← The Compound and Friends
The Compound and Friends
Disregarding Tariff Terror With Nick and Jessica, Palantir Explodes, Amazon and Alphabet Report Earnings
01:31:50
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- [00:00]
Josh Brown
Ladies and gentlemen, welcome to the compound and friends. Tonight's show is brought to you by Craneshares, creator of the Defined outcome buffer strategies KPro and KBUF. Most people know about Crane shares Chinese Internet flagship ETF K Web. We talk about it all the time. Not everybody wants all the downside that comes with earning the upside of Chinese technology. So one way people are getting access but covering some of their downside or all of their downside is through these buffer funds. Kraneshares offers two versions. One covers 100% of your downside with an upside cap of 20% and that is K Pro. The other k buff is 90% downside protection with a 40% upside cap on the potential gains. If you want to learn more about how these things work, I I highly recommend you check out craneshares.com for details. Also want to thank our sponsor, Rocket Money. Rocket Money is a killer personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending and helps you lower your bills so you can grow your savings. There are 5 million people using rocket Money. They have saved a total of 500 million million in canceled subscriptions. Members can save up to $740 per year when using all of the app's premium features. Cancel your unwanted subscriptions today. Reach your financial goals faster with Rocket Money. Go to rocket money.com compound. That's rocket money.com compound okay, on tonight's show, Nick and Jessica are back. We talk about the tariff reality show. Nick and Jessica didn't seem too worried about it. We're going to find out why. Also an all new edition of what are your thoughts Starring Michael Batnik and me. It's still earning season. We had Alphabet Report tonight which we got into Uber is in the morning. Then we've got who else? Amazon is on Thursday. Paler crushed their numbers earlier this week as well. There really was a lot to talk about on the earnings front and we love to do it. So stick around. I'll send you to the show right now. Welcome to the Compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Red Holtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome back to what did we learn? I feel like we're learning every time we do this. I am so excited for my regular check in with DataTrek on the Compounds YouTube channel. I'm here with my friends Nick Kolas and Jessica Rabe. Nick and Jessica are the co founders of Datatrek Research, the authors of Datatrek's Morning Briefing, which goes out daily to over 1000 institutional and retail clients. They are also two of the smartest people I know. Nick and Jessica have their own YouTube channel, which you could find a link to in the description below. I didn't know we were going to have to talk about tariffs as recently as last week, but this is the world that we live in and that's really all that anyone is talking about this morning. And let's talk about tariffs. Should I panic now or later today? Like, what would what would be the right schedule for flinging myself out of window be if you were me?
- [03:49]
Michael Batnik
Oh, just close the window. Enjoy the view. It's going to be fine.
- [03:53]
Josh Brown
You sure? Okay.
- [03:54]
Michael Batnik
Yes.
- [03:55]
Josh Brown
All right, all right. I was all lathered up. I want to introduce, I want to introduce the topic very quickly with the TLDR version. And you guys are watching, listening to this for the first time Monday afternoon. So, of course, many things could have changed between now and then. But Trump announced 25% tariffs over the weekend on Canada and Mexico. He said they're effective Tuesday unless those two countries, our two of our biggest trading partners, do something about fentanyl and illegal migration across the border. Then he made some economic arguments to justify trade, things like trade deficits that have always bothered him. No one really knows the end game here because this isn't rooted in any specific policy goals per se. I think what these countries need to do is play along. And he's always just like, tariffs is the important thing to keep in mind here. He liked them in the 1980s when Japan was ascendant. He liked them in the last term when he was complaining about NAFTA and China. He likes them now. He will never completely take the threat of a trade war off the table. This is just going to be part of the ambient noise of the market over the next four years and we all kind of have to get used to it. Guys, I want to just throw up a quick chart of the reactions as of this morning. So you can see we immediately sold off before the market opened. And ever since then, markets have been steadily recovering. I'm showing you here, S and P, Dow, NASDAQ basically barely down. The Dow looks like it wants to go flat on the day. And then the last thing I'll just pop up here. We got word from Donald Trump that he's already talking with Claudia Sheinbaum of Mexico. I have to read a little bit more about why they have an old Jewish lady from the Upper west side as their president. But Claudia Sheinbaum had a very friendly conversation wherein she agreed to supply 10,000 Mexican soldiers on the border separating Mexico and the U.S. therefore, tariffs off as we achieve a deal. So obviously the market's like that chart off. I mean, guys, it's the same reality show from the last term. I don't know why we're treating it as. It's as though it's something different than what we've already lived through. What are your thoughts?
- [06:20]
Michael Batnik
Yeah, that's totally fair. I mean, this is not a surprise in the typical sense of the word in terms of what happens to Wall Street. We've known what Trump's policies were from the first term. We knew from the whole election cycle last year. So none of this feels like any kind of great surprise. Timing is always going to be a little bit of a surprise. And okay, doing it on a Friday, the last day of the month, maybe not the best idea. But still, we're here and, and markets are dealing with it as they always do. I'll just toss out one piece of kind of trivia. Since 1990, when the Vix first was launched, of the hundred lowest Vix closes, 80 were in Trump's first term. So for all the reputation that he has about roiling markets, the track record is something entirely different.
- [07:06]
Josh Brown
Yeah, I think that's probably because it's hard to keep shocking people over and over with potential negative outcomes that never actually happened. Now they did actually do the tariffs last time and there were obvious negative consequences, both in terms of gdp, but then also like specific sectors. But to your point, that still didn't equate to being a more volatile than usual period of time. That's over the entirety of the presidency. There were volatile days would probably be the way I would phrase it.
- [07:40]
Michael Batnik
There were volatile days, but the Vix was very often below 20. And the only two noticeable volume spikes during Trump's first term were both rate related. They were in Q1 in Q4 of 2018 as two year rates began to climb because the Fed was talking about hawkish, you know, neutral rates and again in Q4 when markets really melted down. But you can't really point to either one of those being, you know, Trump's fault.
- [08:02]
Josh Brown
I want to show you a couple of charts by Chart kid Matt from my shop about what people would be worried about if we thought tariffs were about to Seriously, not only be announced, but implemented and then stay in place. This would be the core PCE inflation outlook and this is data coming from Russell Investments. They're showing you basically the flat blue line is the baseline for the inflation outlook with no tariffs. Then there's a baseline with tariffs and then a high end tariff scenario where these countries do not negotiate. And we keep ratcheting up and the rhetoric turns into actual policy. And you could see that that high end tariff scenario leads to a spike sometime around the end of 2025 into like the 3.6% core PCE, which of course headline would be even higher. The next chart is the effects on real gdp. You could see a pretty big drawdown if the tariffs as, as promised become the baseline and are implemented. The high end tariff obviously significantly worse. And then the next chart, this is just the tariff rate on US goods, the average tariff rate on US goods, imports for consumption. So you can kind of see that, that dotted line on the right, that's, that's the proposed 20% and right now of course we're somewhere just over 2% we've settled out at. So it's a really big difference if this stuff actually happens. But the if part guys, is, you know, the big if. So any, any, any feedback from clients over the weekend or any questions that you weren't expecting to get when you saw these headlines start to cross?
- [09:55]
Michael Batnik
Not really. I mean the issue we were addressing all last week speaks to the charts that you just put up, which is what effective tariffs have on inflation and therefore Fed Monet. And it's been interesting over the last couple of Powell press conferences that this very arcane document called the Teal Book, which is a briefing document the Fed staff puts together for the Fed governors ahead of meetings to help them decide on monetary policy. Back in 2018, they did a whole study on that inflation chart and the numbers are pretty similar to what you put up there. Tariffs actually spike inflation. It was a huge topic in 2018, huge topic now. And the recommendation to the Fed was not to raise rates because it was a one time inflation shock and raising rates would just cause a recession and seeing through them would eventually see inflation come back down to normal. So in terms of the interplay between what we're seeing here and what the Fed's been talking about, which is a big issue for our clients so far the color has been they're more likely to see through it than they are to act on it and try to dampen inflation due to a one time, effectively a shock.
- [11:00]
Josh Brown
Jessica what are your thoughts on, on, on the topic?
- [11:03]
Jessica Rabe
I'll just speak to my cohort. So anyone, I'm 30. Anyone 35 and younger, don't worry about what, you know, one president over the span of one month does with three countries, this is just a blip in the radar relative to our investment horizons. So just stay the course, stay through the volatility, look for some productive entry points, if there are any, and we'll speak. Think Nick's going to speak to that a little bit with the, the VIX later. But yeah, just, just stay the course and find a productive entry point and, and just look past this Nick.
- [11:41]
Josh Brown
You guys have a framework where the question to really ask yourself, is this negative catalyst going to materially change? First of all, is this really a negative catalyst if it happens and then if it is, how negative is this going to materially change the course of the markets? And you kind of go through a playbook for these negative market catalysts. Do you want to, we could put the, I think we could put these rules on screen. Do you want to walk us through this idea?
