RHP Market Talk
Complicated economic topics distilled into digestible and palatable investing principles.
Hosted by Natalie Picha, Partner and CXO of RHP Wealth Management.
RHP Market Talk
Rich Markets, Revenge Taxes, and Living in Interesting Times.
In Episode 48 of RHP Market Talk, CXO Natalie Picha and CIO Glenn Royal, CFP®, discuss how the global financial landscape has undergone a dramatic transformation since April, with markets stabilizing after the turbulence of the trade war, driven by abundant liquidity seeking investment opportunities. We examine the key factors that will shape investment strategies for the remainder of 2025.
• Tariff impacts are gradually filtering through the economy without dramatic inflation pressure so far
• Fed has paused rate changes for four consecutive meetings, but the next move is likely to be a cut if unemployment rises
• Geopolitical tensions in the Middle East pose inflation risks if oil shipping through the Strait of Hormuz is disrupted
• Proposed "revenge tax" on foreign investors could accelerate de-dollarization trends and weaken the dollar
Experience the difference of working with a firm that empowers your life—a firm that focuses on what matters most—you.
Whether you are beginning your financial journey now or have already taken steps toward your ultimate life goals, we are here to guide you.
https://podcasts.apple.com/us/podcast/rhp-market-talk/id1538051530
Welcome to RHP Market Talk produced by Royal Herbert Partners Wealth Management, an independent financial services and investment advisory firm based in Houston, texas. I'm Natalie Pica, one of the founding partners in CXO, joined today by founding partner and CIO, Glenn Royal. Hey, glenn.
Glenn Royal:Good morning Natalie. Good to see you,
Natalie Picha:Good to see you also.
Natalie Picha:It's been a while since you and I have sat down to have this conversation it's actually been since April and I'm really looking forward to kind of diving in, because the last time we spoke we were in the midst of the trade war, markets were in decline, and today we're in a completely different place. It feels like it could be a whole different year and it's just been a couple of months.
Glenn Royal:So yeah, I keep thinking that you know that old blessing.
Glenn Royal:May you live in interesting times you know.
Natalie Picha:Well, I would say we definitely live in an interesting time. Quite frankly, there's so much information out there I can't keep up. So I'm just glad to have this conversation because I know you've got your ear on the ground and certainly have a pulse on the market. I appreciate that.
Glenn Royal:It's moving fast these days, but we're doing our best to stay on top of it.
Natalie Picha:So when we spoke back in April April 10th the markets were roiling from the trade war. We did get a 90-day moratorium, which will be coming up ending on July 8th. Do you feel like markets have stabilized, worsened, I mean, what do you think?
Glenn Royal:I think there's so much money in this world looking for investment opportunities that we saw it put to work quickly during that April 2nd Liberation Day event. Yeah, the money supply that's out there. There's just a lot of liquidity in the world and when you have events like this, it's looking for opportunities to invest that cash, which you know can create its own problems at some point, if that opportunity you know that opportunity to invest that cash and it actually is a real deal and it goes down further. All in all, I think it's just it was an opportunity to put a lot of cash to work. Money supplies has been growing. M2s, a measure of money supply, had a little bit of a dip, but as that money supply grows, it tends to find its way into risk assets. Right, we saw that.
Natalie Picha:Well. So, yeah, you saw a dip, definitely the dip in the market, and I know we had concerns about what performance was going to look like for some of these companies going forward with all of these tariffs placed on them, and have we seen that same sort of, as we look at numbers, have we seen that actually play out?
Glenn Royal:Yes and no, oh okay, kind of a mix. I mean the you know the tariff news came with 145%, I think, at peak at one time, being really over like 60% effective shutdown. So it was just kind of game and ship really at that point. But I think what you've seen is the level has come down. What we haven't seen in the last since this has been around. We've had a couple of months of data to come out. I'm not seeing inflation pressures that was originally expected and really haven't seen a slowdown, an increase in the unemployment rate, just a general slowing of economic conditions.
