Data Centers Are the New Fracking

Summary

The Compound and Friends

Episode: "Data Centers Are the New Fracking"

Date: February 27, 2026
Hosts: Downtown Josh Brown, Michael Batnick
Guests: Daniel Clifton (Partner/Head of Policy Research, Strategas Asset Management), Chris Varone (Partner/Head of Technical & Macro Research, Strategas)

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Overview: Main Themes

This episode centers on the dramatic shift in business, politics, and investing triggered by the AI/data center boom—framed as “the new fracking”—and the broad sociopolitical, economic, and market repercussions. The conversation seamlessly weaves together investing hot topics, AI skepticism, election-year policy, CapEx surges, shifting market leadership, and the challenges of interpreting today’s rapidly evolving financial narratives.

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Key Discussion Points & Insights

1. Setting the Scene: From Cartels to State of the Union (00:00–04:44)

• Michael shares a harrowing Mexico travel story, underscoring rising geopolitical risks (“Might be my last time.” – Michael, 00:47).
• Daniel and Chris join, quickly pivoting to hot takes on the recent State of the Union address.
• Trump’s performance compared to past presidents: “He’s bringing out the hockey team...200-year-old soldiers getting medals.” – Chris, 02:29
• Quick reactions to Trump’s moves on tariffs, immigration, and Supreme Court strategy.

2. Trump’s Policy Focus: Immigration, Data Centers, Taxes (04:44–06:10)

• Trump’s pivot to making the midterms about immigration and American jobs—discussed as a wedge issue.
• Chris flags unexpected, pivotal comments about data centers and the need for Microsoft and others to fund their own energy to calm voter concerns (04:44).

3. Political/Economic Disconnects & Market Behavior (06:10–14:34)

• The panel marvels at the paradox of economic tailwinds (low gas prices, stock market highs) not translating into better poll numbers.
• Michael: “What’s remarkable here...the market’s basically 2% off the highs.” (05:41)
• Debate on the Fed’s ability to parse structural vs. cyclical unemployment changes sparked by AI.
• Market breadth improves as mega-cap tech stumbles, recalling early 2000s market structure.

4. The AI Backlash Goes Mainstream (14:34–19:31)

• Josh: “The full backlash against AI finally went mainstream.” (14:34)
• Sobering stats on AI skepticism:
  • 50% of Americans more concerned than excited about AI (Pew).
  • Only 5% trust AI “a lot.”
  • 61% say AI will eliminate more jobs than it creates.
  • 77% distrust gov’t/business with AI.

Notable Quote:

“Everybody hates this shit. Here’s the COVID of Time magazine.” – Josh, 16:46

• Discussion on entry-level unemployment spiking for grads, attributed to reluctance to hire in an AI-evolving job market.

5. Data Centers: The New Fracking? (19:31–23:49)

• Chris: “Data centers are the new fracking.” (19:38)
• Local resistance to data center projects echoes past fracking political battles—nimbyism, environmental fears, and political flashpoints.
• Limited local job creation is a challenge to pro-data center arguments; instead, property tax revenues become the carrot.
• The fracking/AI comparison: both offered economic promise, both met with populist resistance.

Notable Quote:

“One of the problems is they don’t create a lot of jobs... you’ve got to make it about property taxes.” – Chris, 22:09

6. Market Rotation: End of the Mega-Cap Era? (23:49–33:09)

• Increasing momentum toward “the market of the many”—equal-weight indexes, industrials, mid-caps, and value taking leadership as tech falters.
• Discussion of 1999–2001 analogs: breadth improves even as the headline index stalls or drops.
• Software’s washout and semis’ “parabolic” moves—indiscriminate selling triggers potential reflex rallies.
• Caution against chasing parabolic moves “be very, very careful with the parabolic looking chart.” – Michael, 27:25
• New rotation: AI infrastructure plays (industrial, electrical equipment) go vertical while old standbys lag.

Notable Quote:

"All the incremental news flow...has been in this direction of this new developing trend...the market of the many." – Michael, 24:41

7. The Narrative Game & Policy Shifts (33:09–41:37)

• Panel suspects coordinated messaging among tech executives to downplay AI’s job-loss threat, stemming panic in enterprise buyers.
• Capex boom is broadening beyond tech and energy as expensing incentives kick in.
• Strong warnings against over-anchoring on narrative instead of price and trend: “Be really, really skeptical of anyone who is just so forceful with a narrative.” – Michael, 34:03

8. A Regime Change in Market Leadership (41:37–47:53)

• Old-economy cyclicals—industrials, energy, materials—lead for the first time in decades.
• Josh asks: “Could we pay tech-like multiples for industrial stocks?” (40:26)
• Marathon outperformance by consumer discretionary ends; US investors must re-learn the industrials/materials trade.
• Unpacking the political overlay: Capex/reshoring trends could hinge on results of the midterm elections.

Notable Quotes:

“This is a capex economy.” – Michael, 41:39
“If this is a new regime, am I playing by the right rules?” – Michael, 42:15

9. The Election Cycle & Market Volatility (47:53–59:32)

• Stocks, sector leadership, and policy are all now proxies for anticipated midterm results (e.g., tech underperforming as Dem odds of winning Congress rise).
• Strategic sector baskets for each political scenario (“Harris basket”: renewables, health care, etc.).
• Historical patterns: “The S&P 500 has not declined in the 12 months following a midterm election ever since 1938.” – Chris, 58:30

Notable Quote:

“When a trend is in motion, all the news flow tends to break in the direction of the trend.” – Michael, 48:59

10. Market Breadth, Defensive Rotation, & Sector Valuations (49:25–61:24)

• Strong breadth outside of tech; energy and staples at extremes above moving averages.
• Staples now trading at a higher PE than some big tech—ripe for a fade. “Are you buying an all-time breakout in multiple for consumer staples? You’re fading that all day.” – Daniel, 61:05

11. Anthropic, DOD, and AI National Security (61:26–66:12)

• New policy/regulatory front: AI safety, privacy, and government relationships at Anthropic (Claude).
• Defense exposure drives changes in how leading AI companies might operate/present themselves.

Notable Exchange:

“Anthropic basically now has to do whatever the Trump administration says.” – Josh, 62:17
“They're only going to have one customer, and the Department of Defense is only going to have one vendor...they will figure out a solution.” – Chris, 64:30

12. Gold, Crypto, and the Dollar (66:12–73:19)

• Gold seen as “in the penalty box” for now; silver declared “done.”
• Bitcoin no longer viewed as a game-changer since stablecoins (US Dollar-backed) are taking center stage in digital money (see 67:26).
• Broadening outflows from bitcoin ETFs symbolize emotional liquidation—but history says survivors bounce back.
• USD weakness helping global equities; expect some bounce, but bigger structural shifts possible post-midterm.

13. Global Markets: A New Era (73:19–77:24)

• US market cap as % of world peaked in late 2024; Japan, LatAm roaring (Nikkei eyeing 90,000–100,000).
• Panelists stress no “one-size-fits-all” sector/geographic analogs—each region has unique drivers.
• Political winner: US is “off the hook” for carrying global growth as Europe and Japan ramp spending.

14. Macro ETF Strategies: Investing for Policy, Price, and Narrative (77:24–81:58)

• Detailed rundown of Strategas’ thematic ETFs:
  • SAMT: Macro theme rotation.
  • SAGP: Stocks benefiting from lobbying intensity.
  • SAMM: Pure price/relative momentum.
• Discussion of how policy, price signal, and narrative intertwine; rare moments when all align offer major opportunity.

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Notable Quotes & Moments

• “Data centers are the new fracking.” (Chris Varone, 19:38)
• “What Dan sees in DC—he sees it before it’s on the front page of the newspaper… when it’s also showing up in my work… that’s where the magic is.” (Michael Batnick, 81:48)
• “Apple could be a market leader again—it’s the only one not tainted with these $600 billion capex multi-year budgets.” (Josh, 52:16)
• “I'm happy to be out of Mexico. I think the Masters is six weeks away. I’m looking forward to the Masters, the best week of the year. And… this is the most exciting macro environment I've ever seen.” (Michael, 83:05)

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Important Timestamps

• 00:00–04:44: Mexico story, State of the Union, Trump policies
• 04:44–06:10: Tariffs, data centers in SOTU, tax policy
• 14:34–19:31: Mainstream AI backlash, polling data, employment fears
• 19:31–23:49: “Data centers are the new fracking,” local opposition, parallels with energy sector
• 23:49–33:09: Market structure: Rotation from mega-cap tech, breadth, bubble analogies
• 33:09–41:37: Narrative versus price, CapEx boom, skepticism about strong narratives
• 47:53–59:32: Market, sector, and election cycle interplay, historical performance around midterms
• 61:26–66:12: Anthropic and DoD, AI governance, privatization of defense tech
• 66:12–73:19: Commodities and crypto, gold/silver/bitcoin outlook, US dollar
• 73:19–77:24: Global market shift, US market cap declines, Japan/LatAm bull run
• 77:24–81:58: Thematic ETF deep dive, combining policy and momentum

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Closing and Personal Touches

The episode closes with the recurring “what are you looking forward to” round:

• Chris: World Baseball Classic, midterm election (“Super Bowl”)
• Michael: The Masters, being home safe, and excitement at today’s macro investing landscape.

Josh’s birthday is celebrated with a song—a warm, personal ending to a dense, lively session.

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Summary

This was an energetic, wide-ranging episode anchored in the intersection of macro trends, market leadership rotation, and the reverberating impact of artificial intelligence and political policy on business and investing. The “data centers = fracking” metaphor serves as the backbone, highlighting how technological shifts can trigger dramatic re-orderings across markets, policy, and public opinion.

The conversation is infused with skepticism toward conventional narratives, sharp historical analogies, and practical investing takeaways, making it invaluable for anyone trying to make sense of the new economic and investing paradigm.

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Listen Further

Find these guests and their research at Strategas Research Partners and on LinkedIn/X. For the ETFs discussed, see official Strategas ETF sites. For disclosures: Ritholtz Wealth Podcast Disclosures.

Transcript

[Josh Brown]

So which cartel did you join?

[Michael Batnick]

Gosh, what a nightmare.

[Josh Brown]

Are you in the good one?

[Michael Batnick]

I'm in the good one. I'm back.

[Josh Brown]

Are you in a target cartel?

[Michael Batnick]

When we crossed over to American airspace,

[Josh Brown]

I was like, wait, so start from the beginning. I need it. Give me. Give me the whole thing. So you're in the. So you're giving a speech.

[Michael Batnick]

Giving a speech. Trying to get home.

[Josh Brown]

So there's a lot of you there. There's people there for an event.

[Michael Batnick]

There's a group there. And then I'm sure you saw the news on Sunday. There's a little action in southwest Mexico, but made it back after four or five years.

[Josh Brown]

Why was the event there? Was it something international in.

[Michael Batnick]

Yeah, it was just like an international group, and it was a good opportunity to speak at that event and didn't foresee that there might be some trouble.

[Josh Brown]

I love Mexico, by the way. I was there.

[Michael Batnick]

Might be my last time.

[Josh Brown]

I know I was there.

[Michael Batnick]

Might be my last time.

[Josh Brown]

I was at a place called the Maroma is, like, north of Cancun. You fly into Cancun and drive up the coast.

[Michael Batnick]

So that's more like east coast of Mexico.

[Josh Brown]

So I was in the Belmond. Maroma is. I think it's one of the best hotels I've ever stayed in. There's 25 guests there that's. Or something. Some. Something tiny at any one time. And I'm so sad. I can't. Like, I. I would love to go back to Mexico.

[Michael Batnick]

Maybe wait a little bit.

[Josh Brown]

No, I understand. Stay on the east side.

[Chris Varone]

Yeah.

[Josh Brown]

So. All right. So they tell you. So what happens? You have a flight and the hotel says nobody's leaving, or you just know.

