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The Compound and Friends
Is It Too Good? AI Capex Explodes Higher, Pre-Revenue Stock Boom, Will Falling Mortgage Rates Save Us With Telis Demos (WSJ)
01:47:13
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Ladies and gentlemen, welcome to the compound and friends. Tonight's show is brought to you by our friends at Betterment Advisor Solutions. More on betterment in just a moment. We're going to start off with Telus Demos, who is a writer for the Wall Street Journal's herd on the street. Telus covers finance, investing, banks, interest rates, mortgages, you name it. And we had like some breaking news where there is now a deal for a consortium of U.S. investors to take control of a new U.S. version of TikTok. So we'll get into that. We took a look at what really drives mortgage rates. Was a fascinating conversation. It's not the Fed, it's not what you think. It's really a phenomenon where investors on Wall street are bidding for portfolios of mortgages of a certain interest rate and that drives what lenders are able to create new loans at. So you don't want to miss that. And then it's an all new edition of what are your thoughts? It's Michael Batnik and I, we asked a very simple question. Is it too good? Is it too easy to make money right now? And should this concern you and what do you do about it? More importantly. So we take a look at some of the areas of the market where things have just gone absolutely crazy to the upside. We talk AI OpenAI. More importantly, partnering up with Nvidia and Oracle, some massive capex spending deals being announced. There's a lot happening there. We asked the question, is there even a bear market case to be made? And it's harder to come up with one than you think. We, I don't know. We do. We do it all. This is a monster Show. More than 2,000 people joined us for the live version on YouTube and now you get to hear it if you weren't able to. So thank you guys so much for tuning in. I'll send you to the show right now. Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael.
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Batnik and their castmates are solely their.
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Own opinions and do not reflect the opinion of Red Hold's 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.
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Positions in the securities discussed in this podcast.
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All right, there we are. Look how handsome we look. Tallis, what do you think?
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You know, we. I got, I upgraded the, the, the camera on my laptop just for this so I could.
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Well, the audience, the audience appreciates it. All right, ladies and gentlemen, welcome to the live from the Compound My name is Downtown Josh Brown. My guest today is, is someone I've been trying to get on for a while. He's a great writer, great reporter. Teles Demos is writing for Heard on the street, which is I would say the most vital column for me at least at the Wall Street Journal, where I read pretty much everything he publishes. He is also the co host of Wall Street Journal's Take on the Week, which is a weekly podcast about markets and finance. You might recognize his co host, Gunjan Banerjee, who's been on our channel before. Telus covers the world of money and banking. Too big to fail banks, Wall street itself, private markets, crypto, insurance, mortgages, credit cards, financial technology and more. Welcome to the show. Tell us. Thank you for doing this.
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C
Thank you. Hearing all that said is just like stressing me out about.
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No, no, don't be.
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C
How many things?
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Well, you are, you're a polymass. It comes to financial media like you, you, you've got the gamut. So I want to start with these, I want to start with the, the, the. I don't know what, what you would even call it. I was going to say acquisition, but it's sort of not. It looks like the federal government and China have reached some sort of an agreement where TikTok will spin off its US operation into the hands of Oracle and, and a consortium of other players who will take over running a new version of the app. It sounds as though we'll be licensing the technology from ByteDance, which is the Chinese company that will no longer have access to US users, but they will be paid for, I guess the tech transfer itself. And then Oracle is going to hold on to all the US user data securely in a US based cloud data center and it'll sort of be like, rebuilt as like a US only TikTok app is that the Journal's understanding of what, what it looks like so far, what we've heard in public so far and would just love to get your thoughts on the uniqueness of something like this.
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Yeah, I mean, I think there's, I think that there's, you know, we've reported the Journal that a deal has come together and I think it's, I think what's interesting that it's not, I don't want listeners to come away with the idea that because the government is sort of obviously playing a role in sort of brokering this, that it's necessarily going to be then, you know, some extension of the government. There are a consortium of investors who are coming into it some Some, some big names, Silver Lake, I don't know. You know, people know the private equity industry, that's a name that I'm sure people will know. You know, the longtime, you know, major, like tech and financial to investors all over the place. Oracle is going to play a part of that. I also just have to, I have to flag that. According to our reporting, I'm not giving any inside information here, but according to our reporting, what I read in the Wall Street Journal is that Lachlan Murdoch and Rupert Murdoch will probably be in the ownership group. That's something that Donald Trump said on Fox News on Sunday. He's named Michael Dell as well. And so I should just say that Lachlan Murdoch is the chair of News Corp. Which owns the Journal, and he's also chief executive of Fox News parent Fox Corp. And what the Journal said, and I'll just read it here, I don't want to get myself in trouble. A person familiar with the matter said any investment in TikTok would come from Fox Corp. So just want to flag that for, for everybody that, you know, there's some, some crossover there. But I mean, look, it's, it's, it's a deal that shows you that like, it's funny when we talk about like companies that are in the social media business today, we almost never talk about their, like social media businesses anymore. When we talk about meta, we're talking about like, you know, what are they doing in AI, how are they going to, you know, sort of drive that future. But I think, you know, the fact that everyone's so interested in TikTok is, it's just a reminder that like, this is still where we all live our lives, you know, and young, old, I don't care. You know, the power users of TikTok I know are like middle aged people who are just trying to like zone out at night and like they, like that they can just scroll. They don't even have to like pick something to watch. They just scroll. Right? And so, so I think, I think it just goes to show you that like the interest in that deal is so high. Obviously there's big politics, but it's like it's, it's a daily life thing for a lot of people. Right? Like, I don't, I don't know if you do use, do you, do you, do you use TikTok?
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I have an account where I think Nicole from my team posts clips of some of the stuff we do here on TikTok.
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But.
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Yeah, but I don't, I don't scroll it. I don't watch it. I haven't. I'm already brain rotting with Instagram. I don't need like four more versions of that. I guess, I guess what, I guess what's interesting to me is that there are two political issues with TikTok. One of them is user privacy. Like it's a foreign owned company that is gaining access to. All right, so it sounds like the Oracle thing would solve that if it's being hosted here and the Chinese will lose access to, I guess coming in through a back door and seeing what US users are up to. Okay. And then the other thing that I think this solves is like the foreign influence, like just, you know, what it, what is the algorithm showing people in the wake of a crisis, for example October 7th or the Charlie Kirk murder, or like what is then being amplified to the 35% of all US 18 to 35 year olds who say TikTok is my primary source of news. That like, that's an actual stat. It's more than a third of young people consider TikTok to be where they get educated. So not having the foreign influence on what the algorithm is surfacing, I feel like gets solved by having. Now it's a consortium of U.S. companies. You know, ostensibly there's some political spectrum involved, no matter who's going to run it. But like, I feel like that's like one way to really easily clean up that issue. Then there's the financial.
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I mean, just, but just, just to emphasize your point, like we've been talking obviously, like late night shows have been in the news. I don't think I need to explain to people why, you know, but to an extent, like, I mean, is that really where people are getting their views from? Right. Is a late night host who is, you know, I mean, I think at that, by the time you're getting to like, oh, I'm watching somebody say something on late night, you've already been inundated with, with, with content from seven other different places. Right. And so, and so I think, you know, the, the, I'm not surprised to see the Tick Tock content recommendation algorithm, which again, according to journals reporting a new version of that would be retrained, I guess, in, in, in this, in this deal. And I'm just not surprised to see that that's, that, that's a political football of like what is that push and, and what is that not and training it. I mean, certainly in my, just in my industry. Right. Yeah, you know, it's, it's, it's you know, the, the, you know, the, the media, you know, is, is, is only, you know, we're sometimes a passenger in, in some respects when it comes to like what, what, what, what do the different algorithms sort of do? So I'm not surprised to see that that's, that, that's.
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If you're Mark Zuckerberg, if you're Mark Zuckerberg, what do you. This is good or bad? It's a competitor to Reels that two years ago looked like it might get banned off the face of the earth. All right? Now it's not only not going to be banned, but it's going to be a US based corporation that competes directly with Reels. So from that standpoint, maybe not great on the advertising side of the business. It's a real competitor, I have to say.
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Like, maybe, like, maybe I just like me being like, you know, a relative, like grandpa of like social media. So I'm not the savviest sort of user of it. But it's like I feel like every app I open now kind of feels like TikTok. Like as a matter of fact, I was flipping videos, you know, kind of like you would on TikTok, right? Like next, next, next scroll. And at some point I realized I was not actually looking at TikTok. I was looking at what I think was like I just sort of stumbled onto that, the, the kind of the vertical video feed of Facebook. And so, and to be honest, like, just again, I'm speaking for myself, it's just like, you know, a middle aged user, these things. Like, it's like, you know, I do think there's maybe kind of we're reaching the point where like, I don't know what platform I'm on. I just know that I'm watching. But, and I think, and I, by the way, by the way, like, well.
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LinkedIn, LinkedIn has it now and YouTube has Shorts. So yeah, to your point, like everything looks like, Everything looks like TikTok now.
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In the same content. Like I see the same creators kind of pushed into different, you know, places, right? And I think people like, I remember the joke about Reels, what it was that it was like, oh, Reels is like where people go to see TikTok six months later, right? So, so I think at the end of the day, you know, how much does like one particular algorithm drive the conversation versus like the constellation, you know, of, of, of, of all of them. So, so, you know, I think, I think maybe the future is actually kind of maybe the biggest worry for, for Mark Zuckerberg is just maybe the future is a little bit like agnostic to that. Right? Like I, I know I get it on my device and which service.
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Oh, that's so interesting.
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Serves it up to me like, as.
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Long as the viewer could do this and just scroll up, up, up, up, up, they almost don't care what, what platform is facilitating that as long as the algorithm is good enough to keep people's attention. All right, I agree with that. We're going to make an extremely hard pivot because you've been writing a lot about rates and mortgage rates and I actually think so. I'm an equity investor primarily, and so I actually think the most exciting potential thing that could Happen Heading into 26 is a true recovery in the housing market. And of course that's not going to happen unless mortgage rates actually fall. They don't need to plunge, they just need to continue on their recent, let's say last three months, last four months, that kind of gradual descent that we've been seeing in mortgage rates. And you've been writing a lot about it. So let me set you up here. You said long term bond yields have been drifting lower because of a host of factors, including expectations the Fed will start cutting rates. Okay, we did that last week. The corresponding move in mortgage rates has been stunning. A Daily Tracker reported the 30 year fixed rates hit their lowest level since 2024. We're at 6.29% this past Friday. And on the Friday of the most recent government jobs report, which was a slower than anticipated pace of hiring, the 10 year fell point 09, which is a pretty big, is a pretty steep one day drop off. You also point to the spread between treasury yields and mortgage bonds, which is falling as well, which is important. So I'd love for you to just kind of give us your take on what we're seeing in that mortgage market and whether or not you think this is leading to the type of scenario that could unfreeze the housing market materially.
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Well, I mean, just to, to start with that last question, like, I mean, there are, you know, what, what could unfreeze the, the housing market, right? What could get people buying and selling again? I mean, you either have to have a big adjustment in the price of houses, right? Which is, you know, for, for homeowners kind of a, an ugly idea, right? Like basically like, oh, home prices have to get cheaper, right? Well, you know, that takes money out of a lot of people's pockets. So that's not really necessarily a fun thing to think about. You could have people making a ton more money, which I guess is the best case scenario. Right? Like everybody's just making a lot more money and then mortgages are more affordable.
