Podcast Title: The Compound and Friends
Host/Author: The Compound
Episode: The Contrarian
Release Date: December 6, 2024
Introduction
In this episode of The Compound and Friends, hosts Downtown Josh Brown and Michael Batnick engage in a dynamic discussion with returning guest Peter, the CIO at Bleakly Financial Group. The conversation spans a variety of topics, including cryptocurrency dynamics, contrarian investment strategies, the evolving landscape of international markets, the impact of artificial intelligence (AI) on the stock market, and reflections on the late Art Cashin's legacy.
Reflections on Anthony Scaramucci and Cryptocurrency Dynamics
The episode opens with Josh Brown and Michael Batnick reflecting on Anthony Scaramucci’s recent appearance on Halftime Report and his new Bitcoin book.
- Josh Brown [00:00]: "We had Anthony on halftime today with his new bitcoin book."
- Michael Batnick [00:30]: "He acknowledges his mistakes. He acknowledges when he gets beaten up."
They discuss Scaramucci’s honesty and resilience in the volatile world of cryptocurrency, highlighting his role alongside other prominent figures like Cathie Wood, Dave Portnoy, and Elon Musk during the cryptomania surge amidst the pandemic.
- Josh Brown [01:35]: "Not yet. Trying to think, oh, Kevin O'Leary, Mark Cuban, right."
The conversation touches on the intense influence of social media, particularly Twitter, in shaping market sentiment during this period.
Microsoft’s Potential Investment in Bitcoin and Market Implications
A significant portion of the discussion revolves around Michael Saylor’s advocacy for Bitcoin and the potential impact of major corporations like Microsoft investing in the cryptocurrency.
- Michael Batnick [04:39]: "His argument has shifted from the real benefits of why bitcoin was created and why you own it to it's going up and I'm buying more..."
Josh Brown speculates on Microsoft’s possible acquisition of Bitcoin as a reserve asset, analyzing the consequences for Bitcoin’s market price.
- Josh Brown [05:21]: "If they announce that, what happens to the price of bitcoin? I think 150 my opinion."
They debate the resilience and uniqueness of Bitcoin compared to potential competitors, emphasizing its strong network effect and market dominance.
- Josh Brown [12:49]: "Extremely likely."
- Peter [12:02]: "And you can't just replicate it."
Art Cashin’s Legacy and Market Psychology
The hosts pay tribute to Art Cashin, a respected figure on Wall Street who recently passed away. They reminisce about his profound impact on their professional lives and his insightful perspectives on market psychology.
- Josh Brown [21:44]: "This is a truly great man, Art Cashin, who we lost a couple of days ago."
- Michael Batnick [23:32]: "He didn't throw out lines like that unless he meant it."
They share memorable stories from Cashin’s illustrious career, highlighting his ability to discern true market drivers beyond mainstream financial news.
- Josh Brown [26:38]: "This was a really instructive story for him this first month or two in the business."
Contrarian Investment Strategies for 2025
Peter Batnick introduces his contrarian investment approach, focusing on assets and markets that are undervalued or overlooked by the majority.
- Michael Batnick [31:35]: "I like to look at the 52 week low list when I try to find stock prices."
- Peter [34:26]: "What interests me about China..."
He discusses his recent investments in platinum and positions within the Chinese market, emphasizing the potential for growth despite current market pessimism.
- Michael Batnick [33:21]: "The reason platinum was bombed out is because everyone thought that EVs were going to take over the world..."
Josh Brown counters with a more skeptical view on the sustainability of certain contrarian plays, particularly criticizing the international clean energy sector.
- Josh Brown [40:21]: "I'll give you the biggest contrarian play there is for 2025. You can't find anybody who wants anything to do with this."
China’s Economic Landscape and Investment Opportunities
A substantial part of the conversation delves into China’s economic challenges and opportunities. Peter Batnick highlights the shift in China's role within emerging markets and the potential for growth driven by its expanding middle class.
- Michael Batnick [35:04]: "So what interests me about China... the growing middle class..."
