Cut Your Losses, Size up Your Winners

Summary

Podcast Summary: The Compound and Friends – Episode: "Cut Your Losses, Size up Your Winners"

Host/Author: The Compound
Guest: Nick Kolis
Release Date: December 20, 2024

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I. Introduction

In this episode of The Compound and Friends, hosts Downtown Josh Brown and Michael Batnick welcome their recurring guest, Nick Kolis, co-founder of DataTrack Research. The discussion kicks off with light-hearted banter about book reading habits and the challenges of consuming rapidly evolving content, especially in the realm of artificial intelligence (AI).

II. Navigating the AI Landscape

Michael Batnick delves into the difficulties of keeping up with AI advancements, noting, “By the time this guy got his book into a print, he was already apologizing for how out of date it would be by the time you read it” (01:15). Nick Kolis shares his approach to integrating AI into his daily life, emphasizing the importance of using AI as a baseline for information and adding personal insights where possible.

• Nick Kolis: “The way I use AI, I use it every day. And the way I do it is I will type in a topic I'm thinking about and then I read the answer and that's what I know is the baseline” (01:33).

III. Market Reaction to Fed Announcements

The conversation shifts to recent market turmoil following the Federal Reserve's latest meeting. Nick Kolis observes that the market initially appeared orderly until midway through the Fed's press conference, after which panic ensued, leading to significant declines across various sectors.

• Nick Kolis: “It felt orderly until about halfway through the press conference and then it just began to go” (14:14).

Josh Brown highlights the unprecedented nature of the day, citing, “you had 483 stocks were down on the day most since December” (18:29), and discusses the spike in the VIX, a measure of market volatility.

IV. Growth vs. Value Stocks Performance

A substantial portion of the episode is dedicated to analyzing the ongoing outperformance of growth stocks over value stocks. Nick Kolis references a pivotal study by Henrik Bessembinder, which reveals that only a small fraction of stocks have driven the majority of market returns over the past three decades.

• Nick Kolis: “Over the last 30 years, 1990 to 2020, only 2% of stocks, 2.4% of all US equities created all the value in US equities” (49:40).

The hosts discuss how technological advancements, like ChatGPT, have skewed market dynamics, making growth stocks more attractive due to their potential for future surprises and innovations.

• Josh Brown: “It feels like ChatGPT is the mother” (54:47).

V. International Investments and Home Country Bias

Nick Kolis addresses the persistent home country bias in international investing, particularly in countries like Japan and Canada. He explains how domestic preferences and limited stock options in these markets have historically hindered overseas investment performance.

• Nick Kolis: “They still have a very modest but noticeable home country bias” (04:33).

The hosts explore the challenges faced by international investors, including currency fluctuations and differing economic conditions, which further complicate cross-border investments.

VI. Trading Philosophies: Cutting Losses and Letting Winners Run

Central to the episode is the discussion on effective trading strategies, emphasizing the importance of cutting losses early and allowing winning positions to grow.

• Nick Kolis: “You never sell a new high or buy a new low” (73:00).

The conversation reflects on the rigorous training methodologies used at SAC Capital, where traders were regularly assessed on their ability to manage losses and capitalize on gains without being swayed by fear or greed.

VII. Tesla and Traditional Car Companies’ Valuations

The debate turns to Tesla's meteoric rise compared to traditional car manufacturers like Ford and GM. Nick Kolis criticizes the low price-to-earnings (PE) ratios of established automakers, attributing it to their stagnant business models and lack of innovation.

• Nick Kolis: “It's fine. It's not a car company. It's a call on Elon Musk's ability to influence policy and get paid for it” (58:12).

Michael Batnick and Josh Brown discuss the implications of Tesla’s dominance and the challenges traditional car companies face in adapting to a rapidly changing market landscape.

VIII. Impact of AI on Investing and Information Arbitrage

The hosts explore how AI tools like ChatGPT have revolutionized investment research, reducing traditional information edges and flattening the playing field for investors.

• Nick Kolis: “Math is not an edge. Assume everybody has the same numbers at their fingertips” (52:40).

This democratization of information forces investors to seek new strategies and value-added insights beyond readily accessible data.

IX. Historical Market Comparisons and Future Outlook

Drawing parallels to past market events, Nick Kolis reflects on the 1997-98 Asian financial crisis and the 2000 dot-com bubble, emphasizing the cyclical nature of market sentiments and the triggers that precipitate significant downturns.

• Nick Kolis: “It's hard to understand” (07:18), referencing the complexity of parliamentary systems impacting economic policies.

The discussion culminates in an optimistic outlook for 2025, with Nick Kolis predicting continued growth driven by solid earnings and strategic market positioning, despite short-term volatility.

• Nick Kolis: “I am so excited about proving the Bears wrong again in 25” (77:35).

X. Notable Quotes with Speaker Attribution and Timestamps

• Josh Brown: “are you integrating AI maybe it shouldn't be a book at all into your life” (01:30).
• Michael Batnick: “What's the point of reading an AI book?” (00:57).
• Nick Kolis: “You never really pay for that quarter's earnings. You're paying for the hope about one year out earnings” (34:28).
• Josh Brown: “There are times to be long Europe, times to be long China, and that's perfectly fine” (39:22).
• Nick Kolis: “Customers gave money to buy, put a down payment on a house” (63:37).
• Michael Batnick: “We need a reckoning. We need to pay for our sins” (33:12).
• Josh Brown: “I'm very good at cutting my losses” (75:28).

XI. Conclusion

The episode provides a comprehensive analysis of the current financial landscape, blending historical insights with contemporary challenges posed by technological advancements like AI. Nick Kolis offers valuable perspectives on trading strategies, market sentiments, and the enduring dominance of US equities. The hosts reiterate the importance of disciplined investment approaches and staying informed amidst evolving market dynamics.

Key Takeaways:

• The rapid evolution of AI necessitates adaptive investment strategies.
• Growth stocks continue to outperform value stocks, driven by innovation and future growth potential.
• Home country bias remains a significant factor in international investments.
• Effective trading requires cutting losses early and allowing winners to run.
• Tesla’s growth underscores the shift towards innovative and tech-driven companies in the market.
• Historical market events provide valuable lessons for navigating current and future financial landscapes.

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For more insights and detailed investment research, visit DataTrack Research and follow Nick Kolis on LinkedIn and Twitter (@DataTrekMB). Subscribe to their YouTube channel for up-to-date market analysis and expert commentary.

Transcript

[Josh Brown]

So Nick, you're the guest. You consume no content.

[Michael Batnick]

Right.

[Josh Brown]

You're not a movie guy. Wait, you're a big reader or you're.

[Nick Kolis]

Just a guy book reader?

[Josh Brown]

Yeah, yeah.

[Michael Batnick]

Remember?

[Josh Brown]

Oh yeah. You gave Josh an 800 page book that he read.

[Michael Batnick]

And I read it.

[Nick Kolis]

Yeah, that was fantastic.

[Michael Batnick]

You have another 800 pages.

[Josh Brown]

Josh's backyard. I see that book, I'm like, holy shit.

[Michael Batnick]

Yeah, I read the Silk Roads. Yeah, Silk Road.

[Nick Kolis]

Silk Roads, Yeah.

[Michael Batnick]

What a book.

[Nick Kolis]

Yeah. Unfortunately, his follow ons, which I've also read, not as good.

[Michael Batnick]

You know, that happens a lot. The sapiens guy fell off after the first one.

[Nick Kolis]

I read his latest one on AI.

[Michael Batnick]

He has an AI book? Of course he does. With a pigeon on the COVID that I haven't seen. Are you reading books about AI?

[Nick Kolis]

I just picked up the FT's book of the year by one of their reporters. It's about AI. We'll see how it goes.

[Michael Batnick]

Okay, I read an AI book this summer. Every other sentence he's saying this could change.

[Josh Brown]

But yeah, so what's the point of reading an AI book?

[Michael Batnick]

Right? Like that's the problem. It's moving so fast. By the time this guy got his book into a print, he was already apologizing for how out of date it would be by the time you read it. And I bought it the first week it came out. It's a famous. What's the futurist? Do you know who that is? Like Kurzweil?

[Nick Kolis]

Yeah, Ray Kurzweil.

[Michael Batnick]

Like an amazing, amazing visionary person. But even he had to admit throughout the course of the book, it's like, here's all the historical stuff, how he got here. Now everything I'm about to say might be out of date by the time you read it.

[Josh Brown]

Are you integrating AI maybe it shouldn't be a book at all into your life.

[Nick Kolis]

The way I use AI, I use it every day. And the way I do it is I will type in a topic I'm thinking about and then I read the answer and that's what I know is the baseline. That's what everybody knows.

[Josh Brown]

Oh, interesting.

[Nick Kolis]

If I can add to the conversation, then great. And if I can't, then on to the next topic.

[Michael Batnick]

So what kind of query would you put in, for example?

[Nick Kolis]

It could be anything. I was doing it with our, you know, our topics today.

[Michael Batnick]

Yeah.

[Nick Kolis]

Like the question of rising amount spent on debt servicing and inflation.

[Michael Batnick]

So people might scoff at that approach to research, like, oh, chatgpt. The truth is the people who win on Jeopardy Study children's books. Do you know that?

[Nick Kolis]

No.

[Michael Batnick]

The strategy, if you're going to be on Jeopardy, the strategy is not read the most sophisticated books about all these topics because you can't. The strategy is read the simplest version. Because if you get a question on a given topic, it's probably gonna be something very basic. On Jeopardy, it's the breadth of knowledge, not the depth.

[Nick Kolis]

Right?

[Michael Batnick]

So the people who go on the show, they'll read a children's book on all the US Presidents and whatever they retain, it's probably good enough. It's not like they're going on a show that's gonna dial in on chemistry. But if you know, like 10 terms in chemistry, maybe one of them comes up on the show and that's all you needed to know.

[Josh Brown]

Are you smarter than fifth grade? It was harder than Jeopardy.

[Michael Batnick]

I don't know if that's true. I never watched it. I could. I couldn't say no. But. So starting something on ChatGPT and someone's like, well, anyone could do it. Okay, but anyone's not gonna do it. I'm. I'm the one doing it.

[Nick Kolis]

Right?

[Michael Batnick]

So.

[Nick Kolis]

And then the point is, you have to add to what you see. Like, there's white space and there's unknown things within the ChatGPT answer, and that's your value add. Your value add. Have you caught something?

[Michael Batnick]

Have you caught something being wrong?

[Nick Kolis]

Oh, many times.

[Michael Batnick]

I do all the time, and it pisses me off.

[Nick Kolis]

And actually correct it. I will tell Chad, no, that's incorrect. And I see a little memory updating. Memory updating. Thanks very much.

[Michael Batnick]

What, what, what one do you. Which one do you use?

[Nick Kolis]

ChatGPT.

[Michael Batnick]

You do? Why?

[Nick Kolis]

It's one I started with. So I paid whatever, 20 bucks a month for the upgraded service, and off we go.

[Michael Batnick]

What do you get as a result of the upgrade? Unlimited.

[Nick Kolis]

Yeah.

[Michael Batnick]

Follow on questions.

[Josh Brown]

Okay, so Nick, you're. You're. You guys, you and Jessica are doing research out the ass. What's the last thing that you guys produce that you were like, it's pretty cool. I didn't know that that surprised you.

[Nick Kolis]

The relative returns of US equities versus rest of world. And the fact is we were talking about that every single US sectors outperform rest of world over the last 1, 3, 5, 10 years, except for like energy over 10 and real estate over 5.

