The Contrarian

Summary

Podcast Title: The Compound and Friends
Host/Author: The Compound
Episode: The Contrarian
Release Date: December 6, 2024

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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.

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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.

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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."

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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."

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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."

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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."

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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..."

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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.

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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."

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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.

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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."

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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.

Transcript

[Josh Brown]

Did a halftime report today from the exchange. I watched you and Scaramucci came on.

[Michael Batnick]

Yeah, I saw that. He's loving life now, finally.

[Josh Brown]

You know what, man? I give him a lot of credit. He puts himself through like a lot of booms and busts.

[Michael Batnick]

Yeah.

[Josh Brown]

Like he's. He's like always in a fight.

[Peter]

Who are you talking about?

[Michael Batnick]

Scaramucci.

[Josh Brown]

We had Anthony on the. We had Anthony on halftime today with his new bitcoin book.

[Michael Batnick]

And he's a humble guy from. When I say humble guy.

[Josh Brown]

Yeah.

[Michael Batnick]

He acknowledges elaborate. He acknowledges his mistakes. He acknowledges when he gets beaten up. He's got a self deprecating humor from that perspective.

[Josh Brown]

So I don't know that I don't think humble is the right way to put it.

[Michael Batnick]

Yeah.

[Josh Brown]

But I do think he's more honest about everything that goes wrong.

[Michael Batnick]

Admits his mistakes.

[Josh Brown]

Yeah, actually that's a really good point. I put him in my new book. It's not about him. I talk about something that happened at the SALT conference. All good things. But then he's also in a chapter about the cryptomania during the pandemic. And just like there was this moment where they were like eight people who completely dominated the conversation because of how online they were.

[Michael Batnick]

Right.

[Josh Brown]

He's in that group.

[Michael Batnick]

Yeah, he definitely threw himself in.

[Josh Brown]

It's him. Cathie Wood, Dave Portnoy. Pompliano is in there. Musk is in there.

[Michael Batnick]

Sailor, Sailor.

[Josh Brown]

Not yet. Trying to think, oh, Kevin O'Leary, Mark Cuban, right. So you remember that moment? It was like it was more than a moment. It was like 18 months where when.

[Michael Batnick]

FTX was on the rise, right.

[Josh Brown]

So every, every day the market would open and it was spacs and crypto and rockets and that like that was Right. And there was just like these people that built these huge audiences.

[Peter]

That was your type of market.

[Josh Brown]

Yeah, you love that. I was off Twitter at that time, but people were sending me links every day. And I don't mean people like that work in the business, Right.

[Michael Batnick]

Like just randoms.

[Josh Brown]

Friends of mine who sell insurance or fixed cars. They would send me these clips of these people that I know in real life and they'd be like, what do you think? Is this right? Or should I do this? And I would just be like, oh, yeah. Because I took myself away from all that to not be exposed to it. But it was so big and it.

[Michael Batnick]

Was telling about the sentiment when they're doing that.

[Josh Brown]

Twitter was just such a. Was such a center of the universe in that moment because it was nowhere else for People to talk.

[Peter]

John, did you grab that clip?

[Michael Batnick]

So I had a similar experience in 99 when I had college friends that were not in the business asking me if they should be buying Sun Micro.

[Josh Brown]

It was the same thing. It was just like. It was exactly like that.

[Michael Batnick]

Yeah, yeah, of course.

[Peter]

Peter, you're like this. Speaking of sentiment, I was talking to a friend of mine this morning. He's like, so what are you doing with bitcoin? I'm like, I have my sell orders on the way up. And he's like, why would you do that? I was like, because I want to sell on the way up. I have enough big. I don't need more.

[Michael Batnick]

Like, you mean as opposed to never selling the others goes up.

[Peter]

It's just become bigger and bigger my portfolio and I already have too much. He's like, I feel like it can't go down. I'm like, dude, now you make me want to sell everything.

[Josh Brown]

I feel like it can't go down.

[Peter]

Should I sell everything right now?

[Michael Batnick]

Oh, yeah.

[Peter]

Like, right. Like right this second.

[Josh Brown]

Even the bulls say it can go down. And they want it to because they.

[Michael Batnick]

Want to buy more. They want.

[Peter]

But also, I've also heard from three people in the last, like two days that are just waiting for a pullback. Now.

[Michael Batnick]

What do you do to buy more or.

[Peter]

No, just to get it.

[Michael Batnick]

Just.

[Peter]

Just to get in.

[Michael Batnick]

Right. Just to get.

[Peter]

And I feel like there's so many people this. None of this is actionable. Who the knows? But like, there's a lot of people that are like, oh, I'll buy it on the next dip.

[Michael Batnick]

So I was telling Mike, you know, Sailor obviously is now on TV every day. And the.

[Josh Brown]

Well, he's in New York. He's in New York this week. And he wrote the forward to Anthony's book.

[Michael Batnick]

Oh. So that's why he's getting so.

[Josh Brown]

So two nights ago, Barry was at the Anthony's book party, which of course hunting fish.

[Michael Batnick]

Yeah.

[Josh Brown]

All the crypto people were there. Like Tom Lee was there. All the Wall street meets crypto crowd. Like, the people that are. I don't know what Barry is doing there. Actually. All the people that are in straddle both worlds were there. So I think that's why Saylor has been doing a lot of TV appearances.

[Michael Batnick]

Explains. And also all the converts that he's selling. 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 and it's going up and I'm buying more and it's going up. Cause I'm buying more. Like now it's all a price thing.

[Josh Brown]

But wait a minute. He pitched Microsoft.

[Michael Batnick]

Yeah, I heard that.

[Josh Brown]

Treasury. Yeah.

[Michael Batnick]

Keep it as a reserve and they.

[Josh Brown]

Might actually do it. And somebody sent me a link to their substack that wrote it up. He wrote like thousands of words on. Microsoft actually is going to do this.

[Michael Batnick]

And just focusing on the fundamental benefits of owning it.

[Josh Brown]

No, it's like, what does it cost Microsoft? What's. What does Microsoft have in its corporate treasury now?

[Michael Batnick]

$200 something.

[Josh Brown]

So what does it cost them? We bought 10 billion worth of Bitcoin.

[Michael Batnick]

Right.

[Josh Brown]

First of all, they would be making the price of their bitcoin double in saying that. Second of all, let's say it gets cut in half. Oh no.

[Michael Batnick]

Who cares?

[Josh Brown]

Who gives a shit? We're Microsoft.

[Peter]

So if they announce that, what happens to the price of bitcoin?

[Josh Brown]

I think 150 my opinion.

[Michael Batnick]

Yeah.

[Josh Brown]

It's because here's what. All right. Apple made. Apple made a bitcoin announcement. Apple said, we are partnering with Coinbase. I think Coinbase made the announcement. Right. Apple pay and Coinbase are going to work together so that now all of these people. There are 50 million people in the United States alone that own crypto. They have greatly appreciated crypto. They want to be able to use it to pay for things. Makes perfect sense.

[Michael Batnick]

Why wouldn't you wait until they get the tax bill on the capital game that they realized when they sell it?

[Josh Brown]

But if Apple. If Apple. So Apple is considered the gold seal of approval in privacy and safety and security amongst the American public.

[Michael Batnick]

Yeah. Trust.

[Josh Brown]

Trust. If they are now putting out press releases and productizing bitcoin solutions, what would be holding Microsoft back? And Remember, the number one thing that matters in 2024 going with 25 is if you're perceived as being cool. Jensen Wang wears the leather jacket. You have to be cool. Mark Zuckerberg is so swaggy at this point.

[Michael Batnick]

Yeah. It's got the necklace.

[Josh Brown]

It's like out of control. He relaxed the jufro. Yep. So they all want to look cool. So when you think about all of these things, what would hold Microsoft back? I can't think of one.

[Michael Batnick]

Yeah.

[Josh Brown]

Lack of interest is the only one.

[Michael Batnick]

Yeah, I agree.

[Josh Brown]

Now if Saylor can convince. If Saylor can convince Satya, buy $5 billion worth of Bitcoin. Who cares? Just do it. Just do it. Just do it.

[Michael Batnick]

Right.

[Josh Brown]

You're going to have every treasurer in the Fortune 500 is going to have to explain to their board why they're not. Think about like that's how this world works.

[Michael Batnick]

Right. We follow each other.

[Josh Brown]

Right. It's a copycat world. And the higher you are, the more risk you have in not doing something. Like imagine if it works.

[Michael Batnick]

Yeah. And that's what he's created is you're an idiot if you don't buy it, essentially.

[Josh Brown]

Right. So Saylor is like willingness into existence now among very high level people.

[Michael Batnick]

But I did listen to you guys, your podcast this week with Bianco when he talked about, you know, that what $13 million price target and what that would mean relative to the every other.

[Josh Brown]

Asset market has to crash.

[Michael Batnick]

Yeah, I mean that was, those were great stats.

[Josh Brown]

Yeah, I don't have a price target, but I don't.

[Michael Batnick]

Who knows?

[Josh Brown]

But if I did, I don't think it would be 13 million.

[Michael Batnick]

But you also made the right point when you said, well, if you can create bitcoin, can't you just create another?

[Peter]

That's not a good point though.

[Josh Brown]

Yes it is the best point.

[Peter]

How is that a good point?

[Josh Brown]

Because if something goes, if something goes to the point where it costs 13 million to buy one of them, somebody else will invent a substitute for it. That's good enough for the price of $13.

[Peter]

That's a horrible argument. You don't have to spend $13 million for Bitcoin. You could buy $4 worth.

[Josh Brown]

Why is it.

[Peter]

And the higher the.

[Josh Brown]

Why is it? Horrible argument.

[Peter]

Because the higher the price goes, the more the story gets validated. You can't just create something.

[Josh Brown]

Well, what do you think bitcoin did?

[Peter]

Who was bitcoin competing with? Oh, really?

[Josh Brown]

Dumbass created it. Yes, that's what.

[Peter]

Okay, so what's the second bitcoin?

[Josh Brown]

I didn't say there was one.

[Peter]

You could just create one. Oh yeah. So do it.

[Michael Batnick]

You can tokenize they just created it to begin with.

[Josh Brown]

It's not, it's not naturally occurring.

[Peter]

I mean, but that's such a weak argument because you can say that in perpetuity about a lot of things.

[Josh Brown]

But in a lot of things there is a new version that gets created.

[Peter]

Bitcoin is the ultimate narrative asset and you can't just create a story. This thing has been going on for years and 15 years. You can't just snap your phone, create something else.