Glenn Royal:Now, that being said, I like to look at moving averages. I don't want to go month to month when I have extreme events. So we had a bunch of data that we pulled front-run cells. You saw in TE, cargo shipping, all that stuff, big spikes. You had the moratorium for a little bit of a day. You saw a little spike, electronics, things like that. It's calmed back down, but you are seeing TE, the cargo container count, all that, start to roll over. Things are kind of slowing down at the margin on that.
Glenn Royal:So the tariffs are having an impact, but I didn't see it in the month-to-month data and again, I think that's that boom-bust kind of echo effect. That's in data, the signal, the noisy signal of the impact. So now we're trying to get that smoothing effect. Well, at the margin, I've seen retail sales decline the last two months less than expected. So we did see that initial spike. But where you're seeing it is in the tariff impact of goods, autos. Auto sales are down right now after a big spike in front running. So that's the kind of stuff that's going through the data right now and really what we like to do is see smoothing averages. So a little bit more time to tell if this is going to be a drag on the overall economy.
Glenn Royal:Right now it appears that the tariffs have been buried in the system. Some of the manufacturers in China, for example, have retained that cost. Some have gone on to the goods producer, the middle part, and on to the end consumer. It's all blended in there. So it's there, but you may not see it Almost like a I don't want to say a frog in boiling water, but it's kind of one of those things where it's going to creep around us, but maybe it's a slower price increase. What I'm looking for to see any damage is the continued rate of inflation If it gets up. You know three and a half PCE gets up towards higher rates in the summer, coupled with rising joblessness. If I start seeing the jobless rate increase it's about 4.1, 4.2. Now that gets up to four and a half. That's when I start to see problems in the market A rising jobless rate and increasing inflation. Obviously that would cause market issues.
Natalie Picha:Right, and that just leads right into. We know we've got some Fed meetings coming up. What do you think interest rates are going to do? And you saw the volatility in the bond market during all of this tariff talk as well. Right, so where are we today and what does it mean for the Fed?
Glenn Royal:Today, the Fed's meeting right now is expected that there won't be any change in interest rates. This would be the fourth meeting in a row that the Fed has paused cutting rates. So partly if you stand back, you say well, inflation is running below par. I'm not seeing increasing really in the jobless rate at this point. Jobs are still had. Why isn't the Fed moving? You have some green light to maybe cut rates in there.
Glenn Royal:And I think it's still that uncertainty of that trending average that I just talked about, the three-month type moving averages. They haven't seen the full impact of the tariffs and the data yet. They want to see that and I think they need to start making decisions then, but they're uncertain as we are. But I do believe the next step of the Fed is to lower rates and that's one of the reasons we're positioned in the bond market and we talked a little about that. But I do see the Fed having to come in. Mainly what will drive it is an increase in the bond market, and we talked a little about that, but I do see the Fed having to come in. Mainly what will drive it is an increase in the unemployment rate. It starts to get up towards that four and a half. That's dual mandate. They've got to find inflation. They've got to keep jobs. The jobs mandate will kick in. They'll start cutting rates, even with the potential little stiff inflation in the wind.
Natalie Picha:So first half of 2025 has been jam-packed. If we think about the second half of 2025, what's your outlook overall? Am I asking a loaded question?
Glenn Royal:Uncertainty, yeah, word of the year, uncertainty. I mean I do think the Fed's going to be friendly for the market, but I don't know what's happening in the Middle East. You know we just had Israel and Iran. They're five days now shooting missiles at each other. The good news there is we haven't seen it impact the Strait of Hormuz. That's where, you know, a third of the oil flows through that and 20% of liquid natural gas. It's a vital, vital waterway and if it's closed down because of this fighting, I've seen estimates in oil go from 120 to 200 bucks a barrel. I have no idea that I have any solid on the map, but you would know the price of oil would go higher that's a given if we start shutting down the ability to move crude products in that part of the region. So we're watching that. That has inflationary implications At a time that it looks like inflation's in control and I've got this Fed trying to watch it. All of a sudden I've got oil spiking.