- Peter [43:55]: "Chinese equities were not always as big within the EM indices..."
They explore the issues plaguing China, such as the distressed residential real estate market and excessive local government debt, while also identifying sectors like Chinese casinos and insurance as promising investment avenues.
- Michael Batnick [39:02]: "The Chinese consumer pulling in was a major hit to Estee Lauder's earnings."
Impact of Artificial Intelligence on the Stock Market
The hosts transition to discussing the transformative effects of AI on stock market dynamics. They analyze how AI investments by tech giants like Microsoft and Amazon are influencing broader market trends and suggesting a shift from revenue growth to margin expansion as the primary driver of stock performance.
- Michael Batnick [70:52]: "At the end of the day, AI is just software."
- Josh Brown [70:41]: "One of the most crucial differences to me between the the Internet 1.0 and this Internet 1.0..."
They debate the future of AI-related stocks, considering the commoditization of AI technologies and the shifting benefits towards companies that leverage AI to enhance efficiency rather than those developing AI infrastructure.
- Michael Batnick [71:42]: "Because if it's becoming commoditized and Met is giving it away for free..."
- Peter [69:27]: "This is from JP Morgan's 2025 outlook..."
Tariff Policies and Economic Risks
Josh Brown and Michael Batnick express concerns over potential tariff policies under the Trump administration, outlining how abrupt and strategic tariffs could disrupt the Treasury market and broader economic stability.
- Michael Batnick [53:04]: "If Trump uses tariffs to so-called raise money..."
- Josh Brown [55:14]: "That's literally I'm gonna use tariffs as punishment..."
They discuss the implications of tariffs being used as a revenue-generating tool rather than for strategic economic benefits, highlighting the risks of market disruption.
Money Market Funds and Cash Flows
The conversation shifts to the dynamics of money market funds and the potential impact of significant cash movements on the stock market.
- Peter [77:08]: "The cash didn't go anywhere. It stayed in money market funds."
- Michael Batnick [78:25]: "So my issue with the sort of cash on the sidelines thing is for every dollar that goes into the stock market off the sidelines, there's a seller taking a dollar off the sidelines."
They explore the velocity of cash flows rather than the absolute amounts, emphasizing that the urgency to buy or sell affects market movements more than the total cash available.
- Josh Brown [79:02]: "The last two years in a row, this happened in January."
Personal Reflections and Future Outlook
As the episode nears its conclusion, the hosts share personal anecdotes and future plans, strengthening the camaraderie and human element of the podcast.
- Michael Batnick [81:36]: "So speaking of Asia, my wife and son, the three of us, are going to Vietnam."
- Peter [83:37]: "I'm taking my family to the Bahamas in December..."
They also discuss their favorite media, including documentaries on yacht rock and reflections on classic bands like Rush, adding a light-hearted end to a content-rich episode.
Conclusion
The Contrarian episode of The Compound and Friends provides a comprehensive exploration of current financial trends, investment strategies, and economic challenges. Through insightful discussions and expert analysis, Josh Brown, Michael Batnick, and Peter offer listeners a deep dive into the complexities of modern markets, all while honoring the legacy of influential figures like Art Cashin.
Notable Quotes:
- Michael Batnick [00:30]: "He acknowledges his mistakes. He acknowledges when he gets beaten up."
- Josh Brown [04:21]: "Microsoft as now a serious, my opinion provider of AI foundationally at the LLM level and technologically at the GPU level."
- Josh Brown [70:41]: "One of the most crucial differences to me between the Internet 1.0 and this Internet 1.0, it took a while, but once it finally started to work it was a revenue growth story. This one might be a margin expansion story."
- Michael Batnick [71:42]: "Because if it's becoming commoditized and Met is giving it away for free, why are you going to pay for Copilot if you can get it for free from Meta."
Disclaimer: All opinions expressed in this summary are based on the podcast transcript provided and do not reflect the views of Ritholtz Wealth Management. This summary is for informational purposes only and should not be relied upon for investment decisions.