Tom Lee to the Rescue

Summary

Podcast Summary: The Compound and Friends – "Tom Lee to the Rescue" (March 7, 2025)

Host: The Compound
Guests: Tom Lee (CIO and Portfolio Manager at Fundstrat Capital), Josh Brown, Michael Batnick
Release Date: March 7, 2025

---

1. Event Reflections and AI Panel Insights (00:00 – 04:25)

The episode kicks off with Josh Brown reflecting on attending an exclusive event at the Rainbow Room, highlighting the influential presence of Stephanie Ling and her network on Wall Street. Brown shares his admiration for Stephanie's ability to convene top financial advisors and industry leaders, including Karen Fennerman, Dan Greenhouse, Dan Ives, and the ever-influential Tom Lee.

Notable Quote:

Josh Brown (00:00): "Stephanie Ling is the most powerful person on Wall Street."

Michael Batnick provides insights from an AI panel discussion attended earlier in the day, emphasizing the burgeoning applications of artificial intelligence in voice technology and dating. Alex Kanchwitz, Dan Ives, and Bill Baruch are mentioned as key contributors to the conversation.

Notable Quote:

Michael Batnick (02:03): "Voice is the big thing... dating is the second big application."

2. Impersonations and AI Security Challenges (04:25 – 07:21)

The conversation shifts to the alarming rise of AI-driven impersonations on social media platforms. Brown and Batnick discuss the challenges of combating fake accounts that mimic their identities, underscoring the limitations of current policing mechanisms due to jurisdictional hurdles and platform policies.

Notable Quote:

Michael Batnick (04:25): "It's impossible to police."

Brown recounts personal experiences with impersonations, highlighting the ineffectiveness of reporting mechanisms and the persistent threat posed by AI-generated fraudsters.

Notable Quote:

Josh Brown (06:20): "It's whackable because every day it's all coming from Africa and Asia..."

3. Introduction of Tom Lee and Tariff Impact Discussion (11:45 – 17:14)

After the initial segment, Tom Lee joins the conversation as the guest of the episode. Hosting a deep dive into the recent tariff announcements, the trio discusses the immediate and long-term impacts of these tariffs on the stock market and the broader economy.

Notable Quote:

Josh Brown (12:00): "This might be the most important show we do all year."

Lee, with his extensive background from JP Morgan to Fundstrat, provides a strategic overview of the situation, comparing the current tariff-induced market reaction to historical events like Brexit.

Notable Quote:

Tom Lee (14:24): "I think this is actually a lot like Brexit..."

4. Market Reactions and Comparisons to Brexit (17:14 – 24:00)

The discussion delves into the similarities between the current tariff wars and Brexit, analyzing how the market has historically responded to such geopolitical shifts. Brown and Batnick express skepticism about the long-term benefits of the tariffs, questioning the real "victory" achieved versus the economic costs incurred.

Notable Quote:

Josh Brown (15:31): "Tariffs on stocks are going lower and that's exactly how it's playing out."

Lee points out that while the immediate market reaction has been negative, historical precedents like Brexit suggest potential long-term stabilization and opportunities once adjustments are made.

Notable Quote:

Tom Lee (15:35): "There'll be a little disturbance, but we're okay with that."

5. Impact on Technology Stocks and Sector Analysis (24:00 – 34:25)

The hosts assess the disproportionate impact of tariffs on technology stocks, with giants like Netflix, Apple, and Nvidia taking significant hits. Batnick suggests that global companies are more vulnerable to retaliatory measures, leading to sector-specific downturns.

Notable Quote:

Michael Batnick (19:21): "Tech companies are global companies and they're gonna be the retaliatory victims."

The conversation expands to include sentiment indicators such as the VIX and trading volumes, highlighting extreme pessimism among investors and unusually high withdrawal rates from retirement accounts.

Notable Quote:

Tom Lee (29:09): "They have to be betting not just that it's two months of tariffs, but that this is a new regime."

6. Market Indicators: VIX Contracts and Sentiment Analysis (34:25 – 50:56)

Batnick introduces the concept of VIX futures contracts, explaining their inversion as a potential signal of impending market stabilization. The hosts debate the interpretation of these indicators, weighing the likelihood of a market bottom versus ongoing volatility.

Notable Quote:

Michael Batnick (40:01): "When the one month is higher than the four, that inversion is what the bottom histogram chart shows."

Brown and Lee discuss the challenges of market timing, acknowledging the complexity of using sentiment surveys and VIX indicators to predict accurate market movements.

Notable Quote:

Josh Brown (43:05): "A cut in May? Oh, I would better this."

7. Granny Shots ETF: A Strategic Investment Approach (50:56 – 76:59)

The conversation transitions to Michael Batnick’s new ETF, "Granny Shots," which focuses on enduring stocks tied to long-term generational themes. Lee and Brown explore the strategy behind the ETF, emphasizing its multi-theme approach to ensure resilience against market fluctuations.

Notable Quote:

Josh Brown (70:21): "These are stocks that are enduring. The story behind them is bigger than the stock itself."

Batnick elaborates on the ETF's methodology, blending quantitative models with qualitative assessments to curate a diversified and robust portfolio. The hosts discuss the benefits of equal-weighted portfolios and the tax efficiencies achieved through minimal turnover.

Notable Quote:

Michael Batnick (73:40): "We have themes that span multiple decades, like cybersecurity, millennials, AI, Fed cycles."

8. Crypto and Bitcoin as a Strategic Reserve (76:59 – 83:47)

A significant portion of the discussion centers on the role of cryptocurrency, particularly Bitcoin, in the future financial landscape. Lee and Batnick debate the feasibility and implications of the U.S. adopting Bitcoin as part of its strategic reserves, drawing parallels with the Strategic Petroleum Reserve.

Notable Quote:

Tom Lee (80:42): "How are we getting to 5 million?"

Brown and Batnick explore scenarios where Bitcoin could stabilize or exacerbate economic conditions, considering factors like central bank involvement and market speculation.

Notable Quote:

Michael Batnick (82:35): "The US owns 200,000 Bitcoin. As long as it's not, those keys are safe."

9. Concluding Remarks and Future Outlook (83:47 – End)

As the episode wraps up, the hosts share personal updates and upcoming engagements, maintaining a collegial and forward-looking tone despite the turbulent economic discussions. Batnick emphasizes the importance of continuous investor education through webinars and weekly updates, ensuring that "Granny Shots" investors remain informed and confident in their investment choices.

Notable Quote:

Josh Brown (85:27): "It's a really good thing."

Final Thoughts: The episode concludes with optimistic yet cautious reflections on the market's resilience and the strategic initiatives underway to navigate the current economic challenges. The combination of expert insights, strategic investment discussions, and forward-thinking approaches provides listeners with a comprehensive understanding of the complex interplay between tariffs, market sentiment, and emerging financial instruments.

---

Key Takeaways:

• Tariff Impact: The recent tariff implementations have triggered significant market downturns, particularly affecting global technology stocks. Historical comparisons to Brexit suggest potential long-term opportunities despite short-term losses.

• AI and Security: The rise of AI-driven impersonations poses substantial security challenges for high-profile individuals, highlighting the need for more robust online identity protection measures.

• Market Sentiment Indicators: Inverted VIX futures contracts and extreme bearish sentiment indicators may signal upcoming market volatility, but interpreting these signals requires nuanced understanding.

• Granny Shots ETF: A strategic investment vehicle focusing on multi-theme, enduring stocks linked to generational trends, offering diversification and resilience against market fluctuations.

• Cryptocurrency Strategy: Debates around adopting Bitcoin as a strategic reserve reflect broader discussions on the future role of digital assets in national financial strategies.

• Investor Education: Continuous engagement and education through webinars and updates are crucial for maintaining investor confidence and navigating economic uncertainties.

---

For more insights and detailed analysis, listeners are encouraged to subscribe to Fundstrat Research and explore the "Granny Shots" ETF as part of a diversified investment portfolio.

Transcript

[Josh Brown]

So I had a realization today that Stephanie Link is the most powerful person on Wall Street. So we walk into the Rainbow Room. Mike and Stephanie has what looks like the green room for our podcast. Basically, here's who's there. Karen Fennerman, Shannon Sokosha and Bryn are on stage with Stephanie in the back. Dan Greenhouse, Dan Ives, Tom Lee. Me. Jason Trenner. Jason Snipe. Who else was there? Who am I missing?

[Michael Batnick]

Bill Baruch.

[Josh Brown]

Bill Baruch.

[Michael Batnick]

The cibc. Belsky.

[Josh Brown]

Belsky's there. Oh, Alex Kanchwitz is there. I'm like, what is going on?

[Tom Lee]

Who's in the audience?

[Michael Batnick]

There was no audience. It was just, like, everybody from CNBC.

[Josh Brown]

Just kidding. It's like 100 financial advisors that work at Hightower.

[Tom Lee]

Okay.

[Josh Brown]

And so I meet Stephanie's father, who I've met before, and he's a. He's a financial advisor. He's at Morgan Stanley. So I said, this is unbelievable. I can't believe, like, she threw this event. And he's like, well, she does this every year. I'm like, oh, all right. I haven't been invited until now. I didn't know this was a regular thing.

[Michael Batnick]

I think it was normally at the New York Palace.

[Josh Brown]

Okay.

[Michael Batnick]

And then this year, they moved it to the Rainbow Room.

[Josh Brown]

I was just very impressed. Stephanie asked people to do something. Everybody says yes. And I. I'm. I'm an immediate. Yes.

[Michael Batnick]

Yes.

[Josh Brown]

I'm an early member of the Stephanie Ling fan club. So I thought that was. I thought that was pretty cool. That's a. That's a crazy view from up there. The Rainbow Room.

[Michael Batnick]

It was actually the AI panel. Cause I sat through, like, most of the morning.

[Josh Brown]

Yeah.

[Michael Batnick]

It was very. Actually really useful.

[Josh Brown]

Was Alex on that?

[Michael Batnick]

Yeah, it was Alex, Dan Ives and Bill Baruch.

[Josh Brown]

Yeah.

[Michael Batnick]

But Alex was talking about some really crazy things happening with AI. He was saying, like, voice is the big thing.

[Josh Brown]

Okay.

[Michael Batnick]

Big application.

[Josh Brown]

Okay.

[Michael Batnick]

And then he was saying, like, dating is, like, the second big application. And, like, what? Like, dating apps, proxies for dating. Like, people are interacting with their AI as if it's their significant other. 1. He was saying that one. He was talking about how, like, some people are training themselves to be better dating counterparts by practicing on AI and so then they go on real dates.

[Josh Brown]

Okay.

[Tom Lee]

Oh, I heard that. I was just at T3 for advisors, and they were saying there's going to be a service that simulates a prospective client call. Yeah, that's pretty cool.

[Michael Batnick]

Yeah. And then Alex was saying that I don't know if this is practice Days.

[Tom Lee]

That's weird. Yeah, I guess practice makes perfect.

[Michael Batnick]

Yeah. And he was saying like, another thing was when they, when chatgpt added the Scarlett Johansson voice, that's when they broke out of the funk of users. They were like stuck at a hundred million users. And then as soon as like they introduced her voice is when like they doubled in a month.

[Josh Brown]

Are you serious?

[Michael Batnick]

Yeah.

[Josh Brown]

And they, she got paid a lot of money for that.

[Michael Batnick]

Oh, she didn't know. She didn't.

[Josh Brown]

Oh, they simulated. They did a fake voice.

[Tom Lee]

I think she sued them.

[Josh Brown]

Oh, right. That's the story. Okay.

[Michael Batnick]

Yeah. And then this other. So Alex was just giving anecdotes and he said then another guy trained an AI model. I think it was like one of these where he trained the AI to do handle interviews for him. And so then this AI has been doing interviews of like CEOs for him, really using audio.

[Josh Brown]

So the AI is having the conversation and what does the guy do? He heads publish.

