← The Compound and Friends
The Compound and Friends
The Joby bull case with Charles Lemonides, Roaring 2020’s with Ed Yardeni, Alphabet vs Nvidia
01:47:03
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- [00:00]
A
Ladies and gentlemen, welcome to the compound and friends, so excited to be bringing tonight's show to you. And we are sponsored by Betterment Advisor Solutions. Betterment Advisor Solutions is for any financial advisor, any RIA who says there's got to be a better way to do this. I need better tech, I need a better platform. I need faster onboarding. I just, I know there's something out there. Check it out. Betterment.com advisors. Tell them the compound sent you. I think you'll be surprised and delighted. So thank you to Betterment Advisor Solutions. Okay, we have a huge show for you tonight. I spoke with Charles Lemonides, who is a hedge fund manager based in New York who just spent a week out at the Dubai Air Show. We have a stock in common. We're both invested in Joby, which is the leader in a new category of company known as an evtol. That is an electric vertical takeoff and landing aircraft that effectively, from my perspective, is the closest we've ever gotten to the flying car. And I got a lot of interesting insight from Charles's visit to Dubai. We talk about the opportunity more generally and get into some stuff about the way Charles and his team pick stocks. And I thought it was a really fun conversation. So that's first and, and then it's, what are your thoughts? Michael Batnik and I, and we had a special guest, Ed Yardeni joined us to talk about the roaring2020s. This was a call that he made during COVID I think in 2020. November of 2020. So it's is that five years ago. Six. Five years ago. And so far so good. He's absolutely nailed the call. And he thinks the roaring 2000s extend into the next decade potentially. So I, I roaring 2030s, he told us. So we walk through his earnings expectations, how he arrives at them, the multiple that he is expecting to see on those earnings for the S&P 500 and a lot of other great stuff. Then we'll get into the Nvidia vs Google thing that erupted on the market today and so much more. So please stick around. Enjoy the show. We appreciate you. Happy Thanksgiving. And here we go. Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Hey, guys, it's me, Josh Brown. And we are live from the compound with a first time, very special guest. I'm so excited for you to meet Charles Lemanides. Charles founded valueworks, which is a hedge fund and separate, separately managed accounts. Is that the best way? Okay. Separate account strategy and hedge fund valueworks. With the goal to broaden availability of his conceptual value investing discipline in the retail and institutional investor communities. Charles leads investment research and portfolio management at valueworks and has final authority for all investment decisions. Charles, welcome. So nice to have you.
- [03:30]
B
Thank you so much for having me. I love being in your compound over here, and the space is great.
- [03:35]
A
Quite a. It's a pumpkin compound these days. We're super excited to have you. So you and I have this in common. We both are very excited about one particular ev tall stock, and that is Joby. And you're back from the Dubai Air show, which took place last weekend.
- [03:54]
B
Last week. Monday to Thursday.
- [03:56]
A
Okay.
- [03:57]
B
Incredible air show. I mean, they just. It's just a massive event.
- [04:01]
A
Is this the big one? This is the big annual event for the space.
- [04:04]
B
There are a couple. There's one in England, there's one in Paris, and there's one in Dubai. I think those three qualify as the big ones. And this one definitely is the same scale as Paris, which I visited last year.
- [04:14]
A
How many people go to the Dubai Air Show? You know, what does it look like?
- [04:18]
B
Oh, it's huge. I think it's 50,000, 100,000 or something like that. It's a lot of people.
- [04:23]
A
Okay. And how many people from the American investment community are there, would you say?
- [04:31]
B
Oh, it's thousands. It's thousands. Because, you know, it's all. It's a huge range of aerospace companies, from tremendous amounts of defense stuff to commercial jets to now increasingly this advanced air mobility space, which is small for that air show and small for the scheme of things, but growing.
- [04:52]
A
Okay, I want to share with you what Andres shepherd, who's been on the show before, had to say about Joby at the air show. And then I want to have you react to it because you're long the stock. I'm long the stock. I think we're both pretty excited about the potential, even though it's relatively early. But. But this was. This was what Andres had to say when he got back. Joby was the clear winner from the EVTOL OEMs. In our opinion, the company was the only one to conduct live piloted test flights while at the air show, which Joby carried out once a day throughout the week. More specifically, Joby's completion of a 17 minute flight from Margam to Al Maktoum International Airport marked the first time an EVTOL conducted a piloted point to point electric air taxi flight at the uae. And there's a lot more here. But that seems to have been a lot of people are saying the highlight of what they saw from this space.
- [05:53]
B
Well, it's really interesting because it's become a really deep ecosystem. There are a lot of these aircraft or flying machines on display. China, Europe, multiple US. But you're right, there was only one that actually flew their flying machine and is much further along than everybody else. I mean, you look at everyone telling stories and having models and they're great stories and they're great models, but one of them's flying and the others are not.
- [06:25]
A
Yeah. So Joby to me seems advanced in a lot of ways. In that way that's obvious. They have something that's actually working now. But they also made an acquisition of Blade, which is the helicopter. So they got both ports, the Hudson river and then the east river. And they got some revenue. These other companies don't really have revenue yet. And that makes it stand out to me.
- [06:47]
B
Not only does it have revenue today, but has the infrastructure in place that when these flying machines are ready, they're going to just swap them in and the helicopters get swapped out. And I think it's gonna be a big game changer because these things are. One interesting element of being at the air show is that the jets are going by and they are making incredible amounts of noise.
- [07:10]
A
So loud.
- [07:11]
B
So loud.
- [07:12]
C
Yeah, yeah.
- [07:13]
B
And then you see this little Joby aircraft come into the air and you hear some jet noise in the background, but it's the jets from far away. This thing makes no noise. And that's gonna change people's willingness to have it showing up in their neighborhoods.
- [07:30]
A
The name of the craft that Joby made, SR4 or something, it's a little bit like a Star wars droid. I feel like they need a makeover.
- [07:39]
B
I think their name is one issue. I think the bigger issue is the whole word evtol. I mean, I don't know. Who knows what that means?
- [07:46]
A
Well, you keep saying flying machines and I noticed that you don't like Evtol.
- [07:50]
B
You know, Evtol? I don't know. First of all, I've been following this company for six years, five years. I don't. I mean, it's electric vertical takeoff and landing. Well, how's that? Oh, Al, tell. Take off, Take off, take off. Okay, fine. Like I said, it's not A great word.
- [08:09]
A
I don't. I don't love it. I agree. I agree. I think it's important, though, that as a category, it's called something. It's not a quiet helicopter.
- [08:18]
B
It's not a helicopter because it glides.
- [08:20]
A
That's right.
- [08:20]
B
You know, helicopters, the engines stop, the thing falls. This. It has a wing. It flies like an airplane.
- [08:27]
A
So we'll. We'll throw some pictures up, but for the people that are listening to this and not watching, the vertical takeoff is important because it doesn't require an airport to get in flight. So it lifts like a helicopter. Six rotors, not one. Much quieter than a helicopter. Double redundancy. If one of those rotors goes down, there's still five. If two go down, God forbid, there's still four, it'll remain aloft. The fixed wing is what differentiates it from a helicopter, besides the sound and the singular rotor, meaning it flies like a plane when it's up in the air, and then it can land back.
- [09:05]
B
Down, which makes it much more fuel efficient when it's flying like an airplane relative to a helicopter. And helicopters are loud not because their engines are loud. Helicopters are loud because the. The size of their blades is so large that. That physics just means when a blade is rotating like that, it makes a lot of noise. Yeah. You know, as opposed to.
- [09:30]
A
Well, I spoke to you about this the other day, and you pointed out a lot of the helipads that used to be in cities like Manhattan have been decommissioned because the exhaust fume is blowing into the buildings, like, into the AC buildings don't want. Right. So this is like an answer to that.
- [09:50]
B
Well, there's no pollution coming out of it when it's running. Right.
- [09:52]
A
It's electric.
- [09:53]
B
It's electric.
- [09:53]
A
That's The E&EV 12.
- [09:55]
B
Right, right. Right. And then the bigger issue is, is the noise? Also as big an issue is the noise. You know, people don't. People there are protests. Stop the chop. You know, and they went to protest when Joby came to New York. And Joby was smart enough to invite them all in and say, listen to this thing. It's not loud.
- [10:13]
A
Okay?
- [10:13]
D
And.
- [10:14]
B
And I think it won people over.
- [10:15]
A
So the blade business, my understanding is it's 20 to 25 million dollars a quarter. Right. Almost. Almost $100 million annual run rate.
- [10:23]
B
Yep, yep.
- [10:24]
A
So that fundamentally sets this company apart from, I think, the other three. One is Vert, V, E, R, T is Archer. And now there's a third one just came public. Beta.
- [10:36]
B
Beta is different because they're there's is a more normal takeoff and landing airplane. It's electric, it's got an electric engine, and it has the capacity to put rotors on its wings so it lifts and lands. But right now what they're bringing to market is an electric airplane.
- [10:55]
A
Okay, so this is.
- [10:56]
B
But there are a bunch of other ones too. There's eve, which is and Whisk Wisk is, I think, if not mistaken, backed by Boeing. And eve, I think, is Embraer. And EVE will probably be a competitor in the relatively near term.
- [11:11]
C
I think that's eve.
- [11:12]
A
European.
- [11:14]
B
It's Latin American.
- [11:15]
A
Latin American?
- [11:16]
B
Well, yeah, Embraer, which is, I'm sorry, Brazilian company.
- [11:21]
A
Okay, so you're at the show. Does Joby get more attention than the others?
- [11:26]
B
Well, it's interesting. There's a large area with all of these flying machines indoors, and there had to be 10 or so of them.
- [11:37]
A
Prototypes.
- [11:38]
B
Prototypes, yeah. They're basically all models. And Joby's is a model too. The one that Joby has there, I don't think the one inside flies, but there are a lot of different ones. And you walk around from booth to booth and they tell the story of how this is going to be something that's important. And I think seeing so many of them sort of validates that this is going to happen. But like we said, Joby's been at it for much longer than anybody else. And it has something that's flying. They're building ish1amonth right now. They've sold a couple to the U.S. defense Department that have been flying. They do flights basically every day. This thing's in the air, and it's probably only a year or so away from being government certified.
- [12:24]
A
So let's talk about that. One of the things that I think is a catalyst coming up in the next couple of months is these companies start to join this eip, which is like sort of like they will work hand in glove with the FAA and share information with each other to start working these into the overall ecosystem of flying things.
- [12:47]
B
Well, right. So the Trump administration is making an effort to create use cases for these flying machines. And that's where I think the biggest advantage Joby has relative to its acquisition of Blade. You know, Blade takes reservations online. You go to the heliport, you pay $175 or $250, it takes you to the airport, and it's a great experience. You don't have that set up in many other cities around the country. I mean, New York is pretty particular in how well developed that is. And the thing that's important about that is not simply that New York is developed, but that the people who developed New York are the people now at Joby getting ready to develop the same thing in other cities.
- [13:37]
A
They have a customer base.
- [13:38]
B
They have a customer base and they have a management that knows how to put the infrastructure in place. How do you lease the space, how do you get people coming, how do you get people going, how do you do the reservations, how do you. When you land at the airport, how do they get to their airplanes? All those details Blade has already worked out.