[Michael Batnick]

Sorry.

[Josh Brown]

There are companies that have been around for 150 years that go bankrupt. That's not a great argument.

[Peter]

Okay, but I'm not saying that bitcoin is going to be the king in 150 years. So that's also a bad argument. I'm saying today it's the king. And you can't just snap your fingers and create another thing.

[Josh Brown]

But that's just fundamentally untrue. It happens all the time in every industry. You absolutely can. Fundamentally.

[Peter]

It's such a strong man argument.

[Michael Batnick]

Why?

[Peter]

Because how could that be disproven?

[Josh Brown]

You can't disprove it because this is the way the world works. It cannot be disproven. The only thing you can do.

[Peter]

So if bitcoin goes to a million dollars, somebody's just gonna create bitcoin too.

[Josh Brown]

No.

[Peter]

And succeed.

[Michael Batnick]

No.

[Josh Brown]

Solana might succeed, and people might use it for the same reasons. And people might just say Coke and Pepsi. I mean, this is so obvious to me.

[Michael Batnick]

And technology allows you to create something at a very low cost.

[Josh Brown]

I'm not saying it'll supplant bitcoin. I'm saying if there are two of them, then the first one will probably not have as much of a premium as it would if it were the only one. And so there's an incentive built in for people to find a new way to do what bitcoin does, but with a different vehicle. Of course there is. All you have to do is look at the history of every.

[Peter]

Of bitcoin.

[Josh Brown]

No. Every invention that's ever existed, every corporation, somebody eventually comes along and says, that's awesome. Here's our version.

[Peter]

But bitcoin is a narrative.

[Michael Batnick]

So I was telling Mike before a 1968 Mickey Mantle, you can't make it anymore. It's finite in nature.

[Josh Brown]

Yeah.

[Michael Batnick]

It's unique.

[Josh Brown]

Yeah.

[Michael Batnick]

You can tokenize that someone can own 5 to 10% of a particular card. You can trade it 24 hours, 7 days a week on some exchange, and.

[Peter]

It'S, can you get laserized?

[Michael Batnick]

But I'm saying, what's the difference between owning that and that card?

[Peter]

But it doesn't matter. It's belief. It's millions of people believing.

[Josh Brown]

I have a different take, though. The Mickey Mantle card is finite. They can never go back in time and remake what they did. Okay, but here's the thing. If that's sitting on the table by itself and it's the only option, assume it has the maximum leverage. The seller. Like, this is all there is. But if I put that on a table and I say, here's Ken Griffey Jr. Rookie card. Also here's Michael Jordan rookie card. Here's Patrick Mahomes rookie card, now all of a sudden it's like, oh, you Know what? I would have paid 100, whatever thousand dollars to own, but actually I would pay $20,000 to own that instead. There was MTV and then there was VH1.

[Michael Batnick]

That's my point is all those things.

[Josh Brown]

There was MySpace and then there was Facebook. This is not complex stuff.

[Michael Batnick]

But all those things can compete with bitcoin. Microsoft can say, I'm going to own a lot of unique assets that can't be printed. Not just one, not just one. I can have a treasury of all the best football player cards or baseball player cards.

[Peter]

What bitcoin has done, it's created a halo and an affinity, of course, of tens of millions.

[Josh Brown]

We all agree.

[Peter]

And you can't just replicate that.

[Josh Brown]

You can't replicate it. You can't replicate it. You can come up with an alternative to it. It's two different conversations.

[Peter]

But it's not like there's not altcoins trying. I mean, there's that.

[Josh Brown]

And the odds of none of them ever succeeding are low.

[Peter]

I'm not saying none ever.

[Josh Brown]

I'm saying like today, Today there is no other bitcoin. We're not arguing about that. What you're saying, though, is that the success of bitcoin can become so extreme and no one else will come along and say, I'm saying here's a new finite.

[Peter]

I'm saying bitcoin's success has created a very wide moat that is hard to penetrate.

[Josh Brown]

100% agree.

[Michael Batnick]

Just the network effect.

[Josh Brown]

And how we know you're right about.

[Peter]

That, because look at the price, look at the valuation.

[Josh Brown]

There's nothing. There's no close second historically. How likely is that to persist forever?

[Michael Batnick]

That's the thing.

[Josh Brown]

Extremely likely.

[Michael Batnick]

That's 15 years old. I mean, for me, bitcoin right now, if it was created to be similar to gold, it should trade like gold.

[Josh Brown]

Which it wasn't, by the way.

[Michael Batnick]

Well, theoretically, you can say, okay, the central banks can't print it. There's a limited quantity. It could be a store of value. I mean, there are similar characteristics that that bitcoin relative to the bull case for gold.

[Josh Brown]

The Satoshi white paper said nothing about. This should be a 1:1% sleeve in people's asset allocation at Fidelity.

[Peter]

Peter, did he hear Jerome Powell say that bitcoin is digital gold yesterday?

[Michael Batnick]

Yeah, and it's just a speculative instrument.

[Peter]

Like as a gold.

[Michael Batnick]

Gold's been around for 5,000 years, and it's just some speculative thing.

[Josh Brown]

What he actually said was, it doesn't compete with the dollar, it competes with gold. And I think he's Right.

[Michael Batnick]

That's what he said, functionally. But it hasn't really traded. I mean, it's traded more like the NASDAQ than it has with gold.

[Peter]

All right, odds of gold flipping Bitcoin in terms of market cap in the next 10 years?

[Josh Brown]

Oh, I think that's gonna happen in the next six months.

[Michael Batnick]

I mean. No, no, no.

[Peter]

It's like, it's like a. Isn't gold like 17 trillion versus a trillion? It's not gonna happen six months.

[Michael Batnick]

No. What's the numbers? No, it's more like 10 to. Well, now it's probably 1314 trillion with the recent rally in gold.

[Peter]

So gold market cap is.

[Josh Brown]

I'm talking about the etf. Oh, we're having different conversations.

[Peter]

No, gold market cap is 17 trillion. I'm not talking about ETF assets.

[Josh Brown]

I'm saying like gold miners and ETFs versus Bitcoin ETFs and Bitcoin public trading.

[Peter]

Companies that's guaranteed to have. It might happen. That might already be done.

[Josh Brown]

I think that happens in the next.

[Peter]

I'm saying, I'm saying If Bitcoin is $1 trillion, is that where it is? Give or take. Maybe more.

[Michael Batnick]

Yeah, I think it's probably more now.

[Peter]

More now. The odds of it passing gold. Gold has a 17x head start over the next call. 20 years.

[Michael Batnick]

I mean, well, if central bankers start buying Bitcoin, then sooner rather than later. If central bankers who own most of the gold are not going to use it as reserve and Bitcoin remains just some speculative thing. I don't see it happening. I think it has to be accepted, not just BlackRock's ETF. It needs to be accepted in the world of gold, which is central banks, which owns a lot of the gold that's out there.

[Josh Brown]

Well, a good starting place would be if company corporations like Microsoft.

[Michael Batnick]

Yes, that can accelerate.

[Josh Brown]

This is something for strategic. Not because we're speculating on price, but for strategic reasons. We want to have a portion of our. They're not called reserves on a corporate balance sheet, but for cash equivalent. Right. We want to diversify away from all sovereign currencies and have a currency that's native to the Internet. Then we. They would not. To Michael's point, there is no other digital asset in contention. It would only be Bitcoin or not Bitcoin.

[Michael Batnick]

So people are pitching gold. Dig digital gold in the sense that if I store gold and you have in a bank account denominated in gold, you can trade digitally your ownership in a gold bar, for example. Now that's not taking off. But Microsoft can do that as well.

[Josh Brown]

You know what I thought we would see more of? I thought the strongest argument for tokenization are big illiquid assets that are very widely held that people wish they had more liquidity.

[Michael Batnick]

So buildings and that are scarce.

[Peter]

Yeah.

[Josh Brown]

So I thought like. All right, so let me give you. Let me give you a really good.

[Peter]

Example before you do that example. So Fidelity Ethereum. I'm sorry, Fidelity BlackRock and Bitwise, their Bitcoin ETFs are already equal to GLD.

[Josh Brown]

Yeah. All right. So wild. I made a prediction about something that already happened. SARS. Right. The Empire State Realty Trust ESRT tokenized timeout. It's a $10 stock. It's a market cap of 1.8 billion. Thought exercise. They announced tomorrow we are exchanging shares for tokens. And anyone who wants can tokenized own a piece of the Empire State Building. Tell me that market cap doesn't go to 4 billion for no reason.

[Michael Batnick]

And trade it 24 hours a day, 7 days a week.

[Josh Brown]

Okay, so now you have all this real estate in Manhattan. Nobody has liquidity on most of it unless it's owned by a reit. It's like some Jewish family owns the building and it never changes hands. The grandfather bought it and it'll. What if 10% of that building could be freely traded in tokenized form? It's not a corporation. It's just ownership in this building. That's how you unlock all this real estate.

[Michael Batnick]

But doesn't that dilute to my Mickey Mantle point, does that dilute the value of Bitcoin?

[Josh Brown]

Well, so for me, it does.

[Michael Batnick]

Same with me.

[Josh Brown]

Okay. Nobody seems to agree with us. Michael Deflates.

[Peter]

They don't want your shitty Empire State Building. They want Bitcoin.

[Michael Batnick]

Yeah, but it's the point of owning something that is unique where you can't recreate it and there's limited. I mean, it's.

[Josh Brown]

I just said. All right, let's start the show. Agree to disagree. Three claps compound and friends. Oh, I get goosebumps when we do this part.

[Peter]

1 68. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is brought to you by Astoria, my former hometown, Astoria Portfolio Advisors. Astoria Advisors is an outsourced CIO firm managing roughly $2 billion in assets. They also offer a unique ETF for investors looking to diversify away from the Mag 7 and play a broader market rotation. The ticker is ROE. That's the Astoria US Equal Weight Quality Kings. They invest in 100 of the highest quality large and mid cap US stocks equally weighting its constituents. We spoke about ROE today not in the context of this etf, but return on equity. So like the ticker. For more information on Roe and Astoria Advisors you can visit astoriaadvisor etf's.com roe.

[Josh Brown]

That'S Astoria Advisors etf's.com roe 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.

[Peter]

This podcast is for informational purposes only.

