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The Compound and Friends
S*** Just Got Real, Earnings Estimates Fall With Nick Colas, Trump’s Argentina Playbook
01:42:10
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- [00:01]
Josh Brown
Ladies and gentlemen, welcome to the compound. And friends, my name is Downtown Josh Brown. I will be your host. I want to start by saying thank you to our sponsor, public.com and the public trading app I use public so easy. Move money on, move money out. Every asset class, they've got a 6% or higher yield in their bond account. They've got crypto, they've got stocks. You could do whatever you want there. I've got, I want you to check it out for yourself. It's public.com/at as in what are your thoughts? That's public.com/ on tonight's show, we gotta talk correction because as of today we made IT official. A 10% correction from the new record high, the S&P 500 set back in February. And according to our chief strategist at Ritholtz Wealth, Cali Cox, this is one of the fastest 10% corrections ever. So, Callie, notes, since 1950, there have been 23 corrections that went down 10% or more. And of those 23, this one is the fifth fastest. It's only taken us 20 days to go from a record high to a 10% drawdown. And that is pretty rare. So I think the good news about this particular correction, number one, it's very heavily focused in momentum stocks and NASDAQ tech stocks. So a lot of stocks are down and a lot of stocks are down big. And they're not all tech stocks, but that's really the epicenter of this one. And I think that speaks to positioning and leverage and some of the ways in which hedge funds had been riding the rally. And as a result, there are a lot of things that are not correcting or don't look nearly as bad as the S and P index or as the NASDAQ 100, for example. The other thing that's going on is you are getting help from your other asset classes in your portfolio. This time I couldn't say that in 2022, the bond market killed you. In 2022. This time the Barclays AG, which is like Treasuries and high grade corporates, is up. When we have these risk off days in the market, they're buying bonds and you're getting help there. And again, I could not have said that three years ago during, during the interest rate scare bear market that we had. So that's a really material difference and I think it's important. You're also getting help from European stocks. They've been rallying all year. Chinese stocks. There are some very specific reasons for these things in China they're doing fiscal stimulus and they're really trying to get their large cap tech stocks off the mat and it's working. Kweb, which is Chinese Internet, is having just a huge year already in Europe. They're scared to death of the lack of preparedness on a defense basis and Germany is willing to do some things with their fiscal budget that I don't think we've seen in 25 years. So we're going to get into that. I think we're starting the show talking about probably the most important thing, which is the valuation slash sentiment problem and the earnings problem. And Nick Colis of Data Track Research is going to walk us through why that's important. Then it's an all new edition of what are your thoughts with Michael Batnick and I. We take a look at the last five years worth of charts in the post pandemic period. We take a look at some of the things driving the market action from day to day and we're gonna do all the rest of the normal stuff. We're gonna make the case, we're gonna do a mystery chart. So it's an action packed show. I appreciate you being here with us. I'm gonna send you right in. Duncan, John, Daniel, let's do it. 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 opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome back to what did we Learn? My regular check in with my friend Nick Kolis of Data Trek Research. His co founder Jessica will not be with us today, but we'll see her soon. Nick, I'm so happy to have you. It's a fairly momentous time. Let me just give you your official introduction and we'll get right down to business. Datatrack Research puts out the Morning Briefing newsletter. It goes out daily to over 1,000 institutional and retail clients. Nick is also one of the smartest people I know and as I told him last week, one of the only people I absolutely need to hear from in a time like this. If you want to see Nick and Jessica's YouTube channel, we have a link to it in the description below as well. Let me set this up Nick. In the first month of the Trump administration, stocks were trading higher in follow through from the post election rally and everyone was focused on the deregulation and the extension of the 2017 tax cuts. This is what people were really excited about and with good reason. Then the mood completely changed in the third week of February as the tariff announcements began. It was like Dr. Jekyll and Mr. Hyde. The trouble is, not only do we have this tariff situation, but we also went into it with way too much enthusiasm, according to your research. Why don't you take us through why that seems to be one of the biggest problems right now?
- [06:07]
Nick Colas
Sure. Let's just start with popping up the first slide, which is the State Street Institutional Investor Risk Appetite Index. Now, you know State Street's one of the biggest custodians of financial assets around the world. And what they do is track how their portfolio manage as your clients are changing positions in a given month. And this graph shows you when they turn bullish, when they turn bearish. Stuff below the line is when they're bearish, Stuff above the line is when they're bullish. And you can see they were pretty negative in 22, got bullish in November 22nd. Awesome. That's the point in the first point on the left hand side. Then they were pretty cautious through 2023, got more bulled up in 24. But what I've done is highlight when they get super bullish when that number, when that index goes to its highs. And yes, they called the turn in November 22nd perfectly. But they tend to get bulled up in the current bull market at exactly the wrong times. And we've highlighted those there. So July 23rd, they got pretty bulled up. S P fell 8%. July 24th got bowled up, S P fell 8%. Then in October 24th, they got kind of pulled up. Modest pullback there, but they were really in that really super bullish position at the end of January and were down, I had it 4% as of Friday. It's down probably 6 now. So we're seeing a pullback. But you know, big money was really poorly positioned for this. As you said, they got way too enthusiastic. So that's problem number one.
- [07:28]
Josh Brown
Okay, I wanted to stop there and just ask you when the institutions that whose data is being fed into this risk appetite index, when they get bowled up, what does that look like? Is that higher than average allocations to stock funds or smaller cash balances or some combination of the two?
- [07:48]
Nick Colas
It's a combination of late, has been very low cash balances, very high allocations to the US and that's been persistent for the last 24 months because of the American exceptionalism trade. American stocks doing so well. So they were really poorly positioned both in terms of not having enough cash and being way too long. The U.S. they were tiptoeing into em at the end of the fourth quarter, which is a spike. China. Exactly. Europe was underexposed. And we'll talk about how wrong that was in the next couple of slides.
- [08:16]
Josh Brown
I had it exactly backwards. Well, you can understand like late January, why you start seeing institutional investors getting balled up. We really had a lot of momentum coming into the year. And if you were in the camp that says, okay, come January, this is all about to get real and stocks are going to sell off, it didn't happen, didn't happen till mid February. So I think you had a lot of people just say, you know what, we gotta get on this train this thing's going. And that's how you get those higher than average institutional risk appetite readings. Everybody just decides they gotta play perfectly.
- [08:55]
Nick Colas
Said, yep, I have nothing to add to that. All right, next slide is S and P earnings. So this is quarterly S and P earnings. This is FactSet data. And you can see the dark blue lines are the historicals. Nice steady uptrend in sequential quarterly earnings. But then we get to this Funky downdraft in Q1. Now, by way of background, S and P earnings in a normal market, normal economy, they go up 2 to 3% every quarter. They're nice and pretty steady. There's not a lot of lumpiness. But we have this big downdraft from Q4 to Q1 down 8%. But then the Street's expecting, and those gray shaded bars are street expectations expecting 21% improvement in sequential quarterly S and P earnings through the balance of the year. That downdraft that you see down from Q4 to Q1, that's been pretty recent. That's been a bunch of companies in Consumer Discretionary, Materials Energy cutting their guidance because they're worried about tariffs. And FactSet did some pretty good work on that in their last Earnings Insight report. So that bump is the tariff downgrade of earnings. It's an air pocket. It's dramatic. And like I said, normal times you get 2% growth, 3% growth in quarterly earnings sequentially through the year. There's not a lot of seasonality there. It's the same from Q4 to Q1. So the market looks six to nine months ahead of time. That's what markets do day to day. And right now, to get to those numbers in the back half of the year, you need a strong economy. You don't get to record high S and P earnings if we're in an air pocket in the economy. So that's why the market's so twitchy. We don't have a lot of near term earnings visibility in Q1 and Q2. This is entirely a back half of the year story. That's why you're seeing outsized volatility, because the shape of the US economy in Q3 and Q4 right now is a big question mark on it.
- [10:42]
Josh Brown
So let's throw that back up one more time so I can ask you. All right. So for those listening who aren't looking at, at, at the chart, it looks like the last reported quarter we have $65.77 for the S&P 500 earnings. And now the estimate for this coming quarter is a pretty steep drop off after four straight quarters of earnings growth. Now it's looking more like $60.57. And of course, that's an estimate. It's not actual. We won't know for a couple of months what it actually turned out. But that is a fairly large air pocket. But then nobody really seems to be cutting the Q3 and Q4 number to the same degree.
- [11:27]
Nick Colas
Yep.
- [11:27]
Josh Brown
So am I reading this right? The street currently is expecting 21.1% growth from Q1 through Q4? Because that's a lot of earnings growth built baked into expectations. To your point?
- [11:43]
Nick Colas
Yes. Now, to be fair, the street has been very good at calling the last two years of earnings. They were within 2 to 3% in terms of where they started the year on a number versus where it actually came out.
- [11:54]
Josh Brown
Okay.
- [11:54]
Nick Colas
So we can't just fade the analysts automatically. But this does explain why we're getting this choppiness right now, because we're relying on the back half.
- [12:02]
Josh Brown
So it sounds like one of your big points here is we have a way too enthusiastic multiple going into this problem. At 21 times forward, that is not what you would expect the multiple to be. If there's this much doubt about the next quarterly earnings report that is going to start in April, we'll start hearing about these Q1 numbers. So it's like there's just not enough doubt built into that number. Is that the biggest point?
- [12:31]
Nick Colas
Yes.
- [12:32]
Josh Brown
Okay.
- [12:32]
Nick Colas
And it's not just valuation. It's also volatility. Volatility is an expression of uncertainty about the future results. When the uncertainty is higher, that volume has to be higher. And we're seeing that now. We'll talk about the VIX in a little bit.
- [12:44]
Josh Brown
So it seems like the current expectation then is for a one or two quarter blip as either companies adjust or the administration pulls back on some of this stuff or some combination of those two things. What kind of multiple do you think we would need to de risk to to account for an earnings drop off of this magnitude if it looks like it's going to be more permanent? Is that an 18 or a 19? Because that's a really big derating.
- [13:14]
Nick Colas
The 10 year average for forward 12 month PE multiples is 18.4.
- [13:18]
Josh Brown
And we're 21 today.
- [13:20]
Nick Colas
Forward and we're 21 today. But let's keep in mind like that 18 includes a lot of bad crap that happened in the last 10 years and much greater levels of uncertainty than we have right now. So I look at 18 as a floor. 18 to 20 I think is begins to be fair.
- [13:36]
Josh Brown
Okay, here's some potentially good news away from the US stock market, the multiples might be too low given some of the, some of the things that some of the recent developments and you guys point out deep seek some potentially positive government vibes for Chinese large cap companies, tech companies that were basically in, basically in jail up until this past fall, metaphorically speaking, sometimes literally. And now the Germans are going to rearm for World War 3. So that's a fairly material shift mentality shift taking place there. Is that enough for investors to offset this earnings air pocket we're going to experience here in the US it is.
