Real Men Don't Panic Over Bonds

Summary

Podcast Summary: The Compound and Friends - "Real Men Don't Panic Over Bonds"

Episode Details:

• Title: Real Men Don't Panic Over Bonds
• Host: The Compound (Downtown Josh Brown, Michael Batnick)
• Guest: Richard Bernstein, CEO and CIO of Richard Bernstein Advisors
• Release Date: May 23, 2025
• Description: Join Downtown Josh Brown, Michael Batnick, and a rotation of their friends every Tuesday and Friday for expert insight and hot takes on the latest in business and investing.

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1. Opening Remarks and Guest Introduction (05:55 - 07:05)

Josh Brown welcomes listeners to the episode, introducing co-host Michael Batnick and their guest, Richard Bernstein. Richard is highlighted as a Wall Street legend with over $15 billion in assets under management, having previously served as the Chief Investment Strategist at Merrill Lynch. The introduction sets the stage for an in-depth discussion on bonds and their impact on the economy and markets.

2. Tax Legislation and Economic Impact (07:05 - 10:22)

Key Discussion Points:

• Extension of tax brackets from the Tax Cuts and Jobs Act.
• Permanent reduction in tax brackets except for the 37% bracket.
• Increase in the standard deduction and child tax credit.
• Introduction of a $40,000 SALT (State and Local Tax) cap with phase-outs based on AGI.

Notable Quote:

Josh Brown [07:05]: "Our in-house CFO, Bill Sweet, who runs our tax practice and he's also chief financial officer at Ritholtz, has a couple of highlights here."

Insights: Michael Batnick views the tax changes as stimulative for the economy, albeit with concerns about increasing the trade deficit. Richard Bernstein emphasizes the inevitability of higher deficits and debt, questioning the long-term sustainability of these tax policies.

3. Bond Market Analysis and Deficit Concerns (10:22 - 16:26)

Key Discussion Points:

• Comparison between U.S. and German 10-year Treasury yields.
• Historical context of U.S. credit ratings and yields.
• Impact of fiscal policies on bond yields and investor perceptions.
• Deficit projections and their implications for the economy.

Notable Quotes:

Michael Batnick [11:02]: "This shows you the spread between the US 10 year and the German 10 year."

Richard Bernstein [15:28]: "The upshot is that the US treasury will have to sell more debt to investors and in order for them to buy these things, they want it at a lower price and therefore a higher yield."

Insights: The discussion reveals that U.S. Treasury yields are currently about 190 basis points higher than German yields, signaling a growing cost of borrowing for the U.S. The hosts debate whether this trend indicates a lack of faith in U.S. fiscal sustainability and its potential impact on the broader economy.

4. Stock Market Dynamics and the MAG7 (16:26 - 43:03)

Key Discussion Points:

• Performance and dominance of the MAG7 (a group of seven high-performing technology stocks).
• Concerns over lack of diversification in investment portfolios.
• Comparison between U.S. growth stocks and international quality stocks.
• Impact of speculative liquidity on market behavior.

Notable Quotes:

Michael Batnick [37:01]: "The hard data is saying that the labor market is fine, it's fine, it's okay. And that's going to handcuff the Fed a little bit."

Josh Brown [42:45]: "There are people who say just ignore every economic data point and focus only on the labor market."

Insights: The MAG7 stocks have shown remarkable resilience and growth, often outperforming broader market indices. However, the hosts express concerns about investors' overreliance on these high-growth stocks, highlighting the risks of neglecting diversification. Richard Bernstein points out that this concentrated investment strategy could lead to significant volatility and potential market crashes if the MAG7's performance falters.

5. Diversification vs. Concentration in Investment Portfolios (43:03 - 60:11)

Key Discussion Points:

• The importance of diversification in building wealth.
• Challenges faced by financial advisors in encouraging clients to diversify.
• Comparative performance of diversified asset classes versus concentrated high-growth sectors.
• Historical perspective on market cycles and their relevance to current investment strategies.

Notable Quotes:

Richard Bernstein [43:10]: "They were buying emerging markets when we started our firm."

Michael Batnick [49:00]: "If you were investor, you didn't make any money, right? I kind of think that's where we are again."

Insights: The hosts argue that diversification remains a fundamental principle for long-term wealth accumulation, despite the current market's focus on high-growth sectors like technology. They caution against the risks of a non-diversified portfolio, which can lead to significant losses if the concentrated sectors underperform. The conversation underscores the enduring importance of traditional investment strategies amidst shifting market dynamics.

6. AI's Impact on the Economy and Stock Market (60:11 - 71:22)

Key Discussion Points:

• The transformative potential of Artificial Intelligence (AI) on the economy and labor market.
• The pace at which AI integration is expected to occur.
• Challenges related to infrastructure and capital expenditure in scaling AI technologies.
• The interplay between AI advancements and market performance.

Notable Quotes:

Michael Batnick [67:32]: "I think it'll be fast but slower than people think."

Josh Brown [69:56]: "How can't, how could capital spending occur that quickly."

Insights: AI is recognized as a significant driver of economic change, with the hosts discussing its implications for various sectors. While there's optimism about AI's potential to enhance productivity and drive innovation, concerns are raised about the infrastructure limitations and the time required for widespread capital investment in AI technologies. The discussion also touches on the speculative nature of AI-related investments and their volatility in the stock market.

7. Final Thoughts and Audience Engagement (71:22 - End)

Key Discussion Points:

• Personal anecdotes and light-hearted interactions among hosts and guest.
• Encouragement for listeners to engage with Richard Bernstein's work.
• Brief mention of upcoming personal plans and activities.

Notable Quotes:

Josh Brown [72:50]: "Let me ask you, what's next?"

Michael Batnick [73:03]: "We're going to have to pay a tariff for the robot."

Insights: The episode concludes with the hosts sharing personal stories and plans, reinforcing a sense of community and rapport among the participants. They encourage listeners to stay informed and engage with experts like Richard Bernstein for deeper insights into investment strategies and market trends.

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Conclusion

In "Real Men Don't Panic Over Bonds," The Compound and Friends delve into the complexities of bond markets, fiscal policies, and their broader implications for the economy and investment strategies. With guest Richard Bernstein providing expert analysis, the discussion highlights the importance of understanding bond yields, the risks of concentrated investment portfolios, and the transformative potential of AI. The episode emphasizes the enduring value of diversification and cautious optimism in navigating the ever-evolving financial landscape.

For more insights and updates, follow Richard Bernstein at RB Advisors and the hosts on their respective platforms.

Transcript

[Josh Brown]

All right. I know you're a Rangers fan. You're a Knicks fan.

[Michael Batnick]

I was there last night.

[Richard Bernstein]

Me too.

[Josh Brown]

So is Michael. Where were your seats?

[Richard Bernstein]

I saw Danny Moses was there. You know what? So I left with 30 seconds to go because I had a train to catch. And also we were up by eight. So. So I'm on. Well, I wanted to avoid the mayhem and I had a train to catch. The game was over. We were up by eight. Oh, also. So I left when OG got fouled and they reviewed it. That was a foul. I can't believe they overturned it. It was a foul.

[Michael Batnick]

Yeah.

[Richard Bernstein]

Excuse my language. So I'm leaving. I'm on the train, on the phone and I'm like, oh my God. So it was. So. I'm very glad I left, by the way. I would have thrown up. It was very anti climatic because there was a guy on the train who was like three seconds ahead of me. He was on Max and I was on tnt. So when Halliburton hit that shot, he. He went. Oh, no. I'm like, I just. I melted. But it was horrible. Cause then I saw a second and a half later and debacle.

[Josh Brown]

That shot, the way it bounced off the back of the rim 10ft in the air.

[Michael Batnick]

I thought it was over.

[Josh Brown]

It looked like a movie. Yeah, it looked like a. Right. It looked fake.

[Michael Batnick]

Yeah. I thought it was over because while the ball was in the air, the red light went on and then it went through.

[Josh Brown]

Do you blame Tibbs for last night the way that I do?

[Richard Bernstein]

There's no blame. There's no blame. It was a one in a zillion what happened to happen.

[Michael Batnick]

It's never happened before in NBA history.

[Josh Brown]

But it also didn't have to happen.

[Richard Bernstein]

Dude, they. Everything that had to happen happened. Naismith was on that.

[Josh Brown]

It just happens that you can't. That you can't control.

[Richard Bernstein]

I blame Cat, if anything. And OG was bad. And Josh Harry was terrible.

[Michael Batnick]

Josh Hart.

[Richard Bernstein]

It was bad.

[Michael Batnick]

Josh Harka caught back.

[Richard Bernstein]

It was bad. It was awful.

[Josh Brown]

Josh Harka, that two and a half minute stretch, he fell down like twice.

[Michael Batnick]

Yeah.

[Richard Bernstein]

All right, let's. Let's not go into a dark place and overreact. It's one game. I don't.

[Josh Brown]

But now they have to. They have got.

[Richard Bernstein]

I was. I was one. Like, get Tibbs the F out of here. Like, thank you for your service. You've taken us as far as. I love you. You've taken as far as you can. This is before the playoffs. I was done with him. But let's see it out before we throw him out of the building.

[Michael Batnick]

Look, worst things have happened.

[Richard Bernstein]

I don't know about that.

[Michael Batnick]

Not much, but, you know, that's never happened before in NBA history.

[Richard Bernstein]

Yeah, yeah, yeah.

[Josh Brown]

It's great to be on the other.

[Michael Batnick]

Side of by 14 with 245 to go.

[Richard Bernstein]

That was fun.

[Michael Batnick]

Never. Never happened before.

[Richard Bernstein]

So Friday night, if we go down 10 early, you're going to hear a pin drop. Like it's going to get. It's going to get bad.

[Michael Batnick]

So it's good you weren't there because people got really nasty.

[Richard Bernstein]

I'm sure I probably wouldn't be one of them.

[Josh Brown]

Like in the. People were. Yeah, yeah.

[Michael Batnick]

Going down. It's a good thing there were no Pacer fans.

[Richard Bernstein]

Yeah, right.

[Michael Batnick]

Because people were like really angry.

[Josh Brown]

Yeah, yeah.

[Michael Batnick]

Drunk and angry.

[Josh Brown]

Brian Windhorse was in hiding.

[Richard Bernstein]

Yeah.

[Josh Brown]

If I were that guy, I would have dropped down a manhole to last night. Hi, Nicole.

[Richard Bernstein]

It's good timing that we have you here. The bond man.

[Michael Batnick]

The bond man. Yeah, yeah, yeah, yeah.

[Josh Brown]

Oh, it's always great. It's always great. Time riches here. All right, so.

[Michael Batnick]

And my soccer team won the Europa League yesterday, which you guys probably know nothing about.

[Josh Brown]

Who's your soccer team?

[Michael Batnick]

Tottenham Hotspur.

[Josh Brown]

Oh, yeah, I've heard of it. I don't know anything about it.

[Michael Batnick]

They won the Europa League Championship yesterday.

