← The Compound and Friends
The Compound and Friends
Former Trump Trade Official Steve Pavlick on Tariffs, Negative Wealth Shock, Pulled Earnings Guidance
01:40:59
Loading summary
Transcript291 lines
- [00:00]
Josh Brown
Ladies and gentlemen, welcome to the Compound and friends. I am your host, downtown Josh Brown. Tonight's show is brought to you by Betterment Advisor Solutions. Tonight's show is also brought to you by our friends at Rocket Money. Rocket Money is a 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. If ever there was a time when, when you wanted to get rid of unnecessary costs in your life, this is that time. Rocket money has over 5 million users, has saved users a total of $500 million in canceled subscriptions. This is really easy. Go to Rocketmoney.com compound and learn more. Tonight's show is packed. We had Steve Pavlik. Steve is a principal at Mindset and he he is part of the Renmac crew and he serves as head of policy there and he was in the first Trump White House. So Steve was on the Trump transition team in 2016. He then worked at treasury under Steve Mnuchin and he was highly involved in the first trade war and we got to pick his brain about what's actually happening right now. And I learned a lot and I think you will too. Thank Followed by an all new edition of what are your thoughts With Michael Batnik and myself we take a look at some of the carnage of in the market over the last couple of days. It's pretty epic. We do some stuff on the tariffs and whether or not they will cause a large number of S&P 500 companies to decline to give guidance, which I think is pretty likely going into this earnings season. Why would anyone say anything if given the environment, we go deep into Apple and the Apple selloff and whether or not that's an opportunity. We look at Netflix, we look at Microsoft, we do a whole bunch of stuff and it's again, it's a jam packed show and how could it not be given what's going on? So I think you're going to love it. I want to send you there right now. Thank you for listening. Please enjoy.
- [02:13]
Steve Pavlik
Welcome to the Compound and Friends.
- [02:15]
Josh Brown
All opinions expressed by Josh Brown, Michael.
- [02:17]
Steve Pavlik
Batnik and their castmates are solely their.
- [02:19]
Josh Brown
Own opinions and do not reflect the opinion of Ritholtz 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. All right, you're hearing that theme song. You know what you're here for. This is the Compound and friends. We're live from the compound. I don't even know what we call this, but I am super blessed today, and so are you, because we have somebody who is going to really help us figure out exactly what's going on from the Washington, D.C. perspective. We talk so much about markets from a Wall street perspective, of course, but these two things are now hopelessly intertwined. What happens with policy is what happens on Wall Street. And of course, it's been that way before, it is that way again. And today we're going to talk with Steve Pavlik, who is a principal at Mindset and the head of policy at Ren Mac. You guys who are loyal listeners and viewers, you know Neil Dutta, of course, you know Jeff DeGraff. Now you get to meet Steve. Steve, thank you so much for joining us today. We really appreciate it.
- [03:31]
Steve Pavlik
No, thank you for having me on.
- [03:33]
Josh Brown
Okay. And you are in a bunker, a tariff bunker. Where, where are you located? What city?
- [03:40]
Steve Pavlik
I'm in Potomac, Maryland, outside of Washington.
- [03:42]
Josh Brown
D.C. all right, stay there until it's, until this is all sorted out. All right, so we're, we're recording, we're recording on a Monday afternoon and markets have been in flux. We had a massive down open today. And then a little bit of a turnaround. It looks like they got the NASDAQ green first, followed by the S and P, but there's still red everywhere. And there are now fake headlines coming out about 90 day pauses in before implementing tariffs. And of course, those are being refuted relatively quickly. But, Steve, why don't you set the table for us? What is the current state of the tariffs? My understanding is that everything is going to happen as scheduled on April 9th as of right this moment. And of course, you know, depending on when you're watching or listening to this, that could change. But where, where are we today?
- [04:34]
Steve Pavlik
I think, Josh, you nailed it. I mean, right now the reciprocal tariffs are supposed to take effect 1201 after midnight Wednesday morning. You know, we'll see whether or not they do actually go into effect. I think that's sort of mentioning the subject speculation earlier and there's maybe reason for that speculation. You recall in February, Trump was going to put tariffs on Canada and Mexico and he granted a 30 day pause after that. So when they're refuting the 90 day pause, maybe they're just refuting the 90 day portion. So that's probably the best case scenario. I don't know that I would say it's the most likely case scenario on Wednesday that maybe we do get an extension there some additional time. To negotiate. I think the worst case scenario is the tariffs go into effect. And I think we talk about this uncertainty right now. You know, if you're a trading partner or you're going to negotiate or are you going to retaliate. And I think that's sort of, you know, again, going back to this uncertainty thing that we're seeing right now. And it's different for different trading partners. If you're relying on the US for national security reasons, you have a lot more to consider there. So then you get into, okay, probably what may be more likely. If we don't get the pause, then perhaps we have some short term pain. I guess as the Trump administration will say, how long that short term remains to be seen. But that's probably going to allow some additional time for negotiations. Maybe the other trading partners are sort of aware of the political theater aspect here that, you know, the tariffs may have to go into effect again for a very short period of time with the hope that some negotiations to remove the tariffs and potentially get some other things that the administration might want is probably the best case scenario.
- [06:05]
Josh Brown
If you're China and Europe, you understand that The Dow falling 9,000 points weakens the United States from a negotiating standpoint. It's not as though these tariffs were put on and Americans universally agreed this is going to be awesome. And bought the stock market. Even the, the, the ten year treasury portion of this, which is, oh, the administration has publicly stated that we should look to a falling 10 year as evidence that this is working. Even that part of it is not exactly going according to plan. We dip below 4% on the 10 year and then rocketed right back higher, which is a sign of either people losing confidence in the United States or more likely people having to sell bonds to cover margin calls elsewhere. But one way or the other, there's a lot of havoc happening here and none of it necessarily strengthens the US Negotiating stance. Would you agree with that?
- [07:04]
Steve Pavlik
Sort of. The reason I'm saying sort of is I think everything you said is correct, I guess, where maybe markets and potentially some trading partners, maybe miscalculating President Trump's view is during Trump one, we sort of had the Trump put and we had him also running for reelection. I know he sort of teases this idea of running a third term. I'm doubtful that he will. But because of that, he may not feel as bound by the political pressures. There's also a chance that he may be misinterpreting his mandate because he campaigned a lot on tariffs and he may in his view sort of be interpreting as well, hey, I got reelected on this. Why are the polls not going this way? Well, in fact, maybe a lot of people were just sort of voting out of frustration over inflation and the reduced purchasing power. You sort of saw that phenomenon worldwide, regardless of sort of the political ideology of Justin Cummins, really sort of stepping back. So I think from President Trump's perspective, it's about bilateral negotiations. From his standpoint, the US with large consumer base has more, I guess, to offer here and that the other side, therefore has more to lose in bilateral negotiations. Now, other sides may not necessarily agree with that, but I think that's sort of where he approaches it fundamentally. And from that standpoint, he sort of views it as they have more to lose. At some point they're going to come around and that time might be on this side.
- [08:23]
Josh Brown
Well, to that point, the Chinese stock market crashed. It was limit down. Hong Kong was down 9%. So it definitely appears to all the world that it's not just a falling U.S. stock market. Everybody has something to lose, and that's manifesting itself in, in share prices all over the world. So that part, I guess I'd agree with you on. We've got multiple mouthpieces all saying different variations on, on the broader theme. So the broader theme is like restoring the United States to manufacturing competitiveness and trade competitiveness. And we're not going to spend a lot of time debating the merits of that. We'll just say that's the broad theme that has instigated this thing to begin with from our side. But then you've got multiple people coming out with like different versions of that. So I'm curious from you. So you've got Kevin Hassett out there, you've got Scott Besson out there, you've got Howard Lutnick. They're doing all the shows, they're appearing everywhere. Sometimes they're talking about trade unfairness, sometimes they're talking about restoring the middle class here. Sometimes they talk about national security and we need to build these manufacturing capabilities again because we need to be able to defend ourselves in a war. Sometimes they're talking about the border in fentanyl being like a bargaining chip in this whole thing. Like, what's the signal? Because there's so much noise. There's multiple people talking on behalf of the administration is the signal. Just tune all of that out and listen to Trump because he's the only person in the end who can make a decision about whether or not this is gonna change or go forward. Cuz that's the way that. That's the way that I'm trying to do this. But what are you telling people?
- [10:15]
Steve Pavlik
Yeah, I mean, honestly, Josh, you're spot on. Trump is a decision maker here, and various members in his administration will go out and say various things, but ultimately it's his decision. I mean, there are multiple plans prepared for him, and it's sort of how don't disturb people, but it's how he feels that day. I say this as somebody who worked in the last Trump administration, so some, I guess, appreciation for the process. Look, when I think of tariffs, to your point, they sort of accomplish three things, but they sort of contradict each other. You can't have all three. So you can use tariffs to get revenue, which you may need to pay for some of the tax cut extension. You need tariffs, you can use them to get trading concessions, and you can use them to protect certain industries that you feel are really important for national security. And so I think what's sort of confusing and probably leading to a loss of confidence, candidly, is just that the justifications for what you're pursuing continue to change every day, sometimes multiple times during the day. And I think that's probably contributing to, again, what we're experiencing right now. And when I think of Trump, you know, I think of sort of two things that he feels very strongly about in his history, and it's sort of a political seesaw. On the one hand, he feels very strongly about tariffs and that they can be used to sort of pursue some fair trade. He goes back to the 80s, and he's one of the few issues he's been relatively consistent on. Then, on the other hand, he's the consummate dealmaker. And so he's sort of one day saying, yeah, we need to do these and really take them in place to reorient the global trade system and increase manufacturing here. But the later day, sure, I'm open to negotiations. So I think if you're a business right now, just this uncertainty makes it very difficult to deploy capital. I assume that's why some of these recession odds are rising, because not knowing whether the tariffs come on, whether the uncertainty over the application, the duration, I just don't really see how that's going to go away. And even if Trump tries to keep the tariffs in place for all four years, there's a very good chance we're using executive authority, that if we have a Democratic administration, they'll simply undo them. And if you're taking a long time to sort of get some of that return on your investment, I just don't know the juice is worth a squeeze.
- [12:19]
Josh Brown
Well, this is, yeah, this is one of the problems is even if you agree with the policy aims of sparking this built building of modern manufacturing facilities and using robots and US Workers and putting the unions, you know, back into some of these business, even if, like, even if you completely agree with that, it's a stretch to imagine a scenario where businesses don't, instead of playing along, just kind of hang back and wait and see. Because all of this stuff is going to be challenged in court. And to your point, the pendulum swings. And if you're building something because you think, okay, this is the new state of play and we're going to commit billions of dollars in spending and multiple years in doing that, if you're the one that, that jumps and then the policy changes because a core challenge is successful, or Trump just wakes up one day and changes his mind, or he has a beautiful phone call with somebody in Europe like, my God, I can't believe what we just, the amount of money we just spent and what we just committed to, and now the pendulum's already swinging back the other way and none of our competitors are expending the amount of capital that we are. Like, that's gotta be the reason that things grind to a halt. Even if you agree with the ideas, the execution requires this huge leap of faith that it's going to be worth it.