- [13:58]
A
Right. That's not the high tech part of this. That's more like the logistics and the people moving part of this, which is equally important.
- [14:06]
B
Right, right. So there are two parts. Right. One, you have to have the machine that flies in the air and carries people, but then you have to have. And then you have to, you have to be able to make a lot of them. And a lot is something we should talk about in a second. And then you have to. And there are plenty of people, I think, that will buy these. I mean, there are going to be thousands of people that are willing to buy one of these things.
- [14:27]
A
You say people, not like people, but organizations.
- [14:31]
B
I think it's going to be a wide range. I'm sure there'll be plenty of deep pocketed folks who fly airplanes and helicopters that want one of these. I'm sure half the mega yachts around the world would rather have one of these on board than a regular helicopter. But I don't think that's where.
- [14:49]
A
That's not Joby's business.
- [14:50]
B
That's right, their businesses, it's going to be operating them. And the reason that's super important to my mind is that these things are going to be in short supply for the next five years. Even if two or three companies have them available to be sold three years from now, Joby will be lucky if they can make 200, 300 a year two years out. The other guys are going to be way behind that by every. I mean, there's really hard to see how they won't be way behind that. So the thing that limits you then is if you're selling them for whatever it is, 5 or 10 million each, and you're selling 200 and then you go to selling 220, your revenues go up by 10%. But if you're operating 200 and you're making $5 million or generating $5 million of revenues on the operating 200 and the next year you're operating 400, then your revenues have just doubled. And then if the modeling. That's exactly right, I'm modeling.
- [15:48]
A
So say it again. Let's say there's 200 of these in operation.
- [15:53]
B
Listen, I think a year from now they're going to be a dozen of these in spots around the world.
- [15:59]
A
Yeah.
- [15:59]
B
Not really flying and generating revenues 12 months from now, but I'd be surprised if they don't have one in New York city. If not 12 months from now, 15 months from now. Not doing any real work, but sort of prepping to see how it fits into what they have.
- [16:17]
A
It seems like they're gonna be adopting these internationally faster. So there's a six year exclusive agreement between Joby and the RTA for air taxi services in Dubai and plans for a commercial launch of that in 2H26. So let's say that happens smack in the middle of 26 and it's at the Dubai airport and it's gonna fly to the mall. It's gonna, you know, it's got a couple of destinations that it'll take people. That's a pretty big deal. And it's like a year from now.
- [16:48]
B
And it's a year from now and it's like science fiction and it's unfolding like here and now. And look, I first became aware this company first went public at five and at the time they got a lot of enthusiasm because it was going to be the next Tesla and it was, gee whiz, technology.
- [17:05]
A
We were in a bubble anyway.
- [17:08]
B
But you know, when I looked at it back then, it was like, wow, this is a long way off. You know, I mean like, okay, yes, this is going to probably happen, but decent idea, but it's a long way off. You know, five, six years have gone by and you are an awful lot closer. And now it's like a lot of the early enthusiasm, people got disgusted. They lost money all the way down. But now I think you're getting to the place where the reality is happening and it's really right.
- [17:40]
A
So, right. These stocks were caught up in that whole mania spac bubble with all the crypto stuff that blew up and it was just too speculative. I made the argument that they probably shouldn't even have been publicly traded. All this. It's like a fluke of history.
- [17:56]
B
They had a chance to raise money and you know, they did through that window and they raised the money and they put the cash on their balance sheet and they've spent it building out their businesses. But it was too early for investors.
- [18:08]
A
Okay, so Joby is $12 billion market cap. They've raised money on several occasions. It seems like they have enough to start production for sure. I'm sure they'll raise again if the stock price gets significantly higher.
- [18:22]
B
We'll see about that.
- [18:23]
A
You're not sure?
- [18:24]
B
I'm not sure. I mean, I'd be optimistic that, you know, as they start ramping production, they'll sell a handful and then, you know, it wouldn't be surprising to me if they sold them and leased them back and didn't actually own all of them. But, you know, from a, from a capital allocation perspective, I wouldn't be, because, look, once these things start operating, they're going to have a market value and they're going to have an intrinsic value. And so if they are spending $3 million on each one and have 200 and then 400 and 600, that's a lot of millions of dollars of capital tied up.
- [19:02]
A
Okay. People say to you, why would I invest now? Why wouldn't I just wait until they actually launch commercial service in Dubai, for example, or in United Arab Emirates, Saudi Arabia, whatever country lets them start up first. Why wouldn't I just wait and see? What if it's a disaster?
- [19:22]
B
Well, they're going to be hiccups, and the stock, I'm sure, will correct by 30% a whole bunch of times over the next 10 years. The question is whether it corrects 30% from, from today's level or from 2 or 3 higher. Right. And you know, I look at that stock today and I look at the chart of it, I'm like, wow, 13, $14. You could easily see how that doesn't hold. And it gets down to $10, $11.
- [19:52]
A
I don't own enough of it. So I do want that.
- [19:55]
B
I do. But the reason I do is because it would be ridiculous to miss the move from $12 billion to 15, $50 billion equity cap because you wanted to get it 20% cheaper. I mean, I made that mistake in Carvana a bunch of years ago, and I kick myself every six months about how stupid that was.
- [20:17]
A
Okay, do you see this as being Tesla esque? Just in terms of Joe Ben, like the founder, he's still there. He's considered to be like sort of the revolutionary around which the whole ecosystem revolves. Like, do you see that possibility here?
- [20:34]
B
I don't. I mean, people talk about the comparison to Tesla all the time. I hear that there are some similarities. But yeah, I think that the depth of organization behind the founder is, is very different. In the case of Joby. I mean, they have real corporate partners that are very committed to them. And I don't think it's just his quirky driven style that makes it happen. I think Tesla, I think, I think Musk was, was very smart in understanding that Electric posed a tremendous advantage. I think this fellow was really early in making it happen. And I think this guy is an important leader for the company. But frankly, I think this company works, you know, even if you don't have a charismatic CEO.
- [21:22]
A
Let's talk about the corporate partners. I think Toyota owns 15% of the business.
- [21:27]
B
A good chunk.
- [21:28]
A
A good chunk. So they've invested directly, they've acquired shares, and they're going to be the manufacturing partner that enables them to build 200 of them or 400 of them.
- [21:37]
B
Well, they, they have given up cash money to be invested and they have management on the board and they are giving guidance on how to do the manufacturing. But Joby is really going to be the manufacturer and that's different than Archer. Archer is planning on subbing out the manufacturing to Stellantis. Stellantis, you pronounce that one right? Not me.
- [22:04]
A
Chrysler.
- [22:05]
B
Yeah, Chrysler. Jeep.
- [22:07]
A
Okay.
- [22:08]
B
Or Fiat.
- [22:09]
A
So Joby is. So Joby is building themselves.
- [22:13]
B
Joby is building California. California and Dayton, Ohio. And they have a pretty decent sized facility in Dayton, Ohio. And they're starting to actually use it to manufacture the blades. Because there are a lot of blades that go on every one of these and they're pretty sophisticated and, you know, specific.
- [22:31]
A
Yeah.
- [22:31]
B
So they'll be ramping up manufacturing of a lot of blades.
- [22:34]
A
Okay.
- [22:35]
B
In Dayton.
- [22:36]
A
One of the other similarities here to Tesla that I think is worth considering and I'm sure you have. I follow smart money. I like to pay attention to people who have taken big swings that have both failed but also worked. One of the largest equity shareholders in Joby is Baillie Gifford. And this is big Scottish asset manager that took a big swing on Tesla very early on and built like a $30 billion stake as a result with a lot of profit.
- [23:04]
B
And I'm curious, you know, how I know Bally Gifford. How I know Bally Gifford? Because, you know, I'm a value guy and I look for short ideas. And every now. And there are a lot of.
- [23:17]
A
You use their portfolio to look for short ideas.
- [23:19]
B
No, what happens is I look for something, I find something that's really super richly priced.
- [23:24]
A
Yeah.
- [23:24]
B
I'm like, yeah, it's really richly priced, but they're really well positioned. Oh, and fricking Bally Gifford owns a slug of It.
- [23:30]
A
Oh, so that will. That was questions.
- [23:33]
B
I'm out. I'm out on the short side.
- [23:36]
A
Okay, so it's meaningful to you. I think they have a 6% stake or more.
- [23:39]
B
Yeah, they're really smart investors. Listen, they're smart investors. I think that's a really positive sign.
- [23:45]
A
John, can we put up some pictures from. From the Dubai Air show featuring Charles?
- [23:51]
B
All right.
- [23:52]
A
All right, so walk us through what we're looking at. This is what.
- [23:56]
B
This is your little aircraft indoors.
- [23:58]
A
This is the SR4.
- [24:00]
B
Yep, yep. This is. This is the one they're going to be making. This one probably doesn't fly. Like I said, I don't know for a fact, but it doesn't matter. This one's the one indoors. The one outdoors does. Oh, there we are.
- [24:09]
A
Hey, I know that young lady. Is that Lynette Lopez?
- [24:12]
B
That is my associate, Lynette Lopez.
- [24:15]
A
Isn't she fabulous?
- [24:16]
B
She is one of the best ever.
- [24:17]
A
All right, so where are you guys? You're in the cockpit.
- [24:20]
B
I am at the controls.
- [24:21]
A
Okay.
- [24:22]
B
On the far right is Teresa, who is head of ir. Then we've got Phil and John in the backseat who traveled to Dubai.
- [24:30]
A
That's how I know this version doesn't fly. Because you are at the controls and Lynette is behind you. That is not. Definitely not happening. Okay. What else do we have? This video.
- [24:41]
D
Okay.
- [24:41]
B
So there you go. There's this little thing buzzing around.
- [24:45]
A
Oh, it's so cool.
- [24:46]
B
It's so cool.
- [24:47]
A
It's like a dragon. It's like a dragon in the sky. People aren't.
- [24:51]
B
It's silent, and it's.
- [24:52]
A
Yeah, maybe because we have the video on mute, but that's one of the big parts of it.
- [24:57]
B
Yeah, no, it's a big deal, and it's a really big contrast to the jets screaming overhead, but, yeah, here it comes. It's gonna go sit there in front of you and go off. Okay.
- [25:08]
A
Do people get used to it?
- [25:09]
B
I haven't yet.
- [25:10]
A
Okay, so people are staring at it when it's up there?
- [25:13]
B
Yeah, for sure.
- [25:14]
A
Okay. Is it notable to you that none of the other OEMs got one up in the air?
- [25:20]
B
You know, listen, we own Joby because when we learned about these companies, we tried to understand who was ahead and who was.
- [25:27]
A
You want to own the leader in a new category?
- [25:29]
B
For sure. And I think they're the best managed and with the product that's furthest along.
- [25:34]
A
Okay.
- [25:34]
B
And I think that evidence is that. That this is the company that has the product that's furthest along.
- [25:40]
A
Okay.
- [25:41]
B
I mean, I think Eve will be. There'll be other competitors, but who cares? Like, it's a big world out there, and they're going to be behind Joby.
