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- [00:01]
Sponsor/Announcer
Support for the show comes from vcx, the public ticker for private tech. The US Stock market started history's greatest wave of wealth creation. From factory workers in Detroit to farmers in Omaha, anyone could own a piece of the great American companies. But today, our most innovative companies are staying private longer, which means everyday Americans are missing out. Until now. Introducing VCX, a public ticker for private tech. Visit getvcx.com for more info. That's getvcx.com carefully consider the investment materials before investing, including objectives, risk charges and expenses. This and other information can be found in the funds prospectus@getvcx.com this is a paid sponsorship.
- [00:43]
Josh Brown
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- [00:52]
Ed
Talk off the teamwork.
- [00:54]
Josh Brown
They think that this design could be a contender. When somebody wonders what's the next steps, AI helps you finish the rest. Bolts are tight now your plan's refined. Run a smoother business when you're all aligned. Do that with Acrobat. Learn more@adobe.com do that with Acrobat.
- [01:14]
Thumbtack Advertiser
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- [01:59]
Ed
Welcome to Prof. Gmail. Hold on.
- [02:03]
Josh Brown
Sorry, sorry, sorry, sorry.
- [02:05]
Ed
This is all cold open. Welcome to Property markets. Scott is still out. He's on spring break. But we have a very special episode for you today. Today we are discussing the market's reaction to the tenuous ceasefire. And we are also looking at an update on big tech and also the Halo stocks with the man who actually invent the term halo. This has been all the rage on Wall street recently. It is the new investment trade, the new investment thesis in the world of AI. And the guy who created it is here. He's in the building. Josh Brown. Josh, thank you for joining us.
- [02:50]
Josh Brown
I am not in the building.
- [02:51]
Ed
You're not in the building.
- [02:52]
Josh Brown
I'm in the Hyatt Regency in Coral Gables.
- [02:56]
Ed
Coral Gables. That's Fun. You're on spring break, too?
- [02:59]
Josh Brown
Sort of. But I like to, I like to work as much as possible when I'm on vacation. So this is, this is me vacationing on a podcast.
- [03:07]
Ed
Yeah. Is this really work for you? I mean, you love this. No. You love joining this podcast.
- [03:11]
Josh Brown
I love you. I love you. That's the truth. I, I, I gotta tell you, I say no to, I don't know, a hundred things a month, but anytime you guys need me, Scott, Prof. G. Podcast Ed, I'm just, I'm in. I love you guys.
- [03:27]
Ed
We always need you and we really appreciate it. And you and I had a lovely dinner the other week as well. Yeah, we had. What did we have? We had some ribeye.
- [03:35]
Josh Brown
We had the whole menu.
- [03:36]
Ed
We had the entire menu.
- [03:38]
Josh Brown
Very on brand.
- [03:42]
Ed
It was a very good time. Well, we're very glad to have you on the show, Josh, and we want to get right into it because we know that you have some jet skis to attend to. Probably. Maybe you're doing some.
- [03:54]
Josh Brown
I have things to do, people to see. So the jet skis can wait.
- [03:58]
Ed
Fair enough. All right, well, let's start with our first story here. Now is the time to buy. I hope you have plenty of the wherewithal. Last week's development in Iran left investors trying to make sense of a rapidly shifting situation. First, President Trump threatened to wipe out the country. Then came news of a ceasefire, which was supposed to include reopening the Strait of Hormuz. The markets rallied in response, but within 24 hours, the straight was still jammed and confusion emerged over the scope of the deal, specifically whether it applied to Lebanon, where Israel had continued to strike Hezbollah. By the following day, stocks were retreating and oil was climbing again. So the details remain unclear and the situation is still fluid. But one thing is clear. Trump has escalated dramatically again, and then he has again stepped back from the brink. So all of this raises a key question for investors. How do you navigate an environment like this? Josh? Stocks rose. People thought, okay, maybe the straits open now. Maybe we have a deal, maybe we have a ceasefire. Wasn't totally clear. What do you make of how the markets reacted? What do you make of the situation in Iran? What are we supposed to do about it as investors?
