Host: Well, new record highs for the S&P 500 as well as the Nasdaq today. Equities are at these record levels, but surging 10-year Treasury yields overall, as well as expanding term premiums, are raising the hurdle rate for equity investors, and with short-term risk-free Treasuries yielding 5% plus, we are looking at Wall Street to separate real free cash flow as well as pricing power from crowded valuations. Geopolitical tensions in the Middle East and rising diesel costs are keeping inflation risks alive. Well, joining us this morning here at the New York Stock Exchange is David Miller, CIO at Catalyst Funds and portfolio manager of the Goalie ETF and the Catalyst Insider Buying Fund. Well, good morning. Thank you so much for joining us. Great to see you. Well, great to have you here on Wall Street this morning, especially as we continue to look at the equity averages continuing to soar, but we have to contend with the bond market and what we're seeing in Treasury yields. So what do you make of this divergence between equities and bonds right now?
David Miller: Normally you think interest rates are going up, that's not so great for equities. I think the reason why you're still seeing equities do very well in this environment is rapid revenue growth, rapid earnings growth for S&P 500 companies, and also a situation where there's some currency debasement. You have a $40 trillion debt and $2 trillion deficit. It doesn't make a lot of sense to keep money in cash if you don't have to.
Host: And I do want to expand on this, especially given the tech leadership that we are seeing for the major stock averages as we kick off the final quarter of 2026. So between some of the previously beaten-down SaaS names as well as refineries that have been benefiting from the gains in the energy sector so far this year, where are you seeing the strongest free cash flow today?
David Miller: Well, I mean, certainly those types of names you mentioned, like Marathon Petroleum, huge buybacks, huge cash flow. If you look at companies like Intuit or Wix or HubSpot, great valuations, double-digit growth. But I also like the leaders, you know, like Nvidia, 20 times forward earnings, 60% revenue growth. That's a pretty compelling valuation, especially when there's backlogs on orders.
Host: Yeah, and I'm glad you mentioned Nvidia because it is eyeing a key market cap level, and that is $6 trillion, which is quite astounding given how far and how quickly that name has come. But you mentioned currency debasement. That is something that we're watching here in terms of FX rates. But when it comes to the relationship with commodities, in particular precious metals and gold, where does gold fit in?
David Miller: So gold has been in this place in between. It's had pressures on both sides. You had, a year or so ago, a lot of inflationary pressure, a lot of people looking to get off of the dollar and buying gold for a number of these central banks. A lot of these central banks then started running into some problems where they still wanted to get off the dollar, but they were short on cash because of fiscal problems, like in Turkey, where they've had some issues, in China, certainly in Russia, in terms of their deficit spending, that they need the cash. So they've had to lighten up on gold. So I think very long term you have some very bullish features for gold that are likely to stay in place for a long time, but you're likely to see some volatility from some of these cross pressures.
Host: Yes, and indeed we have been seeing a lot of cross pressures across commodities as well as precious metals, but I do want to get your perspective on tech valuations and where you stand in terms of potential downside risks.
David Miller: To tell you the truth, I see a lot more upside pressure than I do downside risk, largely just because this really is a revolution with AI. When you look at what you can actually get an answer to on a computer in 10 seconds, which would have taken you many hours, say 15, 20 years ago, it's quite impressive, solving math problems that have never been solved before. And a company at 20 times earnings, that's not a lofty valuation, but when you compare that to 60% revenue growth, that's a bargain on a relative basis. A lot of these companies have huge margins, so it's not like people compare what S&P valuations today versus, say, 20 years ago. You're comparing banks or utility companies or industrials to high-growth, high-margin oligopolies and monopolies that are very hard to displace.
Host: Yes, and while I have you here, we're keeping a close eye on the yield curve, not just in the U.S. but also in other developed economies right now. So I understand you prefer short-duration, high-quality credit over taking duration risk. So can you walk us through this?
David Miller: Sure. If you have to be in fixed income, I definitely prefer the shorter end of the curve, where you're not taking this duration risk. You have this natural—and it's not just in the U.S., it's certainly in Europe, it's certainly in Japan as well, or just basically globally—countries do not want to address their deficit issues. And when you have debt-to-GDP numbers that get over a one-to-one ratio, that starts getting really dangerous, especially, you can see in Japan where it's already over two, or in the U.S. where we're running a $2 trillion deficit on $40 trillion debt. Now, all that can be sustainable if you grow the top line, the GDP, faster than you grow the deficit, but a lot of countries in Europe aren't doing that. You're seeing some of the geopolitical ramifications in countries like France with some of the unrest they're seeing now.
Host: And finally, David, before I let you go, you bring up an important point because since the beginning of the Middle East, like these geopolitical tensions have raised different risks in the economies that you just mentioned, whether we're talking about France or Spain or even some of the nations in the Asia region versus the U.S. So when we're talking about growth, that does lead me to my final question about rate differentials. What does that mean in terms of the American consumer?
David Miller: Well, I think for the American consumer they're certainly feeling pressure. There's been a widening gap between top-income earners and middle-class Americans, so that's created an issue there. And I mean the country as a whole, when you average it all out, is doing quite well, but for the middle class, where they haven't seen their wages rise proportionate to inflation rates, that's where you're seeing a lot of, a lot of frustration, and you're certainly seeing that playing out in the political system. People are frustrated with Democrats and Biden and Kamala and the inflation that you saw in 2022. We saw oil prices well over 100. People are now having the same frustration against Republicans because they couldn't solve the problem either, so it's creating a lot of pressure on both sides.
Host: Well, David, it was great having you on the show this morning. Thank you so much for joining us here at the New York Stock Exchange today, and thank you so much for all of your insights.
David Miller: Absolutely. Thank you.
Host: Thank you.