[Josh Brown]

But so people, people throwing in the towel, especially overseas investors. Like, that doesn't. That doesn't get you a little bit excited?

[Nick Kolis]

It doesn't get me all that worried because, you know, us equities are now 66% of global equities. I don't know of a lot of people that are overseas that are 67 to 70% U.S. equities. They still have a very modest but noticeable home country bias. And so there's still only 50% US equities, so they're still nominally underweight. So there's still room to go.

[Michael Batnick]

What are the most severe home country biased countries? I was always told Japan, Japan, Japan.

[Nick Kolis]

Yes. Canada was for a long time, really long time, and it had huge effects on Canadian stock valuations like Canadian Tobacco. British American Tobacco had a huge multiple and Philip Morris was trading very cheap in the U.S. because Canada's natural resources and they overweighted the non natural resource stock and give it a bigger valuation. So Canada's one, Japan's a huge one. I'd say Europe. Ten years ago, 30 years ago, when I was marketing in Europe for CSFB, you couldn't pry German investors away from the German market.

[Michael Batnick]

Wow, I bet that's not true now. No, Canada, because they've had so few tech stocks. The ones that they do have have blown up into like massive bubbles. Nortel was a really great, great example from the start of my career. Nortel was the hottest stock in the world for a minute and Canadian Cisco, blah, blah, blah. Then they had another bubble in BlackBerry, like a little mini. That valuation on BlackBerry, I think early in the game was Tesla esque, Shopify. So if you have a home country bias in Canada and you want to have tech exposure, you usually have a choice between three different stocks. It's not like you have 500 stocks to choose from. So I think that kind of contributes to it.

[Nick Kolis]

Yeah, I think a part of it about the overseas investor is the dollar has just rallied and rallied and rallied now for 20 odd years and people are tired of trying to call top.

[Josh Brown]

On the $$ is ripping it. Is it going to be a wrecking ball in 2025?

[Nick Kolis]

That's one of my fears, is that you get a sudden flush in the euro and you get some kind of disconnect.

[Josh Brown]

When did the $us up, was it 22, 21, 22.

[Michael Batnick]

What produces the sudden flush in the euro? Something political.

[Nick Kolis]

I mean the political stuff's unraveling right now. Germany, France, the UK's obviously got the pound, but the situations are not much better. No, I think it's just more of a slow grind where you get euro parity to the dollar or 99 cents. And you know how it is, stocks and markets don't crash from overbought, they crash from oversold.

[Michael Batnick]

I lost track. Are the hard right nationalist movements winning again or losing again? Where are those elections falling out these days?

[Nick Kolis]

Well, we've got elections coming up next year and the year after. But I think the more the point is they are now able to. There are large enough parts of parliament to say, I don't want this government anym. And they can literally can the government and say, okay, call elections.

[Michael Batnick]

They do that too much, I feel like, don't you?

[Nick Kolis]

It's a parliamentary system. So it's always gonna have that inherent.

[Michael Batnick]

Like they'll just like, all right, snap election. It's like, I dare you to vote against. What is the rhyme and reason behind all of those snap elections?

[Nick Kolis]

That's a tough one. I mean it's so different from our system here. It's hard to understand.

[Michael Batnick]

We would be bewildered by that level of activity, having governments collapse like on a regular basis. I don't think we can handle it.

[Nick Kolis]

No, I think, I think Americans are very comfortable voting every two years. And that's a great pattern. Yeah, we need the continuity offer yours for your mayor or for your governor and otherwise just do your job.

[Michael Batnick]

We can't have like overnight referendums on policy because we need the continuity to do what we do here.

[Nick Kolis]

Yeah.

[Michael Batnick]

Okay. Do the European individual investors care about stocks yet or not really.

[Nick Kolis]

They really do. They do now care about U.S. stocks.

[Michael Batnick]

Okay. But they care about stock portfolios because they didn't forever.

[Nick Kolis]

They're getting there. Right. But you know, still when we have like high net worth meetings in Europe, they usually want to talk about one to ten stocks.

[Michael Batnick]

Okay.

[Nick Kolis]

You can guess which one of the top ones are.

[Josh Brown]

Right, it's cvs.

[Nick Kolis]

Yes, cbs. Exactly right. No, it's, you know, it's. Tesla was obviously a huge name, has been a huge name. We will have two hour conversations with a super high net worth person about Tesla.

[Michael Batnick]

Yeah, well, there's a big asset manager in. I think they're Scottish. Baillie Gifford. They were a top five shareholder in Tesla the whole way up. They were so early to it. They owned a ton of it. They took a huge risk in their allocation and it paid off. So they get like. They get it. It's just, I'm curious about that because it doesn't seem like they have as much buy in into the stock market systematically amongst households. If you have money in Europe, it's probably land and it's not equity. It's not a founder culture per se. Although they do now have some homegrown growth Companies and tech companies. I've heard that the founder of LVMH is seen as a villain in a lot of Europe. They don't celebrate him the way that they would if he had done that here. So it just, it feels like there's a cultural reason why they don't own stocks to the extent that we do.

[Josh Brown]

Well, here's a great counter to that as we'll talk about Tesla on the show. I had my handyman in the house the other day and he was asking.

[Michael Batnick]

Me, you have a European handyman, what.

[Josh Brown]

Would you do with $50,000? And I'm like, what are you looking for? He said, income. So I said, all right, well the 10 year, the risk free rate is yielding 4.2%. So anything above that is going to take, take some risk. He's like 4.2%. I'm like, well you can own like corporate bonds, you get like five or six. He's like, it's five or six. He goes, what about Tesla?

[Michael Batnick]

Yeah, you were having a different conversation than you thought you were. All right, Nicole, we ready?

[Josh Brown]

So you like the risk?

[Michael Batnick]

Three claps, three claps coming in.

[Josh Brown]

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[Nick Kolis]

Welcome to the compound and friends, all.

[Michael Batnick]

Opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management.

[Nick Kolis]

This podcast is for informational purposes only.

[Michael Batnick]

And should not be relied upon for any investment decisions.

[Nick Kolis]

Clients of Ritholtz Wealth Management may maintain.

[Michael Batnick]

Positions in the securities discussed in this podcast. Well done, nicole. Episode number 170. Hard to believe sometimes we've done this many right that way.

[Josh Brown]

We're just getting started.

[Michael Batnick]

All right, John is here, Nicole is here, Daniel's here, Rob is here. Duncan is in North Carolina. Do I have that right? All right, shout out to Duncan, guys. I'm very excited to tell you who our guest is today. Nick Kolis is the co founder of DataTrack, an investment research platform catering to hedge funds, RIAs, family offices and and asset managers. Prior to DataTrack, Nick was a senior equity auto analyst at First Boston and portfolio manager at SAC Capital, reporting directly to Steve Cohen. Nick is back for the how many times? 4th, 3rd?

[Nick Kolis]

4Th?

[Michael Batnick]

Do you know?

[Nick Kolis]

3.

[Michael Batnick]

Did you chatgpt that?

[Nick Kolis]

Yeah.

[Josh Brown]

All right, wait, he was on a year ago.

[Michael Batnick]

He was also on with me on the Tuesday night show. Nick is one of our favorite people. You're a fan favorite. Every time you come on the network, the views explode on YouTube. We love talking to you. Thank you so much for coming back.

[Nick Kolis]

Thank you.

[Michael Batnick]

Really appreciate it. What do you want to talk about today? All right, so let's start where we have to start. We had a little fed freak out this week. Let's put up this first chart. I want to show you how some of the stocks reacted immediately following. So you actually caught a bid in defensive. And these healthcare stocks have been getting killed recently for obvious reasons. But the top five names, Jabil Circuits on there, it must be something company specific. Cigna, UnitedHealth, Centene and CVS, they're all in the same business. They all got bought. What got sold. CrowdStrike down 7%. Texas Pacific Land down 7 and a half. BXP down 7.6. Tesla down 8.3. Paycom Software down 10. The Russell got hammered. I also noticed the home builders, which were already in a downtrend, got severely hammered. It felt orderly to me, even though it was the second worst day of the year. What was your impression?

[Nick Kolis]

It felt orderly until about halfway through the press conference and then it just began to go.

[Michael Batnick]

The NASDAQ too.

[Nick Kolis]

Yeah. And the clothes was sloppy, like in the extreme. And one of the ways, one of the ways I think about how the trading cadence goes through a day is how much Retail is paying attention and I use Google Trends for that. And just really look at Google Trends. How many people are searching for the terms Dow Jones and stock market over the course of the day?

[Michael Batnick]

They give you that in real time. Yeah, okay, that's great.

[Nick Kolis]

And so usually the retail is interested in the stock Market at 8:00 in the morning, 7 to 8:00am Eastern Time. Look at the market, put in their trades. It's the classic retail opens the market. What was unusual about yesterday was that the interest in the market spiked into the close.

[Michael Batnick]

Wait, and your assertion is that people are starting out their journey to see what's going on in the market with a Google search of Dow Jones.

[Nick Kolis]

It is the proxy for interest in the market.

[Josh Brown]

Would you have guessed that the biggest search term?

[Michael Batnick]

I would guess people putting ticker symbols into Google because I do that.

[Nick Kolis]

You can but this is just the all encompassing. Okay, what's the market doing okay. And so rather than look up every one of your symbols, you just say hey, you know Dow Jones.

[Michael Batnick]

Let me just see how aberrant were the amount of searches for stock market toward the end of the day. Very aberrant yesterday versus any other time.

[Nick Kolis]

Forex.

[Michael Batnick]

Forex.

[Josh Brown]

So what's your interpretation of that? Is that a washout is a good.

[Nick Kolis]

To me says people got really worried and I think, look, I mean think about where we are in the year. You got Christmas presents to buy, you've had a tremendous year, you have huge gains, you see the market imploding, you don't know what's going to happen the next day. So you take some off the table. And you also have desks on Wall street aren't taking a lot of risk going into the year. So it's not like there was a buffer stock of capital to absorb the selling.

[Michael Batnick]

Here's what I said on TV today. Tell me if you think this sounds smart. I said there's two types of stocks that got sold yesterday. The first were the rate sensitive so anything related to the housing market and anything small cap. And the more indebted those small cap names were like you could probably guess those were the stocks because they have refinancing risk, they have debt, they need to roll it. Okay, so that's that bucket. The second bucket though were the stocks that were up the most. And I look at those as the easiest to sell. If you're on a trading desk and you have to lighten up because whatever, for whatever reason, too much risk that somebody does evaluate risk calculation, they say we're heavy we got. Okay, fine. What are you selling? You sell the thing that you don't have to explain to anyone that you sold it. So Tesla up, I don't know, 150% on the year. Easy sale. Crowdstrikes had a huge run. So those names on the top of the list, not because they care about Jay Powell, but because if somebody has to sell, you don't have to apologize to anyone for selling a Stock that's up 100%. Just like it's like, look, it's up 100%. I took some off. That's a really easy sell. And as a result, that's why I think the tape looked the way it did yesterday. What do you think about that?

[Nick Kolis]

I think that's fair. But man, it was an outsized move. I mean, that close was bad. I guess we'll talk about the vix. At some point the VIX spiked in a way we haven't seen the VIX spike in a long time.

[Michael Batnick]

You know what's crazy? There was a rate cut lost in all that. Let's put up these target rate probabilities. So now we're saying you're not getting a January cut. I don't think anybody expects it. Less than 9% probability. And I guess the 91% say no cut at all. Okay, so that's what caused this. Is there more to it?

[Nick Kolis]

No, because look at where these odds were a week ago.

