Room for disappointments in 2025 and into 2026

Kirk Spano from margin of safety investing. Always great to have you on the podcast. Thanks for joining us again. How are you doing, Rina? It's always great to be here. It's always great to have you, especially as we all try and synthesize and summarize and contextualize what we could be doing better, what we're thinking about heading into 2025. How are you thinking about the markets and your investing year thus far? Well, as you know, I had a pretty good year.

I was one of the most bullish analysts, not only at Seeking Alpha, but across Wall Street in the whole country. And the market and Bitcoin both hit my targets, both just a little bit north of where I thought they'd be.

I thought that the stock market would hit 5720 this year based on earnings exceeding expectations that would be in the 6,000s, maybe in the first quarter of 2025. We're a little bit ahead of that. We're already there.

Bitcoin, I don't even remember what it was at the start of the year, but I said it's on its way to 100,000. I got laughed at. Same way I got laughed at when I was 55,000. And I said it would go back under 20. And that's where you buy it. That's what happened. So we bought a lot of it. There's an article on Seeking Alpha from the fourth quarter of 2022, where I put my first buy signal out.

And we bought it all the way into the 70s and 80,000s. We're just holding our positions right now. But I think that the stock market and Bitcoin are the most interesting things to talk about because they're the biggest market for most investors is the stock market. Bonds are bigger, but not everybody

Does that at the retail level? Bitcoin, to me, is the birth of a new type of currency in the way that gold is. So, you know, I don't believe it'll be traded terribly much, the way gold isn't traded terribly much, but it can be used as a balance of payments mechanism.

We've already seen Bitcoin used in oil transactions between China and OPEC countries. So the adoption story is there. And to me, it really does seem to be digital gold. And it took me a very long time to come to that conclusion. I was not.

on board early. I did some trading early, but it was really just trying to out trade at everybody else. I've been a buy and holdler now since August of 2020 and really backed up the truck at the end of 2022. I never mean to jump right into Bitcoin because I'm not a maximalist.

But I think it's a message that people who are avoiding it, calling it names, not understanding what it is, I just want people to really study it so they truly know what it is becoming. Do you want to weigh in on the economic side of things and how you see the Fed kind of weighing in on this and what kind of landing they land and anything to say there? President Trump is inheriting a really good economy.

on all the measures, all the metrics. We just had US economic output coming at the fastest pace in three years. GDP is up. You just have a lot of things going in the right direction. However, I don't know how to forecast

what President Trump is actually going to try to do and what he'll actually be able to accomplish. There's a lot of unknowns for next year, and ultimately markets don't like uncertainty. So as bullish as I was for 2024, because the presidential cycle was on your side and everything else, I will tell you,

Even though I think he might be the weirdest man on the planet, I think that Elon Musk said something very prescient recently. He said to clean up the system, we're going to have to take some pain early on. I think that there is a lot of room for disappointments in 2025 and into 2026 to the point where I think that

It is very hard to predict outcomes. I had a very high conviction prediction a year ago. I don't really have that right now.

So I have to systematically look for ways to react well to whatever happens. And option selling is becoming a great spot. The premiums are high, the durations are two to three months, so you can get all the way of things turned against you. Ultimately, I would think if I had to make a prediction, right, gone to my head, mic to my mouth, feet to the fire.

I think that next year is a chapter year. I think that we have disappointments in a number of ways. I think that the market bets the wrong way a number of times. I think the gambling nature of what's going on is off the charts. I mean, I was watching all the gambling on the election and it just, it blew my mind. It was telling though. I mean, I figured out by August that I was probably wrong about Harris winning.

And, you know, whatever, so I adjusted my portfolio for it to make money either way. And we did. We made money on New York Community Bank Corp, which went up about 10 or 15% on the election. Made money on a whole bunch of Bitcoin, obviously. We owned some other things that were on the Trump trade side. And now we have a couple of things that aren't doing as well. Some of the clean energy stacks are getting beat up.