[Josh Brown]

What is that? It's club teams or it's.

[Michael Batnick]

Yeah, it's professional. There's like two levels of European competition. One is the Champions League and then there's the Europa League.

[Josh Brown]

Okay.

[Michael Batnick]

And they won the Europa League championship.

[Josh Brown]

That's a big one to win. They play teams from other countries.

[Michael Batnick]

Yeah, yeah. But the final was against Man United.

[Josh Brown]

How do you. How do. How do you become a Spurs fan?

[Michael Batnick]

Weak mind.

[Josh Brown]

Oh, come on. Like, what's the original? What's the original.

[Michael Batnick]

The original story goes back to the late 90s. One of my best friends grew up in London, North London. He was a Tottenham Hotspur fan and he turned me into a Tottenham Hotspur fan. And I've been. Do you go 30 odd years. At one point I had a season ticket when I worked at Merrill. I was in London so often that I would try to plan my trips around in.

[Josh Brown]

Were you a hooligan?

[Michael Batnick]

I was not. But I have been in hooligan situations.

[Josh Brown]

I bet. Yeah, I bet. That always looks like fun to me. I would have been a good soccer hooligan.

[Michael Batnick]

Pretty. Pretty scary. Yeah, it's pretty scary. I've been way too close for comfort.

[Josh Brown]

Michael's. Michael's A Nick's hooligan, though.

[Richard Bernstein]

They make Knicks fans look like pussycats.

[Michael Batnick]

They do. Yeah.

[Josh Brown]

It's very cuts. All right, let's get the show on the road. He's an important man here.

[Richard Bernstein]

Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is brought to you by kraneshares. Artificial intelligence has become the world's defining growth catalyst. On the show today, we spoke about Sam Altman's OpenAI bought Jony Ives AI startup IO for six and a half billion dollars. And there are two clear winners that have emerged here. It's the US obviously, but it's also China. Both the US and China have companies that are defined AI leaders. Obviously. Here we have Microsoft and Anthropic and OpenAI. China also has companies like Deepseek, Alibaba, and other private companies that are thriving. Craneshares, who is known for their K Web China Internet etf, recently wrote an article exploring how the US and China's AI ecosystems could potentially provide investors with a multi decade opportunity. To read the article, go to craneshares.com AI.

[Michael Batnick]

Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnick and their castmates are solely their own opinions and do not reflect the.

[Josh Brown]

Opinion of Ritholtz Wealth Management.

[Michael Batnick]

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

[Josh Brown]

Clients of Ritholtz Wealth Management may maintain.

[Michael Batnick]

Positions in the securities discussed in this podcast.

[Josh Brown]

Episode 193. Ladies and gentlemen, welcome to America's favorite investing podcast. Some would say the world. Miami's downtown. Josh Brown, first time listeners, welcome. I'm here with my co host, Mr. Michael Batnik. Make some noise.

[Richard Bernstein]

What's up everybody?

[Josh Brown]

Nicole, more enthusiasm.

[Richard Bernstein]

Seriously, Nicole. My God, can you just roll your eyes?

[Josh Brown]

I should literally give you an eye roll. Daniel got loud though. I just want to point that out. Okay, Daniel's in the Batcave. All right, guys, we are here with a legend. Wall street legend. He needs no introduction, but he's gonna get one anyway. He is the CEO and CIO of Richard Bernstein Advisors, investment manager with more than $15 billion in assets. Richard has appeared on CNBC, Bloomberg, the Wall Street Journal, Bravo, and many other reputable financial media outlets. Prior to rba, Richard was the chief investment strategist at Merrill Lynch. Ladies and gentlemen, welcome back returning champion, Mr. Richard Bernstein.

[Michael Batnick]

Thank you.

[Josh Brown]

Much louder round of applause than Michael got. All right, so let's start here. We got a big beautiful bill. Looks like it's some of the log jam has been broken. There were some disagreements on the Republican side because that's really all that matters right now. Correct. And they had to do with the cap on the SALT tax, the deduction and various things. But that stuff looks like it's going to be cleared out of the way. Our in house cfo, Bill Sweet, who runs our tax practice and he's also chief financial officer at Ritholtz, has a couple of highlights here. And then I want to get your reaction. The Tax Cuts and Jobs act tax brackets have been extended permanently with tax bracket decreases for all brackets except the 37% standard deduction increase, $1,000 for single filers, $2,000 for joint filers. There's an enhanced senior standard deduction, $4,000 for a single, $8,000 for joint. The child tax credit, $2,500 expires in 2028, $2,000 future credit indexed to inflation, estate and gift unified exemption increased to $15 million and made permanent $40,000 salt cap with $500,000 AGI phase out, adjusted gross income phase out and tax exemptions for tips and overtime. This is interesting to me. I didn't know anybody actually paid taxes on tips. Did you?

[Michael Batnick]

Do you think anyone does not cash tips? I don't think so.

[Josh Brown]

No, I don't think so. All right. Anyway, this is where we are and we could talk about some of the projections, what this does for the deficit and for economic growth, et cetera. But just like on the surface, what are your thoughts about how important this is to investing markets, the economy?

[Michael Batnick]

Well, I think it's great that there's a senior citizen discount.

[Josh Brown]

That's right.

[Michael Batnick]

As a senior citizen, I think that's great that they were thinking about me. That's good. I think, look, it's going to be stimulative. We could argue how much. I mean, I'm not smart enough to tell you how stimulative it's going to be, but net, net it'll be stimulative. And I think, you know, that's fine. I think it's a little inconsistent with some of the other policies that we've seen. Like why would you want to stimulate consumption and make the trade deficit worse when you're trying to remove the trade deficit, but that's another story for later. So by itself, I think it's stimulative. Great, that's fine.

[Josh Brown]

The White House Council of Economic Advisors projected the Bill would boost GDP by 4.2% to 5.2% in the short run. Does that sound, does that sound Possible or likely to you?

[Michael Batnick]

Possible. What's the likelihood? Probably, probably.

[Josh Brown]

Joint Committee on Taxation projects this version of the House reconciliation bill would increase deficits by 3.8 trillion through 2034.

[Michael Batnick]

Well, that's the other side. I mean, nothing comes free.

[Richard Bernstein]

Right?

[Michael Batnick]

You can't stimulate the economy when you're not generating enough revenue to support your own plans. So it will be more deficit, it will be more debt. No way around that. And I mean, we could argue whether that's good or bad, but there's no way it's going to pay for itself. That's silly.

[Josh Brown]

I noticed this week that they stopped saying the tariffs are going to pay for that. Have you noticed that also?

[Michael Batnick]

I have noticed that.

[Josh Brown]

Okay, so I thought Mexico was going to like just going to take care of it, like grab the check, but I don't think that's going to happen.

[Richard Bernstein]

Rich, you've been in this industry for a long time. Are you the type of person that has been worried or concerned about the deficit for the course of your career? Are you getting concerned now or is it not?

[Michael Batnick]

Oh, I think it's, you know, I think I sent you guys a chart somewhere along the line that showed that spread between U.S. treasuries. And I think the version I gave you is German Buns. But there's one version we have that's against AAA rated sovereign debt. And we got initially down gate.

[Josh Brown]

Is this your chart?

[Michael Batnick]

That's the chart.

[Josh Brown]

What does this show?

[Michael Batnick]

So that shows you the spread between the US 10 year and the German 10 year.

[Josh Brown]

Why is this notable to you?

[Michael Batnick]

So it's important because when we were rated aaa, which is to the left of this chart, you can see that the yield spread goes back and forth and back and forth and back and forth. Sometimes we have a higher yield than Germany, sometimes Germany has a higher yield than us but we're all AAA rated. And you can see German reunification all the way on the left.

[Josh Brown]

Yeah.

[Michael Batnick]

You know, if you're my age, you.

[Josh Brown]

Remember that when at the end of 2008, 9 era.

[Michael Batnick]

So where that, where this, where that vertical line is, is 2011. 2011 is when US downgrade is the first downgrade and look what happens. The US Starts selling at a yield premium to AAA rated other, in this case, Germany.

[Josh Brown]

Isn't that strange because you would think the opposite.

[Michael Batnick]

Yeah, exactly. And everybody thinks that's true. Now. Why didn't anybody care about this? Nobody cared about it because the absolute rate of interest in the United States was so low, everybody said, oh look, interest rates are so low. This is great. Nobody realized that they should have been lower and they weren't. And so what this chart shows you is that there's no day of reckoning. Right. Everybody kind of says, oh, we're going to wake up tomorrow, we're going to be Botswana. Right. All of a sudden people are going to be puking treasuries. That's not reality. This is more reality. That it's a slow bleed, that through time we're penalized with higher interest rates and more and more cash flow in the economy goes to supporting debt.

[Richard Bernstein]

But it's a push and pull because you say we're penalized but our penalty is an asset for all of the citizens that are treasury holders.

[Michael Batnick]

Well, true, true, true, true. Absolutely. And a lot of these are non US holders, of course. But yeah, if you're holding it, it's fine. That's great. But I'm just saying if you think about, Here's a good. I always come with kind of tangible examples. Okay. We might not be having the air traffic control problems if we invested this much money into infrastructure like air traffic control. That's the way to think about it. That's the trade off.

[Josh Brown]

So the spread between the 10 year yield US versus Germany is positive. 200 basis points.

[Michael Batnick]

Yeah. In other words, our interest rate cost is about 200 basis points, 190 to be precise. Right now versus Germany, we pay 190 basis points more for our debt than Germany does.

[Josh Brown]

And that's, and that's negative because it's.

[Michael Batnick]

Just like a junk bond.

[Josh Brown]

You would think we're the United States, we should at least be at parity with the best credit in Europe. And we're definitely not.

[Michael Batnick]

We're not.

[Josh Brown]

Do you think, do you think that when you say bleed though, do you think, you think people are selling the treasury to buy the German war bond?

[Michael Batnick]

No, that's not exactly what happens. Because, because remember there's kind of de facto and de jure, right? De facto is what's happening. De jure is by law. So de facto the US treasury is still the safe haven asset because there's no other market that's as big or as deep that can support the world that way. Like German Bundes can't do that.

[Josh Brown]

Right.

[Michael Batnick]

Swiss buns can't do that. Australian bonds, they can't do that. That's silly. So there's kind of this de facto, yes, we are the safe haven asset, but in reality we're not. And so if you think about that chart and how we're paying that premium for U.S. treasuries, remember, everything in the United States is priced off the 10 year. So mortgages have been higher, corporate bonds have been higher, munis have been higher. Everybody's been paying this higher rate than they had to.

[Josh Brown]

But this is not in a vacuum. The Europeans are cutting rates and we're not. Isn't that.

[Michael Batnick]

Yeah, yeah, yeah. Well, this has nothing to do with growth or anything. It's just a simple question of credit and credit quality.

[Josh Brown]

Yeah, but surely you have to factor in the actions of the central bank when you're like this yield versus that yield.