- [25:48]
A
Let's touch on Archer then. Not the leader, but at one time, people thought Archer could be a leader. I think the stock price has been. I own both. I own more of Joby because I agree with you, but I own some Archer because I thought the midnight looked pretty cool.
- [26:03]
B
It looks very cool.
- [26:05]
A
Yeah. And that's the extent of my due diligence on that.
- [26:08]
C
But.
- [26:09]
B
But its videos are very good also.
- [26:11]
A
Okay.
- [26:12]
B
And it has gotten off the ground.
- [26:14]
A
Yeah.
- [26:14]
B
So there is something real. There's a thing, and there's resources behind it to get it to market. You know, they have a balance sheet.
- [26:23]
A
But that's a different model. They want to sell these.
- [26:26]
B
Correct.
- [26:27]
A
They're not looking. Or they are looking to operate them as a taxi because they signed a deal with the city of Los Angeles. Well, they want to be the Olympic official Olympic evtol, which we'll see.
- [26:38]
B
They will be the official Olympic evtol, there's no doubt about.
- [26:42]
A
Will they be ready?
- [26:43]
B
They gave the Olympics 30 or $50 million for the right to be the official EVTOL. They will be the official EVTOL. Whether or not their aircraft is flying in 2028 is a very fair question. You know, 2028, I think it's going to be a foot race for them to get it in the air.
- [27:02]
A
Yeah.
- [27:02]
B
But if they get it in the air, I think that Joby gets every bit as much advantage out of that as Archer does. Because what people are going to find amazing is that these things exist and.
- [27:14]
A
They validates the category.
- [27:16]
B
Right. And then. And then, you know, and then if they're actually. If you have actually airports and heliports in New York City where Joby operates them, the fact that people have seen the Archer 1 in LA and it's blown their mind, you know, then, you know you're going to go use the one that exists.
- [27:34]
A
Your firm is called valueworks. Traditionally, most people don't equate value with investing in flying cars. So I wanted to ask you to talk a little bit about how this fits in to the type of investing that you guys do. And, like, how does your investment process work to the point where you buy Joby and you say, we're going to hold this for multiple years despite the fact that there are no, like, traditional value metrics that make sense yet?
- [28:03]
B
Well, yeah, I rebelled against the label value investor. Early in my career because I never. Luckily.
- [28:10]
A
Luckily for you because it hasn't gone well.
- [28:12]
B
Well, I did eventually turn around and settle on the name valueworks for my firm because initially my sense of value meant you buy lousy businesses cheap and you simply ply your craft in the bottom half of the valuation continuum trying to find something that isn't really terrible but is priced really terribly. What I do is actually try to find things that are really exciting growth stories but are trading at an attractive valuation. Our tagline is quality assets, compelling valuations.
- [28:46]
A
Quality assets, compelling valuations.
- [28:48]
B
Right, right. And how you determine valuation is always a little bit specific to a company. Why did I think Joby was attractively priced when we stepped into it? Well, they had two thirds of the share price in cash and they had invested that amount again in building their product up to the point they had done it. So I was getting in at a very significant discount to what they had already invested in building this thing. And I think that eventually building this thing will be a money making proposition. So we're sort of doing the same thing in Rivian today. They've invested 30, $40 billion in getting their business to where it is right now. And I say invested, some of that's operating losses, but it's still money that had to be spent to get here. If getting here is a good thing, then being at a discount to what was spent to get here is probably cheap.
- [29:47]
A
I'm seeing the Rivians on the road. There were probably 20 of these EV manufacturers that came along five years ago. Most of them are gone, but the Rivian sort of caught on. It worked.
- [30:01]
B
It worked. They're selling 50 ish thousand a year at the high end. I drive one, I think it's a good car. And I think that, you know, the barriers to entry to the next guys are going to be pretty harsh because there have been a couple that have gone broke and the value of those cars has evaporated, of course. And you know, if you own a car and the manufacturer goes out of business, not great. Especially if they've only built 20, 30,000 over their, their lifetimes. Right, right. I mean, if you, if Tesla would go bankrupt tomorrow, someone would figure out how to service your Tesla.
- [30:34]
A
Right, right.
- [30:34]
B
If that company wasn't there, there's so many of them on the road, someone would service it.
- [30:38]
A
Right.
- [30:39]
B
When it comes to any other EV maker, you know, if they're out of business, your cars is worth a paper.
- [30:45]
A
So. So listening to you talk about Carvana and Rivian and Joby I wouldn't use the term like broken growth stocks, but maybe like the right way to think about it is companies that have made big infrastructure investments in their own future, but then other investors have given up. And that's when you get interested in taking a look. Because, hey, look, they already spent the capital, they already built the thing.
- [31:10]
B
And the thing is there today, the.
- [31:12]
C
Thing is there and the thing is working.
- [31:13]
B
It may not be working.
- [31:15]
A
It's a really interesting strategy because most growth investors, when everyone else gives up, they give up too.
- [31:20]
B
Oh, right. And sometimes you're right to give up because sometimes business is a fail. But if the business is not really a fail and they're just out of favor at this moment and they've just had hiccups, look, we own Instacart also, which I think fits right in that.
- [31:35]
A
Oh yeah, perfect, right?
- [31:36]
B
I mean, I think they're a leader. I think they've built their business. I think it cash flows nicely. And I think people have. Have moved on because of whatever number of reasons. Okay, including DoorDash being a tough competitor.
- [31:50]
A
So you think 2026 will be transformational for the EVTOL space because finally there will be a commercial service. Even if it's just a handful of these around the world, there will finally be a cash flow attached to each vehicle. They'll lose money, but so what? It'll represent the start of people exchanging money to ride in them. And that's like a major turning point.
- [32:15]
B
And the growth opportunity is pretty darn massive.
- [32:18]
A
Because how big do you think this space could be?
- [32:22]
B
You know, they're gonna be doing tens of billions of dollars worth of sales seven to ten years from now. It's gonna be a big deal.
- [32:29]
A
Is that the reason to get in now is the chance that it works? Is the reward is great enough to justify the risk of it not working today?
- [32:39]
B
Absolutely. And to fine tune it too much, you know, this price is right and that price is wrong. Could be a very big mistake.
- [32:47]
A
Is there a hurdle for you to add other names besides Joby? Like what's the, what's the deciding factor? Is it more about your own portfolio and not wanting to have too much exposure to the space?
- [32:57]
B
No, I don't. I don't wouldn't mind having another name in the portfolio. The valuations haven't been there for us. We looked at Blade long and hard as. As a business and you know, the valuation never made sense. We never made the same value argument. We don't make the same value argument with Archer. We don't make the same value argument with Eve. You know, we do make that. We don't make the same value argument with lucid. I think lucid is, you know, one of the ones that might not work. Yeah, but we would, you know, we have our eyes out for other ideas. You know, walk the Dubai air show and kick tires at a whole bunch of different places. And it wasn't just because we wanted to be sure we were right about ours. It was because we were looking for other ideas.
- [33:40]
A
Of all the holdings in your portfolio, what do the value works investors get the most excited to hear about? Is it this?
- [33:49]
B
A lot of people like Rivian. An awful lot. A lot. A lot of people like Instacart a lot. They don't love Spirit Aerosystems, but, you know, they're being bought by Boeing and we're getting at Boeing really cheap when we buy that. Nobody likes office property investors. That's a debt instrument we own on office properties. And it's being a bit bumpy right now.
- [34:12]
A
Um, but do you use that as a signal, like, in terms of, like, maybe. Maybe people are too excited about this and too pessimistic about that, or do you try to tune that out and just focus on the value?
- [34:22]
B
You know, I think you make a mistake when you. When you put too much emphasis on whether there's enthusiasm for it today or not. You know, you don't want to focus on like, oh, I'm buying it at the high and that's bad, or I'm buying it at the high and that's good. You want to focus on, I'm buying it at this price and the stuff behind it is worth this amount. And that's either more or less. And the stuff is either going up in value or going down in value. And stay with that. And, you know, look, yesterday's price is not a good indicator of tomorrow's price.
- [34:53]
A
Well, fair point. I think we could leave it there. Charles Levonides of Valueworks is valueworks.com or where can we go to learn more? Valueworks llc.com valueworks llc.com Charles, thank you much so, so much for coming. We'll keep in touch with you on Joby and hopefully we'll have you back.
- [35:11]
B
Thank you very much. Total pleasure.
- [35:12]
A
All right, guys, thank you so much for listening. Thank you for watching Smash that like button and we'll talk to you soon.
- [35:32]
B
Foreign.
- [35:39]
A
Ladies and gentlemen, welcome to your favorite live stream podcast. What have you on stock market, the economy. My name is downtown Josh Brown. If you're here for the first Time. My co host is Michael Batnik. Michael, say hello to everyone.
- [35:56]
C
Hello. You know, this is more European than mine. I usually don't do this, but I gotta say I think we're doing some of our best work. Like, this really is the best show in the world. I said it there. We. I'm comfortable.
- [36:05]
A
It's true. I appreciate the degree to which you believe in what we're doing here. Guys, the live YouTube, it took a.
- [36:13]
C
While, but it took a while. I'm coming around.
- [36:15]
A
You're finally with us. All right, guys. We hit a record number of viewers live, I think last week. I see the chat is full today. Say hello to a couple of people real quick. Chris Hayes is back. I see Georgie in the chat. Riley Anderson. Kelly. Sf. What's up? Wildcat Creek? Cattle gave us the peace sign. How are you? Everybody's talking about my quarter zip. This is how I always roll. I've been. I know it's trendy now. I've been wearing quarter zips for at least 25, 26 years. So it's this, not me being on trend. This is just what I am. Joe Altamoro says, what's up, pounders? What's up? All right, we have a sponsor. Let's. Let's do a quick shout out. Betterment Advisor Solutions. Michael, tell us about Betterment.
- [37:02]
C
That's right, Josh. Today's show is brought to you, in fact, by our sponsors at Betterment Advisor Solutions. If you happen to be thinking, there's got to be a better way to grow my ra, you're not alone. With Betterment Advisor Solutions, we do the heavy lifting so you can focus on what matters most, your clients. From improved service that makes asset transition smoother to fast paper free onboarding that delights clients. On day one, we've built a digital first platform designed to streamline your operations and make life easier. Now, if you're thinking, wow, they take the paper out of paperwork. That's right. Grow your RIA your way with Betterment Advisor Solutions.
- [37:36]
A
Learn more at betterment.comadvisors.com advisors.
- [37:42]
C
Come on now.
- [37:43]
A
Investing involves risk. Performance not guaranteed.
- [37:45]
B
All right.
- [37:46]
A
Michael has something he wants to get off his chest real quick about the Warren Pies episode that we did last week. What did you want to say?
- [37:54]
C
All right, getting off my chest is a bit strong, but I'll say this. Had you asked you and me and most people at the end of Thursday, after a day where the NASDAQ, I'm sorry, the S P gapped higher by 1.5%, closed down by as much very unusual on great earnings. I would have said, yeah, probably we go lower the next few days. At a bare minimum. If you told me that the next three days the market would take back all of the losses, that you would gain 3.5% and have the best three day session since May, I probably wouldn't have believed you and the market. If you're not humbled by this market, you're, you're a psycho.