- [13:51]
Steve Pavlik
Absolutely. And I think you're putting the nail on the head there with just will businesses really take that next step? So if I think about the negotiations going on now, we've seen these reports that other countries are willing to reduce their trade restrictions through tariffs and non tariff measures. So on the surface, if that was really your own goal, it shouldn't take that long to reach a resolution. The issue I think, to your point is what does Trump want beyond that? And that's where you get to, okay, maybe all this focus on the deficit and there's been a lot of attention to the economics or maybe lack thereof, on the calculations for the reciprocal tariffs, but if it's really communicating, hey, we're focused on the deficit, then Trump wants to increase some US exports. So does that become part of the negotiations with other countries? If you're trying to increase this foreign direct investment understanding to your point that maybe there's some, some uncertainty here amongst US Companies, well, can we sort of incentivize, encourage or force other countries and companies to maybe make up the slack and get the ball going? So I guess if I have to sort of look at the glass half full application of what's going on here. I guess that's how I would apply it. And then, you know, I think when you think of the trade, it's probably important to think of the tariffs in different, four different buckets. We have the reciprocal tariffs. We talked a lot about those. One thing I'd highlight this time that I think caught some people off guard, myself included, was the fact that he went with both the reciprocal rate and a universal baseline rate. I think that's to prevent some of the jurisdiction hopping where, okay, now you can just move your manufacturing to another area of the world where you might not get the imports. Maybe we'll see all that walk back eventually. I think that's why that's, that's the.
- [15:24]
Josh Brown
Baseline saying, I don't care where you move your manufacturing. If it's not here, this is the minimum tariff that you're going to have to deal with. That's what you mean by that.
- [15:33]
Steve Pavlik
Exactly. You articulate it much better than I did. And so then you get into one of the challenges, I think from before. That's where I have Canada and Mexico sorting another bucket. There is this idea of Chinese circumvention where China's basically just rerouting products through other areas to avoid trade restriction. You've seen Vietnam be a big beneficiary of that. Mexico obviously, to some extent. Canada maybe to a lesser extent. I think that's sort of what's going on there. And there may be a political opportunity after the Canadian election at the end of the month to eventually find an off ramp there. I think the sectoral tariffs, now we talk about things that are used for national security, probably a blurring distinction with respect to economic interests, candidly, things that maybe it's not the US Financial interest to build these things here, but it's important that we do. And so you talk about steel and aluminum, autos, you're signaling, copper, gold, pharmaceuticals, semiconductors, these things are areas that the Trump administration identified as important. We may be able to get them at low cost places, you know, outside the US but it's in our national interest collectively to do these things here. I think those are going to endure.
- [16:39]
Josh Brown
I think, I think a lot of Americans actually would agree with that, that part of it, the sectoral tariffs, like we, we should have a domestic steel and aluminum production industry. It should be stronger than it is now. And it's strategically important that we don't get into a conflict where we are begging other countries to provide Us with material. I, I think Democrats, Republicans, I think they would all agree on that. Semiconductors, I mean, we saw the Biden administration push through the CHIPS Act. So, like, I don't think that, number one, I think if this had gone that way and the argument was, hey, we actually understand the tariffs are attacks, but we're doing them anyway for these eight specific industries because we think it's in our national and defense best interest. I think the response on Wall street would have been way less chaotic. Still think we would be down. I just don't think it would look like this. I don't think we'd be looking at $10 trillion in equity wiped out in a week. If that had been the rationale, do you think the policymakers, if they could do it again, would have gone sectoral rather than baseline? And all over the world.
- [17:56]
Steve Pavlik
I think you're right to point out that there's probably more and the polling suggests this idea for the sectoral approach. And also, I think to take a tough approach on China, I think, where maybe the administration not misreading the polls, but definitely to have the public necessarily on their side. We started doing the tariffs with Canada and Mexico early on. Reciprocal rates were higher than people thought. I think that was just sort of this idea of the Trump put. The only thing I would say this time versus last time, I think to consider is one, when you're a lame duck, this is your last term, this idea of pulling forward the pain. So do it earlier during the administration. The idea that we're going to have time to build a recovery before we get to the midterms, before we get to the 2028 election. So I think there may be some political logic to doing that.
- [18:40]
Josh Brown
And this, I mean, just let me stop you. This idea, let's cause the pain now and we'll fix it by the midterms, as if that's how it works. Like, once things get out of hand, there are a lot of unforeseen consequences that could prolong a downturn far longer than you might hope for. If you're running a political calculation based around elections in 18 months, like, it's.
- [19:06]
Steve Pavlik
You know, I agree. I mean, I'm not just saying if you had to sort of, like, back your way into this. Let's get all these, like, 3D40 Trump chess theories where, look, I do sort of understand, hey, look, trade was at the top of the agenda. We want to have these things. Let's have them earlier in the administration as opposed to later. We may not be able to have that Runway if we're months out from a midterm election or we're getting too close to the 2028 midterm. But to your point, once these things start going, they're very difficult to sort of get the arms around. The other thing I just point out this time that's different than last time, that I think is really hurting the administration that people may have missed is the sequencing. Last time you had the tax cuts.
- [19:44]
Josh Brown
Before you had first end of 17 that passed. Right.
- [19:48]
Steve Pavlik
And they were actual cuts. You were reducing the corporate rate from 28% to 21%. You're reducing the top marginal rate for individuals. Now we're talking about really just preserving the status quo. I mean, essentially, Republicans get around this.
- [20:01]
Josh Brown
Extending the existing tax cuts that are going to sunset at the end of this year.
- [20:05]
Steve Pavlik
Exactly. Maybe get some marginal things in addition to that. But really, you're talking about avoiding a headwind as a proposed as opposed to providing a tailwind, which. Which he did the last time. So I think, you know, when people were sort of hoping like, oh, Trump 2 is going to be like Trump 1, they're going to do the tax cuts, you have to rely on Congress when it comes to Congress, always take the under on results, always take the over on timing. And that's sort of out of the administration's hands. And you know, as a result to these political calculus, it was let's accelerate the trade portion and sort of we are where we are.
- [20:35]
Josh Brown
Yeah. So if, if this were simultaneously or sequenced differently, all right, we got the tax extension. But part of what's involved there, according to Congress, we have to find a certain amount of revenue to help pay for it. And we're going to do that via tariffs that might have been more palatable or less shock or less shocking, maybe.
- [20:57]
Steve Pavlik
I mean, I think there's still a lot of just misunderstanding as to you talking about tax cuts. You said we're just extending current policy. So really not going to have as much of a stimulative event as compared to last time, where you were reducing the rates pretty considerably. Also last time the tariffs were more targeted. You know, they weren't nearly as broad. They didn't hit nearly as many trading partners at one time. So I think there's an element to that, too, that's just last time, one.
- [21:25]
Josh Brown
One of the parts of this that I think is so frustrating to Wall Street. So on Wall street, we think of things in terms of expectations and then results better than expected or worse than expected. And that's kind of like the rubric through which we forecast and make investing decisions and how we judge whether or not a company is doing well or a sector is doing well or an economic report was a, was a good report or a bad report. It's always like, here's the target or here's the whisper number, the expectation, and then place your bet. Is it better than or worse than right or on the number with this? I, I don't even know if you went to 10 economists at Wall street banks and said, what's the target for this? Like whether it's successful or not. So like, all right, the Trump tariffs, the initial response, obviously stock markets hate it, currency markets are in flux, bond markets are in flux. Like way outside of the realm of what we thought he was going to do. He was talking about 10%. And I think the market would not have loved that, but could have lived with it without this much volatility. All right, whatever it is, this is the policy now. Let's assume it sticks. What is the yardstick by which Wall street can say this was successful or this was unsuccessful? Clearly it's not the stock market. They're going out of their way to tell us that they don't care. So what is it? Is it number of factories, is it number of manufacturing employees in the latest report added to payrolls? Like what, what are you hearing? What are people saying is, is the, is the target here?
- [23:03]
Steve Pavlik
Well, they say they don't follow the stock market. I think the truth is they, they're very much following what's going on.
- [23:07]
Josh Brown
Sure, they don't. Right.
- [23:09]
Steve Pavlik
And you raise a good point too about expectations. I mean, I think back, you know, when I was a kid playing football, had a football coach that said, you know, the key to happiness is low expectations. I think it was the opposite for Trump coming in. You had a lot of enthusiasm in markets were at all time highs.
- [23:20]
Josh Brown
We ran it up.
- [23:21]
Steve Pavlik
So like, you know, you're granted coming down from an all time high there. But you know, I think to your point, now there's this question of this overall uncertainty and what are we trying to accomplish here. And I think from the Trump administration's perspective, you know, it's going to be the stock market at some point, you know, they're going to look to the jobs as well, they're going to look to economic growth. But you know, you've heard several administration folks say there's going to be some short term pain. How long that pain is going to be?
- [23:55]
Josh Brown
Steve, the reason I'm asking the question is it would be nice if we knew what the conditions are that would cause the administration to say, okay, we're accomplishing our goal. We can, we can go play golf a little bit more now. And so note like, nobody could tell you or me right now what Wall street should look at in order to determine Trump is getting what he wants. Therefore, like things can calm down or normalize or it's working. So like if you say GDP growth, well, you definitely are not going to, you're definitely not getting a good result there any time this year. Even if, even if, even if they take the tariffs off tomorrow, the effect of this is going to be lasting. Okay, so that ain't going to be it, is it manufacturing employment numbers? Because I don't know, is that a, that's a 9 month to 12 month read through. So that's like very far into the future now if you tell me. Actually all he wants is these bilateral agreements that he can sit in the Oval Office and sign in front of the cameras and that in and of itself will be enough to lessen the, the level of tariff. All right, that I, that I could understand. So does he want to just be able to tweet like Canada is back at the table and here's what we, here's what we accomplished. Like, I think the street could live with that, but it doesn't sound like that's the main thing anymore.
- [25:25]
Steve Pavlik
I think what they want to do to point is, how do you quantify this is you get these other countries to the negotiating table and then you have to point to, here's why it was worth it and from.
- [25:36]
Josh Brown
That's what we got.
- [25:37]
Steve Pavlik
Here's what we got. Okay, so we got them to reduce their trade restrictions. You could look at, here's what the rates were before on tariffs, here's where they are now. Here's the deficit. You can bibble whether or not that's the right metric to use. But Trump likes it, the trade deficit. So it was this number before, now it's gone down to this number and we are exporting this many more products here.
- [25:55]
Josh Brown
Okay, so we got, okay, so we got Zimbabwe to the table. Big steps. They have agreed to take the tariffs off what we ship there. I guess part of a negotiation and we'll take. Okay, so is there any chance in hell that we're going to have a positive trade deficit with Zimbabwe? Is it even?
- [26:19]
Steve Pavlik
Probably not, but can we get it better? Look, this is where I get to the last thing. So we talked about like even Vietnam.