[Michael Batnick]

Absolutely, absolutely. But the question still would be, even though they were buying lots of bonds in Europe and they had negative interest rates, if you remember that, which is part of what's going on here, no doubt, we didn't have negative interest rates. And you'd think that if it was such a bargain, people would have been buying our bonds and driving our rate down and their rate up and they would have met. That didn't happen.

[Richard Bernstein]

So I want to read you this quote from Fed Governor Christopher Waller. This is a quote from today. The markets are watching the fiscal policy. Everybody I've talked to in the financial markets, they're staring at the bill and they thought it was going to be much more in terms of fiscal restraint and they're not necessarily seeing it. Nick Timario says the upshot is that the US treasury will have to sell more debt to investors and in order. And this is Waller, in order to buy them, in order for them to buy these things, they want it at a lower price and therefore a higher yield.

[Michael Batnick]

There you go. That's exactly what I was showing in that chart.

[Josh Brown]

It's not quite bond vigilantes, but it's bond vigilante adjacent. It's a buyer strike to some extent.

[Richard Bernstein]

Yeah, that's exactly right.

[Michael Batnick]

It's a hesitancy on the margin. Right. And all I'm trying to say is it's not like we wake up one day and people refuse to buy Treasury.

[Richard Bernstein]

So you're not worried about a real buyer strike where the 30 year goes from 5% to 5 and a half to 6 in three weeks?

[Michael Batnick]

Probably not. I mean, it could happen.

[Richard Bernstein]

What happens if that happens?

[Michael Batnick]

What happens if that happens? We will have a lot of trouble in the short term. The markets won't behave very well if that happens. Look, anything can happen in a short term. Something could go wild. Right. And I think all we have to do is get one bad cpi, PPI or import price number and the bond's going to Sell off like there's no tomorrow. That's a different issue. But I think from the point of view of the credit worthiness and all the things that people worried about with debt and deficits and everything else, it's not a new issue. The markets have been onto this for a decade.

[Josh Brown]

John, chart two, if you please. This is the 30 year U.S. treasury rate. This was the big story this week. Highest level since 2007. It's about, I don't see where it closed today. 5 spot 08, 5 spot 09. That region. Is that a notable level beyond just the psychological 5%, big fat round number.

[Michael Batnick]

So let me tell you, if you take this back.

[Josh Brown]

Yeah.

[Michael Batnick]

To my lifetime, which as I said, I'm a senior citizen, goes back.

[Josh Brown]

Is that like Civil War era?

[Michael Batnick]

Just about, just after the Civil War reconstruction. And this is the fastest and most meaningful backup in rates in my lifetime.

[Josh Brown]

Are you seriously.

[Michael Batnick]

Yeah, I'm pretty sure that's right.

[Josh Brown]

So maybe the question is, should this be getting more attention than it's getting?

[Michael Batnick]

I think so.

[Josh Brown]

You do think so?

[Michael Batnick]

Oh, I think, I mean we.

[Josh Brown]

Because Michael asked you like, have you been a deficit person throughout your career?

[Michael Batnick]

I have been, but I'm just not panicked about it. You know what I mean? I'm not like wigged out.

[Josh Brown]

So it's a big deal, but it's not worth panicking over because it's something.

[Michael Batnick]

That if you're investing for one year, three year, five years, 10 years, you have to incorporate that. If you're a trader, like, who cares?

[Josh Brown]

I'm sorry, I just want to get to the 10 year. This one looks way less nerve wracking to me. We're right smack in the middle of this range we've been in since 2023. This is the ten year treasury and it's middle of the range. Yeah, it's elevated. It went up 22 basis points in May. It's a pretty notable one month run up. But it's not breaking through the top of the range. At least not yet. Thank God.

[Richard Bernstein]

If this was a stock, you'd buy it. I know it's not a stock, but.

[Josh Brown]

It'S an interest rate.

[Michael Batnick]

Yeah. This is what I was saying about before. If we get one bad inflation number.

[Josh Brown]

This could really go.

[Michael Batnick]

This could go. Yeah, that's exactly right.

[Richard Bernstein]

Do you, do you foresee a world. If rates were to spiral, would we, would we. Could we see some sort of yield curve control? Would the government get involved?

[Michael Batnick]

Well, I mean, they've done that, haven't they? I mean, you're talking about like if you think about qe, QE was playing with the long end of the yield curve. Right. I mean, could they do that again? Yeah, I suppose. I'm not sure they'd want to. I'm not sure the Fed would want to.

[Josh Brown]

Qe, the Fed is buying longer dated bonds in order to push down the rest of the curve.

[Michael Batnick]

Correct.

[Josh Brown]

To fall in line with it.

[Michael Batnick]

So what happened was that normally the Fed plays around at the short end of the yield curve. They're buying treasury bills or selling treasury bills to manipulate the short end of the yield curve, which is really kind of their domain. When treasury rates got to zero, they couldn't do anything anymore so they began to move out the curve pushing on a string. Right. That was called quantitative easing, meaning that they're buying treasury bonds and notes instead of treasury bills and they artificially lowered long term interest rates. And could they do that again? I suppose. I'm not sure they'd want to because it'd be hugely inflationary at that point.

[Josh Brown]

Because all you're doing is exchanging the bonds that banks own and handing them back cash. And what are they going to do with that cash? It's going to go into the economy.

[Michael Batnick]

I mean in that environment, the Fed, if you really have an inflation issue that's driving up the 10 year, the Fed should be tightening hand over fist.

[Josh Brown]

Yeah. Can I tell you something?

[Michael Batnick]

Yeah, sure.

[Josh Brown]

Just let the tariffs stay and you won't have to worry about bond yields because you're going to get demand destruction in every segment of the economy.

[Michael Batnick]

Absolutely.

[Josh Brown]

The solution is right in front of us. Let Trump keep doing what he's doing on the tariff side. Cut off all negotiations. You'll have other problems, but you won't have a problem with the 10 year treasury yield.

[Michael Batnick]

You'll have no, you'll have no inflation. You'll have a very short term inflation problem.

[Josh Brown]

You'll have a million layoffs and then you'll just, that's what you'll have.

[Michael Batnick]

You'll kill demand.

[Richard Bernstein]

But also rates aren't going up because of inflation, are they?

[Josh Brown]

Well, that's the debate. The debate. Now the White House would like you to believe the backup in the 20 year Treasury. Cuz people are so bullish about the Trump economic boom because of the tax cuts.

[Richard Bernstein]

Right?

[Michael Batnick]

Sure.

[Josh Brown]

And the Democrats would like you to believe actually what Trump is about to do with trade is gonna make inflation.

[Richard Bernstein]

A bond investor apolitical. What do you think?

[Michael Batnick]

So here's the way I would think about it. The 10 year and 30 year basically move through time with nominal GDP. Nominal GDP is real GDP plus inflation. Right. Nominal GDP. Now, it's not a perfect relationship, but they move pretty closely together. So rates are going up because people think that nominal GDP will be higher. The administration would like you to believe real GDP will be higher, inflation adjusted. The question is, is it going to be real GDP or is it going to be inflation that's going to cause nominal GDP to be higher? And honestly, I'm not sure anybody could answer that with any true, like conviction. Right.

[Josh Brown]

Carolyn Levitt probably could.

[Michael Batnick]

Well, of course she could.

[Josh Brown]

I mean she's, she's 27ish. I think she was a lawyer. She's hundred economics for many a cycle want to do this stock market reaction chart.

[Richard Bernstein]

So this is, this is actually the bond market. So bespoke tweeted. And this is, this is very important. Yesterday was the third worst. Oh, my bad, my bad. You're right, Josh. Yesterday's was, was the third worst stock market reaction to a bond auction in history. So this was, this is not, this is causal. You saw the bond auction puke and stocks immediately sold off heavy. So the, the bond market is now affecting the stock market. Now, it's very short term.

[Josh Brown]

The dow went down 800 points yesterday.

[Richard Bernstein]

And the market is back up today. So whatever, it's noisy, but nevertheless the market was responding.

[Josh Brown]

What do you make of this overreaction? Underreaction?

[Michael Batnick]

First of all, I'm not smart enough to tell you about auctions and auctions and what they mean and everything else. But I will tell you that as I said anything. I think we're in the stock market. We're in an environment where anything that could cause the Fed to tighten will be viewed negatively.

[Josh Brown]

Yeah, with good reason.

[Michael Batnick]

Yeah. Right. And I think that's. So if you had a bad auction and the fear would be that it's because of inflation and maybe inflation is going to be higher, nominal growth is going to be higher than people think. Right. Forget inflation. Let's just say nominal growth going to be higher than people think. That would cause the Fed to raise rates. That may be why you got the sell off.

[Josh Brown]

The last inflation report we got, the market exploded higher.

[Michael Batnick]

Yeah, Absolutely.

[Josh Brown]

Incredibly tame.

[Michael Batnick]

Yep.

[Josh Brown]

And one of the things we talked about on this show is is that the final tame inflation report. Is it, is it, does it just get wilder and, and more aberrations from here? What do you think?

[Michael Batnick]

I think if as a, as a betting man taking the over under. Yeah, I take the over on inflation.

[Josh Brown]

I would too, because it's just going to be weird things.

[Michael Batnick]

Pull forward a lot of weird things.

[Josh Brown]

Okay. Supply chain stuff.

[Michael Batnick]

Yep. Okay.

[Josh Brown]

Are you surprised that the market doesn't seem to agree with that?

[Michael Batnick]

I'm very surprised the market. I don't. I'm very surprised a lot of things are going on the market.

[Josh Brown]

The tranquility is remarkable.

[Michael Batnick]

Yeah. The confidence.

[Josh Brown]

Yeah.

[Michael Batnick]

And is, is mind boggling to me.

[Richard Bernstein]

I'm very surprised that rates are as high as they are. The stock market is 3% from an all time high. Gold is, is mooning because I think of fiscal deficit concerns.

[Josh Brown]

VIX is a teenager.

[Richard Bernstein]

VIX is a teenager. And I think bitcoin and there's never one reason for why any asset does one thing. But I think bitcoin is also following gold. It could be a risk on but I think it's following gold higher into the fiscal irresponsibility and the stock market just doesn't care.

[Michael Batnick]

No, no, I think, look I'll. I'll try and link a lot of what you just said there. A lot of the things that people have been very enthusiastic about, whether it's the Mag 7, whether it's Bitcoin, you know, even credit to a large extent. You know, credit spreads are very, very narrow are all predicated on a continuation of, of liquidity. That liquidity does not get dried up. I would argue not everybody would agree with this, but I would argue they all have a speculative flavor to them and speculation thrives on liquidity.

[Richard Bernstein]

When you say liquidity, sorry to interrupt, but what does that mean to you?

[Michael Batnick]

Liquidity to me means capital that is available to invest or speculate or trade, whichever word you want to put into there. Lower interest rates will make the cost of money cheaper. So if the cost of money is cheaper, you can borrow that money and go trade in the stock market. Leverage. Leverage is cheaper.