[Josh Brown]

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. That's right ladies and gentlemen, we're back. We have a very special show for you today. We have a returning champion making his third appearance. Third appearance on the Compound and Friends. Every time he comes we have so much fun and we always learn a lot. And for me, just me speaking personally, Michael doesn't have to agree with this. Peter is one of the people that I have learned the most from about how the macro economy works, how markets and macro are interrelated, what to pay attention to, what to throw away. This is my guy.

[Peter]

Hold on. It's true in Slack over the last. We've had Slack for a long time. Early adopters credit to us. He drops you from book far all the time.

[Michael Batnick]

Thank you Josh.

[Josh Brown]

It's true, as the kids say, obsessed. Peter is the CIO at Bleakly Financial Group in Ria with over $10 billion in AUM. Peter also manages a global macro and income strategy for clients. Peter, welcome to the show. Thank you so much for coming back.

[Michael Batnick]

It's great to be here. Thank you so much for having me.

[Josh Brown]

Can, Can I play a clip?

[Michael Batnick]

Yes, let's do it.

[Josh Brown]

Let's drop the energy down real low real quick.

[Art Cashin]

I have been blessed in all my life in Wall street to see that, to learn things, to learn that to be good at this you've got to be a detective. You've got to be able to put together things that don't fit. I mean there were comments here about we're flooded with financial news now, TV and whatever and you will see a lot of people just need to fill up time and they will say things that sound reasonable. On the face of it, the dow was up 30 points today because non farm payrolls were better than expected. Well the Dow didn't start to rally till 2:30 and the non farm payrolls came out at 8:30. That didn't fit. So to be a good broker, to be a good trader, you've got to learn to. Okay, if that's the reason, what would the bond market be doing? Well, it's not doing that. Okay, what would the dollar be doing? Well, it's not doing that. So that's not what's going on.

[Josh Brown]

This is. This is a truly great man, Art Cashin, who we lost a couple of days ago. Art passed away at 83 years old. For anyone that's tuned in to CNBC at any point over the last 25 years, they've definitely seen Art on screen, either giving commentary or standing in front of a thousand traders singing Wait till the sun shines Nelly on New Year's Eve day. Art was the director of floor operations for ubs. UBS had acquired Paine Weber. He'd been there for a couple of decades, but Art had been on the floor of the New York stock exchange since 1959. I refer to him as a national treasure. I'll never forget the first conversation I had with him. And I haven't really shared this anywhere, but he walked up to me coming off set for something I was doing for cnbc and he said, you're the real thing. Don't listen to these people. I've seen everybody come and go, you're the real thing. And I don't even know if he meant it, honestly.

[Michael Batnick]

He did. He doesn't throw the.

[Josh Brown]

He didn't throw lines out. I know he didn't bullshit people and that's why everyone loved him but him saying that to me. And I was probably 34, 35, and I really hadn't made any money on Wall street yet. And I really hadn't built a firm yet or accomplished anything. But I think he was a fan of my commentary is the way he meant it. I didn't need anything else. Like that was it. If that guy thinks I'm the real thing, even if he only half thinks it, it, everybody, I am, and God knows how many people he had done that for over the last 60 years on the street. So God. God bless Arashan, and I'm so glad you're here today because I know you had a true friendship with him.

[Michael Batnick]

Yes. And I will say it's the worst.

[Josh Brown]

Thing you ever saw him do.

[Michael Batnick]

The worst.

[Josh Brown]

Kidding.

[Michael Batnick]

No. He didn't throw out lines like that unless he meant it. I mean, he saw your passion, he saw your knowledge, he saw your conviction. And he didn't like the people that hemmed and hawed. He Was a detective. He always was looking under the hood. He wanted someone who had an opinion. And I think he respected that when he saw it. And you know, Wall street is.

[Josh Brown]

How did you meet him?

[Michael Batnick]

So I probably met him at just one of the dinners maybe Josh Frankel had or somebody, you know, 15, 20 years ago. And we started to swap our stuff. And I wrote every day and he wrote every day. And then we started Cashin's comments. Cashin's comments. And then we just started a report and email back and forth. And he would ask questions and we would chat about things. And then the more I hung out with him, the closer we got. And he was a phenomenal storyteller.

[Josh Brown]

The best.

[Michael Batnick]

And he was just. He was not a pretentious guy. I mean, Wall Street's filled with these arrogant, pretentious, know it alls, and he just wasn't that. He came to work trying to do the best he could, trying to figure out what was going on in markets and trying to help his customers, and that was it. And he didn't bring any attitude to what he did. And he was just always a pleasure to hang out with because we can just sit here listening to him talk the whole time.

[Josh Brown]

So never a 2 and 20 guy, never an investment banker. He never remade himself. Art's been doing the same thing longer than anyone I can think of on the Street.

[Michael Batnick]

He would have done it for free.

[Josh Brown]

He would have done it right. He would have done it forever and he would have done it for free. The first time you met him was at the Big Picture conference.

[Peter]

Yeah, I remember that.

[Josh Brown]

It was like your first day working.

[Peter]

It was 2012 and I was overwhelmed. I couldn't believe the company that I was with.

[Michael Batnick]

Yeah, I mean, he was like a rock star.

[Josh Brown]

So Art told this great story, and this is one of my favorite stories of his, of anyone's on Wall street about why markets work and why you should take risk. He tells this story. I'm sure you've heard it a million times. But for the audience, Art loves to tell the story. He started in 59, so I guess sometime around 1960, 1961. We're in the Cuban Missile crisis era and one of his first days on the floor, the market's selling off and he's running around as a brand new. I guess he was a traitor at first or he was a runner. Okay. He's running around trying to get sell orders off, he's trying to sell stock, and one of the senior guys grabs him by the back of the collar and says, Young man, where are you off to in such a hurry? He said, I'm trying to sell. The rumor is the missiles are in the air. And the guy says to him, well, you gotta buy when the missiles are in the air. And he's mystified. What do you mean, it's the end of the world? And the guy very calmly explains to him, almost none of the time are the missiles actually in the air. And anyone who sold on that's going to be sorry. The buyers make money. And if they are in the air, we ain't going to be around to give a shit.

[Michael Batnick]

Exactly. Who's going to clear the trades if it's a true story, Right.

[Josh Brown]

If you buy and you're wrong, but the missiles are flying, don't worry about it, okay? But that's so elemental to what we all do for a living. Like, obviously, most trades aren't made under that level of duress. But that was a really instructive story for him this first month or two in the business. And every time he tells it, a new generation of people understand a bit more about how to do this. And I don't know, he's got hundreds of amazing stories like that.

[Michael Batnick]

He really does. And I know you were gonna talk about another one with.

[Josh Brown]

I want you to talk about it.

[Michael Batnick]

Through jfk, which he loved to tell.

[Josh Brown]

He was Eskimo brothers with jfk. Marilyn Monroe. Is that the story or is it a different one?

[Michael Batnick]

This is a little bit different. It's close. He was shot 12:30 local time. So it was 1:30 Eastern, and all of a sudden on the floor, there's commotion out of the Merrill Post, and all these cell orders are coming through the Merrill booth down there. And everyone's wondering, what does Merrill know? What are they seeing? And it turns out that Merrill, since they were big back then, relative to everybody else, had an office in Dallas, right?

[Josh Brown]

There's no Twitter and there's no Bloomberg and there's no. Nobody knows what happened in Dallas.

[Michael Batnick]

Nobody knew. This was that those minutes before the news was disseminated and a bunch of people in the Dallas office went to the parade. They wanted to see the president. And they were on one of the streets and shots fired. And they all ran back to the office. And that's why they were the first ones to put in their cell orders.

[Josh Brown]

Okay? I mean, it's like. It's like a throwback to another time where, like, somebody's messenger pigeon was faster than someone else's.

[Michael Batnick]

Yeah, exactly. Right?

[Josh Brown]

That's crazy.

[Michael Batnick]

And that's how News was sent around back then.

[Josh Brown]

Anyway, we want to. We just wanted to take a few moments to pay tribute to someone who's. Michael said this the other day. I think this is an important point. Also. He has universal approval, like Art. Cash in. Have you ever heard anyone say anything other than how much respect and admiration they had for him?

[Michael Batnick]

Never.

[Josh Brown]

There's nobody else on Wall street that talked to a hundred guys and they were all like, yeah, it's great guy. Yeah.

[Peter]

Even Warren Buffett has people that talk shit about him. I think he said this when he was done talking with Barry. What was the line that he said about ice cubes need marinating or something?

[Josh Brown]

Well, that's his famous.

[Michael Batnick]

Well, yeah. So he had the Friends of Fermentation. That was the group that hung out at Bobby Vance after the market closed, and they were going to marinate ice cubes.

[Peter]

That's right.

[Josh Brown]

So the Friends of Fermentation was not an official club. Meaning one of the coolest things about Art, he would be on that barstool right on the corner, directly across the entryway from the New York Stock Exchange at Bobby Vans, which I think opened in 07 and then just closed.

[Peter]

Do they reopen?

[Michael Batnick]

It closed.

[Josh Brown]

It's going to something else reopen.

[Michael Batnick]

But they recently closed.

[Josh Brown]

There's a Sara feeder now across the street. So if you like pizza. Tough place to have a steakhouse in the post pandemic world because nobody works there anymore.

[Michael Batnick]

Right.

[Josh Brown]

And actually, I want to say this other thing. I think the pandemic was really tough on Art because that was the place that he went every day.

[Michael Batnick]

That was his family.

[Josh Brown]

That was his family. And he had lost close family members in the years preceding that. But I think having that place to be and work and help people and actually be a part of what was going on each day, his friendships, his.

[Michael Batnick]

Social life, his family. Yeah.

[Josh Brown]

So that's where it was. Shutting down the exchange for however long it was shut down for. Absolutely sucked. 911 was a moment where Art was really important. Symbolically. Seeing him back on TV from the floor of the exchange was way more important to people than seeing Dick Grasso.

[Michael Batnick]

Right. Cause it would. Grasso.

[Josh Brown]

Mark Haynes was important and Art Cashin was important.

[Michael Batnick]

Art was like the mayor of the stock exchange.

[Josh Brown]

Yeah.

[Michael Batnick]

And yeah, he was the go to of how is this institution, how is the American financial and capital market system and the American economy going to make it through? And he was a soothing voice during that time in explaining how life will go on, however horrific what we just experienced.

[Josh Brown]

Yeah. So I think for Most people seeing him on screen, it's just like, all right, things are getting back to normal. Yeah, all right, shout out to.

[Michael Batnick]

And he spoke in plain talk. There was no, there was no complicated stuff. He was able to speak to anybody whether you were in the market or not. Everybody was able to understand what he was saying.