[Michael Batnick]

It's the move. The move in the odds.

[Nick Kolis]

No small. Exactly. Okay, so this was known.

[Josh Brown]

Well, we had a huge move. Biggest yield jump. This from Bloomberg. Biggest yield jump on FOMC day since 2013 on the 10 year. Massive, massive move in the 10 year. So yesterday was a full scale reset in expectations. You had in the stock market. You had 483 stocks were down on the day most since December. You had 70% of stocks make a new one month low yesterday. The biggest spike since 2020.

[Michael Batnick]

We put that one up.

[Josh Brown]

And I don't know, I'm not. I would never pronounce that the selling is over because, you know, literally, who knows.

[Michael Batnick]

What chart is that?

[Josh Brown]

7 and 10. 7 or 8 and 10.

[Michael Batnick]

8 and 10.

[Josh Brown]

So that's the number of stocks that were down on the day.

[Michael Batnick]

483 stocks.

[Josh Brown]

So pretty close to all.

[Michael Batnick]

So we did that, we did that on August 5th during the Japanese thing.

[Josh Brown]

So that was the bottom.

[Michael Batnick]

All right, so that's not very common.

[Josh Brown]

70% of stocks. Next shot. Daniel, please. And so again, we're only. The S and p is only 4% from its highs I know other areas of the market are down a lot more. The Russell down more, homebuilders down more. But prior to this. So in the doc I had a section, everybody's bullish. And prior to yesterday, everybody was bullish offensively. So. And so I view this reintroduction of risk as a necessary, a good thing. I don't like seeing stocks fall 3% in a day, but in order for stocks to go off, they need to climb a wall. Worry. And prior to yesterday, there was no worry.

[Michael Batnick]

Do you think the sentiment surveys are going to shift much based on what happened yesterday, next week? I don't think so either, no. Maybe they'll be tempered a little bit, but.

[Nick Kolis]

Because what did we really learn yesterday?

[Josh Brown]

Well, what do you think we learned?

[Nick Kolis]

I think we learned that Jay Powell was first of all really pissed at his committee for the dot plots and being so far off on their inflation expectations for the end of the year in September. And it was visibly like he used some very strong language about how far off that how much the dot plot had to move. Not the dot plot, but all the things in the SEP had to move. I think he was upset that he had to go out and explain a summary of economic projections that makes no sense where you're expecting better economic growth, lower unemployment, higher inflation, and you're still cutting rates.

[Michael Batnick]

Okay, so you're saying. But he didn't want to cut rates.

[Nick Kolis]

He said it was a very close call relative to the last three.

[Michael Batnick]

Doesn't he really make the call, though, in real life? It's not like they listen. It's not like he has to listen to them. They listen to him.

[Nick Kolis]

I think that he may have also been a little bit angry at himself for locking in 100 basis points for the year and then having to go through it.

[Michael Batnick]

Well, the market felt that, though. That anger that you're. That frustration.

[Josh Brown]

It seemed like he lost control. At least that's like what Twitter was saying, like sentiment. Seemed like it was a sloppy press conference. He said during the press conference most forecasters have been calling for a sloppy slowdown in growth for a very long time and it keeps not happening. I wonder if he was talking about himself.

[Nick Kolis]

Yes, look, I think he was always trying to say that he could raise rates and not kill the economy. He really wants to beat Paul Volcker. He wants to create a soft landing and less inflation without causing a recession like Volcker did in 81. And so far he's done it. But he knows he's got one more year at least to go. And Next year is going to be a harder call because inflation's not coming back down to 2% anytime soon.

[Michael Batnick]

Okay, why isn't it? So we finally have the shelter component moving in the right direction. What's high food prices?

[Nick Kolis]

Food prices are volatile, but no, I mean shelter. Inflation is coming down, but not as quickly, I think as the Fed hoped for.

[Michael Batnick]

That was the problem all this time, the main problem.

[Nick Kolis]

And then non housing services is also a problem. So it's just not coming down as fast. Look, the economy is growing what, 3% in the fourth quarter? Yeah, it's run the better part of 3% the last two quarters. Can we really get inflation to come down quickly with the economy still growing so quickly? Seems unlikely to challenge.

[Josh Brown]

There's less pressure on the wage market.

[Nick Kolis]

There is less pressure on the wage market. But.

[Michael Batnick]

But services are still expensive. One of the. So one of the big things is that now we're saying two cuts are the expectation versus three. Does that actually matter in real life or does it only matter in the media? Like. Like in business. Is anyone going to do anything differently not having that third cut in 2025?

[Nick Kolis]

No.

[Michael Batnick]

Okay.

[Nick Kolis]

No, I don't think so. And that's why I'm not so worried that the sentiment surveys are going to change next week.

[Josh Brown]

So Your views on 2025 are unchanged by what happened yesterday?

[Nick Kolis]

Yes.

[Michael Batnick]

I think it's also worth pointing out most of these situations where the Fed quote unquote disappointed the markets in not giving more stimulus because things are okay. Those have always been viable sell offs. This is not a situation where growth is disappointing or like the Fed is like in some sort of an emergency state. They're taking their time and they're saying we might not have to do as much. Yeah, I understand that there's profit taking and stocks got bit up and you know, was an excuse to sell. Beyond that I can't see what the problem is. Why do people want more medicine if the patient doesn't require it?

[Nick Kolis]

Yeah, that's fair.

[Michael Batnick]

Yeah. So. So I always look at those as being viable. What is this? What is this chart?

[Josh Brown]

I didn't throw these in. We could skip that one. What are your thoughts on. We were talking about this before the show of some of the relative underperformance to be polite in names like energy and materials and healthcare. I mean outright. If you divide these sectors by the S and P, it looks like a full blown or close to a crash.

[Nick Kolis]

Yeah, industrials too.

[Josh Brown]

Industrials too. Does that bother you or is that just not that important because it's such a small percentage of the market.

[Nick Kolis]

It does bother me because you want to see sick groups work. Financials have been working, and that's great. But I would love to see industrials follow along. Look, I think what's going on in the rest of world with economic growth being very, very slow, I think is challenging for large multinational industrial companies, material companies, and for commodity prices.

[Michael Batnick]

Can we put up. Dan, can we do chart nine? This bothers me. I don't love that. This is New York Stock Exchange advance decline. Most of my spiel this year has been look at the advanced decline. In other words, if you don't like the rally in the S and P, this can't be the reason because you have tons of participation and that participation grew throughout the course of the year. I mean, this could be a blip or worse. I don't love that. Do you care? Does this raise a red flag for you or. Not really.

[Nick Kolis]

Not really. Why?

[Michael Batnick]

Because it could reverse so quickly?

[Nick Kolis]

Yes.

[Michael Batnick]

Okay.

[Nick Kolis]

For that. And yeah, if you look at this chart, just look at how it ebbs and flows.

[Michael Batnick]

This looks cliffy.

[Nick Kolis]

It does look cliffy, but is that three yesterday?

[Michael Batnick]

Yeah.

[Nick Kolis]

Yeah. Well, there you go. There's your cliff.

[Michael Batnick]

Okay, you.

[Josh Brown]

You brought a chart of the vix. It's weird to get a VIX spike to the degree that we got yesterday. I forget about percentage.

[Michael Batnick]

Wait, hold on, Mike. I'm sorry. I want to do chart 11 before we do the Vix. This is 14 day RSI for the S&P 500. I don't love this one either. I like that you could now say it's oversold, which you haven't been able to say.

[Josh Brown]

But it's not oversold.

[Michael Batnick]

Not yet, but close. Closest. Closest we've been since. I don't know, I'm trying to. I guess since. Since the August event. I mean, it's.

[Nick Kolis]

There you go. Yeah.

[Michael Batnick]

I don't. I don't love it. It's. Again, it's not. It's. It's one thing. So it's one read that could easily reverse.

[Josh Brown]

I love it.

[Michael Batnick]

You do like it?

[Josh Brown]

I mean, not, I must not say, you know, I like it for tomorrow, but like, you need this fear. You need the VIX spikes. But I think what I don't like is I don't like that a lot of stocks are really rolling over. And I don't love that you have a VIX spike with the S and P merely 4% off the highs. And I understand that it's cap weighted and a lot of different Areas of the market look a lot different. But what's your interpretation? I mean, VIX spikes should be bought.

[Michael Batnick]

Let's put Nick's VIX chart up.

[Nick Kolis]

So this is the VIX back to the lows in October 22nd and the close yesterday. 27.6 is the big black dotted line. And you can see that we've only been at this same level twice since the rally started.

[Michael Batnick]

Wow.

[Nick Kolis]

This was when the rally started, the last day of the Vix being above 27.6. One month later, S&P was up 3.5%. And the last day of the Vix spike, August 7th of this year, S&P is up 5.2% one month later.

[Michael Batnick]

Okay.

[Nick Kolis]

27.6 is also coincidentally exactly one standard deviation from the long term mean.

[Michael Batnick]

How do you look at that in terms of like, what you're trying to do in terms of like positioning or how you're thinking about what it means for the market going forward?

[Nick Kolis]

This tells me we had a very, I mean, an almost similar to the August fear spike. And we very quickly got back to levels literally at the bottom of the. Right before this rally started two years ago and we're there again today.

[Josh Brown]

I have two rules with taking risk. Number one, always hit a 16 when the dealer's showing a face card. And number two, you buy a VIX spike.

[Nick Kolis]

Yeah. Now the exception to that, 2022, if you're in a bear market. No, toxic.

[Michael Batnick]

We're not in a bear market is this. Is the VIX more sensitive now that people trade options more aggressively than they used to, or more people trade options? Does that affect the way the VIX prices in risk or is it always the same?

[Nick Kolis]

I've looked at it six ways from Sunday using historical data back to 1990. It doesn't seem to have any effect on the Vix.

[Michael Batnick]

All right, so this is one of those things that's still valid, the way it's collected, the way it's read.

[Josh Brown]

Okay, so let's rewind. Prior to yesterday's debacle at the fomc, everybody was all the way bulled up. Everybody.

[Michael Batnick]

And I'm sure the Bears became bulls.

[Josh Brown]

I'm sure you see this in the people that you're talking to, in the sentiment readings and all that sort of stuff.

[Michael Batnick]

So.

[Josh Brown]

All right, chart 13, Daniel, please. The percentage of conference board respondents expecting that stocks will rise in the next 12 months hit well beyond. So this trades in a range, right? Usually as high as 45, as low as 20, when people are really beared up. And it Never gets nearly as high as 56%. So this is a clear unusual breakout. Torsten Slok showed a chart that I guess a survey that Robert Schiller does at the Yale School of Management, and it's the percentage of investors who think there's a less than 10% probability of a crash within the next six months.

[Michael Batnick]

Isn't that a weird way to ask. Phrase a question?

[Josh Brown]

It's a weird way to ask a question. But this got as high as 45% ish, which is again off the charts. So I think this was a slap on the wrist to investors. I think people were a little bit offsides. And to me, the reintroduction of risk in a riskless environment is a good thing, on balance.

[Nick Kolis]

Yeah, that's very fair.

[Michael Batnick]

Investors are all balled up. Put that one back up. So this has nothing to do with stocks. This is Trump.

[Josh Brown]

That's both.

[Michael Batnick]

No, it's like it's. It. Well, they might. There might be reflexivity between the two things. I'm buying stocks because Trump got elected, but also stocks are up a lot. That's why I'm bullish.

[Josh Brown]

Chart 16 is Trump. This is people getting more optimistic about their financial situation. So they asked the percentage of households.

[Michael Batnick]

This is pure Trump.