[Michael Batnick]

It's a clone. Like he's not even present for the interview and then he's just reviewing it and then he tells the CEOs that he just did it. And the CEOs like, oh, I was a lot more comfortable talking to this guy.

[Josh Brown]

Wow.

[Michael Batnick]

So, huh.

[Josh Brown]

Maybe we could do the show that way someday. I don't know. Could. Could we do. I don't think an AI knows what I would say though.

[Tom Lee]

You're very predictable.

[Josh Brown]

No, I'm not. I'm extremely, I'm extremely spontaneous.

[Michael Batnick]

It would be very scary.

[Josh Brown]

Well, I'm one of these people that just doesn't believe that AI interactions can truly replace human interactions. I know they can simulate an interaction really well, and I know it'll get better, but I do think that there are things that happen in the moment that you can't program in advance.

[Michael Batnick]

Yeah. Yes. I've seen like AI fakes of them pretending to be me, like on WhatsApp, than like me pitching a stock or whatever.

[Josh Brown]

Yeah.

[Michael Batnick]

And I agree with you. Like, it's like if someone didn't know me, they, they wouldn't. Couldn't tell the difference. But since I know me, I can tell it's not me.

[Josh Brown]

Right. So the question is, what percentage of the population can tell it's not you? Because you're not supposed to be fooled. Everyone else is supposed to be fooled.

[Michael Batnick]

Yeah.

[Josh Brown]

And what do you guys do about those, by the way?

[Michael Batnick]

Well, our team, including Alexa and Jill, who are here, we do. We document it, the link and everything, and we have it on a spreadsheet. We Provide it to Instagram and Facebook. And I know it's. Our attorneys are involved. Plus I know because they've mentioned cnbc. Cnbc lawyers have been involved.

[Josh Brown]

Yeah.

[Michael Batnick]

But it's impossible to police.

[Josh Brown]

It's whackable because every day it's all coming from Africa and Asia and there's no, like, these are not jurisdictions where they particularly care.

[Michael Batnick]

Yeah.

[Josh Brown]

So it's hard to block it.

[Michael Batnick]

Yeah. And there's been an imposter account. That's me. But they won't. Because they have more followers than me. They won't take down that imposter account.

[Josh Brown]

I've had dozens of people impersonating me on Instagram, on WhatsApp, not as much on Facebook anymore. We reported this to the sec, the FBI. Like, we put in tips, like, here's a thing that's fake that's happening and we're just making you aware of it. I have no idea if anything ever comes of that. And then finally we went to CNBC and they sort of had a direct line into Meta to tell them this is fake. This is fake. And I guess we shut enough of them down manually one by one that whoever was doing those kind of just gave up. But I doubt that's a long term solution.

[Michael Batnick]

Yeah.

[Josh Brown]

The platforms have to decide that they actually care or not. And I'm not convinced the platforms really care.

[Michael Batnick]

Yeah. Because I think it is algorithmically determined who's fake and real. Like, there's not someone that's like sitting.

[Josh Brown]

At a computer who would have time to do that.

[Michael Batnick]

Yeah. So that's just. I happen to know that even we have had some institutional investor clients that got. They're a fun strat client. So they know our touchpoint's only email and our app, but they got duped to join a WhatsApp group.

[Josh Brown]

My wife's cousin. My wife's cousin's like, I bought a couple of those stocks that you said to buy.

[Tom Lee]

Oh, boy.

[Michael Batnick]

Yeah. And they get rug pulled. Right.

[Josh Brown]

I said, what are you talking about? He's like, I don't know. I'm like, dming with your people. I'm like, no, you're not. I'm what? Where? He's like, on Instagram. I don't know. I was just scrolling and it was like you saying to join this thing. So I just assumed it was real. I assumed like you were getting paid from that. I'm like, why wouldn't you just ask me?

[Michael Batnick]

Yeah.

[Josh Brown]

Why wouldn't you just text me? He's like, I just felt like it was You. I don't know.

[Michael Batnick]

The fakes are gonna get better.

[Josh Brown]

Yeah.

[Michael Batnick]

They'll be able to answer personal questions that you think only you would know.

[Josh Brown]

Look, it gets to a point where it's like, there's a limit to what you and I could even do. You could report it, you could document it. You could send links to regulators and say, hey, be aware, this is a thing that has nothing to do with us. But it's happening. But, like, I think at the platform level, and it's mostly meta, like, meta has to decide this is going to cost us a lot of money if we don't clean it up. And maybe they have. I don't know. I haven't heard about it in a while from me personally, thank God. So maybe, maybe they moved on to somebody else. But they're doing it with Ray Dalio, doing a bill Ackman. Yeah, I assume those, those people have more lawyers than I have, so I know, like, we're not the only people lodging these complaints.

[Michael Batnick]

And then I, I on the New York Post, not to, like, fork too much, but, you know, like, I keep reading articles like, oh, someone's mom was in a relationship with Keanu Reeves and sent all their money. Like, so it's not.

[Josh Brown]

It's not just Wall street scams. It's scams, period.

[Michael Batnick]

Yeah.

[Josh Brown]

Yeah. I. So my, like, I got a text the other day. It was like, hey, I found your. I have your phone number in my address book. And I'm not sure how we know each other. What's your name? You know, so I write back you. And they write back, no, seriously, I have your number and my address, but I said, okay, here's my bank account and I just made up a fake number and here's my pin. And then the response was, ha, ha ha, that's it. So I don't know, is that a phishing attempt or. So my. So my go to response to basically anything at this point is, this is fake. And I don't know what, How. What other posture could you have in this day and age?

[Michael Batnick]

I don't know about you, but are you also, like, afraid to answer the phone when it's another number that you don't know?

[Josh Brown]

Because I don't answer any phones.

[Michael Batnick]

Yeah, because they say, like, they're trying to get you to say hello, so. So they can sample your voice so you can pass. You know, like how your bank, when you call them now, you pass the voice test. They're like, oh, we verified you through your voice. So now if they just have Your. Hello?

[Josh Brown]

Oh, they're probably selling these voice files on the Dark Web along with, like, this one.

[Tom Lee]

Hello?

[Michael Batnick]

Yeah, Use different pitch.

[Tom Lee]

Exactly.

[Josh Brown]

Yeah.

[Michael Batnick]

Or use an accent.

[Josh Brown]

Sucks for them. I don't pick up the phone, so it'd be very tough to get me on a phone call. But they could use this podcast if they really needed to.

[Tom Lee]

Tom, they're saying your hair looks incredible. What about his hair?

[Josh Brown]

What? Oh, you have a flyaway.

[Tom Lee]

I would know nothing about that. His hair looks lovely.

[Josh Brown]

Nailed it. Okay, now it's Nicole. Talk that piece under his headphone. You could do it. He doesn't mind. Yeah, it's one piece. Okay. Just one.

[Michael Batnick]

Perfect.

[Josh Brown]

Do it mom style with a little bit of saliva.

[Tom Lee]

I miss those days. Let's go. Let's get it started.

[Josh Brown]

All right. Three claps.

[Tom Lee]

Complex Friends Episode 180 Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is sponsored by Cambria. Do you hold legacy investment positions with significant gains? What if you could transition into an ETF without facing a large tax bill? You can with a 351 ETF exchange. Here's how it works. Investors contribute stocks or other securities to a newly formed ETF in exchange for ETF shares. As long as the special rules and diversification requirements are met, the investor is essentially able to see the launch of the ETF without an immediate taxable event. Because ETFs typically don't distribute capital gains, investors don't face taxes until they sell their ETF shares, allowing for better control over the timing of the tax event. Are you ready to explore a 351 exchange? Visit CambriaFunds.com 351 to take the next steps in innovative tax savvy investing with Cambria Today. Cambria Investment Management LP is a registered investment advisor. The information set forth herein is for informational purposes only and does not constitute financial investment, tax or legal advice. Past performance does not guarantee future results. All investments are subject to risks, including the risk of loss of principle.

[Michael Batnick]

Welcome to the compound and friends.

[Josh Brown]

All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Redholtz Wealth Management.

[Michael Batnick]

This podcast is for informational purposes only.

[Josh Brown]

And should not be relied upon for any investment decisions.

[Michael Batnick]

Clients of Ritholtz Wealth Management may maintain.

[Josh Brown]

Positions in the securities discussed in this podcast. All right. What a show we have, ladies and gentlemen. This month. This might be the most important show we do all year. Not to have too much of a buildup, but I'll tell you when this sell off over the tariff started last week. I'm like, there's like certain people that I just need to hear from in this moment. And Michael's like, good news, look who the guest is for next week. And I said, oh man, it's the goat. Ladies and gentlemen, we are highly blessed today. We have one of the compound all stars in the house, somebody whom I know you want to listen to and learn from, especially at a time like this. Tom Lee is the CIO and portfolio manager at fundstrat Capital and co founder, head of research at fundstrat. Fundstrat provides evidence based research to institutional investors, wealth advisors, pension funds, family offices and high net worth individuals. We love the high net worth individuals on this show. We always have.

[Tom Lee]

Not those asset life folks.

[Josh Brown]

No. Before co founding Fundstrat, Tom was the chief equity strategist at JP Morgan from 1999 to 2014. Tom Lee, welcome back to the show. Thank you for being here. How you feeling today?

[Michael Batnick]

Well, I'm breathing calmly but watching the market get in. Big chunks get chopped.

[Josh Brown]

Yeah.

[Michael Batnick]

On disappointing headlines.

[Josh Brown]

Let's start here. Tariffs became finally. So a lot of people said like it's just talk, wait until something actually happens. I think the market did like we were pretty, the market was pretty calm up until the middle of February and then all hell broke loose and it's been cascading lower and now the tariffs are like on officially and we're getting exactly the reaction that anyone could have predicted. So I don't think the calls to like remain calm prior to this were bad calls necessarily. But this is one of those things where it's like, yeah, 2 plus 2 equals 4 tariffs on stocks are going lower and that's exactly how it's playing out. You see it that way?

[Michael Batnick]

I do. You know something, I was thinking about this this week and it's been kind of hard for me to put into writing is I think this is actually a lot like Brexit. Like it's a magsit because it's sort of like the new administration's trying to recast relationships, which was traditionally like sort of free trade status. And if I look at Brexit, by the way, the UK stock market did fine.

[Josh Brown]

Like it was one of the biggest buying opportunities of the last 10 years. The summer of 2016.

[Michael Batnick]

Yeah. And it didn't upend the economy. You know, you didn't have an inflation problem or a growth problem. It was sort of like UK got through it. And I'm confident that that's where we are four or five months from now.

[Josh Brown]

Okay.

[Tom Lee]

Trump said this last night on TV because Josh and I were saying, what is he trying to accomplish last night he said tariffs are about making America rich again and making America great again. And it's happening and it will happen rather quickly. There'll be a little disturbance, but we're okay with that. It won't be much today.

[Josh Brown]

He said, I'm not looking at the stock market at all.

[Tom Lee]

Totally not looking at the 200 day moving average.

[Josh Brown]

Yeah, yeah. Do you think that he expected this much of a stock market uproar or do you think he didn't think that much about it and just said, I don't really care about that?

[Michael Batnick]

I think that they thought one of the collateral hits to this would be the stock market. Because if they were like war gaming this and they said, okay, we're going to put these threats on and we want our other countries to take it seriously, they would want the stock market to decline. Yeah, because if the Dow and the S and P were rallying, they'd be like, no one's taking it seriously. So I think they need the market to do this, but they don't want to cause a stock market induced recession or stall speed in the economy. And so I think that these indicators like yields falling, probably they want it, but then they don't really want consumer confidence to fall. They don't want negative jobs report because all of a sudden this risks a recession. And you know, recession dynamic is really dangerous. I mean, I think there's no inflation interpretation in the stock market. It's interpreting this as it's really gonna hit growth.