[Josh Brown]

I love that. Let's do some complicated talk. Rest in peace, Art passion. And our thoughts are with Art's family members and Judy and everyone else who had, who had had him in, in their, in their life, in their professional career.

[Peter]

All right, let's, let's start here. So, so Peter, I feel like you have a bit of a contrarian bent to you. I feel like right now we're living in a moment where a lot of things are consensus, right? Like price targets, $us exceptionalism. We're all for the most part on the same page as we get ready to turn over a new page into a new year. What, what's on your mind for a potential contrarian trade in 2025?

[Michael Batnick]

So to your point, I like to look at the 52 week low list when I try to find stock prices.

[Josh Brown]

You and I are polar opposites.

[Michael Batnick]

Yeah. And I say that because I'm not good at buying high, selling higher. It's not my skill set. I'm not a good trader. I'm a better long term investor and where I can find a long term story and just sit and hold and block a lot of the noise. I'm not good short term trader. So I try to find things that are bombed out. But trying to not get caught in a value trap like bored apes and bored apes, but looking for something that could be a good story. Okay, so contrarian idea that I've recently bought. Okay, so bitcoin, gold, the metals, these rare assets. I recently bought platinum, so it doesn't sound very exciting. But when you look at platinum is historically always traded above gold. Gold is now 2600, platinum is about 950. And the reason platinum was bombed out is because everyone thought that EVs were going to take over the world. Therefore you did not need an internal combustion engine. You didn't need a catalytic converter on that car, which limits the emissions. And who would buy platinum or palladium if we all went to exhaust free car?

[Josh Brown]

Are those two things exchangeable or. No, Platinum and palladium. I know they're not the same thing.

[Michael Batnick]

They somewhat are, but at 80% of the usage of palladium goes into a car, only 40% of platinum goes into a car. Platinum has more uses in electronics, jewelry, wedding rings, whatever. So that's why I like platinum better. Less exposure to autos. But we're realizing that in the VHS Betamax war, hybrids are winning out. And hybrids are still going to use palladium. In fact, some of them are using more platinum than internal combustion engine because of the heat to cold, cold to heat type engine that is part of that. And platinum is also going to some of these batteries. Here's something that's bombed out. I know it doesn't sound very contrarian, sexy wise, but I said this this year. I thought China was going to outperform the US going into 2024. I said the Hang Seng's going to outperform the S and P. And for a short window after China announced those steps, we were there.

[Peter]

You're doubling down.

[Michael Batnick]

So what interests me about China, and I'm a bleeding heart libertarian. So from the government perspective, the authoritarian nature, the crackdown on entrepreneurs, it's everything I am against, but strong buy the entrepreneurial spirit in China happens in spite of that. The Alibaba's, the 10 cents have been created in spite of that. And to me a very exciting economic growth story. And I said this last time I was on in March, is this growing middle class in all of Asia where half the world's population lives. Talking about 4 out of the 8 billion people live there.

[Peter]

Wow.

[Michael Batnick]

And to me, as they get wealthier, as they go from the lower to the middle class, they want to live life like we do. They want to go out for dinner and they want to travel and they want to buy Hermes bags and they want to do things that we do here. So that's what I want to play into. And when we know the US markets because particularly big cap tech has sucked all the oxygen and money out of the rest of the world.

[Josh Brown]

70% of global equity market cap is now US right.

[Michael Batnick]

With about 25% of global GDP.

[Josh Brown]

How about 10% of the population?

[Michael Batnick]

Right.

[Josh Brown]

Or less.

[Michael Batnick]

Less, yeah. So when the switch is moved or it's a mean reversion, the pendulum swings in the other direction. It's not shifting to Europe. Europe has got its own trouble. It's I think, going to shift to Asia. And I'm not saying play it through China, but you can play it through any business. You can play it through American companies that sell into China. Sure, Estee Lauder's business has been hurt by the slowdown in China. Travel and spend. So there are American stocks you can buy that, play into that. But anything that can benefit because the sentiment towards China and that entire region just. People just don't care. Now India's been exciting. India's market's done very well. So I shouldn't paint that with a broad brush. Indian market's done well, Japan has done well. Japan has done very well.

[Josh Brown]

Argentina's been on fire this year.

[Michael Batnick]

Argentina's been tremendous with Malay. So I do think that there are opportunities outside the U.S. now the question is, okay, well, are people just gonna wake up one day and say, hey, I wanna buy a stock in Asia.

[Josh Brown]

Something has to happen.

[Michael Batnick]

Something has to happen. And you always think about, well, what would disrupt the US markets just generally. And to me the two things, if they were to happen, I'm not saying that they are, is if there's another wave of turbulence in the treasury market and it's not just the U.S. treasury market, it would be JGBs, it would be European bonds. Is it because the BOJ is going to hike rates or foreigners revolt for whatever reason on US treasuries? And the 10 year yield goes to 5, 5 and a half. The German bullion yield goes up. Because I look at, you know, people talk about where's the excess in markets now? You know, where's the bubble that would sort of deflate, that would cause us to fall back. And to me, I always go back to when we had $18 trillion of negative yielding bonds. That was the biggest financial bubble in the history of bubbles in terms of dollars.

[Josh Brown]

Yeah. Because nothing was ever that big.

[Michael Batnick]

The world converted an asset that being a bond into a liability because you had to pay interest by owning that bond. It was insane. And the question is the bond bear market over. Was it just a couple of years? 22 was a bad year for those people owning long duration and that's it. And we're fine. The Fed's cutting rates, rates are going to go down across the yield curve. Well, we saw the feds cut 75 basis points and loan rates didn't fall. So that's one thing I'm watching. Whether it happens or not, I don't know. But that would be the.

[Josh Brown]

What's the platinum trade?

[Michael Batnick]

So Aberdeen has an ETF that you can own.

[Josh Brown]

Is it on the metal or it owns producers?

[Michael Batnick]

It's owning the metal.

[Josh Brown]

Okay.

[Michael Batnick]

The problem with the actual companies is that platinum is made in three countries. Russia, South Africa and Zimbabwe. Oh, so you can buy amplats. That's Anglo American platinum, which I own personally, not for clients. The platinum ETF we own for clients. So I own that personally. But most of their production is in South Africa. But you never know what you're going to get with South Africa. But it's a way to play it if you want to do it at the company level.

[Josh Brown]

What's the contrarian play for people that want to have exposure to a sentiment shift about China? You want to buy US Companies with a high percentage of sales there.

[Michael Batnick]

That. Yes. And all the casinos.

[Josh Brown]

I love you, though. Buy the Chinese Internet stocks.

[Michael Batnick]

The Chinese Internet stocks? Yes. You can buy one of the ETFs. I like the casino stocks. The interesting thing about the Chinese economy where everyone's so down on the Chinese consumer. The Macau numbers are basically back to 2019 levels. You're talking about six licenses. So there's really no new. They're competing with each other. It can be promotional at times, but there's unique asset. And the Macau government is making a big push to make them the Vegas of Asia and not just tap into that mainland consumer, but tap into that entire region of potential gamblers. And a lot of Asians, particularly in China, they love to gamble. And so I think that's exciting. AIA Group is another one. That was the Asian insurance company division that was spun out of AIG when AIG went through their bankruptcy in 08. It was Hank Greenberg's Asian business that he grew over decades when he was there. So it's one of the largest life insurance companies in Asia. Well, you're growing wealth in China or India or Malaysia or whatever. Well, you need life insurance for your family. So to me, that's another way of sort of playing that.

[Josh Brown]

Have you always been a contrarian minded investor or did you adopt that as your investing philosophy? Somewhere along the way I just tried.

[Michael Batnick]

To find things that was sort of off the radar that would eventually come onto the radar. Because if it's off the radar forever, you can be stuck in a stock that does not.

[Josh Brown]

I'll give you the biggest contrarian play there is for 2025. You can't find anybody who wants anything to do with this. Probably why it's gonna work. I'm not putting this straight on because I don't do this. International clean energy. Name one person who wants anything to do with in the Trump age. Wind, solar. You look at these stocks, one's a bigger piece of shit than the next. Here's a ticker. You could just follow this like an index. BlackRock has a product I clean.

[Peter]

Oh, boy.

[Josh Brown]

All right, dude.

[Michael Batnick]

That has a lot of international companies within that.

[Josh Brown]

It's US and international largest holding is is for solar. What's the.

[Peter]

And Phase Energy was a stock that I pitched back in the day that worked out really well.

[Josh Brown]

Listen to me. IShares. IShares Global Clean Energy ETF. I was looking at this the other day. What are some of the, you know, why not. Because I'm looking for investment opportunities. I'm looking for like what the hell isn't going up? This is literally the absolute worst thing. Yeah, not this etf, particularly the theme. First Solar Iberdrola, which is Spanish.

[Michael Batnick]

Spanish. Yeah.

[Josh Brown]

Okay. Enphase is in there trying to pick out names that people know. Like they have things like China, Yangtze Power, which I haven't known anything that's 4% of the fund. It doesn't even have a ticker symbol because you can't trade it. Worsted Next Tracker Equatorial Sun Run and Plug Power.

[Peter]

We know those.

[Josh Brown]

So the point is these stocks, all of them look exactly the same.

[Peter]

You feel them strong, Peter.

[Michael Batnick]

So I mean, that's interesting to look at. Hold on. Because we know there's still a lot of money being poured into it.

[Josh Brown]

What do you think the five year cumulative total returns are?

[Michael Batnick]

Well, I'd say it's definitely down at this negative 44%.

[Josh Brown]

Go find anything. And the closest one to it, QCLN is First Trust, NASDAQ Clean Clean Edge green energy down 45%. The global X wind energy ETF is down 52%. The first trust, global wind energy is down 23. I'm giving you guys five year numbers.

[Michael Batnick]

Well, this is also an investment lesson on the downside is when the government gets involved in your business and they want to be your quote unquote partner through tax incentives or whatever. You have to be careful because if your business can't make money without those.

[Josh Brown]

Tax incentives subsidies, then they go away.

[Michael Batnick]

At some point your business just can't make it.

[Josh Brown]

Yeah.

[Michael Batnick]

And so it all sounds sexy for a while when the government was so involved and now reality strikes.

