Summary of "The Bad Times Happen When Market Valuations Are Too Rich...Like Now | New Harbor Financial"
Finance-focused summary (markets, investing, planning, risk)
Market regime & valuation thesis
- The hosts argue the US stock market is extremely overvalued, among the most overvalued points in history, drawing parallels to:
- The tech bubble peak around ~2000
- 1929
- Core caution: “bad times happen when valuations are rich.”
- They emphasize timing is uncertain, but risks rise materially from stretched valuations.
- Macro/earnings framing:
- Corporate profit margins are described as very wide, with analysts projecting margins to remain high.
- Concern that margins may mean revert (attributed to Jeremy Grantham).
- Historical context:
- S&P 500 margins are typically ~6% to ~12%
- Currently described around ~10–11%
- Forecasts for 15–16% margins are described as unlikely.
What the market is doing (S&P 500 rally + technical signals)
- The S&P 500 is described as having produced one of the most powerful one-month rallies in decades after a sharp selloff.
- Timeline & key levels:
- ~March 30: labeled as the market low so far in the selloff
- After that, “almost every single day has been up”
- 200-day moving average (200DMA): stated as taken out
- 50-day and 21-day moving averages referenced as improving trend/technical conditions
- Technical indicators:
- Bollinger Bands: the market is overbought but not extremely so
- “Upper band” described as about ~2 standard deviations above the 50DMA
- Options/hedging:
- Put options were put in place around March
- They went in the money, helping hedges during the drawdown
- After the reversal, they stated they took the put options off
Sector divergence / technology “froth” risk
- They note internal bifurcation within tech:
- Semiconductors +67% over “a little over half a year”
- Broad technology (XLK) +22.5%
- Software down ~20% over the same period
- Takeaway:
- They expect a likely pause/pullback after a sharp move, but not a “run for the hills” scenario.
- Tools and examples referenced:
- XLK (Technology SPDR)
- Earnings season context:
- “42% of the S&P reports earnings this week,” with mentions of major mega-caps such as Nvidia, Microsoft, Apple, Facebook/Meta (tickers not explicitly stated)
Portfolio positioning & risk management approach (New Harbor)
- Current equity exposure and how it changed:
- ~48% in equities currently
- Previously dipped to ~41% after adding hedges
- With puts hedges in the money, effective exposure was described as ~30% equities
- After the reversal, they added ~7% equities, reaching ~48%
- Geographic allocation:
- ~48% equities total, with approaching half in non-US equities
- Rationale for reduced US “froth” exposure:
- Allocation to energy, basic materials, and non-US stocks
- Emerging markets / non-US structure (selective vs broad ETF):
- International exposure described as:
- ~Emerging markets and/or commodity/materials-type exposures
- ~Developed non-US only about ~1/4 of international allocation
- Claim: many non-US markets have less technology weighting than the US
- International exposure described as:
Oil/war macro risk consideration (Iran / oil shock)
- They downplay headline-driven reaction (“markets don’t seem to care that much”).
- But they emphasize oil prices as the key variable for global knock-on effects:
- The concern depends on whether oil stays elevated or rises further.
- Differential exposure examples:
- Countries that import energy (e.g., Taiwan, Japan)
- Countries with domestic energy (e.g., Brazil) plus claims of targeted Latin America exposure
Their stated investment “framework” & signals (methodology)
Mike describes the process as a system with risk management and signal-driven action. Tools/methods named include:
- System discipline
- “Create a system and stick with it”
- Point-and-figure charting
- Using a service: NASDAQ Dorsey Wright
- Example: Apple (AAPL) described as on a buy signal (column of X’s) and having a double top break
- Relative strength analysis
- Bullish percent (breadth/participation)
- Defined as: % of stocks in an index on a buy signal
- Reported numbers:
- S&P 500 buy signal: ~32% a few weeks earlier
- Now ~62%
- Prior “washed out” example last year: ~14%
- Dashboard confirmation
- They look for reversal up, follow-through days, and other confirmation signals before reducing hedges
- Equity allocation windowing
- They avoid going to 100% equities, constrained by the macro/valuation regime
- Referencing an allocation “window” up to about ~50%
- Sector selection
- They add/shift exposure toward sectors scoring well on the dashboard:
- Transports, industrials, utilities, biotech (added 3% last week), basic materials, technology
- They add/shift exposure toward sectors scoring well on the dashboard:
Hedging / stop discipline and how they respond to drawdowns
- They explicitly state “nothing’s guaranteed.”
- If a crash occurs, they would act.
- Likely risk-reduction steps:
- If the market reverses downward: reduce equity exposure from 48% toward 45%, then 40%, etc.
- Emphasis on sequence/risk around major downturns:
- Warning: risk decades can happen where stocks drop 50%+, and it may take 10+ years to recover.
Precious metals: price action, expectation, and instruments
- They discuss precious metals weakness and describe a stance of patience.
- Price levels (context):
- Silver ~“$75/oz” (and ETF SLV)
- Gold futures dropped below “4,700/oz”
- Instruments referenced:
- SLV (iShares Silver Trust ETF)
- Technical approach / levels for silver:
- Reference to “90 spot” as around ~80 SLV as a prior target area
- A downtrend line: better setup if price breaks above and holds
- 75 SLV cited as roughly 84 oz silver (approx.) as a key level for improving chart structure
- Recommendation tone:
- “Not worried”—patience tested—expecting eventual upside breakout is more likely than downside continuation.