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Unlikely. Unlikely right now.
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Okay, that's, that's. And then, and by the way, I, you know, these scenarios were, you know, kind of like, you know, I think one of the, one of the big mortgage guarantors, I think it was one of them kind of laid out these scenarios. So this is not an entirely original thought. But, but then, but then the other thing would be mortgage rates, right? Do mortgage rates come down meaningfully? Like, not just like, oh, from five and a half to five, but like from five and a half back to the world of twos. And so, you know, so, so, you know, will any of this move the needle? Unlike affordability? I don't, I don't know if we're talking about a move in mortgage rates except in like an extreme scenario that like, really changes that conversation. Right. So, so I just want to, I just want to level set there. Like, I don't think that, that any, any kind of move that we're contemplating in the, in just from the scenarios we're talking about here.
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Seven to five is, seven to five is meaningful.
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It's, it's meaningful, but it's not going to bring those affordability numbers back to, you know, and I'm going to. Hold on. I'm going to, I want to, I want to credit. Let's see. Give me, give me one second here. This is, I was reading a Twitter account news Lambert, Lance Lambert was, was, was kind of finding something from Fannie Mae kind of talking about these things. And to get back to pre pandemic affordability levels, you'd be talking about again in this calculation, a move back to, from, from six and a half to 2.23%. Right.
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Also on. So, also unlikely outside of a financial crisis.
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Right, right. The series of events that lead to that are pretty extreme.
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Right. So we agree.
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So I don't think affordability is going to change, however, you know, like, certainly at the margins. Right. I do think that there are, you know, some, some scenarios in which mortgage rates start to come down. What I was writing about, talking about that stunning move was, was just sort of noting that, you know, look, I don't know how many people follow the mortgage market that closely. I didn't really understand what drove mortgage rates until I started writing about this. And you know, there's, there's just, there's, there's the world of the mortgage rates that you See right you call up a bank or you look at like one of the comparison websites they give you a rate that, that doesn't come from. That's not like a you know, oh, fed funds rate plus kind of thing. It's a rate that's set by a market and that market is the mortgage bond market. And so when you make a mortgage loan it then gets, usually gets sold into the mortgage bond market. So what's going on with those bonds affects the prices that you might see in the. Get reflected in rates.
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Right.
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And what, what, what was happening there was, and, and this was you know being tracked by Mortgage News Daily. I don't know if most people, when people talk about mortgage rates I think they usually are talking about the, the Freddie Mac P. M. S. I forget exactly, I forget what that stands for. The primary mortgage market survey pretty sure. And that, that's, that's, that comes out on I think on Thursdays and that's backwards looking. Right, so, so you're kind of getting well where have mortgage rates been heading into this day? There are, are some daily measures of that and one that I've cited my work a few times is Mortgage News Daily. And so you know what they were noting was that what happened was there was this essentially kind of air pocket in the mortgage bond market. I just again not said I don't want to bore everybody but the way mortgage bonds work is like the bonds have a kind of a different coupons and so there's, and they come in.
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Half point and like buckets.
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Buckets. Right. So the six and a half, the six, the five and a half and every mortgage kind of gets sorted into one of those. And so what, what was happening in that particular this, this was after the jobs report a few weeks ago that where you saw like you know kind of 10 year long term yields which is really where kind of mortgages are more priced off of because mortgages, you know you take out a 30 year mortgage but a lot of people move or refi and so a 30 year mortgage ends up really having more of like a 10 year ish duration. Somewhere between 5 and 10 is kind of what people talk about. So, so that's why the 10 year treasury is a real reference for that.
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Market and the 10 year treasury is, is more powerful in terms of having the 30 year mortgage rate react to it. It's not overnight and it's. Right.
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If you want a quick guide to like what's happening in mortgage rates, look at that 10 year trend.
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Well let's, let's Put this, let's put this chart up. So this is from your article. So this is the yield spread between agency mortgage backed securities, current coupon and benchmark U.S. treasuries. And that spread has been falling, meaning the MBS products that people can invest in, the yield is getting closer to what I guess the benchmark U.S. treasury of the same maturity looks like. So that's a, there's a credit component to that. But I think chart off a little bit.
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A little bit. I mean agency mortgage backed securities are the ones that Fannie and Freddie and other.
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They're pretty much money good sponsors.
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Yeah, exactly. A little bit of credit, but not a lot.
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You're making this point though that I think is really interesting which is the institutional buyer of a mortgage backed security. If they. So one of the big risks to them is prepayment risk, right. So in other words they invest in a bond which is backed by mortgages. But a lot of people that own those mortgages, the, this, the nominal rate of the mortgage is so high that those are the first people who are going to refinance lower. When they refinance lower, they prepay the mortgage. The problem for, for the institution that invested is they thought they had all these years of high yields coming to them and the bond has just been, you know, the income is being taken away because the person prepaid. So as a result, you've pointed out there's actually more popularity from investors to buy the lower nominal yield, the 5%, let's say mortgage bond because there's less risk of that prepayment. And so that's that air pocket that you're describing.
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Exactly.
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And that in turn has an impact on the rate at which mortgages banks will make mortgages. Who can they sell? Sell it on to. It like really matters that there's a buyer for that NBC.
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C
Yeah, yeah, no, so, so, so it's like all of a sudden the market's mindset shifts to like, oh, I got to put, protect myself against prepayment risk. Right. I've sold this option to homeowners that they might exercise to, to refinance their mortgage at a lower rate. And so okay, I'd rather buy something that has a lower coupon or yield but I think will actually last, you know, for a longer period of time because otherwise I run the risk that like if, if, if, if my too much of my bond prepays, I don't, I don't lose money, right. I, I'm getting my principal back. But it means that then I'm Sitting on cash that like, you know, first.
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You have to invest at a low reinvest.
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Right.
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Yeah.
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And then the prevailing rates are lower and so then you're like, okay, well if rates are on their way down. So really this is all partly about the market's expectations of like the way rates are headed. And so what's really underlying all this is a sense that like, despite everything we've talked about, you know, you know, we kind of, you know, I know in the media, sometimes in the financial press, you know, we get kind of like, all right, there's a new narrative and that's that like tre. Treasury yields are surging. Right. There's like a day when the 30% hits 5, 30 year hits 5%. We all oh, okay, all right. What if rates keep going up and are there long term concerns about the U.S. fiscal health? Right. And, and you know, are people not going to want dollars because of tariffs and all that? Right. We get, you know, but then what happens is that you know, kind of couple pieces of economic data come in, they're not so hot and like some of the same old kind of muscle memory kicks in where it's like, okay, well that means that the Fed's probably going to cut. So that means that I should buy today's bonds at this yield because yields are going to go down and blah, blah, you know, or flight to safety. Right, okay. Oh, I'm going to, you know, cut some of my stock allocations, move into bonds, et cetera. So we saw the return of that dynamic, you know, as the, you know, once we started getting a couple of like not so great economic data points. And so then you just had this kind of like, then like basically, you know, the battleship turns and a lot of people in the market start running towards the okay, if rates are on their way down, here's how I've got to kind of.
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But it turns really slow, it turns really slowly. And institutional investors, when they get into a mindset that, you know what, we're actually more interested in buying the MBS at 5% versus 6. 6 is a better interest rate, but more prepayment risk. That battleship, once that turns, it's not all of a sudden going to turn back around because of one piece of economic data. I think that's a really good point.
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C
That sounds right. Yeah.
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And the self awareness that you have as a journalist, just understanding the tendency of journalists to be like, we want a new story to tell because it's a new day. It's not always a new story to tell. And I know. That's like a constant push of pull.
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C
Yeah. I mean, it's not just about the new story. I mean, but it is like we kind of have to be like, I mean, you know, I would say that at least the way I think about it is like, all right, something, something new or dramatic is happening. I can't tell you that it's going to necessarily keep happening, but I feel like if I don't note it or think about it, then if things really do head in that direction, I don't want to be in a position where like, I, I kind of was like, oh, no, no, no, this, this things will never happen that way. Right. It's like, it's like my version of like market timing. It's like saying like, I'm not going to write anything about 5% yields on the 30 year because I think they're going to come down. Right. I don't know, you know, like I'm, I'm doing my best, like everyone else to figure out what's, what's going on. And so, and so, you know, I want to, you know, I think sometimes the right way to consume, you know, financial media is, is, is not that we're making a call, but then we're just, we're trying to just like prepare ourselves and, and, and our readers for like, all right, if, if we take, if, if the market takes this to its logical conclusion, whatever, right? If they keep pushing on that, then, then here's what happens at the end of that. And maybe we don't get there, but I would rather feel prepared as a journalist and, and to the extent that I, I'm providing a service to readers, you know, just kind of flag for them, like, all right, here's, here's what's on that side of it.
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A
So I think, I think you're chronicling it and you're opening up the door to possibilities based on what's happening and not saying, all right, this is what's going to happen next. But you should be aware that historically when A, B and C line up, D is normally the outcome or has sometimes been the outcome. I think that's, I think that's the thing. And if you do that well, you let people make up their own mind and, and come to their own conclusion. I want to show you a chart we made for this. This is 10 year treasuries versus the 30 year mortgage rate. And my guys, Sean and chart kid Matt noticed the average spread since the year 2000 is 1.88%. The spread has now been above that average since March of 2022. But like these lines largely mirror each other. There's very little deviation here especially over the, I mean we're showing you the super long term 25 years, but you will very rarely see a huge deviation between the 30 year mortgage rate and the 10 year mortgage rate. At times the spread may be wider than others. But so when you said it's really the 10 year that you're looking at, if you're trying to understand the forward course of the 30 year, this is exactly what you're saying. But, but illustrated by us thoughts on this?
- [26:42]
C
Yeah, I mean that, that that spread has really been, it's, it's, it's, it's really been the conversation I think in the last couple of years because when, when. So you know, as people may know, you know, the Federal Reserve was for many years buying mortgage bonds right as part of, they call it credit easing, quantitative easing, whatever you want to call it. You know the, the, the, the Fed was, was, was in, in some ways you know, helping keep that spread really narrow by being a big buyer of, of mortgage, Mortgage Backed Securities Agency mbs. And so when the Fed stopped doing that, you know, a couple years ago and started letting that portfolio run off, like I think know most strategists, investors I've talked to, you know, have attributed, you know, some of that spread widening to, to that. Right. Just a big buyer coming out of the market. And, and, and, and you know to some extent banks, you know we're in the same position right back when you know, rates were near zero, they were like grabbing anything that had a little bit of yield, including mortgage backed securities. We know that that got some of them into trouble back in 2023. So, so you know banks have not been big necessarily been big buyers either. And so you have seen a widening but you know it's, it's not, it's not to like such a level that I would say that on a long term time horizon that those two charts like all of a sudden you see mortgages going like this and Treasuries going like this for a long time, you know, but you know it does and, and, and so, and so I think that you know there is the potential for, for some of that spread to continue tightening has, has, has and you know just take again it's not going to drive mortgage rates from 6% to 2% but it will, you know, maybe you know, shave you know, some fractional point off of that. And, and you know, listen, every, you know, we all know as, as home buyers or whatever, you know, every, every eighth of a point matters, right?