[Michael Batnick]

Yeah, the hotel was really pretty insistent that everyone stay and just wait it out. So the federales, like, the hotel security was. Was pretty insistent that. That people stay and just wait for things to cool down. And fortunately, they did, and then was able to get out yesterday, Wednesday.

[Josh Brown]

Did you have to smuggle anything?

[Michael Batnick]

No, I got some tequila back over the border, though, which is good.

[Josh Brown]

Dude, we're happy to have you back. You almost destroyed the show this week, so.

[Michael Batnick]

I know, I know. I was worried.

[Josh Brown]

I was definitely worried about your life. But also, the show is, you know, it's. It's a big deal. All right. So happy you're here, dude. All right. How we looking, John?

[Chris Varone]

One minute.

[Josh Brown]

Okay. All right, so, guys, we do the headphones so you can hear. So you can hear everything. Yep. You could hear yourselves talk that way. If you get a little bit further from the mic, your own ears will tell you. Oh, sit up, Dan.

[Daniel Clifton]

How about the State of the Union address? Am I right?

[Chris Varone]

Oh, man. It was a full movie. Two hours.

[Daniel Clifton]

It was two hours.

[Chris Varone]

Two hours.

[Daniel Clifton]

Did you watch the whole thing?

[Josh Brown]

Of course. I think it's the most entertaining thing there is. I think it's better than most regularly scheduled events.

[Daniel Clifton]

Dumb question. There's no commercials, right?

[Josh Brown]

No, no.

[Chris Varone]

No commercials. Straight. And he could just keep going, Right? So. But very different. Like, Bill Clinton used to just go, policy, policy, policy, policy. Trump just talks. He's got the whole show going on. He's bringing out the hockey team. He's bringing out the 200-year-old soldiers getting medals. Like, it's. It's.

[Josh Brown]

I thought that was dope. When the entire hockey team was like, broug. And they got a standing ovation, I thought that was really cool.

[Michael Batnick]

Pretty great.

[Josh Brown]

Everybody in the room stood up for them.

[Chris Varone]

Yes.

[Josh Brown]

The big take, two big takeaways from the thing seemed to be one. He basically was like, I'll do whatever I want with tariffs. I thought it would go the other way. I thought he would look directly at the Supreme Court justices and tell them off. No. Instead, he's like, lol. Watch. So, all right, that was a big one. And then the other one. Did he really. Everyone's like, he trapped the Democrats. He knew they wouldn't stand up for protecting Americans being job number one.

[Chris Varone]

Sure.

[Josh Brown]

I don't know. Is that, like, that big of a moment as everyone was saying?

[Chris Varone]

Yeah, let me just take one step back. He needs the Supreme Court on three other decisions, like the Voting Rights act and Lisa Cook. He's probably not gonna get him on Lisa Cook. So there was no reason to go stick his finger in their eye, because his point is, like, I'm just gonna do it another way. You're just saying, I couldn't do it by Iipa. The second point is that he's trying to inject himself onto the ticket. Midterm elections are usually about a referendum on the president. He's not on the ballot. So he was like, okay, I'm gonna make this about immigration. And he's like, I'm for American citizens. You're not. The question that you have to ask, though, does that help in the target districts like Short Hills, New Jersey, and Orange County, California, that immigration issue is less of an issue there. But you could see where he's going from today until the election, and that is that it's gonna be. The Democrats are gonna have to run against him, and he's Making it about immigration.

[Josh Brown]

Is that where he's the strongest for the independent voter?

[Chris Varone]

Yes, he's very strong. Like, if you look at the polling still.

[Josh Brown]

Right.

[Chris Varone]

If you look at the polling, his polling numbers are awful.

[Josh Brown]

Okay, what is 36%?

[Chris Varone]

36%. Like, that's. That's 35 seats he's gonna lose in the House. If you look at a relative comparison on immigration and other policies, you. He's actually, even with the Democrats, he's slightly ahead on immigration. So they see that as some sort of opportunity.

[Josh Brown]

So then they'll. So they're gonna push on that. They're gonna push on that this summer,

[Chris Varone]

and they're gonna push on it. I would say my takeaways from that. That State of the Union are actually a little bit different. He's got a real issue on data centers. So he was like. He was like, hey, I've come up with a way for Microsoft to pay for their own energy and start to ease voter concern on data centers. To me, that was a very important. It was like 45 minutes into the speech or something, and so it kind of got missed because there was a lot of other stuff that was very important. The second thing is.

[Josh Brown]

Let's put a pin on that one.

[Chris Varone]

Yep.

[Josh Brown]

What's the second thing?

[Chris Varone]

The second thing is on taxes, where he basically was trying to tell everybody, I get this massive fiscal stimulus coming in 2026. We passed a bill last year. And you got zero from that in 2025. It's coming in 2026. And that's why he started out there in the beginning on that, to try and say that while people were still

[Daniel Clifton]

warm and watching, support is narrowing, unlike the stock market. Am I right?

[Michael Batnick]

Nailed it. Well, I mean, I think what's remarkable here.

[Josh Brown]

What a. What a segue.

[Daniel Clifton]

Stock market guy.

[Josh Brown]

Go.

[Michael Batnick]

The poll numbers are where they are. And the market's basically, what, 2% off the highs.

[Josh Brown]

Yeah. Dow 50,000. I can't believe he's not 40% at least. Where are.

[Michael Batnick]

What's the national average on gas prices right now, Dan? Probably $2, right?

[Josh Brown]

Yeah. 2. 85 down through handle.

[Michael Batnick]

Something like 350. Right. So you have what are perceived tailwinds, maybe in an old view of the world, which are not manifesting in higher poll numbers. It's this.

[Josh Brown]

All right, Pancho Villa, hold on. Let's get the show started. Let's get. Don't do the content before the content.

[Daniel Clifton]

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[Josh Brown]

Today's show is sponsored by Janice Henderson Investors where we believe working together is the way to work better. Like combining your portfolio plans and our in depth strategy, your valued assets and our valuable insights. Your mission and our vision. Always working in perfect harmony to find the right investment opportunities. Janice Henderson Investors investing in a brighter future together visit janice henderson.com. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their

[Chris Varone]

own opinions and do not reflect the opinion of Ritholtz Wealth Management.

[Josh Brown]

This podcast is for informational purposes only and should not be relied upon for any investment decisions.

[Chris Varone]

Clients of Ritholtz Wealth Management may maintain

[Josh Brown]

positions in the securities discussed in this podcast.

[Chris Varone]

Hi.

[Josh Brown]

Thank you, Ms. Nicole. Ladies and gentlemen, welcome to the best investing podcast in the world. My name is Downtown Josh Brown. First time listeners, welcome. Last time listeners. Sorry. I did my best. With me today, my co host, Mr. Michael Badnik.

[Michael Batnick]

Hello.

[Daniel Clifton]

Hello.

[Josh Brown]

All right. The crowd is going wild.

[Daniel Clifton]

Thank you.

[Josh Brown]

I love you. All right. And we have two very special guests making their inaugural appearances on the compound and friends with us today, Daniel Clifton. Daniel is a partner, portfolio manager and head of policy research at Strategus Asset Management where he leads the number one ranked Washington policy research team on Wall street per Institutional Investors All America Research survey. Congrats on that.

[Michael Batnick]

Thank you.

[Josh Brown]

Good. It's big. His work underpins. All right, it's enough. Chris Barone. Chris is a partner and head of technical and macro research at Strategus where he serves on the firm's asset allocation committee. Chris is consistently ranked among Wall Street's top macro analysts by institutional investor and all star charts. And all star charts. JC.

[Daniel Clifton]

JC is a big fan, you know,

[Josh Brown]

he's a huge fan.

[Daniel Clifton]

This is actually. Jason, this is the first time, I think in the history of TCAF we've had three different people from the same company. Between you and you two and Todd.

[Michael Batnick]

Amazing.

[Chris Varone]

Is that right?

[Daniel Clifton]

I think it's got to be.

[Josh Brown]

Oh, that. That's actually a pretty good point.

[Michael Batnick]

That's an honor.

[Josh Brown]

Yeah. John, I'm gonna. Can I play a clip?

[Daniel Clifton]

What are we doing?

[Chris Varone]

Can I do it? All right.

[Josh Brown]

Wait, why am I.

[Daniel Clifton]

Oh, you're not conducting.

[Josh Brown]

Oh, how do I. Wait, make me connect.

[Daniel Clifton]

It's too late.

[Josh Brown]

Can you play a clip?

[Daniel Clifton]

All right, we'll do some. Well, no, we'll do some. We'll do some jokes in between.

[Josh Brown]

All right, we're not playing the clip, guys.

[Daniel Clifton]

Send it to Daniel.

[Josh Brown]

All right, let me send this. Daniel, can you pull it out of the dock? Do you have access to.

[Chris Varone]

Yeah.

[Josh Brown]

All right, pull that out. Let me know when you're ready to play it. Give me the. Give me the. I. All right.

[Daniel Clifton]

Why don't you set it up, Josh, what are we. What are we about to say?

[Josh Brown]

I don't even know. I forgot already. Okay. Why do Americans hate AI. Oh, boy.

[Michael Batnick]

Because the unemployment rate's going up, but it's not. I know. That's the irony, right? I mean, we're sitting here. I wonder almost, if it does. Is that actually the bullish outcome here? Because if you need something in a world where nominal growth is pretty high to keep the fed easy in 26 and 27, is it the unemployment rate going from three and a quarter. Sorry. From four and a quarter to five and a quarter? Is that kind of that structural shift in employment, the. That gets the new war fed to cut 100 pips when everyone thinks they're only going to do 25 or 50? That, I think, is the big question. Is the asset bubble actually in front of us if we're cutting into what is otherwise a pretty sound economy here?

[Josh Brown]

Nope. It's been a while.

[Chris Varone]

I. Oh, wait.

[Josh Brown]

I was in this trade, and the higher time frames were bullish, so I kept. I bought the dip. Just like you taught me. I just. I bought the dip, and it kept dipping. What do you do, dad, when the dip keeps dipping?

[Daniel Clifton]

But you.

[Josh Brown]

You have. You have nothing left to buy. I got nothing left to buy, and you're not even here. I mean, I blew the account, dad. That's great. And I was one day away from payout. It's been a while.

[Daniel Clifton]

Is that fake?

[Josh Brown]

All right. No, that's actually a scene from Interstellar. I don't remember that part where his daughter brought the dip and. Yeah. Yeah. All right. So in other words, it's possible if we start seeing those unemployment. If we start seeing headline unemployment deterioration, it's possible that the market comes around to the idea that. Wait Actually, maybe this isn't so terrible because now we don't have to talk about inflation anymore.

[Michael Batnick]

Well, listen, I think the Fed's ability to figure out whether this is a structural shift in unemployment or a cyclical one is they're unlikely to be able to make that distinction. So if we're going to be cutting in an environment where nominal is probably six, six and a half anyway, that sounds like a relatively bullish outcome, not a bearish outcome. And what are you seeing another day today? Nasdaq's down what percent and a half more advancers than decliners. This is the fourth day this year in two months where you've had NASDAQ down at least a percent and more stocks up than down last year in totality, all 25. Only three days so far. Four of those thus far in 26. I mean this is the market of the many is the, this is those

[Josh Brown]

RSP days where it's RSP over spy and we're having a lot more of that.

[Michael Batnick]

This has just begun.

[Daniel Clifton]

I think we love it, but it's hard to see this persisting where the market is within 2 and a half percent, 3% of an all time high. As we see further deterioration of the MAG7 Nvidia, which is down 6% with 5%, we'll talk about like there's a limit to how much the Mag 7 can weigh in the market with the equal weight still turning. I think, like at some point I think this will turn.

[Michael Batnick]

Yeah. I don't disagree. And I think when you look at the only kind of real comparable period where breadth got a lot better and the index came in, It's March of 2000 through March of 2001. Now ultimately at the end, everything fell. 2001 was not a good environment for the quote, average stock or the active manager. Everything went down but for about a year there, it's the only period in history where breadth gets better for 12 months and the index goes down 27%.