- [12:07]
Michael Batnik
Yes. This is, I mean, not to be too dogmatic, but we look at every market shock kind of the same way and we run through a checklist of questions to determine how much we should worry about it. So it's basically four items. The first is, does the negative catalyst have a material effect on the economy? Economy, does it increase the risk of recession? The biggest thing that happens usually is you get an oil price shock. And this happened in 73, 79, 1990, a couple of other times. Prices double in a year. That affects consumer and business confidence. We get a recession. You can also get fears of a recession from aggressive Fed policy back in, like in, back in 2022. So does it question number one, does it increase the risk of recession? And I would argue that so far from what we've seen, the answer is no. These tariffs are an annoyance to markets, but they don't really put the economy on a tipping point into a recession. Things can change. But I seriously doubt Trump wants to see a recession in his second term in office. So he's going to be careful on this point, as erratic as he might sound.
- [13:04]
Josh Brown
The second is, let me break in for a second chart off for one moment. We are, though, talking about the auto industry and oil. So have having, having tariffs on, on Canadian oil and gas products that are above and beyond the other tariffs and then having Canada, Canada recognize that that may actually be an opportunity to retaliate against us. I'm not saying this could in and of itself cause an oil shock, but directionally it's not great. And then on the southern border, a lot of auto manufacturing revolves around back and forth commerce between the US and Mexico. And of course autos. And auto manufacturing is a highly economically sensitive sector with tons of employees and lots of economic activity that can be affected, like throwing a stone into a pond. We don't necessarily know where those ripples stop. So the answer to your first question is does it materially increase the risk of recession? I sort of feel like you would say, well, tell me for how long it goes on and how extreme it gets before I can really answer that.
- [14:20]
Michael Batnik
Yeah. So on your two points on the first, oil prices have to double before you get a recession. The history is super clear on that and we're not talking about a doubling of oil prices. On the second point, the last time the US auto sector, a sector very near and dear to my heart, having covered it now for 30 odd years, is that the last time an auto shut down had an effect on the US economy was I think September 1998. There was a 54 day strike at GM and GDP got clipped by 0.3%, 0.3 percentage points. So yeah, automakers important to the economy, but you know, even less so now than in 98. And even in 98, a very long full blown no production strike at GM only hit GDP by 0.3. So not as important as it used to be. And while the headlines are there, maybe not as important as people say.
- [15:06]
Josh Brown
Okay, chart back on Rule 2, Rule.
- [15:09]
Michael Batnik
2, does it affect financial stability? Does the negative shock affect financial stability? And the examples Here are the 97 Asia crisis, the 98 LTCM crisis, 2008, obviously 2011 Greek debt crisis. And I would say no one's arguing that tariffs are gonna create any kind of instability in the financial system. So no, on that point, the third point is how do policymakers respond to the catalyst? In this case, the policymakers are the catalyst. So that's the one area where it is a negative catalyst. With no clear address. You're not going to get a countervailing effect from other policymakers. So there's the risk. And then finally, how do US markets respond? And we look at the VIX. Jessica mentioned this, there are three levels to watch. 19.5 is the long term average. We just ticked over that this morning and fell right back down. 27.3, 35.1 and 42.9. So rounding to 27, 35 and 43, those are one to three standard deviations above the mean. The more severe the Vix, the more severe the response. The higher the VIX goes, the more likely you get a policymaker response. And this goes back to literally the start of the Vix in 1990. When that volatility gets that high. Policymakers act. They always do. So I think hitting 20 on the Vix this morning is not a signal that, you know, the administration has to back off immediately. It's probably a sign that they're okay, that they've communicated these policies accurately and the market's not all that surprised. And going back to our prior, what did we learn? The only thing that affects stock prices is surprise. Should we be surprised by what happened? Probably not.
- [16:39]
Josh Brown
He ran on this.
- [16:41]
Michael Batnik
He ran on it, and he's delivering on what he said he would do.
- [16:44]
Josh Brown
Yeah, the surprise is that he's actually doing it and he still hasn't actually done it. By the way, I should point out the surprise is that he's starting within the first two weeks of his administration, but the surprise is not that he likes tariffs. I mean, that's, that's, that's fairly clear. I thought, look, there's a lot for us to talk about. The reaction in Bitcoin is like a whole other tangent we could go on. It turns out bitcoin is basically in the magnificent eight. It's the eighth holding, and people are starting to learn something that we've all been saying for a little while. The non correlation goes away right when you would want it. But, but that's a whole other topic. All right, I want to talk about the deep seek stuff because you guys do write a lot about innovation and you write a lot about the reason why in the United States economy, the upside surprises are the thing that have driven markets. And those upside surprises frequently emanate from innovation sectors of our economy. I haven't spoken with either of you about the events of last week with the surprise from China that there may be a large language model that cost under $10 million to build, which maybe isn't true, but what was your reaction and what do you think is relevant to investors now?
- [18:01]
Michael Batnik
Yeah, so, I mean, we got actually a couple of slides because I think this concept of disruptive innovation is super important, but it gets so badly abused in the common use that I think it just deserves a quick reset. And so people, you know, viewers can pause and just read these slides. I'm going to blow through them pretty quickly, but there's more details in them. Clayton Christensen, who was a Harvard Business School professor, Coined the term disruptive innovation. And he said it's a very specific thing. It starts with a small company with very limited resources entering a market with a low cost product that targets underserved consumers and uses a new technology to give them an edge. The incumbents, people already in the business recede from the low end since it's very unprofitable anyway. They don't really care. They can make better money, better returns on capital by moving up the value chain and not really focusing on the low end which they don't really like to serve. So that would seem to be a win for them. But the problem is over time that disruptive company moves up the value chain, starts adding products, starts adding features, starts adding services, and that product gets better and better and better. And the incumbents continue to see that ground and move even further up the value chain and eventually they disappear because the incumbents taken over the entire market and the whole process starts over again. Couple of examples from that on the next slide. And these are just go back just to show you that this is not just technology, this is not just Moore's law. This goes back 100 years. Plus Sears Roebuck killed the general stores in the first half of the 20th century because rail finally connected the country and allowed for shopping and shipping a wide variety of products marketed by catalogs. And it killed the general stores in this country. The Japanese automakers versus Detroit, same story in post war Japan. They didn't have a lot of resources. They did figure out a new way to build cars and trucks and they did it with continuous improvement and building affordable small cars. The minute the oil shock happened, first in 1970 and more in 73, 74, they walked in and took the low end of the market in the US and then improved their products over time and gradually killed the big three. And that happened over 30 years. And then finally we know Amazon, Amazon's the one that finally disrupted Sears Roebuck doing the Internet to sell books and then everything else. Books were an underserved market and everything else came along afterwards. So this paradigm of starting at the low end and moving up, this is the paradigm of disruptive innovation. That's how it works. And the final chart just shows you deep SEQ versus USAI and particularly chatgpt. And it fits this role to a T. Deepseek is the disruptor. It's a cheaper offering, good enough product, potentially compromised with Chinese ownership and in country hosting, but still good enough for a lot of users around the world. ChatGPT is the incumbent, super well funded relationship with Microsoft, the power base right now, AI is a fast growing global market. So in theory there's room for both Chinese and usai, but the risk to USAI is that deep seats keep setting better, which it will. And other China based disruptors enter the market as well, which is super likely. And there's a lot of parallels to the US auto industry, honestly. And again, this is my touch point to thinking about disruption because you have insular management who thinks they can do no wrong. Their temptation to retreat to the high end of the profitable upper segment of the market with Microsoft is very likely. And you end up in a situation where OpenAI is GM and, and Deep SEQ is the Japanese auto companies. And that paradigm fits extremely well.
- [21:23]
Josh Brown
So guys, this stuff is like two years old and we already have incumbents.
- [21:28]
Michael Batnik
Yes. The minute you placed, the minute you raised, the minute you raise $100 billion, you are by definition the incumbent. And then people can chip away at you. So that's the paradigm we think about. It's a super important topic. I mean this is.
- [21:42]
Josh Brown
Yeah, look, I think we have like, even in the last few years we have like really obvious examples and one of the things that this disruptors always have in common, they don't shy away from the fight because they're the David and they're up against the Goliath. They use the Goliath's own weight against it. And so, and so like Amazon disrupting, disrupting Sears, like Sears had the weight of all these retail locations and Amazon was able to use that against them. Well, we don't have those retail locations. We can go way below your cost and, and, and pass that cost along. We're seeing that with Robinhood right now in the brokerage market and the move upstream. Robinhood made an acquisition in the RIA custody space just before the end of the year. So they start out as a toy and everyone laughs and says, oh look, it's Robinhood. Lol. And now they want to be in the wealth business. It didn't take long. So we see examples of that sort of thing all the time is the takeaway though for investors. What if all of this investment being made on the part of Microsoft and others turns out to have been, I don't want to say wasted investment, but not as profitable in the future as we once thought it would be. Now that you've got these players at the low end that are effectively piggybacking it, I think.
- [23:10]
Michael Batnik
Mark, Sorry, it's Jessica.
- [23:12]
Josh Brown
I just want to just go ahead.
- [23:13]
Michael Batnik
Yeah, go ahead.