Gold mining companies & valuation metrics
- Precious metals allocation in portfolios:
- Around ~12.5% (stated by John/Mike)
- Framed as not extreme; they mention rotation from gold miners into bullion for stability.
- Company mentioned:
- Newmont (described as reporting “blowout free cash flow”)
- Valuation methodology discussed:
- Free cash flow over enterprise value expressed as a multiple
- Enterprise value as a multiple of EBITDA
- Source referenced: RBC
- Key scenario numbers (from RBC charts):
- At $4,000 gold/oz, estimated gold-miner multiple about ~8.5
- Described as relatively low vs other sectors (only energy lower)
- If gold resumes higher:
- $5,000–$7,000 gold
- Valuation case becomes more compelling (multiples remain attractive / “undervalued” framing)
- At $4,000 gold/oz, estimated gold-miner multiple about ~8.5
Financial planning themes (risk, sequence-of-returns, tax strategies)
- Planning is about aligning investments to life goals and retirement needs, not chasing headlines.
- Rebuttal to “more risk = more return”:
- In certain cycle phases, taking more risk can increase the odds of larger losses.
- Sequence-of-returns risk emphasized:
- Bad sequencing near retirement can cause failure even if long-run returns are fine.
- Retirement account exposures:
- Retirees are often described as having equity exposure higher than historical “typical” targets, partly due to strong markets post-2022.
- Capital gains / taxes:
- Rebalancing may involve booking gains and paying taxes at “favorable rates” depending on bracket
- Selling to rebalance to target risk is not inherently harmful
Roth conversions (explicit strategy framing + cautions)
- Framed as one of the “three planning gaps” people miss.
- Strategy: Roth conversion strategy
- Timing windows:
- Especially for people in lower brackets, described as 12% / 22% / 24%
- “Almost a no-brainer” for conversions in the 12% bracket (their view)
- Timing windows:
- Cautions:
- Not big fans of Roth conversions in high tax brackets
- Pushback on generic calculators:
- Many assume living to age 95 and earning ~8% returns
- They argue these assumptions can bias conversions upward, especially for passive investors and uncertain longevity/returns.
Three major “planning gaps” called out
- Roth conversion opportunities (when bracket/timing supports it)
- Passive exposure to risk (hidden risk concentration; “risk decade” framing)
- Warn: market drops 50%+ may take 10+ years to recover (sequence risk)
- Behavioral blind spots
- Selling bottoms / buying tops under emotion
- Advisors as “emotion filters” / guide rails
Explicit disclosures / disclaimers
- The presenters discuss investment strategy and market views.
- The provided text includes no specific “not financial advice” line, but it does include:
- Several reminders that charts are illustrative
- A repeated theme that “nothing is guaranteed”
- They explicitly say an ETF list (e.g., XLK/software/semiconductors) is “not a recommendation”—it’s illustrative.
Tickers / assets / instruments mentioned
- S&P 500 (index)
- AAPL (Apple) — point-and-figure discussion
- XLK (Technology SPDR)
- SLV (iShares Silver Trust ETF)
- Gold futures (price level referenced; no specific ticker)
- Gold (spot price scenarios)
- Silver
- Companies mentioned (tickers not explicitly stated in the text):
- Nvidia, Microsoft, Apple, Facebook/Meta (and “Meta” reiterated)
- Newmont (gold miner)
Key numbers & dates highlighted
- Market:
- Selloff low: March 30
- Rally breadth: S&P buy signal 32% → 62%
- “Washed out” example: ~14% buy signal last year
- Technical moving averages: 200DMA taken out; 50DMA / 21DMA referenced
- Technology performance (over ~6+ months):
- Semiconductors +67%
- XLK +22.5%
- Software -~20%
- Precious metals:
- Silver ~ $75/oz
- Gold futures: below 4,700/oz
- SLV levels:
- ~80 SLV as prior target area tied to “90 spot”
- ~75 SLV as roughly 84 oz (approx.)
- Portfolio allocation:
- Equities: ~41% → ~30% effective (with puts) → ~48%
- Non-US equity share: “approaching half of equity”
- Precious metals allocation: ~12.5%
- Biotech added: +3% position
- Roth conversions:
- Preferred bracket examples: 12%, 22%, 24%
- Caution for “high tax brackets”
- Valuation scenario (RBC):
- At $4,000 gold/oz: multiple about ~8.5
- Upside case: gold $5,000–$7,000
Step-by-step / framework items explicitly shared
- Market risk framework (signals → action)
- Track point-and-figure buy/sell columns
- Use relative strength
- Measure bullish percent (breadth/participation)
- Wait for reversal up and confirmation (e.g., follow-through days)
- Adjust hedges (puts): remove puts / increase equities as signals improve
- Use an equity allocation window (described as up to ~50% rather than 100%)
- Build allocations using top-scoring sectors
- If downside accelerates: implement a reduction ladder (e.g., 48% → 45% → 40%)
Presenters / sources mentioned
- Adam Tagert (host; “Thoughtful Money” founder)
- John Lodra (lead partner, New Harbor Financial)
- Mike Preston (lead partner, New Harbor Financial)
- RBC (gold-miner valuation chart source)
- NASDAQ Dorsey Wright (point-and-figure charting service/source)
- Ed Slott (mentioned re: Roth conversions video)
- Jeremy Grantham (mentioned re: profit margin mean reversion)
Category
Finance
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