[Josh Brown]

Two asterisks on that though. Nine, 11.

[Michael Batnick]

Yeah, that's later.

[Josh Brown]

Enron, WorldCom.

[Michael Batnick]

So that comes later though.

[Josh Brown]

Okay, find another asterisk. Real recession.

[Michael Batnick]

I mean, what was that about the resolution, the recession though was it was a very, very mild recession. Consumer spending went up, yet the market went down 50%. Go back to like 1990, very deep recession. Market only goes down 20%. So this idea that there's symmetry between the depth of an economic decline and what the market gives you history would say is just not the case at all.

[Daniel Clifton]

When did earnings peak in the dot com.

[Michael Batnick]

I'm going to guess they peaked probably second or third quarter of 2000. So after the market peaked, because if you remember, the big tech names were still printing good numbers into like summer, fall of 2000. You had that big reflex rally in the Nasdaq into October of 2000, right? You almost made a new high. You may have made a fractional new high in the NASDAQ in like September, October of 2000.

[Josh Brown]

They are still printing the earnings from the prior year's binge on computer equipment because people were trying to get ahead of Y2K. I mean, it sounds so stupid now, but we had like this one in a million capex cycle. People literally thought their computers would be useless.

[Michael Batnick]

If you bottomed on good news and peaked on bad news, this business would be easy. But unfortunately it's the other way around.

[Josh Brown]

All right, guys, so I want to show you a chart. I think this is the week that the full backlash against AI finally went mainstream. It has now become, I think, a huge popular issue, not a financial issue, although we're turning against AI in the stock market too, for different reasons. What I'm showing you here is unemployment rate for recent graduates versus all workers. And this is get. I mean, it doesn't look like much at this distance, but this is becoming more acute. I think households are realizing that their recently graduated sons and daughters can't get hired. And the only thing they can think of because these kids have gone to top universities, worked their asses off. The only thing they can think of is this is because corporations are taking a wait and see approach. They want to see whether or not the AI can do what the typical entry level kid. I mean these Excel monkeys basically not getting those entry level jobs. So that's one Sam Altman. Every appearance he makes is worse than the one before. Terrible public speaker, the company. The best thing the company could do is use him ceremonially, not as a thought leader on 90 minute podcasts. And now you have people using ChatGPT every day, using Claude, using Gemini. In some cases they don't even know they are because it's just built into the products they use. They love using it. But here are some of the polling numbers around AI. And then I want you guys to react to this. 50% of Americans are now more concerned than excited about AI. Only 10% say they're more excited than concerned. That's Pew. 57% of Americans say societal risks of AI are high. Only 25% say benefits are high. Also Pew 5% say they trust AI. Quote a lot. 41% say distrust AI. The remainder say they a little bit distrust. That's YouGov. 35% of US adults report using AI tools weekly. 30% have never used it at all. 62% say it'll increase worker productivity. 61% say it will eliminate more jobs than it creates over the next decade. Last two. 69% say the U.S. government is not doing enough to regulate it. 77% say Americans do not trust business or government to use AI responsibly, citing privacy, bias and accountability. Everybody hates this shit. Here's the COVID of Time magazine. Daniel, thank you. I don't know if this is like really a cross section of America, but just like representative of what went on this week, I want to hear what you guys think. What's changed all of a sudden? Why is this all of a sudden now becoming a top of mind issue?

[Chris Varone]

Well, first let me say you started off by saying more and more people are using AI. So they're saying they use it and they don't like it. Right. And I think there's a bit of a contradiction between the two of those. There are two major issues. The first one you highlighted was the unemployment rate. People are like, why would I like this if you're going to raise my electricity bill and I'm going to lose my job from that? And particularly where the data centers are being built, they're in more rural areas and there's a lot of skepticism around it. I got to tell you, this goes right into the heart of Trump's base. I've seen, I've been in focus groups with Trump voters saying, I want nothing to do with this AI stuff. And he believes that AI is existential for the US Dominating the next generation. And if we don't do it, China is going to do it.

[Josh Brown]

Dan, it's part of his capex boom, though. These numbers are the Trump economy.

[Chris Varone]

Absolutely.

[Josh Brown]

And the base doesn't like the output of that, of that capex.

[Chris Varone]

Absolutely. And so he's got to figure out how to get around that. And that's why I think what happened at the State of Union this week was important. If you're seeing that the private sector companies are going to get better access to energy and pay for that energy, it allays some of the concern on the energy side and the electricity side. By the way, electricity prices are going up. None of this is related to data centers. It's just higher costs in the system that are inflationary and people are just connecting it to AI or they're connecting the Unemployment that we just saw to AI itself.

[Josh Brown]

This. This is park. This is Ivan Kreidzberg in the latest example of datasember nimbyism. A proposed 27,000 square foot AI data center in New Brunswick, New Jersey, will become a public park instead. Yeah, the city decided to block it. And they had a city council meeting. Protesters lined up. They said, forget it. There have been 25 data center projects canceled in January alone. I don't even hear about any of these. That's hundreds of billions of dollars. Industry sources have described local resistance as one of the most significant challenges the sector faces. Yeah, you think they don't like the sound? They don't like the idea of air pollution. They don't like the water usage. They don't like the idea that it'll raise local electricity demand.

[Daniel Clifton]

Yeah, but better reels.

[Josh Brown]

Better reels is, you know, we have to weigh the good with the bad. But you have a really hot take here.

[Chris Varone]

Yeah.

[Josh Brown]

Data centers are the new fracking.

[Chris Varone]

That's exactly right. So we went through this 15 years. We went through this 15 years ago with fracking. Fracking was the economic promise, by the way. We were coming out of the financial crisis, and so this was seen as a way to get back more jobs, more investment, lower trade deficit, better foreign policy. There were so many benefits to that. And you're talking about contaminating water, possibly, or earthquakes. I mean, this is beyond just the economic issues of the local nibbyism. And there was a lot of resistance. At one point, we were having a debate on the House floor about banning fracking.

[Josh Brown]

I remember, okay?

[Chris Varone]

And like the Exxon XTO merger clause said, if we ban fracking, this deal's not gonna happen. That's how real it was at one point. Okay? And it's interesting because Boone Pickens used to say, it's okay if New York bans fracking. We're not fracking here, we're not fracking in New York. He's like, we don't need that now. Eventually they'll do something where they're gonna need fracking at a later point. As long as we got it going on in the right places. Okay? And you have it going on in the right places right now, which is Virginia, out through the Midwest. Okay? But when you have the governor of Virginia stand up, which is the heart of the data centers. Cause the CIA data centers are there, and she's like, I think we should slow this down.

[Michael Batnick]

The.

[Chris Varone]

That's a real signal to the market. Or Ron DeSantis saying, hey, maybe, maybe we should take a closer look at some of these data centers.

[Josh Brown]

Virginia is the biggest cluster there is and that goes back to AOL being based there. And they just, they knew how to do this stuff there. Correct? Right.

[Chris Varone]

It's really, if you haven't taken a tour down there, it's really worth the tour. But then go in the diner right down the street from the Micron factory that this is all building around. It's a very maga, very, very Trump oriented diner where you feel the local opposition. And so what I'm arguing is what did the energy industry do to ultimately win on fracking? They got ahead of this. They were able to tout the benefits of it, they were able to bring out supporters of it. And what we're finding is that the energy industry was way ahead of the debate. They understood that there was risk. The tech industry is slow. So you got all this regulation and legislation popping up and they're slow. They gotta come in and say, hey, you know what? You don't like this? Here's the medical innovations that are going to happen from this. You're worried about your local electricity prices, here's how much your local property taxes are going to go down because we're building this factory in here. There's a way to do this. The tech industry has just been slow.

[Josh Brown]

But with fracking, the answer is obvious. $2 natural gas does the trick.

[Daniel Clifton]

Correct?

[Chris Varone]

Correct. But it took a while to get there.

[Josh Brown]

But what's the obvious way for the tech people? Is it just jobs? Like look how many people were we're employing in these places that were erecting the data center.

[Chris Varone]

One of the problems is they don't create a lot of jobs. There's not a lot of construction jobs and there's definitely not jobs inside the data center itself. So you've got to make it about property taxes. If I'm in a town with a lot of kids and a data center comes in, that's more money for education in that town.

[Josh Brown]

It'll be a good argument. Hey, it's this or a nuclear power plant.

[Chris Varone]

Yeah, right, right. You pick you back. This is such a better way to do it. Right. But I think that there's going to be. The great thing about federalism is that there's gonna be states that are gonna be able to get this thing done and you don't need it all. Bernie Sanders and Vermont, they're gonna ban data centers in the next couple weeks. We don't really need data centers.

[Josh Brown]

Chris, the irony of the fracking revolution, just to extend the metaphor is that probably last on the list of beneficiaries were the publicly traded stocks of the Frackers themselves.

[Michael Batnick]

Totally.

[Josh Brown]

I mean, had a lost decade.

[Michael Batnick]

Think about the irony of this whole environment. The first chart you showed was the unemployment rate for new college graduates, right? Which has exploded. Try to get a plumb warehouse, try to get an electrician. You can't. Right. So God bless the trades. It is a bull market in trades. You know, you show the Time magazine cover from this week. The irony is six weeks ago, who was the person of the year? All the AI titans, seven of them. Right.

[Josh Brown]

Right.

[Michael Batnick]

Now we talk about ChatGPT and Sam Altman. Look at SoftBank. It kind of tells you all you need to know. What's the stock down maybe 45 or 50% from the highs. I mean, find me a financial crisis or a tech crisis where SoftBank doesn't have their fingertips on it. Right. So you have that backdrop.

[Josh Brown]

Is that the poster child for the referendum on what we think OpenAI is worth on a day to day basis? Or is it Oracle or is it both?

[Michael Batnick]

Someone I think a mutual friend of ours asked me a good question a few weeks ago. They said, Chris, if OpenAI was a publicly traded company, what would the chart look like? Yeah, Oracle or Oracle or Softbank or Microsoft. I think the market's been pretty vocal in what that chart would look like. Then you fast forward here a little bit. You talk about the lost decade for energy from let's call it 2008 through really 2020, 2021. Is the lost decade there ironically over as perhaps some lost decade in some new group might begin here. I'm a big believer that the trends that are in place or the trends that are developing only get reinforced by what news follows. It's not news that sets the trend. Right? The trend gets in place and then the narrative shows up in time.

[Josh Brown]

Oh, I think that's right.

[Michael Batnick]

So it's price first, of course, then

[Josh Brown]

it's narrative because the market is smarter than the journalism.

[Michael Batnick]

So it's not just six weeks or eight weeks of 2026. Go back to really September, October of 25 when this RSP over Triple Q's theme started to develop. All the incremental news flow since then has been in this direction of this new developing trend of. We call it the market of the many. Right? And in this populous world that we're living in, it's very much a populist market. It is the market of the many here. What's made new highs this year mid caps Equal weight, value line, everything else. Nyse. Where's the cues?

[Daniel Clifton]

So let me ask you this. You mentioned earlier, the market would be so much easier if it topped on bad news. Put them on good News. Daniel, chart 14. So this was the week that officially nobody wants software. No one, like it's dead. AI has replaced it, it's over. And we're getting a pretty strong bounce today. So you have a chart showing that we've had a pretty good flush. What are we looking at?

[Michael Batnick]

Yeah, so as we kind of say in the title, in the zip code, in the ballpark of where at a minimum I would expect relief. I mean, is this a good chart? Absolutely no. Is the trend down? Of course, but, but when you get these periods of just indiscriminate selling, shoot first, ask questions later. I think as shorts you probably have to cover or maybe said another way, start thinking about, hey, what could actually go right from this condition. Go back a year ago. So it's January, February of 2025. I thought Google was supposed to be the big loser in this, right? Turns out to be the big winner. My point is, in such a moment of technological advancement and uncertainty, you better keep a real open mind for how the playing field could evolve here. 70% of software stocks made three month lows last week. I mean that is a Covid type level. That's a liberation type level. I think at a minimum it's a firing to cover your shorts. So local bottom.

