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The Compound and Friends
Stocks Fueling Consumers, AI Bull Market Tracks the Late 90’s With Nick and Jessica, Mohamed El-Erian Tells Powell to Resign
01:43:13
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- [00:00]
Josh Brown
Ladies and gentlemen, welcome to the compound and friends. Today's show is brought to you by Betterment Advisor Solutions. We are also brought to you by our friends at Rocket Money. A lot of people are not aware of how much money they spend each month. They don't know what subscriptions they're paying for. They don't know what they spend on takeout or delivery. You know, it's more than you think. You just don't even want to know how much more. Well, maybe it's time to take a look. There's an app designed to help you manage your money better. Rocket Money. It's a personal finance app that helps find and cancel unwanted subscriptions, monitors your spending, helps lower your bills so you can grow your savings. Rocket money has 5 million members who have saved a total of $500 million in canceled subscriptions. So cancel your unwanted subscriptions today and reach your financial goals faster with Rocket Money. Go to RocketMoney.com/Compound to learn more. Okay, we had Nick Colis and Jessica Rabe back on the show. They were incredible. The YouTube video went live 24 hours ago. Tens of thousands of views. People just raving about the Data Trek people. And we love Nick and Jessica, so it's always great to check in with them. We took a look at S and P earnings and earnings estimates and the current multiple and it's sad to say, but you really have to have some lofty ideas about what the next 12 months will bring just to justify where we're trading today, let alone any potential upside from here. And we're, you know, we're here to just tell it like it is. That's the reality. And Nick and Jessica will explain. Then it's an all new edition of what are your thoughts? It's Michael and I, we do an earnings preview. Got Amazon and Tesla coming up this week. This week is a really busy earnings week. 20% of S&P 500 companies will be reporting within this particular five day period. We take a look at the US consumer, we pull out some quotes from the bank earnings that we got last week and we do a whole, a whole laundry list of things. And I want you to hear all of it. So I'm going to send you into the show right now. Thank you guys so much for tuning in. Enjoy. Welcome to the Compound and Friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of 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 an all new edition of what Did We Learn? My name is Downtown Josh Brown. I am here with my friends Nick Kolas and Jessica Rabe, co founders of DataTrack Research, the authors of Datatrek's Morning Briefing newsletter, which goes out daily to 1500 institutional and retail clients. They're also two of the smartest people I know. Nick and Jessica also have their own YouTube channel, which you can find in a link in the description below. It's earnings season, guys. I see you're, you're, you're pretty fired up about it. I know. I am too. According to FactSet, analysts were looking for just under 5% earnings growth for the S&P 500 in the second quarter. That estimate has just risen to 5.6% as of the end of last week as more and more companies beat their expectations. And if that number holds, it will be the slowest pace of profit growth. Since Q4 of 2023. 83% of S&P 500 companies that have reported so far have beaten their second quarter earnings per share estimates. That is above the five year average of 78%. But it's still early. The average earnings surprise of 7.9% is also lagging the five year norm of 9.1%. One of the things you're hearing a lot about so far is that earnings during this earnings season are not the problem. Valuation is. And so we saw a Netflix report, we saw JP Morgan, bank of America, blockbuster numbers, just great reports all around. But their stock prices faded rather than rallied. So I wanted to start by asking you guys, do you think this kind of sell the news mentality is going to remain the trend throughout the rest of earnings season? Or do you think maybe people are just making too much of the first couple of high profile reporters?
- [04:39]
Michael Batnick
Yeah, it feels like it is certainly a little bit of a, of a knee jerk reaction off the first week. I think things will settle down and we'll have a little better earnings season because the numbers are really strong and the analysts took numbers down. But you raised the right point and we brought our homework today and wanted to put up the first chart which shows valuations on the S and P because this speaks directly to your valuation point and I think very powerfully so. What the table shows is a grid of S and P fair values and it ranges on PE ratios on the columns and earnings power on the rows and the PE ratios run from 14 to 26 times 14 is trough confidence. Like that's what you get when things are really just horrible. Investors don't believe in the Future. And then 24 times is super peak confidence, like the highest levels we've had in the last 10 years. And then 26 is just beyond the 1990s.com bubble. So you have a wide range of confidence levels and then you've got earnings levels anywhere from the current estimates of 264 for the year, 300 for next, and then some small haircuts to those to give us a more realistic view. Because analysts are always too high on their numbers, as we all know. And the takeaway from this chart is the only upside to the S and P from current levels is if you believe we hold 26 times earnings for this year and or 24 to 26 times for next year. Otherwise the S&P's best case at fair value or worst case, quite overvalued. So the message here is, yeah, valuations are extremely high and not just current valuations. What you have to believe in order to own stocks here is very aggressive expectations for extremely high investor confidence in the future.
- [06:22]
Josh Brown
Right. You have to bet not only will we do those, the current full year estimate is $264 in earnings per share. So to be super bullish at today's level, you have to believe not only will those numbers hit, but that the sentiment in the form of the PE ratio will also stick or even have upside from here. And that's like a little bit of a tougher bet to make.
- [06:50]
Michael Batnick
It is. And it just, you know, look, math is not an edge. You know, this is not to say that you have to be long or short based on this math, but I think you have to understand why the math exists and then understand what the influence inflection points up or down are from here. My basic take on what's going on with that table is markets have been slowly reevaluating the durability of the US economy and deciding that it's far more resilient than any prior cycle, 1990s, 2000s, 2000, 10s, and there is a lot of logic behind that because if you look at the shocks we've had over the past just three years, the 22 rate shock, this 25 tariff shock, the economy rolled right through those. Unemployment didn't rise, jobless claims didn't rise, labor supply is still fairly tight, wages are okay, and in the us consumers holding in okay. Businesses didn't go and just do layoffs in 22 or earlier this year. And the upshot is you've got a very durable U.S. economy. You've got an economy that, absent a very large shock, without a policy response, just continues to grow fundamentally because of this labor, labor shortage, but also because I think there's just a lot of confidence built into the system right now. That's why the valuations are so high. And unless you get a big disruption, they can continue to be high. It's just remarkable that they're higher than pretty much any point in the last 10 years and holding in very comfortably at those levels.
- [08:10]
Josh Brown
Before we go into the sectors, can we do 2026 just give people kind of the full picture? Because I guess one of the reasons why you could make the case that Today's valuation of 22 times earnings on $264 makes sense is that nobody's worried about 2026 as much as they were because we're already almost in August and people are now focused more on 26 versus 25.
- [08:37]
Michael Batnick
Yeah.
- [08:37]
Josh Brown
So when you look at 2026, you guys are pegging the current estimate at $300 per share of S&P 500 earnings and at the current multiple 22%. I suppose that would give us 6,599 as an S and P price target for year end 26, which would be only a 5% return from here. Is that where you have it? Exactly. All right, so we, I mean, I suppose there's room to say, well, people are really thinking about next year's estimate of $300 and they're saying 22 might still be a reasonable multiple. And maybe from that standpoint, the market still has some, you know, mid single digit percentage upside. And that's the justification for buying stocks today. There's room to, there's room to say that it doesn't leave a lot of margin for error.
- [09:28]
Michael Batnick
And then the upside, it leaves no margin for error.
- [09:31]
Josh Brown
No margin for error. And then the upside case is either $300 per share proves too low or a ratchet up to super peak confidence. A 24 multiple and then $300 number puts us at 7200 on the S&P, which would be 15% upside from today. So that's kind of like, I don't know, it feels extreme. It feels like extreme sentiment. I know it's not super extreme, but it feels like it's, it's headed in that direction.
- [09:59]
Michael Batnick
Well, I'll toss one more thing out, and I think Jessica's also got a comment here which which we need to hear. What I would toss out is that yes, the market's looking at 26 earnings, very fair. But my paradigm is they're looking at 27 and 28 and 29 and 30. And there's always a discount in valuations for recession. It just always is. It's been since I've started in this business in the 1990s, the market always says there could be a recession next year. 25% odds. 20% odds and you have a lower valuation. Now the market's saying no, the chance of a recession in any given year is maybe 5%, maybe 7%. And that's different from the past. Not saying it's right, but it is definitely different. And that's why you get these higher valuations.
- [10:38]
Josh Brown
You get a high, you get. It's a rerating.
- [10:40]
Michael Batnick
It's a rerating.
- [10:41]
Josh Brown
If. Right. If we think the probability of recession is 15% in any given year, then a 22 multiple makes no sense. If we think it's only 5%, that we could have a cyclical recession and people could scoff at that number and come up with their own estimate, that's fine. But if that's what the market consensus is now, a cyclical recession would be so rare that maybe it's a 5% probability, then a 22 multiple makes more sense in that context and may possibly even higher. Would, would be the way that I would think about it.
- [11:15]
Michael Batnick
Yeah, fair.
- [11:16]
Jessica Rabe
Yeah, I think, I think there's also a story here about how the US stacks up against the rest of the world. So we visit clients and business contacts across Europe on a quarterly basis and their comments are always the same. There's almost universal belief that only U.S. equity markets offer superior, superior returns over the long term, essentially forcing marginal capital into U. S stock markets. And that's because they view U.S. economy as by far the most dynamic economy in the world, but also even more importantly, one that generates most innovation. They just don't have as many tech or high quality growth companies to invest in in their home countries that as we do and that makes ours scarce assets. So of course there are some success stories in Europe, but those disruptive tech companies often decamp to the US while they're still private or when they do choose to go public. So obviously, you know, there's more liquidity here and they also lack the kind of vibrant startup scene the US has. And without that, European equity markets just won't have the same pipeline of innovative companies that has allowed the US to outperform over the last decade. Global capital markets know that. And so honestly, US multiples may not have an upper limit relative to, to history. So to just circle back to the top of my comments, what we've learned from wealth managers, which are effectively RIAs in Europe, is that there's a massive change in how money is getting managed across the continent. It started in the UK about a decade ago. It's much newer in places like Paris and Milan where we recently were, where retail investors are now going to wealth managers who want to allocate their, their money to, to the US Instead of for example, local banks investing their money in Italian sovereigns or, or utility companies. European wealth managers, they really see US big tech companies as globally scalable with large competitive moats and much higher returns on equity than rest world market leaders. So we think this has a 20 year tailwind to it. It's a small sample size, but we think that means it's likely in even, even much bigger story than we hear about the sea, sea change and how in the sea change of allocating European retail money to US stock markets in the coming years and decades.