- [38:29]
A
I'm so glad you said that. And while I talk, just put up this chart that illustrates this reversal.
- [38:36]
C
Unbelievable.
- [38:37]
A
So like we're looking at the last few candles, the last few days. That big red one is Thursday chart off. So the point is we're talking with Warren Pies on Thursday morning. The show is going to air Thursday, Friday, the next day Friday. And we have no way of knowing that we're going to have a gap up a crash and then the following day we're going to gain, start gaining most of it back. Very difficult to do a market related show on any sort of delay. But we sort of got bailed out. Ooh, is that, who, who could that be?
- [39:13]
C
No.
- [39:14]
A
Oh, my goodness. We have, we have living legend Ed Yardeni in the house tonight. This is so exciting. You know, it's such a coincidence that you stopped by because we were going to talk about your research over the weekend and it's coincidence. It's so much better to have you here to do it. I wanted. Ed, if you don't mind, without making you blush, I want to give you your flowers. Thank you. I was saying this weekend to a couple of people and I said to you as well, of all of the research that I read and it's pretty much everybody, you have been the most consistently right in the post pandemic period talking about this roaring 2020concept. And it's almost note perfect the way it's played out. And I think you drew that parallel between the Spanish flu of, I guess 1918. Okay. And then the recovery from that leading into this roaring 2000s. And they had back then the radio and some other technologies, of course we have AI, but it's just been remarkable and you've stuck to it. You never declared victory. You never said, all right, I got it right, it's over. You've been sticking with it and it sounds like you're sticking with it for 2026.
- [40:30]
D
I'm definitely sticking with it for the rest of the year and going into next year and then through the end of the decade. I'm talking about 10,000 on the S&P 500 by the end of 2029. And that's only likely to happen if the economy remains resilient as it has for the past several years, absorbs shocks remarkably well and that'll only happen if earnings are remarkably strong. So that's my base case. I mean, I can see alternative scenarios. You know, I'm not saying that things can't go wrong, but I have been seeing a lot of similarities with the 1920s. 1920s ended badly. I don't think this is going to end badly. I think I'll be talking about the roaring2030s. So no rest for the weary for you from.
- [41:21]
A
From your lips to God's ears. Roaring 20:30. We're very happy with that.
- [41:25]
C
To what do you. Do you think the. The economy owes the stock market for its resilience? Is it a combination of the hyperscalers as well as fiscal accommodation? Like we've had so much shit thrown at us over the years and we just continue to grind through. Not perfect, of course, there's pockets of weakness. You don't have to squint too hard to find them. But by and large, in the aggregate we're going up and to the right.
- [41:53]
D
Yeah, I think there are a few reasons why the economy has been so resilient. We had a terrible great financial crisis back in 2008, 2009. We did restructure the banking system. The credit markets developed some very important shock absorbers like the funds that are always looking for distressed assets. When a private credit blows up, it blows up in a diversified portfolio. So somebody's going to get a haircut on their rate of return. But it's not like the banking system suddenly goes into a credit crunch. So I didn't think we'd have a credit crunch and we didn't. We had a financial crisis in 2023 that lasted what, about one Friday and then by Monday?
- [42:43]
A
Yeah, weekend.
- [42:44]
B
Yeah.
- [42:45]
D
The Fed is really good at playing whack a mole in the financial markets and throwing liquidity. And the Fed put. They've kind of become real masters of the Fed put. The other important development which I think I got was the. And I have an inside track on this. I'm a baby boomer and the baby boomers are all my friends are retiring. I'm not them still working for a living. I got five kids and still helping them out. But my friends who had maybe two kids are young adults. They're all cruising around now. They're going to restaurants, they're checking out where their healthcare Provider just to make sure they can climb Mount Machu Picchu on their next vacation. And they're spending money. They have $80 trillion of net worth. It's the.
- [43:32]
C
Well, just, just your friends.
- [43:34]
D
Just my friend.
- [43:36]
C
So they're not bothered by higher interest rates.
- [43:39]
D
They love them. Are you kidding? They absolutely love them. And they love the, the fact that they're, they can't spend money fast enough because as they're spending the money, they keep looking at their net worth and it keeps going up with the stock market. So again, it's the wealthiest retiring generation ever. And by the way, for my observations, a lot of my friends are helping their young adult kids with things like mortgage down payments. Mortgage payments, helping out, maybe with the grandchildren's after school activities. So a lot of that just isn't really being captured by the standard talk about, you know, there's only one kind of consumer and not really understanding the varieties of consumers. And then as you mentioned, the. I've been talking about the digital revolution. The digital revolution started in the mid-60s with IBM Mainframe and it's evolved to the point where we now have AI. To me, AI is just an amazing application. It's kind of like, you know, we had Word and Excel back in the late 90s and once everybody used them, it was like, is that all we have? Well, along the way we got a lot more applications. But AI is an application that lends itself to just about every business and all of our personal lives. And I think it's just kind of starting. And technology is something where you can rent. I mean, when you go on the cloud, you can rent Microsoft Office now and you don't have to upgrade it. You can have one IT person working remotely. So all these factors have been very conducive to the resiliency, the economy. And oh, by the way, we do have a rather large federal deficit. And I've been telling people, I'll worry about it. I'll worry about the debt, I'll worry about my friends, the bond vigilantes. I'll worry about all that when the bond vigilantes worry about it. Right now the bond yield is 4%. It's pretty calm.
- [45:32]
A
Yeah, we heard a similar sentiment from Steve Eisman who basically said, I'm on Wall Street 35 years. I've been hearing about bond vigilantes the entire time. The deficit, I'm sure it'll matter one day. It's not going to stop me from investing today. I want to.
- [45:48]
C
Hold on, Ed, you invented that term, did you not?
- [45:51]
D
That's correct.
- [45:52]
A
Bond vigilantes. Yeah.
- [45:53]
D
Yep.
- [45:55]
A
So that's how. That's how long people have been worried about the bond vigilantes.
- [45:58]
D
I have a shelf just on my bookcase just devoted to books from the 80s, and particularly in the 1980s. Things like, you know, Living Beyond Our Means, the Debt bomb. I mean, this. When I. When I wrote my piece in July of 1983 and introduced the concept of bond vigilantes, I said, they're worrying about $250 billion in annual revenue, annual deficits. Now we're talking about one and a half to 2 trillion.
- [46:25]
A
Yeah. I want to go through some of the specific things that you said to set up this roaring 2020 scenario. And I guess. And I have your charts. So we'll. I'll. I'll set you up and you could explain what we're looking at in the chart. To start with, s and P500 operating earnings rising from 268 per share this year to $310 next year. $350 in 27, $400 in 2028. $450 in 2029. This will require the S and P profit margin to rise to record highs in the coming years in response to faster productivity growth. And John, I think we have that as Figure 8, if we could want to pop that on screen so Ed can react to it.
- [47:10]
D
Yeah, that's it. I just wanted to show that I think, admittedly optimistic, but I think a realistic scenario that could get us to the kind of earnings level that would justify the s and P500 climbing to 10,000. I think by 2030, which gets us into the next decade, we'll get up to $500 a share. The market discounts. It looks forward. And if the market gets kind of as optimistic as I do and in 1920, and, sorry, in 2029, starts looking forward to the year, to the new decade, I think we'll be discounting something like $500 a share in earnings. And you multiply that by a P E of 20 and you get 10,000.
- [47:54]
B
Yeah, yeah.
- [47:55]
C
And where do you get those numbers from those operating earnings?
- [47:58]
D
Well, basically, I extrapolate what the growth rate of earnings has been in the past and it's usually, you know, 6, 7, 8% is the kind of trend growth that we have. And the question is it. Is it going to be six or is it going to be eight? It's. And, you know, I've got more the optimistic side. So, you know, I start out with a projection of revenues, then I come up with earnings and I look at what the implied profit margin is and say, well, is that reasonable? And so I think this is a reasonable scenario. And again, I'm not trying to pretend that things couldn't go awry, but so far so good.
- [48:38]
A
Figure 10 John. Forward PE of the S&P will range from 18 to 22 over the rest of the decade. I feel like there's a portion of the investor population, mostly professionals, who just feel this almost magnetism toward a 15 Pe, a mythical Pe that of course we could see it. We had, we temporarily had it in 22 and if we have a recession, you'll definitely get it again. But absent that, like 18 to 22 seems to be like the new standard range. And I hate to say it out loud because that's probably.
- [49:18]
D
We don't want to see, we don't want to use that curse. We all know what it is.
- [49:24]
A
Permanently high plateau. We don't want to say things like that.
- [49:27]
D
This time it's different. But look, it all depends on what you think about the prospects of a recession. The economy since the beginning of the decade has absorbed a lot of shocks. As I said, the pandemic was immediately followed by a two month lockdown causing a two month recession. The two month recession was followed by social distancing which affected services. Social distancing then was followed by, well, we had a war, Russia attacked Ukraine. So in 2022, 2023, we had a spike in inflation because of the war and because of supply chain disruptions. The Fed came in and went from 0 to 550 basis points on the Fed funds rate. Everybody said that's definitely going to cause a recession. I disagreed with that. I said the Fed's going from zero, which was the abnormality. Five and a half percent wasn't the abnormality. And I kind of took a stance that the economy would be resilient. And then what? Well then nothing happened. No recession when the Fed raised interest rates and now we've had tariffs. So we're testing the Smoot Hawley thesis, the idea that this is going to end badly the way the 1920s ended, which was really something that happened in 1930. And here we are with the economy at an all time record high. The challenge today of course is the labor market. Kids coming out of college are finding it very, very hard to find a job. I think part of that is AI the baby boomers are retiring, but not at 65. They're kind of hanging around and that's creating fewer, maybe job openings. But Whatever is the problem in the labor market, I think the fact that GDP has been so strong is proof positive that we're kind of in a productivity boom. And that's the whole thesis of the roaring 2020s. Like the 1920s, there's a technology led productivity boom, which generally speaking, there's nothing wrong with it. I think maybe there could be a couple years where people have to reskill themselves to find jobs, but productivity is like fairy dust. It better growth, lower inflation, better real wages and a better profit margin.
- [51:45]
A
Yeah, and I think just that concept of having the boomers still living and spending in their 70s as though they're in their 50s and supporting grandchildren like a 30, like people in their 30s would have supported their own children. That's a really big element, especially in places where we live, like, like Long Island. Ed. And I think that's, I guess it's a demographic thing that was hard to foresee 15 years ago, but that's sort of how it's playing out.
- [52:12]
D
I mean, look, there's no doubt that there is an affordable affordability issue. It's become a hot political topic of late. We know that, you know, you go out to a restaurant, you go to a grocery store, you buy, I mean, auto insurance. I got five kids and the, the youngest ones are in their 20s and insurance just for one is $4,000 a year. I mean, there's no way kids can afford that. So I think there's a lot of parents helping out their young adult kids and you know, that's kind of helping to offset the affordability issue for some people. Of course, there's a lot of people that are doing very poorly here. But from a macroeconomic standpoint, when you add it all together, the consumer and balance has been remarkably resilient.