[Josh Brown]

This is Trump.

[Michael Batnick]

Yeah.

[Josh Brown]

So this is a Trump spike. Now, Nick, do you think. Do you think surveys and sentiment like this filters into the real economy? Because I kind of think it does, yeah.

[Nick Kolis]

I mean, classical literature says it does. Consumer confidence is a very visible part of how much people want to spend, so it absolutely does.

[Josh Brown]

I saw a tweet that I thought was Chef's case. I don't know who whose quote this is. Maybe you do. Somebody tweeted Palantir at 10 to 20 times from here. May be a low ball. If you could think in terms of decades instead of months. And then Pythia are. I don't know this person is. But they quote, tweeted it and they said time horizons compressed to zero at the bottom and expand to infinity at the top.

[Michael Batnick]

Yeah. And it seems like.

[Josh Brown]

It seems like we're close to infinity than zero.

[Michael Batnick]

People change the way they think entirely to justify buying more of something after it's already gone up 300%.

[Josh Brown]

Yeah.

[Michael Batnick]

And at the bottom, they do the opposite.

[Josh Brown]

Yeah. It's like, well, think about where the company will be earning in 2029. And you talk about that obviously in a euphoric environment.

[Nick Kolis]

Yeah. Either you're a deep cyclical analyst and you cover airlines and you're covering 29 earnings, which is fair. Or you're doing this, which is not fair.

[Michael Batnick]

You would agree that we're in an elevated sentiment moment. And it's not. It's not 1999, but it's also not a regular time either.

[Nick Kolis]

Yes, absolutely. You're right. It's not anything close to 99 at all. It feels more like 97.

[Michael Batnick]

Okay, so that's good. So I got two years left before I have to go.

[Nick Kolis]

That's the math, doesn't it?

[Michael Batnick]

Why does it feel like 97, you're saying in terms of the numbers themselves or just anecdotally?

[Nick Kolis]

Because in 97, and keep in mind, we had a bear market in 22, so the clock just started recently. In 97, we had seven years of a bull market. The 1990 was only down 3% on the S and P. And we've been up every year since then. Even in 94 when the Fed increased rates, we were up. And in 97, I was like, okay, we kind of feel a little bit invincible here. And tech's beginning to work and things feel very solid. They don't feel crazy, they just feel very solid.

[Michael Batnick]

Yeah. The Netscape IPO that kicks off the dot com era. I think the hottest stock in the market might have been Nokia, which is a European tech stock. But it's related to wireless.

[Nick Kolis]

Yeah. With cell phones.

[Michael Batnick]

Yeah. I got Series 7 license in 97. That's my first exposure to the market. I didn't know what was going on.

[Nick Kolis]

And then you had two crises. You had 97 currency crisis in Russia and Asia. And then you had 98 LTCM. How'd you feel about that?

[Michael Batnick]

That's my earliest memory. I worked at a brokerage firm where we made markets in the electronic contract manufacturers. Flextronics, Jabil Circuits, when it was nasdaq. Smart Modular, Celestica, sci. These were companies based in Thailand but trading on the nasdaq. And they were pure tech. They were like, if Dell Computer places more orders next month, this stock will beat earnings. That was the pitch. In 98, those stocks went from like 50 a share to $3 a share because of the Asian. But like that, that was my. And then. So the Fed takes weights to. Do they go to zero, they go to 1%?

[Josh Brown]

One.

[Nick Kolis]

No.

[Michael Batnick]

Where did they go? Where did Greenspan.

[Nick Kolis]

In 98.

[Michael Batnick]

Yeah, 98. Of dealing with long term capital management, multiple currency crises. And then this Asian contagion thing. And they drop rates overnight, not at a scheduled meeting.

[Nick Kolis]

Right.

[Michael Batnick]

Like a random day in July or August.

[Nick Kolis]

Then they organized the bailout.

[Michael Batnick]

Yeah.

[Nick Kolis]

And then it was off to the races again. I don't even want to pull up effective fed funds on Fred.

[Michael Batnick]

So we have. I guess my point is we had plenty of fear in the markets in 97, 98.

[Josh Brown]

So they.

[Michael Batnick]

People felt good, but there was still enough fear to have those episodes.

[Josh Brown]

I don't think they kind of told Enron.

[Nick Kolis]

So that was, that was. Oh, two.

[Josh Brown]

It was January. So. So January 2001 or December 2000 when they started taking rates down and it got as low as 1% in 2003.

[Michael Batnick]

No, no. What's up in the summer of 98?

[Josh Brown]

Oh, the summer of 98 is an.

[Michael Batnick]

There's an emergency rate cut.

[Josh Brown]

Five. It went from five to four and a half.

[Nick Kolis]

Yeah.

[Josh Brown]

Or not even.

[Michael Batnick]

That's it. That's all they did.

[Nick Kolis]

That's all I did.

[Michael Batnick]

It felt bigger at the time. What do I know?

[Josh Brown]

So, Nick, I feel like people are talking about this current bull market as if 2022 wasn't like just the other day. It's like very far in the rearview mirror and I'm not, not exactly sure why or if that is relevant, but I feel like people have talking like we've been in a bull market for the last 10 years and I guess we have for the most, most of the time. But 22 is pretty savage.

[Michael Batnick]

And 2020, you had two bear markets, 2020 and 2022.

[Nick Kolis]

Yeah. But 20 was still up 18% I.

[Michael Batnick]

Think ended up on the year. But we were in a peak to trough decline of 24. Yeah, 27.

[Nick Kolis]

But in terms of just like point to point, like how did you compound the last five years? It's been super solid.

[Michael Batnick]

Yeah.

[Nick Kolis]

So why are they forgetting about 22? That's a great question. I don't really know.

[Josh Brown]

But you're right, meta was down 70 plus percent.

[Nick Kolis]

Yeah.

[Michael Batnick]

In other words, you're saying like why, why isn't that good enough for people? Like you just had the bear market.

[Josh Brown]

Why do you need. We need a reckoning. We need to pay for our sins. We just did.

[Nick Kolis]

I think because valuations are so high, people are looking at it and saying that 22 didn't really happen because usually a bear market only slowly unwinds on valuations. We have the 2008 bear market. We got the valuations at 10, so.

[Josh Brown]

We got multiple expansion this year we had earnings growth high single digits. It seems unlikely to me that we're going to get more multiple.

[Michael Batnick]

No corrections the whole year.

[Josh Brown]

It seems very unlikely we're going to get more multiple expansion next year. Guess we could. Anything's Possible. How do you think about the earnings environment heading into 25?

[Nick Kolis]

I think earnings are fine. Up another 8, 9, 10%. It's going to be solid. Confidence around the earnings will be very high. And that kind of leads you to believe multiple expansion does continue.

[Michael Batnick]

Just because there'll be earnings growth. So people will keep paying up for it.

[Nick Kolis]

Yeah, because you know, you're never really paying for that quarter's earnings. You're paying for the hope about one year out earnings. So as you post up decent comps, particularly in the back half of next year, people will get very enthusiastic about 20, 26 and 27 and 28.

[Michael Batnick]

That's right. They start saying, well, next year you're getting another 8% in earnings growth. You say, oh, okay, that makes sense. I'll buy.

[Josh Brown]

So if you could have one piece of data from one year from today to determine how next year went, what would you be looking for?

[Nick Kolis]

10 year, 10 year yield.

[Michael Batnick]

So the 10 year had this huge move this week. I think it'd be interesting to hear from you where you think the danger zone is for stock prices. Are we there already? 4 spot. 5, 7. 4, 7 5. Where does it become an encumbrance for stocks?

[Josh Brown]

And also how do we get to 5%? Is that because economic growth is booming? Would that be bad for stocks?

[Nick Kolis]

No, it wouldn't. But I think 5% is the answer. We touched on 5% both on the twos and tens and markets got wobbly.

[Josh Brown]

So if you knew that the 10 years would be at five in December, would you be bullish or bearish?

[Nick Kolis]

Knowing nothing else, I would just know how much risk to be in. Look, if the 10 year ends next year at 3, you know, something went wrong.

[Josh Brown]

But is that good for stocks?

[Nick Kolis]

No, probably not.

[Michael Batnick]

Not in year one, it's not. Yeah, yeah. As much as you don't want to see 5% on the 10 year, you definitely don't want to see three and a half.

[Nick Kolis]

Yeah.

[Michael Batnick]

Because that means people are really worried. Yeah, that's a huge.

[Nick Kolis]

Something bad happened.

[Michael Batnick]

Oh, that's interesting.

[Josh Brown]

But what if it's so bad? It's good.

[Michael Batnick]

Very good. Let's do these U.S. equity allocations. You and I talked about this on Monday. What do you see when you look at this? I see rational behavior. I have to be honest with you. And I'm, I'm, I'm a home country bias guy, so I own Internet. I own all this shit. I don't, I don't even look at it. What's the point? So I'm, I'm one of these people. And Jack Bogle was too. So Vanguard manages ostensibly, I don't know, a trillion dollars in foreign stocks. Till his dying breath, he said, you don't need him. So. And that was very off message for Vanguard. Yeah, but he said it anyway, which is why we love Jack. But when I look at this, I don't know, I know the value. Guys get mad. Meb Faber throw something at me. But I see rational behavior. So what do you think?

[Nick Kolis]

I looked at these charts for a long time when we were looking at the doc, and I don't really know how to use this data because you have periods of extremes that were perfectly fine to be long US Stocks and then some where it wasn't. It seems more random to me.

[Josh Brown]

What about the cash? The cash portion of this. So the chart that we're looking at is. This is the fund manager survey, the global fund manager survey from bank of America. And we're looking at people that are overweight. Cash a percentage. And it's, you know.

[Nick Kolis]

So this is the bottom chart.

[Josh Brown]

Yeah.

[Nick Kolis]

Okay. So January two. Great time to be long. Octo nine. Great time to be long. February 11th, not bad. You know, you have to eat a little volatility in the summer, but good time to be long. So cool.

[Michael Batnick]

This is the net percentage of response to the survey that say there's overweight cash, meaning a lot of people are now underweight cash. Is that the. The takeaway?

[Nick Kolis]

And these levels look pretty good to be long.

[Josh Brown]

So I, I feel like the, the amount of people throwing in the towel on international stocks have reached a fever pitch and we own international stocks for clients. So I, I can never get there in terms of just put all your eggs in the US Basket, even though it's the best basket. The question, the unknowable question is like, is, are valuations sufficiently attractive? And who the hell knows? We've been having this conversation for a long time now.

[Nick Kolis]

Yes.

[Michael Batnick]

That's not the question. The question is, is there a scenario that you can imagine where international stocks do great and US Stocks are doing poorly simultaneously?

[Josh Brown]

There's lots of things that happen that I can't imagine.

[Michael Batnick]

No, but that's the. I'm saying that's the real question to picture. That's the question. What would have to happen for US Stocks? And I don't mean for a month, what would have to happen for 20, 25, the S&P down 15% and the rest of the world stocks higher.

[Josh Brown]

So the answer is I don't know, but.

[Michael Batnick]

Right, but you agree with Me, that's.

[Josh Brown]

The only question I do. But the disparity in valuations gives you potentially some sort of margin. You don't need to be that, right? Not there doesn't need to be a monster catalyst. Now, I'm not suggesting that the gap's going to close or anything like that, but I don't know. I don't know what the answer is. I don't know what the catalyst is.

[Michael Batnick]

The answer might be international stocks are a tactical position and US stocks are strategic.