[Josh Brown]

We have a trillion dollar, some would say negative, but I don't think of it that way. But fine, we have a trillion dollar trade deficit with China. If we lose $5 trillion in equity market cap and we assume a fifth of the stock market is held by foreigners, so we eat 80% of that $5 trillion drawdown. Did we win? What did we, what was the prize that we won?

[Michael Batnick]

Yeah, I mean that's a Pyrrhic victory, right?

[Josh Brown]

I'm not like, I'm not sure. In other words, how do you. Okay, number one, we're still going to have a trillion dollar trade imbalance with China by the time this is over. Like that probably isn't going to budge much. The Canadian trade imbalance trade deficit is 155 billion U.S. not that much money. 5 trillion coming out of the S and P. I just don't understand like where the victory is.

[Michael Batnick]

Well, I Mean, on the one hand, if I, and I'm not sure if it's still the same thesis, but originally the premise was fentanyl and tighter borders. And if, if that's the benchmark, then this is easier to see the end to this trade war. But if the trade, the tariff idea is to recast the economic structure to create like the VAT and then eliminate personal income taxes, then it's. It's going to be very messy.

[Josh Brown]

So, so walk me through that. The idea is this is the route by which we have other people paying U.S. taxes in the form of tariffs, and then the give back to the US consumer is we can eliminate income.

[Tom Lee]

Tax, but we're paying the taxes. Is my understanding of this wrong? The importers are paying the taxes. It's us.

[Michael Batnick]

Yes. I mean, in theory it is. As to the extent it's passed through.

[Josh Brown]

Which it is, of course, because at.

[Michael Batnick]

The point of entry at the ship, it's really the person who purchased it, which is generally a commercial, that did it. And then what percent is able to be passed as a higher price?

[Tom Lee]

All of it.

[Josh Brown]

Why do you think tech stocks are getting hit so hard? You wouldn't. If you made a list of the economically sensitive sectors of the market and then you weighted that list by how much or how little they require the passage of goods to cross borders. I understand the Nvidia angle, I guess, but just generally speaking, I'm watching Netflix.

[Tom Lee]

Netflix is down 8% today.

[Josh Brown]

Right. I'm watching Netflix lose a fifth of its market cap slowly and then quickly. I don't understand.

[Michael Batnick]

Yeah, I mean, I can see two things happening. One is people are betting on a consumer that's weaker. I mean, that's why even Fed fund pricing of more cuts is moving up. Yeah, but the second is tech companies are global companies and they're gonna be the retaliatory victims. Like, that's the easy person to do sanctions against is Google, Apple.

[Josh Brown]

They're doing business in Canada, they're doing business in Mexico.

[Michael Batnick]

Yeah. In Europe and China.

[Tom Lee]

Top secrets.

[Josh Brown]

Some in China, some not at all.

[Michael Batnick]

Yeah, like it's Singapore, but it's. You don't know where it goes from there.

[Tom Lee]

Do you see the biggest risk to the market as the fact that we're trading at high multiples? If we're trading at 26 times forward and we're not actually earning whatever consensus is 260, whatever it is, and we actually earn 245, then the multiple is even higher than it already appears. Is that the big risk here?

[Michael Batnick]

If the trajectory of earnings is impaired. That's different than if you're taking a two quarter hit because of the tariff uncertainty. And stocks might go down on both. But one's a huge buying opportunity. Right. Because if you're just Talking like a 2 quarter blip on earnings, but then everything goes back to normal after that, then we've created a huge buying opportunity.

[Josh Brown]

Is that your assumption that that's going to be the way this ends up going?

[Michael Batnick]

I'm almost positive because we went comparing Trump 1.0 to Trump 2.0 and the two markets that have really diverged compared to Trump 1.0 is Germany and China. Cuz they've both been outperforming.

[Josh Brown]

Yeah.

[Michael Batnick]

If this tariff war was gonna create long term economic weakness like China and Europe can't even rally.

[Josh Brown]

Trump hasn't done any tariffs against Europe for the time being. I just assume he hasn't gotten around to it. But that's coming next. That might change that dynamic. But you're right, like so far people are buying European equities.

[Michael Batnick]

Yeah. Because no one can be like, oh well, US is gonna have a recession, so I'll buy Germany.

[Josh Brown]

No, right. It doesn't work that way. I agree.

[Tom Lee]

So the Tax foundation is saying we estimate the average tariff rate on all imports would rise from its baseline level of 2.5% in 2024 to 13.8%. If the tariffs President Trump has proposed were imposed, the average tariff rate on all imports under Trump's proposed tariffs would be the highest since 1939. Daniel, throw this chart up. So this is a hell of a wild spike.

[Michael Batnick]

You know, if this math plays out and I, I don't want to wait.

[Josh Brown]

Where'S 2018 on here?

[Tom Lee]

That's that, that little blip.

[Josh Brown]

Oh, I see. Okay, so, so if we were to repeat that, that's where. That's where the level would be.

[Michael Batnick]

Oh, I mean, this looks like it's like shooting up past 20.

[Tom Lee]

Way past.

[Josh Brown]

No, we haven't gotten to 2025 on this.

[Tom Lee]

No, this is real time. That's what they're showing. That's what. Oh, wait a minute.

[Michael Batnick]

But you're right, the scale. Yeah, because you'd think like 2:25.

[Josh Brown]

Yeah, you're right, Michael, you're right.

[Tom Lee]

So anyway, they're saying that the 25% tariffs on Canada and Mexico would reduce long run GDP by 0.2%, reduce hours worked by 223,000 full time equivalent jobs, and would ultimately cost $1,072 per household.

[Josh Brown]

I would bet way more than that. Like, like I. I don't know. I just. I. I read, like, a couple of things about just the auto situation alone. And I know now there's a carve out for autos because the whole thing's a farce. But just for argument's sake, like raising the average price of an SUV by 8 or $9,000, which is what the net effect would be given how frequently these things have to cross both the Canadian and the Mexican border. It just seems like, well, if you got elected, because people were really pissed off about high prices, which I know is not the whole story, but it was a pretty big part of the story. How does this answer that problem that people had? It seems like it's just gonna exacerbate it. So.

[Michael Batnick]

Yeah, I mean, for that reason, it obviously doesn't make sense that these tariffs are the permanent structure for Canada and the US which are natural partners and Canada. And I don't want to necessarily quote everything, but at the panel today at the Hightower conference, Day of the Stars, Brian Belsky was talking about Canada and him being a Canadian or knowing Canadians.

[Josh Brown]

He was saying, don't ever call him a Canadian. He's one of ours, we claim.

[Michael Batnick]

Yeah, that's right.

[Josh Brown]

From Minnesota. It's almost Canada.

[Michael Batnick]

Yes, that's right. I'm from Michigan.

[Josh Brown]

Yeah.

[Michael Batnick]

Yeah, but I'm, like, far enough away. He. He was saying that some Canadians think that this is, like, part of this is to pressure a change and accelerate the change in leadership in Canada, and then they just recast a new deal.

[Josh Brown]

Okay. If this lasts for two quarters and by the summer, it's like, fading away. Maybe It's a little bit 2018ish. But the thing about 2018 is, what's different about 2018 versus this year? They were raising rates. The Fed was raising rates during this tariff madness. In part, I think in response to the tariffs, they thought they had to this time around. At least that's one thing that we're not contending with. We have a Fed that's, quote, unquote, on hold, but probably with a bias to cutting. I saw that the rate cut odds. We talked about this on stage today. Shot up for four cuts this year. Now, a third 30% probability of four cuts, even if you got two cuts, I'm not saying that offsets the tariffs, but it's a different backdrop than 18 where Powell was saying things like, we are nowhere near neutral, meaning we are going to keep hiking. Of course, we know they didn't end up doing that, but at least we don't have A Fed that's making statements like that right now?

[Michael Batnick]

Oh, yeah, because the Fed's already comfortable that they've got a big margin of cushion where rates are. They're already running tight.

[Josh Brown]

Right.

[Michael Batnick]

And now they're assessing how much damage it's doing to the economy before tariffs. And this is the thing, like we know a lot of the supports have been rolling off at the start of this year. That's why consumption's down. And then tomorrow's the jobs report, but already it's foreboding like the challenger job cuts, ADP. You know, if we get a 50,000 jobs report tomorrow. There is not really. There's a huge question on this dual mandate because full employment, I mean, we're, you know, we're risking, you know, an real collapse in the employment market.

[Tom Lee]

Does the market rally or get killed on that sort of print? I think it gets killed.

[Josh Brown]

What a bad jobs report like that bad?

[Michael Batnick]

Yeah. I think there's a panic, but then there's a rally because I think the Fed put us back and then I think the Trump put has to come back.

[Josh Brown]

The Fed wants to cut. So this does enable the Fed to cut. It's just not the circumstances under which it wanted to cut. Yeah, I don't think the Fed wanted to have to cut. I think the Fed liked the position it was in where it was like, we will if we need to, then maybe we'll do one, maybe we'll skip a month. Like that's where they were. They can't be there still. Now they have to. Now they actually might have to react.

[Michael Batnick]

Yeah. I mean, in a way, the bond market, I mean, I'm sure people interpret, I think is arguing the Fed is late to cut.

[Josh Brown]

Okay. Why? Because of what the 10 year has done or.

[Michael Batnick]

Yeah, where the 10 year is with the implied. Like even the odds of a May cut, I didn't see it today, but I bet you it's well over 50% now.

[Josh Brown]

A cut in May?

[Michael Batnick]

Yeah.

[Josh Brown]

Oh, I would better this.

[Michael Batnick]

Yeah. So that's a Fed that's actually kind of being now judged to be behind the curve. And so if they're cutting, it's going to be a welcome pressure valve release because the market's pressuring the Fed to do something right.

[Josh Brown]

Market people love to look at AAII and act contrarian to that. Last week, one of the things we were talking about on the show was how fast the bears shot up to an almost record level, like higher than they were during the pandemic in that survey. I think the bearish the percentage of bearish respondents had 55, which is an unheard of number. And then when you consider the fact that at that time the S and p was only 3% off a record high, it was really weird to see how fast sentiment turned negative. In hindsight, a week later that bearishness was not a great contrarian signal. The bears had it. Right. What do you think about that? I know you follow aaii that stuff.

[Michael Batnick]

I follow it and I think from the right timeframe for us is like six months, because then it captures. Because the survey's done over a period of time. And so it doesn't always capture what the market did that week anyways. Okay.

[Josh Brown]

But it's cumulative, you're saying.

[Michael Batnick]

Yeah, it's kind of the same thing. Like when the, these economic surveys are done, sometimes they're done like by finished by Wednesday or Friday. And then so it. You actually get some weird differences because of what's happened in those three, four days.

[Josh Brown]

Okay, so go ahead.

[Michael Batnick]

But I remember in a podcast we talked about how people's timeframes have changed. Maybe because like, maybe the world's more short term focused, but you know, with instant liquidity, I think that's why people can go from bull to bear, because they can act with a push button. Now instead of calling their broker and getting talked out of it, they just.

[Josh Brown]

They could put on a hedge with one etf. They don't have to figure out an options trade. They don't. Right. Like they can, they can instantly decide, you know what? I don't like the looks of this. I'm adding, you know, double negative spy ETF for like 10% hedge against my portfolio.

[Michael Batnick]

Yeah, right. An institutional world is the same way.

[Josh Brown]

Yeah.

[Tom Lee]

So, Tom, last, last thing on some of the trade stuff before we get into the markets, which is what you love to talk about, and so do we. All right, so three charts and then we'll move on. Mexico, China and Canada are our three largest trade partners. Daniel, chart two, please. The three of them again, Mexico, China and Canada, by far the top three. They make up $1.3 trillion worth of imports. That's 42% of all total next chart, please. Daniel? 42% of all imports are from those three. And I was really surprised to see Joseph Politano had a great chart that showed imports spiked in January amid tariff fears. So the fact that consumers are adjusting their behavior so quickly to tariffs, you can only imagine how quickly markets are going to react to potential tariffs. And we're seeing that already does this chart. Surprise.