- [52:59]
A
I want to get to the result of the exercise. Figure 11. You have the S&P 500 on track to rise to 9,000 to 11,000 based on the earnings expectation and the potential multiple that we talked about by the end of 2029. So that's 10,000 by the end of the roaring 2020s, which you note would be up from 3,230 at the end of 2019, representing an increase of 210%. And you ask rhetorically, is that amount of gain delusional? Not really, since it was exceeded during three of the previous decades. Since the 1920s, there have been three roaring decades in which the stock market gained over 200%. So what you're laying out here is not only feasible, there's precedent.
- [53:52]
D
Yeah. Take a look at. Can you flash figure 12 on the screen?
- [53:56]
A
Here's figure 12.
- [53:58]
D
There we go.
- [53:59]
A
All right. Walk us through this.
- [54:01]
B
Yeah.
- [54:01]
D
I mean, those straightforward. It's the decade percent changes going all the way back to the decade of the 1920s, and we've exceeded 200% a few times here. We did it in the 20s, we did it in the late 40s, and.
- [54:23]
A
Then almost did it last decade.
- [54:26]
D
Yeah, almost did it last decade. So the bottom line is that there's nothing unusual about a roaring stock market. We've had it before. And just because I make the allusion to the roaring 1920s doesn't mean that it's that unique.
- [54:45]
A
I want to finish by just telling you it's so refreshing to listen to people of your generation who are optimistic about the future. I think there's sort of like a disconnect sometimes when you're talking to people who have seen a lot of history and you would expect them to be more optimistic given everything that they've witnessed in their lifetime. But it goes the other way. In many cases, they sort of feel like the. The golden era is long gone and all that's ahead of us is misery and strife and class warfare and all the problems that we read about each day. But you have very notably gone the other way. You've been right from an investment perspective, and I think you've sort of served as a beacon for people that want to hear somebody with wisdom and experience say something positive. So on behalf of all of our viewers and listeners, I want to say thank you for that. Can you tell us about Quick Takes and why people should check it out? And we're gonna. We're gonna post a link to that while you're talking.
- [55:47]
D
Yeah, well, on Wall Street, I basically provided macroeconomic and strategy research to institutional investors. We had a lot of individual investors, financial advisors, asking us for a product for them, and so we created Quick Takes. It comes out almost every single day. And it's basically, it's very market oriented. It's, you know, we all get know these macroeconomic indicators and political developments occur, and what we try to do is relate them to the market. How's the market? Same thing you do. You both do, but, you know, we just put in some more charts in it and kind of have a basic theme that we're so. Yeah. Anybody who wants to have a look, just go to your dennyquicktakes.com and give it a try.
- [56:39]
A
All right. Your dennyquicktakes.com. check it out. I read it whenever it hits my inbox. And once again, Ed, on behalf of the viewers and listeners, thank you so much for surprising us tonight and walking us through your take. We very much appreciate it.
- [56:55]
D
Thank you.
- [56:55]
A
Great stuff. Happy Thanksgiving, Ed. All right. Wasn't that, wasn't that a delight? Wasn't that cool?
- [57:01]
C
Legend. Nice to hear from somebody with an optimistic take.
- [57:04]
A
I agree. Any. And was any of that something that you would, I don't want to say, like, take issue with, but if you were to push back on, on that, I have an idea of where I would push back. Where would you, where would you, if anywhere.
- [57:21]
C
I do think the S and P is going to 10,000. So there wasn't anything that he said that I thought was so outlandish. But I'd be curious to hear your take.
- [57:29]
A
I think that a market or economic or both sort of event could just delay the timetable. I do, I do think I, I've said to you for the last 10 years that I've known you, I think I'm going to live to see Dow 100,000. So like S&P 10,000 and we're at 7 is not so outrageous. Maybe the timing doesn't work and it doesn't happen by the end of this decade because we have like another bear market year, like a 2022. Perfectly fine. I don't need it to happen by the end of the decade, I guess would be my comment. And I don't think that Ed would disagree. We have these like, minor meltdowns. They don't feel minor in the moment. I shouldn't minimize the impact of them, but I feel like those just delay the inevitable. And so if we don't, if we don't get s and P 10,000 by New Year's Eve 2029, I think ultimately it comes anyway.
- [58:26]
C
Can I tell you something?
- [58:27]
A
Go ahead.
- [58:28]
C
The S P is where right now, 66,800 or something. Okay. So 6.8 to 10 in four years is what CAGRADE6765.
- [58:42]
B
Okay.
- [58:43]
C
So check this out, dude. It's way less than you think it is. It's 10% a year.
- [58:48]
A
I mean, it's a lot. It's a lot. It's. It's above average, but it's not outrageous.
- [58:53]
C
Barely. It's barely above historical average. Literally barely.
- [58:56]
A
All right, so let me get this straight. You PGing this for us? Personality.
- [59:04]
C
Listen, I could, I could. What's the Tommy boy line? Whatever. You know what I mean?
- [59:08]
A
What's. Yeah, no, I love the Tommy, the Tommy boy line.
- [59:11]
C
Which one I could in or whatever.
- [59:14]
A
No, no, no. You could get a good look at a T bone by sticking your head up a bull's ass.
- [59:18]
C
No, it's.
- [59:21]
A
Or you could just take the butcher's word for it. That's what. That's what it is.
- [59:25]
B
But it is.
- [59:25]
C
That's something. No, I know. That is a line. That's not the line that I'm thinking of. That's the best line in the movie anyway. That is the man. Let's move on to. Let's get bearish. So it had. It was. We are three weeks removed from Sam Altman inadvertently pulling the pin out of the grenade and chucking it into the market. Thanks a lot, Sam.
- [59:48]
A
Thank you.
- [59:49]
C
Although. Although I guess the wall of worry that he introduced I think ultimately is a good thing. But throughout this chart. So since, since, since those comments. Open AI's major suppliers. This is from Sherwood News. Investors are under stress. We're talking about SoftBank, Microsoft, AMD and Oracle. I just saw after the close, Deirdre Bosa posted another chart that was similar showing Google exposed infrastructure versus OpenAI and the divergence. Holy mackerel. Since he said. Said has been pretty incredible.
- [60:21]
A
Yeah. So it's like, it's like this interesting thing. It's like this Game of Thrones esque, like the opening montage of Game of Thrones that they play during like the opening credits with the different kingdoms rising up.
- [60:34]
C
I love that.
- [60:35]
A
And then you think about like there's the Kingdom of Alphabet and all of the companies that are in deals with Alphabet, which Nvidia does supply them by the way, which we're gonna talk about at the end of the show. But like this, this like idea that the kingdom of Alphabet is currently rising and you know, we talked about this with Kramer the other night. Like we don't have a stock price for OpenAI. I do not think that would. That stock price would look like Alphabet right now. I just don't. And it's that I can only. Right. I can only judge by the last few companies that OpenAI has signed these massive bilateral deals with. Their share prices are behaving in such a manner that tells you the buy side doesn't believe the sell side that these earnings from these deals will actually materialize. That's it. That's the. It's a huge dichotomy in the market right now. And to ignore it would be sort of ridiculous. Well, I wish we had that stock price. We don't.
- [61:35]
C
Dude, did. How much did matter fall? Meta was down 25% in video as of this morning at the lows was down 16% core weave as a proxy obviously a much smaller company but forget about it. I think, I think OpenAI if it was public is down at least 30%.
- [61:50]
A
Microsoft Dude Microsoft is the ultimate OpenAI proxy on the publicly traded stock market. Just look at Microsoft vs Apple price action wise these are effectively these stocks became sort of interchangeable as the two largest most earnings reliable MAG7 names and Microsoft and Apple do not look the same. Microsoft is suffering as a result of being the company that is currently consolidating open AIs losses into their, into their quarterly statements like they, they're on the hook, they're, they're working with them, they're benefiting but then they're also on the.
- [62:31]
C
Hook and John, throw up that mag 7 rolling 6 today. Skip the next chart just because we're on this topic. Look at this. So shout out to Sean who was able to.
- [62:41]
A
This is a great chart by Sean.
- [62:43]
C
To figure this out. This was not easy to make. So we're looking at the correlation within the MAG7 over the last 60 days and prior to the most recent episode they were all, they were all moving in unison for the most part it was one big trade and then the something changed and they're all being treated very differently as they should.
- [63:03]
A
It's great just looking in the chat a lot of opinions on this topic. C. Paul Breezy says OpenAI publicly traded stock would be the TEMU version Microsoft. That might be extreme. Georgie says Nvidia is an eight year roller coaster. Yeah mostly up with some spills along the way. Apple wins all the time according to Mark. I don't know. Look, I think you know what the really interesting question is. Does that dispersion continue into year end or is now the time you pull the trigger long on the lap of Max Evans?
- [63:40]
C
I think they all catch a bid.
- [63:42]
A
So do I. Yeah that's been the history. Listen, that's been the history.
- [63:46]
C
People are still underweight. There's. There's a melt up at the year incoming. I think obviously you know who could be wrong but I think that one thing that is is not. We're not talking about anymore. You don't. Here's what doesn't happen during a bubble. You don't get multiple compression. Throw this chart up please. From. From chart kid. This was the forward pe of tech on before Nvidia reported it was 32 times and then a day or two later, I'm sorry a month later. My bad, my bad this is a month later. A month later was down to 27 times. This is a. This is a.
- [64:20]
A
Let me stop you. The good. The gray dot is the new forward pe.
- [64:25]
C
You don't have to. That's what I was saying. Shut off.
- [64:28]
A
Well, I'm trying to figure it out.
- [64:29]
C
No, you don't have to figure it out. It's self evident. Everyone. Who's everyone watching.
- [64:34]
A
I need to watch.
- [64:35]
C
They're very smart. They're very smart.
- [64:36]
A
Josh, I need a second.
- [64:38]
C
We had a. We had a. You are a slow visual learner. I've always said this. This is a healthy. And now we could say it's healthy in hindsight because we've taken the losses back. But this is great stuff. We've got lots of doubt. Bring it. It's great show. The doubt is wrong.
- [64:54]
A
Can I have that chart again? Just so I could fully absorb it. This is the biggest. The tech sector. Just eyeballing, looks like it's the biggest. RE rate lower or higher of all the sectors. That's right. Healthcare and staples have re rated higher since October 29th.
- [65:12]
C
Healthcare in particular.
- [65:13]
A
Healthcare in particular. The stocks have rallied hard is the other way to phrase that. I mean, that's basically what we're saying.
- [65:19]
C
Yeah.
- [65:20]
A
Okay. Really?
- [65:22]
C
But not something that happens in a bubble. You don't see multiple compression.
- [65:27]
A
Ramza 675 says Michael Burry lowered the forward PE. LOL. I don't know if. I don't know if I totally disagree with that.
- [65:34]
C
No, no. He definitely introduced a lot of doubt. Nobody was talking about their depreciation schedule before him. I don't think so. He elevated a surface of the Chanos.
- [65:46]
A
Maybe. Maybe. But there you're right. Like Burry Bury very notably threw a rock into the pond. And we're still experiencing the ripple effects. And maybe it ends up not mattering or maybe it does, but the market is paying attention.