[Nick Kolis]

That's certainly been the history and that's the way we explain it to clients. There are times to be long Europe, times to be long China, and that's perfectly fine. Clip a coupon over a year, they'll have their moment.

[Michael Batnick]

Awesome.

[Nick Kolis]

In answer to your question, I can imagine one environment where what you outlined happens, and that is that inflation comes back very hot next year because the economy is doing extremely well.

[Josh Brown]

So that favors value stock.

[Nick Kolis]

The Fed is forced to raise rates, not just leave them stable, but raise rates at the same time. Europe is so weak that they have to cut. And so investors say, I'd rather be in the spot where the central bank is trying to support the economy than where the central bank is trying to hurt the economy or at least slow it down.

[Michael Batnick]

Is it inflation right now and for the last couple of years, a global.

[Nick Kolis]

Phenomenon, though it's separated for the last 12 months, it should continue to come down in Europe because Germany's been in a recession for two years. France is getting there quickly. Germany's gotta cut. Massive workforce for the auto industry and other sectors. So you're going to get a recession in Europe next year if it's a very deep one. ECB cuts rates a lot and maybe you get investors who say, I'll take a shot on Europe, I'll take a shot at vw at one time earnings.

[Michael Batnick]

Brazil, they're crushing the currency.

[Nick Kolis]

All time lows, all time lows.

[Michael Batnick]

This week. Lula is not seen as being serious about a lot of things, but in particular the inflation fight. You got lawmakers watering down, budget cuts. I don't know if it's the right move, the wrong move. I'm just saying the markets don't like what's happening there. They have massive inflation. They're at 14 and a half percent interest rate still. So again, and I'm not saying Brazil is an important stock market per se, but it's one of the bricks and people allocating overseas, they end up owning Brazil.

[Nick Kolis]

Yeah, but I feel like this is.

[Michael Batnick]

A global thing, though.

[Nick Kolis]

I think it's 3% of em.

[Michael Batnick]

Yeah.

[Nick Kolis]

So it's not that of a. It's small. I mean, for E, the big decisions are don't belong Europe. For us, the answer is no, don't be long Em, which basically is China and Taiwan and India. And the answer may be China if they can get it together. Otherwise, no. Okay, so by default you're back to.

[Michael Batnick]

The US And Japan is not the same story as Europe to you. No, that's its own thing.

[Nick Kolis]

Yes.

[Michael Batnick]

This is still bullish.

[Nick Kolis]

It is hard to be bullish on Japan. It had a great run.

[Michael Batnick]

Yeah.

[Nick Kolis]

But really that story fell apart. So I'm waiting for why did it fall.

[Michael Batnick]

Why did it fall apart?

[Nick Kolis]

Because of that crack in August.

[Michael Batnick]

It never recovered.

[Nick Kolis]

I don't think the sentiment around that story is as strong.

[Michael Batnick]

They had a 1987. I feel like nobody's talking about it, but they had the equivalent of a 1987 in the Japanese stock market.

[Nick Kolis]

Yeah, but in terms of industry, what are you buying with MSCI Japan?

[Michael Batnick]

Buffett found some stuff. I don't know those companies that well.

[Nick Kolis]

I think he found a great way to basically have a zero cost of carrying.

[Michael Batnick]

But he sold yen denominated bonds and bought the equities.

[Nick Kolis]

Right. Which pay a dividend.

[Josh Brown]

So Nick, you threw in the State street monthly institutional investor risk appetite index and I'll pull some from there. They said long term investors go into 2025 with their biggest overweight in equities in 16 and a half years. Not only is the overweight in equities high historically, it is also concentrated across regions we track. The US is the only zone investors are currently overweight and it is a sizable holding. So this, not saying consensus has to be wrong, but this is surely consensus.

[Nick Kolis]

Yes.

[Michael Batnick]

We were joking around about nobody rings a bell at the top. And then Donald Trump rang the opening bell of trade last Thursday. What's your take? Too cute, maybe. Okay. But potentially meaningful.

[Josh Brown]

So one, one thing that we haven't seen to ring a bell literally are the IPOs.

[Nick Kolis]

Yeah, yeah. IPOs are nowhere near where they were back in 98, 99 and 21 and 20. So that is one area where you can say we're nowhere near frothy high levels.

[Michael Batnick]

Got $30 billion worth of IPOs. It's not that much.

[Nick Kolis]

No, because what's the number year to date?

[Josh Brown]

You said 106 through Q3.

[Nick Kolis]

106 through Q3 and in the multiple hundreds.

[Josh Brown]

I guess the difference now is that there's so much liquidity in the private market. That it's hard. This is. These are not apples to apples comparisons.

[Nick Kolis]

It might be some of that, but I think people ultimately always want the exits.

[Josh Brown]

Yeah, that's true. And. But the IPO window has been closed.

[Nick Kolis]

So shut.

[Michael Batnick]

One of the things Adam Parker has been saying is that this coming year could be the year of spinoffs. And I've already heard about a couple that are in the works. Warner Brothers Discovery, which is a big enterprise value, not a big market cap because it's mostly debt. They're going to separate the linear TV networks from the streaming and studio. So streaming studio will be the growth piece. The linear networks will be a well managed melting iceberg with probably a good dividend. That's the way to think about it, right? Yeah.

[Nick Kolis]

Cnbc.

[Michael Batnick]

Yeah. Well that's, that's another one where Comcast wants to take all those piece linear networks and spin them off. So maybe we don't get an IPO boom, but maybe we get a lot of corporate restructurings and a lot of M and A. And with I think a more favorable FTC situation, if that ends up taking the place of IPOs in this cycle, it seems structurally bullish for the stock market. The market loves spinoffs and M and A is like a lot of catalysts all over the market. So I would take that instead of the IPO boom that we haven't gotten. I'd be okay with that.

[Nick Kolis]

Yeah. But I think, I mean you usually get both when things get truly frothy. It's not just retail investors day trading stocks, it's CEOs. It's investment bankers making big deal, like doing big deals. And one thing I always think about is like, what's the emblematic deal of a cycle? So like in the 80s it was RGR Nabisco. In the dot com bubble it was Netscape and AOL Time Warner. You know, in 07 it was the Texas utility that KKR bought that went bust.

[Michael Batnick]

Oh, I was going to say Sam Zell selling equity office properties to BlackRock or Blackstone at the top. That was a big one too. For the real, he got out of real estate literally at the top. And he's the king of real estate.

[Nick Kolis]

And the 2010 cycle, I don't know, it didn't really feel like it had an emblematic deal.

[Josh Brown]

Alibaba was baba.

[Nick Kolis]

Yeah.

[Michael Batnick]

Was that a deal though?

[Josh Brown]

No, it's just. But it was a big deal at the time.

[Michael Batnick]

The 2000 and tens, meaning 2010 to 2020.

[Nick Kolis]

What was the, the emblematic?

[Michael Batnick]

I don't think we had one either.

[Nick Kolis]

Yeah.

[Michael Batnick]

What was the 2001?

[Nick Kolis]

Your equity. Your. Your.

[Michael Batnick]

Oh, the 2001 was when Madonna brought Britney Spears and Christina Aguilera on stage at the VMAs and they. And they had a three way kiss. That to me was the big unlimited, that decade. All right, so we, so we don't have that. Can you say. Can you say we're in a meeting? A mania or a bubble without new supply coming on in the form of IPOs? Not really.

[Nick Kolis]

No.

[Josh Brown]

No, you're looking at the wrong places. It's fartcoin.

[Michael Batnick]

What if you say. What if you say you substitute IPOs for private equity deals? Can you get there then as a proxy?

[Nick Kolis]

But you can probably get there with crypto.

[Michael Batnick]

Okay, so that's a good point. That's $4 trillion of market value. Think of that as one big IPO that went public this year and everybody bought into it. Yeah, blackrock bought into it. Everybody's in. So does that get you to the place where you could say, we're getting toward the end, and here's my signal.

[Nick Kolis]

Of that, or the way I think about the end. I mean, we have so few examples from modern history, but the biggest end was 2000. Right. So what happened in March 2000 and what happened in April and what happened in May? And it was fundamentally the Fed raising rates beyond the 94 highs. And that's when the market said, oh, they actually are really serious. That's what broke the market in 2000.

[Michael Batnick]

Because you couldn't get those underwritings done anymore. The IPOs started to break and you.

[Nick Kolis]

Had a flash almost bear market of the nasdaq. And things tried to recover and money rotated into cyclicals and the S and P was not bad in 2000, but that ended up being the breaking point.

[Michael Batnick]

Where were you, Zach? You were. So the only thing I remember From March of 2000 was Abby Joseph Cohen comes out and says, we are. The United States is a global supertanker that cannot be stopped and blah, blah, blah. And then the next day, Bill Gates said, I wouldn't buy my own stock here. It's too expensive. And then the MicroStrategy accounting scandal, and those three things all happened in one week. And I think that was the top.

[Josh Brown]

And then their customers disappeared. Right. All those companies, all those young companies went bust. And it's just not to say that we can't have a bear market, obviously, but the environment is so fundamentally different today.

[Nick Kolis]

Yeah, but the question is always, okay, fine, we're at very frothy levels. Let's agree with that. What's the trigger?

[Josh Brown]

Right.

[Michael Batnick]

An Nvidia earnings miss.

[Josh Brown]

Yeah, that could do it.

[Michael Batnick]

February 26th. No, I'm not saying that's what I think is going to happen. I'm long the stock. But could that do it? Could that be a trigger?

[Josh Brown]

Definitely.

[Michael Batnick]

Nvidia comes out and says, you know What? We thought 50% growth, but it's looking more like 30. That's minus 10% on the NASDAQ that day, right?

[Nick Kolis]

Yeah, that's fair.

[Michael Batnick]

Okay.

[Nick Kolis]

Does it kill the bull market?

[Josh Brown]

Could.

[Michael Batnick]

Or it could rotate. It could rotate the bull market. Something else.

[Nick Kolis]

So look what happened at Broadcom the last month.

[Michael Batnick]

Yeah.

[Josh Brown]

Nick, what do you make of the fact that value stocks have now been down? Daniel, chart on, please. Value stocks have been down. I guess we're going on 13 days in a row now. Well, far in excess of anything that we'd seen in the data from 1995 to today. Does this mean anything? Is this noise? What are your thoughts?

[Michael Batnick]

This sector is great. It's not leadership. It lags the bull market. And on a down day, it's the worst of the worst. What's the advertisement? If you're pitching value stocks now, what's the tagline in the commercial?

[Nick Kolis]

It's got to work someday.

[Michael Batnick]

That's all you got, Right. Okay. What do you make of this? This is pretty remarkable to me.

[Nick Kolis]

It is remarkable. I mean, I think about it more in the context of how do stock markets work? And ultimately stock markets value future cash flows. Right? That's what we all know. And the question becomes, is it as easy to forecast future cash flows in all industries and in all styles? And the answer is no. It is much harder to do in growth. So there's this paper, we've talked about it before, but Henrik Bessembinder, Long term shareholder returns evidence from 64,000 stocks. Fantastic paper. And it shows that over the last 30 years, 1990 to 2020, only 2% of stocks, 2.4% of all US equities created all the value in US equities.

[Michael Batnick]

Crazy.

[Nick Kolis]

1.4% of global equities created all the value in global equities. And what are the top 10 names?

[Michael Batnick]

Everyone knows them by now.

[Nick Kolis]

I will repeat them.

[Michael Batnick]

Yeah.

[Nick Kolis]

Apple, Microsoft, Amazon, Alphabet, Tencent, Tesla, Walmart, Facebook, Samsung and Johnson and Johnson alone are worth 14% of all the shareholder wealth creation from 1990 to 2020.