- [26:25]
Josh Brown
Like I'm joking with Zimbabwe, but even Vietnam, we're not going to have a positive trade deficit with Vietnam ever. We're not going to sell them more than they sell us, period. It's never going to happen.
- [26:34]
Steve Pavlik
I agree. And this is where I was going to say, the last week, we did three of the four buckets. We did reciprocal, we did sectoral, we did Canada, Mexico, and the fourth bucket, all to itself is China. And if you're looking for right now, it's difficult to wrap your head as to why are we doing this. And if behind the scenes part of the negotiations is can we isolate China, are you getting some of these trade partners to pull away from them and actually work with us? Then I think there's probably a longer negotiation, could be more pain ahead with China, but ultimately that's probably in our US national interest to do that. And so you mentioned Vietnam. I thought, and I could be overreading this. It was very interesting to me when Trump singled them out Friday, saying, hey, they want to negotiate a deal here, because I sort of mentioned Vietnam has probably been the worst offender in terms of basically letting China come in and reroute their products there. So that message is being communicated now because all these other countries are watching how their peers are responding here, you know, and so I think you see Vietnam starting to pull more towards the U.S. it's like, well, wait a minute, okay, maybe we ought to start doing that too and consider that. So I think you may see some sequencing here as you announce the deals. And there's also probably an element of do you want to sort of hold all some of these deals back and announce them in a batch? And the reason for that maybe is if you sort of announce, okay, we made one big deal early on, does that sort of become the template for everybody else where it's like, well, okay, the Trump administration was able to reach a deal with, you said Zimbabwe. Okay, well, we'll just sort of try to strike something similar. Does that sort of hurt your process and your negotiations moving forward? So, okay, that issue with China, I think, is going to be the dominant topic of our time. And if there's some, you know, larger aspect reason behind why are we doing all this now? If it turns out that it was, hey, all along these conversations it was about getting these other countries away from China, then I think that might, in the end, history may be kinder to Trump.
- [28:22]
Josh Brown
Okay, did, did, did Mexico and Canada get carved out of this particular wave? Because those are much more politically fraught negotiations for both Republicans and Democrats and maybe just Too messy to tackle in the earliest stages of this.
- [28:42]
Steve Pavlik
You know, I actually see a little differently because last time, and I was still there when this was going on, we talked about sequencing. Last time, the first block Trump focused on was Canada, Mexico. That was the negotiation of us because.
- [28:54]
Josh Brown
It was, it was repealing NAFTA effectively and redoing nafta.
- [28:57]
Steve Pavlik
Right, it was. But also going back to. He did that before he pivoted to China. The idea is like, you need to secure, fortify your relations with your neighbors to the north and south, make sure China can infiltrate them. One of the unforeseen, in hindsight, probably should have saw this coming was China rerouting products in Mexico. That's something that they need to close down. And so I think this is about, okay, how do we accelerate these USMCA renegotiations ahead of July 2026? Can you sort of get, put that North American block on firmer footing to allow Trump to pivot a little more aggressively towards China? I think there's something with that. And look, I think you're right too. I mean, just because of the nature of our borders, we rely so much more on trade. You have congressional interests there. So I think that's why I have them sort of in a separate block there. And again, I think a lot of this political stuff is just theater. Just be honest. And they have their own issues there in Canada. So I'm more optimistic that beyond the April 28 election, that eventually we'll sort of reach an agreement. And I think Mexico's done a great job. I mean, Claudia Sheinbaum, the president down there is really, I think, done a master class of other world leaders. When you look at how do you deal with President Trump, I think she's really head and shoulders above the rest.
- [30:09]
Josh Brown
Do you think that? So you must know this. The world leaders, they have to play their role in making Trump look good. And maybe Claudia is a great example of this where she understands exactly what he needs in order to not overly attack Mexico in a trade war, and she's willing to give it to him. And that's political theater on, on her end. Like, it's almost like, well, this is a play and I already know what role he picked for himself and I already know how he wants the third act to go. And therefore I should write my role around his role and we can get through this quicker. You think that when you say political theater, it's not one sided, it's not just us blustering, it's the other side understanding what they need to do in order for us to all get a happy ending to the play.
- [31:01]
Steve Pavlik
Right. I mean, for. Everybody has their own domestic political interest. And in some ways, Trump may actually help Sheinbaum in the sense that he gives her some political cover to maybe be more aggressive on the board, do some things that maybe she probably wanted to, but may not have been in her domestic.
- [31:18]
Josh Brown
Now she can say, this is part of what I had to do this.
- [31:21]
Steve Pavlik
For Trump, you know, and it's maybe candidly what Mexican government needs her to do. It was just gonna be very difficult domestic politics there. So she's able to sort of, I think, you know, triangulate that stuff. And, you know, with Carney, it's a little bit different. You know, I mean, Trump has sent the Liberal Party in Canada through the roof. I mean, they were facing obliteration with Justin Trudeau. But there's other political dynamics, too, where it's like, okay, if you are in a country and you're opposing Trump as a world leader, in some cases, that's politically the popular thing. So it's important to watch these effective dates for when you come out, for some of these retaliations that these other world leaders are.
- [31:59]
Josh Brown
Yeah, it's a. It's a really good point. Like, resisting Trump in Canada is. Politically, it's great. Like, it's. It's. Right. It's a great side to be on. And he makes it easier for you. Like, the political theater that you describe, he's putting you in a starring role.
- [32:19]
Steve Pavlik
I mean, it would surprise me if, like, behind the scenes, we find out, you know, Carney and Trump been talking this whole time. And Carney's like, thank you for getting me elected to prime Minister by coming out and doing all this stuff. I say that cheek, but there's a lot of that, I think, more going on than people realize. And to that point, it's like, okay, elections behind us. I sort of said what I had to on the campaign trail. Carney knows it's not in Canada's interest to escalate things further. Let's find a resolution.
- [32:46]
Josh Brown
All right, I got a. I got a few more for you. So you. So what was your. What was your term? What years? Were you a part of this?
- [32:54]
Steve Pavlik
Sure. So I was on the Trump transition team back in August of 16, I guess. Interesting times there at Trump Tower. Joined the Treasury Department Day 1 Employee, January 2017, and then left in October of 18 to join Red Mac. So that was my experience there. And then my role was as a legislative liaison for the International Portfolio. So working as administration sort of spokesman with Capitol Hill on issues related to trade, foreign investment, particularly China.
- [33:25]
Josh Brown
Okay, so if you had to guess or maybe you maybe, you know, it seems to me that there was a lot, there were a lot more rifts among the people involved in the trade discussions in 2018. It felt like in within the same day you could see headlines saying the exact opposite. Things were being discussed between the various parties. And of course, Representative Lighthizer was sort of the face of this. This time around, it seems like while they're all saying variations of the same thing, there don't seem to be rifts. There seems to be higher message discipline. I'm not sure if that's just an accident or that's on purpose and maybe that could change. And also this time around, it seems like Scott Bessen at Treasury is the face of this thing along with Lotnick, whereas I don't remember the treasury being as heavily featured in the media defending the tariffs as they are this time. So I'm just like giving you my perspective of this as somebody who's consuming the news and doesn't know anything about what's happening internally. But like, what's your interpretation of what we're seeing?
- [34:41]
Steve Pavlik
I think your analysis is spot on. And that's somebody who was sitting there before and there's some reasons for this. I mean, look, I don't know, like.
- [34:49]
Josh Brown
Manoogian was not doing what Besant is doing now. You would agree with that.
- [34:53]
Steve Pavlik
Yeah. What I will say is I think minutia was probably more aligned with Gary Cohn, Larry Kudlow, more free trade, free traders and sort of pushing back against more of the Navaros, the tariff enthusiasts that you like. And United States trade representative, you know, Bob Lighthizer, accomplished trade attorney, strong views. I guess you'd be more in the pro tariff camp. But you know, the president in my experience, always liked healthy debate and sort of was sort of okay, let's team of rivals. Yeah, a little bit like, you know, let's go ahead and let's duke it out. I mean, candidly too, like that role was new to him versus now you're sort of in this interesting situation where he had four years out of office, a lot of time to think about what is this team going to be like and try to get maybe he would say more a cohesive group. And so I think that's the difference now, at least in the treasury secretary position is, you know, Betson sort of, I think reading the room is like this is direction Trump was to Go in tariffs. There's a reason he's pulling forward. It's clearly a priority for him, something he feels strongly about. And so even if he maybe not necessarily agrees with all the philosophy that's been going on, I don't know, that's an interest. You want to keep your job to sort of come out and try to push back against these things. So I think you're right where there's probably less public dissension. But I still think privately there's a lot of conversation, shall we say, behind the scenes, as to the best approach.
- [36:14]
Josh Brown
Okay, so on that topic, and we'll end here, the calculations themselves have been the subject of a great deal of ridicule. The formulas, the Greek letters, where these numbers came from, the fact that they're trying to factor in the trade deficits themselves to come up with what the appropriate level of tariffs would be. The fact that there are some territories that were thrown in here where no humans live. It's all polar bears, it's all penguins. Okay, great memes. We all got a lot of. That was like, almost like a little bit of gallows humor. We all got out of this situation as we watched our 401ks crash. As you're looking at this, somebody that was once on the inside of this, like, what's your take on just the general amount of dissent, derision that's greeted the execution of these tariffs, including the rollout, the big cardboard poster, like, how do you. Without getting yourself into trouble, like, how do you think about, how do you think about the response to this stuff generally from, from the, the cognizant on social media?
- [37:29]
Steve Pavlik
Well, I mean, people are.
- [37:31]
Josh Brown
Where do you stand on Penguin tariffs? I guess is what I really want to know.
- [37:34]
Steve Pavlik
Penguin. Yeah, I guess I'm pro Penguin. I don't know if these are the.
- [37:38]
Josh Brown
Tariffs, but penguins are stealing all our good egg hatching jobs.
- [37:42]
Steve Pavlik
Exactly. We were, we were low on EG for a while, so, you know, don't.
- [37:45]
Josh Brown
Rule that out, but substitute. Right.
- [37:48]
Steve Pavlik
Yeah, I, I guess where I come down on it is, you know, we talked before about how President Trump's the ultimate decision maker. We also mentioned that you have competing interests there, presenting a lot of different plans. My sense is he probably had a variety of plans presented to him up until the very last minute. And at that point it was sort of like, let's do the reciprocal rate, but let's also do this universal tariff rate. And then sort of like, let's find a way to back into some analysis to support the direction we want to go. And I think, you know, perhaps that explains why they chose the approach it did with the math. My guess is that the White House president publicly would say the trade deficit captures both the tariff and non tariff measures. That's why they decided to use that.
- [38:30]
Josh Brown
As the currency manipulation, the barriers to entry, the regulation that only applies to us. Yeah, I get that in Trump from.
- [38:39]
Steve Pavlik
His, you know, hey, I want to be able to market. This is the visual. It's like, you know, here's what they're charging us and here's what we're going to charge them. Now, again, a lot of people probably will follow the math and economic logic sort of, or lack thereof behind it. But to most, well, that's why the.