- [28:38]
A
Well, I think that, I think the bigger story watch for still and, and you guys did a feature on this. I don't think it was part of heard on the street, but there are millions of households where for every 50 basis points in the 30 year mortgage rate, it's like a new tranche of households, it would make sense for them to refinance. And I think the Journal stated it as rates would have to be 75 basis points or more below the new mortgage rate in order for the financial incentive to kick in and a household to say okay, now is where it makes sense to refinance. So having millions of new households all of a sudden be in a position to refi is also. It's not just about moving houses, it's about unlocking liquidity. Yeah.
- [29:27]
C
Though I will say, I will say where, where mortgage traders kind of like make their money, like. Right. The difference between somebody who's good and that and not or whatever is like really being able to, to, to, to kind of have a view on that prepayment rate. Right. Because there are things that affect that. You know, like for example, like if people maybe you could refinance, you have an incentive to refinance. But maybe something's happened to you that like, you know, your credit's not so good anymore. Right, right. Or you know, you can't pay the upfront costs. Right. Because there's, there's some out of pocket that you pay. So, so I think, I think people taking a view on the prepayment speed. Right. And by the way, other things I've read before and again this is outside of my expertise, but like, you know, what, what people in that market talk about is like, you know, okay, a lot of the market is, you know, what's the prepayment speed of a first time home buyer versus somebody who's not. Right. I think, you know, sometimes people think that first time home buyers prepay it at a lower speed. Right. Like they're less likely to refinance, you.
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A
Know, with the younger, lower income. Right. It might be a lot.
- [30:29]
C
Some of it is, some of it too is like, you know, also like is there an anchoring effect, right. Where like people remember 3% mortgages, it wasn't that long ago. Everybody's somebody, you know, their neighbor, the person who sits next to them at work, they've got 3% and so they feel like, oh, should I really be excited about five? Like even if, even if there's like a meaningful incentive. You're kind of like I'm going to.
- [30:48]
A
Wait till they're back.
- [30:49]
C
Four sounds really good. So I think, so I think, I think one thing too that like that investors net market are thinking about is like what is that prepayment speed going to be? And anyway just to let people a little bit of inside baseball there, like that's part of what people think about.
- [31:05]
A
Yeah, one interesting thing that you were talking about is that sometimes the rates don't behave the way that you think they will and we got a really great example of that last September. So the Fed surprised the market. They did a 50 basis point cut rather than a 25. Then they waited a year to cut again. But that's another conversation. But they do this 50 basis point rate cut and then what happens? And this is you. The Fed surprised markets by lowering its benchmark rate by half a percent at the September meeting. Over the next two months the 10 year treasury yield rose by about a half a percentage point and average mortgage rates jumped about three quarters of a point. So the bond yields didn't cooperate with what the Fed was doing with overnight rates and the mortgage market certainly didn't cooperate. And so that's a thing that happens. And so even if the Fed does deliver two more cuts this year or one more cut or whatever it is to your point, we don't know for sure that there is some sort of definitive read through to how the rate of the mortgage market will behave.
- [32:13]
C
Yeah, I mean there's so much that goes into whether or not people are buying or selling at that longer kind of the belly or whatever you want to call it of the treasury curve, right in those fives and tens, which is again where kind of mortgages are sort of, you know, you know, to some extent priced off of like, you know that, that depends on people's views on, on a million different things. Right. The, the economy, you know, politics, etc. Right. So, so you know the, the Fed cutting now as a matter of fact you could even see a scenario where like if the Fed cuts like super aggressively that, that, that, that you know, spooks people in some different way. Right. About like, you know, the direction of the Fed overall and is the economy going to go overheat?
- [32:58]
A
Is it going to be, what do they know that we don't know?
- [33:00]
C
Yeah, yeah. So, and so then you see, then you see people kind of like, you know, what do you call it, like a bear steepener, right. Where people are like oh this isn't good, I need to Sell, you know, so I don't know, maybe I mix up those terms, but like, but, but, but there, but, but you know, what the ten year treasury does is only somewhat related to what the Fed does at its next meeting.
- [33:19]
A
I want to get to one more thing before, before we let you go. You've been talking about JP Morgan and its ambitions in the credit card market. And I thought this is a really great piece you did. So you say that they are already number one in card spending and they want to be even more dominant in this business. Last week we found out there's new pricing on the American Express Platinum card. Also a lot of new features that are going to come along with that. But on the J.P. morgan Chase side, it's about the Sapphire Reserve. And they've been making a bunch of acquisitions, acquisitions that steer people toward more ways to spend money on trips, on restaurants. What do you see happening in this market and why do you think it's so important to J.P. morgan right now?
- [34:08]
C
I think what, what struck me and what, what got me interested in that was just seeing how, you know, here's like America's biggest bank by most, if not all measures.
- [34:20]
A
Yeah.
- [34:21]
C
And you know, and, and, and here they are like really kind of, you know, investing heavily in a business that I think people think of as like, oh, it's got, its up, right, like credit cards, like oh, there could be loss, the consumer loss is there, right. It's really competitive, etc. And you know, and then I think, you know, you just started to see it like we see it in our lives, right? Like the, the, you know, we read about like the relaunch of like, you know, of you know, the Sapphire card and it's you know, fee and the value add and Express does, does that too. And Citi has a kind of premium travel card. Capital One is. And so it's like the, what I wanted to just sort of write about was just like this is, this is a big business and it's really important for even a bank as gigantic as, as, as, as JP Morgan Chase, just because it's, it's, I mean the credit card business is, is, can, can be a really, you know, good business. Like not only does it itself, you know, make money, right. And, and, and that's, that's partly through the, the interchange fees that banks collect when you swipe your card, the kind of merchant fees we sometimes call them, you know, now some of that gets essentially like rebated back to people in the former rewards. Um, but you know, it's still, but still that's a lot of money kind of moving through the banks and, and, and, and they have partners, right? All the companies that, that, that participate in those rewards, like they want to be in on that, right? They want to be, they want to have that customer loyalty, you know, so, so, and the bigger you are, you're.
- [35:44]
A
Not doing it with them, you're doing it, you're doing it somewhere else. So they want you to do it with them. You pointed out JP Morgan Chase credit card sales volumes just so people have an understanding of like the raw numbers involved. And this is excluding corporate cards, this is just people using things like the Sapphire Reserve and some lesser cards. But that number pre pandemic is just below $200 billion. And as of the latest reading, it looks like you guys have that number now just shy of $350 billion. So that is one of the fastest growing businesses within banking, period, full stop. And you could understand why if you're consumer facing, it's like you have to win there. And they certainly appear to be trying to win, win it all. What do you think?
- [36:38]
C
Yeah, I mean it's, and, and, and if you think about it too, like you know, it's a, it's a feeder into all kinds of other banking businesses, right? Like if you've got someone's credit card, right, you, you know, you can, you know, obviously maybe might have their checking account too or have a shot at that. You know, you, you, you could pitch them a mortgage and then, you know, like I said, you've got the merchants, you know, in there too, right? Like you've got people who want to make deals with you, who want to do business with you because you, you, you essentially are this funnel of money and where you point people, you know, can be very meaningful to, to, to a merchant, right? Like, you know, you know, like I, I think one, one thing I've learned is that is it, you know, when you're listening to the earnings call of like, you know, American Express, you've also got to be listening to the Delta earnings call, right? Because those two have been, you know, they have, they have a major business together, right? And so like, and so I think, I think people just really need to appreciate like how, just, just the amount of money and just like the nexus of kind of like business that happens, you know, with credit cards, right? It's not just like this like, you know, thing in your pocket, you know, it's, it's, it's a huge business and, and even for somebody of the scale and stature JPMorgan Chase. And also just that like, you know, it shows too like how Chase, you know, given its, its, its size can, can really be you know, a fierce competitor in here where they can, they can deploy so many resources to, to, to making their cards, you know, attractive to, to, to users. Like that's, that's, that's, that's a tough competitor too.
- [38:10]
A
So you, so to that end, and personally I'm a shareholder in JP Morgan Chase, just full disclosure, but you point out how J.P. morgan has the ability to make investments here that pretty much nobody else does and that ultimately becomes an advantage. They just don't have people asking them about how they're spending their capital and how they're investing to the same degree that other banks might. And this is to quote you, the market has a high degree of trust in how JP Morgan spends its money. Unlike many lenders who can afford to be patient with the profitability of investments. You talk about the return on tangible common equity, 21% in Q2, well above its through cycle target of 17. It's the highest among the big six US mega banks. And they kind of are in this place where they can make investments and allow more time for them to pay off than many other banks that want to issue credit cards. And as a result they can win more customer business through those incentives. And the bigger they get, the more benefits of scale that come later as sort of like a longer tailed benefit to the company itself and its shareholders. It's a pretty unique circumstance that they're in.
- [39:27]
C
Yeah, I mean they just, they have a profitability cushion. You know, just given how, how high their you know, return on tangible common equity is, which is kind of a benchmark. I think that a lot of investors and that the banks themselves use to kind of look at their kind of core profitability that is like how, how well does their capital turn into, to profit. And so you know, so they can just, I mean you know it's, it's like classic right? It's like they can, they can, they could put a loss leader out into the market that sort of like just either grabs them share not and you know, and you know, so you know, so just, just thinking about them as, as, as, as a competitor is tough and you know, and, and that's not to say that other banks don't have like compelling credit cards out there right? Like, but you know, it's just like, it just seems like, and just talking to analysts, you know, this is a view that came up. It's like there's you know, when, when, when they're, you know, sort of saying, okay, we're going to invest in, in, in, in, you know, in our card business, the market's kind of like, oh, really? Like how much you going to spend? How long you going to do that for? Like, what's the, you know, whereas with, with sometimes it just, it feels like just looking at the way, you know, JP Morgan trades, it's like, oh, great. Oh, wow. They're, they're, they're investing more.
- [40:38]
A
Yeah, you got this.
- [40:39]
C
That's.
- [40:39]
A
We trust you.
- [40:40]
C
That's, that's a good sign. Right? And, and I mean, JP Morgan's not the only business that has that, but it's like that's, that's, that's, that's a good place to be and, and it, it may be, you know, kind of unique in, in, in, in, in banking. So now we'll see, right? I mean, I mean, cards are not a riskless business. You know, if, if there's a huge recession, you know, people, you know, borrowers are, are, can be exposed now, you know, again, chasing. And this is true of most of the big banks. You know, they try and play in the more kind of like prime, super prime part of the market. So they're not lending to people that they think are at big risk. But you know, you know, credit risk is credit risk. And you know, and then, and then also, you know, again, you know, playing, playing the, the, the rewards kind of race, running in that race with everyone else is expensive. You know, you got to be offering people, you know, they're, they're raising the fee, but they're also giving more, you know, kind of benefits, right? Like more credits and, and, and other, you know, you know, the point totals and stuff. So, you know, so, so it's not like, you know, you, you, you, you have to, to, to be be able to see through all that and to say, okay, we still think that we're going to be, you know, that this is a profitable business today and will be in the future. Right. Like if you just buy market share, we know that's not necessarily like a road to success. So, you know, so it's not, you know, we'll, we'll, we'll see if these things pay off as, as, as anticipated. But, but yeah, cards are just. And I think right now is a really interesting time. Like I said, you know, people probably seen the marketing for all the different, you know, kind of card brands that they know that, you know, you know.
- [42:16]
A
I still never, I still never get, never Got the call? Yeah, I never got the call with us. Open tickets from. From Amex Platinum. I don't understand who. Somebody's getting that call. It's not me, so. All right.