- [14:24]
Nick Colas
More a kinetic response, I would say to what's going on in the US because you know, as we all know, the returns outside the US over the past five and 10 years have been terrible. The US has just cleaned the table with all these other equity markets. And now you have some small catalysts. You have President Xi shaking hands with Jack Ma saying okay, we're not going to persecute tech founders as much. You have deep seat proving that China is not brain dead on Gen AI. And as you said, you have Germany really thinking about the most dramatic shift in fiscal policy since the reunification of the country in 1990, wanting to spend on defense, but also on infrastructure. And by the way, talking to my contacts in Europe and seeing some of the surveys that have been run that these are wildly popular initiatives in Germany, so they should pass. Germans are tired of aging infrastructure, slow economic growth, being beholden to the US for defense. And so there is a broad social support for these measures. The catch is that it's all going to pass by March 25. Because the parliament changes on March 25. The outgoing parliament is still more likely to vote for these measures than the incoming parliament. So there's a very short window to find out if this catalyst is actually true. But the point is you have sort of fiscal cutbacks in the US and fiscal expansion in Europe. And that's why Europe is outperforming so dramatically year to date.
- [15:39]
Josh Brown
Let's throw that table up. So here's Kweb, the Crane shares, Chinese Internet ETF up 26 and a half percent year to date, which is blistering up 48 and a half percent over the past year. So for a lot of people these were no touch stocks. China was considered dead money. Well, good morning, it's a new day. The Triple Q is the U.S. growth trade, let's say the NASDAQ negative 3.8% on the year. And that's I think going into today. So today will make it worse. So that's a pretty big spread between K Web and the triple QS of plus 30%. And then what you're saying something similar now is happening with European stocks. What, what are we looking at here?
- [16:29]
Nick Colas
Yeah, so the point of this table is just to show like the 3, 5 and 10 year CAGRs, how much these things compound was dramatically in favor of the US, the QS or the S&P 500 versus Kweb and MSCI Europe. So you look at the 3, 5 and 10 disasters right now you've got people saying you know what, maybe they're cheap enough. And yeah, I'm not getting the US level of entrepreneurship and growth, but I don't have to worry about big fiscal spending cutbacks and tariff uncertainty from the US side. I do have to worry about it from the European side. But maybe these things are beaten up and now there's a catalyst. You have the catalyst in China and you have a catalyst in Berlin. So we'll see how it plays out. But that snapback trade is clearly working.
- [17:09]
Josh Brown
I want to show you. I brought a chart for you. I didn't know this existed until 20 minutes ago. This is, this is the select stocks Europe aerospace and defense ETF. EUAD Nick, they really got one for everything versus the iShares U.S. aerospace and defense ETF, which is ITA, which I think most investors are at least aware of. Look at this performance differential. The European Defense ETF is up 36.55%. And this is year to date versus the ITA, which is Boeing and then all the defense contractors up 1.6%. Have you ever heard of this ETF?
- [17:52]
Nick Colas
Actually sadly yes.
- [17:54]
Josh Brown
You have? Okay, yes, I had it. Let's Put up the table. These are the top, these are the top 13 holdings and I think these might be all of the holdings because Airbus is 21%. Saffron is 19. Rolls Royce, which does not make the cars. Rolls Royce sold the auto business to BMW. They just make the jet engines and, and Nuclear stuff is 13% of this index. BAE Systems is a fairly well known British defense company, aerospace company, and then this Leonardo, which is 4%, that's an Italian defense company. I don't know. You must know these names better than I do.
- [18:39]
Nick Colas
Well, the one you skipped over, Rheinmetall has actually been the spiciest.
- [18:41]
Josh Brown
I think I only skipped over it because I can't pronounce it, but tell us about that.
- [18:46]
Nick Colas
It is a German defense manufacturer and has had this amazing rip over the past couple of weeks and it was considered a value stock and like very attractive. At the middle and end of last year I heard, I got a pitch to me and then all of a sudden it's just, you know, hear it again three days ago and think, wow, okay, that was good call.
- [19:04]
Josh Brown
I want to point out that yes, this index of 13 defense contractors based in Europe is up 36% year to date, but these stocks effectively have done nothing for 10 years. And it's not out of the question that they could be up another 36% if for example, that parliamentary measure that you mentioned passes or something worse happens on the Ukrainian frontier. Like it's not out of the question for this rally to endure throughout the course of 2025, depending I guess, on how confident you are that Europe is truly awakening to its own need for self defense or how bleak you think the geopolitical situation will become, let's say by this summer, this fall. So you would agree that that's kind of like a rational way to think about if you wanted to get into some of these stocks now?
- [20:05]
Nick Colas
Yes, I mean, look, the easy trade is obviously over and now comes a question of does this measure pass by March 25 and then how much does Europe actually use the capital? Sensibly, because Europe is a place that capital has gone to die over the last 20 years. It has not been a grid market since the financial crisis. Some of the charts on European in single countries are flat since 2008. So it's not been a great trade. So you really have to have a high degree of confidence that they'll do something sensible with the capital after a long history of not doing so. But the call really is, are the European countries now shaken up enough by the change in policy from the US that they are comfortable deficit spending. Germany says yes. But then are they also comfortable actually allocating capital sensibly and fixing some of their own internal problems as well? And that's to be right?
- [20:51]
Josh Brown
We don't know. All right, last thing on this you point out a lot of US equity rotation has already happened, making it harder to judge what to do now. This is like a perennial problem for investors. Like by the time they figure out what's going on, they may have like missed whatever opportunity there was to capitalize on it. Which is why most investors are better off not trying to chase index and sector rotation. But talk us through this.
- [21:18]
Nick Colas
Sure. It's I think the next chart. Yes, this is S&P 500 consumer staples minus technology when you're trailing relative returns. And what it shows is that Staples usually underperform technology over in a given one year period. This chart goes back to 2015. So it's a 10 year time slice and most of the time Staples underperform. No surprise. Staples don't have the fundamentals, they don't have the growth, they don't have the technology. So cool. However, there are times when Staples do outperform and that's when things get really bad in the US market. So the biggest period was 2022, the rate shock. Despite the fact that rates went up, Staples did really well relative to tech. Tech got creamed, Staples did a little better. Yeah, Staples have just come off of their worst level of underperformance in the last 10 years at the end of 2020, 2023. And they've spent the latter part of the best part, most of the last year recovering and now they've actually outperformed technology over the last year. So a very unusual situation. So if you're going to get into Staples now and sort of avoid tech like you said, you've missed that move. That was a two standard deviation downside move. And this I think contributes to equity market volatility because a sensible investor will say I can't be in tech. And staples have 2 to 3% growth and are trading at 23 times earnings. I can't go there. So I'm just going to sell down the entire market. And that's what creates the higher correlations between the sectors and higher overall index volatility.
- [22:45]
Josh Brown
Yeah. So I think this is a really important point because over the weekend the lead feature article in the Wall Street Journal for presumably the investor class is reading over the weekend, what do I do now? And the article is called Stock Investors go On defense with dividends. And they point out the most popular dividend ETFs. For example, SCHD, which is the Schwab US Dividend ETF is up 4%. The S&P Dividend Aristocrats Index is up 3 1/2 percent. This is on the year, and the S and P is, is negative. And here's an example of one of the charts they put up. Here's Johnson and Johnson and Coca Cola versus the S&P 500. But like I was just thinking when I was reading it, I'm like, oh, this feels, I don't know how late. I don't know if it feels totally late, but it feels somewhat late that, you know, this huge rotation has already taken place almost in the blink of an eye. And now we're going to, now we're going to start telling people, sell tech, buy candy bars. So I just, I just looked at this as kind of like this would have been much more helpful if you published it 10 days ago and not, not over this weekend or a year ago.
- [24:01]
Nick Colas
Well, when, when, when nobody would have printed that.
- [24:05]
Josh Brown
Now we're asking a lot. You, you wanted to, you wanted to wrap up on a, on a little bit more of a positive note. Tell us, tell us, tell us what we should be thinking about here.
- [24:19]
Nick Colas
All right, so let's pull up that table.
- [24:21]
Josh Brown
Sorry.
- [24:22]
Nick Colas
I prepare so many graphs for these presentations. It's got to go in order.
- [24:25]
Josh Brown
This is really good. People should, people should screen grab this thing.
- [24:29]
Nick Colas
All right, let me just go through it for people who are listening. So the title is when and why Bad Things Happen to Good Markets. And let's just start by accepting that US equities over a very long period of time have done very well for investors. So since 1928, which is 97 years, the S and P has been down more than 10% on the year. Only 12 times on a total return basis. So 12 times out of 97, basically 12%, we've been down 10% or worse. Eight of those were due to recessions. So 1930, 31, 37, 57, 73, 74, obviously 2001, and obviously 2008. Three were due to World War II, 1940, 41, or big geopolitical tensions like the lead up to Gulf War 2 in 2002, and one was due to a Fed rate shock that didn't cause a recession. 20, 22, that's it. Those are all the 10 drawdowns for the last, basically not very many years. It's not very many. And the key takeaway is it takes a genuine big shock, it takes a full blown recession, it takes a war, or it takes a huge policy misstep. Now, one might argue that we're in the middle of the beginning of a policy misstep with the tariffs and other economic issues, but that game is not through yet. So as much as it's super uncomfortable now, just keep in your back pocket the idea that to get a 10% drawdown crap has to go incredibly badly.
- [25:55]
Josh Brown
Yeah. All right. I love that message. I think in people's imagination these negative 10% plus years are more common than what you've actually shown us is the truth. And it's not that we can't be in the midst of one right now. Of course we could. It's that it's not the highest probability bet.
- [26:14]
Nick Colas
No.
- [26:15]
Josh Brown
And it almost never is. And by the way, like, something really bad has to be happening. And if it's a full blown recession, that's bad enough. But. So I think that's, that's really the salient takeaway. And that's not to say we haven't been in 10% drawdowns a lot of the time. You're specifically talking about years that end negative 10% or worse.
- [26:38]
Nick Colas
Right.
- [26:38]
Josh Brown
That's what's really rare.
- [26:39]
Nick Colas
Okay, look, when you look at your statement, what'd you do that last year? That's the message.
- [26:43]
Josh Brown
Do we want to touch on this minimum volatility thing just for a brief moment?
- [26:47]
Nick Colas
Sure. Okay, couple, couple of charts there. Okay, so the min volume strategy is one that buys stocks that have lower than average volatility. And there's a couple of popular ETFs that do. This one is USMV, an iShares product. Other one is SPLV, an Invesco product. Those are two most popular min volume products. And they're equity having a good year. And they're having a good year. So they're up, the S and P's down and they're actually outperforming, which is kind of uncommon because the goal of the strategy is to get 80% of the upside and only 60 to 70% of the downside. That's what min volume means. So far. We're just outperforming. Like forget, you know, the old benchmark.
- [27:25]
Josh Brown
All of the upside and then some because there isn't any.
- [27:28]
Nick Colas
Right. So this table shows you how the two products go about their business. The USMB tries to hold something closer to the S&P 500 weighting. So but the S and P weightings on the left Hand side. And USMB is modestly underweight tech discretionary communications because of the big, the big tech names a little bit real estate, but it keeps a pretty even weighting. The biggest overweight health care, 4.7%. SPLV just picks the 100 lowest volume stocks in the index. And so it ends up with a much more dramatic underweighting in tech and a much bigger overweighting, say in utilities. So two flavors of the same thing.