[Josh Brown]

That's the way to say 2021 is the peak liquidity we'll probably ever see in our lifetime.

[Richard Bernstein]

But the liquidity today is not, is not even close to that.

[Josh Brown]

So that was Michael's question and that's what I wanted to zero in on.

[Michael Batnick]

Look overall at financial conditions, financial conditions are still have, have gotten back to being relatively easy. Credit spreads are pretty narrow. Bank lending standards have tightened, but not meaningfully. So the Fed is not raising rates. The stock market is up. You're seeing all these different things that argue and my divining rod for liquidity, if you get that thing dividing rod liquidity, follow along with me here.

[Josh Brown]

That's what Moses used to find water in the Desert the dividing rod. I was a reform jail. We didn't go into it. Surface level knowledge.

[Michael Batnick]

Yeah. So. But anyhow, my divining rod for liquidity is Bitcoin. Bitcoin thrives on easy financial conditions.

[Josh Brown]

I get the concept. I really feel that bitcoin lives its own existence outside of the traditional financial markets. Even though it's been welcomed in, I.

[Michael Batnick]

Would agree with you, I still think.

[Josh Brown]

It'S the strangest asset.

[Richard Bernstein]

It's very strange.

[Michael Batnick]

I would agree with you if other cryptocurrencies didn't have like an 80% correlation to Bitcoin.

[Josh Brown]

Right. If Bitcoin was Ethereum, just went up a lot.

[Michael Batnick]

Yeah, Ethereum and fart coin. Fart coin, yeah.

[Josh Brown]

But Rich, this is the question though. So in 2022 the rising rates and the threat of much higher rates acted as a governor on everything from spacs to tech stocks. Bitcoin.

[Richard Bernstein]

And so they're not. And they're not right now.

[Josh Brown]

And they're not anymore. They don't seem to have threatened these earn earn earnings free companies. These stocks are rallying, which is. You saw the quantum computer stocks had a massive day today.

[Richard Bernstein]

It's very bizarre. I would argue that there's not a lot of financial easing in the system. The housing market is frozen, the fed funds rate is above inflation. Like this is not a free for all. And yet in the market it feels to be.

[Michael Batnick]

Well, what it's saying is that there's still too much. Whether it's residual, I don't know what the right word is. There's still a lot of residual liquidity hanging around here.

[Richard Bernstein]

There's too much money.

[Michael Batnick]

Yeah, there's just, you know.

[Josh Brown]

You know what's interesting about that? I agree with you. I think it's like sitting in private equity, private credit and companies that would have normally been struggling by now because of 4 and 5% rates leading to 8% borrowing costs. They're just like getting checks written to them, Correct?

[Michael Batnick]

Exactly.

[Josh Brown]

Blue owl Capital and JP Morgan 100% and. And private credit underwriting, data center build outs.

[Richard Bernstein]

So what could change that? There's just too much money.

[Josh Brown]

Like the overnight lending rate is not affecting it, right?

[Michael Batnick]

No. So what it says to me is that the overnight lending rate is still not high enough. Right. We haven't disintermediated a lot of these things. Now it's interesting that you brought up the private debt thing because private debt is something I'm not sure the Fed totally understands. Right. Normally. And that's a big statement. Right. They're smart Guys, don't misunderstand what. But I don't think they understand this completely. Normally when the Fed raises rates, they do so explicitly to disintermediate the banking system. In other words, they want to suck capital.

[Josh Brown]

Slow down. They want them to slow down.

[Michael Batnick]

They want them to slow down. They want to suck capital out of the banking system so that T bills become very, very attractive relative to everything else. Like when I was, when I was in college. The same, you know, in. When was it, when we talked reconstruction, 1870s. When I was in college, I was taught that when the Fed raised rates, they did so because of Regulation D, I think it was, which said that savings and loans could not offer passbook accounts higher than 5%. And so when the rate, when the Fed funds rate got above 5%, money would come out of the savings and loans.

[Josh Brown]

Yes.

[Michael Batnick]

And it would go into Treasuries. And therefore savings and loans could make mortgages and you'd slow down the economy. Think about that example in a much grander scale. That's kind of what the Fed's role is in the economy. The problem is for private debt, their deposits, if you will, meaning the commitments from investors, basically give them free money.

[Josh Brown]

Insensitive to the fed funds rate.

[Michael Batnick]

Completely insensitive. Right. And once you commit, you're stuck.

[Josh Brown]

Right. So the Fed is screwing around with the rates that impact the cost of borrowing for banks.

[Michael Batnick]

Correct.

[Josh Brown]

What if the economy is not reliant on banks to the extent that it used to be.

[Michael Batnick]

Exactly.

[Josh Brown]

And you've got kkr, Blackstone, all these firms sitting there with trillion dollars in dry powder. What the hell is an interest rate change going to do?

[Michael Batnick]

It's basically. Basically a negative interest rate change.

[Josh Brown]

Another push on a string.

[Richard Bernstein]

But hang on, I also don't want to lose sight of the fact that in 2022, when interest rates were going up dramatically with inflation.

[Michael Batnick]

Yes.

[Richard Bernstein]

All of these growth stocks got destroyed.

[Michael Batnick]

They did.

[Richard Bernstein]

All of the growth funds got destroyed. And all of that liquidity dried up immediately.

[Michael Batnick]

And it's not this.

[Richard Bernstein]

And it was dead dry for like two years.

[Michael Batnick]

Yep.

[Richard Bernstein]

And now finally, we're starting to see a lot of liquidity. But it's bizarre. So it's not like higher interest rates didn't impact that space because it crushed it.

[Michael Batnick]

Right. So here's a way to think about what we're talking about. How many Fed fund cuts are priced in for this year? What is it, like 2? Right.

[Josh Brown]

200%.

[Michael Batnick]

Yeah. And I would say it's zero. And it could be a rate hike.

[Josh Brown]

Really?

[Michael Batnick]

So That's.

[Richard Bernstein]

He will be fired so fast if.

[Josh Brown]

He raised rates, how would he possibly do a rate hike and then get out of the country in time anyway?

[Michael Batnick]

Seriously, he'd put on, he put on glasses and a nose.

[Josh Brown]

Let me tell you something. If, if Jerry Powell decides to hike rates, he has to join Ms. 13 that day cuz he's going to El Salvador. There's no way that's happening.

[Richard Bernstein]

It is.

[Michael Batnick]

I'm just saying from a pure economic point of view. But I think where the market really is wrong is that he's gonna cut two times.

[Josh Brown]

All right, let me.

[Michael Batnick]

That I think is what's propelling part of the market here.

[Josh Brown]

Let me ask you, let me ask you. Not like a prediction. Okay, so you think the Fed is not going to have the opportunity to cut twice?

[Michael Batnick]

I don't think so.

[Josh Brown]

Okay. You're way smarter than me. My gut instinct tells me demand destruction is coming. Yes. I don't care that private equity is able to keep a lot of liquidity going in the system. I think the combination of a four and a half. What is it, four and a half percent now? Fed funds. Yeah, yeah, that's high. Four and a half percent fed funds rate, deceleration in hiring. Eventually that will flip over. Yes. There'll be job loss.

[Michael Batnick]

Yes.

[Josh Brown]

And I think the Fed is going to have no choice.

[Michael Batnick]

Correct.

[Josh Brown]

But to cut at least twice.

[Michael Batnick]

Correct.

[Josh Brown]

So we're sort of on the opposite side of this.

[Michael Batnick]

Let me tell you what you can watch. Just watch weekly jobless claims because that's the leading indicator of employment.

[Josh Brown]

I have a leading, leading indicator.

[Michael Batnick]

You have a leading, leading indicator?

[Josh Brown]

Yeah, I have some of the biggest hirers and growth engines in America now very cleverly coming up with ways to say we're hiring way less people this year because of AI. I have commentary from Mark Zuckerberg from Meta, where Mark Zuckerberg is telling managers, right. I want you to make more people fit into the poor performers bucket. Okay, so they bucket everybody. Well, it may be that's a prelude. That's a prelude to more layoffs at Meta. Got layoffs at Microsoft last week. Got the CEO of Shopify saying if a manager wants to hire someone, they have to demonstrate why AI can't do the role that they're about to hire people for. Look, these are anecdotes. This is not data.

[Michael Batnick]

I'm with you.

[Josh Brown]

But directionally this is happening now.

[Michael Batnick]

Correct, but I'm just saying if you want to follow hard data, follow.

[Josh Brown]

I want to follow stories.

[Michael Batnick]

You want to follow stories.

[Richard Bernstein]

But what's the hard data telling you?

[Michael Batnick]

The hard data is saying that the labor market is fine, it's fine, it's okay. And that's going to handcuff the Fed a little bit.

[Josh Brown]

All right, Let me show you what's not. Let me show you what's not. Okay. This is bank of America's. This is your old post. You aren't the chief economist.

[Michael Batnick]

No, I wasn't.

[Josh Brown]

Okay. This is the chief economist of bank of America. Mortgages are the elephant in the room at 70% of all U.S. household debt. By contrast, mortgages dominate the liability side of the balance sheet. 70% of household debt is a mortgage at 0.9%. Mortgage delinquencies are still below pre pandemic levels, but they have been picking up steadily since the second half of 2022. That's already three years ago. New 30 day delinquencies are also rising, suggesting further increases in the pipeline. Even a modest further increase, sorry, in mortgage delinquencies, like just to the levels we saw in 2017 would have a bigger impact on total delinquent debt than the combined effect of credit cards and autos. That's how big mortgages are. So while other categories get a lot of attention, mortgages are clearly the elephant in the room. Our sanguine view on household debt has been premised on low mortgage delinquencies. If the facts change, we will change our minds. You can see the uptick now. It's not a microscopic spec on the chart. Dark blue, the dark blue just below the green. I'm not suggesting like here comes the next financial crisis, but most of the earnings, if they're not AI related in the S and P are thanks to the consumer.

[Michael Batnick]

Yeah, without a doubt.

[Josh Brown]

Of course, if so if this is where we're headed, where all of a sudden the biggest category of the consumer balance sheet starting to sour. Right. Again. It's another reason why the Fed might have to be doing more than two cuts. They might not have a choice.

[Michael Batnick]

It may be a question of timing between our. When we're talking about cuts, but.

[Josh Brown]

Yeah, we agree.

[Michael Batnick]

But let me give you, since you're already kind of swimming in the deep end of the pool here.

[Josh Brown]

Okay.

[Michael Batnick]

Let me give you a little other thing to make you concerned. I think the next recession, whenever it occurs, I have no idea when it's going to occur. Next recession, whenever it occurs, is going to be a doozy.

[Josh Brown]

Why?

[Michael Batnick]

Because consumer confidence cut his mic. Consumer confidence is already pretty shaky.

[Josh Brown]

Yeah.

[Michael Batnick]

With no problems with really no problems going on right now. Here's the thing to consider. You could now be 38 years old, roughly your age. I wish, and 38 years old and never have experienced a real recession. Yeah, right. So you now could be head of household, kids, mortgage, the whole thing. And now your neighbors get laid off, which you've never seen before. Do you react? How do you react? I think you react worse than you would have if you had seen recessions along the way.