- [13:45]
Josh Brown
So it's such a great point and I want to back up what you said with some data because the people you're talking to, they're not just making comments, they're actually voting with their euros. We got a report from the treasury last week talking about foreign investor flows to U.S. assets, both bonds and stocks. And it turns out in the 12 months ending at the end of May, it's about $1.7 trillion from foreign investors coming into the country, which is not a record, but it's an enormous number. But what makes it an even more Stark number is 600 billion of that over the last 12 months ending maybe came directly into US stocks. Most of that when you talk about foreign money coming into the US there's an assumption people say, well, it's central bank related or it's they're buying treasury bills because it's some sort of like risk off or rate arbitrage. 600 billion coming into stocks is not coming in from foreign governments or from foreign central banks. That's coming in from private investors like the ones that you're talking to. And it runs completely counter to the narrative that we heard right after the trade war started this April where foreigners were going to yank their assets out of the US stocks and bonds. They did the opposite. They plowed money in at insane levels. I think In May alone, $150 billion worth of foreign capital came into the US stock market. One month it's a really great point. Let's talk about the sector breakdown here guys, because I know you looked at that as well just in terms of current multiples versus their longer term averages.
- [15:28]
Michael Batnick
Yeah, I mean we mentioned this I think in the, in the last episode. But what's really important to understand is that it's not just tech that has got a higher multiple. It's not just tech driving that. You know, that grid that we talked about. Every sector except for health care and energy is seeing a much higher current multiple on forward earnings than the 10 year averages. Every single one, industrials, materials, not just tech, comp services, everything. Everything except for healthcare and energy, for understandable reasons has got a higher multiple now than 10 year averages. So it's really a rising tide of confidence lifting all boats. And I think it sort of supports both what Jessica and I have talked about. Less recession risk and just incrementally a lot more interest from offshore in owning US Assets.
- [16:09]
Josh Brown
So one of the things going on at Savita Subramanian said the other day at bank of America, companies that have a compelling story to tell about how they're using AI are going to get, are going to have the best post earnings reactions. And these are not tech companies, all companies. And I think that partially explains this rise in multiples for non technology stocks that's accompanying the rise that we're seeing for technology stocks. It feels to me as though everything for The S&P 500 is riding on the AI story remaining fully intact. I don't know where else the earnings upside would come from if you had to replace the AI theme in people's earnings expectations with something else. I don't think it exists. I don't know what maga. I don't even know what story. This story is so big, the AI revolution, not just big in our imaginations, but in the way analysts are thinking about earnings growth. I don't know where else it would come from. And I wanted to ask you guys, can you remember a time where so much of The S&P 500 growth story was riding on a single theme, albeit it's a big theme. But this feels pretty unique to me.
- [17:29]
Michael Batnick
At least I guess I'm the oldest guy in the room, so I'll answer the question. And it's a great segue into Jessica's next module. And that is, it's the late 1990s. It is the initial adoption of the Internet and for very similar reasons, brand new.
- [17:43]
Josh Brown
How did that end for people that don't remember? I'm not there.com CAPEX story. How did that go?
- [17:53]
Michael Batnick
Well, there were. Okay, so yes, that's a, that's a very important point. However, how did it go for managers who didn't invest in tech in 95, 6, 7, 8?
- [18:03]
Josh Brown
Terribly. Exactly.
- [18:06]
Michael Batnick
So yes, it ended badly, but it only ended once.
- [18:10]
Josh Brown
Okay, let me give you some numbers.
- [18:12]
Jessica Rabe
I'll get to that.
- [18:13]
Josh Brown
Yeah, yeah, I know. We're going to, we're going to, we're going to take that in a second. The 2025 estimate of $264 for S&P 500 earnings, you guys might have a different calculation on this, but it and communication services combination contribution to that 264 is $79. Apple, the Mag 5. So I'm just saying Apple, Microsoft, Nvidia, Alphabet, Amazon, the contribution is about 30 bucks, which is actually lower than I would have expected, but there it is. But then when you add back the IT and communication services sectors are about 30% of total S&P 500 earnings. So not just those MAG5, but then you're adding in like the IBM and the Oracles and some. Okay, those five companies though are about 38% of the earnings from all of the IT and comm services sectors. So they're really important within their sectors and they will contribute approximately 11 to 12% of, of just those five names. So I, you guys might quibble with like the calculations or whatever, but like just directionally, if we agree that that's so, then you say to yourself, well, in a world where that piece of the S&P 500 earnings don't come in to the extent that they're supposed to, that's a material change to the outlook. There's no reason based on their, the these companies comments that it won't come in. None of them are downgrading expectations. None of them are cutting capex. None of them are lowering their outlooks. But like everything is riding on that and even The S&P493, a lot of these companies, when they come out and report the commentary is going to be all about AI, how we're using AI.
- [20:10]
Jessica Rabe
To do blank estimates have come on, come down enough that they should easily be. If they don't be, we're in trouble.
- [20:17]
Josh Brown
Okay. All right, so Jess, let's talk about the NASDAQ composite and that mid-90s bull run that Nick alluded to.
- [20:24]
Jessica Rabe
Sure. Okay, so we have a bit of a spooky chart. Since it's low back in December 2022, the NASDAQ COMP is eerily tracking its mid to late 1990s Bull Run, with the fundamental parallel being the Internet then and Gen AI now. So this chart up on the screen shows an index comparison of how the NASDAQ comp performed in the 1000 trading days following the start of 1995, marked by the blue line versus its low on December 28, 2022, through today's close, marked by the orange line. And we ever. Whenever we publish updates on this chart, we get a lot of client comments, and it's easy to see why history seems to be repeating itself almost exactly. So two. Two points to put some context.
- [21:09]
Josh Brown
Can we pause here? Oh, yeah, can we pause here? This is too perfect.
- [21:12]
Jessica Rabe
Yeah, it's.
- [21:13]
Josh Brown
You didn't. You didn't do any. You didn't do anything with the scale or the lines of the chart. This is literally what it is.
- [21:18]
Jessica Rabe
Yep.
- [21:20]
Josh Brown
Oh, my God. All right, I'm nervous.
- [21:23]
Jessica Rabe
So. So first we. We start our comparison in 1995, because that year had a similar macro backdrop and bullish catalysts as the Nasdaq's latest rally. So, like 2022, there was a Fed rate shock in 1994, 1994, after a period of low rates. And there was also a lot of enthusiasm about a new disruptive technology with the Internet, which started to hit critical mass in the mid-90s.
- [21:48]
Nick Kolas
The.
- [21:48]
Jessica Rabe
So, for example, a lot of you will probably remember, not me, but a lot of you will probably remember Netscape went public in August 1995. And as for today, ChatGPT launched at the end of November 2022, which was a month before the start of the current tech rally, which has largely been driven by enthusiasm for Gen AI. And then the second point here is, if you want to just throw back the chart, back up the NASDAQ's following its mid-1990s experience, like you said, Josh, to a truly amazing degree.
- [22:20]
Josh Brown
So.
- [22:21]
Jessica Rabe
So Friday marked the 639th trading day from the Nasdaq's low in December 2022, and it's up 104% since then on the same day. In the 1990s tech stock rally, which was in early July 1997, the index was up 100% from the start of 1995. So super close. But the important point here is that, as you could see in the chart, the path higher during both time frames isn't linear. And in the back half of the 90s, there was everything from valuation concerns after Alan Greenspan's irrational exuberance comment to Fed Right uncertainty, given worries about the reemergence of inflation and then you had some exogenous shocks as well, like the Asian financial crisis and the blow up of hedge fund ltcm. But the NASDAQ was able to power through it all until March 2000. So our, our take, our big takeaway from this chart is that the mid to late 1990s experience shows Bull markets do occasionally face pullbacks from gross scares, policy uncertainty and valuation concerns. All of which are ha. You know, are happening now as well. But large cap tech stocks were covered from resolutions to these issues pretty quickly and went on to rally for years again until March 2000 as companies capitalized on the Internet, going mainstream. So like any new technology, its success relied on a. On a virtuous circle of adoption and killer apps. And the same will be true for Gen AI now. And as you alluded to before, yes, this example eventually turned into a bubble that then popped. What we do think that this comparison shows us large cap tech stocks are still early in a secular bull run driven by monetization opportunities around Gen AI, just like the Internet in the 1990s.
- [24:16]
Josh Brown
And that's why, Jessica, how far away are we from. From that hypothetical March 2000? Like how many months away would that be? I of course, pretty far.
- [24:26]
Jessica Rabe
So right now we're about in July. Is it a year 1990? No, we're in July 1997. Like we have, we're like a few years away.
- [24:34]
Josh Brown
So we have like years.
- [24:35]
Jessica Rabe
We have a long time.
- [24:36]
Josh Brown
Yeah, if that paradigm, I mean, of course, like none of us think it's really going to match perfectly with the end of this thing.
- [24:42]
Jessica Rabe
Yeah, no, it is an end. Yeah. We're not saying that the past is, is. Is prologue. But this is one reason though why we viewed the last few months of volatility as buying opportunities. So for example, we published a report to our clients back on April 10th that said the NASDAQ 100 and US large cap tech sector should rally since both hit three standard deviations to the downside over the prior 50 days and they're up 26 and 34 since then. And our 1990s experience or 1990s comp shows they should continue to rally from here. I do have one caveat though, and that's we still do need to cross the chasm in tech speak and see wider adoption of Gen AI. Gen AI across more applications and chatbots like jbt. That's why the market is rewarding so few names with Gen AI premiums, because it's unclear, it's still unclear how this technology will develop and see mainstream adoption this isn't an argument for a bubble forming and bursting as much as returns. Just not getting as crazy as the late 1990s, but still chugging along at a decent clip. So actually last week we wrote a note that said that was kind of bold. But the Magnificent seven is dead. With investors now picking winners and losers between us big tech names, those that best leverage gen AI are outperforming this year. Nvidia, Meta, Microsoft, Broadcom.
- [26:13]
Josh Brown
There's big dispersion in that, in that theme. Absolutely.
- [26:16]
Jessica Rabe
Yeah. Then you have laggards in the structural growth theme that are performing like Apple, Google and Amazon and Tesla. So we think the Max 7 is now the Fab Four.
- [26:26]
Josh Brown
I love that. And I want to, I want to, I want to throw two things out at you guys and get your react. The first thing I would say is what's so crazy about that comparison? So people think of it as the dot com boom, but they forget it was half dot com, half wireless. That's when we all got our first cell phones. Before that it was car phones. Like, and Nokia was a leading global stock. Like people, people think of that as being, you know, seven years before the iPhone, but like, or 10 years before the iPhone. That 95 to 2,000 run, but very much. There was a telecom story that was powering. It wasn't just Internet. Robotics are not even in like nobody. Nobody is yet in my opinion. We don't have like a robotics giant other than Tesla. Like we don't, we don't have that wave yet. But that's where the AI thing is going to morph into physical AI. And that a lot of people, that I follow, a lot of technology people, not Wall street people, are thinking about the second half of the 2020s as beyond AI moving into robotics and that like that's the kind of thing that could propel you for another three years before we hit that March 2000 analog top.