[Daniel Clifton]

Yeah, now the trend is broken obviously. Like it's going to take time for these names to heal. Every rally should probably be sold in two at least a little bit.

[Chris Varone]

I think that's fair.

[Daniel Clifton]

Guilty until proven innocent. But yesterday, yesterday. So Workday reported a not so good quarter. Guidance came down. The stock was down 9% pre market. I think it ended up closing up 3% yesterday.

[Michael Batnick]

Follow through today.

[Daniel Clifton]

Follow through today. There was an article yesterday from the Journal, the new hot trade shorting AI companies. Yeah, I mean, listen, nobody's selling anymore.

[Michael Batnick]

I think you've gotten to the point of complete indiscriminate weakness where you have to think about what could change. You know, let's think about this a different way. Let's think about it on the numerator of the semi versus software pair.

[Josh Brown]

Right.

[Michael Batnick]

Because a lot of attention is spent on how bad software is when you look at the semis. I mean you've had silver like parabolic moves in some of these names. Should Micron be bought here at 150% above the 200 day moving average?

[Josh Brown]

I won't do that. But I also didn't buy it 150% ago.

[Michael Batnick]

Should Hynix be bought here? Should Samsung be bought here? I'm just saying I think if we've learned anything in the first eight weeks of 2026, be very, very careful with the parabolic looking charge. It was silver in late January, early February we saw how that goes.

[Daniel Clifton]

Quantum computing, stocks, memory.

[Michael Batnick]

Right. And the process of which this has all played out over the last few years is fascinating to me because it's so different than 99. I mean 2024 was all hyperscalers, right? Just got to own the hyperscalers, life is easy. 25 was all about memory, right. It was Samsung, Hynix, Micron. Right. What looks best in semi world today is probably equipment. I mean that's the one place where you haven't seen the blow offs, you

[Josh Brown]

haven't seen the parabolic Lamb Research KLA

[Michael Batnick]

and I say it's different than 99 because there, there was no rotations in tech in 99. They all worked until they did.

[Josh Brown]

All went up every day, right.

[Michael Batnick]

They all went like it wasn't like oh today we're going to buy the semi shots and next week it's going to be the software.

[Josh Brown]

So I actually I would say that there is a trade that looks like that right now and it's led by Corning which is the hottest stock of the year and there's a lot of small caps in this trade. People don't even know these names. Names like EOSE and these are companies in the Russell 2000 that supply electricity generating equipment to the utilities and or data centers. Things like industrial sized surge protection. Sure. It's a company called Enersys that makes electric batteries.

[Michael Batnick]

Know it well.

[Josh Brown]

So there's a whole host of these stocks where the charts they look like cryptos in 2021. Yeah, that's the rotation people are discovering oh this company is electrical. I don't care what it does. They're going to beat earnings and it works.

[Michael Batnick]

I mean just go to big cap world for a minute. You see the same thing with the strength of the industrials. I mean for all this talk about a market that's got defensive this year with Staples and some health care. I mean anything in the kind of derivative of AI world in the industrial quantum services. Look at carrier the reversal after a pretty good bear market or Trane or PWR or Parker Hannifin. I mean these are certainly still very much, very much in gear. I'm a little bit more skeptical Josh of like okay, this, this rotational mood that the market has is just about owning small over large. Because if you look at Russell too, it's just not a good index. I mean the top of Russell 2 I would hardly say is like some real old economy non spec. It's a very speculative index. I think this is more about equal weight over say QS than it is about small over large.

[Josh Brown]

I spread a conspiracy theory today on tv.

[Chris Varone]

Yeah,

[Josh Brown]

I said that. I think earlier this week or over the weekend a memo went around, not like somebody printed it, but like maybe like a game of telephone. And there are a bunch of phone calls behind the scenes. And what I think happened is that the software moguls got to these AI guys and basically said, guys, shut the up. Stop talking about job loss and replacing people. Number one, it's not gonna end up being true. We're not all getting disrupted. And number two, you're gonna have some very unhappy customers for your stupid AI products and we're not gonna buy them. And all of a sudden Jensen Huang comes out and he wants to spend, I'm going to guess 25% of his post earnings remarks on the fact that SaaS is not only not going to be disrupted, it will be the tool that these agents are trained on to use. They're not going to invent their own software products. The AI agents coming out of the big AI shops will in fact become the most prominent users of SaaS products because that's what the humans they're interacting with use. I thought it was a very nuanced and important point from Jensen. I also think it was deliberately told to him. You have to put a stop to this. We're not talking about stocks down 5%. We're talking about companies that have lost hundreds of billions in market cap collectively and they are some of the biggest customers for anything AI. I'm pretty sure that that's the word that went around because all of a sudden you saw the disruption hippies disappear. Nobody was making appearances like that this week after last week. And you have some of the biggest voices in AI now saying, no, no, no, no, no, we're not going to have job, we're not going to have job loss. So what, what do you think? Like, is something like that even possible?

[Chris Varone]

Yeah, absolutely.

[Josh Brown]

You think it could be a coordinated, like, guys, you're going in the wrong direction with this.

[Chris Varone]

So. And let me also add on top of that, the private credit is very levered up to the software names as well they need. Right. So you got to pull it all together. And if you don't, then the industry is going to be much more regulated and they want us head that off. The oil industry itself has been trying to advise them that they're doing this wrong, saying based on our experience, because they want to provide the energy to the data centers. So it is a concerted effort. And by the way, sometimes you got to burn your hand on the stove and then go, okay, we're handling this in the wrong approach. So some of that might be them just self policing themselves in the software. In the AI industry.

[Josh Brown]

Microsoft though, they have a guy go out, they have a guy go out on tv, national television and tell the anchor like half of all jobs aren't going to exist by 2030. Think about Microsoft's customers, be like, are you high?

[Chris Varone]

Yes.

[Josh Brown]

Why would you send this guy out to say things even if you think it's true? Which by the way, half of all jobs by 2030. This is what you think. All right, let's say you actually think that. Why are you saying it? Yep, okay, yes, I think that's over now.

[Chris Varone]

Right. But you had to go through that process and get it out of the way. I think there's something else going on here and that is that the capex is actually broadening out outside just the data centers, just the AI. And look at what we did in one big beautiful bill. We have 100% expensing of capex, 100% expensing of research and development and 100% expensing of factory building. So if you're in the non AI world, you're like, this is my shot to be able to get this factory out.

[Daniel Clifton]

Yeah, get after it, right?

[Chris Varone]

And boom, they're all going in. Pharma is going in.

[Josh Brown]

Right.

[Chris Varone]

Like you see all these other industries and so there's a bit of a broadening out and some of these small caps are going to be feeding into that, that maybe it's not some of the AI. So I just think that we like, if you look at the companies that are lobbying for those provisions, they're massively outperforming this year, like 15, 20% over the S&P 500. There's something happening here where you're going to start seeing more CapEx and the industry itself. You have to have that AI data center. The other side doesn't work. You need both of them for the economy to work this year.

[Michael Batnick]

I think. Haven't you seen enough over the last year where you should be really, really skeptical of anyone who is just such with a forceful narrative here?

[Josh Brown]

I mean, you can have people that know exactly what's going to happen.

[Michael Batnick]

I don't mind if you have a strong opinion based on price here, but if you have a strong opinion based on narrative in an environment where the narrative, I think, feels like it changes every six months in a very meaningful way, I think you ought to be really skeptical of that. And, you know, just think about these last couple of weeks. It's like all of a sudden people found the connection between Aries, Blue Owl, KKR Carlisle and the software stocks. I mean, when did the private capital stocks start to weaken? They went negative in our work last April. Right. Relative strength gives you clues about what's shifting. When did the. I think Microsoft went negative in our work. Maybe January, February of last year. How about Adobe or Salesforce? I think the year prior. Right. So the market can give you hints or clues of what you should be thinking about. And then suddenly this week everyone makes this connection that Blue Owl and Apollo

[Josh Brown]

are tied to software. Hey, did you know private equity has been buying software companies?

[Daniel Clifton]

Really?

[Michael Batnick]

So, like, you know, you talk about local bottoms, if there's some tradable low here in software, again, I, I would say cover shorts in the private capital stocks.

[Daniel Clifton]

So I think one piece of evidence that this rotation can continue is what we're seeing with Nvidia today. The stock has gone sideways forever. Daniel, chart nine, please. Beat and raise could not possibly be doing better. Like literally. I mean, it's, it's hilarious, I think. I don't know if this is the biggest sequential increase since Q2 of 24 when it like doubled out of nowhere, but from 57 billion up to 68. And I think what we're learning is that you can't trade at a premium multiple when you're the biggest stock in the world. And even still. Daniel, chart 11, please. Even after the sideways movement for the past year or so, it is still a trillion dollars bigger than Staples. And I don't know, what could Nvidia possibly say at this point? The Stock is down 6%. What could they possibly say for the stock to go higher?

[Michael Batnick]

Well, let's make a couple points here. I'd say, number one, let's not forget Nvidia did have a 50% decline last year. Right. I think it went from 160 to roughly 80 at the Liberation Day low.

[Josh Brown]

So you kind of had one minute to buy that dip, right?

[Michael Batnick]

I mean, what do we learn about semis as secular as you want to believe they are in this cycle? They're always cyclical, right? In the end you go semi by semi by semi every three years. They all go down 50% all the time.

[Chris Varone]

Right.

[Michael Batnick]

So I'm not sure there's like big downside here in Nvidia. 170 has kind of been the pivot on the stock for the better part of the last six months. Could I come up with a world where it's 140 to 150? Of course I could. But I think the bigger story, and you hinted at it, this isn't hitting the tape today. I mean, where more advancers and decliners. On a day with Nvidia down 6%, you have the software stocks rallying. That semi software pair was in like the 99th.9999 percentile historically. So be on guard for these nasty mean reversions. And the only way I know how to prepare for them is to believe price, not narrative.

[Daniel Clifton]

Even the NASDAQ equal weight is down 20 bips. That's it?

[Michael Batnick]

That's it.

[Josh Brown]

Revenue is up 90% year over year. Are you surprised? The stock is so. I've noticed that the stock never goes up after they report earnings. It runs up. Remember November last quarter, to remember when we were.

[Daniel Clifton]

We were in Austin doing this.

[Josh Brown]

It rallies then reports. People think there's going to be this big climactic thing that happens and it drops like 3%. It happens every quarter.

[Daniel Clifton]

Last quarter it opened up 6% and closed down 4. Something like that.

[Michael Batnick]

November 21st, right. So the stock opens up 6, 7%. I'm in a meeting. This is 9:30 in the morning. I'm in Baltimore. By the time the meeting's over, the stock's down 5 or 6%.

[Josh Brown]

Are you in the meeting being all bullish about Nvidia.

[Daniel Clifton]

It's gone sideways since.

[Josh Brown]

Right?

[Michael Batnick]

It's got sideways.

[Josh Brown]

I think.

[Michael Batnick]

What's so remarkable? Like, don't even try to tell me for a second that people are positioned for this. Don't even try to tell me for a second for what. For this revenge of the old economy or the average stuff. I mean, for 15 years all you've had to do is own. Don't even pretend to tell me this is where the positioning is. I am so skeptical when I see the. The bank of America Fund Manager survey that says, you know, everyone's, you know, most overweight RSP and underweight Q's. There's just no way.

[Daniel Clifton]

No way.

[Michael Batnick]

I'll never forget, this is six, seven, eight years ago. We're doing our macro conference in New York. I'm doing a fireside chat With Byron Wein, late great Byron Wein mentor Jason Trenner to myself, to Dan and I asked Byron, I said, Byron, tell me what you remember about 1982. Right, 82, as we know, kind of the top in rates, rates have started to fall, equity has started to turn up. And he laughed at me in front of 400 people and he said, chris, I didn't know it was 82 into 85. It's so easy.