- [05:16]
Josh Brown
So paradoxically, you think about a professional hedge fund manager, someone who, like, as a stated premise, tells their clients, I am going to specifically navigate all of these geopolitical macro issues. I'm going to be on top of currency movements, commodity movements, oil price spikes, volatility spells in stocks. I'll be involved in the rates market. I'm going to have a view on global GDP by country, et cetera, et cetera. That person is collecting a fee of 2 and 20. They are professing to have the ability to do this on a consistent basis. Putting aside the madness of how impossible that sounds, I suppose there are a handful of people who have demonstrated that they can make these calls repeatedly or not lose too much money when they make a call that goes wrong. Cause they know how to hedge and it's their life's work. It's a 24 hour, seven day a week profession. Most of your audience, Ed, are not sitting in that seat. Most of the people listening to us right now do not have that responsibility. They haven't told a third party that they are managing money for and charging a lot of money for that, for that privilege, that they can do that. So my answer to your question would be why try? So the paradox of the individual investor is that by not having that responsibility, they actually are in a pretty good position to ride this out and not react to everything that happens because no one's watching, no one's paying attention. You have a brokerage account, maybe you have a joint account with your husband or your wife, got an IRA, you've got your 401k. Maybe you have a portfolio somewhere where you're a little bit more active and that's fine. You're not being graded, you're not being judged. No one is expecting you to know the next move that Trump will make. The next 15 points up or down in WTI crude, it's not part of your purview. You don't have to do it. You obviously can't do it. But it's, it's not the type of thing where you need to act like you have any sort of edge. And so I think this is the type of market where regular investors are, are in a much easier position than the type of investor who is claiming. I'm going to get this stuff right all the time. I'm going to be at the forefront of all these trends and changes and juxtapositions and I'm going to figure out the puzzle. Don't bother. So I know it sounds glib. So then like, what do you actually do? I think there's a couple of things. The first is set the rules in advance. Now is not a good time. Right in the, in the heat of the moment, now is maybe not the best time to decide like all of the things that you're going to do in your portfolio. But when things are calm, take that opportunity to say, okay, things are pretty good. Let's say January this year. I understand that every year there's a 14% decline in the market. On average, there's some sort of a freak out. Last year it was tariffs, this year it's Iran. Next year it'll be an alien invasion. How do the rules of my portfolio work? When do I rebalance? When do I get more aggressive? Hopefully it's into a sell off, not into a rally. When do I make decisions about global allocation or do I not make those decisions? How do I want to tilt my portfolio? Which factors do I want more exposure to and which do I want less? Has anything in my life changed where I have to revisit my investment policy statement? Do I even have an investment policy statement? Or do I just wake up every day and think I'm supposed to try to make money? So when you do these things in advance and then you stick to them, you stick to these rules, you can get through a period of time like this where every day is as uncertain as the last. So one day we're gonna wipe out an ancient civilization and it will never come back again. And the next day, China steps in, urges Iran to agree to certain things so that the President has something he can tweet that represents a de escalation. You get the biggest fall in crude in a really long time and an explosion to the upside in stocks. And then overnight, like minutes later, Iran is claiming that we're violating the ceasefire. And here we go again. The whole cycle repeats. Why bother? You have no edge. So I think that I have spent most of the last 15 years aggressively counseling people to not pretend that they're in the seat and that they have this responsibility of nailing the crisis, calling the top, calling the bot. It's unnecessary. The returns of investment markets have been spectacular. None of this sort of tap dancing has been necessary.
- [10:25]
Ed
And it does seem especially ridiculous in this context, where not even the people closest to him can make any predictions or understand what's going on in his head. And this is something that I said last week when it comes to what's happening in that guy's mind. And yes, he has a lot of power and it does matter. And if you did know what was gonna happen, you'd probably make a lot of money. But no one knows more about what he's thinking than you do because he's a complete bowling ball. Like, there's no way to actually really predict it, perhaps unless you, you're in the room with him like 10 minutes before he makes the decision, in which case there might be a lot of people who actually are making a lot of money on that. And we can get to that in a second, and we probably should because there was some kind of sketchy trades that we saw during the week in the buildup to the ceasefire quote deal. But just to push back on your point a little bit, so I'm totally with you, no one knows what's gonna happen here. And the idea that you have an understanding of what's really going on in the Strait of Hormuz, you really know what Trump's gonna do. And I'm gonna trade on that. That seems a ridiculous premise. However, it is possible, and this is, I think, the thing to consider, or I guess this is the question, is it possible that the events this week have structurally changed something that may adjust your longer term investment strategy going forward? Maybe it's that you now believe that we live in an extremely volatile world, that there are now threats of or implicit threats of nuclear warfare, and that wasn't really the case before. Or maybe you believe that we now do live in a world where, where oil prices are going to be extremely volatile, more so than we've seen in the past. Or at least that maybe the insurance premiums and the risk premiums to get oil into your nation, into your car, into the tank, those are going to go up. And therefore this is just. We're paying a higher premium for energy in general. Do you believe that we are at this point that we must contend with, with the possibility that something has structurally changed here? Or are we living in more or less the same world as we were last week?
- [12:42]
Josh Brown
These are all very real risks. But risk is the reason why you get paid, right? If there, if there's no risk in the markets, then the multiple on earnings would be 100 times earnings. Because, you know, why just pay 90 times earnings. You could pay 100 times earnings. There's no risk. So the risk is the reason we get paid. And I would argue a couple of things. A lot of these risks are in the process of being baked into the cake and have been for quite a long time. It's not as though every stock is at an all time high. A huge. When we think about the Russell 3000, so this is the preponderance of all US stocks, basically, if you're not in the Russell 3000, you basically don't exist. So that is the Russell 2000, which is small caps, and the Russell 1000, which is large and you know, mega large and some mid. So this is the market. A huge portion of the Russell 3000 is negative year on year. We have a gigantic percentage of stocks that are in 20% plus draw downs or what you and I would refer to as a bear market. We've had multiple compression in the market this year. So most of the mega cap tech stocks peaked in November. Market overall didn't peak until January. And since then we have seen the forward earnings multiple fall from 23 to 19. So we were 23 times earnings, which is, you know, fairly rich. I wouldn't suggest 19 is cheap, but what I would suggest is a lot of risk is being baked in. How is it possible that The S&P 500 is only down slightly on the year, but the multiple to earnings has fallen almost 20% because earnings have been growing while stocks have been treading water or falling. And so arguably it's less risky now than it was three months ago. I know that sounds insane, but we're
- [14:46]
Ed
selling at a lower multiple from an investment perspective. Right?