- [66:00]
C
You know, it's great. Like, how does this end? We. I think we say that a lot. As if it ever ends. As if the market doesn't open the next day, in the next week, in the next year. It never ends. But getting back to how we opened the show, that sort of price action is. Let's not gloss over that. That's like seriously bearish. When you have a blowout earnings report and the market just says nah. No. Like, meaning my point is this. We're three days removed.
- [66:25]
B
If we.
- [66:25]
C
If we're six months out and that was the top. I wouldn't be shocked just because that is very bearish. Price action. Now, hopefully the last three days have put that in the rearview mirror. But it's not over. It's never over.
- [66:37]
A
You know when it's over? When Burry does his Cassandra Unchained substack for two weeks and people stop paying attention and these stocks all reverse and make new highs. Yeah, yeah, that's when. But your, but your bigger point, which I agree with. You know what the difference is between us and let's say listening to a sports podcast on the Ringer. The season ends the game. The season never ends. The game is never over. One season bleeds into the next. There's no dividing line in between the two. It just, it's the never ending story. I think it's what I love about it. So I try to make this point on the air today we were talking About Alphabet hitting $4 trillion in market cap or coming damn close. And it's just like, dude, think about how many storylines within AI and the Mag 7 have come and gone this year and think about how many went in 180 degrees the other direction. In April, Google was finished. Now Google is the king of AI in, in May or June. What the hell is wrong with Apple? They're falling behind in AI. Why can't they just buy? Perplexity.
- [67:52]
C
So true. Blah, blah, blah.
- [67:53]
A
Now, now the stock's at an all time high, like storylines.
- [67:56]
C
Tim Cook won't even mention AI on his quarterly calls.
- [67:59]
A
How about who's going to beat the Microsoft OpenAI combo? Nobody. Now those stocks can't get arrested. So whatever. We're at Oracle. Oracle went up $200 and then gave it all back a month later. Like, no one's talking about trillions of dollars coming and going in one company's market cap on the back of an announcement. So whatever narrative you have about these individual kingdoms within the AI Game of Thrones, just understand they still rise and fall. And we might be saying an entirely different thing about any and all of these companies six months from today.
- [68:36]
E
It happens.
- [68:36]
A
All it happens. It's frustrating, but it's also pretty cool. And it happens all the time. All right, I wanted to do some stuff on strategy because I think this is a really big story. I am aware that the market cap is just not all that big anymore. But I still think it matters because as recently as a year ago, basically MicroStrategy and Michael Saylor had given birth to a brand new, I don't want to say asset class, but a brand new category of publicly traded company. Like, so at some point you had the first ever oil and gas trust publicly traded. At some point you had the first ever real estate investment trust. At some point you had the first etf. Like new things do get invented and then stay forever. And people act like, like, like they came along the time of the dinosaurs. They've always been with us. No, along the way we invent things Strategy. A year ago look like they invented a new category where it's a company that raises a ton of money, equity and debt capital and accumulates a digital asset as quickly as it can, faster.
- [69:49]
C
Than it dilutes its shareholders, faster than.
- [69:50]
A
It dilutes its shareholders, thereby becoming a category killer, a must own stock. And we had a few imitations, but where we are with strategy and we, we have a video of Sully asking Tom Lee, who has also launched a digital asset trust Bit miner, which is for Ethereum, like strategies for Bitcoin. But let's, let's play that clip.
- [70:16]
F
Let's bring up guys if we can. MSTR, that is the company formerly known as MicroStrategy, now just known as Strategy. The stock's down 50% in three months, Tom. It's down about 65% from its highs in the middle of July. Is MicroStrategy down because Bitcoin is down or is Bitcoin falling in part because the strategies of the world, the Michael Saylor's of the world, have to sell the crypto because their equity is going down. What's the chicken?
- [70:47]
A
What's the egg?
- [70:49]
E
Yeah, well, again, you know, because of my world in research and on Bitmine, we are really plugged into all the trading desks and all the clients that trade. Anybody who has a sizable Bitcoin long position, okay, let's say it's more than a billion. They have very limited ability to hedge it in crypto derivatives like calls the chain. You know, the max they can do is maybe 5% of their holdings. And then if you go to traditional CME exchanges, their contract sizes prevent someone from hedging $1 billion portfolio. However, someone can use MicroStrategy's options chain, which is so liquid, to hedge all of their crypto. So MicroStrategy is essentially absorbing all the hedging pressure that the crypto industry is trying to do to protect their Bitcoin longs. So the reason MicroStrategy is a leading indicator, it's actually the only convenient way to hedge someone's long is to short microstrategy or buy puts. That's what we're seeing today.
- [71:55]
F
This is the kind of stuff Tom it's one of the main reasons that we bring you on because you understand what I would consider the engine oil of the stock market.
- [72:04]
C
Right.
- [72:04]
F
We know how the engine works, or people think they do. But inside that engine, there are gears, there are pistons. There are things that are occurring that for 99.9% of our audience, they don't do this for a living. We get it. This is a really important interview. I'm going to let you go, Tom. We are watching microstrategy, or strategy, watching Bitcoin, and we're watching possibly 77,000, which you think might be kind of a washout period, correct?
- [72:31]
E
Yeah, that's right. Tom demark, who is an advisor to Bitmine, very well known, really giving us a lot of insights. Yeah, he's watching that. Actually, microstrategy at this level here probably is when you want to ratchet into the longs and bitcoin maybe just a few thousand dollars lower.
- [72:49]
A
Okay. That is, of course, friend of the show, Tom Lee. I love Brian Sullivan, by the way. Such a. Such a great dude. I saw him the other day. I was out in Englewood Cliffs or something. I hadn't seen him in probably two years. He towers over me. I don't know if you realize he's like 6, 7, 6 March, man. All right. Anyway, what'd you think about the point that Tom was making, that a lot of the pressure on MicroStrategy is just because it's like the easiest way for people to hedge big money in Bitcoin itself, it's like the options chain is more liquid and a quicker way, and that ends up putting a lot of pressure onto the digital asset, treasury stocks.
- [73:32]
C
Yeah, I mean, I would defer to Tom on that. I think that he knows a lot more about this than I do. The story makes sense. It checks out. But the bigger point, I think if you're selling MicroStrategy down here, or strategy, like, I guess there is a hypothetical world where this thing unwinds the need to puke up their bitcoin. I think it's a lot lower than what bitcoin is today. I don't see that happening. I don't think strategy is a zero, and I'm not buying it, but I definitely wouldn't be selling it.
- [73:56]
A
I think they can raise money. I think. I think. I think if this. I think if the. Everyone's talking about like some mythical level 72,000 where Saylor gets a margin call and he has to sell, I don't think that's how it plays out.
- [74:11]
C
I don't think that. I don't think that number is accurate.
- [74:13]
A
Even if it were. Even if it were. I think he makes a few phone calls and sells.
- [74:18]
C
I think there's a lot of people that are dying, dying for Sailor to go to zero and for him to have.
- [74:25]
A
Not like him, for him to have.
- [74:28]
C
To liquidate, be forced to sell, to meet margin, whatever. Whatever. I would be moderately surprised. Would I be shocked? No, I wouldn't be shocked. But I don't think that's how this plays out. I don't think he's. I don't think he's going anywhere. And to your point, I think that he would. He would. I think it's more likely that he has the ability to reach for a life. A life vest or then. Then he go to zero. I don't. I don't see that.
- [74:49]
A
So do I. All right, let's do some charts. Here's three years of MicroStrategy, or now we call it strategy performance. Effectively, this was, I don't know, a 10 or a $20 stock. They come up with this idea to convert this software business into a bitcoin accumulator. And you can see the result. It was. I wrote about this on my blog the other day. I forget the number that I came up with. I think it was a 3,000% return between. Between when? 3,050% return from when they announced in August of 2020 through last Thanksgiving when this thing became like one of the biggest stocks in the market. I mean, it was just, just absolutely wild. There were no other stocks in the US stock market in that time that did anything even close to 3,000% is 7x and I think in video or 10x. Excuse me, I don't know. 30. Excuse me, 30.
- [75:57]
C
Wait, what?
- [75:58]
A
I'm sorry, 30x and Nvidia did 10x over the same period. So, like, it truly was one of the great winners. Now we're going to look at the nav, which is the net asset value versus the, the market cap. Michael will probably make fun of me for some reason that I don't understand, but I'm looking at this in billions of dollars. And I'm just trying to get to.
- [76:25]
C
So catty look at you.
- [76:26]
A
I don't know, maybe. Maybe I. Maybe I'm looking at it the wrong way. But what I'm trying to figure out is like the market cap of the stock versus the value in dollar terms of how much bitcoin they hold.
- [76:39]
C
Yeah.
- [76:39]
A
And it is now trading at 0.93. So it is A discount to its underlying holdings of crypto after having traded as high as 2.8 times its Bitcoin. What are your thoughts?
- [76:54]
C
Okay, so I wasn't going to make fun of you, but what I was going to do.
- [76:57]
A
But now you will.
- [76:58]
B
But.
- [76:58]
C
But as point out that I took your chart and I enhanced it. Next chart, please. So this Josh, what a dick. I go, no, this is a better visual. You are a visual learner and I fixed it for you. So this low visual learner, you are a slow. Yes, this is a. This is the spread. John, toggle back. This is the difference of the, of these two lines. So what we're looking at to your point earlier is. Next chart, please. MicroStrategy used to trade at a monster premium. The market cap was almost $80 billion more than the value of the bitcoin that it held. And now it is the opposite. It is. The market cap is $6.4 billion less than the bitcoin that it currently holds. Now, of course it's a moving target because the price changes, but I think the point is what I said 30 seconds two minutes ago. I will not be selling it down here. It's over. Chanos covered his trade. It's over. It's at a discount. Can the discount widen? Yeah, sure, why not? But like, I don't. I wouldn't be pressing that here. And if you ask me again, you have to hold this for, for two months. Do you do buy to sell it? I buy it.
- [78:06]
A
I think the problem with just looking at market cap versus underlying bitcoin ignores some other things about the enterprise value. They have preferreds out there which are dilutive and basically they're not debt, but they represent a future obligation the company has to pay make. I think it's 8% or 11% or whatever the number is. They have to make pretty big interest payments on that preferred stock and they have a value. And then of course there's also traditional debt. And I wrote about this on my site and I don't want to go through the whole post that I wrote, but I think the bigger point that I was trying to make is not a criticism of people who own strategy or told you so I think I was just trying to make the point of like when you have FOMO and I definitely did while this thing went up 30x.
- [78:59]
C
Everyone does, of course.
- [79:00]
A
Like, you wouldn't be human if you didn't look at that and say, I should have just bought it. So I definitely felt that. But my point, the point I was trying to make is like there is a cure for FOMO and it's simpler than you think. A lot of times the cure is just time just letting things play out. Nothing is really as great as people think it is when it's going up 30x or 10x. Like there are always. There are always flies around everything. Like nothing's perfect, nothing's pristine. So sometimes just waiting a little, a little while and then things come back around. And the irony is, if you had FOMO watching MicroStrategy run up 10, 20, 30x, well, now it's at a discount to its underlying Bitcoin. So if you loved it so much, why aren't you buying it? And this gets me to another point, which is we don't really want the asset that badly. We want the performance of the asset. And when the perception of that performance continuing goes away, it's like, well, who the hell wants to buy this thing?