- [42:28]
C
You gotta spend more. You gotta spend money to make money.
- [42:31]
A
Tell us. This has been so much fun. Thank you so much for joining me. I want to let people know where they can follow your writing and your reporting. You are at Heard on the street with WSJ and then the podcast. Tell people how they find the podcast. What's it called?
- [42:46]
C
It's called WSJ's take on the Week. It comes out on Sundays. We focus on, like, markets, business, finance, you know, trying to look at what. What people are talking about in the markets and. And what's coming up. So. So it's a. It's a good. It's, you know, listen to it on Sunday mornings to. To kick off your week.
- [43:04]
A
It's a good Sunday morning. Listen. All right, tell us near the middle man. Thank you so much for joining us. We appreciate it. Thanks, guys, for watching and for listening. We'll talk to you soon. Ladies and gentlemen, it's. What are your thoughts? Good evening.
- [43:37]
B
Shalom. Shalom. Happy New Year.
- [43:39]
A
Josh, somebody in the chat. Gary wants to know, is Michael gonna be dressed up again or in a knick shirt? Wrong on both guesses. What is that?
- [43:50]
B
Is that Seattle 70s Supersonics?
- [43:52]
A
Yeah, man.
- [43:53]
B
Rest in peace. In peace.
- [43:54]
A
All right. And this was accidental, but we each have these. The. We each have the compound trucker hat on.
- [44:00]
B
I love them both. Honestly, I love them both.
- [44:02]
A
Yeah, I've been altered. I've been alternating Siegelman stable and one or one of our two compound truckers. Guys, if you don't have one yet, I don't Shop dot com. I really are, in my opinion, the illest trucker cap in the game. You want to get these while supplies last? Let me say hello to some people in the chat. Chris Brown is here. Evan Beauchamp, Matt Wycheck. Let's go. I agree. Biff Greebles. I see you. Who else is here? Georgie Cam, Dave Alva is in the chat. Blake is here. Talking about the risk sniffer. You're damn right. We're going to sniff out some risk tonight.
- [44:39]
B
What was the origin of that sniffing? I can't remember.
- [44:42]
A
There was a chart that was called that, and I just couldn't stop laughing about it. Walter Benven says Josh pounding it down here in Boca pounded hard. Walter pounded hard. That's weird. All right, we have a sponsor, Betterment Advisor Solutions, today's show is brought to you by our sponsors. At Betterment Advisor Solutions. If you happen to be thinking there's got to be a better way to grow my ria, you're not alone.
- [45:09]
B
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- [45:26]
A
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- [45:40]
B
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- [45:43]
A
All right, Shout out to shout out to Betterment. We like those guys. Okay. The market is so this would have been a better, this would have been a better lead in for us if the market had stayed green today.
- [45:59]
B
The market is what we about to say.
- [46:00]
A
The market is like, I guess like the market has been screaming. We took a little bit of a break today and like, from my perspective, thankfully, because I don't like those seven straight day up, you know, moments cause you know what they normally lead to. So we took a little bit of a breather. But there are now. All right, so the question is, is it too good? And man, I remember reading a Jim Cramer column in 1998 on the street.com and I'm pretty sure it was called is it too Good? Like this is a perennial problem for investors in bull markets. There are these moments where you just feel like, no, this is too good. Like it's, it can't stay like this for long and that's a per. And it won't. And it's a perfectly natural feeling to have. And Jim was saying there was a time in the Internet boom in the late 90s and he, I remember him writing a column about, he used to get his breakfast when he came into Manhattan from Summit, New Jersey, where he used to live. He used to come in through the Holland Tunnel and there was a diner on the other side of the Holland Tunnel. And the griddle was like a thousand degrees. And he would watch the guy crack two eggs on the griddle for him. And it's like you have to know the perfect moment to pull those eggs up because if you leave them on for 30 seconds too long, they're just burnt to a crisp and unedible. And he was like comparing that to the nasdaq, which, you know, it ended up being true. It was just too hot. That gives it too hot to put more money to work into this market atmosphere. So for starters, Mike would love to hear your, your thoughts on the environment itself.
- [47:44]
B
All right, so much to say. I guess I'll start here. It's not, we're not screaming higher. We're steadily grinding higher. And there's a big difference. The s and P500 hasn't been, hasn't closed 3% below its all time high since the beginning or since the end of April. Isn't that wild?
- [48:07]
A
We've got absolutely crazy.
- [48:09]
B
We've got May.
- [48:10]
A
So if you sammies are screaming.
- [48:13]
B
Yeah, no, no, no, we'll get there.
- [48:14]
A
Okay.
- [48:14]
B
If you, if you got out of the market in. After Liberation Day, as the market was screaming lower, as it was, as it was falling through the four, through the floor, we got that V shaped recovery and you're like, all right, there'll be some sort of. Maybe it won't retest the whole thing, but maybe it'll, you know, give me a better entry. Nope, no better entry. No better entry.
- [48:36]
A
Like, not even close.
- [48:38]
B
Not even close. So there are pockets of screaming euphoria. There are pockets of nothingness. But I would describe this market as, I guess, frustrating if you're looking for a better entry. Other than that, it's been beautiful. No pullbacks, no screaming higher.
- [48:54]
A
Forgiving. It's unforgiving for people that insist on buying dips. It's, it's just unforgiving. It is not giving you a chance to put money to work. If, like, I can't buy at an all time high. Well, I don't know what to tell you.
- [49:09]
B
All right, well, so, well, let's talk, let's talk about what's going on, like front screen first. And then we'll get to other areas of the market. What's front page stuff?
- [49:17]
A
Well, I want, I wanted to say this. Sean and I keep this best stocks in the market list which we'll talk about later in the show. We have some, some charts to show you guys. But we're looking for, constantly looking for where the strength is and the size of the list will undulate based on, you know, how good the market is. And sometimes a lot of names get wiped out all at once like they did this spring. And then when it rebuilds, the longer a rally like this grinds higher, the larger the list can grow. We have 209 names on the best stocks in the market list. And our universe is the Russell 1000 profitable companies in the Russell 1000 so it's not really a thousand, but like 200 of. Let's say, hypothetically, I don't know. How many companies in the Russell 1000 you think are profitable? 900 ish. A lot, probably. Regardless, there are a lot of best stocks in the market right now, and there's no story to tell. When I peruse the list, I look at it by sector, I look at my market cap size, I look at it by value versus growth. Any way you want to slice and dice it. It almost doesn't matter. You got stocks working from every corner of the investment. I don't know. Stockosphere. It's like, it's just agnostic. If you're a stock, you're probably going up right now. And I don't think in and of itself, there's a lot of meaning there. But I just think it's important for people to understand there are a lot of stocks that are doing well. One other thing. I got a text from a very famous man yesterday. You know, my phone is filled with texts from famous people. This is a really famous person, and I can't say who, but I can read the text. Mike, you could probably figure it out, but don't guess it out loud, okay?
- [51:10]
B
Mm.
- [51:14]
A
Bear with me. One. Sorry. Oh, here it is. Okay, so I hit him. I'm like, yo, Uber hit 100. We did it, like, joking around, because I've been yelling. I've been yelling at this guy, don't sell Uber at 70, 80, 90. Great job. So he says, I haven't sold any either. Can this market continue? Everything I have is to the moon. Can it continue? And then I don't answer because I'm busy. And then the next text is, fine. What are your best three for the rest of the year?
- [51:48]
B
Is this our client? Is this a client of ours?
- [51:50]
A
No, not a client of ours. Like, in other words, I probably gave it 30 minutes without answering because it. Just because I couldn't. It's like, all right, fine. So it goes from everything is to the moon. Can it continue? 30 minutes go by, no answer. All right, what are your. What are your next 3 favorite stocks? This is everyone right now. I feel like. Because even if you walk away, even if you take some stuff off, and I have personally, a little bit, it's like you're still looking for the. All the other stuff that's going up. It's really, really hard to not. To not participate right now. And I. Don't you feel like that's everybody?
- [52:30]
B
Yes, yes, yes. If you own stocks, you're making money. I do want to point out that there are a lot of stocks that are sucking wind right now. Like there's. There's two things are true. There are more stocks working right now concurrently than there have been in a long time. But there are also pockets of weakness, particularly those that are getting crushed by AI the trade desk is a great example. But there's a lot of them.
- [52:57]
A
I don't feel like there's a lot of them. I feel like there are a few notable ones. I don't know. That's kind of. That's kind of the camp that I'm in. There are a few notable companies that are. That are as you describe. I think there's way more stocks that just look up and to the right right now. I don't know. I mean unless you have five more examples of that. Because that's an obvious one. I agree with you. Do you have five more of those? I can't think of any. Are we frozen?
- [53:27]
B
My Internet is sucking win. Let me close some out.
- [53:30]
A
All right. Close some tabs because we're a little. We're a little bit live here.
- [53:39]
B
Four eyes and you bastards. You pieces of. What do.
- [53:42]
A
Are you in your new house?
- [53:43]
B
Can't get it right. It's unbelievable.
- [53:44]
A
Are you in your new house? Are you paying up for the business class? WI fi?
- [53:50]
B
Dude, I'm paying for the quantum. The quantum Internet.
- [53:54]
A
How's it going?
- [53:56]
B
Horrendous. Worse than the stocks. Is it really that bad?
- [53:58]
A
No. You're okay now.
- [54:00]
B
Okay, we're back.
- [54:02]
A
Yeah, we're back.
- [54:03]
B
Okay.
- [54:07]
A
The question was why does your Internet suck so much? I agree with you. The trade desk and some of these AI casualties are notable. I just don't think there are as many as you think there are. I think there are only a few. And you just. You happen to know what they are off the top of your head.
- [54:23]
B
All right, we'll see about that. So look at this for example. I'm going to go look at stocks that are 15% or more below their 52 week high. In the. In the. In the s and P500.
- [54:33]
A
Okay, hit me.
- [54:34]
B
There's a lot.
- [54:34]
A
Dude, hit me.
- [54:36]
B
Hang on a sec. Index. Index. Not any. All right. It's not working right now. Let's just keep talking. What else you got?
- [54:46]
C
Great.
- [54:47]
A
Okay. One thing that's concerning is that there isn't a bear case. And our friend Adam Parker points out that the lack of a bear case is the bear case. And I sort of get where he's coming from. And I think I agree with him. Those are usually not the best times to put new money to work when you can't think of a reason not to and there's nothing holding anyone back. And I sort of feel like that's where we are. So I just want to go into his piece for a second because I thought it was really good. He talks about a dinner he's with seven cross asset whatever geniuses. Adam doesn't waste time with people who aren't a minimum of 180 IQ and they're all laughing like what's the bear case? Maybe if Jamie Dimon gets bullish, like there's, there's almost like nothing to point to. And then so here's what he said. Even more than not being able to address a believable bear case, it's challenging to even know what to monitor to get increasingly bearish. Investors largely know that the paradigm has shifted with regard to using valuation as a primary or even secondary rationale for security selection. As for like financial conditions, which would be another thing people would be watching, they probably tightened concurrent with the market pullback, not in anticipation of one. So in other words, that's not going to help you. That's going to be a stock market driven thing. Monitoring comments from B of A about credit card spending and consumer conditions, tracking the card delinquencies, looking at employment data from LinkedIn, card data at MasterCard and Visa. These are all reasonable approaches to assessing the consumer, but they don't enable you to pre position for a downturn without alleviating the fear of missing out on further upside. So he's saying it's like the only two choices are you either have to admit you will be down when everyone else is down or you have to not participate at all on the way up. And those are two really shitty choices. But we know everyone's going to make the first one. And as far as all this consumer data is concerned, the consumer, he says the consumer has been solid but slightly eroding all year. Meanwhile the market has just absolutely ripped. The erosion didn't matter. So he comes up with, we're not going to read through all these. He comes up with three bear cases, potential bear cases. And can you guess them without looking? What do you think they are? If you had to guess what are the three bear cases that Adam would have come up with?