[Josh Brown]

It's such a great important point.

[Michael Batnick]

It's so easy in this business to look back with hindsight and say, oh, look at the, look at the regime shift. It was so obvious we're in a regime shift right now. I don't think people are positioned for it. Maybe in like the tactical sense, the tactical book has it on.

[Josh Brown]

Other than me, they aren't. I've been talking about this regime shift as being a new paradigm that has nothing to do with what we're all accustomed to. We live in this world where it's small versus large, value versus growth, tech versus non tech or defensive versus cyclical. And I think that this trumps all of those paradigms and it comes down to AI immunity versus not.

[Michael Batnick]

Well, no pun, no pun intended. If this trumps everything. Dan, isn't this the market that the Trump administration wants? Right. They want this revenge of the old stocks.

[Josh Brown]

Well, they got the copper stocks at record highs. So is that what they. Was that the goal now?

[Chris Varone]

You know, at the risk of giving a narrative here, I think we're shifting out of the post Berlin Wall environment. Berlin Wall went down the world globalized inflation comes down, interest rates come down. That's why you want to own asset. Light companies, high PEs, less geopolitical volatility, that's all reversing now we're moving from a unipolar world to a multipolar world. And that means that there's going to be demand for resources and that's why you want to be in this kind of sec. This I think in a long term shift of being in industrials and materials because you want to be able to have access to this in a scarce world. I think we're at the very early stages of this process happening.

[Josh Brown]

Is there a world in which we see industrials at the top of whatever this cycle is going to be? Let's say this continues for another two years. Is there a world in which industrials earn a multi decade high multiple because of the scarcity of the facilities that they have onshore? Because if so, then you gotta look at companies like the LNG terminals. Oh yeah. And you gotta, and you gotta look at companies that are manufacturing the things that, that we deem essential. And by the way, this includes some semi companies now because they're building Apple chips in Phoenix. And so you could end up with a situation where we pay tech like multiples for industrial stocks. No one's positioned for that right now.

[Michael Batnick]

Look at this through the lens of two pictures. I don't know if you can bring them up. Two charts. One was, one was discretionary versus energy. So long term chart maybe 20 years of discretionary relative to energy. Like a lot of people out there are still behaving. You're still talking about this being the consumer decade or the continuation of the consumer decade. Consumer peaked relative to the S and P in November of 2020. It's been five years since discretionary.

[Josh Brown]

Consumer discretionary last led.

[Michael Batnick]

I mean it ironically went to the bottom late.08. Right. You have 12, 13 years of tremendous outperformance from consumer. That's over. Look at discretionary versus industrials. This is not a consumer economy. This is a capex economy. Look at consumer relative to energy. I mean talk about another major shift. So I mean these are the big changes and I know Dan, you see it in your stuff too, that I think we have to sit back and say, okay, if this is a new regime, number one, am I playing by the right rules? Right. That is essential to our process. What is the rule set for the regime that we're in? And number two, am I positioned, meaning

[Josh Brown]

like to how do we trade differently now versus how we used to trade?

[Michael Batnick]

Absolutely. I mean we talk about Nvidia down what, 5 or 6% today. Look at the reversal up in Freeport today. Yeah, I mean they hammered that thing at the open right back to the highs. Like the market is telling you what's cool about this.

[Josh Brown]

Only people our generation and older even know what these stocks are.

[Michael Batnick]

The old fcx.

[Daniel Clifton]

So I'm sure Todd is probably all over this. This is Vanex, Real assets ETF rax. I mean monster.

[Michael Batnick]

As you guys know, there's no one better than Todd in the ETF landscape. We love Todd. He gives me all the data that we need.

[Josh Brown]

He was great in Pineapple Express too.

[Michael Batnick]

Yeah, he was terrific.

[Josh Brown]

But so that's, that's interesting to me. The Robin Hood crowd does not know the difference between Caterpillar and Deer or even more obscure examples. They don't know. The H Vac stocks. They don't know. Not that I know them really well, but at least I remember A market where those were leadership stocks. I know the oil names, but know what?

[Michael Batnick]

Retail.

[Daniel Clifton]

They'll find them.

[Josh Brown]

Well, that's. So this is my point.

[Chris Varone]

They'll mean that.

[Josh Brown]

So when you say know the environment, know the. That's the really interesting thing where all of a sudden there's a new shareholder base for stocks like this.

[Michael Batnick]

I didn't send you this chart, but I'll pose a question. Maybe you guys can answer it. If you overlaid Palantir and Robinhood, why are they the same chart, literally tick for tick?

[Josh Brown]

Because, I don't know, 10% of the revenue on Robinhood comes from people trading Palantir options.

[Daniel Clifton]

Same shareholders?

[Josh Brown]

Same shareholders.

[Michael Batnick]

I mean, we've been in this world where the speculative economy has flourished basically since the Fed balance sheet started to go like that.

[Daniel Clifton]

Holy shit. That is pretty damn good.

[Michael Batnick]

It's the same. It's tick for tick.

[Daniel Clifton]

And Robin, it's a crypto stock. Why would it trade like Palantir?

[Josh Brown]

Because that's the activity. It's the same people.

[Daniel Clifton]

I know.

[Michael Batnick]

I'm just saying they're all hood ornaments of the same thing. Right. They're hood ornaments of this remarkable 15 year episode where the Fed balance sheet went from a couple hundred billion to, you know, multi trillion.

[Chris Varone]

Right.

[Michael Batnick]

That is over. And the market's telling you that's over.

[Josh Brown]

Okay, So I. This makes me very excited because I always says bored, but at a certain point, watching like year after year, it just be Nvidia Tesla, like, you know, the same 10 gigantic stocks is so much better. This is. I think this is more like the stock market that I grew up with. So I'm into it. I want to ask how. So how did the. So I want to ask how did the fracking store, if the fracking story is the right parallel for how the AI trend continues because they get themselves a political lifeline. I think it worked out well in the end.

[Chris Varone]

Absolutely.

[Josh Brown]

Okay.

[Chris Varone]

Absolutely.

[Josh Brown]

Okay. How does. So how does this work out well in the end? And will it matter for shareholders of these companies?

[Chris Varone]

Well, one, I think it's going to work out, but I'm a little bit worried. In 2012, you had the stars line up. Obama was against fracking, and then he was running for reelection and he started to realize, wow, I can win Pennsylvania and Ohio if I just let this happen because it's going to drive down the unemployment rate and I'm going to get lower gasoline prices, so to speak.

[Josh Brown]

And climate change was a hoax anyway, so why not?

[Chris Varone]

Yeah, well, you know, I still think he believed it. But he was like, I'll deal with that in my second term.

[Michael Batnick]

Right.

[Chris Varone]

And so I gave a speech to 65 oil and gas CEOs a week before the 2012 election. I put one chart up. It was just the unemployment rate of those two states. I said, congratulations, you just elected Barack Obama to a second term. I can tell you nobody in that room wanted Obama to be a second term. He adopted it. Once he adopted it, it kind of cleared the political brush out. You don't have that same situation going on today and you're going to need some event like that to fix this data center. That's why the industry needs to basically say, I'll put a tax on myself to pay the electricity. That's not an issue for beta in Louisiana. Louisiana, they already have the business and consumers structured off each other in the east coast where we're in the PGM interconnected. That is all. It's all intermingled. And so that's why the tech companies have to say, we'll pay for this ourselves, build our own.

[Josh Brown]

Are the Democrats smart enough to look at how bitcoin cost them in 2024 and not make that mistake again? Are there pro AI CAPEX democrats? Do you think that there's a chance that this issue could be, and not just a build out, but just this whole capex on shoring story? Because if Trump loses the midterms,

[Daniel Clifton]

I

[Josh Brown]

don't know what that does to this whole capex trend that we're all extolling the virtues of, but are there Democrats who would like to see it continue?

[Chris Varone]

So I will tell you that the tech relative to The S&P 500 tech sector relative to the S&P 500 has been underperforming tick for tick with the Democrats odds of taking over Congress since the November election. So Democrats had a big night. The market's already thinking exactly what you started to ask. So some of this is just midterm stuff and it generally gets resolved by the election itself.

[Josh Brown]

Wait, why is that? Because all the tech titans went to the inauguration, they made friends with Jared and Junior and so now they're seen as Republican proxy companies.

[Michael Batnick]

Susan Rice the other day.

[Chris Varone]

Absolutely. Susan Rice talking about like, you know, going after them because, you know, when the Democrats win, if you kiss the ring of Trump. But it's more than that. It's that the Republicans have adopted the AI just the same way they adopted the crypto. And the market's saying there's going to be more regulation of AI if the Democrats win. Like we have A, I know you're not big into this, but we have a Harris basket and a Trump basket and we use it to see how the market's pricing in the election. Our Harris basket has been trouncing Trump by 25% since.

[Josh Brown]

What's in the Harris basket?

[Chris Varone]

It's all the basic renewable energy, Medicaid, health care, some tech stuff. All things that would do well because look, if the Democrats sweep, they're gonna stop the OBB cuts from coming in on Medicaid and food stamps. Those stocks are gonna rip if the market really.

[Josh Brown]

What are those stocks?

[Chris Varone]

So those are like Medicaid, HMOs, like Centene and Molina First Solar, a lot of the wind and solar stocks.

[Josh Brown]

So the subsidies will stay, the Medicare payments, Medicaid will continue to be paid. Absolutely.

[Chris Varone]

Those are going to be the biggest winners. But now you're starting to see it in the tech industry.

[Josh Brown]

Might want to take Harris's name off that basket.

[Chris Varone]

I just haven't built the new baskets this cycle, so we're just using the old ones.

[Josh Brown]

I think that might be a Fetterman or, or a, or a Newsom or a Shapiro basket.

[Chris Varone]

It could be.

[Josh Brown]

We'll see.

[Chris Varone]

It could be.

[Josh Brown]

Okay. All right, so that's an interesting thing. So if tech is now going to go into this period, this pre election period and sort of trade as a proxy on the House and the Senate, I don't know how many multiple points that's worth to these stocks, but it

[Chris Varone]

might not be pretty feature rotation of equal weight over market weight and owning deals, other sectors itself.

[Michael Batnick]

The best advice I ever got on this business is when a trend is in motion, all the news flow tends to break in the direction of the trend. Right. So what we're talking about is something that's already in motion. So use your time to imagine a world where all the news breaks in this direction to begin with. And I think that's what's happening. I think that that's what's happening politically. I think that's what's happening geopolitically. Everything's breaking in the direction of this equal weight over rest of world.

[Daniel Clifton]

All right, so let's, let's stay with that theme. Daniel, chart 16 please. We've got a breadth dashboard that chart can Matt made. And we've got every sector percent above various moving averages, making new highs, making new lows, RSI's above 30 or below 30 above 70. And no stocks are making new lows except for tech. 11% across the board from 4 week to 52 week if you look at the percent above the moving day average, Utilities, energy, staples. It's real estate materials. There's so much green here. Chris, you shared a chart with us showing that we're at the 97th percentile of stocks making 52 week highs. That's not you. That's not. We're not in a bear market.

[Michael Batnick]

It'd be a very odd bear market chart.

[Josh Brown]

15. Yeah, let's put this up because this is good.

[Michael Batnick]

It's funny. Go back to the other slide just for one second. I just want like if there's one number on this page that stands out to me screaming, okay, we are right. We just spent 40 minutes talking about AI and there's 43% of tech above the 200 day moving average. Are you kidding me? Right? Like if this was 99 and you ran a long short fund and I went in there and pitched a tech short, you'd laugh me out of the room.

[Josh Brown]

Yeah.

[Michael Batnick]

This is so different. It was Never rotational in 99. This is 43% above 200. And then look at energy, 95% above the 200 day.

[Josh Brown]

Chris, do you think that's because the market participants are more sophisticated and they don't just hear tech revolution, therefore buy tech stocks? Or are we just as dumb but we're being more discerning for some other reason?

[Michael Batnick]

I think it's always the latter.

