There is still room for disappointment in 2025 and 2026

Listen below or listen anytime, anywhere on Apple Podcasts and Spotify

Kirk Spano shares why the stock market and Bitcoin are the most interesting topics to talk about (0:30). President Trump has inherited an economy that is very good by all measures, but it is difficult to predict what will happen in 2025 (3:20).

transcript

Rainer Scherbier: Kirk Spano of Margin of Safety Investing. So excited to have you on the podcast. Thank you for joining us again.

Kirk Spano: How are you, Lena? It’s always great to come here.

RS: It’s great to have you on board, especially as we’re all trying to synthesize and summarize and contextualize and what we can do better and what we’re thinking about going into 2025. Your investment year?

KS: Well, as you know, I had a great year. I’m one of the most bullish analysts, not just on Seeking Alpha, but on Wall Street in the United States.

Both the market and Bitcoin met my goals, both just a little higher than I imagined.

With earnings beating expectations, I think the stock market will hit 5,720 this year. That would be over 6,000 years old, maybe the first quarter of 2025. We’ve arrived.

Bitcoin, I don’t even remember what it was at the beginning of the year, but I said, it’s on its way to 100,000. I was laughed at. Likewise, I was laughed at when the price was 55,000 and I said, it will go back below 20,000 and that’s where you buy it. That’s how it happened. So we bought a lot.

There was an article about Seeking Alpha in Q4 2022, where I issued the first buy signal and we bought all the way to 70,000 and 80,000. We’re just holding our ground now.

But I think the stock market and Bitcoin are the most interesting topics because for most investors the biggest market is the stock market.

Bonds are larger, but not everyone is doing it at the retail level.

To me, Bitcoin is the birth of a new currency similar to gold. So I don’t think it will be traded as much as gold, but it could be used as a balance of payments mechanism.

We have already seen Bitcoin (BTC-USD) being used to trade oil between China and OPEC countries. So the adoption story is there. To me, it truly is digital gold.

It took me a long time to come to this conclusion. I didn’t get on the boat earlier. I made some trades early on but really just wanted to outdo everyone else. I’ve been a buy and hold since August 2020 and really got behind this truck in late 2022.

I never intended to get directly into Bitcoin because I’m not an extremist, but I think it’s a message that people who shy away from it, give it a name, don’t understand what it is, I just want people to actually study it, So they really know what it’s becoming.

RS: Do you want to comment on economic matters? Is there anything to say there?

KS: President Trump has inherited an economy that is, by all measures, by all indicators, very good. We just saw U.S. economic output grow at the fastest pace in three years. GDP has risen. You just have a lot of things going in the right direction.

However, I don’t know how to predict what President Trump will actually try to do and what he will actually be able to accomplish. There are still a lot of unknowns about next year. Ultimately, markets don’t like uncertainty.

Even though I’m optimistic about 2024 because the presidential cycle and everything else is on your side, I will tell you that even though I think he’s probably the weirdest guy on the planet, I think Musk has said some of these things recently Very prescient words. To clean up the system, he said, we have to put in some effort early on.

I think there’s so much room for disappointment in 2025 and 2026 that I think it’s hard to predict the outcome. A year ago I had a very firm prediction. I really don’t 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 option. Premiums are high. The duration is two to three months, so if things go against you, you can quit.

Ultimately, I think, if I had to make a prediction, right, with a gun to my head, a microphone to my mouth, and my feet to the fire, I think next year is going to be a tumultuous year. I think we disappointed in a lot of ways. I think the market has been betting in the wrong direction a lot of times.

I think the gambling nature of what’s going on is unusual. I mean, I’m watching all the betting on the election and it blows my mind. It’s telling, though, I mean, I figured out by August that I was probably wrong about Harris winning or something like that.

So I adjusted my portfolio to make money no matter what, and we did it. We made money on New York Community Bank (FLG), which was up about 10% or 15% during the election. Apparently, money was made from a bunch of Bitcoins. We have some other stuff with Trump on trade.