- [38:55]
Josh Brown
Market, I mean, that's the proximate cause I think the market was weak going into it and would have fallen either way. The crashiness of the market is directly correlated to that moment where they held up the board and people just said, whoa, whoa, whoa, whoa. That don't look like 10%. It's not. That's not what, that's not what our expectations, which were already bearish. That, that's like way out of control versus what we thought. That's what I think happened there into.
- [39:24]
Steve Pavlik
Your point about expectations because Trump had been messaging, hey, I'm going to be very genetic, very generous. I'm going to be much lower than them. You're sort of looking at it go, okay, well, you know, Europe tariffs 10 on our cars worth two and a half. So maybe wind up at five. Like, you know, okay, 35. You're like, oh, you know, all right.
- [39:46]
Josh Brown
You busy, you busy these days? You're, you're inundated, I bet.
- [39:50]
Steve Pavlik
Yeah. I mean, if I'm not doing work and there's a lot of work to be done, I got, my oldest is going to be four in August, youngest is going to be two in July.
- [39:59]
Josh Brown
So you got your work out for you. All right. Hey, Steve, I just want to say thank you so much for joining us. We really appreciate you kind of giving us a, an idea from, from the inside what, what's happening and what you see now from the outside, being in Washington and talking to people. So this is super helpful to us. Thank you. Where should people follow you to get more of those insights? Of course, Ren Mac is the easiest place to go anywhere else.
- [40:25]
Steve Pavlik
Yeah, I would say.
- [40:26]
Josh Brown
You got a signal chat cooking somewhere or.
- [40:29]
Steve Pavlik
I do not. I am not much on social media. Red Mac podcast on Friday.
- [40:33]
Josh Brown
All right. Awesome. You're the man. Thank you so much. Steve, we'll talk to you soon. Thanks for watching. Thanks for listening, guys. We're out. Yeah. Yeah. All right. So what are your thoughts, guys? It's 5:00 East coast time. Michael Batnick and I are live tonight. We're so excited to be here. Got a full chat. Looks like Jay Luther is back. We have. We haven't seen him in a bit. In a minute. Todd Dennis is here. Bob Sac Amano, 6 foot 6, 26, is here. He said Josh was calming on TV today. Thank you. I. Maybe I shouldn't have been. Let's see. Matthew Stevik says Josh called today's bear market rally perfectly on CNBC with confidence. I appreciate that, Matthew. It's, you know, it's tough because so many people are in this mode that it's always going to be a V shaped recovery. And the problem is they just don't know what time it is. When you're in a bear market, it's sell the rip. It's not, it's not buy the dip. So this is just situational awareness.
- [41:55]
Michael Batnick
I'm buying the crash.
- [41:56]
Josh Brown
Heather McFarlane is here. Rachel Finthwit. We see you, Roger. Mark Shevlin, James Sykes, Cliff. Love you guys. Great to be with you all tonight. We have a sponsor. Let's. Let's give Betterment Advisor Solutions a shout out before we get right into the show. That's our sponsor today. Imagining a better future is the first step. Investing in that future with Betterment Advisor Solutions is the next.
- [42:21]
Michael Batnick
Whether you're launching your own practice, looking to streamline client onboarding, or just searching for efficient ways to scale your firm, Betterment Advisor Solutions is here to help. They automate to make tax optimizations simpler.
- [42:33]
Josh Brown
They provide support to make administrative tasks easier. At Betterment Advisor Solutions, they're building innovative tech. For anyone who's ever said, I think I could do better.
- [42:43]
Michael Batnick
So grow your RIA your way with Betterment Advisor Solutions. Learn more@betterment.com advisors. Investing involves risk performance not guaranteed.
- [42:51]
Josh Brown
All right. Could say that again. Yeah. All right. We're starting with stock market damage. Michael, take it away.
- [42:59]
Michael Batnick
Okay. Well, before we. How are you feeling?
- [43:02]
Josh Brown
I'm fine. I think we're like all over this. Like, like, honestly, I think we, I think from the start we said, this is not just a dip. Then we said, this is not just a correction. Like, I think we're giving people the truth. It's not, it's not we want to say, like, it's not what we want to have happen. But look, the number one thing here is that they're going to wipe out a year's worth of earnings gains, and they're telling you they're going to do it, and it's happening. And I don't know how you really avoid that. So once you know that that's what's happening, then the only place you could pivot to is, okay, well, what's the multiple? Yeah, and when this bullshit started, it was 21, and now it's still 18. And the long term average is 16 and a half. So you're still statistically expensive. The Fed is in the penalty box. They can't come out onto the ice just yet. Ain't gonna be no fiscal stimulus this time. The last time we had a massive recession threat. Covid. Right, that ain't happening. And so you have an expensive stock market, you have a huge earnings wipeout. Potentially. The longer this goes, you have all kinds of geopolitical shit thrown into the mix, too. You got problems in the bond market. I mean, it's just. It's. It's a. It's a catastrophe. Yeah, but other than that, why tell people. Why tell people it's not. Other than that is my attitude.
- [44:30]
Michael Batnick
Other than that, it's pretty good. So you don't speak to me.
- [44:33]
Josh Brown
Hold on, hold on. But, like, do you agree, like, why tell people that this is one in the mill and totally ordinary when it's clearly.
- [44:39]
Michael Batnick
I don't think anybody's saying that.
- [44:41]
Josh Brown
Yo, I disagree with you. I think people are putting these charts up. They're saying the average entry drawdown is 14. No, I am, but not everyone is. And, And I think whether or not you're way past that probably is a function of what the. Your investment strategy is. If you're a vanguard only, stay the course, never do anything, then that's. You're still putting those charts up. And if you have a brain in your head and that's your strategy, you shut your mouth. If you can't stop talking and you're a chimpanzee crashing your Symbols together on LinkedIn or on Twitter all day, that's. You're telling people this is normal and it totally isn't. It's completely abnormal.
- [45:27]
Michael Batnick
So I don't want to pretend that I saw this coming, because I definitely didn't. I was not like this. This is going to pass. I was the opposite. I was in the Bill Ackman camp. Somebody. So Bill's been tweeting and somebody said, good job speaking out, but it seems like you should have foreseen the chaos and he said, I don't think this was foreseeable. I assumed economic rationality would be paramount. My bad. And that's where I was. I don't wanna pretend like I saw that. I thought that he was gonna.
- [45:49]
Josh Brown
It's not for. Not about being foreseeable. It's acknowledging the current situation as it unfolds. So it's different than. It's. It's different than saying, oh, on January 1st, everybody should have known that this guy was gonna take the economy off the cliff to make a. To make a point or something like, that's not foreseeable, of course, because who would do this?
- [46:08]
Michael Batnick
But even. Even before Liberation Day, I didn't think that he was going to pull the trigger. Like there was. The analogy that I gave is there was a red button on his desk that said, push to detonate the economy. And he did it. I didn't think he was going to push it.
- [46:20]
Josh Brown
Still time. 5:06 East Coast.
- [46:22]
Michael Batnick
Still time for midnight.
- [46:24]
Josh Brown
Midnight. The reciprocal tariffs take effect.
- [46:26]
Michael Batnick
So can we say two things? Number one, this is not normal. This is not fun. This is not cool. It can also.
- [46:32]
Josh Brown
Hold on. Let me address something.
- [46:33]
Michael Batnick
Tyler Dredd, could you listen to me?
- [46:36]
Josh Brown
This is important. Trump has been talking about tariffs all during the campaign trail. Correct. And the number being floated was 10% tariffs and geographic carve outs and sectoral carve outs. That's not the same as 38% tariffs.
- [46:55]
Michael Batnick
On what about 104? John, can we play the video? Tee that up. Awesome. Okay, so he was not running out of.
- [47:45]
Josh Brown
When did she write her? When did she write her? Tell all.
- [47:47]
Michael Batnick
But he was not running on 104% tariffs to China.
- [47:51]
Steve Pavlik
No.
- [47:51]
Michael Batnick
I mean, obviously nobody would have voted for it.
- [47:53]
Josh Brown
Obviously.
- [47:53]
Michael Batnick
So, okay, so we could say two things. Number one, this is all shitty. It can also be, with the benefit of hindsight, a wonderful opportunity not to minimize the carnage for people that have the intestinal fortitude to stay sober. Because this is a panic moment. People are panicking. Chart on, please. Over the past four days, the S&P 500 lost 12%. And it could have been way worse if we didn't have that bounce yesterday. So there is full on liquidation. Bespoke Tweeted. Just the fourth time. This was last week. Just the fourth time since 1952 when the five day trading week began. Then we had a 10. Two day drop so far for the S&P. 87. 08. 2020, 2025. This is serious. It's one for the record books.
- [48:44]
Josh Brown
Yeah. And what's so insane about it is. This is before the economy really exhibits any of the effects of this. Like we just got a jobs report from March that was all, all things considered, a pretty good report. The only layoffs of note were government like, like we did not. This is not a situation where like things went bad and then the market reacted. This is totally the opposite. And the best, the best way I heard it put today was Goldman Sachs says right now we're in an event driven bear market that is soon to tip into a cyclical bear market. They mean cyclical in the sense that the economic cycle. So it's going to. So it's not yet an economic bear market. It's all of this is happening. You come in, no worries. I'm just talking to, just talking to my friends. All right, so. So that's the difference between this and those other episodes you cite. The stuff from or outside of 87, the stuff from November 2008, economy was already in a massive recession. Like, and then that crash coincided with like Congress failing to act in October. And then all the after effects of that, even once they finally passed tarp, like the damage was already done. It was too late. None of nothing's happened yet.
- [50:09]
Michael Batnick
So for people who hear that and say, well then why in the world would I own stocks today? I would say two things. Number one, the stock market on average bottoms five months before GDP does, right?
- [50:25]
Josh Brown
Yeah.
- [50:25]
Michael Batnick
Stock. Stocks are a discounting mechanism. So five months before GDP does to the point about we haven't even seen the hard data start to roll. We're going to see lower earnings. There's almost no doubt about that. The S and P also bottoms on average. And we have a chart for that we'll use in TCAF nine months before earnings per share does nine full months. So think back to 2020 and that's.
- [50:45]
Josh Brown
An average, meaning it could be even earlier.
- [50:48]
Michael Batnick
Think back to 2020. The stock market bottomed in 12 trading sessions. And on the way up and when we made new highs and names like Hyatt and Hilton or whatever the names were, I can't even remember at this point. You were like. Or I was like, this doesn't make any sense. Am I, am I smoking dust? You're telling me that these companies are better today, in a better position today than they were in 2019. How. And the whole way up people were fighting it because the market fell 35%. It saw it coming. We knew. So the question now is how much has the market discounted? We don't know. Obviously we'll find out. But Nvidia is down 40%. Like there is wipeouts everywhere. So throw these charts on. This is like, this is stale stuff. This is s and P500 new list. I think I pulled this on on Friday. So new lows are spiking. Whether you look at 1 3, 612 month, it's worse. It's way worse. Breath, forget about it. That no stocks are above any moving average. Okay? This is all zero. So we know the market gets the memo very quickly. And this idea that you are going to wait for the economic dust to settle, like again, think about 2020. It's not to say it's going to play out exactly the same, but it doesn't wait, it doesn't let you back in.