[Michael Batnick]

That's wild.

[Nick Kolis]

Yeah. Okay, so all growth stocks, Right. Why is that? Because it's really hard to forecast growth in tech or in very high Quality, systematically surprising people.

[Michael Batnick]

Yes, that's the answer.

[Nick Kolis]

That's the answer. So where do you get surprised? Like, we had this question in business school all the time, being asked by interviews, in one word, what drives stock prices?

[Michael Batnick]

Upside or downside? Surprises.

[Nick Kolis]

Surprises.

[Josh Brown]

Earnings.

[Nick Kolis]

Yeah. Surprise was the only acceptable answer.

[Michael Batnick]

Not earnings, no.

[Nick Kolis]

Surprise.

[Michael Batnick]

Because it could be an earnings surprise.

[Nick Kolis]

It could be a management surprise, it could be a market share surprise. But surprise, what is known, what is not known today, that happens tomorrow, drives stock prices. Where are there surprises in value stocks? Are we surprised?

[Michael Batnick]

J.P. morgan, they're mostly negative.

[Nick Kolis]

Right. Or at the very least, they do what they're supposed to do. J.P. morgan, great company, good stock.

[Michael Batnick]

You'll never be surprised.

[Nick Kolis]

Not a lot of surprise, but that's okay. So if you think about why does growth outperform value now versus like pre 28, pre 2008, value had a great run. Value worked. But as things began to get more technologically advanced, as Moore's law kept turning and turning and turning and innovation kept happening, it became very hard to forecast tech and very easy to forecast by relatively anything in value. That's my explanation.

[Michael Batnick]

Because the tech names were able to continue to innovate at such a high rate that every quarter there was a surprise.

[Nick Kolis]

Yes. And every three years you get a.

[Michael Batnick]

Brand new product, brand new company in some cases.

[Nick Kolis]

Yep.

[Michael Batnick]

Right. Put back, Daniel. Put back 18. You know what this looks like to me? Redemption. This is like money coming out of value manager. Like just people like, all right, this is the 12th year in a row you've been telling me the story. I'm done. This, this looks capitulated to me. And just people redeeming the value managers. Yeah, people forget a lot of the reasons why different stocks are sold. In some cases because they have to be sold, because some customer pulled their money out. And that's what, that's what this looks like to me. And people just say, you know what? I'm going market cap weighted. I don't want to hear about factors ever again as long as I live. And maybe this gets worse. Maybe this gets worse. I doubt it. I feel like this is a moment.

[Nick Kolis]

There's also an old joke, and this goes back 30, 40 years in markets that Excel killed value investing because it used to be Graham and Dodd. You take out your pencil and you do all the hard work and you figure out a value stock and you make money. The minute Excel came along, that information arbitrage closed very fast.

[Michael Batnick]

Yeah. And you're fond of saying math is not an edge. Assume everybody has the same numbers at their fingertips, which they do.

[Nick Kolis]

They didn't used to.

[Michael Batnick]

Yeah.

[Nick Kolis]

Like Peter lynch used to literally have somebody go down to the mailroom every day and pull all the annual reports that were coming in, all the quarterly reports because they weren't on the tape. So he would actually get them first and read them. And that was an information edge in the early 80s.

[Michael Batnick]

Yeah. Not anymore.

[Nick Kolis]

Not anymore.

[Michael Batnick]

Let's do 19. Michael, what are we looking at here?

[Josh Brown]

We're looking at the year over year change in returns for growth versus value and the difference between the two. And so it's not quite at extremes that we saw in 2020 in terms of the disparity in relative performance, but it's stark nonetheless. Over the last year, growth has outperformed value by 27%.

[Michael Batnick]

How do you live through that? If you're a professional and you're on the wrong side.

[Nick Kolis]

Do you want to pull up my chart for this?

[Josh Brown]

Go ahead. Yeah. Daniel, this is char 2121.

[Nick Kolis]

So I did the same math and we just, we show this to clients a lot because this is a very in demand chart. So this shows the relative performance of growth versus value. When the blue lines above the x axis growth is outperformed. When it's below, value outperforms. And this goes back to 2004. So you'll see that from 04 to 07, value consistently outperformed growth.

[Michael Batnick]

I remember that period of time. Yeah, yeah, it was, it was real.

[Nick Kolis]

Before the iPhone and then 2008 onward. The blue line is almost always above the x axis. Growth almost always outperforms and by an average since 2008, five points a year. And the periods of value outperformance are very rare and very fast. So 2010, 13, 17 and that. Blasted.

[Michael Batnick]

They're counter trend.

[Nick Kolis]

They're counter trend.

[Michael Batnick]

They're like these moments that take place. It could be 30 days or three months, but it doesn't give you time to say, oh, I actually want to allocate more heavily to value as a result of this. It's too quick.

[Josh Brown]

Well, we don't live in a counterfactual universe, but it's easy to imagine a world where ChatGPT did not come onto the scene in November 2022, and value stocks could have potentially outperformed growth stocks.

[Nick Kolis]

Yeah, it does feel that way. Or at least chatgpt is the mother.

[Michael Batnick]

Of all surprises, though.

[Josh Brown]

Exactly right.

[Michael Batnick]

Yeah, I agree with that. We might have had a different reality, but it just didn't go that way.

[Nick Kolis]

I mean, ChatGPT is interesting because, okay, look, we've had Moore's Law, came up in 1964 to call it so we've had 60 years of Moore's Law. So we've had 30 doubles of computing power per dollar in the last 60 years. And the magic of that is not just that pace, but it's. You're working off such a high base now that in two years time you're double an already high base. And that's why you get ChatGPT. It's because computing power is now entering this phase where it does even more because the base of computing power already is so high.

[Michael Batnick]

People don't understand, people don't even under, myself included, can't even comprehend what like in two years saying to your television set, saying to Apple tv, create me a movie. Here are my five favorite actors. I like westerns. I want a happy ending and I want flashback scenes to be in black and white. And I want there to be a cute dog. And that movie is 90 minutes. It appears before you. You are the director and the producer. I don't know how much Apple could charge people for that. But we know it's coming and it's not that far away. And people can't even comprehend a technological advancement like that two years hence, let alone 10 years, what we'll be doing.

[Nick Kolis]

And again, that's growth. Those are growth stocks.

[Michael Batnick]

Yeah.

[Josh Brown]

The irony of the book, Only the Paranoid survive from intel and great title. They did not survive. I mean, I guess technically they did.

[Nick Kolis]

But barely, barely weren't paranoid enough.

[Josh Brown]

All right, so could we talk Tesla for a second? Yeah.

[Michael Batnick]

What's your year end price target? In 13 days.

[Josh Brown]

Daniel, can we. Or Jon, can we play the clip? 11 days from this was the first, first time you came out, I believe 2022, we have this.

[Nick Kolis]

We only know that two car companies will survive over the next 20 years, Toyota and Tesla.

[Michael Batnick]

Seriously, we all know that.

[Nick Kolis]

Yeah.

[Michael Batnick]

Is that consensus? Is that why Ford and GM sell at five times earnings?

[Nick Kolis]

Yes. I actually, I did a video on this and I got a call from somebody I didn't know for, had known for a while, but then lost touch with, who's now a senior guy at Stellantis. Okay, this is Chrysler. And.

[Michael Batnick]

Yeah. Was he like, Nick, can you stop?

[Nick Kolis]

No. He said, why does my stock trade for a 3PE? And I said, because the market.

[Michael Batnick]

You ain't Elon Musk, son.

[Nick Kolis]

Because the market is going to be dead.

[Michael Batnick]

Yeah, I am.

[Nick Kolis]

That's the sum total. Same with Ford, same with gm. Yeah, that's why you have those I mean, look, when I covered the group, it was 10 to 12 times earnings.

[Michael Batnick]

Yeah.

[Nick Kolis]

Now it's five.

[Michael Batnick]

All right, so remember when I said I can't read anything I wrote 10 years ago? I also can't listen to myself talk from one year ago. When was that?

[Josh Brown]

Dude, you're a different person. You're a grown up now.

[Michael Batnick]

That's right. When was that?

[Josh Brown]

That was two years. That was 2022, I believe. So that was.

[Michael Batnick]

What a call.

[Josh Brown]

Controversial at the time. We have this chart showing over the last three months, and this is before yesterday, Tesla has added $791 billion in market cap, obviously the highest ever. It doubled basically since the election. So do you feel validated? Is this really. Is this more of a political move?

[Michael Batnick]

Missed the second leg of the parlay. What's Toyota? How much market cap did Toyota add dollars or a yen out of?

[Josh Brown]

Where are you on Tesla these days?

[Nick Kolis]

It's fine. It's not a car company. It's a call on Elon Musk's ability to influence policy and get paid for it.

[Michael Batnick]

Okay. Yeah.

[Nick Kolis]

And that's fair.

[Michael Batnick]

So that's morphed. It was originally. It's a call on robotics and at one time solar too. People were excited about it changes, the story changes, but the constant is Elon Musk.

[Nick Kolis]

It's funny, I was thinking about this today. Every car company at some point in its life realizes that it can't just be a car company.

[Michael Batnick]

Who else has had this realization besides Tesla?

[Nick Kolis]

So General motors in the 80s went out and bought a company called EDS from Ross Perot and made it a letterstock. It was a very novel thing at the time and made a very good set of financial gains by managing eds. Then went out and bought Hughes Electronics, the satellite maker, and they had just started DirecTV and those ended up being the only value drivers of GM in the 1990s. Ford went out and bought a bunch of financial services companies like the Associates, which was a consumer finance company. And so they've all tried to think about, okay, we know the auto industry is a crappy industry. What else can we do?

[Michael Batnick]

And that's 40 years ago.

[Nick Kolis]

Yeah.

[Michael Batnick]

Why did they stop doing that? Pension obligations.

[Nick Kolis]

No. Money. Yeah.

[Michael Batnick]

They ran out of money, right? Yeah.

[Nick Kolis]

They just didn't have the cash flow to buy new businesses. So now every car company is basically just a car company except for Tesla, which is anything you want it to be.

[Michael Batnick]

Is it too late for GM to change their mind and go into other areas? Or would Wall street punish the stock further?

[Nick Kolis]

I don't know how much worse you can get than a 5pe.

[Michael Batnick]

So in other words, what do they have to lose if they have the free cash flow? They just threw in the towel on cruise, so now they're saying they're not even going to be able to do autonomous, or at least not robo taxi autonomous.

[Nick Kolis]

Look, I think it always comes down to management's track record. If you have a track record of being good at your core business, the market will give you some credit for trying to expand. And back in the 90s, the car companies did still have some credit for running a decent core business. Chrysler Aside, Ford and GM made it through the 80 recession very well, and they had some credit with the streets to go out and issue equity or make acquisitions.

[Michael Batnick]

Right.

[Nick Kolis]

Nobody really has that anymore. Nobody has that credibility.

[Michael Batnick]

Didn't one of them just invest in Archer Aviation? Did you read about that?

[Nick Kolis]

No.

[Michael Batnick]

I think one of the car companies just invested in Archer Aviation, which is flying cars. Some. Somebody did something. If you were running those car companies or giving advice to the boards of directors or the CEOs, what would you tell them to do with their five PE stocks?

[Nick Kolis]

You have to run as tight a ship as you possibly can, and you have to find some partnerships. Honda, Nissan being the most recent example.

[Michael Batnick]

What does that partnership entail?

[Nick Kolis]

It's actually going to. I think it would be an outright merger.