[Josh Brown]

Michael and I were. Michael and I were arguing this exact point, but as it pertains to bear markets.

[Michael Batnick]

Yeah, absolutely.

[Josh Brown]

You have 30 million account holders at Robinhood, none of whom have ever invested through a recession. We had a two month recession in 2020 and nothing prior to that until back to 2008.

[Michael Batnick]

Yeah, exactly.

[Josh Brown]

So you have a whole generation that knows only one thing works and it's buy the dip. And it's right every time, including this time. And the gratification is coming faster and faster. This time it took me 10 days to not feel like an idiot for staying long. Do you think when you say the next recession could be a doozy, that same psychological situation could play into it 100%? Right?

[Michael Batnick]

Absolutely. Because if you think about what's offsetting some of that mortgage debt right now, is that on the household balance sheet, the equity side of their debt equity is still appreciating.

[Josh Brown]

Yeah.

[Michael Batnick]

So what happens if they have a mortgage and their equity side starts depreciating?

[Josh Brown]

That's equity of the home price.

[Michael Batnick]

Equity. Equity. Home equity. Just the equity of their balance sheet, their overall balance sheet starts depreciating. Right. Let's. Let's just say the stock market goes down 20 or 25% like in a normal recession type thing. How do they react to that? On top of every rich.

[Josh Brown]

There are people who say. There are people who say just ignore every economic data point and focus only on the labor market. If the labor market stays good, you can skip the conversations about used cars and whatever.

[Michael Batnick]

To some extent that's absolutely true.

[Josh Brown]

Okay.

[Michael Batnick]

To some extent. Because it's household cash flow. And what's the source of household cash flow?

[Josh Brown]

It's income working.

[Michael Batnick]

It's a job. Right.

[Josh Brown]

Okay. So if you only did that right now, you'd be pretty okay with where we. So 229,000 initial claims, almost nothing.

[Michael Batnick]

It's nothing.

[Josh Brown]

Okay.

[Michael Batnick]

And I don't actually think that. I think people are spending right now too much time worrying about the economy, not enough worried about corporate profits. I think that's the bigger issue. The profit cycle starting to peak out. And I think that's the more important thing to focus on right now, not whether the market's going up or down.

[Josh Brown]

We were blown away by corporate. My theory is that earnings season is what saved the stock market in April and May. Yeah, like these reports were fantastic. Were you as surprised as Michael and I were?

[Michael Batnick]

We were, we were a little surprised, but it is towards the peak of the cycle. And at the peak of the cycle is when you get the best news.

[Josh Brown]

How can you be sure it's the peak of the cycle?

[Michael Batnick]

You just look at. We do a lot of modeling of corporate profits that involve all kinds of different macro variables and estimate revisions and all kinds of things like that. And we're kind of reaching peak momentum. It doesn't mean that the dollar value is going to go down. It means the growth rate is going to go down. So right now, I think through first quarter, I think reported earnings were up about 14%. I think our forecast is like 1 or 2% by the end of the year.

[Josh Brown]

Oh, wow.

[Michael Batnick]

So, you know, we're heading in that direction. That's, that's meaningful. I mean, that's, that's meaningful. It doesn't mean the market has to go down. It just means you, you should see a more defensive flavor in the stock market, which.

[Josh Brown]

Not yet.

[Michael Batnick]

Not yet. Not at all. Not at all.

[Josh Brown]

Pretty remarkable. I want to do this diversification stuff.

[Richard Bernstein]

Where are.

[Josh Brown]

I think we're. No, we're higher. You wrote about rich. You wrote about diversification versus the siren song. I'll set this up with your own words because this is a pretty important topic always. But right now it seems really apropos. You said 25 years ago I wrote a book called Navigate the Noise that posited people have difficulty building wealth because they follow a siren's song of high returning yet quote, riskless assets. Instead of following time tested wealth building principles, continuing the Greek mythology theme, investors portfolios to steer toward the hauntingly attractive story of riskless high returning assets eventually crash on the rocks. So it's. Is it Jason of the Argonauts or is it Odysseus?

[Michael Batnick]

That's Odysseus.

[Josh Brown]

Yeah, that's Odysseus. Okay, so the beautiful women are like standing on the island calling to them and he puts wax in his ears and they lash him to the mast.

[Michael Batnick]

Correct.

[Josh Brown]

And that's how he gets past the hazard of the sirens who would otherwise have him crash his ship onto the rocks.

[Michael Batnick]

Absolutely.

[Josh Brown]

And men are driven mad by that. So it's a, it's a great, it's a great metaphor.

[Michael Batnick]

I never thought of the sexist implications of that one, but that's okay.

[Josh Brown]

No, we're gonna, we're, we're gonna, we're gonna give you a pass on that. But yet all of that's true. Look what the best stocks are off of the lows.

[Michael Batnick]

Yeah, yeah. It's incredible.

[Josh Brown]

Meta Tesla. I mean, it's the same thing over and over and over again. Nvidia is going to report next week. I wouldn't bet against that being a great.

[Michael Batnick]

Yeah, yeah, yeah.

[Josh Brown]

Right.

[Michael Batnick]

So here's what's interesting. It's not, I think, when you talk about the magnificent set. Well, first of all, let's get to the diversification issue for a second of the wealth building. I think in the last six months to a year, people have said to me, when I talk about our diversified portfolios, they say to me, oh, you mean it's not diversification, it's diversification?

[Josh Brown]

Well, last 15 years, yeah, pretty much.

[Michael Batnick]

That's basically. But I haven't heard that as much as I've heard it in the last year. Let's say everybody. And I get the point that you could have bought the Mag 7, you could have bought an index fund. I get all that. But to put all your eggs in one basket, whether it's an index fund or Megs, has never been a good idea for an extended period of time. I mean that. We all know that.

[Richard Bernstein]

But this period of extended time has extended way longer than most people myself include, would have thought because it started, I think the mags were coined in 2017. Another Fang. My bad.

[Michael Batnick]

It was fang. Right.

[Richard Bernstein]

But that was. It's been eight years.

[Josh Brown]

The cloud computing era kicked off in 2015. Amazon.

[Michael Batnick]

Right.

[Josh Brown]

Reported some like, insane quarterly report way back. And after that, these gigantic cloud computing stocks just. And like, how long did the nifty 50 period go on for? Two years.

[Michael Batnick]

Right.

[Josh Brown]

And they still talk about it.

[Michael Batnick]

I don't think for most individual investors, they were up to their schnoz in like Mag 7 stocks until maybe four years ago. Two, three, four years ago, somewhere in there.

[Josh Brown]

Fair.

[Michael Batnick]

Right. And I think that's really the period that, that I would focus on because, yeah, there was a change. There was a real fundamental change and everything. And I'm not disputing that at all. But I guess my point is that the data pretty much show that individual investors are now shunning diversification. They don't want it, they don't care about it. If you talk to financial advisors, they're having very frustrating discussions with, with some of their Clients about the financial plans they all set up and all this kind of stuff. Because everybody wants to punt their financial plan.

[Richard Bernstein]

The good news is that peaked at the end of 2024, because in early 2025, these things had a 30% drawdown.

[Michael Batnick]

Absolutely, absolutely. But the problem now is in the.

[Richard Bernstein]

Last couple of months they came all the way back.

[Michael Batnick]

Yeah, they're right back. And so now everybody's. That makes it worse.

[Richard Bernstein]

Look at this. So, Rich, this is the mag 7 from the last time that you were on with us. It's up 42% since then, but it had a massive fall and a massive comeback.

[Michael Batnick]

Yeah, the volatility, it's unbelievable. Is pretty big.

[Josh Brown]

The problem is if you put the diversifiers up next to this.

[Michael Batnick]

Yeah. They look like shit.

[Josh Brown]

Like you put the Russell 2000 on people. Like, why the hell would I do that?

[Michael Batnick]

Yeah, exactly.

[Josh Brown]

Emerging markets, you can put anything up there.

[Michael Batnick]

Put the equal weighted S and P. Yeah, right. I mean you can put anything up and it'll. It'll look terrible.

[Josh Brown]

I agree with you. Advisors. Advisors. If they're still allocating to these other asset classes, they're not talking about it.

[Michael Batnick]

Yeah.

[Josh Brown]

And some of them are. Not at all.

[Richard Bernstein]

But this is an important part, Rich. So this is from Michael Semblis. He said an astonishing sign of the success of tech and interactive media stocks. They now account for 35% of market wide earnings versus 19% a decade ago, which is wild. So the accompanying part that we're looking at is the price to book on one axis. And you've got the consensus forward ROA for the S&P 500 industries or sectors versus the rest of the world. And look how much better in terms of profitability and quality and specifically return on equity these companies are.

[Michael Batnick]

Here's the thing, it's in the upper right hand corner.

[Richard Bernstein]

But not only.

[Michael Batnick]

Wait, let me finish. So that says that the price to book is high as well as the growth rate. That means the market is aware of it. This is not like something that the market is unaware of. If it was sitting at. Wait, I gotta make sure I get the. If it were sitting on the bottom floor of that elevator that it's on right there, that'd be a huge story. Here's the point. Here's the point. Right? Here's the point I want to make. Look at the third one down. Is consumer staples wild? Like, who gives a rat's tube about consumer staples? Nobody. But if you take a stock like Apple, which I have to. I have to. Full disclosure, we own in some of our portfolios. Blah, blah, blah.

[Josh Brown]

Don't apologize for it.

[Michael Batnick]

I'm just saying. No, I'm just saying, full disclosure. We have in some of our portfolios and some of the ETFs we. Hold. Hold it just in case for the lawyers. Right now, Apple's growth trajectory and growth history looks very much like that of another company that we may own. Blah, blah, blah. Everything else looks like Campbell's Soup.

[Richard Bernstein]

Yeah, it's not growing.

[Michael Batnick]

I mean, if I had told you about Campbell Soup and not told you any of this, would anybody who's listening to this have said, oh, wow, I. Campbell's Soup sounds so interesting? No. Yeah, but. And that's my point. I think the opportunity here is in things like consumer staples.

[Richard Bernstein]

So I want to get to your consumer staples. But just a little bit of pushback on why is that? Apple has the ability to change the world again. Obviously, Campbell Soup will not. We got the interesting announcement yesterday between OpenAI and Jony. I've, like, these companies continue to push the ball forward. It's unbelievable.

[Michael Batnick]

I'm not disputing that. But all I'm saying is in that chart, how much of that is unknown?

[Richard Bernstein]

Zero.

[Michael Batnick]

Yeah, that. That's my point.

[Josh Brown]

That's my point. Investors. Investors are paying for Apple more than they're paying for Campbell's Soup because Apple has 40% gross margins or whatever. And Campbell Soup earnings growth.

[Michael Batnick]

Their earnings growth is roughly the same.