- [27:43]
Jessica Rabe
Yeah, I think that's a fantastic point. I think the biggest difference between now and the late 1990s and the biggest difference between those two charts we just drew up was that there's been 15 turns in Moore's Law between then and now. So computing power is roughly 33,000, not 33, 33,000 times more than the original computing bubble. So that incremental compute is driving incremental complexity and expense. That's existential difference between now and then. And right now there is a large scarcity, which you just alluded to as well. There's a large scarcity effect of gen AI names unlike the 1990s, that could continue for a long time. Because back in the 1990s, for example, only took six months and a few million dollars for Netscape to build. The Navigator browser gen takes years and billions of dollars to build. So the barriers to entry are dramatically higher now than the 90s. So the scarcity effect could last for years and propel public company valuations to extremely high levels even more than the 90s. Right now, the orders of magnitude are just so much more complex.
- [28:53]
Josh Brown
One other thing I wanted to mention during this segment, guys, is investors are not confining themselves to the mag 7 or the cloud computing platforms. And when I look at. So I took a look at the NASDAQ 100 and I wanted to look at the biggest winners this year with the highest price to sales. Because it's so widespread, this bull market. So Palantir obviously would be the first name to come to people's minds. It's up 400% over the last year. It's 122 times trailing price to sales. I don't know what the forward is. I assume it's less egregious, but I don't know, maybe it's 60. Cloudflare, up 25% a year. Price to sales, 38 times CrowdStrike, which, full disclosure, I'm long 28 times sales. 40% year over year. Zscaler is also 40% 15 times sales. Trade Desk 15 times sales. Snowflake, 18.8 times sales. Huge Winner, up 40% of the last year. Datadog 18 times sales. ServiceNow 17 and a half Workday 17 MongoDB 16 times. So we've got layers and layers of big tech winners that have had a monster return and are now selling at teens price to sales and higher. You know, and it's not that there's anything wrong with those companies or wrong with those stocks, but I'm just making the point that like the bull market has greatly expanded away from the Mag 7 at this point and people are just going wild for all different stocks in all different parts of the AI ecosystem.
- [30:47]
Michael Batnick
Yeah, it's true. It speaks back to Jessica's comp and it speaks back to our valuation discussion, because exactly the same thing happened in the 90s. I mean, I lived through it. 94 was a terrible year, big rate shock. And it gave investors a reason to start looking for things other than cyclical stocks. They wanted to start buying growth because the economy didn't go into recession in 94, even though we had a rate shock just like in 22 and so they cycled into and said, okay, where's the growth? And the growth was, as you said, in two areas, the Internet and then mobile. Mobile phones. Radio Shack was one of the biggest stocks of the 1990s because they were selling all the mobile phones.
- [31:24]
Josh Brown
Right.
- [31:24]
Jessica Rabe
They're also not just differentiating in the US but also across the world. Like going to Chinese tech stocks that are leveraging Gen AI as well.
- [31:35]
Josh Brown
You know, it's funny I forgot to mention this when you were talking about people allocating away from Europe, in Europe and buying US stocks, they actually, they have a chip giant, asml and they actually disappointed last week.
- [31:47]
Jessica Rabe
Yeah. It went down 14% SAP. That's it. Yeah.
- [31:52]
Josh Brown
Right. So their one chip giant actually ended up disappointing. And that would further reinforce Italian investors, Dutch investors saying, you know what, I like my tech stocks American, thank you very much.
- [32:05]
Jessica Rabe
Yeah. The, our line from, from talking to European investors. They love their culture, hate their markets.
- [32:12]
Josh Brown
Yeah. All right, we're going to do Nvidia and Tesla. Nick, I know you wanted to draw that distinction and how you think about valuation for these companies. Let's go there now to wrap up.
- [32:25]
Michael Batnick
Sure. We got a table here. And it's a paradigm that I've used for, I don't know, 20, 30 years. Think about stock valuations. And unlike using P ratios, I think it's a lot more illustrative of what's actually going on in a given stock. So the way I think about a stock's value is present value and future value. The present value of the stock is just how much it's worth. It can earn whatever it's going to earn this year or next year forever. So a perpetuity value. And the right hand part of these, this table shows that. So it shows the four year earnings estimate for all the big tech names for the S and P and for some non tech names, and then divides that by 0.1 10% and gets you the value of the stock. If it were just to do nothing more than earn what it's earning this year forever. Now the stock trades for more than that. So the difference between the current stock price and the current value is the implied future value, how much the market is implying what percentage of the value of the stock is based on stuff that is to come. Incremental earnings, power, new products, new markets, all the good stuff. And what I've done is just rank the big tech names from highest to lowest present, current, current price percentage from future value. So how much of the stock price prices based on stuff that is to come versus the current earnings power of the company. And it ranges from 91% for Tesla. So over 90% of Tesla's value is based on stuff that's going to happen beyond its current earnings power, all the way down to Alphabet at 45% which is simply that less than half of Alphabet's value is being driven by what might come from the future. And the average for big tech is 67%. So the takeaway from this is that Tesla's is very, very richly valued. 90 plus percent of its value comes from stuff that is not evident in the current earnings stream. Nvidia is roughly average 67% right alongside Amazon at 68 and Apple at 63. So yeah, more than 50% but not egregiously. So the S and p trades for 52% future value and then the largest non tech names in the S and P, Berkshire, JP Morgan, etc. Trade for 53%. So this gives you a range of expectations or a range of how the market is valuing the present for the market. So roughly half of the S and P is future value, big tech roughly two thirds is future value and non big tech roughly half future value.
- [34:52]
Josh Brown
So this actually makes sense when, when I look at the rankings here and I think about the future value that investors are assigning to things that are not even in these companies current earning streams. Tesla would be the stock I would expect to be there. Maybe it doesn't deserve to be 91% above, but that sort of makes sense to me. And then amongst the tech giants, Alphabet being the lowest also makes sense because yes, Alphabet has other bets and they've got, they've, they've got like quantum computing and things like that. But like for the most part it's an advertising business, it's yellow pages. So I actually sort of understand how investors have sorted these out even if they didn't mean to, or how they've ranked these based on what they're willing to pay for for that implied future value. Is that what you would have guessed as well if you had seen this list cold?
- [35:50]
Michael Batnick
Yes, and we've done this math for years so we kind of more track the development of these percentages. Tesla is the one that is always at 90 plus percent. And it's just another reminder to people to say the market already knows that this is all on the come. That's is literally in the stock. You can't short the stock or buy the stock based on those principles.
- [36:11]
Josh Brown
So the only way, the percentage of the current price from future value that that 91%. The only way that's justified is autonomous and robots for Tesla, we don't have to go into all the other ones. Of course they're all going to be involved in autonomous stuff in some way and robotics. But if you're a buyer of Tesla, you're buying it because you're bullish on Optimus, you're bullish on Cybertaxi. And I think that's the robot, the robotics piece of that story. Depending on who you talk to, it's either half the story or it's the whole story. Nobody would say, oh, I'm in this for the cars. Yeah, I mean, right?
- [36:56]
Michael Batnick
And the math says it's 91% of the story.
- [36:59]
Josh Brown
Okay, totally got it. I would just point out on Rope, on robotics, you're not entirely crazy to ascribe that much value to Tesla as a result. And I just wanted to mention Marc Andreessen was talking about general purpose robotics recently and he thinks it's tens of billions within the next decade. But he's also said things like robotics is potentially the biggest industry in the history of the planet. That's what it's his direct quote. He thinks it could be $26 trillion in global revenue divided between household and manufacturing applications. I think that comes from him or it comes from somebody writing about his comments. But like, if that even is anywhere close to being true, then if you're an investor today, you have to be invested in companies that are going to play a decent sized role in that. And I think like most people, if you just regular people, not professionals, if you just said like, which company is the best way to bet on robots? Most people, they've seen Kim Kardashian posing with the Optimus robot in photographs and they just, they say, oh, it's Tesla. And it may end up being that way. It may not. Who knows? We'll all find out together. But that explains the bet that people are willing to make there, whether it'll pay off or not. You'd agree with that?
- [38:23]
Michael Batnick
Yes. But it also explains why, why you have to be long US large caps versus rest of world. Because Tesla may not end up being the company. The company that may do it may be private right now, but you can be assured that they will end up going public in the US when they're ready to go public. And so what's funny about index investing is you're buying the companies today. Like literally you're buying the 500 companies today. But if you're going to hold for 10 years, you're also buying for all the IPOs over the next 10 years and all the disruption and all the growth that's going to happen over the next 10 years. So the stack that we see right now on this chart will be totally different in 10 years. And all we can be relatively assured of is whatever the winner is in robotics will be on this list.
- [39:01]
Josh Brown
Right? It's a pretty safe bet it's going to land there if it's consequential company. All right, guys, this has been amazing. It's so great catching up with you. I hope you're both enjoying your summer. I want everyone watching and listening to know that if you want to hear more from Nick and Jessica, and of course you do, make sure you check out their YouTube channel. There's a link to that in the show notes or you can go to YouTube.com heat sign Nick Kolis and Jessica Rabe. And you guys are on a regular basis putting out great stuff@datatrackresearch.com for your clients. If you want to learn more about how you could subscribe to Nick and Jessica's work, please visit datatrack research.com thank you guys. Great to see you and we'll talk to you soon.
- [39:47]
Jessica Rabe
Thanks so much.
- [40:09]
Josh Brown
All right, gangsters, we are back. We're live. It's 5pm Eastern. It's Tuesday night, middle of earnings season. Super excited to be here. I see all the pounders are in the live chat. Want to say what's up to a few. You guys, Mark Aguilar, what's happening? Jack Rosenfield, good to see you. Magnus Cliff, Doc Lurkin, Caro, I see you. My friend Lance Howe is here. Nicole's in the chat. You all say what's up to Nicole, policing, keeping everything cool. We got a. We got a full house tonight. Really glad to have you guys with us. You know how much we appreciate it. C. Marie, good afternoon, indeed. Tyrone Ross checking in. You're all right. Everybody's here. I just spent the last 10 minutes watching video clips of Hunter Biden explaining how to cook crack. I don't even know. This seems like the craziest time of year right now. Every insane thing that could possibly be going on is going on all at once. Obama's on the tape today. What do you mean, like Trump? Just like outright was like you. You did a treason. You invented the Russia hoax.
- [41:20]
Nick Kolas
Right?
- [41:22]
Josh Brown
It's wild. But wait, before we. Before we deviate and we have to shout out the sponsor, I do want to say, and I see everyone in the chat talking about this. Rest in Peace. Ozzy Osbourne. We were talking about this backstage. People don't even understand. Ozzy Osbourne is the original Internet. So when I was like a little kid, like this was your currency. The craziest story you could think of. Tell about Ozzy Osbourne. And all these stories were passed like, like oral tradition.
- [41:52]
Nick Kolas
He bit off the bat's head.