[Josh Brown]

I Don't think that's consumers. I think that's producers pulling in inventory as quickly as they can to get ahead of the tariffs.

[Michael Batnick]

Stockpiling.

[Tom Lee]

Okay.

[Josh Brown]

Yeah, you're right.

[Tom Lee]

It says consumers and businesses rush to buy goods. You're right. Yeah, I'm sure.

[Josh Brown]

I think that's mostly business. Here's where it hits home. Like, just like a weird example, but this is from my actual life. We're redoing the outside of our home, and we're doing real cedar shingles. I live in a. I live in a world of aluminum siding, and I can't. I can't stand it anymore. So the product's coming from Canada. We priced it out. Our builder is like, this is the. This is, like, literally the best version of cedar shingles. This is where we're going to get it from. This is what it costs. Okay. I don't know if we ordered it or not. And I don't think my. My contractor is, like, watching the State of the Union or anything. So I actually don't know now what this project is going to cost. And this is to wrap around the entire house. Like, that's going to make a material difference. Had I really thought a lot about it, I might have called them up and said, place the order. So now I'm not saying I'm not gonna do it because I still have to go home and live with my wife at night. So we're still gonna go forward probably no matter what it costs, but I know there's gonna be a difference. I don't think there's a carve out for shingles. So, like, that's an example. But we're consumers. I think that spike that Michael just showed, I think that's people getting ahead of this, knowing they have to buy stuff and just buying it.

[Michael Batnick]

Yeah, that's. It's gonna be a ppi. Yeah, it's, you know, category.

[Josh Brown]

Okay. Do you think that of all the opportunities being created by this trade stuff, that the obvious. The obvious thing to do is to let everything sell off and then look for the companies that are probably going to be least impacted by tariffs over the next quarter, and maybe that's a trade idea, or has that been so picked over by AIs and portfolio managers that there's probably nothing there? What would you guess?

[Michael Batnick]

If someone's going defensive now, they have to be betting not just that it's two months of tariffs, but that this is a new regime.

[Josh Brown]

Okay.

[Michael Batnick]

Because. Exactly. You said it would have already been discounted because the bond market has Been picking this up and then the stock market is reacting, I think shockingly badly. But it already gave us the, you know, the ripple hints in February.

[Tom Lee]

So let me push back against that a little bit. The S and p is down 6.5% off its highs. The Nasdaq is down almost 10%.

[Josh Brown]

The Vix is 25.

[Tom Lee]

I mean this is like a sell off for ants.

[Michael Batnick]

Yeah. It's an orderly.

[Tom Lee]

Right. This feel, this feels pretty normal and pretty. I mean the average stock bespoke Twitter. The average stock is down 30%.

[Josh Brown]

So there are plenty what from all time high.

[Tom Lee]

Yeah. So there's plenty of stocks that are getting absolutely mauled. I know the S and P doesn't tell the entire story, but I don't know, it feels like a little bit early to be like, that's it, we're done, we're good.

[Michael Batnick]

Yeah. Although if you know the chart you showed about imports, it kind of highlights that we've already front loaded the tariff war because it's China, Mexico, Canada and then everybody else is like smaller fry.

[Josh Brown]

Right. Do you think that there's a universe where there's a one off deal with Mexico, then there's a one off deal with Canada, the China thing stays on and the market just kind of reacts to. All right, this is the new, this is, this is the way the, the year is going to go. Or you think that the tariffs are just like we're doing it now, then they all come off and we just stop this on mass. What do you like, what do you think is more likely?

[Michael Batnick]

I mean, I know China's tweet or comment today is what sort of made the futures weak in the morning.

[Josh Brown]

Yeah. Which was what? We're ready to go to war.

[Michael Batnick]

Yeah, we're going to dig in on this. But I think as you know, the problem is in China isn't in the same position as it was in 2018. So it's not as if they can fight a long economic battle here, especially because of all the things they're trying to accomplish in China itself. So I think, of course a lot of that is gamesmanship and the intention is if I was China, I would say that because I'd want the S and P to fall more. Because if the S and P falls enough, then the White House put comes back. So it's, I mean, the stock market is kind of caught in the crosshairs.

[Tom Lee]

I assume you don't see a bear market coming like a full fledged 20 percenter.

[Michael Batnick]

It's possible because it's been a couple Years. But, but this would have to be because there has to be a layered shock on top of this. For instance, if somehow the Fed decides that the economy's weakening but they choose to fight inflation and let a recession happen. So in other words, the idea is, well, we've been wanting a recession to kill inflation, let's just let it happen. Then of course we're gonna have a big drawdown. But that would really require a Fed that decided the employment mandate wasn't important because you know, a recession, we just like, once a recession starts, there's no such thing as like we can engineer a mild recession. I mean it's like you could have a severe recession because you just don't know.

[Josh Brown]

You did too much damage. And now things like it's, it starts to feed on itself. Yeah, we're doing what fiscal, we're doing fiscal austerity at the federal level. At the same time we're going to do this trade war. So maybe that fits into that category of the shock that you talked about.

[Tom Lee]

And if prices go up on top of all this and we've got stagflation, then yeah, sure, we'll have a 20% bear market for sure.

[Michael Batnick]

Yeah. So I mean you can see why people want to maybe start to be nervous and price it in, in 18.

[Josh Brown]

By the end of February the stock market was down I think 17%. And it happened really fast, just like this time. And people at that time were saying it's orderly. And they were right, it was, we bounced all the way back to the prior high but then we got stuck there. The tariff thing was like sort of cooling off. But then we had another problem, I think, I think we just kind of had this air pocket where corporate earnings weren't great, had a manufacturing recession for sure. And then by Christmas Eve we were in another 20% drawdown. And the thing that pulled us out of it was Powell's about face. I think he gave a speech on Christmas Eve and he said, just kidding about the nowhere new normal thing. And then in 1Q19 we were already cutting, we were already. So there was some, there was some of that going on. And so having like those two call it almost 20% corrections inside of one year, that's pretty rare. But we did, we lived through it.

[Michael Batnick]

Yeah. And that was a, a first term president that didn't have necessarily the administration he wanted to have with him because remember there was so much turmoil and it was a newly minted Fed chair. So today we have an experienced administration and a very experienced Fed So would the Fed even want to dabble with a bear market that could trigger recession? I'm going to just say even if there's partisan issues involved. Right. Because you've seen. I do think there's a partisan element to maybe some of the Fed talk. This would be a. It would really blemish the history of the Fed. It would blemish the legacy of the Fed.

[Josh Brown]

You mentioned Treasury Secretary Besant. Have you met him? Have you ever spoken with him?

[Michael Batnick]

No, I have not.

[Josh Brown]

Okay, what's your impression of the things he's saying about. He's saying we're more focused on bringing down the yield of the 10 year which like obviously the Fed, what the Fed does, they're trying to enact policy that will affect overnight rates, which you know, there's a limit to what that will do to intermediate term rates and long term rates. But it's like that's what the Fed does. Besant talking explicitly about lowering the 10 year. How does that strike you? We haven't really heard Janet Yellen didn't do that kind of thing or didn't talk about that kind of thing. How did that kind of talk strike you? What's your impression?

[Michael Batnick]

Well, I mean from a couple hats I can see where it makes sense. Like if I looked at it from the economy and what would heal the economy and someone said would higher stock prices heal it or would getting mortgage rates down matter more? And you know, you've talked about this like that's really important because that is gonna help housing cost of money it and it really benefits a big swath of consumers and we already know there's a lot of stress because of the high cost of installment debt, etc.

[Josh Brown]

Here's my stupid question. Hypothetically this works in the 10 year Treasury Falls, mortgage rates come down like meaningfully. Doesn't that just raise home prices or what am I missing? Like how does that really. What does that heal? So people are paying a higher price for their home.

[Tom Lee]

It'll lower their monthly payment, it'll make payments affordable again.

[Michael Batnick]

Yeah, it unlocks liquidity because I think.

[Josh Brown]

There is that part I agree with. Yeah, if people can move again, it's. I think it's good. But prices are not going to. Home prices are not going to.

[Tom Lee]

Prices won't fall.

[Josh Brown]

Right.

[Michael Batnick]

Yeah. I mean price. Home prices are doing weird things anyways. Like the Northeast, they're still going up but like there's a huge surplus in Florida. So the real discovered price is much lower because no one's transacting. I mean In a way, home prices could fall because you, you'd actually start to see real trades happen. And so maybe home prices, there'd still.

[Tom Lee]

Be so much more demand than supply, even if supply gets unlocked. Chart, Ken. Matt made a chart that I could just. I smelled it was a timely special and of course all credit to you, this is a timely special. It's the VIX one month contract above the four month, which in recent memory has marked a bottom. Daniel, this is chart 6B, please. Too early to say. What do we think?

[Josh Brown]

Wait, wait, can you explain, explain this.

[Tom Lee]

Tom, why don't you narrate this?

[Michael Batnick]

Yes. So it's going to take a minute OR 2. The Vix.

[Josh Brown]

We got time. Yeah, we got time.

[Michael Batnick]

Most of us think of the VIX as a spot index. Like oh, this is, it's measuring the expected volatility over the next 90 days. So that's what the spot VIX is. But it's actually a financial product and people trade VIX contracts, but Nobody trades spot Vix. They trade the one month fix. Two months, nine months. I think there's even 24 month Vix. The normal Vix futures curve is upward sloping, which they call either contango or backwardation. Yeah. And I always get the terms mixed up. It's like starboard and port. I'll get it wrong. So it's upward sloping because there's time value like oh, future VIX should be higher because you got time value money when the VIX does the opposite. So the one month contract is higher than the four month, meaning a 20.

[Josh Brown]

Vix four months from now. But it's 25 Vix today.

[Michael Batnick]

Yeah.

[Tom Lee]

Or that's intuitive.

[Michael Batnick]

30.

[Josh Brown]

That's backward Asian.

[Michael Batnick]

Yeah. So that inversion is what the bottom histogram chart shows. So when it's like pointing up, that means the one month is higher than the four.

[Josh Brown]

What does that mean to you though? How do you interpret that? That's a short term bottom.

[Michael Batnick]

Well, tradable. Yeah. So. So what the markets have now priced in is that the volatility has an expiration date.

[Josh Brown]

Oh, okay, got it.

[Michael Batnick]

Right. Because now you know it's going to.

[Josh Brown]

Be through to the worst. You can see past the worst of the near term volatility.

[Michael Batnick]

Yeah.

[Josh Brown]

And that could be a signal that it's time to buy stocks.

[Michael Batnick]

Yeah. So if you have a timeframe beyond that contract then you're like, oh well, volatility's gonna be lower in four months. And we all know if volume's down, value at risk goes up. So four months from now Volatility's down.

[Josh Brown]

Okay, so this chart goes back to January of 23 and correctly points out these were inflection point moments where the market got too negative and this VIX contract flipped itself to where all the volatility was supposed to be short term, and then the longer term volatility was cooling off.

[Michael Batnick]

Yeah.

[Josh Brown]

And those were great moments to buy stocks.

[Michael Batnick]

Yeah.

[Josh Brown]

What is this telling you today?

[Michael Batnick]

I think that this is like we're sequencing a picture that panic is approaching.

[Josh Brown]

Okay.

[Michael Batnick]

But the panic is, of course, that the spot VIX needs to now spike to a level because people are seeking instant protection. Right. So 30, 40 Vicks. That hasn't happened yet. But if that's happened and this has already happened, then it's already like you have the hair trigger pull.

[Tom Lee]

So for your clients, and I'm sure the answer is, it depends, would you. Would you be likely to advise them to seek opportunities on the way down or to sort of wait for a clear definable hammer sort of bottom.