- [51:56]
Josh Brown
Yeah. And what will end up happening, and we've talked about this before and this is what the bears hate the most. As things are getting worse, the stock market begins to look through it and that's the moment where you're like, wait, am I taking crazy pills? Did they see that, that jobs report this morning? Did they see that pmi, Dow rallies.
- [52:17]
Michael Batnick
On blah blah, blah, blah blah. Yeah, that's how it happens.
- [52:19]
Josh Brown
So, so it's very frustrating when you get out and then the market runs away from you and then you're forced to buy back in higher and it's really hard for people to do because.
- [52:28]
Michael Batnick
The news is getting worse.
- [52:30]
Josh Brown
That's a really good argument for not throwing out all your stock exposure. Of course, another really good argument is that it's not a guarantee that in a recession all sectors in the market will be treated equally. And we've seen the consumer staples get to a 21 forward. Multiple consumer staples are now more important, are now more expensive than almost any other sector of stock. The other phenomenon that's worth discussing, and I suppose it's, I suppose it's possible, is that some of the things that are happening now could really easily be undone because it's not. You know, it's not, doesn't require an act of Congress. It's the mind of one man who decides he's made his point or he wants to move on to the next.
- [53:16]
Michael Batnick
Yesterday was a dress rehearsal. We saw what happens on the fake headline. There was a 7% rally in 20 minutes. So we saw how that's going to play out. All right, here's a great data point from Jonathan Harrier. 62% of S&P 500 holdings are at a 50 day low. This is a wipeout. Crossing above the 60 level is rare, happening only 15 times in the past 20 years. Then he goes on to show this is not like by any stretch of the imagination like a good thing, that forward returns are all of a sudden going to rise. He says like volatility is here to stay. When you see this type of action, it's, it's, it's mixed. In the short term, how are investors behaving? Well, it depends which investors you're talking about. Vanguard investors. Joshua, you just mentioned earlier. Voil? Which is Vanguard's S&P 500 ETF. This is from Baltunas. Took in cash every day last week. Every day for a total of $3.3 billion, which is almost double its record pace at last year. Not necessarily surprising though, because this is what happens every sell off. But still amazing. You simply can't scare them.
- [54:12]
Josh Brown
Well, these people who are, who are making these purchases, assuming. Yeah, assuming they're not day trading vo, which I doubt they are, these people will be very rewarded someday. And the key is you have to not care when that someday is. You have to be okay with that someday being next.
- [54:33]
Michael Batnick
January twenty, lower or worse.
- [54:35]
Josh Brown
Hey, right. It's, it's, you know, it's, it's. If that's the route that you're going down. I'm dollar cost averaging. I'm adding even more to my account when markets fall. I have a long time horizon and I simply don't care. You will win, there's no question. The only question is how much pain you have to go through and how much time.
- [54:55]
Michael Batnick
So I am one of those people. I had some money in fixed income for this very purpose, like whenever there was an opportunity. And am I early? Yeah, probably. But I don't care. This is my rule. When there is a panic, I buy. I have no choice. That is like my, that is.
- [55:11]
Josh Brown
I saw that email you sent to your fixed income manager. It was really funny. You like give me my cash.
- [55:16]
Michael Batnick
No, what I said was when there's a market crash, I buy. That's my policy in reference to naked Gun. But I needed the cash. I'm out.
- [55:24]
Josh Brown
Is the, is the 10 year falling because everybody's pulling money out of bonds.
- [55:27]
Michael Batnick
I mean rising.
- [55:28]
Josh Brown
They can buy stocks. Excuse me. Is the 10 year rate falling and the 10 year.
- [55:32]
Michael Batnick
No, no, no.
- [55:33]
Josh Brown
Rising and the 10 year bond falling because sellers want a dollar cost average into stocks.
- [55:38]
Michael Batnick
Well, I think that's wishful thinking. Okay, so, so check this out. This is some J. Capel. This is a chart that shows all the dates when the fear and greed model was at 3 or lower. I don't Know what's in there. Exactly. But this is, this is panic. And three months later, the win rate, meaning higher prices, is 84%. Six month.
- [55:58]
Josh Brown
Wait, what's the blue stochastic?
- [56:00]
Michael Batnick
It's a fear and greed model. I'm sure it's proprietary. Okay, I say six months later. Higher. 63% of the time. One year later. Actually not that great. So interesting. But you know what, you have a long term time horizon. You're able to withstand pain. Because I'm not making like a call that this is down, that today is the bottom. Who the hell knows? But when I see fire, I have to run in. Sorry, that's just, that's just how I roll. All right, back to back. Let's look at Todd's own back to back days of record inverse volume. $30 billion on Friday and over $35 billion yesterday. The massive spike from inverse ETF suggests downside is overcooked in the near term. Again, the key word being the near term. Because can we get a relief ladder that ultimately fails 100%. That's what a bear market is. You get all of these rallies that fail, wearing people down. Next chart.
- [56:45]
Josh Brown
Who's, who's, who's doing this? $35 billion in volume on inverse ETF. So ETFs that bet against the market.
- [56:54]
Michael Batnick
I mean, it can't just be like day traders.
- [56:56]
Josh Brown
It's just. No, it's got to be hedge funds, right? Because these are great vehicles for them if they're trying to accomplish something and not sell long holdings. But so if you want, so if.
- [57:08]
Michael Batnick
You, if this morning you were like stocks of 4%, I call, I want to like hedge my portfolio. Boom. You nailed that.
- [57:13]
Josh Brown
Yeah.
- [57:14]
Michael Batnick
All right, so we've shared this from Toddle a bunch. Last week it was 12 to 1. I'm sorry, a couple of weeks ago. Then last week on the show we shared it was seventh one. And when I say seventh one, now it's four and a half to one. What I'm talking about is the aum of lever trades that go up with the market versus the inverse. So at the peak just a couple of weeks ago, when it was all animal spirits, it was 12 to one. Now it's down to four and a half to one. My point is, in the short term, as Todd mentioned, sentiment is all the way washed out. He has another chart showing flows into back back.
- [57:48]
Josh Brown
This is the mother of all buy signals. If we get it, if they cross when that. Yeah, if, if, if, if we have more ETF assets in invert levered inverse, short, levered inverse. ETFs versus levered long. If we even get, I'm going to say if we even get within spitting distance, you don't need another signal. Only watch this.
- [58:12]
Michael Batnick
So, yeah, I will sell my kids and put the money into the market.
- [58:14]
Josh Brown
That's all you like, literally, that's all you need. You don't need to see anything.
- [58:17]
Michael Batnick
So I will also say, listen, this is, everyone has their own risk. Okay? Like this is not, I'm not telling you to pile in because I don't know if the next 20% is lower or higher. But for me, when I see panic, I just, I have to buy and we'll see how it works out. All right. People are rushing to cash. He has a chart showing The Treasury Bill ETF flows 10 day some and 65 day some. And we are seeing very elevated readings. And this is what happens in a panic. People panic.
- [58:45]
Josh Brown
Yeah, I'm not sure if there's any real takeaway from like treasury bill ETF lows because as we've learned over the last few years, like people put money into T bills or, or into money markets for, for reasons that are indifferent, you know. Now I know this time there's an obvious correlation. Stocks are crashing, people buying T bills. But I'm like, people aren't necessarily going to pull money out of those to chase a stock market rally. We've seen that money be really sticky. Yeah, right. So like that's like one of the, that's one of the big lessons everybody has learned from the recent past. But the rush is real, obviously. Rush is definitely real.
- [59:23]
Michael Batnick
And I think, you know, over the weekend I was like, I'm a little bit nervous. I'm not feeling nervous. Sunday night I was feeling nervous like.
- [59:30]
Josh Brown
You got the Sunday, you got the Sunday scaries. They closed and they closed the NASDAQ green yesterday. Not the S and P, not the Dow. I thought that was interesting. Today was one of the all time worst. I was on the, I was on CNBC today, the market was up a thousand. By the time the show ended, the market was up 700. And I looked over at Judge and I said this thing's cooked. Like they couldn't hold a thousand point rally for more than three hours. It's like super, that's like super telling that they're still hanging on these headlines and these breathless breaking news reports. So this is, this is what a bear market does, by the way. It tricks you and fools you so many times. There's so many mirages and false oasis Oases. What's a plural of oasis? Is there one oasis? All right, so, so let's talk about oasis. Anyway, it's always a mirage. The point is, it's a mirage. Don't stop. Step one. You're in the hole. Stop chasing the mirage. It's not going well. It's not going well. All right, go ahead.
- [60:43]
Michael Batnick
All right, let's talk about tariffs. Like why. So I think this is the thing. And tariffs were never a partisan issue. It was always an agreement from economists on both sides of the aisle that tariffs are a negative sum game. They lead to less demand, they lead to trade wars. You tariff me, I'm going to tariff you. It is a tax. It is simply a tax.
- [61:09]
Josh Brown
In a, in a, In a prior episode, I very clearly explained. The first time Trump ever on record in the media was talking about tariffs was on the heels of losing an auction for the piano from Casablanca. And the buyer, in this is late 80s, the buyer was a Japanese billionaire who swooped in at the last minute and outbid him. And he went on with Diane Sawyer and he did this entire rant about how Japan is kicking our ass and we need the tariff, tariff, tariff, tariff. This is a 40 year obsession. He does not hide that. He said, I've been obsessed with this for 40 years. So to the answer, why tariffs? It's because tariffs. That's it.
- [61:56]
Michael Batnick
You were talking with Steve yesterday. I think you made a good point that if there was a more targeted, measured approach for our national security, vital interests that we need, that we can't be reliant on the rest of the world in the event of a Covid type shutdown, I think most people would.
- [62:16]
Josh Brown
Say, yeah, fine, everybody. Biden passed the Chips Act.
- [62:20]
Michael Batnick
Yeah.
- [62:20]
Josh Brown
@ both parties, every age group, every demographic, we need to make semiconductors here and we need to write policies that stop other countries from undercutting us. Everybody would say, you're right. It's the, you're right. Can you say the same for Air Force Ones? Probably not. So I totally agree.
- [62:40]
Michael Batnick
It's the blanks, the blanket tariff. It's just, it's terrible. So Roger Lowenstein said in his substack, using tariffs to eliminate the trade deficit will risk undermining American strengths. Talk about a cure that is worse than the disease. Far from being ripped off, Americans benefit from importing cheaper and or better goods which enhance our quality of life in myriad ways. Moreover, trade is part of a circular movement, not only of goods, but also of money. The US trade deficit of $918 billion last year was the mirror image of a $918 billion capital surplus or infusion from investors. Sooner or later, all of the net $918 billion that Americans spent on foreign goods was invested in American capital assets such as stocks, real estate, bonds or short term assets such as treasury bills. Alas, Trump has not read Updike. Neither have I.