- [57:26]
B
Not valuation.
- [57:28]
A
Okay, fine, agree.
- [57:31]
B
Well, he's smart, so he. I think that Adam would also not say hyperscalers, slowing down their spending because that's not going to happen. They're all in. That's not a real bear case.
- [57:39]
A
Bear case one.
- [57:40]
B
Oh, really? But they, but they're.
- [57:42]
A
He doesn't believe it.
- [57:43]
B
But that's not a. But it's not a bear case. Because Zuckerberg said yesterday, I'd rather. I'd rather go bankrupt than underspend. I'd rather overspend a few hundred. That's not a real bear case. So what are, what are the three.
- [57:52]
A
Allow me. Quote, many are arguing that hyperscaler capital spending could balloon further. Forget about a bear case. Some believe the return for the spending is incredibly high. This past week, one investor told us Microsoft gets its return back in one year. Another investor said the aggregate return on hyperscaler capital spending breaks even in three years, has an ROIC of 15 to 20% in year four and a 30 to 40% return in year five. This means reasonable people in the investment world, in addition to those at the companies, believe that for now, even more capital spending could be justified. So he says, no way. That's the wrong bear case.
- [58:36]
B
Correct.
- [58:37]
A
Case 2. Government deficits force interest rates to back up, which eventually hits the stock market. Quote, we are worried about this, but we don't know how to time when it will matter. And positioning for its inevitability would have destroyed returns nearly every year for two decades. So he throws that out. Bear case three. This one, actually, I think is. Is the big one. My personal opinion, AI productivity boom hits white collar employment. Quote, recent data have indicated higher than normal unemployment from recent college graduates. The truth is, we don't have a great answer for this other than every other technological innovation cycle that focused on productivity caused labor to be deployed in new and different areas. AI feels like it has the potential to be different, but for now, we think what's good for margins for the top 500 US equities will probably matter much more for US equity investing than long term. Higher unemployment.
- [59:43]
B
That's what I was going to say.
- [59:44]
A
But my caveat is, for now, yeah, sure.
- [59:47]
B
All right, so the three bear cases that he laid out, they're not real bear cases.
- [59:52]
A
I think that's the point. He's like scratching and cloying for something and he can't find it.
- [59:58]
B
Okay, well, all right. I just want to. So I got the list. Let me ask you. Just circle back to when my computer froze. You said that the trade desk is just one example that's easy to pull from the top of the dome. Let me ask you this. So what do you think? Let me. Let's use 20%. Okay. How many stocks in the S&P 500 do you think are 20% or more below their 52 week high? So okay, the number is 150 higher than I.
- [60:28]
A
All right. Higher than I thought.
- [60:30]
B
Almost one in three stocks are. So. And if I, if I expand that down to 15 or more, it's 203. So not everything is up into the right. If you're 15 below, you see that on the chart, it's, it's.
- [60:42]
A
Oh yeah, yeah, yeah.
- [60:43]
B
It's 203 stocks. So this is my point. The stock market is not screaming. The hyperscalers are screaming. The semis are screaming the nonsense. Pre revenue companies are screaming at credit to you. If you're making money there, that's what screaming. Everything else in the middle is sort of blah. There's a lot of blah.
- [61:00]
A
There's a lot, there's a lot of blah. I guess for me, the fact that it's industrials, tech, communications and financials that are all at highs means so much more than just a raw count of how many S and P names.
- [61:16]
B
You're right.
- [61:17]
A
I don't give a shit about.
- [61:18]
B
You're right, you're right.
- [61:18]
A
I don't give a shit about all those consumer staples and drug companies that are 15% off their highs. A, I don't think anybody cares. B, I don't think they're the drivers of earnings growth for the S and P. Most of their market caps don't matter. And I think if they went to zero, nobody would even notice.
- [61:35]
B
I mean, that last part's not true. But the point that you made is, is the right one, that the stocks that you need to be making all time highs are. And that's all that matters.
- [61:43]
A
You see that now is it too good? No, it's not too good for the hyperscaler part of the market, for the AI story. So this happened, I don't know, last night, Nvidia to invest up to $100 billion in OpenAI linking to artificial intelligence titans. You know what this is? Like, this is like that episode of Scooby Doo where the Harlem Globetrotters show up. Or like Batman arrives and it's like, whoa, what are they doing? Like what.
- [62:19]
B
Is that, a 44 year old reference? What year are we talking?
- [62:21]
A
I'm 48. Yeah, no, in the early 80s you could. A thing that could have happened is you could have been watching Scooby Doo and then like they're trying to solve a case and Batman and Robin show up. And if you're seven years old when that happens. You have to like, you have to run a lap around the block.
- [62:39]
B
They could do that, all right.
- [62:40]
A
But it finally happened. The only way this story would have gotten better is if Nvidia is investing 100 billion into OpenAI and Dan Ives is delivering the cash in a brief, in a, in a tie dye briefcase. Like, I don't even know what else could have made this story like a, a more exciting story. And the rally kind of faded immediately after. But there were some really great memes and if you're like sensitive, now would be a good time to look away from.
- [63:12]
B
Hold on. Before the memes, I told, I called you, I, I, I spoke to you. Dan is the best, excuse my language. I was at dinner with him the other night in a, in a six person booth and there's two pe. So Dan, me and Dan are middling. And the two people to the side of him are in very traditional navy blue suits and he's in the rainbow outfit.
- [63:34]
A
I love him.
- [63:35]
B
I love him so much. Let's get to the memes.
- [63:38]
A
All right. I guess this is like a Nintendo joke, yo. If you, I heard if you press up, up, down, down, left, right, left, right, ba. In San Francisco, there's an infinite money glitch. So that's contrast. How do you get 30 free lives in. Okay, so talk. Speaking of 80s references. But like, oh, okay, so like OpenAI is going to spend $100 billion in the Oracle Cloud. Oracle is going to take $100 billion by GPUs. Nvidia will take that 100 billion and it make an equity investment into OpenAI. And it's just round and round we go. These three companies are building the Stargate, whatever that is. It's going to be huge. Here's the next one. I like this one. This is a great meme format, underused. Nvidia is investing how many billions into OpenAI to build 10 gigawatts of AI data centers. Because you know, the person in the picture has never thought of a gigawatt or an AI data center in her entire life or ever will. Here's another version of the merry go round. OpenAI buys capacity from OCI. That's the Oracle cloud. Oracle stock goes up, buys more chips from Nvidia, then Nvidia stock goes up. Then Nvidia invests 100 billion in OpenAI. Then right back to OpenAI buys capacity from OCI. Look, there's like, it's not quite this neat. Oh, there's one more, guys, get over it. All right, Nvidia investing 100 billion into OpenAI in order for OpenAI to buy more Nvidia chips. And I will not describe the picture. If you're listening, you'll just have to trust me. It's a funny meme. All right, so this is a not unfounded concern because this is sort of the way the dot com and telecom build out in the late 90s, early 2000s came to an end. You had a lot of companies that were doing these kind of like vendor financed equipment sales where they would like literally give a potential customer money. The customer would take that money and buy equipment from them. They were like financing their own growth. And they were doing it with routers, servers, storage, they were doing it with fiber optic stuff and like, it sort of like represented the capex boom slamming into the wall.
- [66:04]
B
Yeah. So this is exactly where we are. I was speaking about this with Ben this morning. Ben Thompson wrote about this over the weekend that this Oracle and he was quoting somebody else. This Oracle deal going negative. Free cash flow and making sure that there's now leverage involved because the hyperscalers, it was all free cash flow and they don't give a.
- [66:25]
A
We self, self, self financed.
- [66:28]
B
Yeah.
- [66:28]
A
Out of cash flows.
- [66:29]
B
So now you add the leverage, you add the, the debt involved and oh my God, this is a freight train. And I don't know, S P 10,000. Yeah.
- [66:39]
A
Core weave. Put it in the Dow. Look, we, we had like, we had this whole thing and I know a lot of the time I go back to that bubble because honestly it was the greatest show on earth. It was the most insane thing I ever witnessed. But we really did have like companies like Cisco and there were a lot of Cisco's back then. There was Juniper and Sycamore and Sienna. These were companies that were trying to sell as many routers and switches as they could into a telecom boom. The telecoms were being financed by IPOs and junk bond sales.
- [67:11]
B
But this is how, this is how this is at the end, right? Not, not, not.
- [67:15]
A
Yeah, that was this sign of the end.
- [67:17]
B
At some point in time once we start getting debt involved because the free cash flow can't support it. Like this is how eventually it ends. And whether it ends, you know, four quarters from now or 20 quarters from now, eventually it's probably, oh, somebody can't make do, can't make good.
- [67:33]
A
But it's, but it's core weave like look, I, I missed the run up in that stock and I really don't care and I'm missing the new run up. I missed the original run up in, in core weave. When it came public, I was skeptical. It dropped and then it ran from 35 to 183. And then it sort of had a slow motion collapse back to 87. And I don't know if that's because of like a shareholder lockup expiry. Okay. So a lot of people were able to sell and then sometime around the first day or two of September it just launched all over again. 87 back to 130. That doesn't sound like a lot, but this is a large market cap company. $64 billion market cap. And it is just careening back and forth between double digits, triple digits, double digits. This is for me, for me, ground zero in this whole thing. This is hugely debt financed. Yes. In the hottest business in the world, cloud computing. Another strike against it is, it's in New Jersey. Another strike against it. It's in Livingston, New Jersey. And I know everyone that lives in Livingston, New Jersey. I don't invest in companies based on Long Island. I definitely don't invest in companies anywhere around that Livingston Short Hills area. So it has a lot of strikes against it. And if, if that concept of like vendor financed purchasing hits the wall, that's where you're going to see it in that stock. People are going to get really scared of that thing. What do you, what are your thoughts?
- [69:08]
B
Yeah, I don't know enough about the Corve specific part of it, but I would just say again, it's really important that this is the next phase in the market. So this is, this is from Doug o'. Laughlin. This is really important. He said, okay. The implications are profound for Amazon, Microsoft and Google. They can no longer treat AI infrastructure as a discretionary investment. They must defend their turf. What had been a disciplined cash flow funded race may now turn into a debt fueled arms race. That's a vibe shift if I've ever seen one. Welcome to the next and newest phase of the capital cycle. I believe the Oracle quarter achieved something more elusive than just revenue. I believe Oracle has just sparked the elusive animal spirit to life. For me, Oracle is the quarter that we'll remember in history. I'm starting to think that the tariff potential. Anyway, he says, like this is it. Oracle is going negative. Free cash flow. Can you explain free cash flow?