- [28:03]
Josh Brown
This is interesting. Look at the, look at that divergence in tech weighting. So these are two strategy ETFs specific to minimum volatility but because of the methodology, one of them is 25% tech, that's USMV. And SPLV is 4.6% tech. That is really interesting. So like choose now. They're both up a similar amount this year, so it hasn't mattered yet. But choose your products like, like really, really think about the differences and which one you think is the right version. Even if they both are an identical strategy, the way that they implement that strategy will not be identical.
- [28:47]
Nick Colas
Yep, SPLV is the older product, so it's a little bit longer track record. USMV came out of iShares I think in 2010, 2011. Kind of the perfect time for Minval. Yeah, so but there's a big, let's just roll to the next table. This shows you the top 10 holdings for the S P, USMV and SPLV. And you can see, you know the S P we all know is Apple, Microsoft, Nvidia. Big chunky weightings. The top 10 or 36% of the S and P. Minval also approaches the strategy by saying let's not be so overweight big names. So the top weighting in USMB is Walmart, 1.7% 10 weightings are 15.7% for SPLV. The top weighting is Coca Cola, which ironically you had, you know, we're mentioning just before 1.3% weighting and a very even kind of structure. It's almost like a min. Vol. Equal rate product.
- [29:33]
Josh Brown
Yeah, I was going to say they both look equal weight. And then of course there's like changes in performance. Like Walmart's had a really great run. So it, it grows from 1.5 to 1.7. But it looks like in both cases you don't have any holding that's more than 2% of the, of the fund. That in and of itself it'll somewhat throttle returns in bull markets. But it's what saves you in an environment like this.
- [29:58]
Nick Colas
Right. So the message from this is, look, we're all apprehensive about the market. The most important thing in investing is to stay invested in some form. And if Minval is better for your personal risk tolerance, it's something to consider and forgetting what relative returns have been.
- [30:13]
Josh Brown
And then you like the USMV structure better than the SPLV because of its upside captures historically. Is that the main reason?
- [30:23]
Nick Colas
The main reason is it's closer to the S and P. Those weightings that we discussed, the weightings are closer to the S and P. And I don't like massive sector drift, even for an important style like Minval.
- [30:33]
Josh Brown
Yeah. I think if you get a tech rally, you will have less regret in US MV because it's closer to the real weighting of tech in the index. I think that, like, for me that would be the big thing I would pull out here.
- [30:49]
Nick Colas
Yeah. I mean, USMV did not do great in 23 and 24 because tech was so much the driver. But it's. You still made money.
- [30:56]
Josh Brown
Okay, let's do some. Let's do some VIX stuff to close out. Walk us through the VIX playbook and why it becomes relevant. Now.
- [31:06]
Nick Colas
The VIX Playbook is. And we might as well pull up the chart here. So the VIX playbook is something that we discuss with our clients all the time. And it basically is a way to look for entry points when calm markets get volatile. And this chart shows you the VIX going back to the beginning of 2023. So basically the entire bull market, 27.3 on the Vix is one standard deviation above the mean. So an unusual statistical observation. And we've only gotten close to that level three times or gone through it three times since 2023. The first one was when SVB failed, got to a 26 and a half handle. Vix.
- [31:42]
Josh Brown
It's two years ago this week.
- [31:44]
Nick Colas
Yes. And you know, the S P was up 7 and a half percent over the next month. That was a good entry point. Then we had the volatility around the Yen rally and the Nikkei Flash crash and the Vix got to 38.6. The S&P was up 2.3% over the next month. And then the last one was that disastrous Fed meeting at the end of last year where the Vix got to 27.6 and the SP was up 2% over the next month. So when I got.
- [32:07]
Josh Brown
I forgot that one.
- [32:08]
Nick Colas
Oh, I have not. That was so painful. Oh, it was just Powell's worst performance. I think in the history of his press conferences.
- [32:19]
Josh Brown
But if you were on vacation for that Val spike, you missed it. Like, like if you were out of the office for two or three days, it came and went.
- [32:27]
Nick Colas
Yeah, it did. And so my message is always wait for a 27 handle vix close before thinking about buying a market. And I don't know where we are intraday. I think we hit 27 intraday today. We'll see where we close. But that's been a statistically very important level. So, you know, for the moment, be careful. But if you want to buy, think about a 27,27 handle vix close before you start buying.
- [32:50]
Josh Brown
Yeah. You know, a lot of people are trying to play this game right now and not use the vix, but they're using internals. They're looking for a spike in 10 day lows, 20 day lows. They're looking for some threshold where if you get a certain percentage of the market all hitting 10 or 20 day lows at once, it doesn't completely de risk whatever, you know, long side trade you're about to make, but it definitely puts the odds in your favor. And I'm seeing a lot of notes going around and you know, obviously it probably looks exactly like that 27.3 Vix spike. Like those two things probably happen at.
- [33:27]
Nick Colas
The same time and for good reason. VIX actually measures correlations. When everything goes down, when you make all those 10 and 20 day lows correlations high, the Vix is going to be high. That's just math.
- [33:36]
Josh Brown
All right, what is the likelihood that the market has seen its peak and it happened in February, just probabilistically. Let's, let's run through this for people that haven't seen your research on this topic yet. Sure.
- [33:48]
Nick Colas
Actually, Jessica mentioned this a couple of times ago, but let's put up her table. This is the number of years the S and P peaks for the year in a given month. And this goes back to 1980. So for example, in five years the s P peaked in January and the average return of those years was negative 18.6. So if you peak in Jan, very, very bad. Thankfully, we didn't do that so far.
- [34:09]
Josh Brown
Yeah, we just made it.
- [34:11]
Nick Colas
We just literally just by days. There is one example of when the vix oh, sorry. When the S and P peaked in Feb, and it was 1994. And in that year the S and p was up 1.3%. And then we kind of cascade from there. So generally speaking, markets rally through a year, which is why those peaks in September October, November, December always have high positive returns.
- [34:32]
Josh Brown
Yes. Much, much less common to see the high for the year in the first two months. And if you do, it's usually something very specific is happening. And I think in the case in 94, it was another rate shock.
- [34:45]
Nick Colas
Yes.
- [34:45]
Josh Brown
Greenspan, surprise interest rate hike.
- [34:48]
Nick Colas
Yes. In 1994, the Fed had never actually told people their rate decisions, ever. They just put them out there and they had to call a local, local bank's trading desk to figure out what the Fed had done. 94, there was a rate hike. I was on the sell side at First Boston covering the autos. So deep cyclicals when this happened. I remember it vividly because for the first time ever, the Fed actually put out a press release saying we're raising rates. And the entire street was like, what the hell just happened? Because A, that's a surprise and B, if you're putting out a press release about one, there's more coming. So the market instantly corrected. S and P was down 9% through April. It ended up being up 1% on the year. Total return down 1% on a price basis. But the market had real problems digesting a suddenly much more aggressive Fed. And I think there's some analogies to today in terms of interpreting what new White House policy means for the economy. So it's a very similar policy shock.
- [35:40]
Josh Brown
Yeah. I think what Greenspan learned from that episode was to stop speaking so clearly. He never gave another speech again that any, like English speaking human being could actually tell you what he was trying to get across that right after, like, right after that, his speeches and his testimony in front of Congress. I think they used to call it the Humphrey Hawkins testimony.
- [36:05]
Nick Colas
That's right.
- [36:05]
Josh Brown
It. It just got increasingly more elliptical. And by the end of that period, he speaks like the caterpillar from, from Alice in Wonderland. It's just, it's riddles and palindromes and nobody really knows what's going on anymore.
- [36:20]
Nick Colas
Oh. He used to say, if you think you've understood me, I misspoke.
- [36:23]
Josh Brown
That's exactly right. Nick, this has been awesome. I want to let people know where they can learn more about data track and follow your stuff. So, first of all, datatrekresearch.com is the best place to go to find out more about how you could become a client of Datatrek Research. And of course, Nick and Jessica are on YouTube. It's YouTube.comickcolis and jessicarabe their full name spelled out. You guys are doing unbelievable stuff on video. And I personally am Getting a lot out of it. You having fun still?
- [36:58]
Nick Colas
Absolutely. It's great.
- [36:59]
Josh Brown
It's great. It's a grind, but it's. It's highly rewarding in the. In terms of the audience response. They love your stuff.
- [37:05]
Nick Colas
It really is.
- [37:06]
Josh Brown
And.
- [37:06]
Nick Colas
And thank you to every. Thank everybody who watches, of course.
- [37:09]
Josh Brown
All right, thanks so much, Nick. We'll check in with you soon, I hope. Much appreciated. Hey, guys, thanks so much for listening. Thanks for watching. We'll talk to you soon. All right. The chat, Michael, is, as they say.
- [37:43]
Michael Batnick
Liddy, like a Christmas tree.
- [37:45]
Josh Brown
Everybody's here, dude. Why wouldn't. Why wouldn't they be?
- [37:49]
Michael Batnick
Where else would they be?
- [37:50]
Josh Brown
This is our time together. So, hey, guys, say what up to the pounders. Let's see. KL's here. He says, hey, everyone. Hey, everyone. Chris Brown's in the house. Chris, don't take my hotel room at Future Proof. I heard what happened. It's very important. I have the presidential suite. I need it.
- [38:10]
Michael Batnick
It's very important that he gets that suite. You don't want to see what happens if he doesn't get that suite?
- [38:13]
Josh Brown
I'll literally go back to the airport and leave.
- [38:15]
Michael Batnick
When are you getting in, by the way?
- [38:17]
Josh Brown
Sunday.
- [38:18]
Michael Batnick
What time are we in the same flight?
- [38:20]
Josh Brown
Middle of. I'm in the middle of the day.
- [38:21]
Michael Batnick
Okay.
- [38:22]
Josh Brown
But I'm gonna do the closing remarks on Sunday from the stage. All right, Chris is here. David Graham, Roger's here. Jerry, Georgie, we see you. Jeff Asola, Stephanie, James, welcome back. Who else? Everybody's here. Evan Beauchamp, Bob Rice. Great to see everybody. Bear in a foxhole. What to buy. With the VIX this high, you might have some ideas, buddy. You never know. Magnus. All right, Tonight's show is sponsored by our friends@public.com and the public Trading app. If you're serious about investing, you have to try it. That's where you can invest in everything. Stocks, options, bonds, crypto. You can even earn some of the highest yields in the industry. They built this thing called the bond account for people that don't want to screw around looking for bonds. They put it all together for you. It's a 6% or higher yield that can be locked in right now. Public.com Watkins is where you want to go. And if you transfer a portfolio from somewhere else, you could get up to $10,000. That's public.com Watkins paid for by Public Investing. Full disclosures in podcast description. I took that whole thing for you, Mike. All right? I am nothing if not. I am nothing if not thoughtful.
- [39:41]
Michael Batnick
Am I not Merciful.
- [39:43]
Josh Brown
Yeah, true. All right, guys, we're officially in correction territory. And what? I'm not going to step on it intraday.
- [39:52]
Michael Batnick
No, no, no, no, no. We're not officially in correction territory. The S and P is not.
- [39:55]
Josh Brown
We're going to have a huge debate. I'm just saying it's official, bro.
- [39:58]
Michael Batnick
As far as you and I are concerned, we're in correction territory, okay? As far as history books go, I'm.