- [14:50]
Josh Brown
From an investment perspective. I would also point out, and this is really the key thing, earnings are growing and not just for the seven tech stocks that everyone talks about. Earnings are growing in most sectors in the S&P 500. And really the war, whether it goes on for three months or three weeks or three days or three years for that matter, the war is going to resolve itself. There's nothing as an investor that you can do to speed that process up. And there's no possible way that you can truly understand the depth of it, the extent of it, the duration of it. If you have earnings growth, which is what we have, and you have interest rates that are not rising, you've got like supportive interest rates. Many people think that they're too high. Some people think they're just right because of the threat of inflation being passed through the prism of higher energy prices. But if you have a, an interest rate picture like the one we have, and you have a earnings growth outlook like the one that we have, once this war does come to an end, stocks probably resume their upward trend. That's been the history. So now you think about a global portfolio away from just the US market year to date. As of the close yesterday, emerging markets are up 5%, developed markets ex US. So the way to think about that is Europe and Japan up 2.4%. Europe itself is flat. The S&P 500 is minus 3%. Now we look at things on a rolling one year basis, which is more important year to date is arbitrary. On a rolling one year basis, developed markets ex US are up 48%.
- [16:41]
Ed
Unbelievable.
- [16:42]
Josh Brown
48%. Emerging markets are up 55. The US is only up 34. So investors with global portfolios looking back at their rolling one year return. Like what crisis? Like what? What is everyone carrying on about? I'm making tons of money still feel pretty good. I think the US underperformance is the externality of what you're talking about. The political instability, the uncertainty about Trump's next move, et cetera. I think that's already being reflected in the fact that international stocks are now outperforming US stocks on a one year basis. I know it sounds crazy, but it's been a really long time since we've been able to say that.
- [17:27]
Ed
We'll be right back after the break and if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify or wherever you get your podcasts. Support for the show comes from Deleteme. Deleteme makes it easy, quick and safe to remove your personal data online at a time when surveillance and data breaches are common enough to make everyone vulnerable. Digital privacy isn't just a concern for those in the spotlight. The truth is that even private citizens are at risk, and we should all be thinking about how to keep our own personal data as well as our families safe. Our colleague Jennifer Sanchez tried Delete Me. She was surprised to find out how much personal information was already out there, but Delete Me made it very easy to clean it up, take control of your data, and keep your private life private by signing up for Delete Me now at a special discount for our listeners. Get 20% off your delete Me Me plan when you go to joindeleteme.com Prof. G and use promo code Prof. G at checkout. The only way to get 20% off is to go to joindeleteme.com Prof. G and enter code Prof. G at checkout. That's joindeleteme.com Prof. G. Code Prof. G. Support for this show comes from Vanta. If you run a business, you don't need us to tell you that risk and regulation are rising. More and more customers expect clear proof of security before they'll commit. Building that trust is essential to closing deals, but it can also be costly, confusing, and time consuming. Vanta says they can help. Vanta automates your compliance process to bring compliance, risk and customer Trust together on one AI powered platform. So whether you're prepping for a SoC2 or running an enterprise GRC program. Vanta keeps you secure and keeps your deals moving. And with continuous monitoring, Vanta helps with real time reporting and security reviews. You can share instantly. Instead of searching through audits and spreadsheets. You get a system working quietly in the background, keeping you compliant, reducing risk and helping your business grow faster. With confidence, you can get started at vanta.com markets. That's V A N-T-A.com markets vanta.com markets
- [20:00]
Sponsor/Announcer
Support for the show comes from VCX, the public ticker for private tech. For generations, American companies have moved the world forward to their ingenuity and determination. And for generations, everyday Americans could be part of that journey through perhaps the greatest innovation of all, the US Stock market. It didn't matter whether you were a factory worker in Detroit or a farmer in Omaha, anyone could own a piece of the great American companies. But now that's changed. Today, our most innovative companies are staying private rather than going public. The result is that everyday Americans are excluded from investing and getting left further behind, while a select few reap all the benefits. Until now. Introducing vcx, a public ticker for private tech, VCX by Fundrise gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolutions, space exploration, defense tech and more. Visit getvcx.com for more info. That's getvcx.com carefully consider the investment material before investing, including objectives, discharges and expenses. This and other information can be found in the Fund's prospectus@getvcx.com this is a paid sponsorship.
- [21:14]
Ed
We're back with Prof. G Markets. This does put Europe in a more vulnerable position than the US but it is interesting to your point, the way that multiples have expanded in other markets compared to the US would kind of say a different story. Everyone's saying, oh, the US Is insulated from this. But actually, if you look at the one year, what we've seen in terms of multiple contraction in the US versus multiple expansion in other markets, it might say a different story to just put
- [21:42]
Josh Brown
a button on that. It's, it's systematic. So of course there are risks to Europe, there are risks United States, some of those are risks in common, some of those are idiosyncratic to the particular region. But I want people to understand this because I know the, the average person, like they'll look at the Nikkei, they'll look at maybe the footsie, like they'll look at like a European index, Japanese index, but they won't really understand the extent to which this is happening. When you look at international stocks versus US Every version of international stocks are beating US Stocks. This is year to date. Okay? Low volatility international up 8 and a half percent versus 3.7% in the US international growth up 5 and a half. That's versus negative 2% in the US momentum international 9.2% year to date versus 1.3% US quality. So the best companies internationals plus 7.1% US plus 1.8 shareholder yield. This is a factor where we take dividend plus buyback 6.6% international versus 3.3% US that's a double value. International value stocks plus 6.4 US plus 4.5. It almost doesn't matter what stocks you buy, what style, what strategy. If you are in any way at least equally weighted globally relative to the benchmark to us, your portfolio looks amazing right now.