- [23:15]
Jessica Rabe
Those are Some costs. The market is focused on the future. I think the what's more important is that the mark January showed the market understands that cheap AI is not an existential threat to US Big Tech and that it might actually help. So for example, we have a table of the breakdown of big tech's contributions to S P returns over the last two years in January 2025 and just three quick points here. First, as you can see in the table, Big tech was awash in January in terms of its contribution to the S and P. So although of course a video is a drag, Meta, Google and Amazon more than offset its effect. And second fact, even after all the news about Deep Seek, Amazon made a new record high on Tuesday and Google and Meta did on Friday. And the third point here is this is a benefit of index investing. If sentiment around Nvidia continues to worsen, it'll have less and less of an impact on the S and P. And at the same time other names that will benefit will play a larger role in the index. And now US Big tech companies like Meta and Google and can spend less on building out AI infrastructure and more on creating useful tools that they can monetize to their large global customer base. And from an investor standpoint, cheap AI means a lot more capital to return to shareholders through stock buybacks or dividends. So Meta, for example, spent 28 billion on AI in 2023, 39 billion in 2024, and it plans to spend between 60 and 65 billion on AI 8 this year. Everyone's probably seen those, those headlines. And even though Mark Zuckerberg said Deep SE doesn't plan to change, doesn't, won't change. Even though Mark Zuckerberg said Deep SEQ won't change these spending plans, the company's certainly going to have to consider adapting if cheap AI proves useful and monetizable. I mean our, our bottom line here is we need cheap ubiquitous AI to create killer apps that make Gen AI a useful daily tool for people as opposed to just a cool technology. We really think that's what's been missing since ChatGPT debuted in late 2022.
- [25:37]
Josh Brown
Yeah, let's put this dispersion chart. So this is dispersion in MAG7 year to date returns. Now of course some of these companies have reported earnings and some haven't. But so, so that's some of the price action that we're seeing here. But some of it is in the response that we just described to the launch of really cheap AI. Really like productive, low cost AI Metta is the best performing name as of the end of last week in the Max 7. Nvidia is the worst. Who has the most to lose as these technologies become more widely available and you need less computer, who has the most to gain? Meta among these companies has the large language model that was already open source and was not seen as going to be a huge source of profits on a standalone basis. So I think, Jessica, that's really the salient point here is that it's not good or bad. It's good for some, potentially bad for others. And this follows most waves of disruption in that it's not immediately clear, you know, that, that these companies should be trading up and down together. Once we see that dispersion, like, why wouldn't it remain dispersed? So that was a big takeaway for me. And then I guess I would ask you guys, is this a Sputnik moment? Or as you phrased it, is it just another Marlboro Friday? What. What do you mean by that? And, and you know, how are you feeling a week later now that we're more worried about tariffs than we are about deep seek for, for a change?
- [27:18]
Michael Batnik
The news cycle is whipping around, that's for sure. I mean, the difference between the Sputnik moment and Marlborough Friday Sputnik moment was, you know, when, when the Russians launched Sputnik, the US Freaked out because they thought they were way ahead in the missile race, which was basically the intercontinental ballistic missile race. The Russians showed that wasn't the case and it really, you know, created NASA and it created a lot of focus in the better at technology. So it was healthy, but it was a shock.
- [27:42]
Josh Brown
It led to the moon landing, like within the decade.
- [27:45]
Michael Batnik
Yeah. So, you know, it helped, it helped propel innovation and hopefully does the same thing here. Marlboro Friday was this thing in the 1990s where all of a sudden, one day, I think it was in 1993, Philip Morris cut the price of Marlboro cigarettes by 20% in a day because they were losing market share to generics and the stock was down 26%. They just got crushed. It was one of the more dramatic moves of the entire 1990s of a big super cap stock with massive competitive advantage. And people were writing about the death of consumer packaged goods for the next two years that no CPG company can hold price brands don't matter. But here's the thing. Marlborough, bad call because CPG continues to be powerful and Philip Morris doubled over the next three years from that puke. So I tend to think of this more as A Marlboro Friday moment with some of the comments that Jessica made about disruptive innovation affecting companies differently. There'd be some clear winners. But this isn't, you know, death of a theme the way people thought it was about Marlboro Friday.
- [28:46]
Josh Brown
Okay, another corollary that I thought of when people used to say, is high oil, is it good for emerging markets or not? And you would say, well, the bricks, two of them are oil exporters, two of them are importers. What do you mean is it good? Great for Brazil, I guess. Not so great for India.
- [29:04]
Michael Batnik
Yeah, awesome for Russia.
- [29:06]
Josh Brown
Right. So the, there's too much nuance for the algorithms that will buy and sell on a headline like, you know, AI Giants disrupted by China. There's way too much nuance for that easy of an answer to, to ever give you a durable edge as an investor. Because then there's the second order effects, the third order effects. I think that's a really good reminder, guys, I want to get to this thing Jessica's talking about. If tech goes out of favor, growth oriented investors should show incremental interest in health care. Funny you should say that. I just pulled the trigger on a pharma stock that is technically breaking out 15 minutes ago. So good, good, good timing. I look at the stocks that are working, I have a bias toward the 52 week high list, not the 52 week low list. I'm seeing more healthcare on there than I have in a while. Last year was a terrible year for the health care sector, relative. Talk to me about what you're, what you're looking at here.
- [30:05]
Jessica Rabe
Sure, yeah. We wanted to end on something actionable. So with concerns over us large cap techs, high multiples, and now this Chinese AI competition, we think US large cap healthcare should outperform because. Because growth oriented investors will look at it as an attractive option versus big tech. So healthcare is actually the best performing sector. Last month in January it was up 6.8% versus a gain of 2.7% for the S and P and actually a loss of 0.7% for tech. And of course, you know, there's the government policy uncertainty with this trade. But I'll just quickly lay out the bull case here for what is rather a contrarian call because as you said, it's. It had a horrible year last year. So if you could just please put up the first chart. So this shows the one year trailing relative price returns for large cap healthcare using the XLV ETF versus the S&P from 2000 to the present. So when the Blue lines above the X ax. That means XLV has outperformed the S P by the amount shown on the Y axis and vice versa.
- [31:12]
Josh Brown
And so it's been a while.
- [31:14]
Jessica Rabe
Yeah, I just have just three quick points here. So Healthcare on average has performed in line with the S and P over any given one year holding period. In fact, it slightly outperformed by 0.3 percentage points. And the standard deviation around that mean it's 10 points. So you can see on the chart there, we noted the three standard deviation downside level, 29.9 points with a, with a dotted black line. Now second, healthcare's only come close to three standard deviations of downside performance twice over this period. So the first was, as you can see in the chart was on April 6, 2021 when XLV had underperformed the S&P by 29.1 percentage points over the prior year. That was due to tough comps from the start of the pandemic when the group was on fire. Over the next year, large cap Healthcare did go on to outperform the S and P by 12.1 percentage points. And then the second was actually earlier last month on January 6, with Xov underperforming by 27.6 points. Since then, Healthcare has outperformed the S and P by 5.6% or sorry healthcare. Since then, healthcare is up 5.6% versus S and P is up just 1.1%. And third point here is these two instances are mathematically similar. They do come against different backdrops. So of course in 2021, healthcare stocks were comping against pandemic era strength when people are looking for reopening trades. Now, healthcare has been lagging since the start of the current bull market. So since the S P's low in October 2022, SOV is only up 21% versus index gain of 69%.
- [33:03]
Josh Brown
Now as for the catalyst, huge performance disparity.
- [33:07]
Jessica Rabe
Yeah.
- [33:07]
Josh Brown
So we're looking even for, even for this. Right. Even for any other sector versus tech. This is as big as it gets, right?
- [33:15]
Jessica Rabe
Yeah. So it's pretty, pretty big disparity. And even on top of that. So we're thinking of, okay, so what's going to be the catalyst that might spur investor interest in healthcare other than just that, that deep underperformance as you pointed it out. And two thoughts here. The first is that Healthcare saw only saw 3.9% earnings growth in 2024 on 8%, 8.3% revenue growth. So of course negative operating leverage is a major reason Stocks or sectors underperform even without the policy overhang that came into play after the November US General election. However, over the next two years, two years, Wall street analysts are actually looking for positive operating leverage. So revenue growth in 2025 of 7% should translate into, into 21 earnings growth. And for 2026, 6% revenue growth is expected to create 10% earnings growth. And even if you think those numbers are, are a reach, if you could please put up the, the next chart. Yeah. So while those estimates might be reached, healthcare trades for only 17.8 times 2025 earnings estimates. So that's far below the S Ps 22 times and text 28 times. The only cheaper sectors are financials at 17.3 times, in energy at 14.3 times. So the bottom line here is we agree with you, Josh. We, well, we just picked a stock, but we, we do think this sector is a good trade. If continues to be out of favor, healthcare should continue to outperform, we think, from interest from growth oriented investors. It's dramatically oversold and it has a history, albeit limited, of bouncing back when it's this deeply discounted. And we, we saw some of that already in January.
- [35:13]
Josh Brown
So this is the third cheapest sector on Forward P E, selling at a below market multiple. It is currently coming out of an historic level of underperformance relative to tech and the overall market. Is that fair to say? Okay, higher than average dividends versus the other 10 sectors. Higher than average profitability, excluding biotechs, I would guess, give or take. Right. And somewhat defensive characteristics historically. The healthcare sector. Not all the names in the sector of course are defensive, but more defensive than anything in the tech sector, I think we could probably argue. All right, do you think we could get into a scenario where like negative days for tech, you could almost like close your eyes and bet you're going to see green on the screen in, in the, in these stocks, or is it not quite that black and white? What would you guess?