- [41:54]
Josh Brown
He bit off a bat's wing on stage. Which actually is true. He got arrested in Texas for pissing on the Alamo. He. He snorted a line of ants like backstage at a concert, like, but like there was no Internet. But every kid, even kids that didn't know what Black Sabbath was had an Ozzy Osbourne story. And if you met somebody like that would be like, you would trade Ozzy stories. Like, that's. It's insane how, how large he loomed over our childhoods. And who would ever thought that health nut would have kicked off at 76. I. I would have thought he had way more, way more time. But hey, it's how this, how it works. So rip to the prince of Darkness. Michael, you had something you wanted to get off your chest?
- [42:41]
Nick Kolas
I did. I don't like you. That's. Sure, that's bad juju. There's no, there's no reason to be wearing that right now. Markets and turmoil.
- [42:46]
Josh Brown
It's ironic.
- [42:48]
Nick Kolas
Okay. Okay. Well, I don't know.
- [42:49]
Josh Brown
It's ironic.
- [42:50]
Nick Kolas
This is the top. I blend you.
- [42:52]
Josh Brown
Hey. We refreshed. We refreshed the compound store for the summer. Nicole wanted me to mention we restocked the hats. I know those were sold out. The hats are back. And here's some all new merch you may not have seen before. The official compound beach towel designed by our own in house design guru, Daniel Para. The Series 777T shirts and brand new animal spirits merch. So go to I don't shop to I don't shop dot com if you want to see what's new at the compound store.
- [43:24]
Nick Kolas
Okay, I definitely don't shop dot com. Today's show is brought to you by Betterment Advisor Solutions. If you happen to be thinking there's got to be a better way to grow my rra, you're not alone.
- [43:35]
Josh Brown
Did you say rra?
- [43:36]
Nick Kolas
I did. It's. It's always hard. Come on. Three letters.
- [43:39]
Josh Brown
With Betterment Advisor Solutions, we do the heavy lifting so you could focus on what matters most. Your clients. From improved service that makes asset transitions smoother to fast paper free onboarding that delights clients. On day one, we've built a digital first platform designed to streamline your operations and make life easier.
- [43:57]
Nick Kolas
That's right, Josh. Now, if you're thinking, wow, they take the paper out of paperwork, then you're right. Grow your RIA your way with Betterment Advisor Solutions. Learn more at betterment.com advisors. Investing in Vosrs Performance not guaranteed.
- [44:10]
Josh Brown
Performance not guaranteed.
- [44:11]
Nick Kolas
Form guaranteed.
- [44:12]
Josh Brown
All right, we have a packed show. We have so much to get to, and I'm really excited to. I'm really excited to tell you we have a late addition to. To the show doc, because I just. I couldn't let it go without mentioning Muhammad El Erian, like, came. You know that. You know that, like, tweet format where it's like, nobody, dot, dot, dot, and.
- [44:39]
Nick Kolas
All right, so he's the Magic Johnson of finance. A finance Twitter, I should say.
- [44:44]
Josh Brown
All right, put this picture up.
- [44:46]
Nick Kolas
What'd he do?
- [44:47]
Josh Brown
Is CNBC covering it? Top economist Mohamed El Erian says Powell should resign to preserve Fed independence.
- [44:56]
Nick Kolas
Whoa.
- [44:57]
Josh Brown
Quite a take. So I didn't see the tweet. I just saw the headline and it sounded backwards. And then I read the tweet, and it was backwards. I'll read it this morning. U.S. this is Mohammed. This morning. U.S. government criticism. U.S. government criticism TRUMP criticism of both Federal Reserve Chair Powell and the institution itself has brought in to include mission creep and the effectiveness of other officials. The developments of the last few days reinforce my view. If Chair Powell's objective is to safeguard the Fed's operational autonomy, which I deem vital, then he should resign. I recognize this isn't the consensus view which favors him staying until the end of his tenure in May, nor is it a first best, which is simply not attainable. Yet it's better than what's playing out now. Growing and broadening threats to Fed independence. So he's basically like, to save the autonomy. Lol. The independence of the Fed, they have to. Powell has to step down and do what the people who are threatening the autonomy of the Fed want to have happen anyway.
- [46:01]
Nick Kolas
I don't get it.
- [46:03]
Josh Brown
Does Muhammad want the job? It's a great audition tape. Maybe the best audition tape possible. The only way it could have been better is if he did it on Truth social and not X. But that's one hell of a way to kick the door down and say, hey, remember me?
- [46:18]
Nick Kolas
Wait, Josh, I'm available. The last part of the tweet is as to market reaction. Most of the frequently mentioned candidates to replace Chair Powell would be able to calm any potential market jitters.
- [46:32]
Josh Brown
Disagree.
- [46:32]
Nick Kolas
What jitters? There's no jitters. There's no jitters.
- [46:35]
Josh Brown
Oh, there would be. No, he's making the point that he understands the market would freak out a little bit if Powell resigned because he was bullied out of office by the White House. And he's saying the Fed has a deep bench. Don't worry, they'll put Waller in and everybody will be cool. No way.
- [46:53]
Nick Kolas
All right, whatever. I like Muhammad. I just, I don't understand this.
- [46:56]
Josh Brown
I think he wants the gig. And why wouldn't he? He'd probably be good at it. I mean, who's, who's been watching and paying closer attention and speaking to more central bankers than Mohamed El Erian over the last 25 years?
- [47:09]
Nick Kolas
I'd be happy with his assignment.
- [47:10]
Josh Brown
I think that would calm market jitters. It's just a weird, it's, it's a weird take. It's really a bad precedent because what do you think? The Democrats aren't going to do the same thing. Like, that's, oh, this is how it works now. We are. We can't fire the Fed, but we can, we can bully them to death and pick apart their budget and, and harass them personally and we'll get rid of them one way or the other. That's. I don't feel like the. I don't think the market would, would get over that so quickly. But what the hell do I know? They probably buy it new. New record highs in stocks the day it happens. Who knows? You know what the Fed should do to preserve its autonomy? Not have Powell step down. Cut rates. Cut rates. 50 basis points shut everyone up. It's not going to change anything. You're not creating inflation by taking Fed funds from four and a half to four percent. I'm sorry, you're not. It's just not how it works.
- [48:07]
Nick Kolas
Can I throw out an alternate view?
- [48:09]
Josh Brown
Yeah.
- [48:10]
Nick Kolas
If they really want to preserve their independence, take rates to zero.
- [48:14]
Josh Brown
Right. Right. That'll produce a great outcome. I really don't think the Fed can adjust interest rates by 25 or 50 basis points and have a marked impact on inflation. I don't think it'll hit expectations. I don't think it'll do anything, quite frankly. It'll make bonds slightly less attractive and maybe it'll produce a two day rally in the home builder stocks and then everyone will forget all about it.
- [48:41]
Nick Kolas
You know what? I feel like this is tired. We're all tired of talking about. That was a 2022 story. It's enough. Right? Who cares?
- [48:47]
Josh Brown
All right, next. Consumers got their swagger back. This is the Wall Street Journal. When President Trump slapped tariffs on nations across the globe this spring, many economists feared higher prices and spending cuts would flatten the economy. Consumer sentiment collapsed. We talked about it here. The s and P500 fell by 19% in two months. The world held its breath and waited for the bottom to drop out, but that didn't happen. Now, businesses and consumers are regaining their swagger, and evidence is mounting that those who held back are starting to splurge again. Anecdotally, do you see it? Do you feel it?
- [49:27]
Nick Kolas
No.
- [49:28]
Josh Brown
You don't at all? In any way? I totally do.
- [49:31]
Nick Kolas
Okay, tell me.
- [49:34]
Josh Brown
I think people that are stock market Americans are like, game on. I feel like a switch was flipped. I really, I don't think anyone feel it.
- [49:43]
Nick Kolas
I mean, I feel it on the stock market, I guess.
- [49:45]
Josh Brown
Well, no, but that's obvious. But day to day did the stock market. We just had a 26% rally in the S&P 500 in, I don't know, 44 days.
- [49:56]
Nick Kolas
Oh, you know what? I forgot. I bought a new house. You're right. I do feel it.
- [49:59]
Josh Brown
You just bought the biggest house in the town. All right. I really feel it. And I don't think anyone's like, oh, my stock portfolio is back up. I'm going to go back to acting like it's 2024. I'm not saying that, like, I don't think anyone explicitly is like, oh, thank God my stocks are back. I just think, like, when I look around and, you know, I'm very much on the scene. I'm in Manhattan. I'm on the Upper east side. I'm in East Hampton. I'm at luxury boutiques.
- [50:27]
Nick Kolas
Roslyn eating dinner.
- [50:29]
Josh Brown
No, like, I, yeah, I saw you, I saw your dad last night. But I, I feel that. Is it a sigh of relief on the part of, let's say, the top, the top third of the population? And it's like, game back on.
- [50:43]
Nick Kolas
Okay.
- [50:44]
Josh Brown
You don't feel it at all?
- [50:46]
Nick Kolas
I don't know. I have to think about it.
- [50:47]
Josh Brown
Okay, here's more. JP Morgan reported unexpectedly strong earnings. The bank's economists no longer expecting recession, they said. Here's Jeremy Barnum, the cfo. After the initial shock of tariff policy changes, everyone kind of went on hold. But quote, at a certain moment, you just have to move on with your life. And it does feel like some of that is happening just because you can't delay forever. Totally agree with that, too.
- [51:15]
Nick Kolas
So I made a meme. John. Charlotte on. Please meme on. It's incredible how much thank you. So for the listeners. Yeah, it's Neo stopping all the bullets. And it says the American consumer. It is incredible memo how much has been thrown at the American consumer. And I understand there are people struggling. There always are. Between, like, remember excess savings? Wasn't that supposed to run up like three years ago?
- [51:45]
Josh Brown
Like still working, still working down.
- [51:47]
Nick Kolas
So it just. We just won't stop spending. I know real test sales were like a little bit soft. If you looked under the hood, whatever. We've been through a lot of shit and we just keep taking it. So you mentioned Jeremy, I listened to the conference call. They spoke about the consumer. Quarter on, please. So the CFO of JP Morgan was asked about the consumer. All right. He said, so let's do the consumer quickly. I think we talk about this every quarter. It's obviously a very important question. We look at it very closely. It obviously matters a lot for us as a company. But we continue to struggle to see signs of weakness. The consumer basically seems to be fine. Now a few things are true. Like if you look at indicators of stress, not surprisingly, you see a little bit more stress in the lower income bands than you see in the higher income bands. But that's always true. That's pretty much definitionally true. And nothing there is out of line with our expectations. So it's not just rich people. Obviously they're doing just fine with their 401ks and their stocks and like that, but it's everywhere. Ally, chart on, please. And Josh, I know you have something in between, but just Ally, chart on. So Ally, the biggest part of their business is auto loans. A lot of sum private in there. And their CFO said 30 plus data link, all in 30 plus day all in delinquencies of 4.88% represents the first year over year improvement in delinquency rates. Improvement since 2021.
- [53:07]
Josh Brown
Improvement.
