Ghabour: "High Probability" of 10% SPX Correction, Tech Buy Opportunities Coming

0:00Now let's wind back out and get some insights on the news that shaping markets for that. We want to welcome in Eddie Gabor, our owner, key advisors, wealth management. Eddie, I haven't talked to you in quite some time, but I always appreciate your perspective. So Eddie, you say it's time for investors to have some defense in their portfolio. What does that look like? Are we loading up on more defense like Lockheed Martin? You know, in regards to defense for us, we're concerned at this change in the data and regards what the inflation data is going to look like with oil at these elevated levels over the coming weeks. As we're going to be in a stagflationary economic environment for the near term. So we're actually raising cash. We use a day like today to raise even more cash for clients. We came into the year already underweight technology and then when the data changed a couple of weeks ago, we raised cash. We're raising more cash. We're increasing our gold position. We bought copper. We're doing a lot of different things right now. Frankly, we're doing the opposite of what we were doing three weeks ago.

1:01Three weeks ago, we were all in on the economically sensitive areas because inflation was decelerating. Growth was accelerating. And now we think you could see the complete opposite scenario. And when you have that dynamic shift, you have to shift with it or you could put your clients in a position to lose a lot of capital. So this dry powder we're accumulating right now is going to be an amazing way for us to take advantage of what we think is going to be a bigger drop over the coming weeks because lastly, keep in mind, S&P is only down 2% right now. So it has been extremely resilient with data that's going to come in that's not going to be bullish in our opinion. So Eddie, are you worried that the war with Iran will last longer than the market seems to be pricing in? I absolutely am. And with that, you now have a Fed that's going to be in a spot where they're not going to cut rates in our opinion unless something gets really bad economically. So that's a lose-lose on Fed policy on top of us thinking that the war could last longer.

2:02We just see the dynamics and if God forbid, we have to do boots on the ground, that's going to add another element of uncertainty to the market and the market won't like it. So we still think back half of the year could be strong, but we've got a major headwind here in air pocket that you have to navigate through because markets move so fast, you can be down 10, 15% in a matter of weeks. So you are expecting a correction then, Eddie? Absolutely, I am. I think there's a very high probability that we see the S&P correct, have a 10% correction which means tech and other high beta areas are going to lose more than that if we are right. So we're not trying to be a hero here. We're following the data and the data says, look, you've had a heck of a run, now's the time for us, for our clients to scale back and see how things unfold here in the coming weeks because you can flip right back if things go well and the war ends tomorrow, you can buy. But if you're wrong on that, you're going to be in a bad spot to not be able to take advantage of the upcoming dip.

3:05But what if, let's, I just want to push back a little bit because I hear your perspective and I understand obviously you have to think about risk especially for your clients. You say you've been underweight tech all year and that's been the right call. Today tech is at the top of the leader board. You say you think tech is one of the worst places heading into Q2 so you're avoiding it. There's a risk I feel like possibly missing out. What's your thought on that, Eddie? There's always that risk and any move that you make of course. But when we take a look, the reason why we were underweight and it's been right so far is these companies have been rejected post earnings, many of them because their growth, although their growth and earnings have been strong, their earnings growth is decelerating. Some of these companies were growing at 50% and now some of them are growing at 15, 10. And the market doesn't like that rate of change and this is why many of them haven't been able to break out so I hope I'm wrong on tech. But I think this next quarter is going to show a bigger deceleration for the entire software

4:07area as well as the semi-conductors and that's going to potentially lead to some problems. If we're wrong, we'll pivot quickly but I think there's going to be some really strong buying opportunities for those that play this right in the tech space. Okay, so some strong buying opportunities, meaning entry points later down the line later this year, you mean Eddie in terms of tech? I do. I think late second quarter, early third quarter in regards to tech, I think you'll kind of, in our opinion, if we get the market play out the way that we think, you'll kind of get that wash out. And lastly, on tech, the other reason why is it's the most concentrated trade on Wall Street. That's going to be a source of funds when these firms have to sell something to rotate into other areas. They're going to be selling from the Mag 7 and these highly concentrated owned areas and that's why they have also struggled so much this year. The entire Mag 7, I believe coming into today, was all under the 50 day moving average. That is not a buy sign. That is a sign of saying, hey, let's sit back and see what happens.

5:07So Eddie, let me ask you this. I was watching your interview with my buddy Michelle Floreal over at the BBC and she asked a question about stagflation. You say stagflation is not your base case although you have some concerns. So tell me a little bit more about that. So we think here short term, you are going to get some stagflationary data. Again, I don't think that's a, you know, crazy call. That's common sense when we take a look at oil, right? Oil is the one area that touches every part of the economy and you can try to do certain things like release some reserves. But the end of the day until the straits of hormones is open and ships are flowing through like normal. You have to expect some disruptions and supply chain and oil to stay elevated. Even if it doesn't go up a dollar from here, if it stays in this area, the inflationary data is going to increase and that means growth is going to decelerate. It's a natural transition that will happen when you have that dynamic and we haven't seen that yet. We're only two and a half weeks into this. So if we go another two weeks with oil at this level, you have to expect that the coming

6:11months, that the data, which is lagging right now, is going to show that in the market because economically sensitive areas have sold off the most, the market's front running what we're going to see in the coming weeks, which is why you continue to see more and more things break down. Eddie, I want to get a quick final thought from you on small caps because I know that was something that you were getting constructive on last year, heading into this year, quick thought from you on where you stand with regard to small caps. We were and it was been a great place to be, but last two weeks ago, the Tuesday after the strikes, we took down our small cap exposure to its minimum position. We had approximately, depending upon the client, about six to seven percent small cap exposure, we've taken it down the two. We sold all of our economically sensitive areas across the board, some we went to zero, and we went to a minimum position because, again, the data is the complete opposite of what you want to own in those areas. And I would add small cap with technology in regards to, that's going to be another

7:13big buying opportunity, late second quarter, early third quarter, as long as this war doesn't stretch out for months. All right. Thank you, Eddie. I always appreciate your perspective. That's Eddie Gabor, owner or key advisors, wealth management.