- [23:23]
Ed
And it is that global rotation that we were talking about last year. Everyone was saying it was the sell America trade, which wasn't quite right because the S and P continues to rise, but it was really like more of a Hold America trade. And then add some, add some internationals into your portfolio.
- [23:40]
Josh Brown
JP Morgan has emerging market earnings per share growth for this calendar year at 4,400%. Yeah, 40. And then you say, well, why are emerging markets outperforming? Or why are multiples expanding in emerging countries? Isn't the world a risky. Yeah, everyone understands those risks and, and these stocks were too cheap anyway.
- [24:03]
Ed
Right.
- [24:04]
Josh Brown
And so you get the double benefit of earnings growth plus multiple expansion. I'm telling you, if em can grow earnings 40% this year, we're going to be doing shows at the end of this year. People saying, oh what? Why don't I own more emerging markets? We're not there yet. Because the things I'm pointing out to you, nobody knows this stuff except for
- [24:23]
Ed
pros, except for us.
- [24:26]
Josh Brown
Your audience is going to look at their portfolio and say, what the hell did I miss? Why aren't I in Brazil?
- [24:31]
Ed
Well, to be fair, we have been making that claim for about a year now. Good. And people said that we were US doomers and that we had tds, et cetera. And we tried to push back on that as much as we can. But I mean, it has been an incredible trade and it does make you consider the question, like, how would the US stock market be performing right now if we didn't have tariffs and, and if we didn't have a war with Iran emerging? You'd have to think that the stock market would be absolutely ripping because of that incredible earnings growth which we will get to in a moment. In our second story, I just want to, as we wrap this up, get your reactions to another development in this insider trading saga that we continue to see here. $950 million worth of oil futures were sold just a couple of hours before Trump announced that ceasefire with Iran. I think that is probably, yes, concerning, because I think it's, it's feasible that these traders were actually just thinking like, he is going to Taco. And I think that was maybe quite reasonable in the context of, of the other scandals that we've seen. It does raise some cause for concern. But then in the prediction markets, three accounts made more than $600,000 betting on the ceasefire. They had the same accounts that correctly bet on the date and the timing of the US Attacks on Iran. We don't know who those accounts are because it appears that our law enforcement just has no interest in investigating this. In fact, we saw that actually over at the SEC there were attempts made to investigate this stuff. And then the woman who tried to make those attempts was ousted, dismissed from the position. We saw similar things happening over at the ftc, but that's maybe a separate story. I just want to get your reactions to this insider trading issue because, I mean, as an investor, it seems as though there is a growing number of people who are close to the president and we don't know who they are. And we can't definitively say that it is exactly happening as the way that we are claiming, but it seems that there's cheating. And I just wonder what you make of that and how it affects your faith in markets and this game of investing that we have dedicated our careers to.
- [26:43]
Josh Brown
I read the same articles you do, so I don't have any insight into what happened, whether or not it happened in the first place. I think one of the reasons you like me, and I think one of the reasons I like you, we're a little bit of a yin and yang, I think, where you're very idealistic, I'm extraordinarily cynical, and I think this is like my 28th year on Wall Street. I just think this stuff goes on whether we're aware of it or not, everywhere around the world, all the time. Republicans, Democrats, old people, young people. It just, it's, it's human nature where people have an information advantage. They will seek to do something about it, and we have no idea.
- [27:30]
Ed
So it doesn't upset you?
- [27:32]
Josh Brown
Well, upset me to the point of like, I can't carry on with my day. Not really.
- [27:38]
Ed
That's not what I'm saying, does it upset you at all?
- [27:41]
Josh Brown
I mean, I would prefer it if. If it didn't exist. But I think we have to acknowledge, unfortunately, it's. This is. This is the world we live in. And the problem is this instantly becomes politicized. So there will be people that look at this and say, the MAGA world, they're tipping each other off and they're trading on war developments, and maybe they'll even be congressional investigations. I have no idea. But the problem is the other side will say, well, oh, you're talking about my team. What about your team? Why is Nancy Pelosi a better trader than Stanley Druckenmiller?
- [28:18]
Ed
100%.
- [28:18]
Josh Brown
You almost like it. I don't want to say it's a waste of time even talking about it. I think the way I would phrase it is like, you're. You're not going to. If you're on the red team, you're not going to convince the blue team that they've ever done anything wrong. And if you're on the blue team, you're not going to convince anyone on the red team. I'm on the green team.
- [28:36]
Ed
Why can't we just agree that. That both sides are doing it and agree that it's bad and agree that.