- [36:16]
Jessica Rabe
You tend to see growth. Like I was, like I said, you tend to see growth oriented investors. Yes. Swap into healthcare from tech.
- [36:25]
Josh Brown
Okay, I like it. And there's, I don't know, hundreds and hundreds of stocks in this sector depending on how low you're willing to go down and capsize. But there are no shortage of companies that you could take a look at if you are underinvested in health care. Super actionable. Thank you for that.
- [36:43]
Jessica Rabe
Yeah. And in, in January, the only down sector was tech and the best performing sector was health care like what else do you need to know?
- [36:50]
Josh Brown
I would say let's keep this our secret, but we are on YouTube, so the secret is out. Nick, Jessica, thank you guys so much for joining us. I want to remind everyone, if you want to learn more from Nick and Jessica, they have their very own YouTube channel. It's YouTube.com/atnickcolis and Jessica Rabe. And of course you can subscribe to their research@datatrek research.com. thanks guys. We'll check in with you soon.
- [37:18]
Jessica Rabe
Thank you so much.
- [37:39]
Josh Brown
Hello.
- [37:40]
Nick Kolas
Hello.
- [37:41]
Josh Brown
How I sound? Good.
- [37:42]
Nick Kolas
Good. We're here.
- [37:44]
Josh Brown
What's up guys? It's. It's Tuesday. It's 5:30 and you know what that means. It's an all new edition of what are your thoughts? My name is downtown Josh Brown. I am here as always with my co host, Michael Batnik. Michael, say hi.
- [37:57]
Nick Kolas
What is up, ladies?
- [37:58]
Josh Brown
Ladies and gentlemen, we have a full chat, I'm told. Let's see who's here. Cliff, Magnus, Chris, Sean is here. Jerry, everybody got here nice and early too, which I love. Giancarlo, Random trends, Todd, Dennis. How about some names that maybe are. Are new to the proceedings? Should I pull a couple?
- [38:18]
Nick Kolas
Shall you? Absolutely.
- [38:19]
Josh Brown
All right. Greg Jones. Hello, how are you? Rachel's here, Gel zap is here. We got, we got. I mean, Jack Rosenfield. Everybody's in the house. Georgie, we see you. Y'all say hello to Nicole. Nicole is monitoring the chat. If anyone gets out of line.
- [38:38]
Nick Kolas
Yeah, everyone behaves.
- [38:39]
Josh Brown
Authorized. You know what's crazy about YouTube? And it's different than every other platform. And I low key love it as a creator. There's a feature, not block and not mute. Hide user from channel. What that means, they don't even know. And they're just talking shit, but they're talking shit for a thousand years and nobody is seeing it. And that, I mean that to me that's like very. That's my spirit animal of features on a social media. I love that idea of just like enforced apathy. We don't even care. You could say whatever you want. No one's gonna see it.
- [39:19]
Nick Kolas
Nobody cares.
- [39:21]
Josh Brown
So. All right guys, we have a sponsor Michael's gonna tell you all about and we have a lot to cover tonight, so buckle in. It's gonna be an amazing show. Who's sponsoring the show tonight?
- [39:32]
Nick Kolas
It's crane shares. We've spoken a lot over the last year about an explosion in different thematic ETFs. And one of the big categories are the buffered ETFs with downside protection. This is not quite face blower category but like did you know Josh, that KWEB has outperformed the S and P over the last year pretty substantially?
- [39:51]
Josh Brown
Most people don't know that.
- [39:52]
Nick Kolas
Up 43%. Yeah. Compared to the SPF 23 and with sentiment bombed out. That's kind of interesting but I bring that up to say that zoom out. It's, it's, it's not, it's not that great. But if, but for the last year Caleb has outperformed. But there are people that want exposure to trend these Internet stocks but they don't want all the smoke. So K Web or Crane shares came out with a product, two products. One of them, K Pro, offers 100 downside protection at the expiration period and you're capped with at a 20 gain for the next 12 months. They also have 1k buff. Same thing with a 90 buffer and a 40 cap. So if you want exposure to Chinese Internet stocks, but you maybe don't want all of the smoke. Check out Crane shares to learn more.
- [40:36]
Josh Brown
Chinese stocks rallied today when President Xi announced China's counter tariffs against us. He's in on the game. It's all a big game.
- [40:46]
Nick Kolas
They're meaning to get long these names and I just, just have it. But yeah, there's still time to look at.
- [40:50]
Josh Brown
They've been work, they've been working the buffered approaches is smart for people that they want exposure and they're willing to give up some of the upside because they don't want as much potential downside. And that's this is America. We invent things to solve problems. That's a problem people have. Is there a specific Coinshares thing they're supposed to go to or on the show notes tell them you know Michael Batnik. All right, so this week was the tariff reality show. We all knew it was coming. It had been widely promised throughout the course of the election and here we are. And it got off to a pretty exciting start. On Friday, Trump shared via Twitter, as most presidents historically have, that there would be 25% across the board tariffs on Canada and Mexico until they got serious about helping us combat the flow of Venanol into the country and illegal immigrants. And there was like a little extra something on Canadian energy and then there was a China tariff because you know when you go see Trump, you want to hear the hits, you know what I mean? If he just did Canada, Mexico, people are like, all right, but you're going to do China, right? He closed with China. Also tariffs on China and then she is like, ok, cool, here's my tariffs. And then, or maybe just prior to that, there were negotiations already. So it's like, actually I'm talking to the Prime Minister of Canada, I'm talking to the President of Mexico. We're going to figure this out. And there's a 30 day pause, dude. So it was like the stock market laughed. Like it, like it should have.
- [42:29]
Nick Kolas
We've. We need to bring, we need to bring Avocado Manufacturing back to the United States.
- [42:35]
Josh Brown
I have said this for a long time. I want to. So I want to like give you a little bit of a rant on, on my take on the tariffs. And this is not to dismiss any of the analysts or strategists or economists who have spent the last three days writing about this. I understand, like, it's almost obligatory. I have to tell you, I have personally spent zero time writing, speaking or thinking about tariffs. Like literally zero. The degree to which I don't give a must be measured by heretofore uninvented quantum computer driven innovation. Like the technology, the instrumentation has not been devised to measure the degree of. My complete and utter apathy for the entire topic. Maybe if I were importing strawberries I would feel differently, but as an investor, I just, I'm so out on this. 30 days will go by, we'll do it again. I won't even notice. And one of the reasons why is because I understand where all of this is coming from. It's here. Let's put this image up. This is Donald Trump in 1987. Let me tell you a quick story. Donald Trump bid on a piano that was featured in the movie Casablanca. And he lost. And the winning bid came from a Japanese trading company buying it on behalf of a Japanese person. And that really pissed Donald Trump off. So he went on TV with Diane Sawyer and he screamed about Japan the same way he does today. Chart off about China. This is a quote, I believe very strongly in tariffs. Guys, listen to me. This is 36 years ago. I believe very strongly in tariffs, said the Manhattan real estate developer. He's. Then he starts criticizing Japan, West Germany, that was a thing back then, literally. West Germany, Saudi Arabia, South Korea for their trade practices. Quote, America is being ripped off. We're a debtor nation and we have to tax, we have to tariff, we have to protect this country. It's not about anything. It's the way that he holds the news cycle in the palm of his hand. It's the way that he likes to open up negotiations. We all learned this. It's like we. All right, we get it. Throw a punch, have the meeting, then come out with your arm around the person. Look, we get along. I saved, I saved us from the tariffs. Like how stupid do you honestly have to be to, to. To publish a piece with the percentage probability of a U.S. recession like, like, like I saw from some of the banks. Are you serious? So that's kind of like the root of my apathy. This is something this man has been talking about for 40 years. There's no rhyme or reason to it. It's just he's fixated on it. He loves it. It's never going away. We'll be talking about tariffs next year. We still have to invest, guys. So what I don't too much. What are your thoughts?
- [45:55]
Nick Kolas
I.
- [45:55]
Josh Brown
Am I losing my losing it a little bit about this or am I exactly right?
- [45:59]
Nick Kolas
Well, I unfortunately was glued to my phone on Sunday night like waiting for the futures open because I was of the opinion. I did believe that come Monday this is going to be rolled back and it was going to just all be attacked. But I didn't know for sure. And so as far as the banks are concerned, this is their job, you know that they can't like, they can't not publish stuff. But the more important thing from the point of view, forget about the news and the noise and the rhetoric from the point of view of the investor, okay? Because there are real world implications here. Like this could really people's lives up like big time. So put what. I'm not talking about that for a second. Just from the point of view of, of the investor who's watching and listening to us right now. Yesterday you were talking with, with Nick and Jessica and Nick Colis made a really good point. For all of the noise that we're going to be dealing with during the presidency and there's going to be a lot of it. We also experienced this in his first administration and guess what?
- [46:58]
Josh Brown
This was my point.