[Michael Batnick]

Oh, they're going to get together.

[Nick Kolis]

Yeah, because Foxconn approached Nissan about an equity stake and that got around. And I think Honda and Nissan both have problems to solve. And by creating some higher, better critical mass, maybe they have a shot.

[Michael Batnick]

Both Japanese automakers.

[Nick Kolis]

Yeah.

[Michael Batnick]

Would Ford and GM even be allowed to have that conversation? Or the unions would probably stop it.

[Nick Kolis]

As long as you locked up the current labor force for 10 years and said no layoffs, the union wouldn't care. The issue would be more what's the actual plan.

[Josh Brown]

Okay, Nick, your point about Tesla being a call option or whatever you want it to be. You wrote one way to break down Tesla's valuation is to look at present value versus market expectations for future growth. Tesla makes about $4 a share, discounted at 10%. That's $40 a present value or 8% of where it trades. Said differently, 92% is future growth expectations. You said compare that to Nvidia, which make about $4.40 a share. That's worth $44 or 32% of its current stock price. So there is a lot more hope and faith in hopes.

[Michael Batnick]

Oh, that's an interesting way to look.

[Josh Brown]

At this than there is in Nvidia.

[Michael Batnick]

So Nvidia, you're saying only 30% of the market cap is hopes and dreams?

[Nick Kolis]

No, it's still 60. It's 30 is current. Like make that money forever, that's your value. The other 68 is future value. For Tesla, it's 92. For where it gets wild is for the existing car companies. So GM is going to make 10 bucks a share. $100 current value stock trades 50.

[Michael Batnick]

What the hell?

[Nick Kolis]

Ford, 2 bucks a share in earnings. $20 current value stock trades 10.

[Josh Brown]

But that probably makes sense to you.

[Nick Kolis]

It does.

[Michael Batnick]

Because they're in the end, they're just still car companies and they're not going to grow equity value.

[Nick Kolis]

Right.

[Josh Brown]

There was a chart from Torson Slack and people are hemming and hawing about government spending and interest expense. And I'm not poo pooing it. The US spends $3 billion a day on interest expense. And I think most of that is probably held by us at this point. So this is a conversation that we've had many times on the show over the last year or two. Is this a source of inflation? Like there's so much money coming, going from the left pocket to the right pocket. How does this slow down our spending?

[Nick Kolis]

Yeah, you're right. In theory, this is inflationary. Just because you're literally pumping money into the economy. Here's your coupon payment.

[Josh Brown]

Go spend it.

[Nick Kolis]

Go do what you want.

[Michael Batnick]

Yeah.

[Nick Kolis]

The thing is that, you know, it's mostly wealthier households which have a lower propensity to spend than the average household.

[Michael Batnick]

So this is not only inflationary but exacerbating inequality.

[Nick Kolis]

Sure. Yes.

[Michael Batnick]

Well, let's assume the bottom 50% of households are not sitting on bond ETFs and money market funds.

[Nick Kolis]

Right.

[Michael Batnick]

They're spending every dollar they make.

[Nick Kolis]

Yeah.

[Michael Batnick]

So they're excluded from that interest being paid by the government.

[Nick Kolis]

Yeah.

[Michael Batnick]

So the government is paying wealthy people because they're wealthy. And so not only is it inflationary and causing a lot of spending, especially at the high end.

[Josh Brown]

Well, it could be inflationary in the housing market because these people are giving their kids money to buy. Put a down payment on a house.

[Nick Kolis]

There is some of that for sure. So the short answer is, yes, this is inflationary. The question is how much? And if it's the most important thing and it doesn't seem like it's in.

[Michael Batnick]

The top, the number's not big enough for it to be the most important driver.

[Nick Kolis]

Yeah, you're talking about what? Let's see, where are we At a trillion on a $23 trillion economy.

[Michael Batnick]

But I think the bigger point is what Michael's saying. $3 billion a day. So that's, let's say the top 30, 20% of households being handed, maybe not directly because they own funds or whatever, but being given $3 billion a day more to spend money. So that like, that's bigger than the fact that it's a trillion. It's the actual, the transfer.

[Nick Kolis]

I remember this debt goes everywhere. So the Chinese own it, the Japanese own it, the Europeans own it. So it's a fraction of the total.

[Michael Batnick]

Okay.

[Nick Kolis]

But it's, it is a lot of money.

[Michael Batnick]

Sure.

[Josh Brown]

So real rates are high. You brought a chart, does this, what's your interpretation of where real rates are today?

[Nick Kolis]

So the fun as I brought two charts and talking about how much do deficits matter to the market? And the first chart was real yields, which is just nominal yields. What you see on the screen, minus inflation expectations. And this is real yields going back to 2003. And real yields right now are right where they were from 2004 to 2007.

[Michael Batnick]

That's quite a round trip.

[Nick Kolis]

It is. It is. It's a dramatic round trip because the Fed's not buying bonds like it did from 202009 to 2022. So real yields are now not depressed anymore, but they're no higher than they were in the early 2000s when the deficit or the debt was half of what it is now. In terms of GDP, it was 66% in the 2000s. It's 120% now. And the market's not making the US pay for that.

[Michael Batnick]

Why?

[Nick Kolis]

Because it's ultimately still the risk free rate.

[Michael Batnick]

Okay. So the government is getting a lot of leeway here.

[Nick Kolis]

Yeah.

[Josh Brown]

So does this worry you, the size of the deficit?

[Nick Kolis]

No. The market says don't worry. When the market says to worry, I'll worry.

[Michael Batnick]

We're not there yet.

[Nick Kolis]

The second chart is the dollar. The dollar is up 22, 23% since 2005. 6.

[Michael Batnick]

How much of this is dollar strength versus euro weakness? How big is the euro in the basket?

[Josh Brown]

Is it 60?

[Nick Kolis]

No, no, this is the trade weighted dollar basket. So I think it's 25.

[Michael Batnick]

Okay, but so I'm saying how much of this is really the dollar going up versus but the dollar's wrecking everything.

[Josh Brown]

Like the Canadian.

[Nick Kolis]

Yeah. The Canadian's one year low Mexican dollar or Mexican peso everything this year, particularly this quarter, has been a disaster in other currencies.

[Josh Brown]

So what's, I mean, I'm asking you to look into the future. Take a guess. What's Your surprise for 2025?

[Michael Batnick]

That the market's going to breaks out. This looks like it's about to. I don't know if I'm looking at this right, but this is a circuit specific breaking.

[Josh Brown]

If there was a stock, you'd say it's breaking out.

[Michael Batnick]

So that could be the number one risk for Q1. If this continues and we break out to new highs, you're going to hear people talk.

[Josh Brown]

But Nick, is there anything else that you're thinking about that is completely off everybody's radar?

[Nick Kolis]

No, I'm thinking about our narrative going into next year is the Fed's going to be maybe cutting rates. Once the economy is very strong, inflation will trickle its way lower and not force the Fed to increase rates. You're going to have some minor exogenous shocks like you did yesterday that jacked the VIX for a couple of days and you have a buying opportunity. But otherwise it's another fairly slow and steady year. Up 15%.

[Josh Brown]

That's a bullish backdrop.

[Nick Kolis]

Yeah.

[Michael Batnick]

Can I read you something? In the wake of Juan Soto's stunning decision to leave the New York Yankees for the New York Mets, there were all sorts of theories as to what exactly compelled Soto to spurn his former team for their cross rival. Crosstown rival. Maybe it was simply the money. The Yankees final offer came in at 760 million. Steve Cohen landed a deal that could max out north of 800 million. And he might have gone even higher if he had to. Maybe Soto just wanted to put himself in the best position to contend. While the Yankees were coming off a World Series appearance, the Mets run to the NLCS seemed to announce them as a sustainable contender. Or maybe it was something more personal. And then they talk about some of the cultural issues and Trump stuff and blah, blah, blah. When you saw that news, Steve Cohen making the biggest deal ever for an athlete, what was your reaction? Did you say not surprised at all?

[Nick Kolis]

Not at all.

[Michael Batnick]

Okay.

[Nick Kolis]

He's not afraid to buy a new high.

[Michael Batnick]

Okay. This is important because this is a new high.

[Nick Kolis]

Yeah.

[Michael Batnick]

This might be a generation. This might be a top for like sports figures in general.

[Nick Kolis]

It always. Anything in life comes down to what is your goal. You know, Steve's goal.

[Michael Batnick]

What in this case, he's a Mets fan before he's an owner. So it's win.

[Nick Kolis]

Yeah.

[Michael Batnick]

Okay. Not run the most profitable baseball franchise.

[Nick Kolis]

No.

[Michael Batnick]

Doesn't need to win. Okay. So when you saw that, you just said, that's Steve.

[Nick Kolis]

Yeah.

[Michael Batnick]

Okay. I think Most people did. Like most people on Wall street, were not at all surprised.

[Nick Kolis]

He's a winner for a reason. He has very clear goals, extremely clear goals.

[Michael Batnick]

But buying a new high doesn't guarantee that you're going to win.

[Nick Kolis]

No, but missing. But not having the best players pretty much guarantees you lose.

[Michael Batnick]

Okay. So this is the best player possible for them to get at the moment. And he went for it.

[Nick Kolis]

Yeah.

[Michael Batnick]

You think he would have gone much higher. Would he be the first person to do a billion dollars or. He doesn't want to look like a fool either. They're going to be paying this guy $50 million when he's 41 years old. That's not going to look great. Then if he gets a couple of pennants between now and then, it's a home run.

[Nick Kolis]

One of the many great things about Steve, honestly, is that he doesn't honestly care very much what people think about him.

[Michael Batnick]

Is that true?

[Nick Kolis]

Yeah.

[Michael Batnick]

Okay.

[Nick Kolis]

I mean, he. He is just the most.

[Michael Batnick]

You seem to not love the way they covered his first two seasons as owner of the team. No.

[Nick Kolis]

And it's a new space for him. Right. He's used to being master of the universe in our space. This is a new space. So it's some adoption period, some time to adapt to what's happening. But to me, his genius was always understanding what is his goal. How do you achieve the goal? Writing a rule book to achieve that goal. And that's what the old SAC was. It was a rule book for how to trade.

[Michael Batnick]

Okay. So this is his. He's putting his stamp on Major League Baseball with this deal you wanted to finish with some Steve Cohen isms. And we, of course, we eat that stuff up. Tell us. Tell us what you're thinking about.

[Nick Kolis]

I tell you, to me, I always come back to the same thing. And it was something that he told traders who were blowing up. And it was a very, like. Michael, it was a very, very tough time. Right. Because the room was very small. It was like the size of your lobby.

[Michael Batnick]

Really?

[Nick Kolis]

Yeah. Okay. And everybody was crammed in there. So you heard everything all day long. And we had these screens that told us how every team was doing tick by tick all through the day. And there was actually, obviously, a competition every day. Like, I want to be towards the top of that screen.

[Michael Batnick]

We do that, too, but with podcast downloads.

[Nick Kolis]

Okay, go on. Same thing.

[Michael Batnick]

Yeah, yeah.

[Nick Kolis]

So, you know, if. And on page two were the losers. So after you saw who was up on the day a lot, you'd look and see, okay, who's down and there would occasionally be somebody down like a third of their capital. And that's obviously in a day. Yeah.

[Michael Batnick]

Okay. Not great.

[Nick Kolis]

Not great. And it was always like, okay, what's Steve gonna do? And he honestly. His reputation for yelling. He never yelled when I was in that room at somebody who was down a lot. Because he knows what that feels like.

[Josh Brown]

Not guess.