[Michael Batnick]

Well, if. If someone was really good tactically timing, then nobody wants to buy on the way down. But I've never been able to say on this precise date you'll have enough liquidity to buy at the low. Cause what usually happens is the low's established, the market's rallying, but it's already retraced 50% of the decline.

[Josh Brown]

You don't know it's the low until a week later.

[Tom Lee]

The longer it goes, the lower it goes without them pulling the trigger, the more likely they're gonna not pull the trigger. Cause if we go lower, it gets scarier.

[Michael Batnick]

Yeah. It gets to become a buyer strike.

[Josh Brown]

Right, Exactly. I might sound naive. I think a 35 Vix over tariffs, I think you just close your eyes and buy the index. Is that naive to think that that's just gonna work so easily?

[Michael Batnick]

Yeah, I agree. Because I think we do have to be mindful. There are three puts out there. There's the Fed put.

[Josh Brown]

Okay.

[Michael Batnick]

And the Fed doesn't want a 35 Vix. The White House put. The 35 Vix also risks financial instability and things going haywire.

[Josh Brown]

35 Vix would normally be accompanied by, like, spreads blowing out in the bond market. We're not seeing that yet.

[Michael Batnick]

Yeah. And there could be somebody, some, like, financial bodies floating up, you know, I mean, like, kill somebody.

[Tom Lee]

What's the third put?

[Josh Brown]

White House put.

[Michael Batnick]

Sovereign wealth put.

[Josh Brown]

Oh, sovereign wealth put. Tell us about that.

[Michael Batnick]

Because we already saw progress. They. They named. They. They named a Morgan Stanley banker to be the head of the Sovereign wealth rhymes. Yes.

[Josh Brown]

You know that guy?

[Michael Batnick]

I do not know him. Okay, but let's say it's a $7 trillion sovereign wealth fund.

[Josh Brown]

This is an American sovereign wealth fund. Where does the $7 trillion come from?

[Michael Batnick]

I think that that's a floated around.

[Josh Brown]

Number, but it's like. What is it? It's Fort Knox. Just here. You trade this. I'm trying to understand, like where the money for that comes from.

[Michael Batnick]

Oh, well, I think it would probably be the issuance of a debt security. So it's a funded.

[Josh Brown]

So more debt.

[Michael Batnick]

Yes.

[Josh Brown]

Okay.

[Tom Lee]

Oh, my God.

[Josh Brown]

It sounds somewhat abnormal to be running 7% deficit and then build a sovereign wealth fund that's also funded by Martin, who's managing it. Yeah, his name is Grimes. Michael David. I don't know.

[Tom Lee]

Yeah, Quentin.

[Josh Brown]

Quentin Grimes.

[Michael Batnick]

But remember, there could be. Remember the treasury during GFC had the TALF and all these like multipliers.

[Josh Brown]

Yeah. Those were basically sovereign wealth.

[Michael Batnick]

Yeah. So what if it's seven half trillion plus private is another, you know, BlackRock's another 30 trillion of it. Then this is like you can buy the entire stock market.

[Josh Brown]

What are they doing with it?

[Tom Lee]

Buying our bags, duh.

[Josh Brown]

They're buying stocks. Is that the purpose? Or are they investing in startups or.

[Michael Batnick]

I mean, Panama Canal, you know, they buy green Panama Canal.

[Josh Brown]

Oh, all right. So.

[Michael Batnick]

Right. You mean like you could. You could buy.

[Josh Brown]

All right, let me just understand this.

[Michael Batnick]

You buy a large chunk of the world.

[Josh Brown]

The number that's floating around is $7 trillion. There is a banker from Morgan Stanley who has a $7 trillion bank account, effectively where he uses that and buys the Panama Canal.

[Michael Batnick]

Well. To advance American interests.

[Josh Brown]

It sounds bullish. All right, got it. I guess.

[Michael Batnick]

I mean, you could take Nvidia in house, right?

[Tom Lee]

Absolutely. Let's do it. Take it private. For sure.

[Josh Brown]

But just thinking out loud, like Saudi Arabia, Qatar, these places need sovereign. Malaysia. They need sovereign wealth funds.

[Michael Batnick]

Yeah.

[Tom Lee]

They're gushing cash because.

[Josh Brown]

Right. It's a one industry country. And they want to develop real estate and they want to build their own middle classes and they want to make investments that diversify the economy so that they don't all have Dutch disease. They don't like this resource curse. Okay, makes perfect sense.

[Michael Batnick]

They'll all be really big LPs in the American sovereign wealth fund.

[Josh Brown]

So they'll get to invest in our sovereign wealth fund. Okay.

[Michael Batnick]

A sidecar. Sidepot. I'm kind of theorizing, but, you know.

[Josh Brown]

I mean, something tells me there's going to be a Trump Hotel and Casino in Every country in the world is going to be the net result of this. All right, so that's a put. The White House put you said is not really a thing or at least not yet. But it will be.

[Michael Batnick]

Yeah, I think it will. Because if the economy slips into a recession, you can't have doge tariffs and fiscal austerity.

[Tom Lee]

Okay so right now.

[Michael Batnick]

So it unwinds literally everything we are.

[Tom Lee]

This is the sixth day in a row. This from Dietrich. It's the sixth day in a row on Thursday that the market is going to be up or down 1%. Sixth day in a row. It hasn't happened since November 2020. And you're starting to see some signs of early panic. Chart. Next chart please. Daniel. This is from JP Morgan via Jessica Menton. In the first hour of trading. Now this was on mar. This was yesterday. In the first hour of trading the so called retail investors yanked $1.2 billion out of the US equity market. The largest pullback during that time period since JP Morgan's data began a decade ago. That's meaningful. So in other words he yesterday at the open people said get me the out. They dump stocks. Additionally, this is from Ned Davis. They're trading their daily trading sentiment composite is down to 20 which I don't know what's in here exactly but that's extreme pessimism. So it's this weird sort of dynamic where we're not that off the highs but the news is so newsy and noisy that people are freaked out.

[Josh Brown]

Can I add one more thing to that? Um, we just hit. I don't think it's an, I don't know if it's an all time record but we just hit a fairly high level of people tapping their 401ks early. And that seems like it's of a piece with people yanking money out of the equity market so that one more time we, we hit a level. I think MEB shared this. I'm not sure exactly what the number represents but it's an extreme in people tapping their 401k.

[Tom Lee]

That's not good.

[Josh Brown]

Either borrowing against it or outright making early withdrawals.

[Tom Lee]

That's not good.

[Josh Brown]

I'll, I'll, I'll look, I'll look into.

[Tom Lee]

More economic than stock market but we also had the put call ratio spike yesterday.

[Michael Batnick]

Yeah.

[Tom Lee]

So we're, there's fear. I don't know if it's a bottom fear but trade.

[Michael Batnick]

But it's. And I'm sure the depth of market like this market is super thin. It now if someone sells you're going to just see comets falling out of the sky like on.

[Josh Brown]

But do you think that sentiment shift and the stuff that Michael just showed you with, like, outflows, do you think that that stuff is at all connected with not just tariffs, but, like, people working for the federal government? People work at companies that are contractors for the federal government. So not just public sector employees, but private sector employees whose company's fortunes are tied to how much money the federal government spends. Because we talk to people in D.C. area, there's, like, legitimate concern in not just in D.C. but like, anywhere that people do business with the government that that revenue is not going to show up. So, like, do you think that a component of this is not just about tariffs, but it's about people actually worrying about their survival?

[Michael Batnick]

Yeah. Like, there's a real soft patch coming.

[Josh Brown]

Well, because 70,000 buyouts of federal employees. And talk about laying off. They're going to lay off 7,000 people from the Social Security Administration. They're laying off IRS agents. That's nationwide. That's not just in D.C. so I think there's some component of people pulling money out because literally they don't know if they're gonna have to live off of it.

[Michael Batnick]

And that's why I like real estate listings where there is a lot of federal employment, whether it's Arizona or Arlington, Virginia.

[Josh Brown]

So that's not tariffs. That's this fiscal austerity. That's a whole other thing.

[Tom Lee]

Consumer spending got crushed on savings. Not skyrocketed, but savings was up big time. So people are bracing for impact.

[Michael Batnick]

Yes. Now, that's a. I might actually say if the federal government is reducing its spending and it does create this collateral damage, that's actually good for the economy, because we know that that has crowded out private sector spending. Right. The government crowds out the private sector. So that's actually a positive that this is being redistributed in that way. The spending.

[Josh Brown]

Yeah. But it's ugly in the short term.

[Michael Batnick]

Yeah. Because it creates distortions.

[Josh Brown]

Well, arguably you're gonna see one in the next employment report or the one after that.

[Michael Batnick]

Yeah.

[Josh Brown]

Cause it's thousands of people. Like, it's not a small one.

[Michael Batnick]

Yeah. Jobless claims in Washington, D.C. have quite quadrupled.

[Josh Brown]

Yeah. Okay, so there's a component to this that's beyond just tariffs. It's uncertainty about employment.

[Michael Batnick]

Yes.

[Josh Brown]

And that's what's creeping in. And that's. That could feed on itself.

[Michael Batnick]

And by the way, that's why there's. It's hard to say how could this be inflationary? Because if people say wages create the second wave of inflation, but we have.

[Josh Brown]

A softer job, I don't think it's inflationary at all. And I disagree. It might be. There might be some commodities where there's a dislocation and it's short term inflationary, but I don't think government austerity is inflationary. Yeah, I just, I don't see it that way.

[Michael Batnick]

That's right. Okay. And yeah, I don't know if you guys track truflation, which I kind of found is actually pretty decent.

[Josh Brown]

Okay.

[Michael Batnick]

That's now at 1.4% year over year.

[Josh Brown]

That's what they think is the current rate of inflation.

[Michael Batnick]

Yeah. Using like 2 million consumer items. And then they map it to the BLS category.

[Josh Brown]

One more thing on economic data then, since you brought that up, one of the charts that went around this week, including me spreading it, but like a lot of people were sharing that GDP now chart and I know there's some funkiness about the turnover from January to February with some of the data. Let's not take this as an actual forecast, but that's a pretty extreme drop. We went from a 2.8% GDP now reading from the Atlanta Fed to negative 4.

[Michael Batnick]

Yeah.

[Josh Brown]

Outside of the pandemic, can you recall a drop off that magnitude? Even if there are all these nuanced reasons for why it's data related and not, or it's a quirk of how they collect the data, it still seems extreme.

[Michael Batnick]

Yeah, it's big. I mean, it does paint a picture that economic momentum has slowed or the.

[Josh Brown]

Brakes have slammed on it. Looks like to me that's right.

[Michael Batnick]

At a time when we know even businesses are saying that they've gotten cautious because they don't know what to do with tariffs. So that's why if you look at the markets, they're pricing in a growth slowdown from tariffs, not inflation. And so the Fed, I think the White House wants the Fed to kind of get off neutral and I think it's increasing looking like the Fed is behind actually.

[Josh Brown]

So if they really want the 10 year treasury to fall, the yields keep going because that yield is not pricing in inflation anymore. Now it's pricing in recession or starting to.

[Michael Batnick]

That's right. And the only difference is nobody wants to even get within 10 yards a touchdown of stall speed because it's just too easy to slip into a recession.

[Josh Brown]

Okay, can we do this one MAG seven or what do you have queued up?

[Tom Lee]

Tom, what are your thoughts on the Mag 7? They're getting some are getting hit harder than others. But I mean, Tesla's getting destroyed.

[Josh Brown]

So this is for the people listening. Mag7 performance year to date. The only green one is Meta, up 8%. It was up a lot more. Microsoft negative 6. Apple negative 6. Alphabet negative 8. Amazon negative 8. Nvidia negative 17. I think it's more now.

[Tom Lee]

Well, if you anchor them to their highs, it's obviously, you know, significantly worse than this.