- [46:59]
Nick Kolas
80. I think this is a stat, correct me if I'm wrong. 80 of the 100 lowest closes ever for the volatility index for the Vix happened during his administration. And I think the market has gotten wise to his rhetoric and is looking past all of the noise because at the end of the day this is for better or worse probably. Well, whatever. This is a negotiating tactic.
- [47:27]
Josh Brown
Sorry. There are no presidents that start off their first week in office doing something to deliberately cause a global recession. In no way would any president think that that's like the way to get started so he could talk about tariffs. He can use them to ensure cooperation at the border. I, I don't hate it. Like, he got people's attention. It's somewhat effective. I don't, I don't. I'm not for fentanyl. I'm not for illegal immigration. Like, I'm not pro those things.
- [48:04]
Nick Kolas
The idea, the actual idea, the, the actual idea of tariffs, though, again, the negotiating thing, yeah, fine, we, we got some stuff done. But the actual idea of tariffs and what they do for global economy, it's a negative sum game. It is, it is economically destructive. You are levying a tax on the companies importing these goods that is passed directly to the consumer. Like, it disincentivized trade. It's horrible.
- [48:29]
Josh Brown
There's this cottage industry of people now who are like, bending their brains into pretzels to try to write tariff supportive economic commentary. Like, no, no, no, actually, Trump is right. And some of the shit I've come across is like, oh, but it's so much worse without tariffs if we let like, like, look how bad NAFTA was for the middle class. And it's not to say that any country should just do whatever they want and we should be the only country that plays by the rules. And without a doubt, there are countries that have taken advantage of free trade with the rest of the world and have not played by the rules. So no one is saying that Trump's 100% wrong. I think the bigger picture is like, the last time the tariff stuff was about China, which is probably where the focus should have been. Now Americans get a benefit from trading with China and having a trade deficit in the form of all the shit they buy at Walmart. But that's a whole other topic. I think what's jarring this time is he went right after two countries that are like, geopolitically our best allies and biggest trade partners. And that's. Yeah, so that's, that's where it's different. Canada is 400 something billion dollars a year in trade and Mexico is closer to 500 billion. And that's different than having this, like, global showdown with, with China. I want to end this topic, though, with what Nick talked about yesterday, because I thought this is a really great framework. We have this data track playbook for negative market catalysts. And so, Josh, the questions to ask, and if you missed the video with, if you missed the video with Nick, it's, it's, it's available on YouTube. Does it materially increase the risk of recession? Does it materially threaten financial stability? How do policymakers respond to the catalyst. So remember, for every action, there's a reaction. And lastly, how does the US stock market respond? So Nick points out. Chart off. Nick points out. We really didn't get a crazy vix spike.
- [50:50]
Nick Kolas
It was at 20. It was nothing.
- [50:52]
Josh Brown
Yeah. Policymakers. Well, we are the policymakers in this case. I guess the Fed would be the relevant policymaker. What do they do in response? Does it materially threaten financial stability? I doubt it. And does it increase the risk of recession? I could go either way on this. I'm not a trained economist. I feel like a very large part of our economy maybe would suffer as a result of tariffs, but I don't think it's quite the same as a trade war taking place in the 1970s. So I looked right through it already. I'll keep looking through it and that's kind of my framework for how to survive the tariff reality show. You want to take over here?
- [51:37]
Nick Kolas
Yeah, let's, let's keep it moving. I mean, yes, I agree at a bare minimum it's going to coeise noise, but there's no, there's no investing philosophy that could be implemented based on, based on the swing. So let's leave it at that. Okay. Let's talk about earnings. You know, there's been the, the news cycle has been so noisy that between deep seek and between the proposed tariff, the threat of tariffs, we stopped talking about earnings and earnings season which ultimately is what's going to drive markets in the long term have been off to a good start. So chart kid shows that the path of earnings growth, the estimated earnings growth has been revised higher for, for sales as well. So good news there as far as earnings season so far we've got about 50 of the market cap as reported. A little bit more after, after Today profits are up 10 year over year. 250 basis points above estimates at the beginning of the season. So off to a good start.
- [52:36]
Josh Brown
Can we put the first chart back up? Strong Q4 earning. I mean look at this, look at this revision. It's like, it's like, I mean dude, the cut. Not everyone is beating, but pretty much everyone is beating. And let's run through some of these stats. Chart off 50% of the S&P 500s market cap has reported. And that's as of this morning. So I think if you add an Alphabet after the close, it's more 10% year over year. Earnings growth for the quarter is outstanding. That's number one. Number two, S&P 500 profits up 10% year year over year. But being 250 basis points above estimates from where we started just this season I think is pretty bullish. And then almost 80% of S&P 500 companies beating earnings 79% and the five year average is 77. So we are ahead of where most people would have supposed we would be on a lot of metrics. And now even revenue is growing. One of the problems with the start of this rally is that earnings were growing but revenue had been slowing down and people were like, oh, these companies are going to run out of levers to pull. Well now we've got revenue growth continuing into yet another quarter. Eight out of 11 sectors, year over year increase in profits also pretty, pretty, pretty outstanding. And the energy thing, like you could almost disregard it because there's so much commodity noise in those companies quarterly numbers that's so far outside of their control. It's, it's almost like, it's almost not even worth paying attention to the percentage of energy companies beating because they have, they can't forecast natural gas and, and oil prices no matter what they do. So I thought, I thought outside of that, seeing pretty much every sector flat to up is pretty important. We talk Palantir for a sec.
- [54:39]
Nick Kolas
Sure.
- [54:40]
Josh Brown
This is among the stocks that I most hate my own hate myself for not having paid close enough attention to since it came public. Why do you think it is that we just never really, or a lot of people just never really paid any attention to, to this thing until last year?
- [54:59]
Nick Kolas
Because it's, because we never touch it in terms of our actual lines. It's not a, it's not Apple, it's not a consumer name, it's not a search engine, it's not a social media thing. Like it's so far outside our daily lives. Now I know it's been a hugely popular retail stock and credit to all of the retail science, derogatory credit to everybody that's been on the ride because it's been a hell of a ride. And this is the type of name that professional investors hate. So why do they want.
- [55:28]
Josh Brown
Again, so this was one of, this is one of those names like let's put up the, let's put up the, let's put up the chart.
- [55:36]
Nick Kolas
The charts tell the story of why air quote professionals hit it.
- [55:42]
Josh Brown
Okay, so where you see a gray dot is earnings. And you can see like every other technology stock that came public during the pandemic, which Palantir did, I think they did a direct listing. So nobody on Wall Street. Let's do chart off for one second. Strike one. You do a direct listing. What that means is you launch a ticker symbol and shares become traded on the exchange. But you didn't sell any stock in that transaction to the public like a traditional ipo. You listed existing shares that your employees and your investors owned in the private market. Strike one. Because nobody got paid. Or the investment banking fees are tiny compared to what would happen if you were to sell a billion dollars worth of stock. So right off the bat, the analysts don't like you because they're investment banks. They work at, have no interest in you. You have not paid. You have not. You have not paid your dues, so to speak, on Wall Street. So they're not tripping all over themselves to cover the stock, upgrade the stock, take you around to institutions. All the bullshit. They don't do all the, they don't, they don't give you the VIP treatments. That's number one. It's very shareholder friendly, though. It's very employee friendly as well. And it's a good sign that nobody, nobody wants to sell a big chunk of stock and that you're already well capitalized. They're not the only ones that have done that type of deal in this era. I think Spotify did that too. Strike. Strike two is you came public in 2020, so you look like a spark. So people that don't know the story, idiots like me, they're just like, look at the chart. Oh, I see. It went from $5 to $40 and then it collapsed to $20. I don't buy shit like that. That's my attitude before I know anything about it. So that's. So that's strike to the timing of the IPO. People are just. In 2022, by the time you've been around for two years, a public company, people have no interest. So that you could see this thing flatlining in the teens and then strike four. To your point, Michael, they don't make a phone. They don't have a wet. They don't, like, have a consumer social media thing. We don't watch video on their platform. They are doing hardcore AI work for Fortune 500 companies and the government.
- [58:14]
Nick Kolas
Government.
- [58:14]
Josh Brown
The military. Yeah. So, like, for all of those, for all of those reasons, if you're just like a dilettante and, and you're not like, like really focused on identifying companies like this, you missed it. One thing they had in their favor is Alex Karp is just an incredible Persona. He's. He's doing his conference call today. It looked like a podcast.
- [58:38]
Nick Kolas
Well, he's very outspoken. I don't think, I don't think I'm using an air quotes professionals like that. But the real one, Josh, is the valuation. So let's, let's run through this. So Palantir's growth now and listen, the, the, they've had explosive growth like earnings wise, but it's a lot of the growth in terms of the stock price has been driven by multiple expansion. So of the 504 gain over the last year, 4,4/5 has more than that has come from multiple expansion. Chart 2. Look at the forward PE and the forward price of sales and maybe in a vacuum they're like, yeah, it looks high, but check this out. Compared to Tesla back in the day. So chart kid made overlaid Tesla's Forward PE in 2014 and 2015 when it was like the craziest valuation. And of course we know how that ended. It very much grew into its valuation and then some. Palantir looks similar. So people just don't like or people, people that went to got their MBA and spent time on Wall street doing intrinsic value and discounted cash flows. They can't wrap their arms around story stocks and it's just not for them. And of course there's like resentment and stuff, you know, that, that they missed it. So anyway, it's been, it's been a hell of a ride and congrats to everybody that owned it.