- [53:08]
Nick Kolas
A positive inflection point for credit performance. What, you're saying that like it's a bad thing?
- [53:12]
Josh Brown
No, nobody, nobody was expecting that.
- [53:15]
Nick Kolas
Since 2021.
- [53:17]
Josh Brown
Yeah. More from the Journal. Credit card spending, according to JP Morgan, was up 7%. This is quarter over quarter. So 7% over the same time. 2024.
- [53:29]
Nick Kolas
That's remarkable.
- [53:30]
Josh Brown
That's everybody. That's not just the wealthy. Here's more. US small business owners. 1267 in the survey, 44% said demand for services and products is higher than they anticipated in January. A third were extremely optimistic that business would be better in the next three months. Just under a third said they would add more employees by then. That's small business. The transcript is amazing. We shout them out all the time.
- [53:58]
Nick Kolas
Fantastic.
- [53:59]
Josh Brown
Like, here's Jane Fraser from the Citigroup call last week. The strength of the US economy driven by the American entrepreneur and a healthy consumer has certainly been exceeding. As I've been speaking to CEOs, I've yet again been impressed by the adaptability of our private sector. Stock market's bailing us out. American Express, same thing.
- [54:19]
Nick Kolas
Wait, what do you mean stock market's bailing us out?
- [54:22]
Josh Brown
Well, when she's talking about the American entrepreneur, what do you think she's talking about? She's talking about all these companies that are finding ways to continue to do well. You know, American Express echoed that. US Bancorp consumer spend remains resilient. Wells Fargo, this is Charlie Scharf. As we look ahead, what we see regarding the health of our clients and customers has not changed. Experian, the credit reporting quote. I think the passage of time, the US Economy continues to be strong. Regions financial, same thing. These people aren't being paid to say this shit.
- [54:59]
Nick Kolas
It's all about the labor market. That's it. What derails us, what stops.
- [55:03]
Josh Brown
Well, so now let me throw a monkey wrench in and I shared this chart on social media yesterday and got quite a reaction. But it's. What do you want me to do? It's the data. I think there are two types of consumers. I think there are stock market participants and everyone else. And it's almost childish to say people at the lower end of the income distribution are struggling. Like, when are they not? That is, that's definitionally. It's another tautology. Like, definitionally, if you're at the lower end of the income spectrum and prices in the economy are rising, you're struggling, period.
- [55:37]
Nick Kolas
Not to be a dick and be a downer, but remember Eisman was talking about how people that always yell about the debt, it's like virtue signaling. It's the same thing for finance people. People talking about the bottom decile of income earners are struggling. It's like, no shit. Like, obviously.
- [55:55]
Josh Brown
Yeah. Oh, I agree with that.
- [55:57]
Nick Kolas
No, I care about the bottom 10% more than you do. It's like, dude, come on.
- [56:00]
Josh Brown
Yeah, and we, and we talked a couple of weeks ago about how the spending of that consumer is. Does not even filter into the S&P's earnings. Like it doesn't even show it. I think it was Savita Supermania.
- [56:12]
Nick Kolas
That's bottom quintile. I believe.
- [56:14]
Josh Brown
It doesn't even show up. Really. All right. But anyway, here's A chart from the most recent University of Michigan release. I think this came out Friday. I mean this is like early, but we talk about K shaped recoveries where one group is going in one direction, the other groups go in the other. Whether or not you're in the stock market dictates what your sentiment about the economy is. And tercel, for those who didn't, who don't know, this is the top tercil of people who own stock. You can see their consumer confidence is ripping whereas the people with no holdings in stocks are at all time lows. Basically.
- [56:52]
Nick Kolas
What's up?
- [56:53]
Josh Brown
The third tercel is a third. I had to look that up. I've never, I never even have heard that that term. So the top third of the country who probably own 80% of the stock market, let's say I'm making that up, but I bet it's true. Peter Brookvar wrote about this chart off helping confidence here too continues to be rising stock prices with sentiment gains among stock market participants. Those without stock wealth experienced a sentiment decline, however. So it's, it's two different. So when people say the consumer is this the consumer is that, which consumer? The stock market, American or everybody else? And I don't want this to be true. And I heard you guys on Animal Spirits last week. You were screaming at your audience who all own stocks get in the market. You're talking to Ben. But like how, what other way do you need me to say it? Like we, we basically have a situation where people are spending with abandon who have stock exposure for everyone else. It's harder to imagine why you would want to increase your spending right now. Yeah, so it's, it's tough, but I agree there's, it's a little bit virtue signally. So I don't want to spend any more time on that.
- [58:05]
Nick Kolas
Good. Okay. What is your read so far on earnings season?
- [58:10]
Josh Brown
I know we're early, but I think it's pretty good. Expectations are rising as companies are reporting like, like full quarter expectations. Analysts are taking numbers slightly higher but the earnings growth rate is at a multi year low. So I think right now the expectation is 5.6% growth for this quarter, which would be one of the lower growth rates for any quarter over the last three years. So it's good. Companies are doing the number they're exceeding. Reactions are a little bit punk and it's not that fast of an increase compared to what we saw two quarters ago.
- [58:52]
Nick Kolas
Where do you want to start?
- [58:54]
Josh Brown
I guess let's do. All right, let's start with Some top, top line stats. This is a huge week of earnings. 20% of S&P 500 companies are going to report this week. 12% of companies have reported already. Sean, put this together for us. Blended earnings, which is actual earnings plus estimates of companies that still haven't reported for s and P500 companies grew 3.3% year over year, 50 basis points above the estimates at the beginning of the season. 82.3% of S& P companies have beaten earnings estimates so far, which is pretty good. The five year average on that number is always 77%. We joke about that, but that's what it is. So we're slightly above actual earnings. Take out the blend. The 59 companies in the S and P that have reported grew 2.6% year over year. So and keep in mind we haven't had any big tech yet, which we're going to get to in a minute. Analysts think S and P earnings grew just 2.6% in an aggregate year over year last quarter. The lowest bar since the fourth quarter of 2023. And coming up we have Amazon and Tesla tomorrow. I think both will be after the close. So if you're listening to this on Wednesday, they haven't reported yet. Let's get into, let's get into Amazon. Let's put this graphic up. So guys, like just as a level set, revenue 162 billion, which would be nine and a half percent top line growth. EBITDA 38.3 billion, which would be 14% growth EBIT 14 and earnings per share should be up 3.9%. The bar does not appear to be extraordinarily high from my perspective as an Amazon shareholder. Let's put this price chart up. Look, I think the stock's gonna struggle if it could even get into that old high from January and February which was about 240, 242. I'm not sure if that's easy to see in this chart, but you have a golden cross in the stock which we talked about with JC last week. And again I think you have a company where the expectations aren't like wild. And I don't see any reason why Amazon shouldn't have good guidance just given what we're hearing about the demand for AI and cloud. And AWS is the biggest cloud player on earth or AWS neck and neck with Microsoft. So that's where I am with that.
- [61:32]
Nick Kolas
The thing that. So the stock, the stock has not done very well at all. We both own the stock. It's up 45% over the last underperformed.
- [61:39]
Josh Brown
In the first half for sure, but.
- [61:40]
Nick Kolas
Over the last five years it's only up 45%. The S& P is up double that and the Max 7 is probably up a lot more than that. To me, the thing that I'm most interested to hear from Amazon and Google and the other tech giants are their guidance towards Capex and hyperscaler spend. Like what they're going to be spending on all these data centers. Because at the end of the day we'll get to this in the next topic, but it's all about semis and it's all about AI spend. And as long as they don't guide down, which I don't know why you think they would, then we should be okay.
- [62:07]
Josh Brown
I think Amazon's going to be one of the biggest players in robotics in the world over the next five years. They already are. But I think that part of the story is not obvious to people. I think between drones and automated factories and the Zoox automated taxi service, there are a lot of things that Amazon's doing that don't show up in earnings and don't really get that much attention. But I think if people are trying to invest in the future and they understand that one of the biggest themes is going to be automation and robotics, Amazon becomes a must own stock in a way that like for example, meta is not like meta is a huge AI play, not really a physical AI play, not really a robotics play. Like I think Amazon has the potential to be able to separate itself, but not yet. The robotic story is just too early. And again the stuff they're doing is mostly to save themselves money. That's gonna change, dude. The origin of AWS was there. That was their own internal computing solution. And one day they said, you know, I bet we can get customers for this if we were to turn it inside out. And the rest is history. It birthed the multi trillion dollar Fang company, Mag 7 company. If they decide what we're doing with robotics might be valuable to our customers. Like I don't know what the multiple on the stock should be, but right now it's 36 times earnings. Cheapest multiple you've been able to pay for trailing Amazon earnings ever like on record. And I just think there's a lot going on here under the hood that is not getting that much attention as evidenced by the share, the share price. So I'm, I'm bullish Amazon staying long through the earnings and we'll see what happens. Let's do Tesla. Why don't you take the reins of this one.
- [63:57]
Nick Kolas
So unlike Amazon, the expectations are terrible here. I can't imagine what they would have to say. Well, I don't say that. I can't imagine what they would have to say for the stock to go down. Like it would have to be really, really bad because they're looking for negative 13 on revenue, negative 35 on EBIT.
- [64:21]
Josh Brown
Like numbers are so bad. Negative 22 earnings growth. Horrible. Yeah. What's right. And everyone knows, everyone knows.
- [64:33]
Nick Kolas
So I think whatever they report is, whatever the numbers are, I don't think anybody's going to care. It's in the price or it's, listen, we know about it. I think what's gonna be more important is what they guide to and more importantly whether or not investors believe whatever crazy shit Elon says. Because he always gets a little wacky on these earnings calls. Like he says some shit all the time.
- [64:52]
Josh Brown
Yeah, well, all right, here's what he's gonna do. He's gonna play up the launch of the, of the Robo Taxi which happened during the course of this quarter that he's reporting. Like that's gonna be front and center because they did that at the end of June and you're going to hear a lot of stats about how many rides and customer satisfaction and what, you know, whatever this, there's negligible revenue impact to this. They do not have a lot of cars on the road. You know, like it's, it's not a thing that's going to drive earnings this year. But if you're long the stock, it's probably a big part of the thesis. Why? Because you think that there's going to be a million of those cars all over the world making money for Tesla. So I feel like that's a really obvious thing that he's going to play up.
- [65:40]
Nick Kolas
Yeah.
- [65:42]
Josh Brown
I wonder if any of the analysts are going to have the balls to ask him about the tie up between Tesla and Grok and Xai and Twitter and the whole, the whole mishpacha. Like are they going to, are they going to want to know more details about what some of these transactions are meant to be?
- [66:01]
Nick Kolas
Someone will ask.
- [66:03]
Josh Brown
Think so.
- [66:03]
Nick Kolas
Yeah, I do.