Glenn Royal:Gasoline You've seen that go up right with the price of oil. We were scraping 58 bucks a barrel six weeks ago. Yes, I'm in the mid-70s on the spike and it's probably. This is interesting because Cruden in and of itself. You would have thought an impact like this in a past world? 100 bucks right 120. I think the Ukraine war right. So it's telling me that there's a shifting demand of crude globally. Evs have come along. China's doing a lot of electric vehicles, so the demand of refined products is starting to drop a little bit. For gasoline things of that nature. We're not as dependent upon that kind of product as we once were, but we're still. I don't want to say we're not dependent on it, we're critically dependent. It's just that the level of it has come down quite a bit. That's why we're not seeing the big spikes like we used to. And also, don't forget the United States major producer.
Natalie Picha:I was going to say we're now producing quite a bit here, which higher prices is actually good for the production back here.
Glenn Royal:Yeah, yeah, you would think I would hope so in here, but you know that's what we're doing. We are watching the Strait of Hormuz for any implications and shipping what that may do and that short-term noise. You know I did see some stat had to do with these types of geopolitical war events and you know three weeks from peak to trough when you get the event and all the news and it takes three weeks to basically recover. And that's been the history going back, you know, last several decades of these type of events because they tend to be isolated to a certain region and without a lot of contagion effects.
Natalie Picha:Yeah, it'll be interesting to see how long this particular conflict lasts and if it has to escalate or not. You know headlines today didn't look promising, but who knows?
Glenn Royal:Well, that comes into investment decisions. You know how do we invest with these type of events going on in the world and what we've tried to do with the portfolio because of all this uncertainty that's even back in loaded in this second half of the year. Well, I feel like I have a friendly Fed. I think I'm also probably dealing with the earnings. Where are the corporate earnings in this story? We are looking for earnings growth to be meager. This year, still positive growth, but it's next year and the following year where we're expecting double-digit earnings growth. So if I had that friendly Fed in the latter half of the year and that earnings kick in, this market's sustainable. It just keeps on going. I don't see it slowing down. But absent earnings, should rates stay sticky for longer and this real rates that we're seeing, it's kind of like running a hundred yard dash with ankle weights on. It's just a drag as these rates stay high to get us where we want to go.
Glenn Royal:So one thing too, we've done is over in the bond market, this uncertainty is we position our portfolios with shorter maturities. I want to be in the part of the yield curve that's controlled by the central bank. I don't want to be in part of the curve that's controlled by budget deficits and we know deficits are a real issue that's going to have to be addressed and part of the spending bill why some of the consternation that's coming out of that is through the potential for increase in deficits as a result of this bill. So all that's in play and all we do is we just kick the can. It just keeps kicked down. That piper is going to eventually be paid and it just becomes a bigger price to pay.
Glenn Royal:So I would hope at this one moment in time, when we've done the tariff shot across the bow that the world didn't see coming, all these different things, we do address the budget deficits and finally get some fiscal restraint and control on this. So that's the hope. And I think the bond market you've got those vigilantes that are right there on the wings waiting to pounce, but we're not quite there yet. So it's more causing indigestion than a reality. I don't know when that reality is, what that tipping point is, but I don't think it'll be a good experience when it comes if we don't get ahead of it Right.
Natalie Picha:But we're still in that wait and see sort of place.
Glenn Royal:It's like pushing your luck yeah, pushing our luck with deficit. And then, when I look at the global economy, one of the things we've also done if we move more money internationally is when I see some like Europe, like Germany, you know, austria, you know they still have the first nickel they ever made Right, we're talking about deficit spending, right and so they have a big checkbook. China has a better checkbook than the United States. We're in a position where I have record levels of these trade deficits and budget and deficits At a time I have full employment. The economy's firing on all cylinders.
Glenn Royal:I want my debt loads down when everything's working, because I know I'm going to need to tap into that line when I get the bad times come. We don't have the line. That's the problem right now. We don't have the credit to tap. We've used our lines of credit. So that's probably a bigger issue and, frankly, it's very complex and it's global and it's having all developed nations debt and it's something that we'll be watching probably the rest of our careers, how this plays out, but right now it's a growing concern.
Natalie Picha:Yeah, something we were discussing just before we jumped on here was the revenge tax you want to? Touch on that subject just a little bit.