[Josh Brown]

Tesla negative 35, which is a really big deal. What's your take on some of the damage here in these companies? None of which are manufacturing autos other than Tesla.

[Michael Batnick]

Yeah. I mean, if anyone had owned these before 2024, then they're still sitting at huge gains.

[Josh Brown]

Okay.

[Michael Batnick]

So, you know, it's really. Any new buyers of these are down. But that's really, you know, that'd be like shame on you because you bought it, you bought the highs. Yeah, but I mean, like, I look at this and I'd say, you know what? I think Tesla and Nvidia, they've been hit the hardest. Do I think that their future trajectory is worse? I actually think that they still look like great companies. And it's not like in Tesla's case, it's not like their competitive position has worsened.

[Josh Brown]

It's probably strengthening Tesla's competitive position relative to other EV companies.

[Michael Batnick]

Yeah. And their leadership in. Let's say that there's like, if you ask a technologist, what's the next big thing, it's gonna say robots. Tesla's country mile ahead of a lot of people on robots. So it's not like being down 35% has changed your competitive position.

[Josh Brown]

If you had to make a guess, if an announcement came out tonight, Elon stepping away from the government, like, I've done everything that I set out to do. I'm gonna leave my team in place. I'm going to go back to focusing on Tesla. Does Tesla stock go up or down on that news? Well, here's my. Wait, let me ask. Let me tell you why I'm asking you the question. The stock had a massive rally when Trump won the election and Elon was at the inauguration. And it was. There was just this assumption that, like him having that proximity to the White House was going to be amazing for Tesla. That narrative shifted in the last 10 days to Elon is either distracted or destroying the standing of Tesla in the eyes of half the country and most of the world. So I'm curious what you think. And I'm not saying I predict that's going to happen, but if that Happens. He says, I'm all set, we did everything and I'm good, I'm coming back. Tesla does the stock rally because he's not distracted anymore, or does it sell off because he's not in Trump's good graces? What do you think would be the reaction?

[Michael Batnick]

I'm gonna just imagine why this is happening. Okay, so let's say he steps aside cuz Doge found the two trillion or a trillion. So he's like, we did it. Yeah. We unleashed the algorithm. And so he's going back to Tesla.

[Josh Brown]

Right. I could picture this, by the way.

[Michael Batnick]

Now he can profit from his time in the government. He couldn't profit while he was here to help Tesla. Now he goes back to Tesla. Tesla becomes like the official vehicle for like everything the government does. Tesla probably goes 20%. Yeah.

[Josh Brown]

I mean, it's down, it's in a huge drawdown. So it wouldn't be that much of a surprise if it did that.

[Michael Batnick]

Yeah.

[Josh Brown]

What do you think?

[Tom Lee]

Yeah, I agree. I think it would rally pretty hard. Hey, we should have started the show with this. But is the bull market over?

[Michael Batnick]

Yeah.

[Josh Brown]

By the way.

[Michael Batnick]

Yeah.

[Josh Brown]

Is the bull market over?

[Michael Batnick]

No.

[Josh Brown]

You don't think so?

[Michael Batnick]

You know the bull market, I would be surprised if it's over. So I shouldn't say no. Like I know because I don't know. I'm sorry. But I'd say the probabilities are very remote. Because if you look at all bull market top major tops before a 40% drawdown since 1900, all of them could have been predicted with a 40 year lead time based on births and immigration deaths.

[Josh Brown]

That demography thing is still enforced no matter what they do to try to mess it up.

[Michael Batnick]

Yeah, that's right. Because if you cut the population by just 20 year intervals and you mark the peak of each cohort, it marked the 1929 top, the 74 top, the 99 top, 2018 top, and the next major top shouldn't be till 2030.

[Josh Brown]

So you're not talking about.

[Tom Lee]

What was the year?

[Michael Batnick]

2038.

[Tom Lee]

All right, I feel better now.

[Josh Brown]

But you're not talking about the cyclical bull market then. You're talking about like the 09 run up until now.

[Michael Batnick]

Yeah. So a major. A major like a. The kind that could unwind the entire bull market.

[Tom Lee]

Okay, so we have more than a decade. I feel better now.

[Josh Brown]

So we're okay.

[Tom Lee]

There's also some seasonal stuff going on that I think you'll find interesting. Tom, this is from All Star charts. I think this is Grant's Work. Year one of a bull market, obviously up and to the right. Year two of a bull market by definition up and to the right. Year three tends to be pretty disgusting.

[Josh Brown]

Which is where we are now.

[Michael Batnick]

Yeah, yeah. I've seen this chart and I'd say I don't necessarily have problems with how this is constructed.

[Tom Lee]

That being said. No, I thought you were about to filet.

[Michael Batnick]

Oh yeah.

[Josh Brown]

But I can say amalgam of many bull markets.

[Michael Batnick]

But the one thing I'd say is that there's wide distributions in year three. So there's actually plenty of 20% years.

[Josh Brown]

Okay.

[Michael Batnick]

So it's not like. Because this chart makes it look like you're only going to be 5% and you hover, it doesn't show all of the distributions. Yeah. So this is because as wide the distributions are, year three also reflects bull markets ending and you have a huge decline.

[Tom Lee]

True.

[Josh Brown]

Very unscientific. Year one we had an underwhelming start to the bull market and some would argue it was only seven stocks going up. And some of that's partly true. Year two, we far. That's last year far outperformed what the average bull market. And then this year and again. I understand, but still like we're kind of really perfectly tracking what the history.

[Tom Lee]

Has been being chopped to shit.

[Michael Batnick]

Yeah, he must be doing like non calendar because like 35%. He has 35% a year too.

[Tom Lee]

They're not calendar people. Hey, you have a chart that, that shows. So this is now year three as we're talking about year three of a bull market. We had 20% two years ago. We had 20% last year. And you have a chart much better than this all star charts chart. You have a chart showing that the second half after a back to back 20% year tends to be pretty lousy.

[Michael Batnick]

Yes.

[Tom Lee]

What are we looking at here?

[Michael Batnick]

This is all years that had two consecutive 20% years preceding it. That's like that first vertical line says year zero. And then we're just saying what does that 12 months later look like? And as you can see, you might be okay in the first half, but the second half's usually tougher.

[Josh Brown]

Sorry, is that 1880?

[Tom Lee]

I saw that too.

[Michael Batnick]

Yeah.

[Josh Brown]

Is that like Yellowstone?

[Tom Lee]

Tom was digging deep.

[Josh Brown]

Okay, so. So this is not.

[Michael Batnick]

We were like still shooting pistols.

[Tom Lee]

Yeah, we're not following that. We're not tracking.

[Josh Brown]

So this is not wildly out of character for what typically happens after you've had a big run in stocks.

[Michael Batnick]

Yes.

[Josh Brown]

The reason why I believe in this stuff is because it's just Human behavior, like the variables in all these years are different. Tax rates are different, inflation regimes are different. Republican president, Democrat president, like all that stuff is interchangeable. But the, the mood, the component of this, that's not, is how people trade.

[Michael Batnick]

Yeah. Because it's eventually it's fear and greed. We know good news gets priced in and it's hard to determine but then you know, after a certain amount of time people might get complacent or whatever you'd call it.

[Josh Brown]

Okay, what's, what's this one? Are we doing this?

[Tom Lee]

Yeah, we could skip that one. Tom, you were, you were bullish earlier. I don't know if you still are about small caps. And I think one of the reasons why we have your chart is that the S and P is driven by, largely by tech stocks, but the Russell 2000 has much more exposure to rate sensitive industries. So is the thinking that if we, if the economy weakens and rates go down that the Russell would maybe go down less than the market or do you think that it would outperform in a bull market? What, what's your thinking here?

[Michael Batnick]

I don't think if there's a recession, small caps outperform. So like on that downside, I don't think it's protected. But if we look at the composition here, I actually am surprised it's done so poorly because for instance, healthcare's the, you know, the best performing sector year to date. And you can see healthcare is a bigger weight in small caps. Financials have done well year to date. It's a bigger weight in small caps. Industrials have outperformed year to date and it's a bigger weight. You have less exposure to tech.

[Josh Brown]

So what's weighing the small caps down this year?

[Michael Batnick]

I think it's the push button because.

[Josh Brown]

Just people saying sell small caps, it's higher.

[Michael Batnick]

Yeah. So they're derating, they got cheaper.

[Josh Brown]

Okay.

[Tom Lee]

Small caps are down 15% in a 50% drawdown. I didn't realize that.

[Michael Batnick]

Yeah. So that it's not like someone's doing relative value.

[Josh Brown]

They're selling the etf.

[Michael Batnick]

Yeah.

[Josh Brown]

Selling iwm.

[Michael Batnick]

Selling iwm.

[Josh Brown]

It's like the first thing people sell.

[Michael Batnick]

Yeah.

[Josh Brown]

It's like, oh, you worried about the economy? Get that shit out of here. We're not going to need that. We'll buy it back later.

[Michael Batnick]

Yeah. As you know what's working this year is like financials, industrials, healthcare, that's like a huge, that's already more than half of the Russell. So it should be a good index, but it's And I think the individual stocks have been. But as an index, it's been. Hasn't worked.

[Josh Brown]

All right. One fly in the ointment on the inflation side is if the Fed thinks they have to about face this. Like, to me, if you ask me, what's the biggest risk that people aren't as worried about now as maybe they should be? It's if the Fed says they're not tight enough. And the only thing in my mind that could drive that is not commodity prices from tariffs. I think it's like the labor shortage and the immigration story feeding into that. So I want to ask you, do you think this is inflationary? This is CBS News. This week, the number of migrants crossing the U.S. southern border illegally in Trump's first full month in office plunged to a level not seen in at least 25 years. CBS News. Look at this. Border Patrol recorded 8,450 apprehensions of migrants who crossed into the country unlawfully on some days during a record spike in illegal crossings under Biden, they had 8,000 apprehensions in a single day. So what was happening in one day under Biden is a full month under Trump. And of course, this is by design. This is what he promised the voters. This is what voters want. And he's actually carrying this out. But the point is, as we all know, some of the best areas in the economy in terms of their contribution to growth have been helped by migration. Illegal and legal, leisure and hospitality, everything that feeds through to travel. The airlines, business, hotels, business. Like unfortunately or unfortunately, migration is like what feeds that beast. And if we don't go into a recession, I could see a scenario where we start worrying about hoarding of employees again and people just not being able to get enough workers. And that was part of the inflationary spiral of the 2020-2023 era.

[Michael Batnick]

Yeah.

[Josh Brown]

Do you worry about that? Do you think that's inflationary?

[Michael Batnick]

I actually just have two counter perspectives.

[Josh Brown]

Okay.

[Michael Batnick]

So first, I think it's definitely positive evidence that properly integrated immigration works, because that's Texas, right?

[Josh Brown]

Yeah.

[Michael Batnick]

They welcome immigrants. But the difference is that I think a lot of the border crossings have not led to productive employment, because, as you know, the employment rate of the migrant. The crossings is actually really low.

[Josh Brown]

Yeah.

[Michael Batnick]

And so they're actually more of an institutional population. So the ratio, like, if you look at hospitals or prisons, you know, when someone's under care, it's one, like one job is created to take care of, like, 10 institutionalized people.

[Josh Brown]

Yeah.

[Michael Batnick]

So we've actually created wage inflation because the migrants oh, that's interesting because you have to house them, because you don't. You didn't construct facilities, you had to rent hotels and you had to hire workers to actually manage all these people.

[Josh Brown]

And then you have to hire workers to deal with migrants who are not coming into the country and getting jobs.

[Michael Batnick]

Yeah. And then you have to give them EBT cards. So it's actually all inflationary.

[Josh Brown]

Yeah.

[Michael Batnick]

Italy shut their. Or reduced their border crossings and it had the same profile of not highly employed crossings. And their economy's doing better.

[Josh Brown]

Okay.