- [63:33]
Josh Brown
For the record, you're talking to the wall. I know there's no point is, there's half. Look, no, I'm, I come from the school where nobody ever learns anything the easy way. And you know that I've said that many times about a whole range of subjects. This is just one of those examples where unfortunately you're not going to get through to anyone until they learn and they'll learn. I don't think the majority of Trump voters are excited to go work in factories and mines. I just, I don't believe it. I think the, the rural Trump voter that is not a farmer, but maybe lives in a, in a community that's sustained by agriculture. It's, they're gonna have to go through this. I don't know, I really don't know how else to, I really don't know how else to put it, but I could promise you this, people from Wall street are not gonna have any impact on this dialogue. So like now, now you've heard from Larry Fink. He's a New York Jew that manages money. Nobody's listening. Ken Langone is an Italian guy with a New York accent. Nobody gives a shit. Like, it's just, this is the reality of the situation. And we all, unfortunately are going to have to go through this lesson together and Listen. It's America. 54% of American adults between the age of 16 and 75 are reading at a sixth grade level or below. That's more than half the country effectively is not going to bother to spend any time trying to actually understand or figure that anything out. And that's both parties. That's not like, that's not a north south thing. It's not a red, blue thing. This is just the state of where we are. And so it's a lot of people flicking their phones up and down scrolling TikTok and just, they're going to have to learn and we have to sit here and watch and I don't know. Look, look, the only way this ends is if Congress decides that they're going to step in and say this is unconstitutional and we're putting a stop to it. But you need people from both parties and not just Rand Paul who nobody listens to. You need influential Republican Congress people to listen to their constituents who are feeling the pain from this Republican and Democrat and just decide, you know what, we're going to block this. This is not, this is not legal, it's not constitutional, it's not productive, but it's, it's not enough pain yet.
- [65:59]
Michael Batnick
So we were, we were looking at $280 a share for the S&P 500. Let's say that falls, I don't know, 15%. All right, so 280. Doing math, it's dangerous. So that gets you to 240ish. And let's say we were trading at what, 22 times earnings. Let's say, we say, all right, you know what? Not feeling too groovy about these earnings. Sixteen times that gets you to 3, 800 or 3, 800 on the S and P. It's not inconceivable if this doesn't, if this doesn't relent.
- [66:30]
Josh Brown
Typical recession, you wipe out between 20 and 30% of earnings.
- [66:35]
Michael Batnick
I don't think it's that high. I saw different numbers. 20 to 30% of earnings in a.
- [66:40]
Josh Brown
Recession and not in an earnings recession. In an actual recession, you wipe, you wipe out 20 to 30% of earnings. But the worst news is what happens to the multiple. So you bottom it. You think you bottom it. You bought them at 14 times earnings. If I told you what a 30% earnings wipeout from today's estimates for the next four quarters combined with a 14 multiple looks like, you would not want to know where the S and P.
- [67:03]
Michael Batnick
And this idea that it's only the rich that are that care about the market, it couldn't be further from the truth. It's literally backward. It's this, these people are acting like it's only the rich and own stocks. 60% of the country owns stocks. Who do you think could weather a storm?
- [67:15]
Josh Brown
People. 100% of the country, 100% of the country has a job where they work for someone who is very much guided by how stocks are doing.
- [67:24]
Michael Batnick
So maybe I'm, maybe I'm in the denial phase of grief. But this idea that, that people are not just going to, that we're going to just let this happen, that the rats aren't going to scurry off the ship, that we're just going to tank earnings. 30%, I just, I don't buy it.
- [67:39]
Josh Brown
I don't, I don't think it has to get that bad because again, it's not a natural disaster. It's not a war. I mean it's metaphorically, it's war, but it's not correct. This is not people on the battlefield blowing each other up. This is not an earthquake. Just took out a major US City. Dude, I manage money through the twin towers being blown up like three miles from where I was sitting. Like I've been through way worse than this. So I agree with you. I don't actually think that we're going to have to go through a massive recession and, and just to make the stop, I do think Congress will step in.
- [68:21]
Michael Batnick
I think he's going to make it.
- [68:22]
Josh Brown
And they're the only ones that. And they're the only ones.
- [68:24]
Michael Batnick
So in order to avoid sounding like a broken record, I don't. What would I have to see? What would you have to see? What would I have to see to change my mind and that. Oh, he's not looking to negotiate.
- [68:34]
Josh Brown
Well, no, they're saying he wants to negotiate.
- [68:36]
Michael Batnick
He's saying that. I think, I think he's negotiated. I think this is a terrible execution.
- [68:42]
Josh Brown
Everyone agrees.
- [68:43]
Michael Batnick
So anything else?
- [68:44]
Josh Brown
Everyone, everyone agrees. Even the, even these red pilled venture capitalists that are, that have spent the last six months cheering him on, they're, they've all turned. Elon Musk has turned his brother, Kimbal Musk is just lacerating Peter Navarro right now. Again, Larry Fink spoke out. Ken Langone, Jamie Dimon will be on the JP Morgan earnings call on Friday. I highly doubt he's going to be able to make it through that call without having some stuff to say about this. So that part of it has already started to turn. The thing that has to take place to end this Congress has to be more afraid of their voters than they are of Trump. Right now. Republicans in the Senate and in the House are terrified of Trump and somewhat scared of their voters when that flips and they realize they have more to lose by pissing their voters off longer and they're no longer afraid of the White House the extent they are today, then you're going to see this stuff end up in the courts and get blocked and get halted and, but we're far, I think we're far away from that. So his approval rating, I think it's not there yet.
- [69:53]
Michael Batnick
It's not crashing. It's early. I mean the tariffs haven't even started.
- [69:59]
Josh Brown
They start tomorrow, dude. It hasn't, it hasn't started.
- [70:02]
Michael Batnick
Right. Anything else to say on, on this topic?
- [70:05]
Josh Brown
What do you, what's this iPhone stuff that you want to do?
- [70:07]
Michael Batnick
Dang it. My, the screen is freezing all Right, Let me jump over here.
- [70:10]
Josh Brown
Okay, take, put this out.
- [70:13]
Michael Batnick
Here we go. John, forgive me. Okay. This is from the Wall Street Journal. Take a Look at this. IPhone 16 Pro, your cost for the 256 gig version is $1,100. The cost of all the hardware inside the bill of materials was about $550 to Apple when the iPhone was introduced. And now they're saying that the new tariffs are going to take that from $550 up to $846. Apple is not just going to absorb all of that and see their margins on hardware go from 45% down to whatever percentage it would be. It's just, it doesn't work like that.
- [70:55]
Josh Brown
Yeah. So the argument, the, the argument coming from the tariff camp is this is the problem. This is the root of the problem. It's not a symptom of the problem. We should be able to make these things more efficiently than we are do it. But we gave up trying. We don't have, we don't have people in this country working on this. We don't have the modern factories and we're not even trying to make the iPhone cheaper. But if we hadn't given up on manufacturing and outsourced it to Asia for the last 30 years, we would be able to make an iPhone for cheaper. I'm not saying they're totally wrong or that I'm totally. I'm just saying that's what they would say. Back to this idea of the $3,000 iPhone.
- [71:41]
Michael Batnick
So this afternoon, what really got the reversal underway and Apple's been under pressure this entire week, rightfully so. White House Trump believes us has capability to make iPhones. And this just destroyed the stock that was already getting destroyed. Over the last four days, Apple has lost 23%. This chart is a bit stale. It's 23%. So 23% of the last four days. That is worse than the great financial crisis. It is worse than anything since the dot com bubble. The stock is in a 34% drawdown. So the. To the point that I made earlier about stocks being forward looking, does Apple deserve to be down 34%? Yeah, probably. It happens in two seconds. And so I actually bought Apple at the close. I can't tell you the last time I've owned the stock, but it is pure panic. Pure panic. Here's Gene Munster. He said over the past five trading days, Apple investors have slid into panic mode. Shares are down 23% since April 2. It's going to get ugly with China over the next month, which will intensify the panic. My eyes are on the horizon looking out three months from now I believe Apple will be largely spared from the impact of tariffs given Cook's favorable relationship with Trump and Xi. The biggest wild card is the broader economic is a broader consumer which could weaken in a recession. That risk in my view is already priced in.
- [72:55]
Josh Brown
Apple's in the eye of the storm. Oh yeah, and and we did this on a show a few months ago. We talked about how like this, of all the large cap tech stocks this one and Tesla would be the most susceptible to a trade war with China. And that ended up being exactly how it played out. They are easily the two worst of the of the everything that they do.
- [73:17]
Michael Batnick
Not everything about an Apple expert most of it is manufactured in China. So yes, they move things to India, but that's just cobbling the pieces together. All of their manufacturing components are done for the most part in China. Ben Thompson wrote this last fall. Go ahead.
- [73:33]
Josh Brown
Well, I was going to say it's their second largest iPhone market and unlike 2018, yes there were competitor phone companies but nowhere near as powerful phones and nowhere near as good at reaching the consumer as the domestic phone competitors are today. So that's their number two market that they sell into. Not for long I would tell you. And then manufacturing there. So not only do they rely on the Chinese consumer not going all jingoistic and boycotting American products and responding to Trump by saying F you to the next iPhone upgrade, but we also need to have so many of the components to come from.
- [74:14]
Michael Batnick
So my thesis is that there will be a resolution somewhere and if I'm wrong and this shit lasts, Apple would be down 60% from its highs. Do you agree?
- [74:24]
Josh Brown
Yeah, here's well, if this stays on, Apple is so expensive. It was so expensive in January. It was one of the most expensive large cap stocks. I think it was 38 times earnings.
- [74:35]
Michael Batnick
At one point itself was never traded.
- [74:37]
Josh Brown
Like that and it had zero growth and zero sales growth. It was a replacement value business. The stock had been rallying on improving margins as more and more of the revenue was on the services and they were not the device and they were.
- [74:51]
Michael Batnick
Getting the benefit of see how they're actually not spending that much on AI. That was part of the story.
- [74:56]
Josh Brown
All right, here's Wall Street. Apple price target cut today to 170 from 200. Reiterated underweighted key bank lower valuation. Multiple data points paired with weaker commentary on upgrades from the carriers suggest a miss on iPhone while we also expect a miss on iPad and a Beat on Mac. The impacts of higher costs could be offset by higher average selling prices. But that would impact demand. So there's almost no way out. Here's Goldman. Apple price target cut 242from 294 reiterated by at Goldman. We reduced estimates for Apple to better reflect the net impact of the US reciprocal tariffs through lower margins and lower revenue. In the near term, we expect these costs to be primarily borne by company margins and as a result now forecast fiscal year earnings estimates that are below guidance. Last one. Oh, that's it. That's enough. This is. This stock's in the hurricane. They're in the, they're in the eye of the storm. There's no way around it. And I do agree with you. If and one there's some sort of a resolution, you're going to want to be. You're going to want to be long. This.
- [76:02]
Michael Batnick
All right, here's what Ben Thompson wrote. This is really important because it's not just about Apple. He said Apple can not only not manufacture an iPhone in the US because of cost, it also can't do so because of capability. That capability is downstream of an ecosystem that has developed in Asia and the long learning curve that China has traveled and that the US has abandoned. Ultimately though, the benefit to Apple has been profound. The company has the best supply chain in the world centered in China. That gives it the capability to build computers on an unimaginable scale with maximum quality for that. For not that much money at all. Lastly, here's the coup de grace. This benefit has extended to every tech company, whether they make their own hardware or not. Software has been has to run on something, whether that be servers or computers or phones. Hardware is software's most essential component. And so if Apple goes down, everybody goes down. That's me. Not.