- [66:04]
Josh Brown
Okay, look, I, I have nothing to say. I'm not a Tesla, I'm not a Tesla investor. I, I still don't get it. I never have gotten it and I, I wish the longs luck. This is probably, probably one of the worst estimate rundowns for these mega market cap companies I've ever seen going into a quarter and the stock Price is fine. Like it, it's fine. It's not at an all time high. But it's also not, it's also not down. Right. Like it's, it's okay. I think it's up on the, if.
- [66:41]
Nick Kolas
You, if you tell me stock is up, up or down 10, I would say up. Just because like I feel like all the bad news is baked in.
- [66:48]
Josh Brown
Yeah, that could definitely be. I would, I wouldn't argue with that.
- [66:50]
Nick Kolas
All right, I want to do Netflix quick. So Netflix closed at a multi week low today. Big deal. The stock has had a monster monster when it's 11 off its highs. But they are just really impressive. Continue fire on all cylinders. I pulled some stuff from Alex Morris. Chart on, please. This is a sequential net ads which they stopped reporting in the fourth quarter of 2024. But look what they did. Like, look how they responded to the slowdown. They just absolutely executed the out of this business. Super duper impressive. The next.
- [67:21]
Josh Brown
What is this?
- [67:22]
Nick Kolas
This is net ads. Remember during the second quarter, it was spring break, they reported a loss or subscribe ads stock got killed and they just murdered it. They did exactly what they had to do.
- [67:35]
Josh Brown
Yeah, this is epic.
- [67:37]
Nick Kolas
All right, next chart. Annual revenue per sub was $110 in 2016. And every single year. Well, not every single year, but over time that's been super duper impressive. And more importantly, more importantly, the annual ebit. So the bottom line per average sub has gone from $5 in 2016 when they were spending gobs and gobs $7 billion on production, whatever it was up to $37. And then additionally, you could see it in their margins, just unbelievably impressive execution.
- [68:13]
Josh Brown
Wait, so you're saying that they make $44 per year in cash flow from each subscriber?
- [68:23]
Nick Kolas
Correct. And they have over 300 million global subscribers.
- [68:26]
Josh Brown
That sound like a lot or a little?
- [68:30]
Nick Kolas
It sounds like a lot if you consider like what the, what the cost is.
- [68:33]
Josh Brown
Yeah. All right, so they're charging every sub like on average because there's different tiers in pricing. But like on average, each sub is $145 in revenue. And of that in cash flow, they're netting $44.
- [68:48]
Nick Kolas
That sounds pretty damn good.
- [68:49]
Josh Brown
That's pretty good. I mean that's, that's like great, honestly.
- [68:53]
Nick Kolas
But also put that chart back on the margin chart. Look at this. I mean, unbelievable. Unbelievable.
- [69:01]
Josh Brown
Yeah, they, I mean they won. I'm not selling.
- [69:05]
Nick Kolas
They won.
- [69:06]
Josh Brown
And I, I, I saw the, like the, the narratives about like, oh, Tesla just had a Great earnings report. And the stocks were faded. Therefore, the Tesla, Netflix. Therefore, like all the good news is in the stu. Nah, I don't know.
- [69:22]
Nick Kolas
That's not how. Come on. It's up. What. What's it up here in data? I mean, give me a freaking break.
- [69:28]
Josh Brown
Huge.
- [69:28]
Nick Kolas
It's one of the biggest.33% after.
- [69:31]
Josh Brown
It's one of the biggest winners of the S and P this year.
- [69:33]
Nick Kolas
It's up 88% of the last year. I could pull back 11%. Before we move off this topic, I just want to mention I listen to a lot of financial earnings calls. BlackRock, JP Morgan, Schwab, what other. I can't remember. Not surprisingly, a lot of these companies are leveraged to the stock market and firing on all cylinders. As the CFO of JP Morgan said, like, they are real and Morgan Stanley shit is happening.
- [69:57]
Josh Brown
We were talking to JC and he's like, what's the most. For those of you who haven't listened to the 200th episode of the Compound and Friends that we put out last week, right after this, make sure you go and do that. It was pretty epic. JC was like, financials are the most important sector. And I think like, just given like every bull market is accompanied by financial stocks rallying. And my argument is like, no, you have it backwards, bro. When the financial markets are rocking, companies that are in financial services do really well because they feast on that activity. It's like, you wouldn't say real estate brokers drive home prices. You would say rising home prices and sales of homes is good for realtors. Therefore, the business value of a real estate brokerage rises when home prices rise. I look at the sector the same way.
- [70:51]
Nick Kolas
You're right. But to JC's point, it's been a while since financials were doing really well relative to the S and P, because we've been in a bull market for a lot of many, many, many years and they had been lagging a lot. So it's nice to see the confirmation.
- [71:05]
Josh Brown
Yeah, the deregulation story and the stuff that Trump is doing with federal agencies is a really big part of this. They're cutting the regulators budgets. They are turning down whistleblower cases. According to Bloomberg News today, people are bringing whistleblower complaints about companies and they're saying, now we're good. So there's. Yeah, they're going to loosen the lending requirements. They're going to take the yoke off of the money center banks. There's chatter in the market today that Goldman Sachs is getting ready to make a big Acquisition. Can you imagine like Goldman trying to buy a company under Biden would never, would never be allowed to happen.
- [71:47]
Nick Kolas
What's the speculation? Who are they eyeing?
- [71:50]
Josh Brown
People are saying they want to do something big in wealth management, either on a the platform level or maybe by a big player. I don't know. How do I know? But like I'm just making the point. Just the idea that we're contemplating s and P100 Financial services companies considering M and A is like a radical change from just a year ago and that's the Trump effect. And it absolutely is a tailwind for the, the largest banks and as a result most of them are now trading at 1 1/2 to 2 times book value.
- [72:24]
Nick Kolas
I know it's not a bank, but blackrock's been pretty acquisitive, especially getting to private markets. They raised the largest private fund ever from GIP, which is an infrastructure fund. There's $25 billion.
- [72:36]
Josh Brown
Yeah. Schwab making a new 52 week high. Today was interesting.
- [72:40]
Nick Kolas
And, and getting to crypto.
- [72:42]
Josh Brown
Yep. So well a lot of, A lot of getting into crypto stuff going on over the last couple of days. I saw Western Union made a stablecoin announcement. Maybe they watched our show with a little too late with what's his name from a six day.
- [72:59]
Nick Kolas
Sam Broner.
- [73:00]
Josh Brown
Sam Broner. I saw PNC bank announced a tie up with Coinbase to custody their banking customers. Crypto. So yeah, this is all, all of this is Block, which is the payments tech giant used to call it Square, just got added to the s and P500 this morning.
- [73:19]
Nick Kolas
Really?
- [73:19]
Josh Brown
Yep. $44 billion market cap that when Chevron closed the deal to buy Hess, somebody had to take Hess's spot in the S and P. And Block was. Block was up. So they got it. So these are all directionally positive for the financial sector. My only debate with JC is cause and effect. No, I guess I just think it's backwards. So. All right. Foreign buyers love US stocks, it turns out. Do you remember the conversation we have with Rebecca Patterson and maybe we talked to a few other people in April and May and there was a narrative out there and I, I would have bought into it had I not seen the data. It was plausible that it was going to be like a slow leak out of US assets for international investors like portfolio managers in Europe and Asia were going to lose faith in the US as a result of the trade war. And you wouldn't see a huge crater being blown in the side of the earth, but you would see gradual walking away from stocks and Treasuries. So it's the opposite. It turns out foreign buyers, including central banks, sovereign wealth funds, but also private investors like regular rich people overseas just went absolutely crazy for US assets in the month of May and over the entire preceding 12 months ending in May. Just completely invalidating that idea, at least so far. Foreigners now are up to $9 trillion of U.S. debt holdings, which is about 32% of all outstanding debt. And they've been buying more. They're also buying the US stock market hand over fist, which I think helped fuel this incredible rally from April. So we have a chart from Ed Yardeni. Let's throw this up. Ed says total US net capital inflows including private and official foreign accounts rose to a record 1.76 trillion over the 12 months through May. So this is right smack in the middle. You have the tariff and trade war here. US net capital info is attributable to official foreign accounts were only 33 billion. So it's not governments. Those attributable to foreign private investors soared to a record 1.73 trillion. It's almost all private wealth buying US stocks from overseas. And I got one more for you. This chart shows the cumulative purchasing over 12 months. US stocks are the blue line. So in case you're squinting, that's 600 billion in foreign foreigners buying of US stocks on a rolling 12 month basis through May. So the trade war, Michael, triggered an upside buying shock from overseas investors. Not a slow leak, not an exodus. And again, this is so far but like look at. Do you see that spike in the blue line?
- [76:39]
Nick Kolas
No, I don't see it.
- [76:40]
Josh Brown
Noteworthy.
- [76:41]
Nick Kolas
Yeah, yeah.
- [76:43]
Josh Brown
Not the way that a lot of people expected this would have gone. And when you see something like that, it's hard not to think that's going to continue. What would your bet be that that line looks like two reporting periods from now?
- [76:56]
Nick Kolas
Turn that back on.
- [77:00]
Josh Brown
Red is bonds.
- [77:01]
Nick Kolas
It ebbs and flows. I mean I wouldn't expect it to be higher. Why would it be? They bought the dip. They aggressively bought the dip.
- [77:08]
Josh Brown
What's notable is that they were selling for most of the 2020 decades after, like after the pandemic. They basically spent the entire time net selling U.S. stocks. And just the enthusiasm with which they've been buying stocks looks like Since December of 2024 is pretty, I mean these are, these are record numbers on, on, on this particular metric going back 30 years.
- [77:35]
Nick Kolas
Yeah.
- [77:36]
Josh Brown
So not every narrative that makes sense. Here's my takeaway. What do you think? Not every narrative that makes Sense to you as you're told, the story ends up, ends up coming true and in this case turned out to be a polar opposite.
- [77:52]
Nick Kolas
All the time.
- [77:52]
Josh Brown
All the time makes those. If it makes sense, it doesn't make money is what, is what Mark Fisher told us.
- [77:59]
Nick Kolas
Jamie, on the conference call they were talking about like market expectations for Fed cuts. And he goes, well whatever the market's expecting, you could pause it out the window. So all right, let's talk about. So let's talk about the most important sub sector. There's no debating that semiconductors chart. Kid made this chart on what we're looking at here is the forward PE coming down from the peak at 35.4 times down to 30.5 times. But the weighting in the S&P 500 over the same time is actually up to an all time high, almost 13%.
- [78:36]
Josh Brown
That's a function of. That's a function of earnings growth.
- [78:40]
Nick Kolas
Yes sir.
- [78:41]
Josh Brown
The PE ratio is coming down, but the stocks are getting bigger because they're out kicking their coverage on the earnings per share front. And we know it's basically two stocks. We know this is Nvidia and Broadcom. Here's Adam Parker. The stock market goes where the semis go. What do you think about that statement? I mean I said this five years ago, the semis and the new transports. So it's not like this is not news to us, but basically like the semis are your guide to where the overall market will go.