- [80:12]
B
Yeah.
- [80:13]
A
And that's where, that's where I think this stock is right now. What do you think about that idea?
- [80:17]
C
I think I. No, no, it's. It's perfect. Perfectly said. I could not agree with you more. The answer to FOMO is give a time. Whether it's the OCLO or the rigatonis of the world. Like you have to accept as an investor, especially in today's market, which is never not going to be like it is now. Okay? The. The beehive of investors, the people that are able to bring a story to life that's never going away with. With the advent of social media, there will always be stocks that are 10xing that you wish you owned. You have to just accept that that is part of the game now. And you're either in that game full time and you accept that it's there and you're not playing it, or you're not. That's it. And so you just have to deal with it now.
- [80:58]
A
Really great. The really great news is that you don't have to play that game if you're not built for it. Nobody is make. Nobody is forcing you to.
- [81:05]
C
It's a young person's game. Now, getting back to strategy, this is, this is the more interesting part of the story that we haven't discussed yet. So JP Morgan, who listen, let's be honest. There are no fans of crypto say strategy is at risk of exclusion from major equity indices as the January MSCI decision approaches. Quote.
- [81:25]
A
What? What is that?
- [81:27]
C
I'll tell you right now. With MSCI now considering removing MicroStrategy and other digital asset treasury companies from its equity indices. Outflows could amount to $2.8 billion if MicroStrategy gets excluded from MSCI indexes and $8.8 billion from all other equity indices if other index providers choose to follow msci. So this is probably going to hang over the stock, I would assume. And if it doesn't get kicked out, then it will be a huge lift off of it. But this is, I don't know that I want to get in front of the story either, to be honest. This is a, this is a big one.
- [82:00]
A
You know, it's funny here. The analyst at JP Morgan writing this made a mistake. It would not be outflows. It's not a fund. MicroStrategy is an equity. When people sell Apple, we don't sell and say Apple had outflows. Say people liquidated their stock or they sold it. It's not, it's interesting. Like the JP Morgan person writing this is like thinking of this like an etf.
- [82:27]
C
Right. You're right. He should have said like selling pressure from passive index index funds or something like that.
- [82:32]
A
You're right. Outflows can amount to 2.8 billion. It should be people mimicking the index might sell 2.8 billion worth of strategy stock.
- [82:41]
C
Yeah.
- [82:41]
A
Interestingly also, they're calling it MicroStrategy.
- [82:44]
C
Yeah. So that's so, so that's kind of interesting too. They know what they're doing. They're definitely, they're definitely like pushing his face in, in the dump. So.
- [82:52]
A
And we have a, we have a chart. Is this worth putting up or is there nothing new in here?
- [82:58]
C
Okay, let's move on to the next segment which is brought to you by Pimco ETFs. To learn more, check out pimco.com ETFs. All right, Josh, chart of the week.
- [83:09]
A
What are we, what are we, what are we saying? Chart of the day.
- [83:12]
C
We'll get there. We're not saying either of those things. I want to start out with some of our charts and then I'll bring their work into, into the conversation. So Ben posted this on his site the other day. The number of years between 40% bear markets. And the reason, and there are obviously a litany of reasons why we haven't had a great crash that's persisted or blown past 40% in 16 years is because we haven't really had a sustained recession. 2020 was a quick man made recession. Obviously the fiscal impulse stopped that dead in its tracks. 2022, there was pockets of recession, but you can't have A real recession with the unemployment rate at 4%. So however, I had chart kid show me, well, what about all of the 20% drawdowns? Now I drew, I made him start at 19 because we've had a few of those over the years. But this chart looks so much different. We've had, we've had a ton. I think we've had five in the last six years. So yes, it's been a while since we've had a 40% bear market like a. And that only happens in recessionary bear markets. But look at all of these 19 drawdowns. Effectively quick bear markets. There's been a ton of them.
- [84:31]
A
Yeah, I like this chart. As a, as a financial advisor, I like the 19 chart better than the 40% bear market charts. Unless and until I run into the person who's obsessed with 19, 29, 2008 and those people exist. But that's not the normal, the normal person is not walking around saying it's almost Lehman o'. Clock. That's not normal behavior amongst most investors. I think most investors accept the fact that there are going to be bear markets. They don't accept, they don't accept the fact that we're always on the verge of a depression.
- [85:11]
C
Right.
- [85:12]
A
So I like the second chart better showing the 19% drawdown because A, they're almost always about to happen or have just happened. The length of them is not that long.
- [85:24]
C
The first chart shows, oh shit, we're due. Right. We haven't had any pain in the second chart. No, no, there's been plenty of pain. We've had plenty of bear markets along the way. So which brings me to this chart from Pimco. So the big distinction is this. There are two types of equity drawdowns and we've spent a lot of time over the years talking about these two types. There is the non recessionary equity drawdowns, which on average are a 17 drawdown. They last five months. And then there is the recessionary Equity drawdown, the GFC, the.com knockout punch. The knockout, the one that ruins a generation of investors that completely leaves you with PTSD not believing that things will ever get better. And that lasts an average of 11 months, which sounds light to be honest, but that's 27%. And of course the point that Pimco is trying to make is that is when the Treasuries really add ballast to the portfolio. But absent, absent a recession, we're not, we're not just going to fall 40% because stocks are overvalued.
- [86:29]
A
Do you Want to apologize for referring to this table as a chart when it's clearly a table?
- [86:34]
C
Sure.
- [86:35]
A
Okay. Put that back up. This is really good stuff. Everybody should screen, screen. Grab this from their phone or their computer, wherever they're watching this. I feel like this is such a great reference because the next time somebody's talking about equity pullback, drawdown, correction, whatever, whatever nomenclature. Like, answer me one thing. Is it a recession with that drawdown or is it just like the normal course of stock market pullbacks, which happen all the time? Because the difference could not be more stark. Forget about the depth. 17 versus 27%. The length is the killer. And five months, an average of, let's just say five months average, meaning some are way longer, versus 11 months. That is a huge game changer in terms of people's ability to get through it and what changes they might have to make, if any. And so if, you know, we're in a stock market pullback, but the economy has held up like you should not be waiting for the knockout punch to be delivered because it's just not what normally happens.
- [87:48]
C
Well said, my friend.
- [87:51]
A
Okay, I think we did that justice.
- [87:54]
C
Great table. Not a chart. Not a chart.
- [87:57]
A
All right, we're going to finish with this Nvidia versus Alphabet stuff just because I think it has tremendous implications for the year end. Michael and I are both on record saying if they're gonna run the stock market into year end, they'll probably bid for all of these mega cap stocks just because they're liquid. Nobody yells at you. Even if they go down, you're not in trouble with your investor base. As a fund manager, they lend themselves to borrowing against like there's just a lot of reasons why these stocks will probably get bought as a group, but it won't. Doesn't necessarily have to play out that way. Let's pull up Google vs Nvidia year to date. Google, I'm told by Sean and chart kid Matt, is on track to have its best year since 2009. It was up 102%. Then it's up 69 nice and a half percent this year, and Nvidia is up 31%. It looks like a loser relative to Alphabet, but it's a pretty good year for any stock. I think most people would agree. But this is a really interesting thing being set up here. I wanted to ask you, do you think a lot of the buyers in Alphabet are pulling money from Nvidia to do it?
- [89:14]
C
So.
- [89:15]
A
Yes, Market cap, yes.
- [89:17]
C
And I know you're a big Money has to Come from somewhere, guy. Yes. And I think it's overdone. I think, like, this is, I think the, the ratio, the whatever you want to look at, at the spread between Nvidia. I am generally a. I don't like when people say those alligator draws have to close because, like, I think that's normally Charlotte and bullshit. But I think this is too much.
- [89:34]
A
You want to reverse the reversal?
- [89:36]
C
Yeah, I think it's too much.
- [89:38]
A
Do you want.
- [89:39]
C
I would, I would. I would much rather own in video through the. For the rest of the year than Gemini. I'm sorry. Than Google.
- [89:45]
A
Okay, next chart. Google is now more expensive than Nvidia. How many people do you think know this to? Two people. You and I. All right, Google's forward PE minus Nvidia's forward Pennsylvania. For the entirety of the last 10 years, Nvidia has been the more expensive stock. And you can see by that, those gray, that gray kind of stochastic below. That's just measuring the degree to which Google has been a discount to Nvidia. And now for the first time since 2016, Google sells at a premium on forward PE to Nvidia. That's pretty insane. Yeah.
- [90:26]
C
Yeah.
- [90:26]
A
I love this chart.
- [90:27]
C
So normally the price drives the narrative, but I think that in this case the narrative actually is driving the price, which is then also driving the narrative. So here's where we. So, right. So here's where we are today. Dan Gallagher at the Wall Street Journal said, talking about Google, the company offers a level of AI vertical integration that even the other big tech companies can't quite match. The recently launched Gemini 3 is, is a perfect example. Google trained its own frontier AI model on its own networks using its own TPU chips that, that it designed in house. That effectively makes Google. This is a good one. That effectively makes Google into a combination of OpenAI and Microsoft with a bit of Nvidia thrown in.
- [91:10]
A
Wow.
- [91:10]
C
So it's good, but it's aggressive. So, so to which. To which the Nvidia newsroom. Because this is all this. There's smoke here. The Nvidia newsroom knows what's going on. They tweeted today. We're, we're delighted by Google's success. They've made great advantage, they made great advances in AI and we continue to supply Google. Nvidia is a generation ahead of the industry. It's the only platform that runs every AI model and does it everywhere computing is done. Nvidia offers a great greater performance, versatility and fungibility than Asics, which are designed for specific AI frameworks or functions.
- [91:46]
A
It's such a subtweet. It's such a blessed. You know the southern people, they say oh bless. No, not blessed be. Bless your heart.
- [91:53]
C
Bless your heart.
- [91:54]
A
Yeah, that's like how they say go yourself to each other, right? Oh bless. Bless his heart.
- [91:59]
B
Yeah.
- [92:00]
A
So Nvidia joined that distinction between GPUs and application specific integrated circuits or ASICs, which we did a whole episode about that I don't know, six months ago, a year ago, can't get into it again, but just this idea. TPUs have been part of the Google story since way before we were talking about generative AI. So it's not a brand new breakthrough technology. They've just gotten very effective at finding ways to be more efficient on cost, plugging up some of the things that they're doing with their own silicon and I think that's admirable. I think it's a good sign for shareholders that Google is playing offense and is got their foot on the gas. And if they do a big deal with Meta, yeah, maybe it's a wake up call to in video about pricing and that they might not have the pricing power that they think. And so to me the sell off in Nvidia seems sort of rational. I don't love that they felt the need to answer this. I'm not quite sure. And I also don't love what they did over the weekend, which is the last thing I want to get into. They sent a. They sent a memo around to the sell side by two analysts covering the stock responding to Michael Burry and other short sellers talking about depreciation schedules. Let me just read this because paraphrasing it doesn't do it justice. This is Barron's quoting from the memo in video also responds to claims that the current situation is analogous to historical accounting frauds Enron, WorldCom and Lucent that featured vendor financing and SPVs. Nvidia quote this is, this is the company Nvidia does not resemble historical accounting frauds because Nvidia's underlying business is economically sound. Our reporting is complete and transparent and we care about our reputation for integrity. Unlike Enron, Nvidia does not use special purpose entities to hide debt and inflate revenue. Is it weird that they felt the need to do that like literally invoke the name Enron next to the word Nvidia? I don't know if I love it.