- [28:42]
Josh Brown
I will strongly agree that there are people who are willing to do what, you know, whatever it takes to get rich on both sides. One side maybe. One side maybe pretends a little bit more that they don't, but I'm on the green team. I need to focus on my job, what I have to do, the people I'm responsible for.
- [29:03]
Ed
Fair enough.
- [29:05]
Josh Brown
It would be great if we lived in a world where, like, nobody was trying to get away with things. But, you know, that's not this world, and I know that's not this world. And I think it could become a distraction if you let it make you feel that you can't win or the system is rigged or why even bother investing? It's all, you know, it's all fake. A lot of people. Look, a lot of people after the great financial crisis, never came back to investing again because they saw a lot of the people who were responsible for the crisis really not suffer any consequences and in some cases be issued bonuses the following year. And they just looked at that and they said, this whole thing is a joke. I'm out. I don't like that. That's. That's neg. I think that's negative for the US Investor psyche. And so I'm not for it. And I'M not dismissing it and I'm not telling you I don't care about it. I think what I, what I try to get across is like, okay, fine, that's a sideshow for most of us. We need to focus on ourselves.
- [30:08]
Ed
Yeah, fair enough. I mean, I think the takeaway being just because there's cheating doesn't mean that you shouldn't play the game. You got to play the game if you want to get rich and if you want to build economic security. But if the system is rigged in a big way, I mean, you, you want to fix that in some way. I mean, it's not a good thing that people woke up after the financial crisis and they said, this is, this is, this is rigged in a lot of ways, which was true.
- [30:34]
Josh Brown
Right. And if that becomes a very widespread sentiment, you could knock out a whole generation of investors who, who come to the conclusion that this whole thing is stacked against them. And I do think that that's a negative sentiment, that we, we need law and order, we need securities regulation, we need cops, we need people who are keeping everyone honest. But you're not going to get everyone. And not everything that looks like a scandal actually turns out to be one.
- [31:05]
Ed
Yes. Yeah. I think one thing we can take away is this should not make you not want to invest anymore. If that's your takeaway, then you're getting into real trouble and expect more of
- [31:14]
Josh Brown
it in the future.
- [31:16]
Ed
Yeah, yeah, yeah. Fair enough. We'll be right back. And for even more markets content, sign up for our newsletter@profgmarkets.com.
- [31:34]
Sponsor/Announcer
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- [32:37]
Josh Brown
Breakfast Meal and Hunt Tricks Meal have just dropped at McDonald's. They're calling this a battle for the fans.
- [32:43]
Rumi
What do you say to that, Rumi?
- [32:44]
Josh Brown
It's not a battle.
- [32:45]
Ed
So glad the Sacha boys could take
- [32:47]
Josh Brown
the breakfast and give our meal the
- [32:49]
Ed
rest of the day. It is an honor to share. No, it's our honor. It is our larger honor.
- [32:55]
Sponsor/Announcer
No, really stop.
- [32:57]
Josh Brown
You can really feel the respect in this battle.
- [33:00]
Rumi
Pick a meal to pick a side
- [33:03]
Ed
and participate in McDonald's while supplies last.
- [33:06]
Rumi
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- [33:38]
Ed
We're back with Prof. G Markets. While all of the chaos with the war has been unfolding, it's been hard to focus on anything else. And the headlines are sometimes changing by the hour. But one trend has been consistent through this whole year so far. Tech stocks are getting hit hard. Microsoft has fallen more than 20% year to date. Oracle is off over 26%. Salesforce is down more than 30% as a whole, the IGV, which is the software index, is down more than 22% this year. Josh, this is really interesting for a lot of reasons. Max7's lost nearly $2 trillion actually. Sorry, more than $2 trillion in market cap year to date. And you actually went in and you bought igv. You bought software stocks, I believe it was last week. So give us your views on what's happening in the tech sector right now. And why did you buy. Why are you bullish?
- [34:37]
Josh Brown
I don't know that I'm insanely bullish on software. I just looked at, I looked at a full scale panic and just indiscriminate selling of these names for months. And at a certain point I said this looks carried away, stepped in, but that's on a trading basis and I'm up a little bit from there. But I just look at the top 20 holdings of the IGV. These are some of the best companies in the world. Salesforce, Microsoft, Palantir, Crowdstrike, Palo Alto Networks. And it's not that I don't think that these companies are at risk of AI related disruption. Some of them are at more risk than others, but they're all going down. They're all down anywhere from 25 to 50%. It's not as though saying oh no AI is going to eat their lunch. Like that's not a unique point of view. That's the consensus. So I just looked at, so I just looked at it one day and I just said, you know what, this probably bounces. I don't know that that bounce is sustainable or turns into a new bull market. But I do want to gently correct something that you said about tech stocks getting killed. It's actually not true. Software stocks are getting killed. Tech stocks are doing great. I know that sounds, I know people like wait, what, what's happening away from the hyperscalers that are currently pursuing the biggest capex spending cycle of all time and away from Software SaaS, Enterprise software Tech stocks are doing great. And what the tech stocks that are doing great have in common is they're benefiting from this AI capex wave. And they are physical technology companies, halo if you will. They have heavy assets and low obsolescence risk. I'll give you some examples. Sienna is a company that makes networking equipment, switching routers, Cisco servers, racks, et cetera, Dell. These stocks are all at or near all time record highs. Corning fiber optic cables, also part of the data center capex build out. Then you look at some of the chip companies. Jabil Circuit, they call it Jabil these days. You look at Sandisk, you look at Micron, you look at Broadcom, Nvidia, these are all companies that are benefiting from that capex spending cycle that's been hurting the Mag 7 tech names. So one half of that equation are the spenders. The other half of the recipients, the recipients are going up, straight up. Some of these charts look like the Empire State Building. So it is not true that tech is getting killed. It is true that mega cap tech is not having a great year. But even within mega cap tech there's a pretty big separation between for example Meta and Apple. Yep, Apple is not having a great year. But Apple is more on the hardware side and significantly more halo. They will benefit from all of this AI capex without having contributed to any of it. Their capex is actually negative versus last year. Meanwhile, if you log into Chatgpt log into to Claude. Apple's getting paid The Apple tax 30% in the first year, 15% thereafter of the revenue coming from the usage of these products in the iOS environment. So Apple is halo. It's physical. It's the devices themselves, phones, AirPods, iPads, watches, MacBooks, et cetera. So it's tricky, the technology market, it's tricky to say it's all doing this or it's all doing that. There's an extreme bifurcation.