- [40:03]
Josh Brown
Calling it Market 8. Over the line, Smokey. We're over the line. No matter. Look, we could play games, but that's where I am.
- [40:14]
Michael Batnick
I'm not here to debate, Jerry.
- [40:16]
Josh Brown
All right, before we go there, I want to show you this amazing thing that the New York Times did over the weekend. Because I think a lot of what's going on these days, not just in the market and the economy, but politically, I think you can really trace back almost everything to what happened five years ago. And the New York Times has this, like, subdivision called Upshot, the Upshot. And this is how they do their charting coverage. Look at that. Well done, boys. All right, this is 30 charts that show how Covid changed everything. And we're just gonna scroll through and we'll just pause. And where Michael has commentary or where I have commentary, we'll pause for a moment. But I think we are very much living with the after effects of what you're about to see in these charts. And we'll try to explain why as we go. But the premise here is that Covid broke the charts. So, like, this is an obvious example. You could look at this unemployment claim chart for 100 years and you will still see this living nightmare. And it started five years ago this week or five years ago next week.
- [41:35]
Michael Batnick
Is that hard to believe?
- [41:37]
Josh Brown
Yes. Three million Americans filed for unemployment benefits in the first week of COVID Six million the next. And that was one of the earliest shockwaves to ripple through the economy. Let's go, next. Resignations. You guys remember the great resignation, which was early 2022? Well, that's how we got the inflation that drove the Fed to one of its most aggressive hiking cycles ever. These people, job switchers, people starting a business, you name it. All right, let's go. Money spent on food. You see this moment starting in March 2020, when groceries spiked. And then sometime around 2022, that crossed over and we went nuts for restaurants and delivery from restaurants and sitting in restaurants.
- [42:36]
Michael Batnick
Dude, we're still going nuts. There's been no retrace there.
- [42:39]
Josh Brown
Really. There really hasn't. It's It's. It's incredible.
- [42:42]
Michael Batnick
A lot of the charts that we're going to show or that the New York Times pulled, like, we go back to trend. Not this one.
- [42:48]
Josh Brown
Yeah, No, I think this actually permanently changed the way we live. I really. I really believe that. Next. Oil prices. This one for me, doesn't really feel like a Covid story, but they're showing you the price spike from where Russia invaded Ukraine and then those prices faded.
- [43:07]
Michael Batnick
Dude, forget about that. The next one.
- [43:09]
Josh Brown
Negative. Yeah, I guess. You know what? I should take that back. We've never seen that before.
- [43:15]
Michael Batnick
Never will again.
- [43:16]
Josh Brown
I don't think so either. That was the strangest. That was maybe one of the strangest occurrences of the whole pandemic period was when people were taking delivery of a barrel of oil. Negative.
- [43:30]
Michael Batnick
Yeah. Getting paid Dollars. Getting paid to take delivery.
- [43:32]
Josh Brown
Getting paid. Just take the oil.
- [43:33]
Michael Batnick
Yeah.
- [43:34]
Josh Brown
It didn't last long. What a. What a buying signal that was. Holy shit. All right, next. This is driving. So we. It says America drove less and gave up flying almost completely. It took years for flying to return to pre pandemic levels, and now, of course, we're flying as though nothing ever happened. And business travel rebounded, and that was one of the things that people were predicting. You would never see business travel rebound to its previous levels.
- [44:07]
Michael Batnick
Yeah, I was. I could not imagine that business travel would rebound to the extent that it has. I was in the camp of, why would you go anywhere ever again? You could just zoom everything.
- [44:17]
Josh Brown
And then we started future proof, and we brought the whole thing back. True.
- [44:20]
Michael Batnick
We saved the economy.
- [44:23]
Josh Brown
Okay. All right, so this is. This is alcohol sales.
- [44:29]
Michael Batnick
Oh, yeah. We were. We were in that spike.
- [44:31]
Josh Brown
I was an alcoholic for probably two years.
- [44:33]
Michael Batnick
I was saying that to Ben today. I think I drank every day for two years.
- [44:37]
Josh Brown
I'm pretty sure, like, I met the definition. Never during the day, but drinking more than ever.
- [44:44]
Michael Batnick
No. You know why?
- [44:45]
Josh Brown
More nights than ever.
- [44:46]
Michael Batnick
Because it was like we were at a hotel permanently.
- [44:49]
Josh Brown
Yeah, yeah. No, listen, it's. It's. It can be forgiven given the circumstances. People stuck in a house with their family. The kids are doing zoom school upstairs. You look. You're. You're looking at your spouse all day long. So we spent a billion dollars more on alcohol during the pandemic, and that's that huge burst. And a lot of that's imploding these days. It looks like the Gen Zs are reversing that trend hard. They are just not into it. I hate it. And good for them. All right, next.
- [45:22]
Michael Batnick
Have a martini.
- [45:23]
Josh Brown
Grow up time spent at home. Like it's still this way.
- [45:29]
Michael Batnick
Nah, this ain't never going back ever.
- [45:32]
Josh Brown
Yeah, like you're still talking to people who are at their house on a Tuesday at 2:00. It's just, just. This is just the way we live now.
- [45:39]
Michael Batnick
So it. Well, not for all of us, obviously.
- [45:43]
Josh Brown
Many.
- [45:43]
Michael Batnick
You and I are lucky enough to exist this way at least. Well, you don't sit at home. I do sometimes, but I still think it's weird. Like today I was home and it felt odd. It still feels like. I still feel like I'm like doing something wrong. Like I'm like breaking the rules.
- [45:58]
Josh Brown
A third of the people who work for us are working from their home. Are they breaking the rules? Like, this is just what it is.
- [46:05]
Michael Batnick
I'm just saying it still feels.
- [46:06]
Josh Brown
Yeah, it's weird.
- [46:07]
Michael Batnick
Like I'm not doing something right.
- [46:08]
Josh Brown
It's weird. I think if you're 25 and. And not 4, I'm 48. If you're, let's say if you're 28, like, this is. Most of your working life now has been, you know, if you have one of those jobs that you can do it wherever.
- [46:23]
Michael Batnick
Bizarre.
- [46:24]
Josh Brown
Yeah. All right, next time, socializing with others. This one, I don't believe this one. I think this one's recovered a lot more than the chart is showing. I don't know where they get the data.
- [46:36]
Michael Batnick
No way, dude. Just think about. Just think about how much time at the office and going out for a drink with your friends afterwards. A lot of those.
- [46:44]
Josh Brown
So is that what this is reflecting?
- [46:46]
Michael Batnick
I think so. I think this is part and parcel of the work from home thing.
- [46:48]
Josh Brown
All right, we're off the lows. Next, the share of women in the labor force. Okay. The share of women in the labor force. I don't want to say silver lining, but because of the flexibility of jobs in the post pandemic era, the amount of women who were able to take a job exploded by the end of 23. Going into 24, it hit 70% women between the ages of 25 to 54 who had a child under 5. So for that cohort, they could not have a job because of the expectation of physically being somewhere. And I really think that this changed the world permanently. Women as caretakers and moms never had as much opportunity as the post pandemic economy created. For better or for worse. Like, this is. I think it's good.
- [47:49]
Michael Batnick
We're about a third of the way through these charts and we're already 10 minutes in the show.
- [47:52]
Josh Brown
All right, sorry. Let's. Let's. Let's speed it up a little bit. Business applications. More people decided to work for themselves. Huge spike in 2020. People just said, not only do I quit, I'm starting my own thing.
- [48:05]
Michael Batnick
There's no way the rest of the world look like this. No way.
- [48:07]
Josh Brown
No way. Next.
- [48:09]
Michael Batnick
Look at how we do how to.
- [48:12]
Josh Brown
Cut your own hair. Web searches. That's over. We're back at the barbershop. Adopt a dog. That's over. Yeah. This is showing Zoom and Peloton.
- [48:24]
Michael Batnick
That's when Zoom was bigger than Exxon at the peak. That was. That was normal.
- [48:28]
Josh Brown
The two darlings of the. And both of them are now as low or lower than they were prior to the pandemic. Didn't work out. Online shopping, you see, we went way above trend. We got to the point where it was like 18% of retail sales were online. Then we dipped back in 21 and 22, kind of corrected back to trend, but we're still above trend. And that is an aspect that's, I think, never going back to normal up until the. Right. Yep. Next. Okay. Time spent watching television, that is in precipitous decline. But we, in 2020, was like Peak TV. And that's why Netflix and Amazon and Disney, they would just pay you anything for a show. They needed more, dude.
- [49:13]
Michael Batnick
Tiger King. Remember that bullshit?
- [49:15]
Josh Brown
Yeah, that's normalized. Tiger King, right? Next.
- [49:21]
Michael Batnick
Yeah, same thing. All due respect to our beautiful national parks, we got Marcus to talk about.
- [49:30]
Josh Brown
All right, this is interesting. US marriage rates had been declining precipitously in 17, 18, and 19. And then they bottomed in 2020, and then they spiked 21 and 22. We broke that downtrend in marriage rates. And look, it's not easy to get married, start a family, buy a house, but we're figuring it out, so that's, I guess, a good thing. I don't really understand the murderous thing. I understand the theft thing. If everyone's stuck at home, like. Like, I guess, like, where are you going to steal things? And then it recovered with the reopening. The murders peaked in 21 and 22. I guess that's like we need people at work and not out murdering each other.
- [50:18]
Michael Batnick
Next.
- [50:19]
Josh Brown
I gotta think more about that.
- [50:22]
Michael Batnick
All right, next.
- [50:22]
Josh Brown
Next. All right. Positive flu tests. Who cares? After tax income.
- [50:29]
Michael Batnick
All right, Josh, your post on this, you weren't supposed to see that.
- [50:34]
Josh Brown
Yeah, so. And I named my book for that post. But basically, the American Rescue plan was enacted in the fall of 2020 or the summer of 2020, you had stimulus checks one and two before that. And basically the after tax income of Americans shot up from 50,000 to over 60,000, which percentage wise is a huge difference. And then of course, we ran, you know, that, that we ran out of those things. And after tax income fell back to normal and now it's rising again at its regular trend. That was a very bizarre moment where everyone had enough money to do whatever they wanted. And it upended the entire economy. It basically wrecked the. You can't have McDonald's posting $25 an hour jobs. It just, you, you can't. We can't survive if nobody needs to work. And you know, I don't give Trump all the blame. I don't give Biden all the blame. I think a lot of different people were trying to do the best they could in a very strange situation. I don't think this will ever be repeated again. I don't think anybody, any either political party got any credit for having done this. All right, next. Federal spending on children. Okay, sure. Lots of tax breaks, Federal debt. I mean, this is, we're so, we are so on another planet right now. We basically had a $3 trillion jump in the early phases of the pandemic, which was tons of spending, and then it just kept going.
- [52:08]
Michael Batnick
I mean, this is directly responsible for the creation of Doge.
- [52:12]
Josh Brown
Yeah, this is Trump.
- [52:13]
Michael Batnick
Yeah.
- [52:14]
Josh Brown
Like, it's a lot of stuff that we're living with right now that you can point back and say, what were they thinking? All right, next.
- [52:21]
Michael Batnick
Well, hold on. That was Biden, too. The.