- [94:19]
C
Listen, I don't. I think the wording is weird, like it's not a fraud because their underlying business economically sound I don't think the two are mutually exclusive. I think you can have fraud with a good business, but whatever. I don't want to parse their words. The market took $700 billion away from it. Yeah, I'm not, I'm not shocked that they responded.
- [94:41]
A
Oh you like. In other words, like what are they supposed to do? Just let their shareholders get pummeled and not say anything?
- [94:47]
C
Their narrative is driving the price action and went from 5 trillion to 4.3 and they felt the need to respond. $700 billion is a lot of market cap to go up in thin air over. Over allegations they responded, bro, I'm not Enron.
- [94:59]
A
You're Enron. I mean it's not. All right, last part of this. Nvidia's customers depreciate GPUs over four to six years based on real world longevity and utilization patterns. Older GPUs such as A1 hundreds released in 2020 continue to run at high utilization and generate strong contribution margins, retaining meaningful economic value well beyond the two to three years claimed by some commentators. How much do you want to bet that Core Weave asked them to say that one of their biggest customers, definitely among their most vulnerable customers to this type of innuendo? How much you want to bet the comms people representing CoreWeave who let's just assume are among the top crisis PR firms on the planet at this point. How much you want to bet they demanded. Demanded of their supplier. We bought all this shit from you and now people are saying it's obsolete. You need to go out there and say that it's not. I would bet almost any amount of money that that conversation took place somewhere in Palo Alto or San Jose over the last couple of days. What do you think?
- [96:11]
C
I would, I would agree with you. People are human and that's how humans behave.
- [96:14]
A
This is a developing story. You guys know. We will, we will. It's very as fluid as it gets. We'll stay on it. All right, let's do make the case and then a mystery chart and we'll get out of here for the night. Health care, I don't think this is a run in the mill. What's called rotation. That's just like going to come and go and we're going to laugh about it. I genuinely think it has legs because of the level of participation of the components of the XLV and then seeing follow through in the mid caps and there's just a lot happening here on the earnings front that justifies it. It's not just a Rerating. It's not just people being like oh, these stocks are too cheap and getting bullish on them for 10 days. I understand that type of rotation. I could be wrong, but I think this is more. Eli Lilly just became the first trillion dollar name in the category. The first health care stock ever. It's join a group with only nine other names. The Mag 7 plus Berkshire, plus Saudi, Aramco now plus Lilly and that's Broadcom too. And that's the list. There's nothing else. There's a health care stock. I don't suggest that that means all these other stocks are going to go to a trillion. I'm just making the point. People are looking at that as the upside potential if they own a company that hits a really big category like diabetes and GLP1. So Lilly is Zepbound and Manjaro combined. $19 billion in the first nine months of this year in sales.
- [97:57]
C
Wait, what words did you just use?
- [97:59]
A
Zepbound and Mounjaro.
- [98:02]
C
What are those?
- [98:03]
A
Those are the weight loss shots and the diabetes shots that are part of this GLP1 tirzepatide monster. Those two drugs combined did 19 billion in the first nine months of the year. They're now bigger than Keytruda, which is Merck's flagship cancer immunotherapy. And it's the best selling drug in the world right now. So analysts are talking about 100 billion in annual sales by 2030. And at a trillion dollars, Lilly is 2/3 the value of Meta and worth more than Walmart. Did you know that double the size of Johnson and Johnson which is the closest to Lilly in the whole pharma industry. So double the size of number two. I also want to tell you that this is one of the greatest turnaround stories in the history of the US stock market. Ten years ago people were saying this thing should just go private. It's just worthless. They have nothing. And out of nowhere they found this metabolic market and they ran with it and they got approvals and they launched and they marketed and it's just an incredible come from behind story. Eli Lilly is a 150-year-old business. The founder was fought in the Civil War and 10 years ago this stock was nowhere. And look at it now. And I think that's really exciting for equity investors. Let's do these charts really quickly. This is Eli Lilly versus Merck, JJ and Pfizer. It's like another planet. Next chart. This is the market value as a bubble versus all of the other bubbles on the chart. There's Nothing even in the same category in terms of. Not just. This is. This is a multiple of sales.
- [99:59]
C
Yeah, it's revenue and market. Okay. Yeah.
- [100:02]
A
Revenue and market cap. Eli Lilly is 10 times sales.
- [100:07]
C
Nothing else is close.
- [100:08]
A
Yeah, I mean, and it's not as big revenue wise as JJ, which is a $90 billion revenue company. So it's not as big, but it's growing much faster, which is why it's getting that multiple. Next one, last one. This is Eli Lilly's market cap. Another way to look at this. At a trillion versus the 15 largest biopharmaceutical companies.
- [100:35]
C
Oh, I like this visual. This is clever.
- [100:37]
A
It's a good one, right? Just like to wrap your head around the relative size and you see like Sanofi, Pfizer, Gilead, Novo, Roche, AstraZeneca, Abbey. Like, none of these are even in the same ballpark. Yeah. Right.
- [100:53]
C
Now, I haven't looked at these. Regeneron, Biogen, Gilead, JJ is at all time high. I haven't looked at these charts in literally years.
- [101:00]
A
All right, so here's my make the case then we're not saying by Lilly. For best stocks in the market this week at cnbc, I wrote up three companies that are on my best stocks list. Sean and I did a dive into this Instrument Measurement and Instruments group, which is really interesting. Stocks. Here's the first one. I want you to do a beauty contest. Mettler Toledo.
- [101:22]
C
Oh, my God. That's a buy.
- [101:24]
A
It's a buy, right?
- [101:25]
C
It's beautiful.
- [101:25]
A
What a breakout. Beautiful. Okay, Thermo Fisher, same sector. This is the biggest one. This is a 2. This is a $220 billion. It didn't break out yet, but what do you think's gonna happen?
- [101:38]
C
I don't know. I would maybe chop around 600, but higher.
- [101:42]
A
You like, but do you like the base? Yeah, dude, Almost perfectly bowl shaped. You got a gap fill in there. Okay, that's tmo. Here's Agilent, which a. This broke out today.
- [101:54]
C
Looks great. Yeah, it's going higher.
- [101:56]
A
Which you like the best?
- [101:58]
C
This one looks the cleanest to me.
- [102:00]
A
You like Agilent? This is a $50 billion market cap. Agilent was a spin off from hewlett Packard in 1999. So it's got a long history trade.
- [102:08]
C
All right, Josh. What? Like, what is the overarching story? Like, why are these working after years of being a.
- [102:18]
A
No, no, no. Hear me out, hear me out. These are ARR businesses. Now. They used to be sending a salesperson out to a doctor's office or a hospital to sell them a bunch of shit. And now they sell the razor. The razor. And everyone needs to buy razor blades. All this measurement equipment, Once they get installs in these medical facilities all over the world, universities, hospitals, clinics. Once they get installs, the ARR just kicks in and they start to look more like software companies. And that's how they've transformed their businesses. I got a few more healthcare on the best stocks list. Sean threw them in just for the hell of it. Biogen.
- [102:58]
C
Yeah.
- [102:59]
A
Look at this. I was just looking at this unbelievable iqv.
- [103:05]
C
I don't know what this is.
- [103:06]
A
No idea. Just buy it. Shut up and buy it. Here's ste. This is Steris. This is an Irish company with an NYSE listing. This is about to go, like, very obviously rsi, not overbought. Anyway, it's interesting to see the degree to which healthcare names have totally taken over. Best stocks in the market list. And it's. It's fun. I think it's fun.
- [103:31]
C
And it's a big sector. Is it the fourth biggest? I mean, it's not. It's.
- [103:33]
D
It's.
- [103:34]
A
It's these. Some of these. Some of These are gigantic companies that, you know, a lot of these.
- [103:38]
C
In other. It's a big sector. Okay. Or maybe it's not. I don't know. I think it is. All right, I had a mystery char for you, Josh. I jumped the gun. I sent this to John at, I don't know, 230, and it did give back a little bit of its gains. So it doesn't look quite as good, But Chart on again looks a little bit less impressive after the.
- [103:57]
A
Sorry, what is it?
- [103:59]
B
I haven't.
- [103:59]
C
Hold on. You don't cut me off during a Mr. Chart.
- [104:01]
D
I'm talking.
- [104:02]
C
Okay, I'll tell you. This is a stock that you made the case for a few weeks ago. And I said it's a compelling. Make the case. I forgot to buy it. But this is a stock, and this is a clue that I'll give you. This is a stock that's been left behind. Nobody really cares about it. There's no expectations of the name Michael.
- [104:25]
A
All I want to do is zoom, zoom, zoom, and boom, boom.
- [104:31]
C
That was funny.
- [104:33]
A
Look at how I nailed this trade. What do you think?
- [104:37]
C
Well, like I said, the stock closed at.
- [104:40]
A
Do you know that it went up for the reason I said it would, which is even more satisfying.
- [104:45]
C
Throw that back on. The Stock closed at $86, so it's not quite as good. But back to you, Josh. Why did you say it was going to Go up.
- [104:52]
A
I lit like I telegraphed this. And very publicly I said, you're jumping out of a basement window with a parachute on. This is a company that. The Forecast was for 3% revenue growth. They did four and a half. Good enough.
- [105:07]
B
Yeah.
- [105:07]
A
All the metrics people cared about were higher. Gross margins were up there. They had this segment of the enterprise business, which is companies doing over a hundred thousand dollars in revenue with them. That was up. I think that was up 9%. Like all the important stuff on the enterprise side, forget about the video stuff. They're. I mean, we're customers. They're AI products. I think there was a 4x increase in AI companion, which is one of their verticals. So I. I can't sell it. I think it's going 100.
- [105:40]
C
Oh, you bought it.
- [105:41]
A
I've owned it for, I don't know.
- [105:43]
C
A month or two credit to you.
- [105:45]
A
I made the case and I was.
- [105:46]
C
Long call. Great call. Great call.
- [105:48]
A
So. All right. Hey, I get a lot wrong. I got one right. Okay, guys, that's the show. Thank you so much to everyone who joined us live. We really appreciate you. Thank you so much. Want to wish all the pounders a very happy Thanksgiving. We are gonna get a show up for you guys on Friday. We're taking a little bit of a risk in that we're not taping it Thursday night because we're not psychopaths. So it'll be a little bit pre taped, but it's going to be awesome. Another returning champion and a fan favorite guest. So look for that animal spirits never misses. You'll get that tomorrow morning. And thanks so much for all the ratings and reviews. They go a long way. We appreciate you. Happy holidays. We'll talk to you soon.
- [106:32]
B
It.