- [38:36]
Ed
It's interesting because on the halo point, it does seem as though the momentum. So just so everyone knows, you create this term heavy asset, low obsolete assets. It describes these more physical companies that you're describing here and it describes a wave that was emerging and developing over the past several months and it has become a very, very popular and actually crowded trade, as you point out with those charts that look like the Empire State Building. Meanwhile, the software names, the, the application layers have been getting absolutely battered. Companies like Salesforce and ServiceNow and even some of the cybersecurity names you mentioned, CrowdStrike, those companies have been getting destroyed. And so I guess the question becomes like, at what point does either of those trades become overplayed and when does it get old? And it does seem, my view, I mean, you bought igv, you're saying it was more of a trade play than a real long term investment. Maybe you can elaborate.
- [39:42]
Josh Brown
Yeah, because you know why? Because these things in the short term get overdone. Like the like thematic, thematic trades that become popular and crowded in the short term. In the short term, you're right, like they get carried away and then there's a correction.
- [39:59]
Ed
That's what appears to be happening in the software market.
- [40:01]
Josh Brown
Yeah, so, so look, let's talk about those software companies that I mentioned. The Salesforces, the, the, the Microsofts. It's not like Anthropic is launching all these products and they're, they're, they're sitting at Salesforce eating crayons. Like they are very much aware.
- [40:23]
Ed
Exactly.
- [40:24]
Josh Brown
They are very much aware of how much time, energy and money they need to put into their response to this. And what they have going for them is, and this is the truth is they have not been disrupted yet. Most of these companies are reporting record earnings and revenue and they have the cash flow that will support very, very intense R and D&CPEX as they formulate their AI strategy. They also have the relationship with the customer. So it's, I don't think everyone can win, but it's never like that. There's always competition. Some of these companies grew the servicenows, the workdays, the Adobes in the last 10, 15 years. Some of these companies grew up almost without competition. Investors in those stocks became complacent. Like it's Adobe. What replaces Adobe? Nothing. Like, what are you gonna tell me about Figma? Give me a break.
- [41:26]
Ed
Right?
- [41:26]
Josh Brown
So people sort of had that and then a year or two ago that stopped because we have this new class of technology player that is speedrunning through their innovation cycle, Anthropic and Perplexity and OpenAI and they're raising a ton of money and they're making partnerships and they have huge resources and they've recruited an unbelievable amount of talent and now it's game on. And these software companies, they're not disappearing, but they're competing in a way that they haven't had to for a long time. So viewed through that prism, the multiple contraction makes sense, but it gets carried away. So I'll give you the, the day that I said, you know what, I'm stepping in. This is bullshit. There was a story that Anthropic was about to disrupt all of cybersecurity. Like in other words, companies were going to say, oh, let's rip all this Palo Alto stuff out of our network and we'll just vibe code something with Claude and we'll. Give me a fucking break. There's no board of directors at any public company anywhere in the world that would sign off on, on that kind of cybersecurity plan. If the CTO came and presented, it'll never happen. And so like that was the day where I'm like, you know what? This whole thing is nonsense. I run a business. I am a Salesforce customer. I would love for there to be an AI driven solution where I could take that six figure expenditure out of my, you know, off of my line items. I'd love to pull it out. The reality is it's a system of record for my business. It's enabling secure sharing of data, transmission of information. It's ha. It's the operating system of the firm. If something comes along that's AI driven, we're going to look at it. We're going to look at it. It's not going to be free. Oh, it's free because it's AI. What are people talking about? Literally, what are people? So, so I just, I said, you know what? This has gone too far. Even Jensen Huang has made multiple appearances, including on his own earnings call, describing the extent to which this is stupid. So I'm willing to believe Jensen over the hedge fund analyst who's five years out of school, who's a disruption hippie and thinks all these companies are going to zero. I'm willing to trust Jensen again. It's difficult if we think the publicly traded software companies are under pressure. Think about the private equity backed software companies that everyone's worried about. Private Credit. Yeah. A $50 million SaaS software company that sells to auto dealerships might have to face down an anthropic built product that comes in at a much lower price point and could do much more. Guess what? That's, that's capitalism. You can't like it on the way up and not on the way down. There's competition like grow, grow up. And, and here's what the market has done, the internal logic of the market. This year I identified this on February 9th in, in my, in my article that I wrote. Everything that's happened since then has, has bolstered what, what I was trying to say, which is that the market's going to figure out. We have