[Josh Brown]

I think investors think that Apple can have another spurt to Michael's point. The next time they reinvent something, and it'll be too late to buy it.

[Michael Batnick]

But if you were to compare Apple to Coke or Philip Morris or all these other companies which we may own in our portfolios just in case.

[Richard Bernstein]

There is a lot of weird things happening in the market, like the premium on Walmart, on Costco.

[Michael Batnick]

Yeah, yeah, yeah, yeah, yeah.

[Richard Bernstein]

Some bizarre things going on.

[Michael Batnick]

Yeah.

[Josh Brown]

I think people are allocating, so it doesn't seem bizarre to me. I think people are allocating to quality and reliability, and people worry about the economy or the dollar or the political situation. Like, the one thing you feel like you can count on is that Apple's got this replacement cycle thing on Smash. Anybody who needs a phone is just gonna go to the Apple store, get another one. So Verizon and AT&T started to act better than they had for a while.

[Michael Batnick]

Verizon and AT and stocks of stocks. Right. Yeah.

[Josh Brown]

Well, I think they all. All these companies demonstrate something in the eyes of an allocator who's buying stocks. And I think that thing is like, you'll wake up tomorrow and they're gonna be here.

[Michael Batnick]

Yeah.

[Josh Brown]

I think they're getting like that benefit and that's what's in those multiples.

[Michael Batnick]

So I think I'm gonna send you a chart. And I don't know if you wanna go down this rabbit hole about international quality.

[Josh Brown]

Oh, I don't know if we have that.

[Richard Bernstein]

Go ahead, talk on liquid.

[Michael Batnick]

So anyhow, the story is that if you look at the growth expectations for the mag 7.

[Richard Bernstein]

John, chart 11.

[Michael Batnick]

And you compare that to other. Oh, no, not that one. That one shows the Magnificent Seven aren't unique. It's stocks growing 25% or more. Nope, not that one. That's showing you the US Is in trouble. Maybe we didn't send it. We might not have sent it. But basically what we try to show you is that international quality, which are big names, they're going to be here tomorrow, are selling at a fraction of the price of the mag 7. Have a dividend yield that's really meaningful. And their growth trajectory is better.

[Josh Brown]

Yeah.

[Michael Batnick]

Which is.

[Josh Brown]

Give me some examples.

[Michael Batnick]

So it would be. I don't want to. And this one. I don't want to name these.

[Josh Brown]

These are not endorsements. Rich is just speaking temporaneously.

[Michael Batnick]

We know them all. Whether it's the big food companies in Europe, the big drug companies in Europe, the big luxury goods companies. There's tons of companies.

[Josh Brown]

They typically trade at a discount to their US Counterpart.

[Michael Batnick]

Without a doubt.

[Josh Brown]

Okay.

[Michael Batnick]

It's an amazing discount.

[Josh Brown]

Do you think that discount ever closes?

[Michael Batnick]

I think it will.

[Josh Brown]

You do?

[Michael Batnick]

I think it will.

[Josh Brown]

Why?

[Michael Batnick]

Well, look, if we had been here 15 years ago, we would have been talking about the outstanding growth of non US markets and of emerging markets.

[Josh Brown]

Yeah, that's true.

[Michael Batnick]

Right. And at that point, developed markets X US were a larger part of the world market than was the United States.

[Josh Brown]

Yeah.

[Michael Batnick]

Today nobody and nobody wanted to be in the US The US Was a crappy market. Nobody wanted to be. Today we're talking about US exceptionalism.

[Josh Brown]

So you think it's a pendulum and we've already hit the far end for the US Exceptionalism and it's going to swing back. What's the story where European stocks get a higher multiple or is it just US multiples fall?

[Michael Batnick]

I think it's a combination of two. I think if you think about the European stock market, let's say, what are. What do we have? The European stock market. 401 s. Well, besides 401 s, it's.

[Josh Brown]

A big one for me.

[Michael Batnick]

No, no, no, but I'm saying we don't have. Europe doesn't have a big tech sector in their market. Right. They have risk.

[Josh Brown]

No, Rich, I think my story is better. They don't have a captive investor every two weeks contributing money to the equity market.

[Richard Bernstein]

They don't speculate the way we do either.

[Michael Batnick]

Well, they don't. Right, right, right. But I'm just saying, if you just look at the characteristics of the markets, their stock market does not have this big tech sector that attracts a lot of investors. So growth investors, primarily. And so if not, everybody's gonna say this is gonna happen. If technology retraces, if growth retraces, a lot of these other markets are gonna start looking pretty attractive because now we're talking about an even keel.

[Richard Bernstein]

Yes.

[Josh Brown]

Germany has an ETF savings mechanism now for their retirement system. Okay. Step in the right direction. All of these. Larry Fink has written extensively about this. Capital markets being the strength of the US I will stipulate that point. That we have these tech giants and Europe doesn't. And they would love to. And they don't. Therefore, we have companies with 20% growth, 40% profit margins. Companies like Crowdstrike, and they just do it every single year. There's nothing in Europe even remotely close to that. Okay, they do have the fat loss stuff. They. They do have lithography. They have one company, asml. It's Dutch freaky. All right, fine. But I stipulate that. But I also.

[Michael Batnick]

Country, by the way.

[Josh Brown]

Yeah, but we have 200 million US adults whose money is either going into a 401k or a pension.

[Michael Batnick]

Right.

[Josh Brown]

And there is guaranteed buying of stock happening. Why can't that the Europeans aren't doing.

[Michael Batnick]

But why can't those retirees or. Or the pension funds or whatever buy European stocks?

[Richard Bernstein]

They won't.

[Josh Brown]

They will until they underperform and then they stop.

[Michael Batnick]

They were buying emerging markets when we started our firm.

[Josh Brown]

Yeah.

[Michael Batnick]

I mean, I remember people would not invest with us because we were so bullish on the United States.

[Josh Brown]

Yeah. They wanted to buy the bricks. They wanted to buy. They wanted exposure to the middle class of Brazil. That was a big thing.

[Michael Batnick]

And there was the phrase that people came up with at the time, the brics were passe. Now it was the mints.

[Josh Brown]

I remember the mints.

[Michael Batnick]

Mexico.

[Josh Brown]

Yes.

[Michael Batnick]

India, Nigeria.

[Josh Brown]

Nonsense. Land.

[Michael Batnick]

What was the T? Was it Taiwan?

[Josh Brown]

Yeah.

[Michael Batnick]

I don't.

[Josh Brown]

I agree with you. I was selling. I was selling Nigerian mid caps for a couple of years in that 0607 period. Didn't go well.

[Richard Bernstein]

It is Foolish to say that business cycles, that market cycles are dead. I will never say that.

[Michael Batnick]

Oh, I don't think they're dead.

[Richard Bernstein]

But my God, this has gone on for so long and you have to be open minded to the fact that the apples and the Googles of the world are fundamentally different. They've proven it. They are different than companies of previous bubbles. I'm not saying that they won't, that this will go on forever.

[Michael Batnick]

Right.

[Richard Bernstein]

But what if we're in a world four years from now where we're having the same conversation where Google is 4 trillion, Nvidia 6 trillion, Apple is 7 trillion. At some point I know I'm making make believe but like I will point to say holy shit, maybe this is just so.

[Michael Batnick]

I'll take, I'll take. Let's, let's assume you're right.

[Richard Bernstein]

I'm not saying that. I'm just.

[Michael Batnick]

No, no, no. I'm just. Let's assume you're right. I'm fine with that. Let's assume you're right. What are the economic consequences of that happening? Remember, the stock market is not separated from the real economy. It's a capital formation tool. So let's say that the Mag 7 becomes the Mag 5. I don't know. Let's make this up and keep going. Becomes the mag 5. Everything else is left behind. I would tell you that is hugely inflationary. Why? Because you're denying capital to all these other industries and all these other things that we need in life.

[Josh Brown]

Okay, but here's the problem. There are hundreds of other stocks, not thousands, but hundreds that are up 3 and 4x in the last four years. And they're not being starved with capital. No, no, it's not as big as Apple.

[Michael Batnick]

I'm not saying that, I'm not saying that's where we are right now. I'm saying if you take Michael's example and we keep going in this direction, I mean companies will be, they'll have a very tough time.

[Josh Brown]

Let's do the small cap example. Small caps historically were the first to lead the market out of economic downturns. Like that was the, the upcycle would start with a big bang small cap rally. Small caps, historically they were thought to be higher beta because they would like they had higher growth some of them. And okay, here's the problem. They're just not being born anymore. The, the most successful IPOs that come along huge. These are companies that in a prior era would have been Russell 2000 holdings for 10 years.

[Michael Batnick]

Yes.

[Josh Brown]

Then graduate to the mid cap 400. Then, if they were lucky, gets the s and P500. Now they come public as Airbnb and Snowflake, and they're in the s and P500. Within 18 months. They skip the small cap life life cycle. And then you're in this Russell 2000. You're like, why aren't small caps acting the way they have historically? Well, because the only small caps left are fallen angels, formerly good companies that are now bad and too small for the S and P. We're not. I was at the New York Stock Exchange today. There were two IPOs. MNST. It's a billion dollar valuation right out of the gates. God forbid they have a good earnings report. It'll be 3 billion. It'll never be in the Russell. The other one is something called Hinge Health. I kid you not. This is digital physical therapy. They use their finger now. I don't know. What is digital physical therapy? Do you know, Duncan, Are you enrolled?

[Michael Batnick]

Never heard of it.

[Josh Brown]

I'm guessing it's like peloton but for physical therapy.

[Michael Batnick]

Yeah.

[Josh Brown]

So a chiropractor pops on your screen and tells you to slam yourself into the wall. I don't even know. Fine. Whatever it is.

[Michael Batnick]

Okay?

[Josh Brown]

My point is, it's great to see that we had two IPOs happen within a half an hour of each other, but, like, over the last five years, we've had a drought. And then you get a core weave. When did core weave come public?

[Richard Bernstein]

January, a month ago.

[Josh Brown]

How big is core weave's market cap?

[Richard Bernstein]

50 billion.

[Josh Brown]

Okay. It's never gonna be in the Russell, and if it is, it's got real problems. This is why I say I understand. It's cycle. Things come back and forth. The Russell might be permanently. Because they're not getting that newborn inflow that they used to get.

[Michael Batnick]

Right. I agree with what you said. I would take out the word permanently.

[Josh Brown]

Okay?

[Michael Batnick]

And the reason I say that is that I think that this shows the strength of the venture capital community that they have decided we need to return capital to our investors. If we skip over this point in the life cycle and we tell everybody it belongs here and this is the valuation, people are going to swallow it, and we're off and running, and they skip that whole life cycle, if you will, and they go right there. The interesting thing is that people tell me that it's not a speculative environment because we're not getting pets.com?

[Josh Brown]

We are, but it's not trading.

[Michael Batnick]

It's not pets.com? it's digital physical therapy.

[Josh Brown]

Well, that one I'm bullish on.