- [70:07]
A
Wait, can you explain for everyone what was the significance of the Oracle? So this was the Oracle earnings report last week, which took place a month after earnings season. And the stock had its biggest move ever. It went up 40% in a day, which in dollar terms is Just an insane amount of money. What was it about what they said that caused that kind of a stock reaction? And why does that ignite this debt fueled arms race when before all these companies were comfortable spending out of cash flow? And like, like what it, what was it about what Oracle said that makes this guy feel that way?
- [70:45]
B
So one more quote and I'll tell you that he said, compare the spending of the big three with that of Oracle. Oracle is going to go negative. Free cash flow to win. And it's likely that incumbents will respond. I believe it's time for technology comets to start spending a lot more. And most already indicated that they will. But.
- [71:04]
A
But when? What?
- [71:05]
B
Hold on. On th. On Thursday, Mark Zuckerberg was on a, was on a podcast and he said if we overspend by a few hundred billion dollars, that is much less dat. He goes, it'll be unfortunate, but that will be much less dangerous than falling behind. So the contract that we learned about in the Oracle call was that a.
- [71:27]
A
$400 billion contract, I think $300 billion contract with AI.
- [71:32]
B
It was like $50 billion annually. And I can't remember the details, but OpenAI is only doing $10 billion worth of revenue and they're committed to like 50 a year for the next six years. Whatever the number is, there is not enough free cash to justify it and enter private credit or public and public credit. Right. Blackstone's going to get involved. All of these giant pools of capital are going to get involved. And if this does not translate into gobs and gobs and gobs of cash flow, and maybe it will, maybe it very well may well. But this will be the time where we look back on and say, okay, that was it. That was like the beginning of the end. And who knows when the end can be the end. 50,000 on the S and P, who knows?
- [72:11]
A
But I guess I'm trying to figure out where is the cash flow that gets generated from going negative cash flow to make these capex investments? Is it coming back in the form of subscriptions to OpenAI$20 a month from a billion people? Because then I sort of get it. Is it more like an enterprise customer spend? And all of these companies are now going to take whatever spending they were doing and migrated into AI and leave behind legacy spending that they used to do?
- [72:43]
B
Yes, it's all of these. I think it's all. I think it's the 493 that are not doing anything, that are basically at zero, totally rebuilding their entire stack in.
- [72:51]
A
The chat air Max. Elitist says a trillion dollar spend for a new search engine doesn't seem financially responsible. So I know he's being sarcastic, but, like, I do feel a lot of people are like, I don't understand. It's just a software I could talk to differently than I talked to Google. And that's where all this.
- [73:11]
B
All right, listen, I, I understand that sentiment too, but don't be so naive. Like, think about.
- [73:19]
A
He's being a smart.
- [73:20]
B
No, no.
- [73:20]
A
Yeah, no, but I'm saying this is. People think.
- [73:23]
B
Think about what. What happened when we got the iPhone 7. I'm sorry? The iPhone 7. Think about when we got the iPhone. What year was that? 07. When did we get the first iPhone?
- [73:30]
A
Yeah, could you. 7. But nobody bought one until iPhone 3, which. 2010.
- [73:35]
B
You never in a million years could have predicted everything that was to come. The GPS unlock, the Uber, the App Store, the Spotify, the Net. Like, not. Maybe not Netflix. You could never. You could never ever have guessed what's coming. So don't act like this is the final version and that it's done and that all of the. That Mark Zuckerberg is an idiot and you're smarter than him. Just don't, don't, don't be that guy.
- [74:02]
A
I said that on TV today about Jensen Wang and, like, Frank. So Frank Holland was guest hosting. I don't think Scott would have asked this question. Shout to Frank, but he's, like, asking me, Joe taranova and Jim Labenthal, like, is Nvidia making a mistake committing to spending 100 billion? And I'm like, dude, yeah, dude, are you kidding me? Like, like, in other words, like, can you imagine the audacity it would take for somebody sitting their ass on the New York Stock Exchange in a suit, critiquing what Jensen Wang thinks is the right investment to be making in AI?
- [74:40]
B
Good for you.
- [74:40]
A
Give me, like, like, come on. Like, what are we doing here now? We could critique, like, the shareholder reaction, and of course there's, like, room to discuss, like, whether or not the stock reacted well to it. I would argue it did not. I think if. If that announcement came six months ago, Nvidia would have gone right to 220. And Nvidia did not.
- [75:01]
B
It reversed.
- [75:03]
A
I think. I think it had a. I think I had a weak day today. That could change because my. Yeah, it was down 3% today. That could change because Micron just had great earnings after the bell, but Nvidia had this huge pop on that news and then gave it up.
- [75:18]
B
All right, markets open tomorrow too. All Right, but, but this is this. Anyway, the point is, I know we're going long here, the Oracle quarter and what's happening now, because I feel like we've been saying the same every week for the last, I don't know, six months. This was an inflection point. So.
- [75:35]
A
All right, wait, before we, so we, before we move off of this, the question is, what do you do? So my opinion, and then I want to hear yours. You do not buy any more AI unless you're willing to trim some of your other AI. I don't. In other words, for this, for me. I'm not telling other people what to do. I will not commit more dollars in into the AI theme unless I'm taking profits from something that's already gone up a ton.
- [76:03]
B
I don't want to keep specifically.
- [76:07]
A
Well, I guess at this point it's probably half the NASDAQ 100. It's all the utilities and the natural gas transmission companies that are related to the build out. It's the industrials that are digging up ground and assembling all of these new data centers. It's a really big theme and I guess from my perspective, I'm glad I'm in it. It's done really well. A lot of stocks have gone up. A lot, A lot of points or percentages for you, and that's great. I'm not looking for my 12th AI stock. And if I find one that I really want to be in, I think my argument would be okay, but the money's got to come from somewhere. I am not going negative equity to win the AI race as, as a common stockholder. I'm not, I'm not willing to play it the way that Oracle is willing to play it.
- [76:57]
B
Yeah.
- [76:58]
A
What do you think is the answer here.
- [77:01]
B
Man?
- [77:03]
A
Shut up and buy.
- [77:04]
B
I don't know. No, this is the fun part. I don't know. This is like what we're doing here, talking about. I don't know what the answer is.
- [77:09]
A
For everybody, but another answer is focus less on valuations and price targets and all that old school shit and maybe just focus more on your own position size.
- [77:22]
B
Hang on. I mean, I hate, I hate this entire conversation because specifically it's like, are we talking about your brokerage account?
- [77:28]
A
Like, I hope we're talking about you.
- [77:29]
B
I just say the listeners. Like, we're talking about, like if you have a fun trading account, right? This is not like your, this is not financial advice for your, you know, your, your retirement account or anything. Don't matter if you have a Stock.
- [77:39]
A
Trading account self directed or you work with a broker and you've got 25 stocks in your portfolio. Should you be looking for 26 stocks? Stock. And your whole portfolio is like Micron, Broadcom, Nvidia, amd.
- [77:53]
B
Right now? Right now? No, no, of course not.
- [77:55]
A
So that's, I, that's how I feel. And if you come across something that you feel like, all right, this is going to be the next phase of the AI trade. That's fine. Maybe lose, maybe lose a little bit of Microsoft then. Yeah, maybe lose a little bit of Meta.
- [78:08]
B
Okay. So it is a very interesting market we have on the one hand. And like the market who. The participants. There's so many different story lines and areas of the market. You have the American association of Individual Investors that we've spoken a lot about not participating in. In, in the euphoria. You have Charles Schwab's quantitative. Literally, what are the clients doing?
- [78:34]
A
This is not a, this is my quant.
- [78:36]
B
This is not a, this is not a survey. What are the clients doing? They're not very bullish like at all. The last five months it's been sort of flat. And then you have, of course you have this one corner of the market. So I opened up my Twitter and I saw Buko Capital, who is one of the best accounts on the platform in my opinion. Tweet and he nailed it. My feed is just retail investors posting screenshots of literal millions and gains from unprofitable and even zero revenue businesses. And then some fundamental investors slowly going insane. Yeah, screaming into the void.
- [79:09]
A
When have you seen that before? I saw 2021. 2021.
- [79:14]
B
You know, the original. Somebody tweeted this. I can't remember. It was so good. This is like 2016 about people just screaming. Professional investors screaming into the void.
- [79:23]
A
This is.
- [79:23]
B
Anyway, okay, so the people that now forget Schwaben and, and the AAI talk about young people that are into trading the Robin Hood like the, the retail investor, when you think about them, they're on fire. They are absolutely on fire. So Goldman Sachs has a, has a basket. The. So trot on please. This is from Sherwood Lukawa. Luke said a Goldman Sachs basket of stocks widely held by the retail community is going straight up and to the right, poised for a record 10th straight day of gains. It's.
- [79:57]
A
Look at that bar. The bar is the number of days, consecutive days.
- [80:01]
B
It's up 13% over a 10 day period now. Liz Ann Sonders and I'll stop talking in one sec, Josh. Liz Ann Sonders tweeted The meme. The meme stocks are up 73% on the year. And credit to us, we created a degen dow. Unfortunately it's not investable. Chart off for a sec, John. I just want to set this up. So we first unveiled this in December 2024 and we were like listen, if this is the top, we'll own it. Our bad. Sorry if this is like negative juju. Bad vibes.
- [80:31]
A
People are mad at us.
- [80:32]
B
Okay. The DJ Dow is up 67 year to date and interestingly a lot of the names that I would think are in the meme index, a lot of those things are not in here. So we have. Look at that, up 67 and yeah. Holy, it got so even more impressive is than that it almost tripled off the lows. So here's the thing. You have hyperscalers going berserk, the AI trade and then you have all of these not even unprofitable names. Although yes, they are unprofitable in some cases. You have pre revenue companies. So Josh, you know what's going on with oclo, the nuclear company, the mini.
- [81:13]
A
Nuclear reactor company that Sam Altman is invested in.
- [81:17]
B
So this company looks, honestly it.
- [81:20]
A
It looks like they just invented GLP1s.
- [81:23]
B
So this, the stock is going straight up. It's up 1,500% of last year. Whatever. It's. It's a $20 billion market cap. No revenue.
- [81:31]
A
Yep. Why would you need revenue?
- [81:33]
B
No revenue, no anticipated revenue. Next year, maybe in year 27. And they speak a lot on the, on the, on the call about the administration and data centers and nuclear energy and listen, investors aren't stupid, okay? It is going up for a reason. And not only are the people that buying it not stupid, now maybe some of the people that are buying it today are stupid, but credit to them if they made money. Making money is not stupid. I don't, I don't puts merch these investors. In fact, making money is the opposite. Making money is the opposite of stupid. However, I got a text from my brother in law who is a. An artist. Okay, he's an artist. He's a musician. He doesn't ask about the stock market and when he does, I pay attention. So he said my dad made some adjustments to my portfolio. This is on on Saturday recently and asked me to pass all along a question for you. He purchased shares of Oclo, a startup work on nuclear reactors to power AI. Since then the stock has got up about 20% of my account. He's curious if you have any perspective on OCLO specifically or more broadly on the rebirth of the nuclear industry. So I said, oh, boy. Lol. I was just looking at this. So I said, I haven't done any work here, but I'm just showing him a few tweets. Yeah, somebody tweeted. I shared this with him. Here's a tweet from Sad value investor. My boy who thinks that OCLO is almost the same size as Nvidia because the share prices are similar is up 200% this year. All right, let me read that again. My boy who thinks that OCLO is almost the same size as Nvidia because they have the same share price. His account is up 200% this year.
