"There's A Lot Of Room For Stocks To Fall" As Profit Margins Are Unsustainable | Eric Cinnamond

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**Eric Cinnamond** (0:55)
There's no valuation support under the stock market.

**SPEAKER_4** (0:58)
There's none.

**Eric Cinnamond** (0:59)
Earnings are critical, but the earnings you're seeing now are so dependent on the sustainability of fiscal spending, which is over $6 trillion. You know, this was $4 trillion before COVID. Sustainability of that spending, sustainability of debt growth, and the sustainability of asset inflation to maintain the consumption and the margins you're seeing today, which we believe, again, very unsustainable. There's a lot of room for stocks to fall to get close to any kind of valuation that makes sense on normalized earnings.

**Adam Taggart** (1:44)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Growth stocks have far outperformed value stocks in recent years. And similarly, large cap stocks have trounced small caps. Will that dichotomy continue, or will the pendulum finally swing back to give value in small cap investors their day in the sun? For perspective, we welcome Eric Cinnamond to the program today. Eric's the founder and CEO of Palm Valley Capital Management. Eric, thanks so much for joining us today.

**Eric Cinnamond** (2:13)
Adam, it's a pleasure and I'm honored to be on your show. Thank you for having me.

**Adam Taggart** (2:17)
Well, thank you. As I told you when I reached out to you that I got to give Dave Collum credit for putting you on my radar. You're smirking as you hear his name. Anybody who knows Dave reacts that way. He's just a completely acerbically tongued, a very intelligent, very funny professor of chemistry, I believe, from Cornell. Very outspoken on X as well. But anyways, he DMed me and he said, I should look into you. He said, I think he's one of the most thoughtful small cap analysts and is sitting on a lot of cash, which means he shoots only when he sees the whites of their eyes. I'll give you a chance in a second to say whether that's an apt description of you or not. But one, I want to thank Dave again for putting you on my radar.
Secondly, to kick things off here, since this is your very first time on the program, just to answer if you can my general opening question, I'd like to ask all people that I meet for the first time. What's your current assessment of the economy and the financial markets?

**Eric Cinnamond** (3:21)
First, I want to thank Dave. That was very nice of him. I always enjoy his podcast, so I hope I can live up to his standards. But as far as the financial markets go and the assessment of the economy and the markets, we view things from the bottom up of the 300 small cap companies we follow that are a potential buy list. We always view the economy, earnings trends, anything you could think of under the financial sun, our view comes from the companies. What the companies are saying right now or reporting is a very mixed bag. You have the have and have not economy, with businesses, just like you do with consumers. Some companies are doing very well, generating record profits, record margins. Others are in recession. Consumer discretionary is not doing well. Transportation is not doing well.
Employment staffing companies aren't doing well. Then there's infrastructure, defense spending, aerospace, anything tied to the build out of AI doing very well. Higher end retail is doing well. Higher end consumer. So it's a mixed bag. And when you look at things in aggregate, the economic numbers may indicate that we're in a continued expansion and it looks healthy. But from the bottom up, there's a lot of trends right now that we view as unsustainable. And potentially will lead to more recession, more like a recession.