[Richard Bernstein]

Let me give you another one. I think this is important just to continue. The conversation of just tech won't stop. So yesterday. So this is from the Wall Street Journal. Altman and I've. Right. So OpenAI merged or purchased Jony I've's company for $6 billion or something like that. Altman and I've offered a few hints at the secret project they have been working on. The product will be capable of being fully aware of a user's surrounding and life, will be unobtrusive, able to rest in one's pocket or on one's desk, and will be a third core device a person would put on a desk after a MacBook Pro and an iPhone. I've referred to a new design movement. So what if it just keeps going and now it's AI and now whatever is coming, you can't even imagine.

[Michael Batnick]

So here, here's the way I would answer your question. I think investors in general have a very tough time separating out an economic story or in this case a technological story from an investment story. And I don't think they're the same. I think, you know, the economic story. Will AI change the way we live? Will it change the economy? Of course it will. There's not a doubt in my mind about that. I don't care. But the important thing that people have to remember is the technology always changes the economy. Right? I mean the Internet changed the economy. Look what you guys are doing here, how's that going to be distributed through the Internet? The automobile, my personal favorite, the light bulb monster. Productivity enhancing technology because it turned the economy into a 24 hour economy. You can't have a graveyard shift in the dark. So I wholeheartedly embrace the notion of that AI is going to change the economy. I don't think that's the right issue. I think the way to think about this is to say historically, how does that technology permeate the economy? And one of the ways it does it is that investors over capitalize the sector. Let me cut it, let me finish the thought for a second. Do you remember how when the Internet came out, there were all these charts that showed the adoption of the Internet and how quick it was relative to other technologies. Nobody put it together and said why did that happen? The answer was we dramatically over capitalized the sector which gave greater accessibility and greater new products and all these different things and it swamped the economy. But if you were investor, you didn't make any money, right? I kind of think that's where we are again.

[Richard Bernstein]

You're 100% right. Because OpenAI is currently valued at $300.

[Josh Brown]

Billion, will never be in the Russell 2000.

[Richard Bernstein]

Their most recent risk. Their most recent funding round, 40 billion, led by SoftBank.

[Josh Brown]

So that might be the first. That might be the first company to open up as a Dow component.

[Michael Batnick]

A new issue.

[Josh Brown]

Hey, we have some charts. We should blaze through some of these. Mike, let's do this. Top 10 GW IM stocks.

[Richard Bernstein]

This is a rich one.

[Josh Brown]

Yeah. Tell us what's. So, what are we looking at here?

[Michael Batnick]

This is one of my favorites. This comes from Michael Hartnett, who is the chief strategist at Merrill lynch or bank of America? Merrill Lynch. It shows you the beta of the top 10 holdings in the Merrill lynch private client system.

[Richard Bernstein]

Wow.

[Michael Batnick]

And so you go back to the beginning of the bull market. 0809, the beta was 0.75.

[Josh Brown]

Below 1.

[Michael Batnick]

People are under their desk in the fetal position. Right. They don't want. They don't want the risk of the market. So it's less than 1. We started writing about it when it hit about 1.2, 1.3 in there. That 1.2, 1.3 went to 1.4, which went to 1.7 at the beginning of the year. It then they got scared. It went to 1.3. Oh, my God. You know, like, let's cut back.

[Josh Brown]

Yeah.

[Michael Batnick]

And now it's back to 1.4.

[Josh Brown]

So the average private client's brokerage account at bank of America Merrill lynch has a higher beta than The S&P 500.

[Michael Batnick]

Yeah. More risk.

[Josh Brown]

So they're taking more risk than the market right now. In truth, they're doing that in, like, the Palantirs and the.

[Michael Batnick]

Okay, this is their top 10 holdings. Now, if you take their top 20 holdings, you don't get the 1.4, but you do get the highest still that they've ever had.

[Richard Bernstein]

Can I be so bold as to call a top? I mean, how much higher can you possibly go?

[Michael Batnick]

I never expected to go to 1.7.

[Richard Bernstein]

Unless they're going to be holding levered ETFs or levered stocks. I mean, this is nuts.

[Michael Batnick]

It is nutty. That's what I was saying before about Chart 7, John. They've punted it.

[Richard Bernstein]

Yeah, they punted it.

[Michael Batnick]

It's crazy.

[Josh Brown]

All right, here's a diversifier.

[Michael Batnick]

This is one of my favorite charts of all time.

[Josh Brown]

Walk us through what this is.

[Michael Batnick]

Okay. This is the white line is the NFIB Uncertainty Index. Nfib, National Federation of Independent Businesses. That Is the lobbying organization of the barbershops of small. Yeah. Restaurants, barbershops, all this kind of stuff. They have something they call the uncertainty index. What's the uncertainty index? They basically ask people are things better or worse or I don't know. Good, bad, I don't know. This is a summation of all the I don't know.

[Josh Brown]

Oh, it's a survey. It's not components. It's not like the inflation rate and the. That's the misery in that.

[Michael Batnick]

No, no, no, no. It's. I have to admit the detailed paper I have. I don't remember but it's basically. I don't know.

[Josh Brown]

Got it.

[Michael Batnick]

If you're answering I don't know where I'm uncertain. You get copied in this thing and I overlaid that with the gold one. The gold line being gold the year to year percent change in gold.

[Richard Bernstein]

That's pretty good.

[Michael Batnick]

It's a pretty good line.

[Josh Brown]

It's a pretty good line. It's actually great.

[Michael Batnick]

And it's 10 years.

[Richard Bernstein]

I'm usually anti two lines but this is pretty good.

[Michael Batnick]

That is pretty good. Anti two lines.

[Richard Bernstein]

That's pretty good.

[Michael Batnick]

So anyhow, the point I'm trying to make here is just that gold is a good hedge against uncertainty. That's why we keep it work.

[Josh Brown]

As uncertainty grows.

[Michael Batnick]

As uncertainty grows. It is the ballast against uncertainty in your portfolio and lowers the volatility. I don't think people should treat gold as the next mag 7. What's the next momentum play? I think that's very hard to do with gold. But if you hold it as part of a portfolio I think it's very prudent.

[Josh Brown]

Paradoxically, my favorite thing about gold is that there's a such thing as certainty in gold. And when that peaks, that's probably because the stock market has just gotten killed. Gold has risen a lot.

[Richard Bernstein]

Wait, what do you mean?

[Josh Brown]

In 2011, GLD crossed above SPY as the highest market cap ETF.

[Michael Batnick]

Really?

[Josh Brown]

Do you know that?

[Michael Batnick]

I did not know that.

[Josh Brown]

Is that not the mother of all buy signals for stocks?

[Michael Batnick]

I would say so.

[Josh Brown]

That happened within two weeks of the generational top in gold we only now just surpassed.

[Michael Batnick]

That's fantastic.

[Josh Brown]

And I think the S and P at that point was probably 25% off the high.

[Michael Batnick]

That's outstanding.

[Josh Brown]

That's outstanding. I hope it happens again. Looks like it. Looks like it's on the way. Next we did the 10 year Germany. Let's do this. Initial unemployment claims which. There's nothing here, right?

[Michael Batnick]

Nothing here. That's exactly the point.

[Josh Brown]

All right.

[Michael Batnick]

There's nothing there.

[Josh Brown]

Okay, this is important. I think people need to hear that. What's. Oh, IPO. SPACs. SPACs are not back. One guy. One guy's doing a spac. That's it. And we all know who he is. Yeah, well, God bless him, but I.

[Michael Batnick]

Mean, this is the performance of spacs and get the out of here.

[Josh Brown]

All right, next chart. Next chart.

[Michael Batnick]

You don't like that one?

[Josh Brown]

We're never doing that spac thing again. It's not going to happen.

[Michael Batnick]

You like my gold chart? You don't like that?

[Josh Brown]

I love your goal chart.

[Richard Bernstein]

This is good.

[Josh Brown]

I love this.

[Michael Batnick]

This is next 12 months earnings growth, S&P 500 companies. Each bar represents a different company's growth forecast. One MAG7 company passes Nvidia. It is Nvidia.

[Josh Brown]

Yeah. It would have to be for.

[Richard Bernstein]

Yeah, there is growth elsewhere.

[Josh Brown]

What's on the left? Consumer to squash.

[Michael Batnick]

It's a mix.

[Richard Bernstein]

Hims and hers.

[Michael Batnick]

It's a mix.

[Josh Brown]

It's a. Hims and hers is on the left. But I think the point of this is it's not. Mag7's not the only games in town.

[Michael Batnick]

So they may be magnificent, but they're not unique.

[Josh Brown]

I love that.

[Michael Batnick]

That's the line.

[Josh Brown]

Okay. We did the mag 7 total return. Is this trade chart worth getting into?

[Michael Batnick]

I did this more tongue in cheek than anything else about how we had a trade pack with the United Kingdom, but we have a trade surplus with the United Kingdom. So what's the point of that? The red bar here is our trade deficit with China. That's the big elephant in the room.

[Josh Brown]

Yeah, I don't think that's getting resolved this summer. Okay. He wants to sign something on July 4th or something. I don't know if it's going to happen one year. CBS spreads by country.

[Michael Batnick]

Okay, cbs. What's the. What's the credit default swap? What's the. What's the probability of default? You know, that's really what this is looking at. So it's the green line. Green lines, United States. The other multicolored things down below are triple A rated sovereign countries.

[Josh Brown]

Is it the probability or is it the amount of betting? The amount of. I guess they're using this for hedging.

[Richard Bernstein]

What's the measure?

[Josh Brown]

It's an insurance they're buying.

[Michael Batnick]

Basically. If you want to insure against. I think this is one year if I remember correctly. It doesn't say. We didn't label it correctly. Pretty sure it's one year. You have to pay 60 basis points. If you want to hedge against default in the next 12 months for the United States.

[Josh Brown]

That sounds. That looks mispriced. Yeah.

[Richard Bernstein]

Who the hell is paying for.

[Josh Brown]

Well, only because I'm looking at the rest of the countries.

[Michael Batnick]

Well, look at the others, right? It's Singapore is the 9, but the rest are all like 3, 4.

[Richard Bernstein]

Can I ask you a question? Do people trade this like nobody's.

[Michael Batnick]

Actually, they don't. They trade it, but it's not. It's not the most liquid, not the deepest market.

[Richard Bernstein]

So why would you buy it?

[Michael Batnick]

You'd buy it if you. Look, you buy it if you're a hedge fund and you think people are going to wig out about the deficit.

[Richard Bernstein]

So you're buying it so that you.

[Josh Brown]

Can sell tail risk. Like you put like 2% of your portfolio into that.

[Michael Batnick]

Yeah. Do nothing.

[Richard Bernstein]

My point is, you know, that's not going to pay off, so you're just trying to buy it to sell it higher in case.

[Michael Batnick]

Yeah, it's basically, it's a very speculative market. But the interesting thing is you can do this versus AAA sovereigns. You go back in time, there was. Although the CDS market was not what it is today. You know, you can see that the spreads are much narrower and you need.