[Michael Batnick]

And actually they haven't. It's not led to inflation, it's actually led to actually improved growth.

[Josh Brown]

Okay. So this is not something that we need to worry about. Stoking inflation, having less migration.

[Michael Batnick]

I don't know how it's going to be implemented, but if you're, If ISIS just is not. They can't boot 20 million people, but if they're targeting, you know, criminal gangs and stuff.

[Josh Brown]

Yeah.

[Michael Batnick]

I think it's actually going to be positive social fabric.

[Josh Brown]

Well, I do too. And this is what we, this is what the people voted for this time around. This is like a really big issue.

[Michael Batnick]

Yeah. And, you know, as. And for someone who thinks Trump doesn't like migrants or immigrants, you know, his. All of his properties employ many people on.

[Josh Brown]

Don't say that.

[Michael Batnick]

So I think he knows the mics are on.

[Josh Brown]

Yeah. All right. And he's a builder, so he's aware.

[Michael Batnick]

Yeah, very well aware.

[Josh Brown]

Okay. Poly market probability of a U.S. recession hits 38%. What do you do with this stuff? It was highly predictive of the US Presidential election. Do we throw it out when they try their hand at economics and not politics?

[Michael Batnick]

Can someone pull up the dollar amounts for contracts for that?

[Josh Brown]

It's like $18. No. I don't know. We know it's mostly overseas, the people who are doing these bets, but I don't, I don't know what the dollar amounts.

[Michael Batnick]

Because if it's not involving millions, someone is just making fun bets.

[Josh Brown]

Can you, can, can you find out, like, how much money is betting on recession?

[Michael Batnick]

Yes. On the website. It'll show you the total contract volume. What is this outstanding.

[Tom Lee]

I'm looking at.

[Michael Batnick]

Keep going.

[Tom Lee]

Keep me better.

[Josh Brown]

Okay.

[Tom Lee]

I'm not on this thing a lot.

[Josh Brown]

Okay.

[Michael Batnick]

That's why, like, you know, the elections, it was hundreds. Like there was actually a billion of open contracts.

[Josh Brown]

Big money.

[Michael Batnick]

So you knew it was real money.

[Josh Brown]

Okay, let's say this is a lot of money. What would your thoughts be about, like, the meaning in something like this?

[Michael Batnick]

See, let's say that gets to 50.

[Josh Brown]

Yeah.

[Michael Batnick]

The White House is playing with fire. And Fed's playing with fire.

[Josh Brown]

Okay, so you think people should be paying attention to this.

[Michael Batnick]

If this is liquid, the Fed better be watching this.

[Josh Brown]

All right, I'm going to tell you right now before Michael finds the number, and we may not find it. I'm going to tell you. I doubt it's anywhere near as much money as was betting on the election. I just don't think people randomly are like, let me place a bet on us recession. I do think everybody wanted to place a bet on the presidential election.

[Michael Batnick]

That's right.

[Josh Brown]

So let's assume this is not as liquid.

[Michael Batnick]

And this looks so choppy. It looks like one trade swings.

[Tom Lee]

These are, these are not large bets.

[Josh Brown]

They're not. Right?

[Tom Lee]

No.

[Josh Brown]

Yeah, I wouldn't, I wouldn't bet that.

[Tom Lee]

Almost all of them are under ten grand.

[Josh Brown]

What do you think about probability markets in general?

[Michael Batnick]

I, I think it's like, fascinated by them. It's an experiment and I think it's super useful.

[Josh Brown]

Okay. I agree. I'm not sure how, but I could see it becoming part of the toolkit of people that follow markets and the economy. Okay. We did the. We did the.

[Tom Lee]

Right. Let's talk about granny shots.

[Josh Brown]

Yeah. So you launched an etf. I told you not to do it. But I only told you not to do it because I'm so protective of you. What I said was, oh, shit, now he's gonna have a quote unquote public track record that people are gonna harass him about when the market goes down. But you didn't care. You're not afraid of what people think. And.

[Michael Batnick]

No.

[Josh Brown]

And you, you plowed through and the thing was received pretty well. People, dude. Almost.

[Tom Lee]

Almost a billion dollars in assets. And you kind of just launched it. That's incredible.

[Josh Brown]

It's amazing.

[Michael Batnick]

Thank you.

[Josh Brown]

All right, so let's, let's. For people that haven't heard your previous appearances here and are unaware of the concept here, these are stocks that you think are like layups, basically, and granny shot, like shooting a free throw underhanded like Rick Barry.

[Michael Batnick]

Yeah. And you want to own it. You don't. You're not trading them.

[Josh Brown]

Yeah.

[Michael Batnick]

So we, we're trying to find essentially what's equivalent of like, you know, like your, your idea of permanent stocks. But we do rotate it. But the reason we sort of have this idea is we have themes that like span multiple decades, you know, cybersecurity, millennials, AI Fed cycles.

[Josh Brown]

Okay, so your idea is that these are stocks that Are enduring. The story behind them is bigger than the stock itself.

[Michael Batnick]

Yeah, they're linked to generational ideas.

[Josh Brown]

Okay, I love that idea.

[Michael Batnick]

But we only add a stock that appears in more than one theme. So you want to say, like, hey, these are the stocks most linked to cybersecurity, but let's say that's 50 stocks. But then we want to say, is it linked to any of the other six themes? So it has to be appearing at least two themes, because then we figured there's two legs to support the stocks.

[Josh Brown]

So if one story goes away, there's still. It's on there for a reason.

[Michael Batnick]

It's anchored. Yeah.

[Josh Brown]

Okay.

[Tom Lee]

Does that mean that you wouldn't own a stock like CrowdStrike, which is like, purely in one theme?

[Michael Batnick]

Well, CrowdStrike is actually a granny shot.

[Josh Brown]

AI and cybersecurity.

[Michael Batnick]

Yes, that's right.

[Tom Lee]

You're good, Josh.

[Josh Brown]

All right, so I have a million questions. How many holdings?

[Michael Batnick]

There's 35 stocks.

[Josh Brown]

Is that static? It will always be 35.

[Michael Batnick]

It's not a predetermined number, but has always ended up averaging around 35.

[Josh Brown]

How close are you trying to get the initial position weighting to the other weightings? Are we trying to equal weight or not?

[Michael Batnick]

Yes, it's quarterly rebalance to equal weight.

[Josh Brown]

Okay.

[Michael Batnick]

And it would have done better, as you would know, if we never rebalance, because Nvidia has been part of the granny shots list since 2019.

[Josh Brown]

But that's what you're telling people. I'm rebalanced. In hindsight, would you have done a semiannual rather than a quarterly? Because you're gonna throttle the best stocks, but you're also gonna reduce volatility. So it's kind of a double edged sword by rebalancing that frequently. Yeah.

[Michael Batnick]

And it ends up being under 100% annual turnover.

[Josh Brown]

Okay.

[Michael Batnick]

So it's not like we're turning over the portfolio and the ETF has the tax efficiency because no one's having to sit through capital gains through the rebalances. So that's advantageous.

[Josh Brown]

Okay, so it's. All right, so it's 35 names right now. They're roughly equal weighted. And then during the course of the quarter, they're going to move around, of course.

[Michael Batnick]

Yeah.

[Josh Brown]

So like, for example, your. Your top 10 names. Progressive, Apple, Abbott, Garmin, S and P. Global bank of New York Mellon, Costco, Palo Alto, Microsoft, Netflix. So you have mag seven names in here, which makes sense. They probably addressed five themes.

[Michael Batnick]

Correct.

[Josh Brown]

How does Progressive Corporation become the largest current weighting in the index?

[Michael Batnick]

Part of that is just performance, since.

[Josh Brown]

The rebalance for performance insurance stocks are doing really well.

[Michael Batnick]

Yeah. And progressive is actually linked to a seasonal theme. So it is linked to the PMIs.

[Josh Brown]

The power of Christmas.

[Michael Batnick]

No, the PMI. So we look at like what is correlated to PMIs for this period. So that's like what we call a seasonal rotation.

[Josh Brown]

Okay.

[Michael Batnick]

But progressive is a millennial stock because when you look at who like millennials will account for 72% of all the growth in financial services spending.

[Josh Brown]

Wow.

[Michael Batnick]

So like. So companies that are innovative are going to do really well because millennials essentially buy their. It's like a growth industry within financial services.

[Josh Brown]

Okay, so progressive is of all the insurers, that's the one that best represents that theme.

[Michael Batnick]

Correct.

[Josh Brown]

How do you decide that is how much of this is quantitative versus like somebody like really looking qualitatively at these companies?

[Michael Batnick]

It's both. So we have a quantitative process. It's called dqm. So is actually. It's the quantitative.

[Josh Brown]

Yeah. Dairy Queen metrics. Sure.

[Michael Batnick]

Yeah. Of my. Of all the work I did at J.P. morgan, we built a single quantitative model. And so that is what runs to improve the quality breakdown. And then we do have a technical view from Mark.

[Josh Brown]

Okay.

[Michael Batnick]

And then we of course look at the company, make sure it actually fits the theme. So we do. It's a multi step process.

[Josh Brown]

Are there knockout factors? Like if one of these companies says, oh shit, we have to restate three quarter worth of earnings when you guys immediately get out of it. So that there's like this quality.

[Michael Batnick]

Yeah. So in theory, super micro.

[Josh Brown]

Yeah.

[Michael Batnick]

In the, in the research version of the granny shots, it used to exist in it and it was a very big performer. But then as soon as you know, there was auditing and compliance, it. It couldn't qualify.

[Josh Brown]

So you guys will get people out of those names immediately if there's some sort of, some sort of factor that is just like we can't be in this while that gets sorted out.

[Michael Batnick]

Now that's. There was a drawdown with Supermicro, but it already produced a lot of returns for the granny.

[Josh Brown]

Okay, what kind of feedback are you getting from the investors in the. There's probably a lot of people that don't buy your research, but they're fans of yours because of you appear and you make commentary. So now people feel like they can invest in some of your ideas.

[Michael Batnick]

Yeah.

[Josh Brown]

What kind of feedback do you get from those people?

[Michael Batnick]

It's been very good feedback.

[Josh Brown]

Wait till the bear market.

[Michael Batnick]

Yeah. Well, there is a lot of hand holding that's required as an etf. Yes. And so what we do.

[Josh Brown]

What do you do? Webinars.

[Michael Batnick]

I do a weekly video that is available to the public, but we have, I think, 35,000 people who sign up for the Granny Shots distribution list, which you can from the website grannyshots.com and we push out a weekly video so they know what's happening, the holdings.

[Josh Brown]

That's what you should use AI for. You should not be forced to do that. Weekly video is a lot.

[Michael Batnick]

It is, but we found people say it really helps them understand what's happening.

[Josh Brown]

With their money, so it helps them hold the fund. Yeah, that's a really critical thing.

[Michael Batnick]

Yeah. So we're not hiding that there might be some, you know, Palantir hit or Nvidia hit, but then in their minds, they know that, how to contextualize that. And it's not a mysterious.

[Josh Brown]

You know what else is useful about that? In the process of talking about the fund, over time, people could get a better and better sense of how you think about the holdings themselves and the way that you invest. Like, not just the companies specifically, but, like, what would make you sell it. What would make. Right. Or what make you keep a stock.

[Michael Batnick]

Yeah.

[Josh Brown]

So that takes time for people to really learn.

[Michael Batnick]

Yeah. Like, in the video we just release, we explained the whole idea of millennials and how much they're going to represent of, like, babies born in cars. And why, if you did a similar generational bet with the boomers, you vastly outperformed the market. So you want to find the stocks that are most tied to millennials right now?

[Josh Brown]

Is this the start of a product suite? Who'd you put this out there? Is this Title?

[Michael Batnick]

Yes, we worked with Title.

[Josh Brown]

Okay, so is Title calling you, like, every day? Hey, Tom, your next billion dollar idea, please. Like, we're. We're ready. What do you got?