[Josh Brown]

Good.

[Michael Batnick]

And you sit here and you say, okay, 95% of energy above the 200 day. That sounds so intimidating. Oh, like it must correct. It's overbought. Go back, test that number. Right. Where do your best energy returns come from over the next six and 12 months when you're that overbought?

[Josh Brown]

Bread, thrust and energy.

[Michael Batnick]

Right. So again, you see these price cycles now spend the time imagining what could that be telling us. I think everyone gets this gets the sequence of events wrong in this business. They start with like what do I think? Let's find the price to justify it.

[Josh Brown]

No, no, no.

[Michael Batnick]

What is price telling us now? Let's spend some time imagining what that could mean.

[Daniel Clifton]

Let me write some science fiction. Alternative science fiction from we saw earlier last week. Nobody is thinking about a world in which tech comes back in the second half of the year. Can you even imagine if these hyperscalers start to come back? And we laughed. Obviously meta's had a 52 week high. Why do we think it was ever. And obviously Nvidia is the leader in AI. Why do we think it was going to fall? That is, that's plausible. Nobody's talking about it.

[Michael Batnick]

Yeah, I don't disagree. I just wonder like does it come back as the dominant leader or does it come back with price up? We can have an environment that's. I think we're in a relatively broad tape where tech can be part of that. Is it the story? That's what I'm less convinced of.

[Josh Brown]

I think there's, I think there's one chance of that and it's Apple. Apple could be a market leader again. I think it is a market leader. It is now. It's the only one not tainted with these $600 billion CAPEX multi year budgets. They sidestepped it. They said we're just going to throw our Apple layer on top of whatever you guys build and we're going to talk to 70% of the Middle class consumers in the world and we'll be very happy owning the consumer AI opportunity that you guys facilitated with your stupid Cap Ex now. Josh.

[Michael Batnick]

I own it. I don't own it because of that.

[Josh Brown]

I own it period also. But I actually think that there's a world where that's how we're telling the story at the end of the year.

[Michael Batnick]

I own it because it's on the relative high list and I just want to make that clear.

[Josh Brown]

We're not going to end up in the same place.

[Daniel Clifton]

Right?

[Michael Batnick]

Right. Because we end up with the same conclusion. Whether your story is right or wrong.

[Josh Brown]

I don't know.

[Michael Batnick]

I don't care. It's a leader in a tricky case.

[Josh Brown]

Isn't that sticking out? Why isn't that sticking out to more people? This is the way I want to ask the question. Why aren't more people talking about the fact that Apple is within a few good days of a record high with the other mag 6 down anywhere from 5 to 30?

[Michael Batnick]

I mean look at the weekly chart. Apple is good.

[Josh Brown]

I know. Well Agentix Siri is coming. I know that because they have three meetings this they have three of those events scheduled this year. At one of those will be ladies and gentlemen, Siri is your agent. Every app in the App Store has to cooperate with Apple otherwise you might as well be out of business. Like what if they are the consumer AI play? Amazon owns the enterprise with anthropic and then Sam Altman and whatever's going on there become features like that is a thing that I don't think enough people are recognizing could happen or Sam Altman goes away. I don't know.

[Michael Batnick]

Just right. Don't be surprised with any outcome here.

[Daniel Clifton]

Let me ask you this. What do you do with a stat like this. So sentiment Trader shared this market breadth has narrowed significantly in three key cyclical areas, discretionary, financials and technology. Fewer than 60% of stocks in these sectors are trading above their 50 day moving average, despite the S and p lingering near 52 week high. Historically, this specific type of divergence has preceded weak and volatile medium term returns for the broader market. So two to three months later, positive only 30% of the time and N equals, I don't know, almost 20. It's happened. It's not n equals 2.

[Michael Batnick]

I think it's funny, there are two things always confused in this business. People confuse breadth and momentum all the time. So we're talking about discretionary with what, like 50% above the 50 day moving average? That's a momentum reading. We're not in a particularly robust momentum environment here. But I think discretionary, I was looking at it before I came here, has like 70% with their 50 above the 200. So you're still in these long term uptrends. So let's distinguish between short term momentum concerns and longer term trends. And I think it's funny, Dan and I have this debate all the time kind of about where discretionary fits right here because the policy backdrop is as good as it gets. It's time for the stocks now to validate that.

[Daniel Clifton]

But it does feel late cycle. When I say feel, I'm just saying the types of stocks that are working and the types of stocks that aren't doesn't feel great. I'm not saying that it can't resolve and figure itself out and correct to the upside. It probably will. That's like, that's my base. But what do you guys think?

[Chris Varone]

So I have a little bit different view than Chris. But I see this every four years in the summertime before midterm election year. Okay. Midterm election years just tend to be much more volatile than non midterm election year.

[Daniel Clifton]

Why do you think that is?

[Chris Varone]

Well, we know why. Because presidents just run it hot into their midterm election year. What Trump is doing is not different than any other president. Presidents usually get growth stronger at year two. So the equity market's pricing in this cyclical recovery, it usually happens in the fourth quarter and first quarter of this year. And then as you move into the second quarter markets price that. Now think about where we're headed for April. Tax refunds are done. The Fed will no longer be expanding its balance sheet. New Fed chairman coming in, Trump G meeting. Right. You got all this geopolitical stuff. You got to start pricing in what's divided government going to look like? It's just a lot for the market to digest.

[Daniel Clifton]

I mean, this is meaningful.

[Chris Varone]

Yes, it's extremely meaningful.

[Daniel Clifton]

It's hard to say this is a coincidence.

[Chris Varone]

You're getting more real GDP than you're getting in an S&P 500 return. Think about that. 3% GDP and a 2% return on equities. Okay? So that, to me, is at play here. You could see it in every single.

[Josh Brown]

Too many tape bombs. Potential for a tape bomb.

[Chris Varone]

Totally.

[Josh Brown]

Right.

[Chris Varone]

I spoke at the national association of Business Economists this week. Right. So it's all like Fed speakers. It's all like economists at companies, and all they're worried about is this trade stuff that happened with the Supreme Court. Right. By the way, these people don't like tariffs. And my point to them was very simple. We just lowered tariffs by $65 billion. Be happy, take the win. You know, and they couldn't do it. They were like uncertainty. Uncertainty. Uncertainty. No, like literally, we're moving to a 10% rate.

[Daniel Clifton]

So let me ask you this. So year one of a presidential cycle from 94 to today, 17%. Year three, 17%. Year four, 5%. Year two, less than 2%. Yep. Are there a few outliers that bring the average down, or is it consistently ugly?

[Chris Varone]

It's consistently ugly.

[Michael Batnick]

Now.

[Chris Varone]

People will break it up. Is the Fed easing cycle? Is it a second term? They'll do all that.

[Josh Brown]

And was the moon in the second house next to Jupiter?

[Chris Varone]

But I'm pretty simple here. In 2018, the year started, Trump had just had his tax cut. Everybody was wildly bullish. And then we're in the middle of a trade war by April. Okay? And Trump's tariffs are always going to be here in 2022. We had a former Fed person in February say, we're going to have to raise five times. And it was wildly out of consensus that inflation was coming. And then it was like, we're going to have Biden's inflation. Something always happens in the midterm election year. Here's the most amazing news about it. You get a sell off, like it's a recession, and we've never had a recession in the third year of a presidency. It's all noise, okay? And so the punchline of all this is that The S&P 500 has not declined in the 12 months following a midterm election ever since 1938. Like, literally, like, ever.

[Josh Brown]

Right?

[Chris Varone]

So the point being is that you just gotta grind your teeth and be more tactical in the midterm.

[Daniel Clifton]

Election year.

[Chris Varone]

And that's what everything you're talking about doing is doing that. And the great news is it creates a huge opportunity to be there on the other side.

[Michael Batnick]

My favorite example, the one you talked about is 18.

[Josh Brown]

Right.

[Michael Batnick]

Cause she also had new fetch air in 18.

[Josh Brown]

Right.

[Michael Batnick]

We had that nasty correction. I think it was maybe February of 18. You rallied to make new marginal highs in the summer and then you have October through Christmas.

[Josh Brown]

I remember that. Brutal.

[Michael Batnick]

What I'll never forget is Powell. I think it was the December meeting. Using the language. We're nowhere near neutral. Ironically, he was right. They were nowhere near neutral.

[Josh Brown]

Yeah, they had to go down.

[Michael Batnick]

On the other side you had Powell hiking and the two year old falling out of bed. That's a very, very powerful statement that something was off.

[Chris Varone]

So now think about it, right? Consumer staples are doing well. The defense stocks are doing well. These are all traditionally defensive areas that you're going into the market senses that by mid year you're going to have some of this volatility coming into the

[Michael Batnick]

any sense you fade staples right here. Yeah, right.

[Josh Brown]

Yeah, well they're all overbought, technically almost all.

[Michael Batnick]

If you look at it relative, both equal weight and cap weight. It has not turned in our relative model yet. Healthcare has energy, certainly has.

[Josh Brown]

Wait, turned up or down.

[Michael Batnick]

Turned up. Right. So the relative, our longer term relative model, healthcare's positive, energy's positive materials, staples have not turned even on this rally. I think you still gotta be a little skeptical.

[Daniel Clifton]

All right, how are you buying staples here at a higher forward pe than the mag 7?

[Josh Brown]

This is hilarious. This is hilarious by the way. Come on. Wait, chart. So right Now Staples are 23.6 times earnings versus Mag 7 forward.

[Daniel Clifton]

Like come on.

[Josh Brown]

Pulling Tesla out 23.5 times. So now you're buying Smucker. What's in this? Coke, Pepsi, Colgate.

[Daniel Clifton]

It's peanut butter and jelly.

[Josh Brown]

Peanut butter and jelly. Higher multiple than max 7 toilet paper, ironically.

[Michael Batnick]

Right. I don't love staples here. I think the relatives too weak. Actually this chart would make me want to buy it more than sell it. I don't want to own sectors with PEs falling. I want to own sectors with PEs rising. I mean valuation is a momentum. Is a momentum indicator.

[Josh Brown]

They rising or have they risen? I mean, great point.

[Michael Batnick]

I'm just saying that like I forget

[Daniel Clifton]

about the light blue.

[Michael Batnick]

If these weren't PE charts, if these were stock charts and you said are you buying the blue line or the light blue line?

[Daniel Clifton]

All right, you're right. But think about it in terms of expectations. Get rid of the light Blue line. The Max 7. Just look at the blue line. Dark blue. Are you buying an all time breakout in multiple for multiple consumer staples? You're fading that all day.

[Michael Batnick]

Well, you didn't want to buy the all time lows in the PE and Staples. So I'm just saying that, like, I think I come to my conclusion on. Let's fade Staples here, not through this avenue. I'd also love to see what this chart looks like with Costco removed. I think it might look different. I think Costco trades 60 times.

[Josh Brown]

Costco is a big one.

[Michael Batnick]

Yeah.

[Josh Brown]

Everything okay? Oh. All right. Nice to see you. Let's do this. I want to go to this Defense Department versus Anthropic story. Yeah, I think it's. I think it's. I think it's very Trumpian. Like it's not surprising at all, but it's sort of new because it's not even a public company.

[Chris Varone]

Yep.

[Josh Brown]

There. First, why is Anthropic so important to the Department of Defense and the government? And second, is, are these headlines hyperbolic or is this really what's going on? Hegseth gives Anthropic until Friday be tomorrow to back down on AI safeguards. WSJ did, did a Anthropic adds new board members at EYES and ipo. They put this guy Chris Liddell on who was a Trump administration. Okay. Do you know him? You know Chris.

[Chris Varone]

All right.

[Josh Brown]

So Anthropic basically now has to do whatever the Trump administration says. What do you think this is all about? And what do you think investors need to understand about this moment in time?

[Chris Varone]

Yeah. So I think there's a larger thematic view that's reflective in this story. Before the Berlin Wall went down, there were 60 prime defense contractors.