[Josh Brown]

An ISBN designation to trade these things, though.

[Michael Batnick]

Oh, yeah.

[Josh Brown]

There's no retail in this.

[Michael Batnick]

No, no, no, no, no, no. There's no retail, like you have to.

[Josh Brown]

Be like, cleared to be a participant in that market.

[Michael Batnick]

As far as I know. That's right.

[Josh Brown]

All right.

[Michael Batnick]

We don't trade in it.

[Josh Brown]

Okay. Expected total return. This is great.

[Michael Batnick]

This is what I'm saying.

[Josh Brown]

It's very helpful for people to picture it. Like what? Like what's the risk? What's the upside of the sector fundamentally relative to, I guess, what's on the Y axis? Dividend yield is. All right, so walk us through what you're seeing here.

[Michael Batnick]

Now, this explains why earlier I was such a big bull on international quality. Right? Because you want to be northeast in this chart. If you're northeast in this chart, Top right quadrant. Top right. It says. It says you have a high dividend yield and you have a high projected growth rate. Those are the two main components of expected return right now, valuation too. I get that. But. But humor me for a second here. So you want to be top right. That's why we're such big fans of international quality, because that's top right. Look at where the Mag 7 and Mag 7X Nvidia are not exactly.

[Josh Brown]

I would buy into this if you could do shareholder yield and not dividend Yield could you throw buybacks in?

[Michael Batnick]

Interesting point.

[Josh Brown]

I think that would mix this up a little bit.

[Richard Bernstein]

Why are some red and some green.

[Michael Batnick]

Oh red and green is what we're overweight and underweight.

[Josh Brown]

So like if you could take. Apple's gonna buy back $100 billion worth of stocks.

[Michael Batnick]

Yeah, that's a fair point.

[Josh Brown]

Say that they don't pay a high dividend.

[Michael Batnick]

That's a fair point. Absolutely.

[Josh Brown]

Probably not relevant. Who doesn't do big buybacks but does big dividends? Utilities.

[Michael Batnick]

Utilities.

[Josh Brown]

It's probably like why they're there.

[Michael Batnick]

Yeah, yeah.

[Josh Brown]

Relative to. I like it, I like it.

[Michael Batnick]

It's just an interesting comparison.

[Josh Brown]

We had one more thing to do but I think we did it rich. The AI just like we don't need data for this just your general sense of how fast AI is not the stock market. We know it's transforming the stock market. How fast it's about to transform the labor market and by extension just the way we do business in this country.

[Michael Batnick]

I think it'll be fast but slower than people think. How's that for hedging? Right. It's going to be fast but slower than people.

[Josh Brown]

Why?

[Michael Batnick]

I just don't think capital spending can occur that quickly.

[Josh Brown]

So that's the constraint is the rate of the data center build out the.

[Michael Batnick]

Data center build out how companies how comfortable they are to dedicate their capex and their cash flow to this big time and things like that. I think it's going to be a slow process that will build through time. Think about how the way companies adopted computers 30, 40 years ago it was slow and then, then it took they see.

[Josh Brown]

Do they seem to you as though they're going slowly when they're spending? Meta is going to spend $80 billion.

[Michael Batnick]

That's better. But I mean the ultimate story has to be that the non technology corporations are starting to buy it.

[Josh Brown]

Elon Musk tweeted that he needs another terawatt. Do you know a terrawatt is it's enough to power the United States? 1 yeah. He wants one more. So just going to stand up.

[Michael Batnick]

It's going to be an interesting whether.

[Josh Brown]

Or not they're going slowly.

[Michael Batnick]

So here's one of the interesting things that I think is going on right now that everybody's gaga over AI and automation and everything. I think one issue is the grid as you correctly point out and the other is that when I talk about re industrialization of America people says we're going to have to have robots and everything else. Here's the irony. We're Going to have to import the robots.

[Josh Brown]

Oh, for sure. Japan. Japan and Korea are going to supply the robots.

[Michael Batnick]

So they're going to have to pay a tariff on the robots.

[Josh Brown]

Surely people understand we're not making robots in midtown Manhattan. I hope, people. I own one robot stock. It's almost a penny stock, so I'm not gonna say the name of it. And I thought I owned it. Cause they were making robots. Magna International makes the robots. It's a Canadian auto parts manufacturer. They contract with Magna International to make these. It's a bucket on wheels. And they just, like, buy the thing from them. But they're the robotic company.

[Richard Bernstein]

That is hilarious.

[Josh Brown]

It's hilarious. I do a lot of due diligence, as you can see. All right, Rich, do you have fun on the show today?

[Michael Batnick]

Yeah. Great time. Thank you.

[Josh Brown]

We think of you and your research is always great. And you have a huge following in the advisor community. And I think you. I think you're one of the people that, if you ask advisors, who do you read, who do you pay attention to? Advisors who have broken away from Merrill lynch will know you, of course, because you were the guy at Merrill. But I just think generally advisors care about your insights and what you have to say. Where do. Where do regular people go to hear more from you these days?

[Michael Batnick]

You can go to our website, which is rbadvisors.com.

[Josh Brown]

Okay.

[Michael Batnick]

And they can follow us on Twitter @RB Advisors.

[Josh Brown]

Okay.

[Michael Batnick]

And how frequently are you publishing?

[Josh Brown]

Are you putting stuff out these days?

[Michael Batnick]

We put out on Twitter. You know, there's several things on a normal day.

[Josh Brown]

They prefer X.comX to Twitter these days.

[Michael Batnick]

Sorry.

[Josh Brown]

So I don't use it at all.

[Michael Batnick]

On X. We kind of. We put out. On a good day, we'll put out several things a day. Little charts, like a lot of the ones we just showed here. Those will appear on. On X. Sorry.

[Josh Brown]

Okay.

[Michael Batnick]

Very often, RB Advisors, you'll get our monthly commentary. If we're on something like this, this will be on our website. Awesome TV appearances. Our deputy cio, Mike Kintopoulos, when he writes his stuff, there's a whole bunch of stuff.

[Josh Brown]

And you guys are SMAs.

[Michael Batnick]

We are SMAs. We sub advise a couple mutual funds. We have a ETF called the American Industrial Renaissance. That's been around.

[Josh Brown]

That's a mouthful. I have a better name for an ETF for you. Ready?

[Michael Batnick]

What's up?

[Josh Brown]

Granny shots. Just think about it. Just think about it. Tom Lee raised a billion dollars with his ETF in like five minutes.

[Michael Batnick]

Exactly.

[Josh Brown]

The key is granny shots.

[Michael Batnick]

But here's my thing. It's not AI, it's AIRR. That's the tip. That's the ticker.

[Josh Brown]

Air. What's the idea behind the industrial revolution? ETF.

[Michael Batnick]

Mid cap and small cap industrial companies that get 75% or more of their sales from inside the United States.

[Josh Brown]

Okay, so this is a domestic growth.

[Michael Batnick]

Domestic idea. Industrial growth idea.

[Josh Brown]

Okay. How long has that ETF been around?

[Michael Batnick]

10, 11 years.

[Josh Brown]

Okay.

[Michael Batnick]

Oh, yeah, yeah, yeah. I'm telling you, we've been on this theme for a very, very long time.

[Josh Brown]

I would recommend my robotic stock, but Magna's from Canada, so they didn't even make. They didn't even make the robots in this country, let alone make them themselves.

[Michael Batnick]

We're gonna have to pay a tariff for the robot.

[Josh Brown]

So we always end the show asking people what they're looking forward to. I think Michael's looking forward to game too. We need a little redemption.

[Richard Bernstein]

I'm looking forward to the summer. I went to the beach club today.

[Josh Brown]

You went to Catalina?

[Richard Bernstein]

Yeah.

[Josh Brown]

Did you move your stuff in?

[Richard Bernstein]

I did.

[Josh Brown]

Okay. You got the cabana or the locker?

[Richard Bernstein]

So I was moving my stuff in, and one of the ladies there who was also moving her stuff in, she asked me for help and I said, do you. I helped her, but I said, do you think I'm a cabana boy? And she said, yeah. I said, I used to be. Wait, where were you?

[Josh Brown]

I still got it.

[Richard Bernstein]

I still got it.

[Josh Brown]

What beach club were your cabana boy?

[Richard Bernstein]

Sunny Atlantic. For years.

[Josh Brown]

You're like the Flamingo kid.

[Michael Batnick]

Yeah, yeah, yeah, yeah.

[Josh Brown]

You a waiter?

[Richard Bernstein]

I was a waiter, too. And a valet parker. I stood up.

[Josh Brown]

Wait, that's where you met. That's where you met Robin?

[Richard Bernstein]

Yes.

[Josh Brown]

Okay.

[Richard Bernstein]

It really is 2002, maybe.

[Josh Brown]

Yeah, 2002.

[Michael Batnick]

Yeah, it really is like the movie.

[Josh Brown]

You're a beach club. You're a beach club guy?

[Michael Batnick]

No.

[Josh Brown]

What are you doing in the summer? Are you fish? Beach, mountains?

[Michael Batnick]

Sleep.

[Josh Brown]

Sleep. Oh, you. You're out east, though.

[Michael Batnick]

Yeah.

[Richard Bernstein]

We got answer.

[Josh Brown]

Good for you. What are you looking forward to the most this summer?

[Michael Batnick]

What am I looking most to this summer? Honestly, just plain old family time.

[Josh Brown]

Okay.

[Michael Batnick]

We love it. Can't get enough of it.

[Richard Bernstein]

Grandkids?

[Michael Batnick]

No, not yet.

[Josh Brown]

Stop. Stop prematurely aging him. All right, I'm looking to. I'm going to Delmonico's tonight for the first time. Do you know. Do you know Delmonico's on. It's. I guess Beaver Street? Yeah, it's right on that corner.

[Michael Batnick]

It still exists.

[Richard Bernstein]

You've never been?

[Josh Brown]

No, I was at the original. They closed down for, like, five years.

[Richard Bernstein]

You're right. I've never been to this one either.

[Josh Brown]

And these new guys reopened it a couple of years ago, like, redid the whole place.

[Michael Batnick]

I haven't been there since the original.

[Josh Brown]

You know, because Bobby Van's on Wall street across from the exchange was technically on Broad Closed. And there's, like, there's a capital grill there right by the exchange. And then that's really it for stakes in Financial District.

[Michael Batnick]

Yeah.

[Josh Brown]

So they reopened Delmonico's, home to the famous Delmonico cut.

[Michael Batnick]

Right.

[Josh Brown]

So I'm going there tonight for the first time since it reopened. And, yeah, I'm probably half a salad and anyway, looking forward to that. All right, Rich Bernstein, ladies and gentlemen. Please follow Rich Bernstein and Rich Bernstein Advisors wherever you Follow. Email twitter x.com Great job this week. John Duncan, Rob Nicole, Daniel. Daniel Chart Kid, Matt, Keith, Sean Russo, all the compounders. We appreciate it. Please leave us a waiting and review and we'll see you next time. Good night. I want you one more time.