- [52:23]
Josh Brown
Oh, yeah, big time.
- [52:24]
Michael Batnick
The Inflation Reduction Act. Oh, my God. Worst case ever.
- [52:27]
Josh Brown
Inflation Reduction act was hilarious. We said it in real time. We said, in what way does this reduce inflation? Okay. Public transit obviously fell from. I guess you had something close to a billion trips per month, falling to 200 million, which wreaked havoc with municipalities and city bus systems and trains. Next, that used car price spike that peaked In February of 2022, that was bananas. House listings fell off a cliff, bottomed in February of 2022 and are gradually getting back to where they were, but still only halfway there. Measles, vaccination. I don't have time for this today. All right.
- [53:17]
Michael Batnick
Awful. That chart sucks.
- [53:19]
Josh Brown
Yeah, I don't have time for that. No, we're not going to do deaths. All right, that's it. Those are the charts, guys. If you want to know, like big picture macro, like why we are where we are with a lot of things politically, economically, those are the charts. We broke something fundamental about the way society works and how we pay for things and where the money comes from and what people become accustomed to. And we're still, like, learning to live with the consequences. And it's really been an insane five years that we've all been through together.
- [53:57]
Michael Batnick
We're not going back.
- [53:58]
Josh Brown
We don't give ourselves enough credit for what we're, what we've lived through.
- [54:01]
Michael Batnick
We're not going back to, like, this, this normal period that we're talking about, as if 2019 felt normal, but we're not going back.
- [54:08]
Josh Brown
Roger Weatherford said, you skipped the interesting ones, dude. It's 30 charts. We have a lot of. We have a lot of ground to cover.
- [54:15]
Michael Batnick
Okay.
- [54:16]
Josh Brown
All right, you're up.
- [54:17]
Michael Batnick
So I said this to Ben today, and I'm going to say it to you. One of the things that people love to say in investing is I've seen this movie before, and if somebody says that, you can completely discard what they're about to say because. No, they haven't there. Is there no two periods of time?
- [54:32]
Josh Brown
I've seen this movie. Oh, that's one of the bottom five worst things. You know what I was thinking the other day? If somebody uses the term hopium, there's a 99% chance that person has been underperforming for 10 years.
- [54:48]
Michael Batnick
If I ever say that.
- [54:49]
Josh Brown
Kick me opium if somebody tweets anything, and in their tweet is the word hopium. Oh, that guy sucks at investing.
- [54:58]
Michael Batnick
It's an angry thing to say. All right, so anyhow, Bespoke tweeted The S&P 500 didn't have a single Monday open lower of 1% until we were 836 days into Trump's first term. That's nuts. There was no Sunday scaries in Trump's first term, believe it or not. And now today, this was yesterday, is set to be the third Monday open lower of 1% of Trump's second term. And we're less than two months in. Tom Lee did this great research report where he shows the performance in the first Trump administration of various different asset classes and about nothing tracks. Oh, interestingly, the China is. But whatever, it's random. It's completely different.
- [55:42]
Josh Brown
We're going to talk about. We're going to talk about why later in the show. But it is night and day. And if your expectation was I know how to trade Trump. No, you don't, dude.
- [55:50]
Michael Batnick
That was everybody's expectation coming into 2025. Strategists, economists, small business owners.
- [55:56]
Josh Brown
I've seen this movie before retail investors.
- [55:59]
Michael Batnick
Everybody was, was all balled up, and I was right alongside them. All right, let's play this clip. I thought, I thought this is really interesting. John, please.
- [56:06]
Nick Colas
And I want to ask you about Ukraine and the blow up the other day with, with Zelinsky. Let me stay on the economy for a moment because there are rising worries about a slowdown. You've got the Atlanta Federal Reserve saying we're going to have a contraction in.
- [56:18]
Josh Brown
The, the first quarter. Look, I know that you inherited a.
- [56:21]
Nick Colas
Mess and you said that.
- [56:22]
Josh Brown
I've only been here.
- [56:24]
Nick Colas
Are you expecting a recession this year?
- [56:28]
Josh Brown
I hate to predict things like that. There is a period of transition because what we're doing is very big. We're bringing wealth back to America. That's a big thing. And there are always periods of. It takes a little time. It takes a little time. But I don't, I think it should be great for us. I mean, I think it should be great. It's going to be great ultimately for the farmer. You know, don't forget.
- [56:53]
Michael Batnick
I mean, so if, what about China?
- [56:56]
Josh Brown
Would you invest in China if you.
- [56:58]
Michael Batnick
Cut off Maria and said, what do you think Trump's going to say? I would have strongly guessed that his response would be, no, there's not going to be a recession. It's all going to be wonderful. Like, I don't know if I give my credit for saying that, but it was not the response that I would have predicted.
- [57:17]
Josh Brown
I give him credit for saying that. I can't believe the level of message discipline coming out of this White House. They are, it's consistent. They are really good at this. And they, and he look best into professional, like Lutnick's a Wall street guy. So that I'm not surprised about. And this is a huge upgrade in terms of, I'm not saying, like, I agree with everything they're doing. I'm Saying Wilbur Ross vs. Howard Lotnick is not even a conversation. Wilbur Ross, I think, was half asleep.
- [57:48]
Michael Batnick
That guy.
- [57:49]
Josh Brown
Right. That guy walking. He was walking around in slippers. This is Notches and Besant. I don't know if it's a material upgrade from Mnuchin, but it's somebody that watches. Yeah. Somebody that Wall street believes in and they believed in Mnuchin also. But, like, I just, I'm very impressed that he has been able to not freelance.
- [58:14]
Michael Batnick
Yeah.
- [58:15]
Josh Brown
With the message.
- [58:16]
Michael Batnick
So Jonathan Ferro from Bloomberg TV tweeted that video, quote, tweet and said the two seem very lined on rebalancing the economy. President Trump transition period. Secretary Bessant, detox period. And to which Katie Greifeld quoted the quote, tweet and said, take your medicine is an unexpected early theme of Trump 2.0. Nobody could have predicted this like this. And that's why the market is reacting the way that it is. Who thought this was going to be the message of Trump 2.0?
- [58:44]
Josh Brown
Yeah, and the same message is coming from Elon. Like they, they, they got in a room and they said, guys, the only way this works is if we don't break. Like if we all are saying the same thing, the market will get used to it. If we all start saying different things, it's gonna turn into a mess. And I don't know who coordinated that, but they are sticking with this and they are getting Wall street to reprice it really quickly. Callie points out this is the fifth fastest 10% correction from a record high of the entire 75 year period back to 1950. So they are, they are getting the, the, the message out and they are sticking with it.
- [59:32]
Michael Batnick
And remember deregulation, Capital Market Formation, IPOs. Well, NASDAQ the stock looks like, and Blackstone, the stock looks like there was a, a swift repricing of risk. Am I, am I naive? I don't buy it.
- [59:51]
Josh Brown
You don't buy what?
- [59:52]
Michael Batnick
I don't believe the messaging.
- [59:54]
Josh Brown
Oh, I do. I wouldn't have in advance. I do now. I'll tell you why later. Wall street is talking recession openly. So Howard Lotnick is saying there's going to be no recession in America. But I think I know what that's about. They will reframe it and they'll say, no, it's not a recession, it's a slowdown. Yeah. Like even if it is a technical recession, like it's, it's Trump land. So they'll be like, no, it's not. What are you talking about? You know, like they'll, they won't, they won't admit that it's a recession. But Wall street is not playing that game. J.P. morgan.
- [60:29]
Michael Batnick
Hang on, hang on, hang on. If they're trying to cause a recession, why won't they admit it's a recession?
- [60:33]
Josh Brown
Because they are framing it as a transition from a fake economy to a real one. And I'm going to, I'm going to, I don't want to do too much like teasing, but I'm going to get to why later. But on Wall street, they're using the R word, hard R. JP Morgan Chase raised their risk of a recession this year to 40% up from 30% at the start of the year, we see a material risk that the US falls into recession this year owing to extreme US policies, tariffs. Goldman Sachs economists led by Jan Hatzius on Friday said it was raising its 12 month recession probability to 20%, up from 15. Okay, bald Morgan Stanley economists led by Michael Gapen lowered their economic growth forecasts and raised their inflation expectations. The bank now expects GDP growth of 1.5% this year, 1.2 next year. Their estimates were much higher. Also expects the Federal Reserve inflation gauge, which is PC, to rise to two and a half. All right, so here's what I want to tell you, Michael. I went to a football game at the University of Miami in September for Parents Weekend, and I was talking to a couple of the economics professors at the school and they were talking about, they were talking about Javier Milei, and I think one of the gentlemen is actually Latin American. And they were talking about if that's gonna be the playbook of a new Trump. And we didn't know who would win the election at that time, but Trump had a lot of momentum and it looked 50, 50 on the surface. Right. And they were just talking about like this could be like the thing that you should expect is take your pain now because milei spent 2024 pursuing this idea of a J curve. So in a J curve, it starts here. The first thing that happens is it dips down, but then as it rounds, it breaks above the original trend and takes off like a rocket ship. And that's really the story of Argentina. It's why that's been one of the best stock markets in the world, which I'll show you in a moment. And the reason why I'm referencing Milei is because that is Elon Musk's intellectual hero. And I think Trump is a huge fan. And because Scott Besant is a global macro hedge fund manager, I'm certain he's familiar with the central tenets of what Milei is doing in Argentina. So basically Argentina's got a hundred years of just horrendous inflation and booms and busts and all this union stuff and protectionist trade policies that have failed. And Milei came in and basically said, I'm ripping it all out. The economy is going to hurt for a few quarters, but I'm going to restore something that used to be special about Argentina and you'll see what the results will be. I'm going to free everyone to trade with whoever they want. I'm going to stop protecting these zombie companies that are sort of government supported. And I'm gonna get rid of all the debt and I'm gonna get rid of all the red tape. And he's the guy that, that the original guy with the chainsaw. So they've, they've had this horrendous inflation problem for years. And so I want you to see this. This is Reuters about a month ago, how Argentina took a chainsaw to government. A year before Elon Musk's Doge Michael. When you're like, or people are like, what are they doing? What are they? This is what they're doing, this is what they're doing. And they're all staying on message. Moody's just upgraded Argentina's debt rating for the first time in five years. They also upgraded their forward looking growth outlook for Argentina's economy. Milei spent all of 2024. His first year in office, he cut 40,000 government jobs, which in that country is a lot of people. He walked around with a chainsaw and he just hacked off limbs. He had this bulletin board with all the different government departments and he was ripping them off the bulletin board one by one and saying, this doesn't exist, this doesn't exist. And that was like a very powerful signal that they were taking the economy in a very different direction. What they had prior to Milei was something called Peronism, and it's after Juan Peron. Peronism is they have basically one political party and whatever the people are excited about, they just give you a version of that. So when the pendulum swings left, they give you a communist. When the pendulum swings back to the right, they give you like a hard right fascist. But it's the same party always in control. All of that has just been shattered now. And this is what Besant and Musk are paying attention to. What happened at first was it slammed the Argentine economy exactly as predicted. Detox, transition period, whatever you want to call it. And then something really special started to happen. Everything started turning higher, including Moody's upgrading the debt. Let me show you this chart. This is purple. Argentina's stock market index ETF here in America. Argt as you can see, this has more than doubled. And you can see this huge jump just as Melaye wins the election. And then it just continues to rally. And I'm showing it to you versus the rest of Latin America because I want you to.