- [82:54]
A
You know how frustrating that. You know how frustrating these moments are for people that know anything. The more you know, the worse you're doing right now.
- [83:02]
B
So to Bucho's point. So here's what I said. This is a speculative mania. It's a $20 billion market cap. I have zero insight into the fundamental hope driving these moves. But it's wild. Doesn't mean it has to stop going up tomorrow. But yeah, ride the wave, but don't risk more than you could lose. I hate talking about this type of stuff I'm not educated on, but this type of vertical move higher usually ends very poorly. So again, if you just have a few bucks in this name, then by all means, who cares?
- [83:27]
A
You have a million dollar portfolio. Maybe you could just take $10,000 and buy Vix call options December or January strike and just wait for some shit to happen. And that's. That's like if. If you want to buy insurance because your portfolio is so much and you have so many of these names.
- [83:47]
B
Yeah.
- [83:47]
A
And you can't believe how much they're up. If you want to. If you want to peel 10 grand, 1% out of a million dollar portfolio.
- [83:56]
B
1%.
- [83:56]
A
Do it. Yeah.
- [83:58]
B
Oh, oh, I'm sorry. You're 100% right. Yeah, yeah, yeah. Fine.
- [84:01]
A
Take 1% of a million dollar portfolio. Buy. Buy Vix. 25 calls.
- [84:06]
B
Oh, don't even.
- [84:07]
A
Don't even look at the premium. Forget whatever it is. Doesn't matter. Because if we get one of these swift 10% ass kickings because of how insane things are right now, you're going to be thrilled that you did. That is not financial advice from me to you. I'm speaking rhetorically. I don't know you. I don't know. I don't know anything about you personally.
- [84:28]
B
So Tyrone just texted us a text that he got this Morning. Good day. How do you feel about our. Like, everybody knows. Everybody's in.
- [84:35]
A
It's the next. It's the new pal. It's the new Palantir.
- [84:37]
B
Sure. So, all right, so I, I said, I've said this now put up the.
- [84:42]
A
DJ and real quick. We don't have this one.
- [84:45]
B
So none of these things are. We don't have Ionic in here or Ionq, whatever it is. We don't have the quantum computing that we're getting Ionic.
- [84:51]
A
That's the quantum computing and qbt. What do we have in here that needs to be.
- [84:57]
B
We don't have. We don't. We don't have rigatoni. Get. Get DraftKings out of here. That's.
- [85:02]
A
We don't have rigatoni.
- [85:03]
B
We don't. Rigatoni. DraftKings might as well be apple at this point. Get that out of here. We need to.
- [85:07]
A
Dude, I just realized you're not a Sopranos guy. That's like one of the best ever. One of the best ever. Anthony Jr. Lines.
- [85:14]
B
My bad. What was it?
- [85:16]
A
It's like a fight at the family dinner. No, no, it's like a family fight at the dinner. And he goes, he's like eight years old. He goes, what? So no ZD now. All right, what's rigatoni? Rigetti Computing regatti.
- [85:31]
B
I want to, I want to end with this. It's really hard not to see this nonsense. All of these unprofitable and in some cases pre revenue names going up 20 a day with a 20 million on market cap. It's really hard to see that happening and not want to take all your money out of the market. However, this is the world that we live in. This type of activity is not going away ever. Get used to it. This is the game now. Don't let it distract you from the fundamentals and the reality that this is a legitimate bull market and this nonsense is just going to happen when there's risk appetite. You're going to see these type of moves. Get used to it. Last point. Throw up this chart. I asked Sean to make me a chart. Great work, Sean. Chart off, please. Actually, let me set this up. I said, Sean, how many +1% days have we seen in the equal weight since July? I just put. Picked a random date and he made this chart. Look, look, look back please. Chart on. So we've have. We've had seven 1% days for the equal weight index since July 1st. That's 59 days. So Sean zoomed out and made a 59 day window and look very normal. And this is normal. This is, this ain't nothing. This is nothing. So when you say we're screaming higher, there's a, it's a speculative mania. Yeah, in some places. But it's, but this is nothing.
- [86:55]
A
I mean we're going to like now mass produce mini nuclear reactors. Like igloo cooler sized nuclear reactors.
- [87:03]
B
Dude, they're going to be in your ear.
- [87:06]
A
Can I have one in my backyard? Look, I know we're joking. All of the capex spending, the trillions of dollars in capex spending for data centers, it's worthless if you can't power the facilities. And you literally cannot power the facilities with. And Michael Semblis explained this to us in many different ways on many different occasions. You absolutely cannot light all of these facilities with the current energy infrastructure. There's literally no chance that you'll be able to do it. It's not going to be wind, it's not going to be solar. Like you literally need something that's nuclear. Now do we want to build like 10 more Three Mile Islands in this country? I don't think there's the appetite for that. So the OKLO bull case and all the uranium stocks, like I totally get it. And we talked about this with Jan Vaneck and they have an ETF that owns all this nuclear stuff or like Right, like all the miners. Okay, so I totally understand the story that almost like you can't have the AI projections. They're making the usage projections. You can't have them if you don't accept the fact that there's going to be a heavy nuclear component. So fine, I get it. I still don't want the exposure to it because I'm not convinced it happens in a linear fashion, like in a straight line. And if I miss, if I miss, I miss. But I can envision a scenario where these stocks are all cut in half in the course of 20 days and people are like holy shit, what just happened?
- [88:44]
B
I'm looking at, for Vanex, when I was on. Did he say this was their biggest one? Oh, nlr. Is that the one?
- [88:49]
A
NLR Nuclear. He said it was their biggest, biggest inflows this year.
- [88:55]
B
This thing has $3 billion in assets.
- [88:57]
A
Probably all in the last 12 months.
- [89:00]
B
So anyway, in conclusion, it is a fun and interesting and boring and psychotic insane market all at the same time. There's a lot of different things going on.
- [89:11]
A
Okay, here's something interesting. We got a, we got an update to the OECD global growth outlook and it turns out that a Lot of our worst fear is about tariffs really just are not showing up in the way that they were expected to show up. Not really serving as that much friction. And you know, we're hearing once more, well, you haven't felt them yet. All right, so. But definitely I will like at this point. Right.
- [89:45]
B
Is that what they're saying?
- [89:47]
A
It's a little bit like waiting for, you know, it's like waiting for Godot. And I don't know. Do you know the reference? So Waiting for Godot is a famous play. It's horrendous by 21st century standards. Unwatchable. The point of the play is that nothing happens. It's two characters having a two hour conversation that just goes in circles while they're waiting for somebody to show up. For some reason, Godot never shows up. Spoiler alert. It's a complete waste of time. But I guess for people in the late 1800s, this was like the height of entertainment. Anyway, waiting for these sounds. Yeah, no, it's amazing waiting for these tariffs to like show up. It's a little bit like waiting for Godot. We're just talking ourselves in circles. But let me, let me quote a few things and then I want to hear what your thoughts are. The OECD now expects global growth of 3.2% this year. Compared to the 2.9% expansion it had forecast in June. Global growth was more resilient than anticipated in the first half of 2025, especially in emerging markets. The full effect of tariffs is yet to be felt. However, we are warning of significant risk to the economic outlook. That sounds like they put that in every report.
- [91:08]
B
That's, that's a Grand Rapids hedge big time.
- [91:11]
A
That you could just automatically include that. But what's notable is that they are now raising the global outlook and the US outlook for GDP. The OECD now expects headline inflation to amount to 3.4% across G20 countries, slightly lower than June's 3.6% projection. So they are reducing the tariff shock, inflationary pressures that they were worried about and raising the. The global economic growth. And I just. One last thing that I wanted to pull out. Let me see if I can find it. Oh. Growth expectations for the US alone went to 1.8% for 2025. The June essay was 1.6%.
- [92:00]
B
All right, enough.
- [92:01]
A
All right. But. So like that's the backdrop. So you talk about a lack of a bear case.
- [92:05]
B
Yeah.
- [92:06]
A
This is not a situation where the global economy is teetering. We're getting rate cuts and they're raising Growth expectations simultaneously. Think about that.
- [92:16]
B
I'm thinking, I'm thinking, I'm liking. I don't think that this is just a us phenomenon, although it's probably more pronounced here. This K shaped economy that we live in, it is what it is. And obviously like the fabric of our society part. Let's just, let's not talk about that for a second. Just purely the economic ramifications, okay? Purely economic. The people with money have so much of it and are spending so much of it and I don't know what stops that.
- [92:46]
A
There is stock market crash.
- [92:49]
B
Yeah, it's circular. It's circular logic, right? Like as long and as long as they keep spending, the stock market will keep going up and up and up. And it's, it's the meme that we were talking about earlier.
- [92:58]
A
But, but you made it. You made the most important point that it's not a US only phenomenon. I follow a lot of celebrity DJs, and these are people that go around the world playing parties and depending on the time of year it is, they're going to the same spots because that's like where this global elite class is gathering. And sometimes the top 1% in the world, sometimes like the top 10%. So Ibiza, Ibiza is not all 1% or global 1 percenters. It's just the place to be. But this is like a migrating party. It's the same people, they go around the world and it's one point of the year they're in Saint Tropez, then they're in Monaco, then they're at the F1 race in Miami, the F1 race in Austin.
- [93:42]
B
Is it Monaco or Monaco shot?
- [93:44]
A
No, it's not. But like they're in St. Bart's at the end of the summer. It's like this, this thing. But like the amount of people who have the money to be at these things at this point is like what, what I think has changed. Like imagine like these velvet rope opportunities to go to these places to see like Marshmallow DJ or something. And you can't get in, right? It doesn't matter how much money you have, you can't get in because the sheer amount of people who have the money to do this has exploded. And I think that that's not what changed.
- [94:20]
B
And it's not debt, it's equity. We've got equity and cash equity.
- [94:23]
A
So, you know, I'm a wealth that guy.
- [94:26]
B
I know.
- [94:26]
A
You ask me, you ask me like, what, what changes this? I just think it's the stock market. You, you get a 20. Another 2022 without a V shaped recovery at the end. That's what changes this.
- [94:39]
B
Sure. Yeah. But like, and you. Do you want. You.
- [94:42]
A
You want to. You want to, like, bet on that?
- [94:44]
B
No, dude, it ends. It ends when it ends, it'll write like, I don't know. That's it.
- [94:49]
A
True. All right. One last thing on this. Powell spoke today in Rhode Island. Neil Dutta had an instant reaction. We could put this up if we have it. In Powell's speech, two things stood out to me. First, the recent pace of job creation appears to be running below the break even rate needed to hold the unemployment rate constant. Second quote, the increased downside risks to employment have shifted the balance of risk to achieving our goals. So Neil is saying policy still be characterized as modestly restrictive. There's reason to expect Powell to be on board with rate cuts at each of the next two meetings. So, like, assume. Assume Powell's pivot toward being more outwardly concerned with the labor market versus inflation. Another two rate cuts. Last thing. I'm seeing a lot of versions of this chart going around. Put this up. Have you seen one of these yet?
- [95:43]
B
I have not.
- [95:44]
A
I hate these charts, but that's why I'm pulling it out for you. 2018 versus 2025. We had this really scary dip earlier in the year in 2018, when the tariffs started. Then we had a big recovery in the S and P. And then in the fall, the wheels just completely fell off and the market crashed into Christmas. And a lot of people are taking that action and they're plotting this year. Now, obviously there were more differences than similarities, but I wanted to just.