- [59:54]
Josh Brown
He's also the bet noir of like a whole coterie of professional short sellers. I kind of think he's the new Elon Musk. Like they, they're not shorting Tesla anymore. Or at least I hope they're not. This guy had a stock price that went from 13 to 30 and I think he attracted a lot of negative attention from shorts. I think Chanos, when he was still running the fund was betting against this thing. I think part of it is he talks, he talks very hyperbolically in his, in his public pronouncements. Alex Karp. And he's like very animated and it's, it's a little Elon esque. He's got the big James Altitude hair.
- [60:36]
Nick Kolas
Yeah.
- [60:37]
Josh Brown
There's a lot of elements to this that you picture a cynical professional short seller just like who, like who is this jerk off? Yeah, he's a showman and he's a showman. And they, you're right, they don't, they really don't like that. And that makes them want to dig in and do work on something.
- [60:53]
Nick Kolas
It's the same thing. It's the same thing as Tesla. So the short, the percent of shares outstanding that are sold short is got as high as just under 8% and now it's down to 3. So it's still relatively high compared to the average stock. But nothing, nothing like Tesla back in the day.
- [61:08]
Josh Brown
Somebody in the chat is suggesting that Elon might get jealous of all the attention Alex Karp is now getting and Elon effectively is the king of America. That would be an interesting, that'd be an interesting subplot if these guys were playing on the same side and they're all on this America first kind of bandwagon and then there's not enough room for two of these guys to exist. Well, I don't know.
- [61:32]
Nick Kolas
Not knowing anything really about the story, but if there's access to, to an infinite Runway of government spending with aoi, you know, it makes sense. Not saying that it's, you know, I don't not come down the future path of the stock, but it makes sense why I would trade at these seemingly ridiculous valuations.
- [61:49]
Josh Brown
I like this guy and I saw him, Bill Larson is saying, I saw him on Bill Maher and bought the stock the next day. I also saw that appearance and I should have bought it the next day, but I didn't. But he's got this, he's got the shtick where he's a progressive, he's not like a heart, he's not like one of these like, I'm like the new right wing guy. That's not his thing. But he's extremely pro Israel and extremely pro America. And I think he became really outspoken, very anti woke. Very anti woke because I think he thinks it threatens the country's ability to defend itself. And he is like very heavily focused on defense.
- [62:31]
Nick Kolas
Yeah.
- [62:31]
Josh Brown
So it's a really interesting, like, he, you can't like put him in a box and be like, oh yeah, I know who this guy is. He's. He's not, he's not, he's not a stereotypical anything. And he has a book coming out later in February, which I'm going to. I'm going to. I almost feel like the audiobook is to move with this guy, but I'll check that out. Anyway. I missed this and I apologize. Chat. I'm sorry, I never, I've had this on my list, the best stocks in the market pretty much all year last year. I just never got around.
- [63:03]
Nick Kolas
I don't, I don't buy names. Like, I don't buy stocks like this. No disrespect. It's not what I don't know if.
- [63:07]
Josh Brown
I would or I would know, but I just.
- [63:09]
Nick Kolas
Well, you didn't. You didn't. So there you go.
- [63:11]
Josh Brown
Escape me.
- [63:12]
Nick Kolas
Let's talk about Alphabet, Amazon and Uber. I own all three of these stocks. So do you, right?
- [63:16]
Josh Brown
I mean the whole world does. Alphabet. Alphabet is out and it looks like it's selling off in the after hours.
- [63:24]
Michael Batnik
All right.
- [63:24]
Nick Kolas
Yes, it is. It was down 9% last time I checked.
- [63:27]
Josh Brown
Okay. Google search up 13% to 54 billion. YouTube ads up 14%. Google network looks like minus 4%. Google services total plus 10% to 84 billion. All right. The cloud business grew 30% to 12 billion, which I think was the number. Yeah, that was, that was the number that they had to do.
- [63:49]
Nick Kolas
Yeah, okay. No, no, no, no. They missed. That was a miss. That was a miss. There's two reasons why the stock is selling off. First of all. So it did. What did YouTube do? Ten and a half billion. That's more than Netflix did last quarter. Just let's pause for a second. That's more than Netflix did. Wild interest.
- [64:05]
Josh Brown
Interesting.
- [64:05]
Nick Kolas
So these are the numbers. John, next chart please. Just this is. I had chart get pull up Q4 2019. So revenues, total revenues doubled again from. This is from 2019. 46 billion. Then what is it today? 96. YouTube was 4 point. YouTube was 4.7 billion. It's 10 and a half billion dollars today. So basically every category across the board has doubled in the last five years, which is insane. Chart off considering that in 2019, Google is not a small company. Right. Google was very much remember like the law of large numbers. These trees, trees don't go to the sky. This tree is growing to the sky. It's wild.
- [64:41]
Josh Brown
Some do. So what some do.
- [64:44]
Nick Kolas
What really sent the stock is they see 2025 capex at 75 billion. Lol at deep seek being like whatever. We're not spending money there. So check this out. Just let me just give a plug for quarter a couple of we're investor and I asked quarter, why is the stock down 7% in the after hours? And it gave five reasons. And number one or I'm sorry, the one that caught my eye was this 75 billion dollar investment the way say it might also raise concerns about increased spending and its impact on short term profitability. And interestingly enough, consensus gurus who tweets all of the results and everything like that said that Broadcom jumped 4% on Google's CapEx guide. So it's funny, Josh, you and I were talking to Dan Ives recently, like how much Runway, is the street going to give these companies on Capex and turning that into revenue? It's early. It's one day. Who knows where the stock will trade tomorrow? But so far the street does not seem to like this.
- [65:41]
Josh Brown
So they think the $75 billion guide for CapEx this year, 2025 head of expectations, big time. Yeah, because the expectations. Okay, so they think that that spooked the market and investors sold on that news.
- [65:58]
Nick Kolas
Yeah, yeah, it's that list.
- [66:00]
Josh Brown
I love that, I love that Quarter has this AI thing built into it. It's so sick. So it's like having, it's like having an analyst like sitting, sitting right in front of you. It's, I mean it's crazy. There are guys that do this for a living. They sit on the desk and any trader can ask them hey, why is the stock moving?
- [66:16]
Nick Kolas
Right?
- [66:16]
Josh Brown
And it's their job to figure that out. Not like now. I don't need to pay the kid in the vest, you know what I mean? Who needs health care and vacations now? I just ask Quarter. It's pretty dope.
- [66:28]
Nick Kolas
What's Amazon tomorrow?
- [66:30]
Josh Brown
So Amazon is Thursday at the close. Not tomorrow. Tomorrow. We'll talk about Uber in a second. Tomorrow's Uber and Uber reports in the morning because they do it from New York, not from California. And Dara likes to be on set with Andrew Ross Sorkin for Squawk Box. He does like, he basically does a sit down with, with the notorious Ars every earnings report which is pretty cool. But Amazon. All right, so let's do the Amazon chart. Here's last five years price. The stock has been annualizing at 19% a year for the past five years. But that's very misleading because look, look how, look how vicious this drawdown was from late 21 into 23. Well, yeah, Josh, guess what through about.
- [67:20]
Nick Kolas
Guess what my friend. Amazon divided by the S and P is well below, well below the peak in July 2020. So from July Amazon is pretty significantly underperforming the overall market which is, which is borderline face blower stuff.
- [67:40]
Josh Brown
Poppy. I was on this show last fall saying this is a $250 stock masquerading as $170 stock. I said it like I don't know, 10 times. Now it's 250 and I want 300. I don't know if I'm, I don't know if I'm getting it near term but like, all right, let's, let's look at some of the expectations then we can move on a $48 would be 48.5% growth year over year. Revenue is a 10.2% number. 187 billion guys a quarterly revenue. Okay, just so we're all on the same page here how big this company is. Analysts are looking for 19.3% growth in AWS.
- [68:19]
Nick Kolas
That's usually the number.
- [68:23]
Josh Brown
That's the big number. Last four quarters, year over year operating income growth. You ready for this?
- [68:28]
Nick Kolas
I'm ready.
- [68:28]
Josh Brown
Plus 267%. Plus 221%. Plus 91%. Plus 56%. So coming out of the post pandemic tech crunch, they got their expenses in order. They fired a lot of the people they needed to fire from the pandemic era splurge. And they have been more efficient with last mile deliveries which they now wholly own. They're delivering more packages than you now. They pulled back the, they choked back the leash a little bit on expectations from like, like, oh, but we're going to deliver things in an hour, that 24 hours. And of course that, that was good for, that was good for reining in costs. So this is where we are with Amazon. I think part of the story here has got to be anthropic and justifying the spending that they're doing on AI. But one of the good things about Deep Seek and cheap AI is that Amazon's primary AI interface is called Bedrock. And it's a bring your own LLM sort of situation. Deepseek is available on Bedrock AI. Amazon made, made it very clear like we allow usage of the cheapest, most efficient LLM all the way up to the most expensive. It's all available on our platform. And that now looks like a very smart decision to have a buffet rather than, here's our LLM. You're forced to use it. So we'll, we'll see what happens. But I'm going in long. Let's do Uber. The stock is like flat year over year. It's, it was ripping all through 2024 until Elon started with the Cyber Cab shit and then that was it. And the stocks had multiple sell offs related to the threat from Tesla. And that's really the only thing investors care about on the conference call. So right now you got a stock that is valued at 17 times forward earnings, growing cash flow by 50% year over year. Revenue growth is on fire. But people are nervous that Waymo and Cyber Taxi are gonna steal your thunder and there's not gonna be enough autonomous cabs to go around. I don't fully understand why people think that, but it, I'm on the other side of the market from this one, Michael.