[Josh Brown]

Six, zero, six, zero. What do we have now? Ten, five, five.

[Chris Varone]

Okay. We forced them all to consolidate. We were cutting down the budget. Okay. Now the Defense Department can't move quickly. So they're going to these Silicon Valley tech companies and saying, we need you to define a solution. Like, we have a problem.

[Josh Brown]

We need your Android Palantir Andrews, the

[Chris Varone]

best one, best example of them. All right? And so, so I look at it and I'm saying not only is there a bid now for these defense, these defense tech companies, you're probably going to start seeing some of the larger companies start to split off their parts. You saw it with lhx, they basically diversed it and then joined a partnership with the US on what was the old aerojet rocket dying company that they had Bought. And so you're going to see L3.

[Josh Brown]

Harris merged with.

[Chris Varone]

With Harris. L3 merged with Harris.

[Josh Brown]

With Harris, yep. Okay.

[Chris Varone]

And then they bought Aerojet Rocketdyne. But that's important to the whole defense industry that, that asset. So the government now has 15% ownership. Use that as an example as you start to think about the Anthropic. Right. And so my sense here is, I think, you know, Lockheed Martin may break up this year. You know, that's like a, like, like, like a, like a tail event of something like that because the parts of it are so much more valuable than it all together.

[Josh Brown]

Oh, they might, they might do a spin after having done all these mergers. Yeah. Okay.

[Chris Varone]

Okay. So this is, this is what's going on in defense world right now. Anthropic comes in and they have the greatest product for what the Defense Department needs right now. It was used in the valence well and rate. There's only one place to go.

[Josh Brown]

Why? What is it, what is it doing for the Department of Defense? What is Anthropic doing for like not classified but like generally speaking, what is the use the use case.

[Chris Varone]

Quad. Right. They're using quad. And it has the basically the artificial intelligence that allows them to be able to do their missions and do it a lot safer.

[Daniel Clifton]

You know, I hear the Belgian government is using a Jean Claude.

[Michael Batnick]

Thank you. Thank you.

[Chris Varone]

Awesome. So follow me for a minute. Right. They're only going to have one customer and the Department of Defense is only going to have one vendor and they're going to come to some sort of solution because they're going to need each other and they both need.

[Josh Brown]

Anthropic lost a contract like a Department of Defense.

[Chris Varone]

Yep.

[Josh Brown]

That's pretty catastrophic for their hopes of going public.

[Chris Varone]

Absolutely.

[Josh Brown]

Ok. So all right, so they call the guy up and they say we don't want any of this woke shit on the algorithm. We don't want Anthropic to be the, the version of Facebook that we hated during the 2016 election. We don't want regular people utilizing Claude and getting answers back that are anti American, anti conservative policy, blah, blah, blah.

[Chris Varone]

That's part of it. But I also think it's privacy and how the US government's gonna use their product for surveillance. Oh, okay. Like it has a much larger implication on how the Defense Department can use their product. So when you put that together, it created a lot of tension and they will figure out a solution because they both need each other.

[Josh Brown]

Anthropic was pitching itself as like we're the safe AI, we're the version that respects privacy and blah, blah, blah. But now it's like, well, can you really maintain that posture if you want to, a, compete with OpenAI, who clearly doesn't give a shit, and B, if you want to maintain these government relationships that you're now going to need?

[Chris Varone]

Okay, Yep. And so I. But again, I think it's so integral to the missions of the Department of War that they will figure out some sort of solution from it. And you start off. And you start off big and say, we're just not going to use you anymore if you don't make these changes. But eventually they'll come to a center ground.

[Josh Brown]

All right, guys, I got to get to this. Gold, bitcoin, and the dollar. And I guess we could take them in order if you guys want. Just on gold. We know it's still being accumulated by central banks. There was a ton of retail interest in gold. I'm sure it's still there, but it seems to have cooled off.

[Michael Batnick]

Gun to my head, it's in the

[Josh Brown]

penalty box for the rest of the year. Or if I think it's in the

[Michael Batnick]

penalty box for like six months here you look at. It was like May of 06. You had a very similar parabolic moving gold. Decent correction. And it chopped for six months. I think that's more likely here. I think silver's done. I think silver is done.

[Josh Brown]

Okay.

[Michael Batnick]

You look at this rally you've had

[Josh Brown]

in silver, people have been vaporized in that trade.

[Michael Batnick]

You have this bounce. I mean, talk about tepid bounces. You haven't even retraced 50% of the decline, at least in gold. I think you recovered two thirds of the decline here. Silver, I think, is finished. Copper's making new highs. Freeport's making new highs.

[Josh Brown]

Very different.

[Michael Batnick]

Animal market's telling you where to go.

[Josh Brown]

Right.

[Michael Batnick]

So for me, it's copper, gold in the middle. I could go either way. I think silver probably finished.

[Josh Brown]

Let's do bitcoin. I thought this was the bitcoin president. What happened? Where did this story go off the rails?

[Chris Varone]

Went off the rails. July 2025.

[Josh Brown]

Why?

[Chris Varone]

Stablecoin legislation passed.

[Josh Brown]

Okay.

[Chris Varone]

Stablecoin legislation mitigates the need for regular.

[Josh Brown]

I said. I said that. So you agree with that. I think stablecoin is a better version of what we thought bitcoin would do.

[Chris Varone]

Yeah. Stablecoin is going to lock in the reserve currency, the US Dollar. Right. It's creating US Dollars outside the United States in places you couldn't even get.

[Josh Brown]

And it remains digital, so it Scratches that itch of like anti surveillance and anti tie whatever, you know, it should

[Daniel Clifton]

have been an obvious buy in hindsight circle. So they just reported monster earnings yesterday, right? Everybody that got washed out in bitcoin, they're still, they're still there. If they got scared, they're just, they're transferring their money to stablecoins. They're not leaving, they're not going to J.P. morgan.

[Michael Batnick]

Listen, I think best case on bitcoin here, I mean, if you look at every decline of significance, right? And there's been five or six of them over the last 15 or so years. At a minimum, it took six to 12 months of repair time just flushing everyone.

[Josh Brown]

It's always made a new high.

[Michael Batnick]

Yeah, and I'll tell you what, it is like tech in that regard. You know, you go back to tech in the 80s and 90s, I mean, tech had multiple, multiple 50% drawdowns, many 80 and 90% drawdowns as well. Like if you go down 90 and come back, you're typically a survivor. Bitcoin's done it four or five times here. So I still have to tip my hat to it in that regard, but

[Josh Brown]

I think there's anyone calling you about it. It's in a 50 something percent drawdown from a high six months ago. And I almost feel like no one wants to talk about it anymore.

[Michael Batnick]

You know, it's funny, I think if Todd was sitting here, he would show you the chart of the outflows from the IBIT right now. So, like you're in that liquidation phase, which is always interesting to us. I think it needs time to report itself.

[Josh Brown]

Or is that a symptom?

[Michael Batnick]

Oh, it's always a symptom of the emotional.

[Josh Brown]

So withdrawals from IBIT is not causing the bitcoin price to continue to make new lows?

[Michael Batnick]

No, I think, I think it's systematic. Right. What's the undefeated rule of Wall Street? It's flows that follow price, not the other way. If it was the other way around, we'd all be.

[Josh Brown]

So who is somebody has to be selling besides the ETF then.

[Daniel Clifton]

Yeah, I think crypto Twitter's just blown up.

[Michael Batnick]

It's just, I mean, right?

[Josh Brown]

So couldn't happen to a nice.

[Michael Batnick]

So like it's bitcoin, it's Palantir, it's Robinhood, it's all the same chart.

[Daniel Clifton]

So the equal weighted Qs went out of the day on the highs, up 16 basis points on there with the net. When Nvidia fell 5 and changed what was breath. So Nvidia Felt the lows. I don't know. Nvidia fell the lows. 5 down 5.5 and equal. AQ is up 16 bips. Unbelievable.

[Michael Batnick]

A lot of strength. Get used to it.

[Daniel Clifton]

A lot of strength.

[Josh Brown]

US Dollar.

[Chris Varone]

Yeah.

[Josh Brown]

The US dollar bears are out in full force. The dollar decline has been a huge tailwind for Japanese stocks, European stocks, maybe Chinese stocks. What do we, what are we thinking on the USD? You guys have like a house view. Do we think that this is mechanical, political? Maybe a mixture? What's going on?

[Chris Varone]

Yeah. First let me say that for like 10 years, the US dollar crushed it. US stocks crushed non US stocks. I wake up every day. Dollars falling out of bed.

[Josh Brown]

Yeah, you.

[Chris Varone]

Nobody wants to own US assets. It's all nonsense. What's happened is the US dollar traded in a range between 2015 and 2019. Covid came. The US was the best place to be. We went up. We're just going back to that. 2015, 2019.

[Josh Brown]

Nothing more than that.

[Chris Varone]

Okay. For right now.

[Michael Batnick]

Okay.

[Chris Varone]

Okay. That gets you a Barron's cover and an economist's cover is going to lose its, its reserve currency in the last two weeks. I wouldn't be surprised if we bounce here.

[Josh Brown]

In fact, we had them both already.

[Daniel Clifton]

Both?

[Chris Varone]

Yeah, two weeks in a row.

[Michael Batnick]

Two weeks ago.

[Josh Brown]

So we got the Barron's cover. The which one?

[Chris Varone]

Economist, economists.

[Michael Batnick]

Oh, it's a great cover. It's a snake.

[Josh Brown]

Is there a third? Is there a third?

[Michael Batnick]

I think those are the two, but we don't.

[Josh Brown]

But we don't need USA Today.

[Michael Batnick]

Maybe they'll get it way later. Yeah, maybe we'll get it.

[Daniel Clifton]

But your bullish rates.

[Chris Varone]

Well, let me just say the effective tariff rate has moved almost perfectly inversely with the US Dollar as well. So as the tariff rate went up, the dollar went down. Tariff rate's going down now. Right. The supply chains are already adjusting. Now you're going to have lower tariffs. So I wouldn't be surprised if you get a bounce. By the way, this gets you back to this. How does tech come back? You asked that question before because literally the Japanese yen trade is the NASDAQ relative to the S&P 500. If you get the dollar up and the yen down, nasdaq's going to start outperforming again. So you just gotta be. You gotta be mindful of it. But I would expect to bounce. The way we think about Trump, three part strategy. Tariffs were the first part. That's basically done.

[Josh Brown]

Second part, UFC this summer.

[Chris Varone]

Yeah, that's true.

[Josh Brown]

What's the third part?

[Chris Varone]

The second part is getting the investment through all those capex expenditures. That's what we're in right now. The third is to get the dollar down more in the range of where it was 2004, 2005, 2006 for exports, that's the third, but we're not there yet. That's like post midterm when you actually start to see that. So I wouldn't be surprised if we have another leg lower on the dollar.

[Josh Brown]

But ultimate fighting exports, I think, I think it's great.

[Michael Batnick]

And as you've noted in year two of Trump, 1.$0 rally. Pretty good. Yeah, in. I guess that would be.

[Josh Brown]

You guys have a chart? Daniel, chart 22 please. If this, you pose this question, if this was a stock, would you be long or short? And you're showing US market cap as a percentage of global market cap.

[Daniel Clifton]

Oh boy.

[Josh Brown]

And you are saying it peaked early last year, rallied timidly in 2H25 and now weakening again. Could this roll hard and that international trade have another six months a year, two years to go?

[Michael Batnick]

But that's the thing. This didn't peak January 1st of this year. No, this peaked November of 24.

[Josh Brown]

I think the hyperscalers stopped going up though. Right? Basically it's a lot more than that.

[Michael Batnick]

I mean, look at the raging bull market you have in Japan. Look at the raging bull market you have in Latin America. The Japan thing is really funny to me.

[Josh Brown]

Right.