Now we have some things we don’t do well. Some clean energy stocks are getting hammered, but they’re very attractive right now. I mean, their margin of safety is off the charts. There is really nothing that can be contrary to what we see.

So, will they come back in three years or five years? I have no idea. But I think they’re so cheap that you have to pay attention and find your spots that might actually support the trucks in the next year or two.

But I do think next year is going to be rocky. I think we’re going through these shifts. I think they always succeed in the end. But there’s no telling how quickly it will happen this time.

As for the stock market forecast, I’m writing that article now so it will be up by the time this interview is over. I think next year is going to be a pretty flat year for the S&P 500.

My guess is that a year from now, the S&P 500 (SP500) will be in about the same spot, with a few points in either direction, and we worry about 2026, when the next Fed chair takes office. I think it will be an easier deal.

The next Fed chairman – because it won’t be Powell – will be very dovish. He’s going to lower interest rates, and he’s going to lower them significantly.

So if we have a mini-recession between now and then and they lower interest rates, that’s what the economy needs to grow. It satisfies the fact that the U.S. government must – absolutely must lower interest rates or the debt will crush them.

So in order to avoid deep cuts to services, or to have them make real progress on cutting Medicare and Social Security, that’s what some in the ruling party want to do. We have to see the economy grow. Maintaining economic growth above 3.5% for a long time can solve almost all of our budget problems.

I think that’s the part that people don’t understand because they only hear $36 trillion in debt, but relative to the size of our economy, if we were suddenly growing at 3.5%, the deficit would go down significantly.

If interest rates fall, the deficit will fall significantly. As the baby boomers mature, we reach peak dependence on the boomer retirement system around 2030, and by 2040, we will be dead. So when people start dying, Social Security and Medicare rely less on them, which means bills go down.

So we just have to get through the next decade. Then there was a lot of clear sky, a little bit of green grass, and then a little bit of blue sky. I don’t know the exact path and how we got there.

But as I told you on the air, I’m very optimistic that even if we’re a little too far to the right, or even if we’re a little too far to the left, the fact is that we’re a two-party system and I I used to be one of those people who wanted a lot of partying One, I realize that if I’m in a two-party system, we often experience balance.

Sometimes we even stay there for a few years. Other countries don’t have this. The situation in other countries also varies. Think of it as a scatter plot rather than a pendulum. The pendulum is always in equilibrium, to the right, ticking, ticking, back and forth. We have that. I think that’s what I’ve been doing for a long time.

I think that helps explain why even when we mess up, Churchill’s quote, his observation, Americans try everything right, and then they get it right. Eventually, we got there.

So whether we go a little bit in this direction over the next few years and a little bit in that direction after that, I ultimately think if you think in 10-year increments, that’s what you should be thinking about as an investor, You and we were probably going in the right direction all along, even though you–you were hitting the curb here and there.

So I’m very optimistic in the long run. I don’t know the specific path of the line over the next year or two. I suspect we will experience a very shallow recession at some point.

People will talk about stagflation. People will write scary articles and try to get into the psyche, write a narrative, recite a narrative that scares people or drives them in this or that direction.

As I tell my subscribers all the time, narrative is the most dangerous. Their purpose is to give you wrong information and make you do the wrong things.

There is a book, “The Power of Narrative” or “Narrative Economics” by Schiller. You don’t even have to read the book. You can listen to that. Shiller’s “Narrative Economics” is one of the most important books written for investors in the past decade. Listen to it.

It explains to you how markets react to narratives and why internet-driven and social media-driven narratives, and to a lesser extent, but still TV-driven and radio-driven narratives, drive emotions and lead individuals to make poor decisions, Then affects the investment side.

But eventually, it might work out. Just, how do we get there? There is still some uncertainty.

So you’d better be good at reacting, don’t be stubborn, and make a list of the three or four scenarios that you think are most likely to happen, so that when they happen, when one of them happens, you have a game plan.