- [79:16]
Nick Kolas
Well, the market can rally without the semis, but I don't think semis like if Nvidia falls a bunch, I think that would certainly put up.
- [79:24]
Josh Brown
It's not rallying with that would dampen.
- [79:26]
Nick Kolas
The enthusiasm a lot.
- [79:28]
Josh Brown
Adam says the key for revenue growth, expectations for the technology sector and perhaps the key to success for the entire stock market is the semiconductor industry. ASML reported, which is not a US semi and it was a disappointing report down double digits. The stock people are waving it away saying don't pay attention to that. Samsung is a 14% customer and there's some China stuff in there. All right, fine. But what he's basically saying is the correlation between The S&P 500 and the semiconductor stocks is always pretty high, but has been particularly high of late, peaking at 0.94 in late June. Several key semi companies report in the next two weeks. And we think there's no doubt that it will be hard for the S&P 500 to rally strongly if the semi sector acts poorly. Agreed. And he sees that as one of the bigger risks. Just keying off that ASML guidance and commentary, put this chart up. This is Adams shout to Trevariot and Adam Parker. This is The S&P 500 and the semiconductor stocks. And he's showing the correlation. And last month it hit 0.9, which is almost 100%. That's 90% correlated. So it oscillates. It's up and down. But look at this upward Trend Stemming from 2016, right? Like that was the low of correlation between the semis and the stock market. And ever since it's basically been up and to the right. Which tells you how important this sector has become, I think, to the s and P500. What do you think about that?
- [81:07]
Nick Kolas
I mean, listen, this is very noisy data. Like in 2023 we had a hell of a year and correlation was falling dramatically. But whatever. Regardless of what this chart says, I agree with Adam. I think that if the chips sell off, it would be hard to envision the SP continuing higher. However. However, one of the hallmarks of a bull market we saw today is rotation and RSP, the ratio are. So the equal weight was up 1.27% today.
- [81:37]
Josh Brown
The SP was.
- [81:38]
Nick Kolas
SP was up to 16 basis points. So it's possible. I mean, I don't know. Crazy shit happens all the time. We just spoke about it. It's not impossible. It'll be. Seem unlikely, but who knows.
- [81:47]
Josh Brown
Today was. Today was a cell growth bicyclicals day chart.
- [81:52]
Nick Kolas
John, you have that mystery chart heat map that I. There we go. Thank you, John. Great job.
- [81:56]
Josh Brown
Yeah. Look what they did.
- [81:57]
Nick Kolas
This was an interesting day. So Nvidia, Broadcom, Oracle, Netflix, Meta and all the semiconductors got smoked and look where money went. Health care, the biggest laggard of the year. Materials and real estate, energy, banks, everything was working. So this, you know, it's a bull market. So.
- [82:17]
Josh Brown
Hey, you want to know my theory on today positioning?
- [82:23]
Nick Kolas
Been saying.
- [82:26]
Josh Brown
Did you know that 56% of the components of the SMH have a market cap over 100 billion?
- [82:34]
Nick Kolas
Hmm.
- [82:35]
Josh Brown
I don't know how many components there are. I'm guessing at least 30, several. These are big stocks, dude. Like all of them. These are very, very big stocks. And I think Adam's onto something. All right, Japan. We actually did a. We did a. We did a segment about this here on. What are your thoughts? We talked about this thing that the Tokyo Stock Exchange did. And just to bring people up to speed who missed that, they demanded that the companies listed on the Tokyo Stock Exchange that had a stock price trading below Book value put together a written plan as to how they were going to fix that and improve the valuation that their stock was getting in the markets. And they took those written plans from these companies and they published them right on the website. And Michael, I'm happy to report it really worked bigly. Like this is, this is a great model for some of these horrible moribund international stock markets that are just now breaking out to highs but like have tons of low discounted, low value stocks. What they did actually worked really well. So they launched this a couple of years ago and they made companies say like this is, this is our plan. We're going to do dividends, buybacks, we're going to sell off non core assets, we're going to make business improvements, we're going to provide regular progress updates, blah blah, blah. Put this chart up. Here's MSCI Japan. I don't want to like confuse correlation with causation, but I do think there's a lot of causation here.
- [84:15]
Nick Kolas
Sure, yeah.
- [84:16]
Josh Brown
Right. And there's a couple of examples which in order to get into like all these individual examples, unless you think that some of them are worth talking about.
- [84:26]
Nick Kolas
You know, I kind of don't.
- [84:28]
Josh Brown
All right, so forget that. Let's put up this Nikkei 225 chart just to give people the really long term view. Last week the Nikkei took out 40,487, now materially above the old highs from 1989. And the reason this is relevant is what percentage Japan in the global market cap would you say it's 15%.
- [84:55]
Nick Kolas
Is it that big?
- [84:56]
Josh Brown
Only six?
- [84:57]
Nick Kolas
I don't know.
- [84:58]
Josh Brown
Yeah, because I think as China has shrank, I think Japan has grown larger just by attrition.
- [85:04]
Nick Kolas
Okay.
- [85:05]
Josh Brown
So people with international portfolios have, have seen Japan become a larger. I think that's right. Two more charts on this and we could move on the first. This is from Verdab Capital. Total dividends and buybacks of Tokyo Stock Exchange listed companies. Look at, just focus on the light blue line. That's the combination of dividend and buyback. Of course this is playing a big role in the comeback for Japanese stocks. That number has gone 10 years ago, 13.4 trillion yen to 28.8 trillion yen. It's more than a double in dividend and buyback activity. So they're shrinking the floats of these companies which boost the earnings per share and arguably boost the multiple that people are willing to pay for them. And of course raising the dividend helps too. Here's another one more. Here's the historical median shareholder yield for companies by market cap. And what I'm showing you here, large cap is blue, but look at mid cap. Orange. Look at green. Small cap. Look at purple. Micro cap. Here's my question. What if the New York Stock Exchange said this to the Russell 2000 components that trade on their exchange?
- [86:20]
Nick Kolas
I love it. Get your act together.
- [86:22]
Josh Brown
Yeah, yeah. Publish a written plan. You have a. All right, dear small cap CEO or board of directors, probably more realistically, you have a small cap listing on the New York Stock Exchange or Nasdaq, depending on who's talking. You have 0% share price appreciation in 10 years. You're selling at the lowest multiple to book in 30 years. Publish a plan for what you're going to do to enhance the value of your stock for shareholders or you're delisted.
- [86:54]
Nick Kolas
Now, we don't. We don't know.
- [86:57]
Josh Brown
We don't want your kind around here. If you're not interested in 72 hours. I actually would really love the Trump administration to convince the exchanges to look at Tokyo. Why are there thousands of publicly traded companies on the NASDAQ and New York Stock Exchange that are not participating in a bull market that's gone on for 16 years now?
- [87:19]
Nick Kolas
If they don't do it, what do we do? Mohamed El Erian will delist their companies. All right, let's talk about the Ether Machine. This is. This is awesome.
- [87:26]
Josh Brown
You like it?
- [87:27]
Nick Kolas
I love the Avengers quote.
- [87:30]
Josh Brown
All right, the Ether Machine. So there's a blank check company called Dynamics, which I was pronouncing Dynamics. And I don't. Nobody's correcting me. So I'm gonna go with Dynamix because it's funnier. It sounds like a snack food. But they're merging with another entity to become the Ether Machine. The combined company plans to manage 1.5 billion in ether. And so it's going to be like. It's going to be the strategy of eth, right? It's going to be like the biggest or want to be the biggest ETH Treasury.
- [88:07]
Nick Kolas
I wonder how many employees might a company like this need?
- [88:10]
Josh Brown
Like two. One to go on CNBC and. And one to keep your filings current with. With the regulators.
- [88:18]
Nick Kolas
But the founder, one of the founders, is like a super duper rich guy. He invested $645 million.
- [88:24]
Josh Brown
Andrew Keys. Who is it? Is he a crypto billionaire? I don't even know who that is.
- [88:30]
Nick Kolas
He's a rich. I don't know. Sounds like fun.
- [88:33]
Josh Brown
It's Alicia Keys, son. He's going to be the chairman and then Kraken and Blockchain.com are contributing 800 million in equity financing at $10 a share. It's a SPAC. Remember, the thing went berserk to the upside. I think it ran 30% the day this was announced or something. And then it's. It's since calmed down. I can't. I can't tell what this. So it was just over 10 on July 21.
- [89:01]
Nick Kolas
This is a terrible chart. Come on, guys. It just de. Spacked two days ago.
- [89:05]
Josh Brown
I understand, but I asked for a chart. What else would you show?
- [89:08]
Nick Kolas
Oh, you know what? That's on me. My bad. I misread the dates. I apologize.
- [89:12]
Josh Brown
I'm just showing the gap options.
- [89:13]
Nick Kolas
No, no, you're right, you're right, you're right. I up.
- [89:17]
Josh Brown
Oh, yeah. So. All right. So Key said in an interview its team's experience with Ethereum will set it apart. Quote, we've essentially amassed the Avengers of Ethereum. He said. Do they have the founder, The Russian kid? The Russian Canadian kid. Is he involved?
- [89:36]
Nick Kolas
Oh, what's his name exactly?
- [89:41]
Josh Brown
It's only the inventor.
- [89:43]
Nick Kolas
The guy Neck.
- [89:45]
Josh Brown
Yeah. I don't know. What do you think? What do you investors want this?
- [89:51]
Nick Kolas
Sure.
- [89:52]
Josh Brown
They're going to. So they're going to lever up and start to acquire as much Ether as they can, just the way Strategy did with Bitcoin. That worked. Do you think this will work?
- [90:02]
Nick Kolas
I don't know. Maybe 50 chance.
- [90:07]
Josh Brown
All right. Sorry. In the chat. So Dak Jason says it's Vitalik.
- [90:12]
Nick Kolas
Yeah, there it is. Sorry.
- [90:14]
Josh Brown
Oh, is Tom Lee involved in this?
- [90:16]
Nick Kolas
No, I think Tom's in another one.
- [90:18]
Josh Brown
He has another. He's doing his own ETH treasure.
- [90:21]
Nick Kolas
He's. He's on the board or something. I can't remember what it is.
- [90:23]
Josh Brown
Okay, cool. When are we doing one?
- [90:27]
Nick Kolas
Thomas and the. The ThunderCats of ETH.
- [90:32]
Josh Brown
The Voltron. What's your ETH accumulation vehicle? Have you launched? Oh, somebody said our viewers are awesome. We got like five people telling us Tom Lee's vehicle is bmnr. Thanks to Ben Cash, Matt, Karen, Gangstaline, and Midwest Cannabis.