[Michael Batnick]

No one wanted to own Nikkei because they were all worried about JGB yields going up. Well, you know what stopped happening? JGB yields have stopped going up. I mean the 40 year JGB yield is down 70 basis points since the election and everyone's still skeptical of owning Japan here. You went nowhere for 40 years in Nikkei. Nowhere. The breakout was last September. 40 year breakout. And your target's not a double 90 to 100k. Nikkei should be your target there. No one's there.

[Josh Brown]

So there's. So this could, this could get, this could keep going. I think this is one of those investors or position.

[Daniel Clifton]

Nobody buys that chart. Nobody buys that chart.

[Michael Batnick]

This is one of those regime change moments. Now in the short term, is this very overdone? Do you get some bounce in tech and some. Of course. But what's, what's the longer term trend here? I mean just to go back to where we were in 22, 23 is another, you know, 700 bips of market cap relative to one thing.

[Josh Brown]

I would be remiss though if I did remind people there's an industry mix story here.

[Chris Varone]

Totally.

[Josh Brown]

These markets are a.

[Michael Batnick]

Say hello, say hela.

[Josh Brown]

Well, no, but like Europe is not a tech market. Japan has tech, but also has big manufacturing, exporting banks. Like the compositions are not equal.

[Chris Varone]

Let me, let me just say the political news is different than the investment news. That's a wildly bullish chart. That's what Donald Trump wants. He wants Europe spending money on its own economy. He wants Japan to get out of its 30 year decline. And they say, oh, this is a, this is a terrible thing for the us and he's like, no, they're starting to pay their own way that we don't have to carry that load globally

[Josh Brown]

and we sell into those markets.

[Chris Varone]

Yes, right, Absolutely.

[Josh Brown]

I agree. You guys have some of the Most interesting thematic ETFs I have ever seen.

[Michael Batnick]

Thank you.

[Josh Brown]

We're not here to promote ETFs. All standard disclaimers apply. Right, okay, let's get that out of the way. Can you tell us a little bit about the ideas behind these and who's using them? Let's start with this one. Well, this one's a little bit more, well, easy to understand. Macro Thematic Opportunities etf. This is Sam T. Yep. Is this the flagship etf?

[Chris Varone]

Absolutely.

[Michael Batnick]

The flagship etf. It has.

[Josh Brown]

When did it. When did you launch it? And tell us how people use.

[Michael Batnick]

It's about three and a half.

[Chris Varone]

January 22nd. So January 22nd, right before the bear market. It was great, Always excellent. And that's run by our investment strategy team at Stratega. So Jason Trenor, Brian Grabinski. And you know, they're basically doing four different macro themes and then they're rotating those themes. So right now when you buy an etf, you're buying a macro theme. You got to know when to get in and when to get out. You have professionals who now do that rotation and it's constantly changing and they've had two, just incredible, incredible years over the last.

[Josh Brown]

I always tell you, got to rotate your macro themes.

[Chris Varone]

Yeah.

[Josh Brown]

Wait, so what are the. The themes that are being rotated amongst?

[Chris Varone]

So right now their themes are. Globalization. Yeah, globalization. Globalization.

[Michael Batnick]

Consumer 2026. Kind of the, the return of the consumer, kind of a multipolar world. And what's four? How about a four?

[Chris Varone]

You got to ask.

[Josh Brown]

Ultimately them.

[Chris Varone]

Yeah.

[Michael Batnick]

Okay.

[Chris Varone]

All right. By the way, that sports theme isn't a bad theme in the AI world.

[Josh Brown]

Not bad. Strategus, Global Opportunities etf, sagp. This one sounds like you're involved.

[Chris Varone]

That's the one I run.

[Josh Brown]

Okay, so tell me about it.

[Chris Varone]

So in 2008 there were. If you asked the S&P 500 companies what's their greatest risk? 25% would say the government. That was healthcare and defense stocks, maybe utilities. By 2018, 10 years later, that number was over. 52% saying the US government was their top risk. 75% either first or second risk.

[Josh Brown]

Okay, okay.

[Chris Varone]

So this is why policy is important. And what we figured out is that lobbying is a factor that could actually influence returns. Companies go in and they lobby Washington with the idea that they're going to get some sort of return on their investment.

[Josh Brown]

Right.

[Chris Varone]

So we had a long history of doing this just on the large cap space. A very successful period where we were doing it, but we were doing it like private sma and investors were like, we need a more public access to it. So we basically built this a little different than our large cap. It has three buckets. It has large cap US equities, it has small and mid cap US Equities. By the way, you get a lobbying win at a small cap level, it really moves the needle. Relative to a large cap.

[Josh Brown]

Those stocks could double.

[Chris Varone]

But we have 40% non US because there is a whole industry of non US companies that feel that they have to be at the table in Washington or they'll get beat up on the national.

[Josh Brown]

Can you quantify this or is this more like the things that you're hearing or the things that.

[Chris Varone]

Oh, no, it's all quantum. So there's very little subjective analysis that goes into this.

[Josh Brown]

So you're looking at the dollar amount, level of spend. Okay.

[Chris Varone]

So now if I do that, I have the Dow 30 and some tobacco companies.

[Josh Brown]

Okay.

[Chris Varone]

Okay. When we tested it didn't work. What we found was that you got to capture the intensity the lobbying relative to the size of the company. So we've long owned a company called Vertex in there. Vertex Pharmaceuticals. They don't spend a lot of money on lobbying. Maybe $400,000. But they are making people's lives better with cystic fibrosis every single day. And they're down in Washington telling that story and saying, okay, if you're gonna do drug pricing, we don't wanna get hit. Cause our drug costs $250,000. Now you converse that with Gilead. Gilead cured hepatitis C and had no lobbying dollars at that point. They didn't tell anybody that they had this revolution that was gonna save the government all this money. And they got burned. They got hit because the managed care companies were like, we don't wanna pay

[Josh Brown]

$80,000 for this drug. Interesting. Okay, so you're bullish when you see an increase in lobbying dollars.

[Chris Varone]

We love it. We love it. And not just in a defensive mood like, oh, I'm in trouble, let me go spend lobbying dollars. You want to own the compounders, the companies that have built a presence in Washington that could withstand all of this noise and the constant changing of political parties.

[Josh Brown]

Who are those? Who are those? Eli Lilly.

[Chris Varone]

Eli Lilly, great. Meta is another good company on that. Lockheed Martin is another good company. You can go industry by industry. There's going to be leaders in the lobbying level. I'm just giving you the large cap side. I mean, but like, you know, Hyundai, you know, in South Korea, really, really prominent lobbyists in Washington, given the nature of their mix of what they're trying to do.

[Josh Brown]

Sounds like you have a lot of fun running that, running that fund.

[Chris Varone]

It's amazing. And it's just very differentiated because it's, there's no real relation to any of the other types of funds and totally different style.

[Josh Brown]

I've never seen anybody doing that.

[Chris Varone]

And it's done pretty well. So, okay, so it's.

[Josh Brown]

And the last 1, Macro, Momentum, ETF. Sam, this one sounds like you have

[Michael Batnick]

something to do with it. I do. This is the one I run. S A M. Mary. Mary. It's exactly what our process is, right? We're trying to identify through price where the narrative will be in six months or in 12 months. So our whole focus is relative momentum. What is on the relative high list every day and how can we take positions that are kind of way outsized, what, you know, relative to the sector. So I'll give you an example. Right now we have a double weighting in energy, we have a double weighting in health care. Right? That's where the relative momentum has been for the last handful of months. We have a very big weighting in industrials. This is all about price first, narrative second. So it's, I think, a very good complement to kind of our first.

[Josh Brown]

How often will you make changes?

[Michael Batnick]

I mean, we make changes. We're so self disciplined, so we make changes, you know, sometimes every day, sometimes every couple days. In terms of kind of managing, where is the relative.

[Josh Brown]

Like a double energy? Like you won't be double energy one day and then the next day.

[Michael Batnick]

No, no, no. Like that as an example, took, you know, four or five months to come to that position. I mean, everything we do is incremental, right? When you're a trend follower or chartist, everything is incremental. So we incrementally kind of get to These positions, which is, you know, big in healthcare right now, big in energy, a lot of cyclicals on the other side. But I think the great thing about this is because it's really based on a trend follow following system, we have the ability to go completely cash. Right. I think the true test of any fund manager is what do you do in a bear market? Right. So, you know, God willing, we don't have a bear market, but we can be 100% cash, we can be 100% bonds, 100% gold. Wherever the market is telling us we need to get to, we can get to in a very agile way before the narrative shows up.

[Josh Brown]

I am launching an etf.

[Michael Batnick]

I heard. Congratulations.

[Daniel Clifton]

We can't talk about this.

[Josh Brown]

No, no, no, no. You don't even know what my product is.

[Michael Batnick]

Okay.

[Josh Brown]

I am taking your fund, the lobbying intensity, utilizing your macro overlay, and I'm basically going to take the. The best momentum politically. All right. I'm going to probably what.

[Michael Batnick]

We should do that.

[Chris Varone]

Yeah.

[Josh Brown]

Have you guys ever looked into, like when your stuff aligns with your stuff? That's got to be a very powerful concentration.

[Michael Batnick]

I got to say. We talk about this all the time. There's a few times a year, I think, where, I mean, what dan sees in D.C. there's no one better. He sees it before it's on the front page of the newspaper, when it's shown up in your work and it's also shown up in my work.

[Josh Brown]

That's what I mean.

[Michael Batnick]

And then it's my product. This kind of bigger thematic idea that Jason may have, I mean, that's where the magic of our firm, I think, comes together. I mean, the fact we've all been together for 20 years.

[Chris Varone]

Yeah, 20 years.

[Michael Batnick]

Is also remarkable.

[Josh Brown]

That's awesome in that sense. That's awesome. You guys have fun on the show today.

[Michael Batnick]

We had a blast.

[Daniel Clifton]

Always.

[Josh Brown]

Yeah. We're so happy to see you. Can't believe it took us this long to do this show, but we had the best time. We would love to have you guys back and we want to let people know where they can get more of your thought leadership. Where can they follow you guys? Where's your. You have like a social network of choice that you put info out on

[Michael Batnick]

or a few things. So our website, strategus rpforresearchpartners.com awesome. Our three TFs, S, A G, P.

[Josh Brown]

Okay.

[Michael Batnick]

Twitter, LinkedIn, or I guess not Twitter. Right. X LinkedIn, all the places we traffic.

[Josh Brown]

All right. What about you? Anything special?

[Chris Varone]

Everything the same. All right.

[Josh Brown]

Awesome, guys. Thank you. Thanks, guys. We always end the show asking people to name one thing that they're looking forward to.

[Chris Varone]

Yeah.

[Josh Brown]

And it could be anything. What are you looking forward to?

[Chris Varone]

I'll give you two World Baseball Classic Championship in March and the midterm election actually getting here so that we can go back to normal and get a super.

[Josh Brown]

That's your super bowl, right? Sort of. Absolutely. All right, well, it'll come soon enough. What about you?

[Michael Batnick]

Two things.

[Josh Brown]

I think the Masters is just happy to be alive.

[Michael Batnick]

I think I'm happy to be out of Mexico. I think the Masters is six weeks away. I'm looking forward to the Masters, the best week of the year. And I guess what I'm looking for. This is the most exciting macro environment I've ever seen. God willing, it continues. This is fun. So we're having fun.

[Josh Brown]

All right. Well, it's great to hear. Dan Clifton, ladies and gentlemen, Chris Varone, Strategus rp.com Guys, thank you so much for watching and listening this week. Oh, no. Oh, you shouldn't have.

[Chris Varone]

Happy birthday, dear Josh.

[Josh Brown]

Thank you guys so much.

[Chris Varone]

Happy birthday to you.

[Josh Brown]

All right. Thank you. We're not gonna go there, 49. For the. For the listeners. I know.

[Michael Batnick]

All right.

[Josh Brown]

I already blew it out.

[Daniel Clifton]

Good luck.

[Josh Brown]

Okay. Not going to share my wish. Cheers. All right, thank you, guys. Thanks, everybody. We'll see you next week.