- [66:16]
Michael Batnick
You're trying to get an appointment in Trump's cabinet. What's going on right now?
- [66:21]
Josh Brown
No, I'm trying to explain what the theory is that's driving them to do the Things that they're doing. The mass federal austerity.
- [66:29]
Michael Batnick
There's a few differences between Argentina's economy and ours.
- [66:32]
Josh Brown
Yeah, no shit. Thanks. Is there. I understand. I'm making the point that when people are trying to figure out what's happening, this is what they're doing. Inflation in Argentina is cooling. Government spending has been slashed, deficits are falling. These are all the things that Trump promised he would do for our economy. And it's actually working there. They had a surprise budget surplus in November of 0.1% positive of GDP. That's versus negative 4.4% the same time last year. And now that shock therapy is what we're repeating here. So let me just show you a couple pictures. Here's chainsaw Javier. Let me show you the next one. This is at cpac, dude. This is last month. This is Milei gifted Elon a chainsaw to commemorate the work that he was beginning at that time for Doge. Here they are together blowing out. I think this is at one of the rocket launch sites for SpaceX, which Milei came to visit while he was in America. And here is an embrace between President Trump and Javier Milei. The last thing I want to tell you.
- [67:49]
Michael Batnick
What's that on his face? What is that?
- [67:51]
Josh Brown
Go back. Sideburn. Those are very fashionable in the 1970s, which is probably when he was a teenager. The Minister of the Economy, Luis Caputo, met with Secretary of the Treasury Scott Besant at the end of February. And they kind of had this closed door powwow. And so I really think that it's important to just point out this J curve idea is what they're doing here in the United States. Put this chart up. This is gross domestic product in Argentina. It is now forecast to continually increase between 2024 and 2029 by a total of US$109.5 billion, which is 18.12% growth. So you see this dip down in the beginning of the term and then you see the J curve where it reverses higher. And that's the story, I think, of why these guys are staying on message. I think they've all been really inspired by the chainsaw idea. Cutting your way to a better economy and eventually faster growth. What are your thoughts?
- [69:10]
Michael Batnick
I don't understand how.
- [69:12]
Josh Brown
What don't you understand about it? I'm here to. I'm here to answer questions.
- [69:15]
Michael Batnick
Okay, so what turns the J in our case, please.
- [69:19]
Josh Brown
The idea that public sector spending, government spending, has been this huge fake force of hiring and employment in the economy. And when you reverse it the private sector is no longer crowded out and has the ability to come in and fill those holes. You either believe in that, you don't. These people believe in that it reduces the deficit. If Doge is able to find $2 trillion in savings, which is their stated goal. And ultimately it should have the salient effect of reducing the amount of interest that we're paying on all the government debt. So when you hear them say we're focused on, not the stock market, the 10 year treasury, that's what they mean. They'd like to see a three handle because the United States becomes a better credit in the eyes of the rest of the world.
- [70:10]
Michael Batnick
Okay, well, if there was a recession coming and there might be. Right. I can't see the future, but if the market was actually worried about a recession, I think that credit spreads would be way wider than they currently are. I think that the 10 year would be at, I don't know, with the three handle, as you mentioned, not at four, three. And I think bitcoin would be at, I don't know, 40,000.
- [70:40]
Josh Brown
Nobody is pricing in a recession. Right now we're at 21 times forward earnings. And the economists on Wall street are saying we had a 20% expectation for recession. Now it's 30%. Nobody's saying 100%. They were saying that in 2022. So nobody. Right? Nobody and nothing is pricing in a recession. What's being priced in right now? Slower growth, maybe an earnings recession for parts of the market. Slower economic growth. Yeah, I totally agree with you.
- [71:12]
Michael Batnick
So I am again with the obvious caveat that who the knows this could change tomorrow or this could get a lot worse. I don't. I think that everyone is in agreement that tariffs are bad, that there will be an economic slowdown, that earnings will get hit. But I think there's a big difference between a slowdown and a contraction.
- [71:31]
Josh Brown
I'm sorry, Chat, I am not endorsing the J curve idea. I am not.
- [71:39]
Michael Batnick
Sounded like it. You did a pretty good job.
- [71:41]
Josh Brown
People are saying maga, Josh. Are you out of your mind? This is not. I'm trying to explain to you, dude.
- [71:48]
Michael Batnick
If you can't take the smoke, don't be on YouTube, okay? And definitely don't be in the comments section. What's wrong with you, Chat?
- [71:53]
Josh Brown
I just am trying to talk you through, guys. The answer to the question drag his ass. I'm just trying to help people understand the mentality behind the fiscal austerity and the government departments.
- [72:10]
Michael Batnick
We got it. Okay.
- [72:11]
Josh Brown
Now they're all, now they're all saying Josh for Doge. Maga Josh, thank you. Thank you guys.
- [72:16]
Michael Batnick
All right, so but let's talk about the stock market's reaction. We've got a bunch of charts in here. So this is from Sentiment Trader and they say we are at a critical juncture. Maga Josh, eyes on me please.
- [72:26]
Josh Brown
The nasdaq, sorry, they're telling me where's my chainsaw. All right, go ahead.
- [72:30]
Michael Batnick
The NASDAQ 100, the QS closed below its 200 day moving average for the first time in over a year. They say to watch the next two weeks because every time it's lost its 200 day after an extended run and suffered at least a 3 and a half percent drawdown within the next two weeks it led to a bear market. And I have bad news for you. We, that's what just happened. So chart table on please. So on the left, these are Once the NASDAQ 100 cross blows 200 day after a long period, after a long uptrend and then fell at least 5%. Then over the next year there was, there's a bear market.
- [73:06]
Josh Brown
Look at this. So again, what are the dates on the right?
- [73:10]
Michael Batnick
Those are times when it didn't lead to a bear market. When you had a, when you, when you did not have a drawdown greater than 3% over the next two weeks after it broke the 200 day. So we'll see.
- [73:21]
Josh Brown
So we're on wa, so we're on watch.
- [73:23]
Michael Batnick
We're on bear market watch according to this chart. Again, I think that they would be the first to say pass is not pro. Like don't take this. This is not set in stone. But it's interesting. So all right, you've got, you've got. I made a chart XLP over XLY and we know the problems with XLY. It's 50 Tesla and Amazon. Well, not anymore. But this thing is ripping now what you want to see and also if you equal weight, it also not what you want to see. Consumer staples are in fact ripping against discretionary. Remember, this is the most bullish chart in the world. Not so bullish anymore. I thought this was interesting.
- [73:52]
Josh Brown
Look how fast, dude.
- [73:53]
Michael Batnick
Just fast. Risk gets priced.
- [73:55]
Josh Brown
That reversal. How would you even trade? You could not have made these, this trade very fast.
- [74:01]
Michael Batnick
So let me do a teaser of my own for later in the show because I'm going to talk about how things, how quickly things happen. Now if you were to, if somebody were to tell you, hey, this would be a quick sell off, you would probably say, all right, I'm going to hide out in like mega cap stocks. I'm definitely not going to go into the equal weight garbage.
- [74:16]
Josh Brown
That didn't work again.
- [74:17]
Michael Batnick
Chart on, please. So in this sell off, the equal weight has outperformed the, the cap weight by quite a bit. But also equally as interesting, the, it's not happening in the Russell 2000. So small caps are in fact getting smoked relative to the price weighted index or the cap.
- [74:38]
Josh Brown
Yeah, we, we talked to Tom about, we talked to Tom about small caps. That's one of the things that he's gotten pretty wrong this year. I think he went into the year with the idea that like small caps could outperform. I forget his rationale for why, but he's like, he's like, I, you know, a lot of times if he's wrong about something, he'll be like, here's why I was wrong. He still doesn't understand why small caps look as bad as they do. And I don't think I do either. It's just, it's just this weird thing like they're, they're not heavily tech and tech seems to be the epicenter of the sell off.
- [75:11]
Michael Batnick
Yeah, it's odd.
- [75:12]
Josh Brown
So why, why are they clowning the Russell like this? I, I don't have the answer.
- [75:16]
Michael Batnick
It's odd. All right, so good news finally for diversified investors. If you are not all in tech, if you're not all in stocks. Mike Zaccardi tweeted the ag, which, which is bonds, had its best day relative to the stock market in 25 years, which is pretty nuts. And heaven forbid you own international stocks. Well, this chart from Danny Kerr shows that international developed relative to the past 25 years. It's the biggest outperformance we've seen ever at this point in the year. Not in my parlay, Josh. Who saw this one coming?
- [75:47]
Josh Brown
Wait a minute. This is developed.
- [75:51]
Michael Batnick
It's divided by spy. Divided by spy.
- [75:53]
Josh Brown
Divided by or subtract, whatever.
- [75:54]
Michael Batnick
It's a difference. Whatever.
- [75:56]
Josh Brown
Okay. Yeah. So remember I asked the question, this was a buy signal for international stocks. Remember I asked the question last fall? It's like, what could conceivably happen that would ever give you a positive year for developed international stocks where the US market doesn't participate? I guess I figured it out. Isolationism and protectionism again afterward.
- [76:21]
Michael Batnick
This is investing, man. Like, this is the shit. What's risk? You can. It's what you don't see coming. Who could have seen this coming?
- [76:27]
Josh Brown
Not me. Not me. I wouldn't have guessed it.
- [76:30]
Michael Batnick
Nobody would have it's crazy.
- [76:33]
Josh Brown
Yeah, it's. And it's really interesting to watch like Germany reacting to that. That shit J.D. vance did there where he basically came out and said, you guys are under underspending on defense. You want us to pick up the tab and you want to continue this Ukraine shit forever to protect yourselves and we're just not going to play along. And within a week, they were in German parliament talking about like deficit spending to build their own weaponry. Like, that's momentous stuff that's happening. And in England they've got defense companies and there's an Italian one. I talked about this stuff with Nicolas yesterday. But like, there's a big mentality shift there too, just like there is here. And it's resulting in those stocks being bid. And who could have, you know, who could have honestly foreseen. All of a sudden people want to buy developed Europe. Okay. I mean, I guess that's what we're doing now, so.
- [77:33]
Michael Batnick
So back to you, Mega Josh.
- [77:42]
Josh Brown
All right. Panic selling. I came across this and I thought to myself, there are probably millions of people who feel this way. I'm going to read it to you.
- [77:51]
Michael Batnick
Yep.