But they're so attractive at this point. I mean, their margin of safety is off the charts. There's really nothing that can go against the ones that we look at. So do they make a comeback in three years or five years? I don't know. But I think that they're so cheap that you got to pay attention and find your spots which probably come in the next year or two to really back up the truck.

But I do think next year will be choppy. I think that we go through these transitions. I think they always work out in the end. But I don't know how fast it'll happen this time. As far as a stock market prediction, I'm writing that article now so it'll be up by the time this interview is up. I think that next year is a pretty flat year in the S&P 500. And I think it probably rallies early and late and it comes down in between.

So my guess is that a year from now, the S&P 500 is in about the same spot, a few points in either direction, and that we are concerned about 2026 going into the next Federal Reserve Chairman. And that is the trade that I think is going to be easier. The next Federal Reserve Chairman, because it's not going to be Powell,

is going to be very dovish. He is going to lower interest rates and he's going to lower them hard. So if we have a mini recession between now and then and then they lower interest rates, it satisfies growing the economy. It satisfies the fact that the US government must

absolutely must have lower interest rates or this debt's going to crush them. So to avoid gigantic cuts to services or for them to actually make headway in the cutting Medicare and Social Security, which there is a wing of the party in power that wants to do that, we have to see economic growth. And economic growth above three and a half percent

for an extended period of time solves almost all of our budget problems. And I think that that's the part that people don't understand, because they just hear $36 trillion in debt. But against the size of our economy, if suddenly we grow at 3.5%, then the deficit falls dramatically. And if interest rates come down, the deficit falls dramatically. As baby boomers mature and we hit peak baby boomer retirement system dependence at about 2030,

By 2040, we die. And so as people start to die, Social Security and Medicare have less dependence on them, which means that the bills come down. So we just have to get through the next decade. And then there's a lot of clear sky, a little green grass, a little blue sky after that. I don't know exactly the path and how we get there.

But as I told you off air, I'm pretty optimistic that even if we go a little too far right or even if we've been a little too far left, the fact that we're a two-party system. And I used to be one of those guys who wanted lots of parties. And I've realized that by having a two-party system, we passed through equilibrium pretty often. Sometimes we even stopped there for a couple of years. Other countries don't have that. Other countries are all over the spectrum.

You know, think of it like a scatter chart rather than a pendulum. The pendulum goes through equilibrium all time, right? Tick tock, tick tock back and forth. We have that. I think that's, and this is a field of study for me going back a long time, I think that that is instrumental in why even when we screw up,

Churchill's quote, his observation that Americans try everything, right? And then they do it right. And ultimately we get there. So whether we go a little in this direction for the next few years, a little in that direction after that, I just ultimately think that if you think in 10 year increments, which is what you should think like as an investor,

you're probably going to be going in the right direction all the time, even if you bump off the curb here and there.

A pretty optimistic long term. I don't know the exact path of the line over the next year or two. I would suspect that we get a very shallow recession at some point. People will talk about stagflation. People will write horrific articles and try to tap into psyche and write a narrative and chant a narrative that scares people or drives them in this direction or that direction.

And as I tell my subscribers all the time, narratives are the most dangerous thing out there. They are designed to get you the wrong information and get you to do the wrong thing. There's a book out there, The Power of Narrative or Narrative Economics by Shiller.

You know, you don't even have to read that book. You can listen to that one. Narrative economics by Schiller is one of the most important books written for investors in the last decade. Listen to it. It explains to you how markets react to the narrative and why Internet-powered and social media-powered and to a lesser extent, but still TV-powered and radio-powered narratives drive emotion.

and drive bad decision making personally and then on the investment side. But ultimately, it probably works out. It's just, how do we get there? And right now, that's a little uncertain. So you better be good at reacting and not be stubborn and lay out what you think the three or four most likely scenarios are so that when they happen, when one of them happens,

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