- [96:14]
B
This is criminal.
- [96:15]
A
I wanted you to get a little fired up with this because I've seen a few versions of it.
- [96:18]
B
This is criminal. Show me the percent change. That's.
- [96:21]
A
That's horseshit. No, because that ruins it. The percent change actually is not that bad.
- [96:26]
B
Yes. No, it's bad.
- [96:29]
A
How much was the April. How much was the April correction? 19%.
- [96:33]
B
Is that all it was?
- [96:35]
A
Yeah, I think the March correction in 2018 was 19.
- [96:37]
B
Oh, really? Because I remember March was. Was 19. It was only 19 this time around. All right, maybe I stand corrected either way. So what? Lines can only go two directions. Okay. They can go up, three, up, down, sideways. Oh, shut up. This nonsense garbage. All right, next. Next topic. So I want to go through this quickly because it's enough already. But. But Josh Schaefer tweeted this chart from bank from Savita Supermanian, and she said, Since 2023, consensus has been overestimating earnings growth for the 493 while underestimating growth for the MAG7. It's just remarkable. Like the dark blue lines, the forecast has, has continually come in lower than expectations. They've been underestimating and overestimating on the, on the, on the light blue line. Just remarkable. Remarkable. Next chart. Todd Stone, semis. Holy shit.
- [97:33]
A
They're 15% of the market now.
- [97:35]
B
Unbelievable. Broadcom is larger than Meta. What in the world?
- [97:39]
A
Not for long. You know the thing about Mark tracking changes in market cap or dollar amounts in market cap, man, that Overnight. Overnight.
- [97:49]
B
Yeah, yeah, you're right, you're.
- [97:50]
A
We've seen hundreds of billions come out of Apple at the drop of a hat.
- [97:54]
B
So perfect segue. Next chart. Apple and Nvidia now 14%. 14% of the S&P 500. Wow.
- [98:01]
A
The two stocks combined are 14%. What is it, what is the thing we used to talk about where like AT&T and, and electric were 40, 20% in the 1960s or 50s?
- [98:14]
B
No. Yeah, it was, man. In my head I think it's like 17% and we're getting there. We're not too far away.
- [98:19]
A
It's. It is right? It's wild there.
- [98:22]
B
All right. However, all time highs everywhere. For the first time in a while, The Ross of 3,000 spent years on the water. So finally we got the Dow, the S P, the NASDAQ and the Russell for the first time since 2021. All right. I've said this before. It's like there's so much data and information. It's really easy to make, to paint any picture you want about the market. I mentioned earlier. And it's fine. There's nuance involved. It's not black or white. I mentioned earlier the euphoria in that segment of the retail market, which is, let's call it what it is, and I'm not mad about it, but it is euphoria. And then other places in the market it's like, you know, sort of yawn. So Urian at Fidelity Urine, Timmer is talking about, he's talking about lack of froth in the market. So Urine says another sign of froth in the market would be a surge in IPOs and M& A activity. So far there are no signs of this. The chart below shows that IPOs and secondaries remain at average levels and far below the extremes experienced in the easy money liquidity bubble in 2021. Chart on. Look at this. So the purple and blue lines at the bottom, that represents IPOs and secondaries. And nothing compared to that.
- [99:31]
A
I have a counterpoint to this. Would you like to hear it?
- [99:33]
B
Sure.
- [99:34]
A
Okay. We don't need new IPOs for that to have that froth.
- [99:39]
B
Agree.
- [99:40]
A
We're dredging up the old IPOs that were broken.
- [99:43]
B
I agree. You're right. You're right.
- [99:44]
A
Open door. All the shit Eric Jackson's doing with. I don't even know what those stocks are, but those were 2021 vintage IPOs. When you have a stock at $2 that runs to 10, there's no need for there to be a wave of new IPOs.
- [99:59]
B
I agree.
- [100:00]
A
We have the old ones. I'm in Joby and Archer aviation. These are 2021 vintage bubble stocks, but they've made a lot of progress in their business over the last four years. But, like, that's what's replacing.
- [100:14]
B
Yep.
- [100:14]
A
All of that supply. But then we do. We don't have a bubble in IPOs, but we got core weave this year, and we got a bunch.
- [100:23]
B
All right, so next chart shows M and A activity, or lack thereof. It's almost fallen off a cliff. Not almost. It has fallen off cliff. But, Josh, to your point, you're right. I. Us IPO activity picks up after Labor Day September. Strong start stands out for us recently. That's Bloomberg. So we are getting more IPOs. But you're right, you're right. I think the. The context that you give around uran's like, of IPOs is. Is. Is important. So there you have it. More of that. And then lastly, do you have anything else? Let's just. Let's. Let's wrap up the AI glasses we.
- [100:50]
A
Got to do you want to do real quick? Give me 30 seconds on the AI glasses.
- [100:54]
B
So Meta is really going for it. $800. It can show text messages, video calls, turn by turn, direction of maps. They predict that Meta will sell over 100,000 units and so 100,000 units by the end of next year.
- [101:14]
A
All right, this might end up being my worst take. And Nicole can save a copy of it. I think these are for virgins. And I don't. I don't think they're selling 100,000. And I don't think it's socially acceptable, at least not yet, to walk into a room wearing glasses with cameras on the front of them. And now could that change with Gen Alpha, like, based on.
- [101:37]
B
Yeah, I agree with you. I totally agree.
- [101:38]
A
It could. It could for.
- [101:40]
B
For.
- [101:40]
A
For people in my demo. Don't step to me with this shit on your face.
- [101:45]
B
Don't worry. I don't think Anybody's going to, but I agree with you.
- [101:48]
A
Okay. All right, let's do. Make the case. I wrote this up for CNBC Pro with Sean. We talked at the end of the show last week about these energy stocks. They were ripping again this week. Man, I'm telling you, there's something percolating here.
- [102:01]
B
I don't own any of these, okay?
- [102:03]
A
This is the worst corner of the market. I'm going to show you the best stocks. I have five. And we gave these letter grades. Let's roll through these. Valero. This is the best one. This one. For some people, they'll look at this and they'll be like, God, I missed it. And I get it.
- [102:21]
B
I get it. What do you mean?
- [102:22]
A
I know, but I understand it.
- [102:23]
B
No, I don't. No, I don't. I reject that. This thing has gone sideways.
- [102:26]
A
Out.
- [102:27]
B
This thing went sideways for a year. It's only starting to move.
- [102:30]
A
Okay. Another refiner marathon. Pull this up. This one looks even better. You buy this, right?
- [102:36]
B
Yeah.
- [102:36]
A
Yeah. Here's Baker Hughes. This. If this one takes out 50, I.
- [102:43]
B
Feel like the stock never works.
- [102:45]
A
It never works, but it sometimes works. If this one takes out 50, who's selling it?
- [102:51]
B
Okay.
- [102:51]
A
Who's selling it? Honestly?
- [102:53]
B
Yeah.
- [102:53]
A
This is. This is not a refinery. This is Oilfield Services. And they have done a really good job managing.
- [102:59]
B
Don't give me fundamentals, dude. You don't know shit. Next chart.
- [103:01]
A
Thank you. Phillips 66 is the other refiner. This is the one that hasn't broken out yet. It's the juiciest. It's juicy, right?
- [103:09]
B
Yeah. Like it.
- [103:10]
A
Because if you like the marathon chart, this is the marathon chart, but three weeks ago.
- [103:15]
B
Yeah.
- [103:15]
A
You understand?
- [103:15]
B
Yeah.
- [103:16]
A
Okay. And there's an activist, I think Elliot is in this stock in size. So I thought that was an interesting one. Here's. I do own this one Chevron. I'm finally green. I got murdered in this stock when I first bought it. Take a guess where I bought it. Yeah, on this chart.
- [103:33]
B
I mean, that did look clean.
- [103:35]
A
I know. It was a. It was a failed breakout because of Liberation Day, but I. I averaged down and I survived. I don't trust it. So I think it's a good dividend stock right now, but I don't think this one's gonna go, so I gave that one a C. Anyway, my make the case is time to start looking at energy stocks again. I know there have been a lot of false. There's been a lot of false promise in this space, but someday you're gonna wish you did. And that's. And that's my story.
- [104:03]
B
Okay.
- [104:04]
A
Got a mystery chart for me?
- [104:05]
B
I do. All right, so let's go short on John. All right. We're looking at a one year time frame. All right. I'll give away the orange line. It's an. I mean the orange line is an index. It's the index. And the purple line is another index in a different area of the world that you'd be surprised that it's beating our index.
- [104:25]
A
Okay. This is Chinese Internet is purple. And the orange line is either the NASDAQ or the xlk.
- [104:34]
B
So the orange line is the S and P. And purple line is not that. Let's zoom out a little.
- [104:41]
A
I did really good.
- [104:42]
B
Then let's zoom out a little bit. This is a tough mystery chart.
- [104:44]
A
But like, can you give me something else?
- [104:45]
B
I will. This is five years. Okay. So would you say that five years is not cherry picked? It's five years?
- [104:52]
A
Yeah. These are the same chart.
- [104:54]
B
It's five years.
- [104:55]
A
Almost perfectly identical. Not perfect, but almost.
- [104:58]
B
All right. The purple line is.
- [104:59]
A
Is basically the opposite of what international European banks versus.
- [105:05]
B
All right, close. Its international value. Isn't that wild?
- [105:08]
A
I'm really good at this.
- [105:09]
B
No, but. No, it's a tough guess. But isn't that. I only just want to show you, like, it's not very.
- [105:14]
A
Wait a minute. How was I supposed to guess the Fidelity International Value?
- [105:19]
B
It's International Value Index. I told you it's a tough one.
- [105:22]
A
This is not guessable.
- [105:23]
B
My. Okay, my bad. I'll let you up next time. I'll let you up next time. This is not.
- [105:26]
A
No, but you. You have to say it's an investing style.
- [105:29]
B
This. This is not guessable. Forget it. My bad, my bad. But isn't that wild?
- [105:34]
A
See the shit I pull out for you next week? Penny stocks. Bull.
- [105:39]
B
Isn't that surprising? International Value has outperformed the S and P for five years.
- [105:43]
A
I would not have believed if you.
- [105:44]
B
Didn'T show me this way.
- [105:47]
A
I think the foreign banks would probably be the key to that. I. But who knows? Maybe I have no idea what I'm talking about. They have a lot of miners and gold is up a lot. Maybe that helps.
- [105:58]
B
Sure. I don't know value.
- [106:02]
A
Biff Grebel says as a wealth manager, I should have memorized all mutual funds. All right, guys, thank you so much for hanging with us today. We really appreciate it. We miss you when we're not here. Thanks to everybody who joined us in the. In the chat. As Michael pointed out, it is a wet and wild market. Obviously some things will end badly. That doesn't mean the whole thing needs to end badly. Stay focused, do what you think is best for your own long term investing and do not fall sway to the madness of the crowd. Tomorrow is an all new edition of Animal Spirits, my favorite podcast starring Michael Badnik and Ben Carlson. We'll do Listen to the Koala and subscribe as you can see on screen. We'll do. We'll do a new edition of Ask the Compound and then end of the week is an all new compound and friends, keep it locked. We'll talk to you soon.