- [71:07]
Nick Kolas
I think you and me both listen to this. So Gene Munster tweeted, Gene Monster is an analyst, tech analyst. He said on Waymo Sundar says It has served 4 million passengers now averaging more than150,000 trips per week. Wild stuff. It better be more than 150k per week because the 150k data was given 3 months ago on September earnings call. My guess is the weekly is closer to 175. But yeah, this competition, this is all, this is all the market cares about right now.
- [71:33]
Josh Brown
Yeah, I think, I think the one of the negative things that happened last year was that GM gave up on Cruise. So Cruise was, was the autonomous vehicle division of GM and they were going to have a taxi service and they had been piloting it in San Francisco and this is more than 10 years and unceremoniously they were like, actually, you know what, forget it. We're not, we're not going to do it at all. They just fired everybody. And people sold off Uber because it's like, well, do they have a dance partner? Like what are they, what are they literally going to do? Now the eats business, which is half the company, is not susceptible to autonomous driving. They're going to try to use robots, but like I don't think they have a really a threat there and a lot of drivers do both. So I don't think this is black and white as the people who are selling it on Tesla headlines think it is. And maybe the market's right and I'm wrong, but I think I'm right and I'm, I'm sticking to my guns here.
- [72:35]
Nick Kolas
Okay.
- [72:36]
Josh Brown
We'll find out tomorrow how the quarter went at least.
- [72:39]
Nick Kolas
Okay. All right, I'm going to talk briefly about this. We don't spent a lot of time on this and this is, this will be the last time I'm going to bring this topic up until there is actually regulation. This will be the last time I speculate on this topic. But Jonathan Gray, the chief operating officer at Blackstone, was talking about private assets in your 401k came up on the call. So here's what he said. Where we start is the way the defined contribution and retirement business has evolved and I do think it's created a bit of a sort of halves have not environment. So if you think about it, wealthy individuals are able to access our products through financial advisors and get the benefit of strong long term returns and compounding. If you were an Employee at a major corporate sort of pre 2005, you probably have the benefit of pension fund where people are working hard every day to deliver these returns, allocating to alternatives. If you work at a state pension fund today, you are also getting that same benefit. But for the vast majority of private sector workers in the United States, they are given a 401k plan where because of the litigation environment they basically focus on the lowest fees. And it's not about long term performance. Actually this is me speaking the case of, in the case of funds, it really is lowest fees do have the long term performance. But I think one of the things that I, I think this is inevitable. Like it's, it's going to happen. One of the things that is probably most concerning to me about this aspect is how do they decide what gets in? How does the average investor, like I think most people at this point know either, okay, target, they fund, maybe that's where these go. But again, who decides what goes in there? Most people are familiar with an S and P index. How in the world are we going to vet, allow who gets onto these platforms? So I do think that the illiquid stuff, it does make sense in a retirement plan, but it's going to be, I think it's going to be, there's be a few bumps in the road.
- [74:26]
Josh Brown
Do you know the thing that I'm most bullish about as it pertains to all of these products? Getting into traditional retirement vehicles, the stocks.
- [74:37]
Nick Kolas
Of the underlying companies.
- [74:39]
Josh Brown
Well, that, that definitely those stocks look fantastic and they're working. But I think the most bullish aspect of it for you and I is how much disappointment there's going to be 10 years down the road and just us unwinding all this shit for people that come to us. Like why did my. What, wait a minute, I don't understand the stock market compounded at 8%, 9%, what, what do I own? And then we're going to be like, well, you own this weird infrastructure thing and you have this piece of shit that's got like excessive fees in five different layers. And you have this thing that's like, you own like foreign banks that are privately held. Like we're going to have to explain to people why they underperformed because the person before us is just going to load them up with whoever bought them lunch. And I hate to sound that cynical because some of these things are going to be good. It's just so hard to know in advance. Very similar to actively managed funds, very similar to hedge funds. It's really, really hard to look at a menu of products and say this is the right one. So my take would be, if you're a financial advisor in this space, be judicious, know who you're bringing this to. If you're going to include it in a 401k, double down on educating the population of workers who are going to have access to it. And don't oversell it because this is not going to be any easier than vetting actively managed funds which we already have enough evidence for a lifetime to know that people can't do that anyway. So it's, it's, it's not going to be easy. And then the last question is, ask yourself, is the best strategy in private credit going to be available in a 40 ACT fund wrapper or is that still going to go to the richest, most powerful, most connected people? The same as it always has. So do you want to buy the 8th best version of something and, and pay huge fees for the, for the purpose of pretending like you're a rich person? So like this, it's just, it's going to be, it's, it sounds great until you like think through how is this really going to work. And I honestly think the biggest opportunity for most RIAs is going to be to fix messed up portfolios 10 years after the gold rush has come and gone. I don't know, what are your thoughts?
- [77:06]
Nick Kolas
I'm a little bit less cynical about the whole thing. But you're 100% right pitch that was. Yeah, it's going to be a little bit less disastrous than that because a lot of the 401k, a lot of the 400k plans that we see today are pretty gnarly. But, but yeah, people just, people got to be careful. And education, education is going to be kids. All right, let's talk about.
- [77:24]
Josh Brown
Yeah, if people have the right expectations, it's better than if people are being pounded. Like you got to put your, you got to put 20% of your money in private.
- [77:33]
Nick Kolas
I guess why I'm coming on. No, I'm coming at it from the angle of all else equal. If you are going to own these illiquid assets, probably better to do it in your retirement account than in something else. That's all I'm saying.
- [77:47]
Josh Brown
Yeah, I agree with that. But I think the good news is that the pricing will come down.
- [77:54]
Nick Kolas
Absolutely.
- [77:55]
Josh Brown
One of the things that, one of the things that financial advisors on social media hate most about these types of private and alt investments is the fee structure and the cost. And I think now that you have BlackRock competing with Blackstone, one thing I can guarantee is that the pricing is going to be better to the end investor. I don't know how much better, but that's. It's definitely going to be trending in that. In that direction. So maybe that's the silver lining of the gold rush. Okay, what do you got? This is me. Oh, this is me. Sovereign wealth fund for the United States does not just sound like third World.
- [78:34]
Nick Kolas
Nope, we don't do that here.
- [78:35]
Josh Brown
Slush fund. It's. To me, it sounds like a vehicle through which to bribe the government. Oh, you think for the government to pay bribes? So historically, sovereign wealth funds were for countries like Norway and United Arab Emirates whose primary economic production is coming from, like, one commodity.
- [78:58]
Nick Kolas
We have such a surplus that we need to do something with all of this money. Does that sound like us?
- [79:06]
Josh Brown
No. And not just money. We. We need to diversify the economy. So we need to take oil profits, redistribute them amongst the population, in the case of Norway, and invest the surplus in anything but oil. So when you look at Norway has one of the most respected institutional pools of capital in the world. They're a huge investor. They're buying Amazon and Apple like, they're buying. Like, they're buying anything but energy because they're diversifying their future. You see this in the Middle east, sovereign wealth funds are being used to develop cities, to develop real estate, to create job opportunities away from Petro. And this makes perfect sense. And this is how they should be used. I don't think we have those same issues here. This seems like Howard Lutnick from Carter Fitzgerald, who is the economic adviser to Trump, was like, hey, let's do like a fund.
- [80:10]
Nick Kolas
Oh, my goodness.
- [80:11]
Josh Brown
There's a rumor that Bill Ackman might be named the. The head of the sovereign wealth hedge fund, Carl Icon.
- [80:18]
Nick Kolas
I want Carl running the fund. So this is from Axios, what they're saying. Okay. So the potential for cronyism with the sovereign wealth fund is dizzying. And the record of current government efforts to direct investment should not give anyone confidence, you know, shit that it would. That would be competently or fairly managed, wrote Dominic Pino in National Review yesterday. Here's another one. The United States has a ton of wealthy ads. The federal government is a poor steward of the chunk of it that it already controls. It should control less, not more. Don't these people want government, like, out of.
- [80:52]
Josh Brown
I thought these were Republicans. What. What. Why are we. Why do we. Why do we need more centralized investment by the federal government.
- [81:00]
Nick Kolas
No, no, this is, come on, this is this. Now what's the upside here? What is the upside?