[Peter]

I want to show you two charts, Peter, on China that you were talking about China. The first one is showing the, you know, we say the market is not the economy. China's the poster child for that. So we've got Chinese gdp. This is from JP Morgan. Chinese GDP versus China earnings and the stock market in China. And we know GDP is doing great, but the value has not accrued to shareholders. Here's one more great one. This is Chinese equities. This is also from JP Morgan, says Chinese equities are pulling away from EMX China. So what we're looking at is the correlation, it's a 15 year. So it's pretty zoomed out of the emerging markets versus the S& P which is rolling over emerging markets ex China vs S P also going down. But the most interesting thing here is EMX China versus China and that has crashed. And the story used to be that China drives all of the activity in emerging markets both economically and also on the stock side. And that has bellwether. Yeah, that story has dramatically changed over the last couple of years.

[Josh Brown]

That's an interesting point. That Chinese equities were not always as big within the EM indices As they became very politically they lobbied msci, they thought they should be bigger. They wanted to get foreign flows into Chinese stocks and the market caps were.

[Michael Batnick]

Deservingly they were big.

[Josh Brown]

And then they did the Shanghai connect where they enabled mainland investors to invest in Hong Kong and vice versa. Then we had that moment where they had a stock market bubble on command was interesting. What year was that?

[Michael Batnick]

Back in 2015 I think it was.

[Josh Brown]

And then this summer, late summer, early fall, they had this moment where they came out with all these reforms and David Tepper got all balled up. Nothing works. These networks are constantly for sale.

[Michael Batnick]

Right. There was no follow through. China's. There are two biggest problems outside of the politics of course so I'm talking economically is the distress in the residential real estate market and the excessive debt at their local government level. Where I've seen estimates they have set 2 trillion or 10 trillion or whatever it is at the local government level and the country is focusing on addressing both of them. The housing market has been in distress for now multiple years. Why of the dramatic overbuilding, the over leverage.

[Josh Brown]

So when you say under stress, prices.

[Michael Batnick]

Are under pressure and the developers, countless developers that have gone bankrupt, which is actually interesting because here's the so called communist country, but they didn't bail out the developers. They said you took on too much debt, you're gonna go bankrupt. Whereas here back in 08 we were bailing out banks left and right. That's true. So they sort of.

[Josh Brown]

Which was the right approach. Looks like the bailout was the right approach. Well, I know you're a libertarian but like quite frankly our recovery versus theirs.

[Michael Batnick]

Well the issue that I had with the 08 bailouts were how selective it was Washington Mutual, they were let to go, Lehman was let to go. But when we bailed out these others it was like randomly who was saved, who was not.

[Peter]

Well, Bear Stearns famous but that the.

[Michael Batnick]

Bond holders should not have been bailed out, which they were the Equity holders got crushed, but the bondholders were made whole in all these situations. So it was how they did it.

[Peter]

Bear Stearns famously got punished for not stepping in during 97. Right. They didn't come to the table and the Fed said, all right, we're gonna let you go under. I mean, isn't that what happened?

[Michael Batnick]

Yeah, there was an attitude towards Bear Stearns going into that for sure. So I do think that China is addressing this overhang of residential real estate. In fact, from the existing home market. You have the new home market, you have the existing. The existing is actually doing better because people don't trust a builder building something new. They'd rather just buy something existing because.

[Josh Brown]

They don't know if the project will get finished.

[Michael Batnick]

Exactly. The existing home market's doing better and you're seeing a lift in the number of sales. I think if you see home prices in China stop going down from a wealth perspective, since Chinese people have a lot of wealth tied up in their real estate holdings, that can stabilize consumer spending and all these consumer names. I'm only interested in playing the Chinese consumer. That's it. Because the next 10 years, China's middle class is going to go from 300 million people to 600 million people. And I just want to tap into that, nothing else. So if home prices can stop going down, China stocks can finally potentially work.

[Peter]

So here's the push and pull between international stocks, which we're going to get into, and US stocks. JP Morgan has this great chart showing that it says China offers a more attractive cyclical starting point in terms of valuation. But we forecast a lower return on equity, indicating a lower quality market. So we see US large cap return on equity. Obviously at the top, these are the best companies with 19.5%. Next is Taiwan, and all the way at the bottom is Hong Kong and China. So the question is like, wait, what.

[Josh Brown]

Is this return on equity forecast?

[Peter]

Yeah, so let's just say that this is whether it's like 100% accurate. It's a forecast, but still these are directionally correct. So the question is, are the valuations the discrepancies that we've been highlighting for literally the last 10 years? Are they finally at a point in time where investors have, you can't even say a margin of safety in China, but like, is it, is it worth it?

[Michael Batnick]

Is it cheap enough?

[Josh Brown]

Why is the ROE so low in Korea, China and Hong Kong?

[Michael Batnick]

A couple things. Well, in China and Hong Kong, those indices include a lot of state owned businesses where the returns on equity are probably under 5% because they're being used.

[Josh Brown]

As political tools to.

[Michael Batnick]

Yeah. The profitability is not necessarily the main concern.

[Josh Brown]

Right. Okay.

[Michael Batnick]

Whereas, you know, Alibaba and Tencent and those others, their roes. I wish I had this X state owned because interestingly enough In China, about 80 to 85% of the employment in China are for private companies. You know, people think it's just this state one economy. China's economy is mostly run by private companies. Now with Korea, they have the whole conglomerate issue that lowers inefficient business. Exactly. The interesting thing on Japan is that nine and a half used to be mid single digits.

[Josh Brown]

And that's on this way. That's creeping up.

[Peter]

Josh has talked a lot about Japan sort of adopting some of our business policies. Why hasn't the rest of the world done this? Is it a cultural thing? Is it a like.

[Michael Batnick]

Well, South Korea is actually beginning to. Where Japan said. Anybody who wants to list on. I think it was either the topics or Nikkei. Nikkei said, you need to raise your book value above one or else we're kicking you off our exchange rate.

[Josh Brown]

Your price to book value. Not only do you have to raise it, you have to submit a plan. And we're going to put it on the website of the Nikkei. This is how this company is going to increase shareholder value. And the companies that did it saw an immediate lift in their share price. This is real shit.

[Michael Batnick]

Yeah. They shamed companies into acting after not caring for a while. And that was. Now South Korea is trying it, but they still have some issues with how they tax inheritance and capital gains and whatever. And the Shaibal Conga. Peter.

[Josh Brown]

I do think it's cultural. And I listened to Jeff Bezos on stage last night with Andrew Osorkin and Jeff was saying Americans are crazy. This is a country where you can raise $50 million in seed capital and you can tell the person giving you the Money There's a 70% chance this is not gonna work. Cuz that's how he built Amazon and.

[Michael Batnick]

You'Ll still raise it.

[Josh Brown]

He sat across the table from people and say, this probably doesn't work. And they still gave him the money. That shit does not happen in Europe. I don't think it happens in most of developed Asia.

[Michael Batnick]

There will never be a country like us.

[Josh Brown]

So that American exceptionalism thing, and here's how I bring this up to you. The reason Andrew Ross Sorkin asked Bezos that question is because that theme was the undercurrent of the entire day's worth of programming at Dealbook because this week started out with yet another Financial Times column by somebody saying we're giving American companies way too much credit with these multiples and we're giving the rest of the world too little credit. And this American exceptionalism thing has been overdone. I've read that so many times. So that's why he was asking him that question. But I'm just saying, like, where else could we do the things that we do other than here?

[Michael Batnick]

Nowhere else. But keep in mind though, Amazon, Microsoft, all our great businesses rely on the rest of the world for business. They need a vibrant customer outside the US they need a healthier Europe. So while we're sucking in all the investment dollars, some of these tech companies, more than half their business is outside the U.S. coca Cola's business, what, 85% is outside the U.S. so, yeah, we're the best country. Exceptionalism will always be here. We'll always have a high. I laugh when someone says, oh, the US Market's more expensive than everybody else. It's always going to be more expensive than everybody else. It's just a matter of what that spread is going to be. And we know we've been doing this long enough. To be a successful investor internationally is sometimes all you need is the PE multiple going from 12 to 15.

[Peter]

But there's got to be a catalyst for that. It's not just going to happen for no reason.

[Michael Batnick]

Right. So here's my other concern with the US Market that maybe is a catalyst and I don't know. So with these Trump and I'm going to tie this all together with the expiring Trump tax cuts, it's from a budgeting perspective, he needs to find $4.6 trillion of offsets over 10 years. So call it $460 billion a year.

[Josh Brown]

He needs to. Why?

[Michael Batnick]

As part of the budget rules, if you're going to extend or try to make permanent the tax cuts, you have to have pay forsaken. So he's got to find these pay fors to offset it to meet the budgeting rules, to get it passed, to.

[Josh Brown]

Get the extension at a minimum.

[Michael Batnick]

Exactly. So the question is, where do you get these pay fors Now? I hope that the whole DOGE thing helps to save money and maybe we can use that for some of the pay fors. My worry is that don't put a.

[Josh Brown]

Lot of faith in it.

[Michael Batnick]

No, my worry is that if Trump uses tariffs to so called raise money to use as pay fors to extend the income tax cuts, because there are multiple ways for you to use tariffs. He can be strategic in saying, well I'm going to punish China tech and their military and I'm going to keep certain things from them. Or if they want to buy it, it's going to cost them a lot more. Or I'm going to try to protect US industry like steel and aluminum because we need a steel and aluminum industry. Even though you end up hurting all.

[Josh Brown]

Those that we tried that it didn't go well, it didn't work or you tax our steel, we tax your grain and then we end up spending money in subsidies to make people whole.

[Michael Batnick]

It doesn't fall out. Right. And all the users of steel cost them. They shed more jobs than steel companies created because of their higher cost of materials. And then the third thing is we want to encourage companies to reshore here. That's another use of tariffs. The fourth one which I'm worried about is for these pay fors is they just slap tariffs on just because they need to raise tax dollars to sort of make the math work. And if it's just a scattershot tariff thing on China, on Europe, whatever, just because they need to bring in revenue to pay for the extension of the tax cuts, that's a situation where I think the market is not prepared for. Right now the market's saying, oh, he's just using it as threats.

[Josh Brown]

That's the new consensus. The new consensus is he's not going.

[Michael Batnick]

To follow through and but you know, Peter Navarro just got rehired and the guy who replaced Lighthizer was his deputy.

[Josh Brown]

Jameson Greer was his deputy.

[Michael Batnick]

Yeah. Is basically Lighthizer 2.0. So I think these tariffs are coming. I just waiting to see how it's sort of laid out and is it going to be strategic or we need to raise money.