[Nick Kolis]

He would just walk over and say, you're making this harder than it has to be. Do you understand what I'm telling you? Yes. Then he'd walk away and the trader would always just clear the entire sheet, sell everything and start over from scratch.

[Michael Batnick]

Lock in a huge loss as opposed to trying to fight to fix the loss.

[Nick Kolis]

Yes. That's in the past. Forget it. Okay. You screwed up.

[Michael Batnick]

Meaning if you could start from zero, would you put that position back on?

[Nick Kolis]

Exactly.

[Michael Batnick]

The answer is almost always no.

[Nick Kolis]

Exactly.

[Michael Batnick]

Even though the price is down. You. You were wrong. You were wrong at 50. You're probably still going to be wrong at 40.

[Nick Kolis]

Yeah.

[Michael Batnick]

Okay. So. So did. I mean, they have to listen, but people listened immediately.

[Nick Kolis]

Yeah.

[Michael Batnick]

Anybody ever push back on that?

[Nick Kolis]

No.

[Michael Batnick]

No way.

[Nick Kolis]

No. When the best trader. Who's also your boss.

[Michael Batnick]

Yeah.

[Nick Kolis]

Is telling you how to do it. And this is something that you were told from day one.

[Michael Batnick]

But why wouldn't he just say sell? Why. Why did. Why did he have to do a riddle for people? You think that was like part of the training?

[Nick Kolis]

I think it was more him saying, I hired you for a reason.

[Michael Batnick]

Yeah.

[Nick Kolis]

Right. You're a winner. Start trading like a winner.

[Michael Batnick]

Okay. And that was effective.

[Nick Kolis]

Yeah.

[Michael Batnick]

Okay. So he's gonna do that with Juan Soto when he tears his acl or I guess we'll find that. Okay. What else? Math is not an edge. I have here.

[Nick Kolis]

Math is not an edge. That's just one I think about whenever I see these PE charts. Like, come on. Okay. Everybody has a calculator.

[Michael Batnick]

Yeah. Respect the charts. Momentum.

[Nick Kolis]

Yeah. You know, I never heard him say it, but I believe it strongly. You never. You never sell a new high or buy a new low.

[Michael Batnick]

Never sell a new high or buy a new. Yeah, it makes sense to me. I would do either of those things.

[Nick Kolis]

Yeah.

[Michael Batnick]

That assumed. That's a very arrogant posture to take.

[Nick Kolis]

Yeah.

[Michael Batnick]

That. You know, it's the all time high now you might say, I don't think it's the all time high. I think it's enough for me. That's not quite the same thing.

[Nick Kolis]

Oh, you can shave off. You can sell some.

[Michael Batnick]

Yeah.

[Nick Kolis]

But do you short a new high?

[Josh Brown]

No. Never.

[Michael Batnick]

No, no. Never short a new high is, is like a pretty. I think it's a pretty good way of life.

[Nick Kolis]

And never buy a new low. Like, I have had so many friends kill their careers buying new lows.

[Michael Batnick]

Yeah.

[Nick Kolis]

I had a buddy who bought a huge stock, a stake in Enron on the way down. And this was a brilliant guy and a CPA and a PhD and it killed them.

[Michael Batnick]

And you say, learn to look at long term charts at an ostensibly day trading shop. What does that mean?

[Nick Kolis]

It means that. And this again took me years to appreciate, but whenever I learned to look at the long term chart, to say, okay, is this fundamentally a good story? Because I was coming from the autos, which are fundamentally a horrible set of stories, and I didn't really know how to look at a good story. And so by looking at the chart, I could sort of begin to break myself from the psychology that everything's just a trade. Like there are things that are working that will continue to work because I had come at it from the view of like, everything's okay, a weak trade. But there are some things that do work that you can be kind of tactically long.

[Michael Batnick]

For years you said someone always knows what's going on in the stock. Was something that Steve believed if a stock was moving, somebody knew something. But. And then you talk about respecting the technicals, but Steve always wanted a fundamental information edge. I don't think you could go to him and say, look how great this chart looks. Well, what do you know about the company? Nothing. So it had to be like a combination of the two.

[Nick Kolis]

It was. He was a big demarc fan.

[Michael Batnick]

Okay.

[Nick Kolis]

And I don't know if he still is or not, but I think the technicals definitely informed the way he looked at the market day to day, particularly going into the close.

[Michael Batnick]

But you had to know what the company was.

[Nick Kolis]

It was more at a macro level. At the market level.

[Michael Batnick]

Okay.

[Nick Kolis]

At the individual level, yes. As an analyst, you had to go pitch a fundamental story and to explain, here is what the market's missing. Here is what I know, here's why I know it. So, like, we had a very good trade short GM when it was doing one of these financial deals with GM Hughes. And it was a very straightforward thing, but it wasn't about fundamentals. It was. The fundamentals of the company are awful. And the Stock's trading at a 20 PE because of a catalyst. The catalyst is over. On this day. Let's get short.

[Michael Batnick]

This is my favorite one. Is this yours? Cut losses early, size up winners and let them Run. I think that's what everyone should do. I don't always do it, but I'm just saying if you could only have one thing to live by.

[Josh Brown]

So. I don't think I've ever taken a big loss on a stock. I'm very good at cutting my losses.

[Michael Batnick]

You do that?

[Josh Brown]

Yeah. But I have a very hard time letting my winners run. I think the best embedded paper really me up. I know too much about how many, how many stocks are not worth owning for the long term. So I, I cannot get more than a double out of a stock. Like I bottom ticked Facebook. Only time in my history I've ever done that. And I sold it for a double. It's probably up 3x since I sold it, but that's fine with me. I can't, I can't get a 300% gain on a stock. Just not on my trailer stock with.

[Michael Batnick]

A stop loss and take that decision out of your hands.

[Josh Brown]

Not my style. I'm decisive. What can I tell you?

[Michael Batnick]

What, What's a good example of size up winners and let them run? Did you see him do anything like that? Probably in some biotech stocks or it actually comes from.

[Nick Kolis]

So when you went to sac, you had to talk to his shrink once a week, a guy named Ari Kiev who wrote a bunch of books about his time at SAC and telling stories about how the traders would trade. And it was very painful because you had to go in and basically go through every trade you did the prior week. And the question was always the same, if you lost, why didn't you cut? And if you were making, why didn't you add?

[Michael Batnick]

Did anybody have good answers to that or was just an exercise?

[Nick Kolis]

It was just an exercise to get you ingrained in thinking that way.

[Michael Batnick]

Okay.

[Nick Kolis]

Okay. You bought the stock for a catalyst and the catalyst worked.

[Michael Batnick]

Wait, if you lost money, why didn't you cut the position?

[Josh Brown]

But the answer is you're afraid.

[Michael Batnick]

And if you made money, why didn't you add to it at all?

[Josh Brown]

Because you're afraid of locking in a loss that you're going to get back to even. And you took profits because you're afraid that the profits are going to disappear. You're afraid on both sides.

[Nick Kolis]

Right. And fear is a horrible trading motivator.

[Josh Brown]

Yeah.

[Nick Kolis]

Maybe the worst.

[Josh Brown]

Worse than grid.

[Nick Kolis]

Yeah.

[Michael Batnick]

So people go through that every week or just people that are in the first year.

[Nick Kolis]

You know, you went for the first week for the first year, every week.

[Josh Brown]

That sounds horrible.

[Nick Kolis]

It wasn't fun.

[Michael Batnick]

We should implement that. I actually don't hate It. Nick, do you have fun on the show today?

[Nick Kolis]

It was great.

[Michael Batnick]

We're going to ask you a new question. This time you started doing this, I want to know what is the thing that you are most looking forward to? And that's very general way to put it. Could be today, could be next year, could be something in your personal life, something professionally. But, like, what do you have on in the calendar in your mind coming up that you're excited about?

[Nick Kolis]

I am so excited about proving the Bears wrong again in 25.

[Michael Batnick]

Look at you. Best guess, John, Best guess ever. Best guest ever, would you say?

[Nick Kolis]

Oh, yeah.

[Michael Batnick]

All right. Say more. Name them. No, I'm just kidding. All right. I love it. Michael, what are you most looking forward to?

[Josh Brown]

I'm taking my kids, or my dad is and my stepmother are taking our kids this weekend to see Alan the Philharmonic, which be great. I'm excited about that.

[Michael Batnick]

What do they do? They show the movie and the orchestra plays the soundtrack. Yeah, I've never been to one of those, have you?

[Josh Brown]

I've not.

[Michael Batnick]

People love that.

[Josh Brown]

I'm really jacked up.

[Michael Batnick]

Where are they doing that?

[Josh Brown]

I don't know. Probably Lincoln Square.

[Michael Batnick]

Philharmonic is probably Lincoln Square.

[Nick Kolis]

Yeah. The new Geffen Hall. It's fantastic. Oh, yeah, it's amazing. They redid the whole hall. It's so much better than before.

[Michael Batnick]

Really?

[Nick Kolis]

Yeah, it's beautiful.

[Michael Batnick]

I gotta get over there. And there's a new performance space Pac, which I think is. Ron Perlman built it or sponsoring it. It looks like a black cube standing on nothing, but it has a foundation. It's in Manhattan. I just saw a picture of it. I didn't know what it was, but they're doing shows there, too. I'm going to see the Bob Dylan movie on Christmas when it comes out, I think. I know you're not a big movie guy, but it looks like it has all the ingredients to be a good film.

[Nick Kolis]

See the Scorsese Dylan Like a roll.

[Michael Batnick]

Was that called again?

[Nick Kolis]

Was it Like a Rolling Stone?

[Michael Batnick]

I saw the Rolling Stone doc. That he did. No, that's. The complete unknown is this movie. What's the Scorsese Dylan movie? It's like four parts, right?

[Nick Kolis]

It was long.

[Josh Brown]

Yeah, that. I'm not sure.

[Michael Batnick]

It was something like he's not there, or it had some weird name to it. So anyway, I'm going to go see it. I can't imagine. It's. It's James Mangold, who has made some of the best movies of the recent era. And Chalamet is like the hottest actor in Hollywood. So hot.

[Josh Brown]

Oh, stocks close on the lows. That's good.

[Michael Batnick]

Yeah. So forget all this Bob Dylan bullshit. All right, we're going to wrap up from here, guys. Thank you so much for listening to the show this week. Our special thanks to our friends, Nick Colas. I want to let you know where you can find more information. And as you could tell, Nick is an absolute information machine. LinkedIn. Nick Colis is on LinkedIn. DataTrek Research.com is the home base. If somebody wants to subscribe and become a customer, that's the fastest way to get your stuff delivered each day. You guys have an awesome YouTube channel you shared with me today that you are up to 8,000 subscribers from a standing start, which is really good in year one. How do people find the YouTube channel?

[Nick Kolis]

Just look for Data Trek Research and it'll pop right up.

[Michael Batnick]

Just like put in the search box, Data Trek Research. All right, you guys follow Nick on LinkedIn. Follow DataTrekMB is the Twitter handle. Go to DataTrekResearch.com and make sure if you were YouTube person, you are watching Nick and Jessica on the Data Truck Channel. Great job this week. Daniel, Nicole, John, Sean, Chart, Kid, Matt, Rob, Graham, everyone else that I forgot. Duncan, anyone else I may have forgotten. You guys rocked it for the fans. We appreciate you. That's it from us. We'll see you soon. Thank you, Nick.

[Nick Kolis]

Thank you.

[Michael Batnick]

Thank you.

[Nick Kolis]

That was crazy.

[Michael Batnick]

How much help.