been underpaying for companies with heavy assets and overpaying for companies that are cap capital light, or asset light is how they called it. So we've been overpaying for these asset light SaaS software companies for 10 years. We've been underpaying for things that really fucking matter. Like companies that own power plants and pipelines. Way underpaying that. Here's what that adjustment looks like. I'm giving you year to date sector performance. Energy up 36%. You think we're going to need energy? Okay. Materials, up 10%. Utilities, up 9. Staple 7. Industrial 6. Real estate plus 5%. You want to guess what every one of those sectors has in common? Halo, halo, halo, halo, halo. These are all companies with heavy assets on their balance sheets unreplaceable by a chatbot. These are not companies that sell data. These are not companies that are operating a layer on top of a cloud provider. These are companies that have metal and steel and timber and bricks. And that adjustment is what we're seeing. Here's the other half of the market. Communications, negative 4%. TAC negative 7. Financials, negative 8. Consumer to scratch negative 10. Those are not halo for the most part. You know, with some nuance which we talked about. Health care is interesting. Not acting well this year, but biotechs are doing great. I actually think the world of proteins and molecules is extremely halo. I don't know how AI does anything other than help these companies speed up clinical trials, discover new Compounds enable all sorts of testing that normally would have taken lots of human subjects and years. I actually think AI is a massive tailwind for a lot of areas within health care, robotics, for hospitals that are understaffed, et cetera, et cetera, et cetera, et cetera. So I think Halo is health care is halo, but not acting well this year. Maybe that's an opportunity. But I think the market has now organized itself in a very different way than what we're accustomed to in the post financial crisis period.
- [47:08]
Ed
But there is also another distinction that should be made here which I'm finding very interesting. Just so you know, I also went in and bought some of these names, but I did it in SaaS Apocalypse. 1. I went for Salesforce, ServiceNow, Adobe and also Microsoft. And I think that the Microsoft staff has been stunning. By the way, I'm not up on those trades. I was at one point in time and then we had another SaaS apocalypse.
- [47:32]
Josh Brown
You never buy SaaS apocalypse.
- [47:36]
Ed
I don't know. I still, I'm still, I'm still actually quite optimistic because to your point, I actually think a lot of these companies are very well positioned for this AI revolution. And you think about what's happening. I mean, you made the point with Salesforce. I love what you say. They're not eating crayons. They're actually figuring out how to integrate AI into their, into their systems.
- [47:58]
Josh Brown
All day this is all they talk about.
- [48:00]
Ed
That's all they do. They're actively growing those AI revenues. ServiceNow is reporting incredibly great earnings. They are also growing their AI revenues. But people say no, it's all going to be a problem because the new companies like anthropic and like OpenAI, they're going to ruin the whole, the whole game. They're going to ruin the party and they're even going to ruin the party for a company like Microsoft. Why? Because yes, Microsoft makes a lot of money from Microsoft Office and that suite of products. But also Microsoft is way overspending. They're investing all of this capex, they're putting up platforms, allowing all this money. Same with Meta, same with Amazon, et cetera. The thing that just doesn't make any sense to me, that's exactly what OpenAI and Anthropic are doing. I mean those companies are wasting, or not necessarily wasting, spending yet. But they are spending so much money right now, the unit economics don't make any sense. What would happen if they were publicly traded? Would they get destroyed by their own products?
- [48:59]
Josh Brown
Really good point. OpenAI has evaluation of 852 billion as of the last round of funding raising money from Microsoft Nvidia, like the. The savviest investors on the planet are investing into OpenAI probably comes public, if not late this year, early next year, probably worth at least a trillion dollars. They are, they are committed to 600 billion in spending on compute that we know of, like as of today. That's one.
- [49:26]
Ed
They said one and a half trillion out loud at one point.
- [49:30]
Josh Brown
Yes. Now they are also actively telling anyone who will listen that they expect to spend the rest of this decade burning, burning tens of billions of dollars, peaking at 85 billion in the year 2028. So two years from now they're guiding to a burn of $85 billion. Okay, they are talking about profitability in 2030. Okay, maybe the point is they're number three.
- [50:02]
Ed
Exactly.
- [50:03]
Josh Brown
Anthropic is two, Gemini is one or vice versa, depending on if we're talking about enterprise. But that's the number three player in, in. In AI right now. And it's mostly consumer AI for ChatGPT. The number three player is going to burn $85 billion two years from. From now. This is the guidance. So that's 1, 2. Anecdotally, you probably have loads of friends who have sent you a text or an email or a dm. Yo, check this thing out. I just built in Claude. It's so sick.
- [50:37]
Ed
Like that stupid website, it sucks more than.
- [50:41]
Josh Brown
More than an art project you made in fourth grade. And you have to. Oh, so cool, man.
- [50:49]
Ed
That is 100% true.