[Josh Brown]

It's not going. We already know the answer is not going to be strategic. He said last week, he said if Mexico doesn't close its border to the immigrant trains coming up from South America, if they don't close its border 100% tariffs, that has nothing to do with the economy.

[Michael Batnick]

Right.

[Josh Brown]

That's literally I'm gonna use tariffs as punishment against other countries who don't abide by my foreign policy. That is not economic tariffs. That's not. Has nothing to do with job creation.

[Michael Batnick]

Well, that's what I'm afraid of.

[Josh Brown]

But nobody thinks he's really. But the point I'm getting to is nobody actually thinks that any of that's gonna happen.

[Peter]

The market doesn't.

[Michael Batnick]

Right. The market thinks that they're just threats but if the House Ways and Means Committee says, Donald, we need a lot of revenue or spending cuts to offset this, he may use the tariff as a fundraising thing. And if it's a fundraising thing, it's gonna be not well thought out. And that's what I'm worried about. And if with China, China still owns what, $900 billion in U.S. treasuries, who.

[Josh Brown]

Is that a bigger problem for U.S. owners of U.S. stocks or owners of international stocks or probably both.

[Michael Batnick]

I think it could be both. I think it could be disruptive to treasury market in terms of inflationary worries. Even though people tell me, oh yeah, it's just the one step up level in price, therefore it's not inflationary tariffs, to me, muck up. It's like mud thrown into the gears of business.

[Josh Brown]

This is the Orange Swan for 25. Like if he really wants to do.

[Michael Batnick]

This, that's the way you said that. An orange swan, yes. So hopefully it doesn't happen. But that's if I'm looking at what the risks are. If I'm trying to watch what can hit me behind. That's one of the things that if they use it for just a fundraising thing and they think it's a piggy bank, there's a lot of risks there because we're not prepared for that.

[Peter]

Can the US outperformance continue forever? I want to show you a chart. John, chart three, please. So we've got the 1, 3, 5, 10, 15, 20 year annualized performance spread between the US and different geographies, emerging markets, international developed, et cetera.

[Josh Brown]

Oh, this is the degree to which these markets are underperforming the S&P 500.

[Peter]

Correct on an annual basis. So the only one that's not negative is there's a little three year period where Japan stocks from the point of a US based investor has outperformed. Can this continue indefinitely?

[Michael Batnick]

Well, keep in mind, in the one year, a lot of that outperformance is the S and P multiple that has obviously gone up a lot. So earnings are up what, 7, 8% estimated this year? 9. But we're up 25. So there's been obviously multiple help there. Getting back to my previous point, a lot of these big US companies need a healthy global economy. We have customers all throughout the world that they need to be healthy enough to buy our products. And so you need all of us to be sort of.

[Josh Brown]

Here's the flaw in that logic. United States consumer needs the stock market and the single family home market to hold up price wise 100% in order to spend. These stock markets don't matter to the people who live in these countries.

[Michael Batnick]

No, I agree. I'm talking about economically they need to have the income to buy our stuff.

[Josh Brown]

But so they already have it. So in these economies they consume goods from US companies, US companies earn the profits of that stock prices go up. It doesn't work the other way. It's not like all of the consumption of these overseas country, these overseas markets, whether their economy is good or bad, the stock prices don't really matter. They don't really reflect it.

[Michael Batnick]

Well, here's some instances where it has. You take Estee Lauder at full disclosure, we own it. El yeah, this is a stock that's gone from $370. Now it's about 75 to 80. It fell 80% from high to low. And a lot of their troubles, yes self inflicted. But they did a lot of business in China, they did a lot of business in Asia. They were very reliant on travel and the duty free shops that the Chinese consumers spend $250 billion a year in 2019 in international travel. Whether it was going to Fifth Avenue or going to Champs or going to Oxford street in London, they spent a lot of money. Well, the Chinese consumer pulling in was a major hit to Estee Lauder's earnings.

[Peter]

LVMH too.

[Michael Batnick]

LVMH also felt, yeah, everybody felt that there is a reliance that and that's why Q4 earnings when we hear them in January, February can be really interesting to hear what a lot of these multinationals have to say about their European business. Also with the strong dollar against the euro, that will be really interesting to hear what they have to say because we still need for these multinationals that growth and even I also look at it domestically. One of the things that was so interesting about markets was obviously the outperformance of big versus small. And people would just say well that's because big companies are great, they have great balance sheets and so on. Which of course that's the case. But who are the customers of Microsoft? There's a lot of these small businesses that start a business that use the cloud service and every seat that they hide they get Microsoft 365 the cliff.

[Josh Brown]

And have large caps keep going.

[Michael Batnick]

Yeah, we all breathe the same economic air and you can't have such a huge differential. The great thing about the market though, and I wonder if this is the relationship is that in July the market finally woke up and said, you know what, there's another 493 stocks out there in the S and P. Yeah. There's another 2,000 stocks in the Russell. It's not just seven names. And I wonder, because I look at Microsoft and Google, I felt like heading into the second quarter. So July, when they reported was up until that point, anything related to AI went up. Whether you were a spender on AI or you were a receiver of that spend like Nvidia. I felt like the second quarter the market started to ask questions. Well, you guys are spending 15 to 20 billion dollars a quarter. When am I going to see an earnings benefit from that? If anything, because you're capitalizing these costs, your depreciation expense for the next 20 years is going to be very elevated. I felt that those were fair questions to ask of Microsoft and Google and Amazon and Meta, even though Amazon and Meta, their outside business has been doing so well that they were able to mitigate it. But that's when the market started to say, you know what, there are other stocks out there.

[Peter]

Yeah, you love this from chart kid. The second half return of the S&P, 511.8%. The average stock of the S&P, 513.7%. This hasn't happened in a while. It's really.

[Michael Batnick]

And that started mid July, third week of July, when big cap tech reported earnings. And so I think that that's, that's a positive. But Nicole, it's a realization of.

[Josh Brown]

Nicole has made the same point that you're making. And a lot of people are saying, if the question is, well, if large cap companies are so great, small cap companies can never catch up performance wise. Well, no, they almost have to because the only justification for the amount of money corporations are now investing in AI is that it's going to boost their earnings. So the next leg of the AI trade might be anyone but the AI companies. It might be all the companies that are now saying to Wall street in 20, 23 and 24, we bought all these, we bought all these subscriptions and licenses and data center whatever.

[Peter]

So what? Look at our productivity and now look.

[Josh Brown]

How much more money we make because we actually are. Benioff made the case. I don't know. Did you hear any of the Salesforce stuff this week?

[Michael Batnick]

Yeah, I read. I mean, I couldn't get through his like seven pages of the beginning, but I did go through his comments on Agent Force and, well, you only need.

[Josh Brown]

To hear one thing he said. He launched this brand new concept. It's not really brand new, but it's introducing digital labor. Okay, Right. The Agent Force Yeah, Agent Force. It's a big deal if.

[Peter]

What is this?

[Josh Brown]

Digital labor is. We're not replacing your employees. Your employees are no longer doing the menial stuff, that nobody cares who does it. That's what Salesforce's version of AI is. It's, let's take your existing employees and automate 50% of their tasks.

[Peter]

So I wonder if we're gonna see that in the financial space.

[Josh Brown]

Well, that's my point. That's how small caps work. Next year is one after another. They beat on earnings, they surprise to the upside. And why?

[Peter]

Margin expansion.

[Michael Batnick]

AI, it's the users of this technology. It makes their business better and more efficient. So that's viable because when you think about now, the companies, the metas, the Microsofts that are building the models, well, those models are going to be commoditized. And are they going to see the benefit?

[Josh Brown]

I mean, I'm hearing now there are six of them.

[Michael Batnick]

Right. It's all going to be the same thing. It's all a commoditized product. It's going to be the users of the technology that are going to be able to monetize and benefit the most from it, not necessarily the sellers of that.

[Josh Brown]

Can we do a little AI deviation? Because this was a really big week for AI in general. Did you pay any attention to the AWS stuff, any of the headlines out of that?

[Michael Batnick]

Yeah, I did see it.

[Peter]

The Vibranium chip.

[Josh Brown]

They did two things very effectively this week. In addition to Jeff Bezos talking to Andrew Roy Sorkin the day before was AWS reinvent.

[Michael Batnick]

Right.

[Josh Brown]

Okay. They did two things that I think should get everyone's attention. And this is Jassy, not Bezos. Number one, they launched their own foundational LLM called Nova. There'll be five levels. There's like a starter level which is just, you know, text only. Then there it goes all the way up. Nobody thought they were going to have their own foundational LLM, because when ChatGPT originally came out internally at Amazon, they looked at what their own chat was and they said, oh, this is clearly inferior. We're way behind. So if you remember, they said, okay, our strategy is called Bedrock and it's a BYO LLM. So if you want to use ChatGPT, great, bring it into the AWS environment and you could. Okay, they just completely reversed that. They launched Nova, is their own foundational model, which the implications of this are all these companies that have invested all this money building LLMs, their customers are already sitting at AWS. Right, okay. AWS. If they can demonstrate that Nova hits all the same benchmark levels as Claude Sonnet or ChatGPT4.0 or any of the others. There's no reason why a customer necessarily will prefer to use some other LLM unless they've already standardized on it. So that was to me a little bit of a wake up call. Whatever valuation you're building into Meta and. And Microsoft. Because the OpenAI partnership maybe rethink that.

[Michael Batnick]

Yeah. And I guess that explains why Google and Microsoft are well off those July highs.

[Josh Brown]

Yeah.

[Michael Batnick]

Where Amazon is at a record high.

[Josh Brown]

You thought Gemini was just going to be run away with it. Or if you thought. If you thought OpenAI Microsoft combo is going to run away with it. Amazon is now playing at the foundational level. 2 Trainium. The Trainium 2 chips are now competitive with H1 hundreds and Nvidia. Whatever valuation you're baking into Nvidia as having this level of market dominance for the next two years.

[Michael Batnick]

The moat's a bit smaller.

[Josh Brown]

Maybe rethink that. They said Trainium 3.0 comes out next year will be 30 to 40% more cost effective than 2.0. And they brought on the head of AI and machine learning from Apple to promote Trainium chips. Apple says they're already using Trainium for search and some of their services. So Nvidia now has a competitor.

[Michael Batnick]

If you're long Nvidia here.

[Josh Brown]

Yeah.

[Michael Batnick]

And you've had big gains. These are real serious questions you gotta ask yourself of. It's almost a game of chicken because each quarter you don't know when is that quarter where Nvidia says because of the heightened competition.

[Peter]

It's coming.