- [76:58]
Josh Brown
And you know, and, and Foxconn, which is a huge manufacturing concern in, in, in Asia, they rely very heavily on Apple for their own revenue and they are a huge employer there. So it's not like nobody gets hurt here on the other side which is, and I think, look, I don't know if this transcends the Trump situation, but I think Tim Cook has a great relationship with the Chinese. He's keeping his mouth shut right now. Think he has no choice. If you had to be any CEO in the world, I think he's the one that you would least rather have his cards because the needle that he has to thread is. It seems almost impossible. He look, they can't raise prices on all their products because that's Politically fraught also. You think that will escape the eye of Sauron if, if, if they start selling iPhones for nineteen hundred dollars. That might be, that might actually be an even worse situation.
- [78:00]
Michael Batnick
Do you think, do you think Buffett's boys are buying again?
- [78:03]
Josh Brown
No. All right, here's what I think is the biggest risk to the market going forward from here. Imagine there is no guidance. And I don't mean to, to paraphrase John Lennon. Yeah, like imagine, imagine. So we're going to get earnings reports starting Thursday for the season. We're going to get the banks first. And just think about an environment where everybody pulls their earnings guidance. Now, paradoxically, I think the banks are the least likely to pull their guidance because I think they have a pretty firm handle on what they'll earn given prevailing rates where they are. They can't forecast the economy better than anyone else. But the, the big question mark with the banks is how much do they start reserving against potential losses? They're all in the credit card business. They're all in the home loan business, the, the auto loan business. That'll be interesting. But I, I think just generally speaking, this is the next shoe to drop for stocks. If you get 100s and P500 conference calls and the net result is they're all pulling their guidance. They refuse to give anyone an outlook. And by the way, how could they. This is problematic for both the multiple and for just the day to day trade as that process plays out and we really haven't seen a big wave of companies pull their guidance together in a really long time. Here's Ed Yardeni. Industry analysts have been lowering their S&P 500 earnings per share estimates, but they remain high at $268.85 and $307 for 2025 and 2026. That 268 would be 9.2% growth and 14.2% for 2026. Those estimates are likely to fall over time, as estimates typically do since analysts tend to be too optimistic initially. They will fall a lot if Trump tariff turmoil causes a recession. Let's put this first chart up. So basically you. It's a really big stretch to believe, to believe that estimates can stay where they are. And the only real question is by how much do they have to fall throughout the course of the next year? Ed is saying that forward earnings per share has been flattening out at a current record high of 279. That puts the forward PE at 18.1. Based on this is yesterday's close so that's pretty high PE given the potential for downside risk here.
- [80:42]
Michael Batnick
Look at that. Just to reiterate, we were at an.
- [80:44]
Josh Brown
All time high in earnings, all time high in earnings. Next chart, earnings season. The analyst consensus expected growth rate for Q1s and P500 earnings has dropped sharply since the start of the year. So that would be that blue line at the bottom. That's a really steep drop for Q1, which we're about to get. But he notes the actual results will be better. However, the forward guidance that company managements give analysts is likely to weigh on estimates for the remaining three quarters of the year. So it's the uncertainty. What do you think about my idea that that is the next shoe to drop?
- [81:24]
Michael Batnick
I don't know. I don't hate it. I think the problem is you just mentioned it's the uncertainty. This is a confidence game.
- [81:32]
Josh Brown
And so pulling earnings guidance is, is at the what causes it does not.
- [81:38]
Michael Batnick
Instill more confidence in the, in the future. And when, when the leaders of these companies have no clarity on what the rules of the game are going to be, they pull back, they go to the silence, they stop playing. And if they stop investing, how do you not see a hit to earnings?
- [81:51]
Josh Brown
Here's Sam Rowe, he's worried about this too. Companies could decline to provide guidance. He's citing David Costin at Goldman Sachs who wrote on Friday quote, we expect during upcoming quarterly earnings calls fewer companies than usual will provide forward guidance for both Q2 and full year 2025. Typically 20% of companies provide quarter ahead guidance while 43% of companies provide full year guidance. So I don't know, does the 20% go to 15%? Does the 43 go to 30? This is the problem. And, and if we were selling at 15 times earnings, I would say, okay, the market could live with.
- [82:35]
Michael Batnick
Hold on, we're not. The rest of the market is like The S&P493 are like, I think it is like close to 15. Okay, so we have discounted a lot of.
- [82:45]
Josh Brown
Now if they pull guidance, the only response you could have as a rational investor is to say good idea. Because you know the only thing that's worse than pulling guidance is giving guidance and then looking like an asshole when you disappoint everybody on the next one.
- [82:59]
Michael Batnick
Well, they also have the opportunity to kitchen sink it. So not only they not put guidance, they might like substantially lower their guidance.
- [83:07]
Josh Brown
Put up this B of A chart. John. This is also from Sam, it's Bank of America. The number of s and P500 companies providing guidance plunged in the 2020 period. And that made sense. Why wouldn't they pull their guidance? How could you. You see that drop off. So that's like kind of what's at risk. Here is a Covid style plunge in companies wanting to give anybody any idea of what next quarter will look like. And I think during the pandemic it was understandable. I think now it's also understandable, but maybe less forgivable. And institutions will just react by saying, okay, trim.
- [83:48]
Michael Batnick
So I think what they're going to do, if I had to guess, is they would say based on current policies as we understand it, this is what would happen. If the tariffs stay on, this is what happens. If they go down to 10%, you think they will? They will.
- [84:01]
Josh Brown
You think they'll do like best case, worst case.
- [84:03]
Michael Batnick
And if they don't, the sell side certainly will.
- [84:06]
Josh Brown
The street will. All right, last thing on earnings, this is Nick Colis. He wrote this today. Our friend Nicolas from Data Track. Investor confidence in future corporate earnings is more than twice as important to stock prices as whatever the companies in the s and P500 actually deliver, which is why volatility is so high right now. And he says we have a 30% range of possible 2025 earnings between 189 at the low end, 270 at the highest. That creates a 65 percentage point band of S and P fair values because PE multiples could be anywhere from as low as 14 to as high as 22. So this is how you rip the confidence out of the market. And he notes it took the S&P 500 eight years to go from an eight times forward earnings multiple in March of 09, the bottom, to 18 times in 2017. As investors gradually regained faith in the system, the Fed screwed that up. And in 2018, multiples fell back to 14 times. Then the Fed pivoted. In 2019, we got back up to 18 or 19 times. So it's this seesaw, right? It's this. So it took two years since Russia invaded Ukraine for the PE and the Fed's rate hiking cycle for the PE to get from 15 up to 21 where it started this year. And now we're watching that confidence erosion on multiples in reverse. And it probably doesn't, honestly, it probably doesn't stop at 18. So that's, you know, why are you bearish? I don't think companies are going to give forward guidance and I don't think we're as low as we need to be on the multiple to say that we're discounting all the risk.
- [85:59]
Michael Batnick
Yeah.
- [85:59]
Josh Brown
So it's like. It's not that complicated.
- [86:01]
Michael Batnick
It's also a stock by stock basis.
- [86:04]
Josh Brown
No, it's not.
- [86:05]
Michael Batnick
What do you mean it's not.
- [86:07]
Josh Brown
In the short term, it's not.
- [86:08]
Michael Batnick
Agreed. Agreed.
- [86:08]
Josh Brown
It's not. It should be and it will ultimately be. The market's a weighing machine over time, but in the short term it's a panic machine.
- [86:17]
Michael Batnick
But I think the market investors are doing a good job of differentiating the massive risk in Apple versus on some days.
- [86:24]
Josh Brown
On some days you see dispersion and you see them buying things like mortgage companies. I talked about Rocket, which is a recent purchase I made. You see them buying utilities. And then on other days they just sell everything. Okay, we sell everything.
- [86:39]
Michael Batnick
All right, let's talk about this. I think that so. So tweet on from Zucchi Johnson. Red book retail sales soar 7% year over year, nearly the highest since December 2022. And he said, tower, front running question mark. I think that you are going to see some really funky shit in the data over the next couple of weeks and months.
- [86:58]
Josh Brown
Oh, I agree.
- [86:58]
Michael Batnick
And you're going to see some distortions troughed off. You might even see some positive distortions. And he might claim victory.
- [87:07]
Josh Brown
Man, that's going to be a stretch. So, all right, so people racing to build inventory ahead of the tariffs could make it look like the. The manufacturing renaissance is already at hand.
- [87:18]
Michael Batnick
What if we see a boom. What if we see a boom in iPhone sales because people are buying an iPhone before the tariffs get slapped on? And then it's like rational.
- [87:24]
Josh Brown
There was an article. It was an article about that. People racing to buy their iPhones ahead of the tariff. I call bullshit. No one did that.
- [87:31]
Michael Batnick
What do you mean?
- [87:31]
Josh Brown
Is there anyone in your. So anyone in your life that ran to a, to an Apple store to buy a phone?
- [87:36]
Michael Batnick
Robin literally asked me what. What should we. What should we be buying?
- [87:39]
Josh Brown
Should tell her we should be selling.
- [87:41]
Michael Batnick
We should be.
- [87:42]
Josh Brown
She has the wrong instinct. She has the wrong instinct.
- [87:45]
Michael Batnick
So. So the ultimate question is. Or maybe not the ultimate question. One of the questions that I have is what breaks the back of investors who have learned for 15 years to buy the dip?
- [87:56]
Josh Brown
What does it time more days like today? So like a really heartbreaking thing would be like a three day rally that then rolls back over onto itself. We haven't really had.
- [88:08]
Michael Batnick
I think it's gonna be hard to do it.
- [88:10]
Josh Brown
We've been straight down, dude, it's. It's happening. It just it's, there's a look, there's a lot of, there's a lot of investors who weren't around through 2000 to 2002. There are a lot of investors who weren't around from 07 to 09. They really don't know what it's like to be down six months straight. It is so debilitating mentally and it causes a change in behavior and it just, it hasn't gone on long enough.
- [88:38]
Michael Batnick
Let me throw.
- [88:38]
Josh Brown
It's not, it's not the depth of the, it's not the depth of the bear market, of the correction. That's not the thing. It's the amount of times the rallies fail that change investor behavior and it's too early.
- [88:50]
Michael Batnick
I agree, but that's going to take, I think maybe longer than you think. In 2022, remember, there was a stat like we have never seen a 20% decline. Retrace 50% of that and then roll over to make new lows. Well, we did make new lows, of course.
- [89:02]
Josh Brown
And then of course we did. Right.
- [89:04]
Michael Batnick
And in 2022 there was small outflows on net, but it was all from mutual funds, ETFs. Buyers did not relent. So I think it's going to take, it's not just going to be one quarter. Now this is different. It's politically driven and people are like really scared. But I think, I think they're going to be more resilient than I think people might think. Like if you're, if you're looking for the retail washout to mark the bottom. I don't know if we get.