- [50:51]
Josh Brown
Yo, yo, yo, yo, yo. Check this out, check this out. I put all my playlists out. All my Spotify playlists are available on this website. And you could search it by artist, but I don't want to. And it looks like garbage. Yeah, but I. Yeah, but I made it. What are you, my son? I don't give a shit. You. You made it terrible. So, so let's. So all I'm saying, I'm not saying go buy every software stock, I'm just saying like the narrative gets, gets. I invented this Halo shit. But it gets carried away at times and I think we've been through a
- [51:25]
Ed
few of these and it gets very, very confused. Especially when you have this new paradigm where the biggest players in this market aren't publicly traded. So we don't really know what's happening. We don't really know what the valuation of OpenAI really is. If it weren't being propped up by its vendors, the people from which it buys stuff from, ie, Nvidia et Cetera,
- [51:45]
Josh Brown
we will buy compute from you and chips and in turn you will buy. Buy our stock.
- [51:49]
Ed
Exactly. So we don't really know what the actual market cap of these companies really are. We don't know if, I mean, these companies are projected. And this is the incredible stat that we got from, from Paul Kadrosky, who we had on the, on the program last week. Anthropic OpenAI, SpaceX, if they go public at what people expect, it's going to be $3.75 trillion in market cap. That is more than all of the inflation adjusted. That is more valuable than all of the.com IPOs put together. So it's an incredible valuation here that we're about to see. But again, if we saw the financials of these companies, if we really understood, if everyone really had a clear vision in their heads of this is how much OpenAI is spending, this is what the unit economics look like. This is how much money they are losing. Every time you put a little stupid prompt in on your computer, what would the stock market actually be look like? What, what would happen to that stock price? And how would people adjust their expectations of say, Microsoft, which is down 20% year to date. But we don't have that information. So I think the narratives are getting very confused.
- [53:00]
Josh Brown
Yeah, what they need to do is continue to add users and show revenue growth. And so OpenAI has now introduced advertising. They want to get heavier into code. They want to be much more endemic to enterprise. They want to get ChatGPT and other OpenAI products into Fortune 500 companies, government use. You saw Anthropic had a, had a dust up with the Pentagon and Sam Altman swooped right in. We have no, don't worry, we have no privacy. You do whatever you want with. Come on in. Right. So they, because they all have to show this kind of like breakneck growth. And if they do, everybody can rationalize the losses, the spending, because they understand that it won't be unprofitable forever. Someday it'll catch up.
- [53:52]
Ed
But they can't do it with Microsoft, they can't do it with the big tech names. I mean, it seems that we have different expectations, different standards here, depending on who you are. We're down with the incredible spending over on the private side, but in the public markets, ooh, we're going to get very nervous about that.
- [54:08]
Josh Brown
So Microsoft's unpopularity as a stock coincided with a lot of questions about whether or not Copilot, which is their overlay on top of OpenAI for employees, for technical employees A lot of questions about whether or not there was an roi, if people even were like the product, if it's sticky enough, even though it's Microsoft. And I think you saw that adjustment in Microsoft's multiple. Importantly, their numbers are still lights out. We look at a 36% decline in Microsoft and they have not missed earnings, they have not guided down, they have not disappointed anyone in any way.
- [54:54]
Ed
It's all perception and cherry on top. They own a third of OpenAI too. So that's also your risk protection.
- [55:01]
Josh Brown
That's a good place to leave this. You know, as a non public company, OpenAI has the benefit of only reporting the things that are superlatives and make it look great. They don't owe the same level of transparency as a public company does for obvious reasons. And I think that's why we saw that story this week where Sarah Fryer is not as confident as Sam Altman is about the timeline of a go public in Q4. You know, these are people, these, there are people in Sam's ear that he's listening to that he's not listening to. But some of those people are saying, yo, once this thing is trading, you actually have to tell us everything. You have to tell the world everything. And they won't all be ready to do that.
- [55:51]
Ed
100%. Okay, Josh Brown, let's take a look at the week ahead. We will see the producer price index for March. We'll see earnings season kicking off with Goldman Sachs, JP Morgan, Wells Fargo, Citigroup, bank of America, Morgan Stanley, BlackRock, Johnson Johnson, ASML, TSMC, Pepsi, Netflix. Josh, we really appreciate this. Any closing thoughts, Any closing remarks? Anything you've got your eye on before we end here?
- [56:15]
Josh Brown
No.
- [56:18]
Ed
Josh Brown is the co founder and CEO of Ritholtz, a New York City based investment advisory firm. Managing six and a half billion dollars in assets.
- [56:25]
Josh Brown
It's like seven. It's like seven and a half billion. Come on.
- [56:28]
Ed
Managing seven and a half billion in assets for individ corporate retirement plans and foundations. You can also check out his podcast the Compound and Friends for more. Josh, we always love having you. Thank you so much. And enjoy Coral Gables. I hope you have a good time.
- [56:44]
Josh Brown
Cheers.
- [56:46]
Ed
This episode was produced by Claire Miller and Allison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carty. Our research team is Dan Shalon, Isabella Kinsell, Kristen O' Donoghue and Mia Silveria. Jake McPherson is our social producer. Drew Burroughs is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof. G Markets from Prof. G Media. If you liked what you heard, give us a follow and tune in tomorrow for a fresh take on the markets.
- [57:23]
Josh Brown
You had me
- [57:27]
Ed
in kind
- [57:29]
Josh Brown
reunion as the water.