[Josh Brown]

It's here. You're right. It's coming.

[Michael Batnick]

And as a shareholder what do you do knowing that that is coming your way.

[Josh Brown]

But also is Amazon being rerated this week? Is it a GPU company? Now John, put that chart up. Look at this breakout analysis.

[Michael Batnick]

But these GPUs are they going to be just using for themselves or they plan on actually selling it to customers.

[Josh Brown]

Will use them on aws. But that's right.

[Michael Batnick]

So more localized models.

[Josh Brown]

But this is compute. They're building clusters of 100,000 of these chips. This is compute that would otherwise be money spent with Nvidia is the point.

[Michael Batnick]

Yeah.

[Josh Brown]

Now of course they'll all say oh we're all partners and we love Nvidia Avi all competitors. But if they can do what Nvidia does cheaper and the customer doesn't care, it's a different story.

[Michael Batnick]

It's an enormous amount of savings.

[Josh Brown]

This is the Amazon breakout this week. This is a re rating of Amazon as now a serious, my opinion provider of AI foundationally at the LLM level and technologically at the GPU level. This is a different market in 25 now that you've got competition for Nvidia, competition for OpenAI, coming from somebody, coming from a company like Amazon that has all the customers already sitting in their cloud.

[Michael Batnick]

Yeah. And if you can overlay that against Microsoft, you can see the clear differential in stocks over the last couple of months.

[Josh Brown]

I thought that was a really interesting development and it didn't get a ton of attention on Wall street, but the stock price is definitely reacting.

[Michael Batnick]

Yeah, I was reading about in the Journal today specifically.

[Peter]

Yeah, Josh, you were talking earlier about the benefits of AI for other companies.

[Josh Brown]

Potentially it's pronounced AI.

[Peter]

So JP Morgan says as the. This is not with AI specifically but they said as benefits of technology accrue to the wider economy, we believe the concentration of large tech names in indices will naturally moderate. This is similar to the dilution of index concentration that happened in the 1950s and late 1970s when important technologies ultimately boosted earnings across many industries, allowing other sectors to catch up to the trailblazers.

[Josh Brown]

I love that. Where is that from?

[Peter]

This is from JP Morgan's 2025 outlook.

[Michael Batnick]

So maybe we've seen a dress rehearsal last couple of months of that.

[Josh Brown]

Well, if the 493 are going to spend at the levels they're spending on Capex and they're going to be handing over this much money to the cloud companies to do AI on their behalf, there has to be an roi.

[Michael Batnick]

Absolutely. I think even Amazon acknowledge it'll take some time for a lot of their customers to sort of figure out how best to use these AI products. But it's still going to happen. Yeah, it's just, it's when they'll be able to realize it that shows up in their own numbers.

[Josh Brown]

One of the most crucial differences to me between the 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, not a revenue growth story. Some of the best use cases for AI that we're hearing now from Fortune 500 companies are more related to how much more efficient their operations are becoming and how much less they have to spend on employees. That's not the same as, oh, we'll open an E commerce store.

[Michael Batnick]

Agreed. One of the most interesting lines from Microsoft's second quarter earnings release is Nadella said, at the end of the day, AI is just software.

[Josh Brown]

Yeah.

[Michael Batnick]

That's what it is. It's. But it makes software better, which makes companies more efficient. They get to do more relative to the previous version. The new Apple iPhone is an improvement on the prior one. That's what technology has done since the history of the world.

[Peter]

Do you think the AI are going to look ridiculous?

[Michael Batnick]

Well, when you say AI bears, it depends because like I said, you have the spenders on AI, you have those that are receiving it, like Nvidia and the infrastructure people, and then you're going to have the users of it via tools or in their own software.

[Josh Brown]

What are the AI that are going.

[Michael Batnick]

To benefit from it?

[Josh Brown]

What are they bearish?

[Michael Batnick]

They're multiple.

[Peter]

I think the most consensus bearish opinion on AI is that the revenue will not show up.

[Josh Brown]

Like, in other words, all this spending is going to be a bust.

[Michael Batnick]

Yeah.

[Josh Brown]

Yeah.

[Michael Batnick]

Well, look at Copilot.

[Josh Brown]

Is that, is that still possible to believe?

[Michael Batnick]

Yeah, I think so, yeah.

[Peter]

Yeah.

[Michael Batnick]

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?

[Josh Brown]

They're giving away Llama for free. They're not giving away the compute.

[Michael Batnick]

Right.

[Josh Brown]

You still have to pay the cloud provider.

[Michael Batnick]

Right. There's still a cost there. Right. But in terms of substantiating all the spend, I don't know. And like I said, these companies with all the spend are locking in a higher expense rate through depreciation that's going to flow through for the next, you know, 20 years plus.

[Peter]

So as we wind on down the year, the market is up. What's a market? Is it a mark of almost 30%? Yeah, 30%. Unbelievable. John Shart time, please. So this is, I don't know, the 15th best year. I'm just eyeballing it. What's interesting is that these 15th best year. Hold on, let me just walk through this. These type of really strong years in the market typically happen when the prior year is negative. So you have a big snapback after a bear market. That's what we're looking at. Those are the blue lines. So we're looking at the best years from best to worst. And the best, best, best ones happen after, you know, after 1929, for example. This is a top 10 year in a bull market. So the last year we were up 20% last year, and we're up about 30% this year. It's pretty, pretty remarkable year. And if you consider the fact that. John, Chart nine, please. The average S and P price target. This is from a guy named David Cervantes. The average S&P 500 price target in 2023 for this year was what? 4800ish. And we're 6000.

[Michael Batnick]

Yeah, well, I think with. This is the hardest thing to do if you're going to play this game.

[Josh Brown]

What game are we playing of throwing.

[Michael Batnick]

The dart on where the S and p will be 12 months?

[Josh Brown]

This is every firm. And the average firm last year was at 4800.

[Peter]

By the way, Yardeni was by far the most bullish at 53,5400.

[Josh Brown]

And here we are at 6100 and nobody had.

[Michael Batnick]

It's like who knows what the right PE multiple is, right? Because that's what it's the hardest part. Because it seems that way.

[Josh Brown]

I would think, I would have thought that. But then you look at this last earnings season that we just wrapped up. They were 500 basis points behind where earnings actually ended at the beginning of this quarter. They were wrong on almost every sector. They were too low. So they not only have gotten the multiple wrong all year, to your point, they also got the earnings wrong.

[Michael Batnick]

Well, facts that I like fact said during earnings season they come out with a lot of these stats like what percent beat EPS? What percent beat revenue by what percent?

[Josh Brown]

It's always 75.

[Michael Batnick]

It's always 75. I always say like just like Joe Namath guaranteed the super bowl win, I will guarantee 75% will beat estimates. Revenue is usually like 60th 60 ish percent. But they said the actual beat rate was somewhat in line with the 5 and 10 year average relative to estimates.

[Peter]

Okay, but Peter's right, you can't predict. So even though the analysts were off this year because it was an exceptional with the AI story, you can't predict the investor's mood.

[Michael Batnick]

And also with interest rates. Who would assume with interest rates?

[Josh Brown]

So that's where you and I are on the same page.

[Michael Batnick]

The GDP multiple would go up, right? No, as much as it did.

[Josh Brown]

Nobody rational would say wait a minute, we're going to absorb 550 basis points worth of rate hikes. And the externality of that absorption is going to be a 20% higher multiple on stocks.

[Michael Batnick]

Right?

[Josh Brown]

Get the out of here.

[Michael Batnick]

Exactly.

[Peter]

Well, all of these things foresee again, without AI, the multiple would be significantly lower.

[Michael Batnick]

Well, AI definitely gave the stock market a second wind.

[Josh Brown]

Steroids for sure. Yeah, steroids saved us because just pull out the performance of Nvidia and Tell me what the market did this year. It's like night and day and if you want to throw Apple in there and a few other names, it's like the most. To me it's the most pressing and urgent sales pitch for indexing. We don't know what's going to lead. We just know we can't not be in it.

[Michael Batnick]

So let's just take this one step further. Getting back to Nvidia, let's just say we're about to enter that quarter where they say, hey, we had a little too much inventory.

[Josh Brown]

Equal weight will outperform market cap weight.

[Michael Batnick]

Let's hope that the baton can get passed to somebody else as opposed to.

[Peter]

Well, look at financials or they're taking.

[Michael Batnick]

They took the baton, right, because the market discovered other things to buy because everything else had so dramatically underperformed that it was due for a catch up with only the catalyst being the question.

[Josh Brown]

Well, I don't know what will be the. I don't know who gets the baton passed to them, but I would point out 40% rally in S and P financials this year. Probably not over, probably going higher, better than tech. So it's not as though there isn't another candidate out there ready to take the baton. Healthcare earnings for banks are going up next year. Okay.

[Michael Batnick]

Oh, bank earnings, right.

[Josh Brown]

Yes. Healthcare. You now have a trillion dollar. You now have a trillion dollars in value in these GLP. One manufacturer. There are probably going to be five of them. Like they could be the new Mag 7.

[Michael Batnick]

Especially if Medicare starts to reimburse 100%.

[Josh Brown]

And internationally if these drugs catch on. So right now about 20% of the population takes statins. There's only 7 million people right now on GOP ones, right?

[Michael Batnick]

Yeah.

[Josh Brown]

Okay, so just saying, this is the thing. And if we're all on shots and pills for the next five years, that could be.

[Peter]

I can't wait till Josh gets the shots and pills. Hey Peter.

[Josh Brown]

They didn't work. I started taking them three years ago.

[Peter]

One more chart before, before we get out of here. John, chart 14 please. One thing that we haven't spoken about, one of the big stories coming into 2024 was what's going to happen with all the cash? Well, not to bread, but I was right. The cash didn't go anywhere. It stayed in money market funds. So the question is what happens with this, with, with the, with all of this cash? So JP Morgan has a chart showing the cumulative fall in money market fund assets in previous rate cutting cycles. So in 2001, $470 billion came out, for example, and they're showing an estimate for 2025. On the low end, $626 billion in money looking for a new home. And on the high end, $2 trillion, which sounds kind of crazy, but who knows? So is this going? I mean, this is a big story, too.

[Michael Batnick]

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.

[Peter]

Sure.

[Michael Batnick]

So there's always dollars on the sidelines. Only when a company buys back a share and retires it, is there some money that literally comes off, that stays off? But the buying and selling. There's dollars coming now.

[Peter]

We know it's neutral, but what if there's more, A more aggressive imbalance?