- [89:28]
Josh Brown
Yeah, well, yeah, I'm not sure. I'm not sure if I could say yes or no on that. Let's do some, let's do some flow stuff because I thought this was interesting. Bank of America said every single type of client bought last week, huge inflows. Last week, the s and P500 fell 9%. That was the biggest one week sell off since October of 2008. Clients were net buyers of $8 billion of US equities. This is just at Merrill lynch, bank of America. Okay. That's the fourth largest weekly inflow in the history. They've been keeping data back to.08 clients bought both single stocks and ETFs with inflows across all three size segments. So when they say all client groups, institutional investors had their first inflows in three weeks, biggest since December. Private clients, that's regular rich people have been buyers for 17 weeks straight. Had their sixth largest weekly inflow on record. Hedge funds were small net buyers for the first time since early February. And even corporate client buybacks came in and started to track above typical season. The first time in five.
- [90:42]
Michael Batnick
We were talking about that. You're like, no way. And I was with you. No way is any CFO buying stocks now. I guess they were.
- [90:48]
Josh Brown
Well, they are, but very tepidly considering the damage their share price, that should have been a record and it wasn't. And that tells you how cautious CFOs and treasurers are being. Barclays says we've seen a significant delevering by quants, not yet by retail. Systematic funds are in the process of substantial deleveraging. The bulk of it is likely done. In contrast, direct retail may have started reducing their equity exposure, but they haven't capitulated. And then last, JP Morgan says massive selling Monday after historic dip buying by individuals last week and overall bullish activity, retail investors are now net sellers. This is yesterday. They turned bearish on Nvidia along with Tesla and the rest of the mag 7, except for Alphabet. So maybe that's a sign that retail is beginning to capitulate. I bet you today looked a lot like Monday.
- [91:46]
Michael Batnick
Not to be too cute, but sorry, I can't help myself. J. Speaking of JP Morgan, the famous quote, in a bear market, stocks return to their rightful owners. I really do believe that to be the case.
- [91:56]
Josh Brown
Okay, so I guess that's vanguard. I guess that's their. I guess that's their rightful owners because that's, that's where the buying is coming from. All right, we're gonna wrap, we're gonna make the case. And then you. I'm told you have a mystery chart for me tonight.
- [92:08]
Michael Batnick
I do. You're not gonna get this one.
- [92:10]
Josh Brown
Okay. All right. I think this is, I think you'll agree, I think you'll agree with this. You could find safety in Microsoft and Netflix right now. Not like pure safety, like they're not going to go down at all. But if you are long only and you must be invested in stocks, I think those are two smart places.
- [92:29]
Michael Batnick
Why do you say Microsoft Netflix? I would agree with why Microsoft. It's rolling over pretty hard.
- [92:34]
Josh Brown
Here's Martin Piers of let's. Let's do the charts on each and then I'll explain. It looks terrible, but this drawdown is nowhere near the drawdowns that we've seen in other stocks of its ilk. And it didn't really have the run. Up next one.
- [92:51]
Michael Batnick
Hold on. Just, just to pause that, Josh. 100% right Microsoft hasn't done crap in a while, despite the open AI and all that sort of stuff. It's in a.
- [92:58]
Josh Brown
This is no big deal.
- [92:58]
Michael Batnick
It's in a 20. Well, it's in a 25% drawdown. So not nearly as bad as Nvidia, of course, but not nothing.
- [93:05]
Josh Brown
Not. No, not nothing. Which is why I think it's. It could be viable.
- [93:08]
Michael Batnick
Netflix.
- [93:09]
Josh Brown
Let's do Netflix. Is it. Aside from. Aside from the fact that this is a head and shoulders and should be avoided at all costs, I think it's a consumer stable. It's in the telecom and it's in the tech. Excuse me, the communication services sector, but I honestly think this is the last thing people cut.
- [93:30]
Michael Batnick
You're 100% right. Nobody's canceling Netflix unless it gets. Unless we get a depression. I don't know that this matters. It still trades at 35 times forward earnings.
- [93:40]
Josh Brown
So Morgan Stanley called Netflix its top pick, replacing Disney in the sector for this year. Reiterate overweight $1150 target quote. We expect Netflix to demonstrate relative resilience in a weaker global macro. Momentum in its core subscription business combined with recent dollar weakness should de risk 2025 estimates even in a softer ad market.
- [94:04]
Michael Batnick
It's only down 2% this year.
- [94:08]
Josh Brown
Yeah, the analyst said. The analyst said advertising growth is expected to double in 2025. Ads still remain a small part of the overall business. They're only 10 to 15% of revenue of revenue growth and only 5% of total revenue. But. But the ad supported tier strategically will keep people from abandoning their Netflix subscription. Two hours of daily viewing per member. The engagement is really strong and that's why Nobody cancels. Over 94 billion hours were streamed in the second half of 2024. Plus they have sports now, which keeps it even more defensive. So I like that idea. Here's Martin Piers on Microsoft. What does he say? Doesn't matter. These are, look, these are. Microsoft is not caught in the eye of the storm in terms of tariffs. They're not selling iPhones. It's not quite as fraught a political situation as you have with Apple. And it's like a hugely steady cash flow business. It's very heavily reliant on businesses and businesses are not like throwing away their Microsoft subscriptions just because they have a couple of tough earnings quarters. So I think both of these places are places that you could hide out. What do you think?
- [95:27]
Michael Batnick
Netflix? Yeah, I mean it's all dependent on whether the market melts down. Everything's going down.
- [95:33]
Josh Brown
Yeah. No, it's all Relative. I'm saying if you have to own stocks, these are. These are stocks you could wrap your head around right now.
- [95:39]
Michael Batnick
Netflix for sure. It's a consumer staple. Nobody's canceling it. I think the earnings are going to be less volatile than the overall market. What a week, man. Huh?
- [95:48]
Josh Brown
It's Tuesday.
- [95:49]
Michael Batnick
It's Tuesday. It is Tuesday. Okay, listen, this sucks. It's not fun, but if you are the type of person, and we all are at some point in our lives, have looked at a stock chart and said, I can't believe I didn't buy it. I had the chance. I missed it. Now, listen, this might be different. Maybe this is not one of those times. I don't know. I can't see the future.
- [96:15]
Josh Brown
You're going to show me a stock that you think people are going to.
- [96:18]
Michael Batnick
Turn around just in general. Like, if you're. If you've ever said that to yourself and we all have, and you're not buying today, then you never get to say that to yourself ever again. I'm sorry.
- [96:27]
Josh Brown
Okay, I. I think that's fair. Like. Like. Let me get this straight. There's nothing you want to buy, right? Yeah, I totally agree.
- [96:34]
Michael Batnick
Yeah. And you could say that, like, yeah, this might not be the optimal price to buy, and everybody's got a different risk tolerance, but, like, there's. There's. Come on, there's opportunities.
- [96:42]
Josh Brown
I bought. I bought. I bought some stuff Friday. I bought. These are Core Forever Holdings. I bought Chevron. I bought Amazon. I bought. I know you bought some Amazon, too. I. I added to Uber, like, these are stocks that I'll be in years from now.
- [96:57]
Michael Batnick
If you think that cyber security. I bought CrowdStrike is a secular growth story, and of course it is. All right, enough of that. Okay, chart on. Josh, this is. I'm showing you the best performing stock in the S P 500 year to date. Now, this is a great.
- [97:17]
Josh Brown
A great.
- [97:17]
Michael Batnick
Is that this is a stock. The reason why is because it got. Just kneecapped. I don't know if it's down 70 or what. It's been a secular loser. But you actually made the case for the stock, and then it got kneecapped again. But nevertheless, you made the case you're wrong. On the short term. I want. Right in the.
- [97:33]
Josh Brown
I need. I need one more clue.
- [97:35]
Michael Batnick
Oh, I forgot to make this chart. Do we have the chart of the best 10 stocks and the worst 10 stocks? John, do you have that? I think I sent it to you. Maybe I didn't. There we go. It's in this group, so that's a bit too easy, but.
- [97:47]
Josh Brown
Oh, it's in the blue in this group.
- [97:49]
Michael Batnick
Yeah.
- [97:51]
Josh Brown
Sankora.
- [97:52]
Michael Batnick
Nope.
- [97:53]
Josh Brown
No, huh? Okay.
- [97:56]
Michael Batnick
Sankora sounds like the whiskey that Bill Murray drank.
- [98:00]
Josh Brown
Lockheed. No, I don't even know what you're talking about.
- [98:04]
Michael Batnick
It's cvs.
- [98:06]
Josh Brown
I made the case for cvs. Was I smoking crack?
- [98:09]
Michael Batnick
Remember one of the big hedge fund managers took a long position in there? A big position.
- [98:13]
Josh Brown
Yeah.
- [98:13]
Steve Pavlik
Yeah.
- [98:14]
Josh Brown
Oh, all right, maybe. I mean, I definitely. I definitely didn't buy it, and I don't want any credit for it.
- [98:19]
Michael Batnick
Well, nevertheless, it's the best performing stock.
- [98:22]
Josh Brown
In the S. What is this, an 11 stock? I don't even know what. All right, I think that thing's still publicly traded. That's a miracle. Oh, yeah, it was an activist in it or something. Yeah, right. I didn't buy it. All right, what. What's a worst stock in the s and P500? Do we know?
- [98:38]
Michael Batnick
Year to date, I think it's Deckers.
- [98:41]
Josh Brown
I would. I would have guessed either tech or apparel or something consumer discretionary. So what. What are these? These are the 10 worst. These are the 10 worst stocks since Liberation Day. I don't want to buy any of these.
- [98:55]
Michael Batnick
Bear with me one second. No, I'm not. These are. These are not, for me, the worst stock year to date. Why? Charts. Y charts. Y charts. It's Western Digital down 48% and then actually the same. Same exact amount. Decker's outdoors, so. Yeah, nobody's buying Uggs. Why would you.
- [99:12]
Josh Brown
Yeah, later for that. All right. Hey, guys, thanks so much for joining us for the live. We really appreciate it. If you're listening on the podcast, please go ahead and leave us a rating and review. It goes a long way, and it helps signal to everyone else that there's quality here, and we love you for it. I wanted to mention tomorrow is Wednesday, which means an all new edition of my favorite podcast, Animal Spirits, with Ben Carlson and Michael Batman.
- [99:37]
Michael Batnick
Ben needs a hug.
- [99:38]
Josh Brown
Ben. Ben is living in. In Michigan, which is unfortunately going to be like an epicenter of this trade war stuff. And I think it's affecting a lot of people around him. And least you could do is tune in and listen to him bitch and moan. So that's. That's. That's tomorrow morning. We'll have asked the Compound later this week and an all new edition of the Compound and Friends. Plus, we're doing a surprise drop on Thursday, and. And I think you guys will be super excited about it, so. All right, that's it from us. Have a great night. Stay alive through 24. 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 ritholtswealth.com don't forget to check us out@YouTube.com 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.