Joel Litman, founder of Altimetry, joins the hosts to discuss his bearish sentiment and significant red flags in the market. He argues that controlling inflation requires higher interest rates. He also highlights overallocation of U.S. stocks in investors' portfolios and warns of market conditions. Chinese and Russian stocks are deemed unattractive for investment.
Current frothy valuations and downward earnings revisions warrant caution in the US stock market.
Forensic analysis, such as audio forensics, can provide insights to make informed investment decisions.
Considering global context is crucial, as regions like China face worse credit issues and regulatory challenges.
Deep dives
Concerns About US Credit and Valuations
Joel Litman, founder of Optimetry Research, shares his concerns about the current state of the US economy. He highlights the frothy valuations of the market and the downward revisions in earnings, which make it difficult for stocks to justify their current prices. He also points out that the Federal Reserve's plan to keep rates higher for longer could further weigh on the market. Litman suggests that investors should be cautious and consider alternative strategies to protect their portfolios.
Forensic Analysis and Credit Strategies
Litman discusses the use of forensic analysis in evaluating the creditworthiness of companies. He explains that his company, Altimetry, employs audio forensics to analyze management teams and make more informed investment decisions. He highlights the bias present in Wall Street's buy recommendations and gives a preview of a forthcoming credit strategy publication that aims to provide investors with low-risk opportunities in the credit market.
Comparison to Other Markets and Concerns About China
Litman acknowledges that while there are concerns about credit issues and valuations in the US market, he believes the situation is even worse in other regions, such as China. He argues that China's post-pandemic recovery will be hindered by its credit problems and regulatory capture. Litman emphasizes the importance of considering the global context when assessing investment opportunities.
The Importance of Deception and Confidence in Evaluating Calls
One of the main insights from the podcast is the significance of detecting both deception and confidence in evaluating calls. By using advanced technology to analyze speech patterns, it becomes evident when someone is being deceptive or sincere. This allows for a better understanding of the person's true intentions and concerns. For example, in the case of Federal Reserve Chairman Jerome Powell, when he is confident about certain issues, such as his concern about inflation, it indicates a genuine worry rather than just trying to manage expectations. This insight provides valuable information for forecasting potential policy changes or market reactions.
The Problematic Nature of Financial Accounting Standards
Another key point raised in the podcast is the problematic nature of financial accounting standards. The host emphasizes the lack of trustworthiness in Generally Accepted Accounting Principles (GAAP). They highlight the issues of regulatory capture and the revolving door between accounting firms, regulatory bodies, and organizations like the Financial Accounting Standards Board (FASB). The speaker questions the justification for exorbitant compensation of FASB board members, who are unelected officials responsible for approving accounting standards. The lack of accountability and complexity in accounting practices raises concerns and underscores the need for uniform accounting principles to ensure transparency and accuracy in financial reporting.
On this week's Stansberry Investor Hour, Dan and Corey are joined by Joel Litman, the founder of our corporate affiliate Altimetry. But first, Dan and Corey kick off the podcast by discussing the latest Federal Reserve meeting, a recent study about what happens to stock price when artificial intelligence ("AI") gives answers at earnings calls instead of humans, and the emergence of a robot CEO for a rum company. (00:00)
Next, Joel joins the conversation and gives the reasons for his growing bearish sentiment. He points out some significant red flags that have caught his and his fellow analysts' attention, including the historical pattern of a credit crisis preceding every major bear market. Joel explains that the current sentiment and valuation trends are heading in the wrong direction. (16:42)
Joel then moves on to the impact of high interest rates on the market. He explains that he and the folks at Altimetry employ "Uniform Accounting" principles, meaning they do not use the same price-to-earnings multiples as Bloomberg or CNBC. Instead, they perform their own calculations. Joel argues that, to control inflation, interest rates need to be maintained at a level higher than what Fed Chair Jerome Powell seems to favor. (20:56)
Finally, Joel discusses U.S. stocks being overallocated in investors' portfolios today and why this serves as a concerning indicator of market conditions. Plus, looking globally, he details why he finds Chinese and Russian stocks unattractive for investment. (37:36)