- [77:52]
Josh Brown
This is from Reddit. I panic sold. Been investing for three to four years now, so I'm assuming it's somebody relatively young, mostly in VO and Nvidia with a sprinkle of btc playing it like Buffett. I like it. Never cared about red days or green days. Didn't bother following the market, news or politics. The algorithm is annihilating me. Everywhere I look online is Trump did this. Elmo did what. That's what people call Elon. To not get blocked. Tariffs tomorrow, tariffs next month. I still stayed the course until I watched $20,000 in unrealized gains evaporate before my eyes in a matter of days. I sold every single thing so far. It helped me dodge an additional 20 to $30,000 loss. Holding a cash position now until I figure out my next move is while the majority of people are parroting, you can't time the market time and is better than timing, DCA hold, et cetera. I'm more concerned about the future of America. The money comes and goes. But I don't know if I'm being overly dramatic in thinking this is gonna be a pivotal event in the power dynamic of the world. America's alienating itself from its longtime allies while siding with literal terrorists. All the while. I live in a rural red state and everybody is loving Trump around me. I've never followed news or politics, but it's all My algorithm feeds me now. So basically, the guy's like, I might have to block all politics, all news, all stock market updates to keep my sanity. And I said, you know What? There's probably 10 or 20 million people right now going through some version of exactly that. Like, the cognitive dissonance. And, like, you know, if their political leaning is centrist or left, they can't. They can't take it. Like, wait, we're rounding up Canadians? Like, they. They can't process it, and as a result, they can't hold stocks. They can't feel like we're in this much risk for, like, for our safety and then simultaneously take financial risk in the market. I don't know. You think 10 or 20 million people is too many? Or. It's a country of 350 million. Not everybody's an adult. But, like, I think that's gotta be, like, a big chunk of people right now.
- [80:11]
Michael Batnick
Oh, yeah.
- [80:12]
Josh Brown
And that, to me, goes part of the way toward explaining the speed with which we de risked on halftime today. Scott Wapner had this piece of research about what people are doing their 401ks. They're selling stocks and buying bonds. No, it's data. It's data. The data is saying that people are more active than maybe since the pandemic in the last. I forget what it was. One week, two weeks, and they're liquidating equity mutual funds and buying bond funds in their 401ks at very high levels. Not everyone, but an elevated amount of people. And when I come across something like this, that's exactly what it is. I don't think the average 401k investor pays attention to the stock market every day. But politics, it's inescapable. Even if you don't watch CNN or Fox or msnbc, it's all over your Facebook.
- [81:11]
Michael Batnick
Yeah.
- [81:11]
Josh Brown
And your friend and your friends are talking about nothing. But did you hear what Trump said? Did you hear what Elon did? So I think we have the beginnings of an epidemic of people making portfolio errors because the political situation is so psychically damaging to the. To their. To them. Like, it's. I don't think it's run its course.
- [81:35]
Michael Batnick
No, it's. No, it's. It's only just begun, unfortunately. No, I'm not saying where the. Where the market is going, but remember a couple of weeks ago, we were looking at the chart of AAI Bulls, bears, and there have never been this many bears this close to the highs. You're 100% right. There is another layer of economic anxiety when the mark if the market was selling off because earnings missed, like not nobody would give a shit. But not to this extent. No way. Nobody would care.
- [81:57]
Josh Brown
This is people who are concerned for their own survival. Do I have a job?
- [82:02]
Michael Batnick
Yeah.
- [82:02]
Josh Brown
Is my. Is my company going to chainsaw me? Is the. The company I work for does a lot of business with the federal government. And did you hear about those guys down the street? They just had all their contracts canceled. Like that's what I think is going on here. Yeah, I think it's maybe so. My point is it might not all be irrational to these people, depending on.
- [82:21]
Michael Batnick
Rational, but I think it's a confluence of factors. Number one, it's been an up and it's been an up into the right market the last two years. We had 20% gains in 2023, 20% gains in 2024 in the face of a lot of economic uncertainty in 2022. At the end, 100% chance of recession. Right? Wrong. 23, 20% gain, 24, 20% gain. You had economists, strategists, everyone was bullish. And we got. So it's. It's just like a jarring. It's unexpected. And this is what happens when the market is reminded of like, oh, there are risks. Risk. Risk gets repriced really quickly. And on balance, assuming we don't get a deep recession, which I don't think we will, I don't like to see anybody lose money, but I think in the long run this is healthy and way better than the inverse. If we started the year with a 20% gain in the first three months, I think that would be much more worrisome than what we're seeing now. So, Todd, so does. Does great work on inverse volume and what's going on there. And this is a good sign. People are starting to buy the shit out of these inverse ETFs, which. Listen, I'm not saying that we're at a bottom or near bottom. We might be, we might not be, who knows? But you have to have this sort of level of fear before we do get to a bottom. Whether that's tomorrow or next month or next quarter, who knows.
- [83:28]
Josh Brown
So they like whether you think these buyers are speculators or people trying to hedge long side exposure or obviously it's probably both. Doesn't matter. You. I do agree. You need to see them get super active shorting the market.
- [83:46]
Michael Batnick
Yeah. Okay. Tech flows are now negative. They've been positive forever.
- [83:54]
Josh Brown
Oh my God, look at this.
- [83:56]
Michael Batnick
Forever. People are selling tech stocks again. Interesting. Through the. They know about Aoi AI is not going to save them. Josh, through the lens of sentiment, you need to get a washout. Not saying we're washing out yet, but we're in the process of it. Semis, who next chart, please? Creamed. Creamed.
- [84:18]
Josh Brown
Leading the outflows. This, this is not a bullish chart. Even though the lines are going up, guys, this is the amount of money being ripped out of the etf.
- [84:25]
Michael Batnick
Yeah.
- [84:26]
Josh Brown
So semis, I guess, is shorthand for they're selling Nvidia and Broadcom. Yeah, right. That's wild. Well, I'm with you. Like, it's constructive. Like if, if you're going to panic, panic early. And that's who these people are. These are the panickers. And, you know, they're, they're doing. Look, they probably had too much exposure to the theme. And like one of the big memes going around on Wall street and in the media this week is that it's a. It's the pod shops are blowing up or de risking, I should say. So the story today was about Millennium. Supposedly they had a trading desk and they have all these different pods within the larger hedge fund. And each one of these pods is doing its own thing. It's got a small amount of equity capital. And so what they do to amplify the returns of the strategy is they use leverage, and that's fine. But when a strategy goes against them, they have to delever really fast in order to stay alive. And you had a lot of people riding the same stocks. You had a lot of people in this momentum trade. You think about, like the Palantir, Robinhood, Coinbase in video segment of this market. Murdered, Murdered. God, throw Reddit in there. These are names that people had been riding with leverage and they got a de risk fast.
- [85:46]
Michael Batnick
So on the one hand, here's the argument I'm having my head. On the one hand, I believe that there will be a slowdown. I don't believe that there would be a deep recession. Maybe a recession, maybe, maybe not. I do, I do think that ultimately Trump cares about the market. I don't believe him. Even though credit to them, they're. They're being consistent in their message. So to me, this smells like, I don't know, 10 to 15. Could it be 20? Yeah, sure. But I ultimately think that this will be one of a long list of reasons to sell. And I think the muscle memory of market participants buying the dip, even though this is different in terms of the emotions that come with it, I still think that muscle memory is in place. And so okay, so that's on the one hand but then on the other hand it's like well if there is a slowdown and if earnings do contract then why the we training at 23 times earnings. Right.
- [86:33]
Josh Brown
So like you won't be.
- [86:34]
Michael Batnick
Well so that's like the push and pull that I'm having in my head right now.
- [86:37]
Josh Brown
Yeah, that's one of the big risk factors. We're going to go from $65 in earnings this past quarter that we just got the reports from to Q1. The consensus is now at 60. Does that have risk down to 58? Maybe they're not going to keep stocks at a 21 multiple if that's where this is going Now A big part of that drop off we should say is the growth rate of the Mag 7 effectively being cut in half. And people have known that that would be the case this year. Obviously the 2024 was this massive AI related build out year and that wasn't going to stay at full steam for years and years and years on end. So some of that fall off in growth is a result of what people already saw coming. What's not in that consensus is 20 more companies saying what Delta just said which, which is like noticeable consumer slowdown. Ed Bastian said, very pointedly said I don't see a recession. Yes, right. But he, but he also said it's a noticeable downshift in consumer tickets being booked.
- [87:50]
Michael Batnick
So he's, he said this morning Phil labeau on CNBC said, do you get the feeling that we potentially are heading towards a recession? To which he said, quote, I don't feel it. As you just said, we're growing 4 to 8%. If it was a recession we'd be down 10%. So listen, I'm not trying to be cavalier about the risk. Not a idiot. I see it.
- [88:06]
Nick Colas
Right.
- [88:06]
Michael Batnick
I understand that there's a slowdown, there's, there's anxiety. I guess where I'm coming from is like I don't think and I don't want anybody to lose their job. You know, I'm through the lens of the market. If we are up 20% and then 20% and we end up this, we end this year down 13% in the grand scheme of things, is that that big of a deal? Would anybody have not signed up for that three years ago?
- [88:25]
Josh Brown
Down 13 plus bonds higher, plus international stocks higher. Everybody, everybody would say yes.
- [88:33]
Michael Batnick
Who says no. So let's just like be a little bit sober about what's going on and where we're coming from. And I Understand the anxiety. I feel it, too. All right, let's just do this real quick. On AI. Last week, Tom Lee was talking about the thing that Krantrowitz was saying at the Hightower event, and we were like, wait, what? So I read Alex's substack, and he said, a few weeks ago, I met with Evan Ratliff, a journalist who cloned his voice with AI, attached it to an AI model, and had it talked to friends, family, and even a therapist. Ratliff captured the experience at a podcast called Shell Game. And as he relayed the finer details of me in person, I wasn't risking meeting his AI bot on Zoom. He shocked me with one anecdote. Ratliff says his voice bot conducted an interview with the tech CEO, and the bot was able to better to obtain better information than he and the human journalist could. Before the call, Ratliff prompted his AI clone with questions and instructed it to ask anything else potentially relevant. The tech CEO played along with the interview. He works in AI for voice tech, for what it's worth, and gamely responded to the bot's questions. And when Ratliff listened to the recording, he was surprised to find the CEO really opened up. Quote, he was a little more forthcoming with the AI than he was with me. There's a lot of quality. You don't necessarily feel like there's someone there and you might be a little bit more intimate than you would have otherwise, and that could be very valuable in an interview for a reporting project. End quote.
- [89:51]
Josh Brown
It's a magic trick. It's a magic trick.
- [89:56]
Nick Colas
Go on.
- [89:56]
Michael Batnick
Mega Josh.
- [89:57]
Josh Brown
Not that impressed. It's cool. It's cool. I get it. I don't know. I'm not that impressed with that. It's a word calculator. If you're seeding it with questions in advance, then it's going to ask and or riff off those questions.
- [90:12]
Michael Batnick
You've been very dismissive. You know, I think one of the nightmare risk to the market and the economy and civilization is that we do get a nasty recession and companies incorporate AI really quickly to preserve their bottom line and don't bring workers back.
- [90:27]
Josh Brown
Dude, you think that shit's impressive? In 1987, I would call one Chinese food restaurant, and then I would call somebody's dad, and I would make it like the dad ordered Chinese food and didn't go pick it up. And I would just let them have it out, and we would tape record that. That's like, to me, like, that some of those calls. I wish I still had a thing that could play cassette tapes. I would go rummaging through my attic for these tapes right now. Solid gold. So much more impressive than, oh, I fed the AI some questions, and then it asked the tech CEO those questions, like, what are we doing here? So I don't know. That's. It just doesn't blow me away. It doesn't seem like that big a deal to me.
