, for the, uh, start of 2021.
I look forward to many more this year. Thank you very much. Thank you. Thank you for watching Kitco news.