'BEND BUT DON'T BREAK': Brian Belski explains why he still believes in this market

[00:00:00] Speaker 1: Well, my next guest became one of the top investors on the street over a certain period of time, but really because he identified that secular bull market that began in 2009. Joining me now, Humanless Investment Strategy CEO, CIO, Brian Belsky. It's been a long time, my friend. Great seeing you. [00:00:15] Brian Belsky: Thank you so much for having us back. [00:00:16] Speaker 1: I know. I really know you're saying this is a bend but not break kind of market, and I think this is the perfect day to have this discussion, right? The bears came out growling today, of course, and they've been sort of growling for a while. Here's the argument, right? They're saying, hey, over the last, going back to 72, we've had four major crashes for four different reasons, and at this very moment, all four conditions exist. So I want to start with you. First and foremost, inflation. How much are we concerned about inflation killing this market? [00:00:44] Brian Belsky: We're not because I think so many people are looking at what happened in 2022 where that inflation that you've done an amazing job talking about to your viewers was due to money supply, flood the system, and that takes a lot longer to take out. If you take a look at WTI, typically it's very much more volatile than money supply. So WTI goes down. Some of this inflation will go down. [00:01:04] Speaker 1: Okay. Liquidity. We're on the verge now of $3 trillion IPOs. Google's raising $84 billion. All the money's getting sucked out. There won't be any money, and we're going to have a liquidity crisis. [00:01:14] Brian Belsky: I don't believe that for one second. Because remember, in the old days, in the late 80s, early 90s, we were taught that private wealth money is the dumb money. The institutional money is the smart money. It's the exact opposite. Wealth is sitting on a lot of cash that they can put into this, and we've seen all the headlines with respect to what Mr. Musk is doing in terms of oiling up to retail, so I don't believe that at all. [00:01:33] Speaker 1: Technology. Semiconductors. Up 74% from their 200-day moving average. They're 40% of the market. It's too much to stage except for the techs to let us down. [00:01:43] Brian Belsky: This is where stock picking matters, because from an industry perspective, the semiconductor space that we've done research on for years and years is the most volatile earner. So we're in an earnings-driven market, so we are going to see a correction, and it's probably going to be led by these areas, but that's why we haven't chased these. [00:01:58] Speaker 1: But so tech is going to correct. Will it lead to a broad pullback in the market, or what we see, like today, rotation into other areas? [00:02:05] Brian Belsky: Ben, but don't break. Ben, but don't break. There's so much money, and people want to be involved in U.S. stocks. So I think if you take a look at the MAG-7 versus the other 493, the 493 are holding up. Plus, earnings are really beginning to accelerate there as well. [00:02:20] Speaker 1: And finally, credit, private credit, some rumblings, you know, look at Blue Isle stock, you know, private credit every day. We're hearing stories. Do you think it could be elevated to the point of a contagion? [00:02:32] Brian Belsky: Not a contagion. Remember, in 2008, it was a perfect storm of three recessions hitting at once: credit, capex, and consumer. Boom. But I think ultimately, the negativity going on in private credit, private markets actually is a positive for small mid-caps, because they have liquidity, and they're trading in the public marketplace. [00:02:49] Speaker 1: You just brought up earnings. This is one of the things you wrote about. I think, in fact, earlier in the week, you know, earnings have set us up. You think this is the key right now? [00:02:58] Brian Belsky: Stocks lead earnings, just lead the economy. Nobody saw the earnings growth of the way that it is. Nobody believed it. And even if we see a correction, and we're still going to be double-digit earnings growth, I think the earnings growth is clearly going to broaden out in terms of themes that help AI and other areas within the market. [00:03:13] Speaker 1: What if someone says, "Okay, well, you don't like tech, and tech has been the one with the biggest earnings." You know, is that contradictory? [00:03:20] Brian Belsky: No, I think we love tech. We're longer-term bulls in tech, but we're neutral tech because tech is well over 30% of the market. [00:03:27] Speaker ?: I got you. [00:03:27] Brian Belsky: For a must, it's very difficult to be massively overweight, but we can be overweight certain areas in tech. Like, we're underweight the MAG-7, but we've been very fortunate and blessed to all perform the market by being underweight in MAG-7, be overweight some other areas in tech. [00:03:40] Speaker 1: And neutral on tech. Doesn't mean you don't like it, you're just neutral on it. Okay, I got you. I got you. Let's talk about where you are overweight. Communication services, financials, industrials, and utilities. You know, it's ironic because I was looking at a chart, I forgot to use it today, that kind of showed all of these, to a degree, have, or maybe not financials, well, even financials, are being driven by this AI phenomenon, though. [00:04:02] Brian Belsky: Well, I mean, all this hullabaloo, I would call it, about financials. Your AI is going to take out financial services and take out brokers. You're still going to call your financial advisor when it comes to your own money. But as interest rates go down and as the yield curve continues to steepen and we have deregulation and consolidation, that's why we like financials. Industrials and utilities are a play on AI. No one's there yet. They don't get it, man. I'm like, I'm an old dude, so, you know, you have to power the data center somehow. You plug them in, man, right? So that's why it works. And then lastly, communication services, look no further than Google. I mean, look at Google. It is by far, from our lens, the best AI company in terms of the software and the product. [00:04:38] Speaker 1: Yeah. And they, you know, they came last year. Everyone said they were going to be the loser because of search. They came out of last year, the winner, not just search, but also TPUs and everything else. Oh, and they raised $84 billion in a blink of an eye. Yeah. I got just a few seconds to go, but I want to talk about more headlines about the end of the Iran conflict. You sort of say that in your mind can help the small caps. [00:05:00] Brian Belsky: You think that could be a sort of spark for small and mid caps? It really can, because look at the volatility in oil. Look at the volatility in oil and what it's shown. Like, again, money supply does this. It goes up like an elevator and down like an escalator. This is looking more like down like an elevator, which will impact, impact inflation. And lastly, in terms of demand destruction that we always talk about, it takes six to nine to 12 months, not six to nine to 12 weeks. And that's what we've been kind of dealing with the conflict. Great stuff, man. Got to come by more often. I miss you. [00:05:30] Speaker 1: - I will, thank you, man, thank you so much. [00:05:31] Brian Belsky: - You're looking pretty good for an old guy. - Oh, I appreciate that.