- [81:04]
Josh Brown
Well, the upside. The upside is the Trump family wants to control TikTok. So let me skip, let me skip ahead to. Let me skip ahead to where everyone else will eventually arrive. The upside is Trump's got Larry Ellison on line one and he's got Elon online two and he's got Kevin O'Leary scratching at the door like a dog. And they all want, like to buy TikTok. And he's probably thinking like, what if I buy it? Well, how do we do that? I don't know, could we just like buy it and lut. It's like, like the country. He's a good me, the country, Like a little bit of off. Let's do a sovereign wealth fund. I want to give people a little bit of a background though on what these things really are. The first sovereign wealth fund was in Kuwait in 1953. And again, they've excess oil revenue and nowhere to put the money. So establish a fund that will make smart investments rather than under the Mattress. In the 70s and 80s, Abu Dhabi came along, Singapore famously, in 1981. There are now 176 sovereign wealth funds all over the world managing $11 trillion. They have gone up 11 fold from barely 1 trillion as recently as two decades ago. So this is like a hot thing right now. China has a big one. The second largest one, the CIC China Investment Corporation's 1.3 trillion as of last year. They have another one that's 1.2 trillion, called the safe IC. Abu Dhabi's is 828 billion. So these things are popular in, in, I don't want to use the term third world. It's derogatory. In the developing world, these are very popular. And in the case of commodity wealth, they make a ton of sense. I'm not 100% sure what the goal is here other than self aggrandizement or maybe just like this is a moment in time where every stupid idea somebody brings up, it's like, yeah, let's go do that. And it seems like there's a lot of that in the air right now too.
- [83:13]
Nick Kolas
So what if we do like a little 2 and 20, lower everybody's income tax, you know what I mean?
- [83:21]
Josh Brown
Give me the, give me the money back. Let me invest it. I'm pretty capable of investing it myself. I don't need the White House investing it. I don't really see. I don't really see how do you even, what do you do with, with the profits of it? Is that a tax distribution like at the end of the year? What, what do we, what are we doing with the money? I guess maybe, maybe I can get talked into it.
- [83:46]
Nick Kolas
Buying the dip in Google.
- [83:49]
Josh Brown
Yeah, we should, we should, we should speculate in stocks. All right, I'm going to make the case and then you have a mystery chart and then we're going to get out of here. I'm pitching Bristol Myers which I just bought myself. I bought it right around here. So it's relatively early. Nick Coldis and Jessica Ray pointed out last night that XLV is acting really well this year. The health care sector in general. Sean turned up the fact that it is the second best sector year to date. 6.55% right behind communications, up 6.59%. Does look good.
- [84:27]
Nick Kolas
Does look good.
- [84:28]
Josh Brown
Yeah, it really does. And it sat out the rally of 23 and 24 for the most part. What else I want to tell you? Oh, so the XLV is outperforming every other sector and it's out for the S and P. And Bristol Myers has I think an interesting setup. This chart doesn't make it look as good as if I showed you a one year chart, but this thing is going to break out to a new 52 week high, I believe if there's a good number tomorrow. I don't know that that will be the case of course. But let's talk a little bit about it. Oh, they report Thursday actually pre market for the last four reported quarters. It beat on the top and bottom lines in all but one quarter. And people are starting to focus now on the growth portfolio here and not as much on all the patent cliffs they have and legacy drug portfolio. And this company basically went head over heels into oncology and immunotherapy and those are both growth markets for as far as the eye can see. And Bristol has some pretty good drugs. So it's 3% below its 52 week high. RSI is 57. It's, it's above its 50 day by about 2%, above the 200 day by about 18%. Not at all extended. This is the chart I was looking for.
- [85:50]
Nick Kolas
Yeah.
- [85:50]
Josh Brown
And you could see, look at. So that level is like 60 to 62.
- [85:55]
Nick Kolas
Yeah.
- [85:56]
Josh Brown
If she clears this range on a upside earnings report and it's not even overbought yet. Like I feel like there's a lot of room here. So it's up 21% over the past year. One of the better performing names in the group. And we have a tenure. Oh, we did the tenure already?
- [86:13]
Nick Kolas
Well, she reports on Thursday. Josh, the report.
- [86:16]
Josh Brown
She does? Yeah, she reports before the open and.
- [86:20]
Nick Kolas
Wait, are you in or not?
- [86:22]
Josh Brown
I'm in. I bought it. I'm in. I'm in, man.
- [86:24]
Nick Kolas
Yeah. No, I know nothing about the business, but I like the chart.
- [86:30]
Josh Brown
What do I have to do to get you into the stock?
- [86:33]
Nick Kolas
I have no more money to deploy right at the moment, so there's nothing you could say.
- [86:40]
Josh Brown
All right, while I'm long, we'll see what happens. Not advice, not advice. Everyone advice.
- [86:45]
Nick Kolas
All right, Josh, I'm gonna make this really easy on you, okay?
- [86:49]
Josh Brown
Do your worst.
- [86:50]
Nick Kolas
Okay?
- [86:53]
Josh Brown
Showing me a stock. A stock or an etf.
- [86:56]
Nick Kolas
This is a stock. Okay, I'm make this really easy on you. It reported today. I'm very mad at myself. You said you're mad for missing palantry, even though you shouldn't be because you would have bought it anyway. Not only should I have bought the stock, I did buy the stock. I sold it. I sold it. Wait, I'm an idiot. I was bullish. On. On. Yeah. God, I suck. You dumb idiot. You dumb idiot.
- [87:16]
Josh Brown
Is this. Hold on, hold on. It's up 290% over three years.
- [87:23]
Nick Kolas
Yeah.
- [87:23]
Josh Brown
That's the time frame.
- [87:25]
Nick Kolas
Yeah. Michael, you Zillow idiot. No, it's not Zillow.
- [87:30]
Josh Brown
All right, Is this. I'm gonna cheat the chat is saying Reddit, but I'm in that. I know you're not in that. Spotify.
- [87:38]
Nick Kolas
That's Spotify.
- [87:40]
Josh Brown
Yeah, man.
- [87:41]
Nick Kolas
I'm so annoyed.
- [87:42]
Josh Brown
Like, they just had their first, I think, profitable full year based on the report today.
- [87:52]
Nick Kolas
We've got. Right, we've got a chart. Look at this. Look at this beast. John, do we have that? There we go. Look at this, look at this. Just an explosive upside surprise in gross margins. Their premium business exploded. They have no competition. They are the one of one. And I'm really, for the fourth time, annoyed at myself for selling this.
- [88:11]
Josh Brown
So I. I would like to share with the listeners and the viewers the way that we use Spotify. We. Duncan, can you pop in here? Let's see if we can. Let's see if we can get Duncan on screen, because I don't. There he is. I don't think most people are even aware of this. Spotify owns a product called Megaphone. What are you.
- [88:33]
Nick Kolas
He's. He's washing it down. Keep going.
- [88:36]
Josh Brown
What?
- [88:36]
Nick Kolas
Are you ready?
- [88:37]
Josh Brown
A cheeseburger.
- [88:37]
Nick Kolas
He'll be ready by the time you're done talking.
- [88:40]
Josh Brown
What Is that God only knows. Okay. Spotify owns a business called Megaphone which is now the premier way that podcasters put their shows out into the world. How does Megaphone like, what do we do with Megaphone to put our shows out?
- [88:57]
Nick Kolas
Megaphone's where we host.
- [88:59]
Josh Brown
It's where we host our audio podcast. And so it's disseminated out to all the platforms, you know, but it sends it to Apple and it sends it. Okay. And Apple doesn't have a tool like that, or they do.
- [89:11]
Nick Kolas
No, everyone.
- [89:12]
Josh Brown
Everyone pretty much uses a third party. In the past we use Libsyn or Acast. There's a lot of different competitors there, but. Yeah. Okay. And now Spotify has probably the best ad technology too, though, for podcasters, which is the most important thing.
- [89:28]
Michael Batnik
Yeah.
- [89:28]
Josh Brown
And they're watching it for their videos now, just as of like today or yesterday. Okay. And we are now including video with the audio pod on Spotify. So at 9am when you are. When. When you check out our. When you check out our audio podcast and you use Spotify, you can watch us on Spotify now on the same app, which is pretty cool. And it's another thing that Apple doesn't. Yeah, Apple's behind on the video for sure. It's. That's another thing that Apple doesn't have. Exactly. All right, you want this, Michael? Anything else for Duncan or.
- [90:08]
Nick Kolas
No? Duncan, you're the best. I want to thank the audience for sticking with us as Josh is having some buffering issues over in the town next door. But we made it. We made it. We survived. Not so bad.
- [90:23]
Josh Brown
We made it.
- [90:24]
Nick Kolas
Shadow banned by Verizon.
- [90:26]
Josh Brown
Tomorrow is Wednesday. That's okay. Tomorrow is Wednesday. Which means another all new edition of Animal Spirits with Michael and Ben. We will have an ask the compound this week and at the end of the week, we'll have a compound and friends special guest. New guest to the show that we've never had before. You guys will, I think, really enjoy that. And a special treat for those of you who have subscribed to the Ownership channel, We are dropping something dope on the Ownership Channel by Redholts, which is on YouTube. YouTube exclusive. And I think that's gonna go up first and tomorrow morning you're not gonna want to miss that. So keep it locked. We love you. We'll talk to you soon. Whether you're just getting started as an investor or you're managing a multi million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan to speak with a certified financial Planner today, visit ritholswealth.com don't forget to check us out at YouTube.com thecompoundrwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.