[Michael Batnick]

Well, that's the thing. It's the urgency of wanting to get in.

[Peter]

Exactly.

[Michael Batnick]

Or wanting to get out that moves stocks up and down.

[Josh Brown]

Not the amount.

[Michael Batnick]

It's not the amount.

[Josh Brown]

It's the velocity.

[Michael Batnick]

Exactly. It's how badly do you want to own it? How badly do you want to sell it now? But a lot of the money in the money market. A lot of the money in money market funds is just money out of savings and checking accounts.

[Josh Brown]

Correct.

[Michael Batnick]

That's not necessarily fresh money for the stock market. So people say there's cash on the sidelines, but there's always cash on the sidelines.

[Josh Brown]

But the number does go up and down of the amount of money people leave sitting in a savings account or a money market fund or a checking account. Yeah.

[Michael Batnick]

Relative to total assets. But a lot of that is because the fluctuations in the actual stock market relative to the static value of money that's in a bank account.

[Josh Brown]

The last two years in a row, this happened in January. The year started with an explosion of cash into ETFs. And it was almost like a starter gun. I think the same thing's about to.

[Michael Batnick]

Happen, and that comes on top of the explosion that's happened over the past month of money piling into everything.

[Josh Brown]

I think January. There are just people that are like, there's no pullback. I don't know what else.

[Peter]

This is gonna age very well.

[Josh Brown]

I don't know what else. I don't know what else to do.

[Peter]

Just.

[Josh Brown]

Here's the money Trump.

[Michael Batnick]

Yeah.

[Josh Brown]

Make the number go up.

[Michael Batnick]

I'm gonna swing this back to Art Cashin as we finish up.

[Josh Brown]

Ooh, I like that.

[Michael Batnick]

You know, Art knew that human. That the psychology of the stock market is different than regular life. You know, Walmart became Walmart because of everyday low prices. And people showed up. New York Stock Exchange. If it said everyday low prices, everyone would freak out and never go. Everyday high prices. Everyone is storming the doors. And he was able to. What? The video you showed before is talking about psychology, looking under the hood and turning around what people think is normal. Money is going to come in in January because the market's high.

[Josh Brown]

That's right.

[Michael Batnick]

But in the rest of their lives, they're searching for value and discounts. And the stock market's the only thing where they don't.

[Peter]

Absolutely.

[Josh Brown]

Well, because they're not buying the stock, they're buying the return of the stock. And when stocks are high, the return looks more likely.

[Michael Batnick]

Right? Is it sentiment follows price?

[Josh Brown]

It's an economic term for this. It's a veblen. Good. It's true. There are certain things that are worth more because they are worth more.

[Peter]

Bitcoin.

[Josh Brown]

Bitcoin being a great example.

[Michael Batnick]

Yep, Perfect.

[Josh Brown]

All right. Hey, Peter, we're so appreciative to have you in our orbit. As part of our professional lives, as part of our personal lives, we think the world of you. We're going to try something new to end the show this week. We used to do this thing called Favorites, but now we're going to switch it up and we are going to ask you what you're most looking forward to. And you're not prepared for this. So I'll actually, I'll let Michael go first. I'll give you a minute to think about it. Generally, in life, in life, in markets, maybe there's an earnings call coming up for a stock you own. Maybe you're going to someone's wedding.

[Michael Batnick]

So speaking of Asia, my wife and son, the three of us, are going to Vietnam.

[Peter]

Oh, wow.

[Michael Batnick]

In a couple weeks. So I'm gonna scope out why. We were eventually, we were originally gonna go to Thailand, but just the scheduling and logistics, we couldn't make it happen. And I like, you know, I always wanted to see Vietnam. Vietnam is this up and coming country.

[Josh Brown]

Wait, why. Why would the scheduling not be able to work for Thailand, but it works for Vietnam?

[Michael Batnick]

You know, one of the reasons, you.

[Josh Brown]

Know how much more sex there is in Thailand.

[Michael Batnick]

My son needs to be back December 30th to see fish at the Garden.

[Josh Brown]

Well, that's. I could understand.

[Michael Batnick]

So with flights and everything and so.

[Josh Brown]

But is there a different time that you're going to Vietnam than you're going to.

[Michael Batnick]

No, it was some of the flights on the way back and some of this, you know, and how we had spaced out in different cities.

[Josh Brown]

Where do you fly into for Vietnam?

[Michael Batnick]

You fly from Newark to Dubai. A layover in Dubai. Dubai to Hanoi and then Da Nang and then to Ho Chi Minh City. And then Ho Chi Minh City, Singapore.

[Josh Brown]

These are not all flight. These are all flights. Everything you're describing.

[Michael Batnick]

Everything. Flights. Yeah.

[Peter]

How long is this? A lot of travel a day.

[Michael Batnick]

So we're physically there. Seven nights. And I think the travel will add a couple of days to that.

[Josh Brown]

Wow. Who helped you plan this trip? Because I feel like you have to do this, right?

[Michael Batnick]

Yeah. No, you need a travel agent to also figure out what you're going to do every day. It's not like flying to London and just wandering around the city. I don't know where I'm going. So you need somebody there to take your ride.

[Josh Brown]

That's a really cool trip. When are you going?

[Michael Batnick]

So December 20th.

[Josh Brown]

Okay.

[Michael Batnick]

So it'll be some of my due diligence on Asia. Right.

[Peter]

There's some boots on the ground.

[Michael Batnick]

Factories moving to Vietnam from China and.

[Josh Brown]

Oh, I definitely have their economy doing. I definitely want to hear from you from Asia, like, what you're discovering and stuff. That's great, dude. That's awesome. Love it. And when are you going to Vietnam? What. What are you looking at me for? What are you. What are you most excited for? Share with the Share with the group.

[Peter]

I'm taking my family to the Bahamas in December and my kids.

[Michael Batnick]

Atlantis.

[Peter]

Bahamar.

[Josh Brown]

Bahama.

[Michael Batnick]

Bahamar.

[Peter]

The water park.

[Josh Brown]

Nobody goes to Atlantis anymore, right?

[Michael Batnick]

I heard the water park's great.

[Peter]

My kids are going to love the water park.

[Josh Brown]

Yes, they will. They have the best lazy river I've ever been on in Bahamar.

[Peter]

Ben was just talking about.

[Josh Brown]

He's very.

[Peter]

He's very bullish on lazy rivers. I don't think I've ever been on the Lazy River.

[Josh Brown]

So Lazy river is cool when you have a drink in your hand.

[Peter]

Yeah.

[Josh Brown]

And you don't want to do a water slide.

[Peter]

Yeah.

[Josh Brown]

But you want to be in motion.

[Michael Batnick]

All right, so what do you say about.

[Peter]

I'm very curious.

[Josh Brown]

Oh, I don't know. Just life in general. I'm going. I'm going to Mexico. Good. I had a couple of drug deals I've been putting off all year. I want to knock them out before Trump.

[Michael Batnick]

Wait, I should say one more thing. I was prepared to give, like, a book idea based on God hit us. So I started reading.

[Josh Brown]

What book are you looking forward to finishing reading?

[Michael Batnick]

I've been reading Geddy Lee's autobiography.

[Josh Brown]

Come on.

[Michael Batnick]

I'm a Rush fan.

[Josh Brown]

Yeah, no, me too.

[Michael Batnick]

Great.

[Josh Brown]

Okay.

[Peter]

Wait, did you watch the yacht rock doc?

[Michael Batnick]

It's on dvr.

[Peter]

Okay.

[Josh Brown]

Rush is not part of yacht rock.

[Michael Batnick]

I'm not a big yacht rock fan. Music.

[Peter]

You know, Barry loves Steely Dan.

[Josh Brown]

That's Barry's favorite.

[Michael Batnick]

Well, Steely Dan's good, but I'm not a big yacht rock.

[Peter]

It's not a cd. It's a great documentary. It's fun.

[Josh Brown]

Is there any, like, Dirt on Pert in there? Cause I'm a drummer, so.

[Michael Batnick]

Same. So I'm at the part where he just joined the band.

[Josh Brown]

Okay.

[Michael Batnick]

Cause there's a big part of the book on his childhood. His family survived the Holocaust, so he gets into a lot of that. So Neil just joined the band.

[Josh Brown]

Okay. I feel like I would read that. I would rather watch it. But there was a Rush documentary and it was pretty good.

[Michael Batnick]

Yeah, it was excellent.

[Josh Brown]

When was that, like five years ago?

[Michael Batnick]

Yeah, something like that. Before Neil passed, I think.

[Josh Brown]

All right. The thing about yacht rock that I really, really did.

[Peter]

He watched the document.

[Josh Brown]

Yeah. Oh, yeah.

[Peter]

Was it hilarious?

[Josh Brown]

It was amazing. Shout out to Bill Simmons and everyone at HBO that made this thing. This is not my generation's music. But when Sirius XM created the Yacht Rock channel, it became a preset. And I couldn't figure out what it was that I liked about it because it's, like, kind of dorky. But the precision of the musicianship is the thing that the documentary really highlights. Basically, these guys from Toto were session players.

[Peter]

They made Thriller, right?

[Michael Batnick]

Oh, I didn't know that.

[Josh Brown]

They played on every record that I grew up listening to in the 80s behind the scenes because they almost sounded like. They almost sounded like synthesizers, like the way that they were able to play. And people use the term smooth to describe it. There were no rough edges. It's perfect. And there's very little digital tools. Back then, these were just the guys with the most solid chops and they got their due. So they highlighted all the, like, you know, all the famous singers of the era, like Michael McDonald, et cetera.

[Peter]

That's a 40 year old virgin with the Michael McDonald.

[Michael Batnick]

Well, I'm definitely saying it because my wife's big into yacht rock. She's gonna get me to watch it with her.

[Josh Brown]

It's a very. It's a very cool documentary. And it's not just about the music. It's about the impact that this has had now that it got classified into this goofy kind of genre. But then it became like a cultural phenomenon, and I thought it was cool to see these guys get their due. All right, that's it from us this week. I want to say a huge thank you to Duncan, John, Daniel, Nicole, Rob, Graham, Sean, Shark Kid, Matt, everybody that worked so hard on the content. We did some good shit this week, right, Duncan? What do you think? Yeah, it's one of our better weeks.

[Michael Batnick]

Yeah, I think so. I mean, they're all good.

[Josh Brown]

Well, we all agree with that, but we did some really good stuff. All right, guys, thanks so much for listening. We appreciate you. Please leave a rating and review and we will talk to you soon.