Glenn Royal:I do. Revenge tax that's part of the big one, big beautiful bill. It's section 899. It's caused a lot of consternation in Wall Street. Basically, what it does is if you're a foreign investor in the US with passive income, it allows that income to be taxed. It's called a revenge tax. The House version could put it up to 25% on top of their tax rate. Some countries could see a 50% tax rate. Part of the concerns the market has is this could cause a flow of capital out of the United States Rather than invest in the United States and be subject to this revenge tax. If my local taxing authority is not in agreement with what the United States thinks it should be, then I have to pay this extra tax to do business. We're concerned about that.
Glenn Royal:Now. The Senate's version that's come out this morning is still there, but it's tapering down the amount from 25 to 15, I believe, with a 5% per year.
Glenn Royal:You can't just bump it all up at once, but it's still there and so that's something that I don't know really how that shakes out, but it's still there and so that's something that I don't know really how that shakes out, but it sure has caught Wall Street's attention because again and it probably fed a little bit into our thinking I know I did on this de-dollarization trade that's going on. It's you know I want to be in position of assets that can benefit if the dollar weakens and we still see the dollar potential to weaken another, you know, 10 to 15% in this market. I don't think it goes away as a world's reserve currency, but I do see that, as you know, competition against the dollar in that space Right, that's kind of and things like trade wars, global trade wars, will exacerbate that move away from the dollar, no question about it. Yeah, that's what we're seeing. So it has us moving to benefactors of a weaker dollar.
Natalie Picha:Right, Right Positioning, repositioning that portfolio. And I think when I'm you know, when I'm speaking to clients or potentially new clients, what I talk about. Our strategy and our philosophy is is we look at the global markets and the economy and we adjust accordingly and then we adjust further for each client's individual portfolio and their individual risk tolerance. So, with the balanced portfolio being where it is today and I know we talked about this last year, the resurgence of the 60-40, right, talked about this last year the resurgence of the 60-40, right, Because you actually get paid for your bond portfolio but you can't leave behind what's going on in the equity portfolio right now. So, for those investors that are sitting in that balanced portfolio, what would you say about the second half of the year?
Glenn Royal:Well, you're going to get positive return from your fixed income If rates. You know if the Fed starts to cut rates you're going to get your coupon that you clip your interest payment plus an increase in price so you'll get a nice return out of that. Could be 3% to 5% type return in the second half of the year for that part of the portfolio. On the equity side. If I do get that friendly Fed and the earnings are here, equities are fine. Things look good.
Glenn Royal:International, if you want a little diversification away from the United States, international offers relatively attractive opportunities, particularly in a value space, international financials, industrials, things like that, as they rebuild their NATO base and all those things they're doing. So I feel pretty good about it. I just know we have a lot of event risk in the system right now. We don't know what happens July 8th when the 90-day moratorium expires. Do the tariffs come back? My guess is, if I had a spitball, at the end of the day we're probably going to have a 10% baseline tariff. That's permanent, that stays in the system. We are seeing revenue increases. Customs duties are coming in. You can see the money being made. So the tariffs are working in terms of generating revenue for the United States and that can help If that continues and it works well with the tax cuts that want to make permanent the big beautiful bill. Those things can go to continue, this economy continue to have it grow, but I need everything to work.
Natalie Picha:No margin for error.
Glenn Royal:Very little.
Natalie Picha:Yeah.
Glenn Royal:Yeah, certainly a little in here, and because of the deficits and the different things we're dealing with. So I feel, okay, I'm not. You know, there's some years we do, we start out and try to call the year, read the tea leaves and we're pretty positive. You can tell this one's a little bit more. Let me just say it's yellow, red, yellow green, let's call it yellow. On the field we're cautious. We're being paid dividends and interest from our bonds, dividends from stocks. I want as much cash as I can in this little bit of uncertain period until we clear the tariff story and the earnings and how they start to look and how corporate America digests this.
Natalie Picha:So let me ask you too because I know this has always kind of been a area that you've looked at to give some clarity when are we on PE ratios right now If a pretty rich market is at 20 to 22,? We've talked about it in the past what's correction territory? What's too rich? What are your thoughts on that?