- [91:09]
Michael Batnick
Okay, so last week, you were not. You don't believe in robots now? You don't believe in AI voice?
- [91:14]
Josh Brown
No, I believe we believe in it. I'm just not that blown away. But I believe that it's happening. I just like. Like that. That anecdote. It's like, yeah, I assumed it could do that. But you're telling me that the CEO played along because the CEO works in AI voice.
- [91:30]
Michael Batnick
Yeah.
- [91:31]
Josh Brown
So it's like, all right, big deal.
- [91:33]
Michael Batnick
All right, chart on.
- [91:34]
Josh Brown
Do that with a CEO who's not playing along and tell me if they really open up to the AI. They're not be like, what the hell is a computer interviewing me?
- [91:43]
Michael Batnick
All right. How many of these companies do you own?
- [91:46]
Josh Brown
I can't. Well, I can't see that. Well, all right. You want the answer? Not enough. I'm so bullish on robots. Way more bullish than I am on chatbots.
- [91:57]
Michael Batnick
So for those of you who are listening, not watching, there's a great graphic from bank of America global research that.
- [92:02]
Josh Brown
Shows this is great.
- [92:03]
Michael Batnick
Who makes a humanoid robot? And apparently, like, who doesn't make the humanoid Robot? There's, like, 100 companies in here.
- [92:10]
Josh Brown
Yeah, I mean, that tracks like, there were 200 or 300American automobile manufacturers in 1920, and then, like, by 1930, there were 10, and now there's two.
- [92:22]
Michael Batnick
But let me ask you this. Last week, you were like, these are not happening. These humanoid robots are not coming into our homes.
- [92:27]
Josh Brown
I know, of course, eventually. I just don't think, like, that's this year. So, like, in response to people looking at, like, the Tesla robots, that's not this year. And my point was not that we won't get them in our homes. My point was they will be way more prevalent in factories and I think hospitals. Prevalent, prevalent, prevalent. Prelivent, prelivent. Okay.
- [92:53]
Michael Batnick
Shout out to Sal. Governor.
- [92:56]
Josh Brown
The ubiquity of these robots, I think will is inevitable. But I. I don't think the home humanoid robot for a family is 2025 story. We're already in March. Okay. I think, like, the more exciting thing about the robots is how they'll enable us to medically care for Our boomers. And that's like, that's where you could immediately start making money.
- [93:23]
Michael Batnick
If it's 26. Whatever. My point is it's coming. They're coming. All right, I'm going to make the case. This sounds toppy as shit. It's too late to sell now. I'm talking about your individual stocks.
- [93:35]
Josh Brown
And I know that we're gonna, we're gonna clip this for Twitter and Instagram.
- [93:39]
Michael Batnick
No, listen, I know that's, I know that's like never the case and it's, it's not actually true, but my point is this happens so fast. And not that, not that they can't go low, but if you didn't sell two weeks ago, don't sell today. Okay? Don't panic. Late. And I understand the index is only a 10 off the highs, but under the surface for individual stocks, it is gnarly. It is bloody, it is gross. Chart on. Please shout out to Grant hawk Ridge. All right, 38. And this was as of yesterday, 38 of the S P names are down 20 or more.
- [94:10]
Josh Brown
Yeah, that's the bear market.
- [94:12]
Michael Batnick
54 of mid caps are down 20 or more and 63 of small caps are down 20 or more. And if you look under the hood and you, you chop it up, how many down? 30. Down 40. A lot. Okay, a lot. And it happened really, really fast. Allow me to present with you some very cherry picked data. I understand that, but I think it's emblematic of what we just lived through over the last 15 years in the bull market. Okay, so this data is starting in 2010, stipulated bespoke says of the last 32 times that the S&P has opened down 1% and then fell another 1% from the open to the close. It has been up three months later, 31 of those 32 times. Turn on, please. So again, this is only going back to 2010. I get it. They get it. What they're showing is that instances though, it's a lot. So again, they're showing the opening gap down 1% and another 1% of selling intraday to the close.
- [95:10]
Josh Brown
Those aren't the days to sell.
- [95:11]
Michael Batnick
You're saying so again, it's only been a bull market for 15 years. But the point is there have been instances like this. And maybe you think that this is different, maybe you think that the world is ending, maybe you think that tariffs are going to cripple the economy. I don't see it that way. I could be wrong. I hope I'm not. But Jeff DeGraff sees it my way. Jeff DeGraff tweeted, Equity is a cushion against default in the capital structure. When there are stress in equities, it impacts credit at the margin. When equities are weak but credit is not, it's usually a sign of overreaction on the part of equity markets. And this is one way that they're measuring it.
- [95:49]
Josh Brown
I love that idea. Like if the bond market's not cracking, the stock market's not going to be the thing that makes it crack. It's vice versa. It only works the other way, not this way.
- [95:59]
Michael Batnick
So if next week or the week after we see credit spreads blow out, I'll say something different.
- [96:04]
Josh Brown
I'm going to slightly agree and slightly disagree. It's too late to panic sell. But we could have a bounce and then lower lows later. Totally. So for me, it's not too late sell. But what it's definitely too late to do is this bullshit rotation trade that you missed.
- [96:24]
Michael Batnick
Missed here.
- [96:25]
Josh Brown
Okay, so here's that.
- [96:26]
Michael Batnick
Here's my.
- [96:27]
Josh Brown
If you're going to sell, go to cash and shut up. I would not be a seller here. And buying. And buying consumer staples. Okay, that's what I want to say.
- [96:35]
Michael Batnick
100%.
- [96:37]
Josh Brown
Those stocks are expensive too.
- [96:38]
Michael Batnick
My big point, if there is a turnaround in language and tariffs and policies and whatever, the market is going to rip so fast, you're not going to know what happened. It's going to be dizzying and I don't know if and when that happens. It might not. It might, but it might happen from lower prices. But if it does and you're in cash, you're going to miss it. You're not going to back in.
- [96:58]
Josh Brown
You know, Right. It's just like Argentina. So. No, I'm kidding.
- [97:04]
Michael Batnick
But do you agree there's not going to be a clear signal if you go to cash not getting back in?
- [97:09]
Josh Brown
No. I think there's another leg down though.
- [97:11]
Michael Batnick
Fine. I'm fine. I'm not saying that this is the bottom.
- [97:14]
Josh Brown
I'm surprised there hasn't been a bounce yet, actually. It's like not a great sign.
- [97:19]
Michael Batnick
And I also would say listen again, I'm not being cavalier about risk. Bad happens under the 200 day moving average. That's where we are. Yeah, Crashes happen from oversold conditions. I hate to use the C word, so I'm not ruling it out. But for goodness sakes. And fine. If you're going to sell, fine. Have a reentry plan.
- [97:37]
Josh Brown
If we start hitting circuit breakers and shit, if we have one of those days, I'm buying.
- [97:40]
Michael Batnick
I was about to say. I was about to say. If that happens, I'm in.
- [97:43]
Josh Brown
I'm getting more. I want to buy the tariff circuit breaker. That's. That's what I want, actually. That's what I want for Christmas. All right, mystery chart. This is an industry group, so it's within a sector.
- [97:56]
Michael Batnick
I know what this is.
- [97:58]
Josh Brown
You do?
- [97:59]
Michael Batnick
I'm the smartest.
- [98:00]
Josh Brown
No clues. No clues. These are stocks. All right. Wait, these are stocks. Six separate stocks. And this is year to date. Hit me.
- [98:08]
Michael Batnick
It's Blackstone, Aries.
- [98:10]
Josh Brown
Oh my God. You're the smartest man alive. I'm so proud of you. This might be your all time best performance on mystery chart.
- [98:17]
Michael Batnick
All right.
- [98:17]
Josh Brown
In fairness, I don't mean I could have done this.
- [98:19]
Michael Batnick
I look at these stocks a lot and I saw the Financial Times had a similar chart up, so.
- [98:23]
Josh Brown
Okay.
- [98:23]
Michael Batnick
But I might have got it anyway because I do look at these stocks.
- [98:26]
Josh Brown
Wait, what's bn? Is that bean?
- [98:27]
Michael Batnick
Bn. I don't know what that is. Is that a typo? What's been.
- [98:32]
Josh Brown
No, it's a stock.
- [98:33]
Michael Batnick
Oh, that's Brookfield. That's Brookfield.
- [98:34]
Josh Brown
Brook. Oh, Brookfield. Okay. Blackstone is bx, Blue Owl, which is private credit. These stocks are down between 13 and 25%. KKR, Apollo, Aries, Blue Owl, Blackstone. Dude, that's really fast. They came into the year roaring. That's a really fast repricing of risk, like negative 20% for some of the biggest private equity companies. I think this is because a couple of factors. My personal opinion is people are not excited to allocate toward illiquid investments when the vix is spiking. It's just not. The first instinct you would have is how could I lock my money up? So that possibly pushes off this democratization, wealth management, money raised that they're all fighting for.
- [99:24]
Michael Batnick
These companies are to grow their fever, their fee related earnings. 10 to 15% for the next five years compounded.
- [99:29]
Josh Brown
Okay. I also think the lack of exits when you have stock market volatility like this. You know what else isn't happening?
- [99:36]
Michael Batnick
IPOs.
- [99:36]
Josh Brown
Private Equity Retread IPOs.
- [99:38]
Michael Batnick
You're not bringing.
- [99:39]
Josh Brown
You're not bringing anybody public and getting liquid and that these stocks require some liquidity. You can't just invest in things and hold them forever. They need to turn the money. So I think that's what's going on there. So would you buy them?
- [99:52]
Michael Batnick
I. I own them. Yeah.
- [99:54]
Josh Brown
More.
- [99:55]
Michael Batnick
Yes. In summation, I am not naive to the risks the market is facing. The economy is facing. But I think that, I think that the reintroduction of risk to risk markets is generally a good thing. And we're early, but this too shall pass and stay with it. Don't do anything that you can't undo.
- [100:13]
Josh Brown
Okay, I think we'll leave it there. Guys. This has been a super sized episode of what are your thoughts? We really appreciate everybody who came for the live. I want to let know next Tuesday in Argentina. Michael and I will be in Miami beach for the first ever future proof citywide. Therefore there will be no what are your thoughts? But we will have a lot a live version of the Compound and Friends, which is in part what we'll be working on while we're down there. Animal Stewards Spirits is up tomorrow and you guys will also get an episode out next week, I'm told. Okay. We also have new Duncan and Ben on Thursday Ask the Compound and an all new the Compound and Friends Friday morning. If you want to know who the guest is, we put that out to the super fans and the way you can join their ranks is by subscribing to the Compound Insider and I believe we have a link to do that in the show notes both on podcast and YouTube. So please it's a free subscription and we give you the goods in advance. So if you love the show, you're going to love that. Thank you so much for watching. Thank you for listening. We'll talk to you soon. Whether you're just getting started as an investor or you're managing a multi million dollar portfolio, Ritholtz Wealth Management has the solution for you. It all starts with building the right financial plan. To speak with a certified financial Planner today, visit rithswealth.com don't forget to check us out at YouTube.com the compoundrwm. Make sure to leave a rating and review on your favorite podcasting app. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. Thanks for listening.