- [90:57]
Nick Kolas
So this thing had a monster pop. It went from like 15 up to 160 down to 40. I don't know, man. We'll find out. If investors want this. I would. I would. I would guess that what Michael Saylor did is impossible to replicate. I don't think you could catch. You could just keep catching lightning in a bottle or.
- [91:14]
Josh Brown
Well, wait a minute. What's better? A leveraged eth etf like if such a thing were to be launched or one of these eats treasury vehicles where it's not mechanically just like doing the trading based on the spot price, but there's somebody actively accumulating.
- [91:33]
Nick Kolas
You could buy levered eth on chain. I don't know if people are going to give the same premium to these companies. I suspect that they're not all going to get it. Like, that would make no sense.
- [91:43]
Josh Brown
Somebody was saying sort of agree with this take. But I didn't read the article, I just read the headline and I got busy. But somebody was saying, like, index funds bear the responsibility for the fact that individual investors are paying $2 for $1's worth of Bitcoin.
- [92:00]
Nick Kolas
Yeah.
- [92:00]
Josh Brown
Because now, well, strategies now in the index.
- [92:04]
Nick Kolas
So dumb.
- [92:05]
Josh Brown
So every time you give money to an S P etf, you're buying some strategy.
- [92:08]
Nick Kolas
Yeah. I saw somebody tweet like, Vanguard is the biggest holder of strategy. Well, yeah, it's biggest holder of everything.
- [92:13]
Josh Brown
It's the biggest holder of everything. But like, that's partially what is fueling the enthusiasm for these things. They just put strategy in the S P500.
- [92:24]
Nick Kolas
Vanguard wants to remain independent. They've got to do the S&P499.
- [92:28]
Josh Brown
All right, I see where. I see where your head is at. Let's wrap up. We're gonna do make the case. I already pitched this in March. I'm bringing it back because there was some news this morning before the open, and I just want to keep people up to speed with my thinking on it. But before we do that, guys, obviously we are not giving anyone financial advice on the show when we do make the case. This is Michael and I pitching each other stocks. And it's for informational purposes. There's a huge disclaimer below this video and. And in our podcast show notes making this clear. But I just wanted to reiterate.
- [93:07]
Nick Kolas
I know, but like that being said.
- [93:08]
Josh Brown
Well, no, there's even more of a disclaimer. Rocket Companies, which I'm going to talk about and I've talked about already, also owns Rocket Money, which is one of our sponsors of our shows. So be aware informational purposes, do not follow us into trades. Do so at your own peril or potential risk. But wait, and I.
- [93:29]
Nick Kolas
We both own the stock.
- [93:31]
Josh Brown
Yeah, I know. That's why we're talking about it, because we both own it. But we're not telling other people they should buy it is the point. But Trump shocked the market this morning. More Trump. I know. This is Bloomberg. President Donald Trump said he is Considering a proposal to end capital gains taxes on home sales in a bid to boost the housing market. I have no idea how much money that means back to homeowners who are selling. I got your attention now because you're trying to sell. You're trying to sell a house. I know I got your attention. Here's what Trump said. Quote, so we're thinking about that, but would also unleash it just by lowering the interest rates. If the Fed would lower the rates, we wouldn't even have to do that. But we are thinking about no tax on capital gains on houses. Trump was asked about the plan by another reporter, and that was his answer. And then Marjorie Taylor Greene, one of the more stable House of reps people, introduced a bill called the no Tax on Home Sales act, which would eliminate the federal capital gains tax on primary residences.
- [94:44]
Nick Kolas
So the first $500,000 in gains is exempt, is my understanding.
- [94:48]
Josh Brown
They're saying under current law, filers can exclude as much as 250,000 from taxable income on capital gains made on primary homes. But that amount, which is double for couples file. Couples filing jointly has not been raised since 1997. How many people do you even apply to? But, like, how many people have a capital gain of more than 500,000?
- [95:13]
Nick Kolas
The top 1% of people do outside.
- [95:15]
Josh Brown
Of New York, California, Florida.
- [95:17]
Nick Kolas
Right.
- [95:17]
Josh Brown
How many, how many people have a half a million dollar plus gain where this would do anything for them?
- [95:23]
Nick Kolas
Well, actually, actually a lot of people. Okay, I mean, think about it. If you bought a home 25 years ago and you're looking to sell it today, and you are near a major metropolitan city, there's a good likelihood that your house is over.
- [95:37]
Josh Brown
I'm so stupid. I'm, like, asking rhetorical questions, and I actually have the answer here. The national association of Realtors estimates that around 29 million homeowners, okay. Could have enough equity in their homes to exceed the cap for single filers. That makes sense. 29 million homeowners as single filers have enough equity where this would end up being a tax benefit to them if.
- [96:04]
Nick Kolas
They sold their homers.
- [96:06]
Josh Brown
Yeah, single filers. Not everyone who's married files a joint tax return.
- [96:11]
Nick Kolas
Oh, news to me. Okay.
- [96:12]
Josh Brown
I don't know why, but that's, that's just the thing.
- [96:15]
Nick Kolas
All right, so anyway, so put up the.
- [96:18]
Josh Brown
Put up, put the chart. So what do you think Rocket Companies did?
- [96:21]
Nick Kolas
Yeah.
- [96:21]
Josh Brown
Bang.
- [96:22]
Nick Kolas
Whoa.
- [96:22]
Jessica Rabe
Scared.
- [96:23]
Josh Brown
Like, obviously, like, this would be. If, if you had to pick a stock that would benefit from this, this would be like, to me at least, And Zillow this and Zillow 100%. I don't even look. You know what? I don't even look at Zillow. Look that up while I'm talking.
- [96:38]
Nick Kolas
It's up there was up 3% today.
- [96:40]
Josh Brown
So rocket we first brought to the show. I did this as a make the case on March 25th.
- [96:45]
Nick Kolas
The Rocket is more pure mortgage exposure.
- [96:48]
Josh Brown
Oh, 100%. It's a mortgage pure play.
- [96:50]
Nick Kolas
Right.
- [96:51]
Josh Brown
Zillow is a little bit more complex, tied in with home prices. And so we did this. Rocket was trading at 13. That's actually my average cost. We did that in March. And the idea, and this is not my type of stock normally, but the idea is like you're telling me the no one's ever going to refinance a mortgage again. It really looked like the bottom. And Rocket made two really big bets, which I won't rehash because we talked about them already. They bought Mr. Cooper, which is one of the biggest mortgage servicing portfolios in America. And they bought Redfin, which is one of the biggest, which is one of the biggest websites and lead generation sources for realtors and obviously funneling mortgage leads through there as well. So they. So Rocket did this really ballsy thing at the bottom of the of the housing market a couple of months back where they announced two back to back huge acquisitions and they just closed the Redfin one on July 1st. So Redfin is now a wholly owned subsidiary of Rocket companies and the Mr. Cooper one. If you look at the share price closing with Rocket share price, it seems highly likely from an arbitrage standpoint that that will go through as well. This administration is not going to do anything to block a vertical merger. So now they're going to go from being the mortgage provider to the servicer, the advertiser, the lead generator for mortgage brokers. They're building like the premier vertical stack for the mortgage market. One of the other reasons the stock is rallying is that one of America's best activist hedge funds is loading the boat Value Act Capital, which now now has 22,704,955 shares. They own 8.9% of Rockets outstanding shares. They bought another 2.9772,977,000 shares between July 7 and July 11 at prices ranging between 1346 and 1394, according to Barron's. So they started buying the stock. They started buying the stock months ago and now they're up to almost a 9% stake. And value act is interesting. They don't go in guns blazing, demanding things. They try to work with management first. And they're going to have to in this case because Dan Gilbert has 80% of the voting power. So Dan Gilbert, for those who don't know, owns the Cleveland Cavaliers and half of Detroit, like, like half the commercial real estate in Detroit. So there's some dilution. The float is going to increase because of Redfin and Mr. Cooper. So I don't know where that will leave value position. And Dan Gilbert's voting rights will also dilute down to 65%. But an activist can't really do anything that he doesn't want to have happen. But I think probably they could both agree. The stock price has been super depressed for a long time. And that's why I'm going to stick with the trade. Are you staying with it?
- [100:11]
Nick Kolas
I am. It's breaking out. I don't sell breakouts.
- [100:15]
Josh Brown
You wouldn't sell it yet?
- [100:16]
Nick Kolas
No. I should buy more.
- [100:18]
Josh Brown
I think if it falls again, which is possible, I don't think Trump is really gonna like all of a sudden be able to eliminate cap gains home sales. So the stock could easily fall back into the 13s. I'd probably buy more.
- [100:32]
Nick Kolas
Well, also, home builders rallied today anyway. So this is just a double dose of goodness. All right. I have got to make the case. I agree with you, obviously, as somebody owns a stock with you. All right, I've got a mystery chart. Here we go. This is a. I guess it's a subsector and it's been in the doldrums. It's been under pressure for the last couple of years. As higher interest rates.
- [101:01]
Josh Brown
Hurt home builders. I'd like to solve the puzzle. Home builders.
- [101:05]
Nick Kolas
I love the confidence, but no real estate.
- [101:08]
Josh Brown
No energy, no Hunter Biden.
- [101:15]
Nick Kolas
That's it. You nailed it.
- [101:16]
Josh Brown
Wait, I seriously. You said as interest rates are higher. That's not that. That's not the hint that. That gave this thing away from me. What is it?
- [101:25]
Nick Kolas
That was. That probably wasn't the best hint. We. We.
- [101:28]
Josh Brown
This is.
- [101:28]
Nick Kolas
I don't really know.
- [101:29]
Josh Brown
Give me a real. Give me a real hint. Oh, Jason Chen in the chat is saying regional banks. That was my next guess.
- [101:34]
Nick Kolas
Not a bad guess. This is an equal weighted basket of names and there's just been a lot of. A lot of conjecture, a lot of overhang.
- [101:50]
Josh Brown
What is it? Enough. What is it? I lost.
- [101:52]
Nick Kolas
It's XR2 would be able to get that and. Well, I didn't get great clues. I was trying to get clue it up anyway.
- [101:59]
Josh Brown
Oh, I make this so much easier than you make.
- [102:01]
Nick Kolas
Stop it. I'm a good guesser.
- [102:02]
Josh Brown
You are a good guesser, but I'm also a good guesser.
- [102:05]
Nick Kolas
But that was shit that I just said. Those weren't great clues. I don't know. How would you. How have you clued that up?
- [102:12]
Josh Brown
Team me up next time, bro. We're supposed to end this on a high note. All right, a reminder. New summer merchandise in the compound store. Go to www.I don't shop.com obviously. No apostrophe I don't shop.com Tomorrow is Wednesday all new edition of Animal spirits. My personal favorite podcast, the koala on screen is telling you to go ahead and subscribe to the channel if you haven't already. We certainly appreciate it and Michael and I together, we'll see you at the end of the week with an all new compounded friends. Thank you guys so much. Have a great night. It.