Glenn Royal:So I think this is more market structure and question as much as valuation. I've seen tremendous growth in this market and trading vehicles from the big hedge funds that have these pods set up of traders all around the world to allow you to double and triple leverage a single name stock, zero data expiration. There's so much market structural shifts in this market that's made it where it's just. It's super efficient. You know I find it very difficult to find deals, something that comes at opportunity because it's grabbed so quick. So you know, that's kind of pushed me over towards smart data and things like that where we're screening for factors like quality, growth, size, value and I can put that on a portfolio and that changes quarterly. We can adjust that quarterly through screening and those factors that providers are doing for us. So getting active management to try to squeeze out that extra nickel or dime out of the portfolio.
Natalie Picha:So a lot of that going on. So the overall PE multiple is not necessarily the only.
Glenn Royal:So at 22 times earnings, 23 times forward right now, that's rich, historically, I mean. That puts you in the market top category. So I need the earnings growth to adjust for that earnings, that PE. I can get my multiple down but P stays flat and E goes up right. So there's that option. If we kind of grind sideways but earnings growth there, then we'll normalize the value.
Glenn Royal:But right now it's hard to see a lot of upside. And how we think about it is it pulls future returns forward, so high markets. So if I get my lower then I've got a better opportunity out in the long run. So there's that aspect of diminished future returns from high multiples when you come in and it's just a challenge in here. But I kind of talk back to these pods and all these trading, all these things, because what that's done is it's made the market where it's always expensive. It just doesn't get cheap.
Glenn Royal:And again, earlier we started this all out about how much money is in the world right now looking for investment opportunities, looking for a place to go Petrodollars, crypto, I mean everything's out there, and so that's all part of it. And the efficiencies of the market are so strong today that it's really, really it's hard and that's why we're much more broad-based indexing and bringing in that smart data. We understand the challenges of beating you know active managers outperforming but you can get in the areas though. You can get value where it runs or you can get size where it runs, and you can do that. So as a portfolio manager, you can, you can play those placement Right now.
Glenn Royal:I know I'm coming back. Long answer to your is the market rich at 22 times earnings? Yeah, yeah, very overvalued, but I got a Fed that could lower rates that could support that, and then I have the potential for earnings that could support that. But I always think markets are going to stay rich because of the market structure that we have today and I don't think that's ever going to go away. Things have changed.
Natalie Picha:Yeah, markets are going to stay rich. Well, thank you again for always sharing your thoughts with me, with our listeners, with our clients, prospective clients. Is there anything else that you'd like to talk about before we take off?
Glenn Royal:Yeah, you know, we're just keeping an eye. Today's current events change in the blink of an eye and markets are moving fast. And just be careful. I do want to one trading desk and maybe this is food for thought to part with, but these guys trade corporate bonds and it was in a journal about a month ago I read. They placed a 72 hour rule on their portfolio. They cannot trade off of any presidential tweet for 72 hours. Subject to change, right, right, anything that you see today. That's not a bad philosophy to maybe wait for 72 hours to see because it's changing so fast, yeah, right, creating opportunities and risk to other areas too. So we're de-risked where we have to.
Natalie Picha:Well, we certainly appreciate you standing in that gap for us and for the firm, and listening constantly, and sometimes, like you said, it's just a good idea to just wait and watch. Just give it a minute 70 hours.
Glenn Royal:It's great to have you and Michelle and the rest of the team to handle the clients, the questions and all that, and it's a great partnership. I'm grateful to be part of it. Thank you for everything you do, Natalie.
Natalie Picha:Oh well, thank you. I appreciate that and, like I said, it's for the benefit of the families that we care for. So thank you so much for joining me today and having this conversation. No-transcript. Whether you're beginning your financial journey now or you've already taken steps towards your ultimate life goals, we're here to guide you. Experience the difference of working with a firm that empowers your life, a firm that focuses on what matters most you.
Disclaimer:Royal Harbor Partners is a registered investment advisor and the opinions expressed by Royal Harbor Partners on this show are their own. Registration of an investment advisor does not imply a certain level of skill or training. All statements and opinions expressed are based. Thank you, sale or purchase of any specific securities, investments or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Information Express does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.