[Michael Batnick]

Yeah.

[Josh Brown]

Okay.

[Michael Batnick]

And it's Title. And. And many other providers have contacted us with international Granny shots, I think international.

[Josh Brown]

Can I give you a great name for it? Abuelita. Right? Spanish Abuelita. You don't hate it.

[Tom Lee]

Small grannies.

[Josh Brown]

Small little grannies.

[Tom Lee]

Young grannies.

[Michael Batnick]

Tom Smid grannies.

[Josh Brown]

Granny Aristocrats.

[Michael Batnick]

Grandpa.

[Josh Brown]

Grandpa shots. Tom, we gotta go. Congratulations, dude.

[Tom Lee]

We can't let you out of here without talking about crypto. You've got a chart in your deck that shows bitcoin going to 5 million.

[Josh Brown]

Yeah. Say the craziest thing you can about crypto so we can clip this for TikTok.

[Tom Lee]

How are we getting to 5 million?

[Michael Batnick]

Now?

[Tom Lee]

That's that's slowly and then all at once.

[Josh Brown]

Yeah.

[Michael Batnick]

By the way, you can't. If you got to 5 million, because we have a tape, a grid to shot, it's that gold would be doubled in price.

[Tom Lee]

Daniel, previous chart.

[Michael Batnick]

Yeah. Gold would double in price.

[Josh Brown]

So this is if crypto reaches parity with gold in terms of market cap.

[Michael Batnick]

Yes.

[Josh Brown]

Okay. It's not there already?

[Michael Batnick]

No. It's only 10% of the value of gold.

[Josh Brown]

Wait, what? How much gold is there in the world?

[Michael Batnick]

There is $21 trillion of gold.

[Josh Brown]

How much crypto? Three.

[Michael Batnick]

Bitcoin's. Two.

[Josh Brown]

Bitcoin by itself is two.

[Michael Batnick]

Yeah.

[Josh Brown]

Okay, so if. If the amount of money millennials choose to put into digital gold rivals the current amount of gold, you know what the flaw in that logic is? If there's this huge predilection for bitcoin versus gold on the part of millennials, then the valuation of gold will shrink. So, like, you might get parody, but that's because the amount of money in gold goes down.

[Michael Batnick]

Yeah. You know, I thought about. And I got them numbers a little wrong. Let's say. Let's say gold has to go to, like, $7,000 an ounce. However, you know, I heard something interesting, and I didn't realize gold has outperformed the S&P six of the last seven years.

[Josh Brown]

Yeah. So quietly too.

[Michael Batnick]

Yeah. So gold isn't a bad asset class, but bitcoin. So I think even if it's not like millennials need to buy gold for gold to go up, you just need the boomers to hold it.

[Josh Brown]

You need central banks around the world to buy it and hold it. Which they are.

[Michael Batnick]

That's right.

[Josh Brown]

Okay. Do you get involved in any of these conversations about bitcoin reserve? Like, are you talking to people that are involved in this at all or not really?

[Michael Batnick]

Well, there is. I'm not going to the White House this week. I'm not invited. But we do have conversations with Congress people.

[Josh Brown]

Okay.

[Michael Batnick]

But, you know, they like.

[Josh Brown]

Tom. What do you think? If we do this, can you pump my coin?

[Tom Lee]

Is it a good idea? Why would we have a bitcoin strategic reserve?

[Michael Batnick]

I think it makes a lot of sense.

[Tom Lee]

Why?

[Josh Brown]

Well, we already have one. We've confiscated bitcoin.

[Tom Lee]

All right, but why do you think it makes sense?

[Josh Brown]

Why should we buy more?

[Michael Batnick]

If bitcoin becomes the backbone of a new financial system, which it really is, it's the king of the remittances. It is the immutable blockchain. And people have a lot of reasons that they trust it. In 14 years, no one's broken it and there's no replacement. Then if the US owns a million Bitcoin, they'll be the largest holder of bitcoin.

[Josh Brown]

But what are we doing with it? We're facilitating trade with it or we're just holding it. Well, if it's a strategic reserve with a petroleum. Strategic petroleum reserve, they use it when there's like an oil shortage or there is a problem or there's a dislocation, they will tap the reserve and then when prices calm down, they'll add it back. What do we, how does the to Michael's question, like how does a bitcoin strategic reserve function? Would there be a shortage of bitcoin? And we have toward that.

[Michael Batnick]

These are good questions, but keep this in mind. So oil's a strategic commodity.

[Josh Brown]

Clearly.

[Michael Batnick]

Okay. Now oil only has seven buyers really. It's the refiners. Oil like that's produced everywhere, it's really just bought by refiners who then turn.

[Josh Brown]

It into something easy. Yeah.

[Michael Batnick]

To distillates and gasoline. But there's really only seven buyers. And so if you look at oil, the oil market that's bought by for distillate and then say take the total trading volume of oil against that. What do you think the ratio is?

[Josh Brown]

I don't know. Tiny. Right?

[Michael Batnick]

400. For every dollar of oil that's bought, it's traded 400 times on speculation.

[Josh Brown]

Wow.

[Michael Batnick]

Okay, so you need a strategic petroleum reserve because there's so much price speculation around it that you could be whipsawed if you didn't control some way to manage prices.

[Josh Brown]

Okay, so Bitcoin is the same.

[Michael Batnick]

Yeah.

[Josh Brown]

So let's say bitcoin speculation around that.

[Michael Batnick]

Let'S say that it becomes 10% of people's net worth and banks start to use it to secure information. Remember the blockchain, you can just store one pixel of a 10 bit million page document, but the hash will detect if you changed one pixel. So that's why you're going to use the bitcoin to secure information. Right. Well that's really valuable. But then wouldn't the US want to be able to control this blockchain or exert some way to censor it somehow?

[Josh Brown]

Okay.

[Michael Batnick]

And once banks start trading Bitcoin, like Citadel, it will probably be the most profitable product for Goldman and JB because.

[Josh Brown]

Of how volatile it is. Bid ask spreads are wider.

[Michael Batnick]

Correct. And if oil's traded 400 times, Bitcoin might be a thousand times. It's going to be a hugely traded commodity.

[Josh Brown]

Okay. So this is a productive thing. Even though, to my earlier point, we have a budget deficit, we have tons of debt. This is a project that we should also undertake now because it might come in handy at some point in the future.

[Michael Batnick]

Yeah, well, the US owns 200,000 Bitcoin. As long as it's not. Those keys are safe.

[Josh Brown]

Okay.

[Michael Batnick]

And so they, let's say they buy 800,000 more through the exchange stability fund, you know, so another 80 billion.

[Josh Brown]

If they do that, I think the price goes to a million too. I just don't know that they're going to do that.

[Michael Batnick]

Yeah, but then if bitcoin gets to 36 million, there's no national debt.

[Josh Brown]

Okay. In that fantasy, who do you sell the bitcoin to to pay off the debt, though? I've heard that before.

[Tom Lee]

Michael Saylor. Hello.

[Josh Brown]

So Michael Saylor buys the bitcoin from us and we use the proceeds to extinguish our debt.

[Michael Batnick]

Well, it's not. You don't need to sell it because it's almost the same thing as, like, if Nvidia is 3 trillion. It's not like someone say, oh, well, you're going to liquidate all 3 trillion. So it's not worth 3 trillion as long as the value is stored at that level and you can still trade.

[Josh Brown]

Then we could say it's an asset that offsets the debt that we have. We don't have to use it to pay down the debt. We could just say we're backing that debt with this asset.

[Michael Batnick]

I'll guarantee you if, if bitcoin got to 36 million, okay, theoretically, the US cost of debt would go to zero.

[Josh Brown]

Okay.

[Michael Batnick]

They would have. No, because they have zero net debt.

[Tom Lee]

What's going to happen on Friday?

[Michael Batnick]

I think, okay, so the base case, I think it's a really bad jobs report. Maybe 50,000. I think the market panics. But Powell speaking at 12:30. And, and, and you're going to see the May odds 100%.

[Josh Brown]

Because Powell's gonna, Powell's gonna make it all better. Like, he's gonna, like, calm people down. Like, we're aware of the situation.

[Michael Batnick]

Well, because this is like now with Atlanta, you know, GDP now negative. And then jobs. This, this is not like the Fed can sit there hawkishly.

[Josh Brown]

It's sort of funny to have a day where there's a jobs report that disappoints. The market's been selling off all week. It gets even worse on Friday, and Powell has to compete for airtime with Michael Saylor because the White House is filled with crypto People. Yeah, it's kind of. It's going to be a wild day. Well, Tom, this is. This has been awesome. I have one more thing to share with people. You have made available access to Fundstrat Research for our listeners for a 30 day free trial. And we want to tell people where they can do that. Can I tell people?

[Michael Batnick]

Yes.

[Josh Brown]

Okay. All right. I'm supposed to read this. If you are an experienced self directed investor looking for trusted insights to grow your wealth, check out Tom Lee's Funstrat Research. When you sign up, you'll get access to his daily insights, market alerts, live webinars, AI doppelganger and stock lists exclusively for listeners of the Compound and Friends. Tom has provided a link for a 30 day free trial. Visit fundstrat.com Tom that's funstrad.com Tom. You can also find a link in the description below. That's very nice of you. It's very exciting.

[Michael Batnick]

Yeah. Well, we love the show, dude.

[Josh Brown]

Thank you so much for being here. We were so happy to be able to spend time with you. We always close out the show by asking people what they're most looking forward to. I think for Michael, it's the crypto summit in dc. What's. What are you looking forward to?

[Michael Batnick]

I'm looking forward to future proof citywide. It is going to be the highlight of my spring and summer. Summer.

[Josh Brown]

Okay. What day are you on stage? Do you know?

[Michael Batnick]

Monday.

[Josh Brown]

I should probably know that. Monday. Okay. Very cool.

[Tom Lee]

Good answer, Tom.

[Josh Brown]

I'm going to the Museum of American Finance's annual gala tonight. And do you know that organization? You familiar with them? Okay. They would love to. They would love to have you there. They're honoring Peter lynch tonight with like a lifetime achievement award. So I think I'm going to get to hear him speak.

[Michael Batnick]

I don't think that'd be amazing.

[Josh Brown]

Yeah. And that's like one of the goatiest goats who's ever goated.

[Michael Batnick]

Yeah.

[Josh Brown]

So I'm pretty pumped about that. You got something for us? Yeah.

[Tom Lee]

Did we talk about the show that we're going to see?

[Josh Brown]

Which one? Glengarry Glen Ross? Yeah. Very confident in my assertion. It's Ben. Yeah. You like plays, go to shows?

[Michael Batnick]

Yes. In fact, I think our firm is doing a field trip to watch that.

[Josh Brown]

You're gonna go?

[Michael Batnick]

Yeah. Cause it's like an iconic area.

[Tom Lee]

We're going. I don't. What's the date?

[Josh Brown]

We're going 20th maybe we're going on this. It's not a lot of dates, so.

[Michael Batnick]

We might be going on the same date. It's like the day before the ETF Awards Center. So I think it's like, April 22nd.

[Tom Lee]

Okay. We're going in March.

[Josh Brown]

Very cool. Yeah, we're going a little bit sooner than that, but I'm so excited for that.

[Tom Lee]

Bill Burr, Odin Kirk, Kieran Culkin.

[Josh Brown]

It's a crazy cast when you think about it.

[Michael Batnick]

Yeah.

[Josh Brown]

All right. Very cool. Hey, guys, thank you so much for listening. Our special thanks to Tom Lee and huge thanks to the team. We did so much stuff this week. Daniel Duncan, Rob Graham, Keith. Sean, Char Kidnapp. Who else? Nicole, we got everybody the list. The list keeps getting bigger. All right, shout out to the team. You guys outdid yourselves this week as always. And, hey, leave us a rating and review. We'll be back soon. I.